-----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, IcyzuLr7fn18fWLjxc6Gw2PqtKHb/hWJF2CBIDLEz4oVravlu8Galc0l6e8sBUsz a+37A3Fws8by+hjBFYMg1w== 0000950156-98-000212.txt : 19980306 0000950156-98-000212.hdr.sgml : 19980306 ACCESSION NUMBER: 0000950156-98-000212 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980305 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: N-30D SEC ACT: SEC FILE NUMBER: 811-06241 FILM NUMBER: 98557876 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 N-30D 1 LOOMIS SAYLES FIXED INCOME ANNUAL LOOMIS ------ SAYLES ------ FUNDS ------ FIXED INCOME FUNDS ANNUAL REPORT DECEMBER 31, 1997 A FAMILY OF NO-LOAD FUNDS ONE FINANCIAL CENTER BOSTON, MASSACHUSETTS 02111 (617) 482-2450 LOOMIS SAYLES FUNDS - -------------------------------------------------------------------------------- [Photo of Daniel J. Fuss] DANIEL J. FUSS DEAR SHAREHOLDERS: You may recall our mid-year discussion; it's time for an update. We spoke in June about the world being a peaceful place, providing a friendly environment for investors of capital. We reviewed our global economy, surrounded by an ocean of liquidity. We commented on central banks contemplating their next monetary tactics, without the necessary political and popular support to carry them through. And we gave a play-by-play on the antics of mischievous hockey players, who add risk to the market by trying to wrest incremental return. At the time, I was struck by the truth behind an old Malaysian saying, "just because the river is quiet does not mean the crocodiles have left." In fact, the river turned out to be full of crocodiles. Not only have many of them surfaced, they chased the hockey players and have been rather hard on some of the slower moving ones. The upset in Asia and the brief, but powerful, upset in Latin America forced many of the hockey players off of the rink. The "yen/dollar carry trade" effect moderated, but this basic arbitrage between very low interest rates in Japan and higher rates in the dollar block countries, the United States, Canada, New Zealand and Australia, continues to attract many investors. While speculative in nature, this carry trade does lend considerable support to both the stock and bond markets in North America. "Virtual hedging", where plans are made to sell stocks when the market declines past a certain point, apparently continues unabated. This could lead to trouble at some point; so far, it has not. Valuations are still relatively tight in the developed world, with not much return premium being paid for uncertainty. The collapse of the Asian currencies and markets has created tremendous undervaluation in emerging markets and Yankee bonds, which are bonds issued by foreign governments, but sold in the U.S. and denominated in dollars. Risks have escalated, along with potential returns. World economic growth prospects are not as encouraging as they were. The currency and market turmoil is taking its toll. "Disinflation" is now the optimistic word for product price trends. Thus, the inflationary pressure from tighter labor markets in North America is being offset by lower product prices worldwide. Except for Canada and a few minor adjustments in anticipation of the European Monetary Union, we should not see any meaningful tightening by central banks as long as the current uncertainty continues. There is still ample liquidity to meet investment demands. Valuation levels on U.S. equities seem high, particularly as earnings growth is likely to slow. Yet lower bond yields provide powerful support and there are some good values now available in some parts of the world. Other than not getting too close to the river, as the crocodiles still lurk, the current environment is still a good one for investing. However, a heightened sense of caution is in order. Thanks again for investing with us. Sincerely, /s/ Daniel J. Fuss Daniel J. Fuss President, Loomis Sayles Funds [Photo of John F. Yeager, III] JOHN F. YEAGER, III DEAR SHAREHOLDERS: WHAT DOES IT TAKE FOR AN INVESTMENT MANAGEMENT FIRM TO CONTINUE TO BUILD ON PAST SUCCESS? IT TAKES EXPERIENCE Loomis Sayles Funds builds upon the experience of its adviser, Loomis, Sayles & Company, L.P., which has been investing for demanding institutional and high net worth clients for over seventy years. Loomis Sayles has been around long enough to see all the ups and the downs of the market - the crash of '29, the recession of '73-74, the crash of '87 - and we know how to respond in those markets. We invest for the long-term and employ methodologies which are time- tested. We don't go for the quick and easy return but take calculated risks, which we feel should generate favorable returns. We've learned that investing with an eye to the future, without fad techniques or "swinging for the fence", helps generate more consistent performance. Our Fund portfolio managers have an average of 20 years experience in the investment industry and over 8 years tenure with Loomis Sayles. Manager tenure on all but three of our Funds is "since inception." IT TAKES A DISCIPLINED TEAM Loomis Sayles is structured to take advantage of our institutional heritage. Our Fund portfolio managers also manage money for large, institutional clients who appreciate and demand the style consistency that follows from the disciplined investment approach we employ. Our Fund portfolio managers rely on our Research Group, which is one of the largest in the business. We endeavor to provide superior investment performance by taking advantage of inefficiencies in the market uncovered through solid, unbiased fundamental research on companies and industries. Our firm commits approximately $13 million annually to our Research Group and our analysts are directly compensated for their long-term effectiveness. This is a place to build a career within Loomis Sayles, not a starting point on the way to becoming a portfolio manager. IT TAKES GOOD MANAGEMENT We offer our Funds with lower expense ratios and lower management fees than many other fund companies and that helps you maximize your investment dollar. Our portfolio managers look to keep expenses down by executing trades efficiently and seeking to keep our turnover rate low. IT TAKES A WILLINGNESS TO LISTEN AND DELIVER MORE TO BUSINESS PARTNERS AND SHAREHOLDERS At Loomis Sayles Funds, we listen to client and shareholder needs and respond to them with focused products, timely information and quality service. We believe this flexibility and responsiveness is paramount to providing viable solutions to client demands. Loomis Sayles Funds can't guarantee returns based on past performance, but we can assure you that we've seen just about every kind of market that may come our way, we're structured to invest for the long term, we're committed to bottom up research and we won't be straying from our stated investment style. We'll be working harder for you - investing based on tried and true methods, offering additional fund choices, providing current information and business tools and improving our service delivery. WHAT DOES IT TAKE FOR AN INVESTMENT MANAGEMENT FIRM TO REPLICATE PAST SUCCESS? IT TAKES LOOMIS SAYLES FUNDS. Thanks for investing with us. Sincerely, /s/ John F. Yeager, III John F. Yeager, III President, Loomis Sayles Distributors, L.P. THE LOOMIS SAYLES FUNDS ANNUAL REPORT ECONOMIC AND MARKET OVERVIEW - 1997 - -------------------------------------------------------------------------------- BOND MARKET OVERVIEW The bond market was weak in the first quarter, due to a series of reports showing remarkable U.S. economic strength. The Federal Reserve Bank (the Fed) raised rates by .25% as expected, but not before market forces sent bond yields higher on their own. While economic growth continued in the second quarter, bonds reacted quite differently than they had earlier in the year. Subdued inflation numbers helped spark a rally lasting from April to July. Investors increasingly began to question the link between continued growth and rising inflation. Foreign investors, including the Japanese, created strong demand while supply was limited due to the Federal government's declining budget deficit. In the middle of the third quarter, bond yields rose again, as investors refocused on a potential pickup in inflation and its negative effects on a fixed stream of income. Once again, it appeared that economic growth and the resulting historically low unemployment situation might ignite rising prices. On October 8th, testimony by Federal Reserve Chairman Alan Greenspan was interpreted by many as a sign that the Fed was poised to tighten the money supply. However, the economic and market crisis throughout Asia and some Latin American countries quickly altered that condition. Rather than raising interest rates to fight inflation, the Fed concerned itself with keeping liquidity in the market. Long maturity bonds rallied in light of the prospects of slower worldwide economic growth and cheap imports. U.S. Treasury bonds became a "safe haven" for fearful domestic and global investors. For the year, U.S. government bonds as measured by the Lehman Brothers Government Bond Index gained 9.59%. The Lehman Brothers Government/Corporate Bond Index gained 9.76%, and the Merrill Lynch High Yield Bond Index gained 12.83%. For the U.S. based investor, home was a good place to be, as the U.S. bond market, after adjusting for currency changes, outperformed nearly all other global markets. Surprisingly, despite the effects of the fourth quarter on emerging markets debt, J.P. Morgan's Emerging Markets Bond Index gained 13% for the year.
LOOMIS SAYLES FIXED INCOME FUNDS - ---------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS TOTAL RETURN(1) vs. LIPPER CATEGORY(2) Global High Bond Bond Yield -------------- -------------- -------------- ONE YEAR Loomis Sayles .................................. 12.69 2.31 11.39 Lipper ......................................... 10.08 3.00 12.96 Rank ........................................... 6 of 102 71 of 139 136 of 181 Percentile ..................................... 6 51 75 THREE YEARS Loomis Sayles .................................. 17.93 13.39 N/A Lipper ......................................... 11.31 10.27 Rank ........................................... 1 of 63 17 of 96 Percentile ..................................... 1 18 FIVE YEARS Loomis Sayles .................................. 13.97 8.81 N/A Lipper ......................................... 8.51 6.84 Rank ........................................... 1 of 37 9 of 50 Percentile ..................................... 1 18 MODIFIED INCEPTION(3) Loomis Sayles .................................. 14.24 9.32 10.50 Lipper ......................................... 9.81 7.24 13.30 Rank ........................................... 1 of 26 3 of 29 159 of 169 Percentile ..................................... 1 10 94 ACTUAL INCEPTION(4) Loomis Sayles .................................. 14.05 9.23 11.13 Note: Past performance is not predictive of future performance. (1) Total return assumes reinvestment of dividends and capital gains distributions. Total return shown for periods of one year or less represents cumulative total return. Total return for periods greater than one year represents average annual total return. Total returns shown reflect, if any, the effect of fee waivers and/or expense reimbursements. Absent such fee waivers and/or expense reimbursements, total return would have been lower. (2) Lipper category total return represents the average total return for all funds in each Fund's corresponding investment category, as determined by Lipper Analytical Services. Rankings are based on the total return of each fund for the period from its modified inception relative to the total return of all funds in that Fund's corresponding investment category.*
LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------ Intermediate Investment Maturity Grade Municipal Short-Term U.S. Gov't Bond Bond Bond Bond Securities - ------------------- ------------- ------------ ------------- ------------- 6.43 14.51 9.83 7.14 12.74 8.57 10.08 9.11 6.19 8.84 190 of 195 1 of 102 43 of 235 13 of 101 5 of 180 97 1 18 13 3 N/A N/A 9.77 7.45 12.01 9.65 6.74 9.23 79 of 190 15 of 76 5 of 139 42 20 4 N/A N/A 6.89 6.18 8.80 6.84 5.49 6.31 49 of 111 7 of 44 2 of 78 44 16 3 6.43 14.51 7.86 5.88 10.29 8.57 10.08 7.69 5.30 7.46 190 of 195 1 of 102 36 of 96 7 of 34 1 of 64 97 1 38 21 1 6.43 14.51 7.89 5.88 10.28 (3) Modified inception reflects the nearest Lipper reporting period following actual inception. Lipper performance is reported as of month end. (4) Actual Inception Dates: Bond Fund .......................................... May 16, 1991 Global Bond Fund ................................... May 10, 1991 High Yield Fund .............................. September 11, 1996 Intermediate Maturity Bond Fund ............... December 31, 1996 Investment Grade Bond Fund .................... December 31, 1996 Municipal Bond Fund ................................ May 29, 1991 Short-Term Bond Fund ............................. August 3, 1992 U.S. Government Securities Fund .................... May 21, 1991 *Source: Lipper Analytical Services LOOMIS SAYLES BOND FUND - -------------------------------------------------------------------------------- [Photo of Daniel J. Fuss] [Photo of Kathleen C. Gaffney] DANIEL J. FUSS KATHLEEN C. GAFFNEY PERFORMANCE SUMMARY The bond market enjoyed a stellar year in 1997. Despite a surging domestic economy and historically low unemployment, inflation remained relatively benign throughout the year. Relative to its peers, the Loomis Sayles Bond Fund ranked 6th out of 102 funds in the Lipper BBB Rated Corporate Bond Fund universe. The Fund also remained comfortably ahead of the Lehman Brothers Government/Corporate Bond Index throughout the year posting a twelve month return of 12.69% versus 9.76% for the Index and 10.08% for the Lipper Average. Cumulative Performance May 1991 to December 31, 1997 - ------------------------------------------------------------------------------- Average Annual Returns (%)-Periods Ended December 31, 1997 Since 1 year 3 years 5 years Inception(a) Loomis Sayles Bond Fund (Institutional) 12.69 17.93 13.97 14.24 Loomis Sayles Bond Fund (Retail) 12.36 NA NA 12.36 Lipper Average BBB Rated Corporate Bond Fund(b) 10.08 11.31 8.51 9.81 Lehman Brothers Government/Corp. Bond Index(c) 9.76 10.43 7.61 8.66 - ------------------------------------------------------------------------------- LOOMIS LIPPER LEHMAN - -------------------------------------------------------------------------------- As of 5/31/91 $10,000 $10,000 $10,000 6/30/91 $ 9,850 $ 9,970 $ 9,990 9/30/91 $10,520 $10,550 $10,560 12/31/91 $10,930 $11,140 $11,130 3/31/92 $11,290 $11,030 $10,960 6/30/92 $11,840 $11,470 $11,400 9/30/92 $12,400 $12,040 $11,960 12/31/92 $12,490 $12,040 $11,970 3/31/93 $13,450 $12,670 $12,530 6/30/93 $14,160 $13,080 $12,900 9/30/93 $14,790 $13,550 $13,330 12/31/93 $15,270 $13,580 $13,290 3/31/94 $15,040 $13,130 $12,880 6/30/94 $14,610 $12,880 $12,720 9/30/94 $14,870 $12,980 $12,780 12/31/94 $14,650 $12,960 $12,830 3/31/95 $15,730 $13,580 $13,460 6/30/95 $17,410 $14,530 $14,340 9/30/95 $18,160 $14,880 $14,610 12/31/95 $19,330 $15,580 $15,290 3/31/96 $19,140 $15,260 $14,940 6/30/96 $19,450 $15,330 $15,010 9/30/96 $20,210 $15,660 $15,270 12/31/96 $21,320 $16,220 $15,740 3/31/97 $21,270 $16,100 $15,600 6/30/97 $22,510 $16,750 $16,170 9/30/97 $23,900 $17,380 $16,740 12/31/97 $24,024 $17,822 $17,273 Note: Past performance is not predictive of future performance. (a): Inception date of the Institutional Class of shares is May 16, 1991. Since Lipper and Lehman Brothers Government/Corporate Bond Index performance data is not available coincident with this date, comparative performance is presented from May 31, 1991. Inception date of the Retail Class of shares is December 31, 1996. (b): Source: Lipper Analytical Services. (c): Lehman Brothers Government/Corporate Bond Index is a composite 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. (d): Cumulative performance is shown for the Institutional Class of shares. Performance of the Retail Class of shares would, due to the higher fees paid by the Retail Class of shares, be lower. PORTFOLIO REVIEW Higher quality corporate bonds and longer Treasuries were among the strongest performers in 1997. This was fueled in part by the Federal Reserve Bank's decision to stand pat on interest rates for the latter part of the year as well as a "flight to quality" that occurred as a result of the Asian financial crisis that rocked global markets in mid October. Among corporate bonds, industrials had a strong year boosted by the cable/media and tobacco sectors. Interest rates declined sharply across the board, particularly on the long end of the yield curve. The 30-year Treasury yield began the year at 6.64%, rose slightly after an interest rate hike in March, then fell steadily ending the year at 5.92%. There was a stark contrast between the first and second halves of 1997 for emerging market debt. What began as a promising year ended with disappointing results as several Southeast Asian countries had their sovereign debt rating downgraded from investment grade to speculative status. Some bright spots included Latin American debt such as Argentinian and Brazilian Brady bonds as well as select Mexican credits. Structural reforms in Southeast Asia have helped in stabilizing the region and, over the long-term, we believe the prospects for growth remain positive. PORTFOLIO POSITIONING Concerns of an impending tightening by the Federal Reserve Bank have abated and the emphasis has shifted towards a more deflationary trend in global markets. This bodes well for the fixed income markets. The Fund remains well structured for the current environment offering good yield advantage, call protection, and a moderate degree of international exposure. /s/ Daniel J. Fuss /s/ Kathleen C. Gaffney Daniel J. Fuss Kathleen C. Gaffney LOOMIS SAYLES GLOBAL BOND FUND - ------------------------------------------------------------------------------- [Photo of E. John deBeer] E. JOHN DEBEER PERFORMANCE SUMMARY The Loomis Sayles Global Bond Fund returned 2.31% in 1997, outpacing the 0.23% return for the Salomon Brothers World Government Bond Index. This ranks the Fund 71 out of the 139 funds in the Lipper General World Income Fund category for the year, and high up in the rankings for the three and five year periods (17th out of 96 funds and 9th out of 50 funds, respectively). PORTFOLIO REVIEW The Fund's performance for the year benefited from our hedging actions. During the year the Fund had almost no Yen exposure, and we hedged some of the European currency exposure back into the U.S. dollar, leaving only about 20% of the portfolio in unhedged European currencies. Given the strength of the U.S. dollar during the year, this helped performance. Cumulative Performance May 1991 to December 31, 1997 - ------------------------------------------------------------------------------- Average Annual Returns (%)-Periods Ended December 31, 1997 Since 1 year 3 years 5 years Inception(a) Loomis Sayles Global Bond Fund (Institutional) 2.31 13.39 8.81 9.32 Loomis Sayles Global Bon Fund (Retail) 2.04 NA NA 2.04 Lipper Average General World Income Fund(b) 3.00 10.27 6.84 7.24 Salomon Brothers World Government Bond Index(c) 0.23 7.33 7.46 8.85 - ------------------------------------------------------------------------------- LOOMIS LIPPER SB World - -------------------------------------------------------------------------------- As of 5/31/91 $10,000 $10,000 $10,000 6/30/91 $ 9,560 $ 9,830 $ 9,900 9/30/91 $10,530 $10,450 $10,710 12/31/91 $11,690 $10,940 $11,560 3/31/92 $11,110 $10,750 $11,170 6/30/92 $12,040 $11,220 $11,920 9/30/92 $11,850 $11,360 $12,660 12/31/92 $11,790 $11,330 $12,200 3/31/93 $12,360 $11,860 $12,850 6/30/93 $12,390 $12,290 $13,220 9/30/93 $13,190 $12,720 $13,950 12/31/93 $13,510 $13,090 $13,820 3/31/94 $13,010 $12,410 $13,820 6/30/94 $12,190 $12,120 $13,910 9/30/94 $12,160 $12,250 $14,070 12/31/94 $12,330 $12,150 $14,140 3/31/95 $11,970 $12,660 $15,690 6/30/95 $13,110 $13,380 $16,520 9/30/95 $14,180 $13,660 $16,350 12/31/95 $15,280 $14,310 $16,830 3/31/96 $15,400 $14,230 $16,520 6/30/96 $16,150 $14,540 $16,580 9/30/96 $16,790 $15,100 $17,040 12/31/96 $17,570 $15,770 $17,440 3/31/97 $17,490 $15,450 $16,720 6/30/97 $18,200 $15,910 $17,230 9/30/97 $18,550 $16,290 $17,450 12/31/97 $17,979 $16,306 $17,482 Note: Past performance is not predictive of future performance. (a): Inception date of the Institutional Class of shares is May 10, 1991. Since Lipper and Salomon Brothers World Government Bond Index performance data is not available coincident with this date, comparative performance is presented from May 31, 1991. Inception date of the Retail Class of shares is December 31, 1996. (b): Source: Lipper Analytical Services. (c): Salomon Brothers World Government Bond Index is a capitalization- weighted index which tracks the performance of 14 government bond markets. The index returns have not been reduced for ongoing management and operating expenses applicable to mutual fund investments. (d): Cumulative performance is shown for the Institutional Class of shares. Performance of the Retail Class of shares would, due to the higher fees paid by the Retail Class of shares, be lower. Our exposure to the markets of Asia, Latin America, Canada and New Zealand dampened performance in the fourth quarter. Portfolio duration did not stray far from 6.5 years during the year. Average portfolio quality remained at A or higher, as is customary for the Fund. During the year we increased the Australian, New Zealand and Canadian positions to 20% of the Fund, due to the continuing strength of their fiscal situations. We continued to keep the currencies for these countries unhedged because we believe the long-term case for them remains strong even though the notable strength of the U.S. dollar hurt their relative performance in the fourth quarter. PORTFOLIO POSITIONING At year end, the Fund's average portfolio quality was A, and duration was 6.5 years. Approximately 42% of the portfolio was in European bonds (mostly Germany) and in December we removed all European hedges, since we believe the European currencies are somewhat undervalued. We have deliberately purchased Asian securities because we believe the financial market turmoil has produced some excellent opportunities for value. At year end, the Pacific Rim was 26.7% of the portfolio, Japan 4.7%, Australia 9.3% and New Zealand 2.2%. Bonds (in US$) of governments and companies in Korea, Thailand and the Philippines comprised 10.5% of the Fund. /s/ E. John deBeer E. John deBeer LOOMIS SAYLES HIGH YIELD FUND - ------------------------------------------------------------------------------- [Photo of Daniel J. Fuss] [Photo of Kathleen C. Gaffney] DANIEL J. FUSS KATHLEEN C. GAFFNEY PERFORMANCE SUMMARY The high yield market enjoyed its third consecutive year of solid returns. Demand continued to be strong as the yield spreads on high yield issues narrowed versus higher quality securities despite a record amount of new issuance. The Fund moderately underperformed its benchmark, the Merrill Lynch High Yield Master Index, posting a 11.39% return for the year versus the Index's 12.83% return. Cumulative Performance September 1996 to December 31, 1997 - ------------------------------------------------------------------------------- Average Annual Returns (%)-Periods Ended December 31, 1997 Since 1 year