<PAGE>
[Translation]
SECURITIES REGISTRATION STATEMENT
(Including Amendments)
LOOMIS SAYLES FUNDS - LOOMIS SAYLES MANAGED BOND FUND
<PAGE>
SECURITIES REGISTRATION STATEMENT
To: Director of the Kanto
Local Finance Bureau
Filing Date of SRS: September 4, 1998
Filing Date of the Amendment: September 10, 1998
September 14, 1998
September 16, 1998
Name of the Registrant Trust: LOOMIS SAYLES FUNDS
Name and Official Title of Trustees: Earl W. Foell
Richard S. Holway
Terry R. Lautenbach
Michael T. Murray
Danniel J. Fuss
Address of Principal Office: One Financial Center
Boston, Massachusetts 02111
U.S.A.
Name and Title of Registration Agent: Harume Nakano
Attorney-at-Law
Signature [Harume Nakano]
-----------------------------
(Seal)
Ken Miura
Attorney-at-Law
Signature [Ken Miura]
-----------------------------
(Seal)
Address or Place of Business Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
Name of Liaison Contact: Harume Nakano
Ken Miura
Hikaru Kaieda
Attorneys-at-Law
Place of Liaison Contact: Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
Phone Number: 03-3580-3377
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Public Offering or Sale for Registration
----------------------------------------
Name of the Fund Making Public LOOMIS SAYLES MANAGED BOND FUND
Offering or Sale of Foreign
Investment Fund Securities:
Type and Aggregate Amount of Shares of a series of a diversified open-end
Foreign Investment Fund Securities management investment company organized as a
to be Publicly Offered or Sold: Massachusetts business trust;
(i) Initial Offering Period (from September
21, 1998 to September 29, 1998)
Up to 35,500,000 Shares
Up to 353,225 thousand dollars
(approximately 50 billion yen)
(ii) Continuous Offering Period (from
October 1, 1998 to March 31, 1999)
Up to 142,200,000 shares
Up to the amount derived by multiplying
142,200,000 by the respective applicable
issue prices (the estimated maximum amount
is 1,414,890 thousand dollars (approximately
200 billion yen))
Note 1: U.S.$ amount is translated into Japanese Yen at the rate of U.S.$1.00=
(Yen) 141.40 the mean of the exchange rate quotations by The Bank of
Tokyo-Mitsubishi, Ltd. for buying and selling spot dollars by
telegraphic transfer against yen on 31st August, 1998.
Places where a copy of this Securities Registration
---------------------------------------------------
Statement is available for Public Inspection
--------------------------------------------
Not applicable.
(Total number of pages of this Securities Registration Statement in Japanese is
54 including front and back pages.)
<PAGE>
CONTENTS
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<TABLE>
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Japanese This
Original English
Translation
<S> <C> <C>
PART 1. INFORMATION CONCERNING SECURITIES 1 1
PART II. INFORMATION CONCERNING ISSUER................. 4 6
I. DESCRIPTION OF THE FUND............................ 4 6
1. GENERAL INFORMATION........................... 4 6
2. INVESTMENT POLICY............................. 8 11
3. MANAGEMENT STRUCTURE.......................... 16 33
4. INFORMATION CONCERNING THE EXERCISE
OF RIGHTS BY SHAREHOLDERS, ETC................ 25 45
5. STATUS OF INVESTMENT FUND..................... 28 49
II. OUTLINE OF THE TRUST............................... 32 51
III. OUTLINE OF THE OTHER RELATED COMPANIES............. 66 71
IV. FINANCIAL CONDITION OF THE FUND.................... 68 74
V. SUMMARY OF INFORMATION CONCERNING
FOREIGN INVESTMENT FUND SECURITIES................. 182 75
VI. MISCELLANEOUS...................................... 182 75
PART III. SPECIAL INFORMATION........................... 183 77
I. OUTLINE OF THE SYSTEM OF INVESTMENT
TRUSTS IN MASSACHUSETTS............................ 183 79
II. FINANCIAL CONDITIONS OF THE INVESTMENT
ADVISER AND MANAGEMENT COMPANY..................... 189 84
III. FORM OF FOREIGN INVESTMENT
FUND SECURITIES.................................... 211 84
</TABLE>
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PART I. INFORMATION CONCERNING SECURITIES
1. NAME OF FUND: LOOMIS SAYLES MANAGED BOND FUND
(hereinafter referred to as the "Fund")
2. NATURE OF FOREIGN Shares of a series of a diversified open-end
INVESTMENT FUND management investment company organized as a
SECURITIES CERTIFICATES: Massachusetts business trust
3. NUMBER OF SHARES TO BE (i) Initial Offering Period (from September
OFFERED FOR SALE (IN 21, 1998 to September 29, 1998)
JAPAN) Up to 35,500,000 shares
(ii) Continuous Offering Period (from October
1, 1998 to March 31, 1999)
Up to 142,200,000 shares
4. TOTAL AMOUNT OF OFFERING (i) Initial Offering Period (from September
PRICE: (IN JAPAN) 21, 1998 to September 29, 1998) Up to around
353,225 thousand dollars (approximately 50
billion yen)
(ii) Continuous Offering Period (from October
1, 1998 to March 31, 1999) Up to the amount
calculated by multiplying the respective
applicable issue price per share by the
number of respective issues (the estimated
maximum amount will be 1,414,890 thousand
(approximately 200 billion yen))
Note 1: The total amount of the offering price in respect of the Initial
Offering Period is calculated by multiplying the issue price per
share (9.95 dollars) by the maximum number of shares (35,500,000
shares).
Note 2: The maximum amount is calculated for reference purpose only by
multiplying the issue price per share in respect of the Initial
Offering Period by 142,200,000 shares.
Note 3: Dollar amount is translated for convenience at the rate of $1.00
(Yen) 141.40 (the mean of the exchange rate quotations by The Bank
of Tokyo-Mitsubishi, Ltd. for buying and selling spot dollars by
telegraphic transfer against yen on 31st August, 1998). The same
applies hereinafter.
Note 4: In this document, money amounts and percentages have been rounded.
Therefore, there are cases in which the amount of the "total
column" is not equal
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to the aggregate amount. Also, translation into yen is made
simply by multiplying the corresponding amount by the conversion
rate specified and rounded up when necessary. As a result, in
this document, there are cases in which Japanese yen figures for
the same information differ from each other.
5. ISSUE PRICE: (i) Initial Offering Period (from September
21, 1998 to September 29, 1998) 9.95 Dollars
per Share
(ii) Continuous Offering Period (from
October 1, 1998 to March 31, 1999) Net Asset
Value per Share next calculated on the day
on which the Fund has received such
application
6. SALES CHARGE: 2.00% of the Sales Price. The Sales Price
means the Issue Price divided by 0.995
(rounded to the third decimal place).
7. MINIMUM AMOUNT OR The minimum amount for purchase of Shares
NUMBER OF SHARES is 100 shares and shares may be purchased
FOR SUBSCRIPTION: in integral multiples of 100 shares.
8. PERIOD OF SUBSCRIPTION: (i) Initial Offering Period: from September
21, 1998 to September 29, 1998
(ii) Continuous Offering Period: from
October 1, 1998 to March 31, 1999
Provided that the subscription is handled only on a Fund Business Day
and a business day when securities companies are open for business in
Japan.
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 day of each month.
Note: A "Fund Business Day" is any day on which the New York Stock
Exchange is open for business.
9. DEPOSIT FOR SUBSCRIPTION: None.
10. PLACE OF SUBSCRIPTION: Kokusai Securities Co., Ltd. (hereinafter
referred to as "Kokusai")
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Tokyo-Sumitomo-Twin-Building, East
Building, 27-I, Shinkawa 2-chome, Chuo-
ku, Tokyo
Note: The subscription is handled at the head office and the branch
offices in Japan of the above-mentioned securities company.
11. DATE AND PLACE (i) Initial Offering Period (from
OF PAYMENT: September 21, 1998 to September 29,
1998) Investors shall pay the Sales
Price and Sales Charge to Kokusai no
later than September [29], 1998. The
total Sales Price will be transferred by
Kokusai to the account of the Fund at
State Street Bank and Trust Company on
October 1, 1998.
(ii) Continuous Offering Period (from
October 1, 1998 to March 31, 1999)
Investors shall pay the Issue Price and
Sales Charge to Kokusai within 4
business days in Japan when Kokusai
confirms the execution of the order. The
total Issue Price and the 0.50% of the
net asset value to be returned by the
Distributor will be transferred by
Kokusai to the account of the Fund at
State Street Bank and Trust Company, the
custodian and transfer agent, within 3
Fund Business Days from (and including)
the day on which the application becomes
effective.
12. OUTLINE OF UNDERWRITING, ETC:
(A) Kokusai will undertake to make a public offering of Shares in accordance
with an agreement dated September 14, 1998 with Loomis Sayles Distributors,
L.P. (hereinafter referred to as the "Distributor") in connection with the
sale of the Shares in Japan.
(B) During the public offering period, Kokusai will execute or forward the
purchase orders of the Shares received directly or indirectly through other
Handling Securities Companies to the Fund.
(C) The Fund has appointed Kokusai as the Agent Securities Company in Japan.
Note: "The Agent Securities Company" shall mean a securities company
which, under a contract made with a foreign issuer of investment
securities, makes public the net asset value per Share and submits
or forwards the financial reports or other documents to the Japan
Securities Dealers Association ("JSDA") and other handling
securities companies (the "Handling Securities Companies") rendering
such other services.
<PAGE>
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13. MISCELLANEOUS:
(A) Method of Subscription:
Investors who subscribe to Shares shall enter into a Handling
Securities Company an agreement concerning transactions of foreign
securities. A Handling Securities Company shall provide to the investors a
Contract Concerning a Foreign Securities Transactions Account (the
"Contract") and the investors shall submit to the Handling Securities
Company an application for requesting the opening of a transactions account
under the Contract. The subscription amount shall be paid in yen in
principle and the yen exchange rate shall be the exchange rate which shall
be based on the foreign exchange rate quoted in the Tokyo Foreign Exchange
Market on the Trade Day of each subscription and which shall be determined
by such Handling Securities Company.
(B) Expenses summary:
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.
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as % of offering price)..... 2.50%/1/
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/2/................................................... 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............................................................... $15.26
Three Years............................................................ $47.41
_______________
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1 The Maximum Sales Load described above does not reflect a Japanese
consumption tax of 0.10% that should be collected from Japanese
investors at the time of purchase.
2 A $5 charge applies to any wire transfer of redemption proceeds.
(C) Offerings other than in Japan:
In parallel with the Initial Offering in Japan approximately
3,015,000(30 million dollars (4,242 million Yen)) will be offered in the
United States of America.
<PAGE>
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PART II. INFORMATION CONCERNING ISSUER
I. DESCRIPTION OF THE FUND
1. GENERAL INFORMATION
(A) Outline of Laws Regulating the Fund in the Jurisdiction Where Established:
(1) Name of the Fund: Loomis Sayles Managed Bond Fund (the "Fund")
(2) Form of the Fund
The Fund is a series of Loomis Sayles Funds (the "Trust").
The Trust, registered with the SEC as a diversified open-ended
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, 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, Strategic 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 and 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
<PAGE>
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other rights as the trustees may designate. Shares of the Fund are not currently
divided into classes. The trustee 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 merge portfolio would be evidenced by a separate series of
share (i.e., new "fund").
THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE U.S. PROSPECTUS.
(3) Governing Laws
The Trust was created under, and is subject to, the laws of the
Commonwealth of Massachusetts. The sale of the Trust's shares is subject to,
among other things, the Securities Act of 1933, as amended, and certain state
securities laws. The Trust also attempts to qualify each year and elect to be
taxed as a regulated investment company under the Under States Internal Revenue
Code of 1986, as amended.
