LOOMIS SAYLES FUNDS, 497, 1999-01-04

LOOMIS SAYLES FUNDS
497, 1999-01-04

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<PAGE>

[LOOMIS SAYLES LOGO APPEARS HERE]

ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (888) 353-6885

THE LOOMIS SAYLES FUNDS

LOOMIS SAYLES HIGH YIELD FUND

INSTITUTIONAL CLASS

LOOMIS SAYLES MUNICIPAL BOND FUND
INSTITUTIONAL CLASS

LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND
INSTITUTIONAL CLASS

DESIGNED FOR USE BY INVESTMENT PROFESSIONALS
<PAGE>

PROSPECTUS JANUARY 1, 1999

LOOMIS SAYLES HIGH YIELD FUND

LOOMIS SAYLES MUNICIPAL BOND FUND
LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND

Loomis Sayles High Yield Fund, Loomis Sayles Municipal Bond Fund and Loomis
Sayles U.S. Government Securities Fund (the "Funds" and each a "Fund"), each a
series of Loomis Sayles Funds, are separately managed, no-load mutual funds,
each of which has its own investment objective and policies. Loomis, Sayles &
Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund.

This Prospectus concisely describes the information that an investor should
know before investing in the Institutional Class shares of each Fund. Please
read it carefully and keep it for future reference. A Statement of Additional
Information (SAI) dated January 1, 1999, as revised from time to time, is
available free of charge; write to Loomis Sayles Distributors, L.P. (the
"Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone
888 353-6885. The SAI, which contains more detailed information about the
Funds, has been filed with the Securities and Exchange Commission (the "SEC")
and is available along with other related materials on the SEC's Internet Web
site (http://www.sec.gov). The SAI is incorporated herein by reference
(legally forms a part of the Prospectus).

For information about: For all other information about
.Establishing an account the Funds:
.Account procedures and status
.Exchanges CALL 888 353-6885
.Shareholder services
CALL 800-626-9390

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

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

1
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 4
THE TRUST................................................................. 7
INVESTMENT OBJECTIVES AND POLICIES........................................ 7
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 9
THE FUNDS' INVESTMENT ADVISER............................................. 19
FUND EXPENSES............................................................. 20
PORTFOLIO TRANSACTIONS.................................................... 21
HOW TO PURCHASE SHARES.................................................... 21
SHAREHOLDER SERVICES...................................................... 23
HOW TO REDEEM SHARES...................................................... 24
CALCULATION OF PERFORMANCE INFORMATION.................................... 26
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 27
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. 29
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES
(FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND)

The following information is provided as an aid in understanding the various
expenses that an investor in a Fund will bear indirectly. The information
below is based on expenses for the Funds' most recent fiscal year, and should
not be considered a representation of past or future expenses, as actual
expenses may be greater or less than those shown. Also, the 5% annual return
assumed in the Example should not be considered a representation of investment
performance, as actual performance will vary.

<TABLE>
<CAPTION>
U.S.
HIGH MUNICIPAL GOVERNMENT
YIELD BOND SECURITIES
FUND FUND FUND
----- --------- ----------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as % of offering price)..................... none none none
Maximum Sales Load Imposed on Reinvested
Dividends
(as % of offering price)..................... none none none
Maximum Deferred Sales Load
(as % of original purchase price or
redemption proceeds)......................... none none none
Redemption Fees/1........................../.. 2.00% none none
Exchange Fees................................. none none none
Annual Fund Operating Expenses (as a
percentage of average net assets):
Management Fees............................... .60% .40% .30%
12b-1 Fees.................................... none none none
Other Operating Expenses (after expense
reimbursements where indicated).............. .15%/2/ .20%/2/ .20%/2/
Total Fund Operating Expenses (after expense
reimbursements where indicated).............. .75%/2/ .60%/2/ .50%/2/
Example:
An investor would pay the following expenses
on a $1,000 investment assuming a 5% annual
return (with or without a redemption at the
end of each time period):
One Year...................................... $ 8 $ 6 $ 5
Three Years................................... $ 24 $ 19 $ 16
Five Years.................................... $ 42 $ 33 $ 28
Ten Years..................................... $ 93 $ 75 $ 63
</TABLE>
- -----------
/1/A $5 charge applies to any wire transfer of redemption proceeds from each
Fund. A 2.00% redemption fee applies with respect to shares of the High
Yield Fund redeemed within one (1) year of purchase. Loomis Sayles may, in
its discretion, waive redemption fees on shares of the High Yield Fund as
set forth under the heading "How to Redeem Shares" if it determines that
there are minimal brokerage and transaction costs incurred in connection
with the redemption.

3
<PAGE>

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

The financial highlights tables that follow have been audited by
PricewaterhouseCoopers LLP, independent accountants. The following information
should be read in conjunction with the financial highlights, financial
statements and the notes thereto contained in the Funds' 1998 Annual Report,
which is incorporated by reference in this Prospectus and the Statement of
Additional Information.

<TABLE>
<CAPTION>
HIGH YIELD FUND--INSTITUTIONAL
CLASS
---------------------------------
NINE SEP. 11**
MONTHS ENDED YEAR ENDED TO
SEPT. 30*, DEC. 31, DEC. 31,
1998 1997 1996
------------ ---------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period....... $10.12 $10.11 $10.00
------ ------ ------
Income from investment operations--
Net investment income (loss).............. 0.78 + 0.83 0.20
Net realized and unrealized gain (loss) on
investments.............................. (2.28) 0.27 0.11
------ ------ ------
Total from investment operations.......... (1.50) 1.10 0.31
------ ------ ------
Less distributions--
Dividends from net investment income...... (0.46) (0.86) (0.20)
Distributions from net realized capital
gains.................................... 0.00 (0.26) 0.00
------ ------ ------
Total distributions....................... (0.46) (1.12) (0.20)
------ ------ ------
Redemption Fees........................... 0.01 0.03 0.00
------ ------ ------
Net asset value, end of period............. $ 8.17 $10.12 $10.11
====== ====== ======
Total return (%)***........................ (15.6)++ 11.4 3.1++
Net assets, end of period (000)............ $6,624 $5,266 $1,939
Ratio of operating expenses to average net
assets (%)****............................ 0.75+++ 0.75 0.75+++
Ratio of net investment income to average
net assets (%)............................ 10.54+++ 8.96 8.85+++
Portfolio turnover rate (%)................ 33++ 68 0++
Without giving effect to voluntary expense
limitations:
The ratio of operating expenses to average
net assets would have been (%)........... 2.42+++ 3.81 12.06+++
Net investment income per share would have
been..................................... $ 0.65+ $ 0.54 $(0.05)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.

++ Periods less than one year are not annualized.

+++ Computed on an annualized basis.

4
<PAGE>

<TABLE>
<CAPTION>
MUNICIPAL BOND FUND--INSTITUTIONAL CLASS
-------------------------------------------------------------------
NINE
MONTHS MAY 29**
ENDED YEAR ENDED DEC. 31, TO
SEPT. 30* ---------------------------------------------- DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
--------- ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.70 $11.29 $11.53 $10.41 $11.54 $10.95 $10.55 $10.00
------- ------ ------ ------ ------ ------ ------ ------
Income from investment
operations--
Net investment income
(loss)................ 0.40 0.56 0.52 0.52 0.52 0.51 0.51 0.24
Net realized and
unrealized gain (loss)
on investments........ 0.27 0.51 (0.15) 1.16 (1.13) 0.74 0.46 0.56
------- ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............ 0.67 1.07 0.37 1.68 (0.61) 1.25 0.97 0.80
------- ------ ------ ------ ------ ------ ------ ------
Less distributions--
Dividends from net
investment income..... (0.40) (0.56) (0.52) (0.52) (0.52) (0.51) (0.51) (0.23)
Distributions from net
realized capital
gains................. (0.01) (0.10) (0.09) (0.04) 0.00 (0.15) (0.06) (0.02)
------- ------ ------ ------ ------ ------ ------ ------
Total distributions.... (0.41) (0.66) (0.61) (0.56) (0.52) (0.66) (0.57) (0.25)
------- ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $ 11.96 $11.70 $11.29 $11.53 $10.41 $11.54 $10.95 $10.55
======= ====== ====== ====== ====== ====== ====== ======
Total return (%)***..... 5.9+ 9.8 3.3 16.5 (5.4) 11.6 9.4 8.1+
Net assets, end of
period (000)........... $10,056 $8,752 $8,701 $7,961 $7,270 $5,160 $2,200 $ 706
Ratio of operating
expenses to average net
assets (%)****......... 0.60++ 0.60 1.00 1.00 1.00 1.00 1.00 1.00++
Ratio of net investment
income to average net
assets (%)............. 4.62++ 4.90 4.61 4.72 4.79 4.50 4.81 5.03++
Portfolio turnover rate
(%).................... 30+ 50 38 41 28 36 32 26+
Without giving effect to
voluntary expense
limitations:
The ratio of operating
expenses to average
net assets would have
been (%).............. 1.70++ 1.80 2.31 2.02 2.37 3.22 7.65 21.58++
Net investment income
per share would have
been.................. $ 0.31 $ 0.42 $ 0.37 $ 0.41 $ 0.37 $ 0.26 $(0.19) $(0.74)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

5
<PAGE>

<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND--INSTITUTIONAL CLASS
--------------------------------------------------------------------------
NINE
MONTHS MAY 21**
ENDED YEAR ENDED DEC. 31, TO
SEPT. 30*, ---------------------------------------------------- DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
---------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.70 $ 10.08 $ 10.64 $ 9.22 $ 10.53 $ 10.45 $ 10.77 $10.00
------- ------- ------- ------- ------- ------- ------- ------
Income from investment
operations--
Net investment income.. 0.43 0.63 0.68 0.66 0.64 0.64 0.64 0.40
Net realized and
unrealized gain (loss)
on investments........ 0.58 0.61 (0.57) 1.42 (1.30) 1.00 0.27 1.11
------- ------- ------- ------- ------- ------- ------- ------
Total from investment
operations............ 1.01 1.24 0.11 2.08 (0.66) 1.64 0.91 1.51
------- ------- ------- ------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income..... (0.30) (0.62) (0.67) (0.66) (0.65) (0.65) (0.59) (0.40)
Distributions from net
realized capital
gains................. 0.00 0.00 0.00 0.00 0.00 (0.91) (0.64) (0.34)
------- ------- ------- ------- ------- ------- ------- ------
Total distributions.... (0.30) (0.62) (0.67) (0.66) (0.65) (1.56) (1.23) (0.74)
------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end of
period................. $ 11.41 $ 10.70 $ 10.08 $ 10.64 $ 9.22 $ 10.53 $ 10.45 $10.77
======= ======= ======= ======= ======= ======= ======= ======
Total return (%)***..... 9.6+ 12.7 1.3 23.0 (6.3) 15.7 8.8 15.3+
Net assets, end of
period (000)........... $29,246 $17,668 $14,192 $19,499 $17,341 $18,317 $10,899 $6,248
Ratio of operating
expenses to average net
assets (%)****......... 0.60++ 0.60 1.00 1.00 1.00 1.00 1.00 1.00++
Ratio of net investment
income to average net
assets (%)............. 5.61++ 6.29 6.23 6.47 6.60 5.95 6.54 7.01++
Portfolio turnover rate
(%).................... 84+ 156 137 169 242 277 344 273+
Without giving effect to
voluntary expense
limitations:
The ratio of operating
expenses to average
net assets would have
been (%).............. 0.97++ 1.23 1.19 1.22 1.22 1.29 2.01 2.39++
Net investment income
per share would have
been.................. $ 0.40 $ 0.57 $ 0.66 $ 0.64 $ 0.62 $ 0.61 $ 0.54 $ 0.32
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

NOTE: Further information about each Fund's performance is contained in the
Funds' annual report to shareholders, which may be obtained without
charge.

6
<PAGE>

THE TRUST

Each Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a
diversified open-end management investment company organized as a
Massachusetts business trust on February 20, 1991. The Trust is authorized to
issue an unlimited number of full and fractional shares of beneficial interest
in multiple series. Shares are freely transferable and entitle shareholders to
receive dividends as determined by the Trust's board of trustees and to cast a
vote for each share held at shareholder meetings. The Trust does not generally
hold shareholder meetings and will do so only when required by law.
Shareholders may call meetings to consider removal of the Trust's trustees.

INVESTMENT OBJECTIVES AND POLICIES

LOOMIS SAYLES HIGH YIELD FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by normally investing substantially
all of its assets in fixed income securities, although up to 20% of its total
assets may be invested in preferred stocks and up to 10% of its total assets
may be invested in common stocks. The fixed income securities in which the
Fund may invest include corporate securities, 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, CMOs, asset-backed securities, when-issued securities, real
estate investment trusts ("REITs"), Rule 144A securities, repurchase
agreements and convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency hedging
transactions and swap transactions. The Fund may invest any portion of its
assets in securities of Canadian issuers and up to 50% of its total assets in
the securities of other foreign issuers.

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

The percentages of the Fund's assets invested as of September 30, 1998 in
securities assigned to the various rating categories by Standard & Poor's and
Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if
unrated, determined by Loomis Sayles to be of comparable quality, were as
follows:

7
<PAGE>

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa.................................. -- -- -- --
AA/Aa.................................... -- -- -- --
A/A...................................... 4.17% -- 4.14% --
BBB/Baa.................................. 3.57% 0.22% 3.10% --
BB/Ba.................................... 36.07% 16.88% 23.30% 16.29%
B/B...................................... 23.81% -- 40.32% --
CCC/Caa.................................. 13.45% -- 10.42% --
CC/Ca.................................... 0.93% -- 2.44% --
C/C...................................... 0.92% -- -- --
D........................................ -- -- -- --
</TABLE>
- -----------

*Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

**Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES MUNICIPAL BOND FUND

The Fund's investment objective is as high a level of current income exempt
from federal income tax as is consistent with the preservation of capital.

The Fund seeks to achieve its objective by normally investing substantially
all of its assets in securities the income from which is, in the opinion of
issuer's counsel at the time of issuance, exempt from federal income tax ("tax
exempt securities"). It is a fundamental policy of the Fund that, during
periods of normal market conditions, at least 80% of its net assets will be
invested in tax exempt securities. Normally, substantially all of its market
value will be invested in fixed income securities of investment grade quality
(i.e., securities rated at the time of purchase by at least one of the major
rating agencies in its top four categories) or in unrated securities
determined by Loomis Sayles to be of comparable quality, and at least 65% of
the Fund's total assets will be invested in bonds. The Fund may engage in
options and futures transactions.

The Fund may invest in "private activity bonds," which pay interest that,
although exempt from ordinary federal income taxes, may be subject to federal
or state alternative minimum taxes. The Fund's investments in private activity
bonds normally will not exceed 20% of its net assets.

LOOMIS SAYLES U.S. GOVERNMENT SECURITIES FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by investing substantially all its
assets in U.S. Government Securities and in certificates representing
undivided interests in the interest or principal of U.S. Treasury securities.
At least 65% of the Fund's total assets will normally be invested in U.S.
Government Securities.

8
<PAGE>

ALL FUNDS

For temporary defensive purposes, each Fund may invest any portion of its
assets in fixed income securities, cash or any other securities deemed
appropriate by Loomis Sayles.

Except for each Fund's investment objective, and any investment policies
that are identified as "fundamental," all of the investment policies of each
Fund may be changed without a vote of Fund shareholders.

MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS

DEBT AND OTHER FIXED INCOME SECURITIES

Each of the Funds may invest in fixed income securities of any maturity.
Fixed income securities pay a specified rate of interest or dividends, or a
rate that is adjusted periodically by reference to some specified index or
market rate. Fixed income securities include securities issued by federal,
state, local and foreign governments and related agencies, and by a wide range
of private issuers. Because interest rates vary, it is impossible to predict
the income of a Fund that invests in fixed income securities for any
particular period. The net asset value of such a Fund's shares will vary as a
result of changes in the value of the securities in the Fund's portfolio.

Fixed income securities are subject to market and credit risk. Market risk
relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed income securities increase
when prevailing interest rates fall and decrease when interest rates rise.
Credit risk relates to the ability of the issuer to make payments of principal
and interest.

U.S. GOVERNMENT SECURITIES

U.S. Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds, are
supported by the full faith and credit of the United States, whereas certain
other U.S. Government Securities issued or guaranteed by federal agencies or
government-sponsored enterprises are not supported by the full faith and
credit of the United States.

Although U.S. Government Securities generally do not involve the credit
risks associated with other types of fixed income securities, the market
values of U.S. Government Securities do go up and down as interest rates
change. Thus, for example, the value of an investment in a Fund that holds
U.S. Government Securities may fall during times of rising interest rates.
Yields on

9
<PAGE>

U.S. Government Securities tend to be lower than those on corporate securities
of comparable maturities.

Some U.S. Government Securities, such as Government National Mortgage
Association Certificates ("GNMA"), are known as "mortgage-backed" securities.
Interest and principal payments on the mortgages underlying mortgage-backed
U.S. Government Securities are passed through to the holders of the security.
If a Fund purchases mortgage-backed securities at a discount or a premium, the
Fund will recognize a gain or loss when the payments of principal, through
prepayment or otherwise, are passed through to the Fund and, if the payment
occurs in a period of falling interest rates, the Fund may not be able to
reinvest the payment at as favorable an interest rate. As a result of these
principal prepayment features, mortgage-backed securities are generally more
volatile investments than many other fixed income securities.

In addition to investing directly in U.S. Government Securities, the Funds
may purchase certificates of accrual or similar instruments ("strips")
evidencing undivided ownership interests in interest payments or principal
payments, or both, in U.S. Government Securities. These investment instruments
may be highly volatile.

TAX EXEMPT SECURITIES

Issuers of tax exempt securities may make interest and principal payments
from money raised through a variety of sources, including (1) the issuer's
general taxing power, (2) a specific type of tax, such as a property tax, or
(3) a particular facility or project, such as a highway. The ability of an
issuer of tax exempt bonds to make these payments could be affected by
litigation, legislation or other political events, or the bankruptcy of the
issuer. The interest on tax exempt securities issued after August 15, 1986 is
retroactively taxable from the date of issuance if the issuer does not comply
with certain requirements concerning the use of bond proceeds and the
application of earnings on bond proceeds.

LOWER RATED FIXED INCOME SECURITIES

The High Yield Fund may invest a portion of its assets in securities rated
below investment grade (commonly referred to as "junk bonds"). The Fund will
normally invest at least 65% of its total assets in such securities. For
purposes of the foregoing percentages, a security will be treated as being of
investment grade quality if at the time a Fund acquires it at least one major
rating agency has rated the security in its top four rating categories (even
if another such agency has issued a lower rating), or if the security is
unrated but Loomis Sayles determines it to be of investment grade quality.
Lower rated fixed income securities generally provide higher yields, but are
subject to greater

10
<PAGE>

credit and market risk, than higher quality fixed income securities. Lower
rated fixed income securities are considered predominantly speculative with
respect to the ability of the issuer to meet principal and interest payments.
Achievement of the investment objective of a Fund investing in lower rated
fixed income securities may be more dependent on Loomis Sayles' own credit
analysis than is the case with higher quality bonds. The market for lower
rated fixed income securities may be more severely affected than some other
financial markets by economic recession or substantial interest rate
increases, by changing public perceptions of this market or by legislation
that limits the ability of certain categories of financial institutions to
invest in these securities. In addition, the secondary market may be less
liquid for lower rated fixed income securities. This lack of liquidity at
certain times may affect the values of these securities and may make the
evaluation and sale of these securities more difficult. Securities in the
lowest rating categories may be in poor standing or in default. Securities in
the lowest investment grade category (BBB or Baa) have some speculative
characteristics.

For more information about the ratings services' descriptions of the various
rating categories, see Appendix A.

COMMON STOCKS AND OTHER EQUITY SECURITIES

Common stocks and similar equity securities, such as warrants and
convertibles, are volatile and more risky than some other forms of investment.
The value of an investment in a Fund that invests in equity securities may
sometimes decrease. Equity securities of companies with relatively small
market capitalization may be more volatile than the securities of larger, more
established companies and than the broad equity market indexes.

ZERO COUPON SECURITIES

Each Fund may invest in "zero coupon" fixed income securities. These
securities accrue interest at a specified rate, but do not pay interest in
cash on a current basis. A Fund investing in zero coupon securities is
required to distribute the income on these securities to Fund shareholders as
the income accrues, even though the Fund is not receiving the income in cash
on a current basis. Thus the Fund may have to sell other investments to obtain
cash to make income distributions at times when Loomis Sayles would not
otherwise deem it advisable to do so. The market value of zero coupon
securities is often more volatile than that of non-zero coupon fixed income
securities of comparable quality and maturity.

MORTGAGE-BACKED SECURITIES

Each Fund (except the Municipal Bond Fund) may invest in mortgage-backed
securities, such as GNMA or Fannie Mae certificates, which differ from

11
<PAGE>

traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if a Fund purchases these
assets at a premium, a faster-than-expected prepayment rate will reduce yield
to maturity, and a slower-than-expected prepayment rate will increase yield to
maturity. If a Fund purchases mortgage-backed securities at a discount,
faster-than-expected prepayments will increase, and slower-than-expected
prepayments will reduce, yield to maturity. Prepayments, and resulting amounts
available for reinvestment by the Fund, are likely to be greater during a
period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates. Accelerated prepayments on securities
purchased at a premium may result in a loss of principal if the premium has
not been fully amortized at the time of prepayment. Although these securities
will decrease in value as a result of increases in interest rates generally,
they are likely to appreciate less than other fixed-income securities when
interest rates decline because of the risk of prepayments.

STRIPPED MORTGAGE-BACKED SECURITIES

Each Fund may invest in interest-only and principal-only classes of
mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO
or PO is extremely sensitive not only to changes in prevailing interest rates
but also to the rate of principal payments (including prepayments) on the
underlying assets. A rapid rate of principal prepayments may have a measurably
adverse effect on a Fund's yield to maturity to the extent it invests in IOs.
If the assets underlying the IOs experience greater than anticipated
prepayments of principal, the Fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase in value if
prepayments are greater than anticipated and decline if prepayments are slower
than anticipated.

The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting a Fund's ability to buy or sell those securities at any
particular time.

COLLATERALIZED MORTGAGE OBLIGATIONS

Each Fund (except the Municipal Bond Fund) may invest in CMOs. A CMO is a
security backed by a portfolio of mortgages or mortgage-backed securities held
under an indenture. CMOs may be issued either by U.S. Government
instrumentalities or by non-governmental entities. The issuer's 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

12
<PAGE>

represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such
mortgages, the class or series of CMOs first to mature generally will be
retired prior to its maturity. As with other mortgage-backed securities, the
early retirement of a particular class or series of CMOs held by a Fund could
involve the loss of any premium the Fund paid when it acquired the investment
and could result in the Fund's reinvesting the proceeds at a lower interest
rate than the retired CMO paid. Because of the early retirement feature, CMOs
may be more volatile than many other fixed-income investments.

ASSET-BACKED SECURITIES

The High Yield Fund may invest in asset-backed securities. Through the use
of trusts and special purpose corporations, automobile and credit card
receivables are securitized in pass-through structures similar to mortgage
pass-through structures or in a pass-through structure similar to the CMO
structure. Generally, the issuers of asset-backed bonds, notes or pass-through
certificates are special purpose entities and do not have any significant
assets other than the receivables securing such obligations. In general, the
collateral supporting asset-backed securities is of shorter maturity than
mortgage loans. Instruments backed by pools of receivables are similar to
mortgage-backed securities in that they are subject to unscheduled prepayments
of principal prior to maturity. When the obligations are prepaid, the Fund
will ordinarily reinvest the prepaid amounts in securities the yields of which
reflect interest rates prevailing at the time. 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

13
<PAGE>

the risk that market rates of interest will increase before the time the
security is delivered, with the result that the yield on the security
delivered to the Fund may be lower than the yield available on other,
comparable securities at the time of delivery. If a Fund has outstanding
obligations to buy when-issued securities, it will maintain liquid assets in a
segregated account at its custodian bank in an amount sufficient to satisfy
these obligations.

CONVERTIBLE SECURITIES

The High Yield Fund may invest in convertible securities. Convertible
securities include corporate bonds, notes or preferred stocks of U.S. or
foreign issuers that can be converted into (that is, exchanged for) common
stocks or other equity securities at a stated price or rate. Convertible
securities also include other securities, such as warrants, that provide an
opportunity for equity participation. Because convertible securities can be
converted into equity securities, their value will normally vary in some
proportion with those of the underlying equity securities. Convertible
securities usually provide a higher yield than the underlying equity security,
however, so that when the price of the underlying equity security falls, the
decline in the price of the convertible security may sometimes be less
substantial than that of the underlying equity security. Due to the conversion
feature, convertible securities generally yield less than nonconvertible fixed
income securities of similar credit quality and maturity. The Fund's
investment in convertible securities may at times include securities that have
a mandatory conversion feature, pursuant to which the securities convert
automatically into common stock at a specified date and conversion ratio, or
that are convertible at the option of the issuer. Because conversion is not at
the option of the holder, the Fund may be required to convert the security
into the underlying common stock even at times when the value of the
underlying common stock has declined substantially.

REAL ESTATE INVESTMENT TRUSTS

The High Yield Fund may invest in REITs. REITs involve certain unique risks
in addition to those risks associated with investing in the real estate
industry in general (such as possible declines in the value of real estate,
lack of availability of mortgage funds or extended vacancies of property).
Equity REITs may be affected by changes in the value of the underlying
property owned by the REITs, while mortgage REITs may be affected by the
quality of any credit extended. REITs are dependent upon management skills,
are not diversified, are subject to heavy cash flow dependency, risks of
default by borrowers and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax-free pass-through of income under
the Internal Revenue Code of 1986, as amended (the "Code"), and failing to
maintain their exemptions from registration under the Investment Company Act
of 1940 (the "1940 Act").

14
<PAGE>

Investment in REITs involves risk similar to those associated with investing
in small capitalization companies. REITs may have limited financial resources,
may trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger securities.

RULE 144A SECURITIES

Each Fund may invest in Rule 144A securities, which are privately offered
securities that can be resold only to certain qualified institutional buyers.
Rule 144A securities are treated as illiquid, unless Loomis Sayles has
determined, under guidelines established by the Trust's trustees, that the
particular issue of Rule 144A securities is liquid.

FOREIGN SECURITIES

The High Yield Fund may invest in securities of issuers organized or
headquartered outside the United States ("foreign securities"). The Fund may
invest any portion of its assets in securities of Canadian issuers and up to
50% of its total assets in the securities of other foreign issuers.

Although investing in foreign securities may increase the Fund's
diversification and reduce portfolio volatility, foreign securities may
present risks not associated with investments in comparable securities of U.S.
issuers. There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and foreign corporate
issuers are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at times more
volatile than securities of comparable U.S. issuers. Foreign brokerage
commissions and securities custody costs are often higher than in the United
States. With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value
of investments in those countries. The Fund's receipt of interest on foreign
government securities may depend on the availability of tax or other revenues
to satisfy the issuer's obligations.

The Fund's investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.

15
<PAGE>

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

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

In determining whether to invest assets of the Funds in securities of a
particular foreign issuer, Loomis Sayles will consider the likely effects of
foreign taxes on the net yield available to the Fund and its shareholders.
Compliance with foreign tax law may reduce a Fund's net income available for
distribution to shareholders.

FOREIGN CURRENCY HEDGING TRANSACTIONS

The High Yield Fund may engage in foreign currency exchange transactions to
protect the value of specific portfolio positions or in anticipation of
changes in relative values of currencies in which current or future Fund
portfolio holdings are denominated or quoted. For example, to protect against
a change in the foreign currency exchange rate between the date on which a
Fund contracts to purchase or sell a security and the settlement date for the
purchase or sale, or to "lock in" the equivalent of a dividend or interest
payment in another currency, a Fund might purchase or sell a foreign currency
on a spot (that is, cash) basis at the prevailing spot rate. If conditions
warrant, the Funds may also enter into private contracts to purchase or sell
foreign currencies at a future date ("forward contracts"). The Funds might
also purchase exchange-listed and over-the-counter call and put options on
foreign currencies. Over-the-counter currency options are generally less
liquid than exchange-listed options, and will be treated as illiquid assets.
The Funds may not be able to dispose of over-the-counter options readily.

16
<PAGE>

Foreign currency transactions involve costs and may result in losses.

SWAP TRANSACTIONS

The High Yield Fund may enter into interest rate or currency swaps. The 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 the
Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal). A currency swap is
an agreement to exchange cash flows on a notional amount based on changes in
the relative values of the specified currencies. The Fund will maintain liquid
assets in a segregated custodial account to cover its current obligations
under swap agreements. Because swap agreements are not exchange-traded, but
are private contracts into which the Fund and a swap counterparty enter as
principals, the Fund may experience a loss or delay in recovering assets if
the counterparty were to default on its obligations.

OPTIONS AND FUTURES TRANSACTIONS

The Funds (except the U.S. Government Securities 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 Funds may engage in these transactions either for
the purpose of enhancing investment return, or to hedge against changes in the
value of other assets that the Funds own or intend to acquire. Options and
futures fall into the broad category of financial instruments known as
"derivatives" and involve special risks. Use of options or futures for other
than hedging purposes may be considered a speculative activity, involving
greater risks than are involved in hedging.

Options can generally be classified as either "call" or "put" options. There
are two parties to a typical options transaction: the "writer" and the
"buyer." A call option gives the buyer the right to buy a security or other
asset (such as an amount of currency or a futures contract) from, and a put
option gives the buyer the right to sell a security or other asset to, the
option writer at a specified price, on or before a specified date. The buyer
of an option pays a premium when purchasing the option, which reduces the
return on the underlying security or other asset if the option is exercised,
and results in a loss if the option expires unexercised. The writer of an
option receives a premium from writing an option, which may increase its
return if the option expires or is closed out at a profit. If a Fund as the
writer of an option is unable to close out

17
<PAGE>

an unexpired option, it must continue to hold the underlying security or other
asset until the option expires, to "cover" its obligation under the option.

The value of options purchased by a Fund and futures contracts held by a
Fund may fluctuate based on a variety of market and economic factors. In some
cases, the fluctuations may offset (or be offset by) changes in the value of
securities held in a Fund's portfolio. All transactions in options and futures
involve the possible risk of loss to the Fund of all or a significant part of
the value of its investment. In some cases, the risk of loss may exceed the
amount of the Fund's investment. When a Fund writes a call option or sells a
futures contract without holding the underlying securities, currencies or
futures contracts, its potential loss is unlimited. The Fund will be required,
however, to set aside with its custodian bank liquid assets in amounts
sufficient at all times to satisfy its obligations under options and futures
contracts.

The successful use of options and futures will usually depend on Loomis
Sayles' ability to forecast stock market, currency or other financial market
movements correctly. The Fund's ability to hedge against adverse changes in
the value of securities held in its portfolio through options and futures also
depends on the degree of correlation between changes in the value of futures
or options positions and changes in the values of the portfolio securities.
The successful use of futures and exchange traded options also depends on the
availability of a liquid secondary market to enable a Fund to close its
positions on a timely basis. There can be no assurance that such a market will
exist at any particular time. In the case of options that are not traded on an
exchange ("over-the-counter" options), a Fund is at risk that the other party
to the transaction will default on its obligations, or will not permit a Fund
to terminate the transaction before its scheduled maturity. As a result of
these characteristics, each Fund will treat most over-the-counter options (and
the assets it segregates to cover its obligations thereunder) as illiquid.

The options and futures markets of foreign countries are small compared to
those of the United States and consequently are characterized in most cases by
less liquidity than are the U.S. markets. In addition, foreign markets may be
subject to less detailed reporting requirements and regulatory controls than
U.S. markets. Furthermore, investments in options in foreign markets are
subject to

18
<PAGE>

many of the same risks as other foreign investments. See "Foreign Securities"
above.

REPURCHASE AGREEMENTS

Each Fund may invest in repurchase agreements. In repurchase agreements, a
Fund buys securities from a seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the securities at a higher price
at a later date. Such transactions afford an opportunity for a Fund to earn a
return on available cash at minimal market risk, although the Fund may be
subject to various delays and risks of loss if the seller is unable to meet
its obligations to repurchase.

YEAR 2000

Many computer software systems in use today cannot properly process date-
related information from and after January 1, 2000. Should any of the computer
systems employed by the Funds' major service providers fail to process this
type of information properly, that could have a negative impact on the Funds'
operations and the services that are provided to the Funds' shareholders.
Loomis Sayles and the Distributor have each advised the Funds that they are
reviewing all of their computer systems with the goal of modifying or
replacing such systems prior to January 1, 2000, to the extent necessary to
foreclose any such negative impact. In addition, Loomis Sayles has been
advised by the Funds' custodian that it is also in the process of reviewing
its systems with the same goal. As of the date of this prospectus, the Funds
and Loomis Sayles have no reason to believe that these goals will not be
achieved. Similarly, the values of certain of the portfolio securities held by
the Funds may be adversely affected by the inability of the securities'
issuers or of third parties to process this type of information properly.

THE FUNDS' INVESTMENT ADVISER

The Funds' investment adviser is Loomis Sayles, One Financial Center,
Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the
country's oldest and largest investment firms. The general partner of Loomis
Sayles is a special purpose corporation that is an indirect wholly-owned
subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies'
managing general partner, Nvest Corporation, is a direct wholly-owned
subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life
insurance company. Nvest Companies' advising general partner, Nvest, L.P., is
a publicly traded company listed on the New York Stock Exchange. Nvest
Corporation is the sole general partner of Nvest L.P.

19
<PAGE>

In addition to selecting and reviewing the Funds' investments, Loomis Sayles
provides executive and other personnel for the management of the Funds. The
Funds' board of trustees supervises Loomis Sayles' conduct of the affairs of
the Funds.

As of October 31, 1998, Charles Schwab & Co. Inc. owned 38% of the High
Yield Fund. As of October 31, 1998, Charles Schwab & Co. Inc. owned 68% of the
U.S. Government Securities Fund. Shareholders holding more than 25% of a
Fund's shares may be deemed to control the relevant Fund.

Daniel J. Fuss, President of the Trust and Executive Vice President of
Loomis Sayles, has served as the portfolio manager of the High Yield Fund
since its commencement of investment operations in 1996. Kathleen C. Gaffney,
Vice President of the Trust and Loomis Sayles, has served as associate
portfolio manager of the High Yield Fund since its commencement of investment
operations in 1996. Martha F. Hodgman, Vice President of the Trust and of
Loomis Sayles, has served as portfolio manager of the Municipal Bond Fund
since May 1993. Kent P. Newmark, Vice President of the Trust and of Loomis
Sayles, has served as the portfolio manager of the U.S. Government Securities
Fund since its commencement of investment operations in 1991. Each of the
foregoing has been employed by Loomis Sayles for at least five years.

FUND EXPENSES

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

<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
High Yield.............................................................. .60%
Municipal Bond.......................................................... .40%
U.S. Government Securities.............................................. .30%
</TABLE>

In addition to the investment advisory fee, each Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions,
fees and expenses of the registering or qualifying the Fund's shares under
federal and state securities laws, fees of the Fund's custodian, transfer
agent, independent accountants and legal counsel, expenses of shareholders'
and trustees' meetings, expenses of preparing, printing and mailing
prospectuses to shareholders and fees of trustees who are not directors,
officers or employees of Loomis Sayles or its affiliated companies.

20
<PAGE>

Fund to the following annual percentage rate of the Fund's average daily net
assets:

<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
High Yield.............................................................. .75%
Municipal Bond.......................................................... .60%
U.S. Government Securities.............................................. .50%
</TABLE>

Loomis Sayles may change or terminate these voluntary arrangements at any
time, but the Funds' Prospectus would be supplemented to describe the change.

Loomis Sayles may pay certain broker-dealers and financial intermediaries
whose customers own shares of the Funds a continuing fee in an amount of up to
.25% annually of the value of Fund shares held for those customers' accounts.
These fees are paid by Loomis Sayles out of its own assets and are not
assessed against the Funds.

THE INSTITUTIONAL CLASS OF SHARES OF EACH FUND ARE DESIGNED FOR USE BY
INVESTMENT PROFESSIONALS, INCLUDING BUT NOT LIMITED TO, INVESTMENT ADVISORS
AND BROKER DEALERS. ACCORDINGLY, PURCHASES OF FUND SHARES ARE SUBJECT TO
APPROVAL BY LOOMIS SAYLES.

PORTFOLIO TRANSACTIONS

Portfolio turnover considerations will not limit Loomis Sayles' investment
discretion in managing the Funds' assets. The Funds anticipate that their
portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. High portfolio turnover
may involve higher costs and higher levels of taxable gains.

HOW TO PURCHASE SHARES

An investor may make an initial purchase of shares of any Fund by submitting
a completed application form and payment to:

Boston Financial Data Services
P.O. Box 8314
Boston, Massachusetts 02266-8314
Attn: Loomis Sayles Funds

The minimum initial investment for the Institutional Class of shares of each
Fund is $25,000. The minimum investment for Institutional Class shares may

21
<PAGE>

be waived in whole or in part by Loomis Sayles in its sole discretion.
Subsequent investments must be at least $50.

Shares of each Fund may be purchased by (i) cash, (ii) exchanging
Institutional Class shares of any fund that is a series of the trust for
Institutional Class shares of each Fund and, provided the value of the shares
exchanged meets the investment minimum of the Institutional Class of shares of
the Fund into which the exchange is made and Loomis Sayles has approved the
exchange of the shares, (iii) exchanging securities on deposit with a
custodian acceptable to Loomis Sayles or (iv) a combination of such securities
and cash. Loomis Sayles will not approve the acceptance of securities in
exchange for shares of any Fund unless (1) Loomis Sayles, in its sole
discretion, believes the securities are appropriate investments for the Fund;
(2) the investor represents and agrees that all securities offered to the Fund
can be resold by the Fund without restriction under the Securities Act of
1933, as amended (the "Securities Act") or otherwise; and (3) the securities
are eligible to be acquired under the Fund's investment policies and
restrictions. No investor owning 5% or more of a Fund's shares may purchase
additional shares of that Fund by exchange of securities.

In all cases Loomis Sayles reserves the right to reject any securities that
are proposed for exchange. Securities accepted by Loomis Sayles in exchange
for Fund shares will be valued in the same manner as the Fund's assets as
described below as of the time of the Fund's next determination of net asset
value after such acceptance. All dividends and subscription or other rights
which are reflected in the market price of accepted securities at the time of
valuation become the property of the Fund and must be delivered to the Fund
upon receipt by the investor from the issuer. A gain or loss for federal
income tax purposes would be realized upon the exchange by an investor that is
subject to federal income taxation, depending upon the investor's basis in the
securities tendered. An investor who wishes to purchase shares by exchanging
securities should obtain instructions by calling 888-353-6885.

All purchases made by check should be in U.S. dollars and made payable to
State Street Bank and Trust Company. Third party checks will not be accepted.
When purchases are made by check or periodic account investment, redemption
will not be allowed until the investment being redeemed has been in the
account for 15 calendar days.

Upon acceptance of an investor's order, BFDS opens an account, applies the
payment to the purchase of full and fractional Fund shares and mails a
statement of the account confirming the transaction.

22
<PAGE>

statement of account or a note containing sufficient information to identify
the account, i.e., the Fund name and the investor's account number or name and
social security number.

Subsequent investments can also be made by federal funds wire. Investors
should instruct their banks to wire federal funds to State Street Bank and
Trust Company, ABA #011000028. The text of the wire should read as follows:
"$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and
Class, Institutional or Retail), DDA #9904-622-9, Account Name, Account
Number." A bank may charge a fee for transmitting funds by wire.

Each Fund and the Distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or the Distributor in its sole discretion deems appropriate. Although the
Funds do not presently anticipate that they will do so, each Fund reserves the
right to suspend or change the terms of the offering of its shares.

