<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -------------------------------------------------------
PERFORMANCE SUMMARY
For period since the Fund's inception on October 1, 1998 through March 31, 1999,
the Fund had a total return of 8.00%. When the maximum front-end sales charge of
2.50% is taken into account the total return was 5.30%. In comparison, the
Fund's benchmark, the Lehman Brothers Government/Corporate Bond Index(a),
returned -0.36%. For the same period the average BBB rated debt fund, as
measured by Lipper Analytical Services, had a total return of 1.53%(b).
PORTFOLIO REVIEW
Three consecutive cuts in short-term interest rates by the Federal Reserve
brought an end to the "flight to quality," causing investors to swap out of
particularly rich U.S. Treasuries into other segments of the market. Yield
spreads versus U.S. Treasuries narrowed dramatically across the credit spectrum,
with lower rated bonds having the most positive performance. In our portfolios,
it was a case of "same bonds, different prices." We did not initiate any
dramatic repositioning when liquidity dried up last fall, rather, we attempted
to capitalize on the deeply discounted nature of the market by opportunistically
buying issues of companies that we believed would successfully weather the
crisis.
The Fund's "overweight" position in the telecommunications sector proved
beneficial, as demand in this sector has increased recently as a result of new
technological advances and rapid industry growth which have improved industry
fundamentals. The Fund's energy exposure, which has been hampered by soft demand
from Asia and a prolonged weakness in oil prices, rebounded nicely in March as a
result of a more favorable outlook for the sector. This exposure also acts as a
sound hedge against inflation should it materialize. In addition, the Fund has
maintained a considerable position in Canadian government and provincial debt
due to Canada's improving credit profile and the liquidity and call-protection
these bonds provide.
PORTFOLIO POSITIONING
We remain constructive on the market at current levels. Although yield spreads
have tightened recently, we are comfortable with the portfolio's structure and
yield advantage. Telecommunications, cable/media, and Canadian government and
provincial debt continue to be areas of focus.
[SIG]
Daniel J. Fuss
________________________________________________________________________________
Note: Past Performance is not predictive of future performance. Total return
assumes the reinvestment of dividends and capital gains distributions. The
investment return and principal value of an investment in the Fund will
fluctuate so that investors' shares, when redeemed, may be worth more or less
than their original cost.
(a):Lehman Brothers Government/Corporate Bond Index is a composite of
approximately 5,300 corporate and government issues with at least $100
million outstanding for government issues and $25 million for corporates,
and greater than 1 year maturity. The index returns have not been lowered
for ongoing management and operating expenses applicable to mutual fund
investments.
(b):Inception date of the Fund is October 1, 1998. Since Lipper and Lehman
Brothers Government/ Corporate Bond Index performance data is not available
coincident with this date, comparative performance is presented from
October 31, 1998.
