<PAGE>
- -----------------------------------------------------------------------
LOOMIS SAYLES
MANAGED BOND FUND
ANNUAL REPORT
SEPTEMBER 30, 1999
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
800 - 633 - 3330
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -------------------------------------------------------
[PHOTO]
PERFORMANCE SUMMARY
For the 12-month period ended September 30, 1999, the Fund
returned 4.56% (before deducting the maximum 2.50% front
[PHOTO]
end sales charge) compared to the -0.92% return for the Fund's
benchmark, the Lehman Brothers Government/Corporate Bond
Index. The average corporate debt fund BBB rated, as measured
by Lipper Analytical Services, posted a total return of -0.99%
for the same period.
DANIEL J. FUSS
PORTFOLIO REVIEW
In the first half of the fiscal year, diminished expectations of future interest
rate cuts, rising Japanese bond yields and a stronger-than-expected domestic
economy led investors to trade out of particularly rich U.S. Treasury bonds and
into other segments of the bond market. The Fund was well positioned to benefit
from this transition.
Throughout the second calendar quarter of 1999, yield spreads and lower-quality
securities fared much better than Treasuries, which benefited the Fund. But,
sentiment quickly changed in the last three months of the fiscal year, due to
expectations of higher U.S. interest rates, secondary market activity and
instability among emerging market economies. Renewed fears about lower-rated
bonds triggered a rally among Treasuries and higher-quality securities. As
higher-rated debt securities outperformed the high-yield market during the third
quarter, the Fund's 34.6% position in lower-quality issues hindered overall
performance.
But, the Fund exhibits a longer relative duration in an attempt to capitalize on
the additional yield and convexity offered further out on the yield curve as
well as the call protection that longer-dated bonds should provide. This longer
duration helped the Fund significantly outperform the benchmark for the 12-month
period.
PORTFOLIO POSITIONING
We believe that the Fund's diversification across domestic sectors will help
maintain our focus on long-term capital appreciation potential and current
income. We also have maintained our position in the Canadian government and
provincial debt sector, as we believe these bonds will be able to sustain their
strong credit profiles, liquidity and call protection.
[SIG]
Daniel J. Fuss
1
<PAGE>
________________________________________________________________________________
AVERAGE RETURNS (%) -- PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SINCE INCEPTION(a)
<S> <C>
- -----------------------------------------------------------------------
Loomis Sayles Managed Bond Fund(b) 1.89
Lipper Corporate Debt Funds BBB Rated Index(c) 0.68
Lehman Brothers Government/Corp. Bond Index(d) -0.92
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE OCTOBER 31, 1998 TO SEPTEMBER 30, 1999
<S> <C> <C> <C>
Lipper
Corporate Lehman Brothers
Loomis Sayles Debt Funds Government/Corporate
Managed Bond Fund(b) BBB Rated Index Bond Index
10/31/98 $9,750.00 $10,000.00 $10,000.00
11/30/98 $10,388.00 $10,165.00 $10,060.00
12/31/98 $10,926.00 $10,210.46 $10,085.15
1/31/99 $10,600.00 $10,299.29 $10,156.75
2/28/99 $10,350.00 $10,076.83 $9,915.02
3/31/99 $10,702.00 $10,188.68 $9,964.60
4/30/99 $10,887.00 $10,262.04 $9,989.51
5/31/99 $10,594.00 $10,123.50 $9,886.62
6/30/99 $10,483.00 $10,069.85 $9,855.97
7/31/99 $10,427.00 $10,019.50 $9,828.37
8/31/99 $10,374.00 $9,982.43 $9,820.51
9/30/99 $10,361.00 $10,068.28 $9,908.00
</TABLE>
Note: Past Performance is not predictive of future performance. Total return
assumes the reinvestment of dividends and capital gains distributions. The
investment return and principal value of an investment in the Fund will
fluctuate so that investors' shares, when redeemed, may be worth more or less
than their original cost.
(a):Inception date of the Loomis Sayles Managed Bond Fund is October 1, 1998.
Since Lipper and Lehman Brothers Government/Corp. Bond Index performance
data is not available coincident with this date, comparative performance is
presented from October 31, 1998.
(b):Performance for the Fund includes the effect of the maximum 2.50% front end
sales charges.
