LOOMIS SAYLES FUNDS, 497, 1997-02-26

LOOMIS SAYLES FUNDS
497, 1997-02-26

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[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

FIXED INCOME FUNDS RETAIL CLASS

PROSPECTUS

DECEMBER 30, 1996,

AS REVISED FEBRUARY 1, 1997
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[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]
One Financial Center . Boston, Massachusetts 02111 . (617) 482-2450

THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS

RETAIL CLASS SHARES OF:

LOOMIS SAYLES BOND FUND
LOOMIS SAYLES GLOBAL BOND FUND
LOOMIS SAYLES HIGH YIELD FUND
LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
LOOMIS SAYLES SHORT-TERM BOND FUND
<PAGE>

PROSPECTUS DECEMBER 30, 1996

THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS

Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles High
Yield Fund, Loomis Sayles Intermediate Maturity Bond Fund, Loomis Sayles In-
vestment Grade Bond Fund and Loomis Sayles Short-Term Bond Fund (the "Funds"
and each a "Fund"), each a series of Loomis Sayles Funds, are separately man-
aged, 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, with a higher investment minimum
for certain categories of investors and bearing lower expenses, that is de-
scribed in a separate prospectus. This Prospectus concisely describes the in-
formation 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 dated December 30, 1996 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 Statement of Additional Information, which contains more detailed informa-
tion about the Funds, has been filed with the Securities and Exchange Commis-
sion (the "SEC") and is incorporated by reference into this Prospectus. To ob-
tain more information about the Institutional Class of shares, please call the
Distributor toll-free at 800-633-3330 or contact your financial intermediary.

For information about: For all other information about
. Establishing an account the Funds:
. Account procedures and status CALL 800-633-3330
. Exchanges
. Shareholder services
CALL 800-626-9390

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

THE LOOMIS SAYLES HIGH YIELD FUND WILL NORMALLY INVEST AT LEAST 65% OF ITS
ASSETS IN LOWER-RATED SECURITIES, COMMONLY KNOWN AS "JUNK BONDS" AND MAY
INVEST SUBSTANTIALLY ALL OF ITS ASSETS IN SUCH SECURITIES. INVESTMENTS OF THIS
TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF
INTEREST. INVESTORS SHOULD ASSESS CAREFULLY THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE HIGH YIELD FUND. SEE "MORE INFORMATION ABOUT THE FUNDS'
INVESTMENTS AND RISK CONSIDERATIONS--LOWER RATED FIXED INCOME SECURITIES" AND
"APPENDIX A."

1
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
THE TRUST................................................................. 8
INVESTMENT OBJECTIVES AND POLICIES........................................ 8
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 11
THE FUNDS' INVESTMENT ADVISER............................................. 20
FUND EXPENSES............................................................. 22
PORTFOLIO TRANSACTIONS.................................................... 23
HOW TO PURCHASE SHARES.................................................... 23
SHAREHOLDER SERVICES...................................................... 25
HOW TO REDEEM SHARES...................................................... 26
CALCULATION OF PERFORMANCE INFORMATION.................................... 28
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 29
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. A-1
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES

The following information is provided to assist in understanding the various
expenses that an investor in a Fund will bear indirectly. The information
about each Fund shown below is based on annualized projected expenses of the
Retail Class of shares for the current 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 assumed 5%
annual return in the Example should not be considered a representation of
investment performance as actual performance will depend upon actual
investment results and expenses of the particular Fund's portfolio.

<TABLE>
<CAPTION>
INTERMEDIATE
BOND GLOBAL HIGH YIELD MATURITY
FUND/2/ BOND FUND/2/ FUND/2/ BOND FUND/2/
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shareholder Transaction Ex-
penses:
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 as
applicable)................... none none none none
Redemption Fees/1/............. none none 2.00% none
Exchange Fees.................. none none none none
Annual Operating Expenses
(as a percentage of net as-
sets:)
Management Fees................ .60% .60% .60% .40%
12b-1 Fees..................... .25% .25% .25% .25%
Other Operating Expenses (after
expense reimbursements where
indicated).................... .15%/2/ .30%/2/ .15%/2/ .15%/2/
Total Operating Expenses (after
expense reimbursements where
indicated).................... 1.00%/2/ 1.15%/2/ 1.00%/2/ .80%/2/
Example:
An investor would pay the
following expenses on a $1,000
investment assuming a 5% annual
return (with a redemption at
the end of each time period):
One Year....................... $10 $12 $30 $ 8
Three Years.................... 32 37 32 26
An investor would pay the
following expenses on a $1,000
investment (assuming a 5%
annual return (without a
redemption at the end of each
time period):
One Year....................... $10 $12 $10 $ 8
Three Years.................... 32 37 32 26
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
INVESTMENT
GRADE SHORT-TERM
BOND FUND/2/ BOND FUND/2/
------------ ------------
<S> <C> <C>
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
Deferred Sales Load (as % of original purchase
price or redemption proceeds as applicable)....... none none
Redemption Fees/1/................................. none none
Exchange Fees...................................... none none
Annual Operating Expenses (as a percentage of net
assets):
Management Fees.................................... .40% .25%
12b-1 Fees......................................... .25% .25%
Other Operating Expenses (after expense
reimbursements where indicated)................... .15%/2/ .25%/2/
Total 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 24
</TABLE>
- -----------
/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/ Other Operating Expenses in this table is based on estimated expenses for
the Funds for the 1997 fiscal year after giving effect to expense
reimbursements. No Retail Class shares of any of the Funds were outstanding as
of the date of this Prospectus. 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,
estimated Other Operating Expenses and Total Operating Expenses would be 0.19%
and 1.04%, respectively, for the Bond Fund, 0.94% and 1.79%, respectively, for
the Global Bond Fund, 1.34% and 2.19%, respectively, for the High Yield Fund,
1.47% and 2.12%, respectively, for the Intermediate Maturity Bond Fund, 1.47%
and 2.12%, respectively, for the Investment Grade Bond Fund and 0.53% and
1.03%, respectively, for the Short-Term Bond Fund.

4
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND OUTSTANDING
THROUGHOUT THE INDICATED PERIODS)

The information presented below for the six months ended June 30, 1996 is
unaudited. The information presented below for prior periods is included in
financial statements of the Funds that have been audited by Coopers & Lybrand
L.L.P., independent accountants. The following information should be read in
conjunction with the financial statements and the notes thereto contained in
the Funds' 1996 Semiannual Report and 1995 Annual Report, which are
incorporated by reference in the Statement of Additional Information. No
Retail Class shares of any of the Funds, and no Institutional Class shares of
the High Yield, Intermediate Maturity Bond or Investment Grade Bond Funds,
were outstanding during the periods shown below. The information shown below
is for Institutional Class shares of each indicated Fund; Retail Class shares
bear higher expenses than Institutional Class shares, and are expected to have
a lower total return than Institutional Class shares.

