N-30D 1 dn30d.txt LOOMIS SAYLES FUNDS LOOMIS SAYLES INVESTMENT GRADE BOND FUND J CLASS SEMI-ANNUAL REPORT MARCH 31, 2001 One Financial Center, Boston, Massachusetts 02111 800 . 633 . 3330 [LOGO OF LOOMIS SAYLES] FUND AND MANAGEMENT REVIEW LOOMIS SAYLES INVESTMENT GRADE BOND FUND KEY FUND FACTS Objective | High total investment return Strategy | Invests in investment grade fixed income securities, including convertibles, although up to 20% of assets may be in preferred stocks [GRAPHIC] DANIEL J. FUSS Fund Inception Date | 12/31/96 Commencement of Operations of Class | Institutional: 1/2/97; J: 5/24/99 Expense Ratio | Institutional: 0.55%; J: 1.30% Total Net Assets (all classes) | $60.2 Million -------------------------------------------------------------------------------- PERFORMANCE For the six-month period ended March 31, 2001, the Institutional Class of the Investment Grade Bond Fund returned 5.69%, compared to the 7.71% return for the Fund's benchmark, the Lehman Brothers Government/Credit Bond Index. For the same time period, the J Class of the Fund returned 5.37% (before deducting the maximum 3.50% front end sales charge) and 1.68% (after deducting the maximum 3.50% front end sales charge). The average corporate debt BBB-rated fund, as measured by Lipper Inc., posted a total return of 6.38% for the same period. PORTFOLIO REVIEW The dramatically slowing economy, corporate profit warnings and volatile equity markets kept corporate bond spreads fairly wide throughout the period. Performance among corporate bonds improved slightly early in 2001, after the Federal Reserve Board began easing interest rates. Shorter rates led to increased refinancing activity and caused mortgage-backed bonds to underperform as the period drew to a close. The Fund's exposure to Canadian government and provincial bonds influenced performance throughout the period. In the first half of the period, these bonds performed well and contributed to the Fund's relative out-performance. These bonds continued to do well in the second half of the period, but the related currency exposure contributed to the Fund's underperformance. Every major currency was weaker against the U.S. dollar in the first quarter of 2001. Nevertheless, we continue to believe that the fundamentals in other countries, particularly Canada, remain strong and that the recent weakness is unjustified. PORTFOLIO POSITIONING We maintain our long-term investment strategy of purchasing long-maturity discounted corporate bonds for the added yield and call protection they provide. We believe that this is an excellent time to be in the corporate bond market, and we continue to look for value through fundamental bond analysis along with relative value analysis. We are mindful of short-term technical market strains, but we remain long-term in our approach. /s/Dan Fuss Daniel J. Fuss
1 AVERAGE ANNUAL RETURNS--PERIODS ENDED MARCH 31, 2001 ------------------------------------------------------------------------------
SINCE 6 MONTHS 1 YEAR 3 YEARS INCEPTION(a) ------------------------------------------------------------------------------ LOOMIS SAYLES INVESTMENT GRADE BOND FUND (INSTITUTIONAL) 5.69% 7.45% 5.59% 7.92% LOOMIS SAYLES INVESTMENT GRADE BOND FUND (J CLASS)(B) 1.68% 2.96% 3.25% 5.81% Lipper Corporate Debt Funds BBB-Rated Index(c) 6.16% 9.44% 4.71% 6.14% Lehman Brothers Government/Credit Bond Index(d) 7.71% 12.41% 6.80% 7.45%
CUMULATIVE PERFORMANCE--12/31/96 TO 3/31/01 [GRAPH] Lipper Loomis Lehman Coporate Sayles Brothers Debt Funds Investment Government/ BBB- Rated Grade Credit Index Bond Fund(e) Bond Index 12/31/96 10,000 10,000 10,000 1/31/97 10,032 9,950 10,012 2/28/97 10,089 10,150 10,033 3/31/97 9,933 9,940 9,914 4/30/97 10,080 10,133 10,059 5/31/97 10,195 10,325 10,153 6/30/97 10,347 10,599 10,274 7/31/97 10,705 11,281 10,589 8/31/97 10,563 10,972 10,470 9/30/97 10,749 11,281 10,635 10/31/97 10,858 11,443 10,805 11/30/97 10,911 11,422 10,862 12/31/97 11,029 11,451 10,976 1/31/98 11,169 11,570 11,130 2/28/98 11,165 11,602 11,108 3/31/98 11,222 11,743 11,142 4/30/98 11,270 11,785 11,198 5/31/98 11,366 11,862 11,318 6/30/98 11,450 11,851 11,434 7/31/98 11,441 11,700 11,443 8/31/98 11,358 11,199 11,666 9/30/98 11,592 11,455 12,000 10/31/98 11,449 11,347 11,915 11/30/98 11,660 11,723 11,986 12/31/98 11,689 11,829 12,016 1/31/99 11,791 12,018 12,101 2/28/99 11,536 11,876 11,813 3/31/99 11,665 12,148 11,872 4/30/99 11,748 12,433 11,901 5/31/99 11,590 12,337 11,779 6/30/99 11,529 12,289 11,742 7/31/99 11,471 12,078 11,709 8/31/99 11,428 12,036 11,700 9/30/99 11,526 12,203 11,805 10/31/99 11,549 12,202 11,836 11/30/99 11,577 12,252 11,829 12/31/99 11,558 12,293 11,757 1/31/00 11,524 12,281 11,754 2/29/00 11,666 12,673 11,902 3/31/00 11,774 12,864 12,074 4/30/00 11,631 12,522 12,015 5/31/00 11,542 12,405 12,004 6/30/00 11,834 12,769 12,249 7/31/00 11,885 12,924 12,379 8/31/00 12,102 13,170 12,553 9/30/00 12,136 13,078 12,601 10/31/00 12,097 12,962 12,680 11/30/00 12,209 13,225 12,896 12/31/00 12,465 13,662 13,151 1/31/01 12,767 13,890 13,371 2/28/01 12,893 14,000 13,509 3/31/01 12,885 13,822 13,571 Foreign investments involve special risks including greater economic, political and currency fluctuation risks, which may be even greater in emerging markets. In addition, foreign countries may have different accounting standards than those of the U.S., which may adversely affect the value of the Fund. NOTE: PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE. Total return assumes reinvestment of dividends and capital gains distributions. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance data reflects certain fee waivers and reimbursements. Without such waivers, performance would be lower. (a) Inception date of the Institutional Class of shares is December 31, 1996. Inception date of the J Class is May 24, 1999. (b) Performance shown for J Class shares include the effect of the maximum 3.50% front end sales charge. Performance shown for periods prior to the inception date of the J Class (May 24, 1999) represents the performance of the Institutional Class of shares during the periods shown, adjusted to reflect the current levels of management and 12b-1 fees payable by the respective class of shares. (c) The Lipper Corporate Debt Funds BBB-Rated Index is an equally weighted unmanaged index of typically the 30 largest mutual funds within the corporate debt funds BBB-rated investment objective. Returns are adjusted for the reinvestment of capital gains distributions and income dividends. Source: Lipper Inc. (d) Lehman Brothers Government/Credit Bond Index is an unmanaged index consisting of approximately 5,300 corporate and government issues with at least $100 million outstanding for government issues and $25 million for corporates, and greater than 1 year maturity. The index returns have not been lowered for ongoing management and operating expenses applicable to mutual fund investments. It is not possible to invest directly in an index. (e) Cumulative performance is shown for the Institutional Class of shares. Cumulative performance of the J Class of shares would, due to the higher fees paid by the J Class of shares and the sales charge of J Class, be lower. J Class of shares are not offered for sale in the United States and are not eligible for sale to U.S. investors. [LOGO OF LOOMIS SAYLES] LOOMIS SAYLES INVESTMENT GRADE BOND FUND-J CLASS PORTFOLIO OF INVESTMENTS-AS OF MARCH 31, 2001 (UNAUDITED)
Face Amount Value + ------------------------------------------------------------------------------ BONDS AND NOTES - 94.3% OF NET ASSETS NON-CONVERTIBLE BONDS--86.3% AEROSPACE/DEFENSE--1.6% Raytheon Co., 6.400%, 12/15/18 USD 700,000 $ 600,005 Raytheon Co., 7.200%, 8/15/27 250,000 224,963 Raytheon Co., 7.375%, 7/15/25 145,000 130,890 ----------- 955,858 ----------- AIRLINES--0.9% Delta Air Lines, Inc., 8.300%, 12/15/29 650,000 564,227 ----------- AUTO & RELATED--6.3% Cummins Engine Co., Inc., 7.125%, 3/01/28 250,000 187,299 Delphi Automotive Systems Corp., 7.125%, 5/01/29 800,000 717,360 Ford Motor Co., 6.375%, 2/01/29 2,500,000 2,142,650 TRW, Inc., 6.650%, 1/15/28 225,000 176,182 TRW, Inc., 7.750%, 6/01/29 600,000 547,457 ----------- 3,770,948 ----------- BANKS/SAVINGS & LOANS--0.5% Key Bank NA, 6.950%, 2/01/28 100,000 93,539 Keycorp Capital III, 7.750%, 7/15/29 250,000 232,190 ----------- 325,729 ----------- CANADIAN--11.1% Canadian Government, Zero Coupon Bond, 6/01/21 CAD 150,000 29,597 Canadian Government, Zero Coupon Bond, 6/01/25 5,290,000 825,751 New Brunswick FM Project, Zero Coupon Bond, 11/30/27 (step to 6.470% on 5/30/03) 144A # 75,000 40,427 Ontario Hydro, Zero Coupon Bond, 10/15/21 4,000,000 681,048 Ontario Hydro (Certificate of Deposit), Zero Coupon Bond, 5/26/25 3,000,000 410,101 Province of Alberta, 5.394%, 6/14/13 223,750 140,585 Province of Alberta, 5.930%, 9/16/16 43,795 28,195 Province of British Columbia, Zero Coupon Bond, 9/05/20 2,250,000 403,947 Province of British Columbia, Zero Coupon Bond, 6/09/22 250,000 40,451 Province of British Columbia, Zero Coupon Bond, 8/19/22 605,000 96,851 Province of British Columbia, Zero Coupon Bond, 8/23/24 4,850,000 690,028 Province of British Columbia, Zero Coupon Bond, 11/19/27 3,800,000 458,525 Province of British Columbia, Zero Coupon Bond, 6/18/31 2,250,000 222,803 Province of Manitoba, Zero Coupon Bond, 3/05/31 12,600,000 1,281,012 Province of Manitoba, 6.500%, 9/22/17 25,000 16,399 Province of Manitoba, 7.750%, 12/22/25 55,000 40,762 Province of Nova Scotia, 6.600%, 6/01/27 500,000 319,482 Province of Ontario, Zero Coupon Bond, 7/13/22 2,000,000 328,020 Province of Ontario, Zero Coupon Bond, 6/02/27 2,200,000 279,746 Province of Saskatchewan, 5.750%, 3/05/29 350,000 205,870
3 LOOMIS SAYLES INVESTMENT GRADE BOND FUND-J CLASS (CONTINUED) PORTFOLIO OF INVESTMENTS-AS OF MARCH 31, 2001 (UNAUDITED)
Face Amount Value + ----------------------------------------------------------------------------- BONDS AND NOTES - CONTINUED CANADIAN--CONTINUED Province of Saskatchewan (Certificate of Deposit), Zero Coupon Bond, 2/04/22 CAD 650,000 $ 107,608 Province of Saskatchewan (Certificate of Deposit), Zero Coupon Bond, 5/30/25 215,000 29,393 ----------- 6,676,601 ----------- ENTERTAINMENT--1.3% Time Warner, Inc., 6.625%, 5/15/29 USD 840,000 757,705 ----------- FINANCIAL SERVICES--2.0% Community Program Loan Trust, 4.500%, 4/01/29 750,000 619,491 Merey Sweeny LP, 8.850%, 12/18/19 144A 100,000 107,471 Security Capital Group, Inc., 7.700%, 6/15/28 225,000 189,088 US West Capital Funding, Inc., 6.875%, 7/15/28 300,000 268,035 ----------- 1,184,085 ----------- FOOD & BEVERAGE--0.5% Pepsi Bottling Group, Inc., 7.000%, 3/01/29 300,000 305,703 ----------- FOREIGN GOVERNMENT/AGENCY--3.3% Republic of Brazil, 10.125%, 5/15/27 10,000 7,600 Republic of Brazil, 11.000%, 8/17/40 250,000 194,500 Republic of Brazil C Bond, 8.000%, 4/15/14 PIK 800,414 613,358 Republic of Philippines, 