Inception(a) Loomis Sayles High Yield Fund (Institutional) 11.39 10.50 Loomis Sayles High Yield Fund (Retail) 11.17 11.17 Lipper Average High Current Yield Fund(b) 12.96 13.30 Merrill Lynch High Yield Master Index(c) 12.83 13.59 - ------------------------------------------------------------------------------- LOOMIS LIPPER MERRILL LYNCH - -------------------------------------------------------------------------------- As of 9/30/96 $10,000 $10,000 $10,000 12/31/96 $10,170 $10,330 $10,390 3/31/97 $10,150 $10,370 $10,500 6/30/97 $10,760 $10,920 $11,000 9/30/97 $11,660 $11,500 $11,430 12/31/97 $11,330 $11,670 $11,730 Note: Past performance is not predictive of future performance. (a): Inception date of the Institutional Class of shares is September 11, 1996. Since Lipper and Merrill Lynch High Yield Master Index performance data is not available coincident with this date, comparative performance is presented from September 30, 1996. Inception date of the Retail Class of shares is December 31, 1996. (b): Source: Lipper Analytical Services. (c): Merrill Lynch High Yield Master Index consists of fixed-rate, coupon-bearing bonds with an outstanding par which is greater than or equal to $50 million, a maturity range greater than or equal to one year and must be less than BBB/Baa3 rated but not in default. The index returns have not been reduced for ongoing management and operating expenses applicable to mutual fund investments. (d): Cumulative performance is shown for the Institutional Class of shares. Performance of the Retail Class of shares would, due to the higher fees paid by the Retail Class of shares, be lower. PORTFOLIO REVIEW Within the U.S. high yield market, telecommunications issues were strong performers for the year. Allocations to issues such as TCI, Nextel Communications, Century Communications and other well known corporate issues including Kmart and Apple, added significant value to the portfolio over the year. The utility sector also performed well, and the Fund benefited from its holdings in preferred issues. The Fund's allocation to convertible bonds (21.2% of the portfolio as of 12/31/97) hampered performance during the fourth quarter, as volatility in the equity markets lowered the appeal of these securities. Our exposure to Yankee issues also proved to be a drag on performance as the Asian financial markets fell in October and it became apparent that a quick turnaround would be unlikely. PORTFOLIO POSITIONING At year end, the Fund was diversified across 98 issues, with a concentration in Yankee bonds and the industrial sector. Despite the most recent market setback leading to price deterioration in Southeast Asia, and to a lesser extent in other emerging market issues, we believe the long-term outlook for these positions is positive. The possibility of the Federal Reserve Bank lowering interest rates in 1998 may bode well for the high yield market. As rates move lower, there may be continued demand for higher yielding securities. We will continue to look for attractive investment opportunities both in the U.S. and abroad to maintain the diversity of the Fund and maximize total return. /s/ Daniel J. Fuss /s/ Kathleen C. Gaffney Daniel J. Fuss Kathleen C. Gaffney LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND - ------------------------------------------------------------------------------- [Photo of Anthony J. Wilkins] ANTHONY J. WILKINS PERFORMANCE SUMMARY The fixed income markets enjoyed another strong year in 1997. Despite a surging U.S. economy and historically low unemployment, inflation remained benign throughout the year. The Loomis Sayles Intermediate Maturity Bond Fund posted weak returns in its first year of operations, due primarily to a difficult fourth quarter. The Fund's 6.43% annual return lagged the 7.87% return of the Lehman Brothers Government/Corporate Intermediate Bond Index. Cumulative Performance December 1996 to December 31, 1997 - ------------------------------------------------------------------------------- Average Annual Returns (%)-Periods Ended December 31, 1997 Since Inception(a) Loomis Sayles Intermediate Maturity Bond Fund (Institutional) 6.43 Loomis Sayles Intermediate Maturity Bond Fund (Retail) 6.24 Lipper Average Intermediate Investment Grade Bond Fund(b) 8.57 Lehman Brothers Government/Corp. Intermediate Bond Index(c) 7.87 - ------------------------------------------------------------------------------- LOOMIS LIPPER LEHMAN - -------------------------------------------------------------------------------- As of 12/31/96 $10,000 $10,000 $10,000 3/31/97 $ 9,990 $ 9,940 $ 9,990 6/30/97 $10,340 $10,280 $10,280 9/30/97 $10,630 $10,600 $10,560 12/31/97 $10,640 $10,860 $10,790 Note: Past performance is not predictive of future performance. (a): Inception date for the Institutional and Retail Classes of shares is December 31, 1996. (b): Source: Lipper Analytical Services. (c): Lehman Brothers Government/Corporate Intermediate Bond Index consists of those bonds held within the Lehman Brothers Government/ Corporate Bond Index which have an average maturity of 1-10 years. The Lehman Brothers Government/Corporate Bond Index consists 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. (d): Cumulative performance is shown for the Institutional Class of shares. Performance of the Retail Class of shares would, due to the higher fees paid by the Retail Class of shares, be lower. PORTFOLIO REVIEW U.S. intermediate corporate bonds within the industrial sector were strong performers during 1997. The Fund's telecommunication issues were clear winners and the portfolio benefited from holdings in Cox Communications, TCI and 360 Communications. Holdings in Time Warner and RJR Nabisco also played a positive role in returns for the Fund. Intermediate Treasuries closed out the year with strong returns due to a "flight to quality" that occurred as a result of the Asian financial crisis in October. Throughout the first three quarters of the year, the Fund remained ahead of its benchmark and within the top third of the funds in the Lipper Intermediate Investment Grade Bond category. However, in the fourth quarter the Asian crisis had a negative impact on the Fund's exposure to Yankee bonds from a variety of countries, resulting in weak returns for the year. PORTFOLIO POSITIONING As of 12/31/97, the Fund was diversified across 40 issues, with a yield to maturity of 7.48%. Sector weightings continue to be focused in industrial, finance, Yankee, and more recently government/agency issues to take advantage of declining yields in the Treasury market. Despite the most recent market setback, we believe the long-term outlook for the Yankee issues in the portfolio remains positive. We will continue to cautiously buy into today's volatile markets, searching for issues we believe to be undervalued with strong fundamentals to maximize total return. /s/ Anthony J. Wilkins Anthony J. Wilkins LOOMIS SAYLES INVESTMENT GRADE BOND FUND - ------------------------------------------------------------------------------- [Photo of Daniel J. Fuss] DANIEL J. FUSS PERFORMANCE SUMMARY In its first full year in existence, the Investment Grade Bond Fund posted stellar results, returning 14.51%, ranking it first among the 102 funds in the Lipper BBB Rated Corporate Bond Fund category. The Fund also significantly outperformed the 9.76% return of its benchmark, the Lehman Brothers Government/Corporate Bond Index. Although 1997 may long be remembered for the "Asian Flu" that spread through global financial markets in late October, we should not lose sight of the fact that 1997 was a banner year across the board for fixed income markets. The economy enjoyed the best of both worlds, with strong growth, higher consumer demand and very few signs of inflationary pressures. In addition, we also experienced historically low unemployment. All of this boded well for the investment grade market, which received an added boost from the "flight to quality" that took place following the volatility in Southeast Asia. Cumulative Performance December 1996 to December 31, 1997 - -------------------------------------------------------------------------------- Average Annual Returns (%)-Periods Ended December 31, 1997 Since Inception(a) Loomis Sayles Investment Grade Bond Fund (Institutional) 14.51 Loomis Sayles Investment Grade Bond Fund (Retail) 14.29 Lipper Average BBB Rated Corporate Bond Fund(b) 10.08 Lehman Brothers Government/Corp. Bond Index(c) 9.76 Loomis Lipper Lehman - -------------------------------------------------------------------------------- AS OF 12/31/96 10,000 10,000 10,000 PERIOD ENDED 3/31/97 09,940 09,920 09,910 6/30/97 10,600 10,330 10,270 9/30/97 11,280 10,720 10,630 12/31/97 11,450 11,010 10,980 Note: Past performance is not predictive of future performance. (a): Inception date for the Institutional and Retail Classes of shares is December 31, 1996. (b): Source: Lipper Analytical Services. (c): Lehman Brothers Government/Corporate Bond Index consists 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. (d): Cumulative performance is shown for the Institutional Class of shares. Performance of the Retail Class of shares would, due to the higher fees paid by the Retail Class of shares, be lower. PORTFOLIO REVIEW The Fund's allocation to long Treasuries contributed to its success, as yields declined considerably throughout the year, particularly on the long end of the curve. Among corporate bonds, industrial securities led the way boosted by the strong performance of the cable/media and tobacco sectors. Yankee bonds slightly underperformed in 1997, which can be attributed to the uncertainty in Southeast Asia and the subsequent action taken by Moody's Investor Services and Standard and Poor's, when they downgraded the sovereign debt ratings of Korea, Indonesia and Thailand to speculative status. Select convertibles added to the Fund's total return, buoyed by another successful year in the equity markets. PORTFOLIO POSITIONING The fears of inflation that persisted throughout 1997 have quickly abated and discussions have now turned to the deflationary effect that might occur as a result of the turmoil in Southeast Asia and the continued strength of the U.S. dollar. The Fund's quality profile remains higher than normal as we wait to see how the situation abroad plays out. While we do not attempt to time the future direction of interest rates, the Fund's strategy continues to focus on long, call protected bonds offering strong yield advantage. /S/ Daniel J. Fuss - ------------------------- Daniel J. Fuss LOOMIS SAYLES MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [Photo of Martha F. Hodgman] MARTHA F. HODGMAN PERFORMANCE SUMMARY The Loomis Sayles Municipal Bond Fund turned in strong performance in 1997. The Fund returned 9.83% for the year, surpassing the Lehman Brothers Municipal Bond Index's return of 9.19% and the Lipper General Municipal Bond Fund Average return of 9.11%. The Fund placed in the top quartile of general municipal bond funds with a ranking of 43 out of 235 funds. The Fund outdistanced the Lipper average for much of the year, lagging only slightly in the first quarter, when our longer duration strategy worked against us due to rising interest rates. Cumulative Performance May 1991 to December 31, 1997 - ------------------------------------------------------------------------------- Average Annual Returns (%)-Periods Ended December 31, 1997 Since 1 year 3 years 5 years Inception(a) Loomis Sayles Municipal Bond Fund 9.83 9.77 6.89 7.86 Lipper Average General Municipal Bond Fund(b) 9.11 9.65 6.84 7.69 Lehman Brothers Municipal Bond Index(c) 9.19 10.23 7.36 8.05 LOOMIS LIPPER LEHMAN AS OF 5/31/91 10,000 10,000 10,000 PERIOD ENDED 6/30/91 10,010 09,970 09,990 9/30/91 10,420 10,370 10,380 12/31/91 10,780 10,730 10,730 3/31/92 10,780 10,740 10,760 6/30/92 11,240 11,200 11,170 9/30/92 11,540 11,450 11,460 12/31/92 11,790 11,680 11,670 3/31/93 12,180 12,150 12,110 6/30/93 12,630 12,560 12,500 9/30/93 13,070 12,990 12,920 12/31/93 13,150 13,130 13,110 3/31/94 12,420 12,410 12,390 6/30/94 12,580 12,480 12,520 9/30/94 12,610 12,540 12,610 12/31/94 12,440 12,340 12,430 3/31/95 13,260 13,220 13,310 6/30/95 13,500 13,490 13,630 9/30/95 13,830 13,820 14,020 12/31/95 14,500 14,480 14,600 3/31/96 14,230 14,220 14,420 6/30/96 14,280 14,300 14,530 9/30/96 14,600 14,620 14,870 12/31/96 14,980 14,960 15,240 3/31/97 14,900 14,890 15,210 6/30/97 15,440 15,400 15,730 9/30/97 15,100 15,860 16,210 12/31/97 16,460 16,310 16,650 Note: Past performance is not predictive of future performance. (a): Inception date of the Loomis Sayles Municipal Bond Fund is May 29, 1991. Since Lipper and Lehman Brothers Municipal Bond Index performance data is not available coincident with this date, comparative performance is presented from May 31, 1991. (b): Source: Lipper Analytical Services. (c): Lehman Brothers Municipal Bond Index is computed from prices on approximately 21,000 bonds consisting of roughly 30% revenue bonds, 30% government obligations bonds, 27% insured and 13% prerefunded bonds. The index returns have not been reduced for ongoing management and operating expenses applicable to mutual fund investments. PORTFOLIO REVIEW The Fund's positive performance was largely attributable to our exposure to long maturity non-callable bonds and long discount bonds, as well as lower rated securities. In 1997, credit spreads narrowed dramatically. For example, at the beginning of the year, New York City (Baa1/BBB+) bond yields were trading at 1% more than AAA securities, but by year end the same securities were trading at only 0.40% over AAA bonds. Over the last few years the spread between insured AAA municipals and uninsured AAA issues has narrowed from between 0.15% to 0.20% to just 0.10% at the end of 1997. Investors were willing to pay higher prices to avoid the risk of reinvesting their money at lower rates in the future. Structure became very important as the bond rally continued. Long-term non-callable bonds, bonds that could not be retired prior to their stated maturity date, traded at yields similar to those of AAA issues at year end, independent of the level of their ratings. PORTFOLIO POSITIONING In 1998, we plan to continue our strategy of remaining fully invested. We anticipate that the economy will continue to grow with limited inflation, which implies stable to declining interest rates. Our non-callable and call protected issues should be a benefit in this environment. As always, we will continue to seek undervalued securities with attractive structures. /s/ Martha F. Hodgman Martha F. Hodgman LOOMIS SAYLES SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- [Photo of John Hyll] JOHN HYLL PERFORMANCE For the year ending December 31, 1997, the Loomis Sayles Short Term Bond Fund achieved a total return of 7.14%, outpacing the Lehman Brothers 1-3 Year Government/Corporate Bond Index's total return of 6.66% and the 6.19% return for the average fund in the Lipper Short Investment Grade Bond Fund Category. PORTFOLIO REVIEW The Fund's longer average maturity positively affected performance during 1997 as yields declined throughout the year. A heavy weighting in corporate bonds also added value as yield spreads narrowed for most of 1997. The Fund's lack of exposure to foreign or Yankee bonds proved beneficial as these sectors were hurt during the fourth quarter as economic difficulties developed in Southeast Asia. Cumulative Performance August 1992 to December 31, 1997 - ------------------------------------------------------------------------------- Average Annual Returns (%)-Periods Ended December 31, 1997 Since 1 year 3 years 5 years Inception(a) Loomis Sayles Short-Term Bond Fund (Inst.) 7.14 7.45 6.18 5.88 Loomis Sayles Short-Term Bond Fund (Retail) 6.87 NA NA 6.87 Lipper Average Short Inv. Grade Bond Fund(b) 6.19 6.74 5.49 5.30 Lehman Brothers Municipal 1-3 Year Gov't/Corp. Bond Index(c) 6.66 7.56 5.72 5.58 LOOMIS LIPPER LEHMAN AS OF 8/31/92 10,000 10,000 10,000 10/31/92 09,920 09,940 09,940 11/30/92 09,880 09,960 09,930 PERIOD ENDED 12/31/92 09,950 10,030 10,020 3/31/93 10,260 10,310 10,240 6/30/93 10,400 10,470 10,350 9/30/93 10,550 10,660 10,490 12/31/93 10,630 10,790 10,560 3/31/94 10,590 10,720 10,510 6/30/94 10,610 10,700 10,510 9/30/94 10,770 10,800 10,610 12/31/94 10,820 10,780 10,610 3/31/95 11,180 11,070 10,970 6/30/95 11,520 11,440 11,310 9/30/95 11,680 11,610 11,480 12/31/95 11,970 11,900 11,770 3/31/96 11,990 11,940 11,810 6/30/96 12,080 12,060 11,930 9/30/96 12,230 12,260 12,130 12/31/96 12,530 12,490 12,360 3/31/97 12,580 12,570 12,440 6/30/97 12,890 12,840 12,720 9/30/97 13,200 13,010 12,780 12/31/97 13,430 13,250 13,230 [Graphic Omitted] Note: Past performance is not predictive of future performance. (a): Inception date of the Institutional Class of shares is August 3, 1992. Since Lipper and Lehman Brothers 1-3 Year Government/Corporate Bond Index performance data is not available coincident with this date, comparative performance is presented from August 31, 1992. Inception date of the Retail Class of shares is December 31, 1996. (b): Source: Lipper Analytical Services. (c): Lehman Brothers 1-3 Year Government/Corporate Bond Index consists of fixed rate debt issues rated investment grade or higher. All issues have at least one year to three years to maturity and an outstanding par value of at least $100 million for U.S. Gov't issues. The index returns have not been reduced for ongoing management and operating expenses applicable to mutual fund investments. (d): Cumulative performance is shown for the Institutional Class of shares. Performance of the Retail Class of shares would, due to the higher fees paid by the Retail Class of shares, be lower. PORTFOLIO POSITIONING As of December 31, 1997, the Fund is positioned with 65% in corporates, 8% in mortgages, 4% in asset backed securities and 23% in U.S. Treasuries. The average maturity is 2.8 years, which is on the longer end of its three-year maturity limit. The average yield-to-maturity is 6.2%. We have positioned the Fund to take advantage of moderate economic growth and low inflationary pressures. Continued emphasis will be placed on asset selection to enhance yield and provide the potential for capital appreciation. /s/ John Hyll John Hyll LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND - -------------------------------------------------------------------------------- [Graphic Omitted] KENT P. NEWMARK PERFORMANCE SUMMARY 1997 proved to be another excellent year for the Loomis Sayles U.S. Government Securities Fund. The Fund was up 12.74% vs. the Lipper Average General U.S. Government Bond Fund's 8.84% return and the Lehman Brothers Government Bond Index's 9.59% return. For the one year period ending 12/31/97, the Fund ranked 5th out of the 180 funds in the Lipper Category. Falling interest rates were the driving force behind our performance. Cumulative Performance May 1991 to December 31, 1997 - ------------------------------------------------------------------------------- Average Annual Returns (%)-Periods Ended December 31, 1997 Since 1 year 3 years 5 years Inception(a) Loomis Sayles U.S. Government Securities Fund 12.74 12.01 8.80 10.29 Lipper Average General U.S. Gov't Bond Fund(b) 8.84 9.23 6.31 7.46 Lehman Brothers Government Bond Index(c) 9.59 10.05 7.34 8.39 LOOMIS LIPPER LEHMAN AS OF 5/31/91 10,000 10,000 10,000 PERIOD ENDED 06/31/91 09,970 09,970 09,990 9/30/91 10,690 10,540 10,560 12/31/91 11,490 11,070 11,120 3/31/92 11,110 10,880 10,930 6/30/92 11,590 11,270 11,360 9/30/92 12,400 11,720 11,920 12/31/92 12,500 11,750 11,920 3/31/93 13,220 12,160 12,460 6/30/93 13,830 12,470 12,820 9/30/93 14,600 12,770 13,240 12/31/93 14,470 12,730 13,200 3/31/94 13,710 12,330 12,800 6/30/94 13,330 12,090 12,650 9/30/94 13,320 12,110 12,710 12/31/94 13,560 12,120 12,750 3/31/95 14,330 12,670 13,350 6/30/95 15,370 13,370 14,180 9/30/95 15,840 13,610 14,430 12/31/95 16,680 14,180 15,090 3/31/96 15,900 13,840 14,750 6/30/96 15,910 13,850 14,820 9/30/96 16,190 14,070 15,070 12/31/96 16,900 14,460 15,510 3/31/97 16,490 14,340 15,380 6/30/97 17,350 14,840 15,910 9/30/97 18,250 15,300 16,450 12/31/97 19,060 15,740 16,990 Note: Past performance is not predictive of future performance. (a): Inception date of the Loomis Sayles U.S. Government Securities Fund is May 21, 1991. Since Lipper and Lehman Brothers Government Bond Index performance data is not available coincident with this date, comparative performance is presented from May 31, 1991. (b): Source: Lipper Analytical Services (c): 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. The index returns have not been reduced for ongoing management and operating expenses applicable to mutual fund investments. PORTFOLIO REVIEW Philosophically, the Fund has maintained a duration longer than most of its competitors, and therefore was in a good position to capitalize on the bond market rally that began in April and ran until December with only short interruptions. The Fund had an effective duration of approximately 9 years at the end of 1996 and ended 1997 with a duration of 9.2 years. As interest rates declined, we shortened duration and invested in GNMA Pass-throughs and Treasury Inflation Indexed Notes. The latter sector underperformed the Government sector of the market, but the Fund's 43% weighting in long Treasuries more than compensated for that shortfall. The majority of the Fund's holdings are call protected, and we feel the remaining holdings offer attractive yield tradeoffs vs. call risk. We believe this is even more important given the reinvestment risk that bonds with low ratings present. PORTFOLIO POSITIONING While we expect to continue the long duration bias of the portfolio during 1998, we are cautious about extending durations significantly further. When the turmoil in Asia subsides, investors may turn their attention to the U.S. economy. Our current view is that the U.S. economy is moderately strong, with possible wage inflation in the wind. This could lead to weakness in the bond market, making it difficult to produce returns of the same magnitude as 1997. /s/ Kent P. Newmark Kent P. Newmark