The following is a broad outline of certain of the principal statutes
regulating the operations of the Trust in the U.S.:
a. Massachusetts General Laws, Chapter 182 - Voluntary Associations and
Certain Trusts
Chapter 182 provides in part as follows:
A copy of the declaration of trust must be filed with the Secretary of
State of the Commonwealth of Massachusetts and with the Clerk of the City
of Boston. Any amendment of the declaration of trust must be filed with the
Secretary and the Clerk within thirty days after the adoption of such
amendment.
A trust must annually file with the Secretary of State on or before
June 1 a report providing the name of the trust, its address, number of
shares outstanding and the names and addresses of its trustees.
Penalties may be assessed against the trust for failure to comply with
certain of the provisions of Chapter 182.
b. Investment Company Act of 1940
The Investment Company Act of 1940, as amended (the "1940 Act"), in
general, requires investment companies to register as such with the U.S.
Securities and Exchange Commission (the "SEC"), and to comply with a number
of substantive regulations of their operations. THe 1940 Act requires an
investment company, among other things, to provide periodic reports to its
shareholders.
c. Securities Act of 1933.
<PAGE>
-8-
The Securities Act of 1933, as amended (the "1933 Act"),
regulates sales of securities. The Act, among other things, imposes
various registration requirements upon sellers of securities and
provides for various liabilities for failures to comply with its
provisions or in respect of other specified matters.
d. Securities Exchange Act of 1934.
The Securities Exchange Act of 1934, as amended (the "1934 Act"),
regulates a variety of matters involving, among other things, the
secondary trading of securities, periodic reporting by the issuers of
securities, and certain of the activities of transfer agents and
brokers and dealers.
e. The Internal Revenue Code
The Trust intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
necessary for it to be relieved of federal taxes on income and gains
it distributes to shareholders.
f. Other laws
The Trust is subject to the provisions of other laws, rules, and
regulations applicable to the Trust or its operations, such as, for
example, various state laws regarding the sale of the Trust's shares.
(B) Outline of the Supervisory Authorities
Among the regulatory authorities having jurisdiction over the Trust or
certain of its operations are the SEC and states regulatory agencies or
authorities.
a. The SEC has board authority to oversee the application and
enforcement of the federal securities laws, including the 1940 Act,
the 1933 Act, and the 1934 Act, among others, to the Trust. The 1940
Act provides the SEC board authority to inspect the records of
investment companies, to exempt investment companies or certain
practices from the provisions of the Act, and otherwise to enforce the
provisions of the Act.
b. State authorities typically have authority to regulate the
offering and sale of securities to their residents or within their
jurisdictions and the activities of brokers, dealers, or other persons
directly or indirectly engaged in related activities.
(C) Objects and Basic Nature of the Fund:
The Fund's investment objective is high total investment return
through a combination of current income and capital appreciation.
(D) History of the Fund:
February 20, 1991: Organization of the Trust as a Massachusetts
business trust. Adoption of the Declaration
of Trust
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April 27, 1998: Adoption of Resolutions by the Board of
Trustees of the Trust to establish the Fund.
October 1, 1998 Commencement of management of the Fund
(E) Affiliated Companies of the Fund:
Names and related business of the affiliated companies of the Fund are
as follows:
(1) Loomis Sayles & Company, L.P. ("Investment Management Company" or
-----------------------------
"Loomis Sayles") renders investment management services to the Fund.
(2) State Street Bank and Trust Company (the "Custodian" and
-----------------------------------
"Shareholder Servicing, Transfer and Dividend Paying Agent") acts as
Custodian and Shareholder Servicing, Transfer and Dividend Paying
Servicing Agent.
(3) Loomis Sayles Distributors, L.P. ("Distributor") engages in
--------------------------------
providing marketing services to the Fund.
(4) Kokusai Securities Co., Ltd. ("Distributor in Japan" and "Agent
----------------------------
Securities Company") engages in forwarding the purchase or repurchase
orders for the Shares in Japan and also acts as the agent securities
company.
<PAGE>
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Related Companies of the Fund
-----------------------------
---------------
Loomis Sayles
Funds ("Trust")
---------------
Loomis Sayles Managed Bond Fund ("Fund") Shareholder
Servicing and
--------------------- Transfer Agent
Trustees Agreement
(Agreement and
Declaration of Trust)
---------------------
Amended and Custody
Restated Distribution Contract
Agreement
----------------------
Custodian
----------------
Distributor Shareholder Servicing,
---------------- Transfer and Dividend
Paying Agent
----------------------
Loomis Sayles State Street Bank and
Distributors, L.P. Trust Company
(acts as distributor) (acts as custodian and
shareholder servicing,
transfer and dividend paying
agent of the Fund)
---------------------------
Distribution, Repurchase
and Shareholder Serviving
Agreement
Agent Securities Advisory Agreement
Company
Agreement
- ------------------------ ------------------
Distributor in Japan Investment
Agent Securities Company Management Company
- ------------------------ ------------------
Kokusai Securities Co., Ltd. Loomis Sayles & Company, L.P
(forwarding of sales in Japan (acts as investment management of
and rendering of service as the Fund and investment adviser
agent securities company) concerning the Fund's assets)
- ----------------------------- ---------------------------------
<PAGE>
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2. INVESTMENT POLICY
(A) Basic Policy for Investment
The Fund seeks to achieve its objective by normally investing
substantially all of its assets in fixed income securities, although up to
20% of its assets may be invested in preferred stocks. At least 65% of the
Fund's total assets will normally be invested in bonds. The fixed income
securities in which the Fund may invest include corporate securities,
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 20% of its assets in securities of other non-
U.S. issuers. The Fund may also invest up to 35% of its assets in
securities of below investment grade quality (commonly known as "junk
bonds"). Securities of below investment grade quality are securities rated
below the top four rating categories by each major rating agency that has
rated the security, including securities in the lowest rating categories,
and unrated securities that Loomis Sayles determines to be of comparable
quality.
The Fund intends to maintain an average credit quality of at least BBB
or Baa. In determining average dollar-weighted credit quality, Loomis
Sayles will use the highest rating assigned to each security by a
nationally recognized securities rating agency, such as Standard & Poor's
or Moody's Investors Service, Inc., and, with respect to unrated
securities, will use the rating for securities it 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.
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 55% during its first
full fiscal year. High portfolio turnover may involve higher costs and
higher levels of taxable gains.
(B) Objects of Investment
DEBT AND OTHER FIXED INCOME SECURITIES
<PAGE>
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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, are known as "mortgage-backed" securities. Interest
and principal payments on the mortgages underlying mortgage-backed U.S.
Government Securities are passed through to the holders of the security. If the
Fund purchases mortgage-backed securities at a discount or a premium, the Fund
will reorganize 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
<PAGE>
-13-
ownership interests in interest payments or principal payments, or both, in U.S.
Government Securities. These investment instruments may be highly volatile.
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.
"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
<PAGE>
-14-
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 above, 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 value 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.
LOWER RATED FIXED INCOME SECURITIES
The Fund may invest up to 35% of its assets in securities rated below
investment grade (commonly referred to as "junk bonds"). A security will be
treated as being of investment grade quality if at the time the Fund acquires it
at least one major rating agency has rated the security in its top four rating
categories (even if another such agency has issued a lower rating), or if the
security is unrated but Loomis Sayles determines it to be of investment grade
quality. Lower rated fixed income securities generally provide higher yields,
but are subject to greater credit and market risk, than higher quality fixed
income securities. Lower rated fixed income securities are considered
predominantly speculative with respect to the ability of the issuer to meet
principal and interest payments. Achievement of the investment objective of 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 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
<PAGE>
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categories may be in poor standing or in default. Securities in the lowest
investment grade category (BBB or Baa) have some speculative characteristics.
The rating services' description of their ratings is as follows:
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 obligations. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
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
- -
The symbol is attached to the ratings of instruments with significant noncredit
risks such as risks to principal or volatility of expected returns.
<PAGE>
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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 re judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large, or by an exceptionally stable,
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
- --
Bonds that are rated Aa are judged to be high quality by all standards. Together
with the Aaa Group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.
A
- -
Bonds that are rated A process many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interests 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 are
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
- -
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Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
---
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
--
bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
-
Bond 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.
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. 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
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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.
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 amount. The
amount of the discount varies depending on such factors as the time
remaining until maturity of the bonds, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer.
The market prices of zero coupon bonds generally are more volatile than the
market prices of securities that pay interest periodically and are likely
to respond to changes in interest rates to a greater degree than do non-
zero coupon bonds having similar maturities and credit quality. In order to
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 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.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities, such as GNMA or
Federal National Mortgage Association certificates, which differ from
traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if the Fund purchases
these assets at a premium, a faster-than-excepted prepayment rate will
<PAGE>
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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 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 CMSs first to mature
generally will be retired prior to its maturity. As with other mortgage-backed
securities,
<PAGE>
-20-
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 any 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-blocked securities is of shorter maturity than mortgage loans.
Instruments backed by pools of receivables are similar to mortgage-backed
securities in that they are subject to unscheduled prepayments of principal
prior to maturity. When the obligations are prepaid, the Fund will ordinarily
reinvest the prepaid amounts in securities the yields of which reflect interest
rates prevailing at the time. Therefore, the Fund's ability to maintain a
portfolio that includes high-yielding asset-backed securities will be adversely
affected to the extent that prepayments of principal must be reinvested in
securities that have lower yields than the prepaid obligations. Moreover,
prepayments of securities purchased at a premium could result in a realized
loss.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" basis. This means that
the Fund will enter into a commitment to buy the security before the security
has been issued. The Fund's payment obligation and the interest rate on the
security are determined when the Fund enters into the commitment. The security
is typically delivered to the Fund 15 to 120 days later. No interest accrues on
the security between the time the Fund enters into the commitment and the time
the security is delivered. If the value of the security being purchased falls
between the time the Fund commits to buy it and the payment date, the Fund may
sustain a loss. The risk of this loss is in addition to the Fund's risk of loss
on the securities actually in its portfolio at the time. In addition, when the
Fund buys a security on a when-issued basis, it is subject to the risk that
market rates of interest will increase before the time the security is
delivered, with the result that the yield on the security delivered to the Fund
may be lower than the yield available on other, comparable securities at the
time of delivery.
<PAGE>
-21-
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 Funds 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).
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. Under the guidelines, Loomis
Sayles considers such factor 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. 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, but will not purchase
non-U.S. securities other than those of Canadian issuers if, as a result, the
Fund's holdings of non-U.S. and non-Canadian securities would exceed 20% of the
Fund's total assets.
Although investing in 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
<PAGE>
-22-
less information publicly available about a non-U.S. corporate or governmental
issuer than about a U.S. issuer, and non-U.S. corporate issuers are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The securities of some
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 issuers'
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.
<PAGE>
-23-
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
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.
NON-U.S. CURRENCY TRANSACTIONS
The Fund may invest in securities in 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 U.S.
dollars may be affected by changes in currency exchange rates and exchange
control regulations, and the Fund may incur costs in connections 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 contracts 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
<PAGE>
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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 conjuction 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.
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 respects 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.
<PAGE>
-25-
The Fund will maintain liquid assets in a segregated custodial account
to cover its current obligations under swap agreements. Because swap
agreements are not exchange-traded, but are private contracts into
which the Fund and a swap counterparty enter as principals, the Fund
may experience a loss or delay in recovering assets if the
counterparty were to default on its obligations.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may buy, sell or write options on securities, securities
indexes, currencies or futures contracts and may buy and sell futures
contracts on securities, securities indexes or currencies. The Fund
may engage in these transactions either for the purpose of enhancing
investment return, or to hedge against changes in the value of other
assets that the 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.