9.875%, 1/15/19 250,000 208,750 Republic of South Africa, 8.500%, 6/23/17 200,000 191,000 Republic of South Africa, 12.500%, 12/21/06 ZAR 400,000 51,059 Republic of South Africa, 13.000%, 8/31/10 2,625,000 341,189 Republic of South Africa, 13.500%, 9/15/15 150,000 20,221 Republic of Venezuela, 9.250%, 9/15/27 USD 200,000 137,500 South Australia Government Finance Authority, Zero Coupon Bond, 12/21/15 AUD 1,000,000 203,218 ----------- 1,968,395 ----------- FOREIGN ISSUER--10.2% Bangkok Bank Public Co. Ltd., 9.025%, 3/15/29 144A USD 50,000 38,750 Cerro Negro Finance Ltd., 7.900%, 12/01/20 144A 50,000 40,922 Embotelladora Andina SA, 7.625%, 10/01/27 125,000 106,983 Empresa Nacional de Electricidad SA (Endesa), 7.875%, 2/01/27 1,050,000 1,003,968 Enersis SA, 7.400%, 12/01/16 500,000 453,624 Espirito Santo Centrais Eletricas SA, 10.000%, 7/15/07 150,000 126,750 Korea Electric Power Corp., 7.750%, 4/01/13 150,000 152,026 PDVSA Finance Ltd., 7.400%, 8/15/16 100,000 80,250 PDVSA Finance Ltd., 7.500%, 11/15/28 200,000 153,000 Perez Companc SA, 8.125%, 7/15/07 144A 700,000 577,500 Petroleos Mexicanos, 8.625%, 12/01/23 144A 815,000 753,875 Petrozuata Finance, Inc., 8.220%, 4/01/17 144A 200,000 164,000 Pindo Deli Finance Mauritius Ltd., 10.750%, 10/01/07 /\ 100,000 14,000 Pindo Deli Finance Mauritius Ltd., 10.875%, 10/01/27 /\ 100,000 13,000 Quezon Power Philippines Co., 8.860%, 6/15/17 50,000 37,500
[LOGO OF LOOMIS SAYLES] LOOMIS SAYLES INVESTMENT GRADE BOND FUND-J CLASS (CONTINUED) PORTFOLIO OF INVESTMENTS-AS OF MARCH 31, 2001 (UNAUDITED)
Face Amount Value + ------------------------------------------------------------------------------- BONDS AND NOTES - CONTINUED FOREIGN ISSUER--CONTINUED Samsung Electronics Co. Ltd., 7.700%, 10/01/27 144A USD 100,000 $ 79,125 Telekom Malaysia Berhad, 7.875%, 8/01/25 144A 1,250,000 1,120,844 Tenaga Nasional Berhad, 7.500%, 11/01/25 144A 1,400,000 1,184,910 Transgas De Occidente SA, 9.790%, 11/01/10 144A 96,673 72,505 ----------- 6,173,532 ----------- FOREST & PAPER PRODUCTS--2.0% Fort James Corp., 4.750%, 6/29/04 250,000 200,427 Georgia-Pacific Group, 7.750%, 11/15/29 600,000 499,662 International Paper Co., 6.875%, 4/15/29 375,000 333,330 Westvaco Corp., 7.000%, 8/15/23 200,000 170,832 ----------- 1,204,251 ----------- GOVERNMENT AGENCIES--23.3% Federal Home Loan Mortgage Corp., 6.750%, 9/15/29 5,000,000 5,292,950 Federal National Mortgage Association, Zero Coupon Bond, 10/29/07 NZD 700,000 180,293 Federal National Mortgage Association, 6.000%, 7/01/29 USD 451,197 440,765 Federal National Mortgage Association, 6.250%, 5/15/29 7,375,000 7,335,839 Federal National Mortgage Association, 6.375%, 8/15/07 AUD 1,500,000 760,060 ----------- 14,009,907 ----------- HEALTHCARE--PRODUCTS--0.2% Bausch & Lomb, Inc., 7.125%, 8/01/28 USD 150,000 112,923 ----------- HOME BUILDERS--0.4% Lennar Corp., 7.625%, 3/01/09 250,000 241,410 Pulte Corp., 7.625%, 10/15/17 25,000 21,570 ----------- 262,980 ----------- INSURANCE--0.7% UnumProvident Corp., 6.750%, 12/15/28 500,000 415,805 ----------- OIL & GAS--3.1% Anadarko Petroleum Corp., 6.625%, 1/15/28 250,000 231,865 Ensco International, Inc., 7.200%, 11/15/27 250,000 244,417 Global Marine, Inc., 7.000%, 6/01/28 250,000 234,678 Kerr-McGee Corp., 7.125%, 10/15/27 200,000 194,500 Pennzoil-Quaker State Co., 7.375%, 4/01/29 500,000 347,790 Pioneer Natural Resources Co., 7.200%, 1/15/28 40,000 32,800 Union Pacific Resources Group, Inc., 7.150%, 5/15/28 600,000 595,974 ----------- 1,882,024 ----------- OIL & GAS DRILLING EQUIPMENT--0.6% Ensco International, Inc., 6.750%, 11/15/07 250,000 249,805 R & B Falcon Corp., Series B, 7.375%, 4/15/18 100,000 97,660 ----------- 347,465 ----------- RAIL--TRANSPORT--0.3% Louisville & Nashville Railroad Co., 2.875%, 4/01/03 4,000 3,816 Louisville & Nashville Railroad Co., 3.375%, 4/01/03 12,000 11,542
5 LOOMIS SAYLES INVESTMENT GRADE BOND FUND-J CLASS (CONTINUED) PORTFOLIO OF INVESTMENTS-AS OF MARCH 31, 2001 (UNAUDITED)
Face Amount Value + ------------------------------------------------------------------------------ BONDS AND NOTES - CONTINUED RAIL--TRANSPORT--CONTINUED Missouri Pacific Railroad Co., 4.250%, 1/01/05 USD 39,000 $ 36,754 Missouri Pacific Railroad Co., 4.750%, 1/01/20 46,000 29,498 Missouri Pacific Railroad Co., 4.750%, 1/01/30 86,000 52,997 Missouri Pacific Railroad Co., 5.000%, 1/01/45 50,000 28,500 ----------- 163,107 ----------- REAL ESTATE INVESTMENT TRUSTS--1.1% First Industrial, 7.500%, 12/01/17 100,000 89,432 First Industrial, 7.600%, 7/15/28 150,000 131,994 Highwoods Realty LP, 7.500%, 4/15/18 150,000 131,020 Security Capital Industrial Trust, 7.625%, 7/01/17 75,000 68,894 Susa Partnership LP, 7.500%, 12/01/27 125,000 95,491 TriNet Corporate Realty Trust, Inc., 7.700%, 7/15/17 200,000 131,882 ----------- 648,713 ----------- RETAIL--GENERAL--2.6% J.C. Penney Co., Inc., 7.650%, 8/15/16 150,000 99,395 K Mart Corp., 7.950%, 2/01/23 200,000 149,054 Lowe's Cos., Inc., 6.500%, 3/15/29 500,000 438,575 Sears Roebuck Acceptance Corp., 6.500%, 12/01/28 1,000,000 852,090 ----------- 1,539,114 ----------- SECURITIES--0.4% Lehman Brothers Inc., 6.500%, 4/15/08 250,000 246,335 ----------- SUPRANATIONAL--3.0% European Bank for Reconstruction & Development, Zero Coupon Bond, 2/10/28 AUD 7,280,000 726,426 International Bank for Reconstruction & Development, Zero Coupon Bond, 8/20/07 NZD 2,585,000 695,363 International Bank for Reconstruction & Development, 5.500%, 11/03/08 1,000,000 379,989 International Bank for Reconstruction & Development, 8.000%, 5/23/07 45,000 19,443 ----------- 1,821,221 ----------- TELECOMMUNICATIONS--0.9% Sprint Capital Corp., 6.875%, 11/15/28 USD 150,000 127,492 WorldCom, Inc., 6.950%, 8/15/28 500,000 425,410 ----------- 552,902 ----------- TEXTILE & APPAREL--0.0% Kellwood Co., 7.625%, 10/15/17 25,000 16,507 ----------- TOBACCO--1.2% Philip Morris Cos., Inc., 7.750%, 1/15/27 750,000 752,032 ----------- U.S. GOVERNMENT--7.9% U.S. Treasury Bonds, 5.250%, 11/15/28 5,000,000 4,739,050 -----------