The price an investor pays will be the per share net asset value next
calculated after a proper investment order is received by the Trust's transfer
or other agent or subagent. Shares of each Fund are sold with no sales charge.
The net asset value of each Fund's shares is calculated once daily as of the
close of regular trading on the New York Stock Exchange on each day the
Exchange is open for trading, by dividing the Fund's net assets by the number
of shares outstanding. Portfolio securities are valued at their market value
as more fully described in the Statement of Additional Information.

The Distributor may accept telephone orders from broker-dealers who have
been previously approved by the Distributor. It is the responsibility of such
broker-dealers to promptly forward purchase or redemption orders to the
Distributor. Although there is no sales charge imposed by the Fund or the
Distributor, broker-dealers may charge the investor a transaction-based fee or
other fee for their services at either the time of purchase or the time of
redemption. Such charges may vary among broker-dealers but in all cases will
be retained by the broker-dealer and not remitted to the Fund.

SHAREHOLDER SERVICES

The Funds offer the following shareholder services, which are more fully
described in the Statement of Additional Information. Explanations and forms
are available from BFDS. Telephone redemption and exchange privileges will be
established automatically when an investor opens an account unless an investor
elects on the application to decline the privileges. Other privileges must

23
<PAGE>

be specifically elected. A signature guarantee will be required to establish a
privilege after an account is opened.

FREE EXCHANGE PRIVILEGE. The Institutional Class shares of any Fund may be
exchanged for Institutional Class shares, of any fund that is a series of
Loomis Sayles Funds and that offers Institutional Class shares or for shares
of certain money market funds advised by New England Funds Management, L.P.,
an affiliate of Loomis Sayles, provided the value of the shares exchanged
meets the investment minimum of the Institutional Class of shares of that
fund. Exchanges may be made by written instructions or by telephone, unless an
investor elected on the application to decline telephone exchange privileges.
The exchange privilege should not be viewed as a means for taking advantage of
short-term swings in the market, and the Funds reserve the right to terminate
or limit the privilege of any shareholder who makes more than four exchanges
in any calendar year. The Funds may terminate or change the terms of the
exchange privilege at any time, upon 60 days' notice to shareholders.
Exchanges of shares of the High Yield Fund purchased within one year before
such exchanges will be subject to a redemption fee of 2.00% of the amount
exchanged. For purposes of determining whether a redemption fee is payable
with respect to shares of the High Yield Fund purchased by exchange of shares
of another Fund, the one-year period shall be deemed to begin on the date of
such purchase by exchange. An exchange is a taxable event for federal income
tax purposes in which a gain or loss would be realized by an investor that is
subject to federal income taxation.

RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax-
deferred retirement plans. Loomis Sayles makes available retirement plan forms
for IRAs.

HOW TO REDEEM SHARES

An investor can redeem shares by sending a written request to Boston
Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266.
Proceeds from a written request may be sent to the investor in the form of a
check. As described below, an investor may also redeem shares by calling BFDS
at 800-626-9390. Proceeds resulting from a written or telephone redemption
request can be wired to an investor's bank account or sent by check in the
name of the registered owners to their record address.

24
<PAGE>

capacity in which they are signing (such as trustee or custodian or on behalf
of a partnership, corporation or other entity). Investors requesting that
redemption proceeds be wired to their bank accounts must provide specific wire
instructions.

If (1) an investor is redeeming shares worth more than $50,000, (2) an
investor is requesting that the proceeds check be made out to someone other
than the registered owners or be sent to an address other than the record
address, (3) the account registration has changed within the last 30 days or
(4) an investor is instructing us to wire the proceeds to a bank account not
designated on the application, the investor must have his or her signature
guaranteed by an eligible guarantor. This requirement may be waived by Loomis
Sayles in its sole discretion. Eligible guarantors include commercial banks,
trust companies, savings associations, credit unions and brokerage firms that
are members of domestic securities exchanges. Before submitting the redemption
request, an investor should verify with the guarantor institution that it is
an eligible guarantor. Signature guarantees by notaries public are not
acceptable.

If an investor decides to change the bank account to which proceeds are to
be wired, the investor must send in this change in writing with a signature
guarantee. Telephonic redemptions may only be made if the investor's bank is a
member of the Federal Reserve System or has a correspondent bank that is a
member of the System. Unless an investor indicates otherwise on the account
application, BFDS will be authorized to act upon redemption and exchange
instructions received by telephone from the investor or any person claiming to
act as the investor's representative who can provide BFDS with the investor's
account registration and address as it appears on the records of State Street
Bank. BFDS will employ these or other reasonable procedures to confirm that
instructions communicated by telephone are genuine; the Fund, State Street
Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any
losses due to unauthorized or fraudulent instructions if these or other
reasonable procedures are followed. For information, consult BFDS. In times of
heavy market activity, an investor who encounters difficulty in placing a
redemption or exchange order by telephone may wish to place the order by mail
as described above.

The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are

25
<PAGE>

received by BFDS in proper form, less, in the case of the High Yield Fund, a
redemption fee of 2.00% of the amount redeemed with respect to shares of that
Fund purchased within one (1) year of such redemption. Loomis Sayles, in its
discretion, may waive the 2.00% redemption fee with respect to shares of the
High Yield Fund.

Proceeds resulting from a written redemption request will normally be mailed
to an investor within seven days after receipt of the investor's request in
good order. Telephonic redemption proceeds will normally be wired to an
investor's bank on the first business day following receipt of a proper
redemption request. If an investor purchased shares by check and the check was
deposited less than 15 days prior to the redemption request, the Fund may
withhold redemption proceeds until the check has cleared.

The Fund may suspend the right of redemption and may postpone payment for
more than seven days when the New York Stock Exchange is closed for other than
weekends or holidays, or if permitted by the rules of the SEC when trading on
the Exchange is restricted or during an emergency which makes it impracticable
for the Fund to dispose of its securities or to determine fairly the value of
its net assets, or during any other period permitted by the SEC for the
protection of investors.

CALCULATION OF PERFORMANCE INFORMATION

The Funds' investment performance may from time to time be included in
advertisements about the Funds. "Yield" for each class of shares is calculated
by dividing the annualized net investment income per share during a recent 30-
day period by the maximum public offering price per share of the class on the
last day of that period.

For purposes of calculating yield, net investment income is calculated in
accordance with SEC regulations and may differ from net investment income as
determined for financial reporting purposes. SEC regulations require that net
investment income be calculated on a "yield-to-maturity" basis, which has the
effect of amortizing any premiums or discounts in the current market value of
fixed income securities. The current dividend rate is based on net investment
income as determined for tax purposes, which may not reflect amortization in
the same manner.

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

"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average

26
<PAGE>

annual compounded rate of return on an investment of $1,000 in a Fund. Total
return may also be presented for other periods.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The High Yield and U.S. Government Securities Funds declare and pay
dividends quarterly and the Municipal Bond Fund declares dividends daily and
makes payments monthly. Each Fund also distributes all of its net capital
gains realized from the sale of portfolio securities. Any capital gain
distributions are normally made annually, but may, to the extent permitted by
law, be made more frequently as deemed advisable by the trustees of the Trust.
The Trust's trustees may change the frequency with which the Funds declare or
pay dividends.

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

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

Except in the case of income dividends from tax exempt bond interest paid by
the Municipal Bond Fund (see below), an investor's income dividends and short-
term capital gain distributions are taxable as ordinary income whether
distributed in cash or additional shares. Distributions designated by a Fund
as deriving from net gains on securities held for more than one year will be
taxable as such (generally at a 20% rate for noncorporate shareholders)
whether distributed in cash or additional shares and regardless of how long an
investor has owned shares of the Fund.

A dividend or distribution made shortly after the purchase of shares of a
Fund by a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him or her as described above. If
a shareholder held shares six months or less and during that period received a
distribution of net capital gains, any loss realized on the sale of such
shares during such six-month period would be a long-term capital loss to the
extent of such distribution.

Each Fund (except the Municipal Bond Fund in the case of designated exempt-
interest dividends, as described below) is required to withhold 31% of any
redemption proceeds (including the value of shares exchanged) and all income
dividends and capital gain distributions it pays (1) if an investor does not
provide a correct, certified taxpayer identification number, (2) if the Fund
is notified that an investor has underreported income in the past, or (3) if
an

27
<PAGE>

investor fails to certify to the Fund that he or she is not subject to such
withholding.

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

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

MUNICIPAL BOND FUND

Certain designated dividends paid by the Municipal Bond Fund that are
derived from interest on tax exempt bonds ("exempt-interest dividends") may be
excluded from gross income on federal tax returns. However, if an investor
receives social security or railroad retirement benefits, the investor may be
taxed on a portion of those benefits as a result of receiving tax exempt
income. Also, tax exempt income may be taken into account for the federal
alternative minimum tax.

An investor's income dividends and short-term capital gain distributions
(that is, net gains from securities held for not more than a year) are taxable
as ordinary income whether distributed in cash or additional shares.
Distributions designated by a Fund as deriving from net gains on securities
held for more than one year will be taxable as such whether distributed in
cash or additional shares and regardless of how long an investor has owned
shares of the Fund.

If at least 95% of the Fund's dividends are designated as exempt-interest
dividends, federal back-up withholding rules do not apply with respect to such
dividends.

The federal exemption for exempt-interest dividends does not result in
exemption from state and local taxes. Distributions of exempt-interest
dividends may be exempt from local and state taxation to the extent they are
derived from the state or locality in which the investor resides. The Fund
will report annually on a state-by-state basis the source of income the Fund
received on tax exempt bonds that was paid out as dividends during the
preceding year.

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

28
<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S AND
MOODY'S INVESTORS SERVICE, INC.

STANDARD & POOR'S

AAA

This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.

Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.

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

29
<PAGE>

bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.

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

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

This symbol is attached to the ratings of instruments with significant
noncredit risks such as risks to principal or volatility of expected returns.

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

MOODY'S INVESTORS SERVICE, INC.

AAA

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

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.

30
<PAGE>

Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.

BAA

Bonds that are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.

Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA

Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

31
<PAGE>

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

Should no rating be assigned by Moody's, the reason may be one of the
following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed in which case the rating is not published
in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.

32
<PAGE>

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

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

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

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

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

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330

THE LOOMIS SAYLES FUNDS

LOOMIS SAYLES GROWTH FUND

INSTITUTIONAL CLASS

RETAIL CLASS
<PAGE>

PROSPECTUS JANUARY 1, 1999

LOOMIS SAYLES GROWTH FUND
Loomis Sayles Growth Fund (the "Fund") is a series of Loomis Sayles Funds
(the "Trust"), a registered open-end management investment company, and is a
no-load mutual fund. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the
investment adviser of the Fund.

The Fund offers two classes of shares: an Institutional Class, which
generally has a higher minimum investment and bears lower expenses, and a
Retail Class, which has a lower investment minimum and bears higher expenses.
Each Class of the Fund has a common investment objective and investment
portfolio. The performance of one class of shares may be different from the
performance of the other Class of shares because of different sales charges
and class expenses. This Prospectus concisely describes the information that
an investor should know before investing in either the Institutional Class
shares or Retail Class shares of the Fund. Please read it carefully and keep
it for future reference. A Statement of Additional Information (SAI) dated
January 1, 1999, as revised from time to time, is available free of charge;
write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial
Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which
contains more detailed information about the Fund, has been filed with the
Securities and Exchange Commission (the "SEC") and is available along with
other related materials on the SEC's Internet Website (http://www.sec.gov).
The SAI is incorporated herein by reference (legally forms a part of the
Prospectus).

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

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 4
THE TRUST................................................................. 6
INVESTMENT OBJECTIVES AND POLICIES........................................ 6
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS..... 6
THE FUND'S INVESTMENT ADVISER............................................. 10
FUND EXPENSES............................................................. 10
PORTFOLIO TRANSACTIONS.................................................... 11
HOW TO PURCHASE SHARES.................................................... 11
SHAREHOLDER SERVICES...................................................... 14
HOW TO REDEEM SHARES...................................................... 15
CALCULATION OF PERFORMANCE INFORMATION.................................... 16
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 17
APPENDIX A
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES

The following information is provided as an aid in understanding the various
expenses that an investor in the Fund will bear indirectly. The information is
based on expenses for the Fund's most recent fiscal year. The information
below should not be considered a representation of past or future expenses, as
actual expenses may be greater or less than those shown. Also, the 5% annual
return assumed in the Example should not be considered a representation of
investment performance, as actual performance will vary.

<TABLE>
<CAPTION>
INSTITUTIONAL RETAIL
CLASS CLASS
------------- ------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as % of
offering price)................................... none none
Maximum Sales Load Imposed on Reinvested Dividends
(as % of offering price).......................... none none
Maximum Deferred Sales Load (as % of original
purchase price or redemption proceeds)............ none none
Redemption Fees/1/................................. none none
Exchange Fees...................................... none none
Annual Fund Operating Expenses (as a percentage of
average net assets):
Management Fees.................................... .50% .50%
12b-1 Fees......................................... none .25%
Other Operating Expenses (after expense
reimbursements)................................... .35%(/2/) .35%(/2/)
Total Fund Operating Expenses (after expense
reimbursements)................................... .85%(/2/) 1.10%(/2/)
Example:
An investor would pay the following expenses on a
$1,000 investment assuming a 5% annual return
(with or without a redemption at the end of each
time period):
One Year........................................... $ 9 $ 11
Three Years........................................ $ 27 $ 35
Five Years......................................... $ 47 $ 61
Ten Years.......................................... $105 $134
</TABLE>
- -----------
/1/A $5 charge applies to any wire transfer of redemption proceeds.
/2/Loomis Sayles has voluntarily agreed for an indefinite period, to limit the
Total Operating Expenses of the Fund's Institutional Class of shares and
Retail Class of shares to 0.85% and 1.10%, respectively. Without this
agreement, Other Operating Expenses and Total Operating Expenses would have
been 0.52% and 1.02% for the Fund's Institutional Class of shares and 4.24%
and 4.74% for the Retail Class of shares.

3
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE INDICATED PERIODS)

The financial highlights table that follows has been audited by
PricewaterhouseCoopers LLP, independent accountants. The following information
should be read in conjunction with the financial highlights, financial
statements and the notes thereto contained in the Fund's 1998 Annual Report,
which is incorporated by reference in this Prospectus and the Statement of
Additional Information.

<TABLE>
<CAPTION>
GROWTH FUND--INSTITUTIONAL CLASS
-----------------------------------------------------------------------------
NINE MONTHS MAY 16**
ENDED YEAR ENDED DEC. 31, TO
SEPTEMBER 30*, ---------------------------------------------------- DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
-------------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.63 $13.44 $ 15.27 $ 12.50 $ 13.02 $ 12.46 $ 12.01 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations--
Net investment income
(loss)................ (0.03) (0.04) (0.07) 0.00 (0.02) 0.00 (0.04) 0.00
Net realized and
unrealized gain (loss)
on investments........ (0.95) 3.17 3.08 3.86 (0.45) 1.16 0.49 2.45
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............ (0.98) 3.13 3.01 3.86 (0.47) 1.16 0.45 2.45
------- ------- ------- ------- ------- ------- ------- -------
Less distributions--
Distributions from
capital............... 0.00 0.00 0.00 0.00 (0.01) 0.00 0.00 0.00
Distributions from net
realized capital
gains................. 0.00 (3.94) (4.84) (1.09) (0.04) (0.60) 0.00 (0.44)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions.... 0.00 (3.94) (4.84) (1.09) (0.05) (0.60) 0.00 (0.44)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 11.65 $12.63 $ 13.44 $ 15.27 $ 12.50 $ 13.02 $ 12.46 $ 12.01
======= ======= ======= ======= ======= ======= ======= =======
Total return (%)***..... (7.8)+ 24.5 19.9 30.9 (3.7) 9.3 3.8 24.5+
Net assets, end of
period (000)........... $24,663 $32,149 $39,497 $45,011 $36,580 $32,385 $24,451 $16,105
Ratio of operating
expenses to average net
assets (%)****......... 0.85 ++ 0.85 1.10 1.08 1.16 1.20 1.50 1.50++
Ratio of net investment
income to average net
assets (%)............. (0.32)++ (0.26) (0.47) (0.29) (0.14) (0.17) (0.45) 0.01++
Portfolio turnover rate
(%).................... 118+ 116 99 48 46 64 98 69+
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average
net assets would have
been (%).............. 1.02 ++ 0.98 1.10 1.08 1.16 1.20 1.51 1.66++
Net investment income
per share would have
been.................. $ (0.05) $(0.05) $ (0.07) $ 0.00 $ (0.02) $ 0.00 $ (0.04) $ (0.01)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

4
<PAGE>

<TABLE>
<CAPTION>
GROWTH FUND--
RETAIL CLASS
-----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period.............. $12.59 $ 13.44
------ -------
Income from investment operations--
Net investment income (loss)...................... (0.03) (0.07)
Net realized and unrealized gain (loss)
on investments.................................... (0.97) 3.16
------ -------
Total from investment operations................. (1.00) 3.09
------ -------
Less distributions--
Distributions from net realized capital gains..... 0.00 (3.94)
------ -------
Total distributions.............................. 0.00 (3.94)
------ -------
Net asset value, end of period.................... $11.59 $ 12.59
====== =======
Total return (%)***............................... (7.9)+ 24.2+
Net assets, end of period (000)................... $ 516 $ 194
Ratio of operating expenses to average net
assets (%)****................................... 1.10 ++ 1.10++
Ratio of net investment income to average net
assets (%)....................................... (0.58)++ (0.42)++
Portfolio turnover rate (%)....................... 118+ 116+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)....................... 4.74 ++ 12.96++
Net investment income per share would have been... $(0.19) $ (2.00)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower, had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.
NOTE: Further information about the Fund's performance is contained in the
Fund's annual report to Shareholders, which may be obtained without
charge.

5
<PAGE>

THE TRUST

The Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a
diversified open-end management investment company organized as a
Massachusetts business trust on February 20, 1991. The Trust is authorized to
issue an unlimited number of full and fractional shares of beneficial interest
in multiple series. Shares are freely transferable and entitle shareholders to
receive dividends as determined by the Trust's board of trustees and to cast a
vote for each share held at shareholder meetings. The Trust does not generally
hold shareholder meetings and will do so only when required by law.
Shareholders may call meetings to consider removal of the Trust's trustees.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is long-term growth of capital.

The Fund seeks to achieve its objective by investing substantially all of
its assets in common stocks or their equivalent. Investments are selected
based on their growth potential; current income is not a consideration. The
Fund may invest in companies with relatively small market capitalizations, as
well as in larger companies. The Fund may invest up to 20% of its total assets
in securities of foreign issuers. The fund may also engage in foreign currency
hedging transactions and Rule 144A securities.

For temporary defensive purposes, the Fund may invest any portion of its
assets in fixed income securities, cash or any other securities deemed
appropriate by Loomis Sayles. Except for the Fund's investment objective, and
any investment policies that are identified as "fundamental," all of the
investment policies of the Fund may be changed without a vote of Fund
shareholders.

MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
AND RISK CONSIDERATIONS

COMMON STOCKS AND OTHER EQUITY SECURITIES

WHEN-ISSUED SECURITIES

The Fund may purchase securities on a "when-issued" basis. This means that
the Fund will enter into a commitment to buy the security before the

6
<PAGE>

security has been issued. The Fund's payment obligation and the interest rate
on the security are determined when the Fund enters into the commitment. The
security is typically delivered to the Fund 15 to 120 days later. No interest
accrues on the security between the time the Fund enters into the commitment
and the time the security is delivered. If the value of the security being
purchased falls between the time the Fund commits to buy it and the payment
date, the Fund may sustain a loss. The risk of this loss is in addition to the
Fund's risk of loss on the securities actually in its portfolio at the time.
In addition, when the Fund buys a security on a when-issued basis, it is
subject to the risk that market rates of interest will increase before the
time the security is delivered, with the result that the yield on the security
delivered to the Fund may be lower than the yield available on other,
comparable securities at the time of delivery. If the Fund has outstanding
obligations to buy when-issued securities, it will maintain liquid assets in a
segregated account at its custodian bank in an amount sufficient to satisfy
these obligations.

RULE 144A SECURITIES

The Fund may invest in Rule 144A securities, which are privately offered
securities that can be resold only to certain qualified institutional buyers.
Rule 144A securities are treated as illiquid, unless Loomis Sayles has
determined, under guidelines established by the Trust's trustees, that the
particular issue of Rule 144A securities is liquid.

FOREIGN SECURITIES

The Fund may invest in securities of issuers organized or headquartered
outside the United States ("foreign securities"). The Fund may invest any
portion of its assets in securities of Canadian issuers, but will not purchase
foreign securities other than those of Canadian issuers if, as a result, the
Fund's holdings of non-U.S. and non-Canadian securities would exceed 20% of
the Fund's total assets.

7
<PAGE>

developments that could affect the value of investments in those countries.
The Fund's receipt of interest on foreign government securities may depend on
the availability of tax or other revenues to satisfy the issuer's obligations.

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

In determining whether to invest assets of the Fund in securities of a
particular foreign issuer, Loomis Sayles will consider the likely effects of
foreign taxes on the net yield available to the Fund and its shareholders.
Compliance with foreign tax law may reduce a Fund's net income available for
distribution to shareholders.

FOREIGN CURRENCY HEDGING TRANSACTIONS

The Fund may engage in foreign currency exchange transactions to protect the
value of specific portfolio positions or in anticipation of changes in
relative

8
<PAGE>

values of currencies in which current or future Fund portfolio holdings are
denominated or quoted. For example, to protect against a change in the foreign
currency exchange rate between the date on which the Fund contracts to
purchase or sell a security and the settlement date for the purchase or sale,
or to "lock in" the equivalent of a dividend or interest payment in another
currency, the Fund might purchase or sell a foreign currency on a spot (that
is, cash) basis at the prevailing spot rate. If conditions warrant, the Fund
may also enter into private contracts to purchase or sell foreign currencies
at a future date ("forward contracts"). The Fund might also purchase exchange-
listed and over-the-counter call and put options on foreign currencies. Over-
the-counter currency options are generally less liquid than exchange-listed
options, and will be treated as illiquid assets. The Fund may not be able to
dispose of over-the-counter options readily.

Foreign currency transactions involve costs and may result in losses.

REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. In repurchase agreements, a
Fund buys securities from a seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the securities at a higher price
at a later date. Such transactions afford an opportunity for a Fund to earn a
return on available cash at minimal market risk, although the Fund may be
subject to various delays and risks of loss if the seller is unable to meet
its obligations to repurchase.

YEAR 2000

Many computer software systems in use today cannot properly process date-
related information from and after January 1, 2000. Should any of the computer
systems employed by the Fund's major service providers fail to process this
type of information properly, that could have a negative impact on the Fund's
operations and the services that are provided to the Fund's shareholders.
Loomis Sayles and the Distributor have each advised the Fund that they are
reviewing all of their computer systems with the goal of modifying or
replacing such systems prior to January 1, 2000, to the extent necessary to
foreclose any such negative impact. In addition, Loomis Sayles has been
advised by the Fund's custodian that it is also in the process of reviewing
its systems with the same goal. As of the date of this prospectus, the Fund
and Loomis Sayles have no reason to believe that these goals will not be
achieved. Similarly, the values of certain of the portfolio securities held by
the Fund may be adversely affected by the inability of the securities' issuers
or of third parties to process this type of information properly.

9
<PAGE>

THE FUNDS' INVESTMENT ADVISER

The Fund's investment adviser is Loomis Sayles, One Financial Center,
Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the
country's oldest and largest investment firms. The general partner of Loomis
Sayles is a special purpose corporation that is an indirect wholly-owned
subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest Companies'
managing general partner, Nvest Corporation, is a direct wholly-owned
subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life
insurance company. Nvest Companies' advising general partner, Nvest, L.P., is
a publicly traded company listed on the New York Stock Exchange. Nvest
Corporation is the sole general partner of Nvest L.P.

In addition to selecting and reviewing the Fund's investments, Loomis Sayles
provides executive and other personnel for the management of the Fund. The
Loomis Sayles Funds' board of trustees supervises Loomis Sayles' conduct of
the affairs of the Fund.

As of October 31, 1998, Charles Schwab & Co. Inc. Company owned 41% of the
Fund. Shareholders holding more than 25% of the Fund's shares may be deemed to
control the Fund.

Jerome A. Castellini Vice President of the Trust and of Loomis Sayles, has
served as the portfolio manager of the Growth Fund since its commencement of
investment operations in 1991.

FUND EXPENSES

The Fund pays Loomis Sayles a monthly investment advisory fee of .50% of the
Fund's average daily net assets. In addition to the investment advisory fee,
the Fund pays all expenses not expressly assumed by Loomis Sayles, including
taxes, brokerage commissions, fees and expenses of registering or qualifying
the Fund's shares under federal and state securities laws, fees of the Fund's
custodian, transfer agent, independent accountants and legal counsel, expenses
of shareholders' and trustees' meetings, 12b-1 fees, in the case of the Retail
Class shares, expenses of preparing, printing and mailing prospectuses to
existing shareholders and fees of trustees who are not directors, officers or
employees of Loomis Sayles or its affiliated companies.

The Fund's Retail Class shares have adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the
Retail Class shares of the Fund pays the Distributor, a subsidiary of Loomis
Sayles, a monthly distribution fee at an annual rate not to exceed 0.25% of
the Fund's average daily net assets attributable to the Retail Class shares.
The Distributor may pay all or any portion of the distribution fee to
securities dealers or other organizations (including, but not limited to, any
affiliate of the

10
<PAGE>

Distributor) as commissions, asset-based sales charges or other compensation
with respect to the sale of Retail Class shares of the Fund, or for providing
personal services to investors in Retail Class shares of the Fund and/or the
maintenance of accounts, and may retain all or any portion of the distribution
fee as compensation for the Distributor's services as principal underwriter of
the Retail Class shares of the Fund.

Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce
its advisory fees and/or bear other Fund expenses to the extent necessary to
limit total annual operating expenses to 0.85% and 1.10% of Institutional
Class shares and Retail Class shares, respectively, of the Fund's average
daily net assets. Loomis Sayles may change or terminate this voluntary
arrangement at any time, but the Fund's Prospectus would be supplemented to
describe the change.

Loomis Sayles may pay certain broker-dealers and financial intermediaries
whose customers own shares of the Fund a continuing fee in an amount of up to
.25% annually of the value of Fund shares held for those customers' accounts.
These fees are paid by Loomis Sayles out of its own assets and are not
assessed against the Fund.

PORTFOLIO TRANSACTIONS

Portfolio turnover considerations will not limit Loomis Sayles' investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. High portfolio turnover
may involve higher costs and higher levels of taxable gains.

HOW TO PURCHASE SHARES

An investor may make an initial purchase of shares of the Fund by submitting
a completed application form and payment to:

Boston Financial Data Services
P.O. Box 8314
Boston, Massachusetts 02266-8314
Attn: Loomis Sayles Funds

The minimum initial investment for the Institutional Class of shares of the
Fund is $25,000. A $2,500 minimum investment applies to the current and
retired trustees of the Trust, investment advisory clients of Loomis Sayles
(and their directors, officers and employees), and current and retired
employees of Loomis Sayles and the parents, spouses and children of the
foregoing. The

11
<PAGE>

minimum initial investment for the Retail Class of shares is $25,000. This
minimum initial investment for Retail Class shares does not apply to purchases
through certain financial intermediaries, including, but not limited to,
certain financial advisers, broker dealers, 401(k) alliances, wrap programs,
"no transaction fee" programs, bank trust departments, financial consultants
and insurance companies. The minimum investment for Institutional Class shares
and Retail Class shares may be waived in whole or in part by Loomis Sayles in
its sole discretion. Subsequent investments in either class of shares must be
at least $50.

Shares of the Fund may be purchased by (i) cash, (ii) exchanging
Institutional Class shares of any other Fund that is a series of the trust
(for Institutional Class shares of the Fund) and Retail Class Shares of any
other fund that is a series of the trust (for Retail Class shares of the
Fund), provided the value of the shares exchanged meets the investment minimum
of the Class of shares of the Fund into which the exchange is made, (iii)
exchanging securities on deposit with a custodian acceptable to Loomis Sayles
or (iv) a combination of such securities and cash. Loomis Sayles will not
approve the acceptance of securities in exchange for shares of the Fund unless
(1) Loomis Sayles, in its sole discretion, believes the securities are
appropriate investments for the Fund; (2) the investor represents and agrees
that all securities offered to the Fund can be resold by the Fund without
restriction under the Securities Act of 1933, as amended (the "Securities
Act") or otherwise; and (3) the securities are eligible to be acquired under
the Fund's investment policies and restrictions. No investor owning 5% or more
of the Fund's shares may purchase additional shares of the Fund by exchange of
securities.

12
<PAGE>

Upon acceptance of an investor's order, BFDS opens an account, applies the
payment to the purchase of full and fractional Fund shares and mails a
statement of the account confirming the transaction.

After an account has been established, an investor may send subsequent
investments at any time directly to BFDS at the above address. The remittance
must be accompanied by either the account identification slip detached from a
statement of account or a note containing sufficient information to identify
the account, i.e., the Fund name and the investor's account number or name and
social security number.

The Fund and the Distributor reserve the right to reject any purchase order,
including orders in connection with exchanges, for any reason which the Fund
or the Distributor in its sole discretion deems appropriate. Although the Fund
does not presently anticipate that it will do so, the Fund reserves the right
to suspend or change the terms of the offering of its shares.

The price an investor pays will be the per share net asset value next
calculated after a proper investment order is received by the Trust's transfer
or other agent or subagent. Shares of the Fund are sold with no sales charge.
The net asset value of the Fund's shares is calculated once daily as of the
close of regular trading on the New York Stock Exchange on each day the
Exchange is open for trading, by dividing the Fund's net assets by the number
of shares outstanding. Portfolio securities are valued at their market value
as more fully described in the Statement of Additional Information.

13
<PAGE>

SHAREHOLDER SERVICES

The Fund offers the following shareholder services, which are more fully
described in the Statement of Additional Information. Explanations and forms
are available from BFDS. Telephone redemption and exchange privileges will be
established automatically when an investor opens an account unless an investor
elects on the application to decline the privileges. Other privileges must be
specifically elected. A signature guarantee will be required to establish a
privilege after an account is opened.

FREE EXCHANGE PRIVILEGE. Institutional Class shares and Retail Class shares
of the Fund may be exchanged for Institutional Class shares or Retail Class
shares, respectively, of any other fund that is a series of Loomis Sayles
Funds and that offers Institutional Class shares or Retail Class shares,
respectively, or for shares of certain money market funds advised by New
England Funds Management, L.P., an affiliate of Loomis Sayles, provided the
value of the shares exchanged meets the investment minimum of the Class of
shares of that Fund and, in the case of Loomis Sayles High Yield Fund-
Institutional Class, Loomis Sayles Municipal Fund-Institutional Class and the
Loomis Sayles U.S. Government Securities Fund-Institutional Class, Loomis
Sayles has approved the exchange of shares. Exchanges may be made by written
instructions or by telephone, unless an investor elected on the application to
decline telephone exchange privileges. The exchange privilege should not be
viewed as a means for taking advantage of short-term swings in the market, and
the Fund reserves the right to terminate or limit the privilege of any
shareholder who makes more than four exchanges in any calendar year. The Fund
may terminate or change the terms of the exchange privilege at any time, upon
60 days' notice to shareholders. An exchange is a taxable event for federal
income tax purposes in which a gain or loss would be realized by an investor
that is subject to federal income taxation.

RETIREMENT PLANS. The Fund's shares may be purchased by all types of tax-
deferred retirement plans. Loomis Sayles makes available retirement plan forms
for IRAs.

SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000,
an investor may have periodic cash withdrawals automatically paid to the
investor or any person designated by the investor.

AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may
be made automatically by pre-authorized withdrawals from an investor's
checking account.

14
<PAGE>

HOW TO REDEEM SHARES

An investor can redeem shares by sending a written request to Boston
Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. As
described below, an investor may also redeem shares by calling BFDS at
800-626-9390. Proceeds resulting from a written or telephone redemption
request can be wired to an investor's bank account or sent by check in the
name of the registered owners to their record address.

The written request must include the name of the Fund, the account number,
the exact name(s) in which the shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
request in the exact names in which the shares are registered (this appears on
an investor's confirmation statement) and should indicate any special capacity
in which they are signing (such as trustee or custodian or on behalf of a
partnership, corporation or other entity). Investors requesting that
redemption proceeds be wired to their bank accounts must provide specific wire
instructions.

15
<PAGE>

instructions received by telephone from the investor or any person claiming to
act as the investor's representative who can provide BFDS with the investor's
account registration and address as it appears on the records of State Street
Bank. BFDS will employ these or other reasonable procedures to confirm that
instructions communicated by telephone are genuine; the Fund, State Street
Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any
losses due to unauthorized or fraudulent instructions if these or other
reasonable procedures are followed. For information, consult BFDS. In times of
heavy market activity, an investor who encounters difficulty in placing a
redemption or exchange order by telephone may wish to place the order by mail
as described above.

The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by BFDS in proper form.

CALCULATION OF PERFORMANCE INFORMATION

"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in the
Fund. Total return may also be presented for other periods.

16
<PAGE>

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The Fund declares and pays net investment income to shareholders as
dividends annually. The Fund also distributes all of its net capital gains
realized from the sale of portfolio securities. Any capital gain distributions
are normally made annually, but may, to the extent permitted by law, be made
more frequently as deemed advisable by the trustees of the Trust. The Trust's
trustees may change the frequency with which the Fund declares or pays
dividends.

Dividends and capital gain distributions will automatically be reinvested in
additional shares of the Fund unless an investor has elected to receive cash.
The Fund intends to qualify as a regulated investment company under the Code.
As such, so long as the Fund distributes substantially all its net investment
income and net capital gains to its shareholders, the Fund itself does not pay
any federal income tax to the extent such income and gains are so distributed.

An investor's income dividends and short-term capital gain distributions
(that is, net gains from securities held for not more than a year) are taxable
as ordinary income whether distributed in cash or additional shares.
Distributions designated by the Fund as deriving from net gains on securities
held for more than one year will be taxable as such (generally at a 20% rate
for noncorporate shareholders) whether distributed in cash or additional
shares and regardless of how long an investor has owned shares of the Fund.

A dividend or distribution made shortly after the purchase of shares of the
Fund by a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him or her as described above. If
a shareholder held shares six months or less and during that period received a
distribution of net capital gains, any loss realized on the sale of such
shares during such six-month period would be a long-term capital loss to the
extent of such distribution.

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

Certain designated dividends from the Fund are expected to be eligible for
the dividends-received deduction for corporate shareholders that meet a
holding period requirement.

State Street Bank will send each investor and the IRS an annual statement
detailing federal tax information, including information about dividends and

17
<PAGE>

distributions paid to the investor during the preceding year. Be sure to keep
this statement as a permanent record. A fee may be charged for any duplicate
information that an investor requests.

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

18
<PAGE>

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

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

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

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

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

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330

THE LOOMIS SAYLES FUNDS

INSTITUTIONAL CLASS SHARES OF LOOMIS SAYLES BOND FUND
<PAGE>

PROSPECTUS JANUARY 1, 1999

LOOMIS SAYLES BOND FUND
Loomis Sayles Bond Fund (the "Fund") is a series of Loomis Sayles Funds (the
"Trust"), a registered open-end management investment company, and is a no-
load mutual fund. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the
investment adviser of the Fund.

The Fund offers three classes of shares: an Institutional Class that is
described in this Prospectus, a Retail Class, which has a lower investment
minimum, bears higher expenses, and is described in a separate prospectus, and
an Admin Class, bearing higher expenses than the Institutional or Retail
Class, that is described in a separate prospectus. This Prospectus concisely
describes the information that an investor should know before investing in the
Institutional Class shares of the Fund. Please read it carefully and keep it
for future reference. A Statement of Additional Information (SAI) dated
January 1, 1999, as revised from time to time, is available free of charge;
write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial
Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which
contains more detailed information about the Fund, has been filed with the
Securities and Exchange Commission (the "SEC") and is available along with
other related materials on the SEC's Internet Website (http://www.sec.gov).
The SAI is incorporated herein by reference (legally forms a part of the
Prospectus). To obtain more information about the Retail Class or Admin Class
of shares, please call the Distributor toll-free at 800-633-3330, contact your
financial intermediary, or visit our Internet Website
(http://www.loomissayles.com).

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

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 4
THE TRUST................................................................. 5
INVESTMENT OBJECTIVES AND POLICIES........................................ 5
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS AND RISK CONSIDERATIONS..... 6
THE FUND'S INVESTMENT ADVISER............................................. 16
FUND EXPENSES............................................................. 17
PORTFOLIO TRANSACTIONS.................................................... 18
HOW TO PURCHASE SHARES.................................................... 18
SHAREHOLDER SERVICES...................................................... 20
HOW TO REDEEM SHARES...................................................... 21
CALCULATION OF PERFORMANCE INFORMATION.................................... 23
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 23
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. 25
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES
(FOR AN INSTITUTIONAL CLASS SHARE OF THE FUND)

<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as % of offering price)... none
Maximum Sales Load Imposed on Reinvested Dividends (as % of
offering price)................................................... none
Maximum Deferred Sales Load (as % of original purchase price or
redemption proceeds).............................................. none
Redemption Fees/1.............................................../.. none
Exchange Fees...................................................... none
Annual Fund Operating Expenses (as a percentage of average net
assets):
Management Fees.................................................... .60%
12b-1 Fees......................................................... none
Other Operating Expenses (after expense reimbursements)............ .15%(/2/)
Total Fund Operating Expenses (after expense reimbursements)....... .75%(/2/)
Example:
An investor would pay the following expenses on a $1,000 investment
assuming a 5% annual return (with or without a redemption at the
end of each time period):
One Year........................................................... $ 8
Three Years........................................................ $24
Five Years......................................................... $42
Ten Years.......................................................... $93
</TABLE>
- -----------
/1/A $5 charge applies to any wire transfer of redemption proceeds.
/2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit
the Bond Fund's Total Operating Expenses to 0.75%. Without this agreement,
Other Operating Expenses and Total Operating Expenses would have been 0.16%
and 0.76%, respectively.

3
<PAGE>

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

<TABLE>
<CAPTION>
NINE MONTHS MAY 16**
ENDED YEAR ENDED DEC. 31, TO
SEPTEMBER 30*, --------------------------------------------------------- DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
-------------- ---------- -------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $ 10.23 $10.00
---------- ---------- -------- -------- ------- ------- ------- ------
Income from investment
operations--
Net investment income
(loss)................ 0.69 0.86 0.86 0.82 0.83 0.84 0.76 0.52
Net realized and
unrealized gain (loss)
on investments........ (0.78) 0.67 0.35 2.32 (1.29) 1.43 0.67 0.36
---------- ---------- -------- -------- ------- ------- ------- ------
Total from investment
operations............ (0.09) 1.53 1.21 3.14 (0.46) 2.27 1.43 0.88
---------- ---------- -------- -------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income..... (0.44) (0.86) (0.86) (0.82) (0.84) (0.81) (0.76) (0.52)
Distributions in excess
of net investment
income................ 0.00 0.00 0.00 0.00 (0.02) 0.00 0.00 0.00
Distributions from net
realized capital
gains................. 0.00 (0.22) (0.26) (0.08) 0.00 (0.45) (0.54) (0.13)
---------- ---------- -------- -------- ------- ------- ------- ------
Total distributions.... (0.44) (1.08) (1.12) (0.90) (0.86) (1.26) (1.30) (0.65)
---------- ---------- -------- -------- ------- ------- ------- ------
Net asset value, end of
period................. $ 12.30 $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $10.23
========== ========== ======== ======== ======= ======= ======= ======
Total return (%)***..... (0.9)+ 12.7 10.3 32.0 (4.1) 22.2 14.3 8.9+
Net assets, end of
period (000)........... $1,455,312 $1,261,910 $541,244 $255,710 $82,985 $64,222 $18,472 $9,922
Ratio of operating
expenses to average net
assets (%)****......... 0.75++ 0.75 0.75 0.79 0.84 0.94 1.00 1.00++
Ratio of net investment
income to average net
assets (%)............. 7.34++ 7.36 7.93 8.34 7.92 8.26 7.50 8.97++
Portfolio turnover rate
(%).................... 24+ 41 42 35 87 170 101 126+
Without giving effect to
voluntary expense
limitations:
The ratio of operating
expenses to average
net assets would have
been (%).............. 0.76++ 0.77 0.75 0.79 0.84 0.94 1.55 1.78++
Net investment income
per share would have
been.................. $ 0.69 $ 0.85 $ 0.86 $ 0.82 $ 0.83 $ 0.84 $ 0.70 $ 0.47
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fees and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.
NOTE: Further information about the Fund's performance is contained in the
Fund's annual report to shareholders, which may be obtained without
charge.

