-----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, VrexbCBsizPgPgyTsKhjKrtHL6jdsWIkYCUwe6N1vkBT8N2SGM/35KHt3vLNu0Jm WHZ2iGB3GuFLG7zA/B95Aw== 0001021408-98-000978.txt : 19981201 0001021408-98-000978.hdr.sgml : 19981201 ACCESSION NUMBER: 0001021408-98-000978 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 40 FILED AS OF DATE: 19981130 EFFECTIVENESS DATE: 19981130 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: 485BPOS SEC ACT: SEC FILE NUMBER: 033-39133 FILM NUMBER: 98760664 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-06241 FILM NUMBER: 98760665 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 485BPOS 1 FORM N-1A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1998 REGISTRATION NOS. 811-6241 AND 33-39133 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. [_] POST-EFFECTIVE AMENDMENT NO. 17 [X] AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. 19 [X] (CHECK APPROPRIATE BOX OR BOXES) ---------------- LOOMIS SAYLES FUNDS (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) ONE FINANCIAL CENTER, BOSTON, MA 02111 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 482-2450 NAME AND ADDRESS OF AGENT FOR SERVICE ------------------------------------- SHEILA M. BARRY LOOMIS, SAYLES & COMPANY, L.P. ONE FINANCIAL CENTER BOSTON, M.A. 02111 WITH A COPY TO -------------- TRUMAN S. CASNER, ESQ. ROPES & GRAY ONE INTERNATIONAL PLACE BOSTON, MA 02110 It is proposed that this filing will become effective (check appropriate box) [_]immediately upon filing pursuant to paragraph (b) [X]on December 30, 1998 pursuant to paragraph (b) [_]60 days after filing pursuant to paragraph (a)(2) [_]on [date] pursuant to paragraph (a)(1) [_]75 days after filing pursuant to paragraph (a)(2) [_]on [date] pursuant to paragraph (a)(2) of Rule 485 If appropriate, check the following box: [_]This post-effective amendment designates a new effective date for a previously filed post-effective amendment. ================================================================================ LOOMIS SAYLES FUNDS Cross Reference Sheet Items required by Form N-1A PART A
Item No. Registration Statement Caption Caption in Prospectus 1. Cover Page Cover Page 2. Synopsis Summary of Expenses 3. Condensed Financial Information Financial Highlights 4. General Description of Cover Page; The Trust; Investment Objectives and Registrant Policies; More Information About the Funds' Investments and Risk Considerations 5. Management of the Fund Cover Page; The Trust; The Funds' Investment Adviser; Fund Expenses; Portfolio Transactions; Back Cover 5A. Management's Discussion of More Information about the Funds' Investments and Fund Performance Risk Considerations; Performance Information 6. Capital Stock and Other Securities The Trust; Shareholder Services; Dividends, Capital Gain Distributions and Taxes 7. Purchase of Securities Being How to Purchase Shares; Shareholder Services Offered 8. Redemption or Repurchase How to Redeem Shares 9. Pending Legal Proceedings Not Applicable
PART B
Item No. Registration Statement Caption Caption in Statement of Additional Information 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History Not Applicable 13. Investment Objectives and Policies Investment Objectives, Policies and Restrictions 14. Management of the Fund Management of the Trust 15. Control Persons and Principal Management of the Trust Holders of Securities 16. Investment Advisory and Other Investment Advisory and Other Services Services 17. Brokerage Allocation and Other Portfolio Transactions and Brokerage Practices 18. Capital Stock and Other Securities How to Redeem Shares (Prospectus); Redemptions; Dividends, Capital Gain Distributions and Taxes (Prospectus); Income Dividends, Capital Gain Distributions and Tax Status; Description of the Trust 19. Purchase, Redemption and Pricing How to Purchase Shares (Prospectus); Shareholder of Securities Being Offered Services; How to Redeem Shares (Prospectus); Redemptions; Net Asset Value and Public Offering Price 20. Tax Status Dividends, Capital Gain Distributions and Taxes (Prospectus); Income Dividends, Capital Gain Distributions and Tax Status 21. Underwriters Not Applicable 22. Calculations of Performance Data Calculation of Yield and Total Return; Performance Data 23. Financial Statements Financial Statements
PART C The information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of the Registration Statement. This Post-Effective Amendment relates solely to the 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 Intermediate Maturity Bond Fund, Loomis Sayles International Equity Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis Sayles Municipal Bond Fund, Loomis Sayles Short-Term bond Fund, Loomis Sayles Small Cap Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis Sayles Strategic Value Fund, Loomis Sayles U.S. Government Securities Fund and Loomis Sayles Worldwide Fund, each a series of Loomis Sayles Funds. Information contained in the Registrant's Registration Statement relating to any other series of the Registrant is neither amended nor superseded hereby. [LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE] ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330 THE LOOMIS SAYLES FUNDS LOOMIS SAYLES HIGH YIELD FUND INSTITUTIONAL CLASS RETAIL CLASS LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND INSTITUTIONAL CLASS PROSPECTUS JANUARY 1, 1999 LOOMIS SAYLES HIGH YIELD FUND LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND Loomis Sayles High Yield Fund and Loomis Sayles U.S. Government Securities Fund (the "Funds" and each a "Fund"), each a series of Loomis Sayles Funds, are separately managed, no-load mutual funds, each of which has its own investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund. This Prospectus concisely describes the information that an investor should know before investing in the Institutional Class shares of either Fund, and the Retail Class shares of the High Yield Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information (SAI) dated January 1, 1999, as revised from time to time, is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more detailed information about the Funds, has been filed with the Securities and Exchange Commission (the "SEC") and is available along with other related materials on the SEC's Internet Web site (http://www.sec.gov). The SAI is incorporated herein by reference (legally forms a part of the Prospectus). For all other information about For information about: the Funds: .Establishing an account CALL 800-633-3330 .Account procedures and status .Exchanges .Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE LOOMIS SAYLES HIGH YIELD FUND WILL NORMALLY INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN LOWER-RATED SECURITIES, COMMONLY KNOWN AS "JUNK BONDS" AND MAY INVEST SUBSTANTIALLY ALL OF ITS ASSETS IN SUCH SECURITIES. INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST. INVESTORS SHOULD ASSESS CAREFULLY THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE LOOMIS SAYLES HIGH YIELD FUND. SEE "MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS--LOWER RATED FIXED INCOME SECURITIES" AND "APPENDIX A." 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 5 THE TRUST................................................................. 8 INVESTMENT OBJECTIVES AND POLICIES........................................ 8 MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 9 THE FUNDS' INVESTMENT ADVISER............................................. 20 FUND EXPENSES............................................................. 20 PORTFOLIO TRANSACTIONS.................................................... 21 HOW TO PURCHASE SHARES.................................................... 21 SHAREHOLDER SERVICES...................................................... 24 HOW TO REDEEM SHARES...................................................... 25 CALCULATION OF PERFORMANCE INFORMATION.................................... 27 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 27 APPENDIX A DESCRIPTION OF BOND RATINGS............................................. 29
2 SUMMARY OF EXPENSES (FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND) The following information is provided as an aid in understanding the various expenses that an investor in a Fund will bear indirectly. The information below is based on expenses for the Funds' most recent fiscal year, and should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
U.S. HIGH GOVERNMENT YIELD SECURITIES FUND FUND ----- ---------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)...................................................... none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)............................................. none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)..................................... none none Redemption Fees/1............................................ 2.00% none Exchange Fees................................................ none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.............................................. .60% .30% 12b-1 Fees................................................... none none Other Operating Expenses (after expense reimbursements where indicated).................................................. .15%/2/ .20%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)............................................ .75%/2/ .50%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year..................................................... $ 8 $ 6 Three Years.................................................. $ 24 $ 19 Five Years................................................... $ 42 $ 33 Ten Years.................................................... $ 93 $ 75
- ----------- /1/ A $5 charge applies to any wire transfer of redemption proceeds from each Fund. A 2.00% redemption fee applies with respect to shares of the High Yield Fund redeemed within one (1) year of purchase. Loomis Sayles may, in its discretion, waive redemption fees on shares of the High Yield Fund as set forth under the heading "How to Redeem Shares" if it determines that there are minimal brokerage and transaction costs incurred in connection with the redemption. /2/ Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Funds' Total Operating Expenses to the percentages of net assets shown in the table. Without this agreement, Other Operating Expenses and Total Operating Expenses would have been 1.82% and 2.42%, respectively, for the High Yield Fund, 0.67% and 0.97%, respectively, for the U.S. Government Securities Fund. 3 SUMMARY OF EXPENSES (FOR A RETAIL CLASS SHARE OF THE HIGH YIELD FUND) The following information is provided as an aid in understanding the various expenses that an investor in the Fund will bear indirectly. The information is based on expenses for the Funds' most recent fiscal year, and should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
HIGH YIELD FUND ---------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)... none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price).................................................. none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)............................................. none Redemption Fees/1.................................................. 2.00% Exchange Fees...................................................... none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.................................................... .60% 12b-1 Fees......................................................... .25% Other Operating Expenses (after expense reimbursements where indicated)....................................................... .15%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)....................................................... 1.00%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year........................................................... $ 10 Three Years........................................................ $ 32 Five Years......................................................... $ 55 Ten Years.......................................................... $122
- ----------- /1/ A $5 charge applies to any wire transfer of redemption proceeds from any Fund. A 2.00% redemption fee applies with respect to shares of the High Yield Fund redeemed within one (1) year of purchase. Loomis Sayles may, in its discretion, waive redemption fees on shares of the High Yield Fund as set forth under the heading "How to Redeem Shares" if it determines that there are minimal brokerage and transaction costs incurred in connection with the redemption. /2/ Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Fund's Total Operating Expenses to the percentages of average net assets shown in the table. Without this agreement, Other Operating Expenses (including 12b-1 fees) and Total Operating Expenses would have been 2.07% and 2.67%. 4 FINANCIAL HIGHLIGHTS (FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The financial highlights tables that follow have been audited by PricewaterhouseCoopers LLP, independent accountants. The following information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Funds' 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
HIGH YIELD FUND--INSTITUTIONAL CLASS --------------------------------- NINE SEP. 11** MONTHS ENDED YEAR ENDED TO SEPT. 30*, DEC. 31, DEC. 31, 1998 1997 1996 ------------ ---------- --------- Net asset value, beginning of period......... $10.12 $10.11 $10.00 ------ ------ ------ Income from investment operations-- Net investment income (loss)................ 0.78 ++ 0.83 0.20 Net realized and unrealized gain (loss) on investments................................ (2.28) 0.27 0.11 ------ ------ ------ Total from investment operations............ (1.50) 1.10 0.31 ------ ------ ------ Less distributions-- Dividends from net investment income........ (0.46) (0.86) (0.20) Distributions from net realized capital gains...................................... 0.00 (0.26) 0.00 ------ ------ ------ Total distributions......................... (0.46) (1.12) (0.20) ------ ------ ------ Redemption Fees............................. 0.01 0.03 0.00 ------ ------ ------ Net asset value, end of period............... $ 8.17 $10.12 $10.11 ====== ====== ====== Total return (%)***.......................... (15.6)+++ 11.4 3.1 Net assets, end of period (000).............. $6,624 $5,266 $1,939 Ratio of operating expenses to average net assets (%)****.............................. 0.75 + 0.75 0.75+ Ratio of net investment income to average net assets (%).................................. 10.54 + 8.96 8.85+ Portfolio turnover rate (%).................. 33+++ 68 0 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%)............. 2.42 + 3.81 12.06+ Net investment income per share would have been....................................... $ 0.65 ++ $ 0.54 $(0.05)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. +++ Periods less than one year are not annualized. 5
U.S. GOVERNMENT SECURITIES FUND--INSTITUTIONAL CLASS ------------------------------------------------------------------------- NINE MONTHS MAY 21** ENDED YEAR ENDED DEC. 31, TO SEPT. 30*, ---------------------------------------------------- DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 ---------- ------- ------- ------- ------- ------- ------- -------- Net asset value, beginning of period.... $ 10.70 $ 10.08 $ 10.64 $ 9.22 $ 10.53 $ 10.45 $ 10.77 $10.00 ------- ------- ------- ------- ------- ------- ------- ------ Income from investment operations-- Net investment income.. 0.43 0.63 0.68 0.66 0.64 0.64 0.64 0.40 Net realized and unrealized gain (loss) on investments........ 0.58 0.61 (0.57) 1.42 (1.30) 1.00 0.27 1.11 ------- ------- ------- ------- ------- ------- ------- ------ Total from investment operations............ 1.01 1.24 0.11 2.08 (0.66) 1.64 0.91 1.51 ------- ------- ------- ------- ------- ------- ------- ------ Less distributions-- Dividends from net investment income..... (0.30) (0.62) (0.67) (0.66) (0.65) (0.65) (0.59) (0.40) Distributions from net realized capital gains................. 0.00 0.00 0.00 0.00 0.00 (0.91) (0.64) (0.34) ------- ------- ------- ------- ------- ------- ------- ------ Total distributions.... (0.30) (0.62) (0.67) (0.66) (0.65) (1.56) (1.23) (0.74) ------- ------- ------- ------- ------- ------- ------- ------ Net asset value, end of period................. $ 11.41 $ 10.70 $ 10.08 $ 10.64 $ 9.22 $ 10.53 $ 10.45 $10.77 ======= ======= ======= ======= ======= ======= ======= ====== Total return (%)***..... 9.6++ 12.7 1.3 23.0 (6.3) 15.7 8.8 15.3 Net assets, end of period (000)........... $29,246 $17,668 $14,192 $19,499 $17,341 $18,317 $10,899 $6,248 Ratio of operating expenses to average net assets (%)****......... 0.60+ 0.60 1.00 1.00 1.00 1.00 1.00 1.00+ Ratio of net investment income to average net assets (%)............. 5.61+ 6.29 6.23 6.47 6.60 5.95 6.54 7.01+ Portfolio turnover rate (%).................... 84++ 156 137 169 242 277 344 273 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%).............. 0.97+ 1.23 1.19 1.22 1.22 1.29 2.01 2.39+ Net investment income per share would have been.................. $ 0.40 $ 0.57 $ 0.66 $ 0.64 $ 0.62 $ 0.61 $ 0.54 $ 0.32
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 6 FINANCIAL HIGHLIGHTS (FOR A RETAIL CLASS SHARE OF THE HIGH YIELD FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The financial highlights that follow have been audited by Pricewaterhouse- Coopers LLP, independent accountants. The information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Funds' 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
HIGH YIELD FUND-- RETAIL CLASS ---------------------- NINE MONTHS JAN. 2** ENDED TO SEPT. 30*, DEC. 31, 1998 1997 ---------- -------- Net asset value, beginning of period.................... $10.12 $10.11 ------ ------ Income from investment operations-- Net investment income (loss)........................... 0.75*** 0.85*** Net realized and unrealized gain (loss) on investments........................................... (2.27) 0.23 ------ ------ Total from investment operations....................... (1.52) 1.08 ------ ------ Less distributions-- Dividends from net investment income................... (0.45) (0.84) Distributions from net realized capital gains.......... 0.00 (0.26) ------ ------ Total distributions.................................... (0.45) (1.10) ------ ------ Redemption Fees......................................... 0.01 0.03 ------ ------ Net asset value, end of period.......................... $ 8.16 $10.12 ====== ====== Total return (%)****.................................... (15.8)+++ 11.2 Net assets, end of period (000)......................... $4,020 $3,141 Ratio of operating expenses to average net assets (%)+.. 1.00++ 1.00++ Ratio of net investment income to average net assets (%).................................................... 10.17++ 8.75++ Portfolio turnover rate (%)............................. 33+++ 68 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)................................... 2.67++ 4.79++ Net investment income per share would have been........ $ 0.63*** $ 0.48***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. NOTE: Further information about each Fund's performance is contained in the Funds' annual report to shareholders, which may be obtained without charge. 7 THE TRUST Each Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVES AND POLICIES LOOMIS SAYLES HIGH YIELD FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its total assets may be invested in preferred stocks and up to 10% of its total assets may be invested in common stocks. The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed securities, when-issued securities, real estate investment trusts ("REITs"), Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 50% of its total assets in the securities of other foreign issuers. The Fund will normally invest at least 65% of its total assets in fixed income securities of below investment grade quality (commonly referred to as "junk bonds"). The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows: 8
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa..................................................... AA/Aa....................................................... A/A......................................................... BBB/Baa..................................................... BB/Ba....................................................... B/B......................................................... CCC/Caa..................................................... C/Ca........................................................ D...........................................................
LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by investing substantially all its assets in U.S. Government Securities and in certificates representing undivided interests in the interest or principal of U.S. Treasury securities. At least 65% of the Fund's total assets will normally be invested in U.S. Government Securities. ALL FUNDS For temporary defensive purposes, each Fund may invest any portion of its assets in fixed income securities, cash or any other securities deemed appropriate by Loomis Sayles. Except for each Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of each Fund may be changed without a vote of Fund shareholders. MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS DEBT AND OTHER FIXED INCOME SECURITIES Each of the Funds may invest in fixed income securities of any maturity. Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the income of a Fund that invests in fixed income securities for any particular period. The net asset value of such a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. 9 Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. U.S. GOVERNMENT SECURITIES U.S. Government Securities have different kinds of government support. For example, some U.S. Government Securities, such as U.S. Treasury bonds, are supported by the full faith and credit of the United States, whereas certain other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. Although U.S. Government Securities generally do not involve the credit risks associated with other types of fixed income securities, the market values of U.S. Government Securities do go up and down as interest rates change. Thus, for example, the value of an investment in a Fund that holds U.S. Government Securities may fall during times of rising interest rates. Yields on U.S. Government Securities tend to be lower than those on corporate securities of comparable maturities. Some U.S. Government Securities, such as Government National Mortgage Association Certificates ("GNMA"), are known as "mortgage-backed" securities. Interest and principal payments on the mortgages underlying mortgage-backed U.S. Government Securities are passed through to the holders of the security. If a Fund purchases mortgage-backed securities at a discount or a premium, the Fund will recognize a gain or loss when the payments of principal, through prepayment or otherwise, are passed through to the Fund and, if the payment occurs in a period of falling interest rates, the Fund may not be able to reinvest the payment at as favorable an interest rate. As a result of these principal prepayment features, mortgage-backed securities are generally more volatile investments than many other fixed income securities. In addition to investing directly in U.S. Government Securities, the Funds may purchase certificates of accrual or similar instruments ("strips") evidencing undivided ownership interests in interest payments or principal payments, or both, in U.S. Government Securities. These investment instruments may be highly volatile. TAX EXEMPT SECURITIES Issuers of tax exempt securities may make interest and principal payments from money raised through a variety of sources, including (1) the issuer's 10 general taxing power, (2) a specific type of tax, such as a property tax, or (3) a particular facility or project, such as a highway. The ability of an issuer of tax exempt bonds to make these payments could be affected by litigation, legislation or other political events, or the bankruptcy of the issuer. The interest on tax exempt securities issued after August 15, 1986 is retroactively taxable from the date of issuance if the issuer does not comply with certain requirements concerning the use of bond proceeds and the application of earnings on bond proceeds. LOWER RATED FIXED INCOME SECURITIES The High Yield Fund may invest a portion of its assets in securities rated below investment grade (commonly referred to as "junk bonds"). The Fund will normally invest at least 65% of its total assets in such securities. For purposes of the foregoing percentages, a security will be treated as being of investment grade quality if at the time a Fund acquires it at least one major rating agency has rated the security in its top four rating categories (even if another such agency has issued a lower rating), or if the security is unrated but Loomis Sayles determines it to be of investment grade quality. Lower rated fixed income securities generally provide higher yields, but are subject to greater credit and market risk, than higher quality fixed income securities. Lower rated fixed income securities are considered predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. Achievement of the investment objective of a Fund investing in lower rated fixed income securities may be more dependent on Loomis Sayles' own credit analysis than is the case with higher quality bonds. The market for lower rated fixed income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for lower rated fixed income securities. This lack of liquidity at certain times may affect the values of these securities and may make the evaluation and sale of these securities more difficult. Securities in the lowest rating categories may be in poor standing or in default. Securities in the lowest investment grade category (BBB or Baa) have some speculative characteristics. For more information about the ratings services' descriptions of the various rating categories, see Appendix A. COMMON STOCKS AND OTHER EQUITY SECURITIES Common stocks and similar equity securities, such as warrants and convertibles, are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may 11 sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. ZERO COUPON SECURITIES Each Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. A Fund investing in zero coupon securities is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions at times when Loomis Sayles would not otherwise deem it advisable to do so. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. MORTGAGE-BACKED SECURITIES Each Fund may invest in mortgage-backed securities, such as GNMA or Fannie Mae certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if a Fund purchases these assets at a premium, a faster-than- expected prepayment rate will reduce yield to maturity, and a slower-than- expected prepayment rate will increase yield to maturity. If a Fund purchases mortgage-backed securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. STRIPPED MORTGAGE-BACKED SECURITIES Each Fund may invest in interest-only and principal-only classes of mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO or PO is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurably 12 adverse effect on a Fund's yield to maturity to the extent it invests in IOs. If the assets underlying the IOs experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully its initial investment in these securities. Conversely, POs tend to increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage-backed securities, potentially limiting a Fund's ability to buy or sell those securities at any particular time. COLLATERALIZED MORTGAGE OBLIGATIONS Each Fund may invest in CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by a Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. ASSET-BACKED SECURITIES The High Yield Fund may invest in asset-backed securities. Through the use of trusts and special purpose corporations, automobile and credit card receivables are securitized in pass-through structures similar to mortgage pass-through structures or in a pass-through structure similar to the CMO structure. Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, the Fund will ordinarily reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. 13 Therefore, the Fund's ability to maintain a portfolio that includes high- yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. WHEN-ISSUED SECURITIES Each Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If a Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. CONVERTIBLE SECURITIES The High Yield Fund may invest in convertible securities. Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities at a stated price or rate. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their value will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity security, however, so that when the price of the underlying equity security falls, the decline in the price of the convertible security may sometimes be less substantial than that of the underlying equity security. Due to the conversion feature, convertible securities generally yield less than nonconvertible fixed income securities of similar credit quality and maturity. The Fund's investment in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock at a specified date and conversion ratio, or that are convertible at the option of the issuer. Because 14 conversion is not at the option of the holder, the Fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock has declined substantially. REAL ESTATE INVESTMENT TRUSTS The High Yield Fund may invest in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, risks of default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-though of income under the Code, and failing to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). Investment in REITs involves risk similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger securities. RULE 144A SECURITIES Each Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. FOREIGN SECURITIES The High Yield Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). The Fund may invest any portion of its assets in securities of Canadian issuers and up to 50% of its total assets in the securities of other foreign issuers. Although investing in foreign securities may increase the Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and 15 practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than in the United States. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. The Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. The Fund's investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of the Fund investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations or foreign withholding taxes. Changes in the value relative to the U.S. dollar of a foreign currency in which the Fund's holdings are denominated will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although part of the Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of the Funds in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. 16 Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. FOREIGN CURRENCY HEDGING TRANSACTIONS The High Yield Fund may engage in foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Funds may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Funds might also purchase exchange-listed and over-the-counter call and put options on foreign currencies. Over-the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Funds may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. SWAP TRANSACTIONS The High Yield Fund may enter into interest rate or currency swaps. The Funds will enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities a Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified currencies. The Fund will maintain liquid assets in a segregated custodial account to cover its current obligations under swap agreements. Because swap agreements are not exchange-traded, but are private contracts into which the Fund and a swap counterparty enter as principals, the Fund may experience a loss or delay in recovering assets if the counterparty were to default on its obligations. OPTIONS AND FUTURES TRANSACTIONS The High Yield Fund may buy, sell or write options on securities, securities indexes, currencies or futures contracts and may buy and sell futures contracts 17 on securities, securities indexes or currencies. The Fund may engage in these transactions either for the purpose of enhancing investment return, or to hedge against changes in the value of other assets that the Fund own or intend to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If the Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by the Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased by the Fund and futures contracts held by the Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities held in the Fund's portfolio. All transactions in options and futures involve the possible risk of loss to the Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When the Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. The Fund will be required, however, to set aside with its custodian bank liquid assets in amounts sufficient at all times to satisfy its obligations under options and futures contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market 18 movements correctly. The Fund's ability to hedge against adverse changes in the value of securities held in its portfolio through options and futures also depends on the degree of correlation between changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable the Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), the Fund is at risk that the other party to the transaction will default on its obligations, or will not permit the Fund to terminate the transaction before its scheduled maturity. As a result of these characteristics, the Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements. In repurchase agreements, a Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for a Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. YEAR 2000 Many computer software systems in use today cannot properly process date- related information from and after January 1, 2000. Should any of the computer systems employed by the Funds' major service providers fail to process this type of information properly, that could have a negative impact on the Funds' operations and the services that are provided to the Funds' shareholders. Loomis Sayles and the Distributor have each advised the Funds that they are reviewing all of their computer systems with the goal of modifying or replacing such systems prior to January 1, 2000, to the extent necessary to foreclose any such negative impact. In addition, Loomis Sayles has been advised by the Funds' custodian that it is also in the process of reviewing its systems with the same goal. As of the date of this prospectus, the Funds and Loomis 19 Sayles have no reason to believe that these goals will not be achieved. Similarly, the values of certain of the portfolio securities held by the Funds may be adversely affected by the inability of the securities' issuers or of third parties to process this type of information properly. THE FUNDS' INVESTMENT ADVISER The Funds' investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. In addition to selecting and reviewing the Funds' investments, Loomis Sayles provides executive and other personnel for the management of the Funds. The Funds' board of trustees supervises Loomis Sayles' conduct of the affairs of the Funds. As of October 31, 1998, Daniel J. Fuss, Rosemary B. Fuss, and Charles Schwab & Co. Inc. owned 20%, 7%, and 38% of the High Yield Fund. As of October 31, 1998, Charles Schwab & Co. Inc. owned 68% of the U.S. Government Securities Fund. Shareholders holding more than 25% of a Fund's shares may be deemed to control the relevant Fund. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the High Yield Fund since its commencement of investment operations in 1996. Kathleen C. Gaffney, Vice President of the Trust and Loomis Sayles, has served as associate portfolio manager of the High Yield Fund since its commencement of investment operations in 1996. Kent P. Newmark, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the U.S. Government Securities Fund since its commencement of investment operations in 1991. Each of the foregoing has been employed by Loomis Sayles for at least five years. FUND EXPENSES Each Fund pays Loomis Sayles a monthly investment advisory fee at the following annual percentage rates of the Fund's average daily net assets:
FUND RATE ---- ---- High Yield.............................................................. .60% U.S. Government Securities.............................................. .30%
20 In addition to the investment advisory fee, each Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees and expenses of the registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, expenses of preparing, printing and mailing prospectuses to shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles or its affiliated companies. Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other Fund expenses to the extent necessary to limit Fund total annual operating expenses of the Institutional Class shares of each Fund to the following annual percentage rate of the Fund's average net assets:
FUND RATE ---- ---- High Yield.............................................................. .75% U.S. Government Securities.............................................. .50%
Loomis Sayles may change or terminate these voluntary arrangements at any time, but the Funds' Prospectus would be supplemented to describe the change. Loomis Sayles may pay certain broker-dealers and financial intermediaries whose customers own shares of the Funds a continuing fee in an amount of up to .25% annually of the value of Fund shares held for those customers' accounts. These fees are paid by Loomis Sayles out of its own assets and are not assessed against the Funds. Purchases of the Institutional Class of shares of each Fund and the Retail Class of shares of the High Yield Fund are subject to approval by Loomis Sayles. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Funds' assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher costs and higher levels of taxable gains. HOW TO PURCHASE SHARES An investor may make an initial purchase of shares of any Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds 21 The minimum initial investment for the Institutional Class of shares of each Fund and the Retail Class of shares of the High Yield Fund is $25,000. This minimum initial investment for Retail Class shares does not apply to purchases through certain financial intermediaries, including, but not limited to, certain financial advisers, broker dealers, 401(k) alliances, wrap programs, "no transaction fee" programs, bank trust departments, financial consultants and insurance companies. The minimum investment for Institutional Class shares and Retail Class shares may be waived in whole or in part by Loomis Sayles in its sole discretion. Subsequent investments in either class of shares must be at least $50. Shares of each Fund may be purchased by (i) cash, (ii) exchanging Institutional Class shares of any fund that is a series of the trust (for Institutional Class shares of each Fund) and Retail Class shares of any other Fund that is a series of the trust (for Retail Class shares of the High Yield Fund), provided the value of the shares exchanged meets the investment minimum of the Class of shares of the Fund into which the exchange is made and Loomis Sayles has approved the exchange of the shares, (iii) exchanging securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a combination of such securities and cash. Loomis Sayles will not approve the acceptance of securities in exchange for shares of any Fund unless (1) Loomis Sayles, in its sole discretion, believes the securities are appropriate investments for the Fund; (2) the investor represents and agrees that all securities offered to the Fund can be resold by the Fund without restriction under the Securities Act of 1933, as amended (the "Securities Act") or otherwise; and (3) the securities are eligible to be acquired under the Fund's investment policies and restrictions. No investor owning 5% or more of a Fund's shares may purchase additional shares of that Fund by exchange of securities. In all cases Loomis Sayles reserves the right to reject any securities that are proposed for exchange. Securities accepted by Loomis Sayles in exchange for Fund shares will be valued in the same manner as the Fund's assets as described below as of the time of the Fund's next determination of net asset value after such acceptance. All dividends and subscription or other rights which are reflected in the market price of accepted securities at the time of valuation become the property of the Fund and must be delivered to the Fund upon receipt by the investor from the issuer. A gain or loss for federal income tax purposes would be realized upon the exchange by an investor that is subject to federal income taxation, depending upon the investor's basis in the securities tendered. An investor who wishes to purchase shares by exchanging securities should obtain instructions by calling 800-633-3330. 22 All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Upon acceptance of an investor's order, BFDS opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, an investor may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Subsequent investments can also be made by federal funds wire. Investors should instruct their banks to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Class, Institutional or Retail), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. Each Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Funds do not presently anticipate that they will do so, each Fund reserves the right to suspend or change the terms of the offering of its shares. The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of each Fund are sold with no sales charge. The net asset value of each Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or 23 other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. SHAREHOLDER SERVICES The Funds offer the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from BFDS. Telephone redemption and exchange privileges will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. The Institutional Class shares and Retail Class Shares of any Fund may be exchanged for Institutional Class shares or Retail Class shares, respectively, of any fund that is a series of Loomis Sayles Funds and that offers Institutional Class shares or Retail Class shares, respectively, or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles, provided the value of the shares exchanged meets the investment minimum of the Class of shares of that fund. Exchanges may be made by written instructions or by telephone, unless an investor elected on the application to decline telephone exchange privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Funds reserve the right to terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Funds may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. Exchanges of shares of the High Yield Fund purchased within one year before such exchanges will be subject to a redemption fee of 2.00% of the amount exchanged. For purposes of determining whether a redemption fee is payable with respect to shares of the High Yield Fund purchased by exchange of shares of another Fund, the one-year period shall be deemed to begin on the date of such purchase by exchange. An exchange is a taxable event for federal income tax purposes in which a gain or loss would be realized by an investor that is subject to federal income taxation. RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax- deferred retirement plans. Loomis Sayles makes available retirement plan forms for IRAs. 24 HOW TO REDEEM SHARES An investor can redeem shares by sending a written request to Boston Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. Proceeds from a written request may be sent to the investor in the form of a check. As described below, an investor may also redeem shares by calling BFDS at 800-626-9390. Proceeds resulting from a written or telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Investors requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is redeeming shares worth more than $50,000, (2) an investor is requesting that the proceeds check be made out to someone other than the registered owners or be sent to an address other than the record address, (3) the account registration has changed within the last 30 days or (4) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. This requirement may be waived by Loomis Sayles in its sole discretion. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by BFDS prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to BFDS after the Exchange closes or on a day when the Exchange is not open for business, BFDS cannot accept the request and a new one will be necessary. 25 If an investor decides to change the bank account to which proceeds are to be wired, the investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless an investor indicates otherwise on the account application, BFDS will be authorized to act upon redemption and exchange instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide BFDS with the investor's account registration and address as it appears on the records of State Street Bank. BFDS will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult BFDS. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form, less, in the case of the High Yield Fund, a redemption fee of 2.00% of the amount redeemed with respect to shares of that Fund purchased within one (1) year of such redemption. Loomis Sayles, in its discretion, may waive the 2.00% redemption fee with respect to shares of the High Yield Fund. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was deposited less than 15 days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. 26 CALCULATION OF PERFORMANCE INFORMATION The Funds' investment performance may from time to time be included in advertisements about the Funds. "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30- day period by the maximum public offering price per share of the class on the last day of that period. For purposes of calculating yield, net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. Yield is based on the price of the shares but does not reflect any redemption fee in the case of the High Yield Fund. "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in a Fund. Total return may also be presented for other periods. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The High Yield and U.S. Government Securities Funds declare and pay dividends quarterly. Each Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Funds declare or pay dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the same Fund unless an investor has elected to receive cash. Each Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as a Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short-term capital gain distributions are taxable as ordinary income whether distributed in cash or additional shares. 27 Distributions designated by a Fund as deriving from net gains on securities held for more than one year will be taxable as such (generally at a 20% rate for noncorporate Shareholders) whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to him or her as described above. If a shareholder held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution. Each Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that he or she is not subject to such withholding. Dividends derived from interest on U.S. Government Securities may be exempt from state and local taxes. State Street Bank will send investors and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid during the preceding year. An investor should keep this statement as a permanent record. A fee may be charged for any duplicate information requested. NOTE: The foregoing summarizes certain tax consequences of investing in the Funds. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, foreign, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 28 APPENDIX A DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S AND MOODY'S INVESTORS SERVICE, INC. STANDARD & POOR'S AAA This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay interest and repay principal is very strong, and in the majority of instances they differ from AAA issues only in small degree. A Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. BBB Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 29 C The rating C is reserved for income bonds on which no interest is being paid. D Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. R This symbol is attached to the ratings of instruments with significant noncredit risks such as risks to principal or volatility of expected returns. Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. AAA Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large, or by an exceptionally stable, margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that are rated Aa are judged to be high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities. A Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future. 30 BAA Bonds that are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well. BA Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 31 Should no rating be assigned by Moody's, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. 32 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Post Office Square Boston, Massachusetts 02109 [LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE] ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330 THE LOOMIS SAYLES FUNDS LOOMIS SAYLES GROWTH FUND INSTITUTIONAL CLASS RETAIL CLASS PROSPECTUS JANUARY 1, 1999 LOOMIS SAYLES GROWTH FUND Loomis Sayles Growth Fund (the "Fund") is a series of Loomis Sayles Funds (the "Trust"), a registered open-end management investment company, and is a no-load mutual fund. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of the Fund. The Fund offers two classes of shares: an Institutional Class, which generally has a higher minimum investment and bears lower expenses, and a Retail Class, which has a lower investment minimum and bears higher expenses. Each Class of the Fund has a common investment objective and investment portfolio. The performance of one class of shares may be different from the performance of the other Class of shares because of different sales charges and class expenses. This Prospectus concisely describes the information that an investor should know before investing in either the Institutional Class shares or Retail Class shares of the Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information (SAI) dated January 1, 1999, as revised from time to time, is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more detailed information about the Fund, has been filed with the Securities and Exchange Commission (the "SEC") and is available along with other related materials on the SEC's Internet Website (http://www.sec.gov). The SAI is incorporated herein by reference (legally forms a part of the Prospectus). For information about: For all other information about .Establishing an account the Funds: .Account procedures and status CALL 800-633-3330 .Exchanges .Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 4 THE TRUST................................................................. 6 INVESTMENT OBJECTIVES AND POLICIES........................................ 6 MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS..... 6 THE FUND'S INVESTMENT ADVISER............................................. 10 FUND EXPENSES............................................................. 10 PORTFOLIO TRANSACTIONS.................................................... 11 HOW TO PURCHASE SHARES.................................................... 11 SHAREHOLDER SERVICES...................................................... 14 HOW TO REDEEM SHARES...................................................... 15 CALCULATION OF PERFORMANCE INFORMATION.................................... 16 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 17 APPENDIX A
2 SUMMARY OF EXPENSES The following information is provided as an aid in understanding the various expenses that an investor in the Fund will bear indirectly. The information is based on expenses for the Fund's most recent fiscal year. The information below should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
INSTITUTIONAL RETAIL CLASS CLASS ------------- ------ Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)................................... none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price).......................... none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)............ none none Redemption Fees/1.............................../.. none none Exchange Fees...................................... none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.................................... .50% .50% 12b-1 Fees......................................... none .25% Other Operating Expenses (after expense reimbursements)................................... .35%(/2/) .35%(/2/) Total Fund Operating Expenses (after expense reimbursements)................................... .85%(/2/) 1.10%(/2/) Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year........................................... $ 9 $ 11 Three Years........................................ $ 27 $ 35 Five Years......................................... $ 47 $ 61 Ten Years.......................................... $105 $134
- ----------- /1/A $5 charge applies to any wire transfer of redemption proceeds. /2/Loomis Sayles has voluntarily agreed for an indefinite period, to limit the Total Operating Expenses of the Fund's Institutional Class of shares and Retail Class of shares to 0.85% and 1.10%, respectively. Without this agreement, Other Operating Expenses and Total Operating Expenses would have been 0.52% and 1.02% for the Fund's Institutional Class of shares and 4.24% and 4.74% for the Retail Class of shares. 3 FINANCIAL HIGHLIGHTS (FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The financial highlights table that follows has been audited by PricewaterhouseCoopers LLP, independent accountants. The following information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Fund's 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
GROWTH FUND--INSTITUTIONAL CLASS ----------------------------------------------------------------------------- NINE MONTHS MAY 16** ENDED YEAR ENDED DEC. 31, TO SEPTEMBER 30*, ---------------------------------------------------- DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 -------------- ------- ------- ------- ------- ------- ------- -------- Net asset value, beginning of period.... $ 12.63 $13.44 $ 15.27 $ 12.50 $ 13.02 $ 12.46 $ 12.01 $ 10.00 ------- ------- ------- ------- ------- ------- ------- ------- Income from investment operations-- Net investment income (loss)................ (0.03) (0.04) (0.07) 0.00 (0.02) 0.00 (0.04) 0.00 Net realized and unrealized gain (loss) on investments........ (0.95) 3.17 3.08 3.86 (0.45) 1.16 0.49 2.45 ------- ------- ------- ------- ------- ------- ------- ------- Total from investment operations............ (0.98) 3.13 3.01 3.86 (0.47) 1.16 0.45 2.45 ------- ------- ------- ------- ------- ------- ------- ------- Less distributions-- Distributions from capital............... 0.00 0.00 0.00 0.00 (0.01) 0.00 0.00 0.00 Distributions from net realized capital gains................. 0.00 (3.94) (4.84) (1.09) (0.04) (0.60) 0.00 (0.44) ------- ------- ------- ------- ------- ------- ------- ------- Total distributions.... 0.00 (3.94) (4.84) (1.09) (0.05) (0.60) 0.00 (0.44) ------- ------- ------- ------- ------- ------- ------- ------- Net asset value, end of period................. $ 11.65 $12.63 $ 13.44 $ 15.27 $ 12.50 $ 13.02 $ 12.46 $ 12.01 ======= ======= ======= ======= ======= ======= ======= ======= Total return (%)***..... (7.8)++ 24.5 19.9 30.9 (3.7) 9.3 3.8 24.5 Net assets, end of period (000)........... $24,663 $32,149 $39,497 $45,011 $36,580 $32,385 $24,451 $16,105 Ratio of operating expenses to average net assets (%)****......... 0.85 + 0.85 1.10 1.08 1.16 1.20 1.50 1.50+ Ratio of net investment income to average net assets (%)............. (0.32)+ (0.26) (0.47) (0.29) (0.14) (0.17) (0.45) 0.01+ Portfolio turnover rate (%).................... 118++ 116 99 48 46 64 98 69 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%).............. 1.02 + 0.98 1.10 1.08 1.16 1.20 1.51 1.66+ Net investment income per share would have been.................. $ (0.05) $(0.05) $ (0.07) $ 0.00 $ (0.02) $ 0.00 $ (0.04) $ (0.01)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 4
GROWTH FUND-- RETAIL CLASS ----------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period............... $12.59 $ 13.44 ------ ------- Income from investment operations-- Net investment income (loss)....................... (0.03) (0.07) Net realized and unrealized gain (loss) on investments..................................... (0.97) 3.16 ------ ------- Total from investment operations.................. (1.00) 3.09 ------ ------- Less distributions-- Distributions from net realized capital gains...... 0.00 (3.94) ------ ------- Total distributions............................... 0.00 (3.94) ------ ------- Net asset value, end of period..................... $11.59 $ 12.59 ====== ======= Total return (%)***................................ (7.9)++ 24.2 Net assets, end of period (000).................... $ 516 $ 194 Ratio of operating expenses to average net assets (%)****.................................... 1.10 + 1.10+ Ratio of net investment income to average net assets (%)........................................ (0.58)+ (0.42)+ Portfolio turnover rate (%)........................ 118++ 116 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)........................ 4.74 + 12.96+ Net investment income per share would have been.... $(0.19) $ (2.00)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower, had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. NOTE: Further information about the Fund's performance is contained in the Fund's annual report to Shareholders, which may be obtained without charge. ++ Periods less than one year are not annualized. 5 THE TRUST The Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is long-term growth of capital. The Fund seeks to achieve its objective by investing substantially all of its assets in common stocks or their equivalent. Investments are selected based on their growth potential; current income is not a consideration. The Fund may invest in companies with relatively small market capitalizations, as well as in larger companies. The Fund may invest up to 20% of its total assets in securities of foreign issuers. The fund may also engage in foreign currency hedging transactions and Rule 144A securities. For temporary defensive purposes, the Fund may invest any portion of its assets in fixed income securities, cash or any other securities deemed appropriate by Loomis Sayles. Except for the Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of the Fund may be changed without a vote of Fund shareholders. MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS COMMON STOCKS AND OTHER EQUITY SECURITIES Common stocks and similar equity securities, such as warrants and convertibles, are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. WHEN-ISSUED SECURITIES The Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the 6 security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time the Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If the Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. RULE 144A SECURITIES The Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. FOREIGN SECURITIES The Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). The Fund may invest any portion of its assets in securities of Canadian issuers, but will not purchase foreign securities other than those of Canadian issuers if, as a result, the Fund's holdings of non-U.S. and non-Canadian securities would exceed 20% of the Fund's total assets. Although investing in foreign securities may increase the Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than in the United States. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic 7 developments that could affect the value of investments in those countries. The Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. The Fund's investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations or foreign withholding taxes. Changes in the value relative to the U.S. dollar of a foreign currency in which the Fund's holdings are denominated will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although part of the Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of the Fund in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. FOREIGN CURRENCY HEDGING TRANSACTIONS The Fund may engage in foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative 8 values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which the Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, the Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Fund may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Fund might also purchase exchange- listed and over-the-counter call and put options on foreign currencies. Over- the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Fund may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. REPURCHASE AGREEMENTS The Fund may invest in repurchase agreements. In repurchase agreements, a Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for a Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. YEAR 2000 Many computer software systems in use today cannot properly process date- related information from and after January 1, 2000. Should any of the computer systems employed by the Fund's major service providers fail to process this type of information properly, that could have a negative impact on the Fund's operations and the services that are provided to the Fund's shareholders. Loomis Sayles and the Distributor have each advised the Fund that they are reviewing all of their computer systems with the goal of modifying or replacing such systems prior to January 1, 2000, to the extent necessary to foreclose any such negative impact. In addition, Loomis Sayles has been advised by the Fund's custodian that it is also in the process of reviewing its systems with the same goal. As of the date of this prospectus, the Fund and Loomis Sayles have no reason to believe that these goals will not be achieved. Similarly, the values of certain of the portfolio securities held by the Fund may be adversely affected by the inability of the securities' issuers or of third parties to process this type of information properly. 9 THE FUNDS' INVESTMENT ADVISER The Fund's investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. In addition to selecting and reviewing the Fund's investments, Loomis Sayles provides executive and other personnel for the management of the Fund. The Loomis Sayles Funds' board of trustees supervises Loomis Sayles' conduct of the affairs of the Fund. As of October 31, 1998, Fiduciary Trust Company owned 12% of the Fund. Jerome A. Castellini Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Growth Fund since its commencement of investment operations in 1991. FUND EXPENSES The Fund pays Loomis Sayles a monthly investment advisory fee of .50% of the Fund's average daily net assets. In addition to the investment advisory fee, the Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees and expenses of registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, 12b-1 fees, in the case of the Retail Class shares, expenses of preparing, printing and mailing prospectuses to existing shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles or its affiliated companies. The Fund's Retail Class shares have adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Retail Class shares of the Fund pays the Distributor, a subsidiary of Loomis Sayles, a monthly distribution fee at an annual rate not to exceed 0.25% of the Fund's average net assets attributable to the Retail Class shares. The Distributor may pay all or any portion of the distribution fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as 10 commissions, asset-based sales charges or other compensation with respect to the sale of Retail Class shares of the Fund, or for providing personal services to investors in Retail Class shares of the Fund and/or the maintenance of accounts, and may retain all or any portion of the distribution fee as compensation for the Distributor's services as principal underwriter of the Retail Class shares of the Fund. Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other Fund expenses to the extent necessary to limit total annual operating expenses to 0.85% and 1.10% of Institutional Class shares and Retail Class shares, respectively, of the Fund's average net assets. Loomis Sayles may change or terminate this voluntary arrangement at any time, but the Fund's Prospectus would be supplemented to describe the change. Loomis Sayles may pay certain broker-dealers and financial intermediaries whose customers own shares of the Fund a continuing fee in an amount of up to .25% annually of the value of Fund shares held for those customers' accounts. These fees are paid by Loomis Sayles out of its own assets and are not assessed against the Fund. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Fund's assets. The Fund anticipates that its portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher costs and higher levels of taxable gains. HOW TO PURCHASE SHARES An investor may make an initial purchase of shares of the Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds The minimum initial investment for the Institutional Class of shares of the Fund is $25,000. A $2,500 minimum investment applies to the current and retired trustees of the Trust, investment advisory clients of Loomis Sayles (and their directors, officers and employees), and current and retired employees of Loomis Sayles and the parents, spouses and children of the foregoing. The 11 minimum initial investment for the Retail Class of shares is $25,000. This minimum initial investment for Retail Class shares does not apply to purchases through certain financial intermediaries, including, but not limited to, certain financial advisers, broker dealers, 401(k) alliances, wrap programs, "no transaction fee" programs, bank trust departments, financial consultants and insurance companies. The minimum investment for Institutional Class shares and Retail Class shares may be waived in whole or in part by Loomis Sayles in its sole discretion. Subsequent investments in either class of shares must be at least $50. Shares of the Fund may be purchased by (i) cash, (ii) exchanging Institutional Class shares of any other Fund that is a series of the trust (for Institutional Class shares of the Fund) and Retail Class Shares of any other fund that is a series of the trust (for Retail Class shares of the Fund), provided the value of the shares exchanged meets the investment minimum of the Class of shares of the Fund into which the exchange is made, (iii) exchanging securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a combination of such securities and cash. Loomis Sayles will not approve the acceptance of securities in exchange for shares of the Fund unless (1) Loomis Sayles, in its sole discretion, believes the securities are appropriate investments for the Fund; (2) the investor represents and agrees that all securities offered to the Fund can be resold by the Fund without restriction under the Securities Act of 1933, as amended (the "Securities Act") or otherwise; and (3) the securities are eligible to be acquired under the Fund's investment policies and restrictions. No investor owning 5% or more of the Fund's shares may purchase additional shares of the Fund by exchange of securities. In all cases Loomis Sayles reserves the right to reject any securities that are proposed for exchange. Securities accepted by Loomis Sayles in exchange for Fund shares will be valued in the same manner as the Fund's assets as described below as of the time of the Fund's next determination of net asset value after such acceptance. All dividends and subscription or other rights which are reflected in the market price of accepted securities at the time of valuation become the property of the Fund and must be delivered to the Fund upon receipt by the investor from the issuer. A gain or loss for federal income tax purposes would be realized upon the exchange by an investor that is subject to federal income taxation, depending upon the investor's basis in the securities tendered. An investor who wishes to purchase shares by exchanging securities should obtain instructions by calling 800-633-3330, option 5. All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. 12 Upon acceptance of an investor's order, BFDS opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, an investor may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Subsequent investments can also be made by federal funds wire. Investors should instruct their banks to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Class, Institutional or Retail), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. The Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Fund does not presently anticipate that it will do so, the Fund reserves the right to suspend or change the terms of the offering of its shares. The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of the Fund are sold with no sales charge. The net asset value of the Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. 13 SHAREHOLDER SERVICES The Fund offers the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from BFDS. Telephone redemption and exchange privileges will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. Institutional Class shares and Retail Class shares of the Fund may be exchanged for Institutional Class shares or Retail Class shares, respectively, of any other fund that is a series of Loomis Sayles Funds and that offers Institutional Class shares or Retail Class shares, respectively, or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles, provided the value of the shares exchanged meets the investment minimum of the Class of shares of that Fund and, in the case of Loomis Sayles High Yield Fund and the Loomis Sayles U.S. Government Securities Fund-Institutional Class, Loomis Sayles has approved the exchange of shares. Exchanges may be made by written instructions or by telephone, unless an investor elected on the application to decline telephone exchange privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Fund reserves the right to terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Fund may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. An exchange is a taxable event for federal income tax purposes in which a gain or loss would be realized by an investor that is subject to federal income taxation. RETIREMENT PLANS. The Fund's shares may be purchased by all types of tax- deferred retirement plans. Loomis Sayles makes available retirement plan forms for IRAs. SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000, an investor may have periodic cash withdrawals automatically paid to the investor or any person designated by the investor. AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may be made automatically by pre-authorized withdrawals from an investor's checking account. 14 HOW TO REDEEM SHARES An investor can redeem shares by sending a written request to Boston Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. As described below, an investor may also redeem shares by calling BFDS at 800-626-9390. Proceeds resulting from a written or telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Investors requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is redeeming shares worth more than $50,000, (2) an investor is requesting that the proceeds check be made out to someone other than the registered owners or be sent to an address other than the record address, (3) the account registration has changed within the last 30 days or (4) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. This requirement may be waived by Loomis Sayles in its sole discretion. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by BFDS prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to BFDS after the Exchange closes or on a day when the Exchange is not open for business, BFDS cannot accept the request and a new one will be necessary. If an investor decides to change the bank account to which proceeds are to be wired, the investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless an investor indicates otherwise on the account application, BFDS will be authorized to act upon redemption and exchange 15 instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide BFDS with the investor's account registration and address as it appears on the records of State Street Bank. BFDS will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult BFDS. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was deposited less than 15 days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. CALCULATION OF PERFORMANCE INFORMATION "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in the Fund. Total return may also be presented for other periods. 16 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Fund declares and pays net investment income to shareholders as dividends annually. The Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Fund declares or pays dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the Fund unless an investor has elected to receive cash. The Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as the Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short-term capital gain distributions (that is, net gains from securities held for not more than a year) are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by all Funds as deriving from net gains on securities held for more than one year will be taxable as such (generally at a 20% rate for noncorporate shareholders) whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to him or her as described above. If a shareholder held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution. The Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays to an investor (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that the investor is not subject to such withholding. Certain designated dividends from the Funds are expected to be eligible for the dividends-received deduction for corporate shareholders that meet a holding period requirement. State Street Bank will send each investor and the IRS an annual statement detailing federal tax information, including information about dividends and 17 distributions paid to the investor during the preceding year. Be sure to keep this statement as a permanent record. A fee may be charged for any duplicate information that an investor requests. NOTE: The foregoing summarizes certain tax consequences of investing in the Funds. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, foreign, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 18 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Post Office Square Boston, Massachusetts 02109 [LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE] ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330 THE LOOMIS SAYLES FUNDS INSTITUTIONAL CLASS SHARES OF LOOMIS SAYLES BOND FUND PROSPECTUS JANUARY 1, 1999 LOOMIS SAYLES BOND FUND Loomis Sayles Bond Fund (the "Fund") is a series of Loomis Sayles Funds (the "Trust"), a registered open-end management investment company, and is a no- load mutual fund. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of the Fund. The Fund offers three classes of shares: an Institutional Class that is described in this Prospectus, a Retail Class, which has a lower investment minimum, bears higher expenses, and is described in a separate prospectus, and an Admin Class, bearing higher expenses than the Institutional or Retail Class, that is described in a separate prospectus. This Prospectus concisely describes the information that an investor should know before investing in the Institutional Class shares of the Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information (SAI) dated January 1, 1999, as revised from time to time, is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more detailed information about the Fund, has been filed with the Securities and Exchange Commission (the "SEC") and is available along with other related materials on the SEC's Internet Website (http://www.sec.gov). The SAI is incorporated herein by reference (legally forms a part of the Prospectus). To obtain more information about the Retail Class or Admin Class of shares, please call the Distributor toll-free at 800-633-3330, contact your financial intermediary, or visit our Internet Website (http://www.loomissayles.com). For information about: For all other information about .Establishing an account the Funds: .Account procedures and status CALL 800-633-3330 .Exchanges .Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 4 THE TRUST................................................................. 5 INVESTMENT OBJECTIVES AND POLICIES........................................ 5 MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS..... 6 THE FUND'S INVESTMENT ADVISER............................................. 16 FUND EXPENSES............................................................. 16 PORTFOLIO TRANSACTIONS.................................................... 17 HOW TO PURCHASE SHARES.................................................... 17 SHAREHOLDER SERVICES...................................................... 20 HOW TO REDEEM SHARES...................................................... 20 CALCULATION OF PERFORMANCE INFORMATION.................................... 22 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 23 APPENDIX A DESCRIPTION OF BOND RATINGS............................................. 25
2 SUMMARY OF EXPENSES (FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND) The following information is provided as an aid in understanding the various expenses that an investor in the Fund will bear indirectly. The information is based on expenses for the Fund's most recent fiscal year. The information below should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)... none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)................................................... none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds).............................................. none Redemption Fees/1.............................................../.. none Exchange Fees...................................................... none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.................................................... .60% 12b-1 Fees......................................................... none Other Operating Expenses (after expense reimbursements)............ .15%(/2/) Total Fund Operating Expenses (after expense reimbursements)....... .75%(/2/) Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year........................................................... $ 8 Three Years........................................................ $24 Five Years......................................................... $42 Ten Years.......................................................... $93
- ----------- /1/A $5 charge applies to any wire transfer of redemption proceeds. /2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Bond Fund's Total Operating Expenses to 0.75%. Without this agreement, Other Operating Expenses and Total Operating Expenses would have been 0.16% and 0.76%, respectively. 3 FINANCIAL HIGHLIGHTS (FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The financial highlights table that follows has been audited by PricewaterhouseCoopers LLP, independent accountants. The following information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Fund's 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
NINE MONTHS MAY 16** ENDED YEAR ENDED DEC. 31, TO SEPTEMBER 30*, --------------------------------------------------------- DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 -------------- ---------- -------- -------- ------- ------- ------- -------- Net asset value, beginning of period.... $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $ 10.23 $10.00 ---------- ---------- -------- -------- ------- ------- ------- ------ Income from investment operations-- Net investment income (loss)................ 0.69 0.86 0.86 0.82 0.83 0.84 0.76 0.52 Net realized and unrealized gain (loss) on investments........ (0.78) 0.67 0.35 2.32 (1.29) 1.43 0.67 0.36 ---------- ---------- -------- -------- ------- ------- ------- ------ Total from investment operations............ (0.09) 1.53 1.21 3.14 (0.46) 2.27 1.43 0.88 ---------- ---------- -------- -------- ------- ------- ------- ------ Less distributions-- Dividends from net investment income..... (0.44) (0.86) (0.86) (0.82) (0.84) (0.81) (0.76) (0.52) Distributions in excess of net investment income................ 0.00 0.00 0.00 0.00 (0.02) 0.00 0.00 0.00 Distributions from net realized capital gains................. 0.00 (0.22) (0.26) (0.08) 0.00 (0.45) (0.54) (0.13) ---------- ---------- -------- -------- ------- ------- ------- ------ Total distributions.... (0.44) (1.08) (1.12) (0.90) (0.86) (1.26) (1.30) (0.65) ---------- ---------- -------- -------- ------- ------- ------- ------ Net asset value, end of period................. $ 12.30 $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $10.23 ========== ========== ======== ======== ======= ======= ======= ====== Total return (%)***..... (0.9)++ 12.7 10.3 32.0 (4.1) 22.2 14.3 8.9 Net assets, end of period (000)........... $1,455,312 $1,261,910 $541,244 $255,710 $82,985 $64,222 $18,472 $9,922 Ratio of operating expenses to average net assets (%)****......... 0.75+ 0.75 0.75 0.79 0.84 0.94 1.00 1.00+ Ratio of net investment income to average net assets (%)............. 7.34+ 7.36 7.93 8.34 7.92 8.26 7.50 8.97+ Portfolio turnover rate (%).................... 24++ 41 42 35 87 170 101 126 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%).............. 0.76+ 0.77 0.75 0.79 0.84 0.94 1.55 1.78+ Net investment income per share would have been.................. $ 0.69 $ 0.85 $ 0.86 $ 0.82 $ 0.83 $ 0.84 $ 0.70 $ 0.47
