-----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, WZRrndzNzcJY3AtqnOK5YICIUHX/6gmqI40JQ+kl8/difB5sEkkgpW5l4sVh5hos ERd7J8HEMkJirhpq8f/SkQ== 0000950109-97-006571.txt : 19971103 0000950109-97-006571.hdr.sgml : 19971103 ACCESSION NUMBER: 0000950109-97-006571 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19971031 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOOMIS SAYLES FUNDS CENTRAL INDEX KEY: 0000872649 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043113285 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-39133 FILM NUMBER: 97705322 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-06241 FILM NUMBER: 97705323 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CENTER CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6174822450 MAIL ADDRESS: STREET 1: ONE FINANCIAL CENTER CITY: BOSTON STATE: MA ZIP: 02111 485APOS 1 POST-EFFECTIVE AMENDMENT NO. 13 As filed with the Securities and Exchange Commission on October 31, 1997 Registration Nos. 811-6241 and 33-39133 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. ___ [_] Post-Effective Amendment No. 13 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 15 [X] (Check appropriate box or boxes) ------------------ LOOMIS SAYLES FUNDS (Exact name of registrant as specified in charter) One Financial Center, Boston, MA 02111 (Address of principal executive offices) Registrant's telephone number, including area code: (617) 482-2450 Name and address of agent for service with a copy to - -------------------- --------------- Daniel J. Fuss Truman S. Casner, Esq. Loomis, Sayles & Company, Incorporated Ropes & Gray One Financial Center One International Place Boston, MA 02111 Boston, MA 02110 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)(2) [X] on January 2, 1998 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. LOOMIS SAYLES FUNDS Cross Reference Sheet Items required by Form N-1A PART A
Item No. Registration Statement Caption Caption in Prospectus 1. Cover Page Cover Page 2. Synopsis Summary of Expenses 3. Condensed Financial Information Financial Highlights 4. General Description of Cover Page; The Trust; Investment Objectives and Registrant Policies; More Information About the Funds' Investments and Risk Considerations 5. Management of the Fund Cover Page; The Trust; The Funds' Investment Adviser; Fund Expenses; Portfolio Transactions; Back Cover 5A. Management's Discussion of More Information about the Funds' Investments and Fund Performance Risk Considerations; Performance Information 6. Capital Stock and Other Securities The Trust; Shareholder Services; Dividends, Capital Gain Distributions and Taxes 7. Purchase of Securities Being How to Purchase Shares; Offered Shareholder Services 8. Redemption or Repurchase How to Redeem Shares 9. Pending Legal Proceedings Not Applicable
PART B Item No. Registration Statement Caption Caption in Statement of Additional Information 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History Not Applicable 13. Investment Objectives and Policies Investment Objectives, Policies and Restrictions 14. Management of the Fund Management of the Trust 15. Control Persons and Principal Management of the Trust Holders of Securities 16. Investment Advisory and Other Investment Advisory and Other Services Services 17. Brokerage Allocation and Other Portfolio Transactions and Brokerage Practices 18. Capital Stock and Other Securities How to Redeem Shares (Prospectus); Redemptions; Dividends, Capital Gain Distributions and Taxes (Prospectus); Income Dividends, Capital Gain Distributions and Tax Status; Description of the Trust 19. Purchase, Redemption and Pricing How to Purchase Shares (Prospectus); Shareholder of Securities Being Offered Services; How to Redeem Shares (Prospectus); Redemptions; Net Asset Value and Public Offering Price 20. Tax Status Dividends, Capital Gain Distributions and Taxes (Prospectus); Income Dividends, Capital Gain Distributions and Tax Status 21. Underwriters Not Applicable 22. Calculations of Performance Data Calculation of Yield and Total Return; Performance Data 23. Financial Statements Financial Statements
[LOGO OF LOOMIS SAYLES FUNDS(TM) APPEARS HERE] LOOMIS SAYLES BOND FUND LOOMIS SAYLES SMALL CAP VALUE FUND ADMIN CLASS PROSPECTUS APRIL 1, 1997, AS REVISED JANUARY 2, 1998 [LOGO OF LOOMIS SAYLES FUNDS(TM) APPEARS HERE] ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (617) 482-2450 THE LOOMIS SAYLES FUNDS ADMIN CLASS SHARES OF: LOOMIS SAYLES BOND FUND LOOMIS SAYLES SMALL CAP VALUE FUND (FORMERLY, LOOMIS SAYLES SMALL CAP FUND) PROSPECTUS APRIL 1, 1997 AS REVISED JANUARY 2, 1998 THE LOOMIS SAYLES FUNDS--ADMIN CLASS Loomis Sayles Bond Fund and Loomis Sayles Small Cap Value Fund (the "Funds" and each a "Fund"), each a series of Loomis Sayles Funds (the "Trust"), are separately managed, no-load mutual funds and each Fund has its own investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund. The Funds offer three classes of shares: an Admin Class that is described in this Prospectus and an Institutional Class and a Retail Class that are described in separate prospectuses. This Prospectus concisely describes the information that an investor should know before investing in the Admin Class shares of the Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information dated April 1, 1997 is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone 800-633-3330, option 4. The Statement of Additional Information, which contains more detailed information about the Funds, has been filed with the Securities and Exchange Commission (the "SEC") and is incorporated by reference into this Prospectus. To obtain more information about the Institutional Class or Retail Class, please call the Distributor toll-free at 800-633-3330, option 4 or contact your financial intermediary. For information about: For all other information about .Establishing an account the Funds: .Account procedures and status CALL 800-633-3330 .Exchanges .Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 4 THE TRUST................................................................. 6 INVESTMENT OBJECTIVES AND POLICIES........................................ 6 MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS..... 7 THE FUND'S INVESTMENT ADVISER............................................. 16 FUND EXPENSES............................................................. 16 PORTFOLIO TRANSACTIONS.................................................... 17 HOW TO PURCHASE SHARES.................................................... 18 SHAREHOLDER SERVICES...................................................... 19 HOW TO REDEEM SHARES...................................................... 20 CALCULATION OF PERFORMANCE INFORMATION.................................... 22 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 22 APPENDIX A DESCRIPTION OF BOND RATINGS............................................. 24
2 SUMMARY OF EXPENSES The following information is provided as an aid in understanding the various expenses that an investor in a Fund will bear indirectly. The information about each Fund shown below is based on projected expenses for the 1998 fiscal year. The information below should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
SMALL CAP BOND VALUE FUND FUND ---- --------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price).................................................... none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)........................................... none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)............................. none none Redemption Fees/1/......................................... none none Exchange Fees.............................................. none none Annual Operating Expenses (as a percentage of average net assets): Management Fees............................................ .60% .75% 12b-1 Fees................................................. .25% .25% Administrative Fees/3/..................................... .25% .25% Other Operating Expenses................................... .15%/2/ .44% Total Operating Expenses................................... 1.25%/2/ 1.69% Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year................................................... $ Three Years................................................
- ----------- /1/A $5 charge applies to any wire transfer of redemption proceeds. /2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Total Operating Expenses, exclusive of Administrative Fees, of the Admin Class of the Bond Fund to 1.00%. /3/Administrativefees shown represent the maximum amount presently authorized by the Trustees. 3 FINANCIAL HIGHLIGHTS (FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The information presented below for the six months ended June 30, 1997 is unaudited. The information presented below for prior periods is included in financial statements of the Fund that have been audited by Coopers & Lybrand L.L.P., independent accountants. The following information should be read in conjunction with the financial statements and the notes thereto contained in the Funds' 1997 Semiannual and 1996 Annual Reports, which are incorporated by reference in this Prospectus and the Statement of Additional Information. Neither of the Funds had commenced investment operations with respect to Admin Class shares as of June 30, 1997. The information shown below is for Institutional Class shares of each indicated Fund; Admin Class shares bear higher expenses than Institutional Class shares, and are expected to have a lower total return than Institutional Class shares.
BOND FUND --------------------------------------------------------------------- SIX MONTHS MAY 16* ENDED YEAR ENDED DEC. 31, TO JUNE 30, --------------------------------------------- DEC. 31, 1997 1996 1995 1994 1993 1992 1991 ----------- -------- -------- ------- ------- ------- -------- (UNAUDITED) Net asset value, beginning of period.... $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $ 10.23 $10.00 -------- -------- -------- ------- ------- ------- ------ Income from investment operations-- Net investment income (loss)................ 0.42 0.86 0.82 0.83 0.84 0.76 0.52 Net realized and unrealized gain (loss) on investments........ 0.26 0.35 2.32 (1.29) 1.43 0.67 0.36 -------- -------- -------- ------- ------- ------- ------ Total from investment operations............ 0.68 1.21 3.14 (0.46) 2.27 1.43 0.88 -------- -------- -------- ------- ------- ------- ------ Less distributions-- Dividends from net investment income..... (0.23) (0.86) (0.82) (0.84) (0.81) (0.76) (0.52) Distributions in excess of net investment income................ 0.00 0.00 0.00 (0.02) 0.00 0.00 0.00 Distributions from net realized capital gains................. 0.00 (0.26) (0.08) 0.00 (0.45) (0.54) (0.13) -------- -------- -------- ------- ------- ------- ------ Total distributions.... (0.23) (1.12) (0.90) (0.86) (1.26) (1.30) (0.65) -------- -------- -------- ------- ------- ------- ------ Net asset value, end of period................. $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $10.23 ======== ======== ======== ======= ======= ======= ====== Total return (%)........ 5.6** 10.3 32.0 (4.1) 22.2 14.3 8.9** Net assets, end of period (000)........... $867,282 $541,244 $255,710 $82,985 $64,222 $18,472 $9,922 Ratio of operating expenses to average net assets (%)............. 0.75*** 0.75 0.79 0.84 0.94 1.00 1.00*** Ratio of net investment income to average net assets (%)............. 7.61*** 7.93 8.34 7.92 8.26 7.50 8.97*** Portfolio turnover rate (%).................... 14 42 35 87 170 101 126 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%).............. 0.80*** 0.75 0.79 0.84 0.94 1.55 1.78*** Net investment income per share would have been.................. $ 0.38 $ 0.86 $ 0.82 $ 0.83 $ 0.84 $ 0.70 $ 0.47
- ----------- * Commencement of investment operations. ** Not annualized. *** Computed on an annualized basis. 4
SMALL CAP VALUE FUND -------------------------------------------------------------------- SIX MONTHS MAY 13* ENDED YEAR ENDED DEC. 31, TO JUNE 30, -------------------------------------------- DEC. 31, 1997 1996 1995 1994 1993 1992 1991 ----------- -------- ------- ------- ------- ------- -------- (UNAUDITED) Net asset value, beginning of period.... $ 17.39 $ 15.33 $ 12.86 $ 14.13 $ 12.88 $ 12.49 $ 10.00 -------- -------- ------- ------- ------- ------- ------- Income from investment operations-- Net investment income (loss)................ 0.07 0.11 0.04 (0.04) 0.00 (0.06) (0.01) Net realized and unrealized gain (loss) on investments........ 2.19 4.47 4.06 (1.12) 3.15 1.67 3.03 -------- -------- ------- ------- ------- ------- ------- Total from investment operations............ 2.26 4.58 4.10 (1.16) 3.15 1.61 3.02 -------- -------- ------- ------- ------- ------- ------- Less distributions-- Dividends from net investment income..... 0.00 (0.11) (0.04) 0.00 0.00 0.00 0.00 Distributions from net realized capital gains................. 0.00 (2.41) (1.59) (0.11) (1.90) (1.22) (0.53) -------- -------- ------- ------- ------- ------- ------- Total distributions.... 0.00 (2.52) (1.63) (0.11) (1.90) (1.22) (0.53) -------- -------- ------- ------- ------- ------- ------- Net asset value, end of period................. $ 19.65 $ 17.39 $ 15.33 $ 12.86 $ 14.13 $ 12.88 $ 12.49 ======== ======== ======= ======= ======= ======= ======= Total return (%)........ 13.0** 30.4 32.1 (8.2) 24.7 13.1 30.5** Net assets, end of period (000)........... $189,962 $163,625 $90,455 $73,126 $67,553 $39,244 $14,581 Ratio of operating expenses to average net assets (%)............. 0.97*** 1.19 1.25 1.27 1.35 1.50 1.50*** Ratio of net investment income to average net assets (%)............. 0.84*** 0.80 0.29 (0.30) (0.38) (0.79) (0.19)*** Portfolio turnover rate (%).................... 47 73 155 87 106 109 56 Average commission rate ****.............. $ 0.0548 $ 0.0567 -- -- -- -- -- Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%).............. 0.97*** 1.19 1.25 1.27 1.35 1.66 2.43*** Net investment income per share would have been.................. $ 0.07 $ 0.11 $ 0.04 $ (0.04) $ 0.00 $ (0.07) $ (0.06)
- ----------- * Commencement of investment operations. ** Not annualized. *** Computed on an annualized basis. **** For fiscal periods beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares traded on a principal basis. NOTE: Further information about each Fund's performance is contained in the Funds' 1997 Semiannual and 1996 Annual Reports to shareholders, which may be obtained without charge. 5 THE TRUST Each Fund is a series of the Trust. The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVE AND POLICIES LOOMIS SAYLES BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its assets may be invested in preferred stocks. At least 65% of the Fund's total assets will normally be invested in bonds. The fixed income securities in which the Fund may invest include corporate securities, securities issued or guaranteed by the U.S. Government or its authorities or instrumentalities ("U.S. Government Securities"), commercial paper, zero coupon securities, mortgage- backed securities, collateralized mortgage obligations ("CMOs"), asset-backed securities, when-issued securities, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The Fund may invest any portion of its assets in securities of Canadian issuers, and up to 20% of its assets in securities of other foreign issuers. The Fund may also invest up to 35% of its assets in securities of below investment grade quality (commonly known as "junk bonds"). Securities of below investment grade quality are securities rated below the top four rating categories by each major rating agency that has rated the security, including securities in the lowest rating categories, and unrated securities that Loomis Sayles determines to be of comparable quality. The percentages of the Fund's assets invested as of December 31, 1996 in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") were as follows: "AAA"/"Aaa": 5.2%; "AA"/"Aa": 11.1%; "A"/"A": 9.5%; "BBB"/"Baa": 27.3%; "BB"/"Ba": 13.5%; "B"/"B": 12.1%; "CCC"/"Caa": 5.1%. 6 LOOMIS SAYLES SMALL CAP VALUE FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing primarily in equity securities of small capitalization companies with good earnings growth potential that Loomis Sayles believes are undervalued by the market. The Fund will normally invest at least 65% of its total assets in companies with market capitalization of less than $1 billion and may invest up to 35% of its assets in larger companies. Loomis Sayles seeks to build a core small capitalization portfolio of stocks of solid companies with reasonable growth prospects and that are attractively priced in relation to the companies' earnings with a smaller emphasis on special situations and turnarounds (companies that have experienced significant business problems but which Loomis Sayles believes have favorable prospects for recovery), as well as unrecognized stocks. Current income is not a consideration in selecting the Fund's investments. The Fund may invest up to 20% of its assets in securities of foreign issuers. The Fund may also engage in foreign currency hedging transactions and Rule 144A securities. BOTH FUNDS For temporary defensive purposes, each Fund may invest any portion of its assets in fixed income securities, cash or any other securities deemed appropriate by Loomis Sayles. Except for each Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of each Fund may be changed without a vote of Fund shareholders. MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS COMMON STOCKS AND OTHER EQUITY SECURITIES Each Fund may invest in common stocks and similar equity securities, such as warrants and convertibles. These securities are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. WHEN-ISSUED SECURITIES Each Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the 7 security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If a Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. RULE 144A SECURITIES Each Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. FOREIGN SECURITIES Each Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). The Small Cap Value Fund will not purchase a foreign security if, as a result, the Fund's holdings of foreign securities would exceed 20% of the Fund's assets. The Bond Fund may invest any portion of its assets in securities of Canadian issuers, but will not purchase foreign securities other than those of Canadian issuers if, as a result, such Fund's holdings of non-U.S. and non-Canadian securities would exceed 20% of the Fund's total assets. Although investing in foreign securities may increase a Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. 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 in the United States. With respect to certain foreign 8 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. A Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. A Fund's investments in foreign securities may include investments in 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. 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 investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations. Changes in the value relative to the U.S. dollar of a foreign currency in which a Fund's holdings are denominated 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 part of 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 the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues 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 will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of a Fund in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. 9 FOREIGN CURRENCY HEDGING TRANSACTIONS Each Fund may engage in foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, 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 (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Funds may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Funds might also purchase exchange-listed and over-the-counter call and put options on foreign currencies. Over-the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Funds may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. In addition, each Fund's ability to engage in currency hedging transactions may be limited by tax considerations. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements. In repurchase agreements, the Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for the Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. DEBT AND OTHER FIXED INCOME SECURITIES The Bond Fund may invest in fixed income securities of any maturity. Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the income of a Fund that invests in fixed income securities for any particular period. The net asset value of such a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates 10 generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. U.S. GOVERNMENT SECURITIES The Bond Fund may invest in U.S. Government Securities. U.S. Government Securities have different kinds of government support. For example, some U.S. Government Securities, such as U.S. Treasury bonds, are supported by the full faith and credit of the United States, whereas certain other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. Although U.S. Government Securities generally do not involve the credit risks associated with other types of fixed income securities, the market values of U.S. Government Securities do go up and down as interest rates change. Thus, for example, the value of an investment in a Fund that holds U.S. Government Securities may fall during times of rising interest rates. Yields on U.S. Government Securities tend to be lower than those on corporate securities of comparable maturities. Some U.S. Government Securities, such as Government National Mortgage Association Certificates ("GNMA"), are known as "mortgage-backed" securities. Interest and principal payments on the mortgages underlying mortgage-backed U.S. Government Securities are passed through to the holders of the security. If the Fund purchases mortgage-backed securities at a discount or a premium, the Fund will recognize a gain or loss when the payments of principal, through prepayment or otherwise, are passed through to the Fund and, if the payment occurs in a period of falling interest rates, the Fund may not be able to reinvest the payment at as favorable an interest rate. As a result of these principal prepayment features, mortgage-backed securities are generally more volatile investments than many other fixed income securities. In addition to investing directly in U.S. Government Securities, the Fund may purchase certificates of accrual or similar instruments ("strips") evidencing undivided ownership interests in interest payments or principal payments, or both, in U.S. Government Securities. These investment instruments may be highly volatile. LOWER RATED FIXED INCOME SECURITIES The Bond Fund may invest up to 35% of its assets in securities rated below investment grade (commonly referred to as "junk bonds"). A security will be treated as being of investment grade quality if at the time the Bond Fund 11 acquires it at least one major rating agency has rated the security in its top four rating categories (even if another such agency has issued a lower rating), or if the security is unrated but Loomis Sayles determines it to be of investment grade quality. Lower rated fixed income securities generally provide higher yields, but are subject to greater credit and market risk, than higher quality fixed income securities. Lower rated 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 rated fixed income securities may be more dependent on Loomis Sayles' own credit analysis than is the case with higher quality bonds. The market for lower rated 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 values of these securities and may make the evaluation and sale of these securities more difficult. Securities in the lowest rating categories may be in poor standing or in default. Securities in the lowest investment grade category (BBB or Baa) have some speculative characteristics. For more information about the ratings services' descriptions of the various rating categories, see Appendix A. ZERO COUPON SECURITIES The Bond Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. The Fund is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions at times when Loomis Sayles would not otherwise deem it advisable to do so. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. MORTGAGE-BACKED SECURITIES The Bond Fund may invest in mortgage-backed securities, such as GNMA or Federal National Mortgage Association 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 the Fund purchases these assets at a premium, a faster-than-expected prepayment rate will reduce yield to 12 maturity, and a slower-than-expected prepayment rate will increase yield to maturity. If the Fund purchases mortgage-backed securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will 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. COLLATERALIZED MORTGAGE OBLIGATIONS The Bond Fund may invest in CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed 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 CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by the Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. ASSET-BACKED SECURITIES The Bond Fund may invest in asset-backed securities. Through the use of trusts and special purpose corporations, automobile and credit card receivables are securitized in pass-through structures similar to mortgage pass-through structures or in a pass-through structure similar to the CMO 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 13 obligations are prepaid, the Fund will 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. SWAP TRANSACTIONS The Bond Fund may enter into interest rate or currency swaps. The Fund will enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. 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. The Fund will maintain liquid assets in a segregated custodial account to cover its current obligations under swap agreements. Because swap agreements are not exchange-traded, but are private contracts into which the Fund and a swap counterparty enter as principals, the Fund may experience a loss or delay in recovering assets if the counter party were to default on its obligations. OPTIONS AND FUTURES TRANSACTIONS The Bond Fund may buy, sell or write options on securities, securities indexes, currencies or futures contracts and may buy and sell futures contracts on securities, securities indexes or currencies. The Fund may engage in these transactions either for the purpose of enhancing investment return, or to hedge against changes in the value of other assets that the Fund owns or intends to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a 14 premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If the Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by the Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased by the Fund and futures contracts held by the Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities held in the Fund's portfolio. All transactions in options and futures involve the possible risk of loss to the Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When the Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. The Fund will be required, however, to set aside with its custodian bank certain assets in amounts sufficient at all times to satisfy its obligations under options, futures and contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market movements correctly. The Fund's ability to hedge against adverse changes in the value of securities held in its portfolio through options and futures also depends on the degree of correlation between changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable the Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), the Fund is at risk that the other party to the transaction will default on its obligations, or will not permit the Fund to terminate the transaction before its scheduled maturity. As a result of these characteristics, the Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. 15 The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. THE FUNDS' INVESTMENT ADVISER The Funds' investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. Loomis Sayles' general partner is indirectly owned by New England Investment Companies, L.P., a publicly- traded limited partnership whose general partner is indirectly owned by Metropolitan Life Insurance Company. In addition to selecting and reviewing the Fund's investments, Loomis Sayles provides executive and other personnel for the management of the Funds. The Trust's board of trustees supervises Loomis Sayles' conduct of the affairs of the Funds. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the Bond Fund since its commencement of investment operations in 1991. Kathleen C. Gaffney, Vice President of Loomis Sayles, has served as associate portfolio manager of the Bond Fund since October, 1997. Jeffrey C. Petherick, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value Fund since 1993, and Mary C. Champagne, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value Fund since 1995. Before joining Loomis Sayles in 1993, Ms. Champagne was a portfolio manager at NBD Bank. FUND EXPENSES The Bond Fund pays Loomis Sayles a monthly investment advisory fee of .60% of the Fund's average daily net assets. The Small Cap Value Fund pays Loomis Sayles a monthly investment advisory fee of .75% of the Fund's average daily net assets. In addition to the investment advisory fee, each Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees and expenses of registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and 16 trustees' meetings, 12b-1 fees, administrative fees, expenses of preparing, printing and mailing prospectuses to existing shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles or its affiliated companies. Under a Distribution Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, each of the Funds pays the Distributor, a subsidiary of Loomis Sayles, a monthly distribution fee at an annual rate not to exceed 0.25% of the Fund's average net assets attributable to the Admin Class shares. The Distributor may pay all or any portion of the Distribution Fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of Admin Class shares of the Funds, or for providing personal services to investors in Admin Class shares of the Funds and/or the maintenance of accounts, and may retain all or any portion of the Distribution Fee as compensation for the Distributor's services as principal underwriter of the Admin Class shares of the Funds. Each of the Funds may also pay an "administrative fee" at the annual rate of up to 0.25% of its average daily net assets attributable to the Admin Class to certain securities dealers or financial intermediaries for providing personal service and account maintenance for their customers who are shareholders of the Funds. Loomis Sayles may also pay these parties a continuing fee at an annual rate of up to 0.25% of the value of Fund shares held for those customers' accounts, which fees are paid by Loomis Sayles out of its own assets and are not assessed against the Funds. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Funds' 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. High portfolio turnover may involve higher costs and higher levels of taxable gains. 17 HOW TO PURCHASE SHARES An investor may make an initial purchase of shares of any Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds Shares of the Fund may be purchased exclusively through intermediaries, who will be the record owner of the shares. The intermediary may purchase shares by paying cash or by exchanging Admin Class shares of any Fund (or any other series of Loomis Sayles Funds). All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Upon acceptance of an investor's order, BFDS opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, the intermediary may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Initial or subsequent investments can also be made by federal funds wire. For initial investment by wire, contact the Distributor at 800-633-3330, option 4 for an account number before sending the wire. The intermediary should instruct its bank to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Admin Class), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. Each Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Funds do not presently anticipate that they will do so, each Fund reserves the right to suspend or change the terms of the offering of its shares. 18 The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of each Fund are sold with no sales charge. The net asset value of each Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. Each Fund also offers (i) a Retail Class of shares that has a $250,000 minimum investment for certain categories of investors and does not bear administrative fees, and (ii) an Institutional Class of shares that has a $1 million minimum investment for certain investors and does not bear 12b-1 fees or administrative fees. Because of its higher expenses, the Admin Class of shares of each Fund is expected to have a lower total return than either of the Institutional Class or Retail Class of shares. SHAREHOLDER SERVICES The Funds offer the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from the Distributor. Telephone redemption and exchange privileges will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. Admin Class shares of any Fund may be exchanged for Admin Class shares of any other fund that is a series of Loomis Sayles Funds and that offers Admin Class shares or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles. Exchanges may be made by written instructions or by telephone, unless an investor elected on the application to decline telephone exchange privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Funds reserve the right to 19 terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Funds may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. HOW TO REDEEM SHARES An investor can, through their intermediary or their intermediary can on the investor's behalf, redeem shares by sending a written request to the Distributor. Proceeds from a written request may be sent to the investor in the form of a check. As described below, an investor may also redeem shares by calling the Distributor at 800-633-3330, option 4. Proceeds resulting from a telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Shareholders requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is requesting that the proceeds check be made out to someone other than the registered owners or be sent to an address other than the record address, (2) the account registration has changed within the last 30 days or (3) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by the Distributor prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to the Distributor after the Exchange closes or on a day when the Exchange is not open for business, the Distributor cannot accept the request and a new one will be necessary. 20 If an investor decides to change the bank account to which proceeds are to be wired, the investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless an investor indicates otherwise on the account application, the Distributor will be authorized to act upon redemption and exchange instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide the Distributor with the investor's account registration and address as it appears on the records of State Street Bank. The Distributor will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult the Distributor. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by the Distributor in proper form. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was deposited less than 15 days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. Loomis Sayles may pay certain broker-dealers and financial intermediaries whose customers own shares of the Funds a continuing fee in an amount of up to 0.25% annually of the value of Fund shares held for those customers' accounts. These fees are paid by Loomis Sayles out of its own assets and are not assessed against the customers' accounts with the Funds. 21 CALCULATION OF PERFORMANCE INFORMATION The Funds' investment performance may from time to time be included in advertisements about the Funds or Loomis Sayles Funds. "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30-day period by the maximum public offering price per share of the class on the last day of that period. For purposes of calculating yield, net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in a Fund. Total return may also be presented for other periods. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Bond Fund declares and pays dividends quarterly. The Small Cap Value Fund declares and pays dividends annually. Each Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Fund declares or pays dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the same Fund on the record date unless an investor has elected to receive cash. Each Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as a Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short-term capital gain distributions (that is, net gains from securities held for not more than a year) are taxable as 22 ordinary income whether distributed in cash or additional shares. Distributions designated by all Funds as deriving from net gains on securities held for more than one year but not more than 18 months and from net gains on securities held for more than 18 months will be taxable as such whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. Each Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that he or she is not subject to such withholding. Dividends derived from interest on U.S. Government Securities may be exempt from state and local taxes. State Street Bank will send investors and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid during the preceding year. An investor should keep this statement as a permanent record. A fee may be charged for any duplicate information requested. NOTE: The foregoing summarizes certain tax consequences of investing in the Funds. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 23 APPENDIX A DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S AND MOODY'S INVESTORS SERVICE, INC. STANDARD & POOR'S AAA This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay interest and repay principal is very strong, and in the majority of instances they differ from AAA issues only in small degree. A Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 24 C The rating C is reserved for income bonds on which no interest is being paid. D Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. Aaa Bonds that 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 that are rated Aa are judged to be 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 in Aaa securities. A Bonds that 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. 25 Baa Bonds that 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 the 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. 26 Should no rating be assigned by Moody's, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. 27 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. One Post Office Square Boston, Massachusetts 02109 [LOGO OF LOOMIS SAYLES FUNDS(TM) APPEARS HERE] BOSTON PRIVATE BANK HIGH YIELD FUND, A CLASS OF SHARES OF LOOMIS SAYLES HIGH YIELD FUND, A SERIES OF LOOMIS SAYLES FUNDS PROSPECTUS APRIL 1, 1997, AS REVISED JANUARY 2, 1998 BOSTON PRIVATE BANK HIGH YIELD FUND PROSPECTUS APRIL 1, 1997, AS REVISED JANUARY 2, 1998 BOSTON PRIVATE BANK HIGH YIELD FUND, A CLASS OF SHARES OF LOOMIS SAYLES HIGH YIELD FUND (the "Fund"), which is a series of Loomis Sayles Funds (the "Trust"), a registered open-end management investment company, and is a no- load mutual fund. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of the Fund. The Fund offers three classes of shares: the Boston Private Bank High Yield Fund that is described in this Prospectus and an Institutional Class and a Retail Class that are described in separate prospectuses. This Prospectus concisely describes the information that an investor should know before investing in the Boston Private Bank High Yield Fund shares of the Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information dated April 1, 1997 is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone 800-633-3330; option 4. The Statement of Additional Information, which contains more detailed information about the Fund, has been filed with the Securities and Exchange Commission (the "SEC") and is incorporated by reference into this Prospectus. To obtain more information about the Fund's Institutional Class or Retail Class, please call the Distributor toll-free at 800-633-3330, option 4 or contact your financial intermediary. For information about: .Establishing an account For all other information about .Account procedures and status the Fund: .Exchanges CALL 800-633-3330 .Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE FUND WILL NORMALLY INVEST AT LEAST 65% OF ITS ASSETS IN LOWER-RATED SECURITIES, COMMONLY KNOWN AS "JUNK BONDS" AND MAY INVEST SUBSTANTIALLY ALL OF ITS ASSETS IN SUCH SECURITIES. INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST. INVESTORS SHOULD ASSESS CAREFULLY THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE HIGH YIELD FUND. SEE "MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS--LOWER RATED FIXED INCOME SECURITIES" AND "APPENDIX A." 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 4 THE TRUST................................................................. 5 INVESTMENT OBJECTIVES AND POLICIES........................................ 5 MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS..... 6 THE FUND'S INVESTMENT ADVISER............................................. 14 FUND EXPENSES............................................................. 14 PORTFOLIO TRANSACTIONS.................................................... 15 HOW TO PURCHASE SHARES.................................................... 16 SHAREHOLDER SERVICES...................................................... 17 HOW TO REDEEM SHARES...................................................... 17 CALCULATION OF PERFORMANCE INFORMATION.................................... 19 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 20 APPENDIX A DESCRIPTION OF BOND RATINGS............................................. 22
2 SUMMARY OF EXPENSES The following information is provided as an aid in understanding the various expenses that an investor in the Fund will bear indirectly. The information is based on projected expenses for the 1998 fiscal year. The information below should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)..... none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)..................................................... none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)................................................ none Redemption Fees/1/................................................... none Exchange Fees........................................................ none Annual Operating Expenses (as a percentage of average net assets): Management Fees...................................................... .60% Other Operating Expenses............................................. .15% Total Operating Expenses............................................. .75%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year............................................................. $ Three Years..........................................................
- ----------- /1/ A $5 charge applies to any wire transfer of redemption proceeds. /2/ Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Total Operating Expenses of the Boston Private Bank High Yield Fund shares to .75%. 3 FINANCIAL HIGHLIGHTS (FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The information presented below for the period ended June 30, 1997 is unaudited. The information presented below for the period ended December 31, 1996 is included in financial statements of the Fund that have been audited by Coopers & Lybrand L.L.P., independent accountants. The following information should be read in conjunction with the financial statements and the notes thereto contained in the Fund's 1997 Semiannual and 1996 Annual Reports, which are incorporated by reference in this Prospectus and the Statement of Additional Information. The Fund had not commenced investment operations with respect to the Boston Private Bank High Yield Fund shares as of June 30, 1997. The information shown below is for Institutional Class shares of the High Yield Fund; the Boston Private Bank High Yield Fund shares bear higher expenses than Institutional Class shares, and are expected to have a lower total return than Institutional Class shares.
