<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21,
1998
REGISTRATION NOS. 333-22931
811-8282
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 2
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 12
(CHECK APPROPRIATE BOX OR BOXES)
_______________________________
LOOMIS SAYLES INVESTMENT TRUST
(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 COPY TO
-------------------- -------
SHEILA M. BARRY, ESQ. JOHN M. LODER, ESQ.
LOOMIS, SAYLES & COMPANY, L.P. ROPES & GRAY
ONE FINANCIAL CENTER ONE INTERNATIONAL PLACE
BOSTON, MA 02111 BOSTON, MA 02110
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
ON APRIL 22, 1998 PURSUANT TO PARAGRAPH (B)
60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
ON _____________ PURSUANT TO PARAGRAPH (A)(1)
75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
ON _____________ 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>
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
CROSS REFERENCE SHEET PURSUANT TO RULE 481(A)
ITEMS REQUIRED BY FORM N-1A
<TABLE>
<CAPTION>
PART A
<S> <C> <C>
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUSES
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Financial Highlights
Information
4. General Description of Cover Page; The
Registrant Trust; Investment
Objective and
Policies; and More
Information About the
Fund's Investments
5. Management of the Fund Cover Page; The
Trust; The Fund's
Investment Adviser;
Fund Expenses; and
Portfolio Transactions
5A. Management's Discussion of Not applicable
Fund Performance
6. Capital Stock and Other Cover Page; The
Securities Trust; How to Redeem
Shares; and
Dividends, Capital
Gain Distributions and
Taxes; and Other
Information
7. Purchase of Securities Being How to Purchase
Offered Shares
8. Redemption or Repurchase How to Redeem
Shares
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
9. Pending Legal Not applicable
Proceedings
</TABLE>
<TABLE>
<CAPTION>
PART B
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN STATEMENTS OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Not applicable
History
13. Investment Objectives Investment Objective, Policies
and Policies and Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Management of the Trust
Principal Holders of
Securities
16. Investment Advisory and Investment Advisory and
Other Services Other Services
17. Brokerage Allocation and Portfolio Transactions and
Other Practices Brokerage
18. Capital Stock and Other How to Redeem Shares
Securities (Prospectus); Redemptions;
Dividends, Capital Gain
Distributions and Taxes
(Prospectus); Income
Dividends, Capital Gain
Distributions and Tax Status;
and Description of the Trust
19. Purchase, Redemption How to Purchase Shares
and Pricing of Securities (Prospectus); How to Redeem
Being Offered Shares (Prospectus);
Redemptions; and Net Asset
Value
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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 Calculation of Yield and Total
Performance Data Return; Performance
Comparisons; and
Performance Data
23. Financial Statements Financial Statements
</TABLE>
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.
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES CALIFORNIA TAX-FREE INCOME FUND
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 482-2450
PROSPECTUS
APRIL 22, 1998
The Loomis Sayles Investment Trust (the "Trust") is a group of seven mutual
funds including the Loomis Sayles California Tax-Free Income Fund (the "Fund").
The other series, which are described in separate prospectuses, are:
Loomis Sayles Core Fixed Income Fund
Loomis Sayles Core Growth Fund
Loomis Sayles Fixed Income Fund
Loomis Sayles High Yield Fixed Income Fund
Loomis Sayles Intermediate Duration Fixed Income Fund
Loomis Sayles Investment Grade Fixed Income Fund
Except for the Fund, the funds are designed specifically for tax-exempt
investors such as pension plans, endowments and foundations, although other
institutions and high net-worth individuals are eligible to invest. Each of the
funds is separately managed and has its own investment objective and policies.
Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the investment adviser of
each of the funds.
This Prospectus concisely describes the information that you should know
before investing in the Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated April 22, 1998 is
available free of charge; to obtain a free copy or to make any inquiries about
the Fund write to Loomis Sayles Investment Trust, One Financial Center, Boston,
Massachusetts 02111 or telephone (617) 482-2450. The Statement of Additional
Information, which contains more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus.
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>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY OF EXPENSES............................................ -3-
FINANCIAL HIGHLIGHTS........................................... -4-
PRIOR PERFORMANCE.............................................. -5-
THE TRUST...................................................... -6-
INVESTMENT OBJECTIVE AND POLICIES.............................. -6-
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS.................. -7-
THE FUND'S INVESTMENT ADVISER.................................. -9-
FUND EXPENSES..................................................-10-
PORTFOLIO TRANSACTIONS.........................................-10-
HOW TO PURCHASE SHARES.........................................-10-
HOW TO REDEEM SHARES...........................................-11-
OTHER INFORMATION..............................................-11-
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES................-12-
APPENDIX.......................................................AA-1
</TABLE>
2
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist you in understanding the
various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. The information is based on expenses for the Fund's
fiscal year ended December 31, 1997. The information below should not be
considered a representation of past or future expenses, as actual expenses may
be greater or less than those shown. Also, the assumed 5% annual return in the
example should not be considered a representation of investment performance, as
actual performance will depend upon the actual investment results of securities
held in the Fund's portfolio.
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) none
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of
offering price) none
Deferred Sales Load (as a percentage of original
purchase price or redemption
proceeds as applicable) none
Redemption Fees (as a percentage of amount
redeemed) none
Exchange Fees none
Annual Fund Operating Expenses
(as a percentage of average net assets):
Management Fees (after expense
limitation) .50%
12b-1 Fees none
Other Operating Expenses (after expense
limitation)/1/ .15%
Total Fund Operating Expenses (after
expense limitation)/1/ .65%
Example
You 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 $7
Three Years $21
Five Years $36
Ten Years $81
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is for the period March 7, 1997
through December 31, 1997. The following information should be read in
conjunction with the financial highlights, financial statements, and notes
thereto that have been audited by Coopers & Lybrand, L.L.P., independent
accountants, whose report thereon appears in the Fund's 1997 Annual Report,
which is incorporated by reference into this Prospectus and the Statement of
Additional Information.
<TABLE>
<CAPTION>
March 7+ through
December 31, 1997
-----------------
<S> <C>
Net asset value, beginning of period......................... $ 10.17
Income from investment operations -
Net investment income....................................... 0.31
Net realized and unrealized gain (loss) on investments...... 0.36
--------
Total from investment operations.......................... 0.67
Less distributions -
Dividends from net investment income........................ (0.40)
Distributions from net realized capital gains............... (0.03)
--------
Total distributions....................................... (0.43)
--------
Net asset value, end of period............................... $ 10.41
========
Total return (%)............................................. 6.7**
Net assets, end of period (000).............................. $16,822
Ratio of operating expenses to average net assets (%)........ 0.65*
Ratio of net investment income to average net assets (%)..... 4.58*
Portfolio turnover rate (%).................................. 15.9**
Without giving effect to the voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%)........................................ 1.46*
The net investment income per share would have been......... $ 0.26
</TABLE>
+Date of effectiveness of the Fund's registration statement under the
Securities Act of 1933, as amended.
*Annualized.
**Not annualized.
Further information about the performance of the Fund is contained in the
Fund's semiannual and annual reports to shareholders, copies of which may be
obtained without charge by writing or telephoning the Trust at the address and
telephone number stated on the cover of this Prospectus.
4
<PAGE>
PRIOR PERFORMANCE
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS)
The information presented below, for the periods indicated, relates to
periods prior to the effectiveness of the Fund's registration statement under
the Securities Act of 1933, as amended (the "1933 Act"). The following
information should be read in conjunction with the financial highlights,
financial statements, and notes thereto that have been audited by Coopers &
Lybrand, L.L.P., independent accountants, whose report thereon appears in the
Fund's 1997 Annual Report, which is incorporated by reference into this
Prospectus and the Statement of Additional Information. The Fund is managed in
a manner that is in all material respects similar to the manner in which it was
managed prior to the effectiveness of its registration statement under the 1933
Act.
<TABLE>
<CAPTION>
January 1, 1997 Year Ended June 1* through
through March 6, December 31, December 31,
1997 1996 1995
---------------- ------------ ---------------
<S> <C> <C> <C>
Net asset value, beginning of period.................... $ 10.19 $ 10.23 $ 10.00
Income from investment operations -
Net investment income................................... 0.16 0.46 0.26
Net realized and unrealized gain (loss) on investments.. (0.11) (0.04) 0.23
------- ------- --------
Total from investment operations...................... 0.05 0.42 0.49
------- ------- --------
Less distributions -
Dividends from net investment income.................... (0.07) (0.45) (0.26)
Distributions from net realized capital gains........... 0.00 (0.01) 0.00
------- ------- --------
Total distributions............................... (0.07) (0.46) (0.26)
------- ------- --------
Net asset value, end of period.......................... $ 10.17 $ 10.19 $ 10.23
======= ======= ========
Total return (%)........................................ 0.5*** 4.1 4.9***
Net assets, end of period (000)......................... $14,821 $13,460 $ 7,880
Ratio of operating expenses to average net assets (%)... 0.65** 0.65 0.65**
Ratio of net investment income to
average net assets (%)............................... 4.83** 4.58 5.30**
Portfolio turnover rate (%)............................. 7.8*** 17.5 18.4***
Without giving effect to the voluntary expense
limitation:
The ratio of operating expenses to
average net assets would have been (%)........... 1.15** 1.26 1.62**
The net investment income per share would have
been................................................ $ 0.14 $ 0.40 $ 0.22
</TABLE>
* Commencement of operations.
**Annualized.
***Not annualized.
5
<PAGE>
THE TRUST
The Fund is a series of the Trust. The Trust is a diversified open-end
management investment company which was organized as a Massachusetts business
trust on December 23, 1993. 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 (the "Trustees") and to cast a vote
for each share held (with a fractional vote for each fractional 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 Trustees.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve as high a level of current
income exempt from both federal income tax and California personal income tax as
is consistent with preservation of capital.
The Fund seeks to attain its objective by normally investing substantially all
of its assets in securities the income from which is, in the opinion of the
issuer's counsel at the time of issuance, exempt from both federal income tax
and California personal income tax ("California tax exempt securities"). It is
a fundamental policy of the Fund that, during periods of normal market
conditions, at least 80% of its net assets will be invested in California tax
exempt securities. Normally at least 80% of its assets will be invested in
issues rated A or better by Standard & Poors ("S&P") or Moody's Investors
Service, Inc. ("Moody's"). All issues will be rated at least BBB by S&P or Baa
by Moody's (or, if unrated, be of equivalent credit quality as determined by
Loomis Sayles) at the time of purchase. Bonds of BBB or Baa quality have some
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuers of
such bonds to make principal and interest payments than is the case with issuers
of higher grade bonds. In the event that the credit rating of a security held
by the Fund falls below investment grade (or, in the case of unrated securities,
Loomis Sayles determines that the quality of such security has deteriorated
below investment grade), the Fund will not be obligated to dispose of such
security and may continue to hold such security, if, in the opinion of Loomis
Sayles, such investment is appropriate in the circumstances.
The Fund may invest up to 20% of its net assets in high quality corporate
obligations, U.S. Government obligations and repurchase agreements. Income from
these investments may be subject to federal income tax and/or California
personal income tax.
The Fund will not "concentrate" its investments. That is, it will not invest
more than 25% of its total assets in any one industry. Although tax-exempt
securities secured by the assets or revenues of governmental entities are not
considered part of any "industry," for this purpose tax-exempt securities backed
only by the assets and revenues of nongovernmental entities are deemed to
represent investments in the industries of such nongovernmental issuers.
Notwithstanding the 25% industry limitation, it is possible that the Fund may
invest more than 25% of its assets in a broader segment of the market for tax-
exempt securities, such as revenue obligations of hospitals and other health
care facilities, housing revenue obligations, or airport revenue obligations.
This would be the case only if Loomis Sayles determined that the yields
available from obligations in a particular segment of the market justified the
additional risks associated with such concentration. Economic, business,
political and other developments may have a general adverse effect on all tax-
exempt securities in a particular market segment. (Examples would include
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or
products.)
Some of the Fund's investment restrictions are "fundamental" and cannot be
changed without a majority vote of the Fund's shareholders. Such restrictions
include: (1) a restriction prohibiting the Fund from making loans; (2) a
restriction prohibiting the Fund from purchasing a security if, as a result,
more than 25% of the Fund's total assets (taken at current value) would be
invested in any one industry; (3) a restriction prohibiting the Fund from
borrowing 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, and from
borrowing any money except as a temporary measure for extraordinary or emergency
purposes; and (4) a restriction prohibiting the Fund from purchasing any
illiquid security including a 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. For additional investment restrictions, see the
Statement of Additional Information.
Although authorized to invest in restricted securities, the Fund, as a matter
of nonfundamental operating policy, currently does not intend to invest in such
securities, other than Rule 144A securities. Rule 144A securities are privately
6
<PAGE>
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 Trustees, that the particular
issue of Rule 144A securities is liquid.
The investment objective of the Fund is "fundamental" and cannot be changed
without a majority vote of the Fund's shareholders. All investment policies
other than those identified as "fundamental" may be changed by the Trustees
without a vote of the Fund's shareholders.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
The net asset value of the Fund's shares will vary as a result of changes in
the value of securities in the Fund's portfolio. The following describes the
types of securities in which the Fund will principally invest and the risks
associated with them. Additional information about the Fund's investment
practices can be found in the Statement of Additional Information.
CALIFORNIA FISCAL CONDITION
- ---------------------------
Because the Fund will invest primarily in California tax exempt securities,
its performance may be especially affected by factors pertaining to the
California economy and other factors specifically affecting the ability of
issuers of California tax exempt securities to meet their obligations. As a
result, the value of the Fund's shares may fluctuate more widely than the value
of shares of a portfolio investing in securities relating to a number of
different states. The ability of state, county, or local governments to meet
their obligations will depend primarily on the availability of tax and other
revenues to those governments and on their fiscal conditions generally. An
expanded discussion of risks associated with California tax exempt securities is
contained in the Statement of Additional Information.
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. The Fund may also
invest in other debt securities that pay a rate of interest or dividends that is
adjusted periodically by reference to some specified index or market rate. Such
securities are included within the definition of fixed income securities as used
in this Prospectus. Because interest rates vary, it is impossible to predict
the income of the Fund for any particular period.
Fixed income securities are subject to credit and market risk. Credit risk
relates to the ability of the issuer to make payments of principal and interest.
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. Generally, the longer the maturity of a fixed income security, the
greater the fluctuations in its value because of market and credit risk.
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 will fluctuate as interest rates change. Thus, for
example, the value of an investment in U.S. Government Securities may fall
during times of rising interest rates. Yields on U.S. Government Securities
tend to be lower than those of other fixed income securities of comparable
maturities.
Some U.S. Government Securities, such as Government National Mortgage
Association Certificates, are known as "mortgage-backed" securities,
representing interests in "pools" of mortgage loans secured by residential or
commercial real property. 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
7
<PAGE>
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, slower than anticipated
prepayments on the underlying mortgages can extend the effective maturities of
mortgage-backed securities, subjecting them to a greater risk of decline in
market value in response to rising interest rates than traditional debt
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. Treasury securities. These investment instruments may be highly
volatile.
COMMERCIAL MORTGAGE-BACKED SECURITIES
- -------------------------------------
The Fund may invest in commercial mortgage-backed securities. Commercial
mortgage-backed securities are securities that represent an interest in, or are
secured by, mortgage loans secured by commercial property, such as industrial
and warehouse properties, office buildings, retail space and shopping malls,
multifamily properties and cooperative apartments, hotels and motels, nursing
homes, hospitals, and senior living centers. The commercial mortgage-backed
securities market is newer and in terms of total outstanding principal amount of
issues is relatively small compared to the total size of the market for
residential mortgage-backed securities.
Commercial mortgage-backed securities are generally structured similarly to
pass-through securities or to collateralized mortgage obligations although other
structures are possible. They may pay fixed or adjustable rates of interest.
Commercial mortgage-backed securities have been issued in public or private
transactions by a variety of public and private issuers.
The commercial mortgage loans that underlie commercial mortgage-backed
securities have certain distinct risk characteristics. Commercial mortgage
loans generally lack standardized terms, which may complicate their structure.
Commercial properties themselves tend to be unique and are more difficult to
value than single-family residential properties. Commercial mortgage loans also
tend to have shorter maturities than residential mortgage loans, and may not be
fully amortizing, meaning that they have a significant principal balance, or
"balloon" payment, due on maturity. Assets underlying commercial mortgage-
backed securities may relate only to a few properties or a single property. The
risk involved in single property financings is highly concentrated. In
addition, commercial properties, particularly industrial and warehouse
properties, are subject to environmental risks and the burdens and costs of
compliance with environmental laws and regulations. At the same time,
commercial mortgage-backed securities may have a lower prepayment risk than
residential mortgage-backed securities, because commercial mortgage loans
generally prohibit or impose penalties on prepayments of principal. In
addition, commercial mortgage-backed securities often are structured with some
form of credit enhancement to protect against potential losses on the underlying
mortgage loans.
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 zero
coupon 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
be forced 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 generally more volatile than that of
non-zero coupon fixed income securities of comparable quality and maturity.
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 issued. If the value of the security being purchased falls
between the time the Fund commits to buy it and the payment date, the Fund may
sustain a loss. The risk of this loss is in addition to the Fund's risk of loss
on the securities actually in its portfolio at the time. 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 time of delivery. If the
Fund has outstanding
8
<PAGE>
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.
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 Investment Company Act of 1940, as amended, 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. Although the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the U.S. 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 and (b) inability
to enforce rights and the expenses involved in attempted enforcement.
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 has advised the Fund that it is reviewing all of its 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
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.
In addition to selecting and reviewing the Fund's investments, Loomis Sayles
provides executive and other personnel for the management of the Fund. The
Board of Trustees supervises Loomis Sayles's conduct of the affairs of the Fund.
The portfolio managers for the Fund since its inception have been Kent P.
Newmark and Robert K. Payne. Mr. Newmark is a Vice President of Loomis Sayles
and a Managing Partner of its San Francisco office. Mr. Payne is a Vice
President of Loomis Sayles. Mr. Newmark has been with Loomis Sayles since 1976
and Mr. Payne has been with Loomis Sayles since 1982.
9
<PAGE>
FUND EXPENSES
The Fund pays Loomis Sayles a monthly investment advisory fee. This fee is
paid at the annual rate of 0.50% of the Fund's average daily net assets.
In addition to the investment advisory fee, the Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees
of the Fund's custodian, independent accountants and legal counsel and fees of
the Trustees who are not directors, officers or employees of Loomis Sayles or
its affiliated companies.
Loomis Sayles has voluntarily undertaken for an indefinite period to waive its
fees and, to the extent necessary, to bear other Fund expenses in order to limit
the Fund's total operating expenses to .65% of average annual net assets.
PORTFOLIO TRANSACTIONS
Loomis Sayles selects brokers and dealers to execute portfolio transactions
for the Fund. Portfolio turnover considerations will not limit Loomis Sayles's
investment discretion in managing the Fund's assets. The Fund anticipates that
its portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. High portfolio turnover
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gains. Portfolio turnover rates for the life of the Fund are
set forth above under the headings "Financial Highlights" and "Prior
Performance." See "Dividends, Capital Gain Distributions and Taxes" for
information on the tax consequences of investing in the Fund.
HOW TO PURCHASE SHARES
You may make an initial purchase of shares of the Fund by submitting a
completed application form and payment to Loomis Sayles. The minimum initial
investment in the Fund is $500,000. Subsequent investments must be at least
$50,000. The Trust reserves the right to waive these minimums in its sole
discretion.
Shares of the Fund may be purchased by exchange of (i) cash, (ii) securities
on deposit with a custodian acceptable to Loomis Sayles or (iii) a combination
of such securities and cash. Purchase of shares of the Fund in exchange for
securities is subject in each case to the determination by Loomis Sayles that
the securities to be exchanged are acceptable for purchase by the Fund.
Securities accepted by Loomis Sayles in exchange for Fund shares will be valued
in the same manner as the Fund's assets, as described below, as of the time of
the Fund's next determination of net asset value after such acceptance. All
dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Fund and must be delivered to the Fund upon receipt by the investor from the
issuer. A gain or loss for federal income tax purposes would be realized upon
the exchange of any securities tendered. A shareholder who wishes to purchase
shares by exchanging securities should obtain instructions by calling (617) 482-
2450.
Loomis Sayles will not approve the acceptance of securities in exchange for
shares of the Fund unless (1) Loomis Sayles, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the 1933 Act or otherwise; and (3) the
securities are eligible to be acquired under the Fund's investment policies and
restrictions. No investor owning 5% or more of the Fund's shares may purchase
additional Fund shares by the exchange of securities.
Upon acceptance of your order, the Trust opens an account for you, 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, you may send subsequent investments at any time.
The Trust reserves the right to reject any purchase order for any reason which
the Trust in its sole discretion deems appropriate. Although the Trust does not
anticipate that it will do so, the Trust reserves the right to suspend or change
the terms of the offering of its shares.
The price you pay will be the per share net asset value next calculated after
a proper investment order is received by the Trust. Shares of the Fund are sold
without any sales charge. The net asset value of the Fund's shares is
calculated by dividing the Fund's net assets by the number of shares
outstanding. Net asset value is calculated at least weekly and as of the close
of the New York Stock Exchange (the "Exchange") on each day on which an order
for purchase or redemption of Fund shares is received and on which the Exchange
is open for unrestricted trading. Portfolio securities are valued at their
market value as more fully described in the Statement of Additional Information.
10
<PAGE>
HOW TO REDEEM SHARES
You can redeem your shares by sending a written request to the Trust.
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
written request in the exact names in which the shares are registered and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity).
The redemption price will be the net asset value per share next determined
after the written redemption request is received by the Trust in proper form.
The Trust usually requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Trust by calling (617) 482-2450 for details.
Proceeds resulting from a written redemption request will normally be mailed
to you within seven days after receipt of your request in good order. If you
purchased your shares by check and your check was deposited less than fifteen
days prior to the redemption request, the Trust may withhold redemption proceeds
until your check has cleared.
Redemption proceeds may be made in money or in kind, or partly in money and
partly in kind, as determined by the Trust.
The Fund may suspend the right of redemption and may postpone payment for more
than seven days when the 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.
OTHER INFORMATION
The Trustees may, without shareholder approval, divide the Trust's shares of
beneficial interest into multiple series. The Trust is currently divided into
seven series, including the Fund and the other funds listed on the cover of this
Prospectus.
The Fund's investment performance may from time to time be included in
advertisements about the Fund.
The Fund's yield 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.
Total return for the Fund is measured by comparing the value of an investment
in the Fund at the beginning of the relevant period to the redemption value of
the investment in the Fund at the end of the period (assuming immediate
reinvestment of any dividends or capital gain distributions).
All data are based on the Fund's past investment results and do not predict
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the Fund's portfolio
and the Fund's operating expenses. Investment performance also often reflects
the risks associated with the Fund's investment objectives and policies. These
factors should be considered when comparing the Fund's investment results with
those of other mutual funds and other investment vehicles. Quotations of
investment performance for any period when an expense limitation was in effect
will be greater than if the limitation had not been in effect.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The Fund pays its net investment income to shareholders as dividends monthly.
Any capital gain distributions are normally made annually in December, but may,
to the extent permitted by law, be made more frequently as deemed advisable by
the Trustees. The Fund distributes annually in December all of its net capital
gains realized from the sale of portfolio securities. The Trustees may change
the frequency with which the Fund declares or pays dividends.
11
<PAGE>
Your dividends and capital gain distributions will automatically be reinvested
in additional shares of the Fund on the payment date unless you have elected to
receive cash.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes substantially all its net investment income and net capital gains to
its shareholders, the Fund itself does not pay any federal income or excise tax.
Fund dividends designated as "exempt-interest dividends" are not generally
subject to federal income tax or California personal income tax (to the extent
derived from California tax exempt securities). However, an investment in the
Fund may result in liability for federal alternative minimum tax for corporate
and individual shareholders, and in California franchise or corporation income
tax for corporate shareholders subject to such tax. Of the dividends paid by
the Fund from net investment income for the fiscal year ended December 31, 1997,
92% of such dividends constituted exempt-interest dividends for regular federal
income tax purposes.
It is anticipated that the Fund will be operated so that its dividends will be
exempt-interest dividends. However, as described under "Investment Objective
and Policies," certain investments of the Fund may produce taxable income.
Distributions of such income will be taxable to you as ordinary income, except
that any distributions designated by the Fund as deriving from net gains on
securities held for more than one year but not more than 18 months or from net
gains on securities held for more than 18 months will be taxable to you as such,
regardless of how long you have owned shares of the Fund. These distributions
will be taxable as described whether distributed in cash or additional shares.
The Fund may at times purchase California tax exempt securities at a discount
from the price at which they were originally issued. For federal income tax
purposes and California personal income tax purposes, some or all of this market
discount will be included in the Fund's ordinary income and will be taxable to
you as such when it is distributed to you.
If you incur or continue indebtedness to purchase or carry shares of the Fund,
that portion of interest paid or accrued on such indebtedness that equals the
total interest paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions from net long-
term capital gains) paid to you that are exempt-interest dividends, is not
deductible for federal income tax purposes. The Internal Revenue Service may
consider the purchase of shares to have been made with borrowed funds even
though such funds are not directly traceable to the purchase of shares.
Under the Code, if you sell a share of the Fund after holding it for six
months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the amount of any exempt-interest dividends that you
have received with respect to the share that is sold and will be treated as a
long-term capital loss to the extent of any long-term capital gain distributions
received with respect to such share.
If you receive social security or railroad retirement benefits, you may be
taxed at the federal level on a portion of those benefits as a result of
receiving tax-exempt income (including exempt-interest dividends distributed by
the Fund). California personal income tax does not apply to social security or
railroad retirement benefits.
The Fund is required to withhold 31% of any redemption proceeds and all
taxable income dividends and capital gain distributions it pays to you (1) if
you do not provide a correct, certified taxpayer identification number, (2) if
the Fund is notified that you have under reported income in the past, or (3) if
you fail to certify to the Fund that you are not subject to such
withholding.
In January of each year, the Trust will send you a statement showing the tax
status of dividends and distributions paid to you during the preceding
year.
The foregoing summarizes certain tax consequences of investing in the Fund.
Before investing, you should consult your own tax adviser for more information
concerning the federal, foreign, state and local tax consequences of investing
in, redeeming or exchanging Fund shares.
TRANSFER AND DIVIDEND INVESTMENT ADVISER
PAYING AGENT AND Loomis, Sayles & Company, L.P.
CUSTODIAN OF ASSETS One Financial Center
12
<PAGE>
State Street Bank and Trust Company Boston, Massachusetts 02111
Boston, Massachusetts 02102
13
<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.
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.
14
<PAGE>
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
edged." 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 are 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.
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.
15
<PAGE>
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 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, and those with the weakest investment attributes are
designated by the symbols Aa3, A3, Baa3, Ba3 and B3.
16
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES CORE FIXED INCOME FUND
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 482-2450
PROSPECTUS
APRIL 22, 1998
The Loomis Sayles Investment Trust (the "Trust") is a group of seven mutual
funds including the Loomis Sayles Core Fixed Income Fund (the "Fund"). The
other series, which are described in separate prospectuses, are:
Loomis Sayles California Tax-Free Income Fund
Loomis Sayles Core Growth Fund
Loomis Sayles Fixed Income Fund
Loomis Sayles High Yield Fixed Income Fund
Loomis Sayles Intermediate Duration Fixed Income Fund
Loomis Sayles Investment Grade Fixed Income Fund
Except for the California Tax-Free Income Fund, the funds are designed
specifically for tax-exempt investors such as pension plans, endowments and
foundations, although other institutions and high net-worth individuals are
eligible to invest. Each of the funds is separately managed and has its own
investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis
Sayles") is the investment adviser of each of the funds.
This Prospectus concisely describes the information that you should know
before investing in the Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated April 22, 1998 is
available free of charge; to obtain a free copy or to make any inquiries about
the Fund write to Loomis Sayles Investment Trust, One Financial Center, Boston,
Massachusetts 02111 or telephone (617) 482-2450. The Statement of Additional
Information, which contains more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus.
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
<TABLE>
<S> <C>
SUMMARY OF EXPENSES.............................................. -3-
FINANCIAL HIGHLIGHTS............................................. -4-
PRIOR PERFORMANCE................................................ -5-
THE TRUST........................................................ -6-
INVESTMENT OBJECTIVE AND POLICIES................................ -6-
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS.................... -7-
THE FUND'S INVESTMENT ADVISER....................................-10-
FUND EXPENSES....................................................-10-
PORTFOLIO TRANSACTIONS...........................................-11-
HOW TO PURCHASE SHARES...........................................-11-
HOW TO REDEEM SHARES.............................................-11-
OTHER INFORMATION................................................-12-
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES..................-12-
APPENDIX A A-1
</TABLE>
2
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist you in understanding the
various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. The information is based on annualized expenses for the
Fund's fiscal year ended December 31, 1997. The information below should not be
considered a representation of past or future expenses, as actual expenses may
be greater or less than those shown. Also, the assumed 5% annual return in the
example should not be considered a representation of investment performance, as
actual performance will depend upon the actual investment results of securities
held in the Fund's portfolio.
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) none
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of
offering price) none
Deferred Sales Load (as a
percentage of original
purchase price or redemption
proceeds as applicable) none
Redemption Fees (as a percentage
of amount redeemed) none
Exchange Fees none
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees: .50%
12b-1 Fees none
Other Operating Expenses (after expense
limitation)/1/: .15%
Total Fund Operating Expenses (after
expense limitation)/1/: .65%
Example
You 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 $ 7
Three Years $21
Five Years $36
Ten Years $81
</TABLE>
______________________________
/1/ Loomis Sayles has voluntarily undertaken for an indefinite period to limit
the Fund's total Fund operating expenses to the percentage of average net assets
shown above. In the absence of the voluntary expense limitation. Other
Operating Expenses and Total Fund Operating Expenses for the fiscal year ended
December 31, 1997 would have been 1.30% and 1.80%, respectively.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is for the period March 7, 1997
through December 31, 1997. The following information should be read in
conjunction with the financial highlights, financial statements, and notes
thereto that have been audited by Coopers & Lybrand, L.L.P., independent
accountants, whose report thereon appears in the Fund's 1997 Annual Report,
which is incorporated by reference into this Prospectus and the Statement of
Additional Information.
<TABLE>
<CAPTION>
March 7+ through
December 31, 1997
------------------
<S> <C>
Net asset value, beginning of period......................... $ 10.15
Income from investment operations -
Net investment income....................................... 0.27
Net realized and unrealized gain (loss) on investments...... 0.66
-------
Total from investment operations.......................... 0.93
Less distributions -
Dividends from net investment income........................ (0.39)
Distributions from net realized capital gains............... (0.03)
-------
Total distributions....................................... (0.42)
-------
Net asset value, end of period............................... $ 10.66
=======
Total return (%)............................................. 9.1**
Net assets, end of period (000).............................. $16,110
Ratio of operating expenses to average net assets (%)........ 0.65*
Ratio of net investment income to average net assets (%)..... 6.30*
Portfolio turnover rate (%).................................. 34.1**
Without giving effect to the voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%)........................................ 1.76*
The net investment income per share would have been......... $ 0.22
</TABLE>
+Date of effectiveness of the Fund's registration statement under the Securities
Act of 1933, as amended.
*Annualized.
**Not annualized.
Further information about the performance of the Fund is contained in the
Fund's semiannual and annual reports to shareholders, copies of which may be
obtained without charge by writing or telephoning the Trust at the address and
telephone number stated on the cover of this Prospectus.
4
<PAGE>
PRIOR PERFORMANCE
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS)
The information presented below, for the periods indicated, relates to
periods prior to the effectiveness of the Fund's registration statement under
the Securities Act of 1933, as amended (the "1933 Act"). The following
information should be read in conjunction with the financial highlights,
financial statements, and notes thereto that have been audited by Coopers &
Lybrand, L.L.P., independent accountants, whose report thereon appears in the
Fund's 1997 Annual Report, which is incorporated by reference into this
Prospectus and the Statement of Additional Information. The Fund is managed in a
manner that is in all material respects similar to the manner in which it was
managed prior to the effectiveness of its registration statement under the 1933
Act.
<TABLE>
<CAPTION>
January 1, 1997 April 24* through
through March 6, 1997 December 31, 1996
---------------------- ------------------
<S> <C> <C>
Net asset value, beginning of period......................... $ 10.14 $ 10.00
Income from investment operations -
Net investment income..................................... 0.12 0.40
Net realized and unrealized gain (loss) on investments.... (0.11) 0.13
-------- --------
Total from investment operations......................... 0.01 0.53
Less dividends from net investment income.................... 0.00 (0.39)
-------- --------
Net asset value, end of period............................... $ 10.15 $ 10.14
======== ========
Total return (%)............................................. 0.1*** 5.3***
Net assets, end of period (000).............................. $ 6,280 $ 6,271
Ratio of operating expenses to average net assets (%)........ 0.65** 0.65**
Ratio of net investment income to average net assets (%)..... 6.62** 6.21**
Portfolio turnover rate (%).................................. 33.4*** 33.8***
Without giving effect to the voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%)........................................ 2.12** 1.46**
The net investment income per share would have been......... $ 0.09 $ 0.35
</TABLE>
* Commencement of operations.
**Annualized.
***Not annualized.
5
<PAGE>
THE TRUST
The Fund is a series of the Trust. The Trust is a diversified open-end
management investment company which was organized as a Massachusetts business
trust on December 23, 1993. 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 (the "Trustees") and to cast a vote
for each share held (with a fractional vote for each fractional 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 Trustees.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is high total return through a combination
of current income and capital appreciation.
The Fund seeks to attain its objective by investing primarily in fixed
income securities issued or guaranteed by the U.S. Government or its agencies,
certain types of mortgage-related and asset-backed securities (including
interest-only and principal-only ("IOs" and "POs") classes of mortgage-backed
securities), and investment grade corporate and sovereign debt obligations.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in fixed income securities. All securities will be denominated in U.S.
dollars.
U.S. Government Securities include obligations issued or guaranteed by the
U.S. Government or its authorities, agencies or instrumentalities and
certificates representing undivided interests in the interest or principal of
U.S. Treasury Securities. U.S. Government Securities will be held for the
purpose of maintaining high average portfolio quality, providing sufficient
liquidity and controlling interest rate exposure.
The Fund normally will maintain a significant portion of its assets in
investment grade corporate bonds and mortgage-related securities in order to
provide a high level of current income. In order to attain capital appreciation,
the Fund seeks to identify and select those corporate and sovereign debt
obligations undergoing credit improvement which is likely to result in a credit
rating upgrade. The Fund may invest in corporate and sovereign debt securities
that are rated at least investment grade by both Standard & Poor's (BBB-) and
Moody's Investor Service, Inc. (Baa3), or if unrated, determined to be of
comparable quality by Loomis Sayles. In the event, however, that the credit
rating of a security held by the Fund falls below investment grade (or, in the
case of unrated securities, Loomis Sayles determines that the quality of such
security has deteriorated below investment grade), the Fund will not be
obligated to dispose of such security and may continue to hold such security, if
in the opinion of Loomis Sayles, such investment is considered appropriate in
the circumstances. Collateralized mortgage obligations ("CMOs") will be limited
to those with CMO market risk ratings of V-1 to V-4 from Fitch Investors
Service, L.P. ("Fitch"), or CMOs unrated by Fitch that are determined by Loomis
Sayles to be of comparable volatility.
Some of the Fund's investment restrictions are "fundamental" and cannot be
changed without a majority vote of the Fund's shareholders. Such restrictions
include: (1) a restriction prohibiting the Fund from making loans; (2) a
restriction prohibiting the Fund from purchasing a 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; (3) a
restriction prohibiting the Fund from borrowing 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, and from borrowing any money except as a temporary measure
for extraordinary or emergency purposes; and (4) a restriction prohibiting the
Fund from purchasing any illiquid security including a 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 security. For additional
investment restrictions, see the Statement of Additional Information.
Although authorized to invest in restricted securities, the Fund, as a
matter of nonfundamental operating policy, currently does not intend to invest
in such securities, other than Rule 144A securities. Rule 144A securities are
privately offered securities that can be resold only to certain qualified
institutional buyers. Rule 144A securities are treated as
6
<PAGE>
illiquid, unless Loomis Sayles has determined, under guidelines established by
the Trustees, that the particular issue of Rule 144A securities is liquid.
The investment objective of the Fund is "fundamental" and cannot be changed
without a majority vote of the Fund's shareholders. All investment policies
other than those that are identified as "fundamental" may be changed by the
Trustees without a vote of the Fund's shareholders.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
The net asset value of the Fund's shares will vary as a result of changes
in the value of securities in the Fund's portfolio. The following describes the
types of securities in which the Fund will principally invest and the risks
associated with them. Additional information about the Fund's investment
practices can be found in the Statement of Additional Information.
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. Fixed income
securities include securities issued by federal, state, local and foreign
governments and related agencies, and by a wide range of foreign and domestic
private issuers. The Fund may also invest in other debt securities that pay a
rate of interest or dividends that is adjusted periodically by reference to some
specified index or market rate. Such securities are included within the
definition of fixed income securities as used in this Prospectus other than for
purposes of determining compliance with the Fund's investment policy of
investing, under normal market conditions, at least 65% of its total assets in
fixed income securities. Because interest rates vary, it is impossible to
predict the income of the Fund for any particular period.
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. Generally, the longer the maturity of a fixed income security, the
greater the fluctuations in its value because of market and credit risk.
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 will fluctuate as interest rates change. Thus, for
example, the value of an investment in U.S. Government Securities may fall
during times of rising interest rates. Yields on U.S. Government Securities tend
to be lower than those of other fixed income securities of comparable
maturities.
Some U.S. Government Securities, such as Government National Mortgage
Association Certificates, are known as "mortgage-backed" securities representing
interests in "pools" of mortgage loans secured by residential or commercial real
property. 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. See
"Collateralized Mortgage Obligations" below for additional information regarding
the risks associated with mortgage-backed securities.
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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. Treasury securities. These investment instruments may
be highly volatile.
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 zero coupon
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 be forced
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 generally more volatile than that of non-zero
coupon fixed income securities of comparable quality and maturity.
COLLATERALIZED MORTGAGE OBLIGATIONS
- -----------------------------------
The Fund may invest in collateralized mortgage obligations ("CMOs"). A CMO
is a limited recourse security backed by a portfolio of mortgages or, more
typically, by mortgage-backed securities held under an indenture. CMOs may be
issued by instrumentalities of the U.S. Government or by non-governmental
entities. The issuer's obligation to make interest and principal payments is
derived from and 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 payments on the underlying collateral or a combination
thereof. CMOs of different classes or series 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. A faster than
anticipated rate of prepayments will generally result in losses on CMOs
representing interests in the interest payments on the underlying portfolio of
mortgage-backed securities. 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 interest rate paid by the retired CMO. Because of the early retirement
feature, CMOs may be more volatile than many other fixed income investments. In
addition, slower than anticipated prepayments on the underlying mortgages can
extend the effective maturities of CMOs, subjecting them to a greater risk of
decline in market value in response to rising interest rates than traditional
debt securities. The Fund will invest only in CMOs with Fitch ratings of V-4 or
better, or in CMOs unrated by Fitch that are determined by Loomis Sayles to be
of comparable volatility. Even CMOs with ratings reflecting the lowest market
risk are likely to experience losses in the event of adverse changes in market
conditions.
COMMERCIAL MORTGAGE-BACKED SECURITIES
- -------------------------------------
The Fund may invest in commercial mortgage-backed securities. Commercial
mortgage-backed securities are securities that represent an interest in, or are
secured by, mortgage loans secured by commercial property, such as industrial
and warehouse properties, office buildings, retail space and shopping malls,
multifamily properties and cooperative apartments, hotels and motels, nursing
homes, hospitals, and senior living centers. The commercial mortgage-backed
securities market is newer and in terms of total outstanding principal amount of
issues is relatively small compared to the total size of the market for
residential mortgage-backed securities.
Commercial mortgage-backed securities are generally structured similarly to
pass-through securities or to CMOs, although other structures are possible. They
may pay fixed or adjustable rates of interest. Commercial mortgage-backed
securities have been issued in public or private transactions by a variety of
public and private issuers.
The commercial mortgage loans that underlie commercial mortgage-backed
securities have certain distinct risk characteristics. Commercial mortgage loans
generally lack standardized terms, which may complicate their structure.
Commercial properties themselves tend to be unique and are more difficult to
value than single-family residential properties. Commercial mortgage loans also
tend to have shorter maturities than residential mortgage loans, and may not be
fully amortizing, meaning that they have a significant principal balance, or
"balloon" payment, due on maturity. Assets underlying commercial mortgage-backed
securities may relate only to a few properties or a single property. The risk
8
<PAGE>
involved in single property financings is highly concentrated. In addition,
commercial properties, particularly industrial and warehouse properties, are
subject to environmental risks and the burdens and costs of compliance with
environmental laws and regulations.
STRIPPED MORTGAGE-BACKED SECURITIES
- -----------------------------------
The Fund may invest in interest-only and principal-only ("IOs" and "POs")
classes of mortgage-backed securities. The yield to maturity on an IO or PO
class of stripped mortgage-backed securities 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.
In either event, 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.
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 issued. If the value of the security being purchased falls
between the time the Fund commits to buy it and the payment date, the Fund may
sustain a loss. The risk of this loss is in addition to the Fund's risk of loss
on the securities actually held in its portfolio at the time. 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
the 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.
FOREIGN SECURITIES
- ------------------
The Fund may invest in dollar-denominated securities of issuers organized
or headquartered outside the United States ("foreign securities"). The Fund will
not purchase a foreign security (for purposes of this limitation securities of
Canadian issuers publicly traded in the United States will not be treated as
foreign securities) if, as a result, the Fund's total holdings of foreign
securities would exceed 20% of the Fund's total assets. The Fund's portfolio
securities will principally trade on U.S. exchanges or will be purchased and
sold in U.S. markets.
Foreign securities may present risks not associated with investments in
comparable securities of U.S. issuers. There may be less information publicly
available about a foreign corporate or governmental issuer than about a U.S.
issuer, and foreign 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 foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions and securities custody costs are often higher than in the
United States. With respect to certain foreign 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 foreign
government securities may depend on the availability of tax or other revenues to
satisfy the issuer's obligations. The remedies of the Fund may be extremely
limited if a foreign issuer defaults on its obligations. In addition, the
operations and results of foreign issuers and domestic issuers with operations
abroad may be affected by currency exchange rate fluctuations or exchange
control regulations.
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The Fund's investments in foreign 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
considerations regarding foreign 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.
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 has advised the Fund that it is reviewing all of its 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 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.
In addition to selecting and reviewing the Fund's investments, Loomis
Sayles provides executive and other personnel for the management of the Fund.
The Trustees supervise Loomis Sayles's conduct of the affairs of the Fund.
The portfolio manager for the Fund since its inception has been William F.
Camp. Mr. Camp is a Vice President of Loomis Sayles and joined the firm in 1995.
Previously, Mr. Camp worked as a portfolio manager in the pension department of
Kmart Corporation.
FUND EXPENSES
The Fund pays Loomis Sayles a monthly investment advisory fee. This fee is
paid at the annual rate of .50% of the Fund's average daily net assets.
In addition to the investment advisory fee, the Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees
of the Fund's custodian, independent accountants and legal counsel and fees of
the Trustees who are not directors, officers or employees of Loomis Sayles or
its affiliated companies.
Loomis Sayles has voluntarily undertaken for an indefinite period to waive
its fees and, to the extent necessary, to bear other Fund expenses in order to
limit the Fund's annualized total operating expenses to .65% of average annual
net assets.
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PORTFOLIO TRANSACTIONS
Loomis Sayles selects brokers and dealers to execute portfolio transactions
for the Fund. Portfolio turnover considerations will not limit Loomis Sayles's
investment discretion in managing the Fund's assets. The Fund anticipates that
its portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. High portfolio turnover may
result in higher costs such as higher brokerage commissions and higher levels of
taxable gains. Portfolio turnover rates for the life of the Fund are set forth
above under the headings "Financial Highlights" and "Prior Performance." See
"Dividends, Capital Gain Distributions and Taxes" for information on the tax
consequences of investing in the Fund.
HOW TO PURCHASE SHARES
You may make an initial purchase of shares of the Fund by submitting a
completed application form and payment to Loomis Sayles.
The minimum initial investment in the Fund is $1 million. Subsequent
investments must be at least $50,000. The Trust reserves the right to waive
these minimums in its sole discretion.
Shares of the Fund may be purchased by exchange of (i) cash, (ii)
securities on deposit with a custodian acceptable to Loomis Sayles or (iii) a
combination of such securities and cash. Purchase of shares of the Fund in
exchange for securities is subject in each case to the determination by Loomis
Sayles that the securities to be exchanged are acceptable for purchase by the
Fund. Securities accepted by Loomis Sayles in exchange for Fund shares will be
valued in the same manner as the Fund's assets, as described below, as of the
time of the Fund's next determination of net asset value after such acceptance.
All dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Fund and must be delivered to the Fund upon receipt by the investor from the
issuer. A gain or loss for federal income tax purposes would be realized upon
the exchange by an investor that is subject to federal income taxation,
depending upon the investor's basis in the securities tendered. A shareholder
who wishes to purchase shares by exchanging securities should obtain
instructions by calling (617) 482-2450.
Loomis Sayles will not approve the acceptance of securities in exchange for
shares of the Fund unless (1) Loomis Sayles, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the 1933 Act or otherwise; and (3) the
securities are eligible to be acquired under the Fund's investment policies and
restrictions. No investor owning 5% or more of the Fund's shares may purchase
additional Fund shares by the exchange of securities.
Upon acceptance of your order, the Trust opens an account for you, 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, you may send subsequent investments at any time.
The Trust reserves the right to reject any purchase order for any reason
which the Trust in its sole discretion deems appropriate. Although the Trust
does not anticipate that it will do so, the Trust reserves the right to suspend
or change the terms of the offering of its shares.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust. Shares of the Fund are
sold without any sales charge. The net asset value of the Fund's shares is
calculated by dividing the Fund's net assets by the number of shares
outstanding. The Fund intends to calculate net asset value daily and as of the
close of the New York Stock Exchange (the "Exchange") on each day on which an
order for purchase or redemption of Fund shares is received and on which the
Exchange is open for unrestricted trading. Portfolio securities are valued at
their market value as more fully described in the Statement of Additional
Information.
HOW TO REDEEM SHARES
You can redeem your shares by sending a written request to the Trust.
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
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<PAGE>
written request in the exact names in which the shares are registered and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity).
The redemption price will be the net asset value per share next determined
after the written redemption request is received by the Trust in proper form.
The Trust usually requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Trust by calling (617) 482-2450 for details.
Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order. If
you purchased your shares by check and your check was deposited less than
fifteen days prior to the redemption request, the Trust may withhold redemption
proceeds until your check has cleared.
Redemption proceeds may be made in money or in kind, or partly in money and
partly in kind, as determined by the Trust.
The Fund may suspend the right of redemption and may postpone payment for
more than seven days when the 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.
OTHER INFORMATION
The Trustees may, without shareholder approval, divide the Trust's shares
of beneficial interest into multiple series. The Trust is currently divided into
seven series, including the Fund and the other funds listed on the cover of this
Prospectus.
As of March 31, 1998, Asbestos Workers Local #84 Pension Plan may be deemed
to control the Fund because it possessed beneficial ownership, directly or
indirectly, of more than 25% of the Fund's shares.
The Fund's investment performance may from time to time be included in
advertisements about the Fund.
The Fund's yield 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.
Total return for the Fund is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period to the redemption
value of the investment in the Fund at the end of the period (assuming immediate
reinvestment of any dividends or capital gain distributions).
All data are based on the Fund's past investment results and do not predict
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the Fund's portfolio
and the Fund's operating expenses. Investment performance also often reflects
the risks associated with the Fund's investment objectives and policies. These
factors should be considered when comparing the Fund's investment results with
those of other mutual funds and other investment vehicles. Quotations of
investment performance for any period when an expense limitation was in effect
will be greater than if the limitation had not been in effect.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Because the Fund is designed primarily for tax-exempt investors such as
pension plans, endowments and foundations, the Fund is not managed with a view
to reducing taxes. The Fund pays any net investment income to shareholders as
dividends annually. The Fund also distributes all of its net realized capital
gains after applying any capital loss carryovers. Any capital gain distributions
are normally made annually in December, but may, to the extent permitted by law,
be made
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<PAGE>
more frequently as deemed advisable by the Trustees. The Trustees may change the
frequency with which the Fund declares or pays dividends.
Your dividends and capital gain distributions will automatically be
reinvested in additional shares of the Fund on the payment date unless you have
elected to receive cash. Dividends and capital gain distributions will be taxed
as described below whether received in cash or in additional shares.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes all its net investment income and net realized capital gains to its
shareholders on a current basis, the Fund itself does not pay any federal income
or excise tax. The Fund intends to make sufficient distributions to be relieved
of federal taxes.
Income dividends and short-term capital gain distributions are treated as
ordinary income to you 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 but not more than 18 months and from net gains on
securities held for more than 18 months will be taxable as such whether
distributed in cash or additional shares and regardless of how long you have
held your shares. However, any loss recognized by you on the taxable disposition
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gain distribution you received with
respect to the shares.
The Fund is required to withhold 31% of redemption proceeds, income
dividends and capital gain distributions it pays to you (1) if you do not
provide a correct, certified taxpayer identification number, (2) if the Fund is
notified that you have underreported income in the past, or (3) if you fail to
certify to the Fund that you are not subject to such withholding.
In January of each year, the Trust will send you a statement showing the
federal tax status of dividends and distributions paid to you during the
preceding year.
The foregoing summarizes certain U.S. federal income tax consequences of
investing in the Fund. Before investing, you should consult your own tax adviser
for more information concerning the federal, foreign, state and local tax
consequences of investing in, redeeming or exchanging Fund shares.
TRANSFER AND DIVIDEND INVESTMENT ADVISER
PAYING AGENT AND Loomis, Sayles & Company, L.P.
CUSTODIAN OF ASSETS One Financial Center
State Street Bank and Trust Company Boston, Massachusetts 02111
Boston, Massachusetts 02102
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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.
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.
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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
edged." 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 are 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.
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.
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<PAGE>
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 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, and those with the weakest investment attributes are
designated by the symbols Aa3, A3, Baa3, Ba3 and B3.
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17
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LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES CORE GROWTH FUND
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 482-2450
PROSPECTUS
APRIL 22, 1998
The Loomis Sayles Investment Trust (the "Trust") is a group of seven mutual
funds including the Loomis Sayles Core Growth Fund (the "Fund"). The other
series, which are described in separate prospectuses, are:
Loomis Sayles California Tax-Free Income Fund
Loomis Sayles Core Fixed Income Fund
Loomis Sayles Fixed Income Fund
Loomis Sayles High Yield Fixed Income Fund
Loomis Sayles Intermediate Duration Fixed Income Fund
Loomis Sayles Investment Grade Fixed Income Fund
Except for the California Tax-Free Income Fund, the funds are designed
specifically for tax-exempt investors such as pension plans, endowments and
foundations, although other institutions and high net-worth individuals are
eligible to invest. Each of the funds is separately managed and has its own
investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis
Sayles") is the investment adviser of each of the funds.
This Prospectus concisely describes the information that you should know
before investing in the Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated April 22, 1998 is
available free of charge; to obtain a free copy or to make any inquiries about
the Fund write to Loomis Sayles Investment Trust, One Financial Center, Boston,
Massachusetts 02111 or telephone (617) 482-2450. The Statement of Additional
Information, which contains more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus.
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
<TABLE>
<S> <C>
SUMMARY OF EXPENSES............................................ -3-
FINANCIAL HIGHLIGHTS........................................... -4-
PRIOR PERFORMANCE.............................................. -5-
THE TRUST...................................................... -6-
INVESTMENT OBJECTIVE AND POLICIES.............................. -6-
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS.................. -6-
THE FUND'S INVESTMENT ADVISER.................................. -7-
FUND EXPENSES.................................................. -8-
PORTFOLIO TRANSACTIONS......................................... -8-
HOW TO PURCHASE SHARES......................................... -8-
HOW TO REDEEM SHARES........................................... -9-
OTHER INFORMATION.............................................. -9-
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES................ -10-
</TABLE>
2
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist you in understanding the
various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. The information is based on expenses for the Fund's
fiscal year ended December 31, 1997. The information below should not be
considered a representation of past or future expenses, as actual expenses may
be greater or less than those shown. Also, the assumed 5% annual return in the
example should not be considered a representation of investment performance, as
actual performance will depend upon the actual investment results of securities
held in the Fund's portfolio.
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) none
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of
offering price) none
Deferred Sales Load (as a percentage of original
purchase price or redemption
proceeds as applicable) none
Redemption Fees (as a percentage of amount
redeemed) none
Exchange Fees none
Annual Fund Operating Expenses
(as a percentage of average net assets):
Management Fees (after expense
limitation) .50%
12b-1 Fees none
Other Operating Expenses/1/ .15%
Total Fund Operating Expenses (after
expense limitation)/1/ .65%
Example
You 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 $ 7
Three Years $21
Five Years $36
Ten Years $81
</TABLE>
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is for the period March 7, 1997
through December 31, 1997. The following information should be read in
conjunction with the financial highlights, financial statements, and notes
thereto that have been audited by Coopers & Lybrand, L.L.P., independent
accountants, whose report thereon appears in the Fund's 1997 Annual Report,
which is incorporated by reference into this Prospectus and the Statement of
Additional Information.