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. NOTE: Further information about the Fund's performance is contained in the Fund's annual report to shareholders, which may be obtained without charge. 4 THE TRUST The Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its total assets may be invested in preferred stocks. At least 65% of the Fund's total assets will normally be invested in bonds. The fixed income securities in which the Fund may invest include corporate securities, securities issued or guaranteed by the U.S. Government or its authorities or instrumentalities ("U.S. Government Securities"), commercial paper, zero coupon securities, mortgage-backed securities, stripped mortgage-backed securities, collateralized mortgage obligations ("CMOs"), asset-backed securities, real estate investment trusts ("REITs"), when-issued securities, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The Fund may invest any portion of its assets in securities of Canadian issuers, and up to 20% of its total assets in securities of other foreign issuers. The Fund may also invest up to 35% of its total assets in securities of below investment grade quality (commonly known as "junk bonds"). Securities of below investment grade quality are securities rated below the top four rating categories by each major rating agency that has rated the security, including securities in the lowest rating categories, and unrated securities that Loomis Sayles determines to be of comparable quality. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows: 5
STANDARD & POOR'S MOODY'S ----------------- ------- AAA/Aa % % AA/Aa % % A/A % % BBB/Baa % % BB/Ba % % B/B % % CCC/Caa % % C/Ca % % D %
For temporary defensive purposes, the Fund may invest any portion of its assets in fixed income securities, cash or any other securities deemed appropriate by Loomis Sayles. Except for the Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of the Fund may be changed without a vote of Fund shareholders. MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS DEBT AND OTHER FIXED INCOME SECURITIES The Fund may invest in fixed income securities of any maturity. Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the income of a Fund that invests in fixed income securities for any particular period. The net asset value of such a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. U.S. GOVERNMENT SECURITIES U.S. Government Securities have different kinds of government support. For example, some U.S. Government Securities, such as U.S. Treasury bonds, are supported by the full faith and credit of the United States, whereas certain other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. 6 Although U.S. Government Securities generally do not involve the credit risks associated with other types of fixed income securities, the market values of U.S. Government Securities do go up and down as interest rates change. Thus, for example, the value of an investment in a Fund that holds U.S. Government Securities may fall during times of rising interest rates. Yields on U.S. Government Securities tend to be lower than those on corporate securities of comparable maturities. Some U.S. Government Securities, such as Government National Mortgage Association Certificates ("GNMA"), are known as "mortgage-backed" securities. Interest and principal payments on the mortgages underlying mortgage-backed U.S. Government Securities are passed through to the holders of the security. If the Fund purchases mortgage-backed securities at a discount or a premium, the Fund will recognize a gain or loss when the payments of principal, through prepayment or otherwise, are passed through to the Fund and, if the payment occurs in a period of falling interest rates, the Fund may not be able to reinvest the payment at as favorable an interest rate. As a result of these principal prepayment features, mortgage-backed securities are generally more volatile investments than many other fixed income securities. In addition to investing directly in U.S. Government Securities, the Fund may purchase certificates of accrual or similar instruments ("strips") evidencing undivided ownership interests in interest payments or principal payments, or both, in U.S. Government Securities. These investment instruments may be highly volatile. LOWER RATED FIXED INCOME SECURITIES The Fund may invest up to 35% of its total assets in securities rated below investment grade (commonly referred to as "junk bonds"). A security will be treated as being of investment grade quality if at the time the Fund acquires it at least one major rating agency has rated the security in its top four rating categories (even if another such agency has issued a lower rating), or if the security is unrated but Loomis Sayles determines it to be of investment grade quality. Lower rated fixed income securities generally provide higher yields, but are subject to greater credit and market risk, than higher quality fixed income securities. Lower rated fixed income securities are considered predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. Achievement of the investment objective of a Fund investing in lower rated fixed income securities may be more dependent on Loomis Sayles' own credit analysis than is the case with higher quality bonds. The market for lower rated fixed income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In 7 addition, the secondary market may be less liquid for lower rated fixed income securities. This lack of liquidity at certain times may affect the values of these securities and may make the evaluation and sale of these securities more difficult. Securities in the lowest rating categories may be in poor standing or in default. Securities in the lowest investment grade category (BBB or Baa) have some speculative characteristics. For more information about the ratings services' descriptions of the various rating categories, see Appendix A. COMMON STOCKS AND OTHER EQUITY SECURITIES Common stocks and similar equity securities, such as warrants and convertibles, are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. ZERO COUPON SECURITIES The Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. The Fund is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions at times when Loomis Sayles would not otherwise deem it advisable to do so. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. MORTGAGE-BACKED SECURITIES The Fund may invest in mortgage-backed securities, such as GNMA or Fannie Mae certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if the Fund purchases these assets at a premium, a faster-than- expected prepayment rate will reduce yield to maturity, and a slower-than- expected prepayment rate will increase yield to maturity. If the Fund purchases mortgage-backed securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the 8 premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. STRIPPED MORTGAGE-BACKED SECURITIES The Fund may invest in interest-only and principal-only ("IOs" and "POs") classes of mortgage-backed securities. The yield to maturity on an IO or PO is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurably adverse effect on the Fund's yield to maturity to the extent it invests in IOs. If the assets underlying the IOs experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully its initial investment in these securities. Conversely, POs tend to increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage-backed securities, potentially limiting the Fund's ability to buy or sell those securities at any particular time. COLLATERALIZED MORTGAGE OBLIGATIONS The Fund may invest in CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by the Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. ASSET-BACKED SECURITIES The Fund may invest in asset-backed securities. Through the use of trusts and special purpose corporations, automobile and credit card receivables are 9 securitized in pass-through structures similar to mortgage pass-through structures or in a pass-through structure similar to the CMO structure. Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, the Fund will ordinarily reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, the Fund's ability to maintain a portfolio that includes high-yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. WHEN-ISSUED SECURITIES The Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time the Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If the Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. CONVERTIBLE SECURITIES Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities at a stated price or rate. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their value will normally vary in some proportion with those of the underlying equity securities. Convertible securities 10 usually provide a higher yield than the underlying equity security, however, so that when the price of the underlying equity security falls, the decline in the price of the convertible security may sometimes be less substantial than that of the underlying equity security. Due to the conversion feature, convertible securities generally yield less than nonconvertible fixed income securities of similar credit quality and maturity. The Fund's investment in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock at a specified date and conversion ratio, or that are convertible at the option of the issuer. Because conversion is not at the option of the holder, the Fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock has declined substantially. REAL ESTATE INVESTMENT TRUSTS The Fund may invest in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, risks of default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code, and failing to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). Investment in REITs involves risk similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger securities. RULE 144A SECURITIES The Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. FOREIGN SECURITIES The Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). The Fund may invest any 11 portion of its assets in securities of Canadian issuers, but will not purchase foreign securities other than those of Canadian issuers if, as a result, the Fund's holdings of non-U.S. and non-Canadian securities would exceed 20% of the Fund's total assets. Although investing in foreign securities may increase the Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than in the United States. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. The Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. The Fund's investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations or foreign withholding taxes. Changes in the value relative to the U.S. dollar of a foreign currency in which the Fund's holdings are denominated will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although part of the Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of 12 the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of the Fund in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. FOREIGN CURRENCY HEDGING TRANSACTIONS The Fund may engage in foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which the Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, the Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Fund may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Fund might also purchase exchange-listed and over-the-counter call and put options on foreign currencies. Over-the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Fund may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. SWAP TRANSACTIONS The Fund may enter into interest rate or currency swaps. The Fund will enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified 13 currencies. The Fund will maintain liquid assets in a segregated custodial account to cover its current obligations under swap agreements. Because swap agreements are not exchange-traded, but are private contracts into which the Fund and a swap counterparty enter as principals, the Fund may experience a loss or delay in recovering assets if the counterparty were to default on its obligations. OPTIONS AND FUTURES TRANSACTIONS The Fund may buy, sell or write options on securities, securities indexes, currencies or futures contracts and may buy and sell futures contracts on securities, securities indexes or currencies. The Fund may engage in these transactions either for the purpose of enhancing investment return, or to hedge against changes in the value of other assets that the Funds own or intend to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If the Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by the Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased by a Fund and futures contracts held by the Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of 14 securities held in the Fund's portfolio. All transactions in options and futures involve the possible risk of loss to the Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When the Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. The Fund will be required, however, to set aside with its custodian bank liquid assets in amounts sufficient at all times to satisfy its obligations under options and futures contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market movements correctly. The Fund's ability to hedge against adverse changes in the value of securities held in its portfolio through options and futures also depends on the degree of correlation between changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable the Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), the Fund is at risk that the other party to the transaction will default on its obligations, or will not permit the Fund to terminate the transaction before its scheduled maturity. As a result of these characteristics, the Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. REPURCHASE AGREEMENTS The Fund may invest in repurchase agreements. In repurchase agreements, the Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for the Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. YEAR 2000 Many computer software systems in use today cannot properly process date- related information from and after January 1, 2000. Should any of the 15 computer systems employed by the Fund's major service providers fail to process this type of information properly, that could have a negative impact on the Fund's operations and the services that are provided to the Fund's shareholders. Loomis Sayles and the Distributor have each advised the Fund that they are reviewing all of their computer systems with the goal of modifying or replacing such systems prior to January 1, 2000, to the extent necessary to foreclose any such negative impact. In addition, Loomis Sayles has been advised by the Fund's custodian that it is also in the process of reviewing its systems with the same goal. As of the date of this prospectus, the Fund and Loomis Sayles have no reason to believe that these goals will not be achieved. Similarly, the values of certain of the portfolio securities held by the Fund may be adversely affected by the inability of the securities' issuers or of third parties to process this type of information properly. THE FUNDS' INVESTMENT ADVISER The Fund's investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. In addition to selecting and reviewing the Fund's investments, Loomis Sayles provides executive and other personnel for the management of the Fund. The Loomis Sayles Funds' board of trustees supervises Loomis Sayles' conduct of the affairs of the Fund. As of October 31, 1998, Charles Schwab & Co. Inc. owned 48% of the Bond Fund. Shareholders holding more than 25% of a Fund's shares may be deemed to control the relevant Fund. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the Bond Fund since its commencement of investment operations in 1991. Kathleen C. Gaffney, Vice President of the Trust and Loomis Sayles, has served as associate portfolio manager of the Bond Fund since October 1997. Both Mr. Fuss and Ms. Gaffney have been employed by Loomis Sayles for more than five years. FUND EXPENSES The Fund pays Loomis Sayles a monthly investment advisory fee of .60% of the Fund's average daily net assets. In addition to the investment advisory 16 fee, the Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees and expenses of registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, expenses of preparing, printing and mailing prospectuses to existing shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles or its affiliated companies. Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other Fund expenses to the extent necessary to limit total annual operating expenses of the Institutional Class shares of the Fund to .75% of the Fund's average daily net assets. Loomis Sayles may change or terminate this voluntary arrangement at any time, but the Fund's Prospectus would be supplemented to describe the change. Loomis Sayles may pay certain broker-dealers and financial intermediaries whose customers own shares of the Funds a continuing fee in an amount of up to .25% annually of the value of Fund shares held for those customers' accounts. These fees are paid by Loomis Sayles out of its own assets and are not assessed against the Fund. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Fund's assets. The Fund anticipates that its portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher costs and higher levels of taxable gains. HOW TO PURCHASE SHARES An investor may make an initial purchase of shares of the Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds The minimum initial investment for the Institutional Class of shares of the Fund is $25,000. A $2,500 minimum investment applies to the current and retired trustees of the Trust, investment advisory clients of Loomis Sayles (and their directors, officers and employees), and current and retired employees of 17 Loomis Sayles and the parents, spouses and children of the foregoing. The minimum investment may be waived in whole or in part by Loomis Sayles in its sole discretion. Subsequent investments must be at least $50. Shares of the Fund may be purchased by (i) cash, (ii) exchanging Institutional Class shares of any Fund (or any other series of Loomis Sayles Funds), provided the value of the shares exchanged meets the investment minimum of the Fund into which the exchange is made, (iii) exchanging securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a combination of such securities and cash. Loomis Sayles will not approve the acceptance of securities in exchange for shares of the Fund unless (1) Loomis Sayles, in its sole discretion, believes the securities are appropriate investments for the Fund; (2) the investor represents and agrees that all securities offered to the Fund can be resold by the Fund without restriction under the Securities Act of 1933, as amended (the "Securities Act") or otherwise; and (3) the securities are eligible to be acquired under the Fund's investment policies and restrictions. No investor owning 5% or more of the Fund's shares may purchase additional shares of the Fund by exchange of securities. In all cases Loomis Sayles reserves the right to reject any securities that are proposed for exchange. Securities accepted by Loomis Sayles in exchange for Fund shares will be valued in the same manner as the Fund's assets as described below as of the time of the Fund's next determination of net asset value after such acceptance. All dividends and subscription or other rights which are reflected in the market price of accepted securities at the time of valuation become the property of the Fund and must be delivered to the Fund upon receipt by the investor from the issuer. A gain or loss for federal income tax purposes would be realized upon the exchange by an investor that is subject to federal income taxation, depending upon the investor's basis in the securities tendered. An investor who wishes to purchase shares by exchanging securities should obtain instructions by calling 800-633-3330, option 5. All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Upon acceptance of an investor's order, BFDS opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, an investor may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a 18 statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Subsequent investments can also be made by federal funds wire. Investors should instruct their banks to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$_____ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Institutional Class), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. The Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Fund does not presently anticipate that it will do so, the Fund reserves the right to suspend or change the terms of the offering of its shares. The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of the Fund are sold with no sales charge. The net asset value of the Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. The Fund also offers a Retail Class of shares that bears higher expenses. Because of its lower expenses, the Institutional Class of shares of the Fund is expected to have a higher total return than the Retail Class of shares. The Loomis Sayles Bond Fund also offers an Admin Class of shares that is offered exclusively through intermediaries, who will be the record owners of the shares. Because of its lower expenses, the Institutional Class of shares of the Loomis Sayles Bond Fund is expected to have a higher total return than the Admin Class of shares. 19 SHAREHOLDER SERVICES The Fund offers the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from BFDS. Telephone redemption and exchange privileges will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. The Institutional Class shares of the Fund may be exchanged for Institutional Class shares of any other fund that is a series of Loomis Sayles Funds and that offers Institutional Class shares or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles, provided the value of the shares exchanged meets the investment minimum of that Fund and, in the case of the Loomis Sayles High Yield Fund and Loomis Sayles U.S. Government Securities Fund, Loomis Sayles has approved the exchange of shares. Exchanges may be made by written instructions or by telephone, unless an investor elected on the application to decline telephone exchange privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Fund reserves the right to terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Fund may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. An exchange is a taxable event for federal income tax purposes in which a gain or loss would be realized by an investor that is subject to federal income taxation. RETIREMENT PLANS. The Fund's shares may be purchased by all types of tax- deferred retirement plans. Loomis Sayles makes available retirement plan forms for IRAs. SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000, an investor may have periodic cash withdrawals automatically paid to the investor or any person designated by the investor. AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may be made automatically by pre-authorized withdrawals from an investor's checking account. HOW TO REDEEM SHARES An investor can redeem shares by sending a written request to Boston Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. Proceeds from a written request may be sent to the investor in the form of a check. As described below, an investor may also redeem shares by calling BFDS 20 at 800-626-9390. Proceeds resulting from a telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Shareholders requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is redeeming shares worth more than $50,000, (2) an investor is requesting that the proceeds check be made out to someone other than the registered owners or be sent to an address other than the record address, (3) the account registration has changed within the last 30 days or (4) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. This requirement may be waived by Loomis Sayles in its sole discretion. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by BFDS prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to BFDS after the Exchange closes or on a day when the Exchange is not open for business, BFDS cannot accept the request and a new one will be necessary. If an investor decides to change the bank account to which proceeds are to be wired, the investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless an investor indicates otherwise on the account application, BFDS will be authorized to act upon redemption and exchange instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide BFDS with the investor's account registration and address as it appears on the records of State Street Bank. BFDS will employ these or other reasonable procedures to confirm that 21 instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult BFDS. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was deposited less than 15 days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. CALCULATION OF PERFORMANCE INFORMATION The Fund's investment performance may from time to time be included in advertisements about the Fund or Loomis Sayles Funds. "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30-day period by the maximum public offering price per share of the class on the last day of that period. For purposes of calculating yield, net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. 22 "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in the Fund. Total return may also be presented for other periods. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Fund declares and pays dividends quarterly. The Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Fund declares or pays dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the Fund unless an investor has elected to receive cash. The Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as the Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short-term capital gain distributions are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by the Fund as deriving from net gains on securities held for more than one year will be taxable as such (generally at a 20% rate for noncorporate shareholders) whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to him or her as described above. If a shareholder held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution. The Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that he or she is not subject to such withholding. 23 Dividends derived from interest on U.S. Government Securities may be exempt from state and local taxes. State Street Bank will send investors and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid during the preceding year. An investor should keep this statement as a permanent record. A fee may be charged for any duplicate information requested. NOTE: The foregoing summarizes certain tax consequences of investing in the Fund. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, foreign, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 24 APPENDIX A DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S AND MOODY'S INVESTORS SERVICE, INC. STANDARD & POOR'S AAA This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay interest and repay principal is very strong, and in the majority of instances they differ from AAA issues only in small degree. A Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. BBB Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 25 C The rating C is reserved for income bonds on which no interest is being paid. D Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. R This symbol is attached to the ratings of instruments with significant noncredit risks such as risks to principal or volatility of expected returns. Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. AAA Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or by an exceptionally stable, margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that are rated Aa are judged to be high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities. A Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future. 26 BAA Bonds that are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well. BA Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 27 Should no rating be assigned by Moody's, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. 28 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Post Office Square Boston, Massachusetts 02109 One Financial Center . Boston, Massachusetts 02111 . (800) 633-3330 THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS RETAIL CLASS SHARES OF: LOOMIS SAYLES BOND FUND LOOMIS SAYLES GLOBAL BOND FUND LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND LOOMIS SAYLES INVESTMENT GRADE BOND FUND LOOMIS SAYLES SHORT-TERM BOND FUND PROSPECTUS JANUARY 1, 1999 THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles In- termediate Maturity Bond Fund, Loomis Sayles Investment Grade Bond Fund and Loomis Sayles Short-Term Bond Fund (the "Funds" and each a "Fund"), each a se- ries of Loomis Sayles Funds, are separately managed, no-load mutual funds, each of which has its own investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund. The Funds offer two classes of shares: a Retail Class that is described in this Prospectus, and an Institutional Class, which generally has a higher min- imum investment and bears lower expenses, that is described in a separate pro- spectus. The Loomis Sayles Bond Fund also offers a third class of shares: an Admin Class, bearing higher expenses than the Institutional or Retail Class, that is described in a separate prospectus. This Prospectus concisely de- scribes the information that an investor should know before investing in the Retail Class shares of any Fund. Please read it carefully and keep it for fu- ture reference. A Statement of Additional Information (SAI) dated January 1, 1999, as revised from time to time, is available free of charge; write to Loo- mis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Bos- ton, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more detailed information about the Funds, has been filed with the Securities and Exchange Commission (the "SEC") and is available along with other related materials on the SEC's Internet Website (http://www.sec.gov). The SAI is in- corporated herein by reference (legally forms a part of the Prospectus). To obtain more information about the Institutional Class or Admin Class of shares, please call the Distributor toll-free at 800-633-3330, contact your financial intermediary, or visit our Internet Website (http://www.loomissayles.com). For information about: For all other information about . Establishing an account the Funds: . Account procedures and status CALL 800-633-3330 . Exchanges . Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 5 THE TRUST................................................................. 10 INVESTMENT OBJECTIVES AND POLICIES........................................ 10 MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 14 THE FUNDS' INVESTMENT ADVISER............................................. 25 FUND EXPENSES............................................................. 26 PORTFOLIO TRANSACTIONS.................................................... 28 HOW TO PURCHASE SHARES.................................................... 28 SHAREHOLDER SERVICES...................................................... 30 HOW TO REDEEM SHARES...................................................... 31 CALCULATION OF PERFORMANCE INFORMATION.................................... 33 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 33 APPENDIX A DESCRIPTION OF BOND RATINGS............................................. 35
2 SUMMARY OF EXPENSES (FOR A RETAIL CLASS SHARE OF EACH INDICATED FUND) The following information is provided as an aid in understanding the various expenses that an investor in a Fund will bear indirectly. The information about each Fund shown below is based on expenses for the Funds' most recent fiscal year, and should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
INTERMEDIATE BOND GLOBAL MATURITY FUND BOND FUND BOND FUND ---- --------- ------------ Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price).................. none none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)........ none none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)................................. none none none Redemption Fees/1......................../.. none none none Exchange Fees............................... none none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees............................. .60% .60% .40% 12b-1 Fees.................................. .25% .25% .25% Other Operating Expenses (after expense reimbursements where indicated)........... .15%/2/ .30%/2/ .15%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)........... 1.00%/2/ 1.15%/2/ .80%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year.................................... $ 10 $ 12 $ 8 Three Years................................. $ 32 $ 37 $ 26 Five Years.................................. $ 55 $ 63 $ 44 Ten Years................................... $122 $140 $ 99
3
INVESTMENT GRADE SHORT-TERM BOND FUND BOND FUND ---------- ---------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)..................................... none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)............................ none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds).............. none none Redemption Fees/1................................./.. none none Exchange Fees........................................ none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees...................................... .40% .25% 12b-1 Fees........................................... .25% .25% Other Operating Expenses (after expense reimbursements where indicated)..................... .15%/2/ .25%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)..................... .80%/2/ .75%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year............................................. $ 8 $ 8 Three Years.......................................... $ 26 $ 44 Five Years........................................... $ 44 $ 42 Ten Years............................................ $ 99 $ 93
- ----------- /1/A $5 charge applies to any wire transfer of redemption proceeds from any Fund. /2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Funds' Total Operating Expenses to the percentages of average net assets shown in the table. Without this agreement, Other Operating Expenses (including 12b-1 fees) and Total Operating Expenses would have been 0.46% and 1.06%, respectively, for the Bond Fund, 1.18% and 1.78%, respectively, for the Global Bond Fund, 5.24% and 5.64%, respectively, for the Intermediate Maturity Bond Fund, 4.85% and 5.25%, respectively, for the Investment Grade Bond Fund, and 5.75% and 6.00%, respectively, for the Short-Term Bond Fund. 4 FINANCIAL HIGHLIGHTS (FOR A RETAIL CLASS SHARE OF EACH INDICATED FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The financial highlights that follow have been audited by PricewaterhouseCoopers LLP, independent accountants. The information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Funds' 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
BOND FUND ------------------------ NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30* DEC. 31, 1998 1997 ------------- -------- Net asset value, beginning of period................. $ 12.82 $ 12.38 ------- ------- Income from investment operations-- Net investment income (loss)........................ 0.66 0.84*** Net realized and unrealized gain (loss) on investments..................................... (0.77) 0.65 ------- ------- Total from investment operations.................... (0.11) 1.49 ------- ------- Less distributions-- Dividends from net investment income................ (0.42) (0.83) Distributions from net realized capital gains....... 0.00 (0.22) ------- ------- Total distributions................................. (0.42) (1.05) ------- ------- Net asset value, end of period....................... $ 12.29 $ 12.82 ======= ======= Total return (%)****................................. (1.1)+++ 12.4 Net assets, end of period (000)...................... $53,908 $33,240 Ratio of operating expenses to average net assets (%)+......................................... 1.00++ 1.00++ Ratio of net investment income to average net assets (%)................................................. 7.13++ 7.09++ Portfolio turnover rate (%).......................... 24+++ 41 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)......................... 1.06++ 1.20++ Net investment income per share would have been..... $ 0.66 $ 0.82***
- ----------- *The Fund's fiscal year-end changed to September 30 from December 31. **Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 5
GLOBAL BOND FUND ---------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30* DEC. 31, 1998 1997 ------------- -------- Net asset value, beginning of period.................. $11.83 $12.35 ------ ------ Income from investment operations-- Net investment income (loss)......................... 0.44 0.63*** Net realized and unrealized gain (loss) on investments...................................... (0.36) (0.37) ------ ------ Total from investment operations..................... 0.08 0.26 ------ ------ Less distributions-- Dividends from net investment income................. 0.00 (0.69) Distributions in excess of the net invetments income.............................................. 0.00 (0.09) ------ ------ Total distributions.................................. 0.00 (0.78) ------ ------ Net asset value, end of period........................ $11.91 $11.83 ====== ====== Total return (%)****.................................. 0.7+++ 2.0 Net assets, end of period (000)....................... $6,376 $4,694 Ratio of operating expenses to average net assets (%)+.......................................... 1.15++ 1.15++ Ratio of net investment income to average net assets (%)........................................... 5.77++ 5.60++ Portfolio turnover rate (%)........................... 28+++ 75 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%).................................. 1.78++ 2.44++ Net investment income per share would have been...... $ 0.39 $ 0.49***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 6
INTERMEDIATE MATURITY BOND FUND ---------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30* DEC. 31, 1998 1997 ------------- -------- Net asset value, beginning of period................ $10.03 $ 10.00 ------ ------- Income from investment operations-- Net investment income (loss)....................... 0.49*** 0.64 *** Net realized and unrealized gain (loss) on investments....................................... (0.15) (0.02) ------ ------- Total from investment operations................... 0.34 0.62 ------ ------- Less distributions-- Dividends from net investment income............... (0.31) (0.54) Distributions in excess of net investment income... 0.00 (0.03) Distributions from net realized capital gains...... 0.00 (0.02) ------ ------- Total distributions................................ (0.31) (0.59) ------ ------- Net asset value, end of period...................... $10.06 $ 10.03 ====== ======= Total return (%)****................................ 3.4+++ 6.2 Net assets, end of period (000)..................... $ 663 $ 423 Ratio of operating expenses to average net assets (%)+............................................... 0.80++ 0.80 ++ Ratio of net investment income to average net assets (%)................................................ 6.47++ 6.13 ++ Portfolio turnover rate (%)......................... 32+++ 119 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)........................ 5.64++ 14.56++ Net investment income per share would have been.... $ 0.12*** $(0.50)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 7
INVESTMENT GRADE BOND FUND --------------------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30* DEC. 31, 1998 1997 --------------- ------------- Net asset value, beginning of period..... $ 10.59 $ 10.00 ------------- ------------- Income from investment operations-- Net investment income (loss)............ 0.48 0.62*** Net realized and unrealized gain (loss) on investments......................... (0.49) 0.78 ------------- ------------- Total from investment operations........ (0.01) 1.40 ------------- ------------- Less distributions-- Dividends from net investment income.... (0.31) (0.62) Distributions in excess of net investment income...................... 0.00 (0.07) Distributions from net realized capital gains.................................. 0.00 (0.12) ------------- ------------- Total distributions..................... (0.31) (0.81) ------------- ------------- Net asset value, end of period........... $ 10.27 $ 10.59 ============= ============= Total return (%)****..................... (0.2)+++ 14.3 Net assets, end of period (000).......... $ 1,743 $ 862 Ratio of operating expenses to average net assets (%)+......................... 0.80++ 0.80++ Ratio of net investment income to average net assets (%).......................... 6.43++ 6.51++ Portfolio turnover rate (%).............. 48+++ 112 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)............................... 5.25++ 10.95++ Net investment income per share would have been.............................. $ 0.15 $ (0.31)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of the shares outstanding during the period. **** Total return would have been lower had the advisor not reduced its advisory fee and/or borne other operating expenses. + The advisor 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 8
SHORT-TERM BOND FUND ---------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30* DEC. 31, 1998 1997 ------------- -------- Net asset value, beginning of period.................... $9.75 $ 9.70 ----- ------ Income from investment operations-- Net investment income.................................. 0.42 0.59 Net realized and unrealized gain (loss) on investments........................................ 0.21 0.06 ----- ------ Total from investment operations....................... 0.63 0.65 ----- ------ Less distributions-- Dividends from net investment income................... (0.42) (0.60) ----- ------ Total distributions.................................... (0.42) (0.60) ----- ------ Net asset value, end of period.......................... $9.96 $ 9.75 ===== ====== Total return (%)***..................................... 6.6++ 6.9 Net assets, end of period (000)......................... $ 773 $ 285 Ratio of operating expenses to average net assets (%)****......................................... 0.75+ 0.75+ Ratio of net investment income to average net assets (%)............................................. 5.66+ 6.04+ Portfolio turnover rate (%)............................. 47++ 91 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)................................... 6.00+ 17.77+ Net investment income per share would have been........ $0.03 $(1.08)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. NOTE: Further information about each Fund's performance is contained in the Funds' annual report to shareholders, which may be obtained without charge. 9 THE TRUST Each Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVES AND POLICIES LOOMIS SAYLES BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its total assets may be invested in preferred stocks. At least 65% of the Fund's total assets will normally be invested in bonds. The fixed income securities in which the Fund may invest include corporate securities, securities issued or guaranteed by the U.S. Government or its authorities, agencies or instrumentalities ("U.S. Government Securities"), commercial paper, zero coupon securities, mortgage-backed securities, stripped mortgage-backed securities, collateralized mortgage obligations ("CMOs"), asset-backed securities, when-issued securities, real estate investment trusts (REITs), Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The Fund may invest any portion of its assets in securities of Canadian issuers, and up to 20% of its total assets in securities of other foreign issuers. The Fund may also invest up to 35% of its total assets in securities of below investment grade quality (commonly known as "junk bonds"). Securities of below investment grade quality are securities rated below the top four rating categories by each major rating agency that has rated the security, including securities in the lowest rating categories, and unrated securities that Loomis Sayles determines to be of comparable quality. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows: 10
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa........................................................ % % AA/Aa.......................................................... % % A/A............................................................ % % BBB/Baa........................................................ % % BB/Ba.......................................................... % % B/B............................................................ % % CCC/Caa........................................................ % % C/Ca........................................................... % % D.............................................................. % --
LOOMIS SAYLES GLOBAL BOND FUND The Fund's investment objective is high total investment return through a combination of high current income and capital appreciation. The Fund seeks to achieve its objective by investing primarily in investment grade fixed income securities denominated in various currencies, including U.S. dollars, or in multicurrency units. Under normal conditions, the Fund will invest at least 65% of its total assets in fixed income securities of issuers from at least three countries, which may include the United States, and no more than 40% of its total assets in issuers headquartered in any one country. However, up to 100% of the Fund's total assets may be denominated in U.S. dollars. The fund may also invest up to 20% of its total assets in securities of below investment grade quality (commonly known as "junk bonds"). The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed securities, when- issued securities, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa..................................................... % % AA/Aa....................................................... % % A/A......................................................... % % BBB/Baa..................................................... % % BB/Ba....................................................... % % B/B......................................................... % % CCC/Caa..................................................... -- -- C/Ca........................................................ -- -- D........................................................... -- --
11 LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing at least 90% of its total assets in fixed income securities of investment grade quality and to maintain an average dollar weighted maturity of between three and ten years. For purposes of the 90% test, a security will be treated as being of investment grade quality if it is rated by at least one major rating agency in one of its top four rating categories at the time of purchase or, if unrated, is determined by Loomis Sayles to be of comparable quality. The Fund may also invest up to 10% of its total assets in fixed income securities of below investment grade quality (commonly known as "junk bonds"). The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage- backed securities, CMOs, asset-backed securities, when-issued securities, REITs, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions, swap transactions, and securities lending. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 20% of its assets in securities of other foreign issuers. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa........................................................ % % AA/Aa.......................................................... -- -- A/A............................................................ -- -- BBB/Baa........................................................ % % BB/Ba.......................................................... % % B/B............................................................ % % CCC/Caa........................................................ -- -- C/Ca........................................................... -- -- D.............................................................. -- --
LOOMIS SAYLES INVESTMENT GRADE BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing at least 65% of its total assets in fixed income securities of investment grade quality. Up to 12 20% of the Fund's total assets may be invested in preferred stocks. The Fund may also invest up to 10% of its total assets in fixed income securities of below investment grade quality (commonly known as "junk bonds"). The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed securities, when-issued securities, REITs, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions, swap transactions and securities lending. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 20% of its assets in the securities of other foreign issuers. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa........................................................ % % AA/Aa.......................................................... % % A/A............................................................ % % BBB/Baa........................................................ % % BB/Ba.......................................................... % % B/B............................................................ % % CCC/Caa........................................................ % -- C/Ca........................................................... -- -- D.............................................................. -- --
LOOMIS SAYLES SHORT-TERM BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation with relatively low fluctuation in net asset value. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its total assets may be invested in non-convertible preferred stock. At least 65% of the Fund's total assets will normally be invested in bonds with a remaining maturity of 5 years or less. The Fund may invest up to 20% of its total assets in securities of foreign issuers. The Fund may also invest up to 20% of its total assets in securities of below investment grade quality (commonly known as "junk bonds"). The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed securities, 13 when-issued securities, REITs, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. In an effort to minimize fluctuations in market value, the Fund is expected to maintain an average dollar-weighted maturity of between one and three years. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa........................................................ % % AA/Aa.......................................................... -- -- A/A............................................................ % % BBB/Baa........................................................ % % BB/Ba.......................................................... % % B/B............................................................ % % CCC/Caa........................................................ -- -- C/Ca........................................................... -- -- D.............................................................. -- --
ALL FUNDS For temporary defensive purposes, each Fund may invest any portion of its assets in fixed income securities, cash or any other securities deemed appropriate by Loomis Sayles. Except for each Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of each Fund may be changed without a vote of Fund shareholders. MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS DEBT AND OTHER FIXED INCOME SECURITIES Each of the Funds may invest in fixed income securities of any maturity, although the Short-Term Bond Fund expects to maintain an average dollar weighted maturity of less than three years, and the Intermediate Maturity Bond Fund expects to maintain an average dollar weighted maturity of between three and ten years. Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified 14 index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the income of a Fund that invests in fixed income securities for any particular period. The net asset value of such a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. U.S. GOVERNMENT SECURITIES U.S. Government Securities have different kinds of government support. For example, some U.S. Government Securities, such as U.S. Treasury bonds, are supported by the full faith and credit of the United States, whereas certain other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. Although U.S. Government Securities generally do not involve the credit risks associated with other types of fixed income securities, the market values of U.S. Government Securities do go up and down as interest rates change. Thus, for example, the value of an investment in a Fund that holds U.S. Government Securities may fall during times of rising interest rates. Yields on U.S. Government Securities tend to be lower than those on corporate securities of comparable maturities. Some U.S. Government Securities, such as Government National Mortgage Association Certificates ("GNMA"), are known as "mortgage-backed" securities. Interest and principal payments on the mortgages underlying mortgage-backed U.S. Government Securities are passed through to the holders of the security. If a Fund purchases mortgage-backed securities at a discount or a premium, the Fund will recognize a gain or loss when the payments of principal, through prepayment or otherwise, are passed through to the Fund and, if the payment occurs in a period of falling interest rates, the Fund may not be able to reinvest the payment at as favorable an interest rate. As a result of these principal prepayment features, mortgage-backed securities are generally more volatile investments than many other fixed income securities. In addition to investing directly in U.S. Government Securities, the Funds may purchase certificates of accrual or similar instruments ("strips") evidencing undivided ownership interests in interest payments or principal 15 payments, or both, in U.S. Government Securities. These investment instruments may be highly volatile. LOWER RATED FIXED INCOME SECURITIES Each Fund may invest a portion of its total assets in securities rated below investment grade (commonly referred to as "junk bonds"). The Bond Fund may invest up to 35%, the Global Bond and Short-Term Bond Funds each may invest up to 20%, the Investment Grade Bond and Intermediate Maturity Bond Funds each may invest up to 10% of its total assets in such securities. For purposes of the foregoing percentages, a security will be treated as being of investment grade quality if at the time a Fund acquires it at least one major rating agency has rated the security in its top four rating categories (even if another such agency has issued a lower rating), or if the security is unrated but Loomis Sayles determines it to be of investment grade quality. Lower rated fixed income securities generally provide higher yields, but are subject to greater credit and market risk, than higher quality fixed income securities. Lower rated fixed income securities are considered predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. Achievement of the investment objective of a Fund investing in lower rated fixed income securities may be more dependent on Loomis Sayles' own credit analysis than is the case with higher quality bonds. The market for lower rated fixed income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for lower rated fixed income securities. This lack of liquidity at certain times may affect the values of these securities and may make the valuation and sale of these securities more difficult. Securities in the lowest rating categories may be in poor standing or in default. Securities in the lowest investment grade category (BBB or Baa) have some speculative characteristics. For more information about the ratings services' descriptions of the various rating categories, see Appendix A. COMMON STOCKS AND OTHER EQUITY SECURITIES Common stocks and similar equity securities, such as warrants and convertibles, are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. 16 ZERO COUPON SECURITIES Each Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. A Fund investing in zero coupon securities is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions at times when Loomis Sayles would not otherwise deem it advisable to do so. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. MORTGAGE-BACKED SECURITIES Each Fund may invest in mortgage-backed securities, such as GNMA or Fannie Mae certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if a Fund purchases these assets at a premium, a faster-than- expected prepayment rate will reduce yield to maturity, and a slower-than- expected prepayment rate will increase yield to maturity. If a Fund purchases mortgage-backed securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. STRIPPED MORTGAGE-BACKED SECURITIES Each Fund may invest in interest-only and principal-only classes of mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO or PO is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurably adverse effect on a Fund's yield to maturity to the extent it invests in IOs. If the assets underlying the IOs experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully its initial investment in these securities. Conversely, POs tend to increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. 17 The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage-backed securities, potentially limiting a Fund's ability to buy or sell those securities at any particular time. COLLATERALIZED MORTGAGE OBLIGATIONS Each Fund may invest in CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by a Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. ASSET-BACKED SECURITIES Each Fund may invest in asset-backed securities. Through the use of trusts and special purpose corporations, automobile and credit card receivables are securitized in pass-through structures similar to mortgage pass-through structures or in a pass-through structure similar to the CMO structure. Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, the Fund will ordinarily reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, a Fund's ability to maintain a portfolio that includes high-yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. 18 WHEN-ISSUED SECURITIES Each Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If a Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. CONVERTIBLE SECURITIES Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities at a stated price or rate. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their value will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity security, however, so that when the price of the underlying equity security falls, the decline in the price of the convertible security may sometimes be less substantial than that of the underlying equity security. Due to the conversion feature, convertible securities generally yield less than nonconvertible fixed income securities of similar credit quality and maturity. The Fund's investment in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock at a specified date and conversion ratio, or that are convertible at the option of the issuer. Because conversion is not at the option of the holder, the Fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock has declined substantially. REAL ESTATE INVESTMENT TRUSTS Each Fund may invest in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in 19 general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, risks of default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code, and failing to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). Investment in REITs involves risk similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger securities. RULE 144A SECURITIES Each Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. FOREIGN SECURITIES Each Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). The Short-Term Bond Fund will not purchase a foreign security if, as a result, the Fund's holdings of foreign securities would exceed 20% of the Fund's total assets. The Bond, Intermediate Maturity Bond and Investment Grade Bond Funds may each invest any portion of its assets in securities of Canadian issuers, but will not purchase foreign securities other than those of Canadian issuers if, as a result, such Fund's holdings of non-U.S. and non-Canadian securities would exceed 20% of the Fund's total assets. Although investing in foreign securities may increase a Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than in the United States. With respect to certain foreign 20 countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. A Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. A Fund's investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations or foreign withholding taxes. Changes in the value relative to the U.S. dollar of a foreign currency in which a Fund's holdings are denominated will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although part of a Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of the Funds in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. 21 FOREIGN CURRENCY HEDGING TRANSACTIONS The Funds may engage in foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Funds may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Funds might also purchase exchange-listed and over-the-counter call and put options on foreign currencies. Over-the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Funds may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. SWAP TRANSACTIONS The Funds may enter into interest rate or currency swaps. The Funds will enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities a Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified currencies. The Fund will maintain liquid assets in a segregated custodial account to cover its current obligations under swap agreements. Because swap agreements are not exchange-traded, but are private contracts into which the Fund and a swap counter party enter as principals, the Fund may experience a loss or delay in recovering assets if the counterparty were to default on its obligations. OPTIONS AND FUTURES TRANSACTIONS The Funds may buy, sell or write options on securities, securities indexes, currencies or futures contracts and may buy and sell futures contracts on securities, securities indexes or currencies. The Funds may engage in these transactions either for the purpose of enhancing investment return, or to hedge 22 against changes in the value of other assets that the Funds own or intend to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If a Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by a Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased by a Fund and futures contracts held by a Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities held in a Fund's portfolio. All transactions in options and futures involve the possible risk of loss to the Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When a Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. The Fund will be required, however, to set aside with its custodian bank liquid assets in amounts sufficient at all times to satisfy its obligations under options and futures contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market movements correctly. The Fund's ability to hedge against adverse changes in the value of securities held in its portfolio through options and futures also depends on the degree of correlation between changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful 23 use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable a Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), a Fund is at risk that the other party to the transaction will default on its obligations, or will not permit a Fund to terminate the transaction before its scheduled maturity. As a result of these characteristics, each Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements. In repurchase agreements, a Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for a Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. SECURITIES LENDING The Intermediate Maturity Bond and Investment Grade Bond Funds may lend their portfolio securities to broker-dealers or other parties under contracts calling for the deposit by the borrower with the Fund's custodian of cash collateral equal to at least the market value of the securities loaned, marked to market on a daily basis. The Fund will continue to benefit from interest or dividends on the securities loaned and will also receive interest through investment of the cash collateral in short-term liquid investments. No loans will be made if, as a result, the aggregate amount of such loans outstanding at any time would exceed 33 1/3% of the Fund's total assets (taken at current value). Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event affecting the investment occurs, such loans will be called so that the securities may be voted by the Fund. The Fund pays various fees in connection with such loans, including shipping fees and reasonable custodial or placement fees. 24 Securities loans must be fully collateralized at all times, but involve some credit risk to the Fund if the borrower defaults on its obligation and the Fund is delayed or prevented from recovering the collateral. YEAR 2000 Many computer software systems in use today cannot properly process date- related information from and after January 1, 2000. Should any of the computer systems employed by the Funds' major service providers fail to process this type of information properly, that could have a negative impact on the Funds' operations and the services that are provided to the Funds' shareholders. Loomis Sayles and the Distributor have each advised the Funds that they are reviewing all of their computer systems with the goal of modifying or replacing such systems prior to January 1, 2000, to the extent necessary to foreclose any such negative impact. In addition, Loomis Sayles has been advised by the Funds' custodian that it is also in the process of reviewing its systems with the same goal. As of the date of this prospectus, the Funds and Loomis Sayles have no reason to believe that these goals will not be achieved. Similarly, the values of certain of the portfolio securities held by the Funds may be adversely affected by the inability of the securities' issuers or of third parties to process this type of information properly. THE FUNDS' INVESTMENT ADVISER The Funds' investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. In addition to selecting and reviewing the Funds' investments, Loomis Sayles provides executive and other personnel for the management of the Funds. The Funds' board of trustees supervises Loomis Sayles' conduct of the affairs of the Funds. As of October 31, 1998, Charles Schwab & Co. Inc. owned 48%, 40%, 55%, 27%, and 21% of the Bond Fund, Global Bond Fund, Intermediate Maturity Bond Fund, Investment Grade Bond Fund and Short-Term Bond Fund, respectively. As of October 31, 1998, Fleet National Bank, Norwest Bank and 25 San Diego Transit Pension Plan owned 13%, 16%, and 8% of the Global Bond Fund, respectively. As of October 31, 1998, Hawaii Sheet Metal Workers Health & Welfare Fund and Pomona College owned 26% and 7% of the Intermediate Maturity Bond Fund, respectively. As of October 31, 1998, Loomis Sayles & Company, L.P. owned 26% of the Investment Grade Bond Fund, respectively. As of October 31, 1998, John W. George, Jr. Trust, NFSC, and PAMCAH-UA Local 675 owned 6%, 14%, and 8% of the Short-Term Bond Fund, respectively. Shareholders holding more than 25% of a Fund's shares may be deemed to control the relevant Fund. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the Bond Fund since its commencement of investment operations in 1991 and as the portfolio manager of the Investment Grade Bond Fund since its commencement of investment operations in 1997. Kathleen C. Gaffney, Vice President of the Trust and Loomis Sayles, has served as associate portfolio manager of the Bond Fund since October 1997. E. John deBeer, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Global Bond Fund since its commencement of investment operations in 1991. Anthony J. Wilkins, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Intermediate Maturity Bond Fund since its commencement of investment operations in 1997. John Hyll, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Short-Term Bond Fund since its commencement of investment operations in 1992. Curt A. Mitchell, Vice President of Loomis Sayles, has served as a portfolio manager of the Short-Term Bond Fund since October 1998. Each of the foregoing, except Mr. Mitchell, has been employed by Loomis Sayles for at least five years. Before joining Loomis Sayles in 1995, Mr. Mitchell was a portfolio manager at Firstar Investment & Management Company. FUND EXPENSES Each Fund pays Loomis Sayles a monthly investment advisory fee at the following annual percentage rates of the Fund's average daily net assets:
FUND RATE ---- ---- Bond................................................................... .60% Global Bond............................................................ .60% Intermediate Maturity Bond............................................. .40% Investment Grade Bond.................................................. .40% Short-Term Bond........................................................ .25%
In addition to the investment advisory fee, each Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, 26 fees and expenses of registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, expenses of preparing, printing and mailing prospectuses to existing shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles or its affiliated companies. Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other Fund expenses to the extent necessary to limit Fund total annual operating expenses of the Retail Class of shares of each Fund to the following annual percentage rate of the Fund's average net assets:
FUND RATE ---- ---- Bond................................................................... 1.00% Global Bond............................................................ 1.15% Intermediate Maturity Bond............................................. .80% Investment Grade Bond.................................................. .80% Short-Term Bond........................................................ .75%
Loomis Sayles may change or terminate these voluntary arrangements at any time, but the Funds' Prospectus would be supplemented to describe the change. Under a Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act, each of the Funds pays the Distributor, a subsidiary of Loomis Sayles, a monthly distribution fee at an annual rate not to exceed 0.25% of the Fund's average net assets attributable to the Retail Class shares. The Distributor may pay all or any portion of the distribution fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of Retail Class shares of the Funds, or for providing personal services to investors in Retail Class shares of the Funds and/or the maintenance of accounts, and may retain all or any portion of the distribution fee as compensation for the Distributor's services as principal underwriter of the Retail Class shares of the Funds. Loomis Sayles may pay certain broker-dealers and financial intermediaries whose customers own shares of the Funds a continuing fee in an amount of up to .25% annually of the value of Fund shares held for those customers' accounts. These fees are paid by Loomis Sayles out of its own assets and are not assessed against the Funds. 27 PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Funds' assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher costs and higher levels of taxable gains. HOW TO PURCHASE SHARES An investor may make an initial purchase of shares of any Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds The minimum initial investment for Retail Class of the Funds' shares ("Retail Shares") is $25,000 in that Fund. This minimum initial investment does not apply to purchases through financial intermediaries including, but not limited to, certain financial advisers, broker dealers, 401(k) alliances, wrap programs, no transaction fee programs, bank trust departments, financial consultants and insurance companies. The minimum investment may be waived in whole or in part by Loomis Sayles in its sole discretion. Subsequent investments must be at least $50. Shares of any Fund may be purchased by (i) cash, (ii) exchanging Retail Class shares of any Fund (or any other series of Loomis Sayles Funds which offers Retail Class shares), provided the value of the shares exchanged meets the investment minimum of the Fund into which the exchange is made, (iii) exchanging securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a combination of such securities and cash. Loomis Sayles will not approve the acceptance of securities in exchange for shares of any Fund unless (1) Loomis Sayles, in its sole discretion, believes the securities are appropriate investments for the Fund; (2) the investor represents and agrees that all securities offered to the Fund can be resold by the Fund without restriction under the Securities Act of 1933, as amended (the "Securities Act") or otherwise; and (3) the securities are eligible to be acquired under the Fund's investment policies and restrictions. No investor owning 5% or more of a Fund's shares may purchase additional shares of that Fund by exchange of securities. In all cases Loomis Sayles reserves the right to reject any securities that are proposed for exchange. Securities accepted by Loomis Sayles in exchange for Fund shares will be valued in the same manner as the Fund's assets as described below as of 28 the time of the Fund's next determination of net asset value after such acceptance. All dividends and subscription or other rights which are reflected in the market price of accepted securities at the time of valuation become the property of the Fund and must be delivered to the Fund upon receipt by the investor from the issuer. A gain or loss for federal income tax purposes would be realized upon the exchange by an investor that is subject to federal income taxation, depending upon the investor's basis in the securities tendered. An investor who wishes to purchase shares by exchanging securities should obtain instructions by calling 800-633-3330, option 5. All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Upon acceptance of an investor's order, Boston Financial Data Services, Inc. ("BFDS"), the shareholder servicing agent for State Street Bank and Trust Company ("State Street Bank"), opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, an investor may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Subsequent investments can also be made by federal funds wire. Investors should instruct their banks to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Retail Class), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. Each Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Funds do not presently anticipate that they will do so, each Fund reserves the right to suspend or change the terms of the offering of its shares. The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of each Fund are sold with no sales charge. The 29 net asset value of each Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. Each Fund also offers an Institutional Class of shares that, except for the Loomis Sayles Bond Fund, has a $1 million minimum investment for certain investors and bears lower expenses. The minimum investment for the Institutional Class of shares of the Loomis Sayles Bond Fund is $25,000. Because of its lower expenses, the Institutional Class of shares of each Fund is expected to have a higher total return than the Retail Class of shares. The Loomis Sayles Bond Fund also offers an Admin Class of shares that is offered exclusively through intermediaries, who will be the record owners of the shares. Because of its lower expenses, the Retail Class of shares of the Loomis Sayles Bond Fund is expected to have a higher total return than the Admin Class of shares. SHAREHOLDER SERVICES The Funds offer the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from BFDS. Telephone redemption and exchange privileges will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. Retail Class shares of any Fund may be exchanged for Retail Class shares of any other Fund (or any other fund that is a series of Loomis Sayles Funds and that offers Retail Class shares) or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles, provided the value of the shares exchanged meets the investment minimum of that Fund and, in the case of the Loomis 30 Sayles High Yield Fund, Loomis Sayles has approved the exchange of shares. Exchanges may be made by written instructions or by telephone, unless an investor elected on the application to decline telephone exchange privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Funds reserve the right to terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Funds may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. An exchange is a taxable event for federal income tax purposes in which a gain or loss would be realized by an investor that is subject to federal income taxation. RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax- deferred retirement plans. Loomis Sayles makes available retirement plan forms for IRAs. SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000, an investor may have periodic cash withdrawals automatically paid to the investor or any person designated by the investor. AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may be made automatically by pre-authorized withdrawals from an investor's checking account. HOW TO REDEEM SHARES An investor can redeem shares by sending a written request to Boston Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. Proceeds from a written request may be sent to the investor in the form of a check. As described below, an investor may also redeem shares by calling BFDS at 800-626-9390. Proceeds resulting from a telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Shareholders requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is redeeming shares worth more than $50,000, (2) an investor is requesting that the proceeds check be made out to someone other 31 than the registered owners or be sent to an address other than the record address, (3) the account registration has changed within the last 30 days or (4) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. This requirement may be waived by Loomis Sayles in its sole discretion. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by BFDS prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to BFDS after the Exchange closes or on a day when the Exchange is not open for business, BFDS cannot accept the request and a new one will be necessary. If an investor decides to change the bank account to which proceeds are to be wired, the investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless an investor indicates otherwise on the account application, BFDS will be authorized to act upon redemption and exchange instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide BFDS with the investor's account registration and address as it appears on the records of State Street Bank. BFDS will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult BFDS. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was 32 deposited less than 15 days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. CALCULATION OF PERFORMANCE INFORMATION The Funds' investment performance may from time to time be included in advertisements about the Funds. "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30- day period by the maximum public offering price per share of the class on the last day of that period. For purposes of calculating yield, net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in a Fund. Total return may also be presented for other periods. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Bond, Intermediate Maturity Bond and Investment Grade Bond Funds declare and pay dividends quarterly; the Global Bond Fund declares and pays its net investment income to shareholders as dividends annually; the Short-Term Bond Fund declares dividends daily and makes payments monthly. Each Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Funds declare or pay dividends. 33 Dividends and capital gain distributions will automatically be reinvested in additional shares of the same Fund unless an investor has elected to receive cash. Each Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as a Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short term capital gain distributions are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by a Fund as deriving from net gains on securities held for more than one year will be taxable as such (generally at a 20% rate for noncorporate shareholders) whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to him or her as described above. If a shareholder held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution. Each Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that he or she is not subject to such withholding. Dividends derived from interest on U.S. Government Securities may be exempt from state and local taxes. State Street Bank will send investors and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid during the preceding year. An investor should keep this statement as a permanent record. A fee may be charged for any duplicate information requested. NOTE: The foregoing summarizes certain tax consequences of investing in the Funds. Before investing, an investor should consult his or her own tax adviser for more information concerning federal, foreign, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 34 APPENDIX A DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S AND MOODY'S INVESTORS SERVICE, INC. STANDARD & POOR'S AAA This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay interest and repay principal is very strong, and in the majority of instances they differ from AAA issues only in small degree. A Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. BBB Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 35 C The rating C is reserved for income bonds on which no interest is being paid. D Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. R This symbol is attached to the ratings of instruments with significant noncredit risks such as risks to principal or volatility of expected returns. Plus (+) or Minus (-): The ratings from AA to B may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. AAA Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large, or by an exceptionally stable, margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that are rated Aa are judged to be high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities. A Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future. 36 BAA Bonds that are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well. BA Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 37 Should no rating be assigned by Moody's, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. 38 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Post Office Square Boston, Massachusetts 02109 [LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE] ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330 THE LOOMIS SAYLES FUNDS ADMIN CLASS SHARES OF: LOOMIS SAYLES BOND FUND LOOMIS SAYLES SMALL CAP VALUE FUND PROSPECTUS JANUARY 1, 1999 THE LOOMIS SAYLES FUNDS--ADMIN CLASS Loomis Sayles Bond Fund and Loomis Sayles Small Cap Value Fund (the "Funds" and each a "Fund"), each a series of Loomis Sayles Funds (the "Trust"), are separately managed, no-load mutual funds and each Fund has its own investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund. The Funds offer three classes of shares: an Admin Class that is described in this Prospectus and an Institutional Class and a Retail Class that are described in separate prospectuses. This Prospectus concisely describes the information that an investor should know before investing in the Admin Class shares of the Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information (SAI) dated January 1, 1999, as revised from time to time, is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more detailed information about the Funds, has been filed with the Securities and Exchange Commission (the "SEC") and is available along with other related materials on the SEC's Internet Web site (http://www.sec.gov). The SAI is incorporated by reference (legally forms a part of the Prospectus). To obtain more information about the Institutional Class or Retail Class, please call the Distributor toll-free at 800-633-3330, contact your financial intermediary, or visit our Internet Website (http://www.loomissayles.com). For information about: For all other information about .Establishing an account the Funds: .Account procedures and status CALL 800-633-3330 .Exchanges .Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HEREIN HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 4 THE TRUST................................................................. 6 INVESTMENT OBJECTIVE AND POLICIES......................................... 6 MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 8 THE FUNDS' INVESTMENT ADVISER............................................. 18 FUND EXPENSES............................................................. 19 PORTFOLIO TRANSACTIONS.................................................... 19 HOW TO PURCHASE SHARES.................................................... 20 SHAREHOLDER SERVICES...................................................... 21 HOW TO REDEEM SHARES...................................................... 22 CALCULATION OF PERFORMANCE INFORMATION.................................... 23 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 24 APPENDIX A DESCRIPTION OF BOND RATINGS............................................. 26