[LOOMIS SAYLES] LOOMIS SAYLES INVESTMENT GRADE BOND FUND-J CLASS (CONTINUED) PORTFOLIO OF INVESTMENTS-AS OF MARCH 31, 2001 (UNAUDITED)
Face Amount Value + ------------------------------------------------------------------------------- BONDS AND NOTES - CONTINUED UTILITIES--0.9% KN Capital Trust, 7.630%, 4/15/28 USD 250,000 $ 229,204 Pacific Gas & Electric Corp., 6.750%, 10/01/23 /\ 350,000 290,500 ----------- 519,704 ----------- TOTAL NON-CONVERTIBLE BONDS (Identified Cost $51,518,573) 51,916,823 ----------- CONVERTIBLE BONDS--8.0% AUTO & RELATED--0.2% Magna International, Inc. Class A, 4.875%, 2/15/05 150,000 141,937 ----------- COMPUTERS--0.0% Maxtor Corp., 5.750%, 3/01/12 10,000 7,000 ----------- DIVERSIFIED OPERATIONS--0.9% Thermo Electron Corp., 4.250%, 1/01/03 144A 550,000 529,485 ----------- ELECTRONIC COMPONENTS--0.1% Kent Electronics Corp., 4.500%, 9/01/04 50,000 48,250 ----------- ELECTRONIC COMPONENTS--SEMICONDUCTORS--1.1% Analog Devices, Inc., 4.750%, 10/01/05 750,000 661,875 ----------- ELECTRONIC MEASURING INSTRUMENTS--0.1% Thermedics, Inc., Zero Coupon Bond, 6/01/03 100,000 88,500 ----------- ENVIRONMENTAL SERVICES--0.2% Thermo TerraTech, Inc., 4.625%, 5/01/03 144A 110,000 105,050 ----------- FINANCIAL SERVICES--0.2% Bell Atlantic Financial Services, 5.750%, 4/01/03 100,000 99,815 ----------- FOREIGN ISSUER--0.0% Burns, Philp, 5.500%, 4/30/04 20,000 13,200 Ssangyong Oil Refining Co., Inc., 3.000%, 12/31/04 30,000 22,800 ----------- 36,000 ----------- HEALTHCARE--SERVICES--0.2% Healthsouth Corp., 3.250%, 4/01/03 150,000 136,065 ----------- INDUSTRIAL EQUIPMENT--0.1% MascoTech, Inc., 4.500%, 12/15/03 75,000 56,719 ----------- INSURANCE--3.1% Loews Corp., 3.125%, 9/15/07 2,045,000 1,842,545 ----------- MULTI-INDUSTRY--0.4% Thermo Instrument Systems, Inc., 4.500%, 10/15/03 144A 250,000 238,750 ----------- OFFICE EQUIPMENT--0.7% Xerox Corp., 0.570%, 4/21/18 1,200,000 414,000 -----------
7 LOOMIS SAYLES INVESTMENT GRADE BOND FUND-J CLASS (CONTINUED) PORTFOLIO OF INVESTMENTS-AS OF MARCH 31, 2001 (UNAUDITED)
Face Amount Value + ------------------------------------------------------------------------------ BONDS AND NOTES - CONTINUED OIL & GAS--0.7% Baker Hughes, Inc., Zero Coupon Bond, 5/05/08 USD 400,000 $ 321,200 Diamond Offshore Drilling, Inc., 3.750%, 2/15/07 50,000 51,040 Noram Energy Corp., 6.000%, 3/15/12 60,000 57,600 ----------- 429,840 ----------- TOTAL CONVERTIBLE BONDS (Identified Cost $4,903,926) 4,835,831 ----------- TOTAL BONDS AND NOTES (Identified Cost $56,422,499) 56,752,654 ----------- Shares ------------------------------------------------------------------------------ PREFERRED STOCKS - 2.3% OF NET ASSETS NON-CONVERTIBLE PREFERRED STOCKS--1.1% REAL ESTATE INVESTMENT TRUSTS--1.0% CarrAmerica Realty Corp., Series C, 8.550% 3,000 70,200 CarrAmerica Realty Corp., Series D, 8.450% 4,300 104,275 Equity Residential Properties Trust, Series L, 7.625% 1,200 29,280 First Industrial Realty Trust, Inc., Series D, 7.950% 6,500 147,550 First Industrial Realty Trust, Inc., Series E, 7.900% 3,100 69,750 New Plan Excel Realty Trust, Inc., Series B, 8.625% 6,500 150,800 ProLogis Trust, Series D, 7.920% 900 21,060 ----------- 592,915 ----------- UTILITIES--0.1% Duquesne Light Co., 4.000% 1,110 31,080 Illinois Power Co., 4.080% 200 5,800 New York State Electric & Gas Corp., 3.750% 100 4,500 Pacific Gas & Electric Co., Series H, 4.500% /\ 100 820 Pacific Gas & Electric Corp., Series C, 5.000% /\ 100 1,020 Southern California Edison Co., 4.240% 500 4,450 Southern California Edison Co., 4.320% 200 1,760 Wisconsin Power & Light Co., 4.500% 110 7,096 Xcel Energy, Inc., $3.60 300 15,150 ----------- 71,676 ----------- TOTAL NON-CONVERTIBLE PREFERRED STOCKS (Identified Cost $604,688) 664,591 ----------- CONVERTIBLE PREFERRED STOCKS--1.2% FINANCIAL SERVICES--0.6% Newell Financial Trust I, 5.250% 10,000 392,500 ----------- OIL & GAS--0.3% EVI, Inc., 5.000% 3,000 152,625 -----------
[LOGO OF LOOMIS SAYLES] LOOMIS SAYLES INVESTMENT GRADE BOND FUND-J CLASS (CONTINUED) PORTFOLIO OF INVESTMENTS-AS OF MARCH 31, 2001 (UNAUDITED)
Shares Value + --------------------------------------------------------------------------- PREFERRED STOCKS - CONTINUED REAL ESTATE INVESTMENT TRUSTS--0.3% Camden Property Trust, $2.25 250 $ 6,475 Equity Residential Properties Trust, 7.250% 6,050 145,987 ----------- 152,462 ----------- TOTAL CONVERTIBLE PREFERRED STOCKS (Identified Cost $604,997) 697,587 ----------- TOTAL PREFERRED STOCKS (Identified Cost $1,209,685) 1,362,178 ----------- TOTAL INVESTMENTS--96.6% (IDENTIFIED COST $57,632,184) @ 58,114,832 Cash and Other Assets, Less Liabilities--3.4% 2,076,196 ----------- NET ASSETS--100% $60,191,028 ===========