<TABLE>
<CAPTION>
BOND FUND
----------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED MAY 16*
JUNE 30, DEC. 31, TO
1996 ----------------------------------- DEC. 31,
(UNAUDITED) 1995 1994 1993 1992 1991
----------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.29 $ 10.05 $ 11.37 $ 10.36 $ 10.23 $10.00
-------- -------- ------- ------- ------- ------
Income from investment
operations--
Net investment income
(loss)................. 0.44 0.82 0.83 0.84 0.76 0.52
Net realized and
unrealized gain (loss)
on investments......... (0.37) 2.32 (1.29) 1.43 0.67 0.36
-------- -------- ------- ------- ------- ------
Total from investment
operations............ 0.07 3.14 (0.46) 2.27 1.43 0.88
-------- -------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income...... (0.19) (0.82) (0.84) (0.81) (0.76) (0.52)
Distributions in excess
of net investment
income................. 0.00 0.00 (0.02) 0.00 0.00 0.00
Distributions from net
realized capital
gains.................. 0.00 (0.08) 0.00 (0.45) (0.54) (0.13)
-------- -------- ------- ------- ------- ------
Total distributions.... (0.19) (0.90) (0.86) (1.26) (1.30) (0.65)
-------- -------- ------- ------- ------- ------
Net asset value, end of
period................. $ 12.17 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $10.23
======== ======== ======= ======= ======= ======
Total return (%)........ 0.6 32.0 (4.1) 22.2 14.3 8.9
Net assets, end of pe-
riod (000)............. $337,258 $255,710 $82,985 $64,222 $18,472 $9,922
Rate of operating
expenses to average net
assets (%)............. 0.78** 0.79 0.84 0.94 1.00 1.00**
Ratio of net investment
income to average net
assets (%)............. 7.98** 8.34 7.92 8.26 7.50 8.97**
Portfolio turnover rate
(%).................... 58** 35 87 170 101 126**
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average net
assets would have been
(%).................... 0.78** 0.79 0.84 0.94 1.55 1.78**
Net investment income
per share would have
been................... $ 0.44 $ 0.82 $ 0.83 $ 0.84 $ 0.70 $ 0.47
</TABLE>
- -----------
* Commencement of operations.
** Computed on an annualized basis.

5
<PAGE>

<TABLE>
<CAPTION>
GLOBAL BOND FUND
-------------------------------------------------------
SIX MONTHS
ENDED MAY 16*
JUNE 30, YEAR ENDED DEC. 31, TO
1996 --------------------------------- DEC. 31,
(UNAUDITED) 1995 1994 1993 1992 1991
----------- ------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.39 $ 9.82 $ 11.06 $ 10.32 $11.38 $10.00
------- ------- ------- ------- ------ ------
Income from investment
operations--
Net investment income
(loss)................. 0.39 1.04 0.67 0.54 0.70 0.37
Net realized and
unrealized gain (loss)
on investments......... 0.26 1.31 (1.63) 0.96 (0.60) 1.31
------- ------- ------- ------- ------ ------
Total from investment
operations............ 0.65 2.35 (0.96) 1.50 0.10 1.68
------- ------- ------- ------- ------ ------
Less distributions--
Dividends from net
investment income...... 0.00 (0.78) (0.04) (0.49) (0.77) (0.30)
Distributions from net
realized capital
gains.................. 0.00 0.00 0.00 (0.27) (0.39) 0.00
Distributions from
capital................ 0.00 0.00 (0.24) 0.00 0.00 0.00
------- ------- ------- ------- ------ ------
Total distributions.... 0.00 (0.78) (0.28) (0.76) (1.16) (0.30)
------- ------- ------- ------- ------ ------
Net asset value, end of
period................. $ 12.04 $ 11.39 $ 9.82 $ 11.06 $10.32 $11.38
======= ======= ======= ======= ====== ======
Total return (%)........ 5.7 23.9 (8.7) 14.6 0.8 16.9
Net assets, end of
period (000)........... $11,633 $10,304 $25,584 $21,378 $9,968 $4,308
Ratio of operating
expenses to average net
assets (%)............. 1.50** 1.50 1.30 1.50 1.50 1.50**
Ratio of net investment
income to average net
assets (%)............. 6.66** 8.17 7.02 5.54 6.99 6.81**
Portfolio turnover rate
(%).................... 147** 148 153 150 72 137**
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average net
assets would have
been (%)............... 2.35** 1.69 1.30 1.51 2.58 3.99**
Net investment income
per share would have
been................... $ 0.34 $ 1.02 $ 0.67 $ 0.54 $ 0.59 $ 0.23
</TABLE>
- -----------
* Commencement of operations.
** Computed on an annualized basis.

6
<PAGE>

<TABLE>
<CAPTION>
SHORT-TERM BOND FUND
----------------------------------------------------
SIX MONTHS
ENDED MAY 16*
JUNE 30, YEAR ENDED DEC. 31, TO
1996 ------------------------- DEC. 31,
(UNAUDITED) 1995 1994 1993 1992
----------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 9.81 $ 9.46 $ 9.95 $ 9.87 $10.00
------- ------- ------- ------- ------
Income from investment
operations--
Net investment income.... 0.27 0.63 0.66 0.59 0.22
Net realized and
unrealized gain (loss)
on investments.......... (0.18) 0.35 (0.49) 0.08 (0.13)
------- ------- ------- ------- ------
Total from investment
operations............. 0.09 0.98 0.17 0.67 0.09
------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income....... (0.27) (0.63) (0.66) (0.59) (0.22)
Distributions from net
realized capital gains.. 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------
Total distributions..... (0.27) (0.63) (0.66) (0.59) (0.22)
------- ------- ------- ------- ------
Net asset value, end of
period.................. $ 9.63 $ 9.81 $ 9.46 $ 9.95 $ 9.87
======= ======= ======= ======= ======
Total return (%)........ 0.9 10.6 1.8 7.0 0.9
Net assets, end of period
(000)................... $19,063 $26,039 $19,440 $15,226 $5,121
Ratio of operating
expenses to average net
assets (%).............. 1.00** 1.00 1.00 1.00 1.00**
Ratio of net investment
income to average net
assets (%).............. 5.59** 6.46 6.88 5.97 5.49**
Portfolio turnover rate
(%)..................... 95** 214 34 81 31**
Without giving effect to
voluntary expense
limitations:............ 1.12** 1.03 1.33 1.55 3.74**
The ratios of operating
expenses to average net
assets would have been
(%)..................... $ 0.26 $ 0.62 $ 0.63 $ 0.54 $ 0.11
Net investment income per
share would have been...
</TABLE>
- -----------
* Commencement of operations.
** Computed on an annualized basis.