1
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
LOOMIS SAYLES MANAGED BOND FUND
- -------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- AS OF MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE +
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
BONDS AND NOTES -- 93.3% OF NET ASSETS
NON-CONVERTIBLE BONDS -- 67.0%
BROADCASTING -- 3.2%
Fox Family Worldwide, Inc., Zero
Coupon Bond, 11/01/07 (step to
10.250% on 11/01/02) #......... USD 1,750,000 $ 1,120,000
------------
BUILDING MATERIALS -- 2.8%
Owens Corning, 7.500%, 8/01/18... 1,000,000 969,740
------------
CANADIAN -- 21.5%
Canadian Government, Zero Coupon
Bond, 6/01/25.................. CAD 9,500,000 1,605,982
Clearnet Communications, Inc.,
Zero Coupon Bond, 5/15/08 (step
to 10.400% on 5/15/03) #....... 1,750,000 725,010
MetroNet Communications Corp.,
Zero Coupon Bond, 6/15/08 (step
to 9.950% on 6/15/03) #........ USD 2,250,000 1,738,125
Province of British Columbia,
Zero Coupon Bond, 1/09/12...... CAD 4,500,000 1,442,470
Province of Ontario, Zero Coupon
Bond, 6/02/27.................. 12,000,000 1,619,515
Province of Saskatchewan, Zero
Coupon Bond, 1/18/10........... 1,233,000 451,321
------------
7,582,423
------------
COMMUNICATIONS -- 1.0%
Arch Communications Group, Inc.,
Zero Coupon Bond, 3/15/08 (step
to 10.875% on 3/15/01) #....... USD 900,000 369,000
------------
COMPUTERS -- 2.1%
Dell Computer Corp., 7.100%,
4/15/28........................ 750,000 734,167
------------
FOOD & BEVERAGE -- 1.4%
ConAgra, Inc., 7.000%,
10/01/28....................... 500,000 495,365
------------
HEALTH CARE -- SERVICES -- 1.9%
Columbia/HCA Healthcare Corp.,
7.190%, 11/15/15............... 800,000 662,648
------------
OIL & GAS -- 8.0%
Chesapeake Energy Corp., 9.625%,
5/01/05........................ 1,200,000 996,000
Global Marine, Inc., 7.000%,
6/01/28........................ 100,000 88,486
Pioneer Natural Resources Co.,
6.500%, 1/15/08................ 250,000 202,890
R & B Falcon Corp., 7.375%,
4/15/18........................ 500,000 361,925
Tennessee Gas Pipeline Co.,
7.000%, 10/15/28............... 900,000 886,041
Union Pacific Resources Group,
Inc., 7.150%, 5/15/28.......... 300,000 268,047
------------
2,803,389
------------
RAIL -- TRANSPORT -- 0.2%
Missouri Pacific Railroad Co.,
5.000%, 1/01/45................ 140,000 73,675
------------
REAL ESTATE INVESTMENT TRUSTS --
5.1%
First Industrial, 7.600%,
7/15/28........................ 900,000 788,931
Security Capital Industrial
Trust, 7.625%, 7/01/17......... 500,000 478,495
Susa Partnership LP, 7.500%,
12/01/27....................... 600,000 540,126
------------
1,807,552
------------
TELECOMMUNICATIONS -- 10.2%
Hyperion Telecommunications,
Inc., Zero Coupon Bond, 4/15/03
(step to 13.000% on 4/15/01)
#.............................. 1,000,000 825,000
Intermedia Communications, Inc.,
Zero Coupon Bond, 3/01/09 (step
to 12.250% on 3/01/04) 144A
#.............................. 1,000,000 630,000
Nextel Communications, Inc., Zero
Coupon Bond, 10/31/07 (step to
9.750% on 10/31/02) #.......... 1,200,000 852,000
Nextel International, Inc., Zero
Coupon Bond, 4/15/08 (step to
12.125% on 4/15/03) #.......... 900,000 423,000
</TABLE>
2
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
LOOMIS SAYLES MANAGED BOND FUND (CONTINUED)
- -------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- AS OF MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE +
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS AND NOTES -- CONTINUED
TELECOMMUNICATIONS -- CONTINUED
RCN Corp., Zero Coupon Bond,
10/15/07 (step to 11.125% on
10/15/02) #.................... USD 1,100,000 $ 742,500
Teligent, Inc., Zero Coupon Bond,
