UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-06241
Loomis Sayles Funds II
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(Exact name of Registrant as specified in charter)
399 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Coleen Downs Dinneen, Esq.
IXIS Asset Management Distributors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agent for service)
Registrant's telephone number, including area code: (617) 449-2810
Date of fiscal year end: September 30
Date of reporting period: September 30, 2005
Item 1. Reports to Stockholders.
The Registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
[LOGO]
Income Funds
Annual Report
September 30, 2005
[LOGO]
Loomis Sayles Core Plus Bond Fund
Loomis Sayles High Income Fund
Loomis Sayles Limited Term Government and Agency Fund
Loomis Sayles Massachusetts Tax Free Income Fund
Loomis Sayles Municipal Income Fund
Loomis Sayles Strategic Income Fund
TABLE OF CONTENTS
Management Discussion
and Performance.........Page 1
Schedule of InvestmentsPage 19
Financial Statements....Page 43
LOOMIS SAYLES CORE PLUS BOND FUND
PORTFOLIO PROFILE
Objective:
Seeks a high level of current income consistent with what the fund considers
reasonable risk. It invests primarily in U.S. corporate and U.S. government
bonds.
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Strategy:
Invests primarily in U.S. corporate and U.S. government bonds
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Fund Inception:
November 7, 1973
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Managers:
Peter W. Palfrey
Richard G. Raczkowski
Loomis, Sayles & Company, L.P.
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Symbols:
Class A NEFRX
Class B NERBX
Class C NECRX
Class Y NERYX
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What You Should Know:
Fixed-income securities are subject to credit risk and interest rate risk;
their value generally rises when prevailing interest rates fall and falls when
rates rise. This fund may invest in lower-rated bonds with higher yields and
increased risks; securities subject to prepayment risk; and foreign market
securities with special risks.
Management Discussion
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The economic expansion continued to support corporate bonds, extending their
long stretch of solid performance. Shorter- and intermediate-term issues came
under pressure as the Federal Reserve Board continued to hike interest rates,
in an effort to contain inflation. International bonds rose at first, then fell
back late in the period when the U.S. dollar strengthened.
For the fiscal year ended September 30, 2005, the total return on Class A
shares of Loomis Sayles Core Plus Bond Fund was 2.43% at net asset value,
including $0.56 in dividends reinvested during the period. This was slightly
below the fund's broad-based, domestic benchmark, the Lehman Aggregate Bond
Index, which returned 2.80% for the same period, and in line with Morningstar's
Intermediate-Term Bond category, which averaged a 2.43% return. At the end of
September 2005, the fund's 30-day SEC yield was 3.85%.
CORPORATE AND INTERNATIONAL HOLDINGS PUSHED RETURNS HIGHER
The fund's high-yield and investment-grade corporate bonds performed well
during the period. As the economy expanded, investors grew less concerned about
default risks and were drawn to corporate bonds because of their comparatively
generous yields. Higher-grade corporate issues also contributed because they
offer higher yields than Treasury securities. Although returns in many foreign
markets were bolstered by the weak U.S. dollar during the first half of the
fiscal year, the dollar's rally in the second half erased some of the fund's
gains. We also trimmed the fund's duration during the period, making it less
sensitive to changes in bond prices as interest rates moved higher. Toward the
end of the period we edged longer, such that the fund's duration was
essentially the same as the benchmark by the end of September - a neutral
stance.
MEDIA, TELECOM, AND FOOD COMPANIES ADDED TO RETURNS
Strength in the Canadian dollar and revitalized operations aided the bonds of
Alberta-based Shaw Communications, Canada's second-largest cable operator. In
the United States, operational improvement and healthier finances helped the
securities of Qwest, which provides telecommunications services in several
western states. In addition, AT&T bonds moved up sharply on news of SBC's
proposed acquisition of the former telephone giant. Good operating results
energized the high-yield bonds of Dean Foods, a dairy products company. We sold
these bonds when we felt their market price had risen to levels that fully
reflected their value. Bonds of another high-yield holding, Ambev Cia De
Bebidas, a Brazilian beverage company, moved higher when a Dutch firm with a
higher credit rating acquired the company.
TREASURY WEIGHTINGS AND SOME COMPANY-SPECIFIC ISSUES HINDERED RESULTS
Early this year we were underweight in long-term Treasury securities in
anticipation of upward pressure on interest rates. That position hurt the
fund's comparative return when yields on longer-term Treasuries fell and prices
moved higher. However, we recently began increasing holdings in longer-term
Treasuries because rising short-term rates are likely to have less impact on
the prices of these bonds. The downgrades to junk-bond status of Ford and
General Motors undercut the fund's performance, although these positions were
relatively small. Moreover, our remaining exposure to these companies is
primarily to their credit subsidiaries, which were less affected than their
automotive divisions. Operational issues and high fuel costs pressured the
bonds of Allied Waste and we sold it.
EASING BACK ON CORPORATES
High energy prices are all but certain to take a toll on consumers, as sharp
increases in energy prices inflate home heating bills and transportation costs.
In addition, home equity lending has decelerated as housing markets cooled.
High debt and low savings are burdening many households. All this suggests that
consumers, who make up the bulk of U.S. economic activity, may cut back on
spending. For now, we believe corporate issues should continue to perform well,
and the economy will draw strength in the short-term from the massive
rebuilding efforts slated for the Gulf Coast region. Nevertheless, we are
positioning the portfolio more defensively against the possibility of shrinking
economic growth. For example, we have been gradually raising overall quality by
decreasing exposure to corporate issues in favor of government obligations and
mortgage- and asset-backed securities. We are also investing in Treasury
Inflation-Protected Securities, which are adjusted to offset the effects of
inflation.
1
LOOMIS SAYLES CORE PLUS BOND FUND
Investment Results through September 30, 2005
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PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares/7/
[CHART]
September 30, 1995 through September 30, 2005
Net Asset Maximum Sales Lehman Aggregte Lehman U.S.
Value /1/ Charge /2/ Bond Index /3/ Credit Index /4/
---------- ------------- --------------- ----------------
9/30/1995 $10,000 $ 9,550 $10,000 $10,000
10/31/1995 10,133 9,677 10,130 10,130
11/30/1995 10,291 9,828 10,282 10,324
12/31/1995 10,440 9,970 10,426 10,494
1/31/1996 10,484 10,012 10,495 10,562
2/29/1996 10,257 9,795 10,313 10,311
3/31/1996 10,205 9,746 10,241 10,223
4/30/1996 10,120 9,664 10,184 10,138
5/31/1996 10,111 9,656 10,163 10,121
6/30/1996 10,258 9,797 10,299 10,269
7/31/1996 10,284 9,821 10,328 10,289
8/31/1996 10,284 9,821 10,310 10,257
9/30/1996 10,522 10,049 10,490 10,475
10/31/1996 10,790 10,304 10,722 10,761
11/30/1996 11,050 10,552 10,906 10,991
12/31/1996 10,921 10,430 10,805 10,839
1/31/1997 10,983 10,488 10,838 10,854
2/28/1997 11,052 10,555 10,865 10,900
3/31/1997 10,887 10,397 10,744 10,730
4/30/1997 11,007 10,512 10,905 10,892
5/31/1997 11,156 10,654 11,008 11,016
6/30/1997 11,352 10,841 11,139 11,172
7/31/1997 11,808 11,277 11,439 11,581
8/31/1997 11,607 11,085 11,342 11,410
9/30/1997 11,838 11,306 11,509 11,609
10/31/1997 11,951 11,413 11,676 11,756
11/30/1997 12,006 11,466 11,730 11,823
12/31/1997 12,130 11,584 11,848 11,948
1/31/1998 12,291 11,738 12,000 12,090
2/28/1998 12,330 11,775 11,991 12,086
3/31/1998 12,407 11,848 12,032 12,130
4/30/1998 12,464 11,903 12,095 12,207
5/31/1998 12,591 12,024 12,210 12,352
6/30/1998 12,637 12,069 12,313 12,443
7/31/1998 12,605 12,037 12,339 12,432
8/31/1998 12,480 11,918 12,540 12,490
9/30/1998 12,962 12,378 12,834 12,894
10/31/1998 12,825 12,248 12,766 12,696
11/30/1998 13,081 12,492 12,838 12,935
12/31/1998 13,102 12,512 12,877 12,972
1/31/1999 13,243 12,647 12,969 13,101
2/28/1999 12,976 12,392 12,742 12,790
3/31/1999 13,155 12,563 12,813 12,880
4/30/1999 13,259 12,662 12,854 12,918
5/31/1999 12,971 12,387 12,741 12,745
6/30/1999 12,888 12,308 12,701 12,679
7/31/1999 12,838 12,260 12,646 12,608
8/31/1999 12,786 12,211 12,640 12,578
9/30/1999 13,002 12,417 12,787 12,714
10/31/1999 13,032 12,446 12,834 12,773
11/30/1999 13,052 12,464 12,833 12,786
12/31/1999 13,058 12,471 12,771 12,719
1/31/2000 13,003 12,418 12,729 12,674
2/29/2000 13,150 12,559 12,883 12,791
3/31/2000 13,331 12,731 13,053 12,900
4/30/2000 13,085 12,496 13,016 12,787
5/31/2000 12,988 12,404 13,010 12,739
6/30/2000 13,382 12,780 13,280 13,059
7/31/2000 13,461 12,855 13,401 13,218
8/31/2000 13,635 13,021 13,595 13,390
9/30/2000 13,655 13,041 13,681 13,460
10/31/2000 13,577 12,966 13,771 13,473
11/30/2000 13,706 13,089 13,996 13,648
12/31/2000 14,024 13,393 14,256 13,913
1/31/2001 14,372 13,725 14,489 14,293
2/28/2001 14,514 13,861 14,615 14,418
3/31/2001 14,532 13,878 14,689 14,507
4/30/2001 14,449 13,799 14,628 14,455
5/31/2001 14,541 13,887 14,716 14,588
6/30/2001 14,546 13,891 14,771 14,662
7/31/2001 14,914 14,243 15,102 15,044
8/31/2001 15,079 14,401 15,275 15,246
9/30/2001 15,016 14,340 15,453 15,224
10/31/2001 15,312 14,623 15,776 15,601
11/30/2001 15,211 14,526 15,558 15,466
12/31/2001 15,040 14,363 15,460 15,360
1/31/2002 15,006 14,330 15,585 15,490
2/28/2002 14,947 14,275 15,736 15,607
3/31/2002 14,784 14,119 15,474 15,318
4/30/2002 14,923 14,252 15,774 15,532
5/31/2002 15,049 14,371 15,908 15,737
6/30/2002 14,686 14,025 16,046 15,763
7/31/2002 14,516 13,862 16,239 15,755
8/31/2002 14,846 14,178 16,514 16,163
9/30/2002 14,895 14,225 16,781 16,470
10/31/2002 14,812 14,146 16,705 16,279
11/30/2002 15,093 14,414 16,700 16,490
12/31/2002 15,468 14,772 17,045 16,976
1/31/2003 15,554 14,854 17,060 17,032
2/28/2003 15,778 15,068 17,296 17,372
3/31/2003 15,824 15,112 17,282 17,385
4/30/2003 16,062 15,339 17,425 17,706
5/31/2003 16,381 15,644 17,750 18,265
6/30/2003 16,407 15,669 17,715 18,220
7/31/2003 15,845 15,132 17,119 17,443
8/31/2003 15,997 15,277 17,233 17,580
9/30/2003 16,457 15,717 17,689 18,194
10/31/2003 16,416 15,678 17,524 18,000
11/30/2003 16,516 15,773 17,566 18,082
12/31/2003 16,784 16,029 17,745 18,284
1/31/2004 16,928 16,167 17,887 18,469
2/29/2004 17,059 16,291 18,081 18,701
3/31/2004 17,187 16,413 18,216 18,882
4/30/2004 16,748 15,995 17,742 18,287
5/31/2004 16,601 15,854 17,671 18,158
6/30/2004 16,702 15,951 17,771 18,235
7/31/2004 16,891 16,131 17,947 18,460
8/31/2004 17,229 16,453 18,290 18,896
9/30/2004 17,327 16,547 18,339 19,002
10/31/2004 17,516 16,728 18,493 19,186
11/30/2004 17,481 16,694 18,346 18,993
12/31/2004 17,640 16,846 18,514 19,241
1/31/2005 17,682 16,887 18,631 19,394
2/28/2005 17,665 16,870 18,521 19,280
3/31/2005 17,435 16,650 18,426 19,040
4/30/2005 17,508 16,720 18,675 19,295
5/31/2005 17,671 16,876 18,877 19,565
6/30/2005 17,788 16,987 18,980 19,720
7/31/2005 17,738 16,940 18,807 19,523
8/31/2005 17,919 17,112 19,048 19,819
9/30/2005 17,740 16,939 18,852 19,523
Average Annual Total Returns -- September 30, 2005
1 YEAR/7/ 5 YEARS/7/ 10 YEARS/7/
CLASS A (Inception 11/7/73)
Net Asset Value/1/ 2.43% 5.38% 5.90%
With Maximum Sales Charge/2/ -2.17 4.41 5.41
CLASS B (Inception 9/13/93)
Net Asset Value/1/ 1.58 4.60 5.11
With CDSC/5/ -3.29 4.26 5.11
CLASS C (Inception 12/30/94)
Net Asset Value/1/ 1.59 4.59 5.11
With CDSC/5/ 0.61 4.59 5.11
CLASS Y (Inception 12/30/94)
Net Asset Value/1/ 2.68 5.80 6.25
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COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Lehman Aggregate Bond Index/3/ 2.80% 6.62% 6.55%
Lehman U.S. Credit Index/4/ 2.74 7.72 6.92
Morningstar Int.-Term Bond Fund Avg./6/ 2.43 5.98 5.78
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of any dividends and capital gains. Current returns may be
higher or lower than those shown. For performance current to the most recent
month-end, visit www.ixisadvisorfunds.com. Class Y shares are available to
certain institutional investors only.
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
PORTFOLIO FACTS
% of Net Assets as of
CREDIT QUALITY 3/31/05 9/30/05
- ----------------------------------------
Aaa 46.7 51.4
- ----------------------------------------
Aa 0.3 0.3
- ----------------------------------------
A 4.8 3.3
- ----------------------------------------
Baa 26.7 22.5
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Ba 15.9 15.8
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B 2.6 2.7
- ----------------------------------------
Not rated* 1.1 2.2
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Short-term & other 1.9 1.8
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Credit quality is based on ratings from Moody's Investors Service.
* Securities that are not rated by Moody's may be rated by another rating
agency or by Loomis Sayles.
% of Net Assets as of
EFFECTIVE MATURITY 3/31/05 9/30/05
- --------------------------------------------------
1 year or less 2.8 6.0
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1-5 years 51.7 46.1
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5-10 years 34.6 31.8
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10+ years 10.9 16.1
- --------------------------------------------------
Average Effective Maturity 6.2 years 6.8 years
- --------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes the maximum sales charge of 4.50%.
/3/Lehman Aggregate Bond Index is an unmanaged index of investment-grade bonds
with one- to ten-year maturities issued by the U.S. government, its agencies
and U.S. corporations.
/4/Lehman U.S. Credit Index is an unmanaged index that includes all publicly
issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, U.S.
investment-grade corporate debt, and foreign debt that meets specific
maturity, liquidity and quality requirements.
/5/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
Class C share performance assumes a 1.00% CDSC applied when you sell shares
within one year of purchase.
