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As filed with the Securities and Exchange Commission on August 5, 1998
Registration Nos. 811-6241 and 33-39133
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [_]
Post-Effective Amendment No. 15 [X]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17 [X]
(Check appropriate box or boxes)
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LOOMIS SAYLES FUNDS
(Exact name of registrant as specified in charter)
One Financial Center, Boston, MA 02111
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 482-2450
Name and address
of agent for service with a copy to
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Sheila M. Barry Truman S. Casner, Esq.
Loomis, Sayles & Company, L.P. Ropes & Gray
One Financial Center One International Place
Boston, MA 02111 Boston, MA 02110
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It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on [date] pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(2)
[_] on [date] pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[_] on [date] pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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LOOMIS SAYLES FUNDS
Cross Reference Sheet
Items required by Form N-1A
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PART A
Item
No. Registration Statement Caption Caption in Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Cover Page; The Trust; Investment Objectives and
Registrant Policies; More Information About the Fund's
Investments and Risk Considerations
5. Management of the Fund Cover Page; The Trust; The Fund's Investment Adviser;
Fund Expenses; Portfolio Transactions; Back Cover
5A. Management's Discussion of More Information about the Fund's Investments and
Fund Performance Risk Considerations; Performance Information
6. Capital Stock and Other The Trust; Shareholder Services; Dividends, Capital
Securities Gain Distributions and Taxes
7. Purchase of Securities Being How to Purchase Shares; Shareholder Services
Offered
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
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<TABLE>
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PART B
Item
<S> <C> <C>
No. Registration Statement Caption Caption in Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objectives, Policies and Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Management of the Trust
Holders of Securities
16. Investment Advisory and Other Investment Advisory and Other Services
Services
17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices
18. Capital Stock and Other Securities How to Redeem Shares (Prospectus); Redemptions;
Dividends, Capital Gain Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status; Description of the
Trust
19. Purchase, Redemption and Pricing How to Purchase Shares (Prospectus); Shareholder
of Securities Being Offered Services; How to Redeem Shares (Prospectus);
Redemptions; Net Asset Value and Public Offering
Price
20. Tax Status Dividends, Capital Gain Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status
21. Underwriters Not Applicable
22. Calculations of Performance Data Calculation of Yield and Total Return; Performance
Data
23. Financial Statements Financial Statements
</TABLE>
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PROSPECTUS OCTOBER 1998
LOOMIS SAYLES HIGH YIELD FUND II
Loomis Sayles High Yield Fund II (the "Fund") is a series of Loomis Sayles
Funds (the "Trust"), a registered open-end management investment company.
Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of
the Fund.
This Prospectus concisely describes the information that an investor should
know before investing in shares of the Fund. Please read it carefully and keep
it for future reference. A Statement of Additional Information dated
October , 1998, as revised from time to time, is available free of charge;
write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial
Center, Boston, Massachusetts 02111 or telephone 800-633-3330, option 5. The
Statement of Additional Information, which contains more detailed information
about the Fund, has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE FUND WILL NORMALLY INVEST AT LEAST 65% OF ITS ASSETS IN LOWER-RATED
SECURITIES, COMMONLY KNOWN AS "JUNK BONDS" AND MAY INVEST SUBSTANTIALLY ALL OF
ITS ASSETS IN SUCH SECURITIES. INVESTMENTS OF THIS TYPE ARE SUBJECT TO A
GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST. INVESTORS
SHOULD ASSESS CAREFULLY THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE LOOMIS
SAYLES HIGH YIELD FUND II. SEE "MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
AND RISK CONSIDERATIONS--LOWER RATED FIXED INCOME SECURITIES" AND "APPENDIX
A."
1
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TABLE OF CONTENTS
<TABLE>
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PAGE
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SUMMARY OF EXPENSES....................................................... 3
THE TRUST................................................................. 4
INVESTMENT OBJECTIVES AND POLICIES........................................ 4
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS..... 5
THE FUND'S INVESTMENT ADVISER............................................. 14
FUND EXPENSES............................................................. 14
PORTFOLIO TRANSACTIONS.................................................... 15
HOW TO PURCHASE SHARES.................................................... 15
HOW TO REDEEM SHARES...................................................... 17
CALCULATION OF PERFORMANCE INFORMATION.................................... 18
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 19
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. 21
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SUMMARY OF EXPENSES
The following information is provided as an aid in understanding the sales
charges that an investor will bear directly and the various expenses that an
investor in the Fund will bear indirectly. The information is based on
estimated expenses for the Fund's first full fiscal year. The information
below should not be considered a representation of past or future expenses, as
actual expenses may be greater or less than those shown. Also, the 5% annual
return assumed in the Example should not be considered a representation of
investment performance, as actual performance will vary.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as % of offering price)....... 3.50%
Maximum Sales Load Imposed on Reinvested Dividends (as % of
offering price)....................................................... none
Maximum Deferred Sales Load (as % of original purchase price or
redemption proceeds).................................................. none
Redemption Fees/1/..................................................... none
Exchange Fees.......................................................... none
Annual Operating Expenses (as a percentage of average net assets):
Management Fees........................................................ .60%
12b-1 Fees............................................................. .75%
Other Operating Expenses............................................... .15%
Total Operating Expenses............................................... 1.50%
Example:
An investor would pay the following expenses on a $1,000 investment
assuming a 5% annual return (with or without a redemption at the end
of each time period):
One Year............................................................... $
Three Years............................................................ $
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/1A/$5 charge applies to any wire transfer of redemption proceeds.
3
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THE TRUST
The Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a
diversified open-end management investment company organized as a
Massachusetts business trust on February 20, 1991. The Trust is authorized to
issue an unlimited number of full and fractional shares of beneficial interest
in multiple series. Shares are freely transferable and entitle shareholders to
receive dividends as determined by the Trust's board of trustees and to cast a
vote for each share held at shareholder meetings. The Trust does not generally
hold shareholder meetings and will do so only when required by law.
Shareholders may call meetings to consider removal of the Trust's trustees.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.
The Fund seeks to achieve its objective by normally investing substantially
all of its assets in fixed income securities, although up to 20% of its assets
may be invested in preferred stocks and up to 10% of its total assets may be
invested in common stocks. The fixed income securities in which the Fund may
invest include corporate securities, securities issued or guaranteed by the
U.S. Government or its authorities or instrumentalities ("U.S. Government
Securities"), commercial paper, zero coupon securities, mortgage-backed
securities, stripped mortgage-backed securities, collateralized mortgage
obligations ("CMOs"), asset-backed securities, when-issued securities, 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 total assets in fixed
income 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.
For temporary defensive purposes, the Fund may invest any portion of its
assets in fixed income securities, cash or any other securities deemed
appropriate by Loomis Sayles.
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Except for the Fund's investment, objective, and any investment policies
that are identified as "fundamental," all of the investment policies of the
Fund may be changed without a vote of Fund shareholders.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
AND RISK CONSIDERATIONS
DEBT AND OTHER FIXED INCOME SECURITIES
The Fund may invest in fixed income securities of any maturity. Fixed income
securities pay a specified rate of interest or dividends, or a rate that is
adjusted periodically by reference to some specified index or market rate.
Fixed income securities include securities issued by federal, state, local and
foreign governments and related agencies, and by a wide range of private
issuers. Because interest rates vary, it is impossible to predict the total
return of the Fund, which invests in fixed income securities, for any
particular period. The net asset value of the Fund's shares will vary as a
result of changes in the value of the securities in the Fund's portfolio.
Fixed income securities are subject to market and credit risk. Market risk
relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed income securities increase
when prevailing interest rates fall and decrease when interest rates rise.
Credit risk relates to the ability of the issuer to make payments of principal
and interest.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds, are
supported by the full faith and credit of the United States, whereas certain
other U.S. Government Securities issued or guaranteed by federal agencies or
government-sponsored enterprises are not supported by the full faith and
credit of the United States.
Although U.S. Government Securities generally do not involve the credit
risks associated with other types of fixed income securities, the market
values of U.S. Government Securities do go up and down as interest rates
change. Thus, for example, the value of an investment in the Fund, when it
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"
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securities. Interest and principal payments on the mortgages underlying
mortgage-backed U.S. Government Securities are passed through to the holders
of the security. If the Fund purchases mortgage-backed securities at a
discount or a premium, the Fund will recognize a gain or loss when the
payments of principal, through prepayment or otherwise, are passed through to
the Fund and, if the payment occurs in a period of falling interest rates, the
Fund may not be able to reinvest the payment at as favorable an interest rate.
As a result of these principal prepayment features, mortgage-backed securities
are generally more volatile investments than many other fixed income
securities.
In addition to investing directly in U.S. Government Securities, the Fund
may purchase certificates of accrual or similar instruments ("strips")
evidencing undivided ownership interests in interest payments or principal
payments, or both, in U.S. Government Securities. These investment instruments
may be highly volatile.
LOWER RATED FIXED INCOME SECURITIES
The Fund will normally invest at least 65% of its assets in junk bonds.
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 the Fund, when
it invests in lower rated fixed income securities, may be more dependent on
Loomis Sayles' own credit analysis than is the case with higher quality bonds.
The market for lower rated fixed income securities may be more severely
affected than some other financial markets by economic recession or
substantial interest rate increases, by changing public perceptions of this
market or by legislation that limits the ability of certain categories of
financial institutions to invest in these securities. In addition, the
secondary market may be less liquid for lower rated fixed income securities.
This lack of liquidity at certain times may affect the values of these
securities and may make the evaluation and sale of these securities more
difficult. Securities in the lowest rating categories may be in poor standing
or in default. Securities in the lowest investment grade category (BBB or Baa)
have some speculative characteristics.
For more information about the ratings services' descriptions of the various
rating categories, see Appendix A.
COMMON STOCKS AND OTHER EQUITY SECURITIES
Common stocks and similar equity securities, such as warrants and
convertibles, are volatile and more risky than some other forms of investment.
The value of an investment in the Fund, which invests in equity securities,
may
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sometimes decrease. Equity securities of companies with relatively small
market capitalization may be more volatile than the securities of larger, more
established companies and than the broad equity market indexes.
ZERO COUPON SECURITIES
The Fund may invest in "zero coupon" fixed income securities. These
securities accrue interest at a specified rate, but do not pay interest in
cash on a current basis. The Fund is required to distribute the income on
these securities to Fund shareholders as the income accrues, even though the
Fund is not receiving the income in cash on a current basis. Thus the Fund may
have to sell other investments to obtain cash to make income distributions at
times when Loomis Sayles would not otherwise deem it advisable to do so. The
market value of zero coupon securities is often more volatile than that of
non-zero coupon fixed income securities of comparable quality and maturity.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities, such as GNMA or Fannie
Mae certificates, which differ from traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time. As
a result, if the Fund purchases these assets at a premium, a faster-than-
expected prepayment rate will reduce yield to maturity, and a slower-than-
expected prepayment rate will increase yield to maturity. If the Fund
purchases mortgage-backed securities at a discount, faster-than-expected
prepayments will increase, and slower-than-expected prepayments will reduce,
yield to maturity. Prepayments, and resulting amounts available for
reinvestment by the Fund, are likely to be greater during a period of
declining interest rates and, as a result, are likely to be reinvested at
lower interest rates. Accelerated prepayments on securities purchased at a
premium may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will decrease
in value as a result of increases in interest rates generally, they are likely
to appreciate less than other fixed-income securities when interest rates
decline because of the risk of prepayments.
STRIPPED MORTGAGE-BACKED SECURITIES
The Fund may invest in interest-only and principal-only classes of mortgage-
backed securities ("IOs" and "POs"). The yield to maturity on an IO or PO is
extremely sensitive not only to changes in prevailing interest rates but also
to the rate of principal payments (including prepayments) on the underlying
assets. A rapid rate of principal prepayments may have a measurably adverse
effect on the Fund's yield to maturity to the extent it invests in IOs. If
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the assets underlying the IOs experience greater than anticipated prepayments
of principal, the Fund may fail to recoup fully its initial investment in
these securities. Conversely, POs tend to increase in value if prepayments are
greater than anticipated and decline if prepayments are slower than
anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the Fund's ability to buy or sell those securities at any
particular time.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Fund may invest in CMOs. A CMO is a security backed by a portfolio of
mortgages or mortgage-backed securities held under an indenture. CMOs may be
issued either by U.S. Government instrumentalities or by non-governmental
entities. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage-backed
securities. CMOs are issued with a number of classes or series which have
different maturities and which may represent interests in some or all of the
interest or principal on the underlying collateral or a combination thereof.
CMOs of different classes are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. In the event of sufficient
early prepayments on such mortgages, the class or series of CMOs first to
mature generally will be retired prior to its maturity. As with other
mortgage-backed securities, the early retirement of a particular class or
series of CMOs held by the Fund could involve the loss of any premium the Fund
paid when it acquired the investment and could result in the Fund's
reinvesting the proceeds at a lower interest rate than the retired CMO paid.
Because of the early retirement feature, CMOs may be more volatile than many
other fixed income investments.
ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities. Through the use of trusts
and special purpose corporations, automobile and credit card receivables are
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.
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Therefore, the Fund's ability to maintain a portfolio that includes high-
yielding asset-backed securities will be adversely affected to the extent that
prepayments of principal must be reinvested in securities that have lower
yields than the prepaid obligations. Moreover, prepayments of securities
purchased at a premium could result in a realized loss.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" basis. This means that
the Fund will enter into a commitment to buy the security before the security
has been issued. The Fund's payment obligation and the interest rate on the
security are determined when the Fund enters into the commitment. The security
is typically delivered to the Fund 15 to 120 days later. No interest accrues
on the security between the time the Fund enters into the commitment and the
time the security is delivered. If the value of the security being purchased
falls between the time the Fund commits to buy it and the payment date, the
Fund may sustain a loss. The risk of this loss is in addition to the Fund's
risk of loss on the securities actually in its portfolio at the time. In
addition, when the Fund buys a security on a when-issued basis, it is subject
to the risk that market rates of interest will increase before the time the
security is delivered, with the result that the yield on the security
delivered to the Fund may be lower than the yield available on other,
comparable securities at the time of delivery. If the Fund has outstanding
obligations to buy when-issued securities, it will maintain liquid assets in a
segregated account at its custodian bank in an amount sufficient to satisfy
these obligations.
RULE 144A SECURITIES
The Fund may invest in Rule 144A securities, which are privately offered
securities that can be resold only to certain qualified institutional buyers.
Rule 144A securities are treated as illiquid, unless Loomis Sayles has
determined, under guidelines established by the Trust's trustees, that the
particular issue of Rule 144A securities is liquid.
NON-U.S. SECURITIES
The Fund may invest in securities of issuers organized or headquartered
outside the United States ("non-U.S. securities"). The Fund may invest any
portion of its assets in securities of Canadian issuers and up to 50% of its
total assets in the securities of other non-U.S. issuers.
Although investing in non-U.S. securities may increase the Fund's
diversification and reduce portfolio volatility, non-U.S. securities may
present risks not associated with investments in comparable securities of U.S.
issuers. There may be less information publicly available about a non-U.S.
corporate or
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governmental issuer than about a U.S. issuer, and non-U.S. 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
non-U.S. issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Non-U.S. brokerage commissions and securities custody
costs are often higher than in the United States. With respect to certain non-
U.S. countries, there is a possibility of governmental expropriation of
assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The Fund's receipt of interest on non-U.S. government securities
may depend on the availability of tax or other revenues to satisfy the
issuer's obligations.
The Fund's investments in non-U.S. securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
Since most non-U.S. securities are denominated in non-U.S. currencies or
traded primarily in securities markets in which settlements are made in non-
U.S. currencies, the value of these investments and the net investment income
available for distribution to shareholders of the Fund when it invests in
these securities may be affected favorably or unfavorably by changes in
currency exchange rates, exchange control regulations or foreign withholding
taxes. Changes in the value relative to the U.S. dollar of a non-U.S. currency
in which the Fund's holdings are denominated will result in a change in the
U.S. dollar value of the Fund's assets and the Fund's income available for
distribution.