SIX MONTHS SEPT. 11* ENDED TO JUNE 30, DEC. 31, 1997 1996 ----------- --------- (UNAUDITED) Net asset value, beginning of period................... $10.11 $10.00 ------ ------ Income from investment operations-- Net investment income (loss).......................... 0.36 0.20 Net realized and unrealized gain (loss) on investments.......................................... 0.21 0.11 ------ ------ Total from investment operations...................... 0.57 0.31 ------ ------ Less distributions-- Dividends from net investment income.................. (0.21) (0.20) Distributions in excess of net investment income...... 0.00 0.00 Distributions from net realized capital gains......... 0.00 0.00 ------ ------ Total distributions................................... (0.21) (0.20) ------ ------ Net asset value, end of period......................... $10.47 $10.11 ====== ====== Total return (%)....................................... 5.7** 3.1** Net assets, end of period (000)........................ $3,945 $1,939 Ratio of operating expenses to average net assets (%).. 0.75*** 0.75*** Ratio of net investment income to average net assets (%)................................................... 9.06*** 8.85*** Portfolio turnover rate (%)............................ 34 0 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%).................................. 4.81*** 12.06*** Net investment income per share would have been....... $ 0.21 $(0.05)
- ----------- * Commencement of investment operations. ** Not annualized. *** Computed on an annualized basis. NOTE: Further information about the Fund's performance is contained in the Fund's 1997 Semiannual and 1996 Annual Reports to shareholders, which may be obtained without charge. 4 THE TRUST The Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its assets may be invested in preferred stocks and up to 10% of its assets may be invested in common stocks. The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed securities, when-issued securities, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 50% of its assets in the securities of other foreign issuers. The Fund will normally invest at least 65% of its assets in fixed income securities of below investment grade quality (commonly referred to as "junk bonds"). For temporary defensive purposes, the Fund may invest any portion of its assets in fixed income securities, cash or any other securities deemed appropriate by Loomis Sayles. Except for the Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of the Fund may be changed without a vote of Fund shareholders. 5 MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS DEBT AND OTHER FIXED INCOME SECURITIES The Fund may invest in fixed income securities of any maturity. Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the income of a fund that invests in fixed income securities for any particular period. The net asset value of such a fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. U.S. GOVERNMENT SECURITIES U.S. Government Securities have different kinds of government support. For example, some U.S. Government Securities, such as U.S. Treasury bonds, are supported by the full faith and credit of the United States, whereas certain other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. Although U.S. Government Securities generally do not involve the credit risks associated with other types of fixed income securities, the market values of U.S. Government Securities do go up and down as interest rates change. Thus, for example, the value of an investment in a Fund that holds U.S. Government Securities may fall during times of rising interest rates. Yields on U.S. Government Securities tend to be lower than those on corporate securities of comparable maturities. Some U.S. Government Securities, such as Government National Mortgage Association Certificates ("GNMA"), are known as "mortgage-backed" securities. Interest and principal payments on the mortgages underlying mortgage-backed U.S. Government Securities are passed through to the holders of the security. If the Fund purchases mortgage-backed securities at a discount or a premium, the Fund will recognize a gain or loss when the payments of principal, through prepayment or otherwise, are passed through to the Fund and, if the payment occurs in a period of falling interest rates, the Fund may not be 6 able to reinvest the payment at as favorable an interest rate. As a result of these principal prepayment features, mortgage-backed securities are generally more volatile investments than many other fixed income securities. In addition to investing directly in U.S. Government Securities, the Fund may purchase certificates of accrual or similar instruments ("strips") evidencing undivided ownership interests in interest payments or principal payments, or both, in U.S. Government Securities. These investment instruments may be highly volatile. LOWER RATED FIXED INCOME SECURITIES The Fund will normally invest at least 65% of its assets in securities of below investment grade quality (commonly referred to as "junk bonds"). A security will be treated as being of investment grade quality if at the time the Fund acquires it at least one major rating agency has rated the security in its top four rating categories (even if another such agency has issued a lower rating), or if the security is unrated but Loomis Sayles determines it to be of investment grade quality. Lower rated fixed income securities generally provide higher yields, but are subject to greater credit and market risk, than higher quality fixed income securities. Lower rated 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 rated fixed income securities may be more dependent on Loomis Sayles' own credit analysis than is the case with higher quality bonds. The market for lower rated 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 values of these securities and may make the evaluation and sale of these securities more difficult. Securities in the lowest rating categories may be in poor standing or in default. Securities in the lowest investment grade category (BBB or Baa) have some speculative characteristics. For more information about the ratings services' descriptions of the various rating categories, see Appendix A. COMMON STOCKS AND OTHER EQUITY SECURITIES Common stocks and similar equity securities, such as warrants and convertibles, are volatile and more risky than some other forms of investment. The value of an investment in a fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market 7 capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. ZERO COUPON SECURITIES The Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. The Fund is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions at times when Loomis Sayles would not otherwise deem it advisable to do so. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. MORTGAGE-BACKED SECURITIES The Fund may invest in mortgage-backed securities, such as GNMA or Federal National Mortgage Association 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 the Fund purchases these assets at a premium, a faster-than-expected prepayment rate will reduce yield to maturity, and a slower-than-expected prepayment rate will increase yield to maturity. If the Fund purchases mortgage-backed securities at a discount, faster-than- expected prepayments will increase, and slower-than-expected prepayments will 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. COLLATERALIZED MORTGAGE OBLIGATIONS The Fund may invest in CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed 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 8 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 CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by the Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. ASSET-BACKED SECURITIES The Fund may invest in asset-backed securities. Through the use of trusts and special purpose corporations, automobile and credit card receivables are securitized in pass-through structures similar to mortgage pass-through structures or in a pass-through structure similar to the CMO 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 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. WHEN-ISSUED SECURITIES The Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time the Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is 9 delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If the Fund has outstanding obligations to buy when- issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. RULE 144A SECURITIES The Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. FOREIGN SECURITIES The Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). The Fund may invest any portion of its assets in securities of Canadian issuers, but will not purchase foreign securities other than those of Canadian issuers if, as a result, the Fund's holdings of non-U.S. and non-Canadian securities would exceed 50% of the Fund's total assets. Although investing in foreign securities may increase the Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. 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 in the United States. 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 Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. The Fund's investments in foreign securities may include investments in 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, 10 currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. 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 investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations. Changes in the value relative to the U.S. dollar of a foreign currency in which the Fund's holdings are denominated 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 part of the 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 the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues 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 will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of the Funds in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce the Fund's net income available for distribution to shareholders. FOREIGN CURRENCY HEDGING TRANSACTIONS The Fund may engage in foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which the 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, the Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Fund may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Fund might also purchase exchange-listed and over-the-counter call and put options on foreign currencies. Over-the-counter currency options 11 are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Fund may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. In addition, the Fund's ability to engage in currency hedging transactions may be limited by tax considerations. SWAP TRANSACTIONS The Fund may enter into interest rate or currency swaps. The Fund will enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. 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. The Fund will maintain liquid assets in a segregated custodial account to cover its current obligations under swap agreements. Because swap agreements are not exchange-traded, but are private contracts into which the Fund and a swap counterparty enter as principals, the Fund may experience a loss or delay in recovering assets if the counter party were to default on its obligations. OPTIONS AND FUTURES TRANSACTIONS The Fund may buy, sell or write options on securities, securities indexes, currencies or futures contracts and may buy and sell futures contracts on securities, securities indexes or currencies. The Fund may engage in these transactions either for the purpose of enhancing investment return, or to hedge against changes in the value of other assets that the Fund owns or intends to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a 12 premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If the Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by the Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased by the Fund and futures contracts held by the Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities held in the Fund's portfolio. All transactions in options and futures involve the possible risk of loss to the Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When the Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. The Fund will be required, however, to set aside with its custodian bank certain assets in amounts sufficient at all times to satisfy its obligations under options, futures and contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market movements correctly. The Fund's ability to hedge against adverse changes in the value of securities held in its portfolio through options and futures also depends on the degree of correlation between changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable the Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), the Fund is at risk that the other party to the transaction will default on its obligations, or will not permit the Fund to terminate the transaction before its scheduled maturity. As a result of these characteristics, the Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. 13 The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. REPURCHASE AGREEMENTS The Fund may invest in repurchase agreements. In repurchase agreements, the Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for the Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. THE FUNDS' INVESTMENT ADVISER The Fund's investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. Loomis Sayles' general partner is indirectly owned by New England Investment Companies, L.P., a publicly- traded limited partnership whose general partner is indirectly owned by Metropolitan Life Insurance Company. In addition to selecting and reviewing the Fund's investments, Loomis Sayles provides executive and other personnel for the management of the Fund. The Trust's board of trustees supervises Loomis Sayles' conduct of the affairs of the Fund. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the Fund since its commencement of investment operations in 1996. Kathleen C. Gaffney, Vice President of Loomis Sayles, has served as associate portfolio manager of the Fund since its commencement of investment operations in 1996. FUND EXPENSES The Fund pays Loomis Sayles a monthly investment advisory fee of .60% of the Fund's average daily net assets. In addition to the investment advisory fee, the Fund pays all expenses not expressly assumed by Loomis Sayles, 14 including taxes, brokerage commissions, fees and expenses of registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, expenses of preparing, printing and mailing prospectuses to existing shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles or its affiliated companies. Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other Fund expenses to the extent necessary to limit total annual operating expenses of the Boston Private Bank High Yield Fund shares of the Fund to .75% of the Fund's average net assets. Loomis Sayles may change or terminate this voluntary arrangement at any time, but this Prospectus would be supplemented to describe the change. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Fund's assets. The Fund anticipates that its portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher costs and higher levels of taxable gains. HOW TO PURCHASE SHARES This class of shares is only available to clients of Boston Private Bank. An investor may make an initial purchase of shares of the Fund by submitting a completed application form and payment to: The minimum initial investment for the Boston Private Bank High Yield Fund shares of the Fund is $ . All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Upon acceptance of an investor's order, BFDS opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, an investor may send subsequent investments at any time directly to BFDS at the above address. The remittance 15 must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Subsequent investments can also be made by federal funds wire. Investors should instruct their banks to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Boston Private Bank High Yield Fund), DDA #9904-622-9, Shareholder Name, Shareholder Account Number." A bank may charge a fee for transmitting funds by wire. The Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Fund does not presently anticipate that it will do so, the Fund reserves the right to suspend or change the terms of the offering of its shares. The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of the Fund are sold with no sales charge. The net asset value of the Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. The Fund also offers (i) a Retail Class of shares that has a $250,000 minimum investment for certain categories of investors, and (ii) an Institutional Class of shares that has a $1 million minimum investment for certain investors. 16 SHAREHOLDER SERVICES The Fund offers the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from . The telephone redemption privilege will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. HOW TO REDEEM SHARES An investor can redeem shares by sending a written request to the Distributor. Proceeds from a written request may be sent to the investor in the form of a check. As described below, an investor may also redeem shares by calling the Distributor at (800) 633-3330, option 4. Proceeds resulting from a telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Shareholders requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is requesting that the proceeds check be made out to someone other than the registered owners or be sent to an address other than the record address, (2) the account registration has changed within the last 30 days or (3) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to after the Exchange closes 17 or on a day when the Exchange is not open for business, cannot accept the request and a new one will be necessary. If an investor decides to change the bank account to which proceeds are to be wired, the investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless an investor indicates otherwise on the account application, BFDS will be authorized to act upon redemption and exchange instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide BFDS with the investor's account registration and address as it appears on the records of State Street Bank. BFDS will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult BFDS. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by the Distributor in proper form. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was deposited less than 15 days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. CALCULATION OF PERFORMANCE INFORMATION The Fund's investment performance may from time to time be included in advertisements about the Fund or Loomis Sayles Funds. "Yield" for each class 18 of shares is calculated by dividing the annualized net investment income per share during a recent 30-day period by the maximum public offering price per share of the class on the last day of that period. For purposes of calculating yield, net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in the Fund. Total return may also be presented for other periods. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Fund declares and pays dividends quarterly. The Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Fund declares or pays dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the Fund on the record date unless an investor has elected to receive cash. The Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as the Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short-term capital gain distributions (that is, net gains from securities held for not more than a year) are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by the Fund as deriving from net gains on securities held for more than one year but not more than 18 months and from net gains on securities held for more than 18 months will be taxable as such whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. 19 The Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that he or she is not subject to such withholding. Dividends derived from interest on U.S. Government Securities may be exempt from state and local taxes. State Street Bank will send investors and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid during the preceding year. An investor should keep this statement as a permanent record. A fee may be charged for any duplicate information requested. NOTE: The foregoing summarizes certain tax consequences of investing in the Fund. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, state and local tax consequences of investing in or redeeming Fund shares. 20 APPENDIX A DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S AND MOODY'S INVESTORS SERVICE, INC. STANDARD & POOR'S AAA This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay interest and repay principal is very strong, and in the majority of instances they differ from AAA issues only in small degree. A Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 21 C The rating C is reserved for income bonds on which no interest is being paid. D Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. Aaa Bonds that 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 that are rated Aa are judged to be 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 in Aaa securities. A Bonds that 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. 22 Baa Bonds that 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 the 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. 23 Should no rating be assigned by Moody's, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. 24 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. One Post Office Square Boston, Massachusetts 02109 [LOGO OF LOOMIS SAYLES FUNDS(TM) APPEARS HERE] [LOGO OF LOOMIS SAYLES FUNDS/TM/ APPEARS HERE] STATEMENT OF ADDITIONAL INFORMATION APRIL 1, 1997 AS AMENDED JANUARY 2, 1998 THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE PROSPECTUS OR PROSPECTUSES OF EACH SERIES ("FUND") OF LOOMIS SAYLES FUNDS DATED APRIL 1, 1997, AS REVISED FROM TIME TO TIME. EACH REFERENCE TO THE PROSPECTUS IN THIS STATEMENT OF ADDITIONAL INFORMATION SHALL INCLUDE ALL OF THE FUNDS' CURRENT PROSPECTUSES, UNLESS OTHERWISE NOTED. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE APPLICABLE PROSPECTUS. A COPY OF EACH PROSPECTUS MAY BE OBTAINED FROM LOOMIS SAYLES FUNDS, ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111. TABLE OF CONTENTS
PAGE ---- INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................... 3 MANAGEMENT OF THE TRUST.................................................... 10 INVESTMENT ADVISORY AND OTHER SERVICES..................................... 20 PORTFOLIO TRANSACTIONS AND BROKERAGE....................................... 23 DESCRIPTION OF THE TRUST................................................... 25 How to Buy Shares........................................................ 27 Net Asset Value.......................................................... 27 SHAREHOLDER SERVICES....................................................... 28 Open Accounts............................................................ 28 Systematic Withdrawal Plan............................................... 28 Exchange Privilege....................................................... 28 IRAs..................................................................... 29 Redemptions.............................................................. 29 INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ............... 30 FINANCIAL STATEMENTS....................................................... 32 CALCULATION OF YIELD AND TOTAL RETURN...................................... 32 PERFORMANCE COMPARISONS.................................................... 33 PERFORMANCE DATA........................................................... 35 APPENDIX A--PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION................. 37 APPENDIX B--ADVERTISING AND PROMOTIONAL LITERATURE......................... 39
2 INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS The investment objective and policies of each series ("Fund") of Loomis Sayles Funds (the "Trust"), are summarized in the Prospectus under "Investment Objectives and Policies" and "More Information About the Funds' Investments and Risk Factors." The investment policies of each Fund set forth in the Prospectus and in this Statement of Additional Information may be changed by the Funds' adviser, subject to review and approval by the Trust's board of trustees, without shareholder approval except that the investment objective of each Fund as set forth in the Prospectus and any Fund policy explicitly identified as "fundamental" may not be changed without the approval of the holders of a majority of the outstanding shares of the relevant Fund (which in the Prospectus and this Statement of Additional Information means the lesser of (i) 67% of the shares of that Fund represented at a meeting at which 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares). Except in the case of the 15% limitation on illiquid securities, the percentage limitations set forth below and in the Prospectuses will apply at the time a security is purchased and will not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such purchase. In addition to its investment objective and policies set forth in the Prospectus, the following investment restrictions are policies of each Fund (and those marked with an asterisk are fundamental policies of each Fund): Each 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 any Fund from engaging in transactions in futures contracts relating to securities indexes, 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 each of the Mid-Cap Growth, Mid-Cap Value, Small Cap Growth, Strategic Value, Investment Grade Bond and Intermediate Maturity Bond Funds may lend its portfolio securities to the extent permitted under the Investment Company Act of 1940 (the "1940 Act"). (For purposes of this investment restriction, neither (i) entering into repurchase agreements nor (ii) purchasing bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public, is considered the making of a loan.) (5) With respect to 75% of its assets, purchase any security (other than a U.S. Government Security) if, as a result, more than 5% of the Fund's total assets (taken at current value) would then be invested in securities of a single issuer. (For purposes of this restriction, the Municipal Bond Fund treats each state and each separate political subdivision, agency, authority or instrumentality of such state, each multistate agency or authority, and each guarantor, if any, of obligations of any such issuer, as a separate issuer, provided that the assets and revenues of the issuer are separate from those of the government(s) that created the subdivision, agency, authority or instrumentality.) (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 each Fund may pledge assets having a value not exceeding 10% of its total assets to secure borrowings permitted by restriction (9) below. (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 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 total assets (taken at current value) would be invested in any one industry (in the utilities 3 category, gas, electric, water and telephone companies will be considered as being in separate industries.) Tax-exempt securities issued by governments or political subdivisions of governments and purchased by the Municipal Bond Fund are not subject to this restriction, since such issuers are not members of any industry. *(9) Borrow money in excess of 10% of its total assets (taken at cost) or 5% of its total assets (taken at current value), whichever is lower, nor borrow any money except as a temporary measure for extraordinary or emergency purposes. (10) Purchase securities on margin (except such short term credits as are necessary for clearance of transactions); or make short sales (except where, by virtue of ownership of other securities, it has the right to obtain, without payment of additional consideration, securities equivalent in kind and amount to those sold). (11) Participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with Loomis Sayles 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 each 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 may enter into currency forward contracts. *(14) 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 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.) Although the Funds have no current intention of investing in repurchase agreements, they intend, based on the views of the staff of the Securities and Exchange Commission (the "SEC"), to restrict their 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. U.S. GOVERNMENT SECURITIES U.S. Government Securities include direct obligations of the U.S. Treasury, as well as securities issued or guaranteed by U.S. Government agencies, authorities and instrumentalities, including, among others, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Housing Administration, the Resolution Funding Corporation, the Federal Farm Credit Banks, the Federal Home Loan Bank, the Tennessee Valley Authority, the Student Loan Marketing Association and the Small Business Administration. More detailed information about some of these categories of U.S. Government Securities follows. U.S. Treasury Bills--Direct obligations of the United States Treasury which 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 United States Government. U.S. Treasury Notes and Bonds--Direct obligations of the United States Treasury issued in maturities that vary between one and forty years, with interest normally payable every six months. They are backed by the full faith and credit of the United States Government. "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 4 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 up to 30 years. Scheduled payments of principal and interest are made to the registered holders of Ginnie Maes (such as the 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 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 United States Government. "Freddie Macs"--The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United States 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 United States Government. As described in the Prospectus, U.S. Government Securities generally do not involve the same 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 fixed-income securities, however, the values of U.S. Government Securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in the Fund's net asset value. WHEN-ISSUED SECURITIES As described in the Prospectus, each Fund may enter into agreements with banks or broker-dealers for the purchase or sale of securities at an agreed- upon price on a specified future date. Such agreements might be entered into, for example, when a Fund that invests in fixed income securities anticipates a decline in interest rates and is able to obtain a more advantageous yield by committing currently to purchase securities to be issued later. When a Fund purchases securities in this manner (i.e. on a when-issued or delayed-delivery basis), it is required to create a segregated account with the Trust's custodian and to maintain in that account cash or U.S. Government Securities in an amount equal to or greater than, on a daily basis, the amount of the Fund's when-issued or delayed-delivery commitments. Each Fund will make commitments to purchase on a when-issued or delayed-delivery basis only securities meeting that Fund's investment criteria. The Fund may take delivery of these securities or, if it is deemed advisable as a matter of investment strategy, the Fund may sell these securities before the settlement date. When the time comes to pay for when-issued or delayed-delivery securities, the Fund will meet its obligations from then available cash flow or the sale of securities, or from the sale of the when-issued or delayed-delivery securities themselves (which may have a value greater or less than the Fund's payment obligation). CONVERTIBLE SECURITIES Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion 5 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. ZERO COUPON BONDS Zero coupon bonds 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. Such bonds 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 bonds, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of zero coupon bonds 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 do non-zero coupon bonds having similar maturities and credit quality. In order to satisfy a requirement for qualification as a "regulated investment company" under the Internal Revenue Code (the "Code"), each Fund must distribute each year at least 90% of its net investment income, including the original issue discount accrued on zero coupon bonds. Because a Fund investing in zero coupon bonds will not on a current basis receive cash payments from the issuer in respect of accrued original issue discount, 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. REPURCHASE AGREEMENTS Each Fund may enter into repurchase agreements, by which the Fund purchases a security and obtains a simultaneous commitment from the seller (a bank or, to the extent permitted by the 1940 Act, a recognized securities dealer) to repurchase the security at an agreed upon price and date (usually seven days or less from the date of original purchase). The resale price is in excess of the purchase price and reflects an agreed upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford the Funds the opportunity to earn a return on temporarily available cash at minimal 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 United States 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 (a) possible declines in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (b) possible reduced levels of income and lack of income during this period and (c) inability to enforce rights and the expenses involved in attempted enforcement. RULE 144A SECURITIES Each of the Funds may purchase Rule 144A securities. These are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. Under the guidelines, Loomis Sayles considers such factors as: (1) the frequency of trades and quotes for a security; (2) the number of dealers willing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the marketplace trades therefor. TAX EXEMPT BONDS Tax exempt bonds include debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, hospitals, housing, mass 6 transportation, schools, streets, and water and sewer works. Other public purposes for which tax exempt bonds may be issued include the refunding of outstanding obligations, obtaining funds for general operating expenses, and obtaining funds to lend to other public institutions and facilities. In addition, prior to the Tax Reform Act of 1986, certain debt obligations known as industrial development bonds could be issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, sports facilities, convention or trade show facilities, airport, mass transit, port or parking 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 bonds if the interest paid thereon is, in the opinion of bond counsel, exempt from federal income tax. Interest on certain industrial development bonds used to fund the construction, equipment, repair or improvement of privately operated industrial or commercial facilities may also be exempt from federal income tax. The Tax Reform Act of 1986 eliminated some types of tax exempt industrial revenue bonds but retained others under the general category of "private activity bonds." The interest on so-called "private activity bonds" is exempt from ordinary federal income taxation but is treated as a tax preference item in computing a shareholder's alternative minimum tax liability. The Municipal Bond Fund may invest up to 20% of its net assets in private activity bonds. The Municipal Bond Fund may not be a desirable investment for "substantial users" of facilities financed by industrial development bonds or for "related persons" of substantial users. See "Income Dividends, Capital Gain Distributions and Tax Status." 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 industrial development bonds and 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 is the responsibility of the corporate user (and any guarantor). Prices and yields on tax exempt bonds are dependent on a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the tax exempt bond market, the size of a particular offering, the maturity of the obligation and the rating of the issue. A number of these factors, including the ratings of particular issues, are subject to change from time to time. 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. As noted in the Prospectus, obligations of issuers of tax exempt bonds are subject to the provisions of bankruptcy, insolvency and other laws, such as the Federal Bankruptcy Reform Act of 1978, affecting the rights and remedies of creditors. Congress or state legislatures may seek to extend the time for payment of principal or interest, or both, or to impose 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 bonds may be materially affected, or their obligations may be found to be invalid or 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, business, legal or political developments might affect all or a substantial portion of the Fund's tax exempt bonds in the same manner. From time to time the Municipal Bond Fund may have less than 80% of its net assets invested in tax exempt bonds (1) for defensive purposes when deemed prudent in the judgment of Loomis Sayles to protect shareholders' capital or (2) on a temporary basis for liquidity purposes or pending the investment of proceeds 7 from sales of Fund shares. The ability of the Fund to invest in securities other than tax exempt bonds is limited by a requirement of the Code that at least 50% of the Fund's total assets be invested in tax exempt securities at the end of each calendar quarter. See "Income Dividends, Capital Gain Distributions and Tax Status." The Municipal Bond Fund may purchase and sell portfolio investments to take advantage of changes or anticipated changes in yield relationships, markets or economic conditions. The Fund may also sell tax exempt bonds due to changes in the adviser's evaluation of the issuer or cash needs resulting from redemption requests for Fund shares. The secondary market for tax exempt bonds typically has been less liquid than that for taxable debt securities, and this may affect the Fund's ability to sell particular tax exempt bonds, especially in periods when other investors are attempting to sell the same securities. FOREIGN CURRENCY TRANSACTIONS Each of the Funds may invest in securities of foreign issuers and may enter into forward foreign currency exchange contracts, or buy or sell options on foreign currencies, in order to protect against uncertainty in the level of future foreign exchange rates. Since investment in securities of foreign issuers will usually involve currencies of foreign countries, and since a Fund may temporarily hold funds in bank deposits in foreign currencies during the course of investment programs, the value of the assets of a Fund as measured in United States dollars may be affected by changes in currency exchange rates and exchange control regulations, and a Fund may incur costs in connection with conversion between various currencies. A Fund may enter into forward contracts under two circumstances. First, when a Fund enters into a contract for the purchase or sale of a security denominated or traded in a market in which settlement is made in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. By entering into a forward contract for the purchase or sale, for a fixed amount of dollars, of the amount of foreign currency involved in the underlying transactions, the Fund will be able to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the subject foreign currency during the period between the date on which the investment is purchased or sold and the date on which payment is made or received. Second, when Loomis Sayles believes that the currency of a particular country may suffer a substantial decline against another currency, it may enter into a forward contract to sell, for a fixed amount of another currency, the amount of the first currency approximating the value of some or all of the Fund's portfolio investments denominated in the first currency. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in a currency will change as a consequence of market movements in the value of those investments between the date the forward contract is entered into and the date it matures. The Funds generally will not enter into forward contracts with a term of greater than one year. Options on foreign currencies are similar to forward contracts, except that one party to the option (the holder) is not contractually bound to buy or sell the specified currency. Instead, the holder has discretion whether to "exercise" the option and thereby require the other party to buy or sell the currency on the terms specified in the option. Options transactions involve transaction costs and, like forward contract transactions, involve the risk that the other party may default on its obligations (if the options are not traded on an established exchange) and the risk that expected movements in the relative value of currencies may not occur, resulting in an imperfect hedge or a loss to the Fund. The Funds' ability to engage in transactions in currency forward contracts and options may be limited by tax considerations. Each Fund, in conjunction with its transactions in forward contracts, options and futures (including the International Equity, Worldwide and Global Bond Funds' transactions in options on securities described below), will maintain in a segregated account with its custodian cash or certain liquid assets with a value, marked to market on a daily basis, sufficient to satisfy the Fund's outstanding obligations under such contracts, options and futures. 8 OPTIONS As described in the Prospectus, each of the Funds, may for hedging purposes or to enhance investment return, purchase and sell call and put options. An option 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 end of its term. Options may be traded on or off an established securities exchange. If the holder of an option wishes to terminate its position, it may seek to effect a closing sale transaction by selling an option identical to the option previously purchased. The effect of the purchase is that the previous option position will be canceled. A Fund will realize a profit from closing out an option if the price received for selling the offsetting position is more than the premium paid to purchase the option; the Fund will realize a loss from closing out an option transaction if the price received for selling the offsetting option is less than the premium paid to purchase the option. The use of options involves risks. One risk arises because of the imperfect correlation between movements in the price of options and movements in the price of the securities that are the subject of the hedge. The Fund's hedging strategies will not be fully effective if such imperfect correlation occurs. Price movement correlation may be distorted by illiquidity in the options markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in 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, options market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, the trading activities of speculators in the options markets may create temporary price distortions unrelated to the market in the underlying securities. An exchange-traded option may be closed out only on an 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 accomplish the desired hedge. 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. The successful use of options depends in part on the ability of Loomis Sayles to forecast correctly the direction and extent of interest rate, stock price or currency value movements within a given time frame. To the extent interest rates, stock prices or currency values move in a direction opposite to that anticipated, the 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 or the relevant stock price or relevant currency values move during the period that the Fund holds 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. An over-the-counter option (an option not traded on an established 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 9 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 achieve the intended hedge. Over-the- counter options are not subject to the protections afforded purchasers of listed options by the Options Clearing Corporation or other clearing organization. The staff of the SEC has taken the position that over-the-counter options should be treated as illiquid securities for purposes of each Fund's investment restriction prohibiting it from investing more than 15% of its net assets in illiquid securities. The Funds intend to comply with this position. Income earned by a Fund from its hedging activities 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 options transactions may hedge against a decline in the value of a 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. SMALL COMPANIES Investments in companies with relatively small capitalization may involve greater risk than is usually associated with more established companies. These companies often have limited product lines, markets or financial resources and they may be dependent upon a relatively small management group. Their securities may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of companies with larger capitalization or market averages in general. The net asset values of funds that invest in companies with smaller capitalization therefore may fluctuate more widely than market averages. MANAGEMENT OF THE TRUST The trustees and officers of the Trust and their principal occupations during the past five years are as follows: EARL W. FOELL--Trustee. 43 Black Horse Lane, Cohasset, Massachusetts. Retired; formerly Editor in-Chief, World Monitor Magazine and Editor-in-Chief, The Christian Science Monitor. RICHARD S. HOLWAY--Trustee. 1314 Seaspray Lane, Sanibel, Florida. Retired; formerly, Vice President, Loomis Sayles. Director, Sandwich Cooperative Bank. TERRY R. LAUTENBACH--Trustee. Shennamere Road, Darien, Connecticut. Retired; formerly Senior Vice President, International Business Machines Corporation. Director, Air Products and Chemicals, Inc., Melville Corp., and Varian Associates, Inc. MICHAEL T. MURRAY--Trustee. 404 N. Western Ave., Lake Forest, Illinois. Retired; formerly, Vice President, Loomis Sayles. *DANIEL J. FUSS--President and Trustee. Executive Vice President and Director, Loomis Sayles. SHEILA M. BARRY--Secretary and Compliance Officer. Assistant General Counsel and Vice President, Loomis Sayles. Formerly, Senior Counsel and Vice President, New England Funds, L.P. ROBERT J. BLANDING--Executive Vice President. 465 First Street West, Sonoma, California. President, Chairman, Director and Chief Executive Officer, Loomis Sayles. JEROME A. CASTELLINI--Vice President. Three 1st National Plaza, Chicago, Illinois. Vice President and Director, Loomis Sayles. MARY C. CHAMPAGNE--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President, Loomis Sayles; formerly, portfolio manager, NBD Bank. - -------- * Trustee deemed an "interested person" of the Trust, as defined by the 1940 Act. 10 E. JOHN DEBEER--Vice President. Vice President, Loomis Sayles. PAUL H. DREXLER--Vice President. Vice President, Loomis Sayles; formerly Deputy Manager, Brown Brothers Harriman & Co. WILLIAM H. EIGEN, JR.--Vice President. Vice President, Loomis Sayles; formerly Vice President, INVESCO Funds Group and Vice President, The Travelers Corp. CHRISTOPHER R. ELY--Vice President. Vice President, Loomis Sayles; formerly Senior Vice President and portfolio manager, Keystone Investment Management Company, Inc. QUENTIN P. FAULKNER--Vice President. Vice President, Loomis Sayles. PHILIP C. FINE--Vice President. Vice President, Loomis Sayles; formerly Vice President and portfolio manager, Keystone Investment Management Company, Inc. MARTHA F. HODGMAN--Vice President. Vice President, Loomis Sayles. MARK W. HOLLAND--Treasurer. Vice President--Finance and Administration and Director, Loomis Sayles. JOHN HYLL--Vice President. 35 North Lake Avenue, Pasadena, California. Vice President, Loomis Sayles. JEFFREY L. MEADE--Vice President. Executive Vice President, Chief Operating Officer and Director, Loomis Sayles. KENT P. NEWMARK--Vice President. 555 California Street, San Francisco, California. Vice President and Director, Loomis Sayles. SCOTT S. PAPE--Vice President. Vice President, Loomis Sayles. JEFFREY C. PETHERICK--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President, Loomis Sayles. PHILIP J. SCHETTEWI--Vice President. Vice President and Director, Loomis Sayles. DAVID L. SMITH--Vice President. Vice President, Loomis Sayles; formerly Vice President and portfolio manager, Keystone Investment Management Company, Inc. SANDRA P. TICHENOR--Vice President. 465 First Street West, Sonoma, California. General Counsel, Vice President, Secretary and Clerk, Loomis Sayles. Formerly, Partner, Heller, Ehrman, White & McAuliffe. JEFFREY W. WARDLOW--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President, Loomis Sayles. GREGG D. WATKINS--Vice President. Vice President, Loomis Sayles. ANTHONY J. WILKINS--Vice President. Vice President and Director, Loomis Sayles. JOHN F. YEAGER III--Vice President. Vice President, Loomis Sayles; formerly Vice President--Marketing, INVESCO Funds Group and Assistant Comptroller, INVESCO Capital Management. Previous positions during the past five years with Loomis Sayles are omitted, if not materially different. Except as indicated above, the address of each trustee and officer of the Trust affiliated with Loomis Sayles is One Financial Center, Boston, Massachusetts. The Trust pays no compensation to its officers or to the trustees listed above who are directors, officers or employees of Loomis Sayles. Each trustee who is not a director, officer or employee of Loomis Sayles is compensated at the rate of $1,250 per fund per annum. 11 COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 1996