NOTE: Further information about each Fund's performance is contained in the
Funds' semiannual and annual reports to shareholders, which may be ob-
tained without charge.

7
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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 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, U.S. Government securities,
commercial paper, zero coupon securities, mortgage-backed securities,
collateralized mortgage obligations ("CMOs"), asset-backed securities, when-
issued securities, Rule 144A securities, repurchase agreements and convertible
securities. The Fund may engage in options and futures transactions,
repurchase transactions, foreign currency hedging transactions and swap
transactions.

The Fund may invest any portion of its assets in securities of Canadian
issuers, and up to 20% of its assets in securities of other foreign issuers.
The Fund may also invest up to 35% of its assets in securities of below
investment grade quality (commonly known as "junk bonds"). Securities of below
investment grade quality are securities rated below the top four rating
categories by each major rating agency that has rated the security, including
securities in the lowest rating categories, and unrated securities that Loomis
Sayles determines to be of comparable quality.

The percentages of the Fund's assets invested as of December 31, 1995 in
securities assigned to the various rating categories by Standard & Poor's and
Moody's Investors Service, Inc. ("Moody's") were as follows: "AAA"/"Aaa"--
13.2%; "AA"/"Aa"--9.2%; "A"/"A"--10.9%; "BBB"/"Baa"--32.3%; "BB"/"Ba"--12.0%;
"B"/"B"--12.7%; "CCC"/"Caa"--9.7%.

8
<PAGE>

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 assets in issuers headquartered in any one
country. However, up to 100% of the Fund's assets may be denominated in U.S.
dollars. 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.

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 assets
may be invested in preferred stocks and up to 10% of its assets may be
invested in common stocks. The fixed income securities in which the Fund may
invest include corporate securities, U.S. Government securities, commercial
paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed
securities, when-issued securities, Rule 144A securities, repurchase
agreements and convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency hedging
transactions and swap transactions. The Fund may invest any portion of its
assets in securities of Canadian issuers and up to 50% of its assets in the
securities of other foreign issuers.

The Fund will normally invest at least 65% of its assets in fixed income
securities of below investment grade quality (commonly referred to as "junk
bonds").

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.

9
<PAGE>

The Fund seeks to achieve its objective by normally investing at least 90%
of its 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 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, 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.

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 20% of the Fund's total assets may be invested in preferred stocks. The
Fund may also invest up to 10% of its 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, 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.

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 assets
may

10
<PAGE>

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 fixed income securities in which the Fund may invest
include corporate securities, U.S. Government securities, commercial paper,
zero coupon securities, mortgage-backed securities, CMOs, asset-backed
securities, when-issued securities, Rule 144A securities, repurchase
agreements and convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency hedging
transactions and swap transactions. The Fund may invest up to 20% of its
assets in securities of foreign issuers.

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.

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 weighted
maturity of less than three years, and the Intermediate Maturity Bond Fund
expects to maintain an average 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.

11
<PAGE>

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.

LOWER RATED FIXED INCOME SECURITIES

Each Fund may invest a portion of its 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% and the High Yield Fund will normally invest at least

12
<PAGE>

65% of its 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 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.

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

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<PAGE>

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

All of the Funds may invest in mortgage-backed securities, such as GNMA or
Federal National Mortgage Association certificates, which differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if 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.

COLLATERALIZED MORTGAGE OBLIGATIONS

All of the Funds 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

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<PAGE>

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

All of the Funds 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 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.

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<PAGE>

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. 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. The High Yield Fund may invest any
portion of its assets in securities of Canadian issuers and up to 50% of its
assets in the securities of other foreign issuers.

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.

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<PAGE>

Since most foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in
foreign currencies, the value of these investments and the net investment
income available for distribution to shareholders of a Fund investing in these
securities may be affected favorably or unfavorably by changes in currency
exchange rates or exchange control regulations. Changes in the value relative
to the U.S. dollar of a foreign currency in which a Fund's holdings are
denominated will result in a change in the U.S. dollar value of the Fund's
assets and the Fund's income available for distribution.

In addition, although part of a Fund's income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after the Fund's income has been earned in that currency,
translated into U.S. dollars and declared as a dividend, but before payment of
the dividend, the Fund could be required to liquidate portfolio securities to
pay the dividend. Similarly, if the value of a currency relative to the U.S.
dollar declines between the time the Fund accrues expenses in U.S. dollars and
the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars will be greater than the equivalent amount in such
currency of such expenses at the time they were incurred.

In determining whether to invest assets of 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 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.

17
<PAGE>

Foreign currency transactions involve costs and may result in losses. In
addition, each Fund's ability to engage in currency hedging transactions may
be limited by tax considerations.

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
"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 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

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<PAGE>

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 up or down 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 certain assets
in amounts sufficient at all times to satisfy its obligations under options,
futures and contracts.

The successful use of options and futures will usually depend on Loomis
Sayles' ability to forecast stock market, currency or other financial market
movements correctly. The Fund's ability to hedge against adverse changes in
the value of securities held in its portfolio through options and futures also
depends on the degree of correlation between 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 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.

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<PAGE>

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.

THE FUNDS' INVESTMENT ADVISER

The Funds' investment adviser is Loomis Sayles, One Financial Center,
Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the
country's oldest and largest investment firms. Loomis Sayles' general partner
is indirectly owned by New England Investment Companies, L.P., a publicly-
traded limited partnership whose general partner is indirectly owned by
Metropolitan Life Insurance Company.

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<PAGE>

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 December 20, 1996, the Loomis-Sayles Funded Pension Plan owned 27% of
the Global Bond Fund and may be deemed to control the 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, as the portfolio manager of the
High Yield Fund since its commencement of investment operations in 1996, and
as the portfolio manager of the Investment Grade Bond Fund since its
commencement of investment operations in 1997. Kathleen C. Gaffney has served
as associate portfolio manager of the High Yield Fund since its commencement
of investment operations in 1996. 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.
Each of the foregoing has been employed by Loomis Sayles for at least five
years.

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<PAGE>

FUND EXPENSES

Each Fund pays Loomis Sayles a monthly investment advisory fee. This fee is
at the following annual percentage rate of the Fund's average daily net
assets:

<TABLE>
<CAPTION>
FUND FEE RATE
---- --------
<S> <C>
Bond................................................................ .60%
Global Bond......................................................... .60%
High Yield.......................................................... .60%
Intermediate Maturity Bond.......................................... .40%
Investment Grade Bond............................................... .40%
Short-Term Bond..................................................... .25%
</TABLE>

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, 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 to 1.00% of the average net assets
of the Bond and High Yield Funds, to 1.15% of the average net assets of the
Global Bond Fund, to .80% of the average net assets of the Intermediate
Maturity Bond and Investment Grade Bond Funds, and to .75% of the average net
assets of the Short-Term Bond Fund. 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 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.