/6/Morningstar Intermediate-Term Bond Fund Average is the average performance
without sales charges of funds with similar investment objectives, as
calculated by Morningstar, Inc.
/7/Fund performance has been increased by expense waivers, without which
performance would have been lower.
2
LOOMIS SAYLES HIGH INCOME FUND
PORTFOLIO PROFILE
Objective:
Seeks high current income plus the opportunity for capital appreciation to
produce a high total return
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Strategy:
Invests primarily in lower-quality fixed-income securities
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Fund Inception:
February 22, 1984
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Managers:
Kathleen C. Gaffney
Matthew J. Eagan
Loomis, Sayles & Company, L.P.
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Symbols:
Class A NEFHX
Class B NEHBX
Class C NEHCX
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What You Should Know:
Fixed-income securities are subject to credit risk and interest-rate risk;
their value generally rises when prevailing interest rates fall and falls when
rates rise. This fund emphasizes lower-rated, high-yield bonds that may involve
extra risks. It also invests in foreign securities which have special risks,
including political, economic, regulatory and currency risks.
Management Discussion
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Emerging market issues and bonds denominated in strong currencies were the
fund's best-performing sectors over the fiscal year ended September 30, 2005.
Good security selection was another factor driving the fund's results. For the
fiscal year, the total return on Class A shares of Loomis Sayles High Income
Fund was 10.34% at net asset value, including $0.33 in reinvested dividends.
The fund's benchmark, the Lehman High Yield Composite Index, returned 6.71% for
the same period, while Morningstar's High Yield Bond category averaged 6.13%.
As of September 30, 2005, the fund's 30-day SEC yield was 6.25%.
EMERGING MARKETS, STRONG CURRENCIES, AND CONVERTIBLES WERE POSITIVES
Investor interest in emerging market bonds was strong during the period, as
credit conditions improved and investors went in search of higher yields than
were available in more developed nations. In particular, the fund benefited
from holdings in the Cayman Islands and Latin America, where strengthening
currencies fueled performance. Issues of the Inter-American Development Bank
were the fund's best performers. The value of these bonds reflects movements in
Brazil's real, which rose sharply this year. Strength in Mexico's peso helped
Mexican bonos - bonds issued by the United Mexican States. A climb in the value
of Colombia's peso boosted holdings in that country. Convertible bonds, which
can be converted into the issuer's common stock under certain conditions, aided
performance in the energy and pharmaceutical sectors.
TELECOM, CYCLICALS, AND ENERGY LED INDUSTRY SECTORS
Communications companies benefited from rising demand across the industry.
Bonds of Qwest, which offers telecommunications services in several western
states, were among the fund's best-performing issues over this period. Good
selection among consumer cyclical companies was also a positive. Holdings of
retailer Woolworth Corporation did well, as the economic expansion continued.
And steep rises in energy prices boosted the bonds of Williams Companies, a
natural gas exploration company.
The fund experienced good results from most industry allocations. However,
weakness in the baht, Thailand's currency, led to underperformance by banks in
that country. In finance, GMAC's bonds suffered when bonds of its parent
company, General Motors, sank to junk status. We eliminated the fund's
Northwest Airlines holdings prior to the company's bankruptcy filing. Soaring
fuel costs and other pressures have put severe financial strain on the airline
industry, and pushed several carriers into bankruptcy. Bonds of auto-parts
giant, Delphi Corporation, also fell as financial and operating problems
battered the automobile sector, as did the fund's holdings in Lear Corporation,
another automotive parts supplier. Strength in several consumer cyclical areas,
including drug stores, department stores, and food and travel companies offset
the negative impact of the auto sector.
HIGHER RATES MAY SLOW ECONOMIC GROWTH
We think interest rates will continue to rise, taking some of the steam out of
the economic expansion and putting pressure on bond prices. Energy prices may
also become economic hurdles. With those concerns in mind, we are reducing the
portfolio's duration, or its sensitivity to changes in rates. In the United
States, we do not believe corporate credit quality will deteriorate, but prices
of corporate bonds have risen for several quarters, reflecting the economy's
vigor as yields declined. That has left prices high and credit spreads - the
difference in yields between corporate and Treasury issues - very narrow. This
leaves little room for further price gains. As the global economy continues to
strengthen, we have sought to take advantage of opportunities among sovereign
issues (bonds issued by foreign governments) in Latin America and elsewhere. We
continue to favor some emerging markets and other non-U.S. sectors where the
currency outlook appears attractive at this time. We are also looking for
opportunities among selected convertible issues.
3
LOOMIS SAYLES HIGH INCOME FUND
Investment Results through September 30, 2005
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PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares/6/
[CHART]
September 30, 1995 through September 30, 2005
Net Asset Maximum Sales Lehman High Yield
Value /1/ Charge /2/ Composite Index/3/
--------- ------------- -----------------
9/30/1995 $10,000 $ 9,550 $10,000
10/31/1995 10,040 9,588 10,062
11/30/1995 10,058 9,605 10,150
12/31/1995 10,126 9,671 10,310
1/31/1996 10,312 9,848 10,491
2/29/1996 10,383 9,916 10,500
3/31/1996 10,363 9,897 10,493
4/30/1996 10,488 10,016 10,516
5/31/1996 10,601 10,124 10,579
6/30/1996 10,669 10,189 10,666
7/31/1996 10,772 10,287 10,716
8/31/1996 10,900 10,410 10,832
9/30/1996 11,236 10,730 11,093
10/31/1996 11,211 10,707 11,178
11/30/1996 11,442 10,927 11,401
12/31/1996 11,636 11,112 11,480
1/31/1997 11,645 11,121 11,585
2/28/1997 12,053 11,510 11,779
3/31/1997 11,892 11,357 11,609
4/30/1997 11,959 11,421 11,722
5/31/1997 12,356 11,800 11,982
6/30/1997 12,436 11,877 12,148
7/31/1997 12,776 12,201 12,482
8/31/1997 12,857 12,279 12,453
9/30/1997 13,241 12,645 12,700
10/31/1997 13,125 12,535 12,712
11/30/1997 13,301 12,703 12,833
12/31/1997 13,425 12,821 12,946
1/31/1998 13,626 13,013 13,179
2/28/1998 13,607 12,995 13,256
3/31/1998 13,747 13,129 13,380
4/30/1998 13,822 13,200 13,433
5/31/1998 13,800 13,179 13,480
6/30/1998 13,847 13,223 13,528
7/31/1998 13,826 13,204 13,605
8/31/1998 12,866 12,287 12,854
9/30/1998 12,744 12,171 12,913
10/31/1998 12,476 11,915 12,648
11/30/1998 13,372 12,770 13,173
12/31/1998 13,194 12,601 13,187
1/31/1999 13,491 12,884 13,383
2/28/1999 13,576 12,965 13,304
3/31/1999 13,796 13,175 13,431
4/30/1999 14,093 13,459 13,691
5/31/1999 13,748 13,129 13,506
6/30/1999 13,709 13,092 13,477
7/31/1999 13,654 13,040 13,531
8/31/1999 13,441 12,836 13,382
9/30/1999 13,354 12,753 13,286
10/31/1999 13,474 12,868 13,197
11/30/1999 13,563 12,953 13,351
12/31/1999 13,722 13,104 13,503
1/31/2000 13,569 12,959 13,444
2/29/2000 13,630 13,017 13,470
3/31/2000 13,219 12,624 13,187
4/30/2000 13,211 12,616 13,208
5/31/2000 12,842 12,264 13,073
6/30/2000 13,231 12,636 13,339
7/31/2000 13,309 12,710 13,441
8/31/2000 13,256 12,660 13,533
9/30/2000 12,982 12,398 13,415
10/31/2000 12,334 11,779 12,985
11/30/2000 11,309 10,800 12,471
12/31/2000 11,511 10,993 12,712
1/31/2001 12,848 12,270 13,664
2/28/2001 12,784 12,208 13,846
3/31/2001 12,130 11,585 13,520
4/30/2001 11,758 11,229 13,351
5/31/2001 11,790 11,259 13,592
6/30/2001 11,113 10,613 13,211
7/31/2001 11,332 10,822 13,405
8/31/2001 11,245 10,739 13,563
9/30/2001 10,221 9,761 12,652
10/31/2001 10,109 9,654 12,965
11/30/2001 10,437 9,967 13,437
12/31/2001 10,285 9,822 13,383
1/31/2002 10,349 9,883 13,476
2/28/2002 10,034 9,583 13,288
3/31/2002 10,304 9,841 13,608
4/30/2002 10,220 9,760 13,825
5/31/2002 10,071 9,617 13,748
6/30/2002 9,351 8,930 12,735
7/31/2002 8,720 8,328 12,178
8/31/2002 9,026 8,620 12,526
9/30/2002 8,692 8,300 12,361
10/31/2002 8,687 8,296 12,253
11/30/2002 9,265 8,848 13,012
12/31/2002 9,375 8,953 13,194
1/31/2003 9,574 9,143 13,634
2/28/2003 9,708 9,271 13,802
3/31/2003 9,958 9,510 14,199
4/30/2003 10,534 10,060 15,041
5/31/2003 10,718 10,236 15,197
6/30/2003 10,950 10,457 15,634
7/31/2003 10,732 10,249 15,462
8/31/2003 10,846 10,358 15,639
9/30/2003 11,201 10,697 16,067
10/31/2003 11,440 10,925 16,391
11/30/2003 11,679 11,154 16,640
12/31/2003 11,991 11,451 17,017
1/31/2004 12,177 11,629 17,342
2/29/2004 12,123 11,578 17,298
3/31/2004 12,192 11,644 17,416
4/30/2004 11,913 11,377 17,297
5/31/2004 11,605 11,082 17,004
6/30/2004 11,855 11,322 17,248
7/31/2004 11,951 11,413 17,482
8/31/2004 12,278 11,725 17,825
9/30/2004 12,448 11,888 18,084
10/31/2004 12,723 12,151 18,411
11/30/2004 12,924 12,343 18,633
12/31/2004 13,232 12,636 18,911
1/31/2005 13,276 12,678 18,886
2/28/2005 13,584 12,972 19,164
3/31/2005 13,103 12,513 18,606
4/30/2005 12,835 12,258 18,425
5/31/2005 13,169 12,577 18,752
6/30/2005 13,483 12,876 19,120
7/31/2005 13,694 13,078 19,455
8/31/2005 13,767 13,147 19,492
9/30/2005 13,736 13,116 19,297
Average Annual Total Returns -- September 30, 2005
SINCE
1 YEAR/6/ 5 YEARS/6/ 10 YEARS/6/ INCEPTION/6/
CLASS A (Inception 2/22/84)
Net Asset Value/1/ 10.34% 1.13% 3.23% --
With Maximum Sales Charge/2/ 5.31 0.21 2.75 --
CLASS B (Inception 9/20/93)
Net Asset Value/1/ 9.29 0.35 2.48 --
With CDSC/4/ 4.29 0.08 2.48 --
CLASS C (Inception 3/2/98)
Net Asset Value/1/ 9.29 0.35 -- -0.65%
With CDSC/4/ 8.29 0.35 -- -0.65
- --------------------------------------------------------------------------------------
SINCE
CLASS C
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/7/
Lehman High Yield Composite Index/3/ 6.71% 7.54% 6.79% 5.00%
Morningstar High Yield Bond Fund Avg./5/ 6.13 5.81 5.64 3.24
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of dividends and capital gains. Current returns may be
higher or lower than those shown. For performance current to the most recent
month-end, visit www.ixisadvisorfunds.com. Performance history includes periods
from a predecessor fund.
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
PORTFOLIO FACTS
% of Net Assets as of
CREDIT QUALITY 3/31/05 9/30/05
- ------------------------------------------
Aaa 2.8 --
- ------------------------------------------
Aa 1.0 0.9
- ------------------------------------------
Baa 3.0 6.6
- ------------------------------------------
Ba 34.2 29.7
- ------------------------------------------
B 26.7 23.6
- ------------------------------------------
Caa 15.7 16.3
- ------------------------------------------
Ca 1.2 0.5
- ------------------------------------------
Not rated* 13.8 21.0
- ------------------------------------------
Short-term & other 1.6 1.4
- ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service.
* Securities that are not rated by Moody's may be rated by another rating
agency or by Loomis Sayles.
% of Net Assets as of
EFFECTIVE MATURITY 3/31/05 9/30/05
- ----------------------------------------------------
1 year or less 1.5 1.8
- ----------------------------------------------------
1-5 years 22.3 24.4
- ----------------------------------------------------
5-10 years 34.4 31.2
- ----------------------------------------------------
10+ years 41.8 42.6
- ----------------------------------------------------
Average Effective Maturity 12.2 years 12.3 years
- ----------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes the maximum sales charge of 4.50%.
/3/Lehman High Yield Composite Index is a market-weighted, unmanaged index of
fixed-rate, non-investment grade debt.
/4/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
Class C share performance assumes a 1.00% CDSC applied when you sell shares
within one year of purchase.
/5/Morningstar High Yield Bond Fund Average is the average performance without
sales charge of funds with similar investment objectives, as calculated by
Morningstar, Inc.
/6/Fund performance has been increased by expense waivers, without which
performance would have been lower.
/7/The since-inception comparative performance figures shown for Class C shares
are calculated from 3/31/98.
4
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND
PORTFOLIO PROFILE
Objective:
Seeks a high current return consistent with preservation of capital
- --------------------------------------------------------------------------------
Strategy:
Invests primarily in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities
- --------------------------------------------------------------------------------
Fund Inception:
January 3, 1989
- --------------------------------------------------------------------------------
Managers:
John Hyll
Clifton V. Rowe
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
Symbols:
Class A NEFLX
Class B NELBX
Class C NECLX
Class Y NELYX
- --------------------------------------------------------------------------------
What You Should Know:
Fixed-income securities are subject to credit risk and interest rate risk;
their value generally rises when prevailing interest rates fall and falls when
rates rise. Securities issued by the U.S. government are guaranteed by the U.S.
government if held to maturity; mutual funds that invest in these securities
are not guaranteed. Securities issued by U.S. government agencies may not be
government guaranteed.
Management Discussion
- --------------------------------------------------------------------------------
Short-term interest rates rose in response to a series of moves by the Federal
Reserve Board during the 12 months ended September 30, 2005, but long-term
rates declined, apparently in response to the Fed's commitment to fighting
inflation. Investors seeking higher yields bid up prices of long-term bonds,
but prices of high-quality intermediate bonds slumped, influenced by gradually
rising rates and sluggish demand.
Loomis Sayles Limited Term Government and Agency Fund's total return for the
fiscal year ended September 30, 2005 was 1.05% based on the net asset value of
Class A shares and $0.33 in dividends reinvested. The fund outperformed its
benchmark, the Lehman 1-5 Year Government Bond Index, which had a total return
of 0.93% for the 12-month period, but it was slightly behind the 1.09% average
return on the funds in Morningstar's Short Government category. The fund's
30-day SEC yield was 2.78% at the end of September 2005.
MORTGAGE-BACKED SECURITIES GAVE THE FUND AN EDGE
Within the fund's universe of intermediate government-related sectors,
mortgage-backed securities were among the best performers, primarily because of
their yield advantage over other government securities with comparable
maturities, and modest price appreciation. Investor demand for mortgage
securities increased during the fiscal year, as prepayment concerns eased. The
fund's emphasis on these securities was primarily responsible for its strong
performance relative to its benchmark. Government agency bonds, such as those
issued by Fannie Mae and Freddie Mac, also performed well due to their yield
advantage, although the fund had a relatively modest position in these issues,
which limited its advance during the period.
