<PAGE>
[H&M Final]
[Translation]
SECURITIES REGISTRATION STATEMENT
(as amended)
LOOMIS SAYLES FUNDS - LOOMIS SAYLES INVESTMENT GRADE BOND FUND
<PAGE>
SECURITIES REGISTRATION STATEMENT
To: Director of the Kanto
Local Finance Bureau
Filing Date of SRS: May 7, 1999
Filing Date of Amendment to SRS: May 18, 1999
Name of the Registrant Trust: LOOMIS SAYLES FUNDS
Name and Official Title of Trustees: Earl W. Foell
Richard S. Holway
Michael T. Murray
Daniel J. Fuss
Address of Principal Office: One Financial Center
Boston, Massachusetts 02111
U.S.A.
Name and Title of Registration Agent: Harume Nakano
Attorney-at-Law
Signature [Harume Nakano]
-------------------------
(Seal)
Ken Miura
Attorney-at-Law
Signature [Ken Miura]
--------------------
(Seal)
Address or Place of Business Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
Name of Liaison Contact: Harume Nakano
Ken Miura
Attorneys-at-Law
Place of Liaison Contact: Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
Phone Number: 03-3580-3377
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Public Offering or Sale for Registration
----------------------------------------
Name of the Fund Making Public LOOMIS SAYLES INVESTMENT GRADE
Offering or Sale of Foreign BOND FUND
Investment Fund Securities:
Type and Aggregate Amount of Shares of a series of a diversified
Foreign Investment Fund Securities open-end management investment company
to be Publicly Offered or Sold: organized as a Massachusetts business
trust;
Up to 120 million shares
Up to the amount derived by multiplying
120 million by the respective applicable
issue prices (the estimated maximum
amount is 1,233.6 million dollars
(approximately 148.7 billion yen))
Note 1: U.S.$ amount is translated into Japanese Yen at the rate of
U.S.$1.00=y120.55 the mean of the exchange rate quotations by The Bank
of Tokyo-Mitsubishi, Ltd. for buying and selling spot dollars by
telegraphic transfer against yen on 31st March, 1999.
Note 2: The maximum amount expected to be sold is an amount calculated by
multiplying the net asset value per Institutional Class Share as of
March 31, 1999 (U.S.$10.28) by the number of Class J Shares to be
offered for convenience.
Places where a copy of this Securities Registration
---------------------------------------------------
Statement is available for Public Inspection
--------------------------------------------
Not applicable.
(Total number of pages of this Securities Registration Statement in Japanese is
90 including front and back pages.)
<PAGE>
CONTENTS
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<TABLE>
<CAPTION>
Japanese This
Original English
Translation
<S> <C> <C>
PART I. INFORMATION CONCERNING SECURITIES ..... 1 1
PART II. INFORMATION CONCERNING ISSUER ......... 4 6
I. DESCRIPTION OF THE FUND .................... 4 6
1. GENERAL INFORMATION .................... 4 6
2. INVESTMENT POLICY ...................... 8 11
3. MANAGEMENT STRUCTURE ................... 26 36
4. INFORMATION CONCERNING THE EXERCISE
OF RIGHTS BY SHAREHOLDERS, ETC. ........ 35 49
5. STATUS OF INVESTMENT FUND .............. 39 55
II. OUTLINE OF THE TRUST ....................... 42 59
III. OUTLINE OF THE OTHER RELATED COMPANIES ..... 56 81
IV. FINANCIAL CONDITION OF THE FUND ............ 59 85
V. SUMMARY OF INFORMATION CONCERNING
FOREIGN INVESTMENT FUND SECURITIES ......... 142 88
VI. MISCELLANEOUS .............................. 143 88
PART III. SPECIAL INFORMATION ................... 144 90
I. OUTLINE OF THE SYSTEM OF INVESTMENT
TRUSTS IN MASSACHUSETTS .................... 144 90
II. FINANCIAL CONDITIONS OF THE INVESTMENT
ADVISER AND MANAGEMENT COMPANY ............. 151 99
III. FORM OF FOREIGN INVESTMENT
FUND SECURITIES ............................ 176 99
</TABLE>
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PART I. INFORMATION CONCERNING SECURITIES
1. NAME OF FUND: LOOMIS SAYLES INVESTMENT GRADE
BOND FUND
(hereinafter referred to as the "Fund")
2. NATURE OF FOREIGN Three classes of shares (Class J Shares,
INVESTMENT FUND SECU- Institutional Class Shares and Retail Class
RITIES CERTIFICATES: Shares)
Registered Shares without par value
In Japan Class J Shares (hereinafter referred to as
the "Shares") are for public offering. No rating
has been acquired.
3. NUMBER OF SHARES TO Up to 120 million shares
BE OFFERED FOR SALE
(IN JAPAN)
4. TOTAL AMOUNT OF Up to the amount calculated by multiplying the
OFFERING PRICE: respective applicable issue price per share by the
(IN JAPAN) number of respective issues (the estimated
maximum amount will be 1,233.6 million dollars
(approximately 148.7 billion yen))
Note 1: The maximum amount is calculated for reference purpose only by
multiplying the issue price per Institutional class as of March 31,
1999 share (10.28 dollars) by maximum shares during the continuous
offering period.
Note 2: Dollar amount is translated for convenience at the rate of
Y=$1.00=120.55 (the mean of the exchange rate quotations by The
Bank of Tokyo-Mitsubishi, Ltd. for buying and selling spot dollars
by telegraphic transfer against yen on 31st March, 1999). The same
applies hereinafter.
Note 3: In this document, money amounts and percentages have been rounded.
Therefore, there are cases in which the amount of the "total
column" is not equal to the aggregate amount. Also, translation
into yen is made simply by multiplying the corresponding amount by
the conversion rate specified and rounded up when necessary. As a
result, in this document, there are cases in which Japanese yen
figures for the same information differ from each other.
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5. ISSUE PRICE: Net Asset Value per Share next calculated on the
day on which the Fund has received such
application
6. SALES CHARGE: 3.00% of the Sales Price. The Sales Price
means the Issue Price divided by 0.995 (rounded
to the third decimal place).
Note: Consumption tax on the sales charge will be added.
7. MINIMUM AMOUNT OR The minimum amount for purchase of
NUMBER OF SHARES Shares is 100 shares and shares may be
FOR SUBSCRIPTION: purchased in integral multiples of 100 shares.
8. PERIOD OF SUBSCRIPTION: from May 24, 1999 (Monday) to March 31, 2000
(Friday)
Provided that the subscription is handled only on
a Fund Business Day and a business day when
the Distributors in Japan are open for business
in Japan.
It is expected that the Fund will reject purchase
orders in excess of U.S. $5 million on each of
the five Fund Business Days preceding the ex
dividend day of each month.
Note: A "Fund Business Day" is any day on which the New York Stock
Exchange is open for business.
9. DEPOSIT FOR SUBSCRIPTION: None.
10. PLACE OF SUBSCRIPTION: Marusan Securities Co., Ltd. (hereinafter
referred to as "Marusan")
5-2, Nihonbashi 2-chome, Chuo-ku, Tokyo
Izumi Securities Co., Ltd. ('1ereinafter referred
to as "Izumi")
17-24, Shinkawa 1-chome, Chuo-ku, Tokyo
Tokyo Mitsubishi Personal Securities Co., Ltd.
(hereinafter referred to as "Tokyo Mitsubishi")
17-12, Nihonbashi 1-chome, Chuo-ku, Tokyo
<PAGE>
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(hereinafter the above three companies referred
to as "Distributors in Japan" collectively or as
"Distributor in Japan" severally.)
Note: The subscription is handled at the head office and the branch
offices in Japan of the above-mentioned securities company.
11. DATE AND PLACE Investors shall pay the Sales Price and Sales
OF PAYMENT: Charge to the Distributors in Japan within 4
business days in Japan when the Distributors in
Japan confirm the execution of the order. The
total Issue Price will be transferred by the
Distributors in Japan to the account of the Fund
at State Street Bank and Trust Company, the
custodian, within 3 Fund Business Days from
(and including) the day on which the application
becomes effective.
12. OUTLINE OF UNDERWRITING, ETC.:
(A) The Distributors in Japan will undertake to make a public offering of
Shares in accordance with an agreement dated May 4, 1999 with Loomis Sayles
Distributors, L.P. (hereinafter referred to as the "Distributor") in
connection with the sale of the Shares in Japan.
(B) During the public offering period, the Distributors in Japan will execute
or forward the purchase orders of the Shares received directly or
indirectly through other Sales Handling Companies (hereinafter, together
with the Distributors in Japan, referred to as "Sales Handling Companies")
to the Fund.
(C) The Fund has appointed Marusan as the Agent Company in Japan.
Note: "The Agent Company" shall mean a securities company which, under a
contract made with a foreign issuer of investment securities, makes
public the net asset value per Share and submits or forwards the
financial reports or other documents to the Japan Securities Dealers
Association ("JSDA") and other sales handling companies (the "Sales
Handling Companies") rendering such other services.
13. MISCELLANEOUS:
(A) Method of Subscription:
Investors who subscribe to Shares shall enter into a Sales Handling
Company an agreement concerning transactions of foreign securities. A Sales
Handling Company shall provide to the investors a Contract Concerning a
Foreign Securities
<PAGE>
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Transactions Account (the "Contract") and the investors shall submit to the
Sales Handling Company an application for requesting the opening of a
transactions account under the Contract. The subscription amount shall be
paid in yen in principle and the yen exchange rate shall be the exchange
rate which shall be based on the foreign exchange rate quoted in the Tokyo
Foreign Exchange Market on the Trade Day of each subscription and which
shall be determined by such Sales Handling Company.
(B) Expenses summary:
The following information is provided as an aid in understanding the
various expenses that an investor in the Fund will bear indirectly. The
information below is based on estimated expenses for the Fund's 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>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as % of offering price) .............. 3.50%
Maximum Sales Load Imposed on Reinvested Dividends (as % of offering price) ... none
Maximum Deferred Sales Load (as % of original purchase price or redemption
proceeds) .................................................................. none
Redemption Fees /1 ............................................................ none
Exchange Fees ................................................................. none
Annual Fund Operating Expenses (as a percentage of average net assets):
Management Fees ............................................................... .40%
12b-1 Fees /2 ................................................................. .75%
Other Operating Expenses ...................................................... .15%
Total Operating Expenses ...................................................... 1.30%
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 ...................................................................... $ 48
Three Years ................................................................... $ 76
</TABLE>
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1 A $5 charge applies to any wire transfer of redemption proceeds.
2 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.
<PAGE>
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(C) Offerings other than in Japan:
In parallel with the Public Offering in Japan the Institutional Class
Shares and the Retail Class Shares will be offered in the United States of
America.
<PAGE>
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PART II. INFORMATION CONCERNING ISSUER
I. DESCRIPTION OF THE FUND
1. GENERAL INFORMATION
(A) Outline Of Laws Regulating the Fund in the Jurisdiction Where Established:
(1) Name of the Fund: Loomis Sayles Investment Grade Bond
Fund (the "Fund")
(2) Form of the Fund
The Fund is a series of Loomis Sayles Funds (the "Trust").
The Trust is a diversified open-ended management investment company
organized as a Massachusetts business trust under the laws of Massachusetts
by an Agreement and Declaration of Trust (the "Declaration of Trust") dated
February 20, 1991. The Trust currently has seventeen series: The Bond Fund,
Core Value Fund, Global Bond Fund, Growth Fund, High Yield Fund,
Intermediate Maturity Bond Fund, International Equity Fund, Investment
Grade Bond Fund, Managed Bond Fund, Mid-Cap Growth Fund, Mid-Cap Value
Fund, Municipal Bond Fund, Short-Term Bond Fund, Small Cap Growth Fund,
Small Cap Value Fund, U.S. Government Securities Fund and Worldwide Fund.
The Declaration of Trust currently permits the trustees to issue an
unlimited number of full and fractional shares of each series. Each share
of the Fund represents an equal proportionate interest in the Fund with
each other share of the Fund and is entitled to a proportionate interest in
the dividends and distributions from the Fund. The shares of the Fund do
not have any preemptive rights. Upon termination of the Fund, whether
pursuant to liquidation of the Trust or otherwise, shareholders of the Fund
are entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders. The Declaration of Trust also permits the
trustees to charge shareholders directly for custodial, transfer agency and
servicing expenses.
The assets received by the Fund for the issue or sale of its shares
and all income, earnings, profits, losses and proceeds therefrom, subject
only to the rights of creditors, are allocated to, and constitute the
underlying assets of, the Fund. The underlying assets are segregated and
are charged with the expenses with respect to the Fund and with a share of
the general expenses of the Trust. Any general expenses of the Trust that
are not readily identifiable as belonging to a particular Fund are
allocated by or under the direction of the trustees in such manner as the
trustees determine to be fair and equitable. While the expenses of the
Trust are allocated to the separate books of account of each series,
certain expenses may be legally chargeable against the assets of all
series.
<PAGE>
-7-
The Declaration of Trust also permits the trustees to issue additional
funds without shareholder approval. The trustees may, without shareholder
approval, divide the shares of any fund into two or more classes, shares of
each such class having such preferences and special or relative rights and
privileges as the trustees may determine or as set forth in the By-Laws.
Shares of the Fund are currently divided into three classes designated as
the Institutional Class, Retail Class and Class J. The trustees may from
time to time divide or combine the shares of any fund or class into a
greater or lesser number without thereby changing the proportionate
beneficial interest in the fund or class.
THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE U.S. PROSPECTUS.
(3) Governing Laws
The Trust was created under, and is subject to, the laws of the
Commonwealth of Massachusetts. The sale of the Trust's shares is subject
to, among other things, the Securities Act of 1933, as amended, and certain
state securities laws. The Trust also attempts to qualify each year and
elect to be taxed as a regulated investment company under the United States
Internal Revenue Code of 1986, as amended.
The following is a broad outline of certain of the principal statutes
regulating the operations of the Trust in the U.S.:
a. Massachusetts General Laws, Chapter 182 - Voluntary Associations
and Certain Trusts
Chapter 182 provides in part as follows:
A copy of the declaration of trust must be filed with the
Secretary of State of the Commonwealth of Massachusetts and with the
Clerk of the City of Boston. Any amendment of the declaration of trust
must be filed with the Secretary and the Clerk within thirty days
after the adoption of such amendment.
A trust must annually file with the Secretary of State on or
before June 1 a report providing the name of the trust, its address,
number of shares outstanding and the names and addresses of its
trustees.
Penalties may be assessed against the trust for failure to comply
with certain of the provisions of Chapter 182.
<PAGE>
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b. Investment Company Act of 1940
The Investment Company Act of 1940, as amended (the "1940 Act"),
in general, requires investment companies to register as such with the
U.S. Securities and Exchange Commission (the "SEC"), and to comply
with a number of substantive regulations of their operations. The 1940
Act requires an investment company, among other things, to provide
periodic reports to its shareholders.
c. Securities Act of 1933
The Securities Act of 1933, as amended (the "1933 Act"), regulates
sales of securities. The Act, among other things, imposes various
registration requirements upon sellers of securities and provides for
various liabilities for failures to comply with its provisions or in
respect of other specified matters.
d. Securities Exchange Act of 1934
The Securities Exchange Act of 1934, as amended (the "1934 Act"),
regulates a variety of matters involving, among other things, the
secondary trading of securities, periodic reporting by the issuers of
securities, and certain of the activities of transfer agents and
brokers and dealers.
e. The Internal Revenue Code
The Trust intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
necessary for it to be relieved of federal taxes on income and gains
it distributes to shareholders.
f. Other laws
The Trust is subject to the provisions of other laws, rules, and
regulations applicable to the Trust or its operations, such as, for
example, various state laws regarding the sale of the Trust's shares.
(B) Outline of the Supervisory Authorities
Among the regulatory authorities having jurisdiction over the Trust or
certain of its operations are the SEC and state regulatory agencies or
authorities.
a. The SEC has broad authority to oversee the application and
enforcement of the federal securities laws, including the 1940 Act,
the 1933 Act, and the 1934 Act, among others, to the Trust. The 1940
Act provides the SEC broad authority to inspect the records of
investment companies, to exempt investment companies or certain
practices from the provisions of the Act, and otherwise to enforce the
provisions of the Act.
b. State authorities typically have authority to regulate the
offering and sale of securities to their residents or within their
jurisdictions and the
<PAGE>
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activities of brokers, dealers, or other persons directly or indirectly
engaged in related activities.
(C) Objects and Basic Nature of the Fund:
The Fund's investment objective is high total investment return
through a combination of current income and capital appreciation.
(D) History of the Fund:
February 20, 1991: Organization of the Trust as a Massachusetts
business trust. Adoption of the Declaration of
Trust.
October 21, 1996: Adoption of Resolutions by the Board of
Trustees of the Trust to establish the Fund.
January 2, 1997 Commencement of management of the Fund
May 24, 1999 Commencement of the Public Offering in Japan
(E) Affiliated Companies of the Fund:
Names and related business of the affiliated companies of the Fund
are as follows:
(1) Loomis, Sayles & Company, L.P. ("Investment Management
-----------------------------
Company" or "Loomis Sayles") renders investment management
services to the Fund.
(2) State Street Bank and Trust Company (the "Custodian" and
-----------------------------------
"Shareholder Servicing , Transfer and Dividend Paying Agent") acts
as Custodian and Shareholder Servicing , Transfer and Dividend
Paying Servicing Agent.
(3) Loomis Sayles Distributors, L.P. ("Distributor") engages in
-------------------------------
providing marketing services to the Fund.
(4) Marusan Securities Co., Ltd. ("Distributor in Japan" and "Agent
---------------------------
Company") engages in forwarding the purchase or repurchase orders
for the Shares in Japan and also acts as the agent company.
<PAGE>
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Related Companies of the Fund
[LEFT HAND SIDE OF THE CHART]
Loomis Sayles
Funds ("Trust")
Loomis Sayles Investment Grade Bond Fund ("Fund")
Trustees (Agreement and Declaration of Trust)
Amended and Restated Distribution
Distributor
Loomis Sayles Distributors, L.P. (acts as distributor)
Distribution, Repurchase and Shareholder Servicing Agreement
Agent Company Agreement
Distributor in Japan Agent Company
Marusan Securities Co., Ltd.
(forwarding of sales in Japan and rendering of service as agent company)
[RIGHT HAND SIDE OF THE CHART]
Shareholder Servicing and Transfer Agent Agreement
Custody Contract
Custodian Shareholder Servicing, Transfer and Dividend Paying Agent
State Street Bank and Trust Company
(acts as custodian and shareholder servicing, transfer and dividend paying
agent of the Fund)
Advisory Agreement
Investment Management Company
Loomis Sayles & Company, L.P.
(acts as investment management of the Fund and investment adviser concerning
the Fund's assets)
<PAGE>
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2. INVESTMENT POLICY
(A) Basic Policy for Investment
The Fund seeks to achieve its objective by normally investing 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, 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, swap transactions and securities lending. The Fund may invest
any portion of its assets in securities of Canadian issuers, and up to 20%
of its total assets in securities of other foreign issuers.
The percentages of the Fund's assets invested as of September 30, 1998
in securities assigned to the various rating categories by Standard &
Poor's and Moody's Investors Service, Inc. ("Moody's") at the time of
purchase or, if unrated, determined by Loomis Sayles to be of comparable
quality, were as follows:
<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>
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* 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.
<PAGE>
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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 policies that are identified as
"fundamental," all of the investment policies of each Fund may be changed
without a vote of Fund shareholders.