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<PAGE>

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. Although it is
not possible to predict the portfolio turnover rate with certainty, Loomis
Sayles does not expect the portfolio turnover rate of the High Yield,
Intermediate Maturity Bond and Investment Grade Bond Funds to exceed 60%,
100%, and 60%, respectively.

Loomis Sayles selects brokers and dealers to execute portfolio transactions
for the Funds. Subject to seeking best price and execution, Loomis Sayles may
allocate these transactions to brokers or dealers whose customers have
invested in the Trust.

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 $250,000 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 initial investment will also
be waived for shareholders who invest less than $250,000 but sign a letter of
intent stating their intention to bring their balance to $250,000 in six
months or less. Loomis Sayles reserves the right to redeem, at net asset
value, the accounts of shareholders that have signed a letter of intent but
fail to meet the minimum investment within the specified time or to waive any
minimum investment in its sole discretion. Subsequent investments must be at
least $50.

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<PAGE>

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.

All purchases made by check should be in U.S. dollars and made payable to
the Loomis Sayles Funds or 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, Shareholder Name, Shareholder Account Number." A bank
may charge a fee for transmitting funds by wire.

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<PAGE>

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 an Institutional Class of shares that has a $1 million
minimum investment for certain 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.

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. Exchanges may be made by written instructions or
by telephone, unless an investor elected on the application to

25
<PAGE>

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.

RETIREMENT PLANS. Institutional Class shares of the Funds 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.

26
<PAGE>

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. 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.

If an investor has requested certificates for the investment, the investor
must enclose the certificates and a properly completed redemption form or
stock power. The Funds recommend that certificates be sent by registered mail.

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 on the Service Options Form
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

27
<PAGE>

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.

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.

28
<PAGE>

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The Bond, High Yield, 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.

Dividends and capital gain distributions will automatically be reinvested in
additional shares of the same Fund on the record date unless an investor has
elected to receive cash.

Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. As such, so long as a Fund
distributes substantially all its net investment income and net capital gains
to its shareholders, the Fund itself does not pay any federal income tax to
the extent such income and gains are so distributed.

An investor's income dividends and short term capital gain distributions are
taxable as ordinary income whether distributed in cash or additional shares.
Long-term capital gain distributions from all Funds are taxable as long-term
capital gains whether distributed in cash or additional shares and regardless
of how long an investor has owned shares of the Fund.

Each Fund is required to withhold 31% of any redemption proceeds (including
the value of shares exchanged) and all income dividends and capital gain
distributions it pays (1) if an investor does not provide a correct, certified
taxpayer identification number, (2) if the Fund is notified that an investor
has underreported income in the past, or (3) if an investor fails to certify
to the Fund that he or she is not subject to such withholding.

Dividends derived from interest on U.S. Government securities may be exempt
from state and local taxes.

State Street Bank will send investors and the IRS an annual statement
detailing federal tax information, including information about dividends and
distributions paid during the preceding year. An investor should keep this
statement as a permanent record. A fee may be charged for any duplicate
information requested.

NOTE: The foregoing summarizes certain tax consequences of investing in the
Funds. Before investing, an investor should consult his or her own tax
adviser for more information concerning the federal, state and local
tax consequences of investing in, redeeming or exchanging Fund shares.

29
<PAGE>

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.

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.

Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.

BBB

Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.

BB, B, CCC, CC

Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.

A-1
<PAGE>

The rating C is reserved for income bonds on which no interest is being
paid.

Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MOODY'S INVESTORS SERVICE, INC.

Aaa

Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

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.

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

A-2
<PAGE>

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.

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.

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.

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.

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.

A-3
<PAGE>

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.

A-4
<PAGE>

INVESTMENT ADVISER Loomis, Sayles &
Company, L.P. One Financial Center Boston,
Massachusetts 02111

DISTRIBUTOR Loomis Sayles Distributors,
L.P. One Financial Center Boston,
Massachusetts 02111

TRANSFER AND DIVIDEND PAYING AGENT AND
CUSTODIAN OF ASSETS State Street Bank and
Trust Company Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT FOR STATE
STREET BANK AND TRUST COMPANY Boston
Financial Data Services, Inc. P.O. Box 8314
Boston, Massachusetts 02266

LEGAL COUNSEL Ropes & Gray One
International Place Boston, Massachusetts
02110

INDEPENDENT ACCOUNTANTS Coopers & Lybrand
L.L.P. One Post Office Square Boston,
Massachusetts 02109
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

FIXED INCOME FUNDS INSTITUTIONAL CLASS

PROSPECTUS

DECEMBER 30, 1996,

AS REVISED FEBRUARY 1, 1997
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]
ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (617) 482-2450

THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS

INSTITUTIONAL CLASS SHARES OF:

PROSPECTUS DECEMBER 30, 1996

THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS

Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles High
Yield Fund, Loomis Sayles Intermediate Maturity Bond Fund, Loomis Sayles In-
vestment Grade Bond Fund, Loomis Sayles Municipal Bond Fund, Loomis Sayles
Short-Term Bond Fund and Loomis Sayles U.S. Government Securities Fund (the
"Funds" and each a "Fund"), each a series of Loomis Sayles Funds, are sepa-
rately managed, no-load mutual funds, each of which has its own investment ob-
jective 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 and Loomis Sayles
U.S. Government Securities Fund) offer two classes of shares: an Institutional
Class that is described in this Prospectus and a Retail Class, with a lower
investment minimum for certain categories of investors and bearing higher ex-
penses, 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 dated December 30,
1996 is available free of charge; write to Loomis Sayles Distributors, L.P.
(the "Distributor"), One Financial Center, Boston, Massachusetts 02111 or tel-
ephone 800-633-3330. The Statement of Additional Information, which contains
more detailed information about the Funds, has been filed with the Securities
and Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus. To obtain more information about the Retail Class of shares,
please call the Distributor toll-free at 800-633-3330 or contact your finan-
cial intermediary.