(c):The Lipper Corporate Debt Funds BBB Rated Index is an equally weighted
index of typically the 30 largest mutual funds within the corporate debt
funds BBB rated investment objective. Returns are adjusted for the
reinvestment of capital gains distributions and income dividends.
(d):Lehman Brothers Government/Corporate Bond Index is a composite of
approximately 5,300 corporate and government issues with at least $100
million outstanding for government issues and $25 million for corporates,
and greater than 1 year maturity. The index returns have not been lowered
for ongoing management and operating expenses applicable to mutual fund
investments.
2
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
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LOOMIS SAYLES MANAGED BOND FUND
- -------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE +
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
BONDS AND NOTES -- 94.4% OF NET ASSETS
NON-CONVERTIBLE BONDS -- 72.2%
AUTO & RELATED -- 1.8%
TRW, Inc., 6.650%, 1/15/28....... USD 750,000 $ 627,630
------------
BROADCASTING -- 3.3%
Fox Family Worldwide, Inc., Zero
Coupon Bond, 11/01/07 (step to
10.250% on 11/01/02) #......... 1,750,000 1,128,750
------------
BUILDING MATERIALS -- 2.6%
Owens Corning, 7.500%, 8/01/18... 1,000,000 892,860
------------
CANADIAN -- 17.4%
Canadian Government, Zero Coupon
Bond, 6/01/25.................. CAD 11,500,000 1,750,752
Clearnet Communications, Inc.,
Zero Coupon Bond, 5/15/08 (step
to 10.400% on 5/15/03) #....... 1,750,000 720,630
Province of British Columbia,
Zero Coupon Bond, 1/09/12...... 4,500,000 1,407,797
Province of British Columbia,
Zero Coupon Bond, 8/23/24...... 1,750,000 241,119
Province of Ontario, Zero Coupon
Bond, 6/02/27.................. 12,000,000 1,398,639
Province of Saskatchewan, Zero
Coupon Bond, 1/18/10........... 1,233,000 441,604
------------
5,960,541
------------
COMPUTERS -- 2.0%
Dell Computer Corp., 7.100%,
4/15/28........................ USD 750,000 679,552
------------
FINANCIAL SERVICES -- 3.0%
Merey Sweeny LP, 8.850%, 12/18/19
144A........................... 500,000 495,710
US West Capital Funding, Inc.,
6.875%, 7/15/28................ 600,000 531,924
------------
1,027,634
------------
FOOD & BEVERAGE -- 1.3%
ConAgra, Inc., 7.000%,
10/01/28....................... 500,000 445,940
------------
FOREIGN ISSUER -- 1.3%
Dolphin Telecom Plc, Zero Coupon
Bond, 6/01/08 (step to 11.625%
on 6/01/03) #.................. EUR 1,000,000 452,774
------------
HEALTH CARE -- PRODUCTS -- 1.9%
Bausch & Lomb, Inc., 7.125%,
8/01/28........................ USD 750,000 648,225
------------
HEALTH CARE -- SERVICES -- 1.8%
Columbia/HCA Healthcare Corp.,
7.190%, 11/15/15............... 800,000 632,000
------------
OIL & GAS -- 11.6%
Chesapeake Energy Corp., 9.625%,
5/01/05........................ 1,200,000 1,131,000
Global Marine, Inc., 7.000%,
6/01/28........................ 100,000 87,980
Pioneer Natural Resources Co.,
6.500%, 1/15/08................ 250,000 205,858
R & B Falcon Corp., 7.375%,
4/15/18........................ 750,000 573,750
Tennessee Gas Pipeline Co.,
7.000%, 10/15/28............... 900,000 809,766
Union Pacific Resources Group,
Inc., 7.050%, 5/15/18.......... 500,000 451,490
Union Pacific Resources Group,
Inc., 7.150%, 5/15/28.......... 450,000 400,900
Union Pacific Resources Group,
Inc., 7.500%, 10/15/26......... 350,000 326,074
------------
3,986,818
------------
</TABLE>
3
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
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LOOMIS SAYLES MANAGED BOND FUND (CONTINUED)
- -------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE +
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS AND NOTES -- CONTINUED
RAIL -- TRANSPORT -- 0.3%
Missouri Pacific Railroad Co.,
4.750%, 1/01/20................ USD 25,000 $ 15,750
Missouri Pacific Railroad Co.,
5.000%, 1/01/45................ 140,000 75,600
------------
91,350
------------
REAL ESTATE INVESTMENT TRUSTS --
5.0%
First Industrial, 7.600%,
7/15/28........................ 900,000 752,157
Security Capital Industrial
Trust, 7.625%, 7/01/17......... 500,000 450,375
Susa Partnership LP, 7.500%,
12/01/27....................... 600,000 502,968
------------
1,705,500
------------
RETAIL -- GENERAL -- 0.8%
Dillon Read Structured Finance
