<PAGE>
As filed with the Securities and Exchange Commission on April 7, 1999
Registration Nos. 811-6241 and 33-39133
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [_]
Post-Effective Amendment No. 18 [X]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 20 [X]
(Check appropriate box or boxes)
------------------
LOOMIS SAYLES FUNDS
(Exact name of registrant as specified in charter)
One Financial Center, Boston, MA 02111
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 482-2450
Name and address
of agent for service with a copy to
- ------------------------ ---------------
Sheila M. Barry Truman S. Casner, Esq.
Loomis, Sayles & Company, L.P. Ropes & Gray
One Financial Center One International Place
Boston, MA 02111 Boston, MA 02110
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[_] on [date], 1999 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(2)
[_] on [date] pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on [date] pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
LOOMIS SAYLES FUNDS
Cross Reference Sheet
Items required by Form N-1A
<TABLE>
<CAPTION>
PART A
Item
No. Registration Statement Caption Caption in Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Not Applicable
4. General Description of Cover Page; The Trust; Investment Objectives and
Registrant Policies; More Information About the Funds'
Investments and Risk Considerations
5. Management of the Fund Cover Page; The Trust; The Funds' Investment
Adviser; Fund Expenses; Portfolio Transactions;
Back Cover
5A. Management's Discussion of More Information about the Funds' Investments and
Fund Performance Risk Considerations; Performance Information
6. Capital Stock and Other Securities The Trust; Shareholder Services; Dividends, Capital
Gain Distributions and Taxes
7. Purchase of Securities Being How to Purchase Shares; Shareholder Services
Offered
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B
Item
No. Registration Statement Caption Caption in Statement of Additional Information
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objectives, Policies and Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Management of the Trust
Holders of Securities
16. Investment Advisory and Other Investment Advisory and Other Services
Services
17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices
18. Capital Stock and Other Securities How to Redeem Shares (Prospectus); Redemptions;
Dividends, Capital Gain Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status; Description of the
Trust
19. Purchase, Redemption and Pricing How to Purchase Shares (Prospectus); Shareholder
of Securities Being Offered Services; How to Redeem Shares (Prospectus);
Redemptions; Net Asset Value and Public Offering
Price
20. Tax Status Dividends, Capital Gain Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status
21. Underwriters Not Applicable
22. Calculations of Performance Data Calculation of Yield and Total Return; Performance
Data
23. Financial Statements Not Applicable
</TABLE>
<PAGE>
LOGO
One Financial Center . Boston, Massachusetts 02111 . (800) 633-3330
The Loomis Sayles Funds
J Class shares of:
Loomis Sayles Investment Grade Bond Fund
Prospectus
April 7, 1999
The Loomis Sayles Funds--J Class
Loomis Sayles Investment Grade Bond Fund (the "Fund"), a series of Loomis
Sayles Funds (the "Trust") is a registered open-end management investment
company. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment
adviser of the Fund.
The Fund offers three classes of shares: a J Class that is described in
this Prospectus and an Institutional Class and a Retail Class that are described
in separate prospectuses. This Prospectus concisely describes the information
that an investor should know before investing in the J Class shares of the Fund.
Please read it carefully and keep it for future reference. A Statement of
Additional Information (SAI) dated April 7, 1999, as revised from time to time,
is available free of charge; write to Loomis Sayles Distributors, L.P. (the
"Distributor"), One Financial Center, Boston, Massachusetts 02111 or telephone
800-633-3330. The SAI, which contains more detailed information about the Funds,
has been filed with the Securities and Exchange Commission (the "SEC") and is
available along with other related materials on the SEC's Internet Web site
(http://www.sec.gov). The SAI is incorporated by reference (legally forms a part
of the Prospectus). To obtain more information about the Institutional Class or
Retail Class, please call the Distributor toll-free at 800-633-3330, contact
your financial intermediary, or visit our Internet Website
(http://www.loomissayles.com).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY OF EXPENSES ................................................ 3
THE TRUST .......................................................... 4
INVESTMENT OBJECTIVE AND POLICIES .................................. 4
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
AND RISK CONSIDERATIONS ......................................... 5
THE FUNDS' INVESTMENT ADVISER ...................................... 12
FUND EXPENSES ...................................................... 12
PORTFOLIO TRANSACTIONS ............................................. 13
HOW TO PURCHASE SHARES ............................................. 13
HOW TO REDEEM SHARES ............................................... 14
CALCULATION OF PERFORMANCE INFORMATION ............................. 15
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES .................... 15
APPENDIX A
DESCRIPTION OF BOND RATINGS ...................... 17
<PAGE>
SUMMARY OF EXPENSES
The following information is provided as an aid in understanding the
various expenses that an investor in the Fund will bear indirectly. The
"Management Fees" and "Other Expenses" shown below are based on the
corresponding expenses for the Fund's Institutional Class shares for the 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> <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 Fees1 ............................................................ none
Exchange Fees ............................................................... none
Annual Fund Operating Expenses (as a percentage of average net assets):
Management Fees ............................................................. 40%
12b-1 Fees2 ................................................................. 75%
Other Operating Expenses .................................................... .15%
Total Fund 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 .................................................................... $---
Three Years ................................................................. $---
</TABLE>
- ---------------
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.
3
<PAGE>
THE TRUST
The Fund is a series of Loomis Sayles Funds (the "Trust"). The Trust is a
diversified open-end management investment company organized as a Massachusetts
business trust on February 20, 1991. The Trust is authorized to issue an
unlimited number of full and fractional shares of beneficial interest in
multiple series. Shares are freely transferable and entitle shareholders to
receive dividends as determined by the Trust's board of trustees and to cast a
vote for each share held at shareholder meetings. The Trust does not generally
hold shareholder meetings and will do so only when required by law. Shareholders
may call meetings to consider removal of the Trust's trustees.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is high total investment return through a
combination of current income and capital appreciation.
The Fund seeks to achieve its objective by normally investing at least 65%
of its total assets in fixed income securities of investment grade quality. Up
to 20% of the Fund's total assets may be invested in preferred stocks. The fund
may also invest up to 10% of its total assets in fixed income securities of
below investment grade quality (commonly known as "junk bonds"). The fixed
income securities in which the Fund may invest include corporate securities,
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:
Standard & Poor's Unrated* Moody's Unrated**
----------------- -------- ------- ---------
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% --
* 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.
4
<PAGE>
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.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
AND RISK CONSIDERATIONS
Debt and Other Fixed Income Securities
The Fund may invest in fixed income securities of any maturity. Fixed
income securities pay a specified rate of interest or dividends, or a rate that
is adjusted periodically by reference to some specified index or market rate.
Fixed income securities include securities issued by federal, state, local and
foreign governments and related agencies, and by a wide range of private
issuers. Because interest rates vary, it is impossible to predict the total
return of the Fund, which invests in fixed income securities, for any particular
period. The net asset value of the Fund's shares will vary as a result of
changes in the value of the securities in the Fund's portfolio.
Fixed income securities are subject to market and credit risk. Market risk
relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed income securities increase when
prevailing interest rates fall and decrease when interest rates rise. Credit
risk relates to the ability of the issuer to make payments of principal and
interest.
U.S. Government Securities
U.S. Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds, are
supported by the full faith and credit of the United States, whereas certain
other U.S. Government Securities issued or guaranteed by federal agencies or
government-sponsored enterprises are not supported by the full faith and credit
of the United States.
Although U.S. Government Securities generally do not involve the credit
risks associated with other types of fixed income securities, the market values
of U.S. Government Securities do go up and down as interest rates change. Thus,
for example, the value of an investment in the Fund when it holds U.S.
Government Securities may fall during times of rising interest rates. Yields on
U.S. Government Securities tend to be lower than those on corporate securities
of comparable maturities.
Some U.S. Government Securities, such as Government National Mortgage
Association Certificates ("GNMA"), are known as "mortgage-backed" securities.
Interest and principal payments on the mortgages underlying mortgage-backed U.S.
Government Securities are passed through to the holders of the security. If the
Fund purchases mortgage-backed securities at a discount or a premium, the Fund
will recognize a gain or loss when the payments of principal, through prepayment
or otherwise, are passed through to the Fund and, if the payment occurs in a
period of falling interest rates, the Fund may not be able to reinvest the
payment at as favorable an interest rate. As a result of these principal
prepayment features, mortgage-backed securities are generally more volatile
investments than many other fixed income securities.
In addition to investing directly in U.S. Government Securities, the Fund
may purchase certificates of accrual or similar instruments ("strips")
evidencing undivided ownership interests in interest payments or principal
payments, or both, in U.S. Government Securities. These investment instruments
may be highly volatile.
5
<PAGE>
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 the
Fund when it invests in lower rated fixed income securities may be more
dependent on Loomis Sayles' own credit analysis than is the case with higher
quality bonds. The market for lower rated fixed income securities may be more
severely affected than some other financial markets by economic recession or
substantial interest rate increases, by changing public perceptions of this
market or by legislation that limits the ability of certain categories of
financial institutions to invest in these securities. In addition, the secondary
market may be less liquid for lower rated fixed income securities. This lack of
liquidity at certain times may affect the values of these securities and may
make the evaluation and sale of these securities more difficult. Securities in
the lowest rating categories may be in poor standing or in default. Securities
in the lowest investment grade category (BBB or Baa) have some speculative
characteristics.
For more information about the ratings services' descriptions of the
various rating categories, see Appendix A.
Common Stocks and Other Equity Securities
Common stocks and similar equity securities, such as warrants and
convertibles, are volatile and more risky than some other forms of investment.
The value of an investment in the Fund, 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.
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
6
<PAGE>
available for reinvestment by the Fund, are likely to be greater during a period
of declining interest rates and, as a result, are likely to be reinvested at
lower interest rates. Accelerated prepayments on securities purchased at a
premium may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will decrease in
value as a result of increases in interest rates generally, they are likely to
appreciate less than other fixed-income securities when interest rates decline
because of the risk of prepayments.
Stripped Mortgage-Backed Securities
The Fund may invest in interest-only and principal-only classes of
mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO or
PO is extremely sensitive not only to changes in prevailing interest rates but
also to the rate of principal payments (including prepayments) on the underlying
assets. A rapid rate of principal prepayments may have a measurably adverse
effect on the Fund's yield to maturity to the extent it invests in IOs. If the
assets underlying the IOs experience greater than anticipated prepayments of
principal, the Fund may fail to recoup fully its initial investment in these
securities. Conversely, POs tend to increase in value if prepayments are greater
than anticipated and decline if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the Fund's ability to buy or sell those securities at any
particular time.
Collateralized Mortgage Obligations
The Fund may invest in CMOs. A CMO is a security backed by a portfolio of
mortgages. 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.
7
<PAGE>
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 a Fund commits to buy it and the payment date, the Fund may
sustain a loss. The risk of this loss is in addition to the Fund's risk of loss
on the securities actually in its portfolio at the time. In addition, when the
Fund buys a security on a when-issued basis, it is subject to the risk that
market rates of interest will increase before the time the security is
delivered, with the result that the yield on the security delivered to the Fund
may be lower than the yield available on other, comparable securities at the
time of delivery. If a Fund has outstanding obligations to buy when-issued
securities, it will maintain liquid assets in a segregated account at its
custodian bank in an amount sufficient to satisfy these obligations.
Convertible Securities
The 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.
Real Estate Investment Trusts
REITs involve certain unique risks in addition to those risks associated
with investing in the real estate industry in general (such as possible declines
in the value of real estate, lack of availability of mortgage funds or extended
vacancies of property). Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs, while mortgage REITs may be affected
by the quality of any credit extended. REITs are dependent upon management
skills, are not diversified, are subject to heavy cash flow dependency, risks of
default by borrowers and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax-free pass-through of income under
the Internal Revenue Code of 1986, as amended (the "Code"), and failing to
maintain their exemptions from registration under the Investment Company Act of
1940 (the "1940 Act").
Investment in REITs involves risk similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger securities.
8
<PAGE>
Rule 144A Securities
The Fund may invest in Rule 144A securities, which are privately offered
securities that can be resold only to certain qualified institutional buyers.
Rule 144A securities are treated as illiquid, unless Loomis Sayles has
determined, under guidelines established by the Trust's trustees, that the
particular issue of Rule 144A securities is liquid.
Non-U.S. Securities
The Fund may invest in securities of issuers organized or headquartered
outside the United States ("non-U.S. securities"). The Fund may invest any
portion of its assets in securities of Canadian issuers, 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 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.
9
<PAGE>
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 quoted. For example, to protect against a change in the
non-U.S. currency exchange rate between the date on which a Fund contracts to
purchase or sell a security and the settlement date for the purchase or sale, or
to "lock in" the equivalent of a dividend or interest payment in another
currency, 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.
Swap Transactions
The Fund may enter into interest rate or currency swaps. The Fund will
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. Interest rate swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest (for example, an
exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange cash
flows on a notional amount based on changes in the relative values of the
specified currencies. The Fund will maintain liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
Because swap agreements are not exchange-traded, but are private contracts into
which the Fund and a swap counterparty enter as principals, the Fund may
experience a loss or delay in recovering assets if the counterparty were to
default on its obligations.
Options and Futures Transactions
The Fund may buy, sell or write options on securities, securities indexes,
currencies or futures contracts and may buy and sell futures contracts on
securities, securities indexes or currencies. The Fund may engage in these
transactions either for the purpose of enhancing investment return, or to hedge
against changes in the value of other assets that the 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.