<TABLE>
<CAPTION>
March 7+ through
December 31, 1997
------------------
<S> <C>
Net asset value, beginning of period......................... $ 12.27
Income from investment operations -
Net investment income....................................... 0.07
Net realized and unrealized gain (loss) on investments...... 0.92
----------
Total from investment operations........................... 0.99
Less distributions -
Dividends from net investment income........................ (0.10)
Distributions from net realized capital gains............... (0.90)
----------
Total distributions........................................ (1.00)
----------
Net asset value, end of period............................... $ 12.26
==========
Total return (%)............................................. 8.2**
Net assets, end of period (000).............................. $ 38,544
Ratio of operating expenses to average net assets (%)........ 0.65*
Ratio of net investment income to average net assets (%)..... 0.81*
Portfolio turnover rate (%).................................. 91.1**
Average commission rate...................................... $0.0596***
Without giving effect to the voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%)........................................ 0.90*
The net investment income per share would have been......... $ 0.05
</TABLE>
+Date of effectiveness of the Fund's registration statement under the Securities
Act of 1933, as amended.
*Annualized.
**Not annualized.
***For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for trades upon which
commissions are charged. This rate generally does not reflect mark-ups, mark-
downs or spreads on shares traded on a principal basis.
Further information about the performance of the Fund is contained in the
Fund's semiannual and annual reports to shareholders, copies of which may be
obtained without charge by writing or telephoning the Trust at the address and
telephone number stated on the cover of this Prospectus.
4
<PAGE>
PRIOR PERFORMANCE
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS)
The information presented below, for the periods indicated, relates to
periods prior to the effectiveness of the Fund's registration statement under
the Securities Act of 1933, as amended (the "1933 Act"). The following
information should be read in conjunction with the financial highlights,
financial statements, and notes thereto that have been audited by Coopers &
Lybrand, L.L.P., independent accountants, whose report thereon appears in the
Fund's 1997 Annual Report, which is incorporated by reference into this
Prospectus and the Statement of Additional Information. The Fund is managed in a
manner that is in all material respects similar to the manner in which it was
managed prior to the effectiveness of its registration statement under the 1933
Act.
<TABLE>
<CAPTION>
October 1*
January 1, 1997 Year Ended
through March 6, December 31, December 31,
1997 1996 1995
----------- ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 11.48 $ 10.02 $ 10.00
Income from investment operations -
Net investment income....................................... 0.03 0.10 0.02
Net realized and unrealized gain (loss) on investments...... 0.76 1.47 0.02
-------- --------- ---------
Total from investment operations.......................... 0.79 1.57 0.04
-------- --------- ---------
Less distributions -
Dividends from net investment income........................ 0.00 (0.11) (0.02)
Net asset value, end of period.............................. $ 12.27 $ 11.48 $ 10.02
======== ========= =========
Total return (%)............................................ 6.9*** 15.6 0.4***
Net assets, end of period (000)............................. $ 25,885 $ 21,906 $ 7,609
Ratio of operating expenses to average net assets (%)....... 0.65** 0.65 0.65**
Ratio of net investment income to
average net assets (%)................................... 1.21** 1.10 1.36**
Portfolio turnover rate (%)................................. 16.8*** 96.5 22.4***
Average commission rate..................................... 0.0557 + $0.0278 + -----
Without giving effect to the voluntary expense
limitation:
The ratio of operating expenses to
average net assets would have been (%)............. 0.83** 0.89 1.43**
The net investment income per share would have been.. $ 0.02 $ 0.08 $ 0.01
</TABLE>
* Commencement of operations.
**Annualized.
***Not annualized.
+For fiscal years beginning on or after September 1, 1995, the Fund is required
to disclose its average commission rate per share for trades upon which
commissions are charged. This rate generally does not reflect mark-ups, mark-
downs, or spreads on shares traded on a principal basis.
5
<PAGE>
THE TRUST
The Fund is a series of the Trust. The Trust is a diversified open-end
management investment company which was organized as a Massachusetts business
trust on December 23, 1993. 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 (the "Trustees") and to cast a vote
for each share held (with a fractional vote for each fractional 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 Trustees.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital.
The Fund seeks to attain its objective by identifying, and investing in the
common stock of, companies that will report above average and better than
consensus earnings growth over several years. Under normal market conditions,
the Fund will invest at least 65% of its total assets in common stocks and other
equity securities. While this approach will often lead to investing in
"traditional" growth companies, it may also encompass investments in such areas
as revitalized industries, restructured companies and cyclically sensitive
companies at the early stages of an economic advance. In addition to superior
earnings prospects, the Fund looks for companies undergoing qualitative
improvement likely to result in an upgraded valuation. Although such companies
may present greater opportunity for capital appreciation, investors should be
aware that greater risk may be associated with investments in such companies
than with equity securities generally. The Fund may also invest in securities
issued or guaranteed by the U.S. Government, its authorities, agencies or
instrumentalities and certificates representing undivided interests in the
interest or principal of U.S. Treasury securities (collectively, "U.S.
Government Securities"), when-issued securities, convertible securities and zero
coupon bonds.
Some of the Fund's investment restrictions are "fundamental" and cannot be
changed without a majority vote of the Fund's shareholders. Such restrictions
include: (1) a restriction prohibiting the Fund from making loans; (2) a
restriction prohibiting the Fund from purchasing a 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; (3) a
restriction prohibiting the Fund from borrowing 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, and from borrowing any money except as a temporary measure
for extraordinary or emergency purposes; and (4) a restriction prohibiting the
Fund from purchasing any illiquid security including a 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. For additional
investment restrictions, see the Statement of Additional Information.
Although authorized to invest in restricted securities, the Fund, as a
matter of nonfundamental operating policy, currently does not intend to invest
in such securities, other than Rule 144A securities. Rule 144A securities 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 Trustees, that
the particular issue of Rule 144A securities is liquid.
The investment objective of the Fund is "fundamental" and cannot be changed
without a majority vote of the Fund's shareholders. All investment policies
other than those that are identified as "fundamental" may be changed by the
Trustees without a vote of the Fund's shareholders.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
6
<PAGE>
The net asset value of the Fund's shares will vary as a result of changes
in the value of securities in the Fund's portfolio. The following describes the
securities in which the Fund will principally invest and the risks associated
with them. Additional information about the Fund's investment practices can be
found in the Statement of Additional Information.
EQUITY SECURITIES
- -----------------
While offering greater potential for long-term growth, equity securities
are more volatile and more risky than some other forms of investment. The Fund's
investments may include securities traded "over-the-counter" as well as those
traded on a securities exchange. Some over-the-counter securities may be more
difficult to sell under some market conditions.
SMALL COMPANIES
- ---------------
The Fund may invest in the securities of companies with smaller
capitalization. Investments in companies with relatively small capitalization
may involve greater risk than is usually associated with more established
companies. These companies often have sales and earnings growth rates which
exceed those of companies with larger capitalization. Such growth rates may in
turn be reflected in more rapid share price appreciation. However, companies
with smaller capitalization often have limited product lines, markets or
financial resources and they may be dependent upon a relatively small management
group. The securities may have limited marketability and may be subject to more
abrupt or erratic movements in price than securities of companies with larger
capitalization or the market averages in general. The net asset value of funds
that invest in companies with small capitalization therefore may fluctuate more
widely than market averages.
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 issued. 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. If the 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.
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 has advised the Fund that it is reviewing all of its 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.
7
<PAGE>
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.
In addition to selecting and reviewing the Fund's investments, Loomis
Sayles provides executive and other personnel for the management of the Fund.
The Board of Trustees supervises Loomis Sayles's conduct of the affairs of the
Fund.
The portfolio manager for the Fund since inception has been Quentin P.
Faulkner. Mr. Faulkner is a Vice President of Loomis Sayles and a Managing
Partner of its Boston Counseling Group office.
FUND EXPENSES
The Fund pays Loomis Sayles a monthly investment advisory fee. This fee is
paid at the annual rate of .50% of the Fund's average daily net assets.
In addition to the investment advisory fee, the Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees
of the Fund's custodian, independent accountants and legal counsel and fees of
the Trustees who are not directors, officers or employees of Loomis Sayles or
its affiliated companies.
Loomis Sayles has voluntarily undertaken for an indefinite period to waive
its fees and, to the extent necessary, to bear other Fund expenses in order to
limit the Fund's total operating expenses to .65% of average annual net assets.
PORTFOLIO TRANSACTIONS
Loomis Sayles selects brokers and dealers to execute portfolio transactions
for the Fund. Portfolio turnover considerations will not limit Loomis Sayles's
investment discretion in managing the Fund's assets. The Fund anticipates that
its portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. High portfolio turnover may
result in higher costs such as higher brokerage commissions and higher levels of
taxable gains. Portfolio turnover rates for the life of the Fund are set forth
above under the headings "Financial Highlights" and "Prior Performance." See
"Dividends, Capital Gain Distributions and Taxes" for information on the tax
consequences of investing in the Fund.
HOW TO PURCHASE SHARES
You may make an initial purchase of shares of the Fund by submitting a
completed application form and payment to Loomis Sayles. The minimum initial
investment in the Fund is $2,500,000. Subsequent investments must be at least
$50,000. The Trust reserves the right to waive these minimums in its sole
discretion.
Shares of the Fund may be purchased by exchange of (i) cash, (ii)
securities on deposit with a custodian acceptable to Loomis Sayles or (iii) a
combination of such securities and cash. Purchase of shares of the Fund in
exchange for securities is subject in each case to the determination by Loomis
Sayles that the securities to be exchanged are acceptable for purchase by the
Fund. Securities accepted by Loomis Sayles in exchange for Fund shares will be
valued in the same manner as the Fund's assets, as described below, as of the
time of the Fund's next determination of net asset value after such acceptance.
All dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Fund and must be delivered to the Fund upon receipt by the investor from the
issuer. A gain or loss for federal income tax purposes would be realized upon
the exchange of any securities tendered. A shareholder who wishes to purchase
shares by exchanging securities should obtain instructions by calling (617) 482-
2450.
8
<PAGE>
Loomis Sayles will not approve the acceptance of securities in exchange for
shares of the Fund unless (1) Loomis Sayles, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the 1933 Act or otherwise; and (3) the
securities are eligible to be acquired under the Fund's investment policies and
restrictions. No investor owning 5% or more of the Fund's shares may purchase
additional Fund shares by the exchange of securities.
Upon acceptance of your order, the Trust opens an account for you, 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, you may send subsequent investments at any time.
The Trust reserves the right to reject any purchase order for any reason
which the Trust in its sole discretion deems appropriate. Although the Trust
does not anticipate that it will do so, the Trust reserves the right to suspend
or change the terms of the offering of its shares.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust. Shares of the Fund are
sold without any sales charge. The net asset value of the Fund's shares is
calculated by dividing the Fund's net assets by the number of shares
outstanding. Net asset value is calculated at least weekly and as of the close
of the New York Stock Exchange (the "Exchange") on each day on which an order
for purchase or redemption of Fund shares is received and on which the Exchange
is open for unrestricted trading. Portfolio securities are valued at their
market value as more fully described in the Statement of Additional Information.
HOW TO REDEEM SHARES
You can redeem your shares by sending a written request to the Trust.
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
written request in the exact names in which the shares are registered and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity).
The redemption price will be the net asset value per share next determined
after the written redemption request is received by the Trust in proper form.
The Trust usually requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Trust by calling (617) 482-2450 for details.
Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order. If
you purchased your shares by check and your check was deposited less than
fifteen days prior to the redemption request, the Trust may withhold redemption
proceeds until your check has cleared.
Redemption proceeds may be made in money or in kind, or partly in money and
partly in kind, as determined by the Trust.
The Fund may suspend the right of redemption and may postpone payment for
more than seven days when the 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.
OTHER INFORMATION
The Board of Trustees may, without shareholder approval, divide the Trust's
shares of beneficial interest into multiple series. The Trust is currently
divided into seven series, including the Fund and the other funds listed on the
cover of this Prospectus.
9
<PAGE>
As of March 31, 1998, Brockton Health Corp. Endowment may be deemed to
control the Fund because it possessed beneficial ownership, either directly or
indirectly, of more than 25% of the Fund's shares.
The Fund's investment performance may from time to time be included in
advertisements about the Fund.
Total return for the Fund is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period to the redemption
value of the investment in the Fund at the end of the period (assuming immediate
reinvestment of any dividends or capital gain distributions).
All data are based on the Fund's past investment results and do not predict
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the Fund's portfolio
and the Fund's operating expenses. Investment performance also often reflects
the risks associated with the Fund's investment objectives and policies. These
factors should be considered when comparing the Fund's investment results with
those of other mutual funds and other investment vehicles. Quotations of
investment performance for any period when an expense limitation was in effect
will be greater than if the limitation had not been in effect.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Because the Fund is designed primarily for tax-exempt investors such as
pension plans, endowments and foundations, the Fund is not managed with a view
to reducing taxes. The Fund pays any net investment income to shareholders as
dividends annually. Any capital gain distributions are normally made annually in
December, but may, to the extent permitted by law, be made more frequently as
deemed advisable by the Trustees. The Fund distributes all of its net realized
capital gains after applying any capital loss carryovers. The Trustees may
change the frequency with which the Fund declares or pays dividends.
Your dividends and capital gain distributions will automatically be
reinvested in additional shares of the Fund on the payment date unless you have
elected to receive cash. Dividends and capital gain distributions will be taxed
as described below whether received in cash or in additional shares.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes substantially all its net investment income and net realized capital
gains to its shareholders on a current basis, the Fund itself does not pay any
federal income or excise tax. The Fund intends to make sufficient distributions
to be relieved of federal taxes.
Income dividends and short-term capital gain distributions are treated as
ordinary income to you 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 but not more than 18 months and from net gains on
securities held for more than 18 months will be taxable as such whether
distributed in cash or additional shares and regardless of how long you have
held your shares. However, any loss recognized by you on the taxable disposition
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain distribution you received with respect to
the shares.
A portion of any dividend from the Fund is expected to be eligible for the
dividends-received deduction for corporate shareholders.
The Trust will send you an annual statement showing the federal tax status
of dividends and distributions paid to you during the preceding year.
The Fund is required to withhold 31% of redemption proceeds, income
dividends and capital gain distributions it pays to you (1) if you do not
provide a correct, certified taxpayer identification number, (2) if the Fund is
notified that you have underreported income in the past, or (3) if you fail to
certify to the Fund you are not subject to such withholding.
The foregoing summarizes certain U.S. federal income tax consequences of
investing in the Fund. Before investing, you should consult your own tax adviser
for more information concerning the federal, foreign, state and local tax
consequences of investing in, redeeming or exchanging Fund shares.
10
<PAGE>
TRANSFER AND DIVIDEND INVESTMENT ADVISER
PAYING AGENT AND Loomis, Sayles & Company, L.P.
CUSTODIAN OF ASSETS One Financial Center
State Street Bank and Trust Company Boston, Massachusetts 02111
Boston, Massachusetts 02102
11
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES FIXED INCOME FUND
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 482-2450
PROSPECTUS
APRIL 22, 1998
The Loomis Sayles Investment Trust (the "Trust") is a group of seven mutual
funds including the Loomis Sayles Fixed Income Fund (the "Fund"). The other
series, which are described in separate prospectuses, are:
Loomis Sayles California Tax-Free Income Fund
Loomis Sayles Core Fixed Income Fund
Loomis Sayles Core Growth Fund
Loomis Sayles High Yield Fixed Income Fund
Loomis Sayles Intermediate Duration Fixed Income Fund
Loomis Sayles Investment Grade Fixed Income Fund
Except for the California Tax-Free Income Fund, the funds are designed
specifically for tax-exempt investors such as pension plans, endowments and
foundations, although other institutions and high net-worth individuals are
eligible to invest. Each of the funds is separately managed and has its own
investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis
Sayles") is the investment adviser of each of the funds.
This Prospectus concisely describes the information that you should know
before investing in the Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated April 22, 1998 is
available free of charge; to obtain a free copy or to make any inquiries about
the Fund write to Loomis Sayles Investment Trust, One Financial Center, Boston,
Massachusetts 02111 or telephone (617) 482-2450. The Statement of Additional
Information, which contains more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus.
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
<TABLE>
<S> <C>
SUMMARY OF EXPENSES...................................................... -3-
FINANCIAL HIGHLIGHTS..................................................... -4-
PRIOR PERFORMANCE........................................................ -5-
THE TRUST................................................................ -6-
INVESTMENT OBJECTIVE AND POLICIES........................................ -6-
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS............................ -7-
THE FUND'S INVESTMENT ADVISER............................................ -11-
FUND EXPENSES............................................................ -12-
PORTFOLIO TRANSACTIONS................................................... -12-
HOW TO PURCHASE SHARES................................................... -12-
HOW TO REDEEM SHARES..................................................... -13-
OTHER INFORMATION........................................................ -13-
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES.......................... -14-
APPENDIX A............................................................... A-1
</TABLE>
-2-
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist you in understanding the
various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. The information is based on expenses for the Fund's
fiscal year ended December 31, 1997. The information below should not be
considered a representation of past or future expenses, as actual expenses may
be greater or less than those shown. Also, the assumed 5% annual return in the
example should not be considered a representation of investment performance, as
actual performance will depend upon the actual investment results of securities
held in the Fund's portfolio.
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) none
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of
offering price) none
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable) none
Redemption Fees (as a percentage of
amount redeemed) none
Exchange Fees none
Annual Fund Operating Expenses
(as a percentage of average net assets):
Management Fees (after expense limitation)/1/ .50%
12b-1 Fees none
Other Operating Expenses (after expense limitation)/1/ .15%
Total Fund Operating Expenses (after expense limitation)/1/ .65%
</TABLE>
<TABLE>
<S> <C>
Example
You 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 $ 7
Three Years $ 21
Five Years $ 36
Ten Years $ 81
</TABLE>
_____________________
/1/ Loomis Sayles has voluntarily undertaken for an indefinite period to
limit the Fund's total Fund operating expenses to the percentage of average net
assets shown above. In the absence of the voluntary expense limitation, Other
Operating Expenses and Total Fund Operating Expenses for the fiscal year ended
December 31, 1997 would have been 0.20% and 0.70%, respectively.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is for the period March 7,
1997 through December 31, 1997. The following information should be read in
conjunction with the financial highlights, financial statements, and notes
thereto that have been audited by Coopers & Lybrand, L.L.P., independent
accountants, whose report thereon appears in the Fund's 1997 Annual Report,
which is incorporated by reference into this Prospectus and the Statement of
Additional Information.
<TABLE>
<CAPTION>
March 7+ through
December 31, 1997
-----------------
<S> <C>
Net asset value, beginning of period......................... $ 12.26
Income from investment operations -
Net investment income....................................... 0.53
Net realized and unrealized gain (loss) on investments...... 0.90
--------
Total from investment operations........................... 1.43
Less distributions -
Dividends from net investment income........................ (0.75)
Distributions from net realized capital gains............... (0.35)
--------
Total distributions........................................ (1.10)
Net asset value, end of period............................... $ 12.59
========
Total return (%)............................................. 11.7**
Net assets, end of period (000).............................. $173,048
Ratio of operating expenses to average net assets (%)........ 0.65*
Ratio of net investment income to average net assets (%)..... 7.31*
Portfolio turnover rate (%).................................. 38.2**
Without giving effect to the voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%)........................................ 0.71*
The net investment income per share would have been.......... $ 0.53
</TABLE>
+Date of effectiveness of the Fund's registration statement under the
Securities Act of 1933, as amended.
*Annualized.
**Not annualized.
Further information about the performance of the Fund is contained in
the Fund's semiannual and annual reports to shareholders, copies of which may be
obtained without charge by writing or telephoning the Trust at the address and
telephone number stated on the cover of this Prospectus.
-4-
<PAGE>
PRIOR PERFORMANCE
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS)
The information presented below, for the periods indicated, relates to
periods prior to the effectiveness of the Fund's registration statement under
the Securities Act of 1933, as amended (the "1933 Act"). The following
information should be read in conjunction with the financial highlights,
financial statements, and notes thereto that have been audited by Coopers &
Lybrand, L.L.P., independent accountants, whose report thereon appears in the
Fund's 1997 Annual Report, which is incorporated by reference into this
Prospectus and the Statement of Additional Information. The Fund is managed in
a manner that is in all material respects similar to the manner in which it was
managed prior to the effectiveness of its registration statement under the 1933
Act.
<TABLE>
<CAPTION>
January 17*
January 1, 1997 Year Ended through
through March 6, December 31, December 31,
1997 1996 1995
----------------- ------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period....................... $ 12.08 $ 12.08 $ 10.00
Income from investment operations -
Net investment income................................... 0.19 0.91 0.53
Net realized and unrealized gain (loss) on investments.. (0.01) 0.27 2.21
------- ------- -------
Total from investment operations...................... 0.18 1.18 2.74
------- ------- -------
Less distributions -
Dividends from net investment income.................... 0.00 (0.90) (0.52)
Distributions from net realized capital gains........... 0.00 (0.28) (0.14)
Total distributions................................... 0.00 (1.18) (0.66)
------- ------- -------
Net asset value, end of period............................. $ 12.26 $ 12.08 $ 12.08
======= ======= =======
Total return (%)........................................... 1.5*** 9.8 27.4***
Net assets, end of period (000)............................ $97,132 $91,746 $58,332
Ratio of operating expenses to average net assets (%)...... 0.65** 0.62 0.75**
Ratio of net investment income to
average net assets (%).................................. 9.00** 7.97 8.15**
Portfolio turnover rate (%)................................ 2.2*** 90.4 76.0***
Without giving effect to the voluntary expense
limitation:
The ratio of operating expenses to
average net assets would have been (%)............... 0.65** 0.62 0.83**
The net investment income per share would have been.... $ 0.19 $ 0.91 $ 0.52
</TABLE>
-5-
<PAGE>
*Commencement of operations.
**Annualized.
***Not annualized.
THE TRUST
The Fund is a series of the Trust. The Trust is a diversified open-
end management investment company which was organized as a Massachusetts
business trust on December 23, 1993. 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 (the
"Trustees") and to cast a vote for each share held (with a fractional vote for
each fractional 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 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 attain its objective by normally investing
substantially all of its assets in a broad range of debt securities, although up
to 20% of its assets may be invested in preferred stocks. These debt securities
may include corporate securities, securities issued or guaranteed by the U.S.
Government, its authorities, agencies or instrumentalities or certificates
representing undivided interests in the interest or principal of U. S. Treasury
securities ("U.S. Government Securities"), zero coupon securities,
collateralized mortgage securities, interest-only and principal-only ("IOs" and
"POs") classes of stripped mortgage-backed securities, convertible bonds and
when-issued securities, which are described herein (together with their related
risks) under "More Information About the Fund's Investments." Under normal
market conditions, the Fund will invest at least 65% of its total assets in
fixed income securities. The Fund may invest any portion of its assets in
securities of Canadian issuers, and a limited portion of its assets in
securities of other foreign issuers. See "More Information About the Fund's
Investments; Foreign Securities."
The Fund may invest up to 35% of its assets in securities of below
investment grade quality, which are securities rated below BBB by Standard &
Poor's ("S&P") and below Baa by Moody's Investors Service, Inc. ("Moody's"), and
in unrated securities determined by Loomis Sayles to be of comparable quality.
Securities of below investment grade quality are commonly referred to as "junk
bonds." See "More Information About the Fund's Investments; Lower Rated Fixed
Income Securities." The Fund may continue to hold securities that are
downgraded in quality subsequent to their purchase if, in the opinion of Loomis
Sayles, it would be advantageous to do so.
The percentages of the Fund's net assets invested during the fiscal year ended
December 31, 1997 in securities assigned to the various rating categories by S&P
and Moody's on a dollar-weighted basis were approximately as follows: "AAA"/
"Aaa," 19.7%; "AA"/"Aa," 7.5%; "A"/"A," 13.1%; "BBB"/"Baa," 29.0%; "BB"/"Ba,"
21.0%; "B"/"B," 9.7%; and below "B," 0%. The percentage of the Fund's net
assets invested during such fiscal year in unrated debt securities as a group
was approximately 1.47%. The percentages of the Fund's net assets invested
during such fiscal year in such unrated securities (categorized by comparable
rating category) were approximately as follows: "AAA"/"Aaa," 0%; "AA"/"Aa," 0%;
"A"/"A," 0.06%; "BBB"/"Baa," 0.29%; "BB"/"Ba," 1.12%; "B"/"B," 0%; and below
"B," 0%.
Some of the Fund's investment restrictions are "fundamental" and
cannot be changed without a majority vote of the Fund's shareholders. Such
restrictions include: (1) a restriction prohibiting the Fund from making loans;
(2) a restriction prohibiting the Fund from purchasing a 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; (3) a
restriction prohibiting the Fund from borrowing 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, and from borrowing any money except as a temporary measure
for extraordinary or emergency purposes; and (4) a restriction prohibiting the
Fund from purchasing any illiquid security including a security that is not
readily marketable if, as a result, more than 15% of the Fund's net assets based
on current
-6-
<PAGE>
value would then be invested in such security. For additional investment
restrictions, see the Statement of Additional Information.
Although authorized to invest in restricted securities, the Fund, as a
matter of nonfundamental operating policy, currently does not intend to invest
in such securities, other than Rule 144A securities. Rule 144A securities 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 Trustees, that
the particular issue of Rule 144A securities is liquid.
The investment objective of the Fund is "fundamental" and cannot be
changed without a majority vote of the Fund's shareholders. All investment
policies other than those that are identified as "fundamental" may be changed by
the Trustees without a vote of the Fund's shareholders.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
The net asset value of the Fund's shares will vary as a result of
changes in the value of securities in the Fund's portfolio. The following
describes the types of securities in which the Fund will principally invest and
the risks associated with them. Additional information about the Fund's
investment practices can be found in the Statement of Additional Information.
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. Fixed income
securities include securities issued by federal, state, local and foreign
governments and related agencies, and by a wide range of foreign and domestic
private issuers. The Fund may also invest in other debt securities that pay a
rate of interest or dividends that is adjusted periodically by reference to some
specified index or market rate. Such securities are included within the
definition of fixed income securities as used in this Prospectus other than for
purposes of determining compliance with the Fund's investment policy of
investing, under normal market conditions, at least 65% of its total assets in
fixed income securities. Because interest rates vary, it is impossible to
predict the income of the Fund for any particular period.
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. Generally, the longer the maturity of a fixed income security,
the greater the fluctuations in its value because of market and credit risk.
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 will fluctuate as interest rates change. Thus,
for example, the value of an investment in U.S. Government Securities may fall
during times of rising interest rates. Yields on U.S. Government Securities tend
to be lower than those of other fixed income securities of comparable
maturities.
Some U.S. Government Securities, such as Government National Mortgage
Association Certificates, are known as "mortgage-backed" securities,
representing interests in "pools" of mortgage loans secured by residential or
commercial
-7-
<PAGE>
real property. 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. See
"Collateralized Mortgage Obligations" below for additional information regarding
the risks associated with mortgage-backed 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. Treasury securities. These investment instruments
may be highly volatile.
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 zero
coupon 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
be forced 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 generally more volatile than that of
non-zero coupon fixed income securities of comparable quality and maturity.
COLLATERALIZED MORTGAGE OBLIGATIONS
- -----------------------------------
The Fund may invest in collateralized mortgage obligations ("CMOs"). A CMO
is a limited recourse security backed by a portfolio of mortgages or, more
typically, by mortgage-backed securities held under an indenture. CMOs may be
issued by instrumentalities of the U.S. Government or by non-governmental
entities. The issuer's obligation to make interest and principal payments is
derived from and 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 payments on the underlying collateral or a combination
thereof. CMOs of different classes or series 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 interest rate paid by the retired
CMO. Because of the early retirement feature, CMOs may be more volatile than
many other fixed income investments. In addition, slower than anticipated
prepayments on the underlying mortgages can extend the effective maturities of
CMOs, subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities.
COMMERCIAL MORTGAGE-BACKED SECURITIES
- -------------------------------------
The Fund may invest in commercial mortgage-backed securities. Commercial
mortgage-backed securities are securities that represent an interest in, or are
secured by, mortgage loans secured by commercial property, such as industrial
and warehouse properties, office buildings, retail space and shopping malls,
multifamily properties and cooperative apartments, hotels and motels, nursing
homes, hospitals, and senior living centers. The commercial mortgage-backed
securities market is newer and in terms of total outstanding principal amount of
issues is relatively small compared to the total size of the market for
residential mortgage-backed securities.
Commercial mortgage-backed securities are generally structured similarly to
pass-through securities or to CMOs, although other structures are possible.
They may pay fixed or adjustable rates of interest. Commercial mortgage-backed
securities have been issued in public or private transactions by a variety of
public and private issuers.
-8-
<PAGE>
The commercial mortgage loans that underlie commercial mortgage-backed
securities have certain distinct risk characteristics. Commercial mortgage
loans generally lack standardized terms, which may complicate their structure.
Commercial properties themselves tend to be unique and are more difficult to
value than single-family residential properties. Commercial mortgage loans also
tend to have shorter maturities than residential mortgage loans, and may not be
fully amortizing, meaning that they have a significant principal balance, or
"balloon" payment, due on maturity. Assets underlying commercial mortgage-backed
securities may relate only to a few properties or a single property. The risk
involved in single property financings is highly concentrated. In addition,
commercial properties, particularly industrial and warehouse properties, are
subject to environmental risks and the burdens and costs of compliance with
environmental laws and regulations. At the same time, commercial mortgage-backed
securities may have a lower prepayment risk than residential mortgage-backed
securities, because commercial mortgage loans generally prohibit or impose
penalties on prepayments of principal. In addition, commercial mortgage-backed
securities often are structured with some form of credit enhancement to protect
against potential losses on the underlying mortgage loans.
STRIPPED MORTGAGE-BACKED SECURITIES
- -----------------------------------
The Fund may invest in interest-only and principal-only ("IOs" and "POs")
classes of mortgage-backed securities. The yield to maturity on an IO or PO
class of stripped mortgage-backed securities 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.
In either event, 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.
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 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
securities of similar credit quality and maturity. The Fund's investments 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 of such securities 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.
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 issued. If the value of the security being purchased falls
between the time the Fund commits to buy it and the payment date, the Fund may
sustain a loss. The risk of this loss is in addition to the Fund's risk of loss
on the securities actually held in its portfolio at the time. When the Fund
buys a security on a when-issued basis, it is subject
-9-
<PAGE>
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 the 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.
LOWER RATED FIXED INCOME SECURITIES
- -----------------------------------
The Fund may invest a portion of its assets in securities rated below
investment grade ("lower rated fixed income securities"), including securities
in the lowest rating categories, and unrated securities determined by Loomis
Sayles to be of comparable 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 speculative with respect to the ability of the issuer
to meet principal and interest payments. Achievement of the Fund's investment
objective through investments in lower rated fixed income securities may be more
dependent on Loomis Sayles's credit analysis than is the case with higher
quality bonds. The market for lower rated fixed income securities may be more
severely affected than other financial markets by economic recession or
substantial interest rate increases. The value and liquidity of lower rated
fixed income securities may be diminished by adverse publicity and investor
perceptions. In addition, legislation that limits the tax benefits to issuers
or holders of taxable lower rated fixed income securities or that limits the
ability of certain categories of financial institutions to invest in these
securities may adversely affect their market value. The secondary market for
lower rated fixed income securities may be less liquid than the secondary market
for higher rated fixed income securities. This lack of liquidity at certain
times may affect the values of these securities and may make the valuation and
sale of these securities by the Fund more difficult. Certain lower rated fixed
income securities do not pay interest on a current basis. However, the Fund
will accrue and distribute this interest on a current basis, and may be required
to sell securities at times when Loomis Sayles would not otherwise deem it
advisable to do so in order to generate cash for distributions. Securities of
below investment grade quality are commonly referred to as "junk bonds."
Securities in the lowest rating categories may be in poor standing or in
default. Investment grade fixed income securities may share some of the
characteristics of lower rated fixed income securities described above.
FOREIGN SECURITIES
- ------------------
The Fund may invest in securities of issuers organized or headquartered
outside the United States ("foreign securities"). The Fund will not purchase a
foreign security (for purposes of this limitation securities of Canadian issuers
publicly traded in the United States will not be treated as foreign securities)
if, as a result, the Fund's total holdings of foreign securities would exceed
20% of the Fund's total assets.
Foreign securities may present risks not associated with investments in
comparable securities of U.S. issuers. There may be less information publicly
available about a foreign corporate or governmental issuer than about a U.S.
issuer, and foreign 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 foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions and securities custody costs are often higher than in the
United States. With respect to certain foreign 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
foreign government securities may depend on the availability of tax or other
revenues to satisfy the issuer's obligations. In addition, the remedies of the
Fund may be extremely limited if a foreign issuer defaults on its obligations.
The Fund's investments in foreign 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
considerations regarding foreign 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,
-10-
<PAGE>
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement procedures.
Since most foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the Fund may be affected favorably
or unfavorably by changes in currency exchange rates or exchange control
regulations and foreign withholding taxes. Changes in the value relative to the
U.S. dollar of a foreign 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 foreign 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.
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 has advised the Fund that it is reviewing all of its 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 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.
In addition to selecting and reviewing the Fund's investments, Loomis
Sayles provides executive and other personnel for the management of the Fund.
The Board of Trustees supervises Loomis Sayles's conduct of the affairs of the
Fund.
-11-
<PAGE>
The portfolio manager for the Fund since its inception has been Daniel J.
Fuss, who has been with Loomis Sayles since 1976 and is head of the Fixed Income
Management Group. Mr. Fuss is an Executive Vice President and Director of
Loomis Sayles.
FUND EXPENSES
The Fund pays Loomis Sayles a monthly investment advisory fee. This fee is
paid at the annual rate of 0.50% of the Fund's average daily net assets.
In addition to the investment advisory fee, the Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees
of the Fund's custodian, independent accountants and legal counsel and fees of
the Trustees who are not directors, officers or employees of Loomis Sayles or
its affiliated companies.
Loomis Sayles has voluntarily undertaken for an indefinite period to waive
its fees and, to the extent necessary, to bear other Fund expenses in order to
limit the Fund's total operating expenses to .65% of average annual net assets.
PORTFOLIO TRANSACTIONS
Loomis Sayles selects brokers and dealers to execute portfolio transactions
for the Fund. Portfolio turnover considerations will not limit Loomis Sayles's
investment discretion in managing the Fund's assets. The Fund anticipates that
its portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. High portfolio turnover
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gains. Portfolio turnover rates for the life of the Fund are
set forth above under the headings "Financial Highlights" and "Prior
Performance." See "Dividends, Capital Gain Distributions and Taxes" for
information on the tax consequences of investing in the Fund.
HOW TO PURCHASE SHARES
You may make an initial purchase of shares of the Fund by submitting a
completed application form and payment to Loomis Sayles.
The minimum initial investment in the Fund is $3,000,000. Subsequent
investments must be at least $50,000. The Trust reserves the right to waive
these minimums in its sole discretion.
Shares of the Fund may be purchased by exchange of (i) cash, (ii)
securities on deposit with a custodian acceptable to Loomis Sayles or (iii) a
combination of such securities and cash. Purchase of shares of the Fund in
exchange for securities is subject in each case to the determination by Loomis
Sayles that the securities to be exchanged are acceptable for purchase by the
Fund. Securities accepted by Loomis Sayles in exchange for Fund shares will be
valued in the same manner as the Fund's assets, as described below, as of the
time of the Fund's next determination of net asset value after such acceptance.
All dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Fund and must be delivered to the Fund upon receipt by the investor from the
issuer. A gain or loss for federal income tax purposes would be realized upon
the exchange by an investor that is subject to federal income taxation,
depending upon the investor's basis in the securities tendered. A shareholder
who wishes to purchase shares by exchanging securities should obtain
instructions by calling (617) 482-2450.
Loomis Sayles will not approve the acceptance of securities in exchange for
shares of the Fund unless (1) Loomis Sayles, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the 1933
-12-
<PAGE>
Act or otherwise; and (3) the securities are eligible to be acquired under the
Fund's investment policies and restrictions. No investor owning 5% or more of
the Fund's shares may purchase additional Fund shares by the exchange of
securities.
Upon acceptance of your order, the Trust opens an account for you, 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, you may send subsequent investments at any time.
The Trust reserves the right to reject any purchase order for any reason
which the Trust in its sole discretion deems appropriate. Although the Trust
does not anticipate that it will do so, the Trust reserves the right to suspend
or change the terms of the offering of its shares.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust. Shares of the Fund
are sold without any sales charge. The net asset value of the Fund's shares is
calculated by dividing the Fund's net assets by the number of shares
outstanding. Net asset value is calculated at least weekly and as of the close
of the New York Stock Exchange (the "Exchange") on each day on which an order
for purchase or redemption of Fund shares is received and on which the Exchange
is open for unrestricted trading. Portfolio securities are valued at their
market value as more fully described in the Statement of Additional Information.
HOW TO REDEEM SHARES
You can redeem your shares by sending a written request to the Trust.
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
written request in the exact names in which the shares are registered and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity).
The redemption price will be the net asset value per share next determined
after the written redemption request is received by the Trust in proper form.
The Trust usually requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Trust by calling (617) 482-2450 for details.
Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order. If
you purchased your shares by check and your check was deposited less than
fifteen days prior to the redemption request, the Trust may withhold redemption
proceeds until your check has cleared.
Redemption proceeds may be made in money or in kind, or partly in money and
partly in kind, as determined by the Trust.
The Fund may suspend the right of redemption and may postpone payment for
more than seven days when the 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.
OTHER INFORMATION
The Trustees may, without shareholder approval, divide the Trust's shares
of beneficial interest into multiple series. The Trust is currently divided
into seven series, including the Fund and the other funds listed on the cover of
this Prospectus.
The Fund's investment performance may from time to time be included in
advertisements about the Fund.
-13-
<PAGE>
The Fund's yield 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.
Total return for the Fund is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period to the redemption
value of the investment in the Fund at the end of the period (assuming immediate
reinvestment of any dividends or capital gain distributions).
All data are based on the Fund's past investment results and do not predict
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the Fund's portfolio
and the Fund's operating expenses. Investment performance also often reflects
the risks associated with the Fund's investment objectives and policies. These
factors should be considered when comparing the Fund's investment results with
those of other mutual funds and other investment vehicles. Quotations of
investment performance for any period when an expense limitation was in effect
will be greater than if the limitation had not been in effect.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Because the Fund is designed primarily for tax-exempt investors such as
pension plans, endowments and foundations, the Fund is not managed with a view
to reducing taxes. The Fund pays any net investment income to shareholders as
dividends annually in December. The Fund also distributes all of its net
realized capital gains after applying any capital loss carryovers. Any capital
gain distributions are normally made annually in December, but may, to the
extent permitted by law, be made more frequently as deemed advisable by the
Trustees. The Trustees may change the frequency with which the Fund declares or
pays dividends.
Your dividends and capital gain distributions will automatically be
reinvested in additional shares of the Fund on the payment date unless you have
elected to receive cash. Dividends and capital gain distributions will be taxed
as described below whether received in cash or in additional shares.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes substantially all its net investment income and net realized capital
gains to its shareholders on a current basis, the Fund itself does not pay any
federal income or excise tax. The Fund intends to make sufficient distributions
to be relieved of federal taxes.
Income dividends and short-term capital gain distributions are treated as
ordinary income to you 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 but not more than 18 months and from net gains on
securities held for more than 18 months will be taxable as such whether
distributed in cash or additional shares and regardless of how long you have
held your shares. However, any loss recognized by you on the taxable
disposition of shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain distribution you received with
respect to the shares.
The Fund is required to withhold 31% of redemption proceeds, income
dividends and capital gain distributions it pays to you (1) if you do not
provide a correct, certified taxpayer identification number, (2) if the Fund is
notified that you have underreported income in the past, or (3) if you fail to
certify to the Fund that you are not subject to such withholding.
In January of each year, the Trust will send you a statement showing the
federal tax status of dividends and distributions paid to you during the
preceding year.
-14-
<PAGE>
The foregoing summarizes certain U.S. federal income tax consequences of
investing in the Fund. Before investing, you should consult your own tax
adviser for more information concerning the federal, foreign, state and local
tax consequences of investing in, redeeming or exchanging Fund shares.
TRANSFER AND DIVIDEND INVESTMENT ADVISER
PAYING AGENT AND Loomis, Sayles & Company, L.P.
CUSTODIAN OF ASSETS One Financial Center
State Street Bank and Trust Company Boston, Massachusetts 02111
Boston, Massachusetts 02102
15
<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.
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.
A-1
<PAGE>
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
edged." 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 are 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.
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.
A-2
<PAGE>
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 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, and those with the weakest investment attributes are
designated by the symbols Aa3, A3, Baa3, Ba3 and B3.
s:\lsit\prosp&sa\1998\fipro.wpd
A-3
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES HIGH YIELD FIXED INCOME FUND
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 482-2450
PROSPECTUS
APRIL 22, 1998
The Loomis Sayles Investment Trust (the "Trust") is a group of seven mutual
funds including the Loomis Sayles High Yield Fixed Income Fund (the "Fund"). The
other series, which are described in separate prospectuses, are:
Loomis Sayles California Tax-Free Income Fund
Loomis Sayles Core Fixed Income Fund
Loomis Sayles Core Growth Fund
Loomis Sayles Fixed Income Fund
Loomis Sayles Intermediate Duration Fixed Income Fund
Loomis Sayles Investment Grade Fixed Income Fund
Except for the California Tax-Free Income Fund, the funds are designed
specifically for tax-exempt investors such as pension plans, endowments and
foundations, although other institutions and high net-worth individuals are
eligible to invest. Each of the funds is separately managed and has its own
investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis
Sayles") is the investment adviser of each of the funds.
This Prospectus concisely describes the information that you should know
before investing in the Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated April 22, 1998 is
available free of charge; to obtain a free copy or to make any inquiries about
the Fund, write to Loomis Sayles Investment Trust, One Financial Center, Boston,
Massachusetts 02111 or telephone (617) 482-2450. The Statement of Additional
Information, which contains more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus.
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.
THE LOOMIS SAYLES HIGH YIELD FIXED INCOME FUND WILL NORMALLY INVEST AT
LEAST 65% OF ITS ASSETS IN LOWER RATED FIXED INCOME SECURITIES, COMMONLY KNOWN
AS "JUNK BONDS" AND MAY INVEST WITHOUT LIMIT IN SUCH SECURITIES. INVESTMENTS OF
THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF
INTEREST. INVESTORS SHOULD ASSESS CAREFULLY THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE LOOMIS SAYLES HIGH YIELD FIXED INCOME FUND. SEE "MORE
INFORMATION ABOUT THE FUND'S INVESTMENTS; LOWER RATED FIXED INCOME SECURITIES."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF EXPENSES............................................ -3-
FINANCIAL HIGHLIGHTS........................................... -4-
PRIOR PERFORMANCE.............................................. -5-
THE TRUST...................................................... -6-
INVESTMENT OBJECTIVE AND POLICIES.............................. -6-
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS.................. -7-
THE FUND'S INVESTMENT ADVISER..................................-11-
FUND EXPENSES..................................................-12-
PORTFOLIO TRANSACTIONS.........................................-12-
HOW TO PURCHASE SHARES.........................................-12-
HOW TO REDEEM SHARES...........................................-13-
OTHER INFORMATION..............................................-13-
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES................-14-
[APPENDIX A -A-1-]
</TABLE>
-2-
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist you in understanding the
various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. The information is based on expenses for the Fund's
fiscal year ended December 31, 1997. The information below should not be
considered a representation of past or future expenses, as actual expenses may
be greater or less than those shown. Also, the assumed 5% annual return in the
example should not be considered a representation of investment performance, as
actual performance will depend upon the actual investment results of securities
held in the Fund's portfolio.
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) none
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of
offering price) none
Deferred Sales Load (as a percentage of original
purchase price or redemption
proceeds as applicable) none
Redemption Fees (as a percentage of amount
redeemed) none
Exchange Fees none
Annual Fund Operating Expenses
(as a percentage of average net assets):
Management Fees (after expense
limitation) .60%
12b-1 Fees none
Other Operating Expenses (after expense
limitation)/1/ .15%
Total Fund Operating Expenses (after expense
limitation)/1/ .75%
Example
You 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 $8
Three Years $24
Five Years $42
Ten Years $93
______________________________
/1/ Loomis Sayles has voluntarily undertaken for an indefinite period to limit
the Fund's total Fund operating expenses to the percentage of average net assets
shown above. In the absence of the voluntary expense limitation, Other
Operating Expenses and Total Fund Operating Expenses for the fiscal year ended
December 31, 1997 would have been 0.57% and 1.17%, respectively.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is for the period March 7,
1997 through December 31, 1997. The following information should be read in
conjunction with the financial highlights, financial statements, and notes
thereto that have been audited by Coopers & Lybrand, L.L.P., independent
accountants, whose report thereon appears in the Fund's 1997 Annual Report,
which is incorporated by reference into this Prospectus and the Statement of
Additional Information.
March 7+ through
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period......................... $ 10.09
Income from investment operations -
Net investment income....................................... 0.62
Net realized and unrealized gain (loss) on investments...... 0.35
-------
Total from investment operations........................... 0.97
Less distributions -
Dividends from net investment income........................ (0.71)
Distributions from net realized capital gains............... (0.31)
-------
Total distributions........................................ (1.02)
-------
Net asset value, end of period............................... $ 10.04
=======
Total return (%)............................................. 9.6**
Net assets, end of period (000).............................. $28,872
Ratio of operating expenses to average net assets (%)........ 0.75*
Ratio of net investment income to average net assets (%)..... 8.77*
Portfolio turnover rate (%).................................. 64.4**
Without giving effect to the voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%)....................................... 1.15*
The net investment income per share would have been......... $ 0.60
</TABLE>
+Date of effectiveness of the Fund's registration statement under the Securities
Act of 1933, as amended.
*Annualized.
**Not annualized.
Further information about the performance of the Fund is contained in the
Fund's semiannual and annual reports to shareholders, copies of which may be
obtained without charge by writing or telephoning the Trust at the address and
telephone number stated on the cover of this Prospectus.
-4-
<PAGE>
PRIOR PERFORMANCE
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS)
The information presented below, for the periods indicated, relates to
periods prior to the effectiveness of the Fund's registration statement under
the Securities Act of 1933, as amended (the "1933 Act"). The following
information should be read in conjunction with the financial highlights,
financial statements, and notes thereto that have been audited by Coopers &
Lybrand, L.L.P., independent accountants, whose report thereon appears in the
Fund's 1997 Annual Report, which is incorporated by reference into this
Prospectus and the Statement of Additional Information. The Fund is managed in a
manner that is in all material respects similar to the manner in which it was
managed prior to the effectiveness of its registration statement under the 1933
Act.
<TABLE>
<CAPTION>
January 1, June 5* through
1997 through December 31,
March 6, 1997 1996
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of period......................... $ 10.16 $ 10.00
Income from investment operations -
Net investment income....................................... 0.08 0.56
Net realized and unrealized gain (loss) on investments...... (0.15) 0.21
--------- -------
Total from investment operations........................... (0.07) 0.77
Less distributions -
Dividends from net investment income........................ 0.00 (0.56)
Distributions from net realized capital gains............... 0.00 (0.05)
--------- -------
Total distributions........................................ 0.00 (0.61)
--------- -------
Net asset value, end of period............................... $ 10.09 $ 10.16
========= =======
Total return (%)............................................. (0.7)*** 7.7***
Net assets, end of period (000).............................. $ 12,904 $ 3,100
Ratio of operating expenses to average net assets (%)........ 0.75** 0.75**
Ratio of net investment income to average net assets (%)..... 8.84** 9.42**
Portfolio turnover rate (%).................................. 49.4*** 9.1***
Without giving effect to the voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%)....................................... 1.48** 2.73**
The net investment income per share would have been ........ $ 0.07 $ 0.44
</TABLE>
* Commencement of operations.
**Annualized.
***Not annualized.
-5-
<PAGE>
THE TRUST
The Fund is a series of the Trust. The Trust is a diversified open-end
management investment company which was organized as a Massachusetts business
trust on December 23, 1993. 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 (the "Trustees") and to cast a vote
for each share held (with a fractional vote for each fractional 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 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 attain its objective by normally investing
substantially all of its assets in a broad range of debt securities, although up
to 20% of its assets may be invested in preferred stocks and up to 10% in common
stocks. Debt securities may include corporate securities, securities issued or
guaranteed by the U.S. Government, its authorities, agencies or
instrumentalities and certificates representing undivided interests in the
interest or principal of U.S. Treasury securities ("U.S. Government
Securities"), zero coupon securities, collateralized mortgage securities,
including interest-only and principal-only ("IOs" and POs") classes of mortgage-
backed securities, convertible bonds and when-issued securities, which are
described herein (together with their related risks) under "More Information
About the Fund's Investments." The Fund may invest any portion of its assets in
securities of Canadian issuers, and a limited portion of its assets in
securities of other foreign issuers. See "More Information About the Fund's
Investments; Foreign Securities."
The Fund normally will invest at least 65% of its total assets in
fixed income securities that are of below investment grade quality at the time
of purchase, which are securities rated below BBB by Standard & Poor's ("S&P")
or below Baa by Moody's Investors Service, Inc. ("Moody's"), or unrated
securities determined by Loomis Sayles to be of comparable quality. Securities
of below investment grade are commonly referred to as "junk bonds." The Fund
may continue to hold securities that are downgraded in quality subsequent to
their purchase if, in the opinion of Loomis Sayles, it would be advantageous to
do so. See "More Information About the Fund's Investments; Lower Rated Fixed
Income Securities" below.
The percentages of the Fund's net assets invested during the fiscal
year ended December 31, 1997 in securities assigned to the various rating
categories by S&P and Moody's on a dollar-weighted basis were approximately as
follows: "AAA"/"Aaa," 0.3%; "AA"/"Aa," 0%; "A"/"A," 0%; "BBB"/"Baa," 7.5%;
"BB"/"Ba," 51.9%; "B"/"B," 40.3%; and below "B" 0%. The percentage of the
Fund's net assets invested during such fiscal year in unrated debt securities as
a group was approximately 4.52%. The percentages of the Fund's net assets
invested during such fiscal year in such unrated securities (categorized by
comparable rating category) were approximately as follows: "AAA"/"Aaa," 0%;
"AA"/"Aa," 0%; "A"/"A," 0%; "BBB"/"Baa," 0%; "BB"/"Ba," 4.52%; "B"/"B," 0%; and
below "B," 0%.
Some of the Fund's investment restrictions are "fundamental" and
cannot be changed without a majority vote of the Fund's shareholders. Such
restrictions include: (1) a restriction prohibiting the Fund from making loans;
(2) a restriction prohibiting the Fund from purchasing a 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; (3) a
restriction prohibiting the Fund from borrowing 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, and from borrowing any money except as a temporary measure
for extraordinary or emergency purposes; and (4) a restriction prohibiting the
Fund from purchasing any illiquid security including a 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 security. For additional
investment restrictions, see the Statement of Additional Information.
-6-
<PAGE>
Although authorized to invest in restricted securities, the Fund, as a
matter of nonfundamental operating policy, currently does not intend to invest
in such securities, other than Rule 144A securities. Rule 144A securities 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 Trustees, that
the particular issue of Rule 144A securities is liquid.
The investment objective of the Fund is "fundamental" and cannot be
changed without a majority vote of the Fund's shareholders. All investment
policies other than those that are identified as "fundamental" may be changed by
the Trustees without a vote of the Fund's shareholders.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
The net asset value of the Fund's shares will vary as a result of
changes in the value of securities in the Fund's portfolio. The following
describes the types of securities in which the Fund will principally invest and
the risks associated with them. Additional information about the Fund's
investment practices can be found in the Statement of Additional Information.
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. Fixed income
securities include securities issued by federal, state, local and foreign
governments and related agencies, and by a wide range of foreign and domestic
private issuers. The Fund may also invest in other debt securities that pay a
rate of interest or dividends that is adjusted periodically by reference to some
specified index or market rate. Such securities are included within the
definition of fixed income securities as used in this Prospectus other than for
purposes of determining compliance with the Fund's investment policy of
investing, under normal market conditions, at least 65% of its total assets in
fixed income securities of below investment grade quality. Because interest
rates vary, it is impossible to predict the income of the Fund for any
particular period.
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. Generally, the longer the maturity of a fixed income security,
the greater the fluctuations in its value because of market and credit risk.
LOWER RATED FIXED INCOME SECURITIES
- -----------------------------------
The Fund will normally invest at least 65% of its assets in securities
rated below investment grade ("lower rated fixed income securities"), including
securities in the lowest rating categories, and unrated securities determined by
Loomis Sayles to be of comparable 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 speculative with respect to the ability of the issuer
to meet principal and interest payments. Achievement of the Fund's investment
objective through investments in lower rated fixed income securities may be more
dependent on Loomis Sayles's credit analysis than is the case with higher
quality bonds. The market for lower rated fixed income securities may be more
severely affected than other financial markets by economic recession or
substantial interest rate increases. The value and liquidity of lower rated
fixed income securities may be diminished by adverse publicity and investor
perceptions. In addition, legislation that limits the tax benefits to issuers
or holders of taxable lower rated fixed income securities or that limits the
ability of certain categories of financial institutions to invest in these
securities may adversely affect their market value. The secondary market for
lower rated fixed income securities may be less liquid than the secondary market
for higher rated fixed income securities. This lack of liquidity at certain
times may affect the values of these securities and may make the valuation and
sale of these securities by the Fund more difficult. Securities of below
investment grade quality are commonly referred to as "junk bonds." Certain
lower rated fixed income securities do not pay interest on a current basis.
