<PAGE>
LOOMIS SAYLES
MANAGED BOND FUND
ANNUAL REPORT
SEPTEMBER 30, 2000
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
800-633-3330
<PAGE>
FUND AND MANAGER REVIEW
LOOMIS SAYLES MANAGED BOND FUND
PERFORMANCE
For the twelve-month period ended September 30, 2000, the Managed Bond Fund
returned 5.16% (before deducting the maximum 2.50% front end sales charge),
compared to the 6.74% return for the Fund's benchmark, the Lehman Brothers
Government/Credit Bond Index. The average corporate debt fund A-rated, as
measured by Lipper Inc., posted a total return of 5.36% for the same period.
PORTFOLIO REVIEW
During the fiscal year, several event-risk concerns regarding interest rate
movements, equity fluctuations and market flows caused investors to approach the
current inflationary environment and broader bond market with caution. The
Treasury yield curve remained inverted during the period, and long-term
Treasuries were leading performers. Although the corporate market followed a
subdued pattern, corporate bonds remained cheap. Shorter-maturity and
higher-rated credits were the frontrunners for the corporate market, as spreads
gradually tightened in the second half of the year.
In general, the Fund's underperformance during the fiscal year was due to the
relative under-weighting in higher-quality and government issues, which are
prevalent in the Fund's benchmark. From a sector perspective, energy and oil,
REITs (real estate investment trusts) and Canadian securities contributed nicely
to overall performance.
PORTFOLIO POSITIONING
In the current atmosphere of volatility, we are taking an opportunistic approach
to the market, relying on sound fundamental credit analysis to try to uncover
deep discounted, longer-maturity, undervalued issues which we believe have call
protection and significant total return potential. We attempt to uncover value
through fundamental bond analysis in conjunction with relative value analysis.
We are cognizant of the short-term technical market strains, current yield
environment and economic fundamentals. Nevertheless, we take a bottom-up
approach to selecting individual bonds, and our emphasis is on long-term capital
and price appreciation.
Sincerely,
/s/ Danial J. Fuss
Danial J. Fuss
LOOMIS SAYLES MANAGED BOND FUND 1
<PAGE>
AVERAGE ANNUAL RETURNS-PERIODS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Since
1 Year Inception(a)
-----------------------------------------------------------------------------------------
<S> <C> <C>
LOOMIS SAYLES MANAGED BOND FUND(b) 2.54% 3.52%
Lipper Corporate Debt Funds A-Rated Index(c) 5.83% 2.77%
Lehman Brothers Government/Credit Bond Index(d) 6.74% 2.96%
</TABLE>
CUMULATIVE PERFORMANCE-OCTOBER 31, 1998 TO SEPTEMBER 30, 2000
[CHART]
<TABLE>
<CAPTION>
Loomis Sayles Lipper Corporate Lehman Brothers
Managed Debt Funds Government/Corporate
Bond Fund(b) A-Rated Index Bond Index
<S> <C> <C> <C>
10/98 $9,750 $10,000 $10,000
11/98 $10,367 $10,109 $10,060
12/98 $10,296 $10,141 $10,084
01/99 $10,600 $10,228 $10,156
02/99 $10,050 $10,001 $9,915
03/99 $10,702 $10,066 $9,964
04/99 $10,867 $10,098 $9,988
05/99 $10,594 $9,984 $9,885
06/99 $10,464 $9,906 $9,855
07/99 $10,428 $9,891 $9,827
08/99 $10,375 $9,664 $9,819
09/99 $10,361 $9,958 $9,908
10/99 $10,364 $9,973 $9,934
11/99 $10,420 $9,960 $9,928
12/99 $10,469 $9,935 $9,868
01/00 $10,392 $9,913 $9,865
02/00 $10,661 $10,018 $9,989
03/00 $10,846 $10,154 $10,133
04/00 $10,554 $10,071 $10,083
05/00 $10,496 $10,033 $10,074
06/00 $10,667 $10,256 $10,280
07/00 $10,564 $10,343 $10,389
08/00 $10,925 $10,481 $10,536
09/00 $10,896 $10,539 $10,575
</TABLE>
Foreign investments involve special risks including greater economic, political
and currency fluctuation risks, which may be even greater in emerging markets.