LOOMIS SAYLES FIXED INCOME FUNDS - ----------------------------------------------------------------------------------------------------- LOOMIS SAYLES BOND FUND Portfolio of Investments -- as of December 31, 1997 Face Amount Value (a) - ----------------------------------------------------------------------------------------------------- Bonds And Notes -- 94.4% of Total Net Assets NON-CONVERTIBLE BONDS -- 87.2% Airlines -- 0.3% NWA Trust, 9.360%, 3/10/06 ........................ $ 773,100 $ 859,277 United Airlines Pass Thru, 7.870%, 1/30/19 ........ 2,350,000 2,533,465 -------------- 3,392,742 -------------- Banking & Finance -- 0.6% First Union Institutional Trust, 7.850%, 1/01/27 .. 2,000,000 2,068,700 First Union Institutional Trust, 8.040%, 12/01/26 . 5,000,000 5,322,740 -------------- 7,391,440 -------------- Broadcasting -- 0.1% CBS, Inc., 7.125%, 11/01/23 ....................... 1,435,000 1,301,976 -------------- Canadian -- 19.9% Canadian Government, Zero Coupon Bond, 6/01/21 ......................................... CAD 115,650,000 20,037,746 Canadian Government, Zero Coupon Bond, 6/01/22 ......................................... CAD 11,050,000 1,801,748 Canadian Government, Zero Coupon Bond, 6/01/25 ......................................... CAD 302,435,000 41,453,732 Clearnet Communications, Inc., Zero Coupon Bond, 8/13/07 (step to 11.750% on 8/13/02) (b) ........ CAD 40,000,000 17,844,022 International Semi-Tech Corp., Zero Coupon Bond, 8/15/03 (step to 11.500% on 8/15/00) (b) ....... USD 11,750,000 4,230,000 Province of Alberta, 5.930%, 9/16/16 .............. CAD 18,850,000 13,300,063 Province of British Columbia, Zero Coupon Bond, 8/23/13 ......................................... CAD 33,000,000 8,765,823 Province of British Columbia, Zero Coupon Bond, 6/09/14 ......................................... CAD 10,000,000 2,522,655 Province of British Columbia, Zero Coupon Bond, 9/05/20 ......................................... CAD 54,528,000 9,317,895 Province of British Columbia, Zero Coupon Bond, 6/09/22 ......................................... CAD 88,956,000 13,626,163 Province of British Columbia, Zero Coupon Bond, 8/19/22 ......................................... CAD 25,037,000 3,789,583 Province of British Columbia, Zero Coupon Bond, 9/08/23 ......................................... CAD 37,950,000 5,430,458 Province of British Columbia, Zero Coupon Bond, 8/23/24 ......................................... CAD 122,250,000 16,322,242 Province of British Columbia, Zero Coupon Bond, 11/19/27 ........................................ CAD 40,600,000 4,481,185 Province of British Columbia, 7.875%, 11/30/23 .... CAD 1,250,000 1,044,181 Province of British Columbia, 8.000%, 9/08/23 ..... CAD 7,000,000 6,008,327 Province of Manitoba, Zero Coupon Bond, 7/22/13 ......................................... CAD 2,500,000 659,686 Province of Manitoba, Zero Coupon Bond, 3/05/31 ......................................... CAD 34,600,000 3,067,646 Province of Manitoba, 6.500%, 9/22/17 ............. CAD 34,300,000 25,120,451 Province of Manitoba, 7.750%, 12/22/25 ............ CAD 39,245,000 33,258,219 Province of Ontario, Zero Coupon Bond, 7/13/22 . CAD 13,000,000 1,936,855 Province of Saskatchewan, Zero Coupon Bond, 4/10/14 ......................................... CAD 19,000,000 4,848,885 Province of Saskatchewan, 8.750%, 5/30/25 ......... CAD 11,735,000 10,876,462 Province of Saskatchewan (Certificate of Deposit), Zero Coupon Bond, 2/04/22 ....................... CAD 2,350,000 364,245 Province of Saskatchewan (Certificate of Deposit), Zero Coupon Bond, 5/30/25 ....................... CAD 25,055,000 3,147,107 Rogers Cablesystems Ltd., 9.650%, 1/15/14 ......... CAD 6,150,000 4,647,843 -------------- 257,903,222 -------------- Communications -- 1.8% Arch Communications Group, Inc., Zero Coupon Bond, 3/15/08 (step to 10.875% on 3/15/01) (b) $ 14,810,000 9,108,150 Century Communications Corp., 8.375%, 11/15/17 5,000,000 4,625,000 US West Capital Funding, Inc., 7.900%, 2/01/27 .... 9,035,000 9,887,362 -------------- 23,620,512 -------------- Computers -- 1.8% Apple Computer, Inc., 6.500%, 2/15/04 ............. 14,945,000 12,404,350 Seagate Technology, Inc., 7.875%, 3/01/17 ......... 10,000,000 10,401,200 Streamlogic Corp., 14.000%, 10/07/98 (c) (d) ...... 139,170 41,751 -------------- 22,847,301 -------------- Electronics -- 1.7% Pioneer Standard Electronics, Inc., 8.500%, 8/01/06 ......................................... 1,000,000 1,059,585 Westinghouse Electric Corp., 7.875%, 9/01/23 ...... 20,350,000 20,388,868 -------------- 21,448,453 -------------- Entertainment -- 4.1% Time Warner Entertainment Co., 7.570%, 2/01/24 27,170,000 28,423,895 Time Warner Entertainment Co., 8.050%, 1/15/16 7,825,000 8,452,252 Time Warner Entertainment Co., 8.375%, 3/15/23 14,160,000 16,159,109 -------------- 53,035,256 -------------- Environmental Services -- 0.1% Envirotest Systems Corp., 9.625%, 4/01/03 ......... $ 2,025,000 1,944,000 -------------- Food & Beverage -- 0.4% Borden, Inc., 7.875%, 2/15/23 ..................... 5,500,000 5,533,990 -------------- Foreign Government/Agency -- 9.0% BCO Central Costa Rica, 6.250%, 5/21/10 ........... USD 3,200,000 2,720,000 Escom, 11.000%, 6/01/08 ........................... ZAR 26,500,000 4,593,455 Petroleos Mexicanos, 9.500%, 9/15/27 .............. USD 9,300,000 9,137,250 Petroleos Mexicanos, Medium Term, 8.625%, 12/01/23 (e) .................................... USD 3,100,000 2,914,000 Republic of Argentina, 6.688%, 3/31/05 (f) ........ USD 1,128,000 1,008,206 Republic of Argentina, 9.750%, 9/19/27 ............ USD 8,650,000 8,269,400 Republic of Brazil C Bond, 8.000%, 4/15/14 (g) .... USD 27,423,253 21,527,254 Republic of Brazil, 10.125%, 5/15/27 .............. USD 42,481,000 39,825,937 Republic of Ecuador, 6.688%, 2/27/15 (f) (g) ...... USD 6,069,258 3,740,484 Republic of South Africa, 12.000%, 2/28/05 ........ ZAR 19,000,000 3,605,221 Republic of South Africa, 12.500%, 12/21/06 ....... ZAR 32,450,000 6,197,940 Republic of South Africa, 13.500%, 9/15/15 ........ ZAR 14,850,000 2,985,071 Republic of Venezuela, 9.250%, 9/15/27 ............ USD 11,000,000 9,806,500 -------------- 116,330,718 -------------- Foreign Issuer -- 7.5% Bangko Sentral Pilipinas, 8.600%, 6/15/27 ......... $ 7,550,000 6,020,370 Bangkok Bank Public Co. Ltd., 8.250%, 3/15/16 (e) ..................................... 5,175,000 3,981,800 Bangkok Bank Public Co. Ltd., 8.375%, 1/15/27 (e) ..................................... 27,575,000 17,372,250 Espirito Santo-Escelsa, 10.000%, 7/15/07 (e) ...... 2,000,000 1,780,000 Export Import Bank of Korea, 6.375%, 2/15/06 ...... 1,000,000 760,000 Hyundai Motor Co. Ltd., 7.600%, 7/15/07 (e) ....... 4,000,000 2,840,000 Industrial Finance Corp. of Thailand, 7.375%, 1/14/07 (e) ..................................... 500,000 389,695 Korea Development Bank, 7.125%, 9/17/01 ........... 2,500,000 2,095,600 Korea Electric Power Corp., 6.750%, 8/01/27 ....... 1,500,000 1,185,000 Korea Electric Power Corp., 7.000%, 2/01/27 ....... 1,500,000 1,044,240 Korea Electric Power Corp., 7.750%, 4/01/13 ....... 2,000,000 1,520,000 Perez Companc SA, 8.125%, 7/15/07 (e) ............. 3,590,000 3,455,375 Philippine Long Distance Telephone Co., 8.350%, 3/06/17 ......................................... 4,950,000 4,096,125 Pindo Deli Finance Mauritius Ltd., 10.875%, 10/01/27 (e) .................................... 15,000,000 12,000,000 Pindo Deli Finance Mauritius Ltd., 11.750%, 10/01/17 (e) .................................... 1,500,000 1,290,000 Pycsa Panama SA, 10.280%, 12/15/12 (e) ............ 2,000,000 1,896,600 Quezon Power Philippines Co., 8.860%, 6/15/17 ..... 250,000 211,650 Samsung Electronics Co. Ltd., 7.450%, 10/01/02 (e) .................................... 1,500,000 1,167,450 Samsung Electronics Co. Ltd., 7.700%, 10/01/27 (e) .................................... 12,500,000 8,625,000 Samsung Electronics Co. Ltd., 8.500%, 11/01/02 1,000,000 850,000 Tata Electric Co., 8.500%, 8/19/17 (e) ............ 9,000,000 8,024,940 TFM SA de CV, Zero Coupon Bond, 6/15/09 (step to 11.750% on 6/15/02) (b) (e) ............ 7,150,000 4,433,000 Tjiwi Kimia Finance Mauritius Ltd., 10.000%, 8/01/04 (e) ..................................... 7,500,000 6,281,250 Total Access Communication Public Co. Ltd., 7.625%, 11/04/01 (e) .................................... 4,400,000 2,288,000 Total Access Communication Public Co. Ltd., 8.375%, 11/04/06 (e) .................................... 7,075,000 3,537,500 -------------- 97,145,845 -------------- Government Agencies -- 4.4% Federal National Mortgage Association, Zero Coupon Bond, 10/29/07 .................................. NZD 84,250,000 24,473,124 Federal National Mortgage Association, 5.000%, 9/25/22 ......................................... USD 1,000,000 927,500 Federal National Mortgage Association, 6.000%, 11/25/08 (g) .................................... USD 3,734,969 3,521,366 International Bank of Reconstruction & Development, 8.000%, 5/23/07 ................................. NZD 19,000,000 11,299,722 International Bank of Reconstruction & Development, Zero Coupon Bond, 8/20/07 ....................... NZD 55,250,000 16,212,710 -------------- 56,434,422 -------------- Home Builders -- 0.5% Pulte Corp., 7.300%, 10/24/05 ..................... 1,000,000 1,027,090 Pulte Corp., 7.625%, 10/15/17 ..................... 5,000,000 5,154,000 -------------- 6,181,090 -------------- Insurance -- 0.1% Sun Life Canada US Capital Trust I, 8.526%, 5/29/49 (e) ..................................... 800,000 883,232 -------------- Metals -- 0.1% Midland Ross Corp., 6.000%, 2/15/07 ............... 1,400,000 1,146,740 -------------- Oil & Gas -- 0.6% NGC Corporation Capital Trust I, 8.316%, 6/01/27 ......................................... 3,000,000 3,414,270 Seagull Energy Corp., 7.500%, 9/15/27 ............. 3,850,000 3,987,406 -------------- 7,401,676 -------------- Rail - Transport -- 0.0% Missouri Pacific Railroad Co., 5.000%, 1/01/45 .... 57,000 37,763 -------------- Real Estate Investment Trusts -- 0.5% First Industrial, 7.500%, 12/01/17 ................ 5,000,000 5,058,000 Trinet Corporate Realty Trust, Inc., 7.700%, 7/15/17 ......................................... 2,000,000 2,045,540 -------------- 7,103,540 -------------- Restaurants -- 0.4% Flagstar Corp., 11.250%, 11/01/04 (c) (d) ......... 14,370,000 5,748,000 -------------- Retail - General -- 2.5% Bradlees, Inc., 9.250%, 3/01/03 (c) (d) ........... 250,000 10,000 Bradlees, Inc., 11.000%, 8/01/02 (c) (d) .......... 250,000 15,000 Dillon Read Structured Finance Corp., 6.660%, 8/15/10 ......................................... 2,597,209 2,381,745 Dillon Read Structured Finance Corp., 7.600%, 8/15/07 ......................................... 231,409 220,995 Dillon Read Structured Finance Corp., 8.375%, 8/15/15 ......................................... 2,425,000 2,376,500 Dillon Read Structured Finance Corp., 8.550%, 8/15/19 ......................................... 500,000 491,250 K Mart Corp., 7.950%, 2/01/23 ..................... 14,365,000 13,880,181 Penn Traffic Co., 9.625%, 4/15/05 ................. 15,133,000 9,571,623 Woolworth Corp., 8.500%, 1/15/22 .................. 3,000,000 3,376,800 -------------- 32,324,094 -------------- Steel -- 0.0% Geneva Steel Co., 11.125%, 3/15/01 ................ 350,000 323,750 -------------- Taxable Municipal -- 0.1% Orange County, California Pension Obligation, Zero Coupon Bond, 9/01/16 ............................ 5,000,000 1,366,850 -------------- Telecommunications -- 6.8% Hyperion Telecommunications, Inc., Zero Coupon Bond, 4/15/03 (step to 13.000% on 4/15/01) (b) 6,000,000 4,395,000 Intercel, Inc., Zero Coupon Bond, 2/01/06 (step to 12.000% on 2/01/01) (b) ......................... 2,560,000 1,920,000 Intercel, Inc., Zero Coupon Bond, 5/01/06 (step to 12.000% on 5/01/01) (b) ......................... 1,940,000 1,416,200 Nextel Communications, Inc., Zero Coupon Bond, 8/ 15/04 (step to 9.750% on 2/15/99) (b) ........... 2,500,000 2,225,000 Nextel Communications, Inc., Zero Coupon Bond, 9/ 15/07 (step to 10.650% on 9/15/02) (b) (e) ...... 9,365,000 5,923,363 Nextel Communications, Inc., Zero Coupon Bond, 10/ 31/07 (step to 9.750% on 10/31/02) (b) (e) 12,500,000 7,671,875 RCN Corp., Zero Coupon Bond, 10/15/07 (step to 11.125% on 10/15/02) (b) (e) .................... 4,350,000 2,729,625 TCI Communications, Inc., 7.875%, 8/01/13 ......... 12,850,000 13,821,074 TCI Communications, Inc., 7.875%, 2/15/26 ......... 44,252,000 47,905,888 -------------- 88,008,025 --------------- Textile & Apparel -- 1.2% Burlington Industries, Inc., 7.250%, 8/01/27 ...... 9,000,000 9,460,710 Fruit of the Loom, Inc., 7.375%, 11/15/23 ......... 3,000,000 2,850,420 Kellwood Co., 7.625%, 10/15/17 .................... 2,500,000 2,563,925 Phillips Van Heusen Corp., 7.750%, 11/15/23 ....... 1,000,000 979,840 --------------- 15,854,895 --------------- Tobacco -- 7.6% Loews Corp., 7.000%, 10/15/23 ..................... 3,500,000 3,407,530 Philip Morris Cos., Inc., 7.750%, 1/15/27 ......... 48,410,000 52,279,895 RJR Nabisco, Inc., 7.625%, 9/15/03 ................ 18,900,000 19,318,068 RJR Nabisco, Inc., 8.500%, 7/01/07 ................ 1,550,000 1,652,378 RJR Nabisco, Inc., 8.750%, 8/15/05 ................ 5,500,000 5,934,115 RJR Nabisco, Inc., 9.250%, 8/15/13 ................ 14,143,000 15,869,153 --------------- 98,461,139 -------------- Transportation -- 0.1% American President Companies Ltd., 8.000%, 1/15/24 ......................................... 1,275,000 1,280,304 -------------- U.S. Government -- 13.6% U.S. Treasury Bonds, 6.000%, 2/15/26 .............. 75,125,000 75,031,094 U.S. Treasury Bonds, 6.250%, 8/15/23 .............. 71,200,000 73,336,000 U.S. Treasury Bonds, 6.500%, 11/15/26 ............. 18,750,000 20,015,625 U.S. Treasury Strips, Zero Coupon Bond, 8/15/20 14,000,000 3,592,260 U.S. Treasury Strips, Zero Coupon Bond, 8/15/23 19,000,000 4,126,610 -------------- 176,101,589 -------------- Utilities -- 1.4% AES Corp., 8.875%, 11/01/27 (e) ................... 5,000,000 4,787,500 Boston Edison Co., 7.800%, 3/15/23 ................ 1,000,000 1,049,577 Comed Financing II, 8.500%, 1/15/27 ............... 5,000,000 5,353,800 Commonwealth Edison Co., 4.750%, 12/01/11 ......... 952,000 774,976 GGIB Funding Corp., 7.430%, 1/15/11 ............... 6,754,281 6,808,180 -------------- 18,774,033 -------------- TOTAL NON-CONVERTIBLE BONDS (Identified Cost $1,081,453,168) ................................. 1,129,326,597 -------------- CONVERTIBLE BONDS -- 7.2% Auto & Related -- 0.2% Exide Corp., 2.900%, 12/15/05 (e) ................. 3,375,000 2,155,781 -------------- Broadcasting -- 0.2% Comcast Corp., 1.125%, 4/15/07 .................... 4,750,000 3,063,750 -------------- Canadian -- 0.1% Rogers Communications, Inc., 2.000%, 11/26/05 3,000,000 1,788,750 -------------- Chemicals - Major -- 0.1% FMC Corp., 6.750%, 1/16/05 ........................ 1,175,000 1,057,500 Hexcel Corp., 7.000%, 8/01/11 ..................... 675,000 668,250 -------------- 1,725,750 -------------- Commercial Services -- 0.0% Molten Metal Technology, Inc., 5.500%, 5/01/06 (c) ..................................... 4,600,000 46,000 Molten Metal Technology, Inc., 5.500%, 5/01/06 (c) (e) ................................. 3,000,000 30,000 -------------- 76,000 -------------- Computers -- 0.9% Apple Computer, Inc., 6.000%, 6/01/01 ............. $ 3,190,000 $ 2,567,950 Cray Research, Inc., 6.125%, 2/01/11 .............. 635,000 504,825 Maxtor Corp., 5.750%, 3/01/12 ..................... 3,100,000 2,170,000 Softkey International, Inc., 5.500%, 11/01/00 ..... 6,965,000 6,146,612 Telxon Corp., 5.750%, 1/01/03 ..................... 500,000 528,125 -------------- 11,917,512 -------------- Electronics -- 0.2% Cirrus Logic, Inc., 6.000%, 12/15/03 (e) .......... 1,450,000 1,118,313 EDO Corp., 7.000%, 12/15/11 ....................... 434,000 355,880 Richardson Electronics Ltd., 7.250%, 12/15/06 ..... 450,000 369,000 Zenith Corp., 6.250%, 4/01/11 ..................... 1,755,000 1,026,675 -------------- 2,869,868 -------------- Environmental Services -- 0.5% Air & Water Technologies Corp., 8.000%, 5/15/15 1,250,000 976,563 Ogden Corp., 5.750%, 10/20/02 ..................... 1,750,000 1,666,875 Ogden Corp., 6.000%, 6/01/02 ...................... 500,000 456,875 Thermo TerraTech, Inc., 4.625%, 5/01/03 ........... 3,890,000 3,462,100 Thermo TerraTech, Inc., 4.625%, 5/01/03 (e) ....... 400,000 375,000 -------------- 6,937,413 -------------- Foreign Issuer -- 2.0% Advanced Agro Public Co., 3.500%, 6/17/01 ......... 1,625,000 1,300,000 Bangkok Bank Public Co. Ltd., 3.250%, 3/03/04 ..... 7,400,000 2,405,000 Banpu Public Co., 2.750%, 4/10/03 ................. 5,030,000 3,219,200 Burns, Philp, 5.500%, 4/30/04 ..................... 4,480,000 2,643,200 Empresas ICA Sociedad, 5.000%, 3/15/04 ............ 3,700,000 2,918,375 Loxley Public Co., 2.500%, 4/04/01 ................ 7,700,000 3,850,000 Samsung Co., 0.250%, 6/26/06 ...................... 2,725,000 2,180,000 Samsung Electronics Co. Ltd., Zero Coupon Bond, 12/31/07 ........................................ 2,250,000 1,567,507 Sappi BVI Finance, 7.500%, 8/01/02 ................ 3,950,000 3,693,250 Siam Commercial Bank Public Co., 3.250%, 1/24/04 ......................................... 1,580,000 458,200 Ssangyong Oil Refining Co., Inc., 3.000%, 12/31/04 ........................................ 1,580,000 587,239 Total Access Communication Public Co. Ltd., 2.000%, 5/31/06 ......................................... 2,500,000 1,075,000 -------------- 25,896,971 -------------- Health Care - Services -- 0.1% Physicians Resource Group, Inc., 6.000%, 12/01/01 (e) .................................... 850,000 647,063 -------------- Home Builders -- 0.1% Schuler Homes, Inc., 6.500%, 1/15/03 .............. 750,000 645,000 -------------- Oil & Gas -- 0.0% Houston Industries, Inc., 6.000%, 3/15/12 ......... 447,500 407,225 -------------- Pharmaceutical -- 0.4% Chiron Corp., 1.900%, 11/17/00 (e) ................ 1,000,000 888,750 Glycomed, Inc., 7.500%, 1/01/03 ................... 1,148,100 1,056,252 NABI, Inc., 6.500%, 2/01/03 ....................... 3,750,000 2,798,438 -------------- 4,743,440 -------------- Publishing -- 0.1% Scholastic Corp., 5.000%, 8/15/05 (e) ............. 1,800,000 1,577,250 -------------- Real Estate Investment Trusts -- 0.7% Federal Realty Investors Trust, 5.250%, 10/28/03 2,250,000 2,092,500 Meditrust Corp., 7.500%, 3/01/01 .................. 750,000 906,562 Rockefeller Properties, Zero Coupon Bond, 12/31/00 ........................................ 7,000,000 5,022,500 Sizeler Property Investors, Inc., 8.000%, 7/15/03 ......................................... 1,175,000 1,128,000 -------------- 9,149,562 -------------- Restaurants -- 0.6% Boston Chicken, Inc., Zero Coupon Bond, 6/01/15 3,750,000 548,437 Boston Chicken, Inc., 4.500%, 2/01/04 ............. 2,000,000 980,000 Einstein/Noah Bagel Corp., 7.250%, 6/01/04 ........ 2,880,000 1,987,200 Shoney's, Inc., Zero Coupon Bond, 4/11/04 ......... 8,060,000 3,304,600 TPI Enterprises, Inc., 8.250%, 7/15/02 ............ 700,000 574,000 -------------- 7,394,237 -------------- Retail - Specialty -- 0.2% Bell Sports Corp., 4.250%, 11/15/00 ............... 500,000 423,750 CML Group, Inc., 5.500%, 1/15/03 .................. 1,224,000 918,000 Jacobson Stores, Inc., 6.750%, 12/15/11 ........... 540,000 454,950 -------------- 1,796,700 -------------- Telecommunications -- 0.5% Broadband Technologies, Inc., 5.000%, 5/15/01 ..... 9,800,000 6,468,000 -------------- Textile & Apparel -- 0.1% Dixie Yarns, Inc., 7.000%, 5/15/12 ................ 300,000 264,750 Fieldcrest Cannon, Inc., 6.000%, 3/15/12 .......... 1,620,000 1,312,200 -------------- 1,576,950 -------------- Trucking & Leasing -- 0.2% Builders Transportation, Inc., 8.000%, 8/15/05 (d) 1,000,000 520,000 Preston Corp., 7.000%, 5/01/11 .................... 750,000 615,000 Worldway Corp., 6.250%, 4/15/11 ................... 1,463,000 1,067,990 -------------- 2,202,990 -------------- TOTAL CONVERTIBLE BONDS (Identified Cost $112,390,744) .................. 93,040,212 -------------- TOTAL BONDS AND NOTES (Identified Cost $1,193,843,912) ................ 1,222,366,809 -------------- Shares - ----------------------------------------------------------------------------------------------------- Common Stocks -- 0.0% of Total Net Assets Computers -- 0.0% Streamlogic Corp. (c) ............................. 266,066 532 -------------- Telecommunications -- 0.0% Nextel Communications, Inc. (h) ................... 3,873 100,698 -------------- TOTAL COMMON STOCKS (Identified Cost $478,224) ...................... 101,230 -------------- - ----------------------------------------------------------------------------------------------------- Preferred Stocks -- 1.9% of Total Net Assets Banking & Finance -- 0.1% BankBoston Corp., 5.500% .......................... 11,700 1,102,725 -------------- Building Materials -- 0.2% Owens Corning, 6.500% ............................. 62,500 3,062,500 -------------- Chemicals -- Major -- 0.0% E.I. du Pont DeNemours & Co., $3.50 ............... 3,775 251,038 -------------- Computers -- 0.1% Unisys Corp., $3.75 ............................... 27,300 1,230,206 -------------- Entertainment -- 0.0% Time Warner Entertainment Co. 10.250% (g) ......... 297 333,866 -------------- Metals -- 0.4% Aluminum Company of America, $3.75 ................ 10,000 $ 716,250 Bethlehem Steel Corp., $3.50 (e) .................. 99,050 4,110,575 -------------- 4,826,825 -------------- Oil & Gas -- 0.1% Kaneb Services, Inc., 8.600% ...................... 200 2,075 McDermott, Inc., $2.20 ............................ 20,500 779,000 -------------- 781,075 -------------- Paper Products -- 0.0% Stone Container Corp., $1.75 ...................... 5,000 73,750 -------------- Restaurants -- 0.0% Flagstar Corp., $2.25 (c) (d) ..................... 432,100 164,198 -------------- Retail - General -- 0.0% K Mart Financing Corp., 7.750% .................... 10,000 516,250 -------------- Telecommunications -- 0.2% Hyperion Telecommunications, Inc. 12.875% (g) 3,000 3,022,500 -------------- Trucking & Freight -- 0.2% Arkansas Best Corp., $2.875 ....................... 54,000 2,214,000 -------------- Utilities -- 0.6% Central Louisiana Electric, Inc., 4.750% .......... 1,500 123,000 Central Maine Power Co., 3.500% ................... 300 13,575 Commonwealth Energy Systems, $4.80 ................ 3,282 259,278 Connecticut Light & Power Co., $1.90 .............. 2,925 67,275 Entergy Louisiana, Inc., 4.160% ................... 2,600 150,800 Jersey Central Power & Light Co., 4.000% .......... 1,120 67,480 Long Island Lighting Co., 6.875% .................. 15,000 386,250 MDU Resources Group, Inc., 5.100% ................. 4,480 402,080 Minnesota Power & Light Co., 5.000% ............... 200 15,250 Nevada Power Co., 4.700% .......................... 16,845 313,738 Niagara Mohawk Power Corp., 4.850% ................ 5,000 327,500 Niagara Mohawk Power Corp., 6.500% ................ 10,700 239,413 Niagara Mohawk Power Corp., 7.300% ................ 10,100 242,400 Niagara Mohawk Power Corp., 7.525% ................ 162,300 4,128,506 Niagara Mohawk Power Corp., 7.850% ................ 10,000 249,375 Niagara Mohawk Power Corp., 8.375% ................ 1,500 37,875 Northern States Power Co., $3.60 .................. 700 40,250 Public Service Co., 4.000% ........................ 360 21,240 -------------- 7,085,285 -------------- TOTAL PREFERRED STOCKS (Identified Cost $21,933,675) .................................... 24,664,218 -------------- - ----------------------------------------------------------------------------------------------------- Short-Term Investment -- 1.8% of Total Net Assets Repurchase Agreement with State Street Bank and Trust Co., dated 12/31/97 at 5.000% to be repurchased at $22,857,348 on 1/02/98 collateralized by $22,715,000 U.S. Treasury Note, 5.875%, due 1/31/99 with a value of $23,308,884 . $22,851,000 $ 22,851,000 -------------- TOTAL SHORT-TERM INVESTMENT (Identified Cost $22,851,000) ................... 22,851,000 -------------- TOTAL INVESTMENTS -- (IDENTIFIED COST $1,239,106,811) (i) ............ $1,269,983,257 ============== (a) See Note 1. (b) Step Bond: Coupon is zero or below market rate for an initial period and then increases at a specified date and rate. (c) Company in Chapter 11 Bankruptcy. (d) Security in default. (e) 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. (f) Floating Rate Bond: Coupon is six month London Interbank Overnight Rate (LIBOR) plus .8125%. (g) All or a portion of income may be received as additional securities. (h) Non-income producing security. (i) At December 31, 1997, the net unrealized appreciation on investments based on cost of $1,239,470,512 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 $91,126,835 and $60,614,090, respectively, resulting in net unrealized appreciation of $30,512,745.