4
<PAGE>

THE TRUST

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by normally investing substantially
all of its assets in fixed income securities, although up to 20% of its total
assets may be invested in preferred stocks. At least 65% of the Fund's total
assets will normally be invested in bonds. The fixed income securities in
which the Fund may invest include corporate securities, securities issued or
guaranteed by the U.S. Government or its authorities or instrumentalities
("U.S. Government Securities"), commercial paper, zero coupon securities,
mortgage-backed securities, stripped mortgage-backed securities,
collateralized mortgage obligations ("CMOs"), asset-backed securities, real
estate investment trusts ("REITs"), when-issued securities, Rule 144A
securities, repurchase agreements and convertible securities. The Fund may
engage in options and futures transactions, repurchase transactions, foreign
currency hedging transactions and swap transactions.

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

5
<PAGE>

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
--------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa................................. 21.36% 1.55% 17.98% --
AA/Aa................................... 11.87% 0.31% 16.14% 0.31%
A/A..................................... 7.22% 0.43% 6.95% 0.78%
BBB/Baa................................. 24.16% 0.66% 22.73% 0.37%
BB/Ba................................... 15.27% 5.38% 12.11% 3.24%
B/B..................................... 6.12% -- 15.39% --
CCC/Caa................................. 5.59% -- 3.62% --
CC/Ca................................... 0.02% -- 0.39% --
C/C..................................... -- -- -- --
D....................................... -- -- -- --
</TABLE>
- -----------

* Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

** Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
AND RISK CONSIDERATIONS

DEBT AND OTHER FIXED INCOME SECURITIES

The Fund may invest in fixed income securities of any maturity. Fixed income
securities pay a specified rate of interest or dividends, or a rate that is
adjusted periodically by reference to some specified index or market rate.
Fixed income securities include securities issued by federal, state, local and
foreign governments and related agencies, and by a wide range of private
issuers. Because interest rates vary, it is impossible to predict the income
of a Fund that invests in fixed income securities for any particular period.
The net asset value of such a Fund's shares will vary as a result of changes
in the value of the securities in the Fund's portfolio.

6
<PAGE>

U.S. GOVERNMENT SECURITIES

Some U.S. Government Securities, such as Government National Mortgage
Association Certificates ("GNMA"), are known as "mortgage-backed" securities.
Interest and principal payments on the mortgages underlying mortgage-backed
U.S. Government Securities are passed through to the holders of the security.
If the Fund purchases mortgage-backed securities at a discount or a premium,
the Fund will recognize a gain or loss when the payments of principal, through
prepayment or otherwise, are passed through to the Fund and, if the payment
occurs in a period of falling interest rates, the Fund may not be able to
reinvest the payment at as favorable an interest rate. As a result of these
principal prepayment features, mortgage-backed securities are generally more
volatile investments than many other fixed income securities.

In addition to investing directly in U.S. Government Securities, the Fund
may purchase certificates of accrual or similar instruments ("strips")
evidencing undivided ownership interests in interest payments or principal
payments, or both, in U.S. Government Securities. These investment instruments
may be highly volatile.

LOWER RATED FIXED INCOME SECURITIES

The Fund may invest up to 35% of its total assets in securities rated below
investment grade (commonly referred to as "junk bonds"). A security will be
treated as being of investment grade quality if at the time the Fund acquires
it at least one major rating agency has rated the security in its top four
rating categories (even if another such agency has issued a lower rating), or
if the security is unrated but Loomis Sayles determines it to be of investment
grade quality. Lower rated fixed income securities generally provide higher
yields, but are subject to greater credit and market risk, than higher quality
fixed income

7
<PAGE>

securities. Lower rated fixed income securities are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. Achievement of the investment objective of a Fund investing
in lower rated fixed income securities may be more dependent on Loomis Sayles'
own credit analysis than is the case with higher quality bonds. The market for
lower rated fixed income securities may be more severely affected than some
other financial markets by economic recession or substantial interest rate
increases, by changing public perceptions of this market or by legislation
that limits the ability of certain categories of financial institutions to
invest in these securities. In addition, the secondary market may be less
liquid for lower rated fixed income securities. This lack of liquidity at
certain times may affect the values of these securities and may make the
evaluation and sale of these securities more difficult. Securities in the
lowest rating categories may be in poor standing or in default. Securities in
the lowest investment grade category (BBB or Baa) have some speculative
characteristics.

For more information about the ratings services' descriptions of the various
rating categories, see Appendix A.

COMMON STOCKS AND OTHER EQUITY SECURITIES

ZERO COUPON SECURITIES

The Fund may invest in "zero coupon" fixed income securities. These
securities accrue interest at a specified rate, but do not pay interest in
cash on a current basis. The Fund is required to distribute the income on
these securities to Fund shareholders as the income accrues, even though the
Fund is not receiving the income in cash on a current basis. Thus the Fund may
have to sell other investments to obtain cash to make income distributions at
times when Loomis Sayles would not otherwise deem it advisable to do so. The
market value of zero coupon securities is often more volatile than that of
non-zero coupon fixed income securities of comparable quality and maturity.

MORTGAGE-BACKED SECURITIES

The Fund may invest in mortgage-backed securities, such as GNMA or Fannie
Mae certificates, which differ from traditional debt securities. Among the
major differences are that interest and principal payments are made more

8
<PAGE>

frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time. As
a result, if the Fund purchases these assets at a premium, a faster-than-
expected prepayment rate will reduce yield to maturity, and a slower-than-
expected prepayment rate will increase yield to maturity. If the Fund
purchases mortgage-backed securities at a discount, faster-than-expected
prepayments will increase, and slower-than-expected prepayments will reduce,
yield to maturity. Prepayments, and resulting amounts available for
reinvestment by the Fund, are likely to be greater during a period of
declining interest rates and, as a result, are likely to be reinvested at
lower interest rates. Accelerated prepayments on securities purchased at a
premium may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will decrease
in value as a result of increases in interest rates generally, they are likely
to appreciate less than other fixed-income securities when interest rates
decline because of the risk of prepayments.

STRIPPED MORTGAGE-BACKED SECURITIES

The Fund may invest in interest-only and principal-only ("IOs" and "POs")
classes of mortgage-backed securities. The yield to maturity on an IO or PO is
extremely sensitive not only to changes in prevailing interest rates but also
to the rate of principal payments (including prepayments) on the underlying
assets. A rapid rate of principal prepayments may have a measurably adverse
effect on the Fund's yield to maturity to the extent it invests in IOs. If the
assets underlying the IOs experience greater than anticipated prepayments of
principal, the Fund may fail to recoup fully its initial investment in these
securities. Conversely, POs tend to increase in value if prepayments are
greater than anticipated and decline if prepayments are slower than
anticipated.

The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the Fund's ability to buy or sell those securities at any
particular time.

COLLATERALIZED MORTGAGE OBLIGATIONS

The Fund may invest in CMOs. A CMO is a security backed by a portfolio of
mortgages or mortgage-backed securities held under an indenture. CMOs may be
issued either by U.S. Government instrumentalities or by non-governmental
entities. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage-backed
securities. CMOs are issued with a number of classes or series which have
different maturities and which may represent interests in some or all of the
interest or principal on the underlying collateral or a combination thereof.
CMOs of different classes are generally retired in sequence as the underlying
mortgage

9
<PAGE>

loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMOs first to mature
generally will be retired prior to its maturity. As with other mortgage-backed
securities, the early retirement of a particular class or series of CMOs held
by the Fund could involve the loss of any premium the Fund paid when it
acquired the investment and could result in the Fund's reinvesting the
proceeds at a lower interest rate than the retired CMO paid. Because of the
early retirement feature, CMOs may be more volatile than many other fixed-
income investments.

ASSET-BACKED SECURITIES

The Fund may invest in asset-backed securities. Through the use of trusts
and special purpose corporations, automobile and credit card receivables are
securitized in pass-through structures similar to mortgage pass-through
structures or in a pass-through structure similar to the CMO structure.
Generally, the issuers of asset-backed bonds, notes or pass-through
certificates are special purpose entities and do not have any significant
assets other than the receivables securing such obligations. In general, the
collateral supporting asset-backed securities is of shorter maturity than
mortgage loans. Instruments backed by pools of receivables are similar to
mortgage-backed securities in that they are subject to unscheduled prepayments
of principal prior to maturity. When the obligations are prepaid, the Fund
will ordinarily reinvest the prepaid amounts in securities the yields of which
reflect interest rates prevailing at the time. 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

10
<PAGE>

delivery. If the Fund has outstanding obligations to buy when-issued
securities, it will maintain liquid assets in a segregated account at its
custodian bank in an amount sufficient to satisfy these obligations.

CONVERTIBLE SECURITIES

Convertible securities include corporate bonds, notes or preferred stocks of
U.S. or foreign issuers that can be converted into (that is, exchanged for)
common stocks or other equity securities at a stated price or rate.
Convertible securities also include other securities, such as warrants, that
provide an opportunity for equity participation. Because convertible
securities can be converted into equity securities, their value will normally
vary in some proportion with those of the underlying equity securities.
Convertible securities usually provide a higher yield than the underlying
equity security, however, so that when the price of the underlying equity
security falls, the decline in the price of the convertible security may
sometimes be less substantial than that of the underlying equity security. Due
to the conversion feature, convertible securities generally yield less than
nonconvertible fixed income securities of similar credit quality and maturity.
The Fund's investment in convertible securities may at times include
securities that have a mandatory conversion feature, pursuant to which the
securities convert automatically into common stock at a specified date and
conversion ratio, or that are convertible at the option of the issuer. Because
conversion is not at the option of the holder, the Fund may be required to
convert the security into the underlying common stock even at times when the
value of the underlying common stock has declined substantially.

REAL ESTATE INVESTMENT TRUSTS

REITs involve certain unique risks in addition to those risks associated
with investing in the real estate industry in general (such as possible
declines in the value of real estate, lack of availability of mortgage funds
or extended vacancies of property). Equity REITs may be affected by changes in
the value of the underlying property owned by the REITs, while mortgage REITs
may be affected by the quality of any credit extended. REITs are dependent
upon management skills, are not diversified, are subject to heavy cash flow
dependency, risks of default by borrowers and self-liquidation. REITs are also
subject to the possibilities of failing to qualify for tax-free pass-through
of income under the Internal Revenue Code of 1986, as amended (the "Code"),
and failing to maintain their exemptions from registration under the
Investment Company Act of 1940 (the "1940 Act").

Investment in REITs involves risk similar to those associated with investing
in small capitalization companies. REITs may have limited financial

11
<PAGE>

resources, may trade less frequently and in a limited volume and may be
subject to more abrupt or erratic price movements than larger securities.

RULE 144A SECURITIES

FOREIGN SECURITIES

12
<PAGE>

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

FOREIGN CURRENCY HEDGING TRANSACTIONS

The Fund may engage in foreign currency exchange transactions to protect the
value of specific portfolio positions or in anticipation of changes in
relative values of currencies in which current or future Fund portfolio
holdings are denominated or quoted. For example, to protect against a change
in the foreign currency exchange rate between the date on which the Fund
contracts to purchase or sell a security and the settlement date for the
purchase or sale, or to "lock in" the equivalent of a dividend or interest
payment in another currency, the Fund might purchase or sell a foreign
currency on a spot (that is, cash) basis at the prevailing spot rate. If
conditions warrant, the Fund may also enter into private contracts to purchase
or sell foreign currencies at a future date ("forward contracts"). The Fund
might also purchase exchange-listed and over-the-counter call and put options
on foreign currencies. Over-the-counter currency options are generally less
liquid than exchange-listed options, and will be treated as illiquid assets.
The Fund may not be able to dispose of over-the-counter options readily.

13
<PAGE>

Foreign currency transactions involve costs and may result in losses.

SWAP TRANSACTIONS

The Fund may enter into interest rate or currency swaps. The Fund will enter
into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. Interest rate swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest (for example, an
exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange
cash flows on a notional amount based on changes in the relative values of the
specified currencies. The Fund will maintain liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
Because swap agreements are not exchange-traded, but are private contracts
into which the Fund and a swap counterparty enter as principals, the Fund may
experience a loss or delay in recovering assets if the counterparty were to
default on its obligations.

OPTIONS AND FUTURES TRANSACTIONS

The Fund may buy, sell or write options on securities, securities indexes,
currencies or futures contracts and may buy and sell futures contracts on
securities, securities indexes or currencies. The Fund may engage in these
transactions either for the purpose of enhancing investment return, or to
hedge against changes in the value of other assets that the Funds own or
intend to acquire. Options and futures fall into the broad category of
financial instruments known as "derivatives" and involve special risks. Use of
options or futures for other than hedging purposes may be considered a
speculative activity, involving greater risks than are involved in hedging.

Options can generally be classified as either "call" or "put" options. There
are two parties to a typical options transaction: the "writer" and the
"buyer." A call option gives the buyer the right to buy a security or other
asset (such as an amount of currency or a futures contract) from, and a put
option gives the buyer the right to sell a security or other asset to, the
option writer at a specified price, on or before a specified date. The buyer
of an option pays a premium when purchasing the option, which reduces the
return on the underlying security or other asset if the option is exercised,
and results in a loss if the option expires unexercised. The writer of an
option receives a premium from writing an option, which may increase its
return if the option expires or is closed out at a profit. If the Fund as the
writer of an option is unable to close

14
<PAGE>

out an unexpired option, it must continue to hold the underlying security or
other asset until the option expires, to "cover" its obligation under the
option.

The value of options purchased by a Fund and futures contracts held by the
Fund may fluctuate based on a variety of market and economic factors. In some
cases, the fluctuations may offset (or be offset by) changes in the value of
securities held in the Fund's portfolio. All transactions in options and
futures involve the possible risk of loss to the Fund of all or a significant
part of the value of its investment. In some cases, the risk of loss may
exceed the amount of the Fund's investment. When the Fund writes a call option
or sells a futures contract without holding the underlying securities,
currencies or futures contracts, its potential loss is unlimited. The Fund
will be required, however, to set aside with its custodian bank liquid assets
in amounts sufficient at all times to satisfy its obligations under options
and futures contracts.

The successful use of options and futures will usually depend on Loomis
Sayles' ability to forecast stock market, currency or other financial market
movements correctly. The Fund's ability to hedge against adverse changes in
the value of securities held in its portfolio through options and futures also
depends on the degree of correlation between changes in the value of futures
or options positions and changes in the values of the portfolio securities.
The successful use of futures and exchange traded options also depends on the
availability of a liquid secondary market to enable the Fund to close its
positions on a timely basis. There can be no assurance that such a market will
exist at any particular time. In the case of options that are not traded on an
exchange ("over-the-counter" options), the Fund is at risk that the other
party to the transaction will default on its obligations, or will not permit
the Fund to terminate the transaction before its scheduled maturity. As a
result of these characteristics, the Fund will treat most over-the-counter
options (and the assets it segregates to cover its obligations thereunder) as
illiquid.

15
<PAGE>

markets. Furthermore, investments in options in foreign markets are subject to
many of the same risks as other foreign investments. See "Foreign Securities"
above.

REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. In repurchase agreements, the
Fund buys securities from a seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the securities at a higher price
at a later date. Such transactions afford an opportunity for the Fund to earn
a return on available cash at minimal market risk, although the Fund may be
subject to various delays and risks of loss if the seller is unable to meet
its obligations to repurchase.

YEAR 2000

Many computer software systems in use today cannot properly process date-
related information from and after January 1, 2000. Should any of the computer
systems employed by the Fund's major service providers fail to process this
type of information properly, that could have a negative impact on the Fund's
operations and the services that are provided to the Fund's shareholders.
Loomis Sayles and the Distributor have each advised the Fund that they are
reviewing all of their computer systems with the goal of modifying or
replacing such systems prior to January 1, 2000, to the extent necessary to
foreclose any such negative impact. In addition, Loomis Sayles has been
advised by the Fund's custodian that it is also in the process of reviewing
its systems with the same goal. As of the date of this prospectus, the Fund
and Loomis Sayles have no reason to believe that these goals will not be
achieved. Similarly, the values of certain of the portfolio securities held by
the Fund may be adversely affected by the inability of the securities' issuers
or of third parties to process this type of information properly.

THE FUNDS' INVESTMENT ADVISER

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<PAGE>

As of October 31, 1998, Charles Schwab & Co. Inc. owned 48% of the Bond
Fund. Shareholders holding more than 25% of a Fund's shares may be deemed to
control the relevant Fund.

Daniel J. Fuss, President of the Trust and Executive Vice President of
Loomis Sayles, has served as the portfolio manager of the Bond Fund since its
commencement of investment operations in 1991. Kathleen C. Gaffney, Vice
President of the Trust and Loomis Sayles, has served as associate portfolio
manager of the Bond Fund since October 1997. Both Mr. Fuss and Ms. Gaffney
have been employed by Loomis Sayles for more than five years.

FUND EXPENSES

The Fund pays Loomis Sayles a monthly investment advisory fee of .60% of the
Fund's average daily net assets. In addition to the investment advisory fee,
the Fund pays all expenses not expressly assumed by Loomis Sayles, including
taxes, brokerage commissions, fees and expenses of registering or qualifying
the Fund's shares under federal and state securities laws, fees of the Fund's
custodian, transfer agent, independent accountants and legal counsel, expenses
of shareholders' and trustees' meetings, expenses of preparing, printing and
mailing prospectuses to existing shareholders and fees of trustees who are not
directors, officers or employees of Loomis Sayles or its affiliated companies.

Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce
its advisory fees and/or bear other Fund expenses to the extent necessary to
limit total annual operating expenses of the Institutional Class shares of the
Fund to .75% of the Fund's average daily net assets. Loomis Sayles may change
or terminate this voluntary arrangement at any time, but the Fund's Prospectus
would be supplemented to describe the change.

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<PAGE>

PORTFOLIO TRANSACTIONS

HOW TO PURCHASE SHARES

An investor may make an initial purchase of shares of the Fund by submitting
a completed application form and payment to:

Boston Financial Data Services
P.O. Box 8314
Boston, Massachusetts 02266-8314
Attn: Loomis Sayles Funds

Shares of the Fund may be purchased by (i) cash, (ii) exchanging
Institutional Class shares of any Fund (or any other series of Loomis Sayles
Funds), provided the value of the shares exchanged meets the investment
minimum of the Fund into which the exchange is made, (iii) exchanging
securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a
combination of such securities and cash. Loomis Sayles will not approve the
acceptance of securities in exchange for shares of the Fund unless (1) Loomis
Sayles, in its sole discretion, believes the securities are appropriate
investments for the Fund; (2) the investor represents and agrees that all
securities offered to the Fund can be resold by the Fund without restriction
under the Securities Act of 1933, as amended (the "Securities Act") or
otherwise; and (3) the securities are eligible to be acquired under the Fund's
investment policies and restrictions. No investor owning 5% or more of the
Fund's shares may purchase additional shares of the Fund by exchange of
securities.

18
<PAGE>

value after such acceptance. All dividends and subscription or other rights
which are reflected in the market price of accepted securities at the time of
valuation become the property of the Fund and must be delivered to the Fund
upon receipt by the investor from the issuer. A gain or loss for federal
income tax purposes would be realized upon the exchange by an investor that is
subject to federal income taxation, depending upon the investor's basis in the
securities tendered. An investor who wishes to purchase shares by exchanging
securities should obtain instructions by calling 800-633-3330, option 5.

Upon acceptance of an investor's order, BFDS opens an account, applies the
payment to the purchase of full and fractional Fund shares and mails a
statement of the account confirming the transaction.

Subsequent investments can also be made by federal funds wire. Investors
should instruct their banks to wire federal funds to State Street Bank and
Trust Company, ABA #011000028. The text of the wire should read as follows:
"$____ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and
Institutional Class), DDA #9904-622-9, Account Name, Account Number." A bank
may charge a fee for transmitting funds by wire.

The price an investor pays will be the per share net asset value next
calculated after a proper investment order is received by the Trust's transfer
or other agent or subagent. Shares of the Fund are sold with no sales charge.
The net asset value of the Fund's shares is calculated once daily as of the
close of regular trading on the New York Stock Exchange on each day the
Exchange is open for trading, by dividing the Fund's net assets by the number
of shares

19
<PAGE>

outstanding. Portfolio securities are valued at their market value as more
fully described in the Statement of Additional Information.

The Fund also offers a Retail Class of shares that bears higher expenses.
Because of its lower expenses, the Institutional Class of shares of the Fund
is expected to have a higher total return than the Retail Class of shares.

The Loomis Sayles Bond Fund also offers an Admin Class of shares that is
offered exclusively through intermediaries, who will be the record owners of
the shares. Because of its lower expenses, the Institutional Class of shares
of the Loomis Sayles Bond Fund is expected to have a higher total return than
the Admin Class of shares.

SHAREHOLDER SERVICES

FREE EXCHANGE PRIVILEGE. The Institutional Class shares of the Fund may be
exchanged for Institutional Class shares of any other fund that is a series of
Loomis Sayles Funds and that offers Institutional Class shares or for shares
of certain money market funds advised by New England Funds Management, L.P.,
an affiliate of Loomis Sayles, provided the value of the shares exchanged
meets the investment minimum of that Fund and, in the case of exchanges into
the Loomis Sayles High Yield Fund, Loomis Sayles Municipal Bond Fund and
Loomis Sayles U.S. Government Securities Fund, Loomis Sayles has approved the
exchange of shares. Exchanges may be made by written instructions or by
telephone, unless an investor elected on the application to decline telephone
exchange privileges. The exchange privilege should not be viewed as a means
for taking advantage of short-term swings in the market, and the Fund reserves
the right to terminate or limit the privilege of any shareholder who makes
more

20
<PAGE>

than four exchanges in any calendar year. The Fund may terminate or change the
terms of the exchange privilege at any time, upon 60 days' notice to
shareholders. An exchange is a taxable event for federal income tax purposes
in which a gain or loss would be realized by an investor that is subject to
federal income taxation.

RETIREMENT PLANS. The Fund's shares may be purchased by all types of tax-
deferred retirement plans. Loomis Sayles makes available retirement plan forms
for IRAs.

SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000,
an investor may have periodic cash withdrawals automatically paid to the
investor or any person designated by the investor.

AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may
be made automatically by pre-authorized withdrawals from an investor's
checking account.

HOW TO REDEEM SHARES

An investor can redeem shares by sending a written request to Boston
Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266.
Proceeds from a written request may be sent to the investor in the form of a
check. As described below, an investor may also redeem shares by calling BFDS
at 800-626-9390. Proceeds resulting from a telephone redemption request can be
wired to an investor's bank account or sent by check in the name of the
registered owners to their record address.

The written request must include the name of the Fund, the account number,
the exact name(s) in which the shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
request in the exact names in which the shares are registered (this appears on
an investor's confirmation statement) and should indicate any special capacity
in which they are signing (such as trustee or custodian or on behalf of a
partnership, corporation or other entity). Shareholders requesting that
redemption proceeds be wired to their bank accounts must provide specific wire
instructions.

21
<PAGE>

guarantor. This requirement may be waived by Loomis Sayles in its sole
discretion. Eligible guarantors include commercial banks, trust companies,
savings associations, credit unions and brokerage firms that are members of
domestic securities exchanges. Before submitting the redemption request, an
investor should verify with the guarantor institution that it is an eligible
guarantor. Signature guarantees by notaries public are not acceptable.

The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by BFDS in proper form.

22
<PAGE>

CALCULATION OF PERFORMANCE INFORMATION

The Fund's investment performance may from time to time be included in
advertisements about the Fund or Loomis Sayles Funds. "Yield" for each class
of shares is calculated by dividing the annualized net investment income per
share during a recent 30-day period by the maximum public offering price per
share of the class on the last day of that period.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The Fund declares and pays dividends quarterly. The Fund also distributes
all of its net capital gains realized from the sale of portfolio securities.
Any capital gain distributions are normally made annually, but may, to the
extent permitted by law, be made more frequently as deemed advisable by the
trustees of the Trust. The Trust's trustees may change the frequency with
which the Fund declares or pays dividends.

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

The Fund intends to qualify as a regulated investment company under the
Code. As such, so long as the Fund distributes substantially all its net
investment

23
<PAGE>

income and net capital gains to its shareholders, the Fund itself does not pay
any federal income tax to the extent such income and gains are so distributed.

An investor's income dividends and short-term capital gain distributions are
taxable as ordinary income whether distributed in cash or additional shares.
Distributions designated by the Fund as deriving from net gains on securities
held for more than one year will be taxable as such (generally at a 20% rate
for noncorporate shareholders) whether distributed in cash or additional
shares and regardless of how long an investor has owned shares of the Fund.

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

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

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<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S AND
MOODY'S INVESTORS SERVICE, INC.

STANDARD & POOR'S

AAA

This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.

BBB

BB, B, CCC, CC

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

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<PAGE>

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

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

This symbol is attached to the ratings of instruments with significant
noncredit risks such as risks to principal or volatility of expected returns.

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

MOODY'S INVESTORS SERVICE, INC.

AAA

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

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<PAGE>

BAA

CAA

Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

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

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<PAGE>

Should no rating be assigned by Moody's, the reason may be one of the
following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed in which case the rating is not published
in Moody's publications.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.

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<PAGE>

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

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

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

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

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

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

One Financial Center . Boston, Massachusetts 02111 . (800) 633-3330

THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS

RETAIL CLASS SHARES OF:

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

PROSPECTUS JANUARY 1, 1999

THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS

Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles In-
termediate Maturity Bond Fund, Loomis Sayles Investment Grade Bond Fund and
Loomis Sayles Short-Term Bond Fund (the "Funds" and each a "Fund"), each a se-
ries of Loomis Sayles Funds, are separately managed, no-load mutual funds,
each of which has its own investment objective and policies. Loomis, Sayles &
Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund.

The Funds offer two classes of shares: a Retail Class that is described in
this Prospectus, and an Institutional Class, which generally has a higher min-
imum investment and bears lower expenses, that is described in a separate pro-
spectus. The Loomis Sayles Bond Fund also offers a third class of shares: an
Admin Class, bearing higher expenses than the Institutional or Retail Class,
that is described in a separate prospectus. This Prospectus concisely de-
scribes the information that an investor should know before investing in the
Retail Class shares of any Fund. Please read it carefully and keep it for fu-
ture reference. A Statement of Additional Information (SAI) dated January 1,
1999, as revised from time to time, is available free of charge; write to Loo-
mis Sayles Distributors, L.P. (the "Distributor"), One Financial Center, Bos-
ton, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains
more detailed information about the Funds, has been filed with the Securities
and Exchange Commission (the "SEC") and is available along with other related
materials on the SEC's Internet Website (http://www.sec.gov). The SAI is in-
corporated herein by reference (legally forms a part of the Prospectus). To
obtain more information about the Institutional Class or Admin Class of
shares, please call the Distributor toll-free at 800-633-3330, contact your
financial intermediary, or visit our Internet Website
(http://www.loomissayles.com).

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

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
THE TRUST................................................................. 10
INVESTMENT OBJECTIVES AND POLICIES........................................ 10
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 15
THE FUNDS' INVESTMENT ADVISER............................................. 26
FUND EXPENSES............................................................. 27
PORTFOLIO TRANSACTIONS.................................................... 28
HOW TO PURCHASE SHARES.................................................... 29
SHAREHOLDER SERVICES...................................................... 31
HOW TO REDEEM SHARES...................................................... 32
CALCULATION OF PERFORMANCE INFORMATION.................................... 34
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 34
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. 36
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES
(FOR A RETAIL CLASS SHARE OF EACH INDICATED FUND)

The following information is provided as an aid in understanding the various
expenses that an investor in a Fund will bear indirectly. The information
about each Fund shown below is based on expenses for the Funds' most recent
fiscal year, and should not be considered a representation of past or future
expenses, as actual expenses may be greater or less than those shown. Also,
the 5% annual return assumed in the Example should not be considered a
representation of investment performance, as actual performance will vary.

<TABLE>
<CAPTION>
INTERMEDIATE
BOND GLOBAL MATURITY
FUND BOND FUND BOND FUND
---- --------- ------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as % of offering price).................. none none none
Maximum Sales Load Imposed on Reinvested
Dividends (as % of offering price)........ none none none
Maximum Deferred Sales Load (as % of
original purchase price or redemption
proceeds)................................. none none none
Redemption Fees/1/.......................... none none none
Exchange Fees............................... none none none
Annual Fund Operating Expenses
(as a percentage of average net assets):
Management Fees............................. .60% .60% .40%
12b-1 Fees.................................. .25% .25% .25%
Other Operating Expenses (after expense
reimbursements where indicated)........... .15%/3/ .30%/3/ .15%/3/
Total Fund Operating Expenses (after expense
reimbursements where indicated)........... 1.00%/3/ 1.15%/3/ .80%/3/
Example:
An investor would pay the following expenses
on a $1,000 investment assuming a 5% annual
return (with or without a redemption at the
end of each time period):
One Year.................................... $ 10 $ 12 $ 8
Three Years................................. $ 32 $ 37 $ 26
Five Years.................................. $ 55 $ 63 $ 44
Ten Years................................... $122 $140 $ 99
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
INVESTMENT
GRADE SHORT-TERM
BOND FUND BOND FUND
---------- ----------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as % of
offering price)..................................... none none
Maximum Sales Load Imposed on Reinvested Dividends
(as % of offering price)............................ none none
Maximum Deferred Sales Load (as % of original
purchase price or redemption proceeds).............. none none
Redemption Fees/1/.................................. none none
Exchange Fees........................................ none none
Annual Fund Operating Expenses (as a percentage of
average net assets):
Management Fees...................................... .40% .00%/2/
12b-1 Fees........................................... .25% .25%
Other Operating Expenses (after expense
reimbursements where indicated)..................... .15%/3/ .25%/2/
Total Fund Operating Expenses (after expense
reimbursements where indicated)..................... .80%/3/ .50%/2/
Example:
An investor would pay the following expenses on a
$1,000 investment assuming a 5% annual return (with
or
without a redemption at the end of each time period):
One Year............................................. $ 8 $ 5
Three Years.......................................... $ 26 $ 16
Five Years........................................... $ 44 $ 28
Ten Years............................................ $ 99 $ 63
</TABLE>
- -----------

/1/A $5 charge applies to any wire transfer of redemption proceeds from any
Fund.

/2/Loomis Sayles has voluntarily agreed until December 31, 1999 to waive its
Management Fees for the Short-Term Bond Fund and limit the Fund's Total
Operating expenses to 0.50%. Without this agreement, Management Fees, Other
Operating Expenses and Total Operating Expenses would have been 0.25%, 5.75%
and 6.00%, respectively.

/3/Loomis Sayles has voluntarily agreed for an indefinite period, to limit the
Funds' Total Operating Expenses to the percentages of average net assets
shown in the table. Without this agreement, Other Operating Expenses
(including 12b-1 fees) and Total Operating Expenses would have been 0.46%
and 1.06%, respectively, for the Bond Fund, 1.18% and 1.78%, respectively,
for the Global Bond Fund, 5.24% and 5.64%, respectively, for the
Intermediate Maturity Bond Fund, 4.85% and 5.25%, respectively, for the
Investment Grade Bond Fund.

4
<PAGE>

FINANCIAL HIGHLIGHTS

(FOR A RETAIL CLASS SHARE OF EACH INDICATED FUND
OUTSTANDING THROUGHOUT THE INDICATED PERIODS)

The financial highlights that follow have been audited by
PricewaterhouseCoopers LLP, independent accountants. The information should be
read in conjunction with the financial highlights, financial statements and
the notes thereto contained in the Funds' 1998 Annual Report, which is
incorporated by reference in this Prospectus and the Statement of Additional
Information.

<TABLE>
<CAPTION>
BOND FUND
----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30* DEC. 31,
1998 1997
------------- --------
<S> <C> <C>
Net asset value, beginning of period................. $ 12.82 $ 12.38
------- -------
Income from investment operations--
Net investment income (loss)........................ 0.66 0.84***
Net realized and unrealized gain (loss)
on investments..................................... (0.77) 0.65
------- -------
Total from investment operations.................... (0.11) 1.49
------- -------
Less distributions--
Dividends from net investment income................ (0.42) (0.83)
Distributions from net realized capital gains....... 0.00 (0.22)
------- -------
Total distributions................................. (0.42) (1.05)
------- -------
Net asset value, end of period....................... $ 12.29 $ 12.82
======= =======
Total return (%)****................................. (1.1)+ 12.4+
Net assets, end of period (000)...................... $53,908 $33,240
Ratio of operating expenses to average net
assets (%)++........................................ 1.00+++ 1.00+++
Ratio of net investment income to average net assets
(%)................................................. 7.13+++ 7.09+++
Portfolio turnover rate (%).......................... 24+ 41+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)......................... 1.06+++ 1.20+++
Net investment income per share would have been..... $ 0.66 $ 0.82***
</TABLE>
- -----------
*The Fund's fiscal year-end changed to September 30 from December 31.
**Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

5
<PAGE>

<TABLE>
<CAPTION>
GLOBAL BOND FUND
----------------------
NINE
MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30* DEC. 31,
1998 1997
------------- --------
<S> <C> <C>
Net asset value, beginning of period.................. $11.83 $12.35
------ ------
Income from investment operations--
Net investment income (loss)......................... 0.44 0.63***
Net realized and unrealized gain (loss)
on investments...................................... (0.36) (0.37)
------ ------
Total from investment operations..................... 0.08 0.26
------ ------
Less distributions--
Dividends from net investment income................. 0.00 (0.69)
Distributions in excess of the net investments
income.............................................. 0.00 (0.09)
------ ------
Total distributions.................................. 0.00 (0.78)
------ ------
Net asset value, end of period........................ $11.91 $11.83
====== ======
Total return (%)****.................................. 0.7+ 2.0+
Net assets, end of period (000)....................... $6,376 $4,694
Ratio of operating expenses to average net
assets (%)++......................................... 1.15+++ 1.15+++
Ratio of net investment income to average net
assets (%)........................................... 5.77+++ 5.60+++
Portfolio turnover rate (%)........................... 28+ 75+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net assets
would have been (%).................................. 1.78+++ 2.44+++
Net investment income per share would have been...... $ 0.39 $ 0.49***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

6
<PAGE>

<TABLE>
<CAPTION>
INTERMEDIATE
MATURITY
BOND FUND
----------------------
NINE
MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30* DEC. 31,
1998 1997
------------- --------
<S> <C> <C>
Net asset value, beginning of period................. $10.03 $10.00
------ ------
Income from investment operations--
Net investment income (loss)........................ 0.49*** 0.64***
Net realized and unrealized gain (loss) on
investments........................................ (0.15) (0.02)
------ ------
Total from investment operations.................... 0.34 0.62
------ ------
Less distributions--
Dividends from net investment income................ (0.31) (0.54)
Distributions in excess of net investment income.... 0.00 (0.03)
Distributions from net realized capital gains....... 0.00 (0.02)
------ ------
Total distributions................................. (0.31) (0.59)
------ ------
Net asset value, end of period....................... $10.06 $10.03
====== ======
Total return (%)****................................. 3.4+ 6.2+
Net assets, end of period (000)...................... $ 663 $ 423
Ratio of operating expenses to average net assets
(%)++............................................... 0.80+++ 0.80+++
Ratio of net investment income to average net assets
(%)................................................. 6.47+++ 6.13+++
Portfolio turnover rate (%).......................... 32+ 119+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)......................... 5.64+++ 14.56+++
Net investment income per share would have been..... $ 0.12*** $(0.50)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

7
<PAGE>

<TABLE>
<CAPTION>
INVESTMENT GRADE BOND FUND
----------------------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30* DEC. 31,
1998 1997
--------------- -------------
<S> <C> <C>
Net asset value, beginning of period.... $ 10.59 $ 10.00
------------- -------------
Income from investment operations--
Net investment income (loss)........... 0.48 0.62***
Net realized and unrealized gain (loss)
on investments........................ (0.49) 0.78
------------- -------------
Total from investment operations....... (0.01) 1.40
------------- -------------
Less distributions--
Dividends from net investment income... (0.31) (0.62)
Distributions in excess of net
investment income..................... 0.00 (0.07)
Distributions from net realized capital
gains................................. 0.00 (0.12)
------------- -------------
Total distributions.................... (0.31) (0.81)
------------- -------------
Net asset value, end of period.......... $ 10.27 $ 10.59
============= =============
Total return (%)****.................... (0.2)+ 14.3+
Net assets, end of period (000)......... $ 1,743 $ 862
Ratio of operating expenses to average
net assets (%)++....................... 0.80+++ 0.80+++
Ratio of net investment income to
average net assets (%)................. 6.43+++ 6.51+++
Portfolio turnover rate (%)............. 48+ 112+
Without giving effect to voluntary
expense limitations:
The ratios of operating expenses to
average net assets would have
been (%).............................. 5.25+++ 10.95+++
Net investment income per share would
have been............................. $ 0.15 $ (0.31)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of the shares outstanding during the period.
**** Total return would have been lower had the advisor not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The advisor has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

8
<PAGE>

<TABLE>
<CAPTION>
SHORT-TERM BOND FUND
----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30* DEC. 31,
1998 1997
------------- --------
<S> <C> <C>
Net asset value, beginning of period................... $9.75 $ 9.70
----- ------
Income from investment operations--
Net investment income................................. 0.42 0.59
Net realized and unrealized gain (loss)
on investments....................................... 0.21 0.06
----- ------
Total from investment operations...................... 0.63 0.65
----- ------
Less distributions--
Dividends from net investment income.................. (0.42) (0.60)
----- ------
Total distributions................................... (0.42) (0.60)
----- ------
Net asset value, end of period......................... $9.96 $ 9.75
===== ======
Total return (%)***.................................... 6.6+ 6.9+
Net assets, end of period (000)........................ $ 773 $ 285
Ratio of operating expenses to average net
assets (%)****........................................ 0.75++ 0.75++
Ratio of net investment income to average net
assets (%)............................................ 5.66++ 6.04++
Portfolio turnover rate (%)............................ 47+ 91+
Without giving effect to voluntary expense limitations:
The ratios of operating expenses to average net assets
would have been (%).................................. 6.00++ 17.77++
Net investment income per share would have been....... $0.03 $(1.08)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

NOTE: Further information about each Fund's performance is contained in the
Funds' annual report to shareholders, which may be obtained without
charge.