2 SUMMARY OF EXPENSES (FOR AN ADMIN CLASS SHARE OF THE INDICATED FUND) The following information is provided as an aid in understanding the various expenses that an investor in a Fund will bear indirectly. The information about each Fund shown below is based on expenses for the Funds' first fiscal year. The information below should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
SMALL CAP BOND VALUE FUND FUND ---- --------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price).................................................. none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)...................................... none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)........................... none none Redemption Fees/1...................................../.. none none Exchange Fees............................................ none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.......................................... .60% .75% 12b-1 Fees/3........................................../.. .25% .25% Administrative Fees/4................................./.. .25% .25% Other Operating Expenses (after expense reimbursement where indicated)........................................ .15%/2/ .25%/2/ Total Fund Operating Expenses............................ 1.25%/2/ 1.50%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year................................................. $ 13 $ 15 Three Years.............................................. $ 40 $ 47
- ----------- /1/A $5 charge applies to any wire transfer of redemption proceeds. /2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Total Operating Expenses, exclusive of Administrative Fees, of the Admin Class of the Bond Fund and Small Cap Value Fund to 1.00% and 1.25%, respectively. Without this agreement Other Operating Expenses (including 12b-1 and Administrative Fees) and Total Operating Expenses would have been 5.72% and 6.32% for the Bond Fund and 3.24% and 3.99% for the Small Cap Value Fund, respectively. /3/Because of the ongoing nature of the 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by the rules of the National Association of Securities Dealers, Inc. /4/Administrative fees shown represent the maximum amount presently authorized by the Trustees. 3 FINANCIAL HIGHLIGHTS (FOR AN ADMIN CLASS SHARE OF THE FUNDS OUTSTANDING THROUGHOUT THE INDICATED PERIOD) The financial highlights tables that follow have been audited by PricewaterhouseCoopers LLP, independent accountants. The following information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Funds' 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
BOND FUND -------------- JANUARY 2* TO SEPTEMBER 30** 1998 -------------- Net asset value, beginning of period..................... $12.83 ------ Income from investment operations-- Net investment income (loss)............................. 0.47 Net realized and unrealized gain (loss) on investments... (0.62) ------ Total from investment operations........................ (0.15) ------ Less distributions-- Dividends from net investment income..................... (0.40) ------ Total distributions..................................... (0.40) ------ Net asset value, end of period........................... $12.28 ====== Total return (%)***...................................... (1.3)++ Net assets, end of period (000).......................... $ 630 Ratio of operating expenses to average net assets (%)****................................................. 1.25+ Ratio of net investment income to average net assets (%)..................................................... 7.45+ Portfolio turnover rate (%).............................. 24++ Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%)..................................... 6.32+ Net investment income per share would have been.......... $ 0.15
- ----------- * Commencement of investment operations. ** The Fund's fiscal year-end changed to September 30 from December 31. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 4
SMALL CAP VALUE FUND -------------- JANUARY 2* TO SEPTEMBER 30** 1998 -------------- Net asset value, beginning of period..................... $18.62 ------ Income from investment operations-- Net investment income (loss)............................. 0.03 Net realized and unrealized gain (loss) on investments... (3.11) ------ Total from investment operations........................ (3.08) ------ Net asset value, end of period........................... $15.54 ====== Total return (%)***...................................... (16.5)++ Net assets, end of period (000).......................... $1,046 Ratio of operating expenses to average net assets (%)****................................................. 1.50+ Ratio of net investment income to average net assets (%)..................................................... 0.95+ Portfolio turnover rate (%).............................. 78++ Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)..................................... 3.99+ Net investment income per share would have been.......... $(0.05)
- ----------- * Commencement of investment operations. ** The Fund's fiscal year-end changed to September 30 from December 31. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. NOTE: Further information about each Fund's performance is contained in the Funds' 1998 annual reports to shareholders, which may be obtained without charge. 5 THE TRUST Each Fund is a series of the Trust. The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVE AND POLICIES LOOMIS SAYLES BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its total assets may be invested in preferred stocks. At least 65% of the Fund's total assets will normally be invested in bonds. The fixed income securities in which the Fund may invest include corporate securities, securities issued or guaranteed by the U.S. Government or its authorities or instrumentalities ("U.S. Government Securities"), commercial paper, zero coupon securities, mortgage-backed securities, stripped mortgage-backed securities, collateralized mortgage obligations ("CMOs"), asset-backed securities, when- issued securities, real estate investment trusts ("REITs"), Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The Fund may invest any portion of its assets in securities of Canadian issuers, and up to 20% of its total assets in securities of other foreign issuers. The Fund may also invest up to 35% of its total assets in securities of below investment grade quality (commonly known as "junk bonds"). Securities of below investment grade quality are securities rated below the top four rating categories by each major rating agency that has rated the security, including securities in the lowest rating categories, and unrated securities that Loomis Sayles determines to be of comparable quality. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if 6 unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S ----------------- ------- AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba B/B CCC/Caa C/Ca D
LOOMIS SAYLES SMALL CAP VALUE FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing primarily in equity securities of small capitalization companies with good earnings growth potential that Loomis Sayles believes are undervalued by the market. The Fund will normally invest at least 65% of its total assets in equity securities of companies with market capitalizations that fall within the capitalization range of the Russell 2000 Index and may invest up to 35% of its total assets in larger companies. Loomis Sayles seeks to build a core small capitalization portfolio of stocks of solid companies with reasonable growth prospects and that are attractively priced in relation to the companies' earnings with a smaller emphasis on special situations and turnarounds (companies that have experienced significant business problems but which Loomis Sayles believes have favorable prospects for recovery), as well as unrecognized stocks. Current income is not a consideration in selecting the Fund's investments. The Fund may invest up to 20% of its total assets in securities of foreign issuers. The Fund may also engage in foreign currency hedging transactions, REITs and Rule 144A securities. BOTH FUNDS For temporary defensive purposes, each Fund may invest any portion of its assets in fixed income securities, cash or any other securities deemed appropriate by Loomis Sayles. Except for each Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of each Fund may be changed without a vote of Fund shareholders. 7 MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS COMMON STOCKS AND OTHER EQUITY SECURITIES Each Fund may invest in common stocks and similar equity securities, such as warrants and convertibles. These securities are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. WHEN-ISSUED SECURITIES Each Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If a Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. CONVERTIBLE SECURITIES The Bond Fund may invest in convertible securities which include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchange for) common stocks or other equity securities at a stated price or rate. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their value will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity security, however, so that when the price of the underlying equity security falls, the decline in the price of the convertible security may sometimes be less 8 substantial than that of the underlying equity security. Due to the conversion feature, convertible securities generally yield less than nonconvertible fixed income securities of similar credit quality and maturity. The Fund's investment in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock at a specified date and conversion ratio, or that are convertible at the option of the issuer. Because conversion is not at the option of the holder, the Fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock has declined substantially. REAL ESTATE INVESTMENT TRUSTS Each Fund may invest in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, risks of default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code, and failing to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). Investment in REITs involves risk similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger securities. RULE 144A SECURITIES Each Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. FOREIGN SECURITIES Each Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). The Small Cap Value Fund will not purchase a foreign security if, as a result, the Fund's holdings of foreign securities would exceed 20% of the Fund's total assets. The Bond Fund may invest any portion of its assets in securities of Canadian issuers, but will not 9 purchase foreign securities other than those of Canadian issuers if, as a result, such Fund's holdings of non-U.S. and non-Canadian securities would exceed 20% of the Fund's total assets. Although investing in foreign securities may increase a Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than in the United States. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. A Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. A Fund's investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations or foreign withholding taxes. Changes in the value relative to the U.S. dollar of a foreign currency in which a Fund's holdings are denominated will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although part of a Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay 10 the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of a Fund in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. FOREIGN CURRENCY HEDGING TRANSACTIONS Each Fund may engage in foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Funds may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Funds might also purchase exchange-listed and over-the-counter call and put options on foreign currencies. Over-the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Funds may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. REPURCHASE AGREEMENTS The Small Cap Value Fund and the Bond Fund may each invest in repurchase agreements. In repurchase agreements, the Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for the Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. DEBT AND OTHER FIXED INCOME SECURITIES The Bond Fund may invest in fixed income securities of any maturity. Fixed income securities pay a specified rate of interest or dividends, or a rate 11 that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the income of a Fund that invests in fixed income securities for any particular period. The net asset value of such a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. U.S. GOVERNMENT SECURITIES The Bond Fund may invest in U.S. Government Securities. U.S. Government Securities have different kinds of government support. For example, some U.S. Government Securities, such as U.S. Treasury bonds, are supported by the full faith and credit of the United States, whereas certain other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. Although U.S. Government Securities generally do not involve the credit risks associated with other types of fixed income securities, the market values of U.S. Government Securities do go up and down as interest rates change. Thus, for example, the value of an investment in a Fund that holds U.S. Government Securities may fall during times of rising interest rates. Yields on U.S. Government Securities tend to be lower than those on corporate securities of comparable maturities. Some U.S. Government Securities, such as Government National Mortgage Association Certificates ("GNMA"), are known as "mortgage-backed" securities. Interest and principal payments on the mortgages underlying mortgage-backed U.S. Government Securities are passed through to the holders of the security. If the Fund purchases mortgage-backed securities at a discount or a premium, the Fund will recognize a gain or loss when the payments of principal, through prepayment or otherwise, are passed through to the Fund and, if the payment occurs in a period of falling interest rates, the Fund may not be able to reinvest the payment at as favorable an interest rate. As a result of these principal prepayment features, mortgage-backed securities are generally more volatile investments than many other fixed income securities. In addition to investing directly in U.S. Government Securities, the Fund may purchase certificates of accrual or similar instruments ("strips") 12 evidencing undivided ownership interests in interest payments or principal payments, or both, in U.S. Government Securities. These investment instruments may be highly volatile. LOWER RATED FIXED INCOME SECURITIES The Bond Fund may invest up to 35% of its total assets in securities rated below investment grade (commonly referred to as "junk bonds"). A security will be treated as being of investment grade quality if at the time the Bond Fund acquires it at least one major rating agency has rated the security in its top four rating categories (even if another such agency has issued a lower rating), or if the security is unrated but Loomis Sayles determines it to be of investment grade quality. Lower rated fixed income securities generally provide higher yields, but are subject to greater credit and market risk, than higher quality fixed income securities. Lower rated fixed income securities are considered predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. Achievement of the investment objective of a Fund investing in lower rated fixed income securities may be more dependent on Loomis Sayles' own credit analysis than is the case with higher quality bonds. The market for lower rated fixed income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for lower rated fixed income securities. This lack of liquidity at certain times may affect the values of these securities and may make the evaluation and sale of these securities more difficult. Securities in the lowest rating categories may be in poor standing or in default. Securities in the lowest investment grade category (BBB or Baa) have some speculative characteristics. For more information about the ratings services' descriptions of the various rating categories, see Appendix A. ZERO COUPON SECURITIES The Bond Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. The Fund is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions at times when Loomis Sayles would not otherwise deem it advisable to do so. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. 13 MORTGAGE-BACKED SECURITIES The Bond Fund may invest in mortgage-backed securities, such as GNMA or Fannie Mae certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if the Fund purchases these assets at a premium, a faster-than- expected prepayment rate will reduce yield to maturity, and a slower-than- expected prepayment rate will increase yield to maturity. If the Fund purchases mortgage-backed securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. STRIPPED MORTGAGE-BACKED SECURITIES The Bond Fund may invest in interest-only and principal-only classes of mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO or PO is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurably adverse effect on the Fund's yield to maturity to the extent it invests in IOs. If the assets underlying the IOs experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully its initial investment in these securities. Conversely, POs tend to increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage-backed securities, potentially limiting the Fund's ability to buy or sell those securities at any particular time. COLLATERALIZED MORTGAGE OBLIGATIONS The Bond Fund may invest in CMOs. A CMO is a security backed by a portfolio of mortgages. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. CMOs are issued with a number of 14 classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by the Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. ASSET-BACKED SECURITIES The Bond Fund may invest in asset-backed securities. Through the use of trusts and special purpose corporations, automobile and credit card receivables are securitized in pass-through structures similar to mortgage pass-through structures or in a pass-through structure similar to the CMO structure. Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, the Fund will ordinarily reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, the Fund's ability to maintain a portfolio that includes high-yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. SWAP TRANSACTIONS The Bond Fund may enter into interest rate or currency swaps. The Fund will enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified 15 currencies. The Fund will maintain liquid assets in a segregated custodial account to cover its current obligations under swap agreements. Because swap agreements are not exchange-traded, but are private contracts into which the Fund and a swap counterparty enter as principals, the Fund may experience a loss or delay in recovering assets if the counterparty were to default on its obligations. OPTIONS AND FUTURES TRANSACTIONS The Bond Fund may buy, sell or write options on securities, securities indexes, currencies or futures contracts and may buy and sell futures contracts on securities, securities indexes or currencies. The Fund may engage in these transactions either for the purpose of enhancing investment return, or to hedge against changes in the value of other assets that the Fund owns or intends to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If the Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by the Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased by the Fund and futures contracts held by the Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of 16 securities held in the Fund's portfolio. All transactions in options and futures involve the possible risk of loss to the Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When the Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. The Fund will be required, however, to set aside with its custodian bank liquid assets in amounts sufficient at all times to satisfy its obligations under options and futures contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market movements correctly. The Fund's ability to hedge against adverse changes in the value of securities held in its portfolio through options and futures also depends on the degree of correlation between changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable the Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), the Fund is at risk that the other party to the transaction will default on its obligations, or will not permit the Fund to terminate the transaction before its scheduled maturity. As a result of these characteristics, the Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. YEAR 2000 Many computer software systems in use today cannot properly process date- related information from and after January 1, 2000. Should any of the computer systems employed by the Funds' major service providers fail to process this type of information properly, that could have a negative impact on the Funds' operations and the services that are provided to the Funds' shareholders. Loomis Sayles and the Distributor have each advised the Funds that they are reviewing all of their computer systems with the goal of modifying or replacing such systems prior to January 1, 2000, to the extent necessary to foreclose any such negative impact. In addition, Loomis Sayles has been advised by the Funds' custodian that it is also in the process of reviewing its systems 17 with the same goal. As of the date of this prospectus, the Funds and Loomis Sayles have no reason to believe that these goals will not be achieved. Similarly, the values of certain of the portfolio securities held by the Funds may be adversely affected by the inability of the securities' issuers or of third parties to process this type of information properly. THE FUNDS' INVESTMENT ADVISER The Funds' investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Company, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. In addition to selecting and reviewing the Fund's investments, Loomis Sayles provides executive and other personnel for the management of the Funds. The Trust's board of trustees supervises Loomis Sayles' conduct of the affairs of the Funds. As of October 31, 1998, Charles Schwab & Co. Inc. owned 48% of the Bond Fund and 16% of the Small Cap Value Fund. As of October 31, 1998, Smith Barney, Inc. owned 10% of the Small Cap Value Fund. Shareholders holding more than 25% of a Fund's shares may be deemed to control the relevant Fund. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the Bond Fund since its commencement of investment operations in 1991. Kathleen C. Gaffney, Vice President of Loomis Sayles, has served as associate portfolio manager of the Bond Fund since October, 1997. Mr. Fuss and Ms. Gaffney joined Loomis Sayles in 1976 and 1984, respectively. Jeffrey C. Petherick, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value Fund since 1993, and Mary C. Champagne, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value Fund since 1995. Mr. Petherick joined Loomis Sayles in 1990. Before joining Loomis Sayles in 1993, Ms. Champagne was a portfolio manager at NBD Bank. 18 FUND EXPENSES The Bond Fund pays Loomis Sayles an annual investment advisory fee of .60% of the Fund's average daily net assets. The Small Cap Value Fund pays Loomis Sayles an annual investment advisory fee of .75% of the Fund's average daily net assets. Such investment advisory fees are paid monthly. In addition to the investment advisory fee, each Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees and expenses of registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, 12b-1 fees, administrative fees, expenses of preparing, printing and mailing prospectuses to existing shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles or its affiliated companies. Under a Distribution Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, each of the Funds pays the Distributor, a subsidiary of Loomis Sayles, a monthly distribution fee at an annual rate not to exceed 0.25% of the Fund's average daily net assets attributable to the Admin Class shares. The Distributor may pay all or any portion of the distribution fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of Admin Class shares of the Funds, or for providing personal services to investors in Admin Class shares of the Funds and/or the maintenance of accounts, and may retain all or any portion of the distribution fee as compensation for the Distributor's services as principal underwriter of the Admin Class shares of the Funds. Each of the Funds may also pay an "administrative fee" at an annual rate of up to 0.25% of its average daily net assets attributable to the Admin Class to certain securities dealers or financial intermediaries for providing personal service and account maintenance for their customers who are shareholders of the Funds. Loomis Sayles may also pay these parties a continuing fee at an annual rate of up to 0.25% of the value of Fund shares held for those customers' accounts, which fees are paid by Loomis Sayles out of its own assets and are not assessed against the Funds. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Funds' assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher costs and higher levels of taxable gains. 19 HOW TO PURCHASE SHARES An intermediary may make an initial purchase of shares of any Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds Shares of the Fund may be purchased exclusively through intermediaries, who will be the record owner of the shares. The intermediary may purchase shares by paying cash or by exchanging Admin Class shares of any Fund. All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Upon acceptance of an order, Boston Financial Data Services ("BFDS") opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, the intermediary may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the intermediary's account number or name and tax identification number. Initial or subsequent investments can also be made by federal funds wire. For initial investment by wire, contact the Distributor at 800-633-3330, option 5 for an account number before sending the wire. The intermediary should instruct its bank to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Admin Class), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. Each Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Funds do not presently anticipate that they will do so, each Fund reserves the right to suspend or change the terms of the offering of its shares. 20 The price an intermediary pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of each Fund are sold with no sales charge. The net asset value of each Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. Each Fund also offers (i) a Retail Class of shares that has a $25,000 minimum investment for certain categories of investors, is offered through intermediaries and does not bear administrative fees, and (ii) an Institutional Class of shares that in the case of the Bond Fund has a $25,000 investment mimimum and in the case of the Small Cap Value Fund has a $1 million minimum investment for certain categories of investors and does not bear 12b-1 fees or administrative fees. Because of its higher expenses, the Admin Class of shares of each Fund is expected to have a lower total return than either of the Institutional Class or Retail Class of shares. SHAREHOLDER SERVICES The Funds offer the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from the Distributor. Telephone redemption and exchange privileges will be established automatically when an intermediary opens an account unless an intermediary elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. Admin Class shares of any Fund may be exchanged for Admin Class shares of any other fund that is a series of Loomis Sayles Funds and that offers Admin Class shares or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles. Exchanges may be made by written instructions or by telephone, unless an intermediary elected on the application to decline telephone exchange 21 privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Funds reserve the right to terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Funds may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. An exchange is a taxable event for federal income tax purposes in which a gain or loss would be realized by an investor that is subject to federal income taxation. HOW TO REDEEM SHARES An intermediary can redeem shares by sending a written request to the Distributor. Proceeds from a written request may be sent to the intermediary in the form of a check. As described below, an intermediary may also redeem shares by calling the Distributor at 800-626-9390. Proceeds resulting from a telephone redemption request can be wired to an intermediary's bank account or sent by check in the name of the intermediary to its record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. Intermediaries requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an intermediary is requesting that the proceeds check be made out to someone other than the intermediary or be sent to an address other than the record address, (2) the account registration has changed within the last 30 days or (3) an intermediary is instructing us to wire the proceeds to a bank account not designated on the application, the intermediary must have the signatory's signature guaranteed by an eligible guarantor. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an intermediary should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an intermediary telephones a redemption request, the proceeds are wired to the bank account previously chosen by the intermediary. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by the Distributor prior to the close of regular trading on the New York Stock Exchange. If an intermediary telephones a request to the Distributor after the Exchange closes or on a day when the Exchange is not open for business, the Distributor cannot accept the request and a new one will be necessary. 22 If an intermediary decides to change the bank account to which proceeds are to be wired, the intermediary must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the intermediary's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless an intermediary indicates otherwise on the account application, the Distributor will be authorized to act upon redemption and exchange instructions received by telephone from the intermediary or any person claiming to act as the intermediary's representative who can provide the Distributor with the intermediary's account registration and address as it appears on the records of State Street Bank. The Distributor will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult the Distributor. In times of heavy market activity, an intermediary who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by the Distributor in proper form. Proceeds resulting from a written redemption request will normally be mailed to an intermediary within seven days after receipt of the intermediary's request in good order. Telephonic redemption proceeds will normally be wired to an intermediary's bank on the first business day following receipt of a proper redemption request. If an intermediary purchased shares by check and the check was deposited less than 15 days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. CALCULATION OF PERFORMANCE INFORMATION The Funds' investment performance may from time to time be included in advertisements about the Funds or Loomis Sayles Funds. "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30-day period by the maximum public offering price per share of the class on the last day of that period. 23 For purposes of calculating yield, net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in a Fund. Total return may also be presented for other periods. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Bond Fund declares and pays dividends quarterly. The Small Cap Value Fund declares and pays dividends annually. Each Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Fund declares or pays dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the same Fund unless an intermediary has elected to receive cash. Each Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as a Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short-term capital gain distributions are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by a Fund as deriving from net gains on securities held for more than one year will be taxable as such (generally at a 20% rate for noncorporate shareholders) whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to him or her as described above. If a shareholder 24 held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution. Each Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays (1) if an intermediary does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an intermediary has underreported income in the past, or (3) if an intermediary fails to certify to the Fund that he or she is not subject to such withholding. Dividends derived from interest on U.S. Government Securities may be exempt from state and local taxes. State Street Bank will send intermediaries and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid during the preceding year. An intermediary should keep this statement as a permanent record. A fee may be charged for any duplicate information requested. NOTE: The foregoing summarizes certain tax consequences of investing in the Funds. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, foreign, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 25 APPENDIX A DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S AND MOODY'S INVESTORS SERVICE, INC. STANDARD & POOR'S AAA This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay interest and repay principal is very strong, and in the majority of instances they differ from AAA issues only in small degree. A Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. BBB Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 26 C The rating C is reserved for income bonds on which no interest is being paid. D Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. R This symbol is attached to the ratings of instruments with significant noncredit risks such as risks to principal or volatility of expected returns. Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. AAA Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or by an exceptionally stable, margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that are rated Aa are judged to be high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities. A Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future. 27 BAA Bonds that are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well. BA Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 28 Should no rating be assigned by Moody's, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. 29 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Post Office Square Boston, Massachusetts 02109 ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330 THE LOOMIS SAYLES FUNDS--EQUITY FUNDS RETAIL CLASS SHARES OF: LOOMIS SAYLES CORE VALUE FUND LOOMIS SAYLES INTERNATIONAL EQUITY FUND LOOMIS SAYLES MID-CAP GROWTH FUND LOOMIS SAYLES MID-CAP VALUE FUND LOOMIS SAYLES SMALL CAP GROWTH FUND LOOMIS SAYLES SMALL CAP VALUE FUND LOOMIS SAYLES STRATEGIC VALUE FUND LOOMIS SAYLES WORLDWIDE FUND PROSPECTUS JANUARY 1, 1999 THE LOOMIS SAYLES FUNDS--EQUITY FUNDS Loomis Sayles Core Value Fund, Loomis Sayles International Equity Fund, Loo- mis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis Sayles Small Cap Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis Sayles Strategic Value Fund and Loomis Sayles Worldwide Fund (the "Funds" and each a "Fund"), each a series of Loomis Sayles Funds, are separately managed, no-load mutual funds, each of which has its own investment objective and poli- cies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment ad- viser of each Fund. The Funds offer two classes of shares: a Retail Class that is described in this Prospectus, and an Institutional Class, which generally has a higher min- imum investment and bears lower expenses, that is described in a separate pro- spectus. The Loomis Sayles Small Cap Value Fund also offers a third class of shares; an Admin Class, bearing higher expenses than the Institutional or Re- tail Class, that is described in a separate prospectus. This Prospectus con- cisely describes the information that an investor should know before investing in the Retail Class shares of any Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information (SAI) dated Janu- ary 1, 1999, as revised from time to time, is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more detailed information about the Funds, has been filed with the Securities and Exchange Commission (the "SEC") and is available along with other related materials on the SEC's Internet Website (http://www.sec.gov). The SAI is in- corporated herein by reference (legally forms part of the Prospectus). To ob- tain more information about the Institutional Class or Admin Class of shares, please call the Distributor toll-free at 800-633-3330, contact your financial intermediary, or visit our Internet Website (http://www.loomissayles.com). For information about: For all other information about . Establishing an account the Funds: . Account procedures and status CALL 800-633-3330 . Exchanges . Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 5 THE TRUST................................................................. 13 INVESTMENT OBJECTIVES AND POLICIES........................................ 13 MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 16 THE FUNDS' INVESTMENT ADVISER............................................. 23 FUND EXPENSES............................................................. 25 PORTFOLIO TRANSACTIONS.................................................... 26 HOW TO PURCHASE SHARES.................................................... 26 SHAREHOLDER SERVICES...................................................... 29 HOW TO REDEEM SHARES...................................................... 29 CALCULATION OF PERFORMANCE INFORMATION.................................... 31 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 31
2 SUMMARY OF EXPENSES (FOR A RETAIL CLASS SHARE OF EACH INDICATED FUND) The following information is provided as an aid in understanding the various expenses that an investor in a Fund will bear indirectly. The information below is based on expenses for the Funds' most recent fiscal year ended, and should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
CORE INTERNATIONAL MID-CAP MID-CAP VALUE EQUITY GROWTH VALUE FUND FUND FUND FUND ----- ------------- ------- ------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price).......................... none none none none Maximum Sales Load Imposed on Reinvested Dividends (as % of (offering price)................ none none none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)......... none none none none Redemption Fees/1............./.. none none none none Exchange Fees.................... none none none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.................. .50% .75% .75% .75% 12b-1 Fees....................... .25% .25% .25% .25% Other Operating Expenses (after expense reimbursements where indicated)...................... .35%/2/ .25%/2/ .25%/2/ .25%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)................ 1.10%/2/ 1.25%/2/ 1.25%/2/ 1.25%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year......................... $ 11 $ 13 $ 13 $ 13 Three Years...................... $ 35 $ 40 $ 40 $ 40 Five Years....................... $ 61 $ 69 $ 69 $ 69 Ten Years........................ $134 $151 $151 $151
3
SMALL CAP SMALL STRATEGIC GROWTH CAP VALUE VALUE WORLDWIDE FUND FUND FUND FUND --------- --------- --------- --------- Shareholder Transactions Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price).......................... none none none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)........ none none none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)......... none none none none Redemption Fees/1............./.. none none none none Exchange Fees.................... none none none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.................. .75% .75% .50% .75% 12b-1 Fees....................... .25% .25% .25% .25% Other Operating Expenses (after expense reimbursements where indicated)...................... .25%/2/ .19% .50%/2/ .25%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)................ 1.25%/2/ 1.19% 1.25%/2/ 1.25%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year......................... $ 13 $ 12 $ 13 $ 13 Three Years...................... $ 40 $ 38 $ 40 $ 40 Five Years....................... $ 69 $ 65 $ 69 $ 69 Ten Years........................ $151 $144 $151 $151
- ----------- /1/A $5 charge applies to any wire transfer of redemption proceeds from any Fund. /2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Funds' Total Operating Expenses to the percentages of net assets shown in the table. Without this agreement, Other Operating Expenses (including 12b-1 fees) and Total Operating Expenses would have been 1.7% and 2.20%, respectively, for the Core Value Fund, 9.51% and 10.26%, respectively, for the International Equity Fund, 27.22% and 27.97%, respectively, for the Mid- Cap Growth Fund, 12.56% and 13.31%, respectively, for the Mid-Cap Value Fund, 2.95% and 3.70%, respectively, for the Small Cap Growth Fund, 14.96% and 15.46%, respectively, for the Strategic Value Fund and 23.94% and 24.69%, respectively, for the Worldwide Fund. Other Operators Expenses and Total Operating Expenses for the Small Cap Value Fund were unaffected by this Agreement. 4 FINANCIAL HIGHLIGHTS (FOR A RETAIL CLASS SHARE OF EACH INDICATED FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The financial highlights tables that follow have been audited by PricewaterhouseCoopers LLP, independent accountants. The information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Funds' 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
CORE VALUE FUND ----------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period................ $17.62 $15.60 ------ ------ Income from investment operations-- Net investment income (loss)...................... 0.15*** 0.15*** Net realized and unrealized gain (loss) on investments................................... (0.98) 4.30 ------ ------ Total from investment operations................. (0.83) 4.45 ------ ------ Less distributions-- Dividends from net investment income.............. 0.00 (0.16) Distributions from net realized capital gains..... 0.00 (2.27) ------ ------ Total distributions.............................. 0.00 (2.43) ------ ------ Net asset value, end of period...................... $16.79 $17.62 ====== ====== Total return (%)****................................ (4.7) 28.9 Net assets, end of period (000)..................... $1,015 $1,324 Ratio of operating expenses to average net assets (%)+........................................ 1.10++ 1.10++ Ratio of net investment income to average net assets (%)......................................... 1.07++ 0.84++ Portfolio turnover rate (%)......................... 49+++ 64 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)....................... 2.20++ 6.17++ Net investment income per share would have been... $ 0.00*** $(0.73)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + The advisor 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 5
INTERNATIONAL EQUITY FUND -------------------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 --------------- ------------ Net asset value, beginning of period... $ 11.28 $ 13.16 ------------ ------------ Income from investment operations-- Net investment income (loss)......... 0.10 0.10 *** Net realized and unrealized gain (loss) on investments............... (0.68) (0.26) ------------ ------------ Total from investment operations.... (0.58) (0.16) ------------ ------------ Less distributions-- Dividends from net investment income. 0.00 (0.17) Distributions from net realized capital gains....................... 0.00 (1.55) ------------ ------------ Total distributions................. 0.00 (1.72) ------------ ------------ Net asset value, end of period......... $ 10.70 $ 11.28 ============ ============ Total return (%)****................... (5.1)+++ (1.3) Net assets, end of period (000)........ $ 150 $ 233 Ratio of operating expenses to average net assets (%)+....................... 1.25 ++ 1.25 ++ Ratio of net investment income to average net assets (%)................ 1.16 ++ 0.73 ++ Portfolio turnover rate (%)............ 96 +++ 119 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)................................. 10.26 ++ 16.24 ++ Net investment income per share would have been........................... $ (0.67) $ (1.93)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 6
MID-CAP GROWTH FUND ----------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period................ $11.49 $10.00 ------ ------ Income from investment operations-- Net investment income (loss)...................... (0.05) (0.06) Net realized and unrealized gain (loss) on investments................................... (0.95) 2.27 ------ ------ Total from investment operations................. (1.00) 2.21 ------ ------ Less distributions-- Distributions in excess of net investment income.. 0.00 (0.10) Distributions from net realized capital gains..... 0.00 (0.62) ------ ------ Total distributions.............................. 0.00 (0.72) ------ ------ Net asset value, end of period...................... $10.49 $11.49 ====== ====== Total return (%)***................................. (8.7)++ 22.4 Net assets, end of period (000)..................... $ 85 $ 74 Ratio of operating expenses to average net assets (%)****..................................... 1.25 + 1.25 + Ratio of net investment income to average net assets (%)................................................ (0.60)+ (0.67)+ Portfolio turnover rate (%)......................... 82 ++ 174 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)....................... 27.97 + 36.58 + Net investment income per share would have been... $(2.08) $(3.29)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 7
MID-CAP VALUE FUND ----------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period................ $11.53 $10.00 ------ ------ Income from investment operations-- Net investment income (loss)...................... (0.01) 0.03 Net realized and unrealized gain (loss) on investments................................... (1.45) 2.55 ------ ------ Total from investment operations................. (1.46) 2.58 ------ ------ Less distributions-- Dividends from net investment income.............. 0.00 (0.11) Distributions from net realized capital gains..... 0.00 (0.94) ------ ------ Total distributions.............................. 0.00 (1.05) ------ ------ Net asset value, end of period...................... $10.07 $11.53 ====== ====== Total return (%)***................................. (12.7)++ 26.0 Net assets, end of period (000)..................... $ 121 $ 168 Ratio of operating expenses to average net assets (%)****..................................... 1.25+ 1.25 + Ratio of net investment income to average net assets (%)................................................ (0.03)+ 0.42 + Portfolio turnover rate (%)......................... 225 ++ 130 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)....................... 13.31+ 27.99 + Net investment income per share would have been... $(2.40) $(1.90)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 8
SMALL CAP GROWTH FUND ----------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period.............. $11.30 $10.00 ------ ------ Income from investment operations-- Net investment income (loss).................... (0.08) (0.10)*** Net realized and unrealized gain (loss) on investments................................. (1.42) 1.99 ------ ------ Total from investment operations............... (1.50) 1.89 ------ ------ Less distributions-- Distributions in excess of net realized capital gains.......................................... 0.00 (0.59) ------ ------ Total distributions............................ 0.00 (0.59) ------ ------ Net asset value, end of period.................... $ 9.80 $11.30 ====== ====== Total return (%)****.............................. (13.3)+++ 19.2 Net assets, end of period (000)................... $1,057 $1,139 Ratio of operating expenses to average net assets (%)+...................................... 1.25 ++ 1.25 ++ Ratio of net investment income to average net assets (%)....................................... (0.80)++ (0.94)++ Portfolio turnover rate (%)....................... 116 +++ 211 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)..................... 3.70 ++ 7.82 ++ Net investment income per share would have been. $(0.34) $(0.77)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + The adviser has agreed to reimburse a portion of the Fund's expenses during the period. Without the reimbursement the Fund's ratio of operating expenses would have been higher. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 9
SMALL CAP VALUE FUND ----------------------- NINE MONTHS JAN 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period.............. $ 18.62 $ 17.39 ------- ------- Income from investment operations-- Net investment income (loss).................... 0.10 0.15*** Net realized and unrealized gain (loss) on investments................................. (3.15) 4.21 ------- ------- Total from investment operations............... (3.05) 4.36 ------- ------- Less distributions-- Dividends from net investment income............ 0.00 (0.08) Distributions from net realized capital gains... 0.00 (3.05) ------- ------- Total distributions............................ 0.00 (3.13) ------- ------- Net asset value, end of period.................... $ 15.57 $18.62 ======= ======= Total return (%)****.............................. (16.4)+++ 25.6 Net assets, end of period (000)................... $54,060 $34,353 Ratio of operating expenses to average net assets (%)+...................................... 1.19++ 1.25++ Ratio of net investment income to average net assets (%)....................................... 0.79++ 0.79++ Portfolio turnover rate (%)....................... 78+++ 94 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)..................... 1.19++ 1.35++ Net investment income per share would have been. $ 0.10 $ 0.13***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 10
STRATEGIC VALUE FUND ----------------------- NINE MONTHS JAN 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period................ $11.76 $10.00 ------ ------ Income from investment operations-- Net investment income (loss)...................... (0.04) (0.06)*** Net realized and unrealized gain (loss) on investments................................... (1.27) 2.00 ------ ------ Total from investment operations................. (1.31) 1.94 ------ ------ Less distributions-- Distributions in excess of net investment income........................................... 0.00 (0.18) ------ ------ Total distributions.............................. 0.00 (0.18) ------ ------ Net asset value, end of period...................... $10.45 $11.76 ====== ====== Total return (%)****................................ (11.1)+++ 19.4 Net assets, end of period (000)..................... $ 249 $ 279 Ratio of operating expenses to average net assets (%)+........................................ 1.25 ++ 1.25 ++ Ratio of net investment income to average net assets (%)......................................... (0.47)++ (0.49)++ Portfolio turnover rate (%)......................... 31+++ 34 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)....................... 15.46 ++ 21.33 ++ Net investment income per share would have been... $(1.38) $(2.50)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 11
WORLDWIDE FUND ------------------------ NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period.............. $ 9.86 $ 10.63 ------- -------- Income from investment operations-- Net investment income (loss).................... 0.30*** 0.38*** Net realized and unrealized gain (loss) on investments.................................... (1.40) (0.03) ------- -------- Total from investment operations............... (1.10) 0.35 ------- -------- Less distributions-- Dividends from net investment income............ 0.00 (0.45) Distributions from net realized capital gains... 0.00 (0.67) ------- -------- Total distributions............................ 0.00 (1.12) ------- -------- Net asset value, end of period.................... $ 8.76 $ 9.86 ======= ======== Total return (%)****.............................. (11.2)+++ 3.3 Net assets, end of period (000)................... $ 73 $ 20 Ratio of operating expenses to average net assets (%)+...................................... 1.25++ 1.25++ Ratio of net investment income to average net assets (%)....................................... 3.88++ 3.58++ Portfolio turnover rate (%)....................... 93+++ 134 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)..................... 24.69++ 214.91++ Net investment income per share would have been........................................... $ (1.49)*** $ (23.33)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns wold have been lower had the advisor not reduced its advisory fee and/or borne other operating expenses. + The advisor 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. NOTE: Further information about each Fund's performance is contained in the Funds' annual report to shareholders, which may be obtained without charge. 12 THE TRUST Each Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVES AND POLICIES LOOMIS SAYLES CORE VALUE FUND The Fund's investment objective is long-term growth of capital and income. The Fund seeks to achieve its objective by investing substantially all of its assets in common stocks or their equivalent that Loomis Sayles considers to be undervalued in relation to the issuer's earnings, dividends, assets and growth prospects. The Fund may invest up to 20% of its total assets in securities of foreign issuers. The Fund may also engage in foreign currency hedging transactions real estate investment trusts ("REITs") and Rule 144A securities. LOOMIS SAYLES INTERNATIONAL EQUITY FUND The Fund's investment objective is high total investment return through a combination of capital appreciation and current income. The Fund seeks to achieve its objective by investing primarily in equity securities of companies organized or headquartered outside the United States. Under normal conditions the Fund will invest at least 65% of its total assets in equity securities of issuers from at least three countries outside the United States. For temporary defensive purposes, the Fund may invest as much as 100% of its total assets in issuers from one or two countries, which may include the United States. The Fund may also engage in foreign currency hedging transactions, options transactions, REITs and Rule 144A securities. LOOMIS SAYLES MID-CAP GROWTH FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. 13 The Fund seeks to achieve its objective by investing, under normal market conditions, at least 65% of its total assets in equity securities of companies with a market capitalization that falls within the capitalization range of companies included in the Standard & Poor's Mid-Cap 400 Index. Current income is not a consideration in selecting the Fund's investments. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 20% of its total assets in the securities of issuers headquartered outside the United States or Canada. The Fund may also engage in foreign currency hedging transactions, options and futures transactions, securities lending, and Rule 144A securities. LOOMIS SAYLES MID-CAP VALUE FUND The Fund's objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing, under normal market conditions, at least 65% of its total assets in equity securities of companies with a market capitalization that falls within the capitalization range of companies included in the Standard & Poor's Mid-Cap 400 Index. Loomis Sayles seeks to build a core portfolio of equity securities that it believes to be undervalued by the market in relation to the issuers' earnings, dividends, assets and growth prospects and that has a smaller emphasis on special situations and turnarounds (companies that have experienced significant business problems but that Loomis Sayles believes have favorable prospects for recovery). Current income is not a consideration in selecting the Fund's investments. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 20% of its total assets in the securities of issuers headquartered outside the United States or Canada. The Fund may also engage in foreign currency hedging transactions, options and futures transactions, securities lending, REITs and Rule 144A securities. LOOMIS SAYLES SMALL CAP GROWTH FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing primarily in equity securities of small, rapidly growing companies that Loomis Sayles believes have the potential for accelerating earnings growth and rising profit margins. The Fund will normally invest at least 65% of its total assets in equity securities of companies with market capitalizations that fall within the capitalization range of the Russell 2000 Index and may invest up to 35% of its total assets in larger companies. Loomis Sayles seeks companies that have distinctive products, technologies, or services; dynamic earnings growth; prospects for a high level of profitability; and outstanding management. Current income is not a consideration in selecting the Fund's investments. The Fund may invest any 14 portion of its assets in securities of Canadian issuers and up to 20% of its total assets in the securities of issuers headquartered outside the United States or Canada. The Fund may also engage in foreign currency hedging transactions, options and futures transactions, securities lending, and Rule 144A securities. LOOMIS SAYLES SMALL CAP VALUE FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing primarily in equity securities of small capitalization companies with good earnings growth potential that Loomis Sayles believes are undervalued by the markets. The Fund will normally invest at least 65% of its total assets in equity securities of companies with market capitalizations that fall within the capitalization range of the Russell 2000 Index and may invest up to 35% of its total assets in larger companies. Loomis Sayles seeks to build a core small capitalization portfolio of stocks of solid companies with reasonable growth prospects and that are attractively priced in relation to the companies' earnings with a smaller emphasis on special situations and turnarounds (companies that have experienced significant business problems but which Loomis Sayles believes have favorable prospects for recovery), as well as unrecognized stocks. Current income is not a consideration in selecting the Fund's investments. The Fund may invest up to 20% of its total assets in securities of foreign issuers. The Fund may also engage in foreign currency hedging transactions, REITs and Rule 144A securities. LOOMIS SAYLES STRATEGIC VALUE FUND The Fund's investment objective is long-term capital growth from investments in equity securities. The Fund seeks to achieve its objective by investing substantially all of its assets in equity securities that Loomis Sayles considers to be undervalued by the markets. Stocks are selected based on a combination of quantitative factors including historical, relative price-earnings ratios; price-earnings ratios relative to growth rates; relative fundamentals and price momentum; and qualitative factors including the quality of management, position in the industry, debt and balance sheet restructuring and product cycles. The Fund's strategy is to have a relatively concentrated portfolio normally consisting of approximately 35-40 securities that Loomis Sayles considers best positioned to perform in the current and future environments. The Fund may invest any portion of its assets in the securities of Canadian issuers and up to 20% of its total assets in securities of issuers headquartered outside the United States or Canada. The Fund may also engage in foreign currency hedging transactions, options and futures transactions, securities lending, REITs and Rule 144A securities. 15 LOOMIS SAYLES WORLDWIDE FUND The Fund's investment objective is high total investment return through a combination of capital appreciation and current income. The Fund seeks to achieve its objective by investing in U.S. and foreign equity and debt securities. The allocation of the Fund's assets among the four sectors of domestic equities, international equities, domestic bonds and international bonds will be made by Loomis Sayles' Global Asset Allocation group. The Fund will normally invest its assets in securities of issuers from at least three countries, one of which may be the United States. The Fund may also invest in collateralized mortgage obligations, zero coupon securities, when-issued securities, REITs and Rule 144A securities. The Fund may engage in foreign currency hedging transactions and options and forward contract transactions. ALL FUNDS For temporary defensive purposes, each Fund may invest any portion of its assets in fixed income securities, cash and any other securities deemed appropriate by Loomis Sayles. Except for each Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of each Fund may be changed without a vote of Fund shareholders. MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS COMMON STOCKS AND OTHER EQUITY SECURITIES Common stocks and similar equity securities, such as warrants and convertibles, are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. DEBT AND OTHER FIXED INCOME SECURITIES The Worldwide Fund may invest in fixed income securities of any maturity. Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the yield of a Fund that invests in fixed income securities for any particular period. The net asset 16 value of such a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. ZERO COUPON SECURITIES The Worldwide Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. A Fund investing in zero coupon securities is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. COLLATERALIZED MORTGAGE OBLIGATIONS The Worldwide Fund may invest in collateralized mortgage obligations ("CMOs"). A CMO is a security backed by a portfolio of mortgages or mortgage- backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal payments on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by a Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. WHEN-ISSUED SECURITIES Each Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the 17 security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If a Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. REAL ESTATE INVESTMENT TRUSTS The Funds may invest in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, risks of default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code, and failing to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). Investment in REITs involves risk similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger securities. RULE 144A SECURITIES Each Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. 18 FOREIGN SECURITIES Each Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). Each of the Core Value and Small Cap Value Funds will not purchase a foreign security if, as a result, the Fund's holdings of foreign securities would exceed 20% of the Fund's total assets. Each of the Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value Funds may each invest any portion of its assets in securities of Canadian issuers, but will not purchase foreign securities other than those of Canadian issuers if, as a result, such Fund's holding of non-U.S. and non- Canadian securities would exceed 20% of the Fund's total assets. Although investing in foreign securities may increase a Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or governmental issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than in the United States. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. A Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. A Fund's investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations or foreign withholding taxes. Changes in the value relative to the U.S. dollar of a foreign currency in which a Fund's holdings are denominated will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. 19 In addition, although part of a Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of a Fund in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. FOREIGN CURRENCY HEDGING TRANSACTIONS Each Fund that invests in foreign securities may engage in foreign currency exchange transactions, in connection with the purchase and sale of foreign securities, to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Funds may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Funds might also purchase exchange-listed and over-the-counter call and put options on foreign currencies. Over-the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Funds may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. OPTIONS AND FUTURES TRANSACTIONS The International Equity, Mid-Cap Growth, Mid-Cap Value, Small Cap Growth, Strategic Value and Worldwide Funds may buy, sell or write options on securities, securities indexes, currencies or futures contracts. The Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value Funds may buy 20 and sell futures contracts on securities, securities indexes or currencies. Each of these Funds may engage in these transactions either for the purpose of enhancing investment return, or to hedge against changes in the value of other assets that the Fund owns or intends to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If a Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by a Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased or written by a Fund and futures contracts held by a Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities held in a Fund's portfolio. All transactions in options and futures involve the possible risk of loss to a Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When a Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. A Fund will be required, however, to set aside with its custodian bank liquid assets in amounts sufficient at all times to satisfy its obligations under options and futures contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market movements correctly. A Fund's ability to hedge against adverse changes in the 21 value of securities held in its portfolio through options and futures also depends on the degree of correlation between the changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable a Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), a Fund is at risk that the other party to the transaction will default on its obligations, or will not permit the Fund to terminate the transaction before its scheduled maturity. As a result of these characteristics, each Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements. In repurchase agreements, a Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for a Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. SECURITIES LENDING The Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value funds may each lend its portfolio securities to broker-dealers or other parties under contracts calling for the deposit by the borrower with the Fund's custodian of cash collateral equal to at least the market value of the securities loaned, marked to market on a daily basis. The Fund will continue to benefit from interest or dividends on the securities loaned and will also receive interest through investment of the cash collateral in short-term liquid investments. No loans will be made if, as a result, the aggregate amount of such loans outstanding at any time would exceed 33 1/3% of the Fund's total assets (taken at current value). Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event affecting the investment occurs, such loans will be called so that the securities may be voted by the Fund. The Fund pays various fees in connection with such loans, including shipping fees and reasonable custodial or placement fees. 22 Securities loans must be fully collateralized at all times, but involve some credit risk to the Fund if the borrower defaults on its obligation and the Fund is delayed or prevented from recovering the collateral. YEAR 2000 Many computer software systems in use today cannot properly process date- related information from and after January 1, 2000. Should any of the computer systems employed by the Funds' major service providers fail to process this type of information properly, that could have a negative impact on the Funds' operations and the services that are provided to the Funds' shareholders. Loomis Sayles and the Distributor have each advised the Funds that they are reviewing all of their computer systems with the goal of modifying or replacing such systems prior to January 1, 2000, to the extent necessary to foreclose any such negative impact. In addition, Loomis Sayles has been advised by the Funds' custodian that it is also in the process of reviewing its systems with the same goal. As of the date of this prospectus, the Funds and Loomis Sayles have no reason to believe that these goals will not be achieved. Similarly, the values of certain of the portfolio securities held by the Funds may be adversely affected by the inability of the securities' issuers or of third parties to process this type of information properly. THE FUNDS' INVESTMENT ADVISER The Funds' investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. In addition to selecting and reviewing the Funds' investments, Loomis Sayles provides executive and other personnel for the management of the Funds. The Trust's board of trustees supervises Loomis Sayles' conduct of the affairs of the Funds. As of October 31, 1998, Charles Schwab & Co. Inc. owned 22%, 22%, 79%, 40%, 31%, 16%, 63%, and 93% of the Core Value Fund, International Equity Fund, Mid- Cap Growth Fund, Mid-Cap Value Fund, Small Cap Growth Fund, Small Cap Value Fund, Strategic Value Fund, and Worldwide Fund, 23 respectively. As of October 31, 1998, Asbestos Workers Local #84 Pension Fund, John W. George, Jr. Trust and Green Tree Financial Corp. owned 6%, 6%, and 7% of the Core Value Fund, respectively. As of October 31, 1998, Comerica Bank and The Security Mutual Life Insurance Company of Lincoln Nebraska owned 12% and 7% of the International Equity Fund, respectively. As of October 31, 1998, American National Bank owned 9% of the Mid-Cap Growth Fund. As of October 31, 1998, Carey & Co. and John W. George, Jr. Trust each owned 8% of the Mid-Cap Value Fund. As of October 31, 1998, Carey & Co., The community Foundation Serving Coastal South Carolina, Covie & Co, Donaldson Lufkin Jenrette Securities Corporation, Inc., Fifth Third Bank, and Trussal and Co. owned 6%, 12%, 6%, 8%, 6%, and 6% of the Small Cap Growth Fund. As of October 31, 1998, Smith Barney, Inc. owned 10% of the Small Cap Value Fund. As of October 31, 1998, Lazard Freres & Co. and Pomona College owned 20% and 9% of the Strategic Value Fund, respectively. Shareholders holding more than 25% of a Fund's shares may be deemed to control the relevant Fund. Issac H. Green, Director of Loomis Sayles and Vice President of the Trust and of Loomis Sayles, and James L. Carroll, Vice President of Loomis Sayles and the Trust, have served as portfolio managers of the Core Value Fund since October of 1997. Jeffrey W. Wardlow, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Core Value Fund since its commencement of operations in 1991. Jerome A. Castellini, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Mid-Cap Growth Fund since its commencement of operations in 1997. Scott S. Pape, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Mid-Cap Growth Fund since its commencement of operations in 1997. Dean A. Gulis, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Mid-Cap Value Fund since October of 1997, Dawn Alston Paige and Peter Ramsden, each a Vice President of Loomis Sayles, have served as portfolio managers of the Mid-Cap Value Fund since October 1998. Christopher R. Ely, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager, and Philip C. Fine and David L. Smith, Vice Presidents of the Trust and of Loomis Sayles, have served as assistant portfolio managers of the Small Cap Growth Fund since its commencement of operations in 1997. Jeffrey C. Petherick, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value Fund since 1993 and Mary C. Champagne, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value Fund since 1995. Philip J. Schettewi, Vice President of the Trust and Loomis Sayles, has served as the portfolio manager of the Strategic Value Fund since its commencement of operations in 1997. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the domestic bonds sector of the Worldwide Fund since 24 that Fund's commencement of operations in 1996. E. John deBeer, Vice President of the Trust and of Loomis Sayles, has served as portfolio manager of the international bonds sector of the Worldwide Fund since that Fund's commencement of operations in 1996. Quentin P. Faulkner, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the domestic equities sector of the Worldwide Fund since that Fund's commencement of operations in 1996. Paul H. Drexler, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the international equities sector of the Worldwide Fund since that Fund's commencement of operations in 1996 and of the International Equity Fund since 1996. Each of the foregoing, except Messrs. Carroll, Ely, Fine, Gulis and Smith, has been employed by Loomis Sayles for at least five years. Before joining Loomis Sayles in 1996, Mr. Carroll was a Managing Director and Senior Energy Analyst at PaineWebber, Inc. for more than five years. Prior to joining Loomis Sayles in 1996, Mr. Ely was Senior Vice President and Portfolio Manager, and Messrs. Fine and Smith were Vice Presidents and Portfolio Managers, of Keystone Investment Management Company, Inc. Prior to joining Loomis Sayles in 1997, Mr. Gulis was a Principal and Director of Research at Roney & Company for more than five years. FUND EXPENSES Each Fund pays Loomis Sayles a monthly investment advisory fee at the following annual percentage rate of the Fund's average daily net assets:
FUND RATE ---- ---- Core Value.............................................................. .50% International Equity.................................................... .75% Mid-Cap Growth.......................................................... .75% Mid-Cap Value........................................................... .75% Small Cap Growth........................................................ .75% Small Cap Value......................................................... .75% Strategic Value......................................................... .50% Worldwide............................................................... .75%
In addition to the investment advisory fee, each Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees and expenses of registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, 12b-1 fees, expenses of preparing, printing and mailing prospectuses to existing shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles and its affiliated companies. 25 Under a Distribution Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, each of the Funds pays the Distributor, a subsidiary of Loomis Sayles, a monthly distribution fee at an annual rate not to exceed 0.25% of the Fund's average net assets attributable to the Retail Class shares. The Distributor may pay all or any portion of the distribution fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of Retail Class shares of the Funds, or for providing personal services to investors in Retail Class shares of the Funds and/or the maintenance of accounts, and may retain all or any portion of the distribution fee as compensation for the Distributor's services as principal underwriter of the Retail Class shares of the Funds. Loomis Sayles may pay certain broker-dealers or financial intermediaries whose customers are shareholders of the Funds a continuing fee at an annual rate of up to .25% of the value of Fund shares held for those customers' accounts. These fees are paid by Loomis Sayles out of its own assets and are not assessed against the Funds. Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other Fund expenses to the extent necessary to limit total operating expenses of the Retail Class of shares of each Fund to the following annual percentage rate of the Fund's average net assets:
FUND RATE ---- ----- Core Value............................................................. 1.10% International Equity................................................... 1.25% Mid-Cap Growth......................................................... 1.25% Mid-Cap Value.......................................................... 1.25% Small Cap Growth....................................................... 1.25% Small Cap Value........................................................ 1.25% Strategic Value........................................................ 1.25% Worldwide.............................................................. 1.25%
