-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DDkmTqofcYU9B/CMjAk43ppB9NusytqXmzIzYI8xo/ivAzHcXbPuhTUpDF2xiOwi zxudCx0iRw1a5NAuAliX1Q== 0001193125-04-206382.txt : 20041202 0001193125-04-206382.hdr.sgml : 20041202 20041202124511 ACCESSION NUMBER: 0001193125-04-206382 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 20041202 DATE AS OF CHANGE: 20041202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDC NVEST FUNDS TRUST I CENTRAL INDEX KEY: 0000770540 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-98326 FILM NUMBER: 041179739 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8003997788 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST I DATE OF NAME CHANGE: 20000202 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST I DATE OF NAME CHANGE: 19940614 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDC NVEST FUNDS TRUST I CENTRAL INDEX KEY: 0000770540 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04323 FILM NUMBER: 041179740 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8003997788 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST I DATE OF NAME CHANGE: 20000202 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST I DATE OF NAME CHANGE: 19940614 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS DATE OF NAME CHANGE: 19920703 485APOS 1 d485apos.txt CDC NVEST FUNDS TRUST I Registration Nos. 2-98326 811-4323 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. [ ] ---- Post-Effective Amendment No. 58 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. 59 [X] (Check appropriate box or boxes.) CDC NVEST FUNDS TRUST I (Exact Name of Registrant as Specified in Charter) 399 Boylston Street Boston, Massachusetts 02116 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including Area Code (617) 449-2810 Coleen Downs Dinneen, Esq. IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 (Name and Address of Agent for Service) Copy to: John M. Loder, Esq. Ropes & Gray One International Place Boston, Massachusetts 02110 Approximate Date of Proposed Public Offering It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [X] on February 1, 2005 pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. CDC Nvest logo - -------------------------------------------------------------------------------- CDC Nvest Income Funds What's Inside Goals, Strategies & Risks...Page X Fund Fees & Expenses........Page X More About Risk.............Page X Management Team.............Page X Fund Services...............Page X Financial Performance.......Page X [Loomis, Sayles & Company, L.P. logo] Loomis Sayles Core Plus Bond Fund Loomis Sayles Government Securities Fund Loomis Sayles High Income Fund Loomis Sayles Investment Grade Bond Fund Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Strategic Income Fund Prospectus February 1, 2005 The Securities and Exchange Commission has not approved any Fund's shares or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime. For general information on the Funds or any of their services and for assistance in opening an account, contact your financial representative or call CDC Nvest Funds. CDC Nvest Funds P.O. Box 219579 Kansas City, MO 64121-9579 800-225-5478 www.cdcnvestfunds.com 1 Table of Contents - -------------------------------------------------------------------------------- GOALS, STRATEGIES & RISKS - -------------------------------------------------------------------------------- Loomis Sayles Core Plus Bond Fund Loomis Sayles Government Securities Fund Loomis Sayles High Income Fund Loomis Sayles Investment Grade Bond Fund Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Strategic Income Fund - -------------------------------------------------------------------------------- FUND FEES & EXPENSES - -------------------------------------------------------------------------------- Fund Fees & Expenses - -------------------------------------------------------------------------------- MORE ABOUT RISK - -------------------------------------------------------------------------------- More About Risk - -------------------------------------------------------------------------------- MANAGEMENT TEAM - -------------------------------------------------------------------------------- Meet the Funds' Investment Adviser Meet the Funds' Portfolio Managers - -------------------------------------------------------------------------------- FUND SERVICES - -------------------------------------------------------------------------------- Investing in the Funds How Sales Charges Are Calculated It's Easy to Open an Account Buying Shares Selling Shares Selling Shares in Writing Exchanging Shares Restrictions on Buying, Selling and Exchanging Shares How Fund Shares Are Priced Dividends and Distributions Tax Consequences Compensation to Securities Dealers Additional Investor Services - -------------------------------------------------------------------------------- FINANCIAL PERFORMANCE - -------------------------------------------------------------------------------- Financial Performance - -------------------------------------------------------------------------------- GLOSSARY OF TERMS - -------------------------------------------------------------------------------- Glossary of Terms If you have any questions about any of the terms used in this Prospectus, please refer to the "Glossary of Terms." To learn more about the possible risks of investing in the Funds, please refer to the section entitled "More About Risk." This section details the risks of practices in which the Funds may engage. Please read this section carefully before you invest. Fund shares are not bank deposits and are not guaranteed, endorsed or insured by the Federal Deposit Insurance Corporation or any other government agency, and are subject to investment risks, including possible loss of the principal invested. 2 Goals, Strategies & Risks Loomis Sayles Core Plus Bond Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Peter W. Palfrey and Richard G. Raczkowski Category: Corporate Income Ticker Symbol: Class A Class B Class C NEFRX NERBX NECRX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks a high level of current income consistent with what the Fund considers reasonable risk. It invests primarily in corporate and U.S. government bonds. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest primarily in U.S. corporate and U.S. government bonds. It will adjust to changes in the relative strengths of the U.S. corporate or U.S. government bond markets by shifting the relative balance between the two. The Fund will invest at least 80% of its net assets in bond investments. The term "bond investments" includes debt securities of any maturity. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. In addition, the Fund normally will invest at least 80% of its assets in investment-grade securities (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality as determined by Loomis Sayles), including cash and cash equivalent securities and will generally maintain an average effective maturity of ten years or less. The Fund may also invest up to 20% of its assets, at the time of purchase, in bonds (rated below BBB by S&P and below Baa by Moody's, also known as "junk bonds"), or if unrated, of comparable quality by Loomis Sayles. Loomis Sayles follows a total return oriented investment approach in selecting securities for the Fund. It takes into account economic and market conditions as well as issuer-specific data, such as: [X] fixed charge coverage [X] the relationship between cash flows and debt service obligations [X] the experience and perceived strength of management [X] price responsiveness of the security to interest rate changes [X] earnings prospects [X] debt as a percentage of assets [X] borrowing requirements, debt maturity schedules and liquidation value In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook for the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by U.S. and foreign governments as well as the Federal Reserve Bank. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the high quality bond market. This value analysis uses quantitative tools such as internal and external computer systems and software. 3 .. Loomis Sayles continuously monitors an issuer's creditworthiness to assess whether the obligation remains an appropriate investment for the Fund. It may relax its emphasis on quality with respect to a given security if it believes that the issuer's financial outlook is solid. This may create an opportunity for higher returns. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. Fund holdings are diversified across industry groups such as utilities or telecommunications, which tend to move independently of the ebbs and flows in economic growth. The Fund may also: .. Invest in Rule 144A securities. .. Invest in foreign securities, including those in emerging markets, and related currency hedging transactions. .. Invest in futures. .. Invest in mortgage-related securities, including mortgage dollar rolls. .. Invest substantially all of its assets in U.S. government securities for temporary defensive purposes in response to adverse market, economic or political conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly known as "junk bonds") may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities may be more illiquid than other fixed-income securities. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. Mortgage-related securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. For additional information see the section entitled "More About Risk." 4 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that it served as subadviser to the Fund, a function it assumed in June 2001. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for other classes of shares offered by this Prospectus differs from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - ---------------------------------------------------------------------- Total Return+ - ---------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ----- ---- ----- ---- ---- ---- ---- ---- 20.77% 4.61% 11.05% 8.01% -0.34% 7.39% 7.24% 2.84% 8.49% - ---------------------------------------------------------------------- /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Aggregate Bond Index, an unmanaged index of investment-grade bonds with one- to ten-year maturities issued by the U.S. government, its agencies and U.S. corporations. They are also compared to the Lehman U.S. Credit Index, an unmanaged index that includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, U.S. investment-grade corporate debt and foreign debentures that meet specified maturity, liquidity and quantity requirements. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Aggregate Bond Index and Lehman U.S. Credit Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- -------------------------------------------------------------------------------------- Average Annual Total Returns (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - -------------------------------------------------------------------------------------- Class A - Return Before Taxes - -------------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------------- Class B - Return Before Taxes - -------------------------------------------------------------------------------------- Class C - Return Before Taxes - -------------------------------------------------------------------------------------- Lehman Aggregate Bond Index** - -------------------------------------------------------------------------------------- Lehman U.S. Credit Index** - --------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of each Index do not reflect the effect of taxes. The returns of each Index are calculated from 12/31/95 for Class C shares. Class A commenced operations 11/7/73 and Class B commenced operations 9/13/93. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 5 Goals, Strategies & Risks Loomis Sayles Government Securities Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: John Hyll and Clifton V. Rowe Category: Government Income Ticker Symbol: Class A Class B NEFUX NEUBX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks a high level of current income consistent with safety of principal by investing in U.S. government securities. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- The Fund will, under normal market conditions, invest at least 80% of its net assets in investments issued or guaranteed by the U.S. government, its agencies or instrumentalities. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. The Fund will not invest more than 20% of its net assets (plus borrowings made for investment purposes) in securities that are not backed or guaranteed by the full faith and credit of the U.S. government. Prior to implementation of any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders. Loomis Sayles follows a total return oriented investment approach in selecting securities for the Fund. It seeks securities that give the Fund's portfolio the following characteristics, although these characteristics may change depending on market conditions: [X] average credit quality of "AAA" by Standard & Poor's Ratings Group or "Aaa" by Moody's Investors Service, Inc. [X] average maturity of 10 years or more In selecting investments for the Fund's portfolio, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook on the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by U.S. and foreign governments as well as the Federal Reserve Bank. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the U.S. government security marketplace. This value analysis uses quantitative tools such as internal and external computer systems and software. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. They will emphasize securities that tend to perform particularly well in response to interest rate changes, such as U.S. Treasury securities in a declining interest rate environment and mortgage-backed or U.S. government agency securities in a steady or rising interest rate environment. .. Loomis Sayles seeks to maximize the opportunity for high yields while taking into account the price volatility inherent in bonds with longer maturities. The Fund may also: 6 .. Invest in zero-coupon bonds. .. Invest in mortgage-related securities, including stripped securities and mortagage dollar rolls. .. Invest in futures. .. Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Agency Securities: Subject to security risk. Agencies of the U.S. government which are guaranteed as to the payment of principal and interest of the relevant entity but are not backed by the full faith and credit of the U.S. government. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government securities. Please see the Statement of Additional Information (the "SAI") for details. Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Mortgage-related securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. Stripped securities are more sensitive to changes in the prevailing interest rates and the rate of principal payments on the underlying assets than regular mortgage-related securities. For additional information see the section entitled "More About Risk." 7 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that it served as subadviser to the Fund, a function it assumed in June 2001. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for the other class of shares offered by this Prospectus differs from the Class A returns shown in the bar chart to the extent its expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - ------------------------------------------------------------------------ Total Return - ------------------------------------------------------------------------ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ----- ---- ----- ----- ---- ----- ---- ---- 20.03% 0.78% 10.32% 9.02% -6.42% 12.89% 4.93% 13.35% 1.48% - ------------------------------------------------------------------------ /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman U.S. Long Government Bond Index ("Lehman U.S. Long Gov't Bond Index"), an unmanaged index which is made up of the U.S. Treasury, government agencies and their obligations. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman U.S. Long Gov't Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- -------------------------------------------------------------------------------------- Average Annual Total Returns (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - -------------------------------------------------------------------------------------- Class A - Return Before Taxes - -------------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------------- Class B - Return Before Taxes - -------------------------------------------------------------------------------------- Lehman U.S. Long Gov't Bond Index** - --------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. Class A commenced operations 9/16/85 and Class B commenced operations 9/23/93. For past expenses of Classes A and B shares, see the section entitled "Fund Fees & Expenses." 8 Goals, Strategies & Risks Loomis Sayles High Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Matthew J. Eagan and Kathleen C. Gaffney Category: Corporate Income Ticker Symbol: Class A Class B Class C NEFHX NEHBX NEHCX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks high current income plus the opportunity for capital appreciation to produce a high total return. The Fund's investment goal may be changed without shareholder approval. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest at least 65% of its assets in lower-quality fixed-income securities, commonly known as "junk bonds." Junk bonds are generally rated below BBB by Standard & Poor's Ratings Group ("S&P") and below Baa by Moody's Investors Service, Inc. ("Moody's"). The Fund will normally invest at least 80% of its assets in U.S. corporate or U.S. dollar-denominated foreign fixed-income securities. The Fund may also invest up to 20% of its assets in foreign currency-denominated fixed-income securities, including those in emerging markets. Loomis Sayles performs its own extensive credit analyses to determine the creditworthiness and potential for capital appreciation of a security. The Fund's management minimizes both market timing and interest rate forecasting. Instead, it uses a strategy based on gaining a thorough understanding of industry and company dynamics as well as individual security characteristics such as the following: [X] issuer debt and debt maturity schedules [X] earnings prospects [X] responsiveness to changes in interest rates [X] experience and perceived strength of management [X] borrowing requirements and liquidation value [X] market price in relation to cash flow, interest and dividends In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Loomis Sayles utilizes the skills of its in-house team of more than 40 research analysts to cover a broad universe of industries, companies and markets. The Fund's portfolio managers take advantage of these extensive resources to identify securities that meet the Fund's investment criteria. .. Loomis Sayles employs a selection strategy that focuses on a value-driven, bottom-up approach to identify securities that provide an opportunity for both generous yields and capital appreciation. Loomis Sayles analyzes an individual company's potential for positive financial news to determine if it has growth potential. Examples of positive financial news include an upward turn in the business cycle, improvement in cash flows, rising profits or the awarding of new contracts. .. Loomis Sayles emphasizes in-depth credit analysis, appreciation potential and diversification in its bond selection. Each bond is evaluated to assess the ability of its issuer to pay interest and, ultimately, principal (which helps the 9 Fund generate an ongoing flow of income). Loomis Sayles also assesses a bond's relation to market conditions within its industry and favors bonds whose prices may benefit from positive business developments. .. Loomis Sayles seeks to diversify the Fund's holdings to reduce the inherent risk in lower-quality fixed-income securities. The Fund may also: .. Invest in zero-coupon, pay-in-kind and Rule 144A securities. .. Invest in derivative securities. .. Invest in futures. .. Purchase higher quality debt securities (such as U.S. government securities and obligations of U.S. banks with at least $2 billion of deposits) for temporary defensive purposes in response to adverse market, economic or political conditions, such as a rising trend in interest rates. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities may be more illiquid than other fixed-income securities. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. For additional information see the section entitled "More About Risk." 10 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that it served as subadviser to the Fund, a function it assumed on July 1, 1996. This chart and table reflect results achieved by the previous subadviser using different investment policies for periods prior to July 1, 1996. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years.+ The returns for other classes of shares offered by this Prospectus differs from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - ----------------------------------------------------------------------------- Total Return+ - ----------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ----- ----- ----- ---- ------ ------ ----- ----- ---- 11.78% 14.88% 15.37% -1.70% 4.00% -16.09% -10.65% -8.86% 27.91 - ----------------------------------------------------------------------------- /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ + The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest High Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman High Yield Composite Index, a market-weighted unmanaged index of fixed-rate, non-investment grade debt. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman High Yield Composite Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------------------------ Since Class C Average Annual Total Returns + Inception (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years (3/2/98) - ------------------------------------------------------------------------------------------------------ Class A - Return Before Taxes - ------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions* - ------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions & Sales of Fund Shares* - ------------------------------------------------------------------------------------------------------ Class B - Return Before Taxes - ------------------------------------------------------------------------------------------------------ Class C - Return Before Taxes - ------------------------------------------------------------------------------------------------------ Lehman High Yield Composite Index** - ------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. The returns for the Index are calculated from 3/31/98 for Class C shares. Class A commenced operations 2/22/84 and Class B commenced operations 9/20/93.+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest High Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 11 Goals, Strategies & Risks Loomis Sayles Investment Grade Bond Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Daniel J. Fuss and Steven Kaseta Category: Corporate Income Ticker Symbol: Class A Class B Class C LIGRX LGBBX LGBCX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks high total investment return through a combination of current income and capital appreciation. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest at least 80% of its assets in investment grade fixed income securities (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors Services Inc. ("Moody's") or, if unrated, of comparable quality as determined by Loomis Sayles). In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Although the Fund invests primarily in investment grade fixed income securities, it may invest up to 10% of its assets in lower rated fixed income securities ("junk bonds"). The Fund may invest in fixed income securities of any maturity. The Fund will not invest in equity securities of any kind or make any equity investment. In deciding which securities to buy and sell, the Fund will consider, among other things, the financial strength of the issuer, current interest rates, Loomis Sayles' expectations regarding future changes in interest rates, and comparisons of the level of risk associated with particular investments with Loomis Sayles' expectations concerning the potential return of those investments. Three themes typically drive the Fund's investment approach. First, Loomis Sayles generally seeks fixed-income securities of issuers whose credit profiles it believes are improving. Second, the Fund makes significant use of non-market related securities, which are securities that may not have a direct correlation with changes in interest rates. Loomis Sayles believes that the Fund may generate positive returns by having a portion of the Fund's assets invested in non-market related securities, rather than by relying primarily on changes in interest rates to produce returns for the Fund. Third, Loomis Sayles analyzes different sectors of the economy and differences in the yields ("spreads") of various fixed income securities in an effort to find securities that it believes may produce attractive returns for the Fund in comparison to their risk. Loomis Sayles generally prefers securities that are protected against calls (early redemption by the issuer). The Fund may also: . Invest any portion of its assets in securities of Canadian issuers and up to 20% of its assets in securities of other foreign issuers, including emerging markets securities. The Fund may invest without limit in obligations of supranational entities (e.g., the World Bank). . Invest in corporate securities, U.S. Government securities, and commercial paper. 12 . Invest in zero coupon securities, mortgage-backed securities, stripped mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, when-issued securities, and convertible securities. . Engage in foreign currency hedging transactions, repurchase agreements, swap transactions and securities lending. . Invest in Rule 144A securities. . For temporary defensive purposes, invest any portion of its assets in cash or in any securities Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment objective. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives (which include options, futures, swap contracts and other transactions) may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly known as "junk bonds") may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities may be more illiquid than other fixed-income securities. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. Foreign Shareholders: A significant majority of Class J shares are held by customers of a limited number of Japanese brokerage firms. Economic, regulatory, political or other developments affecting Japanese investors or brokerage firms, including decisions to invest in investment products other than the Fund, could result in a substantial number of redemptions within a relatively limited period of time. If such redemptions were to occur, the Fund would likely be required to dispose of securities that the Fund's adviser would otherwise prefer to hold, which would result in costs to the Fund and its shareholders such as increased brokerage commissions and other transaction costs, market impact costs and taxes on realized gains. In addition, the decreased size of the Fund would likely cause its total expense ratio to increase. Mortgage-related securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. For additional information see the section entitled "More About Risk." 13 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class A shares for each calendar year since its first full year of operations.+ The returns for other classes of shares offered by this Prospectus differs from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - --------------------------------------------------------- Total Return+ - --------------------------------------------------------- 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ---- ----- ---- ----- ----- ---- 14.29% 2.96% 3.65% 10.97% 5.65% 10.60% 19.33% - --------------------------------------------------------- /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ + The returns shown in the bar chart above reflect the results of Retail Class shares of the Fund, which were converted to Class A shares on September 12, 2003. The prior Retail Class performance has been restated to reflect expenses of Class A shares. For periods before the inception of Retail Class shares (December 31, 1996) and during the period from December 18, 2000 to January 31, 2002 (during which time Retail Class shares were not outstanding), performance shown for Class A shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the higher expenses paid by Class A shares. The restatement of the Fund's performance to reflect Class A expenses is based on the net expenses of the Classes after taking into effect the Fund's current expense cap arrangements. The table below shows how average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Government/Credit Index, an index that tracks the performance of a broad range of government and corporate fixed income securities. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and return after taxes on distributions and sales of Fund shares. The Lehman Government/Credit Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.+
- ----------------------------------------------------------------------------------- Since Fund Average Annual Total Returns+ Inception (for the periods ended December 31, 2004) Past 1 Year Past 5 Years (12/31/96) - ----------------------------------------------------------------------------------- Class A - Return Before Taxes - ----------------------------------------------------------------------------------- Return After Taxes on Distributions* - ----------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - ----------------------------------------------------------------------------------- Class B - Returns Before Taxes - ----------------------------------------------------------------------------------- Class C - Returns Before Taxes - ----------------------------------------------------------------------------------- Lehman Government/Credit Index** - -----------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The returns are shown for only one class of the Fund. After-tax returns for the other 14 classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. + The returns shown in the table above reflect the results of Retail Class shares of the Fund, which were converted to Class A shares on September 12, 2003. The prior Retail Class performance has been restated to reflect expenses and sales loads of Class A shares. For periods before the inception of Retail Class shares (December 31, 1996) and during the period from December 18, 2000 to January 31, 2002 (during which time Retail Class shares were not outstanding), performance shown for Class A shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the higher expenses and sales loads paid by Class A shares. Class B and Class C shares has been based on prior Institutional Class performance, restated to reflect the expenses and sales loads of the Fund's Class B and Class C shares, respectively. The restatement of the Fund's performance to reflect Classes A, B, and C expenses is based on the net expenses of these Classes after taking into effect the Fund's current expense cap arrangements. For information about the Fund's expenses, see the section entitled "Fund Fees & Expenses." 15 Goals, Strategies & Risks Loomis Sayles Limited Term Government and Agency Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: John Hyll and Clifton V. Rowe Category: Government Income Ticker Symbol: Class A Class B Class C NEFLX NELBX NECLX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks a high current return consistent with preservation of capital. The Fund's investment goal may be changed without shareholder approval. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- The Fund will, under normal market conditions, invest at least 80% of its net assets in investments issued or guaranteed by the U.S. government, its agencies or instrumentalities. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Loomis Sayles follows a total return oriented investment approach in selecting securities for the Fund. It seeks securities that give the Fund's portfolio the following characteristics, although not all securities selected will have these characteristics and Loomis Sayles may look for other characteristics if market conditions change: [X] average credit rating of "AAA" by Standard & Poor's Ratings Group ("S&P") or "Aaa" by Moody's Investors Service, Inc., ("Moody's") [X] effective duration range of two to four years In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook on the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by the U.S. and foreign governments as well as the Federal Reserve Bank. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the U.S. government security marketplace. This value analysis uses quantitative tools such as internal and external computer systems and software. .. Loomis Sayles continuously monitors an issuer's creditworthiness to assess whether the obligation remains an appropriate investment to the Fund. .. It seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. It emphasizes securities that tend to perform particularly well in response to interest rate changes, such as U.S. Treasury securities in a declining interest rate environment and mortgage-backed or U.S. government agency securities in a steady or rising interest rate environment. .. Loomis Sayles seeks to increase the opportunity for higher yields while maintaining the greater price stability that intermediate-term bonds have compared to bonds with longer maturities. 16 The Fund may also: .. Invest in investment-grade corporate notes and bonds (those rated BBB or higher by S&P and Baa or higher by Moody's). .. Invest in zero-coupon bonds. .. Invest in foreign bonds denominated in U.S. dollars. .. Invest in asset-backed securities (if rated AAA by S&P or Aaa by Moody's). .. Invest in mortgage-related securities, including mortgage dollar rolls. .. Invest in futures. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Agency Securities: Subject to security risk. Agencies of the U.S. government which are guaranteed as to the payment of principal and interest of the relevant entity but are not backed by the full faith and credit of the U.S. government. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government securities. Please see the Statement of Additional Information (the "SAI") for details. Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Foreign securities: Foreign bonds denominated in U.S. dollars may be more volatile than U.S. securities and carry political, economic and information risks that are associated with foreign securities. Mortgage-related and asset-backed securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. For additional information see the section entitled "More About Risk." 17 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that, it served as subadviser to the Fund, a role is assumed on June 2001. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years.+ The returns for other classes of shares offered by this Prospectus differs from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - --------------------------------------------------------------------- Total Return+ - --------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 13.02% 2.38% 7.27% 6.46% -0.67% 8.34% 6.86% 8.18% 1.50% - --------------------------------------------------------------------- /\ Highest Quarterly Return: Quarter up % ---------- ----, ------ \/ Lowest Quarterly Return: Quarter down % ------- ----, ------ + The returns shown for periods prior to September 15, 2003 reflect the results of the CDC Nvest Limited Term U.S. Government Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Intermediate Government Bond Index ("Lehman Int. Gov't Bond Index"), an unmanaged index of bonds issued by the U.S. Government and its agencies having maturities between one and ten years.+ They are also compared to those of the Lehman 1-5 year Government Bond Index ("Lehman 1-5 Gov't Bond Index"), a market-weighted index of binds issued by the U.S. government and its agencies with maturities between one and five years. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Int. Gov't Bond Index and Lehman 1-5 Gov't Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------ Average Annual Total Returns + (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - ------------------------------------------------------------------------------------ Class A - Return Before Taxes - ------------------------------------------------------------------------------------ Return After Taxes on Distributions* - ------------------------------------------------------------------------------------ Return After Taxes on Distributions & Sales of Fund Shares* - ------------------------------------------------------------------------------------ Class B - Return Before Taxes - ------------------------------------------------------------------------------------ Class C - Return Before Taxes - ------------------------------------------------------------------------------------ Lehman Int. Gov't Bond Index** - ------------------------------------------------------------------------------------ Lehman 1-5 Gov't Bond Index** - ------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or 18 individual retirement accounts. The returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 12/31/95 for Class C shares. Class A commenced operations 1/3/89 and Class B commenced operations 9/27/93. + The returns shown for periods prior to September 15, 2003 reflect the results of the CDC Nvest Limited Term U.S. Government Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 19 Goals, Strategies & Risks Loomis Sayles Strategic Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Daniel J. Fuss and Kathleen C. Gaffney Category: Corporate Income Ticker Symbol: Class A Class B Class C NEFZX NEZBX NECZX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks high current income with a secondary objective of capital growth. The Fund's investment goal may be changed without shareholder approval. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest substantially all of its assets in income producing securities (including lower-quality securities, or "junk bonds") with a focus on U.S. corporate bonds, convertible securities, foreign debt instruments, including those in emerging markets and U.S. government securities. The Fund may invest up to 35% of its assets in preferred stocks and dividend-paying common stocks. The portfolio managers shift the Fund's assets among various types of income-producing securities based upon changing market conditions. Loomis Sayles performs its own extensive credit analyses to determine the creditworthiness and potential for capital appreciation of a security. The Fund's management uses a flexible approach to identify securities in the global marketplace with the following characteristics, although not all of the securities selected will have these attributes: [X] discounted share price compared to economic value [X] undervalued credit ratings with strong or improving credit profiles [X] yield premium relative to its benchmark In selecting investments for the Fund, Loomis Sayles generally employs the following strategies: .. Loomis Sayles utilizes the skills of its in-house team of more than 40 research analysts to cover a broad universe of industries, companies and markets. The Fund's portfolio managers take advantage of these extensive resources to identify securities that meet the Fund's investment criteria. .. Loomis Sayles seeks to buy bonds at a discount-bonds that offer a positive yield advantage over the market and, in its view, have room to go up in price. It may also invest to take advantage of what the portfolio managers believe are temporary disparities in the yield of different segments of the market for U.S. government securities. .. Loomis Sayles provides the portfolio managers with maximum flexibility to find investment opportunities in a wide range of markets, both domestic and foreign. This flexible approach provides the Fund with access to a wide array of investment opportunities. The three key sectors that the portfolio managers focus upon are U.S. corporate issues, foreign bonds and U.S. government securities. .. The Fund's portfolio managers maintain a core of the Fund's investments in corporate bond issues and shift its assets among other income-producing securities as opportunities develop. The Fund maintains a high level of diversification as a form of risk management. The Fund may also: .. Invest in zero-coupon or pay-in-kind bonds. .. Invest in mortgage-related securities and stripped securities. 20 .. Invest in futures. .. Invest substantially all of its assets in U.S. government securities for temporary defensive purposes in response to adverse market, economic or political conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. Mortgage-related securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. Stripped securities are more sensitive to changes in the prevailing interest rates and the rate of principal payments on the underlying assets than regular mortgage-related securities. For additional information see the section entitled "More About Risk." 21 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class A shares for each calendar year since its first full year of operations.+ The returns for other classes of shares offered by this Prospectus differs from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - ------------------------------------------------------------------ Total Return+ - ------------------------------------------------------------------ 1996 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- ---- 14.49% 9.33% -1.73% 12.17% 0.68% -0.14% 15.47% 34.84% - ------------------------------------------------------------------ /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ + The returns shown for periods prior to September 15, 2003 reflect the results of the CDC Nvest Strategic Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Aggregate Bond Index, an unmanaged index of investment-grade bonds with one- to ten- year maturities issued by the U.S. government, its agencies and U.S. corporations. They are also compared to the Lehman U.S. Universal Bond Index, an unmanaged index representing a blend of the Lehman Aggregate, High Yield and Emerging Market Indexes, among other indexes. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Aggregate Bond Index and the Lehman U.S. Universal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ---------------------------------------------------------------------------------------- Average Annual Total Returns+ Since Inception (for the periods ended December 31, 2004) Past 1 Year Past 5 Years (5/1/95) - ---------------------------------------------------------------------------------------- Class A - Return Before Taxes - ---------------------------------------------------------------------------------------- Return After Taxes on Distributions* - ---------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - ---------------------------------------------------------------------------------------- Class B - Return Before Taxes - ---------------------------------------------------------------------------------------- Class C - Return Before Taxes - ---------------------------------------------------------------------------------------- Lehman Aggregate Bond Index** - ---------------------------------------------------------------------------------------- Lehman U.S. Universal Bond Index** - ----------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. 22 ** The returns of each Index do not reflect the effect of taxes. The returns of each Index are calculated from 5/31/95 for Classes A, B and C shares. + The returns shown for period prior to September 15, 2003 reflect the results of the CDC Nvest Strategic Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 23 Fund Fees & Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of each Fund. - -------------------------------------------------------------------------------- Shareholder Fees - --------------------------------------------------------------------------------
(fees paid directly from your investment) - -------------------------------------------------------------------------------------------------- All Funds except Limited Term Government and Agency Limited Term Government and Fund Agency Fund - -------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C - -------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)(1)(2) 4.50% None None 3.00% None None - -------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) (as a percentage of original purchase price or redemption proceeds, as applicable)(2) (3) 5.00% 1.00% (3) 5.00% 1.00% - -------------------------------------------------------------------------------------------------- Redemption fees (Loomis 2% of None* None* None* None* None* Sayles Strategic Income redemption Fund, Loomis Sayles High proceeds on Income Fund and Loomis shares held Sayles Core Plus Bond for 60 days Fund only) or less+* - -------------------------------------------------------------------------------------------------- Redemption fees (all other Funds in the Prospectus) None* None* None* None* None* None* - --------------------------------------------------------------------------------------------------
+ Will be charged on redemptions and exchanges of shares held for 60 days or less. (1) A reduced sales charge on Class A shares applies in some cases. See the section "How Sales Charges Are Calculated" within the section "Fund Services." (2) Does not apply to reinvested distributions. (3) A 1.00% contingent deferred sales charge ("CDSC") applies with respect to certain purchases of Class A shares greater than $1,000,000 redeemed within 1 year after purchase, but not to any other purchases or redemptions of Class A shares. See the section "How Sales Charges Are Calculated" within the section "Fund Services." * Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as by wire or overnight delivery. 24 - -------------------------------------------------------------------------------- Annual Fund Operating Expenses - -------------------------------------------------------------------------------- (expenses that are deducted from Fund assets, as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------------- Core Plus Bond Fund/1/ Government Securities Fund High Income Fund - ---------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class A Class B Class C - ---------------------------------------------------------------------------------------------------------------- Management fees 0.41% 0.41% 0.41% 0.55% 0.55% 0.70% 0.70% 0.70% - ---------------------------------------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees** 0.25% 1.00%* 1.00%* 0.25% 1.00%* 0.25% 1.00%* 1.00%* - ---------------------------------------------------------------------------------------------------------------- Other expenses+ - ---------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses - ---------------------------------------------------------------------------------------------------------------- Fee Waiver and/or Expense Reimbursement - ---------------------------------------------------------------------------------------------------------------- Net Expenses - ----------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------- Limited Term Government Investment Grade Bond Fund/2/ Strategic Income Fund/3/ and Agency Fund - --------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C Class A Class B Class C - --------------------------------------------------------------------------------------------------------------- Management fees 0.40% 0.40% 0.40% 0.64% 0.64% 0.64% 0.57% 0.57% 0.57% - --------------------------------------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees** 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%* - --------------------------------------------------------------------------------------------------------------- Other expenses+ - --------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses - --------------------------------------------------------------------------------------------------------------- Fee Waiver and/or Expense Reimbursement - --------------------------------------------------------------------------------------------------------------- Net Expenses - ---------------------------------------------------------------------------------------------------------------
+ Other expenses have been restated to reflect contractual changes to transfer agency fees for the Funds effective January 1, 2005. * Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by the rules of the National Association of Securities Dealers, Inc. ** Each class of Fund shares pays an annual service fee of 0.25% of its average daily net assets. /1/ Loomis Sayles has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of brokerage expenses, interest expenses, taxes and organizational and extraordinary expenses, to 1.15%, 1.90%, and 1.90% of the Fund's average daily net assets for Classes A, B and C shares, respectively. This undertaking is in effect through January 31, 2006 and is reevaluated on an annual basis. Without this undertaking, expenses would have been higher. /2/ Loomis Sayles has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of brokerage expenses, interest expenses, taxes and organizational and extraordinary expenses, to 0.95%, 1.70%, and 1.70% of the Fund's average daily net assets for Classes A, B and C shares, respectively. This undertaking is in effect through January 31, 2006 and is reevaluated on an annual basis. Without this undertaking, expenses would have been higher. /3/ Loomis Sayles has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of brokerage expenses, interest expenses, taxes and organizational and extraordinary expenses, to 1.25%, 2.00%, and 2.00% of the Fund's average daily net assets for Classes A, B and C 25 shares, respectively. This undertaking is in effect through January 31, 2006 and is reevaluated on an annual basis. Without this undertaking, expenses would have been higher. 26 - -------------------------------------------------------------------------------- Example - -------------------------------------------------------------------------------- This example*, which is based upon the expenses shown in the "Annual Fund Operating Expenses" table, is intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. The example assumes that: .. You invest $10,000 in a Fund for the time periods indicated; .. Your investment has a 5% return each year; .. A Fund's operating expenses remain the same; and .. All dividends and distributions are reinvested. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:
- ------------------------------------------------------------------------------------------------------- Core Plus Bond Fund Government Securities Fund High Income Fund - ------------------------------------------------------------------------------------------------------- Class Class Class Class Class Class Class Class A B C A B A B C - ------------------------------------------------------------------------------------------------------- (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) - ------------------------------------------------------------------------------------------------------- 1 year - ------------------------------------------------------------------------------------------------------- 3 years - ------------------------------------------------------------------------------------------------------- 5 years - ------------------------------------------------------------------------------------------------------- 10 years** - -------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------ Investment Grade Bond Fund+ Limited Term Government and Agency Fund - ------------------------------------------------------------------------------------ Class Class Class Class Class Class A B C A B C - ------------------------------------------------------------------------------------ (1) (2) (1) (2) (1) (2) (1) (2) - ------------------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------------------ 10 years** - ------------------------------------------------------------------------------------
- -------------------------------------------- Strategic Income Fund - -------------------------------------------- Class A Class B Class C - -------------------------------------------- (1) (2) (1) (2) - -------------------------------------------- 1 year - -------------------------------------------- 3 years - -------------------------------------------- 5 years - -------------------------------------------- 10 years** - -------------------------------------------- (1) Assumes redemption at end of period. (2) Assumes no redemption at end of period. * The example is based on the Net Expenses shown above for the Core Plus Bond Fund, Investment Grade Bond Fund and Strategic Income Fund for the 1-year period illustrated in the Example and on the Total Annual Fund Operating Expenses for the remaining years. The Example is based on the Total Annual Fund Operating Expenses for all other Funds for all periods. ** Class B shares automatically convert to Class A shares after 8 years; therefore, in years 9 and 10 Class B amounts are calculated using Class A expenses. + Retail Class shares converted into Class A shares on September 12, 2003. Expenses for Class A shares are based on the former Retail Class expenses, adjusted to take into account Class A's current fees and expenses, including the agreement to limit operating expenses. 27 More About Risk More About Risk The Funds have principal investment strategies that come with inherent risks. The following is a list of risks to which each Fund may be subject because of its investment in various types of securities or engagement in various practices. Correlation Risk (All Funds) The risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Credit Risk (All Funds) The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. Funds that invest in securities rated below investment grade quality (i.e., below a rating of Baa or BBB by Moody's or S&P, respectively), or that are unrated but judged to be of comparable quality by the Fund's adviser are subject to greater credit risk than funds that do not invest in such securities. Currency Risk (Core Plus Bond, High Income, Investment Grade Bond and Strategic Income Funds) The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Emerging Markets Risk (Core Plus Bond, High Income and Strategic Income Funds) The risk associated with investing in companies traded in developing securities markets, which may be smaller and have shorter operating histories than companies in developed markets. Emerging markets involve risks in addition to and greater than those generally associated with investing in developed foreign markets. The extent of economic development, political stability, market depth, infrastructure and capitalization, and regulatory oversight in emerging market economies is generally less than in more developed markets. Extension Risk (All Funds) The risk that an unexpected rise in interest rates will extend the life of a mortgage- or asset-backed security beyond the expected prepayment time, typically reducing the security's value. Foreign Risk The risk associated with investments in issuers located in foreign countries. A Fund's investments in foreign securities may experience more rapid and extreme changes in value than investments in securities of U.S. companies. In the event of a nationalization, expropriation or other confiscation, a Fund that invests in foreign securities could lose its entire investment. When a Fund invests in securities from issuers located in countries with emerging markets, it may face greater foreign risk since emerging market countries may be more likely to experience political and economic instability. High Yield Risk (Core Plus Bond, High Income, Investment Grade Bond and Strategic Income Funds) The risk associated with investing in high yield securities and unrated securities of similar quality (commonly known as "junk bonds"), which may be subject to greater levels of interest rate, credit and liquidity risk than other securities. These securities are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. In addition, an economic downturn or period of rising interest rates could adversely affect the market of these securities and reduce a Fund's ability to sell them. Information Risk (All Funds) The risk that key information about a security is inaccurate or unavailable. Interest Rate Risk (All Funds) The risk of market losses attributable to changes in interest rates. In general, the prices of fixed-income securities rise when interest rates fall, and prices fall when interest rates rise. Leverage Risk (All Funds) The risk associated with securities or practices (e.g., borrowing) that multiply small index or market movements into larger changes in value. When a derivative security (a security whose value is based on another security or index) is used as a hedge against an offsetting position that a Fund also holds, any loss generated by the derivative security should be substantially offset by gains on the hedged instrument, and vice versa. To the extent that a Fund uses a derivative security for purposes other than as a hedge, or, if a Fund hedges imperfectly, that Fund is directly exposed to the risks of that derivative security and any loss generated by the derivative security will not be offset by a gain. Liquidity Risk (All Funds) The risk that certain securities may be difficult or impossible to sell at the time and at the price that the seller would like. This may result in a loss or may otherwise be costly to a Fund. These types of risks may also apply to restricted securities, Section 4(2) Commercial Paper, and Rule 144A Securities. 28 Management Risk (All Funds) The risk that a strategy used by a Fund's portfolio management may fail to produce the intended result. Market Risk (All Funds) The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Opportunity Risk (All Funds) The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are invested in less profitable investments. Options, Futures, Swap Contracts and Other Derivatives Risks (All Funds) These transactions are subject to changes in the underlying security on which such transactions are based. It is important to note that even a small investment in these types of derivative securities may give rise to leverage risk, and can have a significant impact on a Fund's exposure to stock market values, interest rates or currency exchange rates. These types of transactions will be used primarily for hedging purposes. Political Risk (All Funds) The risk of losses directly attributable to government or political actions. Prepayment Risk (All Funds) The risk that unanticipated prepayments may occur, reducing the return from mortgage- or asset-backed securities, or real estate investment trusts. Small Capitalization Companies Risk (Core Plus Bond, High Income and Strategic Income Funds) These companies carry special risks, including narrower markets, more limited financial and management resources, less liquidity and greater volatility than large company stocks. Valuation Risk (All Funds) The risk that a Fund has valued certain securities at a higher price than the price at which they can be sold. 29 Management Team Meet the Funds' Investment Adviser The CDC Nvest Funds family (as defined below) currently includes 23 mutual funds. The CDC Nvest Funds family had combined assets of $ billion as of --- September 30, 2004. CDC Nvest Funds are distributed through IXIS Asset Management Distributors, L.P. (the "Distributor"). This Prospectus covers the CDC Nvest Income Funds (the "Funds" or each a "Fund"), which, along with the CDC Nvest Equity Funds, CDC Nvest Star Funds, CDC Nvest Tax Free Income Funds, Loomis Sayles Research Fund, Loomis Sayles Growth Fund and Loomis Sayles International Equity Fund, constitute the "CDC Nvest Funds." CDC Nvest Cash Management Trust - Money Market Series is the "Money Market Fund." - -------------------------------------------------------------------------------- Adviser - -------------------------------------------------------------------------------- Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as adviser to the Funds. Loomis Sayles is a subsidiary of IXIS Asset Management North America, L.P. ("IXIS Asset Management North America"), which is a subsidiary of IXIS Asset Management, a French asset manager. Founded in 1926, Loomis Sayles is one of America's oldest investment advisory firms with over $ billion in assets under management as of September 30, 2004. Loomis Sayles ---- is well known for its professional research staff, which is one of the largest in the industry. Loomis Sayles makes investment decisions for each of these Funds. The aggregate advisory fees paid by the Funds during the fiscal year ended September 30, 2004, as a percentage of each Fund's average daily net assets, were % for Loomis Sayles Core Plus Bond Fund, % for Loomis ---- ---- Sayles Government Securities Fund, % for Loomis Sayles High Income Fund, ---- % for Loomis Sayles Investment Grade Bond Fund (after waiver or - ---- reimbursement), % for Loomis Sayles Limited Term Government and Agency Fund, ---- and % for Loomis Sayles Strategic Income Fund (after waiver or ---- reimbursement). * Prior to September 1, 2003, IXIS Asset Management Advisors, L.P. ("IXIS Advisors") served as the adviser to the Funds. Loomis Sayles was the Funds' subadviser during such period. Effective September 1, 2003, IXIS Advisors began serving as advisory administrator to the Loomis Sayles Core Plus Bond Fund and Loomis Sayles Government Securities Fund. - -------------------------------------------------------------------------------- Portfolio Trades - -------------------------------------------------------------------------------- In placing portfolio trades, each Fund's adviser may use brokerage firms that market the Fund's shares or are affiliated with IXIS Asset Management North America, Loomis Sayles' parent company. In placing trades, Loomis Sayles will seek to obtain the best combination of price and execution, which involves a number of judgmental factors. Such portfolio trades are subject to applicable regulatory restrictions and related procedures adopted by the Board of Trustees. Transactions with Other Investment Companies. To the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC, each Fund may invest any of its daily cash balances in shares of investment companies that are advised by IXIS Advisors or its affiliates (including affiliated money market and short-term bond funds) Each Fund may borrow money for temporary or emergency purposes in accordance with its investment restrictions. Subject to the terms of any applicable exemptive relief that may be granted by the SEC, each Fund may borrow for such purposes from each other under an interfund lending program. In such a program, a Fund and affiliated funds would be permitted to lend and borrow money for certain temporary or emergency purposes directly to and from one another. Participation in such an interfund lending program would be voluntary for both borrowing and lending funds, and a Fund would participate in an interfund lending program only if the Board of Trustees determined that doing so would benefit a Fund. Should a Fund participate in such an interfund lending program, the Board of Trustees would establish procedures for the operation of the program by Loomis Sayles or an affiliate. 30 31 Meet the Funds' Portfolio Managers Matthew J. Eagan Matthew Eagan has served as co-portfolio manager of the High Income Fund since May 2002. Mr. Eagan, Portfolio Manager and Vice President of Loomis Sayles, began his investment career in 1990 and joined Loomis Sayles in 1997. Mr. Eagan received a B.A. from Northeastern University and an M.B.A. from Boston University. He holds the designation of Chartered Financial Analyst. Mr. Eagan has over 16 years of investment experience. Daniel J. Fuss Daniel Fuss has served as portfolio manager of the Strategic Income Fund since May 1995 and has served as co-portfolio manager of the Investment Grade Bond Fund since its inception in December 1996.. Mr. Fuss is Vice Chairman, Director and Managing Partner of Loomis Sayles. He began his investment career in 1968 and has been at Loomis Sayles since 1976. Mr. Fuss holds the designation of Chartered Financial Analyst. He received a B.S. and an M.B.A. from Marquette University and has over 37 years of investment experience. Kathleen C. Gaffney Kathleen Gaffney has been assisting Daniel Fuss as a portfolio manager of the Strategic Income Fund since April 1996 and has served as co-portfolio manager of the High Income Fund since May 2002. Ms. Gaffney, Vice President of Loomis Sayles, joined the company in 1984. Ms. Gaffney holds the designation of Chartered Financial Analyst. She received a B.A. from the University of Massachusetts at Amherst and has over 20 years of investment experience. John Hyll John Hyll has served as co-portfolio manager of the Government Securities Fund since January 2003 and the Limited Term Government and Agency Fund since April 2003. Mr. Hyll, Portfolio Manager and Vice President of Loomis Sayles, began his investment career in 1983 and joined Loomis Sayles in 1989. Mr. Hyll received a B.A. and an M.B.A. from Baldwin-Wallace College. He has over 21 years of investment experience. Steven Kaseta Steven Kaseta has served as co-portfolio manager of the Investment Grade Bond Fund since February 2002. Mr. Kaseta, Vice President of Loomis Sayles, joined the firm in 1994. He received a A.B. from Harvard University and an M.B.A. from the Wharton School at the University of Pennsylvania. Mr. Kaseta has over 22 years of investment experience. Peter W. Palfrey Peter Palfrey has served as co-portfolio manager of the Core Plus Bond Fund since May 1999, including service until May 2001 with Back Bay Advisors, the former subadviser of the Core Plus Bond Fund. Mr. Palfrey, Portfolio Manager and Vice President of Loomis Sayles, joined the company in 2001. Prior to that he was Senior Vice President of Back Bay Advisors from 1993 until 2001. Mr. Palfrey holds the designation of Chartered Financial Analyst. He received his B.A. from Colgate University and has over 22 years of investment experience. Richard G. Raczkowski Richard Raczkowski has served as a co-portfolio manager of the Core Plus Bond Fund since May 1999 (including service until May 2001 with Back Bay Advisors, the former subadviser of the Core Plus Bond Fund). Mr. Raczkowski, Portfolio Manager and Vice President of Loomis Sayles, joined the company in 2001. Prior to that he was Vice President of Back Bay Advisors from 1998 until 2001. He received a B.A. from the University of Massachusetts and an M.B.A. from Northeastern University and has over 20 years of investment experience. Clifton V. Rowe Cliff Rowe has served as co-portfolio manager of the Limited Term Government and Agency Fund since June 2001 and the Government Securities Fund since January 2003. Mr. Rowe, Portfolio Manager and Vice President of Loomis Sayles, joined the company in 1992. Prior to becoming a Portfolio Manager, he served Loomis Sayles as a Trader from 1999 until 2001. He holds the designation of Chartered Financial Analyst. Mr. Rowe received a B.B.A. from James Madison University, an MBA from the University of Chicago and has over 13 years of investment experience. 32 Fund Services Investing in the Funds - -------------------------------------------------------------------------------- Choosing a Share Class - -------------------------------------------------------------------------------- Each Fund offers Classes A, B and C shares to the public, except Loomis Sayles Government Securities Fund which offers only Class A and Class B shares. Each class has different costs associated with buying, selling and holding Fund shares, which allows you to choose the class that best meets your needs. Which class is best for you depends upon the size of your investment and how long you intend to hold your shares. Class B shares, Class C shares and certain shareholder features may not be available to you if you hold your shares in a street name account. Your financial representative can help you decide which class of shares is most appropriate for you. - -------------------------------------------------------------------------------- Class A Shares - -------------------------------------------------------------------------------- .. You pay a sales charge when you buy Fund shares. There are several ways to reduce this charge. See the section entitled "How Sales Charges Are Calculated." .. You pay lower annual expenses than Class B and Class C shares, giving you the potential for higher returns per share. .. You do not pay a sales charge on orders of $1 million or more, but you may pay a charge on redemption if you redeem these shares within one year of purchase. - -------------------------------------------------------------------------------- Class B Shares - -------------------------------------------------------------------------------- .. You do not pay a sales charge when you buy Fund shares. All of your money goes to work for you right away. .. You pay higher annual expenses than Class A shares. .. You will pay a charge on redemptions if you sell your shares within six years of purchase, as described in the section entitled "How Sales Charges Are Calculated." .. Your Class B shares will automatically convert into Class A shares after eight years, which reduces your annual expenses. .. Investors will not be permitted to purchase $100,000 or more of Class B shares as a single investment per account. There may be certain exceptions to this restriction for omnibus accounts and other nominee accounts. Investors may want to consider the lower operating expense of Class A shares in such instances. You may pay a charge on redemption if you redeem Class A shares within one year of purchase. - -------------------------------------------------------------------------------- Class C Shares - -------------------------------------------------------------------------------- .. You pay higher annual expenses than Class A shares. .. You may pay a charge on redemptions if you sell your shares within one year of purchase. .. Your Class C shares will not automatically convert into Class A shares. If you hold your shares for longer than eight years, you'll pay higher expenses than shareholders of other classes. .. Investors purchasing $1 million or more of Class C shares may want to consider the lower operating expense of Class A shares. You may pay a charge on redemption if you redeem Class A shares within one year of purchase. 33 For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses" in this Prospectus. - -------------------------------------------------------------------------------- Certificates - -------------------------------------------------------------------------------- Certificates will not be issued automatically for any class of shares. Upon written request, you may receive certificates for Class A shares only. 34 Fund Services How Sales Charges Are Calculated - -------------------------------------------------------------------------------- Class A Shares - -------------------------------------------------------------------------------- The price that you pay when you buy Class A shares (the "offering price") is their net asset value plus a sales charge (sometimes called a "front-end sales charge") which varies depending upon the size of your purchase:
- -------------------------------------------------------------------------------------------- Class A Sales Charges - -------------------------------------------------------------------------------------------- All Funds Except Limited Term Limited Term Government and Agency Government and Agency Fund Fund - -------------------------------------------------------------------------------------------- As a % of As a % of your As a % of As a % of your Your Investment offering price investment offering price investment - -------------------------------------------------------------------------------------------- Less than $100,000 4.50% 4.71% 3.00% 3.09% - -------------------------------------------------------------------------------------------- $ 100,000 - $249,999 3.50% 3.63% 2.50% 2.56% - -------------------------------------------------------------------------------------------- $ 250,000 - $499,999 2.50% 2.56% 2.00% 2.04% - -------------------------------------------------------------------------------------------- $ 500,000 - $999,999 2.00% 2.04% 1.25% 1.27% - -------------------------------------------------------------------------------------------- $1,000,000 or more* 0.00% 0.00% 0.00% 0.00% - --------------------------------------------------------------------------------------------
* For purchases of Class A shares of the Fund of $1 million or more or purchases by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Internal Revenue Code with investments of $1 million or more or that have 100 or more eligible employees), there is no front-end sales charge, but a CDSC of 1.00% may apply to redemptions of your shares within one year of the date of purchase. ** Not imposed on shares that are purchased with reinvested dividends or other distributions. If you invest in Class A shares through a financial intermediary, it is the responsibility of the financial intermediary to ensure that you obtain the proper "breakpoint" discount. It will be necessary at the time purchase to inform the Distributor and the financial intermediary of the existence of other accounts in which there are holdings eligible to be aggregated to meet sales load breakpoints. You may be required to provide certain records and information, such as account statements, with respect to all of your accounts which hold shares, including accounts with other financial intermediaries and your family members' and other related parties' accounts, in order to verify your eligibility for a reduced sales charge. If the Distributor is not notified that you are eligible for a reduced sales charge, the Distributor will be unable to ensure that the reduction is applied to your account. Additional information concerning sales load breakpoints is available from your financial intermediary, by visiting the Funds' website at www.cdcnvestfunds.com (click on "sales charges" at the bottom of the home page) or in the Funds' statement of additional information. Reducing Front-End Sales Charges There are several ways you can lower your sales charge for Class A shares, including: . Letter of Intent - By signing a Letter of Intent, you may purchase Class A shares of any CDC Nvest Fund over a 13-month period but pay sales charges as if you had purchases all shares at once. This program can save you money if you plan to invest $100,000 or more over 13 months. Purchases of Class B and Class C shares may be used toward meeting the letter of intent. . Cumulative Purchase Discount - You may be entitled to a reduced sales charge if your "total investment" reaches a breakpoint for a reduced sales charge. The total investment is determined by adding the amount of your current purchase in the Fund, including the applicable sales charge, to the current public offering price of all series and classes of shares of the CDC Nvest Funds held by you in one or more accounts. If your total investment exceeds a sales charge breakpoint in the table above, the lower sales charge applies to entire amount of your current purchase in the Fund. 35 . Combining Accounts - allows you to combine shares of multiple CDC Nvest Funds and classes for purposes of calculating your sales charge. Individual Accounts: You may elect to combine your purchase(s) and your total investment, as defined above, with the purchases and total investment of your spouse, parents, children, siblings, in-laws, grandparents, grandchildren, individual fiduciary accounts, sole proprietorships, single trust estates and any other individuals acceptable to the Distributor. Certain Retirement Plan Accounts: The Distributor may, in its discretion, combine the purchase(s) and total investment of all qualified participants in the same retirement plan for purposes of determining the availability of a reduced sales charge. In most instances, individual accounts may not be linked with certain retirement plan accounts for the purposes of calculating sales charges. In most instances, individual accounts may not be linked with certain retirement plan accounts for the purposes of calculating sales charges. SIMPLE IRA contributions will automatically be linked with those of other participants in the same SIMPLE IRA Plan (Class A shares only). SIMPLE IRA accounts may not be linked with any other CDC Nvest Fund account for rights of accumulation. Please refer to the SAI for more detailed information on combining accounts. The above-listed ways to reduce front-end sales chares may not apply to the Money Market Fund unless shares are purchased through an exchange from another CDC Nvest Fund. These privileges do not apply to the Money Market Fund unless shares are purchased through an exchange from another CDC Nvest Fund. Eliminating Front-End Sales Charges and CDSCs Class A shares may be offered without front-end sales charges or a CDSC to the following individuals and institutions: .. Any government entity that is prohibited from paying a sales charge or commission to purchase mutual fund shares; .. Selling brokers, sales representatives, registered investment advisers, financial planners or other intermediaries under arrangements with the Distributor; .. Fund Trustees and other individuals who are affiliated with any CDC Nvest Fund or Money Market Fund (this also applies to any spouse, parents, children, siblings, grandparents, grandchildren and in-laws of those mentioned); .. Participants in certain Retirement Plans with at least 100 eligible employees (one-year CDSC may apply); .. Non-discretionary and non-retirement accounts of bank trust departments or trust companies only if they principally engage in banking or trust activities; .. Investments of $5 million or more in Limited Term Government and Agency Fund by corporations purchasing shares for their own account, credit unions, or bank trust departments and trust companies with discretionary accounts which they hold in a fiduciary capacity; and .. Investments of $25,000 or more in CDC Nvest Funds or the Money Market Fund by clients of an adviser or subadviser to any CDC Nvest Fund or the Money Market Fund. Repurchasing Fund Shares You may apply proceeds from redeeming Class A shares of the Funds (without paying a front-end sales charge) to repurchase Class A shares of any CDC Nvest Fund. To qualify, you must reinvest some or all of the proceeds within 120 days after your redemption and notify CDC Nvest Funds or your financial representative in writing at the time of reinvestment that you are taking advantage of this privilege. You may reinvest your proceeds either by returning the redemption check or by sending a new check for some or all of the redemption amount. Please note: for federal income tax purposes, a redemption is a sale that involves tax consequences, even if the proceeds are later reinvested. Please consult your tax adviser to discuss how a redemption would affect you. If you repurchase Class A shares of $1 million or more within 30 days after you redeem such shares, the Distributor will rebate the amount of the CDSC charged on the redemption. 36 Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for Class A shares will be generally be eliminated in the following cases: (1) to make distributions from a Retirement Plan (a plan termination or total plan redemption may incur a CDSC); (2) to make payments through a systematic withdrawal plan; or (3) due to shareholder death or disability. - -------------------------------------------------------------------------------- Class B Shares - -------------------------------------------------------------------------------- The offering price of Class B shares is their net asset value, without a front-end sales charge. However, there is a CDSC on shares that you sell within six years of buying them. The amount of the CDSC, if any, declines each year that you own your shares (except in the 3rd and 4th years, which have the same CDSC). The holding period for purposes of timing the conversion to Class A shares and determining the CDSC will continue to run after an exchange to Class B shares of another CDC Nvest Fund. The CDSC equals the following percentages of the dollar amounts subject to the charge: - ----------------------------------------------- Class B Contingent Deferred Sales Charges - ----------------------------------------------- Year Since Purchase CDSC on Shares Being Sold - ----------------------------------------------- 1st 5.00% - ----------------------------------------------- 2nd 4.00% - ----------------------------------------------- 3rd 3.00% - ----------------------------------------------- 4th 3.00% - ----------------------------------------------- 5th 2.00% - ----------------------------------------------- 6th 1.00% - ----------------------------------------------- thereafter 0.00% - ----------------------------------------------- Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for Class B shares will be generally be eliminated in the following cases: (1) to make distributions from a Retirement Plan (a plan termination or total plan redemption may incur a CDSC); (2) to make payments through a systematic withdrawal plan; or (3) due to shareholder death or disability. - -------------------------------------------------------------------------------- Class C Shares - -------------------------------------------------------------------------------- The offering price of Class C shares is their net asset value, without a front-end sales charge. Class C shares are subject to a CDSC of 1.00% on redemptions made within one year of the date of purchase. The holding period for determining the CDSC will continue to run after an exchange to Class C shares of another CDC Nvest Fund. - ----------------------------------------------- Class C Contingent Deferred Sales Charges - ----------------------------------------------- Year Since Purchase CDSC on Shares Being Sold - ----------------------------------------------- 1st 1.00% - ----------------------------------------------- thereafter 0.00% - ----------------------------------------------- Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for Class C shares will be generally be eliminated in the following cases: (1) to make distributions from a Retirement Plan (a plan termination or total plan redemption may incur a CDSC); (2) to make payments through a systematic withdrawal plan; or (3) due to shareholder death or disability. 37 - -------------------------------------------------------------------------------- How the CDSC Is Applied to Your Shares - -------------------------------------------------------------------------------- The CDSC is a sales charge you pay when you redeem certain Fund shares. The CDSC: .. is calculated based on the number of shares you are selling; .. is based on either your original purchase price or the current net asset value of the shares being sold, whichever is lower; .. is deducted from the proceeds of the redemption, not from the amount remaining in your account; and .. for year one applies to redemptions through the day that is one year after the date on which your purchase was accepted, and so on for subsequent years. A CDSC will not be charged on: .. increases in net asset value above the purchase price; or .. shares you acquired by reinvesting your dividends or capital gains distributions. To keep your CDSC as low as possible, each time that you place a request to sell shares we will first sell any shares in your account that carry no CDSC. If there are not enough of these shares available to meet your request, we will sell the shares with the lowest CDSC. - -------------------------------------------------------------------------------- Exchanges into Shares of the Money Market Fund - -------------------------------------------------------------------------------- If you exchange shares of a Fund into shares of the Money Market Fund, the holding period for purposes of determining the CDSC and conversion into Class A shares stops until you exchange back into shares of another CDC Nvest Fund. If you choose to redeem those Money Market Fund shares, a CDSC may apply. 38 Fund Services It's Easy to Open an Account - -------------------------------------------------------------------------------- To Open an Account with CDC Nvest Funds: - -------------------------------------------------------------------------------- 1. Read this Prospectus carefully. The Funds will only accept accounts from U.S. citizens with a U.S. address or resident aliens with a U.S. address and a U.S. taxpayer identification number. 2. Determine how much you wish to invest. The following chart shows the investment minimums for various types of accounts:
- ------------------------------------------------------------------------------------------------------------------------ Minimum for Minimum to Open an Minimum to Open an Account Using Existing Type of Account Account Investment Builder Accounts - ------------------------------------------------------------------------------------------------------------------------ Any account other than those listed below $2,500 $25 $100 - ------------------------------------------------------------------------------------------------------------------------ Accounts registered under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to Minors Act ("UTMA") $2,500 $25 $100 - ------------------------------------------------------------------------------------------------------------------------ Individual Retirement Accounts ("IRAs") $ 500 $25 $100 - ------------------------------------------------------------------------------------------------------------------------ Coverdell Education Savings Accounts $ 500 $25 $100 - ------------------------------------------------------------------------------------------------------------------------ Retirement plans with tax benefits such as corporate pension, profit sharing and Keogh plans $ 250 $25 $100 - ------------------------------------------------------------------------------------------------------------------------ Payroll Deduction Investment Programs for SARSEP*, SEP, SIMPLE IRA, 403(b)(7) and certain other retirement plans $ 25 N/A $ 25 - ------------------------------------------------------------------------------------------------------------------------
* Effective January 1, 1997, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA became available replacing SARSEP plans. SARSEP plans established prior to January 1, 1997, may remain active and continue to add new employees. 3. Complete the appropriate parts of the account application, carefully following the instructions. If you have any questions, please call your financial representative or CDC Nvest Funds at 800-225-5478. For more information on CDC Nvest Funds' investment programs, refer to the section entitled "Additional Investor Services" in this Prospectus. 4. Use the following sections as your guide for purchasing shares. - -------------------------------------------------------------------------------- Self-Servicing Your Account - -------------------------------------------------------------------------------- Buying or selling shares is easy with the services described below: - -------------------------------------------------------------------------------- CDC Nvest Funds Personal Access Line(R) - -------------------------------------------------------------------------------- 800-225-5478, press 1 - -------------------------------------------------------------------------------- CDC Nvest Funds Web Site - -------------------------------------------------------------------------------- www.cdcnvestfunds.com You have access to your account 24 hours a day by calling the Personal Access Line(R) from a touch-tone telephone or by visiting us online. Using these customer service options, you may: .. purchase, exchange or redeem shares in your existing accounts (certain restrictions may apply); .. review your account balance, recent transactions, Fund prices and recent performance; .. order duplicate account statements; and .. obtain tax information. Please see the following pages for other ways to buy, exchange or sell your shares. 39 40 Fund Services Buying Shares
Adding to an Opening an Account Account - ----------------------------------------------------------------------------------------------------------- Through Your Investment Dealer - ----------------------------------------------------------------------------------------------------------- . Call your investment dealer for information about opening or adding to an account. Dealers may also charge you a processing or service fee in connection with the purchase of fund shares. - ----------------------------------------------------------------------------------------------------------- By Mail - ----------------------------------------------------------------------------------------------------------- . Make out a check in U.S. dollars . Make out a check in U.S. dollars for the investment amount, payable to for the investment amount, payable to "CDC Nvest Funds." Third party "CDC Nvest Funds." Third party checks and "starter" checks will not checks and "starter" checks will not be accepted. be accepted. [envelope icon] . Mail the check with your . Complete the investment slip completed application to CDC Nvest from an account statement or include Funds, P.O. Box 219579, Kansas City, a letter specifying the Fund name, MO 64121-9579. your class of shares, your account number and the registered account name(s). - ----------------------------------------------------------------------------------------------------------- By Exchange (See the section entitled "Exchanging Shares" for more details.) - ----------------------------------------------------------------------------------------------------------- [exchange icon] . Obtain a current prospectus for . Call your investment dealer or the Fund into which you are CDC Nvest Funds at 800-225-5478 or exchanging by calling your investment visit www.cdcnvestfunds.com to dealer or CDC Nvest Funds at request an exchange. 800-225-5478. . Call your investment dealer or CDC Nvest Funds or visit www.cdcnvestfunds.com to request an exchange. - ----------------------------------------------------------------------------------------------------------- By Wire - ----------------------------------------------------------------------------------------------------------- . Opening an account by wire is not . Visit www.cdcnvestfunds.com to available. add shares to your account by wire. Instruct your bank to transfer funds to State Street Bank & Trust Company, [wire icon] ABA #011000028, and DDA #99011538. . Specify the Fund name, your class of shares, your account number and the registered account name(s). Your bank may charge you for such a transfer.
41 - ----------------------------------------------------------------------------------------------------------- Through Automated Clearing House ("ACH") - ----------------------------------------------------------------------------------------------------------- . Although you cannot open an . Call CDC Nvest Funds at account through ACH, you may add this 800-225-5478 or visit [ACH icon] feature by selecting it on your www.cdcnvestfunds.com to add shares account application. to your account through ACH. . Ask your bank or credit union . If you have not signed up for whether it is a member of the ACH the ACH system, please call CDC Nvest system. Funds or visit www.cdcnvestfunds.com for a Service Options Form. A signature guarantee may be required to add this privilege. - ----------------------------------------------------------------------------------------------------------- Automatic Investing Through Investment Builder - ----------------------------------------------------------------------------------------------------------- . Indicate on your application . Please call CDC Nvest Funds at [builder icon] that you would like to begin an 800-225-5478 or visit automatic investment plan through www.cdcnvestfunds.com for a Service Investment Builder and the amount of Options Form. A signature guarantee the monthly investment ($25 minimum) may be required to add this privilege. . Include a check marked "Void" or . See the section entitled a deposit slip from your bank "Additional Investor Services." account.
42 Fund Services Selling Shares To Sell Some or All of Your Shares Certain restrictions may apply. See section entitled "Restrictions on Buying, Selling and Exchanging Shares." - -------------------------------------------------------------------------------- Through Your Investment Dealer - -------------------------------------------------------------------------------- . Call your investment dealer for information. Dealers may also charge you a processing or service fee in connection with the redemption of fund shares. - -------------------------------------------------------------------------------- By Mail - -------------------------------------------------------------------------------- . Write a letter to request a redemption. Specify the name of your Fund, class of shares, account number, the exact registered account name(s), the number of shares or the dollar amount to be redeemed and the method by which you wish to receive your proceeds. Additional materials may be required. See the section entitled "Selling Shares in Writing." [envelope icon] . The request must be signed by all of the owners of the shares and must include the capacity in which they are signing, if appropriate. . Mail your request by regular mail to CDC Nvest Funds, P.O. Box 219579, Kansas City, MO 64121-9579 or by registered, express or certified mail to CDC Nvest Funds, 330 West 9th Street, Kansas City, MO 64105-1514. . Your proceeds (less any applicable CDSC) will be delivered by the method chosen in your letter. Proceeds delivered by mail will generally be mailed to you on the business day after the request is received in good order. - -------------------------------------------------------------------------------- By Exchange (See the section entitled "Exchanging Shares" for more details.) - -------------------------------------------------------------------------------- . Obtain a current prospectus for the Fund into which you are exchanging by calling your investment dealer or CDC Nvest Funds at 800-225-5478. [exchange icon] . Call CDC Nvest Funds or visit www.cdcnvestfunds.com to request an exchange. - -------------------------------------------------------------------------------- By Wire - -------------------------------------------------------------------------------- . Complete the "Bank Information" section on your account application. [wire icon] . Call CDC Nvest Funds at 800-225-5478 or visit www.cdcnvestfunds.com or indicate in your redemption request letter (see above) that you wish to have your proceeds wired to your bank. . Proceeds (less any applicable CDSC) will generally be wired on the next business day. A wire fee (currently $5.00) will be deducted from the proceeds. Your bank may charge you a fee to receive the wire. - -------------------------------------------------------------------------------- Through Automated Clearing House - -------------------------------------------------------------------------------- . Ask your bank or credit union whether it is a member of the ACH system. . Complete the "Bank Information" section on your account application. [ACH icon] . If you have not signed up for the ACH system on your application, please call CDC Nvest Funds at 800-225-5478 or visit www.cdcnvestfunds.com for a Service Options Form. . Call CDC Nvest Funds or visit www.cdcnvestfunds.com to request an ACH redemption. 43 . Proceeds (less any applicable CDSC) will generally arrive at your bank within three business days. - -------------------------------------------------------------------------------- By Telephone - -------------------------------------------------------------------------------- [telephone icon] . Call CDC Nvest Funds at 800-225-5478 to choose the method you wish to use to redeem your shares. You may receive your proceeds by mail, by wire or through ACH (see above). - -------------------------------------------------------------------------------- By Systematic Withdrawal Plan (See the section entitled "Additional Investor Services" for more details.) - -------------------------------------------------------------------------------- . Call CDC Nvest Funds at 800-225-5478 or your financial representative for more information. [systematic icon] . Because withdrawal payments may have tax consequences, you should consult your tax adviser before establishing such a plan. - -------------------------------------------------------------------------------- By Check (for Class A shares of Limited Term Government and Agency Fund only) - -------------------------------------------------------------------------------- . Select the checkwriting option on your application and complete the signature card. .. [check icon] . To add this privilege to an existing account, call CDC Nvest Funds at 800-225-5478 for a Service Options Form. . Each check must be written for $500 or more. . You may not close your account by withdrawal check. Please call your financial representative or CDC Nvest Funds to close an account. 44 Fund Services Selling Shares in Writing If you wish to redeem your shares in writing, all owners of the shares must sign the redemption request in the exact names in which the shares are registered and indicate any special capacity in which they are signing. In certain situations, you will be required to make your request to sell shares in writing. In these instances, a letter of instruction signed by the authorized owner is necessary. In certain situations, we also may require a medallion signature guarantee or additional documentation. A medallion signature guarantee protects you against fraudulent orders and is necessary if: .. your address of record has been changed within the past 30 days; .. you are selling more than $100,000 worth of shares and you are requesting the proceeds by check; .. a proceeds check for any amount is either mailed to an address other than the address of record or not payable to the registered owner(s); or .. the proceeds are sent by check, wire, or in some circumstances ACH to a bank account whose owner(s) do not match the owner(s) of the fund account. A notary public cannot provide a medallion signature guarantee. The Funds will only accept medallion signature guarantees bearing the STAMP2000 Medallion imprint. A medallion signature guarantee can be obtained from one of the following sources: .. a financial representative or securities dealer; .. a federal savings bank, cooperative, or other type of bank; .. a savings and loan or other thrift institution; .. a credit union; or .. a securities exchange or clearing agency. The table below shows some situations in which additional documentation may be necessary. Please call your financial representative or CDC Nvest Funds regarding requirements for other account types. - -------------------------------------------------------------------------------- Seller (Account Type) Requirements for Written Requests - -------------------------------------------------------------------------------- Qualified retirement benefit plans . The request must include the (except CDC Nvest Funds prototype signatures of all those authorized documents) to sign, including title. . Medallion signature guarantee, if applicable (see above). . Additional documentation and distribution forms may be required. - -------------------------------------------------------------------------------- Individual Retirement Accounts . Additional documentation and distribution forms may be required. - -------------------------------------------------------------------------------- Individual, joint, sole . The request must include the proprietorship, UGMA/UTMA signatures of all persons authorized (minor accounts) to sign, including title, if applicable. . Medallion signature guarantee, if applicable (see above). . Additional documentation may be required. - -------------------------------------------------------------------------------- Corporate or association accounts . The request must include the signatures of all persons - -------------------------------------------------------------------------------- 45 - -------------------------------------------------------------------------------- authorized to sign, including title. . Certified copy of corporate resolution or similar documents. - -------------------------------------------------------------------------------- Owners or trustees of trust accounts . The request must include the signatures of all trustees authorized to sign, including title. . If the names of the trustees are not registered on the account, please provide a copy of the trust document certified within the past 60 days. . Medallion signature guarantee, if applicable (see above). - -------------------------------------------------------------------------------- Joint tenancy whose co-tenants are . The request must include the deceased signatures of all surviving tenants of the account. . Certified copy of the death certificate. . Medallion signature guarantee if proceeds check is issued to other than the surviving tenants. - -------------------------------------------------------------------------------- Power of Attorney (POA) . The request must include the signatures of the attorney-in-fact, indicating such title. . A medallion signature guarantee. . Certified copy of the POA document stating it is still in full force and effect, specifying that the grantor is alive, the exact Fund and account number, and certified within 30 days of receipt of instructions.* - -------------------------------------------------------------------------------- Executors of estates, . The request must include the administrators, guardians, signatures of all those authorized conservators to sign, including capacity. . A medallion signature guarantee. . Certified copy of court document where signer derives authority, e.g., Letters of Administration, Conservatorship and Letters Testamentary.* - -------------------------------------------------------------------------------- * Certification may be made on court documents by the court, usually certified by the clerk of the court. Power of Attorney certification may be made by a commercial bank, broker/member of a domestic stock exchange or a practicing attorney. 46 Fund Services Exchanging Shares In general, you may exchange shares of your Fund for shares of the same class of another CDC Nvest Fund or series of Loomis Sayles Funds that offers such class of shares, without paying a sales charge or a CDSC (see the sections entitled "Buying Shares" and "Selling Shares"). The exchange must be for the minimum to open an account (or the total net asset value of your account, whichever is less), or $100 if made under the Automatic Exchange Plan (see the section entitled "Additional Investor Services"). All exchanges are subject to the eligibility requirements of the fund into which you are exchanging and any other limits on sales of or exchanges into that fund. The exchange privilege may be exercised only in those states where shares of such funds may be legally sold. For federal income tax purposes, an exchange of fund shares for shares of another fund is generally treated as a sale on which gain or loss may be recognized. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Before requesting an exchange into any other fund, please read its prospectus carefully. Please refer to the SAI for more detailed information on exchanging Fund shares. Restrictions on Buying, Selling and Exchanging Shares Frequent purchases and redemptions of Fund shares by shareholders may present certain risks for other shareholders in the Fund. This includes the risk of diluting the value of Fund shares held by long-term shareholders, interfering with the efficient management of a Fund's portfolio, and increasing brokerage and administrative costs. Funds investing in securities that require special valuation processes (such as foreign securities, high yield securities, or small cap securities) may also have increased exposure to these risks. Each Fund discourages excessive, short-term trading that may be detrimental to the Fund and its shareholders. The Funds' Board of Trustees has adopted the following policies with respect to frequent purchases and redemptions of Fund shares. The Funds reserve the right to suspend or change the terms of purchasing or exchanging shares. Each Fund and the Distributor reserve the right to refuse or limit any purchase or exchange order for any reason, including if the transaction is deemed not to be in the best interests of the Fund's other shareholders or possibly disruptive to the management of the Fund. Limits on Frequent Trading. Without limiting the right of the Fund and the Distributor to refuse any purchase or exchange order, the Fund and the Distributor may (but are not obligated to) restrict purchases and exchanges for the accounts of "market timers." With respect to exchanges, an account may be deemed to be one of a market timer if (i) more than two exchange purchases of any Fund are made for the account over a 90-day interval as determined by the Fund; or (ii) the account makes one or more exchange purchases of any Fund over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. With respect to new purchases of a Fund, an account may be deemed to be one of a market timer if (i) more than twice over a 90-day interval as determined by the Fund, there is a purchase in a Fund followed by a subsequent redemption; or (ii) there are two purchases into a Fund by an account, each followed by a subsequent redemption over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. The preceding are not exclusive lists of activities that the Fund and the Distributor may consider to be "market timing." Trade Activity Monitoring. Trading activity is monitored selectively on a daily basis in an effort to detect excessive short-term trading activities. If the Fund or the Distributor believes that a shareholder or financial intermediary has engaged in market timing or other excessive, short-term trading activity, it may, in its discretion, request that the shareholder or financial intermediary stop such activities or refuse to process purchases or exchanges in the accounts. 47 In its discretion, the Fund or the Distributor may restrict or prohibit transactions by such identified shareholders or intermediaries. In making such judgments, the Fund and the Distributor seek to act in a manner that they believe is consistent with the best interests of all shareholders. The Fund and the Distributor also reserve the right to notify financial intermediaries of your trading activity. Because the Fund and the Distributor will not always be able to detect market timing activity, investors should not assume the Fund will be able to detect or prevent all market timing or other trading practices that may not be in the best interests of the Fund shareholders. For example, the ability of the Fund and the Distributor to monitor trades that are placed by omnibus or other nominee accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the record of a Fund's underlying beneficial owners. - -------------------------------------------------------------------------------- Purchase Restrictions - -------------------------------------------------------------------------------- Each Fund is required by federal regulations to obtain certain personal information from you and to use that information to verify your identity. The Fund may not be able to open your account if the requested information is not provided. Each Fund reserves the right to refuse to open an account, close an account and redeem your shares at the then current price or take other such steps that the Fund deems necessary to comply with federal regulations if your identity cannot be verified. - -------------------------------------------------------------------------------- Selling Restrictions - -------------------------------------------------------------------------------- The table below describes restrictions placed on selling shares of the Fund described in this Prospectus: - -------------------------------------------------------------------------------- Restriction Situation - -------------------------------------------------------------------------------- The Fund may suspend the right of . When the New York Stock Exchange redemption or postpone payment for (the "Exchange") is closed (other more than 7 days: than a weekend/holiday) . During an emergency . During any other period permitted by the SEC - -------------------------------------------------------------------------------- The Fund reserves the right to . With a notice of a dispute between suspend account services or refuse registered owners transaction requests: . With suspicion/evidence of a fraudulent act - -------------------------------------------------------------------------------- The Fund may pay the redemption . When it is detrimental for a Fund to price in whole or in part by a make cash payments as determined in distribution in kind of readily the sole discretion of the adviser marketable securities in lieu of cash or may take up to 7 days to pay a redemption request in order to raise capital: - -------------------------------------------------------------------------------- The Fund may withhold redemption . When redemptions are made within 10 proceeds until the check or funds calendar days of purchase by check have cleared: or ACH of the shares being redeemed - -------------------------------------------------------------------------------- If you hold certificates representing your shares, they must be sent with your request for it to be honored. It is recommended that certificates be sent by registered mail. Although most redemptions are made in cash, as described in the SAI, each Fund reserves the right to redeem shares in kind. - -------------------------------------------------------------------------------- Redemption Fees - -------------------------------------------------------------------------------- For Class A shares of Core Plus Bond Fund, High Income Fund and Strategic Income Fund Shareholders will be charged a 2% redemption fee if they redeem, including redeeming by exchange, Class A shares of the Fund within 60 days of their acquisition (including acquisition by exchange). The redemption fee is intended to offset the costs to the Fund of short-term trading, such as portfolio transaction and market impact costs associated with redemption activity and administrative costs associated with processing redemptions. The redemption fee is deducted from the shareholder's redemption or exchange proceeds and is paid to the Fund, although there may be a delay between the time the fee is deducted from such proceeds and when it is paid to the Fund. The "first-in, first-out" (FIFO) method is used to determine the holding period of redeemed or exchange shares, which means that if you acquired shares on different days, the shares acquired first will be redeemed or exchanged first for purposes of determining whether the redemption fee applies. A new holding period begins with each purchase or exchange. 48 The Funds currently do not impose a redemption fee on a redemption of: . shares acquired by reinvestment of dividends or distributions of a Fund; or . shares held in an account of certain retirement plans or profit sharing plans or purchased through certain intermediaries; or . shares redeemed as part of a systematic withdrawal plan. The Funds may modify or eliminate these waivers at any time. In addition, the Funds may modify the way the redemption fee is applied, including the amount of the redemption fee and/or the length of time shares must be held before the redemption fee is no longer applied, for certain categories of investors or for shareholders investing through financial intermediaries which apply the redemption fee in a manner different from that described above. The ability of a Fund to assess a redemption fee on transactions by underlying shareholders of omnibus and other accounts maintained by brokers, retirement plan accounts and fee-based program accounts may be limited. - -------------------------------------------------------------------------------- Small Account Policy - -------------------------------------------------------------------------------- Each Fund assesses a minimum balance fee on an annual basis for accounts that fall below the minimum amount required to establish an account, as previously described in this Prospectus. The minimum balance fee is assessed by the automatic redemption of shares in the account in an amount sufficient to pay the fee. This minimum balance fee does not apply to accounts with active investment builder and payroll deduction programs, accounts that fall below the minimum as a result of the automatic conversion from Class B shares to Class A shares, accounts held through the National Securities Clearing Corporation, or retirement accounts. In its discretion, the Fund may also close the account and send the account holder the proceeds if the account falls below the minimum amount. 49 Fund Services How Fund Shares Are Priced "Net asset value" is the price of one share of a Fund without a sales charge, and is calculated each business day using this formula: Total market value of securities + Cash and other assets - Liabilities Net Asset Value = ---------------------------------------------------------------------- Number of outstanding shares
The net asset value of Fund shares is determined according to this schedule: .. A share's net asset value is determined at the close of regular trading on the Exchange on the days the Exchange is open for trading. This is normally 4:00 p.m. Eastern time. Generally, a Fund's shares will not be priced on the days on which the Exchange is closed for trading. However, in Loomis Sayles' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if Loomis Sayles in its discretion determines that there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares. This may occur, for example, if the Exchange is closed but the fixed income markets are open for trading. In addition, a Fund's shares will not be priced on the holidays listed in the SAI. See the section entitled "Net Asset Value and Public Offering Price" in the SAI for more details. .. The price you pay for purchasing, redeeming or exchanging a share will be based upon the net asset value next calculated by each Fund's custodian (plus or minus applicable sales charges as described earlier in this Prospectus) after your order is received "in good order." .. Requests received by the Distributor after the Exchange closes will be processed based upon the net asset value determined at the close of regular trading on the next day that the Exchange is open, with the exception that those orders received by your investment dealer before the close of the Exchange and received by the Distributor from the investment dealer before 5:00 p.m. Eastern time* on the same day will be based on the net asset value determined on that day. A Fund significantly invested in foreign securities may have net asset value changes on days when you cannot buy or sell its shares. * Under limited circumstances, the Distributor may enter into contractual agreements pursuant to which orders received by your investment dealer before the close of the Exchange and transmitted to the Distributor prior to 9:30 a.m. on the next business day are processed at the net asset value determined on the day the order was received by your investment dealer. Generally, during times of substantial economic or market change, it may be difficult to place your order by phone. During these times, you may deliver your order in person to the Distributor or send your order by mail as described in the sections entitled "Buying Shares" and "Selling Shares." Generally, Fund securities are valued as follows: .. Equity securities -- market price or as provided by a pricing service if market price is unavailable. .. Debt securities (other than short-term obligations) -- based upon pricing service valuations, which determine valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. .. Short-term obligations (remaining maturity of less than 60 days) -- amortized cost (which approximates market value). .. Securities traded on foreign exchanges -- market price on the non-U.S. exchange, unless the Fund believes that an occurrence after the close of that exchange will materially affect the security's value. In that case, the security may be fair valued at the time the Fund determines its net asset value by or pursuant to procedures approved by 50 the Board of Trustees. When fair valuing their securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the local market and before the time a Fund's net asset value is calculated. .. Options -- last sale price, or if not available, last offering price. .. Futures -- unrealized gain or loss on the contract using current settlement price. When a settlement price is not used, futures contracts will be valued at their fair value as determined by or pursuant to procedures approved by the Board of Trustees. .. All other securities -- fair market value as determined by the adviser of the Fund pursuant to procedures approved by the Board of Trustees. Because of fair value pricing, as described above for "Securities traded on foreign exchanges" and "All other securities," securities may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board of Trustees believes is more likely to result in a price that reflects fair value (which is the amount that a Fund might reasonably expect to receive from a current sale of the security in the ordinary course of business). A Fund may also value securities at fair value or estimate their value pursuant to procedures approved by the Board of Trustees in other circumstances such as when extraordinary events occur after the close of the relevant market but prior to the close of the Exchange. This may include situations relating to a single issuer (such as a declaration of bankruptcy or a delisting of the issuer's security from the primary market on which it has traded) as well as events affecting the securities markets in general (such as market disruptions or closings and significant fluctuations in U.S. and/or foreign markets). 51 Fund Services Dividends and Distributions The Funds generally distribute most or all of their net investment income (other than capital gains) in the form of dividends. Each Fund declares dividends for each class daily and pays them monthly. The net investment income accruing on Saturdays, Sundays and other days on which the Exchange is closed is declared as a dividend on the immediately following business day. Each Fund expects to distribute all net realized long- and short-term capital gains annually, after applying any available capital loss carryovers. To the extent permitted by law, the Board of Trustees may adopt a different schedule as long as payments are made at least annually. Distributions will automatically be reinvested in shares of the same class of the distributing Fund at net asset value, unless you select one of the following alternatives: .. Participate in the Dividend Diversification Program, which allows you to have all dividends and distributions automatically invested at net asset value in shares of the same class of another CDC Nvest Fund registered in your name. Certain investment minimums and restrictions may apply. For more information about this program, see the section entitled "Additional Investor Services." .. Receive distributions from dividends and interest in cash while reinvesting distributions from capital gains in additional shares of the same class of the Fund, or in the same class of another CDC Nvest Fund. .. Receive all distributions in cash. For more information or to change your distribution option, contact CDC Nvest Funds in writing or call 800-225-5478. If you earn more than $10 annually in taxable income from a CDC Nvest Fund held in a non-retirement plan account, you will receive a Form 1099 to help you report the prior calendar year's distributions on your federal income tax return. This information will also be reported to the Internal Revenue Service. Be sure to keep this Form 1099 as a permanent record. A fee may be charged for any duplicate information requested. Tax Consequences Each Fund intends to meet all requirements under Subchapter M of the Internal Revenue Code (the "Code") necessary to qualify for treatment as a "regulated investment company" and thus does not expect to pay any federal income tax on income and capital gains distributed to shareholders. Distributions from the Funds. For federal income tax purposes, distributions of investment income are generally taxable as ordinary income. Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. Distributions of net capital gains from the sale of investments that the Fund owned for more than one year and that are properly designated by the Fund as capital gain dividends will be taxable as long-term capital gains. Distributions of gains from the sale of investments that the Fund owned for one year or less will be taxable as ordinary income. For taxable years beginning on or before December 31, 2008, distributions of investment income designated by the Fund as derived from "qualified dividend income" will be taxed in the hands of individuals at the reduced long-term capital gain rates described below. "Qualified dividend income" generally includes dividends from domestic and some foreign corporations. It does not include income from fixed-income securities. In addition, the Fund must meet holding period and other requirements with respect to the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares for such distributions to be eligible for treatment as qualified dividend income. For taxable years beginning on or before December 31, 2008, long-term capital gain rates applicable to individuals have been temporarily reduced. For more information, see the SAI, under "Income Dividends, Capital Gain Distributions and Tax Status." 52 Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price the shareholder paid). Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares. A Fund's investments in foreign securities may be subject to foreign withholding and other taxes. In that case, the Fund's yield on those securities would be decreased. We do not expect shareholders to be entitled to claim a credit or deduction with respect to foreign taxes in any Fund that invests more than 50% of its assets in foreign securities. In addition, a Fund's investments in foreign securities or foreign currencies may increase or accelerate a Fund's recognition of ordinary income and may affect the timing or amount of the Fund's distributions. Because the Funds invest in foreign securities, shareholders should consult their tax advisers about consequences of their investments under foreign laws. Dividends derived from interest on securities issued by the U.S. government or its agencies or instrumentalities may be exempt from state and local income taxes. Each Fund advises shareholders of the proportion of the Fund's dividends that are derived from such interest. A Fund's investments in certain debt obligations may cause that Fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. Income generated by investments in fixed-income securities is not eligible for treatment as qualified dividend income. Sales or Exchanges of Fund Shares. The redemption, sale or exchange of Fund shares (including an exchange of Fund shares for shares of another CDC Nvest Fund or Money Market Fund) is a taxable event and may result in the recognition of a gain or loss. Gain or loss, if any, recognized on the redemption, sale, exchange or other disposition of Fund shares will be taxed as a long-term capital gain or loss if the shares are capital assets in the shareholder's hands and if the shareholder held the shares for more than one year. Under current law, dividends (other than capital gain dividends) paid by the Fund to a person who is not a "U.S. person" within the meaning of the Code (a "foreign person") are generally subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate). Under the American Jobs Creation Act of 2004 signed by President Bush on October 22, 2004, effective for taxable years of the Fund beginning after December 31, 2004 and before January 1, 2008, the Fund will no longer be required to withhold any amounts with respect to distributions of net short-term capital gains in excess of net long-term capital losses that the Fund properly designates nor with respect to distributions of U.S. source interest income that would not be subject to U.S. federal income tax if earned directly by a foreign person. This provision will first apply to the Fund in its taxable year beginning October 1, 2005. You should consult your tax adviser for more information on your own situation, including possible foreign, state or local taxes. 53 Fund Services Compensation to Securities Dealers As part of their business strategies, the Funds pay securities dealers that sell their shares. This compensation originates from two sources: sales charges (front-end or deferred) and 12b-1 fees (comprising the annual service and/or distribution fees paid under a plan adopted pursuant to Rule 12b-1 under the 1940 Act). The sales charges are detailed in the section entitled "How Sales Charges Are Calculated." Each class of Fund shares pays an annual service fee of 0.25% of its average daily net assets. In addition to a service fee, each Fund's Class B shares pay an annual distribution fee of 0.75% of their average daily net assets for 8 years (at which time they automatically convert into Class A shares). Class C shares are subject to a distribution fee of 0.75% of their average daily net assets. Generally, the 12b-1 fees are paid to securities dealers on a quarterly basis. The Distributor retains the first year of such fees for Class B and Class C shares. Because these distribution fees are paid out of the Funds' assets on an ongoing basis, over time these fees for Class B and Class C shares will increase the cost of your investment and may cost you more than paying the front-end sales charge on Class A shares. The Distributor and its affiliates may, out of their own resources, make payments in addition to the payments described above to dealers which satisfy certain criteria established from time to time by the Distributor. Payments may vary based on net sales, the length of time assets of a dealer's clients have remained invested in the Funds, and other factors. See the SAI for more details. 54 Fund Services Additional Investor Services Retirement Plans CDC Nvest Funds offer a range of retirement plans, including Coverdell Education Savings Accounts, IRAs, SEPs, SARSEPs*, SIMPLE IRAs, 403(b) plans and other pension and profit sharing plans. Refer to the section entitled "It's Easy to Open an Account" for investment minimums. For more information about our Retirement Plans, call us at 800-225-5478. Investment Builder Program This is CDC Nvest Funds' automatic investment plan. You may authorize automatic monthly transfers of $25 or more from your bank checking or savings account to purchase shares of one or more CDC Nvest Funds. To join the Investment Builder Program, please refer to the section entitled "Buying Shares." Dividend Diversification Program This program allows you to have all dividends and any other distributions automatically invested in shares of the same class of another CDC Nvest Fund or Money Market Fund, subject to the eligibility requirements of that other fund and to state securities law requirements. Shares will be purchased at the selected Fund's net asset value without a front-end sales charge or CDSC on the dividend record date. Before establishing a Dividend Diversification Program into any other CDC Nvest Fund or Money Market Fund, please read its prospectus carefully. Automatic Exchange Plan CDC Nvest Funds have an automatic exchange plan under which shares of a class of a CDC Nvest Fund are automatically exchanged each month for shares of the same class of another CDC Nvest Fund or Money Market Fund. There is no fee for exchanges made under this plan, but there may be a sales charge in certain circumstances. Please see the section entitled "Exchanging Shares" above and refer to the SAI for more information on the Automatic Exchange Plan. Systematic Withdrawal Plan This plan allows you to redeem shares and receive payments from your Fund on a regular schedule. Redemption of shares that are part of the Systematic Withdrawal Plan is not subject to a CDSC. However, the amount or percentage you specify in the plan may not exceed, on an annualized basis, 10% of the value of your Fund account based upon the value of your Fund account on the day you establish your plan. For information on establishing a Systematic Withdrawal Plan, please refer to the section entitled "Selling Shares." CDC Nvest Funds Personal Access Line(R) This automated customer service system allows you to have access to your account 24 hours a day by calling 800-225-5478, and pressing 1. With a touch-tone telephone, you can obtain information about your current account balance, recent transactions, Fund prices and recent performance. You may also use Personal Access Line(R) to purchase, exchange or redeem shares in any of your existing accounts. Certain restrictions may apply. CDC Nvest Funds Web Site Visit us at www.cdcnvestfunds.com to review your account balance and recent transactions, to view daily prices and performance information or to order duplicate account statements and tax information. You may also go online to purchase, exchange or redeem shares in your existing accounts. Certain restrictions may apply. * Effective January 1, 1997, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA became available, replacing SARSEP plans. SARSEP plans established prior to January 1, 1997, may remain active and continue to add new employees. 55 Financial Performance The financial highlights table is intended to help you understand each Fund's financial performance for the last five years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in the table represent the return that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by , independent registered public accounting firm, - ---------------------------- whose report, along with each Fund's financial statements, is included in the Fund's annual report to shareholders. The annual report is incorporated by reference into the SAI, both of which are available free of charge upon request from the Distributor. Retail Class shares were converted to Class A shares on September 12, 2003. Class B and C shares began operations on September 15, 2003. (TO BE UPDATED) 56 Glossary of Terms Bid price -- The price a prospective buyer is ready to pay. This term is used by traders who maintain firm bid and offer prices in a given security by standing ready to buy or sell security units at publicly quoted prices. Bottom-up analysis -- The analysis of potential performance of individual stocks before considering the impact of economic trends. Such companies may be identified from research reports, stock screens or personal knowledge of the products and services. Capital gain distributions -- Payments to a Fund's shareholders of net profits earned from selling securities in a Fund's portfolio. Capital gain distributions are usually paid once a year. Credit rating -- Independent evaluation of a bond's creditworthiness. This measurement is usually calculated through an index compiled by companies such as Standard & Poor's Rating Service, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), or Fitch Investors Services, Inc. ("Fitch"). Bonds with a credit rating of BBB or higher by S&P or Fitch, or Baa or higher by Moody's, are generally considered investment grade. Derivative -- A financial instrument whose value and performance are based on the value and performance of another security or financial instrument. Discounted price -- The difference between a bond's current market price and its face or redemption value. Diversification -- The strategy of investing in a wide range of securities representing different market sectors to reduce the risk if an individual company or one sector suffers losses. Dividend yield -- The current or estimated annual dividend divided by the market price per share of a security. Duration -- An estimate of how much a bond's price fluctuates with changes in comparable interest rates. Earnings growth -- A pattern of increasing rates of growth in earnings per share from one period to another, which usually causes a stock's price to rise. Fundamental analysis -- An analysis of the balance sheet and income statements of a company in order to forecast its future stock price movements. Fundamental analysis considers records of assets, earnings, sales, products, management and markets in predicting future trends in these indicators of a company's success or failure. By appraising a company's prospects, analysts using such an approach assess whether a particular stock or group of stocks is undervalued or overvalued at its current market price. Income distributions -- Payments to a Fund's shareholders resulting from the net interest or dividend income earned by a Fund's portfolio. Inflation -- A general increase in prices coinciding with a fall in the real value of money, as measured by the Consumer Price Index. Interest rate -- Rate of interest charged for the use of money, usually expressed at an annual rate. Market capitalization -- Market price multiplied by number of shares outstanding. Large capitalization companies generally have over $5 billion in market capitalization; medium cap companies between $1.5 billion and $5 57 billion; and small cap companies less than $1.5 billion. These capitalization figures may vary depending upon the index being used and/or the guidelines used by the portfolio manager. Maturity -- The final date on which the payment of a debt instrument (e.g., bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds generally have maturities of up to 5 years; intermediate-term bonds between 5 and 15 years; and long-term bonds over 15 years. Net assets -- A Fund's assets minus its liabilities. With respect to the Funds that have a policy to invest 80% of their net assets in particular kinds of securities, "net assets" as used in such policies means net assets plus borrowings made for investment purposes. Net asset value (NAV) per share -- The market value of one share of a Fund on any given day without taking into account any front-end sales charge or CDSC. It is determined by dividing a Fund's total net assets by the number of shares outstanding. Rule 144A securities -- Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless a manager has determined, under guidelines established by a Fund's trustees, that a particular issue of Rule 144A securities is liquid. Top-down approach -- The method in which an investor first looks at trends in the general economy, and next selects industries and then companies that the investor believes should benefit from those trends. Total return -- The change in value of an investment in a Fund over a specific time period expressed as a percentage. Total returns assume all distributions are reinvested in additional shares of a Fund. Value investing -- A relatively conservative investment approach that focuses on companies that may be temporarily out of favor or whose earnings or assets are not fully reflected in their stock prices. Value stocks will tend to have a lower price-to-earnings ratio than growth stocks. Volatility -- The general variability of a portfolio's value resulting from price fluctuations of its investments. In most cases, the more diversified a portfolio is, the less volatile it will be. Yield -- The rate at which a Fund earns income, expressed as a percentage. Mutual fund yield calculations are standardized, based upon a formula developed by the SEC. Yield-to-maturity -- The concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield (the interest rate on a debt security the issuer promises to pay to the holder until maturity, expressed as an annual percentage of face value) and the time between interest payments. 58 If you would like more information about the Funds, the following documents are available free upon request: Annual and Semiannual Reports -- Provide additional information about each Fund's investments. Each report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. Statement of Additional Information (SAI) -- Provides more detailed information about the Funds and their investment limitations and policies, has been filed with the SEC and is incorporated into this Prospectus by reference. To order a free copy of the Funds' annual or semiannual report or their SAI, contact your financial representative, or the Funds at: IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, MA 02116 Telephone: 800-225-5478 Internet: www.cdcnvestfunds.com Important Notice Regarding Delivery of Shareholder Documents: In our continuing effort to reduce your fund's expenses and the amount of mail that you receive from us, we will combine mailings of prospectuses, annual or semiannual reports and proxy statements to your household. If more than one family member in your household owns the same fund or funds described in a single prospectus, report or proxy statement, you will receive one mailing unless you request otherwise. Additional copies of our prospectuses, reports or proxy statements may be obtained at any time by calling 800-225-5478. If you are currently receiving multiple mailings to your household and would like to receive only one mailing or if you wish to receive separate mailings for each member of your household in the future, please call us at the telephone number listed above and we will resume separate mailings within 30 days of your request. Your financial representative or CDC Nvest Funds will also be happy to answer your questions or to provide any additional information that you may require. Information about the Funds, including their reports and SAI, can be reviewed and copied at the Public Reference Room of the SEC in Washington, D.C. Text-only copies of the Funds' reports and SAI are available free from the Edgar Database on the SEC's Internet site at: www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. Portfolio Holdings A description of 's policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the SAI. IXIS Asset Management Distributors, L.P. (IXIS Distributors), and other firms selling shares of CDC Nvest Funds are members of the National Association of Securities Dealers, Inc. (NASD). As a service to investors, the NASD has asked that we inform you of the availability of a brochure on its Public Disclosure Program. The program provides access to information about securities firms and their representatives. Investors may obtain a copy by contacting the NASD at 800-289-9999 or by visiting its Web site at www.NASD.com. IXIS Distributors distributes the CDC Nvest Funds and Loomis Sayles Funds. If you have a complaint concerning IXIS Distributors or any of its representatives or associated persons, please direct it to IXIS Asset Management Distributors, L.P., Attn: Director of Compliance, 399 Boylston Street - 6th Floor, Boston, MA 02116 or call us at 800-225-5478. 59 (Investment Company Act File No. 811-4323) (Investment Company Act File No. 811-242) (Investment Company Act File No. 811-6241) 60 CDC Nvest logo - -------------------------------------------------------------------------------- CDC Nvest Income Funds - Class Y Shares What's Inside Goals, Strategies & Risks.......Page X Fund Fees & Expenses............Page X More About Risk.................Page X Management Team.................Page X Fund Services...................Page X Financial Performance...........Page X [Loomis, Sayles & Company, L.P. logo] Loomis Sayles Core Plus Bond Fund Loomis Sayles Government Securities Fund Loomis Sayles High Income Fund Loomis Sayles Investment Grade Bond Fund Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Strategic Income Fund Prospectus February 1, 2005 The Securities and Exchange Commission has not approved any Fund's shares or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime. For general information on the Funds or any of their services and for assistance in opening an account, contact your financial representative or call CDC Nvest Funds. 1 CDC Nvest Funds P.O. Box 219579 Kansas City, MO 64121-9579 800-225-5478 www.cdcnvestfunds.com 2 Table of Contents - -------------------------------------------------------------------------------- GOALS, STRATEGIES & RISKS - -------------------------------------------------------------------------------- Loomis Sayles Core Plus Bond Fund Loomis Sayles Government Securities Fund Loomis Sayles High Income Fund Loomis Sayles Investment Grade Bond Fund Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Strategic Income Fund - -------------------------------------------------------------------------------- FUND FEES & EXPENSES - -------------------------------------------------------------------------------- Fund Fees & Expenses - -------------------------------------------------------------------------------- MORE ABOUT RISK - -------------------------------------------------------------------------------- More About Risk - -------------------------------------------------------------------------------- MANAGEMENT TEAM - -------------------------------------------------------------------------------- Meet the Funds' Investment Adviser Meet the Funds' Portfolio Managers Transactions with Other Investment Companies - -------------------------------------------------------------------------------- FUND SERVICES - -------------------------------------------------------------------------------- It's Easy to Open an Account Buying Shares Selling Shares Selling Shares in Writing Exchanging Shares Restrictions on Buying, Selling and Exchanging Shares How Fund Shares are Priced Dividends and Distributions Tax Consequences Compensation to Securities Dealers - -------------------------------------------------------------------------------- FINANCIAL PERFORMANCE - -------------------------------------------------------------------------------- Financial Perfomance - -------------------------------------------------------------------------------- GLOSSARY OF TERMS - -------------------------------------------------------------------------------- Glossary of Terms If you have any questions about any of the terms used in this Prospectus, please refer to the "Glossary of Terms." To learn more about the possible risks of investing in the Funds, please refer to the section entitled "More About Risk." This section details the risks of practices in which the Funds may engage. Please read this section carefully before you invest. Fund shares are not bank deposits and are not guaranteed, endorsed or insured by the Federal Deposit Insurance Corporation or any other government agency, and are subject to investment risks, including possible loss of the principal invested. 3 Goals, Strategies & Risks Loomis Sayles Core Plus Bond Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Peter W. Palfrey and Richard G. Raczkowski Category: Corporate Income Ticker Symbol: Class Y ------- NERYX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks a high level of current income consistent with what the Fund considers reasonable risk. It invests primarily in corporate and U.S. government bonds. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest primarily in U.S. corporate and U.S. government bonds. It will adjust to changes in the relative strengths of the U.S. corporate or U.S. government bond markets by shifting the relative balance between the two. The Fund will invest at least 80% of its net assets in bond investments. The term "bond investments" includes debt securities of any maturity. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. In addition, the Fund normally will invest at least 80% of its assets in investment-grade securities (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality as determined by Loomis Sayles), including cash and cash equivalent securities and will generally maintain an average effective maturity of ten years or less. The Fund may also invest up to 20% of its assets, at the time of purchase, in bonds (rated below BBB by S&P and below Baa by Moody's, also known as "junk bonds"), or if unrated, of comparable quality by Loomis Sayles. Loomis Sayles follows a total return oriented investment approach in selecting securities for the Fund. It takes into account economic and market conditions as well as issuer-specific data, such as: [X] fixed charge coverage [X] the relationship between cash flows and debt service obligations [X] the experience and perceived strength of management [X] price responsiveness of the security to interest rate changes [X] earnings prospects [X] debt as a percentage of assets [X] borrowing requirements, debt maturity schedules and liquidation value In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook for the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by U.S. and foreign governments as well as the Federal Reserve Bank. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the high quality bond market. This value analysis uses quantitative tools such as internal and external computer systems and software. 4 .. Loomis Sayles continuously monitors an issuer's creditworthiness to assess whether the obligation remains an appropriate investment for the Fund. It may relax its emphasis on quality with respect to a given security if it believes that the issuer's financial outlook is solid. This may create an opportunity for higher returns. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. Fund holdings are diversified across industry groups such as utilities or telecommunications, which tend to move independently of the ebbs and flows in economic growth. The Fund may also: .. Invest in Rule 144A securities. .. Invest in foreign securities, including those in emerging markets, and related currency hedging transactions. .. Invest in futures. .. Invest in mortgage-related securities, including mortgage dollar rolls. .. Invest substantially all of its assets in U.S. government securities for temporary defensive purposes in response to adverse market, economic or political conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly known as "junk bonds") may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities may be more illiquid than other fixed-income securities. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. Mortgage-related securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. For additional information see the section entitled "More About Risk." 5 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of two broad measures of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that it served as subadviser to the Fund, a function it assumed in June 2001. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations. - ---------------------------------------------------------------------- Total Return ------------ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ----- ---- ----- ---- ---- ---- ---- ---- 20.70% 4.59% 11.40% 8.26% -0.01% 7.60% 7.80% 3.45% 9.03% - ---------------------------------------------------------------------- /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ The table below shows how the average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Aggregate Bond Index, an unmanaged index of investment-grade bonds with one- to ten-year maturities issued by the U.S. government, its agencies and U.S. corporations. They are also compared to the Lehman U.S. Credit Index, an unmanaged index that includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, U.S. investment-grade corporate debt and foreign debentures that meet specified maturity, liquidity and quantity requirements. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Aggregate Bond Index and Lehman U.S. Credit Index returns have not been adjusted for ongoing management, distribution and operating expenses applicable to mutual fund investments.