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
<PAGE>
-26-
realize a loss from closing out an option transaction if the price 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 any
insufficient number of contracts are traded, commercial users may not deal in
options because they do not want to assume the risk that they may not be able to
close out their positions within a reasonable amount of time. In such instances,
options market prices may be driven by different forces than those driving the
market in the underlying securities, and price spreads between these markets may
widen. The participation of speculators in the market enhances its liquidity.
Nonetheless, the trading activities of speculators in the options markets may
create temporary price distortions unrelated to the market in the underlying
securities.
An exchange-traded option may be closed out only on an exchange which
generally provides a liquid secondary market for an option of the same series.
If a liquid secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to a
particular option, with the result that the Fund would have to exercise the
option in order to accomplish the desired hedge. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class of series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporations 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
<PAGE>
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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 favourable 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 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.
Income earned by the Fund from its hedging activities will be treated as
capital gain and, if not offset by net recognized capital losses incurred by the
Fund, will be distributed to shareholders in taxable distributions. Although
gain from options transactions may hedge against a decline in the value of 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.
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
<PAGE>
-28-
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 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. Futhermore, investments in options
in foreign markets are subject to many of the same risks as other foreign
investments. See "Non-U.S. Securities" above.
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.
<PAGE>
-29-
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.
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 Securities
Registration Statement, 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.
(C) Restrictions of Investment:
The investment policies of the Fund 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
holder of a majority of the outstanding shares of the Fund (which 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.
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:
<PAGE>
-30-
(1) Invest in companies for the purpose of exercising control or management.
*(2) Engage in the business of underwriting securities issued by other persons.
*(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 thereon, 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 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.
<PAGE>
-31-
(10) Purchase securities on margin (except such short term credits
as are necessary for clearance of transactions); or make
short sales (except where, by virtue of ownership of other
securities, it has the right to obtain, without payment of
additional consideration, securities equivalent in kind and
amount to those sold).
(11) Participate on a joint or joint and several basis in any
trading account in securities. (The "bunching" of orders for
the purchase or sale of portfolio securities with Loomis
Sayles or accounts under its management to reduce brokerage
commissions, to average prices among them or to facilitate
such transactions is not considered a trading account in
securities for purposes of this restriction.)
(12) Purchase any illiquid security, including any security that
is not readily marketable, if, as a result, more than 15% of
the Fund's net assets (based on current value) would then be
invested in such securities.
(13) Write or purchase puts, calls or combinations of both except
that 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 or
securities indexes or on futures contracts 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.)
(15) Invest more than 10% of its net assets in the securities of
other registered open-end investment funds or companies.
(16) Portfolio securities of the Fund may not be purchased from or
sold or loaned to any Trustee of the Fund, Loomis, Sayles &
Company, L.P., acting as investment adviser of the Fund, or
any affiliate thereof or any of their directors, officers of
employees, or any major shareholder thereof (meaning a
shareholder who holds to the actual knowledge of Loomis,
Sayles & Company L.P., on his own account whether in his own
or other name (as well as a nominee's name), 10% or more of
the
<PAGE>
-32-
total issued outstanding shares of such a company) acting as
principal or for their own account unless the transaction is made
within the investment restrictions set forth in the Fund's
prospectus and statement of additional information and either (i)
at a price determined by current publicly available quotations
(including a dealer quotation) or (ii) at competitive prices or
interest rates prevailing from time to time on internationally
recognized securities markets or internationally recognized
money markets (including a dealer quotation).
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 Japan 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 than 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 Japan Securities Dealers Association as a
condition of such qualification.
(D) Distribution Policy:
The Fund generally declares and pays dividends monthly. The first
monthly dividend is expected to be paid in December 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 last day of
each month (record date). The Trust's trustees may change the frequency
with which the Fund declares or pays dividends.
<PAGE>
-33-
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.
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
ex-dividend date for each dividend or distribution. Shareholders on record
date, however, may elect to receive their income dividends or capital gain
distributions, or both, in cash. The election may be made by Agent
Securities Company 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.
The Japanese investors shall receive applicable dividend monthly
through Kokusai. The election may be made by Japanese investors by
submitting a written request directly to the Agent Securities Company.
3. MANAGEMENT STRUCTURE
(A) Outline of Management of Assets, etc.:
A. Valuation of assets:
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
Securities Registration Statement, 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 services, 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
<PAGE>
-34-
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.
B. Management Fee, etc.,
(1) Management Fee:
(a) Management Company Fee
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.
(b) Custodian Fee and Charges of the Shareholder Servicing, Transfer
and Dividend Paying Agent.
The Fund pays to State Street Bank and Trust Company, the Fund's
Custodian, an annual fee at the rate of .066% on the first $20 million
of assets, .033% on the next $80 million of assets and .0100% on
amounts exceeding $80 million, subject to certain minimum monthly
charges.
The Fund pays to State Street Bank and Trust Company, the Fund's
Transfer and Servicing Agent, an annual fee at the rate of 0.10% of
assets subject to certain maximum monthly charges.
(c) Fee on Distribution Plan
Under a Service and Distribution Plan adopted pursuant to Rule
12b-I under the 1940 Act, the Fund pays the Distributor, a subsidiary
of Loomis
<PAGE>
-35-
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. The
Distributor may pay all or any portion of the services 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.
(d) Other Expenses:
The Trust pays no compensation to its officers or to the trustees
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.
COMPENSATION TABLE
for the year ended December 31, 1998
<TABLE>
<CAPTION>
(3) (5)
Pension or Total
(2) Retirement (4) Compensation
(1) Aggregate Benefits Accrued Estimated From Trust and
Name of Person, Compensation as part of Fund Annual Benefits Fund Complex*
Position From Trust Expenses upon Retirement Paid to 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.
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 an execution for the
transaction. This does not necessarily mean that the lowest
<PAGE>
-36-
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 serving 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.
C. Sales, Repurchases and Custody:
(1) Sales of Shares:
a. Sales in the United States
--------------------------
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 Bank and Trust Company ("State Street Bank"). Third party
<PAGE>
-37-
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
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 Managed Bond,
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 (in the case of the Initial Public Offering Period,
$9.95) plus a 2.50% sales charge (the "public offering price") which is 2.56% of
the net amount invested. The amount reallowed to dealers is 2.00% as a
percentage of the net asset value. The Fund receives the net asset value. The
Distributor will retain 0.50% of the net asset value. The foregoing percentages
do not reflect the Japanese Consumption tax of 0.10% of the amount reallowed to
dealers that is collected from investors at the time of purchase. 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
<PAGE>
-38-
trading, by dividing the Fund's net assets by the number of shares outstanding.
Portfolio securities are valued at their market value.
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.
A shareholder's investment in the Fund is automatically credited to an open
account maintained for the shareholder by State Street Bank. Certificates
representing shares are issued only upon written request to State Street Bank
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.
b. Sales in Japan
--------------
In Japan, Shares of the Fund are offered on any Fund Business Day and any
business day of securities company in Japan during the applicable Subscription
Period mentioned in "8. Period of Subscription, Part I Information concerning
Securities" of a securities registration statement pursuant to the terms set
forth in "Part I. Information concerning Securities" of the relevant securities
registration statement. A Handling Securities Company shall provide to the
<PAGE>
-39-
investors a Contract Concerning a Foreign Securities Transactions Account
(the "Contract") and receive from such investors an application for
requesting the opening of a transactions account under the Contract. Shares
may be purchased in the minimum investment amount of 100 shares and in
integral multiples of 100 shares.
The Issue Price for the Initial Offering Period (from September 21,
1998 to September 29, 1998) is 9.95 Dollars per Share, and that for the
Continuous Offering Period (from October 1, 1998 to March 31, 1999) is the
net asset value per Share next calculated on the day on which the Fund has
received such application. The contract day in Japan is the day when
Kokusai confirms the execution of the order (usually, the next business day
in Japan following the day of placement of the order), and in respect of
the Continuous Offering Period, the settlement shall be made within 4
business days from the contract day, and investors shall pay the Sales
Charge by such payment day.
The sales charge in Japan shall be 2% of the Sales Price.
The investors having entrusted a Handling Securities Company with
safekeeping of the certificates for Fund shares will receive a certificate
of safekeeping in exchange for the purchase price. In such case payment
shall be made in yen in principle and the applicable exchange rate shall be
the exchange rate which shall be based on the foreign exchange rate quoted
in the Tokyo Foreign Exchange Market on the Trade Day and which shall be
determined by such Handling Securities Company. The payment may be made in
dollars to the extent that the Handling Securities Companies can agree.
In addition, Handling Securities Companies in Japan who are members of
the Japan Securities Dealers' Association cannot continue sales of the
Shares in Japan when the net assets of the Fund are less than yen
500,000,000 or the Shares otherwise cease to comply with the "Standards of
Selection of Foreign Investment Fund Securities" established by the
Association.
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.
(2) Repurchase of Shares:
<PAGE>
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a. Repurchase in the United States
-------------------------------
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.
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.
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. If an investor purchased shares
by 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, of 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 period permitted by the SEC for the protection of
investors.
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.
b. Repurchase in Japan
-------------------
Shareholders in Japan may at any time request repurchase of their
Shares. Repurchase requests in Japan may be made to State Street Bank
through the Handling Securities Company on a Fund Business Day that is
business day of securities companies in Japan. The repurchase of
shares in the amount of one
<PAGE>
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share except in the case of a shareholder who is closing an account
for whom full and fractional shares will be repurchased.
The price a shareholder in Japan will receive is the next net
asset value next calculated after the Fund receives the repurchase
request from Kokusai, provided the request is received before the
close of regular trading on the New York Stock Exchange. The payment
of the price shall be made in yen through the Handling Securities
Companies pursuant to the Contracts or, if the Handling Securities
Companies agree, in dollars. The payment for repurchase proceeds shall
ordinarily be on the third business day by the Fund to the Agent
Securities Company. The payment for repurchase proceeds shall be made
on the [fourth] business day of securities companies in Japan after
and including the day when Handling Securities Company confirms the
execution of the order (ordinarily the business day in Japan next
following the placement or repurchase request). The Fund may suspend
the right of repurchase 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.
(3) Custody of Shares:
[Share certificates shall be held by Shareholders at their own
risk.
The custody of the Share certificates (if issued) representing
Shares sold to Japanese Shareholders shall, unless otherwise
instructed by the Shareholder, be held, in the name of the custodian,
by the custodian of Kokusai. Certificates of custody for the Shares
shall be delivered by the Handling Securities Companies to the
Japanese Shareholders.]
D. Miscellaneous:
(1) Duration and Liquidation:
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.
(2) Accounting Year:
The Fund's fiscal year ends on September 30.
(3) Authorized Shares:
<PAGE>
-42-
There is no limit on the number of shares to be issued.
(4) Agreement and Declaration of Trust:
Originals or copies of the Declaration of Trust, as amended, are
maintained in the office of the Trust and are made available for public
inspection for the Shareholders. Originals or copies of the Declaration of
Trust, as amended, are on file in the United States with the Secretary of
State of The Commonwealth of Massachusetts and with the Clerk of the City
of Boston.
The Declaration of Trust may be amended at any time by an instrument
in writing signed by a majority of the then Trustees when authorized to do
so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees
shall affect the holders of one or more series or classes of Shares but not
the holders of all outstanding series and classes shall be authorized by
vote of the shareholders holding a majority of the Shares entitled to vote
of each series and class affected and no vote of Shareholders of a series
or class not affected shall be required. Amendments having the purpose of
changing the name of the Trust, of establishing, changing or eliminating
the par value of any series or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or
inconsistent provision contained therein shall not require authorization by
vote of any Shareholders.
In Japan, material changes in the Declaration of Trust shall be
published or notice thereof shall be sent to the Japanese Shareholders.
(5) Issue of warrants, Subscription Rights, etc.:
The Fund may not grant privileges to purchase shares of the Fund to
shareholders or investors by issuing warrants, subscription rights or
options, or other similar rights.
(6) How Performance Is Shown:
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
<PAGE>
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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.