In addition, although part of the Fund's income may be received or realized
in non-U.S. currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the value of a currency relative to
the U.S. dollar declines after the Fund's income has been earned in that
currency, translated into U.S. dollars and declared as a dividend, but before
payment of the dividend, the Fund could be required to liquidate portfolio
securities to pay the dividend. Similarly, if the value of a currency relative
to the U.S. dollar declines between the time the Fund accrues expenses in U.S.
dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars will be greater than the equivalent
amount in such currency of such expenses at the time they were incurred.
In determining whether to invest assets of the Fund in securities of a
particular non-U.S. issuer, Loomis Sayles will consider the likely effects of
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applicable tax regulations on the net yield available to the Fund and its
shareholders. Compliance with applicable tax regulations may adversely affect
the Fund's performance.
CURRENCY HEDGING TRANSACTIONS
The Fund may engage in foreign currency exchange transactions to protect the
value of specific portfolio positions or in anticipation of changes in
relative values of currencies in which current or future Fund portfolio
holdings are denominated or quoted. For example, to protect against a change
in the currency exchange rate between the date on which the Fund contracts to
purchase or sell a security and the settlement date for the purchase or sale,
or to "lock in" the equivalent of a dividend or interest payment in another
currency, the Fund might purchase or sell a non-U.S. currency on a spot (that
is, cash) basis at the prevailing spot rate. If conditions warrant, the Fund
may also enter into private contracts to purchase or sell non-U.S. currencies
at a future date ("forward contracts"). The Fund might also purchase exchange-
listed and over-the-counter call and put options on non-U.S. currencies. Over-
the-counter currency options are generally less liquid than exchange-listed
options, and will be treated as illiquid assets. The Fund may not be able to
dispose of over-the-counter options readily.
Currency transactions involve costs and may result in losses.
SWAP TRANSACTIONS
The Fund may enter into interest rate or currency swaps. The Fund will enter
into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. Interest rate swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest (for example, an
exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange
cash flows on a notional amount based on changes in the relative values of the
specified currencies. The Fund will maintain liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
Because swap agreements are not exchange-traded, but are private contracts
into which the Fund and a swap counterparty enter as principals, the Fund may
experience a loss or delay in recovering assets if the counter party were to
default on its obligations.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may buy, sell or write options on securities, securities indexes,
currencies or futures contracts and may buy and sell futures contracts on
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securities, securities indexes or currencies. The Fund may engage in these
transactions either for the purpose of enhancing investment return, or to
hedge against changes in the value of other assets that the Fund owns or
intends to acquire. Options and futures fall into the broad category of
financial instruments known as "derivatives" and involve special risks. Use of
options or futures for other than hedging purposes may be considered a
speculative activity, involving greater risks than are involved in hedging.
Options can generally be classified as either "call" or "put" options. There
are two parties to a typical options transaction: the "writer" and the
"buyer." A call option gives the buyer the right to buy a security or other
asset (such as an amount of currency or a futures contract) from, and a put
option gives the buyer the right to sell a security or other asset to, the
option writer at a specified price, on or before a specified date. The buyer
of an option pays a premium when purchasing the option, which reduces the
return on the underlying security or other asset if the option is exercised,
and results in a loss if the option expires unexercised. The writer of an
option receives a premium from writing an option, which may increase its
return if the option expires or is closed out at a profit. If the Fund as the
writer of an option is unable to close out an unexpired option, it must
continue to hold the underlying security or other asset until the option
expires, to "cover" its obligation under the option.
A futures contract creates an obligation by the seller to deliver and the
buyer to take delivery of the type of instrument or cash at the time and in
the amount specified in the contract. Although many futures contracts call for
the delivery (or acceptance) of the specified instrument, futures are usually
closed out before the settlement date through the purchase (or sale) of a
comparable contract. If the price of the sale of the futures contract by the
Fund exceeds (or is less than) the price of the offsetting purchase, the Fund
will realize a gain (or loss).
The value of options purchased by the Fund and futures contracts held by a
Fund may fluctuate based on a variety of market and economic factors. In some
cases, the fluctuations may offset (or be offset by) changes in the value of
securities held in the Fund's portfolio. All transactions in options and
futures involve the possible risk of loss to the Fund of all or a significant
part of the value of its investment. In some cases, the risk of loss may
exceed the amount of the Fund's investment. When the Fund writes a call option
or sells a futures contract without holding the underlying securities,
currencies or futures contracts, its potential loss is unlimited. The Fund
will be required, however, to set aside with its custodian bank liquid assets
in amounts sufficient at all times to satisfy its obligations under options,
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
12
<PAGE>
movements correctly. The Fund's ability to hedge against adverse changes in
the value of securities held in its portfolio through options and futures also
depends on the degree of correlation between changes in the value of futures
or options positions and changes in the values of the portfolio securities.
The successful use of futures and exchange traded options also depends on the
availability of a liquid secondary market to enable the Fund to close its
positions on a timely basis. There can be no assurance that such a market will
exist at any particular time. In the case of options that are not traded on an
exchange ("over-the-counter" options), the Fund is at risk that the other
party to the transaction will default on its obligations, or will not permit
the Fund to terminate the transaction before its scheduled maturity. As a
result of these characteristics, the Fund will treat most over-the-counter
options (and the assets it segregates to cover its obligations thereunder) as
illiquid.
The options and futures markets of foreign countries are small compared to
those of the United States and consequently are characterized in most cases by
less liquidity than are the U.S. markets. In addition, foreign markets may be
subject to less detailed reporting requirements and regulatory controls than
U.S. markets. Furthermore, investments in options in foreign markets are
subject to many of the same risks as other foreign investments. See "Foreign
Securities" above.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. In repurchase agreements, the
Fund buys securities from a seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the securities at a higher price
at a later date. Such transactions afford an opportunity for the Fund to earn
a return on available cash at minimal market risk, although the Fund may be
subject to various delays and risks of loss if the seller is unable to meet
its obligations to repurchase.
YEAR 2000
Many computer software systems in use today cannot properly process date-
related information from and after January 1, 2000. Should any of the computer
systems employed by the Fund's major service providers fail to process this
type of information properly, that could have a negative impact on the Fund's
operations and the services that are provided to the Fund's shareholders.
Loomis Sayles has advised the Funds that it is reviewing all of its computer
systems with the goal of modifying or replacing such systems prior to January
1, 2000 to the extent necessary to avoid any such negative impact. In
addition, Loomis Sayles has been advised by the Custodian that it is also in
the process of reviewing its systems with the same goal. As of the date of
this
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<PAGE>
prospectus, the Fund and Loomis Sayles have no reason to believe that these
goals will not be achieved. Similarly, the values of certain of the Fund's
assets may be adversely affected by the inability of their issuer or third
parties to properly process date-related information from and after January 1,
2000.
THE FUNDS' INVESTMENT ADVISER
The Fund's investment adviser is Loomis Sayles, One Financial Center,
Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the
country's oldest and largest investment firms. Loomis Sayles' sole general
partner is a wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest
Companies"). Nvest Companies' advising general partner is Nvest Corporation, a
publicly-traded company whose interests are listed on the New York
Stock Exchange. Nvest Companies' managing general partner and Nvest
Corporation's sole general partner is a corporation that is indirectly wholly-
owned by Metropolitan Life Insurance Company.
In addition to selecting and reviewing the Fund's investments, Loomis Sayles
provides executive and other personnel for the management of the Fund. The
Trust's board of trustees supervises Loomis Sayles' conduct of the affairs of
the Fund.
Daniel J. Fuss, President of the Trust and Executive Vice President of
Loomis Sayles, will serve as the portfolio manager of the Fund. Kathleen C.
Gaffney, Vice President of the Trust and Loomis Sayles, will serve as
associate portfolio manager of the Fund.
FUND EXPENSES
The Fund pays Loomis Sayles a monthly investment advisory fee of .60% of the
Fund's average daily net assets. In addition to the investment advisory fee,
the Fund pays all expenses not expressly assumed by Loomis Sayles, 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.
Under a Service and Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, the Fund pays the Distributor, a subsidiary of Loomis Sayles, a
monthly service fee at an annual rate not to exceed 0.25% of the
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Fund's average net assets and a monthly distribution fee at an annual rate not
to exceed 0.50% of the Fund's average net assets. The Distributor may pay all
or any portion of the service fee to securities dealers or other organizations
for providing personal service to investors and/or the maintenance of
shareholder accounts and all or any portion of the distribution fee to
securities dealers who are dealers of record with respect to the Fund's
shares, as distribution fees in connection with the sale of the Fund's shares.
The Distributor retains the balance of these fees as compensation for its
services as distributor.
PORTFOLIO TRANSACTIONS
Portfolio turnover considerations will not limit Loomis Sayles' investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. The Fund anticipates that
its portfolio turnover rate will be ----% during its first full fiscal year.
High portfolio turnover may involve higher costs and higher levels of tax on
gains.
HOW TO PURCHASE SHARES
An investor may make an initial purchase of shares of the Fund by submitting
a completed application form and payment to:
State Street Bank and Trust Company
Mutual Fund Services
One Heritage Drive
North Quincy, Massachusetts 02171
All purchases made by check should be in U.S. dollars and made payable to
State Street Bank and Trust Company ("State Street Bank"). Third party checks
will not be accepted. When purchases are made by check or periodic account
investment, redemption will not be allowed until the investment being redeemed
has been in the account for 15 calendar days.
Upon acceptance of an investor's order, 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 State Street Bank 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
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<PAGE>
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 Loomis Sayles High
Yield Fund II, [DDA #4133-408-7,] Account Name, Account Number." A bank may
charge a fee for transmitting funds by wire.
The Fund and the Distributor reserve the right to reject any purchase order,
including orders in connection with exchanges, for any reason which the Fund
or the Distributor in its sole discretion deems appropriate. Although the Fund
does not presently anticipate that it will do so, the Fund reserves the right
to suspend or change the terms of the offering of its shares. In order to
avoid dividend dilution, it is expected that the Fund will reject purchase
orders in excess of U.S. $5 million on each of the five Fund business days
preceding the ex-dividend date of each month. A "Fund business day" is any day
on which the New York Stock Exchange is open for business.
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 plus a [3.50%] sales charge (the "public offering
price") which is [3.63%] of the net amount invested. The amount reallowed to
dealers is [3.00%] as a percentage of the public offering price. The Fund
receives the net asset value. The sales charge is allocated between the
investor's broker-dealer and the Distributor as described above. The net asset
value of the Fund's shares is calculated once daily as of the close of regular
trading on the New York Stock Exchange on each day the Exchange is open for
trading, by dividing the Fund's net assets by the number of shares
outstanding. Portfolio securities are valued at their market value as more
fully described in the Statement of Additional Information.
The Distributor may accept telephone orders from broker-dealers who have
been previously approved by the Distributor. It is the responsibility of such
broker-dealers to promptly forward purchase or redemption orders to the
Distributor. Although there is no sales charge imposed by the Fund or the
Distributor, broker-dealers may charge the investor a transaction-based fee or
other fee for their services at either the time of purchase or the time of
redemption. Such charges may vary among broker-dealers but in all cases will
be retained by the broker-dealer and not remitted to the Fund.
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<PAGE>
HOW TO REDEEM SHARES
An investor can redeem shares by sending a written request to State Street
Bank and Trust Company, Mutual Fund Services, One Heritage Drive, North
Quincy, Massachusetts 02171. 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 Loomis Sayles at 800-633-3330, option 5. 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.
When an investor telephones a redemption request, the proceeds are wired to
the bank account previously chosen by the investor. A telephonic redemption
request must be received by State Street Bank prior to the close of regular
trading on the New York Stock Exchange. If an investor telephones a request to
State Street Bank after the Exchange closes or on a day when the Exchange is
not open for business, State Street Bank cannot accept the request and a new
one will be necessary.
If an investor decides to change the bank account to which proceeds are to
be wired, the investor must send in this change in writing 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, State Street Bank 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 State Street Bank with the investor's account
registration and address as it appears on the records of State Street Bank.
State Street Bank will employ these or other reasonable procedures to confirm
that instructions communicated by telephone are genuine; the Fund, State
Street Bank, 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 State Street
Bank. In times of heavy market activity, an
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<PAGE>
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 State Street Bank in proper form.
Proceeds resulting from a written redemption request will normally be mailed
to an investor within seven days after receipt of the investor's request in
good order. Telephonic redemption proceeds will normally be wired to an
investor's bank on the first business day following receipt of a proper
redemption request. If an investor purchased shares by check and the check was
deposited less than 15 days prior to the redemption request, the Fund may
withhold redemption proceeds until the check has cleared.
The Fund may suspend the right of redemption and may postpone payment for
more than seven days when the New York Stock Exchange is closed for other than
weekends or holidays, or if permitted by the rules of the SEC when trading on
the Exchange is restricted or during an emergency which makes it impracticable
for the Fund to dispose of its securities or to determine fairly the value of
its net assets, or during any other period permitted by the SEC for the
protection of investors.
CALCULATION OF PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included in
advertisements about the Fund or Loomis Sayles Funds. "Yield" for each class
of shares is calculated by dividing the annualized net investment income per
share during a recent 30-day period by the maximum public offering price per
share of the class on the last day of that period.
For purposes of calculating yield, net investment income is calculated in
accordance with SEC regulations and may differ from net investment income as
determined for financial reporting purposes. SEC regulations require that net
investment income be calculated on a "yield-to-maturity" basis, which has the
effect of amortizing any premiums or discounts in the current market value of
fixed income securities. The current dividend rate is based on net investment
income as determined for tax purposes, which may not reflect amortization in
the same manner.
"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in the
Fund. Total return may also be presented for other periods.
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<PAGE>
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The Fund generally declares and pays dividends [monthly]. The first monthly
dividend is expected to be paid in [September 1998]. The Fund also distributes
all of its net capital gains realized from the sale of portfolio securities.
Any capital gain distributions are normally made annually, but may, to the
extent permitted by law, be made more frequently as deemed advisable by the
trustees of the Trust. The Fund normally pays distributions to investors who
own shares of the Fund as of the [22nd day of each month]. The Trust's
trustees may change the frequency with which the Fund declares or pays
dividends.
Dividends and capital gain distributions will automatically be reinvested in
additional shares of the Fund on the record date unless an investor has
elected to receive cash.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes substantially all its net investment income and net capital gains
to its shareholders, the Fund itself does not pay any federal income tax to
the extent such income and gains are so distributed.
An investor's income dividends and short-term capital gain distributions are
taxable as ordinary income whether distributed in cash or additional shares.
Distributions designated by the Fund as deriving from net gains on securities
held for more than one year will be taxable as long-term capital gain whether
distributed in cash or additional shares and regardless of how long an
investor has owned shares of the Fund. Shareholders who are not subject to
U.S. federal income tax generally will not have to pay tax on such long-term
capital gain distributions.
The Fund may be required to withhold 31% of redemption proceeds (including
the value of shares exchanged), income dividends or capital gain distributions
paid to an investor (1) if the investor does not provide a correct, certified
taxpayer identification number, (2) if the Fund is notified that the investor
has underreported income in the past, or (3) if the investor fails to certify
to the Fund that he or she is not subject to such withholding. Special
withholding rules may apply to non-U.S. shareholders, as described in the
Statement of Additional Information.
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
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<PAGE>
distributions paid during the preceding year. An investor should keep this
statement as a permanent record.
NOTE: The foregoing summarizes certain tax consequences of investing in the
Fund. Before investing, an investor should consult his or her own tax
adviser for more information concerning the federal, foreign, state
and local tax consequences of investing in, redeeming or exchanging
Fund shares.