- -------------------------------------------------------------------------------------- Average Annual Total Returns (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - -------------------------------------------------------------------------------------- Class Y - Return Before Taxes - -------------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------------- Lehman Aggregate Bond Index** - -------------------------------------------------------------------------------------- Lehman U.S. Credit Index** - --------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of each Index do not reflect the effect of taxes. The returns of each Index are calculated from 12/31/95. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 6 Goals, Strategies & Risks Loomis Sayles Government Securities Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: John Hyll and Clifton V. Rowe Category: Government Income Ticker Symbol: Class Y ------- NEUYX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks a high level of current income consistent with safety of principal by investing in U.S. government securities. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- The Fund will, under normal market conditions, invest at least 80% of its net assets in investments issued or guaranteed by the U.S. government, its agencies or instrumentalities. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. The Fund will not invest more than 20% of its net assets (plus borrowings made for investment purposes) in securities that are not backed or guaranteed by the full faith and credit of the U.S. government. Prior to implementation of any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders. Loomis Sayles follows a total return oriented investment approach in selecting securities for the Fund. It seeks securities that give the Fund's portfolio the following characteristics, although these characteristics may change depending on market conditions: [X] average credit quality of "AAA" by Standard & Poor's Ratings Group or "Aaa" by Moody's Investors Service, Inc. [X] average maturity of 10 years or more In selecting investments for the Fund's portfolio, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook on the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by U.S. and foreign governments as well as the Federal Reserve Bank. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the U.S. government security marketplace. This value analysis uses quantitative tools such as internal and external computer systems and software. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. They will emphasize securities that tend to perform particularly well in response to interest rate changes, such as U.S. Treasury securities in a declining interest rate environment and mortgage-backed or U.S. government agency securities in a steady or rising interest rate environment. .. Loomis Sayles seeks to maximize the opportunity for high yields while taking into account the price volatility inherent in bonds with longer maturities. 7 The Fund may also: .. Invest in zero-coupon bonds. .. Invest in mortgage-related securities, including stripped securities and mortagage dollar rolls. .. Invest in futures. .. Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Agency Securities: Subject to security risk. Agencies of the U.S. government which are guaranteed as to the payment of principal and interest of the relevant entity but are not backed by the full faith and credit of the U.S. government. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government securities. Please see the Statement of Additional Information (the "SAI") for details. Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Mortgage-related securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. Stripped securities are more sensitive to changes in the prevailing interest rates and the rate of principal payments on the underlying assets than regular mortgage-related securities. For additional information see the section entitled "More About Risk." 8 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that, it served as subadviser to the Fund, a role is assumed on June 2001. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations. - ------------------------------------------------------------------------ Total Return - ------------------------------------------------------------------------ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ----- ---- ----- ----- ---- ----- ---- ---- 20.31% 1.12% 10.51% 9.31% -6.28% 13.50% 5.32% 13.70% 1.64% - ------------------------------------------------------------------------ /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ The table below shows how the average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman U.S. Long Government Bond Index ("Lehman U.S. Long Gov't Bond Index"), an unmanaged index which is made up of the U.S. Treasury, government agencies and their obligations. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Funds shares. The Lehman U.S. Long Gov't Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses applicable to mutual fund investments.
- -------------------------------------------------------------------------------------- Average Annual Total Returns (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - -------------------------------------------------------------------------------------- Class Y - Return Before Taxes - -------------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------------- Lehman U.S. Long Gov't Bond Index** - --------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 9 Goals, Strategies & Risks Loomis Sayles High Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Matthew J. Eagan and Kathleen C. Gaffney Category: Corporate Income - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks high current income plus the opportunity for capital appreciation to produce a high total return. The Fund's investment goal may be changed without shareholder approval. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest at least 65% of its assets in lower-quality fixed-income securities, commonly known as "junk bonds." Junk bonds are generally rated below BBB by Standard & Poor's Ratings Group ("S&P") and below Baa by Moody's Investors Service, Inc. ("Moody's"). The Fund will normally invest at least 80% of its assets in U.S. corporate or U.S. dollar-denominated foreign fixed-income securities. The Fund may also invest up to 20% of its assets in foreign currency-denominated fixed-income securities, including those in emerging markets. Loomis Sayles performs its own extensive credit analyses to determine the creditworthiness and potential for capital appreciation of a security. The Fund's management minimizes both market timing and interest rate forecasting. Instead, it uses a strategy based on gaining a thorough understanding of industry and company dynamics as well as individual security characteristics such as the following: [X] issuer debt and debt maturity schedules [X] earnings prospects [X] responsiveness to changes in interest rates [X] experience and perceived strength of management [X] borrowing requirements and liquidation value [X] market price in relation to cash flow, interest and dividends In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Loomis Sayles utilizes the skills of its in-house team of more than 40 research analysts to cover a broad universe of industries, companies and markets. The Fund's portfolio managers take advantage of these extensive resources to identify securities that meet the Fund's investment criteria. .. Loomis Sayles employs a selection strategy that focuses on a value-driven, bottom-up approach to identify securities that provide an opportunity for both generous yields and capital appreciation. Loomis Sayles analyzes an individual company's potential for positive financial news to determine if it has growth potential. Examples of positive financial news include an upward turn in the business cycle, improvement in cash flows, rising profits or the awarding of new contracts. .. Loomis Sayles emphasizes in-depth credit analysis, appreciation potential and diversification in its bond selection. Each bond is evaluated to assess the ability of its issuer to pay interest and, ultimately, principal (which helps the Fund generate an ongoing flow of income). Loomis Sayles also assesses a bond's relation to market conditions within its industry and favors bonds whose prices may benefit from positive business developments. .. Loomis Sayles seeks to diversify the Fund's holdings to reduce the inherent risk in lower-quality fixed-income securities. 10 The Fund may also: .. Invest in zero-coupon, pay-in-kind and Rule 144A securities. .. Invest in derivative securities. .. Invest in futures. .. Purchase higher quality debt securities (such as U.S. government securities and obligations of U.S. banks with at least $2 billion of deposits) for temporary defensive purposes in response to adverse market, economic or political conditions, such as a rising trend in interest rates. These investments may prevent the Fund from achieving its investment goal. .. Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities may be more illiquid than other fixed-income securities. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. For additional information see the section entitled "More About Risk." 11 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The returns shown are those of the Fund's Class A shares which are not offered in this Prospectus. This is because Class Y shares were not outstanding during the periods shown. Class Y shares would have substantially similar annual returns because they are invested in the same portfolio of securities as Class A shares and would only differ to the extent that the classes do not have the same expenses. The Class Y returns may be higher than the returns of Class A shares because Class A shares are subject to sales charges and higher expenses. The Fund's current adviser assumed that function on September 1, 2003. Prior to that it served as subadviser to the Fund, a function it assumed on July 1, 1996. This chart and table reflect results achieved by the previous subadviser using different investment policies for periods prior to July 1, 1996. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years.+ The returns for Class Y shares differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. - ----------------------------------------------------------------------------- Total Return - ----------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ----- ----- ----- ---- ------ ------ ----- ----- ---- 11.78% 14.88% 15.37% -1.70% 4.00% -16.09% -10.65% -8.86% 27.91% - ----------------------------------------------------------------------------- /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ + The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest High Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how the average annual total returns (before and after taxes) of the Fund's Class A shares for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman High Yield Composite Index, a market-weighted unmanaged index of fixed-rate, non-investment grade debt. You may not invest directly in an index. The Fund's total returns reflect its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman High Yield Composite Index returns have not been adjusted for ongoing management, distribution and operating expenses applicable to mutual fund investments.
- -------------------------------------------------------------------------------------- Average Annual Total Returns (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - -------------------------------------------------------------------------------------- Class A - Return Before Taxes - -------------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------------- Lehman High Yield Composite Index** - --------------------------------------------------------------------------------------
+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest High Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. 12 ** The returns of the Index do not reflect the effect of taxes. Class A commenced operations 2/22/84. For estimated expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 13 Goals, Strategies & Risks Loomis Sayles Investment Grade Bond Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Daniel J. Fuss and Steven Kaseta Category: Corporate Income Ticker Symbol: Class Y ------- LSIIX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks high total investment return through a combination of current income and capital appreciation. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest at least 80% of its assets in investment grade fixed income securities (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors Services Inc. ("Moody's") or, if unrated, of comparable quality as determined by Loomis Sayles). In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Although the Fund invests primarily in investment grade fixed income securities, it may invest up to 10% of its assets in lower rated fixed income securities ("junk bonds"). The Fund may invest in fixed income securities of any maturity. The Fund will not invest in equity securities of any kind or make any equity investment. In deciding which securities to buy and sell, the Fund will consider, among other things, the financial strength of the issuer, current interest rates, Loomis Sayles' expectations regarding future changes in interest rates, and comparisons of the level of risk associated with particular investments with Loomis Sayles' expectations concerning the potential return of those investments. Three themes typically drive the Fund's investment approach. First, Loomis Sayles generally seeks fixed-income securities of issuers whose credit profiles it believes are improving. Second, the Fund makes significant use of non-market related securities, which are securities that may not have a direct correlation with changes in interest rates. Loomis Sayles believes that the Fund may generate positive returns by having a portion of the Fund's assets invested in non-market related securities, rather than by relying primarily on changes in interest rates to produce returns for the Fund. Third, Loomis Sayles analyzes different sectors of the economy and differences in the yields ("spreads") of various fixed income securities in an effort to find securities that it believes may produce attractive returns for the Fund in comparison to their risk. Loomis Sayles generally prefers securities that are protected against calls (early redemption by the issuer). The Fund may also: . Invest any portion of its assets in securities of Canadian issuers and up to 20% of its assets in securities of other foreign issuers, including emerging markets securities. The Fund may invest without limit in obligations of supranational entities (e.g., the World Bank). 14 . Invest in corporate securities, U.S. Government securities, and commercial paper. . Invest in zero coupon securities, mortgage-backed securities, stripped mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, when-issued securities, and convertible securities. . Engage in foreign currency hedging transactions, repurchase agreements, swap transactions and securities lending. . Invest in Rule 144A securities. . For temporary defensive purposes, invest any portion of its assets in cash or in any securities Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment objective. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives (which include options, futures, swap contracts and other transactions) may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly known as "junk bonds") may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities may be more illiquid than other fixed-income securities. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. Foreign Shareholders: A significant majority of Class J shares are held by customers of a limited number of Japanese brokerage firms. Economic, regulatory, political or other developments affecting Japanese investors or brokerage firms, including decisions to invest in investment products other than the Fund, could result in a substantial number of redemptions within a relatively limited period of time. If such redemptions were to occur, the Fund would likely be required to dispose of securities that the Fund's adviser would otherwise prefer to hold, which would result in costs to the Fund and its shareholders such as increased brokerage commissions and other transaction costs, market impact costs and taxes on realized gains. In addition, the decreased size of the Fund would likely cause its total expense ratio to increase. Mortgage-related securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. For additional information see the section entitled "More About Risk." 15 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations. - --------------------------------------------------------------- Total Return+ - --------------------------------------------------------------- 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ---- ----- ---- ----- ----- ---- 14.29% 2.96% 3.65% 10.97% 5.65% 10.60% 19.33% - --------------------------------------------------------------- /\ Highest Quarterly Return: Quarter , up % ---------- ---- ----- \/ Lowest Quarterly Return: Quarter , down % ----------- ---- ----- + The returns shown for the periods prior to September 15, 2003 reflect the results of Institutional Class shares of the Fund, which were converted to Class Y shares on September 12, 2003. The prior Institutional Class performance has been restated to reflect the expenses of Class Y shares. The restatement of the Fund's performance to reflect Class Y expenses is based on the net expenses of the class after taking into effect the Fund's current expense cap arrangement. The table below shows how average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Government/Credit Index, an index that tracks the performance of a broad range of government and corporate fixed income securities. You may not invest directly in an index. The Fund's total returns reflect expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and return after taxes on distributions and sales of Fund shares. The Lehman Government/Credit Index returns have not been adjusted for ongoing management, distribution and operating expenses applicable to mutual fund investments.
- --------------------------------------------------------------------------------------------- Average Annual Total Returns+ Since Fund Inception (for the periods ended December 31, 2004) Past 1 Year Past 5 Years (12/31/96) - --------------------------------------------------------------------------------------------- Class Y - Return Before Taxes - --------------------------------------------------------------------------------------------- Return After Taxes on Distributions* - --------------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - --------------------------------------------------------------------------------------------- Lehman Brothers Government/Credit Index** - ---------------------------------------------------------------------------------------------
+ The returns shown for the periods prior to September 15, 2003 reflect the results of Institutional Class shares of the Fund which were converted to Class Y shares on September 12, 2003. The prior Institutional Class performance has been restated to reflect the expenses of Class Y shares. The restatement of the Fund's performance to reflect Class Y expenses is based on the net expenses of the Class after taking into effect the Fund's current expense cap arrangements. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. For information about the Fund's expenses, see the section entitled "Fund Fees & Expenses." 16 Goals, Strategies & Risks Loomis Sayles Limited Term Government and Agency Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: John Hyll and Clifton V. Rowe Category: Government Income Ticker Symbol: Class Y ------- NELYX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks a high current return consistent with preservation of capital. The Fund's investment goal may be changed without shareholder approval. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- The Fund will, under normal market conditions, invest at least 80% of its net assets in investments issued or guaranteed by the U.S. government, its agencies or instrumentalities. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Loomis Sayles follows a total return oriented investment approach in selecting securities for the Fund. It seeks securities that give the Fund's portfolio the following characteristics, although not all securities selected will have these characteristics and Loomis Sayles may look for other characteristics if market conditions change: [X] average credit rating of "AAA" by Standard & Poor's Ratings Group ("S&P") or "Aaa" by Moody's Investors Service, Inc., ("Moody's") [X] effective duration range of two to four years In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook on the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by the U.S. and foreign governments as well as the Federal Reserve Bank. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the U.S. government security marketplace. This value analysis uses quantitative tools such as internal and external computer systems and software. .. Loomis Sayles continuously monitors an issuer's creditworthiness to assess whether the obligation remains an appropriate investment to the Fund. .. It seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. It emphasizes securities that tend to perform particularly well in response to interest rate changes, such as U.S. Treasury securities in a declining interest rate environment and mortgage-backed or U.S. government agency securities in a steady or rising interest rate environment. .. Loomis Sayles seeks to increase the opportunity for higher yields while maintaining the greater price stability that intermediate-term bonds have compared to bonds with longer maturities. 17 The Fund may also: .. Invest in investment-grade corporate notes and bonds (those rated BBB or higher by S&P and Baa or higher by Moody's). .. Invest in zero-coupon bonds. .. Invest in foreign bonds denominated in U.S. dollars. .. Invest in asset-backed securities (if rated AAA by S&P or Aaa by Moody's). .. Invest in mortgage-related securities, including mortgage dollar rolls. .. Invest in futures. .. Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Agency Securities: Subject to security risk. Agencies of the U.S. government which are guaranteed as to the payment of principal and interest of the relevant entity but are not backed by the full faith and credit of the U.S. government. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government securities. Please see the Statement of Additional Information (the "SAI") for details. Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Foreign securities: Foreign bonds denominated in U.S. dollars may be more volatile than U.S. securities and carry political, economic and information risks that are associated with foreign securities. Mortgage-related and asset-backed securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. For additional information see the section entitled "More About Risk." 18 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that, it served as subadviser to the Fund, a role is assumed on June 2001. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations.+ - --------------------------------------------------------------------- Total Return+ - --------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ---- ---- ----- ---- ---- ---- ---- ---- 13.35% 2.73% 7.53% 6.91% -0.32% 8.82% 7.41% 8.62% 1.83% - --------------------------------------------------------------------- /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % ------- ---- ------ + The returns shown reflect the results of the CDC Nvest Limited Term U.S. Government Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how the average annual total returns (before and after taxes) for the one-year, five year and ten-year periods (or since inception if shorter) compare to those of the Lehman Intermediate Government Bond Index ("Lehman Int. Gov't Bond Index"), an unmanaged index of bonds issued by the U.S. government and its agencies having maturities between one and ten years.+ They are also compared to those of the Lehman 1-5 Year Government Bond Index ("Lehman 1-5 Gov't Bond Index"), a market-weighted index of bonds issued by the U.S. government and its agencies with maturities between one and five years. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Int. Gov't Bond Index and Lehman 1-5 Gov't Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- -------------------------------------------------------------------------------------- Average Annual Total Returns+ (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - -------------------------------------------------------------------------------------- Class Y - Return Before Taxes - -------------------------------------------------------------------------------------- Return After Taxes on Distribution* - -------------------------------------------------------------------------------------- Return After Taxes on Distribution & Sales of Fund Shares* - -------------------------------------------------------------------------------------- Lehman Int. Gov't Bond Index** - -------------------------------------------------------------------------------------- Lehman 1-5 Gov't Bond Index** - --------------------------------------------------------------------------------------
+ The returns shown reflect the results of the CDC Nvest Limited Term U.S. Government Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. 19 ** The returns of the Index do not reflect the effect of taxes. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 20 Goals, Strategies & Risks Loomis Sayles Strategic Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Daniel J. Fuss and Kathleen C. Gaffney Category: Corporate Income Ticker Symbol: Class Y ------- NEZYX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks high current income with a secondary objective of capital growth. The Fund's investment goal may be changed without shareholder approval. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest substantially all of its assets in income producing securities (including lower-quality securities, or "junk bonds") with a focus on U.S. corporate bonds, convertible securities, foreign debt instruments, including those in emerging markets and U.S. government securities. The Fund may invest up to 35% of its assets in preferred stocks and dividend-paying common stocks. The portfolio managers shift the Fund's assets among various types of income-producing securities based upon changing market conditions. Loomis Sayles performs its own extensive credit analyses to determine the creditworthiness and potential for capital appreciation of a security. The Fund's management uses a flexible approach to identify securities in the global marketplace with the following characteristics, although not all of the securities selected will have these attributes: [X] discounted share price compared to economic value [X] undervalued credit ratings with strong or improving credit profiles [X] yield premium relative to its benchmark In selecting investments for the Fund, Loomis Sayles generally employs the following strategies: .. Loomis Sayles utilizes the skills of its in-house team of more than 40 research analysts to cover a broad universe of industries, companies and markets. The Fund's portfolio managers take advantage of these extensive resources to identify securities that meet the Fund's investment criteria. .. Loomis Sayles seeks to buy bonds at a discount-bonds that offer a positive yield advantage over the market and, in its view, have room to go up in price. It may also invest to take advantage of what the portfolio managers believe are temporary disparities in the yield of different segments of the market for U.S. government securities. .. Loomis Sayles provides the portfolio managers with maximum flexibility to find investment opportunities in a wide range of markets, both domestic and foreign. This flexible approach provides the Fund with access to a wide array of investment opportunities. The three key sectors that the portfolio managers focus upon are U.S. corporate issues, foreign bonds and U.S. government securities. .. The Fund's portfolio managers maintain a core of the Fund's investments in corporate bond issues and shift its assets among other income-producing securities as opportunities develop. The Fund maintains a high level of diversification as a form of risk management. The Fund may also: .. Invest in zero-coupon or pay-in-kind bonds. 21 .. Invest in mortgage-related securities and stripped securities. .. Invest in futures. .. Invest substantially all of its assets in U.S. government securities for temporary defensive purposes in response to adverse market, economic or political conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Derivative Securities: Subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to stock market values, interest rates or the currency exchange rate. Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. Mortgage-related securities: Subject to prepayment risk. With prepayment, the Fund may reinvest the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. Stripped securities are more sensitive to changes in the prevailing interest rates and the rate of principal payments on the underlying assets than regular mortgage-related securities. For additional information see the section entitled "More About Risk." 22 - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of two broad measures of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations.+ - ---------------------------------- Total Return+ - ---------------------------------- 2000 2001 2002 2003 2004 - ---- ---- ----- ----- ---- 1.04% 0.33% 15.85% 35.19% - ---------------------------------- /\ Highest Quarterly Return: Quarter , up % ---------- ---- ------ \/ Lowest Quarterly Return: Quarter , down % -------- ---- ------ + The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest Strategic Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how the average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Aggregate Bond Index, an unmanaged index of investment-grade bonds with one- to ten- year maturities issued by the U.S. government, its agencies and U.S. corporations. They are also compared to the Lehman U.S. Universal Bond Index, an unmanaged index representing a blend of the Lehman Aggregate, High Yield and Emerging Market Indexes, among other indexes. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Aggregate Bond Index and the Lehman U.S. Universal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------ Since Class Average Annual Total Returns+ Inception (for the periods ended December 31, 2004) Past 1 Year Past 5 Years (12/1/99) - ------------------------------------------------------------------------------------ Class Y - Return Before Taxes - ------------------------------------------------------------------------------------ Return After Taxes on Distributions* - ------------------------------------------------------------------------------------ Return After Taxes on Distributions & Sales of Fund Shares* - ------------------------------------------------------------------------------------ Lehman Brothers Aggregate Bond Index** - ------------------------------------------------------------------------------------ Lehman Brothers Universal Bond Index** - ------------------------------------------------------------------------------------
+ The returns shown reflect the results of the CDC Nvest Strategic Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of each Index do not reflect the effect of taxes. The returns of each Index are calculated from 12/31/99. 23 For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 24 Fund Fees & Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of each Fund. - -------------------------------------------------------------------------------- Shareholder Fees - -------------------------------------------------------------------------------- (fees paid directly from your investment) - ------------------------------------------------------------ All Funds Class Y - ------------------------------------------------------------ Maximum sales charge (load) imposed on purchases None - ------------------------------------------------------------ Maximum deferred sales charge (load) None - ------------------------------------------------------------ Redemption fees None* - ------------------------------------------------------------ * Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as by wire or overnight delivery. - -------------------------------------------------------------------------------- Annual Fund Operating Expenses - -------------------------------------------------------------------------------- (expenses that are deducted from Fund assets, as a percentage of average daily net assets)
- ------------------------------------------------------------------------------------ Core Plus Bond Government Securities High Income Fund Fund Fund* - ------------------------------------------------------------------------------------ Class Y Class Y Class Y - ------------------------------------------------------------------------------------ Management fees 0.41% 0.55% 0.70% - ------------------------------------------------------------------------------------ Distribution and/or service (12b-1) fees - ------------------------------------------------------------------------------------ Other expenses+ - ------------------------------------------------------------------------------------ Total annual fund operating expenses - ------------------------------------------------------------------------------------ Fee Waiver and/or Expense Reimbursement - ------------------------------------------------------------------------------------ Net Expenses - ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------- Investment Grade Limited Term Government Strategic Income Bond Fund/1/ and Agency Fund Fund/2/ - ------------------------------------------------------------------------------------------- Class Y Class Y Class Y - ------------------------------------------------------------------------------------------- Management fees 0.40% 0.57% 0.64% - ------------------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees - ------------------------------------------------------------------------------------------- Other expenses+ - ------------------------------------------------------------------------------------------- Total annual fund operating expenses - ------------------------------------------------------------------------------------------- Fee Waiver and/or Expense Reimbursement - ------------------------------------------------------------------------------------------- Net Expenses - -------------------------------------------------------------------------------------------
+ Other expenses have been restated to reflect contractual changes to the transfer agency fees for the Funds effective January 1, 2005. * Class Y shares of the High Income Fund were not outstanding during 2004. Expenses for High Income Fund have been estimated. /1/ Loomis Sayles has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of brokerage expenses, interest expenses, taxes and organizational and extraordinary expenses to 25 0.55% of the Fund's average daily net assets for Class Y shares. This undertaking is in effect through January 31, 2006 and is reevaluated on an annual basis. Without this undertaking, expenses would have been higher. /2/ Loomis Sayles has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of brokerage expenses, interest expenses, taxes and organizational and extraordinary expensesto 1.00% of the Fund's average daily net assets for Class Y shares. This undertaking is in effect through January 31, 2006 and will be reevaluated on an annual basis thereafter. Without this undertaking, expenses would have been higher. 26 - -------------------------------------------------------------------------------- Example - -------------------------------------------------------------------------------- This example*, which is based upon the expenses shown in the "Annual Fund Operating Expenses" table, is intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. The example assumes that: . You invest $10,000 in a Fund for the time periods indicated and then redeem all of your shares at the end of those periods; . Your investment has a 5% return each year; . A Fund's operating expenses remain the same; and . All dividends and distributions are reinvested. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be: - ------------------------------------------------------------------------------ Core Plus Bond Fund Government Securities Fund High Income Fund - ------------------------------------------------------------------------------ Class Y Class Y Class Y - ------------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------------ 10 years - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Investment Grade Limited Term Government Bond Fund and Agency Fund Strategic Income Fund - ------------------------------------------------------------------------------ Class Y Class Y Class Y - ------------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------------ 10 years - ------------------------------------------------------------------------------ * The example is based on the Net Expenses shown above for the Investment Grade Bond Fund and Strategic Income Fund for the 1-year period illustrated in the Example and on the Total Annual Fund Operating Expenses for the remaining years. The Example is based on the Total Annual Fund Operating Expenses for all other Funds for all periods. 27 More About Risk The Funds have principal investment strategies that come with inherent risks. The following is a list of risks to which each Fund may be subject because of its investment in various types of securities or engagement in various practices. Correlation Risk (All Funds) The risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Credit Risk (All Funds) The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. Funds that invest in securities rated below investment grade quality (i.e., below a rating of Baa or BBB by Moody's or S&P, respectively), or that are unrated but judged to be of comparable quality by the Fund's adviser are subject to greater credit risk than funds that do not invest in such securities. Currency Risk (Core Plus Bond, High Income, Investment Grade Bond and Strategic Income Funds) The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Emerging Markets Risk (Core Plus Bond, High Income and Strategic Income Funds) The risk associated with investing in companies traded in developing securities markets, which may be smaller and have shorter operating histories than companies in developed markets. Emerging markets involve risks in addition to and greater than those generally associated with investing in developed foreign markets. The extent of economic development, political stability, market depth, infrastructure and capitalization, and regulatory oversight in emerging market economies is generally less than in more developed markets. Extension Risk (All Funds) The risk that an unexpected rise in interest rates will extend the life of a mortgage- or asset-backed security beyond the expected prepayment time, typically reducing the security's value. Foreign Risk The risk associated with investments in issuers located in foreign countries. A Fund's investments in foreign securities may experience more rapid and extreme changes in value than investments in securities of U.S. companies. In the event of a nationalization, expropriation or other confiscation, a Fund that invests in foreign securities could lose its entire investment. When a Fund invests in securities from issuers located in countries with emerging markets, it may face greater foreign risk since emerging market countries may be more likely to experience political and economic instability. High Yield Risk (Core Plus Bond, High Income, Investment Grade Bond and Strategic Income Funds) The risk associated with investing in high yield securities and unrated securities of similar quality (commonly known as "junk bonds"), which may be subject to greater levels of interest rate, credit and liquidity risk than other securities. These securities are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. In addition, an economic downturn or period of rising interest rates could adversely affect the market of these securities and reduce a Fund's ability to sell them. Information Risk (All Funds) The risk that key information about a security is inaccurate or unavailable. Interest Rate Risk (All Funds) The risk of market losses attributable to changes in interest rates. In general, the prices of fixed-income securities rise when interest rates fall, and prices fall when interest rates rise. Leverage Risk (All Funds) The risk associated with securities or practices (e.g., borrowing) that multiply small index or market movements into larger changes in value. When a derivative security (a security whose value is based on another security or index) is used as a hedge against an offsetting position that a Fund also holds, any loss generated by the derivative security should be substantially offset by gains on the hedged instrument, and vice versa. To the extent that a Fund uses a derivative security for purposes other than as a hedge, or, if a Fund hedges imperfectly, that Fund is directly exposed to the risks of that derivative security and any loss generated by the derivative security will not be offset by a gain. Liquidity Risk (All Funds) The risk that certain securities may be difficult or impossible to sell at the time and at the price that the seller would like. This may result in a loss or may otherwise be costly to a Fund. These types of risks may also apply to restricted securities, Section 4(2) Commercial Paper, and Rule 144A Securities. 28 Management Risk (All Funds) The risk that a strategy used by a Fund's portfolio management may fail to produce the intended result. Market Risk (All Funds) The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Opportunity Risk (All Funds) The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are invested in less profitable investments. Options, Futures, Swap Contracts and Other Derivatives Risks (All Funds) These transactions are subject to changes in the underlying security on which such transactions are based. It is important to note that even a small investment in these types of derivative securities may give rise to leverage risk, and can have a significant impact on a Fund's exposure to stock market values, interest rates or currency exchange rates. These types of transactions will be used primarily for hedging purposes. Political Risk (All Funds) The risk of losses directly attributable to government or political actions. Prepayment Risk (All Funds) The risk that unanticipated prepayments may occur, reducing the return from mortgage- or asset-backed securities, or real estate investment trusts. Small Capitalization Companies Risk (Core Plus Bond, High Income and Strategic Income Funds) These companies carry special risks, including narrower markets, more limited financial and management resources, less liquidity and greater volatility than large company stocks. Valuation Risk (All Funds) The risk that a Fund has valued certain securities at a higher price than the price at which they can be sold. 29 Management Team Meet the Funds' Investment Adviser The CDC Nvest Funds family (as defined below) currently includes 23 mutual funds. The CDC Nvest Funds family had combined assets of $ billion as of --- September 30, 2004. CDC Nvest Funds are distributed through IXIS Asset Management Distributors, L.P. (the "Distributor"). This Prospectus covers Class Y shares of the CDC Nvest Income Funds (the "Funds" or each a "Fund"), which, along with the CDC Nvest Equity Funds, CDC Nvest Star Funds, CDC Nvest Tax Free Income Funds, Loomis Sayles Research Fund, Loomis Sayles Growth Fund and Loomis Sayles International Equity Fund, constitute the "CDC Nvest Funds." CDC Nvest Cash Management Trust - Money Market Series is the "Money Market Fund." - -------------------------------------------------------------------------------- Adviser - -------------------------------------------------------------------------------- Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as adviser to the Funds. Loomis Sayles is a subsidiary of IXIS Asset Management North America, L.P. ("IXIS Asset Management North America"), which is a subsidiary of IXIS Asset Management, a French asset manager. Founded in 1926, Loomis Sayles is one of America's oldest investment advisory firms with over $ billion in assets under management as of September 30, 2004. Loomis Sayles ---- is well known for its professional research staff, which is one of the largest in the industry. Loomis Sayles makes investment decisions for each of these Funds.* The aggregate advisory fees paid by the Funds during the fiscal year ended September 30, 2004, as a percentage of each Fund's average daily net assets, were % for Loomis Sayles Core Plus Bond Fund, % for Loomis Sayles ---- ---- Government Securities Fund, % for Loomis Sayles High Income Fund, % for ----- ---- Loomis Sayles Investment Grade Bond Fund (after waiver or reimbursement), % ---- for Loomis Sayles Limited Term Government and Agency Fund, and % for Loomis ---- Sayles Strategic Income Fund (after waiver or reimbursement). * Prior to September 1, 2003, IXIS Asset Management Advisors, L.P. ("IXIS Advisors") served as the adviser to the Funds. Loomis Sayles was the Funds' subadviser during such period. Effective September 1, 2003, IXIS Advisors began serving as advisory administrator to the Loomis Sayles Core Plus Bond Fund and Loomis Sayles Government Securities Fund. - -------------------------------------------------------------------------------- Portfolio Trades - -------------------------------------------------------------------------------- In placing portfolio trades, each Fund's adviser may use brokerage firms that market the Fund's shares or are affiliated with IXIS Asset Management North America, Loomis Sayles' parent company. In placing trades, Loomis Sayles will seek to obtain the best combination of price and execution, which involves a number of judgmental factors. Such portfolio trades are subject to applicable regulatory restrictions and related procedures adopted by the Board of Trustees. Transactions with Other Investment Companies. To the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC, each Fund may invest any of its daily cash balances in shares of investment companies that are advised by IXIS Advisors or its affiliates (including affiliated money market and short-term bond funds) Each Fund may borrow money for temporary or emergency purposes in accordance with its investment restrictions. Subject to the terms of any applicable exemptive relief that may be granted by the SEC, each Fund may borrow for such purposes from each other under an interfund lending program. In such a program, a Fund and affiliated funds would be permitted to lend and borrow money for certain temporary or emergency purposes directly to and from one another. Participation in such an interfund lending program would be voluntary for both borrowing and lending funds, and a Fund would participate in an interfund lending program only if the Board of Trustees determined that doing so would benefit a Fund. Should a Fund participate in such an interfund lending program, the Board of Trustees would establish procedures for the operation of the program by Loomis Sayles or an affiliate. 30 Meet the Funds' Portfolio Managers Matthew J. Eagan Matthew Eagan has served as co-portfolio manager of the High Income Fund since May 2002. Mr. Eagan, Portfolio Manager and Vice President of Loomis Sayles, began his investment career in 1990 and joined Loomis Sayles in 1997. Mr. Eagan received a B.A. from Northeastern University and an M.B.A. from Boston University. He holds the designation of Chartered Financial Analyst. Mr. Eagan has over 14 years of investment experience. Daniel J. Fuss Daniel Fuss has served as portfolio manager of the Strategic Income Fund since May 1995 and has served as co-portfolio manager of the Investment Grade Bond Fund since its inception in December 1996. Mr. Fuss is Vice Chairman, Director and Managing Partner of Loomis Sayles. He began his investment career in 1968 and has been at Loomis Sayles since 1976. Mr. Fuss holds the designation of Chartered Financial Analyst. He received a B.S. and an M.B.A. from Marquette University and has over 37 years of investment experience. Kathleen C. Gaffney Kathleen Gaffney has been assisting Daniel Fuss as a portfolio manager of the Strategic Income Fund since April 1996 and has served as co-portfolio manager of the High Income Fund since May 2002. Ms. Gaffney, Vice President of Loomis Sayles, joined the company in 1984. Ms. Gaffney holds the designation of Chartered Financial Analyst. She received a B.A. from the University of Massachusetts at Amherst and has over 20 years of investment experience. John Hyll John Hyll has served as co-portfolio manager of the Government Securities Fund since January 2003 and the Limited Term Goverment and Agency Fund since April 2003. Mr. Hyll, Portfolio Manager and Vice President of Loomis Sayles, began his investment career in 1983 and joined Loomis Sayles in 1989. Mr. Hyll received a B.A. and an M.B.A. from Baldwin-Wallace College. He has over 21 years of investment experience. Steven Kaseta Steven Kaseta has served as co-portfolio manager of the Investment Grade Bond Fund since February 2002. Mr. Kaseta, Vice President of Loomis Sayles, joined the firm in 1994. He received a A.B. from Harvard University and an M.B.A. from the Wharton School at the University of Pennsylvania. Mr. Kaseta has over 22 years of investment experience. Peter W. Palfrey Peter Palfrey has served as co-portfolio manager of the Core Plus Bond Fund since May 1999, including service until May 2001 with Back Bay Advisors, the former subadviser of the Core Plus Bond Fund. Mr. Palfrey, Portfolio Manager and Vice President of Loomis Sayles, joined the company in 2001. Prior to that he was Senior Vice President of Back Bay Advisors from 1993 until 2001. Mr. Palfrey holds the designation of Chartered Financial Analyst. He received his B.A. from Colgate University and has over 22 years of investment experience. Richard G. Raczkowski Richard Raczkowski has served as a co-portfolio manager of the Core Plus Bond Fund since May 1999 (including service until May 2001 with Back Bay Advisors, the former subadviser of the Core Plus Bond Fund). Mr. Raczkowski, Portfolio Manager and Vice President of Loomis Sayles, joined the company in 2001. Prior to that he was Vice President of Back Bay Advisors from 1998 until 2001. He received a B.A. from the University of Massachusetts and an M.B.A. from Northeastern University and has over 20 years of investment experience. 31 Clifton V. Rowe Cliff Rowe has served as co-portfolio manager of the Limited Term Government and Agency Fund since June 2001 and the Government Securities Fund since January 2003. Mr. Rowe, Portfolio Manager and Vice President of Loomis Sayles, joined the company in 1992. Prior to becoming a Portfolio Manager, he served Loomis Sayles as a Trader from 1999 until 2001. He holds the designation of Chartered Financial Analyst. Mr. Rowe received a B.B.A. from James Madison University, an MBA from the University of Chicago and has over 13 years of investment experience. 32 Fund Services It's Easy to Open an Account - -------------------------------------------------------------------------------- To Open an Account with CDC Nvest Funds: - -------------------------------------------------------------------------------- 1. Read this Prospectus carefully. The Funds will only accept accounts from U.S. citizens with a U.S. address or resident aliens with a U.S. address and a U.S. taxpayer identification number. 2. Read the following eligibility and minimum investment requirements to determine if you may purchase Class Y shares. Class Y shares of the Fund may be purchased by the following entities at the following investment minimums. A minimum initial investment is $1 million and $10,000 is the minimum subsequent investment for: .. Other mutual funds, endowments, foundations, bank trust departments or trust companies. There is no initial or subsequent investment minimum for: .. Retirement Plans (401(a), 401(k), 457 or 403(b) plans) that have total investment assets of at least $10 million. Plan sponsor accounts can be aggregated to meet this minimum. .. Insurance Company Accounts of New England Financial, Metropolitan Life Insurance Company ("MetLife") or their affiliates. .. Separate Accounts of New England Financial, MetLife or their affiliates. .. Wrap Fee Programs of certain broker-dealers not being paid by the Fund, Loomis Sayles or the Distributor. Such wrap fee programs may be subject to additional or different conditions, including a wrap account fee. Each broker-dealer is responsible for transmitting to its customer a schedule of fees and other information regarding any such conditions. If the participant who purchased Class Y shares through a wrap fee program should terminate the wrap fee arrangement with the broker-dealer, then the Class Y shares will, at the discretion of the broker-dealer, automatically be converted to a number of Class A shares of the same Fund having the same dollar value of the shares converted, and the broker-dealer may thereafter be entitled to receive from that Fund an annual service fee of 0.25% of the value of Class A shares owned by that shareholder. .. Certain Individual Retirement Accounts if the amounts invested represent rollover distributions from investments by any of the Retirement Plans set forth above. .. Deferred Compensation Plan Accounts of New England Life Insurance Company ("NELICO"), MetLife or their affiliates ("Deferred Compensation Accounts"). .. Service Accounts through an omnibus account by investment advisers, financial planners, broker-dealers or other intermediaries who have entered into a service agreement with a Fund. A fee may be charged to shareholders purchasing through a service account if they effect transactions through such parties and they should contact such parties regarding information regarding such fees. At the discretion of Loomis Sayles, employees and clients of Loomis Sayles may purchase Class Y shares of the Funds below the stated minimums. 3. You should contact CDC Nvest Funds at 800-225-5478 for an application or if you have any questions about purchasing Fund shares. 4. Use the sections of this Prospectus that follow as your guide for purchasing shares. - -------------------------------------------------------------------------------- Certificates - -------------------------------------------------------------------------------- 33 You will not receive certificates representing Class Y shares. 34 Fund Services Buying Shares Opening an Account Adding to an Account - -------------------------------------------------------------------------------- Through Your Investment Dealer - -------------------------------------------------------------------------------- . Call your investment dealer for information about opening or adding to an account. Dealers may also charge you a processing or service fee in connection with the purchase of fund shares. - -------------------------------------------------------------------------------- By Mail - -------------------------------------------------------------------------------- . Make out a check in . Make out a check in U.S. U.S. dollars for the dollars for the investment investment amount, amount, payable to "CDC Nvest payable to "CDC Funds. " Third party checks Nvest Funds. " Third and "starter" checks will not party checks and be accepted. "starter" checks will not be accepted. [envelope icon] . Mail the check with . Complete the investment slip your completed from an account statement or application to CDC include a letter specifying Nvest Funds, P.O. the Fund name, your class of Box 219579, Kansas shares, your account number City, MO 64121-9579. and the registered account name(s). - -------------------------------------------------------------------------------- By Exchange (See the section entitled "Exchanging Shares" for more details.) - -------------------------------------------------------------------------------- [exchange icon] . Obtain a current . Call your investment dealer prospectus for the or CDC Nvest Funds at Fund into which you 800-225-5478 to request an are exchanging by exchange. calling your investment dealer or CDC Nvest Funds at 800-225-5478. . Call your investment dealer or CDC Nvest Funds to request an exchange. - -------------------------------------------------------------------------------- By Wire - -------------------------------------------------------------------------------- . Opening an account . Instruct your bank to by wire is not transfer funds to State available. Street Bank & TrustCompany, ABA #011000028, and DDA #99011538. [wire icon] . Specify the Fund name, your class of shares, your account number and the registered account name(s). Your bank may charge you for such a transfer. 35 - -------------------------------------------------------------------------------- Through Automated Clearing House ("ACH") - -------------------------------------------------------------------------------- . Although you cannot . Call CDC Nvest Funds at [ACH icon] open an account 800-225-5478 to add shares to through ACH, you may your account through ACH. add this feature by . If you have not signed up for selecting it on your the ACH system, please call account application. CDC Nvest Funds for a Service . Ask your bank or Options Form. A signature credit union whether guarantee may be required to it is a member of add this privilege. the ACH system. 36 Fund Services Selling Shares To Sell Some or All of Your Shares Certain restrictions may apply. See section entitled "Restrictions on Buying, Selling and Exchanging Shares." - -------------------------------------------------------------------------------- Through Your Investment Dealer - -------------------------------------------------------------------------------- . Call your investment dealer for information. Dealers may also charge you a processing or service fee in connection with the redemption of fund shares. - -------------------------------------------------------------------------------- By Mail - -------------------------------------------------------------------------------- . Write a letter to request a redemption. Specify the name of your Fund, class of shares, account number, the exact registered account name(s), the number of shares or the dollar amount to be redeemed and the method by which you wish to receive your proceeds. Additional materials may be required. See the section entitled "Selling Shares in Writing." [envelope icon] . The request must be signed by all of the owners of the shares and must include the capacity in which they are signing, if appropriate. . Mail your request by regular mail to CDC Nvest Funds, P.O. Box 219579, Kansas City, MO 64121-9579 or by registered, express or certified mail to CDC Nvest Funds, 330 West 9th Street, Kansas City, MO 64105-1514. . Your proceeds (less any applicable CDSC) will be delivered by the method chosen in your letter. Proceeds delivered by mail will generally be mailed to you on the business day after the request is received in good order. - -------------------------------------------------------------------------------- By Exchange (See the section entitled "Exchanging Shares" for more details.) - -------------------------------------------------------------------------------- . Obtain a current prospectus for the Fund into which you are exchanging by calling your investment dealer or CDC Nvest Funds at 800-225-5478. [exchange icon] . Call CDC Nvest Funds to request an exchange. - -------------------------------------------------------------------------------- By Wire - -------------------------------------------------------------------------------- . Complete the "Bank Information" section on your account application. [wire icon] . Call CDC Nvest Funds at 800-225-5478 or indicate in your redemption request letter (see above) that you wish to have your proceeds wired to your bank. . Proceeds (less any applicable CDSC) will generally be wired on the next business day. A wire fee (currently $5.00) will be deducted from the proceeds. Your bank may charge you a fee to receive the wire. - -------------------------------------------------------------------------------- Through Automated Clearing House - -------------------------------------------------------------------------------- . Ask your bank or credit union whether it is a member of the ACH system. . Complete the "Bank Information" section on your account application. [ACH icon] . If you have not signed up for the ACH system on your application, please call CDC Nvest Funds at 800-225-5478 for a Service Options Form. . Call CDC Nvest Funds to request an ACH redemption. . Proceeds (less any applicable CDSC) will generally arrive at your bank within three business days. - -------------------------------------------------------------------------------- By Telephone - -------------------------------------------------------------------------------- 37 [telephone . Call CDC Nvest Funds at 800-225-5478 to choose the method icon] you wish to use to redeem your shares. You may receive your proceeds by mail, by wire or through ACH (see above). 38 Fund Services Selling Shares in Writing If you wish to redeem your shares in writing, all owners of the shares must sign the redemption request in the exact names in which the shares are registered and indicate any special capacity in which they are signing. In certain situations, you will be required to make your request to sell shares in writing. In these instances, a letter of instruction signed by the authorized owner is necessary. In certain situations, we also may require a medallion signature guarantee or additional documentation. A medallion signature guarantee protects you against fraudulent orders and is necessary if: .. your address of record has been changed within the past 30 days; .. you are selling more than $100,000 worth of shares and you are requesting the proceeds by check; .. a proceeds check for any amount is either mailed to an address other than the address of record or not payable to the registered owner(s); or .. the proceeds are sent by check, wire, or in some circumstances ACH to a bank account whose owner(s) do not match the owner(s) of the fund account. A notary public cannot provide a medallion signature guarantee. The Funds will only accept medallion signature guarantees bearing the STAMP2000 Medallion imprint. A medallion signature guarantee can be obtained from one of the following sources: .. a financial representative or securities dealer; .. a federal savings bank, cooperative, or other type of bank; .. a savings and loan or other thrift institution; .. a credit union; or .. a securities exchange or clearing agency. 39 Fund Services Exchanging Shares You may exchange Class Y shares of your Fund, subject to minimum investment requirements, for Class Y shares of any CDC Nvest Fund that offers Class Y shares, for Institutional Class shares of any other series of Loomis Sayles Funds that offers Institutional Class shares or for Class A shares of the Money Market Fund. Certain Loomis Sayles Funds have redemption fees. Agents, general agents, directors and senior officers of NELICO and its insurance company subsidiaries may, at the discretion of NELICO, elect to exchange Class Y shares of any CDC Nvest Fund in a NELICO Deferred Compensation Account for Class A shares of any other CDC Nvest Fund which does not offer Class Y shares. Class A shares of any CDC Nvest Fund in a NELICO Deferred Compensation Account may also be exchanged for Class Y shares of any CDC Nvest Fund. All exchanges are subject to the eligibility requirements of the fund into which you are exchanging and any other limits on sales of or exchanges into that fund. The exchange privilege may be exercised only in those states where shares of such funds may be legally sold. For federal income tax purposes, an exchange of a fund shares for shares of another fund is treated as a sale on which gain or loss may be recognized. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Before requesting an exchange into any other fund, please read its prospectus carefully. Please refer to the Statement of Additional Information (the "SAI") for more detailed information on exchanging Fund shares. Restrictions on Buying, Selling and Exchanging Shares Frequent purchases and redemptions of Fund shares by shareholders may present certain risks for other shareholders in the Fund. This includes the risk of diluting the value of Fund shares held by long-term shareholders, interfering with the efficient management of a Fund's portfolio, and increasing brokerage and administrative costs. Funds investing in securities that require special valuation processes (such as foreign securities, high yield securities, or small cap securities) may also have increased exposure to these risks. Each Fund discourages excessive, short-term trading policies that may be detrimental to the Fund and its shareholders. The Funds' Board of Trustees has adopted the following policies with respect to frequent purchases and redemptions of Fund shares. The Funds reserve the right to suspend or change the terms of purchasing or exchanging shares. Each Fund and the Distributor reserve the right to refuse or limit any purchase or exchange order for any reason, including if the transaction is deemed not to be in the best interests of the Fund's other shareholders or possibly disruptive to the management of the Fund. Limits on Frequent Trading. Without limiting the right of the Fund and the Distributor to refuse any purchase or exchange order, the Fund and the Distributor may (but are not obligated to) restrict purchases and exchanges for the accounts of "market timers." With respect to exchanges, an account may be deemed to be one of a market timer if (i) more than two exchange purchases of any Fund are made for the account over a 90-day interval as determined by the Fund; or (ii) the account makes one or more exchange purchases of any Fund over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. With respect to new purchases of a Fund, an account may be deemed to be one of a market timer if (i) more than twice over a 90-day interval as determined by the Fund, there is a purchase in a Fund followed by a subsequent redemption; or (ii) there are two purchases into a Fund by an account, each followed by a subsequent redemption over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. The preceding are not exclusive lists of activities that the Fund and the Distributor may consider to be "market timing." Trade Activity Monitoring. Trading activity is monitored selectively on a daily basis in an effort to detect excessive short-term trading activities. If the Fund or the Distributor believes that a shareholder or financial intermediary has engaged in market timing or other excessive, short-term trading activity, it may, in its discretion, request that the 40 shareholder or financial intermediary stop such activities or refuse to process purchases or exchanges in the accounts. In its discretion, the Fund or the Distributor may restrict or prohibit transactions by such identified shareholders or intermediaries. In making such judgments, the Fund and the Distributor seek to act in a manner that they believe is consistent with the best interests of all shareholders. The Fund and the Distributor also reserve the right to notify financial intermediaries of your trading activity. Because the Fund and the Distributor will not always be able to detect market timing activity, investors should not assume the Fund will be able to detect or prevent all market timing or other trading practices that may not be in the best interests of the Fund shareholders. For example, the ability of the Fund and the Distributor to monitor trades that are placed by omnibus or other nominee accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the record of a Fund's underlying beneficial owners. - -------------------------------------------------------------------------------- Purchase Restrictions - -------------------------------------------------------------------------------- Each Fund is required by federal regulations to obtain certain personal information from you and to use that information to verify your identity. The Fund may not be able to open your account if the requested information is not provided. Each Fund reserves the right to refuse to open an account, close an account and redeem your shares at the then current price or take other such steps that the Fund deems necessary to comply with federal regulations if your identity cannot be verified. - -------------------------------------------------------------------------------- Selling Restrictions - -------------------------------------------------------------------------------- The table below describes restrictions placed on selling shares of any Fund described in this Prospectus: - -------------------------------------------------------------------------------- Restriction Situation - -------------------------------------------------------------------------------- The Fund may suspend the right of . When the New York Stock Exchange (the redemption or postpone payment "Exchange") is closed (other than a for more than 7 days: weekend/holiday) . During an emergency . During any other period permitted by the SEC - -------------------------------------------------------------------------------- The Fund reserves the right to . With a notice of a dispute between suspend account services or refuse registered owners transaction requests: . With suspicion/evidence of a fraudulent act - -------------------------------------------------------------------------------- The Fund may pay the redemption . When it is detrimental for a Fund to price in whole or in part by a make cash payments as determined in distribution in kind of readily the sole discretion of the adviser marketable securities in lieu of cash or may take up to 7 days to pay a redemption request in order to raise capital: - -------------------------------------------------------------------------------- The Fund may withhold redemption . When redemptions are made within 10 proceeds until the check or funds calendar days of purchase by check or have cleared: ACH of the shares being redeemed - -------------------------------------------------------------------------------- Although most redemptions are made in cash, as described in the SAI, each Fund reserves the right to redeem shares in kind. 41 Fund Services How Fund Shares Are Priced "Net asset value" is the price of one share of a Fund without a sales charge, and is calculated each business day using this formula: Net Asset Value = Total market value of securities + Cash and other assets - Liabilities ---------------------------------------------------------------------- Number of outstanding shares
The net asset value of Fund shares is determined according to this schedule: .. A share's net asset value is determined at the close of regular trading on the Exchange on the days the Exchange is open for trading. This is normally 4:00 p.m. Eastern time. Generally, a Fund's shares will not be priced on the days on which the Exchange is closed for trading. However, in Loomis Sayles' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if Loomis Sayles in its discretion determines that there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares. This may occur, for example, if the Exchange is closed but the fixed income markets are open for trading. In addition, a Fund's shares will not be priced on the holidays listed in the SAI. See the section entitled "Net Asset Value and Public Offering Price" in the SAI for more details. .. The price you pay for purchasing, redeeming or exchanging a share will be based upon the net asset value next calculated by each Fund's custodian (plus or minus applicable sales charges as described earlier in this Prospectus) after your order is received "in good order." .. Requests received by the Distributor after the Exchange closes will be processed based upon the net asset value determined at the close of regular trading on the next day that the Exchange is open, with the exception that those orders received by your investment dealer before the close of the Exchange and received by the Distributor from the investment dealer before 5:00 p.m. Eastern time* on the same day will be based on the net asset value determined on that day. A Fund significantly invested in foreign securities may have net asset value changes on days when you cannot buy or sell its shares. * Under limited circumstances, the Distributor may enter into contractual agreements pursuant to which orders received by your investment dealer before the close of the Exchange and transmitted to the Distributor prior to 9:30 a.m. on the next business day are processed at the net asset value determined on the day the order was received by your investment dealer. Generally, during times of substantial economic or market change, it may be difficult to place your order by phone. During these times, you may deliver your order in person to the Distributor or send your order by mail as described in the sections entitled "Buying Shares" and "Selling Shares." Generally, Fund securities are valued as follows: .. Equity securities -- market price or as provided by a pricing service if market price is unavailable. .. Debt securities (other than short-term obligations) -- based upon pricing service valuations, which determine valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. .. Short-term obligations (remaining maturity of less than 60 days) -- amortized cost (which approximates market value). .. Securities traded on foreign exchanges -- market price on the non-U.S. exchange, unless the Fund believes that an occurrence after the close of that exchange will materially affect the security's value. In that case, the security may be fair valued at the time the Fund determines its net asset value by or pursuant to procedures approved by the Board of Trustees. When fair valuing their securities, the Funds may, among other things, use modeling tools or 42 other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the local market and before the time a Fund's net asset value is calculated. .. Options -- last sale price, or if not available, last offering price. .. Futures -- unrealized gain or loss on the contract using current settlement price. When a settlement price is not used, futures contracts will be valued at their fair value as determined by or pursuant to procedures approved by the Board of Trustees. .. All other securities -- fair market value as determined by the adviser of the Fund pursuant to procedures approved by the Board of Trustees. Because of fair value pricing, as described above for "Securities traded on foreign exchanges" and "All other securities," securities may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board of Trustees believes is more likely to result in a price that reflects fair value (which is the amount that a Fund might reasonably expect to receive from a current sale of the security in the ordinary course of business). A Fund may also value securities at fair value or estimate their value pursuant to procedures approved by the Board of Trustees in other circumstances such as when extraordinary events occur after the close of the relevant market but prior to the close of the Exchange. This may include situations relating to a single issuer (such as a declaration of bankruptcy or a delisting of the issuer's security from the primary market on which it has traded) as well as events affecting the securities markets in general (such as market disruptions or closings and significant fluctuations in U.S. and/or foreign markets). 43 Fund Services Dividends and Distributions The Funds generally distribute most or all of their net investment income (other than capital gains) in the form of dividends. Each Fund declares dividends for each class daily and pays them monthly. The net investment income accruing on Saturdays, Sundays and other days on which the Exchange is closed is declared as a dividend on the immediately following business day. Each Fund expects to distribute all net realized long- and short-term capital gains annually, after applying any available capital loss carryovers. To the extent permitted by law, the Board of Trustees may adopt a different schedule as long as payments are made at least annually. Distributions will automatically be reinvested in shares of the same class of the distributing Fund at net asset value, unless you select one of the following alternatives: .. Receive distributions from dividends and interest in cash while reinvesting distributions from capital gains in additional Class Y shares of the Fund, or in Class Y shares of another CDC Nvest Fund. .. Receive all distributions in cash. For more information or to change your distribution option, contact CDC Nvest Funds in writing or call 800-225-5478. If you earn more than $10 annually in taxable income from a CDC Nvest Fund held in a non-retirement plan account, you will receive a Form 1099 to help you report the prior calendar year's distributions on your federal income tax return. This information will also be reported to the Internal Revenue Service. Be sure to keep this Form 1099 as a permanent record. A fee may be charged for any duplicate information requested. Tax Consequences Each Fund intends to meet all requirements under Subchapter M of the Internal Revenue Code necessary to qualify for treatment as a "regulated investment company" and thus does not expect to pay any federal income tax on income and capital gains distributed to shareholders. For taxable years beginning on or before December 31, 2008, long-term capital gain rates applicable to individuals have been temporarily reduced. For more information, see the SAI, under "Income Dividends, Capital Gain Distributions and Tax Status." Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price the shareholder paid). Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares. Distributions from the Funds. For federal income tax purposes, distributions of investment income are generally taxable as ordinary income. Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. Distributions of net capital gains from the sale of investments that the Fund owned for more than one year and that are properly designated by the Fund as capital gain dividends will be taxable as long-term capital gains. Distributions of gains from the sale of investments that the Fund owned for one year or less will be taxable as ordinary income. For taxable years beginning on or before December 31, 2008, distributions of investment income designated by the Fund as derived from "qualified dividend income" will be taxed in the hands of individuals at the reduced long-term capital gain rates described below. "Qualified dividend income" generally includes dividends from domestic and some foreign corporations. It does not include income from fixed-income securities. In addition, the Fund must meet holding period and other requirements with respect to the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares for such distributions to be eligible for treatment as qualified dividend income. A Fund's investments in foreign securities may be subject to foreign withholding and other taxes. In that case, the Fund's yield on those securities would be decreased. We do not expect shareholders to be entitled to claim a credit or deduction with respect to foreign taxes in any Fund that invests more than 50% of its assets in foreign securities. In addition, a Fund's 44 investments in foreign securities or foreign currencies may increase or accelerate a Fund's recognition of ordinary income and may affect the timing or amount of the Fund's distributions. Because the Funds invest in foreign securities, shareholders should consult their tax advisers about consequences of their investments under foreign laws. Dividends derived from interest on securities issued by the U.S. government or its agencies or instrumentalities may be exempt from state and local income taxes. Each Fund advises shareholders of the proportion of any Fund's dividends that are derived from such interest. A Fund's investments in certain debt obligations may cause that Fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. Income generated by investments in fixed-income securities is not eligible for treatment as qualified dividend income. Sales or Exchanges of Fund Shares. The redemption, sale or exchange of Fund shares (including an exchange of Fund shares for shares of another CDC Nvest Fund or Money Market Fund) is a taxable event and may result in the recognition of a gain or loss. Gain or loss, if any, recognized on the redemption, sale, exchange or other disposition of Fund shares will be taxed as a long-term capital gain or loss if the shares are capital assets in the shareholder's hands and if the shareholder held the shares for more than one year. Under current law, dividends (other than capital gain dividends) paid by the Fund to a person who is not a "U.S. person" within the meaning of the Code (a "foreign person") are generally subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate). Under the American Jobs Creation Act of 2004 signed by President Bush on October 22, 2004, effective for taxable years of the Fund beginning after December 31, 2004 and before January 1, 2008, the Fund will no longer be required to withhold any amounts with respect to distributions of net short-term capital gains in excess of net long-term capital losses that the Fund properly designates nor with respect to distributions of U.S. source interest income that would not be subject to U.S. federal income tax if earned directly by a foreign person. This provision will first apply to the Fund in its taxable year beginning October 1, 2005. You should consult your tax adviser for more information on your own situation, including possible foreign, state or local taxes. Compensation to Securities Dealers The Distributor and its affiliates may, out of their own resources, make payments to dealers which satisfy certain criteria established from time to time by the Distributor. Payments may vary based on net sales, the length of time assets of a dealer's clients have remained invested in the Funds, and other factors. See the SAI for more details. 45 Financial Performance The financial highlights table is intended to help you understand each Fund's financial performance for the last five years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in the table represent the return that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by , independent registered public accounting firm, - ---------------------------- whose report, along with each Fund's financial statements, is included in the Fund's annual report to shareholders. The annual report is incorporated by reference into the SAI, both of which are available free of charge upon request from the Distributor. (TO BE UPDATED) 46 Glossary of Terms Bid price -- The price a prospective buyer is ready to pay. This term is used by traders who maintain firm bid and offer prices in a given security by standing ready to buy or sell security units at publicly quoted prices. Bottom-up analysis -- The analysis of potential performance of individual stocks before considering the impact of economic trends. Such companies may be identified from research reports, stock screens or personal knowledge of the products and services. Capital gain distributions -- Payments to a Fund's shareholders of net profits earned from selling securities in a Fund's portfolio. Capital gain distributions are usually paid once a year. Credit rating -- Independent evaluation of a bond's creditworthiness. This measurement is usually calculated through an index compiled by companies such as Standard & Poor's Rating Service, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), or Fitch Investors Services, Inc. ("Fitch"). Bonds with a credit rating of BBB or higher by S&P or Fitch, or Baa or higher by Moody's, are generally considered investment grade. Derivative -- A financial instrument whose value and performance are based on the value and performance of another security or financial instrument. Discounted price -- The difference between a bond's current market price and its face or redemption value. Diversification -- The strategy of investing in a wide range of securities representing different market sectors to reduce the risk if an individual company or one sector suffers losses. Dividend yield -- The current or estimated annual dividend divided by the market price per share of a security. Duration -- An estimate of how much a bond's price fluctuates with changes in comparable interest rates. Earnings growth -- A pattern of increasing rates of growth in earnings per share from one period to another, which usually causes a stock's price to rise. Fundamental analysis -- An analysis of the balance sheet and income statements of a company in order to forecast its future stock price movements. Fundamental analysis considers records of assets, earnings, sales, products, management and markets in predicting future trends in these indicators of a company's success or failure. By appraising a company's prospects, analysts using such an approach assess whether a particular stock or group of stocks is undervalued or overvalued at its current market price. Growth investing -- An investment style that emphasizes companies with strong earnings growth. Growth investing is generally considered more aggressive than "value" investing. Income distributions -- Payments to a Fund's shareholders resulting from the net interest or dividend income earned by a Fund's portfolio. Inflation -- A general increase in prices coinciding with a fall in the real value of money, as measured by the Consumer Price Index. Interest rate -- Rate of interest charged for the use of money, usually expressed at an annual rate. Market capitalization -- Market price multiplied by number of shares outstanding. Large capitalization companies generally have over $5 billion in market capitalization; medium cap companies between $1.5 billion and $5 billion; and small cap companies less than $1.5 billion. These capitalization figures may vary depending upon the index being used and/or the guidelines used by the portfolio manager. Maturity -- The final date on which the payment of a debt instrument (e.g., bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds generally have maturities of up to 5 years; intermediate-term bonds between 5 and 15 years; and long-term bonds over 15 years. 47 Net assets -- A Fund's assets minus its liabilities. With respect to the Funds that have a policy to invest 80% of their net assets in particular kinds of securities, "net assets" as used in such policies means net assets plus borrowings made for investment purposes. Net asset value (NAV) per share -- The market value of one share of a Fund on any given day without taking into account any front-end sales charge or CDSC. It is determined by dividing a Fund's total net assets by the number of shares outstanding. Rule 144A securities -- Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless a manager has determined, under guidelines established by a Fund's trustees, that a particular issue of Rule 144A securities is liquid. Top-down approach -- The method in which an investor first looks at trends in the general economy, and next selects industries and then companies that the investor believes should benefit from those trends. Total return -- The change in value of an investment in a Fund over a specific time period expressed as a percentage. Total returns assume all distributions are reinvested in additional shares of a Fund. Value investing -- A relatively conservative investment approach that focuses on companies that may be temporarily out of favor or whose earnings or assets are not fully reflected in their stock prices. Value stocks will tend to have a lower price-to-earnings ratio than growth stocks. Volatility -- The general variability of a portfolio's value resulting from price fluctuations of its investments. In most cases, the more diversified a portfolio is, the less volatile it will be. Yield -- The rate at which a Fund earns income, expressed as a percentage. Mutual fund yield calculations are standardized, based upon a formula developed by the SEC. Yield-to-maturity -- The concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield (the interest rate on a debt security the issuer promises to pay to the holder until maturity, expressed as an annual percentage of face value) and the time between interest payments. 48 If you would like more information about the Funds, the following documents are available free upon request: Annual and Semiannual Reports -- Provide additional information about each Fund's investments. Each report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. Statement of Additional Information (SAI) -- Provides more detailed information about the Funds and their investment limitations and policies, has been filed with the SEC and is incorporated into this Prospectus by reference. To order a free copy of the Funds' annual or semiannual report or their SAI, contact your financial representative, or the Funds at: IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, MA 02116 Telephone: 800-225-5478 Internet: www.cdcnvestfunds.com Important Notice Regarding Delivery of Shareholder Documents: In our continuing effort to reduce your fund's expenses and the amount of mail that you receive from us, we will combine mailings of prospectuses, annual or semiannual reports and proxy statements to your household. If more than one family member in your household owns the same fund or funds described in a single prospectus, report or proxy statement, you will receive one mailing unless you request otherwise. Additional copies of our prospectuses, reports or proxy statements may be obtained at any time by calling 800-225-5478. If you are currently receiving multiple mailings to your household and would like to receive only one mailing or if you wish to receive separate mailings for each member of your household in the future, please call us at the telephone number listed above and we will resume separate mailings within 30 days of your request. Your financial representative or CDC Nvest Funds will also be happy to answer your questions or to provide any additional information that you may require. Information about the Funds, including their reports and SAI, can be reviewed and copied at the Public Reference Room of the SEC in Washington, D.C. Text-only copies of the Funds' reports and SAI are available free from the Edgar Database on the SEC's Internet site at: www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. Portfolio Holdings A description of 's policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the SAI. IXIS Asset Management Distributors, L.P. (IXIS Distributors), and other firms selling shares of CDC Nvest Funds are members of the National Association of Securities Dealers, Inc. (NASD). As a service to investors, the NASD has asked that we inform you of the availability of a brochure on its Public Disclosure Program. The program provides access to information about securities firms and their representatives. Investors may obtain a copy by contacting the NASD at 800-289-9999 or by visiting its Web site at www.NASD.com. IXIS Distributors distributes the CDC Nvest Funds and Loomis Sayles Funds. If you have a complaint concerning IXIS Distributors or any of its representatives or associated persons, please direct it to IXIS Asset Management Distributors, L.P., Attn: Director of Compliance, 399 Boylston Street - 6th Floor, Boston, MA 02116 or call us at 800-225-5478. (Investment Company Act File No. 811-4323) 49 (Investment Company Act File No. 811-242) (Investment Company Act File No. 811-6241) 50 [CDC Nvest Funds Logo] CDC Nvest Tax Free Income Funds Loomis Sayles Massachusetts Tax Free Income Fund Loomis, Sayles & Company, L.P. Loomis Sayles Municipal Income Fund Loomis, Sayles & Company, L.P. Prospectus February 1, 2005 What's Inside Goals, Strategies & Risks....Page X Fund Fees & Expenses.........Page X More About Risk..............Page X Management Team..............Page X Fund Services................Page X Financial Performance........Page X CDC Nvest Funds P.O. Box 219579 Kansas City, MO 64121-9579 800-225-5478 www.cdcnvestfunds.com The Securities and Exchange Commission has not approved any Fund's shares or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime. For general information on the Funds or any of their services and for assistance in opening an account, contact your financial representative or call CDC Nvest Funds. Table of Contents - -------------------------------------------------------------------------------- GOALS, STRATEGIES & RISKS - -------------------------------------------------------------------------------- Loomis Sayles Massachusetts Tax Free Income Fund...............................X Loomis Sayles Municipal Income Fund............................................X - -------------------------------------------------------------------------------- FUND FEES & EXPENSES - -------------------------------------------------------------------------------- Fund Fees & Expenses...........................................................X - -------------------------------------------------------------------------------- MORE ABOUT RISK - -------------------------------------------------------------------------------- More About Risk................................................................X - -------------------------------------------------------------------------------- MANAGEMENT TEAM - -------------------------------------------------------------------------------- Meet the Funds' Investment Adviser.............................................X Meet the Funds' Portfolio Managers.............................................X - -------------------------------------------------------------------------------- FUND SERVICES - -------------------------------------------------------------------------------- Investing in the Funds.........................................................X How Sales Charges are Calculated...............................................X Ways to Reduce or Eliminate Sales Charges......................................X It's Easy to Open an Account...................................................X Buying Shares..................................................................X Selling Shares.................................................................X Selling Shares in Writing......................................................X Exchanging Shares..............................................................X Restrictions On Buying, Selling and Exchanging Shares..........................X How Fund Shares are Priced.....................................................X Dividends and Distributions....................................................X Tax Consequences...............................................................X Compensation to Securities Dealers.............................................X Additional Investor Services...................................................X - -------------------------------------------------------------------------------- FINANCIAL PERFORMANCE - -------------------------------------------------------------------------------- Financial Performance..........................................................X - -------------------------------------------------------------------------------- GLOSSARY OF TERMS - -------------------------------------------------------------------------------- Glossary of Terms..............................................................X If you have any questions about any of the terms used in this Prospectus, please refer to the "Glossary of Terms." To learn more about the possible risks of investing in the Funds, please refer to the section entitled "More About Risk." This section details the risks of practices in which the Funds may engage. Please read this section carefully before you invest. Fund shares are not bank deposits and are not guaranteed, endorsed or insured by the Federal Deposit Insurance Corporation or any other government agency, and are subject to investment risks, including possible loss of the principal invested. 2 Goals, Strategies & Risks Loomis Sayles Massachusetts Tax Free Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Robert Payne and Martha A. Strom Category: Tax Free Income Ticker Symbol: Class A Class B ------- ------- NEFMX NEMBX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks to maintain a high level of current income exempt from federal and Massachusetts personal income taxes. The Fund's investment goal may be changed without shareholder approval. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- The Fund typically invests in a mix of Massachusetts municipal bonds, including general obligation bonds and issues secured by specific revenue streams. It is a fundamental policy of the Fund to, under normal market conditions, invest at least 80% of its net assets in investments the income of which is exempt from federal and Massachusetts income tax (which may include securities of issuers located outside of Massachusetts so long as the income of such securities is exempt from federal and Massachusetts income tax). Additionally, at least 85% of the Fund's assets will consist of securities rated BBB or better by Standard & Poor's Ratings Group ("S&P") or Fitch Investor Services, Inc. ("Fitch") or Baa or better by Moody's Investors Service, Inc. ("Moody's") or securities that are non-rated but are considered to be of comparable quality by Loomis Sayles. To achieve this goal, the Fund maintains policies that provide that (1) at least 90% of its net assets are invested in debt obligations on which the interest is exempt from federal income tax (other than the alternative minimum tax ("AMT")) and Massachusetts personal income tax ("Massachusetts Tax-Exempt Securities") and (2) not more than 20% of its assets are invested in securities on which the interest is subject to AMT for individuals. Loomis Sayles follows a conservative total-return oriented investment approach in selecting securities for the Fund. It takes into account economic and market conditions as well as issuer-specific data, and attempts to construct a portfolio with the following characteristics: [X] Average credit rating of A (as rated by S&P or Moody's) [X] Average maturity of between 15 and 25 years In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. The Fund's portfolio managers work closely with municipal bond analysts to develop an outlook on the economy from research provided by various Wall Street firms as well as specific forecasting services. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the Fund's investment universe. This value analysis uses quantitative tools such as internal and external computer systems and software. .. The Fund's portfolio managers and analysts then perform a careful and continuous credit analysis to identify the range of the credit quality spectrum they believe most likely to provide the Fund with the highest level of tax free income consistent with overall credit quality. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. The portfolio managers primarily invest in general obligation bonds and revenue bonds issued by the Massachusetts government and its agencies. 3 The Fund may also: .. Invest up to 15% of its assets in lower-quality bonds (those rated BB or lower by S&P or Fitch, or Ba or lower by Moody's, or considered to be of comparable grade by Loomis Sayles if non-rated). .. For temporary defensive purposes, invest any portion of its assets in cash or in any security Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment objective. .. Invest in zero-coupon bonds. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Non-diversification: Compared with other mutual funds, the Fund may invest a greater percentage of its assets in a particular issuer and may invest in fewer issuers. Therefore, the Fund may have more risk because changes in the value of a single security or the impact of a single economic, political or regulatory occurrence may have a greater adverse impact on the Fund's net asset value. State specific: Weakness in the local or national economy and other economic or regulatory events impacting Massachusetts generally could adversely affect the credit ratings and creditworthiness of Massachusetts municipal securities in which the Fund invests and the ability of issuers to make principal and interest payments. For additional information see the section entitled "More About Risk." - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that, it served as the subadviser to the Fund, a role it assumed in June 2001. This chart and table reflect results achieved by a previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different had the current advisory arrangements and investment policies been in place for all periods shown. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for the other class of shares offered by this Prospectus differs from the Class A returns shown in the bar chart to the extent its expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - --------------------------------------------------------------------- Total Return 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ---- ---- ----- ---- ---- ---- ---- ---- - --------------------------------------------------------------------- /\ Highest Quarterly Return: Quarter , up % ------ ------ ------ \/ Lowest Quarterly Return: Quarter , down % ----- ------ ------ 4 The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Municipal Bond Index, an unmanaged index of bonds issued by states, municipalities and other government entities having maturities of more than one year. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Municipal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ----------------------------------------------------------------------------------------------------------- Average Annual Total Returns (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - ----------------------------------------------------------------------------------------------------------- Class A - Return Before Taxes - ----------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions* - ----------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - ----------------------------------------------------------------------------------------------------------- Class B - Return Before Taxes - ----------------------------------------------------------------------------------------------------------- Lehman Municipal Bond Index** - -----------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. After-tax returns are shown for only Class A shares. After-tax returns for Class B shares of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. Class A commenced operations 3/23/84. Class B commenced operations 9/13/93. For past expenses of Classes A and B shares, see the section entitled "Fund Fees & Expenses." 5 Goals, Strategies & Risks Loomis Sayles Municipal Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Robert Payne and Martha A. Strom Category: Tax Free Income Ticker Symbol: Class A Class B ------- ------- NEFTX NETBX - -------------------------------------------------------------------------------- Investment Goal - -------------------------------------------------------------------------------- The Fund seeks as high a level of current income exempt from federal income taxes as is consistent with reasonable risk and protection of shareholders' capital. The Fund invests primarily in debt securities of municipal issuers ("municipal securities"), which pay interest that is exempt from regular federal income tax but may be subject to the federal alternative minimum tax. - -------------------------------------------------------------------------------- Principal Investment Strategies - -------------------------------------------------------------------------------- Under normal market conditions, the Fund will invest at least 80% of its net assets in municipal investments the income from which is exempt from federal income tax (other than the alternative minimum tax). The Fund will not change such policy without shareholder approval. The Fund may invest not more than 20% of its net assets in debt obligations on which the interest is subject to the alternative minimum tax for individuals. It will invest at least 85% of its assets in investment-grade bonds (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's") or are non-rated but are considered to be of comparable quality by Loomis Sayles), and the other 15% may be invested in lower-quality bonds (those rated below BBB by S&P and below Baa by Moody's or are considered to be of comparable quality by Loomis Sayles) or non-rated bonds. The Fund's portfolio managers will generally shift assets among investment-grade bonds depending on economic conditions and outlook in order to increase appreciation potential. Loomis Sayles follows a total-return oriented investment approach in selecting securities for the Fund. It takes into account economic conditions and market conditions as well as issuer-specific data, such as: [X] revenue projections and spending requirements/forecasts [X] earnings prospects and cash flow [X] debt as a percentage of assets and cash flow [X] borrowing requirements, debt maturity schedules and reserve requirements [X] the relationship between cash flows and dividend obligations [X] the experience and perceived strength of management [X] price responsiveness of the security to interest rate changes In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook for the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by U.S. and foreign governments as well as the Federal Reserve Bank. 6 .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the municipal marketplace. This value analysis uses quantitative tools such as internal and external computer systems and software. .. The Fund's portfolio managers and analysts then perform a careful and continuous credit analysis to identify the range of the credit quality spectrum they believe most likely to provide the Fund with the highest level of tax-free income consistent with overall quality. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. The portfolio managers primarily invest in general obligation bonds and revenue bonds nationwide and across a variety of municipal sectors. This use of multi-state and multi-sector diversification helps provide increased protection against local economic downturns or bond rating downgrades. The Fund may also: .. Invest in "private activity" bonds, which may subject a shareholder to an alternative minimum tax. .. Invest in zero-coupon bonds. .. For temporary defensive purposes, invest any portion of its assets in cash or in any security Loomis Sayles deems appropriate. The Fund may miss certain investment apportunities if it uses defensive strategies and thus may not achieve its investment objective. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.cdcnvestfunds.com. Please see the backcover of this prospectus for more information on obtaining a copy of the Fund's annual or semiannual report. - -------------------------------------------------------------------------------- Principal Investment Risks - -------------------------------------------------------------------------------- Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Municipal Securities: Weakness in the local or national economy and other economic or regulatory events impacting municipal issuers generally could adversely affect the credit ratings and credit worthiness of the issuers of the municipal securities in which the Fund invests and the ability of issuers to make principal and interest payments. For additional information see the section entitled "More About Risk." - -------------------------------------------------------------------------------- Evaluating the Fund's Past Performance - -------------------------------------------------------------------------------- The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that, it served as the subadviser to the Fund, a role it assumed in June 2001. This chart and table reflect results achieved by a previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different had the current advisory arrangements and investment policies been in place for all periods shown. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years.+ The returns for the other class of shares offered by this Prospectus differs from the Class A returns shown in the bar chart to the 7 extent its expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - --------------------------------------------------------------------- Total Return+ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----- ---- ---- ---- ----- ---- ---- ---- ---- ---- - --------------------------------------------------------------------- /\ Highest Quarterly Return: Quarter 1995, up % ----- ----- \/ Lowest Quarterly Return: Quarter 1994, down % ----- ----- + The returns shown for periods prior to September 15, 2003 reflect the results of the CDC Nvest Municipal Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how the average annual total returns for each Class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Lehman Municipal Bond Index, an unmanaged index of bonds issued by states, municipalities and other governmental entities having maturities of more than one year. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Municipal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ----------------------------------------------------------------------------------------------------------- Average Annual Total Returns+ (for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years - ----------------------------------------------------------------------------------------------------------- Class A - Before Taxes - ----------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions* - ----------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - ----------------------------------------------------------------------------------------------------------- Class B - Return Before Taxes - ----------------------------------------------------------------------------------------------------------- Lehman Municipal Bond Index** - -----------------------------------------------------------------------------------------------------------
+ The returns shown for periods prior to September 15, 2003 reflect the results of the CDC Nvest Municipal Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. After-tax returns are shown for only Class A shares. After-tax returns for Class B shares of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. Class A commenced operations 5/9/77. Class B commenced operations 9/13/93. For past expenses of Classes A and B shares, see the section entitled "Fund Fees & Expenses." 8 Fund Fees & Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of each Fund. - -------------------------------------------------------------------------------- Shareholder Fees - -------------------------------------------------------------------------------- (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------- Massachusetts Tax Free Income Fund Municipal Income Fund - ------------------------------------------------------------------------------------------- Class A Class B Class A Class B - ------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)(1)(2) 4.25% None 4.50% None - ------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) (as a percentage of original purchase price or redemption proceeds, as applicable)(2) (3) 5.00% (3) 5.00% - ------------------------------------------------------------------------------------------- Redemption fees None* None* None* None* - -------------------------------------------------------------------------------------------
(1) A reduced sales charge on Class A shares applies in some cases. See the section "How Sales Charges Are Calculated" within the section "Fund Services." (2) Does not apply to reinvested distributions. (3) A 1.00% contingent deferred sales charge ("CDSC") applies with respect to certain purchases of Class A shares greater than $1,000,000 redeemed within 1 year after purchase, but not to any other purchases or redemptions of Class A shares. See the section "How Sales Charges Are Calculated" within the section "Fund Services." * Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as by wire or overnight delivery. - -------------------------------------------------------------------------------- Annual Fund Operating Expenses - -------------------------------------------------------------------------------- (expenses that are deducted from Fund assets, as a percentage of average daily net assets)
- ----------------------------------------------------------------------------------------- Massachusetts Tax Free Income Fund* Municipal Income Fund - ----------------------------------------------------------------------------------------- Class A Class B Class A Class B - ----------------------------------------------------------------------------------------- Management fees - ----------------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees 0.25% 1.00%** 0.25% 1.00%** - ----------------------------------------------------------------------------------------- Other expenses+ - ----------------------------------------------------------------------------------------- Total annual fund operating expenses - -----------------------------------------------------------------------------------------