At the beginning of the fiscal year, we trimmed the fund's position in
mortgage-backed securities because valuations seemed high to us. However, in
the latter part of the year, we increased mortgage securities again as their
yield advantage increased. The net result was that the fund had a larger
mortgage position at the end of fiscal 2005 than it did at the beginning of the
year.
BONDS IN THE LONGER AND SHORTER RANGE WERE THE BEST PERFORMERS
Portfolio holdings scheduled to mature in seven or more years were the fund's
best performers during the period because of their longer maturity. Securities
with very short maturities (less than two years) also did well, as their prices
tend to be less volatile, but securities maturing in the three- to seven-year
range were more sensitive to increases in interest rates. During the past 12
months, the fund's duration (its price sensitivity to changes in interest
rates) remained fairly stable and was modestly shorter than that of its peer
group, which meant that its income was slightly lower.
Although we expect interest rates on short- and intermediate-term bonds to
continue to rise, we believe most of the increases are behind us. At this point
in the cycle, the yield curve is fairly flat - that is, the difference between
long- and short-term interest rates is narrow. It is possible for the curve to
flatten even more, but right now our expectation for further increases in
interest rates is modest. Consequently, we will keep the fund's duration close
to that of its benchmark, which is essentially a neutral stance. If the yield
curve becomes significantly steeper, we will look for opportunities at the
longer end of the fund's universe.
OUTLOOK IS FOR FURTHER FED TIGHTENING
For the balance of 2005, if not beyond, we expect the Fed to continue its
program of gradually raising short-term interest rates in an effort to keep
economic growth in check and reduce inflationary pressures. However, we also
believe that much of the rise in short-term rates is behind us, and we look for
rates to move within a fairly narrow range. Although past performance cannot
assure future results, mortgage-backed securities historically have performed
well in this type of environment.
5
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND
Investment Results through September 30, 2005
- --------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares
[CHART]
September 30, 1995 through September 30, 2005
Lehman Int. Lehman 1-5 Year
Net Asset Maximum Sales Government Bond Government Bond
Value /1/ Charge /2/ Index /3/ Index/4/
--------- ------------- --------------- ---------------
9/30/1995 $10,000 $ 9,700 $10,000 $10,000
10/31/1995 10,138 9,834 10,110 10,096
11/30/1995 10,260 9,952 10,233 10,201
12/31/1995 10,367 10,056 10,334 10,288
1/31/1996 10,424 10,112 10,421 10,380
2/29/1996 10,299 9,990 10,311 10,310
3/31/1996 10,234 9,927 10,264 10,279
4/30/1996 10,208 9,902 10,234 10,271
5/31/1996 10,173 9,868 10,229 10,278
6/30/1996 10,252 9,945 10,332 10,367
7/31/1996 10,275 9,967 10,364 10,404
8/31/1996 10,271 9,963 10,376 10,430
9/30/1996 10,401 10,089 10,510 10,543
10/31/1996 10,569 10,252 10,683 10,688
11/30/1996 10,701 10,380 10,812 10,788
12/31/1996 10,615 10,297 10,753 10,761
1/31/1997 10,660 10,340 10,795 10,810
2/28/1997 10,674 10,354 10,812 10,830
3/31/1997 10,618 10,300 10,751 10,798
4/30/1997 10,712 10,390 10,872 10,902
5/31/1997 10,777 10,454 10,957 10,980
6/30/1997 10,880 10,554 11,051 11,065
7/31/1997 11,060 10,728 11,254 11,224
8/31/1997 11,041 10,710 11,211 11,211
9/30/1997 11,156 10,821 11,333 11,313
10/31/1997 11,281 10,943 11,465 11,419
11/30/1997 11,300 10,961 11,490 11,442
12/31/1997 11,386 11,044 11,584 11,527
1/31/1998 11,551 11,205 11,735 11,659
2/28/1998 11,525 11,179 11,723 11,657
3/31/1998 11,505 11,160 11,759 11,697
4/30/1998 11,550 11,203 11,815 11,753
5/31/1998 11,625 11,276 11,897 11,823
6/30/1998 11,710 11,359 11,977 11,890
7/31/1998 11,725 11,373 12,023 11,941
8/31/1998 11,913 11,555 12,250 12,125
9/30/1998 12,253 11,886 12,536 12,345
10/31/1998 12,134 11,770 12,557 12,394
11/30/1998 12,097 11,734 12,518 12,366
12/31/1998 12,122 11,759 12,567 12,409
1/31/1999 12,188 11,822 12,623 12,462
2/28/1999 12,048 11,686 12,450 12,357
3/31/1999 12,104 11,741 12,532 12,443
4/30/1999 12,139 11,775 12,566 12,479
5/31/1999 12,048 11,687 12,489 12,438
6/30/1999 11,970 11,611 12,507 12,473
7/31/1999 11,912 11,555 12,509 12,493
8/31/1999 11,908 11,550 12,527 12,524
9/30/1999 12,043 11,682 12,634 12,618
10/31/1999 12,066 11,704 12,659 12,647
11/30/1999 12,078 11,716 12,668 12,663
12/31/1999 12,040 11,679 12,628 12,652
1/31/2000 11,988 11,628 12,586 12,626
2/29/2000 12,095 11,732 12,690 12,722
3/31/2000 12,245 11,877 12,835 12,823
4/30/2000 12,205 11,839 12,830 12,839
5/31/2000 12,212 11,845 12,864 12,882
6/30/2000 12,386 12,015 13,068 13,051
7/31/2000 12,448 12,075 13,155 13,136
8/31/2000 12,579 12,201 13,303 13,255
9/30/2000 12,676 12,295 13,419 13,370
10/31/2000 12,721 12,340 13,511 13,449
11/30/2000 12,894 12,507 13,709 13,604
12/31/2000 13,045 12,654 13,951 13,802
1/31/2001 13,211 12,815 14,136 13,991
2/28/2001 13,310 12,911 14,266 14,097
3/31/2001 13,394 12,992 14,370 14,208
4/30/2001 13,367 12,966 14,324 14,218
5/31/2001 13,434 13,031 14,384 14,288
6/30/2001 13,443 13,040 14,429 14,336
7/31/2001 13,693 13,282 14,699 14,546
8/31/2001 13,784 13,370 14,829 14,654
9/30/2001 14,000 13,580 15,146 14,940
10/31/2001 14,210 13,784 15,382 15,119
11/30/2001 14,025 13,605 15,198 15,020
12/31/2001 13,940 13,522 15,125 14,995
1/31/2002 14,014 13,593 15,190 15,043
2/28/2002 14,152 13,728 15,316 15,141
3/31/2002 13,949 13,530 15,085 14,983
4/30/2002 14,204 13,778 15,367 15,208
5/31/2002 14,300 13,871 15,475 15,293
6/30/2002 14,443 14,010 15,668 15,454
7/31/2002 14,650 14,210 15,963 15,694
8/31/2002 14,794 14,350 16,146 15,805
9/30/2002 14,927 14,479 16,423 15,996
10/31/2002 14,960 14,511 16,412 16,022
11/30/2002 14,891 14,444 16,282 15,935
12/31/2002 15,077 14,625 16,583 16,149
1/31/2003 15,069 14,617 16,546 16,134
2/28/2003 15,200 14,744 16,733 16,251
3/31/2003 15,190 14,734 16,736 16,275
4/30/2003 15,216 14,759 16,784 16,313
5/31/2003 15,308 14,849 17,047 16,456
6/30/2003 15,281 14,822 17,019 16,463
7/31/2003 14,963 14,514 16,606 16,245
8/31/2003 15,012 14,562 16,636 16,253
9/30/2003 15,262 14,804 16,997 16,499
10/31/2003 15,155 14,700 16,830 16,390
11/30/2003 15,196 14,740 16,831 16,382
12/31/2003 15,302 14,843 16,962 16,498
1/31/2004 15,368 14,907 17,054 16,557
2/29/2004 15,486 15,022 17,217 16,679
3/31/2004 15,545 15,079 17,337 16,764
4/30/2004 15,265 14,807 16,949 16,497
5/31/2004 15,215 14,758 16,895 16,462
6/30/2004 15,273 14,814 16,938 16,480
7/31/2004 15,358 14,897 17,060 16,568
8/31/2004 15,552 15,085 17,314 16,747
9/30/2004 15,547 15,081 17,320 16,740
10/31/2004 15,628 15,159 17,426 16,817
11/30/2004 15,558 15,091 17,264 16,697
12/31/2004 15,609 15,141 17,358 16,752
1/31/2005 15,631 15,162 17,380 16,747
2/28/2005 15,570 15,103 17,283 16,680
3/31/2005 15,523 15,057 17,241 16,658
4/30/2005 15,660 15,190 17,442 16,796
5/31/2005 15,740 15,267 17,581 16,889
6/30/2005 15,763 15,290 17,638 16,929
7/31/2005 15,692 15,221 17,488 16,835
8/31/2005 15,802 15,328 17,682 16,979
9/30/2005 15,711 15,238 17,546 16,896
Average Annual Total Returns -- September 30, 2005
1 YEAR 5 YEARS 10 YEARS
CLASS A (Inception 1/3/89)
Net Asset Value/1/ 1.05% 4.39% 4.62%
With Maximum Sales Charge/2/ -1.98 3.76 4.30
CLASS B (Inception 9/27/93)
Net Asset Value/1/ 0.29 3.69 3.93
With CDSC/5/ -4.61 3.35 3.93
CLASS C (Inception 12/30/94)
Net Asset Value/1/ 0.21 3.69 3.92
With CDSC/5/ -0.77 3.69 3.92
CLASS Y (Inception 3/31/94)/7/
Net Asset Value/1/ 1.24 4.73 4.98
- ------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Lehman 1-5 Yr Gov't Bond Index/4/ 0.93% 4.79% 5.39%
Lehman Int. Gov't Bond Index/3/ 1.31 5.51 5.78
Morningstar Short Gov't Fund Avg./6/ 1.09 4.10 4.68
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of dividends and capital gains. Current returns may be
higher or lower than those shown. For performance current to the most recent
month-end, visit www.ixisadvisorfunds.com. Performance history includes periods
from a predecessor fund. Class Y shares are available to certain institutional
investors only.
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
PORTFOLIO FACTS
% of Net Assets as of
FUND COMPOSITION 3/31/05 9/30/05
- ------------------------------------------------------
Mortgage Related 33.5 55.8
- ------------------------------------------------------
Treasuries 50.8 31.0
- ------------------------------------------------------
Government Agencies 10.3 7.7
- ------------------------------------------------------
Asset Backed Securities 4.1 4.3
- ------------------------------------------------------
Short-Term Investments & Other 1.3 1.2
- ------------------------------------------------------
% of Net Assets as of
EFFECTIVE MATURITY 3/31/05 9/30/05
- ------------------------------------------------------
1 year or less 10.6 9.3
- ------------------------------------------------------
1-5 years 73.7 80.9
- ------------------------------------------------------
5-10 years 12.1 5.9
- ------------------------------------------------------
10+ years 3.6 3.9
- ------------------------------------------------------
Average Effective Maturity 3.3 years 3.5 years
- ------------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes the maximum sales charge of 3.00%.
/3/Lehman Intermediate Government Bond Index is an unmanaged index of bonds
issued by the U.S. government and its agencies, with maturities between one
and ten years.
/4/Lehman 1-5 Year Government Bond Index is an unmanaged, market-weighted index
of bonds issued by the U.S. government and its agencies, with maturities
between 1 and 5 years.
/5/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
Class C share performance assumes a 1.00% CDSC applied when you sell shares
within one year of purchase.
/6/Morningstar Short Government Fund Average is the average performance without
sales charge of funds with similar investment objectives, as calculated by
Morningstar, Inc.
/7/Fund performance has been increased by expense waivers, without which
performance would have been lower.
Note: Lehman 1-5 Year Government Bond Index replaces the Lehman Intermediate
Government Bond Index as the fund's benchmark because the fund's advisor
believes it is more representative of the types of securities in which the
fund can invest.
6
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND
PORTFOLIO PROFILE
Objective:
Seeks to maintain a high level of current income exempt from federal and
Massachusetts personal income taxes
- --------------------------------------------------------------------------------
Strategy:
Invests primarily in Massachusetts municipal bonds, including general
obligation bonds and issues secured by specific revenue streams
- --------------------------------------------------------------------------------
Inception Date:
March 23, 1984
- --------------------------------------------------------------------------------
Manager:
Martha A. Strom
Robert Payne
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
Symbols:
Class A NEFMX
Class B NEMBX
- --------------------------------------------------------------------------------
What You Should Know:
Fixed-income securities are subject to credit risk and interest rate risk;
their value generally rises when prevailing interest rates fall and falls when
rates rise. This fund concentrates in a single geographic region, which can
affect your fund's performance. Some income may be subject to federal and state
taxes. Capital gains are fully taxable.
Management Discussion
- --------------------------------------------------------------------------------
Loomis Sayles Massachusetts Tax Free Income Fund provided a total return of
3.90% for the fiscal year ended September 30, 2005, based on the net asset
value of Class A shares and $0.60 in dividends reinvested during the period.
This was slightly behind the fund's benchmark, the Lehman Municipal Bond Index,
which returned 4.05% for the period, but it was above the 2.84% average return
on Morningstar's Muni Massachusetts category. The fund's 30-day SEC yield at
the end of September was 2.97%, equivalent to 4.81% adjusted for the combined
maximum federal and Massachusetts income tax rates of 38.45%.
During the 12-month period, interest rates moved in different directions.
Short-term rates rose in response to the Federal Reserve Board's policy of
gradually raising the federal funds rate, while long-term rates generally
trended down. This led to what is described as a flattening yield curve, where
the spread between long- and short-term interest rates becomes narrow. Rates on
municipal bonds typically respond to the same forces as taxable rates, but they
tend to be less volatile.
INSURANCE, CREDIT QUALITY, AND YIELD MOTIVATED INVESTORS
Insured bonds, which experienced strong demand from individual investors, were
among the best performers in the municipal market this year. Although the fund
benefited from this trend, insured bonds account for a smaller portion of the
fund's portfolio than the index. At the same time, prospects for high tax-free
income attracted investors to municipal bonds issued to benefit institutions of
higher learning and healthcare facilities. These included Massachusetts bonds
issued for Mount Holyoke College, which combine a higher yield and a long
maturity (2031). High current income and an improving credit rating also
stimulated demand for Massachusetts bonds issued for Nichols College. And
Catholic Health East bonds rose in price when one of the major rating agencies
raised the hospital's credit rating, stimulating demand for this high-coupon,
long-term bond.
HOUSING AND SHORTER MATURITIES WERE LESS ATTRACTIVE
Housing bonds have not done as well because investors were concerned that
homeowners would take advantage of low interest rates to refinance mortgages.
Bonds with shorter maturities also underperformed as a result of the rising
interest-rate environment. The fund's holdings in municipal bonds issued for
New England Education Loan Marketing Corp. delivered less-than-stellar
performance because they are scheduled to mature in 2009 - a relatively short
period. However, they remain in the portfolio because they have an attractive
coupon and provide diversification.
Some fund holdings were pre-refunded during the period, which effectively
shortened their maturities. When a bond is pre-refunded, the issuer refinances
an existing, higher-coupon bond by issuing new bonds at lower interest rates.