However, the Fund will accrue and distribute this interest
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<PAGE>
on a current basis, and may be required to sell securities at times when Loomis
Sayles would not otherwise deem it desirable to do so in order to generate cash
for distributions. Securities in the lowest rating categories may be in poor
standing or in default. Investment grade fixed income securities (rated BBB by
S&P or Baa by Moody's) may share some of the characteristics of lower rated
fixed income securities described above.
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 will fluctuate as interest rates change.
Thus, for example, the value of an investment in U.S. Government Securities may
fall during times of rising interest rates. Yields on U.S. Government
Securities tend to be lower than those of other fixed income securities of
comparable maturities.
Some U.S. Government Securities, such as Government National Mortgage
Association Certificates, are known as "mortgage-backed" securities,
representing interests in "pools" of mortgage loans secured by residential or
commercial real property. 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.
See "Collateralized Mortgage Obligations" below for additional information
regarding the risks associated with mortgage-backed 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. Treasury securities. These investment instruments
may be highly volatile.
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 zero
coupon 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
be forced 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 generally more volatile than that of
non-zero coupon fixed income securities of comparable quality and maturity.
COLLATERALIZED MORTGAGE OBLIGATIONS
- -----------------------------------
The Fund may invest in collateralized mortgage obligations ("CMOs").
A CMO is a limited recourse security backed by a portfolio of mortgages or, more
typically, by mortgage-backed securities held under an indenture. CMOs may be
issued by instrumentalities of the U.S. Government or by non-governmental
entities. The issuer's obligation to make interest and principal payments is
derived from and 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 payments on the underlying collateral or a combination
thereof. CMOs of different classes or series 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. A faster then
anticipated rate of prepayments will generally result in losses on CMOs
representing interests in the interest payments on the underlying portfolio of
mortgage-backed
-8-
<PAGE>
securities. 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 interest
rate paid by the retired CMO. Because of the early retirement feature, CMOs may
be more volatile than many other fixed income investments. In addition, slower
than anticipated prepayments on the underlying mortgages can extend the
effective maturities of CMOs, subjecting them to a greater risk of decline in
market value in response to rising interest rates than traditional debt
securities.
COMMERCIAL MORTGAGE-BACKED SECURITIES
- -------------------------------------
The Fund may invest in commercial mortgage-backed securities.
Commercial mortgage-backed securities are securities that represent an interest
in, or are secured by, mortgage loans secured by commercial property, such as
industrial and warehouse properties, office buildings, retail space and shopping
malls, multifamily properties and cooperative apartments, hotels and motels,
nursing homes, hospitals, and senior living centers. The commercial mortgage-
backed securities market is newer and in terms of total outstanding principal
amount of issues is relatively small compared to the total size of the market
for residential mortgage-backed securities.
Commercial mortgage-backed securities are generally structured
similarly to pass-through securities or to CMOs, although other structures are
possible. They may pay fixed or adjustable rates of interest. Commercial
mortgage-backed securities have been issued in public or private transactions by
a variety of public and private issuers.
The commercial mortgage loans that underlie commercial mortgage-backed
securities have certain distinct risk characteristics. Commercial mortgage
loans generally lack standardized terms, which may complicate their structure.
Commercial properties themselves tend to be unique and are more difficult to
value than single-family residential properties. Commercial mortgage loans also
tend to have shorter maturities than residential mortgage loans, and may not be
fully amortizing, meaning that they have a significant principal balance, or
"balloon" payment, due on maturity. Assets underlying commercial mortgage-backed
securities may relate only to a few properties or a single property. The risk
involved in single property financings is highly concentrated. In addition,
commercial properties, particularly industrial and warehouse properties, are
subject to environmental risks and the burdens and costs of compliance with
environmental laws and regulations. At the same time, commercial mortgage-
backed securities may have a lower prepayment risk than residential mortgage-
backed securities, because commercial mortgage loans generally prohibit or
impose penalties on prepayments of principal. In addition, commercial mortgage-
backed securities often are structured with some form of credit enhancement to
protect against potential losses on the underlying mortgage loans.
STRIPPED MORTGAGE-BACKED SECURITIES
- -----------------------------------
The Fund may invest in interest-only and principal-only ("IOs" and
"POs") classes of mortgage-backed securities. The yield to maturity on an IO or
PO class of stripped mortgage-backed securities 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.
In either event, 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.
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
-9-
<PAGE>
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 issued. If the
value of the security being purchased falls between the time the Fund commits to
buy it and the payment date, the Fund may sustain a loss. The risk of this loss
is in addition to the Fund's risk of loss on the securities actually in its
portfolio at the time. 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 the 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.
FOREIGN SECURITIES
- ------------------
The Fund may invest in securities principally traded in foreign
markets ("foreign securities"). The Fund will not purchase a foreign security
if, as a result, the Fund's total holdings of foreign securities would exceed
50% of the Fund's total assets.
Foreign securities may present risks not associated with investments
in comparable securities of U.S. issuers. There may be less information
publicly available about a foreign corporate or governmental issuer than about a
U.S. issuer, and foreign 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 foreign issuers are less liquid and
at times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions and securities custody costs are often higher than in the
United States. With respect to certain foreign 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
foreign government securities may depend on the availability of tax or other
revenues to satisfy the issuer's obligations. In addition, the remedies of the
Fund may be extremely limited if a foreign issuer defaults on its obligations.
The Fund's investments in foreign 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
considerations regarding foreign 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 foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the Fund may be affected favorably
or unfavorably by changes in currency exchange rates, exchange control
regulations, or foreign withholding. Changes in the value relative to the U.S.
dollar of a foreign 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 foreign 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.
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 at a stated price or rate.
Convertible
-10-
<PAGE>
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.
COMMON STOCKS
- -------------
The Fund may invest up to 10% of its total assets in common stocks,
usually as a result of warrants associated with debt instruments purchased by
the Fund, but also under certain circumstances to seek capital appreciation.
Common stocks, like other equity securities, offer greater potential for long-
term growth but are more risky than some other forms of investment.
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 has advised the Fund that it is reviewing all of its 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 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.
In addition to selecting and reviewing the Fund's investments, Loomis
Sayles provides executive and other personnel for the management of the Fund.
The Board of Trustees supervises Loomis Sayles's conduct of the affairs of the
Fund.
-11-
<PAGE>
The portfolio manager for the Fund since its inception has been Daniel
J. Fuss, who has been with Loomis Sayles since 1976 and is head of the Fixed
Income Management Group. Mr. Fuss is an Executive Vice President and Director
of Loomis Sayles.
FUND EXPENSES
The Fund pays Loomis Sayles a monthly investment advisory fee. This
fee is paid at the annual rate of .60% of the Fund's average daily net
assets.
In addition to the investment advisory fee, the Fund pays all expenses
not expressly assumed by Loomis Sayles, including taxes, brokerage commissions,
fees of the Fund's custodian, independent accountants and legal counsel and fees
of the Trustees who are not directors, officers or employees of Loomis Sayles or
its affiliated companies.
Loomis Sayles has voluntarily undertaken for an indefinite period to
waive its fees and, to the extent necessary, to bear other Fund expenses in
order to limit the Fund's annualized total operating expenses to .75% of average
annual net assets.
PORTFOLIO TRANSACTIONS
Loomis Sayles selects brokers and dealers to execute portfolio
transactions for the Fund. Portfolio turnover considerations will not limit
Loomis Sayles's investment discretion in managing the Fund's assets. The Fund
anticipates that its portfolio turnover rates will vary significantly from time
to time depending on the volatility of economic and market conditions. High
portfolio turnover may result in higher costs such as higher brokerage
commissions and higher levels of taxable gains. Portfolio turnover rates for
the life of the Fund are set forth above under the headings "Financial
Highlights" and "Prior Performance." See "Dividends, Capital Gain Distributions
and Taxes" for information on the tax consequences of investing in the Fund.
HOW TO PURCHASE SHARES
You may make an initial purchase of shares of the Fund by submitting a
completed application form and payment to Loomis Sayles.
The minimum initial investment in the Fund is $3,000,000. Subsequent
investments must be at least $50,000. The Trust reserves the right to waive
these minimums in its sole discretion.
Shares of the Fund may be purchased by exchange of (I) cash, (ii)
securities on deposit with a custodian acceptable to Loomis Sayles or (iii) a
combination of such securities and cash. Purchase of shares of the Fund in
exchange for securities is subject in each case to the determination by Loomis
Sayles that the securities to be exchanged are acceptable for purchase by the
Fund. Securities accepted by Loomis Sayles in exchange for Fund shares will be
valued in the same manner as the Fund's assets, as described below, as of the
time of the Fund's next determination of net asset value after such acceptance.
All dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Fund and must be delivered to the Fund upon receipt by the investor from the
issuer. A gain or loss for federal income tax purposes would be realized upon
the exchange by an investor that is subject to federal income taxation,
depending upon the investor's basis in the securities tendered. A shareholder
who wishes to purchase shares by exchanging securities should obtain
instructions by calling (617) 482-2450.
Loomis Sayles will not approve the acceptance of securities in
exchange for shares of the Fund unless (1) Loomis Sayles, in its sole
discretion, believes the securities are appropriate investments for the Fund;
(2) the investor
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<PAGE>
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the 1933 Act or otherwise; and (3) the
securities are eligible to be acquired under the Fund's investment policies and
restrictions. No investor owning 5% or more of the Fund's shares may purchase
additional Fund shares by exchange of securities.
Upon acceptance of your order, the Trust opens an account for you,
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, you may send subsequent investments at any time.
The Trust reserves the right to reject any purchase order for any
reason which the Trust in its sole discretion deems appropriate. Although the
Trust does not anticipate that it will do so, the Trust reserves the right to
suspend or change the terms of the offering of its shares.
The price you pay will be the per share net asset value next
calculated after a proper investment order is received by the Trust. Shares of
the Fund are sold without any sales charge. The net asset value of the Fund's
shares is calculated by dividing the Fund's net assets by the number of shares
outstanding. Net asset value is calculated at least weekly and as of the close
of the New York Stock Exchange (the "Exchange") on each day on which an order
for purchase or redemption of Fund shares is received and on which the Exchange
is open for unrestricted trading. Portfolio securities are valued at their
market value as more fully described in the Statement of Additional Information.
HOW TO REDEEM SHARES
You can redeem your shares by sending a written request to the Trust.
The written request must include the name of the Fund, your account
number, the exact name(s) in which your shares are registered, and the number of
shares or the dollar amount to be redeemed. All owners of the shares must sign
the written request in the exact names in which the shares are registered and
should indicate any special capacity in which they are signing (such as trustee
or custodian or on behalf of a partnership, corporation or other entity).
The redemption price will be the net asset value per share next
determined after the written redemption request is received by the Trust in
proper form. The Trust usually requires additional documentation for the sale
of shares by a corporation, partnership, agent or fiduciary, or a surviving
joint owner. Contact the Trust by calling (617) 482-2450 for details.
Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order. If
you purchased your shares by check and your check was deposited less than
fifteen days prior to the redemption request, the Trust may withhold redemption
proceeds until your check has cleared.
Redemption proceeds may be made in money or in kind, or partly in
money and partly in kind, as determined by the Trust.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the 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.
OTHER INFORMATION
The Trustees may, without shareholder approval, divide the Trust's
shares of beneficial interest into multiple series. The Trust is currently
divided into seven series, including the Fund and the other funds listed on the
cover of this Prospectus.
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<PAGE>
As of March 31, 1998, each of Trustees of Clark University and Blue
Cross Blue Shield of Massachusetts, Inc. Retirement Trust may be deemed to
control the Fund because each possessed, directly or indirectly, beneficial
ownership of more than 25% of the Fund's shares.
The Fund's investment performance may from time to time be included in
advertisements about the Fund.
The Fund's yield 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.
Total return for the Fund is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period to the redemption
value of the investment in the Fund at the end of the period (assuming immediate
reinvestment of any dividends or capital gain distributions).
All data are based on the Fund's past investment results and do not
predict future performance. Investment performance, which will vary, is based
on many factors, including market conditions, the composition of the Fund's
portfolio and the Fund's operating expenses. Investment performance also often
reflects the risks associated with the Fund's investment objectives and
policies. These factors should be considered when comparing the Fund's
investment results with those of other mutual funds and other investment
vehicles. Quotations of investment performance for any period when an expense
limitation was in effect will be greater than if the limitation had not been in
effect.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Because the Fund is designed primarily for tax-exempt investors such
as pension plans, endowments and foundations, the Fund is not managed with a
view to reducing taxes. The Fund pays any net investment income to shareholders
as dividends annually in December. The Fund also distributes all of its net
realized capital gains after applying any capital loss carryovers. Any capital
gain distributions are normally made annually in December, but may, to the
extent permitted by law, be made more frequently as deemed advisable by the
Trustees. The Trustees may change the frequency with which the Fund declares or
pays dividends.
Your dividends and capital gain distributions will automatically be
reinvested in additional shares of the Fund on the payment date unless you have
elected to receive cash. Dividends and capital gain distributions will be taxed
as described below whether received in cash or in additional shares.
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes substantially all its net investment income and net realized capital
gains to its shareholders on a current basis, the Fund itself does not pay any
federal income or excise tax. The Fund intends to make sufficient distributions
to be relieved of federal taxes.
Income dividends and short-term capital gain distributions are treated
as ordinary income to you 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 but not more than 18 months and from net gains on
securities held for more than 18 months will be taxable as such whether
distributed in cash or additional shares and regardless of how long you have
held your shares. However, any loss recognized by you on the taxable
disposition of shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain distribution you received with
respect to the shares.
The Fund is required to withhold 31% of redemption proceeds, income
dividends and capital gain distributions it pays to you (1) if you do not
provide a correct, certified taxpayer identification number, (2) if the Fund is
notified that you have underreported income in the past, or (3) if you fail to
certify to the Fund that you are not subject to such withholding.
-14-
<PAGE>
In January of each year, the Trust will send you a statement showing
the federal tax status of dividends and distributions paid to you during the
preceding year.
The foregoing summarizes certain U.S. federal income tax consequences
of investing in the Fund. Before investing, you should consult your own tax
adviser for more information concerning the federal, foreign, state and local
tax consequences of investing in, redeeming or exchanging Fund shares.
TRANSFER AND DIVIDEND INVESTMENT ADVISER
PAYING AGENT AND Loomis, Sayles & Company, L.P.
CUSTODIAN OF ASSETS One Financial Center
State Street Bank and Trust Company Boston, Massachusetts 02111
Boston, Massachusetts 02102
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<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.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
R
A-1
<PAGE>
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
edged." 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 are 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.
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.
A-2
<PAGE>
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 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, and those with the weakest investment attributes are
designated by the symbols Aa3, A3, Baa3, Ba3 and B3.
A-3
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES INTERMEDIATE DURATION FIXED INCOME FUND
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 482-2450
PROSPECTUS
APRIL 22, 1998
The Loomis Sayles Investment Trust (the "Trust") is a group of seven mutual
funds including the Loomis Sayles Intermediate Duration Fixed Income Fund (the
"Fund"). The other series, which are described in separate prospectuses, are:
Loomis Sayles California Tax-Free Income Fund
Loomis Sayles Core Fixed Income Fund
Loomis Sayles Core Growth Fund
Loomis Sayles Fixed Income Fund
Loomis Sayles High Yield Fixed Income Fund
Loomis Sayles Investment Grade Fixed Income Fund
Except for the California Tax-Free Income Fund, the funds are designed
specifically for tax-exempt investors such as pension plans, endowments and
foundations, although other institutions and high net-worth individuals are
eligible to invest. Each of the funds is separately managed and has its own
investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis
Sayles") is the investment adviser of each of the funds.
This Prospectus concisely describes the information that you should know
before investing in the Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated April 22, 1998, is
available free of charge; to obtain a free copy or to make any inquiries about
the Fund write to Loomis Sayles Investment Trust, One Financial Center, Boston,
Massachusetts 02111 or telephone (617) 482-2450. The Statement of Additional
Information, which contains more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus.
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
<TABLE>
<S> <C>
SUMMARY OF EXPENSES ...................................................... -3-
THE TRUST ................................................................ -4-
INVESTMENT OBJECTIVE AND POLICIES ........................................ -4-
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS ............................ -5-
THE FUND'S INVESTMENT ADVISER ............................................ -9-
FUND EXPENSES ............................................................ -9-
PORTFOLIO TRANSACTIONS ................................................... -9-
HOW TO PURCHASE SHARES ................................................... -9-
HOW TO REDEEM SHARES ..................................................... -10-
OTHER INFORMATION ........................................................ -11-
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES .......................... -11-
APPENDIX A ............................................................... A-1
APPENDIX B ............................................................... B-1
</TABLE>
-2-
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist you in understanding
the various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. The information is based on estimated annualized
expenses for the Fund's first full fiscal year. The information below should
not be considered a representation of past or future expenses, as actual
expenses may be greater or less than those shown. Also, the assumed 5% annual
return in the example should not be considered a representation of investment
performance, as actual performance will depend upon the actual investment
results of securities held in the Fund's portfolio.
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) none
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage
of offering price) none
Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds as applicable) none
Redemption Fees (as a percentage of
amount redeemed) none
Exchange Fees none
Annual Fund Operating Expenses
(as a percentage of average net assets):
Management Fees (after
expense limitation) .40%
12b-1 Fees none
Other Operating Expenses (after
expense limitation) /1/ .15%
Total Operating Expenses (after
expense limitation) /1/ .55%
Example
You 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 $ 6
Three Years $18
______________________________
/1/ Loomis Sayles has voluntarily undertaken for an indefinite period to limit
the Fund's total operating expenses to the percentage of average net assets
shown above. In the absence of the voluntary expense limitation, estimated
Management Fees, Other Operating Expenses and Total Operating Expenses for the
Fund's first fiscal year are expected to be .40%, .72% and 1.12%, respectively.
-3-
<PAGE>
THE TRUST
The Fund is a series of the Trust. The Trust is a diversified open-end
management investment company which was organized as a Massachusetts business
trust on December 23, 1993. 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 (the "Trustees") and to cast a vote
for each share held (with a fractional vote for each fractional 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 Trustees.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is above-average total return through a
combination of current income and capital appreciation. Although the Fund may
invest in fixed income securities of any maturity, the weighted average duration
of the Fund's portfolio will generally remain within a band of 2 to 5 years. The
concept of duration is described more fully below.
The Fund will seek to achieve its objective by investing in a diversified
portfolio of debt securities that may include corporate securities, securities
issued or guaranteed by the U.S. Government, its authorities, agencies or
instrumentalities and certificates representing undivided interests in the
interest or principal of U.S. Treasury securities ("U.S. Government
Securities"), "Yankee" securities (U.S. dollar-denominated debt issued by non-
U.S. entities), convertible securities and certain types of mortgage-related and
asset-backed securities (including interest-only and principal-only ("IOs" and
"POs") classes of mortgage-backed securities). Under normal market conditions,
the Fund will invest at least 65% of its total assets in fixed income securities
that have a duration of 2 to 5 years at the time of purchase. Collateralized
mortgage obligations ("CMOs") will be limited to those with CMO market risk
ratings of V-1 to V-4 from Fitch Investors Service, L.P. ("Fitch"), or CMOs
unrated by Fitch that Loomis Sayles has determined to be of comparable
volatility. All securities will be denominated in U.S. dollars.
The Fund will purchase only securities rated at least Baa3 by Moody's
Investors Service, Inc. ("Moody's") or at least BBB- by Standard & Poor's
("S&P"), or, if unrated, determined to be of comparable quality by Loomis
Sayles. Some or all of these securities may be "split-rated securities," i.e.,
securities that have received an investment grade rating from one of the
nationally recognized rating organizations but that have also received a lower
rating from the other nationally recognized rating organization. Split-rated
securities may be subject to some of the risks described below under "Lower
Rated Fixed Income Securities." In the event that the credit rating of a
security held by the Fund falls below investment grade (or, in the case of an
unrated security, Loomis Sayles determines that the quality of such security has
deteriorated below investment grade), the Fund will not be obligated to dispose
of such security and may continue to hold such security if, in the opinion of
Loomis Sayles, such investment is appropriate in the circumstances.
Some of the Fund's investment restrictions are "fundamental" and cannot be
changed without a majority vote of the Fund's shareholders. Such restrictions
include: (1) a restriction prohibiting the Fund from making loans; (2) a
restriction prohibiting the Fund from purchasing a 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; (3) a
restriction prohibiting the Fund from borrowing 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, and from borrowing any money except as a temporary measure
for extraordinary or emergency purposes; and (4) a restriction prohibiting the
Fund from purchasing any illiquid security including a 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 security. For additional
investment restrictions, see the Statement of Additional Information.
Although authorized to invest in restricted securities, the Fund, as a
matter of nonfundamental operating policy, currently does not intend to invest
in such securities, other than Rule 144A securities. Rule 144A securities 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 Trustees, that
the particular issue of Rule 144A securities is liquid.
The investment objective of the Fund is "fundamental" and cannot be changed
without a majority vote of the Fund's shareholders. All investment policies
other than those that are identified as "fundamental" may be changed by the
Trustees without a vote of the Fund's shareholders.
-4-
<PAGE>
Duration is a measure of the expected life of a fixed income security that
was developed as a more precise alternative to the concept of "term to
maturity." Most debt obligations provide interest payments in addition to a
final payment at maturity. Some debt obligations also have call provisions.
Depending on the relative magnitude of these payments, the market values of debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to changes in
interest rates. However, term to maturity measures only the time until a debt
security provides its final payment, taking no account of the pattern of the
security's payments prior to maturity. Duration is a measure of the expected
life of a fixed income security on a present value basis. Duration takes the
length of the time intervals between the present time and the time that the
interest and principal payments are scheduled or, in the case of a callable
bond, expected to be received, and weights them by the present values of the
cash to be received at each future point in time. For any fixed income security
with interest payments occurring prior to the payment of principal, duration is
always less than maturity. As a general rule, a 1% increase or decrease in
interest rates will result in approximately a 1% decrease or increase,
respectively, in the value of a security for each year of duration. For example,
a 1% increase in interest rates will result in approximately a 5% decrease in
the value of a security having a five-year duration. There are some situations,
however, where the standard duration calculation does not properly reflect the
interest rate exposure of a security. Also, in some cases, duration cannot be
calculated with certainty because certain assumptions (including assumptions
relating to prepayment rates in the case of mortgage-backed and asset-backed
securities) have to be factored into the calculation.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
The net asset value of the Fund's shares will vary as a result of changes
in the value of securities in the Fund's portfolio. The following describes the
types of securities in which the Fund will principally invest and the risks
associated with them. Additional information about the Fund's investment
practices can be found in the Statement of Additional Information.
FIXED INCOME SECURITIES
- -----------------------
The Fund may invest in fixed income securities of any maturity although the
weighted average duration of its investments will generally remain within a band
of 2 to 5 years. Fixed income securities pay a specified rate of interest or
dividends. Fixed income securities include securities issued by federal, state,
local and foreign governments and related agencies, and by a wide range of
foreign and domestic private issuers. The Fund may also invest in other debt
securities that pay a rate of interest or dividends that is adjusted
periodically by reference to some specified index or market rate. Such
securities are included within the definition of fixed income securities as used
in this Prospectus other than for purposes of determining compliance with the
Fund's investment policy of investing, under normal market conditions, at least
65% of its total assets in fixed income securities with a duration of 2 to 5
years. Because interest rates vary, it is impossible to predict the income of
the Fund for any particular period.
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. Generally, the longer the maturity of a fixed income security,
the greater the fluctuations in its value because of market and credit risk.
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 will fluctuate as interest rates change. Thus, for
example, the value of an investment in U.S. Government Securities may fall
during times of rising interest rates. Yields on U.S. Government Securities
tend to be lower than those of other fixed income securities of comparable
maturities.
-5-
<PAGE>
Some U.S. Government Securities, such as Government National Mortgage
Association Certificates, are known as "mortgage-backed" securities representing
interests in "pools" of mortgage loans secured by residential or commercial real
property. 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. See
"Collateralized Mortgage Obligations" below for additional information regarding
the risks associated with mortgage-backed 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. Treasury securities. These investment instruments may
be highly volatile.
LOWER RATED FIXED INCOME SECURITIES
- -----------------------------------
The Fund may purchase split-rated securities, which may be subject to some
of the risks associated with securities of below investment grade quality
("lower rated fixed income securities"), also known as "junk bonds". 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 speculative with respect to
the ability of the issuer to meet principal and interest payments. Achievement
of the Fund's investment objective through investments in lower rated fixed
income securities may be more dependent on Loomis Sayles's credit analysis than
is the case with higher quality bonds. The market for lower rated fixed income
securities may be more severely affected than other financial markets by
economic recession or substantial interest rate increases. The value and
liquidity of lower rated fixed income securities may be diminished by adverse
publicity and investor perceptions. In addition, legislation that limits the tax
benefits to issuers or holders of taxable lower rated fixed income securities or
that limits the ability of certain categories of financial institutions to
invest in these securities may adversely affect their market value. The
secondary market for lower rated fixed income securities may be less liquid than
the secondary market for higher rated fixed income securities. This lack of
liquidity at certain times may affect the values of these securities and may
make the valuation and sale of these securities by the Fund more difficult.
Certain lower-rated fixed income securities do not pay interest on a current
basis. However, the Fund will accrue and distribute this interest on a current
basis, and may be required to sell securities at times when Loomis Sayles would
not otherwise deem it desirable to do so in order to generate cash for
distributions. Securities in the lowest rating categories may be in poor
standing or in default. Investment grade fixed income securities rated Baa by
Moody's or BBB by S&P may share some of the characteristics of lower rated fixed
income securities described above.
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 zero
coupon 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
be forced 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 generally more volatile than that of
non-zero coupon fixed income securities of comparable quality and maturity.
COLLATERALIZED MORTGAGE OBLIGATIONS
- -----------------------------------
The Fund may invest in CMOs. A CMO is a limited recourse security backed by
a portfolio of mortgages or, more typically, by mortgage-backed securities held
under an indenture. CMOs may be issued either by instrumentalities of the U.S.
Government or by non-governmental entities. The issuer's obligation to make
interest and principal payments is derived from and 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 payments on the
underlying collateral or a combination thereof. CMOs of different classes or
series 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 interest rate paid by the retired CMO. Because of the early retirement
feature,
-6-
<PAGE>
CMOs may be more volatile than many other fixed income investments. The Fund
will invest only in CMOs with Fitch ratings of V-4 or better, or those CMOs
unrated by Fitch that Loomis Sayles has determined to be of comparable
volatility. Even CMOs with ratings reflecting the lowest market risk are likely
to experience losses in the event of adverse changes in market conditions. The
duration of CMOs and other mortgage-related securities is often difficult to
determine because the underlying mortgages may be subject to early repayment.
Thus, the determination of duration will be dependent on the adviser's
assumptions regarding the likelihood and incidence of prepayment and, to the
extent that such assumptions prove to be incorrect, the duration of the Fund's
portfolio, and thus its relative exposure to fluctuation of interest rates, may
be significantly different than intended and may increase the overall risk of
the Fund's portfolio.
COMMERCIAL MORTGAGE-BACKED SECURITIES
- -------------------------------------
The Fund may invest in commercial mortgage-backed securities. Commercial
mortgage-backed securities are securities that represent an interest in, or are
secured by, mortgage loans secured by commercial property, such as industrial
and warehouse properties, office buildings, retail space and shopping malls,
multifamily properties and cooperative apartments, hotels and motels, nursing
homes, hospitals, and senior living centers. The commercial mortgage-backed
securities market is newer and in terms of total outstanding principal amount of
issues is relatively small compared to the total size of the market for
residential mortgage-backed securities.
Commercial mortgage-backed securities are generally structured similarly to
pass-through securities or to CMOs, although other structures are possible.
They may pay fixed or adjustable rates of interest. Commercial mortgage-backed
securities have been issued in public or private transactions by a variety of
public and private issuers.
The commercial mortgage loans that underlie commercial mortgage-backed
securities have certain distinct risk characteristics. Commercial mortgage
loans generally lack standardized terms, which may complicate their structure.
Commercial properties themselves tend to be unique and are more difficult to
value than single-family residential properties. Commercial mortgage loans also
tend to have shorter maturities than residential mortgage loans, and may not be
fully amortizing, meaning that they have a significant principal balance, or
"balloon" payment, due on maturity. Assets underlying commercial mortgage-
backed securities may relate only to a few properties or a single property. The
risk involved in single property financings is highly concentrated. In
addition, commercial properties, particularly industrial and warehouse
properties, are subject to environmental risks and the burdens and costs of
compliance with environmental laws and regulations. At the same time,
commercial mortgage-backed securities may have a lower prepayment risk than
residential mortgage-backed securities, because commercial mortgage loans
generally prohibit or impose penalties on prepayments of principal. In
addition, commercial mortgage-backed securities often are structured with some
form of credit enhancement to protect against potential losses on the underlying
mortgage loans.
STRIPPED MORTGAGE-BACKED SECURITIES
- -----------------------------------
The Fund may invest in interest-only and principal-only ("IOs" and "POs")
classes of mortgage-backed securities. The yield to maturity on an IO or PO
class of stripped mortgage-backed securities 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.
In either event, 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.
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 issued. If the value of the security being purchased falls
between the time the Fund commits to buy it and the payment date, the Fund may
sustain a loss. The risk of this loss is in addition to the Fund's risk of loss
on the securities actually held
-7-
<PAGE>
in its portfolio at the time. 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 the 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.
FOREIGN SECURITIES
- ------------------
The Fund may invest in dollar-denominated securities of issuers organized
or headquartered outside the United States ("foreign securities"). The Fund will
not purchase a foreign security (for purposes of this limitation securities of
Canadian issuers publicly traded in the United States will not be treated as
foreign securities) if, as a result, the Fund's total holdings of foreign
securities would exceed 20% of the Fund's total assets.
Foreign securities may present risks not associated with investments in
comparable securities of U.S. issuers. There may be less information publicly
available about a foreign corporate or governmental issuer than about a U.S.
issuer, and foreign 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 foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions and securities custody costs are often higher than in the
United States. With respect to certain foreign 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
foreign government securities may depend on the availability of tax or other
revenues to satisfy the issuer's obligations. The remedies of the Fund may be
extremely limited if a foreign issuer defaults on its obligations. In addition,
the operations and results of foreign issuers and domestic issuers with
operations abroad may be affected favorably or unfavorably by changes in
currency exchange rates or exchange control regulations.
The Fund's investments in foreign 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
considerations regarding foreign 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 foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the Fund may be affected favorably
or unfavorably by changes in currency exchange rates, exchange control
regulations or foreign withholding taxes. Changes in the value relative to the
U.S. dollar of a foreign currency in which the Fund's holdings are denominated
or foreign witholding taxes 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 foreign 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.
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 has advised the Fund that it is reviewing all of its 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
-8-
<PAGE>
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 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.
In addition to selecting and reviewing the Fund's investments, Loomis
Sayles provides executive and other personnel for the management of the Fund.
The Board of Trustees supervises Loomis Sayles's conduct of the affairs of the
Fund.
The portfolio manager for the Fund is Anthony J. Wilkins. Mr. Wilkins
joined Loomis Sayles in 1990 and is a Director and Vice President of the
firm.
FUND EXPENSES
The Fund pays Loomis Sayles a monthly investment advisory fee. This fee is
paid at the annual rate of .40% of the Fund's average weekly net assets.
In addition to the investment advisory fee, the Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees
of the Fund's custodian, independent accountants and legal counsel and fees of
the Trustees who are not directors, officers or employees of Loomis Sayles or
its affiliated companies.
Loomis Sayles has voluntarily undertaken for an indefinite period to waive
its fees and, to the extent necessary, to bear other Fund expenses in order to
limit the Fund's annualized total operating expenses to .55% of average annual
net assets.
PORTFOLIO TRANSACTIONS
Loomis Sayles selects brokers and dealers to execute portfolio transactions
for the Fund. Portfolio turnover considerations will not limit Loomis Sayles's
investment discretion in managing the Fund's assets. The Fund anticipates that
its portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. High portfolio turnover
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gains. See "Dividends, Capital Gains Distributions and Taxes"
for information on the tax consequences of investing in the Fund.
HOW TO PURCHASE SHARES
You may make an initial purchase of shares of the Fund by submitting a
completed application form and payment to Loomis Sayles.
The minimum initial investment in the Fund is $2,000,000. Subsequent
investments must be at least $50,000. The Trust reserves the right to waive
these minimums in its sole discretion.
Shares of the Fund may be purchased by exchange of (i) cash, (ii)
securities on deposit with a custodian acceptable to Loomis Sayles or (iii) a
combination of such securities and cash. Purchase of shares of the Fund in
exchange for securities
-9-
<PAGE>
is subject in each case to the determination by Loomis Sayles that the
securities to be exchanged are acceptable for purchase by the Fund. Securities
accepted by Loomis Sayles in exchange for Fund shares will be valued in the same
manner as the Fund's assets as described below as of the time of the Fund's next
determination of net asset value after such acceptance. All dividends and
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
delivered to the Fund upon receipt by the investor from the issuer. A gain or
loss for federal income tax purposes would be realized upon the exchange by an
investor that is subject to federal income taxation, depending upon the
investor's basis in the securities tendered. A shareholder who wishes to
purchase shares by exchanging securities should obtain instructions by calling
(617) 482-2450.
Loomis Sayles will not approve the acceptance of securities in exchange for
shares of the Fund unless (1) Loomis Sayles, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the Securities Act of 1933, as amended, or
otherwise; and (3) the securities are eligible to be acquired under the Fund's
investment policies and restrictions. No investor owning 5% or more of the
Fund's shares may purchase additional Fund shares by the exchange of securities.
Upon acceptance of your order, the Trust opens an account for you, 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, you may send subsequent investments at any time.
The Trust reserves the right to reject any purchase order for any reason
which the Trust in its sole discretion deems appropriate. Although the Trust
does not anticipate that it will do so, the Trust reserves the right to suspend
or change the terms of the offering of its shares.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust. Shares of the Fund are
sold without any sales charge. The net asset value of the Fund's shares is
calculated by dividing the Fund's net assets by the number of shares
outstanding. Net asset value is calculated at least weekly and as of the close
of the New York Stock Exchange (the "Exchange") on each day on which an order
for purchase or redemption of Fund shares is received and on which the Exchange
is open for unrestricted trading. Portfolio securities are valued at their
market value as more fully described in the Statement of Additional Information.
HOW TO REDEEM SHARES
You can redeem your shares by sending a written request to the Trust.
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
written request in the exact names in which the shares are registered and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity).
The redemption price will be the net asset value per share next determined
after the written redemption request is received by the Trust in proper form.
The Trust usually requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Trust by calling (617) 482-2450 for details.
Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order. If
you purchased your shares by check and your check was deposited less than
fifteen days prior to the redemption request, the Trust may withhold redemption
proceeds until your check has cleared.
Redemption proceeds may be made in money or in kind, or partly in money and
partly in kind, as determined by the Trust.
The Fund may suspend the right of redemption and may postpone payment for
more than seven days when the 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.
-10-
<PAGE>
OTHER INFORMATION
The Board of Trustees may, without shareholder approval, divide the Trust's
shares of beneficial interest into multiple series. The Trust is currently
divided into seven series, including the Fund and the other funds listed on the
cover of this Prospectus.
As of March 31, 1998, Trustees of Clark University may be deemed to control
the Fund because it possessed beneficial ownership, either directly or
indirectly, of more than 25% of the Fund's shares.
The Fund's investment performance may from time to time be included in
advertisements about the Fund.
The Fund's yield 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.
Total return for the Fund is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period to the redemption
value of the investment in the Fund at the end of the period (assuming immediate
reinvestment of any dividends or capital gain distributions).
All data are based on the Fund's past investment results and do not predict
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the Fund's portfolio
and the Fund's operating expenses. Investment performance also often reflects
the risks associated with the Fund's investment objectives and policies. These
factors should be considered when comparing the Fund's investment results with
those of other mutual funds and other investment vehicles. Quotations of
investment performance for any period when an expense limitation was in effect
will be greater than if the limitation had not been in effect.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Because the Fund is designed primarily for tax-exempt investors such as
pension plans, endowments and foundations, the Fund is not managed with a view
to reducing taxes. The Fund pays any net investment income to shareholders as
dividends monthly. The Fund also distributes all of its net realized capital
gains after applying any capital loss carryovers. Any capital gain
distributions are normally made annually in December, but may, to the extent
permitted by law, be made more frequently as deemed advisable by the Trustees.
The Trustees may change the frequency with which the Fund declares or pays
dividends.
Your dividends and capital gain distributions will automatically be
reinvested in additional shares of the Fund on the payment date unless you have
elected to receive cash. Dividends and capital gain distributions will be taxed
as described below whether received in cash or in additional shares.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes all its net investment income and net realized capital gains to its
shareholders on a current basis, the Fund itself does not pay any federal income
or excise tax. The Fund intends to make sufficient distributions to be relieved
of federal taxes.
Income dividends and short-term capital gain distributions are treated as
ordinary income to you 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 but not more than 18 months and from net gains on
securities held for more than 18 months will be taxable as such whether
distributed in cash or additional shares and regardless of how long you have
held your shares. However, any loss recognized by you on the taxable disposition
of shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain distribution you received with respect to
the shares.
The Fund is required to withhold 31% of redemption proceeds, income
dividends and capital gain distributions it pays to you (1) if you do not
provide a correct, certified taxpayer identification number, (2) if the Fund is
notified that you have underreported income in the past, or (3) if you fail to
certify to the Fund that you are not subject to such withholding.
-11-
<PAGE>
In January of each year, the Trust will send you a statement showing the
federal tax status of dividends and distributions paid to you during the
preceding year.
The foregoing summarizes certain U.S. federal income tax consequences of
investing in the Fund. Before investing, you should consult your own tax
adviser for more information concerning the federal, foreign, state and local
tax consequences of investing in, redeeming or exchanging Fund shares.
TRANSFER AND DIVIDEND INVESTMENT ADVISER
PAYING AGENT AND Loomis, Sayles & Company, L.P.
CUSTODIAN OF ASSETS One Financial Center
State Street Bank and Trust Company Boston, Massachusetts 02111
Boston, Massachusetts 02102
-12-
<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.
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.
A-1
<PAGE>
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
edged." 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 are 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.
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:
A-2
<PAGE>
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 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, and those with the weakest investment attributes are
designated by the symbols Aa3, A3, Baa3, Ba3 and B3.
A-3
<PAGE>
APPENDIX B
DESCRIPTION OF
FITCH CMO V-RATINGS
A Fitch CMO market risk rating is an opinion as to the relative sensitivity of
a security's price and cash flows to changes in interest rates and, where
relevant, other market conditions. INVESTORS SHOULD UNDERSTAND THAT SECURITIES
WITH RATINGS REFLECTING EVEN THE LOWEST MARKET RISK ARE LIKELY TO EXPERIENCE
LOSSES IN THE EVENT OF ADVERSE CHANGES IN MARKET CONDITIONS. Fitch's market
risk ratings are based on information provided to Fitch by sources deemed to be
reliable, however, Fitch does not verify the accuracy of this underlying
information. These ratings do not constitute recommendations to purchase, sell
or hold any securities, as they do not comment on the adequacy of market prices
or the suitability of any security for any investor.
<TABLE>
<CAPTION>
V-Rating Representative Distribution Description
- ---------- --------------------------- -----------
<S> <C> <C>
V-1 PAC classes with wide prepayment Market Risk: Low
collars, short duration floaters and
V-2 short duration sequential. Securities rated V-1 and V-2 perform
consistently across a range of interest rate
scenarios. These securities exhibit interest rate
risk comparable to short duration treasuries (1-5
years).
V-3 Medium duration Floater, Short Market Risk: Moderate
duration TAC, Short duration PAC
V-4 II, Long duration PAC I. Securities rated V-3 and V-4 have relatively
consistent performance across a range of interest
rate scenarios. These securities experience
interest rate risk comparable to long duration
treasuries (10-30 years).
V-5 PAC classes with narrow collars, Market Risk: Moderate to High
support classes, accrual bonds and
V-6 short duration IO's and PO's, Z Securities rated V-5, V-6 and V-7 experience
bond's. significant variations in performance across a
V-7 range of interest rate scenarios. These securities
have substantial excess interest rate risk and in
many instances exhibit negative convexity. Z
bond's with durations comparable to treasury
zero-coupon issues also fall in this range.
V-8 Leveraged inverse floaters, long Market Risk: High to Speculative
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C>
V-9 duration IO's and PO's, super PO's, Securities rated V-8, V-9 and V-10 experience
jump Zs. sharp, severe variations in performance across a
V-10 range of interest rate scenarios. These securities
exhibit risk characteristics such as extreme
negative convexity, significant sensitivity to the
direction of interest rate movements, and highly
leveraged sensitivity to interest rate indices.
</TABLE>
s:\lsit\prosp&sa\1998\intdurpr.wpd
<PAGE>
LOOMIS SAYLES INVESTMENT GRADE FIXED INCOME FUND
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 482-2450
PROSPECTUS
APRIL 22, 1998
The Loomis Sayles Investment Trust (the "Trust") is a group of seven mutual
funds including the Loomis Sayles Investment Grade Fixed Income Fund (the
"Fund"). The other series, which are described in separate prospectuses,
are:
Loomis Sayles California Tax-Free Income Fund
Loomis Sayles Core Fixed Income Fund
Loomis Sayles Core Growth Fund
Loomis Sayles Fixed Income Fund
Loomis Sayles High Yield Fixed Income Fund
Loomis Sayles Intermediate Duration Fixed Income Fund
Except for the California Tax-Free Income Fund, the funds are designed
specifically for tax-exempt investors such as pension plans, endowments and
foundations, although other institutions and high net-worth individuals are
eligible to invest. Each of the funds is separately managed and has its own
investment objective and policies. Loomis, Sayles & Company, L.P. ("Loomis
Sayles") is the investment adviser of each of the funds.
This Prospectus concisely describes the information that you should know
before investing in the Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated April 22, 1998 is
available free of charge; to obtain a free copy or to make any inquiries about
the Fund write to Loomis Sayles Investment Trust, One Financial Center, Boston,
Massachusetts 02111 or telephone (617) 482-2450. The Statement of Additional
Information, which contains more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus.
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
<TABLE>
<S> <C>
SUMMARY OF EXPENSES...................................................... - 3 -
FINANCIAL HIGHLIGHTS..................................................... - 4 -
PRIOR PERFORMANCE........................................................ - 5 -
THE TRUST................................................................ - 6 -
INVESTMENT OBJECTIVE AND POLICIES........................................ - 6 -
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS............................ - 7 -
THE FUND'S INVESTMENT ADVISER............................................ - 11 -
FUND EXPENSES............................................................ - 11 -
PORTFOLIO TRANSACTIONS................................................... - 12 -
HOW TO PURCHASE SHARES................................................... - 12 -
HOW TO REDEEM SHARES..................................................... - 13 -
OTHER INFORMATION........................................................ - 13 -
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES.......................... - 14 -
APPENDIX A -A-1-
</TABLE>
-2-
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist you in understanding the
various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. The information is based on expenses for the Fund's
fiscal year ended December 31, 1997. The information below should not be
considered a representation of past or future expenses, as actual expenses may
be greater or less than those shown. Also, the assumed 5% annual return in the
example should not be considered a representation of investment performance, as
actual performance will depend upon the actual investment results of securities
held in the Fund's portfolio.
<TABLE>
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) none
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of
offering price) none
Deferred Sales Load (as a percentage of original
purchase price or redemption
proceeds, as applicable) none
Redemption Fees (as a percentage of amount redeemed) none
Exchange Fees none
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (after expense limitation) .40%
12b-1 Fees none
Other Operating Expenses/1/ .15%
Total Fund Operating Expenses (after expense
limitation)/1/ .55%
Example
You 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 $ 6
Three Years $18
Five Years $31
Ten Years $69
</TABLE>
________________________________
/1/ Loomis Sayles has voluntarily undertaken for an indefinite
period to limit the Fund's total Fund operating expenses to the percentage of
average net assets shown above. In the absence of the voluntary expense
limitation, Other Operating Expenses and Total Fund Operating Expenses for the
fiscal year ended December 31, 1997 would have been 0.29% and 0.69%,
respectively.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is for the period March 7, 1997
through December 31, 1997. The following information should be read in
conjunction with the financial highlights, financial statements, and notes
thereto that have been audited by Coopers & Lybrand, L.L.P., independent
accountants, whose report thereon appears in the Fund's 1997 Annual Report,
which is incorporated by reference into this Prospectus and the Statement of
Additional Information.
<TABLE>
<CAPTION>
March 7+ through
December 31,
-------------
1997
- -----
<S> <C>
Net asset value, beginning of period......................... $ 11.72
Income from investment operations -
Net investment income..................................... 0.67
Net realized and unrealized gain (loss) on investments.... 0.48
-------
Total from investment operations....................... 1.15
Less distributions -
Dividends from net investment income...................... (0.67)
Distributions from net realized capital gains............. (0.14)
-------
Total distributions.................................... (0.81)
-------
Net asset value, end of period............................... $ 12.06
=======
Total return (%)............................................. 10.1**
Net assets, end of period (000).............................. $82,964
Ratio of operating expenses to average net assets (%)........ 0.55*
Ratio of net investment income to average net assets (%)..... 6.91*
Portfolio turnover rate (%).................................. 39.0**
Without giving effect to the voluntary expense limitations:
The ratio of operating expenses to average net assets
would have been (%).................................... 0.70*
The net investment income per share would have been....... $ 0.66
</TABLE>
+Date of effectiveness of the Fund's registration statement under the
Securities Act of 1933, as amended.
*Annualized.
**Not annualized.
Further information about the performance of the Fund is contained in the
Fund's semiannual and annual reports to shareholders, copies of which may be
obtained without charge by writing or telephoning the Trust at the address and
telephone number stated on the cover of this Prospectus.
-4-
<PAGE>
PRIOR PERFORMANCE
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT THE INDICATED PERIODS)
The information presented below, for the periods indicated, relates to periods
prior to the effectiveness of the Fund's registration statement under the
Securities Act of 1933, as amended (the "1933 Act"). The following information
should be read in conjunction with the financial highlights, financial
statements, and notes thereto that have been audited by Coopers & Lybrand,
L.L.P., independent accountants, whose report thereon appears in the Fund's 1997
Annual Report, which is incorporated by reference into this Prospectus and the
Statement of Additional Information. The Fund is managed in a manner that is in
all material respects similar to the manner in which it was managed prior to the
effectiveness of its registration statement under the 1933 Act.
<TABLE>
<CAPTION>
January 1, 1997 Year Ended Year Ended July 1* through
through March 6, December 31, December 31, December 31,
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.......................... $ 11.81 $ 11.56 $ 9.57 $ 10.00
Income from investment operations -
Net investment income......................... 0.15 0.80 0.75 0.41
Net realized and unrealized gain (loss)
on investments............................... (0.10) 0.40 2.05 (0.43)
-------- ------- ------- ---------
Total from investment operations........... 0.05 1.20 2.80 (0.02)
Less distributions -
Dividends from net investment income........... (0.14) (0.79) (0.76) (0.41)
Distributions from net realized
capital gains.............................. 0.00 (0.16) (0.05) 0.00
-------- ------- ------- ---------
Total distributions......................... (0.14) (0.95) (0.81) (0.41)
-------- ------- ------- ---------
Net asset value, end of period.................. $ 11.72 $ 11.81 $ 11.56 $ 9.57
======== ======= ======= =========
Total return (%)................................ 0.4*** 10.9 30.3 (0.3)***
Net assets, end of period (000)................. $ 52,315 $51,752 $21,816 $ 4,649
Ratio of operating expenses to
average net assets (%)....................... 0.55** 0.55 0.55 0.55**
Ratio of net investment income to
average net assets (%)........................ 7.30** 7.27 7.61 8.18**
Portfolio turnover rate (%)..................... 21.2*** 73.8 21.6 112.0***
Without giving effect to the
voluntary expense limitations:
The ratio of operating expenses to average
net assets would have been (%).......... 0.62** 0.70 0.94 1.55**
The net investment income per share
would have been.......................... $ 0.15 $ 0.78 $ 0.71 $ 0.36
</TABLE>
* Commencement of operations.
** Annualized.
***Not annualized.
-5-
<PAGE>
THE TRUST
The Fund is a series of the Trust. The Trust is a diversified open-end
management investment company which was organized as a Massachusetts business
trust on December 23, 1993. 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 (the "Trustees") and to cast a vote
for each share held (with a fractional vote for each fractional 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 Trustees.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is above-average total investment return
through a combination of current income and capital appreciation.
The Fund seeks to achieve its objective by investing in a diversified
portfolio of debt securities, although up to 20% of its assets may be invested
in preferred stocks. Under normal market conditions, the Fund will invest at
least 65% of its total assets in fixed income securities that are of investment
grade quality at the time of purchase. Debt securities may include corporate
securities, securities issued or guaranteed by the U.S. Government, its
authorities, agencies or instrumentalities, or certificates representing
undivided interests in the interest or principal of U.S. Treasury securities
("U.S. Government Securities"), zero coupon securities, collateralized mortgage
securities and when-issued securities (including interest-only and principal-
only ("IOs" and "POs") classes of mortgage-backed securities), which are
described herein (together with their related risks) under "More Information
About the Fund's Investments." The Fund will normally invest at least 90% of
its assets in investment grade securities. Investment grade securities include
those rated BBB and above by Standard & Poor's ("S&P") or Baa and above by
Moody's Investors Service, Inc. ("Moody's") or unrated securities that Loomis
Sayles has determined to be of comparable quality. The Fund may continue to
hold securities that are downgraded in quality subsequent to their purchase if,
in the opinion of Loomis Sayles, it would be advantageous to do so. The Fund
may invest a portion of its assets in securities of Canadian issuers, and a
limited portion of its assets in securities of other foreign issuers. See "More
Information About the Fund's Investments; Foreign Securities."
The percentages of the Fund's net assets invested during the fiscal year
ended December 31, 1997 in securities assigned to the various rating categories
by S&P and Moody's on a dollar-weighted basis were approximately as follows:
"AAA"/"Aaa," 21.9%; "AA"/"Aa," 8.1%; "A"/"A," 16.4%; "BBB"/"Baa," 42.6%;
"BB"/"Ba," 9.6%; "B"/"B," 1.4%; and below "B," 0%. The percentage of the Fund's
net assets invested during such fiscal year in unrated debt securities as a
group was approximately 2.44%. The percentages of the Fund's net assets
invested during such fiscal year in such unrated securities (categorized by
comparable rating category) were approximately as follows: "AAA"/"Aaa," 0%;
"AA"/"Aa," 0.76%; "A"/"A," 0.12%; "BBB"/"Baa," 0%; "BB"/"Ba," 1.56%; "B"/"B,"
0%; and below "B," 0%.
Some of the Fund's investment restrictions are "fundamental" and cannot be
changed without a majority vote of the Fund's shareholders. Such restrictions
include: (1) a restriction prohibiting the Fund from making loans; (2) a
restriction prohibiting the Fund from purchasing a 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; (3) a
restriction prohibiting the Fund from borrowing 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, and from borrowing any money except as a temporary measure
for extraordinary or emergency purposes; and (4) a restriction prohibiting the
Fund from purchasing any illiquid security including a 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 security. For additional
investment restrictions, see the Statement of Additional Information.
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<PAGE>
Although authorized to invest in restricted securities, the Fund, as a
matter of nonfundamental operating policy, currently does not intend to invest
in such securities, other than Rule 144A securities. Rule 144A securities 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 Trustees, that
the particular issue of Rule 144A securities is liquid.
The investment objective of the Fund is " fundamental" and cannot be
changed without a majority vote of the Fund's shareholders. All investment
policies other than those that are identified as "fundamental" may be changed by
the Trustees without a vote of the Fund's shareholders.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
The net asset value of the Fund's shares will vary as a result of changes
in the value of securities in the Fund's portfolio. The following describes the
types of securities in which the Fund will principally invest and the risks
associated with them. Additional information about the Fund's investment
practices can be found in the Statement of Additional Information.
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. Fixed income
securities include securities issued by federal, state, local and foreign
governments and related agencies, and by a wide range of foreign and domestic
private issuers. The Fund may also invest in other debt securities that pay a
rate of interest or dividends that is adjusted periodically by reference to some
specified index or market rate. Such securities are included within the
definition of fixed income securities as used in this Prospectus other than for
purposes of determining compliance with the Fund's investment policy of
investing, under normal market conditions, at least 65% of its total assets in
investment grade fixed income securities. Because interest rates vary, it is
impossible to predict the income of the Fund for any particular period.
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. Generally, the longer the maturity of a fixed income security,
the greater the fluctuations in its value because of market and credit risk.
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 will fluctuate as interest rates change. Thus,
for example, the value of an investment in U.S. Government Securities may fall
during times of rising interest rates. Yields on U.S. Government Securities tend
to be lower than those of other fixed income securities of comparable
maturities.