20
<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.
AA
Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such
21
<PAGE>
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
R
This symbol is attached to the ratings of instruments with significant
noncredit risks such as risks to principal or volatility of expected returns.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
AAA
Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA
Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa
securities.
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<PAGE>
A
Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
BAA
Bonds that are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
BA
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
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<PAGE>
C
Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
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<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
SHAREHOLDER SERVICING, TRANSFER AND
DIVIDEND PAYING AGENT
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Boston, Massachusetts 02102
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
<PAGE>
LOGO
LOOMIS SAYLES HIGH YIELD FUND II
STATEMENT OF ADDITIONAL
INFORMATION
October , 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT
OF ADDITIONAL INFORMATION RELATES TO THE PROSPECTUS OF LOOMIS SAYLES HIGH
YIELD FUND II, A SERIES ("FUND") OF LOOMIS SAYLES FUNDS DATED OCTOBER ,
1998, AS REVISED FROM TIME TO TIME. EACH REFERENCE TO THE PROSPECTUS IN THIS
STATEMENT OF ADDITIONAL INFORMATION SHALL INCLUDE THE FUND'S CURRENT
PROSPECTUS, UNLESS OTHERWISE NOTED. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS. A COPY OF THE PROSPECTUS
MAY BE OBTAINED FROM LOOMIS SAYLES FUNDS, ONE FINANCIAL CENTER, BOSTON,
MASSACHUSETTS 02111.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................... 3
MANAGEMENT OF THE TRUST.................................................... 9
INVESTMENT ADVISORY AND OTHER SERVICES..................................... 11
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................... 13
DESCRIPTION OF THE TRUST................................................... 14
Voting Rights............................................................ 15
Shareholder and Trustee Liability........................................ 16
How to Buy Shares........................................................ 16
Net Asset Value.......................................................... 16
SHAREHOLDER SERVICES....................................................... 17
Open Accounts............................................................ 17
Redemptions.............................................................. 17
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ............... 18
FINANCIAL STATEMENTS....................................................... 19
CALCULATION OF YIELD AND TOTAL RETURN...................................... 19
PERFORMANCE COMPARISONS.................................................... 20
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles High Yield Fund
II (the "Fund") of Loomis Sayles Funds (the "Trust") are summarized in the
Prospectus under "Investment Objectives and Policies" and "More Information
About the Fund's Investments and Risk Factors." The investment policies of the
Fund set forth in the Prospectus and in this Statement of Additional
Information may be changed by the Fund's adviser, subject to review and
approval by the Trust's board of trustees, without shareholder approval except
that any Fund policy explicitly identified as "fundamental" may not be changed
without the approval of the holders of a majority of the outstanding shares of
the Fund (which in the Prospectus and this Statement of Additional Information
means the lesser of (i) 67% of the shares of the Fund represented at a meeting
at which 50% of the outstanding shares are represented or (ii) more than 50%
of the outstanding shares). Except in the case of the 15% limitation on
illiquid securities, the percentage limitations set forth below and in the
Prospectus will apply at the time a security is purchased and will not be
considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such purchase.
In addition to its investment objective and policies set forth in the
Prospectus, the following investment restrictions are policies of the Fund
(and those marked with an asterisk are fundamental policies of the Fund):
The Fund will not:
(1) Invest in companies for the purpose of exercising control or
management.
*(2) Act as underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
*(3) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts. (This
restriction does not prevent the Fund from engaging in transactions in
futures contracts relating to securities indexes, interest rates or
financial instruments or options, or from investing in issuers that invest
or deal in the foregoing types of assets or from purchasing securities that
are secured by real estate.)
*(4) Make loans. (For purposes of this investment restriction, neither
(i) entering into repurchase agreements nor (ii) purchasing bonds,
debentures, commercial paper, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public or to financial
institutions, is considered the making of a loan.)
(5) With respect to 75% of its assets, purchase any security (other than
a U.S. Government Security) if, as a result, more than 5% of the Fund's
total assets (taken at current value) would then be invested in securities
of a single issuer.
(6) With respect to 75% of its assets, acquire more than 10% of the
outstanding voting securities of an issuer.
(7) Pledge, mortgage, hypothecate or otherwise encumber any of its
assets, except that the Fund may pledge assets having a value not exceeding
10% of its total assets to secure borrowings permitted by restriction (9)
below. (For the purpose of this restriction, collateral arrangements with
respect to options, futures contracts and options on futures contracts and
with respect to initial and variation margin are not deemed to be a pledge
or other encumbrance of assets.)
*(8) Purchase any security (other than U.S. Government Securities) if, as
a result, more than 25% of the Fund's total assets (taken at current value)
would be invested in any one industry (in the utilities category, gas,
electric, water and telephone companies will be considered as being in
separate industries.)
*(9) Borrow money in excess of 10% of its total assets (taken at cost) or
5% of its total assets (taken at current value), whichever is lower, nor
borrow any money except as a temporary measure for extraordinary or
emergency purposes.
(10) Purchase securities on margin (except such short term credits as are
necessary for clearance of transactions); or make short sales (except
where, by virtue of ownership of other securities, it has the right to
obtain, without payment of additional consideration, securities equivalent
in kind and amount to those sold).
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<PAGE>
(11) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or sale
of portfolio securities with Loomis Sayles or accounts under its management
to reduce brokerage commissions, to average prices among them or to
facilitate such transactions is not considered a trading account in
securities for purposes of this restriction.)
(12) Purchase any illiquid security, including any security that is not
readily marketable, if, as a result, more than 15% of the Fund's net assets
(based on current value) would then be invested in such securities.
(13) Write or purchase puts, calls or combinations of both except that
the Fund may (1) acquire warrants or rights to subscribe to securities of
companies issuing such warrants or rights, or of parents or subsidiaries of
such companies, (2) purchase and sell put and call options on securities
and (3) write, purchase and sell put and call options on currencies and may
enter into currency forward contracts.
*(14) Issue senior securities. (For the purpose of this restriction none
of the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (7) above; any borrowing
permitted by restriction (9) above; any collateral arrangements with
respect to options, futures contracts and options on futures contracts and
with respect to initial and variation margin; and the purchase or sale of
options, forward contracts, futures contracts or options on futures
contracts.)
Although the Fund has no current intention of investing in repurchase
agreements, it intends, based on the views of the staff of the Securities and
Exchange Commission (the "SEC"), to restrict its investments in repurchase
agreements maturing in more than seven days, together with other investments
in illiquid securities, to the percentage permitted by restriction (12) above.
In connection with the offering of its shares in Japan, the Fund has
undertaken to the Japanese Securities Dealers Association: (1) that the Fund
will not invest more than 10% of the Fund's net assets in securities that are
not traded on a recognized exchange; (2) that the Fund may not acquire more
than 10% of the voting securities of any issuer; (3) that the Fund will not
invest more that 5% of its total assets in the securities of any one issuer
(other than the U.S. Government) and (4) that the Fund will not, together with
other registered investment companies managed by Loomis Sayles, acquire more
than 15% of the voting securities of any issuer.
If the undertaking is violated, the Fund will, promptly after discovery,
take such action as may be necessary to cause the violation to cease, which
shall be the only obligation of the Fund and the only remedy in respect of the
violation. This undertaking will remain in effect as long as shares of the
Fund are qualified for offer or sale in Japan and such undertaking is required
by the Japanese Securities Dealers Association as a condition of such
qualification.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities include direct obligations of the U.S. Treasury,
as well as securities issued or guaranteed by U.S. Government agencies,
authorities and instrumentalities, including, among others, the Government
National Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Federal Housing Administration, the
Resolution Funding Corporation, the Federal Farm Credit Banks, the Federal
Home Loan Bank, the Tennessee Valley Authority, the Student Loan Marketing
Association and the Small Business Administration. More detailed information
about some of these categories of U.S. Government Securities follows.
U.S. Treasury Bills--Direct obligations of the United States Treasury which
are issued in maturities of one year or less. No interest is paid on Treasury
bills; instead, they are issued at a discount and repaid at full face value
when they mature. They are backed by the full faith and credit of the U.S.
Government.
U.S. Treasury Notes and Bonds--Direct obligations of the United States
Treasury issued in maturities that vary between one and forty years, with
interest normally payable every six months. They are backed by the full faith
and credit of the U.S. Government.
4
<PAGE>
"Ginnie Maes"--Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages insured by the
Federal Housing Administration or the Farmer's Home Administration or
guaranteed by the Veterans Administration. The Government National Mortgage
Association ("GNMA") guarantees the timely payment of principal and interest
when such payments are due, whether or not these amounts are collected by the
issuer of these certificates on the underlying mortgages. An assistant
attorney general of the United States has rendered an opinion that the
guarantee by GNMA is a general obligation of the United States backed by its
full faith and credit. Mortgages included in single family or multi-family
residential mortgage pools backing an issue of Ginnie Maes have a maximum
maturity of up to 30 years. Scheduled payments of principal and interest are
made to the registered holders of Ginnie Maes (such as the Fund) each month.
Unscheduled prepayments may be made by homeowners, or as a result of a
default. Prepayments are passed through to the registered holder of Ginnie
Maes along with regular monthly payments of principal and interest.
"Fannie Maes"--The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers.
Fannie Maes are pass-through securities issued by FNMA that are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the U.S. Government.
"Freddie Macs"--The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the U.S. Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the U.S. Government.
As described in the Prospectus, U.S. Government Securities generally do not
involve the same credit risks associated with investments in other types of
fixed-income securities, although, as a result, the yields available from U.S.
Government Securities are generally lower than the yields available from
corporate fixed-income securities. Like other fixed-income securities,
however, the values of U.S. Government Securities change as interest rates
fluctuate. Fluctuations in the value of portfolio securities will not affect
interest income on existing portfolio securities but will be reflected in the
Fund's net asset value.
WHEN-ISSUED SECURITIES
As described in the Prospectus, the Fund may enter into agreements with
banks or broker-dealers for the purchase or sale of securities at an agreed-
upon price on a specified future date. Such agreements might be entered into,
for example, when the Fund invests in fixed income securities anticipating a
decline in interest rates and is able to obtain a more advantageous yield by
committing currently to purchase securities to be issued later. When the Fund
purchases securities in this manner (i.e. on a when-issued or delayed-delivery
basis), it is required to create a segregated account with the Trust's
custodian and to maintain in that account cash or U.S. Government Securities
in an amount equal to or greater than, on a daily basis, the amount of the
Fund's when-issued or delayed-delivery commitments. The Fund will make
commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting the Fund's investment criteria. The Fund may take delivery
of these securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date. When
the time comes to pay for when-issued or delayed-delivery securities, the Fund
will meet its obligations from then available cash flow or the sale of
securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
ZERO COUPON BONDS
Zero coupon bonds are debt obligations that do not entitle the holder to any
periodic payments of interest either for the entire life of the obligation or
for an initial period after the issuance of the obligations. Such bonds are
issued and traded at a discount from their face amounts. The amount of the
discount varies depending on
5
<PAGE>
such factors as the time remaining until maturity of the bonds, prevailing
interest rates, the liquidity of the security and the perceived credit quality
of the issuer. The market prices of zero coupon bonds generally are more
volatile than the market prices of securities that pay interest periodically
and are likely to respond to changes in interest rates to a greater degree
than do non-zero coupon bonds having similar maturities and credit quality. In
order to qualify as a "regulated investment company" that is accorded special
tax treatment under the Internal Revenue Code (the "Code"), the Fund must
distribute each year at least 90% of its net investment income, including the
original issue discount accrued on zero coupon bonds. Because the fund, when
investing in zero coupon bonds, will not on a current basis receive cash
payments from the issuer in respect of accrued original issue discount, the
Fund may have to distribute cash obtained from other sources in order to
satisfy the 90% distribution requirement under the Code. Such cash might be
obtained from selling other portfolio holdings of the Fund. In some
circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might
otherwise make it undesirable for the Fund to sell such securities at such
time.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements, by which the Fund purchases a
security and obtains a simultaneous commitment from the seller (a bank or, to
the extent permitted by the 1940 Act, a recognized securities dealer) to
repurchase the security at an agreed upon price and date (usually seven days
or less from the date of original purchase). The resale price is in excess of
the purchase price and reflects an agreed upon market rate unrelated to the
coupon rate on the purchased security. Such transactions afford the Fund the
opportunity to earn a return on temporarily available cash at minimal market
risk. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality
of the U.S. Government, the obligation of the seller is not guaranteed by the
U.S. Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Fund would attempt to exercise rights
with respect to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks of loss,
including (a) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible
reduced levels of income and lack of income during this period and (c)
inability to enforce rights and the expenses involved in attempted
enforcement.
RULE 144A SECURITIES
The Fund may purchase Rule 144A securities. These are privately offered
securities that can be resold only to certain qualified institutional buyers.
Rule 144A securities are treated as illiquid, unless Loomis Sayles has
determined, under guidelines established by the Trust's trustees, that the
particular issue of Rule 144A securities is liquid. Under the guidelines,
Loomis Sayles considers such factors as: (1) the frequency of trades and
quotes for a security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades therefor.
NON-U.S. CURRENCY TRANSACTIONS
The Fund may invest in securities of non-U.S. issuers and may enter into
forward non-U.S. currency exchange contracts, or buy or sell options on non-
U.S. currencies, in order to protect against uncertainty in the level of
future non-U.S. exchange rates. Since investment in securities of non-U.S.
issuers will usually involve currencies of non-U.S. countries, and since the
Fund may temporarily hold funds in bank deposits in non-U.S. currencies during
the course of investment programs, the value of the assets of the Fund as
measured in United States dollars may be affected by changes in currency
exchange rates and exchange control regulations, and the Fund may incur costs
in connection with conversion between various currencies.
The Fund may enter into forward contracts under two circumstances. First,
when the Fund enters into a contract for the purchase or sale of a security
denominated or traded in a market in which settlement is made in a non-U.S.
currency, it may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward
6
<PAGE>
contract for the purchase or sale, for a fixed amount of dollars, of the
amount of non-U.S. currency involved in the underlying transactions, the Fund
will be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
non-U.S. currency during the period between the date on which the investment
is purchased or sold and the date on which payment is made or received.
Second, when Loomis Sayles believes that the currency of a particular
country may suffer a substantial decline against another currency, it may
enter into a forward contract to sell, for a fixed amount of another currency,
the amount of the first currency approximating the value of some or all of the
Fund's portfolio investments denominated in the first currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in a currency will change as a consequence of market movements in
the value of those investments between the date the forward contract is
entered into and the date it matures.
The Fund generally will not enter into forward contracts with a term of
greater than one year.
Options on non-U.S. currencies are similar to forward contracts, except that
one party to the option (the holder) is not contractually bound to buy or sell
the specified currency. Instead, the holder has discretion whether to
"exercise" the option and thereby require the other party to buy or sell the
currency on the terms specified in the option. Options transactions involve
transaction costs and, like forward contract transactions, involve the risk
that the other party may default on its obligations (if the options are not
traded on an established exchange) and the risk that expected movements in the
relative value of currencies may not occur, resulting in an imperfect hedge or
a loss to the Fund.
The Fund, in conjunction with its transactions in forward contracts, options
and futures will maintain in a segregated account with its custodian cash or
certain liquid assets with a value, marked to market on a daily basis,
sufficient to satisfy the Fund's outstanding obligations under such contracts,
options and futures.
OPTIONS
As described in the Prospectus, the Fund, may for hedging purposes or to
enhance investment return, purchase and sell call and put options.
An option entitles the holder to receive (in the case of a call option) or
to sell (in the case of a put option) a particular security at a specified
exercise price. An "American style" option allows exercise of the option at
any time during the term of the option. A "European style" option allows an
option to be exercised only at the end of its term. Options may be traded on
or off an established securities exchange.