Corp., 7.430%, 8/15/18......... 125,000 111,939
Woolworth Corp., 8.500%,
1/15/22........................ 250,000 167,500
------------
279,439
------------
TELECOMMUNICATIONS -- 13.0%
Hyperion Telecommunications,
Inc., Zero Coupon Bond, 4/15/03
(step to 13.000% on
4/15/01) #..................... 1,000,000 840,000
Intermedia Communications, Inc.,
Zero Coupon Bond, 3/01/09 (step
to 12.250% on 3/01/04) #....... 1,000,000 495,000
Nextel Communications, Inc., Zero
Coupon Bond, 10/31/07 (step to
9.750% on 10/31/02) #.......... 1,200,000 849,000
Nextel International, Inc., Zero
Coupon Bond, 4/15/08 (step to
12.125% on 4/15/03) #.......... 900,000 452,250
RCN Corp., Zero Coupon Bond,
10/15/07 (step to 11.125% on
10/15/02) #.................... 1,100,000 709,500
RCN Corp., Zero Coupon Bond,
2/15/08 (step to 9.800% on
2/15/03) #..................... 600,000 360,000
Telecorp PCS, Inc., Zero Coupon
Bond, 4/15/09 (step to 11.625%
on 4/15/04) 144A #............. 500,000 289,375
Teligent, Inc., Zero Coupon Bond,
3/01/08 (step to 11.500% on
3/01/03) #..................... 250,000 131,250
Triton Communications LLC, Zero
Coupon Bond, 5/01/08 (step to
11.000% on 5/01/03) #.......... 500,000 335,000
------------
4,461,375
------------
TRANSPORTATION -- 1.8%
Trico Marine Services, Inc.,
8.500%, 8/01/05................ 650,000 599,625
------------
UTILITIES -- 3.3%
KN Energy, Inc., 7.250%,
3/01/28........................ 1,250,000 1,141,250
------------
TOTAL NON-CONVERTIBLE BONDS
(Identified Cost
$25,726,608)................... 24,761,263
------------
</TABLE>
4
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
LOOMIS SAYLES MANAGED BOND FUND (CONTINUED)
- -------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE +
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS AND NOTES -- CONTINUED
CONVERTIBLE BONDS -- 22.2%
COMPUTERS -- 2.1%
Maxtor Corp., 5.750%, 3/01/12.... USD 500,000 $ 350,000
Read Rite Corp., 6.500%,
9/01/04........................ 650,000 260,000
Western Digital, Zero Coupon
Bond, 2/18/18.................. 750,000 108,750
------------
718,750
------------
DIVERSIFIED OPERATIONS -- 4.6%
Thermo Electron Corp., 4.250%,
1/01/03 144A................... 1,850,000 1,579,437
------------
FINANCIAL SERVICES -- 0.6%
Bell Atlantic Financial Services,
5.750%, 4/01/03................ 200,000 200,810
------------
HEALTH CARE -- DRUGS -- 1.2%
Chiron Corp., 1.900%, 11/17/00
144A........................... 250,000 263,438
Dura Pharmaceuticals, Inc.,
3.500%, 7/15/02................ 200,000 153,750
------------
417,188
------------
HEALTH CARE -- SERVICES -- 2.8%
Healthsouth Corp., 3.250%,
4/01/03........................ 1,250,000 962,500
------------
INSURANCE -- 4.1%
Loews Corp., 3.125%, 9/15/07..... 1,650,000 1,410,750
------------
MULTI-INDUSTRY -- 0.4%
Thermo Instrument Systems, Inc.,
4.500%, 10/15/03 144A.......... 150,000 129,750
------------
OIL & GAS -- 6.4%
Baker Hughes, Inc., Zero Coupon
Bond, 5/05/08.................. 2,050,000 1,486,250
Diamond Offshore Drilling, Inc.,
3.750%, 2/15/07................ 650,000 692,250
------------
2,178,500
------------
TOTAL CONVERTIBLE BONDS
(Identified Cost $7,704,957)... 7,597,685
------------
TOTAL BONDS AND NOTES
(Identified Cost
$33,431,565)................... 32,358,948
------------
<CAPTION>
SHARES
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
PREFERRED STOCKS -- 3.6% OF NET ASSETS
OIL & GAS -- 1.3%
Hvide Capital Trust, 6.500% ^.... 15,000 30,000
Weatherford International, Inc.,
Conv., 5.000%.................. 11,000 407,000
------------
437,000
------------
REAL ESTATE INVESTMENT TRUSTS --
0.6%
Carramerica Realty Corp.,
8.550%......................... 200 3,875
Equity Residential Properties
Trust, 7.250%.................. 10,000 207,500
------------
211,375
------------
</TABLE>
5
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
LOOMIS SAYLES MANAGED BOND FUND (CONTINUED)
- -------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SHARES VALUE +
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS -- CONTINUED
TELECOMMUNICATIONS -- 1.7%
Hyperion Telecommunications,
Inc., 12.875% PIK.............. 651 $ 579,389
------------
TOTAL PREFERRED STOCKS
(Identified Cost $1,581,910)... 1,227,764
------------
TOTAL INVESTMENTS -- 98.0%
(IDENTIFIED COST
$35,013,475) @................... 33,586,712