+ Other expenses have been restated to reflect contractual changes to the transfer agency fees for the Funds effective January 1, 2005. * Loomis Sayles has given a binding undertaking to limit the amount of this Fund's total fund operating expenses, exclusive of brokerage expenses, interest expense, taxes and organizational and extraordinary expenses, to 1.40% and 2.05% annually of the Fund's average daily net assets for Class A and Class B shares, respectively. This undertaking is in effect through January 31, 2006, and is reevaluated on an annual basis. ** Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by the rules of the National Association of Securities Dealers, Inc. 9 - -------------------------------------------------------------------------------- Example - -------------------------------------------------------------------------------- This example*, which is based upon the expenses shown in the "Annual Fund Operating Expenses" table, is intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. The example assumes that: .. You invest $10,000 in a Fund for the time periods indicated; .. Your investment has a 5% return each year; .. A Fund's operating expenses remain the same; and .. All dividends and distributions are reinvested. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be: - -------------------------------------------------------------------------------- Massachusetts Tax Free Income Fund Municipal Income Fund - -------------------------------------------------------------------------------- Class A Class B Class A Class B - -------------------------------------------------------------------------------- (1) (2) (1) (2) - -------------------------------------------------------------------------------- 1 year - -------------------------------------------------------------------------------- 3 years - -------------------------------------------------------------------------------- 5 years - -------------------------------------------------------------------------------- 10 years** - -------------------------------------------------------------------------------- (1) Assumes redemption at end of period. (2) Assumes no redemption at end of period. * The example is based on Total Annual Fund Operating Expenses for all periods. ** Class B shares automatically convert to Class A shares after 8 years; therefore, in years 9 and 10 Class B amounts are calculated using Class A expenses. 10 More About Risk The Funds have principal investment strategies that come with inherent risks. The following is a list of risks to which each Fund may be subject because of its investment in various types of securities or engagement in various practices. Correlation Risk The risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Credit Risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. Funds that invest in securities rated below investment grade quality (i.e., below a rating of Baa or BBB by Moody's or S&P, respectively), or that are unrated but judged to be of comparable quality by the Fund's adviser are subject to greater credit risk than funds that do not invest in such securities. Information Risk The risk that key information about a security is inaccurate or unavailable. Interest Rate Risk The risk of market losses attributable to changes in interest rates. In general, the prices of fixed-income securities rise when interest rates fall, and prices fall when interest rates rise. Leverage Risk The risk associated with securities or practices (e.g., borrowing) that multiply small index or market movements into larger changes in value. When a derivative security (a security whose value is based on another security or index) is used as a hedge against an offsetting position that a Fund also holds, any loss generated by the derivative security should be substantially offset by gains on the hedged instrument, and vice versa. To the extent that a Fund uses a derivative security for purposes other than as a hedge, or, if a Fund hedges imperfectly, that Fund is directly exposed to the risks of that derivative security and any loss generated by the derivative security will not be offset by a gain. Liquidity Risk The risk that certain securities may be difficult or impossible to sell at the time and at the price that the seller would like. This may result in a loss or may otherwise be costly to a Fund. These types of risks may also apply to restricted securities, Section 4(2) Commercial Paper, and Rule 144A Securities. Management Risk The risk that a strategy used by a Fund's portfolio management may fail to produce the intended result. Market Risk The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Opportunity Risk The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are invested in less profitable investments. Options, Futures, Swap Contracts and Other Derivatives Risks These transactions are subject to changes in the underlying security on which such transactions are based. It is important to note that even a small investment in these types of derivative securities may give rise to leverage risk, and can have a significant impact on a Fund's exposure to stock market values, interest rates or currency exchange rates. These types of transactions will be used primarily for hedging purposes including anticipatory hedging. Political Risk The risk of losses directly attributable to government or political actions. This risk may be more acute for issuers of municipal securities. Valuation Risk The risk that a Fund has valued certain securities at a higher price than the price at which they can be sold. 11 Management Team Meet the Funds' Investment Adviser The CDC Nvest Funds family (as defined below) currently includes 23 mutual funds. The CDC Nvest Funds family had combined assets of $ billion as of ----- September 30, 2004. CDC Nvest Funds are distributed through IXIS Asset Management Distributors, L.P. (the "Distributor"). This Prospectus covers the CDC Nvest Tax Free Income Funds (the "Funds" and each a "Fund"). CDC Nvest Equity Funds, CDC Nvest Star Funds, CDC Nvest Income Funds, CDC Nvest Tax Free Funds, Loomis Sayles Research Fund, Loomis Sayles Growth Fund and Hansberger Foreign Growth Fund (each a "CDC Nvest Fund") and CDC Nvest Cash Management Trust - Money Market Series (a CDC Nvest Fund and a "Money Market Fund") constitute the "CDC Nvest Funds." - -------------------------------------------------------------------------------- Adviser - -------------------------------------------------------------------------------- Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as adviser to the Funds. Loomis Sayles is a subsidiary of IXIS Asset Management North America, L.P. ("IXIS Asset Management North America"), which is a subsidiary of IXIS Asset Management, a French asset manager. Founded in 1926, Loomis Sayles is one of America's oldest investment advisory firms with over $ billion in assets under management as of September 30, 2004. Loomis Sayles ---- is well known for its professional research staff, which is one of the largest in the industry. Loomis Sayles makes investment decisions for each of these Funds. The advisory fees paid by the Funds during the fiscal year ended September 30, 2004, as a percentage of each Fund's average daily net assets, were % for ----- the Municipal Income Fund and % for the Massachusetts Tax Free Income Fund.++ ----- + The advisory fee for the Loomis Sayles Massachusetts Tax Free Income Fund consists of a fee of % payable to Loomis Sayles, as investment adviser to ---- the Fund and an advisory administration fee of % payable to IXIS Asset ----- Management Advisors, L.P., as advisory administrator to the Fund. - -------------------------------------------------------------------------------- Portfolio Trades - -------------------------------------------------------------------------------- In placing portfolio trades, each Fund's adviser may use brokerage firms that market the Fund's shares or are affiliated with IXIS Asset Management North America, Loomis Sayles' parent company. In placing trades, Loomis Sayles will seek to obtain the best combination of price and execution, which involves a number of judgmental factors. Such portfolio trades are subject to applicable regulatory restrictions and related procedures adopted by the Board of Trustees. Transactions with Other Investment Companies. To the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC, each Fund may invest any of its daily cash balances in shares of investment companies that are advised by IXIS Advisors or its affiliates (including affiliated money market and short-term bond funds). Each Fund may borrow money for temporary or emergency purposes in accordance with its investment restrictions. Subject to the terms of any applicable exemptive relief that may be granted by the SEC, each Fund may borrow for such purposes from each other under an interfund lending program. In such a program, a Fund and affiliated funds would be permitted to lend and borrow money for certain temporary or emergency purposes directly to and from one another. Participation in such an interfund lending program would be voluntary for both borrowing and lending funds, and a Fund would participate in an interfund lending program only if the Board of Trustees determined that doing so would benefit a Fund. Should a Fund participate in such an interfund lending program, the Board of Trustees would establish procedures for the operation of the program by Loomis Sayles or an affiliate. 12 Management Team Meet the Funds' Portfolio Managers Robert Payne Robert Payne has co-managed the Massachusetts Tax Free Income Fund and Municipal Income Fund since January 2003. Mr. Payne is Vice President and Portfolio Manager of Loomis Sayles. His investment career began in 1967 and he has been with Loomis Sayles since 1982. He received a B.S. from the University of Utah and has over 37 years of investment experience. Martha A. Strom Martha A. Strom has co-managed the Massachusetts Tax Free Income Fund and Municipal Income Fund since January 2002. Ms. Strom is Vice President and Portfolio Manager of the Municipal Bond Investment Team of Loomis Sayles. Her investment career began with Loomis Sayles in 1988. Following a five-year period with Nuveen Investments where she was Assistant Vice President and Fixed Income Research Analyst, Ms. Strom rejoined Loomis Sayles in 2001. Ms. Strom received a B.S. from Boston University and has over 17 years of investment management experience. 13 Fund Services Investing in the Funds - -------------------------------------------------------------------------------- Choosing a Share Class - -------------------------------------------------------------------------------- Each Fund offers Classes A and B shares to the public. Each class has different costs associated with buying, selling and holding Fund shares, which allows you to choose the class that best meets your needs. Which class is best for you depends upon the size of your investment and how long you intend to hold your shares. Class B shares and certain shareholder features may not be available to you if you hold your shares in a street name account. Your financial representative can help you decide which class of shares is most appropriate for you. - -------------------------------------------------------------------------------- Class A Shares - -------------------------------------------------------------------------------- .. You pay a sales charge when you buy Fund shares. There are several ways to reduce this charge. See the section entitled "How Sales Charges Are Calculated." .. You pay lower annual expenses than Class B shares, giving you the potential for higher returns per share. .. You do not pay a sales charge on orders of $1 million or more, but you may pay a charge on redemption if you redeem these shares within one year of purchase. - -------------------------------------------------------------------------------- Class B Shares - -------------------------------------------------------------------------------- .. You do not pay a sales charge when you buy Fund shares. All of your money goes to work for you right away. .. You pay higher annual expenses than Class A shares. .. You will pay a charge on redemptions if you sell your shares within six years of purchase, as described in the section entitled "How Sales Charges Are Calculated." .. Your Class B shares will automatically convert into Class A shares after eight years, which reduces your annual expenses. .. Investors will not be permitted to purchase $100,000 or more of Class B shares as a single investment per account. There may be certain exceptions to this restriction for omnibus accounts and other nominee accounts. Investors may want to consider the lower operating expense of Class A shares in such instances. You may pay a charge on redemption if you redeem Class A shares within one year of purchase. For past expenses of Classes A and B shares, see the section entitled "Fund Fees & Expenses" in this Prospectus. - -------------------------------------------------------------------------------- Certificates - -------------------------------------------------------------------------------- Certificates will not be issued automatically for any class of shares. Upon written request, you may receive certificates for Class A shares only. 14 Fund Services How Sales Charges Are Calculated - -------------------------------------------------------------------------------- Class A Shares - -------------------------------------------------------------------------------- The price that you pay when you buy Class A shares (the "offering price") is their net asset value plus a sales charge (sometimes called a "front-end sales charge") which varies depending upon the size of your purchase:
- ------------------------------------------------------------------------------------------- Massachusetts Tax Free Income Fund Municipal Income Fund - ------------------------------------------------------------------------------------------- Class A Sales Charges Class A Sales Charges - ------------------------------------------------------------------------------------------- As a % of As a % of your As a % of offering As a % of your Your Investment offering price investment price investment - ------------------------------------------------------------------------------------------- Less than $ 50,000 4.25% 4.44% 4.50% 4.71% - ------------------------------------------------------------------------------------------- $ 50,000 - $ 99,000 4.00% 4.17% 4.50% 4.71% - ------------------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.63% 3.50% 3.63% - ------------------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.56% 2.50% 2.56% - ------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% 2.00% 2.04% - ------------------------------------------------------------------------------------------- $1,000,000 or more* 0.00% 0.00% 0.00% 0.00% - -------------------------------------------------------------------------------------------
* For purchases of Class A shares of the Fund of $1 million or more or purchases by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Internal Revenue Code with investments of $1 million or more or that have 100 or more eligible employees), there is no front-end sales charge, but a CDSC of 1.00% may apply to redemptions of your shares within one year of the date of purchase. See the Section "How the CDSC is Applied to Your Shares." ** Not imposed on shares that are purchased with reinvested dividends or other distributions. If you invest in Class A shares through a financial intermediary, it is the responsibility of the financial intermediary to ensure that you obtain the proper "breakpoint" discount. It will be necessary at the time purchase to inform the distributor and the financial intermediary of the existence of other accounts in which there are holdings eligible to be aggregated to meet sales load breakpoints. You may be required to provide certain records and information, such as account statements, with respect to all of your accounts which hold shares including accounts with at other financial intermediaries and your family members and other related parties accounts, in order to verify your eligibility for a reduced sales charge. If the Distributor is not notified that you are eligible for a reduced sales charge, the Distributor will be unable to ensure that the reduction is applied to your account. Additional information concerning sales load breakpoints is available from your financial intermediary, by visiting the Funds' website at www.cdcnvestfunds.com (click on "sales charges" at the bottom of the home page) or in the Funds' statement of additional information. Reducing Front-End Sales Charges There are several ways you can lower your sales charge for Class A shares, including: . Letter of Intent - By signing a Letter of Intent, you may purchase Class A shares of any CDC Nvest Fund over a 13-month period but pay sales charges as if you had purchases all shares at once. This program can save you money if you plan to invest $50,000 or more over 13 months. Purchases of Class B and Class C shares may be used toward meeting the letter of intent. . Cumulative Purchase Discount - You may be entitled to a reduced sales charge if your "total investment" reaches a breakpoint for a reduced sales charge. The total investment is determined by adding the amount of your current purchase in the Fund, including the applicable sales charge, to the current public offering price of all series and classes of shares of the CDC Nvest Funds held by you in one or more accounts. If your total investment exceeds a sales charge breakpoint in the table above, the lower sales charge applies to entire amount of your current purchase in the Fund. 15 . Combining Accounts - allows you to combine shares of multiple CDC Nvest Funds and classes for purposes of calculating your sales charge. Individual Accounts: You may elect to combine your purchase(s) and your total investment, as defined above, with the purchases and total investment of your spouse, parents, children, siblings, in-laws, grandparents, grandchildren, individual fiduciary accounts, sole proprietorships, single trust estates and any other individuals acceptable to the Distributor. Certain Retirement Plan Accounts: The Distributor may, in its discretion, combine the purchase(s) and total investment of all qualified participants in the same retirement plan for purposes of determining the availability of a reduced sales charge. In most instances, individual accounts may not be linked with certain retirement plan accounts for the purposes of calculating sales charges. In most instances, individual accounts may not be linked with certain retirement plan accounts for the purposes of calculating sales charges. SIMPLE IRA contributions will automatically be linked with those of other participants in the same SIMPLE IRA Plan (Class A shares only). SIMPLE IRA accounts may not be linked with any other CDC Nvest Fund account for rights of accumulation. Please refer to the SAI for more detailed information on combining accounts. The above-listed ways to reduce front-end sales chares may not apply to the Money Market Fund unless shares are purchased through an exchange from another CDC Nvest Fund. Eliminating Front-End Sales Charges and CDSCs Class A shares may be offered without front-end sales charges or a CDSC to the following individuals and institutions: .. Any government entity that is prohibited from paying a sales charge or commission to purchase mutual fund shares; .. Selling brokers, sales representatives, registered investment advisers, financial planners or other intermediaries under arrangements with the Distributor; .. Fund Trustees and other individuals who are affiliated with any CDC Nvest Fund or Money Market Fund (this also applies to any spouse, parents, children, siblings, grandparents, grandchildren and in-laws of those mentioned); .. Participants in certain Retirement Plans with at least 100 eligible employees (one-year CDSC may apply); .. Non-discretionary and non-retirement accounts of bank trust departments or trust companies only if they principally engage in banking or trust activities; .. Investments of $25,000 or more in CDC Nvest Funds or the Money Market Fund by clients of an adviser or subadviser to any CDC Nvest Fund or the Money Market Fund. Repurchasing Fund Shares You may apply proceeds from redeeming Class A shares of the Funds (without paying a front-end sales charge) to repurchase Class A shares of any CDC Nvest Fund. To qualify, you must reinvest some or all of the proceeds within 120 days after your redemption and notify CDC Nvest Funds or your financial representative in writing at the time of reinvestment that you are taking advantage of this privilege. You may reinvest your proceeds either by returning the redemption check or by sending a new check for some or all of the redemption amount. Please note: 16 for federal income tax purposes, a redemption is a sale that involves tax consequences, even if the proceeds are later reinvested. Please consult your tax adviser to discuss how a redemption would affect you. If you repurchase Class A shares of $1 million or more within 30 days after you redeem such shares, the Distributor will rebate the amount of the CDSC charged on the redemption. Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for Class A shares will be generally be eliminated in the following cases: (1) to make distributions from a Retirement Plan (a plan termination or total plan redemption may incur a CDSC); (2) to make payments through a systematic withdrawal plan; or (3) due to shareholder death or disability. - -------------------------------------------------------------------------------- Class B Shares - -------------------------------------------------------------------------------- The offering price of Class B shares is their net asset value, without a front-end sales charge. However, there is a CDSC on shares that you sell within six years of buying them. The amount of the CDSC, if any, declines each year that you own your shares (except in the 3rd and 4th years, which have the same CDSC). The holding period for purposes of timing the conversion to Class A shares and determining the CDSC will continue to run after an exchange to Class B shares of another CDC Nvest Fund. The CDSC equals the following percentages of the dollar amounts subject to the charge: - ----------------------------------------------- Class B Contingent Deferred Sales Charges - ------------------------- --------------------- Year Since Purchase CDSC on Shares Being Sold - ----------------------------------------------- 1st 5.00% - ----------------------------------------------- 2nd 4.00% - ----------------------------------------------- 3rd 3.00% - ----------------------------------------------- 4th 3.00% - ----------------------------------------------- 5th 2.00% - ----------------------------------------------- 6th 1.00% - ----------------------------------------------- thereafter 0.00% - ----------------------------------------------- Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for Class B shares will be generally be eliminated in the following cases: (1) to make distributions from a Retirement Plan (a plan termination or total plan redemption may incur a CDSC); (2) to make payments through a systematic withdrawal plan; or (3) due to shareholder death or disability. 17 Fund Services It's Easy to Open an Account - -------------------------------------------------------------------------------- To Open an Account with CDC Nvest Funds: - -------------------------------------------------------------------------------- 1. Read this Prospectus carefully. The Funds will only accept accounts from U.S. citizens with a U.S. address or resident aliens with a U.S. address and a U.S. taxpayer identification number. 2. Determine how much you wish to invest. The following chart shows the investment minimums for various types of accounts:
Minimum to Open Minimum to Open an Account Using Minimum for Type of Account an Account Investment Builder Existing Accounts - ---------------------------- --------------- ------------------ ----------------- Any account other than those listed below $2,500 $25 $100 Accounts registered under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to Minors Act ("UTMA") $2,500 $25 $100
3. Complete the appropriate parts of the account application, carefully following the instructions. If you have any questions, please call your financial representative or CDC Nvest Funds at 800-225-5478. For more information on CDC Nvest Funds' investment programs, refer to the section entitled "Additional Investor Services" in this Prospectus. 4. Use the following sections as your guide for purchasing shares. - -------------------------------------------------------------------------------- Self-Servicing Your Account - -------------------------------------------------------------------------------- Buying or selling shares is easy with the services described below: - -------------------------------------------------------------------------------- CDC Nvest Funds Personal Access Line(R) - -------------------------------------------------------------------------------- 800-225-5478, press 1 - -------------------------------------------------------------------------------- CDC Nvest Funds Web Site - -------------------------------------------------------------------------------- www.cdcnvestfunds.com You have access to your account 24 hours a day by calling the Personal Access Line(R) from a touch-tone telephone or by visiting us online. Using these customer service options, you may: .. purchase, exchange or redeem shares in your existing accounts (certain restrictions may apply); .. review your account balance, recent transactions, Fund prices and recent performance; .. order duplicate account statements; and .. obtain tax information. Please see the following pages for other ways to buy, exchange or sell your shares. 18 Fund Services Buying Shares Adding to an Opening an Account Account - -------------------------------------------------------------------------------- Through Your Investment Dealer - -------------------------------------------------------------------------------- . Call your investment dealer for information about opening or adding to an account. Dealers may also charge you a processing or service fee in connection with the purchase of fund shares. - -------------------------------------------------------------------------------- By Mail - -------------------------------------------------------------------------------- . Make out a check in U.S. . Make out a check in U.S. dollars for the dollars for the investment amount, investment amount, payable to "CDC Nvest payable to "CDC Nvest Funds." Third party Funds." Third party checks and "starter" checks and "starter" checks will not be checks will not be accepted. accepted. [envelope icon] . Mail the check with your . Complete the investment completed application to slip from an account CDC Nvest Funds, P.O. statement or include a Box 219579, letter specifying the Kansas City, MO Fund name, your class of 64121-9579. shares, your account number and the registered account name(s). - -------------------------------------------------------------------------------- By Exchange (See the section entitled "Exchanging Shares" for more details.) - -------------------------------------------------------------------------------- [exchange icon] . Obtain a current . Call your investment prospectus for the Fund dealer or CDC Nvest into which you are Funds at 800-225-5478 exchanging by calling or visit your investment dealer www.cdcnvestfunds.com to or CDC Nvest Funds at request an exchange. 800-225-5478. . Call your investment dealer or CDC Nvest Funds or visit www.cdcnvestfunds.com to request an exchange. - -------------------------------------------------------------------------------- By Wire - -------------------------------------------------------------------------------- . Opening an account by . Visit wire is not available. www.cdcnvestfunds.com to add shares to your account by wire. Instruct your bank to transfer funds to State Street Bank & Trust Company, ABA #011000028, and DDA #99011538. [wire icon] . Specify the Fund name, your class of shares, your account number and the registered account name(s). Your bank may charge you for such a transfer. - -------------------------------------------------------------------------------- Through Automated Clearing House ("ACH") - -------------------------------------------------------------------------------- . Although you cannot open . Call CDC Nvest Funds at an account through ACH, 800-225-5478 or visit you may add this feature www.cdcnvestfunds.com to by selecting it on your add shares to your [ACH icon] account application. account through 19 ACH. . Ask your bank or credit . If you have not signed union whether it is a up for the ACH system, member of the ACH please call CDC Nvest system. Funds or visit www.cdcnvestfunds.com for a Service Options Form. A signature guarantee may be required to add this privilege. - -------------------------------------------------------------------------------- Automatic Investing Through Investment Builder - -------------------------------------------------------------------------------- . Indicate on your . Please call CDC Nvest [builder icon] application that you Funds at 800-225-5478 or would like to begin an visit automatic investment www.cdcnvestfunds.com plan through Investment for a Service Options Builder and the amount Form. A signature of the monthly guarantee may be investment required to add this ($25 minimum). privilege. . Include a check marked . See the section entitled "Void" or a deposit slip "Additional Investor from your bank account. Services." 20 Fund Services Selling Shares To Sell Some or All of Your Shares Certain restrictions may apply. See section entitled "Restrictions on Buying, Selling and Exchanging Shares." - -------------------------------------------------------------------------------- Through Your Investment Dealer - -------------------------------------------------------------------------------- . Call your investment dealer for information. Dealers may also charge you a processing or service fee in connection with the redemption of fund shares. - -------------------------------------------------------------------------------- By Mail - -------------------------------------------------------------------------------- . Write a letter to request a redemption. Specify the name of your Fund, class of shares, account number, the exact registered account name(s), the number of shares or the dollar amount to be redeemed and the method by which you wish to receive your proceeds. Additional materials may be required. See the section entitled "Selling Shares in Writing." [envelope icon] . The request must be signed by all of the owners of the shares and must include the capacity in which they are signing, if appropriate. . Mail your request by regular mail to CDC Nvest Funds, P.O. Box 219579, Kansas City, MO 64121-9579 or by registered, express or certified mail to CDC Nvest Funds, 330 West 9th Street, Kansas City, MO 64105-1514. . Your proceeds (less any applicable CDSC) will be delivered by the method chosen in your letter. Proceeds delivered by mail will generally be mailed to you on the business day after the request is received in good order. - -------------------------------------------------------------------------------- By Exchange (See the section entitled "Exchanging Shares" for more details.) - -------------------------------------------------------------------------------- . Obtain a current prospectus for the Fund into which you are exchanging by calling your investment dealer or CDC Nvest Funds at 800-225-5478. [exchange icon] . Call CDC Nvest Funds or visit www.cdcnvestfunds.com to request an exchange. - -------------------------------------------------------------------------------- By Wire - -------------------------------------------------------------------------------- . Complete the "Bank Information" section on your account application. [wire icon] . Call CDC Nvest Funds at 800-225-5478 or visit www.cdcnvestfunds.com or indicate in your redemption request letter (see above) that you wish to have your proceeds wired to your bank. . Proceeds (less any applicable CDSC) will generally be wired on the next business day. A wire fee (currently $5.00) will be deducted from the proceeds. Your bank may charge you a fee to receive the wire. - -------------------------------------------------------------------------------- Through Automated Clearing House - -------------------------------------------------------------------------------- . Ask your bank or credit union whether it is a member of the ACH system. . Complete the "Bank Information" section on your account application. [ACH icon] . If you have not signed up for the ACH system on your application, please call CDC Nvest Funds at 800-225-5478 or visit www.cdcnvestfunds.com for a Service Options Form. . Call CDC Nvest Funds or visit www.cdcnvestfunds.com to request an ACH redemption. . Proceeds (less any applicable CDSC) will generally arrive at your bank within three business days. 21 - -------------------------------------------------------------------------------- By Telephone - -------------------------------------------------------------------------------- [telephone icon] . Call CDC Nvest Funds at 800-225-5478 to choose the method you wish to use to redeem your shares. You may receive your proceeds by mail, by wire or through ACH (see above). - -------------------------------------------------------------------------------- By Systematic Withdrawal Plan (See the section entitled "Additional Investor Services" for more details.) - -------------------------------------------------------------------------------- . Call CDC Nvest Funds at 800-225-5478 or your financial representative for more information. [systematic icon] . Because withdrawal payments may have tax consequences, you should consult your tax adviser before establishing such a plan. - -------------------------------------------------------------------------------- By Check (for Class A shares of Massachusetts Tax Free Income Fund only) - -------------------------------------------------------------------------------- . Select the checkwriting option on your application and complete the signature card. .. [check icon] . To add this privilege to an existing account, call CDC Nvest Funds at 800-225-5478 for a Service Options Form. . Each check must be written for $500 or more. . You may not close your account by withdrawal check. Please call your financial representative or CDC Nvest Funds to close an account. 22 Fund Services Selling Shares in Writing If you wish to redeem your shares in writing, all owners of the shares must sign the redemption request in the exact names in which the shares are registered and indicate any special capacity in which they are signing. In certain situations, you will be required to make your request to sell shares in writing. In these instances, a letter of instruction signed by the authorized owner is necessary. In certain situations, we also may require a medallion signature guarantee or additional documentation. A medallion signature guarantee protects you against fraudulent orders and is necessary if: .. your address of record has been changed within the past 30 days; .. you are selling more than $100,000 worth of shares and you are requesting the proceeds by check; .. a proceeds check for any amount is either mailed to an address other than the address of record or not payable to the registered owner(s); or .. the proceeds are sent by check, wire, or in some circumstances ACH to a bank account whose owner(s) do not match the owner(s) of the fund account. A notary public cannot provide a medallion signature guarantee. The Funds will only accept medallion signature guarantees bearing the STAMP2000 Medallion imprint. A medallion signature guarantee can be obtained from one of the following sources: .. a financial representative or securities dealer; .. a federal savings bank, cooperative, or other type of bank; .. a savings and loan or other thrift institution; .. a credit union; or .. a securities exchange or clearing agency. The table below shows some situations in which additional documentation may be necessary. Please call your financial representative or CDC Nvest Funds regarding requirements for other account types. - -------------------------------------------------------------------------------- Seller (Account Type) Requirements for Written Requests - -------------------------------------------------------------------------------- Individual, joint, sole . The request must include the signatures of all proprietorship, UGMA/UTMA persons authorized to sign, including title, if (minor accounts) applicable. . Medallion signature guarantee, if applicable (see above). . Additional documentation may be required. - -------------------------------------------------------------------------------- Corporate or association . The request must include the signatures of all accounts persons authorized to sign, including title. . Certified copy of corporate resolution or similar documents. - -------------------------------------------------------------------------------- Owners or trustees of . The request must include the signatures of all trust accounts trustees authorized to sign, including title. . If the names of the trustees are not registered on the account, please provide a copy of the trust document certified within the past 60 days. . Medallion signature guarantee, if applicable (see above). - -------------------------------------------------------------------------------- Joint tenancy whose . The request must include the signatures of all co-tenants are deceased surviving tenants of the account. - -------------------------------------------------------------------------------- 23 - -------------------------------------------------------------------------------- . Certified copy of the death certificate. . Medallion signature guarantee if proceeds check is issued to other than the surviving tenants. - -------------------------------------------------------------------------------- Power of Attorney (POA) . The request must include the signatures of the attorney-in-fact, indicating such title. . A medallion signature guarantee. . Certified copy of the POA document stating it is still in full force and effect, specifying that the grantor is alive, the exact Fund and account number, and certified within 30 days of receipt of instructions.* - -------------------------------------------------------------------------------- Executors of estates, . The request must include the signatures of all administrators, those authorized to sign, including capacity. guardians, conservators . A medallion signature guarantee. . Certified copy of court document where signer derives authority, e.g., Letters of Administration, Conservatorship and Letters Testamentary.* - -------------------------------------------------------------------------------- * Certification may be made on court documents by the court, usually certified by the clerk of the court. Power of Attorney certification may be made by a commercial bank, broker/member of a domestic stock exchange or a practicing attorney. 24 Fund Services Exchanging Shares In general, you may exchange shares of your Fund for shares of the same class of another CDC Nvest Fund or series of Loomis Sayles Funds that offers such class of shares, without paying a sales charge or a CDSC (see the sections entitled "Buying Shares" and "Selling Shares"). The exchange must be for the minimum to open an account (or the total net asset value of your account, whichever is less), or $100 if made under the Automatic Exchange Plan (see the section entitled "Additional Investor Services"). All exchanges are subject to the eligibility requirements of the fund into which you are exchanging and any other limits on sales of or exchanges into that fund. The exchange privilege may be exercised only in those states where shares of such funds may be legally sold. For federal income tax purposes, an exchange of fund shares for shares of another fund is generally treated as a sale on which gain or loss may be recognized. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Before requesting an exchange into any other fund, please read its prospectus carefully. Please refer to the SAI for more detailed information on exchanging Fund shares. Restrictions on Buying, Selling and Exchanging Shares Frequent purchases and redemptions of Fund shares by shareholders who engage in market timing may present certain risks for other shareholders in the Fund. This includes the risk of diluting the value of Fund shares, interfering with the efficient management of the Fund, and increased brokerage and administrative costs. Funds investing in securities that require special valuation processes (such as foreign securities, high yield securities, or small cap securities) may also have increased exposure to these risks. Each Fund discourages excessive, short-term trading policies that may be detrimental to the Fund and its shareholders. The Funds' Board of Trustees has adopted the following policies with respect to frequent purchases and redemptions of Fund shares. Each Fund reserves the right to suspend or change the terms of purchasing or exchanging shares. Each Fund and the Distributor reserve the right to refuse or limit any purchase or exchange order for any reason, including if the transaction is deemed not to be in the best interests of the Fund's other shareholders or possibly disruptive to the management of the Fund. Limits on Frequent Trading. Without limiting the right of each Fund and the Distributor to refuse any purchase or exchange order, each Fund and the Distributor may (but are not obligated to) restrict purchases and exchanges for the accounts of "market timers." With respect to exchanges, an account may be deemed to be one of a market timer if (i) more than two exchange purchases of any Fund are made for the account over a 90-day interval as determined by the Fund; or (ii) the account makes one or more exchange purchases of any Fund over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. With respect to new purchases of a Fund, an account may be deemed to be one of a market timer if (i) more than twice over a 90-day interval as determined by the Fund, there is a purchase in a Fund followed by a subsequent redemption; or (ii) there are two purchases into a Fund by an account, each followed by a subsequent redemption over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. The preceding are not exclusive lists of activities that each Fund and the Distributor may consider to be "market timing." Trade Activity Monitoring. Trading activity is monitored selectively on a daily basis in an effort to detect excessive short-term trading activities. If each Fund or the Distributor believes that a shareholder or financial intermediary has engaged in market timing or other excessive, short-term trading activity, it may, in its discretion, request that the shareholder or financial intermediary stop such activities or refuse to process purchases or exchanges in the accounts. In its discretion, each Fund or the Distributor may restrict or prohibit transactions by such identified shareholders or intermediaries. In making such judgments, the Funds and the Distributor seek to act in a manner that they believe is consistent with the best interests of all shareholders. The Funds and the Distributor also reserve the right to notify financial intermediaries of your trading activity. Because the Funds and the 25 Distributor will not always be able to detect market timing activity, investors should not assume the Funds will be able to detect or prevent all market timing or other trading practices that may not be in the best interests of the Funds shareholders. For example, the ability of the Funds and the Distributor to monitor trades that are placed by omnibus or other nominee accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the record of a Fund's underlying beneficial owners. - -------------------------------------------------------------------------------- Purchase Restrictions - -------------------------------------------------------------------------------- Each Fund is required by federal regulations to obtain certain personal information from you and to use that information to verify your identity. The Fund may not be able to open your account if the requested information is not provided. Each Fund reserves the right to refuse to open an account, close an account and redeem your shares at the then current price or take other such steps that the Fund deems necessary to comply with federal regulations if your identity cannot be verified. - -------------------------------------------------------------------------------- Selling Restrictions - -------------------------------------------------------------------------------- The table below describes restrictions placed on selling shares of any Fund described in this Prospectus: - -------------------------------------------------------------------------------- Restriction Situation - -------------------------------------------------------------------------------- The Fund may suspend the right of . When the New York Stock Exchange redemption or postpone payment for more (the "Exchange") is closed (other than 7 days: than a weekend/holiday) . During an emergency . During any other period permitted by the SEC - -------------------------------------------------------------------------------- The Fund reserves the right to suspend . With a notice of a dispute account services or refuse transaction between registered owners requests: . With suspicion/evidence of a fraudulent act - -------------------------------------------------------------------------------- The Fund may pay the redemption price . When it is detrimental for a Fund in whole or in part by a in kind of to make cash payments readily marketable securities in lieu distribution as determined in the of cash or may take up to 7 days to pay sole discretion of the adviser a redemption request in order to raise capital: - -------------------------------------------------------------------------------- The Fund may withhold redemption . When redemptions are made within proceeds until the check or funds have 10 calendar days of purchase by cleared: check or ACH of the shares being redeemed - -------------------------------------------------------------------------------- If you hold certificates representing your shares, they must be sent with your request for it to be honored. It is recommended that certificates be sent by registered mail. Although most redemptions are made in cash, as described in the SAI, each Fund reserves the right to redeem shares in kind. - -------------------------------------------------------------------------------- Small Account Policy - -------------------------------------------------------------------------------- Each Fund assesses a minimum balance fee on an annual basis for accounts that fall below the minimum amount required to establish an account, as previously described in this Prospectus. The minimum balance fee is assessed by the automatic redemption of shares in the account in an amount sufficient to pay the fee. This minimum balance fee does not apply to accounts with active investment builder and payroll deduction programs, accounts that fall below the minimum as a result of the automatic conversion from Class B shares to Class A shares, accounts held through the National Securities Clearing Corporation, or retirement accounts. In its discretion, the Fund may also close the account and send the account holder the proceeds if the account falls below the minimum amount. 26 Fund Services How Fund Shares Are Priced "Net asset value" is the price of one share of a Fund without a sales charge, and is calculated each business day using this formula: Net Asset Value= Total market value of securities + Cash and other assets - Liabilities ---------------------------------------------------------------------- Number of outstanding shares
The net asset value of Fund shares is determined according to this schedule: .. A share's net asset value is determined at the close of regular trading on the Exchange on the days the Exchange is open for trading. This is normally 4:00 p.m. Eastern time. Generally, a Fund's shares will not be priced on the days on which the Exchange is closed for trading. However, in Loomis Sayles' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if Loomis Sayles in its discretion determines that there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares. This may occur, for example, if the Exchange is closed but the fixed income markets are open for trading. In addition, a Fund's shares will not be priced on the holidays listed in the SAI. See the section entitled "Net Asset Value and Public Offering Price" in the SAI for more details. .. The price you pay for purchasing, redeeming or exchanging a share will be based upon the net asset value next calculated by each Fund's custodian (plus or minus applicable sales charges as described earlier in this Prospectus) after your order is received "in good order." .. Requests received by the Distributor after the Exchange closes will be processed based upon the net asset value determined at the close of regular trading on the next day that the Exchange is open, with the exception that those orders received by your investment dealer before the close of the Exchange and received by the Distributor from the investment dealer before 5:00 p.m. Eastern time* on the same day will be based on the net asset value determined on that day. *Under limited circumstances, the Distributor may enter into contractual agreements pursuant to which orders received by your investment dealer before the close of the Exchange and transmitted to the Distributor prior to 9:30 a.m. on the next business day are processed at the net asset value determined on the day the order was received by your investment dealer. Generally, during times of substantial economic or market change, it may be difficult to place your order by phone. During these times, you may deliver your order in person to the Distributor or send your order by mail as described in the sections entitled "Buying Shares" and "Selling Shares." Generally, Fund securities are valued as follows: .. Equity securities -- market price or as provided by a pricing service if market price is unavailable. .. Debt securities (other than short-term obligations) -- based upon pricing service valuations, which determine valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. .. Short-term obligations (remaining maturity of less than 60 days) -- amortized cost (which approximates market value). .. Securities traded on foreign exchanges -- market price on the non-U.S. exchange, unless the Fund believes that an occurrence after the close of that exchange will materially affect the security's value. In that case, the security may be fair valued at the time the Fund determines its net asset value by or pursuant to procedures approved by the Board of Trustees. When fair valuing their securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or 27 significant events that occur after the close of the local market and before the time a Fund's net asset value is calculated. .. Options -- last sale price, or if not available, last offering price. .. Futures -- unrealized gain or loss on the contract using current settlement price. When a settlement price is not used, futures contracts will be valued at their fair value as determined by or pursuant to procedures approved by the Board of Trustees. .. All other securities -- fair market value as determined by the adviser of the Fund pursuant to procedures approved by the Board of Trustees. Because of fair value pricing, as described above for "Securities traded on foreign exchanges" and "All other securities," securities may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board of Trustees believes is more likely to result in a price that reflects fair value (which is the amount that a Fund might reasonably expect to receive from a current sale in the ordinary course business). A Fund may also value securities at fair value or estimate their value pursuant to procedures approved by the Board of Trustees in other circumstances such as when extraordinary events occur after the close of the relevant market but prior to the close of the Exchange. This may include situations relating to a single issuer (such as a declaration of bankruptcy or a delisting of the issuer's security from the primary market on which it has traded) as well as events affecting the securities markets in general (such as market disruptions or closings and significant fluctuations in U.S. and/or foreign markets). Dividends and Distributions The Funds generally distribute most or all of their net investment income (taxable income other than long-term capital gains) in the form of dividends. Each Fund declares dividends for each class daily and pays them monthly. The net investment income accruing on Saturdays, Sundays and other days on which the Exchange is closed is declared as a dividend on the immediately following business day. Each Fund expects to distribute all net realized long- and short-term capital gains annually, after applying any available capital loss carryovers. To the extent permitted by law, the Board of Trustees may adopt a different schedule as long as payments are made at least annually. Distributions will automatically be reinvested in shares of the same class of the distributing Fund at net asset value, unless you select one of the following alternatives: .. Participate in the Dividend Diversification Program, which allows you to have all dividends and distributions automatically invested at net asset value in shares of the same class of another CDC Nvest Fund registered in your name. Certain investment minimums and restrictions may apply. For more information about this program, see the section entitled "Additional Investor Services." .. Receive distributions from dividends and interest in cash while reinvesting distributions from capital gains in additional shares of the same class of the Fund, or in the same class of another CDC Nvest Fund. .. Receive all distributions in cash. For more information or to change your distribution option, contact CDC Nvest Funds in writing or call 800-225-5478. If you earn more than $10 annually in taxable income from a CDC Nvest Fund held in a non-retirement plan account, you will receive a Form 1099 to help you report the prior calendar year's distributions on your federal income tax return. This information will also be reported to the Internal Revenue Service. Be sure to keep this Form 1099 as a permanent record. A fee may be charged for any duplicate information requested. Tax Consequences Each Fund intends to meet all requirements under Subchapter M of the Internal Revenue Code (the "Code") necessary to qualify for treatment as a "regulated investment company" and thus does not expect to pay any federal income tax on income and capital gains distributed to shareholders. Each Fund also intends to meet all the requirements of the Code necessary to ensure that they are qualified to pay "exempt interest dividends." Fund 28 distributions designated as exempt-interest dividends are not generally subject to federal income tax. In addition, in the case of Massachusetts Tax Free Income Fund, such distributions are not generally subject to Massachusetts state income tax to the extent they derive from Massachusetts obligations and provided that the Fund identifies such distributions in written notice to shareholders within 60 days from the end of the taxable year. The Funds may, however, invest a portion of their assets in securities that generate income that is not exempt from federal or state taxes. Distributions derived from net short-term capital gains, i.e., gains from investments that a Fund held one year or less, or investment income are generally taxable at ordinary income rates. In addition, distributions by the Fund to retirement plans that qualify for tax-exempt treatment under federal income tax laws generally will not be taxable. Distributions of gains from investments that a Fund owned for more than one year that are designated by a Fund as capital gain dividends will generally be taxable to a shareholder receiving such distributions as long-term capital gain, regardless of how long the shareholder has held Fund shares. For taxable years beginning on or before December 31, 2008, distributions of investment income designated by the Fund as derived from "qualified dividend income" will be taxed in the hands of individuals at the rates applicable to long-term capital gain provided holding period and other requirements are met at both the shareholder and Fund levels. Fund distributions paid to you are taxable whether you receive them in cash or reinvest them in additional shares. Distributions are taxable to you even if they are paid from income or gains earned by the Fund before your investment (and thus were included in the price you paid). Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized or realized but not distributed. Long-term capital gain rates applicable to individuals have been temporarily reduced - in general, to 15% with lower rates applying to taxpayers in the 10% and 15% rate brackets - for taxable years beginning on or before December 31, 2008. Sales or Exchanges of Fund Shares. The redemption, sale or exchange of Fund shares (including an exchange of Fund shares for shares of another CDC Nvest Fund or Money Market Fund) is a taxable event and may result in the recognition of a gain or loss. Gain or loss, if any, recognized on the redemption, sale, exchange or other disposition of Fund shares will be taxed as a long-term capital gain or loss if the shares are capital assets in the shareholder's hands and if the shareholder held the shares for more than one year. If you receive social security or railroad retirement benefits, a portion of those benefits may be subject to federal income tax as a result of receiving exempt interest dividends. Also, an investment in the Funds may result in a liability for federal alternative minimum tax as well as state and local taxes, both for individual and corporate shareholders. Each Fund may at times purchase tax-exempt securities at a discount from the price at which they were originally issued. For federal income tax purposes, some or all of this market discount will be included in the Fund's ordinary income and will be taxable to you as such when it is distributed to you. A Fund's investments in certain debt obligations may cause that Fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. Income generated by investments in fixed-income securities is not eligible for treatment as qualified dividend income. You should consult your tax adviser for more information on your own situation, including possible state or local taxes. Special tax considerations for Massachusetts Tax Free Income Fund Distributions from investment income and capital gains, including exempt-interest dividends, may be subject to Massachusetts corporate excise tax. For state tax purposes, gains realized by the Fund on the sale of certain tax-exempt securities that are designated by the Fund as tax-exempt retain their tax-exempt character when distributed to shareholders. 29 The Massachusetts personal income tax statute taxes gains from the sale or exchange of capital assets held for more than one year at a rate of 5.3%. Shareholders should consult their tax advisors with respect to the Massachusetts personal income tax treatment of capital gain distributions from the Fund. Special tax considerations for Municipal Income Fund The federal exemption for "exempt-interest dividends" does not necessarily result in exemption from state and local taxes. Distributions of these dividends may be exempt from local and state taxation to the extent they are derived from the state and locality in which you reside. You should check the consequences under your local and state tax laws before investing in the Fund. Compensation to Securities Dealers As part of their business strategies, the Funds pay securities dealers that sell their shares. This compensation originates from two sources: sales charges (front-end or deferred) and 12b-1 fees (comprising the annual service and/or distribution fees paid under a plan adopted pursuant to Rule 12b-1 under the 1940 Act). The sales charges are detailed in the section entitled "How Sales Charges Are Calculated." Each class of Fund shares pays an annual service fee of 0.25% of its average daily net assets. Class A shares of the Massachusetts Tax Free Income Fund also pay an annual distribution fee of 0.10% of its average daily net assets. In addition to a service fee, each Fund's Class B shares pay an annual distribution fee of 0.75% of their average daily net assets for 8 years (at which time they automatically convert into Class A shares). Generally, the 12b-1 fees are paid to securities dealers on a quarterly basis. The Distributor retains the first year of such fees for Class B shares. Because these distribution fees are paid out of the Funds' assets on an ongoing basis, over time these fees for Class B shares will increase the cost of your investment and may cost you more than paying the front-end sales charge on Class A shares. The Distributor and its affiliates may, out of their own resources, make payments in addition to the payments described above to dealers which satisfy certain criteria established from time to time by the Distributor. Payments may vary based on net sales, the length of time assets of a dealer's clients have remained invested in the Funds, and other factors. See the SAI for more details. 30 Fund Services Additional Investor Services Retirement Plans CDC Nvest Funds offer a range of retirement plans, including Coverdell Education Savings Accounts, IRAs, SEPs, SARSEPs*, SIMPLE IRAs, 403(b) plans and other pension and profit sharing plans. Refer to the section entitled "It's Easy to Open an Account" for investment minimums. For more information about our Retirement Plans, call us at 800-225-5478. Investment Builder Program This is CDC Nvest Funds' automatic investment plan. You may authorize automatic monthly transfers of $25 or more from your bank checking or savings account to purchase shares of one or more CDC Nvest Funds. To join the Investment Builder Program, please refer to the section entitled "Buying Shares." Dividend Diversification Program This program allows you to have all dividends and any other distributions automatically invested in shares of the same class of another CDC Nvest Fund or Money Market Fund, subject to the eligibility requirements of that other fund and to state securities law requirements. Shares will be purchased at the selected Fund's net asset value without a front-end sales charge or CDSC on the dividend record date. Before establishing a Dividend Diversification Program into any other CDC Nvest Fund or Money Market Fund, please read its prospectus carefully. Automatic Exchange Plan CDC Nvest Funds have an automatic exchange plan under which shares of a class of a CDC Nvest Fund are automatically exchanged each month for shares of the same class of another CDC Nvest Fund or Money Market Fund. There is no fee for exchanges made under this plan, but there may be a sales charge in certain circumstances. Please see the section entitled "Exchanging Shares" above and refer to the SAI for more information on the Automatic Exchange Plan. Systematic Withdrawal Plan This plan allows you to redeem shares and receive payments from your Fund on a regular schedule. Redemption of shares that are part of the Systematic Withdrawal Plan is not subject to a CDSC. However, the amount or percentage you specify in the plan may not exceed, on an annualized basis, 10% of the value of your Fund account based upon the value of your Fund account on the day you establish your plan. For information on establishing a Systematic Withdrawal Plan, please refer to the section entitled "Selling Shares." CDC Nvest Funds Personal Access Line(R) This automated customer service system allows you to have access to your account 24 hours a day by calling 800-225-5478, and pressing 1. With a touch-tone telephone, you can obtain information about your current account balance, recent transactions, Fund prices and recent performance. You may also use Personal Access Line(R) to purchase, exchange or redeem shares in any of your existing accounts. Certain restrictions may apply. CDC Nvest Funds Web Site Visit us at www.cdcnvestfunds.com to review your account balance and recent transactions, to view daily prices and performance information or to order duplicate account statements and tax information. You may also go online to purchase, exchange or redeem shares in your existing accounts. Certain restrictions may apply. * Effective January 1, 1997, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA became available, replacing SARSEP plans. SARSEP plans established prior to January 1, 1997, may remain active and continue to add new employees. 31 Financial Performance The financial highlights table is intended to help you understand each Fund's financial performance for the last five years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in the table represent the return that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm, whose report, along with each Fund's financial statements, is included in the Fund's annual report to shareholders. The annual report is incorporated by reference into the SAI, both of which are available free of charge upon request from the Distributor. Financial Highlights from annual report to be inserted here. 32 Glossary of Terms Bid price -- The price a prospective buyer is ready to pay. This term is used by traders who maintain firm bid and offer prices in a given security by standing ready to buy or sell security units at publicly quoted prices. Capital gain distributions -- Payments to a Fund's shareholders of net profits earned from selling securities in a Fund's portfolio. Capital gain distributions are usually paid once a year. Credit rating -- Independent evaluation of a bond's creditworthiness. This measurement is usually calculated through an index compiled by companies such as Standard & Poor's Rating Service, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), or Fitch Investors Services, Inc. ("Fitch"). Bonds with a credit rating of BBB or higher by S&P or Fitch, or Baa or higher by Moody's, are generally considered investment grade. Derivative -- A financial instrument whose value and performance are based on the value and performance of another security or financial instrument. Discounted price -- The difference between a bond's current market price and its face or redemption value. Diversification -- The strategy of investing in a wide range of securities representing different market sectors to reduce the risk if an individual company or one sector suffers losses. Dividend yield -- The current or estimated annual dividend divided by the market price per share of a security. Duration -- An estimate of how much a bond's price fluctuates with changes in comparable interest rates. Earnings growth -- A pattern of increasing rates of growth in earnings per share from one period to another, which usually causes a stock's price to rise. Fundamental analysis -- An analysis of the balance sheet and income statements of a company in order to forecast its future stock price movements. Fundamental analysis considers records of assets, earnings, sales, products, management and markets in predicting future trends in these indicators of a company's success or failure. By appraising a company's prospects, analysts using such an approach assess whether a particular stock or group of stocks is undervalued or overvalued at its current market price. Income distributions -- Payments to a Fund's shareholders resulting from the net interest or dividend income earned by a Fund's portfolio. Inflation -- A general increase in prices coinciding with a fall in the real value of money, as measured by the Consumer Price Index. Interest rate -- Rate of interest charged for the use of money, usually expressed at an annual rate. 33 Market capitalization -- Market price multiplied by number of shares outstanding. Large capitalization companies generally have over $5 billion in market capitalization; medium cap companies between $1.5 billion and $5 billion; and small cap companies less than $1.5 billion. These capitalization figures may vary depending upon the index being used and/or the guidelines used by the portfolio manager. Maturity -- The final date on which the payment of a debt instrument (e.g., bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds generally have maturities of up to 5 years; intermediate-term bonds between 5 and 15 years; and long-term bonds over 15 years. Net assets -- A Fund's assets minus its liabilities. With respect to the Funds that have a policy to invest 80% of their net assets in particular kinds of securities, "net assets" as used in such policies means net assets plus borrowings made for investment purposes. Net asset value (NAV) per share -- The market value of one share of a Fund on any given day without taking into account any front-end sales charge or CDSC. It is determined by dividing a Fund's total net assets by the number of shares outstanding. Price-to-earnings ratio -- Current market price of a stock divided by its earnings per share. Also known as the "multiple," the price-to-earnings ratio gives investors an idea of how much they are paying for a company's earning power and is a useful tool for evaluating the costs of different securities. The ratio may be calculated using "trailing" earnings or estimates of future (or "forward") earnings. Some firms use the inverse ratio for this calculation (i.e., earnings-to-price ratio). Rule 144A securities -- Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless a manager has determined, under guidelines established by a Fund's trustees, that a particular issue of Rule 144A securities is liquid. Target price -- Price that an investor is hoping a stock he or she has just bought will rise to within a specified period of time. An investor may buy XYZ at $20, with a target price of $40 in one year's time, for instance. Technical analysis -- The research into the demand and supply for securities, options, mutual funds and commodities based on trading volume and price studies. Technical analysis uses charts or computer programs to identify and project price trends in a market, security, mutual fund or futures contract. Top-down approach -- The method in which an investor first looks at trends in the general economy, and next selects industries and then companies that the investor believes should benefit from those trends. Total return -- The change in value of an investment in a Fund over a specific time period expressed as a percentage. Total returns assume all distributions are reinvested in additional shares of a Fund. Value investing -- A relatively conservative investment approach that focuses on companies that may be temporarily out of favor or whose earnings or assets are not fully reflected in their stock prices. Value stocks will tend to have a lower price-to-earnings ratio than growth stocks. Volatility -- The general variability of a portfolio's value resulting from price fluctuations of its investments. In most cases, the more diversified a portfolio is, the less volatile it will be. Yield -- The rate at which a Fund earns income, expressed as a percentage. Mutual fund yield calculations are standardized, based upon a formula developed by the SEC. Yield-to-maturity -- The concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield (the interest rate on a debt security the issuer promises to pay to the holder until maturity, expressed as an annual percentage of face value) and the time between interest payments. 34 If you would like more information about the Funds, the following documents are available free upon request: Annual and Semiannual Reports -- Provide additional information about each Fund's investments. Each report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. Statement of Additional Information (SAI) -- Provides more detailed information about the Funds and their investment limitations and policies, has been filed with the SEC and is incorporated into this Prospectus by reference. To order a free copy of the Fund's annual or semiannual report or their SAI, contact your financial representative, or the Funds at: IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, MA 02116 Telephone: 800-225-5478 Internet: www.cdcnvestfunds.com Important Notice Regarding Delivery of Shareholder Documents: In our continuing effort to reduce your fund's expenses and the amount of mail that you receive from us, we will combine mailings of prospectuses, annual or semiannual reports and proxy statements to your household. If more than one family member in your household owns the same fund or funds described in a single prospectus, report or proxy statement, you will receive one mailing unless you request otherwise. Additional copies of our prospectuses, reports or proxy statements may be obtained at any time by calling 800-225-5478. If you are currently receiving multiple mailings to your household and would like to receive only one mailing or if you wish to receive separate mailings for each member of your household in the future, please call us at the telephone number listed above and we will resume separate mailings within 30 days of your request. Your financial representative or CDC Nvest Funds will also be happy to answer your questions or to provide any additional information that you may require. Information about the Funds, including their reports and SAI, can be reviewed and copied at the Public Reference Room of the SEC in Washington, D.C. Text-only copies of the Fund's reports and SAI are available free from the Edgar Database on the SEC's Internet site at: www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. Portfolio Holdings A description of the Fund's policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the Statement of Additional Information. IXIS Asset Management Distributors, L.P. (IXIS Distributors), and other firms selling shares of CDC Nvest Funds are members of the National Association of Securities Dealers, Inc. (NASD). As a service to investors, the NASD has asked that we inform you of the availability of a brochure on its Public Disclosure Program. The program provides access to information about securities firms and their representatives. Investors may obtain a copy by contacting the NASD at 800-289-9999 or by visiting its Web site at www.NASD.com. IXIS Distributors distributes the CDC Nvest Funds and Loomis Sayles Funds. If you have a complaint concerning IXIS Distributors or any of its representatives or associated persons, please direct it to IXIS Asset Management Distributors, L.P., Attn: Director of Compliance, 399 Boylston Street - 6th Floor, Boston, MA 02116 or call us at 800-225-5478. (Investment Company Act File No. 811-242) (Investment Company Act File No. 811-6241) 35 Part A CDC Nvest Star Advisers Fund CDC Nvest Star Value Fund CGM Advisor Targeted Equity Fund Hansberger International Fund (formerly CDC Nvest Star International Fund) Vaughan Nelson Small Cap Value Fund Westpeak Capital Growth Fund For CDC Nvest Star Advisers Fund and CDC Nvest Star Value Fund, the CDC Nvest Star Funds Classes A, B, and C prospectus dated May 1, 2004, is incorporated by reference to PEA No. 57 to the initial registration statement on Form N-1A of CDC Nvest Funds Trust I filed on April 29, 2004 (File No: 002-98326; Accession No.: 0001127563-04-000066) as supplemented on July 21, 2004 (Accession No.: 0001127563-04-000143), August 20, 2004 (Accession No.: 0001127563-04-000165) and September 29, 2004 (Accession No.: 0001127563-04-000212). For CGM Advisor Targeted Equity Fund, Hansberger International Fund, Vaughan Nelson Small Cap Value Fund and Westpeak Capital Growth Fund Classes A, B and C prospectus dated May 1, 2004, is incorporated by reference to PEA No. 57 to the initial registration statement on Form N-1A of CDC Nvest Funds Trust I filed on April 29, 2004 (File No: 002-98326; Accession No.: 0001127563-04-000066) as supplemented May 11, 2004 (Accession No.: 0001127563-04-000100), August 10, 2004 (Accession No.: 0001127563-04-000155) and September 29, 2004 (Accession No.: 0001127563-04-000212). For CDC Nvest Star Advisers Fund, CDC Nvest Star Value Fund, CGM Advisor Targeted Equity Fund, Hansberger International Fund, Vaughan Nelson Small Cap Value Fund and Westpeak Capital Growth Fund Class Y prospectus dated May 1, 2004, is incorporated by reference to PEA No. 57 to the initial registration statement on Form N-1A of CDC Nvest Funds Trust I filed on April 29, 2004 (File No: 002-98326; Accession No.: 0001127563-04-000066) as supplemented on May 11, 2004 (Accession No.: 0001127563-04-000100), August 10, 2004 (Accession No.: 0001127563-04-000155) and September 29, 2004 (Accession No.: 0001127563-04-000212). For the CDC Nvest Star Advisers Fund and CDC Nvest Star Value Fund, the CDC Nvest Star Funds, the Annual Report to Shareholders of the CDC Nvest Star Funds for the fiscal year ended December 31, 2003 is incorporated by reference to Form N-CSR of CDC Nvest Funds Trust I filed on March 5, 2004 (File No: 002-98326; Accession No.: 0001193125-04-035623). For the CGM Advisor Targeted Equity Fund, Hansberger International Fund, Vaughan Nelson Small Cap Value Fund and Westpeak Capital Growth Fund, the Annual Report to Shareholders of the CDC Nvest Equity Funds for the fiscal year ended December 31, 2003 is incorporated by reference to Form N-CSR of CDC Nvest Funds Trust I filed on March 5, 2004 (File No: 002-98326; Accession No.: 0001193125-04-035623). For the CDC Nvest Star Advisers Fund and CDC Nvest Star Value Fund, the CDC Nvest Star Funds, the Semi-annual Report to Shareholders of the CDC Nvest Star Funds for the period ended June 30, 2004 is incorporated by reference to Item 1 to Form N-CSR of CDC Nvest Funds Trust I filed on August 25, 2004 (File No: 002-98326; Accession No.: 0001193125-04-146494) as supplemented on September 9, 2004 (Accession No.: 0001193125-04-154068). For the CGM Advisor Targeted Equity Fund and Westpeak Capital Growth Fund, the Semi-annual Report to Shareholders of the CDC Nvest Star Funds for the period ended June 30, 2004 is incorporated by reference to Item 1 to Form N-CSR of CDC Nvest Funds Trust I filed on August 25, 2004 (File No: 002-98326; Accession No.: 0001193125-04-146494). [LOGO] CDC Nvest Funds(SM) CDC IXIS Asset Management Distributors - -------------------------------------------------------------------------------- Statement of Additional Information - PART I February 1, 2005 LOOMIS SAYLES CORE PLUS BOND FUND LOOMIS SAYLES GOVERNMENT SECURITIES FUND LOOMIS SAYLES HIGH INCOME FUND LOOMIS SAYLES INVESTMENT GRADE BOND FUND LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND LOOMIS SAYLES STRATEGIC INCOME FUND This Statement of Additional Information (the "Statement") contains information which may be useful to investors but which is not included in the Prospectuses of the CDC Nvest Funds listed above (the "Funds" and each a "Fund"). This Statement is not a prospectus and is authorized for distribution only when accompanied or preceded by the Prospectus of the Funds dated February 1, 2005 for Class A, Class B or Class C shares, or the Prospectus for Class Y shares (the "Prospectus" or "Prospectuses"), as from time to time revised or supplemented. This Statement should be read together with the Prospectuses. Investors may obtain the Prospectuses without charge from IXIS Asset Management Distributors, L.P. (the "Distributor"), Prospectus Fulfillment Desk, 399 Boylston Street, Boston, Massachusetts 02116, by calling CDC Nvest Funds at 800-225-5478 or by placing an order online at www.cdcnvestfunds.com. Part I of this Statement contains specific information about the Funds. Part II includes information about the Funds as well as other CDC Nvest Funds. Loomis Sayles Core Plus Bond Fund and Loomis Sayles Government Securities Fund are each a diversified fund and a series of CDC Nvest Funds Trust I, a registered open-end management investment company that offers shares of a total of nine funds. Loomis Sayles High Income Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Limited Term Government and Agency Fund and Loomis Sayles Strategic Income Fund are each a diversified fund and a series of Loomis Sayles Funds II, a registered, open-end management investment company that offers shares of a total of thirteen funds. CDC Nvest Funds Trust I and Loomis Sayles Funds II are collectively referred to in this Statement as the "Trusts" and are each referred to as a "Trust." The Funds' financial statements and accompanying notes that appear in the Funds' annual and semiannual reports are incorporated by reference into Part I of this Statement. Each Fund's annual and semiannual reports contain additional performance information and are available upon request and without charge by calling 800-225-5478. Table of Contents PART I PAGE ---- INVESTMENT RESTRICTIONS.......................................................ii FUND CHARGES AND EXPENSES......................................................x OWNERSHIP OF FUND SHARES.....................................................xvi PART II MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS..........................X MANAGEMENT OF THE TRUSTS.......................................................X PORTFOLIO TRANSACTIONS AND BROKERAGE...........................................X DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES..............................X PORTFOLIO TURNOVER.............................................................X PORTFOLIO HOLDINGS INFORMATION.................................................X HOW TO BUY SHARES..............................................................X NET ASSET VALUE AND PUBLIC OFFERING PRICE......................................X REDUCED SALES CHARGES..........................................................X SHAREHOLDER SERVICES...........................................................X REDEMPTIONS....................................................................X PERFORMANCE INFORMATION........................................................X INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ...................X FINANCIAL STATEMENTS ..........................................................X APPENDIX A ....................................................................X - -------------------------------------------------------------------------------- INVESTMENT RESTRICTIONS - -------------------------------------------------------------------------------- The following is a description of restrictions on the investments to be made by the Funds. The restrictions marked with an asterisk (*) are fundamental policies that may not be changed without the vote of a majority of the outstanding voting securities of the relevant Fund (as defined in the Investment Company Act of 1940, as amended, (the "1940 Act")). The other restrictions set forth below are not fundamental policies and may be changed by the relevant Trust's Board of Trustees. Except in the case of restrictions marked with a dagger (+) below, the percentages set forth below and the percentage limitations set forth in the Prospectuses apply at the time of the purchase of a security and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of a purchase of such security. Loomis Sayles Core Plus Bond Fund Loomis Sayles Core Plus Bond Fund (the "Core Plus Bond Fund") will not: *(1) Purchase any securities (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations. *(2) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. ii *(3) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided, however, this limitation does not apply to government securities as defined in the 1940 Act. *(4) Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(5) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. *(6) Purchase or sell commodities, except that the Fund may purchase and sell future contracts and options, may enter into foreign exchange contracts and swap agreements and other financial transactions not requiring the delivery of physical commodities. *(7) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. *(8) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. (9) Write, purchase or sell options or warrants, except that the Fund may (a) acquire warrants or rights to subscribe to securities of companies issuing such warrants or rights or of parents or subsidiaries of such companies, provided that such warrants or other rights to subscribe are attached to, or part of a unit offering, other securities, and (b) write, purchase or sell put or call options on securities, securities indexes or futures contracts. *(10) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. +(11) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Funds Trust I's trustees). (12) Invest less than 80% of its net assets (plus borrowings made for investment purposes) in bond investments. The term "bond investments" includes debt securities of any maturity. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the Securities and Exchange Commission ("SEC"). (13) Invest less than 80% of its assets in investment-grade securities (those rated BBB or higher by Standard and Poor's Rating Group ("S&P"), or Baa or higher by Moody's Investor Services, Inc. ("Moody's") or, if unrated, of comparable quality as determined by Loomis Sayles. (14) Invest more than 20% of its assets, at the time of purchase, in bonds rated below BBB by S&P and below Baa by Moody's (also known as "junk bonds") or, if unrated, of comparable quality as determined by Loomis Sayles. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (11) above. In restriction (12), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its iii control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. Loomis Sayles Government Securities Fund Loomis Sayles Government Securities Fund (the "Government Securities Fund") will not: (1) Invest in any securities other than U.S. government securities, put and call options thereon, futures contracts, options on futures contracts and repurchase agreements. *(2) Purchase or sell commodities, except that the Fund may purchase and sell future contracts and options and may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities. *(3) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(4) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. *(5) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. *(6) Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(7) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. (8) Write, purchase or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with respect to U.S. government securities and with respect to interest rate futures contracts. +(9) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Funds Trust I's trustees). (10) Invest less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in investments issued or guaranteed by the U.S. government, its agencies or instrumentalities. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. (11) Invest more than 20% of its net assets (plus borrowings made for investment purposes) in securities that are not backed by the full faith and credit of the U.S. government. Prior to implementation of any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders. Although the Government Securities Fund may from time to time issue senior securities, borrow money or pledge its assets to the extent permitted by investment restrictions (5) and (6) above, the Fund has no current intention of engaging in such investment techniques. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (9) above. iv In restriction (10), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. In restriction (11), the 20% policy is applied to current market value. However, if the Fund no longer meets the 20% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it would be required to make future investments in a manner that would bring the Fund into compliance with the 20% requirement, but would not be required to sell portfolio holdings that have increased in value. Loomis Sayles High Income Fund Loomis Sayles High Income Fund (the "High Income Fund") will not: *(1) Buy more than 10% of the voting securities or more than 10% of all of the securities of any issuer, or invest to control or manage any company. *(2) Purchase securities on "margin," except for short-term credits as needed to clear securities purchases. *(3) Invest in securities issued by other investment companies, except in connection with a merger, consolidation, acquisition, or reorganization, or by purchase in the open market of securities of closed-end investment companies where no underwriter or dealer commission or profit, other than a customary brokerage commission, is involved and only if immediately thereafter not more than 10% of the value of its total assets would be invested in such securities. *(4) Purchase securities, other than shares of the Fund, from or sell portfolio securities to its directors or officers, or firms they are affiliated with as principals, except as permitted by the regulations of the SEC. *(5) Purchase or sell commodities or commodity contracts, or write, purchase or sell options, except that the Fund may (a) buy or sell futures contracts on securities or on securities indexes and (b) write, purchase or sell put or call options on securities, on securities indexes or on futures contracts of the type referred to in clause (a) of this restriction. *(6) Make loans, except loans of portfolio securities and except to the extent that the purchase of notes, repurchase agreements, bonds, or other evidences of indebtedness or deposits with banks or other financial institutions may be considered loans. *(7) Make short sales of securities or maintain a short position. *(8) Purchase or sell real estate, provided that the Fund may invest in securities secured by real estate or interests therein or in securities issued by companies that invest in real estate or interests therein. *(9) Purchase or sell interests in oil and gas or other mineral exploration or development programs, provided that the Fund may invest in securities issued by companies which do invest in or sponsor such programs. *(10) Underwrite the securities of other issuers. *(11) Invest more than 10% of the value of its total assets, in the aggregate, in repurchase agreements maturing in more than seven days and restricted securities. *(12) Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water, and telephone companies will be considered as being in separate industries). v *(13) Borrow money, except as a temporary measure for extraordinary or emergency purposes, up to an amount not in excess of 33 1/3% of its total assets. *(14) Issue senior securities. For the purpose of this restriction, none of the following is deemed to be a senior security: any borrowing permitted by restriction (13) above; any collateral arrangements with respect to options, forward contracts, futures contracts, swap contracts and other similar contracts and options on futures contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts, swap contracts or similar contracts or options on futures contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of Loomis Sayles Funds II Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom. +(15) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by Loomis Sayles Funds' trustees). The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (15) above. Loomis Sayles Investment Grade Bond Fund Loomis Sayles Investment Grade Bond Fund (the "Investment Grade Bond Fund") will not: (1) Invest in companies for the purpose of exercising control or management. *(2) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. *(3) Invest in oil, gas or other mineral leases, rights or royalty contracts or in real estate, commodities or commodity contracts. (This restriction does not prevent the Fund from engaging in transactions in futures contracts relating to securities indices, interest rates or financial instruments or options, or from investing in issuers that invest or deal in the foregoing types of assets or from purchasing securities that are secured by real estate.) *(4) Make loans, except that the Fund may lend its portfolio securities to the extent permitted under the 1940 Act. (For purposes of this investment restriction, neither (i) entering into repurchase agreements nor (ii) purchasing debt obligations in which the Fund may invest consistent with its investment policies is considered the making of a loan.) (5) With respect to 75% of its assets, purchase any security (other than U.S. Government securities) if, as a result, more than 5% of the Fund's assets (taken at current value) would then be invested in securities of a single issuer. (6) With respect to 75% of its assets, acquire more than 10% of the outstanding voting securities of an issuer. (7) Pledge, mortgage, hypothecate or otherwise encumber any of its assets, except that the Fund may pledge assets having a value not exceeding 10% of its assets to secure borrowings permitted by restrictions (9) and (10) below. (For purposes of this restriction, collateral arrangements with respect to options, futures contracts, and options on futures contracts and with respect to initial and variation margin are not deemed to be a pledge or other encumbrance of assets.) *(8) Purchase any security (other than U.S. Government securities) if, as a result, more than 25% of the Fund's assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries). *(9) Borrow in excess of 10% of its assets (taken at cost) or 5% of its assets (taken at current value) whichever is lower, nor borrow any money except as a temporary measure for extraordinary or emergency purposes. vi (10) Purchase securities on margin (except such short term credits as are necessary for clearance of transactions) or make short sales (except where, by virtue of ownership of other securities, it has the right to obtain, without payment of additional consideration, securities equivalent in kind and amount to those sold). (11) Participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with Loomis, Sayles & Company, L.P. ("Loomis Sayles") or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction.) (12) Purchase any illiquid security, including any security that is not readily marketable, if, as a result, more than 15% of the Fund's net assets (based on current value) would then be invested in such securities. (13) Write or purchase puts, calls, or combinations of both, except that the Fund may (1) acquire warrants or rights to subscribe to securities of companies issuing such warrants or rights, or of parents or subsidiaries of such companies, (2) purchase and sell put and call options on securities, and (3) write, purchase and sell put and call options on currencies and enter into currency forward contracts. *(14) Issue senior securities. (For purposes of this restriction, none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restriction (7) above; any borrowing permitted by restriction (9) above; any collateral arrangements with respect to options, futures contracts, and options on futures contracts and with respect to initial and variation margin; and the purchase or sale of options, forward contracts, futures contracts, or options on futures contracts.) (15) Invest less than 80% of its assets in investment grade fixed income securities. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. (16) Invest in equity stocks or make any other equity investments. The Fund intends, based on the views of the Securities and Exchange Commission to restrict its investments in repurchase agreements maturing in more than seven days, together with other investments in illiquid securities, to the percentage permitted by restriction (12) above. For the purposes of the foregoing restrictions, the Fund does not consider a swap contract on one or more securities, indices, currencies or interest rates to be a commodity or a commodity contract, nor, consistent with the position of the staff of the SEC, does the Fund consider such swap contracts to involve the issuance of a senior security, provided the Fund segregates with its custodian liquid assets (marked to market on a daily basis) sufficient to meet its obligations under such contracts. Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Limited Term Government and Agency Fund (the "Limited Term Government and Agency Fund") will not: *(1) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(2) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. vii *(3) Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(4) Purchase any securities (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations. *(5) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. *(6) Purchase or sell commodities, except that the Fund may purchase and sell future contracts and options, may enter into foreign exchange contracts and swap agreements and other financial transactions not requiring the delivery of physical commodities. *(7) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. *(8) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. (9) Write, purchase or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with respect to financial instruments or indices thereof and currencies and with respect to futures contracts on financial instruments or indices thereof. +(10) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by Loomis Sayles Funds II trustees). (11) Invest less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in investments issued or guaranteed by the U.S. government, its agencies or instrumentalities. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. Although the Fund may from time to time make short sales, issue senior securities, borrow money or pledge its assets to the extent permitted by the investment restrictions set forth above, the Fund has no current intention of engaging in such investment techniques. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (10) above. In restriction (11), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. viii Loomis Sayles Strategic Income Fund Loomis Sayles Strategic Income Fund (the "Strategic Income Fund") will not: *(1) Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries, and each foreign country's government (together with subdivisions thereof) will be considered to be a separate industry). (2) Purchase securities on margin (but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities), or make short sales except where, by virtue of ownership of other securities, it has the right to obtain, without payment of further consideration, securities equivalent in kind and amount to those sold, and the Fund will not deposit or pledge more than 10% of its total assets (taken at current value) as collateral for such sales. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin). (3) Acquire more than 10% of any class of securities of an issuer (other than U.S. government securities and taking all preferred stock issues of an issuer as a single class and all debt issues of an issuer as a single class) or acquire more than 10% of the outstanding voting securities of an issuer (such percentage limitations apply to closed-end management investment companies as well). *(4) Borrow money in excess of 25% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes. (5) Pledge more than 25% of its total assets (taken at cost). (For the purpose of this restriction, collateral arrangements with respect to options, futures contracts and options on futures contracts and with respect to initial and variation margin are not deemed to be a pledge of assets). *(6) Make loans, except by entering into repurchase agreements or by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public or to financial institutions, or through the lending of the Fund's portfolio securities. *(7) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, real estate or commodities or commodity contracts, except that the Fund may buy and sell futures contracts and related options. (This restriction does not prevent the Fund from purchasing securities of companies investing in the foregoing). *(8) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. (9) Except to the extent permitted by rule or order of the SEC, participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with any investment adviser of the Fund or accounts under any such investment adviser's management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction). (10) Write, purchase or sell options, except that the Fund may (a) write, purchase and sell put and call options on securities, securities indexes, currencies, futures contracts, swap contracts and other similar instruments and (b) enter into currency forward contracts. +(11) Invest more than 15% of its net assets (taken at current value) in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by Loomis Sayles Funds II trustees). *(12) Issue senior securities. (For the purpose of this restriction none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restrictions (2) or (5) above; any borrowing permitted by restriction (4) above; any collateral arrangements with respect to forward contracts, ix options, futures contracts, swap contracts or other similar contracts and options on futures contracts, swap contracts or other similar contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts, swap contracts or other similar contracts or options on futures contracts, swap contracts or other similar contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of Loomis Sayles Funds II Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom.) The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (11) above. - -------------------------------------------------------------------------------- FUND CHARGES AND EXPENSES - -------------------------------------------------------------------------------- ADVISORY FEES Pursuant to separate advisory agreements, Loomis, Sayles & Company, L.P. ("Loomis Sayles") has agreed, subject to the supervision of the Board of Trustees of the relevant Trust, to manage the investment and reinvestment of the assets of each Fund and to provide a range of administrative services to each Fund except the Core Plus Bond Fund and Government Securities Fund. For the services described in the advisory agreements, each Fund has agreed to pay Loomis Sayles an advisory fee at the annual rate set forth in the following table:
Advisory Fee Payable by Fund to Loomis Sayles Fund Date of Agreement (as a % of average daily net assets of the Fund) - ---- --------------------- ------------------------------------------------ Core Plus Bond Fund September 1, 2003 0.2500% of the first $100 million 0.1875% of amounts in excess of $100 million Government Securities Fund September 1, 2003 0.2750% of the first $200 million 0.2625% of the next $300 million 0.2500% of amounts in excess of $500 million High Income Fund September 12, 2003 0.600% amended July 1, 2004* Investment Grade Bond Fund October 30, 2000 0.400% Limited Term Government and September 12, 2003 0.570% of the first $200 million Agency Fund 0.545% of the next $300 million 0.520% of amounts in excess of $500 million Strategic Income Fund September 12, 2003 0.650% of the first $200 million 0.600% of amounts in excess of $200 million
* Prior to July 1, 2004, the advisory fee rate was 0.70% of the first $200 million of average daily net assets and 0.65% of average daily net assets in excess of $200 million. For the current fiscal year, the following table shows the total advisory fees paid by the Funds to Loomis Sayles, the Funds' current adviser. For fiscal years 2002 and 2003, the following table shows the total advisory fees (including subadvisory fees) paid to IXIS Asset Management Advisors, L.P. ("IXIS Advisors", formerly named CDC IXIS Asset Management Advisers, L.P.), the former adviser to all Funds except Investment Grade Bond Fund, and Loomis Sayles, the former subadviser to all Funds except Investment Grade Bond Fund: x
Advisory Fees/1,2/ ---------------------------------------------------------- Core Plus Bond Fund 1/1/02 - 12/31/02 1/01/03 - 9/30/03 10/01/04 - 9/30/04 - ------------------- ----------------- ----------------- ------------------ Total Advisory Fee $1,317,903 $941,859 IXIS Advisors Total Paid $ 658,951 $443,986 Loomis Sayles Total Paid $ 658,952 $497,873
Government Securities Fund 1/1/02 - 12/31/02 1/01/03 - 9/30/03 10/01/04 - 9/30/04 - -------------------------- ----------------- ----------------- ------------------ Total Advisory Fee $502,700 $374,861 IXIS Advisors Total Paid $251,350 $177,721 Loomis Sayles Total Paid $251,350 $197,140
High Income Fund 1/1/02 - 12/31/02 1/01/03 - 9/30/03 10/01/04 - 9/30/04 - ---------------- ----------------- ----------------- ------------------ Total Advisory Fee $407,408 $260,331 IXIS Advisors Total Paid $203,704 $115,794 Loomis Sayles Total Paid $203,704 $144,537
Investment Grade Bond Fund 10/01/02 - 9/30/02 10/01/03 - 9/30/03 10/01/04 - 9/30/04 - -------------------------- ------------------ ------------------ ------------------ Total Advisory Fee Loomis Sayles Fee Earned $624,862 $1,092,528 Amount Waived $440,118 $ 6,771 Total Paid $184,774 $1,085,757
Limited Term Government and Agency Fund 1/1/02 - 12/31/02 1/01/03 - 9/30/03 10/01/04 - 9/30/04 - ----------------------- ----------------- ----------------- ------------------ Total Advisory Fee $774,861 $628,035 IXIS Advisors Total Paid $387,430 $279,606 Loomis Sayles Total Paid $387,431 $348,429
Strategic Income Fund 1/1/02 - 12/31/02 1/01/03 - 9/30/03 10/01/04 - 9/30/04 - --------------------- ----------------- ----------------- ------------------ Total Advisory Fee $1,404,810 $1,282,724 IXIS Advisors Total Paid $ 652,405 $ 526,736 Loomis Sayles Total Paid $ 752,405 $ 755,988
xi /1/ This table does not reflect any fees paid under the Advisory Administration agreements described later in this Statement. /2/ On September 12, 2003, the High Income Fund and Limited Term Government and Agency Fund, formerly series of CDC Nvest Funds Trust II, and Strategic Income Fund, formerly a series of CDC Nvest Funds Trust I, were reorganized as series of Loomis Sayles Funds II (these funds, as series of the former trusts, are referred to in this paragraph as Predecessor Funds and, as series of Loomis Sayles Funds II, are referred to in this paragraph as Successor Funds). As a result, each Successor Fund assumed the financial and accounting information of its respective Predecessor Fund. The table therefore includes fees under previous investment advisory and subadvisory arrangements applicable to the Predecessor Funds. The advisory fees reported for fiscal year 2002 reflect these arrangements. In addition, effective September 1, 2003, the investment advisory agreements among the Core Plus Bond Fund and Government Securities Fund, on the one hand, and IXIS Advisors, on the other hand, were amended to replace IXIS Advisors with Loomis Sayles as investment adviser to the Funds. Prior to September 1, 2003, Loomis Sayles managed the assets of these Funds as subadviser under separate investment subadvisory agreements that terminated on September 1, 2003. IXIS Advisors continues to provide certain administrative and oversight services to the Core Plus Bond Fund and Government Securities Fund under separate Advisory Administration Agreements. Loomis Sayles and IXIS Advisors (in the case of the Core Plus Bond Fund) have given a binding undertaking (for all classes of the Funds in the table below) to reduce the advisory fees, and if necessary, to bear certain expenses, exclusive of brokerage expenses, interest expense, taxes and organizational and extraordinary expense, associated with the Funds, to the extent necessary to limit the Funds' expenses to the annual rates indicated below. The undertaking will be binding on Loomis Sayles and IXIS Advisors (in the case of the Core Plus Bond Fund) for a period of one-year from the date shown, and will be reevaluated on an annual basis thereafter, subject to the obligation of each Fund to pay such deferred fees or expense reimbursement in later periods to the extent that each Fund's expenses fall below the expense limit; provided, however, that each Fund is not obligated to pay such deferred fees or expense reimbursement more than one year after the end of the fiscal year in which the fee was deferred. Fund Expense Limit Date of Undertaking - ---- ------------- ------------------- Core Plus Bond Fund February 1, 2005 Class A 1.15% Class B 1.90% Class C 1.90% Investment Grade Bond Fund February 1, 2005 Class A 0.95% Class B 1.70% Class C 1.70% Class Y 0.55% Strategic Income Fund February 1, 2005 Class A 1.25% Class B 2.00% Class C 2.00% Class Y 1.00% ADVISORY ADMINISTRATION AGREEMENT Pursuant to separate advisory administration agreements, the Core Plus Bond Fund and the Government Securities Fund have retained IXIS Advisors to provide certain administrative and oversight services to these Funds. For the services described in the advisory administration agreements, IXIS Advisors receives fees at the annual rates set forth in the following table:
Advisory Fee Payable by Fund to Loomis Sayles Fund Date of Agreement (as a % of average daily net assets of the Fund) - ---- ----------------- ---------------------------------------------------- Core Plus Bond Fund September 1, 2003 0.2500% of the first $100 million 0.1875% of amounts in excess of $100 million
xii Government Securities Fund September 1, 2003 0.2750% of the first $200 million 0.2625% of the next $300 million 0.2500% of amounts in excess of $500 million
For the period September 1, 2003 to September 30, 2003 and for the fiscal year ended September 30, 2004, the following table shows the advisory administration fees paid by Core Plus Bond Fund and the Government Securities Fund to IXIS Advisors: Fund 9/1/03 - 9/30/03 10/1/04 - 9/30/04 - ---- ---------------- ----------------- Core Plus Bond Fund $53,887 Government Securities Fund $19,419 BROKERAGE COMMISSIONS None of the Funds or any of their Predecessor Funds paid any brokerage commissions in 2002. In 2003 High Income Fund, Investment Grade Bond Fund and Strategic Income Fund paid $250, $8,655 and $30,629, respectively, in brokerage commissions. In 2004 ----------------------------. For a description of how transactions in portfolio securities are effected and how the Funds' adviser selects brokers, see the section entitled "Portfolio Transactions and Brokerage" in Part II of this Statement. Regular Broker-Dealers The table below contains the aggregate value of securities of each Fund's regular broker-dealers+ (or the parent of the regular broker-dealers) held by each Fund, if any, as of the fiscal year ending September 30, 2004. Aggregate Value of Securities of each Regular Broker or Dealer (or its Fund Regular Broker-Dealer Parent) held by Fund - ---- --------------------- -------------------------- + "Regular Broker-Dealers" are defined by the SEC as: (a) one of the 10 brokers or dealers that received the greatest dollar amount of brokerage commissions by virtue of direct or indirect participation in the company's portfolio transactions during the company's most recent fiscal year; (b) one of the 10 brokers or dealers that engaged as principal in the largest dollar amount of portfolio transactions of the investment company during the company's most recent fiscal year; or (c) one of the 10 brokers or dealers that sold the largest dollar amount of securities of the investment company during the company's most recent fiscal year. SALES CHARGES AND 12B-1 FEES As explained in Part II of this Statement, the Class A, Class B and Class C shares (except in the case of the Government Securities Fund, which does not offer Class C shares) of each Fund pay the Distributor fees under plans adopted pursuant to Rule 12b-1 under the 1940 Act ("Plans"). The following table shows the amounts of Rule 12b-1 fees paid by the Funds (including their Predecessor Funds) under the Plans during the past three fiscal years. All amounts paid under the Plans during the last fiscal year were paid as compensation to the Distributor. Compensation payable under the Plans may be paid regardless of the Distributor's expenses. The anticipated benefits to the Funds of the Plans include the ability to attract and maintain assets. xiii
Fund 1/1/02 - 12/31/02 1/1/03 - 9/30/03 10/1/04 - 9/30/04 - ---------------------------------- ----------------- ---------------- ----------------- Core Plus Bond Fund Class A $ 397,181 $ 263,615 Class B $1,314,367 $1,147,439 Class C $ 103,081 $ 62,083 Government Securities Fund Class A $ 177,887 $ 139,173 Class B $ 142,039 $ 129,149 High Income Fund Class A $ 67,018 $ 44,308 Class B $ 282,083 $ 174,650 Class C $ 31,502 $ 20,020 Limited Term Government and Agency Fund Class A $ 373,753 $ 301,134 Class B $ 144,101 $ 119,150 Class C $ 68,615 $ 65,626 Strategic Income Fund Class A $ 226,621 $ 212,541 Class B $ 984,230 $ 825,818 Class C $ 277,462 $ 325,425
Fund 10/1/01 - 9/30/02 10/1/02 - 9/30/03 10/1/04 - 9/30/04 - ---------------------------------- ----------------- ----------------- ----------------- Investment Grade Bond Fund Class A $0 $743 Class B $0 $ 20 Class C $0 $ 1