(B) Objects of Investment
Debt and Other Fixed Income Securities
The Fund may invest in fixed income securities of any maturity. Fixed
income securities pay a specified rate of interest or dividends, or a rate
that is adjusted periodically by reference to some specified index or
market rate. Fixed income securities include securities issued by federal,
state, local and foreign governments and related agencies, and by a wide
range of private issuers. Because interest rates vary, it is impossible to
predict the total return of the Fund, which invests in fixed income
securities, for any particular period. The net asset value of the Fund's
shares will vary as a result of changes in the value of the securities in
the Fund's portfolio.
Fixed income securities are subject to market and credit risk. Market
risk relates to changes in a security's value as a result of changes in
interest rates generally. In general, the values of fixed income securities
increase when prevailing interest rates fall and decrease when interest
rates rise. Credit risk relates to the ability of the issuer to make
payments of principal and interest.
U.S. Government Securities
U.S. Government Securities have different kinds of government support.
For example, some U.S. Government Securities, such as U.S. Treasury bonds,
are supported by the full faith and credit of the United States, whereas
certain other U.S. Government Securities issued or guaranteed by federal
agencies or government-sponsored enterprises are not supported by the full
faith and credit of the United States.
Although U.S. Government Securities generally do not involve the
credit risks associated with other types of fixed income securities, the
market values of U.S. Government Securities do go up and down as interest
rates change. Thus, for example, the value of an investment in the Fund,
when it holds U.S. Government Securities may fall during times of rising
interest rates. Yields on U.S. Government Securities tend to be lower than
those on corporate securities of comparable maturities.
Some U.S. Government Securities, such as Government National Mortgage
Association Certificates ("GNMA"), are known as "mortgage-backed"
securities.
<PAGE>
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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.
U.S. Government Securities include direct obligations of the U.S.
Treasury, as well as securities issued or guaranteed by U.S. Government
agencies, authorities and instrumentalities, including, among others, the
Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation, Fannie Mae, the Federal Housing Administration, the Resolution
Funding Corporation, the Federal Farm Credit Banks, the Federal Home Loan
Bank, the Tennessee Valley Authority, the Student Loan Marketing
Association and the Small Business Administration. More detailed
information about some of these categories of U.S. Government Securities
follows.
U.S. Treasury Bills Direct obligations of the United States Treasury
which are issued in maturities of one year or less. No interest is paid on
Treasury bills; instead, they are issued at a discount and repaid at full
face value when they mature. They are backed by the full faith and credit
of the United States Government.
U.S. Treasury Notes and Bonds Direct obligations of the United States
Treasury issued in maturities that vary between one and forty years, with
interest normally payable every six months. They are backed by the full
faith and credit of the United States Government.
"Ginnie Maes" Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages insured by the
Federal Housing Administration or the Farmer's Home Administration or
guaranteed by the Veterans Administration. The Government National Mortgage
Association ("GNMA") guarantees the timely payment of principal and
interest when such payments are due, whether or not these amounts are
collected by the issuer of these certificates on the underlying mortgages.
An assistant attorney general of the United States has rendered an opinion
that the guarantee by GNMA is a general obligation of the United States
backed by its full faith and credit. Mortgages included in single
<PAGE>
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family or multi-family residential mortgage pools backing an issue of
Ginnie Maes have a maximum maturity of up to 30 years. Scheduled payments
of principal and interest are made to the registered holders of Ginnie Maes
(such as the Fund) each month. Unscheduled prepayments may be made by
homeowners, or as a result of a default. Prepayments are passed through to
the registered holder of Ginnie Maes along with regular monthly payments of
principal and interest.
"Fannie Maes" Fannie Mae is a government-sponsored corporation owned
entirely by private stockholders that purchases residential mortgages from
a list of approved seller/servicers. Fannie Maes are pass-through
securities issued by Fannie Maes that are guaranteed as' to timely payment
of principal and interest by Fannie Maes but are not backed by the full
faith and credit of the United States Government.
"Freddie Macs" The Federal Home Loan Mortgage Corporation ("FHLMC") is
a corporate instrumentality of the United States Government. Freddie Macs
are participation certificates issued by FHLMC that represent an interest
in residential mortgages from FHLMC's National Portfolio. FHLMC guarantees
the timely payment of interest and ultimate collection of principal, but
Freddie Macs are not backed by the full faith and credit of the United
States Government.
As described above, U.S. Government Securities generally do not
involve the same credit risks associated with investments in other types of
fixed-income securities, although, as a result, the yields available from
U.S. Government Securities are generally lower than the yields available
from corporate fixed-income securities. Like other fixed-income securities,
however, the value of U.S. Government Securities change as interest rates
fluctuate. Fluctuations in the value of portfolio securities will not
affect interest income on existing portfolio securities but will be
reflected in the Fund's net asset value.
Lower Rated Fixed Income Securities
The Fund may invest up to 10% of its total assets in securities rated
below investment grade (commonly referred to as "junk bonds"). A security
will be treated as being of investment grade quality if at the time the
Fund acquires it at least one major rating agency has rated the security in
its top four rating categories (even if another such agency has issued a
lower rating), or if the security is unrated but Loomis Sayles determines
it to be of investment grade quality. Lower rated fixed income securities
generally provide higher yields, but are subject to greater credit and
market risk, than higher quality fixed income securities. Lower rated fixed
income securities are considered predominantly speculative with respect to
the ability of the issuer to meet principal and interest payments.
Achievement of the investment objective of
<PAGE>
-15-
the Fund, when it invests in lower rated fixed income securities may be
more dependent on Loomis Sayles' own credit analysis than is the case with
higher quality bonds. The market for lower rated fixed income securities
may be more severely affected than some other financial markets by economic
recession or substantial interest rate increases, by changing public
perceptions of this market or by legislation that limits the ability of
certain categories of financial institutions to invest in these securities.
In addition, the secondary market may be less liquid for lower rated fixed
income securities. This lack of liquidity at certain times may affect the
values of these securities and may make the evaluation and sale of these
securities more difficult. Securities in the lowest rating categories may
be in poor standing or in default. Securities in the lowest investment
grade category (BBB or Baa) have some speculative characteristics.
For more information about the rating services' descriptions of the
various rating categories.
STANDARD & POOR'S
-------- - ------
AAA
---
This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.
AA
--
Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A
-
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
BBB
---
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest
for bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC
--- -- ---- --
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and CC the highest degree of speculation. While such bonds
will likely have some
<PAGE>
-16-
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C
-
The rating C is reserved for income bonds on which no interest is being
paid.
D
-
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
r
-
The symbol is attached to the ratings of instruments with significant
noncredit risks such as risks to principal or volatility of expected
returns.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC.
------- ------------------ ----
Aaa
---
Bonds that are rated Aaa re judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or by an
exceptionally stable, margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
--
Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present that make the long-term risks appear somewhat larger than
in Aaa securities.
A
-
Bonds that are rated A 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 are
principal security
<PAGE>
-17-
appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Ba
--
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
-
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
---
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
--
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
-
Bond which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.
<PAGE>
-18-
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, Al, Baal, Bal and Bl.
Common Stocks and Other Equity Securities
Common stocks and similar equity securities, such as warrants and
convertibles, are volatile and more risky than some other forms of
investment. The value of an investment in the Fund, when it invests in
equity securities may sometimes decrease. Equity securities of companies
with relatively small market capitalization may be more volatile than the
securities of larger, more established companies and than the broad equity
market indexes.
Zero Coupon Securities
The Fund may invest in "zero coupon" fixed income securities. These
securities accrue interest at a specified rate, but do not pay interest in
cash on a current basis. The Fund is required to distribute the income on
these securities to Fund shareholders as the income accrues, even though
the Fund is not receiving the income in cash on a current basis. Thus the
Fund may have to sell other investments to obtain cash to make income
distributions at times when Loomis Sayles would not otherwise deem it
advisable to do so. The market value of zero coupon securities is often
more volatile than that of non-zero coupon fixed income securities of
comparable quality and maturity.
Zero Coupon Bonds
Zero coupon bonds are debt obligations that do not entitle the holder
to any periodic payments of interest either for the entire life of the
obligation or for an initial period after the issuance of the obligations.
Such bonds are issued and traded at a discount from their face amount. The
amount of the discount varies depending on such factors as the time
remaining until maturity of the bonds, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer.
The market prices of zero coupon bonds generally are more volatile than the
market prices of securities that pay interest periodically and are likely
to respond to changes in interest rates to a greater degree than do non-
zero coupon bonds having similar maturities and credit quality. In order to
satisfy a requirement for qualification as a "regulated investment company"
under the Internal Revenue Code (the "Code"), the Fund must distribute each
year at least 90% of its net investment income, including the original
issue discount accrued on zero coupon bonds. Because the Fund investing in
zero coupon bonds will not on a current basis receive cash payments from
the issuer in respect of accrued original issue discount, the Fund may have
to distribute cash
<PAGE>
-19-
obtained from other sources in order to satisfy the 90% distribution
requirement under the Code. Such cash might be obtained from selling other
portfolio holdings of the Fund. In some circumstances, such sales might be
necessary in order to satisfy cash distribution requirements even though
investment considerations might otherwise make it undesirable for the Fund
to sell such securities at such time.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities, such as GNMA or
Fannie Mae certificates, which differ from traditional debt securities.
Among the major differences are that interest and principal payments are
made more frequently, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans generally may be prepaid at
any time. As a result, if the Fund purchases these assets at a premium, a
faster-than-expected prepayment rate will reduce yield to maturity, and a
slower-than-expected prepayment rate will increase yield to maturity. if
the Fund purchases mortgage-backed securities at a discount, faster-than-
expected prepayments will increase, and slower-than-expected prepayments
will reduce, yield to maturity. Prepayments, and resulting amounts
available for reinvestment by the Fund, are likely to be greater during a
period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates. Accelerated prepayments on securities
purchased at a premium may result in a loss of principal if the premium has
not been fully amortized at the time of prepayment. Although these
securities will decrease in value as a result of increases in interest
rates generally, they are likely to appreciate less than other fixed-income
securities when interest rates decline because of the risk of prepayments.
Stripped Mortgage-Backed Securities
The Fund may invest in interest-only and principal-only classes of
mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an
10 or P0 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 lOs. if the assets underlying the lOs 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.
<PAGE>
-20-
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. CMOs may be issued either by U.S. Government
instrumentalities or by non-governmental entities. The issuer's obligation
to make interest and principal payments is secured by the underlying
portfolio of mortgages or mortgage-backed securities. CMOs are issued with
a number of classes or series which have different maturities and which may
represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes
are generally retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. In the event of sufficient early prepayments on
such mortgages, the class or series of CMOs first to mature generally will
be retired prior to its maturity. As with other mortgage-backed securities,
the early retirement of a particular class or series of CMOs held by the
Fund could involve the loss of any premium the Fund paid when it acquired
the investment and could result in the Fund's reinvesting the proceeds at a
lower interest rate than the retired CMO paid. Because of the early
retirement feature, CMOs may be more volatile than many other fixed income
investments.
Asset-Backed Securities
The Fund may invest in asset-backed securities. Through the use of
trusts and special purpose corporations, automobile and credit card
receivables are securitized in pass-through structures similar to mortgage
pass-through structures or in a pass-through structure similar to the CMO
structure. Generally, the issuers of asset-backed bonds, notes or pass-
through certificates are special purpose entities and do not have any
significant assets other than the receivables securing such obligations. In
general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans. Instruments backed by pools of receivables
are similar to mortgage-backed securities in that they are subject to
unscheduled prepayments of principal prior to maturity. When the
obligations are prepaid, the Fund will ordinarily reinvest the prepaid
amounts in securities the yields of which reflect interest rates prevailing
at the time. 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.
<PAGE>
-21-
When-Issued Securities
The Fund may purchase securities on a "when-issued" basis. This means
that the Fund will enter into a commitment to buy the security before the
security has been issued. The Fund's payment obligation and the interest
rate on the security are determined when the Fund enters into the
commitment. The security is typically delivered to the Fund 15 to 120 days
later. No interest accrues on the security between the time the Fund enters
into the commitment and the time the security is delivered. if the value of
the security being purchased falls between the time the Fund commits to buy
it and the payment date, the Fund may sustain a loss. The risk of this loss
is in addition to the Fund's risk of loss on the securities actually in its
portfolio at the time. In addition, when the Fund buys a security on a
when-issued basis, it is subject to the risk that market rates of interest
will increase before the time the security is delivered, with the result
that the yield on the security delivered to the Fund may be lower than the
yield available on other, comparable securities at the time of delivery. if
a Fund has outstanding obligations to by when issued securities, it will
maintain liquid assets in a segregated account at its custodian bank in an
amount sufficient to satisfy these obligations.
The Fund may enter into agreements with banks or broker-dealers for
the purchase or sale of securities at an agreed-upon price on a specified
future date. Such agreements might be entered into, for example, when the
Fund that invests in fixed income securities anticipates a decline in
interest rates and is able to obtain a more advantageous yield by
committing currently to purchase securities to be issued later. When the
Fund purchases securities in this manner (i.e. on a when-issued or delayed-
delivery basis), it is required to create a segregated account with the
Trust's custodian and to maintain in that account liquid assets in an
amount equal to or greater than, on a daily basis, the amount of the Fund's
when-issued or delayed-delivery commitments. The Fund will make commitments
to purchase on a when-issued or delayed-delivery basis only securities
meeting the Fund's investment criteria. The Fund may take delivery of these
securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date.
When the time comes to pay for when-issued or delayed-delivery securities,
the Fund will meet its obligations from then available cash flow or the
sale of securities, or from the sale of the when-issued or delayed-delivery
securities themselves (which may have a value greater or less than the
Fund's payment obligation).
<PAGE>
-22-
Convertible Securities
The 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 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.
Convertible securities include corporate bonds, notes or preferred
stocks of U.S. or foreign issuers that can be converted into (that is,
exchanged for) common stocks or other equity securities. Convertible
securities also include other securities, such as warrants, that provide an
opportunity for equity participation. Because convertible securities can be
converted into equity securities, their values will normally vary in some
proportion with those of the underlying equity securities. Convertible
securities usually provide a higher yield than the underlying equity,
however, so that the price decline of a convertible security may sometimes
be less substantial than that of the underlying equity security.
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-
<PAGE>
-23-
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 resources, may trade less frequently and in a limited volume and
may be subject to more abrupt or erratic price movements than larger
securities.
Rule 144A Securities
The Fund may invest in Rule 144A securities, which are privately
offered securities that can be resold only to certain qualified
institutional buyers. Rule 144A securities are treated as illiquid, unless
Loomis Sayles has determined, under guidelines established by the Trust's
trustees, that the particular issue of Rule 144A securities is liquid.
Under the guidelines, Loomis Sayles considers such factor as: (1) the
frequency of trades and quotes for a security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades
therefor.
Non-U.S. Securities
The Fund may invest in securities of issuers organized or
headquartered outside the United States ("non-U.S. securities"). The Fund
may invest any portion of its assets in securities of Canadian issuers, but
will not purchase foreign securities other than those of Canadian issuers
if, as a result, the Fund's holdings of non-U.S. and non-Canadian
securities would exceed 20% of the Fund's total assets.
Although investing in non-U.S. securities may increase the Fund's
diversification and reduce portfolio volatility, non-U.S. securities may
present risks not associated with investments in comparable securities of
U.S. issuers. There may be less information publicly available about a non-
U.S. corporate or government issuer than about a U.S. issuer, and non-U.S.
corporate issuers are not generally subject to accounting, auditing and
financial reporting standards and practices comparable to those in the
United States. The securities of some non-U.S. issuers are less liquid and
at times more volatile than securities of comparable U.S. issuers. Non-U.S.
brokerage commissions and securities custody costs are often higher than in
the United States. With respect to certain non-U.S. countries, there is a
possibility of governmental expropriation of assets, confiscatory taxation,
political or financial instability and diplomatic developments that could
affect the value of investments in those countries. The Fund's receipt of
interest on non-U.S. government securities
<PAGE>
-24-
may depend on the availability of tax or other revenues to satisfy the
issuer's obligations.
The Fund's investments in non-U.S. securities may include investments
in countries whose economies or securities markets are not yet highly
developed. Special considerations associated with these investments (in
addition to the considerations regarding non-U.S. investments generally)
may include, among others, greater political uncertainties, an economy's
dependence on revenues from particular commodities or on international aid
or development assistance, currency transfer restrictions, highly limited
numbers of potential buyers for such securities and delays and disruptions
in securities settlement procedures.
Since most non-U.S. securities are denominated in non-U.S. currencies
or traded primarily in securities markets in which settlements are made in
non-U.S. currencies, the value of these investments and the net investment
income available for distribution to shareholders of a Fund investing in
these securities may be affected favorably or unfavorably by changes in
currency exchange rates, exchange control regulations or non-U.S.
withholding taxes. Changes in the value relative to the U.S. dollar of a
non-U.S. currency in which the Fund's holdings are denominated will result
in a change in the U.S. dollar value of the Fund's assets and the Fund's
income available for distribution.
In addition, although part of the Fund's income may be received or
realized in non-U.S. currencies, the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the value of a
currency relative to the U.S. dollar declines after the Fund's income has
been earned in that currency, translated into U.S. dollars and declared as
a dividend, but before payment of the dividend, the Fund could be required
to liquidate portfolio securities to pay the dividend. Similarly, if the
value of a currency relative to the U.S. dollar declines between the time
the Fund accrues expenses in U.S. dollars and the time such expenses are
paid, the amount of such currency required to be converted into U.S.
dollars will be greater than the equivalent amount in such currency of such
expenses at the time they were incurred.
In determining whether to invest assets of a Fund in securities of a
particular non-U.S. issuer, Loomis Sayles will consider the likely effects
of non-U.S. taxes on the net yield available to the Fund and its
shareholders. Compliance with non-U.S. tax law may reduce the Fund's net
income available for distribution to shareholders.
Non-U.S. Currency Hedging Transactions
The Fund may engage in non-U.S. 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
<PAGE>
-25-
quoted. For example, to protect against a change in the non-U.S. currency
exchange rate between the date on which the Fund contracts to purchase or
sell a security and the settlement date for the purchase or sale, or to
"lock in" the equivalent of a dividend or interest payment in another
currency, the Fund might purchase or sell a non-U.S. currency on a spot
(that is, cash) basis at the prevailing spot rate. If conditions warrant,
the Fund may also enter into private contracts to purchase or sell non-U.S.
currencies at a future date ("forward contracts"). The Fund might also
purchase exchange-listed and over-the-counter call and put options on non-
U.S. currencies. Over-the-counter currency options are generally less
liquid than exchange-listed options, and will be treated as illiquid
assets. The Fund may not be able to dispose of over-the-counter options
readily.
Non-U.S. currency transactions involve costs and may result in losses.
Non-U.S. Currency Transactions
The Fund may invest in securities of non-U.S. issuers and may enter
into forward non-U.S. currency exchange contracts, or buy or sell options
on non-U.S. currencies, in order to protect against uncertainty in the
level of future non-U.S. exchange rates. Since investment in securities of
non-U.S. issuers will usually involve currencies of non-U.S. countries, and
since the Fund may temporarily hold funds in bank deposits in non-U.S.
currencies during the course of investment programs, the value of the
assets of the Fund as measured in U.S. dollars may be affected by changes
in currency exchange rates and exchange control regulations, and the Fund
may incur costs in connections with conversion between various currencies.
The Fund may enter into forward contracts under two circumstances.
First, when the Fund enters into a contract for the purchase or sale of a
security denominated or traded in a market in which settlement is made in a
non-U.S. currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contracts for the purchase or sale,
for a fixed amount of dollars, of the amount of non-U.S. currency involved
in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject non-U.S. currency
during the period between the date on which the investment is purchased or
sold and the date on which payment is made or received.