9
<PAGE>

THE TRUST

INVESTMENT OBJECTIVES AND POLICIES

LOOMIS SAYLES BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by normally investing substantially
all of its assets in fixed income securities, although up to 20% of its total
assets may be invested in preferred stocks. At least 65% of the Fund's total
assets will normally be invested in bonds. The fixed income securities in
which the Fund may invest include corporate securities, securities issued or
guaranteed by the U.S. Government or its authorities, agencies or
instrumentalities ("U.S. Government Securities"), commercial paper, zero
coupon securities, mortgage-backed securities, stripped mortgage-backed
securities, collateralized mortgage obligations ("CMOs"), asset-backed
securities, when-issued securities, real estate investment trusts (REITs),
Rule 144A securities, repurchase agreements and convertible securities. The
Fund may engage in options and futures transactions, repurchase transactions,
foreign currency hedging transactions and swap transactions.

10
<PAGE>

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa..................................... 21.36% 1.55% 17.98% --
AA/Aa....................................... 11.87% 0.31% 16.14% 0.31%
A/A......................................... 7.22% 0.43% 6.95% 0.78%
BBB/Baa..................................... 24.16% 0.66% 22.73% 0.37%
BB/Ba....................................... 15.27% 5.38% 12.11% 3.24%
B/B......................................... 6.12% -- 15.39% --
CCC/Caa..................................... 5.59% -- 3.62% --
CC/Ca....................................... 0.02% -- 0.39% --
C/C......................................... -- -- -- --
D........................................... -- -- -- --
</TABLE>
- -----------

*Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

**Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES GLOBAL BOND FUND

The Fund's investment objective is high total investment return through a
combination of high current income and capital appreciation.

The Fund seeks to achieve its objective by investing primarily in investment
grade fixed income securities denominated in various currencies, including
U.S. dollars, or in multicurrency units. Under normal conditions, the Fund
will invest at least 65% of its total assets in fixed income securities of
issuers from at least three countries, which may include the United States,
and no more than 40% of its total assets in issuers headquartered in any one
country. However, up to 100% of the Fund's total assets may be denominated in
U.S. dollars. The Fund may also invest up to 20% of its total assets in
securities of below investment grade quality (commonly known as "junk bonds").
The fixed income securities in which the Fund may invest include corporate
securities, U.S. Government Securities, commercial paper, zero coupon
securities, mortgage-backed securities, CMOs, asset-backed securities, when-
issued securities, Rule 144A securities, repurchase agreements and convertible
securities. The Fund may engage in options and futures transactions,
repurchase transactions, foreign currency hedging transactions and swap
transactions.

11
<PAGE>

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa.................................. 50.05% 11.15% 43.24% 10.63%
AA/Aa.................................... 2.72% -- 10.66% --
A/A...................................... 3.15% -- 3.10% --
BBB/Baa.................................. 11.67% 1.34% 12.53% 1.32%
BB/Ba.................................... 9.15% 8.71% 6.74% 6.88%
B/B...................................... 2.06% -- 4.89% --
CCC/Caa.................................. -- -- -- --
C/Ca..................................... -- -- -- --
C/C...................................... -- -- -- --
D........................................ -- -- -- --
</TABLE>
- -----------

*Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

**Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by normally investing at least 90%
of its total assets in fixed income securities of investment grade quality and
to maintain an average dollar weighted maturity of between three and ten
years. For purposes of the 90% test, a security will be treated as being of
investment grade quality if it is rated by at least one major rating agency in
one of its top four rating categories at the time of purchase or, if unrated,
is determined by Loomis Sayles to be of comparable quality. The Fund may also
invest up to 10% of its total assets in fixed income securities of below
investment grade quality (commonly known as "junk bonds"). The fixed income
securities in which the Fund may invest include corporate securities, U.S.
Government Securities, commercial paper, zero coupon securities, mortgage-
backed securities, CMOs, asset-backed securities, when-issued securities,
REITs, Rule 144A securities, repurchase agreements and convertible securities.
The Fund may engage in options and futures transactions, repurchase
transactions, foreign currency hedging transactions, swap transactions, and
securities lending. The Fund may invest any portion of its assets in
securities of Canadian issuers and up to 20% of its assets in securities of
other foreign issuers.

12
<PAGE>

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa..................................... 21.55% 2.06% 20.37% --
AA/Aa....................................... -- -- 2.34% --
A/A......................................... 13.63% -- 5.40% --
BBB/Baa..................................... 54.30% -- 54.68% --
BB/Ba....................................... 6.40% -- 11.82% --
B/B......................................... 2.05% -- 5.40% --
CCC/Caa..................................... -- -- -- --
C/Ca........................................ -- -- -- --
C/C......................................... -- -- -- --
D........................................... -- -- -- --
</TABLE>
- -----------

*Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

**Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES INVESTMENT GRADE BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by normally investing at least 65%
of its total assets in fixed income securities of investment grade quality. Up
to 20% of the Fund's total assets may be invested in preferred stocks. The
Fund may also invest up to 10% of its total assets in fixed income securities
of below investment grade quality (commonly known as "junk bonds"). The fixed
income securities in which the Fund may invest include corporate securities,
U.S. Government Securities, commercial paper, zero coupon securities,
mortgage-backed securities, CMOs, asset-backed securities, when-issued
securities, REITs, Rule 144A securities, repurchase agreements and convertible
securities. The Fund may engage in options and futures transactions,
repurchase transactions, foreign currency hedging transactions, swap
transactions and securities lending. The Fund may invest any portion of its
assets in securities of Canadian issuers and up to 20% of its assets in the
securities of other foreign issuers.

13
<PAGE>

The percentages of the Fund's assets invested as of September 30, 1998 in
securities assigned to the various rating categories by Standard & Poor's and

Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if
unrated, determined by Loomis Sayles to be of comparable quality, were as
follows:

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa..................................... 10.46% -- 5.97% --
AA/Aa....................................... 17.61% -- 19.05% --
A/A......................................... 15.66% 1.15% 13.35% 2.96%
BBB/Baa..................................... 43.94% 3.70% 35.99% --
BB/Ba....................................... 3.39% 2.42% 18.21% 1.23%
B/B......................................... -- -- 1.88% --
CCC/Caa..................................... 1.65% -- 1.35% --
CC/Ca....................................... -- -- -- --
C/C......................................... -- -- -- --
D........................................... -- -- -- --
</TABLE>
- -----------

*Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

**Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES SHORT-TERM BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation with relatively low
fluctuation in net asset value.

The Fund seeks to achieve its objective by normally investing substantially
all of its assets in fixed income securities, although up to 20% of its total
assets may be invested in non-convertible preferred stock. At least 65% of the
Fund's total assets will normally be invested in bonds with a remaining
maturity of 5 years or less. The Fund may invest up to 20% of its total assets
in securities of foreign issuers. The Fund may also invest up to 20% of its
total assets in securities of below investment grade quality (commonly known
as "junk bonds"). The fixed income securities in which the Fund may invest
include corporate securities, U.S. Government Securities, commercial paper,
zero coupon securities, mortgage-backed securities, CMOs, asset-backed
securities, when-issued securities, REITs, Rule 144A securities, repurchase
agreements and convertible securities. The Fund may engage in options and
futures transactions, repurchase transactions, foreign currency hedging
transactions and swap transactions.

In an effort to minimize fluctuations in market value, the Fund is expected
to maintain an average dollar-weighted maturity of between one and three
years.

14
<PAGE>

unrated, determined by Loomis Sayles to be of comparable quality, were as
follows:

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa..................................... 37.07% 18.26% 53.38% --
AA/Aa....................................... -- -- 4.01% --
A/A......................................... 12.27% 2.14% 13.12% --
BBB/Baa..................................... 23.30% -- 20.59% --
BB/Ba....................................... 5.32% -- 8.90% --
B/B......................................... 1.65% -- -- --
CCC/Caa..................................... -- -- -- --
C/Ca........................................ -- -- -- --
C/C......................................... -- -- -- --
D........................................... -- -- -- --
</TABLE>
- -----------

*Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

**Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

ALL FUNDS

For temporary defensive purposes, each Fund may invest any portion of its
assets in fixed income securities, cash or any other securities deemed
appropriate by Loomis Sayles.

MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS

DEBT AND OTHER FIXED INCOME SECURITIES

Each of the Funds may invest in fixed income securities of any maturity,
although the Short-Term Bond Fund expects to maintain an average dollar
weighted maturity of less than three years, and the Intermediate Maturity Bond
Fund expects to maintain an average dollar weighted maturity of between three
and ten years. Fixed income securities pay a specified rate of interest or
dividends, or a rate that is adjusted periodically by reference to some
specified index or market rate. Fixed income securities include securities
issued by federal, state, local and foreign governments and related agencies,
and by a wide range of private issuers. Because interest rates vary, it is
impossible to predict the income of a Fund that invests in fixed income
securities for any particular period. The net asset value of such a Fund's
shares will vary as a result of changes in the value of the securities in the
Fund's portfolio.

15
<PAGE>

prevailing interest rates fall and decrease when interest rates rise. Credit
risk relates to the ability of the issuer to make payments of principal and
interest.

U.S. GOVERNMENT SECURITIES

LOWER RATED FIXED INCOME SECURITIES

16
<PAGE>

the foregoing percentages, a security will be treated as being of investment
grade quality if at the time a Fund acquires it at least one major rating
agency has rated the security in its top four rating categories (even if
another such agency has issued a lower rating), or if the security is unrated
but Loomis Sayles determines it to be of investment grade quality. Lower rated
fixed income securities generally provide higher yields, but are subject to
greater credit and market risk, than higher quality fixed income securities.
Lower rated fixed income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments. Achievement of the investment objective of a Fund investing in lower
rated fixed income securities may be more dependent on Loomis Sayles' own
credit analysis than is the case with higher quality bonds. The market for
lower rated fixed income securities may be more severely affected than some
other financial markets by economic recession or substantial interest rate
increases, by changing public perceptions of this market or by legislation
that limits the ability of certain categories of financial institutions to
invest in these securities. In addition, the secondary market may be less
liquid for lower rated fixed income securities. This lack of liquidity at
certain times may affect the values of these securities and may make the
valuation and sale of these securities more difficult. Securities in the
lowest rating categories may be in poor standing or in default. Securities in
the lowest investment grade category (BBB or Baa) have some speculative
characteristics.

For more information about the ratings services' descriptions of the various
rating categories, see Appendix A.

COMMON STOCKS AND OTHER EQUITY SECURITIES

ZERO COUPON SECURITIES

17
<PAGE>

volatile than that of non-zero coupon fixed income securities of comparable
quality and maturity.

MORTGAGE-BACKED SECURITIES

Each Fund may invest in mortgage-backed securities, such as GNMA or Fannie
Mae certificates, which differ from traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time. As
a result, if a Fund purchases these assets at a premium, a faster-than-
expected prepayment rate will reduce yield to maturity, and a slower-than-
expected prepayment rate will increase yield to maturity. If a Fund purchases
mortgage-backed securities at a discount, faster-than-expected prepayments
will increase, and slower-than-expected prepayments will reduce, yield to
maturity. Prepayments, and resulting amounts available for reinvestment by the
Fund, are likely to be greater during period of declining interest rates and,
as a result, are likely to be reinvested at lower interest rates. Accelerated
prepayments on securities purchased at a premium may result in a loss of
principal if the premium has not been fully amortized at the time of
prepayment. Although these securities will decrease in value as a result of
increases in interest rates generally, they are likely to appreciate less than
other fixed-income securities when interest rates decline because of the risk
of prepayments.

STRIPPED MORTGAGE-BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS

Each Fund may invest in CMOs. A CMO is a security backed by a portfolio of
mortgages or mortgage-backed securities held under an indenture.

18
<PAGE>

CMOs may be issued either by U.S. Government instrumentalities or by non-
governmental entities. The issuer's obligation to make interest and principal
payments is secured by the underlying portfolio of mortgages or mortgage-
backed securities. CMOs are issued with a number of classes or series which
have different maturities and which may represent interests in some or all of
the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of CMOs
first to mature generally will be retired prior to its maturity. As with other
mortgage-backed securities, the early retirement of a particular class or
series of CMOs held by a Fund could involve the loss of any premium the Fund
paid when it acquired the investment and could result in the Fund's
reinvesting the proceeds at a lower interest rate than the retired CMO paid.
Because of the early retirement feature, CMOs may be more volatile than many
other fixed-income investments.

ASSET-BACKED SECURITIES

Each Fund may invest in asset-backed securities. Through the use of trusts
and special purpose corporations, automobile and credit card receivables are
securitized in pass-through structures similar to mortgage pass-through
structures or in a pass-through structure similar to the CMO structure.
Generally, the issuers of asset-backed bonds, notes or pass-through
certificates are special purpose entities and do not have any significant
assets other than the receivables securing such obligations. In general, the
collateral supporting asset-backed securities is of shorter maturity than
mortgage loans. Instruments backed by pools of receivables are similar to
mortgage-backed securities in that they are subject to unscheduled prepayments
of principal prior to maturity. When the obligations are prepaid, the Fund
will ordinarily reinvest the prepaid amounts in securities the yields of which
reflect interest rates prevailing at the time. Therefore, a Fund's ability to
maintain a portfolio that includes high-yielding asset-backed securities will
be adversely affected to the extent that prepayments of principal must be
reinvested in securities that have lower yields than the prepaid obligations.
Moreover, prepayments of securities purchased at a premium could result in a
realized loss.

WHEN-ISSUED SECURITIES

19
<PAGE>

purchased falls between the time a Fund commits to buy it and the payment
date, the Fund may sustain a loss. The risk of this loss is in addition to the
Fund's risk of loss on the securities actually in its portfolio at the time.
In addition, when the Fund buys a security on a when-issued basis, it is
subject to the risk that market rates of interest will increase before the
time the security is delivered, with the result that the yield on the security
delivered to the Fund may be lower than the yield available on other,
comparable securities at the time of delivery. If a Fund has outstanding
obligations to buy when-issued securities, it will maintain liquid assets in a
segregated account at its custodian bank in an amount sufficient to satisfy
these obligations.

CONVERTIBLE SECURITIES

REAL ESTATE INVESTMENT TRUSTS

20
<PAGE>

income under the Internal Revenue Code of 1986, as amended (the "Code"), and
failing to maintain their exemptions from registration under the Investment
Company Act of 1940 (the "1940 Act").

RULE 144A SECURITIES

FOREIGN SECURITIES

Each Fund may invest in securities of issuers organized or headquartered
outside the United States ("foreign securities"). The Short-Term Bond Fund
will not purchase a foreign security if, as a result, the Fund's holdings of
foreign securities would exceed 20% of the Fund's total assets. The Bond,
Intermediate Maturity Bond and Investment Grade Bond Funds may each invest any
portion of its assets in securities of Canadian issuers, but will not purchase
foreign securities other than those of Canadian issuers if, as a result, such
Fund's holdings of non-U.S. and non-Canadian securities would exceed 20% of
the Fund's total assets.

Although investing in foreign securities may increase a Fund's
diversification and reduce portfolio volatility, foreign securities may
present risks not associated with investments in comparable securities of U.S.
issuers. There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and foreign corporate
issuers are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at times more
volatile than securities of comparable U.S. issuers. Foreign brokerage
commissions and securities custody costs are often higher than in the United
States. With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value
of investments in those countries. A Fund's receipt of interest on foreign
government securities may depend on the availability of tax or other revenues
to satisfy the issuer's obligations.

21
<PAGE>

A Fund's investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.

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

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

FOREIGN CURRENCY HEDGING TRANSACTIONS

22
<PAGE>

in" the equivalent of a dividend or interest payment in another currency, a
Fund might purchase or sell a foreign currency on a spot (that is, cash) basis
at the prevailing spot rate. If conditions warrant, the Funds may also enter
into private contracts to purchase or sell foreign currencies at a future date
("forward contracts"). The Funds might also purchase exchange-listed and over-
the-counter call and put options on foreign currencies. Over-the-counter
currency options are generally less liquid than exchange-listed options, and
will be treated as illiquid assets. The Funds may not be able to dispose of
over-the-counter options readily.

Foreign currency transactions involve costs and may result in losses.

SWAP TRANSACTIONS

The Funds may enter into interest rate or currency swaps. The Funds will
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. Interest rate swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest (for example, an
exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange
cash flows on a notional amount based on changes in the relative values of the
specified currencies. The Fund will maintain liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
Because swap agreements are not exchange-traded, but are private contracts
into which the Fund and a swap counter party enter as principals, the Fund may
experience a loss or delay in recovering assets if the counterparty were to
default on its obligations.

OPTIONS AND FUTURES TRANSACTIONS

The Funds may buy, sell or write options on securities, securities indexes,
currencies or futures contracts and may buy and sell futures contracts on
securities, securities indexes or currencies. The Funds may engage in these
transactions either for the purpose of enhancing investment return, or to
hedge against changes in the value of other assets that the Funds own or
intend to acquire. Options and futures fall into the broad category of
financial instruments known as "derivatives" and involve special risks. Use of
options or futures for other than hedging purposes may be considered a
speculative activity, involving greater risks than are involved in hedging.

Options can generally be classified as either "call" or "put" options. There
are two parties to a typical options transaction: the "writer" and the

23
<PAGE>

"buyer." A call option gives the buyer the right to buy a security or other
asset (such as an amount of currency or a futures contract) from, and a put
option gives the buyer the right to sell a security or other asset to, the
option writer at a specified price, on or before a specified date. The buyer
of an option pays a premium when purchasing the option, which reduces the
return on the underlying security or other asset if the option is exercised,
and results in a loss if the option expires unexercised. The writer of an
option receives a premium from writing an option, which may increase its
return if the option expires or is closed out at a profit. If a Fund as the
writer of an option is unable to close out an unexpired option, it must
continue to hold the underlying security or other asset until the option
expires, to "cover" its obligation under the option.

24
<PAGE>

scheduled maturity. As a result of these characteristics, each Fund will treat
most over-the-counter options (and the assets it segregates to cover its
obligations thereunder) as illiquid.

REPURCHASE AGREEMENTS

SECURITIES LENDING

The Intermediate Maturity Bond and Investment Grade Bond Funds may lend
their portfolio securities to broker-dealers or other parties under contracts
calling for the deposit by the borrower with the Fund's custodian of cash
collateral equal to at least the market value of the securities loaned, marked
to market on a daily basis. The Fund will continue to benefit from interest or
dividends on the securities loaned and will also receive interest through
investment of the cash collateral in short-term liquid investments. No loans
will be made if, as a result, the aggregate amount of such loans outstanding
at any time would exceed 33 1/3% of the Fund's total assets (taken at current
value). Any voting rights, or rights to consent, relating to securities loaned
pass to the borrower. However, if a material event affecting the investment
occurs, such loans will be called so that the securities may be voted by the
Fund. The Fund pays various fees in connection with such loans, including
shipping fees and reasonable custodial or placement fees.

Securities loans must be fully collateralized at all times, but involve some
credit risk to the Fund if the borrower defaults on its obligation and the
Fund is delayed or prevented from recovering the collateral.

YEAR 2000

Many computer software systems in use today cannot properly process date-
related information from and after January 1, 2000. Should any of the

25
<PAGE>

computer systems employed by the Funds' major service providers fail to
process this type of information properly, that could have a negative impact
on the Funds' operations and the services that are provided to the Funds'
shareholders. Loomis Sayles and the Distributor have each advised the Funds
that they are reviewing all of their computer systems with the goal of
modifying or replacing such systems prior to January 1, 2000, to the extent
necessary to foreclose any such negative impact. In addition, Loomis Sayles
has been advised by the Funds' custodian that it is also in the process of
reviewing its systems with the same goal. As of the date of this prospectus,
the Funds and Loomis Sayles have no reason to believe that these goals will
not be achieved. Similarly, the values of certain of the portfolio securities
held by the Funds may be adversely affected by the inability of the
securities' issuers or of third parties to process this type of information
properly.

THE FUNDS' INVESTMENT ADVISER

As of October 31, 1998, Charles Schwab & Co. Inc. owned 48%, 40%, 55%, and
27% of the Bond Fund, Global Bond Fund, Intermediate Maturity Bond Fund, and
Investment Grade Bond Fund, respectively. As of October 31, 1998, Hawaii Sheet
Metal Workers Health & Welfare Fund owned 26% of the Intermediate Maturity
Bond Fund. As of October 31, 1998, Loomis Sayles & Company, L.P. owned 26% of
the Investment Grade Bond Fund. Shareholders holding more than 25% of a Fund's
shares may be deemed to control the relevant Fund.

26
<PAGE>

of the Investment Grade Bond Fund since its commencement of investment
operations in 1997. Kathleen C. Gaffney, Vice President of the Trust and
Loomis Sayles, has served as associate portfolio manager of the Bond Fund
since October 1997. E. John deBeer, Vice President of the Trust and of Loomis
Sayles, has served as the portfolio manager of the Global Bond Fund since its
commencement of investment operations in 1991. Anthony J. Wilkins, Vice
President of the Trust and of Loomis Sayles, has served as the portfolio
manager of the Intermediate Maturity Bond Fund since its commencement of
investment operations in 1997. John Hyll, Vice President of the Trust and of
Loomis Sayles, has served as the portfolio manager of the Short-Term Bond Fund
since its commencement of investment operations in 1992. Curt A. Mitchell,
Vice President of Loomis Sayles, has served as a portfolio manager of the
Short-Term Bond Fund since October 1998. Each of the foregoing, except Mr.
Mitchell, has been employed by Loomis Sayles for at least five years. Before
joining Loomis Sayles in 1995, Mr. Mitchell was a portfolio manager at Firstar
Investment & Management Company.

FUND EXPENSES

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

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

* Loomis Sayles has voluntarily agreed until December 31, 1999 to waive its
Management Fees.

In addition to the investment advisory fee, each Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions,
fees and expenses of registering or qualifying the Fund's shares under federal
and state securities laws, fees of the Fund's custodian, transfer agent,
independent accountants and legal counsel, expenses of shareholders' and
trustees' meetings, expenses of preparing, printing and mailing prospectuses
to existing shareholders and fees of trustees who are not directors, officers
or employees of Loomis Sayles or its affiliated companies.

27
<PAGE>

Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce
its advisory fees and/or bear other Fund expenses to the extent necessary to
limit Fund total annual operating expenses of the Retail Class of shares of
each of the following Funds to the following annual percentage rate of the
Fund's average daily net assets:

<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
Bond................................................................... 1.00%
Global Bond............................................................ 1.15%
Intermediate Maturity Bond............................................. .80%
Investment Grade Bond.................................................. .80%
</TABLE>

In the case of the Short-Term Bond Fund, Loomis Sayles has voluntarily
agreed until December 31, 1999 to waive its advisory fees and bear other Fund
expenses to the extent necessary to limit the total annual operating expenses
of the Institutional Class shares to .50%.

Loomis Sayles may change or terminate these voluntary arrangements at any
time, but the Funds' Prospectus would be supplemented to describe the change.

Under a Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act,
each of the Funds pays the Distributor, a subsidiary of Loomis Sayles, a
monthly distribution fee at an annual rate not to exceed 0.25% of the Fund's
average net assets attributable to the Retail Class shares. The Distributor
may pay all or any portion of the distribution fee to securities dealers or
other organizations (including, but not limited to, any affiliate of the
Distributor) as commissions, asset-based sales charges or other compensation
with respect to the sale of Retail Class shares of the Funds, or for providing
personal services to investors in Retail Class shares of the Funds and/or the
maintenance of accounts, and may retain all or any portion of the distribution
fee as compensation for the Distributor's services as principal underwriter of
the Retail Class shares of the Funds.

PORTFOLIO TRANSACTIONS

28
<PAGE>

HOW TO PURCHASE SHARES

An investor may make an initial purchase of shares of any Fund by submitting
a completed application form and payment to:

Boston Financial Data Services
P.O. Box 8314
Boston, Massachusetts 02266-8314
Attn: Loomis Sayles Funds

The minimum initial investment for Retail Class of the Funds' shares
("Retail Shares") is $25,000 in that Fund. This minimum initial investment
does not apply to purchases through financial intermediaries including, but
not limited to, certain financial advisers, broker dealers, 401(k) alliances,
wrap programs, no transaction fee programs, bank trust departments, financial
consultants and insurance companies. The minimum investment may be waived in
whole or in part by Loomis Sayles in its sole discretion. Subsequent
investments must be at least $50.

Shares of any Fund may be purchased by (i) cash, (ii) exchanging Retail
Class shares of any Fund (or any other series of Loomis Sayles Funds which
offers Retail Class shares), provided the value of the shares exchanged meets
the investment minimum of the Fund into which the exchange is made,
(iii) exchanging securities on deposit with a custodian acceptable to Loomis
Sayles or (iv) a combination of such securities and cash. Loomis Sayles will
not approve the acceptance of securities in exchange for shares of any Fund
unless (1) Loomis Sayles, in its sole discretion, believes the securities are
appropriate investments for the Fund; (2) the investor represents and agrees
that all securities offered to the Fund can be resold by the Fund without
restriction under the Securities Act of 1933, as amended (the "Securities
Act") or otherwise; and (3) the securities are eligible to be acquired under
the Fund's investment policies and restrictions. No investor owning 5% or more
of a Fund's shares may purchase additional shares of that Fund by exchange of
securities. In all cases Loomis Sayles reserves the right to reject any
securities that are proposed for exchange. Securities accepted by Loomis
Sayles in exchange for Fund shares will be valued in the same manner as the
Fund's assets as described below as of the time of the Fund's next
determination of net asset value after such acceptance. All dividends and
subscription or other rights which are reflected in the market price of
accepted securities at the time of valuation become the property of the Fund
and must be delivered to the Fund upon receipt by the investor from the
issuer. A gain or loss for federal income tax purposes would be realized upon
the exchange by an investor that is subject to federal income taxation,
depending upon the investor's basis in the securities tendered. An investor
who wishes to purchase shares by exchanging securities should obtain
instructions by calling 800-633-3330, option 5.

29
<PAGE>

Upon acceptance of an investor's order, Boston Financial Data Services, Inc.
("BFDS"), the shareholder servicing agent for State Street Bank and Trust
Company ("State Street Bank"), opens an account, applies the payment to the
purchase of full and fractional Fund shares and mails a statement of the
account confirming the transaction.

Subsequent investments can also be made by federal funds wire. Investors
should instruct their banks to wire federal funds to State Street Bank and
Trust Company, ABA #011000028. The text of the wire should read as follows:
"$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and
Retail Class), DDA #9904-622-9, Account Name, Account Number." A bank may
charge a fee for transmitting funds by wire.

30
<PAGE>

Distributor, broker-dealers may charge the investor a transaction-based fee or
other fee for their services at either the time of purchase or the time of
redemption. Such charges may vary among broker-dealers but in all cases will
be retained by the broker-dealer and not remitted to the Fund.

Each Fund also offers an Institutional Class of shares that, except for the
Loomis Sayles Bond Fund, has a $1 million minimum investment for certain
investors and bears lower expenses. The minimum investment for the
Institutional Class of shares of the Loomis Sayles Bond Fund is $25,000.
Because of its lower expenses, the Institutional Class of shares of each Fund
is expected to have a higher total return than the Retail Class of shares.

The Loomis Sayles Bond Fund also offers an Admin Class of shares that is
offered exclusively through intermediaries, who will be the record owners of
the shares. Because of its lower expenses, the Retail Class of shares of the
Loomis Sayles Bond Fund is expected to have a higher total return than the
Admin Class of shares.

SHAREHOLDER SERVICES

FREE EXCHANGE PRIVILEGE. Retail Class shares of any Fund may be exchanged
for Retail Class shares of any other Fund (or any other fund that is a series
of Loomis Sayles Funds and that offers Retail Class shares) or for shares of
certain money market funds advised by New England Funds Management, L.P., an
affiliate of Loomis Sayles, provided the value of the shares exchanged meets
the investment minimum of that Fund. Exchanges may be made by written
instructions or by telephone, unless an investor elected on the application to
decline telephone exchange privileges. The exchange privilege should not be
viewed as a means for taking advantage of short-term swings in the market, and
the Funds reserve the right to terminate or limit the privilege of any
shareholder who makes more than four exchanges in any calendar year. The Funds
may terminate or change the terms of the exchange privilege at any time, upon
60 days' notice to shareholders. An exchange is a taxable event for federal
income tax purposes in which a gain or loss would be realized by an investor
that is subject to federal income taxation.

31
<PAGE>

RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax-
deferred retirement plans. Loomis Sayles makes available retirement plan forms
for IRAs.

SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000,
an investor may have periodic cash withdrawals automatically paid to the
investor or any person designated by the investor.

AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may
be made automatically by pre-authorized withdrawals from an investor's
checking account.

HOW TO REDEEM SHARES

An investor can redeem shares by sending a written request to Boston
Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266.
Proceeds from a written request may be sent to the investor in the form of a
check. As described below, an investor may also redeem shares by calling BFDS
at 800-626-9390. Proceeds resulting from a telephone redemption request can be
wired to an investor's bank account or sent by check in the name of the
registered owners to their record address.

The written request must include the name of the Fund, the account number,
the exact name(s) in which the shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
request in the exact names in which the shares are registered (this appears on
an investor's confirmation statement) and should indicate any special capacity
in which they are signing (such as trustee or custodian or on behalf of a
partnership, corporation or other entity). Shareholders requesting that
redemption proceeds be wired to their bank accounts must provide specific wire
instructions.

32
<PAGE>

When an investor telephones a redemption request, the proceeds are wired to
the bank account previously chosen by the investor. A wire fee (currently $5)
will be deducted from the proceeds. A telephonic redemption request must be
received by BFDS prior to the close of regular trading on the New York Stock
Exchange. If an investor telephones a request to BFDS after the Exchange
closes or on a day when the Exchange is not open for business, BFDS cannot
accept the request and a new one will be necessary. If an investor decides to
change the bank account to which proceeds are to be wired, the investor must
send in this change in writing with a signature guarantee. Telephonic
redemptions may only be made if the investor's bank is a member of the Federal
Reserve System or has a correspondent bank that is a member of the System.
Unless an investor indicates otherwise on the account application, BFDS will
be authorized to act upon redemption and exchange instructions received by
telephone from the investor or any person claiming to act as the investor's
representative who can provide BFDS with the investor's account registration
and address as it appears on the records of State Street Bank. BFDS will
employ these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine; the Fund, State Street Bank, BFDS, the
Distributor and Loomis Sayles will not be liable for any losses due to
unauthorized or fraudulent instructions if these or other reasonable
procedures are followed. For information, consult BFDS. In times of heavy
market activity, an investor who encounters difficulty in placing a redemption
or exchange order by telephone may wish to place the order by mail as
described above.

The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by BFDS in proper form.

33
<PAGE>

CALCULATION OF PERFORMANCE INFORMATION

"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in a Fund.
Total return may also be presented for other periods.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The Bond, Intermediate Maturity Bond and Investment Grade Bond Funds declare
and pay dividends quarterly; the Global Bond Fund declares and pays its net
investment income to shareholders as dividends annually; the Short-Term Bond
Fund declares dividends daily and makes payments monthly. Each Fund also
distributes all of its net capital gains realized from the sale of portfolio
securities. Any capital gain distributions are normally made annually, but
may, to the extent permitted by law, be made more frequently as deemed
advisable by the trustees of the Trust. The Trust's trustees may change the
frequency with which the Funds declare or pay dividends.

Dividends and capital gain distributions will automatically be reinvested in
additional shares of the same Fund unless an investor has elected to receive
cash. Each Fund intends to qualify as a regulated investment company under the
Code. As such, so long as a Fund distributes substantially all its net
investment income and net capital gains to its shareholders, the Fund itself
does not pay any federal income tax to the extent such income and gains are so
distributed. An investor's income dividends and short term capital gain
distributions are taxable as ordinary income whether distributed in cash or
additional shares. Distributions designated by a Fund as deriving from net
gains on securities held for more than one year will be taxable as such
(generally at a 20% rate for

34
<PAGE>

noncorporate shareholders) whether distributed in cash or additional shares
and regardless of how long an investor has owned shares of the Fund.

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

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

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

35
<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S AND
MOODY'S INVESTORS SERVICE, INC.

STANDARD & POOR'S

AAA

This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.

BBB

BB, B, CCC, CC

36
<PAGE>

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

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

This symbol is attached to the ratings of instruments with significant
noncredit risks such as risks to principal or volatility of expected returns.

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

MOODY'S INVESTORS SERVICE, INC.

AAA

37
<PAGE>

BAA

CAA

Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

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

38
<PAGE>

Should no rating be assigned by Moody's, the reason may be one of the
following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed in which case the rating is not
published in Moody's publications.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.

39
<PAGE>

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

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

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

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

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

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP One Post Office
Square Boston, Massachusetts 02109
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330

THE LOOMIS SAYLES FUNDS

ADMIN CLASS SHARES OF:

LOOMIS SAYLES BOND FUND

LOOMIS SAYLES SMALL CAP VALUE FUND
<PAGE>

PROSPECTUS JANUARY 1, 1999

THE LOOMIS SAYLES FUNDS--ADMIN CLASS
Loomis Sayles Bond Fund and Loomis Sayles Small Cap Value Fund (the "Funds"
and each a "Fund"), each a series of Loomis Sayles Funds (the "Trust"), are
separately managed, no-load mutual funds and each Fund has its own investment
objective and policies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is
the investment adviser of each Fund.

The Funds offer three classes of shares: an Admin Class that is described in
this Prospectus and an Institutional Class and a Retail Class that are
described in separate prospectuses. This Prospectus concisely describes the
information that an investor should know before investing in the Admin Class
shares of the Fund. Please read it carefully and keep it for future reference.
A Statement of Additional Information (SAI) dated January 1, 1999, as revised
from time to time, is available free of charge; write to Loomis Sayles
Distributors, L.P. (the "Distributor"), One Financial Center, Boston,
Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains more
detailed information about the Funds, has been filed with the Securities and
Exchange Commission (the "SEC") and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov). The SAI is
incorporated by reference (legally forms a part of the Prospectus). To obtain
more information about the Institutional Class or Retail Class, please call
the Distributor toll-free at 800-633-3330, contact your financial
intermediary, or visit our Internet Website (http://www.loomissayles.com).

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

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

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 4
THE TRUST................................................................. 6
INVESTMENT OBJECTIVE AND POLICIES......................................... 6
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 8
THE FUNDS' INVESTMENT ADVISER............................................. 18
FUND EXPENSES............................................................. 19
PORTFOLIO TRANSACTIONS.................................................... 20
HOW TO PURCHASE SHARES.................................................... 20
SHAREHOLDER SERVICES...................................................... 21
HOW TO REDEEM SHARES...................................................... 22
CALCULATION OF PERFORMANCE INFORMATION.................................... 24
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 24
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. 26
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES
(FOR AN ADMIN CLASS SHARE OF THE INDICATED FUND)

The following information is provided as an aid in understanding the various
expenses that an investor in a Fund will bear indirectly. The information
about each Fund shown below is based on expenses for the Funds' first fiscal
year. The information below should not be considered a representation of past
or future expenses, as actual expenses may be greater or less than those
shown. Also, the 5% annual return assumed in the Example should not be
considered a representation of investment performance, as actual performance
will vary.

<TABLE>
<CAPTION>
SMALL CAP
BOND VALUE
FUND FUND
---- ---------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as % of offering
price).................................................. none none
Maximum Sales Load Imposed on Reinvested Dividends (as %
of offering price)...................................... none none
Maximum Deferred Sales Load (as % of original purchase
price or redemption proceeds)........................... none none
Redemption Fees/1/....................................... none none
Exchange Fees............................................ none none
Annual Fund Operating Expenses (as a percentage of
average net assets):
Management Fees.......................................... .60% .75%
12b-1 Fees/3/............................................ .25% .25%
Administrative Fees/4/................................... .25% .25%
Other Operating Expenses (after expense reimbursement
where indicated)........................................ .15%/2/ .25%/2/
Total Fund Operating Expenses (after expense
reimbursement where indicated).......................... 1.25%/2/ 1.50%/2/
Example:
An investor would pay the following expenses on a $1,000
investment assuming a 5% annual return (with or without
a redemption at the end of each time period):
One Year................................................. $ 13 $ 15
Three Years.............................................. $ 40 $ 47
</TABLE>
- -----------
/1/A $5 charge applies to any wire transfer of redemption proceeds.

/2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit
the Total Operating Expenses, exclusive of Administrative Fees, of the Admin
Class of the Bond Fund and Small Cap Value Fund to 1.00% and 1.25%,
respectively. Without this agreement Other Operating Expenses (including
12b-1 and Administrative Fees) and Total Operating Expenses would have been
5.72% and 6.32%, respectively for the Bond Fund and 3.24% and 3.99%,
respectively for the Small Cap Value Fund.
/3/Because of the ongoing nature of the 12b-1 fees, long-term shareholders may
pay more than the economic equivalent of the maximum front-end sales charge
permitted by the rules of the National Association of Securities Dealers,
Inc.
/4/Administrative fees shown represent the maximum amount presently authorized
by the Trustees.

3
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR AN ADMIN CLASS SHARE OF THE FUNDS
OUTSTANDING THROUGHOUT THE INDICATED PERIOD)

<TABLE>
<CAPTION>
BOND FUND
--------------
JANUARY 2*
TO
SEPTEMBER 30**
1998
--------------
<S> <C>
Net asset value, beginning of period......................... $12.83
------
Income from investment operations--
Net investment income (loss)................................. 0.47
Net realized and unrealized gain (loss) on investments....... (0.62)
------
Total from investment operations............................ (0.15)
------
Less distributions--
Dividends from net investment income......................... (0.40)
------
Total distributions......................................... (0.40)
------
Net asset value, end of period............................... $12.28
======
Total return (%)***.......................................... (1.3)+
Net assets, end of period (000).............................. $ 630
Ratio of operating expenses to average net assets (%)****.... 1.25++
Ratio of net investment income to average net assets (%)..... 7.45++
Portfolio turnover rate (%).................................. 24+
Without giving effect to voluntary expense limitations:
The ratio of operating expenses to average net assets would
have been (%)............................................... 6.32++
Net investment income per share would have been.............. $ 0.15
</TABLE>
- -----------
* Commencement of investment operations.
** The Fund's fiscal year-end changed to September 30 from December 31.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

4
<PAGE>

<TABLE>
<CAPTION>
SMALL CAP
VALUE FUND
--------------
JANUARY 2*
TO
SEPTEMBER 30**
1998
--------------
<S> <C>
Net asset value, beginning of period......................... $18.62
------
Income from investment operations--
Net investment income (loss)................................. 0.03
Net realized and unrealized gain (loss) on investments....... (3.11)
------
Total from investment operations............................ (3.08)
------
Net asset value, end of period............................... $15.54
======
Total return (%)***.......................................... (16.5)+
Net assets, end of period (000).............................. $1,046
Ratio of operating expenses to average net assets (%)****.... 1.50++
Ratio of net investment income to average net assets (%)..... 0.95++
Portfolio turnover rate (%).................................. 78+
Without giving effect to voluntary expense limitations:
The ratios of operating expenses to average net assets would
have been (%)............................................... 3.99++
Net investment income per share would have been.............. $(0.05)
</TABLE>
- -----------
* Commencement of investment operations.
** The Fund's fiscal year-end changed to September 30 from December 31.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.
NOTE: Further information about each Fund's performance is contained in the
Funds' 1998 annual reports to shareholders, which may be obtained without
charge.

5
<PAGE>

THE TRUST

Each Fund is a series of the Trust. The Trust is a diversified open-end
management investment company organized as a Massachusetts business trust on
February 20, 1991. The Trust is authorized to issue an unlimited number of
full and fractional shares of beneficial interest in multiple series. Shares
are freely transferable and entitle shareholders to receive dividends as
determined by the Trust's board of trustees and to cast a vote for each share
held at shareholder meetings. The Trust does not generally hold shareholder
meetings and will do so only when required by law. Shareholders may call
meetings to consider removal of the Trust's trustees.