10
<PAGE>
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 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 foreign countries are small compared to
those of the United States and consequently are characterized in most cases by
less liquidity than are the U.S. markets. In addition, foreign markets may be
subject to less detailed reporting requirements and regulatory controls than
U.S. markets. Furthermore, investments in options in foreign markets are subject
to many of the same risks as other foreign investments. See "Foreign Securities"
above.
Repurchase Agreements
The Fund may invest in repurchase agreements. In repurchase agreements, the
Fund buys securities from a seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the securities at a higher price
at a later date. Such transactions afford an opportunity for the Fund to earn a
return on available cash at minimal market risk, although the Fund may be
subject to various delays and risks of loss if the seller is unable to meet its
obligations to repurchase.
Securities Lending
The Fund may lend its portfolio securities to broker-dealers or other
parties under contracts calling for the deposit by the borrower with the Fund's
custodian of cash collateral equal to at least the market value of the
securities loaned, marked to market on a daily basis. The Fund will continue to
benefit from interest or dividends on the securities loaned and will also
receive interest through investment of the cash collateral in short-term liquid
investments. No loans will be made if, as a result, the aggregate amount of such
loans outstanding at any time would exceed 33-1/3% of the Fund's
11
<PAGE>
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 systems with the goal of modifying or replacing
such systems prior to January 1, 2000, to the extent necessary to foreclose any
such negative impact. In addition, Loomis Sayles has been advised by the Fund's
custodian that it is also in the process of reviewing its systems with the same
goal. As of the date of this prospectus, the Fund and Loomis Sayles have no
reason to believe that these goals will not be achieved. Similarly, the values
of certain of the portfolio securities held by the Fund may be adversely
affected by the inability of the securities' issuers or of third parties to
process this type of information properly.
THE FUND'S INVESTMENT ADVISER
The Fund's investment adviser is Loomis Sayles, One Financial Center,
Boston, Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the
country's oldest and largest investment firms. The general partner of Loomis
Sayles is a special purpose corporation that is an indirect wholly-owned
subsidiary of Nvest Company, L.P. ("Nvest Companies"). Nvest Companies' managing
general partner, Nvest Corporation, is a direct wholly-owned subsidiary of
Metropolitan Life Insurance Company ("Met Life"), a mutual life insurance
company. Nvest Companies' advising general partner, Nvest, L.P., is a publicly
traded company listed on the New York Stock Exchange. Nvest Corporation is the
sole general partner of Nvest L.P.
In addition to selecting and reviewing the Fund's investments, Loomis
Sayles provides executive and other personnel for the management of the Fund.
The Trust's board of trustees supervises Loomis Sayles' conduct of the affairs
of the Fund.
As of March 31, 1999, Charles Schwab & Co. Inc. owned 32.6% of the
Investment Grade Bond Fund. Shareholders holding more than 25% of the Fund's
shares may be deemed to control the Fund.
Daniel J. Fuss, President of the Trust and Executive Vice President of
Loomis Sayles, has served as the portfolio manager of the Investment Grade Bond
Fund since its commencement of investment operations in 1997. Mr. Fuss joined
Loomis Sayles in 1976.
FUND EXPENSES
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. In addition to the investment advisory fee, the Fund pays all expenses
12
<PAGE>
not expressly assumed by Loomis Sayles, including taxes, brokerage commissions,
fees and expenses of registering or qualifying the Fund's shares under federal
and state securities laws, fees of the Fund's custodian, transfer agent,
independent accountants and legal counsel, expenses of shareholders' and
trustees' meetings, 12b-1 fees, expenses of preparing, printing and mailing
prospectuses to existing shareholders and fees of trustees who are not
directors, officers or employees of Loomis Sayles or its affiliated companies.
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 fee at an annual rate not to exceed 0.25% of
the Fund's average daily net assets attributable to J Class 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 J Class shares. The Distributor may pay all or
any portion of the service fee to securities dealers or other organizations for
providing personal services 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 J Class shares, as
distribution fees in connection with the sale of the Fund's J Class shares. The
Distributor retains the balance of these fees as compensation for its services
as distributor.
PORTFOLIO TRANSACTIONS
Portfolio turnover considerations will not limit Loomis Sayles' investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rate will vary significantly from time to time depending on
the volatility of economic and market conditions. High portfolio turnover may
involve higher costs and higher levels of taxable gains.
HOW TO PURCHASE SHARES
An investor may make an initial purchase of shares of the Fund by
submitting a completed application form and payment to:
State Street Bank and Trust Company
Mutual Fund Services
One Heritage Drive
North Quincy, Massachusetts 02171
All purchases made by check should be in U.S. dollars and made payable to
State Street Bank and Trust Company ("State Street Bank"). Third party checks
will not be accepted. When purchases are made by check or periodic account
investment, redemption will not be allowed until the investment being redeemed
has been in the account for 15 calendar days.
Upon acceptance of an investor's order, State Street Bank opens an account,
applies the payment to the purchase of full and fractional Fund shares and mails
a statement of the account confirming the transaction.
After an account has been established, the intermediary 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: "$_____
13
<PAGE>
amount, STATE STREET BOS ATTN Mutual Funds. Credit Loomis Sayles Investment
Grade Bond Fund, J Class shares, DDA #4133-408-7, Account Name, Account Number."
---------------
A bank may charge a fee for transmitting funds by wire.
The Fund and the Distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or the Distributor in its sole discretion deems appropriate. Although the
Fund does not presently anticipate that it will do so, the Fund reserves the
right to suspend or change the terms of the offering of its shares. In order to
avoid dividend dilution, it is expected that the Fund will reject purchase
orders for J Class shares 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 as
more fully described in the Statement of Additional Information.
The Distributor may accept telephone orders from broker-dealers who have
been previously approved by the Distributor. It is the responsibility of such
broker-dealers to promptly forward purchase or redemption orders to the
Distributor.
HOW TO REDEEM SHARES
An investor can redeem shares by sending a written request to State Street
Bank and Trust Company, Mutual Fund Services, One Heritage Drive, North Quincy,
Massachusetts 02171. Proceeds from a written request may be sent to the investor
in the form of a check, or wire if wiring instructions are provided. As
described below, an investor may also redeem shares by calling Loomis Sayles at
800-633-3330, option 5. Proceeds resulting from a telephone redemption request
can be wired to an investor's bank account or sent by check in the name of the
registered owners to their record address.
The written request must include the name of the Fund, the account number,
the exact name(s) in which the shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
request in the exact names in which the shares are registered (this appears on
an investor's confirmation statement) and should indicate any special capacity
in which they are signing (such as a trustee or custodian or on behalf of a
partnership, corporation or other entity). Investors requesting that redemption
proceeds be wired to their bank accounts must provide specific wire
instructions.
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 this change in writing to State Street Bank on
the Service Options Form with a signature guarantee. Telephonic redemptions may
only be made if the investor's bank is a member of the Federal Reserve System or
has a correspondent bank that is a member of the System. Unless an investor
indicates otherwise on the account application, State Street Bank will be
authorized to act upon redemption and exchange instructions received by
telephone from the intermediary or any
14
<PAGE>
person claiming to act as the investor's representative who can provide State
Street Bank with the investor's account registration and address as it appears
on the records of State Street Bank. State Street Bank will employ these or
other reasonable procedures to confirm that instructions communicated by
telephone are genuine; the Fund, State Street Bank, the Distributor and Loomis
Sayles will not be liable for any losses due to unauthorized or fraudulent
instructions if these or other reasonable procedures are followed. For
information, consult State Street Bank. In times of heavy market activity, an
investor who encounters difficulty in placing a redemption or exchange order by
telephone may wish to place the order by mail as described above.
The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by State Street Bank in proper form.
Proceeds resulting from a written redemption request will normally be
mailed to an investor within seven days after receipt of the investor's request
in good order. Telephonic redemption proceeds will normally be wired to an
investor's bank on the first business day following receipt of a proper
redemption request. If an investor purchased shares by check and the check was
deposited less than 15 days prior to the redemption request, the Fund may
withhold redemption proceeds until the check has cleared. The Fund may suspend
the right of redemption and may postpone payment for more than seven days when
the New York Stock Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the SEC when trading on the Exchange is restricted or
during an emergency which makes it impracticable for the Fund to dispose of its
securities or to determine fairly the value of its net assets, or during any
other period permitted by the SEC for the protection of investors.
CALCULATION OF PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included in
advertisements about the Fund or Loomis Sayles Funds. "Yield" for each class of
shares is calculated by dividing the annualized net investment income per share
during a recent 30-day period by the maximum public offering price per share of
the class on the last day of that period.
For purposes of calculating yield, net investment income is calculated in
accordance with SEC regulations and may differ from net investment income as
determined for financial reporting purposes. SEC regulations require that net
investment income be calculated on a "yield-to-maturity" basis, which has the
effect of amortizing any premiums or discounts in the current market value of
fixed income securities. The current dividend rate is based on net investment
income as determined for tax purposes, which may not reflect amortization in the
same manner.
"Total return" for the one-, five- and ten-year periods (or for the life of
a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in a Fund.
Total return may also be presented for other periods.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The Fund generally declares dividends daily and makes payments 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 Trust's trustees may change the
frequency with which the Fund declares or pays dividends.
15
<PAGE>
Dividends and capital gain distributions will automatically be reinvested
in additional shares of the Fund on the record date unless an investor has
elected to receive cash.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). As such, so long as the
Fund distributes substantially all its net investment income and net capital
gains to its shareholders, the Fund itself does not pay any federal income tax
to the extent such income and gains are so distributed.
An investor's income dividends and short-term capital gain distributions
are taxable as ordinary income whether distributed in cash or additional shares.
Distributions designated by the Fund as deriving from net gains on securities
held for more than one year will be taxable as such (generally at a 20% rate for
noncorporate shareholders) whether distributed in cash or additional shares and
regardless of how long an investor has owned shares of the Fund.
A dividend or distribution made shortly after the purchase of shares of the
Fund by a shareholder, although in effect a return of capital to that particular
shareholder, would be taxable to him or her as described above. If a shareholder
held shares six months or less and during that period received a distribution of
net capital gains, any loss realized on the sale of such shares during such
six-month period would be a long-term capital loss to the extent of such
distribution.
The Fund is required to withhold 31% of any redemption proceeds (including
the value of shares exchanged) and all income dividends and capital gain
distributions it pays (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 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. A fee may be charged for any duplicate
information requested.
NOTE: The foregoing summarizes certain tax consequences of investing in the
Funds. Before investing, an investor should consult his or her own tax
adviser for more information concerning the federal, foreign, state and
local tax consequences of investing in, redeeming or exchanging Fund
shares.
16
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S AND
MOODY'S INVESTORS SERVICE, INC.
STANDARD & POOR'S
AAA
This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA
Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
17
<PAGE>
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
r
This symbol is attached to the ratings of instruments with significant
noncredit risks such as risks to principal or volatility of expected returns.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa
Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A
Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa
Bonds that are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
18
<PAGE>
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
Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, Ba1 and B1.
19
<PAGE>
INVESTMENT ADVISER
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02111
DISTRIBUTOR
Loomis Sayles Distributors, L.P.
One Financial Center
Boston, Massachusetts 02111
TRANSFER AND DIVIDEND PAYING AGENT
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Boston, Massachusetts 02102
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8314
Boston, Massachusetts 02266
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
20
<PAGE>
LOGO
STATEMENT OF ADDITIONAL
INFORMATION
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
CLASS J SHARES
April 12, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS
STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE PROSPECTUS OF THE LOOMIS
SAYLES INVESTMENT GRADE BOND FUND ("FUND") OF LOOMIS SAYLES FUNDS DATED APRIL 7,
1999, AS REVISED FROM TIME TO TIME. EACH REFERENCE TO THE PROSPECTUS IN THIS
STATEMENT OF ADDITIONAL INFORMATION SHALL INCLUDE THE FUND'S CURRENT PROSPECTUS,
UNLESS OTHERWISE NOTED. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS. A COPY OF THE PROSPECTUS MAY BE OBTAINED
FROM LOOMIS SAYLES FUNDS, ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
(800-633-3330).
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ................... 3
MANAGEMENT OF THE TRUST ............................................ 10
INVESTMENT ADVISORY AND OTHER SERVICES ............................. 13
PORTFOLIO TRANSACTIONS AND BROKERAGE ............................... 16
DESCRIPTION OF THE TRUST ........................................... 17
Voting Rights .................................................. 18
Shareholder and Trustee Liability .............................. 19
How to Buy Shares .............................................. 19
Net Asset Value ................................................ 19
SHAREHOLDER SERVICES ............................................... 20
Open Accounts .................................................. 20
Redemptions .................................................... 20
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ........ 21
FINANCIAL STATEMENTS ............................................... 24
CALCULATION OF YIELD AND TOTAL RETURN .............................. 24
PERFORMANCE COMPARISONS ............................................ 24
PERFORMANCE DATA ................................................... 28
APPENDIX A--PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION ......... 30
APPENDIX B--ADVERTISING AND PROMOTIONAL LITERATURE ................. 32
2
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles Investment Grade
Bond Fund (the "Fund") of Loomis Sayles Funds (the "Trust"), are summarized in
the Prospectus under "Investment Objectives and Policies" and "More Information
About the Fund's Investments and Risk Considerations." The investment policies
of the Fund set forth in the Prospectus and in this Statement of Additional
Information may be changed by the Fund's adviser, subject to review and approval
by the Trust's board of trustees, without shareholder approval except that the
investment objective of the Fund as set forth in the Prospectus and any Fund
policy explicitly identified as "fundamental" may not be changed without the
approval of the holders of a majority of the outstanding shares of the Fund
(which in the Prospectus and this Statement of Additional Information means the
lesser of (i) 67% of the shares of the Fund represented at a meeting at which
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). Except in the case of the 15% limitation on illiquid
securities, the percentage limitations set forth below and in the Prospectuses
will apply at the time a security is purchased and will not be considered
violated unless an excess or deficiency occurs or exists immediately after and
as a result of such purchase.