Some U.S. Government Securities, such as Government National Mortgage
Association Certificates, are known as "mortgage-backed" securities,
representing interests in "pools" of mortgage loans secured by residential or
commercial real property. 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
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securities are generally more volatile investments than many other fixed income
securities. See "Collateralized Mortgage Obligations" below for additional
information regarding the risks associated with mortgage-backed 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. Treasury securities. These investment instruments
may be highly volatile.
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 zero
coupon 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
be forced 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 generally more volatile than that of
non-zero coupon fixed income securities of comparable quality and maturity.
COLLATERALIZED MORTGAGE OBLIGATIONS
- -----------------------------------
The Fund may invest in collateralized mortgage obligations ("CMOs"). A CMO
is a limited recourse security backed by a portfolio of mortgages or, more
typically, by mortgage-backed securities held under an indenture. CMOs may be
issued by instrumentalities of the U.S. Government or by non-governmental
entities. The issuer's obligation to make interest and principal payments is
derived from and 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 payments on the underlying collateral or a combination
thereof. CMOs of different classes or series 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 interest rate paid by the retired
CMO. A faster than anticipated rate of prepayments will generally result in
losses on CMO's representing interests in the interest payments on the
underlying portfolio of mortgage-backed securities. Because of the early
retirement feature, CMOs may be more volatile than many other fixed income
investments. In addition, slower than anticipated prepayments on the underlying
mortgages can extend the effective maturities of CMOs, subjecting them to a
greater risk of decline in market value in response to rising interest rates
than traditional debt securities.
COMMERCIAL MORTGAGE-BACKED SECURITIES
- -------------------------------------
The Fund may invest in commercial mortgage-backed securities. Commercial
mortgage-backed securities are securities that represent an interest in, or are
secured by, mortgage loans secured by commercial property, such as industrial
and warehouse properties, office buildings, retail space and shopping malls,
multifamily properties and cooperative apartments, hotels and motels, nursing
homes, hospitals, and senior living centers. The commercial mortgage-backed
securities market is newer and in terms of total outstanding principal amount of
issues is relatively small compared to the total size of the market for
residential mortgage-backed securities.
Commercial mortgage-backed securities are generally structured similarly to
pass-through securities or to CMOs, although other structures are possible.
They may pay fixed or adjustable rates of interest. Commercial mortgage-backed
securities have been issued in public or private transactions by a variety of
public and private issuers.
The commercial mortgage loans that underlie commercial mortgage-backed
securities have certain distinct risk characteristics. Commercial mortgage
loans generally lack standardized terms, which may complicate their structure.
Commercial properties themselves tend to be unique and are more difficult to
value than single-family residential properties. Commercial mortgage loans also
tend to have shorter maturities than residential mortgage loans, and may not be
fully amortizing, meaning that they have a significant principal balance, or
"balloon" payment, due on maturity.
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<PAGE>
Assets underlying commercial mortgage-backed securities may relate only to a few
properties or a single property. The risk involved in single property financings
is highly concentrated. In addition, commercial properties, particularly
industrial and warehouse properties, are subject to environmental risks and the
burdens and costs of compliance with environmental laws and regulations. At the
same time, commercial mortgage-backed securities may have a lower prepayment
risk than residential mortgage-backed securities, because commercial mortgage
loans generally prohibit or impose penalties on prepayments of principal. In
addition, commercial mortgage-backed securities often are structured with some
form of credit enhancement to protect against potential losses on the underlying
mortgage loans.
STRIPPED MORTGAGE-BACKED SECURITIES
- -----------------------------------
The Fund may invest in interest-only and principal-only ("IOs" and "POs")
classes of mortgage-backed securities. The yield to maturity on an IO or PO
class of stripped mortgage-backed securities 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.
In either event, 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.
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 issued. If the value of the security being purchased falls
between the time the Fund commits to buy it and the payment date, the Fund may
sustain a loss. The risk of this loss is in addition to the Fund's risk of loss
on the securities actually held in its portfolio at the time. 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 the 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
- ----------------------
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 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.
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<PAGE>
FOREIGN SECURITIES
- ------------------
The Fund may invest in securities of issuers organized or headquartered
outside the United States ("foreign securities"). The Fund will not purchase a
foreign security (for purposes of this limitation securities of Canadian issuers
publicly traded in the United States will not be treated as foreign securities)
if, as a result, the Fund's total holdings of foreign securities would exceed
20% of the Fund's total assets.
Foreign securities may present risks not associated with investments in
comparable securities of U.S. issuers. There may be less information publicly
available about a foreign corporate or governmental issuer than about a U.S.
issuer, and foreign 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 foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions and securities custody costs are often higher than in the
United States. With respect to certain foreign 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
foreign government securities may depend on the availability of tax or other
revenues to satisfy the issuer's obligations. In addition, the remedies of the
Fund may be extremely limited if a foreign issuer defaults on its obligations.
The Fund's investments in foreign 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
considerations regarding foreign 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 foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the Fund may be affected favorably
or unfavorably by changes in currency exchange rates, exchange control
regulations or foreign withholding taxes. Changes in the value relative to the
U.S. dollar of a foreign 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 foreign 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.
LOWER RATED FIXED INCOME SECURITIES
- -----------------------------------
The Fund may invest a portion of its assets in securities rated below
investment grade ("lower rated fixed income securities"), including securities
in the lowest rating categories, and unrated securities determined by Loomis
Sayles to be of comparable 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 speculative with respect to the ability of the issuer
to meet principal and interest payments. Achievement of the Fund's investment
objective through investments in lower rated fixed income securities may be more
dependent on Loomis Sayles's credit analysis than is the case with higher
quality bonds. The market for lower rated fixed income securities may be more
severely affected than other financial markets by economic recession or
substantial interest rate increases. The value and liquidity of lower rated
fixed income securities may be diminished by adverse publicity and investor
perceptions. In addition, legislation that limits the tax benefits to issuers
or holders of taxable lower rated fixed income securities or that limits the
ability of certain categories of financial institutions to invest in these
securities may adversely affect their market value. The secondary market for
lower rated fixed income securities may be less liquid than
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<PAGE>
the secondary market for higher rated fixed income securities. This lack of
liquidity at certain times may affect the values of these securities and may
make the valuation and sale of these securities by the Fund more difficult.
Certain lower rated fixed income securities do not pay interest on a current
basis. However, the Fund will accrue and distribute this interest on a current
basis, and may be required to sell securities at times when Loomis Sayles would
not otherwise deem it advisable to do so in order to generate cash for
distributions. Securities of below investment grade quality are commonly
referred to as "junk bonds." Securities in the lowest rating categories may be
in poor standing or in default. Investment grade fixed income securities may
share some of the characteristics of lower rated fixed income securities
described above.
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 has advised the Fund that it is reviewing all of its 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 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.
In addition to selecting and reviewing the Fund's investments, Loomis
Sayles provides executive and other personnel for the management of the Fund.
The Board of Trustees supervises Loomis Sayles's conduct of the affairs of the
Fund.
The portfolio manager for the Fund since its inception has been Daniel J.
Fuss, who has been with Loomis Sayles since 1976 and is head of the Fixed Income
Management Group. Mr. Fuss is an Executive Vice President and Director of
Loomis Sayles.
FUND EXPENSES
The Fund pays Loomis Sayles a monthly investment advisory fee. This fee is
paid at the annual rate of 0.40% of the Fund's average daily net assets.
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<PAGE>
In addition to the investment advisory fee, the Fund pays all expenses not
expressly assumed by Loomis Sayles, including taxes, brokerage commissions, fees
of the Fund's custodian, independent accountants and legal counsel and fees of
the Trustees who are not directors, officers or employees of Loomis Sayles or
its affiliated companies.
Loomis Sayles has voluntarily undertaken for an indefinite period to waive
its fees and, to the extent necessary, to bear other Fund expenses in order to
limit the Fund's total operating expenses to .55% of average annual net assets.
PORTFOLIO TRANSACTIONS
Loomis Sayles selects brokers and dealers to execute portfolio transactions
for the Fund. Portfolio turnover considerations will not limit Loomis Sayles's
investment discretion in managing the Fund's assets. The Fund anticipates that
its portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions. High portfolio turnover
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gains. Portfolio turnover rates for the life of the Fund are
set forth above under the headings "Financial Highlights" and "Prior
Performance." See "Dividends, Capital Gain Distributions and Taxes" for
information on the tax consequences of investing in the Fund.
HOW TO PURCHASE SHARES
You may make an initial purchase of shares of the Fund by submitting a
completed application form and payment to Loomis Sayles.
The minimum initial investment in the Fund is $3,000,000. Subsequent
investments must be at least $50,000. The Trust reserves the right to waive
these minimums in its sole discretion.
Shares of the Fund may be purchased by exchange of (i) cash, (ii)
securities on deposit with a custodian acceptable to Loomis Sayles or (iii) a
combination of such securities and cash. Purchase of shares of the Fund in
exchange for securities is subject in each case to the determination by Loomis
Sayles that the securities to be exchanged are acceptable for purchase by the
Fund. Securities accepted by Loomis Sayles in exchange for Fund shares will be
valued in the same manner as the Fund's assets, as described below, as of the
time of the Fund's next determination of net asset value after such acceptance.
All dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Fund and must be delivered to the Fund upon receipt by the investor from the
issuer. A gain or loss for federal income tax purposes would be realized upon
the exchange by an investor that is subject to federal income taxation,
depending upon the investor's basis in the securities tendered. A shareholder
who wishes to purchase shares by exchanging securities should obtain
instructions by calling (617) 482-2450.
Loomis Sayles will not approve the acceptance of securities in exchange for
shares of the Fund unless (1) Loomis Sayles, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund can be resold by
the Fund without restriction under the 1933 Act or otherwise; and (3) the
securities are eligible to be acquired under the Fund's investment policies and
restrictions. No investor owning 5% or more of the Fund's shares may purchase
additional Fund shares by the exchange of securities.
Upon acceptance of your order, the Trust opens an account for you, 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, you may send subsequent investments at any time.
The Trust reserves the right to reject any purchase order for any reason
which the Trust in its sole discretion deems appropriate. Although the Trust
does not anticipate that it will do so, the Trust reserves the right to suspend
or change the terms of the offering of its shares.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust. Shares of the Fund
are sold without any sales charge. The net asset value of the Fund's shares is
calculated
-12-
<PAGE>
by dividing the Fund's net assets by the number of shares outstanding. Net asset
value is calculated at least weekly and as of the close of the New York Stock
Exchange (the "Exchange") on each day on which an order for purchase or
redemption of Fund shares is received and on which the Exchange is open for
unrestricted trading. Portfolio securities are valued at their market value as
more fully described in the Statement of Additional Information.
HOW TO REDEEM SHARES
You can redeem your shares by sending a written request to the Trust.
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, and the number of shares
or the dollar amount to be redeemed. All owners of the shares must sign the
written request in the exact names in which the shares are registered and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity).
The redemption price will be the net asset value per share next determined
after the written redemption request is received by the Trust in proper form.
The Trust usually requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Trust by calling (617) 482-2450 for details.
Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order. If
you purchased your shares by check and your check was deposited less than
fifteen days prior to the redemption request, the Trust may withhold redemption
proceeds until your check has cleared.
Redemption proceeds may be made in money or in kind, or partly in money and
partly in kind, as determined by the Trust.
The Fund may suspend the right of redemption and may postpone payment for
more than seven days when the 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.
OTHER INFORMATION
The Trustees may, without shareholder approval, divide the Trust's shares
of beneficial interest into multiple series. The Trust is currently divided
into seven series, including the Fund and the other funds listed on the cover of
this Prospectus.
The Fund's investment performance may from time to time be included in
advertisements about the Fund.
The Fund's yield 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.
Total return for the Fund is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period to the redemption
value of the investment in the Fund at the end of the period (assuming immediate
reinvestment of any dividends or capital gain distributions).
All data are based on the Fund's past investment results and do not predict
future performance. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the Fund's
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<PAGE>
portfolio and the Fund's operating expenses. Investment performance also often
reflects the risks associated with the Fund's investment objectives and
policies. These factors should be considered when comparing the Fund's
investment results with those of other mutual funds and other investment
vehicles. Quotations of investment performance for any period when an expense
limitation was in effect will be greater than if the limitation had not been in
effect.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Because the Fund is designed primarily for tax-exempt investors such as
pension plans, endowments and foundations, the Fund is not managed with a view
to reducing taxes. The Fund pays any net investment income to shareholders as
monthly dividends. The Fund also distributes all of its net realized capital
gains after applying any capital loss carryovers. Any capital gain
distributions are normally made annually in December, but may, to the extent
permitted by law, be made more frequently as deemed advisable by the Trustees.
The Trustees may change the frequency with which the Fund declares or pays
dividends.
Your dividends and capital gain distributions will automatically be
reinvested in additional shares of the Fund on the payment date unless you have
elected to receive cash. Dividends and capital gain distributions will be taxed
as described below whether received in cash or additional shares.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended. As such, so long as the Fund
distributes substantially all its net investment income and net realized capital
gains to its shareholders on a current basis, the Fund itself does not pay any
federal income or excise tax. The Fund intends to make sufficient distributions
to be relieved of federal taxes.
Income dividends and short-term capital gain distributions are treated as
ordinary income to you 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 but not more than 18 months and from net gains on
securities held for more than 18 months will be taxable as such whether
distributed in cash or additional shares and regardless of how long you have
held your shares. However, any loss recognized by you on the taxable
disposition of shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain distribution you received with
respect to the shares.
The Fund is required to withhold 31% of redemption proceeds, income
dividends and capital gain distributions it pays to you (1) if you do not
provide a correct, certified taxpayer identification number, (2) if the Fund is
notified that you have underreported income in the past, or (3) if you fail to
certify to the Fund that you are not subject to such withholding.
In January of each year, the Trust will send you a statement showing the
federal tax status of dividends and distributions paid to you during the
preceding year.
The foregoing summarizes certain U.S. federal income tax consequences of
investing in the Fund. Before investing, you should consult your own tax
adviser for more information concerning the federal, foreign, state and local
tax consequences of investing in, redeeming or exchanging Fund shares.
TRANSFER AND DIVIDEND INVESTMENT ADVISER
PAYING AGENT AND Loomis, Sayles & Company, L.P.
CUSTODIAN OF ASSETS One Financial Center
State Street Bank and Trust Company Boston, Massachusetts 02111
Boston, Massachusetts 02102
-14-
<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.
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.
A-1
<PAGE>
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
edged." 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 are 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.
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.
A-2
<PAGE>
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 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, and those with the weakest investment attributes are
designated by the symbols Aa3, A3, Baa3, Ba3 and B3.
A-3
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES CALIFORNIA TAX-FREE INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
April 22, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus (the "Prospectus") of Loomis
Sayles California Tax-Free Income Fund, a series of Loomis Sayles Investment
Trust, dated April 22, 1998, and should be read in conjunction therewith. A
copy of the Prospectus may be obtained from Loomis Sayles Investment Trust, One
Financial Center, Boston, Massachusetts 02111.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...................... -3-
MANAGEMENT OF THE TRUST.............................................. -10-
INVESTMENT ADVISORY AND OTHER SERVICES............................... -13-
PORTFOLIO TRANSACTIONS AND BROKERAGE................................. -15-
DESCRIPTION OF THE TRUST............................................. -16-
HOW TO BUY SHARES.................................................... -19-
NET ASSET VALUE...................................................... -19-
REDEMPTIONS.......................................................... -19-
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS.......... -20-
FINANCIAL STATEMENTS................................................. -23-
CALCULATION OF YIELD AND TOTAL RETURN................................ -23-
PERFORMANCE COMPARISONS.............................................. -24-
PERFORMANCE DATA..................................................... -28-
APPENDIX APUBLICATIONS THAT MAY CONTAIN FUND INFORMATION............. -29-
APPENDIX BADVERTISING AND PROMOTIONAL LITERATURE..................... -31-
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles California Tax-
Free Income Fund (the "Fund"), a series of Loomis Sayles Investment Trust (the
"Trust"), are summarized in the Prospectus under "Investment Objective and
Policies" and "More Information About the Fund's Investments." The investment
policies of the Fund set forth in the Prospectus and in this Statement of
Additional Information may be changed by Loomis, Sayles & Company, L.P. ("Loomis
Sayles"), the Fund's investment adviser, subject to review and approval by the
Trust's board of trustees (the "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 means the lesser of (i) 67% of the shares of the Fund represented at a
meeting at which at least 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares).
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 the Fund):
The Fund will not:
*(1) 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.
*(2) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts. (This
restriction does not prevent the Fund from investing in issuers that
invest or deal in the foregoing types of assets or from purchasing
securities that are secured by real estate.)
*(3) Make loans. (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.)
*(4) Change its classification pursuant to Section 5(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), from a "diversified"
to "non-diversified" management investment company.
*(5) Purchase any security if, as a result, more than 25% of the Fund's
total assets (taken at current value) would be invested in any one
industry (for purposes of this restriction, governmental issuers of
tax-exempt securities are not considered part of any industry).
*(6) 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; however, the Fund's
3
<PAGE>
use of reverse repurchase agreements and "dollar roll" arrangements
shall not constitute borrowing by the Fund for purposes of this
restriction.
*(7) 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.
*(8) Issue senior securities other than any borrowing permitted by
restriction (6) above. (For the purposes of this restriction none of
the following is deemed to be a senior security: any pledge, mortgage,
hypothecation or other encumbrance of assets; 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 or entry into options, forward contracts,
futures contracts, options on futures contracts, swap contracts or any
other derivative investments to the extent that Loomis Sayles
determines that the Fund is not required to treat such investments as
senior securities pursuant to the pronouncements of the Securities and
Exchange Commission (the "SEC") or its staff.)
The Fund intends, based on the views of the staff of the SEC, to restrict
its investments, if any, in repurchase agreements maturing in more than seven
days, together with other investments in illiquid securities, to the percentage
permitted by restriction (7) above.
Although authorized to invest in restricted securities, the Fund, as a
matter of non-fundamental operating policy, currently does not intend to invest
in such securities, except Rule 144A securities.
Portfolio Turnover
- ------------------
Portfolio turnover considerations will not limit Loomis Sayles's investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rates will vary significantly from time to time depending on
the volatility of economic and market conditions. High portfolio turnover rates
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gain. See "Portfolio Transactions and Brokerage" for a
description of Loomis Sayles's brokerage practices and "Income Dividends,
Capital Gain Distributions and Tax Status" for more information about the tax
consequences of investing in the Fund.
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 the Fund anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When the Fund purchases securities in this manner (i.e. on
a when-issued or delayed-delivery basis), it is required to create a segregated
account with the 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
4
<PAGE>
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).
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, the
Federal National Mortgage Association, 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 U.S. 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 U.S.
Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the U.S.
-----------------------------
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 U.S. Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or other
-------------
mortgagee which represent interests 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" - The Federal National Mortgage Association ("FNMA") 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
5
<PAGE>
by FNMA that are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
--------------
is a corporate instrumentality of the U.S. 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 U.S. Government.
As described in the Prospectus, U.S. Government Securities generally do not
involve the 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.
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 obligations
or for an initial period after the issuance of the obligations. Such bonds are
issued and traded at discounts 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 an
investor 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.
California Tax-Exempt Securities
- --------------------------------
In addition to general economic pressures, certain California
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could adversely affect the
State of California's ability to raise revenues to meet its financial
obligations. The following information is only a brief summary, is not a
complete description and is based on information drawn from official statements
and prospectuses relating to securities offerings of the State of California
that have come to the attention of the Trust and were available before the date
of
6
<PAGE>
this Statement of Additional Information. The Trust has not independently
verified the accuracy and completeness of the information contained in those
statements and prospectuses.
As used below, "California Tax-Exempt Securities" includes issues secured
by a direct payment obligation of the State and obligations of other issuers
that rely in whole or in part on State revenues to pay their obligations.
Property tax revenues and part of the State's General Fund surplus are
distributed to counties, cities and their various taxing entities; whether and
to what extent a portion of the State's General Fund will be so distributed in
the future is unclear.
Overview. After suffering through a severe recession, since the start of
--------
1994 California's economy has been on a steady recovery. The recession seriously
affected State tax revenues and caused an increase in expenditures for health
and welfare programs. As a result, from the late 1980s until 1992-93, the State
experienced recurring budget deficits. During this period, expenditures
exceeded revenues in four out of six years up to 1992-93, and the State
accumulated a budget deficit of about $2.8 billion at its peak at June 30, 1993.
A further consequence of the large budget imbalances was to significantly reduce
the State's available cash resources and require it to use a series of external
borrowings to meet its cash needs.
The State's financial condition improved markedly during the 1995-96 and
1996-97 fiscal years, through a combination of higher than expected revenues and
a slowdown in spending. The State's cash position also improved, and no
external borrowings occurred over the end of those two fiscal years. The
substantially greater tax revenues that the State received were spent largely on
schools (as mandated by State law), and the accumulated budget deficit was
finally eliminated. In January 1998, the State Department of Finance reported
that the State's budget reserve was $461 million as of June 30, 1997, and
projected that the budget reserve balance will be $329 million at June 30, 1998.
The Governor's proposed budget for 1998-99, which was released on January 9,
1998, projects that the budget reserve at June 30, 1999 will be $296
million.
Because of the deterioration in the State's financial condition, the
State's credit ratings have been reduced. Since October 1992, three major
nationally recognized statistical rating organizations
7
<PAGE>
have lowered the State's general obligation bond rating from the highest rating
of "AAA" to "A+" by Standard and Poor's, "A1" by Moody's Investors Service,
Inc., and "AA-" by Fitch Investors Service, Inc. In October 1997, Fitch
Investors Service, Inc. upgraded the State's general obligation bond rating from
"A+" to "AA-."
State Appropriations Limit. Subject to certain exceptions, the State is
--------------------------
subject to an annual appropriations limit imposed by its Constitution on
"proceeds of taxes." Various expenditures, including but not limited to debt
service on certain bonds and appropriations for qualified capital outlay
projects, are not included in the appropriations limit.
Issues Affecting Local Governments and Special Districts
- --------------------------------------------------------
Proposition 13. Certain California Tax-Exempt Securities may be
--------------
obligations of issuers that rely in whole or in part on ad valorem real property
taxes for revenue. In 1978, California voters approved Proposition 13, which
limits ad valorem real property taxes and restricts the ability of taxing
entities to increase property tax and other revenues. With certain exceptions,
the maximum ad valorem real property tax is limited to 1% of the value of real
property. The value of real property may be adjusted annually for inflation at a
rate not exceeding 2% per year, or reduced to reflect declining value, and may
also be adjusted when there is a change in ownership or new construction with
respect to the property. Constitutional challenges to Proposition 13 to date
have been unsuccessful.
The State, in response to the significant reduction in local property tax
revenues as a result of the passage of Proposition 13, enacted legislation to
provide local government with increased expenditures from the General Fund.
This post-Proposition 13 fiscal relief has ended.
Proposition 62. This initiative placed further restrictions on the ability
--------------
of local governments to raise taxes and allocate approved tax revenues. Although
some of the California Courts of Appeal held that parts of Proposition 62 were
unconstitutional, the California Supreme Court recently upheld Proposition 62's
requirement that special taxes be approved by a two-thirds vote of the voters
voting in an election on the issue. This decision may invalidate other taxes
that have been imposed by local governments in California and make it more
difficult for local governments to raise taxes.
Proposition 218. Passed in November 1996, this initiative places
---------------
additional limitations on the ability of California local governments to impose
or raise various taxes, assessments, charges and fees by requiring voter
approval of such items. General taxes and many assessments and fees that were
passed without public approval after 1994 and before November 6, 1996 must be
approved by voters to continue in effect. In addition, Proposition 218
clarified the right of local voters to reduce taxes, fees, assessments or
charges. Proposition 218 does not affect the State's ability to levy or collect
taxes.
Propositions 98 and 111. These initiatives changed the State
-----------------------
appropriations limit and State funding of public education below the university
level by guaranteeing K-14 schools a minimum share of General Fund revenues.
The initiatives also require that the State establish a prudent reserve fund for
public education.
8
<PAGE>
Appropriations Limit. Local governmental entities are also subject to
--------------------
annual appropriations limits. If a local government's revenues in any year
exceed the limit, the excess must be returned to the public through a revision
of tax rates or fee schedules over the following two years.
Conclusion. The effect of these Constitutional and statutory changes and
----------
of budget developments on the ability of California issuers to pay interest and
principal on their obligations remains unclear, and may depend upon whether a
particular bond is a general obligation or limited obligation bond (limited
obligation bonds being generally less affected). There is no assurance that any
California issuer will make full or timely payments of principal or interest or
remain solvent. For example, in December 1994, Orange County filed for
bankruptcy.
Additional Issues.
- -----------------
Mortgages and Deeds of Trust. The Fund may invest in issues that are
----------------------------
secured in whole or in part by mortgages or deeds of trust on real property.
California law limits the remedies of a creditor secured by a mortgage or a deed
of trust, which may result in delays in the flow of revenues to, and debt
service paid by, an issuer.
Lease Financings. Some local governments and districts finance certain
----------------
activities through lease arrangements. It is uncertain whether such lease
financings are debt that requires voter approval.
Seismic Risk. It is impossible to predict the time, location or magnitude
------------
of a major earthquake or its effect on the California economy. In January 1994
a major earthquake struck Los Angeles, causing significant damage to structures
and facilities in a four-county area. The possibility exists that another such
earthquake could create a major dislocation of the California economy.
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 Trustees, that a 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
marketplace trades therefor.
9
<PAGE>
MANAGEMENT OF THE TRUST
The trustee and officers of the Trust and their principal occupations
during the past five years are as follows:
TIMOTHY J. HUNT (66) -- Trustee. 26 Dennett Road, Marblehead, Massachusetts.
-------
Retired. Formerly, Vice President and Director of Fixed Income Research,
Loomis Sayles.
DANIEL J. FUSS (64) -- President. Executive Vice President and Director, Loomis
---------
Sayles.
MARK W. HOLLAND (48) -- Treasurer. Vice President-Finance and Administration
---------
and Director, Loomis Sayles.
SHEILA M. BARRY (52) -- 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 (50) -- Executive Vice President. 465 First Street West,
------------------------
Sonoma, California. President, Chairman, Director and Chief Executive
Officer, Loomis Sayles.
WILLIAM F. CAMP (36) -- Vice President. 1533 North Woodward, Bloomfield Hills,
--------------
Michigan. Vice President, Loomis Sayles. Formerly, Portfolio Manager,
Kmart Corporation.
QUENTIN P. FAULKNER (59) -- Vice President. Vice President, Loomis Sayles.
--------------
KATHLEEN C. GAFFNEY (36) -- Vice President. Vice President, Loomis Sayles.
--------------
JEFFREY L. MEADE (47) -- Vice President. Chief Operating Officer, Executive
--------------
Vice President and Director, Loomis Sayles.
ROBERT K. PAYNE (55) -- Vice President. 555 California Street, San Francisco,
--------------
California. Vice President, Loomis Sayles.
ANTHONY J. WILKINS (56) -- Vice President. Vice President and Director, Loomis
--------------
Sayles.
MARI J. SUGAHARA (33) -- Vice President. Vice President, Loomis Sayles.
---------------
10
<PAGE>
FREDERICK E. SWEENEY, JR. (37) --Vice President. Vice President, Loomis Sayles.
---------------
Formerly, served as an Investment Consultant at Meketa Investment Group and
prior to that served as Vice President of New England Investment
Associates.
JOHN F. YEAGER (34) -- 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 from the positions listed. Except as
indicated above, the address of each officer of the Trust affiliated with Loomis
Sayles is One Financial Center, Boston, Massachusetts 02111.
The Trust pays no compensation to its officers listed above who are
interested persons of the Trust. Each Trustee who is not affiliated with Loomis
Sayles is compensated at the rate of $10,000 per annum. No Trustee will receive
compensation from any other investment company which is advised by Loomis Sayles
or its affiliates or which holds itself out to investors as being related to the
Trust.
<TABLE>
<CAPTION>
COMPENSATION TABLE
for the year ended December 31, 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total Compensation
Position Compensation Retirement Annual from Trust and Fund
from Trust Benefits Benefits Upon Complex Paid to
Accrued as Part Retirement Trustee
of Fund Expenses
- ------------------------------------------------------------------------------------------------
Timothy J. Hunt, $10,000 $0 $0 $10,000
Trustee
</TABLE>
As of the date hereof, the Trustee and officers as a group owned less than
1% of the outstanding shares of the Fund.
The following table sets forth the name, address and percentage ownership
of each holder of 5% or more of the Fund's outstanding voting securities as of
March 31, 1998.
<TABLE>
<CAPTION>
Shareholder Address Percentage of Shares Held
- ----------- ------- -------------------------
<S> <C> <C>
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
First American 400 First American Center 11.84%
Trust Company, Paul M. Nashville, TN 37237-0402
Davis for Peter Davis
Phillipa Scott Trust 16133 Ventura Boulevard 9.73%
Encino, CA 91436
Koeppel Family Trust 1445 Cabellero Road 8.68%
Arcadia, CA 91006
Joseph E. & Ellen Mueth 225 S. Lake Avenue 8.56%
TTEEs, Mueth Family Trust Pasadena, CA 91101
Camille Basha & Connie 1015 San Marino Avenue 7.76%
Vitale JTTE San Marino, CA 91108
Judith Ann Kenyon, Trustee 1755 Warwick Avenue 6.00%
Trust Dated 2/23/89 San Marino, CA 91108
Connie Vitale & Camille 1015 San Marino Avenue 5.74%
Basha JTTE San Marino, CA 91108
First American 400 First American Center 5.22%
Trust Company, Nashville, TN 37237-0402
Paul Davis for Peter Davis
Family
</TABLE>
12
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. Loomis Sayles serves as investment adviser to the
------------------
Fund under an advisory agreement with the Trust dated August 30, 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 Trustees. Loomis Sayles furnishes, at its own expense, all
necessary office space, office supplies, 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 a monthly investment advisory fee at the annual rate of .50% of
the Fund's average weekly net assets.
Under the 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.
As described in the Prospectus, Loomis Sayles has voluntarily undertaken
for an indefinite period to limit the Fund's total operating expenses. These
arrangements may be modified or terminated by Loomis Sayles at any time, subject
to prior notice to shareholders.
During the 1995 fiscal period (June 1, 1995 through December 31, 1995),
the 1996, and the 1997 fiscal years, Loomis Sayles received the following
amounts of investment advisory fees from the Fund (before voluntary fee
reductions and expense assumptions) and waived and reimbursed the following
amounts of fees for the Fund:
<TABLE>
<CAPTION>
Period
Waivers/Reimbursements Advisory Fees Fee
- ---------------------- ------------- ---
<S> <C> <C>
1995 $19,742 $ 28,897
1996 $52,945 $ 64,804
1997 $77,450 $117,260
</TABLE>
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 Trustees 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 or Loomis
Sayles, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to the 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
interested persons, cast in person at a meeting called for the purpose of voting
on such approval.
The advisory agreement may be terminated without penalty by vote of the
Trustees or by vote of a majority of the outstanding voting securities of the
Fund, upon sixty days' written notice to Loomis Sayles, or by Loomis Sayles upon
ninety days' written notice to the Trust, and terminates automatically in the
event of its assignment, as that term is defined in the 1940 Act. In addition,
the
13
<PAGE>
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" or "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, cast in
person at a meeting called for the purpose of voting on such approval.
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 to the seventeen series of the
Loomis Sayles Funds, each a series of a registered open-end diversified
management investment company. Loomis Sayles acts as investment adviser or sub-
adviser to New England Star Advisers Funds, New England Value Fund, New England
Balanced Fund and New England Strategic Income 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 Funds 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 and to the Balanced Series and the Small Cap Series of New England
Zenith Funds, which is also a registered open-end management investment company.
Loomis Sayles also provides investment advice to 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.
Officers of the Trust who hold positions with Loomis Sayles are listed
under "Management of the Trust" in this Statement of Additional Information.
Certain officers of the Trust also serve as officers, directors and trustees of
other investment companies and clients advised by Loomis Sayles. The other
investment companies and clients sometimes invest in securities in which the
Fund also invests. If the Fund and such other investment companies or clients
desire to buy or sell the same portfolio securities at the same time, purchases
and sales may be allocated, to the extent practicable, on a pro rata basis in
proportion to the 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 Fund. It is the opinion of the Trustee
14
<PAGE>
that the desirability of retaining Loomis Sayles as investment adviser for the
Fund outweighs the disadvantages, if any, which might result from these
practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
----------------------
Street"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street 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 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 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 Coopers &
-----------------------
Lybrand L.L.P. ("Coopers & Lybrand"), One Post Office Square, Boston,
Massachusetts 02109. Coopers & Lybrand conducts an annual audit of the Trust's
financial statements and financial highlights, 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.
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
are carried out through broker-dealers who make the primary market for
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
the best price and execution for the transaction. This does not necessarily
mean that the lowest available brokerage commission will be paid for a
transaction. However, the Fund will only pay commissions that Loomis Sayles
believes 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 the 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
15
<PAGE>
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's 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 Fund. Receipt of services or products other than research from brokers is
not a factor in the selection of brokers.
The following table sets forth for the 1995 fiscal period (June 1, 1995 to
December 31, 1995), the 1996 and the 1997 fiscal years (1) the aggregate dollar
amounts of brokerage commissions paid on portfolio transactions during such
periods, (2) the dollar amounts of transactions on which commissions were paid
during such periods that were directed to brokers providing research services
("directed transactions") and (3) the dollar amounts of commissions paid on
directed transactions during such periods:
<TABLE>
<CAPTION>
(1) (2) (3)
Aggregate Commissions
Brokerage Directed On Directed
Commissions Transactions Transactions
Period ($) ($) ($)
------ ----------- ------------ ------------
<S> <C> <C> <C>
1995 $ 0 $ 0 $ 0
1996 $ 0 $ 0 $ 0
1997 $ 0 $ 0 $ 0
</TABLE>
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 The Commonwealth of Massachusetts by an Agreement and Declaration of
Trust (the "Declaration of Trust") dated December 23, 1993.
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 series
16
<PAGE>
of the Trust 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 the Fund, certain
expenses may be legally chargeable against the assets of all series.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to issue shares of the Trust in one or more series, and to subdivide
any series of shares into various classes of shares with such dividend
preferences and other rights as the Trustees may designate. While the Trustees
have no current intention to subdivide any series of shares into classes, this
flexibility is intended to allow them to provide for an equitable allocation of
the impact of any future regulatory requirements which might affect various
classes of shareholders differently, or to permit shares of a series to be
distributed through more than one distribution channel, with the costs of the
particular means of distribution (or costs of related services) to be borne by
the shareholders who purchase through that means of distribution. 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").
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or the Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of the Trust or the Fund,
respectively. The Declaration of Trust further provides that the Trustees may
also terminate the Trust or the Fund upon written notice to the shareholders.
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, respectively.
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote for
each full share held (with a fractional vote for each fractional share held) and
may vote (to the extent provided in the Declaration of Trust) in 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 for each series or sub-series 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 exclusively 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. Voting rights are not cumulative.
17
<PAGE>
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.
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, (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value) and (iii) to issue shares of the Trust
in one or more series, and to subdivide any series of shares into various
classes of shares with such dividend preferences and other rights as the
Trustees may designate.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
each 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
18
<PAGE>
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 and for determining the
offering price of such shares 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 at least weekly and as of the close of regular
trading on the New York Stock Exchange (the "Exchange") on any day on which an
order for purchase or redemption of the Fund's shares is received and on which
the Exchange is open for unrestricted trading. During the twelve months
following the date of this Statement of Additional Information, the Exchange is
expected to be closed on the following weekdays: Memorial Day as observed,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day, New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day and Good Friday. 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 among securities that 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 Trustees, although the actual calculations may be made by
persons acting pursuant to the direction of the Trustees.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
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 the Trust in proper form. Proceeds resulting from a written
- -------------------------------------
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. In those cases where you have recently
purchased your shares by check and your check was received less than fifteen
days prior to the redemption request, the Fund may withhold redemption proceeds
until your 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 Trustees
determine 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.
19
<PAGE>
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 monthly dividends, substantially all net 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 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 the Trust.
In order for a change to be in effect for any dividend or distribution, it must
be received by the Trust on or before the record date for such dividend or
distribution.
As required by federal law, information concerning the federal tax status
of distributions from the Fund will be furnished to each shareholder for each
calendar year on or before January 31 of the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order so to qualify and to qualify for the
special 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 foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities or currencies, (ii) distribute 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 its net long-term capital losses for such year;
and (iii) at the end of each fiscal quarter hold at least 50% of the value of
its total assets in cash, 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 no more than
25% of the value of its total 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 distributions in any calendar year.
Generally, the "required
20
<PAGE>
distribution" is 98% of the Fund's ordinary income for the calendar year plus
98% of its capital gain net income realized during the one-year period ending on
October 31 (or December 31, if the Fund is permitted to elect and 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.
The Code permits a regulated investment company that at the close of each
quarter of the Funds taxable year has at least 50% of the value of its total
assets invested in obligations the interest on which is excludable from federal
gross income to pass through to its investors, tax-free, its net tax-exempt
interest income. The policy of the Fund is to pay each year as dividends all of
the Fund's tax-exempt interest income net of certain deductions. An exempt-
interest dividend is any dividend or part thereof derived from tax-exempt
interest and designated as an exempt-interest dividend in a written notice
mailed to shareholders after the close of the Fund's taxable year, but the
aggregate of such dividends may not exceed the net tax-exempt interest received
by the Fund during the taxable year. The percentage of the dividends paid for
any taxable year that qualifies as federal exempt-interest dividends will be the
same for all shareholders receiving dividends during such year, regardless of
the period for which the shares were held.
Exempt-interest dividends may be treated by shareholders as items of
interest excludable from their gross income under Section 103(a) of the Code but
may be taxable for federal alternative minimum tax purposes and for state and
local tax purposes. Each shareholder is advised to consult his or her tax
adviser with respect to whether exempt-interest dividends would retain the
exclusion under Section 103(a) if such shareholder were treated as a
"substantial user" or a "related person" to such user under Section 147(a) with
respect to facilities financed through any of the tax-exempt obligations held by
the Fund.
If, at the close of each quarter of its taxable year, at least 50% of the
value of the total assets of the Fund consists of obligations the interest on
which is exempt from California personal income taxation if held by an
individual, then the Fund will be qualified to pay dividends that are exempt
from California personal income tax. The Fund intends to qualify to pay such
dividends. For California personal income tax purposes, distributions derived
from other investments and distributions from any net realized capital gains
will be taxable, whether paid in cash or reinvested in additional shares.
Interest derived from California tax-exempt securities is not subject to
the California alternative minimum tax. For California personal income tax
purposes, the entire amount of interest on any indebtedness incurred to purchase
or carry shares of the Fund will not be deductible.
Distributions from investment income and capital gains, including
dividends derived from interest paid on California tax-exempt securities, will
be subject to California franchise tax and California corporate income tax.
21
<PAGE>
Shareholders of the Fund will be subject to federal income taxes on
taxable distributions made by the Fund whether received in cash or additional
shares of the Fund. Distributions by the Fund of net taxable income and short-
term capital gains, if any, will be taxable to shareholders as ordinary income.
Distributions of long-term capital gains, if any, will be taxable to
shareholders as long-term capital gains, without regard to how long a
shareholder has held shares of the Fund.
Taxable dividends and distributions on Fund shares received shortly after
their purchase, although economically a return of capital, are subject to
federal income taxes.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
If shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss, provided the shareholder holds the shares as a
capital asset. In general, any long term gains realized upon a taxable
disposition of shares will be subject to a maximum tax rate of either 28% or 20%
depending on the shareholder's holding period in the Fund shares. If a
shareholder sells Fund shares held for six months or less at a loss, the loss
will be disallowed to the extent of any exempt-interest dividends received by
the shareholder with respect to the shares and will be treated as long-term
capital loss to the extent of any long-term capital gain distributions received
with respect to the shares. Furthermore, all or a portion of any loss will be
disallowed on the taxable disposition of Fund shares if the shareholder acquires
other shares of the Fund within 30 days before or after the disposition.
The Fund's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
If the Fund engages in hedging transactions, including hedging
transactions in options, future contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to market, straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert short-
term capital losses into long-term capital losses. These rules could therefore
affect the amount, timing and character of distributions to shareholders. The
Fund will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the Fund.
22
<PAGE>
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code, regulations and applicable provisions of California tax
law currently in effect. For the complete provisions, reference should be made
to the pertinent Code sections, regulations and applicable provisions of
California tax law. These authorities are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to other state and local
taxes or foreign taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, foreign, state or local taxes.
The Internal Revenue Service recently revised its regulations affecting
the application to foreign investors of the back-up withholding and withholding
tax rules described above. The new regulations will generally be effective for
payments made on or after January 1, 1999 (although transition rules will
apply). In some circumstances, the new rules will increase the certification and
filing requirements imposed on foreign investors in order to qualify for
exemption from the 31% back-up withholding tax and for reduced withholding tax
rates under income tax treaties. Foreign investors in the Fund should consult
their tax advisors with respect to the potential application of these new
regulations.
FINANCIAL STATEMENTS
The Report of Independent Accountants, financial highlights and financial
statements of the Fund included in its 1997 Annual Report are incorporated
herein by reference to such Annual Report. Copies of such Annual Report are
available without charge upon request by writing Loomis Sayles, One Financial
Center, Boston, Massachusetts 02111 or telephoning (617) 482-2450.
The financial highlights included in the Prospectus under the headings
"Financial Highlights" and "Prior Performance" and incorporated by reference
into this Statement of Additional Information and the financial statements and
financial highlights contained in the Fund's 1997 Annual Report and incorporated
by reference into this Statement of Additional Information have both been
audited by Coopers & Lybrand L.L.P., independent accountants, and have been so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting.
CALCULATION OF YIELD AND TOTAL RETURN
Yield. The Fund's yield 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
23
<PAGE>
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 objective 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
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.
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,
24
<PAGE>
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 twice a month. The
-----------------
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a 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 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 INDEX. The Merrill Lynch High Yield Index
-------------------------------
includes over 750 issues and represents public debt greater than $10 million
(original issuance rated BBB/BB and below).
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.
26
<PAGE>
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.
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 the 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>
PERFORMANCE DATA
The manner in which yield and total return of the Fund will be calculated
for public use is described above. The following table summarizes the
calculation of the Fund's yield at December 31, 1997 and the Fund's total return
(i) for the one-year period ended December 31, 1997 and (ii) for the period from
the Fund's commencement of operations to December 31, 1997.
Performance Data*
<TABLE>
<CAPTION>
Average
Average Annual
Annual Total
Total Return Return
for the from the Commencement
Current SEC Yield One-Year Period ended of Operations** through
at 12/31/97 12/31/97 12/31/97
----------- -------- --------
<S> <C> <C>
4.45% 7.25% 6.33%
</TABLE>
*Performance would have been lower if the management fee had not been waived and
certain other expenses had not been reimbursed by Loomis Sayles. In the absence
of the expense limitation, actual yield and total return would have been 3.76%
(yield), and 6.49% and 5.65% for the one-year period ended December 31, 1997 and
for the period from the Fund's commencement of operations to December 31, 1997,
respectively.
**Inception date of the Fund is June 1, 1995.
28
<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
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
29
<PAGE>
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
30
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Loomis Sayles Investment Trust advertising and promotional material may include,
but is not limited to, discussions of the following information:
Loomis Sayles Investment Trust's participation in wrap fee and no
transaction fee programs
Characteristics of Loomis Sayles including the number and locations of its
offices, its investment practices and clients
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
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
References may be included in Loomis Sayles Investment Trust's advertising
and promotional literature about 401(k) and retirement plans, if any, that offer
the Fund. The information may include, but is not limited to:
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 a 401(k) or
retirement plan funding vehicle produced by industry authorities, research
organizations and publications.
31
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES CORE FIXED INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
April 22, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus (the "Prospectus") of Loomis
Sayles Core Fixed Income Fund, a series of Loomis Sayles Investment Trust, dated
April 22, 1998, and should be read in conjunction therewith. A copy of the
Prospectus may be obtained from Loomis Sayles Investment Trust, One Financial
Center, Boston, Massachusetts 02111.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS................ -3-
MANAGEMENT OF THE TRUST........................................ -9-
INVESTMENT ADVISORY AND OTHER SERVICES......................... -12-
PORTFOLIO TRANSACTIONS AND BROKERAGE........................... -14-
DESCRIPTION OF THE TRUST....................................... -16-
HOW TO BUY SHARES.............................................. -18-
NET ASSET VALUE................................................ -18-
REDEMPTIONS.................................................... -19-
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS.... -19-
FINANCIAL STATEMENTS........................................... -22-
CALCULATION OF YIELD AND TOTAL RETURN.......................... -22-
PERFORMANCE COMPARISONS........................................ -23-
PERFORMANCE DATA............................................... -26-
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION............ -28-
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE.................... -30-
2
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles Core Fixed
Income Fund (the "Fund"), a series of Loomis Sayles Investment Trust (the
"Trust"), are summarized in the Prospectus under "Investment Objective and
Policies" and "More Information About the Fund's Investments." The investment
policies of the Fund set forth in the Prospectus and in this Statement of
Additional Information may be changed by Loomis, Sayles & Company, L.P. ("Loomis
Sayles"), the Fund's investment adviser, subject to review and approval by the
Trust's board of trustees (the "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 means the lesser of (i) 67% of the shares of the Fund represented at a
meeting at which at least 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares).
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 the Fund):
The Fund will not:
*(1) 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.
*(2) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts.
(This restriction does not prevent the Fund from investing in
issuers that invest or deal in the foregoing types of assets or from
purchasing securities that are secured by real estate.)
*(3) Make loans. (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.)
*(4) Change its classification pursuant to Section 5(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), from a
"diversified" to a "non-diversified" management investment company.
*(5) 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.)
3
<PAGE>
*(6) 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; however, the Fund's use of reverse repurchase
agreements and "dollar roll" arrangements shall not constitute
borrowing by the Fund for purposes of this restriction.
*(7) 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.
*(8) Issue senior securities other than any borrowing permitted by
restriction (6) above. (For the purposes of this restriction none of
the following is deemed to be a senior security: any pledge,
mortgage, hypothecation or other encumbrance of assets; 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 or entry into options,
forward contracts, futures contracts, options on futures contracts,
swap contracts or any other derivative investments to the extent
that Loomis Sayles determines that the Fund is not required to treat
such investments as senior securities pursuant to the pronouncements
of the Securities and Exchange Commission (the "SEC") or its staff.)
Although the Fund has no current intention of investing in repurchase
agreements, the Fund intends, based on the views of the staff of the SEC, to
restrict its investments, if any, in repurchase agreements maturing in more than
seven days, together with other investments in illiquid securities, to the
percentage permitted by restriction (7) above.
Although authorized to invest in restricted securities, the Fund, as a
matter of non-fundamental operating policy, currently does not intend to invest
in such securities, except Rule 144A securities.
Portfolio Turnover
- ------------------
Portfolio turnover considerations will not limit Loomis Sayles's investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rates will vary significantly from time to time depending on
the volatility of economic and market conditions. High portfolio turnover rates
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gain. See "Portfolio Transactions and Brokerage" for a
description of Loomis Sayles's brokerage practices and "Income Dividends,
Capital Gain Distributions and Tax Status" for more information about the tax
consequences of investing in the Fund.
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, the
Federal National Mortgage Association, 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 U.S. 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 U.S.
Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the U.S.
-----------------------------
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 U.S. Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or other
-------------
mortgagee which represent interests 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" - The Federal National Mortgage Association ("FNMA") 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 FNMA that are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
--------------
is a corporate instrumentality of the U.S. Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio.
5
<PAGE>
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
U.S. Government.
As described in the Prospectus, U.S. Government Securities generally do not
involve the 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.
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 the Fund anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When the Fund purchases securities in this manner (i.e. on
a when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account liquid assets
in an amount equal to or greater than, on a daily basis, the amount of the
Fund's when-issued or delayed-delivery commitments. The Fund will make
commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting the Fund's investment criteria. The Fund may take delivery
of these securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date. When
the time comes to pay for when-issued or delayed-delivery securities, the Fund
will meet its obligations from then available cash flow or the sale of
securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
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 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
6
<PAGE>
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.
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 obligations
or for an initial period after the issuance of the obligations. Such bonds are
issued and traded at discounts 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 an
investor 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.
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. Although the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. 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 and (b) inability to enforce rights and the
expenses involved in attempted enforcement.
7
<PAGE>
Lower Rated Fixed Income Securities
- -----------------------------------
The Fund will purchase securities rated at least BBB- by Standard & Poor's
("S&P") and Baa3 by Moody's Investors Service, Inc. ("Moody's"), or if unrated,
determined to be of comparable quality by Loomis Sayles. In the event that the
credit rating of a security held by the Fund falls below investment grade (or,
in the case of unrated securities, Loomis Sayles determines that the quality of
such security has deteriorated below investment grade), the Fund will not be
obligated to dispose of such security and may continue to hold such security if,
in the opinion of Loomis Sayles, such investment is appropriate in the
circumstances. Securities rated below investment grade ("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 speculative with respect to the ability
of the issuer to meet principal and interest payments. Achievement of the
Fund's investment objective through investment in lower rated fixed income
securities may be more dependent on Loomis Sayles's credit analysis than is the
case with higher quality bonds. The market for lower rated fixed income
securities may be more severely affected than other financial markets by
economic recession or substantial interest rate increases. The value and
liquidity of lower rated fixed income securities may be diminished by adverse
publicity and investor perceptions. In addition, legislation that limits the
tax benefits to issuers or holders of lower rated fixed income securities or
that limits the ability of certain categories of financial institutions to
invest in these securities may adversely affect their market value. The
secondary market for lower rated fixed income securities may be less liquid than
the secondary market for higher rated fixed income securities. This lack of
liquidity at certain times may affect the values of these securities and may
make the valuation and sale of these securities by the Fund more difficult.
Certain lower-rated fixed income securities do not pay interest on a current
basis. However, the Fund will accrue and distribute this interest on a current
basis, and may be required to sell securities at times when Loomis Sayles would
not otherwise deem it advisable to do so to generate cash for distributions.
Securities of below investment grade quality are commonly referred to as "junk
bonds." Securities in the lowest rating categories may be in poor standing or
in default. Investment grade fixed income securities rated BBB by S&P or Baa by
Moody's may share some of the characteristics described above.
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 Trustees, that a 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
marketplace trades therefor.
8
<PAGE>
MANAGEMENT OF THE TRUST
The trustee and officers of the Trust and their principal occupations
during the past five years are as follows:
TIMOTHY J. HUNT (66) -- Trustee. 26 Dennett Road, Marblehead, Massachusetts.
-------
Retired. Formerly, Vice President and Director of Fixed Income Research,
Loomis Sayles.
DANIEL J. FUSS (64) -- President. Executive Vice President and Director, Loomis
---------
Sayles.
MARK W. HOLLAND (48) -- Treasurer. Vice President-Finance and Administration
---------
and Director, Loomis Sayles.
SHEILA M. BARRY (52) -- 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 (50) -- Executive Vice President. 465 First Street West,
------------------------
Sonoma, California. President, Chairman, Director and Chief Executive
Officer, Loomis Sayles.
WILLIAM F. CAMP (36) -- Vice President. 1533 North Woodward, Bloomfield Hills,
--------------
Michigan. Vice President, Loomis Sayles. Formerly, Portfolio Manager,
Kmart Corporation.
QUENTIN P. FAULKNER (59) -- Vice President. Vice President, Loomis Sayles.
--------------
KATHLEEN C. GAFFNEY (36) -- Vice President. Vice President, Loomis Sayles.
--------------
JEFFREY L. MEADE (47) -- Vice President. Chief Operating Officer, Executive
--------------
Vice President and Director, Loomis Sayles.
ROBERT K. PAYNE (55) -- Vice President. 555 California Street, San Francisco,
--------------
California. Vice President, Loomis Sayles.
ANTHONY J. WILKINS (56) -- Vice President. Vice President and Director, Loomis
--------------
Sayles.
9
<PAGE>
MARI J. SUGAHARA (33) -- Vice President. Vice President, Loomis Sayles.
---------------
FREDERICK E. SWEENEY, JR. (37) --Vice President. Vice President, Loomis Sayles.
---------------
Formerly, served as an Investment Consultant at Meketa Investment Group and
prior to that served as Vice President of New England Investment
Associates.
JOHN F. YEAGER (34) -- 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 from the positions listed. Except as
indicated above, the address of each officer of the Trust affiliated with Loomis
Sayles is One Financial Center, Boston, Massachusetts 02111.
The Trust pays no compensation to its officers listed above who are
interested persons of the Trust. Each Trustee who is not affiliated with Loomis
Sayles will be compensated at the rate of $10,000 per annum. No Trustee will
receive compensation from any other investment company which is advised by
Loomis Sayles or its affiliates or which holds itself out to investors as being
related to the Trust.
<TABLE>
<CAPTION>
COMPENSATION TABLE
for the year ended December 31, 1997
- ---------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C>
Name of Person, Aggregate Pension or Estimated Total Compensation
Position Compensation Retirement Annual from Trust and Fund
from Trust Benefits Benefits Upon Complex Paid to
Accrued as Part Retirement Trustee
of Fund Expenses
- ---------------------------------------------------------------------------------------------
Timothy J. Hunt, $10,000 $0 $0 $10,000
Trustee
</TABLE>
As of the date hereof, the Trustee and officers as a group owned less than
1% of the outstanding shares of the Fund.