+ See Note 1. 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. # Step Bond: Coupon is zero or below market rate for an initial period and then increases at a specified date and rate. PIK All or a portion of income may be received as additional securities. /\ Security in default. @ At March 31, 2001, the net unrealized appreciation on investments based on cost of $57,632,184 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value were $2,125,925 and $1,643,277, respectively, resulting in net unrealized appreciation of $482,648. Key to Abbreviations: AUD: Australian Dollar CAD: Canadian Dollar NZD: New Zealand Dollar USD: United States Dollar ZAR: South African Rand See accompanying notes to financial statements. 9 STATEMENTS OF ASSETS AND LIABILITIES INVESTMENT GRADE BOND FUND MARCH 31, 2001 (UNAUDITED) -------------------------------------------------------------------------- Assets Investments at value $58,114,832 Foreign currency at value 3,158 Receivable for: Fund shares sold 1,672,738 Dividends and interest 964,545 Due from the adviser (Note 3) 66,062 Other assets (Note 1I) 0 ----------- 60,821,335 ----------- Liabilities Payable for: Fund shares redeemed 246,526 Due to Custodian 268,780 Accrued expenses: Management fees (Note 3) 21,338 Trustees' fees (Note 3A) 1,882 Administrative fees (Note 3) 6,870 12b-1 fees 35,951 Other (Note 3) 48,960 ----------- 630,307 ----------- NET ASSETS $60,191,028 =========== Net Assets consist of: Capital paid in $59,330,897 Undistributed (or Distribution in excess of) net investment income 328,674 Accumulated net realized gain (loss) 50,652 Unrealized appreciation (depreciation) on: Investments 482,648 Foreign currency translations (1,843) ----------- NET ASSETS $60,191,028 =========== Institutional Class Net assets $ 6,276,681 Shares of beneficial interest outstanding, no par value 616,562 Net asset value and redemption price $ 10.18 Retail Class* Net assets -- Shares of beneficial interest outstanding, no par value -- Net asset value and redemption price -- J Class Net assets $53,914,347 Shares of beneficial interest outstanding, no par value 5,302,400 Net asset value and redemption price $ 10.17 Maximum offering price per share (net asset value/96.50%) $ 10.54 Identified cost of investments $57,632,184 ===========
* The Investment Grade Bond Fund Retail Class liquidated on December 18, 2000. See accompanying notes to financial statements. [LOGO OF LOOMIS SAYLES] STATEMENTS OF OPERATIONS INVESTMENT GRADE BOND FUND FOR THE SIX MONTHS ENDED MARCH 31, 2001 (UNAUDITED) --------------------------------------------------------------------------- Investment Income Dividends $ 39,903 Interest 1,821,264 ---------- 1,861,167 ---------- Expenses Management fees (Note 3) 104,886 12b-1 fees (Retail Class) 1,250 12b-1 fees (J Class) 116,607 Shareholder service fees (J Class) 58,303 Trustees' fees and expenses (Note 3A) 4,407 Administrative fees (Note 3) 25,700 Custodian and accounting fees 39,530 Transfer Agent fees (Institutional Class) (Note 3) 10,645 Transfer Agent fees (Retail Class) (Note 3) 5,042 Transfer Agent fees (J Class) (Note 3) 4,126 Audit and tax services fees 20,604 Registration fees 14,698 Printing fees 38,862 Legal fees 40,013 Other expenses 4,777 ---------- Total expenses 489,450 Less expenses waived and reimbursed by the investment adviser (Note 3) (169,109) ---------- Net expenses 320,341 ---------- Net investment income 1,540,826 ---------- Net Realized Gain (Loss) on: Investments 283,831 Foreign currency transactions (2,935) ---------- Total net realized gain (loss) 280,896 ---------- Change in Unrealized Appreciation (Depreciation) on: Investments 1,113,131 Foreign currency translations (1,516) ---------- Total net change in unrealized appreciation (depreciation) 1,111,615 ---------- Total net realized gain (loss) and change in unrealized appreciation (depreciation) 1,392,511 ---------- Net Increase (Decrease) in Net Assets from Operations $2,933,337 ==========
See accompanying notes to financial statements. 11 STATEMENTS OF CHANGES IN NET ASSETS INVESTMENT GRADE BOND FUND
SIX MONTHS ENDED YEAR MARCH 31, ENDED 2001 SEPTEMBER (UNAUDITED) 30, 2000 ----------------------------------------------------------------------------- From Operations Net investment income $ 1,540,826 $ 1,539,410 Net realized gain (loss) 280,896 (137,068) Change in unrealized appreciation (depreciation) 1,111,615 (30,529) ----------- ----------- Increase (decrease) in net assets from operations 2,933,337 1,371,813 ----------- ----------- From Distributions to Shareholders Institutional Class Net investment income (135,451) (182,374) Retail Class Net investment income (32,241) (177,798) J Class Net investment income (1,210,631) (1,124,657) ----------- ----------- (1,378,323) (1,484,829) ----------- ----------- From Capital Share Transactions (Note 6) Increase (decrease) in net assets derived from capital share transactions 23,217,747 14,236,222 ----------- ----------- Total increase (decrease) in net assets 24,772,761 14,123,206 Net Assets Beginning of the period 35,418,267 21,295,061 ----------- ----------- End of the period $60,191,028 $35,418,267 =========== =========== Undistributed Net Investment Income End of the period $ 328,674 $ 166,171 =========== ===========
See accompanying notes to financial statements. [LOGO LOOMIS SAYLES] FINANCIAL HIGHLIGHTS INVESTMENT GRADE BOND FUND