In addition to its investment objective and policies set forth in the
Prospectus, the following investment restrictions are policies of the Fund (and
those marked with an asterisk are fundamental policies of each 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 any 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 Investment
Company Act of 1940 (the "1940 Act"). (For purposes of this investment
restriction, neither (i) entering into repurchase agreements nor (ii) purchasing
bonds, debentures, commercial paper, corporate notes and similar evidences of
indebtedness, which are a part of an issue to the public, 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.)
3
<PAGE>
*(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.)
(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) that the Fund will not, together with other
registered investment companies managed by Loomis Sayles, acquire more than 50%
of the issued and outstanding voting shares of any one issuer; and (3) that the
Fund will not invest more than 5% of its total assets in the securities of any
one issuer (other than the U.S. Government) and.
If the undertaking is violated, the Fund will, promptly after discovery,
take such action as may be necessary to cause the violation to cease, which
shall be the only obligation of the Fund and the only remedy in respect of the
violation. This undertaking will remain in effect as long as shares of the Fund
are qualified for offer or sale in Japan and such undertaking is required by the
Japanese Securities Dealers Association as a condition of such qualification.
4
<PAGE>
U.S. Government Securities
U.S. Government Securities include direct obligations of the U.S. Treasury,
as well as securities issued or guaranteed by U.S. Government agencies,
authorities and instrumentalities, including, among others, the Government
National Mortgage Association, the Federal Home Loan Mortgage Corporation,
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 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 Mae that are guaranteed as to timely payment of principal and
interest by Fannie Mae 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 in the Prospectus, U.S. Government Securities generally do not
involve the same credit risks associated with investments in other types of
fixed-income securities, although, as a result, the yields available from U.S.
Government Securities are generally lower than the yields available from
corporate fixed-income securities. Like other fixed-income securities, however,
the values of U.S. Government Securities change as interest rates fluctuate.
Fluctuations in the value of portfolio securities will not affect interest
income on existing portfolio securities but will be reflected in the Fund's net
asset value.
5
<PAGE>
When-Issued Securities
As described in the Prospectus, the Fund may enter into agreements with
banks or broker-dealers for the purchase or sale of securities at an agreed-upon
price on a specified future date. Such agreements might be entered into, for
example, when a 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 a 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).
Convertible Securities
Convertible securities include corporate bonds, notes or preferred stocks
of U.S. or foreign issuers that can be converted into (that is, exchanged for)
common stocks or other equity securities. 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.
Zero Coupon Bonds
Zero coupon bonds are debt obligations that do not entitle the holder to
any periodic payments of interest either for the entire life of the obligation
or for an initial period after the issuance of the obligations. Such bonds are
issued and traded at a discount from their face amounts. The amount of the
discount varies depending on 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 a
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 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.
6
<PAGE>
Repurchase Agreements
The Fund may enter into repurchase agreements, by which the Fund purchases
a security and obtains a simultaneous commitment from the seller (a bank or, to
the extent permitted by the 1940 Act, a recognized securities dealer) to
repurchase the security at an agreed upon price and date (usually seven days or
less from the date of original purchase). The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Fund the
opportunity to earn a return on temporarily available cash at minimal market
risk. While the underlying security may be a bill, certificate of indebtedness,
note or bond issued by an agency, authority or instrumentality of the United
States Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Fund would attempt to exercise rights
with respect to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks of loss,
including (a) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible
reduced levels of income and lack of income during this period and (c) inability
to enforce rights and the expenses involved in attempted enforcement.
Real Estate Investment Trusts
REITs involve certain unique risks in addition to those risks associated
with investing in the real estate industry in general (such as possible declines
in the value of real estate, lack of availability of mortgage funds or extended
vacancies of property). Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs, while mortgage REITs may be affected
by the quality of any credit extended. REITs are dependent upon management
skills, are not diversified, are subject to heavy cash flow dependency, risks of
default by borrowers and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax-free pass-through of income under
the Code, and failing to maintain their exemptions from registration under 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 purchase Rule 144A securities. These are privately offered
securities that can be resold only to certain qualified institutional buyers.
Rule 144A securities are treated as illiquid, unless Loomis Sayles has
determined, under guidelines established by the Trust's trustees, that the
particular issue of Rule 144A securities is liquid. Under the guidelines, Loomis
Sayles considers such factors as: (1) the frequency of trades and quotes for a
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
marketplace trades therefor.
Non-U.S. Currency Transactions
The Fund may invest in securities of non-U.S. issuers and may enter into
forward non-U.S. currency exchange contracts, or buy or sell options on non-U.S.
currencies, in order to protect against uncertainty in the level of future
non-U.S. exchange rates. Since investment in securities of non-U.S. issuers will
usually involve currencies of non-U.S. countries, and since the Fund may
temporarily hold funds in bank deposits in non-U.S. currencies during the course
of investment programs, the value of the assets of the Fund as measured in U.S.
dollars may be affected by changes in currency exchange rates and exchange
control regulations, and the Fund may incur costs in connection with conversion
between various currencies.
7
<PAGE>
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 contract for the purchase or sale, for a fixed amount of
dollars, of the amount of non-U.S. currency involved in the underlying
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the subject non-U.S. currency during the period between the date on which the
investment is purchased or sold and the date on which payment is made or
received.
Second, when Loomis Sayles believes that the currency of a particular
country may suffer a substantial decline against another currency, it may enter
into a forward contract to sell, for a fixed amount of another currency, the
amount of the first currency approximating the value of some or all of the
Fund's portfolio investments denominated in the first currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in a currency will change as a consequence of market movements in the
value of those investments between the date the forward contract is entered into
and the date it matures.
The Fund generally will not enter into forward contracts with a term of
greater than one year.
Options on non-U.S. currencies are similar to forward contracts, except
that one party to the option (the holder) is not contractually bound to buy or
sell the specified currency. Instead, the holder has discretion whether to
"exercise" the option and thereby require the other party to buy or sell the
currency on the terms specified in the option. Options transactions involve
transaction costs and, like forward contract transactions, involve the risk that
the other party may default on its obligations (if the options are not traded on
an established exchange) and the risk that expected movements in the relative
value of currencies may not occur, resulting in an imperfect hedge or a loss to
the Fund.
The Fund, in conjunction with its transactions in forward contracts,
options and futures, will maintain in a segregated account with its custodian
liquid assets with a value, marked to market on a daily basis, sufficient to
satisfy the Fund's outstanding obligations under such contracts, options and
futures.
Options
As described in the Prospectus, the Fund may, for hedging purposes or to
enhance investment return, purchase and sell call and put options.
An option entitles the holder to receive (in the case of a call option) or
to sell (in the case of a put option) a particular security at a specified
exercise price. An "American style" option allows exercise of the option at any
time during the term of the option. A "European style" option allows an option
to be exercised only at the end of its term. Options may be traded on or off an
established securities exchange.
If the holder of an option wishes to terminate its position, it may seek to
effect a closing sale transaction by selling an option identical to the option
previously purchased. The effect of the purchase is that the previous option
position will be canceled. The Fund will realize a profit from closing out an
option if the price received for selling the offsetting position is more than
the premium paid to purchase the option; the Fund will realize a loss from
closing out an option transaction if the price received for selling the
offsetting option is less than the premium paid to purchase the option.
8
<PAGE>
The use of options involves risks. One risk arises because of the imperfect
correlation between movements in the price of options and movements in the price
of the securities that are the subject of the hedge. The Fund's hedging
strategies will not be fully effective if such imperfect correlation occurs.
Price movement correlation may be distorted by illiquidity in the options
markets and the participation of speculators in such markets. If an insufficient
number of contracts are traded, commercial users may not deal in options because
they do not want to assume the risk that they may not be able to close out their
positions within a reasonable amount of time. In such instances, options market
prices may be driven by different forces than those driving the market in the
underlying securities, and price spreads between these markets may widen. The
participation of speculators in the market enhances its liquidity. Nonetheless,
the trading activities of speculators in the options markets may create
temporary price distortions unrelated to the market in the underlying
securities.
An exchange-traded option may be closed out only on an exchange which
generally provides a liquid secondary market for an option of the same series.
If a liquid secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to a
particular option, with the result that the Fund would have to exercise the
option in order to accomplish the desired hedge. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The successful use of options depends in part on the ability of Loomis
Sayles to forecast correctly the direction and extent of interest rate, stock
price or currency value movements within a given time frame. To the extent
interest rates, stock prices or currency values move in a direction opposite to
that anticipated, the Fund may realize a loss on the hedging transaction that is
not fully or partially offset by an increase in the value of portfolio
securities. In addition, whether or not interest rates or the relevant stock
price or relevant currency values move during the period that the Fund holds
options positions, the Fund will pay the cost of taking those positions (i.e.,
brokerage costs). As a result of these factors, the Fund's total return for such
period may be less than if it had not engaged in the hedging transaction.
An over-the-counter option (an option not traded on an established
exchange) may be closed out only with the other party to the original option
transaction. While the Fund will seek to enter into over-the-counter options
only with dealers who agree to or are expected to be capable of entering into
closing transactions with the Fund, there can be no assurance that the Fund will
be able to liquidate an over-the-counter option at a favorable price at any time
prior to its expiration. Accordingly, the Fund might have to exercise an
over-the-counter option it holds in order to achieve the intended hedge.
Over-the-counter options are not subject to the protections afforded purchasers
of listed options by the Options Clearing Corporation or other clearing
organization.
The staff of the SEC has taken the position that over-the-counter options
should be treated as illiquid securities for purposes of the Fund's investment
restriction prohibiting it from investing more than 15% of its net assets in
illiquid securities. The Fund intends to comply with this position.
9
<PAGE>
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.
MANAGEMENT OF THE TRUST
The trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
EARL W. FOELL--Trustee. 380 Marlborough Street, #3, Boston, Massachusetts.
Retired; formerly, Editor-in-Chief, World Monitor Magazine and Editor-in-Chief,
The Christian Science Monitor.
RICHARD S. HOLWAY--Trustee. 1314 Seaspray Lane, Sanibel, Florida. Retired;
formerly, Vice President, Loomis Sayles. Director, Sandwich Cooperative Bank.
MICHAEL T. MURRAY--Trustee. 404 N. Western Ave., Lake Forest, Illinois.
Retired; formerly, Vice President, Loomis Sayles.
*DANIEL J. FUSS--President and Trustee. Executive Vice President and
Director, Loomis Sayles.
SHEILA M. BARRY--Secretary and Compliance Officer. Assistant General
Counsel and Vice President, Loomis Sayles. Formerly, Senior Counsel and Vice
President, New England Funds, L.P.
ROBERT J. BLANDING--Executive Vice President. 465 First Street West,
Sonoma, California. President, Chairman, Director and Chief Executive Officer,
Loomis Sayles.
JAMES C. CARROLL--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles. Formerly, Managing Director and Senior
Energy Analyst at Paine Webber, Inc.
MARY C. CHAMPAGNE--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles.
E. JOHN DEBEER--Vice President. Vice President, Loomis Sayles.
PAUL H. DREXLER--Vice President. Vice President, Loomis Sayles; formerly,
Deputy Manager, Brown Brothers Harriman & Co.
WILLIAM H. EIGEN, JR.--Vice President. Vice President, Loomis Sayles;
formerly, Vice President, INVESCO Funds Group and Vice President, The Travelers
Corp.
CHRISTOPHER R. ELY--Vice President. Vice President, Loomis Sayles;
formerly, Senior Vice President and portfolio manager, Keystone Investment
Management Company, Inc.
QUENTIN P. FAULKNER--Vice President. Vice President, Loomis Sayles.
- ---------
* Trustee deemed an "interested person" of the Trust, as defined by the 1940
Act.
10
<PAGE>
PHILIP C. FINE--Vice President. Vice President, Loomis Sayles; formerly,
Vice President and portfolio manager, Keystone Investment Management Company,
Inc.
KATHLEEN C. GAFFNEY--Vice President. Vice President, Loomis Sayles.
ISAAC GREEN--Vice President. 1533 N. Woodward, Bloomfield Hills, Michigan.
Vice President and Director, Loomis Sayles.
DEAN A. GULIS--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles. Formerly, Principal and Director of
Research at Roney & Company.
MARTHA F. HODGMAN--Vice President. Vice President, Loomis Sayles.
MARK W. HOLLAND--Treasurer. Vice President--Finance and Administration and
Director, Loomis Sayles.
JOHN HYLL--Vice President. 155 North Lake Avenue, Pasadena, California.
Vice President, Loomis Sayles.
JEFFREY L. MEADE--Vice President. Executive Vice President, Chief Operating
Officer and Director, Loomis Sayles.