10
<PAGE>
As of March 31, 1998, Asbestos Workers Local #84 Pension Plan may be deemed
to control the Fund because it owned of record more than 25% of the Fund's
shares. As a result, it may not be possible for matters subject to a vote of
the outstanding voting securities of the Fund to be approved without the
affirmative vote of such shareholder, and such shareholder may be able to
approve such matters without the approval of any other shareholder. The
following table sets forth the name, address and percentage ownership of each
holder of more than 5% of the Fund's outstanding securities as of March 31,
1998:
<TABLE>
<CAPTION>
Percentage of
Shareholder Address Shares Held
----------- ------- -----------
<S> <C> <C>
Asbestos Workers Local #84 Pension 36 East Warner Road 29.29%
Plan Akron, OH 44319
Crane Plastics Employee Retirement Plan P.O. Box 1047 15.25%
Columbus, OH 43216
Franklin University 201 S. Grant Avenue 10.61%
Columbus, OH 43215
Southeastern Michigan 25180 Lahser Road 8.87%
Chapter, NECA P.O. Box 385
Southfield, MI 48037
Sheet Metal Workers Local Union 2075 West Big Beaver 8.66%
No. 292 Annuity Fund #520
Troy, MI 48084
Hospitalers Committee of Detroit Commandery No. 1 7.95%
500 Temple Ave.
Detroit, MI 48201
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
Sign, Pictorial & Display Union 30700 Telegraph Road 6.05%
Local #591 AFL-CIO Display Group Suite 2400
Supplemental Pension Fund Bingham Farms, MI 48025
The Wagnalls Memorial Foundation 150 E. Columbus Street 5.14%
P.O. Box 217
Lithopolis, OH 43136
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. Loomis Sayles serves as investment adviser to the Fund
------------------
under an advisory agreement with the Trust dated August 30, 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 Trustees. Loomis Sayles furnishes, at its own expense, all necessary
office space, office supplies, 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
a monthly investment advisory fee at the annual rate of .50% of the Fund's
average weekly net assets.
Under the 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.
As described in the Prospectus, Loomis Sayles has voluntarily undertaken
for an indefinite period to limit the Fund's total operating expenses. These
arrangements may be modified or terminated by Loomis Sayles at any time, subject
to prior notice to shareholders.
During the 1996 fiscal period (April 24, 1996 through December 31, 1996)
and the 1997 fiscal year, Loomis Sayles received the following amounts of
investment advisory fees from the Fund (before voluntary fee reductions and
expense assumptions) and waived and reimbursed the following amount of fees for
the Fund:
<TABLE>
<CAPTION>
Period Advisory Fees Fee Waivers/Reimbursements
------ ------------- --------------------------
<S> <C> <C>
1996 $18,961 $ 30,882
1997 $44,126 $102,202
</TABLE>
12
<PAGE>
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 Trustees 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 or Loomis
Sayles, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to the
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 interested persons, cast in person at a meeting called for the purpose of
voting on such approval.
The advisory agreement may be terminated without penalty by vote of the
Trustees or by vote of a majority of the outstanding voting securities of the
Fund, upon sixty days' written notice to Loomis Sayles, or by Loomis Sayles upon
ninety days' written notice to the Trust, and it terminates automatically in the
event of its assignment, as that term is defined in the 1940 Act. 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" or "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, cast in
person at a meeting called for the purpose of voting on such approval.
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 to the seventeen series of the
Loomis Sayles Funds, each a series of a registered open-end diversified
management investment company. Loomis Sayles acts as investment adviser or sub-
adviser to New England Star Advisers Fund, New England Value Fund, New England
Balanced Fund and New England Strategic Income 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 Funds Trust II, a registered
open-end management investment company, New England Equity Income Funds, a
series of New England Funds Trust III, a registered open-end management
investment company and the Balanced Series and the Small Cap Series of New
England Zenith Funds, which is also a registered open-end management investment
company. Loomis Sayles also provides investment advice to 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
13
<PAGE>
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.
Officers of the Trust who hold positions with Loomis Sayles are listed
under "Management of the Trust" in this Statement of Additional Information.
Certain officers of the Trust also serve as officers, directors and trustees of
other investment companies and clients advised by Loomis Sayles. The other
investment companies and clients sometimes invest in securities in which the
Fund also invests. If the Fund and such other investment companies or clients
desire to buy or sell the same portfolio securities at the same time, purchases
and sales may be allocated, to the extent practicable, on a pro rata basis in
proportion to the 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 Fund. It is the opinion of the Trustee that the
desirability of retaining Loomis Sayles as investment adviser for the Fund
outweighs the disadvantages, if any, which might result from these
practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
----------------------
Street"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street 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 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 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 Coopers &
-----------------------
Lybrand L.L.P. ("Coopers & Lybrand"), One Post Office Square, Boston,
Massachusetts 02109. Coopers & Lybrand conducts an annual audit of the Trust's
financial statements and financial highlights, 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.
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 are
carried out through broker-dealers who make the primary market for 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
14
<PAGE>
produce the best price and execution for the transaction. This does not
necessarily mean that the lowest available brokerage commission will be paid for
a transaction. However, the Fund will only pay commissions that Loomis Sayles
believes 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 the 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's 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 Fund. Receipt of services or products other than
research from brokers is not a factor in the selection of brokers.
The following table sets forth for the 1996 fiscal period (April 24, 1996
through December 31, 1996) and the 1997 fiscal year (1) the aggregate dollar
amount of brokerage commissions paid on portfolio transactions during such
period, (2) the dollar amount of transactions on which commissions were paid
during such period that were directed to brokers providing research services
("directed transactions") and (3) the dollar amount of commissions paid on
directed transactions during such period:
<TABLE>
<CAPTION>
(1) (2) (3)
Aggregate Commissions
Brokerage Directed on Directed
Period Commissions ($) Transactions ($) Transactions ($)
- ------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1996 $ 0 $ 0 $0
1997 $ 0 $ 0 $0
</TABLE>
15
<PAGE>
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 The Commonwealth of Massachusetts by an Agreement and Declaration of
Trust (the "Declaration of Trust") dated December 23, 1993.
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 series of the Trust 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 the Fund, certain expenses may be legally chargeable against
the assets of all series.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to issue shares of the Trust in one or more series, and to subdivide
any series of shares into various classes of shares with such dividend
preferences and other rights as the Trustees may designate. While the Trustees
have no current intention to subdivide any series of shares into classes, this
flexibility is intended to allow them to provide for an equitable allocation of
the impact of any future regulatory requirements which might affect various
classes of shareholders differently, or to permit shares of a series to be
distributed through more than one distribution channel, with the costs of the
particular means of distribution (or costs of related services) to be borne by
the shareholders who purchase through that means of distribution. 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").
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust or the Fund, however, may be terminated at any time by vote of at
least two-thirds of the outstanding shares of the Trust or the Fund,
respectively. The Declaration of Trust further provides that the Trustees may
also terminate the Trust or the Fund upon written notice to the shareholders.
As a matter of
16
<PAGE>
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,
respectively.
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote for
each full share held (with a fractional vote for each fractional share held) and
may vote (to the extent provided in the Declaration of Trust) in 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 for each series or sub-series 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 exclusively 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. Voting rights are not cumulative.
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).
17
<PAGE>
Except as set forth above, the Trustees shall continue to hold office and
may appoint successor Trustees.
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, (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value) and (iii) to issue shares of the Trust
in one or more series, and to subdivide any series of shares into various
classes of shares with such dividend preferences and other rights as the
Trustees may designate.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
each 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 and for determining the
offering price of such shares 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.
The Fund intends to make such determination at least
18
<PAGE>
weekly and as of the close of regular trading on the New York Stock Exchange
(the "Exchange") on any day on which an order for purchase or redemption of the
Fund's shares is received and on which the Exchange is open for unrestricted
trading. During the twelve months following the date of this Statement of
Additional Information, the Exchange is expected to be closed on the following
weekdays: Memorial Day as observed, Independence Day, Labor Day, Thanksgiving
Day, Christmas Day, New Year's Day, Martin Luther King, Jr. Day, Presidents' Day
and Good Friday. 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 among
securities that 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 Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Trustees.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of regular trading on the Exchange.
Occasionally, events affecting the value of foreign securities 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 or in accordance with
procedures approved by the Trustees.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
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 the Trust in proper form. Proceeds resulting from a written
- ------------------------------------
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. In those cases where you have recently
purchased your shares by check and your check was received less than fifteen
days prior to the redemption request, the Fund may withhold redemption proceeds
until your 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 Trustees
determine 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.
19
<PAGE>
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 annually, as
dividends, substantially all of the Fund's net income and to distribute to its
shareholders annually substantially all net realized capital gains, if any,
after offset by 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 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 the Trust.
In order for an election to be in effect for any dividend or distribution, it
must be received by the Trust on or before the record date for such dividend or
distribution.
As required by federal law, information concerning the federal tax status
of distributions from the Fund will be furnished to each shareholder for each
calendar year on or before January 31 of the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order so to qualify and to qualify for the
special 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 foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities or currencies; (ii) distribute each 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;
and (iii) at the end of each fiscal quarter hold at least 50% of the value of
its total assets in cash, cash items, U.S. government securities, securities of
other regulated investment companies, and other securities that 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 no more than
25% of the value of its total 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 that the Fund controls and that are engaged in the same,
similar or related trades or businesses. To the extent the Fund qualifies for
treatment as a regulated investment company, it will not be subject to federal
income tax on income paid to its shareholders in the form of dividends or
capital gain distributions.
20
<PAGE>
A nondeductible excise tax will be imposed at the rate of 4% on the excess,
if any, of the Fund's "required distribution" over its distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
realized during the one-year period ending on October 31 (or December 31, if the
Fund is permitted to so elect and so elects) plus undistributed amounts from
prior years. The Fund intends to make distributions sufficient to avoid
imposition of the excise tax. Dividends and 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.
Dividends and distributions on Fund shares received shortly after their
purchase, although economically a return of capital, are subject to federal
income taxes as described herein and in the Prospectus to the extent the
dividends and distributions do not exceed the Fund's current and accumulated
earnings and profits.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
If shares have been held for more than one year, gain or loss realized will
generally be long-term capital gain or loss, and will otherwise be short-term
capital gain or loss. In general, any long term gains realized upon a taxable
disposition of shares will be subject to a maximum tax rate of either 28% or 20%
depending on the shareholder's holding period in the Fund shares. 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, all or a portion of any loss will be disallowed on the taxable
disposition of Fund shares if the shareholder acquires other shares of the Fund
within 30 days before or after the disposition.
The Fund's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
If the Fund engages in hedging transactions, including hedging transactions
in options, future contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale, mark-to
market straddle, wash sale, and short sale rules), the effect of which may be to
accelerate income to the Fund, defer losses to the Fund, cause adjustments in
the holding periods of the Fund's securities, or convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the regulations thereunder currently in effect. For
the complete provisions, reference should be
21
<PAGE>
made to the pertinent Code sections and regulations. The Code and regulations
are subject to change by legislative or administrative action, respectively.
Dividends and distributions also may be subject to foreign, state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, foreign, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding and withholding tax
rules described above. The new regulations will generally be effective for
payments made on or after January 1, 1999 (although transition rules will
apply). In some circumstances, the new rules will increase the certification
and filing requirements imposed on foreign investors in order to qualify for
exemption from the 31% back-up withholding tax and for reduced withholding tax
rates under income tax treaties. Foreign investors in the Fund should consult
their tax advisors with respect to the potential application of these new
regulations.
FINANCIAL STATEMENTS
The Report of Independent Accountants, financial highlights and financial
statements of the Fund included in its 1997 Annual Report are incorporated
herein by reference to such Annual Report. Copies of such Annual Report are
available without charge upon request by writing Loomis Sayles, One Financial
Center, Boston, Massachusetts 02111 or telephoning (617) 482-2450.
The financial highlights included in the Prospectus under the headings
"Financial Highlights" and "Prior Performance" and incorporated by reference
into this Statement of Additional Information and the financial statements and
financial highlights contained in the Fund's 1997 Annual Report and incorporated
by reference into this Statement of Additional Information have both been
audited by Coopers & Lybrand L.L.P., independent accountants, and have been so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting.
CALCULATION OF YIELD AND TOTAL RETURN
22
<PAGE>
Yield. The Fund's yield 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 objective 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
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)
23
<PAGE>
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.
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 twice a month. The
-----------------
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a 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.
24
<PAGE>
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.
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 INDEX. The Merrill Lynch High Yield Index
-------------------------------
includes over 750 issues and represents public debt greater than $10 million
(original issuance rated BBB/BB and below).
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
25
<PAGE>
securities with the lowest 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.
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.
PERFORMANCE DATA
The manner in which yield and total return of the Fund will be calculated
for public use is described above. The following table summarizes the
calculation of the Fund's yield at December 31, 1997 and the Fund's total return
(i) for the year ended December 31, 1997 and (ii) for the period from the Fund's
commencement of operations to December 31, 1997.
26
<PAGE>
Performance Data*
<TABLE>
<CAPTION>
Average Annual
Average Annual Total Return
Total Return from the
for the Commencement of
Current SEC Yield One-Year Period Operations** through
at 12/31/97 Ended 12/31/97 12/31/97
----------- -------------- --------------------
<S> <C> <C>
5.89% 9.22% 8.64%
</TABLE>
* Performance would have been lower if the management fee had not been waived
and certain other expenses had not been reimbursed by Loomis Sayles. In the
absence of the expense limitation, actual yield and total return would have been
5.19% (yield), and 8.07% and 7.69% for the one-year period ended December 31,
1997 and for the period from the Fund's commencement of operations to December
31, 1997, respectively.
** Inception date of the Fund is April 24, 1996.
27
<PAGE>
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Forbes
Adam Smith's Money World Fort Worth Star-Telegram
America On Line Fortune
Anchorage Daily News Fox Network and affiliates
Atlanta Constitution Fund Action
Atlanta Journal Fund Decoder
Arizona Republic Global Finance
Austin American Statesman (the) Guarantor
Baltimore Sun Hartford Courant
Bank Investment Marketing Houston Chronicle
Barron's INC
Bergen County Record (NJ) Indianapolis Star
Bloomberg Business News Individual Investor
Bond Buyer Institutional Investor
Boston Business Journal International Herald Tribune
Boston Globe Internet
Boston Herald Investment Advisor
Broker World Investment Company Institute
Business Radio Network Investment Dealers Digest
Business Week Investment Profiles
CBS and affiliates Investment Vision
CDA Investment Technologies Investor's Daily
CFO IRA Reporter
Changing Times Journal of Commerce
Chicago Sun Times Kansas City Star
Chicago Tribune KCMO (Kansas City)
Christian Science Monitor KOA-AM (Denver)
Christian Science Monitor News Service LA Times
Cincinnati Enquirer Leckey, Andrew (syndicated column)
Cincinnati Post Life Association News
CNBC Lifetime Channel
CNN Miami Herald
Columbus Dispatch Milwaukee Sentinel
CompuServe Money Magazine
Dallas Morning News Money Maker
Dallas Times-Herald Money Management Letter
Denver Post Morningstar
Des Moines Register Mutual Fund Market News
Detroit Free Press Mutual Funds Magazine
Donoghues Money Fund Report National Public Radio
Dorfman, Dan (syndicated column) National Underwriter
Dow Jones News Service NBC and affiliates
Economist New England Business
FACS of the Week New England Cable News
Fee Adviser New Orleans Times-Picayune
Financial News Network New York Daily News
Financial Planning New York Times
Financial Planning on Wall Street Newark Star Ledger
Financial Research Corp. Newsday
Financial Services Week Newsweek
Financial World Nightly Business Report
Fitch Insights Orange County Register
28
<PAGE>
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
29
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Loomis Sayles Investment Trust advertising and promotional material may include,
but is not limited to, discussions of the following information:
. Loomis Sayles Investment Trust's participation in wrap fee and no
transaction fee programs
. Characteristics of Loomis Sayles including the number and locations of its
offices, its investment practices and clients
. 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
. 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
References may be included in Loomis Sayles Investment Trust's advertising
and promotional literature about 401(k) and retirement plans, if any, that offer
the Fund. The information may include, but is not limited to:
. 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 a 401(k) or
retirement plan funding vehicle produced by industry authorities, research
organizations and publications.
30
<PAGE>
LOOMIS SAYLES CORE GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
April 22, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus (the "Prospectus") of Loomis
Sayles Core Growth Fund, a series of Loomis Sayles Investment Trust, dated April
22, 1998, and should be read in conjunction therewith. A copy of the Prospectus
may be obtained from Loomis Sayles Investment Trust, One Financial Center,
Boston, Massachusetts 02111.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS....................................................... -3-
MANAGEMENT OF THE TRUST............................................................................... -8-
INVESTMENT ADVISORY AND OTHER SERVICES................................................................ -10-
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................................. -14-
DESCRIPTION OF THE TRUST.............................................................................. -15-
HOW TO BUY SHARES..................................................................................... -18-
NET ASSET VALUE....................................................................................... -18-
REDEMPTIONS........................................................................................... -19-
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS........................................... -19-
FINANCIAL STATEMENTS.................................................................................. -22-
CALCULATION OF TOTAL RETURN........................................................................... -22-
PERFORMANCE COMPARISONS............................................................................... -23-
PERFORMANCE DATA...................................................................................... -26-
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION................................................... -27-
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE........................................................... -29-
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles Core Growth Fund
(the "Fund"), a series of Loomis Sayles Investment Trust (the "Trust"), are
summarized in the Prospectus under "Investment Objective and Policies" and "More
Information About the Fund's Investments." The investment policies of the Fund
set forth in the Prospectus and in this Statement of Additional Information may
be changed by Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the Fund's
investment adviser, subject to review and approval by the Trust's board of
trustees (the "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 means the lesser of (i) 67% of the shares of the Fund represented at a
meeting at which at least 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares).
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 the Fund):
The Fund will not:
*(1) 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.
*(2) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts.
(This restriction does not prevent the Fund from investing in issuers
that invest or deal in the foregoing types of assets or from
purchasing securities that are secured by real estate.)
*(3) Make loans. (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.)
*(4) Change its classification pursuant to Section 5(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), from a
"diversified" to "non-diversified" management investment company.
*(5) 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.)
3
<PAGE>
*(6) 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; however, the Fund's use of reverse repurchase
agreements and "dollar roll" arrangements shall not constitute
borrowing by the Fund for purposes of this restriction.
*(7) 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.
*(8) Issue senior securities other than any borrowing permitted by
restriction (6) above. (For the purposes of this restriction none of
the following is deemed to be a senior security: any pledge,
mortgage, hypothecation or other encumbrance of assets; 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 or entry into options,
forward contracts, futures contracts, options on futures contracts,
swap contracts or any other derivative investments to the extent that
Loomis Sayles determines that the Fund is not required to treat such
investments as senior securities pursuant to the pronouncements of
the Securities and Exchange Commission (the "SEC") or its staff.)
Although the Fund has no current intention of investing in repurchase
agreements, the Fund intends, based on the views of the staff of the SEC, to
restrict its investments, if any, in repurchase agreements maturing in more than
seven days, together with other investments in illiquid securities, to the
percentage permitted by restriction (7) above.
Although authorized to invest in restricted securities, the Fund, as a
matter of non-fundamental operating policy, currently does not intend to invest
in such securities, except Rule 144A securities.
Portfolio Turnover
- ------------------
Portfolio turnover considerations will not limit Loomis Sayles's investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rates will vary significantly from time to time depending on
the volatility of economic and market conditions. High portfolio turnover rates
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gain. See "Portfolio Transactions and Brokerage" for a
description of Loomis Sayles's brokerage practices and "Income Dividends,
Capital Gain Distributions and Tax Status" for more information about the tax
consequences of investing in the Fund.
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, the
Federal National Mortgage Association, 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 U.S. 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 U.S.
Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the U.S.
-----------------------------
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 U.S. Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or other
-------------
mortgagee which represent interests 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" - The Federal National Mortgage Association ("FNMA") 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 FNMA that are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
--------------
is a corporate instrumentality of the U.S. Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio.
5
<PAGE>
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
U.S. Government.
As described in the Prospectus, U.S. Government Securities generally do not
involve the 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.
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 the Fund anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When the Fund purchases securities in this manner (i.e. on
a when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account liquid assets
in an amount equal to or greater than, on a daily basis, the amount of the
Fund's when-issued or delayed-delivery commitments. The Fund will make
commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting the Fund's investment criteria. The Fund may take delivery
of these securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date. When
the time comes to pay for when-issued or delayed-delivery securities, the Fund
will meet its obligations from then available cash flow or the sale of
securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
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 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
6
<PAGE>
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.
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 obligations
or for an initial period after the issuance of the obligations. Such bonds are
issued and traded at discounts 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 an
investor 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.
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. Although the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. 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 and (b) inability to enforce rights and the
expenses involved in attempted enforcement.
7
<PAGE>
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 Trustees, that a 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
marketplace trades therefor.
MANAGEMENT OF THE TRUST
The trustee and officers of the Trust and their principal occupations
during the past five years are as follows:
TIMOTHY J. HUNT (66) -- Trustee. 26 Dennett Road, Marblehead, Massachusetts.
Retired. Formerly, Vice President and Director of Fixed Income Research,
Loomis Sayles.
DANIEL J. FUSS (64) -- President. Executive Vice President and Director, Loomis
---------
Sayles.
MARK W. HOLLAND (48) -- Treasurer. Vice President-Finance and Administration
---------
and Director, Loomis Sayles.
SHEILA M. BARRY (52) -- 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 (50) -- Executive Vice President. 465 First Street West,
------------------------
Sonoma, California. President, Chairman, Director and Chief Executive
Officer, Loomis Sayles.
WILLIAM F. CAMP (36) -- Vice President. 1533 North Woodward, Bloomfield Hills,
--------------
Michigan. Vice President, Loomis Sayles. Formerly, Portfolio Manager,
Kmart Corporation.
QUENTIN P. FAULKNER (59) -- Vice President. Vice President, Loomis Sayles.
--------------
KATHLEEN C. GAFFNEY (36) -- Vice President. Vice President, Loomis Sayles.
--------------
8
<PAGE>
JEFFREY L. MEADE (47) -- Vice President. Chief Operating Officer, Executive Vice
President and Director, Loomis Sayles.
ROBERT K. PAYNE (55) -- Vice President. 555 California Street, San Francisco,
--------------
California. Vice President, Loomis Sayles.
ANTHONY J. WILKINS (56) -- Vice President. Vice President and Director, Loomis
--------------
Sayles.
MARI J. SUGAHARA (33) -- Vice President. Vice President, Loomis Sayles.
---------------
FREDERICK E. SWEENEY, JR. (37) --Vice President. Vice President, Loomis Sayles.
---------------
Formerly, served as an Investment Consultant at Meketa Investment Group
and prior to that served as Vice President of New England Investment
Associates.
JOHN F. YEAGER (34) -- 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 from the positions listed. Except as
indicated above, the address of each officer of the Trust affiliated with
Loomis Sayles is One Financial Center, Boston, Massachusetts 02111.
The Trust pays no compensation to its officers listed above who are
interested persons of the Trust. Each Trustee who is not affiliated with Loomis
Sayles is compensated at the rate of $10,000 per annum. No Trustee received
compensation from any other investment company which is advised by Loomis Sayles
or its affiliates or which holds itself out to investors as being related to the
Trust.
COMPENSATION TABLE
for the period ended December 31, 1997
<TABLE>
- -----------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Compensation
from Trust Benefits Benefits Upon from Trust and
Accrued as Part of Retirement Fund Complex
Fund Expenses Paid to Trustee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Timothy J. Hunt, $10,000 $ 0 $ 0 $10,000
Trustee
</TABLE>
9
<PAGE>
As of the date hereof, the Trustee and officers as a group owned less than
1% of the outstanding shares of the Fund.
As of March 31, 1998, Brockton Health Corp. Endowment may be deemed to
control the Fund because it owned of record more than 25% of the Fund's shares.
As a result, it may not be possible for matters subject to a vote of a majority
of the outstanding voting securities of the Fund to be approved without the
affirmative vote of such shareholders, and it may be possible for such matters
to be approved by such shareholders without the affirmative vote of any other
shareholder. The following table sets forth the name, address and percentage
ownership of each holder of 5% or more of the Fund's outstanding securities as
of March 31, 1998:
<TABLE>
<CAPTION>
Shareholder Address Percentage of Shares Held
- ----------- ------- -------------------------
<S> <C> <C>
Brockton Health Corp. 680 Centre Street 51.71%
Endowment Brockton, MA 02402-3395
Brockton Hospital 680 Centre Street 27.54%
Pension Trust Brockton, MA 02402-3395
Jewish Federation of 130 Sessions Street 17.32%
Rhode Island Providence, RI 02906
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
10
<PAGE>
Advisory Agreement. Loomis Sayles serves as investment adviser to the Fund
------------------
under an advisory agreement with the Trust dated August 30, 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 Trustees. Loomis Sayles furnishes, at its own expense, all necessary
office space, office supplies, 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
a monthly investment advisory fee at the annual rate of .50% of the Fund's
average weekly net assets.
Under the 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.
As described in the Prospectus, Loomis Sayles has voluntarily undertaken
for an indefinite period to limit the Fund's total operating expenses. These
arrangements may be modified or terminated by Loomis Sayles at any time, subject
to prior notice to shareholders.
11
<PAGE>
During the 1995 fiscal period (October 1, 1995 through December 31, 1995),
the 1996 and the 1997 fiscal years, Loomis Sayles received the following amounts
of investment advisory fees from the Fund (before voluntary fee reductions and
expense assumptions) and waived and reimbursed the following amounts of fees for
the Fund:
<TABLE>
<CAPTION>
Fee
Period Advisory Fees Waiver/Reimbursements
- ------ ------------- ---------------------
<S> <C> <C>
1995 6,994 $10,955
1996 90,223 $42,419
1997 162,506 $78,709
</TABLE>
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 Trustees 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 or Loomis
Sayles, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to the 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
interested persons, cast in person at a meeting called for the purpose of voting
on such approval.
The advisory agreement may be terminated without penalty by vote of the
Trustees or by vote of a majority of the outstanding voting securities of the
Fund, upon sixty days' written notice to Loomis Sayles, or by Loomis Sayles upon
ninety days' written notice to the Trust, and it terminates automatically in the
event of its assignment, as that term is defined in the 1940 Act. 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" or "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, cast in
person at a meeting called for the purpose of voting on such approval.
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, to the seventeen series of the
Loomis Sayles Funds, each a series of a registered open-end diversified
management investment company.
12
<PAGE>
Loomis Sayles acts as investment adviser or sub-adviser to New England Star
Advisers Fund, New England Value Fund, New England Balanced Fund and New England
Strategic Income Fund, which are series of New England Funds Trust I, 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 and to the Balanced Series and the Small Cap Series of New
England Zenith Funds, which is also a registered open-end management investment
company. Loomis Sayles also provides investment advice to 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.
Officers of the Trust who hold positions Loomis Sayles are listed under
"Management of the Trust" in this Statement of Additional Information. Certain
officers of the Trust also serve as officers, directors and trustees of other
investment companies and clients advised by Loomis Sayles. The other investment
companies and clients sometimes invest in securities in which the Fund also
invests. If the Fund and such other investment companies or clients desire to
buy or sell the same portfolio securities at the same time, purchases and sales
may be allocated, to the extent practicable, on a pro rata basis in proportion
to the 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 Fund. It is the opinion of the Trustee that the desirability of retaining
Loomis Sayles as investment adviser for the Fund outweighs the disadvantages, if
any, which might result from these practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
----------------------
Street"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street 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 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 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.
13
<PAGE>
Independent Accountants. The Fund's independent accountants are Coopers &
-----------------------
Lybrand L.L.P. ("Coopers & Lybrand"), One Post Office Square, Boston,
Massachusetts 02109. Coopers & Lybrand conducts an annual audit of the Trust's
financial statements and financial highlights, 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.
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 are
carried out through broker-dealers who make the primary market for 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
the best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commission will be paid for a transaction.
However, the Fund will only pay commissions that Loomis Sayles believes 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 the 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's 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 Fund. Receipt of services or products other than
research from brokers is not a factor in the selection of brokers.
14
<PAGE>
The following table sets forth for the 1995 fiscal period (October 1, 1995
to December 31, 1995), the 1996 fiscal year and the 1997 fiscal year (1) the
aggregate dollar amounts of brokerage commissions paid on portfolio transactions
during such periods, (2) the dollar amounts of transactions on which commissions
were paid during such periods that were directed to brokers providing research
services ("directed transactions") and (3) the dollar amounts of commissions
paid on directed transactions during such periods:
<TABLE>
<CAPTION>
(1) (2) (3)
Aggregate Commissions
Brokerage Directed On Directed
Period Commissions ($) Transactions ($) Transactions ($)
------- --------------- ---------------- ----------------
<S> <C> <C> <C>
1995 $ 7,158 $ 0 $ 0
1996 $53,021 $ 0 $ 0
1997 $74,893 $ 0 $ 0
</TABLE>
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 The Commonwealth of Massachusetts by an Agreement and Declaration of
Trust (the "Declaration of Trust") dated December 23, 1993.
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 series of the Trust 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
15
<PAGE>
books of account of the Fund, certain expenses may be legally chargeable against
the assets of all series.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to issue shares of the Trust in one or more series, and to subdivide
any series of shares into various classes of shares with such dividend
preferences and other rights as the Trustees may designate. While the Trustees
have no current intention to subdivide any series of shares into classes, this
flexibility is intended to allow them to provide for an equitable allocation of
the impact of any future regulatory requirements which might affect various
classes of shareholders differently, or to permit shares of a series to be
distributed through more than one distribution channel, with the costs of the
particular means of distribution (or costs of related services) to be borne by
the shareholders who purchase through that means of distribution. 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").
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust or the Fund, however, may be terminated at any time by vote of at
least two-thirds of the outstanding shares of the Trust or the Fund,
respectively. The Declaration of Trust further provides that the Trustees may
also terminate the Trust or the Fund upon written notice to the shareholders. 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, respectively.
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote for
each full share held (with a fractional vote for each fractional share held) and
may vote (to the extent provided in the Declaration of Trust) in 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 for each series or sub-series 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 exclusively 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
16
<PAGE>
certain changes in investment policies of that series or the approval of the
investment advisory agreement relating to that series. Voting rights are not
cumulative.
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.
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, (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value) and (iii) to issue shares of the Trust
in one or more series, and to subdivide any series of shares into various
classes of shares with such dividend preferences and other rights as the
Trustees may designate.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
each 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.
17
<PAGE>
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 and for determining the
offering price of such shares 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 at least weekly and as of the close of regular
trading on the New York Stock Exchange (the "Exchange") on any day on which an
order for purchase or redemption of the Fund's shares is received and on which
the Exchange is open for unrestricted trading. During the twelve months
following the date of this Statement of Additional Information, the Exchange is
expected to be closed on the following weekdays: Memorial Day as observed,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day, New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day and Good Friday. 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 among
securities that 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 Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Trustees.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of regular trading on the Exchange.
Occasionally, events affecting the value of foreign securities 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
18
<PAGE>
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 or in accordance with
procedures approved by the Trustees.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
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 the Trust in proper form. Proceeds resulting from a written
- ------------------------------------
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. In those cases where you have recently
purchased your shares by check and your check was received less than fifteen
days prior to the redemption request, the Fund may withhold redemption proceeds
until your 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 Trustees
determine 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.
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 annually, as
dividends, substantially all of the Fund's net income and to distribute to its
shareholders annually substantially all net realized capital gains, if any,
after offset by 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 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 the Trust.
In order for an election to be in effect for any dividend or distribution, it
must be received by the Trust on or before the record date for such dividend or
distribution.
19
<PAGE>
As required by federal law, information concerning the federal tax status
of distributions from the Fund will be furnished to each shareholder for each
calendar year on or before January 31 of the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order so to qualify and to qualify for the
special 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 foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities or currencies; (ii) distribute each 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;
and (iii) at the end of each fiscal quarter hold at least 50% of the value of
its total assets in cash, cash items, U.S. government securities, securities of
other regulated investment companies, and other securities that 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 no more than
25% of the value of its total 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 that the Fund controls and that are engaged in the same,
similar or related trades or businesses. To the extent the Fund qualifies for
treatment as a regulated investment company, it will not be subject to federal
income tax on income paid to its shareholders in the form of dividends or
capital gain distributions.
A nondeductible excise tax will be imposed at the rate of 4% on the excess,
if any, of the Fund's "required distribution" over its distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
realized during the one-year period ending on October 31 (or December 31, if the
Fund is permitted to so elect and so elects) plus undistributed amounts from
prior years. The Fund intends to make distributions sufficient to avoid
imposition of the excise tax. Dividends and 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.
Dividends and distributions on Fund shares received shortly after their
purchase, although economically a return of capital, are subject to federal
income taxes as described herein and in the Prospectus to the extent the
dividends and distributions do not exceed the Fund's current and accumulated
earnings and profits.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. If
shares have been held for more than one year, gain or loss realized will
generally be long-term capital gain or loss, and will
20
<PAGE>
otherwise be short-term capital gain or loss. In general, any long term gains
realized upon a taxable disposition of shares will be subject to a maximum tax
rate of either 28% or 20% depending on the shareholder's holding period in the
Fund shares. In general, any long term gains realized upon a taxable disposition
of shares will be subject to a maximum tax rate of either 28% or 20% depending
on the shareholder's holding period in the Fund shares. 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, all or a portion of any loss will be disallowed on the taxable
disposition of Fund shares if the shareholder acquires other shares of the Fund
within 30 days before or after the disposition.
The Fund's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
If the Fund engages in hedging transactions, including hedging transactions
in options, future contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale, mark-to
market straddle, wash sale, and short sale rules), the effect of which may be to
accelerate income to the Fund, defer losses to the Fund, cause adjustments in
the holding periods of the Fund's securities, or convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the regulations thereunder 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, respectively.
Dividends and distributions also may be subject to foreign, state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, foreign, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
21
<PAGE>
The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding and withholding tax
rules described above. The new regulations will generally be effective for
payments made on or after January 1, 1999 (although transition rules will
apply). In some circumstances, the new rules will increase the certification and
filing requirements imposed on foreign investors in order to qualify for
exemption from the 31% back-up withholding tax and for reduced withholding tax
rates under income tax treaties. Foreign investors in the Fund should consult
their tax advisors with respect to the potential application of these new
regulations.
FINANCIAL STATEMENTS
The Report of Independent Accountants, financial highlights and financial
statements of the Fund included in its 1997 Annual Report are incorporated
herein by reference to such Annual Report. Copies of such Annual Report are
available without charge upon request by writing Loomis Sayles, One Financial
Center, Boston, Massachusetts 02111 or telephoning (617) 482-2450.
The financial highlights included in the Prospectus under the headings
"Financial Highlights" and "Prior Performance" and incorporated by reference
into this Statement of Additional Information and the financial statements and
financial highlights contained in the Fund's 1997 Annual Report and incorporated
by reference into this Statement of Additional Information have both been
audited by Coopers & Lybrand L.L.P., independent accountants, and have been so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting.
CALCULATION OF TOTAL RETURN
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.
22
<PAGE>
PERFORMANCE COMPARISONS
The Fund may from time to time include the 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.
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 twice a month. The
-----------------
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a 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.
23
<PAGE>
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.
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.
24
<PAGE>
MERRILL LYNCH HIGH YIELD INDEX. The Merrill Lynch High Yield Index
-------------------------------
includes over 750 issues and represents public debt greater than $10 million
(original issuance rated BBB/BB and below).
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.
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.
25
<PAGE>
PERFORMANCE DATA
The manner in which total return of the Fund will be calculated for public
use is described above. The following table summarizes the calculation of total
return (I) for the one-year period ended December 31, 1997 and (ii) for the
period from the Fund's commencement of operations to December 31, 1997.
Performance Data*
<TABLE>
<CAPTION>
Average Annual Average Annual
Total Return Total Return
for the from the Commencement
One-Year Period ended of Operations** through
12/31/97 12/31/97
-------- --------
<S> <C>
15.68% 13.99%
</TABLE>
*Performance would have been lower if the management fee had not been waived by
Loomis Sayles. In the absence of the expense limitation, actual total return
would have been 15.44% and 13.74% for the one-year period ended December 31,
1997 and for the period from the Fund's commencement of operations to December
31, 1997, respectively.
**Inception date of the Fund is October 1, 1995.
26
<PAGE>
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Financial Planning
Adam Smith's Money World Financial Planning on Wall Street
America On Line Financial Research Corp.
Anchorage Daily News Financial Services Week
Atlanta Constitution Financial World
Atlanta Journal Fitch Insights
Arizona Republic Forbes
Austin American Statesman Fort Worth Star-Telegram
Baltimore Sun Fortune
Bank Investment Marketing Fox Network and affiliates
Barron's Fund Action
Bergen County Record (NJ) Fund Decoder
Bloomberg Business News Global Finance
Bond Buyer (the) Guarantor
Boston Business Journal Hartford Courant
Boston Globe Houston Chronicle
Boston Herald INC
Broker World Indianapolis Star
Business Radio Network Individual Investor
Business Week Institutional Investor
CBS and affiliates International Herald Tribune
CDA Investment Technologies Internet
CFO Investment Advisor
Changing Times Investment Company Institute
Chicago Sun Times Investment Dealers Digest
Chicago Tribune Investment Profiles
Christian Science Monitor Investment Vision
Christian Science Monitor News Service Investor's Daily
Cincinnati Enquirer IRA Reporter
Cincinnati Post Journal of Commerce
CNBC Kansas City Star
CNN KCMO (Kansas City)
Columbus Dispatch KOA-AM (Denver)
CompuServe LA Times
Dallas Morning News Leckey, Andrew (syndicated column)
Dallas Times-Herald Life Association News
Denver Post Lifetime Channel
Des Moines Register Miami Herald
Detroit Free Press Milwaukee Sentinel
Donoghues Money Fund Report Money Magazine
Dorfman, Dan (syndicated column) Money Maker
Dow Jones News Service Money Management Letter
Economist Morningstar
FACS of the Week Mutual Fund Market News
Fee Adviser Mutual Funds Magazine
Financial News Network National Public Radio
27
<PAGE>
National Underwriter USA Today
NBC and affiliates USA TV Network
New England Business Value Line
New England Cable News Wall Street Journal
New Orleans Times-Picayune Wall Street Letter
New York Daily News Wall Street Week
New York Times Washington Post
Newark Star Ledger WBZ
Newsday WBZ-TV
Newsweek WCVB-TV
Nightly Business Report WEEI
Orange County Register WHDH
Orlando Sentinel Worcester Telegram
Palm Beach Post World Wide Web
Pension World Worth Magazine
Pensions and Investments WRKO
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
28
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Loomis Sayles Investment Trust advertising and promotional material may include,
but is not limited to, discussions of the following information:
. Loomis Sayles Investment Trust's participation in wrap fee and no
transaction fee programs
. Characteristics of Loomis Sayles including the number and locations of its
offices, its investment practices and clients
. 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
. 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
References may be included in Loomis Sayles Investment Trust's advertising
and promotional literature about 401(k) and retirement plans, if any, that offer
the Fund. The information may include, but is not limited to:
. 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 a 401(k) or
retirement plan funding vehicle produced by industry authorities, research
organizations and publications.
29
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES FIXED INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
April 22, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus (the "Prospectus") of Loomis
Sayles Fixed Income Fund, a series of Loomis Sayles Investment Trust, dated
April 22, 1998, and should be read in conjunction therewith. A copy of the
Prospectus may be obtained from Loomis Sayles Investment Trust, One Financial
Center, Boston, Massachusetts 02111.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.......................... -3-
MANAGEMENT OF THE TRUST.................................................. -8-
INVESTMENT ADVISORY AND OTHER SERVICES................................... -11-
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................... -13-
DESCRIPTION OF THE TRUST................................................. -15-
HOW TO BUY SHARES........................................................ -17-
NET ASSET VALUE.......................................................... -18-
REDEMPTIONS.............................................................. -18-
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS.............. -19-
FINANCIAL STATEMENTS..................................................... -21-
CALCULATION OF YIELD AND TOTAL RETURN.................................... -22-
PERFORMANCE COMPARISONS.................................................. -23-
PERFORMANCE DATA......................................................... -26-
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION...................... A-1
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE.............................. B-1
</TABLE>
-2-
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles Fixed Income
Fund (the "Fund"), a series of Loomis Sayles Investment Trust (the "Trust"), are
summarized in the Prospectus under "Investment Objective and Policies" and "More
Information About the Fund's Investments." The investment policies of the Fund
set forth in the Prospectus and in this Statement of Additional Information may
be changed by Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the Fund's
investment adviser, subject to review and approval by the Trust's board of
trustees (the "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 means the lesser of (i) 67% of the shares of the Fund represented at a
meeting at which at least 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares).
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 the Fund):
The Fund will not:
*(1) 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.
*(2) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts. (This
restriction does not prevent the Fund from investing in issuers that
invest or deal in the foregoing types of assets or from purchasing
securities that are secured by real estate.)
*(3) Make loans. (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.)
*(4) Change its classification pursuant to Section 5(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), from a "diversified"
to "non-diversified" management investment company.
*(5) 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.)
-3-
<PAGE>
*(6) 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; however, the Fund's use of reverse repurchase
agreements and "dollar roll" arrangements shall not constitute
borrowing by the Fund for purposes of this restriction.
*(7) 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.
*(8) Issue senior securities other than any borrowing permitted by
restriction (6) above. (For the purposes of this restriction none of
the following is deemed to be a senior security: any pledge, mortgage,
hypothecation or other encumbrance of assets; 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 or entry into options, forward contracts,
futures contracts, options on futures contracts, swap contracts or any
other derivative investments to the extent that Loomis Sayles
determines that the Fund is not required to treat such investments as
senior securities pursuant to the pronouncements of the Securities and
Exchange Commission (the "SEC") or its staff.)
Although the Fund has no current intention of investing in repurchase
agreements, the Fund intends, based on the views of the staff of the SEC, to
restrict its investments, if any, in repurchase agreements maturing in more than
seven days, together with other investments in illiquid securities, to the
percentage permitted by restriction (7) above.
Although authorized to invest in restricted securities, the Fund, as a
matter of non-fundamental operating policy, currently does not intend to invest
in such securities, except Rule 144A securities.
Portfolio Turnover
- ------------------
Portfolio turnover considerations will not limit Loomis Sayles's investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rates will vary significantly from time to time depending on
the volatility of economic and market conditions. High portfolio turnover rates
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gain. See "Portfolio Transactions and Brokerage" for a
description of Loomis Sayles's brokerage practices and "Income Dividends,
Capital Gain Distributions and Tax Status" for more information about the tax
consequences of investing in the Fund.
-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, the
Federal National Mortgage Association, 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 U.S. 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 U.S.
Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the U.S.
-----------------------------
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 U.S. Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or other
-------------
mortgagee which represents 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" - The Federal National Mortgage Association ("FNMA") 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 FNMA that are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
--------------
is a corporate instrumentality of the U.S. Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio.
-5-
<PAGE>
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
U.S. Government.
As described in the Prospectus, U.S. Government Securities generally do not
involve the 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.
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 the Fund anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When the Fund purchases securities in this manner (i.e. on
a when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account liquid assets
in an amount equal to or greater than, on a daily basis, the amount of the
Fund's when-issued or delayed-delivery commitments. The Fund will make
commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting the Fund's investment criteria. The Fund may take delivery
of these securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date. When
the time comes to pay for when-issued or delayed-delivery securities, the Fund
will meet its obligations from then available cash flow or the sale of
securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
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 obligations
or for an initial period after the issuance of the obligations. Such bonds are
issued and traded at discounts 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
-6-
<PAGE>
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.
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. Although the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. 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 and (b) inability to enforce rights and the
expenses involved in attempted enforcement.
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 Trustees, that a 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
marketplace trades therefor.
-7-
<PAGE>
MANAGEMENT OF THE TRUST
The trustee and officers of the Trust and their principal occupations
during the past five years are as follows:
TIMOTHY J. HUNT (66) -- Trustee. 26 Dennett Road, Marblehead, Massachusetts.
--------
Retired. Formerly, Vice President and Director of Fixed Income Research,
Loomis Sayles.
DANIEL J. FUSS (64) -- President. Executive Vice President and Director, Loomis
---------
Sayles.
MARK W. HOLLAND (48) -- Treasurer. Vice President-Finance and Administration
---------
and Director, Loomis Sayles.
SHEILA M. BARRY (52) -- 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 (50) -- Executive Vice President. 465 First Street West,
------------------------
Sonoma, California. President, Chairman, Director and Chief Executive
Officer, Loomis Sayles.
WILLIAM F. CAMP (36) -- Vice President. 1533 North Woodward, Bloomfield Hills,
--------------
Michigan. Vice President, Loomis Sayles. Formerly, Portfolio Manager,
Kmart Corporation.
QUENTIN P. FAULKNER (59) -- Vice President. Vice President, Loomis Sayles.
--------------
KATHLEEN C. GAFFNEY (36) -- Vice President. Vice President, Loomis Sayles.
--------------
JEFFREY L. MEADE (47) -- Vice President. Chief Operating Officer, Executive
--------------
Vice President and Director, Loomis Sayles.
ROBERT K. PAYNE (55) -- Vice President. 555 California Street, San Francisco,
--------------
California. Vice President, Loomis Sayles.
ANTHONY J. WILKINS (56) -- Vice President. Vice President and Director, Loomis
--------------
Sayles.
-8-
<PAGE>
MARI J. SUGAHARA (33) -- Vice President. Vice President, Loomis Sayles
---------------
FREDERICK E. SWEENEY, JR. (37) -- Vice President. Vice President, Loomis Sayles.
--------------
Formerly, served as an Investment Consultant at Meketa Investment Group and
prior to that served as Vice President of New England Investment
Associates.
JOHN F. YEAGER (34) -- 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 from the positions listed. Except as
indicated above, the address of each officer of the Trust affiliated with Loomis
Sayles is One Financial Center, Boston, Massachusetts 02111.
The Trust pays no compensation to its officers listed above who are
interested persons of the Trust. Each Trustee who is not affiliated with Loomis
Sayles is compensated at the rate of $10,000 per annum. No Trustee received
compensation from any other investment company which is advised by Loomis Sayles
or its affiliates or which holds itself out to investors as being related to the
Trust.
COMPENSATION TABLE
for the period ended December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Benefits Annual Compensation
and Trust Accrued as Part of Benefits Upon from Trust and
Fund Expenses Retirement Fund Complex
Paid to Trustee
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Timothy J. Hunt, $10,000 $0 $0 $10,000
Trustee
</TABLE>
As of the date hereof, the Trustee and officers as a group owned less than
1% of the outstanding shares of the Fund.
-9-
<PAGE>
The following table sets forth the name, address and percentage ownership
of each holder of 5% or more of the Fund's outstanding securities as of March
31, 1998:
<TABLE>
<CAPTION>
Percentage of
Shareholder Address Shares Held
----------- ------- ------------
<S> <C> <C>
Boehringer Ingelheim Corporation 900 Ridgebury Road 13.24%
Ridgefield, CT 06887
New Hampshire Charitable 37 Pleasant Street 10.51%
Foundation Concord, NH 03301-4005
Painters & Allied Trades 25 Colgate Road 9.83%
District Council #35 Pension Fund Roslindale, MA 02131-1105
The Christina Mattin 14 N. Broadway 5.86%
Family Charitable Tarrytown, NY 10291
Remainder Unitrust A
The Christina Mattin 14 N. Broadway 5.86%
Family Charitable Tarrytown, NY 10291
Remainder Unitrust B
Trust Mark National Bank TTEE 248 East Capital Street 5.10%
Mississippi State University Jackson, MS 39201
Foundation, Inc.
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C> <C>
City of Manchester Employees 1838 Elm Street 5.10%
Retirement System Manchester, NH 03104
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. Loomis Sayles serves as investment adviser to the
------------------
Fund under an advisory agreement with the Trust dated August 30, 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 Trustees. Loomis Sayles furnishes, at its own expense, all
necessary office space, office supplies, 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 a monthly investment advisory fee at the annual rate of .50% of
the Fund's average weekly net assets.
Under the 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.
As described in the Prospectus, Loomis Sayles has voluntarily
undertaken for an indefinite period to limit the Fund's total operating
expenses. These arrangements may be modified or terminated by Loomis Sayles at
any time, subject to prior notice to shareholders.
During the 1995 fiscal period (January 17, 1995 through December 31,
1995), the 1996 and 1997 fiscal years, Loomis Sayles received the following
amounts of investment advisory fees from the Fund (before voluntary fee
reductions and expense assumptions) and waived and reimbursed the following
amounts of fees for the Fund:
-11-
<PAGE>
<TABLE>
<CAPTION>
Period Advisory Fees Fee Waivers/Reimbursements
------ ------------- --------------------------
<S> <C> <C>
1995 $176,759 $22,746
1996 $493,582 $ 0
1997 $574,496 $60,854
</TABLE>
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 Trustees 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 or Loomis
Sayles, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to the
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 interested persons, cast in person at a meeting called for the purpose of
voting on such approval.
The advisory agreement may be terminated without penalty by vote of
the Trustees or by vote of a majority of the outstanding voting securities of
the Fund, upon sixty days' written notice to Loomis Sayles, or by Loomis Sayles
upon ninety days' written notice to the Trust, and it terminates automatically
in the event of its assignment, as that term is defined in the 1940 Act. 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" or "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, cast in
person at a meeting called for the purpose of voting on such approval.
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 to the seventeen series of
the Loomis Sayles Funds, each a series of a registered open-end diversified
management investment company. Loomis Sayles acts as investment adviser or sub-
adviser to New England Star Advisers Fund, New England Value Fund, New England
Balanced Fund and New England Strategic Income 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 Funds 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 and to the Balanced Series and the Small Cap Series of New England
Zenith Funds, which is also a registered open-end
-12-
<PAGE>
management investment company. Loomis Sayles also provides investment advice to
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.
Officers of the Trust who hold positions with Loomis Sayles are listed
under "Management of the Trust" in this Statement of Additional Information.
Certain officers of the Trust also serve as officers, directors and trustees of
other investment companies and clients advised by Loomis Sayles. The other
investment companies and clients sometimes invest in securities in which the
Fund also invests. If the Fund and such other investment companies or clients
desire to buy or sell the same portfolio securities at the same time, purchases
and sales may be allocated, to the extent practicable, on a pro rata basis in
proportion to the 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 Fund. It is the opinion of the Trustee that the
desirability of retaining Loomis Sayles as investment adviser for the Fund
outweighs the disadvantages, if any, which might result from these
practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
----------------------
Street"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street 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 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 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
-----------------------
Coopers & Lybrand, L.L.P. ("Coopers & Lybrand"), One Post Office Square, Boston,
Massachusetts 02109. Coopers & Lybrand conducts an annual audit of the Trust's
financial statements and financial highlights, 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
-13-
<PAGE>
In placing orders for the purchase and sale of portfolio securities
for the Fund, Loomis Sayles always seeks the best price and execution.
Transactions are carried out through broker-dealers who make the primary market
for 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
the best price and execution for the transaction. This does not necessarily
mean that the lowest available brokerage commission will be paid for a
transaction. However, the Fund will only pay commissions that Loomis Sayles
believes 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 the 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's 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 Fund. Receipt of services or products other than
research from brokers is not a factor in the selection of brokers.
The following table sets forth for the 1995 fiscal period (January 17,
1995 through December 31, 1995), the 1996 and 1997 fiscal years (1) the
aggregate dollar amounts of brokerage commissions paid on portfolio transactions
during such periods, (2) the dollar amounts of transactions on which commissions
were paid during such periods that were directed to brokers providing research
services ("directed transactions") and (3) the dollar amounts of commissions
paid on directed transactions during such periods:
-14-
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Brokerage Directed on Directed
Commissions Transactions Transactions
Period ($) ($) ($)
------ ----------- ------------ ------------
<S> <C> <C> <C>
1995 $ 5,820 $ 0 $ 0
1996 $ 7,014 $ 0 $ 0
1997 $11,749 $ 0 $ 0
</TABLE>
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 The Commonwealth of Massachusetts by an Agreement and
Declaration of Trust (the "Declaration of Trust") dated December 23, 1993.
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 series of the Trust 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 the Fund, certain expenses may be legally
chargeable against the assets of all series.
The Declaration of Trust also permits the Trustees, without
shareholder approval, to issue shares of the Trust in one or more series, and to
subdivide any series of shares into various classes of shares with such dividend
preferences and other rights as the Trustees may designate. While the Trustees
have no current intention to subdivide any series of shares into classes, this
flexibility is intended to allow them to provide for an equitable allocation of
the impact of any future regulatory requirements which might affect various
classes of shareholders differently, or to permit shares of a series to be
distributed through more than one distribution channel, with the costs of the
particular means of distribution (or costs of related services) to be borne by
the shareholders who purchase
-15-
<PAGE>
through that means of distribution. 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").
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or the Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of the Trust or the Fund,
respectively. The Declaration of Trust further provides that the Trustees may
also terminate the Trust or the Fund upon written notice to the shareholders.
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, respectively.
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with a fractional vote for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) in 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 for each series or sub-series 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 exclusively 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. Voting rights are not cumulative.