The proceeds of the older issue are invested in high-quality paper - usually
U.S. Treasury securities - and the maturity date moves up to the old bond's
first call date. While pre-refunding effectively raises the credit rating of
the new bond issue, bringing up its price, it also shortens the bond's
maturity. The fund's holdings in Massachusetts Bay Transportation Authority
bonds, scheduled to mature in 2030, were pre-refunded in March. The resulting
price appreciation made this one of the fund's best performers at mid-year, but
its new, shorter maturity (2010) subsequently reduced demand and the price of
the bonds declined.
INTEREST RATES EXPECTED TO FLUCTUATE WITHIN A NARROW RANGE
Since the Fed still appears to be concerned about the potential for inflation,
we believe they are likely to continue to raise interest rates in slow, steady
increments. Our forecast is for market rates to continue to fluctuate,
reflecting demand, but within a fairly narrow band. Credit trends in the
municipal market seem stable, especially in relation to the taxable markets. We
will continue to seek out attractive opportunities to add to the fund's yield.
7
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND
Investment Results through September 30, 2005
- --------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares/5/
[CHART]
September 30, 1995 through September 30, 2005
Net Asset Maximum Sales Lehman Municipal
Value /1/ Charge /2/ Bond Index /3/
--------- ------------- ----------------
9/30/1995 $10,000 $ 9,575 $10,000
10/31/1995 10,168 9,736 10,145
11/30/1995 10,367 9,927 10,314
12/31/1995 10,498 10,052 10,413
1/31/1996 10,532 10,084 10,492
2/29/1996 10,426 9,983 10,421
3/31/1996 10,296 9,858 10,288
4/30/1996 10,266 9,830 10,258
5/31/1996 10,280 9,843 10,255
6/30/1996 10,378 9,937 10,366
7/31/1996 10,456 10,012 10,460
8/31/1996 10,451 10,007 10,458
9/30/1996 10,614 10,163 10,604
10/31/1996 10,725 10,269 10,724
11/30/1996 10,910 10,446 10,920
12/31/1996 10,838 10,377 10,874
1/31/1997 10,857 10,396 10,895
2/28/1997 10,961 10,495 10,995
3/31/1997 10,837 10,377 10,848
4/30/1997 10,925 10,461 10,939
5/31/1997 11,080 10,609 11,104
6/30/1997 11,196 10,720 11,222
7/31/1997 11,515 11,025 11,533
8/31/1997 11,408 10,923 11,425
9/30/1997 11,559 11,068 11,560
10/31/1997 11,616 11,122 11,634
11/30/1997 11,686 11,189 11,703
12/31/1997 11,847 11,343 11,874
1/31/1998 11,943 11,435 11,996
2/28/1998 11,926 11,419 12,000
3/31/1998 11,893 11,387 12,010
4/30/1998 11,851 11,347 11,956
5/31/1998 12,034 11,522 12,145
6/30/1998 12,076 11,563 12,193
7/31/1998 12,083 11,570 12,224
8/31/1998 12,275 11,753 12,413
9/30/1998 12,411 11,884 12,567
10/31/1998 12,361 11,835 12,567
11/30/1998 12,382 11,855 12,611
12/31/1998 12,429 11,900 12,643
1/31/1999 12,572 12,037 12,793
2/28/1999 12,514 11,982 12,738
3/31/1999 12,499 11,967 12,755
4/30/1999 12,536 12,003 12,787
5/31/1999 12,455 11,925 12,713
6/30/1999 12,252 11,731 12,530
7/31/1999 12,295 11,772 12,575
8/31/1999 12,120 11,605 12,475
9/30/1999 12,084 11,570 12,480
10/31/1999 11,914 11,408 12,345
11/30/1999 12,019 11,508 12,476
12/31/1999 11,915 11,408 12,383
1/31/2000 11,817 11,315 12,329
2/29/2000 11,964 11,455 12,472
3/31/2000 12,187 11,669 12,745
4/30/2000 12,132 11,617 12,670
5/31/2000 12,085 11,571 12,604
6/30/2000 12,328 11,804 12,938
7/31/2000 12,485 11,954 13,118
8/31/2000 12,641 12,103 13,320
9/30/2000 12,590 12,055 13,250
10/31/2000 12,692 12,153 13,395
11/30/2000 12,745 12,204 13,496
12/31/2000 13,017 12,464 13,830
1/31/2001 13,062 12,507 13,967
2/28/2001 13,108 12,551 14,011
3/31/2001 13,104 12,547 14,137
4/30/2001 12,969 12,418 13,984
5/31/2001 13,095 12,538 14,134
6/30/2001 13,188 12,627 14,229
7/31/2001 13,388 12,819 14,440
8/31/2001 13,640 13,060 14,677
9/30/2001 13,564 12,987 14,628
10/31/2001 13,690 13,108 14,802
11/30/2001 13,589 13,011 14,678
12/31/2001 13,435 12,864 14,539
1/31/2002 13,510 12,936 14,791
2/28/2002 13,663 13,082 14,969
3/31/2002 13,412 12,842 14,676
4/30/2002 13,657 13,077 14,963
5/31/2002 13,764 13,179 15,054
6/30/2002 13,923 13,331 15,213
7/31/2002 14,100 13,501 15,408
8/31/2002 14,272 13,665 15,594
9/30/2002 14,593 13,973 15,935
10/31/2002 14,328 13,719 15,671
11/30/2002 14,237 13,632 15,606
12/31/2002 14,522 13,905 15,935
1/31/2003 14,492 13,876 15,895
2/28/2003 14,719 14,093 16,117
3/31/2003 14,732 14,106 16,127
4/30/2003 14,827 14,196 16,233
5/31/2003 15,206 14,560 16,613
6/30/2003 15,138 14,494 16,543
7/31/2003 14,481 13,865 15,964
8/31/2003 14,575 13,955 16,083
9/30/2003 14,970 14,334 16,556
10/31/2003 14,946 14,311 16,472
11/30/2003 15,112 14,470 16,644
12/31/2003 15,252 14,604 16,782
1/31/2004 15,356 14,703 16,878
2/29/2004 15,582 14,920 17,132
3/31/2004 15,546 14,885 17,072
4/30/2004 15,128 14,485 16,668
5/31/2004 15,061 14,421 16,608
6/30/2004 15,079 14,438 16,668
7/31/2004 15,295 14,645 16,887
8/31/2004 15,595 14,932 17,226
9/30/2004 15,699 15,032 17,317
10/31/2004 15,840 15,167 17,466
11/30/2004 15,679 15,013 17,322
12/31/2004 15,887 15,212 17,534
1/31/2005 16,078 15,395 17,698
2/28/2005 16,012 15,332 17,639
3/31/2005 15,905 15,229 17,527
4/30/2005 16,193 15,505 17,804
5/31/2005 16,327 15,633 17,930
6/30/2005 16,396 15,699 18,041
7/31/2005 16,289 15,597 17,959
8/31/2005 16,465 15,765 18,141
9/30/2005 16,323 15,631 18,019
Average Annual Total Returns -- September 30, 2005
1 YEAR/5/ 5 YEARS/5/ 10 YEARS/5/
CLASS A (Inception 3/23/84)
Net Asset Value/1/ 3.90% 5.32% 5.02%
With Maximum Sales Charge/2/ -0.54 4.41 4.57
CLASS B (Inception 9/13/93)
Net Asset Value/1/ 3.13 4.62 4.33
With CDSC/4/ -1.87 4.28 4.33
- ----------------------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Lehman Municipal Bond Index/3/ 4.05% 6.34% 6.06%
Morningstar Muni Massachusetts Fund Avg./6/ 2.84 5.42 5.05
Yields as of September 30, 2005
CLASS A CLASS B
SEC 30-day Yield/7/ 2.97% 2.34%
Taxable Equivalent Yield/8/ 4.81 3.79
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of dividends and capital gains. Current returns may be
higher or lower than those shown. For performance current to the most recent
month-end, visit www.ixisadvisorfunds.com.
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
PORTFOLIO FACTS
% of Net Assets as of
CREDIT QUALITY 3/31/05 9/30/05
- ------------------------------------------
Aaa 35.2 36.2
- ------------------------------------------
Aa 28.9 27.1
- ------------------------------------------
A 19.6 18.8
- ------------------------------------------
Baa 9.6 11.8
- ------------------------------------------
Not rated* 3.7 3.9
- ------------------------------------------
Short-term & other 3.0 2.2
- ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service.
* Securities that are not rated by Moody's may be rated by another rating
agency or by Loomis Sayles.
% of Net Assets as of
EFFECTIVE MATURITY 3/31/05 9/30/05
- ----------------------------------------------------
1 year or less 2.4 1.5
- ----------------------------------------------------
1-5 years 7.8 21.3
- ----------------------------------------------------
5-10 years 77.4 64.4
- ----------------------------------------------------
10+ years 12.4 12.8
- ----------------------------------------------------
Average Effective Maturity 7.9 years 7.3 years
- ----------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes the maximum sales charge of 4.25%.
/3/Lehman Municipal Bond Index is an unmanaged index of bonds issued by
municipalities and other government entities having maturities of more than
one year.
/4/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
/5/Fund performance has been increased by expense waivers, without which
performance would have been lower.
/6/Morningstar Muni Massachusetts Fund Average is the average performance
without sales charge of funds with similar investment objectives, as
calculated by Morningstar, Inc.
/7/SEC yield is based on the fund's net investment income over a 30-day period
and is calculated in accordance with SEC guidelines.
/8/Taxable equivalent yield is based on the maximum combined federal and MA
income tax bracket of 38.45%. A portion of income may be subject to federal,
state and/or alternative minimum tax. Capital gains, if any, are subject to
capital gains tax.
8
LOOMIS SAYLES MUNICIPAL INCOME FUND
PORTFOLIO PROFILE
Objective:
Seeks as high a level of current income exempt from federal income taxes as is
consistent with reasonable risk and protection of shareholders' capital
- --------------------------------------------------------------------------------
Strategy:
Invests primarily in municipal securities that pay interest exempt from federal
income tax other than the alternative minimum tax
- --------------------------------------------------------------------------------
Fund Inception:
May 9, 1977
- --------------------------------------------------------------------------------
Managers:
Martha A. Strom
Robert Payne
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
Symbols:
Class A NEFTX
Class B NETBX
- --------------------------------------------------------------------------------
What You Should Know:
Fixed-income securities are subject to credit risk and interest rate risk;
their value generally rises when prevailing interest rates fall and falls when
rates rise. Some income may be subject to federal and state taxes. Capital
gains are fully taxable. Investors may be subject to the Alternative Minimum
Tax (AMT). Lower-rated bonds offer higher risks.
Management Discussion
- --------------------------------------------------------------------------------
Loomis Sayles Municipal Income Fund provided a total return of 3.91% based on
the net asset value of Class A shares and $0.28 in dividends reinvested during
the fiscal year ended September 30, 2005. This was slightly below the 4.05%
return on the Lehman Municipal Bond Index and better than Morningstar's Muni
National Long category, which averaged 3.56% during the period. The fund's
30-day SEC yield at the end of September 2005 was 3.22%, equivalent to 4.95%
adjusted for the maximum federal income tax rate of 35.00%.
MARKET FAVORED LONG-TERM AND INSURED BONDS
Despite the Federal Reserve Board's policy of raising interest rates, bond
yields in general are still low, by historic standards. As a result, many
investors were willing to reach for higher yields from bonds with longer
maturities. These included high-yielding, corporate-backed industrial
development bonds (IDBs) issued for hospitals, healthcare facilities, or
for-profit companies. As short-term interest rates gradually rose in response
to Fed tightening, long-term rates trended irregularly downward during the
fiscal year, causing the yield curve to flatten, as the difference in long-
versus short-term rates narrowed. Although interest rates were volatile during
the period, in general the fund's longer maturity structure was a positive for
the fund.
Many risk-averse individual investors, however, preferred to sacrifice some
yield for relative safety. This intensified demand from individual investors
for municipal bonds that are insured against default. Because it owns
relatively few such issues, this trend was of little benefit to the fund.
CORPORATE-BACKED MUNICIPALS IN DIVERSE AREAS DID WELL
The fund's New York holdings performed particularly well, reflecting strong
demand, as did the fund's Mississippi holdings, in spite of the devastation to
that area caused by Hurricane Katrina. In general, the best-performing bonds in
the fund were those with longer maturities, including IDBs issued for Dallas
Fort Worth International Airport - insured bonds maturing in 2033. The fund
also benefited from two issues that rose in value in response to positive
credit trends. These were IDBs issued for the Highlands County Health
Facilities in Florida, maturing in 2035, and Solid Waste Disposal & Control
bonds issued by Lowndes County, Mississippi, for Weyerhaeuser, maturing in 2022.
MARKET CHARACTERISTICS IMPEDED NEWER ISSUES
Bonds that contributed least to the fund's performance were issued within the
past three months. Demand for longer-term issues with higher yields has been
high, and this was reflected in relatively high prices for some attractive new
issues. However, these same issues weakened when inflation fears clouded the
market outlook. Specific fund holdings that were affected included education
IDBs issued in South Carolina and a Massachusetts bond issued for the Lahey
Clinic Medical Center. Long-term, we believe these holdings will benefit the
fund.
FUND EXTENDING MATURITIES
Previously, the fund had been focused on bonds maturing within the four- to
ten-year maturity range, as a defensive measure. Shorter-term bonds tend to be
less sensitive to changes in interest rates and the Fed has been raising rates
steadily since June of 2004. Recently, however, bonds at the shorter end of the
yield curve have tended to languish, as investors migrated to the longer end of
the market. Consequently, we have been gradually extending the fund's duration
in an effort to lock in income. Although this increases the fund's income, it
will become more sensitive to price changes in the market, and we expect the
Fed to continue to raise interest rates, at least for the balance of 2005. We
look for rates to move in fits and starts. However, overall trends in the
municipal bond market remain fairly stable relative to the broader, taxable
market, so we will continue to seek out opportunities to add to the fund's
income.