Key to Abbreviations: CAD = Canadian Dollar USD = United States Dollar NZD = New Zealand Dollar ZAR = South African Rand See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------- LOOMIS SAYLES GLOBAL BOND FUND Portfolio of Investments -- as of December 31, 1997
Face Amount Value (a) - ----------------------------------------------------------------------------------------------------------- Bonds And Notes -- 89.8% of Total Net Assets Australia -- 9.3% New South Wales Trust, 6.500%, 5/01/06 ............... AUD 1,400,000 $ 932,622 News America Holdings, Inc., 8.625%, 2/07/14 ......... AUD 1,240,000 833,380 QTC Global Aud Bon, 8.000%, 5/14/03 .................. AUD 200,000 143,086 QTC Global Aud Bon, 8.000%, 9/14/07 .................. AUD 1,600,000 1,167,487 ----------- $ 3,076,575 ----------- Canada -- 6.5% Government of Canada, 8.750%, 12/01/05 ............... CAD 700,000 585,907 Province of British Columbia, Zero Coupon Bond, 9/05/20 ............................................ CAD 5,025,000 858,686 Province of Ontario, 8.100%, 9/08/23 ................. CAD 200,000 172,450 Province of Saskatchewan, 9.600%, 2/04/22 ............ CAD 525,000 520,243 ----------- 2,137,286 ----------- Denmark -- 4.3% Kingdom of Denmark, 7.000%, 11/15/07 ................. DKK 5,000,000 801,326 Kingdom of Denmark, 8.000%, 5/15/03 .................. DKK 3,800,000 626,371 ----------- 1,427,697 ----------- Finland -- 4.0% Republic of Finland, 6.000%, 4/25/08 ................. FIM 7,000,000 1,330,933 ----------- Germany -- 25.1% Bayerische Vereinsbank, 6.000%, 1/23/06 .............. DEM 2,000,000 1,157,664 Deutsche Finance BV, 7.500%, 2/10/03 ................. DEM 2,300,000 1,403,570 Federal Republic of Germany, 6.000%, 2/16/06 ......... DEM 2,050,000 1,197,092 Federal Republic of Germany, 6.500%, 3/15/00 ......... DEM 2,000,000 1,163,446 Geberit International SA, 10.125%, 4/16/07 ........... DEM 1,000,000 603,297 Germany Unity, 8.000%, 1/21/02 ....................... DEM 1,500,000 933,470 Kreditanstalt Wierdarauf, 6.000%, 2/09/06 ............ DEM 1,100,000 638,061 Treuhandanstalt, 6.625%, 7/09/03 ..................... DEM 300,000 179,988 Treuhandanstalt, 6.750%, 5/13/04 ..................... DEM 1,700,000 1,030,426 ----------- 8,307,014 ----------- Ireland -- 4.4% Irish Permanent Plc, 8.500%, 7/15/04 ................. IP 600,000 990,265 Ulysses Securitization Plc, 7.625%, 8/18/06 .......... IP 300,000 479,077 ----------- 1,469,342 ----------- Japan -- 2.4% MBL International Finance, 3.000%, 11/30/02 (b) ...... USD 750,000 785,625 ----------- New Zealand -- 2.2% Government of New Zealand, 8.000%, 11/15/06 .......... NZD 1,200,000 738,744 ----------- Panama -- 1.2% Republic of Panama, 3.750%, 7/17/14 (step to 4.000% on 7/17/98) (c) ....................................... USD 500,000 385,625 ----------- Philippines -- 5.4% Bangko Sentral Pilipinas, 8.600%, 6/15/27 ............ USD 1,000,000 797,400 FLI Capital Cayman, 3.750%, 2/01/02 (step to 6.250% on 8/01/99) (b) (c) ................ USD 900,000 648,000 MBIA, Inc., Zero Coupon Bond, 12/18/01 (b) ........... USD 600,000 328,500 ----------- 1,773,900 ----------- Poland -- 3.9% Government of Poland, 4.000%, 10/27/14 (step to 5.000% on 10/27/98) (c) ................... USD 1,500,000 1,295,700 ----------- South Africa -- 8.0% Escom, 11.000%, 6/01/08 .............................. ZAR 6,000,000 1,040,028 Republic of South Africa, 8.500%, 6/23/17 ............ USD 1,000,000 969,870 Sappi BVI Finance, 7.500%, 8/01/02 ................... USD 700,000 654,500 ----------- 2,664,398 ----------- South Korea -- 3.0% Korea Development Bank, 6.625%, 11/21/03 ............. USD 800,000 628,400 Samsung Electronics Co. Ltd., Zero Coupon Bond, 12/31/ 07 (b) ............................................. USD 500,000 348,335 ----------- 976,735 ----------- Thailand -- 2.1% Bangkok Bank Public Co. Ltd., 3.250%, 3/03/04 (b) USD 1,050,000 341,250 Loxley Public Co., 2.500%, 4/04/01 (b) ............... USD 700,000 350,000 ----------- 691,250 ----------- United States -- 8.0% Federal National Mortgage Association, 7.250%, 6/20/02 ............................................ NZD 1,300,000 738,048 K Mart Pass Thru, 8.990%, 7/05/10 .................... USD 250,000 265,337 RJR Nabisco, Inc., 9.250%, 8/15/13 ................... USD 500,000 561,025 TCI Communications, Inc., 7.875%, 2/15/26 ............ USD 1,000,000 1,082,570 ----------- 2,646,980 ----------- TOTAL BONDS AND NOTES (Identified Cost $30,763,706) ...................... 29,707,804 ----------- - ------------------------------------------------------------------------------------------------------------- Preferred Stocks -- 2.3% of Total Net Assets Japan -- 2.3% Sakura Finance, 0.750% ............................... 138,000,000 761,875 ----------- TOTAL PREFERRED STOCKS (Identified Cost $1,048,041) ....................... 761,875 ----------- TOTAL INVESTMENTS -- (IDENTIFIED COST $31,811,747) (D) .................. $30,469,679 =========== (a) See Note 1. (b) Convertible bond. (c) Step Bond: Coupon is zero or below market rate for an initial period and then increases at a specified date and rate. (d) At December 31, 1997, the net unrealized depreciation on investments based on cost of $31,811,747 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 $1,123,482 and $2,465,550, respectively, resulting in net unrealized depreciation of $1,342,068.
Key to Abbreviations: AUD = Australian Dollar IP = Irish Punt CAD = Canadian Dollar NZD = New Zealand Dollar DEM = Deutsche Mark USD = United States Dollar DKK = Danish Krone ZAR = South African Rand FIM = Finish Markka Ten Largest Sector Holdings at December 31, 1997, as a Percentage of Total Net Assets Foreign Government/Agency 41.5% Foreign Issuer 13.6% Financial Services 12.3% Banks 7.7% Canadian 6.5% Telecommunications 3.3% Media & Entertainment 2.5% US Government 2.2% Tobacco 1.7% Retail -- General 0.8% See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------- LOOMIS SAYLES HIGH YIELD FUND Portfolio of Investments -- as of December 31, 1997
Face Amount Value (a) - ----------------------------------------------------------------------------------------------------------- Bonds And Notes -- 86.1% of Total Net Assets NON-CONVERTIBLE BONDS -- 64.9% Broadcasting -- 0.5% CBS, Inc., 7.125%, 11/01/23 ............................... $ 50,000 $ 45,365 ---------- Canadian -- 6.6% Clearnet Communications, Inc., Zero Coupon Bond, 8/13/07 (step to 11.750% on 8/13/02) (b) ................ CAD 600,000 267,661 International Semi-Tech Corp., Zero Coupon Bond, 8/15/03 (step to 11.500% on 8/15/00) (b) ................ USD 400,000 144,000 Microcell Telecommunications, Inc., Zero Coupon Bond, 10/ 15/07 (step to 11.125% on 10/15/02) (b) (c) ............. CAD 235,000 91,267 Rogers Cablesystems Ltd., 9.650%, 1/15/14 ................. CAD 70,000 52,902 ---------- 555,830 ---------- Communications -- 4.9% Arch Communications Group, Inc., Zero Coupon Bond, 3/15/08 (step to 10.875% on 3/15/01) (b) ................ $ 415,000 255,225 Century Communications Corp., Zero Coupon Bond, 3/15/03 ................................................. 250,000 160,000 ---------- 415,225 ---------- Computers -- 1.0% Apple Computer, Inc., 6.500%, 2/15/04 ..................... 105,000 87,150 ---------- Electronics -- 2.4% Westinghouse Electric Corp., 7.875%, 9/01/23 .............. 200,000 200,382 ---------- Environmental Services -- 1.7% Envirotest Systems Corp., 9.625%, 4/01/03 ................. 150,000 144,000 ---------- Food & Beverage -- 0.7% Del Monte Foods Co., Zero Coupon Bond, 12/15/07 (step to 12.500% on 12/15/02) (b) (c) ................... 100,000 57,250 ---------- Foreign Government/Agency -- 19.9% Escom, 11.000%, 6/01/08 ................................... ZAR 275,000 47,668 Petroleos Mexicanos, Medium Term, 8.625%, 12/01/23 (c) USD 145,000 136,300 Republic of Argentina, 6.688%, 3/31/05 (d) ................ USD 48,000 42,902 Republic of Argentina, 9.750%, 9/19/27 .................... USD 200,000 191,200 Republic of Brazil C Bond, 8.000%, 4/15/14 (e) ............ USD 285,065 223,776 Republic of Brazil, 10.125%, 5/15/27 ...................... USD 255,000 239,063 Republic of Ecuador, 6.688%, 2/27/15 (d) (e) .............. USD 492,102 303,282 Republic of Panama, 3.750%, 7/17/14 (step to 4.000% on 7/17/98) (b) ......................... USD 150,000 115,688 Republic of Peru, 3.250%, 3/07/17 (step to 3.750% on 3/07/99) (b) ............................................ USD 200,000 118,500 Republic of South Africa, 12.500%, 12/21/06 ............... ZAR 500,000 95,500 Republic of Venezuela, 9.250%, 9/15/27 .................... USD 175,000 156,012 ---------- 1,669,891 ---------- Foreign Issuer -- 17.1% Bangko Sentral Pilipinas, 8.600%, 6/15/27 ................. 250,000 199,350 Bangkok Bank Public Co. Ltd., 8.375%, 1/15/27 (c) ......... 200,000 126,000 Export Import Bank of Korea, 6.375%, 2/15/06 .............. 50,000 38,000 Hyundai Motor Co. Ltd., 7.600%, 7/15/07 (c) ............... 100,000 71,000 Murrin Murrin Holdings Property Ltd., 9.375%, 8/31/07 (c) ............................................. 50,000 49,500 Philippine Long Distance Telephone Co., 8.350%, 3/06/17 150,000 124,125 Pindo Deli Finance Mauritius Ltd., 10.875%, 10/01/27 (c) 360,000 288,000 Pycsa Panama SA, 10.280%, 12/15/12 (c) .................... 100,000 94,830 Quezon Power Philippines Co., 8.860%, 6/15/17 ............. 100,000 84,660 Samsung Electronics Co. Ltd., 8.500%, 11/01/02 ............ 100,000 85,000 Tjiwi Kimia Finance Mauritius Ltd., 10.000%, 8/01/04 (c) 150,000 125,625 Total Access Communication Public Co. Ltd., 7.625%, 11/04/01 (c) ............................................ 100,000 52,000 Total Access Communication Public Co. Ltd., 8.375%, 11/04/06 (c) ............................................ 200,000 100,000 ---------- 1,438,090 ---------- Metals -- 1.0% Midland Ross Corp., 6.000%, 2/15/07 ....................... 103,000 84,367 ---------- Rail -- Transport -- 0.3% Missouri Pacific Railroad Co., 4.750%, 1/01/20 ............ 30,000 20,663 ---------- Restaurants -- 0.8% Flagstar Corp., 11.250%, 11/01/04 (f) (g) ................. 160,000 64,000 ---------- Retail -- General -- 2.1% Dillon Read Structured Finance Corp., 8.375%, 8/15/15 ..... 65,000 63,700 Penn Traffic Co., 9.625%, 4/15/05 ......................... 175,000 110,688 ---------- 174,388 ---------- Telecommunications -- 3.0% Hyperion Telecommunications, Inc., Zero Coupon Bond, 4/15/03 (step to 13.000% on 4/15/01) (b) ................ 100,000 73,250 Intercel, Inc., Zero Coupon Bond, 2/01/06 (step to 12.000% on 2/01/01) (b) ........................ 75,000 56,250 Nextel Communications, Inc., Zero Coupon Bond, 8/15/04 (step to 9.750% on 2/15/99) (b) ......................... 80,000 71,200 Nextel Communications, Inc., Zero Coupon Bond, 9/15/07 (step to 10.650% on 9/15/02) (b) (c) .................... 35,000 22,137 RCN Corp., Zero Coupon Bond, 10/15/07 (step to 11.125% on 10/15/02) (b) (c) ................... 50,000 31,375 ---------- 254,212 ---------- Textile & Apparel -- 2.9% Phillips Van Heusen Corp., 7.750%, 11/15/23 ............... 250,000 244,960 ---------- TOTAL NON-CONVERTIBLE BONDS (Identified Cost $5,538,240) ............................ 5,455,773 ---------- CONVERTIBLE BONDS -- 21.2% Auto & Related -- 0.8% Exide Corp., 2.900%, 12/15/05 (c) ......................... 100,000 63,875 ---------- Broadcasting -- 0.8% Comcast Corp., 1.125%, 4/15/07 ............................ 100,000 64,500 ---------- Canadian -- 1.4% Rogers Communications, Inc., 2.000%, 11/26/05 ............. 190,000 113,288 ---------- Commercial Services -- 0.0% Molten Metal Technology, Inc., 5.500%, 5/01/06 (f) ........ 75,000 750 ---------- Computers -- 1.4% Apple Computer, Inc., 6.000%, 6/01/01 ..................... 100,000 80,500 Cray Research, Inc., 6.125%, 2/01/11 ...................... 50,000 39,750 ---------- 120,250 ---------- Electronics -- 1.2% Cirrus Logic, Inc., 6.000%, 12/15/03 (c) .................. 100,000 77,125 EDO Corp., 7.000%, 12/15/11 ............................... 25,000 20,500 ---------- 97,625 ---------- Environmental Services -- 0.2% Air & Water Technologies Corp., 8.000%, 5/15/15 ........... 25,000 19,531 ---------- Foreign Issuer -- 4.5% Advanced Agro Public Co., 3.500%, 6/17/01 ................. 125,000 100,000 Ashanti Capital, 5.500%, 3/15/03 .......................... 25,000 18,656 Bangkok Bank Public Co. Ltd., 3.250%, 3/03/04 ............. 100,000 32,500 Banpu Public Co., 2.750%, 4/10/03 ......................... 25,000 16,000 Burns, Philp, 5.500%, 4/30/04 ............................. 50,000 29,500 Empresas ICA Sociedad, 5.000%, 3/15/04 .................... 75,000 59,156 Samsung Electronics Co. Ltd., Zero Coupon Bond, 12/31/07 ................................................ 50,000 34,834 Sappi BVI Finance, 7.500%, 8/01/02 ........................ 50,000 46,750 Siam Commercial Bank Public Co., 3.250%, 1/24/04 .......... 150,000 43,500 ---------- 380,896 ---------- Home Builders -- 0.2% Schuler Homes, Inc., 6.500%, 1/15/03 ...................... 20,000 17,200 ---------- Metals -- 0.4% Battle Mountain Gold Co., 6.000%, 1/04/05 ................. 50,000 34,000 ---------- Miscellaneous -- 0.6% Veterinary Centers of America, Inc., 5.250%, 5/01/06 ...... 70,000 51,100 ---------- Pharmaceutical -- 1.9% Glycomed, Inc., 7.500%, 1/01/03 ........................... 75,000 69,000 NABI, Inc., 6.500%, 2/01/03 ............................... 125,000 93,281 ---------- 162,281 ---------- Real Estate Investment Trusts -- 0.3% Sizeler Property Investors, Inc., 8.000%, 7/15/03 ......... 25,000 24,000 ---------- Restaurants -- 3.5% Boston Chicken, Inc., Zero Coupon Bond, 6/01/15 ........... 500,000 73,125 Boston Chicken, Inc., 4.500%, 2/01/04 ..................... 50,000 24,500 Einstein/Noah Bagel Corp., 7.250%, 6/01/04 ................ 50,000 34,500 Shoney's, Inc., Zero Coupon Bond, 4/11/04 ................. 350,000 143,500 TPI Enterprises, Inc., 8.250%, 7/15/02 .................... 25,000 20,500 ---------- 296,125 ---------- Retail -- Specialty -- 1.4% CML Group, Inc., 5.500%, 1/15/03 .......................... 100,000 75,000 Jacobson Stores, Inc., 6.750%, 12/15/11 ................... 50,000 42,125 ---------- 117,125 ---------- Telecommunications -- 0.8% Broadband Technologies, Inc., 5.000%, 5/15/01 ............. 100,000 66,000 ---------- Textile & Apparel -- 0.8% Converse, Inc., 7.000%, 6/01/04 ........................... 50,000 28,625 Fieldcrest Cannon, Inc., 6.000%, 3/15/12 .................. 50,000 40,500 ---------- 69,125 ---------- Trucking & Leasing -- 1.0% Builders Transportation, Inc., 8.000%, 8/15/05 (g) ........ 75,000 39,000 Worldway Corp., 6.250%, 4/15/11 ........................... 62,000 45,260 ---------- 84,260 ---------- TOTAL CONVERTIBLE BONDS (Identified Cost $2,023,564) ............................ 1,781,931 ---------- TOTAL BONDS AND NOTES (Identified Cost $7,561,804) ............................ 7,237,704 ---------- Shares - ------------------------------------------------------------------------------------------------------ Common Stocks -- 3.4% of Total Net Assets Foreign Issuer -- 0.2% Siam Commercial Bank Public Co. ........................... 16,500 18,847 ---------- Telecommunications -- 0.1% Nextel Communications, Inc. (h) ........................... 123 3,198 ---------- Utilities -- 3.1% Eastern Utilities Associates .............................. 10,000 262,500 ---------- TOTAL COMMON STOCKS (Identified Cost $248,893) ............ 284,545 ---------- - ------------------------------------------------------------------------------------------------------ Preferred Stocks -- 5.0% of Total Net Assets Computers -- 0.5% Unisys Corp., $3.75 ....................................... 1,000 45,063 ---------- Metals -- 1.0% Bethlehem Steel Corp., $3.50 (c) .......................... 2,000 83,000 ---------- Restaurants -- 0.0% Flagstar Corp., $2.25 (f) (g) ............................. 3,100 1,178 ---------- Telecommunications -- 1.8% Hyperion Telecommunications, Inc. 12.875% (e) ............. 150 151,125 ---------- Utilities -- 1.7% Central Maine Power Co., 3.500% ........................... 935 42,309 Cleveland Electric Illuminating Co., 7.000% ............... 100 9,500 Consumers Energy Co., $4.16 ............................... 200 12,700 Entergy Gulf States, Inc., 4.400% ......................... 140 8,155 Niagara Mohawk Power Corp., 3.600% ........................ 100 4,650 Niagara Mohawk Power Corp., 3.900% ........................ 100 5,100 Niagara Mohawk Power Corp., 6.500% ........................ 400 8,950 Niagara Mohawk Power Corp., 7.525% ........................ 1,000 25,437 Ohio Edison Co., 4.440% ................................... 400 25,600 ---------- 142,401 ---------- TOTAL PREFERRED STOCKS (Identified Cost $393,035) .............................. 422,767 ---------- Face Amount - ------------------------------------------------------------------------------------------------------ Short-Term Investment -- 1.8% of Total Net Assets Repurchase Agreement with State Street Bank and Trust Co., dated 12/31/97 at 5.000% to be repurchased at $152,042 on 1/02/98 collateralized by $155,000 U.S. Treasury Note, 5.875%, due 1/31/99 with a value of $159,052 ............ $152,000 152,000 ----------- TOTAL SHORT-TERM INVESTMENT (Identified Cost $152,000) .............................. 152,000 ----------- TOTAL INVESTMENTS -- (IDENTIFIED COST $8,355,732) (i) ..... $ 8,097,016 =========== (a) See Note 1. (b) Step Bond: Coupon is zero or below market rate for an initial period and then increases at a specified date and rate. (c) 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. (d) Floating Rate Bond: Coupon is six month London Interbank Overnight Rate (LIBOR) plus .8125%. (e) All or a portion of income may be received as additional securities. (f) Company in Chapter 11 Bankruptcy. (g) Security in default. (h) Non-income producing security. (i) At December 31, 1997, the net unrealized depreciation on investments based on cost of $8,355,732 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 $403,784 and $662,500, respectively, resulting in net unrealized depreciation of $258,716. Key to Abbreviations: CAD = Canadian Dollar USD = United States Dollar ZAR = South African Rand
See accompanying notes to financial statements.
LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------------------------------ LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND Portfolio of Investments -- as of December 31, 1997 Face Amount Value (a) - ----------------------------------------------------------------------------------------------------- Bonds And Notes -- 93.4% of Total Net Assets Banking & Finance -- 4.8% Capital One Bank, 5.950%, 2/15/01 ............................ $ 200,000 $ 197,774 Capital One Bank, 6.830%, 5/17/99 ............................ 70,000 70,755 NationsBank Corp., 7.000%, 9/15/01 ........................... 55,000 56,281 ---------- 324,810 ---------- Canadian -- 3.5% International Semi-Tech Corp., Zero Coupon Bond, 8/15/03 (step to 11.500% on 8/15/00) (b) ........................... 250,000 90,000 MacMillan Bloedel Ltd., 6.750%, 2/15/06 ...................... 150,000 148,665 ---------- 238,665 ---------- Communications -- 6.8% 360 Communications Co., 7.500%, 3/01/06 ...................... 280,000 292,547 US West Capital Funding, Inc., 6.850%, 1/15/02 ............... 160,000 161,801 ---------- 454,348 ---------- Entertainment -- 2.4% Time Warner Entertainment Co., Inc., 7.750%, 6/15/05 ......... 155,000 163,485 ---------- Financial -- 8.6% Associates Manufactured Housing, 6.475%, 3/15/28 ............. 50,000 50,515 Green Tree Financial Corp., 6.950%, 3/15/27 .................. 200,000 199,436 OSCC Home Equity Loan Trust, 6.025%, 6/15/08 ................. 297,067 294,919 Salton Sea Funding Corp., 7.020%, 5/30/00 .................... 31,536 31,816 ---------- 576,686 ---------- Foreign Government/Agency -- 5.8% Republic of Brazil C Bond, 8.000%, 4/15/14 (d) ............... 171,039 134,266 Republic of South Africa, 8.375%, 10/17/06 ................... 250,000 255,885 ---------- 390,151 ---------- Foreign Issuer -- 9.6% Espirito Santo-Escelsa, 10.000%, 7/15/07 (c) ................. 150,000 133,500 Gruma SA, 7.625%, 10/15/07 (c) ............................... 150,000 147,399 Southern Peru Ltd., 7.900%, 5/30/07 .......................... 220,000 225,544 Total Access Communication Public Co. Ltd., 8.375%, 11/04/06 (c) ....................................... 220,000 110,000 YPF Sociedad Anonmia, 7.000%, 10/26/02 ....................... 31,053 31,231 ---------- 647,674 ---------- Government Agencies -- 6.8% Federal Home Loan Mortgage Corp., 6.000%, 4/15/06 ............ 55,000 54,863 Federal Home Loan Mortgage Corp., 6.250%, 10/15/07 ........... 55,000 55,086 Federal National Mortgage Association, 6.500%, 1/18/16 ....... 180,000 180,281 Federal National Mortgage Association, 6.500%, 8/15/16 ....... 165,000 165,257 ---------- 455,487 ---------- Real Estate Investment Trusts -- 8.0% American Health Properties, Inc., 7.050%, 1/15/02 ............ 65,000 66,167 Excel Realty Trust, Inc., 6.875%, 10/15/04 ................... 165,000 166,575 First Industrial, 7.000%, 12/01/06 ........................... 250,000 251,125 Trinet Corporate Realty Trust, 7.300%, 5/15/01 ............... 55,000 56,230 ---------- 540,097 ---------- Retail -- General -- 1.0% Woolworth Corp., 7.000%, 6/01/00 ............................. 65,000 65,829 ---------- Securities -- 5.3% Lehman Brothers Holdings, Inc., 5.750%, 11/15/98 ............. 190,000 189,226 Lehman Brothers Holdings, Inc., 6.125%, 2/01/01 .............. 60,000 59,558 Salomon, Inc., 6.700%, 12/01/98 .............................. 105,000 105,565 ---------- 354,349 ---------- Telecommunications -- 6.8% Cox Communications, Inc., 6.500%, 11/15/02 ................... 165,000 165,381 TCI Communications, Inc., 6.875%, 2/15/06 .................... 290,000 291,067 ---------- 456,448 ---------- Tobacco -- 5.9% Philip Morris Cos., Inc., 7.250%, 9/15/01 .................... 65,000 66,596 RJR Nabisco, Inc., 7.625%, 9/15/03 ........................... 65,000 66,438 RJR Nabisco, Inc., 8.250%, 7/01/04 ........................... 90,000 94,292 RJR Nabisco, Inc., 8.750%, 8/15/05 ........................... 160,000 172,628 ---------- 399,954 ---------- Trucking & Leasing -- 3.1% Amerco, 7.490%, 9/18/01 ...................................... 200,000 206,250 ---------- U.S. Government -- 15.0% United States Treasury Notes, 5.625%, 2/15/06 ................ 500,000 494,375 United States Treasury Notes, 6.250%, 2/15/07 ................ 500,000 515,935 ---------- 1,010,310 ---------- TOTAL BONDS AND NOTES (Identified Cost $6,321,016)............ 6,284,543 ----------
Face Amount Value (a) - ----------------------------------------------------------------------------------------------------- Short-Term Investment -- 4.6% of Total Net Assets Repurchase Agreement with State Street Bank and Trust Co., dated 12/31/97 at 5.000% to be repurchased at $306,085 on 1/02/98 collateralized by $305,000 U.S. Treasury Note, 5.875%, due 1/31/99 with a value of $312,974 ............... $ 306,000 $ 306,000 ---------- TOTAL SHORT-TERM INVESTMENT (Identified Cost $306,000).................................. 306,000 ---------- TOTAL INVESTMENTS -- (IDENTIFIED COST $6,627,016) (d)......... $6,590,543 ========== (a) See Note 1. (b) Step Bond: Coupon is zero or below market rate for an initial period and then increases at a specified date and rate. (c) 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. (d) All or a portion of income may be received as additional securities. (e) At December 31, 1997, the net unrealized depreciation on investments based on cost of $6,627,784 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 $145,094 and $182,335, respectively, resulting in net unrealized depreciation of $37,241.
See accompanying notes to financial statements.
LOOMIS SAYLES FIXED INCOME FUNDS - ----------------------------------------------------------------------------------------------------------- LOOMIS SAYLES INVESTMENT GRADE BOND FUND Portfolio of Investments -- as of December 31, 1997 Face Amount Value (a) - ----------------------------------------------------------------------------------------------------------- Bonds And Notes -- 87.5% of Total Net Assets NON-CONVERTIBLE BONDS -- 81.9% Airlines -- 1.9% United Airlines Pass Thru, 7.870%, 1/30/19 .............. $ 60,000 $ 64,684 --------- Canadian -- 22.0% Canadian Government, Zero Coupon Bond, 6/01/21 .......... CAD 150,000 25,989 Canadian Government, Zero Coupon Bond, 6/01/25 .......... CAD 940,000 128,843 Canadian Pacific Ltd., 4.000%, 1/29/49 .................. USD 15,000 9,225 MacMillan Bloedel, 7.700%, 2/15/26 ...................... USD 100,000 103,806 Ontario Hydro, 8.900%, 8/18/22 .......................... CAD 55,000 51,138 Province of British Columbia, Zero Coupon Bond, 8/19/22 ............................................... CAD 605,000 91,572 Province of British Columbia, Zero Coupon Bond, 8/23/24 ............................................... CAD 200,000 26,703 Province of Manitoba, Zero Coupon Bond, 3/05/31 ......... CAD 1,100,000 97,526 Province of Manitoba, 6.500%, 9/22/17 ................... CAD 25,000 18,310 Province of Manitoba, 7.750%, 12/22/25 .................. CAD 55,000 46,610 Province of Saskatchewan (Certificate of Deposit), Zero Coupon Bond, 2/04/22 .................................. CAD 650,000 100,749 Province of Saskatchewan (Certificate of Deposit), Zero Coupon Bond, 5/30/25 .................................. CAD 215,000 27,005 --------- 727,476 --------- Communications -- 0.9% Arch Communications Group, Inc., Zero Coupon Bond, 3/15/08 (step to 10.875% on 3/15/01) (b) .............. 50,000 30,750 --------- Computers -- 2.9% Apple Computer, Inc., 6.500%, 2/15/04 ................... 20,000 16,600 Seagate Technology, Inc., 7.875%, 3/01/17 ............... 75,000 78,009 --------- 94,609 --------- Entertainment -- 1.6% Time Warner Entertainment Co., 7.570%, 2/01/24 .......... 50,000 52,308 --------- Foreign Government/Agency -- 2.5% Government of Poland, 4.000%, 10/27/14 (step to 5.000% on 10/27/98) (b) ......................................... USD 25,000 21,595 Republic of Brazil C Bond, 8.000%, 4/15/14 (c) .......... USD 28,507 22,378 Republic of Brazil, 10.125%, 5/15/27 .................... USD 10,000 9,375 Republic of South Africa, 13.500%, 9/15/15 .............. ZAR 150,000 30,152 --------- 83,500 --------- Foreign Issuer -- 6.5% Bangkok Bank Public Co. Ltd., 8.375%, 1/15/27 (d) ....... 50,000 31,500 Pindo Deli Finance Mauritius Ltd., 10.875%, 10/01/27 (d) .......................................... 100,000 80,000 Samsung Electronics Co. Ltd., 7.700%, 10/01/27 (d) ...... 100,000 69,000 Tata Electric Co., 8.500%, 8/19/17 (d) .................. 25,000 22,292 Total Access Communication Public Co. Ltd., 8.375%, 11/04/06 (d) .......................................... 25,000 12,500 --------- 215,292 --------- Government Agencies -- 3.9% Federal National Mortgage Association, Zero Coupon Bond, 10/29/07 .............................................. NZD 100,000 29,048 International Bank of Reconstruction & Development, Zero Coupon Bond, 8/20/07 .................................. NZD 250,000 73,361 International Bank of Reconstruction & Development, 8.000%, 5/23/07 ....................................... NZD 45,000 26,762 --------- 129,171 --------- Home Builders -- 0.8% Pulte Corp., 7.625%, 10/15/17 ........................... 25,000 25,770 --------- Oil & Gas -- 3.1% Seagull Energy Corp., 7.500%, 9/15/27 ................... 100,000 103,569 --------- Paper Products -- 4.5% Mead Corp., 7.125%, 8/01/25 ............................. 50,000 48,929 Westvaco Corp., 7.000%, 8/15/23 ......................... 100,000 99,682 --------- 148,611 --------- Rail -- Transport -- 0.9% Louisville & Nashville Railroad Co., 2.875%, 4/01/03 .... 1,000 825 Louisville & Nashville Railroad Co., 3.375%, 4/01/03 .... 10,000 8,707 Missouri Pacific Railroad Co., 4.750%, 1/01/20 .......... 10,000 6,888 Missouri Pacific Railroad Co., 5.000%, 1/01/45 .......... 21,000 13,912 --------- 30,332 --------- Real Estate Investment Trusts -- 3.1% First Industrial, 7.500%, 12/01/17 ...................... 100,000 101,160 --------- Telecommunications -- 4.1% TCI Communications, Inc., 7.875%, 2/15/26 ............... 125,000 135,321 --------- Textile & Apparel -- 0.8% Kellwood Co., 7.625%, 10/15/17 .......................... 25,000 25,639 --------- Tobacco -- 8.0% Loews Corp., 7.000%, 10/15/23 ........................... 70,000 68,150 Philip Morris Cos., Inc., 7.750%, 1/15/27 ............... 120,000 129,593 RJR Nabisco, Inc., 9.250%, 8/15/13 ...................... 60,000 67,323 --------- 265,066 --------- U.S. Government -- 10.3% U.S. Treasury Bonds, 6.000%, 2/15/26 .................... 340,000 339,575 --------- Utilities -- 4.1% Comed Financing II, 8.500%, 1/15/27 ..................... 60,000 64,246 GGIB Funding Corp., 7.430%, 1/15/11 ..................... 69,441 69,995 --------- 134,241 --------- TOTAL NON-CONVERTIBLE BONDS (Identified Cost $2,596,381) ........................... 2,707,074 --------- CONVERTIBLE BONDS -- 5.6% Environmental Services -- 1.6% Thermo TerraTech, Inc., 4.625%, 5/01/03 (d) ............. 60,000 53,400 --------- Foreign Issuer -- 1.8% Banpu Public Co., 2.750%, 4/10/03 ....................... 20,000 12,800 Burns, Philp, 5.500%, 4/30/04 ........................... 20,000 11,800 Samsung Co., 0.250%, 6/26/06 ............................ 20,000 16,000 Ssangyong Oil Refining Co., Inc., 3.000%, 12/31/04 ...... 15,000 5,575 Total Access Communication Public Co. Ltd., 2.000%, 5/31/06 ............................................... 30,000 12,900 --------- 59,075 --------- Oil & Gas -- 1.6% Houston Industries, Inc., 6.000%, 3/15/12 ............... 60,000 54,600 --------- Restaurants -- 0.6% Shoney's, Inc., Zero Coupon Bond, 4/11/04 ............... 45,000 18,450 --------- TOTAL CONVERTIBLE BONDS (Identified Cost $228,434) ............................ 185,525 --------- TOTAL BONDS AND NOTES (Identified Cost $2,824,815) .......................... 2,892,599 --------- Shares - ------------------------------------------------------------------------------------------------------------- Preferred Stocks -- 5.4% of Total Net Assets Chemicals -- Major -- 3.7% E.I. du Pont DeNemours & Co., $3.50 ..................... 1,200 79,800 E.I. du Pont DeNemours & Co., $4.50 ..................... 500 41,750 --------- 121,550 --------- Utilities -- 1.7% Duquesne Light Co., 4.000% .............................. 500 16,000 Entergy New Orleans, Inc., 4.750% ....................... 175 12,228 Houston Lighting & Power Co., $4.00 ..................... 79 5,056 New York State Electric & Gas Corp., 3.750% ............. 210 12,285 Northern Indiana Public Service Co., 4.250% ............. 190 12,540 --------- 58,109 --------- TOTAL PREFERRED STOCKS (Identified Cost $154,007) ............................ 179,659 --------- Face Amount - ------------------------------------------------------------------------------------------------------------- Short-Term Investment -- 3.4% of Total Net Assets Repurchase Agreement with State Street Bank and Trust Co., dated 12/31/97 at 5.000% to be repurchased at $113,031 on 1/02/98 collateralized by $115,000 U.S. Treasury Note, 5.875%, due 1/31/99 with a value of $118,007 .............................................. $113,000 113,000 ---------- TOTAL SHORT-TERM INVESTMENT (Identified Cost $113,000) ............................ 113,000 ---------- TOTAL INVESTMENTS -- (IDENTIFIED COST $3,091,822) (d) ... $3,185,258 ========== (a) See Note 1. (b) Step Bond: Coupon is zero or below market rate for an initial period and then increases at a specified date and rate. (c) All or a portion of income may be received as additional securities. (d) 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. (e) At December 31, 1997, the net unrealized appreciation on investments based on cost of $3,091,822 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 $223,368 and $129,932, respectively, resulting in net unrealized appreciation of $93,436.
Key to Abbreviations: CAD = Canadian Dollar USD = United States Dollar NZD = New Zealand Dollar ZAR = South African Rand See accompanying notes to financial statements.
LOOMIS SAYLES FIXED INCOME FUNDS - ----------------------------------------------------------------------------------------------------- LOOMIS SAYLES MUNICIPAL BOND FUND Portfolio of Investments -- as of December 31, 1997 -- continued Face Amount Value (a) - ----------------------------------------------------------------------------------------------------- Municipal Bonds And Notes -- 96.4% of Total Net Assets Alaska -- 1.2% Alaska State Housing Finance Corp., 6.600%, 12/01/15 ......... $ 95,000 $ 100,974 ---------- Arizona -- 1.9% Phoenix Street & Highway User, 6.250%, 7/01/11 ............... 150,000 162,978 ---------- California -- 12.7% California State Department Water Resources, 5.625%, 12/01/12 100,000 105,229 California State Public Works Lease, 5.500%, 6/01/14 ......... 300,000 319,779 Foothill Eastern Transportation Corridor, Zero Coupon Bond, 1/01/23 .................................................... 500,000 128,790 Foothill Eastern Transportation Corridor, 6.000%, 1/01/16 .... 250,000 266,767 Fresno Sewer Revenue, (AMBAC Insured), 6.250%, 9/01/14 ....... 250,000 290,303 ---------- 1,110,868 ---------- Colorado -- 1.4% El Paso County, Zero Coupon Bond, 9/01/15 .................... 300,000 120,297 ---------- Connecticut -- 5.0% Connecticut State Resources Recovery Authority, 7.625%, 1/01/09 .................................................... 200,000 207,640 Connecticut State Special Tax Obligation, 6.125%, 9/01/12 .... 200,000 226,300 ---------- 433,940 ---------- Florida -- 2.9% Florida State, General Obligation, 5.250%, 7/01/15 ........... 250,000 255,467 ---------- Hawaii -- 2.3% Honolulu, Hawaii, General Obligation, 5.000%, 10/01/13 ....... 200,000 202,822 ---------- Illinois -- 15.6% Chicago Metropolitan Water Reclamation, 5.950%, 12/01/07 ..... 300,000 335,265 Chicago O'Hare International Airport, 5.000%, 1/01/16 ........ 300,000 292,698 Chicago, Illinois, General Obligation, (AMBAC Insured), 5.250%, 1/01/15 ............................................ 250,000 252,325 Illinois Development Finance Authority Pollution Control, 7.250%, 6/01/11 ............................................ 25,000 27,287 Illinois State Sales Tax Revenue, 6.375%, 6/15/14 ............ 150,000 165,569 Illinois State Sales Tax Revenue, (FGIC Insured), 5.000%, 6/15/16 .................................................... 300,000 296,115 ---------- 1,369,259 ---------- Louisiana -- 2.4% Regional Transportation Authority, (FGIC Insured), 8.000%, 12/01/08 ................................................... 200,000 211,344 ---------- Massachusetts -- 5.9% Commonwealth of Massachusetts Water Pollution Control, 5.000%, 8/01/14 .................................................... 300,000 300,249 Plymouth County Certificates of Participation, 6.500%, 4/01/01 200,000 213,322 ---------- 513,571 ---------- Michigan -- 3.0% Detroit, Michigan, (MBIA Insured), 5.000%, 4/01/06 ........... 250,000 259,725 ---------- New Jersey -- 3.6% New Jersey State Turnpike Authority, 6.500%, 1/01/08 ......... 200,000 230,534 New Jersey State Turnpike Authority, 6.500%, 1/01/16 ......... 75,000 87,466 ---------- 318,000 ---------- New York -- 20.6% New York City Housing Development Corporation, 5.625%, 5/01/12 .................................................... 150,000 155,156 New York City Transitional Finance Authority, 5.000%, 8/15/13 200,000 201,110 New York City, General Obligation, 7.000%, 8/01/98 ........... 5,000 5,083 New York State Certificates of Participation, 5.650%, 8/01/02 160,000 168,078 New York State Dormitory Authority, 6.375%, 7/01/08 .......... 200,000 220,378 New York State Dormitory Authority, 6.500%, 5/15/05 .......... 250,000 281,895 New York State Environmental Pollution Control, 5.150%, 6/15/13 .................................................... 125,000 127,356 New York State Environmental Pollution Control, 5.750%, 6/15/10 .................................................... 250,000 276,023 New York State, General Obligation, 5.250%, 7/15/10 .......... 200,000 208,128 New York Urban Development Corp., 5.625%, 1/01/07 ............ 150,000 157,375 ---------- 1,800,582 ---------- North Carolina -- 1.3% North Carolina Eastern Municipal Power Agency, 7.250%, 1/01/07 .................................................... 100,000 116,384 ---------- Pennsylvania -- 1.6% Pennsylvania Finance Authority Revenue Bond, 6.600%, 11/01/09 ................................................... 125,000 138,418 ---------- Puerto Rico -- 2.9% Puerto Rico Electric Power Authority, 6.125%, 7/01/09 ........ 225,000 254,304 ---------- Rhode Island -- 2.9% Rhode Island Convention Center Authority, (MBIA Insured), 5.000%, 5/15/10 ............................................ 250,000 258,387 ---------- Tennessee -- 3.4% Metropolitan Nashville Airport, (FGIC Insured), 6.600%, 7/01/15 .................................................... 30,000 32,635 Shelby County, General Obligation, 5.900%, 3/01/13 ........... 250,000 268,345 ---------- 300,980 ---------- Washington -- 2.8% Tacoma, Washington Electric Systems Revenue, (FGIC Insured), 6.100%, 1/01/07 ............................................ 225,000 247,568 ---------- Wyoming -- 3.0% Platte County Pollution Control, (MBIA Insured), 5.100%, 1/01/08 ............................................ 250,000 260,950 ---------- TOTAL MUNICIPAL BONDS AND NOTES (Identified Cost $7,901,587)................................ 8,436,818 ---------- - ------------------------------------------------------------------------------------------------- Short-Term Investment -- 2.0% of Total Net Assets Repurchase Agreement with State Street Bank and Trust Co., dated 12/31/97 at 5.000% to be repurchased at $175,122 on 1/05/98 collateralized by $140,000 U.S. Treasury Bond, 8.125%, due 8/15/19 with a value of $178,719 ............... 175,000 175,000 ---------- TOTAL SHORT-TERM INVESTMENT (Identified Cost $175,000).................................. 175,000 ---------- TOTAL INVESTMENTS -- (IDENTIFIED COST $8,076,587) (b)......... $8,611,818 ========== (a) See Note 1. (b) At December 31, 1997, the net unrealized appreciation on investments based on cost of $8,076,587 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 $551,992 and $16,761, respectively, resulting in net unrealized appreciation of $535,231.
Key to Abbreviations: AMBAC: American Municipal Bond Assurance Corporation FGIC: Federal Guaranty Insurance Corporation MBIA: Municipal Bond Insurance Association See accompanying notes to financial statements.
LOOMIS SAYLES FIXED INCOME FUNDS - ----------------------------------------------------------------------------------------------------- LOOMIS SAYLES SHORT-TERM BOND FUND Portfolio of Investments -- as of December 31, 1997 Face Amount Value (a) - ----------------------------------------------------------------------------------------------------- Bonds And Notes -- 97.0% of Total Net Assets Aerospace -- 3.0% Lockheed Martin Corp., 6.550%, 5/15/99 .................... $ 570,000 $ 573,312 ----------- Airlines -- 6.4% Delta Air Lines, Inc., 7.790%, 12/01/98 ................... 800,000 811,144 Northwest Airlines Corp., 8.375%, 3/15/04 ................. 400,000 411,816 ----------- 1,222,960 ----------- Banking & Finance -- 6.2% Capital One Bank, 6.830%, 5/17/99 ......................... 560,000 563,181 Household Bank FSB, 6.250%, 4/01/99 ....................... 625,000 626,981 ----------- 1,190,162 ----------- Computers -- 3.5% Comdisco, Inc., 5.760%, 1/19/99 ........................... 670,000 668,560 ----------- Consumer Services -- 3.0% Loewen Group International, Inc., 7.750%, 10/15/01 ........ 560,000 583,374 ----------- Electronics -- 1.4% Tektronix, Inc., 7.625%, 8/15/02 .......................... 250,000 259,512 ----------- Financial -- 10.3% Chrysler Financial Corp., 6.500%, 6/15/98 ................. 200,000 200,426 Fleetwood Credit Grantor Trust, 6.900%, 3/15/12 ........... 436,530 441,502 Great Western Financial Corp., 6.125%, 6/15/98 ............ 605,000 605,266 Sears Roebuck Acceptance Corp., 6.950%, 5/15/02 ........... 340,000 348,242 World Omni Automobile Lease, 6.550%, 6/25/02 .............. 367,255 368,970 ----------- 1,964,406 ----------- Government Agencies -- 8.2% Federal Home Loan Mortgage Corp., 6.500%, 5/15/08 ......... 520,000 518,534 Federal Home Loan Mortgage Corp., 6.500%, 4/01/12 ......... 582,370 583,278 Federal National Mortgage Association, 7.000%, 12/01/11 ... 259,584 263,748 Federal National Mortgage Association, 7.000%, 12/01/11 ... 195,600 198,738 ----------- 1,564,298 ----------- Media & Entertainment -- 6.1% News America Holdings, Inc., 9.125%, 10/15/99 ............. 400,000 418,388 Time Warner, Inc., 7.450%, 2/01/98 ........................ 545,000 545,398 Time Warner, Inc., 7.950%, 2/01/00 ........................ 200,000 206,148 ----------- 1,169,934 ----------- Oil & Gas -- 2.6% Occidental Petroleum Corp., 5.850%, 11/09/98 .............. 500,000 498,775 ----------- Paper Products -- 1.9% Fort James Corp., 6.625%, 9/15/04 ......................... 360,000 361,148 ----------- Real Estate Investment Trusts -- 1.1% Oasis Residential, Inc., 7.000%, 11/15/03 ................. 200,000 202,844 ----------- Securities -- 9.0% Lehman Brothers Holdings, Inc., 6.375%, 6/01/98 ........... 625,000 626,244 Salomon Brothers, Inc., 7.125%, 8/01/99 ................... 450,000 456,169 Salomon, Inc., 5.500%, 1/15/99 ............................ 640,000 635,482 ----------- 1,717,895 ----------- Telecommunications -- 5.2% Sprint Spectrum L.P., Zero Coupon Bond, 8/15/06 (step to 12.500% on 8/15/01) (b) ........................ 560,000 434,000 TCI Communications, Inc., 7.250%, 6/15/99 ................. 550,000 556,308 ----------- 990,308 ----------- U.S. Government -- 22.8% U.S. Treasury Notes, 6.250%, 1/31/02 ...................... 2,995,000 3,048,341 U.S. Treasury Notes, 6.250%, 2/15/03 ...................... 90,000 92,039 U.S. Treasury Strips, Zero Coupon Bond, 2/15/04 ........... 1,710,000 1,207,671 ----------- 4,348,051 ----------- Utilities -- 6.3% Detroit Edison Co., 6.340%, 3/15/00 ....................... 670,000 672,392 El Paso Electric Co., 7.250%, 2/01/99 ..................... 520,000 522,439 ----------- 1,194,831 ----------- TOTAL BONDS AND NOTES (Identified Cost $18,353,689)............................ 18,510,370 ----------- Short-Term Investment -- 1.7% of Total Net Assets Repurchase Agreement with State Street Bank and Trust Co., dated 12/31/97 at 5.000% to be repurchased at $327,091 on 1/02/98 collateralized by $330,000 U.S. Treasury Note, 5.875%, due 1/31/99 with a value of $338,628 ............ $327,000 $ 327,000 ----------- TOTAL SHORT-TERM INVESTMENT (Identified Cost $327,000)............................... 327,000 ----------- TOTAL INVESTMENTS -- (IDENTIFIED COST $18,680,689) (c)..... $18,837,370 =========== (a) See Note 1. (b) Step Bond: Coupon is zero or below market rate for an initial period and then increases at a specified date and rate. (c) At December 31, 1997, the net unrealized appreciation on investments based on cost of $18,681,400 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 $177,948 and $21,978, respectively, resulting in net unrealized appreciation of $155,970.