INVESTMENT OBJECTIVE AND POLICIES

LOOMIS SAYLES BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by normally investing substantially
all of its assets in fixed income securities, although up to 20% of its total
assets may be invested in preferred stocks. At least 65% of the Fund's total
assets will normally be invested in bonds. The fixed income securities in
which the Fund may invest include corporate securities, securities issued or
guaranteed by the U.S. Government or its authorities or instrumentalities
("U.S. Government Securities"), commercial paper, zero coupon securities,
mortgage-backed securities, stripped mortgage-backed securities,
collateralized mortgage obligations ("CMOs"), asset-backed securities, when-
issued securities, real estate investment trusts ("REITs"), Rule 144A
securities, repurchase agreements and convertible securities. The Fund may
engage in options and futures transactions, repurchase transactions, foreign
currency hedging transactions and swap transactions.

6
<PAGE>

unrated, determined by Loomis Sayles to be of comparable quality, were as
follows:

<TABLE>
<CAPTION>
STANDARD & POOR'S UNRATED* MOODY'S UNRATED**
----------------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa......................... 21.36% 1.55% 17.98% --
AA/Aa........................... 11.87% 0.31% 16.14% 0.31%
A/A............................. 7.22% 0.43% 6.95% 0.78%
BBB/Baa......................... 24.16% 0.66% 22.73% 0.37%
BB/Ba........................... 15.27% 5.38% 12.11% 3.24%
B/B............................. 6.12% -- 15.39% --
CCC/Caa......................... 5.59% -- 3.62% --
CC/Ca........................... 0.02% -- 0.39% --
C/C............................. -- -- -- --
D............................... -- -- -- --
</TABLE>
- -----------

*Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

**Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES SMALL CAP VALUE FUND

The Fund's investment objective is long-term capital growth from investments
in common stocks or their equivalent.

The Fund seeks to achieve its objective by investing primarily in equity
securities of small capitalization companies with good earnings growth
potential that Loomis Sayles believes are undervalued by the market. The Fund
will normally invest at least 65% of its total assets in equity securities of
companies with market capitalizations that fall within the capitalization
range of the Russell 2000 Index and may invest up to 35% of its total assets
in larger companies. Loomis Sayles seeks to build a core small capitalization
portfolio of stocks of solid companies with reasonable growth prospects and
that are attractively priced in relation to the companies' earnings with a
smaller emphasis on special situations and turnarounds (companies that have
experienced significant business problems but which Loomis Sayles believes
have favorable prospects for recovery), as well as unrecognized stocks.
Current income is not a consideration in selecting the Fund's investments. The
Fund may invest up to 20% of its total assets in securities of foreign
issuers. The Fund may also engage in foreign currency hedging transactions,
REITs and Rule 144A securities.

BOTH FUNDS

For temporary defensive purposes, each Fund may invest any portion of its
assets in fixed income securities, cash or any other securities deemed
appropriate by Loomis Sayles.

7
<PAGE>

MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS

COMMON STOCKS AND OTHER EQUITY SECURITIES

Each Fund may invest in common stocks and similar equity securities, such as
warrants and convertibles. These securities are volatile and more risky than
some other forms of investment. The value of an investment in a Fund that
invests in equity securities may sometimes decrease. Equity securities of
companies with relatively small market capitalization may be more volatile
than the securities of larger, more established companies and than the broad
equity market indexes.

WHEN-ISSUED SECURITIES

Each Fund may purchase securities on a "when-issued" basis. This means that
the Fund will enter into a commitment to buy the security before the security
has been issued. The Fund's payment obligation and the interest rate on the
security are determined when the Fund enters into the commitment. The security
is typically delivered to the Fund 15 to 120 days later. No interest accrues
on the security between the time the Fund enters into the commitment and the
time the security is delivered. If the value of the security being purchased
falls between the time a Fund commits to buy it and the payment date, the Fund
may sustain a loss. The risk of this loss is in addition to the Fund's risk of
loss on the securities actually in its portfolio at the time. In addition,
when the Fund buys a security on a when-issued basis, it is subject to the
risk that market rates of interest will increase before the time the security
is delivered, with the result that the yield on the security delivered to the
Fund may be lower than the yield available on other, comparable securities at
the time of delivery. If a Fund has outstanding obligations to buy when-issued
securities, it will maintain liquid assets in a segregated account at its
custodian bank in an amount sufficient to satisfy these obligations.

CONVERTIBLE SECURITIES

The Bond Fund may invest in convertible securities which include corporate
bonds, notes or preferred stocks of U.S. or foreign issuers that can be
converted into (that is, exchanged for) common stocks or other equity
securities at a stated price or rate. Convertible securities also include
other securities, such as warrants, that provide an opportunity for equity
participation. Because convertible securities can be converted into equity
securities, their value will normally vary in some proportion with those of
the underlying equity securities. Convertible securities usually provide a
higher yield than the underlying equity security, however, so that when the
price of the underlying equity security falls, the decline in the price of the
convertible security may sometimes be less

8
<PAGE>

substantial than that of the underlying equity security. Due to the conversion
feature, convertible securities generally yield less than nonconvertible fixed
income securities of similar credit quality and maturity. The Fund's
investment in convertible securities may at times include securities that have
a mandatory conversion feature, pursuant to which the securities convert
automatically into common stock at a specified date and conversion ratio, or
that are convertible at the option of the issuer. Because conversion is not at
the option of the holder, the Fund may be required to convert the security
into the underlying common stock even at times when the value of the
underlying common stock has declined substantially.

REAL ESTATE INVESTMENT TRUSTS

RULE 144A SECURITIES

FOREIGN SECURITIES

Each Fund may invest in securities of issuers organized or headquartered
outside the United States ("foreign securities"). The Small Cap Value Fund
will not purchase a foreign security if, as a result, the Fund's holdings of
foreign securities would exceed 20% of the Fund's total assets. The Bond Fund
may invest any portion of its assets in securities of Canadian issuers, but
will not

9
<PAGE>

purchase foreign securities other than those of Canadian issuers if, as a
result, such Fund's holdings of non-U.S. and non-Canadian securities would
exceed 20% of the Fund's total assets.

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

10
<PAGE>

the dividend. Similarly, if the value of a currency relative to the U.S.
dollar declines between the time the Fund accrues expenses in U.S. dollars and
the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars will be greater than the equivalent amount in such
currency of such expenses at the time they were incurred.

In determining whether to invest assets of a Fund in securities of a
particular foreign issuer, Loomis Sayles will consider the likely effects of
foreign taxes on the net yield available to the Fund and its shareholders.
Compliance with foreign tax law may reduce a Fund's net income available for
distribution to shareholders.

FOREIGN CURRENCY HEDGING TRANSACTIONS

Each Fund may engage in foreign currency exchange transactions to protect
the value of specific portfolio positions or in anticipation of changes in
relative values of currencies in which current or future Fund portfolio
holdings are denominated or quoted. For example, to protect against a change
in the foreign currency exchange rate between the date on which a Fund
contracts to purchase or sell a security and the settlement date for the
purchase or sale, or to "lock in" the equivalent of a dividend or interest
payment in another currency, a Fund might purchase or sell a foreign currency
on a spot (that is, cash) basis at the prevailing spot rate. If conditions
warrant, the Funds may also enter into private contracts to purchase or sell
foreign currencies at a future date ("forward contracts"). The Funds might
also purchase exchange-listed and over-the-counter call and put options on
foreign currencies. Over-the-counter currency options are generally less
liquid than exchange-listed options, and will be treated as illiquid assets.
The Funds may not be able to dispose of over-the-counter options readily.

Foreign currency transactions involve costs and may result in losses.

REPURCHASE AGREEMENTS

The Small Cap Value Fund and the Bond Fund may each invest in repurchase
agreements. In repurchase agreements, the Fund buys securities from a seller,
usually a bank or brokerage firm, with the understanding that the seller will
repurchase the securities at a higher price at a later date. Such transactions
afford an opportunity for the Fund to earn a return on available cash at
minimal market risk, although the Fund may be subject to various delays and
risks of loss if the seller is unable to meet its obligations to repurchase.

DEBT AND OTHER FIXED INCOME SECURITIES

The Bond Fund may invest in fixed income securities of any maturity. Fixed
income securities pay a specified rate of interest or dividends, or a rate

11
<PAGE>

that is adjusted periodically by reference to some specified index or market
rate. Fixed income securities include securities issued by federal, state,
local and foreign governments and related agencies, and by a wide range of
private issuers. Because interest rates vary, it is impossible to predict the
income of a Fund that invests in fixed income securities for any particular
period. The net asset value of such a Fund's shares will vary as a result of
changes in the value of the securities in the Fund's portfolio.

U.S. GOVERNMENT SECURITIES

The Bond Fund may invest in U.S. Government Securities. U.S. Government
Securities have different kinds of government support. For example, some U.S.
Government Securities, such as U.S. Treasury bonds, are supported by the full
faith and credit of the United States, whereas certain other U.S. Government
Securities issued or guaranteed by federal agencies or government-sponsored
enterprises are not supported by the full faith and credit of the United
States.

Some U.S. Government Securities, such as Government National Mortgage
Association Certificates ("GNMA"), are known as "mortgage-backed" securities.
Interest and principal payments on the mortgages underlying mortgage-backed
U.S. Government Securities are passed through to the holders of the security.
If the Fund purchases mortgage-backed securities at a discount or a premium,
the Fund will recognize a gain or loss when the payments of principal, through
prepayment or otherwise, are passed through to the Fund and, if the payment
occurs in a period of falling interest rates, the Fund may not be able to
reinvest the payment at as favorable an interest rate. As a result of these
principal prepayment features, mortgage-backed securities are generally more
volatile investments than many other fixed income securities.

In addition to investing directly in U.S. Government Securities, the
Fund may purchase certificates of accrual or similar instruments ("strips")

12
<PAGE>

evidencing undivided ownership interests in interest payments or principal
payments, or both, in U.S. Government Securities. These investment instruments
may be highly volatile.

LOWER RATED FIXED INCOME SECURITIES

The Bond Fund may invest up to 35% of its total assets in securities rated
below investment grade (commonly referred to as "junk bonds"). A security will
be treated as being of investment grade quality if at the time the Bond Fund
acquires it at least one major rating agency has rated the security in its top
four rating categories (even if another such agency has issued a lower
rating), or if the security is unrated but Loomis Sayles determines it to be
of investment grade quality. Lower rated fixed income securities generally
provide higher yields, but are subject to greater credit and market risk, than
higher quality fixed income securities. Lower rated fixed income securities
are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. Achievement of the investment
objective of a Fund investing in lower rated fixed income securities may be
more dependent on Loomis Sayles' own credit analysis than is the case with
higher quality bonds. The market for lower rated fixed income securities may
be more severely affected than some other financial markets by economic
recession or substantial interest rate increases, by changing public
perceptions of this market or by legislation that limits the ability of
certain categories of financial institutions to invest in these securities. In
addition, the secondary market may be less liquid for lower rated fixed income
securities. This lack of liquidity at certain times may affect the values of
these securities and may make the evaluation and sale of these securities more
difficult. Securities in the lowest rating categories may be in poor standing
or in default. Securities in the lowest investment grade category (BBB or Baa)
have some speculative characteristics.

For more information about the ratings services' descriptions of the various
rating categories, see Appendix A.

ZERO COUPON SECURITIES

The Bond Fund may invest in "zero coupon" fixed income securities. These
securities accrue interest at a specified rate, but do not pay interest in
cash on a current basis. The Fund is required to distribute the income on
these securities to Fund shareholders as the income accrues, even though the
Fund is not receiving the income in cash on a current basis. Thus the Fund may
have to sell other investments to obtain cash to make income distributions at
times when Loomis Sayles would not otherwise deem it advisable to do so. The
market value of zero coupon securities is often more volatile than that of
non-zero coupon fixed income securities of comparable quality and maturity.

13
<PAGE>

MORTGAGE-BACKED SECURITIES

The Bond Fund may invest in mortgage-backed securities, such as GNMA or
Fannie Mae certificates, which differ from traditional debt securities. Among
the major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time. As
a result, if the Fund purchases these assets at a premium, a faster-than-
expected prepayment rate will reduce yield to maturity, and a slower-than-
expected prepayment rate will increase yield to maturity. If the Fund
purchases mortgage-backed securities at a discount, faster-than-expected
prepayments will increase, and slower-than-expected prepayments will reduce,
yield to maturity. Prepayments, and resulting amounts available for
reinvestment by the Fund, are likely to be greater during a period of
declining interest rates and, as a result, are likely to be reinvested at
lower interest rates. Accelerated prepayments on securities purchased at a
premium may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will decrease
in value as a result of increases in interest rates generally, they are likely
to appreciate less than other fixed-income securities when interest rates
decline because of the risk of prepayments.

STRIPPED MORTGAGE-BACKED SECURITIES

The Bond Fund may invest in interest-only and principal-only classes of
mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO
or PO is extremely sensitive not only to changes in prevailing interest rates
but also to the rate of principal payments (including prepayments) on the
underlying assets. A rapid rate of principal prepayments may have a measurably
adverse effect on the Fund's yield to maturity to the extent it invests in
IOs. If the assets underlying the IOs experience greater than anticipated
prepayments of principal, the Fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase in value if
prepayments are greater than anticipated and decline if prepayments are slower
than anticipated.

COLLATERALIZED MORTGAGE OBLIGATIONS

The Bond Fund may invest in CMOs. A CMO is a security backed by a portfolio
of mortgages. CMOs may be issued either by U.S. Government instrumentalities
or by non-governmental entities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of

14
<PAGE>

classes or series which have different maturities and which may represent
interests in some or all of the interest or principal on the underlying
collateral or a combination thereof. CMOs of different classes are generally
retired in sequence as the underlying mortgage loans in the mortgage pool are
repaid. In the event of sufficient early prepayments on such mortgages, the
class or series of CMOs first to mature generally will be retired prior to its
maturity. As with other mortgage-backed securities, the early retirement of a
particular class or series of CMOs held by the Fund could involve the loss of
any premium the Fund paid when it acquired the investment and could result in
the Fund's reinvesting the proceeds at a lower interest rate than the retired
CMO paid. Because of the early retirement feature, CMOs may be more volatile
than many other fixed-income investments.

ASSET-BACKED SECURITIES

The Bond Fund may invest in asset-backed securities. Through the use of
trusts and special purpose corporations, automobile and credit card
receivables are securitized in pass-through structures similar to mortgage
pass-through structures or in a pass-through structure similar to the CMO
structure. Generally, the issuers of asset-backed bonds, notes or pass-through
certificates are special purpose entities and do not have any significant
assets other than the receivables securing such obligations. In general, the
collateral supporting asset-backed securities is of shorter maturity than
mortgage loans. Instruments backed by pools of receivables are similar to
mortgage-backed securities in that they are subject to unscheduled prepayments
of principal prior to maturity. When the obligations are prepaid, the Fund
will ordinarily reinvest the prepaid amounts in securities the yields of which
reflect interest rates prevailing at the time. Therefore, the Fund's ability
to maintain a portfolio that includes high-yielding asset-backed securities
will be adversely affected to the extent that prepayments of principal must be
reinvested in securities that have lower yields than the prepaid obligations.
Moreover, prepayments of securities purchased at a premium could result in a
realized loss.

SWAP TRANSACTIONS

The Bond Fund may enter into interest rate or currency swaps. The Fund will
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. Interest rate swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest (for example, an
exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange
cash flows on a notional amount based on changes in the relative values of the
specified

15
<PAGE>

currencies. The Fund will maintain liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. Because swap
agreements are not exchange-traded, but are private contracts into which the
Fund and a swap counterparty enter as principals, the Fund may experience a
loss or delay in recovering assets if the counterparty were to default on its
obligations.

OPTIONS AND FUTURES TRANSACTIONS

The Bond Fund may buy, sell or write options on securities, securities
indexes, currencies or futures contracts and may buy and sell futures
contracts on securities, securities indexes or currencies. The Fund may engage
in these transactions either for the purpose of enhancing investment return,
or to hedge against changes in the value of other assets that the Fund owns or
intends to acquire. Options and futures fall into the broad category of
financial instruments known as "derivatives" and involve special risks. Use of
options or futures for other than hedging purposes may be considered a
speculative activity, involving greater risks than are involved in hedging.

Options can generally be classified as either "call" or "put" options. There
are two parties to a typical options transaction: the "writer" and the
"buyer." A call option gives the buyer the right to buy a security or other
asset (such as an amount of currency or a futures contract) from, and a put
option gives the buyer the right to sell a security or other asset to, the
option writer at a specified price, on or before a specified date. The buyer
of an option pays a premium when purchasing the option, which reduces the
return on the underlying security or other asset if the option is exercised,
and results in a loss if the option expires unexercised. The writer of an
option receives a premium from writing an option, which may increase its
return if the option expires or is closed out at a profit. If the Fund as the
writer of an option is unable to close out an unexpired option, it must
continue to hold the underlying security or other asset until the option
expires, to "cover" its obligation under the option.

The value of options purchased by the Fund and futures contracts held by the
Fund may fluctuate based on a variety of market and economic factors. In some
cases, the fluctuations may offset (or be offset by) changes in the value of

16
<PAGE>

securities held in the Fund's portfolio. All transactions in options and
futures involve the possible risk of loss to the Fund of all or a significant
part of the value of its investment. In some cases, the risk of loss may
exceed the amount of the Fund's investment. When the Fund writes a call option
or sells a futures contract without holding the underlying securities,
currencies or futures contracts, its potential loss is unlimited. The Fund
will be required, however, to set aside with its custodian bank liquid assets
in amounts sufficient at all times to satisfy its obligations under options
and futures contracts.

The successful use of options and futures will usually depend on Loomis
Sayles' ability to forecast stock market, currency or other financial market
movements correctly. The Fund's ability to hedge against adverse changes in
the value of securities held in its portfolio through options and futures also
depends on the degree of correlation between changes in the value of futures
or options positions and changes in the values of the portfolio securities.
The successful use of futures and exchange traded options also depends on the
availability of a liquid secondary market to enable the Fund to close its
positions on a timely basis. There can be no assurance that such a market will
exist at any particular time. In the case of options that are not traded on an
exchange ("over-the-counter" options), the Fund is at risk that the other
party to the transaction will default on its obligations, or will not permit
the Fund to terminate the transaction before its scheduled maturity. As a
result of these characteristics, the Fund will treat most over-the-counter
options (and the assets it segregates to cover its obligations thereunder) as
illiquid.

YEAR 2000

17
<PAGE>

with the same goal. As of the date of this prospectus, the Funds and Loomis
Sayles have no reason to believe that these goals will not be achieved.
Similarly, the values of certain of the portfolio securities held by the Funds
may be adversely affected by the inability of the securities' issuers or of
third parties to process this type of information properly.

THE FUNDS' INVESTMENT ADVISER

The Funds' investment adviser is Loomis Sayles, One Financial Center,
Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the
country's oldest and largest investment firms. The general partner of Loomis
Sayles is a special purpose corporation that is an indirect wholly-owned
subsidiary of Nvest Company, L.P. ("Nvest Companies"). Nvest Companies'
managing general partner, Nvest Corporation, is a direct wholly-owned
subsidiary of Metropolitan Life Insurance Company ("Met Life"), a mutual life
insurance company. Nvest Companies' advising general partner, Nvest, L.P., is
a publicly traded company listed on the New York Stock Exchange. Nvest
Corporation is the sole general partner of Nvest L.P.

In addition to selecting and reviewing the Fund's investments, Loomis Sayles
provides executive and other personnel for the management of the Funds. The
Trust's board of trustees supervises Loomis Sayles' conduct of the affairs of
the Funds.

As of October 31, 1998, Charles Schwab & Co. Inc. owned 48% of the Bond
Fund. Shareholders holding more than 25% of a Fund's shares may be deemed to
control the relevant Fund.

Daniel J. Fuss, President of the Trust and Executive Vice President of
Loomis Sayles, has served as the portfolio manager of the Bond Fund since its
commencement of investment operations in 1991. Kathleen C. Gaffney, Vice
President of Loomis Sayles, has served as associate portfolio manager of the
Bond Fund since October, 1997. Mr. Fuss and Ms. Gaffney joined Loomis Sayles
in 1976 and 1984, respectively.

Jeffrey C. Petherick, Vice President of the Trust and of Loomis Sayles, has
served as a portfolio manager of the Small Cap Value Fund since 1993, and Mary
C. Champagne, Vice President of the Trust and of Loomis Sayles, has served as
a portfolio manager of the Small Cap Value Fund since 1995. Mr. Petherick
joined Loomis Sayles in 1990. Before joining Loomis Sayles in 1993, Ms.
Champagne was a portfolio manager at NBD Bank.

18
<PAGE>

FUND EXPENSES

The Bond Fund pays Loomis Sayles an annual investment advisory fee of .60%
of the Fund's average daily net assets. The Small Cap Value Fund pays Loomis
Sayles an annual investment advisory fee of .75% of the Fund's average daily
net assets. Such investment advisory fees are paid monthly. In addition to the
investment advisory fee, each Fund pays all expenses not expressly assumed by
Loomis Sayles, including taxes, brokerage commissions, fees and expenses of
registering or qualifying the Fund's shares under federal and state securities
laws, fees of the Fund's custodian, transfer agent, independent accountants
and legal counsel, expenses of shareholders' and trustees' meetings, 12b-1
fees, administrative fees, expenses of preparing, printing and mailing
prospectuses to existing shareholders and fees of trustees who are not
directors, officers or employees of Loomis Sayles or its affiliated companies.

Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce
its advisory fees and/or bear other Fund expenses to the extent necessary to
limit Fund total annual operating expenses of the Admin Class of shares of
each Fund to the following annual percentage rate of the Fund's average daily
net assets:

<TABLE>
<CAPTION>
FUND RATE
---- -----
<S> <C>
Bond................................................................... 1.00%
Small Cap Value........................................................ 1.25%
</TABLE>

Under a Distribution Plan adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, each of the Funds pays the Distributor, a
subsidiary of Loomis Sayles, a monthly distribution fee at an annual rate not
to exceed 0.25% of the Fund's average daily net assets attributable to the
Admin Class shares. The Distributor may pay all or any portion of the
distribution fee to securities dealers or other organizations (including, but
not limited to, any affiliate of the Distributor) as commissions, asset-based
sales charges or other compensation with respect to the sale of Admin Class
shares of the Funds, or for providing personal services to investors in Admin
Class shares of the Funds and/or the maintenance of accounts, and may retain
all or any portion of the distribution fee as compensation for the
Distributor's services as principal underwriter of the Admin Class shares of
the Funds.

Each of the Funds may also pay an "administrative fee" at an annual rate of
up to 0.25% of its average daily net assets attributable to the Admin Class to
certain securities dealers or financial intermediaries for providing personal
service and account maintenance for their customers who are shareholders of
the Funds. Loomis Sayles may also pay these parties a continuing fee at an
annual rate of up to 0.25% of the value of Fund shares held for those
customers' accounts, which fees are paid by Loomis Sayles out of its own
assets and are not assessed against the Funds.

19
<PAGE>

PORTFOLIO TRANSACTIONS

HOW TO PURCHASE SHARES

An intermediary may make an initial purchase of shares of any Fund by
submitting a completed application form and payment to:

Boston Financial Data Services
P.O. Box 8314
Boston, Massachusetts 02266-8314
Attn: Loomis Sayles Funds

Shares of the Fund may be purchased exclusively through intermediaries, who
will be the record owner of the shares. The intermediary may purchase shares
by paying cash or by exchanging Admin Class shares of any Fund.

Upon acceptance of an order, Boston Financial Data Services ("BFDS") opens
an account, applies the payment to the purchase of full and fractional Fund
shares and mails a statement of the account confirming the transaction.

After an account has been established, the intermediary may send subsequent
investments at any time directly to BFDS at the above address. The remittance
must be accompanied by either the account identification slip detached from a
statement of account or a note containing sufficient information to identify
the account, i.e., the Fund name and the intermediary's account number or name
and tax identification number.

Initial or subsequent investments can also be made by federal funds wire.
For initial investment by wire, contact the Distributor at 800-633-3330,
option 5 for an account number before sending the wire. The intermediary
should instruct its bank to wire federal funds to State Street Bank and Trust
Company, ABA #011000028. The text of the wire should read as follows: "$
amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and

20
<PAGE>

Admin Class), DDA #9904-622-9, Account Name, Account Number." A bank may
charge a fee for transmitting funds by wire.

The price an intermediary pays will be the per share net asset value next
calculated after a proper investment order is received by the Trust's transfer
or other agent or subagent. Shares of each Fund are sold with no sales charge.
The net asset value of each Fund's shares is calculated once daily as of the
close of regular trading on the New York Stock Exchange on each day the
Exchange is open for trading, by dividing the Fund's net assets by the number
of shares outstanding. Portfolio securities are valued at their market value
as more fully described in the Statement of Additional Information.

Each Fund also offers (i) a Retail Class of shares that has a $25,000
minimum investment for certain categories of investors, is offered through
intermediaries and does not bear administrative fees, and (ii) an
Institutional Class of shares that in the case of the Bond Fund has a $25,000
investment mimimum and in the case of the Small Cap Value Fund has a
$1 million minimum investment for certain categories of investors and does not
bear 12b-1 fees or administrative fees. Because of its higher expenses, the
Admin Class of shares of each Fund is expected to have a lower total return
than either of the Institutional Class or Retail Class of shares.

SHAREHOLDER SERVICES

The Funds offer the following shareholder services, which are more fully
described in the Statement of Additional Information. Explanations and forms
are available from the Distributor. Telephone redemption and exchange
privileges will be established automatically when an intermediary opens an
account unless an intermediary elects on the application to decline the

21
<PAGE>

privileges. Other privileges must be specifically elected. A signature
guarantee will be required to establish a privilege after an account is
opened.

FREE EXCHANGE PRIVILEGE. Admin Class shares of any Fund may be exchanged for
Admin Class shares of any other fund that is a series of Loomis Sayles Funds
and that offers Admin Class shares or for shares of certain money market funds
advised by New England Funds Management, L.P., an affiliate of Loomis Sayles.
Exchanges may be made by written instructions or by telephone, unless an
intermediary elected on the application to decline telephone exchange
privileges. The exchange privilege should not be viewed as a means for taking
advantage of short-term swings in the market, and the Funds reserve the right
to terminate or limit the privilege of any shareholder who makes more than
four exchanges in any calendar year. The Funds may terminate or change the
terms of the exchange privilege at any time, upon 60 days' notice to
shareholders. An exchange is a taxable event for federal income tax purposes
in which a gain or loss would be realized by an investor that is subject to
federal income taxation.

HOW TO REDEEM SHARES

An intermediary can redeem shares by sending a written request to the
Distributor. Proceeds from a written request may be sent to the intermediary
in the form of a check. As described below, an intermediary may also redeem
shares by calling the Distributor at 800-626-9390. Proceeds resulting from a
telephone redemption request can be wired to an intermediary's bank account or
sent by check in the name of the intermediary to its record address.

If (1) an intermediary is requesting that the proceeds check be made out to
someone other than the intermediary or be sent to an address other than the
record address, (2) the account registration has changed within the last 30
days or (3) an intermediary is instructing us to wire the proceeds to a bank
account not designated on the application, the intermediary must have the
signatory's signature guaranteed by an eligible guarantor. Eligible guarantors
include commercial banks, trust companies, savings associations, credit unions
and brokerage firms that are members of domestic securities exchanges. Before
submitting the redemption request, an intermediary should verify with the
guarantor institution that it is an eligible guarantor. Signature guarantees
by notaries public are not acceptable.

22
<PAGE>

When an intermediary telephones a redemption request, the proceeds are wired
to the bank account previously chosen by the intermediary. A wire fee
(currently $5) will be deducted from the proceeds. A telephonic redemption
request must be received by the Distributor prior to the close of regular
trading on the New York Stock Exchange. If an intermediary telephones a
request to the Distributor after the Exchange closes or on a day when the
Exchange is not open for business, the Distributor cannot accept the request
and a new one will be necessary.

If an intermediary decides to change the bank account to which proceeds are
to be wired, the intermediary must send in this change in writing with a
signature guarantee. Telephonic redemptions may only be made if the
intermediary's bank is a member of the Federal Reserve System or has a
correspondent bank that is a member of the System. Unless an intermediary
indicates otherwise on the account application, the Distributor will be
authorized to act upon redemption and exchange instructions received by
telephone from the intermediary or any person claiming to act as the
intermediary's representative who can provide the Distributor with the
intermediary's account registration and address as it appears on the records
of State Street Bank. The Distributor will employ these or other reasonable
procedures to confirm that instructions communicated by telephone are genuine;
the Fund, State Street Bank, BFDS, the Distributor and Loomis Sayles will not
be liable for any losses due to unauthorized or fraudulent instructions if
these or other reasonable procedures are followed. For information, consult
the Distributor. In times of heavy market activity, an intermediary who
encounters difficulty in placing a redemption or exchange order by telephone
may wish to place the order by mail as described above.

The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by the Distributor in proper form.

Proceeds resulting from a written redemption request will normally be mailed
to an intermediary within seven days after receipt of the intermediary's
request in good order. Telephonic redemption proceeds will normally be wired
to an intermediary's bank on the first business day following receipt of a
proper redemption request. If an intermediary purchased shares by check and
the check was deposited less than 15 days prior to the redemption request, the
Fund may withhold redemption proceeds until the check has cleared.

23
<PAGE>

impracticable for the Fund to dispose of its securities or to determine fairly
the value of its net assets, or during any other period permitted by the SEC
for the protection of investors.

CALCULATION OF PERFORMANCE INFORMATION

The Funds' investment performance may from time to time be included in
advertisements about the Funds or Loomis Sayles Funds. "Yield" for each class
of shares is calculated by dividing the annualized net investment income per
share during a recent 30-day period by the maximum public offering price per
share of the class on the last day of that period.

"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in a Fund.
Total return may also be presented for other periods.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The Bond Fund declares and pays dividends quarterly. The Small Cap Value
Fund declares and pays dividends annually. Each Fund also distributes all of
its net capital gains realized from the sale of portfolio securities. Any
capital gain distributions are normally made annually, but may, to the extent
permitted by law, be made more frequently as deemed advisable by the trustees
of the Trust. The Trust's trustees may change the frequency with which the
Fund declares or pays dividends.

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

Each Fund intends to qualify as a regulated investment company under the
Code. As such, so long as a Fund distributes substantially all its net
investment

24
<PAGE>

income and net capital gains to its shareholders, the Fund itself does not pay
any federal income tax to the extent such income and gains are so distributed.

An investor's income dividends and short-term capital gain distributions are
taxable as ordinary income whether distributed in cash or additional shares.
Distributions designated by a Fund as deriving from net gains on securities
held for more than one year will be taxable as such (generally at a 20% rate
for noncorporate shareholders) whether distributed in cash or additional
shares and regardless of how long an investor has owned shares of the Fund.

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

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

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

25
<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S AND
MOODY'S INVESTORS SERVICE, INC.

STANDARD & POOR'S

AAA

This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.

BBB

BB, B, CCC, CC

26
<PAGE>

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

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

This symbol is attached to the ratings of instruments with significant
noncredit risks such as risks to principal or volatility of expected returns.

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

MOODY'S INVESTORS SERVICE, INC.

AAA

27
<PAGE>

BAA

CAA

Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

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

28
<PAGE>

Should no rating be assigned by Moody's, the reason may be one of the
following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed in which case the rating is not published
in Moody's publications.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.

29
<PAGE>

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

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

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

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

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

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330

THE LOOMIS SAYLES FUNDS--EQUITY FUNDS

RETAIL CLASS SHARES OF:

LOOMIS SAYLES CORE VALUE FUND

LOOMIS SAYLES INTERNATIONAL EQUITY FUND

LOOMIS SAYLES MID-CAP GROWTH FUND

LOOMIS SAYLES MID-CAP VALUE FUND

LOOMIS SAYLES SMALL CAP GROWTH FUND

LOOMIS SAYLES SMALL CAP VALUE FUND

LOOMIS SAYLES STRATEGIC VALUE FUND

LOOMIS SAYLES WORLDWIDE FUND

<PAGE>

PROSPECTUS JANUARY 1, 1999

THE LOOMIS SAYLES FUNDS--EQUITY FUNDS

Loomis Sayles Core Value Fund, Loomis Sayles International Equity Fund, Loo-
mis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis
Sayles Small Cap Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis
Sayles Strategic Value Fund and Loomis Sayles Worldwide Fund (the "Funds" and
each a "Fund"), each a series of Loomis Sayles Funds, are separately managed,
no-load mutual funds, each of which has its own investment objective and poli-
cies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment ad-
viser of each Fund.

The Funds offer two classes of shares: a Retail Class that is described in
this Prospectus, and an Institutional Class, which generally has a higher min-
imum investment and bears lower expenses, that is described in a separate pro-
spectus. The Loomis Sayles Small Cap Value Fund also offers a third class of
shares; an Admin Class, bearing higher expenses than the Institutional or Re-
tail Class, that is described in a separate prospectus. This Prospectus con-
cisely describes the information that an investor should know before investing
in the Retail Class shares of any Fund. Please read it carefully and keep it
for future reference. A Statement of Additional Information (SAI) dated Janu-
ary 1, 1999, as revised from time to time, is available free of charge; write
to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial Center,
Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which contains
more detailed information about the Funds, has been filed with the Securities
and Exchange Commission (the "SEC") and is available along with other related
materials on the SEC's Internet Website (http://www.sec.gov). The SAI is in-
corporated herein by reference (legally forms part of the Prospectus). To ob-
tain more information about the Institutional Class or Admin Class of shares,
please call the Distributor toll-free at 800-633-3330, contact your financial
intermediary, or visit our Internet Website (http://www.loomissayles.com).

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

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
THE TRUST................................................................. 13
INVESTMENT OBJECTIVES AND POLICIES........................................ 13
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 16
THE FUNDS' INVESTMENT ADVISER............................................. 23
FUND EXPENSES............................................................. 25
PORTFOLIO TRANSACTIONS.................................................... 26
HOW TO PURCHASE SHARES.................................................... 26
SHAREHOLDER SERVICES...................................................... 29
HOW TO REDEEM SHARES...................................................... 29
CALCULATION OF PERFORMANCE INFORMATION.................................... 31
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 31
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES
(FOR A RETAIL CLASS SHARE OF EACH INDICATED FUND)

The following information is provided as an aid in understanding the various
expenses that an investor in a Fund will bear indirectly. The information
below is based on expenses for the Funds' most recent fiscal year ended, and
should not be considered a representation of past or future expenses, as
actual expenses may be greater or less than those shown. Also, the 5% annual
return assumed in the Example should not be considered a representation of
investment performance, as actual performance will vary.

<TABLE>
<CAPTION>
CORE INTERNATIONAL MID-CAP MID-CAP
VALUE EQUITY GROWTH VALUE
FUND FUND FUND FUND
----- ------------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as % of offering
price).......................... none none none none
Maximum Sales Load Imposed on
Reinvested Dividends (as % of
(offering price)................ none none none none
Maximum Deferred Sales Load
(as % of original purchase price
or redemption proceeds)......... none none none none
Redemption Fees/1/............... none none none none
Exchange Fees.................... none none none none
Annual Fund Operating Expenses
(as a percentage of average
net assets):
Management Fees.................. .50% .75% .75% .75%
12b-1 Fees....................... .25% .25% .25% .25%
Other Operating Expenses (after
expense reimbursements where
indicated)...................... .35%/2/ .25%/2/ .25%/2/ .25%/2/
Total Fund Operating Expenses
(after expense reimbursements
where indicated)................ 1.10%/2/ 1.25%/2/ 1.25%/2/ 1.25%/2/
Example:
An investor would pay the
following expenses on a $1,000
investment assuming a 5% annual
return (with or without a
redemption at the end of each
time period):
One Year......................... $ 11 $ 13 $ 13 $ 13
Three Years...................... $ 35 $ 40 $ 40 $ 40
Five Years....................... $ 61 $ 69 $ 69 $ 69
Ten Years........................ $134 $151 $151 $151
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
SMALL CAP SMALL STRATEGIC
GROWTH CAP VALUE VALUE WORLDWIDE
FUND FUND FUND FUND
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shareholder Transactions Expenses:
Maximum Sales Load Imposed on
Purchases (as % of offering
price).......................... none none none none
Maximum Sales Load Imposed on
Reinvested Dividends
(as % of offering price)........ none none none none
Maximum Deferred Sales Load
(as % of original purchase price
or redemption proceeds)......... none none none none
Redemption Fees/1/............... none none none none
Exchange Fees.................... none none none none
Annual Fund Operating Expenses
(as a percentage of average
net assets):
Management Fees.................. .75% .75% .50% .75%
12b-1 Fees....................... .25% .25% .25% .25%
Other Operating Expenses (after
expense reimbursements where
indicated)...................... .25%/2/ .19% .50%/2/ .25%/2/
Total Fund Operating Expenses
(after expense reimbursements
where indicated)................ 1.25%/2/ 1.19% 1.25%/2/ 1.25%/2/
Example:
An investor would pay the
following expenses on a $1,000
investment assuming a 5% annual
return (with or without a
redemption at the end of each
time period):
One Year......................... $ 13 $ 12 $ 13 $ 13
Three Years...................... $ 40 $ 38 $ 40 $ 40
Five Years....................... $ 69 $ 65 $ 69 $ 69
Ten Years........................ $151 $144 $151 $151
</TABLE>
- -----------
/1/A $5 charge applies to any wire transfer of redemption proceeds from any
Fund.

/2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit
the Funds' Total Operating Expenses to the percentages of net assets shown
in the table. Without this agreement, Other Operating Expenses (including
12b-1 fees) and Total Operating Expenses would have been 1.70% and 2.20%,
respectively, for the Core Value Fund, 9.51% and 10.26%, respectively, for
the International Equity Fund, 27.22% and 27.97%, respectively, for the
Mid-Cap Growth Fund, 12.56% and 13.31%, respectively, for the Mid-Cap Value
Fund, 2.95% and 3.70%, respectively, for the Small Cap Growth Fund, 14.96%
and 15.46%, respectively, for the Strategic Value Fund and 23.94% and
24.69%, respectively, for the Worldwide Fund. Other Operators Expenses and
Total Operating Expenses for the Small Cap Value Fund were unaffected by
this Agreement.

4
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A RETAIL CLASS SHARE OF EACH INDICATED FUND
OUTSTANDING THROUGHOUT THE INDICATED PERIODS)

The financial highlights tables that follow have been audited by
PricewaterhouseCoopers LLP, independent accountants. The information should be
read in conjunction with the financial highlights, financial statements and
the notes thereto contained in the Funds' 1998 Annual Report, which is
incorporated by reference in this Prospectus and the Statement of Additional
Information.