3/01/08 (step to 11.500% on
3/01/03) #..................... 250,000 131,250
------------
3,603,750
------------
TRANSPORTATION -- 1.5%
Trico Marine Services, Inc.,
8.500%, 8/01/05................ 650,000 520,813
------------
U.S. GOVERNMENT -- 4.5%
U.S. Treasury Bonds, 5.500%,
8/15/28........................ 1,000,000 957,030
U.S. Treasury Bonds, 6.000%,
2/15/26........................ 625,000 635,256
------------
1,592,286
------------
UTILITIES -- 3.6%
KN Energy, Inc., 7.250%,
3/01/28........................ 1,250,000 1,274,400
------------
TOTAL NON-CONVERTIBLE BONDS
(Identified Cost
$22,606,766)................... 23,609,208
------------
CONVERTIBLE BONDS -- 26.3%
COMPUTERS -- 1.6%
Read Rite Corp., 6.500%,
9/01/04........................ 650,000 393,250
Western Digital, Zero Coupon
Bond, 2/18/18.................. 750,000 168,750
------------
562,000
------------
DIVERSIFIED OPERATIONS -- 4.4%
Thermo Electron Corp., 4.250%,
1/01/03 144A................... 1,750,000 1,548,750
------------
FINANCIAL SERVICES -- 4.7%
Bell Atlantic Financial Services,
4.250%, 9/15/05................ 1,325,000 1,454,187
Bell Atlantic Financial Services,
5.750%, 4/01/03................ 200,000 212,000
------------
1,666,187
------------
HEALTH CARE -- DRUGS -- 1.1%
Chiron Corp., 1.900%, 11/17/00... 250,000 240,313
Dura Pharmaceuticals, Inc.,
3.500%, 7/15/02................ 200,000 151,000
------------
391,313
------------
HEALTH CARE -- SERVICES -- 2.9%
Healthsouth Corp., 3.250%,
4/01/03........................ 1,250,000 1,018,750
------------
INSURANCE -- 5.2%
Loews Corp., 3.125%, 9/15/07..... 2,150,000 1,832,875
------------
MULTI-INDUSTRY -- 0.4%
Thermo Instrument Systems, Inc.,
4.500%, 10/15/03 144A.......... 150,000 133,688
------------
OIL & GAS -- 6.0%
Baker Hughes, Inc., Zero Coupon
Bond, 5/05/08.................. 2,050,000 1,424,750
Diamond Offshore Drilling, Inc.,
3.750%, 2/15/07................ 650,000 676,000
------------
2,100,750
------------
TOTAL CONVERTIBLE BONDS
(Identified Cost $8,798,408)... 9,254,313
------------
TOTAL BONDS AND NOTES
(Identified Cost
$31,405,174)................... 32,863,521
------------
</TABLE>
3
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
LOOMIS SAYLES MANAGED BOND FUND (CONTINUED)
- -------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- AS OF MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE +
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS -- 2.9% OF NET ASSETS
FINANCIAL SERVICES -- 0.4%
Hvide Capital Trust, 6.500%...... 15,000 $ 157,500
------------
OIL & GAS -- 1.0%
Weatherford International, Inc.,
5.000%......................... 11,000 336,875
------------
REAL ESTATE INVESTMENT TRUSTS --
0.0%
Carramerica Reality Corp.,
8.450%......................... 200 4,200
------------
TELECOMMUNICATIONS -- 1.5%
Hyperion Telecommunications,
Inc., 12.875% PIK.............. 611 546,894
------------
TOTAL PREFERRED STOCKS
(Identified Cost $1,310,460)... 1,045,469
------------
<CAPTION>
FACE
AMOUNT
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 4.7% OF NET ASSETS
Repurchase Agreement with State
Street Bank and Trust Co.,
dated 3/31/99 at 4.000% to be
repurchased at $1,652,184 on
4/1/99 collateralized by
$1,300,000 U.S. Treasury Bond,
8.125%, due 5/15/21 with a
value of $1,690,000............ USD 1,652,000 1,652,000
------------
TOTAL SHORT-TERM INVESTMENT
(Identified Cost $1,652,000)... 1,652,000
------------
TOTAL INVESTMENTS -- 100.9%
(IDENTIFIED COST $34,367,634)
@ .............................. 35,560,990
Liabilities, Less Cash and Other
Assets -- (0.9%)............... (325,335)
------------
NET ASSETS -- 100%................. $ 35,235,655
------------
------------
</TABLE>
+ See Note 1.