9
LOOMIS SAYLES MUNICIPAL INCOME FUND
Investment Results through September 30, 2005
- --------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares
[CHART]
September 30, 1995 through September 30, 2005
Net Asset Maximum Sales Lehman Municipal
Value /1/ Charge /2/ Bond Index /3/
--------- ---------- ----------------
9/30/1995 $10,000 $ 9,550 $10,000
10/31/1995 10,140 9,684 10,145
11/30/1995 10,308 9,844 10,314
12/31/1995 10,388 9,920 10,413
1/31/1996 10,470 9,999 10,492
2/29/1996 10,407 9,939 10,421
3/31/1996 10,288 9,825 10,288
4/30/1996 10,266 9,804 10,258
5/31/1996 10,257 9,796 10,255
6/30/1996 10,374 9,908 10,366
7/31/1996 10,450 9,980 10,460
8/31/1996 10,442 9,972 10,458
9/30/1996 10,617 10,139 10,604
10/31/1996 10,737 10,254 10,724
11/30/1996 10,900 10,410 10,920
12/31/1996 10,868 10,379 10,874
1/31/1997 10,879 10,389 10,895
2/28/1997 10,975 10,481 10,995
3/31/1997 10,836 10,348 10,848
4/30/1997 10,915 10,424 10,939
5/31/1997 11,038 10,542 11,104
6/30/1997 11,192 10,688 11,222
7/31/1997 11,494 10,977 11,533
8/31/1997 11,425 10,911 11,425
9/30/1997 11,521 11,003 11,560
10/31/1997 11,602 11,080 11,634
11/30/1997 11,638 11,114 11,703
12/31/1997 11,798 11,267 11,874
1/31/1998 11,945 11,407 11,996
2/28/1998 11,980 11,441 12,000
3/31/1998 11,998 11,458 12,010
4/30/1998 11,942 11,405 11,956
5/31/1998 12,071 11,528 12,145
6/30/1998 12,122 11,576 12,193
7/31/1998 12,142 11,596 12,224
8/31/1998 12,304 11,750 12,413
9/30/1998 12,403 11,845 12,567
10/31/1998 12,361 11,805 12,567
11/30/1998 12,413 11,855 12,611
12/31/1998 12,428 11,869 12,643
1/31/1999 12,550 11,985 12,793
2/28/1999 12,523 11,960 12,738
3/31/1999 12,528 11,965 12,755
4/30/1999 12,566 12,001 12,787
5/31/1999 12,522 11,959 12,713
6/30/1999 12,379 11,822 12,530
7/31/1999 12,416 11,858 12,575
8/31/1999 12,290 11,737 12,475
9/30/1999 12,295 11,741 12,480
10/31/1999 12,116 11,571 12,345
11/30/1999 12,230 11,680 12,476
12/31/1999 12,085 11,541 12,383
1/31/2000 12,021 11,480 12,329
2/29/2000 12,154 11,607 12,472
3/31/2000 12,341 11,786 12,745
4/30/2000 12,273 11,721 12,670
5/31/2000 12,239 11,688 12,604
6/30/2000 12,463 11,902 12,938
7/31/2000 12,601 12,034 13,118
8/31/2000 12,775 12,200 13,320
9/30/2000 12,741 12,168 13,250
10/31/2000 12,845 12,267 13,395
11/30/2000 12,933 12,351 13,496
12/31/2000 13,146 12,554 13,830
1/31/2001 13,238 12,642 13,967
2/28/2001 13,259 12,663 14,011
3/31/2001 13,368 12,766 14,137
4/30/2001 13,225 12,630 13,984
5/31/2001 13,351 12,750 14,134
6/30/2001 13,457 12,852 14,229
7/31/2001 13,693 13,077 14,440
8/31/2001 13,911 13,285 14,677
9/30/2001 13,671 13,056 14,628
10/31/2001 13,856 13,232 14,802
11/30/2001 13,706 13,089 14,678
12/31/2001 13,539 12,930 14,539
1/31/2002 13,761 13,142 14,791
2/28/2002 13,947 13,319 14,969
3/31/2002 13,718 13,101 14,676
4/30/2002 13,943 13,316 14,963
5/31/2002 14,014 13,384 15,054
6/30/2002 14,145 13,508 15,213
7/31/2002 14,235 13,595 15,408
8/31/2002 14,346 13,701 15,594
9/30/2002 14,576 13,920 15,935
10/31/2002 14,205 13,566 15,671
11/30/2002 14,183 13,544 15,606
12/31/2002 14,529 13,875 15,935
1/31/2003 14,347 13,702 15,895
2/28/2003 14,558 13,903 16,117
3/31/2003 14,551 13,896 16,127
4/30/2003 14,680 14,020 16,233
5/31/2003 15,046 14,369 16,613
6/30/2003 15,014 14,339 16,543
7/31/2003 14,363 13,716 15,964
8/31/2003 14,513 13,860 16,083
9/30/2003 14,947 14,275 16,556
10/31/2003 14,877 14,208 16,472
11/30/2003 15,069 14,391 16,644
12/31/2003 15,202 14,518 16,782
1/31/2004 15,294 14,606 16,878
2/29/2004 15,531 14,833 17,132
3/31/2004 15,521 14,822 17,072
4/30/2004 15,139 14,458 16,668
5/31/2004 15,105 14,426 16,608
6/30/2004 15,115 14,434 16,668
7/31/2004 15,309 14,621 16,887
8/31/2004 15,587 14,885 17,226
9/30/2004 15,677 14,972 17,317
10/31/2004 15,809 15,097 17,466
11/30/2004 15,668 14,963 17,322
12/31/2004 15,864 15,150 17,534
1/31/2005 16,037 15,315 17,698
2/28/2005 15,958 15,240 17,639
3/31/2005 15,856 15,143 17,527
4/30/2005 16,141 15,415 17,804
5/31/2005 16,261 15,529 17,930
6/30/2005 16,355 15,619 18,041
7/31/2005 16,254 15,522 17,959
8/31/2005 16,455 15,715 18,141
9/30/2005 16,287 15,553 18,019
Average Annual Total Returns -- September 30, 2005
1 YEAR 5 YEARS 10 YEARS
CLASS A (Inception 5/9/77)
Net Asset Value/1/ 3.91% 5.04% 5.00%
With Maximum Sales Charge/2/ -0.74 4.09 4.52
CLASS B (Inception 9/13/93)
Net Asset Value/1/ 3.14 4.28 4.23
With CDSC/4/ -1.86 3.94 4.23
- -------------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Lehman Municipal Bond Index/3/ 4.05% 6.34% 6.06%
Morningstar Muni National Long Fund Avg./5/ 3.56 5.52 5.17
Yields as of September 30, 2005
CLASS A CLASS B
SEC 30-day Yield/6/ 3.22% 2.62%
Taxable Equivalent Yield/7/ 4.95 4.02
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of dividends and capital gains. Current returns may be
higher or lower than those shown. Performance history includes performance from
a predecessor fund. For performance current to the most recent month-end, visit
www.ixisadvisorfunds.com.
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
PORTFOLIO FACTS
% of Net Assets as of
CREDIT QUALITY 3/31/05 9/30/05
- ------------------------------------------
Aaa 37.8 35.8
- ------------------------------------------
Aa 11.3 12.8
- ------------------------------------------
A 20.4 24.3
- ------------------------------------------
Baa 15.4 14.6
- ------------------------------------------
Not rated* 12.2 10.7
- ------------------------------------------
Short-term & other 2.9 1.8
- ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service.
* Securities that are not rated by Moody's may be rated by another rating
agency or by Loomis Sayles.
% of Net Assets as of
EFFECTIVE MATURITY 3/31/05 9/30/05
- ----------------------------------------------------
1 year or less 6.7 4.7
- ----------------------------------------------------
1-5 years 9.4 6.8
- ----------------------------------------------------
5-10 years 76.3 76.6
- ----------------------------------------------------
10+ years 7.6 11.9
- ----------------------------------------------------
Average Effective Maturity 7.7 years 8.6 years
- ----------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes the maximum sales charge of 4.50%.
/3/Lehman Municipal Bond Index is an unmanaged index of bonds issued by
municipalities and other government entities having maturities of more than
one year.
/4/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
/5/Morningstar Muni National Long Fund Average is the average performance
without sales charge of funds with similar investment objectives, as
calculated by Morningstar, Inc.
/6/SEC yield is based on the fund's net investment income over a 30-day period
and is calculated in accordance with SEC guidelines.
/7/Taxable equivalent yield is based on the maximum federal income tax bracket
of 35%. A portion of income may be subject to federal, state and/or
alternative minimum tax. Capital gains, if any, are subject to capital gains
tax.
10
LOOMIS SAYLES STRATEGIC INCOME FUND
PORTFOLIO PROFILE
Objective:
Seeks high current income, with a secondary objective of capital growth
- --------------------------------------------------------------------------------
Strategy:
Invests primarily in income-producing securities in the U.S. and around the
world
- --------------------------------------------------------------------------------
Fund Inception:
May 1, 1995
- --------------------------------------------------------------------------------
Managers:
Daniel J. Fuss
Kathleen C. Gaffney
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
Symbols:
Class A NEFZX
Class B NEZBX
Class C NECZX
Class Y NEZYX
- --------------------------------------------------------------------------------
What You Should Know:
Fixed-income securities are subject to credit risk and interest rate risk;
their value generally rises when prevailing interest rates fall and falls when
rates rise. Foreign and emerging market securities have special risks, such as
currency fluctuations, differing political and economic conditions, and
different accounting standards. The fund may also invest in lower-rated bonds
that may offer higher yields in return for more risk.
Management Discussion
- --------------------------------------------------------------------------------
Loomis Sayles Strategic Income Fund's Class A shares provided a total return of
10.20% at net asset value for the fiscal year ended September 30, 2005, with
$0.76 in reinvested dividends. This was significantly ahead of the fund's
benchmark, the Lehman Aggregate Bond Index, which returned 2.80% for the
period. Bear in mind, however, that the fund has greater investment flexibility
than the index. The fund's results were also above the average of Morningstar's
Multisector Bond category, which returned 6.06% for the period. The fund's
30-day SEC yield at the end of September was 3.60%.
ALL MAJOR SECTORS IN POSITIVE TERRITORY
Improving business conditions and stronger credit outlooks attracted investors
to lower-quality bonds in search of higher yields, and these accounted for a
major share of the fund's portfolio. Meanwhile, currency gains against the U.S.
dollar bolstered returns on international issues during the latter part of the
fiscal year. Even the weakest market sectors during the period - U.S.
government issues and higher-quality, lower yielding U.S. corporate bonds -
recorded modest gains. The portfolio's country allocations also added to
results. Careful security selection underpinned strong returns among the fund's
U.S. holdings, which make up the bulk of the portfolio. Canada, rich in oil,
and the fund's second-largest country commitment during the past year, was
another significant contributor. Improving business conditions also aided
results in Mexico and other developing economies where a stronger currency was
also a factor. South Africa, Norway, and Sweden all made small contributions.
Healthier finances keyed good results in technology, one of the strongest
market sectors. The automotive sector detracted minimally from returns, despite
ratings downgrades of Ford and General Motors. Contributions from financial
areas - banking and brokerage - were marginally positive.
STRONG CURRENCIES, BETTER CREDITS, BOOSTED OVERSEAS RESULTS
Creditworthiness has been improving in several countries. As a result,
sovereigns - bonds issued by foreign governments - led the portfolio's sector
allocations, followed by bonds of local authorities. Among individual holdings,
Mexican bonos (bonds issued by the United Mexican States) were the period's
leading performers thanks to the peso's rise. Bonds of the Inter-American
Development Bank were another leading contributor. The value of these bonds is
linked to strength in Brazil's real. Demand for oil outstripped supply and
pushed prices higher on world markets, benefiting the Canadian dollar and
providing impetus for Canada's government issues.
CREDIT CONCERNS UNDERCUT SOME ISSUES
Heavy debt and a deteriorating cash position drove down bonds issued by San
Francisco-based Calpine, a leading independent energy producer. Auto-parts
giant, Delphi Corporation, sought Chapter 11 protection shortly after the end
of the fiscal period; the company is working on a turnaround, but its bonds
fell in price sharply. Concerns over its weakening credit position weighed on
bonds issued by London's venerable Barclays Bank, another fund holding.
FUND IS CAUTIOUSLY POSITIONED AS INTEREST RATES RISE
We have been adjusting the portfolio in an effort to temper the effects of
rising interest rates by reducing its average maturity. We also cut back the
portfolio's duration, limiting its sensitivity to changes in rates. Our
reasoning is that the Federal Reserve Board's steps to quell inflation by
raising short-term interest rates may also sap some of the economy's strength.
High energy prices and the impact of the Gulf hurricanes are also likely to
dampen economic expectations for a time. But the massive recovery efforts that
are already taking shape may boost the economy before long, and energy prices
had begun to fall as the period ended. Credit spreads - the yield advantage of
corporate bonds over Treasury issues of comparable maturity - have continued to
narrow as prices pushed higher. Looking ahead, we believe credit conditions
should remain favorable for corporate issues and are looking carefully at BB-
and B-rated issues, where risk-adjusted yields remain favorable compared to
CCC-rated bonds. We are also maintaining our level of commitment to selected
emerging markets where economic growth continues.