During the fiscal year ended September 30, 2004, the Distributor's expenses relating to the Fund's 12b-1 plans were as follows (Class B compensation to investment dealers excludes advanced commissions sold to a third party): Core Plus Bond Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Government Securities Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs xiv TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL High Income Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Investment Grade Bond Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Limited Term Government and Agency Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs xv TOTAL Strategic Income Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL - -------------------------------------------------------------------------------- OWNERSHIP OF FUND SHARES - -------------------------------------------------------------------------------- As of January XX, 2005, to the Trusts' knowledge, the following persons owned of record or beneficially 5% or more of the outstanding shares of the indicated classes of the Funds set forth below.* Ownership Fund Shareholder and Address Percentage - ---- ----------------------- ---------- Core Plus Bond Fund/1/ (Class A) (Class B) (Class C) (Class Y) Government Securities Fund (Class A) (Class B) High Income Fund (Class A) (Class B) (Class C) xvi Investment Grade Bond Fund (Class A) (Class B) (Class C) (Class Y) Limited Term Government and Agency Fund (Class A) (Class B) (Class C) (Class Y) Strategic Income Fund (Class A) (Class B) (Class C) (Class Y) /1/ As of January XX, 2005, owned % of the Core Plus -------------- ----------- Bond Fund and therefore may be presumed to "control" the Fund, as that term is defined in the 1940 Act. However, such ownership may be beneficially held by individuals or entities other than is organized ------------------------------ under the laws of and is wholly-owned by . -------------- ---------------- * Such ownership may be beneficially held by individuals or entities other than the owner listed. To the extent that any listed shareholder beneficially owns more than 25% of a Fund, it may be deemed to "control" such Fund within the meaning of the 1940 Act. The effect of such control may be to reduce the ability of other shareholders of the Fund to take actions requiring the affirmative vote of holders of a plurality or majority of the Fund's shares without the approval of the controlling shareholder. xvii [GRAPHIC APPEARS HERE] Statement of Additional Information - PART I FEBRUARY 1, 2005 Loomis Sayles Massachusetts Tax Free Income Fund Loomis Sayles Municipal Income Fund This Statement of Additional Information (the "Statement") contains information which may be useful to investors but which is not included in the Prospectus of the CDC Nvest Funds listed above (the "Funds" and each a "Fund"). This Statement is not a prospectus and is authorized for distribution only when accompanied or preceded by the Prospectus of the Funds dated February 1, 2005 for Class A or B shares (the "Prospectus"), as from time to time revised or supplemented. This Statement should be read together with the Prospectus. Investors may obtain the Prospectus without charge from IXIS Asset Management Distributors, L.P. (the "Distributor"), Prospectus Fulfillment Desk, 399 Boylston Street, Boston, Massachusetts 02116, by calling CDC Nvest Funds at 800-225-5478 or by placing an order online at www.cdcnvestfunds.com. Part I of this Statement contains specific information about the Funds. Part II includes information about the Funds as well as other CDC Nvest Funds. The Loomis Sayles Massachusetts Tax Free Income Fund is a diversified fund and a series of CDC Nvest Funds Trust II, a registered open-end management investment company that offers shares of a total of two separate series. Prior to September 15, 2003, the Loomis Sayles Municipal Income Fund was a series (the "Predecessor Fund") of CDC Nvest Funds Trust I. Effective September 12, 2003, the Predecessor Fund was reorganized as a series of the Loomis Sayles Funds II, a registered open-end management investment company that offers shares of a total of thirteen funds, and was renamed the "Loomis Sayles Municipal Income Fund" (the "Successor Fund"). CDC Nvest Funds Trust I, CDC Nvest Funds Trust II and Loomis Sayles Funds II are collectively referred to in this Statement as the "Trusts" and are each referred to as a "Trust." Financial performance information included or incorporated herein with respect to the Successor Fund includes that of the Predecessor Fund. The Funds' financial statements and accompanying notes that appear in the Funds' annual and semiannual reports are incorporated by reference into Part I of this Statement. Each Fund's annual and semiannual reports contain additional performance information and are available upon request and without charge by calling 800-225-5478. TABLE OF CONTENTS PAGE PART I INVESTMENT RESTRICTIONS....................................................ii FUND CHARGES AND EXPENSES...................................................v OWNERSHIP OF FUND SHARES.................................................viii PART II MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS...................... X MANAGEMENT OF THE TRUSTS................................................... X PORTFOLIO TRANSACTIONS AND BROKERAGE....................................... X DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES.......................... X PORTFOLIO TURNOVER......................................................... X PORTFOLIO HOLDINGS INFORMATION............................................. X HOW TO BUY SHARES.......................................................... X NET ASSET VALUE AND PUBLIC OFFERING PRICE.................................. X REDUCED SALES CHARGES...................................................... X SHAREHOLDER SERVICES....................................................... X REDEMPTIONS................................................................ X PERFORMANCE INFORMATION.................................................... X INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ............... X FINANCIAL STATEMENTS ...................................................... X APPENDIX A ................................................................ X - -------------------------------------------------------------------------------- INVESTMENT RESTRICTIONS - -------------------------------------------------------------------------------- The following is a description of restrictions on the investments to be made by the Funds. The restrictions marked with an asterisk (*) are fundamental policies that may not be changed without the vote of a majority of the outstanding voting securities of the relevant Fund (as defined in the Investment Company Act of 1940, as amended, the "1940 Act")). The other restrictions set forth below are not fundamental policies and may be changed by the relevant Trust's Board of Trustees. Except in the case of restrictions marked with a dagger (+) below, the percentages set forth below and the percentage limitations set forth in the Prospectus apply at the time of the purchase of a security and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of a purchase of such security. LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND Loomis Sayles Massachusetts Tax Free Income Fund (the "Massachusetts Fund") will not: *(1) Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(2) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(3) Act as underwriter, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. *(4) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. *(5) Purchase or sell commodities, except that the Fund may purchase and sell future contracts and options, may enter into foreign exchange contracts and swap agreements and other financial transactions not requiring the delivery of physical commodities. *(6) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. (7) Purchase securities restricted as to resale, if, as a result, such investments would exceed 5% of the value of the Fund's net assets. *(8) Purchase any securities (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies ii whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations. *(9) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided, however, this limitation does not apply to government securities as defined in the 1940 Act. (10) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. *(11) Invest less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in investments the income of which is exempt from federal and Massachusetts state income tax. (12) Invest less than 90% of its net assets in debt obligations on which the interest is exempt from federal income tax (other than the alternative minimum tax) and Massachusetts personal income tax. (13) Invest more than 20% of its assets in securities on which the interest is subject to the alternative minimum tax for individuals. In restriction (11), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. The Fund may invest more than 25% of the value of its total assets in private activity bonds, the interest from which is exempt from both federal and state personal income taxes, but not more than 25% in bonds backed by non-governmental users in any one industry. However, the income from certain private activity bonds is an item of tax preference for purposes of the federal alternative minimum tax, and it is a non-fundamental policy of the Fund that distributions from interest income on such private activity bonds, together with distributions of interest income on investments other than Tax Exempt Securities (as described under "Miscellaneous Investment Practices and Related Risks" in Part II of this Statement), will normally not exceed 10% of the total amount of the Fund's income distributions. The Fund will not purchase an investment if, immediately after and as a result of such purchase, less than 85% of the Fund's assets would consist of securities rated AAA, AA, A or BBB by Standard & Poor's or Fitch, or Aaa, Aa, A, or Baa by Moody's or are non-rated but are considered to be of comparable quality by the Fund's subadviser. LOOMIS SAYLES MUNICIPAL INCOME FUND Loomis Sayles Municipal Income Fund (the "Municipal Income Fund") will not: *(1) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided, however, this limitation does not apply to government securities as defined in the 1940 Act. *(2) Purchase any securities (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations. iii (3) Invest more than 25% of its total assets (taken at current value) in private activity bonds that are based, directly or indirectly, on the credit of private entities in any one industry or in securities of private issuers in any one industry. (In the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries). *(4) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(5) Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(6) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. *(7) Purchase or sell commodities, except that the Fund may purchase and sell future contracts and options, may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities. *(8) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. *(9) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. (10) Write, purchase, or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with regard to futures contracts. *(11) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. +(12) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Trust's trustees). *(13) Invest less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in municipal investments the income from which is exempt from federal income tax (other than the alternative minimum tax). (14) Invest more than 20% of the Fund's net assets in debt obligations on which the interest is subject to the alternative minimum tax for individuals. The Fund may invest more than 25% of its assets in private activity bonds, subject to limitation (3) above. In restriction (13), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. iv - -------------------------------------------------------------------------------- FUND CHARGES AND EXPENSES - -------------------------------------------------------------------------------- ADVISORY FEES Pursuant to separate advisory agreements, Loomis, Sayles & Company, L.P. ("Loomis Sayles") has agreed, subject to the supervision of the Board of Trustees of the relevant Trust, to manage the investment and reinvestment of the assets of each Fund and to provide a range of administrative services to each Fund. For the services described in the advisory agreements, each Fund has agreed to pay Loomis Sayles an advisory fee at the annual rate set forth in the following table:
ADVISORY FEE PAYABLE BY FUND TO LOOMIS SAYLES FUND DATE OF AGREEMENT (as a % of average daily net assets of the Fund) - ------------------------------- --------------------- ---------------------------------------------------- Massachusetts Fund September 1, 2003 0.300% of the first $100 million 0.250% of amounts in excess of $100 million Municipal Income Fund September 12, 2003 0.500% of the first $100 million 0.375% of amounts in excess of $100 million
For the current fiscal year, the following table shows the total advisory fees paid by the Funds to Loomis Sayles, the Funds' current adviser. For fiscal years 2002 and 2003, the following table shows the total advisory fees (including subadvisory fees) paid to IXIS Asset Management Advisors, L.P. ("IXIS Advisors", formerly named CDC IXIS Asset Management Advisers, L.P.), the former adviser to both Funds, and Loomis Sayles, the former subadviser to both Funds: ADVISORY FEES/1/ 1/1/02 - 1/1/03 - 10/1/03 - 12/31/02 9/30/03 /2/,/3/ 9/30/04 --------- ---------------- --------- MASSACHUSETTS FUND Total Advisory Fee $ 590,987 $ 402,028 IXIS Advisors Fee Earned $ 295,493 $ 189,740 -- Amount Waived -- -- -- Total Paid $ 295,493 $ 189,740 -- Loomis Sayles Fee Earned -- $ 212,288 Amount Waived -- -- Total Paid $ 295,494 $ 212,288 1/1/02 - 1/1/03 - 10/1/03 - 12/31/02 9/30/03 /2/,/3/ 9/30/04 --------- ---------------- --------- MUNICIPAL INCOME FUND Total Advisory Fee $ 686,999 $ 488,937 IXIS Advisors -- Total Paid $ 343,500 $ 218,301 -- Loomis Sayles Total Paid $ 343,499 $ 270,636 /1/ On September 12, 2003, the Predecessor Fund reorganized into the Successor Fund and, as a result, the Successor Fund assumed the financial and accounting information of the Predecessor Fund. The table therefore includes fees under previous investment advisory arrangements applicable to the Predecessor Fund. The advisory fees reported through fiscal year 2002 v reflect these arrangements. In addition, effective September 1, 2003, the investment advisory agreements among the Funds and IXIS Advisors were amended to replace IXIS Advisors with Loomis Sayles as investment adviser to the Funds. Prior to September 1, 2003, Loomis Sayles managed the assets of the Funds as subadviser under separate investment subadvisory agreements that terminated on September 1, 2003. The Massachusetts Fund's subadvisory agreement provided for the same advisory fees as currently payable by the Fund to Loomis Sayles. The Municipal Income Fund's subadvisory agreement provided for a subadvisory fee of 0.2500% of the first $100 million of the Fund's average daily net assets and 0.1875% of amounts in excess of $100 million of the Fund's average daily net assets. IXIS Advisors continues to provide certain administrative and oversight services to the Massachusetts Fund. /2/ Each Fund's fiscal year end changed from December 31 to September 30. /3/ Amounts do not include any advisory administration fees paid to IXIS Advisors. Loomis Sayles and IXIS Advisors have given a binding undertaking to reduce their advisory and advisory administration fee, and if necessary, to bear certain expenses, exclusive of brokerage expenses, interest expense, taxes and organizational and extraordinary expense, associated with the Massachusetts Fund, to the extent necessary to limit the Fund's expenses to the annual rates indicated below. The undertaking will be binding on Loomis Sayles and IXIS Advisors through [January 31, 2006], and will be reevaluated on an annual basis thereafter, subject to the obligation of the Fund to pay such deferred fees or expense reimbursement in later periods to the extent that each Fund's expenses fall below the expense limit; provided, however, that the Fund is not obligated to pay such deferred fees or expense reimbursement more than one year after the end of the fiscal year in which the fee was deferred. FUND EXPENSE LIMIT ------------------- ------------- Massachusetts Fund Class A 1.40% Class B 2.05% ADVISORY ADMINISTRATION AGREEMENT Pursuant to a separate advisory administration agreement, the Massachusetts Fund has retained IXIS Advisors to provide certain administrative and oversight services to the Fund. For the services described in the advisory administration agreement, IXIS Advisors receives fees at the annual rates set forth in the following table:
ADVISORY ADMINISTRATION FEE PAYABLE BY FUND TO IXIS ADVISORS FUND DATE OF AGREEMENT (as a % of average daily net assets of the Fund) - ------------------ ----------------- ------------------------------------------------ Massachusetts Fund September 1, 2003 0.300% of the first $100 million 0.250% of amounts in excess of $100 million
For the period September 1, 2003 to September 30, 2003 and for the fiscal year ended September 30, 2004, the following table shows the advisory administration fees paid by Massachusetts Fund to IXIS Advisors: 9/1/03 - 10/1/04 - FUND 9/30/03 9/30/04 ------------------ -------- --------- Massachusetts Fund $ 22,549 BROKERAGE COMMISSIONS Neither of the Funds nor the Predecessor Fund paid any brokerage commissions for the fiscal years ended December 31, 2001, 2002 and for the period from January 1, 2003 through September 30, 2003. For a description of how transactions in portfolio securities are effected and how the Funds' adviser selects brokers, see the section entitled "Portfolio Transactions and Brokerage" in Part II of this Statement. vi SALES CHARGES AND 12B-1 FEES As explained in Part II of this Statement, the Class A and Class B shares of each Fund pay the Distributor fees under plans adopted pursuant to Rule 12b-1 under the 1940 Act ("Plans"). The following table shows the amounts of Rule 12b-1 fees paid by the Funds (including their Predecessor Funds) under the Plans during the past three fiscal years. All amounts paid under the Plans during the last fiscal year were paid as compensation to the Distributor. Compensation payable under the Plans may be paid regardless of the Distributor's expenses. The anticipated benefits to the Funds of the Plans include the ability to attract and maintain assets. 1/1/02 - 1/1/03 - 10/1/04 - FUND 12/31/02 9/30/03 9/30/04 - ---------------------- ---------- ---------- --------- Massachusetts Fund Class A $ 318,340 $ 230,730 Class B $ 75,554 $ 48,402 Municipal Income Fund Class A $ 341,958 $ 242,276 Class B $ 130,927 $ 85,415 During the fiscal year ended September 30, 2004, the Distributor's expenses relating to the Fund's 12b-1 plans were as follows (Class B compensation to investment dealers excludes advanced commissions sold to a third party): MASSACHUSETTS FUND (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL MUNICIPAL INCOME FUND (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL vii - -------------------------------------------------------------------------------- OWNERSHIP OF FUND SHARES - -------------------------------------------------------------------------------- As of January XX, 2005, to the Trusts' knowledge, the following persons owned of record or beneficially 5% or more of the outstanding shares of the indicated classes of the Funds set forth below.* Fund Shareholder and Address Ownership Percentage - ---------------------- ----------------------- -------------------- MASSACHUSETTS FUND (Class A Shares) (Class B Shares) MUNICIPAL INCOME FUND (Class A Shares) (Class B Shares) * Such ownership may be beneficially held by individuals or entities other than the owner listed. To the extent that any listed shareholder beneficially owns more than 25% of a Fund, it may be deemed to "control" such Fund within the meaning of the 1940 Act. The effect of such control may be to reduce the ability of other shareholders of the Fund to take actions requiring the affirmative vote of holders of a plurality or majority of the Fund's shares without the approval of the controlling shareholder. viii ADD CDC NVEST FUNDS LOGO Statement of Additional Information -- PART II February 1, 2005 CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II LOOMIS SAYLES FUNDS II The following information applies generally to the funds listed below (the "Funds" and each a "Fund", or the "CDC Nvest Funds"). The Funds constitute certain series of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, and Loomis Sayles Funds II (the "Trusts" and each a "Trust"). In certain cases, the discussion applies to some but not all of the Funds, as well as series of Loomis Sayles Funds I. Certain data applicable to particular Funds is found in Part I of this Statement of Additional Information (together with this document, the "Statement") as well as in the Prospectuses of the Funds dated February 1, 2005, as from time to time revised or supplemented (the "Prospectus" or "Prospectuses"). This Statement is not a prospectus. For information about how to obtain copies of the Funds' Prospectuses, please see this Statement's cover page. The following Funds are described in this Statement:
- --------------------------------------------------------------------------------------------------------------- Series of CDC Nvest Funds Trust I Series of CDC Nvest Funds Trust II Series of Loomis Sayles Funds II - --------------------------------- ---------------------------------- -------------------------------- Loomis Sayles Core Plus Bond Fund Loomis Sayles Massachusetts Tax Loomis Sayles Growth Fund ("Core Plus Bond Fund") Free Income Fund ("Growth Fund") Loomis Sayles Government ("Massachusetts Fund") Loomis Sayles High Income Fund Securities Fund ("High Income Fund") ("Government Securities Fund") Hansberger Foreign Growth Fund ("Hansberger Foreign Growth Fund") (formerly named CDC IXIS International Equity Fund) Loomis Sayles Investment Grade Bond Fund ("Investment Grade Bond Fund") Loomis Sayles Limited Term Government and Agency Fund ("Limited Term Government and Agency Fund") Loomis Sayles Municipal Income Fund ("Municipal Income Fund") Loomis Sayles Research Fund ("Research Fund") Loomis Sayles Strategic Income Fund ("Strategic Income Fund") - ---------------------------------------------------------------------------------------------------------------
Table of Contents Part II MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS..........................3 MANAGEMENT OF THE TRUSTS......................................................25 PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................46 DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES.............................49 PORTFOLIO TURNOVER............................................................54 PORTFOLIO HOLDING INFORMATION.................................................56 HOW TO BUY SHARES.............................................................54 NET ASSET VALUE AND PUBLIC OFFERING PRICE.....................................55 REDUCED SALES CHARGES.........................................................56 SHAREHOLDER SERVICES..........................................................58 REDEMPTIONS...................................................................64 PERFORMANCE INFORMATION.......................................................66 INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ..................67 FINANCIAL STATEMENTS .........................................................71 APPENDIX A ...................................................................73 2 - -------------------------------------------------------------------------------- MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS - -------------------------------------------------------------------------------- The following is a list of certain investment strategies, including particular types of securities or specific practices that may used by an adviser of a Fund in managing the Fund and that are not principal strategies. A Fund's primary strategies are detailed in its Prospectuses. The list of securities under each category below is not intended to be an exclusive list of securities for investment. An adviser may invest in a general category listed below and where applicable with particular emphasis on a certain type of security but investment is not limited to the securities specially enumerated under each category. An adviser may invest in some securities under a given category as a primary strategy and in other securities under the same category as a secondary strategy. An adviser may invest in any security that falls under the specific category including securities that are not listed below.
- -------------------------------------------------------------------------------------------------------- Fund Securities Practices - -------------------------------------------------------------------------------------------------------- Core Plus Bond Fund Debt Securities (Asset-backed When-issued Securities Securities, Collateralized Mortgage Futures Contracts Obligations, Mortgage Dollar Rolls, Illiquid Securities Structured Notes, Stripped Securities, Options Zero-coupon Securities, Pay-in-kind Swap Contracts Securities, Convertible Securities) Foreign Securities (Depositary Receipts) - -------------------------------------------------------------------------------------------------------- Government Securities Fund Debt Securities (Mortgage Dollar Rolls) Futures Contracts When-issued Securities Options - -------------------------------------------------------------------------------------------------------- Growth Fund Equity Securities (Growth Stocks, Value When-issued Securities Stocks, Small Capitalization Companies, Futures Contracts REITs) Options Debt Securities (Zero-coupon Securities, Swap Contracts U.S. Government Securities) Private Placements Foreign Securities (Foreign Currency Hedging) - -------------------------------------------------------------------------------------------------------- High Income Fund Debt Securities (Asset-backed Securities, When-issued Securities Collateralized Mortgage Obligations, Illiquid Securities Stripped Securities, Convertible Securities, Structured Notes, Step Coupon Securities, U.S. Government Securities) Foreign Securities (Currency Hedging) - -------------------------------------------------------------------------------------------------------- Hansberger Foreign Growth Debt Securities (Zero-coupon Securities) When-issued Securities Fund Equity Securities (Investment companies) Foreign Initial Public Foreign Securities (Bonds, Lower-quality Offerings Debt Securities, Corporate Securities, Futures Contracts Convertible Securities, Government Options Securities, Supranational Entities, Illiquid Securities Warrants) Short Sales Swap Contracts - -------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund Debt Securities (Asset-backed Options securities, stripped mortgage securities) - -------------------------------------------------------------------------------------------------------- Limited Term Government Debt Securities (Collateralized Mortgage When-issued Securities and Agency Fund Obligations, Mortgage Dollar Rolls, Futures Contracts Stripped Securities) Options Foreign Securities (Currency Hedging) Illiquid Securities - --------------------------------------------------------------------------------------------------------
3
- -------------------------------------------------------------------------------------------------------- Fund Securities Practices - -------------------------------------------------------------------------------------------------------- Massachusetts Fund Debt Securities (Tax Exempt Securities, Insurance on Portfolio Holdings Mortgage-related Securities, Stripped When-issued Securities Securities, Pay-in-kind Securities, U.S. Options Government Securities) Illiquid Securities Reverse Repurchase Agreements - -------------------------------------------------------------------------------------------------------- Municipal Income Fund Debt Securities (Tax Exempt Securities, Insurance on Portfolio Holdings Stripped Securities, U.S. Government When-issued Securities Securities) Options Illiquid Securities - -------------------------------------------------------------------------------------------------------- Research Fund Equity Securities (Small Capitalization When-Issued Securities Companies, Mid Capitalization Companies) Private Placements Debt Securities (U.S. Government Securities, Zero-coupon Securities, Collateralized Mortgage Obligations) - -------------------------------------------------------------------------------------------------------- Strategic Income Fund Debt Securities (Asset-backed Initial Public Offerings securities, Collateralized Mortgage Futures Contracts Obligations, Step Coupon Securities) When-issued Securities Equity Securities (Investment Options Companies) Swap Contracts Foreign Securities (Currency Hedging) Illiquid Securities Short Sales Reverse Repurchase Agreements - --------------------------------------------------------------------------------------------------------
4 TYPES OF SECURITIES DEBT SECURITIES Certain Funds may invest in debt securities. Debt securities are used by issuers to borrow money. The issuer usually pays a fixed, variable or floating rate of interest and must repay the amount borrowed at the maturity of the security. Some debt securities, such as zero-coupon securities, do not pay interest but are sold at a discount from their face values. Debt securities include corporate bonds, government securities and mortgage and other asset-backed securities. Debt securities include a broad array of short, medium and long term obligations issued by the U.S. or foreign governments, government or international agencies and instrumentalities, and corporate issuers of various types. Some debt securities represent uncollateralized obligations of their issuers; in other cases, the securities may be backed by specific assets (such as mortgages or other receivables) that have been set aside as collateral for the issuer's obligation. Debt securities generally involve an obligation of the issuer to pay interest or dividends on either a current basis or at the maturity of the securities, as well as the obligation to repay the principal amount of the security at maturity. Risks. Debt securities are subject to market risk and credit risk. Credit risk relates to the ability of the issuer to make payments of principal and interest and includes the risk of default. Sometimes, an issuer may make these payments from money raised through a variety of sources, including, with respect to issuers of municipal securities, (i) the issuer's general taxing power, (ii) a specific type of tax such as a property tax, or (iii) a particular facility or project such as a highway. The ability of an issuer to make these payments could be affected by general economic conditions, issues specific to the issuer, litigation, legislation or other political events, the bankruptcy of the issuer or war, natural disasters, terrorism or other major events. U.S. government securities do not involve the credit risks associated with other types of fixed-income securities; as a result, the yields available from U.S. government securities are generally lower than the yields available from corporate and municipal debt securities. Market risk is the risk that the value of the security will fall because of changes in market rates of interest. (Generally, the value of debt securities falls when market rates of interest are rising.) Some debt securities also involve prepayment or call risk. This is the risk that the issuer will repay a Fund the principal on the security before it is due, thus depriving the Fund of a favorable stream of future interest payments. Because interest rates vary, it is impossible to predict the income of a Fund that invests in debt securities for any particular period. Fluctuations in the value of a Fund's investments in debt securities will cause the Fund's net asset value to increase or decrease. Adjustable Rate Mortgage Security ("ARM"). An ARM, like a traditional mortgage security, is an interest in a pool of mortgage loans that provides investors with payments consisting of both principal and interest as mortgage loans in the underlying mortgage pool are paid off by the borrowers. ARMs have interest rates that are reset at periodic intervals, usually by reference to some interest rate index or market interest rate. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of adjustable rate securities, these securities are still subject to changes in value based on changes in market interest rates or changes in the issuer's creditworthiness. Because the interest rates are reset only periodically, changes in the interest rate on ARMs may lag behind changes in prevailing market interest rates. Also, some ARMs (or the underlying mortgages) are subject to caps or floors that limit the maximum change in interest rate during a specified period or over the life of the security. As a result, changes in the interest rate on an ARM may not fully reflect changes in prevailing market interest rates during certain periods. Because of the resetting of interest rates, ARMs are less likely than non-adjustable rate securities of comparable quality and maturity to increase significantly in value when market interest rates fall. Asset-backed Securities. Certain Funds may invest in asset-backed securities. The securitization techniques used to develop mortgage securities are also being applied to a broad range of other assets. Through the use of trusts and special purpose vehicles, assets, such as automobile and credit card receivables, are being securitized in pass-through structures similar to mortgage pass-through structures or in a pay-through structure similar to a Collateralized Mortgage Obligation structure. Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, the Fund will 5 ordinarily reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, the Fund's ability to maintain a portfolio that includes high-yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. Collateralized Mortgage Obligations ("CMOs"). Certain Funds may invest in CMOs, which are securities backed by a portfolio of mortgages or mortgage securities held under indentures. The underlying mortgages or mortgage securities are issued or guaranteed by the U.S. government or an agency or instrumentality thereof. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMO first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMO held by the Fund would have the same effect as the prepayment of mortgages underlying a mortgage pass-through security. CMOs and other asset-backed and mortgage-backed securities may be considered derivative securities. Convertible Securities. Certain Funds may invest in convertible securities, including corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. Convertible securities usually provide a lower yield than comparable fixed-income securities. Investment-Grade Debt Securities. Investment grade debt securities include all types of debt instruments that are of medium and high-quality. Some possess speculative characteristics and may be more sensitive to economic changes and to changes in the financial conditions of issuers. A debt security is considered to be investment-grade if it is rated investment-grade by Standard & Poor's Rating Group ("Standard & Poor's" or "S&P") or Moody's Investor's Service, Inc. ("Moody's") or is unrated but considered to be of equivalent quality by an investment adviser. For more information, including a detailed description of the ratings assigned by S&P and Moody's, please refer to the Statement's "Appendix A -- Description of Securities Ratings." Lower Quality Debt Securities. Certain Funds may invest in lower quality fixed-income securities. Fixed-income securities rated BB or lower by Standard & Poor's or Ba or lower by Moody's (and comparable unrated securities) are of below "investment grade" quality. Lower quality fixed-income securities generally provide higher yields, but are subject to greater credit and market risk than higher quality fixed-income securities, including U.S. government and many foreign government securities. Lower quality fixed-income securities are considered predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. Achievement of the investment objective of a Fund investing in lower quality fixed-income securities may be more dependent on the Fund's adviser's own credit analysis than for a Fund investing in higher quality bonds. The market for lower quality fixed-income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for lower rated fixed-income securities. This lack of liquidity at certain times may affect the valuation of these securities and may make the valuation and sale of these securities more difficult. Securities of below investment grade quality are considered high yield, high risk securities and are commonly known as "junk bonds." For more information, including a detailed description of the ratings assigned by S&P and Moody's, please refer to the Statement's "Appendix A -- Description of Securities Ratings." Mortgage-related Securities. Certain Funds may invest in mortgage-related securities, such as Government National Mortgage Association ("GNMA") or Federal National Mortgage Association ("FNMA") certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if a Fund purchases these assets at a premium, a 6 faster-than-expected prepayment rate will tend to reduce yield to maturity, and a slower-than-expected prepayment rate may have the opposite effect of increasing yield to maturity. If a Fund purchases mortgage-related securities at a discount, faster-than-expected prepayments will tend to increase, and slower-than-expected prepayments tend to reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. In addition, an increase in interest rates would also increase the inherent volatility of the Fund by increasing the average life of the Fund's portfolio securities. Mortgage Dollar Rolls. Certain Funds may enter into mortgage dollar rolls. A dollar roll involves the sale of a security by the Fund and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. A Fund will segregate assets determined to be liquid in an amount sufficient to meet its obligations under the transactions. A dollar roll involves potential risks of loss that are different from those related to the securities underlying the transactions. A Fund may be required to purchase securities at a higher price than may otherwise be available on the open market. Since the counterparty in the transaction is required to deliver a similar, but not identical, security to the Fund, the security that the Fund is required to buy under the dollar roll may be worth less than an identical security. There is no assurance that a Fund's use of the cash that it receives from a dollar roll will provide a return that exceeds borrowing costs. Pay-in-kind Securities. Certain Funds may invest in pay-in-kind securities. Pay-in-kind securities pay dividends or interest in the form of additional securities of the issuer, rather than in cash. These securities are usually issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of pay-in-kind securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality. Step Coupon Securities. Certain Funds may invest in step coupon securities. Step coupon securities trade at a discount from their face value and pay coupon interest. The coupon rate is low for an initial period and then increases to a higher coupon rate thereafter. Market values of these types of securities generally fluctuate in response to changes in interest rates to a greater degree than do conventional interest-paying securities of comparable term and quality. Under many market conditions, investments in such securities may be illiquid, making it difficult for the Fund to dispose of them or determine their current value. "Stripped" Securities. Certain Funds may invest in stripped securities, which are usually structured with two or more classes that receive different proportions of the interest and principal distribution on a pool of U.S. government or foreign government securities or mortgage assets. In some cases, one class will receive all of the interest (the interest-only or "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). Stripped securities commonly have greater market volatility than other types of fixed-income securities. In the case of stripped mortgage securities, if the underlying mortgage assets experience greater than anticipated payments of principal, a Fund may fail to recoup fully its investments in IOs. The staff of the Securities and Exchange Commission (the "SEC") has indicated that it views stripped mortgage securities as illiquid unless the securities are issued by the U.S. government or its agencies and are backed by fixed-rate mortgages. The Funds intend to abide by the staff's position. Stripped securities may be considered derivative securities. Structured Notes. Certain Funds may invest in a broad category of instruments known as "structured notes." These instruments are debt obligations issued by industrial corporations, financial institutions or governmental or international agencies. Traditional debt obligations typically obligate the issuer to repay the principal plus a specified rate of interest. Structured notes, by contrast, obligate the issuer to pay amounts of principal or interest that are determined by reference to changes in some external factor or factors. For example, the issuer's obligations could be determined by reference to changes in the value of a commodity (such as gold or oil), a foreign currency, an index of securities (such as the S&P 500 Index) or an interest rate (such as the U.S. Treasury bill rate). In some cases, the issuer's obligations are determined by reference to changes over time in the difference (or "spread") between two or more external factors (such as the U.S. prime lending rate and the total return of the stock market in a particular country, as measured by a stock index). In some cases, the issuer's obligations may fluctuate inversely with changes in an external factor or factors (for example, if the U.S. prime lending rate goes up, the issuer's interest 7 payment obligations are reduced). In some cases, the issuer's obligations may be determined by some multiple of the change in an external factor or factors (for example, three times the change in the U.S. Treasury bill rate). In some cases, the issuer's obligations remain fixed (as with a traditional debt instrument) so long as an external factor or factors do not change by more than the specified amount (for example, if the value of a stock index does not exceed some specified maximum), but if the external factor or factors change by more than the specified amount, the issuer's obligations may be sharply reduced. Structured notes can serve many different purposes in the management of a mutual fund. For example, they can be used to increase the Fund's exposure to changes in the value of assets that the Fund would not ordinarily purchase directly (such as stocks traded in a market that is not open to U.S. investors). They can also be used to hedge the risks associated with other investments the Fund holds. For example, if a structured note has an interest rate that fluctuates inversely with general changes in a country's stock market index, the value of the structured note would generally move in the opposite direction to the value of holdings of stocks in that market, thus moderating the effect of stock market movements on the value of the Fund's portfolio as a whole. Risks. Structured notes involve special risks. As with any debt obligation, structured notes involve the risk that the issuer will become insolvent or otherwise default on its payment obligations. This risk is in addition to the risk that the issuer's obligations (and thus the value of the Fund's investment) will be reduced because of adverse changes in the external factor or factors to which the obligations are linked. The value of structured notes will in many cases be more volatile (that is, will change more rapidly or severely) than the value of traditional debt instruments. Volatility will be especially high if the issuer's obligations are determined by reference to some multiple of the change in the external factor or factors. Many structured notes have limited or no liquidity, so that the Fund would be unable to dispose of the investment prior to maturity. As with all investments, successful use of structured notes depends in significant part on the accuracy of the relevant adviser's analysis of the issuer's creditworthiness and financial prospects, and of the adviser's forecast as to changes in relevant economic and financial market conditions and factors. In instances where the issuer of a structured note is a foreign entity, the usual risks associated with investments in foreign securities (described below) apply. Structured notes may be considered derivative securities. Tax Exempt Securities. The Funds, especially the Municipal Income Fund and the Massachusetts Fund (the "Tax Free Income Funds"), may invest in "Tax Exempt Securities," which term refers to debt securities the interest from which is, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund's portfolio manager to be reliable), exempt from federal income tax and, in the case of the Massachusetts Fund, exempt from Massachusetts state personal income taxes (other than the possible incidence of any alternative minimum taxes). Tax Exempt Securities include debt obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions (for example, counties, cities, towns, villages and school districts) and authorities to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which certain Tax Exempt Securities may be issued include the refunding of outstanding obligations, obtaining funds for federal operating expenses, or obtaining funds to lend to public or private institutions for the construction of facilities such as educational, hospital and housing facilities. In addition, certain types of private activity bonds have been or may be issued by public authorities or on behalf of state or local governmental units to finance privately operated housing facilities, sports facilities, convention or trade facilities, air or water pollution control facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Such obligations are included within the term "Tax Exempt Securities" if the interest paid thereon, is, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund's portfolio manager to be reliable), exempt from federal income tax and, in the case of the Massachusetts Fund, exempt from Massachusetts state personal income taxes. The ability of the Tax Free Income Funds to invest in securities other than tax-exempt securities is limited by a requirement of the Internal Revenue Code of 1986, as amended (the "Code"), that, in order to be qualified to pay exempt-interest dividends, at least 50% of the value of such Fund's total assets be invested in obligations the interest on which is exempt from federal income tax at the end of each calendar quarter. Funds that invest in certain tax-exempt bonds or certain private activity bonds may not be a desirable investment for "substantial users" of facilities financed by such obligations or bonds or for "related persons" of substantial users. You should contact your financial adviser or attorney for more information if you think you may be a "substantial user" or a "related person" of a substantial user. 8 There are variations in the quality of Tax Exempt Securities, both within a particular classification and between classifications, depending on numerous factors (see Appendix A). The two principal classifications of tax-exempt bonds are general obligation bonds and limited obligation (or revenue) bonds. General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues and not from any particular fund or source. The characteristics and method of enforcement of general obligation bonds vary according to the law applicable to the particular issuer, and payment may be dependent upon an appropriation by the issuer's legislative body. Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities, or in some cases from the proceeds of a special excise or other specific revenue source such as the user of the facility. Tax-exempt private activity bonds are in most cases revenue bonds and generally are not payable from the unrestricted revenues of the issuer. The credit and quality of such bonds are usually directly related to the credit standing of the corporate user of the facilities. Principal and interest on such bonds are the responsibilities of the corporate user (and any guarantor). The yields on Tax Exempt Securities are dependent on a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the Tax Exempt Securities market, the size of a particular offering, the maturity of the obligation and the rating of the issue. Further, information about the financial condition of an issuer of tax-exempt bonds may not be as extensive as that made available by corporations whose securities are publicly traded. The ratings of Moody's and S&P represent their opinions as to the quality of the Tax Exempt Securities, which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, Tax Exempt Securities with the same maturity, interest rate and rating may have different yields while Tax Exempt Securities of the same maturity and interest rates with different ratings may have the same yield. Subsequent to its purchase by the Fund, an issue of Tax Exempt Securities or other investments may cease to be rated or the rating may be reduced below the minimum rating required for purchase by the Fund. Neither event will require the elimination of an investment from the Fund's portfolio, but the Fund's adviser will consider such an event as part of its normal, ongoing review of all the Fund's portfolio securities. The Tax Free Income Funds do not currently intend to invest in so-called "moral obligation" bonds, in which repayment is backed by a moral commitment of an entity other than the issuer, unless the credit of the issuer itself, without regard to the "moral obligation," meets the investment criteria established for investments by such Fund. Securities in which a Tax Free Income Fund may invest, including Tax Exempt Securities, are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code, and laws, if any, which may be enacted by Congress or the state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power or ability of issuers to meet their obligations for the payment of interest and principal on their Tax Exempt Securities may be materially affected or that their obligations may be found to be invalid and unenforceable. Such litigation or conditions may from time to time have the effect of introducing uncertainties in the market for tax-exempt bonds or certain segments thereof, or materially affecting the credit risk with respect to particular bonds. Adverse economic, legal or political developments might affect all or a substantial portion of the Fund's Tax Exempt Securities in the same manner. From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on debt obligations issued by states and their political subdivisions and similar proposals may well be introduced in the future. If such a proposal were enacted, the availability of Tax-Exempt Securities for investment by the Tax Free Income Funds and the value of such Funds' portfolios could be materially affected, in which event such Funds would reevaluate their investment objectives and policies and consider changes in their structure or dissolution. All debt securities, including tax-exempt bonds, are subject to credit and market risk. Generally, for any given change in the level of interest rates, prices for longer maturity issues tend to fluctuate more than prices for shorter maturity issues. The Commonwealth of Massachusetts and certain of its cities and towns and public bodies have from time to time encountered financial difficulties that have adversely affected their respective credit standings and borrowing 9 abilities. Such difficulties could, of course, affect outstanding obligations of such entities, including obligations held by the Massachusetts Fund. U.S. Government Securities. Certain Funds may invest in some or all of the following U.S. government securities: .. U.S. Treasury Bills - Direct obligations of the U.S. Treasury that are issued in maturities of one year or less. No interest is paid on Treasury bills; instead, they are issued at a discount and repaid at full face value when they mature. They are backed by the full faith and credit of the U.S. government. .. U.S. Treasury Notes and Bonds - Direct obligations of the U.S. Treasury issued in maturities that vary between one and 40 years, with interest normally payable every six months. These obligations are backed by the full faith and credit of the U.S. government. .. Treasury Inflation-Protected Securities ("TIPS") - Fixed income securities whose principal value is periodically adjusted according to the rate of inflation. The interest rate on TIPS is fixed at issuance, but over the life of the bond this interest may be paid on an increasing or decreasing principal value that has been adjusted for inflation. Although repayment of the original bond principal upon maturity is guaranteed, the market value of TIPS is not guaranteed, and will fluctuate. Risks. The values of TIPS generally fluctuate in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. If inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of TIPS. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of TIPS. If inflation is lower than expected during the period a Fund holds TIPS, the Portfolio may earn less on the TIPS than on a conventional bond. If interest rise rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in TIPS may not be protected to the extent that the increase is not reflected in the bonds' inflation measure. There can be no assurance that inflation index for TIPS will accurately measure the real rate of inflation in the prices of goods and services. .. "Ginnie Maes" - Debt securities issued by a mortgage banker or other mortgagee which represent an interest in a pool of mortgages insured by the Federal Housing Administration or the Farmer's Home Administration or guaranteed by the Veterans Administration. The Government National Mortgage Association ("GNMA") guarantees the timely payment of principal and interest when such payments are due, whether or not these amounts are collected by the issuer of these certificates on the underlying mortgages. An assistant attorney general of the United States has rendered an opinion that the guarantee by GNMA is a general obligation of the United States backed by its full faith and credit. Mortgages included in single family or multi-family residential mortgage pools backing an issue of Ginnie Maes have a maximum maturity of 30 years. Scheduled payments of principal and interest are made to the registered holders of Ginnie Maes (such as a Fund) each month. Unscheduled prepayments may be made by homeowners, or as a result of a default. Prepayments are passed through to the registered holder (such as the Fund, which reinvests any prepayments) of Ginnie Maes along with regular monthly payments of principal and interest. .. "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a government-sponsored corporation owned entirely by private stockholders that purchases residential mortgages from a list of approved seller/servicers. Fannie Maes are pass-through securities issued by FNMA that are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. government. .. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the U.S. government. Freddie Macs are participation certificates issued by FHLMC that represent an interest in residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but Freddie Macs are not backed by the full faith and credit of the U.S. government. Risks. U.S. government securities generally do not involve the credit risks associated with investments in other types of fixed-income securities, although, as a result, the yields available from U.S. government securities are generally lower than the yields available from corporate fixed-income securities. Like other debt securities, 10 however, the values of U.S. government securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in the Fund's net asset value. Since the magnitude of these fluctuations will generally be greater at times when the Fund's average maturity is longer, under certain market conditions the Fund may, for temporary defensive purposes, accept lower current income from short-term investments rather than investing in higher yielding long-term securities. Securities such as Ginnie Maes, Fannie Maes and Freddie Macs are guaranteed as to the payment of principal and interest by the relevant entity (e.g., GNMA, FNMAE or FHLMC) but are not backed by the full faith and credit of the U.S. government. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government securities. Zero-coupon Securities. Certain Funds may invest in zero-coupon securities. Zero-coupon securities are debt obligations that do not entitle the holder to any periodic payments of interest either for the entire life of the obligation or for an initial period after the issuance of the obligations. These securities are issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of zero-coupon securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality. In order to satisfy a requirement for qualification as a "regulated investment company" under the Code, a Fund must distribute each year at least 90% of its net investment income, including the original issue discount accrued on zero-coupon securities. Because the Fund will not on a current basis receive cash payments from the issuer of a zero-coupon security in respect of accrued original issue discount, in some years the Fund may have to distribute cash obtained from other sources in order to satisfy the 90% distribution requirement under the Code. Such cash might be obtained from selling other portfolio holdings of the Fund. In some circumstances, such sales might be necessary in order to satisfy cash distribution requirements even though investment considerations might otherwise make it undesirable for the Fund to sell such securities at such time. EQUITY SECURITIES Equity securities are securities that represent an ownership interest (or the right to acquire such an interest) in a company and include common and preferred stocks and securities exercisable for, or convertible into, common or preferred stocks (such as warrants, convertible debt securities and convertible preferred stock). Common stocks represent an equity or ownership interest in an issuer. Preferred stocks represent an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over holders of preferred stock, whose claims take precedence over the claims of those who own common stock. While offering greater potential for long-term growth, equity securities generally are more volatile and more risky than some other forms of investment, particularly debt securities. Therefore, the value of your investment in a Fund may sometimes decrease. A Fund may invest in equity securities of companies with relatively small market capitalizations. Securities of such companies may be more volatile than the securities of larger, more established companies and the broad equity market indices. See "Small Capitalization Companies" below. A Fund's investments may include securities traded "over-the-counter" as well as those traded on a securities exchange. Some securities, particularly over the counter securities may be more difficult to sell under some market conditions. Market Capitalizations. Certain Funds may invest in companies with small, medium or large market capitalizations. The market capitalization ranges allowable for investments of each Fund are defined in reference to the benchmark of the specific Fund. Large capitalization companies are generally large companies that have been in existence for a number of years and are well established in their market. Mid capitalization companies are generally medium size companies that are not as established as large capitalization companies and may be more volatile. . Small Capitalization Companies -- Certain Funds may invest in companies with relatively small market capitalizations. Such investments may involve greater risk than is usually associated with more established companies. These companies often have sales and earnings growth rates that exceed those of companies with larger market capitalization. Such growth rates may in turn be reflected in more rapid share price appreciation. However, companies with 11 smaller market capitalization often have limited product lines, markets or financial resources and may be dependent upon a relatively small management group. These securities may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of companies with larger market capitalization or market averages in general. The net asset value of Funds that invest in companies with relatively small market capitalizations therefore may fluctuate more widely than market averages. Warrants. Certain Funds may invest in warrants. A warrant is an instrument that gives the holder a right to purchase a given number of shares of a particular security at a specified price until a stated expiration date. Buying a warrant generally can provide a greater potential for profit or loss than an investment of equivalent amounts in the underlying common stock. The market value of a warrant does not necessarily move with the value of the underlying securities. If a holder does not sell the warrant, it risks the loss of its entire investment if the market price of the underlying security does not, before the expiration date, exceed the exercise price of the warrant plus the cost thereof. Investment in warrants is a speculative activity. Warrants pay no dividends and confer no rights (other than the right to purchase the underlying securities) with respect to the assets of the issuer. Real Estate Investment Trusts (REITs). Certain Funds may invest in REITs. REITs are pooled investment vehicles that invest primarily in either real estate or real estate related loans. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended, and failing to maintain their exemptions from registration under the Investment Company Act of 1940. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than more widely held securities. A Fund's investment in a REIT may require the Fund to accrue and distribute income not yet received or may result in the Fund making distributions that constitute a return of capital to Fund shareholders for federal income tax purposes. In addition, distributions by a Fund from REITs will not qualify for the corporate dividends-received deduction, or, generally, for treatment as qualified dividend income. Investment Companies. Certain Funds may invest in other investment companies. Investment companies, including companies such as "iShares", "SPDRs" and "WEBS," are essentially pools of securities. Investing in other investment companies involves substantially the same risks as investing directly in the underlying securities, but may involve additional expenses at the investment company level, such as investment advisory fees and operating expenses. In some cases, investing in an investment company may involve the payment of a premium over the value of the assets held in that investment company's portfolio. As an investor in another investment company, the Fund will bear its ratable share of the investment company's expenses, including advisory fees, and the Fund's shareholders will bear such expenses indirectly, in addition to similar fees and expenses of the Fund. Despite the possibility of greater fees and expenses, investment in other investment companies may be attractive nonetheless for several reasons, especially in connection with foreign investments. Because of restrictions on direct investment by U.S. entities in certain countries, investing indirectly in such countries (by purchasing shares of another fund that is permitted to invest in such countries) may be the most practical and efficient way for a Fund to invest in such countries. In other cases, when a Fund's adviser desires to make only a relatively small investment in a particular country, investing through another fund that holds a diversified portfolio in that country may be more effective than investing directly in issuers in that country. FOREIGN SECURITIES Certain Funds may invest in foreign securities. Such investments present risks not typically associated with investments in comparable securities of U.S. issuers. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations. Because a Fund may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although a Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after a Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of such dividend, the Fund could be required to liquidate portfolio securities to pay such dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time a Fund 12 incurs expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than those in the United States, and judgments against foreign entities may be more difficult to obtain and enforce. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. The receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. Emerging Markets. Investments in foreign securities may include investments in emerging or developing countries, whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. In determining whether to invest in securities of foreign issuers, the adviser of the Fund may consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax laws may reduce the Fund's net income available for distribution to shareholders. Depository Receipts. Certain Funds may invest in foreign equity securities by purchasing "depository receipts." Depository receipts are instruments issued by a bank that represent an interest in equity securities held by arrangement with the bank. Depository receipts can be either "sponsored" or "unsponsored." Sponsored depository receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depository receipts are arranged without involvement by the issuer of the underlying equity securities and, therefore, less information about the issuer of the underlying equity securities may be available and price may be more volatile than sponsored depositary receipts. American Depository Receipts ("ADRs") are depository receipts that are bought and sold in the United States and are typically issued by a U.S. bank or trust company which evidence ownership of underlying securities by a foreign corporation. European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") are depository receipts that are typically issued by foreign banks or trust companies which evidence ownership of underlying securities issued by either a foreign or United States corporation. All depositary receipts, including those denominated in U.S. dollars, will be subject to foreign currency exchange risk. Supranational Entities. Certain Funds may invest in obligations of supranational entities. A supranational entity is an entity designated or supported by national governments to promote economic reconstruction, development or trade amongst nations. Examples of supranational entities include the International Bank for Reconstruction and Development (the "World Bank") and the European Investment Bank. Obligations of supranational entities are subject to the risk that the governments on whose support the entity depends for its financial backing or repayment may be unable or unwilling to provide that support. Obligations of a supranational entity that are denominated in foreign currencies will also be subject to the risks associated with investments in foreign currencies, as described above under "Foreign Securities." Foreign Currency. Most foreign securities in the Funds' portfolios will be denominated in foreign currencies or traded in securities markets in which settlements are made in foreign currencies. Similarly, any income on such securities is generally paid to the Fund in foreign currencies. The value of these foreign currencies relative to the U.S. dollar varies continually, causing changes in the dollar value of the Fund's portfolio investments (even if the local market price of the investments is unchanged) and changes in the dollar value of the Fund's income available for distribution to its shareholders. The effect of changes in the dollar value of a foreign currency on the dollar value of the Fund's assets and on the net investment income available for distribution may be favorable or unfavorable. A Fund may incur costs in connection with conversions between various currencies. In addition, a Fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline 13 in the dollar value of a foreign currency occurring between the time when the Fund declares and pays a dividend, or between the time when the Fund accrues and pays an operating expense in U.S. dollars. Foreign Currency Hedging Transactions. To protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing spot rate. If conditions warrant, a Fund may also enter into contracts with banks or broker-dealers to purchase or sell foreign currencies at a future date ("forward contracts"). A Fund will maintain cash or other liquid assets eligible for purchase by the Fund in a segregated account with the custodian in an amount at least equal to the lesser of (i) the difference between the current value of the Fund's liquid holdings that settle in the relevant currency and the Fund's outstanding obligations under currency forward contracts, or (ii) the current amount, if any, that would be required to be paid to enter into an offsetting forward currency contract which would have the effect of closing out the original forward contract. The Fund's use of currency hedging transactions may be limited by tax considerations. The Fund may also purchase or sell foreign currency futures contracts traded on futures exchanges. Foreign currency futures contract transactions involve risks similar to those of other futures transactions. See "Futures Contracts", "Options" and "Swap Contracts" below. MONEY MARKET INSTRUMENTS (All Funds) A Fund may seek to minimize risk by investing in money market instruments, which are high-quality, short-term securities. Although changes in interest rates can change the market value of a security, a Fund expects those changes to be minimal with respect to these securities, which are often purchased for defensive purposes. Money market obligations of foreign banks or of foreign branches or subsidiaries of U.S. banks may be subject to different risks than obligations of domestic banks, such as foreign economic, political and legal developments and the fact that different regulatory requirements apply. TYPES OF PRACTICES Repurchase Agreements (All Funds). The Funds may enter into repurchase agreements, by which a Fund purchases a security and obtains a simultaneous commitment from the seller to repurchase the security at an agreed-upon price and date. The resale price is in excess of the purchase price and reflects an agreed-upon market interest rate unrelated to the coupon rate on the purchased security. Such transactions afford the Fund the opportunity to earn a return on temporarily available cash at relatively low market risk. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the U.S. government, the obligation of the seller is not guaranteed by the U.S. government and there is a risk that the seller may fail to repurchase the underlying security. In such event, the Fund would attempt to exercise rights with respect to the underlying security, including possible disposition in the market. However, the Fund may be subject to various delays and risks of loss, including (i) possible declines in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (ii) possible reduced levels of income and lack of access to income during this period and (iii) inability to enforce rights and the expenses involved in the attempted enforcement. Reverse Repurchase Agreements. Certain Funds may enter into reverse repurchase agreements. In a reverse repurchase agreement a Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker or dealer, in return for cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed-upon rate. The ability to use reverse repurchase agreements may enable, but does not ensure the ability of, a Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous. When effecting reverse repurchase agreements, assets of the applicable Fund in a dollar amount sufficient to make payment of the obligations to be purchased are segregated on the applicable Fund's records at the trade date and maintained until the transaction is settled. .. Dollar Rolls. Dollar rolls are a special type of reverse repurchase agreement in which the portfolio instrument transferred by the Fund is a mortgage related security. The Fund gives up the cash flows during the transaction period but has use of the cash proceeds. See "Mortgage Dollar Rolls" above. When-issued Securities. Certain Funds may purchase "when-issued" equity securities, which are traded on a price 14 basis prior to actual issuance. Such purchases will only be made to achieve a Fund's investment objective and not for leverage. The when-issued trading period generally lasts from a few days to months, or a year or more; during this period dividends on equity securities are not payable. No dividend income accrues to the Fund prior to the time it takes delivery. A frequent form of when-issued trading occurs when corporate securities to be created by a merger of companies are traded prior to the actual consummation of the merger. Such transactions may involve a risk of loss if the value of the securities falls below the price committed to prior to actual issuance. Each Trust's custodian will establish a segregated account for each Fund when it purchases securities on a when-issued basis consisting of cash or liquid securities equal to the amount of the when-issued commitments. Securities transactions involving delayed deliveries or forward commitments are frequently characterized as when-issued transactions and are similarly treated by each Fund. Illiquid Securities. Illiquid securities are those that are not readily resalable, which may include securities whose disposition is restricted by federal securities laws. Investment in restricted or other illiquid securities involves the risk that a Fund may be unable to sell such a security at the desired time. Also, a Fund may incur expenses, losses or delays in the process of registering restricted securities prior to resale. Certain Funds may purchase Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (the "Securities Act"). Certain Funds may also purchase commercial paper issued under Section 4(2) of the Securities Act. Investing in Rule 144A securities and Section 4(2) commercial paper could have the effect of increasing the level of a Fund's illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Rule 144A securities and Section 4(2) commercial paper are treated as illiquid, unless an adviser has determined, under guidelines established by each Trust's Board of Trustees, that the particular issue is liquid. Initial Public Offerings. Certain funds may purchase securities of companies that are offered pursuant to an initial public offerings ("IPO"). An IPO is a company's first offering of stock to the public in the primary market, typically to raise additional capital. The Funds may purchase a "hot" IPO (also known as a "hot issue"), which is an IPO that is oversubscribed and, as a result, is an investment opportunity of limited availability. As a consequence, the price at which these IPO shares open in the secondary market may be significantly higher than the original IPO price. IPO securities tend to involve greater risk due, in part, to public perception and the lack of publicly available information and trading history. There is the possibility of losses resulting from the difference between the issue price and potential diminished value of the stock once traded in the secondary market. The Funds' investment in IPO securities may have a significant impact on a Fund's performance and may result in significant capital gains. Private Placements. Certain Funds may invest in securities that are purchased in private placements and, accordingly, are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for these securities, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell the securities when its investment adviser believes that it is advisable to do so or may be able to sell the securities only at prices lower than if the securities were more widely held. At times, it also may be more difficult to determine the fair value of the securities for purposes of computing a Fund's net asset value. While private placements may offer opportunities for investment that are not otherwise available on the open market, the securities so purchased are often "restricted securities," which are securities that cannot be sold to the public without registration under the Securities Act, or the availability of an exemption from registration (such as Rule 144 or Rule 144A under the Securities Act), or that are not readily marketable because they are subject to other legal or contractual delays or restrictions on resale. The absence of a trading market can make it difficult to ascertain a market value for illiquid investments such as private placements. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for a Fund to sell them promptly at an acceptable price. A Fund may have to bear the extra expense of registering the securities for resale and the risk of substantial delay in effecting the registration. In addition, market quotations typically are less readily available for these securities. The judgment of a Fund's investment adviser may at times play a greater role in valuing these securities than in the case of unrestricted securities. Generally speaking, restricted securities may be sold only to qualified institutional buyers, in a privately negotiated transaction to a limited number of purchasers, in limited quantities after they have been held for a specified period of 15 time and other conditions are met pursuant to an exemption from registration, or in a public offering for which a registration statement is in effect under the Securities Act. A Fund may be deemed to be an underwriter for purposes of the Securities Act when selling restricted securities to the public so that the Fund may be liable to purchasers of the securities if the registration statement prepared by the issuer, or the prospectus forming a part of the registration statement, is materially inaccurate or misleading. Privatizations. In a number of countries around the world, governments have undertaken to sell to investors interests in enterprises that the government has historically owned or controlled. These transactions are known as "privatizations" and may in some cases represent opportunities for significant capital appreciation. In some cases, the ability of U.S. investors, such as the Funds, to participate in privatizations may be limited by local law, and the terms of participation for U.S. investors may be less advantageous than those for local investors. Also, there is no assurance that privatized enterprises will be successful, or that an investment in such an enterprise will retain its value or appreciate in value. Futures Contracts. A futures contract is an agreement between two parties to buy and sell a particular commodity (e.g., an interest-bearing security) for a specified price on a specified future date. In the case of futures on an index, the seller and buyer agree to settle in cash, at a future date, based on the difference in value of the contract between the date it is opened and the settlement date. The value of each contract is equal to the value of the index from time to time multiplied by a specified dollar amount. For example, long-term municipal bond index futures trade in contracts equal to $1000 multiplied by the Bond Buyer Municipal Bond Index, and S&P 500 Index futures trade in contracts equal to $500 multiplied by the S&P 500 Index. When a trader, such as a Fund, enters into a futures contract, it is required to deposit with (or for the benefit of) its broker as "initial margin" an amount of cash or short-term high-quality securities (such as U.S. Treasury bills or high-quality tax exempt bonds acceptable to the broker) equal to approximately 2% to 5% of the delivery or settlement price of the contract (depending on applicable exchange rules). Initial margin is held to secure the performance of the holder of the futures contract. As the value of the contract changes, the value of futures contract positions increases or declines. At the end of each trading day, the amount of such increase and decline is received and paid respectively by and to the holders of these positions. The amount received or paid is known as "variation margin." If the Fund has a long position in a futures contract it will establish a segregated account with the Fund's custodian containing cash or liquid securities eligible for purchase by the Fund equal to the purchase price of the contract (less any margin on deposit). For short positions in futures contracts, the Fund will establish a segregated account with the custodian with cash or liquid securities eligible for purchase by the Fund that, when added to the amounts deposited as margin, equal the market value of the instruments or currency underlying the futures contracts. Although futures contracts by their terms require actual delivery and acceptance of securities (or cash in the case of index futures), in most cases the contracts are closed out before settlement. A futures sale is closed by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity and with the same delivery date. Similarly, the closing out of a futures purchase is closed by the purchaser selling an offsetting futures contract. Gain or loss on a futures position is equal to the net variation margin received or paid over the time the position is held, plus or minus the amount received or paid when the position is closed, minus brokerage commissions. Options. An option on a futures contract obligates the writer, in return for the premium received, to assume a position in a futures contract (a short position if the option is a call and a long position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option generally will be accompanied by delivery of the accumulated balance in the writer's futures margin account, which represents the amount by which the market price of the futures contract, at exercise, exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying contract, the remaining term of the option, supply and demand and interest rates. Options on futures contracts traded in the United States may only be traded on a U.S. board of trade licensed by the Commodity Futures Trading Commission (the "CFTC"). An option on a security entitles the holder to receive (in the case of a call option) or to sell (in the case of a put option) a particular security at a specified exercise price. An "American style" option allows exercise of the option at any time during the term of the option. A "European style" option allows an option to be exercised only at the 16 end of its term. Options on securities may be traded on or off a national securities exchange. A call option on a futures contract written by a Fund is considered by the Fund to be covered if the Fund owns the security subject to the underlying futures contract or other securities whose values are expected to move in tandem with the values of the securities subject to such futures contract, based on historical price movement volatility relationships. A call option on a security written by a Fund is considered to be covered if the Fund owns a security deliverable under the option. A written call option is also covered if the Fund holds a call on the same futures contract or security as the call written where the exercise price of the call held is (a) equal to or less than the exercise price of the call written or (b) greater than the exercise price of the call written if the difference is maintained by the Fund in cash or liquid securities eligible for purchase by the Fund in a segregated account with its custodian. A put option on a futures contract written by a Fund, or a put option on a security written by the Fund, is covered if the Fund maintains cash or liquid securities eligible for purchase by the Fund with a value equal to the exercise price in a segregated account with the Fund's custodian, or else holds a put on the same futures contract (or security, as the case may be) as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer of an option wishes to terminate its position, it may effect a closing purchase transaction by buying an option identical to the option previously written. The effect of the purchase is that the writer's position will be canceled. Likewise, the holder of an option may liquidate its position by selling an option identical to the option previously purchased. Closing a written call option will permit a Fund to write another call option on the portfolio securities used to cover the closed call option. Closing a written put option will permit the Fund to write another put option secured by the segregated assets used to secure the closed put option. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any futures contract or securities subject to the option to be used for other Fund investments. If the Fund desires to sell particular securities covering a written call option position, it will close out its position or will designate from its portfolio comparable securities to cover the option prior to or concurrent with the sale of the covering securities. A Fund will realize a profit from closing out an option if the price of the offsetting position is less than the premium received from writing the option or is more than the premium paid to purchase the option; and the Fund will realize a loss from closing out an option transaction if the price of the offsetting option position is more than the premium received from writing the option or is less than the premium paid to purchase the option. Because increases in the market price of a call option will generally reflect increases in the market price of the covering securities, any loss resulting from the closing of a written call option position is expected to be offset in whole or in part by appreciation of such covering securities. Since premiums on options having an exercise price close to the value of the underlying securities or futures contracts usually have a time value component (i.e., a value that diminishes as the time within which the option can be exercised grows shorter) an option writer may profit from the lapse of time even though the value of the futures contract (or security in some cases) underlying the option (and of the security deliverable under the futures contract) has not changed. Consequently, profit from option writing may or may not be offset by a decline in the value of securities covering the option. If the profit is not entirely offset, the Fund will have a net gain from the options transaction, and the Fund's total return will be enhanced. Likewise, the profit or loss from writing put options may or may not be offset in whole or in part by changes in the market value of securities acquired by the Fund when the put options are closed. As an alternative to purchasing call and put options on index futures, a Fund may purchase or sell call or put options on the underlying indices themselves. Such options would be used in a manner identical to the use of options on index futures. Certain Funds may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices ("index warrants"). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the 17 difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at a time when, in the case of a call warrant, the exercise price is less than the value of the underlying index, or in the case of a put warrant, the exercise price is less than the value of the underlying index. If the Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. A Fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of the Fund's use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although the Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit the Fund's ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do. Certain Funds may buy and write options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. For example, a decline in the U.S. dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of the portfolio securities, the Fund may buy put options on the foreign currency. If the value of the currency declines, the Fund will have the right to sell such currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in part, the adverse effect on its portfolio. Conversely, when a rise in the U.S. dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Fund may buy call options on the foreign currency. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to the Fund from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to the extent desired, the Fund could sustain losses on transactions in foreign currency options that would require the Fund to forego a portion or all of the benefits of advantageous changes in those rates. Certain Funds may also write options on foreign currencies. For example, to hedge against a potential decline in the U.S. dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates, the Fund could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised and the diminution in value of portfolio securities be offset at least in part by the amount of the premium received. Similarly, instead of purchasing a call option to hedge against a potential increase in the U.S. dollar cost of securities to be acquired, a Fund could write a put option on the relevant currency which, if rates move in the manner projected, will expire unexercised and allow the Fund to hedge the increased cost up to the amount of the premium. If exchange rates do not move in the expected direction, the option may be exercised and the Fund would be required to buy or sell the underlying currency at a loss, which may not be fully offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may lose all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates. All call options written by a Fund on foreign currencies will be covered. A call option written on a foreign currency by the Fund is covered if the Fund owns the foreign currency underlying the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other foreign currencies held in its portfolio. A call option is also covered if the Fund has a call on the same foreign currency in the same principal amount as the call written if the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written, if the difference is maintained by the Fund in cash or liquid securities eligible to be purchased by the Fund in a segregated account with the Fund's custodian. For this purpose, a call option is also considered covered if the Fund owns securities denominated in (or which trade principally in markets where settlement occurs in) the same currency, which securities are readily marketable, and 18 the Fund maintains in a segregated account with its custodian cash or liquid securities eligible to be purchased by the Fund in an amount that at all times at least equals the excess of (x) the amount of the Fund's obligation under the call option over (y) the value of such securities. Futures and Options on Tax-Exempt Bonds and Bond Indices. Tax Free Income Funds may also purchase and sell interest rate futures contracts and tax-exempt bond index futures contracts and may write and purchase related options. Transactions involving futures and options on futures may help to reduce the volatility of the Tax Free Income Funds' net asset value, and the writing of options on futures may yield additional income for the Fund, but these results cannot be assured. Income from options and futures transactions is not tax-exempt. Swap Contracts. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified currencies. An index swap is an agreement to make or receive payments based on the different returns that would be achieved if a notional amount were invested in a specified basket of securities (such as the S&P 500 Index) or in some other investment (such as U.S. Treasury securities). The Fund will maintain at all times in a segregated account with its custodian cash or liquid securities eligible to be purchased by the Fund in amounts sufficient to satisfy its obligations under swap contracts. Risks. The use of futures contracts, options and swap contracts involves risks. One risk arises because of the imperfect correlation between movements in the price of futures contracts and movements in the price of the securities that are the subject of the hedge. A Fund's hedging strategies will not be fully effective unless the Fund can compensate for such imperfect correlation. There is no assurance that the Fund will be able to effect such compensation. Options, futures and swap contracts fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options, futures or swaps for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. The correlation between the price movement of the futures contract and the hedged security may be distorted due to differences in the nature of the relevant markets. For example, to the extent that the Municipal Income Fund enters into futures contracts on securities other than tax exempt bonds, the value of such futures may not vary in direct proportion to the value of tax exempt bonds that the Fund owns or intends to acquire, because of an imperfect correlation between the movement of taxable securities and tax exempt bonds. If the price of the futures contract moves more than the price of the hedged security, the relevant Fund would experience either a loss or a gain on the future that is not completely offset by movements in the price of the hedged securities. In an attempt to compensate for imperfect price movement correlations, the Fund may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the price movement volatility of the hedged securities is historically greater than the volatility of the futures contract. Conversely, the Fund may purchase or sell fewer contracts if the volatility of the price of hedged securities is historically less than that of the futures contracts. The price of index futures may not correlate perfectly with movement in the relevant index due to certain market distortions. One such distortion stems from the fact that all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the index and futures markets. Another market distortion results from the deposit requirements in the futures market being less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than does the securities market. A third distortion is caused by the fact that trading hours for foreign stock index futures may not correspond perfectly to hours of trading on the foreign exchange to which a particular foreign stock index future relates. This may result in a disparity between the price of index futures and the value of the relevant index due to the lack of continuous arbitrage between the index futures price and the value of the underlying index. Finally, hedging transactions using stock indices involve the risk that movements in the price of the index may not correlate with price movements of the particular portfolio securities being hedged. Price movement correlation also may be distorted by the illiquidity of the futures and options markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in futures contracts or options because they do not want to assume the risk that they may not be able to close out their positions within a reasonable amount of time. In such instances, futures and options market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads 19 between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, speculators trading spreads between futures markets may create temporary price distortions unrelated to the market in the underlying securities. Positions in futures contracts and options on futures contracts may be established or closed out only on an exchange or board of trade. There is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. The liquidity of markets in futures contracts and options on futures contracts may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which limit the amount of fluctuation in a futures or options price during a single trading day. Once the daily limit has been reached in a contract, no trades may be entered into at a price beyond the limit, which may prevent the liquidation of open futures or options positions. Prices have in the past exceeded the daily limit on a number of consecutive trading days. If there is not a liquid market at a particular time, it may not be possible to close a futures or options position at such time, and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, if futures or options are used to hedge portfolio securities, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract. An exchange-traded option may be closed out only on a national securities or commodities exchange, which generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option with the result that the Fund would have to exercise the option in order to realize any profit. If a Fund is unable to effect a closing purchase transaction in a secondary market, it will be not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation or other clearing organization may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. Because the specific procedures for trading foreign stock index futures on futures exchanges are still under development, additional or different margin requirements as well as settlement procedures may be applicable to foreign stock index futures at the time the relevant Funds purchase foreign stock index futures. The successful use of transactions in futures and options depends in part on the ability of a Fund's adviser(s) to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent interest rates move in a direction opposite to that anticipated, a Fund may realize a loss on the hedging transaction that is not fully or partially offset by an increase in the value of portfolio securities. In addition, whether or not interest rates move during the period that the Fund holds futures or options positions, the Fund will pay the cost of taking those positions (i.e., brokerage costs). As a result of these factors, the Fund's total return for such period may be less than if it had not engaged in the hedging transaction. Options trading involves price movement correlation risks similar to those inherent in futures trading. Additionally, price movements in options on futures may not correlate with price movements and/or movements of the relevant indices in the futures underlying the options. Like futures, options positions may become less liquid because of adverse economic circumstances. The securities covering written option positions are expected to offset adverse price movements if those options positions cannot be closed out in a timely manner, but there is no assurance that such offset will occur. Also, an option writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Certain Funds may, but are not required to, use a number of derivative instruments for risk management purposes or as part of their investment strategies. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to stocks, bonds, interest rates, 20 currencies or currency exchange rates, commodities, and related indexes. An adviser may decide not to employ any of these strategies and there is no assurance that any derivatives strategy used by the Funds will succeed. In addition, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Funds will engage in these transactions to reduce exposure to other risks when that would be beneficial. Examples of derivative instruments that the Funds may use include options contracts, futures contracts, options on futures contracts, zero-strike warrants and options, swap agreements and debt-linked and equity-linked securities. Investment Pools of Credit-Linked, Credit-Default, Interest Rate, Currency-Exchange and Equity-Linked Swap Contracts. The High Income Fund may invest in publicly or privately issued interests in investment pools whose underlying assets are credit default, credit-linked, interest rate, currency exchange and/or equity-linked swap contracts (individually a "Swap and all together "Swaps") and related underlying securities or securities loan agreements. Swaps are agreements between two or more parties to exchange sequences of cash flows over a period in the future. The pools' investment results may be designed to correspond generally to the performance of a specified securities index or "basket" of securities, or sometimes a single security. These types of pools are often used to gain exposure to multiple securities with less of an investment than would be required to invest directly in the individual securities. They may also be used to gain exposure to foreign securities markets without investing in the foreign securities themselves and/or the relevant foreign market. To the extent that the Fund invests in pools of Swaps and related underlying securities or securities loan agreements whose return corresponds to the performance of a foreign securities index or one or more of foreign securities, investing in such pools will involve risks similar to the risks of investing in foreign securities. See "Foreign Securities" above. In addition, the investing Fund bears the risk that the pool may default on its obligations under the interests in the pool. The investing Fund also bears the risk that a counterparty of an underlying Swap, the issuer of a related underlying security or the counterparty of an underlying securities loan agreement may default on its obligations. Swaps are often used for many of the same purposes as, and share many of the same risks with, other derivative instruments such as, participation notes and zero-strike warrants and options and debt-linked and/or equity-linked securities. Interests in privately offered investment pools of Swap may be considered illiquid and, except to the extent that such interests are issued under Rule 144A and deemed liquid, subject to the Fund's restrictions on investments in illiquid securities. Over-the-counter Options. The Government Securities Fund may enter into over-the-counter options with respect to U.S. Government securities. An over-the-counter option (an option not traded on a national securities exchange) may be closed out only with the other party to the original option transaction. While the Fund will seek to enter into over-the-counter options only with dealers who agree to or are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an over-the-counter option at a favorable price at any time prior to its expiration. Accordingly, the Fund might have to exercise an over-the-counter option it holds in order to realize any profit thereon and thereby would incur transactions costs on the purchase or sale of the underlying assets. If the Fund cannot close out a covered call option written by it, it will not be able to sell the underlying security until the option expires or is exercised. Furthermore, over-the-counter options are not subject to the protections afforded purchasers of listed options by the Options Clearing Corporation or other clearing organizations. The staff of the SEC has taken the position that over-the-counter options on U.S. government securities and the assets used as cover for written over-the-counter options on U.S. government securities should generally be treated as illiquid securities for purposes of the Funds' investment restrictions relating to illiquid securities. However, if a dealer recognized by the Federal Reserve Bank of New York as a "primary dealer" in U.S. government securities is the other party to an option contract written by the Fund, and the Fund has the absolute right to repurchase the option from the dealer at a formula price established in a contract with the dealer, the SEC staff has agreed that the Fund only needs to treat as illiquid that amount of the "cover" assets equal to the amount at which the formula price exceeds any amount by which the market value of the securities subject to the options exceeds the exercise price of the option (the amount by which the option is "in-the-money"). Loomis Sayles has established standards for the creditworthiness of the primary dealers with which the Government Securities Fund may enter into over-the-counter option contracts having the formula-price feature referred to above. Those standards, as modified from time to time, are implemented and monitored by Loomis Sayles. Such contracts will provide that the Fund has the absolute right to repurchase an option it writes at any time at a repurchase price which represents the fair market value, as determined in good faith through negotiation between the parties, but which in no event will exceed a price determined pursuant to a formula contained in the contract. Although the specific details of the formula may vary between contracts with different primary dealers, the formula will generally be based on a multiple of the premium received by the Fund for writing the option, plus the amount, if any, by which 21 the option is "in-the-money." The formula will also include a factor to account for the difference between the price of the securities and the exercise price of the option if the option is written out-of-the-money. Although each agreement will provide that the Fund's repurchase price shall be determined in good faith (and that it shall not exceed the maximum determined pursuant to the formula), the formula price will not necessarily reflect the market value of the option written, and therefore the Fund might pay more to repurchase the option contract than the Fund would pay to close out a similar exchange-traded option. Economic Effects and Limitations. Income earned by a Fund from its hedging activities generally will be treated as capital gain and, if not offset by net recognized capital losses incurred by the Fund, will be distributed to shareholders in taxable distributions. Although gain from futures and options transactions may hedge against a decline in the value of the Fund's portfolio securities, that gain, to the extent not offset by losses, will be distributed in light of certain tax considerations and will constitute a distribution of that portion of the value preserved against decline. If the Municipal Income Fund is required to use taxable fixed-income securities as margin, the portion of the Fund's dividends that is taxable to shareholders will be larger than if that Fund is permitted to use tax-exempt bonds for that purpose. The Funds intend to comply with guidelines of eligibility for exclusion from the definition of the term "commodity pool operator" adopted by the CFTC and the National Futures Association, which regulate trading in the futures markets. The Funds will use futures contracts and related options primarily for bona fide hedging purposes within the meaning of CFTC regulations. To the extent that a Fund holds positions in futures contracts and related options that do not fall within the definition of bona fide hedging transactions, the aggregate initial margin and premiums required to establish such positions will not exceed 5% of the fair market value of the Fund's net assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into. Future Developments. The above discussion relates to a Fund's proposed use of futures contracts, options and options on futures contracts currently available. The relevant markets and related regulations are constantly changing. In the event of future regulatory or market developments, Funds may also use additional types of futures contracts or options and other investment techniques for the purposes set forth above. Short Sales. Certain Funds may sell securities short "against the box," that is: (1) enter into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns without additional consideration; and (2) enter into arrangements with the broker-dealers through which such securities are sold short to receive income with respect to the proceeds of short sales during the period the Fund's short positions remain open. In a short sale against the box, a Fund does not deliver from its portfolio securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such broker-dealer the securities sold short. In addition, the Fund is required to pay the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the Fund must deposit and continuously maintain in a separate account with the Fund's custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. A Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. A Fund may close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect a Fund against risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend on the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. Risks. Short sale transactions involve certain risks. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss, and if the price declines during this period, the Fund will realize a short-term capital gain. Any realized short-term capital gain will 22 be decreased, and any incurred loss increased, by the amount of transaction costs and any premium, dividend or interest which the Fund may have to pay in connection with such short sale. Certain provisions of the Code may limit the degree to which a Fund is able to enter into short sales. There is no limitation on the amount of each Fund's assets that, in the aggregate, may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to segregated accounts in connection with short sales. Insurance on Portfolio Holdings. Tax Free Income Funds may obtain insurance on any of their portfolio holdings from a nationally recognized private insurer, which may include one or more of the following: Financial Guaranty Insurance Company, which is owned by FGIC Corporation, which in turn is owned by General Electric Credit Corporation; AMBAC Indemnity Corporation; Financial Security Assurance, Inc.; and Municipal Bond Investors Assurance Corporation, a wholly-owned subsidiary of MBIA Incorporated, the principal shareholders of which are: The Aetna Life & Casualty Company, Fireman's Fund Insurance Company, subsidiaries of the CIGNA Corporation and affiliates of the Continental Insurance Company. Insurance on individual securities, whether obtained by the issuer or a Tax Free Income Fund, is generally non-cancelable and runs for the life of the security. To the extent that a Tax Free Income Fund obtains insurance on any of its securities, the insurance must provide for the unconditional payment of scheduled principal and interest when due. In the event of a default by the issuer in the payment of principal or interest, the insurer will, within 30 days of notice of such default, provide to its agent or the trustee funds needed to make any such payments. Such agent or trustee will bear the responsibility of seeing that such funds are used to make such payments to the appropriate parties. Such insurance will not guarantee the market value of a security. Insurance on the Tax Free Income Funds' portfolio of securities will in some cases continue in the event the securities are sold by such Funds, while in other cases it may not. The Tax Free Income Funds have the option to procure individual secondary market insurance, which would continue to cover any such security after its sale by such Funds. Such guaranteed renewable insurance continues so long as the premiums for such insurance are paid and, in the judgment of such Funds' adviser, coverage should be continued. In the case of securities that are insured by a nationally recognized private insurer, default by the issuer is not expected to affect the market value of the security relative to other insured securities of the same maturity value and coupon and covered by the same insurer. Premiums for insurance may be payable in advance or may be paid periodically over the term of the security by the party then owning the security, and the costs will be reflected in the price of the security. The cost of insurance for longer-term securities, expressed in terms of income on the security, is likely to reduce such income by 10 to 60 basis points. Thus, a security yielding 10% might have a net insured yield of 9.9% to 9.4%. The impact of the cost of the Tax Free Income Funds' portfolio insurance on such Funds' net yield is somewhat less. The cost of insurance for shorter-term securities, which are generally lower yielding, is expected to be less. It should be noted that insurance raises the rating of a municipal security. Lower rated securities generally pay a higher rate of interest than higher rated securities. Thus, while there is no assurance that this will always be the case, the Tax Free Income Funds may purchase lower rated securities, which, when insured, will bear a higher rating, and may pay a higher net rate of interest than other equivalently rated securities that are not insured. Nationally recognized private insurers have certain eligibility standards as to the municipal securities they will insure. Such standards may be more or less strict than standards that would be applied for purchase of a security for the Funds. To the extent nationally recognized private insurers apply stricter standards, the Tax Free Income Funds will be restricted by such standards in the purchase and retention of municipal securities. The Internal Revenue Service (the "IRS") has issued revenue rulings indicating that (i) the fact that municipal obligations are insured will not affect their tax-exempt status and (ii) insurance proceeds representing maturing interest on defaulted municipal obligations paid to certain municipal bond funds will be excludable from federal gross income under Section 103(a) of the Code. While operation of the Tax Free Income Funds and the terms of the insurance policies on such Funds' portfolio of securities may differ somewhat from those addressed by the revenue rulings, the Funds do not anticipate that any differences will be material or change the result with respect to the Funds. Insurers of the Tax Free Income Funds' municipal securities are subject to regulation by the department of insurance in each state in which they are qualified to do business. Such regulation, however, is no guarantee that an insurer will be willing or able to perform on its contract of insurance in the event a claim should be made thereunder at some time in the future. The Tax Free Income Funds' adviser reviews the financial condition of each insurer of their securities at least annually, and in the event of any material development, with respect to its continuing ability to meet its commitments to any contract of bond insurance. 23 Securities Lending (All Funds). The Funds may lend from their total assets in the form of their portfolio securities to broker-dealers under contracts calling for collateral equal to at least the market value of the securities loaned, marked to market on a daily basis. The Funds will continue to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral, which may include shares of money market fund subject to any investment restrictions listed in Part I of this Statement. Under some securities lending arrangements the Funds may receive a set fee for keeping its securities available for lending. Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event (as determined by the adviser) affecting the investment occurs, such loans will be called so that the securities may be voted by the Fund. The Fund pays various fees in connection with such loans, including shipping fees and reasonable custodian and placement fees approved by the Board of Trustees of the Trusts or persons acting pursuant to the direction of the Boards. These transactions must be fully collateralized at all times, but involve some credit risk to the Fund if the borrower or the party (if any) guaranteeing the loan should default on its obligation and the Fund is delayed in or prevented from recovering the collateral. Short-term Trading (All Funds). The Funds may, consistent with their investment objectives, engage in portfolio trading in anticipation of, or in response to, changing economic or market conditions and trends. These policies may result in higher turnover rates in the Fund's portfolio, which may produce higher transaction costs and a higher level of taxable capital gains. Portfolio turnover considerations will not limit any adviser's investment discretion in managing a Fund's assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. Temporary Strategies (All Funds). A Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the adviser of a Fund may employ a temporary defensive strategy if they determine such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers. It is impossible to predict whether, when or for how long a Fund will employ defensive strategies. The use of defensive strategies may prevent a Fund from achieving its goal. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, a Fund may temporarily hold cash (U.S. dollars, foreign currencies or multinational currency units) and may invest any portion of its assets in money market instruments. Interfund Transactions (All Funds). To the extent permitted by applicable law and/or pursuant to exemptive relief from the Securities and Exchange Commission (the "SEC"), a Fund may invest any of its daily cash balances in shares of investment companies that are advised by its investment manager or its affiliates including affiliated money market and short-term bond funds. Each Fund may borrow money for temporary or emergency purposes in accordance with its investment restrictions. Subject to the terms of any applicable exemptive relief granted by the SEC, a Fund may borrow for such purposes from other investment companies advised by an investment manager or its affiliates in an interfund lending program. In such a program, a Fund and affiliated funds would be permitted to lend and borrow money for certain temporary or emergency purposes directly to and from one another. Participation in such an interfund lending program would be voluntary for both borrowing and lending funds, and a Fund would participate in an interfund lending program only if the Board of Trustees determined that doing so would benefit the Fund. Should a Fund participate in such an interfund lending program, the Board of Trustees would establish procedures for the operation of the program by the investment manager or an affiliate. - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUSTS - -------------------------------------------------------------------------------- The Funds are governed by a Board of Trustees, which is responsible for generally overseeing the conduct of Fund business and for protecting the interests of shareholders. The trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with companies that provide services to the Funds and review the Funds' performance. 24 On May 14, 2003 for the Loomis Sayles Funds I and June 10, 2003 for the Loomis Sayles Funds II, shareholders voted to elect each Trustee listed below to serve on each Trust's Board. Effective June 1, 2003, the Board of Trustees of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust and AEW Real Estate Income Fund (the "CDC Nvest Funds Trusts" and together with Loomis Sayles Funds I and Loomis Sayles Funds II, the "CDC Nvest and Loomis Sayles Trusts") approved certain new trustees for the CDC Nvest Funds Trusts. These approvals resulted in a combined Board of Trustees for the CDC Nvest and Loomis Sayles Funds Trusts. The table below provides certain information regarding the trustees and officers of the CDC Nvest and Loomis Sayles Funds Trusts. For purposes of this table and for purposes of this Statement, the term "Independent Trustee" means those trustees who are not "interested persons" as defined in the Investment Company Act of 1940, as amended (the "1940 Act") of the relevant trust and, when applicable, who have no direct or indirect financial interest in the approval of a matter being voted on by the relevant Board of Trustees. For purposes of this Statement, the term "Interested Trustee" means those trustees who are "interested persons" of the relevant trust and, when applicable, who have a direct or indirect financial interest in the approval of a matter being voted on by the relevant Board of Trustees. The table below provides certain information regarding the Trustees and officers of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II and Loomis Sayles Funds II. Unless otherwise indicated, the address of all persons below is 399 Boylston Street, Boston, MA 02116.