(5) TOTAL (3) (4) COMPENSATION (2) PENSION OR ESTIMATED FROM TRUST AND (1) AGGREGATE RETIREMENT BENEFITS ANNUAL FUND COMPLEX* NAME OF PERSON, COMPENSATION ACCRUED AS PART OF BENEFITS UPON PAID TO POSITION FROM TRUST FUND EXPENSES RETIREMENT TRUSTEE --------------- ------------ ------------------- ------------- -------------- Earl W. Foell, Trustee.. $12,812.50 N/A N/A $12,812.50 Richard S. Holway, Trustee................ $12,812.50 N/A N/A $12,812.50 Terry R. Lautenbach, Trustee................ $12,812.50 N/A N/A $12,812.50 Michael T. Murray, Trustee................ $12,812.50 N/A N/A $12,812.50
- -------- * No Trustee receives any compensation from any mutual funds affiliated with Loomis Sayles, other than the Trust. As of February 10, 1997 the officers and trustees of the Trust owned beneficially shares of each Fund as follows: 11,766.561 shares of the Growth Fund, 18,055.379 shares of the Core Value Fund, 29,531.022 shares of the Small Cap Value Fund, 15,624.137 shares of the International Equity Fund, 11,906.835 shares of the Worldwide Fund, 217,036.885 shares of the Bond Fund, 21,514.129 shares of the Global Bond Fund, 2,165.523 shares of the U.S. Government Securities Fund, 68,868.779 shares of the Municipal Bond Fund, 58,542.753 shares of the Short-Term Bond Fund, 50,964.392 shares of the High Yield Fund, 5.061 shares of the Investment Grade Bond Fund, 4.883 of the Mid-Cap Value Fund, and 1,000.000 shares of the Small Cap Growth Fund. These amounts include shares held by the Loomis Sayles Employees' Profit Sharing Plan (the "Profit Sharing Plan") for the accounts of officers and trustees of the Trust, but exclude all other holdings of the Profit Sharing Plan and the Loomis-Sayles Funded Pension Plan (the "Pension Plan"). As of February 10, 1997, the Pension Plan owned 20.59% of the High Yield Fund's, and 73.42% of the Investment Grade Bond Fund's, outstanding Institutional Class shares, respectively. As of February 10, 1997, the Profit Sharing Plan owned the following percentages of the outstanding Institutional Class shares of the indicated Funds: 17.30% of the Core Value Fund, 9.07% of the Global Bond Fund, 25.51% of the Growth Fund, 13.40% of the High Yield Fund, 87.20% of the Intermediate Maturity Bond Fund, 6.60% of the International Equity Fund, 15.17% of the Investment Grade Bond Fund, 91.80% of the Mid-Cap Growth Fund, 33.96% of the Mid-Cap Value Fund, 13.13% of the Short-Term Bond Fund, 58.65% of the Small Cap Growth Fund, 8.53% of the Small Cap Value Fund, 99.56% of the Strategic Value Fund, 8.12% of the U.S. Government Securities Fund, and 26.70% of the Worldwide Fund. As of February 10, 1997, the Pension Plan owned 100.00% of each of the Intermediate Maturity Bond Fund's, the Strategic Value Fund's and the Worldwide Fund's outstanding Retail Class shares. These amounts include shares of the Profit Sharing Plan held for the accounts of employees and former employees of Loomis Sayles who are trustees or officers of the Trust. The trustee of the Pension Plan is Fleet Investment Management. 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 E. John deBeer, Quentin P. Faulkner, Sandra P. Tichenor, Larry K. Shaw, Kathleen C. Gaffney, Mark W. Holland, and Patrick P. Hurley, all of whom are officers and employees of Loomis Sayles and (except for Messrs. Hurley and Shaw and Ms. Gaffney) trustees or officers of the Trust. 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. At the date of this Statement of Additional Information, no officer or trustee, and as of February 10, 1997, except as noted below, no person, owns more than 5% of the outstanding shares of any Fund. 12 INSTITUTIONAL CLASS SHARES
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 41.22% San Francisco, CA 94104 Charles Schwab & Co. Inc. 101 Montgomery St. 8.19% San Francisco, CA 94104 CORE VALUE FUND Loomis Sayles Employees One Financial Center 17.30% Profit Sharing Plan Boston, MA 02111 Olsen & Co. P.O. Box 92800 14.95% C/O A/C 1556802070 Rochester, NY 14692 Attn: Mutual Fund Ops Asbestos Workers Local C/O Loomis Sayles & Co. Inc. 8.34% #84 Pension Fund 1593 North Woodward, Ste 300 Bloomfield Hills, MI 48304 GLOBAL BOND FUND Olsen & Co. P.O. Box 92800 28.68% C/O A/C 07-920-1556802 Rochester, NY 14692 Att: Mutual Fund Ops Northwest Bank MN NA P.O. Box 1450 NW 8477 19.98% C/F Desert States UFCW Union Minneapolis, MN 55480 Employees Pension AC#1327982D Fleet National Bank TTEE P.O. Box 92800 15.26% Kaman Corp Master Trust Fixed Rochester, NY 14692 Income Fund U/A/D 10-1-96 Attn A/C# 0004884410 Loomis Sayles One Financial Center 9.07% Employees Profit Sharing Plan Boston, MA 02111 Charles Schwab & Co. Inc. 101 Montgomery St. 8.83% San Francisco, CA 94104 GROWTH FUND Loomis Sayles Employees One Financial Center 25.51% Profit Sharing Plan Boston, MA 02111 Olsen & Co. P.O. Box 92800 13.48% C/O A/C 07 925 4076300 Rochester, NY 14692 Comerica Bank Cust P.O. Box 75000 MC 3446 7.25% FBO Grosse Pointe Woods Detroit, MI 48275 Employees Retirement System First of America Bank -- P.O. Box 4042 5.24% Michigan FBO Kalamazoo, MI 49003 International Assoc of Machinists & Aerospace Workers Local Lodge # 2848 Defined Benefit Pension Plan
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PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- HIGH YIELD FUND Loomis, Sayles & Company, L.P. One Financial Center 20.59% Boston, MA 02111 Daniel J. Fuss 44 Longfellow Road 20.59% Wellesley, MA 02181 Loomis Sayles One Financial Center 13.40% Employees Profit Sharing Plan Boston, MA 02111 MetroMed Anestheseology 770 Lexington Avenue 8.07% K. Rosenbaum, M.D., Trustee New York, NY 10021 INTERMEDIATE MATURITY BOND FUND Loomis Sayles One Financial Center 87.20% Employees Profit Sharing Plan Boston, MA 02111 David B. Tukel 31725 Nottingham 5.49% Debra L. Tukel JT TEN Franklin, MI 48025 Pomona College Alexander Hall 5.36% 550 N. College Ave. Claremont, CA 91711 INTERNATIONAL EQUITY FUND Comerica Bank FBO P.O. Box 75000 MC 3446 11.10% City of Livonia Employee Detroit, MI 48275 Retirement System A/C 82150B Olsen & Co. P.O. Box 92800 8.64% C/O A/C 07 925 4076800 Rochester, NY 14692 Att: Mutual Fund Ops Misericordia Home 6300 N. Ridge Ave. 8.18% Chicago, IL 60660 Bank of New York P.O. Box 30772 6.68% Western Tr FBO IATSE Los Angeles, CA 90030 Att: Mutual Fund 316226721 Loomis Sayles One Financial Center 6.60% Employees Profit Sharing Plan Boston, MA 02111 INVESTMENT GRADE BOND FUND Loomis Sayles & Company, L.P. Attn: Paul Sherba 73.42% One Financial Center Boston, MA 02111 Loomis Sayles One Financial Center 15.17% Employees Profit Sharing Plan Boston, MA 02111 Pomona College Alexander Hall 5.73% 550 N. College Ave. Claremont, CA 91711 MID-CAP GROWTH FUND Loomis Sayles One Financial Center 91.80% Employees Profit Sharing Plan Boston, MA 02111
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PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- MID-CAP VALUE FUND Loomis Sayles One Financial Center 33.96% Employees Profit Sharing Plan Boston, MA 02111 East Jordan Iron Works Inc. P.O. Box 439 19.97% Retirement Trust East Jordan, MI 49727 John W. George Jr. Trustee 590 Renaud 12.92% John W. George Jr. Trust Grosse Pointe, MI 48236 U/A/D 12/6/90 Kathleen Carpenter, M.D. 612 South Bay Shore 6.66% William R Church, M.D., TTEES Elk Rapids, MI 49629 Grand Traverse Radiologist's PC PSP Floyd Tukel, Trustee 2862 Chestnut Run Dr. 5.99% Drs. Butler & Tukel Bloomfield Hills, MI 48302 Ophthamology PC Employees Profit Sharing Trust MUNICIPAL BOND FUND Sally B. Searle Kinship Capital 13.49% 400 Skokie Blvd.; Ste. 675 Northbrook, IL 60062 Ann A. Morris Trustee General Delivery 12.99% Ann A. Morris Trust Lummi Island, WA 98262 John W. George Jr. Trustee 590 Renaud 5.56% John W. George Jr. Trust Grosse Pointe, MI 48236 U/A/D 12/6/90 SHORT-TERM BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 15.53% San Francisco, CA 94104 John W. George Jr. Trustee 590 Renaud 13.78% John W. George Jr. Trust Grosse Pointe, MI 48236 U/A/D 12/6/90 Loomis Sayles One Financial Center 13.13% Employees Profit Sharing Plan Boston, MA 02111 SMALL CAP GROWTH FUND Loomis Sayles One Financial Center 58.65% Employees Profit Sharing Plan Boston, MA 02111 YMCA of Greater Boston 316 Huntington Ave. 25.84% Boston, MA 02216 National Investor Services Corp. 55 Water St. 10.02% For the Exclusive Benefit of New York, NY 10041 Our Customers
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PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- SMALL CAP VALUE FUND Smith Barney Inc. 333 West 34th St.; 7th Fl. 11.55% Book Entry Account New York, NY 10001 Loomis Sayles One Financial Center 8.53% Employees Profit Sharing Plan Boston, MA 02111 Charles Schwab & Co. Inc. 101 Montgomery St. 6.70% San Francisco, CA 94104 F M Kirby 17 Dehart St.; P.O. Box 151 5.99% Morristown, NJ 07963 STRATEGIC VALUE FUND Loomis Sayles One Financial Center 99.56% Employees Profit Sharing Plan Boston, MA 02111 U.S. GOVERNMENT SECURITIES FUND Olsen & Co. P.O. Box 92800 38.89% C/O A/C 07-920-1556802 Rochester, NY 14692 Att: Mutual Fund Ops Loomis Sayles One Financial Center 8.12% Employees Profit Sharing Plan Boston, MA 02111 National City Bank Columbus P.O. Box 94777 6.79% Trustee Columbus Distributing Cleveland, OH 44101 Co. PSP WORLDWIDE FUND Olsen & Co. P.O. Box 92800 71.51% C/O A/C 10-07-920-1556802 Rochester, NY 14692 Loomis Sayles One Financial Center 26.70% Employees Profit Sharing Plan Boston, MA 02111 RETAIL CLASS SHARES PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- BOND FUND UMBSC & Co. P.O. Box 419260 11.71% FBO The Episcopal Kansas City, MO 64141 Diocese of Kansas 370164014 National Investor Services Corp. 55 Water Street 9.91% For the Exclusive Benefit of New York, NY 10041 Our Customers CORE VALUE FUND NFSC FEBO #110-415740 55 Falmouth Rd 54.74% Christa M. Gaehde Arlington, MA 02174 FMT CO TTEE FRP MP A/C Donaldson Lufkin Jenrette P.O. Box 2052 23.35% Securities Corporation Inc. Jersey City, 07303
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PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- Charles Schwab & Co. Inc. 101 Montgomery St. 17.09% Attn. Mutual Fund Dept. San Francisco, CA 94104 GLOBAL BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 15.53% Attn. Mutual Fund Dept. San Francisco, CA 94104 A/C 8700012578-8 Charles Schwab & Co. Inc. 101 Montgomery St. 15.01% Attn. Mutual Fund Dept. San Francisco, CA 94104 A/C 8700012576-2 NFSC FEBO # X42-090735 2219 Calusa Lakes Blvd. 8.21% Peter S. Price Nokomis, FL 34275 Donaldson Lufkin Jenrette P.O. Box 2052 7.07% Securities Corporation Inc. Jersey City, 07303 NFSC FEBO #153-307734 2404 Angle Ct. 5.53% FMT CO CUST IRA Rollover Decatur, IL 62521 GROWTH FUND Charles Schwab & Co. Inc. 101 Montgomery St. 31.00% Attn. Mutual Fund Dept. San Francisco, CA 94104 Donaldson Lufkin Jenrette P.O. Box 2052 10.29% Securities Corporation Inc. Jersey City, 07303 A/C 7710000004-3 Donaldson Lufkin Jenrette P.O. Box 2052 9.33% Securities Corporation Inc. Jersey City, 07303 A/C 7710000002-7 National Investor Services Corp. 55 Water Street 8.53% For the Exclusive Benefit of New York, NY 10041 Our Customers Mutual Funds Dept. 32nd Floor HIGH YIELD FUND NFSC FEBO # 125-254282 533 Coal Creek Lane 19.13% FMT CO CUST IRA Louisville, CO 80027 FBO Bruce R. Becker Donaldson Lufkin Jenrette P.O. Box 2052 19.04% Securities Corporation Inc. Jersey City, 07303 A/C 4340000003-6 Donaldson Lufkin Jenrette P.O. Box 2052 11.14% Securities Corporation Inc. Jersey City, 07303 A/C 1000020331-8 NFSC FEBO # X67-191930 P.O Box 190444 9.62% Martha I. Bennett Irrev. Trust Dallas, TX 75219 Paul Wilton Bennett, Trustee U/A 08/24/84 Charles Schwab & Co. Inc. 101 Montgomery St. 9.29% Attn. Mutual Fund Dept. San Francisco, CA 94104
17
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- Donaldson Lufkin Jenrette P.O. Box 2052 6.90% Securities Corporation Inc. Jersey City, 07303 A/C 4340000000-7 NFSC FEBO # 175-135704 5305 Bennett Rd. 6.43% FMT CO CUST IRA Chattanooga, TN 37412 FBO James J. Hinkle INTERMEDIATE MATURITY BOND FUND Loomis Sayles & Co. L.P One Financial Center 100.00% Attn: Paul Sherba Boston, MA 02111 INTERNATIONAL EQUITY FUND Charles Schwab & Co. Inc. 101 Montgomery St. 83.84% Attn. Mutual Fund Dept. San Francisco, CA 94104 National Investor Services Corp. 55 Water Street 13.26% For the Exclusive Benefit of New York, NY 10041 Our Customers Mutual Funds Dept. 32nd Floor INVESTMENT GRADE BOND FUND Carolyn D. Cavanaugh 3141 Pine Branch Drive 99.80% Kissimmee, FL 34741 MID-CAP GROWTH FUND Tricia H. Mills CUST 155 N. Lake #1030 49.89% Tyra Hunter Mills Pasadena, CA 91101 Unif Trans Min Act -CA Tricia H. Mills CUST 155 N. Lake #1030 49.89% Brigitte Easton Mills Pasadena, CA 91101 Unif Trans Min Act -CA MID-CAP VALUE FUND Donaldson Lufkin Jenrette P.O. Box 2052 99.97% Securities Corporation Inc. Jersey City, 07303 SHORT-TERM BOND FUND Donaldson Lufkin Jenrette P.O. Box 2052 35.20% Securities Corporation Inc. Jersey City, 07303 A/C 7700000000-4 Donaldson Lufkin Jenrette P.O. Box 2052 9.54% Securities Corporation Inc. Jersey City, 07303 Donaldson Lufkin Jenrette P.O. Box 2052 16.60% Securities Corporation Inc. Jersey City, 07303 A/C 1000020323-7 Donaldson Lufkin Jenrette P.O. Box 2052 9.54% Securities Corporation Inc. Jersey City, 07303 A/C 1000020327-9 NFSC FEBO # 137-326321 8310 Holly Haven Lane 7.78% Stephanie S. Lord Cust Fairfax Station, VA 22039 Matthew Charles Lord UTMA VA
18
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- SMALL CAP GROWTH FUND Donaldson Lufkin Jenrette P.O. Box 2052 68.10% Securities Corporation Inc. Jersey City, 07303 Charles Schwab & Co. Inc. 101 Montgomery St. 25.47% Attn. Mutual Fund Dept. San Francisco, CA 94104 State Bank of the Lakes Trustee 440 West Lake Street 6.41% U/W Of Louise Murrie Antioch, IL 60002 FBO William Slater DTD 6-27-88 Trust Department SMALL CAP VALUE FUND Chase Manhattan Bank Trustee 770 Broadway 30.87% Metlife Defined Contribution 10th Floor Group; Attn: Judith Trepanowski New York, NY 10003 Charles Schwab & Co. Inc. 101 Montgomery St. 27.37% Att: Mutual Fund Dept. San Francisco, CA 94104 A/C 8700012578-8 Charles Schwab & Co. Inc. 101 Montgomery St. 13.40% Att: Mutual Fund Dept. San Francisco, CA 94104 A/C 87000012576-2 STRATEGIC VALUE FUND Loomis Sayles & Co. L.P. One Financial Center 100.00% Attn: Paul Sherba Boston, MA 02111 WORLDWIDE FUND Loomis Sayles & Co. L.P. One Financial Center 100.00% Attn: Paul Sherba Boston, MA 02111
To the extent any of the shareholders listed above beneficially owns more than 25% of a Fund, it may be deemed to "control" such Fund. 19 INVESTMENT ADVISORY AND OTHER SERVICES Advisory Agreements. Loomis Sayles serves as investment adviser under a separate advisory agreement relating to each of the Bond and High Yield Funds, each dated August 30, 1996, relating to the Growth, Core Value, Small Cap Value, International Equity, Worldwide, Global Bond, U.S. Government Securities, Municipal Bond and Short-Term Bond Funds, each dated August 30, 1996, as amended January 1, 1997, and relating to each of the Small Cap Growth, Mid-Cap Value, Mid-Cap Growth, Strategic Value, Investment Grade Bond, and Intermediate Maturity Bond Funds, each dated December 1, 1996. The advisory agreements relating to each of the Growth, Core Value, Small Cap Value, International Equity, Worldwide, Global Bond, U.S. Government Securities, Municipal Bond and Short-Term Bond Funds were amended effective January 1, 1997 solely for the purpose of reducing the fees payable thereunder. Under each advisory agreement, Loomis Sayles manages the investment and reinvestment of the assets of the relevant Fund and generally administers its affairs, subject to supervision by the board of trustees of the Trust. Loomis Sayles furnishes, at its own expense, all necessary office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services. For these services, the advisory agreements provide that each Fund shall pay Loomis Sayles a monthly investment advisory fee at the following annual percentage rates of the particular Fund's average daily net assets:
FUND RATE ---- ---- Growth.............................................................. .50% Core Value.......................................................... .50 Small Cap Value..................................................... .75 International Equity................................................ .75 Worldwide........................................................... .75 Small Cap Growth.................................................... .75 Mid-Cap Value....................................................... .75 Mid-Cap Growth...................................................... .75 Strategic Value..................................................... .50 Bond................................................................ .60 High Yield.......................................................... .60 Global Bond......................................................... .60 U.S. Government Securities.......................................... .40 Municipal Bond...................................................... .40 Short-Term Bond..................................................... .25 Investment Grade Bond............................................... .40 Intermediate Maturity Bond.......................................... .40
During the periods shown below, pursuant to advisory agreements in effect prior to January 1, 1997 under which fees were payable to Loomis Sayles at the following annual rates by the indicated Funds (expressed as a percentage of average daily net assets): Growth, 0.75%; Core Value, 0.75%; International Equity, 1.00%; Small Cap Value, 1.00%; Bond, 0.60%; Global Bond, 0.75%; U.S. Government, 0.60%; Municipal Bond, 0.60%; Short Term Bond, 0.50%; Worldwide, 0.75%; High Yield, 0.60%, Loomis Sayles received the following amount of investment advisory fees from each Fund (before voluntary fee reductions and expense assumptions) and bore the following amounts of fee reductions and expense assumptions for each Fund: 20
FISCAL YEAR ENDED 12/31/94 FISCAL YEAR ENDED 12/31/95 FISCAL YEAR ENDED 12/31/96 ---------------------------- ---------------------------- ----------------------------- FEE WAIVERS FEE WAIVERS FEE WAIVERS ADVISORY AND EXPENSE ADVISORY AND EXPENSE ADVISORY AND EXPENSE FUND FEES ASSUMPTIONS FEES ASSUMPTIONS FEES ASSUMPTIONS ---- ------------- -------------- ------------- -------------- -------------- -------------- Growth.................. $ 248,311 $ 0 $ 319,009 $ 0 $ 318,602 $ 0 Core Value.............. 188,066 0 243,025 0 297,001 0 Small Cap Value......... 790,607 0 839,470 0 1,125,160 0 International Equity.... 670,041 0 781,765 0 848,205 0 Worldwide............... N/A N/A N/A N/A 23,335 84,635 Small Cap Growth*....... N/A N/A N/A N/A N/A N/A Mid-Cap Value*.......... N/A N/A N/A N/A N/A N/A Mid-Cap Growth*......... N/A N/A N/A N/A N/A N/A Strategic Value*........ N/A N/A N/A N/A N/A N/A Bond.................... 511,925 0 917,444 0 2,205,461 0 Global Bond............. 196,543 0 106,447 26,849 119,648 43,855 U.S. Government Securi- ties................... 106,524 39,088 107,644 39,836 130,189 40,922 Municipal Bond.......... 36,708 83,642 45,872 77,750 48,518 105,784 Short-Term Bond......... 81,344 53,010 124,536 6,383 100,693 34,987 High Yield.............. N/A N/A N/A N/A 2,544 47,964 Investment Grade Bond*.. N/A N/A N/A N/A N/A N/A Intermediate Maturity Bond*.................. N/A N/A N/A N/A N/A N/A
- -------- * The Small Cap Growth, Mid-Cap Value, Mid-Cap Growth, Strategic Value, Investment Grade Bond and Intermediate Maturity Bond Funds commenced investment operations on January 2, 1997. The Trust pays the compensation of its trustees who are not directors, officers or employees of Loomis Sayles or its affiliates (other than registered investment companies); registration, filing and other fees in connection with requirements of regulatory authorities; all charges and expenses of its custodian and transfer agent; the charges and expenses of its independent accountants; all brokerage commissions and transfer taxes in connection with portfolio transactions; all taxes and fees payable to governmental agencies; the cost of any certificates representing shares of the Funds; the expenses of meetings of the shareholders and trustees of the Trust; the charges and expenses of the Trust's legal counsel; interest on any borrowings by the Funds; the cost of services, including services of counsel, required in connection with the preparation of, and the cost of printing, the Trust's registration statements and prospectuses, including amendments and revisions thereto, annual, semiannual and other periodic reports of the Trust, and notices and proxy solicitation material furnished to shareholders or regulatory authorities, to the extent that any such materials relate to the Trust or its shareholders; and the Trust's expenses of bookkeeping, accounting, auditing and financial reporting, including related clerical expenses. Under each advisory agreement, if the total ordinary business expenses of a Fund or the Trust as a whole for any fiscal year exceed the lowest applicable limitation (based on percentage of average net 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 which 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 Prospectus, Loomis Sayles has agreed to certain additional, voluntary arrangements to limit Fund expenses. These arrangements may be modified or terminated by Loomis Sayles at any time. Each advisory agreement provides that it will continue in effect for two years from its date of execution and thereafter from year to year if its continuance is approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the relevant Fund and (ii) by vote of a 21 majority of the Trustees who are not "interested persons" of the Trust, as that term is defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. Any amendment to an advisory agreement must be approved by vote of a majority of the outstanding voting securities of the relevant Fund and by vote of a majority of the Trustees who are not such interested persons, cast in person at a meeting called for the purpose of voting on such approval. Each agreement may be terminated without penalty by vote of the Board of Trustees or by vote of a majority of the outstanding voting securities of the relevant Fund, upon sixty days' written notice, or by Loomis Sayles upon ninety days' written notice, and each terminates automatically in the event of its assignment. In addition, each agreement will automatically terminate if the Trust or the 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. Loomis Sayles acts as investment adviser or subadviser to New England Value Fund, New England Capital Growth Fund, New England Strategic Income Fund, New England Star Advisers Fund; New England Star Small Cap Fund and New England Balanced Fund, which are series of New England Funds Trust I, a registered open- end management investment company, New England High Income Fund, a series of New England Fund Trust II, a registered, open-end management investment company, New England Equity Income Fund, a series of New England Funds Trust III, a registered open-end management investment company, and to the Balanced Series, the Avanti Growth Series and the Small Cap Series of New England Zenith Fund, which is also a registered open-end management investment company, as well as to Loomis Sayles Investment Trust, also a registered open- end management investment company. Loomis Sayles also provides investment advice to certain other open-end management investment companies and numerous other corporate and fiduciary clients. Loomis Sayles' sole general partner is Loomis Sayles & Company, Inc., which is a wholly-owned subsidiary of New England Investment Companies, L.P. ("NEIC"). NEIC's sole general partner is New England Investment Companies, Inc., which is a wholly-owned subsidiary of NEIC Holdings, Inc., a wholly- owned subsidiary of Metropolitan Life Insurance Company. Certain officers and trustees of the Trust also serve as officers, directors and trustees of other investment companies and clients advised by Loomis Sayles. The other investment companies and clients sometimes invest in securities in which the Funds also invest. If a Fund and such other investment companies or clients desire to buy or sell the same portfolio securities at the same time, purchases and sales may be allocated, to the extent practicable, on a pro rata basis in proportion to the amounts desired to be purchased or sold for each. 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 a Fund purchases or sells. In other cases, however, it is believed that these practices may benefit the Funds. It is the opinion of the trustees that the desirability of retaining Loomis Sayles as adviser for the Funds outweighs the disadvantages, if any, which might result from these practices. Distribution Agreement and Rule 12b-1 Plans. Under an agreement with the Trust (the "Distribution Agreement"), Loomis Sayles Distributors, L.P. serves as the general distributor of each class of shares of the Funds. Under this agreement, Loomis Sayles Distributors, L.P. is not obligated to sell a specific number of shares. Loomis Sayles Distributors, L.P. 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. The Funds pay the cost of registering and qualifying their shares under state and federal securities laws and the distribution of prospectuses to existing shareholders. As described in the Prospectuses, the Funds (other than the U.S. Government Securities and Municipal Bond Funds) have adopted Rule 12b-1 plans ("Plans") for their Retail Class shares. The Bond and Small Cap Value Funds have adopted Plans for their Admin Class shares. The Plans, among other things, permit the relevant 22 classes of the Funds to pay the Funds' distributor (currently Loomis Sayles Distributors, L.P.) monthly fees, at annual rates not exceeding 0.25% of the assets of the Retail Class and Admin Class respectively. Pursuant to Rule 12b- 1 under the 1940 Act, each Plan (together with the Distribution Agreement) was approved by the board of trustees, including a majority of the trustees who are not interested persons of the Trust (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operations of the Plan or the Distribution Agreement (the "Independent Trustees"). 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 Retail Class shares of the Fund to which the Plan relates. Each Plan may be amended by vote of the trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose. Any change in any Plan that would materially increase the fees payable thereunder by the Retail Class or Admin Class shares of a Fund requires approval of the Retail Class or Admin Class shareholders of that Fund. The Trust's trustees review quarterly written reports of such costs and the purposes for which such costs have been incurred. Each Plan provides that, for so long as that Plan is in effect, selection and nomination of those trustees who are not interested persons of the Trust shall be committed to the discretion of such disinterested persons. The Distribution Agreement may be terminated at any time with respect to a Fund on 60 days' written notice without payment of any penalty by the Trust or by vote of a majority of the outstanding voting securities of that Fund or by vote of a majority of the Independent Trustees. The Distribution Agreement 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 entire board of trustees and (ii) by the vote of a majority of the Independent Trustees, in each case cast in person at a meeting called for that purpose. Custodial Arrangements. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State Street Bank holds in 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 Accountants. The Fund's independent accountants are Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts. Coopers & Lybrand conducts an annual audit of the Trust's financial statements, assists in the preparation of the Funds' federal and state income tax returns and consults with the Funds as to matters of accounting and federal and state income taxation. The information under the caption "Financial Highlights" included in the Prospectus has been so included, and the financial statements incorporated by reference herein from the Fund's 1996 Annual Report have been so incorporated, in reliance on the reports of Coopers & Lybrand, independent accountants, given on the authority of said firm as experts in auditing and accounting. PORTFOLIO TRANSACTIONS AND BROKERAGE In placing orders for the purchase and sale of portfolio securities for each Fund, Loomis Sayles always seeks the best price and execution. Transactions in unlisted securities are carried out through broker-dealers who make the primary market for such securities unless, in the judgment of Loomis Sayles, a more favorable price can be obtained by carrying out such transactions through other brokers or dealers. Loomis Sayles selects only brokers or dealers which it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates 23 which, when combined with the quality of the foregoing services, will produce 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. Loomis Sayles 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. The Funds, other than the International Equity and Worldwide Funds, will not pay a broker a commission at a higher rate than otherwise available for the same transaction in recognition of the value of research services provided by the broker or in recognition of the value of any other services provided by the broker which do not contribute to the best price and execution of the transaction. Receipt of research services from brokers may sometimes be a factor in selecting a broker which Loomis Sayles believes will provide best price and execution for a transaction. These research services include not only a wide variety of reports on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, daily prices of securities, stock and bond market conditions and projections, asset allocation and portfolio structure, but also meetings with management representatives of issuers and with other analysts and specialists. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce Loomis Sayles' expenses. Such services may be used by Loomis Sayles in servicing other client accounts and in some cases may not be used with respect to the Funds. Receipt of services or products other than research from brokers is not a factor in the selection of brokers. International Equity and Worldwide Funds. In placing orders for the purchase and sale of securities for the International Equity and Worldwide Funds, Loomis Sayles follows the same policies as for the other Funds, except that Loomis Sayles may cause the International Equity and Worldwide Funds to pay a broker-dealer that provides brokerage and research services to Loomis Sayles an amount of commission for effecting a securities transaction for those Funds in excess of the amount another broker-dealer would have charged for effecting that transaction. Loomis Sayles must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or Loomis Sayles' overall responsibilities to the Trust and its other clients. Loomis Sayles's authority to cause the International Equity and Worldwide Funds to pay such greater commissions is also subject to such policies as the Trustees of the Trust may adopt from time to time. The following three tables set forth, for the fiscal years ended December 31, 1994, December 31, 1995 and December 31, 1996, respectively, (1) the aggregate dollar amount of brokerage commissions paid on portfolio transactions during such period, (2) the dollar amount of transactions on which brokerage commissions were paid during such period that were directed to brokers providing research services ("directed transactions") and (3) the dollar amount of commissions paid on directed transactions during such period. Funds not listed in a table did not pay brokerage commissions during the relevant period. FISCAL YEAR ENDED DECEMBER 31, 1994
(1) (3) AGGREGATE (2) COMMISSIONS BROKERAGE DIRECTED ON DIRECTED FUND COMMISSIONS TRANSACTIONS TRANSACTIONS ---- ----------- ------------ ------------ Growth.............................. $ 44,867 $ 35,606,334 $ 44,867 Core Value.......................... $ 50,131 $ 28,909,781 $ 50,131 Small Cap Value..................... $179,677 $130,509,692 $179,677 International Equity................ $712,614 $158,862,963 $712,614
24 FISCAL YEAR ENDED DECEMBER 31, 1995
(1) (3) AGGREGATE (2) COMMISSIONS BROKERAGE DIRECTED ON DIRECTED FUND COMMISSIONS TRANSACTIONS TRANSACTIONS ---- ----------- ------------ ------------ Growth.............................. $ 49,657 $ 43,318,381 $ 49,657 Core Value.......................... $ 55,978 $ 13,062,283 $ 20,980 Small Cap Value..................... $ 584,643 $ 8,919,867 $ 21,655 International Equity................ $ 824,038 $198,137,121 $ 824,038 FISCAL YEAR ENDED DECEMBER 31, 1996 (1) (3) AGGREGATE (2) COMMISSIONS BROKERAGE DIRECTED ON DIRECTED FUND COMMISSIONS TRANSACTIONS TRANSACTIONS ---- ----------- ------------ ------------ Growth.............................. $ 81,708 $97,799,290 $ 81,708 Core Value.......................... $ 64,033 $17,907,024 $ 28,782 Small Cap Value..................... $ 248,992 $15,896,278 $ 45,316 International Equity................ $1,002,393 $257,530,857 $1,002,393 Worldwide........................... $ 9,631 $ 0 $ 0
DESCRIPTION OF THE TRUST The Trust, registered with the SEC as a diversified 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. The Declaration of Trust currently permits the trustees to issue an unlimited number of full and fractional shares of each series. Each share of each Fund represents an equal proportionate interest in such Fund with each other share of that Fund and is entitled to a proportionate interest in the dividends and distributions from that Fund. The 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 that Fund are entitled to share pro rata in the net assets of that Fund available for distribution to shareholders. The Declaration of Trust also permits the trustees to charge shareholders directly for custodial, transfer agency and servicing expenses. The assets received by each Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds therefrom, subject only to the rights of creditors, are allocated to, and constitute the underlying assets of, that Fund. The underlying assets are segregated and are charged with the expenses with respect to that Fund and with a share of the general expenses of the Trust. Any general expenses of the Trust that are not readily identifiable as belonging to a particular 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 the Trust are allocated to the separate books of account of each Fund, certain expenses may be legally chargeable against the assets of all Funds. The Declaration of Trust also permits the trustees, without shareholder approval, to subdivide any series of shares or Fund into various classes of shares with such dividend preferences and other rights as the trustees may designate. Shares of each Fund (other than the U.S. Government Securities and Municipal Bond Funds) are currently divided into two classes, designated Retail Class and Institutional Class. Additionally, the Bond Fund and Small Cap Value Fund offer a third class of shares designated the Admin Class and the High Yield Fund offers a third class designated the Boston Private Bank High Yield Fund. The trustees may also, without shareholder approval, establish one or more additional separate portfolios for investments in the Trust or merge two or more existing portfolios. Shareholders' investments in such an additional or merged portfolio would be evidenced by a separate series of shares (i.e., a new "Fund"). 25 The Declaration of Trust provides for the perpetual existence of the Trust. The 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. The Declaration of Trust further provides that the trustees may also terminate the Trust or any Fund upon written notice to the shareholders. As a matter of policy, however, the trustees will not terminate the Trust or any Fund without submitting the matter to a vote of the shareholders of the Trust or the relevant Fund. VOTING RIGHTS As summarized in the Prospectus, shareholders 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 in the Declaration of Trust) on the election of trustees and the termination of the Trust and on other matters submitted to the vote of shareholders. The Declaration of Trust provides that on any matter submitted to a vote of all Trust shareholders, all Trust shares entitled to vote shall be voted together irrespective of series or sub-series unless the rights of a particular series or sub-series would be adversely affected by the vote, in which case a separate vote of that series or sub-series shall also be required to decide the question. Also, a separate vote shall be held whenever required by the 1940 Act or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a class shall be deemed to be affected by a matter unless it is clear that the interests of each class in the matter are substantially identical or that the matter does not affect any interest of such class. On matters affecting an individual series, only shareholders of that series are entitled to vote. Consistent with the current position of the SEC, shareholders of all series vote together, irrespective of series, on the election of trustees and the selection of the Trust's independent accountants, but shareholders of each series vote separately on other matters requiring shareholder approval, such as certain changes in investment policies of that series or the approval of the investment advisory agreement relating to that series. There will normally be no meetings of shareholders for the purpose of electing trustees except that, in accordance with the 1940 Act, (i) the 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, as a result of a vacancy on the board of trustees, less than two-thirds of the trustees holding office have been elected by the shareholders, that vacancy may be filled only by a vote of 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 the 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 constituting 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 Trust has 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. Voting rights are not cumulative. No amendment may be made to the Declaration of Trust without the affirmative vote of a majority of the outstanding shares of the Trust, except (i) to change the Trust's name or to cure technical problems in the Declaration of Trust and (ii) to establish, change or eliminate the par value of any shares (currently all shares have no par value). SHAREHOLDER AND TRUSTEE LIABILITY Under Massachusetts law shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund of which they are shareholders. However, the Declaration of Trust disclaims shareholder 26 liability for acts or obligations of each Fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees. The Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the 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 the Fund itself would be unable to meet its obligations. The Declaration of Trust further provides that the trustees will not be liable for errors of judgment or mistakes of fact or law. However, nothing in the Declaration 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 office. The By-Laws of the Trust provide for indemnification by the Trust of the trustees and officers of the Trust except with respect to any matter as to which any such person did not act in good faith in the reasonable belief that such action was in or not opposed to the best interests of the Trust. No officer or trustee may be indemnified against any liability to the Trust or the Trust's shareholders to which such person 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. HOW TO BUY SHARES The procedures for purchasing shares of each Fund are summarized in the Prospectus under "How to Purchase Shares." NET ASSET VALUE The net asset value of the shares of each Fund is determined by dividing that Fund's total net assets (the excess of its assets over its liabilities) by the total number of shares of the Fund outstanding and rounding to the nearest cent. Such determination is made as of the close of regular trading on the New York Stock Exchange on each day on which that Exchange is open for unrestricted trading, and no less frequently than once daily on each day during which there is sufficient trading in a Fund's portfolio securities that the value of that Fund's shares might be materially affected. During the 12 months following the date of this Statement of Additional Information, the New York Stock Exchange is expected to be closed on the following weekdays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Equity securities listed on an established securities exchange or on the Nasdaq National Market System are normally valued at their last sale price on the exchange where primarily traded or, if there is no reported sale during the day, and in the case of over-the-counter securities not so listed, at the last bid price. Long-term debt securities are valued by a pricing service, which determines valuations of normal institutional-size trading units of long-term debt securities. Such valuations are determined using methods based on market transactions for comparable securities and on various relationships between securities which are generally recognized by institutional traders. Other securities for which current market quotations are not readily available (including restricted securities, if any) 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 securities markets is substantially completed each day at various times prior to the close of regular trading on the New York Stock Exchange. Occasionally, events affecting the value of foreign fixed income securities and of equity securities of non-U.S. issuers not traded on a U.S. exchange may occur between the completion of substantial trading of such securities for the day and the close of regular trading on the New York Stock Exchange, which events will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of any Fund's portfolio securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or in accordance with procedures approved by the trustees. 27 SHAREHOLDER SERVICES OPEN ACCOUNTS A shareholder's investment in any Fund is automatically credited to an open account maintained for the shareholder by Boston Financial Data Services, Inc. ("BFDS"), the shareholder servicing agent for State Street Bank. Certificates representing shares are issued only upon written request to BFDS but are not issued for fractional shares. Following each transaction in the account, a shareholder will receive an account statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each fiscal year State Street Bank will send each shareholder a statement providing federal tax information on dividends and distributions paid to the shareholder during the year. This should be retained as a permanent record. Shareholders will be charged a fee for duplicate information. The open account system permits the purchase of full and fractional shares and, by making the issuance and delivery of certificates representing shares unnecessary, eliminates the problems of handling and safekeeping certificates, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. The costs of maintaining the open account system are borne by the Trust, and no direct charges are made to shareholders. Although the Trust has no present intention of making such direct charges to shareholders, it reserves the right to do so. Shareholders will receive prior notice before any such charges are made. SYSTEMATIC WITHDRAWAL PLAN A Systematic Withdrawal Plan, referred to in the Prospectus under "Shareholder Services--Systematic Withdrawal Plan," provides for monthly, quarterly, semiannual or annual withdrawal payments of $50 or more from the account of an eligible shareholder, as provided therein, provided that the account has a value of at least $10,000 at the time the plan is established. Payments will be made either to the shareholder or to any other person designated by the shareholder. If payments are issued to an individual other than the registered owner(s), a signature guarantee will be required on the Plan application. All shares in an account that is subject to a Systematic Withdrawal Plan must be held in an open account rather than in certificated form. Income dividends and capital gain distributions will be reinvested at the net asset value determined as of the close of regular trading on the New York Stock Exchange on the record date for the dividend or distribution. Since withdrawal payments represent proceeds from liquidation of shares, the shareholder should recognize that withdrawals may reduce and possibly exhaust the value of the account, particularly in the event of a decline in net asset value. Accordingly, the shareholder should consider whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn are appropriate in the circumstances. The Fund makes no recommendations or representations in this regard. It may be appropriate for the shareholder to consult a tax adviser before establishing such a plan. See "Redemptions" and "Income Dividends, Capital Gain Distributions and Tax Status" below for certain information as to federal income taxes. EXCHANGE PRIVILAGE Shareholders may redeem their shares of any Fund and have the proceeds applied on the same day to purchase shares of any other Fund or of New England Cash Management Trust or New England Tax Exempt Money Market Trust. Exchange of shares of the High Yield Fund purchased within one year of such exchanges will be subject to a redemption fee of 2.00% of the amount exchanged. For purposes of determining whether a redemption fee is payable with respect to shares of the High Yield Fund purchased by exchange of shares of another fund, the one-year period shall be deemed to begin on the date of such purchase by exchange. This option is summarized in the Prospectus under "Shareholder Services--Free Exchange Privilege." 28 Exchanges may be effected by (1) making a telephone request by calling 800- 633-3330, provided that a special authorization form is on file with BFDS, or (2) sending a written exchange request to BFDS accompanied by an account application for the appropriate fund. The Trust reserves the right to modify this exchange privilege without prior notice. An exchange constitutes a sale of the shares for federal income tax purposes on which the investor may realize a capital gain or loss. IRAS Under "Shareholder Services--Retirement Plans," the Prospectus refers to IRAs established under a prototype plan made available by Loomis Sayles. These plans may be funded with shares of any Fund, although it is expected that shares of the Municipal Bond Fund would ordinarily not be an appropriate investment for these plans. All income dividends and capital gain distributions of plan participants must be reinvested. Plan documents and further information can be obtained from Loomis Sayles. Check with your financial or tax adviser as to the suitability of Fund shares for your retirement plan. REDEMPTIONS The procedures for redemption of Fund shares are summarized in the Prospectus under "How to Redeem Shares." Except as noted below, signatures on redemption requests must be guaranteed by commercial banks, trust companies, savings associations, credit unions or brokerage firms that are members of domestic securities exchanges. Signature guarantees by notaries public are not acceptable. However, as noted in the Prospectus, a signature guarantee will not be required if the proceeds of the redemption do not exceed $50,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address. If a shareholder selects the telephone redemption service in the manner described in the next paragraph, Fund shares may be redeemed by making a telephone call directly to BFDS at 800-626-9390. When a telephonic redemption request is received, the proceeds are wired to the bank account previously chosen by the shareholder and a nominal wire fee (currently $5.00) is deducted. Telephonic redemption requests must be received by BFDS prior to the close of regular trading on the New York Stock Exchange on a day when the Exchange is open for business. Requests made after that time or on a day when the New York Stock Exchange is not open for business cannot be accepted by BFDS and a new request will be necessary. 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 available from BFDS. When selecting the service, a shareholder must designate a bank account to which the redemption proceeds should be wired. Any change in the bank account so designated must be made by furnishing to BFDS a completed Service Options Form with 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 an investor's 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 Trust, BFDS, Loomis Sayles Distributors, L.P. and State Street Bank are not responsible for the authenticity of withdrawal instructions received by telephone. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form, less, in the case of the High Yield Fund, a redemption fee of 2.00% of the amount redeemed with respect to shares of that Fund redeemed within one (1) year of purchase, if applicable. Proceeds resulting from a written redemption request will normally be mailed to the shareholder within seven days after receipt of a request in good order. Telephonic redemption 29 proceeds will normally be wired on the first business day following receipt of a proper redemption request. In those cases where a shareholder has recently purchased shares by check and the check was received less than fifteen days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. Each Fund will normally redeem shares for cash; however, each Fund reserves the right to pay the redemption price wholly or partly in kind if the board of trustees of the Trust determines it to be advisable in the interest of the remaining shareholders. 