Cash and Other Assets, Less
Liabilities -- 2.0%............ 676,857
------------
NET ASSETS -- 100%................. $ 34,263,569
============
</TABLE>
+ See Note 1.
# Step Bond: Coupon is zero or below market rate for an initial period and
then increases at a specified date and rate.
144A Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
^ Security in default.
PIK All or a portion of income may be received as additional securities.
@ At September 30, 1999, the net unrealized depreciation on investments based
on cost of $35,013,475 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there
is an excess of value over tax cost and aggregate gross unrealized
depreciation for all securities in which there is an excess of tax cost
over value were $754,307 and $2,181,070, respectively, resulting in net
unrealized depreciation of $1,426,763.
KEY TO ABBREVIATIONS:
<TABLE>
<S> <C>
CAD: Canadian Dollar
EUR: Euro
USD: United States Dollar
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
Investments at value............................ $33,586,712
Cash............................................ 228,245
Receivable for:
Fund shares sold.............................. 314,259
Dividends and interest -- net................. 436,634
Due from the adviser (Note 3)................... 96,030
-----------
34,661,880
-----------
LIABILITIES
Payable for:
Fund shares redeemed.......................... 297,588
Accrued expenses:
Management fees (Note 3)...................... 17,188
Trustees' fees (Note 3A)...................... 1,193
Administrative fees........................... 1,304
Other (Note 1).................................. 81,038
-----------
398,311
-----------
NET ASSETS........................................ $34,263,569
===========
Net Assets consist of:
Capital paid in............................... $35,028,341
Undistributed (or Distribution in excess of)
net investment income....................... 219,760
Accumulated net realized gain (loss).......... 442,231
Unrealized appreciation (depreciation) on
Investments................................. (1,426,763)
-----------
NET ASSETS........................................ $34,263,569
===========
Shares of beneficial interest outstanding, no
par value..................................... 3,498,200
Net asset value and redemption price per
share......................................... $ 9.79
Maximum offering price per share (Net asset
value/97.50%)................................. $ 10.04
Identified cost of investments.................... $35,013,475
===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------
FOR THE PERIOD ENDED SEPTEMBER 30, 1999*
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends....................................... $ 147,466
Interest........................................ 2,697,533
-----------
2,844,999
-----------
Expenses
Management fees (Note 3)...................... 205,838
12b-1 fees.................................... 257,298
Trustees' fees and expenses (Note 3A)......... 4,463
Administrative fees........................... 15,114
Custodian and accounting fees................. 52,028
Transfer agent fees........................... 7,103
Audit and tax services fees................... 29,437
Registration fees............................. 28,816
Other expenses................................ 98,085
-----------
Total expenses................................ 698,182
Less expenses waived and reimbursed by the
investment adviser (Note 3)................. (183,586)
-----------
Net expenses.................................. 514,596
-----------
Net investment income........................... 2,330,403
-----------
NET REALIZED GAIN (LOSS) ON:
Investments..................................... 442,231
-----------
Total net realized gain (loss).................. 442,231
-----------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
ON:
Investments..................................... (1,426,763)
-----------
Total net change in unrealized appreciation
(depreciation)................................ (1,426,763)
-----------
Total net realized gain (loss) and change in
unrealized appreciation (depreciation)........ (984,532)
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS...................................... $ 1,345,871
===========
</TABLE>
* Commencement of operations on October 1, 1998.