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 than 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 has 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
<PAGE>
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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.
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.
(B) Outline of Disclosure System:
(1) Disclosure in U.S.A.:
(i) Disclosure to shareholders
In accordance with the Investment Company Act of 1940, the fund
is required to send to its shareholders annual and semi-annual reports
containing financial information. Audited financial statements will be
prepared and distributed annually and unaudited financial statements
will be prepared and distributed annually and unaudited financial
statements will be prepared and distributed semi-annually.
(ii) Disclosure to the SEC
The investment fund has filed a registration statement with the
SEC on Form N-1A; the Fund updates that registration statement
periodically in accordance with the Investment Company Act of 1940.
(2) Disclosure in Japan:
a. Disclosure to the Supervisory Authority:
When the Fund intends to offer the Shares amounting to more than
500 million yen in Japan, it shall submit to the Director of Kanto
Local Financial Bureau securities registration statements together
with the copies of the Agreement and Declaration of the Fund and the
agreements with major related companies as attachments thereto. The
said documents are made available for public inspection for investors
and any other persons who desire at the Kanto Local Finance Bureau.
The Handling Securities Companies of the Shares shall deliver to
the investors prospectuses the contents of which are substantially
identical to Part I and Part II of the securities registration
statements. For the purpose of disclosure of the financial conditions,
etc., the Trustees shall submit to the Minister of Finance of Japan
securities reports within 6 months of the end of each fiscal year,
semi-annual reports within 3 months of the end of each semi-annual
period and extraordinary reports from time to time when changes occur
as to material subjects of the Fund. These documents are available for
public
<PAGE>
-45-
inspection for the investors and any other persons who desire at the
Kanto Local Finance Bureau.
b. Disclosure to Japanese Shareholders:
The Japanese Shareholders will be notified of the material facts
which would change their position, including material amendments to
the Declaration of Trust of the Fund, and of notices from the
Trustees, through the Handling Securities Companies.
The financial statements shall be sent to the Japanese
Shareholders through the Handling Securities Companies or the summary
thereof shall be carried in daily newspapers.
(C) Restrictions on Transactions with Interested Parties:
Portfolio securities of the Fund may not be purchased from or sold or
loaned to any Trustee of the Fund, Loomis, Sayles & Company, L.P., acting
as investment manager of the Fund, or any affiliate thereof or any of
their directors, officers, or employees, or any major shareholder thereof
(meaning a shareholder who holds to the actual knowledge of Investment
Management Company, on his own account whether in his own or other name (as
well as a nominee's name), 10% or more of the total issued outstanding
shares of such a company) acting as principal or for their own account
unless the transaction is made within the investment restrictions set forth
in the Fund's prospectus and statement of additional information and either
(i) at a price determined by current publicly available quotations
(including a dealer quotation) or (ii) at competitive prices or interest
rates prevailing from time to time on internationally recognized securities
markets or internationally recognized money markets (including a dealer
quotation).
4. INFORMATION CONCERNING THE EXERCISE OF RIGHTS BY SHAREHOLDERS, ETC.
(A) Rights of Shareholders and Procedures for Their Exercise:
Shareholders must register their shares in their own name in order to
exercise directly their rights as Shareholders. Therefore, the Shareholders in
Japan who entrust the custody of their Shares to the Handling Securities Company
cannot exercise directly their Shareholder rights, because their Shares are
registered in the name of the custodian. Shareholders in Japan may have the
Handling Securities Companies exercise their rights on their behalf in
accordance with the Account Agreement with the Handling Securities Companies.
Shareholders in Japan who do not entrust the custody of their Shares to the
Handling Securities Companies may exercise their rights in accordance with their
own arrangement under their own responsibility.
The major rights enjoyed by Shareholders are as follows:
<PAGE>
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(i) Voting rights
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 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 entitles 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
management 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
<PAGE>
-47-
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).
(ii) Repurchase rights
Shareholders are entitled to request repurchase of Shares at
their Net Asset Value at any time.
(iii) Rights to receive dividends
The Fund generally declares and pays dividends monthly. The
first monthly dividend is expected to be paid in December 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 last day of each month. The Trust's trustees may
change the frequency with which the Fund declares or pays dividends.
(iv) Right to receive distributions upon dissolution
Shareholders of a fund are entitled to receive distributions
upon dissolution in proportion to the number of shares then held by
them, except as otherwise required.
(v) Right to inspect accounting books and the like
Shareholders are entitled to inspect the Declaration of Trust,
the accounting books at the discretion of the Court and the minutes of
any shareholders' meetings.
(vi) Right to transfer shares
Shares are transferable without restriction except as limited by
applicable law.
(vii) Rights with respect to the U.S. registration statement
If, under the 1933 Act, there is any false statement concerning
any important matter in the U.S. Registration Statement, or any
omission of any statement of important matters to be stated therein or
necessary in order not to cause any misunderstanding of an important
matter, shareholders are generally
<PAGE>
-48-
entitled to institute a lawsuit, against the person who had signed the
relevant Registration Statement, the trustee of the issuer (or any
person placed in the same position) at the time of filing such
Statement, any person involved in preparing such Statement or any
subscriber of the relevant shares.
(B) Tax Treatment of Shareholders in Japan:
The tax treatment of Shareholders in Japan shall be as follows:
(1) The distributions to be made by the Fund will be treated as
distributions made by a domestic investment trust.
a. The distributions to be made by the Fund to Japanese individual
shareholders will be subject to separate taxation from other income
(i.e withholding of income tax at the rate of 15% and withholding of
local taxes at the rate of 5% in Japan). In this case, no report
concerning distributions will be filed with the Japanese tax
authorities.
b. The distributions to be made by the Fund to Japanese corporate
shareholders will be subject to withholding of income tax at the rate
of 15% and to withholding of local taxes at the rate of 5% in Japan.
In certain cases, the Handling Securities Companies will prepare a
report concerning distributions and file such report with the Japanese
tax authorities.
c. Net investment returns such as dividends, etc. and distributions
of short-term net realized capital gain, among distributions on Shares
of the Fund, will be, in principle, subject to withholding of U.S.
federal income tax at the rate of 15% and the amount obtained after
such deduction will be paid in Japan.
Distributions of long-term net realized capital gain will not be
subject to withholding of U.S. federal income tax and the full amount
thereof will be paid in Japan. The amount subject to withholding of
U.S. federal income tax may be deducted from the tax levied on a
foreign entity in Japan.
The Japanese withholding tax imposed on distributions as referred
to in a. and b. above will be collected by way of so-called
"difference collecting method". In this method only the difference
between the amount equivalent to 20% of the distributions before U.S.
withholding tax and the amount of U.S. withholding tax withheld in the
U.S. will be collected in Japan.
(2) The provisions of Japanese tax laws giving the privilege of a certain
deduction from taxable income to corporations, which may apply to dividends
paid by a domestic corporation, shall not apply.
(3) Capital gains and losses arising from purchase and repurchase of the
Shares shall be treated in the same way as those arising from purchase and
sale of a domestic investment trust. The distribution of the net
liquidation assets shall be also treated in the same way as those arising
from liquidation of a domestic investment trust.
<PAGE>
-49-
(4) The Japanese securities transaction tax will not be imposed so far as
the transactions concerned are conducted outside Japan. Such tax, however,
is applicable to dealers' transactions for their own account and to
privately negotiated transactions conducted in Japan.
(C) Foreign Exchange Control in U.S.A.:
In U.S.A., there are no foreign exchange control restrictions on
remittance of dividends, repurchase money, etc. of the Shares to Japanese
Shareholders.
(D) Agent in Japan:
Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
The foregoing law firm is the true and lawful agent of the Fund to
represent and act for the Fund in Japan for the purpose of;
(1) the receipt of any and all legal claims, actions, proceedings,
process, and communications addressed to the Trust or the Fund.
(2) representation in and out of court in connection with any and all
disputes, controversies or differences regarding the transactions
relating to the public offering, sale and repurchase in Japan of the
Shares of the Fund.
The agent for the registration with the Director of Kanto Local
Finance Bureau of the initial public offering concerned as well as for the
continuous disclosure is each of the following persons:
Harume Nakano
Ken Miura
Attorneys-at-law
Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki, 3-chome
Chiyoda-ku, Tokyo
(E) Jurisdiction:
Limited only to litigation brought by Japanese investors regarding
transactions relating to (D)(2) above, the Fund has agreed that the
following court has jurisdiction over such litigation and the Japanese law
is applicable thereto:
Tokyo District Court
1-4, Kasumigaseki 1-chome
Chiyoda-ku, Tokyo
5. STATUS OF INVESTMENT FUND
The Fund is scheduled to commence its operations on October 1, 1998.
<PAGE>
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II. OUTLINE OF THE TRUST
1. Trust
(A) Law of Place of Incorporation
The Trust is a Massachusetts business trust organized in
Massachusetts, U.S.A. on February 20, 1991.
Chapter 182 of the Massachusetts General Laws prescribes the
fundamental matters in regard to the operations of certain business
trusts constituting voluntary associations under that chapter.
The Trust is an open-end, diversified management company under
the Investment Company Act of 1940.
(B) Outline of the Supervisory Authority.
Refer to I - 1 (B) Outline of the Supervisory Authority.
(C) Purpose of the Trust
The purpose of the Trust is to provide investors a managed
investment primarily in securities, debt instruments and other
instruments and rights of a financial character and to carry on such
other business as the Trustees may from time to time determine
pursuant to their authority under the Declaration of Trust.
(D) History of the Trust
February 20,1991: Organization of the Trust as a
Massachusetts business trust.
Adoption of the Declaration of
Trust.
(E) Amount of Capital Stock
Not applicable.
(F) Structure of the Management of the Trust
Subject to the provisions of the Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall
have all powers necessary or convenient to carry out that
responsibility. Without limiting the foregoing, the Trustees may
adopt By-Laws not inconsistent with the Declaration of Trust
providing for the conduct of the business of the Trust and may amend
and repeal them to the extent that such By-Laws do not reserve that
right to the Shareholders; they may fill vacancies, including
vacancies caused by enlargement of their number, and may remove
Trustees with or without cause; they may elect and remove, with or
without cause, such officers and appoint and terminate such agents as
they consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more
Trustees, including an executive committee which may, when the
Trustees are not in session, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; they may
employ one or more custodians of the assets of the
<PAGE>
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Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the
central handling of securities, retain a transfer agent or a Shareholder
servicing agent, or both, provide for the distribution of Shares by the
Trust, through one or more principal underwriters or otherwise, set record
dates for the determination of Shareholders with respect to various
matters, and in general delegate such authority as they consider desirable
to any officer of the Trust, to any committee of the Trustees and to any
agent or employee of the Trust or to any such custodian or underwriter.
Except as otherwise provided in the Declaration of Trust or from time
to time in the By-Laws, any action to be taken by the Trustees may be taken
(A) by a majority of the Trustees present at a meeting of the Trustees (a
quorum being present), within or without Massachusetts, including any
meeting held by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can
hear each other at the same time (participation by which means shall for
all purposes constitute presence in person at a meeting), or (B) by written
consents of a majority of the Trustees then in office (which written
consents shall be filed with the records of the meetings of the Trustees
and shall be treated for all purposes as a vote taken at a meeting of
Trustees).
The Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Article IV, Section 1 of the Declaration of Trust,
provided, however, that no meeting of Shareholders is required to be called
-------- -------
for the purpose of electing Trustees unless and until such time as less
than a majority of the Trustees have been elected by the Shareholders, (ii)
with respect to any Investment Management Company or Sub-Adviser as
provided in Article IV, Section 6 of the Declaration of Trust to the extent
required by the 1940 Act, (iii) with respect to any termination of the
Trust to the extent and as provided in Article IX, Section 4 of the
Declaration of Trust, (iv) with respect to any amendment of the Declaration
of Trust to the extent and as provided in Article IX, Section of 7 of the
Declaration of Trust, (v) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the
Shareholders, and (vi) with respect to such additional matters relating to
the Trust as may be required by law, the Declaration of Trust, the By-Laws
or any registration of the Trust with the Commission (or any successor
agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter
on which it is entitled to vote and each fractional Share shall be entitled
to a proportionate fractional vote. On any matter submitted to a vote of
Shareholders all Shares of the Trust then entitled to vote shall be voted
by individual Series, except (i) when required by the 1940 Act, Shares
shall be voted in the
<PAGE>
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aggregate and not by individual Series and (ii) when the Trustees have
determined that the matter affects only the interests of one or more Series or
Classes, then only Shareholders of such Series or Classes shall be entitled to
vote thereon. There shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by any one of them
unless at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action permitted or required of the
Shareholders by law, the Declaration of Trust or the By-Laws.
Meetings of the Shareholders may be called by the Trustees for the purpose
of electing Trustees as provided in Article IV, Section 1 of the Declaration of
Trust and for such other purposes as may be prescribed by law, by the
Declaration of Trust or by the By-Laws. Meetings of the Shareholders may also be
called by the Trustees from time to time for the purpose of taking action upon
any other matter deemed by the Trustees to be necessary or desirable. A meeting
of Shareholders may be held at any place designated by the Trustees. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time and place of the meeting, to each Shareholder
entitled to vote at such meeting at the Shareholder's address as it appears on
the records of the Trust. Whenever notice of a meeting is required to be given
to a Shareholder under the Declaration of Trust or the By-Laws, a written waiver
thereof, executed before or after the meeting by such Shareholder or his or her
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.
Forty percent (40%) of the Shares entitled to vote shall be a quorum for
the transaction of business at a Shareholders' meeting, except that where any
provision of law or of the Declaration of Trust or the By-Laws permits or
requires that holders of any Series or Class shall vote as a Series or Class,
then forty percent (40%) of the aggregate number of Shares of that Series or
Class entitled to vote shall be necessary to constitute a quorum for the
transaction of business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of law or the Declaration of Trust or the By-Laws, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
provided that where any provision of law
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or of the Declaration of Trust or the By-Laws permits or requires that the
holders of any Series or Class shall vote as a Series or Class, then a majority
of the Shares of the Series or Class voted on the matter (or a plurality with
respect to the election of a Trustee) shall decide that matter insofar as that
series or Class is concerned.
Any action taken by Shareholders may be taken without a meeting if a
majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by an express provision of law or the
Declaration of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
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 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 expenses 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 matters 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.
The Trustees may, at any time and from time to time, contract for exclusive
or nonexclusive advisory and/or management services with any corporation, trust,
association or other organization (the "Manager"), every such contract to comply
with such requirements and restrictions as may be set forth in the By-Laws; and
any such contract may provide for one or more sub-advisers who shall perform all
or part of the obligations of the Manager under such contract and may contain
such other terms
<PAGE>
-54-
interpretive of or in addition to said requirements and restrictions as the
Trustees may determine, including, without limitation, authority to determine
from time to time what investments shall be purchased, held, sold or exchanged
and what portion, if any, of the assets of the Trust shall be held uninvested
and to make changes in the Trust's investments. The Trustees may also, at any
time and from time to time, contract with the Manager or any other corporation,
trust, association or other organization, appointing it exclusive or
nonexclusive distributor or principal underwriter for the Shares, every such
contract to comply with such requirements and restrictions as may be set forth
in the By-Laws; and any such contract may contain such other terms interpretive
of or in addition to said requirements and restrictions as the Trustees may
determine.
Unless terminated as provided in the Declaration of Trust, the Trust shall
continue without limitation of time. The Trust may be terminated at any time by
vote of Shareholders holding at least sixty-six and two-thirds percent (66 2/3%)
of the shares entitled vote, or by the Trustees by written notice to the
Shareholders. Any Series or Class of shares may be terminated at any time by
vote of Shareholders holding at least sixty-six and two-thirds percent (66 2/3%)
of the shares of such Series or Class entitled to vote, or by the Trustees by
written notice to the Shareholders of such Series or Class. Upon termination of
the Trust or of any one or more Series or Classes of shares, after paying or
otherwise providing for all charges, taxes, expenses and liabilities, whether
due or accrued or anticipated of the Trust or of the particular Series or Class
as may be determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash or shares or other property, or any combination
thereof, and distribute the proceeds to the Shareholders of the Series involved,
ratably according to the number of shares of such Series held by the several
Shareholders of such Series on the date of termination, except to the extent
otherwise required or permitted by the preferences and special or relative
rights and privileges of any Classes of shares of that Series, provided that any
distribution to the Shareholders of a particular Class of shares shall be made
to such Shareholders pro rata in proportion to the number of shares of such
Class held by each of them.
<PAGE>
-55-
(G) Information Concerning Major Shareholders
Not applicable.
(H) Information Concerning Directors, Officers and Employees
(1) Trustees and Officers of the Trust
<TABLE>
<CAPTION>
as of June 30, 1998
- -----------------------------------------------------------------------------------------------
Shares
Name Office and Title Resume Owned
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARL W. FOELL Trustee formerly: Editor in-Chief, World 5,668.139
Monitor Magazine
and Editor-in-Chief,
The Christian Science
Monitor
- -----------------------------------------------------------------------------------------------
RICHARD S. Trustee formerly: Vice President, Loomis 1,632.626
HOLWAY Sayles, Director,
Sandwich Cooperative
Bank.
- -----------------------------------------------------------------------------------------------
TERRY R. Trustee formerly: Senior Vice President, 167,954.635
LAUTENBACH International Business
Machines Corporation.
Director, Air Products and
Chemicals, Inc., Malville
Corp., and Varian
Associates, Inc.
- -----------------------------------------------------------------------------------------------
MICHAEL T. Trustee: formerly: Vice President, Loomis 20,414.848
MURRAY Sayles
- -----------------------------------------------------------------------------------------------
DANIEL J. FUSS President and present: Executive Vice President 349,374.542
Trustee and Director, Loomis
Sayles
- -----------------------------------------------------------------------------------------------
SHEILA M. BARRY Secretary and present: Assistance General Counsel 0
Compliance and Vice President,
Officer. Loomis Sayles
formerly: Senior Counsel and Vice
President, New England
Funds, L.P.
- -----------------------------------------------------------------------------------------------
ROBERT J. BLANDING Executive Vice present: President, Chairman, 10,959.264
President Director and Chief
Executive Officer,
Loomis Sayles
- -----------------------------------------------------------------------------------------------
JAMES C. CARROLL Vice President present: Vice President, 0
Loomis Sayles
formerly: Managing Director and
Senior Energy
Analyst at Paine
Webber, Inc.
- -----------------------------------------------------------------------------------------------
JEROME A. Vice President present: Vice President and 0
CASTELLINI Director, Loomis
Sayles
- -----------------------------------------------------------------------------------------------
MARY C. Vice President present: Vice President, 0
CHAMPAGNE Loomis Sayles
formerly: Portfolio manager,
NBD Bank
- -----------------------------------------------------------------------------------------------
E. JOHN DE BEER Vice President present: Vice President, 0.050
Loomis Sayles
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-56-
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
PAUL H. DREXLER Vice President present: Vice President, Loomis 0
Sayles
formerly: Deputy Manager, Brown
Brothers Harriman & Co.
- ------------------------------------------------------------------------------------
WILLIAM H. Vice President present: Vice President, Loomis 0
EIGEN, JR. Sayles
formerly: Vice President, INVESCO
Funds Group and Vice
President, The Travelers
Corp.
- ------------------------------------------------------------------------------------
CHRISTOPHER R. Vice President present: Vice President, Loomis 1,708.367
ELY Sayles
formerly: Senior Vice President and
portfolio manager,
Keystone Investment
Management Company,
Inc.
- ------------------------------------------------------------------------------------
QUENTIN P. Vice President present: Vice President, Loomis 0
FAULKNER Sayles
- ------------------------------------------------------------------------------------
PHILIP C. FINE Vice President present: Vice President, Loomis 0
Sayles
formerly: Vice President and
portfolio manager,
Keystone Investment
Management Company,
Inc.
- ------------------------------------------------------------------------------------
KATHLEEN C. Vice President present: Vice President, Loomis 0
GAFFNEY Sayles
- ------------------------------------------------------------------------------------
ISAAC GREEN Vice President present: Vice President and 78.137
Director, Loomis Sayles
formerly: Senior Vice President and
Director of Investments at
NCM Capital Management
Group
- ------------------------------------------------------------------------------------
DEAN A. GULIS Vice President present: Vice President, Loomis 1,002.224
Sayles.
formerly: Principal and Director of
Research at Roney &
Company
- ------------------------------------------------------------------------------------
MARTHA F. Vice President present: Vice President, Loomis 6,005.918
HODGMAN Sayles
- ------------------------------------------------------------------------------------
MARK W. Treasurer present: Vice President - Finance 55,255.049
HOLLAND and Administration and
Director, Loomis Sayles
- ------------------------------------------------------------------------------------
JOHN HYLL Vice President present: Vice President, Loomis 9,340.214
Sayles
- ------------------------------------------------------------------------------------
JEFFEREY L. Vice President present: Vice President, Executive 63,213.038
MEADE Vice President, Chief
Operating Officer and
Director, Loomis Sayles
- ------------------------------------------------------------------------------------
PHILIP R. Assistant present: Vice President, Loomis 4,318,444
MURRAY Treasurer Sayles
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-57-
- --------------------------------------------------------------------------------
KENT P. Vice President present: Managing Partner, Vice 25,335.706
NEWMARK President and Director,
Loomis Sayles
- --------------------------------------------------------------------------------
SCOTT S. PAPE Vice President present: Vice President, Loomis 0
Sayles
- --------------------------------------------------------------------------------
JEFFEREY C. Vice President present: Vice President, Loomis 1,204.845
PETHERICK Sayles
- --------------------------------------------------------------------------------
LAUREN B. Vice President present: Vice President, Loomis 773.361
PITALIS Sayles
- --------------------------------------------------------------------------------
PHILIP J. Vice President present: Vice President and 0
SCHETTEWI Director, Loomis Sayles
- --------------------------------------------------------------------------------
DAVID L. SMITH Vice President present: Vice President, Loomis 0
Sayles
formerly: Vice President and
portfolio manager,
Keystone Investment
Management Company, Inc.
- --------------------------------------------------------------------------------
SANDRA P. Vice President present: General Counsel, Vice 0
TICHENOR President, Secretary and
Clerk, Loomis Sayles
formerly: Partner, Heller, Ehrman,
White & McAuliffe
- --------------------------------------------------------------------------------
JEFFEREY W. Vice President present: Vice President, Loomis 0
WARDLOW Sayles
- --------------------------------------------------------------------------------
GREGG D. Vice President present: Vice President, Loomis 0
WATKINS Sayles
- --------------------------------------------------------------------------------
ANTHONY J. Vice President present: Vice President and 12,974.425
WILKINS Director, Loomis Sayles
- --------------------------------------------------------------------------------
JOHN F. YEAGER Vice President present: Vice President, Loomis 0
III Sayles
formerly: Vice President -
Marketing, INVESCO Funds
Group and Assistant
Comptroller, INVESCO Capital
Management
- --------------------------------------------------------------------------------
Note 1: Previous positions during the past five years with Loomis Sayles are
omitted, if not materially different.
Note 2: Except as indicated above, the address of each trustee and officer of
the Trust affiliated with Loomis Sayles is One Financial Center,
Boston, Massachusetts.
(2) Employee of the Trust
The Trust has no employees.