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 Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is obligated to redeem shares solely in cash for any shareholder during any 90-day period up to the lesser of $250,000 or 1% of the total net asset value of the Trust at the beginning of such period. A redemption constitutes a sale of the shares for federal income tax purposes on which the investor may realize a long- or short-term capital gain or loss. See "Income Dividends, Capital Gain Distributions and Tax Status." INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS As described in the Prospectus under "Dividends, Capital Gain Distributions and Taxes" 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 capital gains, if any, after offsetting any capital loss carryovers. Income dividends and capital gain distributions are payable in full and fractional shares of the particular Fund based upon the net asset value determined as of the close of regular trading on the New York Stock Exchange on the record date for each dividend or distribution. Shareholders, however, may elect to receive their 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 BFDS. In order for a change to be in effect for any dividend or distribution, it must be received by BFDS on or before the record date for such dividend or distribution. As required by federal law, detailed federal tax information will be furnished to each shareholder for each calendar year on or before January 31 of the succeeding year. Each Fund intends to qualify each year as a regulated investment company under Subchapter M of the Code. In order so to qualify, the Fund must, among other things, (i) derive at least 90% of its gross income 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) derive less than 30% of its gross income from gains from the sale or other disposition of securities held for less than three months; (iii) distribute at least 90% of its dividend, interest and certain other taxable income each year; and (iv) at the end of each fiscal quarter maintain at least 50% of the value of its total assets in cash, government securities, securities of other regulated investment companies, and other securities of issuers which represent, with respect to each issuer, no more than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and with no more than 25% of its assets 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 and businesses. To the extent it qualifies for treatment as a regulated investment company, the Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends or capital gain distributions. 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 30 ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31 (or December 31, if the Fund so elects) plus undistributed amounts from prior years. Each Fund intends to make distributions sufficient to avoid imposition of the excise tax. Distributions declared 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 31 of the year in which declared. Shareholders of each Fund will be subject to federal income taxes on distributions made by the Fund (other than "exempt-interest dividends" paid by the Municipal Bond Fund, as described in the Prospectus) whether received in cash or additional shares of the Fund. Distributions by each Fund of net income and short-term capital gains, if any, will be taxable to shareholders as ordinary income. Distributions of long-term capital gains, if any, will be taxable to shareholders as long-term capital gains, without regard to how long a shareholder has held shares of the Fund. A loss on the sale of shares held for 12 months or less will be 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. Dividends and distributions on Fund shares received shortly after their purchase, although in effect a return of capital, are subject to federal income taxes. The International Equity, Worldwide and Global Bond Funds each may be eligible to make an election under Section 853 of the Code so that its shareholders will be able to claim a credit or deduction on their income tax returns for, and will be required to treat as part of the amounts distributed to them, their pro rata portion of qualified taxes paid by the relevant Fund to foreign countries. The ability of shareholders of the Fund to claim a foreign tax credit is subject to certain limitations imposed by Section 904 of the Code, which in general limit the amount of foreign tax that may be used to reduce a shareholder's U.S. tax liability to that amount of U.S. tax which would be imposed on the amount and type of income in respect of which the foreign tax was paid. A shareholder who for U.S. income tax purposes claims a foreign tax credit in respect of Fund distributions may not claim a deduction for foreign taxes paid by the Fund, regardless of whether the shareholder itemizes deductions. Also, under Section 63 of the Code, no deduction for foreign taxes may be claimed by shareholders who do not itemize deductions on their federal income tax returns. It should also be noted that a tax-exempt shareholder, like other shareholders, will be required to treat as part of the amounts distributed to it a pro rata portion of the income taxes paid by the Fund to foreign countries. However, that income will generally be exempt from United States taxation by virtue of such shareholder's tax-exempt status and such a shareholder will not be entitled to either a tax credit or a deduction with respect to such income. The International Equity, Worldwide and Global Bond Funds will notify shareholders each year of the amount of dividends and distributions and the shareholder's pro rata share of qualified taxes paid by each such Fund to foreign countries. Each Fund's transactions, if any, in foreign currencies 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 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. Each Fund may limit its investments in certain "passive foreign investment companies" in order to avoid certain taxes that arise as a result of such investments. Redemptions and exchanges of each Fund's shares are taxable events and, accordingly, shareholders may realize gains and losses on these transactions. If shares have been held for more than one year, gain or loss realized will be long-term capital gain or loss, provided the shareholder holds the shares as a capital asset. However, if a shareholder sells Fund shares at a loss within six months after purchasing the shares, the loss will be treated as a long- term capital loss to the extent of any long-term capital gain distributions received by the shareholder. 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 30 days prior to the sale of the loss shares or 30 days after such sale. 31 The foregoing is a general and abbreviated summary of the applicable provisions of the Code and 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 action. 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 or local 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 possibility that distributions may be subject to a 30% United States withholding tax (or a reduced rate of withholding provided by treaty). FINANCIAL STATEMENTS The financial statements of each Fund included in the Trust's 1996 Annual Report, filed with the Securities and Exchange Commission on March 7, 1997, are incorporated by reference to such Report. CALCULATION OF YIELD AND TOTAL RETURN Yield. Yield with respect to a Fund will be computed by dividing such Fund's net investment income for a recent 30-day period by the maximum offering price (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last trading day of that period. Net investment income will reflect amortization of any market value premium or discount of fixed income securities (except for obligations backed by mortgages or other assets) and may include recognition of a pro rata portion of the stated dividend rate of dividend paying portfolio securities. The Funds' yields will vary from time to time depending upon market conditions, the composition of the Funds' portfolios and operating expenses of the Trust allocated to each Fund. These factors, and possible differences in the methods used in calculating yield, 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 Funds' shares and to the relative risks associated with the investment objectives and policies of the Funds. At any time in the future, yields 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 the net asset value per share of each Fund may vary, just as yields for each Fund may vary. An investor's focus on yield to the exclusion of the consideration of the value of shares of that Fund may result in the investor's misunderstanding the total return he or she may derive from that Fund. Total Return. Total Return with respect to a Fund is a measure of the change in value of an investment in such Fund over the period covered, and assumes any dividends or capital gains distributions are reinvested immediately, rather than paid to the investor in cash. The formula for total return used herein includes four steps: (1) adding to the total number of shares purchased through a hypothetical $1,000 investment in the Fund all additional shares which would have been purchased if all dividends and distributions paid or distributed during the period had been immediately reinvested; (2) calculating the value of the hypothetical initial investment of $1,000 as of the end of the period by multiplying the total number of shares owned at the end of the period by the net asset value per share on the last trading day of the period; (3) assuming redemption at the end of the period; and (4) dividing the resulting account value by the initial $1,000 investment. 32 PERFORMANCE COMPARISONS Yield and Total Return. Each Fund may from time to time include its total return information in advertisements or in information furnished to present or prospective shareholders. Each of the Bond, Global Bond, U.S. Government Securities, Municipal Bond, Short-Term Bond, Investment Grade Bond, Intermediate Maturity Bond, High Yield and Worldwide Funds may from time to time include the yield and/or total return of its shares in advertisements or information furnished to present or prospective shareholders. Each Fund may from time to time include in advertisements or information furnished to present or prospective shareholders (i) the ranking of performance figures relative to such figures for groups of mutual funds categorized by Lipper Analytical Services, Inc. or Micropal, Inc. as having similar investment objectives, (ii) the rating assigned to the Fund by Morningstar, Inc. based on the Fund's risk-adjusted performance relative to other mutual funds in its broad investment class, and/or (iii) the ranking of performance figures relative to such figures for mutual funds in its general investment category as determined by CDA/Weisenberger's Management Results. Lipper Analytical Services, Inc. distributes mutual fund rankings monthly. The rankings are based on total return performance calculated by Lipper, generally reflecting changes in net asset value adjusted for reinvestment of capital gains and income dividends. They do not reflect deduction of any sales charges. Lipper rankings cover a variety of performance periods, including year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual funds by investment objective and asset category. Micropal, Inc. distributes mutual fund rankings weekly and monthly. The rankings are based upon performance calculated by Micropal, generally reflecting changes in net asset value that can be adjusted for the reinvestment of capital gains and dividends. If deemed appropriate by the user, performance can also reflect deductions for sales charges. Micropal rankings cover a variety of performance periods, including year-to-date, 1- year, 5-year and 10-year performance. Micropal classifies mutual funds by investment objective and asset category. Morningstar, Inc. distributes mutual fund ratings twice a month. The ratings are divided into five groups: highest, above average, neutral, below average and lowest. They represent a fund's historical risk/reward ratio relative to other funds in its broad investment class as determined by Morningstar, Inc. Morningstar ratings cover a variety of performance periods, including 3-year, 5-year, 10-year and overall performance. The performance factor for the overall rating is a weighted-average return performance (if available) reflecting deduction of expenses and sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. The ratings are derived from a purely quantitative system that does not utilize the subjective criteria customarily employed by rating agencies such as Standard & Poor's and Moody's Investor Service, Inc. CDA/Weisenberger's Management Results publishes mutual fund rankings and is distributed monthly. The rankings are based entirely on total return calculated by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and 10-year Mutual funds are ranked in general categories (e.g., international bond, international equity, municipal bond, and maximum capital gain). Weisenberger rankings do not reflect deduction of sales charges or fees. Performance information may also be used to compare the performance of the Fund to certain widely acknowledged standards or indices for stock and bond market performance, such as those listed below. Consumer Price Index. The Consumer Price Index, published by the U.S. Bureau of Labor Statistics, is a statistical measure of changes, over time, in the prices of goods and services in major expenditure groups. Dow Jones Industrial Average. The Dow Jones Industrial Average is a market value-weighted and unmanaged index of 30 large industrial stocks traded on the New York Stock Exchange. Lehman Brothers Government/Corporate Bond Index. The Lehman Brothers Government/Corporate Bond Index is an index of publicly issued U.S. Treasury obligations, debt obligations of U.S. government 33 agencies (excluding mortgage-backed securities), fixed-rate, non-convertible, investment-grade corporate debt securities and U.S. dollar-denominated, SEC- registered non-convertible debt issued by foreign governmental entities or international agencies used as a general measure of the performance of fixed- income securities. Lehman Brothers 1-3 Year Government Index. The Index contains fixed rate debt issues of the U.S. government or its agencies rated investment grade or higher with at least one year maturity and an outstanding par value of at least $100 million for U.S. government issues. Lehman Brothers Government Bond Index. The Lehman Brothers Government Bond Index is composed of all publicly issued, nonconvertible, domestic debt of the U.S. government or any of its agencies, quasi-federal corporations, or corporate debt guaranteed by the U.S. government. Lehman Brothers Municipal Bond Index. The Lehman Brothers Municipal Bond Index is computed from the prices of approximately 21,000 bonds consisting of roughly 30% revenue bonds, 30% government obligation bonds, 27% insured bonds and 13% prerefunded bonds. MSCI-EAFE Index. The MSCI-EAFE Index contains over 1000 stocks from 20 different countries with Japan (approximately 50%), United Kingdom, France and Germany being the most heavily weighted. MSCI-EAFE ex-Japan Index. The MSCI-EAFE ex-Japan Index consists of all stocks contained in the MSCI-EAFE Index, other than stocks from Japan. Merrill Lynch Government/Corporate Index. The Merrill Lynch Government/Corporate Index is a composite of approximately 4,900 U.S. government and corporate debt issues with at least $25 million outstanding, greater than one year maturity, and credit ratings of investment grade or higher. Merrill Lynch High Yield Index. The Merrill Lynch High Yield Index includes over 750 issues and represents public debt greater than $10 million (original issuance rated BBB/BB and below). Russell 2000 Index. The Russell 2000 Index is comprised of the 2000 smallest of the 3000 largest U.S.-domiciled corporations, ranked by market capitalization. Salomon Brothers World Government Bond Index. The Salomon Brothers World Government Bond Index includes a broad range of institutionally-traded fixed- rate government securities issued by the national governments of the nine countries whose securities are most actively traded. The index generally excludes floating- or variable-rate bonds, securities aimed principally at non-institutional investors (such as U.S. Savings Bonds) and private-placement type securities. Standard & Poor's/Barra Growth Index. The Standard & Poor's/Barra Growth Index is constructed by ranking the securities in the S&P 500 by price-to-book ratio and including the securities with the highest price-to-book ratios that represent approximately half of the market capitalization of the S&P 500. Standard & Poor's/Barra Value Index. The Standard & Poor's/Barra Value Index is constructed by ranking the securities in the S&P 500 by price-to-book ratio and including the securities with the lowest price-to-book ratios that represent approximately half of the market capitalization of the S&P 500. Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). The S&P 500 is a market value-weighted and unmanaged index showing the changes in the aggregate market value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed almost entirely of common stocks of companies listed on the New York Stock Exchange, although the common stocks of a few companies listed on the American Stock Exchange or traded over-the-counter are included. The 500 companies represented include 400 industrial, 60 transportation and 40 financial services concerns. The S&P 500 represents about 80% of the market value of all issues traded on the New York Stock Exchange. The S&P 500 is the most common index for the overall U.S. stock market. 34 From time to time, articles about the Funds regarding performance, rankings and other characteristics of the Funds may appear in publications including, but not limited to, the publications included in Appendix A. In particular, some or all of these publications may publish their own rankings or performance reviews of mutual funds, including the Funds. References to or reprints of such articles may be used in the Funds' promotional literature. References to articles regarding personnel of Loomis Sayles who have portfolio management responsibility may also be used in the Funds' promotional literature. For additional information about the Funds' advertising and promotional literature, see Appendix B. PERFORMANCE DATA* The manner in which total return and yield of the Funds will be calculated for public use is described above. The following table summarizes the calculation of total return and yield for Institutional Class shares of the Funds, where applicable, (i) for the one-year period ended December 31, 1996, (ii) for the three-year period ended December 31, 1996, (iii) the five-year period ended December 31, 1996 and (iv) since the commencement of investment operations (May, 1991 for all Funds other than the Intermediate Maturity Bond, Investment Grade Bond, Mid-Cap Growth, Mid-Cap Value, Short-Term Bond, Small Cap Growth, Strategic Value, and Worldwide Funds, January, 1997 for the Intermediate Bond, Investment Grade Bond, Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value Funds, August, 1992 for the Short-Term Bond Fund, and May, 1996 for the Worldwide Fund) through December 31, 1996. None of the Funds had commenced investment operations with respect to Retail Class Shares, and the Intermediate Maturity Bond, Investment Grade Bond, Mid-Cap Growth, Mid-Cap Value, Small Cap Growth, and Strategic Value Funds had not commenced investment operations with respect to Institutional Class shares as of December 31, 1996. The Bond Fund and Small Cap Value Fund had not commenced investment operations with respect to Admin Class shares and High Yield Fund had not commenced investment operations with respect to Boston Private Bank High Yield Fund shares as of December 31, 1996. PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN ------------------------------------------------------------------------ FOR THE FOR THE THREE- FROM FROM ONE-YEAR YEAR FOR THE MODIFIED COMMENCEMENT CURRENT SEC PERIOD PERIOD FIVE-YEAR INCEPTION OF OPERATIONS*** YIELD ENDED ENDED PERIOD THROUGH THROUGH AT 12/31/96 12/31/96 12/31/96 ENDED 12/31/96 12/31/96** 12/31/96 ----------- -------- -------- -------------- ---------- ---------------- FUND Growth.................. N/A 19.86% 14.77% 11.39% 13.27% 14.42% Core Value.............. N/A 21.16% 17.54% 15.70% 14.27% 15.21% Small Cap Value......... N/A 30.35% 16.47% 17.38% 20.59% 20.85% International Equity.... N/A 18.30% 8.11% 10.69% 10.33% 10.11% Worldwide............... N/A N/A N/A N/A 8.26% 9.24% Bond.................... 7.88% 10.29% 11.77% 14.29% 14.52% 14.32% Global Bond............. 5.92% 15.02% 9.17% 8.50% 10.63% 10.51% U.S. Government Securi- ties................... 6.05% 1.32% 5.33% 8.02% 9.86% 9.86% Municipal Bond.......... 4.57% 3.33% 4.45% 6.80% 7.51% 7.55% Short-Term Bond......... 5.51% 4.68% 5.62% N/A 5.59% 5.60% High Yield.............. 9.34% N/A N/A N/A 1.73% 3.05%
- -------- * Performance (for other than the one-year and three-year periods for the Growth, Core Value, Small Cap Value and Bond Funds, and the one-year period for the International Equity Fund) would have been lower if a portion of the management fee had not been waived by Loomis Sayles. In the absence of this limitation, actual yield and total return would have been as follows: Growth, 11.38%, 13.26% and 14.41% for the five-year period, the period since modified inception and the period since commencement of operations, respectively; Core Value, 15.61%, 14.14% and 15.08% for the five-year period, the period since modified inception and the period since commencement of operations, respectively; Small Cap 35 Value, 17.36%, 20.53% and 20.79% for the five-year period, the period since modified inception and the period since commencement of operations, respectively; International Equity, 8.11%, 10.49%, 10.01% and 9.79% for the three-year period, the five-year period, the period since modified inception and the period since commencement of operations, respectively; Worldwide, 6.45% and 7.43% for the period since modified inception and the period since commencement of operations; Bond, 14.23%, 14.42% and 14.22% for the five-year period, the period since modified inception, and the period since commencement of operations, respectively; Global Bond, 5.65% (yield), and 14.75%, 9.04%, 8.28%, 10.27% and 10.15% for the one-year period, the three-year period, the five-year period, the period since modified inception and the period since commencement of operations, respectively; U.S. Government Securities, 5.86% (yield), and 1.13%, 5.14%, 7.74%, 9.54% and 9.54% for the one-year period, the three-year period, the five-year period, the period since modified inception and the period since commencement of operations, respectively; Municipal Bond, 5.26% (yield), and 2.01%, 3.29%, 4.81%, 4.11% and 4.15% for the one-year period, the three-year period, the five-year period, the period since modifiefd inception and the period since commencement of operations, respectively; Short- Term Bond, 5.34% (yield), and 4.51%, 5.47%, 5.18% and 5.19% for the one-year period, the three-year period, the period since modified inception and the period since commencement of investment operations, respectively; and High Yield, 6.62% (yield), (1.11)% and (.38)% for the period since modified inception and the period since commencement of operations. ** The modified inception date is the nearest month end date following actual commencement of operations. For the Short-Term Bond Fund the modified inception date is August 31, 1992, for the Worldwide Fund--May 31, 1996, for the High Yield Fund--September 30, 1996 and for all other Funds--May 31, 1991. *** Actual Inception Dates: Growth................................................. May 16, 1991 Core Value............................................. May 13, 1991 Small Cap Value........................................ May 13, 1991 International Equity................................... May 10, 1991 Worldwide.............................................. May 1, 1996 Bond................................................... May 16, 1991 Global Bond............................................ May 10, 1991 U.S. Government Securities............................. May 21, 1991 Municipal Bond......................................... May 29, 1991 Short-Term Bond........................................ August 3, 1992 High Yield............................................. September 11, 1996
36 APPENDIX A PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION ABC and affiliates Financial Services Week Adam Smith's Money World Financial World America On Line Fitch Insights Anchorage Daily News Forbes Atlanta Constitution Fort Worth Star-Telegram Atlanta Journal Fortune Arizona Republic Fox Network and affiliates Austin American Statesman Fund Action Baltimore Sun Fund Decoder Bank Investment Marketing Global Finance Barron's (the) Guarantor Bergen County Record (NJ) Hartford Courant Bloomberg Business News Houston Chronicle Bond Buyer INC Boston Business Journal Indianapolis Star Boston Globe Individual Investor Boston Herald Institutional Investor Broker World International Herald Tribune Business Radio Network Internet Business Week Investment Advisor CBS and affiliates Investment Company Institute CDA Investment Technologies Investment Dealers Digest CFO Investment Profiles Changing Times Investment Vision Chicago Sun Times Investor's Daily Chicago Tribune IRA Reporter Christian Science Monitor Journal of Commerce Christian Science Monitor News Service Kansas City Star Cincinnati Enquirer KCMO (Kansas City) Cincinnati Post KOA-AM (Denver) CNBC LA Times CNN Leckey, Andrew (syndicated column) Columbus Dispatch Life Association News CompuServe Lifetime Channel Dallas Morning News Miami Herald Dallas Times-Herald Milwaukee Sentinel Denver Post Money Magazine Des Moines Register Money Maker Detroit Free Press Money Management Letter Donoghues Money Fund Report Morningstar Economist Mutual Fund Market News Dorfman, Dan (syndicated column) Mutual Funds Magazine Dow Jones News Service National Public Radio FACS of the Week National Underwriter Fee Adviser NBC and affiliates Financial News Network New England Business Financial Planning New England Cable News Financial Planning on Wall Street New Orleans Times-Picayune Financial Research Corp. New York Daily News 37 New York Times Smart Money Newark Star Ledger St. Louis Post Dispatch Newsday St. Petersburg Times Newsweek Standard & Poor's Outlook Nightly Business Report Standard & Poor's Stock Guide Orange County Register Stanger's Investment Advisor Orlando Sentinel Stockbroker's Register Palm Beach Post Strategic Insight Pension World Tampa Tribune Pensions and Investments Time Personal Investor Tobias, Andrew (syndicated column) Philadelphia Inquirer Toledo Blade Porter, Sylvia (syndicated column) UP Portland Oregonian US News and World Report Prodigy USA Today Public Broadcasting Service USA TV Network Quinn, Jane Bryant (syndicated column) Value Line Registered Representative Wall Street Journal Research Magazine Wall Street Letter Resource Wall Street Week Reuters Washington Post Rocky Mountain News WBZ Rukeyser's Business (syndicated column) WBZ-TV Sacramento Bee WCVB-TV San Diego Tribune WEEI San Francisco Chronicle WHDH San Francisco Examiner Worcester Telegram San Jose Mercury World Wide Web Seattle Post-Intelligencer Worth Magazine Seattle Times WRKO Securities Industry Management 38 APPENDIX B ADVERTISING AND PROMOTIONAL LITERATURE Loomis Sayles Funds' advertising and promotional material may include, but is not limited to, discussions of the following information: Loomis Sayles Funds' participation in wrap fee and no transaction fee programs Characteristics of Loomis Sayles including the number and locations of its offices, its investment practices and clients Specific and general investment philosophies, strategies, processes and techniques Specific and general sources of information, economic models, forecasts and data services utilized, consulted or considered in the course of providing advisory or other services Industry conferences at which Loomis Sayles participates Current capitalization, levels of profitability and other financial information Identification of portfolio managers, researchers, economists, principals and other staff members and employees The specific credentials of the above individuals, including but not limited to, previous employment, current and past positions, titles and duties performed, industry experience, educational background and degrees, awards and honors Specific identification of, and general reference to, current individual, corporate and institutional clients, including pension and profit sharing plans Current and historical statistics relating to: --total dollar amount of assets managed --Loomis Sayles assets managed in total and by Fund --the growth of assets --asset types managed Individuals who have achieved business, professional or personal success through the "Power of a Passion." These individuals may not necessarily be investors in the Funds, and may not have any other relationship to the Funds or their adviser. In instances where advertisements describe these individuals, their success is not attributable to the Funds or their adviser. In instances where advertisements describe successful business ventures, the Funds or Loomis Sayles may or may not invest in these ventures. References may be included in Loomis Sayles Funds' advertising and promotional literature about 401(k) and retirement plans that offer the Funds. The information may include, but is not limited to: Specific and general references to industry statistics regarding 401(k) and retirement plans including historical information and industry trends and forecasts regarding the growth of assets, numbers or plans, funding vehicles, participants, sponsors and other demographic data relating to plans, participants and sponsors, third party and other administrators, benefits consultants and firms with whom Loomis Sayles may or may not have a relationship. Specific and general reference to comparative ratings, rankings and other forms of evaluation as well as statistics regarding the Fund as 401(k) or retirement plan funding vehicles produced by industry authorities, research organizations and publications. 39 PART C The information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of the Registration Statement. Part C. OTHER INFORMATION -------------------------- Item 24. Financial Statements and Exhibits ------------------------------------------ (a) Financial statements: See "Financial Highlights" contained in the Prospectus. (b) Exhibits: 1. Agreement and Declaration of Trust. 2. By-Laws. 3. Not Applicable. 4. Not Applicable. 5(a). Form of Investment Advisory Agreement. 5(b). Form of Amendment No. 1 to Investment Advisory Agreement for the Growth Fund.(2) 5(c). Form of Amendment No. 1 to Investment Advisory Agreement for the Core Value Fund.(2) 5(d). Form of Amendment No. 1 to Investment Advisory Agreement for the Small Cap Value Fund.(2) 5(e). Form of Amendment No. 1 to Investment Advisory Agreement for the International Equity Fund.(2) 5(f). Form of Amendment No. 1 to Investment Advisory Agreement for the Worldwide Fund.(2) 5(g). Form of Amendment No. 1 to Investment Advisory Agreement for the Global Bond Fund.(2) 5(h). Form of Amendment No. 1 to Investment Advisory Agreement for the U.S. Government Securities Fund.(2) 5(i). Form of Amendment No. 1 to Investment Advisory Agreement for the Municipal Bond Fund.(2) 5(j). Form of Amendment No. 1 to Investment Advisory Agreement for the Short-Term Bond Fund.(2) 5(k). Form of Investment Advisory Agreement for the Small Cap Growth Fund.(2) 5(l). Form of Investment Advisory Agreement for the Investment Grade Bond Fund.(2) 5(m). Form of Investment Advisory Agreement for the Mid-Cap Value Fund.(2) 5(n). Form of Investment Advisory Agreement for the Mid-Cap Growth Fund.(2) 5(o). Form of Investment Advisory Agreement for the Strategic Value Fund.(2) 5(p). Form of Investment Advisory Agreement for the Intermediate Maturity Bond Fund.(2) 6. Form of Distribution Agreement.(2) 7. Not Applicable. 8(a). Form of Custodian Agreement. 8(b). Letter Agreement between relating to the the Registrant and State applicability of the Street Bank and Trust Custodian Agreement to Company Loomis Sayles Short-Term Bond Fund. (3) 8(c). Letter Agreement between relating to the the Registrant and State applicability of the Street Bank and Trust Custodian Agreement to Company Loomis Sayles High Yield Fund. (3) 8(d). Letter Agreement between the Registrant and State Street Bank and Trust Company relating to the applicability of the Custodian Agreement to Loomis Sayles Intermediate Maturity Bond Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid- Cap Value Fund, Loomis Sayles Small Cap Growth Fund and Loomis Sayles Strategic Value Fund. (3) 8(e). Form of Letter Agreement between the Registrant and State Street Bank and Trust Company relating to the applicability of the Custodian Agreement to Loomis Sayles Worldwide Fund. (3) 9(a). Form of Shareholder's Servicing and Transfer Agent Agreement. 9(b). Letter Agreement between the Registrant and State Street Bank and Trust Company relating to the applicability of the Transfer Agency and Service Agreement to Loomis Sayles Short-Term Bond Fund. (3) 9(c). Letter Agreement between the Registrant and State Street Bank and Trust Company relating to the applicability of the Transfer Agency and Service Agreement to Loomis Sayles High Yield Fund and Loomis Sayles Worldwide Fund. (3) 9(d). Letter Agreement between the Registrant and State Street Bank and Trust Company relating to the applicability of the Transfer Agency and Service Agreement to Loomis Sayles Intermediate Maturity Bond Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis Sayles Small Cap Growth Fund and Loomis Sayles Strategic Value Fund. (3) 10. Opinion and Consent of Counsel.(2) 11. Consent of Coopers & Lybrand L.L.P. 12. Not Applicable. 13(a). Investment Representation Regarding Initial Shares. 13(b). Form of Organizational Expense Reimbursement Agreement. 14. Form of IRA prototype documents. 15. Form of Distribution Plan - Retail Class.(2) 15(a). Form of Distribution Plan - Admin Class. 16. Schedule for Performance Computations.(2) 17(a). Financial Data Schedule for Institutional Class Fund. shares of Loomis Sayles Small Cap Value Fund. 17(b). Financial Data Schedule for Institutional Class shares of Loomis Sayles Bond Fund. 17(c). Financial Data Schedule for Institutional Class shares of Loomis Sayles High Yield Fund. 18. Amended and Restated Rule 18f-3(d) Plan. 19. Powers of Attorney.(1) - -------------------- (1) Incorporated by reference to the similarly numbered Exhibit to Post- Effective 16, 1996. (2) Incorporated by reference to the similarly numbered Exhibit to Post- Effective Amendment No. 11 to this Registration Statement filed with the Commission on October 9, 1996. Item 25. Persons Controlled by or under Common Control with Registrant ------------------------------------------------------------- Not Applicable. Item 26. Number of Holders of Securities -------------------------------
Fund Number of Record Holders (as of October 15, 1997) ---- ------------------------------------------------- Institutional Class Retail Class ------------------- ------------ Bond Fund 16,498 1,097 Core Value Fund 614 47 Global Bond Fund 266 268 Growth Fund 490 22 High Yield Fund 101 67 Intermediate Maturity Bond Fund 19 8 International Equity Fund 692 16 Investment Grade Bond Fund 20 20 Mid-Cap Growth Fund 20 11 Mid-Cap Value Fund 49 11 Municipal Bond Fund 97 N/A Short-Term Bond Fund 192 15 Small Cap Growth Fund 40 22 Small Cap Value Fund 2,112 344 Strategic Value Fund 20 10 U.S. Government Securities Fund 135 N/A Worldwide Fund 38 8
Item 27. Indemnification --------------- Incorporated by reference to Item 27 of Post-Effective Amendment No. 1 to this Registration Statement filed on November 7, 1991. Item 28. Business and Other Connections of Investment Adviser ---------------------------------------------------- (a) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the adviser of the Registrant, provides investment advice to the eight series of Loomis Sayles Investment Trust, seven series of New England Funds Trust I, two series of New England Funds Trust III, and three series of New England Zenith Funds, all of which are registered investment companies, and to other organizations and individuals. The sole general partner of Loomis Sayles is Loomis, Sayles & Company, Incorporated, One Financial Center, Boston, Massachusetts 02111. Item 29. Principal Underwriters ---------------------- The Trust's principal underwriter is Loomis Sayles Distributors, L.P., the sole general partner of which is Loomis Sayles Distributors, Incorporated. Item 30. Location of Accounts and Records -------------------------------- The following companies maintain possession of the documents required by the specified rules: (a) Registrant Rule 31a-1(b)(4), (9), (10), (11) Rule 31a-2(a) (b) State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 Rule 31a-1(a) Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8) Rule 31a-2(a) (c) Loomis, Sayles & Company, L.P. One Financial Center Boston, MA 02111 Rule 31a-1(f) Rule 31a-2(e) (d) Loomis, Sayles Distributors, L.P. One Financial Center Boston, MA 02111 Rule 31a-1(d) Rule 31a-2(c) Item 31. Management Services ------------------- Not applicable. Item 32. Undertakings ------------ (i) The Registrant undertakes to comply with Section 16(c) of the Investment Company Act of 1940 as though such provisions of the Act were applicable to the Registrant. (ii) The Registrant undertakes to furnish each person to whom a prospectus is delivered a copy of Registrant's most recent annual report upon request and without charge. ******************** NOTICE A copy of the Agreement and Declaration of Trust of Loomis Sayles Funds (the "Trust") is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this Registration Statement has been executed on behalf of the Trust by an officer of the Trust as an officer and by its Trustees as trustees and not individually and the obligations of or arising out of this Registration Statement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trust. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, in The Commonwealth of Massachusetts on the 31st day of October, 1997. LOOMIS SAYLES FUNDS By: DANIEL J. FUSS* - ----------------------------- Daniel J. Fuss, President Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this amendment to the Registration Statement of Loomis Sayles Funds has been signed below by the following persons in the capacities and on the date indicated. Signature Title - --------- ----- DANIEL J. FUSS* President and Trustee - ------------------------------- Daniel J. Fuss MARK W. HOLLAND* Treasurer - ------------------------ Mark W. Holland EARL W. FOELL* Trustee - ----------------------------- Earl W. Foell RICHARD S. HOLWAY* Trustee - ------------------------ Richard S. Holway MICHAEL T. MURRAY* Trustee - ------------------------ Michael T. Murray TERRY R. LAUTENBACH* Trustee - ------------------------- Terry R. Lautenbach *By /s/MARK W. HOLLAND - ----------------------------------- Mark W. Holland, for himself and as Attorney-in-fact October 31, 1997 EXHIBIT INDEX EXHIBIT NO. ------------- 1. Agreement and Declaration of Trust. 2. By-Laws. 5(a). Form of Investment Advisory Agreement. 8(a). Form of Custodian Agreement. 9(a). Form of Shareholder's Servicing and Transfer Agent Agreement. 11. Consent of Coopers & Lybrand L.L.P. 13(a). Investment Representation Regarding Initial Shares. 13(b) Form of Organizational Expense Reimbursement Agreement. 14. IRA prototype documents. 15(a). Form of Distribution Plan - Admin Class. 17(a). Financial Data Schedule for Institutional Class shares of Loomis Sayles Small Cap Value Fund. 17(b). Financial Data Schedule for Institutional Class shares of Loomis Sayles Bond Fund. 17(c). Financial Data Schedule for Institutional Class shares of Loomis Sayles High Yield Fund. 18. Amended and Restated Rule 18f-3(d) Plan. EX-99.1 2 AGREEMENT & DECLARATION OF TRUST Exhibit 1 LOOMIS SAYLES FUNDS AGREEMENT AND DECLARATION OF TRUST AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this 20th day of February, 1991 by the Trustees hereunder and by the holders of shares of beneficial interest to be issued hereunder as hereinafter provided. WITNESSETH that WHEREAS, this Trust has been formed to carry on the business of an investment company; and WHEREAS, the Trustees have agreed to manage all property coming into their hands as trustees of a Massachusetts voluntary association with transferable shares in accordance with the provisions hereinafter set forth; NOW, THEREFORE, the Trustees hereby declare that they will hold all cash, securities and other assets, which they may from time to time acquire in any manner as Trustees hereunder, IN TRUST to manage and dispose of the same upon the following terms and conditions for the benefit of the holders from time to time of Shares in this Trust as hereinafter set forth. ARTICLE I Name and Definitions Name Section 1. This Trust shall be known as "Loomis Sayles Funds", and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine. Definitions Section 2. Whenever used herein, unless otherwise required by the context or specifically provided: (a) "Trust" refers to the Massachusetts business trust established by this Agreement and Declaration of Trust, as amended from time to time; (b) "Trustees" refers to the Trustees of the Trust named herein or elected in accordance with Article IV hereof; (c) "Shares" means the equal proportionate transferable units of interest into which the beneficial interest in the Trust shall be divided from time to time or, if more than one series or class of Shares is authorized by the Trustees, the equal proportionate transferable units into which each series or class of Shares shall be divided from time to time; (d) "Shareholder" means a record owner of Shares; (e) "1940 Act" refers to the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time; (f) The terms "Affiliated Person", "Assignment", "Commission", "Interested Person", "Principal Underwriter" and "Majority Shareholder Vote" (the sixty-seven percent (67%) or fifty percent (50%) requirement of the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable) shall have the meanings given them in the 1940 Act; (g) "Declaration of Trust" shall mean this Agreement and Declaration of Trust as amended or restated from time to time; (h) "By-Laws" shall mean the By-Laws of the Trust as amended from time to time; (i) "Series" or "Series of Shares" refers to the one or more separate investment portfolios of the Trust into which the assets and liabilities of the Trust may be divided and the Shares of the Trust representing the beneficial interest of Shareholders in such respective portfolios; and (j) "Class" or "Class of Shares" refers to the division of Shares representing any Series into two or more Classes as provided in Article III, Section 1 hereof. ARTICLE II Purpose of Trust The purpose of the Trust is to provide investors a managed investment primarily in securities, debt instruments and other instruments and rights of a financial character and to carry on such other business as the Trustees may from time to time determine pursuant to their authority under this Declaration of Trust. ARTICLE III Shares Division of Beneficial Interest Section 1. The Shares of the Trust shall be issued in one or more Series as the Trustees may, without shareholder approval, authorize. Each Series shall be preferred over all other Series in respect of the assets specifically allocated to that Series within the meaning of the 1940 Act and shall represent a separate investment portfolio of the Trust. The beneficial interest in each Series shall at all times be divided into Shares, without par value, each of which shall, except as provided in the following sentence, represent an equal proportionate interest in the Series with each other Share of the same Series, none having priority or preference over another. The Trustees may, without Shareholder approval, divide the Shares of any Series into two or more Classes, Shares of each such Class having such preferences and special or relative rights and privileges (including conversion rights, if any) as the Trustees may determine or as shall be set forth in the By-Laws. The number of Shares authorized shall be unlimited. The Trustees may from time to time divide or combine the Shares of any Series or Class into a greater or lesser number without thereby changing the proportionate beneficial interest in the Series or Class. Ownership of Shares Section 2. The ownership of Shares shall be recorded on the books of the Trust or a transfer or similar agent. No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of Share certificates, the transfer of Shares and similar matters. The record books of the -2- Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to who are the Shareholders of each Series and Class and as to the number of Shares of each Series and Class held from time to time by each Shareholder. Investment in the Trust Section 3. The Trustees shall accept investments in the Trust from such persons and on such terms and for such consideration, which may consist of cash or tangible or intangible property or a combination thereof, as they or the By-Laws from time to time authorize. All consideration received by the Trust for the issue or sale of Shares of each Series, together with all income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the Series of Shares with respect to which the same were received by the Trust for all purposes, subject only to the rights of creditors, and shall be so handled upon the books of account of the Trust and are herein referred to as "assets of" such Series. No Preemptive Rights Section 4. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust. Status of Shares and Limitation of Personal Liability Section 5. Shares shall be deemed to be personal property giving only the rights provided in this Declaration of Trust or the By-Laws. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms of this Declaration of Trust and the By-Laws and to have become a party hereto. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but such representative shall be entitled only to the rights of said decedent under this Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust, shall have any power to bind personally any Shareholder, nor except as specifically provided in this Declaration of Trust to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. ARTICLE IV The Trustees Election, Tenure and Removal Section 1. The initial Trustee shall be Charles J. Finlayson. The Trustees may fix the number of Trustees, fill vacancies in the Trustees, including vacancies arising from an increase in the number of Trustees, or remove Trustees with or without cause. Each Trustee shall serve during the continued lifetime of the Trust until he or she dies, resigns or is removed, or, if sooner, until the next meeting of Shareholders called for the purpose of electing Trustees and until the election and qualification of his or her successor. Any Trustee may resign at any time by written instrument signed by him or her and delivered to any officer of the Trust or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Except to the extent expressly provided in a written -3- agreement with the Trust, no Trustee resigning and no Trustee 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. The Shareholders may fix the number of Trustees and elect Trustees at any meeting of Shareholders called by the Trustees for that purpose and to the extent required by applicable law, including paragraphs (a) and (b) of Section 16 of the 1940 Act. No natural person shall serve as Trustee after the holders of record of not less than two-thirds of the outstanding Shares have declared that such Trustee be removed from that office either by declaration in writing filed with the Trust's custodian or by votes cast in person or by proxy at a meeting called for the purpose. The Trustees shall promptly call a meeting of Shareholders for the purpose of voting upon the question of removal of any Trustee when requested to do so in writing by the record holders of not less than ten percent (10%) of the outstanding Shares. Whenever ten or more Shareholders of record, who have been such for at least six months preceding the date of application and who hold Shares in the aggregate having a net asset value of at least one percent (1%) of the outstanding Shares, shall apply to the Trustees in writing, stating that they wish to communicate with other Shareholders with a view to obtaining signatures to request a meeting pursuant to this Section and accompanied by a form of communication and request which they wish to transmit, the Trustees shall within five business days after receipt of such application either (a) afford to such applicants access to a list of the names and addresses of all Shareholders as recorded on the books of the Trust; or (b) inform such applicants as to the approximate cost of mailing to all Shareholders the proposed communication and form of request. If the Trustees elect to follow the course specified in clause (b), the Trustees, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all Shareholders of record at their addresses as recorded on the books of the Trust, unless within five business days after such tender the Trustees shall mail to such applicants and file with the Commission, together with a copy of the material proposed to be mailed, a written statement signed by at least a majority of the Trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. If the Commission shall enter an order refusing to sustain any of the objections specified in the written statement so filed, or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Trustees shall mail copies of such material to all Shareholders with reasonable promptness after the entry of such order and the renewal of such tender. Effect of Death, Resignation, etc. of a Trustee Section 2. The death, declination, resignation, retirement, removal or incapacity of the Trustees, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. Powers Section 3. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Trustees, and they shall have all powers necessary or convenient to carry out that responsibility. Without limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with this Declaration of Trust providing for the conduct of the business of the Trust and may amend and repeal them to the extent that such By-Laws do not reserve that right to the Shareholders; they may fill vacancies, including vacancies caused by enlargement of their number, and may remove Trustees with or without cause; they may elect and remove, with or without cause, such officers and appoint and terminate such agents as they consider appropriate; they may appoint from their own number, and terminate, any one or -4- more committees consisting of two or more Trustees, including an executive committee which may, when the Trustees are not in session, exercise some or all of the power and authority of the Trustees as the Trustees may determine; they may employ one or more custodians of the assets of the Trust and may authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities, retain a transfer agent or a Shareholder servicing agent, or both, provide for the distribution of Shares by the Trust, through one or more principal underwriters or otherwise, set record dates for the determination of Shareholders with respect to various matters, and in general delegate such authority as they consider desirable to any officer of the Trust, to any committee of the Trustees and to any agent or employee of the Trust or to any such custodian or underwriter. Without limiting the foregoing, the Trustees shall have power and authority: (a) To invest and reinvest cash, and to hold cash uninvested; (b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust; (c) To act as a distributor of shares and as underwriter of, or broker or dealer in, securities and other property; (d) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (e) To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities; (f) To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in the name of the Trustees or of the Trust or in the name of a custodian, subcustodian or other depositary or a nominee or nominees or otherwise; (g) To allocate assets, liabilities, income and expenses of the Trust to a particular Series of Shares or to apportion the same among two or more Series, provided that any liabilities or expenses incurred by a particular Series of Shares shall be payable solely out of the assets of that Series; and, to the extent necessary or appropriate to give effect to the preferences and special or relative rights and privileges of any Classes of Shares, to allocate assets, liabilities, income and expenses of a Series to a particular Class of Shares of that Series or to apportion the same among two or more Classes of Shares of that Series; (h) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer, any security of which is or was held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer, and to pay calls or subscriptions with respect to any security held in the Trust; (i) To join other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such -5- power and authority with relation to any security (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper; (j) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any matter in controversy, including but not limited to claims for taxes; (k) To enter into joint ventures, general or limited partnerships and any other combinations or associations; (l) To borrow funds; (m) To endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust property or any part thereof to secure any of or all such obligations; (n) To purchase and pay for entirely out of Trust property such insurance as they may deem necessary or appropriate for the conduct of the Trust's business, including, without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisers or managers, principal underwriters or independent contractors of the Trust individually against all claims and liabilities of every nature arising by reason of holding or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person as Shareholder, Trustee, officer, employee, agent, investment adviser or manager, principal underwriter or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability; (o) To pay pensions for faithful service, as deemed appropriate by the Trustees, and to adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust; and (p) To engage in any other lawful act or activity in which corporations organized under the Massachusetts Business Corporation Act may engage. The Trustees shall not in any way be bound or limited by any present or future law or custom in regard to investments by trustees. Except as otherwise provided herein or from time to time in the By-Laws, any action to be taken by the Trustees may be taken (A) by a majority of the Trustees present at a meeting of the Trustees (a quorum being present), within or without Massachusetts, including any meeting held by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time (participation by which means shall for all purposes constitute presence in person at a meeting), or (B) by written consents of a majority of the Trustees then in office (which written consents shall be filed with the records of the meetings of the Trustees and shall be treated for all purposes as a vote taken at a meeting of Trustees). -6- Payment of Expenses by Trust and by Shareholders Section 4. The Trustees are authorized to pay or to cause to be paid out of the principal or income of the Trust, or partly out of principal and partly out of income, as they deem fair, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, in connection with the management thereof, or in connection with the financing of the sale of Shares, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, any investment adviser, manager or sub-adviser, principal underwriter, auditor, counsel, custodian, transfer agent, shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur, provided, however, that all expenses, fees, charges, taxes and liabilities incurred by or arising in connection with a particular Series of Shares, as determined by the Trustees, shall be payable solely out of the assets of that Series and may, as the Trustees from time to time may determine, be allocated to a particular Class of Shares of a Series or apportioned among two or more Classes of Shares of a Series. The Trustees shall have the power, as frequently as they may determine, to cause each Shareholder, or each Shareholder of any particular Series or Class, to pay directly, in advance or arrears, for charges of the Trust's custodian or transfer, shareholder servicing or similar agent, an amount fixed from time to time by the Trustees, by setting off such charges due from such Shareholder from declared but unpaid dividends owed such Shareholder and/or by reducing the number of Shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding amount of such charges due from such Shareholder. Ownership of Assets of the Trust Section 5. Title to all of the assets of each Series of Shares and of the Trust shall at all times be considered as vested in the Trustees. Advisory, Management and Distribution Section 6. The Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory and/or management services with any corporation, trust, association or other organization (the "Manager"), every such contract to comply with such requirements and restrictions as may be set forth in the By-Laws; and any such contract may provide for one or more sub- advisers who shall perform all or part of the obligations of the Manager under such contract and may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine, including, without limitation, authority to determine from time to time what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments. The Trustees may also, at any time and from time to time, contract with the Manager or any other corporation, trust, association or other organization, appointing it exclusive or nonexclusive distributor or principal underwriter for the Shares, every such contract to comply with such requirements and restrictions as may be set forth in the By-Laws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine. The fact that: (i) any of the Shareholders, Trustees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, principal underwriter or distributor or agent of or for any corporation, trust, association or other organization, or of or for any parent or affiliate of any organization, with which an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder -7- servicing or other agency contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a Shareholder or has an interest in the Trust, or that (ii) any corporation, trust, association or other organization with which an advisory or management contract or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other agency contract may have been or may hereafter be made also has an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other agency contract with one or more other corporations, trusts, associations or other organizations, or has other business or interests shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same or create any liability or accountability to the Trust or its Shareholders. ARTICLE V Shareholders' Voting Powers and Meetings Voting Powers Section 1. The Shareholders shall have power to vote only (i) for the election of Trustees as provided in Article IV, Section 1 of this Declaration of Trust, provided, however, that no meeting of Shareholders is required to be -------- ------- called for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees have been elected by the Shareholders, (ii) with respect to any Manager or Sub-Adviser as provided in Article IV, Section 6 of this Declaration of Trust to the extent required by the 1940 Act, (iii) with respect to any termination of this Trust to the extent and as provided in Article IX, Section 4 of this Declaration of Trust, (iv) with respect to any amendment of this Declaration of Trust to the extent and as provided in Article IX, Section 7 of this Declaration of Trust, (v) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust or the Shareholders, and (vi) with respect to such additional matters relating to the Trust as may be required by law, this Declaration of Trust, the By-Laws or any registration of the Trust with the Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional Share shall be entitled to a proportionate fractional vote. On any matter submitted to a vote of Shareholders all Shares of the Trust then entitled to vote shall be voted by individual Series, except (i) when required by the 1940 Act, Shares shall be voted in the aggregate and not by individual Series and (ii) when the Trustees have determined that the matter affects only the interests of one or more Series or Classes, then only Shareholders of such Series or Classes shall be entitled to vote thereon. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action permitted or required of the Shareholders by law, this Declaration of Trust or the By-Laws. -8- Meetings Section 2. Meetings of the Shareholders may be called by the Trustees for the purpose of electing Trustees as provided in Article IV, Section 1 of this Declaration of Trust and for such other purposes as may be prescribed by law, by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may also be called by the Trustees from time to time for the purpose of taking action upon any other matter deemed by the Trustees to be necessary or desirable. A meeting of Shareholders may be held at any place designated by the Trustees. Written notice of any meeting of Shareholders shall be given or caused to be given by the Trustees by mailing such notice at least seven days before such meeting, postage prepaid, stating the time and place of the meeting, to each Shareholder entitled to vote at such meeting at the Shareholder's address as it appears on the records of the Trust. Whenever notice of a meeting is required to be given to a Shareholder under this Declaration of Trust or the By-Laws, a written waiver thereof, executed before or after the meeting by such Shareholder or his or her attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. Quorum and Required Vote Section 3. Forty percent (40%) of the Shares entitled to vote shall be a quorum for the transaction of business at a Shareholders' meeting, except that where any provision of law or of this Declaration of Trust or the By-Laws permits or requires that holders of any Series or Class shall vote as a Series or Class, then forty percent (40%) of the aggregate number of Shares of that Series or Class entitled to vote shall be necessary to constitute a quorum for the transaction of business by that Series or Class. Any lesser number shall be sufficient for adjournments. Any adjourned session or sessions may be held, within a reasonable time after the date set for the original meeting, without the necessity of further notice. Except when a larger vote is required by any provision of law or this Declaration of Trust or the By-Laws, a majority of the Shares voted shall decide any questions and a plurality shall elect a Trustee, provided that where any provision of law or of this Declaration of Trust or the By-Laws permits or requires that the holders of any Series or Class shall vote as a Series or Class, then a majority of the Shares of that Series or Class voted on the matter (or a plurality with respect to the election of a Trustee) shall decide that matter insofar as that Series or Class is concerned. Action by Written Consent Section 4. Any action taken by Shareholders may be taken without a meeting if a majority of Shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by any express provision of law or this Declaration of Trust or the By-Laws) consent to the action in writing and such written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. Additional Provisions Section 5. The By-Laws may include further provisions for Shareholders' votes and meetings and related matters. ARTICLE VI Distributions, Redemptions and Repurchases Distributions Section 1. The Trustees may each year, or more frequently if they so determine, distribute to the Shareholders of each Series out of the assets of such Series such amounts as the Trustees may determine. -9- Any such distribution to the Shareholders of a particular Series shall be made to said Shareholders pro rata in proportion to the number of Shares of such Series held by each of them, except to the extent otherwise required or permitted by the preferences and special or relative rights and privileges of any Classes of Shares of that Series, and any distribution to the Shareholders of a particular Class of Shares shall be made to such Shareholders pro rata in proportion to the number of Shares of such Class held by each of them. Such distributions shall be made in cash, Shares or other property, or a combination thereof, as determined by the Trustees. Any such distribution paid in Shares will be paid at the net asset value thereof as determined in accordance with the By-Laws. Redemptions and Repurchases Section 2. The Trust shall purchase such Shares as are offered by any Shareholder for redemption, upon the presentation of any certificate for the Shares to be purchased, a proper instrument of transfer and a request directed to the Trust or a person designated by the Trust that the Trust purchase such Shares, or in accordance with such other procedures for redemption as the Trustees may from time to time authorize; and the Trust will pay therefor the net asset value thereof, as next determined in accordance with the By-Laws, less any redemption charge or fee as the Trustees may from time to time authorize. Payment for said Shares shall be made by the Trust to the Shareholder within seven days after the date on which the request is made. The obligation set forth in this Section 2 is subject to the provision that in the event that any time the New York Stock Exchange is closed for other than customary weekends or holidays, or, if permitted by rules of the Commission, during periods when trading on the Exchange is restricted or during any emergency which makes it impractical for the Trust to dispose of its investments or to determine fairly the value of its net assets, or during any other period permitted by order or other action of the Commission for the protection of investors, such obligation may be suspended or postponed by the Trustees. The Trust may also purchase or repurchase Shares at a price not exceeding the net asset value of such Shares in effect when the purchase or repurchase or any contract to purchase or repurchase is made. Redemption at the Option of the Trust Section 3. The Trust shall have the right at its option and at any time to redeem Shares of any Shareholder at the net asset value thereof as determined in accordance with the By-Laws: (i) if at such time such Shareholder owns fewer Shares than, or Shares having an aggregate net asset value of less than, an amount determined from time to time by the Trustees; or (ii) to the extent that such Shareholder owns Shares of a particular Series or Class of Shares equal to or in excess of a percentage of the outstanding Shares of that Series or Class determined from time to time by the Trustees; or (iii) to the extent that such Shareholder owns Shares of the Trust representing a percentage equal to or in excess of such percentage of the aggregate number of outstanding Shares of the Trust or the aggregate net asset value of the Trust determined from time to time by the Trustees. ARTICLE VII Compensation and Limitation of Liability of Trustees Compensation Section 1. The Trustees as such shall be entitled to reasonable compensation from the Trust; they may fix the amount of their compensation. Nothing herein shall in any way prevent the employment of any Trustee for advisory, management, legal, accounting, investment banking, underwriting, brokerage or other services and payment for the same by the Trust. Limitation of Liability -10- Section 2. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, manager or principal underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, but nothing herein contained shall protect any Trustee against any liability 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. Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been executed or done only in or with respect to their or his or her capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon. ARTICLE VIII Indemnification Trustees, Officers, etc. Section 1. The By-Laws may include provisions whereby the Trust may provide indemnity to its Trustees and officers, including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise (each such Trustee, officer or person hereinafter referred to as a "Covered Person"), against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such Covered Person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Covered Person. Any indemnity provided to Covered Persons by the By-Laws may, if the By-Laws so provide, be in addition to any other indemnity to which such persons may be entitled by law, contract or otherwise. ARTICLE IX Miscellaneous Trustees, Shareholders etc. Not Personally Liable; Notice Section 1. All persons extending credit to, contracting with or having any claim against the Trust or a particular Series of Shares shall look only to the assets of the Trust or the assets of that particular Series of Shares for payment under such credit, contract or claim, and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect any Trustee against any liability to which such 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 the office of Trustee. Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officer or officers shall give notice that this Declaration of Trust is on file with the Secretary of State of The Commonwealth of Massachusetts and shall recite that the same was executed or made by or on behalf of the Trust or by them as Trustee or Trustees or as officer or officers and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only upon the assets and property of the Trust, and may contain such further recital as he or she or they may deem appropriate, but the omission thereof shall not operate to bind any Trustee or Trustees or officer or officers or Shareholder or Shareholders individually. -11- Shareholders Section 2. In case any Shareholder or former Shareholder shall be held to be personally liable solely by reason of his or her being or having been a Shareholder and not because of his or her acts or omissions or for some other reason, the Shareholder or former Shareholder (or his or her heirs, executors, administrators or other legal representative or, in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified against all loss and expense arising from such liability, but only out of the assets of the particular Series of Shares of which he or she is or was a Shareholder. Trustee's Good Faith Action, Expert Advice, No Bond or Surety Section 3. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable for his or her own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing else, and shall not be liable for the errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees as such shall not be required to give any bond, nor any surety if a bond is required. Liability of Third Persons Dealing with Trustees Section 4. No person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order. Duration and Termination of Trust Section 5. Unless terminated as provided herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by vote of Shareholders holding at least sixty-six and two-thirds percent (66 2/3%) of the Shares entitled to vote, or by the Trustees by written notice to the Shareholders. Any Series or Class of Shares may be terminated at any time by vote of Shareholders holding at least sixty-six and two-thirds percent (66 2/3%) of the Shares of such Series or Class entitled to vote, or by the Trustees by written notice to the Shareholders of such Series or Class. Upon termination of the Trust or of any one or more Series or Classes of Shares, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Trust or of the particular Series or Class as may be determined by the Trustees, the Trust shall in accordance with such procedures as the Trustees consider appropriate reduce the remaining assets to distributable form in cash or shares or other property, or any combination thereof, and distribute the proceeds to the Shareholders of the Series involved, ratably according to the number of Shares of such Series held by the several Shareholders of such Series on the date of termination, except to the extent otherwise required or permitted by the preferences and special or relative rights and privileges of any Classes of Shares of that Series, provided that any distribution to the Shareholders of a particular Class of Shares shall be made to such Shareholders pro rata in proportion to the number of Shares of such Class held by each of them. Filing and Copies, References, Headings Section 6. The original or a copy of this instrument and of each amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. A copy of this instrument and of each amendment hereto shall be filed by the Trust with the Secretary of State of The Commonwealth of Massachusetts and with the Boston City Clerk, as well as any other governmental office where such filing -12- may from time to time be required. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such amendments have been made and as to any matters in connection with the Trust hereunder, and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such amendments. In this instrument and in any such amendment, references to this instrument and all expressions like "herein", "hereof" and "hereunder" shall be deemed to refer to this instrument as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. This instrument may be executed in any number of counterparts each of which shall be deemed an original. Applicable Law Section 7. This Declaration of Trust is made in The Commonwealth of Massachusetts, and it is created under and is to be governed by and construed and administered according to the laws of said Commonwealth. The Trust shall be of the type commonly called a Massachusetts business trust and, without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust. Amendments Section 8. This Declaration of Trust may be amended at any time by an instrument in writing signed by a majority of the then Trustees when authorized to do so by vote of Shareholders holding a majority of the Shares entitled to vote, except that an amendment which in the determination of the Trustees shall affect the holders of one or more Series or Classes of Shares but not the holders of all outstanding Series and Classes shall be authorized by vote of the Shareholders holding a majority of the Shares entitled to vote of each Series and Class affected and no vote of Shareholders of a Series or Class not affected shall be required. Amendments having the purpose of changing the name of the Trust, of establishing, changing or eliminating the par value of any Shares or of supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained herein shall not require authorization by vote of any Shareholders. -13- IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal in the City of Boston, Massachusetts for himself and his assigns, as of the day and year first above written. /s/ Charles J. Finlayson ------------------------------------ Charles J. Finlayson THE COMMONWEALTH OF MASSACHUSETTS Suffolk, ss. Boston, February 20, 1991 Then personally appeared the above named Charles J. Finlayson and acknowledged the foregoing instrument to be his free act and deed, before me, /s/ Joan D. Searfoss -------------------------------- Notary Public My Commission Expires: January 29, 1993 -14- EX-99.2 3 BY-LAWS Exhibit 2 BY-LAWS OF LOOMIS SAYLES FUNDS ARTICLE 1 Agreement and Declaration of Trust and Principal Office 1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the ---------------------------------- Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of Loomis Sayles Funds (the "Trust"), the Massachusetts business trust established by the Declaration of Trust. 1.2 Principal Office of the Trust. The principal office of the Trust shall be ----------------------------- located in Boston, Massachusetts. ARTICLE 2 Meetings of Trustees 2.1 Regular Meetings. Regular meetings of the Trustees may be held without ---------------- call or notice at such places and at such times as the Trustees may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. 2.2 Special Meetings. Special meetings of the Trustees may be held, at any ---------------- time and at any place designated in the call of the meeting, when called by the Chairman of the Board, if any, the President or the Treasurer or by two or more Trustees, sufficient notice thereof being given to each Trustee by the Clerk or an Assistant Clerk or by the officer or the Trustees calling the meeting. 2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to ------ send notice by mail at least forty-eight hours or by telegram at least twenty- four hours before the meeting addressed to the Trustee at his or her usual or last known business or residence address or to give notice to him or her in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given (a) to any Trustee if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting; or (b) to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in ------ office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. ARTICLE 3 Officers 3.1 Enumeration; Qualification. The officers of the Trust shall be a -------------------------- President, a Treasurer, 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 may appoint from time to time in their discretion. If a Chairman of the Board is elected, he or she shall be a Trustee and may but need not be a shareholder; and 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 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 in the Declaration of Trust set forth, 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 Chairman of the Board, the President or such other officer as is designated by the Trustees and shall, subject to the control of the Trustees, have general charge and supervision of the business of the Trust and, except as the Trustees shall otherwise determine, preside at all meetings of the shareholders and of the Trustees. If no such designation is made, the President shall be the Chief Executive Officer. -2- 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 powers as may be determined by the Trustees. 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 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 Clerk. The 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 Clerk from any meeting of the Shareholders or Trustees, an assistant Clerk or, if there be none or if he or she is absent, a temporary clerk chosen at such meeting shall record the proceedings thereof in the aforesaid books. 3.9 Resignations and Removals. Any officer may resign at any time by written ------------------------- instrument signed by him or her and delivered to the President or the Clerk 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. ARTICLE 4 Indemnification 4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees ----------------------- and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (each such Trustee, officer or person hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of any alleged act or omission as a Trustee or officer or by reason of his or her being or having been such a Trustee or officer, except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best -3- interest of the Trust, and except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders to which such Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees so incurred by any such Covered Person, may be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding on the condition that the amounts so paid shall be repaid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article. 4.2 Compromise Payment. As to any matter disposed of by a compromise payment ------------------ by any such Covered Person referred to in Section 4.1 above, pursuant to a consent decree or otherwise, no such indemnification either for said payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of the Trust, after notice that it involved such indemnification, (a) by a disinterested majority of the Trustees then in office; or (b) by a majority of the disinterested Trustees then in office; or (c) by any disinterested person or persons to whom the question may be referred by the Trustees; or (d) by vote of Shareholders holding a majority of the Shares entitled to vote thereon, exclusive of any Shares beneficially owned by any interested Covered Person; provided, however, that such indemnification would not protect such person against any liability to the Trust or its Shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of office. Approval by the Trustees pursuant to clause (a) or (b) or by any disinterested person or persons pursuant to clause (c) of this Section shall not prevent the recovery from any Covered Person of any amount paid as indemnification to such Covered Person in accordance with any of such clauses if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or to have been liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. 4.3 Indemnification Not Exclusive. The right of indemnification hereby ----------------------------- provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article 4, the term "Covered Person" shall include such person's heirs, executors and administrators; an "interested Covered Person" is one against whom the action, suit or other proceeding in question or another action, suit or other proceeding on the same or similar grounds is then or has been pending; and a "disinterested Trustee" or "disinterested person" is a Trustee or a person against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this Article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees and officers, and other persons may be entitled by contract or -4- otherwise under law, or the power of the Trust to purchase and maintain liability insurance on behalf of any such person. ARTICLE 5 Reports 5.1 General. The Trustees and officers shall render reports at the time and in ------- the manner required by the Declaration of Trust or any applicable law. Officers shall render such additional reports as they may deem desirable or from time to time as may be required by the Trustees. ARTICLE 6 Fiscal Year 6.1 General. Except as otherwise provided from time to time by the Trustees, ------- the fiscal year of the Trust shall end on December 31 in each year. ARTICLE 7 Seal 7.1 General. The seal of the Trust shall consist of a flat-faced die with the ------- word "Massachusetts", together with the name of the Trust and the year of its organization cut or engraved thereon. Unless otherwise required by the Trustees, it shall not be necessary to place the seal on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. ARTICLE 8 Execution of Papers 8.1 General. Except as the Trustees, generally or in particular cases, may ------- have authorized the execution thereof in some other manner, all checks, notes, drafts and other obligations and all registration statements and amendments thereto and all applications and amendments thereto to the Securities and Exchange Commission shall be signed by any of the President, any Vice-President, the Treasurer or any of such other officers or agents as shall be designated for that purpose by a vote of the Trustees. ARTICLE 9 Issuance of Share Certificates 9.1 Share Certificates. In lieu of issuing certificates for shares, the ------------------ Trustees or the transfer agent may either issue receipts therefor or may keep accounts upon the books of the Trust for the record holders of such shares, who shall in either case be deemed, for all purposes -5- hereunder, to be the holders of certificates for such shares as if they had accepted such certificates and shall be held to have expressly assented and agreed to the terms of this Article 9. The Trustees may at any time authorize the issuance of share certificates. In that event, each shareholder shall be entitled to a certificate stating the number of shares owned by him or her, in such form as shall be prescribed from time to time by the Trustees. Such certificates shall be signed by the President or any Vice-President and by the Treasurer or any Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent, or by a registrar, other than a Trustee, officer or employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall cease to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he or she were such officer at the time of its issue. 9.2 Loss of Certificates. In case of the alleged loss or destruction or the -------------------- mutilation of a share certificate, a duplicate certificate may be issued in place thereof, upon such terms as the Trustees shall prescribe. 9.3 Issuance of New Certificates to Pledgee. A pledgee of shares transferred --------------------------------------- as collateral security shall be entitled to a new certificate if the instrument of transfer substantially describes the debt or duty that is intended to be secured thereby. Such new certificate shall express on its face that it is held as collateral security, and the name of the pledgor shall be stated thereon, who alone shall be liable as a shareholder and entitled to vote thereon. 9.4 Discontinuance of Issuance of Certificates. The Trustees may at any time ------------------------------------------ discontinue the issuance of share certificates and may, by written notice to each shareholder, require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not effect the ownership of shares in the Trust. ARTICLE 10 Provisions Relating to the Conduct of the Trust's Business 10.1 Determination of Net Asset Value Per Share. Net asset value per share of ------------------------------------------ each series or class of shares of the Trust shall be determined at the times and in the manner specified from time to time by the Trustees. ARTICLE 11 Shareholders' Voting Powers and Meetings 11.1 Record Dates. For the purpose of determining the shareholders who are ------------ entitled to vote or act at any meeting or any adjournment thereof, or who are entitled to receive payment of any dividend or of any other distribution, the Trustees may from time to time fix a time, -6- which shall be not more than 90 days before the date of any meeting of shareholders or the date for the payment of any dividend or of any other distribution, as the record date for determining the shareholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution, and in such case only shareholders of record on such record date shall have such right notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any of such purposes close the register or transfer books for all or any part of such period. ARTICLE 12 Amendments to the By-Laws 12.1 General. These By-Laws may be amended or repealed, in whole or in part, ------- by a majority of the Trustees then in office at any meeting of the Trustees. -7- EX-99.5A 4 FORM OF INVESTMENT ADVISORY AGREEMENT Exhibit 5(a) ADVISORY AGREEMENT ------------------ AGREEMENT made this 31st day of July, 1992, by and between Loomis Sayles Funds, a Massachusetts business trust (the "Trust"), with respect to its Short- Term Bond Fund series (the "Series"), and Loomis, Sayles & Company, Incorporated, a Massachusetts corporation (the "Adviser"). WITNESSETH: WHEREAS, the Trust and the Adviser wish to enter into an agreement setting forth the terms upon which the Adviser will perform certain services for the Series; NOW THEREFORE, in consideration of the premises and covenants hereinafter contained, the parties agree as follows: 1. The Trust hereby employs the Adviser to manage the investment and reinvestment of the assets belonging to the Series and to perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Adviser hereby accepts such employment and agrees, at its own expense, to render the services and to assume the obligations herein set forth, for the compensation herein provided. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust. 2. In carrying out its obligations to manage the investment and reinvestment of the assets belonging to the Series, the Adviser shall: (a) obtain and evaluate such economic, statistical and financial data and information and undertake such additional investment research as it shall believe necessary or advisable for the management of the investment and reinvestment of the assets belonging to the Series in accordance with the Series' investment objective and policies; (b) take such steps as are necessary to implement the investment policies of the Series by purchase and sale of securities, including the placing of orders for such purchase and sale; and (c) regularly report to the Board of Trustees with respect to the implementation of the investment policies of the Series. 3. All activities in connection with the management of the affairs of the Series undertaken by the Adviser pursuant to this Agreement shall at all times be subject to the supervision and control of the Board of Trustees, any duly constituted committee thereof or any officer of the Trust acting pursuant to like authority. 4. In addition to performing at its expense the obligations set forth in section 2 hereof, the Adviser shall furnish to the Trust at the Adviser's own expense or pay the expenses of the Trust for the following: (a) office space in such place or places as may be agreed upon from time to time, 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 5); and (c) compensation, if any, of Trustees of the Trust who are directors, officers, partners or employees of the Adviser or any affiliated person (other than a registered investment company) of the Adviser. 5. Except as the Adviser may otherwise agree from time to time, nothing in section 4 hereof shall require the Adviser to bear, or to reimburse the Trust for: (a) any of the costs of printing and distributing the items referred to in subsection (n) of this section 5; (b) any of the costs of preparing, printing and distributing sales literature; (c) compensation of Trustees of the Trust who are not directors, officers, partners or employees of the Adviser or of any affiliated person (other than a registered investment company) of the Adviser; (d) registration, filing and other fees in connection with requirements of regulatory authorities; (e) the charges and expenses of the custodian appointed by the Trust for custodial, paying agent, transfer agent and plan agent services; (f) charges and expenses of independent accountants retained by the Trust; -2- (g) charges and expenses of any transfer agents and registrars appointed by the Trust; (h) brokers' commissions and issue and transfer taxes chargeable to the Trust in connection with securities transactions to which the Trust is a party; (i) taxes and fees payable by the Trust to Federal, State or other governmental agencies; (j) any cost of certificates representing shares of the Series; (k) legal fees and expenses in connection with the affairs of the Trust including registering and qualifying its shares with Federal and State regulatory authorities; (l) expenses of meetings of shareholders and Trustees of the Trust; (m) interest, including interest on borrowings by the Trust; (n) the cost of services, including services of counsel, required in connection with the preparation of the Trust's registration statements and prospectuses, including amendments and revisions thereto, annual, semiannual and other periodic reports of the Trust, and notices and proxy solicitation material furnished to shareholders of the Trust or regulatory authorities; and (o) the Trust's expenses of bookkeeping, accounting, auditing and financial reporting, including related clerical expenses. 6. The services of the Adviser to the Trust hereunder are not to be deemed exclusive and the Adviser 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 Adviser hereunder, the Trust shall pay the Adviser compensation at the annual percentage rate of 0.50%, or such lesser rate as the Adviser may agree to from time to time. 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 Trust may from time to time determine and specify in writing to the Adviser. The Adviser hereby acknowledges that the Trust's obligation to pay such compensation is binding only on the assets and property belonging to the Series. -3- 8. If the total of all ordinary business expenses of the Series or the Trust as a whole (including investment advisory fees but excluding taxes and portfolio brokerage commissions) 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 Adviser shall pay any such excess. Solely for purposes of applying such limitations in accordance with the foregoing sentence, the Series and the Trust 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 Trust or belonging to the Series are to be calculated, that figure shall be calculated by reference to the average daily net assets of the Trust or the Series, as the case may be. 9. It is understood that any of the shareholders, trustees, officers, employees and agents of the Trust may be a partner, shareholder, director, officer, employee or agent of, or be otherwise interested in, the Adviser, any affiliated person of the Adviser, any organization in which the Adviser may have an interest or any organization which may have an interest in the Adviser; that the Adviser, any such affiliated person or any such organization may have an interest in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Articles of Organization of the Adviser, respectively, or by 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 only so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Trust 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 Trust who are not interested persons of the Trust or the Adviser, 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 Adviser either by vote of the Board of Trustees of the Trust 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 Adviser on ninety days' written notice to the Trust; -4- (e) if the Adviser requires the Trust or the Series to change its name so as to eliminate all references to the words "Loomis" or "Sayles," then this Agreement shall automatically terminate at the time of such change unless the continuance of this Agreement after such change shall have been specifically 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 Trust who are not interested persons of the Trust or the Adviser, cast in person at a meeting called for the purpose of voting on such approval. Termination of this Agreement pursuant to this section 10 shall be without 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 Trust 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 Trust who are not interested persons of the Trust or the Adviser, cast in person at a meeting called for the purposes of voting on such approval. 12. For the purposes 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 Investment Company Act of 1940 and the rules and regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. References in this Agreement to any assets, property or liabilities "belonging to" the Series shall have the meaning defined in the Trust's Agreement and Declaration of Trust and By-Laws as amended from time to time. 13. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser, or reckless disregard of its obligations and duties hereunder, the Adviser shall not be subject to any liability to the Trust, to any shareholder of the Trust or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder. -5- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. LOOMIS SAYLES FUNDS, on behalf of its Short-Term Bond Fund series By /s/ Charles J. Finlayson ------------------------------------ Charles J. Finlayson President LOOMIS, SAYLES & COMPANY, INCORPORATED By /s/ Charles J. Finlayson ------------------------------------ Charles J. Finlayson Vice President A copy of the Agreement and Declaration of Trust establishing the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Trust's Short-Term Bond Fund series on behalf of the Trust by officers of the Trust 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. -6- EX-99.8A 5 FORM OF CUSTODIAN AGREEMENT Exhibit 8(a) CUSTODIAN CONTRACT Between LOOMIS SAYLES FUNDS and STATE STREET BANK AND TRUST COMPANY 1 TABLE OF CONTENTS -----------------
Page ---- 1. Employment of Custodian and Property to be Held By It........... 2 2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian in the United States...................... 3 2.1 Holding Securities...................................... 3 2.2 Delivery of Securities.................................. 3 2.3 Registration of Securities.............................. 9 2.4 Bank Accounts........................................... 9 2.5 Availability of Federal Funds........................... 10 2.6 Collection of Income.................................... 11 2.7 Payment of Fund Monies.................................. 11 2.8 Liability for Payment in Advance of Receipt of Securities Purchased......................... 15 2.9 Appointment of Agents................................... 15 2.10 Deposit of Fund Assets in Securities System............. 15 2.10A Fund Assets Held in the Custodian's Direct Paper System............................................ 18 2.11 Segregated Account...................................... 20 2.12 Ownership Certificates for Tax Purposes................. 22 2.13 Proxies................................................. 22 2.14 Communications Relating to Portfolio Securities.............................................. 22 3. Duties of the Custodian with Respect to Property of the Fund Held Outside the United States........................ 23 3.1 Appointment of Foreign Sub-Custodians................... 23 3.2 Assets to be Held....................................... 24 3.3 Foreign Securities Depositories......................... 24 3.4 Segregation of Securities............................... 24 3.5 Agreements with Foreign Banking Institutions............ 25 3.6 Access of Independent Accountants of the Fund........... 26 3.7 Reports by Custodian.................................... 26 3.8 Transactions in Foreign Custody Accounts................ 26 3.9 Liability on Foreign Sub-Custodians..................... 27 3.10 Liability of Custodian.................................. 28 3.11 Reimbursement for Advances.............................. 29 3.12 Monitoring Responsibilities............................. 29 3.13 Branches of U.S. Banks.................................. 30
2 3.14 Tax Law................................................. 31 4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund.......................................... 31 5. Proper Instructions............................................ 32 6. Actions Permitted Without Express Authority.................... 33 7. Evidence of Authority.......................................... 34 8. Duties of Custodian With Respect to the Books of Account and Calculation of Net Asset Value and Net Income.................. 34 9. Records........................................................ 35 10. Opinion of Fund's Independent Accountants...................... 36 11. Reports to Fund by Independent Public Accountants.............. 36 12. Compensation of Custodian...................................... 37 13. Responsibility of Custodian.................................... 37 14. Effective Period, Termination and Amendment.................... 40 15. Successor Custodian............................................ 41 16. Interpretive and Additional Provisions......................... 43 17. Additional Funds............................................... 43 18. Massachusetts Law to Apply..................................... 44 19. Prior Contracts................................................ 44