Second, when Loomis Sayles believes that the currency of a particular
country may suffer a substantial decline against another currency, it may
enter into a forward contract to sell, for a fixed amount of another
currency, the amount of the first currency approximating the value of some
or all of the Fund's portfolio investments denominated in the first
currency. The precise matching of the forward contract
<PAGE>
-26-
amounts and the value of the securities involved will not generally be
possible since the future value of such securities in a currency will
change as a consequence of market movements in the value of those
investments between the date the forward contract is entered into and the
date it matures.
The Fund generally will not enter into forward contracts with a term
of greater than one year.
Options on non-U.S. currencies are similar to forward contracts,
except that one party to the option (the holder) is not contractually bound
to buy or sell the specified currency. Instead, the holder has discretion
whether to "exercise" the option and thereby require the other party to buy
or sell the currency on the terms specified in the option. Options
transactions involve transaction costs and, like forward contract
transactions, involve the risk that the other party may default on its
obligations (if the options are not traded on an established exchange) and
the risk that expected movements in the relative value of currencies may
not occur, resulting in an imperfect hedge or a loss to the Fund.
The Fund, in conjunction with its transactions in forward contracts,
options and futures, will maintain in a segregated account with its
custodian liquid assets with a value, marked to market on a daily basis,
sufficient to satisfy the Fund's outstanding obligations under such
contracts, options and futures.
Swap Transactions
The Fund may enter into interest rate or currency swaps. The Fund will
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against
currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates
purchasing at a later date. Interest rate swaps involve the exchange by a
Fund with another party of their respective commitments to pay or receive
interest (for example; an exchange of floating rate payments for fixed rate
payments with 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.
<PAGE>
-27-
Options and Futures Transactions
The Fund may buy, sell or write options on securities, securities
indexes, currencies or futures contracts and may buy and sell futures
contracts on securities, securities indexes or currencies. The Fund may
engage in these transactions either for the purpose of enhancing investment
return, or to hedge against changes in the value of other assets that the
Fund owns or intends to acquire. Options and futures fall into the broad
category of financial instruments known as "derivatives" and involve
special risks. Use of options or futures for other than hedging purposes
may be considered a speculative activity, involving greater risks than are
involved in hedging.
Options can generally be classified as either "call" or "put" options.
There are two parties to a typical options transaction: the "writer" and
the "buyer." A call option gives the buyer the right to buy a security or
other asset (such as an amount of currency or a futures contract) from, and
a put option gives the buyer the right to sell a security or other asset
to, the option writer at a specified price, on or before a specified date.
The buyer of an option pays a premium when purchasing the option, which
reduces the return on the underlying security or other asset if the option
is exercised, and results in a loss if the option expires unexercised. The
writer of an option receives a premium from writing an option, which may
increase its return if the option expires or is closed out at a profit. if
the Fund as the writer of an option is unable to close out an unexpired
option, it must continue to hold the underlying security or other asset
until the option expires, to "cover" its obligation under the option.
An option entitles the holder to receive (in the case of a call
option) or to sell (in the case of a put option) a particular security at a
specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options may
be traded on or off an established securities exchange.
If the holder of an option wishes to terminate its position, it may
seek to effect a closing sale transaction by selling an option identical to
the option previously purchased. The effect of the purchase is that the
previous option position will be canceled. The Fund will realize a profit
from closing out an option if the price received for selling the offsetting
position is more than the premium paid to purchase the option; the Fund
will realize a loss from closing out an option transaction if the price
received for selling the offsetting option is less than the premium paid to
purchase the option.
The use of options involves risks. One risk arises because of the
imperfect correlation between movements in the price of options and
movements in the price of
<PAGE>
-28-
the securities that are the subject of the hedge. The Fund's hedging
strategies will not be fully effective if such imperfect correlation
occurs.
Price movement correlation may be distorted by illiquidity in the
options markets and the participation of speculators in such markets. if an
insufficient number of contracts are traded, commercial users may not deal
in options because they do not want to assume the risk that they may not be
able to close out their positions within a reasonable amount of time. In
such instances, options market prices may be driven by different forces
than those driving the market in the underlying securities, and price
spreads between these markets may widen. The participation of speculators
in the market enhances its liquidity. Nonetheless, the trading activities
of speculators in the options markets may create temporary price
distortions unrelated to the market in the underlying securities.
An exchange-traded option may be closed out only on an exchange which
generally provides a liquid secondary market for an option of the same
series. if a liquid secondary market for an exchange-traded option does not
exist, it might not be possible to effect a closing transaction with
respect to a particular option, with the result that the Fund would have to
exercise the option in order to accomplish the desired hedge. Reasons for
the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange;
(v) the facilities of an exchange or the Options Clearing Corporation or
other clearing organization may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue
the trading of options (or a particular class or series of options), in
which event the secondary market on that exchange (or in that class of
series of options) would cease to exist, although outstanding options on
that exchange that had been issued by the Options Clearing Corporations as
a result of trades on that exchange would continue to be exercisable in
accordance with their terms.
The successful use of options depends in part on the ability of Loomis
Sayles to forecast correctly the direction and extent of interest rate,
stock price or currency value movements within a given time frame. To the
extent interest rates, stock prices or currency values move in a direction
opposite to that anticipated, the Fund may realize a loss on the hedging
transaction that is not fully or partially offset by an increase in the
value of portfolio securities. In addition, whether or not interest rates
<PAGE>
-29-
or the relevant stock price or relevant currency values move during the
period that the Fund holds options positions, the Fund will pay the cost of
taking those positions (i.e., brokerage costs). As a result of these
factors, the Fund's total return for such period may be less than if it had
not engaged in the hedging transaction.
An over-the-counter option (an option not traded on an established
exchange) may be closed out only with the other party to the original
option transaction. While the Fund will seek to enter into over-the-counter
options only with dealers who agree to or are expected to be capable of
entering into closing transactions with the Fund, there can be no assurance
that the Fund will be able to liquidate an over-the-counter option at a
favorable price at any time prior to its expiration. Accordingly, the Fund
might have to exercise an over-the-counter option it holds in order to
achieve the intended hedge. Over-the-counter options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation or other clearing organization.
The staff of the SEC has taken the position that over-the-counter
options should be treated illiquid securities for purposes of the Fund's
investment restriction prohibiting it from investing more than 15% of its
net assets in illiquid securities. The Fund intends to comply with this
position.
Income earned by the Fund from its hedging activities will be treated
as capital gain and, if not offset by net recognized capital losses
incurred by the Fund, will be distributed to shareholders in taxable
distributions. Although gain from options transactions may hedge against a
decline in the value of the Fund's portfolio securities, that gain, to the
extent not offset by losses, will be distributed in light of certain tax
considerations and will constitute a distribution of that portion of the
value preserved against decline.
A futures contract creates an obligation by the seller to deliver and
the buyer to take delivery of the type of instrument or cash at the time
and in the amount specified in the contract. Although many futures
contracts call for the delivery (or acceptance) of the specified
instrument, futures are usually closed out before the settlement date
through the purchase (or sale) of a comparable contract. if the price of
the sale of the futures contract by the Fund exceeds (or is less than) the
price of the offsetting purchase, the Fund will realize a gain (or loss).
The value of options purchased by the Fund and futures contracts held
by 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
<PAGE>
-30-
investment. When the Fund writes a call option or sells a futures contract
without holding the underlying securities, currencies or futures contracts,
its potential loss is unlimited. The Fund will be required, however, to set
aside with its custodian bank liquid assets in amounts sufficient at all
times to satisfy its obligations under options and futures contracts.
The successful use of options and futures will usually depend on
Loomis Sayles' ability to forecast stock market, currency or other
financial market movements correctly. The Fund's ability to hedge against
adverse changes in the value of securities held in its portfolio through
options and futures also depends on the degree of correlation between
changes in the value of futures or options positions and changes in the
values of the portfolio securities. The successful use of futures and
exchange traded options also depends on the availability of a liquid
secondary market to enable the Fund to close its positions on a timely
basis. There can be no assurance that such a market will exist at any
particular time. In the case of options that are not traded on an exchange
("over-the-counter" options), the Fund is at risk that the other party to
the transaction will default on its obligations, or will not permit the
Fund to terminate the transaction before its scheduled maturity. As a
result of these characteristics, the Fund will treat most over-the-counter
options (and the assets it segregates to cover its obligations thereunder)
as illiquid.
The options and futures markets of non-U.S. 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,
non-U.S. markets may be subject to less detailed reporting requirements and
regulatory controls than U.S. markets. Furthermore, investments in options
in non-U.S. markets are subject to many of the same risks as other non-U.S.
investments. See "Non-U.S. Securities" above.
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.
The Fund may enter into repurchase agreements, by which the Fund
purchases a security and obtains a simultaneous commitment from the seller
(a bank or, to the extent permitted by the 1940 Act, a recognized
securities dealer) to repurchase the security at an agreed upon price and
date (usually seven days or less from the date of original purchase). The
resale price is in excess of the purchase price and reflects an
<PAGE>
-31-
agreed upon market rate unrelated to the coupon rate on the purchased
security. Such transactions afford the Fund the opportunity to earn a
return on temporarily available cash at minimal market risk. While the
underlying security may be a bill, certificate of indebtedness, note or
bond issued by an agency, authority or instrumentality of the United States
Government, the obligation of the seller is not guaranteed by the United
States Government and there is a risk that the seller may fail to
repurchase the underlying security. In such event, the Fund would attempt
to exercise rights with respect to the underlying security, including
possible disposition in the market. However, the Fund may be subject to
various delays and risks of loss, including (a) possible declines in the
value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (1)) possible reduced levels of income and lack
of income during this period and (c) inability to enforce rights and the
expenses involved in attempted enforcement.
Securities Lending
The Fund 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, market 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 1/2%
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
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 Funds that they are reviewing all of their computer
<PAGE>
-32-
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 Securities Registration Statement, 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.
(C) Restrictions of Investment:
The investment policies of the Fund may be changed by the Fund's
adviser, subject to review and approval by the Trust's board of trustees,
without shareholder approval except that the investment objective of the
Fund explicitly identified as "fundamental" may not be changed without the
approval of the holder of a majority of the outstanding shares of the Fund
(which means the lesser of (i) 67% of the shares of the Fund represented at
a meeting at which 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares). Except in the case of the 15%
limitation on illiquid securities, the percentage limitations set forth
below and in this document will apply at the time a security is purchased
and will not be considered violated unless an excess or deficiency occurs
or exists immediately after and as a result of such purchase.
The following investment restrictions are policies of the Fund (and
those marked with an asterisk are fundamental policies of the Fund):
The Fund will not:
(1) Invest in companies for the purpose of exercising control or
management.
*(2) Act as underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
*(3) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts.
(This restriction does not prevent the Fund from engaging in
transactions in futures contracts relating to securities indexes,
interest rates or financial instruments or options, or from
investing in issuers that invest or deal in the foregoing types of
assets or from purchasing securities that are secured by real
estate.)
*(4) Make loans, except to the extent permitted under the 1940 Act.
(For purposes of this investment restriction, neither (i) entering
into
<PAGE>
-33-
repurchase agreements nor (ii) purchasing bonds, debentures,
commercial paper, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public, is
considered the making of a loan.)
(5) With respect to 75% of its total assets, purchase any security
(other than a U.S. Government Security) if, as a result, more than
5% of the Fund's total assets (taken at current value) would then
be invested in securities of a single issuer.
(6) With respect to 75% of its total assets, acquire more than 10% of
the outstanding voting securities of an issuer.
(7) Pledge, mortgage, hypothecate or otherwise encumber any of its
assets, except that the Fund may pledge assets having a value not
exceeding 10% of its total assets to secure borrowings permitted
by restriction (9) below. (For the purpose of this restriction,
collateral arrangements with respect to options, futures contracts
and options on futures contracts and with respect to initial and
variation margin are not deemed to be a pledge or other
encumbrance of assets.)
*(8) Purchase any security (other than U.S. Government Securities) if,
as a result, more than 25% of the Fund's total assets (taken at
current value) would be invested in any one industry (in the
utilities category, gas, electric, water and telephone companies
will be considered as being in separate industries).
*(9) Borrow money in excess of 10% of its total assets (taken at cost)
or 5% of its total assets (taken at current value), whichever is
lower, nor borrow any money except as a temporary measure for
extraordinary or emergency purposes.
(10) Purchase securities on margin (except such short term credits as
are necessary for clearance of transactions); or make short sales
(except where, by virtue of ownership of other securities, it has
the right to obtain, without payment of additional consideration,
securities equivalent in kind and amount to those sold).
(11) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase
or sale of portfolio securities with Loomis Sayles or accounts
under its management to reduce brokerage commissions, to average
prices among them or to facilitate such transactions is not
considered a trading account in securities for purposes of this
restriction.)
<PAGE>
-34-
(12) Purchase any illiquid security, including any security that is not
readily marketable, if, as a result, more than 15% of the Fund's
net assets (based on current value) would then be invested in such
securities.
(13) Write or purchase puts, calls or combinations of both except that
the Fund may (1) acquire warrants or rights to subscribe to
securities of companies issuing such warrants or rights, or of
parents or subsidiaries of such companies, (2) purchase and sell
put and call options on securities and (3) write, purchase and
sell put and call options on currencies and may enter into
currency forward contracts.
*(14) Issue senior securities. (For the purpose of this restriction none
of the following is deemed to be a senior security; any pledge or
other encumbrance of assets permitted by restriction (7) above;
any borrowing permitted by restriction (9) above; any collateral
arrangements with respect to options, futures contracts and
options on futures contracts and with respect to initial and
variation margin; and the purchase or sale of options, forward
contracts, futures contracts or options on futures contracts.
Although the Fund has no current intention of investing in repurchase
agreements, it intends, based on the views of the staff of the Securities
and Exchange Commission (the "SEC"), to restrict its investments in
repurchase agreements maturing in more than seven days, together with other
investments in illiquid securities, to the percentage permitted by
restriction (12) above.
In connection with the offering of its shares in Japan, the Fund has
undertaken to the Japan Securities Dealers Association: (1) that the Fund
will not invest more than 10% of the Fund's net assets in securities that
are not traded on a recognized exchange; (2) Portfolio securities of the
Fund may not be purchased from or sold or loaned to any Trustee of the
Fund, Loomis, Sayles & Company, L.P., acting as investment adviser of the
Fund, or any affiliate thereof or any of their directors, officers of
employees, or any major shareholder thereof (meaning a shareholder who
holds to the actual knowledge of Loomis, Sayles & Company, L.P., on his own
account whether in his own or other name (as well as a nominee's name), 10%
or more of the total issued outstanding shares of such a company) acting as
principal or for their own account unless the transaction is made within
the investment restrictions set forth in the Fund's prospectus and
statement of additional information and either (i) at a price determined by
current publicly available quotations (including a dealer quotation) or
(ii) at competitive prices or interest rates prevailing from time to time
on internationally recognized securities markets or internationally
recognized money markets (including a dealer quotation);
<PAGE>
-35-
and (3) that the Fund will not, together with other registered investment
companies managed by Loomis Sayles, acquire more than 50% of the voting
shares of any issuer.
If the undertaking is violated, the Fund will, promptly after
discovery, take such action as may be necessary to cause the violation to
cease, which shall be the only obligation of the Fund and the only remedy
in respect of the violation. This undertaking will remain in effect as
long as shares of the Fund are qualified for offer or sale in Japan and
such undertaking is required by the Japan Securities Dealers Association as
a condition of such qualification.
(D) Distribution Policy:
The Fund generally declares dividends and makes payments monthly. It
is expected that the first monthly payment will be made on or about July 7,
1999. 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 on the record date unless an
investor has elected to receive cash.
It is the policy of the Fund to pay its shareholders, as dividends,
substantially all net investment income and to distribute annually all net
realized capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in full
and fractional shares of the Fund based upon the net asset value determined
as of the close of regular trading on the New York Stock Exchange on the
record date for each dividend or distribution. Shareholders, however, may
elect to receive their income dividends or capital gain distributions, or
both, in cash. The election may be made at any time by submitting a
written request directly to State Street Bank. In order for a change to be
in effect for any dividend or distribution, it must be received by State
Street Bank on or before the record date for such dividend or distribution.
The Japanese investors shall receive applicable dividend monthly
through the Distributors in Japan. The election may be made by Japanese
investors by submitting a written request directly to the Agent Company.
<PAGE>
-36-
3. MANAGEMENT STRUCTURE
(A) Outline of Management of Assets, etc.:
A. Valuation of assets:
The net asset value of the shares of the Fund is determined by
dividing the Fund's total net assets (the excess of its assets over its
liabilities) by the total number of shares of the Fund outstanding and
rounding to the nearest cent. Such determination is made as of the close
of regular trading on the New York Stock Exchange on each day on which that
Exchange is open for unrestricted trading, and no less frequently than once
daily on each day during which there is sufficient trading in the Fund's
portfolio securities that the value of the Fund's shares might be
materially affected. During the 12 months following the date of this
Securities Registration Statement, the New York Stock Exchange is expected
to be closed on the following weekdays: New Year's Day, Martin Luther King.
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Equity securities listed on
an established securities exchange or on the Nasdaq National Market System
are normally valued at their last sale price on the exchange where
primarily traded or, if there is no reported sale during the day, and in
the case of over-the-counter securities not so listed, at the last bid
price. Long-term debt securities are valued by a pricing services, which
determines valuations of normal institutional-size trading units of long-
term debt securities. Such valuations are determined using methods based
on market transactions for comparable securities and on various
relationships between securities which are generally recognized by
institutional traders. Other securities for which current market
quotations are not readily available (including restricted securities, if
any) and all other assets are taken at fair value as determined in good
faith by the board of trustees, although the actual calculations may be
made by persons acting pursuant to the direction of the board.
Generally, trading in non-U.S. securities markets is substantially
completed each day at various times prior to the close of regular trading
on the New York Stock Exchange. Occasionally, events affecting the value
of non-U.S. fixed income securities and of equity securities of non-U.S.
issuers not traded on a U.S. exchange may occur between the completion of
substantial trading of such securities for the day and the close of regular
trading on the New York Stock Exchange, which events will not be reflected
in the computation of the Fund's net asset value. if events materially
affecting the value of the Fund's portfolio securities occur during such
period, then these securities will be valued at their fair value as
determined in good faith by or in accordance with procedures approved by
the trustees.
<PAGE>
-37-
B. Management Fee, etc.:
(1) Management Fee:
(a) Management Company Fee
The Fund pays Loomis Sayles an investment advisory fee payable
monthly, out of the Fund's assets, at an annual rate of .40% of the
Fund's average daily net assets.
(b) Custodian Fee and Charges of the Shareholder Servicing,
Transfer and Dividend Paying Agent
The Fund pays to State Street Bank and Trust Company, the Fund's
Custodian, an annual fee at the rate of .066% on the first $20 million
of assets, .033% on the next $80 million of assets and .0100% on
amounts exceeding $80 million, subject to certain minimum monthly
charges.
The Fund pays to State Street Bank and Trust Company, the Fund's
Transfer and Servicing Agent, an annual fee at the rate of 0.10% of
assets subject to certain maximum monthly charges.
(c) Fee on Distribution Plan
Under a Service and Distribution Plan adopted pursuant to Rule
12b-1 under the 1940 Act, the Fund pays the Distributor, a subsidiary
of Loomis Sayles, a monthly service fee at an annual rate not to
exceed 0.25% of the Fund's average daily net assets attributable to
Shares and a monthly distribution fee at an annual rate not to exceed
0.50% of the Fund's average daily net assets attributable to Shares.
From a monthly distribution fee to be paid to the Distributor in
Japan, 0.05% of the Fund's average daily net assets attributable to
Shares shall be retained by the Agent Company. The Distributor may
pay all or any portion of the service fee to securities dealers or
other organizations for providing personal service to investors and/or
the maintenance of shareholder accounts and all or any portion of the
distribution fee to securities dealers who are dealers of record with
respect to the Fund's Shares, as distribution fees in connection with
the sale of the Fund's Shares. The Distributor retains the balance of
these fees as compensation for its services as distributor.