(I) Description of Business and Outline of Operation
The Trust may carry out any administrative and managerial act,
including the purchase, sale, subscription and exchange of any
securities, and the exercise of all rights directly or indirectly
pertaining to the Fund's assets. The Trust has retained
<PAGE>
-58-
Loomis Sayles & Company, L.P., the investment adviser, to render investment
advisory services and State Street Bank and Trust Company, to hold the
assets of the Fund in custody and act as Transfer, Dividend Payment and
Shareholder Servicing Agent.
(J) Miscellaneous
(1) Changes of Trustees and Officers
Trustees may removed or replaced by, among other things, a
resolution adopted by a vote of two-thirds of the outstanding shares
at a meeting called for the purpose. In the event of vacancy, the
remaining Trustees may fill such vacancy by appointing for the
remaining term of the predecessor Trustee such other person as they in
their discretion shall see fit. The Trustees may add to their number
as they consider appropriate. The Trustees may elect and remove
officers as they consider appropriate.
(2) Amendment to the Declaration of Trust
The Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when
authorized to do so by vote of Shareholders holding a majority of the
Shares entitled to vote, except that an amendment which in the
determination of the Trustees shall affect the holders of one or more
Series or Classes of Shares but not the holders of all outstanding
Series and Classes shall be authorized by vote of the Shareholders
holding a majority of the Shares entitled to vote of each Series and
Class affected and no vote of Shareholders of a Series or Class not
affected shall be required. Amendments having the purpose of changing
the name of the Trust, of establishing, changing or eliminating the
par value of any Shares or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or
inconsistent provision contained herein shall not require
authorization by vote of any Shareholders.
(3) Litigation and Other Significant Events
There is no litigation or no other proceeding in which the Trust
is involved. The fiscal year end of the Trust is September 30. 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 trustee may also terminate the Trust or the Fund upon written
notice to the shareholders.
<PAGE>
-59-
2. Loomis, Sayles & Company, L.P. (Investment Management Company)
(A) Law of Place of Incorporation
Loomis Sayles is a limited partnership organized under the Law of the
State of Delaware, U.S.A. Its investment advisory business is regulated
under the Investment Advisers Act of 1940.
Under the Investment Advisers Act of 1940, an investment adviser
means, with certain exceptions, any person who, for compensation, engages
in the business of advising others, either directly or through publications
or writings, as to the value of securities or as to the advisability of
investing in, purchasing or selling securities, or who, for compensation
and as part of a regular business, issues analyses or reports concerning
securities. Investment advisers under the Act may not conduct their
business unless they are registered with the SEC.
(B) Outline of the Supervisory Authority
Investment Management Company is registered with SEC as an investment
adviser under the Investment Advisers Act of 1940.
(C) Purpose of the Company
Investment Management Company's predominant business is investment
management, which includes the buying, selling, exchanging and trading of
securities of all descriptions on behalf of mutual funds in any part of the
world.
(D) History of the Company
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.
(E) Amount of Capital Stock (as of the end of July, 1998)
1. Amount of Capital (issued capital stock at par value):
Not applicable. Provided, however, that the partner capital as of
December 31, 1997 was $54,013,000. See note 5 to the consolidated
financial statements
<PAGE>
-60-
included in PART III SPECIAL INFORMATION, II. FINANCIAL CONDITIONS
OF THE INVESTMENT MANAGEMENT COMPANY herein.
2. Number of authorized shares of capital stock:
Not applicable.
3. Number of outstanding shares of capital stock:
Not applicable.
4. Amount of capital:
Not applicable. See, Note 5 to the consolidated financial statements
included in PART III SPECIAL INFORMATION, II. FINANCIAL CONDITIONS OF
THE INVESTMENT MANAGEMENT COMPANY herein.
(F) Structure of the Management of the Company
The general partner of the Investment Management Company is a special
purpose corporation that is an indirect wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general
partner, Nvest corporation, is a direct wholly-owned subsidiary of
Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance
company. Nvest Companies' advising general partner, Nvest, L.P., is a
publicly traded company listed on the New York Stock Exchange. Nvest
Corporation is the sole general partner of Nvest L.P.
Loomis Sayles serves as investment manager under a separate management
agreement relating to the Loomis Sayles Managed Bond Fund dated August 26,
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 executives and other personnel of
the Fund and certain administrative services. For these services, the
management 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
<PAGE>
-61-
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 management agreements or in relevant state regulations and excludes
brokerage commissions, taxes, interest, distribution-related expenses and
extraordinary expenses.
The management 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
management 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.
<PAGE>
-62-
The management 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 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.
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 amount 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.
Daniel J. Fuss, President of the Trust and Executive Vice President of
Loomis Sayles, will serve as the portfolio manager of the Loomis Sayles Managed
Bond Fund. Kathleen C. Gaffney, Vice President of the Trust and Loomis Sayles,
will serve as associate portfolio manager of Loomis Sayles Managed Bond Fund.
- --------------------------------------------------------------------------------
Names Year Business Experience
(at least 5 years)
- --------------------------------------------------------------------------------
Daniel J. Fuss 1976 Executive Vice President, Director and Managing
Partner of Loomis, Sayles & Company, L.P.
BS, Marquette University
MBA, Marquette University
- --------------------------------------------------------------------------------
<PAGE>
-63-
- --------------------------------------------------------------------------------
Joined Loomis Sayles in 1976
began investment career in 1968
Past Professional Experience:
The Boston Company; Vice President, Investment Counsel
Endowment Management & Research Co.: Vice President,
Investment Management
Continental Illinois National Bank: Second Vice
President and Trust Officer
- --------------------------------------------------------------------------------
Kathleen C. Gaffney 1984 Vice President of Loomis, Sayles & Company, L.P.
BA, University of Massachusetts
joined Loomis Sayles in 1984
began investment career in 1984
- --------------------------------------------------------------------------------
(G) Information Concerning Major Stockholders
[Not applicable]
(H) Information Concerning Officers and Employees
The following table lists the names of various officers and directors of
Investment Management Company and their respective positions with
Investment Management Company. (Although, technically, the Investment
Management Company does not have officers and directors because it is a
limited partnership, the officers and directors of the General Partner
serve the same function for the Investment Management Company and
therefore, assume the same titles. Hereinafter the same.) For each named
individual, the table lists: (i) any other organizations (excluding other
Investment Management Company's funds) with which the officer and/or
director has recently had or has substantial involvement; and (ii)
positions held with such organization:
List of Officers and Directors of Loomis, Sayles & Company, L.P. (as of [July
30], 1998)
____________________________________________________________________
Position with
Loomis, Sayles &
Name Company, L.P., Other Business Affiliation
--------------------------------------------------------------------
Daniel J.Fuss Executive Vice President and Trustee of the
President and Director Trust
--------------------------------------------------------------------
Sheila M. Assistant General Secretary and Compliance
Barry Counsel and Vice Officer of the Trust
President
--------------------------------------------------------------------
Robert J. President, Chairman, Executive Vice President of
Blanding Director and Chief the Trust
Executive Officer
--------------------------------------------------------------------
<PAGE>
-64-
- -------------------------------------------------------------------------------
James C. Vice President Vice President of the Trust
Carroll
- -------------------------------------------------------------------------------
Jerome A. Vice President and Vice President of the Trust
Castellini Director
- -------------------------------------------------------------------------------
Mary C. Vice President Vice President of the Trust
Champagne
- -------------------------------------------------------------------------------
E. John Vice President Vice President of the Trust
De Beer
- -------------------------------------------------------------------------------
Paul H. Vice President Vice President of the Trust
Drexler
- -------------------------------------------------------------------------------
William H. Vice President Vice President of the Trust
Eiger, Jr.
- -------------------------------------------------------------------------------
Christopher Vice President Vice President of the Trust
R. Ely
- -------------------------------------------------------------------------------
Quentin P. Vice President Vice President of the Trust
Faulkner
- -------------------------------------------------------------------------------
Philip C. Fine Vice President Vice President of the Trust
- -------------------------------------------------------------------------------
Kathleen C. Vice President Vice President of the Trust
Gaffney
- -------------------------------------------------------------------------------
Isaac Green Vice President Vice President of the Trust
and Director
- -------------------------------------------------------------------------------
Dean A. Gulis Vice President Vice President of the Trust
- -------------------------------------------------------------------------------
Martha F. Vice President Vice President of the Trust
Hodgman
- -------------------------------------------------------------------------------
Mark W. Holland Vice President - Treasurer of the Trust
Finance and
Administration
and Director
- -------------------------------------------------------------------------------
John Hyll Vice President Vice President of the Trust
- -------------------------------------------------------------------------------
Jeffrey L. Executive Vice Vice President of the Trust
Meade President, Chief
Operating Officer
and Director
- -------------------------------------------------------------------------------
<PAGE>
-65-
-------------------------------------------------------------------------
Philip R. Vice President Assistant Treasurer of the Trust
Murray
-------------------------------------------------------------------------
Kent P. Managing Partner, Vice President of the Trust
Newmark Vice President and
Director
------------------------------------------------------------------------
Scott S. Pape Vice President Vice President of the Trust
------------------------------------------------------------------------
Jeffrey C. Vice President Vice President of the Trust
Petherick
------------------------------------------------------------------------
Lauren B. Vice President Vice President of the Trust
Pitalis
------------------------------------------------------------------------
Philip J. Vice President and Vice President of the Trust
Schettewi Director
------------------------------------------------------------------------
David L. Vice President Vice President of the Trust
Smith
------------------------------------------------------------------------
Sandra P. General Counsel, Vice President of the Trust
Tichenor Vice President,
Secretary and Clerk
------------------------------------------------------------------------
Jeffrey W. Vice President Vice President of the Trust
Wardlow
-------------------------------------------------------------------------
Gregg D. Vice President Vice President of the Trust
Watkins
-------------------------------------------------------------------------
Anthony J. Vice President and Vice President of the Trust
Wilkins Director
-------------------------------------------------------------------------
John F. Vice President Vice President of the Trust
Yeager
-------------------------------------------------------------------------
(I) Summary of Business Lines and Business Operation
Investment Management Company is engaged in the business of providing
investment management and investment advisory services to mutual funds.