PHILIP R. MURRAY--Assistant Treasurer. Vice President, Loomis Sayles.
KENT P. NEWMARK--Vice President. 555 California Street, San Francisco,
California. Vice President, Managing Partner and Director, Loomis Sayles.
SCOTT S. PAPE--Vice President. Vice President, Loomis Sayles.
JEFFREY C. PETHERICK--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles.
LAUREN B. PITALIS--Vice President. Vice President, Loomis Sayles; formerly,
Vice President and Assistant Secretary of Harris Associates Investment Trust.
PHILIP J. SCHETTEWI--Vice President. Vice President and Director, Loomis
Sayles.
DAVID L. SMITH--Vice President. Vice President, Loomis Sayles; formerly,
Vice President and portfolio manager, Keystone Investment Management Company,
Inc.
SANDRA P. TICHENOR--Vice President. 465 First Street West, Sonoma,
California. General Counsel, Vice President, Secretary and Clerk, Loomis Sayles.
Formerly, Partner, Heller, Ehrman, White & McAuliffe.
JEFFREY W. WARDLOW--Vice President. 1533 N. Woodward, Bloomfield Hills,
Michigan. Vice President, Loomis Sayles.
11
<PAGE>
GREGG D. WATKINS--Vice President. Vice President, Loomis Sayles.
ANTHONY J. WILKINS--Vice President. Vice President and Director, Loomis
Sayles.
JOHN F. YEAGER III--Vice President. Vice President, Loomis Sayles;
formerly, Vice President--Marketing, INVESCO Funds Group and Assistant
Comptroller, INVESCO Capital Management.
Previous positions during the past five years with Loomis Sayles are
omitted, if not materially different.
Except as indicated above, the address of each trustee and officer of
the Trust affiliated with Loomis Sayles is One Financial Center, Boston,
Massachusetts. The Trust pays no compensation to its officers or to the trustees
listed above who are directors, officers or employees of Loomis Sayles. Each
trustee who is not a director, officer or employee of Loomis Sayles is
compensated at the rate of $1,250 per fund per annum.
COMPENSATION TABLE
for the nine months ended September 30, 1998
<TABLE>
<CAPTION>
(5)
(3) Total
Pension or (4) Compensation
Retirement Estimated From Trust
(2) Benefits Annual and
(1) Aggregate Accrued as Part Benefits Fund Complex*
Name of Person, Compensation of upon Paid to
Position From Trust Fund Expenses Retirement Trustee
--------------- ------------ --------------- ---------- -------------
<S> <C> <C> <C> <C>
Earl W. Foell, Trustee ......... $ 15,937.50 N/A N/A $ 15,937.50
Richard S. Holway, 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.
As of February 28, 1999, the officers and trustees of the Trust owned
beneficially [ ] shares of the Fund. These amounts include shares held by the
Loomis Sayles Employees' Profit Sharing Plan (the "Profit Sharing Plan") for the
accounts of officers and trustees of the Trust, but exclude all other holdings
of the Profit Sharing Plan and the Loomis-Sayles Funded Pension Plan (the
"Pension Plan"). As of February 28, 1999, the Pension Plan and Profit Sharing
Plan owned [ ]% and [ ]% of the outstanding Institutional Class shares of the
Fund, respectively. The trustee of the Pension Plan is Fleet Investment
Management. The Pension Plan's Advisory Committee, which is composed of the same
individuals listed below as trustees of the Profit Sharing Plan, has the sole
voting and investment power with respect to the Pension Plan's shares. The
trustees of the Profit Sharing Plan are E. John deBeer, Quentin P. Faulkner,
Sandra P. Tichenor, Larry K. Shaw, Kathleen C. Gaffney, Mark W. Holland, and
Patrick P. Hurley, all of whom are officers and employees of Loomis Sayles and
(except for Messrs. Hurley and Shaw) trustees or officers of the Trust. Plan
participants are entitled to exercise investment and voting power over shares
owned of record by the Profit Sharing Plan. Shares not voted by participants are
voted in the same proportion
12
<PAGE>
as the shares voted by the voting participants. The address for the Profit
Sharing Plan and the Pension Plan is One Financial Center, Boston,
Massachusetts. At the date of this Statement of Additional Information, no
officer or trustee, and as of March 31, 1999, except as noted below, no
person, owns more than 5% of the outstanding shares of the Fund.
INSTITUTIONAL CLASS SHARES
Percentage of
-------------
Shareholder Address Shares held
- ----------- ------- -----------
Loomis Sayles & Company, L.P. Attn: Paul Sherba 34.65%
One Financial Center
Boston, MA 02111
Charles Schwab & Co. Inc. 101 Montgomery St. 27.28%
San Francisco, CA 94104
Pomona College Alexander Hall 17.22%
550 N. College Ave.
Claremont, CA 91711
RETAIL CLASS SHARES
Charles Schwab & Co. Inc. 101 Montgomery St. 24.74%
San Francisco, CA 94104
NFSC FEBO Our Customers 200 Liberty Street 7.6%
One World Financial Center
New York, New York 10281-1003
Donaldson Lufkin Jenrette P.O. Box 2052 14%
Securities Corporation Inc. Jersey City, NJ 07303
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. Loomis Sayles serves as investment adviser under a
separate advisory agreement relating to the Investment Grade Bond Fund, dated
December 1, 1996. 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 advisory agreement
provides that the Fund shall pay Loomis Sayles an annual investment advisory fee
of 0.40% of the Fund's average daily net assets, which fee is paid monthly.
13
<PAGE>
Loomis Sayles received the following amount of investment advisory fees
from the Fund (before voluntary fee reductions and expense assumptions) and bore
the following amounts of fee reductions and expense assumptions for the Fund:
<TABLE>
<CAPTION>
Fiscal Year ended Fiscal Year ended Nine Months ended
----------------- ----------------- -----------------
12/31/96 12/31/97 9/30/98*
-------- -------- --------
Fee Waivers Fee Waivers Fee Waivers
----------- ----------- -----------
Advisory and Expense Advisory and Expense Advisory and Expense
-------- ----------- -------- ----------- -------- -----------
Fund Fees Assumptions Fees Assumptions Fees Assumptions
-------------------------- ---- ----------- ---- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Grade Bond** N/A N/A $8,585 $162,568 $12,300 $119,899
</TABLE>
- ---------
* The fiscal year-end for the Fund has changed to September 30.
** The Investment Grade Bond Fund commenced investment operations on January
2, 1997.
The Trust pays the compensation of its trustees who are not directors,
officers or employees of Loomis Sayles or its affiliates (other than registered
investment companies); registration, filing and other fees in connection with
requirements of regulatory authorities; all charges and expenses of its
custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Fund; the expenses of
meetings of the shareholders and trustees of the Trust; the charges and expenses
of the Trust's legal counsel; interest on any borrowings by the Fund; the cost
of services, including services of counsel, required in connection with the
preparation of, and the cost of printing, the Trust's registration statements
and prospectuses, including amendments and revisions thereto, annual, semiannual
and other periodic reports of the Trust, and notices and proxy solicitation
material furnished to shareholders or regulatory authorities, to the extent that
any such materials relate to the Trust or its shareholders; and the Trust's
expenses of bookkeeping, accounting, auditing and financial reporting, including
related clerical expenses.
Under each advisory agreement, if the total ordinary business expenses of
the Fund or the Trust as a whole for any fiscal year exceed the lowest
applicable limitation (based on percentage of average net assets or income)
prescribed by any state in which the shares of the Fund or the Trust are
qualified for sale, Loomis Sayles shall pay such excess. Loomis Sayles will not
be required to reduce its fee or pay such expenses to an extent or under
circumstances which would result in the Fund's inability to qualify as a
regulated investment company under the Code. The term "expenses" is defined in
the advisory agreements or in relevant state regulations and excludes brokerage
commissions, taxes, interest, distribution-related expenses and extraordinary
expenses.
The advisory agreement provides that it will continue in effect for two
years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the Fund
and (ii) by vote of a majority of the Trustees who are not "interested persons"
of the Trust, as that term is defined in the 1940 Act, cast in person at a
meeting called for the purpose of voting on such approval. Any amendment to an
advisory agreement must be approved by vote of a majority of the outstanding
voting securities of the Fund and by vote of a majority of the Trustees who are
not such interested persons, cast in person at a meeting called for the purpose
of voting on such approval. The agreement may be terminated without penalty by
vote of the Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund, upon sixty days' written notice, or by Loomis Sayles
upon ninety days' written notice, and the agreement terminates automatically in
the event of its assignment. In addition, the agreement will automatically
terminate if the Trust or the Fund shall at any time be required by Loomis
Sayles to eliminate all reference to the words "Loomis" and "Sayles" in the name
of the Trust or the Fund, unless the continuance of the agreement after such
change of name is approved by a majority of the outstanding voting securities of
the Fund and by a majority of the Trustees who are not interested persons of the
Trust or Loomis Sayles.
14
<PAGE>
The advisory agreement provides that Loomis Sayles shall not be subject to
any liability in connection with the performance of its services thereunder in
the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Loomis Sayles acts as investment adviser or subadviser to New England Value
Fund, New England Strategic Income Fund, New England Star Advisers Fund, New
England Star Small Cap Fund and New England Balanced Fund, which are series of
New England Funds Trust I, a registered open-end management investment company;
New England High Income Fund, a series of New England Fund Trust II, a
registered, open-end management investment company; New England Equity Income
Fund, a series of New England Funds Trust III, a registered open-end management
investment company; to the Balanced Series and the Small Cap Series of New
England Zenith Fund, a registered open-end management investment company; and to
Loomis Sayles Investment Trust, also a registered open-end management investment
company. Loomis Sayles also provides investment advice to certain other open-end
management investment companies and numerous other corporate and fiduciary
clients.
The general partner of Loomis Sayles is a special purpose corporation that
is an indirect wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest
Companies"). Nvest Companies' managing general partner, Nvest Corporation, is a
direct wholly-owned subsidiary of Metropolitan Life Insurance Company ("Met
Life"), a mutual life insurance company. Nvest Companies' advising general
partner, Nvest L.P., is a publicly traded company listed on the New York Stock
Exchange. Nvest Corporation is the sole general partner of Nvest L.P.
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 Funds also invest. If the Fund and such other investment
companies or clients desire to buy or sell the same portfolio securities at the
same time, purchases and sales may be allocated, to the extent practicable, on a
pro rata basis in proportion to the amounts desired to be purchased or sold for
each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Funds. It is the opinion of the
trustees that the desirability of retaining Loomis Sayles as adviser for the
Funds outweighs the disadvantages, if any, which might result from these
practices.
Distribution Agreement and Rule 12b-1 Plan. Under an agreement with the
Trust (the "Distribution Agreement"), Loomis Sayles Distributors, L.P. serves as
the general distributor of each class of shares of the Funds. 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 Funds 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 its shares
under state and federal securities laws and the distribution of prospectuses to
existing shareholders.
As described in the Prospectus, the Fund has adopted Rule 12b-1 plans
("Plans") for its Retail Class shares and J Class shares. The Plans, among other
things, permit the Retail Class of shares to pay the Fund's distributor
(currently Loomis Sayles Distributors, L.P.) a monthly fee, at an annual rate
not exceeding 0.25% of the average net assets of the Retail Class and the J
Class shares to pay the Fund's distributor a monthly service fee at an annual
rate not exceeding 0.25% of the assets of the J Class and a monthly distribution
fee at an annual rate not exceeding 0.50%
15
<PAGE>
of the assets of the J Class. Pursuant to Rule 12b-1 under the 1940 Act, each
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").
Each 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
relevant class of shares of the Fund. Each 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. Any change in any Plan that would materially
increase the fees payable thereunder by the Retail Class or J Class shares of
the Fund requires approval of the Retail Class or J Class shareholders of the
Fund. The Trust's trustees review quarterly written reports of such costs and
the purposes for which such costs have been incurred. Each Plan provides that,
for so long as that Plan is in effect, selection and nomination of those
trustees who are not interested persons of the Trust shall be committed to the
discretion of such disinterested persons.
The Distribution Agreement may be terminated at any time with respect to
the Fund on 60 days' written notice without payment of any penalty by the Trust
or by vote of a majority of the outstanding voting securities of the Fund or by
vote of a majority of the Independent Trustees.
The Distribution Agreement and the Plans will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the entire board of trustees and (ii)
by the vote of a majority of the Independent Trustees, in each case cast in
person at a meeting called for that purpose.
Custodial Arrangements. State Street Bank and Trust Company ("State Street
Bank"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street Bank holds in safekeeping certificated securities and cash belonging to
the Fund and, in such capacity, is the registered owner of securities held in
book entry form belonging to the Fund. Upon instruction, State Street Bank
receives and delivers cash and securities of the Fund in connection with Fund
transactions and collects all dividends and other distributions made with
respect to Fund portfolio securities. State Street Bank also maintains certain
accounts and records of the Fund and calculates the total net asset value, total
net income and net asset value per share of the Fund on a daily basis.
Independent Accountants. The Fund's independent accountants are
PricewaterhouseCoopers LLP, One Post Office Square, Boston, Massachusetts.