In addition, foreign countries may have different accounting standards than
those of the U.S., which may adversely affect the value of the Fund. High yield
securities are subject to a high degree of market and credit risk. In addition,
the secondary market for these securities may lack liquidity which, in turn, may
adversely affect the value of these securities and that of the Fund.
NOTE: PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE. TOTAL RETURN
ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE DATA REFLECTS CERTAIN
FEE WAIVERS AND REIMBURSEMENTS. WITHOUT SUCH WAIVERS, PERFORMANCE AND RANKINGS
WOULD BE LOWER.
(a) INCEPTION DATE OF THE LOOMIS SAYLES MANAGED BOND FUND IS OCTOBER 1, 1998.
SINCE LIPPER CORPORATE DEBT FUNDS A-RATED INDEX AND LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX PERFORMANCE DATA IS NOT AVAILABLE COINCIDENT
WITH THIS DATE, COMPARATIVE PERFORMANCE IS PRESENTED FROM OCTOBER 31, 1998.
(b) PERFORMANCE FOR THE FUND INCLUDES THE EFFECT OF THE MAXIMUM 2.50% FRONT END
SALES CHARGES.
(c) THE LIPPER CORPORATE DEBT FUNDS A-RATED INDEX IS AN EQUALLY WEIGHTED
UNMANAGED INDEX OF TYPICALLY THE 30 LARGEST MUTUAL FUNDS WITHIN THE CORPORATE
DEBT FUNDS A-RATED INVESTMENT OBJECTIVE. RETURNS ARE ADJUSTED FOR THE
REINVESTMENT OF CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS. SOURCE: LIPPER
INC.
(d) LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX IS AN UNMANAGED INDEX WHICH
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. IT IS NOT POSSIBLE TO INVEST IN AN INDEX.
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
LOOMIS SAYLES MANAGED BOND FUND
PORTFOLIO OF INVESTMENTS-AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE+
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS AND NOTES-95.4% OF NET ASSETS
NON-CONVERTIBLE BONDS-64.1%
AIRLINES--3.9%
Delta Air Lines, Inc., 8.300%, 12/15/29 USD 750,000 $ 677,872
-----------
AUTO & RELATED--3.4%
TRW, Inc., 6.650%, 1/15/28 750,000 595,808
-----------
BUILDING MATERIALS--1.6%
Owens Corning, 7.500%, 8/01/18^ 1,000,000 287,500
-----------
CANADIAN--13.7%
Canadian Government, Zero Coupon Bond, 6/01/25 CAD 5,900,000 980,627
Province of Ontario, Zero Coupon Bond, 6/02/27 7,400,000 965,512
Province of Saskatchewan, Zero Coupon Bond, 1/18/10 1,233,000 463,248
-----------
2,409,387
-----------
FINANCIAL SERVICES--2.8%
Merey Sweeny LP, 8.850%, 12/18/19 144A USD 500,000 500,290
-----------
FOREST & PAPER PRODUCTS--1.3%
Georgia-Pacific Group, 7.375%, 12/01/25 250,000 219,613
-----------
HEALTHCARE--PRODUCTS--2.6%
Bausch & Lomb, Inc., 7.125%, 8/01/28 750,000 458,318
-----------
HEALTHCARE--SERVICES--3.8%
Columbia/HCA Healthcare Corp., 7.190%, 11/15/15 800,000 676,000
-----------
OIL & GAS--4.6%
Pennzoil-Quaker State Co., 6.750%, 4/01/09 500,000 434,160
Pennzoil-Quaker State Co., 7.375%, 4/01/29 500,000 374,430