As of the end of July, 1998, Investment Management Company managed,
advised, and/or administered the following 42 funds and fund portfolios:
<PAGE>
-66-
<TABLE>
<CAPTION>
Fund List
(as of the end of July 1998)
- -----------------------------------------------------------------------------------------------
Month/Date Principal Total Net Asset Net Asset
Year Characteristics Value Value per
Fund Established ($ million) share ($)
R=Retail
I=Institutional
A=Admin
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOOMIS SAYLES FUNDS
- -----------------------------------------------------------------------------------------------
Bond 5/16/91 Fixed Income/Open 1.7 billion 12.80 (R)
12.81 (I)
12.80 (A)
- -----------------------------------------------------------------------------------------------
Global Bond 5/10/91 Global/Open 36.8 12.14 (R)
12.16 (I)
- -----------------------------------------------------------------------------------------------
Growth 5/16/91 Equity/Open 29.5 13.06 (R)
13.12 (I)
- -----------------------------------------------------------------------------------------------
Core Value 5/13/91 Equity/Open 71.5 18.30 (R)
18.35 (I)
- -----------------------------------------------------------------------------------------------
High Yield 9/11/96 Fixed Income/Open 12.4 9.72 (R)
9.72 (I)
- -----------------------------------------------------------------------------------------------
Intermediate Maturity Bond 12/31/96 Fixed Income/Open 9.4 10.10 (R)
10.10 (I)
- -----------------------------------------------------------------------------------------------
International Equity 5/10/91 Global/Open 81.4 12.44 (R)
12.49 (I)
- -----------------------------------------------------------------------------------------------
Investment Grade Bond 12/31/96 Fixed Income/Open 4.6 10.49 (R)
10.50 (I)
- -----------------------------------------------------------------------------------------------
Mid-Cap Growth 12/31/96 Equity/Open 2.5 11.87 (R)
11.89 (I)
- -----------------------------------------------------------------------------------------------
Mid-Cap Value 12/31/96 Equity/Open 4.2 11.78 (R)
11.79 (I)
- -----------------------------------------------------------------------------------------------
Municipal Bond 5/29/91 Fixed Income/Open 10.1 11.66 (I)
- -----------------------------------------------------------------------------------------------
Short-Term Bond 8/3/92 Fixed Income/Open 26.4 9.76 (R)
9.76 (I)
- -----------------------------------------------------------------------------------------------
Small Cap Growth 12/31/96 Equity/Open 18.9 11.32 (R)
11.35 (I)
- -----------------------------------------------------------------------------------------------
Small Cap Value 5/13/91 Equity/Open 380.1 17.90 (R)
17.92 (I)
17.87 (A)
- -----------------------------------------------------------------------------------------------
Strategic Value 12/31/96 Equity/Open 1.4 12.76 (R)
12.78 (I)
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-67-
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
U.S. Government Securities 5/21/91 Fixed Income/Open 21.4 10.89 (I)
- ---------------------------------------------------------------------------------------------------
Worldwide 5/1/96 Global/Open 5.6 9.82 (R)
9.85 (I)
- ---------------------------------------------------------------------------------------------------
LOOMIS SAYLES INVESTMENT TRUST
- ---------------------------------------------------------------------------------------------------
California Tax-Free Income 6/1/95 Fixed Income/Open 18.5 10.41
- ---------------------------------------------------------------------------------------------------
Core Fixed Income 4/24/96 Fixed income/Open 19.1 11.06
- ---------------------------------------------------------------------------------------------------
Core Growth 10/1/95 Equity/Open 22.2 14.46
- ---------------------------------------------------------------------------------------------------
Fixed Income 1/17/95 Fixed Income/Open 294.8 12.93
- ---------------------------------------------------------------------------------------------------
High Yield Fixed Income 6/5/96 Fixed Income/Open 32.4 9.94
- ---------------------------------------------------------------------------------------------------
Intermediate Duration 1/28/98 Fixed Income/Open 11.1 10.01
- ---------------------------------------------------------------------------------------------------
Investment Grade Fixed Income 7/1/94 Fixed Income/Open 109.1 11.85
- ---------------------------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- ---------------------------------------------------------------------------------------------------
New England Balanced (I) 11/27/68 Balanced/Open Class A=227.7 A=14.63
B=81.8 B=14.51
C=5.3 C=14.46
Y=79.8 D=14.66
- ---------------------------------------------------------------------------------------------------
New England Equity Income Fund 11/28/95 Equity Open Class A=18.4 A=17.73
(III) B=15.9 B=17.72
C=2.1 C=17.72
- ---------------------------------------------------------------------------------------------------
New England High Income Fund (II) 2/22/84 Fixed Income/Open Class A=76.7 A=9.73
B=58.9 B=9.72
C=4.9 C=9.73
- ---------------------------------------------------------------------------------------------------
New England International Equity 5/21/92 Global/Open Class A=53.1 A=15.43
Fund (I) B=22.7 B=14.97
C=1.1 C=15.01
Y=5.6 Y=15.80
- ---------------------------------------------------------------------------------------------------
New England Star Advisers (I) 7/7/94 Equity/Open Class A=442.2 A=20.09
B=497.9 B=19.41
C=99.2 C=19.43
Y=41.0 Y=20.39
- ---------------------------------------------------------------------------------------------------
New England Star Small Cap (I) 12/31/96 Equity/Open Class A=55.5 A=14.89
B=58.4 B=14.71
C=14.8 C=14.71
- ---------------------------------------------------------------------------------------------------
New England Strategic Income (I) 5/1/95 Fixed Income/Open Class A=145.7 A=13.00
B=150.7 B=12.99
C=54.6 C=12.99
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-68-
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New England Value (I) 6/5/70 Equity/Open Class A=339.6 A=10.52
B=85.9 B=10.24
C=7.5 C=10.25
Y=25.3 Y=10.49
- ------------------------------------------------------------------------------------------------------------------------------------
NEW ENGLAND ZENITH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced 10/31/94 Balanced/Open 169.0 15.36
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap 5/2/94 Equity/Open 220.0 151.13
- ------------------------------------------------------------------------------------------------------------------------------------
UNRELATED FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Social Fund 2/1/94 Equity/Open 159 A=23.58
B=23.54
C=22.03
- -----------------------------------------------------------------------------------------------------------------------------------
1st Source 11/3/87 Equity/Open 93 12.89
- -----------------------------------------------------------------------------------------------------------------------------------
Manager's Bond fund 5/84 Fixed Income/Open 46 23.78
- -----------------------------------------------------------------------------------------------------------------------------------
Maxim Small-Cap Aggressive 11/1/94 Equity/Open 26 1.447877
Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Maxim Foreign Equity 2/14/97 Global Equity/Open 85 1.01543838
- -----------------------------------------------------------------------------------------------------------------------------------
Maxim Corporate Bond 11/1/94 Fixed Income/Open 00 1.182639
- -----------------------------------------------------------------------------------------------------------------------------------
Metropolitan High Yield Bond 3/97 Fixed Income/Open 38 8.99
- -----------------------------------------------------------------------------------------------------------------------------------
Rydex High Yield Series 1/3/98 Fixed Income/Open 3 9.44
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-69-
(J) Miscellaneous
1. Election and Removal of Directors
Directors of the General Partner of the Investment Management Company
are elected to office or removed from office by vote of either
stockholders or directors, in accordance with the By-Laws of the General
Partner of Investment Management Company.
2. Results of operations
Officers of the General Partner of the Investment Management Company
are elected by the Board of Directors. The Board of Directors may remove
any officer without cause.
3. Supervision by SEC of Changes in Directors and Certain Officers
Loomis Sayles files certain reports with the SEC in accordance with
Sections 203 and 204 of the Investment Advisers Act of 1940, which reports
list and provide certain information relating to directors and officers of
Investment Management Company.
4. Amendment to the Agreement of Limited Partnership of Investment
Management Company, Articles of Organization and By-Laws of its
General Partner, Transfer of Business and Other Important Matters.
5. Litigation, etc.
On June 7, 1996, a lawsuit has been instituted against Loomis, Sayles
& Company, L.P. by three related trusts who are former institutional
clients for losses sustained in connection with the liquidation of certain
mortgage-backed securities in their accounts. The action alleges that
Loomis Sayles breaches its ERISA fiduciary duties and certain contractual
obligations in purchasing the mortgage-backed securities for the clients'
accounts. The former clients concede that persons other than Loomis Sayles
made the decision to sell the securities at issue. Loomis Sayles believes
that the purchase of the mortgage-backed securities at issue was authorized
by contract, appropriate for the clients' accounts, and fully consistent
with ERISA standards. On March 3, 1997, the Court granted Loomis Sayles'
motion to dismiss certain of the causes of action of the plaintiffs and to
strike the plaintiffs' request for punitive damages. The case has proceeded
through the trial phase and both parties are submitting post trial briefs.
Management believes that it has meritorious defenses and continues to
vigorously contest both allegations of liability and damages. Management
believes that resolution of this matter will not have a material adverse
effect on Loomis Sayles' financial condition.
<PAGE>
-70-
IIII. OUTLINE OF THE OTHER RELATED COMPANIES
(A) State Street Bank and Trust Company (the Transfer Agent, Shareholder
Service Agent, Dividend Paying Agent and Custodian)
(1) Amount of Capital
U.S. $4.5 trillion as of the end of July, 1998
(2) Description of Business
State Street Bank and Trust Company, Boston, Massachusetts
02102, is the Trust's custodian. As such, State Street Bank holds
in safekeeping certified 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.
(3) Outline of Business Relationship with the Fund
State Street Bank and Trust Company provides transfer agent
services, shareholder services, dividend paying services and
custody services to the Fund.
(B) Loomis Sayles Distributions, L.P. (the Distributor)
(1) Amount of Capital
U.S. $49,417 as of the end of July, 1998
(2) Description of Business
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 cost of registering and
qualifying their shares under state and federal securities laws and
the distribution of prospectuses to existing shareholders.
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
<PAGE>
-71-
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 cost 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 all time with
respect to the Fund on 60 days' written notice without payment of any
penalty by the Trust or by vote of 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 purposes.
(3) Outline of Business Relationship with the Fund
Loomis Sayles Distributors, L.P. engages in providing marketing
services to the Fund.
(C) Kokusai Securities Co., Ltd. (Distributor in Japan and Agent Securities
Company)
(1) Amount of Capital
(Yen) 55.5 billion as of the end of July, 1998
(2) Description of Business
Kokusai Securities Co., Ltd. is a diversified securities company in
Japan. Kokusai Securities Co., Ltd. engages in handling the sales and
redemptions of the fund shares for [find names] offering foreign
investment funds.
(3) The Company acts as a Distributor in Japan and Agent Securities Company for
the Fund in connection with the offering of shares in Japan.
<PAGE>
-72-
(D) Capital Relationships
N/A.
(E) Interlocking Directors and Auditors
Names and functions of officers of the Fund who also are officers of
the related companies are as follows:
(as of the filing date)
- --------------------------------------------------------------------------------
Name of Investment Transfer
Officer or Management Agent and
Trustee Fund Company Shareholder
Service
Agent
- --------------------------------------------------------------------------------
Daniel J. Fuss President & Trustee Executive Vice President None
and Director
- --------------------------------------------------------------------------------
Sheila M. Secretary and Assistant General Councel None
Barry Compliance Officer & Vice President
- --------------------------------------------------------------------------------
Robert J. Executive Vice Executive Vice President, None
Blanding President President, Chairman,
Director & Chief Executive
Officer
- --------------------------------------------------------------------------------
Mark W. Treasurer Vice President-Finance & None
Holland Administration and Director
- --------------------------------------------------------------------------------
Jeffrey L. Vice President Executive Vice President, None
Meade Chief Operating Officer &
Director, Clerk
- --------------------------------------------------------------------------------
Philip R. Assistant Treasurer Vice President, Loomis None
Murray Sayles
- --------------------------------------------------------------------------------
Kent P. Vice President Managing Partner, Vice None
Newmark President & Director
- --------------------------------------------------------------------------------
Philip J. Vice President Vice President & Director None
Schettewi
- --------------------------------------------------------------------------------
Sandra P. Vice President Vice President, Secretary None
Tichenor and Director
- --------------------------------------------------------------------------------
Anthony J. Vice President Vice President and Director None
Wilkins
- --------------------------------------------------------------------------------
<PAGE>
-73-
IV. FINANCIAL CONDITION OF THE FUND
The Fund will start operations from 1st October, 1998 after the completion
of the public offering of the Shares, therefore, prior to 1st October,
1998, the Fund has no assets.
The Fund shall use as the auditors the professional services of
Pricewaterhouse Coopers LLP.
<PAGE>
-74-
V. SUMMARY OF INFORMATION CONCERNING FOREIGN INVESTMENT TRUST SECURITIES
1. Transfer of the Shares
The transfer agent for the registered share certificates is State
Street Bank and Trust Company, Boston, Massachusetts 02102, U.S.A.
The Japanese investors who entrust the custody of their shares to a
Handling Securities Company shall have their shares transferred under the
responsibility of such company, and the other investors shall make their
own arrangements.
No fee is chargeable for the transfer of shares.
2. The Closing Period of the Shareholders' Book
For the purpose of determining the shareholders who are entitled to
vote or act at any meeting or any adjournment thereof, or who are entitled
to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time, which shall be not more than 90
days before the date of any meeting of shareholders or the date for the
payment of any dividend or of any other distribution, as the record date
for determining the shareholders having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of record on
such record date shall have such right notwithstanding any transfer of
shares on the books of the Trust after the record date; or without fixing
such record date the Trustees may for any of such purposes close the
register or transfer books for all or any part of such period.