See accompanying notes to financial
statements.
8
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------
FOR THE PERIOD ENDED SEPTEMBER 30, 1999*
<TABLE>
<S> <C>
FROM OPERATIONS
Net investment income........................... $ 2,330,403
Net realized gain (loss)........................ 442,231
Change in unrealized appreciation
(depreciation)................................ (1,426,763)
-----------
Increase (decrease) in net assets from
operations.................................. 1,345,871
-----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (2,110,643)
-----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from the sale of shares................ 53,999,642
Cost of shares redeemed......................... (18,971,301)
-----------
Increase (decrease) in net assets derived from
capital share transactions.................... 35,028,341
-----------
Total increase (decrease) in net assets......... 34,263,569
-----------
NET ASSETS
Beginning of period............................. 0
-----------
End of period................................... $34,263,569
===========
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period............................... $ 219,760
===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 5,370,740
Redeemed........................................ (1,872,540)
-----------
Net change...................................... 3,498,200
===========
</TABLE>
* Commencement of operations on October 1, 1998.
See accompanying notes to financial
statements.
9
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------
<TABLE>
<CAPTION>
1999*
-------
<S> <C>
Net asset value, beginning of period.............. $ 9.95
-------
INCOME FROM INVESTMENT OPERATIONS --
Net investment income (loss).................... 0.68
Net realized and unrealized gain (loss) on
investments................................... (0.22)
-------
Total from investment operations.............. 0.46
-------
LESS DISTRIBUTIONS --
Dividends from net investment income............ (0.62)
-------
Net asset value, end of period.................... $ 9.79
=======
Total return (%)(a)(b)(c)......................... 4.6
Net assets, end of period (000)................... $34,264
Ratio of operating expenses to average net assets
(%)(d)(e)....................................... 1.50
Ratio of net investment income to average net
assets (%)(d)................................... 6.77
Portfolio turnover (%)(a)......................... 34
Without giving effect to the voluntary expense
limitations described in Note 3 to the Financial
Statements:
Ratio of expenses to average net assets would
have been (%)(d)............................ 2.03
Net investment per share would have been...... $ 0.63
</TABLE>
* Commencement of operations on October 1, 1998 through September 30, 1999.
(a) Periods less than one year are not annualized.
(b) Total returns would have been lower had the adviser not reduced its
advisory fees and/or borne other operating expenses.
(c) Total return does not include the effect of any front end sales charges for
the Fund.
(d) Annualized for periods less than one year.
(e) The adviser has agreed to reimburse a portion of the Fund's expenses during
the period. Without this reimbursement the Fund's ratio of operating
expenses would have been higher.
10
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------
SEPTEMBER 30, 1999
1. The Loomis Sayles Managed Bond Fund (the "Fund") is a series of Loomis
Sayles Funds (the "Trust"), a diversified open-end investment company organized
as a Massachusetts business trust on February 20, 1991. At September 30, 1999,
the Trust was composed of seventeen series. The financial statements of the 16
remaining series are presented separately. Loomis, Sayles & Company, L.P.
("Loomis Sayles") is the investment adviser of the Fund. The Trust is authorized
to issue an unlimited number of full and fractional shares of beneficial
interest in multiple series.
Under a Service and Distribution plan adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor, a subsidiary of
Loomis Sayles, a monthly service and account maintenance fees at an annual rate
of 0.25% of the Fund's average net assets and a monthly distribution fee at an
annual rate of 0.50% of the Fund's average net assets.
Purchases of the Fund's shares are subject to a maximum sales charge of 2.50%
(the "public offering price").