11
LOOMIS SAYLES STRATEGIC INCOME FUND
Investment Results through September 30, 2005
- --------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares/7/
[CHART]
Septenber 30, 1995 through September 30, 2005
Lehman
Net Asset Maximum Sales Lehman Aggregate Universal Bond
Value /1/ Charge /2/ Bond Index /3/ Index /4/
--------- ------------- ---------------- ---------------
9/30/1995 $10,000 $ 9,550 $10,000 $10,000
10/31/1995 9,946 9,498 10,130 10,123
11/30/1995 10,227 9,767 10,282 10,277
12/31/1995 10,603 10,126 10,426 10,431
1/31/1996 10,856 10,368 10,495 10,522
2/29/1996 10,561 10,086 10,313 10,341
3/31/1996 10,636 10,157 10,241 10,276
4/30/1996 10,620 10,142 10,184 10,234
5/31/1996 10,789 10,303 10,163 10,220
6/30/1996 10,933 10,441 10,299 10,357
7/31/1996 10,912 10,421 10,328 10,386
8/31/1996 11,112 10,612 10,310 10,383
9/30/1996 11,501 10,984 10,490 10,573
10/31/1996 11,830 11,298 10,722 10,793
11/30/1996 12,310 11,756 10,906 10,984
12/31/1996 12,139 11,593 10,805 10,896
1/31/1997 12,175 11,627 10,838 10,943
2/28/1997 12,367 11,810 10,865 10,981
3/31/1997 12,232 11,682 10,744 10,853
4/30/1997 12,310 11,756 10,905 11,017
5/31/1997 12,575 12,009 11,008 11,134
6/30/1997 12,861 12,282 11,139 11,270
7/31/1997 13,439 12,834 11,439 11,578
8/31/1997 13,093 12,503 11,342 11,482
9/30/1997 13,555 12,945 11,509 11,659
10/31/1997 13,270 12,673 11,676 11,770
11/30/1997 13,342 12,741 11,730 11,835
12/31/1997 13,274 12,676 11,848 11,961
1/31/1998 13,490 12,883 12,000 12,111
2/28/1998 13,737 13,119 11,991 12,120
3/31/1998 14,031 13,399 12,032 12,176
4/30/1998 14,035 13,403 12,095 12,238
5/31/1998 13,806 13,185 12,210 12,326
6/30/1998 13,587 12,975 12,313 12,407
7/31/1998 13,417 12,813 12,339 12,437
8/31/1998 11,769 11,240 12,540 12,436
9/30/1998 12,151 11,604 12,834 12,731
10/31/1998 12,282 11,729 12,766 12,679
11/30/1998 13,106 12,516 12,838 12,805
12/31/1998 13,046 12,459 12,877 12,834
1/31/1999 13,271 12,674 12,969 12,920
2/28/1999 13,082 12,493 12,742 12,715
3/31/1999 13,772 13,153 12,813 12,812
4/30/1999 14,655 13,996 12,854 12,888
5/31/1999 14,201 13,562 12,741 12,758
6/30/1999 14,242 13,601 12,701 12,735
7/31/1999 13,961 13,333 12,646 12,683
8/31/1999 13,787 13,167 12,640 12,669
9/30/1999 13,875 13,251 12,787 12,806
10/31/1999 13,992 13,362 12,834 12,860
11/30/1999 14,245 13,604 12,833 12,881
12/31/1999 14,632 13,974 12,771 12,856
1/31/2000 14,496 13,844 12,729 12,813
2/29/2000 15,068 14,389 12,883 12,976
3/31/2000 15,220 14,535 13,053 13,127
4/30/2000 14,784 14,119 13,016 13,086
5/31/2000 14,307 13,663 13,010 13,062
6/30/2000 14,852 14,184 13,280 13,343
7/31/2000 14,983 14,308 13,401 13,472
8/31/2000 15,312 14,623 13,595 13,669
9/30/2000 14,908 14,237 13,681 13,739
10/31/2000 14,301 13,658 13,771 13,793
11/30/2000 14,227 13,587 13,996 13,979
12/31/2000 14,732 14,069 14,256 14,247
1/31/2001 15,200 14,516 14,489 14,526
2/28/2001 15,178 14,495 14,615 14,648
3/31/2001 14,604 13,947 14,689 14,697
4/30/2001 14,366 13,719 14,628 14,632
5/31/2001 14,686 14,025 14,716 14,737
6/30/2001 14,647 13,987 14,771 14,779
7/31/2001 14,657 13,997 15,102 15,069
8/31/2001 14,981 14,307 15,275 15,258
9/30/2001 14,238 13,597 15,453 15,368
10/31/2001 14,574 13,918 15,776 15,677
11/30/2001 14,781 14,116 15,558 15,493
12/31/2001 14,713 14,051 15,460 15,400
1/31/2002 14,880 14,211 15,585 15,530
2/28/2002 15,059 14,381 15,736 15,675
3/31/2002 15,232 14,547 15,474 15,448
4/30/2002 15,601 14,899 15,774 15,743
5/31/2002 15,931 15,215 15,908 15,861
6/30/2002 15,678 14,973 16,046 15,919
7/31/2002 15,307 14,618 16,239 16,054
8/31/2002 15,735 15,027 16,514 16,350
9/30/2002 15,523 14,824 16,781 16,584
10/31/2002 15,832 15,119 16,705 16,527
11/30/2002 16,424 15,685 16,700 16,572
12/31/2002 16,992 16,227 17,045 16,915
1/31/2003 17,470 16,683 17,060 16,961
2/28/2003 17,941 17,134 17,296 17,202
3/31/2003 18,115 17,300 17,282 17,219
4/30/2003 19,155 18,293 17,425 17,422
5/31/2003 20,113 19,208 17,750 17,755
6/30/2003 20,366 19,450 17,715 17,751
7/31/2003 19,812 18,921 17,119 17,180
8/31/2003 20,040 19,138 17,233 17,303
9/30/2003 21,020 20,074 17,689 17,764
10/31/2003 21,495 20,528 17,524 17,637
11/30/2003 22,093 21,099 17,566 17,698
12/31/2003 22,912 21,881 17,745 17,900
1/31/2004 23,320 22,271 17,887 18,054
2/29/2004 23,304 22,255 18,081 18,232
3/31/2004 23,609 22,547 18,216 18,378
4/30/2004 22,629 21,611 17,742 17,908
5/31/2004 22,251 21,250 17,671 17,816
6/30/2004 22,674 21,654 17,771 17,930
7/31/2004 22,894 21,864 17,947 18,120
8/31/2004 23,599 22,537 18,290 18,479
9/30/2004 24,218 23,128 18,339 18,551
10/31/2004 24,792 23,676 18,493 18,721
11/30/2004 25,387 24,244 18,346 18,605
12/31/2004 25,876 24,712 18,514 18,789
1/31/2005 25,688 24,532 18,631 18,897
2/28/2005 26,024 24,853 18,521 18,820
3/31/2005 25,597 24,445 18,426 18,682
4/30/2005 25,395 24,252 18,675 18,910
5/31/2005 25,649 24,495 18,877 19,131
6/30/2005 26,131 24,955 18,980 19,261
7/31/2005 26,359 25,172 18,807 19,122
8/31/2005 26,664 25,464 19,048 19,357
9/30/2005 26,671 25,471 18,852 19,176
Average Annual Total Returns -- September 30, 2005
SINCE
1 YEAR 5 YEARS/7/ 10 YEARS/7/ INCEPTION/7/
CLASS A (Inception 5/1/95)
Net Asset Value/1/ 10.20% 12.34% 10.31% --
With Maximum Sales Charge/2/ 5.24 11.31 9.80 --
CLASS B (Inception 5/1/95)
Net Asset Value/1/ 9.46 11.50 9.48 --
With CDSC/5/ 4.46 11.24 9.48 --
CLASS C (Inception 5/1/95)
Net Asset Value/1/ 9.45 11.52 9.49 --
With CDSC/5/ 8.45 11.52 9.49 --
CLASS Y (Inception 12/1/99)
Net Asset Value/1/ 10.51 12.70 -- 11.71%
- ------------------------------------------------------------------------------------
SINCE
CLASS Y
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/8/
Lehman Aggregate Bond Index/3/ 2.80% 6.62% 6.55% 7.01%
Lehman U.S. Universal Bond Index/4/ 3.37 6.90 6.73 7.20
Morningstar Multisector Bond Fund Avg./6/ 6.06 7.49 6.72 6.58
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of dividends and capital gains. Current returns may be
higher or lower than those shown. Performance history includes periods from a
predecessor fund. For performance current to the most recent month-end, visit
www.ixisadvisorfunds.com. Class Y shares are available to certain institutional
investors only.
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
PORTFOLIO FACTS
% of Net Assets as of
CREDIT QUALITY 3/31/05 9/30/05
- ------------------------------------------
Aaa 36.4 35.1
- ------------------------------------------
Aa 12.1 9.9
- ------------------------------------------
A 0.6 0.5
- ------------------------------------------
Baa 3.0 4.0
- ------------------------------------------
Ba 8.9 8.7
- ------------------------------------------
B 15.1 10.2
- ------------------------------------------
Caa 7.9 7.2
- ------------------------------------------
Ca 0.9 0.8
- ------------------------------------------
C -- 0.2
- ------------------------------------------
Not rated* 11.3 14.6
- ------------------------------------------
Short-term & other 3.8 8.8
- ------------------------------------------
Credit quality is based on ratings from Moody's Investor Service.
* Securities that are not rated by Moody's may be rated by another rating
agency or by Loomis Sayles.
% of Net Assets as of
EFFECTIVE MATURITY 3/31/05 9/30/05
- --------------------------------------------------
1 year or less 4.1 10.5
- --------------------------------------------------
1-5 years 50.2 48.8
- --------------------------------------------------
5-10 years 21.9 17.7
- --------------------------------------------------
10+ years 23.8 23.0
- --------------------------------------------------
Average Effective Maturity 8.4 years 8.1 years
- --------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes the maximum sales charge of 4.50%.
/3/Lehman Aggregate Bond Index is an unmanaged index of investment-grade bonds
with one- to ten-year maturities issued by the U.S. government, its agencies
and U.S. corporations.
/4/Lehman U.S. Universal Bond Index is an unmanaged index representing a blend
of the Lehman Aggregate Bond Index, the High Yield Index, and the Emerging
Market Indexes, among other indexes.
/5/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
Class C share performance assumes a 1.00% CDSC applied when you sell shares
within one year of purchase.
/6/Morningstar Multisector Bond Fund Average is the average performance without
sales charge of funds with similar investment objectives, as calculated by
Morningstar, Inc.
/7/Fund performance has been increased by expense waivers, without which
performance would have been lower.
/8/The since-inception comparative performance figures shown for Class Y are
calculated from 12/31/99.
12
ADDITIONAL INFORMATION
The views expressed in this report reflect those of the portfolio managers as
of the dates indicated. The managers' views are subject to change at any time
without notice based on changes in market or other conditions. References to
specific securities or industries should not be regarded as investment advice.
Because the funds are actively managed, there is no assurance that they will
continue to invest in the securities or industries mentioned.
For more complete information on any IXIS Advisor Fund, contact your financial
professional or call IXIS Advisor Funds and ask for a free prospectus, which
contains more complete information including charges and other ongoing
expenses. Investors should consider a fund's objective, risks and expenses
carefully before investing. This and other fund information can be found in the
prospectus. Please read the prospectus carefully before investing.
PROXY VOTING INFORMATION
A description of the funds' proxy voting policies and procedures is available
without charge, upon request, by calling IXIS Advisor Funds at 800-225-5478; on
the funds' website at www.ixisadvisorfunds.com; and on the Securities and
Exchange Commission's website at www.sec.gov. Information regarding how the
funds voted proxies relating to portfolio securities during the 12-month period
ended June 30, 2005 is available from the funds' website and the SEC's website.
QUARTERLY PORTFOLIO SCHEDULES
The funds file a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
13
UNDERSTANDING YOUR FUNDS' EXPENSES
As a mutual fund shareholder, you incur different costs: transaction costs,
including sales charges (loads) on purchases, redemption fees and certain
exchange fees and ongoing costs, including management fees, distribution and/or
service fees (12b-1 fees), and other fund expenses. In addition, each fund
assesses a minimum balance fee of $20 on an annual basis for accounts that fall
below the required minimum to establish an account. Certain exemptions may
apply. These costs are described in more detail in the funds' prospectus. The
examples below are intended to help you understand the ongoing costs of
investing in the funds and help you compare these with the ongoing costs of
investing in other mutual funds.
The first line in the table of each Class of fund shares shows the actual
account values and actual fund expenses you would have paid on a $1,000
investment in the fund from April 1, 2005 through September 30, 2005. To
estimate the expenses you paid over the period, simply divide your account
value by $1,000 (for example $8,600 account value divided by $1,000 = $8.60)
and multiply the result by the number in the Expenses Paid During Period column
as shown below for your Class.
The second line in the table of each Class of fund shares provides information
about hypothetical account values and hypothetical expenses based on the fund's
actual expense ratios and an assumed rate of return of 5% per year before
expenses, which is not the fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid on your investment for the period. You may use
this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown reflect ongoing costs only, and do not
include any transaction costs such as sales charges, redemption fees, or
exchange fees. Therefore, the second line in the table of each fund is useful
in comparing ongoing costs only, and will not help you determine the relative
costs of owning different funds. If transaction costs were included, total
costs would be higher.
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES CORE PLUS BOND FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,017.90 $5.56
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,019.60 $5.57
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,013.60 $9.34
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.80 $9.35
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,013.60 $9.34
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.80 $9.35
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,019.00 $4.30
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.80 $4.31
*Expenses are equal to the fund's annualized expense ratio (after advisory fee
waiver): 1.10%, 1.85%, 1.85% and 0.85% for Class A, B, C and Y, respectively,
multiplied by the average account value over the period, multiplied by the
number of days in the most recent fiscal half-year divided by 365 (to relect
the half-year period).
14
UNDERSTANDING YOUR FUNDS' EXPENSES
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES HIGH INCOME FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,048.30 $8.22
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,017.00 $8.09
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,044.40 $12.04
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,013.30 $11.86
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,044.40 $12.04
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,013.30 $11.86
*Expenses are equal to the fund's annualized expense ratio (after advisory fee
waiver): 1.60%, 2.35% and 2.35% for Class A, B and C, respectively, multiplied
by the average account value over the period, multiplied by the number of days
in the most recent fiscal half-year divided by 365 (to relect the half-year
period).
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
AGENCY FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- -------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,012.10 $6.25
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,018.90 $6.28
- -------------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,008.30 $10.02
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.10 $10.05
- -------------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,008.30 $10.02
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.10 $10.05
- -------------------------------------------------------------------------------------------------------------------
CLASS Y
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,013.70 $4.34
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.80 $4.36
*Expenses are equal to the fund's annualized expense ratio: 1.24%, 1.99%, 1.99%
and 0.86% for Class A, B, C and Y (after transfer agent fee waiver),
respectively, multiplied by the average account value over the period,
multiplied by the number of days in the most recent fiscal half-year divided
by 365 (to relect the half-year period).
15
UNDERSTANDING YOUR FUNDS' EXPENSES
LOOMIS SAYLES MASSACHUSETTS TAX FREE BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
INCOME FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,025.70 $5.99
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,019.20 $5.97
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,021.20 $9.78
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.40 $9.75
*Expenses are equal to the fund's annualized expense ratio (after advisory fee
waiver): 1.18% and 1.93% for Class A and B, respectively, multiplied by the
average account value over the period, multiplied by the number of days in the
most recent fiscal half-year divided by 365 (to relect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES MUNICIPAL INCOME FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,027.30 $5.18
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.00 $5.17
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,023.50 $8.98
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.20 $8.95
*Expenses are equal to the fund's annualized expense ratio: 1.02% and 1.77% for
Class A and B, respectively, multiplied by the average account value over the
period, multiplied by the number of days in the most recent fiscal half-year
divided by 365 (to relect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES STRATEGIC INCOME FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,042.60 $6.35
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,018.90 $6.28
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,039.40 $10.17
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.10 $10.05
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,039.40 $10.17
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.10 $10.05
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,044.90 $4.77
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.40 $4.71
*Expenses are equal to the fund's annualized expense ratio: 1.24%, 1.99%, 1.99%
and 0.93% for Class A, B, C and Y, respectively, multiplied by the average
account value over the period, multiplied by the number of days in the most
recent fiscal half-year divided by 365 (to relect the half-year period).
16
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS
The Board of Trustees, including the Independent Trustees, considers matters
bearing on each Fund's advisory agreement(s) (including advisory administration
agreements) (the "Agreements") at most of its meetings throughout the year.
Once a year, usually in the spring, the Contract Review and Governance
Committee of the Board meets to review the Agreements to determine whether to
recommend that the full Board approve the continuation of the Agreements for an
additional one-year period. After the Committee has made its recommendation,
the full Board, including the Independent Trustees, determines whether to
approve the continuation of the Agreements.
In connection with these meetings, the Trustees receive materials that the
Funds' investment advisers believe to be reasonably necessary for the Trustees
to evaluate the Agreements. These materials generally include, among other
items, (i) information on the investment performance of the Funds and the
performance of peer groups of funds and the Funds' performance benchmarks,
(ii) information on the Funds' advisory fees and other expenses, including
information comparing the Funds' expenses to those of peer groups of funds and
information about any applicable expense caps and fee "breakpoints,"
(iii) sales and redemption data in respect of the Funds, (iv) information about
the profitability of the Agreements to the Funds' advisers (the "Advisers"),
and (v) information obtained through the completion of a questionnaire by the
Advisers (the Trustees are consulted as to the information requested through
that questionnaire). The Board of Trustees, including the Independent Trustees,
may also consider other material facts such as (i) the Advisers' financial
results and financial condition, (ii) each Fund's investment objective and
strategies and the size, education and experience of each Adviser's investment
and/or administrative staff and its use of technology, external research and
trading cost measurement tools, (iii) arrangements in respect of the
distribution of the Funds' shares, (iv) the procedures employed to determine
the value of the Funds' assets, (v) the allocation of the Funds' brokerage, if
any, including allocations to brokers affiliated with an Adviser and the use of
"soft" commission dollars to pay Fund expenses and to pay for research and
other similar services, (vi) the resources devoted to, and the record of
compliance with, the Funds' investment policies and restrictions, policies on
personal securities transactions and other compliance policies, and (vii) the
general economic outlook with particular emphasis on the mutual fund industry.
Throughout the process, the Trustees are afforded the opportunity to ask
questions of and request additional materials from the Advisers and their
affiliates.
The Board of Trustees most recently approved the continuation of the Agreements
at their meeting held in May, 2005. In considering whether to approve the
continuation of the Agreements, the Board of Trustees, including the
Independent Trustees, did not identify any single factor as determinative.
Matters considered by the Trustees, including the Independent Trustees, in
connection with their approval of the Agreements included the following:
The nature, extent and quality of the services provided to the Funds under the
Agreements. The Trustees considered the nature, extent and quality of the
services provided by the Advisers and their affiliates to the Funds and the
resources dedicated to the Funds by the Advisers and their affiliates. The
Trustees considered not only the advisory services provided by Loomis Sayles to
the Funds, but also the monitoring and oversight services provided by IXIS
Advisors with respect to the Funds for which IXIS Advisors provides advisory
oversight services. For each Fund, the Trustees also considered the benefits to
shareholders of investing in a mutual fund that is part of a family of funds
offering a variety of investment disciplines and providing for a variety of
fund and shareholder services. After reviewing these and related factors, the
Trustees concluded, within the context of their overall conclusions regarding
each of the Agreements, that the nature, extent and quality of services
provided supported the renewal of the Agreements.