Loomis Sayles may change or terminate these voluntary arrangements at any time, but the Funds' Prospectus would be supplemented to describe the change. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Funds' assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher transaction costs and higher levels of taxable gains. 26 HOW TO PURCHASE SHARES An investor may make an initial purchase of shares of any Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds The minimum initial investment for the Retail Class of each Fund's shares is $25,000 in that Fund. This minimum initial investment does not apply to purchases through certain financial intermediaries including, but not limited to, certain financial advisers, broker dealers, 401(k) alliances, wrap programs, "no transaction fee" programs, bank trust departments, financial consultants and insurance companies. The minimum investment may be waived in whole or in part by Loomis Sayles in its sole discretion. Subsequent investments must be at least $50. Shares of any Fund may be purchased by (i) cash, (ii) exchanging Retail Class shares of any Fund (or any other series of Loomis Sayles Funds which offers Retail Class shares ) provided the value of the shares exchanged meets the investment minimum of the Fund into which the exchange is made, (iii) exchanging securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a combination of such securities and cash. Purchase of shares of a Fund in exchange for securities is subject in each case to the determination by Loomis Sayles that the securities to be exchanged are acceptable for purchase by the Fund. In all cases Loomis Sayles reserves the right to reject any securities that are proposed for exchange. Securities accepted by Loomis Sayles in exchange for Fund shares will be valued in the same manner as the Fund's assets, as described below, as of the time of the Fund's next determination of net asset value after such acceptance. All dividends and subscription or other rights which are reflected in the market price of accepted securities at the time of valuation become the property of the Fund and must be delivered to the Fund upon receipt by the investor from the issuer. A gain or loss for federal income tax purposes would be realized upon the exchange by an investor that is subject to federal income taxation, depending upon the investor's basis in the securities tendered. An investor who wishes to purchase shares by exchanging securities should obtain instructions by calling 800-633-3330, option 5 and asking for the Loomis Sayles Funds Shareholder Services Group. Loomis Sayles will not approve the acceptance of securities in exchange for shares of any Fund unless (1) Loomis Sayles, in its sole discretion, believes the securities are appropriate investments for the Fund; (2) the investor represents and agrees that all securities offered to the Fund can be resold by the Fund without restriction under the Securities Act of 1933, as amended (the 27 "Securities Act") or otherwise; and (3) the securities are eligible to be acquired under the Fund's investment policies and restrictions. No investor owning 5% or more of a Fund's shares may purchase additional shares of that Fund by exchange of securities. All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company ("State Street Bank"). Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Upon acceptance of an investor's order, Boston Financial Data Services, Inc. ("BFDS"), the shareholder servicing agent for State Street Bank, opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, an investor may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Subsequent investments can also be made by federal funds wire. Investors should instruct their banks to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Retail Class), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. Each Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Funds do not presently anticipate that they will do so, each Fund reserves the right to suspend or change the terms of the offering of its shares. The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of each Fund are sold with no sales charge. The net asset value of each Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such 28 broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. Each Fund also offers an Institutional Class of shares that has a $1 million minimum investment for certain categories of investors and bears lower expenses. Because of its lower expenses, the Institutional Class of shares of each Fund is expected to have a higher total return than the Retail Class of shares. The Loomis Sayles Small Cap Value Fund also offers an Admin Class of shares that is offered exclusively through intermediaries, who will be the record owners of the shares. Because of its lower expenses, the Retail Class of shares of the Loomis Sayles Small Cap Value Fund is expected to have a higher total return than the Admin Class of shares. SHAREHOLDER SERVICES The Funds offer the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from BFDS. Telephone redemption and exchange privileges will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. Retail Class shares of any Fund may be exchanged for Retail Class shares of any other Fund (or any other fund that is a series of Loomis Sayles Funds and that offers Retail Class shares) or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles, provided the value of the shares exchanged meets the investment minimum of that Fund and, in the case of the Loomis Sayles High Yield Fund, Loomis Sayles has approved the exchange of shares. Exchanges may be made by written instructions or by telephone, unless an investor elected on the application to decline telephone exchange privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Funds reserve the right to terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Funds may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. An exchange is a taxable event for federal income tax purposes in which a gain or loss would be realized by an investor that is subject to federal income taxation. 29 RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax- deferred retirement plans. Loomis Sayles makes available retirement plan forms for IRAs. SYSTEMATIC WITHDRAWAL PLANS. If the value of an account is at least $25,000, an investor may have periodic cash withdrawals automatically paid to the investor or any person designated by the investor. AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may be made automatically by pre-authorized withdrawals from an investor's checking account. HOW TO REDEEM SHARES An investor can redeem shares by sending a written request to Boston Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. As described below, an investor may also redeem shares by calling BFDS at 800- 626-9390. Proceeds resulting from a written or telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Investors requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is redeeming shares worth more than $50,000, (2) an investor is requesting that the proceeds check be made out to someone other than the registered owners or be sent to an address other than the record address, (3) the account registration has changed within the last 30 days or (4) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. This requirement may be waived by Loomis Sayles in its sole discretion. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, the investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) 30 will be deducted from the proceeds. A telephonic redemption request must be received by BFDS prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to BFDS after the Exchange closes or on a day when the Exchange is not open for business, BFDS cannot accept the request and a new one will be necessary. If an investor decides to change the bank account to which proceeds are to be wired, the investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless the investor indicates otherwise on the account application, BFDS will be authorized to act upon redemption and exchange instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide BFDS with the investor's account registration and address as it appears on the records of State Street Bank. BFDS will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult BFDS. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was deposited less than fifteen days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. 31 CALCULATION OF PERFORMANCE INFORMATION "Total return" for the one-, five- and ten-year periods (or for the life of the class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in a Fund. Total return may also be presented for other periods. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Funds declare and pay their net investment income to shareholders as dividends annually. Each Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Funds declare or pay dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the same Fund unless an investor has elected to receive cash. Each Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as a Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short-term capital gain distributions (that is, net gains from securities held for not more than a year) are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by all Funds as deriving from net gains on securities held for more than one year will be taxable as such (generally at a 20% rate for noncorporate shareholders) whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to him or her as described above. If a shareholder held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution. Each Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays to an investor (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that the investor is not subject to such withholding. 32 Certain designated dividends from the Funds are expected to be eligible for the dividends-received deduction for corporate shareholders that meet a holding period requirement. State Street Bank will send each investor and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid to the investor during the preceding year. Be sure to keep this statement as a permanent record. A fee may be charged for any duplicate information that an investor requests. NOTE: The foregoing summarizes certain tax consequences of investing in the Funds. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, foreign, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 33 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Post Office Square Boston, Massachusetts 02109 [LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE] ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330 THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS INSTITUTIONAL CLASS SHARES OF: LOOMIS SAYLES BOND FUND LOOMIS SAYLES GLOBAL BOND FUND LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND LOOMIS SAYLES INVESTMENT GRADE BOND FUND LOOMIS SAYLES MUNICIPAL BOND FUND LOOMIS SAYLES SHORT-TERM BOND FUND PROSPECTUS JANUARY 1, 1999 THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles Intermediate Maturity Bond Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Municipal Bond Fund and Loomis Sayles Short-Term Bond Fund (the "Funds" and each a "Fund"), each a series of Loomis Sayles Funds, are separately managed, no-load mutual funds, each of which has its own investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund. The Funds (other than Loomis Sayles Municipal Bond Fund) offer two classes of shares: an Institutional Class that is described in this Prospectus and a Retail Class, which generally has a lower minimum investment and bears higher expenses, that is described in a separate prospectus. The Loomis Sayles Bond Fund also offers a third class of shares: an Admin Class, bearing higher expenses than the Institutional or Retail Class, that is described in a separate prospectus. This Prospectus concisely describes the information that an investor should know before investing in the Institutional Class shares of any Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information (SAI) dated January 1, 1999, as revised from time to time, is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more detailed information about the Funds, has been filed with the Securities and Exchange Commission (the "SEC") and is available along with other related materials on the SEC's Internet Web site (http://www.sec.gov). The SAI is incorporated herein by reference (legally forms a part of the Prospectus). To obtain more information about the Retail Class or Admin Class of shares, please call the Distributor toll-free at 800-633-3330, contact your financial intermediary, or visit our Internet Website (http://www.loomissayles.com). For information about: For all other information about .Establishing an account the Funds: .Account procedures and status CALL 800-633-3330 .Exchanges .Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 5 THE TRUST................................................................. 11 INVESTMENT OBJECTIVES AND POLICIES........................................ 11 MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 16 THE FUNDS' INVESTMENT ADVISER............................................. 27 FUND EXPENSES............................................................. 28 PORTFOLIO TRANSACTIONS.................................................... 29 HOW TO PURCHASE SHARES.................................................... 29 SHAREHOLDER SERVICES...................................................... 32 HOW TO REDEEM SHARES...................................................... 33 CALCULATION OF PERFORMANCE INFORMATION.................................... 34 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 35 APPENDIX A DESCRIPTION OF BOND RATINGS............................................. 38
2 SUMMARY OF EXPENSES (FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND) The following information is provided as an aid in understanding the various expenses that an investor in a Fund will bear indirectly. The information below is based on expenses for the Funds' most recent fiscal year, and should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
INTERMEDIATE INVESTMENT GLOBAL MATURITY GRADE MUNICIPAL BOND BOND BOND BOND BOND FUND FUND FUND FUND FUND ---- ------ ------------ ---------- --------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)................. none none none none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)........ none none none none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)... none none none none none Redemption Fees/1..../.. none none none none none Exchange Fees........... none none none none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees......... .60% .60% .40% .40% .40% 12b-1 Fees.............. none none none none none Other Operating Expenses (after expense reimbursements where indicated)............. .15%/2/ .30%/2/ .15%/2/ .15%/2/ .20%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)............. .75%/2/ .90%/2/ .55%/2/ .55%/2/ .60%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year................ $ 8 $ 9 $ 6 $ 6 $ 6 Three Years............. $24 $ 29 $18 $18 $19 Five Years.............. $42 $ 50 $31 $31 $33 Ten Years............... $93 $111 $69 $69 $75
3
SHORT-TERM BOND FUND ---------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price).......................................................... none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)................................................. none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)............................................ none 12b-1 Fees....................................................... none Redemption Fees/1............................................./.. none Exchange Fees.................................................... none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.................................................. .25% Other Operating Expenses (after expense reimbursements where indicated)...................................................... .25%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)...................................................... .50%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year......................................................... $ 5 Three Years...................................................... $16 Five Years....................................................... $28 Ten Years........................................................ $63
- ----------- /1/A $5 charge applies to any wire transfer of redemption proceeds from any Fund. /2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Funds' Total Operating Expenses to the percentages of net assets shown in the table. Without this agreement, Other Operating Expenses and Total Operating Expenses would have been 0.16% and 0.76%, respectively, for the Bond Fund, 0.58% and 1.18%, respectively, for the Global Bond Fund, 1.87% and 2.27%, respectively, for the Intermediate Maturity Bond Fund and 3.79% and 4.19%, respectively, for the Investment Grade Bond Fund, 1.30% and 1.70%, respectively, for the Municipal Bond Fund, 0.58% and 0.83%, respectively, for the Short-Term Bond Fund. 4 FINANCIAL HIGHLIGHTS (FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The financial highlights tables that follow have been audited by PricewaterhouseCoopers LLP, independent accountants. The following information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Funds' 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
BOND FUND ------------------------------------------------------------------- NINE MONTHS MAY 16** ENDED YEAR ENDED DEC. 31, TO SEPT. 30* --------------------------------------------------------- DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 ---------- ---------- -------- -------- ------- ------- ------- -------- Net asset value, beginning of period.... $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $ 10.23 $10.00 ---------- ---------- -------- -------- ------- ------- ------- ------ Income from investment operations-- Net investment income (loss)................ 0.69 0.86 0.86 0.82 0.83 0.84 0.76 0.52 Net realized and unrealized gain (loss) on investments........ (0.78) 0.67 0.35 2.32 (1.29) 1.43 0.67 0.36 ---------- ---------- -------- -------- ------- ------- ------- ------ Total from investment operations............ (0.09) 1.53 1.21 3.14 (0.46) 2.27 1.43 0.88 ---------- ---------- -------- -------- ------- ------- ------- ------ Less distributions-- Dividends from net investment income..... (0.44) (0.86) (0.86) (0.82) (0.84) (0.81) (0.76) (0.52) Distributions in excess of net investment income................ 0.00 0.00 0.00 0.00 (0.02) 0.00 0.00 0.00 Distributions from net realized capital gains................. 0.00 (0.22) (0.26) (0.08) 0.00 (0.45) (0.54) (0.13) ---------- ---------- -------- -------- ------- ------- ------- ------ Total distributions.... (0.44) (1.08) (1.12) (0.90) (0.86) (1.26) (1.30) (0.65) ---------- ---------- -------- -------- ------- ------- ------- ------ Net asset value, end of period................. $ 12.30 $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $10.23 ========== ========== ======== ======== ======= ======= ======= ====== Total return (%)***..... (0.9)++ 12.7 10.3 32.0 (4.1) 22.2 14.3 8.9 Net assets, end of period (000)........... $1,455,312 $1,261,910 $541,244 $255,710 $82,985 $64,222 $18,472 $9,922 Ratio of operating expenses to average net assets (%)****......... 0.75+ 0.75 0.75 0.79 0.84 0.94 1.00 1.00+ Ratio of net investment income to average net assets (%)............. 7.34+ 7.36 7.93 8.34 7.92 8.26 7.50 8.97+ Portfolio turnover rate (%).................... 24++ 41 42 35 87 170 101 126 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%).............. 0.76+ 0.77 0.75 0.79 0.84 0.94 1.55 1.78+ Net investment income per share would have been.................. $ 0.69 $ 0.85 $ 0.86 $ 0.82 $ 0.83 $ 0.84 $ 0.70 $ 0.47
- ----------- * The fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 5
GLOBAL BOND FUND --------------------------------------------------------------------------- NINE MONTHS MAY 10** ENDED YEAR ENDED DEC. 31, TO SEPTEMBER 30* --------------------------------------------------- DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 ------------- ------- ------- ------- ------- ------- ------ -------- Net asset value, beginning of period.... $ 11.83 $ 12.35 $ 11.39 $ 9.82 $ 11.06 $ 10.32 $11.38 $10.00 ------- ------- ------- ------- ------- ------- ------ ------ Income from investment operations-- Net investment income (loss)................ 0.53 0.71 0.44 1.04 0.67 0.54 0.70 0.37 Net realized and unrealized gain (loss) on investments........ (0.43) (0.42) 1.27 1.31 (1.63) 0.96 (0.60) 1.31 ------- ------- ------- ------- ------- ------- ------ ------ Total from investment operations............ 0.10 0.29 1.71 2.35 (0.96) 1.50 0.10 1.68 ------- ------- ------- ------- ------- ------- ------ ------ Less distributions-- Dividends from net investment income..... 0.00 (0.69) (0.75) (0.78) (0.04) (0.49) (0.77) (0.30) Distributions in excess of net investment income................ 0.00 (0.12) 0.00 0.00 0.00 0.00 0.00 0.00 Distributions from net realized capital gains................. 0.00 0.00 0.00 0.00 0.00 (0.27) (0.39) 0.00 Distributions from capital............... 0.00 0.00 0.00 0.00 (0.24) 0.00 0.00 0.00 ------- ------- ------- ------- ------- ------- ------ ------ Total distributions.... 0.00 (0.81) (0.75) (0.78) (0.28) (0.76) (1.16) (0.30) ------- ------- ------- ------- ------- ------- ------ ------ Net asset value, end of period................. $ 11.93 $ 11.83 $ 12.35 $ 11.39 $ 9.82 $ 11.06 $10.32 $11.38 ======= ======= ======= ======= ======= ======= ====== ====== Total return (%)***..... 0.9++ 2.3 15.0 23.9 (8.7) 14.6 0.8 16.9 Net assets, end of period (000)........... $29,860 $28,401 $26,513 $10,304 $25,584 $21,378 $9,968 $4,308 Ratio of operating expenses to average net assets (%)****......... 0.90+ 0.90 1.50 1.50 1.30 1.50 1.50 1.50+ Ratio of net investment income to average net assets (%)............. 6.00+ 5.88 6.37 8.17 7.02 5.54 6.99 6.81+ Portfolio turnover rate (%).................... 28++ 75 131 148 153 150 72 137 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%).............. 1.18+ 1.22 1.77 1.69 1.30 1.51 2.58 3.99+ Net investment income per share would have been.................. $ 0.51 $ 0.67 $ 0.42 $ 1.02 $ 0.67 $ 0.54 $ 0.59 $ 0.23
- ---------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 6
INTERMEDIATE MATURITY BOND FUND -------------------------------------- NINE JAN. 2** MONTHS TO ENDED DEC. 31, SEPTEMBER 30* 1998 1997 ------------------ --------------- Net asset value, beginning of period.............................. $ 10.03 $ 10.00 --------------- --------------- Income from investment operations-- Net investment income (loss)........ 0.51*** 0.64*** Net realized and unrealized gain (loss) on investments.............. (0.16) 0.00 --------------- --------------- Total from investment operations.... 0.35 0.64 --------------- --------------- Less distributions-- Dividends from net investment income............................. (0.32) (0.56) Distributions in excess of net investment income.................. 0.00 (0.03) Distributions from net realized capital gains...................... 0.00 (0.02) --------------- --------------- Total distributions................. (0.32) (0.61) --------------- --------------- Net asset value, end of period....... $ 10.06 $ 10.03 =============== =============== Total return (%)****................. 3.5+++ 6.4 Net assets, end of period (000)...... $ 8,601 $ 6,305 Ratio of operating expenses to average net assets (%)+............. 0.55++ 0.55 ++ Ratio of net investment income to average net assets (%).............. 6.71++ 6.38 ++ Portfolio turnover rate (%).......... 32+++ 119 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%)................................ 2.27++ 3.66 ++ Net investment income per share would have been.................... $ 0.38*** $ 0.29***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 7
INVESTMENT GRADE BOND FUND ---------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30* DEC. 31, 1998 1997 ------------- -------- Net asset value, beginning of period.................... $10.59 $10.00 ------ ------ Income from investment operations-- Net investment income (loss)........................... 0.52 0.65 Net realized and unrealized gain (loss) on investments........................................... (0.50) 0.77 ------ ------ Total from investment operations....................... 0.02 1.42 ------ ------ Less distributions-- Dividends from net investment income................... (0.33) (0.63) Distributions in excess of net investment income....... 0.00 (0.08) Distributions from net realized capital gains.......... 0.00 (0.12) ------ ------ Total distributions.................................... (0.33) (0.83) ------ ------ Net asset value, end of period.......................... $10.28 $10.59 ====== ====== Total return (%)***..................................... 0.0++ 14.5 Net assets, end of period (000)......................... $2,778 $2,445 Ratio of operating expenses to average net assets (%)****................................................ 0.55+ 0.55+ Ratio of net investment income to average net assets (%).................................................... 6.68+ 6.74+ Portfolio turnover rate (%)............................. 48++ 112 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%)................................... 4.19+ 7.59+ Net investment income per share would have been........ $ 0.24 $(0.03)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 8
MUNICIPAL BOND FUND --------------------------------------------------------------------- NINE MONTHS MAY 29** ENDED YEAR ENDED DEC. 31, TO SEPT. 30* ---------------------------------------------- DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 --------- ------ ------ ------ ------ ------ ------ -------- Net asset value, beginning of period.... $ 11.70 $11.29 $11.53 $10.41 $11.54 $10.95 $10.55 $10.00 ------- ------ ------ ------ ------ ------ ------ ------ Income from investment operations-- Net investment income (loss)................ 0.40 0.56 0.52 0.52 0.52 0.51 0.51 0.24 Net realized and unrealized gain (loss) on investments........ 0.27 0.51 (0.15) 1.16 (1.13) 0.74 0.46 0.56 ------- ------ ------ ------ ------ ------ ------ ------ Total from investment operations............ 0.67 1.07 0.37 1.68 (0.61) 1.25 0.97 0.80 ------- ------ ------ ------ ------ ------ ------ ------ Less distributions-- Dividends from net investment income..... (0.40) (0.56) (0.52) (0.52) (0.52) (0.51) (0.51) (0.23) Distributions from net realized capital gains................. (0.01) (0.10) (0.09) (0.04) 0.00 (0.15) (0.06) (0.02) ------- ------ ------ ------ ------ ------ ------ ------ Total distributions.... (0.41) (0.66) (0.61) (0.56) (0.52) (0.66) (0.57) (0.25) ------- ------ ------ ------ ------ ------ ------ ------ Net asset value, end of period................. $ 11.96 $11.70 $11.29 $11.53 $10.41 $11.54 $10.95 $10.55 ======= ====== ====== ====== ====== ====== ====== ====== Total return (%)***..... 5.9++ 9.8 3.3 16.5 (5.4) 11.6 9.4 8.1 Net assets, end of period (000)........... $10,056 $8,752 $8,701 $7,961 $7,270 $5,160 $2,200 $ 706 Ratio of operating expenses to average net assets (%)****......... 0.60+ 0.60 1.00 1.00 1.00 1.00 1.00 1.00+ Ratio of net investment income to average net assets (%)............. 4.62+ 4.90 4.61 4.72 4.79 4.50 4.81 5.03+ Portfolio turnover rate (%).................... 30++ 50 38 41 28 36 32 26 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%).............. 1.70+ 1.80 2.31 2.02 2.37 3.22 7.65 21.58+ Net investment income per share would have been.................. $ 0.31 $ 0.42 $ 0.37 $ 0.41 $ 0.37 $ 0.26 $(0.19) $(0.74)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 9
SHORT-TERM BOND FUND ------------------------------------------------------------------ NINE MONTHS AUG. 3** ENDED YEAR ENDED DEC. 31, TO SEPT. 30* ---------------------------------- DEC. 31 1998 1997 1996 1995 1994 1993 1992 --------- ------- ------- ------- ------- ------- -------- Net asset value, beginning of period.... $ 9.75 $ 9.70 $ 9.81 $ 9.46 $ 9.95 $ 9.87 $10.00 ------- ------- ------- ------- ------- ------- ------ Income from investment operations-- Net investment income.. 0.44 0.61 0.55 0.63 0.66 0.59 0.22 Net realized and unrealized gain (loss) on investments........ 0.21 0.06 (0.11) 0.35 (0.49) 0.08 (0.13) ------- ------- ------- ------- ------- ------- ------ Total from investment operations............ 0.65 0.67 0.44 0.98 0.17 0.67 0.09 ------- ------- ------- ------- ------- ------- ------ Less distributions-- Dividends from net investment income..... (0.44) (0.62) (0.55) (0.63) (0.66) (0.59) (0.22) ------- ------- ------- ------- ------- ------- ------ Total distributions.... (0.44) (0.62) (0.55) (0.63) (0.66) (0.59) (0.22) ------- ------- ------- ------- ------- ------- ------ Net asset value, end of period................. $ 9.96 $ 9.75 $ 9.70 $ 9.81 $ 9.46 $ 9.95 $ 9.87 ======= ======= ======= ======= ======= ======= ====== Total return (%)***..... 6.8++ 7.1 4.7 10.6 1.8 7.0 0.9 Net assets, end of period (000)........... $27,288 $18,792 $18,229 $26,039 $19,440 $15,226 $5,121 Ratio of operating expenses to average net assets (%)****......... 0.50+ 0.50 1.00 1.00 1.00 1.00 1.00+ Ratio of net investment income to average net assets (%)............. 5.94+ 6.34 5.69 6.46 6.88 5.97 5.49+ Portfolio turnover rate (%).................... 47++ 91 120 214 34 81 31 Without giving effect to voluntary expense limitations: The ratio of operating expenses to average net assets would have been (%).............. 0.83+ 1.19 1.17 1.03 1.33 1.55 3.74+ Net investment income per share would have been.................. $ 0.41 $ 0.55 $ 0.53 $ 0.62 $ 0.63 $ 0.54 $ 0.11
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. NOTE: Further information about each Fund's performance is contained in the Funds' annual report to shareholders, which may be obtained without charge. 10 THE TRUST Each Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVES AND POLICIES LOOMIS SAYLES BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its total assets may be invested in preferred stocks. At least 65% of the Fund's total assets will normally be invested in bonds. The fixed income securities in which the Fund may invest include corporate securities, securities issued or guaranteed by the U.S. Government or its authorities or instrumentalities ("U.S. Government Securities"), commercial paper, zero coupon securities, mortgage-backed securities, stripped mortgage-backed securities, collateralized mortgage obligations ("CMOs"), asset-backed securities, when- issued securities, real estate investment trusts ("REITs"), Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The Fund may invest any portion of its assets in securities of Canadian issuers, and up to 20% of its total assets in securities of other foreign issuers. The Fund may also invest up to 35% of its total assets in securities of below investment grade quality (commonly known as "junk bonds"). Securities of below investment grade quality are securities rated below the top four rating categories by each major rating agency that has rated the security, including securities in the lowest rating categories, and unrated securities that Loomis Sayles determines to be of comparable quality. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows: 11
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa..................................................... % % AA/Aa....................................................... A/A......................................................... BBB/Baa..................................................... BB/Ba....................................................... B/B......................................................... CCC/Caa..................................................... C/Ca........................................................ D...........................................................
LOOMIS SAYLES GLOBAL BOND FUND The Fund's investment objective is high total investment return through a combination of high current income and capital appreciation. The Fund seeks to achieve its objective by investing primarily in investment grade fixed income securities denominated in various currencies, including U.S. dollars, or in multicurrency units. Under normal conditions, the Fund will invest at least 65% of its total assets in fixed income securities of issuers from at least three countries, which may include the United States, and no more than 40% of its total assets in issuers headquartered in any one country. However, up to 100% of the Fund's total assets may be denominated in U.S. dollars. The Fund may also invest up to 20% of its total assets in securities of below investment grade quality (commonly known as "junk bonds"). The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed securities, when- issued securities, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa..................................................... % % AA/Aa....................................................... A/A......................................................... BBB/Baa..................................................... BB/Ba....................................................... B/B......................................................... CCC/Caa..................................................... C/Ca........................................................ D...........................................................
12 LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to achieve its objective by normally investing at least 90% of its total assets in fixed income securities of investment grade quality and to maintain an average dollar weighted maturity of between three and ten years. For purposes of the 90% test, a security will be treated as being of investment grade quality if it is rated by at least one major rating agency in one of its top four rating categories at the time of purchase or, if unrated, is determined by Loomis Sayles to be of comparable quality. The Fund may also invest up to 10% of its total assets in fixed income securities of below investment grade quality (commonly known as "junk bonds"). The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage- backed securities, CMOs, asset-backed securities, when-issued securities, REITs, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions, swap transactions and securities lending. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 20% of its total assets in securities of other foreign issuers. The percentages of the Fund's assets invested as of September 30, 1998 in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa..................................................... % % AA/Aa....................................................... A/A......................................................... BBB/Baa..................................................... BB/Ba....................................................... B/B......................................................... CCC/Caa..................................................... C/Ca........................................................ D...........................................................
LOOMIS SAYLES INVESTMENT GRADE BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. 13 The Fund seeks to achieve its objective by normally investing at least 65% of its total assets in fixed income securities of investment grade quality. Up to 20% of the Fund's total assets may be invested in preferred stocks. The Fund may also invest up to 10% of its total assets in fixed income securities of below investment grade quality (commonly known as "junk bonds"). The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed securities, when-issued securities, REITs, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions, swap transactions and securities lending. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 20% of its total assets in the securities of other foreign issuers. The percentages of the Fund's assets invested as of September 30, 1998, in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa..................................................... % % AA/Aa....................................................... A/A......................................................... BBB/Baa..................................................... BB/Ba....................................................... B/B......................................................... CCC/Caa..................................................... C/Ca........................................................ D...........................................................
LOOMIS SAYLES MUNICIPAL BOND FUND The Fund's investment objective is as high a level of current income exempt from federal income tax as is consistent with the preservation of capital. The Fund seeks to achieve its objective by normally investing substantially all of its assets in securities the income from which is, in the opinion of issuer's counsel at the time of issuance, exempt from federal income tax ("tax exempt securities"). It is a fundamental policy of the Fund that, during periods of normal market conditions, at least 80% of its net assets will be invested in tax exempt securities. Normally, substantially all of its market value will be invested in fixed income securities of investment grade quality (i.e., securities rated at the time of purchase by at least one of the major rating agencies in its top four categories) or in unrated securities determined by Loomis Sayles to be 14 of comparable quality, and at least 65% of the Fund's total assets will be invested in bonds. The Fund may engage in options and futures transactions. The Fund may invest in "private activity bonds," which pay interest that, although exempt from ordinary federal income taxes, may be subject to federal or state alternative minimum taxes. The Fund's investments in private activity bonds normally will not exceed 20% of its net assets. LOOMIS SAYLES SHORT-TERM BOND FUND The Fund's investment objective is high total investment return through a combination of current income and capital appreciation with relatively low fluctuation in net asset value. The Fund seeks to achieve its objective by normally investing substantially all of its assets in fixed income securities, although up to 20% of its total assets may be invested in non-convertible preferred stock. At least 65% of the Fund's total assets will normally be invested in bonds with a remaining maturity of 5 years or less. The Fund may invest up to 20% of its total assets in securities of foreign issuers. The Fund may also invest up to 20% of its total assets in securities of below investment grade quality (commonly known as "junk bonds"). The fixed income securities in which the Fund may invest include corporate securities, U.S. Government Securities, commercial paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed securities, when-issued securities, REITs, Rule 144A securities, repurchase agreements and convertible securities. The Fund may engage in options and futures transactions, repurchase transactions, foreign currency hedging transactions and swap transactions. In an effort to minimize fluctuations in market value, the Fund is expected to maintain an average dollar-weighted maturity of between one and three years. The percentages of the Fund's assets invested as of September 30, 1998 in securities assigned to the various rating categories by Standard & Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if unrated, determined by Loomis Sayles to be of comparable quality, were as follows:
STANDARD & POOR'S MOODY'S -------- ------- AAA/Aaa..................................................... % % AA/Aa....................................................... A/A......................................................... BBB/Baa..................................................... BB/Ba....................................................... B/B......................................................... CCC/Caa..................................................... C/Ca........................................................ D...........................................................
15 ALL FUNDS For temporary defensive purposes, each Fund may invest any portion of its assets in fixed income securities, cash or any other securities deemed appropriate by Loomis Sayles. Except for each Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of each Fund may be changed without a vote of Fund shareholders. MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS DEBT AND OTHER FIXED INCOME SECURITIES Each of the Funds may invest in fixed income securities of any maturity, although the Short-Term Bond Fund expects to maintain an average dollar weighted maturity of less than three years, and the Intermediate Maturity Bond Fund expects to maintain an average dollar weighted maturity of between three and ten years. Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the income of a Fund that invests in fixed income securities for any particular period. The net asset value of such a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. U.S. GOVERNMENT SECURITIES U.S. Government Securities have different kinds of government support. For example, some U.S. Government Securities, such as U.S. Treasury bonds, are supported by the full faith and credit of the United States, whereas certain other U.S. Government Securities issued or guaranteed by federal agencies or government-sponsored enterprises are not supported by the full faith and credit of the United States. Although U.S. Government Securities generally do not involve the credit risks associated with other types of fixed income securities, the market values of U.S. Government Securities do go up and down as interest rates change. 16 Thus, for example, the value of an investment in a Fund that holds U.S. Government Securities may fall during times of rising interest rates. Yields on U.S. Government Securities tend to be lower than those on corporate securities of comparable maturities. Some U.S. Government Securities, such as Government National Mortgage Association Certificates ("GNMA"), are known as "mortgage-backed" securities. Interest and principal payments on the mortgages underlying mortgage-backed U.S. Government Securities are passed through to the holders of the security. If a Fund purchases mortgage-backed securities at a discount or a premium, the Fund will recognize a gain or loss when the payments of principal, through prepayment or otherwise, are passed through to the Fund and, if the payment occurs in a period of falling interest rates, the Fund may not be able to reinvest the payment at as favorable an interest rate. As a result of these principal prepayment features, mortgage-backed securities are generally more volatile investments than many other fixed income securities. In addition to investing directly in U.S. Government Securities, the Funds may purchase certificates of accrual or similar instruments ("strips") evidencing undivided ownership interests in interest payments or principal payments, or both, in U.S. Government Securities. These investment instruments may be highly volatile. TAX EXEMPT SECURITIES Issuers of tax exempt securities may make interest and principal payments from money raised through a variety of sources, including (1) the issuer's general taxing power, (2) a specific type of tax, such as a property tax, or (3) a particular facility or project, such as a highway. The ability of an issuer of tax exempt bonds to make these payments could be affected by litigation, legislation or other political events, or the bankruptcy of the issuer. The interest on tax exempt securities issued after August 15, 1986 is retroactively taxable from the date of issuance if the issuer does not comply with certain requirements concerning the use of bond proceeds and the application of earnings on bond proceeds. LOWER RATED FIXED INCOME SECURITIES Each Fund (other than the Municipal Bond Fund) may invest a portion of its total assets in securities rated below investment grade (commonly referred to as "junk bonds"). The Bond Fund may invest up to 35%, the Global Bond and Short-Term Bond Funds each may invest up to 20%, the Investment Grade Bond and Intermediate Maturity Bond Funds each may invest up to 10% of its total 17 assets in such securities. For purposes of the foregoing percentages, a security will be treated as being of investment grade quality if at the time a Fund acquires it at least one major rating agency has rated the security in its top four rating categories (even if another such agency has issued a lower rating), or if the security is unrated but Loomis Sayles determines it to be of investment grade quality. Lower rated fixed income securities generally provide higher yields, but are subject to greater credit and market risk, than higher quality fixed income securities. Lower rated fixed income securities are considered predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. Achievement of the investment objective of a Fund investing in lower rated fixed income securities may be more dependent on Loomis Sayles' own credit analysis than is the case with higher quality bonds. The market for lower rated fixed income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for lower rated fixed income securities. This lack of liquidity at certain times may affect the values of these securities and may make the evaluation and sale of these securities more difficult. Securities in the lowest rating categories may be in poor standing or in default. Securities in the lowest investment grade category (BBB or Baa) have some speculative characteristics. For more information about the ratings services' descriptions of the various rating categories, see Appendix A. COMMON STOCKS AND OTHER EQUITY SECURITIES Common stocks and similar equity securities, such as warrants and convertibles, are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. ZERO COUPON SECURITIES Each Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. A Fund investing in zero coupon securities is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions at times when Loomis Sayles would not otherwise deem it advisable to do so. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. 18 MORTGAGE-BACKED SECURITIES Each Fund (except the Municipal Bond Fund) may invest in mortgage-backed securities, such as GNMA or Fannie Mae certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if a Fund purchases these assets at a premium, a faster-than-expected prepayment rate will reduce yield to maturity, and a slower-than-expected prepayment rate will increase yield to maturity. If a Fund purchases mortgage-backed securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. STRIPPED MORTGAGE-BACKED SECURITIES Each Fund may invest in interest-only and principal-only classes of mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO or PO is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurably adverse effect on a Fund's yield to maturity to the extent it invests in IOs. If the assets underlying the IOs experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully its initial investment in these securities. Conversely, POs tend to increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage-backed securities, potentially limiting a Fund's ability to buy or sell those securities at any particular time. COLLATERALIZED MORTGAGE OBLIGATIONS Each Fund (except the Municipal Bond Fund) may invest in CMOs. A CMO is a security backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's 19 obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by a Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. ASSET-BACKED SECURITIES Each Fund (except the Municipal Bond Fund) may invest in asset-backed securities. Through the use of trusts and special purpose corporations, automobile and credit card receivables are securitized in pass-through structures similar to mortgage pass-through structures or in a pass-through structure similar to the CMO structure. Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, the Fund will ordinarily reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, a Fund's ability to maintain a portfolio that includes high- yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. WHEN-ISSUED SECURITIES Each Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being 20 purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If a Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. CONVERTIBLE SECURITIES Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities at a stated price or rate. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their value will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity security, however, so that when the price of the underlying equity security falls, the decline in the price of the convertible security may sometimes be less substantial than that of the underlying equity security. Due to the conversion feature, convertible securities generally yield less than nonconvertible fixed income securities of similar credit quality and maturity. The Fund's investment in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock at a specified date and conversion ratio, or that are convertible at the option of the issuer. Because conversion is not at the option of the holder, the Fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock has declined substantially. REAL ESTATE INVESTMENT TRUSTS The Funds may invest in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, risks of default by borrowers and self-liquidation. 21 REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code, and failing to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). Investment in REITs involves risk similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger securities. RULE 144A SECURITIES Each Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. FOREIGN SECURITIES Each Fund (except the Municipal Bond Fund) may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). The Short-Term Bond Fund will not purchase a foreign security if, as a result, the Fund's holdings of foreign securities would exceed 20% of the Fund's total assets. Each of the Bond, Intermediate Maturity Bond and Investment Grade Bond Funds may each invest any portion of its assets in securities of Canadian issuers, but will not purchase foreign securities other than those of Canadian issuers if, as a result, such Fund's holdings of non- U.S. and non-Canadian securities would exceed 20% of the Fund's total assets. Although investing in foreign securities may increase a Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than in the United States. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. A Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. 22 A Fund's investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations or foreign withholding taxes. Changes in the value relative to the U.S. dollar of a foreign currency in which a Fund's holdings are denominated will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although part of a Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of the Funds in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. FOREIGN CURRENCY HEDGING TRANSACTIONS The Funds may engage in foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock 23 in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Funds may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Funds might also purchase exchange-listed and over- the-counter call and put options on foreign currencies. Over-the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Funds may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. SWAP TRANSACTIONS The Funds may enter into interest rate or currency swaps. The Funds will enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities a Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified currencies. The Fund will maintain liquid assets in a segregated custodial account to cover its current obligations under swap agreements. Because swap agreements are not exchange-traded, but are private contracts into which the Fund and a swap counterparty enter as principals, the Fund may experience a loss or delay in recovering assets if the counterparty were to default on its obligations. OPTIONS AND FUTURES TRANSACTIONS The Funds may buy, sell or write options on securities, securities indexes, currencies or futures contracts and may buy and sell futures contracts on securities, securities indexes or currencies. The Funds may engage in these transactions either for the purpose of enhancing investment return, or to hedge against changes in the value of other assets that the Funds own or intend to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the 24 "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If a Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by a Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased by a Fund and futures contracts held by a Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities held in a Fund's portfolio. All transactions in options and futures involve the possible risk of loss to the Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When a Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. The Fund will be required, however, to set aside with its custodian bank liquid assets in amounts sufficient at all times to satisfy its obligations under options and futures contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market movements correctly. The Fund's ability to hedge against adverse changes in the value of securities held in its portfolio through options and futures also depends on the degree of correlation between changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable a Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), a Fund is at risk that the other party to the transaction will default on its obligations, or will not permit a Fund to terminate the transaction before its 25 scheduled maturity. As a result of these characteristics, each Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements. In repurchase agreements, a Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for a Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. SECURITIES LENDING The Intermediate Maturity Bond and Investment Grade Bond Funds may lend their portfolio securities to broker-dealers or other parties under contracts calling for the deposit by the borrower with the Fund's custodian of cash collateral equal to at least the market value of the securities loaned, marked to market on a daily basis. The Fund will continue to benefit from interest or dividends on the securities loaned and will also receive interest through investment of the cash collateral in short-term liquid investments. No loans will be made if, as a result, the aggregate amount of such loans outstanding at any time would exceed 33 1/3% of the Fund's total assets (taken at current value). Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event affecting the investment occurs, such loans will be called so that the securities may be voted by the Fund. The Fund pays various fees in connection with such loans, including shipping fees and reasonable custodial or placement fees. Securities loans must be fully collateralized at all times, but involve some credit risk to the Fund if the borrower defaults on its obligation and the Fund is delayed or prevented from recovering the collateral. YEAR 2000 Many computer software systems in use today cannot properly process date- related information from and after January 1, 2000. Should any of the 26 computer systems employed by the Funds' major service providers fail to process this type of information properly, that could have a negative impact on the Funds' operations and the services that are provided to the Funds' shareholders. Loomis Sayles and the Distributor have each advised the Funds that they are reviewing all of their computer systems with the goal of modifying or replacing such systems prior to January 1, 2000, to the extent necessary to foreclose any such negative impact. In addition, Loomis Sayles has been advised by the Funds' custodian that it is also in the process of reviewing its systems with the same goal. As of the date of this prospectus, the Funds and Loomis Sayles have no reason to believe that these goals will not be achieved. Similarly, the values of certain of the portfolio securities held by the Funds may be adversely affected by the inability of the securities' issuers or of third parties to process this type of information properly. THE FUNDS' INVESTMENT ADVISER The Funds' investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. In addition to selecting and reviewing the Funds' investments, Loomis Sayles provides executive and other personnel for the management of the Funds. The Funds' board of trustees supervises Loomis Sayles' conduct of the affairs of the Funds. As of October 31, 1998, Charles Schwab & Co. Inc. owned 48%, 40%, 55%, 27%, and 21% of the Bond Fund, Global Bond Fund, Intermediate Maturity Bond Fund, Investment Grade Bond Fund and Short-Term Bond Fund, respectively. As of October 31, 1998, Fleet National Bank, Norwest Bank and San Diego Transit Pension Plan owned 13%, 16%, and 8% of the Global Bond Fund, respectively. As of October 31, 1998, Hawaii Sheet Metal Workers Health & Welfare Fund and Pomona College owned 26% and 7% of the Intermediate Maturity Bond Fund, respectively. As of October 31, 1998, Loomis Sayles & Company, L.P. owned 26% of the Investment Grade Bond Fund, respectively. As of October 31, 1998, John W. George, Jr. Trust and Anna A. Morris Trust owned 20% and 14% of the Municipal Bond Fund, respectively. As of October 31, 1998, John W. George, Jr. Trust, NFSC, and PAMCAH-UA Local 675 owned 6%, 14%, and 8% of the Short-Term Bond Fund, respectively. 27 Shareholders holding more than 25% of a Fund's shares may be deemed to control the relevant Fund. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the Bond Fund since its commencement of investment operations in 1991 and as the portfolio manager of the Investment Grade Bond Fund since its commencement of investment operations in 1997. Kathleen C. Gaffney, Vice President of the Trust and Loomis Sayles, has served as associate portfolio manager of the Bond Fund since October 1997. E. John deBeer, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Global Bond Fund since its commencement of investment operations in 1991. Anthony J. Wilkins, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Intermediate Maturity Bond Fund since its commencement of investment operations in 1997. Martha F. Hodgman, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Municipal Bond Fund since May 1993. John Hyll, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Short-Term Bond Fund since its commencement of investment operations in 1992. Curt A. Mitchell, Vice President of Loomis Sayles, has served as portfolio manager of the Short-Term Bond Fund since October 1998. Each of the foregoing, except Mr. Mitchell, has been employed by Loomis Sayles for at least five years. Before joining Loomis Sayles in 1995, Mr. Mitchell was a portfolio manager at Firstar Research & Management Company. FUND EXPENSES Each Fund pays Loomis Sayles a monthly investment advisory fee at the following annual percentage rates of the Fund's average daily net assets:
FUND RATE ---- ---- Bond.................................................................... .60% Global Bond............................................................. .60% Intermediate Maturity Bond.............................................. .40% Investment Grade Bond................................................... .40% Municipal Bond.......................................................... .40% Short-Term Bond......................................................... .25%
In addition to the investment advisory fee, each Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees and expenses of the registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, expenses of preparing, printing and mailing prospectuses to shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles or its affiliated companies. 28 Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other Fund expenses to the extent necessary to limit Fund total annual operating expenses of the Institutional Class shares of each Fund to the following annual percentage rate of the Fund's average net assets:
FUND RATE ---- ---- Bond.................................................................... .75% Global Bond............................................................. .90% Intermediate Maturity Bond.............................................. .55% Investment Grade Bond................................................... .55% Municipal Bond.......................................................... .60% Short-Term Bond......................................................... .50%
Loomis Sayles may change or terminate these voluntary arrangements at any time, but the Funds' Prospectus would be supplemented to describe the change. Loomis Sayles may pay certain broker-dealers and financial intermediaries whose customers own shares of the Funds a continuing fee in an amount of up to .25% annually of the value of Fund shares held for those customers' accounts. These fees are paid by Loomis Sayles out of its own assets and are not assessed against the Funds. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Funds' assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher costs and higher levels of taxable gains. HOW TO PURCHASE SHARES An investor may make an initial purchase of shares of any Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds The minimum initial investment for the Institutional Class of shares of the Loomis Sayles Bond Fund is $25,000. The minimum initial investment for the Institutional Class of each other Fund's shares is $1 million in that Fund. A 29 $2,500 minimum investment applies to the current and retired trustees of the Trust, investment advisory clients of Loomis Sayles (and their directors, officers and employees), and current and retired employees of Loomis Sayles and the parents, spouses and children of the foregoing. The minimum investment may be waived in whole or in part by Loomis Sayles in its sole discretion. Subsequent investments must be at least $50. Shares of any Fund may be purchased by (i) cash, (ii) exchanging Institutional Class shares of any Fund (or any other series of Loomis Sayles Funds), provided the value of the shares exchanged meets the investment minimum of the Fund into which the exchange is made, (iii) exchanging securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a combination of such securities and cash. Loomis Sayles will not approve the acceptance of securities in exchange for shares of any Fund unless (1) Loomis Sayles, in its sole discretion, believes the securities are appropriate investments for the Fund; (2) the investor represents and agrees that all securities offered to the Fund can be resold by the Fund without restriction under the Securities Act of 1933, as amended (the "Securities Act") or otherwise; and (3) the securities are eligible to be acquired under the Fund's investment policies and restrictions. No investor owning 5% or more of a Fund's shares may purchase additional shares of that Fund by exchange of securities. In all cases Loomis Sayles reserves the right to reject any securities that are proposed for exchange. Securities accepted by Loomis Sayles in exchange for Fund shares will be valued in the same manner as the Fund's assets as described below as of the time of the Fund's next determination of net asset value after such acceptance. All dividends and subscription or other rights which are reflected in the market price of accepted securities at the time of valuation become the property of the Fund and must be delivered to the Fund upon receipt by the investor from the issuer. A gain or loss for federal income tax purposes would be realized upon the exchange by an investor that is subject to federal income taxation, depending upon the investor's basis in the securities tendered. An investor who wishes to purchase shares by exchanging securities should obtain instructions by calling 800-633-3330, option 5. All purchases made by check should be in U.S. dollars and made payable to State Street Bank and Trust Company. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. Upon acceptance of an investor's order, BFDS opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. 30 After an account has been established, an investor may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Subsequent investments can also be made by federal funds wire. Investors should instruct their banks to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Institutional Class), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. Each Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Funds do not presently anticipate that they will do so, each Fund reserves the right to suspend or change the terms of the offering of its shares. The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of each Fund are sold with no sales charge. The net asset value of each Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. Each Fund, except for the Municipal Bond Fund, also offers a Retail Class of shares that has a $25,000, minimum investment for certain categories of investors, is offered through intermediaries and bears higher expenses. Because of its lower expenses, the Institutional Class of shares of each Fund is expected to have a higher total return than the Retail Class of shares. The Loomis Sayles Bond Fund also offers an Admin Class of shares that is offered exclusively through intermediaries, who will be the record owners of the 31 shares. Because of its lower expenses, the Institutional Class of shares of the Loomis Sayles Bond Fund is expected to have a higher total return than the Admin Class of shares. SHAREHOLDER SERVICES The Funds offer the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from BFDS. Telephone redemption and exchange privileges will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. The Institutional Class shares of any Fund may be exchanged for Institutional Class shares of any other Fund (or any other fund that is a series of Loomis Sayles Funds and that offers Institutional Class shares) or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles, provided the value of the shares exchanged meets the investment minimum of that Fund and, in the case of the Loomis Sayles High Yield Fund and Loomis Sayles U.S. Government Securities Fund, Loomis Sayles has approved the exchange of shares. Exchanges may be made by written instructions or by telephone, unless an investor elected on the application to decline telephone exchange privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Funds reserve the right to terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Funds may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. An exchange is a taxable event for federal income tax purposes in which a gain or loss would be realized by an investor that is subject to federal income taxation. RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax- deferred retirement plans. Loomis Sayles makes available retirement plan forms for IRAs. SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000, an investor may have periodic cash withdrawals automatically paid to the investor or any person designated by the investor. AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may be made automatically by pre-authorized withdrawals from an investor's checking account. 32 HOW TO REDEEM SHARES An investor can redeem shares by sending a written request to Boston Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. Proceeds from a written request may be sent to the investor in the form of a check. As described below, an investor may also redeem shares by calling BFDS at 800-626-9390. Proceeds resulting from a telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Shareholders requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is redeeming shares worth more than $50,000, (2) an investor is requesting that the proceeds check be made out to someone other than the registered owners or be sent to an address other than the record address, (3) the account registration has changed within the last 30 days or (4) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. This requirement may be waived by Loomis Sayles in its sole discretion. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by BFDS prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to BFDS after the Exchange closes or on a day when the Exchange is not open for business, BFDS cannot accept the request and a new one will be necessary. If an investor decides to change the bank account to which proceeds are to be wired, the investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if the investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a 33 member of the System. Unless an investor indicates otherwise on the account application, BFDS will be authorized to act upon redemption and exchange instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide BFDS with the investor's account registration and address as it appears on the records of State Street Bank. BFDS will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult BFDS. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was deposited less than 15 days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. CALCULATION OF PERFORMANCE INFORMATION The Funds' investment performance may from time to time be included in advertisements about the Funds. "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30- day period by the maximum public offering price per share of the class on the last day of that period. For purposes of calculating yield, net investment income is calculated in accordance with SEC regulations and may differ from net investment income as 34 determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in a Fund. Total return may also be presented for other periods. DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Bond, Investment Grade Bond, and Intermediate Maturity Bond Funds declare and pay dividends quarterly; the Global Bond Fund declares and pays its net investment income to shareholders as dividends annually; the Municipal Bond and Short-Term Bond Funds declare dividends daily and makes payments monthly. Each Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Funds declare or pay dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the same Fund unless an investor has elected to receive cash. Each Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as a Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. Except in the case of income dividends from tax exempt bond interest paid by the Municipal Bond Fund (see below), an investor's income dividends and short- term capital gain distributions are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by a Fund as deriving from net gains on securities held for more than one year will be taxable as such (generally at a 20% rate for noncorporate shareholders) whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. 35 A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to him or her as described above. If a shareholder held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution. Each Fund (except the Municipal Bond Fund in the case of designated exempt- interest dividends, as described below) is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that he or she is not subject to such withholding. Dividends derived from interest on U.S. Government Securities may be exempt from state and local taxes. State Street Bank will send investors and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid during the preceding year. An investor should keep this statement as a permanent record. A fee may be charged for any duplicate information requested. MUNICIPAL BOND FUND Certain designated dividends paid by the Municipal Bond Fund that are derived from interest on tax exempt bonds ("exempt-interest dividends") may be excluded from gross income on federal tax returns. However, if an investor receives social security or railroad retirement benefits, the investor may be taxed on a portion of those benefits as a result of receiving tax exempt income. Also, tax exempt income may be taken into account for the federal alternative minimum tax. An investor's income dividends and short-term capital gain distributions (that is, net gains from securities held for not more than a year) are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by a Fund as deriving from net gains on securities held for more than one year will be taxable as such whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. If at least 95% of the Fund's dividends are designated as exempt-interest dividends, federal back-up withholding rules do not apply with respect to such dividends. 36 The federal exemption for exempt-interest dividends does not result in exemption from state and local taxes. Distributions of exempt-interest dividends may be exempt from local and state taxation to the extent they are derived from the state or locality in which the investor resides. The Fund will report annually on a state-by-state basis the source of income the Fund received on tax exempt bonds that was paid out as dividends during the preceding year. NOTE: The foregoing summarizes certain tax consequences of investing in the Funds. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, foreign, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 37 APPENDIX A DESCRIPTION OF BOND RATINGS ASSIGNED BY STANDARD & POOR'S AND MOODY'S INVESTORS SERVICE, INC. STANDARD & POOR'S AAA This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay interest and repay principal is very strong, and in the majority of instances they differ from AAA issues only in small degree. A Bonds rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. BBB Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such 38 bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C The rating C is reserved for income bonds on which no interest is being paid. D Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. R This symbol is attached to the ratings of instruments with significant noncredit risks such as risks to principal or volatility of expected returns. Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. AAA Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large, or by an exceptionally stable, margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that are rated Aa are judged to be high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities. 39 A Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future. BAA Bonds that are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well. BA Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. 40 C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Should no rating be assigned by Moody's, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. 41 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Post Office Square Boston, Massachusetts 02109 [LOGO OF LOOMIS SAYLES APPEARS HERE] One Financial Center . Boston, Massachusetts 02111 . (800) 633-3330 THE LOOMIS SAYLES FUNDS--EQUITY FUNDS INSTITUTIONAL CLASS SHARES OF: LOOMIS SAYLES CORE VALUE FUND LOOMIS SAYLES INTERNATIONAL EQUITY FUND LOOMIS SAYLES MID-CAP GROWTH FUND LOOMIS SAYLES MID-CAP VALUE FUND LOOMIS SAYLES SMALL CAP GROWTH FUND LOOMIS SAYLES SMALL CAP VALUE FUND LOOMIS SAYLES STRATEGIC VALUE FUND LOOMIS SAYLES WORLDWIDE FUND PROSPECTUS JANUARY 1, 1999 THE LOOMIS SAYLES FUNDS--EQUITY FUNDS Loomis Sayles Core Value Fund, Loomis Sayles International Equity Fund, Loo- mis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis Sayles Small Cap Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis Sayles Strategic Value Fund, and Loomis Sayles Worldwide Fund (the "Funds" and each a "Fund"), each a series of Loomis Sayles Funds, are separately managed, no-load mutual funds and each Fund has its own investment objective and poli- cies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment ad- viser of each Fund. The Funds offer two classes of shares: an Institutional Class that is de- scribed in this Prospectus and a Retail Class, which generally has a lower minimum investment and bears higher expenses, that is described in a separate prospectus. The Loomis Sayles Small Cap Value Fund also offers a third class of shares: an Admin Class, bearing higher expenses than the Institutional or Retail Class, that is described in a separate prospectus. This Prospectus con- cisely describes the information that an investor should know before investing in the Institutional Class shares of any Fund. Please read it carefully and keep it for future reference. A Statement of Additional Information (SAI) dated January 1, 1999, as revised from time to time, is available free of charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Fi- nancial Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more detailed information about the Funds, has been filed with the Securities and Exchange Commission (the "SEC") and is available along with other related materials on the SEC's Internet Website (http://www.sec.gov). The SAI is incorporated herein by reference (legally forms a part of the prospectus). To obtain more information about the Retail Class or Admin Class of shares, please call the Distributor toll-free at 800- 633-3330, contact your financial intermediary, or visit our Internet Website at (http://www.loomissayles.com). For information about: For all other information about . Establishing an account the Funds: . Account procedures and status CALL 800-633-3330 . Exchanges . Shareholder services CALL 800-626-9390 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 TABLE OF CONTENTS
PAGE ---- SUMMARY OF EXPENSES....................................................... 3 FINANCIAL HIGHLIGHTS...................................................... 5 THE TRUST................................................................. 13 INVESTMENT OBJECTIVES AND POLICIES........................................ 13 MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 16 THE FUNDS' INVESTMENT ADVISER............................................. 23 FUND EXPENSES............................................................. 25 PORTFOLIO TRANSACTIONS.................................................... 26 HOW TO PURCHASE SHARES.................................................... 26 SHAREHOLDER SERVICES...................................................... 28 HOW TO REDEEM SHARES...................................................... 29 CALCULATION OF PERFORMANCE INFORMATION.................................... 31 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 31
2 SUMMARY OF EXPENSES (FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND) The following information is provided as an aid in understanding the various expenses that an investor in a Fund will bear indirectly. The information below is based on expenses for the Funds' most recent fiscal year, and should not be considered a representation of past or future expenses, as actual expenses may be greater or less than those shown. Also, the 5% annual return assumed in the Example should not be considered a representation of investment performance, as actual performance will vary.
CORE INTERNATIONAL MID-CAP MID-CAP VALUE EQUITY GROWTH VALUE FUND FUND FUND FUND ----- ------------- ------- ------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)............................ none none none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price)................... none none none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds).............. none none none none Redemption Fees/1.............../.. none none none none Exchange Fees...................... none none none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees.................... .50% .75% .75% .75% 12b-1 Fees......................... none none none none Other Operating Expenses (after expense reimbursements where indicated)........................ .29% .25%/2/ .25%/2/ .25%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated).................. .79% 1.00%/2/ 1.00%/2/ 1.00%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year........................... $ 8 $ 10 $ 10 $ 10 Three Years........................ $ 25 $ 32 $ 32 $ 32 Five Years......................... $ 44 $ 55 $ 55 $ 55 Ten Years.......................... $ 98 $122 $122 $122
3
SMALL SMALL STRATEGIC CAP GROWTH CAP VALUE VALUE WORLDWIDE FUND FUND FUND FUND ---------- --------- --------- --------- Shareholder Transaction Expenses: Maximum Sales Load Imposed on Purchases (as % of offering price)......... none none none none Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price).................. none none none none Maximum Deferred Sales Load (as % of original purchase price or redemption proceeds)............. none none none none Redemption Fees/1............../.. none none none none Exchange Fees..................... none none none none Annual Fund Operating Expenses (as a percentage of average net assets): Management Fees................... .75% .75% .50% .75% 12b-1 Fees........................ none none none none Other Operating Expenses (after expense reimbursements where indicated)....................... .25%/2/ .17% .50%/2/ .25%/2/ Total Fund Operating Expenses (after expense reimbursements where indicated)................. 1.00%/2/ .92% 1.00%/2/ 1.00%/2/ Example: An investor would pay the following expenses on a $1,000 investment assuming a 5% annual return (with or without a redemption at the end of each time period): One Year.......................... $ 10 $ 9 $ 10 $ 10 Three Years....................... $ 32 $ 29 $ 32 $ 32 Five Years........................ $ 55 $ 51 $ 55 $ 55 Ten Years......................... $122 $113 $122 $122
- ----------- /1/A $5 charge applies to any wire transfer of redemption proceeds from any Fund. /2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the Funds' Total Operating Expenses to the percentages of net assets shown in the table. Without this agreement, Other Operating Expenses and Total Operating Expenses would have been 0.43% and, 1.18% respectively, for the International Equity Fund, 6.38% and 7.13%, respectively, for the Mid-Cap Growth Fund, 3.58% and 4.33% respectively, for the Mid-Cap Value Fund, 1.40% and 2.15%, respectively, for the Small Cap Growth Fund, 10.31% and 10.81%, respectively, for the Strategic Value Fund and 2.53% and 3.28%, respectively, for the Worldwide Fund. Other Operating Expenses and Total Operating Expenses for the Core Value Fund and the Small Cap Value Fund were unaffected by this Agreement. 4 FINANCIAL HIGHLIGHTS (FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS) The financial highlights tables that follow have been audited by PricewaterhouseCoopers LLP, independent accountants. The following information should be read in conjunction with the financial highlights, financial statements and the notes thereto contained in the Funds' 1998 Annual Report, which is incorporated by reference in this Prospectus and the Statement of Additional Information.