If the holder of an option wishes to terminate its position, it may seek to
effect a closing sale transaction by selling an option identical to the option
previously purchased. The effect of the purchase is that the previous option
position will be canceled. The Fund will realize a profit from closing out an
option if the price received for selling the offsetting position is more than
the premium paid to purchase the option; the Fund will realize a loss from
closing out an option transaction if the price received for selling the
offsetting option is less than the premium paid to purchase the option.
The use of options involves risks. One risk arises because of the imperfect
correlation between movements in the price of options and movements in the
price of the securities that are the subject of the hedge. The Fund's hedging
strategies will not be fully effective if such imperfect correlation occurs.
Price movement correlation may be distorted by illiquidity in the options
markets and the participation of speculators in such markets. If an
insufficient number of contracts are traded, commercial users may not deal in
options because they do not want to assume the risk that they may not be able
to close out their positions within
7
<PAGE>
a reasonable amount of time. In such instances, options market prices may be
driven by different forces than those driving the market in the underlying
securities, and price spreads between these markets may widen. The
participation of speculators in the market enhances its liquidity.
Nonetheless, the trading activities of speculators in the options markets may
create temporary price distortions unrelated to the market in the underlying
securities.
An exchange-traded option may be closed out only on an exchange which
generally provides a liquid secondary market for an option of the same series.
If a liquid secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to a
particular option, with the result that the Fund would have to exercise the
option in order to accomplish the desired hedge. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation or other clearing organization may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by the Options Clearing Corporation as a
result of trades on that exchange would continue to be exercisable in
accordance with their terms.
The successful use of options depends in part on the ability of Loomis
Sayles to forecast correctly the direction and extent of interest rate, stock
price or currency value movements within a given time frame. To the extent
interest rates, stock prices or currency values move in a direction opposite
to that anticipated, the Fund may realize a loss on the hedging transaction
that is not fully or partially offset by an increase in the value of portfolio
securities. In addition, whether or not interest rates or the relevant stock
price or relevant currency values move during the period that the Fund holds
options positions, the Fund will pay the cost of taking those positions (i.e.,
brokerage costs). As a result of these factors, the Fund's total return for
such period may be less than if it had not engaged in the hedging transaction.
An over-the-counter option (an option not traded on an established exchange)
may be closed out only with the other party to the original option
transaction. While the Fund will seek to enter into over-the-counter options
only with dealers who agree to or are expected to be capable of entering into
closing transactions with the Fund, there can be no assurance that the Fund
will be able to liquidate an over-the-counter option at a favorable price at
any time prior to its expiration. Accordingly, the Fund might have to exercise
an over-the-counter option it holds in order to achieve the intended hedge.
Over-the-counter options are not subject to the protections afforded
purchasers of listed options by the Options Clearing Corporation or other
clearing organization.
The staff of the SEC has taken the position that over-the-counter options
should be treated as illiquid securities for purposes of the Fund's investment
restriction prohibiting it from investing more than 15% of its net assets in
illiquid securities. The Fund intends to comply with this position.
Although gain from options transactions may hedge against a decline in the
value of the Fund's portfolio securities, that gain, to the extent not offset
by losses, will be distributed in light of certain tax considerations and will
constitute a distribution of that portion of the value preserved against
decline.
8
<PAGE>
MANAGEMENT OF THE TRUST
The trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
EARL W. FOELL--Trustee. 43 Black Horse Lane, Cohasset, Massachusetts.
Retired; formerly Editor in-Chief, World Monitor Magazine and Editor-in-Chief,
The Christian Science Monitor.
RICHARD S. HOLWAY--Trustee. 1314 Seaspray Lane, Sanibel, Florida. Retired;
formerly, Vice President, Loomis Sayles. Director, Sandwich Cooperative Bank.
TERRY R. LAUTENBACH--Trustee. Shennamere Road, Darien, Connecticut. Retired;
formerly Senior Vice President, International Business Machines Corporation.
Director, Air Products and Chemicals, Inc., Melville Corp., and Varian
Associates, Inc.
MICHAEL T. MURRAY--Trustee. 404 N. Western Ave., Lake Forest, Illinois.
Retired; formerly, Vice President, Loomis Sayles.
*DANIEL J. FUSS--President and Trustee. Executive Vice President and
Director, Loomis Sayles.
SHEILA M. BARRY--Secretary and Compliance Officer. Assistant General Counsel
and Vice President, Loomis Sayles. Formerly, Senior Counsel and Vice
President, New England Funds, L.P.
ROBERT J. BLANDING--Executive Vice President. 465 First Street West, Sonoma,
California. President, Chairman, Director and Chief Executive Officer, Loomis
Sayles.
JAMES C. CARROLL--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles. Formerly, Managing Director and
Senior Energy Analyst at Paine Webber, Inc.
JEROME A. CASTELLINI--Vice President. Three 1st National Plaza, Chicago,
Illinois. Vice President and Director, Loomis Sayles.
MARY C. CHAMPAGNE--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles; formerly, portfolio manager, NBD
Bank.
E. JOHN DEBEER--Vice President. Vice President, Loomis Sayles.
PAUL H. DREXLER--Vice President. Vice President, Loomis Sayles; formerly
Deputy Manager, Brown Brothers Harriman & Co.
WILLIAM H. EIGEN, JR.--Vice President. Vice President, Loomis Sayles;
formerly Vice President, INVESCO Funds Group and Vice President, The Travelers
Corp.
CHRISTOPHER R. ELY--Vice President. Vice President, Loomis Sayles; formerly
Senior Vice President and portfolio manager, Keystone Investment Management
Company, Inc.
QUENTIN P. FAULKNER--Vice President. Vice President, Loomis Sayles.
PHILIP C. FINE--Vice President. Vice President, Loomis Sayles; formerly Vice
President and portfolio manager, Keystone Investment Management Company, Inc.
KATHLEEN C. GAFFNEY--Vice President, Vice President, Loomis Sayles.
ISAAC GREEN--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan.
Vice President and Director, Loomis Sayles. Formerly, Senior Vice President
and Director of Investments at NCM Capital Management Group.
- --------
* Trustee deemed an "interested person" of the Trust, as defined by the 1940
Act.
9
<PAGE>
DEAN A. GULIS--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan.
Vice President, Loomis Sayles. Formerly, Principal and Director of Research at
Roney & Company.
MARTHA F. HODGMAN--Vice President. Vice President, Loomis Sayles.
MARK W. HOLLAND--Treasurer. Vice President--Finance and Administration and
Director, Loomis Sayles.
JOHN HYLL--Vice President. 35 North Lake Avenue, Pasadena, California. Vice
President, Loomis Sayles.
JEFFREY L. MEADE--Vice President. Executive Vice President, Chief Operating
Officer and Director, Loomis Sayles.
PHILIP R. MURRAY--Assistant Treasurer. Vice President, Loomis Sayles.
KENT P. NEWMARK--Vice President. 555 California Street, San Francisco,
California. Managing Partner, Vice President and Director, Loomis Sayles.
SCOTT S. PAPE--Vice President. Vice President, Loomis Sayles.
JEFFREY C. PETHERICK--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles.
LAUREN B. PITALIS--Vice President. Vice President, Loomis Sayles.
PHILIP J. SCHETTEWI--Vice President. Vice President and Director, Loomis
Sayles.
DAVID L. SMITH--Vice President. Vice President, Loomis Sayles; formerly Vice
President and portfolio manager, Keystone Investment Management Company, Inc.
SANDRA P. TICHENOR--Vice President. 465 First Street West, Sonoma,
California. General Counsel, Vice President, Secretary and Clerk, Loomis
Sayles. Formerly, Partner, Heller, Ehrman, White & McAuliffe.
JEFFREY W. WARDLOW--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles.
GREGG D. WATKINS--Vice President. Vice President, Loomis Sayles.
ANTHONY J. WILKINS--Vice President. Vice President and Director, Loomis
Sayles.
JOHN F. YEAGER III--Vice President. Vice President, Loomis Sayles; formerly
Vice President--Marketing, INVESCO Funds Group and Assistant Comptroller,
INVESCO Capital Management.
Previous positions during the past five years with Loomis Sayles are
omitted, if not materially different.
Except as indicated above, the address of each trustee and officer of the
Trust affiliated with Loomis Sayles is One Financial Center, Boston,
Massachusetts. The Trust pays no compensation to its officers or to the
trustees listed above who are directors, officers or employees of Loomis
Sayles. Each trustee who is not a director, officer or employee of Loomis
Sayles is compensated at the rate of $1,250 per fund per annum.
10
<PAGE>
COMPENSATION TABLE
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
(5)
TOTAL
(3) (4) COMPENSATION
(2) PENSION OR ESTIMATED FROM TRUST AND
(1) AGGREGATE RETIREMENT BENEFITS ANNUAL FUND COMPLEX*
NAME OF PERSON, COMPENSATION ACCRUED AS PART OF BENEFITS UPON PAID TO
POSITION FROM TRUST FUND EXPENSES RETIREMENT TRUSTEE
--------------- ------------ ------------------- ------------- --------------
<S> <C> <C> <C> <C>
Earl W. Foell, Trustee.. $12,812.50 N/A N/A $12,812.50
Richard S. Holway,
Trustee................ $12,812.50 N/A N/A $12,812.50
Terry R. Lautenbach,
Trustee................ $12,812.50 N/A N/A $12,812.50
Michael T. Murray,
Trustee................ $12,812.50 N/A N/A $12,812.50
</TABLE>
- --------
* No Trustee receives any compensation from any mutual funds affiliated with
Loomis Sayles, other than the Trust.
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreements. Loomis Sayles serves as investment adviser under an
advisory agreement relating to the Fund dated , 1998. Under the advisory
agreement, Loomis Sayles manages the investment and reinvestment of the assets
of the Fund and generally administers its affairs, subject to supervision by
the board of trustees of the Trust. Loomis Sayles furnishes, at its own
expense, all necessary office space, facilities and equipment, services of
executive and other personnel of the Trust and certain administrative
services. For these services, the advisory agreement provides that the Fund
shall pay Loomis Sayles a monthly investment advisory fee at the annual
percentage rate of 0.60% of the Fund's average daily net assets.
The Trust pays the compensation of its trustees who are not directors,
officers or employees of Loomis Sayles or its affiliates (other than
registered investment companies); registration, filing and other fees in
connection with requirements of regulatory authorities; all charges and
expenses of its custodian and transfer agent; the charges and expenses of its
independent accountants; all brokerage commissions and transfer taxes in
connection with portfolio transactions; all taxes and fees payable to
governmental agencies; the cost of any certificates representing shares of the
Fund; the expenses of meetings of the shareholders and trustees of the Trust;
the charges and expenses of the Trust's legal counsel; interest on any
borrowings by the Fund; the cost of services, including services of counsel,
required in connection with the preparation of, and the cost of printing, the
Trust's registration statements and prospectuses, including amendments and
revisions thereto, annual, semiannual and other periodic reports of the Trust,
and notices and proxy solicitation material furnished to shareholders or
regulatory authorities, to the extent that any such materials relate to the
Trust or its shareholders; and the Trust's expenses of bookkeeping,
accounting, auditing and financial reporting, including related clerical
expenses.
Under each advisory agreement, if the total ordinary business expenses of
the Fund or the Trust as a whole for any fiscal year exceed the lowest
applicable limitation (based on percentage of average net assets or income)
prescribed by any state in which the shares of the Fund or the Trust are
qualified for sale, Loomis Sayles shall pay such excess. Loomis Sayles will
not be required to reduce its fee or pay such expenses to an extent or under
circumstances which would result in the Fund's inability to qualify as a
regulated investment company under the Code. The term "expenses" is defined in
the advisory agreements or in relevant state regulations and excludes
brokerage commissions, taxes, interest, distribution-related expenses and
extraordinary expenses.
11
<PAGE>
The advisory agreement provides that it will continue in effect for two
years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Fund and (ii) by vote of a majority of the Trustees who are not "interested
persons" of the Trust, as that term is defined in the 1940 Act, cast in person
at a meeting called for the purpose of voting on such approval. Any amendment
to the advisory agreement must be approved by vote of a majority of the
outstanding voting securities of the Fund and by vote of a majority of the
Trustees who are not such interested persons, cast in person at a meeting
called for the purpose of voting on such approval. The agreement may be
terminated without penalty by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund, upon sixty days'
written notice, or by Loomis Sayles upon ninety days' written notice, and each
terminates automatically in the event of its assignment. In addition, the
agreement will automatically terminate if the Trust or the Fund shall at any
time be required by Loomis Sayles to eliminate all reference to the words
"Loomis" and "Sayles" in the name of the Trust or the Fund, unless the
continuance of the agreement after such change of name is approved by a
majority of the outstanding voting securities of the Fund and by a majority of
the Trustees who are not interested persons of the Trust or Loomis Sayles.
The advisory agreement provides that Loomis Sayles shall not be subject to
any liability in connection with the performance of its services thereunder in
the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Loomis Sayles acts as investment adviser or subadviser to New England Value
Fund, New England Strategic Income Fund, New England Star Advisers Fund; New
England Star Small Cap Fund and New England Balanced Fund, which are series of
New England Funds Trust I, a registered open-end management investment
company, New England High Income Fund, a series of New England Fund Trust II,
a registered, open-end management investment company, New England Equity
Income Fund, a series of New England Funds Trust III, a registered open-end
management investment company, and to the Balanced Series and the Small Cap
Series of New England Zenith Fund, which is also a registered open-end
management investment company, as well as to Loomis Sayles Investment Trust,
also a registered open-end management investment company. Loomis Sayles also
provides investment advice to certain other open-end management investment
companies and numerous other corporate and fiduciary clients.
Loomis Sayles' sole general partner is a wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). Nvest Companies' advising general partner
is Nvest Corporation, a publicly-traded company whose interests are listed on
the New York Stock Exchange. Nvest Companies' managing general partner and
Nvest Corporation's sole general partner is a corporation that is indirectly
wholly-owned by Metropolitan Life Insurance Company.
Certain officers and trustees of the Trust also serve as officers, directors
and trustees of other investment companies and clients advised by Loomis
Sayles. The other investment companies and clients sometimes invest in
securities in which the Fund also invests. If the Fund and such other
investment companies or clients desire to buy or sell the same portfolio
securities at the same time, purchases and sales may be allocated, to the
extent practicable, on a pro rata basis in proportion to the amounts desired
to be purchased or sold for each. It is recognized that in some cases the
practices described in this paragraph could have a detrimental effect on the
price or amount of the securities which the Fund purchases or sells. In other
cases, however, it is believed that these practices may benefit the Fund. It
is the opinion of the trustees that the desirability of retaining Loomis
Sayles as adviser for the Fund outweighs the disadvantages, if any, which
might result from these practices.
Distribution Agreement and Rule 12b-1 Plans. Under an agreement with the
Trust (the "Distribution Agreement"), Loomis Sayles Distributors, L.P. serves
as the general distributor of the Fund. Under this agreement, Loomis Sayles
Distributors, L.P. is not obligated to sell a specific number of shares.
Loomis Sayles Distributors, L.P. bears the cost of making information about
the Fund available through advertising and other means and the cost of
printing and mailing prospectuses to persons other than shareholders. The Fund
pays the
12
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cost of registering and qualifying their shares under state and federal
securities laws and the distribution of prospectuses to existing shareholders.
As described in the Prospectus, the Fund has adopted a Service and
Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act (the
"Plan") under which the Fund pays the Distributor, a subsidiary of Loomis
Sayles, a monthly service fee at an annual rate not to exceed 0.25% of the
Fund's average net assets and a monthly distribution fee at an annual rate not
to exceed 0.50% of the Fund's average net assets. Pursuant to Rule 12b-1 under
the 1940 Act, the Plan (together with the Distribution Agreement) was approved
by the board of trustees, including a majority of the trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operations of the Plan or the
Distribution Agreement (the "Independent Trustees").
The Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
Fund. The Plan may be amended by vote of the trustees, including a majority of
the Independent Trustees, cast in person at a meeting called for the purpose.
The Trust's trustees review quarterly written reports of such costs and the
purposes for which such costs have been incurred. The Plan provides that, for
so long as that Plan is in effect, selection and nomination of those trustees
who are not interested persons of the Trust shall be committed to the
discretion of such disinterested persons.
The Distribution Agreement may be terminated at any time with respect to the
Fund on 60 days' written notice without payment of any penalty by the Trust or
by vote of a majority of the outstanding voting securities of the Fund or by
vote of a majority of the Independent Trustees.
The Distribution Agreement and the Plan will continue in effect for
successive one-year periods, provided that each such continuance is
specifically approved (i) by the vote of a majority of the entire board of
trustees and (ii) by the vote of a majority of the Independent Trustees, in
each case cast in person at a meeting called for that purpose.
Custodial Arrangements. State Street Bank and Trust Company ("State Street
Bank"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street Bank holds in safekeeping certificated securities and cash belonging to
the Fund and, in such capacity, is the registered owner of securities held in
book entry form belonging to the Fund. Upon instruction, State Street Bank
receives and delivers cash and securities of the Fund in connection with Fund
transactions and collects all dividends and other distributions made with
respect to Fund portfolio securities. State Street Bank also maintains certain
accounts and records of the Fund and calculates the total net asset value,
total net income and net asset value per share of the Fund on a daily basis.
Independent Accountants. The Fund's independent accountants are .
conducts an annual audit of the Trust's financial statements, assists
in the preparation of the Fund's federal and state income tax returns and
consults with the Fund as to matters of accounting and federal and state
income taxation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of portfolio securities for the
Fund, Loomis Sayles always seeks the best price and execution. Transactions in
unlisted securities are carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of Loomis Sayles, a
more favorable price can be obtained by carrying out such transactions through
other brokers or dealers.
Loomis Sayles selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best price and execution for the
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transaction. This does not necessarily mean that the lowest available
brokerage commission will be paid. However, the commissions are believed to be
competitive with generally prevailing rates. Loomis Sayles will use its best
efforts to obtain information as to the general level of commission rates
being charged by the brokerage community from time to time and will evaluate
the overall reasonableness of brokerage commissions paid on transactions by
reference to such data. In making such evaluation, all factors affecting
liquidity and execution of the order, as well as the amount of the capital
commitment by the broker in connection with the order, are taken into account.
The Fund will not pay a broker a commission at a higher rate than otherwise
available for the same transaction in recognition of the value of research
services provided by the broker or in recognition of the value of any other
services provided by the broker which do not contribute to the best price and
execution of the transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which Loomis Sayles believes will provide best price and
execution for a transaction. These research services include not only a wide
variety of reports on such matters as economic and political developments,
industries, companies, securities, portfolio strategy, account performance,
daily prices of securities, stock and bond market conditions and projections,
asset allocation and portfolio structure, but also meetings with management
representatives of issuers and with other analysts and specialists. Although
it is not possible to assign an exact dollar value to these services, they
may, to the extent used, tend to reduce Loomis Sayles' expenses. Such services
may be used by Loomis Sayles in servicing other client accounts and in some
cases may not be used with respect to the Funds. Receipt of services or
products other than research from brokers is not a factor in the selection of
brokers.
DESCRIPTION OF THE TRUST
The Trust, registered with the SEC as a diversified open-end management
investment company, is organized as a Massachusetts business trust under the
laws of Massachusetts by an Agreement and Declaration of Trust (the
"Declaration of Trust") dated February 20, 1991. The Trust currently has
eighteen series: The Bond Fund, Managed Bond Fund, Core Value Fund, Global
Bond Fund, Growth Fund, High Yield Fund, High Yield Fund II, Intermediate
Maturity Bond Fund, International Equity Fund, Investment Grade Bond Fund,
Mid-Cap Growth Fund, Mid-Cap Value Fund, Municipal Bond Fund, Short-Term Bond
Fund, Small Cap Growth Fund, Small Cap Value Fund, U.S. Government Securities
Fund and Worldwide Fund.
The Declaration of Trust currently permits the trustees to issue an
unlimited number of full and fractional shares of each series. Each share of
the Fund represents an equal proportionate interest in the Fund with each
other share of the Fund and is entitled to a proportionate interest in the
dividends and distributions from the Fund. The shares of the Fund do not have
any preemptive rights. Upon termination of the Fund, whether pursuant to
liquidation of the Trust or otherwise, shareholders of the Fund are entitled
to share pro rata in the net assets of the Fund available for distribution to
shareholders. The Declaration of Trust also permits the trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.
The assets received by the Fund for the issue or sale of its shares and all
income, earnings, profits, losses and proceeds therefrom, subject only to the
rights of creditors, are allocated to, and constitute the underlying assets
of, the Fund. The underlying assets are segregated and are charged with the
expenses with respect to the Fund and with a share of the general expenses of
the Trust. Any general expenses of the Trust that are not readily identifiable
as belonging to a particular Series are allocated by or under the direction of
the trustees in such manner as the trustees determine to be fair and
equitable. While the expenses of the Trust are allocated to the separate books
of account of each Series, certain expenses may be legally chargeable against
the assets of all Series.
The Declaration of Trust also permits the trustees, without shareholder
approval, to subdivide the Fund into various classes of shares with such
dividend preferences and other rights as the trustees may designate. Shares of
the Fund are not currently divided into classes. The trustees may also,
without shareholder approval, establish one or more additional separate
portfolios for investments in the Trust or merge two or more existing series.
Shareholders' investments in such an additional or merged portfolio would be
evidenced by a separate series of shares (i.e., a new "fund").
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The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust or the Fund, however, may be terminated at any time by vote of at
least two-thirds of the outstanding shares of the Trust or the Fund,
respectively. The Declaration of Trust further provides that the trustees may
also terminate the Trust or the Fund upon written notice to the shareholders.
VOTING RIGHTS
As summarized in the Prospectus, shareholders are entitled to one vote for
each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) on the
election of trustees and the termination of the Trust and on other matters
submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a vote of
all Trust shareholders, all Trust shares entitled to vote shall be voted
together irrespective of series or sub-series unless the rights of a
particular series or sub-series would be adversely affected by the vote, in
which case a separate vote of that series or sub-series shall also be required
to decide the question. Also, a separate vote shall be held whenever required
by the 1940 Act or any rule thereunder. Rule 18f-2 under the 1940 Act provides
in effect that a class shall be deemed to be affected by a matter unless it is
clear that the interests of each class in the matter are substantially
identical or that the matter does not affect any interest of such class. On
matters affecting an individual series, only shareholders of that series are
entitled to vote. Consistent with the current position of the SEC,
shareholders of all series vote together, irrespective of series, on the
election of trustees and the selection of the Trust's independent accountants,
but shareholders of each series vote separately on other matters requiring
shareholder approval, such as certain changes in investment policies of that
series or the approval of the investment advisory agreement relating to that
series.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the board of trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders.
In addition, trustees may be removed from office by a written consent signed
by the holders of two-thirds of the outstanding shares and filed with the
Trust's custodian or by a vote of the holders of two-thirds of the outstanding
shares at a meeting duly called for that purpose, which meeting shall be held
upon the written request of the holders of not less than 10% of the
outstanding shares.
Upon written request by the holders of shares having a net asset value
constituting 1% of the outstanding shares stating that such shareholders wish
to communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders).
Except as set forth above, the trustees shall continue to hold office and
may appoint successor trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the Trust, except (i) to
change the Trust's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund of which they are
shareholders. However, the Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each
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agreement, obligation or instrument entered into or executed by the Trust or
the trustees. The Declaration of Trust provides for indemnification out of
Fund property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which the disclaimer is
inoperative and the Fund itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. The By-Laws of the Trust provide for indemnification by
the Trust of the trustees and officers of the Trust except with respect to any
matter as to which any such person did not act in good faith in the reasonable
belief that such action was in or not opposed to the best interests of the
Trust. No officer or trustee may be indemnified against any liability to the
Trust or the Trust's shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
HOW TO BUY SHARES
The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares."
NET ASSET VALUE
The net asset value of the shares of the Fund is determined by dividing the
Fund's total net assets (the excess of its assets over its liabilities) by the
total number of shares of the Fund outstanding and rounding to the nearest
cent. Such determination is made as of the close of regular trading on the New
York Stock Exchange on each day on which that Exchange is open for
unrestricted trading, and no less frequently than once daily on each day
during which there is sufficient trading in the Fund's portfolio securities
that the value of the Fund's shares might be materially affected. During the
12 months following the date of this Statement of Additional Information, the
New York Stock Exchange is expected to be closed on the following weekdays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Long-term debt securities are valued by a pricing service, which determines
valuations of normal institutional-size trading units of long-term debt
securities. Such valuations are determined using methods based on market
transactions for comparable securities and on various relationships between
securities which are generally recognized by institutional traders. Other
securities for which current market quotations are not readily available
(including restricted securities, if any) and all other assets are taken at
fair value as determined in good faith by the board of trustees, although the
actual calculations may be made by persons acting pursuant to the direction of
the board.
Generally, trading in non-U.S. securities markets is substantially completed
each day at various times prior to the close of regular trading on the New
York Stock Exchange. Occasionally, events affecting the value of non-U.S.
fixed income securities may occur between the completion of substantial
trading of such securities for the day and the close of regular trading on the
New York Stock Exchange, which events will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of the
Fund's portfolio securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or in
accordance with procedures approved by the trustees.
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SHAREHOLDER SERVICES*
OPEN ACCOUNTS
A shareholder's investment in the Fund is automatically credited to an open
account maintained for the shareholder by Boston Financial Data Services, Inc.
("BFDS"), the shareholder servicing agent for State Street Bank. Certificates
representing shares are issued only upon written request to BFDS but are not
issued for fractional shares. Following each transaction in the account, a
shareholder will receive an account statement disclosing the current balance
of shares owned and the details of recent transactions in the account. After
the close of each fiscal year, State Street Bank will send each shareholder a
statement providing federal tax information on dividends and distributions
paid to the shareholder during the year. This should be retained as a
permanent record. Shareholders will be charged a fee for duplicate
information.
The open account system permits the purchase of full and fractional shares
and, by making the issuance and delivery of certificates representing shares
unnecessary, eliminates the problems of handling and safekeeping certificates,
and the cost and inconvenience of replacing lost, stolen, mutilated or
destroyed certificates.
The costs of maintaining the open account system are borne by the Trust, and
no direct charges are made to shareholders. Although the Trust has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
If a shareholder selects the telephone redemption service in the manner
described in the next paragraph, Fund shares may be redeemed by calling
Loomis, Sayles at 800-633-3330 Option 5. When a telephonic redemption request
is received, the proceeds are wired to the bank account previously chosen by
the shareholder. Telephonic redemption requests must be received by Loomis,
Sayles prior to the close of regular trading on the New York Stock Exchange on
a day when the Exchange is open for business. Requests made after that time or
on a day when the New York Stock Exchange is not open for business cannot be
accepted and a new request will be necessary.
In order to redeem shares by telephone, a shareholder must either select
this service when completing the Fund application. When selecting the service,
a shareholder must designate a bank account to which the redemption proceeds
should be wired. Any change in the bank account so designated must be made by
furnishing written instructions to Loomis, Sayles. Telephone redemptions may
only be made if an investor's bank is a member of the Federal Reserve System
or has a correspondent bank that is a member of the System. If the account is
with a savings bank, it must have only one correspondent bank that is a member
of the System. The Trust, BFDS, Loomis Sayles Distributors, L.P. and State
Street Bank are not responsible for the authenticity of withdrawal
instructions received by telephone.
The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by Loomis, Sayles in proper form. Proceeds resulting from a written
redemption request will normally be mailed to the shareholder within seven
days after receipt of a request in good order. Telephonic redemption proceeds
will normally be wired on the first business day following receipt of a proper
redemption request. In those cases where a shareholder has recently purchased
shares by check and the check was received less than fifteen days prior to the
redemption request, the Fund may withhold redemption proceeds until the check
has cleared.
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A redemption generally constitutes a sale of the shares for federal income
tax purposes on which the investor may realize a long- or short-term capital
gain or loss. See "Income Dividends, Capital Gain Distributions and Tax
Status."
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
As described in the Prospectus under "Dividends, Capital Gain Distributions
and Taxes" it is the policy of the Fund to pay its shareholders, as dividends,
substantially all net investment income and to distribute annually all net
realized capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the Fund based upon the net asset value determined as of
the close of regular trading on the New York Stock Exchange on the record date
for each dividend or distribution. Shareholders, however, may elect to receive
their income dividends or capital gain distributions, or both, in cash. The
election may be made at any time by submitting a written request directly to
State Street Bank. In order for a change to be in effect for any dividend or
distribution, it must be received by State Street Bank on or before the record
date for such dividend or distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31
of the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order so to qualify, and to qualify for the
favorable tax treatment accorded regulated investment companies and their
shareholders, the Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale of securities or foreign currencies, or
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (ii) distribute with respect to each taxable
year at least 90% of the sum of its taxable net investment income, its tax-
exempt income, and the excess, if any, of net short-term capital gains over
net long-term capital losses for such year; (iii) at the end of each quarter
of the taxable year maintain at least 50% of the value of its total assets in
cash, U.S. Government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with respect to
each issuer, no more than 5% of the value of the Fund's total assets and 10%
of the outstanding voting securities of such issuer; and (iv) at the end of
each quarter of the taxable year, hold not more than 25% of the value of its
assets in the securities (other than those of the U.S. Government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades or businesses. To the extent it qualifies for treatment as a regulated
investment company, the Fund will not be subject to federal income tax on
income paid to its shareholders in the form of dividends or capital gain
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over its distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its capital gain net income realized
during the one-year period ending on October 31 (or December 31, if the Fund
so elects) plus undistributed amounts from prior years. The Fund intends to
make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by the Fund during October, November or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which
declared.
Shareholders of the Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares
of the Fund. Distributions by the Fund of net income and short-term capital
gains, if any, will be taxable to shareholders as ordinary income.
Distributions designated by the Fund as deriving from net gains on securities
held for more than one year will be taxable to shareholders as long-term
capital gain (generally taxable to individuals at a 20% rate) without regard
to how long a shareholder has held shares of the Fund. Some 1998 distributions
of gains realized in 1997 may be taxable to individuals at a 28% tax rate.
Shareholders who are not subject to U.S. federal income tax generally will not
have to pay tax on such long-term capital gain dividends.
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Dividends and distributions on Fund shares received shortly after their
purchase, although economically a return of capital, are subject to federal
income taxes as described in the preceding paragraph.
The Fund's transactions, if any, in foreign currencies are likely to result
in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to avoid excise tax liability and to
qualify as a regulated investment company.
Investments by the Fund in "passive foreign investment companies" could
subject the Fund to a U.S. federal income tax or other charge on the proceeds
from the sale of its investment in such a company; however, this tax can be
avoided by making an election to mark such investments to market annually or
to treat the passive foreign investment company as a "qualified electing
fund." A "passive foreign investment company" is any foreign corporation: (i)
75% or more of the income of which for the taxable year is passive income, or
(ii) the average percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for the
production of passive income is at least 50 percent. Generally, passive income
for this purpose means dividends, interest (including income equivalent to
interest), royalties, rents, annuities, the excess of gains over losses from
certain property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not include rents and
royalties received by the foreign corporation from active business and certain
income received from related persons.
The Fund's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as
dividends to its shareholders all of its income and gains and therefore to
eliminate any tax liability at the Fund level.