See accompanying notes to financial statements.
LOOMIS SAYLES FIXED INCOME FUNDS - -------------------------------------------------------------------------------------------------- LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND Portfolio of Investments -- as of December 31, 1997 Face Amount Value (a) - -------------------------------------------------------------------------------------------------- Bonds And Notes -- 99.2% of Total Net Assets Government Agencies -- 26.1% Federal Home Loan Bank, Zero Coupon Bond, 8/04/17 ......... $ 5,400,000 $ 1,145,880 Government National Mortgage Association, 7.500%, 8/15/26 . 633,230 648,681 Government National Mortgage Association, 7.500%, 9/15/27 . 2,191,171 2,244,570 Tennessee Valley Authority, 8.625%, 11/15/29 .............. 514,000 561,134 ------------ 4,600,265 ------------ U.S. Government -- 73.1% U.S. Treasury Bonds, 7.250%, 5/15/16 ...................... 3,125,000 3,559,563 U.S. Treasury Bonds, 7.500%, 11/15/24 ..................... 3,405,000 4,073,231 U.S. Treasury Notes, 3.375%, 1/15/07 (b) .................. 2,243,406 2,184,516 U.S. Treasury Notes, 5.750%, 11/15/00 ..................... 2,480,000 2,484,638 U.S. Treasury Strips, Zero Coupon Bond, 11/15/07 .......... 1,100,000 619,751 ------------ 12,921,699 ------------ TOTAL BONDS AND NOTES (Identified Cost $16,903,654)............................ 17,521,964 ------------ TOTAL INVESTMENTS -- (IDENTIFIED COST $16,903,654) (c)..... $ 17,521,964 ============ (a) See Note 1. (b) Treasury Inflation Protection Securities (TIPS): Face amount of these notes will be adjusted for changes in the level of inflation as indexed to the non-seasonally adjusted consumer price index (CPI). (c) At December 31, 1997, the net unrealized appreciation on investments based on cost of $16,904,647 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 $618,236 and $919, respectively, resulting in net unrealized appreciation of $617,317.
See accompanying notes to financial statements.
LOOMIS SAYLES FIXED INCOME FUNDS - -------------------------------------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES December 31, 1997 Bond Global Fund Bond Fund ------------------ --------------- ASSETS Investments at value: Securities ............................................ $ 1,247,132,257 $ 30,469,679 Repurchase agreements ................................. 22,851,000 0 ---------------- ------------- Total investments ....................................... 1,269,983,257 30,469,679 Cash .................................................... 940 75,421 Foreign currency at value ............................... 17 102 Receivable for: Shares of the Fund sold ............................... 8,599,001 891,154 Securities sold ....................................... 0 739,264 Forward currency contracts (Note 1D) .................. 0 320,923 Dividends and interest -- net ......................... 23,328,424 820,391 Due from the adviser (Note 3) ........................... 61,597 42,570 Other assets (Note 1J) .................................. 574 485 ---------------- ------------- 1,301,973,810 33,359,989 ---------------- ------------- LIABILITIES Payable for: Securities purchased .................................. 4,920,357 0 Shares of the Fund redeemed ........................... 904,031 51,852 Forward currency contracts (Note 1D) .................. 0 156,120 Dividends declared .................................... 0 0 Accrued expenses: Management fees (Note 3) .............................. 651,148 16,713 Trustees' fees (Note 3B) .............................. 1,416 1,377 Accounting and administration (Note 3A) ............... 95,700 2,708 Other expenses ........................................ 251,324 36,408 ---------------- ------------- 6,823,976 265,178 ---------------- ------------- NET ASSETS ................................................ $ 1,295,149,834 $ 33,094,811 ================ ============= Net Assets consist of: Capital paid in ....................................... $ 1,255,895,436 $ 34,331,365 Undistributed (or Distribution in excess of) net investment income ............................... (72,275) (156,023) Accumulated net realized gain (loss) .................. 8,517,775 114,281 Unrealized appreciation (depreciation) on: Investments ......................................... 30,876,446 (1,342,068) Foreign currency transactions ....................... (67,548) 147,256 ---------------- ------------- NET ASSETS ................................................ $ 1,295,149,834 $ 33,094,811 ================ ============= INSTITUTIONAL CLASS: Net assets .......................................... $ 1,261,909,723 $ 28,400,780 Shares of beneficial interest outstanding, no par value ............................................... 98,367,472 2,400,521 Net asset value and redemption price per Institutional share* $ 12.83 $ 11.83 RETAIL CLASS: Net assets ............................................ $ 33,240,111 $ 4,694,031 Shares of beneficial interest outstanding, no par value ............................................... 2,592,203 396,765 Net asset value and redemption price per Retail share* .............................................. $ 12.82 $ 11.83 Identified cost of investments ............................ $ 1,239,106,811 $ 31,811,747 ================ =============
* The redemption price per share for the Institutional and Retail Classes, of the High Yield Fund for shares held less than one year is equal to net asset value less 2% of the amount redeemed. See accompanying notes to financial statements.
- ------------------------------------------------------------------------------------------------------------------------------ Intermediate U.S. High Maturity Investment Municipal Short-Term Government Yield Bond Grade Bond Bond Bond Securities Fund Fund Fund Fund Fund Fund - --------------------- --------------- ------------- --------------- --------------- --------------- $ 7,945,016 $ 6,284,543 $ 3,072,258 $ 8,436,818 $ 18,510,370 $ 17,521,964 152,000 306,000 113,000 175,000 327,000 0 ------------ ------------ ------------ ------------ ------------- ------------- 8,097,016 6,590,543 3,185,258 8,611,818 18,837,370 17,521,964 574 852 332 12,180 79 18,826 0 0 0 0 0 0 184,850 0 35,000 0 0 341 0 0 0 0 0 0 0 0 0 0 0 0 147,831 106,132 55,099 138,019 270,438 139,381 46,634 55,595 57,134 31,866 32,948 26,467 6,960 5,527 1,037 0 784 0 ------------ ------------ ------------ ------------ ------------- ------------- 8,483,865 6,758,649 3,333,860 8,793,883 19,141,619 17,706,979 ------------ ------------ ------------ ------------ ------------- ------------- 38,686 0 0 0 0 0 2,800 0 0 0 7,320 33 0 0 0 0 0 0 0 0 0 10,054 14,794 0 4,089 6,743 2,996 8,661 11,038 15,415 1,377 1,377 1,416 1,377 1,377 1,377 648 566 244 732 1,368 1,154 28,611 22,451 22,229 21,115 29,218 20,565 ------------ ------------ ------------ ------------ ------------- ------------- 76,211 31,137 26,885 41,939 65,115 38,544 ------------ ------------ ------------ ------------ ------------- ------------- $ 8,407,654 $ 6,727,512 $ 3,306,975 $ 8,751,944 $ 19,076,504 $ 17,668,435 ============ ============ ============ ============ ============= ============= $ 8,586,378 $ 6,741,690 $ 3,195,352 $ 8,200,244 $ 19,341,755 $ 17,963,235 (313) (768) (44) 0 (3,124) 3,216 80,356 23,063 18,408 16,469 (418,808) (916,326) (258,716) (36,473) 93,436 535,231 156,681 618,310 (51) 0 (177) 0 0 0 ------------ ------------ --------------- ------------ ------------- ------------ $ 8,407,654 $ 6,727,512 $ 3,306,975 $ 8,751,944 $ 19,076,504 $ 17,668,435 ============ ============ ============ ============ ============= ============= $ 5,266,350 $ 6,305,000 $ 2,445,392 $ 8,751,944 $ 18,791,919 $ 17,668,435 520,335 628,544 230,810 748,307 1,926,614 1,651,559 $ 10.12 $ 10.03 $ 10.59 $ 11.70 $ 9.75 $ 10.70 $ 3,141,304 $ 422,512 $ 861,583 -- $ 284,585 -- 310,430 42,123 81,343 -- 29,183 -- $ 10.12 $ 10.03 $ 10.59 -- $ 9.75 -- $ 8,355,732 $ 6,627,016 $ 3,091,822 $ 8,076,587 $ 18,680,689 $ 16,903,654 ============ ============ ============ ============ ============= =============
See accompanying notes to financial statements.
LOOMIS SAYLES FIXED INCOME FUNDS - -------------------------------------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Year Ended December 31, 1997 Global Bond Bond Fund Fund -------------- --------------- INVESTMENT INCOME Dividends* ................................................ $ 2,009,993 $ 6,786 Interest .................................................. 71,767,785 2,009,694 -------------- ---------- 73,777,778 2,016,480 -------------- ---------- Expenses Management fees (Note 3) ................................ 5,460,675 178,622 12b-1 fees (Retail Class) ............................... 43,311 7,484 Trustees' fees and expenses (Note 3B) ................... 5,929 5,816 Accounting and administrative fees (Note 3A) ............ 449,885 11,644 Custodian ............................................... 328,497 75,735 Transfer agent (Institutional Class) .................... 333,172 25,267 Transfer agent (Retail Class) ........................... 33,873 21,667 Audit and tax services .................................. 29,122 25,091 Legal ................................................... 9,804 4,690 Printing ................................................ 138,721 3,777 Registration fees ....................................... 219,956 27,724 Amortization of organization expenses (Note 1J): Institutional Class ................................... 0 0 Amortization of deferred registration costs (Note 1J): Institutional Class ................................... 0 0 Retail Class .......................................... 13,394 11,343 Miscellaneous expenses .................................. 0 0 -------------- ---------- 7,066,339 398,860 -------------- ---------- Less expenses assumed by the investment adviser (Note 3) (197,170) (123,445) -------------- ---------- Net investment income (loss) .............................. 66,908,609 1,741,065 -------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments -- net ...................................... 27,841,001 699,462 Foreign currency transactions -- net .................... (159,264) 276,509 -------------- ---------- Total realized gain (loss) on investments and foreign currency transactions ................................. 27,681,737 975,971 -------------- ---------- Unrealized appreciation (depreciation) on: Investments -- net ...................................... 12,005,127 (2,303,180) Foreign currency transactions -- net .................... (58,201) 154,594 -------------- ---------- Total unrealized appreciation (depreciation) on investments and foreign currency transactions ......... 11,946,926 (2,148,586) -------------- ---------- Net gain (loss) on investments and foreign currency transactions ............................................ 39,628,663 (1,172,615) -------------- ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ....... $ 106,537,272 $ 568,450 ============== ==========
*Net of foreign withholding taxes of $5,732, $1,696, and $182 for the Bond, Global Bond, and High Yield Funds, respectively. **Commencement of operations, January 2, 1997. See accompanying notes to financial statements.
- ----------------------------------------------------------------------------------------------------------------------------------- Intermediate U.S. High Maturity Investment Municipal Short-Term Government Yield Bond Grade Bond Bond Bond Securities Fund Fund** Fund** Fund Fund Fund --------- -------- ---------- -------- ---------- ------------- $ 43,956 $ 0 $ 5,939 $ 0 $ 0 $ 0 507,793 298,034 151,002 469,008 1,127,685 948,463 --------- -------- -------- -------- ---------- ---------- 551,749 298,034 156,941 469,008 1,127,685 948,463 --------- -------- -------- -------- ---------- ---------- 34,062 17,125 8,585 34,082 41,211 55,096 4,264 342 885 0 449 0 5,816 5,540 5,729 5,816 5,816 5,816 2,892 2,158 1,097 3,960 7,470 6,187 63,118 51,290 56,182 46,480 60,751 36,450 19,019 17,690 18,951 21,061 23,997 22,052 20,947 16,502 18,251 0 18,437 0 21,091 14,175 14,175 21,091 23,091 21,091 4,527 4,534 3,433 4,557 4,615 4,593 2,325 1,790 1,784 1,337 2,900 2,493 31,176 18,055 18,651 15,057 23,483 15,953 1,545 0 0 0 892 0 10,657 20,550 21,851 0 0 0 11,385 481 3,670 0 11,140 0 0 1,760 2,013 0 1,884 0 --------- -------- -------- -------- ---------- ---------- 232,824 171,992 175,257 153,441 226,136 169,731 --------- -------- -------- -------- ---------- ---------- (185,981) (147,955) (162,568) (102,318) (143,266) (87,087) --------- -------- -------- -------- ---------- ---------- 504,906 273,997 144,252 417,885 1,044,815 865,819 --------- -------- -------- -------- ---------- ---------- 281,905 34,360 53,364 70,207 4,131 377,725 (451) 0 (150) 0 0 0 --------- -------- -------- -------- ---------- ---------- 281,454 34,360 53,214 70,207 4,131 377,725 --------- -------- -------- -------- ---------- ---------- (263,120) (36,473) 93,436 291,399 82,076 420,082 (34) 0 (177) 0 0 0 --------- -------- -------- -------- ---------- ---------- (263,154) (36,473) 93,259 291,399 82,076 420,082 --------- -------- -------- -------- ---------- ---------- 18,300 (2,113) 146,473 361,606 86,207 797,807 --------- -------- -------- -------- ---------- ---------- $ 523,206 $271,884 $290,725 $779,491 $1,131,022 $1,663,626 ========= ======== ======== ======== ========== ==========
See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS Bond Fund ------------------------------------ Year Ended Year Ended ----------------- ----------------- December 31, 1997 December 31, 1996 ----------------- ----------------- FROM OPERATIONS Net investment income (loss) ............. $ 66,908,609 $ 29,104,161 Net realized gain (loss) on: Investments ............................ 27,841,001 9,916,047 Foreign currency transactions .......... (159,264) 14,349 Unrealized appreciation (depreciation) on: Investments ............................ 12,005,127 1,541,729 Foreign currency transactions .......... (58,201) (4,455) -------------- ------------ Increase (decrease) in net assets from operations ........................... 106,537,272 40,571,831 -------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS INSTITUTIONAL CLASS Net investment income .................. (65,355,045) (28,834,672) Net realized gain on investments ....... (20,396,586) (10,362,123) RETAIL CLASS Net investment income .................. (1,374,734) 0 Net realized gain on investments ....... (518,253) 0 -------------- ------------ (87,644,618) (39,196,795) -------------- ------------ FROM CAPITAL SHARES TRANSACTIONS (NOTE 6) Increase (decrease) in net assets derived from capital share transactions ........... 735,013,367 284,158,620 -------------- ------------ Total increase (decrease) in net assets .. 753,906,021 285,533,656 NET ASSETS Beginning of the period .................. 541,243,813 255,710,157 -------------- ------------ End of the period ........................ $1,295,149,834 $541,243,813 ============== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period .................. $ 537,972 $ 34,589 ============== =========== End of the period ........................ $ (72,275) $ 537,972 ============== ============= See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS Global Bond Fund ------------------------------------ Year Ended Year Ended ----------------- ----------------- December 31, 1997 December 31, 1996 ----------------- ----------------- FROM OPERATIONS Net investment income (loss) ............. $ 1,741,065 $ 1,015,932 Net realized gain (loss) on: Investments ............................ 699,462 592,117 Foreign currency transactions .......... 276,509 256,616 Unrealized appreciation (depreciation) on: Investments ............................ (2,303,180) 478,651 Foreign currency transactions .......... 154,594 25,112 -------------- ------------ Increase (decrease) in net assets from operations ........................... 568,450 2,368,428 -------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS INSTITUTIONAL CLASS Net investment income .................. (1,536,299) (1,502,252) In excess of net investment income ..... (277,442) 0 Net realized gain on investments ....... 0 0 RETAIL CLASS Net investment income .................. (205,307) 0 In excess of net investment income ..... (34,122) 0 Net realized gain on investments ....... 0 0 -------------- ------------ (2,053,170) (1,502,252) ------------- ------------ FROM CAPITAL SHARES TRANSACTIONS (NOTE 6) Increase (decrease) in net assets derived from capital share transactions ........... 8,066,659 15,342,391 -------------- ------------ Total increase (decrease) in net assets .. 6,581,939 16,208,567 NET ASSETS Beginning of the period .................. 26,512,872 10,304,305 -------------- ------------ End of the period ........................ $ 33,094,811 26,512,872 ============== ========== UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period .................. $ (34,950) $ 130,782 ============== ============ End of the period ........................ $ (156,023) $ (34,950) ============== ============ See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS High Yield Fund ------------------------------------ Year Ended Year Ended ----------------- ----------------- December 31, 1997 December 31, 1996* ----------------- ----------------- FROM OPERATIONS Net investment income (loss) ............. $ 504,906 $ 37,520 Net realized gain (loss) on: Investments ............................ 281,905 0 Foreign currency transactions .......... (451) (36) Unrealized appreciation (depreciation) on: Investments ............................ (263,120) 4,404 Foreign currency transactions .......... (34) (17) -------------- ------------ Increase (decrease) in net assets from operations ........................... 523,206 41,871 -------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS INSTITUTIONAL CLASS Net investment income .................. (358,018) (36,708) Net realized gain on investments ....... (122,085) 0 RETAIL CLASS Net investment income .................. (165,367) 0 Net realized gain on investments ....... (77,373) 0 -------------- ------------ (722,843) (36,708) -------------- ------------ FROM CAPITAL SHARES TRANSACTIONS (NOTE 6) Increase (decrease) in net assets derived from capital share transactions ........... 6,653,668 1,933,717 -------------- ------------ Redemption Fees (Note 1I) .............. 14,733 0 -------------- ------------ Total increase (decrease) in net assets .. 6,468,764 1,938,880 NET ASSETS Beginning of the period .................. 1,938,890 10 -------------- ------------ End of the period ........................ $ 8,407,654 $ 1,938,890 ============== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period .................. $ 8,960 $ 0 ============== ============ End of the period ........................ $ (313) $ 8,960 ============== ============ *Commencement of operations, September 11, 1996. See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS Intermediate Investment Maturity Grade Bond Fund Bond Fund ----------------- ----------------- Year Ended Year Ended ----------------- ----------------- December 31, 1997* December 31, 1997* ----------------- ----------------- FROM OPERATIONS Net investment income (loss) ............. $ 273,997 $ 144,252 Net realized gain (loss) on: Investments ............................ 34,360 53,364 Foreign currency transactions .......... 0 (150) Unrealized appreciation (depreciation) on: Investments ............................ (36,473) 93,436 Foreign currency transactions .......... 0 (177) -------------- ------------ Increase (decrease) in net assets from operations ........................... 271,884 290,725 -------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS INSTITUTIONAL CLASS Net investment income .................. (261,480) (116,549) In excess of net investment income ..... (21,107) (18,144) Net realized gain on investments ....... (9,770) (26,811) RETAIL CLASS Net investment income .................. (12,922) (27,969) In excess of net investment income ..... (1,154) (5,864) Net realized gain on investments ....... (660) (9,286) -------------- ------------ (307,093) (204,623) -------------- ------------ FROM CAPITAL SHARES TRANSACTIONS (NOTE 6) Increase (decrease) in net assets derived from capital share transactions ...... 6,762,701 3,220,853 -------------- ------------ Total increase (decrease) in net assets .. 6,727,492 3,306,955 NET ASSETS Beginning of the period .................. 20 20 -------------- ------------ End of the period ........................ $ 6,727,512 $ 3,306,975 ============== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period .................. $ 0 $ 0 ============== ============ End of the period ........................ $ (768) $ (44) *Commencement of operations, January 2, 1997. See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS Municipal Bond Fund ------------------------------------ Year Ended Year Ended ----------------- ----------------- December 31, 1997 December 31, 1996 ----------------- ----------------- FROM OPERATIONS Net investment income (loss) ............. $ 417,885 $ 372,837 Net realized gain (loss) on: Investments ............................ 70,207 54,589 Foreign currency transactions .......... 0 0 Unrealized appreciation (depreciation) on: Investments ............................ 291,399 (147,252) Foreign currency transactions .......... 0 0 -------------- ------------ Increase (decrease) in net assets from operations ........................... 779,491 280,174 -------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS INSTITUTIONAL CLASS Net investment income .................. (421,574) (372,889) Net realized gain on investments ....... (76,418) (65,728) -------------- ------------ (497,992) (438,617) -------------- ------------ FROM CAPITAL SHARES TRANSACTIONS (NOTE 6) Increase (decrease) in net assets derived from capital share transactions ........... (230,703) 898,750 -------------- ------------ Total increase (decrease) in net assets .. 50,796 740,307 NET ASSETS Beginning of the period .................. 8,701,148 7,960,841 -------------- ------------ End of the period ........................ $ 8,751,944 $ 8,701,148 ============== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period .................. $ 3,777 $ 3,829 ============== ============ End of the period ........................ $ 0 $ 3,777 ============== ============ See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS Short-Term Bond Fund ------------------------------------ Year Ended Year Ended ----------------- ----------------- December 31, 1997 December 31, 1996 ----------------- ----------------- FROM OPERATIONS Net investment income (loss) ............. $ 1,044,815 $ 1,145,418 Net realized gain (loss) on: Investments ............................ 4,131 (48,327) Foreign currency transactions .......... 0 0 Unrealized appreciation (depreciation) on: Investments ............................ 82,076 (248,733) Foreign currency transactions .......... 0 0 -------------- ------------ Increase (decrease) in net assets from operations ........................... 1,131,022 848,358 -------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS INSTITUTIONAL CLASS Net investment income .................. (1,046,180) (1,145,361) Net realized gain on investments ....... 0 0 RETAIL CLASS Net investment income .................. (10,909) 0 Net realized gain on investments ....... 0 0 -------------- ------------ (1,057,089) (1,145,361) -------------- ------------ FROM CAPITAL SHARES TRANSACTIONS (NOTE 6) Increase (decrease) in net assets derived from capital share transactions ........... 773,904 (7,513,762) -------------- ------------ Total increase (decrease) in net assets .. 847,837 (7,810,765) NET ASSETS Beginning of the period .................. 18,228,667 26,039,432 -------------- ------------ End of the period ........................ $ 19,076,504 18,228,667 ============== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period .................. $ 10,736 $ 8,066 ============== ============ End of the period ........................ $ (3,124) $ 10,736 ============== ============ See accompanying notes to financial statements. LOOMIS SAYLES FIXED INCOME FUNDS - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS U.S. Government Securities Fund ------------------------------------ Year Ended Year Ended ----------------- ----------------- December 31, 1997 December 31, 1996 ----------------- ----------------- FROM OPERATIONS Net investment income (loss) ............. $ 865,819 $ 1,351,371 Net realized gain (loss) on: Investments ............................ 377,725 (716,728) Foreign currency transactions .......... 0 0 Unrealized appreciation (depreciation) on: Investments ............................ 420,082 (437,793) Foreign currency transactions .......... 0 0 -------------- ------------ Increase (decrease) in net assets from operations ........................... 1,663,626 196,850 -------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS INSTITUTIONAL CLASS Net investment income .................. (857,571) (1,334,711) Net realized gain on investments ....... 0 0 -------------- ------------ (857,571) (1,334,711) FROM CAPITAL SHARES TRANSACTIONS (NOTE 6) Increase (decrease) in net assets derived from capital share transactions ........... 2,670,263 (4,169,172) -------------- ------------ Total increase (decrease) in net assets .. 3,476,318 (5,307,033) NET ASSETS Beginning of the period .................. 14,192,117 19,499,150 -------------- ------------ End of the period ........................ $ 17,668,435 $ 14,192,117 ============== ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period .................. $ (4,942) $ (1,533) ============== ============ End of the period ........................ $ (3,216) $ (4,942) ============== ============ See accompanying notes to financial statements. [THIS PAGE INTENTIONALLY LEFT BLANK] LOOMIS SAYLES FIXED INCOME FUNDS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Year Ended December 31,
Bond Fund -------------------- Institutional Class -------------------- 1997 -------------------- Net asset value, beginning of period ........................ $ 12.38 -------- Income from investment operations - Net investment income (loss) .............................. 0.86 Net realized and unrealized gain (loss) on investments .... 0.67 -------- Total from investment operations ........................ 1.53 -------- Less distributions - Dividends from net investment income ...................... (0.86) Distributions in excess of net investment income .......... 0.00 Distributions from net realized capital gains ............. (0.22) -------- Total distributions ..................................... (1.08) --------- Net asset value, end of period .............................. $ 12.83 ========= Total return (%)(c) ......................................... 12.7 Net assets, end of period (000) ............................. $1,261,910 Ratio of operating expenses to average net assets (%)(b)(d) . 0.75 Ratio of net investment income to average net assets (%)(b) . 7.36 Portfolio turnover rate (%)(a) .............................. 41 The ratios of expenses to average net assets without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements would have been (%)(b) . 0.77 Without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements net investment income per share would have been: .............. $ 0.85 * From commencement of class operations on January 2, 1997. (a) Periods less than one year are not annualized. (b) Annualized for periods less than one year. (c) Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. (d) 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. (e) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