J Class -------------------------------------------- SIX MONTHS PERIOD ENDED YEAR ENDED ENDED MARCH 31, 2001 SEPTEMBER 30, SEPTEMBER 30, -------------- ------------- ------------- (UNAUDITED) 2000 1999* --------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.91 $ 9.95 $ 10.29 ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS-- Net investment income (loss) 0.28 0.65 (d) 0.21 Net realized and unrealized gain (loss) on investments 0.25 (0.04) (0.36) ------- ------- ------- Total from investment operations 0.53 0.61 (0.15) ------- ------- ------- LESS DISTRIBUTIONS-- Dividends from net investment income (0.27) (0.65) (0.19) Distributions in excess of net investment income 0.00 0.00 0.00 Distributions from net realized capital gains 0.00 0.00 0.00 ------- ------- ------- Total distributions (0.27) (0.65) (0.19) ------- ------- ------- Net asset value, end of period $ 10.17 $ 9.91 $ 9.95 ======= ======= ======= Total return (%)(a) 5.4 (e) 6.4 (e) (1.5) (e) Net assets, end of period (000) $53,914 $30,264 $16,307 Ratios to average net assets: Net expenses (%)(b)(c) 1.30 1.30 1.30 Gross expenses (%)(c) 1.89 2.97 2.16 Net investment income (loss) (%)(c) 5.80 6.59 6.11 Portfolio turnover rate (%) 12 23 42
* Commencement of class operations on May 24, 1999 through September 30, 1999. (a) Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. Periods less than one year are not annualized. (b) The adviser has agreed to reimburse a portion of the Fund's expenses during the period. Without this reimbursement the Fund's ratio of operating expenses would have been higher. (c) Annualized for periods less than one year. (d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (e) Total return does not include the effect of any front end sales charges for the J Class. 13 NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 (UNAUDITED) 1. The Loomis Sayles Investment Grade Bond Fund (the "Fund") is a series of Loomis Sayles Funds (the "Trust"), a diversified, open-end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (the "1940 Act"), and organized as a Massachusetts business trust on February 20, 1991. At March 31, 2001, the Trust was composed of eighteen funds. The financial statements of the other Loomis Sayles Investment Grade Bond Fund Class and the seventeen remaining funds are presented separately. The Fund commenced operations on January 2, 1997, and is authorized to offer Institutional and J Class shares. Certain detailed financial information for Institutional Class shares is provided separately and is available upon request. The Fund began offering J Class shares on May 24, 1999. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of the Fund. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Each class of shares has an equal pro rata interest in the assets of the Fund and general voting privileges. Institutional and J Classes differ with respect to distribution and certain other class-specific expenses and expense reductions. The Retail Class shares of the Fund was liquidated on December 18, 2000. Purchases of the Fund's J Class shares are subject to a maximum sales charge of 3.50%. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund: A. SECURITY VALUATION| Long-term debt securities for which quotations are readily available are valued by a pricing service, as approved by the Board of Trustees, which generally uses the most recent bid prices in the principal market in which such securities are normally traded. Equity securities for which quotations are readily available are valued at their last sale price on the exchange or markets where primarily traded or, if there is no reported sale during the day, at the closing bid price. Short-term securities with a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Other securities for which quotations are not readily available (including restricted securities, if any) are valued primarily using dealer supplied quotations or at their fair values as determined in good faith under the general supervision of the Board of Trustees. [LOGO OF LOOMIS SAYLES] NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) B. REPURCHASE AGREEMENTS| The Fund may engage in repurchase agreement transactions. Under the terms of a typical repurchase agreement, the Fund takes possession of an underlying debt obligation subject to an obligation of the seller to repurchase, and the Fund to resell, the obligation at an agreed-upon price and time. This arrangement results in a fixed rate of return that is not subject to market fluctuations during the Fund's holding period. The Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is the Fund's policy that the market value of the collateral be at least equal to 102% of the repurchase price. These securities are marked-to-market daily. Loomis Sayles is responsible for determining that the value of the collateral is at all times at least equal to 102% of the repurchase price. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters into insolvency proceedings, realization of the collateral by the Fund may be delayed or limited. C. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS| The books and records of the Fund are maintained in U.S. dollars. The value of investments, currencies and other assets and liabilities denominated in currencies other than U.S. dollars is translated into U.S. dollars based upon foreign exchange rates prevailing at the end of each day. Purchases and sales of investments, income and expenses are translated at prevailing exchange rates on the respective dates of such transactions. The results of operations resulting from changes in foreign exchange rates on investments are not isolated from fluctuations arising from changes in market prices of securities held. All such fluctuations are included with net realized and unrealized gain or loss from investments. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the differences between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds' books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at year-end resulting from changes in exchange rates. The Fund may use foreign currency exchange contracts to facilitate transactions in foreign-denominated investments. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. The U.S. dollar value of foreign currency exchange contracts is determined using contractual currency exchange rates established at the time of each trade. The Fund may purchase investments of foreign issuers. Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and 15 NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) securities of the U.S. government. These risks include revaluation of currencies and the risk of appropriation. Moreover, the markets for securities of many foreign companies and foreign governments and their markets may be less liquid and the prices of such securities may be more volatile than those of securities of comparable U.S. companies and the U.S. government. D. SECURITY TRANSACTIONS, RELATED INVESTMENT INCOME AND EXPENSES| Security transactions are accounted for on the trade date (the date the buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Interest income is increased by the accretion of discount. In determining net realized gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Investment income, realized and unrealized gains and losses, and the common expenses of the Fund are allocated on a pro rata basis to each class based on the relative net assets of each class to the total net assets of the Fund. Expenses directly attributable to the Fund are charged to the Fund. Expenses not directly attributable to the Fund are apportioned to all funds within the Trust on the basis of relative net assets. E. FEDERAL INCOME TAXES| The Fund is a separate entity for federal income tax purposes. The Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders all of its net investment income and any net realized capital gains. Accordingly, no provision for federal income tax or excise tax has been made. At March 31, 2001, the Fund had available a capital loss carryforward of $118,090, which will expire on September 30, 2008. The capital losses are intended to be used to offset future capital gains. The Fund elected to defer post October losses of $112,154. F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS| The Fund declares and pays its net investment income to shareholders monthly. Distributions from net realized capital gains are declared and paid on an annual basis by the Fund. Income and capital gain distributions are determined in accordance with federal income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences, which may result in reclassifications to the Fund's capital accounts to reflect income and gains available for distribution, are primarily due to differing book and tax treatments for litigation proceeds, foreign currency transactions, capital loss carryforwards, deferred losses due to wash sales, excise tax regulations, and net operation losses. Some of these classifications may include temporary book and tax basis differences that will reverse in subsequent periods. Dividends from net investment income are determined on a class level. Capital gains distributions are determined on a Fund level. [LOGO OF LOOMIS SAYLES] NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) 2. PURCHASES AND SALES OF INVESTMENTS| For the six-months ended March 31, 2001, purchases and proceeds from sales and maturities of investments, excluding short-term securities and U.S. Government securities, were $15,668,735 and 1,179,040 respectively. Purchases and proceeds from sales and maturities of U.S. Government securities, excluding short-term securities, were $15,899,040 and $4,511,473 respectively. 3. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES| For the six- months ended March 31, 2001, the Fund incurred management fees payable to Loomis Sayles. Certain officers and employees of Loomis Sayles are also officers or Trustees of the Trust. Loomis Sayles' general partner is indirectly owned by CDC IXIS Asset Management North America, L.P. (formerly, Nvest Companies, L.P.) whose general partner is indirectly owned by CDC IXIS Asset Management SA ("CDC IXIS") (formerly CDC Asset Management). CDC IXIS is part of the Caisse des Depots Consignations. The Fund's management agreement in effect during the six months ended March 31, 2001 provided for fees at the annual percentage rate of 0.40% of the Fund's average daily net assets. Loomis Sayles has contractually agreed, until February 1, 2002, to reduce its advisory fees and/or bear other expenses, to the extent necessary to limit the total operating expenses of the Institutional Class and J Class to 0.55% and 1.30%, respectively, of each class' average daily net assets. The Fund has adopted a Shareholder Service and Distribution Plan pursuant to Rule 12b-1 under the 1940 Act, with respect to J Class shares. The Fund pays Loomis Sayles Distributors, L.P. (the "Distributor"), a subsidiary of Loomis Sayles, a monthly shareholder service fee of 0.50% of the Fund's average daily net assets attributable to J Class shares. The J Class shares are subject to shareholder service