Investment performance of the Funds and the Advisers. As noted above, the
Trustees received information about the performance of the Funds over various
time periods, including information which compared the performance of the Funds
to the performance of peer groups of funds and the Funds' respective
performance benchmarks. In addition, the Trustees also reviewed data prepared
by an independent third party which analyzed the performance of the Funds using
a variety of performance metrics, including metrics which also measured the
performance of the Funds on a risk adjusted basis. After reviewing the
information with respect to each Fund, the Board concluded that the Fund's
performance supported the renewal of the Agreements relating to that Fund. The
Trustees also considered each Adviser's performance and reputation generally,
these Funds' performance as a fund family generally, and the historical
responsiveness of the Advisers and their affiliates to Trustee concerns about
performance and the willingness of the Advisers to take steps intended to
improve performance.
After reviewing these and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
performance of the Funds and the Advisers supported the renewal of the
Agreements.
The costs of the services to be provided and profits to be realized by the
Advisers and their affiliates from their respective relationships with the
Funds. The Trustees considered the fees charged to the Funds for advisory
services as well as the total expense levels of the Funds.
17
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS (continued)
This information included comparisons (provided both by management and also by
an independent third party) of the Funds' advisory fees and total expense
levels to those of their peer groups and information about the advisory fees
charged by the Advisers to comparable accounts. In considering the fees charged
to comparable accounts, the Trustees considered, among other things,
management's representations about the differences between managing mutual
funds as compared to other types of accounts, including the additional
resources required to effectively manage mutual fund assets. In evaluating each
Fund's advisory fees, the Trustees also took into account the demands,
complexity and quality of the investment management of such Fund. The Trustees
considered management's recommendations regarding reductions of expense caps,
which impacted three of the Funds and resulted in substantial estimated annual
savings to the Funds. The Trustees noted that the Loomis Sayles Strategic
Income Fund, the Loomis Sayles High Income Fund and the Loomis Sayles
Massachusetts Tax Free Income Fund had total expense ratios and advisory fee
rates that were at or above the median of a peer group of Funds. The Trustees
also noted management's stated justification for the fees charged to the funds,
which included information about the performance of the Funds, the services
provided to the Funds and management's view as to why it was appropriate that
some funds bear advisory fees greater than their peer group median.
The Trustees also considered the compensation directly or indirectly received
by the Advisers and their affiliates from their relationships with the Funds.
The Trustees reviewed information provided by management as to the
profitability of the Advisers and their affiliates' relationships with the
Funds, and information about the allocation of expenses used to calculate
profitability. When reviewing profitability, the Trustees also considered
information about court cases in which adviser profitability was an issue in
whole or in part, the performance of the relevant Funds, the expense levels of
the Funds, and whether the Advisers had implemented breakpoints and/or expense
caps with respect to such Funds. For the Loomis Sayles Strategic Income Fund,
after discussing these issues with the Trustees, Fund management proposed an
additional breakpoint for that Fund.
After reviewing these and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fee charged to each of the Funds was fair and reasonable, and that the
costs of these services generally and the related profitability of the Advisers
and their affiliates in respect of their relationships with the Funds supported
the renewal of the Agreements.
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision of services by the Advisers and whether those economies
are shared with the Funds through breakpoints in their investment advisory fee
or other means, such as expense waivers. The Trustees noted that the Funds
benefited from breakpoints and/or expense caps. In considering these issues,
the Trustees also took note of the costs of the services provided (both on an
absolute and a relative basis) and the profitability to the Advisers and their
affiliates of their relationships with the Funds, as discussed above.
After reviewing these and related factors, the Trustees considered, within the
context of their overall conclusions regarding each of the Agreements, that the
extent to which economies of scale were shared with the Funds supported the
renewal of the Agreements.
The Trustees also considered other factors, which included but were not limited
to the following:
.. whether each Fund has operated in accordance with its investment objective
and the Fund's record of compliance with its investment restrictions, and
the compliance programs of the Funds and the Advisers. They also considered
the compliance related resources the Advisers and their affiliates were
providing to the Funds.
.. the nature, quality, cost and extent of administrative and shareholder
services performed by the Advisers and their affiliates, both under the
Agreements and under separate agreements covering transfer agency and
administrative services.
.. so-called "fallout benefits" to the Advisers and their affiliates, such as
the engagement of affiliates of the Advisers to provide distribution,
brokerage and transfer agency services to the Funds, and the benefits of
research made available to the Advisers by reason of brokerage commissions
generated by the Funds' securities transactions. The Trustees also
considered the fact that Loomis Sayles' parent company benefits from the
retention of affiliated Advisers. The Trustees considered the possible
conflicts of interest associated with these fallout and other benefits, and
the reporting, disclosure and other processes in place to disclose and
monitor such possible conflicts of interest.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees,
concluded that each of the existing advisory agreements should be continued
through June 30, 2006.
18
LOOMIS SAYLES CORE PLUS BOND FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- ----------------------------------------------------------------------------------------------
Bonds and Notes -- 98.0% of Total Net Assets
Aerospace & Defense -- 0.6%
$ 1,400,000 Northrop Grumman Corp.
7.125%, 2/15/2011 $ 1,547,196
---------------
Asset Backed Securities -- 8.1%
2,000,000 American Express Credit Account Master Trust, Series 2003-4,
Class A
1.690%, 1/15/2009 1,962,438
690,000 AmeriCredit Automobile Receivables Trust, Series 2003-D-M,
Class A-4
2.840%, 8/06/2010 677,566
2,595,000 AmeriCredit Automobile Receivables Trust, Series 2005-CF,
Class A3
4.470%, 5/06/2010 2,592,622
3,755,000 BMW Vehicle Owner Trust, Series 2004-A, Class A4
3.320%, 2/25/2009 3,686,032
1,275,000 Citibank Credit Card Issuance Trust, Series 2003-A2, Class A2
2.700%, 1/15/2008 1,269,585
3,430,000 Countrywide Asset-Backed Certificates, Series 2003-5, Class AF4
4.905%, 8/25/2032 3,425,032
790,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A2
3.872%, 3/25/2020 777,180
1,095,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3
4.615%, 2/25/2035 1,072,598
1,730,000 Ford Credit Auto Owner Trust, Series 2004-A, Class A4
3.540%, 11/15/2008 1,699,695
1,850,000 Residential Asset Securities Corp., Series 2003-KS10, Class A14
4.470%, 3/25/2032 1,842,579
1,000,000 WFS Financial Owner Trust, Series 2004-4, Class A3
2.980%, 9/17/2009 984,125
515,000 WFS Financial Owner Trust, Series 2004-4, Class A4
3.440%, 5/17/2012 502,762
---------------
20,492,214
---------------
Automotive -- 2.3%
1,510,000 Ford Motor Credit Co., Global Note
5.625%, 10/01/2008 1,426,894
1,565,000 General Motors Acceptance Corp.
8.000%, 11/01/2031 1,366,509
2,880,000 Navistar International Corp., Senior Subordinated Note
9.375%, 6/01/2006 2,937,600
---------------
5,731,003
---------------
Banking -- 1.4%
1,400,000 Chevy Chase Bank FSB, Subordinated Note
6.875%, 12/01/2013 1,438,500
715,000 JPMorgan Chase & Co., Global Subordinated Note
5.750%, 1/02/2013 743,534
1,200,000 State Street Institutional Capital A, Series A, Guaranteed Note,
144A
7.940%, 12/30/2026 1,284,085
---------------
3,466,119
---------------
Beverage -- 1.5%
3,125,000 Cia Brasileira de Bebidas, Guaranteed Note
8.750%, 9/15/2013 3,710,937
---------------
Brokerage -- 1.1%
675,000 Goldman Sachs Group, Inc., Senior Note
6.600%, 1/15/2012 731,740
1,995,000 Lehman Brothers Holdings, Inc.
7.000%, 2/01/2008 2,094,325
---------------
2,826,065
---------------
Principal
Amount + Description Value (a)
- ----------------------------------------------------------------------------------
Chemicals -- 1.5%
$ 1,470,000 ICI Wilmington, Inc., Guaranteed Note
5.625%, 12/01/2013 $ 1,483,749
1,615,000 Lubrizol Corp.
6.500%, 10/01/2034 1,693,271
600,000 Methanex Corp., Senior Note
6.000%, 8/15/2015 585,669
---------------
3,762,689
---------------
Construction Machinery -- 0.7%
1,600,000 Case New Holland, Inc., Senior Note
9.250%, 8/01/2011 1,692,000
---------------
Consumer Products -- 0.9%
865,000 Church & Dwight Co., Inc.
6.000%, 12/15/2012 843,375
1,375,000 Jostens IH Corp., Senior Subordinated Note
7.625%, 10/01/2012 1,388,750
---------------
2,232,125
---------------
Electric -- 2.6%
1,455,000 Duke Energy Corp., Senior Note
4.200%, 10/01/2008 1,432,580
2,030,000 Empresa Nacional de Electricidad SA, Chile
8.350%, 8/01/2013 2,310,777
1,325,000 Enersis SA, Chile
7.375%, 1/15/2014 1,400,041
1,325,000 Ipalco Enterprises, Inc., Senior Secured Note
7.375%, 11/14/2008 1,404,500
---------------
6,547,898
---------------
Food and Beverage -- 0.8%
225,000 Kraft Foods, Inc.
5.250%, 10/01/2013 227,485
1,675,000 Kraft Foods, Inc.
5.625%, 11/01/2011 1,730,640
---------------
1,958,125
---------------
Foreign Local Governments -- 2.9%
3,000,000 Pemex Finance, Ltd., Series 1998, Class 18NT
9.150%, 11/15/2018 3,765,510
3,265,000 Pemex Project Funding Master Trust
7.875%, 2/01/2009 3,534,362
---------------
7,299,872
---------------
Gaming -- 0.5%
450,000 Harrah's Operating Co., Inc., Guaranteed Senior Note
7.500%, 1/15/2009 482,915
770,000 Harrah's Operating Co., Inc., Senior Note
7.125%, 6/01/2007 797,477
---------------
1,280,392
---------------
Government Agencies -- 8.2%
10,400,000 FHLMC
2.875%, 12/15/2006 10,215,494
2,750,000 FHLMC
3.220%, 6/20/2007 (SGD) 1,646,700
140,000,000 FNMA
1.750%, 3/26/2008 (JPY) 1,275,395
6,600,000 FNMA
2.290%, 2/19/2009 (SGD) 3,866,284
3,710,000 FNMA
5.250%, 1/15/2009(c) 3,795,668
---------------
20,799,541
---------------
See accompanying notes to financial statements.
19
LOOMIS SAYLES CORE PLUS BOND FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- -----------------------------------------------------------------------------------------
Healthcare -- 1.5%
$ 1,510,000 Aetna, Inc., Senior Note
7.875%, 3/01/2011 $ 1,720,983
765,000 AmerisourceBergen Corp., Senior Note, 144A
5.875%, 9/15/2015 755,437
1,315,000 WellPoint, Inc.
3.750%, 12/14/2007 1,288,241
---------------
3,764,661
---------------
Home Construction -- 1.1%
1,405,000 Desarrolladora Homex SA de CV, Guaranteed Senior Note, 144A
7.500%, 9/28/2015 1,405,000
1,315,000 Pulte Homes, Inc., Senior Note
4.875%, 7/15/2009 1,301,040
---------------
2,706,040
---------------
Independent Energy -- 0.6%
480,000 Chesapeake Energy Corp., Senior Note
6.375%, 6/15/2015 482,400
990,000 Pioneer Natural Resources Co., Senior Note
6.500%, 1/15/2008 1,016,480
---------------
1,498,880
---------------
Industrial Other -- 1.1%
2,865,000 Aramark Services, Inc., Guaranteed Note
7.000%, 7/15/2006 2,903,414
---------------
Insurance -- 0.5%
1,325,000 Axis Capital Holdings
5.750%, 12/01/2014 1,314,852
---------------
Media Cable -- 2.6%
2,000,000 CSC Holdings, Inc., Senior Note
7.625%, 7/15/2018 1,870,000
515,000 CSC Holdings, Inc., Senior Note
7.875%, 2/15/2018 491,825
1,540,000 Rogers Cable, Inc.
6.750%, 3/15/2015 1,543,850
2,920,000 Shaw Communications, Inc., Senior Note
7.400%, 10/17/2007 (CAD) 2,652,911
---------------
6,558,586
---------------
Media Non-Cable -- 2.6%
1,435,000 Clear Channel Communications, Inc., Global Note
4.250%, 5/15/2009 1,383,989
620,000 Cox Communications, Inc.
5.450%, 12/15/2014 615,967
2,265,000 Cox Communications, Inc.
7.750%, 11/01/2010 2,506,377
540,000 Reed Elsevier Capital, Inc.
4.625%, 6/15/2012 524,578
1,290,000 Time Warner, Inc.
7.700%, 5/01/2032 1,527,262
---------------
6,558,173
---------------
Metals and Mining -- 0.9%
2,300,000 International Steel Group, Inc.
6.500%, 4/15/2014 2,277,000
70,000 Texas Industries, Inc., Senior Note, 144A
7.250%, 7/15/2013 72,800
---------------
2,349,800
---------------
Principal
Amount + Description Value (a)
- -----------------------------------------------------------------------------------------
Mortgage Backed Securities -- 3.0%
$ 1,500,000 GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A
4.751%, 7/10/2039 $ 1,471,523
1,710,000 LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class A3
4.647%, 7/15/2030 1,682,184
2,400,000 Morgan Stanley Capital I, Series 2005-T19, Class A4A
4.890%, 6/12/2047 2,373,966
2,195,000 Wachovia Bank Commercial Mortgage Trust, Series 2005-C20,
Class A2
4.519%, 7/15/2042 2,158,277
---------------
7,685,950
---------------
Mortgage Related -- 26.4%
2,624,414 FHLMC
4.000%, 7/01/2019 2,521,989
7,626,937 FHLMC
4.500%, with various maturities to 2034(d) 7,403,123
9,233,649 FHLMC
5.000%, with various maturities to 2035(d) 9,101,702
2,220,550 FHLMC
5.500%, with various maturities to 2018(d) 2,253,606
318,840 FHLMC
6.000%, 6/01/2035 324,438
2,565,000 FHLMC (TBA)
5.000%, 10/01/2035 2,509,693
1,028,879 FNMA
4.000%, 6/01/2019 990,755
4,462,185 FNMA
4.500%, 9/01/2019 4,372,651
8,460,855 FNMA
5.000%, with various maturities to 2035(d) 8,316,830
13,716,332 FNMA
5.500%, with various maturities to 2035(d) 13,744,280
4,354,898 FNMA
6.000%, with various maturities to 2034(d) 4,444,005
4,278,413 FNMA
6.500%, with various maturities to 2034(d) 4,405,619
428,241 FNMA
7.000%, with various maturities to 2030(d) 448,257
482,499 FNMA
7.500%, with various maturities to 2032(d) 510,753
1,532,356 GNMA
5.500%, 2/20/2034 1,544,475
589,900 GNMA
6.000%, 1/15/2029 605,041
1,579,845 GNMA
6.500%, with various maturities to 2032(d) 1,644,865
774,104 GNMA
7.000%, with various maturities to 2029(d) 816,142
223,155 GNMA
7.500%, with various maturities to 2030(d) 237,601
92,515 GNMA
8.000%, 11/15/2029 99,105
271,142 GNMA
8.500%, with various maturities to 2023(d) 296,668
27,544 GNMA
9.000%, with various maturities to 2016(d) 29,936
69,673 GNMA
11.500%, with various maturities to 2015(d) 77,230
---------------
66,698,764
---------------
See accompanying notes to financial statements.