If the Fund engages in hedging transactions, including hedging transactions
in options, futures contracts, and straddles, or other similar transactions,
it will be subject to special tax rules (including constructive sale, mark-to-
market, straddle, wash sale, and short sale rules), the effect of which may be
to accelerate income to the Fund, defer losses to the Fund, cause adjustments
in the holding periods of the Fund's securities, or convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
In general, any gain realized upon a taxable disposition of shares will be
long-term capital gain (generally taxable to individuals at 20%) if the shares
have been held for more than one year. Otherwise the gain on the sale,
exchange or redemption of Fund shares will be treated as short-term capital
gain. If a shareholder sells Fund shares at a loss within six months after
purchasing the shares, the loss will be treated as a long-term capital loss to
the extent of any long-term capital gain distributions received by the
shareholder with respect to the shares. Furthermore, all or a portion of any
loss on the sale of Fund shares may be disallowed if the shareholder acquired
other shares of the Fund within 30 days prior to the sale of the loss shares
or 30 days after such sale. Shareholders who are not subject to U.S. federal
income tax generally will not have to pay tax on gains realized upon a
disposition of Fund shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to foreign, state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, foreign, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law. Non-
U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility
that distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding
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provided by treaty), the possibility that a non-U.S. investor may be subject
to U.S. tax on capital gain distributions and gains realized upon the sale of
Fund shares if the investor is present in the United States for more than 182
days during the taxable year (and certain other conditions apply), or the
possibility that a non-U.S. investor may be subject to U.S. tax on income from
the Fund that is "effectively connected" with a U.S. trade or business carried
on by such investor.
The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding and withholding
tax rules. The new regulations will generally be effective for payments made
on or after December 31, 1999 (although transition rules will apply). In some
circumstances, the new rules will increase the certification and filing
requirements imposed on foreign investors in order to qualify for exemption
from the 31% back-up withholding tax and for reduced withholding tax rates
under income tax treaties. Foreign investors in the Fund should consult their
tax advisors with respect to the potential application of these new
regulations.
FINANCIAL STATEMENTS
The Fund's fiscal year ends on September 30. Audited financial statements
will be prepared and distributed annually and unaudited financial statements
will be prepared and distributed semi-annually.
CALCULATION OF YIELD AND TOTAL RETURN
Yield. Yield with respect to the Fund will be computed by dividing the
Fund's net investment income for a recent 30-day period by the maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net investment
income will reflect amortization of any market value premium or discount of
fixed income securities (except for obligations backed by mortgages or other
assets) and may include recognition of a pro rata portion of the stated
dividend rate of dividend paying portfolio securities. The Fund's yield will
vary from time to time depending upon market conditions, the composition of
the Fund's portfolio and operating expenses of the Fund. These factors, and
possible differences in the methods used in calculating yield, should be
considered when comparing the Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of the Fund's shares and to the
relative risks associated with the investment objectives and policies of the
Fund.
At any time in the future, yields may be higher or lower than past yields
and there can be no assurance that any historical results will continue.
Investors in the Fund are specifically advised that the net asset value per
share of the Fund may vary, just as yields for the Fund may vary. An
investor's focus on yield to the exclusion of the consideration of the value
of shares of the Fund may result in the investor's misunderstanding the total
return he or she may derive from the Fund.
Total Return. Total Return with respect to the Fund is a measure of the
change in value of an investment in the Fund over the period covered, and
assumes any dividends or capital gains distributions are reinvested
immediately, rather than paid to the investor in cash. The formula for total
return used herein includes four steps: (1) adding to the total number of
shares purchased through a hypothetical $1,000 investment (giving effect to
the maximum sales charge) in the Fund all additional shares which would have
been purchased if all dividends and distributions paid or distributed during
the period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the
net asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing the resulting account
value by the initial $1,000 investment.
PERFORMANCE COMPARISONS
Yield and Total Return. The Fund may from time to time include its total
return information in advertisements or in information furnished to present or
prospective shareholders. The Fund may from time to time include the yield
and/or total return of its shares in advertisements or information furnished
to present or prospective shareholders.
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PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
This Post-Effective Amendment relates solely to the Loomis Sayles High Yield
Fund II series of Loomis Sayles Funds. Information contained in the Registrant's
Registration Statement relating to any other series of the registrant is neither
amended nor superseded hereby.
<PAGE>
Part C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial statements: See "Financial Highlights" contained in the
Prospectus.
(b) Exhibits:
1. Agreement and Declaration of Trust.(4)
2. By-Laws.(4)
3. Not Applicable.
4. Not Applicable.
5(a). Form of Investment Advisory Agreement.(4)
5(b). Form of Amendment No. 1 to Investment Advisory Agreement for the Growth
Fund.(2)
5(c). Form of Amendment No. 1 to Investment Advisory Agreement for the Core
Value Fund.(2)
5(d). Form of Amendment No. 1 to Investment Advisory Agreement for the
Small Cap Value Fund.(2)
5(e). Form of Amendment No. 1 to Investment Advisory Agreement for the
International Equity Fund.(2)
5(f). Form of Amendment No. 1 to Investment Advisory Agreement for the
Worldwide Fund.(2)
5(g). Form of Amendment No. 1 to Investment Advisory Agreement for the
Global Bond Fund.(2)
5(h). Form of Amendment No. 1 to Investment Advisory Agreement for the U.S.
Government Securities Fund.(2)
5(I). Form of Amendment No. 1 to Investment Advisory Agreement for the
Municipal Bond Fund.(2)
5(j). Form of Amendment No. 1 to Investment Advisory Agreement for the
Short-Term Bond Fund.(2)
5(k). Form of Investment Advisory Agreement for the Small Cap Growth
Fund.(2)
<PAGE>
5(l). Form of Investment Advisory Agreement for the Investment Grade Bond
Fund.(2)
5(m). Form of Investment Advisory Agreement for the Mid-Cap Value Fund.(2)
5(n). Form of Investment Advisory Agreement for the Mid-Cap Growth Fund.(2)
5(o). Form of Investment Advisory Agreement for the Strategic Value Fund.(2)
5(p). Form of Investment Advisory Agreement for the Intermediate Maturity
Bond Fund.(2)
5(q). Form of Investment Advisory Agreement for the Managed Bond Fund.
5(r). Form of Investment Advisory Agreement for the High Yield Fund II.
6. Form of Amended and Restated Distribution Agreement.(2)
7. Not Applicable.
8(a). Form of Custodian Agreement.(4)
8(b). Letter Agreement between the Registrant and State Street Bank and
Trust Company relating to the applicability of the Custodian
Agreement to Loomis Sayles Short-Term Bond Fund.(3)
8(c). Letter Agreement between the Registrant and State Street Bank and
Trust Company applicability of the relating to the Custodian Agreement
to Loomis Sayles High Yield Fund.(3)
8(d). Letter Agreement between the Registrant and State Street Bank and Trust
Company relating to the applicability of the Custodian Agreement to
Loomis Sayles Intermediate Maturity Bond Fund, Sayles Investment Grade
Bond Fund, Loomis Sayles Mid-Cap Growth Fund, Loomis Loomis Sayles Mid-
Cap Value Fund, Loomis Sayles Small Cap Growth Fund and Loomis Sayles
Strategic Value Fund.(3)
8(e). Form of Letter Agreement between the Registrant and State Street Bank
and Trust Company relating to the applicability of the Custodian
Agreement to Loomis Sayles Worldwide Fund.(3)
8(f). Form of Letter Agreement between the Registrant and State Street Bank
and Trust Company relating to the applicability of the Custodian to
Loomis Sayles Managed Bond Fund and Loomis Sayles High Yield Fund II
to be filed by amendment.
9(a). Form of Shareholder's Servicing and Transfer Agent Agreement.(4)
9(b). Letter Agreement between the Registrant and State Street Bank and
Trust Company relating to the applicability of the Transfer Agency and
Service Agreement to Loomis Sayles Short-Term Bond Fund.(3)
9(c). Letter Agreement between the Registrant and State Street Bank and
Trust Company relating to the applicability of the Transfer Agency and
Service Agreement to Loomis Sayles High Yield Fund and Loomis Sayles
Worldwide Fund.(3)
<PAGE>
9(d). Letter Agreement between the Registrant and State Street Bank and
Trust Company relating to the applicability of the Transfer Agency
and Service Agreement to Loomis Sayles Intermediate Maturity Bond
Fund, Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Mid-Cap
Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis Sayles Small Cap
Growth Fund and Loomis Sayles Strategic Value Fund.(3)
9(e). Form of Agreement between Registrant on behalf of its Loomis Sayles
Managed Bond Fund and Loomis Sayles High Yield Fund II and State Street
Bank etc. to be filed by amendment.
10. Opinion and Consent of Counsel.(2)
10(a). Form of Opinion and Consent of Counsel relating to Loomis Sayles
Managed Bond Fund and Loomis Sayles High Yield Fund II.
11. Not Applicable.
12. Not Applicable.
13(a). Investment Representation Regarding Initial Shares.(4)
13(b). Form of Organizational Expense Reimbursement Agreement.(4)
14. Form of IRA prototype documents.(4)
15. Form of Distribution Plan - Retail Class.(2)
15(a). Form of Distribution Plan - Admin Class.(4)
15(b). Form of Service and Distribution Plan relating to Loomis Sayles Managed
Bond Fund and Loomis Sayles High Yield Fund II.
16. Schedule for Performance Computations.(2)
17. Not Applicable.
18. Amended and Restated Rule 18f-3(d) Plan.(4)
19. Powers of Attorney.(1)
- --------------------
(1) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 7 to this Registration Statement filed with the
Commission on February 16, 1996.
(2) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 11 to this Registration Statement filed with
the Commission on October 9, 1996.
(3) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 12 to this Registration filed with the
Commission on March 10, 1997.
(4) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 13 to this Registration filed with the
Commission on October 31, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Not Applicable.
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
<TABLE>
<CAPTION>
Fund Number of Record Holders (as of June 30, 1998)
---- -----------------------------------------------
Admin Class Institutional Class Retail Class
----------- ------------------- ------------
<S> <C> <C> <C>
Bond Fund 8 19,864 2,084
Core Value N/A 698 45
Fund
Global Bond N/A 218 151
Fund
Growth Fund N/A 442 16
High Yield N/A 84 88
Fund
Intermediate N/A 20 8
Maturity Bond
Fund
International N/A 631 24
Equity Fund
Investment N/A 23 56
Grade Bond
Fund
Mid-Cap N/A 16 9
Growth Fund
Mid-Cap Value N/A 86 11
Fund
Municipal N/A 93 N/A
Bond Fund
Short-Term N/A 184 16
Bond Fund
Small Cap N/A 72 22
Growth Fund
Small Cap 8 3,077 520
Value Fund
Strategic Value N/A 15 6
Fund
U.S. N/A 133 N/A
Government
Securities Fund
Worldwide N/A 31 6
Fund
</TABLE>
<PAGE>
Item 27. Indemnification
---------------
Incorporated by reference to Item 27 of Post-Effective Amendment No. 1 to this
Registration Statement filed on November 7, 1991.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the adviser of the
Registrant, provides investment advice to the seven series of Loomis Sayles
Investment Trust, five series of New England Funds Trust I, one series of New
England Funds Trust II, one series of New England Funds Trust III, and two
series of New England Zenith Funds, all of which are registered investment
companies, and to other organizations and individuals.
The sole general partner of Loomis Sayles is Loomis, Sayles & Company,
Incorporated, One Financial Center, Boston, Massachusetts 02111.
Item 29. Principal Underwriters
----------------------
The Trust's principal underwriter is Loomis Sayles Distributors, L.P., the sole
general partner of which is Loomis Sayles Distributors, Incorporated.
Item 30. Location of Accounts and Records
--------------------------------
The following companies maintain possession of the documents required by the
specified rules:
(a) Registrant
Rule 31a-1(b)(4), (9), (10), (11)
Rule 31a-2(a)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(a)
(c) Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(f)
Rule 31a-2(e)
(d) Loomis, Sayles Distributors, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(d)
Rule 31a-2(c)
<PAGE>
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(I) The Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940 as though such provisions of the Act were applicable
to the Registrant.
(ii) The Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of Registrant's most recent annual report upon request
and without charge.
********************
NOTICE
A copy of the Agreement and Declaration of Trust of Loomis Sayles Funds (the
"Trust") is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, in The Commonwealth of Massachusetts on
the 5th day of August, 1998.
LOOMIS SAYLES FUNDS
By: DANIEL J. FUSS*
- -----------------------------
Daniel J. Fuss, President
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this amendment to the Registration Statement of Loomis
Sayles Funds has been signed below by the following persons in the capacities
and on the date indicated.
Signature Title
- ------------ -----
DANIEL J. FUSS* President and Trustee
- -----------------------------
Daniel J. Fuss
MARK W. HOLLAND* Treasurer
- -----------------------------
Mark W. Holland
EARL W. FOELL* Trustee
- -----------------------------
Earl W. Foell
RICHARD S. HOLWAY* Trustee
- -----------------------------
Richard S. Holway
MICHAEL T. MURRAY* Trustee
- -----------------------------
Michael T. Murray
TERRY R. LAUTENBACH* Trustee
- -----------------------------
Terry R. Lautenbach
*By
/s/MARK W. HOLLAND
- -----------------------------
Mark W. Holland, for himself
and as Attorney-in-fact
August 5, 1998
<PAGE>
EXHIBIT 5(r)
ADVISORY AGREEMENT
------------------
AGREEMENT made this ___ day of July, 1998, by and between Loomis Sayles
Funds, a Massachusetts business trust (the "Trust"), with respect to its Loomis
Sayles High Yield Fund II series (the "Series"), and Loomis, Sayles & Company,
Incorporated, a Massachusetts corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust and the Adviser wish to enter into an agreement setting
forth the terms upon which the Adviser will perform certain services for the
Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
1. The Trust hereby employs the Adviser to manage the investment and
reinvestment of the assets belonging to the Series and to perform the other
services herein set forth, subject to the supervision of the Board of Trustees
of the Trust. The Adviser hereby accepts such employment and agrees, at its own
expense, to render the services and to assume the obligations herein set forth,
for the compensation herein provided. The Adviser shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Trust in
any way or otherwise be deemed an agent of the Trust.
2. In carrying out its obligations to manage the investment and
reinvestment of the assets belonging to the Series, the Adviser shall:
(a) obtain and evaluate such economic, statistical and financial data
and information and undertake such additional investment research as it
shall believe necessary or advisable for the management of the investment
and reinvestment of the assets belonging to the Series in accordance with
the Series' investment objective and policies;
(b) take such steps as are necessary to implement the investment
policies of the Series by purchase and sale of securities, including the
placing of orders for such purchase and sale; and
(c) regularly report to the Board of Trustees with respect to the
implementation of the investment policies of the Series.
<PAGE>
3. All activities in connection with the management of the affairs of the
Series undertaken by the Adviser pursuant to this Agreement shall at all times
be subject to the supervision and control of the Board of Trustees, any duly
constituted committee thereof or any officer of the Trust acting pursuant to
like authority.
4. In addition to performing at its expense the obligations set forth in
section 2 hereof, the Adviser shall furnish to the Trust at the Adviser's own
expense or pay the expenses of the Trust for the following:
(a) office space in such place or places as may be agreed upon from
time to time, and all necessary office supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the affairs
of the Series (exclusive of those related to and to be performed under
contract for custodial, transfer, dividend and plan agency services by the
entity or entities selected to perform such services and exclusive of any
managerial functions described in section 5); and
(c) compensation, if any, of Trustees of the Trust who are directors,
officers, partners or employees of the Adviser or any affiliated person
(other than a registered investment company) of the Adviser.