- ----------------------------------------------------------------------------------------------------------------------------------- Number of Portfolios in Position(s) Held with the Trusts, Fund Complex Length of Time Served and Overseen and Other Name, Age and Address Term of Office* Principal Occupation(s) During Past 5 Years** Directorships Held - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ----------------------------------------------------------------------------------------------------------------------------------- Graham T. Allison, Trustee Douglas Dillon Professor and Director of the 41 Jr. (65) Belfer Center of Science for International Contract Review and Governance Affairs, John F. Kennedy School of Director, Taubman Committee Member Government, Harvard University Centers, Inc.; Since 1984 for CDC Nvest Funds Advisory Board Trust I; 1995 for CDC Nvest Member, USEC Inc. Funds Trust II; 2003 for Loomis Sayles Funds II - ----------------------------------------------------------------------------------------------------------------------------------- Edward A. Benjamin Trustee Retired 41 (67) Audit Committee Member Director, Coal, Energy Investments & Since 2003 for CDC Nvest Funds Management, LLC; Trust I and CDC Nvest Funds Director, Precision Trust II; 2002 for Loomis Optics Corporation Sayles Funds II (optics manufacturer) - ----------------------------------------------------------------------------------------------------------------------------------- Daniel M. Cain (60) Trustee President and CEO, Cain Brothers & Company, 41 Incorporated (investment banking) Chairman of the Audit Committee Trustee, Universal Health Realty Income Since 1996 for CDC Nvest Funds Trust; I and CDC Nvest Funds II; 2003 for Loomis Sayles Funds II Director, Sheridan Healthcorp Co-Chairman of the Board since (physician practice 2004 management) - ----------------------------------------------------------------------------------------------------------------------------------- Paul G. Chenault (71) Trustee Retired; Trustee, First Variable Life 41 (variable life insurance) Contract Review and Governance Director, Mailco Committee Member Office Products, Inc. Since 2003 for CDC Nvest Funds Trust I and CDC Nvest Funds - -----------------------------------------------------------------------------------------------------------------------------------
25
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Portfolios in Position(s) Held with the Trusts, Fund Complex Length of Time Served and Overseen and Other Name, Age and Address Term of Office* Principal Occupation(s) During Past 5 Years** Directorships Held - ------------------------------------------------------------------------------------------------------------------------------------ Trust II; 2000 for Loomis Sayles Funds II - ------------------------------------------------------------------------------------------------------------------------------------ Kenneth J. Cowan (72) Trustee Retired 41 Chairman of the Contract Review None and Governance Committee Since 1993 for CDC Nvest Funds Trust I, 1975 for CDC Nvest Funds Trust II; 2003 for Loomis Sayles Funds II Co-Chairman of the Board since 2004 - ------------------------------------------------------------------------------------------------------------------------------------ Richard Darman (62) Trustee Partner, The Carlyle Group (investments); 41 Chairman of the Board of Directors of AES Contract Review and Governance Corporation (international power company); Director and Committee Member formerly, Professor, John F. Kennedy School Chairman, AES of Government, Harvard University Corporation Since 1996 for CDC Nvest Funds (international power Trust I and CDC Nvest Funds company) Trust II; 2003 for Loomis Sayles Funds II - ------------------------------------------------------------------------------------------------------------------------------------ Sandra O. Moose (63) Trustee President, Strategic Advisory Services 41 (management consulting); formerly, Senior Vice Audit Committee Member President and Director, The Boston Consulting Director, Verizon Group, Inc. (management consulting) Communications; Since 1984 for CDC Nvest Funds Trust I; 1995 for CDC Nvest Director, Rohm and Funds Trust II; 2003 Loomis Haas Company Sayles Funds II (specialty chemicals); Director, AES Corporation - ------------------------------------------------------------------------------------------------------------------------------------ John A. Shane (72) Trustee President, Palmer Service Corporation (venture 41 capital organization) Contract Review and Governance Director, Gensym Committee Member Corporation; Director, Overland Since 1982 for CDC Nvest Funds Storage, Inc.; Trust I; 1995 for CDC Nvest Director, Abt Funds Trust II; 2003 for Associates Inc. Loomis Sayles Funds II - ------------------------------------------------------------------------------------------------------------------------------------
26
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Portfolios in Position(s) Held with the Trusts, Fund Complex Length of Time Served and Overseen and Other Name, Age and Address Term of Office* Principal Occupation(s) During Past 5 Years** Directorships Held - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ Robert J. Blanding/1/ Trustee President, Chairman, Director, and Chief 41 (58) Executive Officer, Loomis Sayles; President 555 California Street Chief Executive Officer for and CEO - Loomis Sayles Funds I None San Francisco, Loomis Sayles Trust IISince CA 94104 2003 for CDC Nvest Funds Trust I and CDC Nvest Funds Trust II; 2002 for Loomis Sayles Funds II - ------------------------------------------------------------------------------------------------------------------------------------ John T. Hailer/2/ President and Trustee President and Chief Executive Officer, IXIS 41 (44) Since 2000 for CDC Nvest Funds Asset Management Distributors, L.P.; Executive Trust I and CDC Nvest Funds Vice President, Loomis Sayles Funds I; None Trust II; 2003 for Loomis President and Chief Executive Officer - CDC Sayles Funds II Nvest Funds - ------------------------------------------------------------------------------------------------------------------------------------
* Each Trustee serves until retirement, resignation or removal from the Board of Trustees. The current retirement age is 72. At a meeting held on February 27, 2004, the Trustees voted to suspend the retirement policy until 2005. ** Each person listed above, except as noted, holds the same position(s) with the Trusts. Previous positions during the past five years with the IXIS Asset Management Distributors, L.P. (the "Distributor"), IXIS Asset Management Advisors, L.P. ("IXIS Advisors") or Loomis Sayles are omitted if not materially different from a trustee's or officer's current position with such entity. As indicated, each Trustee is also a trustee of certain other investment companies for which the Distributor acts as principal underwriter. /1/ Mr. Blanding is deemed an "interested person" of the Trusts because he holds the following positions with affiliated persons of the Trusts: President, Chairman, Director and Chief Executive Officer of Loomis Sayles. /2/ Mr. Hailer is deemed an "interested person" of the Trusts because he holds the following positions with affiliated persons of the Trusts: Director and Executive Vice President of IXIS Asset Management Distribution Corporation ("IXIS Distribution Corporation"); and President and Chief Executive Officer of IXIS Advisors. 27
- --------------------------------------------------------------------------------------------------------------------------------- Officers of the Trusts - --------------------------------------------------------------------------------------------------------------------------------- Term of Office* and Position(s) Held Length of Principal Occupation(s) Name, Age With the Trusts Time Served During Past 5 Years** - --------------------------------------------------------------------------------------------------------------------------------- John E. Chief Operating Since September President, Director and Chief Executive Officer, IXIS Asset Pelletier (40) Officer 2004 Management Services Company ("IXIS Services"); Executive Vice President, IXIS Distribution Corporation; Executive Vice President and Chief Operating Officer, IXIS Asset Management Distributors, L.P. and IXIS Asset Management Advisors, L.P.; formerly, Senior Vice President, General Counsel, Secretary and Clerk, IXIS Distribution Corporation; Executive Vice President, General Counsel, Secretary and Clerk, IXIS Asset Management Distributors, L.P., IXIS Asset Management Advisors, L.P.; Executive Vice President, General Counsel, Secretary and Clerk, IXIS Services - --------------------------------------------------------------------------------------------------------------------------------- Coleen Downs Secretary, Clerk Since September Senior Vice President, General Counsel, Secretary and Clerk, IXIS Dinneen (43) and Chief Legal 2004 Distribution Corporation, IXIS Asset Management Distributors, L.P., Officer IXIS Asset Management Advisors, L.P. and IXIS Services; formerly, Senior Vice President, Deputy General Counsel, Assistant Secretary and Assistant Clerk, IXIS Asset Management Advisors, L.P., IXIS Services and Vice President Deputy General Counsel, Assistant Secretary and Assistant Clerk, IXIS Distribution Corporation - --------------------------------------------------------------------------------------------------------------------------------- Michael Treasurer, Since October Senior Vice President, IXIS Services; Senior Vice President, IXIS Kardok (45) Principal 2004 Asset Management Advisors, L.P.; formerly, Senior Director, PFPC, Financial and Inc., Vice President-Division Manager, First Data Investor Services Accounting Officer Group, Inc. - --------------------------------------------------------------------------------------------------------------------------------- Kristin Vigneaux Chief Compliance Since August Chief Compliance Officer for Mutual Funds, IXIS Asset Management (35) Officer 2004 Distributors, L.P., IXIS Asset Management Advisors, L.P. and IXIS Services; Formerly, Vice President IXIS Services - --------------------------------------------------------------------------------------------------------------------------------- Daniel J. Fuss (70) Executive Vice Since June 2003 Vice Chairman and Director, Loomis Sayles & Company, L.P.; Prior to One Financial President - 2002, President and Trustee of Loomis Sayles Funds II Center Loomis Sayles Boston, MA 02111 Funds II - --------------------------------------------------------------------------------------------------------------------------------- Frank Anti-Money Since June 2003 Senior Vice President, IXIS Services LoPiccolo (50) Laundering Officer - ---------------------------------------------------------------------------------------------------------------------------------
* Each officer of the Trust serves for an indefinite term in accordance with its current By-laws until the date his or her successor is elected and qualified, or until he or she sooner dies, retires, is removed or becomes disqualified. ** Each person listed above, except as noted, holds the same position(s) with the CDC Nvest and Loomis Sayles Funds Trusts. Previous positions during the past five years with IXIS Asset Management Distributors, L.P. (the "Distributor"), IXIS Advisors or Loomis Sayles are omitted, if not materially different from a trustee's or officer's current position with such entity. As indicated, each of the Trustees is also a trustee of certain other investment companies for which the Distributor acts as principal underwriter. 28 Standing Board Committees The Trustees have delegated certain authority to the two standing committees of the Trust, the Audit Committee and Contract Review and Governance Committee. The Contract Review and Governance Committee of the Trusts consists solely of Independent Trustees and considers matters relating to advisory, subadvisory and distribution arrangements, potential conflicts of interest between the adviser and the Trusts, and governance matters relating to the Trusts. During the fiscal year ended September 30, 2004, this Committee held five meetings. The Contract Review and Governance Committee also makes nominations for independent trustee membership on the Board of Trustees when necessary and considers recommendations from shareholders of the Funds that are submitted in accordance with the procedures by which shareholders may communicate with the Board of Trustees. Pursuant to those procedures, shareholders must submit a recommendation for nomination in a signed writing addressed to the attention of the Board of Trustees, c/o Secretary of the Funds, IXIS Asset Management Advisors Group, 399 Boylston Street, Boston, MA 02116. This written communication must identify (i) the name and address of the shareholder, (ii) the Fund(s) to which the communication relates, and (iii) the account number, class and number of shares held by the shareholder as of a recent date or the intermediary through which the shares are held. The recommendation must contain sufficient background information concerning the trustee candidate to enable a proper judgment to be made as to the candidate's qualifications, which may include (i) the nominee's knowledge of the mutual fund industry; (ii) any experience possessed by the nominee as a director or senior officer of other public companies; (iii) the nominee's educational background; (iv) the nominee's reputation for high ethical standards and personal and professional integrity; (v) any specific financial, technical or other expertise possessed by the nominee, and the extent to which such expertise would complement the Board's existing mix of skills and qualifications; (vi) the nominee's perceived ability to contribute to the ongoing functions of the Board, including the nominee's ability and commitment to attend meetings regularly and work collaboratively with other members of the Board; (vii) the nominee's ability to qualify as an Independent Trustee for purposes of applicable regulations; and (viii) such other factors as the appropriate Board Committee may request in light of the existing composition of the Board and any anticipated vacancies or other transitions. The recommendation must be received in a timely manner (and in any event no later than the date specified for receipt of shareholder proposals in any applicable proxy statement with respect to a Fund). A recommendation for trustee nomination shall be kept on file and considered by the Board for six (6) months from the date of receipt, after which the recommendation shall be considered stale and discarded. The Audit Committee of the Trusts consists solely of Independent Trustees and considers matters relating to the scope and results of the Trusts' audits and serves as a forum in which the independent auditors can raise any issues or problems identified in the audit with the Board of Trustees. This Committee also reviews and monitors compliance with stated investment objectives and policies, SEC and Treasury regulations as well as operational issues relating to the transfer agent and custodian. During the fiscal year ended September 30, 2004, this Committee held five meetings. The current membership of each committee is as follows: Audit Committee Contract Review and Governance Committee - --------------- ---------------------------------------- Daniel M. Cain - Chairman Kenneth J. Cowan - Chairman Edward A. Benjamin Graham T. Allison, Jr. Sandra O. Moose Paul G. Chenault Richard Darman John A. Shane Trustee Fees The Trust pays no compensation to its officers, or to its trustees who are Interested Trustees thereof. Each Independent Trustee receives, in the aggregate, a retainer fee at the annual rate of $50,000 and meeting attendance fees of $5,000 for each meeting of the Board of Trustees that he or she attends. The Co- 29 Chairmen of the Board each receive an additional annual retainer fee of $25,000. Each committee chairman receives an additional retainer fee at the annual rate of $7,000. Each Committee member is compensated $3,750 per Committee meeting that he or she attends. These fees are allocated among the mutual fund portfolios in the CDC Nvest and Loomis Sayles Funds Trusts based on a formula that takes into account, among other factors, the relative net assets of each mutual fund portfolio. In addition, for oversight of the AEW Real Estate Income Fund each Trustee receives a retainer fee at the annual rate of $2,000 and meeting attendance fees of $375 for each meeting of the Board of Trustees that he or she attends. Each committee member receives an additional retainer fee at the annual rate of $2,000. Furthermore, each committee chairman receives an additional retainer fee (beyond the $2,000 fee) at the annual rate of $1,000. The retainer fees for the AEW Real Estate Income Fund assume four Committee meetings per year. Each Trustee is compensated $200 per Committee meeting that he or she attends in excess of four per year. Prior to July 1, 2004, each Independent Trustee received, in the aggregate, a retainer fee at the annual rate of $45,000 and meeting attendance fees of $4,500 for each meeting of the Board of Trustees that he or she attended. Each committee member received an additional retainer fee at the annual rate of $7,000. Furthermore, each committee chairman received an additional retainer fee (beyond the $7,000 fee) at the annual rate of $5,000. The retainer fees assumed four Committee meetings per year. Each Trustee was compensated $1,750 per Committee meeting that he or she attended in excess of four per year. During the fiscal year ended September 30, 2004 for CDC Nvest Funds Trust I, CDC Nvest Funds Trust II and Loomis Sayles Funds II, the trustees of the Trusts received the amounts set forth in the following table for serving as a trustee of the trusts and for also serving as trustees of the CDC Nvest Funds Trust III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust and Loomis Sayles Funds I. The table also sets forth, as applicable, pension or retirement benefits accrued as part of fund expenses, as well as estimated annual retirement benefits and total compensation paid to trustees by Trusts in the CDC Nvest Funds Trusts and Loomis Sayles Funds Trusts: 30
- ------------------------------------------------------------------------------------------------------------ Pension or Retirement Aggregate Aggregate Aggregate Benefits Estimated Total Compensation Compensation Compensation Accrued as Annual Compensation from CDC from CDC from Loomis Part of Benefits from the Nvest Funds Nvest Funds Sayles Fund Upon Fund Trust 1* Trust II* Funds II* Expenses Retirement Complex+* - ------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ Graham T. Allison, Jr. - ------------------------------------------------------------------------------------------------------------ Edward A. Benjamin** - ------------------------------------------------------------------------------------------------------------ Daniel M. Cain - ------------------------------------------------------------------------------------------------------------ Kenneth J. Cowan - ------------------------------------------------------------------------------------------------------------ Paul G. Chenault** - ------------------------------------------------------------------------------------------------------------ Richard Darman - ------------------------------------------------------------------------------------------------------------ Sandra O. Moose - ------------------------------------------------------------------------------------------------------------ John A. Shane - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------ Peter S. Voss # - ------------------------------------------------------------------------------------------------------------ John T. Hailer - ------------------------------------------------------------------------------------------------------------ Robert J. Blanding - ------------------------------------------------------------------------------------------------------------
*Amounts include payments deferred by trustees for the fiscal year ended September 30, 2004, with respect to the Trusts. The total amount of deferred compensation accrued for Loomis Sayles Funds II as of September 30, 2004 for the Trustees is as follows: Benjamin ($x), Cowan ($x) and Darman ($x). The total amount of deferred compensation accrued for CDC Nvest Funds Trust I as of September 30, 2004 for the Trustees is as follows: Benjamin ($x), Cowan ($x) and Darman ($x). The total amount of deferred compensation accrued for CDC Nvest Funds Trust II as of September 30, 2004 for the Trustees is as follows: Benjamin ($x), Cowan ($x) and Darman ($x). **Amounts include amounts held through the deferred compensation plan. + Total Compensation represents amounts paid during 2004 to a trustee for serving on the board of trustees of nine (9) trusts with a total of forty-one (41) funds as of September 30, 2004. For the twelve months ended September 30, 2003 the Trustees received the following amounts: Alaimo ($x), Allison ($x), Benjamin ($x), Cain ($x), Chenault ($x), Cowan ($x), Darman ($x), Moose ($x), Shane ($x) and White ($x). # - Peter S. Voss resigned as of August 20, 2004. The Funds do not provide pension or retirement benefits to trustees, but have adopted a deferred payment arrangement under which each trustee may elect not to receive fees from the Funds on a current basis but to receive in a subsequent period an amount equal to the value that such fees would have been if they had been invested in a Fund or Funds selected by the trustee on the normal payment date for such fees. As a result of this arrangement, each trust, upon making the deferred payments, will be in substantially the same financial position as if the deferred fees had been paid on the normal payment dates and immediately reinvested in shares of the Fund(s) selected by the Trustees. At January , 2005, the officers and trustees of the Trusts collectively --- owned less than x% of the then outstanding shares of each Fund and each Trust. The amount includes shares held by the Loomis Sayles Employees' Profit Sharing Plan (the "Profit Sharing Plan") or the Loomis Sayles Funded Pension Plan (the "Pension Plan"). As of January , 2005, the Profit Sharing Plan owned the following --- percentages of the outstanding of the indicated Funds: x% of Loomis Sayles Growth Fund, x% of the Loomis Sayles Investment Grade Bond Fund, andx% of Loomis Sayles Research Fund. As of January , 2005, the Pension Plan owned the following percentages --- of the outstanding shares of the indicated Funds: x% of Loomis Sayles Growth Fund, x% of Hansberger Foreign Growth Fund, and x% of Loomis Sayles Research Fund. 31 The trustee of the Pension Plan and Profit Sharing Plan is Charles Schwab Trust Company. The Pension Plan's Advisory Committee, which is composed of the same individuals listed below as trustees of the Profit Sharing Plan, has the sole voting and investment power with respect to the Pension Plan's shares. The trustees of the Profit Sharing Plan are Robert Ix, John DeBeer, Stephanie Lord, Teri Mason, Richard Skaggs, Timothy Hunt, Greg O'Hara, Vincent Stanton, Paul Sherba and Kurt Wagner. Except for Timothy Hunt, John DeBeer and Vincent Stanton, each member of the Advisory Committee is an officer and employee of Loomis Sayles. Plan participants are entitled to exercise investment and voting power over shares owned of record by the Profit Sharing Plan. Shares not voted by participants are voted in the same proportion as the shares voted by the voting participants. The address for the Profit Sharing Plan and the Pension Plan is One Financial Center, Boston, Massachusetts. As of December 31, 2004, the trustees had the following ownership in the Funds: *A. None B. $1 - 10,000 C. $10,001 - $50,000 D. $50,001 - $100,000 E. over $100,000
Graham T. Kenneth Allison, Edward A. Daniel Paul G. J. Richard Sandra O. John A. Dollar Range of Fund Shares Jr.** Benjamin** M. Cain** Chenault** Cowan** Darman** Moose** Shane** - --------------------------- --------- ---------- --------- ---------- ------- -------- --------- ------- Core Plus Bond Fund Government Securities Fund Massachusetts Fund Growth Fund High Income Fund Hansberger Foreign Growth Fund Investment Grade Bond Fund Limited Term Government and Agency Fund Municipal Income Fund Research Fund Strategic Income Fund Aggregate Dollar Range of Fund Shares in Funds Overseen by Trustee in the Trusts
**Amounts include amounts held through the deferred compensation plan. Interested Trustees *A. None B. $1 - 10,000 C. $10,001 - $50,000 D. $50,001 - $100,000 E. over $100,000 Dollar Range of Fund Shares* Robert J. Blanding John T. Hailer - ---------------------------- ------------------ -------------- Core Plus Bond Fund Government Securities Fund Massachusetts Fund Growth Fund High Income Fund Hansberger Foreign Growth Fund Investment Grade Bond Fund Limited Term Government and Agency Fund Municipal Income Fund Research Fund Strategic Income Fund Aggregate Dollar Range of Fund Shares in Funds Overseen by Trustee in the Trusts 32 Advisory Agreements - All Funds (except Hansberger Foreign Growth Fund) Each Fund's advisory agreement with Loomis Sayles & Company, L.P. ("Loomis Sayles") provides that Loomis Sayles will furnish or pay the expenses of the applicable Fund for office space, facilities and equipment, services of executive and other personnel of the Trust and certain administrative services. Loomis Sayles is responsible for obtaining and evaluating such economic, statistical and financial data and information and performing such additional research as is necessary to manage each Fund's assets in accordance with its investment objectives and policies. Each Fund pays all expenses not borne by Loomis Sayles including, but not limited to, the charges and expenses of the Fund's custodian and transfer agent, independent auditors and legal counsel for the Fund and the Trusts' Independent Trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, the fees and expenses for registration or qualification of its shares under federal and state securities laws, all expenses of shareholders' and trustees' meetings and of preparing, printing and mailing reports to shareholders and the compensation of trustees who are not directors, officers or employees of the Fund's adviser, or its affiliates, other than affiliated registered investment companies. In the case of Funds with Class Y shares, certain expenses may be allocated differently among the Fund's Classes A, B and C shares, on the one hand, and Class Y shares on the other hand. (See "Description of the Trusts and Ownership of Shares.") Each Fund's advisory agreement provides that it will continue in effect for two years from its date of execution and thereafter from year to year if its continuance is approved at least annually (i) by the Board of Trustees of the relevant Trust or by vote of a majority of the outstanding voting securities of the relevant Fund and (ii) by vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval. Each advisory agreement may be terminated without penalty by vote of the Board of Trustees of the relevant Trust or by vote of a majority of the outstanding voting securities of the relevant Fund, upon 60 days' written notice, or by Loomis Sayles upon 90 days' written notice, and each terminates automatically in the event of its assignment (as defined in the 1940 Act). In addition, each agreement with Loomis Sayles will automatically terminate if its relevant Trust or Fund shall at any time be required by Loomis Sayles to eliminate all reference to the words "Loomis" and "Sayles" in the name of the Trust or the Fund, unless the continuance of the agreement after such change of name is approved by a majority of the outstanding voting securities of the relevant Fund and by a majority of the trustees who are not interested persons of the Trust or Loomis Sayles. Each advisory agreement provides that Loomis Sayles shall not be subject to any liability in connection with the performance of its services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties. In addition to serving as investment adviser to the Funds, the Strategic Income Fund, Municipal Income Fund, and each series of Loomis Sayles Funds II (except for Hansberger Foreign Growth Fund), Loomis Sayles acts as investment adviser to each series of Loomis Sayles Funds I (formerly, "Loomis Sayles Investment Trust"), a registered open-end management investment company. Loomis Sayles also serves as adviser to a number of other open-end management companies and provides investment advice to numerous other corporate and fiduciary clients. Under a separate Advisory Administration Agreement dated September 1, 2003, IXIS Advisors oversees the portfolio management services provided to the Core Plus Bond Fund, Government Securities Fund, and Massachusetts Fund by Loomis Sayles and provides certain administrative services. Subject to the review of the Board of Trustees, IXIS Advisors monitors Loomis Sayles to assure that Loomis Sayles is managing a Fund's assets consistently with the Fund's investment objective and restrictions and applicable laws and guidelines, including, but not limited to, compliance with the diversification requirements set forth in the 1940 Act and Subchapter M of the Code. In addition, IXIS Advisors also provides the Funds with administrative services which include, among other things, day-to-day administration of matters related to the Funds' existence, maintenance of its records, preparation of reports and assistance in the preparation of the Funds' registration statements under federal and state laws. IXIS Advisers does not determine what investments will be purchased or sold for any of these Funds. Under each advisory agreement with Loomis Sayles, if the total ordinary business expenses of a Fund or the Trust as a whole for any fiscal year exceeds the lowest applicable limitation (based on percentage of average net 33 assets or income) prescribed by any state in which the shares of the Fund or the Trust are qualified for sale, Loomis Sayles shall pay such excess. Loomis Sayles will not be required to reduce its fee or pay such expenses to an extent or under circumstances that would result in any Fund's inability to qualify as a regulated investment company under the Code. The term "expenses" is defined in the advisory agreements or in relevant state regulations and excludes brokerage commissions, taxes, interest, distribution-related expenses, and extraordinary expenses. As described in the Prospectuses, Loomis Sayles has agreed to certain additional contractual arrangements to limit certain Fund's expenses. Advisory and Subadvisory Agreements - Hansberger Foreign Growth Fund Advisory Agreement The Fund's advisory agreement with IXIS Advisors provides that IXIS Advisors will provide the Fund both (1) portfolio management services (defined to mean managing the investment and reinvestment of the assets of the Fund, subject to the supervision and control of the Trustees), and (2) administrative services (defined to mean furnishing or paying the expenses of the Fund for office space, facilities and equipment, services of executive and other personnel necessary for managing the affairs of the Fund and certain other administrative and general management services). The agreement allows IXIS Advisors to delegate any and all of its responsibilities thereunder with respect to the provision of portfolio management services to one or more subadvisers, pursuant to a written agreement with each subadviser that meets the requirements of Section 15 of the 1940 Act applicable to contracts for services as investment adviser of a registered investment company. The Agreement also allows IXIS Advisors to delegate any or all of its responsibilities thereunder with respect to the provision of administrative services to one or more other parties selected by IXIS Advisors, which also may include affiliates of IXIS Advisors. IXIS Advisors has delegated portfolio management services to Hansberger Global Investors, Inc. ("Hansberger") pursuant to a subadvisory agreement among Loomis Sayles Funds Trust II, on behalf of the Fund, IXIS Advisors and Hansberger. Subject to the review of the Board of Trustees, IXIS Advisors monitors Hansberger to assure that Hansberger is managing the Fund's assets consistently with the Fund's investment objective and restrictions and applicable laws and guidelines, including, but not limited to, compliance with diversification requirements set forth in the 1940 Act and Subchapter M of the Code. IXIS Advisors does not determine what investments will be purchases or sold for the Fund. The Fund pays all expenses not borne by IXIS Advisors including, but not limited to, the charges and expenses of the Fund's custodian and transfer agent, independent auditors and legal counsel for the Fund and the Trusts' Independent Trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, the fees and expenses for registration or qualification of its shares under federal and state securities laws, all expenses of shareholders' and trustees' meetings and of preparing, printing and mailing reports to shareholders and the compensation of trustees who are not directors, officers or employees of IXIS Advisors or its affiliates, other than affiliated registered investment companies. Certain expenses may be allocated differently among the Fund's Classes A, B and C shares, on the one hand, and Class Y shares on the other hand. (See "Description of the Trusts and Ownership of Shares.") The advisory agreement provides that it will continue in effect for an initial period of two years and, after that, it will continue in effect from year to year as long as the continuation is approved at least annually (i) by the Trustees or by vote of a majority of the outstanding voting securities of the Fund, and (ii) by vote of a majority of the Independent Trustees. The advisory agreement may be terminated without penalty by vote of the Trustees or by vote of a majority of the outstanding voting securities of the Fund, on sixty days' written notice to IXIS Advisors, or by IXIS Advisors upon ninety days' written notice to the Trust, and each Advisory Agreement provides that it will terminate automatically in the event of its "assignment" as defined in the 1940 Act. The advisory agreement provides that IXIS Advisors will not be liable to the Fund or its shareholders except for liability arising from IXIS Advisors' willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or duties under such advisory agreement. Subadvisory Agreement 34 The subadvisory agreement essentially provides that Hansberger, under the supervision of IXIS Advisors, will (1) manage the investment and reinvestment of the assets of the Fund, and have the authority on behalf of the Fund to vote and shall vote all proxies and exercise all other rights of the Fund as a security holder of companies in which the Fund from time to time invests, (2) select brokers and dealers to carry out portfolio transactions for the Fund and (3) furnish IXIS Advisors monthly, quarterly and annual reports concerning portfolio transactions and performance of the Fund, and provide IXIS Advisors with such other information and reports as may reasonably be requested by IXIS Advisors from time to time, including without limitation all material requested by or required to be delivered to the Trustees of the Trust. As full compensation for all services rendered, facilities furnished and expenses borne by Hansberger, the subadvisory agreement provides that Hansberger shall be paid at the annual rate of 0.45% of the first $200 million of average daily net assets and 0.40% of average daily net assets in excess of $200 million. Such compensation is payable by the Trust (though, under the advisory agreement, the Trust's payment obligations to IXIS Advisors are reduced to the extent of the fees payable under the subadvisory agreement. The subadvisory agreement provides that it will continue in effect for an initial period of two years and, after that, it will continue in effect from year to year as long as the continuation is approved at least annually (i) by the Trustees or by vote of a majority of the outstanding voting securities of the Fund, and (ii) by vote of a majority of the Independent Trustees. The subadvisory agreement may be terminated without penalty (i) by vote of the Trustees or by vote of a majority of the outstanding voting securities of the Fund, on sixty days' written notice to Hansberger, (ii) by IXIS Advisors, on ninety days' written notice to Hansberger, or (iii) by Hansberger, upon ninety days' written notice to IXIS Advisors and the Trust, and the subadvisory agreement provides that it will terminate automatically in the event of its "assignment" as defined in the 1940 Act or upon the termination of the advisory agreement. The subadvisory agreement provides that Hansberger will not be liable to IXIS Advisors, the Trust, the Fund or its shareholders, except for liability arising from Hansberger's willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or duties under such subadvisory agreement. In addition, the subadvisory agreement provides that IXIS Advisors shall indemnify Hansberger for liability arising from any claim or demand by any past or present shareholder of the Fund that is not based upon the obligations of Hansberger under the Agreement. Board Approval of the Existing Advisory and Subadvisory Agreements The Board of Trustees, including the Independent Trustees, considers matters bearing on each Fund's advisory (and for the Hansberger Foreign Growth Fund, subadvisory) agreements at most of its meetings throughout the year. While the full Board of Trustees or the Independent Trustees, as appropriate, act on all major matters, a significant portion of the activities of the Board of Trustees is conducted through committees. The Independent Trustees meet frequently in executive session and are advised by independent legal counsel selected by the Independent Trustees. The advisory and subadvisory agreements of the Funds are reviewed each year by the Board of Trustees to determine whether the agreements should be renewed for an additional one-year period. Renewal of the agreements requires the majority vote of the Board of Trustees, including a majority of the Independent Trustees. The Board of Trustees consists of a majority of Independent Trustees. In connection with their meetings, the trustees receive materials specifically relating to the existing advisory and subadvisory agreements. These materials generally include, among other items (i) information on the investment performance of the Funds, a peer group of funds and an appropriate index or combination of indices, (ii) sales and redemption data in respect of the Funds, and (iii) the economic outlook and the general investment outlook in the markets in which the Funds invest. The Board of Trustees, including the Independent Trustees, may also consider other material facts such as (1) the adviser's (and/or subadviser's) results and financial condition, (2) each Fund's investment objective and strategies and the size, education and experience of the advisers' and subadviser's investment staff and their use of technology, external research and trading cost measurement tools, (3) arrangements in respect of the distribution of the Funds' shares, (4) the procedures employed to determine the value of the Funds' assets, (5) the allocation of the Funds' brokerage, if any, including allocations to brokers affiliated with the adviser and the use of "soft" commission dollars to pay Fund expenses and to pay for research and other similar services, (6) the resources devoted to, and the record of compliance with, the Funds' investment policies and restrictions and policies on personal securities transactions, and (7) when applicable, the contractual fee waivers and expense 35 reimbursements agreed to by the advisers. All Funds except Hansberger Foreign Growth Fund The Board of Trustees most recently approved the renewal of the Trusts' advisory agreements at their meeting held in June 2004. In considering the advisory agreements, the Board of Trustees, including the Independent Trustees, did not identify any single factor as determinative. Matters considered by the Board of Trustees, including the Independent Trustees, in connection with its approval of the advisory agreements included the following: . the benefits to shareholders of investing in a fund that is part of a family of funds offering a variety of investment disciplines and providing for a variety of fund and shareholder services. . whether each Fund has operated in accordance with its investment objective and its record of compliance with its investment restrictions. They also reviewed each Fund's investment performance as well as each Fund's performance relative to a peer group of mutual funds and to the performance of an appropriate index or combination of indices. . the nature, quality, cost and extent of administrative and shareholder services performed by the advisers and affiliated companies, under the existing advisory agreements and under separate agreements covering transfer agency functions and administrative services. . each Fund's expense ratio and expense ratios of a peer group of funds. They also considered the contractual expense limitations and the financial impact on the advisers relating to such limitations and the amount and nature of fees paid by shareholders. The information on advisory fees and expense ratios, as well as performance data, included both information compiled by the adviser and information compiled by an independent data service. For these purposes, the Trustees took into account not only the fees paid by the Fund, but also so-called "fallout benefits" to the adviser, such as the engagement of affiliates of the adviser to provide distribution, brokerage and transfer agency services to the Fund, and the benefits of research made available to the adviser by reason of brokerage commissions generated by the Fund's securities transactions. In evaluating each Fund's advisory fees, the Trustees also took into account the demands, complexity and quality of the investment management of such Fund. . the level of the advisers' profits in respect of the management of the Funds. The Trustees considered the profits realized by the advisers in connection with the operation of each Fund. . whether there have been economies of scale in respect of the management of the Funds, whether the Funds have appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel, the Trustees, including the Independent Trustees, concluded that the existing advisory fee structures are fair and reasonable, and that the existing advisory agreements should be continued through June 30, 2005. Hansberger Foreign Growth Fund At a meeting held on August 20, 2004, the Board of Trustees, including the Independent Trustees, approved an interim advisory agreement with IXIS Advisors and an interim subadvisory agreement with Hansberger, to be effective August 26, 2004. These agreements were necessary because Loomis Sayles, the former adviser to the Fund, had made a strategic decision to exit the international equity investment business for the foreseeable future. The Trustees also approved a new advisory agreement with IXIS Advisors and a new subadvisory agreement with Hansberger, to take effect subject to shareholder approval. At a meeting on September 21, 2004, the Trustees, including the Independent Trustees, voted unanimously to recommend that shareholders of the Fund vote to approve the Fund's new advisory and subadvisory agreements. In considering and recommending the new advisory and subadvisory agreements, the Trustees did not identify any single factor as determinative. Matters considered by the Board of Trustees included the following: Advisory Agreement . the results and financial condition of IXIS Advisors; 36 . the nature, quality and extent of the portfolio management services furnished by IXIS Advisors; . whether the portfolio management services to be provided pursuant to the new advisory agreement would be provided on terms and conditions similar to those of the former advisory agreement with Loomis Sayles; . the terms of the advisory agreement; . IXIS Advisors' ability to retain and attract capable personnel to serve the Fund; . the recent investment performance of the Fund; . the advisory fees and other expenses that would be paid by the Fund under the advisory agreement as compared to those of similar funds managed by other investment advisers; and . the potential efficiencies to be gained from having IXIS Advisors serve as the investment adviser for most CDC Nvest Funds (including the Fund). Subadvisory Agreement . the results and financial condition of Hansberger; . the number, education and experience of Hansberger's investment personnel (including particularly those personnel with responsibilities for providing services to the Fund) and Hansberger's use of technology, external research and trading cost measurement tools; . the procedures employed by Hansberger to determine the value of the Fund's assets; . the resources devoted to, and the record of compliance with, restrictions and policies on personal securities transactions; . the terms of the subadvisory agreement; . the subadvisory fee rate payable to Hansberger; . the total expense ratio of the Fund; and . Hansberger's practices regarding the selection and compensation of brokers and dealers that execute portfolio transactions for the Fund, and the brokers' and dealers' provision of brokerage and research services to Hansberger. 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 advisory and subadvisory fee structures are fair and reasonable and approved the new advisory and subadvisory agreements, subject to shareholder approval. Information About the Organization and Ownership of the Advisers and Subadvisers of the Funds IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), formed in 1995, is a limited partnership whose sole general partner, IXIS Asset Management Distribution Corporation ("IXIS Distribution Corporation"), is a wholly-owned subsidiary of IXIS Asset Management Holdings, LLC ("IXIS Holdings"), which in turn is a wholly-owned subsidiary of IXIS Asset Management North America, L.P. ("IXIS Asset Management North America"). IXIS Distribution Corporation is also the sole general partner of the Distributor and the sole shareholder of IXIS Services, the transfer and dividend disbursing agent of the Funds. IXIS Asset Management North America owns the entire limited partnership interest in each of IXIS Advisors and the Distributor. IXIS Services has subcontracted certain of its obligations as the transfer and dividend disbursing agent of the Funds to third parties. IXIS Asset Management North America is part of an international Asset Management Group based in Paris, France. The Asset Management Group is ultimately owned principally, directly or indirectly, by three large affiliated French financial services entities: the Caisse des Depots et Consignations ("CDC"), a public sector financial institution created by the French government in 1816; the Caisse Nationale des Caisses d'Epargne, a financial institution owned by CDC and by French regional savings banks known as the Caisses d'Epargne; and by CNP Assurances, a large French life insurance company. The registered address of IXIS is 26-28, rue Neuve Tolbiac, 75658 Paris Cedex 13, France. The registered address of CNP Assurances is 4, place Raoul Dautry, 75015 Paris, France. The registered address Caisse Nationale des Caisses d'Epargne is 5, rue Masseran, 75007 Paris, France. The registered office of CDC is 56, rue de Lille, 75007 Paris, France. The 15 principal subsidiary or affiliated asset management firms of IXIS Asset Management North America, L.P. collectively had approximately $x billion in assets under management or administration as of September 30, 2004. 37 Loomis, Sayles & Company, L.P. ("Loomis Sayles") was organized in 1926 and is one of the oldest investment management firms in the country. An important feature of the Loomis Sayles investment approach is its emphasis on investment research. Recommendations and reports of the Loomis Sayles research department are circulated throughout the Loomis Sayles organization and are available to the individuals in the Loomis Sayles organization who are responsible for making investment decisions for the Funds' portfolios as well as numerous other institutional and individual clients to which Loomis Sayles provides investment advice. Loomis Sayles is a limited partnership whose sole general partner, Loomis, Sayles & Company, Inc., is a wholly-owned subsidiary of IXIS Holdings. IXIS Asset Management North America owns the entire limited partnership interest in Loomis Sayles. Hansberger Global Investors, Inc. ("Hansberger") was formed in 1994 and is a wholly-owned subsidiary of Hansberger Group, Inc. Hansberger specializes in global investing, managing separate portfolios and institutional mutual funds. Hansberger is an affiliated money manager of IXIS Asset Management North America. Allocation of Investment Opportunity Among Funds and Other Investors Managed by Advisers; Cross Relationships of Officers and Trustees Loomis Sayles Loomis Sayles has organized its business into three investment groups: The Fixed Income Group, The Equity Group and The Investment Counseling Group. The Fixed Income Group and the Equity Group make investment decisions for the Funds managed by Loomis Sayles. The groups make investment decisions independently of one another. These groups also have responsibility for the management of other client portfolios. The other investment companies and clients served by Loomis Sayles' investment platforms sometimes invest in securities in which the Funds advised by Loomis Sayles also invest. If one of these Funds and such other clients advised by the same investment group of Loomis Sayles desire to buy or sell the same portfolio securities at or about the same time, the respective group allocates purchases and sales, to the extent practicable, on a pro rata basis in proportion to the amount desired to be purchased or sold for each Fund or client advised by that investment group. It is recognized that in some cases the practices described in this paragraph could have a detrimental effect on the price or amount of the securities which each of the Funds purchases or sells. In other cases, however, it is believed that these practices may benefit the relevant Fund. Hansberger Hansberger places portfolio transactions for other advisory accounts, including other mutual funds managed by Hansberger. Research services furnished by firms through which its subadvised Funds effect their securities transactions may be used by Hansberger in servicing all of its accounts; not all of such services may be used by Hansberger in connection with its subadvised Funds. In the opinion of Hansberger, it is not possible to measure separately the benefits from research services to each of the accounts (including its subadvised Funds) managed by Hansberger. Because the volume and nature of the trading activities of the accounts are not uniform, the amount of commissions in excess of those charged by another broker paid by each account for brokerage and research services will vary. However, in the opinion of Hansberger, such costs to its subadvised Funds will not be disproportionate to the benefits received by it on a continuing basis. If purchase or sale of securities consistent with the investment policies of the subadvised Funds and one or more of these other clients served by Hansberger is considered at or about the same time, transactions in such securities will be allocated among its subadvised Funds and such other clients pursuant to guidelines deemed fair and reasonable by Hansberger. Generally, under those guidelines, its subadvised Funds and other participating clients will be allocated securities on a prorated basis. Distribution Agreements and Rule 12b-1 Plans Under a separate agreement with each Fund, the Distributor serves as the principal distributor of each class of shares of the Funds. For the Growth Fund, Research Fund, Hansberger Foreign Growth Fund and Investment Grade Bond Fund the Distributor began serving as the principal distributor of each class of shares of these funds on July 1, 2003. Prior to July 1, 2003, Loomis Sayles Distributors, L.P. served as the principal distributor for these funds. The Distributor's principal business address is 399 Boylston Street, Boston, Massachusetts 02116. Under these agreements (the "Distribution Agreements"), the Distributor conducts a continuous offering and is not obligated to sell a specific number of shares. The Distributor bears the cost of making information about the Funds available through advertising and other means and the cost of printing and mailing Prospectuses to persons other than shareholders. Each Fund pays the cost of registering and qualifying its shares under state and federal securities laws and distributing Prospectuses to existing shareholders. The Distributor is compensated under each agreement through receipt of the sales charges on Class A and 38 Class C shares described below under "Net Asset Value and Public Offering Price" and is paid by the Funds the service and distribution fees described in the applicable Prospectus. The Distributor may, at its discretion, reallow the entire sales charge imposed on the sale of Class A and Class C shares of each Fund to investment dealers from time to time. The SEC is of the view that dealers receiving all or substantially all of the sales charge may be deemed underwriters of a Fund's shares. Each Fund has adopted Rule 12b-1 plans (the "Plans") for its Classes A, B and C shares which, among other things, permit it to pay the Distributor monthly fees out of its net assets. These fees consist of a service fee and a distribution fee. Any such fees that are paid by a distributor to securities dealers are known as "trail commissions." Pursuant to Rule 12b-1 under the 1940 Act, each Plan was approved by the shareholders of each Fund, and (together with the related Distribution Agreement) by the Board of Trustees, including a majority of the Independent Trustees of the relevant Trust. (Note that certain Funds do not offer Class C shares.) Under the Plans, each Fund pays the Distributor a monthly service fee at an annual rate not to exceed 0.25% of the Fund's average daily net assets attributable to the Classes A, B and C shares. In the case of the Class B shares, the Distributor pays investment dealers the first year's service fee at the time of sale, in the amount of up to 0.25% of the amount invested. In the case of Class C shares, the Distributor retains the first year's service fee of 0.25% assessed against such shares. For Class A and, after the first year, for Class B and Class C shares, the Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the Fund's shares, on a quarterly basis, unless other arrangements are made between the Distributor and the securities dealer, for providing personal services to investors in shares of the Fund and/or the maintenance of shareholder accounts. This service fee will accrue to securities dealers of record immediately with respect to reinvested income dividends and capital gain distributions of the Fund's Class A and Class B shares. The service fee on Class A shares may be paid only to reimburse the Distributor for expenses of providing personal services to investors, including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Each Fund's Class B and Class C shares also pay the Distributor a monthly distribution fee at an annual rate not to exceed 0.75% of the average net assets of the respective Fund's Class B and Class C shares. The Distributor retains the 0.75% distribution fee assessed against both Class B and Class C shares during the first year of investment. After the first year for Class B shares, the Distributor retains the annual distribution fee as compensation for its services as distributor of such shares. After the first year for Class C shares, the Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the Fund's shares, as distribution fees in connection with the sale of the Fund's shares on a quarterly basis, unless other arrangements are made between the Distributor and the securities dealer. As noted in the prospectus, Class B shares automatically convert into Class A shares after 8 years. This conversion from Class B to Class A shares occurs once per month for all Class B shares that reach their eighth year over the course of that particular month. As stated in the prospectuses, investors will not be permitted to purchase $100,000 or more of Class B shares as a single investment per account. There is an exception to this restriction with respect to the omnibus account in Class B shares of Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). With respect to this exception, Merrill Lynch has represented that it has policies in place that prohibit individual purchases in Class B shares by Merrill Lynch's clients of $100,000 or more and that Merrill Lynch has processes in place to monitor and enforce this limitation with respect to its clients. In addition, Merrill Lynch has represented that it will only accept purchases of Class B shares by Merrill Lynch clients whose households' total Class B share assets (including the purchase) within the CDC Nvest Funds family total less than $100,000, of which not more than $50,000 can be in the CDC Nvest Tax Free Income and CDC Nvest Income Funds ("Fixed Income Funds"). Purchases of Class B shares of the Fixed Income Funds will only be accepted if the client's accumulated household Class B assets (including the purchase) in the Fixed Income Funds total less than $50,000. Each Plan may be terminated by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of the relevant class of shares of the relevant Fund. Each Plan may be amended by vote of the relevant trustees, including a majority of the relevant Independent Trustees, cast in person at a meeting 39 called for that purpose. Any change in any Plan that would materially increase the fees payable thereunder by the relevant class of shares of the relevant Fund requires approval by vote of the holders of a majority of such shares outstanding. The Trusts' trustees review quarterly a written report of such costs and the purposes for which such costs have been incurred. For so long as a Plan is in effect, selection and nomination of those trustees who are Independent Trustees of the relevant Trust shall be committed to the discretion of such Trustees. Fees paid by Class A, Class B or Class C shares of any Fund may indirectly support sales and servicing efforts relating to shares of the other series of the CDC Nvest Funds Trusts or the Loomis Sayles Funds Trusts. In reporting its expenses to the trustees, the Distributor itemizes expenses that relate to the distribution and/or servicing of a single Fund's shares, and allocates other expenses among the relevant Funds based on their relative net assets. Expenses allocated to each Fund are further allocated among its classes of shares annually based on the relative sales of each class, except for any expenses that relate only to the sale or servicing of a single class. The Distributor has entered into selling agreements with investment dealers, including affiliates of the Distributor, for the sale of the Funds' shares. The Distributor may, at its expense, pay an amount not to exceed 0.50% of the amount invested to dealers who have selling agreements with the Distributor. Class Y shares of the Funds may be offered by registered representatives of certain affiliates who are also employees of IXIS Asset Management North America and may receive compensation from each Fund's adviser with respect to sales of Class Y shares. (Note that certain Funds do not currently offer Class Y shares.) The Distribution Agreement for any Fund may be terminated at any time on 60 days written notice without payment of any penalty by the Distributor or by vote of a majority of the outstanding voting securities of the relevant Fund or by vote of a majority of the Independent Trustees. The Distribution Agreements and the Plans will continue in effect for successive one-year periods, provided that each such continuance is specifically approved (i) by the vote of a majority of the Independent Trustees and (ii) by the vote of a majority of the entire Board of Trustees cast in person at a meeting called for that purpose or by a vote of a majority of the outstanding securities of a Fund (or the relevant class, in the case of the Plans). With the exception of the Distributor, its direct and indirect parent companies and those Trustees that are not Independent Trustees, no interested person of the Trusts or any trustee of the Trusts had any direct or indirect financial interest in the operation of the Plans or any related agreement. Benefits to the Funds and their shareholders resulting from the Plans are believed to include (1) enhanced shareholder service, (2) asset retention and (3) enhanced portfolio management opportunities and bargaining position with third party service providers and economies of scale arising from having asset levels higher than they would be if the plans were not in place. The Distributor controls the words "CDC Nvest" in the names of the Trusts and if it should cease to be the principal distributor of the Funds' shares, the Trusts may be required to change their names and delete these words or letters. The Distributor also acts as principal distributor for CDC Nvest Cash Management Trust, Loomis Sayles Funds I and certain Funds in Loomis Sayles Funds II. The address of the Distributor is 399 Boylston Street, Boston, Massachusetts, 02116. The portion of the various fees and expenses for Classes A, B and, with respect to certain Funds, C shares that are paid (reallowed) to securities dealers are shown below. All Income Funds (except Limited Term Government and Agency Fund)+ For Class A shares of the Income Funds, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. The portion of the various fees and expenses for Class A shares of the Income Funds that are paid to securities dealers are shown below: 40
- ---------------------------------------------------------------------------------------------------------------------- Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------------------------------------------------------------------------------------------------------------------- Less than $100,000 4.50% 4.00% 0.25% 4.25% - ---------------------------------------------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.00% 0.25% 3.25% - ---------------------------------------------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.15% 0.25% 2.40% - ---------------------------------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 1.70% 0.25% 1.95% - ---------------------------------------------------------------------------------------------------------------------- Investments of $1 million or more - ---------------------------------------------------------------------------------------------------------------------- First $3 million none 1.00%(1) 0.25% 1.25% - ---------------------------------------------------------------------------------------------------------------------- Excess over $3 million none 0.50%(1) 0.25% 0.75% - ---------------------------------------------------------------------------------------------------------------------- Investments with no Sales Charge(2) none 0.00% 0.25% 0.25% - ----------------------------------------------------------------------------------------------------------------------
Limited Term Government and Agency Fund
- ---------------------------------------------------------------------------------------------------------------------- Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------------------------------------------------------------------------------------------------------------------- Less than $100,000 3.00% 2.70% 0.25% 2.95% - ---------------------------------------------------------------------------------------------------------------------- $100,000 - $249,999 2.50% 2.15% 0.25% 2.40% - ---------------------------------------------------------------------------------------------------------------------- $250,000 - $499,999 2.00% 1.70% 0.25% 1.95% - ---------------------------------------------------------------------------------------------------------------------- $500,000 - $999,999 1.25% 1.00% 0.25% 1.25% - ---------------------------------------------------------------------------------------------------------------------- Investments of $1 million or more - ---------------------------------------------------------------------------------------------------------------------- First $3 million none 1.00%(1) 0.25% 1.25% - ---------------------------------------------------------------------------------------------------------------------- Excess over $3 million none 0.50%(1) 0.25% 0.75% - ---------------------------------------------------------------------------------------------------------------------- Investments with no Sales Charge(2) none 0.00% 0.25% 0.25% - ----------------------------------------------------------------------------------------------------------------------
+ Prior to September 12, 2003, Investment Grade Bond Fund offered Institutional, Retail and Admin Classes of shares. On May 21,2003, Admin Class shares were merged into Retail Class shares; and on September 12, 2003, Retail Class shares were converted to Class A shares of the Funds. On September 12, 2003, Institutional Class shares were converted to Class Y shares of the Funds. (1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Classes A, B and C shares of the Income Funds under the section entitled "Howe Sales Charges Are Calculated." Also refers to any Class C share accounts established prior to December 1, 2000. For investments by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Code with investments of $1 million or more that have 100 or more eligible employees), the Distributor may pay a 0.50% commission for investments in excess of $3 million and up to $10 million. Those Plans with investments of over $10 million are eligible to purchase Class Y shares of those Funds offering Class Y shares, which are described in a separate prospectus. The Class B and Class C service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B and Class C shares of the Income Funds that are paid to securities dealers are shown below: High Income, Strategic Income, Core Plus Bond, Investment Grade Bond Fund and Government Securities Funds (Class B only for Government Securities Fund)
- ----------------------------------------------------------------------------------------------------------------------- Maximum Front-End Sales Maximum Maximum Maximum Charge Paid by Reallowance or First Year First Year Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ----------------------------------------------------------------------------------------------------------------------- All amounts for Class B none 3.75% 0.25% 4.00% - ----------------------------------------------------------------------------------------------------------------------- All amounts for Class C none 1.00% 0.00% 1.00% - -----------------------------------------------------------------------------------------------------------------------
41 Limited Term Government and Agency Fund
- ----------------------------------------------------------------------------------------------------------------------- Maximum Front-End Sales Maximum Maximum Maximum Charge Paid by Reallowance or First Year First Year Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ----------------------------------------------------------------------------------------------------------------------- All amounts for Class B none 2.75% 0.25% 3.00% - ----------------------------------------------------------------------------------------------------------------------- All amounts for Class C none 1.00% 0.00% 1.00% - -----------------------------------------------------------------------------------------------------------------------
Municipal Income Fund For Class A shares of the Municipal Income Fund, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. The portion of the various fees and expenses for Class A shares of the Municipal Income Fund that are paid to securities dealers are shown below: Municipal Income Fund
- ---------------------------------------------------------------------------------------------------------------------- Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------------------------------------------------------------------------------------------------------------------- Less than $100,000 4.50% 4.00% 0.25% 4.25% - ---------------------------------------------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.00% 0.25% 3.25% - ---------------------------------------------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.15% 0.25% 2.40% - ---------------------------------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 1.70% 0.25% 1.95% - ---------------------------------------------------------------------------------------------------------------------- Investments of $1 million or more - ---------------------------------------------------------------------------------------------------------------------- First $3 million none 1.00%(1) 0.25% 1.25% - ---------------------------------------------------------------------------------------------------------------------- Excess over $3 million none 0.50%(1) 0.25% 0.75% - ---------------------------------------------------------------------------------------------------------------------- Investments with no Sales Charge(2) none 0.00% 0.25% 0.25% - ----------------------------------------------------------------------------------------------------------------------
(1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Class A, B and C shares of the Income Funds under the section entitled "How Sales Charges Are Calculated." For investments by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Code with investments of $1 million or more that have 100 or more eligible employees), the Distributor may pay a 0.50% commission for investments in excess of $3 million and up to $10 million. Those Plans with investments of over $10 million are eligible to purchase Class Y shares of those Funds offering Class Y shares, which are described in a separate prospectus. The Class B shares service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B shares of the Municipal Income Fund that are paid to securities dealers are shown below: Municipal Income Fund
- ----------------------------------------------------------------------------------------------------------------------- Maximum Front-End Sales Maximum Maximum Maximum Charge Paid by Reallowance or First Year First Year Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ----------------------------------------------------------------------------------------------------------------------- All amounts for Class B none 3.75% 0.25% 4.00%
Massachusetts Fund For Class A shares of the Massachusetts Fund, the service fee is payable only to reimburse the Distributor 42 for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. The portion of the various fees and expenses for Class A shares of the Massachusetts Fund that are paid to securities dealers are shown below:
- ---------------------------------------------------------------------------------------------------------------------- Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------------------------------------------------------------------------------------------------------------------- Less than $50,000 4.25% 3.75% 0.25% 4.00% Less than $100,000 4.00% 3.50% 0.25% 3.75% - ---------------------------------------------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.00% 0.25% 3.25% - ---------------------------------------------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.15% 0.25% 2.40% - ---------------------------------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 1.70% 0.25% 1.95% - ---------------------------------------------------------------------------------------------------------------------- Investments of $1 million or more - ---------------------------------------------------------------------------------------------------------------------- First $3 million none 1.00%(1) 0.25% 1.25% - ---------------------------------------------------------------------------------------------------------------------- Excess over $3 million none 0.50%(1) 0.25% 0.75% - ---------------------------------------------------------------------------------------------------------------------- Investments with no Sales Charge(2) none 0.00% 0.25% 0.25% - ----------------------------------------------------------------------------------------------------------------------
(1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for the Massachusetts Fund under the section entitled "How Sales Charges Are Calculated." The Class B shares service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B shares of the Massachusetts Fund that are paid to securities dealers are shown below:
- ------------------------------------------------------------------------------------------------ Maximum Maximum Maximum Reallowance First Year First Year or Commission Service Fee Compensation Investment (% of offering price) (% of net investment) (% of offering period) - ------------------------------------------------------------------------------------------------ All amounts for Class B 3.75% 0.25% 4.00% - ------------------------------------------------------------------------------------------------
Equity Funds+ For Class A shares of the Research Fund, Hansberger Foreign Growth Fund and Growth Fund, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. The portion of the various fees and expenses for Class A shares of the Loomis Sayles Funds that are paid to securities dealers are shown below:
- ---------------------------------------------------------------------------------------------------------------------- Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------------------------------------------------------------------------------------------------------------------- Less than $50,000 5.75% 5.00% 0.25% 5.25% - ---------------------------------------------------------------------------------------------------------------------- 50,000 $99,999 4.50% 4.00% 0.25% 4.25% - ---------------------------------------------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.00% 0.25% 3.25% - ---------------------------------------------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.15% 0.25% 2.40% - ---------------------------------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 1.70% 0.25% 1.95% - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Investments of $1 million or more - ---------------------------------------------------------------------------------------------------------------------- First $3 million None 1.00%(1) 0.25% 1.25% - ---------------------------------------------------------------------------------------------------------------------- Excess over $3 million None 0.50%(1) 0.25% 0.75% - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Investments with no Sales Charge(2) None 0.00% 0.25% 0.25% - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
+ Prior to September 12, 2003, the Growth Fund, Hansberger Foreign Growth Fund and Research Fund offered Institutional, Retail and Admin Classes of shares. On May 21, 2003, Admin Class shares were merged into Retail Class shares; and on September 12, 2003, Retail Class shares 43 were converted to Class A shares of the Funds. On September 12, 2003, Institutional Class shares were converted to Class Y shares of the Funds. (1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Classes A, B and C shares of the Loomis Sayles Funds under the section entitled "How Sales Charges Are Calculated." The Class B and Class C service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B and Class C shares of the Loomis Sayles Funds that are paid to securities dealers are shown below:
- ----------------------------------------------------------------------------------------------------------------------- Maximum Front-End Sales Maximum Maximum Maximum Charge Paid by Reallowance or First Year First Year Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ----------------------------------------------------------------------------------------------------------------------- All amounts for Class B none 3.75% 0.25% 4.00% - ----------------------------------------------------------------------------------------------------------------------- All amounts for Class C none 1.00% 0.00% 1.00% - -----------------------------------------------------------------------------------------------------------------------
(1) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Classes A, B and C shares of the Loomis Sayles Growth Fund, Hansberger Foreign Growth Fund and Loomis Sayles Research Fund under the section entitled "How Sales Charges Are Calculated." All Funds Each transaction receives the net asset value next determined after an order is received on sales of each class of shares. The sales charge is allocated between the investment dealer and the Distributor. The Distributor receives the Contingent Deferred Sales Charge (the "CDSC"). Proceeds from the CDSC on Class A and C shares are paid to the Distributor and are used by the Distributor to defray the expenses for services the Distributor provides the Trusts. Proceeds from the CDSC on Class B shares are paid to the Distributor and are remitted to SG Constellation LLC. to compensate SG Constellation LLC for financing the sale of Class B shares pursuant to certain Class B financing and servicing agreements between the Distributor and SG Constellation LLC. The Distributor may, at its discretion, pay (reallow) the entire sales charge imposed on the sale of Class A shares to investment dealers from time to time. For Funds subject to a redemption fee, such fees are paid to the Fund. For new amounts invested at net asset value by an eligible governmental authority, the Distributor may, at its expense, pay investment dealers a commission of 0.025% of the average daily net assets of an account at the end of each calendar quarter for up to one year. These commissions are not payable if the purchase represents the reinvestment of redemption proceeds from any other CDC Nvest Fund or if the account is registered in street name. The Distributor, the advisers, the subadviser and their affiliates may out of their own resources make additional payments to dealers who sell shares of the Funds. These payments may include: (i) full reallowance of the sales charge of Class A shares, (ii) additional compensation with respect to the sale and/or servicing of Class A, B and C shares, (iii) payments based upon factors such as the length of time the assets of a dealer's clients have been invested in the Funds and the levels of those clients' assets and (iv) financial assistance programs to firms who sell or arrange for the sale of Fund shares including, but not limited to, remuneration for: the firm's internal sales contests and incentive programs, marketing and sales fees, expenses related to advertising or promotional activity and events, and shareholder record keeping or miscellaneous administrative services. Payment for travel, lodging and related expenses may be provided for attendance at Fund seminars and conferences, e.g., due diligence meetings held for training and educational purposes. The payment of these concessions and any other compensation offered will conform with state and federal laws and the rules of any self-regulatory organization, such as the National Association of Securities Dealers, Inc ("NASD"). The participation of such firms in financial assistance programs is at the discretion of the firm. These payments described in this paragraph may be significant to the dealers receiving the payments and the entities paying them. Dealers may charge their customers a processing fee or service fee in connection with the purchase or redemption of fund shares. The amount and applicability of such a fee is determined and disclosed to its customers by its individual dealer. Processing or service fees typically are fixed, nominal dollar amounts and are in addition to the sales and other charges described in the Funds' Prospectuses and this Statement. Customers will be provided with specific information about any processing or service fees charged by their dealer. 44 The commissions and sales charges for the last three fiscal years were allocated as follows: CDC NVEST TRUST I
12/31/02 09/30/03/1/ 09/30/04 -------- ----------- -------- Total commissions on sales of Class A shares Amount reallowed to other securities dealers Amount retained by Distributor Total CDSCs on redemptions of Classes A, B and C shares Amount paid to FEP Capital, L.P. Amount retained by Distributor*
* See "Other Arrangements" for information about amounts received by the Distributor from CDC Nvest Funds Trust I's investment advisers or the Funds directly for providing certain administrative services relating to CDC Nvest Funds Trust I. /1/ The Funds' fiscal year ends on September 30. For certain Funds, this reflects a change, effective September 12, 2003, from a prior fiscal year-end of December 31. The results shown are therefore calculated for the period from January 1, 2003 through September 30, 2004. CDC NVEST TRUST II
12/31/02 9/30/03/1/ 9/30/04 -------- ---------- ------- Total commissions on sales of Class A shares Amount reallowed to other securities dealers Amount retained by Distributor Total CDSCs on redemptions of Classes A, B and C shares Amount paid to FEP Capital, L.P. Amount retained by Distributor*
* See "Other Arrangements" for information about amounts received by the Distributor from CDC Nvest Funds Trust II's investment advisers or the Funds directly for providing certain administrative services relating to CDC Nvest Funds Trust II. /1/ The Funds' fiscal year ends on September 30. For certain Funds, this reflects a change, effective September 12, 2003, from a prior fiscal year-end of December 31. The results shown are therefore calculated for the period from January 1, 2003 through September 30, 2004. LOOMIS SAYLES FUNDS II*
12/31/02 9/30/03/1/ 9/30/04 -------- ---------- ------- Total commissions on sales of Class A shares Amount reallowed to other securities dealers Amount retained by Distributor Total CDSCs on redemptions of Classes A, B and C shares Amount paid to FEP Capital, L.P. Amount retained by Distributor*
* Prior to July 1, 2003 Loomis Sayles Distributors, L.P. served as the distributor to Loomis Sayles Funds II. From July 1, 2003 through September 30, 2004, IXIS Asset Management Distributors, L.P. served as the distributor to Loomis Sayles Funds II. Custodial Arrangements. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, Massachusetts 02116, serves as the custodian for Funds within the CDC Nvest Funds Trusts and for the High Income Fund, Strategic Income Fund, Limited Term Government and Agency Fund and Municipal Income Fund. As such, IBT holds in safekeeping certificated securities and cash belonging to each Fund and, in such capacity, is the registered owner of securities in book-entry form belonging to each Fund. Upon instruction, IBT receives and delivers cash and securities of each Fund in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. IBT also maintains certain accounts and records of the Trusts and calculates the total net asset value, total net income and net asset value per share of each Fund on a daily basis. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts 02102, is the custodian for Funds within the Loomis Sayles Funds Trusts (other than the High Income Fund, Strategic Income Fund, Limited Term Government and Agency Fund and Municipal Income Fund). As such, State Street Bank holds in 45 safekeeping certificated securities and cash belonging to the Funds and, in such capacity, is the registered owner of securities held in book entry form belonging to the Funds. Upon instruction, State Street Bank receives and delivers cash and securities of the Funds in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. State Street Bank also maintains certain accounts and records of the Funds and calculates the total net asset value, total net income, and net asset value per share of each Fund on a daily basis. Independent Registered Public Accounting Firm. The Trusts' independent registered public accounting firm is PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110. The independent registered public accounting firm conducts an annual audit of each Fund's financial statements, assists in the review of federal and state income tax returns and consult with the Trusts as to matters of accounting and federal and state income taxation. The financial highlights in the Prospectuses for the Funds, and the financial statements contained in those Funds' Annual Reports for the year ended September 30, 2004 and incorporated by reference into this statement, have been so included in reliance on the reports of the Trusts' independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. Counsel to the Funds. Ropes & Gray LLP, located at One International Place, Boston, MA 02110, serves as counsel to the Funds. Other Arrangements Transfer Agency Services Pursuant to a contract between the CDC Nvest Funds Trusts and IXIS Services, IXIS Services, whose principal business address is 399 Boylston Street, Boston, Massachusetts, 02116, acts as shareholder servicing and transfer agent for the Funds and is responsible for services in connection with the establishment, maintenance and recording of shareholder accounts, including all related tax and other reporting requirements and the implementation of investment and redemption arrangements offered in connection with the sale of the Funds' shares. For these services, IXIS Services received the following fees from the Funds for the periods ended September 30, 2003 and the fiscal year ended September 30, 2004: Fiscal Year Ended Fund 1/01/03 - 9/30/03/1/ 9/30/04 - ---- -------------------- ----------------- Core Plus Bond Government Securities High Income Limited Term Government and Agency Massachusetts Municipal Income Strategic Income Fiscal Year Ended 2/03/03 - 9/30/03/2/ 9/30/04 -------------------- ----------------- Growth Hansberger Foreign Growth Investment Grade Bond Research /1/ The Funds' fiscal year ends on September 30. For certain Funds, this reflects a change, effective September 12, 2003, from a prior fiscal year-end of December 31. The results shown are therefore calculated for the period from January 1, 2003 through September 30, 2003. /2/ IXIS Services became the shareholder servicing and transfer agent for each Fund on February 2, 2003. Prior to February 2, 2003, BFDS, an unaffiliated entity, served as the shareholder servicing and transfer agent. 46 IXIS Services also performs transfer agency services for Loomis Sayles Funds I and Loomis Sayles Funds II. IXIS Services maintains shareholder accounts and prepares and mails shareholder account statements, processes shareholder transactions, mails shareholder reports, prepares and mails distribution payments, and maintains records of Fund transactions. IXIS Services has subcontracted with State Street Bank and Trust Company ("State Street Bank") for it to provide, through its subsidiary, Boston Financial Data Services, Inc. ("BFDS"), transaction processing, mail and other services. For these services, IXIS Services pays BFDS a monthly per account fee. In addition, pursuant to other service agreements, Classes A, B and C shareholders may pay service fees to other firms that provide similar services for their own shareholder accounts. Adminstrative Services In addition, during the fiscal year ended September 30, 2004, IXIS Services performed certain accounting and administrative services for the Funds, pursuant to an Administrative Services Agreement (the "Administrative Agreement"). Under the Administrative Agreement, IXIS Services provided the following services to the Funds: (i) personnel that perform bookkeeping, accounting, internal auditing and financial reporting functions and clerical functions relating to the Funds, (ii) it provides services required in connection with the preparation of registration statements and prospectuses, registration of shares in various states, shareholder reports and notices, proxy solicitation material furnished to shareholders of the Funds or regulatory authorities and reports and questionnaires for SEC compliance, and (iii) the various registrations and filings required by various regulatory authorities. Effective January 1, 2005, IXIS Advisors replaced IXIS Services as the administrator of the Funds. IXIS Advisor now performs all of the above-mentioned services pursuant to a new Administrative Agreement with the Funds. For t the fiscal years ended December 31, 2002, the period January 1, 2003 through September 30, 2003 and the fiscal year ended September 30, 2004 IXIS Services received the following fees from the Funds: Fiscal Year Period Fiscal Year Ended 1/01/03 - Ended Fund 12/31/02 9/30/03/1/ 9/30/04 - ---- ----------- ---------- ----------- Core Plus Bond Government Securities High Income Limited Term Government and Agency Massachusetts Municipal Income Strategic Income /1/ The Funds' fiscal year ends on September 30. For certain Funds, this reflects a change, effective September 12, 2003, from a prior fiscal year-end of December 31. The results shown are therefore calculated for the period from January 1, 2003 through September 30, 2003.