PricewaterhouseCoopers LLP conducts an annual audit of the Trust's financial
statements, assists in the preparation of the Fund's federal and state income
tax returns and consults with the Fund as to matters of accounting and federal
and state income taxation. The information under the caption "Financial
Highlights" included in the Prospectus has been so included, and the financial
statements incorporated by reference herein from the Fund's 1998 Annual Report
have been so incorporated, in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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
16
<PAGE>
does not necessarily mean that the lowest available brokerage commission will be
paid. However, the commissions are believed to be competitive with generally
prevailing rates. Loomis Sayles will use its best efforts to obtain information
as to the general level of commission rates being charged by the brokerage
community from time to time and will evaluate the overall reasonableness of
brokerage commissions paid on transactions by reference to such data. In making
such evaluation, all factors affecting liquidity and execution of the order, as
well as the amount of the capital commitment by the broker in connection with
the order, are taken into account. The Fund will not pay a broker a commission
at a higher rate than otherwise available for the same transaction in
recognition of the value of research services provided by the broker or in
recognition of the value of any other services provided by the broker which do
not contribute to the best price and execution of the transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which Loomis Sayles believes will provide best price and
execution for a transaction. These research services include not only a wide
variety of reports on such matters as economic and political developments,
industries, companies, securities, portfolio strategy, account performance,
daily prices of securities, stock and bond market conditions and projections,
asset allocation and portfolio structure, but also meetings with management
representatives of issuers and with other analysts and specialists. Although it
is not possible to assign an exact dollar value to these services, they may, to
the extent used, tend to reduce Loomis Sayles' expenses. Such services may be
used by Loomis Sayles in servicing other client accounts and in some cases may
not be used with respect to the Funds. Receipt of services or products other
than research from brokers is not a factor in the selection of brokers.
DESCRIPTION OF THE TRUST
The Trust, registered with the SEC as a diversified open-end management
investment company, is organized as a Massachusetts business trust under the
laws of Massachusetts by an Agreement and Declaration of Trust (the "Declaration
of Trust") dated February 20, 1991.
The 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
Fund, certain expenses may be legally chargeable against the assets of all
Funds.
The Declaration of Trust also permits the trustees, without shareholder
approval, to subdivide any series of shares or Fund into various classes of
shares with such dividend preferences and other rights as the trustees may
designate. Shares of the Fund are currently divided into three classes,
designated Retail Class, Institutional Class and J Class. The trustees may also,
without shareholder approval, establish one or more additional separate
portfolios for investments in the Trust or merge two or more existing
portfolios. Shareholders' investments in such an additional or merged portfolio
would be evidenced by a separate series of shares (i.e., a new "Fund").
17
<PAGE>
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 Fund. The Declaration of Trust
further provides that the trustees may also terminate the Trust or the Fund upon
written notice to the shareholders. As a matter of policy, however, the trustees
will not terminate the Trust or the Fund without submitting the matter to a vote
of the shareholders of the Trust or the Fund.
Voting Rights
As summarized in the Prospectus, shareholders are entitled to one vote for
each full share held (with fractional votes for each fractional share held) and
may vote (to the extent provided in the Declaration of Trust) on the election of
trustees and the termination of the Trust and on other matters submitted to the
vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a vote of
all Trust shareholders, all Trust shares entitled to vote shall be voted
together irrespective of series or sub-series unless the rights of a particular
series or sub-series would be adversely affected by the vote, in which case a
separate vote of that series or sub-series shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a
class shall be deemed to be affected by a matter unless it is clear that the
interests of each class in the matter are substantially identical or that the
matter does not affect any interest of such class. On matters affecting an
individual series, only shareholders of that series are entitled to vote.
Consistent with the current position of the SEC, shareholders of all series vote
together, irrespective of series, on the election of trustees and the selection
of the Trust's independent accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval, such as certain
changes in investment policies of that series or the approval of the investment
advisory agreement relating to that series.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for that purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
constituting 1% of the outstanding shares stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders).
Except as set forth above, the trustees shall continue to hold office and
may appoint successor trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust, except
(i) to change the Trust's name or to cure technical problems in the Declaration
of Trust and (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value).
18
<PAGE>
Shareholder and Trustee Liability
Under Massachusetts law shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund of which they are
shareholders. However, the Declaration of Trust disclaims shareholder liability
for acts or obligations of the Fund and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the trustees. The Declaration of Trust provides for indemnification
out of Fund property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which the disclaimer is
inoperative and the Fund itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
How to Buy Shares
The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares."
Net Asset Value
The net asset value of the shares of the Fund is determined by dividing the
Fund's total net assets (the excess of its assets over its liabilities) by the
total number of shares of the Fund outstanding and rounding to the nearest cent.
Such determination is made as of the close of regular trading on the New York
Stock Exchange on each day on which that Exchange is open for unrestricted
trading, and no less frequently than once daily on each day during which there
is sufficient trading in the Fund's portfolio securities that the value of the
Fund's shares might be materially affected. During the 12 months following the
date of this Statement of Additional Information, the New York Stock Exchange is
expected to be closed on the following weekdays: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. 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 service, which determines valuations of
normal institutional-size trading units of long-term debt securities. Such
valuations are determined using methods based on market transactions for
comparable securities and on various relationships between securities which are
generally recognized by institutional traders. Other securities for which
current market quotations are not readily available (including restricted
securities, if any) and all other assets are taken at fair value as determined
in good faith by the Board of Trustees, although the actual calculations may be
made by persons acting pursuant to the direction of the board.
19
<PAGE>
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.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment in the Fund is automatically credited to an open
account maintained for the shareholder by Boston Financial Data Services, Inc.
("BFDS"), the shareholder servicing agent for State Street Bank, in the case of
the Institutional and Retail Class shares of the Fund, and State Street Bank in
the case of the J Class shares. Certificates representing shares are issued only
upon written request to BFDS or State Street Bank, respectively, 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 BFDS, or State Street Bank in the case of the J Class
shares, will send each shareholder a statement providing federal tax information
on dividends and distributions paid to the shareholder during the year. This
should be retained as a permanent record. Shareholders will be charged a fee for
duplicate information.
The open account system permits the purchase of full and fractional shares
and, by making the issuance and delivery of certificates representing shares
unnecessary, eliminates the problems of handling and safekeeping certificates,
and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the Trust,
and no direct charges are made to shareholders. Although the Trust has no
present intention of making such direct charges to shareholders, it reserves the
right to do so. Shareholders will receive prior notice before any such charges
are made.
Redemptions
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be guaranteed
by commercial banks, trust companies, savings associations, credit unions or
brokerage firms that are members of domestic securities exchanges. Signature
guarantees by notaries public are not acceptable. However, as noted in the
Prospectus, a signature guarantee will not be required if the proceeds of the
redemption do not exceed $50,000 and the proceeds check is made payable to the
registered owner(s) and mailed to the record address.
If a shareholder selects the telephone redemption service in the manner
described in the next paragraph, Fund shares may be redeemed by making a
telephone call directly to BFDS at 800-626-9390, or Loomis, Sayles at
1-800-633-3330 in the case of the J Class shares. When a telephonic redemption
request is received, the proceeds are wired to the bank account previously
chosen by the shareholder and a nominal wire fee (currently $5.00) is deducted.
Telephonic redemption requests must be received by BFDS or Loomis, Sayles prior
to the close of regular trading
20
<PAGE>
on the New York Stock Exchange on a day when the Exchange is open for business.
Requests made after that time or on a day when the New York Stock Exchange is
not open for business cannot be accepted by BFDS and a new request will be
necessary.
In order to redeem shares by telephone, a shareholder must either select
this service when completing the Fund application or must do so subsequently in
writing. When selecting the service, a shareholder must designate a bank account
to which the redemption proceeds should be wired. Any change in the bank account
so designated must be made by furnishing to BFDS, or State Street Bank in the
case of the J Class shares, a written request with a signature guarantee.
Telephone redemptions may only be made if an investor's bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System. The Trust, BFDS, Loomis
Sayles Distributors, L.P. and State Street Bank are not responsible for the
authenticity of withdrawal instructions received by telephone.
The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by Loomis Sayles in proper form. Proceeds resulting from a written
redemption request will normally be mailed to the shareholder within seven days
after receipt of a request in good order. Telephonic redemption proceeds will
normally be wired on the first business day following receipt of a proper
redemption request. In those cases where a shareholder has recently purchased
shares by check and the check was received less than fifteen days prior to the
redemption request, the Fund may withhold redemption proceeds until the check
has cleared.
The Fund will normally redeem shares for cash; however, the Fund reserves
the right to pay the redemption price wholly or partly in kind if the Board of
Trustees of the Trust determines it to be advisable in the interest of the
remaining shareholders. If portfolio securities are distributed in lieu of cash,
the shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Trust has elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
Trust at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gain Distributions and Tax Status."
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
As described in the Prospectus under "Dividends, Capital Gain Distributions
and Taxes," it is the policy of the Fund to pay its shareholders, as dividends,
substantially all net investment income and to distribute annually all net
realized capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the Fund based upon the net asset value determined as of
the close of regular trading on the New York Stock Exchange on the record date
for each dividend or distribution. Shareholders, however, may elect to receive
their income dividends or capital gain distributions, or both, in cash. The
election may be made at any time by submitting a written request directly to
BFDS, or State Street Bank in the case of the J Class shares. In order for a
change to be in effect for any dividend or distribution, it must be received by
BFDS or State Street Bank on or before the record date for such dividend or
distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
21
<PAGE>
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order so to qualify and to qualify for the
favorable tax treatment accorded regulated investment companies and their
shareholders, the Fund must, among other things, (i) derive at least 90% of its
gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale of securities or non-U.S. 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 fiscal
quarter 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 fiscal quarter,
hold not more than 25% 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 recognized
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 taxed at a rate of 20% for noncorporate shareholders), without regard
to how long a shareholder has held shares of the Fund.
Dividends and distributions on Fund shares 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
the 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 the Fund's net asset value also reflects unrealized
losses.
The Fund's transactions, if any, in non-U.S. 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.
Investment by the Fund in "passive foreign investment companies" could
subject the Fund to 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."
22
<PAGE>
If the Fund engages in hedging transactions, including hedging transactions
in options, futures contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. The Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
Fund.
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.
Generally the Fund may designate dividends eligible for the
dividends-received deduction only to the extent that such dividends are derived
from dividends paid to the Fund with respect to which the Fund could have taken
the dividends-received deduction if it had been a regular corporation. The
dividends-received deduction is not available to non-corporate shareholders,
Subchapter S corporations or corporations who do not hold their shares for at
least 46 days during the 90-day period beginning on the date that is 45 days
before the ex-dividend date.
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 treated
as long-term capital gain if the shares have been held for more than one year.
Otherwise the gain on the sale, exchange or redemption of Fund shares will be
treated as short-term capital gain. However, 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. Furthermore, no loss will be allowed
on the sale of Fund shares to the extent the shareholder acquired other shares
of the same Fund within 30 days prior to the sale of the loss shares or 30 days
after such sale.
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, state, foreign, 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% U.S. withholding tax (or a reduced rate of
withholding provided by treaty). The Internal Revenue Service recently revised
its regulations affecting the application to foreign investors of the back-up
withholding tax and withholding tax rules. The new regulations are generally
effective for payments made on or after January 1, 1999 (although transition
rules 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.
23
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Fund included in the Trust's 1998 Annual
Report, filed with the Securities and Exchange Commission on November 25, 1998,
are incorporated by reference to such Report.
CALCULATION OF YIELD AND TOTAL RETURN
Yield. Yield with respect to the Fund will be computed by dividing the
Fund's net investment income for a recent 30-day period by the maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. The Fund's yield will vary from time to
time depending upon market conditions, the composition of the Fund's portfolio
and operating expenses of the 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.
PERFORMANCE COMPARISONS
Yield and Total Return. The Fund may from time to time include its total
return information in advertisements or in information furnished to present or
prospective shareholders. The Fund may from time to time include the yield
and/or total return of its shares in advertisements or information furnished to
present or prospective shareholders. The Fund may from time to time include in
advertisements or information furnished to present or prospective shareholders
(i) the ranking of performance figures relative to such figures for groups of
mutual funds categorized by Lipper Analytical Services, Inc. or Micropal, Inc.
as having similar investment objectives, (ii) the rating assigned to the Fund by
Morningstar, Inc. based on the Fund's risk-adjusted performance relative to
other mutual funds in its broad investment class, and/or (iii) the ranking of
performance figures relative to such figures for mutual funds in its general
investment category as determined by CDA/Weisenberger's Management Results.
24
<PAGE>
Volatility. The Fund may quote various measures of its volatility and
benchmark correlation. In addition, the Fund may compare these measures to those
of other funds and indices. Measures of volatility seek to compare the Fund's
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate the extent to which the Fund's
returns change in ways similar to those of the benchmark. All measures of
volatility and correlation are calculated using averages of historical data. The
Fund may utilize charts and graphs to present the Fund's volatility and average
annual total return. The Fund may also discuss or illustrate examples of
interest rate sensitivity.
Lipper Analytical Services, Inc. distributes mutual fund rankings monthly.
The rankings are based on total return performance calculated by Lipper,
generally reflecting changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect deduction of any sales
charges. Lipper rankings cover a variety of performance periods, including
year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual
funds by investment objective and asset category.