(d) Other Expenses:
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, 1 2b- 1
fees, expenses of preparing, printing and mailing
<PAGE>
-38-
prospectuses to existing shareholders and fees of trustees who are not
directors, officers or employees of Loomis Sayles or its affiliated
companies.
The Trust pays no compensation to its officers or to the trustees
who are directors, officers or employees of Loomis Sayles. Each
trustee who is not a director, officer or employee of Loomis Sayles is
compensated at the rate of $1,250 per fund per annum.
COMPENSATION TABLE
for the year ended September 30, 1998
<TABLE>
<CAPTION>
(3)
Pension or (5)
Retirement Total
(2) Benefits (4) Compensation
(1) Aggregate Accrued as Part Estimated From Trust and
Name of Person, Compensation of Fund Annual Benefits Fund Complex*
Position From Trust Expenses upon Retirement Paid to Trustee
- -------------------------------- ------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Earl W. Foell, Trustee $15,937.50 N/A N/A $15,937.50
Richard S. Hoiway, Trustee $15,937.50 N/A N/A $15,937.50
Terry R. Lautenbach,** Trustee $15,937.50 N/A N/A $15,937.50
Michael T. Murray, Trustee $15,937.50 N/A N/A $15,937.50
- ----------
</TABLE>
* No Trustee receives any compensation from any mutual funds affiliated with
Loomis Sayles, other than the Trust.
** Mr. Lautenbach retired from the Board of Trustees on October 26, 1998.
Portfolio Transactions and brokerage
In placing orders for the purchase and sale of portfolio securities
for the Fund, Loomis Sayles always seeks the best price and execution.
Transactions in unlisted securities are carried out through broker-dealers
who make the primary market for such securities unless, in the judgment of
Loomis Sayles, a more favorable price can be obtained by carrying out such
transactions through other brokers or dealers.
Loomis Sayles selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will
produce best price and execution for the transaction. This does not
necessarily mean that the lowest available brokerage commission will be
paid. However, the commissions are believed to be competitive with
generally prevailing rates. Loomis Sayles will use its best efforts to
obtain information as to the general level of commission rates being
charged by the brokerage community from time to time and will evaluate the
overall reasonableness of brokerage
<PAGE>
-39-
commissions paid on transactions by reference to such data. In making such
evaluation, all factors affecting liquidity and execution of the order, as
well as the amount of the capital commitment by the broker in connection
with the order, are taken into account. The Fund will not pay a broker a
commission at a higher rate than otherwise available for the same
transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by
the broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which Loomis Sayles believes will provide best price and
execution for a transaction. These research services include not only a
wide variety of reports on such matters as economic and political
developments, industries, companies, securities, portfolio strategy,
account performance, daily prices of securities, stock and bond market
conditions and projections, asset allocation and portfolio structure, but
also meetings with management representatives of issuers and with other
analysts and specialists. Although it is not possible to assign an exact
dollar value to these services, they may, to the extent used, tend to
reduce Loomis Sayles' expenses. Such services may be used by Loomis Sayles
in serving other client accounts and in some cases may not be used with
respect to the Funds. Receipt of services or products other
than research from brokers is not a factor in the selection of brokers.
C. Sales, Repurchases and Custody:
(1) Sales of Shares:
a. Sales in the United States
--------------------------
An investor may make an initial purchase of shares of the Fund by
submitting a completed application form and payment to:
State Street Bank and Trust Company
Mutual Fund Services
One Heritage Drive
North Quincy, Massachusetts 02171
All purchases made by check should be in U.S. dollars and made payable
to State 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.
<PAGE>
-40-
Upon acceptance of an investor's order, State Street Bank opens an
account, applies the payment to the purchase of full and fractional Fund
shares and mails a statement of the account confirming the transaction.
After an account has been established, an investor may send subsequent
investments at any time directly to State Street Bank at the above address.
The remittance must be accompanied by either the account identification
slip detached from a statement of account or a note containing sufficient
information to identify the account, i.e., the Fund name and the investor's
account number or name and tax identification number.
Subsequent investments can also be made by federal funds wire.
Investors should contact their banks to wire federal funds to State Street
Bank and Trust Company, ABA #011000028. The text of the wire should read as
follows: "$______ amount, STATE STREET BOS ATTN Mutual Funds. Credit Loomis
Sayles Investment Grade Bond Fund, 3 Class Shares, DDA #9904-622-91,
Account Name, Account Number." A bank may charge a fee for transmitting
funds by wire.
The Fund and the Distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which
the Fund or the Distributor in its sole discretion deems appropriate.
Although the Fund does not presently anticipate that it will do so, the
Fund reserves the right to suspend or change the terms of the offering of
its shares. In order to avoid dividend dilution, it is expected that the
Fund will reject purchase orders in excess of U.S. $5 million on each of
the five Fund business days preceding the ex-dividend date of each month. A
"Fund business day" is any day on which the New York Stock Exchange is open
for business.
The price an investor pays will be the per share net asset value next
calculated after a proper investment order is received by the Trust's
transfer or other agent or subagent plus a 3.50% sales charge (the "public
offering price") which is 3.63% of the net amount invested. The amount
reallowed to dealers is 3.00% as a percentage of the public offering price.
The Fund receives the net asset value. The Distributor will retain 0.50% of
the public offering price. 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 .
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
<PAGE>
-41-
Distributor. Although there is no sales charge imposed by the Fund or the
Distributor, broker-dealers may charge the investor a transaction-based fee
or other fee for their services at either the time of purchase or the time
of redemption. Such charges may vary among broker-dealers but in all cases
will be retained by the broker-dealer and not remitted to the Fund.
A shareholder's investment in the Fund is automatically credited to an
open account maintained for the shareholder by State Street Bank.
Certificates representing shares are issued only upon written request to
State Street Bank but are not issued for fractional shares. Following each
transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions in the account. After the close of each fiscal year, State
Street Bank will send each shareholder a statement providing federal tax
information on dividends and distributions paid to the shareholder during
the year. This should be retained as a permanent record. Shareholders will
be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates
representing shares unnecessary, eliminates the problems of handling and
safekeeping certificates, and the cost and inconvenience of replacing lost,
stolen, mutilated or destroyed certificates.
The costs of maintaining the open account system are borne by the
Trust, and no direct charges are made to shareholders. Although the Trust
has no present intention of making such direct charges to shareholders, it
reserves the right to do so. Shareholders will receive prior notice before
any such charges are made.
b. Sales in Japan
--------------
In Japan, Shares of the Fund are offered on any Fund Business Day and
any business day of sales handling company in Japan during the applicable
Subscription Period mentioned in "8. Period of Subscription, Part I
Information concerning Securities" of a securities registration statement
pursuant to the terms set forth in "Part I. Information concerning
Securities" of the relevant securities registration statement. A Sales
Handling Company shall provide to the investors a Contract Concerning a
Foreign Securities Transactions Account (the "Contract") and receive from
such investors an application for requesting the opening of a transactions
account under the Contract. Shares may be purchased in the minimum
investment amount of 100 shares and in integral multiples of 100 shares.
<PAGE>
-42-
The Issue Price for the Initial Offering Period (from May 24, 1999 to
May 27, 1999) is [9.95] Dollars per Share, and that for the Continuous
Offering Period (after May 28,) is the net asset value per Share next
calculated on the day on which the Fund has received such application. The
contract day in Japan is the day when the Distributors in Japan confirms
the execution of the order (usually, the next business day in Japan
following the day of placement of the order), and in respect of the
Continuous Offering Period, the settlement shall be made within 4 business
days from the contract day, and investors shall pay the Sales Charge by
such payment day.
The sales charge in Japan shall be 3% of the Sales Price. The Sales
Price means the Issue Price divided by 0.995 (rounded to the third decimal
place).
The Investors having entrusted a Sales Handling Company with
safekeeping of the certificates for Fund shares will receive a certificate
of safekeeping in exchange for the purchase price. In such case payment
shall be made in yen in principle and the applicable exchange rate shall be
the exchange rate which shall be based on the foreign exchange rate quoted
in the Tokyo Foreign Exchange Market on the Trade Day and which shall be
determined by such Sales Handling Company. The payment may be made in
dollars to the extent that the Sales Handling Companies can agree.
In addition, Sales Handling Companies in Japan who are members of the
Japan Securities Dealers' Association cannot continue sales of the Shares
in Japan when the net assets of the Fund are less than ~ 100,000,000 or the
Shares otherwise cease to comply with the "Standards of Selection of
Foreign Investment Fund Securities" in the Rules of Foreign Securities
Transactions established by the Association.
The Fund and the Distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which
the Fund or the Distributor in its sole discretion deems appropriate.
Although the Fund does not presently anticipate that it will do so, the
Fund reserves the right to suspend or change the terms of the offering of
its shares. In order to avoid dividend dilution, it is expected that the
Fund will reject purchase orders in excess of U.S.$5 million on each of the
five Fund business days preceding the ex-dividend date of each month. A
"Fund business day" is any day on which the New York Stock Exchange is open
for business.
<PAGE>
-43-
(2) Repurchase of Shares:
a. Repurchase in the United States
-------------------------------
An investor can redeem shares by sending a written request to State
Street Bank and Trust Company, Mutual Fund Services, One Heritage Drive,
North Quincy, Massachusetts 02171. Proceeds from a written request may be
sent to the investor in the form of a check. 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 a
trustee or custodian or on behalf of a partnership, corporation or other
entity). Shareholder's requesting that redemption proceeds be wired to
their bank accounts must provide specific wire instructions.
When an investor telephones a redemption request, the proceeds are
wired to the bank account previously chosen by the investor. A wire fee
(currently $5) will be deducted from the proceeds. A telephonic redemption
request must be received by State Street Bank prior to the close of regular
trading on the New York Stock Exchange. if an investor telephones a request
to State Street Bank after the Exchange closes or on a day when the
Exchange is not open for business, State Street Bank cannot accept the
request and a new one will be necessary.
If an investor decides to change the bank account to which proceeds
are to be wired, the investor must send in this change in writing on the
Service Options Form with a signature guarantee. Telephonic redemptions may
only be made if the investor's bank is a member of the Federal Reserve
System or has a corespondent bank that is a member of the System. Unless an
investor indicates otherwise on the account application, State Street Bank
will be authorized to act upon redemption and exchange instructions
received by telephone from the intermediary or any person claiming to act
as the investor's representative who can provide State Street Bank with the
investor's account registration and address as it appears on the records of
State Street Bank, State Street Bank will comply these or other reasonable
procedures to confirm that instructions communicated by telephone are
genuine; the Fund, State Street Bank, the Distributor and Loomis Sayles
will not be liable for any losses due to unauthorized or fraudulent
instructions if these or other reasonable procedures are followed. For
information, consult State Street Bank. In times of heavy
<PAGE>
-44-
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 State Street Bank in proper form.
Proceeds resulting from a written redemption request will normally be
mailed to an investor within seven days after receipt of the investor's
request in good order. Telephonic redemption proceeds will normally be
wired to an investor's bank on the first business day following receipt of
a proper redemption request. if an investor purchased shares by check and
the check was deposited less than 15 days prior to the redemption request,
the Fund may withhold redemption proceeds until the check has cleared.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for
other than weekends or holidays, or if permitted by the rules of the SEC
when trading on the Exchange is restricted or during an emergency which
makes it impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other period
permitted by the SEC for the protection of investors.
b. Repurchase in Japan
-------------------
Shareholders in Japan may at any time request repurchase of their
Shares. Repurchase requests in Japan may be made to State Street Bank
through the Sales Handling Company on a Fund Business Day that is business
day of sales handling companies in Japan. The repurchase of shares in the
amount of one share except in the case of a shareholder who is closing an
account for whom full and fractional shares will be repurchased.
The price a shareholder in Japan will receive is the next net asset
value next calculated after the Fund receives the repurchase request from
the Distributor in Japan, provided the request is received before the close
of regular trading on the New York Stock Exchange. The payment of the price
shall be made in yen through the Sales Handling Companies pursuant to the
Contracts or, if the Sales Handling Companies agree, in dollars. The
payment for repurchase proceeds shall ordinarily be on the third business
day by the Fund to the Distributor in Japan. The payment for repurchase
proceeds shall be made on the [fourth] business day of sales handling
companies in Japan after and including the day when Sales Handling Company
confirms the execution of the order (ordinarily the business day in Japan
next following the
<PAGE>
-45-
placement or repurchase request). The Fund may suspend the right of
repurchase and may postpone payment for more than seven days when the New
York Stock Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the SEC when trading on the Exchange is
restricted or during an emergency which makes it impracticable for the Fund
to dispose of its securities or to determine fairly the value of its net
assets, or during any other period permitted by the SEC for the protection
of investors.
(3) Custody of Shares:
Share certificates shall be held by Shareholders at their own risk.
The custody of the Share certificates (if issued) representing Shares
sold to Japanese Shareholders shall, unless otherwise instructed by the
Shareholder, be held, in the name of the custodian, by the custodian of the
Distributors in Japan. Certificates of custody for the Shares shall be
delivered by the Sales Handling Companies to the Japanese Shareholders.
D. Miscellaneous:
(1) Duration and Liquidation:
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or the Fund, however, may be terminated at any time by
vote of at least two-thirds of the outstanding shares of the Trust or the
Fund, respectively. The Declaration of Trust further provides that the
trustees may also terminate the Trust or the Fund upon written notice to
the shareholders.
(2) Accounting Year:
The Fund's fiscal year ends on September 30.
(3) Authorized Shares:
There is no limit on the number of shares to be issued.
(4) Agreement and Declaration of Trust:
Originals or copies of the Declaration of Trust, as amended, are
maintained in the office of the Trust and are made available for public
inspection for the Shareholders. Originals or copies of the Declaration of
Trust, as amended, are on file in the United States with the Secretary of
State of The Commonwealth of Massachusetts and with the Clerk of the City
of Boston.
The Declaration of Trust may be amended at any time by an instrument
in writing signed by a majority of the then Trustees when authorized to do
so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees
shall affect the holders of one or more series or classes of Shares but not
the holders of all outstanding series and classes shall be authorized by
vote of the
<PAGE>
-46-
Shareholders holding a majority of the Shares entitled to vote of each
series and class affected and no vote of Shareholders of a series or class
not affected shall be required. Amendments having the purpose of changing
the name of the Trust, of establishing, changing or eliminating the par
value of any series or of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
contained therein shall not require authorization by vote of any
Shareholders.
In Japan, material changes in the Declaration of Trust shall be
published and notice thereof shall be sent to the Japanese Shareholders.
(5) Issue of Warrants, Subscription Rights, etc.:
The Fund may not grant privileges to purchase shares of the Fund to
shareholders or investors by issuing warrants, subscription rights or
options, or other similar rights.
(6) How Performance Is Shown:
The Fund's investment performance may from time to time be included in
advertisements about the Fund or Loomis Sayles Funds. "Yield" for each
class of shares is calculated by dividing the annualized net investment
income per share during a recent 30-day period by the maximum public
offering price per share of the class on the last day of that period.
For purposes of calculating yield, net investment income is calculated
in accordance with SEC regulations and may differ from net investment
income as determined for financial reporting purposes. SEC regulations
require that net investment income be calculated on a "yield-to-maturity"
basis, which has the effect of amortizing any premiums or discounts in the
current market value of fixed income securities. The current dividend rate
is based on net investment income as determined for tax purposes, which may
not reflect amortization in the same manner.
"Total return" for the one-, five- and ten-year periods (or for the
life of a class, if shorter) through the most recent calendar quarter
represents the average annual compounded rate of return on an investment of
$1,000 in the Fund. Total return may also be presented for other periods.
Yield. Yield with respect to the Fund will be computed by dividing
the Fund's net investment income for a recent 30-day period by the maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net
investment income will reflect amortization of any market value premium or
discount of fixed income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro rata
portion of
<PAGE>
-47-
the stated dividend rate of dividend paying portfolio securities. The
Fund's yield will vary from time to time depending upon market conditions,
the composition of the Fund's portfolio and operating expenses of the Trust
allocated to the Fund. These factors, and possible differences in the
methods used in calculating yield, should be considered when comparing the
Fund's yield to yields published for other investment companies and other
investment vehicles. Yield should also be considered relative to changes in
the value of the Fund's shares and to the relative risks associated with
the investment objectives and policies of the Fund.
At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical results will
continue.
Investors in the Fund are specifically advised that the net asset
value per share of the Fund may vary, just as yields for the Fund may vary.
An investor's focus on yield to the exclusion of the consideration of the
value of shares of the Fund may result in the investor's misunderstanding
the total return he or she may derive from the Fund.
Total Return. Total Return with respect to the Fund is a measure of
the change in value of an investment in the Fund over the period covered,
and assumes any dividends or capital gains distributions are reinvested
immediately, rather than paid to the investor in cash. The formula for
total return used herein includes four steps: (1) adding to the total
number of shares purchased through a hypothetical $1,000 investment in the
Fund all additional shares which would have been purchased if all dividends
and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical
initial investment of $1,000 as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset
value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing the resulting account
value by the initial $1,000 investment.
Yield and Total Return. The Fund may from time to time include its
total return information in advertisements or in information furnished to
present or prospective shareholders. The Fund may from time to time include
the yield and/or total return of its shares in advertisements or
information furnished to present or prospective shareholders.
(B) Outline of Disclosure System:
(1) Disclosure in U.S.A.:
(i) Disclosure to shareholders
<PAGE>
-48-
In accordance with the Investment Company Act of 1940, the fund
is required to send to its shareholders annual and semi-annual reports
containing financial information. Audited financial statements will be
prepared and distributed annually and unaudited financial statements
will be prepared and distributed semi-annually.
(ii) Disclosure to the SEC
The investment fund has filed a registration statement with the
SEC on Form N-lA; the Fund updates that registration statement
periodically in accordance with the Investment Company Act of 1940.
(2) Disclosure in Japan:
a. Disclosure to the Supervisory Authority:
(i) Disclosure Required under the Securities and Exchange Law:
When the Fund intends to offer or sell Units amounting to more
than certain amount in Japan, it shall submit to the Director of Kanto
Local Finance Bureau of the Ministry of Finance of Japan securities
registration statements together with copies of the Declaration of
Trust and agreements with major related companies as attachments
thereto. The said documents are made available for public inspection
by investors and any person who desire to inspect at the Kanto Local
Finance Bureau of the Ministry of Finance.
The Sales Handling Companies of the Units shall deliver to the
investors prospectuses, the contents of which are substantially
identical to Part I and Part II of the securities registration
statements or the securities reports or summarized preliminary
prospectus. For the purpose of disclosure of the financial statements
etc., the Manager shall submit to the Director of Kanto Local Finance
Bureau of the Ministry of Finance of Japan securities reports within 6
months of the end of each fiscal year, half yearly reports within 3
months of the end of each half year and extraordinary reports from
time to time when material changes occur. These documents are
available for public inspection by investors and any person who desire
to inspect at the Kanto Local Finance Bureau of the Ministry of
Finance.