<TABLE>
<CAPTION>
CORE VALUE FUND
-----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period............. $17.62 $15.60
------ ------
Income from investment operations--
Net investment income (loss)..................... 0.15*** 0.15***
Net realized and unrealized gain (loss)
on investments.................................. (0.98) 4.30
------ ------
Total from investment operations................ (0.83) 4.45
------ ------
Less distributions--
Dividends from net investment income............. 0.00 (0.16)
Distributions from net realized capital gains.... 0.00 (2.27)
------ ------
Total distributions............................. 0.00 (2.43)
------ ------
Net asset value, end of period................... $16.79 $17.62
====== ======
Total return (%)****............................. (4.7)+ 28.9+
Net assets, end of period (000).................. $1,015 $1,324
Ratio of operating expenses to average net
assets (%)++.................................... 1.10+++ 1.10+++
Ratio of net investment income to average net
assets (%)...................................... 1.07+++ 0.84+++
Portfolio turnover rate (%)...................... 49+ 64+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)...................... 2.20+++ 6.17+++
Net investment income per share would have been.. $ 0.00*** $(0.73)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The advisor has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

5
<PAGE>

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
---------------------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
--------------- ------------
<S> <C> <C>
Net asset value, beginning of period.. $ 11.28 $ 13.16
------------ ------------
Income from investment operations--
Net investment income (loss).......... 0.10 0.10 ***
Net realized and unrealized gain
(loss) on investments................ (0.68) (0.26)
------------ ------------
Total from investment operations..... (0.58) (0.16)
------------ ------------
Less distributions--
Dividends from net investment
income.............................. 0.00 (0.17)
Distributions from net realized
capital gains....................... 0.00 (1.55)
------------ ------------
Total distributions................. 0.00 (1.72)
------------ ------------
Net asset value, end of period........ $ 10.70 $ 11.28
============ ============
Total return (%)****.................. (5.1)+ (1.3)+
Net assets, end of period (000)....... $ 150 $ 233
Ratio of operating expenses to average
net assets (%)++..................... 1.25 +++ 1.25 +++
Ratio of net investment income to
average net assets (%)............... 1.16 +++ 0.73 +++
Portfolio turnover rate (%)........... 96 + 119 +
Without giving effect to voluntary
expense limitations:
The ratios of operating expenses to
average net assets would have been
(%)................................. 10.26 +++ 16.24 +++
Net investment income per share would
have been........................... $ (0.67) $ (1.93)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

6
<PAGE>

<TABLE>
<CAPTION>
MID-CAP GROWTH FUND
-----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period............... $11.49 $10.00
------ ------
Income from investment operations--
Net investment income (loss)....................... (0.05) (0.06)
Net realized and unrealized gain (loss)
on investments.................................... (0.95) 2.27
------ ------
Total from investment operations.................. (1.00) 2.21
------ ------
Less distributions--
Distributions in excess of net investment income.. 0.00 (0.10)
Distributions from net realized capital gains..... 0.00 (0.62)
------ ------
Total distributions.............................. 0.00 (0.72)
------ ------
Net asset value, end of period..................... $10.49 $11.49
====== ======
Total return (%)***................................ (8.7)+ 22.4 +
Net assets, end of period (000).................... $ 85 $ 74
Ratio of operating expenses to average net
assets (%)****.................................... 1.25 ++ 1.25 ++
Ratio of net investment income to average net
assets (%)........................................ (0.60)++ (0.67)++
Portfolio turnover rate (%)........................ 82 + 174 +
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)....................... 27.97 ++ 36.58 ++
Net investment income per share would have been... $(2.08) $(3.29)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

7
<PAGE>

<TABLE>
<CAPTION>
MID-CAP VALUE FUND
-----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period............... $11.53 $10.00
------ ------
Income from investment operations--
Net investment income (loss)....................... (0.01) 0.03
Net realized and unrealized gain (loss)
on investments.................................... (1.45) 2.55
------ ------
Total from investment operations.................. (1.46) 2.58
------ ------
Less distributions--
Dividends from net investment income.............. 0.00 (0.11)
Distributions from net realized capital gains..... 0.00 (0.94)
------ ------
Total distributions.............................. 0.00 (1.05)
------ ------
Net asset value, end of period..................... $10.07 $11.53
====== ======
Total return (%)***................................ (12.7)+ 26.0 +
Net assets, end of period (000).................... $ 121 $ 168
Ratio of operating expenses to average net
assets (%)****.................................... 1.25 ++ 1.25 ++
Ratio of net investment income to average net
assets (%)........................................ (0.03)++ 0.42 ++
Portfolio turnover rate (%)........................ 225 + 130 +
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)....................... 13.31++ 27.99 ++
Net investment income per share would have been... $(2.40) $(1.90)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

8
<PAGE>

<TABLE>
<CAPTION>
SMALL CAP GROWTH FUND
-----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period.............. $11.30 $10.00
------ ------
Income from investment operations--
Net investment income (loss)...................... (0.08) (0.10)***
Net realized and unrealized gain (loss)
on investments................................... (1.42) 1.99
------ ------
Total from investment operations................. (1.50) 1.89
------ ------
Less distributions--
Distributions in excess of net realized capital
gains........................................... 0.00 (0.59)
------ ------
Total distributions............................. 0.00 (0.59)
------ ------
Net asset value, end of period.................... $ 9.80 $11.30
====== ======
Total return (%)****.............................. (13.3)+ 19.2+
Net assets, end of period (000)................... $1,057 $1,139
Ratio of operating expenses to average net
assets (%)++..................................... 1.25 +++ 1.25 +++
Ratio of net investment income to average net
assets (%)....................................... (0.80)+++ (0.94)+++
Portfolio turnover rate (%)....................... 116 + 211 +
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)...................... 3.70 +++ 7.82 +++
Net investment income per share would have been.. $(0.34) $(0.77)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without the reimbursement the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

9
<PAGE>

<TABLE>
<CAPTION>
SMALL CAP VALUE FUND
-----------------------
NINE MONTHS JAN 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period.............. $ 18.62 $ 17.39
------- -------
Income from investment operations--
Net investment income (loss)...................... 0.10 0.15***
Net realized and unrealized gain (loss)
on investments................................... (3.15) 4.21
------- -------
Total from investment operations................. (3.05) 4.36
------- -------
Less distributions--
Dividends from net investment income.............. 0.00 (0.08)
Distributions from net realized capital gains..... 0.00 (3.05)
------- -------
Total distributions.............................. 0.00 (3.13)
------- -------
Net asset value, end of period.................... $ 15.57 $18.62
======= =======
Total return (%)****.............................. (16.4)+ 25.6+
Net assets, end of period (000)................... $54,060 $34,353
Ratio of operating expenses to average net
assets (%)++..................................... 1.19+++ 1.25+++
Ratio of net investment income to average net
assets (%)....................................... 0.79+++ 0.79+++
Portfolio turnover rate (%)....................... 78+ 94+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)....................... 1.19+++ 1.35+++
Net investment income per share would have been... $ 0.10 $ 0.13***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

10
<PAGE>

<TABLE>
<CAPTION>
STRATEGIC VALUE FUND
-----------------------
NINE MONTHS JAN 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period............. $11.76 $10.00
------ ------
Income from investment operations--
Net investment income (loss)..................... (0.04) (0.06)***
Net realized and unrealized gain (loss)
on investments.................................. (1.27) 2.00
------ ------
Total from investment operations................ (1.31) 1.94
------ ------
Less distributions--
Distributions in excess of net investment
income.......................................... 0.00 (0.18)
------ ------
Total distributions............................. 0.00 (0.18)
------ ------
Net asset value, end of period................... $10.45 $11.76
====== ======
Total return (%)****............................. (11.1)+ 19.4 +
Net assets, end of period (000).................. $ 249 $ 279
Ratio of operating expenses to average net
assets (%)++.................................... 1.25 +++ 1.25 +++
Ratio of net investment income to average net
assets (%)...................................... (0.47)+++ (0.49)+++
Portfolio turnover rate (%)...................... 31 + 34 +
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)...................... 15.46 +++ 21.33 +++
Net investment income per share would have been.. $(1.38) $(2.50)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

11
<PAGE>

<TABLE>
<CAPTION>
WORLDWIDE FUND
------------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period........... $ 9.86 $ 10.63
------- --------
Income from investment operations--
Net investment income (loss)................... 0.30*** 0.38***
Net realized and unrealized gain (loss) on
investments................................... (1.40) (0.03)
------- --------
Total from investment operations.............. (1.10) 0.35
------- --------
Less distributions--
Dividends from net investment income........... 0.00 (0.45)
Distributions from net realized capital gains.. 0.00 (0.67)
------- --------
Total distributions........................... 0.00 (1.12)
------- --------
Net asset value, end of period................. $ 8.76 $ 9.86
======= ========
Total return (%)****........................... (11.2)+ 3.3+
Net assets, end of period (000)................ $ 73 $ 20
Ratio of operating expenses to average net
assets (%)++.................................. 1.25+++ 1.25+++
Ratio of net investment income to average net
assets (%).................................... 3.88+++ 3.58+++
Portfolio turnover rate (%).................... 93+ 134+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%).................... 24.69+++ 214.91+++
Net investment income per share would have
been.......................................... $ (1.49)*** $ (23.33)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns wold have been lower had the advisor not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The advisor has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

NOTE: Further information about each Fund's performance is contained in the
Funds' annual report to shareholders, which may be obtained without
charge.

12
<PAGE>

THE TRUST

INVESTMENT OBJECTIVES AND POLICIES

LOOMIS SAYLES CORE VALUE FUND

The Fund's investment objective is long-term growth of capital and income.

The Fund seeks to achieve its objective by investing substantially all of
its assets in common stocks or their equivalent that Loomis Sayles considers
to be undervalued in relation to the issuer's earnings, dividends, assets and
growth prospects. The Fund may invest up to 20% of its total assets in
securities of foreign issuers. The Fund may also engage in foreign currency
hedging transactions real estate investment trusts ("REITs") and Rule 144A
securities.

LOOMIS SAYLES INTERNATIONAL EQUITY FUND

The Fund's investment objective is high total investment return through a
combination of capital appreciation and current income.

The Fund seeks to achieve its objective by investing primarily in equity
securities of companies organized or headquartered outside the United States.
Under normal conditions the Fund will invest at least 65% of its total assets
in equity securities of issuers from at least three countries outside the
United States. For temporary defensive purposes, the Fund may invest as much
as 100% of its total assets in issuers from one or two countries, which may
include the United States. The Fund may also engage in foreign currency
hedging transactions, options transactions, REITs and Rule 144A securities.

LOOMIS SAYLES MID-CAP GROWTH FUND

The Fund's investment objective is long-term capital growth from investments
in common stocks or their equivalent.

13
<PAGE>

LOOMIS SAYLES MID-CAP VALUE FUND

The Fund's objective is long-term capital growth from investments in common
stocks or their equivalent.

The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of companies
with a market capitalization that falls within the capitalization range of
companies included in the Standard & Poor's Mid-Cap 400 Index. Loomis Sayles
seeks to build a core portfolio of equity securities that it believes to be
undervalued by the market in relation to the issuers' earnings, dividends,
assets and growth prospects and that has a smaller emphasis on special
situations and turnarounds (companies that have experienced significant
business problems but that Loomis Sayles believes have favorable prospects for
recovery). Current income is not a consideration in selecting the Fund's
investments. The Fund may invest any portion of its assets in securities of
Canadian issuers and up to 20% of its total assets in the securities of
issuers headquartered outside the United States or Canada. The Fund may also
engage in foreign currency hedging transactions, options and futures
transactions, securities lending, REITs and Rule 144A securities.

LOOMIS SAYLES SMALL CAP GROWTH FUND

The Fund's investment objective is long-term capital growth from investments
in common stocks or their equivalent.

The Fund seeks to achieve its objective by investing primarily in equity
securities of small, rapidly growing companies that Loomis Sayles believes
have the potential for accelerating earnings growth and rising profit margins.
The Fund will normally invest at least 65% of its total assets in equity
securities of companies with market capitalizations that fall within the
capitalization range of the Russell 2000 Index and may invest up to 35% of its
total assets in larger companies. Loomis Sayles seeks companies that have
distinctive products, technologies, or services; dynamic earnings growth;
prospects for a high level of profitability; and outstanding management.
Current income is not a consideration in selecting the Fund's investments. The
Fund may invest any

14
<PAGE>

portion of its assets in securities of Canadian issuers and up to 20% of its
total assets in the securities of issuers headquartered outside the United
States or Canada. The Fund may also engage in foreign currency hedging
transactions, options and futures transactions, securities lending, and Rule
144A securities.

LOOMIS SAYLES SMALL CAP VALUE FUND

The Fund's investment objective is long-term capital growth from investments
in common stocks or their equivalent.

The Fund seeks to achieve its objective by investing primarily in equity
securities of small capitalization companies with good earnings growth
potential that Loomis Sayles believes are undervalued by the markets. The Fund
will normally invest at least 65% of its total assets in equity securities of
companies with market capitalizations that fall within the capitalization
range of the Russell 2000 Index and may invest up to 35% of its total assets
in larger companies. Loomis Sayles seeks to build a core small capitalization
portfolio of stocks of solid companies with reasonable growth prospects and
that are attractively priced in relation to the companies' earnings with a
smaller emphasis on special situations and turnarounds (companies that have
experienced significant business problems but which Loomis Sayles believes
have favorable prospects for recovery), as well as unrecognized stocks.
Current income is not a consideration in selecting the Fund's investments. The
Fund may invest up to 20% of its total assets in securities of foreign
issuers. The Fund may also engage in foreign currency hedging transactions,
REITs and Rule 144A securities.

LOOMIS SAYLES STRATEGIC VALUE FUND

The Fund's investment objective is long-term capital growth from investments
in equity securities.

The Fund seeks to achieve its objective by investing substantially all of
its assets in equity securities that Loomis Sayles considers to be undervalued
by the markets. Stocks are selected based on a combination of quantitative
factors including historical, relative price-earnings ratios; price-earnings
ratios relative to growth rates; relative fundamentals and price momentum; and
qualitative factors including the quality of management, position in the
industry, debt and balance sheet restructuring and product cycles. The Fund's
strategy is to have a relatively concentrated portfolio normally consisting of
approximately 35-40 securities that Loomis Sayles considers best positioned to
perform in the current and future environments. The Fund may invest any
portion of its assets in the securities of Canadian issuers and up to 20% of
its total assets in securities of issuers headquartered outside the United
States or Canada. The Fund may also engage in foreign currency hedging
transactions, options and futures transactions, securities lending, REITs and
Rule 144A securities.

15
<PAGE>

LOOMIS SAYLES WORLDWIDE FUND

The Fund's investment objective is high total investment return through a
combination of capital appreciation and current income.

The Fund seeks to achieve its objective by investing in U.S. and foreign
equity and debt securities. The allocation of the Fund's assets among the four
sectors of domestic equities, international equities, domestic bonds and
international bonds will be made by Loomis Sayles' Global Asset Allocation
group. The Fund will normally invest its assets in securities of issuers from
at least three countries, one of which may be the United States. The Fund may
also invest in collateralized mortgage obligations, zero coupon securities,
when-issued securities, REITs and Rule 144A securities. The Fund may engage in
foreign currency hedging transactions and options and forward contract
transactions.

ALL FUNDS

For temporary defensive purposes, each Fund may invest any portion of its
assets in fixed income securities, cash and any other securities deemed
appropriate by Loomis Sayles. Except for each Fund's investment objective, and
any investment policies that are identified as "fundamental," all of the
investment policies of each Fund may be changed without a vote of Fund
shareholders.

MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS

COMMON STOCKS AND OTHER EQUITY SECURITIES

DEBT AND OTHER FIXED INCOME SECURITIES

The Worldwide Fund may invest in fixed income securities of any maturity.
Fixed income securities pay a specified rate of interest or dividends, or a
rate that is adjusted periodically by reference to some specified index or
market rate. Fixed income securities include securities issued by federal,
state, local and foreign governments and related agencies, and by a wide range
of private issuers. Because interest rates vary, it is impossible to predict
the yield of a Fund that invests in fixed income securities for any particular
period. The net asset

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<PAGE>

value of such a Fund's shares will vary as a result of changes in the value of
the securities in the Fund's portfolio.

ZERO COUPON SECURITIES

The Worldwide Fund may invest in "zero coupon" fixed income securities.
These securities accrue interest at a specified rate, but do not pay interest
in cash on a current basis. A Fund investing in zero coupon securities is
required to distribute the income on these securities to Fund shareholders as
the income accrues, even though the Fund is not receiving the income in cash
on a current basis. Thus the Fund may have to sell other investments to obtain
cash to make income distributions. The market value of zero coupon securities
is often more volatile than that of non-zero coupon fixed income securities of
comparable quality and maturity.

COLLATERALIZED MORTGAGE OBLIGATIONS

The Worldwide Fund may invest in collateralized mortgage obligations
("CMOs"). A CMO is a security backed by a portfolio of mortgages or mortgage-
backed securities held under an indenture. CMOs may be issued either by U.S.
Government instrumentalities or by non-governmental entities. The issuer's
obligation to make interest and principal payments is secured by the
underlying portfolio of mortgages or mortgage-backed securities. CMOs are
issued with a number of classes or series which have different maturities and
which may represent interests in some or all of the interest or principal
payments on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMOs first to mature
generally will be retired prior to its maturity. As with other mortgage-backed
securities, the early retirement of a particular class or series of CMOs held
by a Fund could involve the loss of any premium the Fund paid when it acquired
the investment and could result in the Fund's reinvesting the proceeds at a
lower interest rate than the retired CMO paid. Because of the early retirement
feature, CMOs may be more volatile than many other fixed-income investments.

WHEN-ISSUED SECURITIES

Each Fund may purchase securities on a "when-issued" basis. This means that
the Fund will enter into a commitment to buy the security before the

17
<PAGE>

security has been issued. The Fund's payment obligation and the interest rate
on the security are determined when the Fund enters into the commitment. The
security is typically delivered to the Fund 15 to 120 days later. No interest
accrues on the security between the time the Fund enters into the commitment
and the time the security is delivered. If the value of the security being
purchased falls between the time a Fund commits to buy it and the payment
date, the Fund may sustain a loss. The risk of this loss is in addition to the
Fund's risk of loss on the securities actually in its portfolio at the time.
In addition, when the Fund buys a security on a when-issued basis, it is
subject to the risk that market rates of interest will increase before the
time the security is delivered, with the result that the yield on the security
delivered to the Fund may be lower than the yield available on other,
comparable securities at the time of delivery. If a Fund has outstanding
obligations to buy when-issued securities, it will maintain liquid assets in a
segregated account at its custodian bank in an amount sufficient to satisfy
these obligations.

REAL ESTATE INVESTMENT TRUSTS

RULE 144A SECURITIES

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<PAGE>

FOREIGN SECURITIES

Each Fund may invest in securities of issuers organized or headquartered
outside the United States ("foreign securities"). Each of the Core Value and
Small Cap Value Funds will not purchase a foreign security if, as a result,
the Fund's holdings of foreign securities would exceed 20% of the Fund's total
assets. Each of the Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and
Strategic Value Funds may each invest any portion of its assets in securities
of Canadian issuers, but will not purchase foreign securities other than those
of Canadian issuers if, as a result, such Fund's holding of non-U.S. and non-
Canadian securities would exceed 20% of the Fund's total assets.

Although investing in foreign securities may increase a Fund's
diversification and reduce portfolio volatility, foreign securities may
present risks not associated with investments in comparable securities of U.S.
issuers. There may be less information publicly available about a foreign
corporate or governmental issuer than about a U.S. issuer, and foreign
corporate issuers are not generally subject to accounting, auditing and
financial reporting standards and practices comparable to those in the United
States. The securities of some foreign issuers are less liquid and at times
more volatile than securities of comparable U.S. issuers. Foreign brokerage
commissions and securities custody costs are often higher than in the United
States. With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value
of investments in those countries. A Fund's receipt of interest on foreign
government securities may depend on the availability of tax or other revenues
to satisfy the issuer's obligations.

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

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<PAGE>

FOREIGN CURRENCY HEDGING TRANSACTIONS

Each Fund that invests in foreign securities may engage in foreign currency
exchange transactions, in connection with the purchase and sale of foreign
securities, to protect the value of specific portfolio positions or in
anticipation of changes in relative values of currencies in which current or
future Fund portfolio holdings are denominated or quoted. For example, to
protect against a change in the foreign currency exchange rate between the
date on which a Fund contracts to purchase or sell a security and the
settlement date for the purchase or sale, or to "lock in" the equivalent of a
dividend or interest payment in another currency, a Fund might purchase or
sell a foreign currency on a spot (that is, cash) basis at the prevailing spot
rate. If conditions warrant, the Funds may also enter into private contracts
to purchase or sell foreign currencies at a future date ("forward contracts").
The Funds might also purchase exchange-listed and over-the-counter call and
put options on foreign currencies. Over-the-counter currency options are
generally less liquid than exchange-listed options, and will be treated as
illiquid assets. The Funds may not be able to dispose of over-the-counter
options readily.

Foreign currency transactions involve costs and may result in losses.

OPTIONS AND FUTURES TRANSACTIONS

The International Equity, Mid-Cap Growth, Mid-Cap Value, Small Cap Growth,
Strategic Value and Worldwide Funds may buy, sell or write options on
securities, securities indexes, currencies or futures contracts. The Mid-Cap
Growth, Mid-Cap Value, Small Cap Growth and Strategic Value Funds may buy

20
<PAGE>

and sell futures contracts on securities, securities indexes or currencies.
Each of these Funds may engage in these transactions either for the purpose of
enhancing investment return, or to hedge against changes in the value of other
assets that the Fund owns or intends to acquire. Options and futures fall into
the broad category of financial instruments known as "derivatives" and involve
special risks. Use of options or futures for other than hedging purposes may
be considered a speculative activity, involving greater risks than are
involved in hedging.

A futures contract creates an obligation by the seller to deliver and the
buyer to take delivery of the type of instrument or cash at the time and in
the amount specified in the contract. Although many futures contracts call for
the delivery (or acceptance) of the specified instrument, futures are usually
closed out before the settlement date through the purchase (or sale) of a
comparable contract. If the price of the sale of the futures contract by a
Fund exceeds (or is less than) the price of the offsetting purchase, the Fund
will realize a gain (or loss). The value of options purchased or written by a
Fund and futures contracts held by a Fund may fluctuate based on a variety of
market and economic factors. In some cases, the fluctuations may offset (or be
offset by) changes in the value of securities held in a Fund's portfolio. All
transactions in options and futures involve the possible risk of loss to a
Fund of all or a significant part of the value of its investment. In some
cases, the risk of loss may exceed the amount of the Fund's investment. When a
Fund writes a call option or sells a futures contract without holding the
underlying securities, currencies or futures contracts, its potential loss is
unlimited. A Fund will be required, however, to set aside with its custodian
bank liquid assets in amounts sufficient at all times to satisfy its
obligations under options and futures contracts.

The successful use of options and futures will usually depend on Loomis
Sayles' ability to forecast stock market, currency or other financial market
movements correctly. A Fund's ability to hedge against adverse changes in the

21
<PAGE>

value of securities held in its portfolio through options and futures also
depends on the degree of correlation between the changes in the value of
futures or options positions and changes in the values of the portfolio
securities. The successful use of futures and exchange traded options also
depends on the availability of a liquid secondary market to enable a Fund to
close its positions on a timely basis. There can be no assurance that such a
market will exist at any particular time. In the case of options that are not
traded on an exchange ("over-the-counter" options), a Fund is at risk that the
other party to the transaction will default on its obligations, or will not
permit the Fund to terminate the transaction before its scheduled maturity. As
a result of these characteristics, each Fund will treat most over-the-counter
options (and the assets it segregates to cover its obligations thereunder) as
illiquid.

REPURCHASE AGREEMENTS

SECURITIES LENDING

The Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value
funds may each lend its portfolio securities to broker-dealers or other
parties under contracts calling for the deposit by the borrower with the
Fund's custodian of cash collateral equal to at least the market value of the
securities loaned, marked to market on a daily basis. The Fund will continue
to benefit from interest or dividends on the securities loaned and will also
receive interest through investment of the cash collateral in short-term
liquid investments. No loans will be made if, as a result, the aggregate
amount of such loans outstanding at any time would exceed 33 1/3% of the
Fund's total assets (taken at current value). Any voting rights, or rights to
consent, relating to securities loaned pass to the borrower. However, if a
material event affecting the investment occurs, such loans will be called so
that the securities may be voted by the Fund. The Fund pays various fees in
connection with such loans, including shipping fees and reasonable custodial
or placement fees.

22
<PAGE>

YEAR 2000

THE FUNDS' INVESTMENT ADVISER

In addition to selecting and reviewing the Funds' investments, Loomis Sayles
provides executive and other personnel for the management of the Funds. The
Trust's board of trustees supervises Loomis Sayles' conduct of the affairs of
the Funds.

As of October 31, 1998, Charles Schwab & Co. Inc. owned 79%, 40%, 31%, 63%,
and 93% of the Mid-Cap Growth Fund, Mid-Cap Value Fund, Small Cap Growth Fund,
Strategic Value Fund, and Worldwide Fund, respectively. Shareholders holding
more than 25% of a Fund's shares may be deemed to control the relevant Fund.

23
<PAGE>

Issac H. Green, Director of Loomis Sayles and Vice President of the Trust
and of Loomis Sayles, and James L. Carroll, Vice President of Loomis Sayles
and the Trust, have served as portfolio managers of the Core Value Fund since
October of 1997. Jeffrey W. Wardlow, Vice President of the Trust and of Loomis
Sayles, has served as a portfolio manager of the Core Value Fund since its
commencement of operations in 1991. Jerome A. Castellini, Vice President of
the Trust and of Loomis Sayles, has served as the portfolio manager of the
Mid-Cap Growth Fund since its commencement of operations in 1997. Scott S.
Pape, Vice President of the Trust and of Loomis Sayles, has served as a
portfolio manager of the Mid-Cap Growth Fund since its commencement of
operations in 1997. Dean A. Gulis, Vice President of the Trust and of Loomis
Sayles, has served as a portfolio manager of the Mid-Cap Value Fund since
October of 1997, Dawn Alston Paige and Peter Ramsden, each a Vice President of
Loomis Sayles, have served as portfolio managers of the Mid-Cap Value Fund
since October 1998. Christopher R. Ely, Vice President of the Trust and of
Loomis Sayles, has served as the portfolio manager, and Philip C. Fine and
David L. Smith, Vice Presidents of the Trust and of Loomis Sayles, have served
as assistant portfolio managers of the Small Cap Growth Fund since its
commencement of operations in 1997. Jeffrey C. Petherick, Vice President of
the Trust and of Loomis Sayles, has served as a portfolio manager of the Small
Cap Value Fund since 1993 and Mary C. Champagne, Vice President of the Trust
and of Loomis Sayles, has served as a portfolio manager of the Small Cap Value
Fund since 1995. Philip J. Schettewi, Vice President of the Trust and Loomis
Sayles, has served as the portfolio manager of the Strategic Value Fund since
its commencement of operations in 1997. Daniel J. Fuss, President of the Trust
and Executive Vice President of Loomis Sayles, has served as the portfolio
manager of the domestic bonds sector of the Worldwide Fund since that Fund's
commencement of operations in 1996. E. John deBeer, Vice President of the
Trust and of Loomis Sayles, has served as portfolio manager of the
international bonds sector of the Worldwide Fund since that Fund's
commencement of operations in 1996. Quentin P. Faulkner, Vice President of the
Trust and of Loomis Sayles, has served as the portfolio manager of the
domestic equities sector of the Worldwide Fund since that Fund's commencement
of operations in 1996. Paul H. Drexler, Vice President of the Trust and of
Loomis Sayles, has served as the portfolio manager of the international
equities sector of the Worldwide Fund since that Fund's commencement of
operations in 1996 and of the International Equity Fund since 1996. Each of
the foregoing, except Messrs. Carroll, Ely, Fine, Gulis and Smith, has been
employed by Loomis Sayles for at least five years. Before joining Loomis
Sayles in 1996, Mr. Carroll was a Managing Director and Senior Energy Analyst
at PaineWebber, Inc. for more than five years. Prior to joining Loomis Sayles
in 1996, Mr. Ely was Senior Vice President and Portfolio Manager, and Messrs.
Fine and Smith were Vice Presidents and Portfolio Managers, of Keystone
Investment Management Company, Inc. Prior to joining Loomis

24
<PAGE>

Sayles in 1997, Mr. Gulis was a Principal and Director of Research at Roney &
Company for more than five years.

FUND EXPENSES

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

<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
Core Value.............................................................. .50%
International Equity.................................................... .75%
Mid-Cap Growth.......................................................... .75%
Mid-Cap Value........................................................... .75%
Small Cap Growth........................................................ .75%
Small Cap Value......................................................... .75%
Strategic Value......................................................... .50%
Worldwide............................................................... .75%
</TABLE>

In addition to the investment advisory fee, each Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions,
fees and expenses of registering or qualifying the Fund's shares under federal
and state securities laws, fees of the Fund's custodian, transfer agent,
independent accountants and legal counsel, expenses of shareholders' and
trustees' meetings, 12b-1 fees, expenses of preparing, printing and mailing
prospectuses to existing shareholders and fees of trustees who are not
directors, officers or employees of Loomis Sayles and its affiliated
companies.

Under a Distribution Plan adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, each of the Funds pays the Distributor, a
subsidiary of Loomis Sayles, a monthly distribution fee at an annual rate not
to exceed 0.25% of the Fund's average net assets attributable to the Retail
Class shares. The Distributor may pay all or any portion of the distribution
fee to securities dealers or other organizations (including, but not limited
to, any affiliate of the Distributor) as commissions, asset-based sales
charges or other compensation with respect to the sale of Retail Class shares
of the Funds, or for providing personal services to investors in Retail Class
shares of the Funds and/or the maintenance of accounts, and may retain all or
any portion of the distribution fee as compensation for the Distributor's
services as principal underwriter of the Retail Class shares of the Funds.
Loomis Sayles may pay certain broker-dealers or financial intermediaries whose
customers are shareholders of the Funds a continuing fee at an annual rate of
up to .25% of the value of Fund shares held for those customers' accounts.
These fees are paid by Loomis Sayles out of its own assets and are not
assessed against the Funds.

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<PAGE>

Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce
its advisory fees and/or bear other Fund expenses to the extent necessary to
limit total operating expenses of the Retail Class of shares of each Fund to
the following annual percentage rate of the Fund's average daily net assets:

<TABLE>
<CAPTION>
FUND RATE
---- -----
<S> <C>
Core Value............................................................. 1.10%
International Equity................................................... 1.25%
Mid-Cap Growth......................................................... 1.25%
Mid-Cap Value.......................................................... 1.25%
Small Cap Growth....................................................... 1.25%
Small Cap Value........................................................ 1.25%
Strategic Value........................................................ 1.25%
Worldwide.............................................................. 1.25%
</TABLE>

Loomis Sayles may change or terminate these voluntary arrangements at any
time, but the Funds' Prospectus would be supplemented to describe the change.

PORTFOLIO TRANSACTIONS

HOW TO PURCHASE SHARES

An investor may make an initial purchase of shares of any Fund by submitting
a completed application form and payment to:

Boston Financial Data Services
P.O. Box 8314
Boston, Massachusetts 02266-8314
Attn: Loomis Sayles Funds

The minimum initial investment for the Retail Class of each Fund's shares is
$25,000 in that Fund. This minimum initial investment does not apply to
purchases through certain financial intermediaries including, but not limited
to, certain financial advisers, broker dealers, 401(k) alliances, wrap
programs, "no transaction fee" programs, bank trust departments, financial
consultants and insurance companies. The minimum investment may be waived in
whole or in part by Loomis Sayles in its sole discretion. Subsequent
investments must be at least $50.

26
<PAGE>

Shares of any Fund may be purchased by (i) cash, (ii) exchanging Retail
Class shares of any Fund (or any other series of Loomis Sayles Funds which
offers Retail Class shares ) provided the value of the shares exchanged meets
the investment minimum of the Fund into which the exchange is made,
(iii) exchanging securities on deposit with a custodian acceptable to Loomis
Sayles or (iv) a combination of such securities and cash. Purchase of shares
of a Fund in exchange for securities is subject in each case to the
determination by Loomis Sayles that the securities to be exchanged are
acceptable for purchase by the Fund. In all cases Loomis Sayles reserves the
right to reject any securities that are proposed for exchange. Securities
accepted by Loomis Sayles in exchange for Fund shares will be valued in the
same manner as the Fund's assets, as described below, as of the time of the
Fund's next determination of net asset value after such acceptance. All
dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of
the Fund and must be delivered to the Fund upon receipt by the investor from
the issuer. A gain or loss for federal income tax purposes would be realized
upon the exchange by an investor that is subject to federal income taxation,
depending upon the investor's basis in the securities tendered. An investor
who wishes to purchase shares by exchanging securities should obtain
instructions by calling 800-633-3330, option 5 and asking for the Loomis
Sayles Funds Shareholder Services Group.

Loomis Sayles will not approve the acceptance of securities in exchange for
shares of any Fund unless (1) Loomis Sayles, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the Securities Act of 1933, as amended (the
"Securities Act") or otherwise; and (3) the securities are eligible to be
acquired under the Fund's investment policies and restrictions. No investor
owning 5% or more of a Fund's shares may purchase additional shares of that
Fund by exchange of securities.

All purchases made by check should be in U.S. dollars and made payable to
State Street Bank and Trust Company ("State Street Bank"). Third party checks
will not be accepted. When purchases are made by check or periodic account
investment, redemption will not be allowed until the investment being redeemed
has been in the account for 15 calendar days.

Upon acceptance of an investor's order, Boston Financial Data Services, Inc.
("BFDS"), the shareholder servicing agent for State Street Bank, opens an
account, applies the payment to the purchase of full and fractional Fund
shares and mails a statement of the account confirming the transaction.

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

27
<PAGE>

must be accompanied by either the account identification slip detached from a
statement of account or a note containing sufficient information to identify
the account, i.e., the Fund name and the investor's account number or name and
social security number.

Subsequent investments can also be made by federal funds wire. Investors
should instruct their banks to wire federal funds to State Street Bank and
Trust Company, ABA #011000028. The text of the wire should read as follows:
"$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and
Retail Class), DDA #9904-622-9, Account Name, Account Number." A bank may
charge a fee for transmitting funds by wire.

Each Fund also offers an Institutional Class of shares that has a $1 million
minimum investment for certain categories of investors and bears lower
expenses. Because of its lower expenses, the Institutional Class of shares of
each Fund is expected to have a higher total return than the Retail Class of
shares.

The Loomis Sayles Small Cap Value Fund also offers an Admin Class of shares
that is offered exclusively through intermediaries, who will be the record
owners of the shares. Because of its lower expenses, the Retail Class of
shares of the Loomis Sayles Small Cap Value Fund is expected to have a higher
total return than the Admin Class of shares.

28
<PAGE>

SHAREHOLDER SERVICES

RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax-
deferred retirement plans. Loomis Sayles makes available retirement plan forms
for IRAs.

SYSTEMATIC WITHDRAWAL PLANS. If the value of an account is at least $25,000,
an investor may have periodic cash withdrawals automatically paid to the
investor or any person designated by the investor.

AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may
be made automatically by pre-authorized withdrawals from an investor's
checking account.

HOW TO REDEEM SHARES

29
<PAGE>

request can be wired to an investor's bank account or sent by check in the
name of the registered owners to their record address.

If (1) an investor is redeeming shares worth more than $50,000, (2) an
investor is requesting that the proceeds check be made out to someone other
than the registered owners or be sent to an address other than the record
address, (3) the account registration has changed within the last 30 days or
(4) an investor is instructing us to wire the proceeds to a bank account not
designated on the application, the investor must have his or her signature
guaranteed by an eligible guarantor. This requirement may be waived by Loomis
Sayles in its sole discretion. Eligible guarantors include commercial banks,
trust companies, savings associations, credit unions and brokerage firms that
are members of domestic securities exchanges. Before submitting the redemption
request, the investor should verify with the guarantor institution that it is
an eligible guarantor. Signature guarantees by notaries public are not
acceptable.

30
<PAGE>

Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any
losses due to unauthorized or fraudulent instructions if these or other
reasonable procedures are followed. For information, consult BFDS. In times of
heavy market activity, an investor who encounters difficulty in placing a
redemption or exchange order by telephone may wish to place the order by mail
as described above.

The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by BFDS in proper form.

Proceeds resulting from a written redemption request will normally be mailed
to an investor within seven days after receipt of the investor's request in
good order. Telephonic redemption proceeds will normally be wired to an
investor's bank on the first business day following receipt of a proper
redemption request. If an investor purchased shares by check and the check was
deposited less than fifteen days prior to the redemption request, the Fund may
withhold redemption proceeds until the check has cleared.

CALCULATION OF PERFORMANCE INFORMATION

"Total return" for the one-, five- and ten-year periods (or for the life of
the class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in a Fund.
Total return may also be presented for other periods.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The Funds declare and pay their net investment income to shareholders as
dividends annually. Each Fund also distributes all of its net capital gains
realized from the sale of portfolio securities. Any capital gain distributions
are normally made annually, but may, to the extent permitted by law, be made
more frequently as deemed advisable by the trustees of the Trust. The Trust's
trustees may change the frequency with which the Funds declare or pay
dividends.

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

31
<PAGE>

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

An investor's income dividends and short-term capital gain distributions
(that is, net gains from securities held for not more than a year) are taxable
as ordinary income whether distributed in cash or additional shares.
Distributions designated by all Funds as deriving from net gains on securities
held for more than one year will be taxable as such (generally at a 20% rate
for noncorporate shareholders) whether distributed in cash or additional
shares and regardless of how long an investor has owned shares of the Fund.

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

Certain designated dividends from the Funds are expected to be eligible for
the dividends-received deduction for corporate shareholders that meet a
holding period requirement.

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

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

32
<PAGE>

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

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

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

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

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

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109

<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

ONE FINANCIAL CENTER . BOSTON, MASSACHUSETTS 02111 . (800) 633-3330

THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS

INSTITUTIONAL CLASS SHARES OF:

LOOMIS SAYLES BOND FUND
LOOMIS SAYLES GLOBAL BOND FUND
LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND

LOOMIS SAYLES INVESTMENT GRADE BOND FUND
LOOMIS SAYLES SHORT-TERM BOND FUND
<PAGE>

PROSPECTUS JANUARY 1, 1999

THE LOOMIS SAYLES FUNDS--FIXED INCOME FUNDS

Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles
Intermediate Maturity Bond Fund, Loomis Sayles Investment Grade Bond Fund, and
Loomis Sayles Short-Term Bond Fund (the "Funds" and each a "Fund"), each a
series of Loomis Sayles Funds, are separately managed, no-load mutual funds,
each of which has its own investment objective and policies. Loomis, Sayles &
Company, L.P. ("Loomis Sayles") is the investment adviser of each Fund.

The Funds offer two classes of shares: an Institutional Class that is
described in this Prospectus and a Retail Class, which generally has a lower
minimum investment and bears higher expenses, that is described in a separate
prospectus. The Loomis Sayles Bond Fund also offers a third class of shares:
an Admin Class, bearing higher expenses than the Institutional or Retail
Class, that is described in a separate prospectus. This Prospectus concisely
describes the information that an investor should know before investing in the
Institutional Class shares of any Fund. Please read it carefully and keep it
for future reference. A Statement of Additional Information (SAI) dated
January 1, 1999, as revised from time to time, is available free of charge;
write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Financial
Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The SAI, which
contains more detailed information about the Funds, has been filed with the
Securities and Exchange Commission (the "SEC") and is available along with
other related materials on the SEC's Internet Web site (http://www.sec.gov).
The SAI is incorporated herein by reference (legally forms a part of the
Prospectus). To obtain more information about the Retail Class or Admin Class
of shares, please call the Distributor toll-free at 800-633-3330, contact your
financial intermediary, or visit our Internet Website
(http://www.loomissayles.com).