-----------
808,590
-----------
RAIL--TRANSPORT--0.5%
Missouri Pacific Railroad Co., 4.750%, 1/01/20 25,000 15,156
Missouri Pacific Railroad Co., 5.000%, 1/01/45 140,000 72,625
-----------
87,781
-----------
REAL ESTATE INVESTMENT TRUSTS--7.1%
First Industrial, 7.600%, 7/15/28 900,000 754,839
Susa Partnership LP, 7.500%, 12/01/27 600,000 498,198
-----------
1,253,037
-----------
RETAIL--GENERAL--2.7%
Dillon Read Structured Finance Corp., 7.430%, 8/15/18 125,000 80,625
J.C. Penney Co., Inc., 6.875%, 10/15/15 100,000 64,407
K Mart Corp., 7.950%, 2/01/23 250,000 167,285
Woolworth Corp., 8.500%, 1/15/22 250,000 162,500
-----------
474,817
-----------
</TABLE>
3
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
LOOMIS SAYLES MANAGED BOND FUND (CONTINUED)
PORTFOLIO OF INVESTMENTS-AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE+
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS AND NOTES-CONTINUED
SUPRANATIONAL--2.8%
International Bank for
Reconstruction & Development,
Zero Coupon Bond, 8/20/07 NZD 2,000,000 $ 495,885
-----------
TELECOMMUNICATIONS--9.6%
Intermedia Communications, Inc., Zero Coupon Bond,
3/01/09 (step to 12.250% on 3/01/04) # USD 500,000 335,000
Nextel Communications, Inc., Zero Coupon Bond,
10/31/07 (step to 9.750% on 10/31/02) # 500,000 390,000
RCN Corp., Zero Coupon Bond, 10/15/07
(step to 11.125% on 10/15/02) # 1,100,000 594,000
RCN Corp., Zero Coupon Bond, 2/15/08
(step to 9.800% on 2/15/03) # 600,000 294,000
Teligent, Inc., Zero Coupon Bond, 3/01/08
(step to 11.500% on 3/01/03) # 250,000 70,000
-----------
1,683,000
-----------
TOBACCO--3.7%
Philip Morris Cos., Inc., 7.750%, 1/15/27 750,000 656,235
-----------
TOTAL NON-CONVERTIBLE BONDS
(Identified Cost $13,256,742) 11,284,133
-----------
CONVERTIBLE BONDS-31.3%
COMPUTERS--4.0%
Maxtor Corp., 5.750%, 3/01/12 500,000 350,000
Quantum Corp.--DLT & Storage Systems,
7.000%, 8/01/04 200,000 163,000
Western Digital, Zero Coupon Bond, 2/18/18 750,000 198,750
-----------
711,750
-----------
DIVERSIFIED OPERATIONS--6.2%
Thermo Electron Corp., 4.250%, 1/01/03 144A 1,150,000 1,092,500
-----------
ELECTRONIC COMPONENTS--0.5%
Kent Electronics Corp., 4.500%, 9/01/04 100,000 82,426
-----------
FINANCIAL SERVICES--1.1%
Bell Atlantic Financial Services, 5.750%, 4/01/03 200,000 193,880
-----------
HEALTHCARE--SERVICES--3.6%
Healthsouth Corp., 3.250%, 4/01/03 750,000 630,000
-----------
INDUSTRIAL EQUIPMENT--2.0%
MascoTech, Inc., 4.500%, 12/15/03 500,000 350,000
-----------
INSURANCE--2.4%
Loews Corp., 3.125%, 9/15/07 475,000 426,179
-----------
MULTI-INDUSTRY--0.8%
Thermo Instrument Systems, Inc., 4.500%,
10/15/03 144A 150,000 140,625
-----------
</TABLE>
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
LOOMIS SAYLES MANAGED BOND FUND (CONTINUED)
PORTFOLIO OF INVESTMENTS-AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE+