(ii) Disclosure Required under the Law Concerning Securities
Investment Trust Fund and Securities Investment Company:
When the Fund handles offering or selling of Fund Units in
Japan, the Manager must file with the Director of Finance Supervisory
Agency a prior notification concerning certain matters relating to the
Fund in accordance with the Declaration of Trust of the Fund, the Law
Concerning Securities Investment Trust Fund and Securities Investment
Company ("the Investment
<PAGE>
-49-
Fund Law"). Also, when the Fund makes changes to the Declaration of
Trust of the Fund, the Manager must file with the Director of Finance
Supervisory Agency a prior notification thereof, including the
contents of such changes. Further, in accordance with the Investment
Fund Law, the Fund must prepare an investment management report with
regard to certain matters relating to the Fund's assets immediately
after the end of each fiscal period of the Fund and must immediately
file the above report with the Director of Finance Supervisory Agency.
b. Disclosure to Japanese Unitholders
When the Fund makes changes to the Declaration of Trust of the
Fund, if the contents of such changes are material, the Fund must give
30 day prior notice thereof, including the contents of such changes,
before such changes are made, and its written notice stating these
matters must be given to Japanese Unitholders known to the Sales
Handling Companies; provided, however, that if such notice is
delivered to each of all Japanese Unitholders, no public notice is
required.
The Japanese Unitholders will be notified of the material facts
which would change their position, including amendments to the
Declaration of Trust, and of notices from the Fund, through the Sales
Handling Companies.
The investment management report mentioned in sub-paragraph
(a),(ii) above will be delivered to Japanese Unitholders known to the
Sales Handling Companies
(C) Restrictions on Transactions with Interested Parties:
Portfolio securities of the Fund may not be purchased from or sold or
loaned to any Trustee of the Fund, Loomis, Sayles & Company, L.P., acting
as investment manager of the Fund, or any affiliate thereof or any of their
directors, officers, or employees, or any major shareholder thereof
(meaning a shareholder who holds to the actual knowledge of Investment
Management Company, on his own account whether in his own or other name (as
well as a nominee's name), 10% or more of the total issued outstanding
shares of such a company) acting as principal or for their own account
unless the transaction is made within the investment restrictions set forth
in the Fund's prospectus and statement of additional information and either
(i) at a price determined by current publicly available quotations
(including a dealer quotation) or (ii) at competitive prices or interest
rates prevailing from time to time on internationally recognized securities
markets or internationally recognized money markets (including a dealer
quotation).
4. INFORMATION CONCERNING THE EXERCISE OF RIGHTS BY SHAREHOLDERS, ETC.
<PAGE>
-50-
(A) Rights of Shareholders and Procedures for Their Exercise:
Shareholders must register their shares in their own name in order to
exercise directly their rights as Shareholders. Therefore, the
Shareholders in Japan who entrust the custody of their Shares to the Sales
Handling Company cannot exercise directly their Shareholder rights, because
their Shares are registered in the name of the custodian. Shareholders in
Japan may have the Sales Handling Companies exercise their rights on their
behalf in accordance with the Account Agreement with the Sales Handling
Companies. Shareholders in Japan who do not entrust the custody of their
Shares to the Sales Handling Companies may exercise their rights in
accordance with their own arrangement under their own responsibility.
The major rights enjoyed by Shareholders are as follows:
(i) Voting rights
Shareholders are entitled to one vote for each full share held
(with fractional votes for each fractional share held) and may vote
(to the extent provided in the Declaration of Trust) on the election
of trustees and the termination of the Trust and on other matters
submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to
a vote of all Trust shareholders, all Trust shares entitled to vote
shall be voted together irrespective of series or sub-series unless
the rights of a particular series or sub-series would be adversely
affected by the vote, in which case a separate vote of that series or
sub-series shall also be required to decide the question. Also, a
separate vote shall be held whenever required by the 1940 Act or any
rule thereunder. Rule 18f-2 under 1940 Act provides in effect that a
class shall be deemed to be affected by a matter unless it is clear
that the interests of each class in the matter are substantially
identical or that the matter does not affect any interest of such
class. On matters affecting an individual series, only shareholders of
that series are entitles to vote. Consistent with the current position
of the SEC, shareholders of all series vote together, irrespective of
series, on the election of trustees and the selection of the Trust's
independent accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval, such as
certain changes in investment policies of that series or the approval
of the investment management agreement relating to that series.
There will normally be no meetings of shareholders for the
purpose of electing trustees except that, in accordance with the 1940
Act, (i) the Trust will hold a shareholders' meeting for the election
of trustees at such time as less than a majority of the trustees
holding office have been elected by
<PAGE>
-51-
shareholders, and (ii) if, as a result of a vacancy on the board of
trustees, less than two-thirds of the trustees holding office have
been elected by the shareholders, that vacancy may be filled only by a
vote of the shareholders. In addition, trustees may be removed from
office by a written consent signed by the holders of two-thirds of the
outstanding shares and filed with the Trust's custodian or by a vote
of the holders of two-thirds of the outstanding shares at a meeting
duly called for that purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding
shares.
Upon written request by the holders of shares having a net asset
value constituting 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a trustee, the Trust has undertaken to provide a
list of shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders).
Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees. Voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust,
except (i) to change the Trust's name or to cure technical problems in
the Declaration of Trust and (ii) to establish, change or eliminate
the par value of any shares (currently all shares have no par value).
(ii) Repurchase rights
Shareholders are entitled to request repurchase of Shares at their
Net Asset Value at any time.
(iii) Rights to receive dividends
The Fund generally declares and pays dividends monthly. The Fund
also distributes all of its net capital gains realized from the sale
of portfolio securities. Any capital gain distributions are normally
made annually, but may, to the extent permitted by law, be made more
frequently as deemed advisable by the trustees of the Trust. The Fund
normally pays distributions to investors who own shares of the Fund as
of the last day of each month. The Trust's trustees may change the
frequency with which the Fund declares or pays dividends.
(iv) Right to receive distributions upon dissolution
Shareholders of a fund are entitled to receive distributions upon
dissolution in proportion to the number of shares then held by them,
except as otherwise required.
(v) Right to inspect accounting books and the like
<PAGE>
-52-
Shareholders are entitled to inspect the Declaration of Trust,
the accounting books at the discretion of the Court and the minutes of
any shareholders' meetings.
(vi) Right to transfer shares
Shares are transferable without restriction except as limited by
applicable law.
(vii) Rights with respect to the U.S. registration statement
If, under the 1933 Act, there is any false statement concerning
any important matter in the U.S. Registration Statement, or any
omission of any statement of important matters to be stated therein or
necessary in order not to cause any misunderstanding of an important
matter, shareholders are generally entitled to institute a lawsuit,
against the person who had signed the relevant Registration Statement,
the trustee of the issuer (or any person placed in the same position)
at the time of filing such Statement, any person involved in preparing
such Statement or any subscriber of the relevant shares.
(B) Tax Treatment of Shareholders in Japan:
The tax treatment of Shareholders in Japan shall be as follows:
(1) The distributions to be made by the Fund will be treated as
distributions made by a domestic investment trust.
a. The distributions to be made by the Fund to Japanese individual
shareholders will be subject to separate taxation from other income
(i.e. withholding of income tax at the rate of 15% and withholding of
local taxes at the rate of 5% in Japan). In this case, no report
concerning distributions will be filed with the Japanese tax
authorities.
b. The distributions to be made by the Fund to Japanese corporate
shareholders will be subject to withholding of income tax at the rate
of 15% and to withholding of local taxes at the rate of 5% in Japan.
In certain cases, the Sales Handling Companies will prepare a report
concerning distributions and file such report with the Japanese tax
authorities.
c. Net investment returns such as dividends, etc. and distributions
of short-term net realized capital gain, among distributions on Shares
of the Fund, will be, in principle, subject to withholding of U.S.
federal income tax at the rate of 15% and the amount obtained after
such deduction will be paid in Japan.
Distributions of long-term net realized capital gain will not be
subject to withholding of U.S. federal income tax and the full amount
thereof will be paid in Japan. The amount subject to withholding of
U.S. federal income tax may be deducted from the tax levied on a
foreign entity in Japan.
<PAGE>
-53-
The Japanese withholding tax imposed on distributions as referred
to in a. and b. above will be collected by way of so-called
"difference collecting method". In this method only the difference
between the amount equivalent to 20% of the distributions before U.S.
withholding tax and the amount of U.S. withholding tax withheld in the
U.S. will be collected in Japan.
(2) The provisions of Japanese tax laws giving the privilege of a certain
deduction from taxable income to corporations, which may apply to dividends
paid by a domestic corporation, shall not apply.
(3) Capital gains and losses arising from purchase and repurchase of the
Shares shall be treated in the same way as those arising from purchase and
sale of a domestic investment trust. The distribution of the net
liquidation assets shall be also treated in the same way as those arising
from liquidation of a domestic investment trust.
(C) Foreign Exchange Control in U.S.A.:
In U.S.A., there are no foreign exchange control restrictions on
remittance of dividends, repurchase money, etc. of the Shares to Japanese
Shareholders.
(D) Agent in Japan:
Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
The foregoing law firm is the true and lawful agent of the Fund to
represent and act for the Fund in Japan for the purpose of;
(1) the receipt of any and all legal claims, actions, proceedings, process,
and communications addressed to the Trust or the Fund.
(2) representation in and out of court in connection with any and all
disputes, controversies or differences regarding the transactions relating
to the public offering, sale and repurchase in Japan of the Shares of the
Fund.
The agent for the registration with the Director of Kanto Local
Finance Bureau of the initial public offering concerned as well as for the
continuous disclosure is each of the following persons:
Harume Nakano
Ken Miura
Attorneys-at-law
Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki, 3-chome
Chiyoda-ku, Tokyo
(E) Jurisdiction:
<PAGE>
-54-
Limited only to litigation brought by Japanese investors regarding
transactions relating to (D)(2) above, the Fund has agreed that the following
court has jurisdiction over such litigation and the Japanese law is applicable
thereto:
Tokyo District Court
1-4, Kasumigaseki 1-chome
Chiyoda-ku, Tokyo
<PAGE>
-55-
5. STATUS OF INVESTMENT FUND
(A) Diversification of Investment Portfolio (Diversification of Investment
Portfolio by Types of Assets and Geographic Regions):
(As of the end March, 1999)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment
Ratio
Types of Assets Name of Country Market Value Total Dollar (%)
- --------------------------- --------------- ------------------------- ----------
<S> <C> <C> <C>
Bond and Notes U.S.A. 3,024,277 49.46
Canada 1,060,996 17.35
Malaysia 215,737 3.53
Supranational 210,373 3.44
Venezuela 141,835 2.32
Chile 130,020 2.13
Thailand 103,371 1.69
outh Africa 98,541 1.61
outh Korea 95,125 1.56
Colombia 76,947 1.26
Mauritius 46,500 0.76
Philippines 36,500 0.60
Brazil 25,983 0.42
- ------------------------------------------------------------------------------------
Sub-total 5,266,205 86.13
- ------------------------------------------------------------------------------------
Preferred Stocks U.S.A. 134,294 2.20
- ------------------------------------------------------------------------------------
Cash, Deposit and
Other Assets (After 713,842 11.67
Deduction of Liabilities)
- ------------------------------------------------------------------------------------
Total 6,114,341 100.00
(Net Asset Value) (737 million JPY)
- ------------------------------------------------------------------------------------
</TABLE>
Note: Investment Ratio is calculated by dividing the types of asset at
their market value by the total net asset value. The same applies
hereinafter.
<PAGE>
-56-
(B) Results of Past Operations
a. Record of Changes in Net Assets:
Record of changes in net assets at the end of the following fiscal
years and at the end of each month within one year prior to the end of
March, 1999 is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Net Asset Value Net Asset Value per Share
- --------------------------------------------------------------------------------
US$ Yen
(thousands) (millions) US$ Yen
<S> <C> <C> <C> <C> <C>
1st Fiscal Year I Class 2,445 295 10.59 1,277
(December 31, 1997) R Class 862 104 10.59 1,277
- ----------------------------------------------------------------------
2nd Fiscal Year I Class 2,788 335 10.28 1,239
(September 30, 1998) R Class 1,743 210 10.27 1,238
- ----------------------------------------------------------------------
1998 End of April I Class 2,700 325 10.74 1,295
R Class 1,302 157 10.74 1,295
May I Class 2,897 349 10.81 1,303
R Class 1,089 131 10.80 1,302
June I Class 2,892 349 10.79 1,301
R Class 1,475 178 10.78 1,300
July I Class 2,986 360 10.50 1,266
R Class 1,585 191 10.49 1,265
August I Class 2,746 331 10.05 1,212
R Class 1,676 202 10.04 1,210
September I Class 2,778 335 10.28 1,239
R Class 1,743 210 10.27 1,238
October I Class 2,584 312 9.97 1,202
R Class 1,727 208 9.96 1,201
November I Class 2,728 329 10.30 1,242
R Class 2,727 329 10.29 1,240
December I Class 2,869 346 10.01 1,207
R Class 2,460 297 10.00 1,206
1999 End of January I Class 2,998 361 10.17 1,226
R Class 2,429 293 10.16 1,225
February I Class 2,982 359 10.05 1,212
R Class 2,190 264 10.03 1,209
March I Class 3,505 423 10.28 1,239
R Class 2,609 315 10.26 1,237
</TABLE>
<PAGE>
-57-
b. Record of Dividends Paid:
<TABLE>
<CAPTION>
Distribution Date Ex-distribution Date Distribution per Share
<S> <C> <C> <C> <C>
1st Fiscal Year April 7, 1997 April 7, 1997 I Class US$ 0.13 (~l5.67)
R Class US$ 0.128 (~l5.43)
July 7, 1997 July 7, 1997 I Class US$ 0.177 (~21.34)
R Class US$ 0.171 (~20.61)
October 7, 1997 October 7, 1997 I Class US$ 0.149 (~17.96)
R Class US$ 0.142 (~17.12)
December 29, 1997 December 29, 1997 I Class US$ 0.377 (~45.45)
R Class US$ 0.371 (~44.72)
2nd Fiscal Period April 7, 1998 [April 7, 1998 I Class US$ 0.161 (~19.41)
R Class US$ 0.154 (~18.56)
July 7, 1998 July 7, 1998 I Class US$ 0.166 (~20.01)
R Class US$ 0.159 (~19.17)
3rd Fiscal Period October 9, 1998 October 6, 1998 I Class US$ 0.216 (~26.04)
R Class US$ 0.210 (~25.32)
December 11, 1998 December 8, 1998 I Class US$ 0.384 (~46.29)
R Class US$ 0.378 (~45.57)
</TABLE>
Note: Since the close of the accounting year has been changed from December 31
to September 30, 2nd fiscal period shall be from January 1, 1998 to
September 30, 1998 and 3rd fiscal period shall be from October 1, 1998 to
September 30, 1999.
(C) Record of Sales and Repurchase:
Record of sales and repurchases during the following fiscal years and
number of outstanding Units of the Fund as of the end of such Fiscal Years
are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Number of Units Number of
Units Sold Repurchased Outstanding Units
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Fiscal Year I Class
(1/2/97-12/31/97) 231,499 689 230,810
(0) (0) (0)
- --------------------------------------------------------------------------------
R Class 84,428 3,085 81,343
(0) (0) (0)
- --------------------------------------------------------------------------------
2nd Fiscal Year I Class
(1/1/98-9/30/98) 90,904 51,401 270,313
(0) (0) (0)
R Class 178,620 90,210 169,753
(0) (0) (0)
- --------------------------------------------------------------------------------
</TABLE>
Note 1: The Units will be sold in Japan from May 24, 1999.
Note 2: The figures in parentheses show those sold, redeemed or outstanding in
Japan.
<PAGE>
-58-
II. OUTLINE OF THE TRUST
1. Trust
(A) Law of Place of Incorporation
The Trust is a Massachusetts business trust organized in
Massachusetts, U.S.A. on February 20, 1991.
Chapter 182 of the Massachusetts General Laws prescribes the
fundamental matters in regard to the operations of certain business trusts
constituting voluntary associations under that chapter.
The Trust is an open-end, diversified management company under the
Investment Company Act of 1940.
(B) Outline of the Supervisory Authority
Refer to I - 1(B) Outline of the Supervisory Authority.
(C) Purpose of the Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights
of a financial character and to carry on such other businesses as the
Trustees may from time to time determine pursuant to their authority under
the Declaration of Trust.
(D) History of the Trust
February 20, 1991: Organization of the Trust as a Massachusetts
business trust. Adoption of the Declaration of
Trust.
(E) Amount of Capital Stock Not applicable.
(F) Structure of the Management of the Trust
Subject to the provisions of the Declaration of Trust, the business of
the Trust shall be managed by the Trustees, and they shall have all powers
necessary or convenient to carry out that responsibility. Without limiting
the foregoing, the Trustees may adopt By-Laws not inconsistent with the
Declaration of Trust providing for the conduct of the business of the Trust
and may amend and repeal them to the extent that such By-Laws do not
reserve that right to the Shareholders; they may fill vacancies, including
vacancies caused by enlargement of their number, and may remove Trustees
with or without cause; they may elect and remove, with or without cause,
such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one
or more committees consisting of two or more Trustees, including an
executive committee which may, when the Trustees are not in session,
exercise some or all of the power and authority of the Trustees as the
Trustees may determine; they may employ one or more
<PAGE>
-59-
custodians of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities, retain a transfer
agent or a Shareholder servicing agent, or both, provide for the
distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to
any such custodian or underwriter.
Except as otherwise provided in the Declaration of Trust or from time
to time in the By-Laws, any action to be taken by the Trustees may be taken
(A) by a majority of the Trustees present at a meeting of the Trustees (a
quorum being present), within or without Massachusetts, including any
meeting held by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can
hear each other at the same time (participation by which means shall for
all purposes constitute presence in person at a meeting), or (B) by written
consents of a majority of the Trustees then in office (which written
consents shall be filed with the records of the meetings of the Trustees
and shall be treated for all purposes as a vote taken at a meeting of
Trustees).
The Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Article W, Section 1 of the Declaration of Trust,
provided, however, that no meeting of Shareholders is required to be called
--------- -------
for the purpose of electing Trustees unless and until such time as less
than a majority of the Trustees have been elected by the Shareholders, (ii)
with respect to any Investment Management Company or Sub-Adviser as
provided in Article W, Section 6 of the Declaration of Trust to the extent
required by the 1940 Act, (iii) with respect to any termination of the
Trust to the extent and as provided in Article Ix, Section 4 of the
Declaration of Trust, (iv) with respect to any amendment of the Declaration
of Trust to the extent and as provided in Article IX, Section of 7 of the
Declaration of Trust, (v) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the
Shareholders, and (vi) with respect to such additional matters relating to
the Trust as may be required by law, the Declaration of Trust, the By-Laws
or any registration of the Trust with the Commission (or any successor
agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter
on which it is entitled to vote and each fractional Share shall be entitled
to a proportionate fractional vote. On any matter submitted to a vote of
Shareholders all Shares of the Trust then entitled to vote shall be voted
by individual Series, except (i) when required by the 1940 Act,
<PAGE>
-60-
Shares shall be voted in the aggregate and not by individual Series and
(ii) when the Trustees have determined that the matter affects only the
interests of one or more Series or Classes, then only Shareholders of such
Series or Classes shall be entitled to vote thereon. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in
person or by proxy. A proxy with respect to Shares held in the name of two
or more persons shall be valid if executed by any one of them unless at or
prior to exercise of the proxy the Trust receives a specific written notice
to the contrary from any one of them. A proxy purporting to be executed by
or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on
the challenger. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action permitted or required of the
Shareholders by law, the Declaration of Trust or the By-Laws.
Meetings of the Shareholders may be called by the Trustees for the
purpose of electing Trustees as provided in Article W, Section 1 of the
Declaration of Trust and for such other purposes as may be prescribed by
law, by the Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders
shall be given or caused to be given by the Trustees by mailing such notice
at least seven days before such meeting, postage prepaid, stating the time
and place of the meeting, to each Shareholder entitled to vote at such
meeting at the Shareholder's address as it appears on the records of the
Trust. Whenever notice of a meeting is required to be given to a
Shareholder under the Declaration of Trust or the By-Laws, a written waiver
thereof, executed before or after the meeting by such Shareholder or his or
her attorney thereunto authorized and filed with the records of the
meeting, shall be deemed equivalent to such notice.