Micropal, Inc. distributes mutual fund rankings weekly and monthly. The
rankings are based upon performance calculated by Micropal, generally reflecting
changes in net asset value that can be adjusted for the reinvestment of capital
gains and dividends. If deemed appropriate by the user, performance can also
reflect deductions for sales charges. Micropal rankings cover a variety of
performance periods, including year-to-date, 1-year, 5-year and 10-year
performance. Micropal classifies mutual funds by investment objective and asset
category.
Morningstar, Inc. distributes mutual fund ratings monthly. The ratings are
divided into five groups: highest, above average, neutral, below average and
lowest. They represent the fund's historical risk/reward ratio relative to other
funds in its broad investment class as determined by Morningstar, Inc.
Morningstar ratings cover a variety of performance periods, including 3-year,
5-year, 10-year and overall performance. The performance factor for the overall
rating is a weighted-average return performance (if available) reflecting
deduction of expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the fund. The ratings are
derived from a purely quantitative system that does not utilize the subjective
criteria customarily employed by rating agencies such as Standard & Poor's and
Moody's Investor Service, Inc.
CDA/Weisenberger's Management Results publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return calculated
by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and
10-year Mutual funds are ranked in general categories (e.g., international bond,
international equity, municipal bond, and maximum capital gain).
Weisenberger rankings do not reflect deduction of sales charges or fees.
Performance information may also be used to compare the performance of the
Fund to certain widely acknowledged standards or indices for stock and bond
market performance, such as those listed below.
Consumer Price Index. The Consumer Price Index, published by the U.S.
Bureau of Labor Statistics, is a statistical measure of changes, over time, in
the prices of goods and services in major expenditure groups.
Dow Jones Industrial Average. The Dow Jones Industrial Average is a market
value-weighted and unmanaged index of 30 large industrial stocks traded on the
New York Stock Exchange.
Lehman Brothers Government/Corporate Bond Index. The Lehman Brothers
Government/Corporate Bond Index is an index of publicly issued U.S. Treasury
obligations, debt obligations of U.S. government agencies (excluding
mortgage-backed securities), fixed-rate, non-convertible, investment-grade
corporate debt securities and U.S. dollar-denominated, SEC-registered
non-convertible debt issued by foreign governmental entities or international
agencies used as a general measure of the performance of fixed-income
securities.
25
<PAGE>
Lehman Brothers Government/Corporate Intermediate Bond Index. Lehman
Brothers Government/Corporate Intermediate Bond Index consists of those bonds
held within the Lehman Brothers Government/Corporate Bond index which have an
average maturity of 1-10 years.
Lehman Brothers 1-3 Year Government Index. The Index contains fixed rate
debt issues of the U.S. government or its agencies rated investment grade or
higher with at least one year maturity and an outstanding par value of at least
$100 million for U.S.
government issues.
Lehman Brothers Government Bond Index. The Lehman Brothers Government Bond
Index is composed of all publicly issued, nonconvertible, domestic debt of the
U.S. government or any of its agencies, quasi-federal corporations, or corporate
debt guaranteed by the U.S. government.
Lehman Brothers Municipal Bond Index. The Lehman Brothers Municipal Bond
Index is computed from the prices of approximately 21,000 bonds consisting of
roughly 30% revenue bonds, 30% government obligation bonds, 27% insured bonds
and 13% prerefunded bonds.
MSCI-EAFE Index. The MSCI-EAFE Index contains over 1000 stocks from 20
different countries with Japan (approximately 50%), United Kingdom, France and
Germany being the most heavily weighted.
MSCI-EAFE ex-Japan Index. The MSCI-EAFE ex-Japan Index consists of all
stocks contained in the MSCI-EAFE Index, other than stocks from Japan.
Merrill Lynch Government/Corporate Index. The Merrill Lynch
Government/Corporate Index is a composite of approximately 4,900 U.S. government
and corporate debt issues with at least $25 million outstanding, greater than
one year maturity, and credit ratings of investment grade or higher.
Merrill Lynch High Yield Master Index. The Merrill Lynch High Yield Master
Index consists of fixed-rate, coupon-bearing bonds with an outstanding par which
is greater than or equal to $50 million, a maturity range greater than or equal
to one year and must be less than BBB/Baa3 rated but not in default.
Russell 2000 Index. The Russell 2000 Index is comprised of the 2000
smallest of the 3000 largest U.S.-domiciled corporations, ranked by market
capitalization.
Salomon Brothers World Government Bond Index. The Salomon Brothers World
Government Bond Index includes a broad range of institutionally-traded
fixed-rate government securities issued by the national governments of the nine
countries whose securities are most actively traded. The index generally
excludes floating- or variable-rate bonds, securities aimed principally at
non-institutional investors (such as U.S. Savings Bonds) and private-placement
type securities.
Standard & Poor's/Barra Growth Index. The Standard & Poor's/Barra Growth
Index is constructed by ranking the securities in the S&P 500 by price-to-book
ratio and including the securities with the highest price-to-book ratios that
represent approximately half of the market capitalization of the S&P 500.
Standard & Poor's/Barra Value Index. The Standard & Poor's/Barra Value
Index is constructed by ranking the securities in the S&P 500 by price-to-book
ratio and including the securities with the lowest price-to-book ratios that
represent approximately half of the market capitalization of the S&P 500.
26
<PAGE>
Standard & Poor's ("S&P") Mid-Cap 400 Index. The S&P Mid-Cap 400 Index
consists of 400 domestic stocks chosen for market size, liquidity and industry
group representation. It is a market-weighted (stock price times shares
outstanding) with each stock affecting the index in proportion to its value. The
index is comprised of industrial, utility, financial and transportation stocks,
in size order.
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). The S&P
500 is a market value-weighted and unmanaged index showing the changes in the
aggregate market value of 500 stocks relative to the base period 1941-43. The
S&P 500 is composed almost entirely of common stocks of companies listed on the
New York Stock Exchange, although the common stocks of a few companies listed on
the American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 80% of the market value of all
issues traded on the New York Stock Exchange. The S&P 500 is the most common
index for the overall U.S. stock market.
From time to time, articles about the Fund regarding performance, rankings
and other characteristics of the Fund may appear in publications including, but
not limited to, the publications included in Appendix A. In particular, some or
all of these publications may publish their own rankings or performance reviews
of mutual funds, including the Fund. References to or reprints of such articles
may be used in the Fund's promotional literature. References to articles
regarding personnel of Loomis Sayles who have portfolio management
responsibility may also be used in the Fund's promotional literature. For
additional information about the Fund's advertising and promotional literature,
see Appendix B.
27
<PAGE>
INSTITUTIONAL CLASS
PERFORMANCE DATA*
The manner in which total return and yield of the Fund will be
calculated for public use is described above. The table below summarizes the
calculation of current SEC yield and total return for the one year period ended
December 31, 1998 and since inception (December 31, 1996).
Average Annual Total Return
---------------------------
Current For the
------- -------
SEC One-Year From
--- -------- ----
Yield Period Inception**
----- ------ -----------
at Ended Through
-- ----- -------
12/31/98 12/31/98 12/31/98
-------- -------- --------
7.37% 3.31% 8.76%
- ----------------------
* Performance would have been lower if a portion of the management fee had
not been waived by Loomis Sayles. In the absence of this limitation, yield
would have been 4.59% and the total return would have been (0.34)% and
4.06% for the one-year period and the period since inception, respectively.
** The inception date for the Institutional Class of the Fund is December 31,
1996.
28
<PAGE>
RETAIL CLASS
PERFORMANCE DATA*
The manner in which total return and yield of the Fund will be
calculated for public use is described above. The table below summarizes the
calculation of current SEC yield and total return for the one year period ended
December 31, 1998 and since inception (December 31, 1996).
Average Annual Total Return
---------------------------
For the
-------
Current One-Year From
------- -------- ----
SEC Period Inception**
--- ------ -----------
Yield Ended Through
----- ----- -------
at 12/31/98 12/31/98 12/31/98
----------- -------- --------
7.12% 2 .96% 8.48%
* Performance would have been lower if a portion of the management fee had
not been waived by Loomis Sayles. In the absence of this limitation, yield
would have been 4.31% and total return would have been (0.14)% and 2.19%
for the one-year period and the period since inception, respectively.
** The inception date for the Retail Class of the Fund is December 31, 1996.
29
<PAGE>
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Constitution
Atlanta Journal
Arizona Republic
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's Bergen County Record (NJ)
Bloomberg Business News
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CDA Investment Technologies
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Fee Adviser
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money Magazine
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
30
<PAGE>
Mutual Funds Magazine
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UP
US News and World Report
USA Today
USA TV Network
Value Line
Wall Street Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
World Wide Web
Worth Magazine WRKO
31
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Loomis Sayles Funds' advertising and promotional material may include, but
is not limited to, discussions of the following information:
Loomis Sayles Funds' participation in wrap fee and no transaction fee
programs
Loomis Sayles Funds and Loomis, Sayles & Company, L.P. Website
Characteristics of Loomis Sayles including the number and locations of its
offices, its investment practices and clients and assets under management
Specific and general investment philosophies, strategies, processes and
techniques
Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services
Industry conferences at which Loomis Sayles participates
Current capitalization, levels of profitability and other financial
information
Identification of portfolio managers, researchers, economists, principals
and other staff members and employees and descriptions of Loomis Sayles'
resources devoted to such staff
The specific credentials of the above individuals, including but not
limited to, previous employment, current and past positions, titles and duties
performed, industry experience, educational background and degrees, awards and
honors
Specific identification of, and general reference to, current individual,
corporate and institutional clients, including pension and profit sharing plans
Current and historical statistics relating to:
--total dollar amount of assets managed
--Loomis Sayles assets managed in total and by Fund
--the growth of assets
--asset types managed
Loomis Sayles Funds' tag line--"Listening Harder, Delivering More" and
statements that and examples of how Loomis Sayles Funds listens to its clients
and works hard to deliver results which exceed their expectations.
References may be included in Loomis Sayles Funds' advertising and
promotional literature about 401(k) and retirement plans that offer the Fund.
The information may include, but is not limited to:
32
<PAGE>
Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers or plans, funding vehicles,
participants, sponsors and other demographic data relating to plans,
participants and sponsors, third party and other administrators, benefits
consultants and firms with whom Loomis Sayles may or may not have a
relationship.
Specific and general reference to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the Fund as 401(k) or
retirement plan funding vehicles produced by industry authorities, research
organizations and publications.
33
<PAGE>
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
This Post-Effective Amendment relates solely to adding a J Class of shares of
Loomis Sayles Investment Grade Bond Fund, a series of Loomis Sayles Funds.
Information contained in the Registrant's Registration Statement relating to
other classes of the Loomis Sayles Investment Grade Bond Fund, or any other
series of the Registrant is neither amended nor superseded hereby.
<PAGE>
Part C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial statements: Not Applicable
(b) Exhibits:
1. Agreement and Declaration of Trust. (5)
2. By-Laws. (5)
3. Not Applicable.
4. Not Applicable.
5(a). Form of Advisory Agreement. (7)
5(b). Form of Amendment No. 1 to Advisory Agreement between the Trust and
Loomis Sayles Core Value Fund. (3)
5(c). Form of Amendment No. 1 to Advisory Agreement between the Trust and
Loomis Sayles Global Bond Fund. (3)
5(d). Form of Amendment No. 1 to Advisory Agreement between the Trust and
Loomis Sayles Growth Fund. (3)
5(e). Form of Advisory Agreement between the Trust and
Loomis Sayles High Yield Fund. (2)
5(f). Form of Advisory Agreement between the Trust and Loomis Sayles High
Yield Fund II. (6)
5(g). Form of Amendment No. 1 to Advisory Agreement between the Trust and
Loomis Sayles Intermediate Maturity Bond Fund. (3)
5(h). Form of Amendment No. 1 to Advisory Agreement between the Trust and
Loomis Sayles International Equity Fund. (3)
5(i). Form of Advisory Agreement between the Trust and Loomis Sayles
Investment Grade Bond Fund. (3)
5(j). Form of Advisory Agreement between the Trust and Loomis Sayles
Managed Bond Fund. (5)
<PAGE>
5(k). Form of Advisory Agreement between the Trust and Loomis Sayles Mid-
Cap Growth Fund. (3)
5(l). Form of Advisory Agreement between the Trust and Loomis Sayles Mid-
Cap Value Fund. (3)
5(m). Form of Amendment No. 1 to Advisory Agreement between the Trust
and Loomis Sayles Municipal Bond Fund. (3)
5(n). Form of Amendment No. 1 to Advisory Agreement between the Trust
and Loomis Sayles Short-Term Bond Fund. (3)
5(o). Form of Advisory Agreement between the Trust and Loomis Sayles Small
Cap Growth Fund. (3)
5(p). Form of Amendment No. 1 to Advisory Agreement between the Trust
and Loomis Sayles Small Cap Value Fund. (3)
5(q). Form of Advisory Agreement between the Trust and Loomis Sayles
Strategic Value Fund. (3)
5(r). Form of Amended and Restated Investment Advisory Agreement between
the Trust and Loomis Sayles U.S. Government Securities Fund. (7)
5(s). Form of Amendment No. 1 to Advisory Agreement between the Trust
and Loomis Sayles Worldwide Fund. (3)