# Step Bond: Coupon is zero or below market rate for an initial period and
then increases at a specified date and rate.
144A Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
PIK All or a portion of income may be received as additional securities.
@ At March 31, 1999, the net unrealized appreciation on investments based on
cost of $34,367,634 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there
is an excess of value over tax cost and aggregate gross unrealized
depreciation for all securities in which there is an excess of tax cost
over value were $2,009,791 and $816,435, respectively, resulting in net
unrealized appreciation of $1,193,356.
KEY TO ABBREVIATIONS:
<TABLE>
<S> <C>
CAD: Canadian Dollar
USD: United States Dollar
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at value............................ $35,560,990
Cash............................................ 275
Receivable for:
Fund shares sold.............................. 392,250
Dividends and interest -- net................. 347,813
Due from the adviser (Note 3)................... 11,057
-----------
36,312,385
-----------
LIABILITIES
Payable for:
Securities purchased.......................... 964,789
Accrued expenses:
Management fees (Note 3)...................... 17,385
Trustees' fees (Note 3A)...................... 2,154
Administrative fees........................... 1,288
Other........................................... 91,114
-----------
1,076,730
-----------
NET ASSETS........................................ $35,235,655
-----------
-----------
Net Assets consist of:
Capital paid in............................... $33,588,681
Undistributed (or Distribution in excess of)
net investment income....................... 201,738
Accumulated net realized gain (loss).......... 251,880
Unrealized appreciation (depreciation) on:
Investments................................. 1,193,356
-----------
NET ASSETS........................................ $35,235,655
-----------
-----------
Shares of beneficial interest outstanding, no
par value..................................... 3,369,700
Net asset value and redemption price per
share......................................... $ 10.46
Maximum offering price per share (Net asset
value/97.50%)................................. $ 10.73
Identified cost of investments.................... $34,367,634
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends....................................... $ 76,848
Interest........................................ 1,245,269
----------
1,322,117
----------
Expenses
Management fees (Note 3)...................... 96,646
12b-1 fees.................................... 120,808
Trustees' fees and expenses (Note 3A)......... 3,091
Administrative fees........................... 7,204
Custodian and accounting fees................. 27,233
Transfer agent fees........................... 5,192
Audit and tax services fees................... 8,865
Registration fees............................. 13,563
Other expenses................................ 8,534
----------
Total expenses................................ 291,136
Less expenses waived and reimbursed by the
investment adviser (Note 3)................. (49,585)
----------
Net expenses.................................. 241,551
----------
Net investment income........................... 1,080,566
----------
NET REALIZED GAIN (LOSS) ON:
Investments..................................... 251,880
----------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
ON:
Investments..................................... 1,193,356
----------
Total net realized gain (loss) and change in
unrealized appreciation (depreciation)........ 1,445,236
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS...................................... $2,525,802
----------
----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
FROM OPERATIONS
Net investment income........................... $ 1,080,566
Net realized gain (loss)........................ 251,880
Change in unrealized appreciation
(depreciation)................................ 1,193,356
-----------
Increase (decrease) in net assets from
operations.................................. 2,525,802
-----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (878,828)
-----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from the sale of shares................ 40,706,273
Cost of shares redeemed......................... (7,117,592)
-----------
Increase (decrease) in net assets derived from
capital share transactions.................... 33,588,681
-----------
Total increase (decrease) in net assets......... 35,235,655
-----------
NET ASSETS
Beginning of period............................. 0
-----------
End of period................................... $35,235,655
-----------
-----------
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period............................... $ 201,738
-----------
-----------
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................. 4,079,240
Redeemed........................................ (709,540)
-----------
Net change...................................... 3,369,700
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------
<TABLE>
<CAPTION>
1999*
(UNAUDITED)
------------
<S> <C>
Net asset value, beginning of period.............. $ 9.95
------------
INCOME FROM INVESTMENT OPERATIONS --
Net investment income (loss).................... 0.34
Net realized and unrealized gain (loss) on
investments................................... 0.45
------------
Total from investment operations.............. 0.79
------------
LESS DISTRIBUTIONS --
Dividends from net investment income............ (0.28)
------------
Net asset value, end of period.................... $ 10.46
------------
------------
Total return (%)(a)(b)............................ 8.0
Net assets, end of period (000)................... $ 35,236
Ratio of operating expenses to average net assets
(%)(c)(d)....................................... 1.50
Ratio of net investment income to average net
assets (%)(c)................................... 6.71
Portfolio turnover (%)(a)......................... 11
Without giving effect to the voluntary expense
limitations described in Note 3 to the Financial
Statements:
Ratio of expenses to average net assets would
have been (%)(c)............................ 1.81
Net investment income per share would have
been........................................ $ 0.32
</TABLE>
* Commencement of operations on October 1, 1998 through March 31, 1999.