For information about: For all other information about
. Establishing an account the Funds:
. Account procedures and status CALL 800-633-3330
. Exchanges
. Shareholder services
CALL 800-626-9390

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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............................................. 24
FUND EXPENSES............................................................. 25
PORTFOLIO TRANSACTIONS.................................................... 25
HOW TO PURCHASE SHARES.................................................... 26
SHAREHOLDER SERVICES...................................................... 29
HOW TO REDEEM SHARES...................................................... 29
CALCULATION OF PERFORMANCE INFORMATION.................................... 32
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 32
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. A-1
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES

The following information is provided to assist in understanding the various
expenses that an investor in a Fund will bear indirectly. Except in the case
of the High Yield, Intermediate Maturity Bond and Investment Grade Bond Funds,
the information is based on expenses of the Institutional Class of shares for
the Funds' fiscal year ended December 31, 1995. The High Yield Fund did not
commence investment operations until 1996, and the Intermediate Maturity Bond
and Investment Grade Bond Funds had not commenced investment operations at the
date of this prospectus; the information about these Funds shown below is
based on annualized projected expenses of the Institutional Class of shares
for the 1997 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 assumed 5% annual return in the Example
should not be considered a representation of investment performance as actual
performance will depend upon actual investment results and expenses of the
particular Fund's portfolio.
<TABLE>
<CAPTION>
GLOBAL HIGH INTERMEDIATE INVESTMENT MUNICIPAL
BOND BOND YIELD MATURITY GRADE BOND BOND
FUND/2/ FUND/2/ FUND/3/ BOND FUND/3/ FUND/3/ FUND/2/
------- ------- ------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses:
Maximum Sales Load
Imposed on Purchases
(as % of offering
price)................ none none none none none none
Maximum Sales Load
Imposed on Reinvested
Dividends (as % of
offering price)....... none none none none none none
Maximum Deferred Sales
Load (as % of original
purchase price or
redemption proceeds as
applicable)........... none none none none none none
Redemption Fees/1/..... none none 2.00% none none none
Exchange Fees.......... none none none none none none
Annual Operating
Expenses (as a
percentage of net
assets):
Management Fees........ .60% .60%/2/ .60% .40% .40% .40%/2/
12b-1 Fees............. none none none none none none
Other Operating
Expenses (after
expense reimbursements
where indicated)...... .15%/2/ .30%/2/ .15%/3/ .15%/3/ .15%/3/ .20%/2/
Total Operating
Expenses (after
expense reimbursements
where indicated)...... .75%/2/ .90%/2/ .75%/3/ .55%/3/ .55%/3/ .60%/2/
Example/4/:
An investor would pay
the following expenses
on a $1,000 investment
assuming a 5% annual
return (with a
redemption at the end
of each time period):
One Year............... $ 8 $ 9 $28 $ 6 $ 6 $ 6
Three Years............ 24 29 24 18 18 19
Five Years............. 42 50 33
Ten Years.............. 93 111 75
An investor would pay
the following expenses
on a $1,000 investment
assuming a 5% annual
return (without a
redemption at the end
of each time period):
One Year............... $ 8 $ 9 $ 8 $ 6 $ 6 $ 6
Three Years............ 24 29 24 18 18 19
Five Years............. 42 50 33
Ten Years.............. 93 111 75
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
U.S.
SHORT-TERM GOVERNMENT
BOND SECURITIES
FUND/2/ FUND/2/
---------- ----------
<S> <C> <C>
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
Deferred Sales Load (as % of original purchase price
or redemption proceeds as applicable)................ none none
12b-1 Fees............................................ none none
Redemption Fees/1/.................................... none none
Exchange Fees......................................... none none
Annual Operating Expenses (as a percentage of net
assets):
Management Fees....................................... .25%/2/ .40%/2/
Other Operating Expenses (after expense reimbursements
where indicated)..................................... .25%/2/ .20%/2/
Total Operating Expenses (after expense reimbursements
where indicated)..................................... .50%/2/ .60%/2/
Example/4/:
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 $ 6
Three Years........................................... 16 19
Five Years............................................ 28 33
Ten Years............................................. 63 75
</TABLE>
- -----------
/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/ The expenses are based on actual expenses for the Funds for the fiscal year
ended December 31, 1995, except for the effect of management fee reductions
on all Funds other than the Bond Fund. The management fees shown in the
table have been restated to reflect a reduction effective January 1, 1997 in
the management fees payable to Loomis Sayles. Management fee rates in effect
through December 31, 1996 were 0.75% for the Global Bond Fund, 0.60% for the
Municipal Bond Fund, 0.50% for the Short-Term Bond Fund and 0.60% for the
U.S. Government Securities Fund. Loomis Sayles has voluntarily agreed, for
an indefinite period, to limit these 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 0.19% and
0.79%, respectively, for the Bond Fund, 0.94% and 1.54%, respectively, for
the Global Bond Fund, 1.42% and 1.82%, respectively, for the Municipal Bond
Fund, 0.53% and 0.78%, respectively, for the Short Term Bond Fund and 0.62%
and 1.02%, respectively, for the U.S. Government Securities Fund.
/3/ Other Operating Expenses is based on estimated expenses for the Funds for
the 1997 fiscal year after giving effect to expense reimbursements. 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, estimated Other Operating Expenses and Total
Operating Expenses would be 1.34% and 1.94%, respectively, for the High
Yield Fund, 1.47% and 1.87%, respectively, for the Intermediate Maturity
Bond Fund and 1.47% and 1.87%, respectively, for the Investment Grade Bond
Fund.
/4/ Under SEC rules, new funds are required to show expenses for the one- and
three-year periods only.

4
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND OUTSTANDING
THROUGHOUT THE INDICATED PERIODS)
The information presented below for the six months ended June 30, 1996 is
unaudited. The information presented below for prior periods is included in
financial statements of the Funds that have been audited by Coopers & Lybrand
L.L.P., independent accountants. The following information should be read in
conjunction with the financial statements and the notes thereto contained in
the Funds' 1996 Semiannual Report and the "Report of Independent Accountants,"
financial statements and notes thereto contained in the Funds' 1995 Annual
Report, which are incorporated by reference in this Prospectus, and the
Statement of Additional Information. No Institutional Class shares of the High
Yield Fund, Intermediate Maturity Bond Fund and Investment Grade Bond Fund
were outstanding during the periods shown.

<TABLE>
<CAPTION>
BOND FUND
----------------------------------------------------------
SIX MONTHS
ENDED MAY 16*
JUNE 30, YEAR ENDED DEC. 31, TO
1996 ----------------------------------- DEC. 31,
(UNAUDITED) 1995 1994 1993 1992 1991
----------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.29 $ 10.05 $ 11.37 $ 10.36 $ 10.23 $10.00
-------- -------- ------- ------- ------- ------
Income from investment
operations--
Net investment income
(loss)................. 0.44 0.82 0.83 0.84 0.76 0.52
Net realized and
unrealized gain (loss)
on investments......... (0.37) 2.32 (1.29) 1.43 0.67 0.36
-------- -------- ------- ------- ------- ------
Total from investment
operations............ 0.07 3.14 (0.46) 2.27 1.43 0.88
-------- -------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income...... (0.19) (0.82) (0.84) (0.81) (0.76) (0.52)
Distributions in excess
of net investment
income................. 0.00 0.00 (0.02) 0.00 0.00 0.00
Distributions from net
realized capital
gains.................. 0.00 (0.08) 0.00 (0.45) (0.54) (0.13)
-------- -------- ------- ------- ------- ------
Total distributions.... (0.19) (0.90) (0.86) (1.26) (1.30) (0.65)
-------- -------- ------- ------- ------- ------
Net asset value, end of
period................. $ 12.17 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $10.23
======== ======== ======= ======= ======= ======
Total return (%)........ 0.6 32.0 (4.1) 22.2 14.3 8.9
Net assets, end of
period (000)........... $337,258 $255,710 $82,985 $64,222 $18,472 $9,922
Ratio of operating
expenses to average net
assets (%)............. 0.78** 0.79 0.84 0.94 1.00 1.00**
Ratio of net investment
income to average net
assets (%)............. 7.98** 8.34 7.92 8.26 7.50 8.97**
Portfolio turnover rate
(%).................... 58** 35 87 170 101 126**
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average net
assets would have been
(%).................... 0.78** 0.79 0.84 0.94 1.55 1.78**
Net investment income
per share would have
been................... $ 0.44 $ 0.82 $ 0.83 $ 0.84 $ 0.70 $ 0.47
</TABLE>
- -----------
* Commencement of operations.
** Computed on an annualized basis.