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS AND NOTES-CONTINUED
OFFICE EQUIPMENT--4.4%
Xerox Corp., 0.570%, 4/21/18 USD 1,500,000 $ 771,555
-----------
OIL & GAS--6.3%
Baker Hughes, Inc., Zero Coupon Bond, 5/05/08 900,000 740,520
Diamond Offshore Drilling, Inc., 3.750%, 2/15/07 325,000 366,519
-----------
1,107,039
-----------
TOTAL CONVERTIBLE BONDS
(Identified Cost $5,419,203) 5,505,954
-----------
TOTAL BONDS AND NOTES
(Identified Cost $18,675,945) 16,790,087
-----------
SHARES
-----------------------------------------------------------------------------------
COMMON STOCKS-0.1% OF NET ASSETS
OIL & GAS--0.1%
Hvide Marine, Inc. * 1,304 9,943
-----------
TOTAL COMMON STOCKS
(Identified Cost $434,111) 9,943
-----------
PREFERRED STOCKS-3.1% OF NET ASSETS
NON-CONVERTIBLE PREFERRED STOCKS-1.8%
REAL ESTATE INVESTMENT TRUSTS--1.8%
CarrAmerica Realty Corp., Series B, 8.570% 2,000 43,000
CarrAmerica Realty Corp., Series C, 8.550% 2,200 47,300
CarrAmerica Realty Corp., Series D, 8.450% 5,000 106,250
Developers Diversified Realty Corp., Class C, 8.375% 3,400 71,612
ProLogis Trust, Series D, 7.920% 2,300 49,163
ProLogis Trust, Series E, 8.750% 400 9,425
-----------
326,750
-----------
TOTAL NON-CONVERTIBLE PREFERRED STOCKS
(Identified Cost $264,025) 326,750
-----------
CONVERTIBLE PREFERRED STOCKS-1.3%
REAL ESTATE INVESTMENT TRUSTS--1.3%
Equity Residential Properties Trust, 7.250% 10,000 226,250
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $235,600) 226,250
-----------
TOTAL PREFERRED STOCKS
(Identified Cost $499,625) 553,000
-----------
</TABLE>
5
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
LOOMIS SAYLES MANAGED BOND FUND (CONTINUED)
PORTFOLIO OF INVESTMENTS-AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE+
-----------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS-0.0% OF NET ASSETS
OIL & GAS--0.0%
Hvide Marine, Inc., expiring 12/15/03 * 815 $ 2,037
-----------
TOTAL WARRANTS
(Identified Cost $4,522) 2,037
-----------
TOTAL INVESTMENTS--98.6%
(IDENTIFIED COST $19,614,203) @ 17,355,067
Cash and Other Assets, Less Liabilities--1.4% 243,228
-----------
NET ASSETS--100% $17,598,295
===========
</TABLE>
+ See Note 1.
^ Security in default.
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.
# Step Bond: Coupon is zero or below market rate for an initial period and
then increases at a specified date and rate.
* Non-income producing security
@ At September 30, 2000, the net unrealized appreciation on investments
based on cost of $19,614,203 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 $337,296 and $2,596,432, respectively, resulting
in net unrealized depreciation of $2,259,136.
Key to Abbreviations:
CAD: Canadian Dollar
NZD: New Zealand Dollar
USD: United States Dollar
See accompanying notes to financial statements.