3. There are no annual shareholders' meetings. Special Shareholders' meeting
may be held from time to time as required by the Declaration of Trust and
the Investment Company Act of 1940.
4. No special privilege is granted to Shareholders.
The acquisition of Shares by any person may be restricted.
VI. MISCELLANEOUS
(1) The ornamental design is used in cover page of the Japanese Prospectus.
(2) Summarized Preliminary Prospectus will be used.
Attached document (Summarized Preliminary Prospectus) will be used pursuant
to the below, as the document (Summarized Preliminary Prospectus) as set
forth at Item 1.(I)(b), of Article 12 of the Ordinance Concerning the
Disclosure of the Content, etc. of the Specified Securities.
<PAGE>
-75-
(i) The summarized Preliminary Prospectus may be used as letters,
pamphlets, direct-mails post-cards, letters), etc., and may be
published in newspapers, magazines, books, etc.
(ii) The summarized Preliminary Prospectus may be, depending on the
media types, modified as to its lay-out, kinds of paper,
printed-color, design, etc. In addition, photographs and
illustrations attached may be added thereto.
(iii) The summarized preliminary prospectus may be used with the
words and phrases attached hereto.
<PAGE>
-76-
PART III. SPECIAL INFORMATION
SECTION I. OUTLINE OF GENERAL INFORMATION ABOUT OPEN-END MASSACHUSETTS
INVESTMENT COMPANIES
Below is an outline of certain general information about open-end U.S.
investment companies. This outline is not intended to provide comprehensive
information about such investment companies or the various laws, rules or
regulations applicable to them, but provides only a brief summary of certain
information which may be of interest to investors. The discussion below is
qualified in its entirely by the complete registration statement of the fund and
the full text of any referenced statutes and regulations.
I. Massachusetts Business Trusts
A. General Information
Many investment companies are organized as Massachusetts business
trusts. A Massachusetts business trust is organized pursuant to a
declaration of trust, setting out the general rights and obligations of the
shareholders, trustees, and other related parties. Generally, the trustees
of the trust oversee its business, and its officers and agents manage its
day-to-day affairs.
Chapter 182 of the Massachusetts General Laws applies to certain
"voluntary associations", including many Massachusetts business trusts.
Chapter 182 provides for, among other things, the filing of the declaration
of trust with the Secretary of State of the Commonwealth of Massachusetts
and the filing by the trust of an annual statement regarding, among other
things, the number of its shares outstanding and the names and addresses of
its trustees.
B. Shareholder Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a trust.
Typically, a declaration of trust disclaims shareholder liability for acts
or obligations of the trust and provides for indemnification out of trust
property for all loss and expense of any shareholder held personally liable
for the obligations of a trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which a particular trust would be unable to meet its
obligations.
II. United States Investment Company Laws and Enforcement
A. General
In the United States, pooled investment management arrangements which
offer shares to the public are governed by a variety of federal statutes
and regulations. Most mutual funds are subject to these laws. Among the
more significant of these statutes are:
1. Investment Company Act of 1940
The Investment Company Act of 1940, as amended (the "1940 Act"),
in general, requires investment companies to register as such with the
U.S. Securities and Exchange Commission (the "SEC"), and to comply
with a number of substantive regulations of their operations. The 1940
Act requires an investment company, among other things, to provide
periodic reports to its shareholders.
<PAGE>
-77-
2. Securities Act of 1933
The Securities Act of 1933, as amended (the "1933 Act"),
regulates many sales of securities. The Act, among other things,
imposes various registration requirements upon sellers of securities
and provides for various liabilities for failures to comply with its
provisions or in respect of other specified matters.
3. Securities Exchange Act of 1934
The Securities Exchange Act of 1934, as amended (the "1934 Act"),
regulates a variety of matters involving, among other things, the
secondary trading of securities, periodic reporting by the issuers of
securities, and certain of the activities of transfer agents and
brokers and dealers.
4. The Internal Revenue Code
An investment company is an entity subject to federal income
taxation under the Internal Revenue Code. However, under the Code, an
investment company may be relieved of federal taxes on income and
gains it distributes to shareholders if it qualifies as a "regulated
investment company" under the Code for federal income tax purposes and
meets all other necessary requirements.
5. Other laws
The Fund is subject to the provisions of other laws, rules, and
regulations applicable to the Fund or its operations, such as, for
example, various state laws regarding the sale of the Fund's shares.
B. Outline of the Supervisory Authorities
Among the regulatory authorities having jurisdiction over the Fund or
certain of its operations are the SEC and state regulatory agencies or
authorities.
1. The SEC has broad authority to oversee the application and
enforcement of the federal securities laws, including the 1940 Act,
the 1933 Act, and the 1934 Act, among others, to the Fund. The 1940
Act provides the SEC broad authority to inspect the records of
investment companies, to exempt investment companies or certain
practices from the provisions of the Act, and otherwise to enforce the
provisions of the Act.
2. State authorities typically have broad authority to regulate the
offering and sale of securities to their residents or within their
jurisdictions and the activities of brokers, dealers, or other persons
directly or indirectly engaged in related activities.
C. Offering Shares to the Public
An investment company ("investment company" or fund) offering its
shares to the public must meet a number of requirements, including, among
other things, registration as an investment company under the 1940 Act;
registration of the sale of its shares under the 1933 Act; registration of
the fund, the sale of its shares, or both, with state securities
regulators; delivery of a current prospectus to current or prospective
investors; and so forth. Many of these requirements must be met not only at
the time of the original offering of the fund's shares, but compliance must
be maintained or updated from time to time throughout the life of the fund.
<PAGE>
-78-
D. Ongoing Requirements
Under U.S. law, a fund is subject to numerous ongoing requirements,
including, but not limited to;
1. Updating its prospectus if it becomes materially inaccurate or
misleading;
2. Annual update of its registration statement;
3. Filing semi-annual and annual financial reports with the SEC and
distributing them to shareholders;
4. Annual trustee approval of investment advisory arrangements,
distribution plans, underwriting arrangements, errors and
omissions/director and officer liability insurance, foreign custody
arrangements, and auditors;
5. Maintenance of a code of ethics; and
6. Periodic board review of certain fund transactions, dividend
payments, and payments under a fund's distribution plan.
III. Management of a Fund
The board of directors or trustees of a fund are responsible for generally
overseeing the conduct of a fund's business. The officers and agents of a fund
are generally responsible for the day-to-day operations of a fund. The trustees
and officers of a fund may or may not receive a fee for their services.
The investment adviser to a fund is typically responsible for implementing
the fund's investment program. The adviser typically receives a fee for its
services based on a percentage of the net assets of a fund. Certain rules govern
the activities of investment advisers and the fees they may charge. In the
United States, investment advisers to investment companies must be registered
under the Investment Advisers Act of 1940, as amended.
IV. Share Information
A. Valuation
Shares of a fund are generally sold at the net asset value next
determined after an order is received by a fund, plus any applicable sales
charges. A fund normally calculates its net asset value per share by
dividing the total value of its assets, less liabilities, by the number of
its shares outstanding. Shares are typically valued as of the close of
regular trading on the New York Stock Exchange (4:00) each day the Exchange
is open.
B. Redemption
Shareholders may generally sell shares of a fund to that fund any day
the fund is open for business at the net asset value next computed after
receipt of the shareholders' order. Under unusual circumstances, a fund may
suspend redemptions, or postpone payment for more than seven says, if
permitted by U.S. securities laws. A fund may charge redemption fees as
described in its prospectus.
C. Transfer agency
The transfer agent for a fund typically processes the transfer of
shares, redemption of shares, and payment and/or reinvestment of
distributions.
<PAGE>
-79-
V. Shareholder Information, Rights and Procedures for the Exercise of
Such Rights
A. Voting Rights
Voting Rights vary from fund to fund. In the case of many funds
organized as Massachusetts business trusts, shareholders are entitled
to vote on the election of trustees, approval of investment advisory
agreements, underwriting agreements, and distribution plans (or
amendments thereto), certain mergers or other business combinations,
and certain amendments to the declaration of trust. Shareholder
approval is also required to modify or eliminate a fundamental
investment policy.
B. Dividends
Shareholders are typically entitled to receive dividends when and
if declared by a fund's trustees. In declaring dividends, the trustees
will normally set a record date, and all shareholders of record on
that date will be entitled to receive the dividend paid.
C. Dissolution
Upon liquidation of a fund, Shareholders would normally be
entitled to receive a portion of the fund's net assets in accordance
with the proportion of the fund's outstanding shares owned.
D. Transferability
Shares of a fund are typically transferable without restriction.
E. Right to Inspection
Shareholders of a Massachusetts business trust have the right to
inspect the records of the trust as provided in the declaration of
trust or as otherwise provided by applicable law.
VI. U.S. Tax Matters
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 but not more than 18 months and from net gains on
securities held for more than 18 months will be taxable as such whether
distributed in cash or additional shares and regardless of how long an investor
has owned shares of the Fund. 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 generally is required to withhold 31% of any redemption proceeds
(including the value of shares exchanged) and all income dividends and capital
gain distributions it pays (1) if an investor does not provide a correct,
certified taxpayer identification number, (2) if the Fund is notified that an
investor has underreported income in the past, or (3) if an investor fails to
certify to the Fund that he or she is not subject to such withholding. 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.
<PAGE>
-80-
State Street Bank will send investors and the IRS an annual statement
detailing federal tax information, including information about dividends and
distributions paid during the preceding year. An investor should keep this
statement as a permanent record.
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, redeemimg or exchanging
Fund shares.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calender 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 of 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 and
businesses. To the extent it qualifies for treatment as a regulated investment
company, the Fund will not be subject to federal income tax on income paid to
its shareholders in the form of dividends or capital gain distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over its actual distributions in any calender
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calender 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 but will be taxable to shareholders as long-term capital gain
(generally taxable to individuals at a 20% tax 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 28% Rate Gain Distributions or 20% Rate Gain Distributions.
<PAGE>
-81-
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 form 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 case 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, future 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 interest 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 a 20% rate) if the shares
have been held for more than one year. Otherwise the gain on the sale, exchange
or redemption of the 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.
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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 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 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.
VII. Important Participants in Offering of Mutual Fund Shares
A. Investment Company
Certain pooled investment vehicles qualify as investment companies
under the 1940 Act. There are open-end investment companies (those which
offer redeemable securities) and closed-end investment companies (any
others).
B. Investment Adviser/Administrator
The investment adviser is typically responsible for the implementation
of an investment company's investment program. It, or another affiliated or
unaffiliated entity, may also perform certain record keeping and
administrative functions.
C. Underwriter
An investment company may appoint one or more principal underwriters
for its shares. The activities of such a principally underwriter are
generally governed by a number of legal regimes, including, for example,
the 1940 Act, the 1933 Act, the 1934 Act, and state laws.
D. Transfer Agent
A transfer agent performs certain bookkeeping, data processing, and
administrative services pertaining to the maintenance of shareholder
accounts. A transfer agent may also handle the payment of any dividends
declared by the trustees of a fund.
E. Custodian
A custodian's responsibilities may include, among other things,
safeguarding and controlling a fund's cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends
on a fund's investments.
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II. FINANCIAL CONDITIONS OF THE INVESTMENT MANAGEMENT COMPANY
[Ommitted, in Japanese version, financial statements of the Investment
Management Company and Japanese translations thereof are incorporated
here.]
III. FORM OF FOREIGN INVESTMENT FUND SECURITIES
[Main items to be set forth on the share certificate of the Fund (if
issued) are as follows:-
(1) Front
a. Name of the Fund
b. Number of shares represented
c. Signatures of the Chairman and Transfer Agent
d. Description stating that the Declaration of Trust applies to
shareholders and assignees therefrom
(2) Back
a. Space for endorsement
b. Description concerning delegation of transfer agency]