(a) Periods less than one year are not annualized.
(b) Total returns would have been lower had the adviser not reduced its
advisory fees and/or borne other operating expenses.
(c) Annualized for periods less than one year.
(d) The adviser has agreed to reimburse a portion of the Fund's expenses during
the period. Without this reimbursement the Fund's ratio of operating
expenses would have been higher.
8
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------
MARCH 31, 1999 (UNAUDITED)
1. The Loomis Sayles Managed Bond Fund (the "Fund") is a series of Loomis
Sayles Funds (the "Trust"), a registered open-end investment company organized
as a Massachusetts business Trust on February 20, 1991. At March 31, 1999, the
Trust was composed of seventeen series. The financial statements of the
remaining series are presented separately. Loomis, Sayles & Company, L.P.
("Loomis Sayles") is the investment adviser of the Fund. The Trust is authorized
to issue an unlimited number of full and fractional shares of beneficial
interest in multiple series.
Under a Service and Distribution plan adopted pursuant to Rule 12b-1 under the
1940 Act, the Fund pays the Distributor, a subsidiary of Loomis Sayles, a
monthly service fee at an annual rate of 0.25% of the Fund's average net assets
and a monthly distribution fee at an annual rate of 0.50% of the Fund's average
net assets.
Purchases of the Fund's share are subject to a maximum sales charge of 2.50%
(the "public offering price").
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. The following summarizes the significant accounting policies of the
Managed Bond Fund:
A. SECURITY VALUATION -- Long-term debt securities for which quotations are
readily available are valued by a pricing service, as approved by the Board of
Trustees, which generally uses the most recent bid prices in the principal
market in which such securities are normally traded. Equity securities for which
quotations are readily available are valued at their last sale price on the
exchange where primarily traded or, if there is no reported sale during the day,
at the closing bid price. Short-term securities with a remaining maturity of 60
days or less are valued at amortized cost, which approximates market value.
Other securities for which quotations are not readily available (including
restricted securities, if any) are valued primarily using dealer supplied
quotations or at their fair values as determined in good faith under the general
supervision of the Board of Trustees.
B. REPURCHASE AGREEMENTS -- The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Fund's holding period. The Fund,
through its custodian, receives delivery of the underlying securities
collateralizing repurchase agreements. It is the Fund's policy that the market
value of the collateral be at least equal to 102% of the repurchase price. These
securities are marked-to-market daily. Loomis Sayles is responsible for
determining that the value of the collateral is at all times at least equal to
102% of the repurchase price. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines or
if the seller enters into insolvency proceedings, realization of the collateral
by the Fund may be delayed or limited.
9
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------
MARCH 31, 1999 (UNAUDITED)
C. NON-U.S. CURRENCY TRANSLATION AND NON-U.S. INVESTMENTS -- The books and
records of the Fund are maintained in U.S. dollars. The value of securities,
currencies and other assets and liabilities denominated in currencies other than
U.S. dollars is translated into U.S. dollars based upon exchange rates
prevailing at the end of the period. Purchases and sales of investment
securities are translated at contractual currency exchange rates established at
the time of the trade. Income and expenses are translated at prevailing exchange
rates on the respective dates of such transactions.