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments at value $17,355,067
Cash 183,047
Receivable for:
Fund shares sold 28,350
Dividends and interest 235,526
Due from the adviser (Note 3) 58,820
-----------
17,860,810
-----------
LIABILITIES
Payable for:
Fund shares redeemed 205,262
Accrued expenses:
Management fees (Note 3) 9,782
Trustees' fees (Note 3A) 532
Administrative fees (Note 3) 1,898
12b-1 fees payable 12,228
Other (Note 1) 32,813
-----------
262,515
-----------
NET ASSETS $17,598,295
===========
Net Assets consist of:
Capital paid in $19,690,823
Undistributed (or Distribution in excess of) net
investment income 99,630
Accumulated net realized gain (loss) 66,978
Unrealized appreciation (depreciation) on investments (2,259,136)
-----------
NET ASSETS $17,598,295
===========
Shares of beneficial interest outstanding, no par value 1,862,400
Net asset value and redemption price per share $ 9.45
Maximum offering price per share (Net asset value/97.50%) $ 9.69
Identified cost of investments $19,614,203
===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends $ 65,477
Interest 2,702,652
----------
2,768,129
----------
Expenses
Management fees (Note 3) 199,240
12b-1 fees 249,050
Trustees' fees and expenses (Note 3A) 4,411
Administrative fees 16,999
Custodian and accounting fees 49,637
Transfer agent fees 7,769
Legal fees 117,746
Printing fees 222,054
Other expenses 14,500
----------
Total expenses 881,406
Less expenses waived and reimbursed by the
investment adviser (Note 3) (383,307)
----------
Net expenses 498,099
----------
Net investment income 2,270,030
----------
NET REALIZED GAIN (LOSS) ON:
Investments 140,822
----------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (832,373)
----------
Total net realized gain (loss) and change in
unrealized appreciation (depreciation) (691,551)
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $1,578,479
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999*
--------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income $ 2,270,030 $ 2,330,403
Net realized gain (loss) 140,822 442,231
Change in unrealized appreciation (depreciation) (832,373) (1,426,763)
------------- -------------
Increase (decrease) in net assets from operations 1,578,479 1,345,871
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (2,338,605) (2,110,643)
Net realized gain on investments (567,630) 0
------------- -------------
(2,906,235) (2,110,643)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from the sale of shares 22,574,274 53,999,642
Cost of shares redeemed (37,911,792) (18,971,301)
------------- -------------
Increase (decrease) in net assets derived from capital
share transactions (15,337,518) 35,028,341
------------- -------------
Total increase (decrease) in net assets (16,665,274) 34,263,569
NET ASSETS
Beginning of period 34,263,569 0
------------- -------------
End of period $ 17,598,295 $ 34,263,569
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period $ 99,630 $ 219,760
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares 2,357,600 5,370,740
Redeemed (3,993,400) (1,872,540)
------------- -------------
Net change (1,635,800) 3,498,200
============= =============
</TABLE>
* COMMENCEMENT OF FUND OPERATIONS ON OCTOBER 1, 1998.
See accompanying notes to financial statements.
9
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999*
----------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.79 $ 9.95
------- -------
INCOME FROM INVESTMENT OPERATIONS--
Net investment income (loss) 0.68 0.68
Net realized and unrealized gain (loss) on investments (0.20) (0.22)
------- -------
Total from investment operations 0.48 0.46
------- -------
LESS DISTRIBUTIONS--
Dividends from net investment income (0.67) (0.62)
Distributions from net realized capital gains (0.15) 0.00
------- -------
Total distributions (0.82) (0.62)
------- -------
Net asset value, end of period $ 9.45 $ 9.79
======= =======
Total return (%)(a)(b) 5.2 4.6
Net assets, end of period (000) $17,598 $34,264
Ratio to average net assets:
Net expenses (%)(c)(d) 1.50 1.50
Gross expenses (%)(d) 2.65 2.03
Net investment income (loss) (%)(d) 6.84 6.77
Portfolio turnover rate (%) 52 34
</TABLE>
* COMMENCEMENT OF FUND OPERATIONS ON OCTOBER 1, 1998.
(a) TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THE ADVISER NOT REDUCED ITS
ADVISORY FEES AND/OR BORNE OTHER OPERATING EXPENSES. PERIODS LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
(b) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY FRONT-END SALES CHARGES FOR
THE FUND.
(c) 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.
(d) ANNUALIZED FOR PERIODS LESS THAN ONE YEAR.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. The Loomis Sayles Managed Bond Fund (the "Fund") is a series of Loomis Sayles
Funds (the "Trust"), a diversified, open-end investment company registered with
the Securities and Exchange Commission under the Investment Company Act of 1940
(the "1940 Act"), and organized as a Massachusetts business trust on February
20, 1991. At September 30, 2000, the Trust was composed of twenty funds
("Funds"). The financial statements of the nineteen remaining funds 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.