5
<PAGE>

<TABLE>
<CAPTION>
GLOBAL BOND FUND
-------------------------------------------------------
SIX MONTHS
ENDED MAY 16*
JUNE 30, YEAR ENDED DEC. 31, TO
1996 --------------------------------- DEC. 31,
(UNAUDITED) 1995 1994 1993 1992 1991
----------- ------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.39 $ 9.82 $ 11.06 $ 10.32 $11.38 $10.00
------- ------- ------- ------- ------ ------
Income from investment
operations--
Net investment income
(loss)................. 0.39 1.04 0.67 0.54 0.70 0.37
Net realized and
unrealized gain (loss)
on investments......... 0.26 1.31 (1.63) 0.96 (0.60) 1.31
------- ------- ------- ------- ------ ------
Total from investment
operations............ 0.65 2.35 (0.96) 1.50 0.10 1.68
------- ------- ------- ------- ------ ------
Less distributions--
Dividends from net
investment income...... 0.00 (0.78) (0.04) (0.49) (0.77) (0.30)
Distributions from net
realized capital
gains.................. 0.00 0.00 0.00 (0.27) (0.39) 0.00
Distributions from
capital................ 0.00 0.00 (0.24) 0.00 0.00 0.00
------- ------- ------- ------- ------ ------
Total distributions.... 0.00 (0.78) (0.28) (0.76) (1.16) (0.30)
------- ------- ------- ------- ------ ------
Net asset value, end of
period................. $ 12.04 $ 11.39 $ 9.82 $ 11.06 $10.32 $11.38
======= ======= ======= ======= ====== ======
Total return (%)........ 5.7 23.9 (8.7) 14.6 0.8 16.9
Net assets, end of
period (000)........... $11,633 $10,304 $25,584 $21,378 $9,968 $4,308
Ratio of operating
expenses to average net
assets (%)............. 1.50** 1.50 1.30 1.50 1.50 1.50**
Ratio of net investment
income to average net
assets (%)............. 6.66** 8.17 7.02 5.54 6.99 6.81**
Portfolio turnover rate
(%).................... 147** 148 153 150 72 137**
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average net
assets would have been
(%).................... 2.35** 1.69 1.30 1.51 2.58 3.99**
Net investment income
per share would have
been................... $ 0.34 $ 1.02 $ 0.67 $ 0.54 $ 0.59 $ 0.23
</TABLE>
- -----------
* Commencement of operations.
** Computed on an annualized basis.

6
<PAGE>

<TABLE>
<CAPTION>
MUNICIPAL BOND FUND
----------------------------------------------------
SIX MONTHS
ENDED MAY 16*
JUNE 30, YEAR ENDED DEC. 31, TO
1996 ------------------------------ DEC. 31,
(UNAUDITED) 1995 1994 1993 1992 1991
----------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $11.53 $10.41 $11.54 $10.95 $10.55 $10.00
------ ------ ------ ------ ------ ------
Income from investment
operations--
Net investment income
(loss)................. 0.26 0.52 0.52 0.51 0.51 0.24
Net realized and
unrealized gain (loss)
on investments......... (0.43) 1.16 (1.13) 0.74 0.46 0.56
------ ------ ------ ------ ------ ------
Total from investment
operations............ (0.17) 1.68 (0.61) 1.25 0.97 0.80
------ ------ ------ ------ ------ ------
Less distributions--
Dividends from net
investment income...... (0.26) (0.52) (0.52) (0.51) (0.51) (0.23)
Distributions from net
realized capital
gains.................. 0.00 (0.04) 0.00 (0.15) (0.06) (0.02)
------ ------ ------ ------ ------ ------
Total distributions.... (0.26) (0.56) (0.52) (0.66) (0.57) (0.25)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $11.10 $11.53 $10.41 $11.54 $10.95 $10.55
====== ====== ====== ====== ====== ======
Total return (%)........ (1.5) 16.5 (5.4) 11.6 9.4 8.1
Net assets, end of
period (000)........... $7,907 $7,961 $7,270 $5,160 $2,200 $ 706
Ratio of operating
expenses to average net
assets (%)............. 1.00** 1.00 1.00 1.00 1.00 1.00**
Ratio of net investment
income to average net
assets (%)............. 4.62** 4.72 4.79 4.50 4.81 5.03**
Portfolio turnover rate
(%).................... 29** 41 28 36 32 26**
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average net
assets would have been
(%).................... 2.53** 2.02 2.37 3.22 7.65 21.58**
Net investment income
per share would have
been................... $ 0.17 $ 0.41 $ 0.37 $ 0.26 $(0.19) $(0.74)
</TABLE>
- -----------
* Commencement of operations.
** Computed on an annualized basis.

7
<PAGE>

<TABLE>
<CAPTION>
SHORT-TERM BOND FUND
----------------------------------------------------
SIX MONTHS
ENDED MAY 16*
JUNE 30, YEAR ENDED DEC. 31, TO
1996 ------------------------- DEC. 31,
(UNAUDITED) 1995 1994 1993 1992
----------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 9.81 $ 9.46 $ 9.95 $ 9.87 $10.00
------- ------- ------- ------- ------
Income from investment
operations --
Net investment income.... 0.27 0.63 0.66 0.59 0.22
Net realized and
unrealized gain (loss)
on investments.......... (0.18) 0.35 (0.49) 0.08 (0.13)
------- ------- ------- ------- ------
Total from investment
operations............. 0.09 0.98 0.17 0.67 0.09
------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income....... (0.27) (0.63) (0.66) (0.59) (0.22)
Distributions from net
realized capital gains.. 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------
Total distributions..... (0.27) (0.63) (0.66) (0.59) (0.22)
------- ------- ------- ------- ------
Net asset value, end of
period.................. $ 9.63 $ 9.81 $ 9.46 $ 9.95 $ 9.87
======= ======= ======= ======= ======
Total return (%)......... 0.9 10.6 1.8 7.0 0.9
Net assets, end of period
(000)................... $19,063 $26,039 $19,440 $15,226 $5,121
Ratio of operating
expenses to average net
assets (%).............. 1.00** 1.00 1.00 1.00 1.00**
Ratio of net investment
income to average net
assets (%).............. 5.59** 6.46 6.88 5.97 5.49**
Portfolio turnover rate
(%)..................... 95** 214 34 81 31**
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average net
assets would have been
(%)..................... 1.12** 1.03 1.33 1.55 3.74**
Net investment income per
share would have been... $ 0.26 $ 0.62 $ 0.63 $ 0.54 $ 0.11
</TABLE>
- -----------
* Commencement of operations.
** Computed on an annualized basis.