6. Form of Amended and Restated Distribution Agreement is filed herein.
7. Not Applicable.
8(a). Form of Custodian Agreement. (5)
8(b). Letter Agreement between the Trust and State Street Bank and Trust
Company relating to the applicability of the Custodian Agreement to
Loomis Sayles Short-Term Bond Fund. (4)
8(c). Letter Agreement between the Trust and State Street Bank and Trust
Company relating to the applicability of the Custodian Agreement to
Loomis Sayles High Yield Fund. (4)
8(d). Letter Agreement between the Trust and State Street Bank and Trust
Company relating to the applicability of the Custodian Agreement to
Loomis Sayles Intermediate Maturity Bond Fund, Loomis Sayles
Investment Grade Bond Fund, Loomis Sayles Mid-Cap Growth Fund, Loomis
Sayles Mid-Cap Value Fund, Loomis Sayles Small Cap Growth Fund and
Loomis Sayles Strategic Value Fund. (4)
<PAGE>
8(e). Form of Letter Agreement between the Trust and State Street Bank and
Trust Company relating to the applicability of the Custodian
Agreement to Loomis Sayles Worldwide Fund. (4)
8(f). Form of Letter Agreement between the Trust and State Street Bank and
Trust Company relating to the applicability of the Custodian
Agreement to Loomis Sayles Managed Bond Fund. (7)
9(a). Form of Transfer Agency and Service Agreement between the Trust and
State Street Bank and Trust Company. (5)
9(b). Letter Agreement between the Trust and State Street Bank and Trust
Company relating to the applicability of the Transfer Agency and
Service Agreement to Loomis Sayles Short-Term Bond Fund. (4)
9(c). Letter Agreement between the Trust and State Street Bank and Trust
Company relating to the applicability of the Transfer Agency and
Service Agreement to Loomis Sayles High Yield Fund and Loomis Sayles
Worldwide Fund. (4)
9(d). Letter Agreement between the Trust and State Street Bank and Trust
Company relating to the applicability of the Transfer Agency and
Service Agreement to Loomis Sayles Intermediate Maturity Bond Fund,
Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Mid-Cap
Growth Fund, Loomis Sayles Mid-Cap Value Fund, Loomis Sayles Small
Cap Growth Fund and Loomis Sayles Strategic Value Fund. (4)
9(e). Transfer Agency and Service Agreement between the Trust on behalf of
the Loomis Sayles Managed Bond Fund and State Street Bank and Trust
Company. (7)
10(a). Opinion and Consent of Counsel. (3)
10(b). Form of Opinion and Consent of Counsel relating to Loomis Sayles
Managed Bond Fund and Loomis Sayles High Yield Fund II. (6)
11. Not Applicable
12. Not Applicable.
13(a). Investment Representation Regarding Initial Shares. (5)
13(b). Form of Organizational Expense Reimbursement Agreement. (5)
14. Form of IRA prototype documents. (5)
15(a). Form of Distribution Plan - Retail Class. (3)
15(b). Form of Distribution Plan - Admin Class. (5)
<PAGE>
15(c). Form of Service and Distribution Plan relating to Loomis Sayles
Managed Bond Fund and Loomis Sayles High Yield Fund II. (6)
15(d). Form of Service and Distribution Plan relating to Loomis Sayles
Investment Grade Bond Fund - J Class is filed herein.
16. Schedule for Performance Computations. (3)
17. Not Applicable
18. Amended and Restated Rule 18f-3(d) Plan is filed herein.
19. Powers of Attorney. (1)
- --------------------
(1) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 7 to the Trust's Registration Statement under
the Securities Act of 1933 filed with the Commission on February 16,
1996.
(2) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 10 to the Trust Registration Statement under the
Securities Act of 1933 filed with the Commission on August 30, 1996.
(3) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 11 to the Trust's Registration Statement under
the Securities Act of 1933 filed with the Commission on October 9, 1996.
(4) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 12 to the Trust's Registration Statement under
the Securities Act of 1933 filed with the Commission on March 10, 1997.
(5) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 13 to the Trust's Registration Statement under
the Securities Act of 1933 filed with the Commission on October 31,
1997.
(6) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 15 to the Trust's Registration Statement under
the Securities Act of 1933 filed with the Commission on August 5, 1998.
(6) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 17 to the Trust's Registration Statement under
the Securities Act of 1933 filed with the Commission on November 30,
1998.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Not Applicable.
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
No Longer Applicable.
Item 27. Indemnification
---------------
Incorporated by reference to Item 27 of Post-Effective Amendment No. 1 to this
Registration Statement filed on November 7, 1991.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the adviser of the
Registrant, provides investment advice to the eight series of Loomis Sayles
Investment Trust, six series of New England Funds Trust I, one series of New
England Funds Trust II, one series of New England Funds Trust III, and two
series of New England Zenith Funds, all of which are registered investment
companies, and to other registered investment companies, organizations and
individuals.
The sole general partner of Loomis Sayles is Loomis, Sayles & Company,
Incorporated, One Financial Center, Boston, Massachusetts 02111.
Item 29. Principal Underwriters
----------------------
The Trust's principal underwriter is Loomis Sayles Distributors, L.P., the sole
general partner of which is Loomis Sayles Distributors, Incorporated.
Item 30. Location of Accounts and Records
--------------------------------
The following companies maintain possession of the documents required by the
specified rules:
(a) Registrant
Rule 31a-1(b)(4), (9), (10), (11)
Rule 31a-2(a)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(a)
<PAGE>
(c) Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(f)
Rule 31a-2(e)
(d) Loomis, Sayles Distributors, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(d)
Rule 31a-2(c)
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(I) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 as though such provisions of the Act
were applicable to the Registrant.
(ii) The Registrant undertakes to furnish each person to whom a prospectus
is delivered a copy of Registrant's most recent annual report upon
request and without charge.
********************
NOTICE
A copy of the Agreement and Declaration of Trust of Loomis Sayles Funds (the
"Trust") is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
its registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, in The Commonwealth of
Massachusetts on the 7th day of April, 1999.
LOOMIS SAYLES FUNDS
By: DANIEL J. FUSS*
- -----------------------------
Daniel J. Fuss, President
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this amendment to the Registration Statement of Loomis
Sayles Funds has been signed below by the following persons in the capacities
and on the date indicated.
Signature Title
- ------------ -----
DANIEL J. FUSS* President and Trustee
- -------------------------------
Daniel J. Fuss
MARK W. HOLLAND* Treasurer
- -------------------------------
Mark W. Holland
EARL W. FOELL* Trustee
- -------------------------------
Earl W. Foell
RICHARD S. HOLWAY* Trustee
- -------------------------------
Richard S. Holway
MICHAEL T. MURRAY* Trustee
- -------------------------------
Michael T. Murray
*By : /s/ MARK W. HOLLAND
- -------------------------------
Mark W. Holland, for himself and as Attorney-in-fact
April 7, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
- -------------
6. Form of Amended and Restated Distribution Agreement.
15(d). Form of Service and Distribution Plan relating to Loomis Sayles
Investment Grade Bond Fund - J Class.
18. Amended and Restated Rule 18f-3(d) Plan.
<PAGE>
Exhibit 6
Form of
Amended and Restated
Distribution Agreement
AGREEMENT made this ____ day of January, 1999 by and between LOOMIS
SAYLES FUNDS, a Massachusetts business trust (the "Trust"), and LOOMIS SAYLES
DISTRIBUTORS, L.P., a Delaware limited partnership (the "Distributor").
W I T N E S S E T H:
In consideration of the premises and covenants hereinafter contained,
the Trust and the Distributor agree as follows:
1. Distributor. The Trust hereby appoints the Distributor as general
-----------
distributor of shares of beneficial interest of each series ("Series")
of the Trust ("Series shares") during the term of this Agreement. The
Trust reserves the right, however, to refuse at any time or times to
sell any Series shares hereunder for any reason deemed adequate by the
Board of Trustees of the Trust.
2. Sale and Payment. Under this agreement, the following provisions shall
----------------
apply with respect to the sale of and payment for Series shares:
(a) The Distributor shall have the right, as principal, to
purchase Series shares from the Trust at their net asset value
and to sell such shares to the public against orders therefor
at such net asset value, together with, in the case of the
Series shares of the Loomis Sayles Managed Bond Fund and the
Loomis Sayles High Yield Fund II, and Class J shares of the
Loomis Sayles Investment Grade Bond Fund, the applicable sales
charge, as set forth in the current prospectus(es) of the
Trust relating to the Series shares of such Series.
(b) Prior to the time of delivery of any shares by the Trust to,
or on the order of, the Distributor, the Distributor shall pay
or cause to be paid to the Trust or to its order an amount in
Boston or New York clearing house funds equal to the
applicable net asset value of such shares.
3. Fee. For its services as general distributor of the Series shares, the
---
Trust shall pay to the Distributor on behalf of the Series, a
distribution fee at the rate and upon the terms and conditions set
forth in the Distribution Plan(s) attached as Exhibit A hereto, and as
amended from time to time. The Distribution Fee shall be accrued daily
and paid monthly to the Distributor as soon as practicable after the
end of the calendar month in which it accrues, but in any event within
five business days following the last day of the
<PAGE>
month. In addition, the Distributor shall, in the case of Series shares
of the Loomis Sayles Managed Bond Fund and the Loomis Sayles High Yield
Fund II, and Class J shares of the Loomis Sayles Investment Grade Bond
Fund, be entitled to retain any applicable sales charge, as set forth
in the current prospectus(es) of the Trust relating to Series shares of
such Series.
4. Public Offering Price. The public offering price shall be the net
---------------------
asset value of Series shares, together with, in the case of the Loomis
Sayles Managed Bond Fund and the Loomis Sayles High Yield Fund II, and
Class J shares of the Loomis Sayles Investment Grade Bond Fund, the
applicable sales charge, as set forth in the current prospectus(es) of
the Trust relating to the Series shares of such Series. The net asset
value of Series shares shall be determined in accordance with the
provisions of the agreement and declaration of trust and by-laws of the
Trust and the current prospectus(es) of the Trust relating to the
Series shares.
5. Trust Issuance of Series Shares. The delivery of Series shares shall
-------------------------------
be made promptly by a credit to a shareholder's open account for the
relevant Series. The Trust reserves the right (a) to issue Series
shares at any time directly to the shareholders of the Series as a
stock dividend or stock split, (b) to issue to such shareholders Series
shares, or rights to subscribe to Series shares, as all or part of any
dividend that may be distributed to shareholders of the Series or as
all or part of any optional or alternative dividend that may be
distributed to shareholders of the Series, and (c) to sell Series
shares in accordance with any current applicable prospectus of the
Trust relating to the Series shares.
6. Repurchase. The Distributor shall act as agent for the Trust in
----------
connection with the repurchase of Series shares by the Trust to the
extent and upon the terms and conditions set forth in the current
applicable prospectus(es) of the Trust relating to the Series shares,
and the Trust agrees to reimburse the Distributor, from time to time
upon demand, for any reasonable expenses incurred in connection with
such repurchases of shares.
7. Undertaking Regarding Sales. The Distributor shall use reasonable
---------------------------
efforts to sell Series shares but does not agree hereby to sell any
specific number of Series shares and shall be free to act as
distributor of the shares of other investment companies. Series shares
will be sold by the Distributor only against orders therefor. The
Distributor shall not purchase Series shares from anyone except in
accordance with Sections 2 and 6 and shall not take "long" or "short"
positions in Series shares contrary to the agreement and declaration of
trust or by-laws of the Trust.
8. Compliance. The Distributor shall conform to the Conduct Rules of the
----------
National Association of Securities Dealers, Inc. ("NASD") and the sale
of securities laws of any jurisdiction in which it sells, directly or
indirectly, any Series shares. The Distributor
-2-
<PAGE>
agrees to make timely filings, with the Securities and Exchange
Commission (the "SEC") in Washington, D.C., the NASD and such other
regulatory authorities as may be required, of any sales literature
relating to the Series and intended for distribution to prospective
investors. The Distributor also agrees to furnish to the Trust
sufficient copies of any agreements or plans it intends to use in
connection with any sales of Series shares in adequate time for the
Trust to file and clear them with the proper authorities before they
are put in use (which the Trust agrees to use its best efforts to do as
expeditiously as reasonably possible), and not to use them until so
filed and cleared.
9. Registration and Qualification of Series Shares. The Trust agrees to
-----------------------------------------------
execute such papers and to do such acts and things as shall from time
to time be reasonably requested by the Distributor for the purpose of
qualifying and maintaining qualification of the Series shares for sale
under the so-called Blue Sky Laws of any state or for maintaining the
registration of the Trust and of the Series shares under the federal
Investment Company Act of 1940 (the "1940 Act") and the federal
Securities Act of 1933, to the end that there will be available for
sale from time to time such number of Series shares as the Distributor
may reasonably be expected to sell. The Trust shall advise the
Distributor promptly of (a) any action of the SEC or any authorities of
any state or territory, of which it may be advised, affecting
registration or qualification of the Trust or the Series shares, or
rights to offer Series shares for sale, and (b) the happening of any
event which makes untrue any statement or which requires the making of
any change in the Trust's registration statement or its prospectus
relating to the Series shares in order to make the statements therein
not misleading.
10. Distributor Independent Contractor. The Distributor shall be an
----------------------------------
independent contractor and neither the Distributor nor any of its
officers or employees as such is or shall be an employee of the Trust.
The Distributor is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to such
agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes
thereunder.