CORE VALUE FUND ----------------------------------------------------------------------------- NINE MONTHS MAY 13** ENDED YEAR ENDED DEC. 31, TO SEPTEMBER 30,* ---------------------------------------------------- DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 -------------- ------- ------- ------- ------- ------- ------- -------- Net asset value, beginning of period.... $ 17.64 $ 15.60 $ 14.57 $ 11.80 $ 12.49 $ 11.53 $ 10.54 $10.00 ------- ------- ------- ------- ------- ------- ------- ------ Income from investment operations-- Net investment income (loss)................ 0.18 0.18 0.22 0.23 0.15 0.13 0.13 0.12 Net realized and unrealized gain (loss) on investments........ (0.97) 4.32 2.83 3.93 (0.26) 1.24 1.36 0.59 ------- ------- ------- ------- ------- ------- ------- ------ Total from investment operations............ (0.79) 4.50 3.05 4.16 (0.11) 1.37 1.49 0.71 ------- ------- ------- ------- ------- ------- ------- ------ Less distributions-- Dividends from net investment income..... 0.00 (0.19) (0.22) (0.23) (0.15) (0.12) (0.13) (0.12) Distributions from net realized capital gains................. 0.00 (2.27) (1.80) (1.16) (0.43) (0.29) (0.37) (0.05) ------- ------- ------- ------- ------- ------- ------- ------ Total distributions.... 0.00 (2.46) (2.02) (1.39) (0.58) (0.41) (0.50) (0.17) ------- ------- ------- ------- ------- ------- ------- ------ Net asset value, end of period................. $ 16.85 $ 17.64 $ 15.60 $ 14.57 $ 11.80 $ 12.49 $ 11.53 $10.54 ======= ======= ======= ======= ======= ======= ======= ====== Total return (%)***..... (4.5)++ 29.2 21.2 35.2 (0.9) 11.9 14.1 7.2 Net assets, end of period (000)........... $66,928 $63,303 $43,715 $36,465 $25,946 $20,657 $12,279 $7,689 Ratio of operating expenses to average net assets (%)****......... 0.79+ 0.84 1.13 1.20 1.33 1.50 1.50 1.50+ Ratio of net investment income to average net assets (%)............. 1.36+ 1.12 1.44 1.61 1.28 1.23 1.42 2.09+ Portfolio turnover rate (%).................... 49++ 64 58 60 48 53 67 27 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%).............. 0.79+ 0.84 1.13 1.20 1.33 1.56 2.19 2.59+ Net investment income per share would have been.................. $ 0.18 $ 0.18 $ 0.22 $ 0.23 $ 0.15 $ 0.12 $ 0.07 $ 0.06
- ----------- *The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 5
INTERNATIONAL EQUITY FUND ----------------------------------------------------------------------------- NINE MONTHS MAY 10** ENDED YEAR ENDED DEC. 31, TO SEPTEMBER 30*, ---------------------------------------------------- DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 -------------- ------- ------- ------- ------- ------- ------- -------- Net asset value, beginning of period.... $ 11.30 $ 13.16 $ 11.65 $ 11.61 $ 12.90 $ 9.64 $ 10.27 $10.00 ------- ------- ------- ------- ------- ------- ------- ------ Income from investment operations-- Net investment income (loss)................. 0.14 0.15+ 0.12 0.14 0.15 0.11 0.10 0.08 Net realized and unrealized gain (loss) on investments......... (0.70) (0.27) 2.01 0.87 (0.38) 3.61 (0.62) 0.29 ------- ------- ------- ------- ------- ------- ------- ------ Total from investment operations............ (0.56) (0.12) 2.13 1.01 (0.23) 3.72 (0.52) 0.37 ------- ------- ------- ------- ------- ------- ------- ------ Less distributions-- Dividends from net investment income..... 0.00 (0.19) (0.09) (0.14) (0.14) (0.10) (0.10) (0.08) Distributions from net realized capital gains................. 0.00 (1.55) (0.53) (0.83) (0.92) (0.36) (0.01) 0.00 Distributions from capital............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.02) ------- ------- ------- ------- ------- ------- ------- ------ Total distributions.... 0.00 (1.74) (0.62) (0.97) (1.06) (0.46) (0.11) (0.10) ------- ------- ------- ------- ------- ------- ------- ------ Net asset value, end of period................ $ 10.74 $ 11.30 $ 13.16 $ 11.65 $ 11.61 $ 12.90 $ 9.64 $10.27 ======= ======= ======= ======= ======= ======= ======= ====== Total return (%)***..... (5.0)+++ (1.0) 18.3 8.7 (1.8) 38.5 (5.1) 3.7 Net assets, end of period (000)........... $68,464 $82,188 $90,662 $79,488 $73,189 $56,560 $14,937 $6,916 Ratio of operating expenses to average net assets (%)****......... 1.00++ 1.00 1.42 1.45 1.46 1.50 1.50 1.50++ Ratio of net investment income to average net assets (%)............. 1.49++ 1.12 0.96 1.16 1.30 1.20 1.64 1.55++ Portfolio turnover rate (%)............... 96+++ 119 151 133 116 128 101 109 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%).............. 1.18++ 1.16 1.42 1.45 1.46 1.72 2.77 3.66++ Net investment income per share would have been.................. $ 0.12 $ 0.13+ $ 0.12 $ 0.14 $ 0.15 $ 0.09 $ 0.02 $(0.03)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 6
MID-CAP GROWTH FUND ----------------------- NONE MONTHS JAN 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period................... $11.49 $10.00 ------ ------ Income from investment operations-- Net investment income (loss)........................... (0.03) (0.03) Net realized and unrealized gain (loss) on investments........................................... (0.95) 2.26 ------ ------ Total from investment operations...................... (0.98) 2.23 ------ ------ Less distributions-- Distributions in excess of net investment income...... 0.00 (0.12) Distributions from net realized capital gains......... 0.00 (0.62) ------ ------ Total distributions................................... 0.00 (0.74) ------ ------ Net asset value, end of period........................ $10.51 $11.49 ====== ====== Total return (%)***.................................... (8.5)++ 22.7 Net assets, end of period (000)........................ $2,073 $1,848 Ratio of operating expenses to average net assets (%)****............................................... 1.00+ 1.00+ Ratio of net investment income to average net assets (%)................................................... (0.35)+ (0.38)+ Portfolio turnover rate (%)............................ 82++ 174 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%).................................. 7.13+ 9.35+ Net investment income per share would have been....... $(0.50) $(0.60)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 7
MID-CAP VALUE FUND -------------------------- NINE MONTHS ENDED JAN. 2** TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- ----------- Net asset value, beginning of period................ $11.53 $10.00 ------ ------ Income from investment operations-- Net investment income (loss)........................ 0.02 0.07 Net realized and unrealized gain (loss) on investments........................................ (1.46) 2.54 ------ ------ Total from investment operations................... (1.44) 2.61 ------ ------ Less distributions-- Dividends from net investment income............... 0.00 (0.14) Distributions from net realized capital gains...... 0.00 (0.94) ------ ------ Total distributions................................ 0.00 (1.08) ------ ------ Net asset value, end of period..................... $10.09 $11.53 ====== ====== Total return (%)***................................. (12.5)++ 26.3 Net assets, end of period (000)..................... $3,291 $3,736 Ratio of operating expenses to average net assets (%)****............................................ 1.00+ 1.00+ Ratio of net investment income to average net assets (%)................................................ 0.22+ 0.74+ Portfolio turnover rate (%)......................... 225++ 130 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)........................ 4.33+ 6.65+ Net investment income per share would have been.... $(0.29) $(0.49)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 8
SMALL CAP GROWTH FUND ----------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period................ $ 11.32 $10.00 ------- ------ Income from investment operations-- Net investment income (loss)........................ (0.02) (0.07)*** Net realized and unrealized gain (loss) on investments........................................ (1.47) 1.99 ------- ------ Total from investment operations................... (1.49) 1.92 ------- ------ Less distributions-- Distributions in excess of net investment income... 0.00 (0.01) Distributions in excess of net realized capital gains............................................. 0.00 (0.59) ------- ------ Total distributions................................ 0.00 (0.60) ------- ------ Net asset value, end of period..................... $ 9.83 $11.32 ======= ====== Total return (%)****................................ (13.2)+++ 19.4 Net assets, end of period (000)..................... $17,174 $3,893 Ratio of operating expenses to average net assets (%)+............................................... 1.00++ 1.00++ Ratio of net investment income to average net assets (%)................................................ (0.53)++ (0.65)++ Portfolio turnover rate (%)......................... 116+++ 211 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)........................ 2.15++ 5.81++ Net investment income per share would have been.... $ (0.07) $(0.56)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 9
SMALL CAP VALUE FUND ------------------------------------------------------------------------------- NINE MONTHS MAY 13** ENDED YEAR ENDED DEC. 31, TO SEPTEMBER 30*, ------------------------------------------------------ DEC. 31, 1998 1997 1996 1995 1994 1993 1992 1991 -------------- -------- -------- ------- ------- ------- ------- -------- Net asset value, beginning of period.... $ 18.62 $ 17.39 $ 15.33 $ 12.86 $ 14.13 $ 12.88 $ 12.49 $ 10.00 -------- -------- -------- ------- ------- ------- ------- ------- Income from investment operations-- Net investment income (loss)................ 0.12 0.17 0.11 0.04 (0.04) 0.00 (0.06) (0.01) Net realized and unrealized gain (loss) on investments........ (3.14) 4.26 4.47 4.06 (1.12) 3.15 1.67 3.03 -------- -------- -------- ------- ------- ------- ------- ------- Total from investment operations............ (3.02) 4.43 4.58 4.10 (1.16) 3.15 1.61 3.02 -------- -------- -------- ------- ------- ------- ------- ------- Less distributions-- Dividends from net investment income..... 0.00 (0.15) (0.11) (0.04) 0.00 0.00 0.00 0.00 Distributions from net realized capital gains................. 0.00 (3.05) (2.41) (1.59) (0.11) (1.90) (1.22) (0.53) -------- -------- -------- ------- ------- ------- ------- ------- Total distributions.... 0.00 (3.20) (2.52) (1.63) (0.11) (1.90) (1.22) (0.53) -------- -------- -------- ------- ------- ------- ------- ------- Net asset value, end of period................. $ 15.60 $ 18.62 $ 17.39 $ 15.33 $ 12.86 $ 14.13 $ 12.88 $ 12.49 ======== ======== ======== ======= ======= ======= ======= ======= Total return (%)***..... (16.2)++ 26.0 30.4 32.1 (8.2) 24.7 13.1 30.5 Net assets, end of period (000)........... $296,116 $245,177 $163,625 $90,455 $73,126 $67,553 $39,244 $14,581 Ratio of operating expenses to average net assets (%)****......... 0.92+ 0.94 1.19 1.25 1.27 1.35 1.50 1.50+ Ratio of net investment income to average net assets (%)............. 1.04+ 0.97 0.80 0.29 (0.30) (0.38) (0.79) (0.19)+ Portfolio turnover rate (%).................... 78++ 94 73 155 87 106 109 56 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%).............. 0.92+ 0.94 1.19 1.25 1.27 1.35 1.66 2.43+ Net investment income per share would have been.................. $ 0.12 $ 0.17 $ 0.11 $ 0.04 $ (0.04) $ 0.00 $ (0.07) $ (0.06)
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. 10
STRATEGIC VALUE FUND ------------------------- NINE MONTHS JAN. 2** ENDED TO SEPTEMBER 30*, DEC. 31, 1998 1997 -------------- -------- Net asset value, beginning of period............... $11.76 $ 10.00 ------ ------- Income from investment operations-- Net investment income (loss)...................... (0.02) (0.01)*** Net realized and unrealized gain (loss) on investments...................................... (1.27) 1.98 ------ ------- Total from investment operations.................. (1.29) 1.97 ------ ------- Less distributions-- Distributions in excess of net investment income.. 0.00 (0.21) ------ ------- Total distributions............................... 0.00 (0.21) ------ ------- Net asset value, end of period..................... $10.47 $ 11.76 ====== ======= Total return (%)****............................... (11.0)+++ 19.7 Net assets, end of period (000).................... $ 932 $965 Ratio of operating expenses to average net assets (%)+.............................................. 1.00++ 1.00++ Ratio of net investment income to average net assets (%)........................................ (0.22)++ (0.05)++ Portfolio turnover rate (%)........................ 31+++ 34 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)......................................... 10.81++ 16.55++ Net investment income per share would have been... $(0.97) $ (1.76)***
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. **** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. + 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. ++ Computed on an annualized basis. +++ Periods less than one year are not annualized. 11
WORLDWIDE FUND -------------------------------- NINE MONTHS YEAR MAY 1** ENDED ENDED TO SEPTEMBER 30*, DEC. 31, DEC. 31, 1998 1997 1996 -------------- -------- -------- Net asset value, beginning of period......... $9.86 $10.63 $ 10.00 ------ ------ ------- Income from investment operations-- Net investment income (loss)................ 0.33 0.47 0.30 Net realized and unrealized gain (loss) on investments................................ (1.40) (0.10) 0.63 ------ ------ ------- Total from investment operations............ (1.07) 0.37 0.93 ------ ------ ------- Less distributions-- Dividends from net investment income........ 0.00 (0.47) (0.30) Distributions from net realized capital gains...................................... 0.00 (0.67) 0.00 ------ ------ ------- Total distributions......................... 0.00 (1.14) (0.30) ------ ------ ------- Net asset value, end of period............... $ 8.79 $ 9.86 $ 10.63 ====== ====== ======= Total return (%)***.......................... (10.9)++ 3.5 9.2 Net assets, end of period (000).............. $4,907 $5,597 $ 5,189 Ratio of operating expenses to average net assets (%)****.............................. 1.00+ 1.00 1.00+ Ratio of net investment income to average net assets (%).................................. 4.37+ 3.89 4.62+ Portfolio turnover rate (%).................. 93++ 134 76 Without giving effect to voluntary expense limitations: The ratios of operating expenses to average net assets would have been (%)............. 3.28+ 2.62 3.72+ Net investment income per share would have been....................................... $ 0.16 $ 0.27 $ 0.13
- ----------- * The Fund's fiscal year-end changed to September 30 from December 31. ** Commencement of investment operations. *** Total returns would have been lower had the adviser not reduced its advisory fee and/or borne other operating expenses. **** 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. + Computed on an annualized basis. ++ Periods less than one year are not annualized. NOTE: Further information about each Fund's performance is contained in the Funds' annual report to shareholders, which may be obtained without charge. 12 THE TRUST Each Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a diversified open-end management investment company organized as a Massachusetts business trust on February 20, 1991. The Trust is authorized to issue an unlimited number of full and fractional shares of beneficial interest in multiple series. Shares are freely transferable and entitle shareholders to receive dividends as determined by the Trust's board of trustees and to cast a vote for each share held at shareholder meetings. The Trust does not generally hold shareholder meetings and will do so only when required by law. Shareholders may call meetings to consider removal of the Trust's trustees. INVESTMENT OBJECTIVES AND POLICIES LOOMIS SAYLES CORE VALUE FUND The Fund's investment objective is long-term growth of capital and income. The Fund seeks to achieve its objective by investing substantially all of its assets in common stocks or their equivalent that Loomis Sayles considers to be undervalued in relation to the issuer's earnings, dividends, assets and growth prospects. The Fund may invest up to 20% of its total assets in securities of foreign issuers. The Fund may also engage in foreign currency hedging transactions, real estate investment trusts ("REITs") and Rule 144A securities. LOOMIS SAYLES INTERNATIONAL EQUITY FUND The Fund's investment objective is high total investment return through a combination of capital appreciation and current income. The Fund seeks to achieve its objective by investing primarily in equity securities of companies organized or headquartered outside the United States. Under normal conditions the Fund will invest at least 65% of its total assets in equity securities of issuers from at least three countries outside the United States. For temporary defensive purposes, the Fund may invest as much as 100% of its total assets in issuers from one or two countries, which may include the United States. The Fund may also engage in foreign currency hedging transactions, options transactions, REITs and Rule 144A securities. LOOMIS SAYLES MID-CAP GROWTH FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. 13 The Fund seeks to achieve its objective by investing, under normal market conditions, at least 65% of its total assets in equity securities of companies with a market capitalization that falls within the capitalization range of companies included in the Standard & Poor's Mid-Cap 400 Index. Current income is not a consideration in selecting the Fund's investments. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 20% of its total assets in the securities of issuers headquartered outside the United States or Canada. The Fund may also engage in foreign currency hedging transactions, options and futures transactions, securities lending, and Rule 144A securities. LOOMIS SAYLES MID-CAP VALUE FUND The Fund's objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing, under normal market conditions, at least 65% of its total assets in equity securities of companies with a market capitalization that falls within the capitalization range of companies included in the Standard & Poor's Mid-Cap 400 Index. Loomis Sayles seeks to build a core portfolio of equity securities that it believes to be undervalued by the market in relation to the issuers' earnings, dividends, assets and growth prospects and that has a smaller emphasis on special situations and turnarounds (companies that have experienced significant business problems but that Loomis Sayles believes have favorable prospects for recovery). Current income is not a consideration in selecting the Fund's investments. The Fund may invest any portion of its assets in securities of Canadian issuers and up to 20% of its total assets in the securities of issuers headquartered outside the United States or Canada. The Fund may also engage in foreign currency hedging transactions, options and futures transactions, securities lending, REITs and Rule 144A securities. LOOMIS SAYLES SMALL CAP GROWTH FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing primarily in equity securities of small, rapidly growing companies that Loomis Sayles believes have the potential for accelerating earnings growth and rising profit margins. The Fund will normally invest at least 65% of its total assets in equity securities of companies with market capitalizations that fall within the capitalization range of the Russell 2000 Index and may invest up to 35% of its total assets in larger companies. Loomis Sayles seeks companies that have distinctive products, technologies, or services; dynamic earnings growth; prospects for a high level of profitability; and outstanding management. Current income is not a consideration in selecting the Fund's investments. The Fund may invest any 14 portion of its assets in securities of Canadian issuers and up to 20% of its total assets in the securities of issuers headquartered outside the United States or Canada. The Fund may also engage in foreign currency hedging transactions, options and futures transactions, securities lending, and Rule 144A securities. LOOMIS SAYLES SMALL CAP VALUE FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing primarily in equity securities of small capitalization companies with good earnings growth potential that Loomis Sayles believes are undervalued by the market. The Fund will normally invest at least 65% of its total assets in equity securities of companies with market capitalizations that fall within the capitalization range of the Russell 2000 Index and may invest up to 35% of its total assets in larger companies. Loomis Sayles seeks to build a core small capitalization portfolio of stocks of solid companies with reasonable growth prospects and that are attractively priced in relation to the companies' earnings with a smaller emphasis on special situations and turnarounds (companies that have experienced significant business problems but which Loomis Sayles believes have favorable prospects for recovery), as well as unrecognized stocks. Current income is not a consideration in selecting the Fund's investments. The Fund may invest up to 20% of its total assets in securities of foreign issuers. The Fund may also engage in foreign currency hedging transactions, REITs and Rule 144A securities. LOOMIS SAYLES STRATEGIC VALUE FUND The Fund's investment objective is long-term capital growth from investments in common stocks or their equivalent. The Fund seeks to achieve its objective by investing substantially all of its assets in equity securities that Loomis Sayles considers to be undervalued by the markets. Stocks are selected based on a combination of quantitative factors including historical, relative price-earnings ratios; price-earnings ratios relative to growth rates; relative fundamentals and price movement; and qualitative factors including the quality of management, position in the industry, debt and balance sheet restructuring and product cycles. The Fund's strategy is to have a relatively concentrated portfolio normally consisting of approximately 35-40 securities that Loomis Sayles considers best positioned to perform in the current and future environments. The Fund may invest any portion of its assets in the securities of Canadian issuers and up to 20% of its total assets in securities of issuers headquartered outside the United States or Canada. The Fund may also engage in foreign currency hedging transactions, options and futures transactions, securities lending, REITs and Rule 144A securities. 15 LOOMIS SAYLES WORLDWIDE FUND The Fund's investment objective is high total investment return through a combination of capital appreciation and current income. The Fund seeks to achieve its objective by investing in U.S. and foreign equity and debt securities. The allocation of the Fund's assets among the four sectors of domestic equities, international equities, domestic bonds and international bonds will be made by Loomis Sayles' Global Asset Allocation group. The Fund will normally invest its assets in securities of issuers from at least three countries, one of which may be the United States. The Fund may also invest in collateralized mortgage obligations, zero coupon securities, when-issued securities, REITs and Rule 144A securities. The Fund may engage in foreign currency hedging transactions and options and forward contract transactions. ALL FUNDS For temporary defensive purposes, each Fund may invest any portion of its assets in fixed income securities, cash and any other securities deemed appropriate by Loomis Sayles. Except for each Fund's investment objective, and any investment policies that are identified as "fundamental," all of the investment policies of each Fund may be changed without a vote of Fund shareholders. MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS COMMON STOCKS AND OTHER EQUITY SECURITIES Common stocks and similar equity securities, such as warrants and convertibles, are volatile and more risky than some other forms of investment. The value of an investment in a Fund that invests in equity securities may sometimes decrease. Equity securities of companies with relatively small market capitalization may be more volatile than the securities of larger, more established companies and than the broad equity market indexes. DEBT AND OTHER FIXED INCOME SECURITIES The Worldwide Fund may invest in fixed income securities of any maturity. Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private issuers. Because interest rates vary, it is impossible to predict the yield of a Fund 16 that invests in fixed income securities for any particular period. The net asset value of such a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Fixed income securities are subject to market and credit risk. Market risk relates to changes in a security's value as a result of changes in interest rates generally. In general, the values of fixed income securities increase when prevailing interest rates fall and decrease when interest rates rise. Credit risk relates to the ability of the issuer to make payments of principal and interest. ZERO COUPON SECURITIES The Worldwide Fund may invest in "zero coupon" fixed income securities. These securities accrue interest at a specified rate, but do not pay interest in cash on a current basis. A Fund investing in zero coupon securities is required to distribute the income on these securities to Fund shareholders as the income accrues, even though the Fund is not receiving the income in cash on a current basis. Thus the Fund may have to sell other investments to obtain cash to make income distributions. The market value of zero coupon securities is often more volatile than that of non-zero coupon fixed income securities of comparable quality and maturity. COLLATERALIZED MORTGAGE OBLIGATIONS The Worldwide Fund may invest in collateralized mortgage obligations ("CMOs"). A CMO is a security backed by a portfolio of mortgages or mortgage- backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal payments on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, the early retirement of a particular class or series of CMOs held by a Fund could involve the loss of any premium the Fund paid when it acquired the investment and could result in the Fund's reinvesting the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. WHEN-ISSUED SECURITIES Each Fund may purchase securities on a "when-issued" basis. This means that the Fund will enter into a commitment to buy the security before the 17 security has been issued. The Fund's payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Fund's risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If a Fund has outstanding obligations to buy when-issued securities, it will maintain liquid assets in a segregated account at its custodian bank in an amount sufficient to satisfy these obligations. REAL ESTATE INVESTMENT TRUSTS The Funds may invest in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, risks of default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code, and failing to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). Investment in REITs involves risk similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger securities. RULE 144A SECURITIES Each Fund may invest in Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. 18 FOREIGN SECURITIES Each Fund may invest in securities of issuers organized or headquartered outside the United States ("foreign securities"). Each of the Core Value and Small Cap Value Funds will not purchase a foreign security if, as a result, the Fund's holdings of foreign securities would exceed 20% of the Fund's total assets. Each of the Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value Funds may each invest any portion of its assets in securities of Canadian issuers, but will not purchase foreign securities other than those of Canadian issuers if, as a result, such Fund's holding of non-U.S. and non- Canadian securities would exceed 20% of the Fund's total assets. Although investing in foreign securities may increase a Fund's diversification and reduce portfolio volatility, foreign securities may present risks not associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or governmental issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than in the United States. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. A Fund's receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. A Fund's investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund investing in these securities may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations or foreign withholding taxes. Changes in the value relative to the U.S. dollar of a foreign currency in which a Fund's holdings are denominated will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. 19 In addition, although part of a Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of the dividend, the Fund could be required to liquidate portfolio securities to pay the dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund accrues expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of a Fund in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Fund's net income available for distribution to shareholders. FOREIGN CURRENCY HEDGING TRANSACTIONS Each Fund that invests in foreign securities may engage in foreign currency exchange transactions, in connection with the purchase and sale of foreign securities, to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future Fund portfolio holdings are denominated or quoted. For example, to protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (that is, cash) basis at the prevailing spot rate. If conditions warrant, the Funds may also enter into private contracts to purchase or sell foreign currencies at a future date ("forward contracts"). The Funds might also purchase exchange-listed and over-the-counter call and put options on foreign currencies. Over-the-counter currency options are generally less liquid than exchange-listed options, and will be treated as illiquid assets. The Funds may not be able to dispose of over-the-counter options readily. Foreign currency transactions involve costs and may result in losses. OPTIONS AND FUTURES TRANSACTIONS The International Equity, Mid-Cap Growth, Mid-Cap Value, Small Cap Growth, Strategic Value and Worldwide Funds may buy, sell or write options on securities, securities indexes, currencies or futures contracts. The Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value Funds may buy and sell futures contracts on securities, securities indexes or currencies. Each of 20 these Funds may engage in these transactions either for the purpose of enhancing investment return, or to hedge against changes in the value of other assets that the Fund owns or intends to acquire. Options and futures fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options or futures for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. Options can generally be classified as either "call" or "put" options. There are two parties to a typical options transaction: the "writer" and the "buyer." A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. If a Fund as the writer of an option is unable to close out an unexpired option, it must continue to hold the underlying security or other asset until the option expires, to "cover" its obligation under the option. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash at the time and in the amount specified in the contract. Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by a Fund exceeds (or is less than) the price of the offsetting purchase, the Fund will realize a gain (or loss). The value of options purchased or written by a Fund and futures contracts held by a Fund may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities held in a Fund's portfolio. All transactions in options and futures involve the possible risk of loss to a Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Fund's investment. When a Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. A Fund will be required, however, to set aside with its custodian bank liquid assets in amounts sufficient at all times to satisfy its obligations under options and futures contracts. The successful use of options and futures will usually depend on Loomis Sayles' ability to forecast stock market, currency or other financial market movements correctly. A Fund's ability to hedge against adverse changes in the 21 value of securities held in its portfolio through options and futures also depends on the degree of correlation between the changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of futures and exchange traded options also depends on the availability of a liquid secondary market to enable a Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time. In the case of options that are not traded on an exchange ("over-the-counter" options), a Fund is at risk that the other party to the transaction will default on its obligations, or will not permit the Fund to terminate the transaction before its scheduled maturity. As a result of these characteristics, each Fund will treat most over-the-counter options (and the assets it segregates to cover its obligations thereunder) as illiquid. The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See "Foreign Securities" above. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements. In repurchase agreements, a Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for a Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligations to repurchase. SECURITIES LENDING The Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value Funds may each lend its portfolio securities to broker-dealers or other parties under contracts calling for the deposit by the borrower with the Fund's custodian of cash collateral equal to at least the market value of the securities loaned, marked to market on a daily basis. The Fund will continue to benefit from interest or dividends on the securities loaned and will also receive interest through investment of the cash collateral in short-term liquid investments. No loans will be made if, as a result, the aggregate amount of such loans outstanding at any time would exceed 33 1/3% of the Fund's total assets (taken at current value). Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event affecting the investment occurs, such loans will be called so that the securities may be voted by the Fund. The Fund pays various fees in connection with such loans, including shipping fees and reasonable custodial or placement fees. 22 Securities loans must be fully collateralized at all times, but involve some credit risk to the Fund if the borrower defaults on its obligation and the Fund is delayed or prevented from recovering the collateral. YEAR 2000 Many computer software systems in use today cannot properly process date- related information from and after January 1, 2000. Should any of the computer systems employed by the Funds' major service providers fail to process this type of information properly, that could have a negative impact on the Funds' operations and the services that are provided to the Funds' shareholders. Loomis Sayles and the Distributor have each advised the Funds that they are reviewing all of their computer systems with the goal of modifying or replacing such systems prior to January 1, 2000, to the extent necessary to foreclose any such negative impact. In addition, Loomis Sayles has been advised by the Funds' custodian that it is also in the process of review its systems with the same goal. As of the date of this prospectus, the Funds and Loomis Sayles have no reason to believe that these goals will not be achieved. Similarly, the values of certain of the portfolio securities held by the Funds may be adversely affected by the inability of the securities' issuers or of third parties to process this type of information properly. THE FUND'S INVESTMENT ADVISER The Funds' investment adviser is Loomis Sayles, One Financial Center, Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's oldest and largest investment firms. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. In addition to selecting and reviewing the Funds' investments, Loomis Sayles provides executive and other personnel for the management of the Funds. The Trust's board of trustees supervises Loomis Sayles' conduct of the affairs of the Funds. As of October 31, 1998, Charles Schwab & Co. Inc. owned 22%, 22%, 79%, 40%, 31%, 16%, 63%, and 93% of the Core Value Fund, International Equity Fund, Mid- Cap Growth Fund, Mid-Cap Value Fund, Small Cap Growth Fund, Small Cap Value Fund, Strategic Value Fund, and Worldwide Fund, 23 respectively. As of October 31, 1998, Asbestos Workers Local #84 Pension Fund, John W. George, Jr. Trust and Green Tree Financial Corp. owned 6%, 6%, and 7% of the Core Value Fund, respectively. As of October 31, 1998, Comerica Bank and The Security Mutual Life Insurance Company of Lincoln Nebraska owned 12% and 7% of the International Equity Fund, respectively. As of October 31, 1998, American National Bank owned 9% of the Mid-Cap Growth Fund. As of October 31, 1998, Carey & Co. and John W. George, Jr. Trust each owned 8% of the Mid-Cap Value Fund. As of October 31, 1998, Carey & Co., The community Foundation Serving Coastal South Carolina, Covie & Co., Donaldson Lufkin Jenrette Securities Corporation, Inc., Fifth Third Bank, and Trussal and Co. owned 6%, 12%, 6%, 8%, 6%, and 6% of the Small Cap Growth Fund. As of October 31, 1998, Smith Barney, Inc. owned 10% of the Small Cap Value Fund. As of October 31, 1998, Lazard Freres & Co. and Pomona College owned 20% and 9% of the Strategic Value Fund, respectively. Shareholders holding more than 25% of a Fund's shares may be deemed to control the relevant Fund. Jeffrey W. Wardlow, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Core Value Fund since its commencement of investment operations in 1991. Issac H. Green, Director of Loomis Sayles and Vice President of the Trust and of Loomis Sayles and James L. Carroll, Vice President of Loomis Sayles and the Trust, have served as portfolio managers of the Core Value Fund since October of 1997. Jerome A. Castellini, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the Mid-Cap Growth Fund since its commencement of investment operations in 1997. Scott S. Pape, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Mid-Cap Growth Fund since its commencement of investment operations in 1997. Dean A. Gulis, Vice President of the Trust and of Loomis Sayles has served as a portfolio manager of the Mid-Cap Value Fund since October of 1997, Dawn Alston Paige and Peter Ramsden, each a Vice President of Loomis Sayles, have served as portfolio managers of the Mid-Cap Value Fund since October 1998. Christopher R. Ely, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager and Philip C. Fine and David L. Smith, Vice Presidents of the Trust and of Loomis Sayles, have served as assistant portfolio managers of the Small Cap Growth Fund since its commencement of investment operations in 1997. Jeffrey C. Petherick, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value Fund since 1993, and Mary C. Champagne, Vice President of the Trust and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value Fund since 1995. Philip J. Schettewi, Vice President of the Trust and Loomis Sayles, has served as the portfolio manager of the Strategic Value Fund since its commencement of investment operations in 1997. Daniel J. Fuss, President of the Trust and Executive Vice President of Loomis Sayles, has served as the portfolio manager of the domestic bonds sector of the Worldwide 24 Fund since that Fund's commencement of investment operations in 1996. E. John deBeer, Vice President of the Trust and of Loomis Sayles, has served as portfolio manager of the international bonds sector of the Worldwide Fund since that Fund's commencement of investment operations in 1996. Quentin P. Faulkner, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the domestic equities sector of the Worldwide Fund since that Fund's commencement of investment operations in 1996. Paul H. Drexler, Vice President of the Trust and of Loomis Sayles, has served as the portfolio manager of the international equities sector of the Worldwide Fund since that Fund's commencement of investment operations in 1996 and of the International Equity Fund since 1996. Each of the foregoing, except Messrs. Carroll, Ely, Fine, Gulis and Smith, have been employed by Loomis Sayles for at least five years. Before joining Loomis Sayles in 1996, Mr. Carroll was a Managing Director and Senior Energy Analyst at PaineWebber, Inc. Prior to joining Loomis Sayles in 1996, Mr. Ely was Senior Vice President and Portfolio Manager, and Messrs. Fine and Smith were Vice Presidents and Portfolio Managers, of Keystone Investment Management Company, Inc. Prior to joining Loomis Sayles in 1997, Mr. Gulis was a Principal and Director of Research at Roney & Company. FUND EXPENSES Each Fund pays Loomis Sayles a monthly investment advisory fee at the following annual percentage rate of the Fund's average daily net assets:
FUND RATE ---- ---- Core Value............................................................. .50% International Equity................................................... .75% Mid-Cap Growth......................................................... .75% Mid-Cap Value.......................................................... .75% Small Cap Value........................................................ .75% Small Cap Growth....................................................... .75% Strategic Value........................................................ .50% Worldwide.............................................................. .75%
In addition to the investment advisory fee, each Fund pays all expenses not expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees and expenses of registering or qualifying the Fund's shares under federal and state securities laws, fees of the Fund's custodian, transfer agent, independent accountants and legal counsel, expenses of shareholders' and trustees' meetings, 12b-1 fees, expenses of preparing, printing and mailing prospectuses to existing shareholders and fees of trustees who are not directors, officers or employees of Loomis Sayles and its affiliated companies. Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce its advisory fees and/or bear other Fund expenses to the extent necessary to limit 25 total operating expenses of the Institutional Class shares of each Fund to the following annual percentage rate of the Fund's average net assets:
FUND RATE ---- ------ Core Value......................................................... .85% International Equity............................................... 1.00% Mid-Cap Growth..................................................... 1.00% Mid-Cap Value...................................................... 1.00% Small Cap Value.................................................... 1.00% Small Cap Growth................................................... 1.00% Strategic Value.................................................... 1.00% Worldwide.......................................................... 1.00%
Loomis Sayles may change or terminate these voluntary arrangements at any time, but the Funds' Prospectus would be supplemented to describe the change. Loomis Sayles may pay certain broker-dealers and financial intermediaries whose customers are existing shareholders of the Funds a continuing fee in an amount of up to .25% annually of the value of Fund shares held for those customers' accounts. These fees are paid by Loomis Sayles out of its own assets and are not assessed against the customers' accounts with the Funds. PORTFOLIO TRANSACTIONS Portfolio turnover considerations will not limit Loomis Sayles' investment discretion in managing the Funds' assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. High portfolio turnover may involve higher transaction costs and higher levels of taxable gains. HOW TO PURCHASE SHARES An investor may make an initial purchase of shares of any Fund by submitting a completed application form and payment to: Boston Financial Data Services P.O. Box 8314 Boston, Massachusetts 02266-8314 Attn: Loomis Sayles Funds The minimum initial investment for the Institutional Class of each Fund's shares is $1 million in that Fund. A $2,500 minimum investment applies to the current and retired trustees of the Trust, investment advisory clients of Loomis 26 Sayles (and their directors, officers and employees), and current and retired employees of Loomis Sayles and the parents, spouses and children of the foregoing. The minimum investment may be waived in whole or in part by Loomis Sayles in its sole discretion. Subsequent investments must be at least $50. Shares of any Fund may be purchased by (i) cash, (ii) exchanging Institutional Class Shares of any Fund (or any other series of Loomis Sayles Funds) provided the value of the shares exchanged meets the investment minimum of the Fund into which the exchange is made, (iii) exchanging securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a combination of such securities and cash. Purchase of shares of the Fund in exchange for securities is subject in each case to the determination by Loomis Sayles that the securities to be exchanged are acceptable for purchase by the Fund. In all cases Loomis Sayles reserves the right to reject any securities that are proposed for exchange. Securities accepted by Loomis Sayles in exchange for Fund shares will be valued in the same manner as the Fund's assets as described below as of the time of the Fund's next determination of net asset value after such acceptance. All dividends and subscription or other rights which are reflected in the market price of accepted securities at the time of valuation become the property of the Fund and must be delivered to the Fund upon receipt by the investor from the issuer. A gain or loss for federal income tax purposes would be realized upon the exchange by an investor that is subject to federal income taxation, depending upon the investor's basis in the securities tendered. An investor who wishes to purchase shares by exchanging securities should obtain instructions by calling 800-633-3330 option 5 and asking for the Loomis Sayles Shareholder Services Group. Loomis Sayles will not approve the acceptance of securities in exchange for shares of any Fund unless (1) Loomis Sayles, in its sole discretion, believes the securities are appropriate investments for the Fund; (2) the investor represents and agrees that all securities offered to the Fund can be resold by the Fund without restriction under the Securities Act of 1933, as amended (the "Securities Act") or otherwise; and (3) the securities are eligible to be acquired under the Fund's investment policies and restrictions. No investor owning 5% or more of Fund's shares may purchase additional shares of that Fund by exchange of securities. All purchases made by check should be in U.S. dollars and made payable to State Street Bank. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption will not be allowed until the investment being redeemed has been in the account for 15 calendar days. 27 Upon acceptance of an investor's order, BFDS opens an account, applies the payment to the purchase of full and fractional Fund shares and mails a statement of the account confirming the transaction. After an account has been established, an investor may send subsequent investments at any time directly to BFDS at the above address. The remittance must be accompanied by either the account identification slip detached from a statement of account or a note containing sufficient information to identify the account, i.e., the Fund name and the investor's account number or name and social security number. Subsequent investments can also be made by federal funds wire. Investors should instruct their banks to wire federal funds to State Street Bank and Trust Company, ABA #011000028. The text of the wire should read as follows: "$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and Institutional Class), DDA #9904-622-9, Account Name, Account Number." A bank may charge a fee for transmitting funds by wire. Each Fund and the Distributor reserve the right to reject any purchase order, including orders in connection with exchanges, for any reason which the Fund or the Distributor in its sole discretion deems appropriate. Although the Funds do not presently anticipate that they will do so, each Fund reserves the right to suspend or change the terms of the offering of its shares. The price an investor pays will be the per share net asset value next calculated after a proper investment order is received by the Trust's transfer or other agent or subagent. Shares of each Fund are sold with no sales charge. The net asset value of each Fund's shares is calculated once daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading, by dividing the Fund's net assets by the number of shares outstanding. Portfolio securities are valued at their market value as more fully described in the Statement of Additional Information. The Distributor may accept telephone orders from broker-dealers who have been previously approved by the Distributor. It is the responsibility of such broker-dealers to promptly forward purchase or redemption orders to the Distributor. Although there is no sales charge imposed by the Fund or the Distributor, broker-dealers may charge the investor a transaction-based fee or other fee for their services at either the time of purchase or the time of redemption. Such charges may vary among broker-dealers but in all cases will be retained by the broker-dealer and not remitted to the Fund. Each Fund also offers a Retail Class of shares that has a $25,000 minimum investment for certain categories of investors, is offered through intermediaries and bears higher expenses. Because of its lower expenses, the Institutional Class 28 of shares of each Fund is expected to have a higher total return than the Retail Class of shares. The Loomis Sayles Small Cap Value Fund also offers an Admin Class of shares that is offered exclusively through intermediaries, who will be the record owners of the shares. Because of its lower expenses, the Institutional Class of shares of the Loomis Sayles Small Cap Value Fund is expected to have a higher total return than the Admin Class of shares. SHAREHOLDER SERVICES The Funds offer the following shareholder services, which are more fully described in the Statement of Additional Information. Explanations and forms are available from BFDS. Telephone redemption and exchange privileges will be established automatically when an investor opens an account unless an investor elects on the application to decline the privileges. Other privileges must be specifically elected. A signature guarantee will be required to establish a privilege after an account is opened. FREE EXCHANGE PRIVILEGE. The Institutional Class shares of any Fund may be exchanged for shares of the Institutional Class of any other Fund (or any other fund that is a series of Loomis Sayles Funds and that offers Institutional Class shares) or for shares of certain money market funds advised by New England Funds Management, L.P., an affiliate of Loomis Sayles, provided the value of the shares exchanged meets the investment minimum of that Fund and, in the case of Loomis Sayles High Yield Fund and Loomis Sayles U.S. Government Securities Fund, Loomis Sayles has approved the exchange of shares. Exchanges may be made by written instructions or by telephone, unless an investor elected on the application to decline telephone exchange privileges. The exchange privilege should not be viewed as a means for taking advantage of short-term swings in the market, and the Funds reserve the right to terminate or limit the privilege of any shareholder who makes more than four exchanges in any calendar year. The Funds may terminate or change the terms of the exchange privilege at any time, upon 60 days' notice to shareholders. An exchange is a taxable event for federal income tax purposes in which a gain or loss would be realized by an investor that is subject to federal income taxation. RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax- deferred retirement plans. Loomis Sayles makes available retirement plan forms for IRAs. SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000, an investor may have periodic cash withdrawals automatically paid to the investor or any person designated by the investor. 29 AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may be made automatically by pre-authorized withdrawals from an investor's checking account. HOW TO REDEEM SHARES An investor can redeem shares by sending a written request to Boston Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. As described below, an investor may also redeem shares by calling BFDS at 800- 626-9390. Proceeds resulting from a written or telephone redemption request can be wired to an investor's bank account or sent by check in the name of the registered owners to their record address. The written request must include the name of the Fund, the account number, the exact name(s) in which the shares are registered, and the number of shares or the dollar amount to be redeemed. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on an investor's confirmation statement) and should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity). Investors requesting that redemption proceeds be wired to their bank accounts must provide specific wire instructions. If (1) an investor is redeeming shares worth more than $50,000, (2) an investor is requesting that the proceeds check be made out to someone other than the registered owners or be sent to an address other than the record address, (3) the account registration has changed within the last 30 days or (4) an investor is instructing us to wire the proceeds to a bank account not designated on the application, the investor must have his or her signature guaranteed by an eligible guarantor. This requirement may be waived by Loomis Sayles in its sole discretion. Eligible guarantors include commercial banks, trust companies, savings associations, credit unions and brokerage firms that are members of domestic securities exchanges. Before submitting the redemption request, an investor should verify with the guarantor institution that it is an eligible guarantor. Signature guarantees by notaries public are not acceptable. When an investor telephones a redemption request, the proceeds are wired to the bank account previously chosen by the investor. A wire fee (currently $5) will be deducted from the proceeds. A telephonic redemption request must be received by BFDS prior to the close of regular trading on the New York Stock Exchange. If an investor telephones a request to BFDS after the Exchange closes or on a day when the Exchange is not open for business, BFDS cannot accept the request and a new one will be necessary. 30 If an investor decides to change the bank account to which proceeds are to be wired, an investor must send in this change in writing with a signature guarantee. Telephonic redemptions may only be made if an investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. Unless an investor indicates otherwise on the account application, BFDS will be authorized to act upon redemption and exchange instructions received by telephone from the investor or any person claiming to act as the investor's representative who can provide BFDS with the investor's account registration and address as it appears on the records of State Street Bank. BFDS will employ these or other reasonable procedures to confirm that instructions communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any losses due to unauthorized or fraudulent instructions if these or other reasonable procedures are followed. For information, consult BFDS. In times of heavy market activity, an investor who encounters difficulty in placing a redemption or exchange order by telephone may wish to place the order by mail as described above. The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form. Proceeds resulting from a written redemption request will normally be mailed to an investor within seven days after receipt of the investor's request in good order. Telephonic redemption proceeds will normally be wired to an investor's bank on the first business day following receipt of a proper redemption request. If an investor purchased shares by check and the check was deposited less than fifteen days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the New York Stock Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. CALCULATION OF PERFORMANCE INFORMATION "Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in a Fund. Total return may also be presented for other periods. 31 DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES The Funds declare and pay their net investment income to shareholders as dividends annually. Each Fund also distributes all of its net capital gains realized from the sale of portfolio securities. Any capital gain distributions are normally made annually, but may, to the extent permitted by law, be made more frequently as deemed advisable by the trustees of the Trust. The Trust's trustees may change the frequency with which the Funds declare or pay dividends. Dividends and capital gain distributions will automatically be reinvested in additional shares of the same Fund unless an investor has elected to receive cash. Each Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended. As such, so long as a Fund distributes substantially all its net investment income and net capital gains to its shareholders, the Fund itself does not pay any federal income tax to the extent such income and gains are so distributed. An investor's income dividends and short-term capital gain distributions (that is, net gains from securities held for not more than a year) are taxable as ordinary income whether distributed in cash or additional shares. Distributions designated by all Funds as deriving from net gains on securities held for more than one year will be taxable as such (generally at a 20% rate for noncorporate shareholders) whether distributed in cash or additional shares and regardless of how long an investor has owned shares of the Fund. A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that particular shareholder, would be taxable to him or her as described above. If a shareholder held shares six months or less and during that period received a distribution of net capital gains, any loss realized on the sale of such shares during such six-month period would be a long-term capital loss to the extent of such distribution. Each Fund is required to withhold 31% of any redemption proceeds (including the value of shares exchanged) and all income dividends and capital gain distributions it pays to an investor (1) if an investor does not provide a correct, certified taxpayer identification number, (2) if the Fund is notified that an investor has underreported income in the past, or (3) if an investor fails to certify to the Fund that the investor is not subject to such withholding. Certain designated dividends from the Funds are expected to be eligible for the dividends-received deduction for corporate shareholders that meet a holding period requirement. State Street Bank will send each investor and the IRS an annual statement detailing federal tax information, including information about dividends and distributions paid to the investor during the preceding year. Be sure to keep this 32 statement as a permanent record. A fee may be charged for any duplicate information that an investor requests. NOTE: The foregoing summarizes certain tax consequences of investing in the Funds. Before investing, an investor should consult his or her own tax adviser for more information concerning the federal, foreign, state and local tax consequences of investing in, redeeming or exchanging Fund shares. 33 INVESTMENT ADVISER Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 DISTRIBUTOR Loomis Sayles Distributors, L.P. One Financial Center Boston, Massachusetts 02111 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS State Street Bank and Trust Company Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY Boston Financial Data Services, Inc. P.O. Box 8314 Boston, Massachusetts 02266 LEGAL COUNSEL Ropes & Gray One International Place Boston, Massachusetts 02110 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP One Post Office Square Boston, Massachusetts 02109 [LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE] STATEMENT OF ADDITIONAL INFORMATION JANUARY 1, 1999 THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE PROSPECTUS OR PROSPECTUSES OF EACH SERIES ("FUND") OF LOOMIS SAYLES FUNDS DATED JANUARY 1, 1999, AS REVISED FROM TIME TO TIME. EACH REFERENCE TO THE PROSPECTUS IN THIS STATEMENT OF ADDITIONAL INFORMATION SHALL INCLUDE ALL OF THE FUNDS' CURRENT PROSPECTUSES, UNLESS OTHERWISE NOTED. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE APPLICABLE PROSPECTUS. A COPY OF EACH PROSPECTUS MAY BE OBTAINED FROM LOOMIS SAYLES FUNDS, ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111. TABLE OF CONTENTS
PAGE ---- INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................... 3 MANAGEMENT OF THE TRUST.................................................... 10 INVESTMENT ADVISORY AND OTHER SERVICES..................................... 23 PORTFOLIO TRANSACTIONS AND BROKERAGE....................................... 26 DESCRIPTION OF THE TRUST................................................... 28 How to Buy Shares........................................................ 30 Net Asset Value.......................................................... 30 SHAREHOLDER SERVICES....................................................... 31 Open Accounts............................................................ 31 Systematic Withdrawal Plan............................................... 31 Exchange Privilege....................................................... 32 IRAs..................................................................... 32 Redemptions.............................................................. 32 INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ............... 33 FINANCIAL STATEMENTS....................................................... 36 CALCULATION OF YIELD AND TOTAL RETURN...................................... 36 PERFORMANCE COMPARISONS.................................................... 37 PERFORMANCE DATA........................................................... 40 APPENDIX A--PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION................. 44 APPENDIX B--ADVERTISING AND PROMOTIONAL LITERATURE......................... 46