3 CUSTODIAN CONTRACT ------------------ This Contract between Loomis Sayles Funds, a business trust organized and existing under the laws of Massachusetts, having its principal place of business at one Financial Center, Boston, Massachusetts hereinafter called the "Fund", and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian", WITNESSETH: WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in eight series, the Loomis Sayles Growth Fund, Loomis Sayles Growth & Income Fund, Loomis Sayles Small Capital Fund, Loomis Sayles International Equity Fund, Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles Municipal Bond Fund and Loomis Sayles U.S. Government Securities Fund (such series together with all other series subsequently established by the Fund and made subject to this Contract in accordance with paragraph 17, being herein referred to as the "Portfolio(s)"); NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. Employment of Custodian and Property to be Held by It ----------------------------------------------------- The Fund hereby employs the Custodian as the custodian of the assets of the Portfolios of the Fund, including securities which the Fund, on behalf of the applicable Portfolio, desires to be held in places within the United States ("domestic securities") and securities it desires to be held 4 outside the United States ("foreign securities") pursuant to the provisions of the Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and cash of the Portfolios, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest of the Fund representing interests in the Portfolios ("Shares") as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Portfolio held or received by the Portfolio and not delivered to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of Article 5), the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians, located in the United States but only in accordance with an applicable vote by the Board of Trustees of the Fund on behalf of the applicable Portfolio(s), and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub- custodian has to the Custodian. The Custodian may employ as sub-custodian for the Fund's foreign securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedule A hereto but only in accordance with the provisions of Article 3. 2. Duties of the Custodian with Respect to Property of the Fund Held By the ------------------------------------------------------------------------ Custodian in the United States - ------------------------------ 2.1 Holding securities. The Custodian shall hold and physically segregate ------------------ for the account of each Portfolio all non-cash property, to be held by it in the United States 5 including all domestic securities owned by such Portfolio, other than (a) securities which are maintained pursuant to Section 2.10 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as "Securities System" and (b) commercial paper of an issuer for which State Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper") which is deposited and/or maintained in the Direct Paper System of the Custodian pursuant to Section 2.10A. 2.2 Delivery of Securities. The Custodian shall release and deliver domestic ---------------------- securities owned by a Portfolio held by the Custodian or in a Securities System account of the Custodian or in the Custodians Direct Paper book entry system account ("Direct Paper System Account") only upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement relate to such securities entered into by the Portfolio; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.10 hereof; 4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio; 5) To the issuer thereof or its agent when such securities are called, 6 redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.9 or into the name or nominee name of any sub-custodian appointed pursuant to Article 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new -------- securities are to be delivered to the Custodian; 7) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to 7 be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Portfolio, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund on behalf of the Portfolio, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodians account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Portfolio prior to the receipt of such collateral; 11) For delivery as security in connection with any borrowings by the Fund on behalf of the Portfolio requiring a pledge of assets by the Fund on behalf of the Portfolio, but only against receipt --- ---- of amounts borrowed; 12) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the securities Exchange Act of 1934 (the "Exchange 8 Act") and a member of The National Association of securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio of the Fund; 13) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any siorganization ortionor organizations, regarding account deposits in connection with transactions by the Portfolio of the Fund; 14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund, related to the Portfolio ("Prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; and 15) For any other proper corporate purpose, but only upon receipt --- ---- of, in addition to Proper Instructions from the Fund on behalf of the applicable 9 Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, specifying the securities of the Portfolio to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. 2.3 Registration of Securities. Domestic securities held by the -------------------------- Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the ------ Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.9 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Contract shall be in "street name" or other good delivery form. If, however, the Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities and tender or exchange offers. 2.4 Bank Accounts. The custodian shall open and maintain a separate bank ---- -------- account or accounts in the United States in the name of each Portfolio of the Fund, subject only to draft or order 10 by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be -------- qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board of Trustees of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 2.5 Availability of Federal Funds. Upon mutual agreement between the ----------------------------- Fund on behalf of each applicable Portfolio and the Custodian, the Custodian shall, upon the receipt of Proper Instructions from the Fund on behalf of a Portfolio, make federal funds available to such Portfolio as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of such Portfolio which are deposited into the Portfolio's account. 2.6 Collection of Income. Subject to the provisions of Section 2.3, the -------------------- Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant 11 to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent and shall credit such income, as collected, to such Portfolios custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due each Portfolio on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled. 2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the ---------------------- Fund on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only: 1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Portfolio or in the 12 name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.10 hereof; (c) in the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.10A; (d) in the case of repurchase agreements entered into between the Fund on behalf of the Portfolio and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Portfolio of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Portfolio; or (e) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined in Article 5; 2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued by the Portfolio as set forth in Article 4 hereof; 4) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal 13 fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends on shares of the Portfolio declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 7) For any other proper purpose, but only upon receipt of, in addition --- ---- to Proper Instructions from the Fund on behalf of the Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.8 Liability for Payment in Advance of Receipt of Securities Purchased. -------------------------------------------------------------------- Except as specifically stated otherwise in this Contract, in any and every case where payment for purchase of domestic securities for the account of a Portfolio is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund on behalf of such Portfolio to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian. 2.9 Appointment of Agents. The Custodian may at any time or times in its --------------------- discretion appoint 14 (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit -------------------------------------------- and/or maintain securities owned by a Portfolio in a clearing agency registered with the Securities and Exchange commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System" in accordance with applicable Federal Reserve Board and Securities and Exchange commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may keep securities of the Portfolio in a Securities system provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Custodian with respect to securities of the Portfolio which are maintained in a Securities System shall identify by book-entry those securities belonging to the Portfolio; 3) The Custodian shall pay for securities purchased for the account of the 15 Portfolio upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Portfolio. The Custodian shall transfer securities sold for the account of the Portfolio upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Portfolio. Copies of all advices from the Securities System of transfers of securities for the account of the Portfolio shall identify the Portfolio, be maintained for the Portfolio by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each transfer to or from the account of the Portfolio in the form of a written advice or notice and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Portfolio; 4) The Custodian shall provide the Fund for the Portfolio with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; 5) The Custodian shall have received from the Fund on behalf of the 16 Portfolio the initial or annual certificate, as the case may be, required by Article 14 hereof; 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for the benefit of the Portfolio for any loss or damage to the Portfolio resulting from use of the securities system by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Portfolio has not been made whole for any such loss or damage. 2.10A Fund Assets Held in the Custodian's Direct Paper System The Custodian ------------------------------------------------------- may deposit and/or maintain securities owned by a Portfolio in the Direct Paper System of the Custodian subject to the following provisions: 1) No transaction relating to securities in the Direct Paper System will be effected in the absence of Proper Instructions from the Fund on behalf of the Portfolio; 2) The Custodian may keep securities of the Portfolio in the Direct Paper System only if such securities are represented in an account ("Account") of 17 the Custodian in the Direct Paper System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 3) The records of the Custodian with respect to securities of the Portfolio which are maintained in the Direct Paper System shall identify by book-entry those securities belonging to the Portfolio; 4) The Custodian shall pay for securities purchased for the account of the Portfolio upon the making of an entry on the records of the Custodian to reflect such payment and transfer of securities to the account of the. Portfolio. The Custodian shall transfer securities sold for the account of the Portfolio upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Portfolio; 5) The Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each transfer or from the account of the Portfolio, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's transaction in the Securities System for the account of the Portfolio; 6) The Custodian shall provide the Fund on behalf of the Portfolio with any report on its system of internal accounting control as the Fund may reasonably request from time to time. 18 2.11 Segregated Account. The Custodian shall upon receipt of Proper ------------------- Instructions from the Fund on behalf of each applicable Portfolio establish and maintain a segregated account or accounts for and on transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the custodian and a broke r-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper corporate purposes, but only, in the case of clause (iv), upon receipt of, in addition to Proper Instructions from the Fund on behalf of the applicable Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, 19 setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes. 2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute --------------------------------------- ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities. 2.13 Proxies. The Custodian shall, with respect to the domestic securities held ------- hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Portfolio such proxies, all proxy soliciting materials and all notices relating to such securities. 2.14 Communications Relating to Portfolio Securities. Subject to the provisions ----------------------------------------------- of Section 2.3, the Custodian shall transmit promptly to the Fund for each Portfolio all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Portfolio) received by the Custodian from issuers of the securities being held for the Portfolio. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Portfolio all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Portfolio desires to take 20 action with respect to any tender offer, exchange offer or any other similar transaction, the Portfolio shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. 3. Duties of the Custodian with Respect to Property of the Fund Held ----------------------------------------------------------------- Outside of the United States ---------------------------- 3.1 Appointment of Foreign Sub-Custodians ------------------------------------- The Fund hereby authorizes and instructs the Custodian to employ as sub- custodians for the Portfolios securities and other assets maintained outside the United States the foreign banking institutions and foreign securities depositories designated on Schedule A hereto ("foreign sub- custodians"). Upon receipt of "Proper Instructions", as defined in Section 5 of this Contract, together with a certified resolution of the Fund's Board of Trustees, the Custodian and the Fund may agree to amend Schedule A hereto from time to time to designate additional foreign banking institutions and foreign securities depositories to act as sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct the Custodian to cease the employment of any one or more such sub-custodians for maintaining custody of the Portfolio's assets. 3.2 Assets to be Held. The Custodian shall limit the securities and other ----------------- assets maintained in the custody of the foreign sub-custodians to: (a) "foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, and (b) cash and cash equivalents in such amounts as the Custodian or the Fund may determine to be reasonably necessary to effect the Portfolio's foreign securities transactions. 3.3 Foreign securities Depositories. Except as may otherwise be agreed upon ------------------------------- in writing by 21 the Custodian and the Fund, assets of the Portfolios shall be maintained in foreign securities depositories only through arrangements implemented by the foreign banking institutions serving as sub- custodians pursuant to the terms hereof. where possible, such arrangements shall include entry into agreements containing the provisions set forth in Section 3.5 hereof. 3.4 Segregation of Securities. The Custodian shall identify on its books as ------------------------- belonging to each applicable Portfolio of the Fund, the foreign securities of such Portfolios held by each foreign sub-custodian. Each agreement pursuant to which the Custodian employs a foreign banking institution shall require that such institution establish a custody account for the Custodian on behalf of the Fund for each applicable Portfolio of the Fund and physically segregate in each account, securities and other assets of the Portfolios, and, in the event that such institution deposits the securities of one or more of the Portfolios in a foreign securities depository, that it shall identify on its books as belonging to the Custodian, as agent for each applicable Portfolio, the securities so deposited. 3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign -------------------------------------------- banking institution shall be substantially in the form set forth in Exhibit 1 hereto and shall provide that: (a) the assets of each Portfolio will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the foreign banking institution or its creditors or agent, except a claim of payment for their safe custody or administration; (b) beneficial ownership for the assets of each Portfolio will be freely transferable without the payment of money or value other than for custody or administration; (c) adequate records will be maintained identifying the assets as belonging to each applicable 22 Portfolio; (d) officers of or auditors employed by, or other representatives, of the Custodian, including to the extent permitted under applicable law the independent public accountants for the Fund, will be given access to the books and records of the foreign banking institution relating to its actions under its agreement with the Custodian; and (e) assets of the Portfolios held by the foreign sub- custodian will be subject only to the instructions of the Custodian or its agents. 3.6 Access of Independent Accountants of the Fund. Upon request of the --------------------------------------------- Fund, the Custodian will use its best efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution employed as a foreign sub-custodian insofar as such books and records relate to the performance of such foreign banking institution under its agreement with the Custodian. 3.7 Reports by Custodian. The Custodian will supply to the Fund from time to -------------------- time, as mutually agreed upon, statements in respect of the securities and other assets of the Portfolio(s) held by foreign sub-custodians, including but not limited to an identification of entities having possession of the Portfolio(s) securities and other assets and advices or notifications of any transfers of securities to or from each custodial account maintained by a foreign banking institution for the Custodian on behalf of each applicable Portfolio indicating, as to securities acquired for a Portfolio, the identity of the entity having physical possession of such securities. 3.8 Transactions in Foreign Custody Account --------------------------------------- (a) Except as otherwise provided in paragraph (b) of this Section 3.8, the provisions of Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis, to the foreign ------- -------- 23 securities of the Fund held outside the United states by foreign sub- custodians. (b) Notwithstanding any provision of this Contract to the contrary, settlement and payment for securities received for the account of each applicable Portfolio and delivery of securities maintained for the account of each applicable Portfolio may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefore (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. (c) Securities maintained in the custody of a foreign sub-custodian may be maintained in the name of such entity's nominee to the same extent as set forth in Section 2.3 of this Contract, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such securities. 3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the ----------------------------------- Custodian employs a foreign banking institution as a foreign sub-custodian shall require the institution to exercise reasonable care in the performance of its duties and to indemnify, and hold harmless, the Custodian and the Fund from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the institution's performance of such obligations. At the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a foreign banking institution as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, 24 damage, cost,expense, liability or claim. 3.10 Liability of Custodian. The Custodian shall be liable for the acts or ---------------------- omissions of a foreign banking institution to the same extent as set forth with respect to sub-custodians generally in this Contract and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall not be liable for any loss, damage, cost, expense,, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism or any loss where the sub-custodian has otherwise exercised reasonable care. Notwithstanding the foregoing provisions of this paragraph 3.10, in delegating custody duties to State Street London Ltd., the Custodian shall not be relieved of any responsibility to the Fund for any loss due to such delegation, except such loss as may result from (a) political risk (including, but not limited to, exchange control restrictions, confiscation, expropriation, nationalization, insurrection, civil strife or armed hostilities) or (b) other losses (excluding a bankruptcy or insolvency of State Street London Ltd. not caused by political risk) due to Acts of God, nuclear incident or other losses under circumstances where the Custodian and State Street London Ltd. have exercised reasonable care. 3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance -------------------------- cash or securities for any purpose for the benefit of a Portfolio including the purchase or sale of foreign exchange or of contracts for foreign exchange, or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as 25 may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolios assets to the extent necessary to obtain reimbursement. 3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the --------------------------- Fund, during the month of June, information concerning the foreign sub-custodians employed by the Custodian. Such information shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval of this Contract. In addition, the Custodian will promptly inform the Fund in the event that the Custodian learns of a material adverse change in the financial condition of a foreign sub-custodian or any material loss of the assets of the Fund or in the case of any foreign sub-custodian not the subject of an exemptive order from the Securities and Exchange Commission is notified by such foreign sub-custodian that there appears to be a substantial likelihood that its shareholders' equity will decline below $200 million (U.S. dollars or the equivalent thereof) or that its shareholders' equity has declined below $200 million (in each case computed in accordance with generally accepted U.S. accounting principles). 3.13 Branches of U.S. Banks ---------------------- (a) Except as otherwise set forth in this Contract, the provisions of Article 3 hereof shall not apply where the custody of the Portfolios assets are maintained in a foreign branch of a banking institution which is a "bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940 meeting the qualification set forth in Section 26(a) of 26 said Act. The appointment of any such branch as a sub-custodian shall be governed by Article 1 of this Contract. (b) Cash held for each Portfolio of the Fund in the United Kingdom shall be maintained in an interest bearing account established for the Fund with the Custodian's London branch, which account shall be subject to the direction of the Custodian, State Street London Ltd. or both. 3.14 Tax Law ------- The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Fund by the tax law of the United States of America or any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Fund by the tax law of jurisdictions other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of jurisdictions for which the Fund has provided such information. 4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund ---------------------------------------------------------------------- The Custodian shall receive from the distributor for the shares or from the Transfer Agent of the Fund and deposit into the account of the appropriate Portfolio such payments as are received for Shares of that Portfolio issued or sold from time to time by the Fund. The 27 Custodian will provide timely notification of the Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio. From such funds as may be available for the purpose but subject to the limitations of the Declaration of Trust and any applicable votes of the Board of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. 5. Proper Instructions ------------------- Proper Instructions as used throughout this Contract means a writing signed or initialed by one or more person or persons as the Board of Trustees shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the custodian reasonably believes them to have been given by a person authorized to give such 28 instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing, upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Trustees of the Fund accompanied by a detailed description of procedures approved by the Board of Trustees. Proper Instructions may include communications effected directly between electromechanical or electronic devices provided that the Board of Trustees and the Custodian are satisfied that such procedures afford adequate safeguards for the Portfolios' assets. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any three-party agreement which requires a segregated asset account in accordance with Section 2.11. 6. Actions Permitted without Express Authority ------------------------------------------- The Custodian may in its discretion, without express authority from the Fund on behalf of each applicable Portfolio: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, provided that all such payments shall be accounted for to the Fund on behalf of - -------- the Portfolio; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the Board of Trustees of the Fund. 29 7. Evidence of Authority --------------------- The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Board of Trustees of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Trustees pursuant to the Declaration of Trust as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 8. Duties of Custodian with Respect to the Books of Account and ------------------------------------------------------------ Calculation of Net Asset Value and Net Income --------------------------------------------- The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Trustees of the Fund to keep the books of account of each Portfolio and/or compute the net asset value per share of the outstanding shares of each Portfolio or, if directed in writing to do so by the Fund on behalf of the Portfolio, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of the Portfolio as described in the Fund's currently effective prospectus related to such Portfolio and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of each Portfolio shall be made at the time or times described from time to time in the 30 Fund's currently effective prospectus related to such Portfolio. 9. Records ------- The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 3la-1 and 3la-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. 10. Opinion of Fund's Independent Accountant ---------------------------------------- The Custodian shall take all reasonable action, as the Fund on behalf of each applicable Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 11. Reports to Fund by Independent Public Accountants ------------------------------------------------- The Custodian shall provide the Fund, on behalf of each of the Portfolios at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, 31 futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 12. Compensation of Custodian ------------------------- The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund on behalf of each applicable Portfolio and the Custodian. 13. Responsibility of Custodian --------------------------- So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be liable for the acts or omissions of a foreign banking institution 32 appointed pursuant to the provisions of Article 3 to the same extent as set forth in Article 1 hereof with respect to sub-custodians located in the United States (except as specifically provided in Article 3.10) and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from, or caused by, the direction of or authorization by the Fund to maintain custody or any securities or cash of the Fund in a foreign country including, but not limited to, losses resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism. If the Fund on behalf of a Portfolio requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. The Fund agrees to indemnify and hold harmless State Street and its nominee from and against all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or its nominee in connection with the performance of this Contract, except such as may arise from it or its nominees own negligent action, negligent failure to act or willful misconduct. State Street is authorized to charge any account of the Fund for such items and its fees. To secure any such authorized charges and any advances of cash or securities made by State Street to or for the benefit of the Fund for any purposes which result in 33 the Fund incurring an overdraft at the end of any business day or for extraordinary or emergency purposes during any business day, the Fund hereby grants to State Street a security interest in and pledges to State Street securities held for it by State Street, in an amount not to exceed the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets, the specific securities to be designated in writing from time to time by the Fund or its investment adviser; provided, however, that (1) if from time to time neither the Fund nor its investment adviser shall have designated in writing specific securities in an amount at least equal to the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets, or (2) if as a result of the delivery by State Street out of its custody, pursuant to Proper Instructions, of any securities previously so designated, the remaining amount of securities so designated shall be less than the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets, then State Street shall have a security interest in the Fund's securities in an amount that, taken together with amounts of securities from time to time designated in writing by the Fund or its investment adviser that have not been delivered out of the custody of State Street pursuant to Proper Instructions, does not exceed the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets. Should the Fund fail to repay promptly any advances of cash or securities, State Street shall be entitled to use available cash and to dispose of pledged securities and property as is necessary to repay any such advances. 14. Effective Period. Termination and Amendment -------------------------------------------- This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered 34 or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however that the Custodian shall not with respect to a Portfolio act - -------- under Section 2.10 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Trustees of the Fund has approved the initial use of a particular Securities System by such Portfolio and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Trustees has reviewed the use by such Portfolio of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended, and that the Custodian shall not with respect to a Portfolio act under Section 2.10A hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Trustees has approved the initial use of the Direct Paper System by such Portfolio and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Trustees has reviewed the use by such Portfolio of the Direct Paper System; provided further, however, -------- ------- that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Declaration of Trust, and further provided, that the Fund on behalf of one or more of the Portfolios may at any time by action of its Board of Trustees (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Fund on behalf of each applicable Portfolio shall pay to the Custodian such compensation as may be due as of the date of such termination and 35 shall likewise reimburse the Custodian for its costs, expenses and disbursements. 15. Successor Custodian ------------------- If a successor custodian for the Fund, of one or more of the Portfolios, shall be appointed by the Board of Trustees of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Trustees of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Trustees shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Contract on behalf of each applicable Portfolio and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this 36 Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Board of Trustees to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 16. Interpretive and Additional Provisions -------------------------------------- In connection with the operation of this Contract, the Custodian and the Fund on behalf of each of the Portfolios may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the cinereal tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such -------- interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Declaration of Trust of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 17. Additional Funds ---------------- In the event that the Fund establishes one or more series of Shares in addition to those specified on the first page of this Contract with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall 37 become a Portfolio hereunder. 18. Massachusetts Law to Apply -------------------------- This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 19. Prior Contracts --------------- This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Fund on behalf of each of the Portfolios and the Custodian relating to the custody of the Fund's assets. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 23rd day of April, 1991. ATTEST LOOMIS SAYLES FUNDS By - ------------------------------ ----------------------------------- Assistant Secretary President ATTEST STATE STREET BANK AND TRUST COMPANY By - ------------------------------ ----------------------------------- Assistant Secretary Vice President A copy of the Agreement and Declaration of Trust establishing Loomis Sayles Funds (the "Trust") is on file with the Secretary of State of the Commonwealth of Massachusetts, and notice is hereby given that this agreement is executed on behalf of the Trust by officers of the Trust 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 of the Trust individually but are binding only upon the assets and property of the relevant series of the Trust. 38 Schedule A ---------- The following foreign banking institutions and foreign securities depositories have been approved by the Board of Trustees of Loomis Sayles Funds for use as sub-custodians for the Fund's securities and other assets: STATE STREET BANK AND TRUST COMPANY - ----------------------------------- GLOBAL CUSTODY NETWORK FOR MUTUAL FUND CLIENTS Country Bank ------- ---- Argentina Citibank, N.A. Australia Australia and New Zealand Banking Group United Austria Girozentrale und Bank der oesteffeichischen Sparkassen AG Belgium Banque Bruxelles Lambert Brazil Citibank, N.A. Canada Canada Trust Company Chile Citibank, N.A. Denmark Den Danske Bank Finland Kansallis-Osake-Pankid France Credit Commercial De France 39 Germany Berliner Handels- und Frankfurter Bank Greece National Bank of Greece Hong Kong Standard Chartered Bank Indonesia Standard Chartered Bank Ireland Bank of Ireland Italy Credito ltallano Japan Sumitomo Trust & Banking Co.. Ltd. Malaysia Standard Chartered Bank 40 EXHIBIT I --------- CUSTODIAN AGREEMENT ------------------- TO: Gentlemen: The undersigned ("State Street") hereby requests* that you (the "Bank)) establish a custody account and a cash account for each State Street client whose account is identified to this Agreement. Each such Custody or cash account as applicable will be referred to herein as the "Account'$ and will be subject to the following terms and conditions: 1. The Bank shall hold as agent for State Street and shall physically segregate in the Account such cash, bullion, coin, stocks, shares, bonds, debentures, notes and other securities and other property which is delivered to the Bank for that State Street Account (the "Property"). 2. (a) Without the prior approval of State Street it will not deposit securities in any securities depository or utilize a clearing agency, incorporated or organized under the laws of a country other than the United States, unless such depository or clearing house operates the central system for handling of securities or equivalent back-entries in that country or operates a transnational system for the central handling of securities or equivalent book-entries. (b) When Securities hold for an Account are deposited in a Securities depository or clearing agency by the Bank, the Bank shall identify on its books as belonging to State Street as agent for such Account, the Securities so deposited. The Bank represents that either: 3. (a) It currently has stockholders' equity in excess of $200 million (US dollars or the equivalent of US dollars computed in accordance with generally accepted US accounting principles) and will promptly inform State Street in the event that there appears to be a substantial likelihood that its stockholders' equity will decline below $200 million. or in any event, at such time as its stockholders' equity in fact declines below $200 million: or (b) It is the subject of an exemptive order issued by the United States Securities and Exchange Commission, which such order permits State Street to employ the Bank as a subcustodian, notwithstanding the fact that the Bank's stockholders' equity is currently below $200 million or may in the future decline below $200 million due to currency fluctuation. 41 4. Upon the written instructions of State Street as permitted by Section 8, the Bank is authorized to pay out cash from the Account and to sell, assign, transfer, deliver or exchange, or to purchase for the Account, any and all stocks, shares, bonds, debentures, notes and other securities ("Securities"), bullion, coin and other property, but only as provided in such written instructions. The Bank shall not be held liable for any act or omission to act on instructions given or purported to be given should there be any error in such instructions. 5. Unless the Bank receives written instructions of State Street to the contrary, the Bank is authorized: a. To promptly receive and collect all income and principal with respect to the Property and to credit cash receipts to the Account; b. To promptly exchange Securities where the exchange is purely ministerial (including, without limitation, the exchange of temporary Securities for those in definitive form and the exchange of warrants, or other documents of entitlement to Securities, for the Securities themselves); c. To promptly surrender Securities at maturity or when called for redemption upon receiving payment therefor; d. Whenever notification of a rights entitlement or a fractional interest resulting from a rights issue., stock dividend or stock split is received for the Account and such rights entitlement or fractional interest bears an expiration date, the Bank will endeavor to obtain State Street's instructions, but should these not be received in time for the Bank to take timely action, the Bank is authorized to sell such rights entitlement or fractional interest and to credit the Account; e. To hold registered in the name of the nominee of the Bank or its agents such Securities as are ordinarily held in registered form; f. To execute In State Street's name for the Account, whenever the Bank dews it appropriate, such ownership and other certificates as may be required to obtain the payment of Income from the Property; and g. To pay or cause to be paid from the Account any and all taxes and levies In the nature of taxes imposed on such assets by any governmental authority, and shall use reasonable efforts to promptly reclaim any foreign withholding tax relating to the Account. 6. If the Bank shall receive any proxies, notices, reports, or other communications relative to any of the Securities of the Account in connection with tender offers; reorganizations, mergers, consolidations, or similar events which may have an impact upon the issuer thereof, the 42 Bank shall promptly transmit any such communication to State Street by means as will permit State Street to take timely action with respect thereto. 7. The Bank is authorized in its discretion to appoint brokers and agents in connection with the Bank's handling of transactions relating to the Property provided that any such appointment shall not relieve the Bank of any of its responsibilities or liabilities hereunder. 8. Written instructions shall include (i) instructions in writing signed by such persons as are designated in writing by State Street (ii) telex or tested telex instructions of State Street, (iii) other forms of instruction in computer readable form as shall be customarily utilized for the transmission of like information and (iv) such other forms of communication as from time to time shall be agreed upon by State Street and the Bank. 9. The Bank shall supply periodic reports with respect to the safekeeping of assets held by it under this Agreement. The content of Such reports shall include but not be limited to any transfer to or from any Account held by the Bank hereunder and such other information as State Street may reasonably request. 10. In addition to its obligations under Section 2 hereof, the Bank shall maintain such other records as may be necessary to identify the assets hereunder as belonging to each State Street client identified to this Agreement from time to time. 11. The Bank agrees that its books and records relating to its actions under this Agreement shall be opened to the physical, on-premises inspection and audit at reasonable times by officers of, auditors employed by or other representatives of State Street (including to the extent permitted under law the independent public accountants for any entity whose Property is being hold hereunder) and shall be retained for such period as shall be agreed by State Street and the Bank. 12. The Bank shall be entitled to reasonable compensation for its services and expenses as custodian under this Agreement, as agreed upon from time to time by the Bank and State Street. 13. The Bank shall exercise reasonable care in the performance of its duties as are set forth or contemplated herein or contained in instructions given to the Bank which are not contrary to this Agreement, and shall maintain adequate insurance and agree to indemnity and hold State Street and each Account from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Bank's performance of its obligations hereunder. 14. The Bank agrees that (i) the Property is not subject to any right, charge, security interest, lien or claim of any kind In favor of the Bank or any of Its agents or its creditors except a claim of payment for their safe custody and administration and (ii) the beneficial ownership of 43 the Property shall be freely transferable without the payment of money or other value other than for safe custody or administration. 15. This Agreement may be terminated by the Bank or State Street by at least 60 days' written notice to the other, sent by registered mail or express courier. The Bank, upon the date this Agreement terminates pursuant to notice which has been given in a timely fashion, shall deliver the Property in accordance with written instructions of State Street specifying the name(s) of the person(s) to whom the Property shall be delivered. 16. The Bank and State Street shall each use its best efforts to maintain the confidentiality of the Property in each Account, Subject, however, to the provisions of any laws requiring the disclosure of the Property. 17. The Bank agrees to follow such Operating Requirements as State Street may require from time to time. A copy of the current State Street Operating Requirements is attached as an exhibit to this Agreement. 18. Unless otherwise specified in this Agreement, all notices with respect to matters contemplated by this Agreement shall be deemed duly given when received in writing or by tested telex by the Bank or State Street at their respective addresses set forth below, or at such other address as specified in each case in a notice similarly given: To State Street: Global Custody Services Division STATE STREET BANK AND TRUST COMPANY P. 0. BOX 470 Boston, Massachusetts 02102 To the Bank: 19. This Agreement shall be governed by and construed in accordance with the laws of . ---------------------- Please acknowledge your agreement to the foregoing by executing a copy of this letter. 44 Very truly yours, STATE STREET BANK AND TRUST COMPANY By -------------------------------- Agreed to by : By: --------------------------- Date: ------------------------- 45 EX-99.9A 6 SHAREHOLDER'S SERVICING & TRANSFER AGENT AGREEMENT Exhibit 9(a) TRANSFER AGENCY AND SERVICE AGREEMENT between LOOMIS SAYLES FUNDS and STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS ----------------- Page ---- Article 1 Terms of Appointment; Duties of the Bank..................... 2 Article 2 Fees and Expenses............................................ 6 Article 3 Representations and Warranties of the Bank................... 7 Article 4 Representations and Warranties of the Fund................... 7 Article 5 Indemnification.............................................. 8 Article 6 Covenants of the Fund and the Bank........................... 11 Article 7 Termination of Agreement..................................... 12 Article 8 Additional Funds............................................. 13 Article 9 Assignment................................................... 13 Article 10 Amendment.................................................... 14 Article 11 Massachusetts Law To Apply................................... 14 Article 12 Merger of Agreement.......................................... 14 Article 13 Counterparts................................................. 14 TRANSFER AGENCY AND SERVICE AGREEMENT ------------------------------------- AGREEMENT made as of the 23rd day of April, 1991, by and between LOOMIS SAYLES FUNDS, a Massachusetts business trust, having its principal office and place of business at one Financial Center, Boston, Massachusetts 02110 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank"). WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in eight series, the Loomis Sayles Growth Fund, Loomis Sayles Growth & Income Fund, Loomis Sayles Small Capital Fund, Loomis Sayles International Equity Fund, Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles Municipal Bond Fund and Loomis Sayles U.S. Government Securities Fund (each such series, together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Article 8, being herein referred to as a "Portfolio", and collectively as the "Portfolios"); WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its transfer agent, dividend disbursing agent, custodian of certain retirement plans and agent in connection with certain other activities and the Bank desires to accept such appointment; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: Article 1 Terms of Appointment; Duties of the Bank 1.01 Subject to the terms and conditions set forth in this Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to act as, and the Bank agrees to act as, the Fund's transfer agent for the authorized and issued shares of beneficial interest of the Fund representing interests in each of the respective Portfolios ("Shares"), dividend disbursing agent, custodian of certain retirement plans and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of each of the respective Portfolios of the Fund ("Shareholders") and set out in the currently effective prospectus and statement of additional information ("prospectus") of the Fund on behalf of the applicable Portfolio, including without limitation any periodic investment plan or periodic withdrawal program. 