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

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 4
THE TRUST................................................................. 9
INVESTMENT OBJECTIVES AND POLICIES........................................ 9
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 14
THE FUNDS' INVESTMENT ADVISER............................................. 25
FUND EXPENSES............................................................. 26
PORTFOLIO TRANSACTIONS.................................................... 27
HOW TO PURCHASE SHARES.................................................... 28
SHAREHOLDER SERVICES...................................................... 30
HOW TO REDEEM SHARES...................................................... 31
CALCULATION OF PERFORMANCE INFORMATION.................................... 33
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 33
APPENDIX A
DESCRIPTION OF BOND RATINGS............................................. 35
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES
(FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND)

<TABLE>
<CAPTION>
INTERMEDIATE INVESTMENT
GLOBAL MATURITY GRADE SHORT-TERM
BOND BOND BOND BOND BOND
FUND FUND FUND FUND FUND
---- ------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses:
Maximum Sales Load
Imposed on Purchases
(as % of offering
price)................. none none none none none
Maximum Sales Load
Imposed on Reinvested
Dividends (as % of
offering price)........ none none none none none
Maximum Deferred Sales
Load (as % of original
purchase price or
redemption proceeds)... none none none none none
Redemption Fees/1....... none none none none none
Exchange Fees........... none none none none none
Annual Fund Operating
Expenses (as a
percentage of average
net assets):
Management Fees......... .60% .60% .40% .40% .00%/2/
12b-1 Fees.............. none none none none none
Other Operating Expenses
(after expense
reimbursements where
indicated)............. .15%/3/ .30%/3/ .15%/3/ .15%/3/ .25%/2/
Total Fund Operating
Expenses (after expense
reimbursements where
indicated)............. .75%/3/ .90%/3/ .55%/3/ .55%/3/ .25%/2/
Example:
An investor would pay
the following expenses
on a $1,000 investment
assuming a 5% annual
return (with or without
a redemption at the end
of each time period):
One Year................ $ 8 $ 9 $ 6 $ 6 $ 3
Three Years............. $24 $ 29 $18 $18 $ 8
Five Years.............. $42 $ 50 $31 $31 $14
Ten Years............... $93 $111 $69 $69 $32
</TABLE>
- -----------
/1/A $5 charge applies to any wire transfer of redemption proceeds from any
Fund.

/2/Loomis Sayles has voluntarily agreed until December 31, 1999 to waive its
Management Fees for the Short-Term Bond Fund and limit the Fund's Total
Operating expenses to 0.25%. Without this agreement, Management Fees, Other
Operating Expenses and Total Operating Expenses would have been 0.25%, 0.58%
and 0.83%, respectively.

/3/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit
the Funds' Total Operating Expenses to the percentages of net assets shown in
the table. Without this agreement, Other Operating Expenses and Total
Operating Expenses would have been 0.16% and 0.76%, respectively, for the
Bond Fund, 0.58% and 1.18%, respectively, for the Global Bond Fund, 1.87% and
2.27%, respectively, for the Intermediate Maturity Bond Fund and 3.79% and
4.19%, respectively, for the Investment Grade Bond Fund.

3
<PAGE>

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

<TABLE>
<CAPTION>
BOND FUND
-------------------------------------------------------------------
NINE
MONTHS MAY 16**
ENDED YEAR ENDED DEC. 31, TO
SEPT. 30* --------------------------------------------------------- DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
---------- ---------- -------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $ 10.23 $10.00
---------- ---------- -------- -------- ------- ------- ------- ------
Income from investment
operations--
Net investment income
(loss)................ 0.69 0.86 0.86 0.82 0.83 0.84 0.76 0.52
Net realized and
unrealized gain (loss)
on investments........ (0.78) 0.67 0.35 2.32 (1.29) 1.43 0.67 0.36
---------- ---------- -------- -------- ------- ------- ------- ------
Total from investment
operations............ (0.09) 1.53 1.21 3.14 (0.46) 2.27 1.43 0.88
---------- ---------- -------- -------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income..... (0.44) (0.86) (0.86) (0.82) (0.84) (0.81) (0.76) (0.52)
Distributions in excess
of net investment
income................ 0.00 0.00 0.00 0.00 (0.02) 0.00 0.00 0.00
Distributions from net
realized capital
gains................. 0.00 (0.22) (0.26) (0.08) 0.00 (0.45) (0.54) (0.13)
---------- ---------- -------- -------- ------- ------- ------- ------
Total distributions.... (0.44) (1.08) (1.12) (0.90) (0.86) (1.26) (1.30) (0.65)
---------- ---------- -------- -------- ------- ------- ------- ------
Net asset value, end of
period................. $ 12.30 $ 12.83 $ 12.38 $ 12.29 $ 10.05 $ 11.37 $ 10.36 $10.23
========== ========== ======== ======== ======= ======= ======= ======
Total return (%)***..... (0.9)+ 12.7 10.3 32.0 (4.1) 22.2 14.3 8.9+
Net assets, end of
period (000)........... $1,455,312 $1,261,910 $541,244 $255,710 $82,985 $64,222 $18,472 $9,922
Ratio of operating
expenses to average net
assets (%)****......... 0.75++ 0.75 0.75 0.79 0.84 0.94 1.00 1.00++
Ratio of net investment
income to average net
assets (%)............. 7.34++ 7.36 7.93 8.34 7.92 8.26 7.50 8.97++
Portfolio turnover rate
(%).................... 24+ 41 42 35 87 170 101 126+
Without giving effect to
voluntary expense
limitations:
The ratio of operating
expenses to average
net assets would have
been (%).............. 0.76++ 0.77 0.75 0.79 0.84 0.94 1.55 1.78++
Net investment income
per share would have
been.................. $ 0.69 $ 0.85 $ 0.86 $ 0.82 $ 0.83 $ 0.84 $ 0.70 $ 0.47
</TABLE>
- -----------
* The fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

4
<PAGE>

<TABLE>
<CAPTION>
GLOBAL BOND FUND
---------------------------------------------------------------------------
NINE
MONTHS MAY 10**
ENDED YEAR ENDED DEC. 31, TO
SEPTEMBER 30* --------------------------------------------------- DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.83 $ 12.35 $ 11.39 $ 9.82 $ 11.06 $ 10.32 $11.38 $10.00
------- ------- ------- ------- ------- ------- ------ ------
Income from investment
operations--
Net investment income
(loss)................ 0.53 0.71 0.44 1.04 0.67 0.54 0.70 0.37
Net realized and
unrealized gain (loss)
on investments........ (0.43) (0.42) 1.27 1.31 (1.63) 0.96 (0.60) 1.31
------- ------- ------- ------- ------- ------- ------ ------
Total from investment
operations............ 0.10 0.29 1.71 2.35 (0.96) 1.50 0.10 1.68
------- ------- ------- ------- ------- ------- ------ ------
Less distributions--
Dividends from net
investment income..... 0.00 (0.69) (0.75) (0.78) (0.04) (0.49) (0.77) (0.30)
Distributions in excess
of net investment
income................ 0.00 (0.12) 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from net
realized capital
gains................. 0.00 0.00 0.00 0.00 0.00 (0.27) (0.39) 0.00
Distributions from
capital............... 0.00 0.00 0.00 0.00 (0.24) 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------ ------
Total distributions.... 0.00 (0.81) (0.75) (0.78) (0.28) (0.76) (1.16) (0.30)
------- ------- ------- ------- ------- ------- ------ ------
Net asset value, end of
period................. $ 11.93 $ 11.83 $ 12.35 $ 11.39 $ 9.82 $ 11.06 $10.32 $11.38
======= ======= ======= ======= ======= ======= ====== ======
Total return (%)***..... 0.9+ 2.3 15.0 23.9 (8.7) 14.6 0.8 16.9+
Net assets, end of
period (000)........... $29,860 $28,401 $26,513 $10,304 $25,584 $21,378 $9,968 $4,308
Ratio of operating
expenses to average net
assets (%)****......... 0.90++ 0.90 1.50 1.50 1.30 1.50 1.50 1.50++
Ratio of net investment
income to average net
assets (%)............. 6.00++ 5.88 6.37 8.17 7.02 5.54 6.99 6.81++
Portfolio turnover rate
(%).................... 28+ 75 131 148 153 150 72 137+
Without giving effect to
voluntary expense
limitations:
The ratio of operating
expenses to average
net assets would have
been (%).............. 1.18++ 1.22 1.77 1.69 1.30 1.51 2.58 3.99++
Net investment income
per share would have
been.................. $ 0.51 $ 0.67 $ 0.42 $ 1.02 $ 0.67 $ 0.54 $ 0.59 $ 0.23
</TABLE>
- ----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

5
<PAGE>

<TABLE>
<CAPTION>
INTERMEDIATE MATURITY BOND FUND
--------------------------------------
NINE JAN. 2**
MONTHS TO
ENDED DEC. 31,
SEPTEMBER 30* 1998 1997
------------------ ---------------
<S> <C> <C>
Net asset value, beginning of
period............................. $ 10.03 $ 10.00
--------------- ---------------
Income from investment operations--
Net investment income (loss)....... 0.51*** 0.64***
Net realized and unrealized gain
(loss) on investments............. (0.16) 0.00
--------------- ---------------
Total from investment operations... 0.35 0.64
--------------- ---------------
Less distributions--
Dividends from net investment
income............................ (0.32) (0.56)
Distributions in excess of net
investment income................. 0.00 (0.03)
Distributions from net realized
capital gains..................... 0.00 (0.02)
--------------- ---------------
Total distributions................ (0.32) (0.61)
--------------- ---------------
Net asset value, end of period...... $ 10.06 $ 10.03
=============== ===============
Total return (%)****................ 3.5+ 6.4+
Net assets, end of period (000)..... $ 8,601 $ 6,305
Ratio of operating expenses to
average net assets (%)++........... 0.55+++ 0.55 +++
Ratio of net investment income to
average net assets (%)............. 6.71+++ 6.38 +++
Portfolio turnover rate (%)......... 32+ 119+
Without giving effect to voluntary
expense limitations:
The ratio of operating expenses to
average net assets would have been
(%)............................... 2.27+++ 3.66 +++
Net investment income per share
would have been................... $ 0.38*** $ 0.29***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

6
<PAGE>

<TABLE>
<CAPTION>
INVESTMENT GRADE BOND
FUND
----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30* DEC. 31,
1998 1997
------------- --------
<S> <C> <C>
Net asset value, beginning of period................... $10.59 $10.00
------ ------
Income from investment operations--
Net investment income (loss).......................... 0.52 0.65
Net realized and unrealized gain (loss) on
investments.......................................... (0.50) 0.77
------ ------
Total from investment operations...................... 0.02 1.42
------ ------
Less distributions--
Dividends from net investment income.................. (0.33) (0.63)
Distributions in excess of net investment income...... 0.00 (0.08)
Distributions from net realized capital gains......... 0.00 (0.12)
------ ------
Total distributions................................... (0.33) (0.83)
------ ------
Net asset value, end of period......................... $10.28 $10.59
====== ======
Total return (%)***.................................... 0.0+ 14.5+
Net assets, end of period (000)........................ $2,778 $2,445
Ratio of operating expenses to average net assets
(%)****............................................... 0.55++ 0.55++
Ratio of net investment income to average net assets
(%)................................................... 6.68++ 6.74++
Portfolio turnover rate (%)............................ 48+ 112+
Without giving effect to voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%).................................. 4.19++ 7.59++
Net investment income per share would have been....... $ 0.24 $(0.03)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

7
<PAGE>

<TABLE>
<CAPTION>
SHORT-TERM BOND FUND
----------------------------------------------------------------
NINE
MONTHS AUG. 3**
ENDED YEAR ENDED DEC. 31, TO
SEPT. 30* ---------------------------------- DEC. 31
1998 1997 1996 1995 1994 1993 1992
--------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.75 $ 9.70 $ 9.81 $ 9.46 $ 9.95 $ 9.87 $10.00
------- ------- ------- ------- ------- ------- ------
Income from investment
operations--
Net investment income.. 0.44 0.61 0.55 0.63 0.66 0.59 0.22
Net realized and
unrealized gain (loss)
on investments........ 0.21 0.06 (0.11) 0.35 (0.49) 0.08 (0.13)
------- ------- ------- ------- ------- ------- ------
Total from investment
operations............ 0.65 0.67 0.44 0.98 0.17 0.67 0.09
------- ------- ------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income..... (0.44) (0.62) (0.55) (0.63) (0.66) (0.59) (0.22)
------- ------- ------- ------- ------- ------- ------
Total distributions.... (0.44) (0.62) (0.55) (0.63) (0.66) (0.59) (0.22)
------- ------- ------- ------- ------- ------- ------
Net asset value, end of
period................. $ 9.96 $ 9.75 $ 9.70 $ 9.81 $ 9.46 $ 9.95 $ 9.87
======= ======= ======= ======= ======= ======= ======
Total return (%)***..... 6.8+ 7.1 4.7 10.6 1.8 7.0 0.9+
Net assets, end of
period (000)........... $27,288 $18,792 $18,229 $26,039 $19,440 $15,226 $5,121
Ratio of operating
expenses to average net
assets (%)****......... 0.50++ 0.50 1.00 1.00 1.00 1.00 1.00++
Ratio of net investment
income to average net
assets (%)............. 5.94++ 6.34 5.69 6.46 6.88 5.97 5.49++
Portfolio turnover rate
(%).................... 47+ 91 120 214 34 81 31+
Without giving effect to
voluntary expense
limitations:
The ratio of operating
expenses to average
net assets would have
been (%).............. 0.83++ 1.19 1.17 1.03 1.33 1.55 3.74++
Net investment income
per share would have
been.................. $ 0.41 $ 0.55 $ 0.53 $ 0.62 $ 0.63 $ 0.54 $ 0.11
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.
NOTE: Further information about each Fund's performance is contained in the
Funds' annual report to shareholders, which may be obtained without
charge.

8
<PAGE>

THE TRUST

INVESTMENT OBJECTIVES AND POLICIES

LOOMIS SAYLES BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by normally investing substantially
all of its assets in fixed income securities, although up to 20% of its total
assets may be invested in preferred stocks. At least 65% of the Fund's total
assets will normally be invested in bonds. The fixed income securities in
which the Fund may invest include corporate securities, securities issued or
guaranteed by the U.S. Government or its authorities or instrumentalities
("U.S. Government Securities"), commercial paper, zero coupon securities,
mortgage-backed securities, stripped mortgage-backed securities,
collateralized mortgage obligations ("CMOs"), asset-backed securities, when-
issued securities, real estate investment trusts ("REITs"), Rule 144A
securities, repurchase agreements and convertible securities. The Fund may
engage in options and futures transactions, repurchase transactions, foreign
currency hedging transactions and swap transactions.

The percentages of the Fund's assets invested as of September 30, 1998 in
securities assigned to the various rating categories by Standard & Poor's and

9
<PAGE>

Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if
unrated, determined by Loomis Sayles to be of comparable quality, were as
follows:

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa.................................. 21.36% 1.55% 17.98% --
AA/Aa.................................... 11.87% 0.31% 16.14% 0.31%
A/A...................................... 7.22% 0.43% 6.95% 0.78%
BBB/Baa.................................. 24.16% 0.66% 22.73% 0.37%
BB/Ba.................................... 15.27% 5.38% 12.11% 3.24%
B/B...................................... 6.12% -- 15.39% --
CCC/Caa.................................. 5.59% -- 3.62% --
CC/Ca.................................... 0.02 -- 0.39% --
C/C...................................... -- -- -- --
D........................................ -- -- -- --
</TABLE>
- -----------

* Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

** Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES GLOBAL BOND FUND

The Fund's investment objective is high total investment return through a
combination of high current income and capital appreciation.

10
<PAGE>

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa.................................. 50.05% 11.15% 43.24% 10.63%
AA/Aa.................................... 2.72% -- 10.66% --
A/A...................................... 3.15% -- 3.10% --
BBB/Baa.................................. 11.67% 1.34% 12.53% 1.32%
BB/Ba.................................... 9.15% 8.71% 6.74% 6.88%
B/B...................................... 2.06% -- 4.89% --
CCC/Caa.................................. -- -- -- --
CC/Ca.................................... -- -- -- --
C/C...................................... -- -- -- --
D........................................ -- -- -- --
</TABLE>
- -----------

* Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

** Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES INTERMEDIATE MATURITY BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

The Fund seeks to achieve its objective by normally investing at least 90%
of its total assets in fixed income securities of investment grade quality and
to maintain an average dollar weighted maturity of between three and ten
years. For purposes of the 90% test, a security will be treated as being of
investment grade quality if it is rated by at least one major rating agency in
one of its top four rating categories at the time of purchase or, if unrated,
is determined by Loomis Sayles to be of comparable quality. The Fund may also
invest up to 10% of its total assets in fixed income securities of below
investment grade quality (commonly known as "junk bonds"). The fixed income
securities in which the Fund may invest include corporate securities, U.S.
Government Securities, commercial paper, zero coupon securities, mortgage-
backed securities, CMOs, asset-backed securities, when-issued securities,
REITs, Rule 144A securities, repurchase agreements and convertible securities.
The Fund may engage in options and futures transactions, repurchase
transactions, foreign currency hedging transactions, swap transactions and
securities lending. The Fund may invest any portion of its assets in
securities of Canadian issuers and up to 20% of its total assets in securities
of other foreign issuers.

11
<PAGE>

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa.................................. 21.55% 2.06% 20.37% --
AA/Aa.................................... -- -- 2.34% --
A/A...................................... 13.63% -- 5.40% --
BBB/Baa.................................. 54.30% -- 54.68% --
BB/Ba.................................... 6.40% -- 11.82% --
B/B...................................... 2.05% -- 5.40% --
CCC/Caa.................................. -- -- -- --
CC/Ca.................................... -- -- -- --
C/C...................................... -- -- -- --
D........................................ -- -- -- --
</TABLE>
- -----------

* Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

** Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES INVESTMENT GRADE BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.

12
<PAGE>

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa.................................. 10.46% -- 5.97% --
AA/Aa.................................... 17.61% -- 19.05% --
A/A...................................... 15.66% 1.15% 13.35% 2.96%
BBB/Baa.................................. 43.94% 3.70% 35.99% --
BB/Ba.................................... 3.39% 2.42% 18.21% 1.23%
B/B...................................... -- -- 1.88% --
CCC/Caa.................................. 1.65% -- 1.35% --
CC/Ca.................................... -- -- -- --
C/C...................................... -- -- -- --
D........................................ -- -- -- --
</TABLE>
- -----------

* Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

** Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

LOOMIS SAYLES SHORT-TERM BOND FUND

The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation with relatively low
fluctuation in net asset value.

In an effort to minimize fluctuations in market value, the Fund is expected
to maintain an average dollar-weighted maturity of between one and three
years.

The percentages of the Fund's assets invested as of September 30, 1998 in
securities assigned to the various rating categories by Standard & Poor's and

13
<PAGE>

Moody's Investors Service, Inc. ("Moody's") at the time of purchase or, if
unrated, determined by Loomis Sayles to be of comparable quality, were as
follows:

<TABLE>
<CAPTION>
STANDARD
& POOR'S UNRATED* MOODY'S UNRATED**
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
AAA/Aaa.................................. 37.07% 18.26% 53.38% --
AA/Aa.................................... -- -- 4.01% --
A/A...................................... 12.27% 2.14% 13.12% --
BBB/Baa.................................. 23.30% -- 20.59% --
BB/Ba.................................... 5.32% -- 8.90% --
B/B...................................... 1.65% -- - --
CCC/Caa.................................. -- -- -- --
CC/Ca.................................... -- -- -- --
C/C...................................... -- -- -- --
D........................................ -- -- -- --
</TABLE>
- -----------

* Unrated by Standard & Poor's but determined to be of comparable quality by
Loomis Sayles.

** Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.

ALL FUNDS

For temporary defensive purposes, each Fund may invest any portion of its
assets in fixed income securities, cash or any other securities deemed
appropriate by Loomis Sayles.

MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS

DEBT AND OTHER FIXED INCOME SECURITIES

14
<PAGE>

U.S. GOVERNMENT SECURITIES

TAX EXEMPT SECURITIES

Issuers of tax exempt securities may make interest and principal payments
from money raised through a variety of sources, including (1) the issuer's

15
<PAGE>

general taxing power, (2) a specific type of tax, such as a property tax, or
(3) a particular facility or project, such as a highway. The ability of an
issuer of tax exempt bonds to make these payments could be affected by
litigation, legislation or other political events, or the bankruptcy of the
issuer. The interest on tax exempt securities issued after August 15, 1986 is
retroactively taxable from the date of issuance if the issuer does not comply
with certain requirements concerning the use of bond proceeds and the
application of earnings on bond proceeds.

LOWER RATED FIXED INCOME SECURITIES

Each Fund may invest a portion of its total assets in securities rated below
investment grade (commonly referred to as "junk bonds"). The Bond Fund may
invest up to 35%, the Global Bond and Short-Term Bond Funds each may invest up
to 20%, the Investment Grade Bond and Intermediate Maturity Bond Funds each
may invest up to 10% of its total assets in such securities. For purposes of
the foregoing percentages, a security will be treated as being of investment
grade quality if at the time a Fund acquires it at least one major rating
agency has rated the security in its top four rating categories (even if
another such agency has issued a lower rating), or if the security is unrated
but Loomis Sayles determines it to be of investment grade quality. Lower rated
fixed income securities generally provide higher yields, but are subject to
greater credit and market risk, than higher quality fixed income securities.
Lower rated fixed income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments. Achievement of the investment objective of a Fund investing in lower
rated fixed income securities may be more dependent on Loomis Sayles' own
credit analysis than is the case with higher quality bonds. The market for
lower rated fixed income securities may be more severely affected than some
other financial markets by economic recession or substantial interest rate
increases, by changing public perceptions of this market or by legislation
that limits the ability of certain categories of financial institutions to
invest in these securities. In addition, the secondary market may be less
liquid for lower rated fixed income securities. This lack of liquidity at
certain times may affect the values of these securities and may make the
evaluation and sale of these securities more difficult. Securities in the
lowest rating categories may be in poor standing or in default. Securities in
the lowest investment grade category (BBB or Baa) have some speculative
characteristics.

For more information about the ratings services' descriptions of the various
rating categories, see Appendix A.

COMMON STOCKS AND OTHER EQUITY SECURITIES

Common stocks and similar equity securities, such as warrants and
convertibles, are volatile and more risky than some other forms of investment.

16
<PAGE>

The value of an investment in a Fund that invests in equity securities may
sometimes decrease. Equity securities of companies with relatively small
market capitalization may be more volatile than the securities of larger, more
established companies and than the broad equity market indexes.

ZERO COUPON SECURITIES

MORTGAGE-BACKED SECURITIES

Each Fund may invest in mortgage-backed securities, such as GNMA or Fannie
Mae certificates, which differ from traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time. As
a result, if a Fund purchases these assets at a premium, a faster-than-
expected prepayment rate will reduce yield to maturity, and a slower-than-
expected prepayment rate will increase yield to maturity. If a Fund purchases
mortgage-backed securities at a discount, faster-than-expected prepayments
will increase, and slower-than-expected prepayments will reduce, yield to
maturity. Prepayments, and resulting amounts available for reinvestment by the
Fund, are likely to be greater during a period of declining interest rates
and, as a result, are likely to be reinvested at lower interest rates.
Accelerated prepayments on securities purchased at a premium may result in a
loss of principal if the premium has not been fully amortized at the time of
prepayment. Although these securities will decrease in value as a result of
increases in interest rates generally, they are likely to appreciate less than
other fixed-income securities when interest rates decline because of the risk
of prepayments.

STRIPPED MORTGAGE-BACKED SECURITIES

17
<PAGE>

underlying assets. A rapid rate of principal prepayments may have a measurably
adverse effect on a Fund's yield to maturity to the extent it invests in IOs.
If the assets underlying the IOs experience greater than anticipated
prepayments of principal, the Fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase in value if
prepayments are greater than anticipated and decline if prepayments are slower
than anticipated.

COLLATERALIZED MORTGAGE OBLIGATIONS

Each Fund may invest in CMOs. A CMO is a security backed by a portfolio of
mortgages or mortgage-backed securities held under an indenture. CMOs may be
issued either by U.S. Government instrumentalities or by non-governmental
entities. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage-backed
securities. CMOs are issued with a number of classes or series which have
different maturities and which may represent interests in some or all of the
interest or principal on the underlying collateral or a combination thereof.
CMOs of different classes are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. In the event of sufficient
early prepayments on such mortgages, the class or series of CMOs first to
mature generally will be retired prior to its maturity. As with other
mortgage-backed securities, the early retirement of a particular class or
series of CMOs held by a Fund could involve the loss of any premium the Fund
paid when it acquired the investment and could result in the Fund's
reinvesting the proceeds at a lower interest rate than the retired CMO paid.
Because of the early retirement feature, CMOs may be more volatile than many
other fixed-income investments.

ASSET-BACKED SECURITIES

18
<PAGE>

securities the yields of which reflect interest rates prevailing at the time.
Therefore, a Fund's ability to maintain a portfolio that includes high-
yielding asset-backed securities will be adversely affected to the extent that
prepayments of principal must be reinvested in securities that have lower
yields than the prepaid obligations. Moreover, prepayments of securities
purchased at a premium could result in a realized loss.

WHEN-ISSUED SECURITIES

CONVERTIBLE SECURITIES

The Funds may invest in Convertible Sercurities. Convertible securities
include corporate bonds, notes or preferred stocks of U.S. or foreign issuers
that can be converted into (that is, exchanged for) common stocks or other
equity securities at a stated price or rate. Convertible securities also
include other securities, such as warrants, that provide an opportunity for
equity participation. Because convertible securities can be converted into
equity securities, their value will normally vary in some proportion with
those of the underlying equity securities. Convertible securities usually
provide a higher yield than the underlying equity security, however, so that
when the price of the underlying equity security falls, the decline in the
price of the convertible security may sometimes be less substantial than that
of the underlying equity security. Due to the conversion feature, convertible
securities generally yield less than nonconvertible fixed income securities of
similar credit quality and maturity. The Fund's investment in convertible
securities may at times include securities that have a mandatory conversion
feature, pursuant to which the securities convert automatically into common
stock at a specified date and conversion

19
<PAGE>

ratio, or that are convertible at the option of the issuer. Because conversion
is not at the option of the holder, the Fund may be required to convert the
security into the underlying common stock even at times when the value of the
underlying common stock has declined substantially.

REAL ESTATE INVESTMENT TRUSTS

RULE 144A SECURITIES

FOREIGN SECURITIES

Each Fund may invest in securities of issuers organized or headquartered
outside the United States ("foreign securities"). The Short-Term Bond Fund
will not purchase a foreign security if, as a result, the Fund's holdings of
foreign securities would exceed 20% of the Fund's total assets. Each of the
Bond, Intermediate Maturity Bond and Investment Grade Bond Funds may each
invest any portion of its assets in securities of Canadian issuers, but will
not purchase foreign securities other than those of Canadian issuers if, as a
result, such Fund's holdings of non-U.S. and non-Canadian securities would
exceed 20% of the Fund's total assets.

20
<PAGE>

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

21
<PAGE>

converted into U.S. dollars will be greater than the equivalent amount in such
currency of such expenses at the time they were incurred.

FOREIGN CURRENCY HEDGING TRANSACTIONS

The Funds may engage in foreign currency exchange transactions to protect
the value of specific portfolio positions or in anticipation of changes in
relative values of currencies in which current or future Fund portfolio
holdings are denominated or quoted. For example, to protect against a change
in the foreign currency exchange rate between the date on which a Fund
contracts to purchase or sell a security and the settlement date for the
purchase or sale, or to "lock in" the equivalent of a dividend or interest
payment in another currency, a Fund might purchase or sell a foreign currency
on a spot (that is, cash) basis at the prevailing spot rate. If conditions
warrant, the Funds may also enter into private contracts to purchase or sell
foreign currencies at a future date ("forward contracts"). The Funds might
also purchase exchange-listed and over-the-counter call and put options on
foreign currencies. Over-the-counter currency options are generally less
liquid than exchange-listed options, and will be treated as illiquid assets.
The Funds may not be able to dispose of over-the-counter options readily.

Foreign currency transactions involve costs and may result in losses.

SWAP TRANSACTIONS

The Funds may enter into interest rate or currency swaps. The Funds will
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. Interest rate swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest (for example, an
exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange
cash flows on a notional amount based on changes in the relative values of the
specified currencies. The Fund will maintain liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
Because swap agreements are not exchange-traded, but are private contracts
into which the Fund and a swap counterparty enter as principals, the Fund may
experience a

22
<PAGE>

loss or delay in recovering assets if the counterparty were to default on its
obligations.

OPTIONS AND FUTURES TRANSACTIONS

23
<PAGE>

contract without holding the underlying securities, currencies or futures
contracts, its potential loss is unlimited. The Fund will be required,
however, to set aside with its custodian bank liquid assets in amounts
sufficient at all times to satisfy its obligations under options and futures
contracts.

REPURCHASE AGREEMENTS

SECURITIES LENDING

24
<PAGE>

market on a daily basis. The Fund will continue to benefit from interest or
dividends on the securities loaned and will also receive interest through
investment of the cash collateral in short-term liquid investments. No loans
will be made if, as a result, the aggregate amount of such loans outstanding
at any time would exceed 33 1/3% of the Fund's total assets (taken at current
value). Any voting rights, or rights to consent, relating to securities loaned
pass to the borrower. However, if a material event affecting the investment
occurs, such loans will be called so that the securities may be voted by the
Fund. The Fund pays various fees in connection with such loans, including
shipping fees and reasonable custodial or placement fees.

YEAR 2000

THE FUNDS' INVESTMENT ADVISER

25
<PAGE>

As of October 31, 1998, Charles Schwab & Co. Inc. owned 48%, 40%, 55% and
27% of the Bond Fund, Global Bond Fund, Intermediate Maturity Bond Fund, and
Investment Grade Bond Fund, respectively. As of October 31, 1998, Hawaii Sheet
Metal Workers Health & Welfare Fund owned 26% of the Intermediate Maturity
Bond Fund. As of October 31, 1998, Loomis Sayles & Company, L.P. owned 26% of
the Investment Grade Bond Fund. Shareholders holding more than 25% of a Fund's
shares may be deemed to control the relevant Fund.

Daniel J. Fuss, President of the Trust and Executive Vice President of
Loomis Sayles, has served as the portfolio manager of the Bond Fund since its
commencement of investment operations in 1991 and as the portfolio manager of
the Investment Grade Bond Fund since its commencement of investment operations
in 1997. Kathleen C. Gaffney, Vice President of the Trust and Loomis Sayles,
has served as associate portfolio manager of the Bond Fund since October 1997.
E. John deBeer, Vice President of the Trust and of Loomis Sayles, has served
as the portfolio manager of the Global Bond Fund since its commencement of
investment operations in 1991. Anthony J. Wilkins, Vice President of the Trust
and of Loomis Sayles, has served as the portfolio manager of the Intermediate
Maturity Bond Fund since its commencement of investment operations in 1997.
John Hyll, Vice President of the Trust and of Loomis Sayles, has served as the
portfolio manager of the Short-Term Bond Fund since its commencement of
investment operations in 1992. Curt A. Mitchell, Vice President of Loomis
Sayles, has served as portfolio manager of the Short-Term Bond Fund since
October 1998. Each of the foregoing, except Mr. Mitchell, has been employed by
Loomis Sayles for at least five years. Before joining Loomis Sayles in 1995,
Mr. Mitchell was a portfolio manager at Firstar Research & Management Company.

FUND EXPENSES

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

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

* Loomis Sayles has voluntarily agreed until December 31, 1999 to waive its
Management Fees.

26
<PAGE>

Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce
its advisory fees and/or bear other Fund expenses to the extent necessary to
limit Fund total annual operating expenses of the Institutional Class shares
of each of the following Funds to the following annual percentage rate of the
Fund's average daily net assets:

<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
Bond.................................................................... .75%
Global Bond............................................................. .90%
Intermediate Maturity Bond.............................................. .55%
Investment Grade Bond................................................... .55%
</TABLE>

Loomis Sayles may change or terminate these voluntary arrangements at any
time, but the Funds' Prospectus would be supplemented to describe the change.

PORTFOLIO TRANSACTIONS

27
<PAGE>

HOW TO PURCHASE SHARES

An investor may make an initial purchase of shares of any Fund by submitting
a completed application form and payment to:

Boston Financial Data Services
P.O. Box 8314
Boston, Massachusetts 02266-8314
Attn: Loomis Sayles Funds

The minimum initial investment for the Institutional Class of shares of the
Loomis Sayles Bond Fund is $25,000. The minimum initial investment for the
Institutional Class of each other Fund's shares is $1 million in that Fund. A
$2,500 minimum investment applies to the current and retired trustees of the
Trust, investment advisory clients of Loomis Sayles (and their directors,
officers and employees), and current and retired employees of Loomis Sayles
and the parents, spouses and children of the foregoing. The minimum investment
may be waived in whole or in part by Loomis Sayles in its sole discretion.
Subsequent investments must be at least $50.

Shares of any Fund may be purchased by (i) cash, (ii) exchanging
Institutional Class shares of any Fund (or any other series of Loomis Sayles
Funds), provided the value of the shares exchanged meets the investment
minimum of the Fund into which the exchange is made, (iii) exchanging
securities on deposit with a custodian acceptable to Loomis Sayles or (iv) a
combination of such securities and cash. Loomis Sayles will not approve the
acceptance of securities in exchange for shares of any Fund unless (1) Loomis
Sayles, in its sole discretion, believes the securities are appropriate
investments for the Fund; (2) the investor represents and agrees that all
securities offered to the Fund can be resold by the Fund without restriction
under the Securities Act of 1933, as amended (the "Securities Act") or
otherwise; and (3) the securities are eligible to be acquired under the Fund's
investment policies and restrictions. No investor owning 5% or more of a
Fund's shares may purchase additional shares of that Fund by exchange of
securities.

28
<PAGE>

An investor who wishes to purchase shares by exchanging securities should
obtain instructions by calling 800-633-3330, option 5.

Upon acceptance of an investor's order, BFDS opens an account, applies the
payment to the purchase of full and fractional Fund shares and mails a
statement of the account confirming the transaction.

Subsequent investments can also be made by federal funds wire. Investors
should instruct their banks to wire federal funds to State Street Bank and
Trust Company, ABA #011000028. The text of the wire should read as follows:
"$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and
Institutional Class), DDA #9904-622-9, Account Name, Account Number." A bank
may charge a fee for transmitting funds by wire.

29
<PAGE>

Distributor. Although there is no sales charge imposed by the Fund or the
Distributor, broker-dealers may charge the investor a transaction-based fee or
other fee for their services at either the time of purchase or the time of
redemption. Such charges may vary among broker-dealers but in all cases will
be retained by the broker-dealer and not remitted to the Fund.

Each Fund also offers a Retail Class of shares that has a $25,000, minimum
investment for certain categories of investors, is offered through
intermediaries and bears higher expenses. Because of its lower expenses, the
Institutional Class of shares of each Fund is expected to have a higher total
return than the Retail Class of shares.

SHAREHOLDER SERVICES

FREE EXCHANGE PRIVILEGE. The Institutional Class shares of any Fund may be
exchanged for Institutional Class shares of any other Fund (or any other fund
that is a series of Loomis Sayles Funds and that offers Institutional Class
shares) or for shares of certain money market funds advised by New England
Funds Management, L.P., an affiliate of Loomis Sayles, provided the value of
the shares exchanged meets the investment minimum of that Fund and, in the
case of exchanges into the Loomis Sayles High Yield Fund, Loomis Sayles
Municipal Bond Fund and Loomis Sayles U.S. Government Securities Fund, Loomis
Sayles has approved the exchange of shares. Exchanges may be made by written
instructions or by telephone, unless an investor elected on the application to
decline telephone exchange privileges. The exchange privilege should not be
viewed as a means for taking advantage of short-term swings in the market, and
the Funds reserve the right to terminate or limit the privilege of any
shareholder who makes more than four exchanges in any calendar year. The Funds
may terminate or change the terms of the exchange privilege at any time,

30
<PAGE>

upon 60 days' notice to shareholders. An exchange is a taxable event for
federal income tax purposes in which a gain or loss would be realized by an
investor that is subject to federal income taxation.

RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax-
deferred retirement plans. Loomis Sayles makes available retirement plan forms
for IRAs.

SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000,
an investor may have periodic cash withdrawals automatically paid to the
investor or any person designated by the investor.

AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may
be made automatically by pre-authorized withdrawals from an investor's
checking account.

HOW TO REDEEM SHARES

31
<PAGE>

domestic securities exchanges. Before submitting the redemption request, an
investor should verify with the guarantor institution that it is an eligible
guarantor. Signature guarantees by notaries public are not acceptable.

The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by BFDS in proper form.

32
<PAGE>

trading on the Exchange is restricted or during an emergency which makes it
impracticable for the Fund to dispose of its securities or to determine fairly
the value of its net assets, or during any other period permitted by the SEC
for the protection of investors.

CALCULATION OF PERFORMANCE INFORMATION

"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in a Fund.
Total return may also be presented for other periods.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

The Bond, Investment Grade Bond, and Intermediate Maturity Bond Funds
declare and pay dividends quarterly; the Global Bond Fund declares and pays
its net investment income to shareholders as dividends annually; and the
Short-Term Bond Fund declares dividends daily and makes payments monthly. Each
Fund also distributes all of its net capital gains realized from the sale of
portfolio securities. Any capital gain distributions are normally made
annually, but may, to the extent permitted by law, be made more frequently as
deemed advisable by the trustees of the Trust. The Trust's trustees may change
the frequency with which the Funds declare or pay dividends.

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

Each Fund intends to qualify as a regulated investment company under the
Code. As such, so long as a Fund distributes substantially all its net
investment

33
<PAGE>

income and net capital gains to its shareholders, the Fund itself does not pay
any federal income tax to the extent such income and gains are so distributed.

An investor's income dividends and short-term capital gain distributions are
taxable as ordinary income whether distributed in cash or additional shares.
Distributions designated by a Fund as deriving from net gains on securities
held for more than one year will be taxable as such (generally at a 20% rate
for noncorporate shareholders) whether distributed in cash or additional
shares and regardless of how long an investor has owned shares of the Fund.

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

34
<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S AND
MOODY'S INVESTORS SERVICE, INC.

STANDARD & POOR'S

AAA

This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.

BBB

BB, B, CCC, CC

35
<PAGE>

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

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

This symbol is attached to the ratings of instruments with significant
noncredit risks such as risks to principal or volatility of expected returns.

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

MOODY'S INVESTORS SERVICE, INC.

AAA

36
<PAGE>

BAA

CAA

Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

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

Should no rating be assigned by Moody's, the reason may be one of the
following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.

37
<PAGE>

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed in which case the rating is not published
in Moody's publications.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.

38
<PAGE>

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

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

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

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

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

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP One Post Office
Square Boston, Massachusetts 02109
<PAGE>

[LOGO OF LOOMIS SAYLES FUNDS APPEARS HERE]

One Financial Center . Boston, Massachusetts 02111 . (800) 633-3330

THE LOOMIS SAYLES FUNDS--EQUITY FUNDS

INSTITUTIONAL CLASS SHARES OF:

LOOMIS SAYLES CORE VALUE FUND
LOOMIS SAYLES INTERNATIONAL EQUITY FUND
LOOMIS SAYLES MID-CAP GROWTH FUND
LOOMIS SAYLES MID-CAP VALUE FUND
LOOMIS SAYLES SMALL CAP GROWTH FUND
LOOMIS SAYLES SMALL CAP VALUE FUND
LOOMIS SAYLES STRATEGIC VALUE FUND
LOOMIS SAYLES WORLDWIDE FUND
<PAGE>

PROSPECTUS JANUARY 1, 1999

THE LOOMIS SAYLES FUNDS--EQUITY FUNDS

Loomis Sayles Core Value Fund, Loomis Sayles International Equity Fund, Loo-
mis Sayles Mid-Cap Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis
Sayles Small Cap Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis
Sayles Strategic Value Fund, and Loomis Sayles Worldwide Fund (the "Funds" and
each a "Fund"), each a series of Loomis Sayles Funds, are separately managed,
no-load mutual funds and each Fund has its own investment objective and poli-
cies. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment ad-
viser of each Fund.