Forty percent (40%) of the Shares entitled to vote shall be a quorum
for the transaction of business at a Shareholders' meeting, except that
where any provision of law or of the Declaration of Trust or the By-Laws
permits or requires that holders of any Series or Class shall vote as a
Series or Class, then forty percent (40%) of the aggregate number of Shares
of that Series or Class entitled to vote shall be necessary to constitute a
quorum for the transaction of business by that Series or Class. Any lesser
number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. Except when a
larger vote is required by any provision of law or the Declaration of Trust
or the By-Laws, a majority of the Shares voted shall decide any questions
and a plurality shall elect a
<PAGE>
-61-
Trustee, provided that where any provision of law or of the Declaration of
Trust or the By-Laws permits or requires that the holders of any Series or
Class shall vote as a Series or Class, then a majority of the Shares of
that Series or Class voted on the matter (or a plurality with respect to
the election of a Trustee) shall decide that matter insofar as that Series
or Class is concerned.
Any action taken by Shareholders may be taken without a meeting if a
majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of law or
the Declaration of Trust or the By-Laws) consent to the action in writing
and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
Under Massachusetts law shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund of
which they are shareholders. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Fund and requires that
notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trust or the trustees. The
Declaration of Trust provides for indemnification out of Fund property for
all loss and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote
since it is limited to circumstances in which the disclaimer is inoperative
and the Fund itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not
be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Declaration of Trust protects a trustee against any
liability to which the trustee would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office. The By-Laws of the Trust
provide for indemnification by the Trust of the trustees and officers of
the Trust except with respect to any matters as to which any such person
did not act in good faith in the reasonable belief that such action was in
or not opposed to the best interests of the Trust. No officer or trustee
may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office.
The Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services with any
corporation, trust, association or other organization (the "Manager"),
every such contract to comply with such requirements and restrictions as
may be set forth in the By-Laws; and any such
<PAGE>
-62-
contract may provide for one or more sub-advisers who shall perform all or
part of the obligations of the Manager under such contract and may contain
such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine, including, without limitation,
authority to determine from time to time what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets
of the Trust shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time,
contract with the Manager or any other corporation, trust, association or
other organization, appointing it exclusive or nonexclusive distributor or
principal underwriter for the Shares, every such contract to comply with
such requirements and restrictions as may be set forth in the By-Laws; and
any such contract may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may
determine.
Unless terminated as provided in the Declaration of Trust, the Trust
shall continue without limitation of time. The Trust may be terminated at
any time by vote of Shareholders holding at least sixty-six and two-thirds
percent (66 2/3%) of the shares entitled to vote, or by the Trustees by
written notice to the Shareholders. Any Series or Class of shares may be
terminated at any time by vote of Shareholders holding at least sixty-six
and two-thirds percent (66 2/3%) of the shares of such Series or Class
entitled to vote, or by the Trustees by written notice to the Shareholders
of such Series or Class. Upon termination of the Trust or of any one or
more Series or Classes of shares, after paying or otherwise providing for
all charges, taxes, expenses and liabilities, whether due or accrued or
anticipated, of the Trust or of the particular Series or Class as may be
determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets
to distributable form in cash or shares or other property, or any
combination thereof, and distribute the proceeds to the Shareholders of the
Series involved, ratably according to the number of shares of such Series
held by the several Shareholders of such Series on the date of termination,
except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any Classes of shares of that
Series, provided that any distribution to the Shareholders of a particular
Class of shares shall be made to such Shareholders pro rata in proportion
to the number of shares of such Class held by each of them.
<PAGE>
-63-
(G) Information Concerning Major Shareholders Not applicable.
(H) Information Concerning Directors, Officers and Employees
(1) Trustees and Officers of the Trust
<TABLE>
<CAPTION>
as of March 31, 1999
- -----------------------------------------------------------------------------------------
Shares
Name Office and Title Resume Owned
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARL W. FOELL Trustee formerly: Editor in-Chief, 6,060.426
World Monitor Magazine
and Editor-in-Chief, The
Christian Science Monitor
- -----------------------------------------------------------------------------------------
RICHARD S. Trustee formerly: Vice President, 30,974.638
HOLWAY Loomis Sayles.
Director, Sandwich
Cooperative Bank.
- -----------------------------------------------------------------------------------------
MICHAEL T. Trustee formerly: Vice President, 22,498.912
MURRAY Loomis Sayles
- -----------------------------------------------------------------------------------------
DANIEL J. FUSS President and present: Executive Vice President 518,557.664
Trustee and Director, Loomis
Sayles
- -----------------------------------------------------------------------------------------
SHEILA M. BARRY Secretary and present: Assistant General 0
Compliance Counsel and Vice
Officer President, Loomis Sayles
formerly: Senior Counsel and
Vice President, New
England Funds, L.P.
- -----------------------------------------------------------------------------------------
ROBERT J. Executive Vice present: President, Chairman, 15,162.283
BLANDING President Director and Chief
Executive Officer,
Loomis Sayles
- -----------------------------------------------------------------------------------------
JAMES C. Vice President present: Vice President, Loomis 0
CARROLL Sayles
formerly: Managing Director
and Senior Energy
Analyst at Paine Webber,
Inc.
- -----------------------------------------------------------------------------------------
MARY C. Vice President present: Vice President, Loomis 0
CHAMPAGNE Sayles
- -----------------------------------------------------------------------------------------
E. JOHN DEBEER Vice President present: Vice President, Loomis 0.057
Sayles
- -----------------------------------------------------------------------------------------
PAUL H. DREXLER Vice President present: Vice President, Loomis 0
Sayles
formerly: Deputy Manager,
Brown Brothers Harriman
& Co.
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-64-
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WILLIAM H. Vice President present: Vice President, Loomis 0
EIGEN, JR. Sayles
formerly: Vice President,
INVESCO Funds Group
and Vice President, The
Travelers Corp.
- -----------------------------------------------------------------------------------------
CHRISTOPHER R. Vice President present: Vice President, Loomis 2,025.946
ELY Sayles
formerly: Senior Vice President
and portfolio manager,
Keystone Investment
Management Company, Inc.
- -----------------------------------------------------------------------------------------
QUENTIN P. Vice President present: Vice President, Loomis 0
FAULKNER Sayles
- -----------------------------------------------------------------------------------------
PHILIP C. FINE Vice President present: Vice President, Loomis 0
Sayles
formerly: Vice President and
portfolio manager,
Keystone Investment
Management Company,
Inc.
- -----------------------------------------------------------------------------------------
KATHLEEN C. Vice President present: Vice President, Loomis 0
GAFFNEY Sayles
- -----------------------------------------------------------------------------------------
ISAAC GREEN Vice President present: Vice President and 86.084
Director, Loomis Sayles
- -----------------------------------------------------------------------------------------
DEAN A. GULlS Vice President present: Vice President, Loomis 1,263.236
Sayles
formerly: Principal and
Director of Research at
Roney & Company
- -----------------------------------------------------------------------------------------
MARTHA F. Vice President present: Vice President, Loomis 7,208.240
HODGMAN Sayles
- -----------------------------------------------------------------------------------------
MARK W. Treasurer present: Vice President - Finance 62,550.280
HOLLAND and Administration and
Director, Loomis Sayles
- -----------------------------------------------------------------------------------------
JOHN HYLL Vice President present: Vice President, Loomis 0
Sayles
- -----------------------------------------------------------------------------------------
JEFFREY L. Vice President present: Executive Vice President, 119,418.992
MEADE Chief Operating Officer
and Director, Loomis
Sayles
- -----------------------------------------------------------------------------------------
PHILIP R. Assistant present: Vice President, Loomis 0
MURRAY Treasurer Sayles
- -----------------------------------------------------------------------------------------
KENT P. Vice President present: Vice President and 26,729.345
NEWMARK Director, Loomis Sayles
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-65-
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SCOTT S. PAPE Vice President present: Vice President, Loomis 0
Sayles
- -----------------------------------------------------------------------------------------
JEFFREY C. Vice President present: Vice President, Loomis 2,230.540
PETHERICK Sayles
- -----------------------------------------------------------------------------------------
LAUREN B. Vice President present: Vice President, Loomis 516.668
PITALIS Sayles
formerly: Vice President and
Assistant Secretary of
Harris Associates
Investment Trust
- -----------------------------------------------------------------------------------------
PHILIP J. Vice President present: Vice President and 0
SCHETTEWI Director, Loomis Sayles
- -----------------------------------------------------------------------------------------
DAVID L. SMITH Vice President present: Vice President, Loomis 0
Sayles
formerly: Vice President and
portfolio manager,
Keystone Investment
Management Company,
Inc.
- -----------------------------------------------------------------------------------------
SANDRA P. Vice President present: General Counsel, Vice 0
TICHENOR President, Secretary and
Clerk, Loomis Sayles
formerly: Partner, Heller,
Ehrman, White &
McAuliffe
- -----------------------------------------------------------------------------------------
JEFFREY W. Vice President present: Vice President, Loomis 0
WARDLOW Sayles
- -----------------------------------------------------------------------------------------
GREGG D. Vice President present: Vice President, Loomis 0
WATKINS - Sayles
- -----------------------------------------------------------------------------------------
ANTHONY J. Vice President present: Vice President and 15,456.990
WILKINS Director, Loomis Sayles
- -----------------------------------------------------------------------------------------
</TABLE>
Note: Previous positions during the past five years with Loomis Sayles are
omitted, if not materially different.
(2) Employees of the Trust The Trust has no employees.
(I) Description of Business and Outline of Operation
The Trust may carry out any administrative and managerial act,
including the purchase, sale, subscription and exchange of any securities,
and the exercise of all rights directly or indirectly pertaining to the
Fund's assets. The Trust has retained Loomis Sayles & Company, L.P., the
investment adviser, to render investment advisory services and State Street
Bank and Trust Company, to hold the assets of the
<PAGE>
-66-
Fund in custody and act as Transfer, Dividend Payment and Shareholder
Servicing Agent.
(J) Miscellaneous
(1) Changes of Trustees and Officers
Trustees may be removed or replaced by, among other things, a
resolution adopted by a vote of two-thirds of the outstanding shares at a
meeting called for the purpose. In the event of vacancy, the remaining
Trustees may fill such vacancy by appointing for the remaining term of the
predecessor Trustee such other person as they in their discretion shall see
fit. The Trustees may add to their number as they consider appropriate. The
Trustees may elect and remove officers as they consider appropriate.
(2) Amendment to the Declaration of Trust
The Declaration of Trust may be amended at any time by an instrument
in writing signed by a majority of the then Trustees when authorized to do
so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees
shall affect the holders of one or more Series or Classes of Shares but not
the holders of all outstanding Series and Classes shall be authorized by
vote of the Shareholders holding a majority of the Shares entitled to vote
of each Series and Class affected and no vote of Shareholders of a Series
or Class not affected shall be required. Amendments having the purpose of
changing the name of the Trust, of establishing, changing or eliminating
the par value of any Shares or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or
inconsistent provision contained herein shall not require authorization by
vote of any Shareholders.
(3) Litigation and Other Significant Events
There is no litigation or no other proceeding in which the Trust is
involved. The fiscal year end of the Trust is September 30. The Declaration
of Trust provides for the perpetual existence of the Trust. The Trust or
the Fund, however, may be terminated at any time by vote of at least two-
thirds of the outstanding shares of the Trust or the Fund, respectively.
The Declaration of Trust further provides that the trustees may also
terminate the Trust or the Fund upon written notice to the shareholders.
<PAGE>
-67-
2. Loomis, Sayles & Company, L.P. (Investment Management Company)
(A) Law of Place of Incorporation
Loomis Sayles is a limited partnership organized under the Law of the
State of Delaware, U.S.A. Its investment advisory business is regulated
under the Investment Advisers Act of 1940.
Under the Investment Advisers Act of 1940, an investment adviser
means, with certain exceptions, any person who, for compensation, engages
in the business of advising others, either directly or through publications
or writings, as to the value of securities or as to the advisability of
investing in, purchasing or selling securities, or who, for compensation
and as part of a regular business, issues analyses or reports concerning
securities. Investment advisers under the Act may not conduct their
business unless they are registered with the SEC.
(B) Outline of the Supervisory Authority
Investment Management Company is registered with SEC as an investment
adviser under the Investment Advisers Act of 1940.
(C) Purpose of the Company
Investment Management Company's predominant business is investment
management, which includes the buying, selling, exchanging and trading of
securities of all descriptions on behalf of mutual funds in any part of the
world.
(D) History of the Company
Founded in 1926, Loomis Sayles is one of the country's oldest and
largest investment firms. Loomis Sayles' sole general partner is a wholly-
owned subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Nvest
Companies' advising general partner is Nvest Corporation is a direct
wholly-owned subsidiary of Metropolitan Life Insurance Company, a mutual
life insurance company. 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 Trust's board of trustees supervises Loomis Sayles' conduct of
the affairs of the Fund.
(E) Amount of Capital Stock (as of the end of March, 1999)
1. Amount of Capital (issued capital stock at par value):
Not applicable. Provided, however, that the partner capital as of
December 31, 1998 was $55,595,000.
<PAGE>
-68-
2. Number of authorized shares of capital stock:
Not applicable.
3. Number of outstanding shares of capital stock:
Not applicable.
4. Amount of capital:
Not applicable. See, Note 5 to the consolidated financial statements
included in PART III SPECIAL INFORMATION, II. FINANCIAL CONDITIONS OF
THE INVESTMENT MANAGEMENT COMPANY herein.
(F) Structure of the Management of the Company
The general partner of the Investment Management Company is a special
purpose corporation that is an indirect wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general
partner, Nvest Corporation, is a direct wholly-owned subsidiary of
Metropolitan Life Insurance Company ("Met Life") a mutual life insurance
company. Met Life, the second largest individual life insurance company in
the United States in 1998, has claims paying ability and financial strength
rating of "AA" from Standard & Poor's Rating Service, as of March 31, 1999.
Nvest Companies' advising general partner, Nvest, L.P., is a publicly
traded company listed on the New York Stock Exchange. Nvest Corporation is
the sole general partner of Nvest L.P.
Loomis Sayles serves as investment manager under a separate management
agreement relating to the Loomis Sayles Managed Bond Fund dated August 26,
1998. Under the advisory agreement, Loomis Sayles manages the investment
and reinvestment of the assets of the Fund and generally administers its
affairs, subject to supervision by the board of trustees of the Trust.
Loomis Sayles furnishes, at its own expense, all necessary office space,
facilities and equipment, services of executive and other personnel of the
Fund and certain administrative services. For these services, the
management agreement provides that the Fund shall pay Loomis Sayles a
monthly investment advisory fee at the annual percentage rate of 0.40 % of
the Fund's average daily net assets. The assets under the management of
Loomis Sayles are U.S.$ 70 billion as of December 31, 1998.
The Trust pays the compensation of its trustees who are not directors,
officers or employees of Loomis Sayles or its affiliates (other than
registered investment companies); registration, filing and other fees in
connection with requirements of regulatory authorities; all charges and
expenses of its custodian and transfer agent; the
<PAGE>
-69-
charges and expenses of its independent accountants; all brokerage
commissions and transfer taxes in connection with portfolio transactions;
all taxes and fees payable to governmental agencies; the cost of any
certificates representing shares of the Fund; the expenses of meetings of
the shareholders and trustees of the Trust; the charges and expenses of the
Trust's legal counsel; interest on any borrowings by the Fund; the cost of
services, including services of counsel, required in connection with the
preparation of, and the cost of printing, the Trust's registration
statements and prospectuses, including amendments and revisions thereto,
annual, semiannual and other periodic reports of the Trust, and notices and
proxy solicitation material furnished to shareholders or regulatory
authorities, to the extent that any such materials relate to the Trust or
its shareholders; and the Trust's expenses of bookkeeping, accounting,
auditing and financial reporting, including related clerical expenses.
Under each advisory agreement, if the total ordinary business expenses
of the Fund or the Trust as a whole for any fiscal year exceed the lowest
applicable limitation (based on percentage of average net assets or income)
prescribed by any state in which the shares of the Fund or the Trust are
qualified for sale, Loomis Sayles shall pay such excess. Loomis Sayles will
not be required to reduce its fee or pay such expenses to an extent or
under circumstances which would result in the Fund's inability to qualify
as a regulated investment company under the Code. The term "expenses" is
defined in the management agreements or in relevant state regulations and
excludes brokerage commissions, taxes, interest, distribution-related
expenses and extraordinary expenses.
The management agreement provides that it will continue in effect for
two years from its date of execution and thereafter from year to year if
its continuance is approved at least annually (i) by the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities
of the Fund and (ii) by vote of a majority of the Trustees who are not
"interested persons" of the Trust, as that term is defined in the 1940 Act,
cast in person at a meeting called for the purpose of voting on such
approval. Any amendment to the management agreement must be approved by
vote of a majority of the outstanding voting securities of the Fund and by
vote of a majority of the Trustees who are not such interested persons,
cast in person at a meeting called for the purpose of voting on such
approval. The agreement may be terminated without penalty by vote of the
Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund, upon sixty days' written notice, or by Loomis
Sayles upon ninety days' written notice, and each terminates automatically
in the event of its assignment. In addition, the agreement will
automatically terminate if the Trust or the Fund shall at any time be
required by Loomis Sayles to eliminate all reference to the words "Loomis"
and "Sayles" in the name of the Trust or the Fund, unless the continuance
of the agreement after such change of name is approved by a
<PAGE>
-70-
majority of the outstanding voting securities of the Fund and by a majority
of the Trustees who are not interested persons of the Trust or Loomis
Sayles.
The management agreement provides that Loomis Sayles shall not be
subject to any liability in connection with the performance of its services
thereunder in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
Loomis Sayles acts as investment adviser or subadviser to New England
Value Fund, New England Strategic Income Fund, New England Star Advisers
Fund; New England Star Small Cap Fund and New England Balanced Fund, which
are series of New England Funds Trust I, a registered open-end management
investment company, New England High Income Fund, a series of New England
Fund Trust II, a registered, open-end management investment company, New
England Equity Income Fund, a series of New England Funds Trust II, a
registered open-end management investment company, and to the Balanced
Series and the Small Cap Series of New England Zenith Fund, which is also a
registered open-end management investment company, as well as to Loomis
Sayles Investment Trust, also registered open-end management investment
company, Loomis Sayles also provides investment advice to certain other
open-end management investment companies and numerous other corporate and
fiduciary clients.
Certain officers and trustees of the Trust also serve as officers,
directors and trustees of other investment companies and clients advised by
Loomis Sayles. The other investment companies and clients sometimes invest
in securities in which the Fund also invests. If the Fund and such other
investment companies or clients desire to buy or sell the same portfolio
securities at the same time, purchases and sales may be allocated, to the
extent practicable, on a pro rata basis in proportion to the amount desired
to be purchased or sold for each. It is recognized that in some cases the
practices described in this paragraph could have a detrimental effect on
the price or amount of the securities which the Fund purchases or sells. In
other cases, however, it is believed that these practices may benefit the
Fund. It is the opinion of the trustees that the desirability of retaining
Loomis Sayles as adviser for the Fund outweighs the disadvantages, if any,
which might result from these practices.
Daniel J. Fuss, President of the Trust and Executive Vice President of
Loomis Sayles, will serve as the portfolio manager of the Loomis Sayles
Managed Bond Fund. Kathleen C. Gaffney, Vice President of the Trust and
Loomis Sayles, will serve as associate portfolio manager of Loomis Sayles
Managed Bond Fund.
<PAGE>
-71-
Names Year Business Experience
(at least 5 ears)
Daniel J. Fuss 1976 Executive Vice President, Director and Managing
Partner of Loomis, Sayles & Company, L.P.