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
-16-
<PAGE>
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.
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, (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value) and (iii) to issue shares of the Trust
in one or more series, and to subdivide any series of shares into various
classes of shares with such dividend preferences and other rights as the
Trustees may designate.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of each 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
-17-
<PAGE>
The procedures for purchasing shares of the Fund and for determining
the offering price of such shares 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 at least weekly and as of the
close of regular trading on the New York Stock Exchange (the "Exchange") on any
day on which an order for purchase or redemption of the Fund's shares is
received and on which the Exchange is open for unrestricted trading. During the
twelve months following the date of this Statement of Additional Information,
the Exchange is expected to be closed on the following weekdays: Memorial Day as
observed, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day and Good Friday. 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 among
securities that 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 Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Trustees.
Generally, trading in foreign securities markets is substantially
completed each day at various times prior to the close of regular trading on the
Exchange. Occasionally, events affecting the value of foreign securities 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 or in accordance with
procedures approved by the Trustees.
REDEMPTIONS
The procedures for redemption of Fund shares
are summarized in the Prospectus under "How to Redeem Shares."
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 the Trust in proper form. Proceeds resulting from a written
- ----------------------------------------
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. In those cases where you have recently
purchased your shares by check and your check was received less than fifteen
days prior to the redemption request, the Fund may withhold redemption proceeds
until your check has cleared.
-18-
<PAGE>
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
Trustees determine 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.
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 annual dividends, substantially all of the Fund's net income and to
distribute to its shareholders annually substantially all net realized capital
gains, if any, after offset by 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 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 the Trust.
In order for an election to be in effect for any dividend or distribution, it
must be received by the Trust on or before the record date for such dividend or
distribution.
As required by federal law, information concerning the federal tax
status of distributions from the Fund will be furnished to each shareholder for
each calendar year on or before January 31 of the succeeding year.
The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order so to qualify and to qualify
for the special 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 foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities or currencies; (ii) distribute each year at least 90% of the sum of
its taxable net investment income, its tax-exempt income and the excess, if any,
of its net short-term capital gains over net long-term capital losses; and (iii)
at the end of each fiscal quarter hold at least 50% of the value of its total
assets in cash, cash items, U.S. government securities, securities of other
regulated investment companies, and other securities that 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 no more than
25% of the value of its total assets
-19-
<PAGE>
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 that the Fund
controls and that are engaged in the same, similar or related trades or
businesses. To the extent the Fund qualifies for treatment as a regulated
investment company, it will not be subject to federal income tax on income paid
to its shareholders in the form of dividends or capital gain distributions.
A nondeductible excise tax will be imposed at the rate of 4% on the
excess, if any, of the Fund's "required distribution" over its actual
distributions in any calendar year. Generally, the "required distribution" is
98% of the Fund's ordinary income for the calendar year plus 98% of its capital
gain net income realized during the one-year period ending on October 31 (or
December 31, if the Fund is permitted to so elect and so elects) plus
undistributed amounts from prior years. The Fund intends to make distributions
sufficient to avoid imposition of the excise tax. Dividends and 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.
Dividends and distributions on Fund shares received shortly after
their purchase, although economically a return of capital, are subject to
federal income taxes as described herein and in the Prospectus to the extent the
dividends and distributions do not exceed the Fund's current and accumulated
earnings and profits.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
If shares have been held for more than one year, gain or loss realized will
generally be long-term capital gain or loss, and will otherwise be short-term
capital gain or loss. In general, any long term gains realized upon a taxable
disposition of shares will be subject to a maximum tax rate of either 28% or 20%
depending on the shareholder's holding period in the Fund shares. 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, all or a portion of any loss will be disallowed on the taxable
disposition of Fund shares if the shareholder acquires other shares of the Fund
within 30 days before or after the disposition.
The Fund's transactions in foreign currency-denominated debt
securities may give rise to ordinary income or loss to the extent such income or
loss results from fluctuations in the value of the foreign currency concerned.
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.
-20-
<PAGE>
If the Fund engages in hedging transactions, including hedging
transactions in options, future contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to market straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert short-
term capital losses into long-term capital losses. These rules could therefore
affect the amount, timing and character of distributions to shareholders. The
Fund will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the Fund.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the regulations thereunder 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, respectively.
Dividends and distributions also may be subject to foreign, state and
local taxes. Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, foreign, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax
law. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
The Internal Revenue Service recently revised its regulations
affecting the application to foreign investors of the back-up withholding and
withholding tax rules described above. The new regulations will generally be
effective for payments made on or after January 1, 1999 (although transition
rules will apply). In some circumstances, the new rules will increase the
certification and filing requirements imposed on foreign investors in order to
qualify for exemption from the 31% back-up withholding tax and for reduced
withholding tax rates under income tax treaties. Foreign investors in the Fund
should consult their tax advisors with respect to the potential application of
these new regulations.
FINANCIAL STATEMENTS
The Report of Independent Accountants, financial highlights and
financial statements of the Fund included in its 1997 Annual Report are
incorporated herein by reference to such Annual Report. Copies of such Annual
Report are available without charge upon request by writing Loomis Sayles, One
Financial Center, Boston, Massachusetts 02111 or telephoning (617)
482-2450.
-21-
<PAGE>
The financial highlights included in the Prospectus under the headings
"Financial Highlights" and "Prior Performance" and incorporated by reference
into this Statement of Additional Information and the financial statements and
financial highlights contained in the Fund's 1997 Annual Report and incorporated
by reference into this Statement of Additional Information have both been
audited by Coopers & Lybrand L.L.P., independent accountants, and have been so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting.
CALCULATION OF YIELD AND TOTAL RETURN
Yield. The Fund's yield 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 objective 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
-22-
<PAGE>
redemption at the end of the period; and (4) dividing the resulting account
value by the initial $1,000 investment.
PERFORMANCE COMPARISONS
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.
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 twice a month. The
-----------------
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a 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
-23-
<PAGE>
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.
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.
-24-
<PAGE>
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 INDEX. The Merrill Lynch High Yield Index
-------------------------------
includes over 750 issues and represents public debt greater than $10 million
(original issuance rated BBB/BB and below).
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.
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
-25-
<PAGE>
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.
PERFORMANCE DATA
The manner in which yield and total return of the Fund will be
calculated for public use is described above. The following table summarizes
the calculation of the Fund's yield at December 31, 1997 and the Fund's total
return (i) for the one-year period ended December 31, 1997 and (ii) for the
period from the Fund's commencement of operations to December 31, 1997.
Performance Data*
<TABLE>
<CAPTION>
Average
Average Annual
Annual Total
Total Return Return
for the from the Commencement
Current SEC Yield One-Year Period ended of Operations** through
at 12/31/97 12/31/97 12/31/97
----------- -------- --------
<S> <C> <C>
8.47% 13.40% 16.88%
</TABLE>
*Performance would have been lower if the management fee had not been waived and
certain other expenses had not been reimbursed by Loomis Sayles. In the absence
of the expense limitation, actual yield and total return for the one year period
and the period from the Fund's commencement of operations to December 31, 1997
would have been 8.43% (yield), 13.35% and 16.85%, respectively.
**Inception date of the Fund is January 17, 1995.
-26-
<PAGE>
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Financial Planning on Wall Street
Adam Smith's Money World Financial Research Corp.
America On Line Financial Services Week
Anchorage Daily News Financial World
Atlanta Constitution Fitch Insights
Atlanta Journal Forbes
Arizona Republic Fort Worth Star-Telegram
Austin American Statesman Fortune
Baltimore Sun Fox Network and affiliates
Bank Investment Marketing Fund Action
Barron's Fund Decoder
Bergen County Record (NJ) Global Finance
Bloomberg Business News (the) Guarantor
Bond Buyer Hartford Courant
Boston Business Journal Houston Chronicle
Boston Globe INC
Boston Herald Indianapolis Star
Broker World Individual Investor
Business Radio Network Institutional Investor
Business Week International Herald Tribune
CBS and affiliates Internet
CDA Investment Technologies Investment Advisor
CFO Investment Company Institute
Changing Times Investment Dealers Digest
Chicago Sun Times Investment Profiles
Chicago Tribune Investment Vision
Christian Science Monitor Investor's Daily
Christian Science Monitor News Service IRA Reporter
Cincinnati Enquirer Journal of Commerce
Cincinnati Post Kansas City Star
CNBC KCMO (Kansas City)
CNN KOA-AM (Denver)
Columbus Dispatch LA Times
CompuServe Leckey, Andrew (syndicated column)
Dallas Morning News Life Association News
Dallas Times-Herald Lifetime Channel
Denver Post Miami Herald
Des Moines Register Milwaukee Sentinel
Detroit Free Press Money Magazine
Donoghues Money Fund Report Money Maker
Dorfman, Dan (syndicated column) Money Management Letter
Dow Jones News Service Morningstar
Economist Mutual Fund Market News
FACS of the Week Mutual Funds Magazine
Fee Adviser National Public Radio
Financial News Network National Underwriter
Financial Planning NBC and affiliates
A-1
<PAGE>
New England Business Value Line
New England Cable News Wall Street Journal
New Orleans Times-Picayune Wall Street Letter
New York Daily News Wall Street Week
New York Times Washington Post
Newark Star Ledger WBZ
Newsday WBZ-TV
Newsweek WCVB-TV
Nightly Business Report WEEI
Orange County Register WHDH
Orlando Sentinel Worcester Telegram
Palm Beach Post World Wide Web
Pension World Worth Magazine
Pensions and Investments WRKO
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
A-2
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Loomis Sayles Investment Trust advertising and promotional material may include,
but is not limited to, discussions of the following information:
. Loomis Sayles Investment Trust's participation in wrap fee and no
transaction fee programs
. Characteristics of Loomis Sayles including the number and locations of its
offices, its investment practices and clients
. 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
. 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
References may be included in Loomis Sayles Investment Trust's advertising
and promotional literature about 401(k) and retirement plans, if any, that offer
the Fund. The information may include, but is not limited to:
. 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 a 401(k) or
retirement plan funding vehicle produced by industry authorities, research
organizations and publications.
B-1
<PAGE>
LOOMIS SAYLES HIGH YIELD FIXED INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
April 22, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus (the "Prospectus") of Loomis
Sayles High Yield Fixed Income Fund, a series of Loomis Sayles Investment Trust,
dated April 22, 1998, and should be read in conjunction therewith. A copy of
the Prospectus may be obtained from Loomis Sayles Investment Trust, One
Financial Center, Boston, Massachusetts 02111.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS............... -3-
MANAGEMENT OF THE TRUST....................................... -7-
INVESTMENT ADVISORY AND OTHER SERVICES........................-10-
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................-13-
DESCRIPTION OF THE TRUST......................................-14-
HOW TO BUY SHARES.............................................-17-
NET ASSET VALUE...............................................-17-
REDEMPTIONS...................................................-17-
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS...-18-
FINANCIAL STATEMENTS..........................................-20-
CALCULATION OF YIELD AND TOTAL RETURN.........................-21-
PERFORMANCE COMPARISONS.......................................-22-
PERFORMANCE DATA..............................................-25-
APPENDIX A PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION...... A-1
APPENDIX B ADVERTISING AND PROMOTIONAL LITERATURE.............. B-1
</TABLE>
-2-
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles High Yield Fixed
Income Fund (the "Fund"), a series of Loomis Sayles Investment Trust (the
"Trust"), are summarized in the Prospectus under "Investment Objective and
Policies" and "More Information About the Fund's Investments." The investment
policies of the Fund set forth in the Prospectus and in this Statement of
Additional Information may be changed by Loomis, Sayles & Company, L.P. ("Loomis
Sayles"), the Fund's investment adviser, subject to review and approval by the
Trust's board of trustees (the "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 means the lesser of (i) 67% of the shares of the Fund represented at a
meeting at which at least 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares).
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 the Fund):
The Fund will not:
*(1) 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.
*(2) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts. (This
restriction does not prevent the Fund from investing in issuers that
invest or deal in the foregoing types of assets or from purchasing
securities that are secured by real estate.)
*(3) Make loans. (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.)
*(4) Change its classification pursuant to Section 5(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), from a "diversified"
to "non-diversified" management investment company.
*(5) 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.)
-3-
<PAGE>
*(6) 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; however, the Fund's use of reverse repurchase
agreements and "dollar roll" arrangements shall not constitute
borrowing by the Fund for purposes of this restriction.
*(7) 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.
*(8) Issue senior securities other than any borrowing permitted by
restriction (6) above. (For the purposes of this restriction none of
the following is deemed to be a senior security: any pledge, mortgage,
hypothecation or other encumbrance of assets; 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 or entry into options, forward contracts,
futures contracts, options on futures contracts, swap contracts or any
other derivative investments to the extent that Loomis Sayles
determines that the Fund is not required to treat such investments as
senior securities pursuant to the pronouncements of the Securities and
Exchange Commission (the "SEC") or its staff.)
Although the Fund has no current intention of investing in repurchase
agreements, the Fund intends, based on the views of the staff of the SEC, to
restrict its investments, if any, in repurchase agreements maturing in more than
seven days, together with other investments in illiquid securities, to the
percentage permitted by restriction (7) above.
Although authorized to invest in restricted securities, the Fund, as a
matter of non-fundamental operating policy, currently does not intend to invest
in such securities, except Rule 144A securities.
Portfolio Turnover
- ------------------
Portfolio turnover considerations will not limit Loomis Sayles's investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rates will vary significantly from time to time depending on
the volatility of economic and market conditions. High portfolio turnover rates
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gain. See "Portfolio Transactions and Brokerage" for a
description of Loomis Sayles's brokerage practices and "Income Dividends,
Capital Gain Distributions and Tax Status" for more information about the tax
consequences of investing in the Fund.
-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, the
Federal National Mortgage Association, 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 U.S. 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 U.S.
Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the U.S.
-----------------------------
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 U.S. Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or other
-------------
mortgagee which represents 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" - The Federal National Mortgage Association ("FNMA") 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 FNMA that are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
--------------
is a corporate instrumentality of the U.S. Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio.
-5-
<PAGE>
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
U.S. Government.
As described in the Prospectus, U.S. Government Securities generally do not
involve the 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.
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 the Fund anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When the Fund purchases securities in this manner (i.e. on
a when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account liquid assets
in an amount equal to or greater than, on a daily basis, the amount of the
Fund's when-issued or delayed-delivery commitments. The Fund will make
commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting the Fund's investment criteria. The Fund may take delivery
of these securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date. When
the time comes to pay for when-issued or delayed-delivery securities, the Fund
will meet its obligations from then available cash flow or the sale of
securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
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 obligations
or for an initial period after the issuance of the obligations. Such bonds are
issued and traded at discounts 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
-6-
<PAGE>
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.
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. Although the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. 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 and (b) inability to enforce rights and the
expenses involved in attempted enforcement.
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 Trustees, that a 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
marketplace trades therefor.
MANAGEMENT OF THE TRUST
The trustee and officers of the Trust and their principal occupations
during the past five years are as follows:
TIMOTHY J. HUNT (66) -- Trustee. 26 Dennett Road, Marblehead,
Massachusetts. Retired. Formerly, Vice President and Director of Fixed
-------------
Income Research, Loomis Sayles.
DANIEL J. FUSS (64) -- President. Executive Vice President and Director, Loomis
---------
Sayles.
-7-
<PAGE>
MARK W. HOLLAND (48) -- Treasurer. Vice President-Finance and Administration and
---------
Director, Loomis Sayles.
SHEILA M. BARRY (52) -- 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 (50) -- Executive Vice President. 465 First Street West,
------------------------
Sonoma, California. President, Chairman, Director and Chief Executive
Officer, Loomis Sayles.
WILLIAM F. CAMP (36) -- Vice President. 1533 North Woodward, Bloomfield Hills,
--------------
Michigan. Vice President, Loomis Sayles. Formerly, Portfolio Manager,
Kmart Corporation.
QUENTIN P. FAULKNER (59) -- Vice President. Vice President, Loomis Sayles.
--------------
KATHLEEN C. GAFFNEY (36) -- Vice President. Vice President, Loomis Sayles.
--------------
JEFFREY L. MEADE (47) -- Vice President. Chief Operating Officer, Executive
--------------
Vice President and Director, Loomis Sayles.
ROBERT K. PAYNE (55) -- Vice President. 555 California Street, San Francisco,
--------------
California. Vice President, Loomis Sayles.
ANTHONY J. WILKINS (56) -- Vice President. Vice President and Director, Loomis
--------------
Sayles.
MARI J. SUGAHARA (33) -- Vice President. Vice President, Loomis Sayles
---------------
FREDERICK E. SWEENEY, JR. (37) --Vice President. Vice President, Loomis Sayles.
---------------
Formerly, served as an Investment Consultant at Meketa Investment Group and
prior to that served as Vice President of New England Investment
Associates.
JOHN F. YEAGER (34) -- Vice President. Vice President, Loomis Sayles.
--------------
Formerly, Vice President-Marketing, INVESCO Funds Group and Assistant
Comptroller, INVESCO Capital Management.
-8-
<PAGE>
Previous positions during the past five years with Loomis Sayles are
omitted, if not materially different from the positions listed. Except as
indicated above, the address of each officer of the Trust affiliated with Loomis
Sayles is One Financial Center, Boston, Massachusetts 02111.
The Trust pays no compensation to its officers listed above who are
interested persons of the Trust. Each Trustee who is not affiliated with Loomis
Sayles is compensated at the rate of $10,000 per annum. No Trustee received
compensation from any other investment company which is advised by Loomis Sayles
or its affiliates or which holds itself out to investors as being related to the
Trust.
COMPENSATION TABLE
for the year ended December 31, 1997
<TABLE>
- -------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total Compensation
Position Compensation Retirement Annual from Trust and Fund
from Trust Benefits Benefits Upon Complex Paid to
Accrued as Part Retirement Trustee
of Fund Expenses
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Timothy J. Hunt, $10,000 $0 $0 $10,000
Trustee
</TABLE>
As of the date hereof, the Trustee and officers as a group owned less than
1% of the outstanding shares of the Fund.
As of March 31, 1998, each of Trustees of Clark University and Blue Cross
Blue Shield of Massachusetts, Inc. Retirement Trust may be deemed to control the
Fund because each owned of record more than 25% of the Fund's shares. As a
result, it may not be possible for matters subject to a vote of the outstanding
voting securities of the Fund to be approved without the affirmative vote of
such shareholder, and such shareholder may be able to approve such matters
without the approval of any other shareholder. The following table sets forth
the name, address and percentage ownership of each holder of 5% or more of the
Fund's outstanding securities as of March 31, 1998:
-9-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shareholder Address Securities Held
- -------------------------------- -------------------- ----------------
<S> <C> <C>
Trustees of Clark University 950 Main Street 45.81%
Worcester, MA 01610
Blue Cross Blue Shield of 100 Summer Street 32.48%
Massachusetts, Inc. Boston, MA 02110
Retirement Income Trust
Energen Corporation Retirement 210 Sixth Ave. N. 12.38%
Income Plan Birmingham, AL 35203
Worcester Polytechnic Institute 100 Institute Road 8.97%
Worcester, MA 01609
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. Loomis Sayles serves as investment adviser to the
------------------
Fund under an advisory agreement with the Trust dated August 30, 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 Trustees. Loomis Sayles furnishes, at its own expense, all
necessary office space, office supplies, 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 a monthly investment advisory fee at the annual rate of .60% of
the Fund's average weekly net assets.
Under the 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.
As described in the Prospectus, Loomis Sayles has voluntarily
undertaken for an indefinite period to limit the Fund's total operating
expenses. These arrangements may be modified or terminated by Loomis Sayles at
any time, subject to prior notice to shareholders.
-10-
<PAGE>
During the 1996 fiscal period (June 5, 1996 through December 31, 1996)
and the 1997 fiscal year, Loomis Sayles received the following amount of
investment advisory fees from the Fund (before voluntary fee reductions and
expense assumptions) and waived and reimbursed the following amount of fees for
the Fund:
<TABLE>
<CAPTION>
Period Advisory Fees Fee Waivers/Reimbursements
- -------- ------------- --------------------------
<S> <C> <C>
1996 $ 10,218 $33,770
1997 $125,297 $88,172
</TABLE>
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 Trustees 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 or Loomis
Sayles, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to the
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 interested persons, cast in person at a meeting called for the purpose of
voting on such approval.
The advisory agreement may be terminated without penalty by vote of
the Trustees or by vote of a majority of the outstanding voting securities of
the Fund, upon sixty days' written notice to Loomis Sayles, or by Loomis Sayles
upon ninety days' written notice to the Trust, and terminates automatically in
the event of its assignment, as that term is defined in the 1940 Act. 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" or "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, cast in
person at a meeting called for the purpose of voting on such approval.
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 to the seventeen series of
the Loomis Sayles Funds, each a series of a registered open-end diversified
management investment company. Loomis Sayles acts as investment adviser or sub-
adviser to New England Star Advisers Fund, New England Value Fund, New England
Balanced Fund and New England Strategic Income 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 Funds 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 and
-11-
<PAGE>
the Balanced Series and the Small Cap Series of New England Zenith Funds, which
is also a registered open-end management investment company. Loomis Sayles also
provides investment advice to 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.
Officers of the Trust who hold positions with Loomis Sayles are listed
under "Management of the Trust" in this Statement of Additional Information.
Certain officers of the Trust also serve as officers, directors and trustees of
other investment companies and clients advised by Loomis Sayles. The other
investment companies and clients sometimes invest in securities in which the
Fund also invests. If the Fund and such other investment companies or clients
desire to buy or sell the same portfolio securities at the same time, purchases
and sales may be allocated, to the extent practicable, on a pro rata basis in
proportion to the 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 Fund. It is the opinion of the Trustee that the
desirability of retaining Loomis Sayles as investment adviser for the Fund
outweighs the disadvantages, if any, which might result from these
practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
----------------------
Street"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street 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 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 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
-----------------------
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), One Post Office Square, Boston,
Massachusetts 02109. Coopers & Lybrand conducts an annual audit of the Trust's
financial statements and financial highlights,
-12-
<PAGE>
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.
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 are carried out through broker-dealers who make the primary market
for 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
the best price and execution for the transaction. This does not necessarily
mean that the lowest available brokerage commission will be paid for a
transaction. However, the Fund will only pay commissions that Loomis Sayles
believes 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 the 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's 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 Fund. Receipt of services or products other than
research from brokers is not a factor in the selection of brokers.
The following table sets forth for the 1996 fiscal period (June 5,
1996 through December 31, 1996) and the 1997 fiscal year (1) the aggregate
dollar amount of brokerage commissions paid on portfolio transactions during
such period, (2) the dollar amount of transactions on which commissions were
paid during such period that were directed to brokers
-13-
<PAGE>
providing research services ("directed transactions") and (3) the dollar amount
of commissions paid on directed transactions during such period:
<TABLE>
<CAPTION>
(1) (3)
Aggregate (2) Commissions
Brokerage Directed on Directed
Period Commissions($) Transactions($) Transactions($)
- -------- ------------ --------------- ----------------
<S> <C> <C> <C>
1996 $ 636 $ 0 $ 0
1997 $6,412 $ 0 $ 0
</TABLE>
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 The Commonwealth of Massachusetts by an Agreement and
Declaration of Trust (the "Declaration of Trust") dated December 23, 1993.
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 series of the Trust 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 the Fund, certain expenses may be legally
chargeable against the assets of all series.
The Declaration of Trust also permits the Trustees, without
shareholder approval, to issue shares of the Trust in one or more series, and to
subdivide any series of shares into various classes of shares with such dividend
preferences and other rights as the Trustees may designate. While the Trustees
have no current intention to subdivide any series of shares into classes, this
flexibility is intended to allow them to provide for an equitable allocation of
the impact of any future regulatory
-14-
<PAGE>
requirements which might affect various classes of shareholders differently, or
to permit shares of a series to be distributed through more than one
distribution channel, with the costs of the particular means of distribution (or
costs of related services) to be borne by the shareholders who purchase through
that means of distribution. 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").
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or the Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of the Trust or the Fund,
respectively. The Declaration of Trust further provides that the Trustees may
also terminate the Trust or the Fund upon written notice to the shareholders.
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, respectively.
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with a fractional vote for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) in 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 for each series or sub-series 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 exclusively 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. Voting rights are not cumulative.
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
-15-
<PAGE>
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.
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, (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value) and (iii) to issue shares of the Trust
in one or more series, and to subdivide any series of shares into various
classes of shares with such dividend preferences and other rights as the
Trustees may designate.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of each 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.
-16-
<PAGE>
HOW TO BUY SHARES
The procedures for purchasing shares of the Fund and for determining
the offering price of such shares 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 at least weekly and as of the
close of regular trading on the New York Stock Exchange (the "Exchange") on any
day on which an order for purchase or redemption of the Fund's shares is
received and on which the Exchange is open for unrestricted trading. During the
twelve months following the date of this Statement of Additional Information,
the Exchange is expected to be closed on the following weekdays: Memorial Day as
observed, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day and Good Friday.
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 among
securities that 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 Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Trustees.
Generally, trading in foreign securities markets is substantially
completed each day at various times prior to the close of regular trading on the
Exchange. Occasionally, events affecting the value of foreign securities 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
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 or in accordance with
procedures approved by the Trustees.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
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 the Trust in proper
- -----------------------------------
-17-
<PAGE>
form. Proceeds resulting from a written redemption request will normally be
- ----
mailed to you within seven days after receipt of your request in good order. In
those cases where you have recently purchased your shares by check and your
check was received less than fifteen days prior to the redemption request, the
Fund may withhold redemption proceeds until your 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
Trustees determine 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.
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
annually, as dividends, substantially all of the Fund's net income and to
distribute to its shareholders annually substantially all net realized capital
gains, if any, after offset by 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 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 the Trust.
In order for an election to be in effect for any dividend or distribution, it
must be received by the Trust on or before the record date for such dividend or
distribution.
As required by federal law, information concerning the federal tax
status of distributions from the Fund will be furnished to each shareholder for
each calendar year on or before January 31 of the succeeding year.
The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order so to qualify and to qualify
for the special 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 foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities or currencies; (ii) distribute each year at least 90% of the sum of
its taxable net investment income, its tax-exempt income and the excess, if any,
of net
-18-
<PAGE>
short-term capital gains over its net long-term capital losses for such year;
and (iii) at the end of each fiscal quarter hold at least 50% of the value of
its total assets in cash, cash items, U.S. government securities, securities of
other regulated investment companies, and other securities that 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 no more than
25% of the value of its total 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 that the Fund controls and that are engaged in the same,
similar or related trades or businesses. To the extent the Fund qualifies for
treatment as a regulated investment company, it will not be subject to federal
income tax on income paid to its shareholders in the form of dividends or
capital gain distributions.
A nondeductible excise tax will be imposed at the rate of 4% on the
excess, if any, of the Fund's "required distribution" over its distributions in
any calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
realized during the one-year period ending on October 31 (or December 31, if the
Fund is permitted to so elect and so elects) plus undistributed amounts from
prior years. The Fund intends to make distributions sufficient to avoid
imposition of the excise tax. Dividends and 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.
Dividends and distributions on Fund shares received shortly after
their purchase, although economically a return of capital, are subject to
federal income taxes as described herein and in the Prospectus to the extent the
dividends and distributions do not exceed the Fund's current and accumulated
earnings and profits.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
If shares have been held for more than one year, gain or loss realized will
generally be long-term capital gain or loss, and will otherwise be short-term
capital gain or loss. In general, any long term gains realized upon a taxable
disposition of shares will be subject to a maximum tax rate of either 28% or 20%
depending on the shareholder's holding period in the Fund shares. 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, all or a portion of any loss will be disallowed on the taxable
disposition of Fund shares if the shareholder acquires other shares of the Fund
within 30 days before or after the disposition.
The Fund's transactions in foreign currency-denominated debt
securities may give rise to ordinary income or loss to the extent such income or
loss results from fluctuations in the value of the foreign currency concerned.
-19-
<PAGE>
The Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
If the Fund engages in hedging transactions, including hedging
transactions in options, future contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to market straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert short-
term capital losses into long-term capital losses. These rules could therefore
affect the amount, timing and character of distributions to shareholders. The
Fund will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the Fund.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the regulations thereunder 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, respectively.
Dividends and distributions also may be subject to foreign, state and
local taxes. Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, foreign, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax
law. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
The Internal Revenue Service recently revised its regulations
affecting the application to foreign investors of the back-up withholding and
withholding tax rules described above. The new regulations will generally be
effective for payments made on or after January 1, 1999 (although transition
rules will apply). In some circumstances, the new rules will increase the
certification and filing requirements imposed on foreign investors in order to
qualify for exemption from the 31% back-up withholding tax and for reduced
withholding tax rates under income tax treaties. Foreign investors in the Fund
should consult their tax advisors with respect to the potential application of
these new regulations.
FINANCIAL STATEMENTS
The Report of Independent Accountants, financial highlights and
financial statements of the Fund included in its
-20-
<PAGE>
1997 Annual Report are incorporated herein by reference to such Annual Report.
Copies of such Annual Report are available without charge upon request by
writing Loomis Sayles, One Financial Center, Boston, Massachusetts 02111 or
telephoning (617) 482-2450.
The financial highlights included in the Prospectus under the headings
"Financial Highlights" and "Prior Performance" and incorporated by reference
into this Statement of Additional Information and the financial statements and
financial highlights contained in the Fund's 1997 Annual Report and incorporated
by reference into this Statement of Additional Information have both been
audited by Coopers & Lybrand L.L.P., independent accountants, and have been so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting.
CALCULATION OF YIELD AND TOTAL RETURN
Yield. The Fund's yield 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 objective 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
-21-
<PAGE>
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
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.
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 twice a month. The
-----------------
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a 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.
-22-
<PAGE>
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.
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.
-23-
<PAGE>
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 INDEX. The Merrill Lynch High Yield Index
-------------------------------
includes over 750 issues and represents public debt greater than $10 million
(original issuance rated BBB/BB and below).
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.
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
-24-
<PAGE>
Fund's promotional literature. For additional information about the Fund's
advertising and promotional literature, see Appendix B.
PERFORMANCE DATA
The manner in which yield and total return of the Fund will be
calculated for public use is described above. The following table summarizes
the calculation of the Fund's yield at December 31, 1997 and the Fund's total
return (I) for the one-year period ended December 31, 1997 and (ii) for the
period from the Fund's commencement of operations to December 31, 1997.
Performance Data*
<TABLE>
<CAPTION>
Average Annual
Average Annual Total Return
Total Return from the
for the One-Year Commencement of
Current SEC Yield Period Ended Operations** through
at 12/31/97 12/31/97 12/31/97
- ------------------- -------- --------
<S> <C> <C>
9.96% 8.84% 10.59%
- ------------------------------------------------------------
</TABLE>
* Performance would have been lower if the management fee had not been waived
and certain other expenses had not been reimbursed by Loomis Sayles. In the
absence of the expense limitation, actual yield and total return would have been
9.61% (yield), and 8.42% and 9.65% for the one-year period ended December 31,
1997 and for the period from the Fund's commencement of operations to December
31, 1997, respectively.
** Inception date of the Fund is June 5, 1996.
-25-
<PAGE>
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Financial Planning
Adam Smith's Money World Financial Planning on
America On Line Financial Research Corp
Anchorage Daily News Financial Services Week
Atlanta Constitution Financial World
Atlanta Journal Fitch Insights
Arizona Republic Forbes
Austin American Statesman Fort Worth Star-Telegr
Baltimore Sun Fortune
Bank Investment Marketing Fox Network and affiliates
Barron's Fund Action
Bergen County Record (NJ) Fund Decoder
Bloomberg Business News Global Finance
Bond Buyer (the) Guarantor
Boston Business Journal Hartford Courant
Boston Globe Houston Chronicle
Boston Herald INC
Broker World Indianapolis Star
Business Radio Network Individual Investor
Business Week Institutional Investor
CBS and affiliates International Herald T
CDA Investment Technologies Internet
CFO Investment Advisor
Changing Times Investment Company Institute
Chicago Sun Times Investment Dealers Dig
Chicago Tribune Investment Profiles
Christian Science Monitor Investment Vision
Christian Science Monitor News Service Investor's Daily
Cincinnati Enquirer IRA Reporter
Cincinnati Post Journal of Commerce
CNBC Kansas City Star
CNN KCMO (Kansas City)
Columbus Dispatch KOA-AM (Denver)
CompuServe LA Times
Dallas Morning News Leckey, Andrew (syndic
Dallas Times-Herald Life Association News
Denver Post Lifetime Channel
Des Moines Register Miami Herald
Detroit Free Press Milwaukee Sentinel
Donoghues Money Fund Report Money Magazine
Dorfman, Dan (syndicated column) Money Maker
Dow Jones News Service Money Management Letter
Economist Morningstar
FACS of the Week Mutual Fund Market New
Fee Adviser Mutual Funds Magazine
Financial News Network National Public Radio
A-1
<PAGE>
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
A-2
<PAGE>
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
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Loomis Sayles Investment Trust advertising and promotional material may include,
but is not limited to, discussions of the following information:
B Loomis Sayles Investment Trust's participation in wrap fee and no
transaction fee programs
Characteristics of Loomis Sayles including the number and locations of its
offices, its investment practices and clients
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
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
B-1
<PAGE>
-the growth of assets
-asset types managed
References may be included in Loomis Sayles Investment Trust's advertising
and promotional literature about 401(k) and retirement plans, if any, that offer
the Fund. The information may include, but is not limited to:
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 a 401(k) or
retirement plan funding vehicle produced by industry authorities, research
organizations and publications.
B-2
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES INTERMEDIATE DURATION FIXED INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
April 22, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus (the "Prospectus") of Loomis
Sayles Intermediate Duration Fixed Income Fund, a series of Loomis Sayles
Investment Trust, dated April 22, 1998, and should be read in conjunction
therewith. A copy of the Prospectus may be obtained from Loomis Sayles
Investment Trust, One Financial Center, Boston, Massachusetts 02111.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS................ -3-
MANAGEMENT OF THE TRUST........................................ -8-
INVESTMENT ADVISORY AND OTHER SERVICES......................... -10-
PORTFOLIO TRANSACTIONS AND BROKERAGE........................... -12-
DESCRIPTION OF THE TRUST....................................... -13-
HOW TO BUY SHARES.............................................. -16-
NET ASSET VALUE................................................ -16-
REDEMPTIONS.................................................... -17-
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS.... -17-
CALCULATION OF YIELD AND TOTAL RETURN.......................... -20-
PERFORMANCE COMPARISONS........................................ -21-
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION.......... A-1
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE.................. B-1
</TABLE>
-2-
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles Intermediate
Duration Fixed Income Fund (the "Fund"), a series of Loomis Sayles Investment
Trust (the "Trust"), are summarized in the Prospectus under "Investment
Objective and Policies" and "More Information About the Fund's Investments."
The investment policies of the Fund set forth in the Prospectus and in this
Statement of Additional Information may be changed by Loomis Sayles & Company,
L.P. ("Loomis Sayles"), the Fund's investment adviser, subject to review and
approval by the Trust's board of trustees (the "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 means the lesser of (i) 67% of the shares of the Fund
represented at a meeting at which at least 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares).
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 the Fund):
The Fund will not:
*(1) 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.
*(2) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts. (This
restriction does not prevent the Fund from investing in issuers that
invest or deal in the foregoing types of assets or from purchasing
securities that are secured by real estate.)
*(3) Make loans. (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. )
*(4) Change its classification pursuant to Section 5(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), from a "diversified"
to "non-diversified" management investment company.
*(5) 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.)
-3-
<PAGE>
*(6) 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; however, the Fund's use of reverse repurchase
agreements and "dollar roll" arrangements shall not constitute
borrowing by the Fund for purposes of this restriction.
*(7) 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.
*(8) Issue senior securities other than any borrowing permitted by
restriction (6) above. (For the purposes of this restriction none of
the following is deemed to be a senior security: any pledge, mortgage,
hypothecation or other encumbrance of assets; 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 or entry into options, forward contracts,
futures contracts, options on futures contracts, swap contracts or any
other derivative investments to the extent that Loomis Sayles
determines that the Fund is not required to treat such investments as
senior securities pursuant to the pronouncements of the Securities and
Exchange Commission (the "SEC") or its staff.)
Although the Fund has no current intention of investing in repurchase
agreements, the Fund intends, based on the views of the staff of the SEC, to
restrict its investments, if any, in repurchase agreements maturing in more than
seven days, together with other investments in illiquid securities, to the
percentage permitted by restriction (7) above.
Although authorized to invest in restricted securities, the Fund, as a
matter of non-fundamental operating policy, currently does not intend to invest
in such securities, except Rule 144A securities.
Portfolio Turnover
- ------------------
Portfolio turnover considerations will not limit Loomis Sayles's investment
discretion in managing the Fund's assets. Although it is impossible to predict
with certainty, it is expected that the annual portfolio turnover rate for the
first full fiscal year of the Fund will not exceed 100%. The Fund anticipates
that its portfolio turnover rates will vary significantly from time to time
depending on the volatility of economic and market conditions. High portfolio
turnover rates involve higher costs such as higher brokerage commissions and
higher levels of taxable gain. See "Portfolio Transactions and Brokerage" for a
description of Loomis Sayles's brokerage practices and "Income Dividends,
Capital Gain Distributions and Tax Status" for more information about the tax
consequences of investing in the Fund.
-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, the
Federal National Mortgage Association, 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 U.S. 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 U.S.
Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the U.S.
-----------------------------
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 U.S. Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or other
-------------
mortgagee which represent interests 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" - The Federal National Mortgage Association ("FNMA") 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 FNMA that are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
--------------
is a corporate instrumentality of the U.S. Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio.
-5-
<PAGE>
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
U.S. Government.
As described in the Prospectus, U.S. Government Securities generally do not
involve the 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.
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 the Fund anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When the Fund purchases securities in this manner (i.e. on
a when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account liquid assets
in an amount equal to or greater than, on a daily basis, the amount of the
Fund's when-issued or delayed-delivery commitments. The Fund will make
commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting the Fund's investment criteria. The Fund may take delivery
of these securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date. When
the time comes to pay for when-issued or delayed-delivery securities, the Fund
will meet its obligations from then available cash flow or the sale of
securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
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 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
-6-
<PAGE>
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.
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 obligations
or for an initial period after the issuance of the obligations. Such bonds are
issued and traded at discounts 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.
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. Although the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. 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 and (b) inability to enforce rights and the
expenses involved in attempted enforcement.
-7-
<PAGE>
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 Trustees, that a 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
marketplace trades therefor.
MANAGEMENT OF THE TRUST
The trustee and officers of the Trust and their principal occupations
during the past five years are as follows:
TIMOTHY J. HUNT (66) -- Trustee. 26 Dennett Road, Marblehead, Massachusetts.
-------
Retired. Formerly, Vice President and Director of Fixed Income Research,
Loomis Sayles.
DANIEL J. FUSS (64) -- President. Executive Vice President and Director, Loomis
---------
Sayles.
MARK W. HOLLAND (48) -- Treasurer. Vice President-Finance and Administration
---------
and Director, Loomis Sayles.
SHEILA M. BARRY (52) -- 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 (50) -- Executive Vice President. 465 First Street West,
------------------------
Sonoma, California. President, Chairman, Director and Chief Executive
Officer, Loomis Sayles.
WILLIAM F. CAMP (36) -- Vice President. 1533 North Woodward, Bloomfield Hills,
--------------
Michigan. Vice President, Loomis Sayles. Formerly, Portfolio Manager,
Kmart Corporation.
-8-
<PAGE>
QUENTIN P. FAULKNER (59) -- Vice President. Vice President, Loomis Sayles.
--------------
KATHLEEN C. GAFFNEY (36) -- Vice President. Vice President, Loomis Sayles.
--------------
JEFFREY L. MEADE (47) -- Vice President. Chief Operating Officer, Executive
--------------
Vice President and Director, Loomis Sayles.
ROBERT K. PAYNE (55) -- Vice President. 555 California Street, San Francisco,
--------------
California. Vice President, Loomis Sayles.
ANTHONY J. WILKINS (56) -- Vice President. Vice President and Director, Loomis
--------------
Sayles.
MARI J. SUGAHARA (33) -- Vice President. Vice President, Loomis Sayles.
---------------
FREDERICK E. SWEENEY, JR. (37) -- Vice President. Vice President, Loomis
Sayles.
---------------
Formerly, served as an Investment Consultant at Meketa Investment Group and
prior to that served as Vice President of New England Investment
Associates.
JOHN F. YEAGER (34) -- 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 from the positions listed. Except as
indicated above, the address of each officer of the Trust affiliated with Loomis
Sayles is One Financial Center, Boston, Massachusetts 02111.
The Trust pays no compensation to its officers listed above who are
interested persons of the Trust. Each Trustee who is not affiliated with Loomis
Sayles will be compensated at the rate of $10,000 per annum. No Trustee will
receive compensation from any other investment company which is advised by
Loomis Sayles or its affiliates or which holds itself out to investors as being
related to the Trust.
<TABLE>
<CAPTION>
COMPENSATION TABLE
for the year ended December 31, 1997
- -------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C>
Name of Person, Aggregate Pension or Estimated Total Compensation
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Position Compensation Retirement Annual from Trust and Fund
from Trust Benefits Benefits Complex Paid
Accrued as Upon to Trustee
Part of Fund Retirement
Expenses
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Timothy J. Hunt, $10,000 $0 $0 $10,000
Trustee
</TABLE>
As of the date hereof, the Trustee and officers as a group owned less
than 1% of the outstanding shares of the Fund.
As of December 31, 1997, the Fund had not yet commenced
operations.
As of March 31, 1998, Trustees of Clark University may be deemed to
control the Fund because it owned of record more than 25% of the Fund's shares.
As a result, it may not be possible for matters subject to a vote of a majority
of the outstanding voting securities of the Fund to be approved without the
affirmative vote of such shareholders, and it may be possible for such matters
to be approved by such shareholders without the affirmative vote of any other
shareholder. The following table sets forth the name, address and percentage
ownership of each holder of 5% or more of the Fund's outstanding securities as
of March 31, 1998:
Shareholder Address Percentage of Shares Held
----------- ------- -------------------------
Trustees of Clark University 950 Main Street 100%
Worcester, MA 01610
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. Loomis Sayles serves as investment adviser to the
------------------
Fund under an advisory agreement with the Trust dated August 30, 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 Trustees. Loomis Sayles furnishes, at its own expense, all
necessary office space, office supplies, 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 a monthly investment advisory fee at the annual rate of .40% of
the Fund's average weekly net assets.
Under the 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.
-10-
<PAGE>
As described in the Prospectus, Loomis Sayles has voluntarily
undertaken for an indefinite period to limit the Fund's total operating
expenses. These arrangements may be modified or terminated by Loomis Sayles at
any time, subject to prior notice to shareholders.
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 Trustees 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 or Loomis
Sayles, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to the 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
interested persons, cast in person at a meeting called for the purpose of voting
on such approval.
The advisory agreement may be terminated without penalty by vote of the
Trustees or by vote of a majority of the outstanding voting securities of the
Fund, upon sixty days' written notice to Loomis Sayles, or by Loomis Sayles upon
ninety days' written notice to the Trust, and it terminates automatically in the
event of its assignment, as that term is defined in the 1940 Act. 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" or "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, cast in
person at a meeting called for the purpose of voting on such approval.
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 to the seventeen series of the
Loomis Sayles Funds, each a series of a registered open-end diversified
management investment company. Loomis Sayles acts as investment adviser or sub-
adviser to New England Star Advisers Fund, New England Value Fund, New England
Balanced Fund and New England Strategic Income 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 Funds 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 and the Balanced Series and the Small Cap Series of New England Zenith
Funds, which is also a registered open-end management investment company.
Loomis Sayles also provides investment advice to 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
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<PAGE>
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.
Officers of the Trust who hold positions with Loomis Sayles are listed
under "Management of the Trust" in this Statement of Additional Information.
Certain officers of the Trust also serve as officers, directors and trustees of
other investment companies and clients advised by Loomis Sayles. The other
investment companies and clients sometimes invest in securities in which the
Fund also invests. If the Fund and such other investment companies or clients
desire to buy or sell the same portfolio securities at the same time, purchases
and sales may be allocated, to the extent practicable, on a pro rata basis in
proportion to the 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 Fund. It is the opinion of the Trustee that the
desirability of retaining Loomis Sayles as investment adviser for the Fund
outweighs the disadvantages, if any, which might result from these
practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
----------------------
Street"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street 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 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 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
-----------------------
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), One Post Office Square, Boston,
Massachusetts 02109. Coopers & Lybrand conducts an annual audit of the Trust's
financial statements and financial highlights, 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.
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
are carried out through broker-dealers who make the primary market for
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.
-12-
<PAGE>
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
the best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commission will be paid for a transaction.
However, the Fund will only pay commissions that Loomis Sayles believes 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 the 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's 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 Fund. 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 The Commonwealth of Massachusetts by an Agreement and
Declaration of Trust (the "Declaration of Trust") dated December 23, 1993.
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
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<PAGE>
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 series of the Trust 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 the Fund, certain expenses may be legally
chargeable against the assets of all series.
The Declaration of Trust also permits the Trustees, without
shareholder approval, to issue shares of the Trust in one or more series, and to
subdivide any series of shares into various classes of shares with such dividend
preferences and other rights as the Trustees may designate. While the Trustees
have no current intention to subdivide any series of shares into classes, this
flexibility is intended to allow them to provide for an equitable allocation of
the impact of any future regulatory requirements which might affect various
classes of shareholders differently, or to permit shares of a series to be
distributed through more than one distribution channel, with the costs of the
particular means of distribution (or costs of related services) to be borne by
the shareholders who purchase through that means of distribution. 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").
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or the Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of the Trust or the Fund,
respectively. The Declaration of Trust further provides that the Trustees may
also terminate the Trust or the Fund upon written notice to the shareholders.
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, respectively.
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with a fractional vote for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) in 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
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<PAGE>
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 for each series or sub-
series 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 exclusively 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. Voting rights are not cumulative.
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.
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, (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value) and (iii) to issue shares of the Trust
in one or more series, and to subdivide any series of shares into various
classes of shares with such dividend preferences and other rights as the
Trustees may designate.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims
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<PAGE>
shareholder liability for acts or obligations of each 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 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 and for determining
the offering price of such shares 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 at least weekly and as of the
close of regular trading on the New York Stock Exchange (the "Exchange") on any
day on which an order for purchase or redemption of the Fund's shares is
received and on which the Exchange is open for unrestricted trading. During the
twelve months following the date of this Statement of Additional Information,
the Exchange is expected to be closed on the following weekdays: Memorial Day as
observed, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day and Good Friday. 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 among
securities that 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 Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Trustees.
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<PAGE>
Generally, trading in foreign securities markets is substantially
completed each day at various times prior to the close of regular trading on the
Exchange. Occasionally, events affecting the value of foreign securities 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 or in accordance with
procedures approved by the Trustees.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
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 the Trust in proper form. Proceeds resulting from a written
- ----------------------------------------
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. In those cases where you have recently
purchased your shares by check and your check was received less than fifteen
days prior to the redemption request, the Fund may withhold redemption proceeds
until your 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
Trustees determine 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.
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
monthly, as dividends, substantially all of the Fund's net income and to
distribute to its shareholders annually substantially all net realized capital
gains, if any, after offset by 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
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<PAGE>
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 the Trust. In order for an election to
be in effect for any dividend or distribution, it must be received by the Trust
on or before the record date for such dividend or distribution.
As required by federal law, information concerning the federal tax
status of distributions from the Fund will be furnished to each shareholder for
each calendar year on or before January 31 of the succeeding year.
The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order so to qualify and to qualify
for the special 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 foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities or currencies; (ii) distribute each 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;
and (iii) at the end of each fiscal quarter hold at least 50% of the value of
its total assets in cash, cash items, U.S. government securities, securities of
other regulated investment companies, and other securities that 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 no more than
25% of the value of its total 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 that the Fund controls and that are engaged in the same,
similar or related trades or businesses. To the extent the Fund qualifies for
treatment as a regulated investment company, it will not be subject to federal
income tax on income paid to its shareholders in the form of dividends or
capital gain distributions.
A nondeductible excise tax will be imposed at the rate of 4% on the
excess, if any, of the Fund's "required distribution" over its distributions in
any calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
realized during the one-year period ending on October 31 (or December 31, if the
Fund is permitted to so elect and so elects) plus undistributed amounts from
prior years. The Fund intends to make distributions sufficient to avoid
imposition of the excise tax. Dividends and 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.
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<PAGE>
Dividends and distributions on Fund shares received shortly after
their purchase, although economically a return of capital, are subject to
federal income taxes as described herein and in the Prospectus to the extent the
dividends and distributions do not exceed the Fund's current and accumulated
earnings and profits.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
If shares have been held for more than one year, gain or loss realized will
generally be long-term capital gain or loss, and will otherwise be short-term
capital gain or loss. In general, any long term gains realized upon a taxable
disposition of shares will be subject to a maximum tax rate of either 28% or 20%
depending on the shareholder's holding period in the Fund shares. 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, all or a portion of any loss will be disallowed on the taxable
disposition of Fund shares if the shareholder acquires other shares of the Fund
within 30 days before or after the disposition.
The Fund's transactions in foreign currency-denominated debt
securities may give rise to ordinary income or loss to the extent such income or
loss results from fluctuations in the value of the foreign currency
concerned.
The Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
If the Fund engages in hedging transactions, including hedging
transactions in options, future contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to market straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert short-
term capital losses into long-term capital losses. These rules could therefore
affect the amount, timing and character of distributions to shareholders. The
Fund will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the Fund.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the regulations thereunder 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, respectively.
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<PAGE>
Dividends and distributions also may be subject to foreign, state and
local taxes. Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, foreign, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax
law. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
The Internal Revenue Service recently revised its regulations
affecting the application to foreign investors of the back-up withholding and
withholding tax rules described above. The new regulations will generally be
effective for payments made on or after January 1, 1999 (although transition
rules will apply). In some circumstances, the new rules will increase the
certification and filing requirements imposed on foreign investors in order to
qualify for exemption from the 31% back-up withholding tax and for reduced
withholding tax rates under income tax treaties. Foreign investors in the Fund
should consult their tax advisors with respect to the potential application of
these new regulations.
CALCULATION OF YIELD AND TOTAL RETURN
Yield. The Fund's yield 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 objective 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.
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<PAGE>
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
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.
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 twice a month. The
-----------------
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a 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.
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Performance is adjusted using quantitative techinques to reflect the risk
profile of the fund. The ratings are derived from a purely quantitative system
that does not utilize the subject 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.
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.
-22-
<PAGE>
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 INDEX. The Merrill Lynch High Yield Index
-------------------------------
includes over 750 issues and represents public debt greater than $10 million
(original issuance rated BBB/BB and below).
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.
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.
-23-
<PAGE>
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.
-24-
<PAGE>
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
<TABLE>
<S> <C>
ABC and affiliates Financial Research Corp.
Adam Smith's Money World Financial Services Week
America On Line Financial World
Anchorage Daily News Fitch Insights
Atlanta Constitution Forbes
Atlanta Journal Fort Worth Star-Telegram
Arizona Republic Fortune
Austin American Statesman Fox Network and affiliates
Baltimore Sun Fund Action
Bank Investment Marketing Fund Decoder
Barron's Global Finance
Bergen County Record (NJ) (the) Guarantor
Bloomberg Business News Hartford Courant
Bond Buyer Houston Chronicle
Boston Business Journal INC
Boston Globe Indianapolis Star
Boston Herald Individual Investor
Broker World Institutional Investor
Business Radio Network International Herald Tribune
Business Week Internet
CBS and affiliates Investment Advisor
CDA Investment Technologies Investment Company Institute
CFO Investment Dealers Digest
Changing Times Investment Profiles
Chicago Sun Times Investment Vision
Chicago Tribune Investor's Daily
Christian Science Monitor IRA Reporter
Christian Science Monitor News Service Journal of Commerce
Cincinnati Enquirer Kansas City Star
Cincinnati Post KCMO (Kansas City)
CNBC KOA-AM (Denver)
CNN LA Times
Columbus Dispatch Leckey, Andrew (syndicated column)
CompuServe Life Association News
Dallas Morning News Lifetime Channel
Dallas Times-Herald Miami Herald
Denver Post Milwaukee Sentinel
Des Moines Register Money Magazine
Detroit Free Press Money Maker
Donoghues Money Fund Report Money Management Letter
Dorfman, Dan (syndicated column) Morningstar
Dow Jones News Service Mutual Fund Market News
Economist Mutual Funds Magazine
FACS of the Week National Public Radio
Fee Adviser National Underwriter
Financial News Network NBC and affiliates
Financial Planning New England Business
Financial Planning on Wall Street New England Cable News
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
New Orleans Times-Picayune Wall Street Letter
New York Daily News Wall Street Week
New York Times Washington Post
Newark Star Ledger WBZ
Newsday WBZ-TV
Newsweek WCVB-TV
Nightly Business Report WEEI
Orange County Register WHDH
Orlando Sentinel Worcester Telegram
Palm Beach Post World Wide Web
Pension World Worth Magazine
Pensions and Investments WRKO
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
</TABLE>
A-2
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Loomis Sayles Investment Trust advertising and promotional material may include,
but is not limited to, discussions of the following information:
[_] Loomis Sayles Investment Trust's participation in wrap fee and no
transaction fee programs
[_] Characteristics of Loomis Sayles including the number and locations of its
offices, its investment practices and clients
[_] 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
[_] 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
References may be included in Loomis Sayles Investment Trust's advertising
and promotional literature about 401(k) and retirement plans, if any, that offer
the Fund. The information may include, but is not limited to:
[_] 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 a 401(k) or
retirement plan funding vehicle produced by industry authorities, research
organizations and publications.