The Funds offer two classes of shares: an Institutional Class that is de-
scribed in this Prospectus and a Retail Class, which generally has a lower
minimum investment and bears higher expenses, that is described in a separate
prospectus. The Loomis Sayles Small Cap Value Fund also offers a third class
of shares: an Admin Class, bearing higher expenses than the Institutional or
Retail Class, that is described in a separate prospectus. This Prospectus con-
cisely describes the information that an investor should know before investing
in the Institutional Class shares of any Fund. Please read it carefully and
keep it for future reference. A Statement of Additional Information (SAI)
dated January 1, 1999, as revised from time to time, is available free of
charge; write to Loomis Sayles Distributors, L.P. (the "Distributor"), One Fi-
nancial Center, Boston, Massachusetts 02111 or telephone 800-633-3330. The
SAI, which contains more detailed information about the Funds, has been filed
with the Securities and Exchange Commission (the "SEC") and is available along
with other related materials on the SEC's Internet Website
(http://www.sec.gov). The SAI is incorporated herein by reference (legally
forms a part of the prospectus). To obtain more information about the Retail
Class or Admin Class of shares, please call the Distributor toll-free at 800-
633-3330, contact your financial intermediary, or visit our Internet Website
at (http://www.loomissayles.com).

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

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
THE TRUST................................................................. 13
INVESTMENT OBJECTIVES AND POLICIES........................................ 13
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS..... 16
THE FUNDS' INVESTMENT ADVISER............................................. 23
FUND EXPENSES............................................................. 25
PORTFOLIO TRANSACTIONS.................................................... 26
HOW TO PURCHASE SHARES.................................................... 26
SHAREHOLDER SERVICES...................................................... 28
HOW TO REDEEM SHARES...................................................... 29
CALCULATION OF PERFORMANCE INFORMATION.................................... 31
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES........................... 31
</TABLE>

2
<PAGE>

SUMMARY OF EXPENSES
(FOR AN INSTITUTIONAL CLASS SHARE OF EACH INDICATED FUND)

<TABLE>
<CAPTION>
CORE INTERNATIONAL MID-CAP MID-CAP
VALUE EQUITY GROWTH VALUE
FUND FUND FUND FUND
----- ------------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as % of offering
price)............................ none none none none
Maximum Sales Load Imposed on
Reinvested Dividends (as % of
offering price)................... none none none none
Maximum Deferred Sales Load (as %
of original purchase price or
redemption proceeds).............. none none none none
Redemption Fees/1/................. none none none none
Exchange Fees...................... none none none none
Annual Fund Operating Expenses (as a
percentage of average net assets):
Management Fees.................... .50% .75% .75% .75%
12b-1 Fees......................... none none none none
Other Operating Expenses (after
expense reimbursements where
indicated)........................ .29% .25%/2/ .25%/2/ .25%/2/
Total Fund Operating Expenses
(after expense reimbursements
where indicated).................. .79% 1.00%/2/ 1.00%/2/ 1.00%/2/
Example:
An investor would pay the following
expenses on a $1,000 investment
assuming a 5% annual return (with
or without a redemption at the end
of each time period):
One Year........................... $ 8 $ 10 $ 10 $ 10
Three Years........................ $ 25 $ 32 $ 32 $ 32
Five Years......................... $ 44 $ 55 $ 55 $ 55
Ten Years.......................... $ 98 $122 $122 $122
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
SMALL SMALL STRATEGIC
CAP GROWTH CAP VALUE VALUE WORLDWIDE
FUND FUND FUND FUND
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases
(as % of offering price)......... none none none none
Maximum Sales Load Imposed on
Reinvested Dividends (as % of
offering price).................. none none none none
Maximum Deferred Sales Load (as %
of original purchase price or
redemption proceeds)............. none none none none
Redemption Fees/1/................ none none none none
Exchange Fees..................... none none none none
Annual Fund Operating Expenses (as
a percentage of average net
assets):
Management Fees................... .75% .75% .50% .75%
12b-1 Fees........................ none none none none
Other Operating Expenses (after
expense reimbursements where
indicated)....................... .25%/2/ .17% .50%/2/ .25%/2/
Total Fund Operating Expenses
(after expense reimbursements
where indicated)................. 1.00%/2/ .92% 1.00%/2/ 1.00%/2/
Example:
An investor would pay the following
expenses on a $1,000 investment
assuming a 5% annual return (with
or without a redemption at the end
of each time period):
One Year.......................... $ 10 $ 9 $ 10 $ 10
Three Years....................... $ 32 $ 29 $ 32 $ 32
Five Years........................ $ 55 $ 51 $ 55 $ 55
Ten Years......................... $122 $113 $122 $122
</TABLE>
- -----------
/1/A $5 charge applies to any wire transfer of redemption proceeds from any
Fund.
/2/Loomis Sayles has voluntarily agreed, for an indefinite period, to limit the
Funds' Total Operating Expenses to the percentages of net assets shown in the
table. Without this agreement, Other Operating Expenses and Total Operating
Expenses would have been 0.43% and, 1.18% respectively, for the International
Equity Fund, 6.38% and 7.13%, respectively, for the Mid-Cap Growth Fund,
3.58% and 4.33% respectively, for the Mid-Cap Value Fund, 1.40% and 2.15%,
respectively, for the Small Cap Growth Fund, 10.31% and 10.81%, respectively,
for the Strategic Value Fund and 2.53% and 3.28%, respectively, for the
Worldwide Fund. Other Operating Expenses and Total Operating Expenses for the
Core Value Fund and the Small Cap Value Fund were unaffected by this
Agreement.

4
<PAGE>

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

<TABLE>
<CAPTION>
CORE VALUE FUND
-----------------------------------------------------------------------------
NINE MONTHS MAY 13**
ENDED YEAR ENDED DEC. 31, TO
SEPTEMBER 30*, ---------------------------------------------------- DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
-------------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 17.64 $ 15.60 $ 14.57 $ 11.80 $ 12.49 $ 11.53 $ 10.54 $10.00
------- ------- ------- ------- ------- ------- ------- ------
Income from investment
operations--
Net investment income
(loss)................ 0.18 0.18 0.22 0.23 0.15 0.13 0.13 0.12
Net realized and
unrealized gain (loss)
on investments........ (0.97) 4.32 2.83 3.93 (0.26) 1.24 1.36 0.59
------- ------- ------- ------- ------- ------- ------- ------
Total from investment
operations............ (0.79) 4.50 3.05 4.16 (0.11) 1.37 1.49 0.71
------- ------- ------- ------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income..... 0.00 (0.19) (0.22) (0.23) (0.15) (0.12) (0.13) (0.12)
Distributions from net
realized capital
gains................. 0.00 (2.27) (1.80) (1.16) (0.43) (0.29) (0.37) (0.05)
------- ------- ------- ------- ------- ------- ------- ------
Total distributions.... 0.00 (2.46) (2.02) (1.39) (0.58) (0.41) (0.50) (0.17)
------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end of
period................. $ 16.85 $ 17.64 $ 15.60 $ 14.57 $ 11.80 $ 12.49 $ 11.53 $10.54
======= ======= ======= ======= ======= ======= ======= ======
Total return (%)***..... (4.5)+ 29.2 21.2 35.2 (0.9) 11.9 14.1 7.2+
Net assets, end of
period (000)........... $66,928 $63,303 $43,715 $36,465 $25,946 $20,657 $12,279 $7,689
Ratio of operating
expenses to average net
assets (%)****......... 0.79++ 0.84 1.13 1.20 1.33 1.50 1.50 1.50++
Ratio of net investment
income to average net
assets (%)............. 1.36++ 1.12 1.44 1.61 1.28 1.23 1.42 2.09++
Portfolio turnover rate
(%).................... 49+ 64 58 60 48 53 67 27+
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average
net assets would have
been (%).............. 0.79++ 0.84 1.13 1.20 1.33 1.56 2.19 2.59++
Net investment income
per share would have
been.................. $ 0.18 $ 0.18 $ 0.22 $ 0.23 $ 0.15 $ 0.12 $ 0.07 $ 0.06
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

5
<PAGE>

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------------------------
NINE MONTHS MAY 10**
ENDED YEAR ENDED DEC. 31, TO
SEPTEMBER 30*, ---------------------------------------------------- DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
-------------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.30 $ 13.16 $ 11.65 $ 11.61 $ 12.90 $ 9.64 $ 10.27 $10.00
------- ------- ------- ------- ------- ------- ------- ------
Income from investment
operations--
Net investment income
(loss)................. 0.14 0.15+ 0.12 0.14 0.15 0.11 0.10 0.08
Net realized and
unrealized gain (loss)
on investments......... (0.70) (0.27) 2.01 0.87 (0.38) 3.61 (0.62) 0.29
------- ------- ------- ------- ------- ------- ------- ------
Total from investment
operations............ (0.56) (0.12) 2.13 1.01 (0.23) 3.72 (0.52) 0.37
------- ------- ------- ------- ------- ------- ------- ------
Less distributions--
Dividends from net
investment income..... 0.00 (0.19) (0.09) (0.14) (0.14) (0.10) (0.10) (0.08)
Distributions from net
realized capital
gains................. 0.00 (1.55) (0.53) (0.83) (0.92) (0.36) (0.01) 0.00
Distributions from
capital............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.02)
------- ------- ------- ------- ------- ------- ------- ------
Total distributions.... 0.00 (1.74) (0.62) (0.97) (1.06) (0.46) (0.11) (0.10)
------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end of
period................ $ 10.74 $ 11.30 $ 13.16 $ 11.65 $ 11.61 $ 12.90 $ 9.64 $10.27
======= ======= ======= ======= ======= ======= ======= ======
Total return (%)***..... (5.0)++ (1.0) 18.3 8.7 (1.8) 38.5 (5.1) 3.7++
Net assets, end of
period (000)........... $68,464 $82,188 $90,662 $79,488 $73,189 $56,560 $14,937 $6,916
Ratio of operating
expenses to average net
assets (%)****......... 1.00+++ 1.00 1.42 1.45 1.46 1.50 1.50 1.50+++
Ratio of net investment
income to average net
assets (%)............. 1.49+++ 1.12 0.96 1.16 1.30 1.20 1.64 1.55+++
Portfolio turnover
rate (%)............... 96++ 119 151 133 116 128 101 109++
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average
net assets would have
been (%).............. 1.18+++ 1.16 1.42 1.45 1.46 1.72 2.77 3.66+++
Net investment income
per share would have
been.................. $ 0.12 $ 0.13+ $ 0.12 $ 0.14 $ 0.15 $ 0.09 $ 0.02 $(0.03)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.
+ Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.

++ Periods less than one year are not annualized.

+++ Computed on an annualized basis.

6
<PAGE>

<TABLE>
<CAPTION>
MID-CAP GROWTH FUND
-----------------------
NONE MONTHS JAN 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period.................. $11.49 $10.00
------ ------
Income from investment operations--
Net investment income (loss).......................... (0.03) (0.03)
Net realized and unrealized gain (loss) on
investments.......................................... (0.95) 2.26
------ ------
Total from investment operations..................... (0.98) 2.23
------ ------
Less distributions--
Distributions in excess of net investment income..... 0.00 (0.12)
Distributions from net realized capital gains........ 0.00 (0.62)
------ ------
Total distributions.................................. 0.00 (0.74)
------ ------
Net asset value, end of period....................... $10.51 $11.49
====== ======
Total return (%)***................................... (8.5)+ 22.7+
Net assets, end of period (000)....................... $2,073 $1,848
Ratio of operating expenses to average net assets
(%)****.............................................. 1.00++ 1.00++
Ratio of net investment income to average net assets
(%).................................................. (0.35)++ (0.38)++
Portfolio turnover rate (%)........................... 82+ 174+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%).......................... 7.13++ 9.35++
Net investment income per share would have been...... $(0.50) $(0.60)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

7
<PAGE>

<TABLE>
<CAPTION>
MID-CAP VALUE FUND
--------------------------
NINE MONTHS
ENDED JAN. 2** TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- -----------
<S> <C> <C>
Net asset value, beginning of period................ $11.53 $10.00
------ ------
Income from investment operations--
Net investment income (loss)........................ 0.02 0.07
Net realized and unrealized gain (loss) on
investments........................................ (1.46) 2.54
------ ------
Total from investment operations................... (1.44) 2.61
------ ------
Less distributions--
Dividends from net investment income............... 0.00 (0.14)
Distributions from net realized capital gains...... 0.00 (0.94)
------ ------
Total distributions................................ 0.00 (1.08)
------ ------
Net asset value, end of period..................... $10.09 $11.53
====== ======
Total return (%)***................................. (12.5)+ 26.3+
Net assets, end of period (000)..................... $3,291 $3,736
Ratio of operating expenses to average net assets
(%)****............................................ 1.00++ 1.00++
Ratio of net investment income to average net assets
(%)................................................ 0.22++ 0.74++
Portfolio turnover rate (%)......................... 225+ 130+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)........................ 4.33++ 6.65++
Net investment income per share would have been.... $(0.29) $(0.49)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

8
<PAGE>

<TABLE>
<CAPTION>
SMALL CAP GROWTH FUND
------------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period................ $ 11.32 $10.00
------- ------
Income from investment operations--
Net investment income (loss)........................ (0.02) (0.07)***
Net realized and unrealized gain (loss) on
investments........................................ (1.47) 1.99
------- ------
Total from investment operations................... (1.49) 1.92
------- ------
Less distributions--
Distributions in excess of net investment income... 0.00 (0.01)
Distributions in excess of net realized capital
gains............................................. 0.00 (0.59)
------- ------
Total distributions................................ 0.00 (0.60)
------- ------
Net asset value, end of period..................... $ 9.83 $11.32
======= ======
Total return (%)****................................ (13.2)+ 19.4+
Net assets, end of period (000)..................... $17,174 $3,893
Ratio of operating expenses to average net assets
(%)++.............................................. 1.00+++ 1.00+++
Ratio of net investment income to average net assets
(%)................................................ (0.53)+++ (0.65)+++
Portfolio turnover rate (%)......................... 116+ 211+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have been (%)........................ 2.15+++ 5.81+++
Net investment income per share would have been.... $ (0.07) $(0.56)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

9
<PAGE>

<TABLE>
<CAPTION>
SMALL CAP VALUE FUND
-------------------------------------------------------------------------------
NINE MONTHS MAY 13**
ENDED YEAR ENDED DEC. 31, TO
SEPTEMBER 30*, ------------------------------------------------------ DEC. 31,
1998 1997 1996 1995 1994 1993 1992 1991
-------------- -------- -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 18.62 $ 17.39 $ 15.33 $ 12.86 $ 14.13 $ 12.88 $ 12.49 $ 10.00
-------- -------- -------- ------- ------- ------- ------- -------
Income from investment
operations--
Net investment income
(loss)................ 0.12 0.17 0.11 0.04 (0.04) 0.00 (0.06) (0.01)
Net realized and
unrealized gain (loss)
on investments........ (3.14) 4.26 4.47 4.06 (1.12) 3.15 1.67 3.03
-------- -------- -------- ------- ------- ------- ------- -------
Total from investment
operations............ (3.02) 4.43 4.58 4.10 (1.16) 3.15 1.61 3.02
-------- -------- -------- ------- ------- ------- ------- -------
Less distributions--
Dividends from net
investment income..... 0.00 (0.15) (0.11) (0.04) 0.00 0.00 0.00 0.00
Distributions from net
realized capital
gains................. 0.00 (3.05) (2.41) (1.59) (0.11) (1.90) (1.22) (0.53)
-------- -------- -------- ------- ------- ------- ------- -------
Total distributions.... 0.00 (3.20) (2.52) (1.63) (0.11) (1.90) (1.22) (0.53)
-------- -------- -------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 15.60 $ 18.62 $ 17.39 $ 15.33 $ 12.86 $ 14.13 $ 12.88 $ 12.49
======== ======== ======== ======= ======= ======= ======= =======
Total return (%)***..... (16.2)+ 26.0 30.4 32.1 (8.2) 24.7 13.1 30.5+
Net assets, end of
period (000)........... $296,116 $245,177 $163,625 $90,455 $73,126 $67,553 $39,244 $14,581
Ratio of operating
expenses to average net
assets (%)****......... 0.92++ 0.94 1.19 1.25 1.27 1.35 1.50 1.50++
Ratio of net investment
income to average net
assets (%)............. 1.04++ 0.97 0.80 0.29 (0.30) (0.38) (0.79) (0.19)++
Portfolio turnover rate
(%).................... 78+ 94 73 155 87 106 109 56+
Without giving effect to
voluntary expense
limitations:
The ratios of operating
expenses to average
net assets would have
been (%).............. 0.92++ 0.94 1.19 1.25 1.27 1.35 1.66 2.43++
Net investment income
per share would have
been.................. $ 0.12 $ 0.17 $ 0.11 $ 0.04 $ (0.04) $ 0.00 $ (0.07) $ (0.06)
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.
**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

10
<PAGE>

<TABLE>
<CAPTION>
STRATEGIC VALUE FUND
-----------------------
NINE MONTHS JAN. 2**
ENDED TO
SEPTEMBER 30*, DEC. 31,
1998 1997
-------------- --------
<S> <C> <C>
Net asset value, beginning of period............... $11.76 $ 10.00
------ -------
Income from investment operations--
Net investment income (loss)...................... (0.02) (0.01)***
Net realized and unrealized gain (loss) on
investments...................................... (1.27) 1.98
------ -------
Total from investment operations.................. (1.29) 1.97
------ -------
Less distributions--
Distributions in excess of net investment income.. 0.00 (0.21)
------ -------
Total distributions............................... 0.00 (0.21)
------ -------
Net asset value, end of period..................... $10.47 $ 11.76
====== =======
Total return (%)****............................... (11.0)+ 19.7+
Net assets, end of period (000).................... $ 932 $965
Ratio of operating expenses to average net assets
(%)++............................................. 1.00+++ 1.00+++
Ratio of net investment income to average net
assets (%)........................................ (0.22)+++ (0.05)+++
Portfolio turnover rate (%)........................ 31+ 34+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average net
assets would have
been (%)......................................... 10.81+++ 16.55+++
Net investment income per share would have been... $(0.97) $ (1.76)***
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.
*** Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
**** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

+ Periods less than one year are not annualized.

++ The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+++ Computed on an annualized basis.

11
<PAGE>

<TABLE>
<CAPTION>
WORLDWIDE FUND
--------------------------------
NINE MONTHS YEAR MAY 1**
ENDED ENDED TO
SEPTEMBER 30*, DEC. 31, DEC. 31,
1998 1997 1996
-------------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period........ $9.86 $10.63 $ 10.00
------ ------ -------
Income from investment operations--
Net investment income (loss)............... 0.33 0.47 0.30
Net realized and unrealized gain (loss) on
investments............................... (1.40) (0.10) 0.63
------ ------ -------
Total from investment operations........... (1.07) 0.37 0.93
------ ------ -------
Less distributions--
Dividends from net investment income....... 0.00 (0.47) (0.30)
Distributions from net realized capital
gains..................................... 0.00 (0.67) 0.00
------ ------ -------
Total distributions........................ 0.00 (1.14) (0.30)
------ ------ -------
Net asset value, end of period.............. $ 8.79 $ 9.86 $ 10.63
====== ====== =======
Total return (%)***......................... (10.9)+ 3.5 9.2+
Net assets, end of period (000)............. $4,907 $5,597 $ 5,189
Ratio of operating expenses to average net
assets (%)****............................. 1.00++ 1.00 1.00++
Ratio of net investment income to average
net assets (%)............................. 4.37++ 3.89 4.62++
Portfolio turnover rate (%)................. 93+ 134 76+
Without giving effect to voluntary expense
limitations:
The ratios of operating expenses to average
net assets would have been (%)............ 3.28++ 2.62 3.72++
Net investment income per share would have
been...................................... $ 0.16 $ 0.27 $ 0.13
</TABLE>
- -----------
* The Fund's fiscal year-end changed to September 30 from December 31.
** Commencement of investment operations.

*** Total returns would have been lower had the adviser not reduced its
advisory fee and/or borne other operating expenses.

**** The adviser has agreed to reimburse a portion of the Fund's expenses
during the period. Without this reimbursement, the Fund's ratio of
operating expenses would have been higher.

+ Periods less than one year are not annualized.

++ Computed on an annualized basis.

NOTE: Further information about each Fund's performance is contained in the
Funds' annual report to shareholders, which may be obtained without
charge.

12
<PAGE>

THE TRUST

INVESTMENT OBJECTIVES AND POLICIES

LOOMIS SAYLES CORE VALUE FUND

The Fund's investment objective is long-term growth of capital and income.

The Fund seeks to achieve its objective by investing substantially all of
its assets in common stocks or their equivalent that Loomis Sayles considers
to be undervalued in relation to the issuer's earnings, dividends, assets and
growth prospects. The Fund may invest up to 20% of its total assets in
securities of foreign issuers. The Fund may also engage in foreign currency
hedging transactions, real estate investment trusts ("REITs") and Rule 144A
securities.

LOOMIS SAYLES INTERNATIONAL EQUITY FUND

The Fund's investment objective is high total investment return through a
combination of capital appreciation and current income.

LOOMIS SAYLES MID-CAP GROWTH FUND

The Fund's investment objective is long-term capital growth from investments
in common stocks or their equivalent.

13
<PAGE>

LOOMIS SAYLES MID-CAP VALUE FUND

The Fund's objective is long-term capital growth from investments in common
stocks or their equivalent.

LOOMIS SAYLES SMALL CAP GROWTH FUND

The Fund's investment objective is long-term capital growth from investments
in common stocks or their equivalent.

14
<PAGE>

LOOMIS SAYLES SMALL CAP VALUE FUND

The Fund's investment objective is long-term capital growth from investments
in common stocks or their equivalent.

LOOMIS SAYLES STRATEGIC VALUE FUND

The Fund's investment objective is long-term capital growth from investments
in common stocks or their equivalent.

The Fund seeks to achieve its objective by investing substantially all of
its assets in equity securities that Loomis Sayles considers to be undervalued
by the markets. Stocks are selected based on a combination of quantitative
factors including historical, relative price-earnings ratios; price-earnings
ratios relative to growth rates; relative fundamentals and price movement; and
qualitative factors including the quality of management, position in the
industry, debt and balance sheet restructuring and product cycles. The Fund's
strategy is to have a relatively concentrated portfolio normally consisting of
approximately 35-40 securities that Loomis Sayles considers best positioned to
perform in the current and future environments. The Fund may invest any
portion of its assets in the securities of Canadian issuers and up to 20% of
its total assets in securities of issuers headquartered outside the United
States or Canada. The Fund may also engage in foreign currency hedging
transactions, options and futures transactions, securities lending, REITs and
Rule 144A securities.

15
<PAGE>

LOOMIS SAYLES WORLDWIDE FUND

The Fund's investment objective is high total investment return through a
combination of capital appreciation and current income.

ALL FUNDS

MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS

COMMON STOCKS AND OTHER EQUITY SECURITIES

DEBT AND OTHER FIXED INCOME SECURITIES

16
<PAGE>

that invests in fixed income securities for any particular period. The net
asset value of such a Fund's shares will vary as a result of changes in the
value of the securities in the Fund's portfolio.

ZERO COUPON SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS

WHEN-ISSUED SECURITIES

Each Fund may purchase securities on a "when-issued" basis. This means that
the Fund will enter into a commitment to buy the security before the

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security has been issued. The Fund's payment obligation and the interest rate
on the security are determined when the Fund enters into the commitment. The
security is typically delivered to the Fund 15 to 120 days later. No interest
accrues on the security between the time the Fund enters into the commitment
and the time the security is delivered. If the value of the security being
purchased falls between the time a Fund commits to buy it and the payment
date, the Fund may sustain a loss. The risk of this loss is in addition to the
Fund's risk of loss on the securities actually in its portfolio at the time.
In addition, when the Fund buys a security on a when-issued basis, it is
subject to the risk that market rates of interest will increase before the
time the security is delivered, with the result that the yield on the security
delivered to the Fund may be lower than the yield available on other,
comparable securities at the time of delivery. If a Fund has outstanding
obligations to buy when-issued securities, it will maintain liquid assets in a
segregated account at its custodian bank in an amount sufficient to satisfy
these obligations.

REAL ESTATE INVESTMENT TRUSTS

RULE 144A SECURITIES

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FOREIGN SECURITIES

Although investing in foreign securities may increase a Fund's
diversification and reduce portfolio volatility, foreign securities may
present risks not associated with investments in comparable securities of U.S.
issuers. There may be less information publicly available about a foreign
corporate or governmental issuer than about a U.S. issuer, and foreign
corporate issuers are not generally subject to accounting, auditing and
financial reporting standards and practices comparable to those in the United
States. The securities of some foreign issuers are less liquid and at times
more volatile than securities of comparable U.S. issuers. Foreign brokerage
commissions and securities custody costs are often higher than in the United
States. With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value
of investments in those countries. A Fund's receipt of interest on foreign
government securities may depend on the availability of tax or other revenues
to satisfy the issuer's obligations.

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

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FOREIGN CURRENCY HEDGING TRANSACTIONS

Foreign currency transactions involve costs and may result in losses.

OPTIONS AND FUTURES TRANSACTIONS

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these Funds may engage in these transactions either for the purpose of
enhancing investment return, or to hedge against changes in the value of other
assets that the Fund owns or intends to acquire. Options and futures fall into
the broad category of financial instruments known as "derivatives" and involve
special risks. Use of options or futures for other than hedging purposes may
be considered a speculative activity, involving greater risks than are
involved in hedging.

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REPURCHASE AGREEMENTS

SECURITIES LENDING

The Mid-Cap Growth, Mid-Cap Value, Small Cap Growth and Strategic Value
Funds may each lend its portfolio securities to broker-dealers or other
parties under contracts calling for the deposit by the borrower with the
Fund's custodian of cash collateral equal to at least the market value of the
securities loaned, marked to market on a daily basis. The Fund will continue
to benefit from interest or dividends on the securities loaned and will also
receive interest through investment of the cash collateral in short-term
liquid investments. No loans will be made if, as a result, the aggregate
amount of such loans outstanding at any time would exceed 33 1/3% of the
Fund's total assets (taken at current value). Any voting rights, or rights to
consent, relating to securities loaned pass to the borrower. However, if a
material event affecting the investment occurs, such loans will be called so
that the securities may be voted by the Fund. The Fund pays various fees in
connection with such loans, including shipping fees and reasonable custodial
or placement fees.

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YEAR 2000

Many computer software systems in use today cannot properly process date-
related information from and after January 1, 2000. Should any of the computer
systems employed by the Funds' major service providers fail to process this
type of information properly, that could have a negative impact on the Funds'
operations and the services that are provided to the Funds' shareholders.
Loomis Sayles and the Distributor have each advised the Funds that they are
reviewing all of their computer systems with the goal of modifying or
replacing such systems prior to January 1, 2000, to the extent necessary to
foreclose any such negative impact. In addition, Loomis Sayles has been
advised by the Funds' custodian that it is also in the process of review its
systems with the same goal. As of the date of this prospectus, the Funds and
Loomis Sayles have no reason to believe that these goals will not be achieved.
Similarly, the values of certain of the portfolio securities held by the Funds
may be adversely affected by the inability of the securities' issuers or of
third parties to process this type of information properly.

THE FUND'S INVESTMENT ADVISER

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Jeffrey W. Wardlow, Vice President of the Trust and of Loomis Sayles, has
served as a portfolio manager of the Core Value Fund since its commencement of
investment operations in 1991. Issac H. Green, Director of Loomis Sayles and
Vice President of the Trust and of Loomis Sayles and James L. Carroll, Vice
President of Loomis Sayles and the Trust, have served as portfolio managers of
the Core Value Fund since October of 1997. Jerome A. Castellini, Vice
President of the Trust and of Loomis Sayles, has served as the portfolio
manager of the Mid-Cap Growth Fund since its commencement of investment
operations in 1997. Scott S. Pape, Vice President of the Trust and of Loomis
Sayles, has served as a portfolio manager of the Mid-Cap Growth Fund since its
commencement of investment operations in 1997. Dean A. Gulis, Vice President
of the Trust and of Loomis Sayles has served as a portfolio manager of the
Mid-Cap Value Fund since October of 1997, Dawn Alston Paige and Peter Ramsden,
each a Vice President of Loomis Sayles, have served as portfolio managers of
the Mid-Cap Value Fund since October 1998. Christopher R. Ely, Vice President
of the Trust and of Loomis Sayles, has served as the portfolio manager and
Philip C. Fine and David L. Smith, Vice Presidents of the Trust and of Loomis
Sayles, have served as assistant portfolio managers of the Small Cap Growth
Fund since its commencement of investment operations in 1997. Jeffrey C.
Petherick, Vice President of the Trust and of Loomis Sayles, has served as a
portfolio manager of the Small Cap Value Fund since 1993, and Mary C.
Champagne, Vice President of the Trust and of Loomis Sayles, has served as a
portfolio manager of the Small Cap Value Fund since 1995. Philip J. Schettewi,
Vice President of the Trust and Loomis Sayles, has served as the portfolio
manager of the Strategic Value Fund since its commencement of investment
operations in 1997. Daniel J. Fuss, President of the Trust and Executive Vice
President of Loomis Sayles, has served as the portfolio manager of the
domestic bonds sector of the Worldwide Fund since that Fund's commencement of
investment operations in 1996. E. John deBeer, Vice President of the Trust and
of Loomis Sayles, has served as portfolio manager of the international bonds
sector of the Worldwide Fund since that Fund's commencement of investment
operations in 1996. Quentin P. Faulkner, Vice President of the Trust and of
Loomis Sayles, has served as the portfolio manager of the domestic equities
sector of the Worldwide Fund since that Fund's commencement of investment
operations in 1996. Paul H. Drexler, Vice President of the Trust and of Loomis
Sayles, has served as the portfolio manager of the international equities
sector of the Worldwide Fund since that Fund's commencement of investment
operations in 1996 and of the International Equity Fund since 1996. Each of
the foregoing, except Messrs. Carroll, Ely, Fine, Gulis and Smith, have been
employed by Loomis Sayles for at least five years. Before joining Loomis
Sayles in 1996, Mr. Carroll was a Managing Director and Senior Energy Analyst
at PaineWebber, Inc. Prior to joining Loomis Sayles in 1996, Mr. Ely was
Senior Vice President and Portfolio Manager, and Messrs. Fine and Smith were
Vice Presidents and Portfolio Managers, of Keystone Investment

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Management Company, Inc. Prior to joining Loomis Sayles in 1997, Mr. Gulis was
a Principal and Director of Research at Roney & Company.

FUND EXPENSES

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

<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
Core Value............................................................. .50%
International Equity................................................... .75%
Mid-Cap Growth......................................................... .75%
Mid-Cap Value.......................................................... .75%
Small Cap Value........................................................ .75%
Small Cap Growth....................................................... .75%
Strategic Value........................................................ .50%
Worldwide.............................................................. .75%
</TABLE>

In addition to the investment advisory fee, each Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions,
fees and expenses of registering or qualifying the Fund's shares under federal
and state securities laws, fees of the Fund's custodian, transfer agent,
independent accountants and legal counsel, expenses of shareholders' and
trustees' meetings, 12b-1 fees, expenses of preparing, printing and mailing
prospectuses to existing shareholders and fees of trustees who are not
directors, officers or employees of Loomis Sayles and its affiliated
companies.

Loomis Sayles has voluntarily agreed, for an indefinite period, to reduce
its advisory fees and/or bear other Fund expenses to the extent necessary to
limit total operating expenses of the Institutional Class shares of each Fund
to the following annual percentage rate of the Fund's average daily net
assets:

<TABLE>
<CAPTION>
FUND RATE
---- ------
<S> <C>
Core Value......................................................... .85%
International Equity............................................... 1.00%
Mid-Cap Growth..................................................... 1.00%
Mid-Cap Value...................................................... 1.00%
Small Cap Value.................................................... 1.00%
Small Cap Growth................................................... 1.00%
Strategic Value.................................................... 1.00%
Worldwide.......................................................... 1.00%
</TABLE>

Loomis Sayles may change or terminate these voluntary arrangements at any
time, but the Funds' Prospectus would be supplemented to describe the change.

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<PAGE>

Loomis Sayles may pay certain broker-dealers and financial intermediaries
whose customers are existing shareholders of the Funds a continuing fee in an
amount of up to .25% annually of the value of Fund shares held for those
customers' accounts. These fees are paid by Loomis Sayles out of its own
assets and are not assessed against the customers' accounts with the Funds.

PORTFOLIO TRANSACTIONS

HOW TO PURCHASE SHARES

An investor may make an initial purchase of shares of any Fund by submitting
a completed application form and payment to:

Boston Financial Data Services
P.O. Box 8314
Boston, Massachusetts 02266-8314
Attn: Loomis Sayles Funds

The minimum initial investment for the Institutional Class of each Fund's
shares is $1 million in that Fund. A $2,500 minimum investment applies to the
current and retired trustees of the Trust, investment advisory clients of
Loomis Sayles (and their directors, officers and employees), and current and
retired employees of Loomis Sayles and the parents, spouses and children of
the foregoing. The minimum investment may be waived in whole or in part by
Loomis Sayles in its sole discretion. Subsequent investments must be at least
$50.

Shares of any Fund may be purchased by (i) cash, (ii) exchanging
Institutional Class Shares of any Fund (or any other series of Loomis Sayles
Funds) provided the value of the shares exchanged meets the investment minimum
of the Fund into which the exchange is made, (iii) exchanging securities on
deposit with a custodian acceptable to Loomis Sayles or (iv) a combination of
such securities and cash. Purchase of shares of the Fund in exchange for
securities is subject in each case to the determination by Loomis Sayles that
the securities to be exchanged are acceptable for purchase by the Fund. In all
cases Loomis Sayles reserves the right to reject any securities that are
proposed for exchange. Securities accepted by Loomis Sayles in exchange for
Fund shares will be valued in the same manner as the Fund's assets as

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<PAGE>

described below as of the time of the Fund's next determination of net asset
value after such acceptance. All dividends and subscription or other rights
which are reflected in the market price of accepted securities at the time of
valuation become the property of the Fund and must be delivered to the Fund
upon receipt by the investor from the issuer. A gain or loss for federal
income tax purposes would be realized upon the exchange by an investor that is
subject to federal income taxation, depending upon the investor's basis in the
securities tendered. An investor who wishes to purchase shares by exchanging
securities should obtain instructions by calling 800-633-3330 option 5 and
asking for the Loomis Sayles Shareholder Services Group.

Loomis Sayles will not approve the acceptance of securities in exchange for
shares of any Fund unless (1) Loomis Sayles, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the Securities Act of 1933, as amended (the
"Securities Act") or otherwise; and (3) the securities are eligible to be
acquired under the Fund's investment policies and restrictions. No investor
owning 5% or more of Fund's shares may purchase additional shares of that Fund
by exchange of securities.

All purchases made by check should be in U.S. dollars and made payable to
State Street Bank. Third party checks will not be accepted. When purchases are
made by check or periodic account investment, redemption will not be allowed
until the investment being redeemed has been in the account for 15 calendar
days.

Upon acceptance of an investor's order, BFDS opens an account, applies the
payment to the purchase of full and fractional Fund shares and mails a
statement of the account confirming the transaction.

Subsequent investments can also be made by federal funds wire. Investors
should instruct their banks to wire federal funds to State Street Bank and
Trust Company, ABA #011000028. The text of the wire should read as follows:
"$ amount, STATE STREET BOS ATTN Mutual Funds. Credit Fund (Fund Name and
Institutional Class), DDA #9904-622-9, Account Name, Account Number." A bank
may charge a fee for transmitting funds by wire.

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<PAGE>

Each Fund also offers a Retail Class of shares that has a $25,000 minimum
investment for certain categories of investors, is offered through
intermediaries and bears higher expenses. Because of its lower expenses, the
Institutional Class of shares of each Fund is expected to have a higher total
return than the Retail Class of shares.

The Loomis Sayles Small Cap Value Fund also offers an Admin Class of shares
that is offered exclusively through intermediaries, who will be the record
owners of the shares. Because of its lower expenses, the Institutional Class
of shares of the Loomis Sayles Small Cap Value Fund is expected to have a
higher total return than the Admin Class of shares.

SHAREHOLDER SERVICES

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<PAGE>

FREE EXCHANGE PRIVILEGE. The Institutional Class shares of any Fund may be
exchanged for shares of the Institutional Class of any other Fund (or any
other fund that is a series of Loomis Sayles Funds and that offers
Institutional Class shares) or for shares of certain money market funds
advised by New England Funds Management, L.P., an affiliate of Loomis Sayles,
provided the value of the shares exchanged meets the investment minimum of
that Fund and, in the case of Loomis Sayles High Yield Fund, Loomis Sayles
Municipal Bond Fund and Loomis Sayles U.S. Government Securities Fund, Loomis
Sayles has approved the exchange of shares. Exchanges may be made by written
instructions or by telephone, unless an investor elected on the application to
decline telephone exchange privileges. The exchange privilege should not be
viewed as a means for taking advantage of short-term swings in the market, and
the Funds reserve the right to terminate or limit the privilege of any
shareholder who makes more than four exchanges in any calendar year. The Funds
may terminate or change the terms of the exchange privilege at any time, upon
60 days' notice to shareholders. An exchange is a taxable event for federal
income tax purposes in which a gain or loss would be realized by an investor
that is subject to federal income taxation.

RETIREMENT PLANS. The Funds' shares may be purchased by all types of tax-
deferred retirement plans. Loomis Sayles makes available retirement plan forms
for IRAs.

SYSTEMATIC WITHDRAWAL PLAN. If the value of an account is at least $25,000,
an investor may have periodic cash withdrawals automatically paid to the
investor or any person designated by the investor.

AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $50 may
be made automatically by pre-authorized withdrawals from an investor's
checking account.

HOW TO REDEEM SHARES

An investor can redeem shares by sending a written request to Boston
Financial Data Services, Inc., P.O. Box 8314, Boston, Massachusetts 02266. As
described below, an investor may also redeem shares by calling BFDS at 800-
626-9390. Proceeds resulting from a written or telephone redemption request
can be wired to an investor's bank account or sent by check in the name of the
registered owners to their record address.

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<PAGE>

If an investor decides to change the bank account to which proceeds are to
be wired, an investor must send in this change in writing with a signature
guarantee. Telephonic redemptions may only be made if an investor's bank is a
member of the Federal Reserve System or has a correspondent bank that is a
member of the System. Unless an investor indicates otherwise on the account
application, BFDS will be authorized to act upon redemption and exchange
instructions received by telephone from the investor or any person claiming to
act as the investor's representative who can provide BFDS with the investor's
account registration and address as it appears on the records of State Street
Bank. BFDS will employ these or other reasonable procedures to confirm that
instructions communicated by telephone are genuine; the Fund, State Street
Bank, BFDS, the Distributor and Loomis Sayles will not be liable for any
losses due to unauthorized or fraudulent instructions if these or other
reasonable procedures are followed. For information, consult BFDS. In times of
heavy market activity, an investor who encounters difficulty in placing a
redemption or exchange order by telephone may wish to place the order by mail
as described above.

The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by BFDS in proper form.

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<PAGE>

Proceeds resulting from a written redemption request will normally be mailed
to an investor within seven days after receipt of the investor's request in
good order. Telephonic redemption proceeds will normally be wired to an
investor's bank on the first business day following receipt of a proper
redemption request. If an investor purchased shares by check and the check was
deposited less than fifteen days prior to the redemption request, the Fund may
withhold redemption proceeds until the check has cleared.

CALCULATION OF PERFORMANCE INFORMATION

"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in a Fund.
Total return may also be presented for other periods.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

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<PAGE>

than one year will be taxable as such (generally at a 20% rate for
noncorporate shareholders) whether distributed in cash or additional shares
and regardless of how long an investor has owned shares of the Fund.

Certain designated dividends from the Funds are expected to be eligible for
the dividends-received deduction for corporate shareholders that meet a
holding period requirement.

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

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

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

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

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

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP One Post Office
Square Boston, Massachusetts 02109