BS, Marquette University
MBA, Marquette University
Joined Loomis Sayles in 1976
began investment career in 1961
Past Professional Experience:
The Boston Company; Vice President, Investment Counsel
Endowment Management & Research Co.: Vice President,
Investment Management
Continental Illinois National Bank: Second Vice
President and Trust Officer
Kathleen C. Gaffney 1984 Vice President of Loomis, Sayles & Company, L.P.
BA, University of Massachusetts
joined Loomis Sayles in 1984
began investment career in 1984
(G) Information Concerning Major Stockholders Not applicable.
(H) Information Concerning Officers and Employees
The following table lists the names of various officers and directors of
Investment
Management Company and their respective positions with Investment
Management Company. (Although, technically, the Investment Management
Company does not have officers and directors because it is a limited
partnership, the officers and directors of the General Partner serve the
same function for the Investment Management Company and therefore, assume
the same titles. Hereinafter the same.)For each named individual, the table
lists: (i) any other organizations (excluding other Investment Management
Company's funds) with which the officer and/or director has recently had or
has substantial involvement; and (ii) positions held with such
organization:
<PAGE>
-72-
<TABLE>
<CAPTION>
List of Officers and Directors of Loomis, Sayles & Company, L.P.
(as of the end of March, 1999)
- --------------------------------------------------------------------------------
<S> <C> <C>
Position with Other Business Affiliation
Loomis, Sayles &
Name Company, L.P.
- --------------------------------------------------------------------------------
Daniel J. Fuss Executive Vice President and Trustee of the Trust
President and
Director
- --------------------------------------------------------------------------------
Sheila M. Assistant General Secretary and Compliance Officer of the
Barry Counsel and Vice Trust
President
- --------------------------------------------------------------------------------
Robert J. President, Chairman, Executive Vice President of the Trust
Blanding Director and Chief
Executive Officer
- --------------------------------------------------------------------------------
James C. Vice President Vice President of the Trust
Carroll
- --------------------------------------------------------------------------------
Mary C. Vice President Vice President of the Trust
Champagne
- --------------------------------------------------------------------------------
E. John Vice President Vice President of the Trust
DeBeer
- --------------------------------------------------------------------------------
Parl H. Vice President Vice President of the Trust
Drexler
- --------------------------------------------------------------------------------
William H. Vice President Vice President of the Trust
Eiger, Jr.
- --------------------------------------------------------------------------------
Christopher Vice President Vice President of the Trust
R. Ely
- -------------------------------------------------------------------------------
Quentin P. Vice President Vice President of the Trust
Faulkner
- -------------------------------------------------------------------------------
Philip C. Fine Vice President Vice President of the Trust
- -------------------------------------------------------------------------------
Kathleen C. Vice President Vice President of the Trust
Gaffney
- -------------------------------------------------------------------------------
Isaac H. Vice President and Vice President of the Trust
Green Director
- -------------------------------------------------------------------------------
Dean A. Vice President Vice President of the Trust
Gulis
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Martha F. Vice President Vice President of the Trust
Hodgman
- --------------------------------------------------------------------------------
Mark W. Vice President and Treasurer of the Trust
Holland Director
- --------------------------------------------------------------------------------
John Hyll Vice President Vice President of the Trust
- --------------------------------------------------------------------------------
Jeffrey L. Executive Vice Vice President of the Trust
Meade President, Chief
Operating Officer
and Director
- --------------------------------------------------------------------------------
Philip R. Vice President and Assistant Treasurer of the Trust
Murray Treasurer
- --------------------------------------------------------------------------------
Kent P. Managing Partner, Vice President of the Trust
Newmark Vice President and
Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Jeffrey C. Vice President Vice President of the Trust
Petherick
- --------------------------------------------------------------------------------
Lauren B. Vice President Vice President of the Trust
Pitalis
- --------------------------------------------------------------------------------
Philip J. Vice President and Vice President of the Trust
Schettewi Director
- --------------------------------------------------------------------------------
David L. Vice President Vice President of the Trust
Smith
- --------------------------------------------------------------------------------
Sandra P. General Counsel, Vice President of the Trust
Tichenor Executive Vice
President, Secretary,
Clerk and Director
- --------------------------------------------------------------------------------
Jeffrey W. Vice President Vice President of the Trust
Wardlow
- --------------------------------------------------------------------------------
Gregg D. Vice President Vice President of the Trust
Watkins
- --------------------------------------------------------------------------------
Anthony J. Vice President and Vice President of the Trust
Wilkins Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(I) Summary of Business Lines and Business Operation
Investment Management Company is engaged in the business of providing
investment management and investment advisory services to mutual funds. As
of the end of March, 1999, Investment Management Company managed, advised,
and/or administered the following 40 funds and fund portfolios:
<PAGE>
-74-
Fund List
(as of the end of March, 1999)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Month/Date Principal Total Net Net Asset
Year Characteristics Asset Value Value per
Fund Established ($ million) share ($)
R=Retail R=Retail
I=Institutional I=Institutional
A=Admin A=Admin
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOOMIS SAYLES FUNDS
- --------------------------------------------------------------------------------------------------------
Bond 5/16/91 Fixed 56 (R) 12.36 (R)
Income/Open 1,544 (I) 12.38 (I)
0.1 (A) 12.35 (A)
------------------------------------------------------------------------------------------------------
Global Bond 5/10/91 Global/Open 6 (R) 12.56 (R)
35 (I) 12.57 (I)
-----------------------------------------------------------------------------------------------------
Growth 5/16/91 Equity/Open 1 (R) 11.15 (R)
28 (I) 11.25 (I)
- ------------------------------------------------------------------------------------------------------
Core Value 5/13/91 Equity/Open 1 (R) 17.34 (R)
74 (I) 17.38 (I)
- -----------------------------------------------------------------------------------------------------
High Yield 9/11/96 Fixed 19 (I) 8.72 (I)
Income/Open
- -----------------------------------------------------------------------------------------------------
Intermediate Maturity Bond 12/31/96 Fixed 1 (R) 9.78 (R)
Income/Open 9 (I) 9.79 (I)
- ----------------------------------------------------------------------------------------------------
International Equity 5/10/91 Global/Open 0.2 (R) 11.59 (R)
71 (I) 11.63 (I)
- ----------------------------------------------------------------------------------------------------
Investment Grade Bond 12/31/96 Fixed 3 (R) 10.26 (R)
Income/Open 4 (I) 10.28 (I)
---------------------------------------------------------------------------------------------------
Mid-Cap Growth 12/31/96 Equity/Open 0.2 (R) 15.65 (R)
5 (I) 15.70 (I)
- ----------------------------------------------------------------------------------------------------
Mid-Cap Value 12/31/96 Equity/Open 0.1 (R) 10.59 (R)
5 (I) 10.60 (I)
- ----------------------------------------------------------------------------------------------------
Municipal Bond 5/29/91 Fixed 11 (I) 11.57 (1)
Income/Open
- ----------------------------------------------------------------------------------------------------
Short-Term Bond 8/3/92 Fixed 0.5 (R) 9.66 (R)
Income/Open 28 (I) 9.66 (I)
- ----------------------------------------------------------------------------------------------------
Small Cap Growth 12/31/96 Equity/Open 4 (R) 13.89 (R)
46 (I) 13.95 (I)
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-75-
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Small Cap Value 5/13/91 Equity/Open 64 (R) 16.06 (R)
306 (I) 16.08 (I)
2 (A) 16.04 (A)
- -------------------------------------------------------------------------------------------------------
U.S. Government Securities 5/21/91 Fixed 20 (I) 10.86 (I)
Income/Open
- -------------------------------------------------------------------------------------------------------
Worldwide 5/1/96 Global/Open 0.1 (R) 9.50 (R)
6 9.53 (I)
- -------------------------------------------------------------------------------------------------------
Managed Bond 4/27/98 Equity/Open 35 10.46
- -------------------------------------------------------------------------------------------------------
LOOMIS SAYLES INVESTMENT TRUST
- -------------------------------------------------------------------------------------------------------
California Tax-Free Income 6/1/95 Fixed 21 10.51
Income/Open
- -------------------------------------------------------------------------------------------------------
Core Fixed Income 4/24/96 Fixed 22 10.66
Income/Open
- -------------------------------------------------------------------------------------------------------
Core Growth 10/1/95 Equity/Open 24 13.06
- -------------------------------------------------------------------------------------------------------
Fixed Income 1/17/95 Fixed 280 12.25
Income/Open
- -------------------------------------------------------------------------------------------------------
High Yield Fixed Income 6/5/96 Fixed 18 8.27
Income/Open
- -------------------------------------------------------------------------------------------------------
Intermediate Duration 1/28/98 Fixed 15 9.73
Income/Open
- -------------------------------------------------------------------------------------------------------
Investment Grade Fixed Income 7/1/94 Fixed 135 11.58
Income/Open
- -------------------------------------------------------------------------------------------------------
NEW ENGLAND FUNDS TRUST I, II
and III
- -------------------------------------------------------------------------------------------------------
Cl. A= 207 A= 13.22
New England Balanced (I) 11/27/68 Balanced/Open B= 81 B= 13.10
C= 6 C= 13.05
Y= 67 D= 13.24
- -------------------------------------------------------------------------------------------------------
New England Equity Income Fund 11/28/95 Equity Open Cl. A= 14 A= 16.51
(III) B= 13 B= 16.51
C= 2 C= 16.52
- -------------------------------------------------------------------------------------------------------
New England High Income Fund 2/22/84 Fixed Cl. A= 77 A= 9.06
(II) Income/Open B= 69 B= 9.06
C= 10 C= 9.06
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-76-
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
New England International
Equity Fund (I) 5/21/92 Global/Open C1. A= 41 A= 13.86
B= 18 B= 13.56
C= 1 C= 13.60
Y= 6 Y= 14.07
- -------------------------------------------------------------------------------------------------------
New England Star Advisers (I) 7/7/94 Equity/Open Cl. A= 463 A= 21.64
B= 535 B= 20.74
C= 102 C= 20.76
Y= 49 Y= 22.02
- -------------------------------------------------------------------------------------------------------
New England Star Small Cap (I) 12/31/96 Equity/Open Cl. A= 53 A= 15.67
B= 58 B= 15.41
C= 14 C= 15.41
- -------------------------------------------------------------------------------------------------------
New England Strategic Income (I) 5/1/95 Fixed Cl. A= 130 A= 11.73
Income/Open B= 133 B= 11.72
C= 43 C= 11.71
- -------------------------------------------------------------------------------------------------------
New England Value (I) 6/5/70 Equity/Open Cl. A= 280 A= 9.30
B= 76 B= 9.00
C= 6 C= 9.01
Y= 12 Y= 9.28
- -------------------------------------------------------------------------------------------------------
NEW ENGLAND ZENITH FUND
- -------------------------------------------------------------------------------------------------------
Balanced 10/31/94 Balanced/Open 193 15.15
- -------------------------------------------------------------------------------------------------------
Small Cap 5/2/94 Equity/Open 209 136.21
- -------------------------------------------------------------------------------------------------------
UNRELATED FUNDS
- -------------------------------------------------------------------------------------------------------
1st Source 11/3/87 Equity/Open 91 11.26
-------------------------------------------------------------------------------------------------------
Manager's Bond fund 5/84 Fixed 34 22.58
Income/Open
-------------------------------------------------------------------------------------------------------
Maxim Small-Cap Aggressive 11/1/94 Equity/Open 103 1.23710586
Growth Fund
- -------------------------------------------------------------------------------------------------------
Maxim Foreign Equity 2/14/97 Global 80 0.94135195
Equity/Open
- -------------------------------------------------------------------------------------------------------
Maxim Corporate Bond 11/1/94 Fixed 216 1.13657221
Income/Open
- -------------------------------------------------------------------------------------------------------
Metropolitan High Yield Bond 3/97 Fixed 47 8.94
Income/Open
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-77-
(J) Miscellaneous
1. Election and Removal of Directors
Directors of the General Partner of the Investment Management Company
are elected to office or removed from office by vote of either stockholders
or directors, in accordance with the By-Laws of the General Partner of
Investment Management Company.
2. Results of operations
Officers of the General Partner of the Investment Management Company
are elected by the Board of Directors. The Board of Directors may remove
any officer without cause.
3. Supervision by SEC of Changes in Directors and Certain Officers Loomis
Loomis Sayles files certain reports with the SEC in accordance with
Sections 203 and 204 of the Investment Advisers Act of 1940, which reports
list and provide certain information relating to directors and officers of
Investment Management Company.
4. Amendment to the Agreement of Limited Partnership of Investment
Management Company, Articles of Organization and By-Laws of its General
Partner, Transfer of Business and Other Important Matters.
5. Litigation, etc.
On March 26, 1999, the United States District Court for the Middle
District of California Western Division issued Findings of Fact and
Conclusions of Law in a suit captioned California Ironworkers Field Pension
------------------------------------
Trust, et al. vs. Loomis, Sayles & Company, L.P., et al. (Case No. CV-96-
---------------------------------------------------------
4036-CAS (Jgx)). The defendants in the case were Loomis, Sayles & Company,
L.P. and its general partner, Loomis, Sayles & Company, Incorporated
(collectively "Loomis Sayles"). The plaintiffs in the case included three
of Loomis Sayles' investment advisory clients - a pension plan, annuity
plan and health & welfare plan for the California Ironworkers. The
plaintiffs sought recovery for losses resulting from investment in inverse
floaters, a form of collateralized mortgage obligation ("CMO"), during the
1992 to 1994 period.
The Court held that Loomis Sayles did not act in bad faith, did not
engage in intentionally wrongful conduct, did not breach its duty of
loyalty to its clients, and did not violate any express investment
guidelines for any of the three plans. The Court also found that Loomis
Sayles had exercised "procedural due care" (i.e. had conducted
<PAGE>
-78-
an appropriate analysis of the investments) in purchasing the inverse floaters
and that Loomis Sayles' inclusion of these types of securities in the three
plans" accounts was not per se inappropriate. The Court went on to find that
Loomis Sayles did not breach its duty of care with respect to the pension and
annuity plans in any fashion and managed those assets prudently. However, the
Court held that even though the health & welfare plan's guidelines specifically
authorized the use of CMO's and the use of inverse floaters was not
inappropriate for that account per Se, Loomis Sayles had been imprudent under
the standards of Section 404(a)(1)(B) of the Employment Retirement Income
Security Act of 1974, as amended, in that too high a percentage of that plan's
assets had been invested in inverse floaters, given that plan's inherently
conservative investment objectives. The Court reached this result even though
the health & welfare plan would not have suffered any losses if the inverse
floaters had been held to the date of the trial rather than being sold in 1995
and even though a party other than Loomis Sayles made the decision to sell the
inverse floaters. The Court's decision does not have a material adverse effect
on Loomis Sayles' financial condition.
<PAGE>
-79-
III. OUTLINE OF THE OTHER RELATED COMPANIES
(A) State Street Bank and Trust Company (the Transfer Agent, Shareholder
Service Agent, Dividend Paying Agent and Custodian)
(1) Amount of Capital
U.S.$4.7 trillion as of the end of March, 1999
(2) Description of Business
State Street Bank and Trust Company, Boston, Massachusetts 02102,
is the Trust's custodian. As such, State Street Bank holds in
safekeeping certificated securities and cash belonging to the Fund and,
in such capacity, is the registered owner of securities held in book
entry form belonging to the Fund. Upon instruction, State Street Bank
receives and delivers cash and securities of the Fund in connection
with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State
Street Bank also maintains certain accounts and records of the Fund and
calculates the total net asset value, total net income and net asset
value per share of the Fund on a daily basis.
(3) Outline of Business Relationship with the Fund
State Street Bank and Trust Company provides transfer agent
services, shareholder services, dividend paying services and custody
services to the Fund.
(B) Loomis Sayles Distributors, L.P. (the Distributor)
(1) Amount of Capital
U.S.$212,690 as of the end of March, 1999
(2) Description of Business
Under an agreement with the Trust (the "Distribution Agreement"),
Loomis Sayles Distributors, L.P. serves as the general distributor of
the Fund. Under this agreement, Loomis Sayles Distributors, L.P. is not
obligated to sell a specific number of shares. Loomis Sayles
Distributors, L.P. bears the cost of making information about the Fund
available through advertising and other means and the cost of printing
and mailing prospectuses to persons other than shareholders. The Fund
pays the cost of registering and qualifying their shares under state
and federal securities laws and the distribution of prospectuses to
existing shareholders.
The Fund has adopted a Service and Distribution Plan adopted
pursuant to Rule 12b-1 under the 1940 Act (the "Plan") under which the
Fund pays the Distributor, a subsidiary of Loomis Sayles, a monthly
service fee at an annual rate not to exceed 0.25 % of the Fund's
average net assets attributable to Shares
<PAGE>
-80-
and a monthly distribution fee at an annual rate not to exceed 0.50% of
the Fund's average net assets attributable to Shares. Pursuant to Rule
12b-1 under the 1940 Act, the Plan (together with the Distribution
Agreement) was approved by the board of trustees, including a majority
of the trustees who are not interested persons of the Trust (as defined
in the 1940 Act) and who have no direct or indirect financial interest
in the operations of the Plan or the Distribution Agreement (the
"Independent Trustees").
The Plan may be terminated by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding
voting securities of the Fund. The Plan may be amended by vote of the
trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose. The Trust's trustees
review quarterly written reports of such costs and the purposes for
which such costs have been incurred. The Plan provides that, for so
long as that Plan is in effect, selection and nomination of those
trustees who are not interested persons of the Trust shall be
committed to the discretion of such disinterested persons.
The Distribution Agreement may be terminated at all time with
respect to the Fund on 60 days' written notice without payment of any
penalty by the Trust or by vote of majority of the outstanding voting
securities of the Fund or by vote of a majority of the Independent
Trustees.
The Distribution Agreement and the Plan will continue in effect
for successive one-year periods, provided that each such continuance
is specifically approved (i) by the vote of a majority of the entire
board of trustees and (ii) by the vote of a majority of the
Independent Trustees, in each case cast in person at a meeting called
for that purposes.
(3) Outline of Business Relationship with the Fund
Loomis Sayles Distributors, L.P. engages in providing marketing
services to the Fund.
(C) Marusan Securities Co., Ltd. (Distributor in Japan and Agent Securities
Company)
(1) Amount of Capital
(Yen) 10 billion as of the end of March, 1999
(2) Description of Business
Marusan is a diversified securities company in Japan. Marusan engages
in handling the sales and redemptions of the fund shares for offering
foreign investment funds.
<PAGE>
-81-
(3) Outline of Business Relationship with the Fund
The Company acts as a Distributor in Japan and Agent Company for the
Fund in connection with the offering of shares in Japan.
(D) Izumi Securities Co., Ltd. (Distributor in Japan)
(1) Amount of Capital
(Yen) 5.2 billion as of the end of March, 1999
(2) Description of Business
Izumi is a diversified securities company in Japan. Izumi engages in
handling the sales and redemptions of the fund shares for four foreign
investment funds.
(3) Outline of Business Relationship with the Fund
The Company acts as a Distributor in Japan for the Fund in connection
with the offering of shares in Japan.
(E) Tokyo Mitsubishi Personal Securities Co., Ltd. (Distributor in Japan)
(1) Amount of Capital
(Yen) 7.7 billion as of the end of March, 1999
(2) Description of Business
Tokyo Mitsubishi is a diversified securities company in Japan. Tokyo
Mitsubishi engages in handling the sales and redemptions of the fund
shares for foreign investment funds.
(3) Outline of Business Relationship with the Fund
The Company acts as a Distributor in Japan for the Fund in connection
with the offering of shares in Japan.
(F) Capital Relationships
N/A.