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following summarizes the
significant accounting policies of the Managed Bond Fund:
A. SECURITY VALUATION -- Long-term debt securities for which quotations are
readily available are valued by a pricing service, as approved by the Board of
Trustees, which generally uses the most recent bid prices in the principal
market in which such securities are normally traded. Equity securities for which
quotations are readily available are valued at their last sale price on the
exchange where primarily traded or, if there is no reported sale during the day,
at the closing bid price. Short-term securities with a remaining maturity of 60
days or less are valued at amortized cost, which approximates market value.
Other securities for which quotations are not readily available (including
restricted securities, if any) are valued primarily using dealer supplied
quotations or at their fair values as determined in good faith under the general
supervision of the Board of Trustees.
B. REPURCHASE AGREEMENTS -- The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Fund's holding period. The Fund,
through its custodian, receives delivery of the underlying securities
collateralizing repurchase agreements. It is the Fund's policy that the market
value of the collateral be at least equal to 102% of the repurchase price. These
securities are marked-to-market daily. Loomis Sayles is responsible for
determining that the value of the collateral is at all times at least equal to
102% of the repurchase price. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines or
if the seller enters into insolvency proceedings, realization of the collateral
by the Fund may be delayed or limited.
11
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------
SEPTEMBER 30, 1999
C. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS -- The books and
records of the Fund are maintained in U.S. dollars. The value of securities,
currencies and other assets and liabilities denominated in currencies other than
U.S. dollars is translated into U.S. dollars based upon foreign exchange rates
prevailing at the end of the period. Purchases and sales of investment
securities are translated at contractual currency exchange rates established at
the time of the trade. Income and expenses are translated at prevailing exchange
rates on the respective dates of such transactions.
The results of operations resulting from changes in foreign exchange rates on
investments are not isolated from fluctuations arising from changes in market
prices of securities held. All such fluctuations are included with net realized
and unrealized gain or loss from investments.
Net realized and unrealized gains and losses on foreign currency transactions
represent foreign exchange gains and losses from the sale of holdings of foreign
currencies, foreign currency gains and losses between trade dates and settlement
dates on investment securities transactions, sales and maturities of forward
foreign currency exchange contracts, and the difference between the amounts of
daily interest accruals on the books of the Fund and the amounts actually
received resulting from changes in exchange rates on the payable date.
The Fund may use foreign currency exchange contracts to facilitate transactions
in foreign-denominated securities. Losses may arise from changes in the value of
the foreign currency or if the counterparties do not perform under the
contracts' terms. The U.S. dollar value of foreign currency exchange contracts
is determined using contractual currency exchange rates established at the time
of each trade.
The Fund may purchase securities of foreign issuers. Investing in securities of
foreign companies and foreign governments involves special risks and
considerations not typically associated with investing in U.S. companies and
securities of the U.S. government. These risks include revaluation of currencies
and the risk of appropriation. Moreover, the markets for securities of many
foreign companies and foreign governments and their markets may be less liquid
and the prices of such securities may be more volatile than those of securities
of comparable U.S. companies and the U.S. government.
D. SECURITY TRANSACTIONS, RELATED INVESTMENT INCOME AND EXPENSES -- Security
transactions are accounted for on the trade date (the date the buy or sell is
executed). Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. Interest income is increased by the
accretion of discount. Discounts on zero coupon bonds, original issue discount
bonds, step bonds and payment in kind bonds are accreted according to the
effective interest method. In determining net gain or loss on securities sold,
the cost of securities has been determined on the identified cost basis.
Expenses directly attributable to the Fund are charged to the Fund. Expenses not
directly attributable to the Fund are apportioned to all funds within the Trust
on the basis of relative net assets.
E. FEDERAL INCOME TAXES -- The Fund is a separate entity for federal income tax
purposes. The Fund intends to meet the requirements of the Internal Revenue Code
12
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------
SEPTEMBER 30, 1999
applicable to regulated investment companies, and to distribute to its
shareholders all of its net investment income and any net realized capital
gains. Accordingly, no provision for federal income tax or excise tax has been
made.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund declares and pays
its net investment income to shareholders monthly. Distributions from net
realized capital gains are declared and paid on an annual basis by the Fund.
Income and capital gain distributions are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in reclassifications to the
Fund's capital accounts to reflect income and gains available for distribution,
are primarily due to differing book and tax treatments for litigation proceeds,
foreign currency transactions, capital loss carry forwards, deferred losses due
to wash sales, excise tax regulations and net operating losses. Some of these
classifications may include temporary book and tax basis differences that will
reverse in subsequent periods.