8
<PAGE>

<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
--------------------------------------------------------
SIX MONTHS
ENDED MAY 16*
JUNE 30, YEAR ENDED DEC. 31, TO
1996 ---------------------------------- DEC. 31,
(UNAUDITED) 1995 1994 1993 1992 1991
----------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.64 $ 9.22 $ 10.53 $ 10.45 $ 10.77 $10.00
------- ------- ------- ------- ------- ------
Income from investment
operations--
Net investment income.. 0.33 0.66 0.64 0.64 0.64 0.40
Net realized and
unrealized gain (loss)
on investments........ (0.83) 1.42 (1.30) 1.00 0.27 1.11
------- ------- ------- ------- ------- ------
Total from investment
operations............ (0.50) 2.08 (0.66) 1.64 0.91 1.51
------- ------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income..... (0.16) (0.66) (0.65) (0.65) (0.59) (0.40)
Distributions from net
realized capital
gains................. 0.00 0.00 0.00 (0.91) (0.64) (0.34)
------- ------- ------- ------- ------- ------
Total distributions.... (0.16) (0.66) (0.65) (1.56) (1.23) (0.74)
------- ------- ------- ------- ------- ------
Net asset value, end of
period................. $ 9.98 $ 10.64 $ 9.22 $ 10.53 $ 10.45 $10.77
======= ======= ======= ======= ======= ======
Total return (%)........ (4.7) 23.0 (6.3) 15.7 8.8 15.3
Net assets, end of
period (000)........... $22,212 $19,499 $17,341 $18,317 $10,899 $6,248
Ratio of operating
expenses to average net
assets (%)............. 1.00** 1.00 1.00 1.00 1.00 1.00**
Ratio of net investment
income to average net
assets (%)............. 6.38** 6.47 6.60 5.95 6.54 7.01**
Portfolio turnover rate
(%).................... 105** 169 242 277 344 273**
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average net
assets would have
been (%)............... 1.19** 1.22 1.22 1.29 2.01 2.39**
Net investment income
per share would have
been................... $ 0.32** $ 0.64 $ 0.62 $ 0.61 $ 0.54 $ 0.32
</TABLE>
- -----------
* Commencement of operations.
** Computed on an annualized basis.

NOTE: Further information about each Fund's performance is contained in the
Funds' semiannual and annual reports to shareholders, which may be ob-
tained without charge.

9
<PAGE>

THE TRUST

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.

10
<PAGE>

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.

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 assets
may be invested in preferred stocks and up to 10% of its assets may be
invested in common stocks. The fixed income securities in which the Fund may
invest include corporate securities, U.S. Government securities, commercial
paper, zero coupon securities, mortgage-backed securities, CMOs, asset-backed
securities, when-issued securities, Rule 144A securities, repurchase
agreements and convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency hedging
transactions and swap transactions. The Fund may invest any portion of its
assets in securities of Canadian issuers and up to 50% of its assets in the
securities of other foreign issuers.

The Fund will normally invest at least 65% of its assets in fixed income
securities of below investment grade quality (commonly referred to as "junk
bonds").

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.

11
<PAGE>

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.

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

12
<PAGE>

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 at least 80% of its assets will be invested in
issues rated in the three highest rating categories by at least one of the
major rating agencies (or in unrated securities determined by Loomis Sayles to
be of comparable quality), and at least 65% of its assets will be invested in
bonds. All issues will be rated in the four highest rating categories by at
least one major rating agency (or, if unrated, will be of comparable quality
as determined by Loomis Sayles) at the time of purchase.

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 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 fixed income securities in which the Fund may invest
include corporate securities, U.S. Government securities, commercial paper,
zero coupon securities, mortgage-backed securities, CMOs, asset-backed
securities, when-issued securities, Rule 144A securities, repurchase
agreements and convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency hedging
transactions and swap transactions. The Fund may invest up to 20% of its
assets in securities of foreign issuers.

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.

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 securities issued or guaranteed by the U.S. Government or its
authorities, agencies or instrumentalities ("U.S. Government Securities"),
including CMOs, 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.

13
<PAGE>

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.

MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS

DEBT AND OTHER FIXED INCOME SECURITIES

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

Although U.S. Government Securities generally do not involve the credit
risks associated with other types of fixed income securities, the market
values

14
<PAGE>

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.

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. For purposes of its policy of normally investing at
least 65% of its total assets in U.S. Government Securities, the U.S.
Government Securities Fund will not treat a strip as a U.S. Government
Security unless the strip itself is directly issued or guaranteed by the U.S.
Government or an agency, authority or instrumentality thereof.

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 and U.S. Government Securities
Funds) may invest a portion of its assets in securities rated below investment

15
<PAGE>

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% and the High Yield Fund will normally invest at least 65% of its 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

ZERO COUPON SECURITIES

16
<PAGE>

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

All of the Funds (except the Municipal Bond Fund) may invest in mortgage-
backed securities, such as GNMA or Federal National Mortgage Association
certificates, which differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a result,
if 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.

COLLATERALIZED MORTGAGE OBLIGATIONS

All of the Funds (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 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

17
<PAGE>

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

All of the Funds (except the Municipal Bond and U.S. Government Securities
Funds) 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

18
<PAGE>

RULE 144A SECURITIES

FOREIGN SECURITIES

Each Fund (except the Municipal Bond and U.S. Government Securities Funds)
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. The High Yield Fund may invest any portion of its
assets in securities of Canadian issuers and up to 50% of its assets in the
securities of other foreign issuers.

19
<PAGE>

currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.

FOREIGN CURRENCY HEDGING TRANSACTIONS

20
<PAGE>

counter call and put options on foreign currencies. Over-the-counter currency
options are generally less liquid than exchange-listed options, and will be
treated as illiquid assets. The Funds may not be able to dispose of over-the-
counter options readily.

Foreign currency transactions involve costs and may result in losses. In
addition, each Fund's ability to engage in currency hedging transactions may
be limited by tax considerations.

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 (except the Municipal Bond and U.S. Government Securities 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.