(G) Interlocking Directors and Auditors
Names and functions of officers of the Fund who also are officers of
the related companies are as follows:
<TABLE>
<CAPTION>
(as of the filing date)
- --------------------------------------------------------------------------------
<S> <C> <C>
Name of Investment
Officer or Management
Trustee Trust Company
- --------------------------------------------------------------------------------
Daniel J. Fuss President & Trustee Executive Vice President
and Director
- --------------------------------------------------------------------------------
Sheila M. Secretary and Assistant General Councel
Barry Compliance Officer and Vice President
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-82-
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
Robert J. Executive Vice President, Chairman,
Blanding President Director and Chief
Executive Officer
- --------------------------------------------------------------------------------
Mark W. Treasurer Vice President - Chief
Holland Financial Officer and
Director
- --------------------------------------------------------------------------------
Jeffrey L. Vice President Executive Vice President,
Meade Chief Operating Officer and
Director
- --------------------------------------------------------------------------------
Philip R. Assistant Treasurer Vice President and
Murray Treasurer
- --------------------------------------------------------------------------------
Kent P. Vice President Managing Partner, Vice
Newmark President and Director
- --------------------------------------------------------------------------------
Philip J. Vice President Vice President and Director
Schettewi
- --------------------------------------------------------------------------------
Sandra P. Vice President General Counsel, Executive
Tichenor Vice President, Secretary,
Clerk and Director
- --------------------------------------------------------------------------------
Anthony J. Vice President Vice President and Director
Wilkins
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-83-
IV. FINANCIAL CONDITION OF THE FUND
1. Financial Statement
The Fund shall use as the auditors the professional services of
Pricewaterhouse Coopers.
[The Japanese translation of the financial statement of the Fund to be
incorporated.]
2. Conditions of the Fund
(a) Statement of Net Assets
<TABLE>
<CAPTION>
(As of the end of March, 1999)
- --------------------------------------------------------------------------
U.S.$ Japanese Yen
- --------------------------------------------------------------------------
(in thousands
except column e.)
<S> <C> <C> <C>
- --------------------------------------------------------------------------
a. Total Asset 6,380,648 769,187
- --------------------------------------------------------------------------
b. Total Liabilities 266,307 32,103
- --------------------------------------------------------------------------
c. Total Net Assets 6,114,341 737,084
(a-b)
- --------------------------------------------------------------------------
d. Total Number of Institutional 341,081 units
Units Outstanding Retail 254,389 units
- --------------------------------------------------------------------------
e. Net Asset Value Institutional 10.28 (Yen) l,239
per Unit (c/d) Retail 10.26 (Yen) l,237
- --------------------------------------------------------------------------
</TABLE>
(b) Names of Major Portfolio Shares
Not applicable.
<PAGE>
-84-
V. SUMMARY OF INFORMATION CONCERNING FOREIGN INVESTMENT TRUST SECURITIES
1. Transfer of the Shares
The transfer agent for the registered share certificates is State
Street Bank and Trust Company, Boston, Massachusetts 02102, U.S.A.
The Japanese investors who entrust the custody of their shares to a
Sales Handling Company shall have their shares transferred under the
responsibility of such company, and the other investors shall make their
own arrangements.
No fee is chargeable for the transfer of shares.
2. The Closing Period of the Shareholders' Book
For the purpose of determining the shareholders who are entitled to
vote or act at any meeting or any adjournment thereof, or who are entitled
to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time, which shall be not more than 90
days before the date of any meeting of shareholders or the date for the
payment of any dividend or of any other distribution, as the record date
for determining the shareholders having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of record on
such record date shall have such right notwithstanding any transfer of
shares on the books of the Trust after the record date; or without fixing
such record date the Trustees may for any of such purposes close the
register or transfer books for all or any part of such period.
3. There are no annual shareholders' meetings. Special shareholders' meeting
may be held from time to time as required by the Declaration of Trust and
the Investment Company Act of 1940.
4. No special privilege is granted to Shareholders.
The acquisition of Shares by any person may be restricted.
VI. MISCELLANEOUS
(1) The ornamental design is used in cover page of the Japanese Prospectus.
(2) Summarized Preliminary Prospectus will be used.
Attached document (Summarized Preliminary Prospectus) will be used pursuant
to the below, as the document (Summarized Preliminary Prospectus) as set
forth at Item 1(1)(b), of Article 12 of the Ordinance Concerning the
Disclosure of the Content, etc. of the Specified Securities.
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(i) The summarized Preliminary Prospectus may be used as letters, pamphlets,
direct-mails post-cards, letters), etc., and may be published in
newspapers, magazines, books, etc.
(ii) The summarized Preliminary Prospectus may be, depending on the media types,
modified as to its lay-out, kinds of paper, printed-color, design, etc. In
addition, photographs and illustrations attached may be added thereto.
(iii) For information of the Fund's achievements, the changes of the net asset
value per share and the fluctuation rates since the establishment of the
Fund or for the latest 3 months, 6 months, one year, two years, three years
or five years may be set out in the figures or graphs, compared to the
recognized bond index from time to time. Such information regarding the
Fund's achievement may be converted into and presented in yen.
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PART III. SPECIAL INFORMATION
SECTION I. OUTLINE OF GENERAL INFORMATION ABOUT OPEN-END MASSACHUSETTS
INVESTMENT COMPANIES
Below is an outline of certain general information about open-end U.S.
investment companies. This outline is not intended to provide comprehensive
information about such investment companies or the various laws, rules or
regulations applicable to them, but provides only a brief summary of certain
information which may be of interest to investors. The discussion below is
qualified in its entity by the complete registration statement of the fund and
the full text of any referenced statutes and regulations.
I. Massachusetts Business Trusts
A. General Information
Many investment companies are organized as Massachusetts business
trusts. A Massachusetts business trust is organized pursuant to a
declaration of trust, setting out the general rights and obligations of the
shareholders, trustees, and other related parties. Generally, the trustees
of the trust oversee its business, and its officers and agents manage its
day-to-day affairs.
Chapter 182 of the Massachusetts General Laws applies to certain
"voluntary associations", including many Massachusetts business trusts.
Chapter 182 provides for, among other things, the filing of the declaration
of trust with the Secretary of State of the Commonwealth of Massachusetts
and the filing by the trust of an annual statement regarding, among other
things, the number of its shares outstanding and the names and addresses of
its trustees.
B. Shareholder Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a trust.
Typically, a declaration of trust disclaims shareholder liability for acts
or obligations of the trust and provides for indemnification out of trust
property for all loss and expense of any shareholder held personally liable
for the obligations of a trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which a particular trust would be unable to meet its
obligations.
II. United States Investment Company Laws and Enforcement
A. General
In the United States, pooled investment management arrangements which
offer shares to the public are governed by a variety of federal statutes
and regulations. Most mutual funds are subject to these laws. Among the
more significant of these statutes are:
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1. Investment Company Act of 1940
The Investment Company Act of 1940, as amended (the "1940 Act"), in
general, requires investment companies to register as such with the U.S.
Securities and Exchange Commission (the "SEC"), and to comply with a number
of substantive regulations of their operations. The 1940 Act requires an
investment company, among other things, to provide periodic reports to its
shareholders.
2. Securities Act of 1933
The Securities Act of 1933, as amended (the "1933 Act"), regulates
many sales of securities. The Act, among other things, imposes various
registration requirements upon sellers of securities and provides for
various liabilities for failures to comply with its provisions or in
respect of other specified matters.
3. Securities Exchange Act of 1934
The Securities Exchange Act of 1934, as amended (the "1934 Act"),
regulates a variety of matters involving, among other things, the secondary
trading of securities, periodic reporting by the issuers of securities, and
certain of the activities of transfer agents and brokers and dealers.
4. The Internal Revenue Code of 1986
An investment company is an entity subject to federal income taxation
under the Internal Revenue Code of 1986, as amended. However, under the
Code, an investment company may be relieved of federal taxes on income and
gains it distributes to shareholders if it qualifies as a "regulated
investment company" under the Code for federal income tax purposes and
meets all other necessary requirements.
5. Other laws
The Fund is subject to the provisions of other laws, rules, and
regulations applicable to the Fund or its operations, such as, for example,
various state laws regarding the sale of the Fund's shares.
B. Outline of the Supervisory Authorities
Among the regulatory authorities having jurisdiction over the Fund or
certain of its operations are the SEC and state regulatory agencies or
authorities.
1. The SEC has broad authority to oversee the application and enforcement
of the federal securities laws, including the 1940 Act, the 1933 Act, and
the 1934 Act, among others, to the Fund. The 1940 Act provides the SEC
broad authority to inspect the records of investment companies, to exempt
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investment companies or certain practices from the provisions of the
Act, and otherwise to enforce the provisions of the Act.
2. State authorities typically have broad authority to regulate the
offering and sale of securities to their residents or within their
jurisdictions and the activities of brokers, dealers, or other persons
directly or indirectly engaged in related activities.
C. Offering Shares to the Public
An investment company ("investment company" or fund) offering its
shares to the public must meet a number of requirements, including, among
other things, registration as an investment company under the 1940 Act;
registration of the sale of its shares under the 1933 Act; registration of
the fund, the sale of its shares, or both, with state securities
regulators; delivery of a current prospectus to current or prospective
investors; and so forth. Many of these requirements must be met not only
at the time of the original offering of the fund's shares, but compliance
must be maintained or updated from time to time throughout the life of the
fund.
D. Ongoing Requirements
Under U.S. law, a fund is subject to numerous ongoing requirements,
including, but not limited to;
1. Updating its prospectus if it becomes materially inaccurate or
misleading;
2. Annual update of its registration statement;
3. Filing semi-annual and annual financial reports with the SEC and
distributing them to shareholders;
4. Annual trustee approval of investment advisory arrangements,
distribution plans, underwriting arrangements, errors and
omissions/director and officer liability insurance, foreign custody
arrangements, and auditors;
5. Maintenance of a code of ethics; and
6. Periodic board review of certain fund transactions, dividend
payments, and payments under a fund's distribution plan.
III. Management of a Fund
The board of directors or trustees of a fund is responsible for generally
overseeing the conduct of a fund's business. The officers and agents of a fund
are generally responsible for the day-to-day operations of a fund. The trustees
and officers of a fund may or may not receive a fee for their services.
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The investment adviser to a fund is typically responsible for implementing
the fund's investment program. The adviser typically receives a fee for its
services based on a percentage of the net assets of a fund. Certain rules
govern the activities of investment advisers and the fees they may charge. In
the United States, investment advisers to investment companies must be
registered under the Investment Advisers Act of 1940, as amended.
IV. Share Information
A. Valuation
Shares of a fund are generally sold at the net asset value next
determined after an order is received by a fund, plus any applicable sales
charges. A fund normally calculates its net asset value per share by
dividing the total value of its assets, less liabilities, by the number of
its shares outstanding. Shares are typically valued as of the close of
regular trading on the New York Stock Exchange (4:00) each day the Exchange
is open.
B. Redemption
Shareholders may generally sell shares of a fund to that fund any day
the fund is open for business at the net asset value next computed after
receipt of the shareholders' order. Under unusual circumstances, a fund
may suspend redemptions, or postpone payment for more than seven days, if
permitted by U.S. securities laws. A fund may charge redemption fees as
described in its prospectus.
C. Transfer agency
The transfer agent for a fund typically processes the transfer of
shares, redemption of shares, and payment and/or reinvestment of
distributions.
V. Shareholder Information, Rights and Procedures for the Exercise of Such
Rights
A. Voting Rights
Voting rights vary from fund to fund. In the case of many funds
organized as Massachusetts business trusts, shareholders are entitled to
vote on the election of trustees, approval of investment advisory
agreements, underwriting agreements, and distribution plans (or amendments
thereto), certain mergers or other business combinations, and certain
amendments to the declaration of trust. Shareholder approval is also
required to modify or eliminate a fundamental investment policy.
B. Dividends
Shareholders are typically entitled to receive dividends when and if
declared by a fund's trustees. In declaring dividends, the trustees will
normally set a record date, and all shareholders of record on that date
will be entitled to receive the dividend paid.
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C. Dissolution
Upon liquidation of a fund, Shareholders would normally be entitled to
receive a portion of the fund's net assets in accordance with the
proportion of the fund's outstanding shares owned.
D. Transferability
Shares of a fund are typically transferable without restriction.
E. Right to Inspection
Shareholders of a Massachusetts business trust have the right to
inspect the records of the trust as provided in the declaration of trust or
as otherwise provided by applicable law.
VI. U.S. Tax Matters
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes substantially all its net investment income and net capital gains to
its shareholders, the Fund itself does not pay any federal income tax to the
extent such income and gains are so distributed.
An investor's income dividends and short-term capital gain distributions
are taxable as ordinary income whether distributed in cash or additional shares.
Distributions designated by the Fund as deriving from net gains on securities
held for more than one year will be taxable as such generally at a 20% rate for
non-corporate shareholders whether distributed in cash or additional shares and
regardless of how long an investor has owned shares of the Fund. Shareholders
who are not subject to U.S. federal income tax generally will not have to pay
tax on such long-term capital gain distributions. Distributions are taxable to
a shareholder of the Fund even if they are paid from income or gains earned by
the Fund prior to the Shareholder's investment and thus were included in the
price paid by the Shareholder.
The Fund generally is required to withhold 31 % of any redemption proceeds
(including the value of shares exchanged) and all income dividends and capital
gain distributions it pays (1) if an investor does not provide a correct,
certified taxpayer identification number, (2) if the Fund is notified that an
investor has underreported income in the past, or (3) if an investor fails to
certify to the Fund that he or she is not subject to such withholding. Special
withholding rules may apply to non-U.S. shareholders, as described in the
Statement of Additional Information.
Dividends derived from interest on U.S. government securities may be exempt
from state and local taxes.
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.
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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.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order so to qualify, and to qualify for the
favorable tax treatment accorded regulated investment companies and their
shareholders, the Fund must, among other things, (i) derive at least 90% of its
gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale of securities of foreign currencies, or
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (ii) distribute with respect to each taxable
year at least 90% of the sum of its taxable net investment income, its tax-
exempt income, and the excess, if any, of net short-term capital gains over net
long-term capital losses for such year; (iii) at the end of each quarter of the
taxable year maintain at least 50% of the value of its total assets in cash,
U.S. Government securities, securities of other regulated investment companies,
and other securities of issuers which represent, with respect to each issuer, no
more than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer; and (iv) at the end of each quarter of the
taxable year, hold not more than 25% of the value of its assets in the
securities (other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades and
businesses. To the extent it qualifies for treatment as a regulated investment
company, the Fund will not be subject to federal income tax on income paid to
its shareholders in the form of dividends or capital gain distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over its actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its capital gain net income realized
during the one-year period ending on October 31 (or December 31, if the Fund so
elects) plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax. Distributions
declared by the Fund during October, November or December to shareholders of
record on a date in any such month and paid by the Fund during the following
January will be treated for federal tax purposes as paid by the Fund and
received by shareholders on December 31 of the year in which declared.
Shareholders of the Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by the Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions
designated by the Fund as deriving from net gains on securities held for more
than one year will be taxable to shareholders as long-term capital gain
(generally taxable at a 20% tax rate for non-corporate Shareholders without
regard to how long a shareholder has held shares of the Fund.
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Dividends and distributions on the Fund's share are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
The Fund's transactions, if any, in foreign currencies are likely to result
in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to constitute
a return of capital for tax purposes or require the Fund to make distributions
exceeding book income to avoid excise tax liability and to qualify as a
regulated investment company.
Investments by the Fund in "passive foreign investment companies" could
subject the Fund to a U.S. federal income tax or other charge on the proceeds
from the sale of its investment in such a company; however, this tax can be
avoided by making an election to mark such investments to market annually or to
treat the passive foreign investment company as a "qualified electing fund." A
"passive foreign investment company" is any foreign corporation; (i) 75% or more
of the income of which for the taxable year is passive income, or (ii) the
average percentage of the assets of which (generally by value, but by adjusted
tax basis in certain cases) that produce or are held for the production of
passive income is at least 50 percent. Generally, passive income for this
purpose means dividends, interest (including income equivalent to interest),
royalties, rents annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign currency gains.
Passive income for this purpose does not include rents and royalties received by
the foreign corporation from active business and certain income received from
related persons.
The Fund's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
If the Fund engages in hedging transactions, including hedging transactions
in options, future contracts and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale, mark-to-
market, straddle, wash sale, and short sale rules), the effect of which may be
to accelerate income to the Fund, defer losses to the Fund, cause adjustments in
the holding periods of the Fund's securities, or convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
In general, any gain realized upon a taxable disposition of shares will be long-
term capital gain (generally taxable to non-corporate Shareholders at a 20%
rate) if the shares have been held for more than one year.
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Otherwise the gain on the sale, exchange or redemption of the Fund shares will
be treated as short-term capital gain. if a shareholder sells Fund shares at a
loss within six months after purchasing the shares, the loss will be treated as
a long-term capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to the shares.
Furthermore, all or a portion of any loss on the sale of Fund shares may be
disallowed if the shareholder acquired other shares of the Fund within 30 days
prior to the sale of the loss shares or 30 days after such sale. Shareholders
who are not subject to U.S. federal income tax generally will not have to pay
tax on gains realized upon a disposition of Fund shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to foreign, state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, foreign, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty), the possibility that a non-U.S.
investor may be subject to U.S. tax on capital gain distributions and gains
realized upon the sale of Fund shares if the investor is present in the United
States for more than 182 days during the taxable year (and certain other
conditions apply), or the possibility that a non-U.S. investor may be subject to
U.S. tax on income from the Fund that is "effectively connected" with a U.S.
trade or business carried on by such investor.
The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding tax rules. The new
regulations will generally be effective for payments made on or after December
31, 1999 (although transition rules will apply). In some circumstances, the new
rules will increase the certification and filing requirements imposed on foreign
investors in order to qualify for exemption from the 31 % back-up withholding
tax and for reduced withholding tax rates under income tax treaties. Foreign
investors in the Fund should consult their tax advisors with respect to the
potential application of these new regulations.
VII. Important Participants in Offering of Mutual Fund Shares
A. Investment Company
Certain pooled investment vehicles qualify as investment companies
under the 1940 Act. There are open-end investment companies (those which
offer redeemable securities) and closed-end investment companies (any
others).
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B. Investment Adviser/Administrator
The investment adviser is typically responsible for the
implementation of an investment company's investment program. It, or
another affiliated or unaffiliated entity, may also perform certain record
keeping and administrative functions.
C. Underwriter
An investment company may appoint one or more principal underwriters
for its shares. The activities of such a principaly underwriter are
generally governed by a number of legal regimes, including, for example,
the 1940 Act, the 1933 Act, the 1934 Act, and state laws.
D. Transfer Agent
A transfer agent performs certain bookkeeping, data processing, and
administrative services pertaining to the maintenance of shareholder
accounts. A transfer agent may also handle the payment of any dividends
declared by the trustees of a fund.
E. Custodian
A custodian's responsibilities may include, among other things,
safeguarding and controlling a fund's cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends
on a fund's investments.
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II. FINANCIAL CONDITIONS OF THE INVESTMENT MANAGEMENT COMPANY
[Omitted, in Japanese version, financial statements of the Investment
Management Company and Japanese translations thereof are incorporated
here.]
III. FORM OF FOREIGN INVESTMENT FUND SECURITIES
[Main items to be set forth on the share certificate of the Fund (if
issued) are as follows:-
(1) Front
a. Name of the Fund
b. Number of shares represented
c. Signatures of the Chairman and Transfer Agent
d. Description stating that the Declaration of Trust applies to
shareholders and assignees therefrom
(2) Back
a. Space for endorsement
b. Description concerning delegation of transfer agency]