Fiscal Year Period Period Fiscal Year Ended 10/01/02 - 7/01/03 - Ended Fund 9/30/02* 6/30/03* 9/30/03 9/30/04 - ---- ----------- ---------- --------- ----------- Growth Fund Hansberger Foreign Growth Fund Investment Grade Bond Fund Research Fund
* For the fiscal year-ended September 30, 2002 and the period October 1, 2002 through June 30, 2003, the table reflects the fees paid to Loomis 47 Sayles. Prior to July 1, 2003, Loomis Sayles performed certain accounting and administrative services for Growth Fund, Hansberger Foreign Growth Fund, Investment Grade Bond Fund and Research Fund pursuant to an administrative services agreement (the "Administrative Services Agreement") with this Trust dated May 8, 2000. For the period May 8, 2000 through May 8, 2002, Loomis Sayles Funds reimbursed Loomis Sayles for its expenses in performing or arranging for the performance of (i) corporate secretarial services, (ii) registration and disclosure assistance, (iii) legal and compliance services, (iv) transfer agent monitoring, (v) treasury financial services, (vi) treasury regulatory services and (vii) treasury tax services and other treasury services as may arise from time to time. - -------------------------------------------------------------------------------- PORTFOLIO TRANSACTIONS AND BROKERAGE - -------------------------------------------------------------------------------- All Income Funds. In placing orders for the purchase and sale of portfolio securities for each Income Fund, Loomis Sayles always seeks the best price and execution. Some of each Income Fund's portfolio transactions are placed with brokers and dealers that provide Loomis Sayles with supplementary investment and statistical information or furnish market quotations to that Fund, the other Funds or other investment companies advised by Loomis Sayles. The business would not be so placed if the Funds would not thereby obtain the best price and execution. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce the expenses of Loomis Sayles. The services may also be used by Loomis Sayles in connection with their other advisory accounts and in some cases may not be used with respect to the Funds. All Equity Funds. In placing orders for the purchase and sale of equity securities, each Equity Fund's adviser or subadviser selects only brokers that it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates that, when combined with the quality of the foregoing services, will produce the best price and execution for the transaction. This does not necessarily mean that the lowest available brokerage commission will be paid. However, the commissions are believed to be competitive with generally prevailing rates. Each Fund's adviser or subadviser will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Subject to the overriding objective of obtaining the best possible execution of orders, each Fund's adviser and subadviser may allocate brokerage transactions to affiliated brokers. Any such transactions will comply with Rule 17e-1 under the 1940 Act. In order for the affiliated broker to effect portfolio transactions for the Fund, the commissions, fees or other remuneration received by the affiliated broker must be reasonable and fair compared to the commissions, fees and other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period. Furthermore, each Trust's Board of Trustees, including a majority of the Independent Trustees, have adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to an affiliated broker are consistent with the foregoing standard. Funds Advised By Hansberger. Subject to policies established by the Board of Trustees, Hansberger is responsible for decisions to buy and sell securities for its Fund or segment and for the placement of its Fund's or segment's investment business and the negotiation of the commissions to be paid on such transactions. It is the policy of Hansberger to seek the best execution at the best security price available with respect to each transaction, in light of the overall quality of brokerage and research services provided to Hansberger or its Fund or segment. In over-the-counter transactions, orders are placed directly with a principal market maker unless it is believed that better price and execution can be obtained using a broker. In determining the abilities of a broker or dealer to obtain best execution, Hansberger considers relevant factors including, but not limited to: the ability and willingness of the broker or dealer to facilitate its segment of the Fund's or segment's portfolio transactions by participating therein for its own account; speed, efficiency and confidentiality; familiarity with the market for a particular security; and the reputation and perceived soundness of the broker. The best price to its Fund or segment means the best net price without regard to the mix between purchase or sale price and commissions, if any. In selecting broker-dealers and in negotiating commissions, Hansberger considers a variety of factors, including best price and execution, the full range of brokerage services provided by the broker, as well as its capital strength and stability, and the quality of research and research services provided by the broker. 48 Subject to best execution, Hansberger may cause its subadvised Fund or segment to pay a broker greater commissions than another broker might charge for providing the same brokerage and research services. Hansberger believes it is important to its investment decision-making process to have access to independent research. Higher commissions will not be paid by its Fund unless Hansberger determines in good faith that such payment is reasonable in relation to the value of the brokerage or research services provided by such broker or dealer, viewed in terms of that particular transaction or Hansberger's overall responsibilities with respect to the accounts over which it exercises investment discretion. Generally, research services provided by brokers may include information on the economy, industries, groups of securities, individual companies, statistical information, accounting and tax law interpretations, political developments, legal developments affecting portfolio securities, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance analysis, and analysis of corporate responsibility issues. Such research services are primarily in the form of written reports, telephone contacts, and personal meetings with security analysts. In addition, such research services may be provided in the form of access to various computer-generated data, computer hardware and software, and meetings arranged with corporate and industry spokespersons, economists, academicians, and government representatives. In some cases, research services are generated by third parties but are provided to Hansberger by or through brokers. Such brokers may pay for all or a portion of computer hardware and software costs relating to the pricing of securities. Where Hansberger itself receives both administrative benefits and research and brokerage services from the services provided by brokers, it makes a good faith allocation between the administrative benefits and the research and brokerage services, and will pay for any administrative benefits with cash. In making good faith allocations of costs between administrative benefits and research and brokerage services, a conflict of interest may exist by reason of Hansberger's allocation of the costs of such benefits and services between those that primarily benefit Hansberger and those that primarily benefit its Fund and other advisory clients. Twice a year, Hansberger, through a committee of its securities analysts, will consider the amount and nature of research and research services provided by brokers, as well as the extent to which such services are relied upon, and attempt to allocate a portion of the brokerage business of its Fund and other advisory clients on the basis of that consideration. In addition, brokers may suggest a level of business they would like to receive in order to continue to provide such services. The actual brokerage business received by a broker may be more or less than the suggested allocations, depending upon Hansberger's evaluation of all applicable considerations, including but not limited to Hansberger's best execution undertaking. Hansberger may direct the purchase of securities on behalf of its Fund or segment and other advisory clients in secondary market transactions, in public offerings directly from an underwriter, or in privately negotiated transactions with an issuer. When Hansberger believes the circumstances so warrant, securities purchased in public offerings may be resold shortly after acquisition in the immediate aftermarket for the security in order to take advantage of price appreciation from the public offering price or for other reasons. Short-term trading of securities acquired in public offerings, or otherwise, may result in higher portfolio turnover and associated brokerage expenses. Commissions paid in connection with certain non-U.S. stock transactions may be higher than negotiated commissions on U.S. stock transactions. Non-U.S. stock exchanges and brokers may be subject to less government supervision and regulation than U.S. exchanges and brokers. In addition, non-U.S. security settlements may in some instances be subject to delays and related administrative uncertainties. Funds Advised by Loomis Sayles. Generally, Loomis Sayles seeks to obtain quality executions at favorable security prices and at competitive commission rates, where applicable, through brokers and dealers who, in Loomis Sayles' opinion, can provide the best overall net results for its clients. Transactions in unlisted equity securities (including NASDAQ securities) are frequently executed through a primary market maker but may also be executed on an Electronic Communication Network (ECN), Alternative Trading System (ATS), or other execution system. Fixed income securities are generally purchased from the issuer or a primary market maker acting as principal on a net basis with no brokerage commission paid by the client. Such securities, as well as equity securities, may also be purchased from underwriters at prices which include underwriting fees. Commissions and Other Factors in Broker or Dealer Selection 49 Loomis Sayles uses its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and to evaluate the overall reasonableness of brokerage commissions paid on client portfolio transactions by reference to such data. In making this evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker or dealer, are taken into account. Other relevant factors may include, without limitation: (a) the execution capabilities of the brokers and/or dealers, (b) research and other products or services (as described under Soft Dollars below) provided by such brokers and/or dealers which are expected to enhance Loomis Sayles' general portfolio management capabilities, (c) the size of the transaction, (d) the difficulty of execution, (e) the operations facilities of the brokers and/or dealers involved, (f) the risk in positioning a block of securities, and (g) the quality of the overall brokerage and research services provided by the broker and/or dealer. Soft Dollars Loomis Sayles' receipt of brokerage and research products or services may sometimes be a factor in Loomis Sayles' selection of a broker or dealer to execute transactions for a Fund where Loomis Sayles believes that the broker or dealer will provide best execution of the transactions. Such brokerage and research products or services may be paid for with Loomis Sayles' own assets or may, in connection with transactions effected for client accounts for which Loomis Sayles exercises investment discretion, be paid for with client commissions (the latter, sometimes referred to as Soft Dollars). The brokerage and research products and services that may be a factor in Loomis Sayles' selection of a broker or dealer and that may be acquired by Loomis Sayles with Soft Dollars include, without limitation, the following which aid Loomis Sayles in carrying out its investment decision-making responsibilities: a wide variety of reports, charts, publications, subscriptions, quotation services, news services, investment related hardware and software, and data on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, credit analysis, stock and bond market conditions and projections, asset allocation, portfolio structure, economic forecasts, investment strategy advice, fundamental and technical advice on individual securities, valuation advice, market analysis, advice as to the availability of securities or purchasers or sellers of securities, and meetings with management representatives of issuers and other analysts and specialists. The brokerage and research products or services provided to Loomis Sayles by a particular broker or dealer may include both (a) products and services created by such broker or dealer and (b) products and services created by a third party. If Loomis Sayles receives a particular product or service that both aids it in carrying out its investment decision-making responsibilities (i.e., a "research use") and provides non-research related uses, Loomis Sayles will make a good faith determination as to the allocation of the cost of such "mixed-use item" between the research and non-research uses and will only use Soft Dollars to pay for the portion of the cost relating to its research use. In connection with Loomis Sayles' use of Soft Dollars, a Fund may pay a broker or dealer an amount of commission for effecting a transaction for the Fund in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if Loomis Sayles determines in good faith that the amount of commission is reasonable in relation to the value of the brokerage and research products or services provided by the broker or dealer, viewed in terms of either the particular transaction or Loomis Sayles' overall responsibilities with respect to the Fund. Loomis Sayles may use Soft Dollars to acquire brokerage or research products and services that have potential application to all client accounts including the Funds or to acquire brokerage or research products and services that will be applied in the management of a certain group of client accounts and, in some cases, may not be used with respect to the Funds. The products or services may not be used in connection with the management of some of the accounts including the Funds that paid commissions to the broker or dealer providing the products or services and may be used in connection with the management of other accounts. Loomis Sayles' use of Soft Dollars to acquire brokerage and research products and services benefits Loomis Sayles by allowing it to obtain such products and services without having to purchase them with its own assets. Loomis Sayles believes that its use of Soft Dollars also benefits the Funds as described above. However, conflicts may arise between a Fund's interest in paying the lowest commission rates available and Loomis Sayles' interest in receiving brokerage and research products and services from particular brokers and dealers without having to purchase such products and services with Loomis Sayles' own assets. Loomis Sayles seeks to ensure that its Soft 50 Dollar practices fall within the "safe harbor" provided by Section 28(e) of the Securities Exchange Act of 1934, as amended. For purposes of this Soft Dollars discussion, the term "commission" may include (to the extent applicable) both commissions paid to brokers in connection with transactions effected on an agency basis and markups, markdowns, commission equivalents, or other fees paid to dealers in connection with certain transactions as encompassed by relevant SEC interpretation. General Subject to procedures adopted by the Board of Trustees of each Trust, the Funds' brokerage transactions may be executed by brokers that are affiliated with IXIS Asset Management North America or the Funds' adviser. Any such transactions will comply with Rule 17e-1 under the 1940 Act, except to the extent permitted by the SEC pursuant to exemptive relief or otherwise. Under the 1940 Act, persons affiliated with each Trust are prohibited from dealing with each Trust's Funds as a principal in the purchase and sale of securities. Since transactions in the over-the-counter market usually involve transactions with dealers acting as principals for their own accounts, affiliated persons of the Trusts may not serve as the Funds' dealer in connection with such transactions. To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, an adviser adviser may allocate brokerage transactions to broker-dealers (including affiliates of the Distributor) that have entered into arrangements in which the broker-dealer allocates a portion of the commissions paid by a Fund toward the reduction of that Fund's expenses. It is expected that the portfolio transactions in fixed-income securities will generally be with issuers or dealers on a net basis without a stated commission. Securities firms may receive brokerage commissions on transactions involving options, futures and options on futures and the purchase and sale of underlying securities upon exercise of options. The brokerage commissions associated with buying and selling options may be proportionately higher than those associated with general securities transactions. - -------------------------------------------------------------------------------- DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES - -------------------------------------------------------------------------------- CDC Nvest Funds Trust I is registered with the SEC as an open-end management investment company and is organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust (a "Declaration of Trust") dated June 7, 1985, as amended, and is a "series" company as described in Section 18(f)(2) of the 1940 Act. Each series of the Trust diversified. The name of the Trust has changed several times since its organization - from the date of its organization to September 1986, the name of the Trust was "The New England Life Government Securities Trust"; from September 1986 to March 1994, its name was "The New England Funds"; from April 1994 to January 2000, its name was "New England Funds Trust I"; from January 2000 until April 2001 the name of the Trust was "Nvest Funds Trust I"; and since May 2001 the name of the Trust has been "CDC Nvest Funds Trust I." The Trust has 11 separate portfolios. Municipal Income Fund is the successor of NEL Tax Exempt Bond Funds, Inc. which commenced operations in 1977. Prior to January 5, 1996, the Municipal Income Fund was "New England Tax Exempt Income Fund"; and prior to September 15, 2003, the name of the Fund was "CDC Nvest Municipal Income Fund." The initial Fund of the Trust (now the Loomis Sayles Government Securities Fund) commenced operations on September 16, 1985. Strategic Income Fund was organized in 1995 and commenced operations on May 1, 1995, and was reorganized as a series of Loomis Sayles Funds II on September 12, 2003. CDC Nvest Funds Trust II is registered with the SEC as an open-end management investment company and is organized as a Massachusetts business trust under the laws of Massachusetts pursuant to a Declaration of Trust dated May 6, 1931, as amended, and consisted of a single Fund until January 1989, when the Trust was reorganized as a "series" company as described in Section 18(f)(2) of the 1940 Act. Each series of the Trust diversified. The name of the Trust has changed several times since its organization. From its date of organization until December 1988, its name was "Investment Trust of Boston"; from December 1988 until April 1992, its name was "Investment Trust of Boston Funds"; from April 1992 until March 1994, its name was "TNE Funds Trust"; from April 1994 to January 2000, its name was "New England 51 Funds Trust II"; from January 2000 to April 2001 the name of the Trust was "Nvest Funds Trust II"; and since May 2001 the name of the Trust has been "CDC Nvest Funds Trust II." The Trust has two separate portfolios. Massachusetts Fund is a successor to an investment company that was organized in 1984 and reorganized as series of the Trust in January 1989. Loomis Sayles Funds II, registered with the SEC as an open-end management investment company, is organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust (the "Declaration of Trust") dated February 20, 1991. Each series of the Trust is diversified. The Trust has 14 portfolios. On September 12, 2003, the following Funds were reorganized from the CDC Nvest Funds Trusts into series of Loomis Sayles Funds II: Loomis Sayles High Income Fund (formerly, the "CDC Nvest High Income Fund"); Loomis Sayles Limited Term U.S. Government Fund (formerly, the "CDC Nvest Limited Term U.S. Government Fund"); Loomis Sayles Strategic Income Fund (formerly, the "CDC Nvest Strategic Income Fund"; and Loomis Sayles Municipal Income Fund (formerly, the "CDC Nvest Municipal Income Fund"). Loomis Sayles Limited Term U.S. Government Fund changed its name to Loomis Sayles Limited Term Government and Agency Fund in February 2004. On September 12, 2003, the following the Loomis Sayles Funds converted to the multi-class structure offered by the CDC Nvest Funds Trusts: Loomis Sayles Growth Fund; Loomis Sayles Research Fund; Hansberger Foreign Growth Fund; and Loomis Sayles Investment Grade Bond Fund. Loomis Sayles International Equity Fund changed its name to CDC IXIS International Equity Fund in August 2004 and then to Hansberger Foreign Growth Fund effective February 2005. The Declarations of Trust of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II and Loomis Sayles Funds II permit each Trust's trustees to issue an unlimited number of full and fractional shares of each series. Each Fund is represented by a particular series of shares. The Declarations of Trust further permit each Trust's Board of Trustees to divide the shares of each series into any number of separate classes, each having such rights and preferences relative to other classes of the same series as each Trust's Board of Trustees may determine. When you invest in a Fund, you acquire freely transferable shares of beneficial interest that entitle you to receive dividends as determined by the respective Trust's Board of Trustees and to cast a vote for each share you own at shareholder meetings. The shares of each Fund do not have any preemptive rights. Upon termination of any Fund, whether pursuant to liquidation of the Trust or otherwise, shareholders of each class of the Fund are entitled to share pro rata in the net assets attributable to that class of shares of the Fund available for distribution to shareholders. The Declarations of Trust also permit the Board of Trustees to charge shareholders directly for custodial, transfer agency and servicing expenses. The shares of all the Funds (except as noted in this Statement and in each of the Fund's Prospectuses) are divided into four classes: Class A, Class B, Class C and Class Y. Each Fund offers such classes of shares as set forth in such Fund's Prospectuses. As disclosed in the prospectus, not every Fund offers each class of shares. Class Y shares are available for purchase only by certain eligible investors and have higher minimum purchase requirements than Classes A, B and C. All expenses of each Fund (including advisory and subadvisory fees but excluding transfer agency fees and expenses of printing and mailing Prospectuses to shareholders ("Other Expenses")) are borne by its Classes A, B, C and Y shares on a pro rata basis, except for 12b-1 fees, which are borne only by Classes A, B and C and may be charged at a separate rate to each such class. Other Expenses of Classes A, B and C are borne by such classes on a pro rata basis, but Other Expenses relating to the Class Y shares may be allocated separately to the Class Y shares. The multiple class structure could be terminated should certain IRS rulings or SEC regulatory positions be rescinded or modified. The assets received by each class of a Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds therefrom, subject only to the rights of the creditors, are allocated to, and constitute the underlying assets of, that class of a Fund. The underlying assets of each class of a Fund are segregated and are charged with the expenses with respect to that class of a Fund and with a share of the general expenses of the relevant trust. Any general expenses of the Trust that are not readily identifiable as belonging to a particular class of a Fund are allocated by or under the direction of the trustees in such manner as the trustees determine to be fair and equitable. While the expenses of each Trust are allocated to the separate books of account of each Fund, certain expenses may be legally chargeable against the assets of all of the Funds in a Trust. The Declarations of Trust also permit each Trust's Board of Trustees, without shareholder approval, to subdivide any Fund or series or class of shares into various sub-series or sub-classes with such dividend preferences and other rights as the trustees may designate. While each Trust's Board of Trustees has no current intention to exercise this power, it is intended to allow them to provide for an equitable allocation of the impact of any future 52 regulatory requirements that might affect various classes of shareholders differently. Each Trust's Board of Trustees may also, without shareholder approval, establish one or more additional series or classes or merge two or more existing series or classes. The Declarations of Trust provide for the perpetual existence of the Trusts. Any Trust or any Fund, however, may be terminated at any time by vote of at least two-thirds of the outstanding shares of each Fund affected. Similarly, any class within a Fund may be terminated by vote of at least two-thirds of the outstanding shares of such class. Each Declaration of Trust further provides that the Board of Trustees may also without shareholder approval terminate the relevant Trust or Fund upon written notice to its shareholders. Voting Rights Shareholders of all Funds are entitled to one vote for each full share held (with fractional votes for each fractional share held) and may vote (to the extent provided therein) in the election of trustees and the termination of the Trust and on other matters submitted to the vote of shareholders. All classes of shares of the Funds have identical voting rights except that each class of shares has exclusive voting rights on any matter submitted to shareholders that relates solely to that class, and has separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. Each class of shares has exclusive voting rights with respect to matters pertaining to any distribution or servicing plan or agreement applicable to that class. Matters submitted to shareholder vote will be approved by each series separately except (i) when required by the 1940 Act shares shall be voted together and (ii) when the matter does not affect all series, then only shareholders of the series affected shall be entitled to vote on the matter. Consistent with the current position of the SEC, shareholders of all series and classes vote together, irrespective of series or class, on the election of trustees and the selection of the Trust's independent accountants, but shareholders of each series vote separately on most other matters requiring shareholder approval, such as certain changes in investment policies of that series or the approval of the investment advisory and subadvisory agreement relating to that series, and shareholders of each class within a series vote separately as to the Rule 12b-1 plan (if any) relating to that class. There will normally be no meetings of shareholders for the purpose of electing trustees except that, in accordance with the 1940 Act, (i) a Trust will hold a shareholders' meeting for the election of trustees at such time as less than a majority of the trustees holding office have been elected by shareholders, and (ii) if there is a vacancy on the Board of Trustees, such vacancy may be filled only by a vote of the shareholders unless, after filing such vacancy by other means, at least two-thirds of the trustees holding office shall have been elected by the shareholders. In addition, trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding shares and filed with a Trust's custodian or by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for that purpose, which meeting shall be held upon the written request of the holders of not less than 10% of the outstanding shares. Upon written request by the holders of shares having a net asset value of at least $25,000 (with respect to all Trusts except Loomis Sayles Funds I and Loomis Sayles Funds II) or at least 1% of the outstanding shares stating that such shareholders wish to communicate with the other shareholders for the purpose of obtaining the signatures necessary to demand a meeting to consider removal of a trustee, the Trusts have undertaken to provide a list of shareholders or to disseminate appropriate materials (at the expense of the requesting shareholders). Except as set forth above, the trustees shall continue to hold office and may appoint successor trustees. Shareholder voting rights are not cumulative. No amendment may be made to a Declaration of Trust without the affirmative vote of a majority of the outstanding shares of the relevant Trust except (i) to change the Trust's or a Fund's name or to make changes of a technical nature in the Declaration of Trust, (ii) to establish and designate new series or classes of Trust shares and (iii) to establish, designate or modify new and existing series or classes of Trust shares or other provisions relating to Trust shares in response to applicable laws or regulations. If one or more new series of a Trust is established and designated by the trustees, the shareholders having beneficial interests in the Funds described in this Statement shall not be entitled to vote on matters exclusively affecting such new series, such matters including, without limitation, the adoption of or any change in the investment objectives, policies or restrictions of the new series and the approval of the investment advisory contracts of the new series. Similarly, the shareholders of the new series shall not be 53 entitled to vote on any such matters as they affect the other Funds. Shareholder and Trustee Liability Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of a Trust. However, the Declarations of Trust disclaim shareholder liability for acts or obligations of a Trust and require that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by a Trust or the trustees. The Declarations of Trust provide for indemnification out of each Fund's property for all loss and expense of any shareholder held personally liable for the obligations of the Fund by reason of owning shares of such Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and a Fund itself would be unable to meet its obligations. The Declarations of Trust further provide that the relevant Board of Trustees will not be liable for errors of judgment or mistakes of fact or law. However, nothing in the Declarations of Trust protects a trustee against any liability to which the trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The By-Laws of each Trust provide for indemnification by the Trust of trustees and officers of the relevant Trust, except with respect to any matter as to which any such person did not act in good faith in the reasonable belief that his or her action was in or not opposed to the best interests of the Trust. Such persons may not be indemnified against any liability to the Trust or the Trust's shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Each Trust offers only its own Funds' shares for sale, but it is possible that a Trust might become liable for any misstatements in a Prospectus that relate to another Trust. The trustees of each Trust have considered this possible liability and approved the use of the combined Prospectus for Funds of the Trusts. Code of Ethics The Funds, their advisers, and the Distributor have adopted Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act. The Codes of Ethics permits employees to invest in securities for their own accounts, under certain circumstances, including securities that may be purchased or held by the Funds. The Codes of Ethics are on public file with, and are available from, the SEC. Proxy Voting Policies The Board of Trustees of the Funds has adopted the Proxy Voting Policy and Guidelines (the "Guidelines") for the voting of proxies for securities held by any Funds. Under the Guidelines, the responsibility for voting proxies generally is delegated to a Funds' investment adviser. Under the Guidelines, decisions regarding the voting of proxies are to be made solely in the interest of the Fund and its shareholders. The adviser shall exercise its fiduciary responsibilities to vote proxies with respect to the Fund's investments that are managed by that adviser in a prudent manner in accordance with the Guidelines and the proxy voting policies of the adviser. Proposals that, in the opinion of the adviser, are in the best interests of shareholders are generally voted "for" and proposals that, in the judgment of the adviser, are not in the best interests of shareholders are generally voted "against". The adviser is responsible for maintaining certain records and reporting to the Audit Committee of the Trusts in connection with the voting of proxies. The Adviser shall make available to the Fund, the Fund's administrator, the records and information maintained by the adviser under the Guidelines. Loomis Sayles Loomis Sayles utilizes the services of a third party proxy voting service provider ("Proxy Service Provider") in researching and voting proxies for funds for which Loomis Sayles has voting authority. The Proxy Service Provider has a copy of Loomis Sayles' proxy voting policy and provides vote recommendations to Loomis Sayles based on the firm's policy and the Proxy Service Provider's own research. All issues presented for shareholder vote will be considered by Loomis Sayles' proxy committee (the "Proxy Committee") and, when necessary, the equity analyst following the company. Loomis Sayles will generally follow the Proxy Service Provider's recommendation, unless it deviates from Loomis Sayles' express policy or the Proxy Committee determines that the Fund's best interests are served by voting otherwise. 54 In addition to reviewing the Proxy Service Provider's recommendations and directing Proxy Service Provider how to vote, the Proxy Committee also: (1) reviews and updates the firm's policies and procedures; (2) consults with portfolio managers and analysts; and (3) meets at least annually to discuss any issues that relate to proxy policies and voting. Loomis Sayles believes that by following the process discussed above, proxies will be voted in the Fund's best interest and that the decision on how to vote will not be affected by any conflicts of interest. If Loomis Sayles' proxy voting policy allows for discretion on a particular proposal and the Proxy Committee determines that the Proxy Service Provider's recommendation is not in the best interests of the relevant Fund(s), then the Proxy Committee may use its discretion to vote contrary to the Proxy Service Provider's recommendation, but only after conducting a review to determine if any material conflict of interest exists. In situations in which the Proxy Committee believes that a material conflict exists, the Proxy Committee will exclude anyone at Loomis Sayles (including members of the Proxy Committee) who is subject to that conflict of interest from participating in the voting decision in any way, including providing information, opinions or recommendations to the Proxy Committee. Hansberger Hansberger utilizes the services of a third party proxy service provider ("Proxy Service Provider") to assist in voting proxies. The Proxy Service Provider is a premier proxy research, advisory, voting and vote-reporting service that specializes in global proxy voting. The Proxy Service Provider's primary function with respect to Hansberger is to apprise Hansberger of shareholder meeting dates of all securities holdings, translate proxy materials received from companies, provide associated research and provide considerations and recommendations for voting on particular proxy proposals. Although Hansberger may consider the Proxy Service Provider's and others' recommendations on proxy issues, Hansberger bears ultimate responsibility for proxy voting decisions. Hansberger takes reasonable steps under the circumstances to ensure that proxies are received and voted in the best interest of its clients, which generally means voting proxies with a view to enhancing the value of the shares of stock held in client accounts. The financial interest of the clients is the primary consideration in determining how proxies should be voted. In the case of social and political responsibility issues that in Hansberger's view do not primarily involve financial considerations, it is not possible to represent fairly the diverse views of our clients and, thus, unless a client has provided other instructions, Hansberger generally votes in accordance with the recommendations of Proxy Service Provider on these issues, although, on occasion Hansberger abstains from voting on these issues. When making proxy-voting decisions, Hansberger generally adheres to its Proxy Voting Guidelines (the "Guidelines"), as revised from time to time. The Guidelines, which have been developed with reference to the positions of the Proxy Service Provider, set forth Hansberger's positions on recurring issues and criteria for addressing non-recurring issues and incorporates many of the Proxy Service Provider's standard operating policies. From time to time, proxy voting proposals may raise conflicts between the interests of Hansberger's clients and the interests of Hansberger and its employees. Hansberger takes certain steps designed to ensure a decision to vote the proxies that was based on the clients' best interest and was not the product of the conflict. Hansberger's Proxy Voting Committee is primarily responsible for monitoring and resolving possible material conflicts with respect to proxy voting. Any portfolio manager or research analyst with knowledge of a personal conflict of interest relating to a particular matter is required to disclose that conflict to the Chief Compliance Officer and may be required to recuse him or herself from the proxy voting process. Issues raising possible conflicts of interest are referred to the Proxy Voting Committee for resolution. Application of the Guidelines or voting in accordance with the Proxy Service Provider's vote recommendation should, in most cases, adequately address any possible conflicts of interest. Information regarding how the Funds voted proxies related to their prospective portfolio securities during the 12-month period ended June 30, 2004 is available (i) through the Funds' website at www.cdcnvestfunds.com and (ii) on the SEC's website at www.sec.gov. 55 - -------------------------------------------------------------------------------- PORTFOLIO TURNOVER - -------------------------------------------------------------------------------- A Fund's portfolio turnover rate for a fiscal year is calculated by dividing the lesser of purchases or sales of portfolio securities, excluding securities having maturity dates at acquisition of one year or less, for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Funds, thereby decreasing the Funds' total return. The portfolio turnover rate for the fiscal period ended September 30, 2004 was significantly [higher or lower] for the Fund compared to the prior ------------ fiscal period because, among other things, . It is -------------------------- impossible to predict with certainty whether future portfolio turnover rates will be higher or lower than those experienced during past periods. Generally, each Fund intends to invest for long-term purposes. However, the rate of portfolio turnover will depend upon market and other conditions, and it will not be a limiting factor when an adviser believes that portfolio changes are appropriate. - -------------------------------------------------------------------------------- PORTFOLIO HOLDINGS INFORMATION - -------------------------------------------------------------------------------- The Funds have adopted policies to limit the disclosure of portfolio holdings information and to ensure equal access to such information, except in certain circumstances as approved by the Board of Trustees. Generally, portfolio holdings information will not be available except on a monthly basis following a 30-day lag between the date of the information and the date on which it is disclosed. Any holdings information that is released must clearly indicate the date of the information, and must state that due to active management, the Fund may or may not still invest in the securities listed. Portfolio characteristics, such as industry/sector breakdown, current yield, quality breakdown, duration, average Price-Earnings ratio and other similar information may be provided on a current basis. However, portfolio characteristics do not include references to specific portfolio holdings. The Board of Trustees has approved exceptions to the general policy on the sharing of portfolio holdings information as in the best interests of the Funds: (1) Disclosure of portfolio holdings posted on the Funds' website, provided the information is shared no sooner than the next day following the day on which the information is posted; (2) Disclosure to firms offering industry-wide services, provided that the firm has entered into a confidentiality agreement with the Funds, their principal underwriter or an affiliate of the Funds' principal underwriter. Entities that receive information pursuant to this exception include Bloomberg (monthly disclosure of full portfolio holdings, provided 25 days after month-end); Lipper (for Fixed Income Funds, quarterly disclosure of full portfolio holdings, provided 25 days after calendar quarter-end; and for Equity Funds, monthly disclosure of full portfolio holdings, provided 5 days after month-end); Morningstar (quarterly disclosure of full portfolio holdings, provided 5 days after calendar quarter-end); Standard & Poors (quarterly disclosure of full holdings, provided 2 days after calendar quarter-end); and Vestek ([quarterly] disclosure of full portfolio holdings, provided 2 days after calendar quarter-end); (3) Disclosure to SG Constellation, as part of the Class B share financing program and subject to an agreement to protect the confidentiality and limit the use of the information except for the purposes provided (full portfolio holdings provided weekly); (4) Disclosure to ADP Investor Communication Services, Inc. as part of the proxy voting recordkeeping services provided to the Funds (portfolio holdings of issuers as of record date for shareholder meetings); (5) Disclosure to employees of the Funds' adviser, subadviser, principal underwriter, administrator, custodian and fund accounting agent, provided that such disclosure is made for bona fide business purposes; and (6) Other disclosures made for non-investment purposes, but only if approved in writing in advance by an officer of the Funds. Such exceptions will be reported to the Board of Trustees. 56 With respect to (6) above, approval will be granted only when the officer determines that the Fund has a legitimate business reason for sharing the portfolio holdings information and the recipients are subject to a duty of confidentiality, including a duty not to trade on the information. The Funds' Board of Trustees exercises oversight of the disclosure of the Funds' portfolio holdings by reviewing, on a quarterly basis, persons or entities receiving such disclosure. Notwithstanding the above, there is no assurance that the Funds' policies on the sharing of portfolio holdings information will protect the Funds from the potential misuse of holdings by individuals or firms in possession of that information. In addition, any disclosures of portfolio holdings information by a Fund or its adviser and/or subadviser must be consistent with the anti-fraud provisions of the federal securities laws, the Funds' and the adviser's/subadviser's fiduciary duty to shareholders, and the Funds' code of ethics. The Funds' policies expressly prohibit the sharing of portfolio holdings information if the Fund, its adviser and/or subadviser, or any other affiliated party receives compensation or other consideration in connection with such arrangement. The term "consideration" includes any agreement to maintain assets in a Fund or in other funds or accounts managed by the Fund's adviser and/or subadviser or by any affiliated person of the adviser and/or subadviser. - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- The procedures for purchasing shares of the Funds are summarized in the Prospectuses. All purchases made by check should be in U.S. dollars and made payable to CDC Nvest Funds, or, in the case of a retirement account, the custodian or trustee. For purchase of Fund shares by mail, the settlement date is the first business day after receipt of the check by the transfer agent so long as it is received by the close of regular trading of the New York Stock Exchange (the "Exchange") on a day when the Exchange is open; otherwise the settlement date is the following business day. For telephone orders, the settlement date is the third business day after the order is made. Shares may also be purchased either in writing, by phone (except for Class Y shares), by electronic funds transfer using Automated Clearing House ("ACH"), or by exchange as described in the Prospectuses through firms that are members of the NASD and that have selling agreements with the Distributor. You may also use CDC Nvest Funds Personal Access Line(R) (800-225-5478, press 1) or CDC Nvest Funds Web site (www.cdcnvestfunds.com) to purchase Fund shares (except for Class Y shares). For more information, see the section entitled "Shareholder Services" in this Statement. A shareholder may purchase additional shares electronically through the ACH system so long as the shareholder's bank or credit union is a member of the ACH system and the shareholder has a completed, approved ACH application on file. Banks may charge a fee for transmitting funds by wire. With respect to shares purchased by federal funds, shareholders should bear in mind that wire transfers may take two or more hours to complete. The Distributor may at its discretion, for existing clients, accept a telephone order for the purchase of $5,000 or more of a Fund's Class A, B and C shares. Payment must be received by the Distributor within three business days following the transaction date or the order will be subject to cancellation. Telephone orders must be placed through the Distributor or your investment dealer. At the discretion of the Distributor, Bank Trust Departments or Trust Companies may also be eligible for investment in Class Y shares at a reduced minimum, subject to certain conditions including a requirement to meet the minimum investment balance within a specified time period. Please contact the Distributor at 800-225-5478 for more information. If you wish transactions in your account to be effected by another person under a power of attorney from you, special rules as summarized in the Prospectus may apply. 57 - -------------------------------------------------------------------------------- NET ASSET VALUE AND PUBLIC OFFERING PRICE - -------------------------------------------------------------------------------- The method for determining the public offering price and net asset value per share is summarized in the Prospectus. The total net asset value of each class of shares of a Fund (the excess of the assets of such Fund attributable to such class over the liabilities attributable to such class) is determined at the close of regular trading (normally 4:00 p.m. Eastern time) on each day that the Exchange is open for trading. In addition, in IXIS Advisors' or Loomis Sayles' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if IXIS Advisors or Loomis Sayles in its discretion determines that it is advisable to do so based primarily upon factors such as whether (i) there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares and (ii) whether in IXIS Advisors' or Loomis Sayles' view sufficient information (e.g., prices reported by pricing services) is available for the Fund's shares to be priced. For example, the Income Funds may price their shares on days on which the Exchange is closed but the fixed income markets are open for trading. The Funds do not expect to price their shares on the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities listed on a national securities exchange or on the NASDAQ National Market System are valued at market price (generally, their last sale price, or, if there is no reported sale during the day, the last reported bid price estimated by a broker, although "market price" for securities traded on NASDAQ will generally be considered to be the NASDAQ official closing price.) Unlisted securities traded in the over-the-counter market are valued at the last reported bid price in the over-the-counter market or on the basis of yield equivalents as obtained from one or more dealers that make a market in the securities. U.S. government securities are traded in the over-the-counter market. Options, interest rate futures and options thereon that are traded on exchanges are valued at their last sale price as of the close of such exchanges. Securities for which current market quotations are not readily available and all other assets are taken at fair value as determined in good faith by the Board of Trustees, although the actual calculations may be made by persons acting pursuant to the direction of the Board. Generally, trading in foreign government securities and other fixed-income securities, as well as trading in equity securities in markets outside the United States, is substantially completed each day at various times prior to the close of the Exchange. Securities traded on a foreign exchange will be valued at their market price on the non-U.S. exchange except for securities traded on the London Stock Exchange ("British Equities"). British Equities will be valued at the mean between the last bid and last asked prices on the London Stock Exchange. The value of other securities principally traded outside the United States will be computed as of the completion of substantial trading for the day on the markets on which such securities principally trade. Securities principally traded outside the United States will generally be valued several hours before the close of regular trading on the Exchange, generally 4:00 p.m. Eastern time, when the Funds compute the net asset value of their shares. Occasionally, events affecting the value of securities principally traded outside the United States may occur between the completion of substantial trading of such securities for the day and the close of the Exchange, which events will not be reflected in the computation of a Fund's net asset value. If, in the determination of the Board of Trustees or persons acting at their direction, events materially affecting the value of a Fund's securities occur during such period, then these securities may be fair valued at the time the Fund determines its net asset value by or pursuant to procedures approved by the Board of Trustees. A Fund may also value securities at fair value or estimate their value pursuant to procedures approved by the Board of Trustees in other circumstances such as when extraordinary events occur before the Fund calculates its net asset value. This may include situations relating to a single issuer (such as a declaration of bankruptcy or a delisting of the issuer's security from the primary market on which it has traded) as well as events affecting the securities markets in general (such as market disruptions or closings and significant fluctuations in U.S. and/or foreign markets). When fair valuing their securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the local market and before the time a Fund's net asset value is calculated. The effect of fair value pricing as described above for "Securities traded on foreign exchanges" and "All other securities" is that securities may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board of Trustees believes is more likely to result in a price that reflects fair value. The Funds may also value securities at fair value or estimate their value pursuant to procedures approved by the Board of Trustees in other circumstances such as when extraordinary events 58 occur after the close of the relevant market but prior to the close of the Exchange. Trading in some of the portfolio securities of some of the Funds takes place in various markets outside the United States on days and at times other than when the Exchange is open for trading. Therefore, the calculation of these Funds' net asset value does not take place at the same time as the prices of many of its portfolio securities are determined, and the value of the Fund's portfolio may change on days when the Fund is not open for business and its shares may not be purchased or redeemed. The per share net asset value of a class of a Fund's shares is computed by dividing the number of shares outstanding into the total net asset value attributable to such class. The public offering price of a Class A share or a Class C share of a Fund is the net asset value per share next-determined after a properly completed purchase order is accepted by IXIS Services or State Street Bank, plus a sales charge as set forth in the Fund's Prospectus. The public offering price of a Class B or Y share of a Fund is the next-determined net asset value. - -------------------------------------------------------------------------------- REDUCED SALES CHARGES - -------------------------------------------------------------------------------- The following special purchase plans are summarized in the Prospectuses and are described in greater detail below. Investors should note that in many cases, the Broker, and not the Funds, is responsible for ensuring that the investor receives current discounts. In order to reduce your sales charge, it will be necessary at the time of purchase to inform the Fund and your financial intermediary of the existence of other accounts in which there are holdings eligible to be aggregated to meet sales load breakpoints. If the Distributor is not notified that the investor is eligible for these reductions, the Distributor will be unable to ensure that the reduction is applied to the investor's account. You may be required to provide certain records and information, such as account statements, with respect to all of your accounts which hold Fund shares, including accounts with other financial intermediaries, and your family members' accounts, in order to verify your eligibility for the reduced sales charge. Cumulative Purchase Discount. A Fund shareholder may make an initial or an additional purchase of Class A shares and be entitled to a discount on the sales charge payable on that purchase. This discount will be available if the shareholder's "total investment" in the Fund reaches the breakpoint for a reduced sales charge in the table under "How Sales Charges Are Calculated - Class A shares" in the Prospectus. The total investment is determined by adding the amount of the additional purchase, including sales charge, to the current public offering price of all series and classes of shares of the CDC Nvest Funds held by the shareholder in one or more accounts. If the total investment exceeds the breakpoint, the lower sales charge applies to the entire additional investment even though some portion of that additional investment is below the breakpoint to which a reduced sales charge applies. For example, if a shareholder who already owns shares of one or more Funds or other of the CDC Nvest Funds with a value at the current public offering price of $30,000 makes an additional purchase of $20,000 of Class A shares of another Fund, CDC Nvest Fund, or Loomis Sayles Fund, the reduced sales charge of 4.5% of the public offering price will apply to the entire amount of the additional investment. Letter of Intent. A Letter of Intent (a "Letter"), which can be effected at any time, is a privilege available to investors that reduces the sales charge on investments in Class A shares. Ordinarily, reduced sales charges are available for single purchases of Class A shares only when they reach certain breakpoints (e.g., $25,000, $100,000, etc.). By signing a Letter, a shareholder indicates an intention to invest enough money in Class A shares within 13 months to reach a breakpoint. If the shareholder's intended aggregate purchases of all series and classes of the Trusts over a defined 13-month period will be large enough to qualify for a reduced sales charge, the shareholder may invest the smaller individual amounts at the public offering price calculated using the sales load applicable to the 13-month aggregate investment. A Letter is a non-binding commitment, the amount of which may be increased, decreased or canceled at any time. The effective date of a Letter is the date it is received in good order by the Distributor, or, if communicated by a telephone exchange or order, at the date of telephoning provided a signed Letter, in good order, reaches the Distributor within five business days. 59 A reduced sales charge is available for aggregate purchases of all series and classes of shares of the Trusts pursuant to a written Letter effected within 90 days after any purchase. In the event the account was established prior to 90 days before the effective date of the Letter, the account will be credited with the Rights of Accumulation ("ROA") towards the breakpoint level that will be reached upon the completion of the 13 months' purchases. The ROA credit is the value of all shares held as of the effective dates of the Letter based on the "public offering price computed on such date." The cumulative purchase discount, described above, permits the aggregate value at the current public offering price of Class A shares of any accounts with the Trusts held by a shareholder to be added to the dollar amount of the intended investment under a Letter, provided the shareholder lists them on the account application. State Street Bank will hold in escrow shares with a value at the current public offering price of 5% of the aggregate amount of the intended investment. The amount in escrow will be released when the commitment stated in the Letter is completed. If the shareholder does not purchase shares in the amount indicated in the Letter, the shareholder agrees to remit to State Street Bank the difference between the sales charge actually paid and that which would have been paid had the Letter not been in effect, and authorizes State Street Bank to redeem escrowed shares in the amount necessary to make up the difference in sales charges. Reinvested dividends and distributions are not included in determining whether the Letter has been completed. Combining Accounts. Purchases of all series and classes of the CDC Nvest Funds (excluding the CDC Nvest Cash Management Trust - Money Market Series (the "Money Market Fund") unless the shares were purchased through an exchange with another CDC Nvest Fund) by or for an investor, the investor's spouse, parents, children, siblings, in-laws, grandparents or grandchildren and any other account of the investor, including sole proprietorships, in any Trust may be treated as purchases by a single individual for purposes of determining the availability of a reduced sales charge. Purchases for a single trust estate or a single fiduciary account may also be treated as purchases by a single individual for this purpose, as may purchases on behalf of a participant in a tax-qualified retirement plan and other employee benefit plans, provided that the investor is the sole participant in the plan. Any other group of individuals acceptable to the Distributor may also combine accounts for such purpose. The values of all accounts are combined to determine the sales charge. Combining with Other Series and Classes of the CDC Nvest Funds. A shareholder's total investment for purposes of the cumulative purchase discount includes the value at the current public offering price of any shares of series and classes of the Trusts that the shareholder owns (which excludes shares of the Money Market Fund unless such shares were purchased by exchanging shares of any other CDC Nvest Fund). Shares owned by persons described in the preceding paragraph may also be included. Clients of the Adviser. No front-end sales charge or CDSC applies to investments of $25,000 or more in Class A shares by (1) clients of an adviser to any series of the Trusts; any director, officer or partner of a client of an adviser to any series of the Trusts; or the spouse, parents, children, siblings, in-laws, grandparents or grandchildren of the foregoing; (2) any individual who is a participant in a Keogh or IRA Plan under a prototype of an adviser to any series of the Trusts if at least one participant in the plan qualifies under category (1) above; and (3) an individual who invests through an IRA and is a participant in an employee benefit plan that is a client of an adviser to any series of the Trusts. Any investor eligible for this arrangement should so indicate in writing at the time of the purchase. Eligible Governmental Authorities. There is no sales charge or CDSC related to investments in Class A shares by any state, county or city or any instrumentality, department, authority or agency thereof that has determined that a Fund is a legally permissible investment and that is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered investment company. Investment Advisory Accounts. Class A shares of any Fund may be purchased at net asset value by investment advisers, financial planners or other intermediaries who place trades for their own accounts or the accounts of their clients and who charge a management, consulting or other fee for their services; clients of such investment advisers, financial planners or other intermediaries who place trades for their own accounts if the accounts are linked to the master account of such investment adviser, financial planner or other intermediary on the books and records of the broker or agent; and retirement and deferred compensation plans and trusts used to fund 60 those plans, including, but not limited to, those defined in Sections 401(a), 403(b), 401(k) and 457 of the Code and "rabbi trusts." Investors may be charged a fee if they effect transactions through a broker or agent. Certain Broker-Dealers and Financial Services Organizations. Class A shares of any Fund also may be purchased at net asset value through certain broker-dealers and/or financial services organizations without any transaction fee. Such organizations may also receive compensation based upon the average value of the Fund shares held by their customers. This compensation may be paid by IXIS Advisors, or its affiliates out of their own assets, and/or be paid indirectly by the Fund in the form of servicing, distribution or transfer agent fees. Certain Retirement Plans. Class A shares of the Funds are available at net asset value for investments by participant-directed 401(a) and 401(k) plans that have 100 or more eligible employees or by retirement plans whose third party administrator or dealer has entered into a service agreement with the Distributor and which may be subject to certain operational and minimum size requirements specified from time to time by the Distributor. The Distributor may pay compensation to such third party administrators or dealers. This compensation may be paid indirectly by the Fund in the form of service and/or distribution fees. Bank Trust Departments or Trust Companies. Class A shares of the Funds are available at net asset value for investments by non-discretionary and non-retirement accounts of bank trust departments or trust companies, but are unavailable if the trust department or institution is part of an organization not principally engaged in banking or trust activities. The reduction or elimination of the sales charges in connection with special purchase plans described above reflects the absence or reduction of expenses associated with such sales. - -------------------------------------------------------------------------------- SHAREHOLDER SERVICES - -------------------------------------------------------------------------------- Open Accounts A shareholder's investment is automatically credited to an open account maintained for the shareholder by IXIS Services. Following each additional investment or redemption from the account initiated by an investor, a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each calendar year, IXIS Services will send each shareholder a statement providing account information which may include federal tax information on dividends and distributions paid to the shareholder during the year. This statement should be retained as a permanent record. IXIS Services may charge a fee for providing duplicate information. The open account system provides for full and fractional shares expressed to three decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. Certificates will not be issued for Class B, Class C or Class Y shares. The costs of maintaining the open account system are paid by the Funds and no direct charges are made to shareholders. Although the Funds have no present intention of making such direct charges to shareholders, they each reserve the right to do so. Shareholders will receive prior notice before any such charges are made. Automatic Investment Plans (Classes A, B and C Shares) Subject to each Fund's investor eligibility requirements, investors may automatically invest in additional shares of a Fund on a monthly basis by authorizing the Distributor to draw checks on an investor's bank account. The checks are drawn under the Investment Builder Program, a program designed to facilitate such periodic payments, or through payroll deduction, and are forwarded to IXIS Services for investment in the Fund. A plan may be opened with an initial investment of $25 or more and thereafter regular monthly checks of $25 or more will be drawn on the investor's account. The reduced minimum initial investment pursuant to an automatic investment plan is referred to in the Prospectus. An Investment Builder application or payroll deduction authorization form must be completed to open an automatic investment plan and may be obtained by calling the Distributor at 800-225-5478 or 61 your investment dealer or by visiting our Website at www.cdcnvestfunds.com. This program is voluntary and may be terminated at any time by IXIS Services upon notice to existing plan participants. The Investment Builder Program plan may be discontinued at any time by the investor by written notice to IXIS Services, which must be received at least five business days prior to any payment date. The plan may be discontinued by State Street Bank at any time without prior notice if any check is not paid upon presentation; or by written notice to the shareholder at least thirty days prior to any payment date. State Street Bank is under no obligation to notify shareholders as to the nonpayment of any check. Retirement Plans and Other Plans Offering Tax Benefits (Classes A, B and C Shares) The federal tax laws provide for a variety of retirement plans offering tax benefits. These plans may be funded with shares of the Funds or with certain other investments. The plans include H.R. 10 (Keogh) plans for self-employed individuals and partnerships, individual retirement accounts (IRAs), corporate pension trust and profit sharing plans, including 401(k) plans, and retirement plans for public school systems and certain tax exempt organizations, i.e., 403(b) plans. The reduced minimum initial investment available to retirement plans and other plans offering tax benefits is referred to in the Prospectus. For these plans, initial investments in a Fund must be at least $250 for each participant in corporate pension and profit sharing plans and Keogh plans, at least $500 for IRAs and Coverdell Education Savings Accounts and at least $100 for any subsequent investments. There is a special initial and subsequent investment minimum of $25 for payroll deduction investment programs for SARSEP, SEP, SIMPLE Plans, 403(b) and certain other plans. Income dividends and capital gain distributions must be reinvested (unless the investor is over age 59 1/2 or disabled). These types of accounts may be subject to fees. Plan documents and further information can be obtained from the Distributor. Certain retirement plans may also be eligible to purchase Class Y shares. See the Prospectus relating to Class Y shares. Systematic Withdrawal Plans (Classes A, B and C Shares) An investor owning a Fund's shares having a value of $10,000 or more at the current public offering price may establish a Systematic Withdrawal Plan ("Plan") providing for periodic payments of a fixed or variable amount. An investor may terminate the plan at any time. A form for use in establishing such a plan is available from the servicing agent or your investment dealer. Withdrawals may be paid to a person other than the shareholder if a signature guarantee is provided. Please consult your investment dealer or the Distributor. A shareholder under a Plan may elect to receive payments monthly, quarterly, semiannually or annually for a fixed amount of not less than $50 or a variable amount based on (1) the market value of a stated number of shares, (2) a specified percentage of the account's market value or (3) a specified number of years for liquidating the account (e.g., a 20-year program of 240 monthly payments would be liquidated at a monthly rate of 1/240, 1/239, 1/238, etc.). The initial payment under a variable payment option may be $50 or more. In the case of shares subject to a CDSC, the amount or percentage you specify may not, on an annualized basis, exceed 10% of the value, as of the time you make the election, of your account with the Fund with respect to which you are electing the Plan. Withdrawals of Class B shares of a Fund under the Plan will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in your account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in your account. No CDSC applies to redemptions pursuant to the Plan. All shares under the Plan must be held in an open (uncertificated) account. Income dividends and capital gain distributions will be reinvested (without a sales charge in the case of Class A shares) at net asset value determined on the record date. Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the value of the account, particularly in the event of a decline in net asset value. Accordingly, a 62 shareholder should consider whether a Plan and the specified amounts to be withdrawn are appropriate in the circumstances. The Funds and the Distributor make no recommendations or representations in this regard. It may be appropriate for a shareholder to consult a tax adviser before establishing such a plan. See "Redemptions" and "Income Dividends, Capital Gains Distributions and Tax Status" or "Taxation of Funds" below for certain information as to federal income taxes. It may be disadvantageous for a shareholder to purchase on a regular basis additional Fund shares with a sales charge while redeeming shares under a Plan. Accordingly, the Funds and the Distributor do not recommend additional investments in Class A shares by a shareholder who has a withdrawal plan in effect and who would be subject to a sales load on such additional investments. CDC Nvest Funds may modify or terminate this program at any time. Because of statutory restrictions this Plan is not available to pension or profit-sharing plans, IRAs or 403(b) plans that have State Street Bank as trustee. Dividend Diversification Program You may also establish a Dividend Diversification Program, which allows you to have all dividends and any other distributions automatically invested in shares of the same class of another CDC Nvest Fund, subject to the investor eligibility requirements of that other Fund and to state securities law requirements. Shares will be purchased at the selected Fund's net asset value (without a sales charge or CDSC) on the dividend record date. A dividend diversification account must be in the same registration (shareholder name) as the distributing Fund account and, if a new account in the purchased Fund is being established, the purchased Fund's minimum investment requirements must be met. Before establishing a Dividend Diversification Program into any other CDC Nvest Fund, you must obtain and carefully read a copy of that Fund's Prospectus. Exchange Privilege A shareholder may exchange the shares of any Fund for shares of the same class of an other CDC Nvest Fund, Money Market Fund or series of Loomis Sayles Funds I or Loomis Sayles Funds II that offers that class (subject to the investor eligibility requirements, if any, of the fund into which the exchange is being made and any other limits on the sales of or exchanges into that fund) on the basis of relative net asset values at the time of the exchange without any sales charge. An exchange of shares in one fund for shares of another fund is a taxable event on which gain or loss may be recognized. In certain limited circumstances, the Distributor may waive the requirement that shareholders pay the difference between any sales charge already paid on their shares and the higher sales charge of the fund into which they are exchanging at the time of the exchange. When an exchange is made from the Class A, Class B or Class C shares of one Fund to the same class of shares of another Fund, the shares received by the shareholder in the exchange will have the same age characteristics as the shares exchanged. The age of the shares determines the expiration of the CDSC and, for the Class B shares, the conversion date. As stated above, if you own Class A, Class B or Class C shares, you may also elect to exchange your shares of any Fund for shares of the same class of the Money Market Fund. On all exchanges of Class A or C shares subject to a CDSC and of Class B shares into the Money Market Fund, the exchange stops the aging period relating to the CDSC, and, for Class B shares only, relating to conversion to Class A shares. The aging period resumes only when an exchange is made back into Classes A, B and C shares of a Fund. Shareholders may also exchange their shares in the Money Market Fund for shares of the same class of any other CDC Nvest Fund listed below, subject to those funds' eligibility requirements and sales charges. Class C shares in accounts of CDC Nvest Cash Management Trust - Money Market Series may exchange into Class C shares of a CDC Nvest Fund subject to its CDSC schedule. If you own Class Y shares, you may exchange those shares for Class Y shares of other Funds, for Institutional Class shares of any other series of Loomis Sayles Funds I or Loomis Sayles Funds II that offers Institutional Class shares, or for Class A shares of the Money Market Fund. These options are summarized in the Prospectuses. An exchange may be effected, provided that neither the registered name nor address of the accounts is different and provided that a certificate representing the shares being exchanged has not been issued to the shareholder, by (1) a telephone request to the Fund or IXIS Services at 800-225-5478 or (2) a written exchange request to the Fund or IXIS Services, P.O. Box 219579, Kansas City, MO 64121-9579. You must acknowledge receipt of a current Prospectus for a Fund before an exchange for that Fund can be effected. The minimum amount for an exchange is the minimum amount to open an account or the total net asset value of your account, whichever is less. Agents, general agents, directors and senior officers of New England Financial and its insurance company 63 subsidiaries may, at the discretion of New England Financial, elect to exchange Class A shares of any series of the Trusts acquired in connection with deferred compensation plans offered by New England Financial for Class Y shares of any series of the Trusts which offers Class Y shares. To obtain a Prospectus and more information about Class Y shares, please call the Distributor toll free at 800-225-5478. Before requesting an exchange into any other CDC Nvest Fund, Money Market Fund, or series of Loomis Sayles Funds I or Loomis Sayles Funds II, please read its prospectus carefully. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Except as otherwise permitted by SEC rule, shareholders will receive at least 60 days' advance notice of any material change to the exchange privilege. As indicated in the Prospectuses, certain Funds are subject to a redemption fee on exchanges. The investment objectives of the Funds as set forth in their prospectuses are as follows: Equity Funds: Loomis Sayles Growth Fund seeks long-term growth of capital. Hansberger Foreign Growth Fund seeks long-term total return. Loomis Sayles Research Fund seeks to provide long-term growth of capital. Income Funds: Loomis Sayles Government Securities Fund seeks a high level of current income consistent with safety of principal by investing in U.S. government securities. Loomis Sayles Limited Term Government and Agency Fund seeks a high current return consistent with preservation of capital. Loomis Sayles Strategic Income Fund seeks high current income with a secondary objective of capital growth. Loomis Sayles Core Plus Bond Fund seeks a high level of current income consistent with what the Fund considers reasonable risk. It invests primarily in corporate and U.S. government bonds. Loomis Sayles High Income Fund seeks high current income plus the opportunity for capital appreciation to produce a high total return. Loomis Sayles Investment Grade Bond Fund seeks high total investment return through a combination of current income and capital appreciation. Tax Free Income Funds: Loomis Sayles Municipal Income Fund seeks as high a level of current income exempt from federal income taxes as is consistent with reasonable risk and protection of shareholders' capital. Loomis Sayles Massachusetts Tax Free Income Fund seeks to maintain a high a level of current income exempt from federal and Massachusetts personal income taxes. As of September 30, 2004 the net assets of the CDC Nvest Funds family totaled approximately $X.X billion. Automatic Exchange Plan (Classes A, B and C Shares) As described in the Prospectus following the caption "Additional Investor Services," a shareholder may establish an Automatic Exchange Plan under which shares of a Fund are automatically exchanged each month for shares of the same class of one or more of the other Funds. Registration on all accounts must be identical. The two 64 dates each month on which exchanges may be made are the 15th and 28th (or the first business day thereafter if either the 15th or the 28th is not a business day) until the account is exhausted or until IXIS Services is notified in writing to terminate the plan. Exchanges may be made in amounts of $100 or more. The Service Options Form to establish an Automatic Exchange Plan is available from IXIS Services or your financial representative. Broker Trading Privileges The Distributor may, from time to time, enter into agreements with one or more brokers or other intermediaries to accept purchase and redemption orders for Fund shares until the close of regular trading on the Exchange (normally, 4:00 p.m. Eastern time on each day that the Exchange is open for trading); such purchase and redemption orders will be deemed to have been received by the Fund when the authorized broker or intermediary accepts such orders; and such orders will be priced using that Fund's net asset value next computed after the orders are placed with and accepted by such brokers or intermediaries. Any purchase and redemption orders received by a broker or intermediary under these agreements will be transmitted daily to the Distributor no later than the time specified in such agreement; but, in any event, no later than 9:30 a.m. following the day that such purchase or redemption orders are received by the broker or intermediary. Self-Servicing Your Account with CDC Nvest Funds Personal Access Line(R) and Web Site CDC Nvest Funds shareholders may access account information, including share balances and recent account activity online, by visiting our Web site at www.cdcnvestfunds.com. Transactions may also be processed online for certain accounts (restrictions may apply). Such transactions include purchases, redemptions and exchanges, and shareholders are automatically eligible for these features. CDC Nvest Funds has taken measures to ensure the security of shareholder accounts, including the encryption of data and the use of personal identification (PIN) numbers. In addition, you may restrict these privileges from your account by calling CDC Nvest Funds at 800-225-5478, or writing to us at P.O. Box 219579, Kansas City, MO 64121-9579. More information regarding these features may be found on our Web site at www.cdcnvestfunds.com. Investor activities through these mediums are subject to the terms and conditions outlined in the following CDC Nvest Funds Online and Telephonic Customer Agreement. This agreement is also posted on our Web site. The initiation of any activity through the CDC Nvest Funds Personal Access Line(R) or Web site at www.cdcnvestfunds.com by an investor shall indicate agreement with the following terms and conditions: CDC Nvest Funds Online and Telephonic Customer Agreement NOTE: ACCESSING OR REQUESTING ACCOUNT INFORMATION OR TRANSACTIONS THROUGH THIS SITE CONSTITUTES AND SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE FOLLOWING TERMS AND CONDITIONS. The accuracy, completeness and timeliness of all mutual fund information provided is the sole responsibility of the mutual fund company that provides the information. No party that provides a connection between this Web site and a mutual fund or its transfer agency system can verify or ensure the receipt of any information transmitted to or from a mutual fund or its transfer agent, or the acceptance by, or completion of any transaction with, a mutual fund. The online acknowledgments or other messages that appear on your screen for transactions entered do not mean that the transactions have been received, accepted or rejected by the mutual fund. These acknowledgments are only an indication that the transactional information entered by you has either been transmitted to the mutual fund, or that it cannot be transmitted. It is the responsibility of the mutual fund to confirm to you that it has received the information and accepted or rejected a transaction. It is the responsibility of the mutual fund to deliver to you a current prospectus, confirmation statement and any other documents or information required by applicable law. NO TRANSACTION SHALL BE DEEMED ACCEPTED UNTIL YOU RECEIVE A WRITTEN CONFIRMATION FROM THE FUND COMPANY. You are responsible for reviewing all mutual fund account statements received by you in the mail in order to verify the accuracy of all mutual fund account information provided in the statement and transactions entered through this site. You are also responsible for promptly notifying the mutual fund of any errors or inaccuracies 65 relating to information contained in, or omitted from, your mutual fund account statements, including errors or inaccuracies arising from the transactions conducted through this site. TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH IN THE PROSPECTUS OF THE SELECTED FUND. THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH THE CDC NVEST FUNDS PERSONAL ACCESS LINE(R) You are responsible for the confidentiality and use of your personal identification numbers, account numbers, social security numbers and any other personal information required to access the site or transmit telephonically. Any individual that possesses the information required to pass through all security measures will be presumed to be you. All transactions submitted by an individual presumed to be you will be solely your responsibility. You agree that CDC Nvest Funds does not have the responsibility to inquire as to the legitimacy or propriety of any instructions received from you or any person believed to be you, and is not responsible or liable for any losses that may occur from acting on such instructions. CDC Nvest Funds is not responsible for incorrect data received via the Internet or telephonically from you or any person believed to be you. Transactions submitted over the Internet and telephonically are solely your responsibility and CDC Nvest Funds makes no warranty as to the correctness, completeness, or the accuracy of any transmission. Similarly CDC Nvest Funds bears no responsibility for the performance of any computer hardware, software, or the performance of any ancillary equipment and services such as telephone lines, modems, or Internet service providers. The processing of transactions over this site or telephonically will involve the transmission of personal data including social security numbers, account numbers and personal identification numbers. While CDC Nvest Funds has taken reasonable security precautions including data encryption designed to protect the integrity of data transmitted to and from the areas of our Web site that relate to the processing of transactions, we disclaim any liability for the interception of such data. You agree to immediately notify CDC Nvest Funds if any of the following occurs: 1. You do not receive confirmation of a transaction submitted via the Internet or telephonically within five (5) business days. 2. You receive confirmation of a transaction of which you have no knowledge and was not initiated or authorized by you. 3. You transmit a transaction for which you do not receive a confirmation number. 4. You have reason to believe that others may have gained access to your personal identification number (PIN) or other personal data. 5. You notice an unexplained discrepancy in account balances or other changes to your account, including address changes, and banking instructions on any confirmations or statements. Any costs incurred in connection with the use of the CDC Nvest Funds Personal Access Line(R) or the CDC Nvest Funds Internet site including telephone line costs and Internet service provider costs are solely your responsibility. Similarly CDC Nvest Funds makes no warranties concerning the availability of Internet services or network availability. CDC Nvest Funds reserves the right to suspend, terminate or modify the Internet capabilities offered to shareholders without notice. YOU HAVE THE ABILITY TO RESTRICT INTERNET AND TELEPHONIC ACCESS TO YOUR ACCOUNTS 66 BY NOTIFYING CDC NVEST FUNDS OF YOUR DESIRE TO DO SO. Written notifications to CDC Nvest Funds should be sent to: CDC Nvest Funds P. O. Box 219579 Kansas City, MO 64121-9579 Notification may also be made by calling 800-225-5478 during normal business hours. - -------------------------------------------------------------------------------- REDEMPTIONS - -------------------------------------------------------------------------------- The procedures for redemption of shares of a Fund are summarized in its Prospectus. As described in the Prospectus, a CDSC may be imposed on certain purchases of Classes A, B and C shares, and a redemption fee may be charged on redemptions and exchanges of certain of the Funds. For purposes of the CDSC, an exchange of shares from one Fund to another Fund is not considered a redemption or a purchase. For federal tax purposes, however, such an exchange is considered a sale and a purchase and, therefore, would be considered a taxable event on which you may recognize a gain or loss. In determining whether a CDSC is applicable to a redemption of Class A, Class B or Class C shares, the calculation will be determined in the manner that results in the lowest rate being charged. Therefore, for Class B shares it will be assumed that the redemption is first of any Class A shares in the shareholder's Fund account, second of shares held for over six years, third of shares issued in connection with dividend reinvestment and fourth of shares held longest during the six-year period. For Class C shares and Class A shares subject to CDSC, it will be assumed that the redemption is first of any shares that have been in the shareholder's Fund account for over a year, and second of any shares that have been in the shareholder's Fund account for under a year. The charge will not be applied to dollar amounts representing an increase in the net asset value of shares since the time of purchase or reinvested distributions associated with such shares. Unless you request otherwise at the time of redemption, the CDSC is deducted from the redemption, not the amount remaining in the account. To illustrate, assume an investor purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the second year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional shares under dividend reinvestment. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to the CDSC because of dividend reinvestment. With respect to the remaining 40 shares, the CDSC is applied only to the original cost of $10 per share and not to the increase in the net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 4% (the applicable rate in the second year after purchase). Class B shares purchased prior to May 1, 1997 are not subject to a CDSC on redemption. The Funds will only accept medallion signature guarantees bearing the STAMP 2000 Medallion imprint. However, a medallion signature guarantee will not be required if the proceeds of the redemption do not exceed $100,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address, or if the proceeds are going to a bank on file. If you select the telephone redemption service in the manner described in the next paragraph, shares of a Fund may be redeemed by calling toll free 800-225-5478. A wire fee, currently $5.00, will be deducted from the proceeds. Telephone redemption requests must be received by the close of regular trading on the Exchange. Requests made after that time or on a day when the Exchange is not open for business will receive the next business day's closing price. The proceeds of a telephone withdrawal will normally be sent on the first business day following receipt of a proper redemption request, which complies with the redemption procedures established by the Funds from time to time. In order to redeem shares by telephone, a shareholder must either select this service when completing the Fund application or must do so subsequently on the Service Options Form, which is available at www.cdcnvestfunds.com or from your investment dealer. When selecting the service, a shareholder may have their 67 withdrawal proceeds sent to his or her bank, in which case the shareholder must designate a bank account on his or her application or Service Options Form to which the redemption proceeds should be sent as well as provide a check marked "VOID" and/or a deposit slip that includes the routing number of his or her bank. Any change in the bank account so designated may be made by furnishing to IXIS Services or your investment dealer a completed Service Options Form, which may require a signature guarantee. Whenever the Service Options Form is used, the shareholder's signature must be guaranteed as described above. Telephone redemptions may only be made if the designated bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. If the account is with a savings bank, it must have only one correspondent bank that is a member of the System. The Funds, the Distributor and State Street Bank are not responsible for the authenticity of withdrawal instructions received by telephone, although they will apply established verification procedures. IXIS Services, as agreed to with the Funds, will employ reasonable procedures to confirm that your telephone instructions are genuine, and if it does not, if may be liable for any losses due to unauthorized or fraudulent instructions. Such verification procedures include, but are not limited to, requiring a form of personal identification prior to acting on an investor's telephone instructions and recording an investor's instructions. Check writing is available on Class A shares of Limited Term Government and Agency Fund and Massachusetts Fund. To elect check writing for your account, select the check writing option on your application and complete the attached signature card. To add check writing to an existing account, please call 800-225-5478 for our Service Options Form. The Funds will send you checks drawn on State Street Bank. You will continue to earn dividends on shares redeemed by check until the check clears. Each check must be written for $500 or more. The check writing privilege does not apply to shares for which you have requested share certificates to be issued. Check writing is not available for investor accounts containing Class A shares subject to a CDSC. If you use withdrawal checks, you will be subject to State Street Bank's rules governing checking accounts. Limited Term Government and Agency Fund, Massachusetts Fund and the Distributor are in no way responsible for any check writing account established with State Street Bank. You may not close your account by withdrawal check because the exact balance of your account will not be known until after the check is received by State Street Bank. The redemption price will be the net asset value per share (less any applicable CDSC and redemption fee) next determined after the redemption request and any necessary special documentation are received by State Street Bank or your investment dealer in proper form. Payment normally will be made by State Street Bank on behalf of the Fund within seven days thereafter. However, in the event of a request to redeem shares for which the Fund has not yet received good payment, the Funds reserve the right to withhold payments of redemption proceeds if the purchase of shares was made by a check which was deposited within ten calendar days prior to the redemption request (unless the Fund is aware that the check has cleared). The CDSC may be waived on redemptions made from IRA accounts due to attainment of age 59 1/2 for IRA shareholders who established accounts prior to January 3, 1995. The CDSC may also be waived on redemptions made from IRA accounts due to death, disability, return of excess contribution, required minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to meet the required minimum amount), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of the account, and redemptions made from the account to pay custodial fees. The CDSC may be waived on redemptions made from 403(b)(7) custodial accounts due to attainment of age 59 1/2 for shareholders who established custodial accounts prior to January 3, 1995. The CDSC may also be waived on redemptions necessary to pay plan participants or beneficiaries from qualified retirement plans under Section 401 of the Code, including profit sharing plans, money purchase plans, 401(k) and custodial accounts under Section 403(b)(7) of the Code. Distributions necessary to pay plan participants and beneficiaries include payment made due to death, disability, separation from service, normal or early retirement as defined in the plan document, loans from the plan and hardship withdrawals, return of excess contributions, required minimum distributions at age 70 1/2 (waivers only apply to amounts necessary to meet the required minimum amount), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of your account, and redemptions made from qualified retirement accounts or Section 403(b)(7) custodial accounts necessary to pay custodial fees. A CDSC will apply in the event of plan level transfers, including transfers due to changes in investment where assets are transferred outside of CDC Nvest Funds, including IRA and 403(b)(7) participant-directed transfers of assets to other custodians (except for the reasons given above) or qualified transfers of assets due to trustee- 68 directed movement of plan assets due to merger, acquisition or addition of additional funds to the plan. In order to redeem shares electronically through the ACH system, a shareholder's bank or credit union must be a member of the ACH system and the shareholder must have a completed, approved ACH application on file. In addition, the telephone request must be received no later than 4:00 p.m. (Eastern time). Upon receipt of the required information, the appropriate number shares will be redeemed and the monies forwarded to the bank designated on the shareholder's application through the ACH system. The redemption will be processed the day the telephone call is made and the monies generally will arrive at the shareholder's bank within three business days. The availability of these monies will depend on the individual bank's rules. The Funds will normally redeem shares for cash; however, the Funds reserve the right to pay the redemption price wholly or partly in kind if the relevant Trust's Board of Trustees determines it to be advisable and in the interest of the remaining shareholders of a Fund. The redemptions in kind will be selected by the Fund's adviser in light of the Fund's objective and will not generally represent a pro rata distribution of each security held in the Fund's portfolio. If portfolio securities are distributed in lieu of cash, the shareholder will normally incur brokerage commissions upon subsequent disposition of any such securities. However, the Funds have elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Funds are obligated to redeem shares solely in cash for any shareholder during any 90-day period up to the lesser of $250,000 or 1% of the total net asset value of the relevant Fund at the beginning of such period. The Funds do not currently impose any redemption charge other than the CDSC imposed by the Funds' distributor, and the redemption fee imposed on certain Funds, both as described in the Prospectuses. The Board of Trustees reserves the right to impose additional charges at any time. A redemption constitutes a sale of shares for federal income tax purposes on which the investor may realize a long- or short-term capital gain or loss. See also "Income Dividends, Capital Gain Distributions and Tax Status," below. Small Account Policy When your account falls below a set minimum as determined by the Board of Trustees from time to time, the Fund may charge you a fee in the amount of $20. The fee is subject to change. This minimum balance fee does not apply to accounts with active investment builder and payroll deduction programs, account that fall below the minimum as a result of the automatic conversion for Class B shares to Class A shares, account held through the National Securities Clearing Corporation, or retirement accounts. The Fund will impose this fee by selling the number of shares from your account necessary to pay the fee. The Fund also reserves the right to close your account and send you the proceeds if the balance in your account falls below a set minimum as determined by the Board of Trustees. Reinstatement Privilege (Class A shares only) The Prospectus describes redeeming shareholders' reinstatement privileges for Class A shares. Written notice and the investment check from persons wishing to exercise this reinstatement privilege must be received by your investment dealer or the Funds within 120 days after the date of the redemption. The reinstatement or exchange will be made at net asset value next determined after receipt of the notice and the investment check and will be limited to the amount of the redemption proceeds or to the nearest full share if fractional shares are not purchased. Even though an account is reinstated, the redemption will constitute a sale for federal income tax purposes. Investors who reinstate their accounts by purchasing shares of the Funds should consult with their tax advisers with respect to the effect of the "wash sale" rule if a loss is realized at the time of the redemption. - -------------------------------------------------------------------------------- PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- Yield and Total Return Each Fund may advertise the yield of each class of its shares. Each Fund's yield will vary from time to time depending upon market conditions, the composition of its portfolio and operating expenses of the relevant Trust allocated to each Fund. These factors, possible differences in the methods used in calculating yield and the tax 69 exempt status of distributions should be considered when comparing a Fund's yield to yields published for other investment companies and other investment vehicles. Yield should also be considered relative to changes in the value of the Fund's shares and to the relative risks associated with the investment objectives and policies of the Fund. Yields do not take into account any applicable sales charges or CDSC. Yield may be stated with or without giving effect to any expense limitations in effect for a Fund. For those funds that present yields reflecting an expense limitation or waiver, its yield would have been lower if no limitation or waiver were in effect. Yields and total returns will generally be higher for Class A shares than for Class B and Class C shares of the same Fund, because of the higher levels of expenses borne by the Class B and Class C shares. Because of its lower operating expenses, Class Y shares of each Fund can be expected to achieve a higher yield and total return than the same Fund's Classes A, B and C shares. Each Fund may also present one or more distribution rates for each class in its sales literature. These rates will be determined by annualizing the class's distributions from net investment income and net short-term capital gain over a recent 12-month, 3-month or 30-day period and dividing that amount by the maximum offering price or the net asset value. If the net asset value, rather than the maximum offering price, is used to calculate the distribution rate, the rate will be higher. Each of the Tax Free Funds may also advertise a taxable equivalent yield, calculated as described above except that, for any given tax bracket, net investment income will be calculated using as gross investment income an amount equal to the sum of (i) any taxable income of the Fund plus (ii) the tax-exempt income of the Fund divided by the difference between 1 and the effective federal (or combined federal and state) income tax rate for taxpayers in that tax bracket. To see the taxable equivalent yield calculation charts for these Funds, see the section entitled "Miscellaneous Investment Practices." At any time in the future, yields and total return may be higher or lower than past yields and there can be no assurance that any historical results will continue. Investors in the Funds are specifically advised that share prices, expressed as the net asset values per share, will vary just as yield will vary. An investor's focus on the yield of a Fund to the exclusion of the consideration of the share price of that Fund may result in the investor's misunderstanding the total return he or she may derive from the Fund. - -------------------------------------------------------------------------------- INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS - -------------------------------------------------------------------------------- As described in the Prospectus, it is the policy of each Fund to pay its shareholders, as dividends, substantially all net investment income and to distribute annually all net realized long-term capital gains, if any, after offsetting any capital loss carryovers. Ordinary income dividends and capital gain distributions are payable in full and fractional shares of the relevant class of the particular Fund based upon the net asset value determined as of the close of the Exchange on the record date for each dividend or distribution. Shareholders, however, may elect to receive their ordinary income dividends or capital gain distributions, or both, in cash. The election may be made at any time by submitting a written request directly to CDC Nvest Funds. In order for a change to be in effect for any dividend or distribution, it must be received by CDC Nvest Funds on or before the record date for such dividend or distribution. If you elect to receive your dividends in cash and the dividend checks sent to you are returned "undeliverable" to the Fund or remain uncashed for six months, your cash election will automatically be changed and your future dividends will be reinvested. No interest will accrue on amounts represented by uncashed dividend or redemption checks. As required by federal law, detailed federal tax information will be furnished to each shareholder for each calendar year on or before January 31st of the succeeding year. Taxation of Funds. Each Fund intends to qualify each year as a regulated investment company under 70 Subchapter M of the Code. In order to qualify, each Fund must, among other things, (i) derive at least 90% of its gross income in each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (ii) distribute at least 90% of the sum of its taxable net investment income, net tax-exempt income, and the excess, if any, of net short-term capital gains over net long-term capital losses for such year; and (iii) diversify its holdings so that at the end of each fiscal quarter, (a) at least 50% of the value of its total assets consists of cash, U.S. government securities, securities of other regulated investment companies, and other securities limited generally, with respect to any one issuer, to no more than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its assets is invested in the securities (other than those of the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades or businesses. So long as it qualifies for treatment as a regulated investment company, a Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends or capital gains distributions. If a Fund failed to qualify as a regulated investment company accorded special tax treatment in any taxable year, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment. An excise tax at the rate of 4% will be imposed on the excess, if any, of each Fund's "required distribution" over its actual distributions in any calendar year. Generally, the "required distribution" is 98% of the Fund's ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31st (or December 31st, if the Fund is so permitted to elect and so elects) plus undistributed amounts from prior years. Each Fund intends to make distributions sufficient to avoid imposition of the excise tax. Taxation of Fund Distributions. For federal income tax purposes, distributions of investment income are generally taxable as ordinary income. Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. Distributions of net capital gains from the sale of investments that the Fund owned for more than one year and that are properly designated by the Fund as capital gain dividends will be taxable as long-term capital gains. Distributions of gains from the sale of investments that the Fund owned for one year or less will be taxable as ordinary income. For taxable years beginning on or before December 31, 2008, distributions of investment income designated by the Fund as derived from "qualified dividend income" will be taxed in the hands of individuals at the rates applicable to long-term capital gain provided holding period and other requirements are met at both the shareholder and Fund level. Income derived from investments in fixed-income securities is not eligible for treatment as qualified dividend income. Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price the shareholder paid). Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares (other than "exempt-interest dividends" paid by the Municipal Income and Massachusetts Funds, as described in the relevant Prospectuses). Any gain resulting from the sale or exchange of Fund shares generally will be taxable as capital gains. Distributions declared and payable by a Fund during October, November or December to shareholders of record on a date in any such month and paid by the Fund during the following January will be treated for federal tax purposes as paid by the Fund and received by shareholders on December 31st of the year in which declared. Long-term capital gain rates applicable to individuals have been temporarily reduced--in general, to 15% with lower rates applying to taxpayers in the 10% and 15% rate brackets--for taxable years beginning on or before December 31, 2008. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 120-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with 71 respect to such dividend (or, in the case of certain preferred stock, 91 days during the 180-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a foreign personal holding company, foreign investment company, or passive foreign investment company. In general, distributions of investment income designated by the Fund as derived from qualified dividend income will be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to the Fund's shares. Only qualified dividend income received by the Fund after December 31, 2002 is eligible for pass-through treatment. If the aggregate dividends received by the Fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than dividends properly designated as capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss. If a Fund makes a distribution in excess of its current and accumulated "earnings and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of a shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces the tax basis in a shareholder's shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Sale or Redemption of Shares. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable disposition of Fund shares will be treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received (or deemed received) by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed if other substantially identical shares of the Fund are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. A loss on the sale of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received with respect to such shares and thereafter treated as a long-term capital loss to the extent of any long-term capital gain dividend paid to the shareholder with respect to such shares. Furthermore, no loss will be allowed on the sale of Fund shares to the extent the shareholder acquired other shares of the same Fund within a period beginning 30 days prior to the sale of the loss shares and ending 30 days after such sale. Exempt-Interest Dividends. A Fund will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the Fund's taxable year, at least 50% of the total value of the Fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that the Fund properly designates as exempt-interest dividends are treated as interest excludable from shareholders' gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If the Fund intends to be qualified to pay exempt-interest dividends, the Fund may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures and options contracts on financial futures, tax-exempt bond indices and other assets. Investors may not deduct part or all of the interest on indebtedness, if any, incurred or continued to purchase or carry shares of an investment company paying exempt-interest dividends, such as the Massachusetts and Municipal Income Funds. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholders that are exempt-interest dividends. Under rules used by the IRS to determine when borrowed Funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. 72 Passive Foreign Investment Companies. Funds investing in foreign securities may own shares in certain foreign investment entities, referred to as "passive foreign investment companies." In order to avoid U.S. federal income tax, and an additional charge on a portion of any "excess distribution" from such companies or gain from the disposition of such shares, each Fund may elect to "mark to market" annually its investments in such entities and to distribute any resulting net gain to shareholders. Each Fund may also elect to treat the passive foreign investment company as a "qualified electing fund." As a result, each Fund may be required to sell securities it would have otherwise continued to hold in order to make distributions to shareholders to avoid any Fund-level tax. Income from investments in passive foreign investment companies generally will not qualify for treatment as qualified dividend income. Foreign Taxes. Funds investing in foreign securities may be liable to foreign governments for taxes relating primarily to investment income or capital gains on foreign securities in the Fund's portfolio. Each Fund may in some circumstances be eligible to, and in its discretion may, make an election under the Code that would allow Fund shareholders who are U.S. citizens or U.S. corporations to claim a foreign tax credit or deduction (but not both) on their U.S. income tax return for their pro rata portion of qualified taxes paid by that Fund to foreign countries in respect of foreign securities held at least a minimum period specified in the Code. If a Fund makes the election, the amount of each shareholder's distribution reported on the information returns filed by such Fund with the IRS must be increased by the amount of the shareholder's portion of the Fund's foreign tax paid. A shareholder's ability to claim all or a part of a foreign tax credit or deduction in respect of foreign taxes paid by a Fund may be subject to certain limitations imposed by the Code. Foreign Currency Transactions. Transactions in foreign currencies, foreign-currency denominated debt securities and certain foreign currency options, future contracts, and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. Financial Products. A Fund's investments in options, futures contracts, hedging transactions, forward contracts, swaps and certain other transactions will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale, short sale and other rules), the effect of which may be to accelerate income to the Fund, defer Fund losses, cause adjustments in the holding periods of Fund securities, convert capital gain into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character distributions to Fund shareholders. Certain of each Fund's hedging activities (including its transactions, if any, in foreign currencies and foreign currency denominated instruments) are likely to result in a difference between the Fund's book income and taxable income. This difference may cause a portion of the Fund's income distributions to constitute a return of capital or capital gain for tax purposes or require the Fund to make distributions exceeding book income to avoid excise tax liability and to qualify as a regulated investment company. Securities issued or purchased at a discount. The Fund's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income net yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold. Real Estate Investment Trusts ("REITs"). A Fund's investments in REIT equity securities may require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make required distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold (including when it is not advantageous to do so). The Fund's investments in REIT equity securities may at other times result in the Fund's receipt of cash in excess of the REIT's earnings; if the Fund distributes such amounts, such distribution could constitute a return of capital to Fund shareholders for federal income tax purposes. Income from REIT securities generally will not be eligible for treatment as qualified dividend income. Under current law, the Funds serve to block unrelated business taxable income ("UBTI") from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize UBTI by virtue of its investment in a Fund if either: (1) the Fund invests in REITs that hold residual interests in real estate mortgage investment conduits ("REMICs"); or (2) shares in the Fund constitute debt-financed property in the 73 hands of the tax-exempt shareholder within the meaning of Code Section 514(b). If a charitable remainder trust (as defined in Code Section 664) realizes any UBTI for a taxable year, it will lose its tax-exempt status for the year. The Fund may invest in REITs that hold residual interests in REMICs. Backup Withholding. Each Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable distributions and redemption proceeds paid to any individual shareholder who fails to properly furnish the Fund with a correct taxpayer identification number ("TIN"), who has under-reported dividend or interest income, or who fails to certify to the Fund that he or she is not subject to such withholding. The backup withholding tax rate is 28% for amounts paid through 2010. The backup withholding tax rate will be 31% for amounts paid after December 31, 2010. Other Tax Matters. Special tax rules apply to investments though defined contribution plans and other tax-qualified plans. Shareholders should consult their tax adviser to determine the suitability of shares of a fund as an investment through such plans and the precise effect of and investment on their particular tax situation. Dividends and distributions also may be subject to state and local taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state, local and, where applicable, foreign taxes. The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S. investors should consult their tax advisers concerning the tax consequences of ownership of shares of the Fund, including the certification and filing requirements imposed on foreign investors in order to qualify for exemption from the backup withholding tax rates described above (or a reduced rate of withholding provided by treaty). Under tax legislation enacted by the Massachusetts Legislature in 2002, capital gains realized on capital assets held for more than one year will be subject to a single rate of tax rather than a graduated schedule, as provided under prior law. Accordingly, Fund distributions deriving from such gains will be taxable to you based on the single rate. If a shareholder recognizes a loss with respect to the fund's shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and related regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and regulations. The Code and regulations are subject to change by legislative or administrative actions. - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The financial statements of the Funds and the related reports of the independent registered public accountants included in the Funds' Annual Reports for the year ended September 30, 2004 are incorporated herein by reference. The financial statements and financial highlights for these Funds included in their 2004 Annual Reports for the year ended September 30, 2004 are incorporated by reference to such reports. The Fund's annual and semiannual reports are available upon request and without charge. Each Fund will send a single copy of its annual reports to an address at which more than one shareholder of record with the same last name has indicated that mail is to be delivered. Shareholders may request additional copies of any annual or semiannual report by telephone at (800) 225-5478 or by writing to the Distributor at: IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, Massachusetts 02116. The annual and semi-annual reports are also available on-line at the SEC's website, at www.sec.gov. 74 APPENDIX A DESCRIPTION OF SECURITIES RATINGS Certain of the Funds make use of average portfolio credit quality standards to assist institutional investors whose own investment guidelines limit their investments accordingly. In determining a Fund's overall dollar-weighted average quality, unrated securities are treated as if rated, based on the adviser's view of their comparability to rated securities. A Fund's use of average quality criteria is intended to be a guide for those investors whose investment guidelines require that assets be invested according to comparable criteria. Reference to an overall average quality rating for a Fund does not mean that all securities held by the Fund will be rated in that category or higher. A Fund's investments may range in quality from securities rated in the lowest category in which the Fund is permitted to invest to securities rated in the highest category (as rated by Moody's or S&P or, if unrated, determined by the adviser to be of comparable quality). The percentage of a Fund's assets invested in securities in a particular rating category will vary. Following is a description of Moody's and S&P's ratings applicable to fixed income securities. Moody's Investors Service, Inc. Corporate and Municipal Bond Ratings Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than with Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future. Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C: Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. A-1 Moody's bond ratings, where specified, are applicable to financial contracts, senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in excess of one year. Obligations relying upon support mechanisms such as letter-of-credit and bonds of indemnity are excluded unless explicitly rated. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located. Unless noted as an exception, Moody's rating on a bank's ability to repay senior obligations extends only to branches located in countries which carry a Moody's Sovereign Rating for Bank Deposits. Such branch obligations are rated at the lower of the bank's rating or Moody's Sovereign Rating for the Bank Deposits for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody's ratings do not incorporate an opinion as to whether payment of the obligation will be affected by the actions of the government controlling the currency of denomination. In addition, risk associated with bilateral conflicts between an investor's home country and either the issuer's home country or the country where an issuer branch is located are not incorporated into Moody's ratings. Moody's makes no representation that rated bank obligations or insurance company obligations are exempt from registration under the Securities Act of 1933 or issued in conformity with any other applicable law or regulation. Nor does Moody's represent that any specific bank or insurance company obligation is legally enforceable or a valid senior obligation of a rated issuer. Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating classified from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Corporate Short-Term Debt Ratings Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories. A-2 Standard & Poor's Ratings Services Issue Credit Rating Definitions A Standard & Poor's issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor. Issue credit ratings are based on current information furnished by the obligors or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days, including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings. Issue credit ratings are based, in varying degrees, on the following considerations: likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; nature of and provisions of the obligation; protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) Accordingly, in the case of junior debt, the rating may not conform exactly with the category definition. Corporate and Municipal Bond Ratings Investment Grade AAA: An obligation rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA: An obligation rated 'AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A: An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB: An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Speculative Grade A-3 Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. BB: An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B: An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC: An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC: An obligation rated 'CC' is currently highly vulnerable to nonpayment. C: A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. CI: The rating CI is reserved for income bonds on which no interest is being paid. D: An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Provisional ratings: The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk. r: This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligations linked or indexed to equities, currencies, or commodities; obligations exposed to severe prepayment risk - such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters. The absence of an "r" symbol should not be taken as an indication that an obligation will exhibit no volatility or variability in total return. N.R.: This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy. Debt obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take A-4 into account currency exchange and related uncertainties. Commercial Paper Rating Definitions A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from A for the highest quality obligations to D for the lowest. These categories are as follows: A-1: A short-term obligation rated 'A-1' is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. A-2: A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory. A-3: A short-term obligation rated 'A-3' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. B: A short-term obligation rated 'B' is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. C: A short-term obligation rated 'C' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. D: A short-term obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. A commercial paper rating is not a recommendation to purchase, sell or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to Standard & Poor's by the issuer or obtained from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information. A-5 Part B CDC Nvest Star Advisers Fund CDC Nvest Star Value Fund CGM Advisor Targeted Equity Fund (formerly CDC Nvest Targeted Equity Fund) Hansberger International Fund (formerly CDC Nvest Star International Fund) Vaughan Nelson Small Cap Value Fund Westpeak Capital Growth Fund (formerly CDC Nvest Capital Growth Fund) For CDC Nvest Star Advisers Fund and CDC Nvest Star Value Fund, Statement of Additional Information - Part I for the CDC Nvest Star Funds dated May 1, 2004 is incorporated by reference to PEA No. 57 to the initial registration statement on Form N-1A of CDC Nvest Funds Trust I filed on April 29, 2004 (File No: 002-98326; Accession No.: 0001127563-04-000066) as supplemented on July 1, 2004 (Accession No.: 0001127563-04-000135). For CGM Advisor Targeted Equity Fund, Hansberger International Fund, Vaughan Nelson Small Cap Value Fund and Westpeak Capital Growth Fund, Statement of Additional Information - Part I for the CDC Nvest Equity Funds dated May 1, 2004 is incorporated by reference to PEA No. 57 to the initial registration statement on Form N-1A of CDC Nvest Funds Trust I filed on April 29, 2004 (File No: 002-98326; Accession No.: 0001127563-04-000066). For CDC Nvest Star Advisers Fund, CDC Nvest Star Value Fund, CGM Advisor Targeted Equity Fund, Hansberger International Fund, Vaughan Nelson Small Cap Value Fund and Westpeak Capital Growth Fund, Statement of Additional Information - - Part II for the CDC Nvest dated May 1, 2004 is incorporated by reference to PEA No. 57 to the initial registration statement on Form N-1A of CDC Nvest Funds Trust I filed on April 29, 2004 (File No: 002-98326; Accession No.: 0001127563-04-000066) as revised on July 14, 2004 (Accession No.: 0001193125-04-118104). Registration Nos. 2-98326 811-4323 CDC NVEST FUNDS TRUST I PART C OTHER INFORMATION Item 23. Exhibits (a) Articles of Incorporation. (1) The Registrant's Second Amended and Restated Agreement and Declaration of Trust dated April 25, 2002 (the "Agreement and Declaration") is incorporated by reference to exhibit (a)(1) to Post Effective Amendment ("PEA") No. 51 to the initial registration statement ("Registration Statement") filed on April 29, 2002. (2) Amendment No. 1 dated February 28, 2003 to the Agreement and Declaration is incorporated by reference to exhibit (a)(2) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (3) Amendment No. 2 dated May 16, 2003 to the Agreement and Declaration is incorporated by reference to exhibit (a)(3) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (4) Amendment No. 3 dated August 22, 2003 to the Agreement and Declaration is incorporated by reference to exhibit (a)(4) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (5) Amendment No. 4 dated August 22, 2003 to the Agreement and Declaration is incorporated by reference to exhibit (a)(5) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (6) Amendment No. 5 dated February 27, 2004 to the Agreement and Declaration is incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (b) By-Laws. (1) The Registrant's Amended and Restated By-laws dated February 27, 2004 (the "By-laws") are incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (2) Amendment No. 1 dated August 20, 2004 to the By-laws is filed herewith. (3) Amendment No. 2 dated November 19, 2004 to the By-laws is filed herewith. (c) Instruments Defining Rights of Security Holders. Rights of shareholders are described in Article III, Section 6 of the Agreement and Declaration is incorporated by reference to exhibit (a)(1) to PEA No. 51 to Registration Statement filed on April 29, 2002 and to exhibit (a)(2), (a)(3), (a)(4) and (a)(5) to PEA No. 54 to the Registration Statement filed on November 28, 2003 and to (a)(6) to PEA No. 57 to the Registration Statement filed on April 29, 2004. (d) Investment Advisory Contracts. (1) (i) Form of Advisory Agreement dated January 1, 2005 between the Registrant on behalf of CGM Advisor Targeted Equity Fund and Capital Growth Management Limited Partnership ("CGM") is filed herewith. (ii) Advisory Agreement dated October 30, 2000 between Registrant on behalf of Westpeak Capital Growth Fund and IXIS Asset Management Advisors, L.P. (formerly CDC IXIS Asset Management Advisers, L.P., "IXIS Advisors",) is incorporated by reference to exhibit (d)(2)(i) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (iii) Advisory Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest Star Advisers Fund and IXIS Advisors is incorporated by reference to exhibit (d)(2)(iv) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (iv) Addendum dated June 1, 2001 to Advisory Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest Star Advisers Fund and IXIS Advisors is incorporated by reference to exhibit (d)(2)(v) to PEA No. 45 to the Registration Statement filed on August 1, 2001. (v) Advisory Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest Star Value Fund and IXIS Advisors is incorporated by reference to exhibit (d)(2)(v) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (vi) Advisory Agreement dated October 30, 2000 between Registrant on behalf of Hansberger International Fund and IXIS Advisors is incorporated by reference to exhibit (d)(2)(vi) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (vii) Addendum dated March 1, 2004 to Advisory Agreement dated October 30, 2000 between Registrant on behalf of Hansberger International Fund and IXIS Advisors is incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (viii) Advisory Agreement dated September 1, 2003 between Registrant on behalf of Loomis Sayles Government Securities Fund and Loomis, Sayles & Company, L.P. ("Loomis Sayles") is incorporated by reference to exhibit (d)(2)(vii) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (ix) Advisory Agreement dated September 1, 2003 between Registrant on behalf of Loomis Sayles Core Plus Bond Fund and Loomis Sayles is incorporated by reference to exhibit (d)(2)(viii) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (x) Advisory Agreement dated October 30, 2000 between Registrant on behalf of Vaughan Nelson Small Cap Value Fund and IXIS Advisors is incorporated by reference to exhibit (d)(2)(xi) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (xi) Addendum dated March 1, 2004 to Advisory Agreement dated October 30, 2000 between Registrant on behalf of Vaughan Nelson Small Cap Value Fund and IXIS Advisors is incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (xii) Advisory Agreement dated November 19, 2001 between Registrant on behalf of CDC Nvest Star Growth Fund and IXIS Advisors is incorporated by reference to exhibit (d)(2)(xv) to PEA No. 49 to the Registration Statement filed on December 3, 2001. (3) (i) Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of Westpeak Capital Growth Fund, IXIS Advisors and Westpeak Global Advisors, L.P. ("Westpeak") is incorporated by reference to exhibit (d)(3)(i) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (ii) Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest Star Advisers Fund, IXIS Advisors and Loomis Sayles is incorporated by reference to exhibit (d)(3)(iv) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (iii) Amendment No. 1 dated June 1, 2001 to Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest Star Advisers Fund, IXIS Advisors and Loomis Sayles is incorporated by reference to exhibit (d)(3)(vi) to PEA No. 45 to the Registration Statement filed on August 1, 2001. (iv) Sub-advisory Agreement dated May 18, 2001 among Registrant on behalf of CDC Nvest Star Advisers Fund, IXIS Advisors and Loomis Sayles is incorporated by reference to exhibit (d)(3)(vii) to PEA No. 45 to the Registration Statement filed on August 1, 2001. (v) Amendment No. 1 dated June 1, 2001 to Sub-advisory Agreement dated May 18, 2001 among Registrant on behalf of CDC Nvest Star Advisers Fund, IXIS Advisors and Loomis Sayles is incorporated by reference to exhibit (d)(3)(viii) to PEA No. 45 to the Registration Statement filed on August 1, 2001. (vi) Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest Star Advisers Fund, IXIS Advisors and Harris Associates L.P. ("Harris Associates") is incorporated by reference to exhibit (d)(3)(vii) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (vii) Amendment No. 1 dated June 1, 2001 to Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest Star Advisers Fund, IXIS Advisors and Harris Associates is incorporated by reference to exhibit (d)(3)(x) to PEA No. 45 to the Registration Statement filed on August 1, 2001. (viii) Sub-advisory Agreement dated September 1, 2001 among Registrant on behalf of CDC Nvest Star Advisers Fund, IXIS Advisors and Fund Asset Management, L.P. doing business as Mercury Advisors ("Mercury") is incorporated by reference to exhibit (d)(3)(xi) to PEA No. 46 to the Registration Statement filed on October 12, 2001. (ix) Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest Star Value Fund, IXIS Advisors and Loomis Sayles is incorporated by reference to exhibit (d)(3)(xi) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (x) Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest Star Value Fund, IXIS Advisors and Harris Associates is incorporated by reference to exhibit (d)(3)(xiii) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (xi) Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest Star Value Fund, IXIS Advisors and Vaughan Nelson Investment Management ("Vaughan Nelson")) is incorporated by reference to exhibit (d)(3)(xv) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (xii) Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest Star Value Fund, IXIS Advisors and Westpeak is incorporated by reference to exhibit (d)(3)(xvii) to PEA No. 43 to the Registration Statement filed on February 27, 2001. (xiii) Sub-advisory Agreement dated March 1, 2002 among Registrant on behalf of Hansberger International Fund, IXIS Advisors and Hansberger Global Investors, Inc. ("Hansberger") is incorporated by reference to exhibit (d)(3)(xviii) to PEA No. 51 to the Registration Statement filed on April 29, 2002. (xiv) Addendum dated March 1, 2004 to the Sub-advisory Agreement dated March 1, 2002 among Registrant on behalf of Hansberger International Fund, IXIS Advisors and Hansberger is incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (xv) Sub-advisory Agreement dated March 1, 2004 among Registrant on behalf of Vaughan Nelson Small Cap Value Fund, IXIS Advisors and Vaughan Nelson is incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (xvi) Sub-advisory Agreement dated November 19, 2001 among Registrant on behalf of CDC Nvest Star Growth Fund, IXIS Advisors and Westpeak is incorporated by reference to exhibit (d)(3)(xxix) to PEA No. 47 to the Registration Statement filed on November 14, 2001. (xvii) Sub-advisory Agreement dated November 19, 2001 among Registrant on behalf of CDC Nvest Star Growth Fund, IXIS Advisors and Vaughan Nelson is incorporated by reference to exhibit (d)(3)(xxx) to PEA No. 47 to the Registration Statement filed on November 14, 2001. (xviii) Sub-advisory Agreement dated November 19, 2001 among Registrant on behalf of CDC Nvest Star Growth Fund, IXIS Advisors and Morgan Stanley Investment Management Inc. doing business as Miller Anderson ("Miller Anderson") is incorporated by reference to exhibit (d)(3)(xxxii) to PEA No. 49 to the Registration Statement filed on December 3, 2001. Underwriting Contracts. (e) (1) Distribution Agreement dated March 3, 2003 between the Registrant on behalf of CGM Advisor Targeted Equity Fund and IXIS Asset Management Distributors, L.P. (formerly CDC IXIS Asset Management Distributors, L.P., "IXIS Distributors") is incorporated by reference to exhibit (e)(1) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (2) Distribution Agreement dated March 3, 2003 between the Registrant on behalf of Westpeak Capital Growth Fund and IXIS Distributors is incorporated by reference to exhibit (e)(2) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (3) Distribution Agreement dated March 3, 2003 between the Registrant on behalf of CDC Nvest Star Advisers Fund and IXIS Distributors is incorporated by reference to exhibit (e)(5) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (4) Distribution Agreement dated March 3, 2003 between the Registrant on behalf of CDC Nvest Star Value Fund and IXIS Distributors is incorporated by reference to exhibit (e)(6) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (5) Distribution Agreement dated March 3, 2003 between the Registrant on behalf of Hansberger International Fund and IXIS Distributors is incorporated by reference to exhibit (e)(7) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (6) Distribution Agreement dated March 3, 2003 between the Registrant on behalf of Loomis Sayles Government Securities Fund and IXIS Distributors is incorporated by reference to exhibit (e)(8) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (7) Distribution Agreement dated March 3, 2003 between the Registrant on behalf of Loomis Sayles Core Plus Bond Fund and IXIS Distributors is incorporated by reference to exhibit (e)(10) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (8) Distribution Agreement dated March 3, 2003 between the Registrant on behalf of Vaughan Nelson Small Cap Value Fund and IXIS Distributors is incorporated by reference to exhibit (e)(12) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (9) Distribution Agreement dated March 3, 2003 between Registrant on behalf of CDC Nvest Star Growth Fund and IXIS Distributors is incorporated by reference to exhibit (e)(14) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (10) Form of Dealer Agreement used by IXIS Distributors is filed herewith. (f) Bonus or Profit Sharing Contracts. None. (g) Custodian Agreements. (1) Custodian Agreement dated May 1, 2002 between the Registrant and Investors Bank & Trust ("IBT") is incorporated by reference to exhibit (g)(1) to PEA No. 52 to the Registration Statement filed on February 28, 2003. (2) Amendment dated September 15, 2003 to Custodian Agreement is filed herewith. (h) Other Material Contracts. (1) Transfer Agency and Services Agreement dated November 1, 1999 between the Registrant on behalf of its respective series, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, Cash Management Trust Money Market Series, Tax Exempt Money Market Trust and CDC IXIS Asset Management Services, Inc. ("CIS") is incorporated by reference to exhibit h(1) to PEA No. 42 to the Registration Statement filed on April 27, 2000. (2) First Addendum dated September 12, 2003 to Transfer Agency and Service Agreement is incorporated by reference to exhibit (h)(2) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (3) Second Addendum dated January 1, 2004 to the Transfer Agency and Service Agreement is incorporated by reference to exhibit (h)(3) to PEA No. 55 to the Registration Statement filed on January 28, 2004. (4) Third Addendum dated July 1, 2004 to the Transfer Agency and Service Agreement is filed herewith. (5) Securities Lending Agency Agreement dated May 1, 2002 between IBT and the Registrant and its Series enumerated on schedule C thereto is incorporated by reference to exhibit (h)(2) to PEA No. 52 to the Registration Statement filed on February 28, 2003. (6) Amendment dated September 15, 2003 to Securities Lending Agency Agreement is filed herewith. (7) IXIS Advisors Fee Waiver/Reimbursement Undertakings dated July 14, 2004 between IXIS Advisors and the Registrant on behalf of CDC Nvest Star Growth Fund is incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (8) Form of IXIS Advisors Fee Waiver/Reimbursement Undertakings dated February 1, 2005 between IXIS Advisors and the Registrant on behalf of Loomis Sayles Core Plus Bond Fund is filed herewith. (9) Administrative Services Agreement dated October 1, 2003 between Registrant on behalf of its respective series, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, Cash Management Trust Money Market Series, Loomis Sayles Funds I, Loomis Sayles Funds II and ISC is incorporated by reference to exhibit (h)(6) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (10) First Amendment dated July 14, 2004 to Administrative Services Agreement is filed herewith. (11) Reliance Agreement for Exchange Privileges dated September 30, 2003 by and among Registrant, CDC Nvest Companies Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, CDC Nvest Cash Management Trust, Loomis Sayles Funds I and Loomis Sayles Funds II is incorporated by reference to exhibit (h)(7) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (12) Advisory Administration Agreement dated September 1, 2003 between Registrant, with respect to Loomis Sayles Government Securities Fund, and CDC IXIS Advisers is incorporated by reference to exhibit (h)(8) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (13) Advisory Administration Agreement dated September 1, 2003 between Registrant, with respect to Loomis Sayles Core Plus Bond Fund, and CDC IXIS Advisers is incorporated by reference to exhibit (h)(9) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (i) Legal Opinion. (1) Opinion and consent of counsel relating to the Registrant's CDC Nvest Star International Fund is incorporated by reference to exhibit 10(h) to PEA No. 31 to the Registration Statement filed on April 12, 1996. (2) Opinion and consent of counsel relating to the Registrant's CDC Nvest Star Small Cap Fund is incorporated by reference to exhibit 10(i) to PEA No. 34 to the Registration Statement filed on February 14, 1997. (3) Opinion and consent of counsel relating to the Registrant's CDC Nvest Government Securities Fund is incorporated by reference to PEA No. 35 to the Registration Statement filed on April 18, 1997. (4) Opinion and consent of counsel relating to the Registrant's issuance of multiple classes of shares is incorporated by reference to PEA No. 38 to the Registration Statement filed on April 30, 1998. (5) Opinion and consent of counsel relating to the Registrant's CDC Nvest Star Advisers Fund is incorporated by reference to PEA No. 38 to the Registration Statement filed on April 30, 1998. (6) Opinion and consent of counsel relating to the Registrant's CDC Nvest Star Growth Fund is incorporated by reference to exhibit (i)(7) to PEA No. 46 to the Registration Statement filed on October 12, 2001. (j) Other Opinions. Consent of PricewaterhouseCoopers LLP to be filed by amendment. (k) Omitted Financial Statements Not applicable. (l) Initial Capital Agreements. Not applicable. (m) Rule 12b-1 Plan. (1) (a) Rule 12b-1 Plan for class A shares of CGM Advisor Targeted Equity Fund is incorporated by reference to exhibit (m)(1)(a) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of CGM Advisor Targeted Equity Fund is incorporated by reference to exhibit (m)(1)(b) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for class C shares of CGM Advisor Targeted Equity Fund is incorporated by reference to exhibit (m)(1)(c) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (2) (a) Rule 12b-1 Plan for class A shares of Westpeak Capital Growth Fund is incorporated by reference to exhibit (m)(2)(a) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of Westpeak Capital Growth Fund is incorporated by reference to exhibit (m)(2)(b) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for class C shares of Westpeak Capital Growth Fund is incorporated by reference to exhibit (m)(2)(c) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (3) (a) Rule 12b-1 Plan for class A shares of CDC Nvest Star Advisers Fund is incorporated by reference to exhibit (m)(5)(a) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of CDC Nvest Star Advisers Fund is incorporated by reference to exhibit (m)(5)(b) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for class C shares of CDC Nvest Star Advisers Fund is incorporated by reference to exhibit (m)(5)(c) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (4) (a) Rule 12b-1 Plan for class A shares of CDC Nvest Star Value Fund is incorporated by reference to exhibit (m)(6)(a) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of CDC Nvest Star Value Fund is incorporated by reference to exhibit (m)(6)(b) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for class C shares of CDC Nvest Star Value Fund is incorporated by reference to exhibit (m)(6)(c) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (5) (a) Rule 12b-1 Plan for class A shares of Hansberger International Fund is incorporated by reference to exhibit (m)(7)(a) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of Hansberger International Fund is incorporated by reference to exhibit (m)(7)(b) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for class C shares of Hansberger International Fund is incorporated by reference to exhibit (m)(7)(c) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (6) (a) Rule 12b-1 Plan for class A shares of Loomis Sayles Government Securities Fund is incorporated by reference to exhibit (m)(8)(a) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of Loomis Sayles Government Securities Fund is incorporated by reference to exhibit (m)(8)(b) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (7) (a) Rule 12b-1 Plan for class A shares of Loomis Sayles Core Plus Fund is incorporated by reference to exhibit (m)(10)(a) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of Loomis Sayles Core Plus Fund is incorporated by reference to exhibit (m)(10)(b) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for class C shares of Loomis Sayles Core Plus Bond Fund is incorporated by reference to exhibit (m)(10)(c) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (8) (a) Rule 12b-1 Plan for class A shares of Vaughan Nelson Small Cap Value Fund is incorporated by reference to exhibit (m)(12)(a) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of Vaughan Nelson Small Cap Value Fund is incorporated by reference to exhibit (m)(12)(b) to PEA No. 53 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for class C shares of Vaughan Nelson Small Cap Value Fund is incorporated by reference to exhibit (m)(12)(c) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (9) (a) Rule 12b-1 Plan for class A shares of CDC Nvest Star Growth Fund is incorporated by reference to exhibit (m)(15)(a) to PEA No. 46 to the Registration Statement filed on October 12, 2001. (b) Rule 12b-1 Plan for class B shares of CDC Nvest Star Growth Fund is incorporated by reference to exhibit (m)(10)(b) to PEA No. 54 to the Registration Statement filed on November 28, 2003. (c) Rule 12b-1 Plan for class C shares of CDC Nvest Star Growth Fund is incorporated by reference to exhibit (m)(15)(c) to PEA No. 46 to the Registration Statement filed on October 12, 2001. (n) Rule 18f-3 Plan Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940 as amended, effective February 2004 is incorporated by reference to exhibit (n) to PEA No. 55 to the Registration Statement filed on January 28, 2004. (p) Code of Ethics. (1) Code of Ethics of Registrant dated July 1, 2004 is filed herewith. (2) Code of Ethics dated June 1, 2004 for IXIS Advisors and IXIS Distributors is filed herewith. (3) Code of Ethics dated March 1, 2000 as revised September 29, 2004 of Capital Growth Management Limited Partnership is filed herewith. (4) Code of Ethics dated May 11, 2000 of Westpeak is incorporated by reference to exhibit p(4) to PEA No. 44 to the Registration Statement filed on April 30, 2001. (5) Code of Ethics dated January 14, 2000 as amended March 1, 2004 of Loomis Sayles is incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (6) Code of Ethics dated January 31, 2002 of Harris Associates is incorporated by reference to exhibit (p)(6) to PEA No. 52 to the Registration Statement filed on February 28, 2003. (7) Code of Ethics dated April 20, 2001 of Vaughan Nelson is incorporated by reference to exhibit (p)(8) to PEA No. 45 to the Registration Statement filed on August 1, 2001. (8) Code of Ethics dated January 2004 for Mercury is incorporated by reference to PEA No. 57 to the Registration Statement filed on April 29, 2004. (9) Code of Ethics dated August 16, 2002 as revised June 15, 2004 for Miller Anderson is filed herewith. (10) Code of Ethics dated February 1, 2001 for Hansberger is incorporated by reference to exhibit (p)(13) to PEA No. 50 to the Registration Statement filed on February 27, 2002. (q) Powers of Attorney Powers of Attorney for Graham T. Allison, Jr., Daniel M. Cain, Kenneth J. Cowan, Richard Darman, John T. Hailer, Paul Chenault, Edward Benjamin, Robert Blanding, Sandra O. Moose and John A. Shane dated October 18, 2004 designating John M. Loder, Coleen Downs Dinneen, Russell Kane and Michael Kardok as attorneys to sign for each Trustee is filed herewith. Item 24. Persons Controlled by or Under Common Control with the Registrant The Registrant is not aware of any person controlled or under common control with any of its series. As of November 26, 2004, the persons listed below owned 25% or more of outstanding voting securities of a Fund of the Registrant and thus may be deemed to "control" the Fund within the meaning of section 2(a)(9) of the Investment Company Act of 1940, as amended: Fund Entity, State of Organization Ownership - ---- ----------------------------- --------- Loomis Sayles Core Plus Bond MLPF&S for the Sole Benefit of Its 39.99% Fund Customers Attn Fund Administration ML#98484 4800 Deer Lake Dr East - 2nd FL Jacksonville FL 32246-6484 As of November 26, 2004, there were no persons that own 25% or more of the outstanding voting securities of any series of the Registrant, except Loomis Sayles Core Plus Bond Fund as noted above. Item 25. Indemnification Under Article 4 of the Registrant's By-laws, any past or present Trustee or officer of the Registrant (hereinafter referred to as a "Covered Person") shall be indemnified to the fullest extent permitted by law against all liability and all expenses reasonably incurred by him or her in connection with any claim, action, suit or proceeding to which he or she may be a party or otherwise involved by reason of his or her being or having been a Covered Person. That provision does not authorize indemnification when it is determined that such Covered Person would otherwise be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. This description is modified in its entirety by the provision of Article 4 of the Registrant's By-laws contained in the PEA No. 57 to the Registration Statement filed on April 29, 2004 as exhibit (b)(2) and is incorporated by reference. The Distribution Agreement, the Custodian Contract, the Transfer Agency and Service Agreement and the Administrative Services Agreement (the "Agreements") contained herein and in various post-effective amendments and incorporated herein by reference, provide for indemnification. The general effect of these provisions is to indemnify entities contracting with the Registrant against liability and expenses in certain circumstances. This description is modified in its entirety by the provisions of the Agreements as contained in this Registration Statement and incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in connection with the successful defense of any claim, action, suit or proceeding) is asserted against the Registrant by such Trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. Registrant and its Trustees, officers and employees are insured, under a policy of insurance maintained by the Registrant in conjunction with IXIS Asset Management North America, L.P. (formerly CDC IXIS Asset Management North America, L.P.) and its affiliates, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such Trustees or officers. The policy expressly excludes coverage for any Trustee or officer for any claim arising out of any fraudulent act or omission, any dishonest act or omission or any criminal act or omission of the Trustee or officer. Item 26. Business and Other Connections of Investment Adviser (a) IXIS Advisors, a wholly owned subsidiary IXIS Asset Management North America, L.P. serves as investment adviser to all the series of the Registrant except CGM Advisor Targeted Equity Fund, Loomis Sayles Core Plus Bond Fund and Loomis Sayles Government Securities Fund. IXIS Advisors was organized in 1995. The list required by this Item 26 regarding any other business, profession or employment of a substantial nature engaged in by officers and partners of IXIS Advisors during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by IXIS Advisors pursuant to the Advisers Act (SEC File No. 801-48408; IARD/CRD No. 106800). (b) CGM, adviser of the Registrant's CGM Advisor Targeted Equity Fund, provides investment advice to a number of other registered investment companies and to other organizations and individuals. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of CGM during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by CGM pursuant to the Advisers Act (SEC File No. 801-35935; IARD/CRD No. 105268). (c) Loomis Sayles, adviser of the Registrant's Loomis Sayles Core Plus Bond Fund, Loomis Sayles Government Securities Fund and subadviser of the Registrant's CDC Nvest Star Value Fund and CDC Nvest Star Advisers Fund, provides investment advice to a number of other registered investment companies and to other organizations and individuals. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Loomis Sayles during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Loomis Sayles pursuant to the Investment Advisers Act of 1940 as amended (the "Advisers Act") (SEC File No. 801-170; IARD/CRD No. 105377). (d) Westpeak serves as subadviser to the Registrant's Westpeak Capital Growth Fund, CDC Nvest Star Value Fund and CDC Nvest Star Growth Fund. Organized in 1991, Westpeak provides investment management services to other mutual funds and institutional clients. The list required by this Item 26 regarding any other general business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Westpeak during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Westpeak pursuant to the Advisers Act (SEC File No. 801-39554; IARD/CRD No. 106769). (f) Harris Associates serves as a subadviser to the Registrant's CDC Nvest Star Advisers Fund and CDC Nvest Star Value Fund. Harris Associates serves as investment adviser to mutual funds, individuals, trusts, retirement plans, endowments and foundations, and manages several private partnerships, and is a registered commodity trading adviser and commodity pool operator. The list required by this Item 26 regarding any other business, profession or employment of a substantial nature engaged in by officers and partners of Harris Associates during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Harris Associates pursuant to the Advisers Act (SEC File No. 801-50333; IARD/CRD No. 106960). (h) Vaughan Nelson subadviser to Registrant's CDC Nvest Star Value Fund, CDC Nvest Star Growth Fund and Vaughan Nelson Small Cap Value Fund, provides investment advice to a number of other registered investment companies and to other organizations and individuals. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Vaughan Nelson during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Vaughan Nelson pursuant to the Advisers Act (File No. 801-51795; IARD/CRD No. 106975). (i) Mercury serves as subadviser to Registrant's CDC Nvest Star Advisers Fund. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and directors of Mercury during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Mercury pursuant to the Advisers Act (File No. 801-12485; IARD/CRD No. 109798). (j) Miller Anderson serves as subadviser to Registrant's CDC Nvest Star Growth Fund. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and directors of Miller Anderson during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Miller Anderson pursuant to the Advisers Act (File No. 801-10437; IARD/CRD No. 110353). (k) Hansberger serves as subadviser to Registrant's Hansberger International Fund. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and directors of Hansberger during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Hansberger pursuant to the Advisers Act (File No. 801-46059; IARD/CRD No. 106039). Item 27. Principal Underwriter (a) IXIS Asset Management Distributors, L.P., the principal underwriter of the Registrant, also serves as principal underwriter for: CDC Nvest Cash Management Trust CDC Nvest Funds Trust II CDC Nvest Funds Trust III CDC Nvest Companies Trust I Loomis Sayles Funds I Loomis Sayles Funds II (b) The general partner and officers of the Registrant's principal underwriter, IXIS Asset Management Distributors, L.P., and their addresses are as follows:
Positions and Offices Positions and Offices Name with Principal Underwriter with Registrant - ------------------------ -------------------------------------------- -------------------------------- IXIS Asset Management General Partner None Distribution Corporation John T. Hailer President and Chief Executive Officer President, Chief Executive Officer and Trustee John E. Pelletier Executive Vice President and Chief Operating Chief Operating Officer Officer Coleen Downs Dinneen Senior Vice President, General Counsel, Secretary, Clerk and Chief Legal Secretary and Clerk Officer Russell Kane Vice President, Associate General Counsel, Assistant Secretary Assistant Secretary and Assistant Clerk Beatriz Pina Smith Vice President, Treasurer and Chief None Financial Officer Anthony Loureiro Senior Vice President and Chief Compliance None Officer Kristin Vigneaux Chief Compliance Officer for Mutual Funds Chief Compliance Officer Jeffrey Coron Senior Vice President None Robert Krantz Executive Vice President None Joanne Kane Anti-Money Laundering Compliance Officer None Frank S. Maselli Executive Vice President None Curt Overway Senior Vice President None Matt Witkos Senior Vice President None Maureen O'Neill Senior Vice President None Susannah Wardly Senior Vice President None Mark Doyle Senior Vice President None Chris Walsh Senior Vice President None
The principal business address of all the above persons or entities is 399 Boylston Street, Boston, MA 02116. (c) Not applicable. Item 28. Location of Accounts and Records The following companies, in the aggregate, maintain possession of the documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, as amended, and the rules thereunder: (a) For all series of Registrant: (i) CDC Nvest Funds Trust I 399 Boylston Street Boston, MA 02116 (ii) IXIS Asset Management Services Company 399 Boylston Street Boston, Massachusetts 02116 (iii) IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 (iv) IXIS Asset Management Advisors, L.P. 399 Boylston Street Boston, Massachusetts 02116 (excluding Targeted Equity Fund, Loomis Sayles Core Plus Bond Fund and Loomis Sayles Government Securities Fund) (v) Investors Bank and Trust Company 200 Clarendon Street Boston, MA 02116 (vi) State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 (b) For CGM Advisor Targeted Equity Fund: Capital Growth Management Limited Partnership One International Place Boston, Massachusetts 02110 (c) For the series of the Registrant managed by Harris Associates: Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602 (d) For the series of the Registrant managed by Mercury: Fund Asset Management, L.P. 800 Scudders Mill Road Plainsboro, New Jersey 08536 (e) For the series of the Registrant managed by Loomis Sayles: Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 (g) For the series of the Registrant managed by Vaughan Nelson: Vaughan Nelson Investment Management, L.P. 600 Travis Suite 6300 Houston, Texas 77002 (h) For the series of the Registrant managed by Westpeak Global Advisers, L.P.: Westpeak Global Advisers, L.P. 1011 Walnut Street Boulder, Colorado 80302 (i) For the series of the Registrant managed by Miller Anderson: Morgan Stanley Investment Management Inc. One Tower Bridge, West Conshohocken, Pennsylvania 19428 (j) For the series of the Registrant managed by Hansberger: Hansberger Global Investors, Inc. 401 East Las Olas Boulevard, Suite 1700 Fort Lauderdale, Florida 33301 Item 29. Management Services None. Item 30. Undertakings (a) The Registrant undertakes to provide the annual report of any of its series to any person who receives a prospectus for such series and who requests the annual report. CDC NVEST FUNDS TRUST I SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, the Registrant has duly caused this post-effective amendment No. 56 to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on the 2nd day of December, 2004. CDC NVEST FUNDS TRUST I By: /s/ John T. Hailer ----------------------- John T. Hailer Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- /s/ Michael C. Kardok - --------------------------- Michael C. Kardok Treasurer December 2, 2004 /s/ GRAHAM T. ALLISON, JR.* - --------------------------- Graham T. Allison, Jr. Trustee December 2, 2004 /s/ EDWARD A. BENJAMIN* - --------------------------- Edward A. Benjamin Trustee December 2, 2004 /s/ ROBERT J. BLANDING* - --------------------------- Robert J. Blanding Trustee December 2, 2004 /s/ DANIEL M. CAIN* - --------------------------- Daniel M. Cain Trustee December 2, 2004 /s/ PAUL G. CHENAULT* - --------------------------- Paul G. Chenault Trustee December 2, 2004 /s/ KENNETH J. COWAN* - --------------------------- Kenneth J. Cowan Trustee December 2, 2004 /s/ RICHARD DARMAN* - --------------------------- Richard Darman Trustee December 2, 2004 /s/ John T. Hailer - --------------------------- John T. Hailer Trustee, President, Chief December 2, 2004 Executive Officer /s/ SANDRA O. MOOSE* - --------------------------- Sandra O. Moose Trustee December 2, 2004 /s/ JOHN A. SHANE* - --------------------------- John A. Shane Trustee December 2, 2004 *By: /s/ Coleen Downs Dinneen ------------------------ Coleen Downs Dinneen Attorney-In-Fact** December 2, 2004 ** Powers of Attorney are incorporated by reference to exhibit (q) filed herewith. CDC Nvest Funds Trust I Exhibit Index Exhibits for Item 23 of Form N-1A Exhibit Exhibit Description - --------- ------------------- (b)(2) Amendment No. 1 to the By-Laws (b)(3) Amendment No. 2 to the By-Laws (d)(1)(i) Form of Advisory Agreement for CGM Advisor Targeted Equity Fund (e)(10) Dealer Agreement (g)(2) Amendment to Custodian Agreement (h)(4) Third Addendum to Transfer Agency and Service Agreement (h)(6) Amendment to Securities Lending Agreement (h)(8) Form of IXIS Advisors Fee Waiver/Reimbursement Undertakings (h)(10) Amendment to Administrative Services Agreement (p)(1) Code of Ethics for Registrant (p)(2) Code of Ethics for IXIS Advisors and IXIS Distributors (p)(3) Code of Ethics for Capital Growth Management Limited Partnership (p)(9) Code of Ethics for Miller Anderson (q) Power of Attorney EX-99.(B)(2) 2 dex99b2.txt AMENDMENT NO.1 TO THE BY-LAWS Exhibit (b)(2) CDC NVEST FUNDS TRUST I AMENDMENT NO. 1 TO AMENDED AND RESTATED BYLAWS Article 3 of the By-Laws is hereby replaced in its entirety with the following: ARTICLE 3 Officers 3.1 Enumeration; Qualification. The officers of the Trust shall be a President, a Treasurer, a Secretary, a Clerk, and such other officers, if any, as the Trustees from time to time may in their discretion elect. The Trust may also have such agents as the Trustees from time to time may in their discretion appoint. If a Chairman of the Board is elected, he or she shall be a Trustee and may, but need not be, a Shareholder, and shall be considered an officer of the Board of Trustees and not of the Trust. Any other officer may be, but none need be, a Trustee or Shareholder. Any two or more offices may be held by the same person. 3.2 Election and Tenure. The President, the Treasurer, the Secretary, the Clerk and such other officers as the Trustees may in their discretion from time to time elect shall each be elected by the Trustees to serve until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Each officer shall hold office and each agent shall retain authority at the pleasure of the Trustees. 3.3 Powers. Subject to the other provisions of these By-Laws, each officer shall have, in addition to the duties and powers herein and set forth in the Declaration of Trust, such duties and powers as are commonly incident to the office occupied by him or her as if the Trust were organized as a Massachusetts business corporation and such other duties and powers as the Trustees may from time to time designate. 3.4 President and Vice Presidents. The President shall have the duties and powers specified in these By-Laws and shall have such other duties and powers as may be determined by the Trustees. Any Vice Presidents shall have such duties and powers as shall be designated from time to time by the Trustees. 3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be the President or such other officer as is designated as such by the Trustees and shall, subject to the control of the Trustees, have general charge and supervision of the business of the Trust. 3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he or she shall have the duties and powers specified in these By-Laws and shall have such other duties and -1- powers as may be determined by the Trustees. Except as the Trustees shall otherwise determine, the Chairman will preside at all meetings of the Shareholders and of the Trustees. Except to the extent the Trustees otherwise determine, if the Chairman is absent for a meeting of the Board of Trustees or if there is no Chairman, either the Chairman of the Contract Review and Governance Committee or the Chairman of the Audit Committee shall preside, as determined by the Board of Trustees. Except as the Trustees otherwise determine, if the Chairman is absent for a meeting of the Shareholders, the President of the Trust or such other officer of the Trust as is designated by the President shall preside. 3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer of the Trust, and shall, subject to the provisions of the Declaration of Trust and to any arrangement made by the Trustees with a custodian, investment adviser or manager, administrator or transfer, shareholder servicing or similar agent, be in charge of the valuable papers, books of account and accounting records of the Trust, and shall have such other duties and powers as may be designated from time to time by the Trustees or by the President. 3.8 Secretary and Clerk. The Secretary or Clerk shall record all proceedings of the Shareholders and the Trustees in books to be kept therefor, which books or a copy thereof shall be kept at the principal office of the Trust. In the absence of the Secretary or Clerk from any meeting of the Shareholders or Trustees, an assistant Secretary, or if there be none or if he or she is absent, a temporary secretary chosen at such meeting shall record the proceedings thereof in the aforesaid books. 3.9 Chief Legal Officer. The Chief Legal Officer shall, pursuant to Section 307 of the Sarbanes-Oxley Act of 2002, review all reports of potential material violations of securities laws, breach of fiduciary duty or similar violations "up the ladder" to the Funds, evaluate the merits of the reports, and direct investigative next steps as applicable. 3.10 Chief Compliance Officer. The Chief Compliance Officer shall, pursuant to Rules 38a-1 and 206(4)-7 under the Investment Company Act of 1940 and the Investment Advisers Act of 1940, respectively, administer the funds' compliance policies and procedures, oversee the funds' service providers that have their own compliance officials, keep the Board apprised of significant compliance events at the funds or its service providers and advise the Board of needed changes in the funds' compliance program. 3.11 Anti-Money Laundering Officer. The Anti-Money Laundering Officer will ensure the development of policies, operating procedures, and programs to enable the transfer agent to carry out its business strategies in compliance with applicable AML laws and regulations under the Sarbanes-Oxley Act of 2002. 3.12 Resignations; Removals. Any officer may resign at any time by written instrument signed by him or her and delivered to the Chairman, if any, the President or the Secretary, or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. The Trustees may remove any officer with or without cause. Except to the extent expressly provided in a written agreement with the Trust, no officer resigning and no officer removed shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal. Adopted: August 20, 2004 EX-99.(B)(3) 3 dex99b3.txt AMENDMENT NO.2 Exhibit (b)(3) CDC NVEST FUNDS TRUST I AMENDMENT NO. 2 TO AMENDED AND RESTATED BY-LAWS The following Article 12 is hereby added to the By-Laws: ARTICLE 12 Independent Trustees 12.1 Authority to Hire Staff. The Independent Trustees of the Trust shall have the express authority to hire employees and retain advisers and experts necessary to assist them in carrying out their duties to the Trust's shareholders, at the expense of the appropriate Trust. Adopted: November 19, 2004 EX-99.(D)(1)(I) 4 dex99d1i.txt FORM OF ADVISORY AGREEMENT FOR CGM Exhibit (d)(1)(i) CGM ADVISOR TARGETED EQUITY FUND Advisory Agreement AGREEMENT made the day of , 2005, by and between CDC Nvest --- ---------- Funds Trust I, a Massachusetts business trust (the "Fund"), with respect to its CGM Advisor Targeted Equity Fund series (the "Series"), and Capital Growth Management Limited Partnership, a Massachusetts limited partnership (the "Manager"). WITNESSETH: WHEREAS, the Fund and the Manager wish to enter into an agreement setting forth the terms upon which the Manager (or certain other parties acting pursuant to delegation from the Manager) will perform certain services for the Series; NOW, THEREFORE, in consideration of the premises and covenants hereinafter contained, the parties agree as follows: 1. (a) The Fund hereby employs the Manager to furnish the Fund with Portfolio Management Services (as defined in Section 2 hereof) and Administrative Services (as defined in Section 3 hereof), subject to the authority of the Manager to delegate any or all of its responsibilities hereunder to other parties as provided in Sections 1(b) and (c) hereof. The Manager hereby accepts such employment and agrees, at its own expense, to furnish such services (either directly or pursuant to delegation to other parties as permitted by Sections 1(b) and (c) hereof) and to assume the obligations herein set forth, for the compensation herein provided; provided, however, that the Manager shall have no obligation to pay the fees of any Sub-Adviser (as defined in Section 1(b) hereof), to the extent that the Fund has agreed, under any contract to which the Fund and the Sub-Adviser are parties (a "Sub-Advisory Agreement") to pay such fees. The Manager shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund. (b) The Manager may delegate any or all of its responsibilities hereunder with respect to the provision of Portfolio Management Services (and assumption of related expenses) to one or more other parties (each such party, a "Sub-Adviser"), pursuant in each case to a written agreement with such Sub-Adviser that meets the requirements of Section 15 of the Investment Company Act of 1940 and the rules thereunder (the "1940 Act") applicable to contracts for service as investment adviser of a registered investment company (including without limitation the requirements for approval by the trustees of the Fund and the shareholders of the Series), subject, however, to such exemptions as may be granted by the Securities and Exchange Commission. Any Sub-Adviser may (but need not) be affiliated with the Manager. If different Sub-Advisers are engaged to provide Portfolio Management Services with respect to different segments of the A-1 portfolio of the Series, the Manager shall determine, in the manner described in the prospectus of the Series from time to time in effect, what portion of the assets belonging to the Series shall be managed by each Sub-Adviser. (c) The Manager may delegate any or all of its responsibilities hereunder with respect to the provision of Administrative Services to one or more other parties (each such party, an "Administrator") selected by the Manager. Any Administrator may (but need not) be affiliated with the Manager. 2. As used in this Agreement, "Portfolio Management Services" means management of the investment and reinvestment of the assets belonging to the Series, consisting specifically of the following: (a) obtaining and evaluating such economic, statistical and financial data and information and undertaking such additional investment research as shall be necessary or advisable for the management of the investment and reinvestment of the assets belonging to the Series in accordance with the Series' investment objectives and policies; (b) taking such steps as are necessary to implement the investment policies of the Series by purchasing and selling of securities, including the placing of orders for such purchase and sale; and (c) regularly reporting to the Board of Trustees of the Fund with respect to the implementation of the investment policies of the Series. 3. As used in this Agreement, "Administrative Services" means the provision to the Fund, by or at the expense of the Manager, of the following: (a) office space in such place or places as may be agreed upon from time to time by the Fund and the Manager, and all necessary office supplies, facilities and equipment; (b) necessary executive and other personnel for managing the affairs of the Series (exclusive of those related to and to be performed under contract for custodial, transfer, dividend and plan agency services by the entity or entities selected to perform such services and exclusive of any managerial functions described in Section 4); (c) compensation, if any, of trustees of the Fund who are directors, officers or employees of the Manager, any Sub-Adviser or any Administrator or of any affiliated person (other than a registered investment company) of the Manager, any Sub-Adviser or any Administrator; and (d) supervision and oversight of the Portfolio Management Services provided by each Sub-Adviser, and oversight of all matters relating to compliance by the Fund with applicable laws and with the Series' investment policies, restrictions and guidelines, A-2 if the Manager has delegated to one or more Sub-Advisers any or all of its responsibilities hereunder with respect to the provision of Portfolio Management Services. 4. Nothing in section 3 hereof shall require the Manager to bear, or to reimburse the Fund for: (a) any of the costs of printing and mailing the items referred to in sub-section (n) of this section 4; (b) any of the costs of preparing, printing and distributing sales literature; (c) compensation of trustees of the Fund who are not directors, officers or employees of the Manager, any Sub-Adviser or any Administrator or of any affiliated person (other than a registered investment company) of the Manager, any Sub-Adviser or any Administrator; (d) registration, filing and other fees in connection with requirements of regulatory authorities; (e) the charges and expenses of any entity appointed by the Fund for custodial, paying agent, shareholder servicing and plan agent services; (f) charges and expenses of independent accountants retained by the Fund; (g) charges and expenses of any transfer agents and registrars appointed by the Fund; (h) brokers' commissions and issue and transfer taxes chargeable to the Fund in connection with securities transactions to which the Fund is a party; (i) taxes and fees payable by the Fund to federal, state or other governmental agencies; (j) any cost of certificates representing shares of the Fund; (k) legal fees and expenses in connection with the affairs of the Fund, including registering and qualifying its shares with Federal and State regulatory authorities; (l) expenses of meetings of shareholders and trustees of the Fund; (m) interest, including interest on borrowings by the Fund; (n) the costs of services, including services of counsel, required in connection with the preparation of the Fund's registration statements and prospectuses, including amendments and revisions thereto, annual, semiannual and other periodic reports of the A-3 Fund, and notices and proxy solicitation material furnished to shareholders of the Fund or regulatory authorities; and (o) the Fund's expenses of bookkeeping, accounting, auditing and financial reporting, including related clerical expenses. 5. All activities undertaken by the Manager or any Sub-Adviser or Administrator pursuant to this Agreement shall at all times be subject to the supervision and control of the Board of Trustees of the Fund, any duly constituted committee thereof or any officer of the Fund acting pursuant to like authority. 6. The services to be provided by the Manager and any Sub-Adviser or Administrator hereunder are not to be deemed exclusive and the Manager and any Sub-Adviser or Administrator shall be free to render similar services to others, so long as its services hereunder are not impaired thereby. 7. As full compensation for all services rendered, facilities furnished and expenses borne by the Manager hereunder, the Fund shall pay the Manager compensation in an amount equal to the annual rate of 0.75% of the first $200 million of the average daily net assets of the Series, 0.70% of the next $300 million of the average daily net assets of the Series, 0.65% of the next $1.5 billion of the average daily net assets of the Series, and 0.60% over $2 billion of such assets, respectively (or such lesser amount as the Manager may from time to time agree to receive). Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Board of Trustees of the Fund may from time to time determine and specify in writing to the Manager. The Manager hereby acknowledges that the Fund's obligation to pay such compensation is binding only on the assets and property belonging to the Series. 8. If the total of all ordinary business expenses of the Fund as a whole (including investment advisory fees but excluding interest, taxes, portfolio brokerage commissions, distribution-related expenses and extraordinary expenses) for any fiscal year exceeds the lowest applicable percentage of average net assets or income limitations prescribed by any state in which shares of the Series are qualified for sale, the Manager shall pay such excess. Solely for purposes of applying such limitations in accordance with the foregoing sentence, the Series and the Fund shall each be deemed to be a separate fund subject to such limitations. Should the applicable state limitation provisions fail to specify how the average net assets of the Fund or belonging to the Series are to be calculated, that figure shall be calculated by reference to the average daily net assets of the Fund or the Series, as the case may be. 9. It is understood that any of the shareholders, trustees, officers, employees and agents of the Fund may be a shareholder, director, officer, employee or agent of, or be otherwise interested in, the Manager, any affiliated person of the Manager, any organization in which the Manager may have an interest or any organization which may have an interest in the Manager; that the Manager, any such affiliated person or any such organization may have an interest in the Fund; and that the existence of any such dual interest shall not affect the validity hereof or of any A-4 transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Fund, the partnership agreement of the Manager or specific provisions of applicable law. 10. This Agreement shall become effective as of the date of its execution, and (a) unless otherwise terminated, this Agreement shall continue in effect for two years from the date of execution, and from year to year thereafter so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the trustees of the Fund who are not interested persons of the Fund or the Manager, cast in person at a meeting called for the purpose of voting on, such approval; (b) this Agreement may at any time be terminated on sixty days' written notice to the Manager either by vote of the Board of Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Series; (c) this Agreement shall automatically terminate in the event of its assignment; (d) this Agreement may be terminated by the Manager on ninety days' written notice to the Fund; Termination of this Agreement pursuant to this Section 10 shall be without the payment of any penalty. 11. This Agreement may be amended at any time by mutual consent of the parties, provided that such consent on the part of the Fund shall have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the trustees of the Fund who are not interested persons of the Fund or the Manager, cast in person at a meeting called for the purpose of voting on such approval. 12. For the purpose of this Agreement, the terms "vote of a majority of the outstanding voting securities," "interested person," "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act. References in this Agreement to any assets, property or liabilities "belonging to" the Series shall have the meaning defined in the Fund's Agreement and Declaration of Trust as amended from time to time. 13. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Manager, or reckless disregard of its obligations and duties hereunder, the Manager shall not be subject to any liability to the Fund, to any shareholder of the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder. A-5 14. In accordance with Regulation S-P, if non-public personal information regarding either party's customers or consumers is disclosed to the other party in connection with this Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. CDC NVEST FUNDS TRUST I on behalf of its CGM Advisor Targeted Equity Fund series By: ------------------------------------ Name: Title: CAPITAL GROWTH MANAGEMENT LIMITED PARTERNSHIP By Kenbob, Inc., its general partner By: ------------------------------------ Name: Title: A-6 NOTICE A copy of the Agreement and Declaration of Trust establishing CDC Nvest Funds Trust I (the "Fund") is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Fund's CGM Advisor Targeted Equity Fund series (the "Series") on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property belonging to the Series. A-7 EX-99.(E)(10) 5 dex99e10.txt DEALER AGREEMENT Exhibit (e)(10) CDC IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 Dealer Agreement As dealer for our own account, we offer to sell to you shares of each of the mutual funds distributed by us (the "Funds" and each a "Fund"), for each of which Funds we are a principal underwriter as defined in the Investment Company Act of 1940, as amended (the "Act"), and from which we have the right to purchase shares. With respect to each of the Funds (except for paragraph 4, which applies only with respect to each Fund having in effect from time to time a service plan, service and distribution plan or other plan adopted pursuant to Rule 12b-1 under the Act): 1. In all sales of shares of the Funds you shall act as dealer for your own account, and in no transaction shall you have any authority to act as agent, broker or employee for any of the Funds or for us. You agree not to purchase any Fund shares for any customer, unless you deliver or cause to be delivered to such customer, at or prior to the time of such purchase, a copy of the then current Prospectus of the applicable Fund. You hereby represent that you understand your obligation to deliver a Prospectus to customers who purchase Fund shares pursuant to federal securities laws and you have taken all necessary steps to comply with such Prospectus delivery requirements. 2. Orders received from you will be accepted by us only at the public offering price applicable to each order, except for transactions to which a reduced offering price applies as provided in the then current Prospectus (which term as hereinafter used shall include the Statement of Additional Information) of the Fund(s). The minimum dollar purchase of shares of each Fund by any investor shall be the applicable minimum amount described in the then current Prospectus of the Fund and no order for less than such amount will be accepted hereunder. The public offering price shall be the net asset value per share plus the sales charge, if any, applicable to the transaction, expressed as a percentage of the public offering price, as determined and effective as of the time specified in the then current Prospectus of the Fund(s). The procedures relating to the handling of orders shall be subject to any instructions that we shall forward from time to time to you. All orders are subject to acceptance or rejection by us in our sole discretion. You hereby agree to comply with the attached Policies and Procedures with Respect to the Sales of Shares of Funds Offering Multiple Classes of Shares. 3. The sales charge applicable to any sale of Fund shares by you and the dealer concession or commission applicable to any order from you for the purchase of Fund shares accepted by us shall be set forth in the then current Prospectus of the Fund. You may be deemed to be an underwriter in connection with sales by you of shares of the Fund where you receive all or substantially all of the sales charge as set forth in the Fund's Prospectus, and therefore you may be subject to applicable provisions of the Securities Act of 1933. We are entitled to a contingent deferred sales charge ("CDSC") on redemptions of applicable Classes of shares of the Funds, as described in the then current Prospectus. You agree that you will sell shares subject to a CDSC and that are to be held in omnibus accounts only if you are a NETWORKING participant with the National Securities Clearing Corporation and if such accounts are established pursuant to a NETWORKING Agreement. Reduced sales charges or no sales charge may apply to certain transactions under letter of intent, combined purchases or investments, reinvestment of dividends and distributions, repurchase privilege, unit investment trust distribution reinvestment or other programs, as described in the then current Prospectus of the Fund(s). To obtain any such reductions, you must notify us when the sale that would qualify for such reduction takes place. 4. Rule 12b-1 Plans. The substantive provisions of this Paragraph 4 have been adopted pursuant to Rule 12b-1 under the Act by certain Funds, under plans pursuant to such Rule (each a "Plan"). (a) You agree to provide (i) for the Funds with a Service Plan, personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts, and (ii) for those Funds with a Service and Distribution Plan, both personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts and also distribution and marketing services in the promotion of Fund shares. As compensation for these services, we shall pay you, upon receipt by us from the Fund(s), a quarterly service fee or service fee and distribution fee based on the average 1 daily net asset value of Fund shares at the rate set forth with respect to the relevant Class(es) of shares of the Fund(s) in the then current Prospectus. This fee will be based on the average daily net asset value of Fund shares which are owned of record by your firm as nominee for your customers or which are owned by those shareholders whose records, as maintained by the Fund or its agent, designate your firm as the shareholder's dealer of record. No such fee will be paid to you with respect to shares purchased by you or your customers and redeemed or repurchased by the Fund or by us as agent within seven (7) business days after the date of our confirmation of such purchase. No such fee will be paid to you with respect to any of your customers if the amount of such fee based upon the value of such customer's Fund shares would be less than $5.00. Normally, payment of such fee to you shall be made within forty-five (45) days after the close of each quarter for which such fee is payable provided, however, that any other provision of this Agreement or the Prospectuses to the contrary notwithstanding, we shall not have any obligation whatsoever to pay any amount of distribution and/or service fee with respect to shares of any Fund except to the extent, and only to the extent, that we have actually received payment of at least such amount of distribution and/or service fee from the Funds with respect to such shares pursuant to a Plan in consideration of you furnishing distribution and client services hereunder with respect to your customers that own such class of shares of such Fund. (b) You shall furnish us and the Fund with such information as shall reasonably be requested by the Trustees of the Fund with respect to the fees paid to you pursuant to this paragraph 4. (c) The provisions of this Paragraph 4 may be terminated by the vote of a majority of the Trustees of the Funds who are not interested persons of the Funds and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, or by a vote of a majority of the Fund's outstanding shares, on sixty (60) days' written notice, without payment of any penalty. Such provisions will be terminated also by any act that terminates either the Fund's Distribution Contract or Underwriting Agreement with us or this Dealer Agreement and shall terminate automatically in the event of the assignment (as that term is defined in the Act) of this Dealer Agreement. (d) The provisions of the Distribution Contract or Underwriting Agreement between the Fund and us, insofar as they relate to the Plan, are incorporated herein by reference. The provisions of this paragraph 4 shall continue in full force and effect only so long as the continuance of the Plan, the Distributor's Contract or Underwriting Agreement and these provisions are approved at least annually by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, cast in person at a meeting called for the purpose of voting thereon. 5. You agree to purchase Fund shares only from us or from your customers. If you purchase Fund shares from us, you agree that all such purchases shall be made only: (a) to cover orders already received by you from your customers; (b) for shares being acquired by your customers pursuant to either the exchange privilege or the reinvestment privilege, as described in the then current Prospectus of the Fund; (c) for your own bona fide investment; or (d) for investments by any IRS qualified pension, profit sharing or other trust established for the benefit of your employees or for investments in Individual Retirement Accounts established by your employees, and if you so advise us in writing prior to any sale of Fund shares pursuant to this subparagraph (d), you agree to waive all your dealer concessions with respect to all sales of Fund shares pursuant to this subparagraph (d). If you purchase shares from your customers, you agree to pay such customers not less than the applicable redemption price next quoted by the Fund pursuant to the procedures set forth in the then current Prospectus of the Fund. 6. You shall sell shares only: (a) to customers at the applicable public offering price, except for shares being acquired by your customers at net asset value pursuant to either the exchange privilege or the repurchase privilege as described in the then current Prospectus of the Fund, and (b) to us as agent for the Fund at the redemption price. In such a sale to us, you may act as either as principal for your own account or as agent for your customer. If you act as principal for your own account in purchasing shares for resale to us, you agree to pay your customer not less than the price that you receive from us. If you act as agent for your customer in selling shares to us, you agree not to charge your customer more than a fair commission or fee for handling the transaction, except that you agree to receive no compensation of any kind based on the reinvestment of redemption or repurchase proceeds pursuant to the repurchase privilege, as described in the current Prospectus of the Fund. 7. You hereby certify that all of your customers' taxpayer identification numbers ("TIN") or social security numbers ("SSN") furnished to us by you are correct and that you will not open an account without providing us with the customer's TIN or SSN. 8. You shall not withhold placing with us orders received from your customers so as to profit yourself as a result of such withholding; e.g., by a change in the net asset value from that used in determining the public offering price to your customers. 2 9. We will not accept from you any conditional orders for shares. 10. If any Fund shares sold to you or your customers under the terms of this Agreement are redeemed by the Fund or repurchased by us as agent for the Fund within seven (7) business days after the date of our confirmation of the original purchase by you or your customers, it is agreed that you shall forfeit your right to the dealer concession or commission received by you on such Fund shares. We will notify you of any such repurchase or redemption within ten (10) business days after the date thereof and you shall forthwith refund to us the entire concession or commission allowed or paid to you on such sale. We agree, in the event of any such repurchase or redemption, to refund to the Fund the portion of the sales charge, if any, retained by us and, upon receipt from you of the concession allowed to you on any Fund shares, to pay such refund forthwith to the Fund. 11. Payment for Fund shares sold to you shall be made on or before the settlement date specified in our confirmation, at the office of our clearing agent, and by check payable to the order of the Fund, which reserves the right to delay issuance, redemption or transfer of shares until such check has cleared. If such payment is not received by us, we reserve the right, without notice, forthwith either to cancel the sale, or at our option, or to sell the shares ordered back to the Fund, in which case you shall bear any loss resulting from your failure to make payment as aforesaid. 12. You will also act as principal in all purchases by a shareholder for whom you are the dealer of record of Fund shares with respect to payments sent directly by such shareholder to the Shareholder Services and Transfer agent (the "Agent") specified in the then current Prospectus of the Fund, and you authorize and appoint the Agent to execute and confirm such purchases to such shareholders on your behalf. The Agent will remit not less frequently than monthly to you the amount of any concessions due with respect to such purchases, except that no concessions will be paid to you on any transaction for which your net sales concession is less than $5.00 in any one month. You also represent that with respect to all such direct purchases by such shareholder, you may lawfully sell shares of such Fund in the state designated as such shareholder's record address. 13. Stock certificates for shares sold to you shall be issued only if specifically requested and upon terms specified from time to time by the Trustees of the Fund. If no open account registration or transfer instructions are received by the Agent within 20 days after payment by you for shares sold to you, an open account for such shares will be established in your name. You agree to hold harmless and indemnify us, the Agent and the Fund, for any loss or expenses resulting from such open account registration of such shares. 14. No person is authorized to make any representations concerning shares of the Funds except those contained in the then current Prospectuses of the Funds and in sales literature issued by us supplemental to such Prospectuses or approved in writing by us. In purchasing shares from us, you shall rely solely on the representations contained in such Prospectuses and such sales literature. We will furnish you with additional copies of such Prospectuses and such sales literature and other releases and information issued by us in reasonable quantities upon request. If, with prior approval from us, you use any advertisement or sales literature which has not been supplied by us, you are responsible for ensuring that the material complies with all applicable regulations and has been filed with the appropriate authorities. Also, you will send us copies of all such materials within (10) days after first use. You shall indemnify and hold us (and our directors, officers, employees, controlling persons and agents) and the Fund and its Trustees and officers harmless from and against any and all losses, claims, liabilities and expenses (including reasonable attorneys' fees) ("Losses") incurred by us or any of them arising out of (i) your dissemination of information regarding any Fund that is alleged to contain an untrue statement of material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading and that was not published or provided to you by or on behalf of us, or accurately derived from information published or provided by or on behalf of us or any of our Affiliates, (ii) any breach by you of any representation, warranty or agreement contained in this Agreement, or (iii) any willful misconduct or negligence on your part in the performance of, or failure to perform, your obligations under this Agreement, except to the extent such losses are caused by our breach of this Agreement or our willful misconduct or negligence in the performance, or failure to perform, our obligations under this Agreement. This Section (14) shall survive termination of this Agreement. 15. The Fund reserves the right in its discretion and we reserve the right in our discretion, without notice, to refuse any order for the purchase of Fund shares for any reason whatsoever, and to suspend sales or withdraw the offering of Fund shares (or shares of any class(es)) entirely. We reserve the right, by written notice to you, to amend, modify, cancel or assign this Dealer Agreement. Notice for all purposes shall be deemed to be given when mailed or electronically transmitted to you. 3 16. This Dealer Agreement shall replace any prior agreement between you and us or any of our predecessor entities (including but not limited to Nvest Funds Distributor, L.P., New England Funds, L.P., TNE Investment Services Corporation, and Investment Trust of Boston Distributors, Inc.) and is conditioned upon your representation and warranty that you are (i) registered as a broker/dealer under the Securities Exchange Act of 1934, as amended, and are a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"), (ii) a Registered Investment Adviser under state and/or federal law, (iii) ineligible for NASD membership because you are a foreign dealer, or (iv) bank chartered by the appropriate state or federal agency and authorized to enter into and perform the transactions contemplated by this agreement. Regardless of whether you qualify, under (i), (ii) (iii) or (iv), you and we agree to abide by the Rules and Regulations of the NASD, including without limitation Conduct Rules 2310, 2420, 3110, and 2830, and all applicable state and federal laws, rules and regulations. You will not offer Fund shares for sale in any state (a) where they are not qualified for sale under the blue sky laws and regulations of such state or (b) where you are not qualified to act as a dealer or adviser. In the event that you offer Fund shares outside the United States, you agree to comply with the applicable laws, rules and regulations of the foreign government having jurisdiction over such sales, including any regulations of United States military authorities applicable to solicitations to military personnel. 17. If non-public personal information regarding either party's customers or consumers is disclosed to the other party in connection with this Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement and in accordance with Regulation S-P. 18. Each party to this agreement hereby agrees to abide by and comply with all relevant anti-money laundering laws and regulations, including without limitation the Bank Secrecy Act, as amended, and the USA Patriot Act of 2001. Each party represents that it has established an Anti-Money Laundering Program that complies with all material aspects of the USA Patriot Act of 2001 and other applicable anti-money laundering laws and regulations. Each party also hereby agrees to comply with any new or additional anti-money laundering laws or regulations. 19. All communications to us should be sent to the above address. Any notice to you shall be duly given if mailed or faxed to you at the address specified by you below. This Agreement shall be effective when accepted by you below and shall be governed by and construed under the laws of the Commonwealth of Massachusetts. CDC IXIS Asset Management Accepted: Distributors, L.P. By: - --------------------------------------- ---------------------------------- Dealer's Name Address - --------------------------------------- By: ----------------------------------- Authorized Signature of Dealer - --------------------------------------- (Please print name) Date: --------------------------------- 4 CDC IXIS Asset Management Distributors, L.P. Dealer Agreement Amendment Mutual Fund Trading This amendment updates the Dealer Agreement between CDC IXIS Asset Management Distributors, L.P. ("our" or "us") and the undersigned company (the "Company" or "you"). The Company shall establish and maintain effective internal policies and controls, including operational and system controls, with respect to the processing of orders of the funds received prior to and after the close of the New York Stock Exchange - normally 4:00 p.m. Eastern Time ("Pricing Time") for the purchase, redemption and exchange of shares of mutual funds, including mutual funds distributed by us (each, a "Fund"). For all transactions in the Funds, the Company shall follow all applicable rules and regulations and shall establish internal policies regarding the timely handling of orders for the purchase, redemption and exchange of shares of the Funds ("Fund Orders") and maintain effective internal controls over the ability to distinguish and appropriately process Fund Orders received prior to and after the Fund's Pricing Time, including operational and systems controls. Specifically, the Company represents as of the date of this amendment and each time that it accepts a Fund Order on behalf of a Fund that: .. The Company's policies and procedures provide reasonable assurance that Fund Orders received by the Company prior to the Fund's Pricing Time are segregated from Fund Orders received by the Company after the Fund's Pricing Time and are properly transmitted to the Funds (or their agents) for execution at the current day's net asset value ("NAV"). .. The Company's policies and procedures provide reasonable assurances that Fund Orders received by the Company after the Fund's Pricing Time are properly transmitted to the Funds (or their agents) for execution at the next day's NAV. .. The Company's policies and procedures provide reasonable assurance that transactional information is delivered to the Funds (or their agents) in a timely manner. .. The Company has designed procedures to provide reasonable assurance that policies with regard to the receipt and processing of Fund Orders are complied with. Such procedures either prevent or detect on a timely basis instances of noncompliance with the policies governing the receipt and processing of Fund Orders. .. Policies and procedures governing the timely handling of Fund Orders have been designed and implemented effectively by all third parties to whom the Company has designated the responsibility to distinguish and appropriately process Fund Orders received prior to and after the Fund's Pricing Time. To the extent we or CDC IXIS Asset Management Services, Inc., our affiliated transfer agent, have entered into related agreements with the Company regarding your handling of Fund Orders, you acknowledge and agree that this amendment shall apply to your handling of all Fund Orders, whether authorized under the Dealer Agreement or any other agreement with us or our affiliates. The Company's submission and our acceptance of an order for the Funds, or receipt by us of an executed copy of this agreement from you represents your acknowledgement and acceptance of the terms and conditions of this amendment. CDC IXIS Asset Management Name of Company Distributors, L.P. ---------------------- By: By: ----------------------------------- ---------------------------------- Print Name: Print Name: --------------------------- -------------------------- Title: Title: -------------------------------- ------------------------------- Date: Date: --------------------------------- -------------------------------- 5 POLICIES AND PROCEDURES WITH RESPECT TO SALES OF FUNDS OFFERING MULTIPLE CLASSES OF SHARES In connection with the offering of certain Funds (the Funds") with multiple classes of shares, one subject to a front-end sales load and a service fee or service and distribution fee ("Class A shares"), one subject to a service fee, a distribution fee, no front-end sales load and a contingent deferred sales charge ("CDSC") on redemptions within a time period specified in the then current Prospectus (which for purposes of these policies and procedures shall include the Funds' then current statement of additional information) of the Fund ("Class B shares"), one subject to a front-end sales load, service fee, distribution fee and a CDSC on redemptions within a period specified in the then current Prospectus of the Fund ("Class C shares") and one intended only for certain institutional investors and subject to no front-end sales load ("Class Y shares"), an investor must choose the method of purchasing shares which best suits his/her particular circumstances. To assist investors in these decisions, the Distributor has instituted the following policies with respect to orders for Fund shares. These policies apply to every entity distributing Fund shares. 1. No purchase order may be placed for Class B shares if the amount of the orders equals or exceeds $1,000,000 or the order is eligible for a net asset value purchase price (i.e., no front-end sales charge) of Class A shares, as provided in the Prospectus. 2. No purchase order may be placed for Class C shares if the amount of the order equals or exceeds $1,000,000 or the order is eligible for a net asset value purchase price (i.e., no front-end sales charge) of Class A shares unless the investor indicates on the relevant section of the application that the investor has been advised of the relative advantages and disadvantages of Classes A and C shares. 3. Any purchase order for less than $1,000,000 may be for either Class A, B or C shares in light of the relevant facts and circumstances, including: a) the specific purchase order dollar amount; b) the length of time the investor expects to hold his/her shares; and c) any other relevant circumstances such as the availability of purchase under a Letter of Intent, Breakpoints (a volume discount), or Rights of Accumulation, as described in the Prospectus. 4. Investors may purchase Class Y shares only if they meet the identity, suitability, minimum investment and other standards set forth in the Funds' then current Class Y Prospectuses: a) tax-qualified retirement plans ($2,000,000 minimum initial investment); b) endowments, foundations and other tax-qualified organizations ($1,000,000 minimum initial investment); c) separate accounts of certain insurance companies (no minimum); d) omnibus accounts of retirement plans with at least 500 eligible plan participants and $1,000,000 of plan assets. Investors otherwise eligible to purchase Class Y shares but who will not make the initial minimum investment amount are eligible to invest in Class A, B or C shares. They should be advised, however, of the lower fees and expenses applicable to Class Y shares and should consider whether a larger investment, to meet the Class Y requirements, would be appropriate and desirable for their circumstances. There are instances when purchasing one class of shares may be more appropriate than the others. For example, investors who would qualify for a significant discount from the maximum sales load on Class A shares may determine that payment of such a reduced front-end sales load and service fee is preferable to payment of a higher ongoing distribution fee. Investors whose orders would not qualify for such a discount and who anticipate holding their investment for more than eight years might consider Class B shares because 100% of the purchase price is invested immediately. Investors making smaller investments who anticipate redeeming their shares within eight years might consider Class C shares for the same reason. Appropriate supervisory personnel within your organization must ensure that all employees and representatives receiving investor inquiries about the purchase of shares of a Fund advise the investor of then available pricing structures offered by the Funds, and the impact of choosing one class of shares over another. In some instances it may be appropriate for a supervisory person to discuss a purchase with the investor. This policy is effective with respect to any order for the purchase of shares of a Fund offering multiple classes of shares. Questions relating to this policy should be directed to John T. Hailer, President and Chief Executive Officer, CDC IXIS Asset Management Distributors, L.P. at (617) 449-2500. 6 EX-99.(G)(2) 6 dex99g2.txt AMENDMENT TO CUSTODIAN AGREEMENT Exhibit (g)(2) INVESTORS - -------------------------------------------------------------------------------- BANK & TRUST September 4, 2003 Mr. Nicholas H. Palmerino, Treasurer CDC Nvest Funds Trust II 399 Boylston Street Boston, MA 02116 Re: Custody Agreement (the "Agreement") Dear Nick: Attached is an amendment to Appendix A (the "Amendment") to the Custody Agreement between CDC Nvest Funds Trust II (the "Trust") and Investors Bank & Trust Company. Pursuant to Section 19 of the Agreement, the attached APPENDIX A shall become APPENDIX A to the Agreement effective September 15, 2003, superseding any and all previous APPENDIX A. Please indicate your acceptance of the foregoing by executing the two originals of this letter agreement, returning one to Investors Bank & Trust and retaining one for your records. Sincerely, Geoffrey M. O'Connell Senior Director Investors Bank & Trust Company CDC Nvest Funds Trust II By: /s/ Andrew M. Nesvet By: /s/ Nicholas H. Palmerino ------------------------------ --------------------------------- Name: Andrew M. Nesvet Name: Nicholas H. Palmerino Title: Managing Director Title: Treasurer Page 1 of 2 CUSTODY AGREEMENT Between CDC Nvest Funds Trust II And Investors Bank & Trust Company APPENDIX A (Revised as of September 15, 2003) Series of CDC Nvest Funds Trust II Harris Associates Growth Loomis Sayles and Income Fund Massachusetts Tax Free Income Fund Page 2 of 2 EX-99.(H)(4) 7 dex99h4.txt THIRD ADDENDUM TO TRANSFER AGENCY Exhibit (h)(4) THIRD ADDENDUM TO TRANSFER AGENCY AND SERVICE AGREEMENT ADDENDUM, entered into this 14th day of July, 2004 between CDC NVEST FUNDS TRUST I, CDC NVEST FUNDS TRUST II, CDC NVEST FUNDS TRUST III, CDC NVEST CASH MANAGEMENT TRUST, (collectively "CDC Nvest Trusts") and CDC IXIS ASSET MANAGEMENT SERVICES, INC. (the "Transfer Agent"). WHEREAS, CDC Nvest Trusts and Transfer Agent are parties to a Transfer Agency and Service Agreement dated as of November 1, 1999, ("CDC Nvest Trust Agreement") pursuant to which the Transfer Agent acts as transfer agent, disbursing agent, and agent in connection with certain other activities on behalf of the CDC Nvest Trusts; WHEREAS, the Funds are authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets (each such series, together with all other series subsequently established by the Funds and made subject to the Agreement in accordance with Section 17 of the Agreement and in accordance with terms thereof, being hereinafter referred to as a "Portfolio," and collectively as the "Portfolios"); WHEREAS, the Funds and the Transfer Agent desire to amend Schedule A of the Agreement to reflect changes in Portfolios; NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereby agree to amend the Agreement, pursuant to the terms thereof, as follows: 1. Terms. Capitalized terms used, but not defined, herein shall have the meanings given to them in the Agreement. 2. Funds. Schedule A of the CDC Nvest Trust Agreement is deleted in its entirety and replaced with Schedule A - CDC Nvest Trusts attached hereto. 3. Miscellaneous. This Third Addendum may be executed in any number of counterparts, each of which shall be considered an original, but all of which shall together constitute one and the same instrument. All section headings in this Third Addendum are solely for convenience of reference, and do not affect the meaning or interpretation of this Third Addendum. This Third Addendum shall have the effect of amending the Agreement but solely as to the matters set forth herein. All provisions of the Agreement not deleted, amended or otherwise modified herein shall remain in full force and effect. In the event of any inconsistency between this Third Addendum and the Agreement, this Third Addendum shall control. [Remainder of this page intentionally left blank] 1 IN WITNESS WHEREOF, each of the parties has caused this Addendum to be executed in its name and on its behalf by its duly authorized representative as of the date first above written. CDC IXIS ASSET MANAGEMENT SERVICES, INC. By: /s/ Christopher L. Wilson ----------------------------------- Name: Christopher L. Wilson ----------------------------------- Title: President ----------------------------------- CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II CDC NVEST FUNDS TRUST III CDC NVEST CASH MANAGEMENT TRUST By: /s/ John T. Hailer ----------------------------------- Name: John T. Hailer ----------------------------------- Title: President ----------------------------------- 2 Schedule A - CDC Nvest Trusts CDC NVEST FUNDS TRUST I CDC Nvest Star Advisers Fund CDC Nvest Star Growth Fund CDC Nvest Star Value Fund CGM Advisor Targeted Equity Fund Hansberger International Fund Loomis Sayles Core Plus Bond Fund Loomis Sayles Government Securities Fund Vaughan Nelson Small Cap Value Fund Westpeak Capital Growth Fund CDC NVEST FUNDS TRUST II Harris Associates Large Cap Value Fund Loomis Sayles Massachusetts Tax Free Income Fund CDC NVEST FUNDS TRUST III CDC IXIS Moderate Diversified Portfolio Harris Associates Focused Value Fund CDC NVEST CASH MANAGEMENT TRUST CDC Nvest Cash Management Trust - Money Market Series All Portfolios within the CDC Nvest Trusts are Load Funds for purposes of Schedule 3.1 Fees. 3 EX-99.(H)(6) 8 dex99h6.txt AMENDMENT TO SECURITIES LENDING Exhibit (h)(6) AMENDMENT AGREEMENT AGREEMENT, effective as of September 15, 2003, by and between CDC NVEST FUNDS TRUST II, a Massachusetts trust (the "Trust") and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank"). WHEREAS, the Trust and the Bank entered into a Securities Lending Agency Agreement dated as of May 1, 2002 (the "Securities Lending Agreement"); and WHEREAS, the Fund and the Bank desire to amend the Securities Lending Agreement as set forth below. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein set forth, the parties hereto agree as follows: 1. Amendment of the Securities Lending Agreement. (A) The document attached as Schedule V to this Amendment Agreement supersedes any and all existing series schedules previously agreed to between the Bank and the Trust and shall constitute the Schedule V to the Securities Lending Agreement effective the date first noted above. (The remainder of this page intentionally left blank) IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by its duly authorized officer, as the case may be, as of the date and year first above written. INVESTORS BANK & TRUST COMPANY By: /s/ Andrew M. Nesvet --------------------------- Name: Andrew M. Nesvet Title: Managing Director CDC NVEST FUNDS TRUST II By: /s/ Nicholas H. Palmerino --------------------------- Name: Nicholas H. Palmerino Title: Treasurer Schedule V Loan Ceiling Amounts Harris Associates Growth and Income 33 1/3% Fund Loomis Sayles Massachusetts Tax Free 33 1/3% Income Fund EX-99.(H)(8) 9 dex99h8.txt FORM OF IXIS ADVISORS FEE WAIVER/REIMBURSEMENT Exhibit (h)(8) February 1, 2005 CDC Nvest Funds Trust I CDC Nvest Funds Trust II Loomis Sayles Funds II 399 Boylston Street Boston, MA 02116 Re: Fee Waiver/Expense Reimbursement -------------------------------- Ladies and Gentlemen: IXIS Asset Management Advisors, L.P. notifies you that it will waive its management fee (and, to the extent necessary, bear other expenses of the Funds listed below) through January 31, 2006 to the extent that expenses of each class of a Fund, exclusive of brokerage, interest, taxes and deferred organizational and extraordinary expenses, would exceed the following annual rates: Name of Fund Expense Cap ------------ ----------- February 1, 2005 through January 31, 2006: Loomis Sayles Massachusetts Tax Free 1.40% for Class A shares Income Fund* 2.05% for Class B shares Loomis Sayles Core Plus Bond Fund* 1.15% for Class A shares 1.90% for Class B shares 1.90% for Class C shares 0.90% for Class Y shares Hansberger Foreign Growth Fund 1.40% for Class A shares 2.15% for Class B shares 2.15% for Class C shares 1.00% for Class Y shares * The expense caps above account for management fees payable to Loomis, Sayles & Company, L.P. Loomis, Sayles & Company, L.P. and IXIS Asset Management Advisors, L.P. have agreed to equally bear the waiver. With respect to each Fund, IXIS Asset Management Advisors, L.P. shall be permitted to recover expenses it has borne subsequent to the effective date of this agreement (whether through reduction of its management fee or otherwise) in later periods to the extent that a Fund's expenses fall below the annual rates set forth above. Provided, however, that a Fund is not obligated to pay any such deferred fees more than one year after the end of the fiscal year in which the fee was deferred. During the periods covered by this letter agreement, the expense cap arrangement set forth above for each of the Funds may only be modified by a majority vote of the "non-interested" Trustees of the Trusts affected. For purposes of determining any such waiver or expense reimbursement, expenses of the class of the Funds shall not reflect the application of balance credits made available by the Funds' custodian or arrangements under which broker-dealers that execute portfolio transactions for the Funds' agree to bear some portion of Fund expenses. We understand and intend that you will rely on this undertaking in preparing and filing the Registration Statements on Form N-1A for the above referenced Funds with the Securities and Exchange Commission, in accruing each Fund's expenses for purposes of calculating its net asset value per share and for other purposes permitted under Form N-1A and/or the Investment Company Act of 1940, as amended, and expressly permit you to do so. IXIS Asset Management Advisors, L.P. By: ------------------------------- Coleen Downs Dinneen Title: Senior Vice President, General Counsel, Secretary & Clerk EX-99.(H)(10) 10 dex99h10.txt AMENDMENT TO ADMINISTRATIVE SERVICES Exhibit (h)(10) FIRST AMENDMENT TO ADMINISTRATIVE SERVICES AGREEMENT This Amendment made as of July 14, 2004, by and between CDC IXIS Asset Management Services, Inc. ("CIS"), CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, CDC Nvest Cash Management Trust, CDC Nvest Tax Exempt Money Market Trust, CDC Nvest Companies Trust I, Loomis Sayles Funds I and Loomis Sayles Funds II (collectively, the "Trusts"). WHEREAS, CIS and the Trusts are parties to an Administrative Services Agreement dated October 1, 2003, (the "Agreement"), governing the terms and conditions under which CIS provides certain administrative services to the series of the Trusts; and WHEREAS, CIS and the Trusts desire to amend Schedule A of the Agreement to reflect changes in Trust Portfolios; NOW THEREFORE, in consideration of the premises and covenants contained herein, CIS and the Trusts hereby agree as follows: 1. Schedule A of the Agreement is deleted in its entirety and replaced with Schedule A attached hereto. 2. Except as specifically superseded or modified herein, the terms and provisions of the Agreement shall continue to apply with full force and effect. 3. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed as a sealed instrument in its name and behalf by its duly authorized representative as of the date first above written. CDC IXIS ASSET MANAGEMENT SERVICES, INC. By: /s/ Christopher L. Wilson ---------------------------------------- Christopher L. Wilson, President CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II CDC NVEST FUNDS TRUST III CDC NVEST CASH MANAGEMENT TRUST CDC NVEST TAX EXEMPT MONEY MARKET TRUST CDC NVEST COMPANIES TRUST I LOOMIS SAYLES FUNDS II By: /s/ John T. Hailer ---------------------------------------- John T. Hailer, President LOOMIS SAYLES FUNDS I By: /s/ John T. Hailer ---------------------------------------- John T. Hailer, Executive Vice President SCHEDULE A TRUST PORTFOLIOS AS OF: JULY 14, 2004 CDC NVEST FUNDS TRUST I CDC Nvest Star Advisers Fund CDC Nvest Star Growth Fund CDC Nvest Star Value Fund CGM Advisor Targeted Equity Fund Hansberger International Fund Loomis Sayles Core Plus Bond Fund Loomis Sayles Government Securities Fund Vaughan Nelson Small Cap Value Fund Westpeak Capital Growth Fund CDC NVEST FUNDS TRUST II Harris Associates Large Cap Value Fund Loomis Sayles Massachusetts Tax Free Income Fund CDC NVEST FUNDS TRUST III CDC IXIS Moderate Diversified Portfolio Harris Associates Focused Value Fund CDC NVEST CASH MANAGEMENT TRUST CDC Nvest Cash Management Trust - Money Market Series CDC NVEST COMPANIES TRUST I AEW Real Estate Fund LOOMIS SAYLES FUNDS I Loomis Sayles Benchmark Core Fund Loomis Sayles Bond Fund Loomis Sayles Fixed Income Fund Loomis Sayles Global Bond Fund Loomis Sayles High Income Opportunities Fund Loomis Sayles Institutional High Income Fund Loomis Sayles Intermediate Duration Fixed Income Fund Loomis Sayles Investment Grade Fixed Income Fund Loomis Sayles Mid Cap Growth Fund Loomis Sayles Small Cap Value Fund Loomis Sayles Small Company Growth Fund Loomis Sayles US Government Securities Fund LOOMIS SAYLES FUNDS II Loomis Sayles Aggressive Growth Fund Loomis Sayles Growth Fund Loomis Sayles High Income Fund Loomis Sayles International Equity Fund Loomis Sayles Investment Grade Bond Fund Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Municipal Income Fund Loomis Sayles Research Fund Loomis Sayles Small Cap Growth Fund Loomis Sayles Strategic Income Fund Loomis Sayles Tax-Managed Equity Fund Loomis Sayles Value Fund Loomis Sayles Worldwide Fund EX-99.(P)(1) 11 dex99p1.txt CODE OF ETHICS FOR REGISTRANT Exhibit (p)(1) CDC Nvest Funds Trust I CDC Nvest Funds Trust II CDC Nvest Funds Trust III CDC Nvest Cash Management Trust CDC Nvest Companies Trust I AEW Real Estate Income Fund Loomis Sayles Funds I Loomis Sayles Funds II Dated July 1, 2004 CODE OF ETHICS In order to ensure that all acts, practices and courses of business engaged in by personnel of the above-named trusts (the "Trusts"), their advisers, subadvisers and underwriters reflect high standards of conduct and comply with the requirements of Section 17(j) of the Investment Company Act of 1940, as amended (the "1940 Act") and Rule 17j-1 thereunder, the Boards of Trustees of each Trust has determined that the Trust shall adopt this Code of Ethics. It is the policy of each Trust that all Trust personnel, its advisers, sub-advisers and principal underwriter should (1) at all times place the interests of fund shareholders first; (2) conduct all personal securities transactions in a manner that is consistent with this Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of the individual's position of trust and responsibility; and (3) adhere to the fundamental standard that Trust personnel, advisers, sub-advisers and underwriters should not take inappropriate advantage of their position or engage in any act, practice or course of conduct that would violate this Code of Ethics, the fiduciary duty owed to fund shareholders, or the provisions of Section 17(j) of the 1940 Act and Rule 17j-1 there under. Each of the Advisers and the Underwriters, as defined below, imposes reporting and review requirements and restrictions on the personal securities transactions of its personnel. The Trustees have determined that, in addition to the requirements of this Code of Ethics, the standards and reporting and review requirements established by these organizations will be appropriately applied by each Trust to those of its officers and those of its Trustees who are affiliated with these organizations. The provisions of the codes and policies of the Advisers and the Underwriters, as defined below, are incorporated in this Code of Ethics as the provisions applicable to officers, Trustees or advisory persons of the Fund who are officers, partners, directors or employees of these organizations. A violation of any such incorporated code or policy by any officer, Trustees or advisory persons of the Fund who are officers, partners, directors or employees of these organizations covered by that code or policy with respect to personal securities transactions or holdings reports covered herein shall constitute a violation of this Code. 1. Definitions (a) "Access person" means any trustee, officer, general partner or advisory person of a Fund. (b) "Adviser" means each entity that serves as an investment adviser, investment manager or sub-adviser to any Fund. (c) "Advisory person" means (i) any employee of a Fund or of any company in a control relationship to the Fund, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by a Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of Covered Securities by the Fund. (d) "Control" has the same meaning as in Section 2(a)(9) of the 1940 Act. (e) "Covered Fund" means any series of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II and any other open-end investment company or mutual fund under the supervision of the Disinterested Trustees covered by this Code of Ethics. (f) "Covered Security" means a security as defined in section 2(a)(36) of the 1940 Act, except that it does not include: (i) direct obligations of the Government of the United States; (ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and shares issued by open-end investment companies registered under the 1940 Act. Covered Security includes shares of closed-end funds (e.g., AEW Real Estate Income Fund) and municipal obligations and securities issued by agencies and instrumentalities of the U.S. government (e.g., GNMA obligations) (g) "Disinterested Trustee" means a Trustee of a Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the 1940 Act. (h) "Fund" or "Funds" means one or more series of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, CDC Nvest Cash Management Trust, CDC Nvest Companies Trust I, AEW Real Estate Income Fund, Loomis Sayles Funds I and Loomis Sayles Funds II. (i) "Purchase or sale of a security" includes, among other things, the writing of an option to purchase or sell a Covered Security. (j) "Security held or to be acquired" by a Fund means any Covered Security which, within the most recent 15 days, (i) is or has been held by the Fund, or (ii) is being or has been considered by the Fund or its Adviser for purchase by the Fund; and (iii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in section (i) and (ii) of this item (j). (k) "Underwriter" means the principal underwriter with respect to CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, CDC Nvest Cash Management Trust, CDC Nvest Companies Trust I, AEW Real Estate Income Fund, Loomis Sayles Funds I and Loomis Sayles Funds II (except shares of Class J of Loomis Sayles Investment Grade Bond Fund). 2. Exempted Transactions The prohibitions of Section 3 of this Code shall not apply to: (a) Purchases or sales of shares of a money market fund that is a Covered Fund. 2 (b) Purchases or sales effected in any account over which the access person has no direct or indirect influence or control. (c) Purchases or sales which are non-volitional on the part of either the access person or the Fund. (d) Purchases which are part of an automatic dividend reinvestment plan. (e) Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. 3. Prohibitions (a) No access person shall purchase or sell, directly or indirectly, any Covered Security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which he or she knows or should have known at the time of such purchase or sale: (i) is being considered for purchase or sale by the Fund; or (ii) is being purchased or sold by the Fund. (b) No Access Person shall purchase and sell, or conversely sell and purchase, shares of the same Covered Fund, except shares of a money market fund, within 60 calendar days. For purposes of the preceding restriction, non-volitional trades (e.g., company retirement plan matching contributions) or automatic transactions (e.g., payroll deduction, deferred compensation, retirement plan contributions, systematic withdrawal plans) shall not be considered purchases or sales, as the case may be. However, this restriction does apply to exchanges and re-allocation of assets within an Access Person's retirement or deferred compensation plan account. 4. Reporting (a) Every Access Person shall report to the Fund the information described in Section 4(d) and (e) of this Code with respect to portfolio holdings and transactions in any Covered Security in which such access person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the Covered Security; provided, however, that an access person shall not be required to make a report with respect to portfolio holdings or transactions effected for any account over which such person does not have any direct or indirect influence or control. (b) Notwithstanding Section 4(a) of this Code, an access person need not make reports where the reports would provide only information that previously has been reported pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940 or pursuant to codes of ethics or policies and procedures with respect to the flow and use of material nonpublic (inside) information adopted by an Adviser or an Underwriter (collectively, "Adviser's or Underwriter's Codes"). Reports which have been filed with an Adviser or Underwriter shall be subject to inspection by appropriate representatives of the Fund, including the President and Secretary of the Fund, and the Adviser and Underwriter shall notify the President and Secretary of the Fund at least annually in writing of any violation of this Code or of an Adviser's or Underwriter's Code. (c) A Disinterested Trustee of the Fund is not required to provide an initial or an annual holdings report, and need only provide a quarterly transaction report if such Trustee, (i) at the 3 time of that transaction, knew or, in the ordinary course of fulfilling his or her official duties as a Trustee of the Fund, should have known that, during the 15-day period immediately preceding the date of the transaction by the Trustee, such Covered Security was purchased or sold by the Fund or was being considered by the Fund or its investment adviser for purchase or sale by the Fund or (ii) purchased and sold, or sold and purchased shares of the same Covered Fund, except a money market fund, within 60 calendar days. For purposes of the reporting requirements, non-volitional trades or automatic transactions (e.g., deferred compensation plan contributions, systematic investment or withdrawal plans) shall not be considered purchases or sales, as the case may be. However, this reporting requirement does apply to exchanges and re-allocation of assets within an Access Person's retirement or deferred compensation plan account. (d) Quarterly transaction reports shall be made not later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: (i) Any securities accounts opened through a bank or broker-dealer during the reporting period. (ii) The date of any transactions, the title and the number of shares, and the principal amount of each Covered Security or Covered Fund involved; (iii) The nature of the transaction(s) (i.e., purchase, sale or any other type of acquisition or disposition); (iv) The price at which the transaction(s) was effected; (v) The name of the broker, dealer or bank with or through whom the transaction was effected; and (vi) Identification of factors potentially relevant to a conflict of interest analysis, of which the access person is aware, including the existence of any substantial economic relationship between his or her transactions and transactions of or securities held or to be acquired by the Fund. (e) Any such reports may contain a statement that the reports shall not be construed as an admission by the person making such reports that he or she has any direct or indirect beneficial ownership in the security to which the report relates. 5. Sanctions Upon discovering a violation of this Code, the Board of Trustees of the Fund and/or the Adviser or the Underwriter may impose such sanctions as it or they deem appropriate, including, inter alia, a letter of censure or suspension or termination of the relationship to the Fund or of the employment by the Adviser or the Underwriter of the violator. Any material sanctions imposed by an Adviser or an Underwriter with respect to this Code or to an Adviser's or Underwriter's Code shall be annually reported to the Board of Trustees of the Fund. 6. Review by Boards of Trustees (a) The Boards of Trustees including a majority of Disinterested Trustees, must approve this code of ethics, the code of ethics of each investment adviser and principal underwriter of the Fund, and 4 any material changes to these codes based upon a determination that the code contains provisions reasonably necessary to prevent access persons from engaging in any prohibited conduct as described in Rule 17j-1(b) under the 1940 Act and before approving a code of a Fund, investment adviser or principal underwriter or any amendment to the Code, the Board of Trustees must receive certification from the Fund, the investment adviser or principal underwriter that it has adopted procedures reasonably necessary to prevent access persons from violating the investment adviser's or principal underwriters code of ethics. (b) No less frequently than annually, every Fund must furnish to the Fund's Board of Trustees and the Board of Trustees must consider, a written report that: (i) Describes any issues arising under the code of ethics or procedures since the last report to the Board of Trustees, including but not limited to, information about material violations of the code or procedures and sanctions imposed in response to the material violations; and (ii) Certifies that the Fund has adopted procedures reasonably necessary to prevent access persons from violating the code. 5 EX-99.(P)(2) 12 dex99p2.txt CODE OF ETHICS FOR IXIS Exhibit (p)(2) Code of Ethics CDC IXIS Asset Management Advisers, L.P. CDC IXIS Asset Management Distributors, L.P. CDC IXIS Asset Management Services, Inc. As Amended June 1, 2004 1 Introduction This is the Code of Ethics ("Code") of CDC IXIS Asset Management Advisers, L.P. ("CIA"), CDC IXIS Asset Management Distributors, L.P. ("CID"), and CDC IXIS Asset Management Services, Inc. ("CIS") (the "Firms"). Statement of General Principles It is the policy of the Firms that no Access Person shall engage in any act, practice, or course of conduct that would violate the Code, the fiduciary duty owed by the Firms and its personnel to clients, certain sections of and rules promulgated under the Investment Advisers Act of 1940 (as amended; the "Advisers Act"), the Employee Retirement Income Security Act of 1974 (as amended; "ERISA"), or the provisions of Section 17(j) of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rule 17j-1 thereunder. The fundamental position of the Firms is, and has been, that at all times the interests of its Clients are placed first. Accordingly, Access Person's personal financial transactions (and in some cases, those of members of their Family/Household) and related activities must be conducted consistently with this Code and in such a manner as to avoid any actual or potential conflict of interest or abuse of the Firms' position of trust and responsibility. It is not intended that the policies in this Code will specifically address every situation involving personal trading. These policies will be interpreted and applied, and exceptions and amendments will be made by the Compliance Officer in a manner considered fair and equitable, in all cases with the view of placing the Firms Clients' interests paramount. It also bears emphasis that technical compliance with the procedures, prohibitions, and limitations of this Code will not automatically insulate an Access Person from scrutiny of, and sanctions for, securities transactions that indicate an abuse of the Firms' fiduciary duty to any of its Clients. Things You Need to Know to Use This Code 1. Terms - Terms in boldface type have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms. The definitions are at the end of the Code. 2. Purpose of the Code - The policies in this Code reflect the Firms' desire to detect and prevent not only situations involving actual or potential conflicts of interest or unethical conduct, but also those situations involving even the appearance of these. This Code (i) sets forth standards of conduct expected of Access Persons (including compliance with the federal securities laws), (ii) is intended to safeguard material nonpublic information about client transactions, and (iii) requires Access Persons to report personal securities transactions, including transactions in shares of certain investment companies managed by the Firms or any affiliate of any of the Firms ("Covered Funds"). A complete list of Covered Funds is maintained by the Compliance Officer and is posted on the Firms' Intranet, a printed list is available upon request from the Compliance Officer. 