Purchases of the Fund's share are subject to a maximum sales charge of 2.50%.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates. The
following summarizes the significant accounting policies of the Fund:
A. SECURITY VALUATION -- Long-term debt securities for which quotations are
readily available are valued by a pricing service, as approved by the Board of
Trustees, which generally uses the most recent bid prices in the principal
market in which such securities are normally traded. Equity securities for which
quotations are readily available are valued at their last sale price on the
exchange where primarily traded or, if there is no reported sale during the day,
at the closing bid price. Short-term securities with a remaining maturity of 60
days or less are valued at amortized cost, which approximates market value.
Other securities for which quotations are not readily available (including
restricted securities, if any) are valued primarily using dealer supplied
quotations or at their fair values as determined in good faith under the general
supervision of the Board of Trustees.
B. REPURCHASE AGREEMENTS -- The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Fund's holding period. The Fund,
through its custodian, receives delivery of the underlying securities
collateralizing repurchase agreements. It is the Fund's policy that the market
value of the collateral be at least equal to 102% of the repurchase price. These
securities are marked-to-market daily. Loomis Sayles is responsible for
determining that the value of the collateral is at all times at least equal to
102% of the repurchase price. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines or
if the seller enters into insolvency proceedings, realization of the collateral
by the Fund may be delayed or limited.
11
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
C. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS -- The books and records
of the Fund are maintained in U.S. dollars. The value of investments, currencies
and other assets and liabilities denominated in currencies other than U.S.
dollars is translated into U.S. dollars based upon foreign exchange rates
prevailing at the end of each day. Purchases and sales of investments, income
and expenses are translated at prevailing exchange rates on the respective dates
of such transactions.
The results of operations resulting from changes in foreign exchange rates on
investments are not isolated from fluctuations arising from changes in market
prices of investments held. All such fluctuations are included with net realized
and unrealized gain or loss from investments.
Net realized and unrealized gains and losses on foreign currency transactions
represent foreign exchange gains and losses from the sale of holdings of foreign
currencies, foreign currency gains and losses between trade dates and settlement
dates on investment securities transactions, sales and maturities of forward
foreign currency exchange contracts, and the difference between the amounts of
daily interest accruals on the books of the Fund and the amounts actually
received resulting from changes in exchange rates on the payable date.
The Fund may use foreign currency exchange contracts to facilitate transactions
in foreign-denominated investments. Losses may arise from changes in the value
of the foreign currency or if the counterparties do not perform under the
contracts' terms. The U.S. dollar value of foreign currency exchange contracts
is determined using contractual currency exchange rates established at the time
of each trade.
The Fund may purchase investments of foreign issuers. Investing in securities of
foreign companies and foreign governments involves special risks and
considerations not typically associated with investing in U.S. companies and
securities of the U.S. Government. These risks include revaluation of currencies
and the risk of appropriation. Moreover, the markets for securities of many
foreign companies and foreign Governments and their markets may be less liquid
and the prices of such securities may be more volatile than those of securities
of comparable U.S. companies and the U.S. Government.
D. SECURITY TRANSACTIONS, RELATED INVESTMENT INCOME AND EXPENSES -- Security
transactions are accounted for on the trade date (the date the buy or sell is
executed). Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. Interest income is increased by the
accretion of discount. Discounts on zero coupon bonds, original issue discount
bonds, step bonds and payment in kind bonds are accreted according to a method
that approximates the effective interest method. In determining net gain or loss
on securities sold, the cost of securities has been determined on the identified
cost basis.
Expenses directly attributable to the Fund are charged to the Fund. Expenses not
directly attributable to the Fund are apportioned to all funds within the Trust
on the basis of relative net assets.
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
E. FEDERAL INCOME TAXES -- The Fund is a separate entity for federal income tax
purposes. The Fund intends to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies, and to distribute to its
shareholders all of its net investment income and any net realized capital
gains. Accordingly, no provision for federal income tax or excise tax has been
made.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund declares and pays its
net investment income to shareholders monthly. Distributions from net realized
capital gains are declared and paid on an annual basis by the Fund. Income and
capital gain distributions are determined in accordance with Federal income tax
regulations which may differ from accounting principles generally accepted in
the United States of America. 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, excise tax regulations, and net
operating losses. Some of these classifications may include temporary book and
tax basis differences that will reverse in subsequent periods.