B-1
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
LOOMIS SAYLES INVESTMENT GRADE FIXED INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
April 22, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus (the "Prospectus") of Loomis
Sayles Investment Grade Fixed Income Fund, a series of Loomis Sayles Investment
Trust, dated April 22, 1998, and should be read in conjunction therewith. A
copy of the Prospectus may be obtained from Loomis Sayles Investment Trust, One
Financial Center, Boston, Massachusetts 02111.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...................... -3-
MANAGEMENT OF THE TRUST.............................................. -7-
INVESTMENT ADVISORY AND OTHER SERVICES............................... -10-
PORTFOLIO TRANSACTIONS AND BROKERAGE................................. -13-
DESCRIPTION OF THE TRUST............................................. -14-
HOW TO BUY SHARES.................................................... -17-
NET ASSET VALUE...................................................... -17-
REDEMPTIONS.......................................................... -18-
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS.......... -19-
FINANCIAL STATEMENTS................................................. -21-
CALCULATION OF YIELD AND TOTAL RETURN................................ -22-
PERFORMANCE COMPARISONS.............................................. -22-
PERFORMANCE DATA..................................................... -25-
APPENDIX APUBLICATIONS THAT MAY CONTAIN FUND INFORMATION............. A-1
APPENDIX BADVERTISING AND PROMOTIONAL LITERATURE..................... B-1
</TABLE>
-2-
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective and policies of the Loomis Sayles Investment Grade
Fixed Income Fund (the "Fund"), a series of Loomis Sayles Investment Trust (the
"Trust"), are summarized in the Prospectus under "Investment Objective and
Policies" and "More Information About the Fund's Investments." The investment
policies of the Fund set forth in the Prospectus and in this Statement of
Additional Information may be changed by Loomis, Sayles & Company, L.P. ("Loomis
Sayles"), the Fund's investment adviser, subject to review and approval by the
Trust's board of trustees (the "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 means the lesser of (i) 67% of the shares of the Fund represented at a
meeting at which at least 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares).
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 the Fund):
The Fund will not:
*(1) 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.
*(2) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts. (This
restriction does not prevent the Fund from investing in issuers that
invest or deal in the foregoing types of assets or from purchasing
securities that are secured by real estate.)
*(3) Make loans. (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.)
*(4) Change its classification pursuant to Section 5(b) of the Investment
Company Act of 1940 (the "1940 Act") from a "diversified" to "non-
diversified" management investment company.
*(5) 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.)
-3-
<PAGE>
*(6) 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; however, the Fund's use of reverse repurchase
agreements and "dollar roll" arrangements shall not constitute
borrowing by the Fund for purposes of this restriction.
*(7) 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.
*(8) Issue senior securities other than any borrowing permitted by
restriction (6) above. (For the purposes of this restriction none of
the following is deemed to be a senior security: any pledge, mortgage,
hypothecation or other encumbrance of assets; 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 or entry into options, forward contracts,
futures contracts, options on futures contracts, swap contracts or any
other derivative investments to the extent that Loomis Sayles
determines that the Fund is not required to treat such investments as
senior securities pursuant to the pronouncements of the Securities and
Exchange Commission (the "SEC") or its staff.)
Although the Fund has no current intention of investing in repurchase
agreements, the Fund intends, based on the views of the staff of the SEC, to
restrict its investments, if any, in repurchase agreements maturing in more than
seven days, together with other investments in illiquid securities, to the
percentage permitted by restriction (7) above.
Although authorized to invest in restricted securities, the Fund, as a
matter of non-fundamental operating policy, currently does not intend to invest
in such securities, except Rule 144A securities.
Portfolio Turnover
- ------------------
Portfolio turnover considerations will not limit Loomis Sayles's investment
discretion in managing the Fund's assets. The Fund anticipates that its
portfolio turnover rates will vary significantly from time to time depending on
the volatility of economic and market conditions. High portfolio turnover rates
may result in higher costs such as higher brokerage commissions and higher
levels of taxable gain. See "Portfolio Transactions and Brokerage" for a
description of Loomis Sayles's brokerage practices and "Income Dividends,
Capital Gain Distributions and Tax Status" for more information about the tax
consequences of investing in the Fund.
U.S. Government Securities
- --------------------------
-4-
<PAGE>
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, the
Federal National Mortgage Association, 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 U.S. 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 U.S.
Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the U.S.
-----------------------------
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 U.S. Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or other
-------------
mortgagee which represent interests 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" - The Federal National Mortgage Association ("FNMA") 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 FNMA that are guaranteed as to timely
payment of principal and interest by FNMA but are not backed by the full faith
and credit of the U.S. Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
--------------
is a corporate instrumentality of the U.S. Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio.
-5-
<PAGE>
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
U.S. Government.
As described in the Prospectus, U.S. Government Securities generally do not
involve the 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.
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 the Fund anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When the Fund purchases securities in this manner (i.e. on a
when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account liquid assets
in an amount equal to or greater than, on a daily basis, the amount of the
Fund's when-issued or delayed-delivery commitments. The Fund will make
commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting the Fund's investment criteria. The Fund may take delivery
of these securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date. When
the time comes to pay for when-issued or delayed-delivery securities, the Fund
will meet its obligations from then available cash flow or the sale of
securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
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 obligations
or for an initial period after the issuance of the obligations. Such bonds are
issued and traded at discounts 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
-6-
<PAGE>
an investor 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.
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. Although the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. 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 and (b) inability to enforce rights and the
expenses involved in attempted enforcement.
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 Trustees, that a 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
marketplace trades therefor.
MANAGEMENT OF THE TRUST
The trustee and officers of the Trust and their principal occupations
during the past five years are as follows:
TIMOTHY J. HUNT (66) -- Trustee. 26 Dennett Road, Marblehead, Massachusetts.
-------
Retired. Formerly, Vice President and Director of Fixed Income Research,
Loomis Sayles.
-7-
<PAGE>
DANIEL J. FUSS (64) -- President. Executive Vice President and Director, Loomis
---------
Sayles.
MARK W. HOLLAND (48) -- Treasurer. Vice President-Finance and Administration
---------
and Director, Loomis Sayles.
SHEILA M. BARRY (52) -- 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 (50) -- Executive Vice President. 465 First Street West,
------------------------
Sonoma, California. President, Chairman, Director and Chief Executive
Officer, Loomis Sayles.
WILLIAM F. CAMP (36) -- Vice President. 1533 North Woodward, Bloomfield Hills,
--------------
Michigan. Vice President, Loomis Sayles. Formerly, Portfolio Manager,
Kmart Corporation.
QUENTIN P. FAULKNER (59) -- Vice President. Vice President, Loomis Sayles.
--------------
KATHLEEN C. GAFFNEY (36) -- Vice President. Vice President, Loomis Sayles.
--------------
JEFFREY L. MEADE (47) -- Vice President. Chief Operating Officer, Executive
--------------
Vice President and Director, Loomis Sayles.
ROBERT K. PAYNE (55) -- Vice President. 555 California Street, San Francisco,
--------------
California. Vice President, Loomis Sayles.
ANTHONY J. WILKINS (56) -- Vice President. Vice President and Director, Loomis
--------------
Sayles.
MARI J. SUGAHARA (33) -- Vice President. Vice President, Loomis Sayles
---------------
FREDERICK E. SWEENEY, JR. (37) --Vice President. Vice President, Loomis Sayles.
---------------
Formerly, served as an Investment Consultant at Meketa Investment Group and
prior to that served as Vice President of New England Investment
Associates.
-8-
<PAGE>
JOHN F. YEAGER (34) -- 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 from the positions listed. Except as
indicated above, the address of each officer of the Trust affiliated with Loomis
Sayles is One Financial Center, Boston, Massachusetts 02111.
The Trust pays no compensation to its officers listed above who are
interested persons of the Trust. Each Trustee who is not affiliated with Loomis
Sayles is compensated at the rate of $10,000 per annum. No Trustee received
compensation from any other investment company which is advised by Loomis Sayles
or its affiliates or which holds itself out to investors as being related to the
Trust.
<TABLE>
<CAPTION>
COMPENSATION TABLE
for the year ended December 31, 1997
- -----------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total Compensation
Position Compensation Retirement Annual from Trust and Fund
from Trust Benefits Benefits Upon Complex Paid to
Accrued as Part Retirement Trustee
of Fund Expenses
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Timothy J. Hunt, $10,000 $0 $0 $10,000
Trustee
</TABLE>
As of the date hereof, the Trustee and officers as a group owned less than
1% of the outstanding shares of the Fund.
The following table sets forth the name, address and percentage ownership
of each holder of 5% or more of the Fund's outstanding securities as of March
31, 1998.
<TABLE>
<CAPTION>
Percentage of
Shareholder Address Shares Held
----------- ------- -----------
<S> <C> <C>
Peabody Essex Museum East India Square 19.06%
</TABLE>
-9-
<PAGE>
<TABLE>
<S> <C> <C>
Salem, MA 01970
Wichita State University 1845 Fairmount 10.66%
Endowment Association Wichita, KS 67260
Local 522 Pension Fund 139-16 91st Avenue 10.60%
Jamaica, NY 11435
Jupiter & Co. P.O. Box 9130, FPG 90 10.54%
Boston, MA 02117-9130
Braintree Contributory 71 Cleveland Avenue 9.51%
Retirement System Braintree, MA 02184
Light &Co. P.O. Box 1596 7.44%
Baltimore, MD 21203-1596
The Deaconess Foundation 211 N. Broadway 5.69%
Suite 1260
St. Louis, MO 63102
Harrington Memorial 100 South Street 5.03%
Hospital Endowment Southbridge, MA 01550
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. Loomis Sayles serves as investment adviser to the Fund
------------------
under an
-10-
<PAGE>
advisory agreement with the Trust dated August 30, 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
Trustees. Loomis Sayles furnishes, at its own expense, all necessary office
space, office supplies, 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
a monthly investment advisory fee at the annual rate of .40% of the Fund's
average weekly net assets.
Under the 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.
As described in the Prospectus, Loomis Sayles has voluntarily undertaken
for an indefinite period to limit the Fund's total operating expenses. These
arrangements may be modified or terminated by Loomis Sayles at any time, subject
to prior notice to shareholders.
During the 1995, 1996 and 1997 fiscal years, Loomis Sayles received the
following amounts of investment advisory fees from the Fund (before voluntary
fee reductions and expense assumptions) and waived and reimbursed the following
amounts of fees for the Fund:
<TABLE>
<CAPTION>
Period Advisory Fees Fee Waivers/Reimbursements
------ -------------- --------------------------
<S> <C> <C>
1995 $ 39,508 $38,911
1996 $124,447 $47,712
1997 $244,179 $85,697
</TABLE>
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 Trustees 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 or Loomis
Sayles, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to the 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
interested persons, cast in person at a meeting called for the purpose of voting
on such approval.
The advisory agreement may be terminated without penalty by vote of the
Trustees or by vote of a majority of the outstanding voting securities of the
Fund, upon sixty days' written notice to
-11-
<PAGE>
Loomis Sayles, or by Loomis Sayles upon ninety days' written notice to the
Trust, and it terminates automatically in the event of its assignment, as that
term is defined in the 1940 Act. 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" or "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, cast in person at a meeting called for the purpose of
voting on such approval.
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 to the seventeen series of the
Loomis Sayles Funds, each a series of a registered open-end diversified
management investment company. Loomis Sayles acts as investment adviser or sub-
adviser to New England Star Advisers Fund, New England Value Fund, New England
Balanced Fund and New England Strategic Income 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 Funds Trust II, a registered
open-end investment management company, New England Equity Income Fund, a one
series of New England Funds Trust III, a registered open-end management
investment company and to the Balanced Series and the Small Cap Series of New
England Zenith Funds, which is also a registered open-end management investment
company. Loomis Sayles also provides investment advice to 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.
Officers of the Trust who hold positions with Loomis Sayles are listed
under "Management of the Trust" in this Statement of Additional Information.
Certain officers of the Trust also serve as officers, directors and trustees of
other investment companies and clients advised by Loomis Sayles. The other
investment companies and clients sometimes invest in securities in which the
Fund also invests. If the Fund and such other investment companies or clients
desire to buy or sell the same portfolio securities at the same time, purchases
and sales may be allocated, to the extent
-12-
<PAGE>
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 Fund. It is the
opinion of the Trustee that the desirability of retaining Loomis Sayles as
investment adviser for the Fund outweighs the disadvantages, if any, which might
result from these practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
----------------------
Street"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street 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 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 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 Coopers &
-----------------------
Lybrand L.L.P. ("Coopers & Lybrand"), One Post Office Square, Boston,
Massachusetts 02109. Coopers & Lybrand conducts an annual audit of the Trust's
financial statements and financial highlights, 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.
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 are
carried out through broker-dealers who make the primary market for 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
the best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commission will be paid for a transaction.
However, the Fund will only pay commissions that Loomis Sayles believes 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
-13-
<PAGE>
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 the 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's 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 Fund. Receipt of services or products other than
research from brokers is not a factor in the selection of brokers.
The following table sets forth for the 1995, 1996 and 1997 fiscal years (1)
the aggregate dollar amounts of brokerage commissions paid on portfolio
transactions during such periods, (2) the dollar amounts of transactions on
which commissions were paid during such periods that were directed to brokers
providing research services ("directed transactions") and (3) the dollar amounts
of commissions paid on directed transactions during such periods:
<TABLE>
<CAPTION>
(1) (2) (3)
Aggregate Commissions
Brokerage Directed on Directed
Commissions Transactions Transactions
Period ($) ($) ($)
- ------ ----------- ------------ ------------
<S> <C> <C> <C>
1995 $2,516 $ 0 $0
1996 $1,240 $ 0 $0
1997 $1,192 $ 0 $0
</TABLE>
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 The Commonwealth of Massachusetts by an Agreement and Declaration of
Trust (the "Declaration of Trust") dated December 23, 1993.
-14-
<PAGE>
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 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 series of the Trust 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 the Fund, certain expenses may be legally chargeable against
the assets of all series.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to issue shares of the Trust in one or more series, and to subdivide
any series of shares into various classes of shares with such dividend
preferences and other rights as the Trustees may designate. While the Trustees
have no current intention to subdivide any series of shares into classes, this
flexibility is intended to allow them to provide for an equitable allocation of
the impact of any future regulatory requirements which might affect various
classes of shareholders differently, or to permit shares of a series to be
distributed through more than one distribution channel, with the costs of the
particular means of distribution (or costs of related services) to be borne by
the shareholders who purchase through that means of distribution. 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").
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust or the Fund, however, may be terminated at any time by vote of at
least two-thirds of the outstanding shares of the Trust or the Fund,
respectively. The Declaration of Trust further provides that the Trustees may
also terminate the Trust or the Fund upon written notice to the shareholders.
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, respectively.
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote for
each full share
-15-
<PAGE>
held (with a fractional vote for each fractional share held) and may vote (to
the extent provided in the Declaration of Trust) in 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 for each series or sub-series 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 exclusively 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. Voting rights are not cumulative.
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.
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, (ii) to establish, change or eliminate the par value of
-16-
<PAGE>
any shares (currently all shares have no par value) and (iii) to issue shares of
the Trust in one or more series, and to subdivide any series of shares into
various classes of shares with such dividend preferences and other rights as the
Trustees may designate.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
each 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 and for determining the
offering price of such shares 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 at least weekly and as of the close of regular
trading on the New York Stock Exchange (the "Exchange") on any day on which an
order for purchase or redemption of the Fund's shares is received and on which
the Exchange is open for unrestricted trading. During the twelve months
following the date of this Statement of Additional Information, the Exchange is
expected to be closed on the following weekdays: Memorial Day as observed,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day, New Year's
-17-
<PAGE>
Day, Martin Luther King, Jr. Day, Presidents' Day and Good Friday. 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 among securities that 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 Trustees, although the actual calculations may be made by
persons acting pursuant to the direction of the Trustees.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of regular trading on the Exchange.
Occasionally, events affecting the value of foreign securities 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 or in accordance with
procedures approved by the Trustees.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
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 the Trust in proper form. Proceeds resulting from a written
- ------------------------------------
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. In those cases where you have recently
purchased your shares by check and your check was received less than fifteen
days prior to the redemption request, the Fund may withhold redemption proceeds
until your 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 Trustees
determine 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.
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."
-18-
<PAGE>
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 monthly, as
dividends, substantially all of the Fund's net income and to distribute to its
shareholders annually substantially all net realized capital gains, if any,
after offset by 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 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 the Trust.
In order for an election to be in effect for any dividend or distribution, it
must be received by the Trust on or before the record date for such dividend or
distribution.
As required by federal law, information concerning the federal tax status
of distributions from the Fund will be furnished to each shareholder for each
calendar year on or before January 31 of the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order so to qualify and to qualify for the
special 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 foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities or currencies; (ii) distribute each 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 its net long-term capital losses for such
year; and (iii) at the end of each fiscal quarter hold at least 50% of the value
of its total assets in cash, cash items, U.S. government securities, securities
of other regulated investment companies, and other securities that 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 no more
than 25% of the value of its total 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 that the Fund controls and that are engaged in the
same, similar or related trades or businesses. To the extent the Fund qualifies
for treatment as a regulated investment company, it will not be subject to
federal income tax on income paid to its shareholders in the form of dividends
or capital gain distributions.
A nondeductible excise tax will be imposed at the rate of 4% on the excess,
if any, of the Fund's "required distribution" over its 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
-19-
<PAGE>
capital gain net income realized during the one-year period ending on October 31
(or December 31, if the Fund is permitted to so elect and so elects) plus
undistributed amounts from prior years. The Fund intends to make distributions
sufficient to avoid imposition of the excise tax. Dividends and 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.
Dividends and distributions on Fund shares received shortly after their
purchase, although economically a return of capital, are subject to federal
income taxes as described herein and in the Prospectus to the extent the
dividends and distributions do not exceed the Fund's current and accumulated
earnings and profits.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. If
shares have been held for more than one year, gain or loss realized will
generally be long-term capital gain or loss, and will otherwise be short-term
capital gain or loss. In general, any long term gains realized upon a taxable
disposition of shares will be subject to a maximum tax rate of either 28% or 20%
depending on the shareholder's holding period in the Fund shares. 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, all or a portion of any loss will be disallowed on the taxable
disposition of Fund shares if the shareholder acquires other shares of the Fund
within 30 days before or after the disposition.
The Fund's transactions in foreign currency-denominated debt securities may
give rise to ordinary income or loss to the extent such income or loss results
from fluctuations in the value of the foreign currency concerned.
The Fund's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Fund to accrue and distribute income not yet received. In such
cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
If the Fund engages in hedging transactions, including hedging transactions
in options, future contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale, market-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 to believed to be in the best interests of the Fund.
-20-
<PAGE>
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the regulations thereunder 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, respectively.
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 or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding and withholding tax
rules described above. The new regulations will generally be effective for
payments made on or after January 1, 1999 (although transition rules will
apply). In some circumstances, the new rules will increase the certification and
filing requirements imposed on foreign investors in order to qualify for
exemption from the 31% back-up withholding tax and for reduced withholding tax
rates under income tax treaties. Foreign investors in the Fund should consult
their tax advisors with respect to the potential application of these new
regulations.
FINANCIAL STATEMENTS
The Report of Independent Accountants, financial highlights and financial
statements of the Fund included in its 1997 Annual Report are incorporated
herein by reference to such Annual Report. Copies of such Annual Report are
available without charge upon request by writing Loomis Sayles, One Financial
Center, Boston, Massachusetts 02111 or telephoning (617) 482-2450.
The financial highlights included in the Prospectus under the headings
"Financial Highlights" and "Prior Performance" and incorporated by reference
into this Statement of Additional Information and the financial statements and
financial highlights contained in the Fund's 1997 Annual Report and incorporated
by reference into this Statement of Additional Information have both been
audited by Coopers & Lybrand L.L.P., independent accountants, and have been so
included and incorporated by reference in reliance upon the report of said firm,
which report is given upon their authority as experts in auditing and
accounting.
-21-
<PAGE>
CALCULATION OF YIELD AND TOTAL RETURN
Yield. The Fund's yield 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 objective 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
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
-22-
<PAGE>
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.
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 twice a month. The
----------------
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a 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
-23-
<PAGE>
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.
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 INDEX. The Merrill Lynch High Yield Index includes
------------------------------
over 750 issues and represents public debt greater than $10 million (original
issuance rated BBB/BB and below).
-24-
<PAGE>
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.
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.
PERFORMANCE DATA
The manner in which yield and total return of the Fund will be calculated
for public use is
-25-
<PAGE>
described above. The following table summarizes the calculation of the Fund's
yield at December 31, 1997 and the Fund's total return (i) for the one-year
period ended December 31, 1997, (ii) for the three-year period ended December
31, 1997 and (iii) for the period from the commencement of operations to
December 31, 1997.
<TABLE>
<CAPTION>
Performance Data*
Average Average Average
Annual Annual Annual Total
Total Return Total Return Return
for the for the from the
One-Year Period Three-Year Period Commencement of
Current SEC Yield ended ended Operations-through
at 12/31/97 12/31/97 12/31/97 12/31/97
- ------------------- -------- -------- --------
<S> <C> <C> <C>
7.26% 10.60% 16.90% 14.22%
</TABLE>
*Performance would have been lower if a portion of the management fee had not
been waived by Loomis Sayles. In the absence of the expense limitation, actual
yield and total return would have been 7.15% (yield), and 10.46%, 16.73% and
13.97% for the one-year period ended December 31, 1997, the three-year period
ended December 31, 1997 and for the period from the Fund's commencement of
operations to December 31, 1997, respectively.
**Inception date of the Fund is July 1, 1994.
-26-
<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
Mutual Funds Magazine
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
A-1
<PAGE>
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
A-2
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Loomis Sayles Investment Trust advertising and promotional material may include,
but is not limited to, discussions of the following information:
. Loomis Sayles Investment Trust's participation in wrap fee and no
transaction fee programs
. Characteristics of Loomis Sayles including the number and locations of its
offices, its investment practices and clients
. 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
. 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
References may be included in Loomis Sayles Investment Trust's advertising
and promotional literature about 401(k) and retirement plans, if any, that offer
the Fund. The information may include, but is not limited to:
. 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 a 401(k) or
retirement plan funding vehicle produced by industry authorities, research
organizations and publications.
B-1
<PAGE>
Part C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial statements:
See the sections entitled "Financial Highlights" and "Prior
Performance" in the Prospectus.
See the section entitled "Financial Statements" in the Statements
of Additional Information for each of the Loomis Sayles
Investment Grade Fixed Income Fund, and Loomis Sayles Fixed
Income Fund, Loomis Sayles California Tax-Free Income Fund,
Loomis Sayles Core Growth Fund, Loomis Sayles High Yield Fixed
Income Fund and Loomis Sayles Core Fixed Income Fund.
(b) Exhibits:
1. Agreement and Declaration of Trust.
2. By-Laws.
3. Not applicable.
4. Not applicable.
5a. Investment Advisory Agreement between the Trust and Loomis
Sayles Investment Grade Fixed Income Fund.(1)
5b. Investment Advisory Agreement between the Trust and Loomis
Sayles Fixed Income Fund.(1)
5c. Investment Advisory Agreement between the Trust and Loomis
Sayles California Tax-Free Income Fund.(1)
<PAGE>
5d. Investment Advisory Agreement between the Trust and
the Loomis Sayles Core Growth Fund.(1)
5e. Investment Advisory Agreement between the Trust and Loomis
Sayles High Yield Fixed Income Fund.(1)
5f. Investment Advisory Agreement between the Trust and Loomis
Sayles Core Fixed Income Fund. (1)
6. Not applicable.
7. Not applicable.
8. Form of Custodian Agreement.
9. Form of Transfer Agency Agreement.
10. Opinion and Consent of Counsel.(2)
11. Consent of Independent Accountants.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Not applicable.
16. Schedule for Computation of Performance Information.(2)
17a. Financial Data Schedule for the Loomis Sayles Investment
Grade Fixed Income Fund.
<PAGE>
17b. Financial Data Schedule for the Loomis Sayles Fixed Income
Fund.
17c. Financial Data Schedule for the Loomis Sayles California
Tax-Free Income Fund.
17d. Financial Data Schedule for the Loomis Sayles Core Growth
Fund.
17e. Financial Data Schedule for the Loomis Sayles High Yield
Fixed Income Fund.
17f. Financial Data Schedule for the Loomis Sayles Core Fixed
Income Fund.
18. Not applicable.
19. Powers of Attorney.(3)
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 8 to this Registration Statement filed with the
Commission on November 13, 1996.
(2) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 9 to this Registration Statement filed with the
Commission on March 7, 1997.
(3) Incorporated by reference to the similarly numbered Exhibit to Post-
Effective Amendment No. 11 to this Registration Statement filed with the
Commission on September 5, 1997.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
Not applicable.
Item 26. Number of Holders of Securities
-------------------------------
(1) (2)
<PAGE>
<TABLE>
<CAPTION>
Number of Record Holders
Title of Series (as of March 31, 1998)
--------------- ----------------------
<S> <C>
Loomis Sayles California Tax-Free Income Fund 29
Loomis Sayles Core Fixed Income Fund 12
Loomis Sayles Core Growth Fund 6
Loomis Sayles Fixed Income Fund 28
Loomis Sayles High Yield Fixed Income Fund 6
Loomis Sayles Intermediate Duration Fixed Income Fund 2
Loomis Sayles Investment Grade Fixed Income Fund 17
</TABLE>
Item 27. Indemnification
---------------
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto) and Article 4 of the Registrant's By-Laws (Exhibit
2 hereto) provide for indemnification of its trustees and officers.
The effect of these provisions is to provide indemnification for each
of the Registrant's trustees and officers against liabilities and
counsel fees reasonably incurred in connection with the defense of any
legal proceeding in which such trustee or officer may be involved by
reason of being or having been a trustee or officer, except with
respect to any matter as to which such trustee or officer shall have
been adjudicated not to have acted in good faith and in the reasonable
belief that such trustee's or officer's action was in the best
interest of the Registrant, and except that no trustee or officer
shall be indemnified against any liability to the Registrant or its
shareholders to which such trustee or officer otherwise would be
subject by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such
trustee's or officer's office.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Loomis Sayles, the investment adviser of the Registrant, provides
investment advice to seventeen series of the Loomis Sayles Funds, 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 organizations and individuals.
The sole general partner of Loomis Sayles is Loomis, Sayles & Company,
Inc., One Financial Center, Boston, Massachusetts 02111.
Item 29. Principal Underwriters
----------------------
Not applicable.
<PAGE>
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)
(C) Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(f)
Rule 31a-2(e)
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
(b) The Registrant undertakes, if requested to do so by the holders
of at least 10% of the Registrant's outstanding shares, to call a
meeting of shareholders for the purpose of voting upon the
question of removal of a trustee or trustees and to assist in
communications with other shareholders as required by Section
16(C) of the Investment Company Act of 1940.
(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
provisions of the Registrant's Agreement and Declaration of Trust
and By-laws, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is
<PAGE>
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
* * * * * * * * * * *
NOTICE
A copy of the Agreement and Declaration of Trust of Loomis Sayles
Investment Trust (the "Trust") is on file with the Secretary of The Commonwealth
of Massachusetts and the Clerk of the City of Boston and notice is hereby given
that this instrument has been executed on behalf of the Trust by an officer of
the Trust as an officer and not individually and the obligations of or arising
out of this instrument 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
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 21st day of April, 1998.
LOOMIS SAYLES INVESTMENT TRUST
By: DANIEL J. FUSS*
-------------------------------------
Daniel J. Fuss
President
*By: MARK W. HOLLAND
-------------------------------------
Mark W. Holland
Attorney in fact pursuant to a
power of attorney filed herewith
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
DANIEL J. FUSS* President April 21, 1998
- ------------------
Daniel J. Fuss (principal executive
officer)
MARK W. HOLLAND Treasurer April 21, 1998
- ------------------
Mark W. Holland (principal financial
and accounting officer)
TIMOTHY J. HUNT* Trustee April 21, 1998
- ------------------
Timothy J. Hunt
</TABLE>
*By: MARK W. HOLLAND
-----------------------
Mark W. Holland
Attorney-in-fact pursuant to
a power of attorney filed herewith
<PAGE>
LOOMIS SAYLES INVESTMENT TRUST
Index to Exhibits
Exhibit No. Description
- ---------- -----------
1 Agreement and Declaration of Trust
2 By-Laws
8 Form of Custodian Agreement
9 Form of Transfer Agency Agreement
11 Consent of Independent Accountants
17a Financial Data Schedule for the Loomis Sayles Investment Grade
Fixed Income Fund
17b Financial Data Schedule for the Loomis Sayles Fixed Income Fund
17c Financial Data Schedule for the Loomis Sayles California Tax-Free
Income Fund
17d Financial Data Schedule for the Loomis Sayles Core Growth Fund
17e Financial Data Schedule for the Loomis Sayles High Yield Fixed
Income Fund
17f Financial Data Schedule for the Loomis Sayles Core Fixed Income
Fund
<PAGE>
EXHIBIT 1
LOOMIS SAYLES INVESTMENT TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this 23rd
day of December, 1993 by the Trustees hereunder and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder, IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of Shares in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
NAME
Section 1. This Trust shall be known as "Loomis Sayles Investment Trust",
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
DEFINITIONS
Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:
(a) "Trust" refers to the Massachusetts business trust established by this
Agreement and Declaration of Trust, as amended from time to time;
<PAGE>
(b) "Trustees" refers to the Trustees of the Trust named herein or elected
in accordance with Article IV hereof;
(c) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time
to time or, if more than one series or class of Shares is authorized by the
Trustees, the equal proportionate transferable units into which each series
or class of Shares shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Principal Underwriter" and "Majority Shareholder Vote" (the
sixty-seven percent (67%) or fifty percent (50%) requirement of the third
sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable)
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(i) "Series" or "Series of Shares" refers to the one or more separate
investment portfolios of the Trust into which the assets and liabilities of
the Trust may be divided and the Shares of the Trust representing the
beneficial interest of Shareholders in such respective portfolios; and
(j) "Class" or "Class of Shares" refers to the division of Shares
representing any Series into two or more Classes as provided in Article
III, Section 1 hereof.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character and to carry on such other business as the Trustees may from
time to time determine pursuant to their authority under this Declaration of
Trust.
-2-
<PAGE>
ARTICLE III
SHARES
DIVISION OF BENEFICIAL INTEREST
Section 1. The Shares of the Trust shall be issued in one or more Series
as the Trustees may, without shareholder approval, authorize. Each Series shall
be preferred over all other Series in respect of the assets specifically
allocated to that Series within the meaning of the 1940 Act and shall represent
a separate investment portfolio of the Trust. The beneficial interest in each
Series shall at all times be divided into Shares, without par value, each of
which shall, except as provided in the following sentence, represent an equal
proportionate interest in the Series with each other Share of the same Series,
none having priority or preference over another. The Trustees may, without
Shareholder approval, divide the Shares of any Series into two or more Classes,
Shares of each such Class having such preferences and special or relative rights
and privileges (including conversion rights, if any) as the Trustees may
determine or as shall be set forth in the By-Laws. The number of Shares
authorized shall be unlimited. The Trustees may from time to time divide or
combine the Shares of any Series or Class into a greater or lesser number
without thereby changing the proportionate beneficial interest in the Series or
Class.
OWNERSHIP OF SHARES
Section 2. The ownership of Shares shall be recorded on the books of the
Trust or a transfer or similar agent. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer or similar
agent, as the case may be, shall be conclusive as to who are the Shareholders of
each Series and Class and as to the number of Shares of each Series and Class
held from time to time by each Shareholder.
INVESTMENT IN THE TRUST
Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they or the By-
Laws from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares of
each Series, together with all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or
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payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to the Series of Shares with respect to
which the same were received by the Trust for all purposes, subject only to the
rights of creditors, and shall be so handled upon the books of account of the
Trust and are herein referred to as "assets of" such Series.
NO PREEMPTIVE RIGHTS
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this Declaration of Trust or the By-Laws. Every Shareholder
by virtue of having become a Shareholder shall be held to have expressly
assented and agreed to the terms of this Declaration of Trust and the By-Laws
and to have become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but such
representative shall be entitled only to the rights of said decedent under this
Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust property or right to call
for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust, shall have any
power to bind personally any Shareholder, nor except as specifically provided in
this Declaration of Trust to call upon any Shareholder for the payment of any
sum of money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay.
ARTICLE IV
THE TRUSTEES
ELECTION, TENURE AND REMOVAL
Section 1. The initial Trustee shall be Charles J. Finlayson. The
Trustees may fix the number of Trustees, fill vacancies in the Trustees,
including vacancies arising from an increase in the number of Trustees, or
remove Trustees with or without cause. Each Trustee shall serve during the
continued lifetime of the Trust until he or she dies, resigns or is removed, or,
if sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his or her
successor. Any Trustee may resign at any time by written instrument signed by
him or
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her and delivered to any officer of the Trust or to a meeting of the Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal. The
Shareholders may fix the number of Trustees and elect Trustees at any meeting of
Shareholders called by the Trustees for that purpose and to the extent required
by applicable law, including paragraphs (a) and (b) of Section 16 of the 1940
Act.
No natural person shall serve as Trustee after the holders of record of not
less than two-thirds of the outstanding Shares have declared that such Trustee
be removed from that office either by declaration in writing filed with the
Trust's custodian or by votes cast in person or by proxy at a meeting called for
the purpose. The Trustees shall promptly call a meeting of Shareholders for the
purpose of voting upon the question of removal of any Trustee when requested to
do so in writing by the record holders of not less than ten percent (10%) of the
outstanding Shares.
Whenever ten or more Shareholders of record, who have been such for at
least six months preceding the date of application and who hold Shares in the
aggregate having a net asset value of at least one percent (1%) of the
outstanding Shares, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to request a meeting pursuant to this Section and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (a) afford to such
applicants access to a list of the names and addresses of all Shareholders as
recorded on the books of the Trust; or (b) inform such applicants as to the
approximate cost of mailing to all Shareholders the proposed communication and
form of request. If the Trustees elect to follow the course specified in clause
(b), the Trustees, upon the written request of such applicants, accompanied by a
tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books of the Trust, unless within
five business days after such tender the Trustees shall mail to such applicants
and file with the Commission, together with a copy of the material proposed to
be mailed, a written statement signed by at least a majority of the Trustees to
the effect that in their opinion either such material contains untrue statements
of fact or omits to state facts necessary to make the statements contained
therein not misleading, or would be in violation of applicable law, and
specifying the basis of such opinion. If the Commission shall enter an order
refusing to sustain any of the objections specified in the written statement so
filed, or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an
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order so declaring, the Trustees shall mail copies of such material to all
Shareholders with reasonable promptness after the entry of such order and the
renewal of such tender.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
POWERS
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the business of the Trust
and may amend and repeal them to the extent that such By-Laws do not reserve
that right to the Shareholders; they may fill vacancies, including vacancies
caused by enlargement of their number, and may remove Trustees with or without
cause; they may elect and remove, with or without cause, such officers and
appoint and terminate such agents as they consider appropriate; they may appoint
from their own number, and terminate, any one or more committees consisting of
two or more Trustees, including an executive committee which may, when the
Trustees are not in session, exercise some or all of the power and authority of
the Trustees as the Trustees may determine; they may employ one or more
custodians of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a system
or systems for the central handling of securities, retain a transfer agent or a
Shareholder servicing agent, or both, provide for the distribution of Shares by
the Trust, through one or more principal underwriters or otherwise, set record
dates for the determination of Shareholders with respect to various matters, and
in general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options
on and lease any or all of the assets of the Trust;
(c) To act as a distributor of shares and as underwriter of, or broker or
dealer in, securities and other property;
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(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(e) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the name of
the Trustees or of the Trust or in the name of a custodian, subcustodian or
other depositary or a nominee or nominees or otherwise;
(g) To allocate assets, liabilities, income and expenses of the Trust to a
particular Series of Shares or to apportion the same among two or more
Series, provided that any liabilities or expenses incurred by a particular
Series of Shares shall be payable solely out of the assets of that Series;
and, to the extent necessary or appropriate to give effect to the
preferences and special or relative rights and privileges of any Classes of
Shares, to allocate assets, liabilities, income and expenses of a Series to
a particular Class of Shares of that Series or to apportion the same among
two or more Classes of Shares of that Series;
(h) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which
is or was held in the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in the Trust;
(i) To join other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
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(j) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited
to claims for taxes;
(k) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(l) To borrow funds;
(m) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise
assume liability for payment thereof; and to mortgage and pledge the Trust
property or any part thereof to secure any of or all such obligations;
(n) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the Trust's
business, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or managers,
principal underwriters or independent contractors of the Trust individually
against all claims and liabilities of every nature arising by reason of
holding or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter or independent contractor, including any
action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person
against such liability;
(o) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust; and
(p) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Act may engage.
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The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees.
Except as otherwise provided herein or from time to time in the By-Laws,
any action to be taken by the Trustees may be taken (A) by a majority of the
Trustees present at a meeting of the Trustees (a quorum being present), within
or without Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time (participation
by which means shall for all purposes constitute presence in person at a
meeting), or (B) by written consents of a majority of the Trustees then in
office (which written consents shall be filed with the records of the meetings
of the Trustees and shall be treated for all purposes as a vote taken at a
meeting of Trustees).
PAYMENT OF EXPENSES BY TRUST AND BY SHAREHOLDERS
Section 4. The Trustees are authorized to pay or to cause to be paid out
of the principal or income of the Trust, or partly out of principal and partly
out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, in connection with
the management thereof, or in connection with the financing of the sale of
Shares, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees, any
investment adviser, manager or sub-adviser, principal underwriter, auditor,
counsel, custodian, transfer agent, shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred by or arising in
connection with a particular Series of Shares, as determined by the Trustees,
shall be payable solely out of the assets of that Series and may, as the
Trustees from time to time may determine, be allocated to a particular Class of
Shares of a Series or apportioned among two or more Classes of Shares of a
Series.
The Trustees shall have the power, as frequently as they may determine, to
cause each Shareholder, or each Shareholder of any particular Series or Class,
to pay directly, in advance or arrears, for charges of the Trust's custodian or
transfer, shareholder servicing or similar agent, an amount fixed from time to
time by the Trustees, by setting off such charges due from such Shareholder from
declared but unpaid dividends owed such Shareholder and/or by reducing the
number of Shares in the account of such Shareholder by that number of full
and/or fractional Shares which represents the outstanding amount of such charges
due from such Shareholder.
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OWNERSHIP OF ASSETS OF THE TRUST
Section 5. Title to all of the assets of each Series of Shares and of the
Trust shall at all times be considered as vested in the Trustees.
ADVISORY, MANAGEMENT AND DISTRIBUTION
Section 6. The Trustees may, at any time and from time to time, contract
for exclusive or nonexclusive advisory and/or management services with any
corporation, trust, association or other organization (the "Manager"), every
such contract to comply with such requirements and restrictions as may be set
forth in the By-Laws; and any such contract may provide for one or more sub-
advisers who shall perform all or part of the obligations of the Manager under
such contract and may contain such other terms interpretive of or in addition to
said requirements and restrictions as the Trustees may determine, including,
without limitation, authority to determine from time to time what investments
shall be purchased, held, sold or exchanged and what portion, if any, of the
assets of the Trust shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time, contract
with the Manager or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such requirements
and restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, shareholder servicing or other agency contract may have been
or may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization with which
an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract,
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or transfer, shareholder servicing or other agency contract with one or
more other corporations, trusts, associations or other organizations, or
has other business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
Section 1. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1 of this Declaration of
Trust, provided, however, that no meeting of Shareholders is required to be
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called for the purpose of electing Trustees unless and until such time as less
than a majority of the Trustees have been elected by the Shareholders, (ii) with
respect to any Manager or Sub-Adviser as provided in Article IV, Section 6 of
this Declaration of Trust to the extent required by the 1940 Act, (iii) with
respect to any termination of this Trust to the extent and as provided in
Article IX, Section 4 of this Declaration of Trust, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Article
IX, Section 7 of this Declaration of Trust, (v) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vi) with respect to such additional matters relating to the Trust as may be
required by law, this Declaration of Trust, the By-Laws or any registration of
the Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote. On any
matter submitted to a vote of Shareholders all Shares of the Trust then entitled
to vote shall be voted by individual Series, except (i) when required by the
1940 Act, Shares shall be voted in the aggregate and not by individual Series
and (ii) when the Trustees have determined that the matter affects only the
interests of one or more Series or Classes, then only Shareholders of such
Series or Classes shall be entitled to vote thereon. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on
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the challenger. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action permitted or required of the Shareholders
by law, this Declaration of Trust or the By-Laws.
MEETINGS
Section 2. Meetings of the Shareholders may be called by the Trustees for
the purpose of electing Trustees as provided in Article IV, Section 1 of this
Declaration of Trust and for such other purposes as may be prescribed by law, by
this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at least seven days
before such meeting, postage prepaid, stating the time and place of the meeting,
to each Shareholder entitled to vote at such meeting at the Shareholder's
address as it appears on the records of the Trust. Whenever notice of a meeting
is required to be given to a Shareholder under this Declaration of Trust or the
By-Laws, a written waiver thereof, executed before or after the meeting by such
Shareholder or his or her attorney thereunto authorized and filed with the
records of the meeting, shall be deemed equivalent to such notice.
QUORUM AND REQUIRED VOTE
Section 3. Forty percent (40%) of the Shares entitled to vote shall be a
quorum for the transaction of business at a Shareholders' meeting, except that
where any provision of law or of this Declaration of Trust or the By-Laws
permits or requires that holders of any Series or Class shall vote as a Series
or Class, then forty percent (40%) of the aggregate number of Shares of that
Series or Class entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of law or this Declaration of Trust or the By-Laws, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
provided that where any provision of law or of this Declaration of Trust or the
By-Laws permits or requires that the holders of any Series or Class shall vote
as a Series or Class, then a majority of the Shares of that Series or Class
voted on the matter (or a plurality with respect to the election of a Trustee)
shall decide that matter insofar as that Series or Class is concerned.
ACTION BY WRITTEN CONSENT
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Section 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of law or this
Declaration of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ADDITIONAL PROVISIONS
Section 5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.
ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES
DISTRIBUTIONS
Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each Series out of the assets of
such Series such amounts as the Trustees may determine. Any such distribution
to the Shareholders of a particular Series shall be made to said Shareholders
pro rata in proportion to the number of Shares of such Series held by each of
them, except to the extent otherwise required or permitted by the preferences
and special or relative rights and privileges of any Classes of Shares of that
Series, and any distribution to the Shareholders of a particular Class of Shares
shall be made to such Shareholders pro rata in proportion to the number of
Shares of such Class held by each of them. Such distributions shall be made in
cash, Shares or other property, or a combination thereof, as determined by the
Trustees. Any such distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with the By-Laws.
REDEMPTIONS AND REPURCHASES
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the By-Laws, less
any redemption charge or fee as the Trustees may from time to time authorize.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made. The obligation set
forth
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in this Section 2 is subject to the provision that in the event that any time
the New York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Commission, during periods when
trading on the Exchange is restricted or during any emergency which makes it
impractical for the Trust to dispose of its investments or to determine fairly
the value of its net assets, or during any other period permitted by order or
other action of the Commission for the protection of investors, such obligation
may be suspended or postponed by the Trustees. The Trust may also purchase or
repurchase Shares at a price not exceeding the net asset value of such Shares in
effect when the purchase or repurchase or any contract to purchase or repurchase
is made.
REDEMPTION AT THE OPTION OF THE TRUST
Section 3. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with the By-Laws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular Series or Class of Shares equal to
or in excess of a percentage of the outstanding Shares of that Series or Class
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
COMPENSATION
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking, underwriting,
brokerage or other services and payment for the same by the Trust.
LIMITATION OF LIABILITY
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, manager or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she would otherwise be subject
by reason of willful misfeasance, bad faith,
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gross negligence or reckless disregard of the duties involved in the conduct of
his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
INDEMNIFICATION
TRUSTEES, OFFICERS, ETC.
Section 1. The By-Laws may include provisions whereby the Trust may
provide indemnity to its Trustees and officers, including persons who serve at
the Trust's request as directors, officers or trustees of another organization
in which the Trust has any interest as a shareholder, creditor or otherwise
(each such Trustee, officer or person hereinafter referred to as a "Covered
Person"), against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person. Any indemnity provided to Covered Persons by the
By-Laws may, if the By-Laws so provide, be in addition to any other indemnity to
which such persons may be entitled by law, contract or otherwise.
ARTICLE IX
MISCELLANEOUS
TRUSTEES, SHAREHOLDERS ETC. NOT PERSONALLY LIABLE; NOTICE
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular Series of Shares shall look only to the
assets of the Trust or the assets of that particular Series of Shares for
payment under such credit, contract or claim, and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
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faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officer or officers shall give notice that this
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustee or Trustees or as officer or officers
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustee or Trustees or officer or officers or Shareholder or
Shareholders individually.
SHAREHOLDERS
Section 2. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representative or, in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular Series of Shares of
which he or she is or was a Shareholder.
TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
Section 3. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for the errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees as such shall not be required to
give any bond, nor any surety if a bond is required.
LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES
Section 4. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or
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<PAGE>
to see to the application of any payments made or property transferred to the
Trust or upon its order.
DURATION AND TERMINATION OF TRUST
Section 5. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least sixty-six and two-thirds percent (66 2/3%) of the
Shares entitled to vote, or by the Trustees by written notice to the
Shareholders. Any Series or Class of Shares may be terminated at any time by
vote of Shareholders holding at least sixty-six and two-thirds percent (66 2/3%)
of the Shares of such Series or Class entitled to vote, or by the Trustees by
written notice to the Shareholders of such Series or Class. Upon termination of
the Trust or of any one or more Series or Classes of Shares, after paying or
otherwise providing for all charges, taxes, expenses and liabilities, whether
due or accrued or anticipated, of the Trust or of the particular Series or Class
as may be determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash or shares or other property, or any combination
thereof, and distribute the proceeds to the Shareholders of the Series involved,
ratably according to the number of Shares of such Series held by the several
Shareholders of such Series on the date of termination, except to the extent
otherwise required or permitted by the preferences and special or relative
rights and privileges of any Classes of Shares of that Series, provided that any
distribution to the Shareholders of a particular Class of Shares shall be made
to such Shareholders pro rata in proportion to the number of Shares of such
Class held by each of them.
FILING AND COPIES, REFERENCES, HEADINGS
Section 6. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder, and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect
-17-
<PAGE>
of this instrument. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
APPLICABLE LAW
Section 7. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust and, without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
AMENDMENTS
Section 8. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees shall
affect the holders of one or more Series or Classes of Shares but not the
holders of all outstanding Series and Classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each Series
and Class affected and no vote of Shareholders of a Series or Class not affected
shall be required. Amendments having the purpose of changing the name of the
Trust, of establishing, changing or eliminating the par value of any Shares or
of supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained herein shall not
require authorization by vote of any Shareholders.
-18-
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal in
the City of Boston, Massachusetts for himself and his assigns, as of the day and
year first above written.
_______________________________
Charles J. Finlayson
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, December 23, 1993
Then personally appeared the above named Charles J. Finlayson and
acknowledged the foregoing instrument to be his free act and deed, before me,
_______________________________
Notary Public
My Commission Expires:
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<PAGE>
EXHIBIT 2
BY-LAWS
OF
LOOMIS SAYLES INVESTMENT TRUST
ARTICLE 1
AGREEMENT AND DECLARATION
OF TRUST AND PRINCIPAL OFFICE
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
----------------------------------
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Loomis Sayles Investment Trust (the "Trust"), the
Massachusetts business trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
-----------------------------
located in Boston, Massachusetts.
ARTICLE 2
MEETINGS OF TRUSTEES
2.1 Regular Meetings. Regular meetings of the Trustees may be held without
----------------
call or notice at such places and at such times as the Trustees may from time to
time determine, provided that notice of the first regular meeting following any
such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any
----------------
time and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
------
send notice by mail at least forty-eight hours or by telegram at least twenty-
four hours before the meeting addressed to the Trustee at his or her usual or
last known business or residence address or to give notice to him or her in
person or by telephone at least twenty-four hours before the meeting. Notice of
a meeting need not be given (a) to any Trustee if a written waiver of notice,
executed by him before or after the meeting, is filed with the records of the
meeting; or (b) to any Trustee who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him or her. Neither notice
of a meeting nor a waiver of a notice need specify the purposes of the meeting.
<PAGE>
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
------
office shall constitute a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further notice.
ARTICLE 3
OFFICERS
3.1 Enumeration; Qualification. The officers of the Trust shall be a
--------------------------
President, a Treasurer, a Secretary, and such other officers, if any, as the
Trustees from time to time may in their discretion elect. The Trust may also
have such agents as the Trustees may appoint from time to time in their
discretion. If a Chairman of the Board is elected, he or she shall be a Trustee
and may but need not be a shareholder; and any other officer may be but none
need be a Trustee or shareholder. Any two or more offices may be held by the
same person.
3.2 Election and Tenure. The President, the Treasurer, the Secretary and such
-------------------
other officers as the Trustees may in their discretion from time to time elect
shall each be elected by the Trustees to serve until his or her successor is
elected or qualified, or until he or she sooner dies, resigns, is removed or
becomes disqualified. Each officer shall hold office and each agent shall
retain authority at the pleasure of the Trustees.
3.3 Powers. Subject to the other provisions of these By-Laws, each officer
------
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to the
office occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.4 President and Vice Presidents. The President shall have the duties and
-----------------------------
powers specified in these By-Laws and shall have such other duties and powers as
may be determined by the Trustees.
Any Vice Presidents shall have such duties and powers as shall be designated
from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
-----------------------
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust and, except as the Trustees
shall otherwise determine, preside at all meetings of the shareholders and of
the Trustees. If no such designation is made, the President shall be the Chief
Executive Officer.
-2-
<PAGE>
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected,
---------------------
he or she shall have the duties and powers specified in these By-Laws and shall
have such other duties and powers as may be determined by the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting
---------
officer of the Trust, and shall, subject to the provisions of the Declaration of
Trust and to any arrangement made by the Trustees with a custodian, investment
adviser or manager or transfer, shareholder servicing or similar agent, be in
charge of the valuable papers, books of account and accounting records of the
Trust, and shall have such other duties and powers as may be designated from
time to time by the Trustees or by the President.
3.8 Secretary. The Secretary shall record all proceedings of the Shareholders
---------
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the
Secretary from any meeting of the Shareholders or Trustees, an assistant
Secretary or, if there be none or if he or she is absent, a temporary clerk
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.9 Resignations and Removals. Any officer may resign at any time by written
-------------------------
instrument signed by him or her and delivered to the President or the Secretary
or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. The Trustees may
remove any officer with or without cause. Except to the extent expressly
provided in a written agreement with the Trust, no officer resigning and no
officer removed shall have any right to any compensation for any period
following his or her resignation or removal, or any right to damages on account
of such removal.
ARTICLE 4
INDEMNIFICATION
4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees
-----------------------
and officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (each such Trustee, officer or person
hereinafter referred to as a "Covered Person") against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of any
alleged act or omission as a Trustee or officer or by reason of his or her being
or having been such a Trustee or officer, except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding not to have
-3-
<PAGE>
acted in good faith in the reasonable belief that such Covered Person's action
was in the best interest of the Trust, and except that no Covered Person shall
be indemnified against any liability to the Trust or its Shareholders to which
such Covered 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 such Covered Person's office. Expenses, including counsel fees so
incurred by any such Covered Person, may be paid from time to time by the Trust
in advance of the final disposition of any such action, suit or proceeding on
the condition that the amounts so paid shall be repaid to the Trust if it is
ultimately determined that indemnification of such expenses is not authorized
under this Article.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment
------------------
by any such Covered Person referred to in Section 4.1 above, pursuant to a
consent decree or otherwise, no such indemnification either for said payment or
for any other expenses shall be provided unless such compromise shall be
approved as in the best interests of the Trust, after notice that it involved
such indemnification, (a) by a disinterested majority of the Trustees then in
office; or (b) by a majority of the disinterested Trustees then in office; or
(c) by any disinterested person or persons to whom the question may be referred
by the Trustees; or (d) by vote of Shareholders holding a majority of the Shares
entitled to vote thereon, exclusive of any Shares beneficially owned by any
interested Covered Person; provided, however, that such indemnification would
not protect such person against any liability to the Trust or its 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 office. Approval by the Trustees pursuant to clause
(a) or (b) or by any disinterested person or persons pursuant to clause (c) of
this Section shall not prevent the recovery from any Covered Person of any
amount paid as indemnification to such Covered Person in accordance with any of
such clauses if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
4.3 Indemnification Not Exclusive. The right of indemnification hereby
-----------------------------
provided shall not be exclusive of or affect any other rights to which any such
Covered Person may be entitled. As used in this Article 4, the term "Covered
Person" shall include such person's heirs, executors and administrators; an
"interested Covered Person" is one against whom the action, suit or other
proceeding in question or another action, suit or other proceeding on the same
or similar grounds is then or has been pending; and a "disinterested Trustee" or
"disinterested person" is a Trustee or a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or
-4-
<PAGE>
otherwise under law, or the power of the Trust to purchase and maintain
liability insurance on behalf of any such person.