2 INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS The investment objective and policies of each series ("Fund") of Loomis Sayles Funds (the "Trust"), are summarized in the Prospectus under "Investment Objectives and Policies" and "More Information About the Funds' Investments and Risk Factors." The investment policies of each Fund set forth in the Prospectus and in this Statement of Additional Information may be changed by the Funds' adviser, subject to review and approval by the Trust's board of trustees, without shareholder approval except that the investment objective of each Fund as set forth in the Prospectus and any Fund policy explicitly identified as "fundamental" may not be changed without the approval of the holders of a majority of the outstanding shares of the relevant Fund (which in the Prospectus and this Statement of Additional Information means the lesser of (i) 67% of the shares of that Fund represented at a meeting at which 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares). Except in the case of the 15% limitation on illiquid securities, the percentage limitations set forth below and in the Prospectuses will apply at the time a security is purchased and will not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such purchase. In addition to its investment objective and policies set forth in the Prospectus, the following investment restrictions are policies of each Fund (and those marked with an asterisk are fundamental policies of each Fund): Each Fund will not: (1) Invest in companies for the purpose of exercising control or management. *(2) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. *(3) Invest in oil, gas or other mineral leases, rights or royalty contracts or in real estate, commodities or commodity contracts. (This restriction does not prevent any Fund from engaging in transactions in futures contracts relating to securities indexes, interest rates or financial instruments or options, or from investing in issuers that invest or deal in the foregoing types of assets or from purchasing securities that are secured by real estate.) *(4) Make loans, except that each of the Mid-Cap Growth, Mid-Cap Value, Small Cap Growth, Strategic Value, Investment Grade Bond and Intermediate Maturity Bond Funds may lend its portfolio securities to the extent permitted under the Investment Company Act of 1940 (the "1940 Act"). (For purposes of this investment restriction, neither (i) entering into repurchase agreements nor (ii) purchasing bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public, is considered the making of a loan.) (5) With respect to 75% of its total assets, purchase any security (other than a U.S. Government Security) if, as a result, more than 5% of the Fund's total assets (taken at current value) would then be invested in securities of a single issuer. (For purposes of this restriction, the Municipal Bond Fund treats each state and each separate political subdivision, agency, authority or instrumentality of such state, each multistate agency or authority, and each guarantor, if any, of obligations of any such issuer, as a separate issuer, provided that the assets and revenues of the issuer are separate from those of the government(s) that created the subdivision, agency, authority or instrumentality.) (6) With respect to 75% of its total assets, acquire more than 10% of the outstanding voting securities of an issuer. (7) Pledge, mortgage, hypothecate or otherwise encumber any of its assets, except that each Fund may pledge assets having a value not exceeding 10% of its total assets to secure borrowings permitted by restriction (9) below. (For the purpose of this restriction, collateral arrangements with respect to options, futures contracts and options on futures contracts and with respect to initial and variation margin are not deemed to be a pledge or other encumbrance of assets.) *(8) Purchase any security (other than U.S. Government Securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities 3 category, gas, electric, water and telephone companies will be considered as being in separate industries.) Tax-exempt securities issued by governments or political subdivisions of governments and purchased by the Municipal Bond Fund are not subject to this restriction, since such issuers are not members of any industry. *(9) Borrow money in excess of 10% of its total assets (taken at cost) or 5% of its total assets (taken at current value), whichever is lower, nor borrow any money except as a temporary measure for extraordinary or emergency purposes. (10) Purchase securities on margin (except such short term credits as are necessary for clearance of transactions); or make short sales (except where, by virtue of ownership of other securities, it has the right to obtain, without payment of additional consideration, securities equivalent in kind and amount to those sold). (11) Participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with Loomis Sayles or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction.) (12) Purchase any illiquid security, including any security that is not readily marketable, if, as a result, more than 15% of the Fund's net assets (based on current value) would then be invested in such securities. (13) Write or purchase puts, calls or combinations of both except that each Fund may (1) acquire warrants or rights to subscribe to securities of companies issuing such warrants or rights, or of parents or subsidiaries of such companies, (2) purchase and sell put and call options on securities and (3) write, purchase and sell put and call options on currencies and may enter into currency forward contracts. *(14) Issue senior securities. (For the purpose of this restriction none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restriction (7) above; any borrowing permitted by restriction (9) above; any collateral arrangements with respect to options, futures contracts and options on futures contracts and with respect to initial and variation margin; and the purchase or sale of options, forward contracts, futures contracts or options on futures contracts.) Although the Funds have no current intention of investing in repurchase agreements, they intend, based on the views of the staff of the Securities and Exchange Commission (the "SEC"), to restrict their investments in repurchase agreements maturing in more than seven days, together with other investments in illiquid securities, to the percentage permitted by restriction (12) above. U.S. GOVERNMENT SECURITIES U.S. Government Securities include direct obligations of the U.S. Treasury, as well as securities issued or guaranteed by U.S. Government agencies, authorities and instrumentalities, including, among others, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Housing Administration, the Resolution Funding Corporation, the Federal Farm Credit Banks, the Federal Home Loan Bank, the Tennessee Valley Authority, the Student Loan Marketing Association and the Small Business Administration. More detailed information about some of these categories of U.S. Government Securities follows. U.S. Treasury Bills--Direct obligations of the United States Treasury which are issued in maturities of one year or less. No interest is paid on Treasury bills; instead, they are issued at a discount and repaid at full face value when they mature. They are backed by the full faith and credit of the United States Government. U.S. Treasury Notes and Bonds--Direct obligations of the United States Treasury issued in maturities that vary between one and forty years, with interest normally payable every six months. They are backed by the full faith and credit of the United States Government. "Ginnie Maes"--Debt securities issued by a mortgage banker or other mortgagee which represent an interest in a pool of mortgages insured by the Federal Housing Administration or the Farmer's Home 4 Administration or guaranteed by the Veterans Administration. The Government National Mortgage Association ("GNMA") guarantees the timely payment of principal and interest when such payments are due, whether or not these amounts are collected by the issuer of these certificates on the underlying mortgages. An assistant attorney general of the United States has rendered an opinion that the guarantee by GNMA is a general obligation of the United States backed by its full faith and credit. Mortgages included in single family or multi-family residential mortgage pools backing an issue of Ginnie Maes have a maximum maturity of up to 30 years. Scheduled payments of principal and interest are made to the registered holders of Ginnie Maes (such as the Fund) each month. Unscheduled prepayments may be made by homeowners, or as a result of a default. Prepayments are passed through to the registered holder of Ginnie Maes along with regular monthly payments of principal and interest. "Fannie Maes"--Fannie Mae is a government-sponsored corporation owned entirely by private stockholders that purchases residential mortgages from a list of approved seller/servicers. Fannie Maes are pass-through securities issued by Fannie Mae that are guaranteed as to timely payment of principal and interest by Fannie Mae but are not backed by the full faith and credit of the United States Government. "Freddie Macs"--The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United States Government. Freddie Macs are participation certificates issued by FHLMC that represent an interest in residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but Freddie Macs are not backed by the full faith and credit of the United States Government. As described in the Prospectus, U.S. Government Securities generally do not involve the same credit risks associated with investments in other types of fixed-income securities, although, as a result, the yields available from U.S. Government Securities are generally lower than the yields available from corporate fixed-income securities. Like other fixed-income securities, however, the values of U.S. Government Securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in the Fund's net asset value. WHEN-ISSUED SECURITIES As described in the Prospectus, each Fund may enter into agreements with banks or broker-dealers for the purchase or sale of securities at an agreed- upon price on a specified future date. Such agreements might be entered into, for example, when a Fund that invests in fixed income securities anticipates a decline in interest rates and is able to obtain a more advantageous yield by committing currently to purchase securities to be issued later. When a Fund purchases securities in this manner (i.e. on a when-issued or delayed-delivery basis), it is required to create a segregated account with the Trust's custodian and to maintain in that account liquid assets in an amount equal to or greater than, on a daily basis, the amount of the Fund's when-issued or delayed-delivery commitments. Each Fund will make commitments to purchase on a when-issued or delayed-delivery basis only securities meeting that Fund's investment criteria. The Fund may take delivery of these securities or, if it is deemed advisable as a matter of investment strategy, the Fund may sell these securities before the settlement date. When the time comes to pay for when-issued or delayed-delivery securities, the Fund will meet its obligations from then available cash flow or the sale of securities, or from the sale of the when-issued or delayed-delivery securities themselves (which may have a value greater or less than the Fund's payment obligation). CONVERTIBLE SECURITIES Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion 5 with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. ZERO COUPON BONDS Zero coupon bonds are debt obligations that do not entitle the holder to any periodic payments of interest either for the entire life of the obligation or for an initial period after the issuance of the obligations. Such bonds are issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the bonds, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of zero coupon bonds generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than do non-zero coupon bonds having similar maturities and credit quality. In order to satisfy a requirement for qualification as a "regulated investment company" under the Internal Revenue Code (the "Code"), each Fund must distribute each year at least 90% of its net investment income, including the original issue discount accrued on zero coupon bonds. Because a Fund investing in zero coupon bonds will not on a current basis receive cash payments from the issuer in respect of accrued original issue discount, the Fund may have to distribute cash obtained from other sources in order to satisfy the 90% distribution requirement under the Code. Such cash might be obtained from selling other portfolio holdings of the Fund. In some circumstances, such sales might be necessary in order to satisfy cash distribution requirements even though investment considerations might otherwise make it undesirable for the Fund to sell such securities at such time. REPURCHASE AGREEMENTS Each Fund may enter into repurchase agreements, by which the Fund purchases a security and obtains a simultaneous commitment from the seller (a bank or, to the extent permitted by the 1940 Act, a recognized securities dealer) to repurchase the security at an agreed upon price and date (usually seven days or less from the date of original purchase). The resale price is in excess of the purchase price and reflects an agreed upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford the Funds the opportunity to earn a return on temporarily available cash at minimal market risk. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the United States Government, the obligation of the seller is not guaranteed by the U.S. Government and there is a risk that the seller may fail to repurchase the underlying security. In such event, the Fund would attempt to exercise rights with respect to the underlying security, including possible disposition in the market. However, the Fund may be subject to various delays and risks of loss, including (a) possible declines in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (b) possible reduced levels of income and lack of income during this period and (c) inability to enforce rights and the expenses involved in attempted enforcement. REAL ESTATE INVESTMENT TRUSTS Each Fund may invest in REITs. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, risks of default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code, and failing to maintain their exemptions from registration under the Investment Company Act of 1940 (the "1940 Act"). Investment in REITs involves risk similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger securities. 6 RULE 144A SECURITIES Each of the Funds may purchase Rule 144A securities. These are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A securities is liquid. Under the guidelines, Loomis Sayles considers such factors as: (1) the frequency of trades and quotes for a security; (2) the number of dealers willing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the marketplace trades therefor. TAX EXEMPT BONDS Tax exempt bonds include debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, hospitals, housing, mass transportation, schools, streets, and water and sewer works. Other public purposes for which tax exempt bonds may be issued include the refunding of outstanding obligations, obtaining funds for general operating expenses, and obtaining funds to lend to other public institutions and facilities. In addition, prior to the Tax Reform Act of 1986, certain debt obligations known as industrial development bonds could be issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, sports facilities, convention or trade show facilities, airport, mass transit, port or parking facilities, air or water pollution control facilities and certain local facilities for water supply, gas, electricity, or sewage or solid waste disposal. Such obligations are included within the term tax exempt bonds if the interest paid thereon is, in the opinion of bond counsel, exempt from federal income tax. Interest on certain industrial development bonds used to fund the construction, equipment, repair or improvement of privately operated industrial or commercial facilities may also be exempt from federal income tax. The Tax Reform Act of 1986 eliminated some types of tax exempt industrial revenue bonds but retained others under the general category of "private activity bonds." The interest on so-called "private activity bonds" is exempt from ordinary federal income taxation but is treated as a tax preference item in computing a shareholder's alternative minimum tax liability. The Municipal Bond Fund may invest up to 20% of its net assets in private activity bonds. The Municipal Bond Fund may not be a desirable investment for "substantial users" of facilities financed by industrial development bonds or for "related persons" of substantial users. See "Income Dividends, Capital Gain Distributions and Tax Status." The two principal classifications of tax exempt bonds are general obligation bonds and limited obligation (or revenue) bonds. General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues and not from any particular fund or source. The characteristics and method of enforcement of general obligation bonds vary according to the law applicable to the particular issuer, and payment may be dependent upon an appropriation by the issuer's legislative body. Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities, or in some cases from the proceeds of a special excise or other specific revenue source such as the user of the facility. Tax exempt industrial development bonds and private activity bonds are in most cases revenue bonds and generally are not payable from the unrestricted revenues of the issuer. The credit and quality of such bonds are usually directly related to the credit standing of the corporate user of the facilities. Principal and interest on such bonds is the responsibility of the corporate user (and any guarantor). Prices and yields on tax exempt bonds are dependent on a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the tax exempt bond market, the size of a particular offering, the maturity of the obligation and the rating of the issue. A number of these factors, including the ratings of particular issues, are subject to change from time to time. Information about the financial condition of an issuer of tax exempt bonds may not be as extensive as that made available by corporations whose securities are publicly traded. As noted in the Prospectus, obligations of issuers of tax exempt bonds are subject to the provisions of bankruptcy, insolvency and other laws, such as the Federal Bankruptcy Reform Act of 1978, affecting the rights 7 and remedies of creditors. Congress or state legislatures may seek to extend the time for payment of principal or interest, or both, or to impose other constraints upon enforcement of such obligations. There is also the possibility that, as a result of litigation or other conditions, the power or ability of issuers to meet their obligations for the payment of interest and principal on their tax exempt bonds may be materially affected, or their obligations may be found to be invalid or unenforceable. Such litigation or conditions may from time to time have the effect of introducing uncertainties in the market for tax exempt bonds or certain segments thereof, or materially affecting the credit risk with respect to particular bonds. Adverse economic, business, legal or political developments might affect all or a substantial portion of the Fund's tax exempt bonds in the same manner. From time to time the Municipal Bond Fund may have less than 80% of its net assets invested in tax exempt bonds (1) for defensive purposes when deemed prudent in the judgment of Loomis Sayles to protect shareholders' capital or (2) on a temporary basis for liquidity purposes or pending the investment of proceeds from sales of Fund shares. The ability of the Fund to invest in securities other than tax exempt bonds is limited by a requirement of the Code that at least 50% of the Fund's total assets be invested in tax exempt securities at the end of each calendar quarter. See "Income Dividends, Capital Gain Distributions and Tax Status." The Municipal Bond Fund may purchase and sell portfolio investments to take advantage of changes or anticipated changes in yield relationships, markets or economic conditions. The Fund may also sell tax exempt bonds due to changes in the adviser's evaluation of the issuer or cash needs resulting from redemption requests for Fund shares. The secondary market for tax exempt bonds typically has been less liquid than that for taxable debt securities, and this may affect the Fund's ability to sell particular tax exempt bonds, especially in periods when other investors are attempting to sell the same securities. FOREIGN CURRENCY TRANSACTIONS Each of the Funds (except the Municipal Bond Fund) may invest in securities of foreign issuers and may enter into forward foreign currency exchange contracts, or buy or sell options on foreign currencies, in order to protect against uncertainty in the level of future foreign exchange rates. Since investment in securities of foreign issuers will usually involve currencies of foreign countries, and since a Fund may temporarily hold funds in bank deposits in foreign currencies during the course of investment programs, the value of the assets of a Fund as measured in United States dollars may be affected by changes in currency exchange rates and exchange control regulations, and a Fund may incur costs in connection with conversion between various currencies. A Fund may enter into forward contracts under two circumstances. First, when a Fund enters into a contract for the purchase or sale of a security denominated or traded in a market in which settlement is made in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. By entering into a forward contract for the purchase or sale, for a fixed amount of dollars, of the amount of foreign currency involved in the underlying transactions, the Fund will be able to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the subject foreign currency during the period between the date on which the investment is purchased or sold and the date on which payment is made or received. Second, when Loomis Sayles believes that the currency of a particular country may suffer a substantial decline against another currency, it may enter into a forward contract to sell, for a fixed amount of another currency, the amount of the first currency approximating the value of some or all of the Fund's portfolio investments denominated in the first currency. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in a currency will change as a consequence of market movements in the value of those investments between the date the forward contract is entered into and the date it matures. The Funds generally will not enter into forward contracts with a term of greater than one year. Options on foreign currencies are similar to forward contracts, except that one party to the option (the holder) is not contractually bound to buy or sell the specified currency. Instead, the holder has discretion whether to "exercise" the option and thereby require the other party to buy or sell the currency on the terms specified in 8 the option. Options transactions involve transaction costs and, like forward contract transactions, involve the risk that the other party may default on its obligations (if the options are not traded on an established exchange) and the risk that expected movements in the relative value of currencies may not occur, resulting in an imperfect hedge or a loss to the Fund. Each Fund, in conjunction with its transactions in forward contracts, options and futures (including the International Equity, Worldwide and Global Bond Funds' transactions in options on securities described below), will maintain in a segregated account with its custodian liquid assets with a value, marked to market on a daily basis, sufficient to satisfy the Fund's outstanding obligations under such contracts, options and futures. OPTIONS As described in the Prospectus, each of the Funds, may for hedging purposes or to enhance investment return, purchase and sell call and put options. An option entitles the holder to receive (in the case of a call option) or to sell (in the case of a put option) a particular security at a specified exercise price. An "American style" option allows exercise of the option at any time during the term of the option. A "European style" option allows an option to be exercised only at the end of its term. Options may be traded on or off an established securities exchange. If the holder of an option wishes to terminate its position, it may seek to effect a closing sale transaction by selling an option identical to the option previously purchased. The effect of the purchase is that the previous option position will be canceled. A Fund will realize a profit from closing out an option if the price received for selling the offsetting position is more than the premium paid to purchase the option; the Fund will realize a loss from closing out an option transaction if the price received for selling the offsetting option is less than the premium paid to purchase the option. The use of options involves risks. One risk arises because of the imperfect correlation between movements in the price of options and movements in the price of the securities that are the subject of the hedge. The Fund's hedging strategies will not be fully effective if such imperfect correlation occurs. Price movement correlation may be distorted by illiquidity in the options markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in options because they do not want to assume the risk that they may not be able to close out their positions within a reasonable amount of time. In such instances, options market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, the trading activities of speculators in the options markets may create temporary price distortions unrelated to the market in the underlying securities. An exchange-traded option may be closed out only on an exchange which generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option, with the result that the Fund would have to exercise the option in order to accomplish the desired hedge. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation or other clearing organization may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. 9 The successful use of options depends in part on the ability of Loomis Sayles to forecast correctly the direction and extent of interest rate, stock price or currency value movements within a given time frame. To the extent interest rates, stock prices or currency values move in a direction opposite to that anticipated, the Fund may realize a loss on the hedging transaction that is not fully or partially offset by an increase in the value of portfolio securities. In addition, whether or not interest rates or the relevant stock price or relevant currency values move during the period that the Fund holds options positions, the Fund will pay the cost of taking those positions (i.e., brokerage costs). As a result of these factors, the Fund's total return for such period may be less than if it had not engaged in the hedging transaction. An over-the-counter option (an option not traded on an established exchange) may be closed out only with the other party to the original option transaction. While the Fund will seek to enter into over-the-counter options only with dealers who agree to or are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an over-the-counter option at a favorable price at any time prior to its expiration. Accordingly, the Fund might have to exercise an over-the-counter option it holds in order to achieve the intended hedge. Over-the- counter options are not subject to the protections afforded purchasers of listed options by the Options Clearing Corporation or other clearing organization. The staff of the SEC has taken the position that over-the-counter options should be treated as illiquid securities for purposes of each Fund's investment restriction prohibiting it from investing more than 15% of its net assets in illiquid securities. The Funds intend to comply with this position. Income earned by a Fund from its hedging activities will be treated as capital gain and, if not offset by net recognized capital losses incurred by the Fund, will be distributed to shareholders in taxable distributions. Although gain from options transactions may hedge against a decline in the value of a Fund's portfolio securities, that gain, to the extent not offset by losses, will be distributed in light of certain tax considerations and will constitute a distribution of that portion of the value preserved against decline. SMALL COMPANIES Investments in companies with relatively small capitalization may involve greater risk than is usually associated with more established companies. These companies often have limited product lines, markets or financial resources and they may be dependent upon a relatively small management group. Their securities may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of companies with larger capitalization or market averages in general. The net asset values of funds that invest in companies with smaller capitalization therefore may fluctuate more widely than market averages. MANAGEMENT OF THE TRUST The trustees and officers of the Trust and their principal occupations during the past five years are as follows: EARL W. FOELL--Trustee. 380 Marlborough Street, #3, Boston, Massachusetts. Retired; formerly Editor in-Chief, World Monitor Magazine and Editor-in-Chief, The Christian Science Monitor. RICHARD S. HOLWAY--Trustee. 1314 Seaspray Lane, Sanibel, Florida. Retired; formerly, Vice President, Loomis Sayles. Director, Sandwich Cooperative Bank. MICHAEL T. MURRAY--Trustee. 404 N. Western Ave., Lake Forest, Illinois. Retired; formerly, Vice President, Loomis Sayles. *DANIEL J. FUSS--President and Trustee. Executive Vice President and Director, Loomis Sayles. SHEILA M. BARRY--Secretary and Compliance Officer. Assistant General Counsel and Vice President, Loomis Sayles. Formerly, Senior Counsel and Vice President, New England Funds, L.P. 10 ROBERT J. BLANDING--Executive Vice President. 465 First Street West, Sonoma, California. President, Chairman, Director and Chief Executive Officer, Loomis Sayles. JAMES C. CARROLL--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President, Loomis Sayles. Formerly, Managing Director and Senior Energy Analyst at Paine Webber, Inc. JEROME A. CASTELLINI--Vice President. Three 1st National Plaza, Chicago, Illinois. Vice President and Director, Loomis Sayles. MARY C. CHAMPAGNE--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President, Loomis Sayles. - -------- * Trustee deemed an "interested person" of the Trust, as defined by the 1940 Act. E. JOHN DEBEER--Vice President. Vice President, Loomis Sayles. PAUL H. DREXLER--Vice President. Vice President, Loomis Sayles; formerly Deputy Manager, Brown Brothers Harriman & Co. WILLIAM H. EIGEN, JR.--Vice President. Vice President, Loomis Sayles; formerly Vice President, INVESCO Funds Group and Vice President, The Travelers Corp. CHRISTOPHER R. ELY--Vice President. Vice President, Loomis Sayles; formerly Senior Vice President and portfolio manager, Keystone Investment Management Company, Inc. QUENTIN P. FAULKNER--Vice President. Vice President, Loomis Sayles. PHILIP C. FINE--Vice President. Vice President, Loomis Sayles; formerly Vice President and portfolio manager, Keystone Investment Management Company, Inc. KATHLEEN C. GAFFNEY--Vice President, Vice President, Loomis Sayles. ISAAC GREEN--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President and Director, Loomis Sayles. [Formerly, Senior Vice President and Director of Investments at NCM Capital Management Group.] DEAN A. GULIS--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President, Loomis Sayles. Formerly, Principal and Director of Research at Roney & Company. MARTHA F. HODGMAN--Vice President. Vice President, Loomis Sayles. MARK W. HOLLAND--Treasurer. Vice President--Finance and Administration and Director, Loomis Sayles. JOHN HYLL--Vice President. 155 North Lake Avenue, Pasadena, California. Vice President, Loomis Sayles. JEFFREY L. MEADE--Vice President. Executive Vice President, Chief Operating Officer and Director, Loomis Sayles. PHILIP R. MURRAY--Assistant Treasurer, Vice President, Loomis Sayles. KENT P. NEWMARK--Vice President. 555 California Street, San Francisco, California. Vice President, Managing Partner and Director, Loomis Sayles. SCOTT S. PAPE--Vice President. Vice President, Loomis Sayles. 11 JEFFREY C. PETHERICK--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President, Loomis Sayles. LAUREN B. PITALIS--Vice President. Vice President, Loomis Sayles; formerly Vice President and Assistant Secretary of Harris Associates Investment Trust. PHILIP J. SCHETTEWI--Vice President. Vice President and Director, Loomis Sayles. DAVID L. SMITH--Vice President. Vice President, Loomis Sayles; formerly Vice President and portfolio manager, Keystone Investment Management Company, Inc. SANDRA P. TICHENOR--Vice President. 465 First Street West, Sonoma, California. General Counsel, Vice President, Secretary and Clerk, Loomis Sayles. Formerly, Partner, Heller, Ehrman, White & McAuliffe. JEFFREY W. WARDLOW--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan. Vice President, Loomis Sayles. GREGG D. WATKINS--Vice President. Vice President, Loomis Sayles. ANTHONY J. WILKINS--Vice President. Vice President and Director, Loomis Sayles. JOHN F. YEAGER III--Vice President. Vice President, Loomis Sayles; formerly Vice President--Marketing, INVESCO Funds Group and Assistant Comptroller, INVESCO Capital Management. Previous positions during the past five years with Loomis Sayles are omitted, if not materially different. Except as indicated above, the address of each trustee and officer of the Trust affiliated with Loomis Sayles is One Financial Center, Boston, Massachusetts. The Trust pays no compensation to its officers or to the trustees listed above who are directors, officers or employees of Loomis Sayles. Each trustee who is not a director, officer or employee of Loomis Sayles is compensated at the rate of $1,250 per fund per annum. 12 COMPENSATION TABLE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(5) TOTAL (3) (4) COMPENSATION (2) PENSION OR ESTIMATED FROM TRUST AND (1) AGGREGATE RETIREMENT BENEFITS ANNUAL FUND COMPLEX* NAME OF PERSON, COMPENSATION ACCRUED AS PART OF BENEFITS UPON PAID TO POSITION FROM TRUST FUND EXPENSES RETIREMENT TRUSTEE --------------- ------------ ------------------- ------------- -------------- Earl W. Foell, Trustee.. $ N/A N/A $ Richard S. Holway, Trustee................ $ N/A N/A $ Terry R. Lautenbach**, Trustee................ $ N/A N/A $ Michael T. Murray, Trustee................ $ N/A N/A $
- -------- * No Trustee receives any compensation from any mutual funds affiliated with Loomis Sayles, other than the Trust. ** Mr. Lautenbach retired from the Board of Trustees on October 26, 1998. As of September 30, 1998, the officers and trustees of the Trust owned beneficially shares of each Fund as follows: 427,495.680 shares of the Bond Fund, 18,173.581 shares of the Core Value Fund, 26,813.759 shares of the Global Bond Fund, 16,668.673 shares of the Growth Fund, 272,926.72 shares of the High Yield Fund, 18,468.166 shares of the International Equity Fund, 11,473.108 shares of the Investment Grade Bond Fund, 1,239.933 of the Mid-Cap Value Fund, 69,218.193 shares of the Municipal Bond Fund, 65,428.296 shares of the Short-Term Bond Fund, 2,742.817 shares of the Small Cap Growth Fund, 37,257.122 shares of the Small Cap Value Fund, 1,480.432 of the Strategic Value Fund, 13,501.622 shares of the U.S. Government Securities Fund, and 15,647.889 shares of the Worldwide Fund. These amounts include shares held by the Loomis Sayles Employees' Profit Sharing Plan (the "Profit Sharing Plan") for the accounts of officers and trustees of the Trust, but exclude all other holdings of the Profit Sharing Plan and the Loomis-Sayles Funded Pension Plan (the "Pension Plan"). As of September 30, 1998, the Pension Plan owned the following percentages of the outstanding Institutional Class shares of the indicated Funds: 0.06% of the Bond Fund, 9.24% of the Core Value Fund, 21.12% of the Global Bond Fund, 6.33% of the Growth Fund, 34.06% of the Intermediate Maturity Bond Fund, 15.69% of the International Equity Fund, 0.11% of the Short Term Bond Fund, 13.18% of the Small Cap Growth Fund, 0.71% of the Small Cap Value Fund, 28.98% of the U.S. Government Securities Fund, and 80.98% of the Worldwide Fund. As of September 30, 1998, the Profit Sharing Plan owned the following percentages of the outstanding Institutional Class shares of the indicated Funds: 0.08% of the Bond Fund, 12.14% of the Core Value Fund, 7.02% of the Global Bond Fund, 32.58% of the Growth Fund, 18.19% of the High Yield Fund, 14.92% of the Intermediate Maturity Bond Fund, 6.42% of the International Equity Fund, 12.39% of the Investment Grade Bond Fund, 78.73% of the Mid-Cap Growth Fund, 39.83% of the Mid-Cap Value Fund, 11.43% of the Short-Term Bond Fund, 13.47% of the Small Cap Growth Fund, 3.95% of the Small Cap Value Fund, 62.65% of the Strategic Value Fund, 20.27% of the U.S. Government Securities Fund, and 12.41% of the Worldwide Fund. The trustee of the Pension Plan is Fleet Investment Management. The Pension Plan's Advisory Committee, which is composed of the same individuals listed below as trustees of the Profit Sharing Plan, has the sole voting and investment power with respect to the Pension Plan's shares. The trustees of the Profit Sharing Plan are E. John deBeer, Quentin P. Faulkner, Sandra P. Tichenor, Larry K. Shaw, Kathleen C. Gaffney, Mark W. Holland, and Patrick P. Hurley, all of whom are officers and employees of Loomis Sayles and (except for Messrs. Hurley and Shaw) trustees or officers of the Trust. Plan participants are entitled to exercise investment and voting power over shares owned of record by the Profit Sharing Plan. Shares not voted by participants are voted in the same proportion as the shares voted by the voting participants. The address for the Profit Sharing Plan and the Pension Plan is One Financial Center, Boston, Massachusetts. At the date of this Statement of Additional Information, no officer or trustee, and as of October 31, 1998, except as noted below, no person, owns more than 5% of the outstanding shares of any Fund. 13 INSTITUTIONAL CLASS SHARES
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 40.72% San Francisco, CA 94104 Charles Schwab & Co. Inc. 101 Montgomery St. 8.73% San Francisco, CA 94104 CORE VALUE FUND Charles Schwab & Co. Inc. 101 Montgomery St. 22.64% San Francisco, CA 94104 John W. George, Trustee 590 Renaud 5.88% John W. George Trust Grosse Pointe, MI 48236 U/A/D 12/6/90 Asbestos Workers Local C/O Loomis Sayles & Co. Inc. 6.41% #84 Pension Fund 1593 North Woodward, Ste 300 Bloomfield Hills, MI 48304 First Trust NA Trustee P.O. Box 64010 7.29% Green Tree Financial Corp St. Paul, MN 55164 401K Plan GLOBAL BOND FUND San Diego Transit Pension Plan P.O. Box 2511 9.54% San Diego, CA 92112 Northwest Bank MN NA P.O. Box 1450 NW 8477 18.64% C/F Desert States UFCW Union Minneapolis, MN 55480 Employees Pension AC#1327982D Fleet National Bank TTEE P.O. Box 92800 15.92% Kaman Corp Master Trust Fixed Rochester, NY 14692 Income Fund U/A/D 10-1-96 Attn A/C# 0004884410 Charles Schwab & Co. Inc. 101 Montgomery St. 38.58% San Francisco, CA 94104 GROWTH FUND Fiduciary Trust Co. Cust P.O. Box 3199 6.33% FBO Scott R. Shoemaker Church St. Station New York, NY 10008 Fiduciary Trust Co. Cust P.O. Box 3199 5.58% FBO Charles Grant Shoemaker Church St. Station New York, NY 10048 HIGH YIELD FUND Daniel J. Fuss 44 Longfellow Road 32.38% Wellesley, MA 02181 Charles Schwab & Co. Inc. 101 Montgomery St. 30.29%
14
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- San Francisco, CA 94104 Rosemary B. Fuss 44 Longfellow Road 12.06% Wellesley, MA 02181 INTERMEDIATE MATURITY BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 52.48% San Francisco, CA 94104 Hawaii Sheet Metal Workers 1405 N. King St. Rm 403 28.00% Health & Welfare Fund Honolulu, HI 96817 Pomona College Alexander Hall 7.95% 550 N. College Ave. Claremont, CA 91711 INTERNATIONAL EQUITY FUND Charles Schwab & Co. Inc. 101 Montgomery St. 22.13% San Francisco, CA 94104 Comerica Bank FBO P.O. Box 75000 MC 3446 11.95% City of Livonia Employee Detroit, MI 48275 Retirement System A/C 82150B The Security Mutual Life 200 Centennial Mall North 6.99% Insurance Co. of P.O. Box 82248 Lincoln Nebraska Lincoln, NE 68501 INVESTMENT GRADE BOND FUND Loomis Sayles & Company, L.P. Attn: Paul Sherba 43.92% One Financial Center Boston, MA 02111 Charles Schwab & Co. Inc. 101 Montgomery St. 21.57% San Francisco, CA 94104 Pomona College Alexander Hall 7.23% 550 N. College Ave. Claremont, CA 91711 MID-CAP GROWTH FUND Charles Schwab & Co. Inc. 101 Montgomery St. 82.15% San Francisco, CA 94104 American National Bank 120 So. LaSalle St. 9.77% Howard Siegel or Catherine Chicago, IL 60603 Siegel Trust MID-CAP VALUE FUND Charles Schwab & Co. Inc. 101 Montgomery St. 41.61% San Francisco, CA 94104
15
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- John W. George, Jr. Trustee 590 Renaud 8.10% John W. George, Jr. Trust Grosse Pointe, MI 48236 U/A/D 12/6/90 Carey & Co. P.O. Box 1558 8.04% C/O Huntington National Bank Columbus, OH 43260 Attn: Mutual Funds HC1024 MUNICIPAL BOND FUND John W. George Jr. Trustee 590 Renaud 19.57% John W. George Jr. Trust Grosse Pointe, MI 48236 U/A/D 12/6/90 Ann A. Morris Trustee General Delivery 13.90% Ann A. Morris Trust Lummi Island, WA 98262 SHORT-TERM BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 21.30% San Francisco, CA 94104 George R. Rodrigues, Jr. 1109 Bethel St. Ste. 403 7.92% Herbert S K Kaopua Sr TTEES Honolulu, HI 96813 Pamcah-UA Local 675 Health & Welfare DTD 9/1/61 John W. George Jr. Trustee 590 Renaud 6.51% John W. George Jr. Trust Grosse Pointe, MI 48236 U/A/D 12/6/90 NFSC FEBO #179-257206 54 Jemez Canyon Road 14.63% Santa Ana Non-Profit Enterprise Box 9201 Bernalillo, NM 87004 SMALL CAP GROWTH FUND Charles Schwab & Co. Inc. 101 Montgomery St. 32.65% San Francisco, CA 94104 The Community Foundation 456 King St. 12.59% Serving Coastal SC Charleston, SC 29403 Donaldson Lufkin Jenrette P.O. Box 2052 8.32% Securities Corporation Jersey City, NJ 07303 Trussal & Co. P. O. Box 771072 6.77% Detroit, MI 48277 Fifth Third Bank, Trustee P.O. Box 630074 6.51% Catholic Community Foundation Cincinnati, OH 45263 Covie & Co. 5101 N. Francisco Ave. 6.43% C/O Covenant Trust Co. Chicago, IL 60625 Carey & Co. P.O. Box 1558 6.28%
16
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- Columbus, OH 43216 SMALL CAP VALUE FUND Charles Schwab & Co. Inc. 101 Montgomery St. 12.41% San Francisco, CA 94104 Smith Barney Inc. 333 West 34th St.; 7th Fl. 11.95% Book Entry Account New York, NY 10001 STRATEGIC VALUE FUND Charles Schwab & Co. Inc. 101 Montgomery St. 79.16% San Francisco, CA 94104 Pomona College Alexander Hall 11.02% 550 N. College Ave. Claremont, CA 91711 U.S. GOVERNMENT SECURITIES FUND Charles Schwab & Co. Inc. 101 Montgomery St. 68.30% San Francisco, CA 94104 WORLDWIDE FUND Charles Schwab & Co. Inc. 101 Montgomery St. 94.84% San Francisco, CA 94104
17 RETAIL CLASS SHARES
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- BOND FUND Reliance Trust Co. P.O. Box 48449 6.09 FBO Clear Channel Comm Atlanta, GA 30362-1449 401K CORE VALUE FUND Charles Schwab & Co. Inc. 101 Montgomery St. 34.15% San Francisco, CA 94104 Jupiter & Co. P.O. Box 9130 30.11% C/O Investors Bank & Trust Boston, MA NFSC FEBO 2651 Sleepy Hollow Dr. 7.52% Stephen M. Keil State College, PA 16803 GLOBAL BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 48.00% Attn. Mutual Fund Dept. San Francisco, CA 94104 Southwest Securities, Inc. P.O. Box 509002 16.05% FBO First National Bank Edinburg Dallas, TX 75250 GROWTH FUND Angelo V. Glorioso 225 Summit Dr. 53.34% Pittsburgh, PA 15238 Charles Schwab & Co. Inc. 101 Montgomery St. 25.88% Attn. Mutual Fund Dept. San Francisco, CA 94104 NFSC FEBO 900 Palisade Ave. 14.49% FMT CO CUST IRA Rollover Fort Lee, NJ 07024 Leslie G. Brady HIGH YIELD FUND Charles Schwab & Co. Inc. 101 Montgomery St. 33.96% San Francisco, CA 94104 Charles Schwab & Co. Inc. 101 Montgomery St. 17.12% San Francisco, CA 94104 METLIFE Defined Contribution Group 72 Eagle Rock Ave. 6.75% Attn: Peter Hall East Hanover, NJ 07936
18
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- INTERMEDIATE MATURITY BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 89.10% San Francisco, CA 94104 INTERNATIONAL EQUITY FUND James Goodman 1400 Ocean Blvd. Apt. 706N 50.80% Dorothy Goodman JT TEN Boca Raton, FL 33432 CIBC Oppenheimer Corp. P.O. Box 3484 16.44% FBO 371-11893-10 Church St. Station New York, NY 10008 CIBC Oppenheimer Corp. P.O. Box 3484 12.05% Church St. Station New York, NY 10008 CIBC Oppenheimer Corp. P.O. Box 3484 9.04% FBO 371-11726-13 Church St. Station New York, NY 10008 Charles Schwab & Co. Inc. 101 Montgomery St. 8.97% San Francisco, CA 94104 Saxon & Co. P.O. Box 7780-1888 6.78% FBO Boes Anna Marie Ilita Philadelphia, PA 19182 NFSC FEBO #x08-233420 P.O. Box 750633 5.96% Bawa N. Mallick Forest Hills, NY 11375 CIBC Oppenheimer Corp. P.O. Box 3484 5.68% FBO 324-63220-14 Church St. Station New York, NY 10008 CIBC Oppenheimer Corp. P.O. Box 3484 5.59% FBO 371-11854-17 Church St. Station New York, NY 10008 CIBC Oppenheimer Corp. P.O. Box 3484 5.34% FBO 392-14139-14 Church St. Station New York, NY 10008 CIBC Oppenheimer Corp. P.O. Box 3484 5.08% FBO 324-22271-18 Church St. Station New York, NY 10008 INVESTMENT GRADE BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 35.46% San Francisco, CA 94104 Charles Schwab & Co. Inc. 101 Montgomery St. 5.82% San Francisco, CA 94104 NFSC FEBO #157-197300 4 Buxton Lane 5.45% FBO George D. Dugan Riverside, CT 06878 NFSC FEBO #z11-056570 4545 SW 97th Terrace 5.36% Sappington Revocable Living Trust Gainesville, FL 32608
19
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- MID-CAP GROWTH FUND Jane F. Clark 140 Enid Ln 72.78% Northfield, IL 60093 Charles Schwab & Co. Inc. 101 Montgomery St. 12.67% San Francisco, CA 94104 NFSC FEBO #127-599832 306 Hackensack St. 8.13% FBO Santo J. Pittsman Wood Ridge, NJ 07075 MID-CAP VALUE FUND Charles Schwab & Co. Inc. 101 Montgomery St. 59.14% San Francisco, CA 94104 Donaldson Lufkin Jenrette One Pershing Plaza--7th Fl 25.15% Securities Corporation Inc. Jersey City, 07303 SHORT-TERM BOND FUND Charles Schwab & Co. Inc. 101 Montgomery St. 45.97% San Francisco, CA 94104 Donaldson Lufkin Jenrette P.O. Box 2052 12.56% Securities Corporation Inc. Jersey City, 07303 Charles Schwab & Co. Inc. 101 Montgomery St. 8.20% San Francisco, CA 94104 NFSC FEBO #201-528218 245 Tower Rd. 8.10% FBO Carmine A. Greco Lincoln, MA 01773 Donaldson Lufkin Jenrette P.O. Box 2052 5.93% Securities Corporation Inc. Jersey City, 07303 State Street Bank & Trust Co. 405 S. Yucca Dr. 5.83% C/F The IRA of Wickenburg, AZ 85390 Roger E. Wakefield SMALL CAP GROWTH FUND Charles Schwab & Co. Inc. 101 Montgomery St. 51.44% San Francisco, CA 94104 MO Institute of Sports Medicine 621 New Ballas 32.79% Profit Sharing Plan & Trust Suite 101 DTD 5/1/80 St. Louis, MO 63141 SMALL CAP VALUE FUND Charles Schwab & Co. Inc. 101 Montgomery St. 33.74% San Francisco, CA 94104
20
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- First Trust National Association 180 East Fifth St. 20.63% Trustee for United Healthcare P.O. Box 64488 401K Savings Plan St. Paul, MN 55164 Chase Manhattan Bank Trustee 770 Broadway 19.41% Metlife Defined Contribution 10th Floor Group; Attn: Cindy Chu New York, NY 10003 STRATEGIC VALUE FUND Lazard Freres & Co. LLC 30 Rockefeller Plaza 95.75% FBO Catholic Cemetaries 60th Floor New York, New York WORLDWIDE FUND Donaldson Lufkin Jenrette P.O. Box 2052 30.85% Securities Corporation Inc. Jersey City, 07303 State Street Bank &Trust Co. 235 Arlington Road Apt. 214 28.44% Custodian for the IRA of Redwood City, CA 94062 Benjamin T. Ream Charles Schwab & Co. Inc. 101 Montgomery St. 18.42% San Francisco, CA 94104 National Investor Services 55 Water St. 9.77% Corp. New York, NY 10041 FBO Our Customers Mutual Funds Dept. 32nd Floor Donaldson Lufkin Jenrette P.O. Box 2052 6.17% Securities Corporation Inc. Jersey City, 07303
21 ADMIN CLASS SHARES
PERCENTAGE OF SHAREHOLDER ADDRESS SHARES HELD - ----------- ------- ------------- BOND FUND Smith Barney Corp. Trust Two Tower Center 99.98% Smith Barney 401k Adviser P.O. Box 1063 Group Trust E. Brunswick, NJ 08816 San Francisco, CA 94104 SMALL CAP VALUE FUND Smith Barney Corp. Trust Two Tower Center 67.87% Smith Barney 401k Adviser P.O. Box 1063 Group Trust E. Brunswick, NJ 08816 San Francisco, CA 94104 Merrill Lynch Trust Co. 265 Davidson Ave. 28.60% FBO Qualified Retirement Plans Somerset NJ 08873
To the extent any of the shareholders listed above beneficially owns more than 25% of a Fund, it may be deemed to "control" such Fund. 22 INVESTMENT ADVISORY AND OTHER SERVICES Advisory Agreements. Loomis Sayles serves as investment adviser under a separate advisory agreement relating to each of the Bond and High Yield Funds, each dated August 30, 1996, relating to the Growth, Core Value, Small Cap Value, International Equity, Worldwide, Global Bond, U.S. Government Securities, Municipal Bond and Short-Term Bond Funds, each dated August 30, 1996, as amended January 1, 1997, and relating to each of the Small Cap Growth, Mid-Cap Value, Mid-Cap Growth, Strategic Value, Investment Grade Bond, and Intermediate Maturity Bond Funds, each dated December 1, 1996. The advisory agreements relating to each of the Growth, Core Value, Small Cap Value, International Equity, Worldwide, Global Bond, U.S. Government Securities, Municipal Bond and Short-Term Bond Funds were amended effective January 1, 1997, and December 1, 1998, for U.S. Government Securities Fund, solely for the purpose of reducing the fees payable thereunder. Under each advisory agreement, Loomis Sayles manages the investment and reinvestment of the assets of the relevant Fund and generally administers its affairs, subject to supervision by the board of trustees of the Trust. Loomis Sayles furnishes, at its own expense, all necessary office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services. For these services, the advisory agreements provide that each Fund shall pay Loomis Sayles a monthly investment advisory fee at the following annual percentage rates of the particular Fund's average daily net assets:
FUND RATE ---- ---- Growth.............................................................. .50% Core Value.......................................................... .50 Small Cap Value..................................................... .75 International Equity................................................ .75 Worldwide........................................................... .75 Small Cap Growth.................................................... .75 Mid-Cap Value....................................................... .75 Mid-Cap Growth...................................................... .75 Strategic Value..................................................... .50 Bond................................................................ .60 High Yield.......................................................... .60 Global Bond......................................................... .60 U.S. Government Securities.......................................... .30 Municipal Bond...................................................... .40 Short-Term Bond..................................................... .25 Investment Grade Bond............................................... .40 Intermediate Maturity Bond.......................................... .40
During the periods shown below, pursuant to the advisory agreements described above and advisory agreements in effect prior to January 1, 1997 under which fees were payable to Loomis Sayles at the following annual rates by the indicated Funds (expressed as a percentage of average daily net assets): Growth, 0.75%; Core Value, 0.75%; International Equity, 1.00%; Small Cap Value, 1.00%; Bond, 0.60%; Global Bond, 0.75%; Municipal Bond, 0.60%; Short Term Bond, 0.50%; Worldwide, 0.75%; High Yield, 0.60%, Loomis Sayles received the following amount of investment advisory fees from each Fund (before voluntary fee reductions and expense assumptions) and bore the following amounts of fee reductions and expense assumptions for each Fund: During the periods shown below, pursuant to the advisory agreement described above and the advisory agreements in effect prior to January 1, 1997, and December 1, 1998, respectively, under which fees were payable to Loomis Sayles at the annual rates of 0.60% prior to January 1, 1997, and the annual rate of 0.40% prior to December 1, 1998, by the U.S. Government Securities Fund. 23
FISCAL YEAR ENDED 12/31/96 FISCAL YEAR ENDED 12/31/97 NINE MONTHS ENDED 9/30/98* ----------------------------- ----------------------------- ----------------------------- FEE WAIVERS FEE WAIVERS FEE WAIVERS ADVISORY AND EXPENSE ADVISORY AND EXPENSE ADVISORY AND EXPENSE FUND FEES ASSUMPTIONS FEES ASSUMPTIONS FEES ASSUMPTIONS ---- -------------- -------------- -------------- -------------- -------------- -------------- Growth.................. $ 318,602 $ 0 $ 174,976 $ 74,929 $ 114,917 $ 52,384 Core Value.............. 297,001 0 269,200 29,404 264,693 12,673 Small Cap Value......... 1,125,160 0 1,581,667 12,741 1,981,662 5,254 International Equity.... 848,205 0 705,111 178,102 451,871 124,877 Worldwide............... 23,335 84,635 55,489 148,392 32,580 112,466 Small Cap Growth**...... N/A N/A 24,894 170,503 67,049 117,517 Mid-Cap Value**......... N/A N/A 18,691 158,363 23,688 117,826 Mid-Cap Growth**........ N/A N/A 11,993 151,104 11,818 109,517 Strategic Value**....... N/A N/A 4,385 144,233 5,321 114,273 Bond.................... 2,205,461 0 5,460,675 197,170 6,920,645 112,593 Global Bond............. 119,648 43,855 178,622 123,445 155,995 85,930 US. Government Securities............. 130,189 40,922 55,096 87,078 65,031 60,872 Municipal Bond.......... 48,518 105,784 34,082 102,318 28,142 77,070 Short-Term Bond......... 100,693 34,987 41,211 143,266 45,845 74,443 High Yield.............. 2,544 47,964 34,062 185,981 50,667 141,220 Investment Grade Bond**................. N/A N/A 8,585 162,568 12,300 119,899 Intermediate Maturity Bond**................. N/A N/A 17,125 147,955 25,473 122,162
- -------- * The fiscal year-end for each of the Funds has changed to September 30. ** The Small Cap Growth, Mid-Cap Value, Mid-Cap Growth, Strategic Value, Investment Grade Bond and Intermediate Maturity Bond Funds commenced investment operations on January 2, 1997. The Trust pays the compensation of its trustees who are not directors, officers or employees of Loomis Sayles or its affiliates (other than registered investment companies); registration, filing and other fees in connection with requirements of regulatory authorities; all charges and expenses of its custodian and transfer agent; the charges and expenses of its independent accountants; all brokerage commissions and transfer taxes in connection with portfolio transactions; all taxes and fees payable to governmental agencies; the cost of any certificates representing shares of the Funds; the expenses of meetings of the shareholders and trustees of the Trust; the charges and expenses of the Trust's legal counsel; interest on any borrowings by the Funds; the cost of services, including services of counsel, required in connection with the preparation of, and the cost of printing, the Trust's registration statements and prospectuses, including amendments and revisions thereto, annual, semiannual and other periodic reports of the Trust, and notices and proxy solicitation material furnished to shareholders or regulatory authorities, to the extent that any such materials relate to the Trust or its shareholders; and the Trust's expenses of bookkeeping, accounting, auditing and financial reporting, including related clerical expenses. Under each advisory agreement, if the total ordinary business expenses of a Fund or the Trust as a whole for any fiscal year exceed the lowest applicable limitation (based on percentage of average net assets or income) prescribed by any state in which the shares of the Fund or the Trust are qualified for sale, Loomis Sayles shall pay such excess. Loomis Sayles will not be required to reduce its fee or pay such expenses to an extent or under circumstances which would result in any Fund's inability to qualify as a regulated investment company under the Code. The term "expenses" is defined in the advisory agreements or in relevant state regulations and excludes brokerage commissions, taxes, interest, distribution-related expenses and extraordinary expenses. As described in the Prospectus, Loomis Sayles has agreed to certain additional, voluntary arrangements to limit Fund expenses. These arrangements may be modified or terminated by Loomis Sayles at any time. Each advisory agreement provides that it will continue in effect for two years from its date of execution and thereafter from year to year if its continuance is approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the relevant Fund and (ii) by vote of a 24 majority of the Trustees who are not "interested persons" of the Trust, as that term is defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. Any amendment to an advisory agreement must be approved by vote of a majority of the outstanding voting securities of the relevant Fund and by vote of a majority of the Trustees who are not such interested persons, cast in person at a meeting called for the purpose of voting on such approval. Each agreement may be terminated without penalty by vote of the Board of Trustees or by vote of a majority of the outstanding voting securities of the relevant Fund, upon sixty days' written notice, or by Loomis Sayles upon ninety days' written notice, and each terminates automatically in the event of its assignment. In addition, each agreement will automatically terminate if the Trust or the Fund shall at any time be required by Loomis Sayles to eliminate all reference to the words "Loomis" and "Sayles" in the name of the Trust or the Fund, unless the continuance of the agreement after such change of name is approved by a majority of the outstanding voting securities of the relevant Fund and by a majority of the Trustees who are not interested persons of the Trust or Loomis Sayles. Each advisory agreement provides that Loomis Sayles shall not be subject to any liability in connection with the performance of its services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties. Loomis Sayles acts as investment adviser or subadviser to New England Value Fund, New England Strategic Income Fund, New England Star Advisers Fund; New England Star Small Cap Fund and New England Balanced Fund, which are series of New England Funds Trust I, a registered open- end management investment company, New England High Income Fund, a series of New England Fund Trust II, a registered, open-end management investment company, New England Equity Income Fund, a series of New England Funds Trust III, a registered open-end management investment company, and to the Balanced Series and the Small Cap Series of New England Zenith Fund, which is also a registered open-end management investment company, as well as to Loomis Sayles Investment Trust, also a registered open-end management investment company. Loomis Sayles also provides investment advice to certain other open-end management investment companies and numerous other corporate and fiduciary clients. The general partner of Loomis Sayles is a special purpose corporation that is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance company. Nvest Companies' advising general partner, Nvest L.P., is a publicly traded company listed on the New York Stock Exchange. Nvest Corporation is the sole general partner of Nvest L.P. Certain officers and trustees of the Trust also serve as officers, directors and trustees of other investment companies and clients advised by Loomis Sayles. The other investment companies and clients sometimes invest in securities in which the Funds also invest. If a Fund and such other investment companies or clients desire to buy or sell the same portfolio securities at the same time, purchases and sales may be allocated, to the extent practicable, on a pro rata basis in proportion to the amounts desired to be purchased or sold for each. It is recognized that in some cases the practices described in this paragraph could have a detrimental effect on the price or amount of the securities which a Fund purchases or sells. In other cases, however, it is believed that these practices may benefit the Funds. It is the opinion of the trustees that the desirability of retaining Loomis Sayles as adviser for the Funds outweighs the disadvantages, if any, which might result from these practices. Distribution Agreement and Rule 12b-1 Plans. Under an agreement with the Trust (the "Distribution Agreement"), Loomis Sayles Distributors, L.P. serves as the general distributor of each class of shares of the Funds. Under this agreement, Loomis Sayles Distributors, L.P. is not obligated to sell a specific number of shares. Loomis Sayles Distributors, L.P. bears the cost of making information about the Funds available through advertising and other means and the cost of printing and mailing prospectuses to persons other than shareholders. The Funds pay the cost of registering and qualifying their shares under state and federal securities laws and the distribution of prospectuses to existing shareholders. As described in the Prospectuses, the Funds (other than the U.S. Government Securities and Municipal Bond Funds) have adopted Rule 12b-1 plans ("Plans") for their Retail Class shares. The Bond and Small Cap Value 25 Funds have adopted Plans for their Admin Class shares. The Plans, among other things, permit the relevant classes of the Funds to pay the Funds' distributor (currently Loomis Sayles Distributors, L.P.) monthly fees, at annual rates not exceeding 0.25% of the assets of the Retail Class and Admin Class respectively. Pursuant to Rule 12b-1 under the 1940 Act, each Plan (together with the Distribution Agreement) was approved by the board of trustees, including a majority of the trustees who are not interested persons of the Trust (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operations of the Plan or the Distribution Agreement (the "Independent Trustees"). Each Plan may be terminated by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of the relevant class of shares of the Fund to which the Plan relates. Each Plan may be amended by vote of the trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose. Any change in any Plan that would materially increase the fees payable thereunder by the Retail Class or Admin Class shares of a Fund requires approval of the Retail Class or Admin Class shareholders of that Fund. The Trust's trustees review quarterly written reports of such costs and the purposes for which such costs have been incurred. Each Plan provides that, for so long as that Plan is in effect, selection and nomination of those trustees who are not interested persons of the Trust shall be committed to the discretion of such disinterested persons. The Distribution Agreement may be terminated at any time with respect to a Fund on 60 days' written notice without payment of any penalty by the Trust or by vote of a majority of the outstanding voting securities of that Fund or by vote of a majority of the Independent Trustees. The Distribution Agreement and the Plans will continue in effect for successive one-year periods, provided that each such continuance is specifically approved (i) by the vote of a majority of the entire board of trustees and (ii) by the vote of a majority of the Independent Trustees, in each case cast in person at a meeting called for that purpose. Custodial Arrangements. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State Street Bank holds in safekeeping certificated securities and cash belonging to the Funds and, in such capacity, is the registered owner of securities held in book entry form belonging to the Funds. Upon instruction, State Street Bank receives and delivers cash and securities of the Funds in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. State Street Bank also maintains certain accounts and records of the Funds and calculates the total net asset value, total net income and net asset value per share of each Fund on a daily basis. Independent Accountants. The Fund's independent accountants are PricewaterhouseCoopers LLP, One Post Office Square, Boston, Massachusetts. PricewaterhouseCoopers LLP conducts an annual audit of the Trust's financial statements, assists in the preparation of the Funds' federal and state income tax returns and consults with the Funds as to matters of accounting and federal and state income taxation. The information under the caption "Financial Highlights" included in the Prospectus has been so included, and the financial statements incorporated by reference herein from the Fund's 1998 Annual Report have been so incorporated, in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. PORTFOLIO TRANSACTIONS AND BROKERAGE In placing orders for the purchase and sale of portfolio securities for each Fund, Loomis Sayles always seeks the best price and execution. Transactions in unlisted securities are carried out through broker-dealers who make the primary market for such securities unless, in the judgment of Loomis Sayles, a more favorable price can be obtained by carrying out such transactions through other brokers or dealers. 26 Loomis Sayles selects only brokers or dealers which it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates which, when combined with the quality of the foregoing services, will produce best price and execution for the transaction. This does not necessarily mean that the lowest available brokerage commission will be paid. However, the commissions are believed to be competitive with generally prevailing rates. Loomis Sayles will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. The Funds, other than the International Equity and Worldwide Funds, will not pay a broker a commission at a higher rate than otherwise available for the same transaction in recognition of the value of research services provided by the broker or in recognition of the value of any other services provided by the broker which do not contribute to the best price and execution of the transaction. Receipt of research services from brokers may sometimes be a factor in selecting a broker which Loomis Sayles believes will provide best price and execution for a transaction. These research services include not only a wide variety of reports on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, daily prices of securities, stock and bond market conditions and projections, asset allocation and portfolio structure, but also meetings with management representatives of issuers and with other analysts and specialists. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce Loomis Sayles' expenses. Such services may be used by Loomis Sayles in servicing other client accounts and in some cases may not be used with respect to the Funds. Receipt of services or products other than research from brokers is not a factor in the selection of brokers. International Equity and Worldwide Funds. In placing orders for the purchase and sale of securities for the International Equity and Worldwide Funds, Loomis Sayles follows the same policies as for the other Funds, except that Loomis Sayles may cause the International Equity and Worldwide Funds to pay a broker-dealer that provides brokerage and research services to Loomis Sayles an amount of commission for effecting a securities transaction for those Funds in excess of the amount another broker-dealer would have charged for effecting that transaction. Loomis Sayles must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or Loomis Sayles' overall responsibilities to the Trust and its other clients. Loomis Sayles's authority to cause the International Equity and Worldwide Funds to pay such greater commissions is also subject to such policies as the Trustees of the Trust may adopt from time to time. The following three tables set forth, for the 1996 and 1997 fiscal years and the 1998 fiscal period (January 1, 1998 through September 30, 1998), respectively, (1) the aggregate dollar amount of brokerage commissions paid on portfolio transactions during such period, (2) the dollar amount of transactions on which brokerage commissions were paid during such period that were directed to brokers providing research services ("directed transactions") and (3) the dollar amount of commissions paid on directed transactions during such period. Funds not listed in a table did not pay brokerage commissions during the relevant period. 27 FISCAL YEAR ENDED DECEMBER 31, 1996
(1) (3) AGGREGATE (2) COMMISSIONS BROKERAGE DIRECTED ON DIRECTED FUND COMMISSIONS TRANSACTIONS TRANSACTIONS ---- ----------- ------------ ------------ Growth.............................. $ 81,708 $ 97,799,290 $ 81,708 Core Value.......................... $ 64,033 $ 17,907,024 $ 28,782 Small Cap Value..................... $ 248,992 $ 15,896,278 $ 45,316 International Equity................ $1,002,393 $257,530,857 $1,002,393 Worldwide........................... $ 9,631 $ 0 $ 0 FISCAL YEAR ENDED DECEMBER 31, 1997 (1) (3) AGGREGATE (2) COMMISSIONS BROKERAGE DIRECTED ON DIRECTED FUND COMMISSIONS TRANSACTIONS TRANSACTIONS ---- ----------- ------------ ------------ Growth.............................. $ 81,395 $ 0 $ 0 Core Value.......................... $ 81,471 $ 0 $ 0 Small Cap Value..................... $ 579,295 $ 0 $ 0 International Equity................ $ 759,784 $220,336,814 $ 759,784 Worldwide........................... $ 9,953 $ 4,261,122 $ 697 NINE MONTHS ENDED SEPTEMBER 30, 1998 (1) (3) AGGREGATE (2) COMMISSIONS BROKERAGE DIRECTED ON DIRECTED FUND COMMISSIONS TRANSACTIONS TRANSACTIONS ---- ----------- ------------ ------------