1.02 The Bank agrees that it will perform the following services: (a) In accordance with procedures established from time to time by agreement between the Fund on behalf of each of the Portfolios, as applicable, and the Bank, the Bank shall: (i) Receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation thereof to the Custodian of the Fund authorized pursuant to the Agreement and Declaration of Trust of the Fund (the "Custodian"); (ii) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii) Receive for acceptance redemption requests and redemption directions and 2 deliver the appropriate documentation thereof to the Custodian; (iv) In respect to the transactions in items (i), (ii) and (iii) above, the Bank shall execute transactions directly with broker-dealers authorized by the Fund who shall thereby be deemed to be acting on behalf of the Fund; (v) At the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (vi) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vii) Prepare and transmit payments for dividends and distributions declared by the Fund on behalf of the applicable Portfolio; (viii) Issue replacement certificates for those certificates alleged to have been lost, stolen or destroyed upon receipt by the Bank of indemnification satisfactory to the Bank and protecting the Bank and the Fund, and the Bank, at its option, may issue replacement certificates in place of mutilated stock certificates upon presentation thereof and without such indemnity; (ix) Report abandoned property to the various states as authorized by the Fund per policies and principles agreed upon by the Fund and the Bank; (x) Maintain records of account for and advise the Fund and its Shareholders as to the foregoing; and (xi) Record the issuance of Shares of the Fund and maintain pursuant to SEC 3 Rule 17Ad-10(e) a record of the total number of Shares of the Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. The Bank shall also provide the Fund on a regular basis with the total number of Shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. (b) In addition to and neither in lieu nor in contra- vention of the services set forth in the above paragraph (a), the Bank shall: (i) perform the customary services of a transfer agent, dividend disbursing agent, custodian of certain retirement plans and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder reports and prospectuses to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information and (ii) provide a system which will enable the Fund to monitor the total number of Shares sold in each State. 4 (c) In addition, the Fund shall (i) identify to the Bank in writing those transactions and assets to be treated as exempt from blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Bank for the Fund's blue sky state registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above. (d) Procedures as to who shall provide certain of these services in Article 1 may be established from time to time by agreement between the Fund on behalf of each Portfolio and the Bank per the attached service responsibility schedule. The Bank may at times perform only a portion of these services and the Fund or its agent may perform these services on the Fund's behalf. Article 2 Fees and Expenses ----------------- 2.01 For the performance by the Bank pursuant to this Agreement, the Fund agrees on behalf of each of the Portfolios to pay the Bank an annual maintenance fee for each Shareholder account as set out in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.02 below may be changed from time to time subject to mutual written agreement between the Fund and the Bank. 2.02 In addition to the fee paid under Section 2.01 above, the Fund, agrees on behalf of each of the Portfolios to reimburse the Bank for out-of-pocket expenses or advances incurred by the Bank for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by the Bank at the request or with the consent of the Fund will be 5 reimbursed by the Fund on behalf of the applicable Portfolio. 2.03 The Fund agrees on behalf of each of the Portfolios to pay all fees and reimbursable expenses within five days following the receipt of the respective billing notice. Postage for receipt of dividends, proxies, Fund reports and other mailings to all Shareholder accounts shall be advanced to the Bank by the Fund at least seven (7) days prior to the mailing date of such materials. Article 3 Representations and Warranties of the Bank ------------------------------------------ The Bank represents and warrants to the Fund that: 3.01 It is a trust company duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts. 3.02 It is duly qualified to carry on its business in the Commonwealth of Massachusetts. 3.03 It is empowered under applicable laws and by its Charter and By-Laws to enter into and perform this Agreement. 3.04 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 3.05 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. Article 4 Representations and Warranties of the Fund ------------------------------------------ The Fund represents and warrants to the Bank that: 4.01 It is a voluntary association duly organized and existing and in good standing under the laws of Massachusetts. 6 4.02 It is empowered under applicable laws and by its Agreement and Declaration of Trust and By-Laws to enter into and perform this Agreement. 4.03 All proceedings required by said Agreement and Declaration of Trust and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4.04 It is an open-end and diversified management investment company registered under the Investment Company Act of 1940, as amended. 4.05 A registration statement under the Securities Act Of 1933, as amended, on behalf of each of the Portfolios will become effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund prior to being offered for sale. Article 5 Indemnification --------------- 5.01 The Bank shall not be responsible for, and the Fund shall on behalf of the applicable Portfolio indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: (a) All actions of the Bank or its agent or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct. (b) The Fund's lack of good faith, negligence or willful misconduct which arise out of the breach of any representation or warranty of the Fund hereunder. (c) The reliance on or use by the Bank or its agents or subcontractors of information, records and documents or services which (i) are received or relied upon by the 7 Bank or its agents or subcontractors and/or furnished to it or performed by or on behalf of the Fund, and (ii) have been prepared, maintained and/or performed by the Fund or any other person or firm on behalf of the Fund. (d) The reliance on, or the carrying out by the Bank or its agents or subcontractors of, any instructions or requests of the Fund on behalf of the applicable Portfolio. (e) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state. 5.02 The Bank shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to any action or failure or omission to act by the Bank as a result of the Bank's lack of good faith, negligence or willful misconduct. 5.03 At any time the Bank may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the Fund on behalf of the applicable Portfolio for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or 8 upon any instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. The Bank, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any former transfer agent or former registrar, or of a co-transfer agent or co-registrar. 5.04 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 5.05 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any consequential damages arising out of any act or failure to act hereunder. 5.06 In order that the indemnification provisions contained in this Article 5 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other partyadvised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in 9 no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. Article 6 Covenants of the Fund and the Bank ---------------------------------- 6.01 The Fund shall on behalf of each of the Portfolios promptly furnish to the Bank the following: (a) A certified copy of the resolution of the Trustees of the Fund authorizing the appointment of the Bank and the execution and delivery of this Agreement. (b) A copy of the Agreement and Declaration of Trust and By- Laws of the Fund and all amendments thereto. 6.02 The Bank hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 6.03 The Bank shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Bank agrees that all such records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request. 6.04 The Bank and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the 10 negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 6.05 In case of any requests or demands for the inspection of the Shareholder records of the Fund, the Bank will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. Article 7 Termination of Agreement ------------------------ 7.01 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other. 7.02 Should the Fund exercise its right to terminate, all out-of- pocket expenses associated with the movement of records and material will be borne by the Fund on behalf of the applicable Portfolio(s). Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination. Article 8 Additional Funds ---------------- 8.01 In the event that the Fund establishes one or more series of Shares in addition to those identified on page 1 of this Agreement with respect to which it desires to have the Bank render services as transfer agent under the terms hereof, it shall so notify the Bank in writing, and if the Bank agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. Article 9 Assignment ---------- 9.01 Except as provided in Section 9.03 below, neither this Agreement nor any 11 rights or obligations hereunder may be assigned by either party without the written consent of the other party. 9.02 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 9.03 The Bank may, without further consent on the part of the Fund, subcontract for the performance hereof with (I) Boston Financial Data Services, Inc., a Massachusetts corporation (BFDS), which is duly registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934, as amended ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate duly registered as a transfer agent pursuant to Section 17A(c)(1); provided, however, that the Bank shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions. Article 10 Amendment --------- 10.01 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Trustees of the Fund. Article 11 Massachusetts Law to Apply -------------------------- 11.01 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. Article 12 Merger of Agreement ------------------- 12.01 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. 12 Article 13 Counterparts ------------ 13.01 This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. LOOMIS SAYLES FUNDS BY: /s/ Charles J. Finlayson ------------------------------- President ATTEST: /s/ Laurie M. Gallagher - ------------------------------ Assistant Secretary STATE STREET BANK AND TRUST COMPANY BY: /s/ M.J Hayes ------------------------------- Vice President ATTEST: /s/ A. Curley - ------------------------------ A copy he Agreement and Declaration of Trust establishing Loomis Sayles Funds (the "Trust") is on file with the Secretary of State of the Commonwealth of Massachusetts, and notice is hereby given that this agreement is executed on behalf of the Trust by officers of the Trust 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 of the Trust individually but are binding only upon the assets and property of the relevant series of the Trust. 14 STATE STREET BANK & TRUST COMPANY FUND SERVICE RESPONSIBILITIES* Service Performed Responsibility - ----------------- -------------- Bank Fund ---- ---- 1. Receives orders for the purchase of Shares. 2. Issue Shares and hold Shares in Shareholders accounts. 3. Receive redemption requests. 4. Effect transactions 1-3 above directly with broker-dealers. 5. Pay over monies to redeeming Shareholders. 6. Effect transfers of Shares. 7. Prepare and transmit dividends and distributions. 8. Issue Replacement Certificates. 9. Reporting of abandoned property. 10. Maintain records of account. 11. Maintain and keep a current and accurate control book for each issue of securities. 12. Mail proxies. 13. Mail Shareholder reports. 14. Mail prospectuses to current Shareholders. 15. Withhold taxes on U.S. resident and non-resident alien accounts. 15 Service Performed Responsibility - ----------------- -------------- Bank Fund ---- ---- 16. Prepare and file U.S. Treasury Department forms. 17. Prepare and mail account and confirmation statements for Shareholders. 18. Provide Shareholder account information. 19. Blue sky reporting. * Such services are more fully described in Article 1.02 (a), (b) and (c) of the Agreement. BY: ------------------------------- ATTEST: - -------------------------------- STATE STREET BANK AND TRUST COMPANY BY: -------------------------------------- Vice President ATTEST: - --------------------------------- Assistant Secretary 16 EX-99.11 7 CONSENT OF COOPERS & LYBRAND L.L.P. CONSENT OF INDEPENDENT ACCOUNTANTS To the Trustees of Loomis Sayles Funds: We consent to the incorporation by reference in Amendment No. 15 to the Registration Statement of Loomis Sayles Funds with respect to its Loomis Sayles Bond Fund, Loomis Sayles High Yield Fund and Loomis Sayles Small Cap Value Fund series (each a "Fund") on Form N-1A (File No. 811-6241) under The Investment Company Act of 1940, as amended, and Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A (File No. 333-39133) under The Securities Act of 1933, as amended, of our reports dated February 21, 1997 on our audits of the financial statements and financial highlights of the Funds, which reports are incorporated by reference in the Amendment and Post-Effective Amendment to the Registration Statement. We consent to the references to our Firm under the captions "Financial Highlights" in the Prospectuses and "Independent Accountants" in the Statement of Additional Information for the aforementioned Funds. Boston, Massachusetts Coopers & Lybrand L.L.P. October 30, 1997 EX-99.13A 8 INVESTMENT REPRESENTATION REGARDING INITIAL SHARES Exhibit 13(a) LOOMIS, SAYLES & COMPANY, INCORPORATED One Financial Center Boston, Massachusetts 02111 April 29, 1991 Loomis Sayles Funds One Financial Center Boston, Massachusetts 02111 Ladies and Gentlemen: With respect to our purchase from you of 10,000 shares of beneficial interest, no par value, of your Loomis Sayles Municipal Bond Fund series, we hereby advise you that we are purchasing such shares with no present intention to dispose of them either through resale to others or redemption by Loomis Sayles Funds. Very truly yours, LOOMIS, SAYLES & COMPANY, INCORPORATED By /s/ CHARLES J. FINLAYSON ---------------------------- Charles J. Finlayson Vice President and General Counsel EX-99.13B 9 ORGANIZATIONAL EXPENSE REIMBURSEMENT AGREEMENT Exhibit 13(b) ORGANIZATIONAL EXPENSE REIMBURSEMENT AGREEMENT This Agreement, made this 31st day of July, 1992, by and between Loomis Sayles Funds, a Massachusetts business trust (the "Trust") and Loomis, Sayles & Company, Incorporated (the "Adviser"). WITNESSETH: WHEREAS, the Trust is registered as an open-end diversified management investment company under the Investment Company Act of 1940 and was and is in the process of organizing the Loomis Sayles Short-Term Bond Fund series (the "New Series"); WHEREAS, there have been and will be certain organizational expenses incurred as part of such organization, which are properly expenses of the Trust, that have been and will in the future be paid by the Adviser by reason of the fact that the Trust was not or will not be capitalized when such expenses otherwise became or become due and payable; WHEREAS, such organizational expenses include expenses necessary to organize and establish the New Series, including, without limitation, such expenses as outside legal counsel's fees, Securities and Exchange Commission filing and registration fees, independent public accountant fees and state blue sky filing and registration fees (such expenses being hereinafter referred to as "Organization Expenses"): NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows: 1. Upon the issuance and sale of shares of beneficial interest of the New Series to the public, the Trust shall reimburse and pay to the Adviser up to $_______ of the amounts expended by the Adviser for Organization Expenses for the New Series. 2. Such reimbursement shall be paid by the Trust to the Adviser upon demand, without interest, and in no event later than five years from the commencement of operations of the New Series. Upon demand for payment, the Adviser shall present copies of invoices or receipts, and copies of cancelled checks or other evidence of payment by the Adviser of the Organization Expenses for which it is demanding reimbursement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. LOOMIS SAYLES FUNDS on behalf of its Short-Term Bond Fund series /s/ Charles J. Finlayson ------------------------------ Charles J. Finlayson President LOOMIS, SAYLES & COMPANY, INCORPORATED /s/ Charles J. Finlayson ------------------------------ Charles J. Finlayson Vice President -2- EX-99.14 10 IRA PROTOTYPE DOCUMENTS Exhibit 14 LOOMIS SAYLES FUNDS INDIVIDUAL RETIREMENT ACCOUNT _____________________________________________ INDIVIDUAL AND SPOUSAL IRAS AND IRAS UNDER A SIMPLIFIED EMPLOYEE PENSION (SEP) WITH NO-LOAD MUTUAL FUNDS -2- - ------------------------------------------------------------------ THE LOOMIS SAYLES FUNDS INDIVIDUAL RETIREMENT ACCOUNT (the "Plan") - ------------------------------------------------------------------ TABLE OF CONTENTS Why Should I Set up a Loomis Sayles Funds IRA............................... 3 What is a Loomis Sayles Funds SEP......... 3 Selection of No-Load Funds................ 4 Questions and Answers about IRAs.......... 7 Features of the Plan...................... 16 Copy of the Plan.......................... 24 Account Application....................... 35 Beneficiary Designation................... 36 Transfer of Assets Form................... 38 Please note: The Loomis Sayles Funds Individual Retirement Account (the "Plan"), as described herein, has been approved by the Internal Revenue Service. A copy of the determination letter issued by the Internal Revenue Service with respect to the Plan is reproduced on the preceding page. The Loomis Sayles Funds Simplified Employee Pension (SEP) incorporates Forms 5305-SEP and 5305A-SEP as issued by the Internal Revenue Service (the "IRS"). The use of these forms by Loomis Sayles does not represent a determination by the IRS as to the merits of the IRA. -3- - ----------------------------------------------------------------- WHY SHOULD I SET UP A LOOMIS SAYLES FUNDS IRA? - ----------------------------------------------------------------- Whether you are able to make deductible or non-deductible contributions to your individual IRA, the Loomis Sayles Funds IRA can help you plan for your retirement. By utilizing our no-load funds, all of your money begins working for you immediately. In some cases this could mean a savings of up to 8.5% in sales charges. And, unlike most employer sponsored plans, you can choose when to invest your money and where to invest your money. - ----------------------------------------------------------------- WHAT IS A LOOMIS SAYLES FUNDS SEP? - ---------------------------------- In addition, the Loomis Sayles Funds IRA may be adopted for contributions under an employer-sponsored Loomis Sayles Funds SEP. A Loomis Sayles Funds SEP is a simplified means by which employers can set aside income for retirement for their employees on a tax-deferred basis. Under a Loomis Sayles Funds SEP, an employer may make contributions directly to their Loomis Sayles Funds IRA. Please see the "Guide to Employers" for additional information about the types of SEPs that Loomis Sayles sponsors. The employee's Loomis Sayles Funds IRA under a Loomis Sayles Funds SEP, in general, follows the rules described below for individual Loomis Sayles Funds IRAs although certain nondiscrimination rules and other requirements may apply to your employer's contribution. The employee may make individual contributions to a Loomis Sayles Funds IRA even if the employer also makes contributions to it under a Loomis Sayles Funds SEP, although the employee's contributions will be subject to the limits on amounts and contributions described below. We have a dedicated staff who can answer any questions that you may have and assist you in completing the forms necessary to establish your account. We hope that you will find the enclosed information helpful and look forward to hearing from you. -4- - ----------------------------------------------------------------- SELECTION OF NO-LOAD FUNDS - ----------------------------------------------------------------- NINE NO-LOAD The nine no-load funds eligible for your IRA MUTUAL FUNDS investments are listed below. You may invest either in one, or in a combination, of the funds best suited to your circumstances. The funds have different investment objectives and offer a range of income and appreciation potential. A brief description of each fund is provided below. Additional information can be obtained from the prospectus of each fund which is available to you upon request. . The investment objective of the Loomis Sayles Growth Fund is long-term growth of capital. The Growth Fund seeks to attain its objective by investing substantially all of its assets in common stocks or their equivalent. Investments are selected based on their growth potential; current income is not a consideration. The Growth Fund may invest in companies with relatively small market capitalization, as well as in larger companies. The Growth Fund may invest a limited portion of its assets in securities of foreign issuers. . The investment objective of the Loomis Sayles Growth & Income Fund is long- term growth of capital and income. The Growth & Income Fund seeks to attain its objective by investing substantially all of its assets in common stocks or their equivalent which are considered to be undervalued in relation to the issuer's earnings, dividends, assets and growth prospects. The Growth & Income Fund may invest a limited portion of its assets in securities of foreign issuers. . The investment objective of the Loomis Sayles Small Cap Fund is long-term capital growth from investments in common stocks or their equivalent. The Small Cap Fund seeks to achieve its objective by giving emphasis to both undervalued securities and securities of companies with significant growth potential. The Small Cap Fund will normally invest at least 65% of its assets in companies with market capitalization of less than $500 million and may invest up to 35% of its assets in larger companies. Current income is not a consideration when investments for the Small Cap Fund are selected. The Small Cap Fund may invest a limited portion of its assets in securities of foreign issuers. . The investment objective of the Loomis Sayles International Equity Fund is high total investment return through a combination of capital appreciation and current income. The International Equity Fund seeks to attain its objective by investing primarily in equity securities of companies organized or headquartered outside the -5- United States. Under normal conditions, the International Equity Fund will invest at least 65% of its assets in equity securities of issuers of at least three countries outside the United States, and no more than 40% of its assets in issuers headquartered in any one country. For temporary defensive purposes, the International Equity Fund may invest as much as 100% of its assets in issuers from one or two countries, which may include the United States. . The investment objective of the Loomis Sayles Global Bond Fund is high total investment return through a combination of high current income and capital appreciation. The Global Bond Fund seeks to attain its objective by investing primarily in investment grade fixed income obligations (including convertibles) denominated in various currencies including U.S. dollars or in multicurrency units. Under normal conditions, the Global Bond Fund will invest at least 65% of its assets in bonds of issuers of at least three countries which may include the United States, and no more than 40% of its assets in issuers headquartered in any one country. However, up to 100% of the Global Bond Fund's assets may be denominated in U.S. dollars. For temporary defensive purposes, the Global Bond Fund may invest as much as 100% of its assets in issuers from one or two countries, which may include the United States. The Global Bond Fund may engage in options and forward contract transactions to hedge against changes in the value of securities and the currencies in which they are denominated. . The investment objective of the Loomis Sayles Bond Fund is high total investment return through a combination of current income and capital appreciation. The Bond Fund seeks to attain its objective by normally investing substantially all of its assets in investment-grade debt securities (including convertibles), although up to 20% of its assets may be invested in preferred stocks. At least 65% of the Bond Fund's assets will normally be invested in bonds. The Bond Fund may also invest a limited portion of its assets in lower rated debt securities and in securities of foreign issuers. . The investment objective of the Loomis Sayles U.S. Government Securities Fund is high total investment return through a combination of current income and capital appreciation. The U.S. Government Securities Fund seeks to achieve its objective by investing substantially all its assets in securities issued or guaranteed by the U.S. Government or its authorities, agencies or instrumentalities ("U.S. Government Securities"), and in certificates representing undivided interests in the interest or principal of securities of U.S. Treasury Securities. At least 65% of the U.S. Government Securities Fund will normally be invested in U.S. Government Securities. . The investment objective of the New England Cash Management Trust, a money market fund, is to provide maximum current income consistent with preservation of -6- capital. The Loomis Sayles Funds IRA offers two series of the New England Cash Management Trust: (1) the Money Market Series, and (2) the U.S. Government Series. The Money Market Series invests in a variety of high- quality money market instruments. The U.S. Government Series invests only in obligations backed by the full faith and credit of the U.S. Government and in related repurchase agreements. Both the Money Market Series and the U.S. Government Series are managed by Back Bay Advisors, Inc. -7- - ------------------------------------------------------------------ QUESTIONS AND ANSWERS ABOUT IRAS - ------------------------------------------------------------------ ELIGIBILITY Who can open an IRA? Anyone who earns income and is still under age 70 1/2 at the end of the calendar year can open an individual IRA. Can I simultaneously have two or more individual IRA accounts? Yes, as long as no more than a total of $2,000 is contributed to your IRA accounts in any one tax year. Can my spouse have an IRA? Yes. An IRA which is separate from but identical to your IRA (a "spousal IRA") can be set up for the benefit of your spouse if - your spouse has no earnings for the year or elects to be treated as having no earnings for the year - your spouse has not attained age 70 1/2, and - you and your spouse file a joint income tax return. CONTRIBUTIONS How has the Tax Reform Act of 1986 changed the amount of contributions that I can make to my individual IRA? No change has been made in the amount that you may contribute to your own IRA or an IRA for your spouse. What has changed is the amount of the contributions that can be deducted for income tax purposes, as explained below. What is the maximum annual contribution I can make to my individual IRA (deductible plus non-deductible)? You may contribute $2,000 or 100% of your earned income, whichever is less. What is the maximum annual contribution that can be made to my spouse's IRA? A total of $2,250 or 100% of your earned income can be contributed to your own IRA and your spouse's IRA. The contributions may be divided between the two separate IRAs in any way you wish, so long as neither IRA receives more than $2,000. Can I contribute less than the maximum? Yes, you can contribute any amount you wish up to the maximum amount for your individual IRA (and your spouse's IRA) for each taxable year. What is the maximum annual deductible contribution that I can make to my individual IRA? -8- - If you are not (or, if you are married, neither you nor your spouse is) an active participant in a tax qualified retirement plan or a government retirement plan, you will be able to deduct your contribution in full. - If you are (or, if you are married, either you or your spouse is) an active participant in any such retirement plan and your adjusted gross income (AGI) is less than $25,000 ($40,000, if married), you may still deduct your contribution in full. - If you are (or, if you are married either you or your spouse is) an active participant in any such retirement plan and your AGI is between $25,000 and $35,000 ($40,000 and $50,000, if married) the maximum deductible contribution you can deduct is reduced at the rate of 10% for each $1,000 of income in excess of $25,000 ($40,000, if married). Thus if you are single and your AGI is $31,500, your maximum contribution would be $700. You could still make a $2,000 contribution, but the other $1,300 would be non-deductible. - If you are (or, if you are married either you or your spouse is) an active participant in any such retirement plan and your AGI exceeds $35,000 ($50,000, if married) you will not be permitted to deduct any part of your contribution. You can still contribute any amount you wish up to $2,000 (or $2,250 if you have a spousal IRA), but the entire contribution will be non-deductible. Can both a husband and wife who work have individual IRAs? Yes. If you both have earned income, you can each have your own IRA. How do I change the designation of my contribution after I file my taxes? A contribution can be redesignated by filing an amended tax return and paying any taxes which may result from this change. When do I make my contribution? You can make your contribution any time from the beginning of the tax year to April 15 of the following year. Do I have to contribute to an individual IRA each year? No. You need not contribute to an IRA each year. You can also vary the amount of contributions to your IRA. What are the limits on contributions under a Loomis Sayles Funds SEP? -9- If you establish a Loomis Sayles Funds IRA as part of a Loomis Sayles Funds SEP, different limits on contributions by the employer apply. See the "Guide to Employers" which describes the Loomis Sayles Funds SEP for an explanation of those limits. You may still make individual contributions to this IRA, but you will be subject to the limits on amounts and deductibility described above. What if I contribute more than the maximum allowed? If you withdraw the excess contribution and its earnings before you file your tax return (including extensions) for the year, you won't be subject to the 6% penalty on the excess contribution described below. You will be subject, however, to income taxes (and a 10% penalty tax if you are under age 59 1/2) on the earnings of the excess contribution. Another method for correcting the excess contribution is to leave the money in your IRA and to apply the excess to your next year's contribution. If you do that, however, you would be subject to a 6% penalty tax on the excess contribution in the year in which it was made and each subsequent year it remains an excess contribution. If your IRA is part of a Loomis Sayles Funds SEP and contributions are made in excess of the permissible limits established for a SEP, those contributions will be subject to the excess contributions rule described above. You may correct such an excess contribution through the procedures described above. May I make annual contributions to an IRA after I reach age 70 1/2? No. If you reach age 70 1/2 by the end of the year you will not be able to contribute to your individual IRA. In addition, you may not contribute to your spouse's IRA after he or she reaches age 70 1/2. What money can I use to make my contributions to my individual IRA? The money can come from any source--it can be deducted from your paycheck or can come from another investment such as a savings account, checking account, etc. TRANSFERS What is a transfer of assets? AND ROLLOVERS A transfer of assets is the direct transfer from one IRA to another. The assets must be transferred directly from one trustee, custodian or insurance company to another. -10- What is an IRA rollover? An IRA rollover is a tax-free reinvestment of assets received by you from a retirement program into an IRA. An IRA rollover occurs 1) when the assets of an IRA are withdrawn by the investor and, within 60 days of receipt, are reinvested into another IRA. An IRA may be rolled over only once per year. 2) when a lump sum distribution from a qualified plan or tax-sheltered annuity (TSA) is reinvested within 60 days of receipt in an IRA rollover account. These distributions should not be commingled with your contributory IRA account if you ever plan to reinvest the assets in a qualified plan or TSA. Can I roll over a partial distribution from my retirement plan? Yes, if the distribution constitutes at least 50% of your account balance and is a result of separation from service with your employer or disability. How do I transfer my existing individual IRA to the Loomis Sayles Funds? Simply complete the IRA application, beneficiary designation form and transfer of assets form. Return all forms to us, along with a check for $5 made payable to State Street Bank and Trust Company, in the envelope provided. DISTRIBUTIONS When can I start to make withdrawals from my IRA? You may start to withdraw money without penalty from your IRA as early as age 59 1/2. Distribution must begin by April 1 following the year in which you attain age 70 1/2. What are the permissible methods of distribution? A lump sum payment, installment payments (monthly, quarterly or annual) or an annuity contract. Over what distribution period may my installment or annuity payments be made? If you do not choose a lump sum payment, distribution must be made over one of the following periods: A. Your life expectancy; B. The joint life expectancy of you and your designated beneficiary; C. A period certain not longer than your life expectancy; -11- or D. A period certain not longer than the life expectancies of you and your designated beneficiary. May I make withdrawals before I reach age 59 1/2? Yes. However, the IRS imposes a 10% penalty tax on the amount withdrawn and the distribution must also be reported in your income tax return for that year. Distributions which are due to death or disability, paid under a qualified domestic relations order, or as part of a series of substantially equal periodic (at least annual) payments over your life or the lives of you and your beneficiary are exempt from these penalties. May I use my IRA as collateral for a loan? No. If you use your IRA or any portion of it as collateral for a loan, it will be taxed immediately as if it were a payment to you. DISTRIBUTION What happens to my IRA if I die before age 59 1/2 AT DEATH or before my benefits have been distributed to me from my IRA? Any amount in your IRA at the time of your death will be distributed to your designated beneficiary or beneficiaries. If you did not designate a beneficiary or your beneficiary predeceases you, payment will be made to your estate. How do I name a beneficiary? You name a beneficiary by completing a Beneficiary Designation form. You may change your beneficiary at any time by completing a new form. How can my beneficiary, who is my surviving spouse, receive death proceeds from my IRA? Your spouse can elect one of the following methods: A. Have the entire interest of the death proceeds distributed by December 31 of the year which includes the fifth anniversary of your death. B. Have the death proceeds rolled over into another IRA. C. Begin receiving the installment or annuity distributions you previously were receiving by December 31 of the year which includes the first anniversary of your death. or D. Have the death proceeds paid over your spouse's life expectancy providing that the distribution starts no later than December 31 of the year in which you would have attained age 70 1/2. -12- TAXATION Will I have to itemize to get a reduction in my taxes if I make a deductible contribution to my individual IRA? No, because a deductible contribution to an IRA adjusts your gross income. As long as you indicate how much you invested in your IRA on the appropriate line of your 1040 form, you will reduce your taxes. How are my retirement distributions taxed? If the contributions to your IRA have all been tax-deductible, either to you or your employer, then each distribution will be taxed as ordinary income in the year it is received. In addition, if you receive a very large distribution (generally, in excess of $150,000) from your retirement plans and your IRA in any calendar year, you may be subject to a 15% penalty tax on the amount in excess of $150,000. If any of your contributions has been non-deductible, each distribution will consist of a non-taxable portion (return of non-deductible contributions) and a taxable portion (the return of deductible contributions and their earnings and earnings on non-deductible contributions). Lump sum distributions from an IRA are not eligible for the special 5-year or 10-year averaging procedures sometimes available for lump sum distributions from a qualified plan. Are IRA proceeds subject to estate taxes? The assets in your IRA plan at the time of your death will be included in your estate for federal estate tax purposes. In addition, if the total amount of benefits payable from your retirement plans and your IRA exceeds permissible levels, a 15% penalty tax may be assessed on the amount in excess of the permissible level. FORMS What is Form 5498? Form 5498 lists the amount of contributions made into an IRA or IRA rollover and is reported to the IRS. Form 5498 reflects contributions made for one calendar year and through April 15 of the following year. What is Form 8606? Form 8606 reports the amount of your IRA contribution which is non-deductible. Failure to file Form 8606 for each year in which you make a non-deductible IRA contribution may subject you to a $50 fee. If you overstate the amount of your non-deductible contributions on this form, you may be subject to a $100 penalty. What form is issued when a distribution is made from an IRA? -13- A distribution from an IRA is reported on a Form 1099-R. What is IRS Form 5329? Form 5329 must be filed when you owe penalty taxes on your IRA. The penalty taxes which must be reported on Form 5329 are excess contribution taxes, premature distribution taxes, taxes imposed because you did not receive a sufficient amount under the distribution rules, and taxes on excess distributions. THE LOOMIS Why fund an IRA with mutual funds? SAYLES FUNDS Mutual funds offer day-to-day professional management, IRA AND YOU a range of investment choices, and a variety of services that no other investment can match. For those who want to invest in some of the safest securities available, money market funds offer competitive interest rates with little risk. Our other funds invest in a broad range of common stock or fixed income securities. Those investing in mutual funds through an IRA can switch between different types of funds. In the Loomis Sayles Funds IRA, what investment choices are available? Nine no-load mutual funds: Stock funds - The Loomis Sayles Growth Fund - The Loomis Sayles Growth & Income Fund - The Loomis Sayles Small Cap Fund - The Loomis Sayles International Equity Fund Bond funds - The Loomis Sayles Bond Fund - The Loomis Sayles U.S. Government Securities Fund - The Loomis Sayles Global Bond Fund Money market funds - The New England Cash Management Trust: Money Market Series - The New England Cash Management Trust: U.S. Government Series Is there a sales charge involved in the purchase of shares in these funds? No. All nine funds are no-load. What is the minimum investment in an individual IRA? -14- The minimum investment is $250. If you wish to invest your contribution in more than one fund, you must invest at least $250 in each fund. Can I split my contributions? Yes. You can allocate portions of the contributions made to your IRA among any of the funds. Can I shift from one fund to another? Yes. You can exchange your existing shares or redirect your contributions among the funds. I already have an IRA account with another organization. Can I transfer it to the Loomis Sayles Funds IRA? Yes. A form for transferring assets is enclosed in this kit. How do I keep track of my IRA? The Trustee will send you statements showing how much you have contributed, earnings and the number of shares in your account. In addition, you will receive shareholder reports containing current portfolio information to help you keep up to date on the investment activities of the fund(s) you are using. -15- - ----------------------------------------------------------------- LOOMIS SAYLES FUNDS INDIVIDUAL RETIREMENT ACCOUNT - ----------------------------------------------------------------- FEATURES OF THE PLAN The tax features of an Individual Retirement Account ("IRA") have greatly expanded the opportunity to set aside dollars for your retirement years. You may get a current deduction on your tax return for the amount you invest in an individual IRA. You don't pay a tax on your contributions or contributions made by your employer until you draw out your accumulated funds at retirement. The earnings in the account are also tax-deferred until that time. Your right to your account, or, in the event of death, the right of your beneficiary or estate, is at all times non-forfeitable. Loomis Sayles ("Loomis Sayles") created this IRA as a convenient way for you to establish your own personal IRA and for your employer to make contributions on your behalf. The Plan has received a determination letter from the Internal Revenue Service that it meets the requirements of applicable law. (See the Internal Revenue Service determination letter (Serial No. D111143c) dated September 9, 1991 which is included in these materials.) IRS approval of the form of Plan does not however, represent any endorsement or determination by IRS as to the merits of the Plan or the Funds. If you think you would like to participate, please read on for a further explanation of the key features of applicable law and the Plan. This document, plus the prospectus of the fund(s) you have chosen for your IRA investment and the information provided above, constitute your disclosure statement as required by federal law. Right to Revoke You may revoke your enrollment in an IRA account by giving written notice within seven days after the account is established. Notice of revocation must be mailed to the Trustee, State Street Bank and Trust Company at P.O. Box 8314, Boston, Massachusetts 02266-8314 or hand delivered to the Trustee at 225 Franklin Street, Boston, MA 02129. Notice will be deemed to have been mailed on the date of the postmark (or if sent by registered or certified mail, the date of registration or certification) when deposited in the mail in the United States, first class postage prepaid, properly addressed. If you revoke your account, the entire amount you paid in will be returned to you promptly, without deductions or adjustments of any kind. If your IRA has been established under a SEP sponsored by your employer, your seven-day withdrawal period will commence as of the date on which the first contribution on your behalf is made. -16- Eligibility In general, everyone under age 70 1/2 who earns a wage or salary or earns a profit from his work is eligible to contribute to an individual IRA. Also married individuals who are eligible may establish a separate IRA on behalf of their non-working spouses (a "Spousal IRA"). Furthermore, divorced or legally separated individuals may contribute to an IRA based on the alimony payments they receive. See the "Guide to Employers" for an explanation of the eligibility requirements for an IRA under a Loomis Sayles Funds SEP. Contributions If you establish an IRA for your own benefit, each year until you attain age 70 1/2 you may contribute up to an amount equal to the lesser of your total annual compensation or $2000. Alimony payments may be treated as compensation. If an IRA is also established for the benefit of your spouse, the overall limit for contributions to both IRAs is $2,250 (but you still may not contribute more than 100% of your total annual compensation, and the amount contributed to either IRA may not exceed $2,000). Your contribution may be made at any time during the taxable year or after the end of the taxable year up to the time for filing your individual tax return for that year (without regard to any extension). For most individuals, the deadline would be April 15. You do not have to contribute each year, nor are you required to contribute the same amount each year. You may make your contributions in convenient installments as set forth in the Account Application. Your account will be in your name, your spouse's account, if any, will be in his or her name, and you are entitled to the tax deduction. To keep an IRA qualified, you will need to report your deduction on your annual IRS tax return, Form 1040. You do not have to itemize deductions in order to deduct an IRA contribution on your income tax return. See the "Guide to Employers" for a description of the rules concerning contributions under a Loomis Sayles Funds SEP. An IRA may be used to make a "rollover" contribution of funds received by you from a qualified employee benefit plan in which you previously participated. Anyone who receives a lump sum payment of accumulated benefits in a qualified employee benefit plan can preserve tax sheltered treatment of these funds by investing them in an IRA within 60 days of receipt. In this manner, assets transferred from another retirement program are kept invested, tax consequences stemming from the payment are deferred until distributions are made from your IRA account and you have the option to -17- "rollover" the funds later to a tax-qualified program of a subsequent employer, a retirement annuity or another IRA. You can rollover the entire amount of your distribution from a qualified employee benefit plan (less any non-deductible contributions you made to the plan) to your IRA or you can rollover only a portion of the distribution. If you do not rollover the entire distribution, however, the portion of the distribution not included in the rollover will be taxed as ordinary income. This rollover contribution should be segregated from an IRA account into which current contributions are made if you wish to preserve the option to rollover such amount at a later time to a tax-qualified program of a subsequent employer. Anyone desiring to make such a segregation of a "rollover" contribution should open two separate IRA accounts. Rollover contributions may be made in the form of securities or other assets with the Trustee's approval. An IRA rollover also occurs in the case where assets from one IRA to which you have made current contributions are withdrawn by you and within 60 days of receipt are reinvested into another IRA. A rollover can be made only once in any taxable year. Such rollover assets need not be segregated from an IRA account into which current contributions are being made. Earnings and Charges Your contributions and contributions made on your behalf by your employer will be used to purchase shares, as you direct, of Loomis Sayles Growth Fund, Loomis Sayles Growth & Income Fund, Loomis Sayles Small Cap Fund, Loomis Sayles International Equity Fund, Loomis Sayles Global Bond Fund, Loomis Sayles Bond Fund, Loomis Sayles U.S. Government Securities Fund, New England Cash Management Trust: Money Market Series and New England Cash Management Trust: U.S. Government Series (the "Funds"). The Funds are no-load funds, which means that no sales commissions are charged; 100 percent of your dollar contribution is invested for you. Any dividends or capital gains distributions on the Funds' shares will be invested in additional Funds' shares automatically. These additional shares will represent your earnings from the account. The funds available for distribution when you reach age 59 1/2, die, or become disabled will be the market value of the shares your contributions and earnings have purchased over the years. Due to the fluctuating value of the Funds' investments, it is not possible to make a projection of expected growth, and growth cannot be guaranteed. -18- The law requires that the shares in your account be held by a trustee which is a bank or other organization approved by the IRS. The Trustee of the Plan meets this requirement. You will be entitled to vote the shares in your account. The Trustee charges $5.00 as an application fee, $10.00 per year per account as a maintenance fee, and $5.00 for each lump sum distribution or return of an excess contribution but reserves the right to increase these charges at any time upon 30 days' advance notice. The Trustee will send you a statement of account annually informing you of the exact amount of contributions, earnings, distributions, and year-end value. The Trustee will also send a statement to the Internal Revenue Service as required by law. Distributions You may withdraw funds from your account at any time after age 59 1/2 and before age 70 1/2 without any restrictions. Penalties may apply in certain other circumstances. (See Account Restrictions and Penalties, below). You must begin to withdraw funds from your account no later than the April 1 following the year in which you attain age 70 1/2 (or the year you create a rollover IRA, if later). Your funds may at your option be distributed to you in the following ways: (1) a lump sum payment of your entire account, in cash or Fund shares; (2) installment payments over a period certain not extending beyond your life expectancy; (3) installment payments over a period certain not extending beyond the joint life and last survivor expectancy of you and your beneficiary; or (4) in the form of an annuity contract. If you die before distribution of your IRA begins, then the entire