3. Access Persons - All officers, directors, and employees of the Firms are considered Access Persons. While many officers, directors, and employees of the Firms do not have regular access to information regarding the purchase and sale of securities by either Mutual Fund Clients or Separate Account Clients, they may have occasional access to mutual fund or separate account portfolio information that has not been aged 30 days. Therefore, all employees have been designated Access Persons. 2 4. Compliance Department and Compliance Officer - This Code is administered by the Compliance Officer and his or her designee(s). Any significant issues, concerns, or findings identified by the Compliance Officer are promptly reported to the Firm's senior management. The Compliance Officer has the authority to grant written waivers of certain provisions of this Code in appropriate instances. However: .. the Firms expect that waivers will be granted only in rare instances; and .. some provisions of the Code are mandated by Securities and Exchange Commission (SEC) rules and cannot be waived. 5. Mutual Fund Clients - The Firms have limited involvement in the business of providing investment advice or engaging in the investment decision-making process for registered investment companies. While CIA is the named adviser for certain CDC Nvest Funds, and CID is the distributor to all CDC Nvest Funds and the Loomis Sayles Funds, the Firms perform no portfolio management activities for registered investment companies directly, and therefore, largely do not employ methods of analysis or utilize other sources of information. For the CDC Nvest Funds as to which CIA serves as named adviser, all portfolio management functions have been delegated to the named subadvisers of the Funds, each of which has executed subadvisory agreements with CIA. There are other CDC Nvest Funds for which CIA does not serve as adviser, but CID is the Distributor for both CDC Nvest Funds and Loomis Sayles Funds families. Therefore, all registered investment company clients are currently considered Mutual Fund Clients. 6. Separate Account Clients - CIA markets the investment expertise of its advisory affiliates and other advisory firms to separate account platforms. While CIA primarily relies on model portfolios provided by affiliates or third party subadvisers to manage client assets, it normally has investment discretion over Separate Account Client portfolios. For purposes of this Code of Ethics, Mutual Fund Clients and Separate Account Clients are collectively referred to as Clients. Specific Requirements of the Code A. General Rules It is improper for Access Persons to: . use for his/her own benefit (or the benefit of anyone other than the Clients) information about the trading activity of the Clients or recommendations of the advisers or subadvisers; or . take advantage of investment opportunities that would otherwise be available for the Clients. Also, as a matter of business policy, the Firms require that Access Persons adhere to a standard of conduct that: (i) reflects the fiduciary obligations of the Firms, including preventing access to material nonpublic information about clients to Access Persons not needing such information to perform their duties; (ii) complies with all securities laws; and (iii) avoids even the appearance that Access Persons receive any improper benefit from information about trading activity of Clients, the advisers or subadvisers, or from our relationships with the brokerage and advisory communities. The Firms expect all Access Persons to comply with the spirit of the Code, as well as the specific rules contained in the Code. 3 B. Designated Brokerage Requirement - Effective July 1, 2004 [NOTE: The Designated Brokerage Requirement becomes effective July 1, 2004. Until the requirement is effective, all accounts that hold or can hold Covered Securities remain subject to the Duplicate Confirmation and Statement Requirement (section F.4. of this Code). The Designated Brokerage requirement is outlined in the Designated Brokerage Transition Policy, which may be obtained from the Compliance Officer or on the Firm's Intranet] Except as described in paragraphs (i)-(vi) below, Access Persons who have personal accounts that hold or can hold Covered Securities or shares of Covered Funds in which they have Beneficial Ownership are required to maintain such accounts at one of the following firms: Charles Schwab, Fidelity Investments, or Merrill Lynch (collectively, the "Designated Brokers"). New Access Persons must initiate movement of existing accounts to a Designated Broker within 30 days of being named an Access Person. Exemptions to the Designated Brokerage Requirement: (i) Shares of the CDC Nvest Funds, Loomis Sayles Funds, and Oakmark Funds purchased directly from the Covered Fund if such shares are held with the fund's transfer agent. (ii) Shares of Covered Funds purchased through one or more of the Firm's retirement plans, including the Firms' 401(k) plan. (iii) Investments in 529 Plans (iv) Certain accounts in which the Access Person has Beneficial Ownership, including retirement accounts with an Access Person's prior employer, retirement accounts of an Access Person's spouse, and DRIP and ESOP investment programs. (v) Accounts for which the Access Person has Beneficial Ownership but no investment influence or control may be eligible for an exemption from the Designated Brokerage Requirement, all such exemptions must be approved by the Compliance Officer. (vi) Accounts in which an Access Person may have Beneficial Ownership through a member of their Family/Household, which accounts are subject to a code of ethics or similar policy requiring the account be held at an entity other than a Designated Broker. For example, if the spouse of an Access Person is employed by a broker-dealer or registered investment adviser that has adopted a code of ethics that requires the spouse to maintain personal securities accounts at a non-designated broker-dealer (including the employer itself), the Firms will defer to that requirement as to that account so long as the Duplicate Confirmation Notice and Statement Requirement (see Section F.4. of this Code) is satisfied. NOTE: In the occasional instance in which the Compliance Officer grants an exemption from the Designated Brokerage Requirement to any accounts that hold or can hold Covered Securities and/or Covered Funds, the Duplicate Confirmation Notice and Statement Requirement shall apply instead. 4 C. Gifts to or from Brokers, Clients, or Others No Access Person may accept or receive on his or her own behalf, or on behalf of the Firms, any gift or other accommodations from a vendor, broker, securities salesman, client, or prospective client (a "business contact") that might create a conflict of interest or interfere with the impartial discharge of such Access Person's responsibilities to the Firms or the Clients, be construed as an improper attempt to influence the recipient, or place the recipient or the Firms in a difficult or embarrassing position. This prohibition applies equally to gifts to members of the Family/Household of Access Persons. In no event should gifts to or from any one business contact have a value that exceeds the annual limitation on the dollar value of gifts established by the Compliance Officer from time to time (currently $100). These policies are not intended to prohibit normal business entertainment such as meals or tickets to sporting events or the theatre. Please note that business entertainment is different than giving or receiving gifts. If you are unsure whether something is a gift or business entertainment, ask the Compliance Officer. D. Service on the Board or as an Officer of Another Company To avoid conflicts of interest, "inside information" concerns, and other compliance and business issues, the Firms prohibit all Access Persons from serving as officers or members of the board of any other entity, except with the advance written approval of the General Counsel or Compliance Officer of the relevant Firm. Approval must be obtained through the Compliance Officer, and will ordinarily require consideration by senior management. The Firms can deny approval for any reason. This prohibition does not apply to service as an officer or board member of any parent, subsidiary, or affiliate of the Firms, nor does it apply to non-employee members of the Firms' board (i.e. those board members who are not employees of the Firms). E. Violations and Penalties The Firms treat violations of this Code (including violations of the spirit of the Code) very seriously. If you violate either the letter or the spirit of this Code, the Firms might take a variety of remedial measures. These may include imposing penalties or fines, cutting your compensation, demoting you, requiring disgorgement of trading gains, imposing a ban on your personal trading, suspending or terminating your employment, or reporting the matter to civil or criminal authorities. Improper trading activity may constitute a violation of this Code. You may also be considered in violation of this Code by failing to file required reports in a timely manner, or by making inaccurate or misleading reports or statements concerning trading activity or securities accounts. You may be considered in violation of this Code even if no harm results from your conduct. If you have any doubt or uncertainty about what this Code requires or permits, you should ask the Compliance Officer. Do not just guess at the answer, since ignorance of the requirements of the Code or the legal regulations underlying the Code will not serve as an excuse for a violation. F. Reporting Requirements One of the more important aspects of complying with this Code is understanding which holdings, transactions, and accounts you must report and what accounts are subject to trading restrictions. For 5 example, accounts of certain members of your Family/Household are covered, as are certain categories of trust accounts, certain investment pools in which you might participate, and certain accounts that others may be managing for you. To be sure you understand which holdings, transactions, and accounts are covered, it is essential that you carefully review the definitions of Covered Security, Family/Household, and Beneficial Ownership in the "Definitions" section of this Code. NOTE: All reports specified in this Code must be submitted to the Compliance Department. You must file the reports described below, even if you have no holdings, transactions, or accounts to list in the reports, and whether or not your accounts are held at a Designated Broker or duplicate confirmation statements have been forwarded to the Compliance Department. You can get copies of any forms or reporting procedures from the Compliance Officer, or the Firms' Intranet. 1. Initial Holdings Report. No later than 10 days after you become an Access Person, you must file with the Compliance Officer an Initial Holdings Report. The Initial Holdings Report requires you to list all Covered Securities and Covered Funds in which you (or members of your Family/Household) have Beneficial Ownership. It also requires you to list all brokers, dealers, and banks where you maintained an account in which any securities (not just Covered Securities or shares of Covered Funds) were held or could have been held for the direct or indirect benefit of you or a member of your Family/Household on the date you became an Access Person. The Initial Holdings Report also requires you to confirm that you have read and understand this Code, that you understand that it applies to you and members of your Family/Household, and that you are considered an Access Person under the Code. NOTE: It is important for new Access Persons to be familiar with the Designated Broker Requirement of this Code; any questions concerning this requirement should be directed to the Compliance Officer. 2. Quarterly Transaction Reports. No later than 10 days after the end of March, June, September, and December each year, you must file with the Compliance Officer a Quarterly Transaction Report. The Quarterly Transaction Report requires you to report all transactions during the most recent calendar quarter in Covered Securities and Covered Funds, in which you (or a member of your Family/Household) had Beneficial Ownership. It also requires you to either confirm or amend your complete list of all brokers, dealers, and banks in which you or a member of your Family/Household established an account in which any securities (not just Covered Securities or shares of Covered Funds) were held or could have been held during the quarter for the direct or indirect benefit of you or a member of your Family/Household. 3. Annual Holdings Reports. By January 30 of each year, you must file with the Compliance Officer an Annual Holdings Report as of December 31 of the preceding year. The Annual Holdings Report requires you to list all Covered Securities and Covered Funds in which you (or a member of your Family/Household) had Beneficial Ownership as of December 31. It also requires you to list all brokers, dealers, and banks in which you or a member of your Family/Household maintained an account in which any securities (not just Covered Securities and Covered Funds) were held, or could have been held, for the direct or indirect benefit of you or a member of your Family/Household on December 31. 6 The Annual Holdings Report also requires you to confirm that during the prior year, except as otherwise indicated therein, you have complied with all applicable requirements of the Code and have reported all accounts, holdings, and transactions required to be reported under the Code, and that you understand that you have been designated an Access Person under the Code. 4. Duplicate Confirmation Notices and Statements. Any Access Person or member of his or her Family/Household that has a securities account (in which Covered Securities or shares of Covered Funds are held, or could be held) with any broker, dealer, or bank that is subject to an exemption from the Designated Broker Requirement under sections B. (iii), (iv), or (v) of this Code, must direct that broker, dealer, or bank to send, directly to the Compliance Officer, contemporaneous duplicate copies of all transaction confirmation notices and statements relating to that account. NOTE: In certain circumstances Covered Securities may be held in accounts that are exempt from the Designated Brokerage Requirement, but do not have the ability to generate duplicate confirmation notices and statements (i.e. ESOP, DRIP, and 529 Plans). In these limited circumstances an Access Person may satisfy his or her reporting requirement by manually completing quarterly transaction reports and submitting a copy of the year-end statements for all such accounts with his or her annual holdings report. [NOTE: The Designated Brokerage Requirement becomes effective July 1, 2004. Until effective, all accounts that hold or can hold covered securities remain subject to the Duplicate Confirmation Notices and Statement Requirement]. G. Transaction Restrictions 1. Initial Public Offerings and Private Placements. Access Persons may not acquire securities in an Initial Public Offering ("IPO") or Private Placement unless prior written approval is obtained from the Compliance Officer, and participation does not present a conflict of interest with any Clients or impede the equitable distribution of the offering to the public. Any request for allocation of an IPO or a Private Placement to an Access Person that is in any way connected with his or her position in the Firms will be denied. Further, the Compliance Officer may deny requests for any reason. Access Persons must request approval for participation in an IPO or Private Placement by submitting a request to the Compliance Officer. These requests must include: .. A brief description of the Private Placement or IPO opportunity .. In the case of a Private Placement, the nature of the employee's participation .. A statement as to how and why the opportunity was offered to the Access Person and other factors relevant, from the perspective of the firm, to the approval decision (e.g. whether participation in the Private Placement or IPO is connected with the Access Person's position with the Firms or will result in any conflicts of interest with Client portfolios.) 2. Short Term Trading of Covered Funds. No Access Person may purchase and sell, or conversely sell and repurchase shares of the same Covered Fund within 60 calendar days. These restrictions will apply to purchases and exchanges in all accounts including 401(k)'s. Hardship exceptions may be requested (in advance) from the Compliance Officer. For example, if Covered Fund A was purchased on January 1st, because of the 60 day holding period it could not be sold until March 2nd (61 days later). 7 Non-volitional and automatic trades such as 401(k) contributions (individual and company match), automatic investment, withdrawal and dividend reinvestment plans are exempt from this restriction and will not be considered in determining the 60-day holding period. For example, if an Access Person has established a monthly investment into Covered Fund A that is automatically deducted from his or her paycheck, that investment will not begin or end a 60-day holding period. This same principle applies to regular 401(k) contributions (individual and company match). All volitional purchase and sale transactions (including exchanges) of Covered Funds, in any share class and in any account (i.e., direct account with the Covered Fund, Designated Broker account, 401(k) account, etc.), will be evaluated for purposes of applying the Short Term Trading restriction. For example, if Covered Fund A was purchased by an Access Person in a joint account with his or her spouse on January 1st, any sale of Covered Fund A in the Access Person's 401(k) account before March 2nd would violate the Short Term Trading restriction. NOTE: In applying the 60-day holding period, the most recent purchase (or sale) will be measured against the sale (or purchase) in question. Further, if fewer than 60 days have elapsed since a purchase (or sale), no shares may be sold (or purchased) (i.e. not simply the number of shares involved in the earlier transaction). Exchanges between funds will be considered a sale (exchange from account) or purchase (exchange to account) under the Code. NOTE: The 60-day holding period does not apply to money market funds whether or not CIA (or any affiliate) serves as the investment adviser or subadviser. 3. Futures and Related Options. No Access Person shall use derivatives including futures, options on futures, or options on a Covered Security to evade the restrictions of the Code. In other words, no Access Person may use derivative transactions with respect to a Covered Security if the Code would prohibit the Access Person from taking the same position directly in the Covered Security. 4. Blackout Period. No Access Person (including any member of the Family/Household of such Access Person) may purchase or sell any Covered Security within the seven calendar days immediately before or after a calendar day on which any Mutual Fund Client or a Separate Account Client purchases or sells that Covered Security (or any closely related security, such as an option or a related convertible or exchangeable security), unless the Access Person had no actual knowledge that the Covered Security (or any closely related security) was being considered for purchase or sale for any Mutual Fund Client or Separate Account Client. Note that the total blackout period is 15 days (the day of the Client trade, plus seven days before and seven days after). The blackout period does not apply to Access Person transactions concurrent with Separate Account Client transactions intended merely to rebalance, liquidate, or open accounts for Separate Account Clients where CIA acts as the adviser, for the following reasons: CIA relies on model portfolios supplied by investment advisory affiliates and third party investment advisory firms; due to the nature of CIA's separate account program, a number of these Separate Account Clients may add or withdraw funds, and open or close accounts on a daily basis; the trades generated by these activities are unpredictable; they are not caused by a change in the investment opinion of CIA or any of its subadvisers; they tend to be small in size with little or no market impact; they are of an administrative nature; and if triggering a blackout period, they would likely have the effect of "blacking out" every security traded by Separate Account Clients of CIA on every trading day. The blackout period does apply, however, to transactions 8 concurrent with Separate Account Client transactions related to implementation of changes to model portfolios or related to changes in the investment opinion of CIA or any of its subadvisers. NOTE: All transactions for Access Persons will be compared to transactions executed by CIA or a subadviser on behalf of Mutual Fund Clients and Separate Account Clients. The fact that the Compliance Officer has precleared a trade does not mean that it is not in violation of the Code. When evaluating a preclearance request, current open orders for Separate Account Clients as well as trades executed on behalf of Separate Account Clients over the previous 7 days are considered. Changes to model portfolios over the subsequent 7 days may create a violation of the blackout period. Due to the nature of CIA's advisory activity with respect to Mutual Fund Clients it is impossible to be certain that there are no open orders for a particular security when granting preclearance For example if an Access Person executes a trade in a Covered Security for which he or she has received proper preclearance on January 1st, and a subadviser changes a model portfolio which results in trades in the same Covered Security by Separate Account Clients any time before January 8th (the remainder of the 15 day blackout period), it may result in a violation of the Code, if the Access Person had knowledge that the Covered Security was being considered for purchase or sale for any Client account. Trading within the 15-day blackout period is not automatically considered a violation of the Code but is instead subject to the knowledge condition set forth above. The Compliance Officer will monitor personal securities trading activity and if a pattern appears to exist with respect to the trading activity of an Access Person and any Mutual Fund Client and/or Separate Account Client within the 15-day blackout periods, it will be investigated. If it is determined that a violation has occurred, the Firms will generally require any profits from the transactions to be disgorged and donated to charity, and may impose other sanctions as deemed necessary (see section E of this Code). 5. Preclearance Requirement. Access Persons are required to request and receive preclearance by the Compliance Officer before executing the purchase or sale of Covered Securities. Given the nature of CIA's current advisory operations, which include oversight of other investment advisers, approving, and in some cases effecting, transactions for Client accounts, CID's role as a distributor and underwriter, and CIS's role as an administrator and transfer agent, the Firms have incorporated several exemptions to the Preclearance Requirement that you should be familiar with. a. Preclearance. Unless specifically exempted by this Code, no Access Person shall purchase or sell any Covered Security for his or her own account (or the account of any member of his or her Family/Household) without proper preclearance. Trades must be completed on the same day that preclearance is granted. This requirement applies to all trades in Covered Securities. Instruments representing an indirect interest in a Covered Security, such as options and warrants, must also be precleared. b. Exemptions. The preclearance requirement does not apply to the following transactions: . Exempt Transactions (as defined in Section 7 of this Code). . Transactions of 100 shares or less of common or preferred stocks of a class that is publicly traded on a national stock exchange. . Transactions with an aggregate dollar value (excluding commissions) of $10,000 or less. . Transactions in Covered Funds. . Transactions in accounts for which the Access Person has Beneficial Ownership but no investment influence or control and, if applicable, has been granted an exemption from the Designated Brokerage Requirement by the Compliance Officer. 9 c. Process. Access Persons are required to submit a preclearance request to the Compliance Officer and receive approval for the transaction before executing a trade for a Covered Security transaction requiring preclearance. Trades in Covered Securities cannot be executed until the Compliance Officer provides specific approval. Preclearance will not be granted at any time when there are open orders relating to the implementation of changes to model portfolios in the same Covered Security for Separate Account Clients. Further, preclearance will not be granted for any trades that would violate the blackout period restriction as it applies to personal transactions effected within 7 days after a Separate Account Client trade. The Firms reserve the right to require any Access Person to preclear exempted transactions at any time and, if requested by the Firms, an Access Person will obtain the approval of the Compliance Officer before buying or selling any security, for such period (which may be indefinite) as the Compliance Officer shall determine. NOTE: Access Persons should keep a copy of all completed preclearance approvals for a period of at least 12 months. You can get copies of any forms or reporting procedures from the Compliance Officer, or the Firms' Intranet. 6. Good Until Canceled and Limit Orders. No Access Person shall place a "good until canceled," "limit", or equivalent order with his/her broker for any Covered Security subject to the preclearance requirement except that an Access Person may utilize a "day order with a limit" so long as the transaction is consistent with provisions of this Code, including the preclearance procedures. All orders must expire at the end of the trading day on which they are precleared unless otherwise extended by the Compliance Officer. 7. Exempt Transactions. The blackout period restrictions and preclearance requirements do not apply to Covered Funds and the following categories of transactions in Covered Securities: . Transactions in any Covered Security guaranteed by the United States Government. . Transactions in common or preferred stocks of a class that is publicly traded and issued by a company with a stock market capitalization of at least $10 billion U.S. (or the equivalent in foreign currency). . Transactions in futures and options contracts on interest rate instruments or indexes, and options on such contracts. So long as the transactions do not violate section G.3. of this Code. . Transactions that occur by operation of law or under any other circumstance in which no investment discretion is exercised, and no recommendations are made by the Access Person or any member of their Family/Household. . Purchases pursuant to the exercise of rights issued pro rata to all holders of the class of a Covered Security held by the Access Person (or Family/Household member) and received by the Access Person (or Family/Household member) from the issuer. . Purchases of a Covered Security pursuant to an automatic investment, withdrawal or dividend reinvestment plan. . Transactions in Exchange Traded Funds ("ETFs"), as well as any related options. . Investments in 529 Plans. NOTE: These transactions are not exempted from the reporting requirements of this Code. 10 H. Compliance Officer Approval The Compliance Officer is charged with responsibility for ensuring that all Access Persons adhere to the reporting requirements of this Code of Ethics and that the review requirements of this Code are performed in a prompt manner. 11 Definitions The following terms have special meanings in this Code of Ethics: .. Access Person .. Beneficial Ownership .. Client .. Compliance Officer .. Covered Fund .. Covered Security .. Designated Broker .. Family/Household .. Initial Public Offering .. Mutual Fund Client .. Private Placement .. Separate Account Client The special meanings of these terms as used in this Code of Ethics are explained below. Some of these terms (such as "Beneficial Ownership") are sometimes used in other contexts, not related to Code of Ethics, where they have different meanings. For example, "Beneficial Ownership" has a different meaning in this Code of Ethics than it does in the SEC's rules for proxy statement disclosure of corporate directors' and officers' stockholdings, or in determining whether an investor has to file 13D or 13G reports with the SEC. IMPORTANT: If you have any doubt or question about whether an investment, account, or person is covered by any of these definitions, ask the Compliance Officer. Do not just guess at the answer. Access Person means Access Person as defined in Rule 17j-1 under the 1940 Act and/or Rule 204A-1 of the Advisers Act, as those rules are amended from time to time. Currently this includes: . Any director, officer, or general partner of a Firm. . Any employee of a fund or an investment adviser or any person in a control relationship to a investment adviser who, in connection with his or her regular functions or duties, participates in the selection of a Client's portfolio securities or who has access to information regarding a Client's future purchases or sales of securities. . Any director, officer, or general partner of a principal underwriter who, in the ordinary course of business, makes, participates in, or obtains information regarding, the purchase or sale of securities for a Client for which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the Client regarding the purchase or sale of securities. Due to the nature of the Firms' activities and for the purposes of administering this Code, the Firms have designated all employees as Access Persons. The term "Access Person" under this Code and relating to the Firms normally does not include an employee of a company in a control relationship to the Firms, who is not an employee, officer, or director of any of the Firms, where such company is required to have a Code of Ethics containing provisions reasonably necessary to prevent the Access Person from engaging in any act, practice, or course of 12 business prohibited by Rule 17j-1(a) and such employee is required to report his or her transactions to such company. However, in certain instances a person may be an employee of both the Firms and an affiliated adviser, and may be subject to more than one Code of Ethics. Beneficial Ownership means beneficial ownership as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this means any opportunity, directly or indirectly, to profit or share in the profit from any transaction in securities. Beneficial Ownership is a very broad concept. Some examples of forms of Beneficial Ownership include: . securities held in a person's own name, or that are held for the person's benefit in nominee, custodial, or "street name" accounts. . securities owned by a member of your Family/Household. . securities owned by or for a partnership, in which the person is a general partner (whether the ownership is under the name of that partner, another partner, the partnership, or through a nominee, custodial, or "street name" account). . securities that are being managed for a person's benefit on a discretionary basis by an investment adviser, broker, bank, trust company, or other manager. . securities in a person's individual retirement account. . securities in a person's account in a 401(k) or similar retirement plan, even if the person has chosen to give someone else investment discretion over the account. . securities owned by a trust of which the person is either a trustee or a beneficiary. . securities owned by a corporation, partnership, or other entity that the person controls (whether the ownership is under the name of that person, under the name of the entity, or through a nominee, custodial, or "street name" account). . securities that are traded on behalf of an investment club of which an Access Person is a club member or in which a member of their Family/Household is a member. The above is not a complete list of the forms of ownership that could constitute Beneficial Ownership for purposes of this Code. You should ask the Compliance Officer if you have any questions or doubts at all about whether you or a member of your Family/Household would be considered to have Beneficial Ownership in any particular situation. Client means any individual, entity, or registered investment company for which CIA serves as adviser or subadviser, or CID serves as distributor. Client information includes information obtained from entities contracted by CIA as adviser to serve as subadviser for certain Mutual Fund Clients and Separate Account Clients. Compliance Officer means the Compliance Officer of the Firms or another person that he or she has designated to perform the functions of Compliance Officer. For purposes of reviewing the Compliance Officer's own transactions and reports under this Code, the functions of the Compliance Officer are performed by the Firms' General Counsel, or his or her designee. 13 Covered Fund means (i) any investment company advised or subadvised (as defined in section 2(a)(20) of the 1940 Act) by CIA, (ii) mutual funds that are advised by any investment adviser that controls CIA, is controlled by CIA or is under common control with CIA (e.g. Loomis Sayles, Harris Associates, etc.), (iii) any investment company distributed by CID. For clarification purposes, Covered Funds include, but are not limited to, the CDC Nvest Funds, the Loomis Sayles Funds, and the Oakmark Funds. A complete list of Covered Funds may be obtained from the Compliance Officer or on the Firms' Intranet. The Compliance Officer may either add or remove funds from this list if he or she determines that there is either a heightened risk of access to portfolio information (in the case of funds that would not be considered Covered Funds under this definition), or no access to portfolio information about a fund (for those funds that would otherwise meet the above criteria of a Covered Fund). Covered Security means a covered security as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this means anything that is considered a "security" under the Investment Company Act of 1940, except: . Direct obligations of the U.S. Government. . Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt obligations, including repurchase agreements. . Shares of open-end investment companies that are registered under the Investment Company Act (mutual funds). Security is a very broad term. It includes most kinds of investment instruments, including things that you might not ordinarily think of as "securities", such as: . Options on securities and currencies. . Investments in all kinds of limited partnerships. . Investments in foreign unit trusts, closed end funds, and foreign mutual funds. . Investments in private investment funds, hedge funds, and investment clubs. If you have any question or doubt about whether an investment is a considered a security or a Covered Security under this Code, ask the Compliance Officer. Designated Broker means Charles Schwab, Fidelity Investments, or Merrill Lynch (collectively, the "Designated Brokers"). Family/Household means: . Your spouse or live-in partner who shares your household and combines his or her financial resources in a manner similar to that of married persons (unless he or she does not live in the same household as you and you do not contribute in any way to his or her support). . Your children under the age of 18. . Your children who are 18 or older (if they live in the same household as you or you contribute in any way to their support). . Any of these people who live in your household: your stepchildren, grandchildren, parents, stepparents, grandparents, brothers, sisters, parents-in-law, sons-in-law, daughters-in-law, brothers-in-law, and sisters-in-law, including adoptive relationships. 14 . Any individual for whom you are exercising investment control. NOTE: There are a number of reasons why this Code covers transactions in which members of your Family/Household have Beneficial Ownership. First, the SEC regards any benefit to a person that you help support financially as indirectly benefiting you, because it could reduce the amount that you might otherwise need to contribute to that person's support. Second, members of your Family/Household could, in some circumstances, learn of information regarding the Firm's trading or recommendations for Client accounts, and must not be allowed to benefit from that information. Initial Public Offering ("IPO") means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934. Mutual Fund Client means any Client for which the Firms have limited involvement in the business of providing investment advice or engaging in the investment decision-making process because discretion has been delegated to another investment adviser. While it is the named adviser to certain CDC Nvest Funds, CIA performs no actual portfolio management activities for registered investment companies directly, and therefore, largely does not employ methods of analysis or utilize other sources of information. For the CDC Nvest Funds on which CIA serves as named adviser, all portfolio management functions have been delegated to the named subadvisers of the Funds, each of which has executed subadvisory agreements with CIA. There are other CDC Nvest Funds for which CIA does not serve as adviser. In addition, CID is the Distributor for all CDC Nvest Funds and Loomis Sayles Funds. Therefore all registered investment company clients are considered Mutual Fund Clients. Private Placement means an offering of a stock or bond that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or Pursuant to Rule 504, 505, or 506 thereunder. Separate Account Client means any Client account, for which CIA has retained discretionary authority. CIA provides investment management services for separate account clients using investment recommendations, in the form of model portfolios, supplied by one or more subadvisers. Although CIA has the ultimate investment decision-making authority with respect to securities to be purchased or sold, CIA generally follows the recommendations implicit in the model portfolios supplied by its subadvisers. While CIA relies primarily on these model portfolios to manage Client assets, it will retain discretionary authority over Client portfolios. This discretion will be primarily used to execute trades and manage accounts according to specific Client requirements. 15 EX-99.(P)(3) 13 dex99p3.txt CODE OF ETHICS FOR CAPITAL GROWTH Exhibit (p)(3) CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP CODE OF ETHICS (As revised September 29, 2004) PART I - BUSINESS PRACTICES Understanding as to Clients' Accounts, Company Records, etc. Records and other materials relating to Capital Growth Management's relationships with its clients are the property of Capital Growth Management and not of any individual member of the firm. This applies to all clients for whom the firm acts as investment counsel or adviser, regardless of how or through whom the client relationship originated and regardless of who may be the individual consultant on a particular client's affairs. You agree that, upon the termination of your employment, you will not take with you any of our records, correspondence, files, forms, documents or data of any nature whatsoever pertaining to our clients, procedures, or research activities, and that you will not prepare or take with you any copies of the same, and that you will not, before or after termination of your employment, make any of such records or other information or data available to any other person or firm; provided however that data and information related to client accounts may be provided to Capital Growth Management's service providers as required to provide services to clients and that data and information related to client accounts shall be provided pursuant to a valid and enforceable subpoena or as otherwise required by law. All information in our files pertaining to the clients of the firm or our forms, procedures, research or counseling activities is confidential property of the firm. Client Information Our relationship with clients is entirely confidential and no disclosure of the name or of any detail of the personal circumstances of a client shall be made to anyone not a member of the firm without the specific permission of the client. -2- Outside Affiliations No member of the firm shall become an officer, trustee or director of any company whose shares are publicly traded (except an investment company managed by Capital Growth Management or a Capital Growth Management affiliate) without the advance approval of the Chairman or President of the General Partner of Capital Growth Management. Capital Growth Management cannot be in the position of receiving or being able to receive inside information. Therefore, exceptions will be made only in extremely unusual situations. No member of the firm shall accept an appointment as an executor, administrator, trustee, guardian or conservator (other than in family situations) without approval by the Chairman or President of the General Partner of Capital Growth Management. Gifts from Third Parties In order to avoid a conflict of interest, the impairment of the impartial discharge of your responsibilities to our clients, or any other difficulty or embarrassment, you shall not accept any gift(s) presented on your own behalf, on the firm's behalf, or on behalf of any member of your family from any person with whom the firm does business, including brokers, securities salesmen, clients, or vendors of any kind valued at more than $250.00 annually. The only exception to this restriction shall be for occasional small gifts of de minimis value which present no possibility of influencing your judgment. Publishing Articles and Books You shall not publish any book or article bearing on investments or finance or allied subjects except with the specific approval of the Chairman or President of the General Partner of Capital Growth Management. This also applies to public talks or interviews. Use of Inside Information You agree to adhere to the Capital Growth Management Limited Partnership Insider Trading Statement of Policy and Procedures which should be read in conjunction with this Code. PART II - PERSONAL SECURITIES TRANSACTIONS The primary purpose of the Capital Growth Management Code is to protect the interests of all our clients. Our Code is very important to each member of the firm in maintaining the high standards and reputation of Capital Growth Management and guarding against an inadvertent violation of the securities laws which might jeopardize your future in the investment business. There are two points in particular that should be constantly kept in mind. 1. Capital Growth Management holds itself out as a professional investment counsel firm which provides unbiased advice - that is, advice based solely on the merits of the individual investment and undiluted by any conflicts of interest which could prejudice the investment decision in any way. Thus, the very nature of our business requires that the main thrust of our Code be the elimination of any conflicts that could jeopardize our unbiased investment approach. 2. The second point we stress is the fiduciary nature of the relationship with our clients. This fiduciary relationship has been stressed by the SEC and state and federal courts, including the U.S. Supreme Court, and is highlighted in ERISA. Capital Growth Management is considered to be a fiduciary with respect to all its investment counsel clients, including both ERISA and non-ERISA accounts. This means that the same standards that are uniformly applied to trustees, guardians and other fiduciaries are applied to Capital Growth Management in its client relationships. These standards oblige Capital Growth Management to act honestly and fairly in all respects in our dealings with clients and to serve their interests with undivided loyalty. You are obliged to put the interests of the Capital Growth Management clients before your own personal interests. This is an obligation we all assume as members of an investment counsel firm. This rule has particular significance with reference to the flow of investment information our personnel receive from brokers. Such brokerage information is the property of Capital Growth Management and is to be used -2- for the benefit of the Capital Growth Management clientele. It should not be used for the personal advantage of the individual member of the firm who receives such information if such use conflicts with the interests of Capital Growth Management clients. This is a clear principle of law resulting from the fiduciary nature of our client relationship and our obligation to serve clients with undivided loyalty. I. Basic Philosophy Capital Growth Management recognizes the fundamental value to its clients in developing an organization of sound, experienced and practical investment people. The actual experience of investing one's own capital, whether it be small or large, is a valuable means of learning firsthand the opportunities, risks and characteristics of the investment markets. Therefore, Capital Growth Management encourages sound, personal investment by members of the firm. On the other hand, Capital Growth Management as a firm must make certain that there is no abuse of our responsibilities to clients or to the reputation and professional standing of our organization or any of its members. In formulating the Capital Growth Management Code, we have made every effort to produce a framework which will adequately protect the interests of our clients and our firm, while at the same time permitting as much freedom as we believe reasonable and permissible for the firm's individual members in carrying out their own personal investments. II. Securities Transactions Covered by the Code 1. Employees of Capital Growth Management The restrictions of the Capital Growth Management Code are applicable to the securities transactions of all employees of Capital Growth Management. The restrictions of the Capital Growth Management Code also apply to directors, officers and general partners of Capital Growth Management and its General Partner, and all individuals in a control relationship to Capital Growth Management who obtain information concerning investment recommendations to the CGM Funds or any other registered investment company advised by Capital Growth Management. References in this Code to CGM employees include all other persons to whom this Code applies. -3- Capital Growth Management will identify and inform all persons subject to the reporting requirements under this Code. 2. Employee Accounts The Code applies to securities transactions for all accounts in which you have a "beneficial interest", except any such account where you have no influence or control over investments. Whether you have a "beneficial interest" in an account will be determined pursuant to Rule 16a-1(a)(2) of the Securities Exchange Act of 1934 and interpretative releases of the Securities and Exchange Commission. Under these rules a beneficial interest in securities exists whenever you derive any economic benefit from the income from the securities or whenever you can exercise a controlling influence over the purchase, sale or voting of the securities. You may also have a beneficial interest in securities if you have the opportunity to indirectly participate in profits from the securities through, among other things, trusts, partnerships, or immediate family members. Accordingly, you are normally considered to have a beneficial interest in: a. Securities owned by you, whether or not registered in your name. b. Securities held in a trust, estate or other account in which you, your spouse, minor children or other relatives who share the same home with you have a (direct or indirect) present or future interest in the income or principal. c. Securities owned by your spouse or minor children. d. Securities owned by other relatives who share the same home with you. e. Securities in the name of another person where you can obtain title to the securities at once or at some future time. 3. Fund Trustees The Code does not apply to trustees of the mutual funds managed by Capital Growth Management who are not employees of our firm. The restrictions on the securities transactions of the outside Fund trustees and -4- the requirements for filing reports of their transactions are governed by the Codes of Ethics of the Funds. III. The Rule of Reason, Conscience and Integrity The primary rule of the Capital Growth Management Code is the Rule of Reason, Conscience and Integrity. You have the responsibility of carrying out your own personal transactions to ensure that you are not benefiting in your personal investments at the expense of any Capital Growth Management client and that you are not in any way taking advantage of or "trading" on the knowledge you may have of the market impact of transactions carried out by Capital Growth Management for any of its clients. Using your own conscience as a person of integrity, you should be the best judge in regard to compliance with this basic approach to personal investing. This rule imposes a stricter standard upon members of Capital Growth Management than the general standard of federal and state laws, which prohibit any act, practice or course of business which would operate as a fraud or deceit upon clients. IV. Specific Restrictions on all Purchase and Sale Transactions In addition to the Rule of Reason, Conscience and Integrity, the following specific restrictions in this Section IV applies to all securities transactions for accounts subject to the Code, except the exempt transactions which follow the rule: NO EMPLOYEE OF CAPITAL GROWTH MANAGEMENT MAY PURCHASE A SECURITY IF SECURITIES OF THE SAME ISSUER ARE HELD IN ANY OF THE FIRM'S CLIENT ACCOUNTS. The Employee is required to determine whether or not securities of the same issuer are held in any client account or whether there is a pending "buy" order prior to engaging in any trading for his or her own account. For employees located at the 222 Berkeley Street offices, this determination shall take the form of written verification from Leslie Lake. If the employee already holds a security at the time that securities of the same issuer are purchased for a client account, he or she may not sell such security for his or her own account until either (i) at least seven days after all securities of the same issuer are purchased for any client account (i.e., seven days after all pending "buy" orders of securities of the same issuer for all client accounts have been completed), or (ii) client accounts no longer hold any securities of the same issuer. -5- Because it is important for Capital Growth Management to avoid even the appearance of impropriety, the preceding restriction applies to all employees, whether or not they are actively involved in portfolio management, securities analysis or trading on behalf of clients. ADDITIONAL RESTRICTION FOR PORTFOLIO MANAGERS: A Portfolio Manager may not buy or sell a security for his or her own personal account within seven calendar days before or after any Fund or private account trades in the security. This Section IV applies to all types of securities transactions, provided the following securities or transactions are exempted from the above provisions of this general rule: . Purchases or sales of direct obligations of the Government of the United States, shares of registered open-end investment companies, bankers' acceptances, bank certificates of deposit or commercial paper; . Purchases which are part of an automatic dividend reinvestment plan; . Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer; and . Purchases and sales of publicly traded securities of any issuers whose total market capitalization is less than $100 million (which issuers are, as a class, considered to be inappropriate investments for the funds managed by the firm). Any prohibition against purchase or sale of a security in this Section IV includes a prohibition against the short sale of the security, the purchase or sale of a bond or preferred stock which is convertible into that security or the purchase or sale of an option, warrant, or other right to purchase or sell that security. In addition a portfolio manager may not engage in the practices of "portfolio pumping", "window dressing", or "marking the close" with respect to his management of any Fund or private account -6- V. Additional Restrictions The following additional restrictions have been adopted for specific types of transactions for the reasons indicated below. These prohibitions apply to direct investments, short sales and options trading in such securities. 1. No employee may purchase securities issued by any company the principal business of which is brokerage, underwriting or investment banking except for companies on the following list (which shall be updated from time to time): Bear Stearns Goldman Sachs Edwards, A.G. Merrill Lynch Jefferies Group Morgan Stanley Dean Witter Legg Mason Schwab, Charles Lehman Brothers Solomon-Smith Barney UBS Securities Reason: To avoid investments which might influence the selection of brokers for client transactions. The companies listed above are those whose capitalizations are sufficiently high and whose brokerage or underwriting activities are sufficiently large so as to mitigate concerns about improper influence. 2. No employee may participate as a purchaser or acquire beneficial ownership of any security in an initial public offering of securities. For this purpose "initial public offering" means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934. Reason: to avoid use or the appearance of the use of brokerage business for our clients to obtain favorable treatment from brokers distributing new issues. 3. No employee may participate as a purchaser or acquire beneficial ownership of any security in any private offering of securities. Where the employee already has a holding of such securities, he or she need not divest such holdings, but shall play no role in any further consideration by Capital Growth Management of any investment in such issuer. For this purpose "private offering" means an offering that is exempt from registration under -7- the Securities Act of 1933 pursuant to Section 4(2) or 4(6) of the Act, Regulation A under the Act, or Rule 504, 505 or 506 under the Act. Reason: to avoid a conflict of interest between the employee entering into or holding such investment and clients of Capital Growth Management both at the time that the investment is made available to the employee and at the time that an investment in the same issuer is being considered for client accounts. 4. No employee may participate in any investment club, hedge fund, limited partnership, or other private investment pool, unless such employee: (i) receives the advance approval of the Chairman or President of the General Partner of Capital Growth Management, and (ii) verifies in writing that such employee does not provide investment advice to such investment pool or its participants, or that such investment pool has agreed to become subject to all of the requirements of this Code. Reason: the same restrictions which apply to your personal trading must apply to the investment pool, unless your involvement is entirely passive. 5. No employee may invest in either a public or private real estate investment trust ("REIT") unless such employee receives the written approval of the Chairman and President of the General Partner of Capital Growth Management in advance of such investment. The President and the Chairman of Capital Growth Management may not invest in REIT's without the other's written approval in advance of such investment. The Review Officer shall report to the Board of Trustees of each of CGM Trust and CGM Capital Development Fund at least quarterly concerning all purchases and sales of REIT's by employees of Capital Growth Management during the prior year. Reason: A substantial portion of CGM Realty Fund's portfolio is invested in REIT's; this restriction is designed to minimize the possibility of a conflict of interest with the investment strategy of this fund. 6. No employee may engage in the frequent buying and selling of shares in any of the CGM Funds or the CGM Advisor Targeted Equity Fund in an attempt to take advantage of short swings in the prices of any of these funds. Reason: The frequent buying and selling of shares of a fund, known as "market timing", can have a negative impact on the price of a fund to the -8- disadvantage of a fund's long term shareholders and will constitute a breach of our fiduciary duty to our clients. All profits realized in violation of any restriction in this Code shall be immediately paid over to Capital Growth Management, which shall, in its discretion, allocate such profits among its clients, or contribute them to charity. Any such profits shall be calculated net of any federal, state, local, or foreign taxes paid or payable on the profits. VI. Disclosure Requirements and Reports Each employee must comply with the reporting requirements described below. For purposes of this Section VI, the term "security" includes stocks, bonds, notes, partnership interests, options, warrants, debentures, puts and calls on securities, mining interests, ADRs, each of the CGM Funds, the CGM Advisor Targeted Equity Fund and any other interest or instrument commonly known as a "security." However, the term "security" does not include: . direct obligations of the Government of the United States, . bankers' acceptances, . bank certificates of deposit, . commercial paper, . high quality short-term debt instruments, . repurchase agreements, and . shares of registered open-end investment companies, i.e. mutual funds, other than the CGM Funds and the CGM Advisor Targeted Equity Fund. Any report made pursuant to this Section VI may contain a statement that the report shall not be construed as an admission that you have any direct or indirect beneficial ownership in a security to which the report relates and no report shall be considered as an admission that any transaction reported constitutes a violation of the Code. Reports need not be made with respect to accounts where you have no direct or indirect influence or control over investments. In addition, reports need not be made with respect to securities transactions (including transactions in the CGM Funds and the CGM Advisor Targeted Equity Fund) effected pursuant to an automatic investment plan, an automatic withdrawal plan or a dividend reinvestment plan. -9- 1. Initial Reports All new employees shall supply the Review Officer with a list of all brokerage and banking accounts in which any securities are held for the employee's direct or indirect beneficial interest and the securities held in each such account (including the names of the brokerage firms or banks and the title, number of shares and principal amount of each security beneficially owned). In addition, new employees shall affirm that they have no affiliations or positions with a public company not permitted by this Code. This initial report shall be submitted by each employee no later than ten days after becoming an employee and shall contain the date the report is submitted by the employee. 2. Monthly Reports Within ten days following the end of each month, you must file a signed securities transaction form with the Review Officer. On that form you must report the security transactions carried out during the month for all accounts in which you have a "beneficial interest", except accounts where you have no direct or indirect influence or control over investments. The monthly reports shall contain (a) the date of the transaction, (b) the title, interest rate and maturity date (if applicable), number of shares and principal amount of each security, (c) the nature of the transaction (i.e., purchase, sale, other), (d) the price of the security at which the transaction was effected and (e) the name of the brokerage firm or bank through which the transaction was effected. The monthly report also must contain, with respect to any account you established in which securities were held during the month for your direct or indirect benefit, the (a) name of the brokerage firm or bank with which you established the account and (b) the date the account was established. These monthly reports must be submitted by every employee of Capital Growth Management and must contain the date the report is submitted by the employee. Monthly reports must be filed whether or not any security transactions have been carried out. In instances where there have been no transactions, that fact should be so noted. -10- Employees shall keep copies of all broker confirmations and statements for all accounts in which they have a beneficial interest, and shall be prepared to supply them to the Review Officer upon request. 3. Annual Report On an annual basis, no later than 20 days after each December 31st, each employee shall supply the Review Officer with an annual report containing: (a) the title, number of shares and principal amount of each security in which the employee has any direct or indirect beneficial ownership and (b) the name of any brokerage firm or bank with which the employee maintains an account in which any securities are held for the direct or indirect benefit of the employee. In the annual report each employee shall either certify that he or she has fully complied with this Code or shall fully disclose any and all failures to do so. The information contained in the annual report must be current as of a date no more than 30 days before the report is submitted and must contain the date the report is submitted by the employee. VII. Review and Enforcement Mr. Kemp serves as the Review Officer for this Code. Mr. Heebner shall serve as Alternate Review Officer for Mr. Kemp. It will be the responsibility of the Review Officer to review these transactions promptly with the objective of catching at an early date any conflict with the specific rules or general principles and philosophy of this Code. It will be the Review Officer's responsibility to use common sense and judgment in regard to the character and nature of individual securities transactions as reported, to point out at once any apparent violation to the individual, and to take appropriate action. You cannot participate in a determination of whether you have committed a violation of this Code or of the imposition of any resulting sanction. If a contemplated securities transaction may apparently conflict with the provisions of this Code, you should contact the Review Officer prior to going ahead with the transaction. Information submitted in the initial, monthly, and annual reports will be treated as confidential by the Review Officer, provided it may be made available to the Securities and Exchange Commission and other government agencies. An employee shall report to the Review Officer and the Chief Compliance Officer immediately upon occurrence (i) any failure on his or her -11- part to comply with this Code and (ii) any other violation of this Code. The Review Officer and the Chief Compliance Officer will treat an employee's report of any other violation of this Code under (ii) above as confidential and anonymous. If you believe that adherence to any of the restrictions in Sections IV or V of the Code will cause you a serious and undue hardship because of unusual personal circumstances (e.g., the need to raise cash to pay an extraordinary medical expense) you may submit a request for an exemption in writing to the Review Officer. The Review Officer's determination will be final. Such relief from the requirements of the Code will be granted only rarely. VIII. Maintenance of Records Capital Growth Management will maintain the following records at its principal place of business, to the extent and in the manner set forth below, and will make such records available to the Securities and Exchange Commission or any representative thereof at any time and from time to time for reasonable periodic, special or other examination: 1. A copy of each Capital Growth Management Code which is, or any time within the past five years has been, in effect shall be preserved in an easily accessible place. 2. A copy of each employee's written acknowledgement of their receipt of this Code. 3. A record of any violation of such Code, and of any action taken as a result of such violation, shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs. 4. A copy of each report made under this Code shall be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place. 5. A list of all persons who are, or within the past five years have been, required to make reports pursuant to this Code or who are or were responsible for reviewing these reports shall be maintained in an easily accessible place. -12- 6. A copy of each report concerning this Code furnished by Capital Growth Management to the Board of any Fund pursuant to the Investment Company Act shall be maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place. 7. A record of any decisions, and the reasons supporting the decisions, to approve the acquisition of securities under Section VII of this Code shall be maintained for at least five years after the end of the fiscal year in which the approval is granted. IX. Amendments and Reporting to Funds Any material change to this Code of Ethics must be approved by the Boards of Trustees of the CGM Funds and any other registered investment company advised by Capital Growth Management, including a majority of trustees who are not interested persons of Capital Growth Management, no later than six months after adoption of the material change. No less frequently than annually, Capital Growth Management must furnish to the Boards of Trustees of the CGM Funds and any other registered investment company advised by Capital Growth Management a report that: 1. describes any issues arising under this Code of Ethics or procedures of Capital Growth Management since the last report to the Board, including, but not limited to, information about material violations of this Code of Ethics or procedures and sanctions imposed in response to the material violations; and 2. certifies that Capital Growth Management has adopted procedures reasonably necessary to prevent its employees from violating this Code of Ethics. X. Acknowledgement I have read and understand the foregoing Code and will comply in all respects with such Code. - ---------------------------------------- ----------------------- Name Date EX-99.(P)(9) 14 dex99p9.txt CODE OF ETHICS FOR MILLER ANDERSON [LOGO] Morgan Stanley Exhibit (p)(9) MORGAN STANLEY INVESTMENT MANAGEMENT CODE OF ETHICS Effective June 15, 2004 - ----------------------------------- (Print Name) The investment advisors, advisors, distribution companies and related service companies listed on the attached Schedule A that operate within Morgan Stanley Investment Management (each, a "Covered Company" and collectively, "Investment Management") have adopted this Code of Ethics (the "Code"). The principal objectives of the Code are (i) to provide policies and procedures consistent with applicable law and regulation, including Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), and Section 204 A of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and (ii) make certain that the personal trading and other business activities of Employees of Investment Management (defined in Section III. below) are conducted in a manner consistent with applicable law and regulation and the general principles set forth in the Code. Employees of Investment Management are also subject to the "Morgan Stanley Code of Conduct - Securities and Asset Management Businesses" (the "Code of Conduct"), and the Morgan Stanley Code of Ethics and Business Practices, which can be found on the Law Portal of the Morgan Stanley Today intranet site. Employees are reminded that they are also subject to other Morgan Stanley Investment Management policies, including policies on insider trading, the receipt of gifts, the handling of all internally distributed proprietary and confidential information, Morgan Stanley Investment Management Senior Loan Firewall Procedures, and service as a director of a publicly traded company. All internally distributed information is proprietary and confidential information and should not be discussed with people outside of Morgan Stanley Investment Management or shared with anybody outside of the Investment Department. i [LOGO] Morgan Stanley TABLE OF CONTENTS Page ---- I. Policy Highlights.......................................................1 II. General Principles......................................................2 A. Shareholder and Client Interests Come First........................2 B. Avoid Actual and Potential Conflicts of Interest...................3 III. Definitions.............................................................3 A. Access Persons.....................................................3 B. Covered Accounts...................................................3 C. Covered Securities.................................................4 D. Investment Personnel...............................................4 IV. Grounds for Disqualification from Employment............................4 V. Personal Securities Transactions........................................5 A. Prohibited Conduct.................................................5 B. Restrictions and Limitations on Personal Securities Transactions....................................................5 C. Exempt Securities..................................................9 D. Pre-Clearance Requirement.........................................10 E. Permitted Brokerage Accounts and Accounts Holding Morgan Stanley/Van Kampen Funds.......................................13 VI. Reporting Requirements.................................................15 A. Report of Transactions............................................15 B. Form of Reporting.................................................17 C. Responsibility to Report..........................................18 D. Leave of Absence..................................................18 E. Where to File Report..............................................18 F. Responsibility to Review..........................................18 VII. Code of Ethics Review Committee........................................19 VIII. Service as a Director and Outside Business Activities..................19 IX. Gifts..................................................................19 X. Sanctions..............................................................20 XI. Employee Certification.................................................20 ii [LOGO] Morgan Stanley I. Policy Highlights The Code is designed so that all acts, practices and courses of business engaged in by employees are conducted in accordance with the highest possible standards and to prevent abuses or even the appearance of abuses by Employees relating to their personal trading and other business activity. Compliance with the Code is a matter of understanding the basic requirements and making sure the steps the employee takes with respect to each personal securities transaction and his/her personal investment is in accordance with these requirements. This Section sets forth selected rules that frequently raise questions. These are by no means comprehensive and Employees must examine the specific sections of the Code for more details and are strongly urged to consult Compliance when questions arise: . Shares of Morgan Stanley/Van Kampen open-end investment companies ("Affiliated Mutual Funds"), whether purchased, sold or exchanged in a brokerage account, directly through a transfer agent or in a 401(k) or other retirement plan, including the Morgan Stanley 401(k) plan, are exempt from pre-clearance requirements but are subject to holding and reporting requirements. Affiliated Mutual Funds may not be sold, redeemed or exchanged until at least 60 calendar days from the purchase trade date. Shares in the same Mutual Fund may not be repurchased until at least 60 calendar days from the sale trade date. Investment Personnel, defined herein, may not sell, redeem or exchange Affiliated Mutual Funds until at least 90 calendar days from the purchase trade date and are subject to the repurchase restrictions above; . Purchases and sales of shares in money market funds, including Morgan Stanley/Van Kampen money market funds, continue to be exempt from preclearance, minimum holding period and reporting requirements of the Code; . Employees must maintain brokerage accounts at Morgan Stanley unless an exception is granted. All accounts for the purchase of Affiliated Mutual Funds must be pre-approved by the Compliance Department before opening; . All Personal Securities Transactions must be pre-cleared through Compliance, except as set forth herein; . Employees may only transact in MWD stock during designated window periods and all transactions must be pre-cleared. The restrictions imposed by Morgan Stanley on Senior Management and other persons in connection with transactions in MWD stock are in addition to this Code, and must be observed to the extent applicable; . Exchange Traded Funds ("ETFs") and closed-end mutual funds must be pre-cleared and are subject to all other holding and reporting requirements; 1 [LOGO] Morgan Stanley . Employees are prohibited from acquiring any security in an initial public offering (IPO) or any other public underwriting; . Private placements, participation on the Board of any company and any outside business activities must be pre-approved by the Code of Ethics Review Committee; . Employees may not sell Covered Securities under any circumstances unless the they have been held for at least 30 days and they may not be sold at a profit until at least 60 calendar days from the purchase trade date; . Employees may not repurchase any security sold by the Employee within the previous 30 days and may not repurchase such security within the previous 60 days if the purchase price is lower than any sale price within the 60-day period; . Portfolio managers and research analysts and those who report to them, may not trade in a security if accounts they manage trade in the same security within the 7 days prior to or 7 days following the Employee's transaction; . Employees are required to submit an Initial Holdings Report upon hire, Quarterly Transactions Reports and an Annual Report and Compliance Certification. II. General Principles A. Shareholder and Client Interests Come First Every Employee owes a fiduciary duty to the shareholders of registered investment companies (each; a "Fund" and collectively, the "Funds") and to the Managed Account Clients (defined as clients other than registered investment companies including unregistered investment companies, institutional clients and individuals). This means that in every decision relating to investments, every Employee must recognize the needs and interests of the Fund shareholders and the Managed Account Clients, and be certain that at all times the interests of the Fund shareholders and other Managed Account Clients are placed ahead of any personal interest. 2 [LOGO] Morgan Stanley B. Avoid Actual and Potential Conflicts of Interest The restrictions and requirements of the Code are designed to prevent behavior which actually or potentially conflicts, or raises the appearance of an actual or potential conflict, with the interests of the Fund shareholders or the Managed Account Clients. It is of the utmost importance that the Personal Securities Transactions of Employees be conducted in a manner consistent with both the letter and spirit of the Code to avoid any such conflict of interest and to prevent abuse of an Employee's position of trust and responsibility. III. Definitions A. "Access Persons" shall include all directors, officers, and employees of Investment Management as well as certain other persons falling within such definition under Rule 17j-1 under the 1940 Act and such other persons that may be so deemed by each Local Compliance Group from time to time, except those persons who are not officers and directors of an investment adviser under Investment Management and who meet the following criteria: (i) directors and officers of Morgan Stanley Distributors Inc., Morgan Stanley Distribution Inc., Morgan Stanley & Co., and Van Kampen Funds Inc. (each a "Distributor" and collectively, the "Distributors") that do not devote substantially all of their working time to the activities (including distribution activities) of an investment adviser under Morgan Stanley Investment Management; (ii) directors and officers of the Distributors that do not, in connection with their regular functions and duties, participate in, obtain information with respect to, or make recommendations as to, or purchase and sell securities on behalf of a Fund or a Managed Account Client; and (iii) directors and officers of the Distributors that do not have access to information regarding the day-to-day investment activities of Investment Management shall not be deemed Access Persons. Such persons are, however, subject to the Code of Conduct. The Local Compliance Group for each Covered Company will identify all Access Persons of Investment Management and notify them of their pre-clearance and reporting obligations at the time they become an Access Person. Access Persons will be referred to as "Employees" throughout the Code. Employees with questions concerning their status as Access Persons are urged to consult with their Local Compliance Group. B. "Covered Accounts" shall include any account in which an Employee has, or acquires any direct or indirect beneficial ownership in a security held in the account. Generally, an employee is regarded as having beneficial ownership of securities held in an account in the name of: (1) the individual; (2) a husband, wife or minor child; (3) a relative sharing the same house; (4) another person if the Employee obtains benefits substantially equivalent to ownership of the securities; (ii) can obtain ownership of the 3 [LOGO] Morgan Stanley securities immediately or at some future time; or (iii) can have investment discretion or otherwise can exercise control. In addition, as described in the Code, certain circumstances constitute Beneficial Ownership by an Employee of securities held by a trust. C. "Covered Securities" shall include all securities, any option to purchase or sell, and any security convertible into or exchangeable for such securities. For example, Covered Securities also include, but are not limited to individual securities, open-end mutual funds, exchange traded funds, closed-end funds and unit investment trusts. Exemption from certain requirements of the Code may apply to designated Covered Securities, as set forth below. In addition, certain securities, such as money market funds, are exempt from the definition of "Covered Security" as explained in the Code. D. "Investment Personnel" shall mean any Investment Management Employee who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities or anyone who, in connection with their job functions, has real-time knowledge of such recommendations. This includes, but is not limited to, portfolio managers, research analysts, and all persons reporting to portfolio managers and research analysts and personnel in the trading department, among others. IV. Grounds for Disqualification from Employment Pursuant to the terms of Section 9 of the 1940 Act, no director, officer or employee of a Covered Company, as listed in Schedule A may become, or continue to remain, an officer, director or employee without an exemptive order issued by the U.S. Securities and Exchange Commission if such director, officer or employee: . within the past ten years has been convicted of any felony or misdemeanor (i) involving the purchase or sale of any security; or (ii) arising out of their conduct as an underwriter, broker, dealer, investment adviser, municipal securities dealer, government securities broker, government securities dealer, transfer agent, or entity or person required to be registered under the U.S. Commodity Exchange Act, or as an affiliated person, salesman or employee of any investment company, bank, insurance company or entity or person required to be registered under the Commodity Exchange Act; or . is or becomes permanently or temporarily enjoined by any court from: (i) acting as an underwriter, broker, dealer, investment adviser, municipal securities dealer, government securities broker, government securities dealer, transfer agent, or entity or person required to be registered under the U.S. Commodity Exchange Act, or as an affiliated person, salesman or employee of any investment company, 4 [LOGO] Morgan Stanley bank, insurance company or entity or person required to be registered under the U.S. Commodity Exchange Act; or (ii) engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any security. It is your obligation to immediately report any conviction or injunction falling within the foregoing provisions to the Chief Legal or Compliance Officer of Investment Management. V. Personal Securities Transactions A. Prohibited Conduct No Employee shall buy or sell any Covered Security (with the exception of those described in sub-section C. below) for a Covered Account (referred to herein as a "Personal Securities Transaction") unless: 1. pre-clearance of the transaction has been obtained; and 2. the transaction is reported in writing to the Local Compliance Group in accordance with the requirements below. B. Restrictions and Limitations on Personal Securities Transactions Except where otherwise indicated, the following restrictions and limitations govern Personal Securities Transaction: 1. Covered Securities purchased may not be sold until at least 30 calendar days from the purchase trade date and may not be sold at a profit until at least 60 calendar days from the purchase trade date. Covered Securities sold may not be repurchased until at least 30 calendar days from the sale trade date. In addition, Covered Securities sold may not be purchased at a lower price until at least 60 calendar days from the sale trade date. Any violation may result in disgorgement of all profits from the transactions as well as other possible sanctions. 2. Morgan Stanley/Van Kampen open-end Mutual Funds (excluding money market funds), whether purchased in a brokerage account, directly through a transfer agent or in a 401(k) or other retirement plan, may not be sold, redeemed or exchanged until at least 60 calendar days from the purchase trade date. They may not be repurchased until at least 60 calendar days from the sale trade date. Investment Personnel may not sell, redeem or exchange such mutual funds until at least 90 calendar days from the purchase trade date and are subject to the repurchase restrictions above; 5 [LOGO] Morgan Stanley In the event of financial hardship, exceptions to this section of the Code may be granted, but only with the prior written approval of a Compliance Officer and the Employee's supervisor and if the transaction is consistent with each Fund prospectus. 3. No short sales are permitted. 4. No transactions in options or futures are permitted, except that listed options may be purchased, and covered calls written. No option may be purchased or written if the expiration date is less than 60 calendar days from the date of purchase. No option position may be closed at a profit less than 60 calendar days from the date it is established. 5. No Employee may acquire any security in an initial public offering (IPO) or any other public underwriting. No Employee shall purchase shares of a Fund that is managed by a Covered Company if such Fund is not generally available to the public, unless the vehicle is designed for Morgan Stanley employees and there is no intention of it becoming public in the future. 6a. Private placements of any kind may only be acquired with special permission from the Code of Ethics Review Committee and if approved, will be subject to monitoring by the Local Compliance Group. Any Employee wishing to request approval for private placements must complete a Private Placement Approval Request Form and submit the form to the Local Compliance Group. A copy of the Private Placement Approval Request Form, which may be revised from time to time, is attached as Exhibit A. Where the Code of Ethics Review Committee approves any acquisition of a private placement, its decision and reasons for supporting the decision will be documented in a written report, which is to be kept for five years by the Local Compliance Group after the end of the fiscal year in which the approval was granted. 6b. Any Employee who has a personal position in an issuer through a private placement must affirmatively disclose that interest if such employee is involved in considering any subsequent investment decision by a Fund or Managed Account regarding any security of that issuer or its affiliate(s). In such event, the President or Chief Investment Officer of Investment Management shall independently determine the final investment decision. Written records of any such circumstance shall be sent to the Local Compliance Group and maintained for a period of five years after the end of the fiscal year in which the approval was granted. 6 [LOGO] Morgan Stanley Restrictions 7.a. and 7.b. apply only to portfolio managers and research analysts (and all persons reporting to portfolio managers and research analysts) of Investment Management. 7a. No purchase or sale transaction may be made in any Covered Security by any portfolio manager or research analyst (or person reporting to a portfolio manager or research analyst) for a period of 7 calendar days before or after that Covered Security is bought or sold by any Fund (other than Morgan Stanley Value-Added Market Series, Morgan Stanley Select Dimensions Investment Series - Value-Added Market Portfolio, and Morgan Stanley index funds, or Portfolios) or any Managed Account (other than index-based Managed Accounts) for which such portfolio manager or research analyst (or person reporting to a portfolio manager or research analyst) serves in that capacity. 7b. The definition of portfolio manager shall also extend to any person involved in determining the composition of the portfolios of Funds that are UITs or who have knowledge of a composition of a UIT portfolio prior to deposit. These individuals shall not buy or sell a Covered Security within 7 calendar days before or after such Covered Security is included in the initial deposit of a UIT portfolio. Restriction 7.c. applies only to personnel in the trading department of each Covered Company. 7c. No purchase or sale transaction may be made in any Covered Security traded through the appropriate Covered Company's trading desk(s) (as determined by the Local Compliance Group) by any person on that trading desk at the same time that any Fund (other than Morgan Stanley Value-Added Market Series, Morgan Stanley Select Dimensions Investment Series-Value-Added Market Portfolio, and Morgan Stanley index funds, or Portfolios) or any Managed Account (other than index-based Managed Accounts) has a pending purchase or sale order in that same Covered Security. 7d. Any transaction by persons described in sub-sections 7.a., 7.b., and 7.c. above within such enumerated period may be required to be reversed, if applicable, and any profits or, at the discretion of the Code of Ethics Review Committee, any differential between the sale price of the Personal Security Transaction and the subsequent purchase or sale price by a relevant Fund or Managed Account during the enumerated period, will be subject to disgorgement; other sanctions may also be applied. 7 [LOGO] Morgan Stanley 8. No Employee shall purchase or sell any Covered Security which to their knowledge at the time of such purchase or sale: (i) is being considered for purchase or sale by a Fund or a Managed Account; or (ii) is being purchased or sold by a Fund or a Managed Account. With respect to portfolio managers and research analysts (and all persons reporting to portfolio managers and research analysts) of a Covered Company, no such persons may purchase shares of a closed-end investment company over which such person exercises investment discretion. 9. If a Personal Securities Transaction is not executed on the day pre-clearance is granted, it is required that pre-clearance be sought again on a subsequent day (i.e., open orders, such as limit orders, good until cancelled orders and stop-loss orders, must be pre-cleared each day until the transaction is effected). /1/ 10. Employees shall not participate in investment clubs. 11. Employees may only transact in MWD stock during designated window periods. Also, such transactions must be pre-cleared with Compliance. Holdings and transactions in MWD stock are subject to the initial, quarterly and annual reporting requirements as well as the 30-day holding period restriction and the 60-day short swing profit restriction/2/. The restrictions imposed by Morgan Stanley on Senior Management and other persons in connection with transactions in MWD stock are in addition to this Code, and must be observed to the extent applicable. Employees are required to read the Code of Conduct for a listing of specific restrictions and limitations relating to the purchase or sale of MWD stock. Employees receiving MWD stock or options through EICP and other plans may be subject to certain trading restrictions and exemptions. Employees should check Employment documents and consult with compliance to address any questions. Important: Regardless of the limited applicability of Restrictions 7.a., 7.b., and 7.c. each Local Compliance Group monitors all transactions by Employees in all locations in order to ascertain any pattern of conduct that may evidence actual or potential conflicts with the principles and objectives of the Code, including a pattern of front-running. The Compliance Group of each Covered Company: (i) on a quarterly basis, will provide the Boards of Directors/Trustees of the Funds it manages with a written report that describes any issues that arose during the previous quarter under the Code and, if applicable, any Funds' Sub-Adviser's Code of Ethics, including but not limited to, information about material violations - ---------- /1/ In the case of trades in institutional markets where the market has already closed, transactions must be executed by the next close of trading in that market. /2/ In connection with the sale of MWD stock, periodic purchases through employee sponsored equity purchase plans shall not be counted when calculating the 30-day holding period restriction or the 60-day short swing profit restriction. 8 [LOGO] Morgan Stanley and sanctions imposed in response to the material violations; and (ii) on an annual basis, will certify that each Covered Company has adopted procedures reasonably necessary to prevent its Employees from violating the Code. Also, as stated elsewhere in this Code, any violation of the foregoing restrictions may result in disgorgement of all profits from the transactions as well as other possible sanctions. C. Exempt Securities 1. The securities listed below are exempt from: (i) the holding period and other restrictions of this Section V., sub-sections B.1., B.2., B. 7a-d. and B.8.; (ii) the pre-clearance requirements; and (iii) the initial, quarterly and annual reporting requirements. Accordingly, it is not necessary to obtain pre-clearance for Personal Securities Transactions in any of the following securities, nor is it necessary to report such securities in the quarterly Transaction Reports or the Initial Holdings Report and Annual Compliance Certification: (a) Direct obligations of the United States Government3; (b) Bank Certificates of Deposit; (c) Bankers' Acceptances; (d) Commercial Paper; and (e) High Quality Short-Term Debt Instruments (which for these purposes are repurchase agreements and any instrument that has a maturity at issuance of fewer than 366 days that is rated in one of the two highest categories by a Nationally Recognized Statistical Rating Organization). (f) Shares held in money market funds, including Morgan Stanley/Van Kampen money market funds. (g) Shares held in non-affiliated open-end Mutual Funds. 2. Transactions in redeemable Unit Investment Trusts are exempt from the restrictions contained in this Section V., sub-sections B.1. and B.7 and the pre-clearance requirement of Section V., sub-section A., but are subject to the reporting requirements of Section VI., sub-section A. 3. Shares of Morgan Stanley/Van Kampen open-end mutual funds are exempt from the pre-clearance requirement of Section V, sub-section A, but are subject to the account opening restrictions of Section V, sub-section E, initial, quarterly and annual reporting requirements of Section VI, - ---------- /3/ Includes securities that carry full faith and credit of the U.S. Government for the timely payment of principal and interest, such as Ginnie Maes, U.S. Savings Bonds, and U.S. Treasuries. For international offices, the equivalent shares in fixed income securities issued by the government of their respective jurisdiction; however such securities are subject to the initial and annual reporting requirements of sub-section D. 9 [LOGO] Morgan Stanley and the holding period restrictions contained in Section V, sub-section B. Exchange Traded Funds ("ETFs") and closed-end funds must be pre-cleared and are subject to all other reporting requirements. 4. All Employees wishing to participate in an issuer's direct stock purchase plan or automatic dividend reinvestment plans must submit a memorandum to the Local Compliance Group stating the name and the amount to be invested in the plan. Any sale transactions from an automatic dividend reinvestment plan must be pre-cleared. Purchases under an issuer's direct stock purchase plan or automatic dividend reinvestment plan are exempt from the restrictions contained in this Section V, sub-sections B.1., B.7a-d. and B.8. and the pre-clearance requirement but are subject to the reporting requirements. 5. Transactions in Morgan Stanley and Van Kampen mutual funds within the Morgan Stanley 401(k) Plan4 are exempt from the pre-clearance requirement of Section V. sub-section A, but are subject to the initial, quarterly and annual reporting requirements of Section VI. and the holding period restrictions contained in Section V, sub-section B. 6. Employees may maintain fully discretionary managed accounts provided that each of the following conditions are met: (i) the investment program is offered by Morgan Stanley; (ii) the portfolio manager's strategy/investment discipline/investment program offered/utilized is the same for both Employee and non-Employee client accounts; (iii) written permission is obtained from the Director of Compliance and the Chief Investment Officer (or their designees) prior to opening a fully discretionary account; (iv) written certification is obtained stating that there will be no communication between the portfolio manager and the Employee with regard to investment decisions prior to execution; and (v) Employee accounts will be treated no differently from non-Employee accounts. The Employee must designate duplicate copies of trade confirmations and statements to be sent to the Compliance Department. To the extent that an Employee directs trades for tax purposes, that Employee shall obtain pre-clearance for each transaction from his/her Local Compliance Group. D. Pre-Clearance Requirement 1. Personal Securities Transactions (a) From Whom Obtained - ---------- /4/ This includes Morgan Stanley Retirement Plans that are equivalent to 401(k) Plans in jurisdictions outside the United States. 10 [LOGO] Morgan Stanley All Employees are required to obtain pre-clearance of Personal Securities Transactions in Covered Securities. Employees must complete the required Form, as described below, and submit it to the Compliance Department for approval. A copy of the Personal Securities Transaction Approval Form, which may be revised from time to time, is attached as Exhibit B. (b) Personal Securities Transaction Approval Process Pre-clearance must be obtained by completing and signing the Personal Securities Transaction Approval Form and obtaining the proper pre-clearance signatures. The Approval Form must also indicate, as applicable, the name of the individual's financial advisor, the branch office numbers, as well as other required information. If an Employee has more than one Covered Account, the Employee must indicate for which Covered Account the trade is intended on the Personal Securities Transaction Approval Form. Employees are required to have duplicate copies of their trade confirmations and Covered Account statements (which can be electronically transmitted) sent to the Local Compliance Group for each Covered Account the Employee has, or as a result of the transaction acquires, any direct or indirect beneficial ownership (as defined in sub-section E.3. below). Employees are required to: (i) confirm that no open orders exist in the same or related security with the appropriate trading desk(s) (as determined by the Local Compliance Group); and (ii) have the transaction approved by the Local Compliance Group. Portfolio managers and research analysts (or persons reporting to portfolio managers or research analysts) of Investment Management seeking pre-clearance for a Personal Securities Transaction must obtain an additional signature from a designated Senior Portfolio Manager (prior to pre-clearance from the Local Compliance Group). Trading desk personnel at any Covered Company seeking pre-clearance for a Personal Securities Transaction must obtain an additional signature from their immediate supervisor prior to pre-clearance from the Local Compliance Group. (c) Filing and Approval 11 [LOGO] Morgan Stanley After all required signatures are obtained, the Personal Securities Transaction Approval Form must be filed with the Local Compliance Group. The Employee should retain a copy for his/her records. Compliance will act on the request and notify the Employee whether the request has been approved or denied. If pre-clearance of a request is approved, it is effective only for a transaction completed prior to the close of business on the day of approval. Any transaction not completed will require a new approval. Each Local Compliance Group has implemented procedures reasonably designed to monitor purchases and sales effected pursuant to these pre-clearance procedures. 2. Factors Considered in Pre-Clearance of Personal Securities Transactions In reviewing any Personal Securities Transaction for pre-clearance, the following factors, among others, will generally be considered: . Whether the amount or the nature of the transaction, or the Employee making it, is likely to affect the price or market of security that is held by a Fund or a Managed Account Client. . Whether the purchase or sale transaction of the Covered Security by the Employee: (i) is being considered for purchase or sale by a Fund or a Managed Account; or (ii) is being purchased or sold by a Fund or a Managed Account Client. . Whether the individual making the proposed purchase or sale is likely to benefit from purchases or sales being made or considered on behalf of any Fund or a Managed Account Client. . Whether the transaction is non-volitional on the part of the Employee. . Whether the transaction is conducted in a manner that is consistent with the Code to avoid any appearance of impropriety. In addition to the requirements set forth in the Code, the Local Compliance Group and/or, if applicable, designated Senior Portfolio Manager/immediate trading room supervisor (as appropriate), in keeping with the general principles and objectives of the Code, may refuse to grant pre-clearance of a Personal Securities Transaction in their sole discretion without being required to specify any reason for the refusal. 12 [LOGO] Morgan Stanley E. Permitted Brokerage Accounts and Accounts Holding Morgan Stanley/Van Kampen Funds 1. Brokerage Accounts All securities transactions must be made through a Morgan Stanley brokerage account5. No other brokerage accounts, including mutual fund accounts with brokerage capabilities, are permitted unless special permission is obtained from the Local Compliance Group. If an Employee maintains an account(s) outside of Morgan Stanley, that Employee must transfer his/her account(s) to a Morgan Stanley brokerage account as soon as practical (generally within 30 days). Failure to do so will be considered a significant violation of the Code. In the event permission to maintain an outside brokerage account is granted by the Local Compliance Group, it is the responsibility of the Employee to arrange for duplicate confirmations of all securities transactions and brokerage statements to be sent to the Local Compliance Group. Prior to opening a Morgan Stanley brokerage account, Employees must obtain approval from their Local Compliance Group. No Employee may open a brokerage account unless a completed and signed copy of a Morgan Stanley Employee Account Request Form attached as Exhibit C is submitted to the Local Compliance Group for approval. Employees are responsible for reporting their Morgan Stanley account number to the Local Compliance Group. 2. Accounts Holding Affiliated Mutual Funds The opening of an account for purchase of Affiliated Mutual Funds (other than participation in the Morgan Stanley 401(k) Plan) must be pre-approved by the Local Compliance Group. Duplicate confirmations of all transactions and statements must be sent to the Local Compliance Group. (See Exhibit C). 3. Accounts Covered An Employee must obtain pre-clearance for any Personal Securities Transaction if such Employee has, or as a result of the transaction acquires, any direct or indirect beneficial ownership in the security. The term "beneficial ownership" shall be interpreted with reference to the definition contained in the provisions of Section 16 of the Securities - ---------- /5/ Morgan Stanley brokerage account shall mean an account with an affiliated Morgan Stanley broker in the Employee's local jurisdiction. 13 [LOGO] Morgan Stanley Exchange Act of 1934. Generally, a person is regarded as having beneficial ownership of securities held in the name of: (a) the individual; or (b) a husband, wife or a minor child; or (c) a relative sharing the same house; or (d) other person if the Employee: (i) obtains benefits substantially equivalent to ownership of the securities; (ii) can obtain ownership of the securities immediately or at some future time; or (iii) can have investment discretion or otherwise can exercise control. The following circumstances constitute Beneficial Ownership by an Employee of securities held by a trust: (a) Ownership of securities as a trustee where either the Employee or members of the Employee's immediate family have a vested interest in the principal or income of the trust. (b) Estate or trust accounts in which the Employee has the power to effect investment decisions, unless a specific exemption is granted. (c) Any Employee who is a settlor of a trust is required to comply with all the provisions of the Code, unless special exemption in advance is granted by the Local Compliance Group and: (i) the Employee does not have any direct or indirect beneficial interest in the trust; (ii) the Employee does not have the direct or indirect power to effect investment decisions for the trust, and (iii) the consent of all the beneficiaries is required in order for the Employee to revoke the trust. It is the responsibility of the Employee to arrange for duplicate confirmations of all securities transactions and statements to be sent to the Local Compliance Group. The final determination of beneficial ownership is a question to be determined in light of the facts of each particular case. If there are any questions as to beneficial ownership, please contact your Local Compliance Group. 4. Accounts Exempt from Pre-approval Requirement Pre-approval is not required for any account where the Employee does not have direct or indirect beneficial ownership. In case of doubt as to whether 14 [LOGO] Morgan Stanley an account is a Covered Account, Employees must consult with their Local Compliance Group. VI. Reporting Requirements A. Report of Transactions Employees are subject to several reporting requirements including an Initial Listing of Securities Holdings and Accounts when an Employee commences employment with Investment Management, Quarterly Securities Transactions and New Accounts Reports and an Annual Listing of Securities Holdings Report and Certification of Compliance. It is the responsibility of Employees to submit their reports in a timely manner. Compliance will notify Employees of their Quarterly and Annual Reporting obligations under the Code. 1. Initial Listing of Securities Holdings and Brokerage and Morgan Stanley/Van Kampen Mutual Fund Accounts Report When an Employee begins employment with Investment Management he or she must provide an Initial Listing of Securities Holdings and Brokerage Accounts Report to their Local Compliance Group disclosing: (i) all Covered Securities, including Affiliated Mutual Funds, and private placement securities beneficially owned by the Employee, listing the title of the security, number of shares held, and principal amount of the security; (ii) the name of the broker, dealer, bank or financial institution where the Employee maintains a personal account; and (iii) the date the report is submitted by the Employee. 2. Quarterly Securities Transactions and New Brokerage and Morgan Stanley/Van Kampen Mutual Fund Accounts Reports Quarterly Securities Transactions and New Brokerage and Mutual Fund Accounts Reports must be submitted by Employees within 10 calendar days after the end of each calendar quarter. Any new brokerage account, any account opened for the purchase of Morgan Stanley/Van Kampen mutual funds, or any mutual fund account(s) with brokerage capabilities opened during the quarter without their Local Compliance Group's prior approval must also be reported within 10 calendar days after the end of each calendar quarter. (See Exhibit E.) (a) All Personal Securities Transactions in Covered Securities, and all securities transactions in Morgan Stanley/Van Kampen open-end mutual funds must be reported in the next quarterly transaction report after the transaction is effected. Please note exceptions to 15 [LOGO] Morgan Stanley this in sub-section (b) below. The quarterly report shall contain the following information: (i) The date of the transaction, the title, interest rate and maturity date (if applicable), number of shares and principal amount of each security involved; (ii) The nature of the transaction (i.e., purchase, sale, or any other type of acquisition or disposition); (iii) The price at which the purchase or sale was effected; (iv) The name of the broker, dealer, bank or other financial institution with, or through which, the purchase or sale was effected; and (v) The date the report was submitted to the Local Compliance Group by such person. In addition, any new brokerage account, any account opened for the purchase of Morgan Stanley/Van Kampen mutual funds, or any mutual fund account with brokerage capabilities opened during the quarter without approval from the Local Compliance Group must be reported. The report must contain the following information: (i) The name of the broker, dealer, bank or other financial institution with whom the account was established; and (ii) The date the account was established. (b) Exemption from Filing Quarterly Report - An Employee need not make a quarterly transaction report if he/she: (i) maintains only a Morgan Stanley brokerage account, Morgan Stanley/Van Kampen direct account for the purchase of mutual funds and/or Morgan Stanley 401(k) Plan and the report would duplicate information contained in the trade confirms, system generated reports or account statements received by the Local Compliance Group. In addition, the Employee must not have opened any new brokerage accounts or mutual fund accounts without obtaining approval from their Local Compliance Group during the quarter. 16 [LOGO] Morgan Stanley 3. Annual Listing of Securities Holdings Reports and Certification of Compliance The Annual Listing of Securities Holdings Report and Certification of Compliance requires all Employees to provide an annual listing of holdings of: (i) all Covered Securities beneficially owned and all Morgan Stanley/Van Kampen open-end mutual funds (excluding money market accounts), listing the title of the security, number of shares held, and principal amount of the security as of December 31 of the preceding year, (ii) the name of any broker, dealer, bank or financial institution where the account(s) in which these Covered Securities were maintained, as of December 31 of the preceding year; and (iii) the date the report is submitted. This report must be provided no later than 30 calendar days after December 31 each year. In the case of Employees maintaining a Morgan Stanley brokerage account(s), Morgan Stanley/Van Kampen open-end mutual funds, and/or Morgan Stanley 401(k) Plan for which trade confirms, system generated reports or account statements are already received on a quarterly basis by the Local Compliance Group, an annual certification (Certification of Compliance) that the holdings information already provided to the Local Compliance Group accurately reflects all such holdings will satisfy the aforementioned requirement. B. Form of Reporting The Initial Listing of Securities Holdings and Brokerage Accounts Report, Quarterly Securities Transactions and New Brokerage Accounts Reports, and the Annual Listing of Securities Holdings Report and Certification of Compliance must be completed on the appropriate forms, attached as Exhibits D, E, and F respectively, which would be provided by each Local Compliance Group. By not submitting a quarterly transaction report form, an Employee will be deemed to have represented that such person has: (i) executed reportable transactions only in accounts listed with the Local Compliance Group; or (ii) only traded securities exempt from the reporting requirements. Copies of the Initial Listing of Securities Holdings Report and Brokerage and Mutual Fund Accounts Report, Quarterly Securities Transactions and New Brokerage and Mutual Fund Accounts Reports, and the Annual Listing of Securities Holdings Report and Certification of Compliance, which may be revised from time to time, are attached as Exhibits D, E, and F, respectively. 17 [LOGO] Morgan Stanley C. Responsibility to Report The responsibility for reporting is imposed on each Employee required to make a report. Any effort by a Covered Company to facilitate the reporting process does not change or alter that individual's responsibility. D. Leave of Absence Employees on leave of absence may not be subject to the pre-clearance and reporting provisions of the Code, provided that, during their leave period, they: (i) do not participate in, obtain information with respect to, make recommendations as to, or make the purchase and sale of securities on behalf of a Fund or a Managed Account Client; and (ii) do not have access to information regarding the day-to-day investment activities of Investment Management. E. Where to File Report All reports must be filed by Employees with their Local Compliance Group. F. Responsibility to Review Each Local Compliance Group will review all Initial Listing of Securities Holdings and Brokerage and Mutual Fund Accounts Reports, Quarterly Securities Transactions and New Brokerage and Morgan Stanley/Van Kampen Mutual Fund Accounts Reports, and Annual Listing of Securities Holdings Reports and Certification of Compliance, filed by Employees, as well as broker confirmations, system generated reports, and account statements. 18 [LOGO] Morgan Stanley VII. Code of Ethics Review Committee A Code of Ethics Review Committee, consisting of the President/Chief Operating Officer, Chief Investment Officer, Chief Legal Officer, Chief Compliance Officer and the Chief Administrative Officer - Investments, of Morgan Stanley Investment Management or their designees will review and consider any proper request of an Employee for relief or exemption from any restriction, limitation or procedure contained herein consistent with the principles and objectives outlined in this Code. The Committee shall meet on an ad hoc basis, as it deems necessary, upon written request by an Employee stating the basis for the requested relief. The Committee's decision is within its sole discretion. VIII. Service as a Director and Outside Business Activities A. Approval to Serve as a Director No Employee may serve on the board of any company without prior approval of the Code of Ethics Review Committee. If such approval is granted, it will be subject to the implementation of information barrier procedures to isolate any such person from making investment decisions for Funds or Managed Accounts concerning the company in question. B. Approval to Engage in Outside Business Activities No Employee may engage in any outside business activities without prior approval of the Code of Ethics Review Committee. If such approval is granted, it is the responsibility of the Employee to notify Compliance immediately if any conflict or potential conflict of interest arises in the course of such activity. C. Approval Process A copy of a Form for approval to serve as a Director and to engage in Outside Business Activities is attached as Exhibit G. This form should be completed and submitted to Compliance for processing. IX. Gifts No Employee shall accept directly or indirectly anything of value, including gifts and gratuities, in excess of $100 per year from any person or entity that does business with any Fund or Managed Account, not including occasional meals or tickets to theater or sporting events or other similar entertainment. Client entertainment expenses generally are not considered gifts if: (i) Firm personnel are present; (ii) a Firm client is present; and (iii) the entertainment is not so regular or frequent that it creates the appearance of impropriety. 19 [LOGO] Morgan Stanley X. Sanctions Upon discovering a violation of this Code, Investment Management may impose such sanctions as they deem appropriate, including a reprimand (orally or in writing), demotion, suspension or termination of employment and/or other possible sanctions. The President/Chief Operating Officer of Investment Management and the Chief Legal Officer or Chief Compliance Officer together, are authorized to determine the choice of sanctions to be imposed in specific cases, including termination of employment. XI. Employee Certification Employees are required to sign a copy of this Code indicating their understanding of, and their agreement to abide by the terms of this Code. In addition, Employees will be required to certify annually that: (i) they have read and understand the terms of this Code and recognize the responsibilities and obligations incurred by their being subject to this Code; and (ii) they are in compliance with the requirements of this Code, including but not limited to the reporting of all brokerage accounts, and the pre-clearance of all non-exempt Personal Securities Transactions in accordance with this Code. 20 [LOGO] Morgan Stanley I have read and understand the terms of the above Code. I recognize the responsibilities and obligations, including but not limited to my quarterly transaction, annual listing of holdings, and initial holdings reporting obligations (as applicable), incurred by me as a result of my being subject to this Code. I hereby agree to abide by the above Code. - -------------------------------------- --------------------------------------- (Signature) (Date) - ------------------------------------- (Print name) To complete the acknowledgement process you must electronically acknowledge by clicking on your Brower's Back button to reach the Acknowledgement Screen. You must also print the Acknowledgement Form [Link], sign and return it to your Local Compliance Group [Link] by XXXX XX, XXXX. MORGAN STANLEY INVESTMENT MANAGEMENT CODE OF ETHICS Dated: XXXX XX, XXXX 21 [LOGO] Morgan Stanley SCHEDULE A MORGAN STANLEY INVESTMENT ADVISORS INC. MORGAN STANLEY INVESTMENT MANAGEMENT INC. MORGAN STANLEY INVESTMENT MANAGEMENT LIMITED MORGAN STANLEY INVESTMENT MANAGEMENT COMPANY MORGAN STANLEY ASSET & INVESTMENT TRUST MANAGEMENT CO., LIMITED MORGAN STANLEY INVESTMENT MANAGEMENT PRIVATE LIMITED MORGAN STANLEY ALTERNATIVE INVESTMENT PARTNERS LP MORGAN STANLEY AIP GP LP MORGAN STANLEY HEDGE FUND PARTNERS GP LP MORGAN STANLEY HEDGE FUND PARTNERS LP MORGAN STANLEY SERVICES COMPANY INC. MORGAN STANLEY DISTRIBUTORS INC. MORGAN STANLEY DISTRIBUTION INC. MORGAN STANLEY & CO. INCORPORATED VAN KAMPEN ASSET MANAGEMENT VAN KAMPEN ADVISORS INC. VAN KAMPEN INVESTMENTS, INC. VAN KAMPEN FUNDS INC. VAN KAMPEN TRUST COMPANY VAN KAMPEN INVESTOR SERVICES INC. 22 EX-99.(Q) 15 dex99q.txt POWER OF ATTORNEY Exhibit (q) CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II CDC NVEST FUNDS TRUST III CDC NVEST COMPANIES TRUST I CDC NVEST CASH MANAGEMENT TRUST AEW REAL ESTATE INCOME FUND LOOMIS SAYLES FUNDS I LOOMIS SAYLES FUNDS II POWER OF ATTORNEY We, the undersigned, hereby constitute John M. Loder, Coleen Downs Dinneen, Russell Kane and Michael Kardok, each of them singly, our true and lawful attorneys, with full power to them and each of them to sign for us, and in our names in the capacity indicated below, any and all registration statements and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time investment companies of which we are now or hereafter a Director or Trustee and to register the shares of such companies and generally to do all such things in our names and on our behalf to enable such registered investment companies to comply with the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys and any and all registration statements and amendments thereto. Witness our hands on the 18th day of October, 2004. /s/ Graham Allison /s/ Richard Darman - ----------------------------------- -------------------------------------- Graham Allison - Trustee Richard Darman - Trustee /s/ Edward Benjamin /s/ John T. Hailer - ----------------------------------- -------------------------------------- Edward Benjamin - Trustee John T. Hailer - Trustee /s/ Robert Blanding /s/ Sandra O. Moose - ----------------------------------- -------------------------------------- Robert Blanding - Trustee Sandra O. Moose - Trustee /s/ Daniel M. Cain /s/ John A. Shane - ----------------------------------- -------------------------------------- Daniel M. Cain - Trustee John A. Shane - Trustee /s/ Paul Chenault /s/ Kenneth J. Cowan - ----------------------------------- -------------------------------------- Paul Chenault - Trustee Kenneth J. Cowan - Trustee -----END PRIVACY-ENHANCED MESSAGE-----