DESCRIPTION OF THE TRUST The Trust, registered with the SEC as a diversified open-end management investment company, is organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust (the "Declaration of Trust") dated February 20, 1991. The Declaration of Trust currently permits the trustees to issue an unlimited number of full and fractional shares of each series. Each share of each Fund represents an equal proportionate interest in such Fund with each other share of that Fund and is entitled to a proportionate interest in the dividends and distributions from that Fund. The shares of each Fund do not have any preemptive rights. Upon termination of any Fund, whether pursuant to liquidation of the Trust or otherwise, shareholders of that Fund are entitled to share pro rata in the net assets of that Fund available for distribution to shareholders. The Declaration of Trust also permits the trustees to charge shareholders directly for custodial, transfer agency and servicing expenses. The assets received by each Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds therefrom, subject only to the rights of creditors, are allocated to, and constitute the underlying assets of, that Fund. The underlying assets are segregated and are charged with the expenses with respect to that Fund and with a share of the general expenses of the Trust. Any general expenses of the Trust that are not readily 28 identifiable as belonging to a particular Fund are allocated by or under the direction of the trustees in such manner as the trustees determine to be fair and equitable. While the expenses of the Trust are allocated to the separate books of account of each Fund, certain expenses may be legally chargeable against the assets of all Funds. The Declaration of Trust also permits the trustees, without shareholder approval, to subdivide any series of shares or Fund into various classes of shares with such dividend preferences and other rights as the trustees may designate. Shares of each Fund (other than the U.S. Government Securities and Municipal Bond Funds) are currently divided into two classes, designated Retail Class and Institutional Class. Additionally, the Bond Fund and Small Cap Value Fund offer a third class of shares designated the Admin Class. The trustees may also, without shareholder approval, establish one or more additional separate portfolios for investments in the Trust or merge two or more existing portfolios. Shareholders' investments in such an additional or merged portfolio would be evidenced by a separate series of shares (i.e., a new "Fund"). The Declaration of Trust provides for the perpetual existence of the Trust. The Trust or any Fund, however, may be terminated at any time by vote of at least two-thirds of the outstanding shares of each Fund affected. The Declaration of Trust further provides that the trustees may also terminate the Trust or any Fund upon written notice to the shareholders. As a matter of policy, however, the trustees will not terminate the Trust or any Fund without submitting the matter to a vote of the shareholders of the Trust or the relevant Fund. VOTING RIGHTS As summarized in the Prospectus, shareholders are entitled to one vote for each full share held (with fractional votes for each fractional share held) and may vote (to the extent provided in the Declaration of Trust) on the election of trustees and the termination of the Trust and on other matters submitted to the vote of shareholders. The Declaration of Trust provides that on any matter submitted to a vote of all Trust shareholders, all Trust shares entitled to vote shall be voted together irrespective of series or sub-series unless the rights of a particular series or sub-series would be adversely affected by the vote, in which case a separate vote of that series or sub-series shall also be required to decide the question. Also, a separate vote shall be held whenever required by the 1940 Act or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a class shall be deemed to be affected by a matter unless it is clear that the interests of each class in the matter are substantially identical or that the matter does not affect any interest of such class. On matters affecting an individual series, only shareholders of that series are entitled to vote. Consistent with the current position of the SEC, shareholders of all series vote together, irrespective of series, on the election of trustees and the selection of the Trust's independent accountants, but shareholders of each series vote separately on other matters requiring shareholder approval, such as certain changes in investment policies of that series or the approval of the investment advisory agreement relating to that series. There will normally be no meetings of shareholders for the purpose of electing trustees except that, in accordance with the 1940 Act, (i) the Trust will hold a shareholders' meeting for the election of trustees at such time as less than a majority of the trustees holding office have been elected by shareholders, and (ii) if, as a result of a vacancy on the board of trustees, less than two-thirds of the trustees holding office have been elected by the shareholders, that vacancy may be filled only by a vote of the shareholders. In addition, trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding shares and filed with the Trust's custodian or by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for that purpose, which meeting shall be held upon the written request of the holders of not less than 10% of the outstanding shares. Upon written request by the holders of shares having a net asset value constituting 1% of the outstanding shares stating that such shareholders wish to communicate with the other shareholders for the purpose of 29 obtaining the signatures necessary to demand a meeting to consider removal of a trustee, the Trust has undertaken to provide a list of shareholders or to disseminate appropriate materials (at the expense of the requesting shareholders). Except as set forth above, the trustees shall continue to hold office and may appoint successor trustees. Voting rights are not cumulative. No amendment may be made to the Declaration of Trust without the affirmative vote of a majority of the outstanding shares of the Trust, except (i) to change the Trust's name or to cure technical problems in the Declaration of Trust and (ii) to establish, change or eliminate the par value of any shares (currently all shares have no par value). SHAREHOLDER AND TRUSTEE LIABILITY Under Massachusetts law shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund of which they are shareholders. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of each Fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees. The Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and the Fund itself would be unable to meet its obligations. The Declaration of Trust further provides that the trustees will not be liable for errors of judgment or mistakes of fact or law. However, nothing in the Declaration of Trust protects a trustee against any liability to which the trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. The By-Laws of the Trust provide for indemnification by the Trust of the trustees and officers of the Trust except with respect to any matter as to which any such person did not act in good faith in the reasonable belief that such action was in or not opposed to the best interests of the Trust. No officer or trustee may be indemnified against any liability to the Trust or the Trust's shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. HOW TO BUY SHARES The procedures for purchasing shares of each Fund are summarized in the Prospectus under "How to Purchase Shares." NET ASSET VALUE The net asset value of the shares of each Fund is determined by dividing that Fund's total net assets (the excess of its assets over its liabilities) by the total number of shares of the Fund outstanding and rounding to the nearest cent. Such determination is made as of the close of regular trading on the New York Stock Exchange on each day on which that Exchange is open for unrestricted trading, and no less frequently than once daily on each day during which there is sufficient trading in a Fund's portfolio securities that the value of that Fund's shares might be materially affected. During the 12 months following the date of this Statement of Additional Information, the New York Stock Exchange is expected to be closed on the following weekdays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Equity securities listed on an established securities exchange or on the Nasdaq National Market System are normally valued at their last sale price on the exchange where primarily traded or, if there is no reported sale during the day, and in the case of over-the-counter securities not so listed, at the last bid price. Long-term debt securities are valued by a pricing service, which determines valuations of normal institutional-size trading units of long-term debt securities. Such valuations are determined using methods 30 based on market transactions for comparable securities and on various relationships between securities which are generally recognized by institutional traders. Other securities for which current market quotations are not readily available (including restricted securities, if any) and all other assets are taken at fair value as determined in good faith by the board of trustees, although the actual calculations may be made by persons acting pursuant to the direction of the board. Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of regular trading on the New York Stock Exchange. Occasionally, events affecting the value of foreign fixed income securities and of equity securities of non-U.S. issuers not traded on a U.S. exchange may occur between the completion of substantial trading of such securities for the day and the close of regular trading on the New York Stock Exchange, which events will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of any Fund's portfolio securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or in accordance with procedures approved by the trustees. SHAREHOLDER SERVICES OPEN ACCOUNTS A shareholder's investment in any Fund is automatically credited to an open account maintained for the shareholder by Boston Financial Data Services, Inc. ("BFDS"), the shareholder servicing agent for State Street Bank. Certificates representing shares are issued only upon written request to BFDS but are not issued for fractional shares. Following each transaction in the account, a shareholder will receive an account statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each fiscal year BFDS will send each shareholder a statement providing federal tax information on dividends and distributions paid to the shareholder during the year. This should be retained as a permanent record. Shareholders will be charged a fee for duplicate information. The open account system permits the purchase of full and fractional shares and, by making the issuance and delivery of certificates representing shares unnecessary, eliminates the problems of handling and safekeeping certificates, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. The costs of maintaining the open account system are borne by the Trust, and no direct charges are made to shareholders. Although the Trust has no present intention of making such direct charges to shareholders, it reserves the right to do so. Shareholders will receive prior notice before any such charges are made. SYSTEMATIC WITHDRAWAL PLAN A Systematic Withdrawal Plan, referred to in the Prospectus under "Shareholder Services--Systematic Withdrawal Plan," provides for monthly, quarterly, semiannual or annual withdrawal payments of $50 or more from the account of an eligible shareholder, as provided therein, provided that the account has a value of at least $25,000 at the time the plan is established. Payments will be made either to the shareholder or to any other person designated by the shareholder. If payments are issued to an individual other than the registered owner(s), a signature guarantee will be required on the Plan application. All shares in an account that is subject to a Systematic Withdrawal Plan must be held in an open account rather than in certificated form. Income dividends and capital gain distributions will be reinvested at the net asset value determined as of the close of regular trading on the New York Stock Exchange on the record date for the dividend or distribution. Since withdrawal payments represent proceeds from liquidation of shares, the shareholder should recognize that withdrawals may reduce and possibly exhaust the value of the account, particularly in the event of a decline in net asset value. Accordingly, the shareholder should consider whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn are appropriate in the circumstances. The Fund makes no recommendations or representations in this regard. It may be appropriate for the shareholder to consult a tax adviser before establishing such a plan. See "Redemptions" and "Income Dividends, Capital Gain Distributions and Tax Status" below for certain information as to federal income taxes. 31 EXCHANGE PRIVILEGE Shareholders may redeem their shares of any Fund and have the proceeds applied on the same day to purchase shares of any other Fund or of New England Cash Management Trust or New England Tax Exempt Money Market Trust. [Exchange of shares of the High Yield Fund purchased within one year of such exchanges will be subject to a redemption fee of 2.00% of the amount exchanged. For purposes of determining whether a redemption fee is payable with respect to shares of the High Yield Fund purchased by exchange of shares of another fund, the one-year period shall be deemed to begin on the date of such purchase by exchange. This option is summarized in the Prospectus under "Shareholder Services--Free Exchange Privilege."] Exchanges may be effected by (1) making a telephone request by calling 800- 626-9390, provided that a special authorization form is on file with BFDS, or (2) sending a written exchange request to BFDS accompanied by an account application for the appropriate fund. The Trust reserves the right to modify this exchange privilege without prior notice. An exchange constitutes a sale of the shares for federal income tax purposes on which the investor may realize a capital gain or loss. IRAS Under "Shareholder Services--Retirement Plans," the Prospectus refers to IRAs established under a prototype plan made available by Loomis Sayles. These plans may be funded with shares of any Fund, although it is expected that shares of the Municipal Bond Fund would ordinarily not be an appropriate investment for these plans. All income dividends and capital gain distributions of plan participants must be reinvested. Plan documents and further information can be obtained from Loomis Sayles. Check with your financial or tax adviser as to the suitability of Fund shares for your retirement plan. REDEMPTIONS The procedures for redemption of Fund shares are summarized in the Prospectus under "How to Redeem Shares." Except as noted below, signatures on redemption requests must be guaranteed by commercial banks, trust companies, savings associations, credit unions or brokerage firms that are members of domestic securities exchanges. Signature guarantees by notaries public are not acceptable. However, as noted in the Prospectus, a signature guarantee will not be required if the proceeds of the redemption do not exceed $50,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address. If a shareholder selects the telephone redemption service in the manner described in the next paragraph, Fund shares may be redeemed by making a telephone call directly to BFDS at 800-626-9390. When a telephonic redemption request is received, the proceeds are wired to the bank account previously chosen by the shareholder and a nominal wire fee (currently $5.00) is deducted. Telephonic redemption requests must be received by BFDS prior to the close of regular trading on the New York Stock Exchange on a day when the Exchange is open for business. Requests made after that time or on a day when the New York Stock Exchange is not open for business cannot be accepted by BFDS and a new request will be necessary. In order to redeem shares by telephone, a shareholder must either select this service when completing the Fund application or must do so subsequently in writing. When selecting the service, a shareholder must designate a bank account to which the redemption proceeds should be wired. Any change in the bank account so designated must be made by furnishing to BFDS a written request with a signature guarantee. Telephone redemptions may only be made if an investor's bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. If the account is with a savings bank, it must have only one correspondent bank that is a member of the System. The Trust, BFDS, Loomis Sayles Distributors, L.P. and State Street Bank are not responsible for the authenticity of withdrawal instructions received by telephone. 32 The redemption price will be the net asset value per share next determined after the redemption request and any necessary special documentation are received by BFDS in proper form, less, in the case of the High Yield Fund, a redemption fee of 2.00% of the amount redeemed with respect to shares of that Fund redeemed within one (1) year of purchase, if applicable. Proceeds resulting from a written redemption request will normally be mailed to the shareholder within seven days after receipt of a request in good order. Telephonic redemption proceeds will normally be wired on the first business day following receipt of a proper redemption request. In those cases where a shareholder has recently purchased shares by check and the check was received less than fifteen days prior to the redemption request, the Fund may withhold redemption proceeds until the check has cleared. Each Fund will normally redeem shares for cash; however, each Fund reserves the right to pay the redemption price wholly or partly in kind if the board of trustees of the Trust determines it to be advisable in the interest of the remaining shareholders. If portfolio securities are distributed in lieu of cash, the shareholder will normally incur brokerage commissions upon subsequent disposition of any such securities. However, the Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is obligated to redeem shares solely in cash for any shareholder during any 90- day period up to the lesser of $250,000 or 1% of the total net asset value of the Trust at the beginning of such period. A redemption constitutes a sale of the shares for federal income tax purposes on which the investor may realize a long- or short-term capital gain or loss. See "Income Dividends, Capital Gain Distributions and Tax Status." INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS As described in the Prospectus under "Dividends, Capital Gain Distributions and Taxes" it is the policy of each Fund to pay its shareholders, as dividends, substantially all net investment income and to distribute annually all net realized capital gains, if any, after offsetting any capital loss carryovers. Income dividends and capital gain distributions are payable in full and fractional shares of the particular Fund based upon the net asset value determined as of the close of regular trading on the New York Stock Exchange on the record date for each dividend or distribution. Shareholders, however, may elect to receive their income dividends or capital gain distributions, or both, in cash. The election may be made at any time by submitting a written request directly to BFDS. In order for a change to be in effect for any dividend or distribution, it must be received by BFDS on or before the record date for such dividend or distribution. As required by federal law, detailed federal tax information will be furnished to each shareholder for each calendar year on or before January 31 of the succeeding year. Each Fund intends to qualify each year as a regulated investment company under Subchapter M of the Code. In order so to qualify and to qualify for the favorable tax treatment accorded regulated investment companies and their shareholders, the Fund must, among other things, (i) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of securities or foreign currencies, or other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (ii) distribute with respect to each taxable year at least 90% of the sum of its taxable net investment income, its tax- exempt income and the excess, if any, of net short-term capital gains over net long-term capital losses for such year (iii) at the end of each fiscal quarter maintain at least 50% of the value of its total assets in cash, U.S. government securities, securities of other regulated investment companies, and other securities of issuers which represent, with respect to each issuer, no more than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer; and (iv) at the end of each fiscal quarter, not more than 25% of its assets invested in the securities (other than those of the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades and businesses. To the extent it qualifies for treatment as a regulated investment company, the Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends or capital gain distributions. 33 An excise tax at the rate of 4% will be imposed on the excess, if any, of each Fund's "required distribution" over its actual distributions in any calendar year. Generally, the "required distribution" is 98% of the Fund's ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31 (or December 31, if the Fund so elects) plus undistributed amounts from prior years. Each Fund intends to make distributions sufficient to avoid imposition of the excise tax. Distributions declared by a Fund during October, November or December to shareholders of record on a date in any such month and paid by the Fund during the following January will be treated for federal tax purposes as paid by the Fund and received by shareholders on December 31 of the year in which declared. Shareholders of each Fund will be subject to federal income taxes on distributions made by the Fund (other than "exempt-interest dividends" paid by the Municipal Bond Fund, as described in the Prospectus) whether received in cash or additional shares of the Fund. Distributions by each Fund of net income and short-term capital gains, if any, will be taxable to shareholders as ordinary income. Distributions designated by a Fund as deriving from net gains on securities held for more than one year will be taxable to shareholders as long-term capital gain (generally taxed at a rate of 20% for noncorporate shareholders), without regard to how long a shareholder has held shares of the Fund. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses. The International Equity, Worldwide and Global Bond Funds each may be eligible to make an election under Section 853 of the Code so that its shareholders will be able to claim a credit or deduction on their income tax returns for, and will be required to treat as part of the amounts distributed to them, their pro rata portion of qualified taxes paid by the relevant Fund to foreign countries. The ability of shareholders of the Fund to claim a foreign tax credit is subject to certain limitations imposed by Section 904 of the Code, which in general limit the amount of foreign tax that may be used to reduce a shareholder's U.S. tax liability to that amount of U.S. tax which would be imposed on the amount and type of income in respect of which the foreign tax was paid. In addition, a shareholder must hold shares of the Fund (without protection from risk of loss) on the ex-dividend date and for at least 16 days during the 30-day period beginning on the date that is 15 days before the ex-dividend date in order to be eligible to claim a foreign credit for his or her share of these foreign taxes. A shareholder who for U.S. income tax purposes claims a foreign tax credit in respect of Fund distributions may not claim a deduction for foreign taxes paid by the Fund, regardless of whether the shareholder itemizes deductions. Also, under Section 63 of the Code, no deduction for foreign taxes may be claimed by shareholders who do not itemize deductions on their federal income tax returns. It should also be noted that a tax-exempt shareholder, like other shareholders, will be required to treat as part of the amounts distributed to it a pro rata portion of the income taxes paid by the Fund to foreign countries. However, that income will generally be exempt from United States taxation by virtue of such shareholder's tax-exempt status and such a shareholder will not be entitled to either a tax credit or a deduction with respect to such income. The International Equity, Worldwide and Global Bond Funds will notify shareholders each year of the amount of dividends and distributions and the shareholder's pro rata share of qualified taxes paid by each such Fund to foreign countries. Each Fund's transactions, if any, in foreign currencies are likely to result in a difference between the Fund's book income and taxable income. This difference may cause a portion of the Fund's income distributions to constitute a return of capital for tax purposes or require the Fund to make distributions exceeding book income to avoid excise tax liability and to qualify as a regulated investment company. Investment by a Fund in "passive foreign investment companies" could subject the Fund to U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing fund." 34 If a Fund engages in hedging transactions, including hedging transactions in options, futures contracts, and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to- market, straddle, wash sale, and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. Each Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund. A Fund's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, a Fund may be required to sell assets (including when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level. Generally a Fund may designate dividends eligible for the dividends-received deduction only to the extent that such dividends are derived from dividends paid to the Fund with respect to which Fund could have taken the dividends- received deduction if it had been a regular corporation. The dividends- received deduction is not available to non-corporate shareholders, Subchapter S corporations or corporations who do not hold their shares for at least 46 days during the 90-day period beginning on the date that is 45 days before the ex-dividend date. Redemptions and exchanges of each Fund's shares are taxable events and, accordingly, shareholders may realize gains and losses on these transactions. In general, any gain realized upon a taxable disposition of shares will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. However, if a shareholder sells Fund shares at a loss within six months after purchasing the shares, the loss will be treated as a long-term capital loss to the extent of any long- term capital gain distributions received by the shareholder. Furthermore, no loss will be allowed on the sale of Fund shares to the extent the shareholder acquired other shares of the same Fund within 30 days prior to the sale of the loss shares or 30 days after such sale. [At December 31, 1997, the Short-Term Bond Fund had a net tax basis capital loss carryforward of approximately $418,097 which may be applied against any realized net taxable gains of each succeeding year until fully utilized or expiration of $129,507 of such loss carryforward on December 31, 2002, and $288,590 of such loss carryforward on December 31, 2003, whichever occurs first.] [At December 31, 1997, the U.S. Government Securities Fund had a net tax basis capital loss carryforward of approximately $915,332 which may be applied against any realized net taxable gains of each succeeding year until fully utilized or expiration of $177,989 of such loss carryforward on December 31, 2002, and $737,343 of such loss carryforward on December 31, 2003, whichever occurs first.] The foregoing is a general and abbreviated summary of the applicable provisions of the Code and regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and regulations. The Code and regulations are subject to change by legislative or administrative action. Dividends and distributions also may be subject to foreign, state and local taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state, foreign, or local taxes. The foregoing discussion relates solely to U.S. federal income tax law. Non- U.S. investors should consult their tax advisers concerning the tax consequences of ownership of shares of the Fund, including the possibility that distributions may be subject to a 30% United States withholding tax (or a reduced rate of withholding provided by treaty). The Internal Revenue Service recently revised its regulations affecting the application to foreign investors of the back-up withholding tax rules. The new regulations will generally be effective for payments made on or after January 1, 1999 (although transition rules will apply). In some circumstances, the new rules will increase the certification and filing requirements imposed on foreign investors in order to qualify 35 The foregoing discussion relates solely to U.S. federal income tax law. Non- U.S. investors should consult their tax advisers concerning the tax consequences of ownership of shares of the Fund, including the possibility that distributions may be subject to a 30% United States withholding tax (or a reduced rate of withholding provided by treaty). The Internal Revenue Service recently revised its regulations affecting the application to foreign investors of the back-up withholding tax rules. The new regulations will generally be effective for payments made on or after January 1, 1999 (although transition rules will apply). In some circumstances, the new rules will increase the certification and filing requirements imposed on foreign investors in order to qualify for exemption from the 31% back-up withholding tax and for reduced withholding tax rates under income tax treaties. Foreign investors in each Fund should consult their advisors with respect to the potential application of these new regulations. FINANCIAL STATEMENTS The financial statements of each Fund included in the Trust's 1998 Annual Report, filed with the Securities and Exchange Commission on November 24, 1998, are incorporated by reference to such Report. CALCULATION OF YIELD AND TOTAL RETURN Yield. Yield with respect to a Fund will be computed by dividing such Fund's net investment income for a recent 30-day period by the maximum offering price (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last trading day of that period. Net investment income will reflect amortization of any market value premium or discount of fixed income securities (except for obligations backed by mortgages or other assets) and may include recognition of a pro rata portion of the stated dividend rate of dividend paying portfolio securities. The Funds' yields will vary from time to time depending upon market conditions, the composition of the Funds' portfolios and operating expenses of the Trust allocated to each Fund. These factors, and possible differences in the methods used in calculating yield, should be considered when comparing a Fund's yield to yields published for other investment companies and other investment vehicles. Yield should also be considered relative to changes in the value of the Funds' shares and to the relative risks associated with the investment objectives and policies of the Funds. At any time in the future, yields may be higher or lower than past yields and there can be no assurance that any historical results will continue. Investors in the Funds are specifically advised that the net asset value per share of each Fund may vary, just as yields for each Fund may vary. An investor's focus on yield to the exclusion of the consideration of the value of shares of that Fund may result in the investor's misunderstanding the total return he or she may derive from that Fund. Total Return. Total Return with respect to a Fund is a measure of the change in value of an investment in such Fund over the period covered, and assumes any dividends or capital gains distributions are reinvested immediately, rather than paid to the investor in cash. The formula for total return used herein includes four steps: (1) adding to the total number of shares purchased through a hypothetical $1,000 investment in the Fund all additional shares which would have been purchased if all dividends and distributions paid or distributed during the period had been immediately reinvested; (2) calculating the value of the hypothetical initial investment of $1,000 as of the end of the period by multiplying the total number of shares owned at the end of the period by the net asset value per share on the last trading day of the period; (3) assuming redemption at the end of the period; and (4) dividing the resulting account value by the initial $1,000 investment. 36 PERFORMANCE COMPARISONS Yield and Total Return. Each Fund may from time to time include its total return information in advertisements or in information furnished to present or prospective shareholders. Each of the Bond, Global Bond, U.S. Government Securities, Municipal Bond, Short-Term Bond, Investment Grade Bond, Intermediate Maturity Bond, High Yield and Worldwide Funds may from time to time include the yield and/or total return of its shares in advertisements or information furnished to present or prospective shareholders. Each Fund may from time to time include in advertisements or information furnished to present or prospective shareholders (i) the ranking of performance figures relative to such figures for groups of mutual funds categorized by Lipper Analytical Services, Inc. or Micropal, Inc. as having similar investment objectives, (ii) the rating assigned to the Fund by Morningstar, Inc. based on the Fund's risk-adjusted performance relative to other mutual funds in its broad investment class, and/or (iii) the ranking of performance figures relative to such figures for mutual funds in its general investment category as determined by CDA/Weisenberger's Management Results. Volatility. Each Fund may quote various measures of its volatility and benchmark correlation. In addition, a Fund may compare these measures to those of other funds and indices. Measures of volatility seek to compare a Fund's historical share price fluctuations or total returns to those of a benchmark. Measures of benchmark correlation indicate the extent to which a Fund's returns change in ways similar to those of the benchmark. All measures of volatility and correlation are calculated using averages of historical data. Each Fund may utilize charts and graphs to present a Fund's volatility and average annual total return. Each Fund may also discuss or illustrate examples of interest rate sensitivity. Lipper Analytical Services, Inc. distributes mutual fund rankings monthly. The rankings are based on total return performance calculated by Lipper, generally reflecting changes in net asset value adjusted for reinvestment of capital gains and income dividends. They do not reflect deduction of any sales charges. Lipper rankings cover a variety of performance periods, including year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual funds by investment objective and asset category. Micropal, Inc. distributes mutual fund rankings weekly and monthly. The rankings are based upon performance calculated by Micropal, generally reflecting changes in net asset value that can be adjusted for the reinvestment of capital gains and dividends. If deemed appropriate by the user, performance can also reflect deductions for sales charges. Micropal rankings cover a variety of performance periods, including year-to-date, 1- year, 5-year and 10-year performance. Micropal classifies mutual funds by investment objective and asset category. Morningstar, Inc. distributes mutual fund ratings monthly. The ratings are divided into five groups: highest, above average, neutral, below average and lowest. They represent a fund's historical risk/reward ratio relative to other funds in its broad investment class as determined by Morningstar, Inc. Morningstar ratings cover a variety of performance periods, including 3-year, 5-year, 10-year and overall performance. The performance factor for the overall rating is a weighted-average return performance (if available) reflecting deduction of expenses and sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. The ratings are derived from a purely quantitative system that does not utilize the subjective criteria customarily employed by rating agencies such as Standard & Poor's and Moody's Investor Service, Inc. CDA/Weisenberger's Management Results publishes mutual fund rankings and is distributed monthly. The rankings are based entirely on total return calculated by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and 10-year Mutual funds are ranked in general categories (e.g., international bond, international equity, municipal bond, and maximum capital gain). Weisenberger rankings do not reflect deduction of sales charges or fees. Performance information may also be used to compare the performance of the Fund to certain widely acknowledged standards or indices for stock and bond market performance, such as those listed below. Consumer Price Index. The Consumer Price Index, published by the U.S. Bureau of Labor Statistics, is a statistical measure of changes, over time, in the prices of goods and services in major expenditure groups. 37 Dow Jones Industrial Average. The Dow Jones Industrial Average is a market value-weighted and unmanaged index of 30 large industrial stocks traded on the New York Stock Exchange. Lehman Brothers Government/Corporate Bond Index. The Lehman Brothers Government/Corporate Bond Index is an index of publicly issued U.S. Treasury obligations, debt obligations of U.S. government agencies (excluding mortgage- backed securities), fixed-rate, non-convertible, investment-grade corporate debt securities and U.S. dollar-denominated, SEC-registered non-convertible debt issued by foreign governmental entities or international agencies used as a general measure of the performance of fixed-income securities. Lehman Brothers 1-3 Year Government Index. The Index contains fixed rate debt issues of the U.S. government or its agencies rated investment grade or higher with at least one year maturity and an outstanding par value of at least $100 million for U.S. government issues. Lehman Brothers Government Bond Index. The Lehman Brothers Government Bond Index is composed of all publicly issued, nonconvertible, domestic debt of the U.S. government or any of its agencies, quasi-federal corporations, or corporate debt guaranteed by the U.S. government. Lehman Brothers Municipal Bond Index. The Lehman Brothers Municipal Bond Index is computed from the prices of approximately 21,000 bonds consisting of roughly 30% revenue bonds, 30% government obligation bonds, 27% insured bonds and 13% prerefunded bonds. MSCI-EAFE Index. The MSCI-EAFE Index contains over 1000 stocks from 20 different countries with Japan (approximately 50%), United Kingdom, France and Germany being the most heavily weighted. MSCI-EAFE ex-Japan Index. The MSCI-EAFE ex-Japan Index consists of all stocks contained in the MSCI-EAFE Index, other than stocks from Japan. Merrill Lynch Government/Corporate Index. The Merrill Lynch Government/Corporate Index is a composite of approximately 4,900 U.S. government and corporate debt issues with at least $25 million outstanding, greater than one year maturity, and credit ratings of investment grade or higher. Merrill Lynch High Yield Index. The Merrill Lynch High Yield Index includes over 750 issues and represents public debt greater than $10 million (original issuance rated BBB/BB and below). Russell 2000 Index. The Russell 2000 Index is comprised of the 2000 smallest of the 3000 largest U.S.-domiciled corporations, ranked by market capitalization. Salomon Brothers World Government Bond Index. The Salomon Brothers World Government Bond Index includes a broad range of institutionally-traded fixed- rate government securities issued by the national governments of the nine countries whose securities are most actively traded. The index generally excludes floating- or variable-rate bonds, securities aimed principally at non-institutional investors (such as U.S. Savings Bonds) and private-placement type securities. Standard & Poor's/Barra Growth Index. The Standard & Poor's/Barra Growth Index is constructed by ranking the securities in the S&P 500 by price-to-book ratio and including the securities with the highest price-to-book ratios that represent approximately half of the market capitalization of the S&P 500. Standard & Poor's/Barra Value Index. The Standard & Poor's/Barra Value Index is constructed by ranking the securities in the S&P 500 by price-to-book ratio and including the securities with the lowest price-to-book ratios that represent approximately half of the market capitalization of the S&P 500. Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). The S&P 500 is a market value-weighted and unmanaged index showing the changes in the aggregate market value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed almost entirely of common stocks of companies listed on the 38 New York Stock Exchange, although the common stocks of a few companies listed on the American Stock Exchange or traded over-the-counter are included. The 500 companies represented include 400 industrial, 60 transportation and 40 financial services concerns. The S&P 500 represents about 80% of the market value of all issues traded on the New York Stock Exchange. The S&P 500 is the most common index for the overall U.S. stock market. From time to time, articles about the Funds regarding performance, rankings and other characteristics of the Funds may appear in publications including, but not limited to, the publications included in Appendix A. In particular, some or all of these publications may publish their own rankings or performance reviews of mutual funds, including the Funds. References to or reprints of such articles may be used in the Funds' promotional literature. References to articles regarding personnel of Loomis Sayles who have portfolio management responsibility may also be used in the Funds' promotional literature. For additional information about the Funds' advertising and promotional literature, see Appendix B. 39 INSTITUTIONAL CLASS PERFORMANCE DATA* The manner in which total return and yield of the Funds will be calculated for public use is described above. The table summarizes the calculation of total return and yield for Institutional Class shares of the Funds, where applicable, (i) for the one-year period ended September 30, 1998, (ii) for the three-year period ended September 30, 1998, (iii) the five-year period ended September 30, 1998, and (iv) since the modified inception and (v) since actual inception (May, 1991 for all Funds other than the High Yield, Intermediate Maturity Bond, Investment Grade Bond, Mid-Cap Growth, Mid-Cap Value, Short- Term Bond, Small Cap Growth, Strategic Value, and Worldwide Funds, December 31, 1996 for the Intermediate Maturity Bond, Investment Grade Bond, Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value Funds, August, 1992 for the Short-Term Bond Fund, May, 1996 for the Worldwide Fund and September, 1996 for the High Yield Fund) through December 31, 1997.
AVERAGE ANNUAL TOTAL RETURN ---------------------------------------------------------------- FOR THE FOR THE THREE- FROM FROM CURRENT ONE-YEAR YEAR FOR THE MODIFIED ACTUAL SEC PERIOD PERIOD FIVE-YEAR INCEPTION INCEPTION*** YIELD ENDED ENDED PERIOD THROUGH THROUGH AT 9/30/98 9/30/98 9/30/98 ENDED 9/30/98 9/30/98** 9/30/98 ---------- -------- ------- ------------- --------- ------------ FUND Growth.................. NA (9.92)% 11.36% 11.28% 12.04 % 12.94 % Core Value.............. NA (5.39)% 15.92% 15.89% 13.90 % 14.63 % Small Cap Value......... NA (18.32)% 12.51% 11.13% 16.17 % 16.39 % International Equity.... NA (14.60)% 3.14% 5.96% 6.88 % 6.75 % Worldwide............... NA (17.84)% NA NA (0.04)% 0.33 % Mid-Cap Growth.......... NA (10.75)% NA NA 6.80 % 6.80 % Mid-Cap Value........... NA (13.03)% NA NA 5.90 % 5.90 % Small Cap Growth........ NA (17.37)% NA NA 2.10 % 2.10 % Strategic Value......... NA (18.40)% NA NA 3.71 % 3.71 % Bond.................... 8.47% (0.41)% 9.44% 9.98% 12.55 % 12.41 % Global Bond............. 6.37% (2.29)% 8.55% 6.57% 8.45 % 8.38 % U.S. Government Securi- ties................... 5.09% 14.43 % 9.64% 7.41% 10.56 % 10.55 % Municipal Bond.......... 4.23% 9.25 % 7.99% 5.92% 7.87 % 7.90 % Short-Term Bond......... 4.82% 8.63 % 7.06% 6.32% 6.28 % 6.28 % High Yield.............. 14.00% (17.96)% NA NA (2.18)% (1.51)% Intermediate Maturity Bond................... 6.73% 3.67 % NA NA 5.69 % 5.69 % Investment Grade Bond... 7.64% 1.54 % NA NA 8.08 % 8.08 %
- -------- * Performance (for other than the one-year, three-year and five-year periods for the Core Value and Small Cap Value Funds, and the three-year and five- year periods for the Bond Fund) would have been lower if a portion of the management fee had not been waived by Loomis Sayles. In the absence of this limitation, actual yield and total return would have been as follows: Growth, (10.09)%, 11.29%, 11.24%, 12.01% and 12.91% for the one-year period, the three-year period, the five-year period, the period since modified inception and the period since actual inception, respectively; Core Value, 13.81% and 14.55% for the period since modified inception and the period since actual inception, respectively; Small Cap Value, 16.12% and 16.35% for the period since modified inception and the period since actual inception, respectively; International Equity, (14.78)%, 3.04%, 5.91%, 6.53% and 6.46% for the one-year period, the three-year period, the five-year period, the period since modified inception and the period since actual inception, respectively; Worldwide, (19.96)%, (2.18)% and (1.82)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Mid-Cap Growth, (17.44)%, (0.43)% and (0.43)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Mid-Cap Value, (16.94)%, 1.36% and 1.36% for the one-year period, the 40 period since modified inception and the period since actual inception, respectively; Small Cap Growth, (19.43)%, (1.13)% and (1.13)% for the one- year period, the period since modified inception and the period since actual inception, respectively; Strategic Value, (29.65)%, (9.70)% and (9.70)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Bond, 8.39% (yield) and (8.42)%, 12.47% and 12.34% for the one-year period, the period since modified inception, and the period since actual inception, respectively; Global Bond, 5.70% (yield), and (2.58)%, 8.31%, 6.42%, 8.08% and 8.15% for the one-year period, the three-year period, the five-year period, the period since modified inception and the period since actual inception, respectively; U.S. Government Securities, 4.69% (yield), and 13.99%, 9.32%, 7.17%, 10.28% and 10.28% for the one-year period, the three-year period, the five-year period, the period since modified inception and the period since actual inception, respectively; Municipal Bond, 2.90% (yield), and 8.12%, 6.96%, 4.91%, 5.45% and 3.49% for the one-year period, the three-year period, the five-year period, the period since modified inception and the period since actual inception, respectively; Short-Term Bond, 4.31% (yield), and 8.03%, 6.75%, 6.12%, 5.93% and 5.88% for the one- year period, the three-year period, the five-year period, the period since modified inception and the period since actual inception , respectively; High Yield, 11.15% (yield), (19.98)%, (5.92)% and (5.43)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Intermediate Maturity Bond, 4.60% (yield), and 1.60%, 3.25% and 3.25% for the one-year period, the period since modified inception and the period since actual inception, respectively; and Investment Grade Bond, 3.09% (yield), and (2.95)%, 2.71% and 2.71% for the one-year period, the period since modified inception and the period since actual inception, respectively. ** For the Mid-Cap Growth Fund, Mid-Cap Value Fund, Small Cap Growth Fund, Strategic Value Fund, Intermediate Maturity Bond Fund, and Investment Grade Bond Fund, the modified inception date is December 31, 1996. For the Short-Term Bond Fund the modified inception date is August 31, 1992, for the Worldwide Fund--May 31, 1996, for the High Yield Fund--September 30, 1996 and for all other Funds--May 31, 1991. *** Actual Inception Dates: Growth................................................. May 16, 1991 Core Value............................................. May 13, 1991 Small Cap Value........................................ May 13, 1991 International Equity................................... May 10, 1991 Worldwide.............................................. May 1, 1996 Mid-Cap Growth......................................... December 31, 1996 Mid-Cap Value.......................................... December 31, 1996 Small Cap Growth....................................... December 31, 1996 Strategic Value........................................ December 31, 1996 Bond................................................... May 16, 1991 Global Bond............................................ May 10, 1991 U.S. Government Securities............................. May 21, 1991 Municipal Bond......................................... May 29, 1991 Short-Term Bond........................................ August 3, 1992 High Yield............................................. September 11, 1996 Intermediate Maturity Bond............................. December 31, 1996 Investment Grade Bond.................................. December 31, 1996
41 RETAIL CLASS PERFORMANCE DATA* The manner in which total return and yield of the Funds will be calculated for public use is described above. The table summarizes the calculation of total return and yield for Retail Class shares of the Funds, where applicable, (i) for the one-year period ended September 30, 1998, (ii) since the modified inception December 31, 1996 through September 30, 1998 and (iii) since the actual inception December 31, 1996 through September 30, 1998.
AVERAGE ANNUAL TOTAL RETURN --------------------- FOR THE CURRENT ONE-YEAR FROM ACTUAL SEC PERIOD INCEPTION ** YIELD ENDED THROUGH AT 9/30/98 9/30/98 9/30/98 ---------- -------- ------------ FUND Growth......................................... NA (10.15)% 7.97 % Core Value..................................... NA (5.69)% 12.47 % Small Cap Value................................ NA (18.57)% 2.85 % International Equity........................... NA (14.81)% (3.68)% Worldwide...................................... NA (18.15)% (4.78)% Mid-Cap Growth................................. NA (11.07)% 6.54 % Mid-Cap Value.................................. NA (13.29)% 5.63 % Small Cap Growth............................... NA (17.59)% 1.90 % Strategic Value................................ NA (18.63)% 3.45 % Bond........................................... 8.22% (0.67)% 6.25 % Global Bond.................................... 6.13% (2.63)% 1.55 % Short-Term Bond................................ 4.56% 8.35 % 7.73 % High Yield..................................... 13.75% (18.18)% (3.70)% Intermediate Maturity Bond..................... 6.48% 3.52 % 5.51 % Investment Grade Bond.......................... 7.39% 1.29% 7.83 %
* Performance would have been lower if a portion of the management fee had not been waived by Loomis Sayles. In the absence of this limitation, actual yield and total return would have been as follows: Growth, (15.85)%, (0.14)% and (0.14)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Core Value, (7.72)%, 9.39% and 9.39% for the one-year period, the period since modified inception and the period since actual inception, respectively; Small Cap Value, (19.60)%, 2.80% and 2.80% for the one-year period, the period since modified inception and the period since actual inception, respectively; International Equity, (25.32)%, (17.19)% and (17.19)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Worldwide, (89.15)%, (141.76)% and (141.76)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Mid-Cap Growth, (39.94)%, (27.99)% and (27.99)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Mid-Cap Value, (29.02)%, (15.66)% and (15.66)% for the one- year period, the period since modified inception and the period since actual inception, respectively; Small Cap Growth, (21.15)%, (2.99)% and (2.99)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Strategic Value, (34.31)%, (14.94)% and (14.94)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Bond 8.10% (yield), (0.77)%, 6.11% and 6.11% for the one-year period, the period since modified inception and the period since actual inception, respectively; Global Bond, 5.19% (yield), (3.43)%, 0.55% and 0.55% for the one-year period, the period since modified inception and the period since actual inception, respectively; Short-Term Bond, 1.85%, 0.16%, (4.10)% and (4.10)% for the one-year period, the period since modified inception and the period since actual inception, respectively; High Yield, 10.75% (yield), (20.38)%, (6.70)% and (6.70)% for the one-year period, the period since modified inception and the period since actual inception, respectively; Intermediate Maturity Bond, 1.86% (yield), (3.55)%, (4.40)% and (4.40)% for the one-year period, the period since modified inception and the period since actual inception, respectively; and Investment Grade Bond, 2.41% (yield), (4.59)%, 0.34% and 0.34% for the one-year period, the period since modified inception and the period since actual inception, respectively. ** The modified inception date and actual inception date for each of the Retail Class of each of the Funds is December 31, 1996. 42 ADMIN CLASS PERFORMANCE DATA*
AVERAGE ANNUAL TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN ------------ ---------------------------- FROM FROM CURRENT FROM ACTUAL FOR THE MODIFIED ACTUAL SEC INCEPTION ** ONE-YEAR INCEPTION INCEPTION YIELD THROUGH PERIOD THROUGH THROUGH AT 9/30/98 9/30/98 ENDED 7/30/98 9/30/98 ---------- ------------ -------- --------- --------- FUND Small Cap Value...... (16.54)% N/A (2.47)% (1.33)% Bond................. 7.98% (1.33)% N/A (14.62)% (16.54)%
- -------- * Performance would have been lower if a portion of the management fee had not been waived by Loomis Sayles. In the absence of this limitation, actual yield and total return for the Bond Fund would have been % (yield), %, %, and % for the one-year period, the period since modified inception and the period since actual inception, respectively; and for the Small Cap Value Fund % and % for the period since modified inception and the period since actual inception. ** Actual Inception Date for the Bond Fund is and for the Small Cap Value Fund is . 43 APPENDIX A PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION ABC and affiliates Financial Services Week Adam Smith's Money World Financial World America On Line Fitch Insights Anchorage Daily News Forbes Atlanta Constitution Fort Worth Star-Telegram Atlanta Journal Fortune Arizona Republic Fox Network and affiliates Austin American Statesman Fund Action Baltimore Sun Fund Decoder Bank Investment Marketing Global Finance Barron's (the) Guarantor Bergen County Record (NJ) Hartford Courant Bloomberg Business News Houston Chronicle Bond Buyer INC Boston Business Journal Indianapolis Star Boston Globe Individual Investor Boston Herald Institutional Investor Broker World International Herald Tribune Business Radio Network Internet Business Week Investment Advisor CBS and affiliates Investment Company Institute CDA Investment Technologies Investment Dealers Digest CFO Investment Profiles Changing Times Investment Vision Chicago Sun Times Investor's Daily Chicago Tribune IRA Reporter Christian Science Monitor Journal of Commerce Christian Science Monitor News Service Kansas City Star Cincinnati Enquirer KCMO (Kansas City) Cincinnati Post KOA-AM (Denver) CNBC LA Times CNN Leckey, Andrew (syndicated column) Columbus Dispatch Life Association News CompuServe Lifetime Channel Dallas Morning News Miami Herald Dallas Times-Herald Milwaukee Sentinel Denver Post Money Magazine Des Moines Register Money Maker Detroit Free Press Money Management Letter Donoghues Money Fund Report Morningstar Dorfman, Dan (syndicated column) Mutual Fund Market News Dow Jones News Service Mutual Funds Magazine Economist National Public Radio FACS of the Week National Underwriter Fee Adviser NBC and affiliates Financial News Network New England Business Financial Planning New England Cable News Financial Planning on Wall Street New Orleans Times-Picayune Financial Research Corp. New York Daily News 44 New York Times Smart Money Newark Star Ledger St. Louis Post Dispatch Newsday St. Petersburg Times Newsweek Standard & Poor's Outlook Nightly Business Report Standard & Poor's Stock Guide Orange County Register Stanger's Investment Advisor Orlando Sentinel Stockbroker's Register Palm Beach Post Strategic Insight Pension World Tampa Tribune Pensions and Investments Time Personal Investor Tobias, Andrew (syndicated column) Philadelphia Inquirer Toledo Blade Porter, Sylvia (syndicated column) UP Portland Oregonian US News and World Report Prodigy USA Today Public Broadcasting Service USA TV Network Quinn, Jane Bryant (syndicated column) Value Line Registered Representative Wall Street Journal Research Magazine Wall Street Letter Resource Wall Street Week Reuters Washington Post Rocky Mountain News WBZ Rukeyser's Business (syndicated column) WBZ-TV Sacramento Bee WCVB-TV San Diego Tribune WEEI San Francisco Chronicle WHDH San Francisco Examiner Worcester Telegram San Jose Mercury World Wide Web Seattle Post-Intelligencer Worth Magazine Seattle Times WRKO Securities Industry Management 45 APPENDIX B ADVERTISING AND PROMOTIONAL LITERATURE Loomis Sayles Funds' advertising and promotional material may include, but is not limited to, discussions of the following information: Loomis Sayles Funds' participation in wrap fee and no transaction fee programs Loomis Sayles Funds and Loomis, Sayles & Company, L.P. Website Characteristics of Loomis Sayles including the number and locations of its offices, its investment practices and clients and assets under management Specific and general investment philosophies, strategies, processes and techniques Specific and general sources of information, economic models, forecasts and data services utilized, consulted or considered in the course of providing advisory or other services Industry conferences at which Loomis Sayles participates Current capitalization, levels of profitability and other financial information Identification of portfolio managers, researchers, economists, principals and other staff members and employees and descriptions of Loomis Sayles' resources devoted to such staff The specific credentials of the above individuals, including but not limited to, previous employment, current and past positions, titles and duties performed, industry experience, educational background and degrees, awards and honors Specific identification of, and general reference to, current individual, corporate and institutional clients, including pension and profit sharing plans Current and historical statistics relating to: --total dollar amount of assets managed --Loomis Sayles assets managed in total and by Fund --the growth of assets --asset types managed Loomis Sayles Funds' tag line--"Listening Harder, Delivering More" and statements that and examples of how Loomis Sayles Funds listens to its clients and works hard to deliver results which exceed their expectations. References may be included in Loomis Sayles Funds' advertising and promotional literature about 401(k) and retirement plans that offer the Funds. The information may include, but is not limited to: Specific and general references to industry statistics regarding 401(k) and retirement plans including historical information and industry trends and forecasts regarding the growth of assets, numbers or plans, funding vehicles, participants, sponsors and other demographic data relating to plans, participants and sponsors, third party and other administrators, benefits consultants and firms with whom Loomis Sayles may or may not have a relationship. Specific and general reference to comparative ratings, rankings and other forms of evaluation as well as statistics regarding the Fund as 401(k) or retirement plan funding vehicles produced by industry authorities, research organizations and publications. 46 Part C. OTHER INFORMATION ----------------- Item 24. Financial Statements and Exhibits --------------------------------- (a) Financial statements: See "Financial Highlights" contained in the Prospectus. (b) Exhibits: 1. Agreement and Declaration of Trust. (5) 2. By-Laws. (5) 3. Not Applicable. 4. Not Applicable. 5(a). Form of Advisory Agreement. 5(b). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles Core Value Fund.(3) 5(c). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles Global Bond Fund.(3) 5(d). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles Growth Fund.(3) 5(e). Form of Advisory Agreement between the Trust and Loomis Sayles High Yield Fund.(2) 5(f). Form of Advisory Agreement between the Trust and Loomis Sayles High Yield Fund II.(6) 5(g). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles Intermediate Maturity Bond Fund.(3) 5(h). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles International Equity Fund.(3) 5(i). Form of Advisory Agreement between the Trust and Loomis Sayles Investment Grade Bond Fund.(3) 5(j). Form of Advisory Agreement between the Trust and Loomis Sayles Managed Bond Fund.(5) 5(k). Form of Advisory Agreement between the Trust and Loomis Sayles Mid-Cap Growth Fund.(3) 5(l). Form of Advisory Agreement between the Trust and Loomis Sayles Mid-Cap Value Fund.(3) 5(m). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles Municipal Bond Fund.(3) 5(n). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles Short-Term Bond Fund.(3) 5(o). Form of Advisory Agreement between the Trust and Loomis Sayles Small Cap Growth Fund.(3) 5(p). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles Small Cap Value Fund.(3) 5(q). Form of Advisory Agreement between the Trust and Loomis Sayles Strategic Value Fund.(3) 5(r). Form of Amended and Restated Investment Advisory Agreement between the Trust and Loomis Sayles U.S. Government Securities Fund. 5(s). Form of Amendment No. 1 to Advisory Agreement between the Trust and Loomis Sayles Worldwide Fund.(3) 6. Form of Distribution Agreement.(3) 7. Not Applicable. 8(a). Form of Custodian Agreement.(5) 8(b). Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Custodian Agreement to Loomis Sayles Short-Term Bond Fund.(4) 8(c). Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Custodian Agreement to Loomis Sayles High Yield Fund.(4) 8(d). Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Custodian Agreement to Loomis Sayles Intermediate Maturity Bond Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid- Cap Value Fund, Loomis Sayles Small Cap Growth Fund and Loomis Sayles Strategic Value Fund.(4) 8(e). Form of Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Custodian Agreement to Loomis Sayles Worldwide Fund.(4) 8(f). Form of Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Custodian Agreement to Loomis Sayles Managed Bond Fund. 9(a). Form of Transfer Agency and Service Agreement between the Trust and State Street Bank and Trust Company (5) 9(b). Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Transfer Agency and Service Agreement to Loomis Sayles Short-Term Bond Fund.(4) 9(c). Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Transfer Agency and Service Agreement to Loomis Sayles High Yield Fund and Loomis Sayles Worldwide Fund.(4) 9(d). Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Transfer Agency and Service Agreement to Loomis Sayles Intermediate Maturity Bond Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis Sayles Small Cap Growth Fund and Loomis Sayles Strategic Value Fund.(4) 9(e). Transfer Agency and Service Agreement between the Trust on behalf of the Loomis Sayles Managed Bond Fund and State Street Bank and Trust Company. 10(a). Opinion and Consent of Counsel.(3) 10(b). Form of Opinion and Consent of Counsel relating to Loomis Sayles Managed Bond Fund and Loomis Sayles High Yield Fund II.(6) 11. Consent of PricewaterhouseCoopers LLP. 12. Not Applicable. 13(a). Investment Representation Regarding Initial Shares.(5) 13(b). Form of Organizational Expense Reimbursement Agreement.(5) 14. Form of IRA prototype documents.(5) 15(a). Form of Distribution Plan - Retail Class.(3) 15(b). Form of Distribution Plan - Admin Class.(5) 15(c). Form of Service and Distribution Plan relating to Loomis Sayles Managed Bond Fund and Loomis Sayles High Yield Fund II. (6) 16. Schedule for Performance Computations.(3) 17(a). Financial Data Schedule for Institutional Class shares of Loomis Sayles Growth Fund. 17(b). Financial Data Schedule for Institutional Class shares of Loomis Sayles Core Value Fund. 17(c). Financial Data Schedule for Institutional Class shares of Loomis Sayles Small Cap Value Fund. 17(d). Financial Data Schedule for Institutional Class shares of Loomis Sayles International Equity Fund. 17(e). Financial Data Schedule for Institutional Class shares of Loomis Sayles Worldwide Fund. 17(f). Financial Data Schedule for Institutional Class shares of Loomis Sayles Bond Fund. 17(g). Financial Data Schedule for Institutional Class shares of Loomis Sayles Global Bond Fund. 17(h). Financial Data Schedule for Institutional Class shares of Loomis Sayles U.S. Government Securities Fund. 17(I). Financial Data Schedule for Institutional Class shares of Loomis Sayles Municipal Bond Fund. 17(j). Financial Data Schedule for Institutional Class shares of Loomis Sayles Short-Term Bond Fund. 17(k). Financial Data Schedule for Institutional Class shares of Loomis Sayles High Yield Fund. 17(l). Financial Data Schedule for Institutional Class shares of Loomis Sayles Intermediate Maturity Bond Fund. 17(m). Financial Data Schedule for Institutional Class shares of Loomis Sayles Investment Grade Bond Fund. 17(n). Financial Data Schedule for Institutional Class shares of Loomis Sayles Mid-Cap Growth Fund. 17(o). Financial Data Schedule for Institutional Class shares of Loomis Sayles Mid-Cap Value Fund. 17(p). Financial Data Schedule for Institutional Class shares of Loomis Sayles Small Cap Growth Fund. 17(q). Financial Data Schedule for Institutional Class shares of Loomis Sayles Strategic Value Fund. 17(r). Financial Data Schedule for Retail Class shares of Loomis Sayles Growth Fund. 17(s). Financial Data Schedule for Retail Class shares of Loomis Sayles Core Value Fund. 17(t). Financial Data Schedule for Retail Class shares of Loomis Sayles Small Cap Value Fund. 17(u). Financial Data Schedule for Retail Class shares of Loomis Sayles International Equity Fund. 17(v). Financial Data Schedule for Retail Class shares of Loomis Sayles Worldwide Fund. 17(w). Financial Data Schedule for Retail Class shares of Loomis Sayles Bond Fund. 17(x). Financial Data Schedule for Retail Class shares of Loomis Sayles Global Bond Fund. 17(y). Financial Data Schedule for Retail Class shares of Loomis Sayles Short- Term Bond Fund. 17(z). Financial Data Schedule for Retail Class shares of Loomis Sayles High Yield Fund. 17(aa). Financial Data Schedule for Retail Class shares of Loomis Sayles Intermediate Maturity Bond Fund. 17(bb). Financial Data Schedule for Retail Class shares of Loomis Sayles Investment Grade Bond Fund. 17(cc). Financial Data Schedule for Retail Class shares of Loomis Sayles Mid- Cap Growth Fund. 17(dd). Financial Data Schedule for Retail Class shares of Loomis Sayles Mid-Cap Value Fund. 17(ee). Financial Data Schedule for Retail Class shares of Loomis Sayles Small Cap Growth Fund. 17(ff). Financial Data Schedule for Retail Class shares of Loomis Sayles Strategic Value Fund. 17(gg). Financial Data Schedule for Admin Class shares of Loomis Sayles Bond Fund. 17(hh) Financial Data Schedule for Admin Class shares of Loomis Sayles Small Cap Value Fund. 18. Amended and Restated Rule 18f-3(d) Plan. (5) 19. Powers of Attorney.