5. Except as the Adviser may otherwise agree from time to time, nothing
in section 4 hereof shall require the Adviser to bear, or to reimburse the Trust
for:
(a) any of the costs of printing and distributing the items referred
to in subsection (n) of this section 5;
(b) any of the costs of preparing, printing and distributing sales
literature;
(c) compensation of Trustees of the Trust who are not directors,
officers, partners or employees of the Adviser or of any affiliated person
(other than a registered investment company) of the Adviser;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of the custodian appointed by the Trust
for custodial, paying agent, transfer agent and plan agent services;
(f) charges and expenses of independent accountants retained by the
Trust;
(g) charges and expenses of any transfer agents and registrars
appointed by the Trust;
-2-
<PAGE>
(h) brokers' commissions and issue and transfer taxes chargeable to
the Trust in connection with securities transactions to which the Trust is
a party;
(i) taxes and fees payable by the Trust to Federal, State or other
governmental agencies;
(j) any cost of certificates representing shares of the Series;
(k) legal fees and expenses in connection with the affairs of the
Trust including registering and qualifying its shares with Federal and
State regulatory authorities;
(l) expenses of meetings of shareholders and Trustees of the Trust;
(m) interest, including interest on borrowings by the Trust;
(n) the cost of services, including services of counsel, required in
connection with the preparation of the Trust's registration statements and
prospectuses, including amendments and revisions thereto, annual,
semiannual and other periodic reports of the Trust, and notices and proxy
solicitation material furnished to shareholders of the Trust or regulatory
authorities; and
(o) the Trust's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
6. The services of the Adviser to the Trust hereunder are not to be
deemed exclusive and the Adviser shall be free to render similar services to
others, so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities furnished
and expenses borne by the Adviser hereunder, the Trust shall pay the Adviser
compensation at the annual percentage rate of 0.60%, or such lesser rate as the
Adviser may agree to from time to time. Such compensation shall be payable
monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Board of Trustees of the Trust may from time to time determine
and specify in writing to the Adviser. The Adviser hereby acknowledges that
the Trust's obligation to pay such compensation is binding only on the assets
and property belonging to the Series.
8. If the total of all ordinary business expenses of the Series or the
Trust as a whole (including investment advisory fees but excluding taxes and
portfolio brokerage commissions) for any fiscal year exceeds the lowest
applicable percentage of average net assets or income limitations prescribed by
any state in which shares of the Series are qualified for sale, the Adviser
shall pay any such excess. Solely for purposes of applying such limitations
-3-
<PAGE>
in accordance with the foregoing sentence, the Series and the Trust shall each
be deemed to be a separate fund subject to such limitations. Should the
applicable state limitation provisions fail to specify how the average net
assets of the Trust or belonging to the Series are to be calculated, that figure
shall be calculated by reference to the average daily net assets of the Trust or
the Series, as the case may be.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Trust may be a partner, shareholder, director,
officer, employee or agent of, or be otherwise interested in, the Adviser, any
affiliated person of the Adviser, any organization in which the Adviser may have
an interest or any organization which may have an interest in the Adviser; that
the Adviser, any such affiliated person or any such organization may have an
interest in the Trust; and that the existence of any such dual interest shall
not affect the validity hereof or of any transactions hereunder except as
otherwise provided in the Agreement and Declaration of Trust of the Trust and
the Articles of Organization of the Adviser, respectively, or by specific
provisions of applicable law.
10. This Agreement shall become effective as of the date of its execution,
and
(a) unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter only so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Series, and (ii) by
vote of a majority of the Trustees of the Trust who are not interested
persons of the Trust or the Adviser, cast in person at a meeting called for
the purpose of voting on such approval;
(b) this Agreement may at any time be terminated on sixty days'
written notice to the Adviser either by vote of the Board of Trustees of
the Trust or by vote of a majority of the outstanding voting securities of
the Series;
(c) this Agreement shall automatically terminate in the event of its
assignment;
(d) this Agreement may be terminated by the Adviser on ninety days'
written notice to the Trust;
(e) if the Adviser requires the Trust or the Series to change its name
so as to eliminate all references to the words "Loomis" or "Sayles," then
this Agreement shall automatically terminate at the time of such change
unless the continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the Trustees of the
Trust who are not interested persons of the Trust or the Adviser, cast in
person at a meeting called for the purpose of voting on such approval.
-4-
<PAGE>
Termination of this Agreement pursuant to this section 10 shall be without
payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Trust shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust or the Adviser, cast in person at a meeting
called for the purposes of voting on such approval.
12. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the Investment
Company Act of 1940 and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act. References in this Agreement to any assets, property or
liabilities "belonging to" the Series shall have the meaning defined in the
Trust's Agreement and Declaration of Trust and By-Laws as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Adviser, or reckless disregard of its obligations and duties
hereunder, the Adviser shall not be subject to any liability to the Trust, to
any shareholder of the Trust or to any other person, firm or organization, for
any act or omission in the course of, or connected with, rendering services
hereunder.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
LOOMIS SAYLES FUNDS,
on behalf of its
Loomis Sayles High Yield Fund II series
By: __________________________
Name:
Title:
LOOMIS, SAYLES & COMPANY, INCORPORATED
By __________________________
Name:
Title:
A copy of the Agreement and Declaration of Trust establishing the Trust is
on file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is executed with respect to the
Trust's Loomis Sayles Managed Bond Fund series on behalf of the Trust by
officers of the Trust as officers and not individually and that the obligations
of or arising out of this Agreement are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the assets and
property belonging to the Series.
-6-
<PAGE>
EXHIBIT 5(q)
ADVISORY AGREEMENT
------------------
AGREEMENT made this ___ day of June, 1998, by and between Loomis Sayles
Funds, a Massachusetts business trust (the "Trust"), with respect to its Loomis
Sayles Managed Bond Fund series (the "Series"), and Loomis, Sayles & Company,
Incorporated, a Massachusetts corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust and the Adviser wish to enter into an agreement setting
forth the terms upon which the Adviser will perform certain services for the
Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
1. The Trust hereby employs the Adviser to manage the investment and
reinvestment of the assets belonging to the Series and to perform the other
services herein set forth, subject to the supervision of the Board of Trustees
of the Trust. The Adviser hereby accepts such employment and agrees, at its own
expense, to render the services and to assume the obligations herein set forth,
for the compensation herein provided. The Adviser shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Trust in
any way or otherwise be deemed an agent of the Trust.
2. In carrying out its obligations to manage the investment and
reinvestment of the assets belonging to the Series, the Adviser shall:
(a) obtain and evaluate such economic, statistical and financial data
and information and undertake such additional investment research as it
shall believe necessary or advisable for the management of the investment
and reinvestment of the assets belonging to the Series in accordance with
the Series' investment objective and policies;
(b) take such steps as are necessary to implement the investment
policies of the Series by purchase and sale of securities, including the
placing of orders for such purchase and sale; and
(c) regularly report to the Board of Trustees with respect to the
implementation of the investment policies of the Series.
<PAGE>
3. All activities in connection with the management of the affairs of the
Series undertaken by the Adviser pursuant to this Agreement shall at all times
be subject to the supervision and control of the Board of Trustees, any duly
constituted committee thereof or any officer of the Trust acting pursuant to
like authority.
4. In addition to performing at its expense the obligations set forth in
section 2 hereof, the Adviser shall furnish to the Trust at the Adviser's own
expense or pay the expenses of the Trust for the following:
(a) office space in such place or places as may be agreed upon from
time to time, and all necessary office supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the affairs
of the Series (exclusive of those related to and to be performed under
contract for custodial, transfer, dividend and plan agency services by the
entity or entities selected to perform such services and exclusive of any
managerial functions described in section 5); and
(c) compensation, if any, of Trustees of the Trust who are directors,
officers, partners or employees of the Adviser or any affiliated person
(other than a registered investment company) of the Adviser.
5. Except as the Adviser may otherwise agree from time to time, nothing
in section 4 hereof shall require the Adviser to bear, or to reimburse the Trust
for:
(a) any of the costs of printing and distributing the items referred
to in subsection (n) of this section 5;
(b) any of the costs of preparing, printing and distributing sales
literature;
(c) compensation of Trustees of the Trust who are not directors,
officers, partners or employees of the Adviser or of any affiliated person
(other than a registered investment company) of the Adviser;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of the custodian appointed by the Trust
for custodial, paying agent, transfer agent and plan agent services;
(f) charges and expenses of independent accountants retained by the
Trust;
(g) charges and expenses of any transfer agents and registrars
appointed by the Trust;
-2-
<PAGE>
(h) brokers' commissions and issue and transfer taxes chargeable to
the Trust in connection with securities transactions to which the Trust is
a party;
(i) taxes and fees payable by the Trust to Federal, State or other
governmental agencies;
(j) any cost of certificates representing shares of the Series;
(k) legal fees and expenses in connection with the affairs of the
Trust including registering and qualifying its shares with Federal and
State regulatory authorities;
(l) expenses of meetings of shareholders and Trustees of the Trust;
(m) interest, including interest on borrowings by the Trust;
(n) the cost of services, including services of counsel, required in
connection with the preparation of the Trust's registration statements and
prospectuses, including amendments and revisions thereto, annual,
semiannual and other periodic reports of the Trust, and notices and proxy
solicitation material furnished to shareholders of the Trust or regulatory
authorities; and
(o) the Trust's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
6. The services of the Adviser to the Trust hereunder are not to be
deemed exclusive and the Adviser shall be free to render similar services to
others, so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities furnished
and expenses borne by the Adviser hereunder, the Trust shall pay the Adviser
compensation at the annual percentage rate of 0.60%, or such lesser rate as the
Adviser may agree to from time to time. Such compensation shall be payable
monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Board of Trustees of the Trust may from time to time determine
and specify in writing to the Adviser. The Adviser hereby acknowledges that
the Trust's obligation to pay such compensation is binding only on the assets
and property belonging to the Series.
8. If the total of all ordinary business expenses of the Series or the
Trust as a whole (including investment advisory fees but excluding taxes and
portfolio brokerage commissions) for any fiscal year exceeds the lowest
applicable percentage of average net assets or income limitations prescribed by
any state in which shares of the Series are qualified for sale, the Adviser
shall pay any such excess. Solely for purposes of applying such limitations
-3-
<PAGE>
in accordance with the foregoing sentence, the Series and the Trust shall each
be deemed to be a separate fund subject to such limitations. Should the
applicable state limitation provisions fail to specify how the average net
assets of the Trust or belonging to the Series are to be calculated, that figure
shall be calculated by reference to the average daily net assets of the Trust or
the Series, as the case may be.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Trust may be a partner, shareholder, director,
officer, employee or agent of, or be otherwise interested in, the Adviser, any
affiliated person of the Adviser, any organization in which the Adviser may have
an interest or any organization which may have an interest in the Adviser; that
the Adviser, any such affiliated person or any such organization may have an
interest in the Trust; and that the existence of any such dual interest shall
not affect the validity hereof or of any transactions hereunder except as
otherwise provided in the Agreement and Declaration of Trust of the Trust and
the Articles of Organization of the Adviser, respectively, or by specific
provisions of applicable law.
10. This Agreement shall become effective as of the date of its execution,
and
(a) unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter only so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Series, and (ii) by
vote of a majority of the Trustees of the Trust who are not interested
persons of the Trust or the Adviser, cast in person at a meeting called for
the purpose of voting on such approval;
(b) this Agreement may at any time be terminated on sixty days'
written notice to the Adviser either by vote of the Board of Trustees of
the Trust or by vote of a majority of the outstanding voting securities of
the Series;
(c) this Agreement shall automatically terminate in the event of its
assignment;
(d) this Agreement may be terminated by the Adviser on ninety days'
written notice to the Trust;
(e) if the Adviser requires the Trust or the Series to change its name
so as to eliminate all references to the words "Loomis" or "Sayles," then
this Agreement shall automatically terminate at the time of such change
unless the continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the Trustees of the
Trust who are not interested persons of the Trust or the Adviser, cast in
person at a meeting called for the purpose of voting on such approval.
-4-
<PAGE>
Termination of this Agreement pursuant to this section 10 shall be without
payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Trust shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust or the Adviser, cast in person at a meeting
called for the purposes of voting on such approval.
12. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the Investment
Company Act of 1940 and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act. References in this Agreement to any assets, property or
liabilities "belonging to" the Series shall have the meaning defined in the
Trust's Agreement and Declaration of Trust and By-Laws as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Adviser, or reckless disregard of its obligations and duties
hereunder, the Adviser shall not be subject to any liability to the Trust, to
any shareholder of the Trust or to any other person, firm or organization, for
any act or omission in the course of, or connected with, rendering services
hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
LOOMIS SAYLES FUNDS,
on behalf of its
Loomis Sayles Managed Bond Fund series
By: __________________________
Name:
Title:
LOOMIS, SAYLES & COMPANY, INCORPORATED
By __________________________
Name:
Title:
A copy of the Agreement and Declaration of Trust establishing the Trust is
on file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is executed with respect to the
Trust's Loomis Sayles Managed Bond Fund series on behalf of the Trust by
officers of the Trust as officers and not individually and that the obligations
of or arising out of this Agreement are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the assets and
property belonging to the Series.
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<PAGE>
EXHIBIT 6
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
AGREEMENT made this ____ day of July, 1998 by and between LOOMIS SAYLES FUNDS,
a Massachusetts business trust (the "Trust"), and LOOMIS SAYLES DISTRIBUTORS,
L.P., a Delaware limited partnership (the "Distributor").
W I T N E S S E T H:
In consideration of the premises and covenants hereinafter contained, the
Trust and the Distributor agree as follows:
1. Distributor. The Trust hereby appoints the Distributor as general
-----------
distributor of shares of beneficial interest of each series ("Series") of
the Trust ("Series shares") during the term of this Agreement. The Trust
reserves the right, however, to refuse at any time or times to sell any
Series shares hereunder for any reason deemed adequate by the Board of
Trustees of the Trust.
2. Sale and Payment. Under this agreement, the following provisions shall
----------------
apply with respect to the sale of and payment for Series shares:
(a) The Distributor shall have the right, as principal, to purchase Series
shares from the Trust at their net asset value and to sell such shares to
the public against orders therefor at such net asset value, together with,
in the case of the Series shares of the Loomis Sayles Managed Bond Fund and
the Loomis Sayles High Yield Fund II, the applicable sales charge, as set
forth in the current prospectus(es) of the Trust relating to the Series
shares of such Series.
(b) Prior to the time of delivery of any shares by the Trust to, or on the
order of, the Distributor, the Distributor shall pay or cause to be paid to
the Trust or to its order an amount in Boston or New York clearing house
funds equal to the applicable net asset value of such shares.
3. Fee. For its services as general distributor of the Series shares, the
---
Trust shall pay to the Distributor on behalf of the Series, a distribution
fee at the rate and upon the terms and conditions set forth in the
Distribution Plan(s) attached as Exhibit A hereto, and as amended from time
to time. The Distribution Fee shall be accrued daily and paid monthly to
the Distributor as soon as practicable after the end of the calendar month
in which it accrues, but in any event within five business days following
the last day of the month. In addition, the Distributor shall, in the case
of Series shares of the Loomis Sayles Managed Bond Fund and the Loomis
<PAGE>
Sayles High Yield Fund II, be entitled to retain any applicable sales
charge, as set forth in the current prospectus(es) of the Trust relating to
Series shares of such Series.
4. Public Offering Price. The public offering price shall be the net asset
---------------------
value of Series shares, together with, in the case of Loomis Sayles Managed
Bond Fund and the Loomis Sayles High Yield Fund II, the applicable sales
charge, as set forth in the current prospectus(es) of the Trust relating to
the Series shares of such Series. The net asset value of Series shares
shall be determined in accordance with the provisions of the agreement and
declaration of trust and by-laws of the Trust and the current
prospectus(es) of the Trust relating to the Series shares.