2. PURCHASES AND SALES OF SECURITIES -- For the period ended September 30,
1999, purchases and proceeds from sales and maturities of investments, excluding
short-term securities and U.S. Government securities, were $39,725,190 and
$6,735,433 respectively. Purchases and proceeds from sales and maturities of
U.S. Government securities, excluding short-term securities, were $3,955,625 and
$3,777,496, respectively.
3. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES -- For the period
ended September 30, 1999, the Fund incurred management fees payable to Loomis
Sayles. Certain officers and employees of Loomis Sayles are also officers or
Trustees of the Trust. Loomis Sayles' general partner is indirectly owned by
NVEST, L.P., a publicly-traded limited partnership whose general partner is
indirectly owned by Metropolitan Life Insurance Company. The management
agreement for the Fund in effect during the period ended September 30, 1999
provided for fees at the annual percentage rate of 0.60% of the Fund's average
daily net assets. Loomis Sayles voluntarily agreed, for an indefinite period, to
reduce its advisory fees and/or bear other expenses, to the extent necessary to
limit the total operating expenses of the Fund to 1.50% of the Fund's average
daily net assets.
Loomis Sayles may change or terminate its voluntary agreement at any time, but
the relevant prospectus would be supplemented at the time to describe the
change.
A. TRUSTEES FEES AND EXPENSES -- The Trust does not pay any compensation
directly to its officers or trustees who are directors, officers or employees of
Loomis Sayles, The New England or their affiliates. Each independent trustee is
compensated by the Trust on behalf of each Fund at the rate of $1,250 per Fund
per year, plus travel expenses for each meeting attended.
4. CREDIT RISK -- The Fund may invest up to 35% of its assets in securities
offering high current income, which generally will be in the lower rating
categories of recognized rating agencies. These securities are regarded as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations
13
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------
SEPTEMBER 30, 1999
and will generally involve more credit risk than securities in the higher rating
categories. In addition, the trading market for high yield securities may be
relatively less liquid than the market for higher-rated securities.
14
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
1999 U.S. TAX AND DISTRIBUTION INFORMATION TO SHAREHOLDERS (UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION -- For the period ended September 30,
1999, 5.32% of dividends distributed by the Fund qualify for the dividends
received deduction for corporate shareholders.
15
<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------
To the Board of Trustees and Shareholders of the Loomis Sayles Managed Bond
Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Loomis Sayles Managed Bond Fund
(the "Fund") at September 30, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the period indicated
herein, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in acccordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of investments at
September 30, 1999 by correspondence with the custodian and brokers, provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 18, 1999
16
<PAGE>
BOARD OF TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------
BOARD OF TRUSTEES
- -------------------------------------------------------
Joseph Alaimo
Richard S. Holway
Daniel J. Fuss
Michael T. Murray
OFFICERS
- -------------------------------------------------------
PRESIDENT
Daniel J. Fuss
EXECUTIVE VICE PRESIDENT
TREASURER
Robert J. Blanding
Mark W. Holland
VICE PRESIDENTS
ASSISTANT TREASURER
Dawn M. Alston-Paige
Philip R. Murray
Mark B. Baribeau
Nicholas H. Palmerino
James L. Carroll
SECRETARY
Mary C. Champagne
Sheila M. Barry
E. John deBeer
William H. Eigen, Jr.
ASSISTANT SECRETARY
Christopher R. Ely
Bonnie S. Thompson
Quentin P. Faulkner
Philip C. Fine
Kathleen C. Gaffney
Isaac H. Green
Martha F. Hodgman
John Hyll
Jeffrey L. Meade
Eswar Menon
Alexander Muromcew
Kent P. Newmark
Jeffrey C. Petherick
Bruce G. Picard, Jr.
Lauren B. Pitalis
David L. Smith
Sandra P. Tichenor
John Tribolet
Jeffrey W. Wardlow
Gregg D. Watkins
Anthony J. Wilkins
17
<PAGE>
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INVESTMENT ADVISER
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02111
TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Boston, Massachusetts 02102
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8314
Boston, Massachusetts 02266
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
This report has been prepared for the shareholders of the Funds and is not
authorized for distribution toprospective investors in the Funds unless it is
accompanied or preceded by an effective prospectus.