ARTICLE 5
REPORTS
5.1 General. The Trustees and officers shall render reports at the time and in
-------
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such additional reports as they may deem desirable or from time to
time as may be required by the Trustees.
ARTICLE 6
FISCAL YEAR
6.1 General. Except as otherwise provided from time to time by the Trustees,
-------
the fiscal year of the Trust shall end on December 31 in each year.
ARTICLE 7
SEAL
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
-------
word "Massachusetts", together with the name of the Trust and the year of its
organization cut or engraved thereon. Unless otherwise required by the
Trustees, it shall not be necessary to place the seal on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
EXECUTION OF PAPERS
8.1 General. Except as the Trustees, generally or in particular cases, may
-------
have authorized the execution thereof in some other manner, all checks, notes,
drafts and other obligations and all registration statements and amendments
thereto and all applications and amendments thereto to the Securities and
Exchange Commission shall be signed by any of the President, any Vice-President,
the Treasurer or any of such other officers or agents as shall be designated for
that purpose by a vote of the Trustees.
ARTICLE 9
ISSUANCE OF SHARE CERTIFICATES
9.1 Share Certificates. In lieu of issuing certificates for shares, the
------------------
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes
-5-
<PAGE>
hereunder, to be the holders of certificates for such shares as if they had
accepted such certificates and shall be held to have expressly assented and
agreed to the terms of this Article 9.
The Trustees may at any time authorize the issuance of share certificates. In
that event, each shareholder shall be entitled to a certificate stating the
number of shares owned by him or her, in such form as shall be prescribed from
time to time by the Trustees. Such certificates shall be signed by the
President or any Vice-President and by the Treasurer or any Assistant Treasurer.
Such signatures may be facsimile if the certificate is signed by a transfer
agent, or by a registrar, other than a Trustee, officer or employee of the
Trust. In case any officer who has signed or whose facsimile signature has been
placed on such certificate shall cease to be such officer before such
certificate is issued, it may be issued by the Trust with the same effect as if
he or she were such officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or the
--------------------
mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificates to Pledgee. A pledgee of shares transferred
---------------------------------------
as collateral security shall be entitled to a new certificate if the instrument
of transfer substantially describes the debt or duty that is intended to be
secured thereby. Such new certificate shall express on its face that it is held
as collateral security, and the name of the pledgor shall be stated thereon, who
alone shall be liable as a shareholder and entitled to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any time
------------------------------------------
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not effect the ownership of
shares in the Trust.
ARTICLE 10
PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S BUSINESS
10.1 Determination of Net Asset Value Per Share. Net asset value per share of
------------------------------------------
each series or class of shares of the Trust shall be determined at the times and
in the manner specified from time to time by the Trustees.
ARTICLE 11
SHAREHOLDERS' VOTING POWERS AND MEETINGS
11.1 Record Dates. For the purpose of determining the shareholders who are
------------
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time,
-6-
<PAGE>
which shall be not more than 90 days before the date of any meeting of
shareholders or the date for the payment of any dividend or of any other
distribution, as the record date for determining the shareholders having the
right to notice of and to vote at such meeting and any adjournment thereof or
the right to receive such dividend or distribution, and in such case only
shareholders of record on such record date shall have such right notwithstanding
any transfer of shares on the books of the Trust after the record date; or
without fixing such record date the Trustees may for any of such purposes close
the register or transfer books for all or any part of such period.
ARTICLE 12
AMENDMENTS TO THE BY-LAWS
12.1 General. These By-Laws may be amended or repealed, in whole or in part,
-------
by a majority of the Trustees then in office at any meeting of the Trustees.
-7-
<PAGE>
EXHIBIT 8
CUSTODIAN CONTRACT
Between
LOOMIS SAYLES INVESTMENT TRUST
and
STATE STREET BANK AND TRUST COMPANY
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Employment of Custodian and Property to be Held By It................................................ 1
2. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian in the United States....................................................................... 3
2.1 Holding Securities............................................................................ 3
2.2 Delivery of Securities........................................................................ 3
2.3 Registration of Securities.................................................................... 8
2.4 Bank Accounts................................................................................. 9
2.5 Availability of Federal Funds................................................................. 10
2.6 Collection of Income.......................................................................... 10
2.7 Payment of Fund Monies........................................................................ 11
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased............................................................... 14
2.9 Appointment of Agents......................................................................... 15
2.10 Deposit of Fund Assets in Securities System................................................... 15
2.10A Fund Assets Held in the Custodian's Direct Paper System....................................... 18
2.11 Segregated Account............................................................................ 20
2.12 Ownership Certificates for Tax Purposes....................................................... 21
2.13 Proxies....................................................................................... 22
2.14 Communications Relating to Portfolio Securities............................................... 22
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States................................................................................. 23
3.1 Appointment of Foreign Sub-Custodians.......................................................... 23
3.2 Assets to be Held.............................................................................. 23
3.3 Foreign Securities Depositories................................................................ 24
3.4 Agreements with Foreign Banking Institutions................................................... 24
3.5 Access of Independent Accountants of the Fund.................................................. 25
3.6 Reports by Custodian........................................................................... 25
3.7 Transactions in Foreign Custody Accounts....................................................... 26
3.8 Liability on Foreign Sub-Custodians............................................................ 27
3.9 Liability of Custodian......................................................................... 27
3.10 Reimbursement for Advances..................................................................... 28
3.11 Monitoring Responsibilities.................................................................... 29
3.12 Branches of U.S. Banks......................................................................... 29
3.13 Tax Law........................................................................................ 30
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund................................ 31
5. Proper Instructions.................................................................................. 32
6. Actions Permitted Without Express Authority.......................................................... 33
7. Evidence of Authority................................................................................ 33
8. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income.................................................................... 34
9. Records.............................................................................................. 34
10. Opinion of Fund's Independent Accountants............................................................ 35
11. Reports to Fund by Independent Public Accountants.................................................... 35
12. Compensation of Custodian............................................................................ 36
13. Responsibility of Custodian.......................................................................... 36
14. Effective Period, Termination and Amendment.......................................................... 38
15. Successor Custodian.................................................................................. 40
16. Interpretive and Additional Provisions............................................................... 41
17. Additional Funds..................................................................................... 42
18. Massachusetts Law to Apply........................................................................... 42
19. Prior Contracts...................................................................................... 42
20. Disclaimer of Liability.............................................................................. 43
21. Shareholder Communications Election.................................................................. 43
</TABLE>
3
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Loomis Sayles Investment Trust, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at one Financial Center, Boston, Massachusetts hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in three series, Loomis
Sayles Small Cap Growth Fund, Loomis Sayles Fixed Income Fund, and Loomis Sayles
Investment Grade Income Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio, desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and
<PAGE>
cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian. The Custodian may employ as sub-custodian for
the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
------------------------------------------------------------------------
Custodian in the United States
- ------------------------------
2.1 Holding securities. The Custodian shall hold and physically segregate for
------------------
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a
5
<PAGE>
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as "Securities
System" and (b) commercial paper of an issuer for which State Street Bank
and Trust Company acts as issuing and paying agent ("Direct Paper") which
is deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
----------------------
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodians Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement relate to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6
<PAGE>
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to
--------
be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof
7
<PAGE>
in the exercise of such warrants, rights or similar securities or
the surrender of receipts or temporary securities for definitive
securities; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodians account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, but only against receipt of
--- ----
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options
8
<PAGE>
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any siorganization ortionor organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
--- ----
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified
9
<PAGE>
by the Secretary or an Assistant Secretary, specifying the
securities f the Portfolio to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
------
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
Astreet name@ or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in Astreet name@, the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities and tender or exchange offers.
2.4 Bank Accounts. The custodian shall open and maintain a separate bank
-------------
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account
10
<PAGE>
or accounts, subject to the provisions hereof, all cash received by it from
or for the account of the Portfolio, other than cash maintained by the
Portfolio in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the Custodian
for a Portfolio may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified
--------
to act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board of Trustees of the Fund. Such
funds shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
-----------------------------
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
--------------------
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other
11
<PAGE>
payments with respect to bearer domestic securities if, on the date of
payment by the issuer, such securities are held by the Custodian or its
agent and shall credit such income, as collected, to such Portfoliols
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due each Portfolio
on securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with
such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
----------------------
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or optionson futuress contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options
on futures contracts to the Custodian (or any bank, banking firm
or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as
amended, to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name
of the Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in
12
<PAGE>
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions
set forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into between the Fund on behalf of
the Portfolio and the Custodian, or another bank, or a broker-
dealer which is a member of NASD, (i) against delivery of the
securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt
evidencing purchase by the Portfolio of securities owned by the
Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Portfolio; or
(e) for transfer to a time deposit account of the Fund in any
bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund as
defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal
13
<PAGE>
fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends on shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
-------------------------------------------------------------------
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of domestic securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
---------------------
discretion appoint
14
<PAGE>
(and may at any time remove) any other bank or trust company which is
itself qualified under the Investment Company Act of 1940, as amended, to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
--------
however, that the appointment of any agent shall not relieve the Custodian
of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
--------------------------------------------
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities system provided that such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the
15
<PAGE>
Portfolio upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the
Portfolio. The Custodian shall transfer securities sold for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and payment
for the account of the Portfolio. Copies of all advices from the
Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund at its
request. Upon request, the Custodian shall furnish the Fund on
behalf of the Portfolio confirmation of each transfer to or from
the account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the Portfolio
copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of the
Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
16
<PAGE>
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Port folio resulting from
use of the securities system by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as
it may have against the Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System
or any other person which the Custodian may have as a consequence
of any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System The Custodian may
-------------------------------------------------------
deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an
account ("Account") of
17
<PAGE>
the Custodian in the Direct Paper System which shall not include
any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the. Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
18
<PAGE>
2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions
------------------
from the Fund on behalf of each applicable Portfolio establish and maintain
a segregated account or accounts for and on behalf of each such Portfolio,
into which account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the custodian and a broker-
dealer registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The options Clearing Corporation
and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio, (ii) for
purposes of segregating cash or government securities in connection with
options purchased, sold or written by the Portfolio or commodity futures
contracts or options thereon purchased or sold by the Portfolio, (iii) for
the purposes of compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, but only, in the case of clause
--- ----
(iv), upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
19
<PAGE>
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
-------
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities Subject to the provisions
-----------------------------------------------
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio desires
to take
20
<PAGE>
action with respect to any tender offer, exchange offer or any other
similar transaction, the Portfolio shall notify the Custodian at least
three business days prior to the date on which the Custodian is to take
such action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
-------------------------------------------------------------------------
of the United States
- --------------------
3.1 Appointment of Foreign Sub-Custodians
-------------------------------------
The Fund hereby authorizes and instructs the Custodian to employ as sub-
custodians for the Portfoliols securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign sub-
custodians"). Upon receipt of "Proper Instructions", as defined in Section
5 of this Contract, together with a certified resolution of the Fund's
Board of Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian.
Upon receipt of Proper Instructions, the Fund may instruct the Custodian to
cease the employment of any one or more such sub-custodians for maintaining
custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
-----------------
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions.
3.3 Foreign securities Depositories. Except as may otherwise be agreed upon in
-------------------------------
writing by
21
<PAGE>
the Custodian and the Fund, assets of the Portfolios shall be maintained in
foreign securities depositories only through arrangements implemented by
the foreign banking institutions serving as sub-custodians pursuant to the
terms hereof. where possible, such arrangements shall include entry into
agreements containing the provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a foreign
--------------------------------------------
banking institution shall be substantially in the form set forth in Exhibit
1 hereto and shall provide that: (a) the assets of each Portfolio will not
be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership for the assets of each Portfolio will be freely
transferable without the payment of money or value other than for custody
or administration; (c) adequate records will be maintained identifying the
assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives, of the Custodian, including
to the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its agreement
with the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian or
its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the Fund,
---------------------------------------------
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution
22
<PAGE>
employed as a foreign sub-custodian insofar as such books and records
relate to the performance of such foreign banking institution under its
agreement with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time to
--------------------
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained by
a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a Portfolio,
the identity of the entity having physical possession of such securities.
3.7 Transactions in Foreign Custody Account
---------------------------------------
(a) Except as otherwise provided in paragraph (b) of this Section 3.7, the
provisions of Sections 2.2 and 2.7 of this Contract shall apply, mutatis
-------
mutandis, to the foreign securities of the Fund held outside the United
--------
states by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefore (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer.
23
<PAGE>
(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such
securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
-----------------------------------
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
----------------------
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.12 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense,, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
24
<PAGE>
paragraph 3.10, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to advance
--------------------------
cash or securities for any purpose for the benefit of a Portfolio including
the purchase or sale of foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolios assets
to the extent necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to the
---------------------------
Fund, during the month of June, information concerning the foreign sub-
custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian
25
<PAGE>
will promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign sub-
custodian or any material loss of the assets of the Fund or in the case of
any foreign sub-custodian not the subject of an exemptive order from the
Securities and Exchange Commission is notified by such foreign sub-
custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.12 Branches of U.S. Banks
----------------------
(a) Except as otherwise set forth in this Contract, the provisions of
Article 3 hereof shall not apply where the custody of the Portfolios assets
are maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940
meeting the qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be governed by
Article 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. or both.
3.13 Tax Law
-------
The Custodian shall have no responsibility or liability for any obligations
now or hereafter imposed on the Fund or the Custodian as custodian of the
Fund by the tax law
26
<PAGE>
of the United States of America or any state or political subdivision
thereof. It shall be the responsibility of the Fund to notify the Custodian
of the obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard to such tax
law shall be to use reasonable efforts to assist the Fund with respect to
any claim for exemption or refund under the tax law of jurisdictions for
which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
----------------------------------------------------------------------
The Custodian shall receive from the distributor for the shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued
or sold from time to time by the Fund. The Custodian will provide timely
notification o the Fund on behalf of each such Portfolio and the Transfer
Agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the
Board of Trustees of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares. In connection with
the redemption or repurchase of Shares of a Portfolio, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire
funds to or through a
27
<PAGE>
commercial bank designated by the redeeming shareholders. In connection
with the redemption or repurchase of Shares of the Fund, the Custodian
shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing signed
or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth
the specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the custodian
reasonably believes them to have been given by a person authorized to give
such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Fund accompanied by a
detailed description of procedures approved by the Board of Trustees.
Proper Instructions may include communications effected directly between
electromechanical or electronic devices provided that the Board of Trustees
and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant
to any three - party agreement which requires a
28
<PAGE>
segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
- --------
the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Portfolio except as otherwise directed by the
Board of Trustees of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed by or on behalf
of the Fund. The Custodian may receive and accept a certified copy of a vote of
the Board of Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Trustees pursuant to the Declaration of Trust as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
29
<PAGE>
8. Duties of Custodian with Respect to the Books of Account and Calculation
-------------------------------------------------------------------------
of Net Asset Value and Net Income
---------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 3la-1 and
3la-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the
30
<PAGE>
Fund with a tabulation of securities owned by each Portfolio and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-lA, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
31
<PAGE>
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the Fund)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
32
<PAGE>
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, fn the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) for
the benefit of a Portfolio including the purchase or sale of foreign exchange or
of contracts for foreign exchange or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
14. Effective Period. Termination and Amendment
--------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
--------
Custodian
33
<PAGE>
shall not with respect to a Portfolio act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Fund has approved the initial use of
a particular Securities System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of such Securities System, as
required in each case by Rule 17f-4 under the Investment Company Act of 1940, as
amended, and that the Custodian shall not with respect to a Portfolio act under
Section 2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of the Direct Paper System by such Portfolio and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund on
behalf of one or more of the Portfolios may at any time by action of its Board
of Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
34
<PAGE>
15. Successor Custodian
-------------------
If a successor custodian for the Fund, of one or more of the Portfolios,
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than $25,000,000, all securities, funds and other properties
held by the custodian on behalf of each applicable Portfolio and all instruments
held by the Custodian relative thereto and all other property held by it under
this Contract on behalf of each applicable Portfolio and to transfer to an
account of such successor custodian all of the securities of each such Portfolio
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
35
<PAGE>
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the cinereal tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, Provided that no such
--------
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to those specified on the first page of this Contract with respect to
which it desires to have the Custodian render services as custodian under the
terms hereof, it shall so notify the Custodian in writing, and if the Custodian
agrees in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
36
<PAGE>
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
20. Disclaimer of Liability
-----------------------
A copy of the Agreement and Declaration of Trust establishing Loomis Sayles
Investment Trust (the "Trust") is on file with the Secretary of State 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 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 relevant
series of the Trust.
21. Shareholder Communications Election
-----------------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers of respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this
37
<PAGE>
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [X ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 31st day of December, 1993.
ATTEST LOOMIS SAYLES INVESTMENT TRUST
/s/ Mark W. Holland By /s/ Charles J. Finlayson
- ------------------------------- ---------------------------------
Secretary President
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ S. Ahearn By /s/ Thomas L. Logue
- ------------------------------- ----------------------------------
Assistant Secretary Executive Vice President
38
<PAGE>
SCHEDULE A
----------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Loomis Sayles
Investment Trust for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
________________________________
Fund's Authorized Officer
Date:____________________________
39
<PAGE>
EXHIBIT I
---------
SUBCUSTODIAN AGREEMENT
- ----------------------
AGREEMENT made this ________________________; between State Street Bank and
Trust Company, A Massachusetts Trust Company (hereinafter referred to as the
"Custodian"), having its principal place of business at 225 Franklin Street,
Boston, MA, and ___________ ____________________________ (hereinafter referred
to as the "Subcustodian"), a bank organized under the laws of
_________________________ and having its registered office at
__________________________________________________________________________.
WHEREAS, Custodian has been appointed to act as Trustee, Custodian or
Subcustodian of securities and monies on behalf of certain of its customers
including, without limitation, collective investment undertakings, investment
companies subject to the U.S. Investment Company Act of 1940, as amended, and
employee benefit plans subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended;
WHEREAS, Custodian wishes to establish Accounts (the "Accounts") with the
Subcustodian to hold and maintain certain property for which Custodian is
responsible as custodian; and
WHEREAS, Subcustodian agrees to establish the Accounts and to hold and
maintain all Property in the Accounts in accordance with the terms and
conditions herein set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Custodian and the Subcustodian agree as follows:
I. The Account
-----------
A. Establishment of the Account
----------------------------
Custodian hereby requests that Subcustodian establish for each client of
the Custodian an Account which shall be composed of:
1. A Custody Account for any and all Securities (as hereinafter defined)
from time to time received by Subcustodian therefor, and
2. A Deposit Account for any and all Cash (as hereinafter defined) from
time to time received by Subcustodian therefor.
B. Use of the Account
------------------
The Account shall be used exclusively to hold, acquire, transfer or
otherwise care for, on behalf of Custodian as custodian and the customers of
Custodian and not for Custodian's own interest, Securities, and such Cash or
cash equivalents as are transferred to Subcustodian or as are received in
payment of any transfer of, or as payment on, or interest on, or dividend from,
any
40
<PAGE>
such Securities (herein collectively called "Cash").
C. Transfer of Property in the Account
-----------------------------------
Beneficial ownership of the Securities and Cash in the Account shall be
freely transferable without payment of money or value other than for safe
custody and administration.
D. Ownership and Segregation of Property in Account
------------------------------------------------
The ownership of the property in the Account, whether Securities, Cash or
both, and whether any such property is held by Subcustodian in an Eligible
Depository, shall be clearly recorded on Subcustodian's books as belonging to
Custodian on behalf of Custodian's customers, and not for Custodian's own
interest and, to the extent that Securities shall also be physically held in the
Account, such Securities shall also be physically segregated from the general
assets of Subcustodian, the assets of Custodian in its individual capacity and
the assets of Subcustodian's other customers. In addition, Subcustodian shall
maintain such other records as may be necessary to identify the property
hereunder as belonging to each Account.
E. Registration of Securities in the Account
-----------------------------------------
Securities which are eligible for deposit in a depository as provided for
in Paragraph III may be maintained with the depository in an account for
Subcustodian's customers. Securities which are not held in a depository and that
are ordinarily held in registered form will be registered in the name of the
Sub-custodian or in the name of the Sub-custodian's nominee, unless alternate
Instructions are furnished by Custodian.
II. Services to be Provided by the Subcustodian
-------------------------------------------
The Services Subcustodian will provide to Custodian and the manner in which
such services will be performed will be as set forth below in this Agreement.
A. Services Performed Pursuant to Instructions
-------------------------------------------
All transactions involving the Securities and Cash in the Account shall
be executed solely in accordance with Custodian's Instructions as that term is
defined in Paragraph IV hereof, except those described in Paragraph B below.
B. Services to be Performed without Instructions
---------------------------------------------
Subcustodian will, unless it receives Instructions from Custodian to
the contrary:
1. Collect Cash
------------
Promptly collect and receive all dividends, income, principal,
proceeds from transfer and other payments with respect to property held in the
Account, and present for payment all Securities held in the Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation, and credit Cash
receipts therefrom to the Deposit Account.
41
<PAGE>
2. Exchange Securities
-------------------
Promptly exchange Securities where the exchange is purely ministerial
including, without limitation, the exchange of temporary Securities for those in
definitive form and the exchange of warrants, or other documents of entitlement
to Securities, for the Securities themselves.
3. Sale of Rights and Fractional Interests
---------------------------------------
Whenever notification of a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend or stock split is received for the
Account and such rights entitlement or fractional interest bears an expiration
date, Subcustodian will promptly endeavor to obtain Custodian's Instructions,
but should these not be received in time for Subcustodian to take timely action,
Subcustodian is authorized to sell such rights entitlement or fractional
interest and to credit the Account.
4. Execute Certificates
--------------------
Execute in Custodian's name for the Account, whenever Subcustodian
deems it appropriate, such ownership and other certificates as may be required
to obtain the payment of income from the Securities held in the Account.
5. Pay Taxes and Receive Refunds
-----------------------------
To pay or cause to be paid from the Account any and all taxes and
levies in the nature of taxes imposed on the property in the Account by an
governmental authority, and to take all steps necessary to obtain all tax
exemptions, privileges or other benefits, including reclaiming and recovering
any withholding tax, relating to the Account and to execute any declarations,
affidavits, or certificates of ownership which may be necessary in connection
therewith.
6. Prevent Losses
--------------
Take such steps as may be reasonably necessary to secure, or otherwise
prevent the loss of, entitlements attached to or otherwise relating to property
held in the Account.
C. Additional Services
-------------------
1. Transmission of Notices of Corporate Action
-------------------------------------------
By such means as will permit Custodian to take timely action with
respect thereto, Subcustodian will promptly notify Custodian upon receiving
notices or reports, or otherwise becoming aware, of corporate actions affecting
Securities held in the Account (including, but not limited to, calls for
redemption, mergers, consolidations, reorganizations, recapitalizations, tender
offers, rights offerings, exchanges, subscriptions and other offerings) and
dividend, interest and other income payments relating to such Securities.
2. Communications Regarding the Exercise of Entitlements
-----------------------------------------------------
Upon request by Custodian, Subcustodian will promptly deliver, or
cause any Eligible Depository authorized and acting hereunder to deliver, to
Custodian all notices, proxies, proxy
42
<PAGE>
soliciting materials and other communications that call for voting or the
exercise of rights or other specific action (including material relative to
legal proceedings intended to be transmitted to security holders) relating to
Securities held in the Account to the extent received by Subcustodian or said
Eligible Depository, such proxies or any voting instruments to be executed by
the registered holder of the Securities, but without indicating the manner in
which such Securities are to be voted.
3. Monitor Financial Service
-------------------------
In furtherance of its obligations under this Agreement, Subcustodian
will monitor a leading financial service with respect to announcements and other
information respecting property held in the Account, including announcements and
other information with respect to corporate actions and dividend, interest and
other income payments.
III. Use of Securities Depository
----------------------------
Subcustodian may, with the prior written approval of Custodian, maintain
all or any part of the Securities in the Account with a securities depository or
clearing agency which is incorporated or organized under the laws of a country
other than the United States of America and is supervised or regulated by a
government agency or regulatory authority in the foreign jurisdiction having
authority over such depositories or agencies, and which operates (a) the central
system for handling of designated securities or equivalent book entries in
________ ______________________ or (b) a transnational system for the central
handling of securities or equivalent book entries (herein called "Eligible
Depository"), provided however, that, while so maintained, such Securities shall
be subject only to the directions of Subcustodian, and that Subcustodian duties,
obligations and responsibilities with regard to such Securities shall be the
name as if such Securities were held by Subcustodian on its premises.
IV. Subcustodian's Warranty
-----------------------
Subcustodian Represents and Warrants That:
------------------------------------------
(A) It is a branch of a "qualified U.S. bank" or it is an "eligible
foreign custodian" as those terms are defined in Rule 17f-5 of the Investment
Company Act of 1940, a copy of which is attached hereto as Attachment A (the
"Rule"), and Subcustodian shall immediately notify Custodian in writing or by
other authorized means, in the event that there appears to be a substantial
likelihood that Subcustodian will cease to qualify under the Rule as currently
in effect or as hereafter amended, or
(B) It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission which order permits Custodian to employ
Subcustodian notwithstanding the fact that Subcustodian fails to qualify under
the terms of the Rules, and Subcustodian shall immediately notify Custodian, in
writing or by other authorized means, if for any reason it is no longer covered
by such exemptive order.
Upon receipt of any such notification required under (A) or (B) of this
section, Custodian may terminate this Agreement immediately without prior notice
to Subcustodian.
VI. Definitions
-----------
43
<PAGE>
A. Instructions
------------
The term "Instructions" means
1. instructions in writing signed by authorized individuals
designated as such by Custodian;
2. telex or tested telex instructions of Custodian;
3. other forms of instructions in computer readable form as shall
customarily be used for the transmission of like information, and
4. such other forms of communication as from time to time may be
agreed upon by Custodian and Subcustodian, which Subcustodian believes in good
faith to have been given by Custodian or which are transmitted with proper
testing or authentication pursuant to terms and conditions which custodian may
specify.
Unless otherwise expressly provided, all Instructions shall continue
in full force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission in
respect of any Instruction except in the case of willful default, negligence,
fraud, bad faith, willful misconduct or reckless disregard of duties on the part
of the Subcustodian. Subcustodian in executing all Instructions will take
relevant action in accordance with accepted industry practice and local
settlement practices.
B. Account
-------
The term "Account" means collectively the Custody Account, and the Deposit
Account.
C. Securities
----------
The term "Securities" includes, without limitation, stocks, shares, bonds,
debentures, debt securities (convertible or non-convertible), notes, or other
obligations or securities and any certificates, receipts, futures contracts,
foreign exchange contracts, options, warrants, scrip or other instruments
representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or in any
property or assets.
VII Miscellaneous Provisions
------------------------
A. Statements Regarding the Account
--------------------------------
Subcustodian will supply Custodian with such statements regarding the
Account as Custodian may request, including the identity and location of any
Eligible Depository authorized and acting hereunder. In addition, Subcustodian
will supply Custodian an advice or notification of any transfers of Securities
to or from the Account indicating, as to Securities acquired for the Account, if
applicable, the Eligible Depository having physical possession of such
securities.
B. Examination of Books and Records
--------------------------------
Subcustodian agrees that its books and records relating to such Account and
Sub-custodian's actions under this agreement shall be open to the physical, on-
premises inspection and audit at reasonable times by officers of, auditors
employed by, or other representatives of Custodian including (to the extent
permitted under the laws of ______________________) the independent public
accountants for any customer of Custodian whose property is being held
44
<PAGE>
hereunder) and such books and records shall be retained for such period as shall
be agreed upon by Custodian and Subcustodian.
As Custodian may reasonably request from time to time, Subcustodian will
furnish its auditor's reports on its system of internal controls, and
Subcustodian will use its best efforts to obtain and furnish similar reports of
any Eligible Depository authorized and acting hereunder.
C. Standard of Care
----------------
In holding, maintaining, servicing and disposing of Property under this
Agreement, and n fulfilling any other obligations hereunder, Subcustodian shall
exercises the same standard of care that it exercises over its own assets,
provided that Subcustodian shall exercise at least the degree of care and
- --------
maintain adequate insurance as expected of a prudent professional Subcustodian
for hire and shall assume the burden of proving that it has exercised such care
in its maintenance of Property held by Subcustodian in its Accounts. The
maintenance of Property in an Eligible Depository shall not affect
Subcustodian's standard of care, and Subcustodian will remain as fully
responsible for any loss or damage to such securities as if it had itself
retained physical possession of them. Custodian shall indemnify and hold
harmless Custodian and each of Custodian's customers from and against any loss,
damage, cost, expense, liability or claim (including reasonable attorney's fees)
arising out of or in connection with the improper or negligent performance or
the nonperformance of the duties of the Subcustodian.
Subcustodian shall be responsible for complying with all provisions of the
law of ______ ____________________, or any other law, applicable to Subcustodian
in connection with its duties hereunder, including (but not limited to) the
payment of all transfer taxes or other taxes and compliance with any currency
restrictions and securities laws in connection with its duties as Subcustodian.
D. Loss of Cash or Securities
--------------------------
Subcustodian agrees that, in the event of any loss of Securities or Cash in
the Account, Subcustodian will use its best efforts to ascertain the
circumstances relating to such loss and will promptly report the same to
Custodian and shall use every legal means available to it to effect the quickest
possible recovery.
E. Compensation of Subcustodian
----------------------------
Custodian agrees to pay to Subcustodian from time to time such compensation
for its services and such out-of-pocket or incidental expenses of Subcustodian
pursuant to this Agreement as may be mutually agreed upon in writing form time
to time.
F. Operating Requirements
----------------------
The Subcustodian agrees to follow such Operating Requirements as the
Custodian may establish from time to time to time. A copy of the current
Custodian Operating Requirements is attached as Attachment B to this Agreement.
G. Termination
-----------
45
<PAGE>
This Agreement may be terminated by Subcustodian or Custodian on 60 days'
written notice to the other party, sent by registered mail, provided that any
such notice, whether given by Subcustodian or Custodian, shall be followed
within 60 days by Instructions specifying the names of the persons to whom the
Cash in the Account shall be paid. If within 60 days following the giving of
such notice of termination, Subcustodian does not receive such Instructions,
Subcustodian shall continue to hold such Securities and Cash subject to this
Agreement until such Instructions are given. The obligations of the parties
under this Agreement shall survive the termination of this Agreement.
H. Notices
-------
Unless otherwise specified in this Agreement, all notices and
communications with respect to matters contemplated by this Agreement shall be
in writing, and delivered by mail, postage prepaid, telex, SWIFT, or other
mutually agreed telecommunication methods to the following addresses (or to such
other address as either party hereto may from time to time designated by notice
duly given in accordance with this paragraph):
To Subcustodian:
To Custodian: State Street Bank and Trust Company
Securities Operation/
Network Administration
P.O. Box 1631
Boston, Massachusetts 02105
I. Confidentiality
---------------
Subcustodian and Custodian shall each use its best efforts to maintain the
confidentiality of the property in the Account and the beneficial owners
thereof, subject, however, to the provisions of any laws requiring disclosure.
In addition, Subcustodian shall safeguard any test keys, identification codes or
other security devices which Custodian shall make available to it. The
Subcustodian further agrees it will not disclose the existence of this Agreement
or any current business relationship unless compelled by applicable law or
regulation or unless it has secured the Custodian' written consent.
J. Assignment
----------
This Agreement shall not be assignable by either party but shall bind any
successor in interest of Custodian and Subcustodian respectively.
K. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of _________________________________________. To the extent inconsistent
with this Agreement or Custodian's Operating Requirements as attached hereto,
Subcustodian's rules and conditions regarding accounts generally or custody
accounts specifically shall not apply.
46
<PAGE>
CUSTODIAN: STATE STREET BANK AND TRUST COMPANY
By____________________________________
AGREED TO BY SUBCUSTODIAN:
By: ______________________________
Date: ____________________________
47
<PAGE>
EXHIBIT 9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LOOMIS SAYLES INVESTMENT TRUST
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Terms of Appointment; Duties of the Bank................ 1
2. Fees and Expenses....................................... 3
3. Representations and Warranties of the Bank.............. 4
4. Representations and Warranties of the Fund.............. 4
5. Data Access and Proprietary Information................. 5
6. Indemnification......................................... 6
7. Standard of Care........................................ 8
8. Covenants of the Fund and the Bank...................... 8
9. Termination of Agreement................................ 9
10. Additional Funds........................................ 9
11. Assignment.............................................. 9
12. Amendment............................................... 10
13. Massachusetts Law to Apply.............................. 10
14. Force Majeure........................................... 10
15. Consequential Damages................................... 10
16. Merger of Agreement..................................... 10
17. Limitations of Liability of the Trustees
or Shareholders....................................... 10
18. Counterparts............................................ 11
19. Reproduction of Documents............................... 11
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 1st day of November , 1996, by and between Loomis
Sayles Investment Trust, a business trust, having its principal office and
place of business at One International Place, Boston, MA 02110 (the "Fund"), and
State Street Bank and Trust Company, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in nine series, the Loomis
Sayles Mortgage Securities Fund, Loomis Sayles California Tax-Free Income Fund,
Loomis Sayles High Yield Fixed Income Fund, Loomis Sayles Core Growth Fund,
Loomis Sayles Convertible Bond Fund, Loomis Sayles Core Fixed Income Fund,
Loomis Sayles Investment Grade Fixed Income Fund and Loomis Sayles Intermediate
Duration Fixed Income Fund (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 10, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
----------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of its common stock, $10 par value,
("Shares"), dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
<PAGE>
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation thereof to
the Custodian of the Fund authorized pursuant to the Declaration of
Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to the
Custodian;
(iv) In respect to the transactions in items (i), (ii) and
(iii) above, the Bank shall execute transactions directly with broker-
dealers authorized by the Fund;
(v) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the applicable
Portfolio;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and protecting the
Bank and the Fund, and the Bank at its option, may issue replacement
certificates in place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number of shares
of the Fund which are authorized, based upon data provided to it by
the Fund, and issued and outstanding. The Bank shall also provide the
Fund on a regular basis with the total number of shares which are
authorized and issued and outstanding and shall have no obligation,
when recording the issuance of
<PAGE>
shares, to monitor the issuance of such shares or to take
cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the
Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses
to current Shareholders, withholding taxes on U.S. resident and non-
resident alien accounts, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements
of account to Shareholders for all purchases and redemptions of Shares
and other confirmable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and providing
Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each
State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
-----------------
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.2 below may be changed from time to
time subject to
<PAGE>
mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records
storage, or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the
Bank at the request or with the consent of the Fund, will be reimbursed by
the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all shareholder accounts shall be advanced to
the Bank by the Fund at least seven (7) days prior to the mailing date of
such materials.
3. Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
<PAGE>
4.3 All corporate proceedings required by said Declaration of Trust and By-
Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios (except the Mortgage Securities Fund and
the Convertible Bond Fund) is expected to become effective in March 1997
and will remain effective, and appropriate state securities law filings
are expected to be made by March 1997 and will continue to be made, with
respect to all shares of the Fund's Portfolios (except shares of the
Mortgage Securities and Convertible Bond Funds) offered for sale.
5. Data Access and Proprietary Information
---------------------------------------
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat
all Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with the
Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of
such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder
from being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed
<PAGE>
upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely
on the validity and authenticity of such instruction without undertaking
any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by the Bank from time to
time.
6. Indemnification
---------------
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the
Fund hereunder.
<PAGE>
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which
(i) are received by the Bank or its agents or subcontractors, and (ii)
have been prepared, maintained or performed by the Fund or any other
person or firm on behalf of the Fund including but not limited to any
previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state except the Bank shall be responsible for
offers and sales of Shares contrary to the instructions of the Fund.
(f) The negotiation and processing by the Bank of checks not made
payable to the order of the Bank, the Fund, the Fund's management
company, transfer agent or distributor or the retirement account
custodian or trustee for a plan account investing in Shares, which
checks are tendered to the Bank for the purchase of Shares (i.e.,
checks made payable to prospective or existing Shareholders, such
checks are commonly known as "third party checks").
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall
not be liable and shall be indemnified by the Fund on behalf of the
applicable Portfolio for any action taken or omitted by it, in good
faith, including without limitation actions taken by it, in reliance upon
such instructions or upon the opinion of such counsel. The Bank, its
agents and subcontractors shall be protected and indemnified in acting
upon any paper or document, reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of
the officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or co-
registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the
<PAGE>
Bank in the defense of such claim or to defend against said claim in its
own name or in the name of the Bank. The Bank shall in no case confess any
claim or make any compromise in any case in which the Fund may be required
to indemnify the Bank except with the Fund's prior written consent.
7. Standard of Care
----------------
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
8. Covenants of the Fund and the Bank
----------------------------------
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and
all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for
the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared
or maintained by the Bank relating to the services to be performed by the
Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules,
and will be surrendered promptly to the Fund on and in accordance with its
request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund,
<PAGE>
the Bank will endeavor to notify the Fund and to secure instructions from
an authorized officer of the Fund as to such inspection. The Bank reserves
the right, however, to exhibit the Shareholder records to any person
whenever it is advised by its counsel that it may be held liable for the
failure to exhibit the Shareholder records to such person.
9. Termination of Agreement
------------------------
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination and/or a charge equivalent to the average
of three (3) months' fees.
10. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Loomis Sayles Mortgage Securities Fund, Loomis Sayles
California Tax-Free Income Fund, Loomis Sayles High Yield Fixed Income
Fund, Loomis Sayles Core Growth Fund, Loomis Sayles Convertible Bond Fund,
Loomis Sayles Core Fixed Income Fund, Loomis Sayles Investment Grade Fixed
Income Fund and Loomis Sayles Intermediate Duration Fixed Income Fund with
respect to which it desires to have the Bank render services as transfer
agent under the terms hereof, it shall so notify the Bank in writing, and
if the Bank agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.
11. Assignment
----------
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc.,
a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange
Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly
registered as a transfer agent pursuant to Section 17A(c)(2) or (iii) a
BFDS affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor as
it is for its own acts and omissions.
12. Amendment
---------
<PAGE>
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Trustees of the Fund.
13. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
14. Force Majeure
-------------
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
15. Consequential Damages
---------------------
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. Merger of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
---------------------------------------------------------
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or Shareholders individually but
are binding only upon the assets and property of the Fund.
18. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
19. Reproduction of Documents
-------------------------
<PAGE>
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not
such reproduction was made by a party in the regular course of business,
and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
LOOMIS SAYLES INVESTMENT TRUST
BY: /S/ Mark W. Holland
----------------------------
ATTEST:
/S/ Sheila M. Barry
- --------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /S/ Thomas E. Logur
-----------------------------
Executive Vice President
ATTEST:
/S/ Francine A. Hayes
- --------------------------
A copy of the Agreement and Declaration of Trust establishing the Loomis Sayles
Investment Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the series of the Trust on behalf of the Trust by officers of the
Trust 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 individually but are binding only upon the assets and property
belonging to the series.
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Provided Responsibilities
- ---------------- ----------------
Bank Fund
---- ----
Receives orders for the purchase
of Shares. X
Issue Shares and hold Shares in
Shareholders accounts. X
Receive redemption requests. X
Effect transactions 1-3 above
directly with broker-dealers N/A .
Pay over monies to redeeming
Shareholders. X
Effect transfers of Shares. X
Prepare and transmit dividends X
and distributions .
Reporting of abandoned property. X
Maintain records of account. X
Maintain and keep a current and
accurate control book for each
issue of securities. N/A
Mail proxies. X
Mail Shareholder reports. X
<PAGE>
Mail prospectuses to current
Shareholders. X
Withhold taxes on U.S. resident
and non-resident alien accounts. X
Prepare and file U.S. Treasury
Department Forms X
Prepare and mail account and confirmation
statements for Shareholders. X
Provide Shareholder account
information. X
Blue sky reporting. N/A
* Such services are more fully described in Section 1.2 (a), (b) and (c) of
the Agreement.
LOOMIS SAYLES INVESTMENT TRUST
BY:/S/ Mark W. Holland
------------------------------
ATTEST:
/S/ Sheila M. Barry
- -------------------
STATE STREET BANK AND TRUST COMPANY
BY: /S/ Thomas E. Logur
-----------------------------
Executive Vice President
ATTEST:
/S/ Francine A. Hayes
- -------------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Trustee of Loomis Sayles Investment Trust:
We hereby consent to the following with respect of Amendment No. 12 to the
Registration Statement under the Investment Company Act of 1940, as amended, on
Form N-1A (File No. 811-8282), and Post Effective Amendment No. 2 to the
Registration Statement on Form N1-A (File No. 333-22931) of Loomis Sayles
Investment Trust (consisting of Loomis Sayles California Tax-Free Income Fund,
Loomis Sayles Core Fixed Income Fund, Loomis Sayles Core Growth Fund, Loomis
Sayles Fixed Income Fund, Loomis Sayles High Yield Fixed Income Fund, Loomis
Sayles Intermediate Duration Fixed Income Fund and Loomis Sayles Investment
Grade Fixed Income Fund (each a "Fund)):
1. The incorporation by reference in the Prospectus and Statement of
Additional Information of each of the Loomis Sayles California Tax-
Free Income Fund, Loomis Sayles Core Fixed Income Fund, Loomis Sayles
Core Growth Fund, Loomis Sayles Fixed Income Fund, Loomis Sayles High
Yield Fixed Income Fund, and Loomis Sayles Investment Grade Fixed
Income Fund of our report dated February 23, 1998 accompanying the
Annual Report for each such Fund for the year ended December 31, 1997;
and
2. The reference to our firm under the heading "Financial Highlights" and
"Prior Performance" in the Prospectus of each of the Loomis Sayles
California Tax-Free Income Fund, Loomis Sayles Core Fixed Income Fund,
Loomis Sayles Core Growth Fund, Loomis Sayles Fixed Income Fund,
Loomis Sayles High Yield Fixed Income Fund, and Loomis Sayles
Investment Grade Fixed Income Fund; and
3. The reference to our firm under the heading "Independent Accountants"
in the Statement of Additional Information of each of the Funds; and
4. The reference to our firm under the heading "Financial Statements" in
the Statement of Additional Information of each of the Loomis Sayles
California Tax-Free Income Fund, Loomis Sayles Core Fixed Income Fund,
Loomis Sayles Core Growth Fund, Loomis Sayles Fixed Income Fund,
Loomis Sayles High Yield Fixed Income Fund, and Loomis Sayles
Investment Grade Fixed Income Fund.
/s/ Coopers & Lybrand L.L.P
Boston, Massachusetts Coopers & Lybrand L.L.P.
April 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM LOOMIS SAYLES
INVESTMENT TRUST FINANCIAL ANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000917469
<NAME> LOOMIS, SAYLES & COMPANY, L.P.
<SERIES>
<NUMBER> 01
<NAME> LOOMIS SAYLES INVESTMENT GRADE FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 79,116,109
<INVESTMENTS-AT-VALUE> 81,505,024
<RECEIVABLES> 1,535,864
<ASSETS-OTHER> 66,696
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 83,107,584
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143,636
<TOTAL-LIABILITIES> 143,636
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,053,056
<SHARES-COMMON-STOCK> 6,879,092
<SHARES-COMMON-PRIOR> 4,382,595
<ACCUMULATED-NII-CURRENT> 163,158
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 364,738
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,382,996
<NET-ASSETS> 82,963,948
<DIVIDEND-INCOME> 94,088
<INTEREST-INCOME> 4,503,902
<OTHER-INCOME> 0
<EXPENSES-NET> (335,722)
<NET-INVESTMENT-INCOME> 4,262,268
<REALIZED-GAINS-CURRENT> 1,023,968
<APPREC-INCREASE-CURRENT> 704,886
<NET-CHANGE-FROM-OPS> 5,991,122
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,113,289)
<DISTRIBUTIONS-OF-GAINS> (884,327)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,322,895
<NUMBER-OF-SHARES-REDEEMED> (154,352)
<SHARES-REINVESTED> 327,954
<NET-CHANGE-IN-ASSETS> 31,212,198
<ACCUMULATED-NII-PRIOR> 43,660
<ACCUMULATED-GAINS-PRIOR> 195,817
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 244,179
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 421,419
<AVERAGE-NET-ASSETS> 61,127,395
<PER-SHARE-NAV-BEGIN> 11.81
<PER-SHARE-NII> .83
<PER-SHARE-GAIN-APPREC> .37
<PER-SHARE-DIVIDEND> (.81)
<PER-SHARE-DISTRIBUTIONS> (.14)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.06
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOOMIS
SAYLES INVESTMENT TRUST ANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000917469
<NAME> LOOMIS, SAYLES & COMPANY, L.P.
<SERIES>
<NUMBER> 02
<NAME> LOOMIS SAYLES FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 156,532,226
<INVESTMENTS-AT-VALUE> 161,310,268
<RECEIVABLES> 12,908,458
<ASSETS-OTHER> 61,899
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 174,280,625
<PAYABLE-FOR-SECURITIES> 791,016
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 441,533
<TOTAL-LIABILITIES> 1,232,549
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 167,010,763
<SHARES-COMMON-STOCK> 13,740,601
<SHARES-COMMON-PRIOR> 7,595,471
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (8,315)
<ACCUMULATED-NET-GAINS> 1,273,994
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,771,634
<NET-ASSETS> 173,048,076
<DIVIDEND-INCOME> 373,312
<INTEREST-INCOME> 9,068,854
<OTHER-INCOME> 0
<EXPENSES-NET> (746,482)
<NET-INVESTMENT-INCOME> 8,695,684
<REALIZED-GAINS-CURRENT> 2,909,561
<APPREC-INCREASE-CURRENT> 1,883,711
<NET-CHANGE-FROM-OPS> 13,488,956
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,909,276)
<DISTRIBUTIONS-OF-GAINS> (3,302,793)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,599,478
<NUMBER-OF-SHARES-REDEEMED> (1,401,398)
<SHARES-REINVESTED> 947,050
<NET-CHANGE-IN-ASSETS> 81,302,067
<ACCUMULATED-NII-PRIOR> 241,283
<ACCUMULATED-GAINS-PRIOR> 1,631,220
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 574,496
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 807,336
<AVERAGE-NET-ASSETS> 115,094,403
<PER-SHARE-NAV-BEGIN> 12.08
<PER-SHARE-NII> .72
<PER-SHARE-GAIN-APPREC> .89
<PER-SHARE-DIVIDEND> (.75)
<PER-SHARE-DISTRIBUTIONS> (.35)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.59
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOOMIS
SAYLES INVESTMENT TRUST ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000917469
<NAME> LOOMIS, SAYLES & COMPANY, L.P.
<SERIES>
<NUMBER> 03
<NAME> LOOMIS SAYLES CALIFORNIA TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 15,954,915
<INVESTMENTS-AT-VALUE> 16,495,869
<RECEIVABLES> 255,213
<ASSETS-OTHER> 118,056
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,869,138
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,355
<TOTAL-LIABILITIES> 47,355
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,286,790
<SHARES-COMMON-STOCK> 1,615,222
<SHARES-COMMON-PRIOR> 1,321,332
<ACCUMULATED-NII-CURRENT> 6,408
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,369)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 540,954
<NET-ASSETS> 16,821,783
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 817,538
<OTHER-INCOME> 0
<EXPENSES-NET> (100,741)
<NET-INVESTMENT-INCOME> 716,797
<REALIZED-GAINS-CURRENT> 20,418
<APPREC-INCREASE-CURRENT> 367,627
<NET-CHANGE-FROM-OPS> 1,104,842
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (719,537)
<DISTRIBUTIONS-OF-GAINS> (41,370)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 364,171
<NUMBER-OF-SHARES-REDEEMED> (82,667)
<SHARES-REINVESTED> 12,386
<NET-CHANGE-IN-ASSETS> 3,362,245
<ACCUMULATED-NII-PRIOR> 9,074
<ACCUMULATED-GAINS-PRIOR> 8,583
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77,450
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 218,001
<AVERAGE-NET-ASSETS> 15,503,729
<PER-SHARE-NAV-BEGIN> 10.19
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> (.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.41
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOOMIS
SAYLES INVESTMENT TRUST ANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000917469
<NAME> LOOMIS, SAYLES & COMPANY, L.P.
<SERIES>
<NUMBER> 05
<NAME> LOOMIS SAYLES CORE GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 35,945,092
<INVESTMENTS-AT-VALUE> 39,482,204
<RECEIVABLES> 38,339
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 61,448
<TOTAL-ASSETS> 39,581,991
<PAYABLE-FOR-SECURITIES> 962,291
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,133
<TOTAL-LIABILITIES> 1,038,424
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,029,380
<SHARES-COMMON-STOCK> 3,143,589
<SHARES-COMMON-PRIOR> 1,908,352
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (22,925)
<ACCUM-APPREC-OR-DEPREC> 3,537,112
<NET-ASSETS> 38,543,567
<DIVIDEND-INCOME> 418,649
<INTEREST-INCOME> 74,365
<OTHER-INCOME> 0
<EXPENSES-NET> (211,290)
<NET-INVESTMENT-INCOME> 281,724
<REALIZED-GAINS-CURRENT> 3,075,110
<APPREC-INCREASE-CURRENT> 601,974
<NET-CHANGE-FROM-OPS> 3,958,808
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (284,442)
<DISTRIBUTIONS-OF-GAINS> (2,620,841)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,009,708
<NUMBER-OF-SHARES-REDEEMED> (15,943)
<SHARES-REINVESTED> 241,472
<NET-CHANGE-IN-ASSETS> 16,637,527
<ACCUMULATED-NII-PRIOR> 1,831
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (482,777)
<GROSS-ADVISORY-FEES> 162,506
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 289,999
<AVERAGE-NET-ASSETS> 32,541,703
<PER-SHARE-NAV-BEGIN> 11.48
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 1.68
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> (.90)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOOMIS
SAYLES INVESTMENT TRUST ANNUAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000917469
<NAME> LOOMIS, SAYLES & COMPANY, L.P.
<SERIES>
<NUMBER> 07
<NAME> LOOMIS SAYLES HIGH YIELD FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 31,203,008
<INVESTMENTS-AT-VALUE> 30,199,789
<RECEIVABLES> 525,068
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 61,406
<TOTAL-ASSETS> 30,786,263
<PAYABLE-FOR-SECURITIES> 1,845,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,259
<TOTAL-LIABILITIES> 1,914,259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,594,894
<SHARES-COMMON-STOCK> 2,874,494
<SHARES-COMMON-PRIOR> 305,041
<ACCUMULATED-NII-CURRENT> 704
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 279,763
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,003,357)
<NET-ASSETS> 28,872,004
<DIVIDEND-INCOME> 124,243
<INTEREST-INCOME> 1,867,273
<OTHER-INCOME> 0
<EXPENSES-NET> (155,813)
<NET-INVESTMENT-INCOME> 1,835,703
<REALIZED-GAINS-CURRENT> 1,091,157
<APPREC-INCREASE-CURRENT> (1,050,300)
<NET-CHANGE-FROM-OPS> 1,876,560
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,839,948)
<DISTRIBUTIONS-OF-GAINS> (806,445)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,304,814
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 264,639
<NET-CHANGE-IN-ASSETS> 25,771,593
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 125,297
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 243,985
<AVERAGE-NET-ASSETS> 20,819,162
<PER-SHARE-NAV-BEGIN> 10.16
<PER-SHARE-NII> .70
<PER-SHARE-GAIN-APPREC> .20
<PER-SHARE-DIVIDEND> (.71)
<PER-SHARE-DISTRIBUTIONS> (.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOOMIS
SAYLES INVESTMENT TRUST ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000917469
<NAME> LOOMIS, SAYLES & COMPANY. L.P.
<SERIES>
<NUMBER> 06
<NAME> LOOMIS SAYLES CORE FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 15,417,841
<INVESTMENTS-AT-VALUE> 15,764,014
<RECEIVABLES> 312,686
<ASSETS-OTHER> 71,351
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,148,051
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,152
<TOTAL-LIABILITIES> 38,152
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,764,013
<SHARES-COMMON-STOCK> 1,511,557
<SHARES-COMMON-PRIOR> 618,421
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (287)
<ACCUM-APPREC-OR-DEPREC> 346,173
<NET-ASSETS> 16,109,899
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 619,238
<OTHER-INCOME> 0
<EXPENSES-NET> (57,389)
<NET-INVESTMENT-INCOME> 561,849
<REALIZED-GAINS-CURRENT> 38,487
<APPREC-INCREASE-CURRENT> 257,800
<NET-CHANGE-FROM-OPS> 858,136
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (561,173)
<DISTRIBUTIONS-OF-GAINS> (37,859)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 860,234
<NUMBER-OF-SHARES-REDEEMED> (23,346)
<SHARES-REINVESTED> 56,248
<NET-CHANGE-IN-ASSETS> 9,839,089
<ACCUMULATED-NII-PRIOR> 2,031
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,622)
<GROSS-ADVISORY-FEES> 44,126
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 159,591
<AVERAGE-NET-ASSETS> 8,856,131
<PER-SHARE-NAV-BEGIN> 10.14
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> .55
<PER-SHARE-DIVIDEND> (.39)
<PER-SHARE-DISTRIBUTIONS> (.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.66
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