11. Expenses Paid by Distributor. While the Distributor continues to act as
----------------------------
agent of the Trust to obtain subscriptions for and to sell Series
shares, the Distributor shall pay the following:
(a) all expenses of printing (exclusive of typesetting) and
distributing any prospectus for use in offering Series shares
for sale, and all other copies of any such prospectus used by
the Distributor, and
-3-
<PAGE>
(b) all other expenses of advertising and of preparing, printing
and distributing all other literature or material for use in
connection with offering Series shares for sale.
12. Interests in and of Distributor. It is understood that any of the
-------------------------------
shareholders, trustees, officers, employees and agents of the Trust may
be a shareholder, director, officer, employee or agent of, or be
otherwise interested in, the Distributor, any affiliated person of the
Distributor, any organization in which the Distributor may have an
interest or any organization which may have an interest in the
Distributor; that the Distributor, any such affiliated person or any
such organization may have an interest in the Trust; and that the
existence of any such dual interest shall not affect the validity
hereof or of any transaction hereunder except as otherwise provided in
the agreement and declaration of trust or by-laws of the Trust, in the
limited partnership agreement of the Distributor or by specific
provision of applicable law.
13. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
(a) Unless otherwise terminated, this Agreement shall continue in
effect with respect to the shares of a Series so long as such
continuation is specifically approved at least annually (i) by
the Board of Trustees of the Trust or by the vote of a
majority of the votes which may be cast by shareholders of the
Series and (ii) by a vote of a majority of the Board of
Trustees of the Trust who are not interested persons of the
Distributor or the Trust, cast in person at a meeting called
for the purpose of voting on such approval.
(b) This Agreement may at any time be terminated on sixty days'
notice to the Distributor either by vote of a majority of the
Trust's Board of Trustees then in office or by the vote of a
majority of the votes which may be cast by shareholders of the
Series.
(c) This Agreement shall automatically terminate in the event of
its assignment.
(d) This Agreement may be terminated by the Distributor on ninety
days' written notice to the Trust.
Termination of this Agreement pursuant to this section shall be without payment
of any penalty.
14. Definitions. For purposes of this Agreement, the following definitions
-----------
shall apply:
(a) The "vote of a majority of the votes which may be cast by
shareholders of the Series" means (1) 67% or more of the votes
of the Series present (in person or
-4-
<PAGE>
by proxy) and entitled to vote at such meeting, if the holders
of more than 50% of the outstanding shares of the Series
entitled to vote at such meeting are present; or (2) the vote
of the holders of more than 50% of the outstanding shares of
the Series entitled to vote at such meeting, whichever is
less.
(b) The terms "affiliated person," "interested person" and
"assignment" shall have their respective meanings as defined
in the 1940 Act subject, however, to such exemptions as may be
granted by the SEC under the 1940 Act.
15. Amendment. This Agreement may be amended at any time by mutual consent
---------
of the parties, provided that such consent on the part of the Series
shall be approved (i) by the Board of Trustees of the Trust or by vote
of a majority of the votes which may be cast by shareholders of the
Series and (ii) by a vote of a majority of the Board of Trustees of the
Trust who are not interested persons of the Distributor or the Trust
cast in person at a meeting called for the purpose of voting on such
approval.
16. Applicable Law and Liabilities. This Agreement shall be governed by and
------------------------------
construed in accordance with the laws of the Commonwealth of
Massachusetts. All sales hereunder are to be made, and title to the
Series shares shall pass, in Boston, Massachusetts.
17. Limited Recourse. The Distributor hereby acknowledges that the Trust's
----------------
obligations hereunder are binding only on the assets and property
belonging to the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
LOOMIS SAYLES FUNDS
By: ________________________________
Daniel J. Fuss
President
LOOMIS SAYLES DISTRIBUTORS, L.P.
By: Loomis Sayles Distributors, Incorporated,
its general partner
By: ________________________________
John L. Yeager
President
A copy of the Agreement and Declaration of Trust establishing Loomis
Sayles Funds (the "Trust") is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed on
behalf of the Trust by officers of the Trust
-5-
<PAGE>
as officers and not individually and that the obligations of or arising out of
this Agreement are not binding upon any of the trustees, officers or
shareholders of the Trust individually but are binding only upon the assets and
property of the Trust.
-6-
<PAGE>
Exhibit 15(d)
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
Class J Service and Distribution Plan
This Plan (the "Plan") constitutes the Service and Distribution Plan
relating to the Class J shares of Loomis Sayles Investment Grade Bond Fund (the
"Series"), a series of Loomis Sayles Funds, a Massachusetts business trust (the
"Trust").
Section 1. The Trust, on behalf of the Series, will pay to Loomis
Sayles Distributors, L.P., a Delaware limited partnership which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") at an annual rate not to exceed 0.25%
of the Series' average daily net assets attributable to Class J shares. Subject
to such limit and subject to the provisions of Section 7 hereof, the Service Fee
shall be as approved from time to time by (a) the Trustees of the Trust and (b)
the Independent Trustees of the Trust. The Service Fee shall be accrued daily
and paid monthly or at such other intervals as the Trustees shall determine. The
Distributor may pay all or any portion of the Service Fee to securities dealers
or other organizations (including, but not limited to, any affiliate of the
Distributor) as service fees pursuant to agreements with such organizations for
providing personal services to investors in shares of the Series and/or the
maintenance of shareholder accounts. All payments under this Section 1 are
intended to qualify as "service fees" as defined in the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD Rules").
Section 2. The Trust, on behalf of the Series, will pay to the
Distributor, a fee (the "Distribution Fee") at an annual rate not to exceed
0.50% of the Series' average daily net assets attributable to Class J shares.
Subject to such limit and subject to the provisions of Section 7 hereof, the
Distribution Fee shall be as approved from time to time by (a) the Trustees of
the Trust and (b) the Independent Trustees of the Trust. The Distribution Fee
shall be accrued daily and paid monthly or at such other intervals as the
Trustees shall determine. The Distributor may pay all or any portion of the
Distribution Fee to securities dealers or other organizations (including, but
not limited to, any affiliate of the Distributor) as commissions, asset-based
sales charges or other compensation with respect to the sale of shares of the
Series, and may retain all or any portion of the Distribution Fee as
compensation for the Distributor's services as principal underwriter of the
shares of the Series. All payments under this Section 2 are intended to qualify
as "asset-based sales charges" as defined in the NASD Rules.
Section 3. This Plan shall continue in effect for a period of more than
one year after January __, 1999 only so long as such continuance is specifically
approved at least annually by votes of the majority (or whatever other
percentage may, from time to time, be required by
<PAGE>
Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and
regulations thereunder) of both (a) the Trustees of the Trust, and (b) the
Independent Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding shares of the Series,
on not more than 60 days' written notice to any other party to the
agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding shares of the Series, and all
material amendments of this Plan shall be approved in the manner provided for
continuation of this Plan in Section 2.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
-2-
<PAGE>
Exhibit 18
LOOMIS SAYLES FUNDS
Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940
-----------------------------------------------------------------------
Effective February 1, 1999
Each of the series of Loomis Sayles Funds (the "Trust") managed by
Loomis, Sayles & Company, L.P. ("Loomis Sayles") (each a "Fund" and, together,
the "Funds") may from time to time issue one or more of the following classes of
shares: Retail Class shares, Institutional Class shares, Admin Class shares,
Boston Private Bank High Yield Fund shares and J Class shares. Each class is
subject to such investment minimums and other conditions of eligibility as are
set forth in the Funds' registration statements as from time to time in effect.
The differences in expenses among these classes of shares, and the conversion
and exchange features of each class of shares, are set forth below in this Plan.
Except as noted below, expenses are allocated among the classes of shares of
each Fund based upon the net assets of each Fund attributable to shares of each
class. This Plan is subject to change, to the extent permitted by law and by the
Agreement and Declaration of Trust and By-laws of each Fund, by action of the
Trustees of each Fund.
RETAIL CLASS SHARES
Distribution and Service Fees
- -----------------------------
Retail Class shares pay distribution and service fees pursuant to plans
(the "Plans") adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). Retail Class shares also bear any costs associated with
obtaining shareholder approval of any amendments to a Plan. Pursuant to the
Plans, Retail Class shares may pay up to 0.25% of the relevant Fund's average
net assets attributable to the Retail Class shares (which percentage may be less
for certain Funds, as described in the Funds' registration statements as from
time to time in effect). Amounts payable under the Plans are subject to such
further limitations as the Trustees may from time to time determine and as set
forth in the registration statement of each Fund as from time to time in effect.
<PAGE>
Exchange and Conversion Features
- --------------------------------
To the extent provided in the registration statement of the relevant
Fund as from time to time in effect, Retail Class shares of any Fund may be
exchanged, at the holder's option and subject to minimum investment
requirements, for Retail Class shares of any other Fund that offers Retail Class
shares, provided that Retail Class shares of such other Fund are available to
residents of the relevant state. Retail Class shares may also be exchanged for
shares of certain money market funds advised by New England Funds Management,
L.P., an affiliate of Loomis Sayles. The Funds reserve the right to terminate or
limit the exchange privilege of any shareholder who makes more than four
exchanges in a calendar year. The Funds may terminate or change the exchange
privilege at any time upon 60 days' notice to shareholders.
Retail Class shares do not convert to any other class of shares.
INSTITUTIONAL CLASS SHARES
Distribution Fees
- -----------------
Institutional Class shares pay no distribution fees.
Exchange and Conversion Features
- --------------------------------
To the extent provided in the registration statement of the relevant
Fund as from time to time in effect, Institutional Class shares of any Fund may
be exchanged, at the holder's option, for Institutional Class shares of any
other Fund that offers Institutional Class shares, provided that Institutional
Class shares of such other Fund are available to residents of the relevant
state. Institutional Class shares may also be exchanged for shares of certain
money market funds advised by New England Funds Management, L.P., an affiliate
of Loomis Sayles. The Funds reserve the right to terminate or limit the exchange
privilege of any shareholder who makes more than four exchanges in a calendar
year. The Funds may terminate or change the exchange privilege at any time upon
60 days' notice to shareholders.
Institutional Class shares do not convert to any other class of shares.
<PAGE>
ADMIN CLASS SHARES
Administrative Fees
- -------------------
Admin Class shares pay administrative fees to certain financial
intermediaries for providing personal service and account maintenance for their
customers who hold Admin Class shares. These fees are paid on the average daily
net assets attributable to Admin Class shares at the annual rate stated in the
Funds' registration statements as from time to time in effect.
Distribution and Service Fees
- -----------------------------
Admin Class shares pay distribution and service fees pursuant to plans
(the "Plans") adopted pursuant to Rule 12b-1 under the 1940 Act. Admin Class
shares also bear any costs associated with obtaining shareholder approval of any
amendments to a Plan. Pursuant to the Plans, Admin Class shares may pay up to
0.25% of the relevant Fund's average net assets attributable to the Admin Class
shares (which percentage may be less for certain Funds, as described in the
Funds' registration statements as from time to time in effect). Amounts payable
under the Plans are subject to such further limitations as the Trustees may from
time to time determine and as set forth in the registration statement of each
Fund as from time to time in effect.
Exchange and Conversion Features
- --------------------------------
To the extent provided in the registration statement of the relevant
Fund as from time to time in effect, Admin Class shares of any Fund may be
exchanged, at the holder's option and subject to minimum investment
requirements, for Admin Class shares of any other Fund that offers Admin Class
shares, provided that Admin Class shares of such other Fund are available to
residents of the relevant state. Admin Class shares may also be exchanged for
shares of certain money market funds advised by New England Funds Management,
L.P., an affiliate of Loomis Sayles. The Funds reserve the right to terminate or
limit the exchange privilege of any shareholder who makes more than four
exchanges in a calendar year. The Funds may terminate or change the exchange
privilege at any time upon 60 days' notice to shareholders.
Admin Class shares do not convert to any other class of shares.
<PAGE>
BOSTON PRIVATE BANK HIGH YIELD FUND SHARES
Distribution and Service Fees
- -----------------------------
Boston Private Bank High Yield Fund shares pay no distribution fees.
Exchange and Conversion Features
- --------------------------------
Boston Private Bank High Yield Fund shares may not be exchanged for
shares of any other Fund.
Boston Private Bank High Yield Fund shares do not convert to any other
class of shares.
J CLASS SHARES
Distribution and Service Fees
- -----------------------------
J Class shares pay distribution and service fees pursuant to plans (the
"Plans") adopted pursuant to Rule 12b-1 under the 1940 Act. J Class shares also
bear any costs associated with obtaining shareholder approval of any amendments
to a Plan. Pursuant to the Plans, J Class shares may pay up to 0.75% of the
relevant Fund's average net assets attributable to the J Class shares (which
percentage may be less for certain Funds, as described in the Funds'
registration statements as from time to time in effect). Amounts payable under
the Plans are subject to such further limitations as the Trustees may from time
to time determine and as set forth in the registration statement of each Fund as
from time to time in effect.
Exchange and Conversion Features
- --------------------------------
To the extent provided in the registration statement of the relevant
Fund as from time to time in effect, J Class shares of any Fund may be
exchanged, at the holder's option and subject to minimum investment
requirements, for J Class shares of any other Fund that offers J Class shares,
provided that J Class shares of such other Fund are available to residents of
the relevant state. The Funds reserve the right to terminate or limit the
exchange privilege of any shareholder who makes more than four exchanges in a
calendar year. The Funds may terminate or change the exchange privilege at any
time upon 60 days' notice to shareholders.
<PAGE>
J Class shares do not convert to any other class of shares.