21
<PAGE>

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.

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
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 a Fund to terminate the transaction before its scheduled maturity. As a
result of these characteristics,

22
<PAGE>

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

SECURITIES LENDING

23
<PAGE>

THE FUNDS' INVESTMENT ADVISER

As of December 20, 1996, the Loomis-Sayles Funded Pension Plan owned 27% of
the Global Bond Fund. This shareholder may be deemed to control the 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, as the portfolio manager of the
High Yield Fund since its commencement of investment operations in 1996, and
as the portfolio manager of the Investment Grade Bond Fund since its
commencement of investment operations in 1997. Kathleen C. Gaffney has served
as associate portfolio manager of the High Yield Fund since its commencement
of investment operations in 1996. 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.
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.

24
<PAGE>

FUND EXPENSES

Each Fund pays Loomis Sayles a monthly investment advisory fee. This fee is
at the following annual percentage rate of the Fund's average daily net
assets:

<TABLE>
<CAPTION>
FUND FEE RATE
- ---- --------
<S> <C>
Bond................................................................... .60%
Global Bond............................................................ .60%
High Yield............................................................. .60%
Intermediate Maturity Bond............................................. .40%
Investment Grade Bond.................................................. .40%
Municipal Bond......................................................... .40%
Short-Term Bond........................................................ .25%
U.S. Government Securities............................................. .40%
</TABLE>

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 to .75% of the average net assets
of the Bond and High Yield Funds, to .90% of the average net assets of the
Global Bond Fund, to .55% of the average net assets of the Intermediate Grade
Bond and the Investment Grade Bond Funds, to .50% of the average net assets of
the Short Term Bond Fund, and to .60% of the average net assets of the U.S.
Government Securities and Municipal Bond Funds. 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

25
<PAGE>

the volatility of economic and market conditions. High portfolio turnover may
involve higher costs and higher levels of taxable gains. Although it is not
possible to predict the portfolio turnover rate with certainty, Loomis Sayles
does not expect the portfolio turnover rate of the High Yield, Intermediate
Maturity Bond and Investment Grade Bond Funds to exceed 60%, 100%, and 60%,
respectively.

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. However, this minimum investment does not
apply to shareholders of any Fund (or any other fund that is a series of
Loomis Sayles Funds) who have an account that has been in continuous existence
since December 31, 1996 ("Original Shareholders"). Original Shareholders may
open an Institutional Class account in another Fund with no minimum investment
if they purchase the shares of the other Fund by exchanging Institutional
Class shares of a Fund (or any other fund that is a series of Loomis Sayles
Funds) in which they already own shares. Original Shareholders who hold their
accounts through financial intermediaries may avoid minimum investment
requirements only through this method. Original Shareholders whose accounts
are held directly with BFDS may also open an Institutional Class account in a
new Fund by investing a minimum of $2,500. For additional information
regarding the eligibility of Original Shareholders to purchase Institutional
Class shares, call the Distributor toll-free at 800-633-3330. A $2,500 minimum
investment also 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 by Loomis Sayles in its sole discretion and will be waived for any new
shareholder in the Loomis Sayles Funds who initially invests less than $1
million but signs a letter of intent stating the shareholder's intention to
bring his or her balance to $1 million within six months of the initial
purchase. Loomis Sayles reserves the right to redeem the accounts at net asset
value of shareholders that have signed

26
<PAGE>

a letter of intent but fail to meet the minimum investment within the
specified time or to waive any minimum investment in its sole discretion.
Subsequent investments must be at least $50.

Shares of any Fund may be purchased by (i) cash, (ii) exchanging securities
on deposit with a custodian acceptable to Loomis Sayles or (iii) 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 1-800-633-3330.

All purchases made by check should be in U.S. dollars and made payable to
the Loomis Sayles Funds or, in the case of a retirement account, the custodian
or trustee. 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.

After an account has been established, an investor may send subsequent
investments at any time directly to BFDS at the above address. The remittance

27
<PAGE>

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, Shareholder Name, Shareholder Account
Number." A bank may charge a fee for transmitting funds by wire.

Each Fund and the Distributor reserves the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or 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.

Each Fund, except for the Municipal Bond and U.S. Government Securities
Funds, also offers a Retail Class of shares that has a $250,000 investment
minimum 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.

28
<PAGE>

SHAREHOLDER SERVICES

FREE EXCHANGE PRIVILEGE. Institutional Class shares of any Fund may be
exchanged for Institutional Class shares of any other Fund (or any other fund
that is or 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. 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.

RETIREMENT PLANS. The Funds' Institutional Class 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

29
<PAGE>

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.

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. 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.

30
<PAGE>

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.

Loomis Sayles may pay certain broker-dealers and financial intermediaries
whose customers own shares of the Funds a continuing fee in an amount of up to
0.25% annually of the value of Fund shares held for those customers' accounts.
These fees are paid by Loomis Sayles out of its own assets and are not
assessed against the customers' accounts with the Funds.

31
<PAGE>

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.

Yield is based on the price of the shares but does not reflect any
redemption fee in the case of the High Yield Fund.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The Bond, High Yield, U.S. Government Securities, 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 make 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 on the record date unless an investor has
elected to receive cash.

32
<PAGE>

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. Long-term capital gain distributions
from all Funds are taxable as long-term capital gains whether distributed in
cash or additional shares and regardless of how long an investor has owned
shares of the Fund.

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.

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.

Other dividends and short term capital gains, if any, are taxable to the
investor as ordinary income whether received in cash or additional shares.
Distributions of long-term capital gains are taxable as long-term capital
gains whether distributed in cash or additional shares, regardless of how long
an investor has held the shares.

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.

33
<PAGE>

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.

34
<PAGE>

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.

Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.

BBB

BB, B, CCC, CC

A-1
<PAGE>

The rating C is reserved for income bonds on which no interest is being
paid.

Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MOODY'S INVESTORS SERVICE, INC.

Aaa

A-2
<PAGE>

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.

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.

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.

Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

A-3
<PAGE>

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.

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.

A-4
<PAGE>

INVESTMENT ADVISER Loomis, Sayles &
Company, L.P. One Financial Center Boston,
Massachusetts 02111

DISTRIBUTOR Loomis Sayles Distributors,
L.P. One Financial Center Boston,
Massachusetts 02111

TRANSFER AND DIVIDEND PAYING AGENT AND
CUSTODIAN OF ASSETS State Street Bank and
Trust Company Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT FOR STATE
STREET BANK AND TRUST COMPANY Boston
Financial Data Services, Inc. P.O. Box 8314
Boston, Massachusetts 02266

LEGAL COUNSEL Ropes & Gray One
International Place Boston, Massachusetts
02110

INDEPENDENT ACCOUNTANTS Coopers & Lybrand
L.L.P. One Post Office Square Boston,
Massachusetts 02109
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]