The results of operations resulting from changes in exchange rates on
investments are not isolated from fluctuations arising from changes in market
prices of securities held. All such fluctuations are included with net realized
and unrealized gain or loss from investments.
Net realized and unrealized gains and losses on non-U.S. currency transactions
represent non-U.S. exchange gains and losses from the sale of short-term
securities and holdings of non-U.S. currencies, non-U.S. currency gains and
losses between trade dates and settlement dates on investment securities
transactions, sales and maturities of forward non-U.S. currency exchange
contracts, and the difference between the amounts of daily interest accruals on
the books of the Fund and the amounts actually received resulting from changes
in exchange rates on the payable date.
The Fund may use non-U.S. currency exchange contracts to facilitate transactions
in non-U.S.-denominated securities. Losses may arise from changes in the value
of the non-U.S. currency or if the counterparties do not perform under the
contracts' terms. The U.S. dollar value of non-U.S. currency exchange contracts
is determined using contractual currency exchange rates established at the time
of each trade. The cost of non-U.S. currency exchange contracts is included in
the cost basis of the associated investment.
The Fund may purchase securities of non-U.S. issuers. Investing in securities of
non-U.S. companies and non-U.S. governments involves special risks and
considerations not typically associated with investing in U.S. companies and
securities of the U.S. government. These risks include revaluation of currencies
and the risk of appropriation. Moreover, the markets for securities of many
non-U.S. companies and non-U.S. governments and their markets may be less liquid
and the prices of such securities may be more volatile than those of securities
of comparable U.S. companies and the U.S. government.
D. FORWARD NON-U.S. CURRENCY EXCHANGE CONTRACTS -- The Fund may enter into
forward non-U.S. currency exchange contracts to protect securities against
changes in future non-U.S. exchange rates. A forward non-U.S. currency exchange
contract is an agreement between two parties to buy or sell currency at a set
price on a future date.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is marked-to-market daily using the forward
currency exchange rate and the change in market value is recorded as unrealized
appreciation (depreciation) on non-U.S. currency translations in the Fund's
Statement of Assets and Liabilities. Realized gain or loss is recognized when
the contract is closed equal to the difference between the value of the
10
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------
MARCH 31, 1999 (UNAUDITED)
contract at the time it was opened and the value at the time it was closed and
recorded as realized gain (loss) on non-U.S. currency transactions in the Fund's
Statement of Operations.
Risks may arise upon entering into forward non-U.S. currency exchange contracts
from the potential inability of the counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a non-U.S. currency
relative to the U.S. dollar. At March 31, 1999, the Fund had no open forward
non-U.S. currency exchange contracts.
E. SECURITY TRANSACTIONS, RELATED INVESTMENT INCOME AND EXPENSES -- Security
transactions are accounted for on the trade date (the date the buy or sell is
executed). Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. Interest income is increased by the
accretion of discount. Discounts on zero coupon bonds, original issues, step
bonds and payment in kind bonds are accreted according to the effective interest
method. In determining net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
Expenses directly attributable to the Fund are charged to the Fund. Expenses not
directly attributable to the Fund are allocated to all funds within the Trust,
and are either split evenly or are allocated on the basis of relative net
assets.
F. FEDERAL INCOME TAXES -- The Fund is a separate entity for federal income tax
purposes. The Fund intends to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies, and to distribute to its
shareholders all of its net investment income and any net realized capital
gains. Accordingly, no provision for federal income tax or excise tax has been
made.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund declares and pays
its net investment income to shareholders monthly. Distributions from net
realized capital gains are declared and paid on an annual basis by the Fund.
Income and capital gain distributions are determined in accordance with Federal
income tax regulations which may differ from U.S. generally accepted accounting
principles. These differences, which may result in reclassifications to the
Fund's capital accounts to reflect income and gains available for distribution,
are primarily due to differing book and tax treatments for foreign currency
transactions, deferred losses due to wash sales, and excise tax regulations.