balance must be distributed in cash or Fund Shares to your beneficiary by December 31 of the year which contains the fifth anniversary of your death, or in installment payments over a period certain not exceeding your beneficiary's life expectancy, or in the form of an annuity contract for a similar period. Installment payments must begin either by December 31 of the year following your death or, if your beneficiary is your surviving spouse, not later than December 31 of the year in which you would have attained age 70 1/2. If you die after distribution of your IRA begins but before it is completed, the remaining balance must be distributed to your beneficiary under a method which provides for payment at least as rapidly as under the method of distribution in use before your death. You may designate a beneficiary and change beneficiaries from time to time. If you do not designate a beneficiary, -19- your estate will receive the balance in your account. Designating a beneficiary and changing beneficiaries is not considered the making of a taxable gift. A non-deductible 50% excise tax will be imposed on the difference between the minimum amount which should have been paid out in any year based on the form of payment selected and the amount actually paid out in that year. The tax is to be paid by the individual to whom the minimum payments should have been made. You will pay income taxes when your account is distributed. If the amount of distributions you receive in any one year from your IRA and other retirement plans exceeds $150,000, you will be subject to a 15% penalty tax on the amount distributed in excess of $150,000. Depending upon your particular circumstances, you may find it advantageous to withdraw your account in installments over a number of years. If you die before receiving all of the assets in your account, the remainder of the account is included in the assets of your estate for federal estate tax purposes. In addition, if the benefits in your IRA and other retirement plans exceed certain threshold amounts, your estate may be subject to a 15% excise tax on amounts in excess of the threshold amounts . The tax laws provide that payments received from your IRA plan are subject to federal income tax withholding unless you elect not to have withholding apply. Such election must be made in writing to the Trustee at the time you submit your authorization for distribution. Account Restrictions and Penalties If you withdraw funds from your account before age 59 1/2 (except upon your death or disability or if the withdrawal is made for purposes of a rollover transfer or as part of a series of substantially equal payments over your life or life expectancy), the distributions will not only be included in your gross income, but also you will pay a non-deductible excise tax equal to 10% of the amount withdrawn. There are very severe consequences if you use your Plan assets as security for a loan or borrow any money from or through your IRA account, or engage in other transactions prohibited by Section 4975(c) of the Internal Revenue Code. Not only would your account lose its tax-exempt status, but you would be required to include the entire value of the account's assets in your gross income for the year in which the prohibited transaction occurred and to pay a 10% penalty as well. -20- If you contribute more to the Plan than the law allows (as explained under "Contributions"), you may withdraw the excess without the 6% penalty (described below) if you do so by the due date for filing your federal income tax return (with extensions). You must also withdraw the earnings on the excess and pay taxes and a 10% penalty on the amount of earnings. Excess contributions in a taxable year can be corrected by withdrawing the excess contribution in any later year provided that a tax deduction has not been allowed for the excess contribution. Additionally, an excess contribution in one taxable year (for which no tax deduction was taken) will be deductible in a subsequent taxable year if, and to the extent that, you contribute less than the maximum deductible amount in that later year and you treat the excess contribution as a current contribution in that year. Excess contributions which are not withdrawn or utilized as a current contribution during the year will be subject to a non-deductible excise tax of 6% for each taxable year in which they remain uncorrected. See the "Guide to Employers" for an explanation of these rules as applied to a Loomis Sayles Funds SEP. You must begin to withdraw funds from your account no later than April 1 following the year you reach age 70 1/2. If you do not, or if you withdraw less than the minimum amount described earlier under "Distributions," you will incur an excise tax equal to 50% of the amount you should have withdrawn but did not. The Secretary of the Treasury has the power to waive this 50% tax penalty, if the excess accumulation is due to reasonable cause and reasonable steps are being taken to correct the excess. If you receive a premature distribution, make an excess contribution which is not corrected in the time allowed, fail to withdraw the minimum amount required to be withdrawn upon attainment of age 70 1/2, or receive an excess distribution, you must file Form 5329 (return of excise tax) with the IRS along with your annual tax return, Form 1040. In addition, if you make a non-deductible contribution to your IRA in any year, you must file Form 8606 to report the amount of the non-deductible contribution. How to Participate You may establish your individual account simply by completing the Account Application and mailing it to State Street Bank and Trust Company at the address indicated on the Account Application with your first contribution. To establish an account under a Loomis Sayles Funds SEP, complete the Account Application and mail it to State Street Bank and Trust Company at the address indicated on the -21- Account Application. If you need any assistance in completing the Account Application, please telephone Loomis Sayles at (800) 633-3330. Once an account has been established for you, you can send subsequent investments to your individual IRA at any time directly to: Boston Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02102. You may also make subsequent investments by federal funds wire to: State Street Bank and Trust Company, ABA#011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Fund. Credit [Name Fund], [Account Holder Name], [Account Number]." Your bank may charge you a fee for transmitting funds by wire. PLEASE NOTE: The foregoing is not a complete or definitive explanation of the Plan or of the provisions of applicable law. Please do not complete the application without reading the Plan and the Fund prospectus which must always accompany the Plan. Consult your financial or tax advisor if you are uncertain that a Loomis Sayles Funds IRA is an appropriate program for your investment needs. -22- - ----------------------------------------------------------------- THE LOOMIS SAYLES FUNDS INDIVIDUAL RETIREMENT ACCOUNT (the "Plan") - ----------------------------------------------------------------- Loomis, Sayles & Company, Incorporated ("Loomis Sayles") has developed and is sponsoring this individual retirement plan for adoption by eligible individuals. Upon execution of the Account Application by the adopting individual and by his or her spouse (in the case of a "Spousal IRA"), a Plan and Trust Account shall be created for the exclusive benefit of the adopting Individual or his or her beneficiaries upon the following terms and conditions and in accordance with the provisions of the Employee Retirement Income Security Act of 1974, as amended (the "Act") and the Internal Revenue Code of 1986, as amended (the "Code"). Some words and phrases used herein have a technical meaning and are defined in Article IX. Eligibility I. Any person who receives Compensation for services rendered during the taxable year or for whom contributions are being made under his or her employer's simplified employee pension plan (within the meaning of Section 408(k) of the Code) is eligible to adopt this Plan. Any person for whom a Spousal IRA is being established is also eligible to adopt this Plan. In addition, any person making a Rollover Contribution, as defined in Article IX, below, may adopt the Plan. Participation II.a. Primary Participation. An eligible person who wishes to adopt this Plan (the "Individual") may do so by signing and mailing to the bank named in the Account Application as Trustee (the "Trustee") a counterpart copy of the Account Application (the "Application"). In addition, any such adopting Individual may designate the Plan as forming part of his or her employer's simplified employee pension plan (within the meaning of Section 408(k) of the Code) in which event such employer may make contributions to the Trust Account subject to the limitations described in Article III.a., below. b. Spousal IRA. A spouse for whom a Spousal IRA is being established will be required to sign an Account Application. Such a spouse shall be considered the sole owner of all amounts contributed thereto and the earnings thereon; shall have the right to designate how the assets in the Plan are to be invested under the provisions of Article IV, below; and shall have the right to direct the time and manner of distribution pursuant to the provisions of Article V, below. The spouse for whom a Spousal IRA is established shall not have the right to contribute to the Plan or to amend the Plan without his or her spouse's consent. Any provision of this Plan which gives any person adopting the Plan a right, option or privilege, or imposes any duty, risk or limitation on such person, or relieves the Trustee or the -23- Fund from liability to such person shall be deemed to extend to the spouse for whom a Spousal IRA has been established. Contributions III.a. An Individual who receives Compensation for services rendered during the taxable year may contribute cash to his or her account (the "Trust Account" or "Account") in any such year prior to the year in which he or she attains 70 1/2 in an amount not in excess of the lesser of the Individual's Compensation includable in his or her gross income for such year or $2,000. The Fund and Trustee are not responsible for determining the amount such an Individual may contribute, but the Trustee will not accept more than $2,000 in any taxable year from such Individual, plus any permitted Rollover Contribution plus (where the Plan has been designated as a part of a simplified employee pension plan (within the meaning of Section 408(k) of the Code)) contributions from such Individual's employer not in excess of the maximum dollar limitation applicable to defined contribution plans under Section 415(c)(1)(A) of the Code. The interest of such Individual in the Trust Account shall be non-forfeitable at all times. If during any taxable year such Individual contributes an amount which exceeds the deduction he or she is allowed under Section 219 of the Code, such excess contribution and any income attributable thereto shall, upon the written request at any time of such Individual, be paid to him or her by the Trustee . Such Individual may also at any age make a Rollover Contribution as defined in Article IX(c) below. If such Individual so directs on the Application, such Rollover Contribution and the earnings thereon shall be held by the Trustee in a separate account (the "Rollover Account") for the Individual. The interest of an Individual in his or her Rollover Account, if any, shall be non-forfeitable at all times. b. Cash may also be contributed to the Trust Account on behalf of an Individual for whom a Spousal IRA has been established provided: (i) such Individual has no Compensation or elects to be treated as having no Compensation for such taxable year; and (ii) such Individual will not have attained age 70 1/2 prior to the close of such taxable year. The interest of an Individual for whom a Spousal IRA has been established in his or her Trust Account shall be non-forfeitable at all times. The amount contributed may not exceed (i) the lesser of the Compensation of such Individual's spouse which is includable in his or her gross income for such taxable year or $2,250, reduced by (ii) the amount contributed by the spouse to any individual retirement plan established for his or her benefit and deductible by him or her -24- under Section 219 of the Code for such taxable year. However, in no case may the contribution under this Section exceed $2,000. Investment of Contributions IV.a. All contributions made by or on behalf of an Individual shall be invested by the Trustee in shares of one or more of the following registered investment companies (the "Funds") alone or in combination, in such percentage as the Individual shall specify in the Application or thereafter in writing to the Trustee from time to time. (1) Loomis Sayles Growth Fund; (2) Loomis Sayles Growth & Income Fund; (3) Loomis Sayles Small Cap Fund; (4) Loomis Sayles International Equity Fund; (5) Loomis Sayles Global Bond Fund; (6) Loomis Sayles Bond Fund; and/or (7) Loomis Sayles U.S. Government Securities Fund; (8) New England Cash Management Trust: Money Market Series; (9) New England Cash Management Trust: U.S. Government Series; and (10) such other registered investment company or companies as may now or hereafter be sponsored by Loomis Sayles or any of its affiliates and which Loomis Sayles designates in writing to the Trustee as an eligible investment under this Article IV. Prior to the date an Individual attains age 59 1/2, all income dividends and capital gains distributions from a Fund shall be reinvested in additional Fund Shares. On or after the date an Individual attains age 59 1/2, he or she may elect to receive all income dividends and/or capital gains distributions from a Fund in cash. b. A Rollover Contribution may be made in cash or in Shares of the Funds. c. No part of the Trust Account shall at any time be commingled with other property, except in a common trust fund or common investment fund (within the meaning of Section 408(a)(5) of the Code), or invested in any of the following: (1) A life insurance contract or contracts; (2) A promissory note or other obligation issued by the Individual; (3) Any work of art, rug, antique, metal, gem, stamp, coin, alcoholic beverage, or other tangible personal property specified by the Secretary of the Treasury as a "collectible" within the meaning of Section 408(m) of the Code. -25- Distributions V.a. All or any part of the interest of the Individual in the Trust account may be distributed at any time but must be, or commence to be, distributed by the Trustee no later than the first day of April following the calendar year in which the Individual attains 70 1/2 (the "Required Commencement Date"). Not later than the Required Commencement Date, the Individual shall specify, by written notice in a form and at such time as may be acceptable to the Trustee, that his or her interest in the Trust Account is to be distributed in: (1) A single sum payment in cash or Fund Shares; (2) Equal or substantially equal monthly, quarterly or annual payments over a period certain not extending beyond the life expectancy of the Individual or the joint life and last survivor expectancy of the Individual and his or her designated beneficiary; or (3) In the form of a nontransferable annuity contract which provides for payments over any period certain not exceeding the periods described in (2) above or over the life of the Individual or the joint lives of the Individual and his or her designated beneficiary, which contract shall be immediately distributed to the Individual. If the Individual fails to elect any of the methods of distribution described above on or before the Required Commencement Date, distribution to the Individual will be made on or before the Required Commencement Date in a single sum payment. b. If the Individual dies after distribution of his or her interest in the Trust Account commences but before his or her entire interest is distributed, the remaining portion of such interest will continue to be distributed to the Individual's designated beneficiary under a method of distribution elected by such beneficiary, provided such method provides for payment at least as rapidly as under the method of distribution employed prior to the Individual's death. If the Individual dies before distribution of his or her interest in the Trust Account commences, his or her entire interest will be distributed to his or her designated beneficiary under the method selected by such beneficiary from among those described below: (1) A single sum payment in cash or Fund Shares made not later than December 31 of the year in which occurs the fifth anniversary of the Individual's death; or (2) Equal or substantially equal monthly, quarterly or annual payments over a period certain not extending beyond the life expectancy of the designated beneficiary commencing, in the case of a designated beneficiary who is the Individual's surviving -26- spouse, not later than December 31 of the calendar year in which the Individual would have attained age 70 1/2 or, in the case of any other designated beneficiary, not later than December 31 of the year in which occurs the first anniversary of the Individual's death; or (3) In the form of a nontransferable annuity contract which provides for payments over any period certain not exceeding the period described in (2) above or over the life of the designated beneficiary, such payments to commence not later than the applicable date described in (2) above, which contract shall immediately be distributed to the designated beneficiary. Notwithstanding the preceding paragraphs, however, if the designated beneficiary is the Individual's surviving spouse, such spouse may at any time prior to December 31 of the year containing the fifth anniversary of the Individual's death elect to treat his or her interest in the Trust Account as his or her own individual retirement account, in which event he or she will thereafter succeed to all of the rights, and be subject to all of the restrictions, of the Individual with respect to his or her interest in the Trust Account. Such an election will be deemed to have been made in the event the surviving spouse makes an annual contribution to the Trust Account, makes a Rollover Contribution to or from the Trust Account, or fails to elect payment of his or her interest pursuant to any of the distribution options described above within the five-year period following the Individual's death. c. Notwithstanding that distributions may have commenced to the Individual, or in the event of the Individual's death, to his or her designated beneficiary, pursuant to one of the above options, the Individual or, if applicable, his or her designated beneficiary, may receive a distribution of the balance or any part of the balance of his or her interest in the Trust Account either in cash or in Fund Shares at any time upon written notice to the Trustee. If the Individual or a designated beneficiary elects a mode of distribution under (a)(2) or (b)(2) above, the total amount paid (in the case of payments due to the Individual) in the calendar year containing the Required Commencement Date and each subsequent year, or (in the case of payments due to a designated beneficiary) in the twelve consecutive month period beginning on the date payment commences and on each anniversary of such date, shall not be less than the lesser of the entire interest of the Individual or designated beneficiary in the Trust Account and an amount determined by dividing the entire interest of the Individual or designated beneficiary in the Trust Account at the beginning of each such year or period (including, in computing the minimum distribution due to the Individual, amounts not in the Account at the beginning of the year because they had been withdrawn for the purpose of making a Rollover Contribution to -27- another individual retirement account) by the life expectancy of the Individual or the joint life and last survivor expectancy of the Individual and his or her designated beneficiary, or in the case of distribution to a designated beneficiary, the life expectancy of such beneficiary, such expectancies determined in each case in accordance with (d) below. In the event the Individual's designated beneficiary is not his or her spouse, such amount shall be determined by dividing such entire interest of the Individual by the applicable divisor determined from the table set forth in Q&A-4 of section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. Distributions after the death of the Individual shall be calculated using the applicable life expectancy as the relevant divisor without regard to Proposed Regulations section 1.401(a)(9)-2. Distributions under (a)(3) or (b)(3) above shall be made in accordance with the requirements of section 401(a)(9) of the Internal Revenue Code and the regulations thereunder. d. For purposes of this Article, expectancies will be determined by use of the expected life return multiples specified in Tables V and VI of section 1.72-9 of the Income Tax Regulations. The life expectancy of the Individual and his or her surviving spouse, at the election of the Individual, may be recalculated not more frequently than annually. Such election shall be irrevocable as to the Individual and his or her surviving spouse and shall apply to all subsequent years. The life expectancy of any designated beneficiary who is not the Individual's surviving spouse may not be recalculated. In the event the Individual does not elect to have life expectancies recalculated, the life expectancy of the Individual, his or her surviving spouse or any other designated beneficiary will be determined as of his or her attained age during the calendar year in which distributions are required to begin and shall thereafter be reduced by one for each completed twelve consecutive month period to elapse since the date payment commenced. e. The Individual may designate a beneficiary or beneficiaries on the form which accompanies the Account Application. If no such designation is in force at the time of the Individual's death, the Trustee shall distribute the assets in the Trust Account to the personal representative of the deceased Individual. For purposes of b., c. and d. above, an Individual's surviving spouse will be deemed to be his or her designated beneficiary with respect to any payments to be made to a child of the Individual if the remainder of such child's interest in the Trust Account becomes payable to the Individual's surviving spouse when the child reaches the age of majority. Administration VI. Except as otherwise provided in this Plan, the Trustee shall exercise as agent on behalf of the Individual, his or her spouse, and any beneficiary any and all powers such persons themselves could exercise -28- as an owner of the property held, including but not limited to the following powers: (1) To receive contributions or a Rollover Contribution pursuant to the provisions of this Plan; (2) To hold, invest and reinvest the contributions or a Rollover Contribution in investments permitted by the provisions of Article IV hereof, or in any combination of such permitted investments, in such percentages as the Individual shall specify from time to time; (3) To register any property held by the Trustee in its own name, or in nominee or bearer form that will pass delivery; and (4) To make distributions from the Trust Account in cash or in Fund Shares or in an annuity contract pursuant to the provisions of this Plan. The Trustee shall mail to the Individual all proxies, proxy soliciting materials, and periodic reports or other communications that may come into the Trustee's possession by reason of its custody of Fund Shares. Upon receipt from the Individual of a signed proxy, the Trustee shall forward it to the soliciting Fund, it being intended that the Individual shall vote the proxy, notwithstanding the fact that the Trustee may be the registered owner of the shares, and the Trustee shall have no further liability or responsibility with respect to the voting of such shares. The Trustee shall keep accurate and detailed account of its receipts, investments and disbursements. As soon as practicable after December 31st each year, and whenever required by Regulations adopted by the Internal Revenue Service under the Act or the Code, the Trustee shall file with the Individual a written report of the Trustee's transactions relating to the Trust Account during the period from the last previous accounting and the then value of the Trust Account, and shall file such other reports with the Internal Revenue Service as may be required by its Regulations. Upon the expiration of sixty (60) days following its receipt, the Individual shall be deemed to have approved such report, and the Trustee shall be forever released and discharged with respect to all matters reflected therein, except as to such matters as the Individual may indicate by written objection received by the Trustee within said sixty (60) day period. The Trustee may seek a judicial settlement of its accounts. In any such proceeding the only necessary party thereto in addition to the Trustee shall be the Individual. The Trustee shall use ordinary care and reasonable diligence in the performance of its duties as Trustee. The Trustee shall not be liable for a mistake in judgment, for any action taken in good faith, -29- or for any loss that is not a result of gross negligence, except as provided by the Act if applicable and regulations promulgated thereunder. The Individual agrees to indemnify and hold the Trustee harmless from and against any liability that the Trustee may incur in the administration of the Trust Account, unless arising from the Trustee's own gross negligence or willful misconduct. The Trustee shall be under no duty to question the amount of any contribution or any direction of the Individual in respect to the investment of contributions, including a Rollover Contribution, or to make suggestions to the Individual with respect to the investment, retention or disposition of any contributions, including a Rollover Contribution, or assets held in the Trust Account . Unless otherwise instructed by the Individual, the Trustee shall pay out of the Trust Account expenses of administration, including the fees of counsel employed by the Trustee, taxes, its fees for maintaining the Trust Account (which are set forth in the Application or any subsequently amended Application), and any additional expenses or charges incurred by reason of the Individual's direction of the investment of a Rollover Contribution. The Trustee may sell Trust Account assets to pay the forgoing expenses. The Trustee may resign as Trustee of any Individual's Trust Account or as Trustee of all accounts adopted under the provisions of this Plan, in either case upon sixty (60) days' prior notice to Loomis Sayles and thirty (30) days' prior notice to each Individual who will be affected by such resignation. Loomis Sayles VII. The Individual delegates to Loomis Sayles the following powers with respect to the Plan: (i) to remove the Trustee upon sixty (60) days' prior notice to the Trustee, and to select a successor Trustee; (ii) to establish the fees of the Trustee by agreement with the Trustee; and (iii) to amend this Plan as provided in Article VIII hereof (except the power to amend the Individual's entries on the Application). The powers herein delegated to Loomis Sayles shall be exercised by such officer thereof as Loomis Sayles may designate from time to time, and shall be exercised only when similarly exercised with respect to all other Individuals adopting the Plan. Neither the Funds, Loomis Sayles nor any officer, director, board, committee, employee or other member of the Funds or Loomis Sayles shall incur any liability of any nature to the Individual or beneficiary or other person in connection with any act done or omitted to be done in good faith in the exercise of any power or authority herein delegated to Loomis Sayles. -30- If Loomis Sayles shall hereafter determine that it is no longer desirable for Loomis Sayles to continue to exercise any of the powers hereby delegated to Loomis Sayles, it may relieve itself of any further responsibilities hereunder by notice in writing to the Individual at least sixty (60) days prior to the date on which Loomis Sayles proposes to discontinue its exercise of the powers delegated to it. Amendment and Termination VIII. The Individual delegates to Loomis Sayles the power to amend this Plan (including retroactive amendment). The Individual may amend his or her Application (including retroactive amendment) by submitting to the Trustee (i) a copy of such amended Application, and (ii) evidence satisfactory to the Trustee that the Plan as amended by such amended Application will continue to qualify as an Individual Retirement Account under the provisions of Section 408 of the Code. No amendment shall be effective if it would cause or permit: (i) any part of the Trust Account to be diverted to any purpose that is not for the exclusive benefit of the Individual and his or her beneficiaries; (ii) the Individual to be deprived of any portion of his or her interest in the Trust Account, unless such action is taken in order to satisfy qualification requirements under the Code; or (iii) the imposition of an additional duty on the Trustee without its consent. The Individual reserves the right to terminate his or her adoption of this Plan by instrument in writing signed by him or her and filed with the Trustee. Definitions IX. Whenever used in this Plan, the following terms shall have the meanings set forth below unless otherwise expressly provided herein: a. "Compensation" means wages, salaries, professional fees, or other amounts derived from or received for personal service actually rendered (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses) and includes earned income as defined in Section 401(c)(2) of the Code (reduced by the deduction the self-employed individual takes for contributions made to a self-employed retirement plan). For purposes of this definition, Section 401(c)(2) shall be applied as if the term trade or business for purposes of Section 1402 included service described in subsection (c)(6). Compensation does not include amounts derived from or received as earnings or -31- profits from property (including, but not limited to, interest and dividends) or amounts not includable in gross income. Compensation also does not include any amount received as a pension or annuity or as deferred compensation. Any amount includable in the Individual's gross income under Section 71 of the Code with respect to a divorce or separation instrument described in Section 71(b)(2)(A) of the Code shall be included as compensation. b. "Fund Shares" means the common stock issued by the Funds described in Article IV as eligible investments. c. "Rollover Contribution" means a rollover contribution as described in Section 402(a)(5), Section 402(a)(6), Section 402(a)(7), Section 403(a)(4), Section 403(b)(8) or Section 408(d)(3) of the Code, as amended, and Regulations promulgated thereunder. The Individual shall have the exclusive responsibility for determining whether an amount contributed as a Rollover Contribution is properly described in the applicable Section of the Code. -32- - -------------------------------------------------------------------------------- LOOMIS SAYLES FUNDS INDIVIDUAL RETIREMENT ACCOUNT APPLICATION - -------------------------------------------------------------------------------- ACCOUNT INFORMATION Name --------------------------------- Address ------------------------------ ------------------------------------- Social Security # -------------------- Date of Birth ------------------------ Daytime Telephone Number ------------- Initial Contribution Information Make all checks payable to State Street Bank and Trust Company The enclosed check represents: - --- Contribution for current year; prior year - --- --- --- Rollover contribution from a qualified pension, profit-sharing or 403(b) plan - --- Rollover contribution from another IRA - --- SEP IRA Contribution current year; prior year - --- --- --- Transfer of assets from another IRA (Complete asset transfer on page 34) and enclose $5 application fee. - --- - -------------------------------------------------------------------------------- INVESTMENT SELECTION (May indicate more than one Fund. Contribution Allocation Please see page 5 for description of availability of funds). (minimum $250 per Fund) - ----------------------- Loomis Sayles Growth Fund 141 $ ---------------------- Loomis Sayles Growth & Income Fund 148 $ ---------------------- Loomis Sayles Small Cap Fund 143 $ ---------------------- Loomis Sayles International Equity Fund 145 $ ---------------------- Loomis Sayles Global Bond Fund 142 $ ---------------------- Loomis Sayles Bond Fund 147 $ ---------------------- Loomis Sayles U. S. Government Securities Fund 146 $ ---------------------- New England Cash Management Trust: Money Market Series $ ---------------------- New England Cash Management Trust: U.S. Government Series $ ---------------------- INITIAL APPLICATION FEE $ 5.00 ---------------------- AMOUNT OF CHECK ENCLOSED $ ---------------------- -33- INSTRUCTIONS: Sign two copies of this form and complete the Beneficiary Designation below. Keep one copy of these forms for your records and send one copy of each to: State Street Bank and Trust Company P.O. Box 8314 Boston, MA 02266-8314 The individual (or the individual and spouse) named above hereby adopts the Loomis Sayles Funds INDIVIDUAL RETIREMENT ACCOUNT upon the terms and conditions thereof, this day of , 199 . By signing this application establishing an IRA, the individual (i) appoints State Street Bank and Trust Company, or its successors, as Trustee of the Account, (ii) states that he or she has received, read, accepts, and specifically incorporates the Plan and Disclosure Statement by reference to this application, (iii) acknowledges receipt of the current prospectus of the mutual fund(s) selected (iv) consents to the Trustee's fee, (v) agrees promptly to give such instructions to the Trustee as are necessary to enable the Trustee to carry out its duties under the Trust, (vi) represents that whenever information as to any taxable year is required to be filed with the Internal Revenue Service by the Trustee unless filed by the individual, the individual will file such information with the Internal Revenue Service, (vii) affirms that his or her participation is completely voluntary, and (viii) confirms that he or she has received no specific endorsement of the investment vehicles available under this plan from the Trustee or Loomis Sayles. Under penalties of perjury, I certify that the Social Security number listed below is my correct taxpayer identification number. Accepted: State Street Bank and Trust - ------------------------------------- Company Individual By - ------------------------------------- -------------------------------------- Social Security Number Trustee - ------------------------------------- -------------------------------------- Date Date - -------------------------------------------------------------------------------- LOOMIS SAYLES FUNDS INDIVIDUAL RETIREMENT ACCOUNT - -------------------------------------------------------------------------------- BENEFICIARY DESIGNATION This Beneficiary Designation is to be used to indicate the person or persons to whom the IRA assets should be turned over in the event of your death. If you are not survived by a validly designated beneficiary, your benefits will be paid to your estate in the event of your death. The Beneficiaries named herein and the manner of distribution may be changed or revoked at any time by filing a new designation in writing with the Trustee. This designation, and any changes or revocation, will only be effective upon receipt by the Trustee. INDIVIDUAL ACCOUNT Upon my death, distribute my Loomis Sayles Funds Individual Retirement Account in equal shares to the following Principal Beneficiaries who survive me or, if none survives me, in equal shares to the following Secondary Beneficiaries who survive me: -34- Principal Beneficiary(ies) Name Address Date of Birth Relationship - -------------------------------------------------------------------------------- - ------------------------------------------------------------ Secondary Beneficiary(ies) Name Address Relationship - -------------------------------------------------------------------------------- - ------------------------------------------------------------ - ---------------------------------------------------------------- Signature of Individual Date -35- - -------------------------------------------------------------------------------- LOOMIS SAYLES FUNDS INDIVIDUAL RETIREMENT ACCOUNT TRANSFER REQUEST FORM - -------------------------------------------------------------------------------- TO: ----------------------------------------------------------------------------- Name of Current Trustee or Custodian Address - ---------------------------------------------------------------------- City State Zip Code RE: ----------------------------------------------------------------------------- Name of Investment Vehicle Account Number Regular IRA Rollover IRA SEP IRA --- --- --- . I have established an Individual Retirement Account with the Loomis Sayles Funds and have appointed State Street Bank and Trust Company as the successor Trustee. . Please accept this as your authorization and instruction to liquidate $____________ of the Individual Retirement Account(s) that your company holds for me and to transfer the assets as follows: . Make check payable to: State Street Bank and Trust Company, Trustee for the IRA of ------------------------------------------------------------------------- Individual Name ------------------------------------------------------------------------- Fund Account Number (will be assigned by the Loomis Sayles Funds) State Street Bank and Trust Company P.O. Box 8314 Boston, MA 02266-8314 - -------------------------------------------------------------------------------- Signature Date - -------------------------------------------------------------------------------- Address City State Zip Code ( ) ( ) ----------------------- --------------------------- Home Phone Number Work Phone Number State Street Bank and Trust Company hereby accepts funds which you hold. - -------------------------------------------------------------------------------- Authorized signature, State Street Bank and Trust Co. Date - -------------------------------------------------------------------------------- To be completed by Present Trustee/Custodian if Customer is age 70 1/2 or older: -- Pursuant to IRS Regulations, the transferor Trustee/Custodian certifies that this transfer will not include any minimum amounts required to be distributed to the above-named Customer with respect to any applicable Distribution Calendar Year. -- a. Date of Birth of the Designated (measuring) Beneficiary being used to calculate minimum required distributions with respect to the transferor plan: ------------ b. Life Expectancy of the Individual was was ----------- ----------- not being recalculated. c. Life expectancies of the Individual and/or Spouse Beneficiary were ----------- were not being recalculated. ----------- - -------------------- ---------------------------------------------------- Date Authorized Signature of Present Trustee/Custodian Return this form to: State Street Bank and Trust Company P.O. Box 8314 Boston, MA 02266-8314 -36- EX-99.15A 11 FORM OF DISTRIBUTION PLAN - ADMIN CLASS Exhibit 15(a) LOOMIS SAYLES BOND FUND LOOMIS SAYLES SMALL CAP VALUE FUND Administrative Class Distribution Plan This Plan (the "Plan") constitutes the Distribution Plan relating to the Administrative Class shares of Loomis Sayles Bond Fund and Loomis Sayles Small Cap Value Fund, each a series (a "Series") of Loomis Sayles Funds, a Massachusetts business trust (the "Trust"). Section 1. The Trust, on behalf of the Series, will pay to Loomis Sayles Distributors, L.P., a Delaware limited partnership which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Distribution Fee") at an annual rate not to exceed 0.25% of each Series' average daily net assets attributable to the Administrative Class shares. Subject to such limit and subject to the provisions of Section 6 hereof, the Distribution Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Distribution Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. The Distributor may pay all or any portion of the Distribution Fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of Administrative Class shares of the Series, or for providing personal services to investors in Administrative Class shares of the Series and/or the maintenance of shareholder accounts, and may retain all or any portion of the Distribution Fee as compensation for the Distributor's services as principal underwriter of the Administrative Class shares of the Series. All payments under this Section 1 are intended to qualify as "asset-based sales charges" or "service fees" as defined in the Conduct Rules of the National Association of Securities Dealers, Inc. All payments under this Section 1 are intended to qualify as "asset-based sales charges" or "service fees" as defined in the Conduct Rules of the National Association of Securities Dealers, Inc. Section 2. This Plan shall continue in effect for a period of more than one year after January 1, 1998 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 3. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 4. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Administrative Class shares of the Series. Section 5. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Administrative Class shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 6. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 1 hereof without approval by a vote of at least a majority of the outstanding Administrative Class shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 2. Section 7. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Administrative Class shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in clauses (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. -2- EX-27.1 12 FDS - SMALL CAP VALUE, INSTITUTIONAL CLASS
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOOMIS SAYLES FUNDS SEMIANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 0000872649 LOOMIS, SAYLES & COMPANY, L.P. 031 LOOMIS SAYLES SMALL CAP VALUE FUND-INSTITUTIONAL 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 170,436,271 199,126,242 2,315,256 16,201 0 201,457,699 1,299,828 0 298,471 1,598,299 0 152,747,661 9,666,539 9,406,474 798,172 0 17,623,596 0 28,689,971 199,850,036 1,076,487 511,062 0 (856,851) 730,698 15,546,648 6,238,970 22,516,316 0 0 0 0 1,524,774 (1,264,710) 0 36,234,532 67,474 2,076,948 0 0 659,706 0 866,215 171,809,485 17.39 0.07 2.19 0 0 0 19.65 0.97 0 0
EX-27.2 13 FDS - BOND FUND, INSTITUTIONAL CLASS
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOOMIS SAYLES FUNDS SEMIANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 0000872649 LOOMIS, SAYLES & COMPANY, L.P. 061 LOOMIS SAYLES BOND FUND-INSTITUTIONAL 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 837,887,322 866,728,636 25,163,902 203,143 0 892,095,681 6,722,512 0 1,203,946 7,926,458 0 835,834,329 67,620,961 43,707,558 13,998,161 0 5,501,584 0 28,835,149 884,169,223 1,018,788 28,032,580 0 (2,617,379) 26,433,989 4,539,781 9,973,177 40,946,947 0 (12,779,633) 0 0 29,645,056 (6,598,371) 866,718 342,925,410 537,972 961,804 0 0 2,084,083 0 2,810,225 691,556,636 12.38 0.42 0.26 (0.23) 0 0 12.83 0.75 0 0
EX-27.3 14 FDS - HIGH YIELD FUND, INSTITUTIONAL CLASS
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOOMIS SAYLES FUNDS SEMIANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 0000872649 LOOMIS, SAYLES & COMPANY, L.P. 111 LOOMIS SAYLES HIGH YIELD FUND-INSTITUTIONAL 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 5,167,205 5,219,792 84,706 99,338 0 5,403,836 63,536 47,656 0 111,192 0 5,114,167 376,692 191,794 97,858 0 28,030 0 52,589 5,292,644 17,215 180,780 0 (16,236) 181,759 28,030 48,202 257,991 0 (72,671) 0 0 218,562 (40,070) 6,406 3,353,754 8,960 0 0 0 12,071 0 98,596 3,132,718 10.11 0.36 0.21 (0.21) 0 0 10.47 0.75 0 0
EX-99.18 15 AMENDED & RESTATED RULE 18F-3 (D) PLAN Exhibit 18 LOOMIS SAYLES FUNDS Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 ----------------------------------------------------------------------- Effective January 1, 1997 Each of the series of Loomis Sayles Funds (the "Trust") managed by Loomis, Sayles & Company, L.P. ("Loomis Sayles") (each a "Fund" and, together, the "Funds") may from time to time issue one or more of the following classes of shares: Retail Class shares, Institutional Class shares, Admin Class shares and Boston Private Bank High Yield Fund shares. Each class is subject to such investment minimums and other conditions of eligibility as are set forth in the Funds' registration statements as from time to time in effect. The differences in expenses among these classes of shares, and the conversion and exchange features of each class of shares, are set forth below in this Plan. Except as noted below, expenses are allocated among the classes of shares of each Fund based upon the net assets of each Fund attributable to shares of each class. This Plan is subject to change, to the extent permitted by law and by the Agreement and Declaration of Trust and By-laws of each Fund, by action of the Trustees of each Fund. RETAIL CLASS SHARES Distribution and Service Fees - ----------------------------- Retail Class shares pay distribution and service fees pursuant to plans (the "Plans") adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Retail Class shares also bear any costs associated with obtaining shareholder approval of any amendments to a Plan. Pursuant to the Plans, Retail Class shares may pay up to 0.25% of the relevant Fund's average net assets attributable to the Retail Class shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect. Exchange and Conversion Features - -------------------------------- To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Retail Class shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, for Retail Class shares of any other Fund that offers Retail Class shares, provided that Retail Class shares of such other Fund are available to residents of the relevant state. Retail Class shares may also be exchanged for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles. The Funds reserve the right to terminate or limit the exchange privilege of any shareholder who makes more than four exchanges in a calendar year. The Funds may terminate or change the exchange privilege at any time upon 60 days' notice to shareholders. Retail Class shares do not convert to any other class of shares. INSTITUTIONAL CLASS SHARES Distribution Fees - ----------------- Institutional Class shares pay no distribution fees. Exchange and Conversion Features - -------------------------------- To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Institutional Class shares of any Fund may be exchanged, at the holder's option, for Institutional Class shares of any other Fund that offers Institutional Class shares, provided that Institutional Class shares of such other Fund are available to residents of the relevant state. Institutional Class shares may also be exchanged for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles. The Funds reserve the right to terminate or limit the exchange privilege of any shareholder who makes more than four exchanges in a calendar year. The Funds may terminate or change the exchange privilege at any time upon 60 days' notice to shareholders. Institutional Class shares do not convert to any other class of shares. -2- ADMIN CLASS SHARES Administrative Fees - ------------------- Admin Class shares pay administrative fees to certain financial intermediaries for providing personal service and account maintenance for their customers who hold Admin Class shares. These fees are paid on the average daily net assets attributable to Admin Class shares at the annual rate stated in the Funds' registration statements as from time to time in effect. Distribution and Service Fees - ----------------------------- Admin Class shares pay distribution and service fees pursuant to plans (the "Plans") adopted pursuant to Rule 12b-1 under the 1940 Act. Admin Class shares also bear any costs associated with obtaining shareholder approval of any amendments to a Plan. Pursuant to the Plans, Admin Class shares may pay up to 0.25% of the relevant Fund's average net assets attributable to the Admin Class shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect. Exchange and Conversion Features - -------------------------------- To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Admin Class shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, for Admin Class shares of any other Fund that offers Admin Class shares, provided that Admin Class shares of such other Fund are available to residents of the relevant state. Admin Class shares may also be exchanged for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles. The Funds reserve the right to terminate or limit the exchange privilege of any shareholder who makes more than four exchanges in a calendar year. The Funds may terminate or change the exchange privilege at any time upon 60 days' notice to shareholders. Admin Class shares do not convert to any other class of shares. -3- BOSTON PRIVATE BANK HIGH YIELD FUND SHARES Distribution and Service Fees - ----------------------------- Boston Private Bank High Yield Fund shares pay no distribution fees. Exchange and Conversion Features - -------------------------------- Boston Private Bank High Yield Fund shares may not be exchanged for shares of any other Fund. Boston Private Bank High Yield Fund shares do not convert to any other class of shares. -4- -----END PRIVACY-ENHANCED MESSAGE-----