2. PURCHASES AND SALES OF INVESTMENTS -- For the year ended September 30, 2000,
purchases and proceeds from sales and maturities of investments, excluding
short-term securities and U.S. Government securities, were $9,232,499 and
$25,980,873, respectively. Purchases and proceeds from sales and maturities of
U.S. Government securities, excluding short-term securities, were $7,361,993 and
$7,355,458, respectively.
3. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES -- For the year ended
September 30, 2000, 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
CDC Asset Management ("CDC AM") as of October 30, 2000. CDC AM is part of the
Caisse des Depots et Consignation. The management agreement for the Fund in
effect during the year ended September 30, 2000 provided for fees at the annual
percentage rate of 0.60% of the Fund's average daily net assets. Loomis Sayles
has contractually agreed, until February 1, 2001, 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.
The Fund has adopted a Shareholder Service and Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act 1940. The Fund pays Loomis Sayles
Distributors, L.P. (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.
Effective May 8, 2000, Loomis Sayles began charging the Fund for administrative
services. As of September 30, 2000, the Fund incurred $2,979.
13
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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, CDC Asset Management 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 investments
offering high current income, which generally will be in the lower rating
categories of recognized rating agencies. These investments 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 investments in the higher rating categories. In
addition, the trading market for high yield investments may be relatively less
liquid than the market for higher-rated investments.
5. LINE OF CREDIT -- The Trust (except the Loomis Sayles Research Fund) has
entered into an agreement which enables each of the Funds to borrow under a $25
million unsecured line of credit with several banks. Borrowings will be made
solely to temporarily finance the repurchase of capital shares. Interest is
charged to each participating Fund based on its borrowings at a rate per annum
equal to the Federal Funds rate plus 0.455%. In addition, a commitment fee of
0.08% per annum, payable at the end of each calendar quarter, is accrued by the
Trust and apportioned among the Funds based on each Fund's average daily unused
portion of the line of credit. During the year ended September 30, 2000, the
Managed Bond Fund had no borrowing under the agreement.
6. SUBSEQUENT EVENT -- On October 30, 2000, CDC Asset Management ("CDC AM")
acquired Loomis Sayles' parent company, Nvest Companies, L.P. and its
subsidiaries. CDC AM is part of the Caisse des Depots Consignations ("CDC"). CDC
was created by the Federal Government and currently is supervised by the French
Parliament.
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
2000 U.S. TAX AND DISTRIBUTION INFORMATION TO SHAREHOLDERS (UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION -- For the year ended September 30, 2000,
2.92% of dividends distributed by the Fund qualify for the dividends received
deduction for corporate shareholders.
CAPITAL GAINS DISTRIBUTIONS -- Pursuant to Internal Revenue Section 852 (b),
$103,120 has been designated as capital gains distributions for the fiscal year
ended September 30, 2000.
15
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
SHAREHOLDER MEETING RESULTS (UNAUDITED)
At a special shareholders' meeting of the Loomis Sayles Funds held on October 5,
2000 shareholders of each Fund voted for the following proposal:
To approve new investment advisory agreements between the Trust on behalf of the
Managed Bond Fund and Loomis Sayles & Company, L.P.
<TABLE>
<CAPTION>
VOTED VOTED ABSTAINED TOTAL
FUND NAME FOR AGAINST VOTES VOTES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loomis Sayles Managed
Bond Fund 1,416,750 14,100 0 1,430,850
</TABLE>
<PAGE>
LOOMIS SAYLES MANAGED BOND FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of the Loomis Sayles Managed Bond
Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Loomis Sayles Managed Bond Fund
(the "Fund") at September 30, 2000, the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2000 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 15, 2000
17