Some of these classifications may include temporary book and tax basis
differences that will reverse in subsequent periods.
2. PURCHASES AND SALES OF SECURITIES -- For the six months ended March 31,
1999, purchases and proceeds from sales and maturities of investments, excluding
short-term securities and U.S. Government securities, were $32,611,014 and
$2,469,563, respectively. Purchases and proceeds from sales and maturities of
U.S. Government securities, excluding short-term securities, were $2,062,031 and
$410,391, respectively.
11
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------
MARCH 31, 1999 (UNAUDITED)
3. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES -- For the six months
ended March 31, 1999, the Fund incurred management fees payable to Loomis
Sayles. Certain officers and employees of Loomis Sayles are also officers or
Trustees of the Trust. Loomis Sayles' general partner is indirectly owned by
NVEST, L.P., a publicly-traded limited partnership whose general partner is
indirectly owned by Metropolitan Life Insurance Company. The management
agreement for the Fund in effect during the six months ended March 31, 1999
provided for fees at the annual percentage rate of 0.60% of the Fund's average
daily net assets. Loomis Sayles voluntarily agreed, for an indefinite period, to
reduce its advisory fees and/or bear other expenses, to the extent necessary to
limit the total operating expenses of the Fund to 1.50% of the Fund's average
daily net assets.
Loomis Sayles may change or terminate its voluntary agreement at any time, but
the relevant prospectus would be supplemented at the time to describe the
change.
Loomis Sayles Distributors, L.P., an affiliate of Loomis, Sayles & Company,
L.P., retained $207,274 of gross sales charges received from the sale of Fund
shares for the six months ended March 31, 1999.
A. TRUSTEES FEES AND EXPENSES -- The Trust does not pay any compensation
directly to its officers or trustees who are directors, officers or employees of
Loomis Sayles, NVEST L.P. or their affiliates. Each independent trustee is
compensated by the Trust on behalf of each Fund at the rate of $1,250 per Fund
per year, plus travel expenses for each meeting attended.
4. CREDIT RISK -- The Fund may invest up to 35% of its assets in securities
offering high current income, which generally will be in the lower rating
categories of recognized rating agencies. These securities are regarded as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations and will generally
involve more credit risk than securities in the higher rating categories. In
addition, the trading market for high yield securities may be relatively less
liquid than the market for higher-rated securities.
12
<PAGE>
BOARD OF TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------
BOARD OF TRUSTEES
- -------------------------------------------------------
Earl W. Foell
Richard S. Holway
Daniel J. Fuss
Michael T. Murray
OFFICERS
- -------------------------------------------------------
PRESIDENT
Daniel J. Fuss
EXECUTIVE VICE PRESIDENT
TREASURER
Robert J. Blanding
Mark W. Holland
VICE PRESIDENTS
ASSISTANT TREASURERS
Mark B. Baribeau
Philip R. Murray
James L. Carroll
Nicholas H. Palmerino
Mary C. Champagne
SECRETARY
E. John deBeer
Sheila M. Barry
Paul H. Drexler
William H. Eigen, Jr.
ASSISTANT SECRETARY
Christopher R. Ely
Bonnie S. Thompson
Quentin P. Faulkner
Philip C. Fine
Kathleen C. Gaffney
Isaac H. Green
Dean A. Gulis
Martha F. Hodgman
John Hyll
Jeffrey L. Meade
Kent P. Newmark
Dawn Alston Paige
Jeffrey C. Petherick
Lauren B. Pitalis
Peter B. Ramsden
Philip J. Schettewi
David L. Smith
Robert S. Takazawa, Jr.
Sandra P. Tichenor
Jeffrey W. Wardlow
Gregg D. Watkins
Anthony J. Wilkins
John F. Yeager III
13