(1) -------------------- (1) Incorporated by reference to the similarly numbered Exhibit to Post- Effective Amendment No. 7 to the Trust's Registration Statement under the Securities Act of 1933 filed with the Commission on February 16, 1996. (2) Incorporated by reference to the similarly numbered Exhibit to Post- Effective Amendment No. 10 to the Trust Registration Statement under the Securities Act of 1933 filed with the Commission on August 30, 1996. (3) Incorporated by reference to the similarly numbered Exhibit to Post- Effective Amendment No. 11 to the Trust's Registration Statement under the Securities Act of 1933 filed with the Commission on October 9, 1996. (4) Incorporated by reference to the similarly numbered Exhibit to Post- Effective Amendment No. 12 to the Trust's Registration under the Securities Act of 1933 filed with the Commission on March 10, 1997. (5) Incorporated by reference to the similarly numbered Exhibit to Post- Effective Amendment No. 13 to the Trust's Registration under the Securities Act of 1933 filed with the Commission on October 31, 1997. (6) Incorporated by reference to the similarly numbered Exhibit to Post- Effective Amendment No. 15 to the Trust's Registration under the Securities Act of 1933 filed with the Commission on August 5, 1998. Item 25. Persons Controlled by or under Common Control with Registrant ------------------------------------------------------------- Not Applicable. Item 26. Number of Holders of Securities ------------------------------- No Longer Applicable. Item 27. Indemnification --------------- Incorporated by reference to Item 27 of Post-Effective Amendment No. 1 to this Registration Statement filed on November 7, 1991. Item 28. Business and Other Connections of Investment Adviser ---------------------------------------------------- (a) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the adviser of the Registrant, provides investment advice to the seven series of Loomis Sayles Investment Trust, six series of New England Funds Trust I, one series of New England Funds Trust II, one series of New England Funds Trust III, and two series of New England Zenith Funds, all of which are registered investment companies, and to other registered investment companies, organizations and individuals. The sole general partner of Loomis Sayles is Loomis, Sayles & Company, Incorporated, One Financial Center, Boston, Massachusetts 02111. Item 29. Principal Underwriters ---------------------- The Trust's principal underwriter is Loomis Sayles Distributors, L.P., the sole general partner of which is Loomis Sayles Distributors, Incorporated. Item 30. Location of Accounts and Records -------------------------------- The following companies maintain possession of the documents required by the specified rules: (a) Registrant Rule 31a-1(b)(4), (9), (10), (11) Rule 31a-2(a) (b) State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 Rule 31a-1(a) Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8) Rule 31a-2(a) (c) Loomis, Sayles & Company, L.P. One Financial Center Boston, MA 02111 Rule 31a-1(f) Rule 31a-2(e) (d) Loomis, Sayles Distributors, L.P. One Financial Center Boston, MA 02111 Rule 31a-1(d) Rule 31a-2(c) Item 31. Management Services ------------------- Not applicable. Item 32. Undertakings ------------ (I) The Registrant undertakes to comply with Section 16(c) of the Investment Company Act of 1940 as though such provisions of the Act were applicable to the Registrant. (ii) The Registrant undertakes to furnish each person to whom a prospectus is delivered a copy of Registrant's most recent annual report upon request and without charge. ******************** NOTICE A copy of the Agreement and Declaration of Trust of Loomis Sayles Funds (the "Trust") is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this Registration Statement has been executed on behalf of the Trust by an officer of the Trust as an officer and by its Trustees as trustees and not individually and the obligations of or arising out of this Registration Statement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trust. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, in The Commonwealth of Massachusetts on the 30th day of November, 1998. LOOMIS SAYLES FUNDS By: DANIEL J. FUSS* - ----------------------------- Daniel J. Fuss, President Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this amendment to the Registration Statement of Loomis Sayles Funds has been signed below by the following persons in the capacities and on the date indicated. Signature Title - --------- ----- DANIEL J. FUSS* President and Trustee - ------------------------------- Daniel J. Fuss MARK W. HOLLAND* Treasurer - ------------------------ Mark W. Holland EARL W. FOELL* Trustee - ----------------------------- Earl W. Foell RICHARD S. HOLWAY* Trustee - ------------------------ Richard S. Holway MICHAEL T. MURRAY* Trustee - ------------------------ Michael T. Murray *By : /s/MARK W. HOLLAND - --------------------- Mark W. Holland, for himself and as Attorney-in-fact November 30, 1998 EXHIBIT INDEX EXHIBIT NO. - ------------- 5(a) Form of Advisory Agreement. 5(r). Form of Amended and Restated Advisory Agreement between the Trust and Loomis Sayles U.S. Government Securities Fund. 8(f). Form of Letter Agreement between the Trust and State Street Bank and Trust Company relating to the applicability of the Custodian Agreement to Loomis Sayles Managed Bond Fund. 9(e). Transfer Agency and Service Agreement between the Trust on behalf of Loomis Sayles Managed Bond Fund and State Street Bank and Trust Company. 11. Consent of PricewaterhouseCoopers LLP 17(a). Financial Data Schedule for Institutional Class shares of Loomis Sayles Growth Fund. 17(b). Financial Data Schedule for Institutional Class shares of Loomis Sayles Core Value Fund. 17(c). Financial Data Schedule for Institutional Class shares of Loomis Sayles Small Cap Value Fund. 17(d). Financial Data Schedule for Institutional Class shares of Loomis Sayles International Equity Fund. 17(e). Financial Data Schedule for Institutional Class shares of Loomis Sayles Worldwide Fund. 17(f). Financial Data Schedule for Institutional Class shares of Loomis Sayles Bond Fund. 17(g). Financial Data Schedule for Institutional Class shares of Loomis Sayles Global Bond Fund. 17(h). Financial Data Schedule for Institutional Class shares of Loomis Sayles U.S.Government Securities Fund. 17(I). Financial Data Schedule for Institutional Class shares of Loomis Sayles Municipal Bond Fund. 17(j). Financial Data Schedule for Institutional Class shares of Loomis Sayles Short-Term Bond Fund. 17(k). Financial Data Schedule for Institutional Class shares of Loomis Sayles High Yield Fund. 17(l). Financial Data Schedule for Institutional Class shares of Loomis Sayles Intermediate Maturity Bond Fund. 17(m). Financial Data Schedule for Institutional Class shares of Loomis Sayles Investment Grade Bond Fund. 17(n). Financial Data Schedule for Institutional Class shares of Loomis Sayles Mid-Cap Growth Fund. 17(o). Financial Data Schedule for Institutional Class shares of Loomis Sayles Mid-Cap Value Fund. 17(p). Financial Data Schedule for Institutional Class shares of Loomis Sayles Small Cap Growth Fund. 17(q). Financial Data Schedule for Institutional Class shares of Loomis Sayles Strategic Value Fund. 17(r). Financial Data Schedule for Retail Class shares of Loomis Sayles Growth Fund. 17(s). Financial Data Schedule for Retail Class shares of Loomis Sayles Core Value Fund. 17(t). Financial Data Schedule for Retail Class shares of Loomis Sayles Small Cap Value Fund. 17(u). Financial Data Schedule for Retail Class shares of Loomis Sayles International Equity Fund. 17(v). Financial Data Schedule for Retail Class shares of Loomis Sayles Worldwide Fund. 17(w). Financial Data Schedule for Retail Class shares of Loomis Sayles Bond Fund. 17(x). Financial Data Schedule for Retail Class shares of Loomis Sayles Global Bond Fund. 17(y). Financial Data Schedule for Retail Class shares of Loomis Sayles Short- Term Bond Fund. 17(z). Financial Data Schedule for Retail Class shares of Loomis Sayles High Yield Fund. 17(aa). Financial Data Schedule for Retail Class shares of Loomis Sayles Intermediate Maturity Bond Fund. 17(bb). Financial Data Schedule for Retail Class shares of Loomis Sayles Investment Grade Bond Fund. 17(cc). Financial Data Schedule for Retail Class shares of Loomis Sayles Mid-Cap Growth Fund. 17(dd). Financial Data Schedule for Retail Class shares of Loomis Sayles Mid-Cap Value Fund. 17(ee). Financial Data Schedule for Retail Class shares of Loomis Sayles Small Cap Growth Fund. 17(ff). Financial Data Schedule for Retail Class shares of Loomis Sayles Strategic Value Fund. 17(gg) Financial Data Schedule for Admin Class shares of Loomis Sayles Bond Fund. 17(hh) Financial Data Schedule for Admin Class shares of Loomis Sayles Small Cap Value Fund. EX-99.5A 2 ADVISORY AGREEMENT Exhibit 5(a) ADVISORY AGREEMENT ------------------ AGREEMENT made this 30th day of August, 1996, by and between Loomis Sayles Funds, a Massachusetts business trust (the "Trust"), with respect to its Bond Fund series (the "Series"), and Loomis, Sayles & Company, L.P., a Delaware limited partnership (the "Adviser"). WITNESSETH: WHEREAS, the Trust and the Adviser wish to enter into an agreement setting forth the terms upon which the Adviser will perform certain services for the Series; NOW THEREFORE, in consideration of the premises and covenants hereinafter contained, the parties agree as follows: 1. The Trust hereby employs the Adviser to manage the investment and reinvestment of the assets belonging to the Series and to perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Adviser hereby accepts such employment and agrees, at its own expense, to render the services and to assume the obligations herein set forth, for the compensation herein provided. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust. 2. In carrying out its obligations to manage the investment and reinvestment of the assets belonging to the Series, the Adviser shall: (a) obtain and evaluate such economic, statistical and financial data and information and undertake such additional investment research as it shall believe necessary or advisable for the management of the investment and reinvestment of the assets belonging to the Series in accordance with the Series' investment objective and policies; (b) take such steps as are necessary to implement the investment policies of the Series by purchase and sale of securities, including the placing of orders for such purchase and sale; and (c) regularly report to the Board of Trustees with respect to the implementation of the investment policies of the Series. 3. All activities in connection with the management of the affairs of the Series undertaken by the Adviser pursuant to this Agreement shall at all times be subject to the supervision and control of the Board of Trustees, any duly constituted committee thereof or any officer of the Trust acting pursuant to like authority. 4. In addition to performing at its expense the obligations set forth in section 2 hereof, the Adviser shall furnish to the Trust at the Adviser's own expense or pay the expenses of the Trust for the following: (a) office space in such place or places as may be agreed upon from time to time, and all necessary office supplies, facilities and equipment; (b) necessary executive and other personnel for managing the affairs of the Series (exclusive of those related to and to be performed under contract for custodial, transfer, dividend and plan agency services by the entity or entities selected to perform such services and exclusive of any managerial functions described in section 5); and (c) compensation, if any, of Trustees of the Trust who are directors, officers, partners or employees of the Adviser or any affiliated person (other than a registered investment company) of the Adviser. 5. Except as the Adviser may otherwise agree from time to time, nothing in section 4 hereof shall require the Adviser to bear, or to reimburse the Trust for: (a) any of the costs of printing and distributing the items referred to in subsection (n) of this section 5; (b) any of the costs of preparing, printing and distributing sales literature; (c) compensation of Trustees of the Trust who are not directors, officers, partners or employees of the Adviser or of any affiliated person (other than a registered investment company) of the Adviser; (d) registration, filing and other fees in connection with requirements of regulatory authorities; (e) the charges and expenses of the custodian appointed by the Trust for custodial, paying agent, transfer agent and plan agent services; (f) charges and expenses of independent accountants retained by the Trust; (g) charges and expenses of any transfer agents and registrars appointed by the Trust; (h) brokers' commissions and issue and transfer taxes chargeable to the Trust in connection with securities transactions to which the Trust is a party; -2- (i) taxes and fees payable by the Trust to Federal, State or other governmental agencies; (j) any cost of certificates representing shares of the Series; (k) legal fees and expenses in connection with the affairs of the Trust including registering and qualifying its shares with Federal and State regulatory authorities; (l) expenses of meetings of shareholders and Trustees of the Trust; (m) interest, including interest on borrowings by the Trust; (n) the cost of services, including services of counsel, required in connection with the preparation of the Trust's registration statements and prospectuses, including amendments and revisions thereto, annual, semiannual and other periodic reports of the Trust, and notices and proxy solicitation material furnished to shareholders of the Trust or regulatory authorities; and (o) the Trust's expenses of bookkeeping, accounting, auditing and financial reporting, including related clerical expenses. 6. The services of the Adviser to the Trust hereunder are not to be deemed exclusive and the Adviser shall be free to render similar services to others, so long as its services hereunder are not impaired thereby. 7. As full compensation for all services rendered, facilities furnished and expenses borne by the Adviser hereunder, the Trust shall pay the Adviser compensation at the annual percentage rate of .60%, or such lesser rate as the Adviser may agree to from time to time. Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Board of Trustees of the Trust may from time to time determine and specify in writing to the Adviser. The Adviser hereby acknowledges that the Trust's obligation to pay such compensation is binding only on the assets and property belonging to the Series. 8. If the total of all ordinary business expenses of the Series or the Trust as a whole (including investment advisory fees but excluding taxes and portfolio brokerage commissions) for any fiscal year exceeds the lowest applicable percentage of average net assets or income limitations prescribed by any state in which shares of the Series are qualified for sale, the Adviser shall pay any such excess. Solely for purposes of applying such limitations in accordance with the foregoing sentence, the Series and the Trust shall each be deemed to be a separate fund subject to such limitations. Should the applicable state limitation provisions fail to specify how the average net assets of the Trust or belonging to the Series are to be -3- calculated, that figure shall be calculated by reference to the average daily net assets of the Trust or the Series, as the case may be. 9. It is understood that any of the shareholders, trustees, officers, employees and agents of the Trust may be a partner, shareholder, director, officer, employee or agent of, or be otherwise interested in, the Adviser, any affiliated person of the Adviser, any organization in which the Adviser may have an interest or any organization which may have an interest in the Adviser; that the Adviser, any such affiliated person or any such organization may have an interest in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Partnership Agreement of the Adviser, respectively, or by specific provisions of applicable law. 10. This Agreement shall become effective as of the date of its execution, and (a) unless otherwise terminated, this Agreement shall continue in effect for two years from the date of execution, and from year to year thereafter only so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust or the Adviser, cast in person at a meeting called for the purpose of voting on such approval; (b) this Agreement may at any time be terminated on sixty days' written notice to the Adviser either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series; (c) this Agreement shall automatically terminate in the event of its assignment; (d) this Agreement may be terminated by the Adviser on ninety days' written notice to the Trust; (e) if the Adviser requires the Trust or the Series to change its name so as to eliminate all references to the words "Loomis" or "Sayles," then this Agreement shall automatically terminate at the time of such change unless the continuance of this Agreement after such change shall have been specifically approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust or the Adviser, cast in person at a meeting called for the purpose of voting on such approval. Termination of this Agreement pursuant to this section 10 shall be without payment of any penalty. -4- 11. This Agreement may be amended at any time by mutual consent of the parties, provided that such consent on the part of the Trust shall have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust or the Adviser, cast in person at a meeting called for the purposes of voting on such approval. 12. For the purposes of this Agreement, the terms "vote of a majority of the outstanding voting securities," "interested person," "affiliated person" and "assignment" shall have their respective meanings defined in the Investment Company Act of 1940 and the rules and regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. References in this Agreement to any assets, property or liabilities "belonging to" the Series shall have the meaning defined in the Trust's Agreement and Declaration of Trust and By-Laws as amended from time to time. 13. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser, or reckless disregard of its obligations and duties hereunder, the Adviser shall not be subject to any liability to the Trust, to any shareholder of the Trust or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder. -5- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. LOOMIS SAYLES FUNDS, on behalf of its Bond Fund series By:_______________________________ Daniel J. Fuss President LOOMIS, SAYLES & COMPANY, L.P. By: LOOMIS, SAYLES & COMPANY, INC., its general partner By:_______________________________ Name: Title: A copy of the Agreement and Declaration of Trust establishing the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Trust's Bond Fund series on behalf of the Trust by officers of the Trust as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property belonging to the Series. -6- EX-99.5R 3 AMENDED AND RESTATE ADVISORY AGREEMENT Exhibit 5(r) AMENDED AND RESTATED ADVISORY AGREEMENT --------------------------------------- AGREEMENT made this 1st day of December, 1998, by and between Loomis Sayles Funds, a Massachusetts business trust (the "Trust"), with respect to its U.S. Government Securities Fund series (the "Series"), and Loomis, Sayles & Company, L.P., a Delaware limited partnership (the "Adviser"). WITNESSETH: WHEREAS, the Trust and the Adviser wish to enter into an agreement setting forth the terms upon which the Adviser will perform certain services for the Series; NOW THEREFORE, in consideration of the premises and covenants hereinafter contained, the parties agree as follows: 1. The Trust hereby employs the Adviser to manage the investment and reinvestment of the assets belonging to the Series and to perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Adviser hereby accepts such employment and agrees, at its own expense, to render the services and to assume the obligations herein set forth, for the compensation herein provided. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust. 2. In carrying out its obligations to manage the investment and reinvestment of the assets belonging to the Series, the Adviser shall: (a) obtain and evaluate such economic, statistical and financial data and information and undertake such additional investment research as it shall believe necessary or advisable for the management of the investment and reinvestment of the assets belonging to the Series in accordance with the Series' investment objective and policies; (b) take such steps as are necessary to implement the investment policies of the Series by purchase and sale of securities, including the placing of orders for such purchase and sale; and (c) regularly report to the Board of Trustees with respect to the implementation of the investment policies of the Series. 3. All activities in connection with the management of the affairs of the Series undertaken by the Adviser pursuant to this Agreement shall at all times be subject to the supervision and control of the Board of Trustees, any duly constituted committee thereof or any officer of the Trust acting pursuant to like authority. 4. In addition to performing at its expense the obligations set forth in section 2 hereof, the Adviser shall furnish to the Trust at the Adviser's own expense or pay the expenses of the Trust for the following: (a) office space in such place or places as may be agreed upon from time to time, and all necessary office supplies, facilities and equipment; (b) necessary executive and other personnel for managing the affairs of the Series (exclusive of those related to and to be performed under contract for custodial, transfer, dividend and plan agency services by the entity or entities selected to perform such services and exclusive of any managerial functions described in section 5); and (c) compensation, if any, of Trustees of the Trust who are directors, officers, partners or employees of the Adviser or any affiliated person (other than a registered investment company) of the Adviser. 5. Except as the Adviser may otherwise agree from time to time, nothing in section 4 hereof shall require the Adviser to bear, or to reimburse the Trust for: (a) any of the costs of printing and distributing the items referred to in subsection (n) of this section 5; (b) any of the costs of preparing, printing and distributing sales literature; (c) compensation of Trustees of the Trust who are not directors, officers, partners or employees of the Adviser or of any affiliated person (other than a registered investment company) of the Adviser; (d) registration, filing and other fees in connection with requirements of regulatory authorities; (e) the charges and expenses of the custodian appointed by the Trust for custodial, paying agent, transfer agent and plan agent services; (f) charges and expenses of independent accountants retained by the Trust; (g) charges and expenses of any transfer agents and registrars appointed by the Trust; -2- (h) brokers' commissions and issue and transfer taxes chargeable to the Trust in connection with securities transactions to which the Trust is a party; (i) taxes and fees payable by the Trust to Federal, State or other governmental agencies; (j) any cost of certificates representing shares of the Series; (k) legal fees and expenses in connection with the affairs of the Trust including registering and qualifying its shares with Federal and State regulatory authorities; (l) expenses of meetings of shareholders and Trustees of the Trust; (m) interest, including interest on borrowings by the Trust; (n) the cost of services, including services of counsel, required in connection with the preparation of the Trust's registration statements and prospectuses, including amendments and revisions thereto, annual, semiannual and other periodic reports of the Trust, and notices and proxy solicitation material furnished to shareholders of the Trust or regulatory authorities; and (o) the Trust's expenses of bookkeeping, accounting, auditing and financial reporting, including related clerical expenses. 6. The services of the Adviser to the Trust hereunder are not to be deemed exclusive and the Adviser shall be free to render similar services to others, so long as its services hereunder are not impaired thereby. 7. As full compensation for all services rendered, facilities furnished and expenses borne by the Adviser hereunder, the Trust shall pay the Adviser compensation at the annual percentage rate of .30%, or such lesser rate as the Adviser may agree to from time to time. Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Board of Trustees of the Trust may from time to time determine and specify in writing to the Adviser. The Adviser hereby acknowledges that the Trust's obligation to pay such compensation is binding only on the assets and property belonging to the Series. 8. If the total of all ordinary business expenses of the Series or the Trust as a whole (including investment advisory fees but excluding taxes and portfolio brokerage commissions) for any fiscal year exceeds the lowest applicable percentage of average net assets or income limitations prescribed by any state in which shares of the Series are qualified for sale, the Adviser shall pay any such excess. Solely for purposes of applying such limitations -3- in accordance with the foregoing sentence, the Series and the Trust shall each be deemed to be a separate fund subject to such limitations. Should the applicable state limitation provisions fail to specify how the average net assets of the Trust or belonging to the Series are to be calculated, that figure shall be calculated by reference to the average daily net assets of the Trust or the Series, as the case may be. 9. It is understood that any of the shareholders, trustees, officers, employees and agents of the Trust may be a partner, shareholder, director, officer, employee or agent of, or be otherwise interested in, the Adviser, any affiliated person of the Adviser, any organization in which the Adviser may have an interest or any organization which may have an interest in the Adviser; that the Adviser, any such affiliated person or any such organization may have an interest in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Partnership Agreement of the Adviser, respectively, or by specific provisions of applicable law. 10. This Agreement shall become effective as of the date of its execution, and (a) unless otherwise terminated, this Agreement shall continue in effect for two years from the date of execution, and from year to year thereafter only so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust or the Adviser, cast in person at a meeting called for the purpose of voting on such approval; (b) this Agreement may at any time be terminated on sixty days' written notice to the Adviser either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series; (c) this Agreement shall automatically terminate in the event of its assignment; (d) this Agreement may be terminated by the Adviser on ninety days' written notice to the Trust; (e) if the Adviser requires the Trust or the Series to change its name so as to eliminate all references to the words "Loomis" or "Sayles," then this Agreement shall automatically terminate at the time of such change unless the continuance of this Agreement after such change shall have been specifically approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust or the Adviser, cast in person at a meeting called for the purpose of voting on such approval. -4- Termination of this Agreement pursuant to this section 10 shall be without payment of any penalty. 11. This Agreement may be amended at any time by mutual consent of the parties, provided that such consent on the part of the Trust shall have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust or the Adviser, cast in person at a meeting called for the purposes of voting on such approval. 12. For the purposes of this Agreement, the terms "vote of a majority of the outstanding voting securities," "interested person," "affiliated person" and "assignment" shall have their respective meanings defined in the Investment Company Act of 1940 and the rules and regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. References in this Agreement to any assets, property or liabilities "belonging to" the Series shall have the meaning defined in the Trust's Agreement and Declaration of Trust and By-Laws as amended from time to time. 13. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser, or reckless disregard of its obligations and duties hereunder, the Adviser shall not be subject to any liability to the Trust, to any shareholder of the Trust or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder. -5- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. LOOMIS SAYLES FUNDS, on behalf of its U.S. Government Securities Fund series By:_____________________________________ Daniel J. Fuss President LOOMIS, SAYLES & COMPANY, L.P. By: LOOMIS, SAYLES & COMPANY, INC., its general partner By:_____________________________ Name: Title: A copy of the Agreement and Declaration of Trust establishing the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Trust's U.S. Government Securities Fund series on behalf of the Trust by officers of the Trust as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property belonging to the Series. -6- EX-99.8F 4 EXHIBIT 8 (F) Exhibit 8(f) October 7, 1998 State Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 Gentlemen: This is to advise you that Loomis Sayles Funds (the "Fund") has established a new series of shares to be known as Loomis Sayles Managed Bond Fund. In accordance with the Additional Funds provision in Section 17 of the Custodian Contract dated April 23, 1991 between the Fund and State Street Bank and Trust Company, the Fund hereby requests that you act as Custodian for the new series under the terms of the respective contract. Please indicate your acceptance of the foregoing by executing two copies of this Letter Agreement, returning one to the Fund and retaining one copy for your records. LOOMIS SAYLES MANAGED BOND FUND By:_______________________________ Daniel J. Fuss, President Agreed to this ________ day of October, 1998 STATE STREET BANK AND TRUST COMPANY By:_______________________ Vice President EX-99.9E 5 TRANSFER AGENCY AND SERVICE AGREEMENT Exhibit 9(e) TRANSFER AGENCY AND SERVICE AGREEMENT between LOOMIS SAYLES MANAGED BOND FUND and STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS -----------------
Page ---- 1. Terms of Appointment; Duties of the Bank............. 1 2. Fees and Expenses.................................... 3 3. Representations and Warranties of the Bank........... 4 4. Representations and Warranties of the Fund........... 4 5. Data Access and Proprietary Information.............. 5 6. Indemnification...................................... 6 7. Standard of Care..................................... 7 8. Covenants of the Fund and the Bank................... 7 9. Termination of Agreement............................. 8 10. Assignment........................................... 8 11. Amendment............................................ 9 12. Massachusetts Law to Apply........................... 9 13. Force Majeure........................................ 9 14. Consequential Damages................................ 9 15. Merger of Agreement.................................. 9 16. Limitations of Liability of the Trustees or Shareholders...................................... 9 17. Counterparts......................................... 10 18. Reproduction of Documents............................ 10
TRANSFER AGENCY AND SERVICE AGREEMENT ------------------------------------- AGREEMENT made as of the 26th day of August, 1998 by and between Loomis Sayles Funds, a Massachusetts business trust, having its principal office and place of business at One International Place, Boston, Massachusetts (the "Fund"), on behalf of its Loomis Sayles Managed Bond Fund and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank"). WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in the Loomis Sayles Managed Bond Fund (the "Portfolio"); and WHEREAS, the Fund on behalf of the Portfolio desires to appoint the Bank as its transfer agent, dividend disbursing agent, custodian of certain retirement plans and agent in connection with certain other activities, and the Bank desires to accept such appointment. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: l. Terms of Appointment; Duties of the Bank ---------------------------------------- 1.1 Subject to the terms and conditions set forth in this Agreement, the Fund, on behalf of the Portfolio, hereby employs and appoints the Bank to act as, and the Bank agrees to act as its transfer agent for the Fund's authorized and issued shares of its common stock, $ par value, ("Shares"), dividend disbursing agent, custodian of certain retirement plans and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of the respective Portfolio of the Fund ("Shareholders") and set out in the currently effective prospectus and statement of additional information ("prospectus") of the Fund on behalf of the Portfolio, including without limitation any periodic investment plan or periodic withdrawal program. 1.2 The Bank agrees that it will perform the following services: (a) In accordance with procedures established from time to time by agreement between the Fund on behalf of the Portfolio, as applicable and the Bank, the Bank shall: (i) Receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation thereof to the Custodian of the Fund authorized pursuant to the Declaration of Trust of the Fund (the "Custodian"); (ii) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii) Receive for acceptance redemption requests and redemption directions and 1 deliver the appropriate documentation thereof to the Custodian; (iv) In respect to the transactions in items (i), (ii) and (iii) above, the Bank shall execute transactions directly with broker-dealers authorized by the Fund who shall thereby be deemed to be acting on behalf of the Fund; (v) At the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (vi) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vii) Prepare and transmit payments for dividends and distributions declared by the Fund on behalf of the Portfolio; (viii) Issue replacement certificates for those certificates alleged to have been lost, stolen or destroyed upon receipt by the Bank of indemnification satisfactory to the Bank and protecting the Bank and the Fund, and the Bank at its option, may issue replacement certificates in place of mutilated stock certificates upon presentation thereof and without such indemnity; (ix) Maintain records of account for and advise the Fund and its Shareholders as to the foregoing; and (x) Record the issuance of shares of the Fund and maintain pursuant to SEC Rule 17Ad-10(e) a record of the total number of shares of the Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. The Bank shall also provide the Fund on a regular basis with the total number of shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of shares, to monitor the issuance of such shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. (b) In addition to and neither in lieu nor in contravention of the services set forth in the above paragraph (a), the Bank shall: (i) perform the customary services of a transfer agent, dividend disbursing agent, custodian of certain retirement plans and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, mailing Shareholder reports and prospectuses to current Shareholders, withholding taxes on U.S. resident and non- resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information and (ii) provide a system which will enable the Fund to monitor the total number of Shares sold in 2 each State. (c) In addition, the Fund shall (i) identify to the Bank in writing those transactions and assets to be treated as exempt from blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Bank for the Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above. (d) Procedures as to who shall provide certain of these services in Section 1 may be established from time to time by agreement between the Fund on behalf of the Portfolio and the Bank per the attached service responsibility schedule. The Bank may at times perform only a portion of these services and the Fund or its agent may perform these services on the Fund's behalf. (e) The Bank shall provide additional services on behalf of the Fund (i.e., escheatment services) which may be agreed upon in writing between the Fund and the Bank. 2. Fees and Expenses ----------------- 2.1 For the performance by the Bank pursuant to this Agreement, the Fund agrees on behalf of the Portfolio to pay the Bank an annual maintenance fee for each Shareholder account as set out in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.2 below may be changed from time to time subject to mutual written agreement between the Fund and the Bank. 2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on behalf of the Portfolio to reimburse the Bank for out-of-pocket expenses, including but not limited to confirmation production, postage, forms, telephone, microfilm, microfiche, tabulating proxies, records storage, or advances incurred by the Bank for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by the Bank at the request or with the consent of the Fund, will be reimbursed by the Fund on behalf of the applicable Portfolio. 2.3 The Fund agrees on behalf of the Portfolio to pay all fees and reimbursable expenses within five days following the receipt of the respective billing notice. Postage for mailing of dividends, proxies, Fund reports and other mailings to all shareholder accounts shall be advanced to the Bank by the Fund at least seven (7) days prior to the mailing date of such materials. 3. Representations and Warranties of the Bank ------------------------------------------ The Bank represents and warrants to the Fund that: 3.1 It is a trust company duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts. 3.2 It is duly qualified to carry on its business in the Commonwealth of Massachusetts. 3.3 It is empowered under applicable laws and by its Charter and By-Laws to enter into and perform this Agreement. 3 3.4 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 3.5 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. 4. Representations and Warranties of the Fund ------------------------------------------ The Fund represents and warrants to the Bank that: 4.1 It is a business trust duly organized and existing and in good standing under the laws of the State of. 4.2 It is empowered under applicable laws and by its Declaration of Trust and By-Laws to enter into and perform this Agreement. 4.3 All corporate proceedings required by said Declaration of Trust and By- Laws have been taken to authorize it to enter into and perform this Agreement. 4.4 It is an open-end and diversified management investment company registered under the Investment Company Act of 1940, as amended. 4.5 A registration statement under the Securities Act of 1933, as amended on behalf of the Portfolio is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. 5. Data Access and Proprietary Information --------------------------------------- 5.1 The Fund acknowledges that the data bases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Fund by the Bank as part of the Fund's ability to access certain Fund-related data ("Customer Data") maintained by the Bank on data bases under the control and ownership of the Bank or other third party ("Data Access Services") constitute copyrighted, trade secret, or other proprietary information (collectively, "Proprietary Information") of substantial value to the Bank or other third party. In no event shall Proprietary Information be deemed Customer Data. The Fund agrees to treat all Proprietary Information as proprietary to the Bank and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder. Without limiting the foregoing, the Fund agrees for itself and its employees and agents: (a) to access Customer Data solely from locations as may be designated in writing by the Bank and solely in accordance with the Bank's applicable user documentation; (b) to refrain from copying or duplicating in any way the Proprietary Information; (c) to refrain from obtaining unauthorized access to any portion of the Proprietary Information, and if such access is inadvertently obtained, to inform in a timely manner of such fact and dispose of such information in accordance with the Bank's instructions; 4 (d) to refrain from causing or allowing the data acquired hereunder from being retransmitted to any other computer facility or other location, except with the prior written consent of the Bank; (e) that the Fund shall have access only to those authorized transactions agreed upon by the parties; (f) to honor all reasonable written requests made by the Bank to protect at the Bank's expense the rights of the Bank in Proprietary Information at common law, under federal copyright law and under other federal or state law. Each party shall take reasonable efforts to advise its employees of their obligations pursuant to this Section 5. The obligations of this Section shall survive any earlier termination of this Agreement. 5.2 If the Fund notifies the Bank that any of the Data Access Services do not operate in material compliance with the most recently issued user documentation for such services, the Bank shall endeavor in a timely manner to correct such failure. Organizations from which the Bank may obtain certain data included in the Data Access Services are solely responsible for the contents of such data and the Fund agrees to make no claim against the Bank arising out of the contents of such third-party data, including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 5.3 If the transactions available to the Fund include the ability to originate electronic instructions to the Bank in order to (i) effect the transfer or movement of cash or Shares or (ii) transmit Shareholder information or other information, then in such event the Bank shall be entitled to rely on the validity and authenticity of such instruction without undertaking any further inquiry as long as such instruction is undertaken in conformity with security procedures established by the Bank from time to time. 6. Indemnification --------------- 6.1 The Bank shall not be responsible for, and the Fund shall on behalf of the Portfolio indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: (a) All actions of the Bank or its agents or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct. (b) The Fund's lack of good faith, negligence or willful misconduct which arise out of the breach of any representation or warranty of the Fund hereunder. (c) The reliance on or use by the Bank or its agents or subcontractors of information, records, documents or services which (i) are received by the Bank or its agents or subcontractors, and (ii) have been prepared, maintained or performed by the Fund or any other person or firm on behalf of the Fund including but not limited to any 5 previous transfer agent or registrar. (d) The reliance on, or the carrying out by the Bank or its agents or subcontractors of any instructions or requests of the Fund on behalf of the Portfolio. (e) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state. (f) The negotiation and processing by the Bank of checks not made payable to the order of the Bank, the Fund, the Fund=s management company, transfer agent or distributor or the retirement account custodian or trustee for a plan account investing in Shares, which checks are tendered to the Bank for the purchase of Shares (i.e., checks made payable to prospective or existing Shareholders, such checks are commonly known as Athird party checks@). 6.2 At any time the Bank may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the Fund on behalf of the Portfolio for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. The Bank, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any former transfer agent or former registrar, or of a co-transfer agent or co-registrar. 6.3 In order that the indemnification provisions contained in this Section 6 shall apply, upon the assertion of a claim for which the Fund may be required to indemnify the Bank, the Bank shall promptly notify the Fund of such assertion, and shall keep the Fund advised with respect to all developments concerning such claim. The Fund shall have the option to participate with the Bank in the defense of such claim or to defend against said claim in its own name or in the name of the Bank. The Bank shall in no case confess any claim or make any compromise in any case in which the Fund may be required to indemnify the Bank except with the Fund's prior written consent. 7. Standard of Care ---------------- The Bank shall at all times act in good faith and agrees to use its best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement, but assumes no responsibility and shall not be liable for loss or damage due to errors unless said errors are caused by its negligence, bad faith, or willful misconduct or that of its employees. 6 8. Covenants of the Fund and the Bank ---------------------------------- 8.1 The Fund shall on behalf of the Portfolio promptly furnish to the Bank the following: (a) A certified copy of the resolution of the Board of Trustees of the Fund authorizing the appointment of the Bank and the execution and delivery of this Agreement. (b) A copy of the Declaration of Trust and By-Laws of the Fund and all amendments thereto. 8.2 The Bank hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 8.3 The Bank shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Bank agrees that all such records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request. 8.4 The Bank and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 8.5 In case of any requests or demands for the inspection of the Shareholder records of the Fund, the Bank will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. 9. Termination of Agreement ------------------------ 9.1 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other. 9.2 Should the Fund exercise its right to terminate, all out-of-pocket expenses associated with the movement of records and material will be borne by the Fund on behalf of the applicable Portfolio(s). Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination and/or a charge equivalent to the average of three (3) months' fees. 10. Assignment ---------- 10.1 Except as provided in Section 11.3 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the 7 other party. 10.2 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 10.3 The Bank may, without further consent on the part of the Fund, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as a transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly registered as a transfer agent pursuant to Section 17A(c)(2) or (iii) a BFDS affiliate; provided, however, that the Bank shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions. 11. Amendment --------- This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Board of Trustees of the Fund. 12. Massachusetts Law to Apply -------------------------- This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. 13. Force Majeure ------------- In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 14. Consequential Damages --------------------- Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any consequential damages arising out of any act or failure to act hereunder. 15. Merger of Agreement ------------------- This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. 16. Limitations of Liability of the Trustees and Shareholders --------------------------------------------------------- A copy of the Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees or Shareholders individually but are binding only upon the assets and property of the Fund. 8 17. Counterparts ------------ This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 18. Reproduction of Documents ------------------------- This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. Loomis Sayles Funds on behalf of the Loomis Sayles Managed Bond Fund Series BY: _____________________________ Mark Holland, Treasurer Loomis Sayles Funds ATTEST: __________________________ STATE STREET BANK AND TRUST COMPANY BY: _____________________________ Executive Vice President ATTEST: __________________________ 10 STATE STREET BANK & TRUST COMPANY FUND SERVICE RESPONSIBILITIES* Service Performed Responsibility - ----------------- -------------- Bank Fund ---- ---- 1. Receives orders for the purchase of Shares. X 2. Issue Shares and hold Shares in Shareholders accounts. X 3. Receive redemption requests. X 4. Effect transactions 1-3 above N/A directly with broker-dealers. 5. Pay over monies to redeeming Shareholders. X 6. Effect transfers of Shares. X 7. Prepare and transmit dividends and distributions. X 8. Issue Replacement Certificates. N/A 9. Reporting of abandoned property. X 10. Maintain records of account. X 11. Maintain and keep a current and accurate control book for each issue of securities. N/A 12. Mail proxies. X 13. Mail Shareholder reports. X 14. Mail prospectuses to current Shareholders. X 15. Withhold taxes on U.S. resident and non-resident alien accounts. X 11 Service Performed Responsibility - ----------------- -------------- Bank Fund ---- ---- 16. Prepare and file U.S. Treasury Department forms. X 17. Prepare and mail account and confirmation statements for Shareholders. X 18. Provide Shareholder account information. X 19. Blue sky reporting. N/A * Such services are more fully described in Section 1.2 (a), (b) and (c) of the Agreement. Loomis Sayles Funds on behalf of the Loomis Sayles Managed Bond Fund Series BY: _______________________________ Mark Holland, Treasurer ATTEST: ___________________________ STATE STREET BANK AND TRUST COMPANY BY: _______________________________ Executive Vice President ATTEST: ___________________________ 12 EX-99.11 6 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS To the Trustees of Loomis Sayles Funds: We consent to the incorporation by reference in Amendment No. 19 to the Registration Statement of Loomis Sayles Funds consisting of 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 Intermediate Maturity Bond Fund, Loomis Sayles International Equity Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis Sayles Municipal Bond Fund, Loomis Sayles Short-Term Bond Fund, Loomis Sayles Small Cap Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis Sayles Strategic Value Fund, Loomis Sayles U.S. Government Securities Fund, and Loomis Sayles Worldwide Fund, (collectively, the "Funds") on Form N-1A (File No. 811-6241) under the Investment Company Act of 1940, as amended, and Post-Effective Amendment No. 17 to the Registration Statement on Form N-1A (File No. 33-39133) under the Securities Act of 1933, as amended, of our reports dated November 18, 1998 on our audits of the financial statements and financial highlights of the Funds, which reports are incorporated by reference in the Amendment and Post-Effective Amendment to the Registration Statement. We consent to the references to our Firm under the captions "Financial Highlights" in the Prospectuses and "Independent Accountants" in the Statement of Additional Information for the aforementioned Funds. Boston, Massachusetts PricewaterhouseCoopers LLP November 30, 1998 EX-27.17A 7 FDS - WORLDWIDE FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 101 LOOMIS SAYLES WORLDWIDE FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 6,017,722 4,921,641 67,668 2,340 13,344 5,004,993 0 0 24,663 24,663 0 5,748,253 558,157 567,805 176,258 0 151,908 0 (1,096,089) 4,980,330 31,051 201,895 0 (43,598) 189,348 10,051 (818,235) (618,836) 0 0 0 0 3,586 (13,234) 0 (636,274) 0 137,007 (8,240) 0 32,580 0 156,064 5,723,616 9.86 .33 (1.40) 0 0 0 8.79 1.00 0 0
EX-27.17B 8 FDS - WORLDWIDE FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 102 LOOMIS SAYLES WORLDWIDE FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 6,017,722 4,921,641 67,668 2,340 13,344 5,004,993 0 0 24,663 24,663 0 5,748,253 8,320 1,998 176,258 0 151,908 0 (1,096,089) 4,980,330 31,051 201,895 0 (43,598) 189,348 10,051 (818,235) (618,836) 0 0 0 0 25,009 (18,687) 0 (636,274) 0 137,007 (8,240) 0 32,580 0 156,064 84,324 9.86 .30 (1.40) 0 0 0 8.76 1.25 0 0
EX-27.17C 9 FDS - HIGH YIELD FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 111 LOOMIS SAYLES HIGH YIELD FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 13,722,569 10,260,544 551,238 5,158 24,354 10,841,294 58,111 0 138,770 196,881 0 13,413,582 810,885 520,335 330,861 0 361,875 0 (3,461,905) 10,644,413 54,959 893,606 0 (73,038) 875,527 280,272 (3,203,138) (2,047,339) 0 (283,957) 0 0 403,057 (137,504) 24,997 2,236,759 0 80,356 (313) 0 50,667 0 214,258 6,108,101 10.12 .79 (2.28) (.46) 0 0 8.17 .75 0 0
EX-27.17D 10 FDS - HIGH YIELD FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 112 LOOMIS SAYLES HIGH YIELD FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 13,722,569 10,260,544 551,238 5,158 24,354 10,841,294 58,111 0 138,770 196,881 0 13,413,582 492,458 310,430 330,861 0 361,875 0 (3,461,905) 10,644,413 54,959 893,606 0 (73,038) 875,527 280,272 (3,203,138) (2,047,339) 0 (259,684) 0 0 518,798 (357,083) 20,313 (2,236,759) 0 80,356 (313) 0 50,667 0 214,258 5,182,187 10.12 .76 (2.27) (.45) 0 0 8.16 1.00 0 0
EX-27.17E 11 FDS - INTERMEDIATE MATURITY BOND FUN INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 141 LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 9,391,604 9,130,823 145,557 0 17,267 9,293,647 0 0 29,771 29,771 0 9,274,647 854,576 628,544 183,124 0 66,882 0 (260,777) 9,263,876 0 462,506 0 (36,043) 426,463 67,050 (224,304) 269,209 0 (255,807) 0 0 233,463 (30,328) 22,897 2,536,364 0 23,063 (768) 0 25,473 0 158,205 7,970,251 10.03 .51 (.16) (.32) 0 0 10.06 .55 0 0
EX-27.17F 12 INTERMEDIATE MATURITY BOND FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 142 LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 9,391,604 9,130,823 145,557 0 17,267 9,293,647 0 0 29,771 29,771 0 9,274,647 65,903 42,123 183,124 0 66,882 0 (260,777) 9,263,876 0 462,506 0 (36,043) 426,463 67,050 (224,304) 269,209 0 (15,521) 0 0 24,281 (1,979) 1,478 2,536,364 0 23,063 (768) 0 25,473 0 158,205 544,021 10.03 .49 (.15) (.31) 0 0 10.06 .80 0 0
EX-27.17G 13 FDS - INVESTMENT GRADE BOND FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 132 LOOMIS SAYLES INVESTMENT GRADE BOND FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 4,534,624 4,344,274 202,804 0 100,408 4,647,486 101,042 0 25,790 126,832 0 4,568,600 169,753 81,343 75,724 0 66,608 0 (190,278) 4,520,654 10,801 211,560 0 (19,365) 202,996 46,898 (283,537) (33,643) 0 (39,214) 0 0 175,281 (90,210) 3,339 1,213,679 0 18,408 (44) 0 12,300 0 139,264 1,311,907 10.59 .48 (.49) (.31) 0 0 10.27 .80 0 0
EX-27.17H 14 FDS - INVESTMENT GRADE BOND FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 131 LOOMIS SAYLES INVESTMENT GRADE BOND FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 4,534,624 4,344,274 202,804 0 100,408 4,647,486 101,042 0 25,790 126,832 0 4,568,600 270,313 230,810 75,724 0 66,608 0 (190,278) 4,520,654 10,801 211,560 0 (19,365) 202,996 46,898 (283,537) (33,643) 0 (87,749) 0 0 83,930 (51,401) 6,974 1,213,679 0 18,408 (44) 0 12,300 0 139,264 2,799,354 10.59 .52 (.50) (.33) 0 0 10.28 .55 0 0
EX-27.17I 15 FDS - MID-CAP GROWTH FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 171 LOOMIS SAYLES MID-CAP GROWTH FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 2,174,033 2,070,865 95,128 0 16,693 2,182,686 0 0 24,816 24,816 0 2,183,412 197,199 160,822 0 0 77,626 0 (103,168) 2,157,870 5,372 4,888 0 (15,916) (5,656) 21,939 (274,944) (258,661) 0 0 0 0 48,843 (12,466) 0 236,318 0 60,364 0 0 11,818 0 125,433 2,022,606 11.49 (.03) (.95) 0 0 0 10.51 1.00 0 0
EX-27.17J 16 FDS - MID-CAP GROWTH FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 172 LOOMIS SAYLES MID-CAP GROWTH FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 2,174,033 2,070,865 95,128 0 16,693 2,182,686 0 0 24,816 24,816 0 2,183,412 8,083 6,403 0 0 77,626 0 (103,168) 2,157,870 5,372 4,888 0 (15,916) (5,656) 21,939 (274,944) (258,661) 0 0 0 0 1,681 (1) 0 236,318 0 60,364 0 0 11,818 0 125,433 84,232 11.49 (.05) (.95) 0 0 0 10.49 1.25 0 0
EX-27.17K 17 FDS - MID-CAP VALUE FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 161 LOOMIS SAYLES MID-CAP VALUE FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 3,736,402 3,355,362 66,153 0 58,237 3,479,752 46,098 0 22,347 68,445 0 3,689,834 326,117 324,197 8,185 0 94,328 0 (381,040) 3,411,307 33,524 4,889 0 (31,946) 6,467 109,931 (649,069) (532,671) 0 0 0 0 58,746 (56,826) 0 (493,197) 854 0 0 (15,680) 23,688 0 149,772 4,028,730 11.53 .02 (1.46) 0 0 0 10.09 1.00 0 0
EX-27.17L 18 FDS - MID-CAP VALUE FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 162 LOOMIS SAYLES MID-CAP VALUE FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 3,736,402 3,355,362 66,153 0 58,237 3,479,752 46,098 0 22,347 68,445 0 3,689,834 11,980 14,582 8,185 0 94,328 0 (381,040) 3,411,307 33,524 4,889 0 (31,946) 6,467 109,931 (649,069) (532,671) 0 0 0 0 3,796 (6,398) 0 (493,197) 854 0 0 (15,680) 23,688 0 149,772 193,975 11.53 (.01) (1.45) 0 0 0 10.07 1.25 0 0
EX-27.17M 19 FDS - SMALL CAP GROWTH FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 121 LOOMIS SAYLES SMALL CAP GROWTH FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 19,163,748 18,361,988 74,165 0 21,359 18,457,512 183,759 0 42,563 226,322 0 21,254,764 1,747,539 344,010 0 0 0 (2,221,814) (801,760) 18,231,190 9,171 32,420 0 (92,252) (50,661) (1,954,465) (1,631,330) (3,636,456) 0 0 0 0 1,478,523 (74,994) 0 13,198,689 0 0 0 (267,349) 67,049 0 209,769 10,426,546 11.32 (.02) (1.47) 0 0 0 9.83 1.00 0 0
EX-27.17N 20 FDS - SMALL CAP GROWTH FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 122 LOOMIS SAYLES SMALL CAP GROWTH FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 19,163,748 18,361,988 74,165 0 21,359 18,457,512 183,759 0 42,563 226,322 0 21,254,764 107,906 100,817 0 0 0 (2,221,814) (801,760) 18,231,190 9,171 32,420 0 (92,252) (50,661) (1,954,465) (1,631,330) (3,636,456) 0 0 0 0 76,042 (68,953) 0 13,198,689 0 0 0 (267,349) 67,049 0 209,769 1,525,991 11.30 (.08) (1.42) 0 0 0 9.80 1.25 0 0
EX-27.17O 21 FDS - STRATEGIC VALUE FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 151 LOOMIS SAYLES STRATEGIC VALUE FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 1,245,292 1,179,000 928 0 26,575 1,206,503 0 0 25,840 25,840 0 1,193,079 89,041 82,099 2,949 0 50,927 0 (66,292) 1,180,663 7,515 833 0 (11,204) (2,856) 38,814 (180,649) (144,691) 0 0 0 0 18,830 (11,888) 0 (64,118) 0 12,113 0 0 5,321 0 125,477 1,123,063 11.76 (.02) (1.27) 0 0 0 10.47 1.00 0 0
EX-27.17P 22 FDS - STRATEGIC VALUE FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 152 LOOMIS SAYLES STRATEGIC VALUE FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 1,245,292 1,179,000 928 0 26,575 1,206,503 0 0 25,840 25,840 0 1,193,079 23,799 23,771 2,949 0 50,927 0 (66,292) 1,180,663 7,515 833 0 (11,204) (2,856) 38,814 (180,649) (144,691) 0 0 0 0 481 (453) 0 (64,118) 0 12,113 0 0 5,321 0 125,477 299,892 11.76 (.04) (1.27) 0 0 0 10.45 1.25 0 0
EX-27.17Q 23 FDS - INTERNATIONAL EQUITY FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 041 LOOMIS SAYLES INTERNATIONAL EQUITY FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 72,633,985 67,162,019 268,630 0 2,093,048 69,523,697 796,190 0 113,452 909,642 0 71,963,813 6,374,303 7,270,912 886,633 0 1,226,222 0 (5,462,613) 68,614,055 1,347,327 153,722 0 (602,882) 898,167 1,083,037 (5,068,063) (3,086,859) 0 0 0 0 445,459 (1,342,068) 0 (13,807,077) 0 131,863 (213) 0 451,871 0 727,759 80,347,416 11.30 .14 (.70) 0 0 0 10.74 1.00 0 0
EX-27.17R 24 FDS - INTERNATIONAL EQUITY FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 042 LOOMIS SAYLES INTERNATIONAL EQUITY FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 72,633,985 67,162,019 268,630 0 2,093,048 69,523,697 796,190 0 113,452 909,642 0 71,963,813 14,032 20,675 886,633 0 1,226,222 0 (5,462,613) 68,614,055 1,347,327 153,722 0 (602,882) 898,167 1,083,037 (5,068,063) (3,086,859) 0 0 0 0 20,073 (26,716) 0 (13,807,077) 0 131,863 (213) 0 451,871 0 727,759 206,046 11.28 .10 (.68) 0 0 0 10.70 1.25 0 0
EX-27.17S 25 FDS - GLOBAL BOND FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 051 LOOMIS SAYLES GLOBAL BOND FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 39,146,358 35,557,694 2,296,039 0 19,074 37,872,807 0 0 1,637,260 1,637,260 0 37,341,928 2,501,977 2,400,521 1,753,479 0 853,078 0 (3,712,938) 36,235,547 3,104 1,791,344 0 (243,465) 1,550,983 1,097,316 (2,518,126) 130,173 0 0 0 0 318,651 (217,195) 0 3,140,736 0 114,281 (156,023) 0 155,995 0 329,395 29,695,151 11.83 .53 (.43) 0 0 0 11.93 .90 0 0
EX-27.17T 26 FDS - GLOBAL BOND FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 052 LOOMIS SAYLES GLOBAL BOND FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 39,146,358 35,557,694 2,296,039 0 19,074 37,872,807 0 0 1,637,260 1,637,260 0 37,341,928 535,150 396,765 1,753,479 0 853,078 0 (3,712,938) 36,235,547 3,104 1,791,344 0 (243,465) 1,550,983 1,097,316 (2,518,126) (130,173) 0 0 0 0 348,774 (210,389) 0 3,140,736 0 114,281 (156,023) 0 155,995 0 329,395 5,065,669 11.83 .44 (.36) 0 0 0 11.91 1.15 0 0
EX-27.17U 27 FDS - GROWTH FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 011 LOOMIS SAYLES GROWTH FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 23,232,520 23,356,735 1,933,481 0 7,938 25,298,154 78,726 0 39,608 118,334 0 19,776,260 2,117,647 2,545,929 0 0 5,279,345 0 124,215 25,179,820 97,554 24,027 0 (196,330) (74,749) 4,122,682 (6,052,994) (2,005,061) 0 0 0 0 102,992 (531,274) 0 (7,163,722) 0 1,231,412 0 0 114,917 0 248,714 30,209,854 12.63 (.03) (.95) 0 0 0 11.65 .85 0 0
EX-27.17V 28 FDS - GROWTH FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 012 LOOMIS SAYLES GROWTH FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 23,232,520 23,356,735 1,933,481 0 7,938 25,298,154 78,726 0 39,608 118,334 0 19,776,260 44,561 15,410 0 0 5,279,345 0 124,215 25,179,820 97,554 24,027 0 (196,330) (74,749) 4,122,682 (6,052,994) (2,005,061) 0 0 0 0 31,559 (2,408) 0 (7,163,722) 0 1,231,412 0 0 114,917 0 248,714 518,897 12.59 (.03) (.97) 0 0 0 11.59 1.10 0 0
EX-27.17W 29 FDS - CORE VALUE FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 021 LOOMIS SAYLES CORE VALUE FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 67,155,053 70,672,020 129,121 0 1,494 70,802,635 2,792,350 0 67,536 2,859,886 0 56,697,436 3,972,427 3,589,219 733,745 0 6,994,601 0 3,516,967 67,942,749 1,025,727 116,996 0 (424,126) 718,597 6,348,814 (10,463,537) (3,396,126) 0 0 0 0 769,213 (386,005) 0 3,315,501 15,148 645,787 0 0 264,693 0 436,799 69,243,257 17.64 .18 (.97) 0 0 0 16.85 .79 0 0
EX-27.17X 30 FDS - CORE VALUE FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 022 LOOMIS SAYLES CORE VALUE FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 67,155,053 70,672,020 129,121 0 1,494 70,802,635 2,792,350 0 67,536 2,859,886 0 56,697,436 60,435 75,155 733,745 0 6,994,601 0 3,516,967 67,942,749 1,025,727 116,996 0 (424,126) 718,597 6,348,814 (10,463,537) (3,396,126) 0 0 0 0 60,386 (75,106) 0 3,315,501 15,148 645,787 0 0 264,693 0 436,799 1,535,587 17.62 .15 (.98) 0 0 0 16.79 1.10 0 0
EX-27.17Y 31 FDS - SMALL CAP VALUE FUND ADMIN
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 033 LOOMIS SAYLES SMALL CAP VALUE FUND, ADMIN 1 9-MOS SEP-30-1998 JAN-02-1998 SEP-30-1998 389,031,910 355,527,968 4,946,207 0 1,318 360,475,493 8,054,289 0 1,198,559 9,252,848 0 392,341,481 67,276 0 2,737,523 0 (10,352,417) 0 (33,503,942) 351,222,645 3,230,155 1,972,451 0 (2,539,610) 2,662,996 (13,552,131) (60,244,726) (71,133,861) 0 0 0 0 94,376 (27,100) 0 71,692,355 241,190 3,033,055 0 0 1,981,662 0 2,544,864 282,906 18.62 .03 (3.11) 0 0 0 15.54 1.50 0 0
EX-27.17Z 32 FDS - SMALL CAP VALUE FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 031 LOOMIS SAYLES SMALL CAP VALUE FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 389,031,910 355,527,968 4,946,207 0 1,318 360,475,493 8,054,289 0 1,198,559 9,252,848 0 392,341,481 18,976,230 13,168,956 2,737,523 0 (10,352,417) 0 (33,503,942) 351,222,645 3,230,155 1,972,451 0 (2,539,610) 2,662,996 (13,552,131) (60,244,726) (71,133,861) 0 0 0 0 8,259,098 (2,451,824) 0 71,692,355 241,190 3,033,055 0 0 1,981,662 0 2,544,864 302,109,123 18.62 .12 (3.14) 0 0 0 15.60 .92 0 0
EX-27.17AA 33 FDS - SMALL CAP VALUE FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 032 LOOMIS SAYLES SMALL CAP VALUE FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 389,031,910 355,527,968 4,946,207 0 1,318 360,475,493 8,054,289 0 1,198,559 9,252,848 0 392,341,481 3,471,189 1,845,131 2,737,523 0 (10,352,417) 0 (33,503,942) 351,222,645 3,230,155 1,972,451 0 (2,539,610) 2,662,996 (13,552,131) (60,244,726) (71,133,861) 0 0 0 0 2,529,087 (903,029) 0 71,692,355 241,190 3,033,055 0 0 1,981,662 0 2,544,864 50,872,384 18.62 .10 (3.15) 0 0 0 15.57 1.19 0 0
EX-27.17BB 34 FDS - BOND FUND ADMIN
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 063 LOOMIS SAYLES BOND FUND, ADMIN 1 9-MOS SEP-30-1998 JAN-02-1998 SEP-30-1998 1,634,956,856 1,520,614,110 42,299,042 0 101,766 1,563,014,918 50,641,504 0 2,523,543 53,165,047 0 1,551,346,834 51,258 0 30,934,988 0 41,919,124 0 (114,351,075) 1,509,849,871 1,170,034 92,192,719 0 (8,741,817) 84,620,936 33,129,810 (145,159,973) (27,409,227) 0 (5,149) 0 0 56,540 (5,555) 273 214,700,037 0 8,517,775 (72,275) 0 6,920,645 0 8,854,410 152,196 12.83 .47 (.62) 0 (.40) 0 12.28 1.25 0 0
EX-27.17CC 35 FDS - BOND FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 061 LOOMIS SAYLES BOND FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 1,634,956,856 1,520,614,110 42,299,042 0 101,766 1,563,014,918 50,641,504 0 2,523,543 53,165,047 0 1,551,346,834 118,291,602 98,367,472 30,934,988 0 41,919,124 0 (114,351,075) 1,509,849,871 1,170,034 92,192,719 0 (8,741,817) 84,620,936 33,129,810 (145,159,973) (27,409,227) 0 (51,713,345) 0 0 49,569,713 (32,878,290) 3,232,707 214,700,037 0 8,517,775 (72,275) 0 6,920,645 0 8,854,410 1,493,605,186 12.83 .69 (.78) (.44) 0 0 12.30 .75 0 0
EX-27.17DD 36 FDS - BOND FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 062 LOOMIS SAYLES BOND FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 1,634,956,856 1,520,614,110 42,299,042 0 101,766 1,563,014,918 50,641,504 0 2,523,543 53,165,047 0 1,551,346,834 4,386,184 2,592,203 30,934,988 0 41,919,124 0 (114,351,075) 1,509,849,871 1,170,034 92,192,719 0 (8,741,817) 84,620,936 33,129,810 (145,159,973) (27,409,227) 0 (1,623,641) 0 0 2,932,181 (1,247,077) 108,877 214,700,037 0 8,517,775 (72,275) 0 6,920,645 0 8,854,410 48,389,231 12.82 .66 (.77) (.42) 0 0 12.29 1.00 0 0
EX-27.17EE 37 FDS - MUNICIPAL BOND FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 070 LOOMIS SAYLES MUNICIPAL BOND FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 9,283,072 9,910,569 419,990 0 11,022 10,341,581 247,736 0 37,485 285,221 0 9,278,171 840,667 748,307 9,525 0 141,167 0 627,497 10,056,360 0 366,941 0 (42,214) 324,727 145,955 92,266 562,948 0 (324,727) (11,732) 0 143,442 (70,077) 18,995 1,304,416 0 16,469 0 0 28,142 0 119,284 9,406,363 11.70 .40 .27 (.40) (.01) 0 11.96 .60 0 0
EX-27.17FF 38 FDS - US GOVERNMENT FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 080 LOOMIS SAYLES U.S. GOVERNMENT FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 27,584,230 28,952,766 427,119 0 43,723 29,423,608 0 0 177,701 177,701 0 27,931,509 2,562,661 1,651,559 348,449 0 0 (402,587) 1,368,536 29,245,907 0 1,008,898 0 (97,547) 911,351 513,739 750,226 2,175,316 0 (566,117) 0 0 1,006,132 (142,676) 47,646 11,577,472 3,216 0 0 (916,326) 65,031 0 158,419 21,736,595 10.70 .43 .58 (.30) 0 0 11.41 .60 0 0
EX-27.17GG 39 FDS - SHORT-TERM BOND FUND INSTITUTIONAL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 091 LOOMIS SAYLES SHORT-TERM BOND FUND, INSTITUTIONAL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 27,161,072 27,848,911 332,422 0 13,942 28,195,275 0 0 133,952 133,952 0 27,767,646 2,739,693 1,926,614 0 (1,502) 0 (392,660) 687,839 28,061,323 0 1,181,688 0 (92,383) 1,089,305 27,770 531,158 1,648,233 0 (1,073,593) 0 0 1,356,852 (639,795) 96,022 8,984,819 0 0 (3,124) (418,808) 45,845 0 166,826 24,146,440 9.75 .44 .21 (.44) 0 0 9.96 .50 0 0
EX-27.17HH 40 FDS - SHORT-TERM BOND FUND RETAIL
6 0000872649 LOOMIS SAYLES & COMPANY, L.P. 092 LOOMIS SAYLES SHORT-TERM BOND FUND, RETAIL 1 9-MOS SEP-30-1998 JAN-01-1998 SEP-30-1998 27,161,072 27,848,911 332,422 0 13,942 28,195,275 0 0 133,952 133,952 0 27,767,646 77,616 29,183 0 (1,502) 0 (392,660) 687,839 28,061,323 0 1,181,688 0 (92,383) 1,089,305 27,770 531,158 1,648,233 0 (15,712) 0 0 82,800 (35,738) 1,371 8,984,819 0 0 (3,124) (418,808) 45,845 0 166,826 371,246 9.75 .42 .21 (.42) 0 0 9.96 .75 0 0
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