LOOMIS SAYLES FIXED INCOME FUNDS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (continued) Year Ended December 31,
Bond Fund - --------------------------------------------------------------------------------------------------------------- Institutional Class Retail Class - --------------------------------------------------------------------------------- ------------- 1996 1995 1994 1993 1997* - --------- --------- --------- -------- -------- $ 12.29 $ 10.05 $ 11.37 $ 10.36 $ 12.38 - --------- --------- --------- -------- --------- 0.86 0.82 0.83 0.84 0.84(e) 0.35 2.32 (1.29) 1.43 0.65 - --------- --------- --------- --------- --------- 1.21 3.14 (0.46) 2.27 1.49 - --------- --------- --------- --------- --------- (0.86) (0.82) (0.84) (0.81) (0.83) 0.00 0.00 (0.02) 0.00 0.00 (0.26) (0.08) 0.00 (0.45) (0.22) - --------- --------- --------- --------- --------- (1.12) (0.90) (0.86) (1.26) (1.05) - --------- --------- --------- --------- --------- $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 12.82 ======== ======== ======== ======== ======== 10.3 32.0 (4.1) 22.2 12.4 $541,244 $255,710 $ 82,985 $ 64,222 $ 33,240 0.75 0.79 0.84 0.94 1.00 7.93 8.34 7.92 8.26 7.09 42 35 87 170 41 0.75 0.79 0.84 0.94 1.20 $ 0.86 $ 0.82 $ 0.83 $ 0.84 $ 0.82(e)
LOOMIS SAYLES FIXED INCOME FUNDS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Continued) Year Ended December 31, Global Bond Fund -------------------- Institutional Class -------------------- 1997 --------- Net asset value, beginning of period ..................... $ 12.35 --------- Income from investment operations - Net investment income (loss) ........................... 0.71 Net realized and unrealized gain (loss) on investments . (0.42) -------- Total from investment operations ..................... 0.29 -------- Less distributions - Dividends from net investment income ................... (0.69) Distributions in excess of net investment income ....... (0.12) Distributions from capital ............................. 0.00 Distributions from net realized capital gains .......... 0.00 -------- Total distributions .................................. (0.81) -------- Net asset value, end of period ........................... $ 11.83 ======== Total return (%)(c) ...................................... 2.3 Net assets, end of period (000) .......................... $ 28,401 Ratio of operating expenses to average net assets (%)(b)(d) 0.90 Ratio of net investment income to average net assets (%)(b) 5.88 Portfolio turnover rate (%)(a) ........................... 75 The ratios of expenses to average net assets without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements would have been (%)(b) ........ 1.22 Without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements net investment income per share would have been: ................$ 0.67 * From commencement of class operations on January 2, 1997. (a) Periods less than one year are not annualized. (b) Annualized for periods less than one year. (c) Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. (d) 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. (e) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. LOOMIS SAYLES FIXED INCOME FUNDS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Continued) Year Ended December 31,
Global Bond Fund - ------------------------------------------------------------------------------------------------------------ Institutional Class Retail Class - ------------------------------------------------------------------------------- ------------ 1996 1995 1994 1993 1997* - ------- ------- -------- ------------ -------- $ 11.39 $ 9.82 $ 11.06 $ 10.32 $ 12.35 - ------- ------- -------- -------- -------- 0.44 1.04 0.67 0.54 0.63(e) 1.27 1.31 (1.63) 0.96 (0.37) - ------- ------- -------- -------- -------- 1.71 2.35 (0.96) 1.50 0.26 - ------- ------- -------- -------- -------- (0.75) (0.78) (0.04) (0.49) (0.69) 0.00 0.00 0.00 0.00 (0.09) 0.00 0.00 (0.24) 0.00 0.00 0.00 0.00 0.00 (0.27) 0.00 - ------- ------- -------- -------- -------- (0.75) (0.78) (0.28) (0.76) (0.78) - ------- ------- -------- -------- -------- $ 12.35 $ 11.39 $ 9.82 $ 11.06 $ 11.83 ======= ======= ======== ======== ======== 15.0 23.9 (8.7) 14.6 2.0 $26,513 $10,304 $ 25,584 $ 21,378 $ 4,694 1.50 1.50 1.30 1.50 1.15 6.37 8.17 7.02 5.54 5.60 131 148 153 150 75 1.77 1.69 1.30 1.51 2.44 $ 0.42 $ 1.02 $ 0.67 $ 0.54 $ 0.49(e)
High Yield Fund ---------------------------------------------------- Institutional Class Retail Class ------------------------------- ------------ 1997 1996* 1997* -------- --------- --------- Net asset value, beginning of period .................... $ 10.11 $ 10.00 $ 10.11 -------- -------- -------- Income from investment operations - Net investment income (loss) .......................... 0.83 0.20 0.85(e) Net realized and unrealized gain (loss) on investments 0.27 0.11 0.23 -------- -------- -------- Total from investment operations .................... 1.10 0.31 1.08 -------- -------- -------- Less distributions - Dividends from net investment income .................. (0.86) (0.20) (0.84) Distributions from net realized capital gains ......... (0.26) 0.00 (0.26) -------- -------- -------- Total distributions ................................. (1.12) (0.20) (1.10) -------- -------- -------- Redemption Fees ......................................... 0.03 0.00 0.03 -------- -------- -------- Net asset value, end of period .......................... $ 10.12 $ 10.11 $ 10.12 ======== ======== ======== Total return (%)(a)(c) .................................. 11.4 3.1 11.2 Net assets, end of period (000) ......................... $ 5,266 $ 1,939 $ 3,141 Ratio of operating expenses to average net assets (%)(b)(d) ............................................. 0.75 0.75 1.00 Ratio of net investment income to average net assets (%)(b) ......................................... 8.96 8.85 8.75 Portfolio turnover rate (%)(a) .......................... 68 0 68 The ratios of expenses to average net assets without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements would have been (%)(b) ...................................... 3.81 12.06 4.79 Without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements net investment income per share would have been: ................................................. $ 0.54 $ (0.05) $ 0.48(e) * Commencement of operations on September 11, 1996, and January 2, 1997, for the Institutional and Retail Classes, respectively. (a) Periods less than one year are not annualized. (b) Annualized for periods less than one year. (c) Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. (d) 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. (e) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Intermediate Maturity Bond Fund ---------------------------------------------- Institutional Class Retail Class ------------------------ --------------- 1997* 1997* ----- ----- Net asset value, beginning of period ........... $ 10.00 $ 10.00 ======== ======== Income from investment operations - Net investment income (loss)(e) .............. 0.64 0.64 Net realized and unrealized gain (loss) on investments ................................ 0.00 (0.02) -------- -------- Total from investment operations ........... 0.64 0.62 -------- -------- Less distributions - Dividends from net investment income ......... (0.56) (0.54) Distributions in excess of net investment income ..................................... (0.03) (0.03) Distributions from net realized capital gains (0.02) (0.02) -------- -------- Total distributions ........................ (0.61) (0.59) -------- -------- Net asset value, end of period ................. $ 10.03 $ 10.03 ======== ======== Total return (%)(c) ............................ 6.4 6.2 Net assets, end of period (000) ................ $ 6,305 $ 423 Ratio of operating expenses to average net assets (%)(b)(d) ............................. 0.55 0.80 Ratio of net investment income to average net assets (%)(b) ....................................... 6.38 6.13 Portfolio turnover rate (%)(a) ................. 119 119 The ratios of expenses to average net assets without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements would have been (%)(b) ....................................... 3.66 14.56 Without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements net investment income per share would have been: ....................... $ 0.29 $ (0.50) * Commencement of operations on January 2, 1997. (a) Periods less than one year are not annualized. (b) Annualized for periods less than one year. (c) Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. (d) 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. (e) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Investment Grade Bond Fund ---------------------------------------------- Institutional Class Retail Class ----------------------- ---------------- 1997* 1997* ----- ----- Net asset value, beginning of period ............ $ 10.00 $ 10.00 -------- -------- Income from investment operations - Net investment income (loss) .................. 0.65 0.62(e) Net realized and unrealized gain (loss) on investments ................................. 0.77 0.78 -------- -------- Total from investment operations ............ 1.42 1.40 -------- -------- Less distributions - Dividends from net investment income .......... (0.63) (0.62) Distributions in excess of net investment income ...................................... (0.08) (0.07) Distributions from net realized capital gains . (0.12) (0.12) -------- -------- Total distributions ......................... (0.83) (0.81) -------- -------- Net asset value, end of period .................. $ 10.59 $ 10.59 ======== ======== Total return (%)(c) ............................. 14.5 14.3 Net assets, end of period (000) ................. $ 2,445 $ 862 Ratio of operating expenses to average net assets (%)(b)(d) ..................................... 0.55 0.80 Ratio of net investment income to average net assets (%)(b) ................................. 6.74 6.51 Portfolio turnover rate (%)(a) .................. 112 112 The ratios of expenses to average net assets without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements would have been (%)(b) ... 7.59 10.95 Without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements net investment income per share would have been: ........................ $ (0.03) $ (0.31) * Commencement of operations on January 2, 1997. (a) Periods less than one year are not annualized. (b) Annualized for periods less than one year. (c) Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. (d) 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. (e) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
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Municipal Bond Fund ----------------------- Institutional Class ----------------------- 1997 ----------------------- Net asset value, beginning of period ......................... $ 11.29 -------- Income from investment operations - Net investment income (loss) ............................... 0.56 Net realized and unrealized gain (loss) on investments ..... 0.51 -------- Total from investment operations ......................... 1.07 -------- Less distributions - Dividends from net investment income ....................... (0.56) Distributions from net realized capital gains .............. (0.10) -------- Total distributions ...................................... (0.66) -------- Net asset value, end of period ............................... $ 11.70 ======== Total return (%)(a) .......................................... 9.8 Net assets, end of period (000) .............................. $ 8,752 Ratio of operating expenses to average net assets (%)(b) ..... 0.60 Ratio of net investment income to average net assets (%) ..... 4.90 Portfolio turnover rate (%) .................................. 50 The ratios of expenses to average net assets without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements would have been (%) ..... 1.80 Without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements net investment income per share would have been: ............... $ 0.42 (a) Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. (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.
Municipal Bond Fund - ----------------------------------------------------------------------------------------------------- Institutional Class - ----------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 - -------- -------- -------- -------- $ 11.53 $ 10.41 $ 11.54 $ 10.95 - -------- -------- -------- 0.52 0.52 0.52 0.51 (0.15) 1.16 (1.13) 0.74 - -------- -------- -------- 0.37 1.68 (0.61) 1.25 - -------- -------- -------- (0.52) (0.52) (0.52) (0.51) (0.09) (0.04) 0.00 (0.15) - -------- -------- -------- (0.61) (0.56) (0.52) (0.66) - -------- -------- -------- $ 11.29 $ 11.53 $ 10.41 $ 11.54 ======== ======== ======== ======== 3.3 16.5 (5.4) 11.6 $ 8,701 $ 7,961 $ 7,270 $ 5,160 1.00 1.00 1.00 1.00 4.61 4.72 4.79 4.50 38 41 28 36 2.31 2.02 2.37 3.22 $ 0.37 $ 0.41 $ 0.37 $ 0.26
Short Term Bond Fund --------------------- Institutional Class ------------------- 1997 ------ Net asset value, beginning of period ........................ $ 9.70 ----------- Income from investment operations - Net investment income (loss) .............................. 0.61 Net realized and unrealized gain (loss) on investments .... 0.06 ----------- Total from investment operations ........................ 0.67 ----------- Less distributions - Dividends from net investment income ...................... (0.62) Distributions from net realized capital gains ............. 0.00 ----------- Total distributions ..................................... (0.62) ----------- Net asset value, end of period .............................. $ 9.75 =========== Total return (%)(c) ......................................... 7.1 Net assets, end of period (000) ............................. $18,792 Ratio of operating expenses to average net assets (%)(b)(d) . 0.50 Ratio of net investment income to average net assets (%) .... 6.34 Portfolio turnover rate (%)(a) .............................. 91 The ratios of expenses to average net assets without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements would have been (%)(b) . 1.19 Without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements net investment income per share would have been: .............. $ 0.55 * From commencement of class operations on January 2, 1997. (a) Periods less than one year are not annualized. (b) Annualized for periods less than one year. (c) Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. (d) 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.
Short Term Bond Fund - ---------------------------------------------------------------------------------------------------------- Institutional Class Retail Class - ------------------------------------------------------------------------------------------ ------------ 1996 1995 1994 1993 1997* - ---------- -------- ------ -------- -------- $ 9.81 $ 9.46 $ 9.95 $ 9.87 $ 9.70 - --------- -------- ------- -------- ------- 0.55 0.63 0.66 0.59 0.59 (0.11) 0.35 (0.49) 0.08 0.06 - --------- ------- ------- -------- ------- 0.44 0.98 0.17 0.67 0.65 - --------- ------- ------- -------- ------- (0.55) (0.63) (0.66) (0.59) (0.60) 0.00 0.00 0.00 0.00 0.00 - --------- ------- ------- -------- ------- (0.55) (0.63) (0.66) (0.59) (0.60) - --------- ------- ------- -------- ------- $ 9.70 $ 9.81 $ 9.46 $ 9.95 $ 9.75 ======= ======= ======= ======= ======= 4.7 10.6 1.8 7.0 6.9 $18,229 $26,039 $19,440 $15,226 $ 285 1.00 1.00 1.00 1.00 0.75 5.69 6.46 6.88 5.97 6.04 120 214 34 81 91 1.17 1.03 1.33 1.55 17.77 $ 0.53 $ 0.62 $ 0.63 $ 0.54 $ (1.08)
U.S. Government Securities Fund ----------------------- Institutional Class ----------------------- 1997 ----------- Net asset value, beginning of period ......................... $ 10.08 -------- Income from investment operations - Net investment income (loss) ............................... 0.63 Net realized and unrealized gain (loss) on investments ..... 0.61 -------- Total from investment operations ......................... 1.24 -------- Less distributions - Dividends from net investment income ....................... (0.62) Distributions from net realized capital gains .............. 0.00 -------- Total distributions ...................................... (0.62) -------- Net asset value, end of period ............................... $ 10.70 ======== Total return (%)(a) .......................................... 12.7 Net assets, end of period (000) .............................. $ 17,668 Ratio of operating expenses to average net assets (%)(b) ..... 0.60 Ratio of net investment income to average net assets (%) ..... 6.29 Portfolio turnover rate (%) .................................. 156 The ratios of expenses to average net assets without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements would have been (%) ..... 1.23 Without giving effect to the voluntary expense limitations described in Note 3 to the Financial Statements net investment income per share would have been: ............... $ 0.57 (a)Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. (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.
U.S. Government Securities Fund - -------------------------------------------------------------------------------------------------------- Institutional Class - -------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 ---------- -------- -------- -------- $ 10.64 $ 9.22 $ 10.53 $ 10.45 -------- ------- -------- -------- 0.68 0.66 0.64 0.64 (0.57) 1.42 (1.30) 1.00 -------- ------- -------- -------- 0.11 2.08 (0.66) 1.64 -------- ------- -------- -------- (0.67) (0.66) (0.65) (0.65) 0.00 0.00 0.00 (0.91) -------- ------- -------- -------- (0.67) (0.66) (0.65) (1.56) -------- ------- -------- -------- $ 10.08 $ 10.64 $ 9.22 $ 10.53 ======== ======= ======== ======== 1.3 23.0 (6.3) 15.7 $ 14,192 $19,499 $ 17,341 $ 18,317 1.00 1.00 1.00 1.00 6.23 6.47 6.60 5.95 137 169 242 277 1.19 1.22 1.22 1.29 $ 0.66 $ 0.64 $ 0.62 $ 0.61
LOOMIS SAYLES FIXED INCOME FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS December 31, 1997 1. The Loomis Sayles Funds is comprised of seventeen no-load mutual funds (the "Funds"). Each Fund is a series of the Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Each Fund is separately managed and has its own investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund. The Trust consists of the following Funds:
Fixed Income Funds Equity Funds - ------------------ ------------ Loomis Sayles Bond Fund Loomis Sayles Core Value Fund Loomis Sayles Global Bond Fund Loomis Sayles Growth Fund Loomis Sayles High Yield Fund Loomis Sayles International Equity Fund Loomis Sayles Intermediate Maturity Bond Fund Loomis Sayles Mid-Cap Growth Fund Loomis Sayles Investment Grade Bond Fund Loomis Sayles Mid-Cap Value Fund Loomis Sayles Municipal Bond Fund Loomis Sayles Small Cap Growth Fund Loomis Sayles Short-Term Bond Fund Loomis Sayles Small Cap Value Fund Loomis Sayles U.S. Government Securities Fund Loomis Sayles Strategic Value Fund Loomis Sayles Worldwide Fund
The Fixed Income Funds (excluding the Municipal Bond and U.S. Government Securities Funds which only offer Institutional shares) offer Institutional and Retail Class shares. Each class has equal pro rata interest in the assets of the relevant fund and general voting privileges. The Fixed Income Funds commenced sale of the Retail Class shares on January 2, 1997. On this date, the original class of shares was renamed the Institutional Class. Retail and Institutional Classes differ with respect to distribution and certain other class-specific expenses and expense reductions. Retail Class shares are subject to distribution fees at an annual rate of 0.25% of the relevant fund's average net assets, pursuant to a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940. Retail Class shares have exclusive voting rights with respect to its distribution plan. On October 27, 1997, the Board of Trustees approved the creation of an additional class of shares ("Admin Class") for the Bond Fund. These shares are subject to distribution fees at an annual rate of 0.25% of the Fund's average net assets, pursuant to a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940, and to administrative fees at an annual rate of 0.25% of the Fund's average daily net assets attributable to the Admin Class. Beginning January 2, 1998, the Admin Class shares can be purchased through certain broker dealers and financial intermediaries, who are record owners of the shares. The preparation of financial statements in accordance with generally accepted accounting principles 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 Fixed Income Funds: 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. Municipal debt securities are valued by a pricing service, as approved by the Board of Trustees, which generally uses a computerized matrix system or dealer supplied quotations that consider market transactions for comparable securities. Equity securities for which quotations are readily available are valued at their last sale price on the exchange 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. B. REPURCHASE AGREEMENTS -- The Funds engage in repurchase agreement transactions. Under the terms of a typical repurchase agreement, the Funds take possession of an underlying debt obligation subject to an obligation of the seller to repurchase, and the Funds 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 Funds' holding period. The Funds, through their custodian, receive delivery of the underlying securities collateralizing repurchase agreements. It is the funds' 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 Funds may be delayed or limited. C. FOREIGN CURRENCY TRANSLATION -- The books and records of each of the Funds (including those Funds that invest in foreign securities) are maintained in U.S. dollars. The value of securities, 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 the period. Purchases and sales of investment securities are translated at contractual currency exchange rates established at the time of the trade. 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 and unrealized gains and losses on foreign currency transactions represent foreign exchange gains and losses from the sale of short-term securities and holdings of foreign currencies, foreign currency gains and losses between trade dates and settlement dates on investment securities transactions, sales and maturities of forward foreign currency contracts, and the difference between the amounts of daily interest accruals on the books of the Funds and the amounts actually received resulting from changes in exchange rates on the payable date. Certain funds use foreign currency contracts to facilitate transactions in foreign-denominated securities. 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 contracts is determined using contractual currency exchange rates established at the time of each trade. The cost of the foreign currency contracts is included in the cost basis of the associated investment. D. FORWARD FOREIGN CURRENCY CONTRACTS -- Each Fund that may invest in foreign securities may enter into forward foreign currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, 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 will be denominated. Forward currency contracts are valued at the forward currency exchange rate and marked-to-market daily. The change in market value is recorded as unrealized appreciation (depreciation) on foreign currency transactions in the Funds' Statements of Assets and Liabilities. Realized gains (losses) at the close of a contract are recorded as realized gain (loss) on foreign currency transactions in the Funds' Statements of Operations. The use of forward foreign exchange contracts does not eliminate fluctuations in the underlying price of the Fund's investment securities, but does establish a rate of exchange that can be achieved in the future. Although forward foreign currency exchange contracts limit the risk of loss due to a decline in the value of hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Funds could be exposed to additional risks if the counterparties to the contracts are unable to meet the terms of their contracts. These contracts involve risks in excess of the unrealized appreciation (depreciation) reflected in the Funds' Statements of Assets and Liabilities. At December 31, 1997, the Global Bond Fund had the following open forward foreign exchange contracts: Local Aggregate Unrealized Delivery Currency Face Total Appreciation Date Amount Amount Value (Depreciation) -------- -------- ---------- ----- -------------- Japanese Yen (sell) 1/30/98 170,000,000 $1,429,773 $1,309,214 $120,559 Japanese Yen (buy) 1/30/98 24,000,000 192,864 184,830 (8,034) Japanese Yen (buy) 1/30/98 23,000,000 177,991 177,129 (862) Japanese Yen (buy) 1/30/98 15,000,000 119,218 115,519 (3,699) Japanese Yen (buy) 1/30/98 12,000,000 92,886 92,415 (471) Netherland Guilder (sell) 1/30/98 6,850,000 3,485,828 3,386,601 99,227 Netherland Guilder (buy) 1/30/98 6,850,000 3,445,068 3,386,601 (58,467) Deutsche Mark (sell) 4/28/98 2,346,615 1,365,502 1,313,609 51,893 Deutsche Mark (buy) 4/28/98 2,346,615 1,365,502 1,313,609 (51,893) Netherland Guilder (sell) 4/28/98 1,083,000 563,065 538,182 24,883 Netherland Guilder (buy) 4/28/98 1,083,000 547,301 538,182 (9,119) Netherland Guilder (sell) 4/30/98 2,800,000 1,415,929 1,391,568 24,361 Netherland Guilder (buy) 4/30/98 2,800,000 1,415,143 1,391,568 (23,575) --------- $ 164,803 --------- E. 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. Discounts on zero coupon bonds, original issues, step bonds and payment in kind bonds are accreted according to the effective interest method. Interest income on the Municipal Bond Fund is decreased by the amortization of premium. Premiums are amortized using the yield to maturity method. In determining net gain or loss on securities sold, the cost of securities are determined on the identified cost basis. Most expenses of the Trust are directly attributed to a particular fund. Expenses which cannot be directly attributed are apportioned between funds in the Trust. Investment income, realized and unrealized gains and losses, and the common expenses of a 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. Each class of shares differs in its respective distribution and certain other class specific fees and expense reductions. F. WHEN-ISSUED SECURITIES -- Delivery and payment for securities purchased on a when-issued or delayed delivery basis can take place one month or more after the date of the transactions. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. Each Fund instructs the custodian to segregate assets in a separate account with a current value at least equal to the amount of its when-issued purchase commitments. At December 31, 1997, the Funds had no such commitments. G. FEDERAL INCOME TAXES -- Each Fund is a separate entity for federal income tax purposes. Each Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders 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 December 31, 1997, the following Funds had net tax basis capital loss carryforwards of which may be applied against any realized net taxable gains of each succeeding year until fully utilized or expired, whichever occurs first: Fund Amount - ---- ------ Short-Term Bond Fund ............................................. $418,097* U.S. Government Securities Fund .................................. 915,332** *$129,507 and $288,590 will expire on December 31, 2002 and 2003, respectively. **$177,989 and $737,343 will expire on December 31, 2002 and 2003, respectively. H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Municipal Bond Fund and Short-Term Bond Fund declare dividends daily to shareholders of record at the time and pay dividends monthly. The Bond, High Yield, Intermediate Maturity Bond, Investment Grade Bond and U.S. Government Securities Funds declare and pay their net investment income quarterly. The Global Bond Fund declares and pays its net investment income to shareholders annually. Distributions from net realized capital gains are declared and paid on an annual basis by all of the funds. Income and capital gain distributions, if any, are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. 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 treatments for litigation proceeds, foreign currency transactions, capital loss carryforwards, deferred losses due to wash sales and excise tax regulations, non-deductible organization costs, and net operating 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 dividends are determined on a fund level. I. REDEMPTION FEES -- Shares held in the High Yield Fund less than one year are subject to a redemption fee equal to 2% of the amount redeemed. For the period ended December 31, 1997, the redemption fees amounted to $10,099 and $4,634, for the Institutional and Retail Classes, respectively. J. ORGANIZATION EXPENSE AND DEFERRED REGISTRATION COSTS -- In 1992, costs approximating $7,800 were incurred in connection with the organization of the Short-Term Bond Fund. These costs were paid by the Fund and have been amortized by the Fund over 60 months to its Institutional Class. In 1996, costs approximating $24,600 were incurred in connection with the initial registration and organization of the High Yield Fund. These costs were paid by the Fund and are being amortized by the Fund to its Institutional Class as follows: $16,100 in initial registration costs over 12 months and $8,500 in organization costs over 60 months. In 1997, the following costs were incurred in connection with the respective Fund's initial registration of its Retail Class shares which were offered for sale beginning on January 2, 1997. These costs are being amortized to the respective Fund's Retail Class over 12 months: Bond Fund ............................................................ $13,968 Global Bond Fund ..................................................... 11,829 High Yield Fund ...................................................... 11,907 Short-Term Bond Fund ................................................. 11,924 In addition, in 1997 the following costs were incurred in connection with the respective Fund's initial registration of its Institutional and Retail Class shares. These costs are amortized over 12 months and allocated to each class of shares on a pro rata basis: Intermediate Maturity Bond Fund ..................................... $26,557 Investment Grade Bond Fund .......................................... 26,557 2. PURCHASES AND SALES OF SECURITIES -- (excluding short-term investments) for each Fund for the period ended December 31, 1997, were as follows:
Purchases ------------------------------------- U.S. Government Other ------------------- --------- Bond Fund ............................................... $181,709,574 $845,789,363 Global Bond Fund ........................................ 1,363,832 25,538,059 High Yield Fund ......................................... 474,531 8,989,267 Intermediate Maturity Bond Fund ......................... 4,496,490 6,433,545 Investment Grade Bond Fund .............................. 1,803,661 3,318,758 Municipal Bond Fund ..................................... 1,188,645 2,936,622 Short-Term Bond Fund .................................... 12,375,847 2,890,439 U.S. Government Securities Fund ......................... 24,026,000 0 Sales ------------------------------------- U.S. Government Other ------------------- -------- Bond Fund ............................................... $ 66,480,221 $294,744,716 Global Bond Fund ........................................ 4,263,972 16,623,626 High Yield Fund ......................................... 461,488 3,111,676 Intermediate Maturity Bond Fund ......................... 3,044,132 1,603,979 Investment Grade Bond Fund .............................. 1,430,698 793,262 Municipal Bond Fund ..................................... 1,193,879 3,155,556 Short-Term Bond Fund .................................... 12,402,558 2,371,697 U.S. Government Securities Fund ......................... 21,467,253 0
3. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES -- During the period ended December 31, 1997, the Funds 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 New England Investment Companies, L.P., a publicly-traded limited partnership whose general partner is indirectly owned by Metropolitan Life Insurance Company. Separate management agreements for each Fund in effect during the period ended December 31, 1997, provided for fees at the following annual percentage rate of each Fund's average daily assets: Annual Percentage Fund Rate ---- ---------- Bond Fund ................................................... 0.60% Global Bond Fund ............................................ 0.60% High Yield Fund ............................................. 0.60% Intermediate Maturity Bond Fund ............................. 0.40% Investment Grade Bond Fund .................................. 0.40% Municipal Bond Fund ......................................... 0.40% Short-Term Bond Fund ........................................ 0.25% U.S. Government Securities Fund ............................. 0.40% Loomis Sayles voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other expenses, to the extent necessary to limit the total operating expenses of the Institutional Class shares of each Fund to the following percentage rate of the Fund's average daily net assets: Annual Percentage Fund Rate ---- ---------- Bond Fund ................................................... 0.75% Global Bond Fund ............................................ 0.90% High Yield Fund ............................................. 0.75% Intermediate Maturity Bond Fund ............................. 0.55% Investment Grade Bond Fund .................................. 0.55% Municipal Bond Fund ......................................... 0.60% Short-Term Bond Fund ........................................ 0.50% U.S. Government Securities Fund ............................. 0.60% Loomis Sayles also voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other expenses, to the extent necessary to limit the total operating expenses of the Retail Class shares of each Fund to the following percentage rate of the Fund's average daily net assets: Annual Percentage Fund Rate ---- ---------- Bond Fund ................................................... 1.00% Global Bond Fund ............................................ 1.15% High Yield Fund ............................................. 1.00% Intermediate Maturity Bond Fund ............................. 0.80% Investment Grade Bond Fund .................................. 0.80% Short-Term Bond Fund ........................................ 0.75% Loomis Sayles may change or terminate these voluntary agreements at any time, but the relevant prospectus would be supplemented at the time to describe the change. A. OTHER EXPENSES -- Through May 31, 1997, New England Funds, L.P. (a subsidiary of New England Investment Companies) performed certain administrative, accounting and other services for the Trust. The expenses of those services, which were paid by the Trust, include the following: (i) expenses for personnel performing bookkeeping, accounting, internal auditing, financial reporting functions and clerical functions relating to the Funds, and (ii) expenses for services required in connection with the preparation of registration statements and prospectuses, shareholder reports and reports and questionnaires for SEC compliance. For the period ended May 31, 1997 these expenses amounted to $66,997 for the eight Loomis Sayles Funds presented herein and are shown separately in the financial statements as Accounting and Administrative fees. Effective June 1, 1997, Loomis Sayles contracted with State Street Bank and Trust Company ("State Street") as Administrator to perform these services. B. 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, The New England or their 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. C. SHAREHOLDERS -- At December 31, 1997, Loomis Sayles held 14,104 shares of beneficial interest in the Municipal Bond Fund and 56,715 shares of beneficial interest in the High Yield Fund and 108,128 shares of the Investment Grade Bond Fund. In addition, Loomis Sayles Funded Pension Plan and Trust and the Loomis Sayles & Company Incorporated, Employees Profit Sharing Retirement Plan held shares of beneficial interest in the Funds as follows: Profit Pension Sharing Plan Plan ------- ------- Bond Fund ............................. 661,193 1,102,859 Global Bond Fund ...................... 641,304 233,906 High Yield Fund ....................... 0 150,409 Intermediate Maturity Bond Fund ....... 205,192 118,589 Investment Grade Bond Fund ............ 0 62,927 Short-Term Bond Fund .................. 52,284 223,551 U.S. Government Securities Fund ....... 538,396 266,466 4. CREDIT RISK -- The Bond Fund may invest up to 35%, the Global Bond and Short-Term Bond Funds each may invest up to 20%, the Intermediate Maturity Bond and the Investment Grade Bond Funds each may invest up to 10%, and the High Yield Fund will normally invest at least 65% of its assets in securities offering high current income, which generally will be in the lower rating categories of recognized rating agencies. These securities 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 securities in the higher rating categories. In addition, the trading market for high yield securities may be relatively less liquid than the market for higher-rated securities. 5. FOREIGN SECURITIES -- Each Fund (except the Municipal Bond and U.S. Government Securities Funds) may purchase securities 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 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 may be less liquid and the prices of such securities may be more volatile than those securities of comparable U.S. companies and the U.S. government. 6. CAPITAL STOCK TRANSACTIONS -- The tables below summarize the transactions in Fund shares for the periods ended December 31, 1997 and 1996:
Loomis Sayles Bond Fund ------------------------------------------------------------------------ Period Ended Period Ended December 31, 1997 December 31, 1996 ----------------------------------- ----------------------------------- Institutional Class Shares Shares Amount Shares Amount - -------------------------- ------ ------ ------ ------ Issued from the sale of shares .... 63,069,086 $809,023,819 30,770,089 $380,541,907 Issued in connection with the reinvestment of: Dividends from investment income .. 4,161,568 53,391,457 1,888,855 23,025,701 Distributions from net realized gains on investment ............. 1,331,267 17,074,295 704,026 8,749,675 Redeemed .......................... (13,902,007) (177,561,664) (10,467,220) (128,158,663) ---------- ------------ ---------- ------------ Net change ........................ 54,659,914 $701,927,907 22,895,750 $284,158,620 ========== ============ ========== ============ Retail Class Shares* Shares Amount - -------------------- ------ ------ Issued from the sale of shares .... 2,944,758 $ 37,693,272 Issued in connection with the reinvestment of: Dividends from investment income .. 88,526 1,140,035 Distributions from net realized gains on investments ............ 35,722 457,759 Redeemed .......................... (476,803) (6,205,606) --------- ------------ Net change ........................ 2,592,203 $ 33,085,460 ========= ============ *From January 2, 1997 (commencement of class operations).
Loomis Sayles Global Bond Fund ---------------------------------------------------------------- Period Ended Period Ended December 31, 1997 December 31, 1996 ------------------------------ -------------------------------- Institutional Class Shares Shares Amount Shares Amount - -------------------------- ------ ------ ------ ------ Issued from the sale of shares .... 450,349 $5,703,587 1,525,167 $18,653,771 Issued in connection with the reinvestment of: Dividends from investment income .. 141,324 1,676,109 92,817 1,145,834 Distributions from net realized gains on investments .................. 0 0 0 0 Redeemed .......................... (338,278) (4,226,586) (375,310) (4,457,214) ------ ---------- -------- ---------- Net change ........................ 253,395 $3,153,110 1,242,674 $15,342,391 Retail Class Shares* Shares Amount ------ ------ Issued from the sale of shares .... 568,889 $7,115,633 Issued in connection with the reinvestment of: Dividends from investment income .. 18,404 218,453 Distributions from net realized gains on investments .................. 0 0 Redeemed .......................... (190,528) (2,420,537) -------- ---------- Net change ........................ 396,765 $4,913,549 ======= ========== *From January 2, 1997 (commencement of class operations).
Loomis Sayles High Yield Fund -------------------------------------------------------------- Period Ended Period Ended December 31, 1997 December 31, 1996* ------------------------------ ------------------------------ Institutional Class Shares Shares Amount Shares Amount - -------------------------- ------ ------ ------ ------ Issued from the sale of shares ............ 345,923 $3,577,772 189,979 $1,915,483 Issued in connection with the reinvestment of: Dividends from investment income .......... 30,218 313,530 3,048 30,815 Distributions from net realized gains on investment ............................... 10,940 111,043 0 0 Redeemed ................................... (58,540) (600,500) (1,234) (12,581) ------- -------- ------ ------- Net change ................................. 328,541 $3,401,845 191,793 $1,933,717 ======= ========== ======= ==========
Retail Class Shares** Shares Amount - --------------------- ------ ------ Issued from the sale of shares ............. 343,422 $3,602,850 Issued in connection with the reinvestment of: Dividends from investment income ........... 13,730 142,625 Distributions from net realized gains on investment ............................... 6,441 65,308 Redeemed ................................... (53,163) (558,960) ------ ---------- Net change ................................. 310,430 $3,251,823 ======= ========== *From September 11, 1996 (commencement of operations). **From January 2, 1997 (commencement of class operations).
Loomis Sayles Intermediate Maturity Bond Fund --------------------------------------------- Period Ended December 31, 1997* ------------------------------ Institutional Class Shares Shares Amount - -------------------------- ------ ------ Issued from the sale of shares ............. 713,449 $7,196,630 Issued in connection with the reinvestment of: Dividends from investment income ........... 25,621 260,248 Distributions from net realized gains on investment ............................... 875 8,824 Redeemed ...................................(111,401) (1,136,539) ------- ---------- Net change ................................. 628,544 $6,329,163 ======= ========== Retail Class Shares Shares Amount - ------------------- ------ ------ Issued from the sale of shares ............. 40,713 $ 419,211 Issued in connection with the reinvestment of: Dividends from investment income ........... 1,346 13,686 Distributions from net realized gains on investment ............................... 64 641 Redeemed ................................... 0 0 ------ ---------- Net change ................................. 42,123 $ 433,538 ====== ========== *From January 2, 1997 (commencement of operations). Loomis Sayles Investment Grade Bond Fund ---------------------------------------- Period Ended December 31, 1997* ------------------------------ Institutional Class Shares Shares Amount - -------------------------- ------ ------ Issued from the sale of shares ............ 217,283 $2,218,354 Issued in connection with the reinvestment of: Dividends from investment income .......... 11,908 125,624 Distributions from net realized gains on investment .............................. 2,308 24,442 Redeemed .................................. (689) (7,042) ------ ---------- Net change ................................ 230,810 $2,361,378 ======= ========== Retail Class Shares Shares Amount - ------------------ ------ ------ Issued from the sale of shares ............ 80,460 $ 849,980 Issued in connection with the reinvestment of: Dividends from investment income ........... 3,126 33,280 Distributions from net realized gains on investment ............................... 842 8,918 Redeemed ................................... (3,085) (32,703) ------ ---------- Net change ................................. 81,343 $ 859,475 ====== ========== *From January 2, 1997 (commencement of operations).
Loomis Sayles Municipal Bond Fund ---------------------------------------------------------------- Period Ended Period Ended December 31, 1997 December 31, 1996 ------------------------------- ------------------------------- Institutional Class Shares Shares Amount Shares Amount - -------------------------- ------ ------ ------ ------ Issued from the sale of shares ............ 146,945 $1,692,152 130,141 $1,455,513 Issued in connection with the reinvestment of: Dividends from investment income .......... 23,982 273,619 23,403 263,016 Distributions from net realized gains on investment .............................. 5,018 58,244 4,717 52,895 Redeemed .................................. (198,471) (2,254,718) (77,656) (872,674) -------- ---------- ------- -------- Net change ................................ (22,526) $ (230,703) 80,605 $ 898,750 ======= ========== ====== ==========
Loomis Sayles Short-Term Bond Fund -------------------------------------------------------------------- Period Ended Period Ended December 31, 1997 December 31, 1996 --------------------------------- --------------------------------- Institutional Class Shares Shares Amount Shares Amount - -------------------------- ------ ------- ------ ------ Issued from the sale of shares ........ 1,184,127 $11,497,925 1,283,882 $12,426,078 Issued in connection with the reinvestment of: Dividends from investment income ...... 94,766 918,722 106,059 1,027,017 Distributions from net realized gains on investment ....................... 0 0 0 0 Redeemed .............................. (1,232,069) (11,926,660) (2,163,540) (20,966,857) ---------- ----------- ---------- ----------- Net change ............................ 46,824 $ 489,987 (773,599) $(7,513,762) ====== =========== ======== ===========
Retail Class Shares* Shares Amount - ------------------- ------ ------ Issued from the sale of shares ........ 45,040 $ 436,711 Issued in connection with the reinvestment of: Dividends from investment income ...... 1,073 10,404 Distributions from net realized gains on investment ....................... 0 0 Redeemed .............................. (16,930) (163,198) ------ ---------- Net change ............................ 29,183 $ 283,917 ====== =========== *From January 2, 1997 (commencement of class operations).
Loomis Sayles U.S. Government Securities Fund ------------------------------------------------------------ Period Ended Period Ended December 31, 1997 December 31, 1996 ------------------------------- --------------------------- Institutional Class Shares Shares Amount Shares Amount - -------------------------- ------ ------ ------ ------ Issued from the sale of shares .......... 444,723 $ 4,676,742 864,647 $ 8,983,613 Issued in connection with the reinvestment of: Dividends from investment income ........ 77,074 792,744 129,259 1,274,113 Distributions from net realized gains on investment ............................ 0 0 0 0 Redeemed ................................ (277,818) (2,799,223) (1,418,646) (14,426,898) -------- ------------ ---------- ----------- Net change .............................. 243,979 $ 2,670,263 (424,740) $ (4,169,172) ======== =========== ========== ============
1997 U.S. TAX AND DISTRIBUTION INFORMATION TO SHAREHOLDERS (UNAUDITED) A. CAPITAL GAINS DISTRIBUTIONS -- Pursuant to Internal Revenue Section 852(b), the distributions set forth below have been designated as capital gains distributions for the fiscal year ended December 31, 1997: 28% Rate Gain 20% Rate Gain Amount Amount ----------------- --------------- Bond Fund ............................... $5,325,149 $10,190,111 Global Bond Fund ........................ 0 38,826 High Yield Fund ......................... 30,674 0 Intermediate Maturity Bond Fund ......... 0 0 Investment Grade Bond Fund .............. 0 0 Municipal Bond Fund ..................... 48,100 4,463 Short-Term Bond Fund .................... 0 0 U.S. Government Securities Fund ......... 0 0 On August 5, 1997, the Taxpayer Relief Act (the "Act") of 1997 was enacted. Under the Act, the maximum capital gain rate for individuals on net gains from investment activities was reduced from 28% to 20% (10% for persons taxed at a 15% rate) depending on both the holding period of the investment and the date the investment was sold. Capital gains realized from transactions that do not meet the prescribed transition and holding period rules of the Act will continue to be taxed at a maximum rate of 28%. B. CORPORATE DIVIDENDS RECEIVED DEDUCTION -- For the fiscal year ended December 31, 1997, a percentage of dividends distributed by the Funds listed below qualify for the dividends received deduction for corporate shareholders. These percentages are as follows: Qualifying Percentage ---------- Bond Fund ................................................... 2.71% C. INCOME DERIVED FROM TREASURY OBLIGATIONS -- Of the dividends distributed during the fiscal year, the percentages as indicated below by Fund, by obligation type, was derived from U.S. government, or its agencies. Income earned on these obligations may be exempt from state income tax as applicable:
Global High Intermediate Investment Bond Yield Maturity Grade Bond Fund Fund Fund Bond Fund Bond Fund ------------- -------- -------- --------- --------- U.S. Treasury Obligations (a) .. 6.55% 0.47% 0.19% 5.20% 3.82% Other Direct U.S. Government Obligations(b) ............... 0.00 0.00 0.00 0.00 0.00 Other Indirect U.S. Government Obligations(c) ............... 1.53 1.52 0.00 9.66 0.77 ----- ----- ----- ------ ---- Total U.S. Government Income ....................... 8.08% 1.99% 0.19% 14.86% 4.59%
U.S. Government Municipal Short-Term Securities Bond Fund Bond Fund Fund ------------- ------------ -------------- U.S. Treasury Obligations(a) ... 2.46% 12.28% 68.45% Other Direct U.S. Government Obligations(b) ............... 0.00 0.00 22.63 Other Indirect U.S. Government Obligations(c) ............... 0.00 7.50 7.06 ---- ----- ---- Total U.S. Government Income ....................... 2.46% 19.78% 98.14% (a) Treasury obligations include bills, notes and bonds. (b) Other Direct U.S. Government Obligations includes Federal Farm Credit and Federal Home Loan Banks. (c) Other Indirect U.S. Government Obligations include Federal Home Loan Mortgage Corporation, Federal National Mortgage Corporation and Government National Mortgage Association. D. EXEMPT INTEREST DIVIDENDS -- Of the dividends paid by the Municipal Bond Fund from net investment income for the taxable year ended December 31, 1997, 94.77% constituted exempt interest dividends for Federal income tax purposes. LOOMIS SAYLES FIXED INCOME FUND - ------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Trustees of the Loomis Sayles Fixed Income Funds: We have audited the accompanying statements of assets and liabilities of the Loomis Sayles Fixed Income Funds (consisting of the Loomis Sayles Bond Fund, Global Bond Fund, High Yield Fund, Intermediate Maturity Bond Fund, Investment Grade Bond Fund, Municipal Bond Fund, Short-Term Bond Fund, and U.S. Government Securities Fund) (collectively, the "Funds"), including the schedules of portfolio investments, as of December 31, 1997 and the related statements of operations, statements of changes in net assets and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1997 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Loomis Sayles Fixed Income Funds as of December 31, 1997, the results of their operations, the changes in their net assets and the financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 23, 1998 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] - ------------------------------------------------------------------------------ BOARD OF TRUSTEES EARL W. FOELL DANIEL J. FUSS RICHARD S. HOLWAY TERRY R. LAUTENBACH MICHAEL T. MURRAY OFFICERS PRESIDENT DANIEL J. FUSS EXECUTIVE VICE PRESIDENT TREASURER ROBERT J. BLANDING MARK W. HOLLAND VICE PRESIDENTS ASSISTANT TREASURER JEROME A. CASTELLINI NICHOLAS H. PALMERINO MARY C. CHAMPAGNE E. JOHN DEBEER SECRETARY AND PAUL H. DREXLER COMPLIANCE OFFICER WILLIAM H. EIGEN, JR. SHEILA M. BARRY CHRISTOPER R. ELY QUENTIN P. FAULKNER ASSISTANT SECRETARIES PHILIP C. FINE MARGARET W. CHAMBERS MARTHA F. HODGMAN LAURIE M. GALLAGHER JOHN HYLL BONNIE S. THOMPSON JEFFREY L. MEADE KENT P. NEWMARK SCOTT S. PAPE JEFFREY C. PETHERICK PHILIP J. SCHETTEWI DAVID L. SMITH SANDRA P. TICHENOR JEFFREY W. WARDLOW GREGG D. WATKINS ANTHONY J. WILKINS JOHN F. YEAGER III For Information about: o Establishing an account o Account procedures and status o Exchanges o Shareholder services PHONE 800-626-9390 For all other information about the Funds: PHONE 800-633-3330 TO REQUEST ANY OF THE FOLLOWING, PRESS OR SAY THE NUMBER [1] LITERATURE AND INFORMATION [2] NET ASSET VALUES AND YIELDS [3] SPEAK TO A MARKETING REPRESENTATIVE [4] ADVISORY AND BROKER/DEALER SERVICES [5] INSTITUTIONAL AND HIGH NET WORTH OPERATIONS, TRADING AND CLIENT SERVICES As always, we are interested in your comments about the job we are doing and in answering any questions you may have. Please do not hesitate to give us a call at the phone number listed above, Monday through Friday, 8:45 to 4:45 p.m. EST. INVESTMENT ADVISER Loomis Sayles & Company, L.P. o One Financial Center o Boston, MA 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company o Boston, MA 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. o P.O. Box 8314 o Boston, MA 02266 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. o One Post Office Square o Boston, MA 02109 This report has been prepared for the shareholders of the Funds and is not authorized for distribution to prospective investors in the Funds unless it is accompanied or preceded by an effective prospectus. LSF802108 -----END PRIVACY-ENHANCED MESSAGE-----