and account maintenance fees at an annual rate of 0.25% of the Class' average net assets. J Class shares have exclusive voting rights with respect to their distribution plans. The Fund may pay the Distributor sub-accounting and/or servicing fees with respect to omnibus Fund shareholder accounts in amounts that will not cause the Fund's respective classes to exceed their voluntary expense limitations and that do not exceed the amounts that the Fund's transfer agent would charge if the beneficial owners of the omnibus accounts held Fund shares directly. As of March 31, 2001, the Loomis Sayles Investment Grade Bond Fund had no sub- accounting and/or servicing fees under this agreement. Loomis Sayles charges the Fund an administrative fee related to Loomis Sayles' performance of certain administrative services. As of March 31, 2001, the Fund incurred $8,532. A. TRUSTEES FEES AND EXPENSES| The Trust does not pay any compensation directly to its officers or trustees who are directors, officers or employees of Loomis Sayles, CDC IXIS Asset Management North America, L.P. or their 17 NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) affiliates. Each independent trustee is compensated by the Trust on behalf of each Fund at the rate of $1,250 per Fund per year, plus travel expenses for each meeting attended. B. SHAREHOLDERS| At March 31, 2001, the Loomis, Sayles & Company, L.P. Employees' Defined Contribution Retirement Plans held 242,971 shares of beneficial interest in the Institutional Class of Shares of the Fund. 4. CREDIT RISK| The Fund may invest up to 10% of its assets in investments offering high current income, which generally will be in the lower rating categories of recognized rating agencies. These investments are regarded as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligations and will generally involve more credit risk than investments in the higher rating categories. In addition, the trading market for high yield investments may be relatively less liquid than the market for higher-rated investments. 5. LINE OF CREDIT| The Trust has entered into an agreement which enables each Fund of the Trust to borrow under a $25 million unsecured line of credit with several banks. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to each participating Fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.450%. In addition, a commitment fee of 0.08% per annum, payable at the end of each calendar quarter, is accrued by the Trust and apportioned among the Funds of the Trust based on each Fund's average daily unused portion of the line of credit. During the six-months ended March 31, 2001, the Fund had no borrowing under the agreement. 6. CAPITAL SHARE TRANSACTIONS| The tables below summarize the transactions in Fund shares for the periods indicated:
LOOMIS SAYLES INVESTMENT GRADE BOND FUND ------------------------------------------ SIX MONTHS ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 ------------------- --------------------- SHARES AMOUNT SHARES AMOUNT INSTITUTIONAL CLASS SHARES ------ ------ ------ ------ Issued from the sale of shares.... 390,926 $4,070,044 197,500 $ 1,925,607 Issued in connection with the reinvestment of distributions.... 12,448 126,057 14,821 145,869 Redeemed.......................... (79,772) (811,547) (163,038) (1,620,957) ------- ---------- -------- ----------- Net change........................ 323,602 $3,384,554 49,283 $ 450,519 ======= ========== ======== ===========
[LOGO OF LOOMIS SAYLES] NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED)
LOOMIS SAYLES INVESTMENT GRADE BOND FUND ------------------------------------------------ SIX MONTHS ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 ------------------------ ---------------------- SHARES* AMOUNT* SHARES AMOUNT RETAIL CLASS SHARES ------- ------- ------ ------ Issued from the sale of shares..................... 14,085 $ 138,096 88,906 $ 878,137 Issued in connection with the reinvestment of distributions.............. 3,277 32,113 11,935 117,464 Redeemed.................... (244,297) (2,582,309) (131,416) (1,266,523) ---------- ------------ --------- ----------- Net change.................. (226,935) (2,412,100) (30,575) $ (270,922) ========== ============ ========= =========== SHARES AMOUNT SHARES AMOUNT J CLASS SHARES ------ ------ ------ ------ Issued from the sale of shares..................... 4,514,300 $ 45,431,715 1,982,500 $19,649,401 Issued in connection with the reinvestment of distributions.............. 0 0 0 0 Redeemed.................... (2,266,000) (23,186,422) (567,740) (5,592,776) ---------- ------------ --------- ----------- Net change.................. 2,248,300 $ 22,245,293 1,414,760 $14,056,625 ========== ============ ========= ===========
* The Investment Grade Bond Fund Retail Class liquidated on December 18, 2000. 7. CHANGE IN ACCOUNTING PRINCIPLE| Effective October 1, 2001, the Fund will adopt the provisions of the AICPA Audit and Accounting Guide for Investment Companies and will begin amortizing premium on all fixed-income securities. Upon initial adoption, the Fund will be required to adjust the cost of its fixed-income securities by the cumulative amount of amortization that would have been recognized had amortization been in effect from the purchase date of each holding. The adoption of this accounting principal will have no impact on the Fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain (loss) in the Statement of Operations. 19