5. Trust Issuance of Series Shares. The delivery of Series shares shall be
-------------------------------
made promptly by a credit to a shareholder's open account for the relevant
Series. The Trust reserves the right (a) to issue Series shares at any
time directly to the shareholders of the Series as a stock dividend or
stock split, (b) to issue to such shareholders Series shares, or rights to
subscribe to Series shares, as all or part of any dividend that may be
distributed to shareholders of the Series or as all or part of any optional
or alternative dividend that may be distributed to shareholders of the
Series, and (c) to sell Series shares in accordance with any current
applicable prospectus of the Trust relating to the Series shares.
6. Repurchase. The Distributor shall act as agent for the Trust in connection
----------
with the repurchase of Series shares by the Trust to the extent and upon
the terms and conditions set forth in the current applicable prospectus(es)
of the Trust relating to the Series shares, and the Trust agrees to
reimburse the Distributor, from time to time upon demand, for any
reasonable expenses incurred in connection with such repurchases of shares.
7. Undertaking Regarding Sales. The Distributor shall use reasonable efforts
---------------------------
to sell Series shares but does not agree hereby to sell any specific number
of Series shares and shall be free to act as distributor of the shares of
other investment companies. Series shares will be sold by the Distributor
only against orders therefor. The Distributor shall not purchase Series
shares from anyone except in accordance with Sections 2 and 6 and shall not
take "long" or "short" positions in Series shares contrary to the agreement
and declaration of trust or by-laws of the Trust.
8. Compliance. The Distributor shall conform to the Conduct Rules of the
----------
National Association of Securities Dealers, Inc. ("NASD") and the sale of
securities laws of any jurisdiction in which it sells, directly or
indirectly, any Series shares. The Distributor agrees to make timely
filings, with the Securities and Exchange Commission (the "SEC") in
Washington, D.C., the NASD and such other regulatory authorities as may be
required, of any sales literature relating to the Series and intended for
distribution to
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<PAGE>
prospective investors. The Distributor also agrees to furnish to the Trust
sufficient copies of any agreements or plans it intends to use in
connection with any sales of Series shares in adequate time for the Trust
to file and clear them with the proper authorities before they are put in
use (which the Trust agrees to use its best efforts to do as expeditiously
as reasonably possible), and not to use them until so filed and cleared.
9. Registration and Qualification of Series Shares. The Trust agrees to
-----------------------------------------------
execute such papers and to do such acts and things as shall from time to
time be reasonably requested by the Distributor for the purpose of
qualifying and maintaining qualification of the Series shares for sale
under the so-called Blue Sky Laws of any state or for maintaining the
registration of the Trust and of the Series shares under the federal
Investment Company Act of 1940 (the "1940 Act") and the federal Securities
Act of 1933, to the end that there will be available for sale from time to
time such number of Series shares as the Distributor may reasonably be
expected to sell. The Trust shall advise the Distributor promptly of (a)
any action of the SEC or any authorities of any state or territory, of
which it may be advised, affecting registration or qualification of the
Trust or the Series shares, or rights to offer Series shares for sale, and
(b) the happening of any event which makes untrue any statement or which
requires the making of any change in the Trust's registration statement or
its prospectus relating to the Series shares in order to make the
statements therein not misleading.
10. Distributor Independent Contractor. The Distributor shall be an
----------------------------------
independent contractor and neither the Distributor nor any of its officers
or employees as such is or shall be an employee of the Trust. The
Distributor is responsible for its own conduct and the employment, control
and conduct of its agents and employees and for injury to such agents or
employees or to others through its agents or employees. The Distributor
assumes full responsibility for its agents and employees under applicable
statutes and agrees to pay all employer taxes thereunder.
11. Expenses Paid by Distributor. While the Distributor continues to act as
----------------------------
agent of the Trust to obtain subscriptions for and to sell Series shares,
the Distributor shall pay the following:
(a) all expenses of printing (exclusive of typesetting) and distributing
any prospectus for use in offering Series shares for sale, and all other
copies of any such prospectus used by the Distributor, and
(b) all other expenses of advertising and of preparing, printing and
distributing all other literature or material for use in connection with
offering Series shares for sale.
12. Interests in and of Distributor. It is understood that any of the
-------------------------------
shareholders, trustees, officers, employees and agents of the Trust may be
a shareholder, director, officer,
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<PAGE>
employee or agent of, or be otherwise interested in, the Distributor, any
affiliated person of the Distributor, any organization in which the
Distributor may have an interest or any organization which may have an
interest in the Distributor; that the Distributor, any such affiliated
person or any such organization may have an interest in the Trust; and that
the existence of any such dual interest shall not affect the validity
hereof or of any transaction hereunder except as otherwise provided in the
agreement and declaration of trust or by-laws of the Trust, in the limited
partnership agreement of the Distributor or by specific provision of
applicable law.
13. Effective Date and Termination. This Agreement shall become effective as
------------------------------
of the date of its execution, and
(a) Unless otherwise terminated, this Agreement shall continue in effect
with respect to the shares of a Series so long as such continuation is
specifically approved at least annually (i) by the Board of Trustees of the
Trust or by the vote of a majority of the votes which may be cast by
shareholders of the Series and (ii) by a vote of a majority of the Board of
Trustees of the Trust who are not interested persons of the Distributor or
the Trust, cast in person at a meeting called for the purpose of voting on
such approval.
(b) This Agreement may at any time be terminated on sixty days' notice to
the Distributor either by vote of a majority of the Trust's Board of
Trustees then in office or by the vote of a majority of the votes which may
be cast by shareholders of the Series.
(c) This Agreement shall automatically terminate in the event of its
assignment.
(d) This Agreement may be terminated by the Distributor on ninety days'
written notice to the Trust.
Termination of this Agreement pursuant to this section shall be without payment
of any penalty.
14. Definitions. For purposes of this Agreement, the following definitions
-----------
shall apply:
(a) The "vote of a majority of the votes which may be cast by shareholders
of the Series" means (1) 67% or more of the votes of the Series present (in
person or by proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of the Series entitled to vote at
such meeting are present; or (2) the vote of the holders of more than 50%
of the outstanding shares of the Series entitled to vote at such meeting,
whichever is less.
-4-
<PAGE>
(b) The terms "affiliated person," "interested person" and "assignment"
shall have their respective meanings as defined in the 1940 Act subject,
however, to such exemptions as may be granted by the SEC under the 1940
Act.
15. Amendment. This Agreement may be amended at any time by mutual consent of
---------
the parties, provided that such consent on the part of the Series shall be
approved (i) by the Board of Trustees of the Trust or by vote of a majority
of the votes which may be cast by shareholders of the Series and (ii) by a
vote of a majority of the Board of Trustees of the Trust who are not
interested persons of the Distributor or the Trust cast in person at a
meeting called for the purpose of voting on such approval.
16. Applicable Law and Liabilities. This Agreement shall be governed by and
------------------------------
construed in accordance with the laws of the Commonwealth of Massachusetts.
All sales hereunder are to be made, and title to the Series shares shall
pass, in Boston, Massachusetts.
17. Limited Recourse. The Distributor hereby acknowledges that the Trust's
----------------
obligations hereunder are binding only on the assets and property belonging
to the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
LOOMIS SAYLES FUNDS
By: ________________________________
Daniel J. Fuss
President
LOOMIS SAYLES DISTRIBUTORS, L.P.
By: Loomis Sayles Distributors, Incorporated,
its general partner
By: ________________________________
John L. Yeager
President
A copy of the Agreement and Declaration of Trust establishing Loomis Sayles
Funds (the "Trust") is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed on
behalf of the Trust by officers of the Trust as officers and not individually
and that the obligations of or arising out of this Agreement are not binding
upon any of the trustees, officers or shareholders of the Trust individually but
are binding only upon the assets and property of the Trust.
-5-
<PAGE>
EXHIBIT 10(a)
August __, 1998
Loomis Sayles Funds
One Financial Center
Boston, Massachusetts 02111
Ladies and Gentlemen:
We are furnishing this opinion in connection with the proposed offer and
sale by Loomis Sayles Funds, a Massachusetts business trust (the "Trust"), of
shares of beneficial interest of its Loomis Sayles Managed Bond Fund and Loomis
Sayles High Yield Fund II series (the "Shares") pursuant to a registration
statement on Form N-1A (the "Registration Statement") under the Securities Act
of 1933, as amended.
We are familiar with the action taken by the Trustees of the Trust to
authorize the issuance of the Shares. We have examined the Trust's By-Laws and
its Agreement and Declaration of Trust on file in the office of the Secretary of
The Commonwealth of Massachusetts and such other documents as we deem necessary
for the purposes of this opinion.
We assume that upon sale of the Shares the Trust will receive the net asset
value thereof.
Based upon the foregoing, we are of the opinion that the Trust is
authorized to issue an unlimited number of Shares, and that, when the Shares are
issued and sold, they will be validly issued, fully paid and nonassessable by
the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. The Agreement and Declaration of Trust provides for
<PAGE>
Loomis Sayles Funds -2- August __, 1998
indemnification out of the property of the particular series of shares for all
loss and expense of any shareholder of that series held personally liable solely
by reason of his or her having been a shareholder of that series. Thus, the
risk of shareholder liability is limited to circumstances in which that series
itself would be unable to meet its obligations.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Ropes & Gray
<PAGE>
EXHIBIT 15(b)
LOOMIS SAYLES MANAGED BOND FUND
SERVICE AND DISTRIBUTION PLAN
This Plan (the "Plan") constitutes the Service and Distribution Plan
relating to the shares of Loomis Sayles Managed Bond Fund (the "Series"), a
series of Loomis Sayles Funds, a Massachusetts business trust (the "Trust").
SECTION 1. The Trust, on behalf of the Series, will pay to Loomis Sayles
Distributors, L.P., a Delaware limited partnership which acts as the Principal
Distributor of the Series' shares, or such other entity as shall from time to
time act as the Principal Distributor of the Series' shares (the "Distributor"),
a fee (the "Service Fee") at an annual rate not to exceed 0.25% of the Series'
average daily net assets. Subject to such limit and subject to the provisions
of Section 7 hereof, the Service Fee shall be as approved from time to time by
(a) the Trustees of the Trust and (b) the Independent Trustees of the Trust.
The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. The Distributor may pay all or any
portion of the Service Fee to securities dealers or other organizations
(including, but not limited to, any affiliate of the Distributor) as service
fees pursuant to agreements with such organizations for providing personal
services to investors in shares of the Series and/or the maintenance of
shareholder accounts. All payments under this Section 1 are intended to qualify
as "service fees" as defined in the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD Rules").
SECTION 2. The Trust, on behalf of the Series, will pay to the
Distributor, a fee (the "Distribution Fee") at an annual rate not to exceed
0.50% of the Series' average daily net assets. Subject to such limit and
subject to the provisions of Section 7 hereof, the Distribution Fee shall be as
approved from time to time by (a) the Trustees of the Trust and (b) the
Independent Trustees of the Trust. The Distribution Fee shall be accrued daily
and paid monthly or at such other intervals as the Trustees shall determine.
The Distributor may pay all or any portion of the Distribution Fee to securities
dealers or other organizations (including, but not limited to, any affiliate of
the Distributor) as commissions, asset-based sales charges or other compensation
with respect to the sale of shares of the Series, and may retain all or any
portion of the Distribution Fee as compensation for the Distributor's services
as principal underwriter of the shares of the Series. All payments under this
Section 2 are intended to qualify as "asset-based sales charges" as defined in
the NASD Rules.
SECTION 3. This Plan shall continue in effect for a period of more than
one year after ___________ __, 1998 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
<PAGE>
SECTION 4. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
SECTION 5. This Plan may be terminated at any time by vote of a majority
of the Independent Trustees, or by vote of a majority of the outstanding shares
of the Series.
SECTION 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding shares of the Series, on not more
than 60 days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 7. This Plan may not be amended to increase materially the amount
of expenses permitted pursuant to Section 1 hereof without approval by a vote of
at least a majority of the outstanding shares of the Series, and all material
amendments of this Plan shall be approved in the manner provided for
continuation of this Plan in Section 2.
SECTION 8. As used in this Plan, (a) the term "Independent Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment" and "interested
person" shall have the respective meanings specified in the Act and the rules
and regulations thereunder, and the term "majority of the outstanding shares of
the Series" shall mean the lesser of the 67% or the 50% voting requirements
specified in clauses (A) and (B), respectively, of the third sentence of Section
2(a)(42) of the Act, all subject to such exemptions as may be granted by the
Securities and Exchange Commission.
-2-
<PAGE>
LOOMIS SAYLES HIGH YIELD FUND II
SERVICE AND DISTRIBUTION PLAN
This Plan (the "Plan") constitutes the Service and Distribution Plan
relating to the shares of Loomis Sayles High Yield Fund II (the "Series"), a
series of Loomis Sayles Funds, a Massachusetts business trust (the "Trust").
SECTION 1. The Trust, on behalf of the Series, will pay to Loomis Sayles
Distributors, L.P., a Delaware limited partnership which acts as the Principal
Distributor of the Series' shares, or such other entity as shall from time to
time act as the Principal Distributor of the Series' shares (the "Distributor"),
a fee (the "Service Fee") at an annual rate not to exceed 0.25% of the Series'
average daily net assets. Subject to such limit and subject to the provisions
of Section 7 hereof, the Service Fee shall be as approved from time to time by
(a) the Trustees of the Trust and (b) the Independent Trustees of the Trust.
The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. The Distributor may pay all or any
portion of the Service Fee to securities dealers or other organizations
(including, but not limited to, any affiliate of the Distributor) as service
fees pursuant to agreements with such organizations for providing personal
services to investors in shares of the Series and/or the maintenance of
shareholder accounts. All payments under this Section 1 are intended to qualify
as "service fees" as defined in the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD Rules").
SECTION 2. The Trust, on behalf of the Series, will pay to the
Distributor, a fee (the "Distribution Fee") at an annual rate not to exceed
0.50% of the Series' average daily net assets. Subject to such limit and
subject to the provisions of Section 7 hereof, the Distribution Fee shall be as
approved from time to time by (a) the Trustees of the Trust and (b) the
Independent Trustees of the Trust. The Distribution Fee shall be accrued daily
and paid monthly or at such other intervals as the Trustees shall determine.
The Distributor may pay all or any portion of the Distribution Fee to securities
dealers or other organizations (including, but not limited to, any affiliate of
the Distributor) as commissions, asset-based sales charges or other compensation
with respect to the sale of shares of the Series, and may retain all or any
portion of the Distribution Fee as compensation for the Distributor's services
as principal underwriter of the shares of the Series. All payments under this
Section 2 are intended to qualify as "asset-based sales charges" as defined in
the NASD Rules.
SECTION 3. This Plan shall continue in effect for a period of more than
one year after __________ __, 1998 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
-3-
<PAGE>
SECTION 4. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
SECTION 5. This Plan may be terminated at any time by vote of a majority
of the Independent Trustees, or by vote of a majority of the outstanding shares
of the Series.
SECTION 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding shares of the Series, on not more
than 60 days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 7. This Plan may not be amended to increase materially the amount
of expenses permitted pursuant to Section 1 hereof without approval by a vote of
at least a majority of the outstanding shares of the Series, and all material
amendments of this Plan shall be approved in the manner provided for
continuation of this Plan in Section 2.
SECTION 8. As used in this Plan, (a) the term "Independent Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment" and "interested
person" shall have the respective meanings specified in the Act and the rules
and regulations thereunder, and the term "majority of the outstanding shares of
the Series" shall mean the lesser of the 67% or the 50% voting requirements
specified in clauses (A) and (B), respectively, of the third sentence of Section
2(a)(42) of the Act, all subject to such exemptions as may be granted by the
Securities and Exchange Commission.
-4-