20
LOOMIS SAYLES CORE PLUS BOND FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- --------------------------------------------------------------------------------
Non-Captive Diversified Financial -- 0.6%
$ 138,000,000 General Electric Capital Corp., (MTN)
1.400%, 11/02/2006 (JPY) $ 1,231,565
500,000 General Electric Capital Corp., Series E, (MTN)
1.725%, 6/27/2008 (SGD) 288,799
---------------
1,520,364
---------------
Paper -- 3.5%
3,165,000 Abitibi-Consolidated Finance, LP
7.875%, 8/01/2009 3,141,263
1,495,000 Abitibi-Consolidated, Inc.
8.550%, 8/01/2010 1,521,163
1,200,000 Georgia-Pacific Corp.
7.375%, 12/01/2025 1,248,000
755,000 Georgia-Pacific Corp.
7.750%, 11/15/2029 809,738
480,000 Georgia-Pacific Corp.
8.875%, 5/15/2031 567,682
1,535,000 International Paper Co.
4.000%, 4/01/2010 1,462,086
---------------
8,749,932
---------------
Pharmaceuticals -- 2.2%
1,470,000 Caremark Rx, Inc., Senior Note
7.375%, 10/01/2006 1,504,564
1,250,000 Medco Health Solutions
7.250%, 8/15/2013 1,377,613
2,750,000 Valeant Pharmaceuticals International, Senior Note
7.000%, 12/15/2011 2,708,750
---------------
5,590,927
---------------
Pipelines -- 1.1%
2,464,000 Kinder Morgan Energy Partners, LP
7.125%, 3/15/2012 2,725,324
---------------
Railroads -- 0.5%
1,155,000 CSX Corp.
4.875%, 11/01/2009 1,153,061
---------------
Real Estate Investment Trusts -- 2.4%
195,000 Colonial Realty, LP, Senior Note
4.750%, 2/01/2010 190,814
1,350,000 Colonial Realty, LP, Senior Note
5.500%, 10/01/2015 1,326,617
2,040,000 EOP Operating, LP, Guaranteed Note
4.650%, 10/01/2010 2,006,142
1,250,000 iStar Financial, Inc., Senior Note
6.000%, 12/15/2010 1,283,120
1,340,000 Simon Property Group, LP
6.375%, 11/15/2007 1,379,844
---------------
6,186,537
---------------
Refining -- 0.2%
515,000 Premcor Refining Group (The), Inc., Senior Note
7.500%, 6/15/2015 551,050
---------------
Sovereigns -- 0.5%
9,195,000 Kingdom of Sweden
4.000%, 12/01/2009 (SEK) 1,249,095
---------------
Supermarkets -- 2.3%
85,000 Albertson's, Inc.
7.750%, 6/15/2026 74,585
650,000 Albertson's, Inc., Senior Note
7.450%, 8/01/2029 560,692
Principal
Amount + Description Value (a)
- ----------------------------------------------------------------------------------
Supermarkets -- continued
$ 405,000 Albertson's, Inc., Senior Note
8.000%, 5/01/2031 $ 368,795
55,000 Albertson's, Inc., Series C, (MTN)
6.625%, 6/01/2028 43,915
1,620,000 Delhaize America, Inc.
9.000%, 4/15/2031 1,870,032
2,720,000 Fred Meyer, Inc.
7.450%, 3/01/2008 2,867,737
---------------
5,785,756
---------------
Technology -- 0.4%
665,000 Corning, Inc.
6.200%, 3/15/2016 684,018
275,000 Sungard Data Systems, Inc., Senior Note, 144A
9.125%, 8/15/2013 284,969
---------------
968,987
---------------
Transportation Services -- 0.5%
1,310,000 Overseas Shipholding Group, Senior Note
7.500%, 2/15/2024 1,300,175
---------------
Treasuries -- 5.4%
565,000 U.S. Treasury Bond
5.375%, 2/15/2031 632,976
12,054,030 U.S. Treasury Inflation Indexed Bond
2.375%, 1/15/2025 12,895,931
---------------
13,528,907
---------------
Wireless -- 0.3%
100,000 Rogers Wireless, Inc.
7.250%, 12/15/2012 105,750
730,000 Sprint Capital Corp.
6.125%, 11/15/2008 758,050
---------------
863,800
---------------
Wirelines -- 4.7%
1,180,000 AT&T Corp., Senior Note
9.750%, 11/15/2031 1,494,175
1,650,000 GTE Corp.
7.900%, 2/01/2027 1,760,324
3,200,000 LCI International, Inc., Senior Note
7.250%, 6/15/2007 3,120,000
1,240,000 Qwest Corp.
7.200%, 11/10/2026 1,109,800
670,000 Qwest Corp.
7.250%, 9/15/2025 624,775
1,675,000 Qwest Corp.
7.500%, 6/15/2023 1,528,438
2,080,000 Sprint Capital Corp.
6.875%, 11/15/2028 2,297,726
---------------
11,935,238
---------------
Total Bonds and Notes (Identified Cost $246,909,334) 247,494,449
===============
See accompanying notes to financial statements.
21
LOOMIS SAYLES CORE PLUS BOND FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- ---------------------------------------------------------------------------------------------------
Short-Term Investment -- 1.2%
$2,904,133 Repurchase Agreement with Investors Bank & Trust Co. dated
9/30/2005 at 2.75% to be repurchased at $2,904,799 on
10/03/2005, collateralized by $781,946 Federal Home Loan Mortgage
Association Bond, 4.12%, due 12/15/2034 valued at $780,583 and
$2,118,319 Small Business Administration Bond, 7.125%, due
9/25/2016 valued at $2,268,757 $ 2,904,133
------------
Total Short-Term Investment (Identified Cost $2,904,133) 2,904,133
------------
Total Investments -- 99.2%
(Identified Cost $249,813,467)(b) 250,398,582
Other assets less liabilities -- 0.8% 2,059,163
------------
Total Net Assets -- 100% $252,457,745
============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2005, the net unrealized depreciation on investments
based on cost of $251,023,876 for federal income tax purposes was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost $ 3,037,189
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value (3,662,483)
------------
Net unrealized depreciation $ (625,294)
============
(c) All or a portion of this security has been segregated to cover collateral
requirements on TBA obligations.
(d) The Fund's investment in mortgage related securities of the Federal
Home Loan Mortgage Corporation, Federal National Mortgage
Association and Government National Mortgage Association are interests
in separate pools of mortgages. All separate investments in securities of
each issuer which have the same coupon rate have been aggregated for
the purpose of presentation in the Schedule of Investments.
+ Principal amount is in U.S. dollars unless otherwise noted.
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
MTN Medium Term Note
TBA To Be Announced (see Note 2g of Notes to Financial Statements)
144A Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At September 30,
2005, the value of these securities amounted to $3,802,291 or 1.5% of
net assets.
CAD Canadian Dollar
JPY Japanese Yen
SEK Swedish Krona
SGD Singapore Dollar
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited)
Mortgage Related 26.4%
Government Agencies 8.2
Asset Backed Securities 8.1
Treasuries 5.4
Wirelines 4.7
Paper 3.5
Mortgage Backed Securities 3.0
Foreign Local Governments 2.9
Media Cable 2.6
Media Non-Cable 2.6
Electric 2.6
Real Estate Investment Trusts 2.4
Supermarkets 2.3
Automotive 2.3
Pharmaceuticals 2.2
Other, less than 2% each 18.8
See accompanying notes to financial statements.
22
LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- -----------------------------------------------------------------------------------------------
Bonds and Notes -- 94.1% of Total Net Assets
Airlines -- 2.0%
$ 35,000 AMR Corp., Senior Note
4.500%, 2/15/2024 $ 24,194
225,000 AMR Corp., Senior Note, Convertible
4.250%, 9/23/2023 178,875
86,366 Continental Airlines, Inc., Series 1997-4, Class 4B
6.900%, 1/02/2017 73,874
164,248 Continental Airlines, Inc., Series 1998-1, Class 1A
6.648%, 9/15/2017 158,760
169,920 Continental Airlines, Inc., Series 1998-1, Class 1B
6.748%, 3/15/2017 146,981
53,769 Continental Airlines, Inc., Series 1999-1, Class C
6.954%, 8/02/2009 47,117
108,877 Continental Airlines, Inc., Series 1999-2, Class B
7.566%, 3/15/2020 94,688
120,690 Continental Airlines, Inc., Series 2002-2, Class B
8.307%, 4/02/2018 106,588
---------------
831,077
---------------
Automotive -- 6.7%
600,000 Cummins, Inc.
7.125%, 3/01/2028 609,000
70,000 Dana Corp.
5.850%, 1/15/2015 54,907
175,000 Dana Corp.
7.000%, 3/15/2028 133,123
275,000 Dana Corp.
7.000%, 3/01/2029 209,417
265,000 Delphi Corp.
7.125%, 5/01/2029 169,600
145,000 Ford Motor Co.
6.375%, 2/01/2029 104,037
175,000 Ford Motor Co.
6.625%, 10/01/2028 126,437
355,000 General Motors Acceptance Corp.
4.670%, 3/20/2007(c) 347,550
145,000 General Motors Acceptance Corp.
8.000%, 11/01/2031 126,610
125,000 General Motors Acceptance Corp. of Canada, Ltd., Series E., (MTN)
6.625%, 12/17/2010 (GBP) 198,847
120,000 Goodyear Tire & Rubber Co. (The)
7.857%, 8/15/2011 116,100
580,000 Lear Corp., Series B
5.750%, 8/01/2014 484,300
110,000 Tenneco Automotive, Inc., Senior Subordinated Note
8.625%, 11/15/2014 110,825
---------------
2,790,753
---------------
Banking -- 3.2%
7,000,000 Barclays Bank PLC, 144A
4.160%, 2/22/2010 (THB) 160,482
9,000,000 Barclays Financial LLC, 144A
4.100%, 3/22/2010 (THB) 205,611
990,000 Citibank NA, 144A
15.000%, 7/02/2010 (BRL) 464,744
500,000 HSBC Bank USA, 144A
3.310%, 8/25/2010 506,400
---------------
1,337,237
---------------
Principal
Amount + Description Value (a)
- ------------------------------------------------------------------------------------------
Biotechnology -- 0.9%
$ 360,000 Inhale Therapeutic Systems, Inc., Subordinated Note
3.500%, 10/17/2007 $ 352,350
---------------
Chemicals -- 2.6%
450,000 Borden, Inc.
7.875%, 2/15/2023 360,000
550,000 Borden, Inc.
9.200%, 3/15/2021 500,500
270,000 Hercules, Inc., Subordinated Note
6.500%, 6/30/2029 211,275
---------------
1,071,775
---------------
Commercial Services -- 0.2%
100,000 Hertz Corp.
7.625%, 6/01/2012 96,010
---------------
Construction Machinery -- 2.8%
350,000 Case Credit Corp.
6.750%, 10/21/2007 353,500
100,000 Case New Holland, Inc., Senior Note
9.250%, 8/01/2011 105,750
120,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note
7.750%, 12/15/2013 110,100
550,000 United Rentals North America, Inc., Senior Subordinated Note
7.000%, 2/15/2014 510,125
85,000 Williams Scotsman, Inc., Senior Note, 144A
8.500%, 10/01/2015 86,062
---------------
1,165,537
---------------
Consumer Products -- 0.1%
60,000 Spectrum Brands, Inc., Senior Subordinated Note
7.375%, 2/01/2015 54,000
---------------
Electric -- 2.7%
100,000 Allegheny Energy Supply Co. LLC
7.800%, 3/15/2011 109,500
65,000 Calpine Canada Energy Finance ULC
8.500%, 5/01/2008 38,837
200,000 Calpine Corp., Senior Note
7.750%, 4/15/2009 104,000
200,000 Calpine Corp., Senior Note
7.875%, 4/01/2008(d) 118,000
610,000 Calpine Corp., Senior Note
8.500%, 2/15/2011(d) 323,300
160,000 Calpine Corp., Senior Secured Note, 144A
8.500%, 7/15/2010 114,400
10,000 Calpine Corp., Senior Secured Note, 144A
8.750%, 7/15/2013 7,075
40,000 Dynegy Holdings, Inc.
7.125%, 5/15/2018 37,000
140,000 Enersis SA, Chile
7.375%, 1/15/2014 147,929
90,000 NGC Corp.
7.625%, 10/15/2026 83,250
20,000 NGC Corp. Capital Trust, Series B
8.316%, 6/01/2027 17,950
---------------
1,101,241
---------------
Environmental -- 0.4%
190,000 Allied Waste North America, Series B, Senior Note
5.750%, 2/15/2011 177,175
---------------
See accompanying notes to financial statements.
23
LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- ------------------------------------------------------------------------------
Financial Services -- 0.6%
$ 250,000 Astoria Depositor Corp., 144A
8.144%, 5/01/2021 $ 248,412
---------------
Food -- 0.3%
115,000 Friendly Ice Cream Corp., Guaranteed Senior Note
8.375%, 6/15/2012 108,675
---------------
Food and Beverage -- 1.6%
600,000 Bavaria SA, Senior Note, 144A
8.875%, 11/01/2010 661,800
---------------
Healthcare -- 2.2%
150,000 Columbia/HCA, Inc.
7.500%, 12/15/2023 148,962
75,000 Columbia/HCA, Inc.
7.690%, 6/15/2025 75,373
200,000 Columbia/HCA, Inc. (MTN)
7.580%, 9/15/2025 198,182
500,000 Columbia/HCA, Inc. (MTN)
7.750%, 7/15/2036 495,913
---------------
918,430
---------------
Home Construction -- 0.7%
300,000 K Hovnanian Enterprises, Inc.
6.250%, 1/15/2015 281,335
---------------
Independent Energy -- 0.8%
70,000 Chesapeake Energy Corp., Senior Note
6.375%, 6/15/2015 70,350
270,000 Chesapeake Energy Corp., Senior Note
6.875%, 1/15/2016 276,750
---------------
347,100
---------------
Integrated Energy -- 1.3%
265,000 Cerro Negro Finance, Ltd., 144A
7.900%, 12/01/2020 252,413
300,000 Petrozuata Finance, Inc., Series B, 144A
8.220%, 4/01/2017 286,500
---------------
538,913
---------------
Lodging -- 1.2%
300,000 FelCor Lodging, LP, Senior Note
9.000%, 6/01/2011 326,250
160,000 Host Marriott, LP REIT, Senior Note
6.375%, 3/15/2015 155,200
---------------
481,450
---------------
Media Cable -- 4.1%
550,000 CSC Holdings, Inc., Senior Note
7.625%, 7/15/2018 514,250
250,000 NTL Cable PLC
9.750%, 4/15/2014 (GBP) 444,358
175,000 PanAmSat Corp.
6.875%, 1/15/2028 160,125
650,000 Rogers Cable, Inc., Senior Note
5.500%, 3/15/2014 599,625
---------------
1,718,358
---------------
Metals and Mining -- 1.5%
520,000 AK Steel Corp., Guaranteed Senior Note
7.750%, 6/15/2012 479,700
150,000 Glencore Funding, LLC, Guaranteed Note, 144A
6.000%, 4/15/2014 142,097
---------------
621,797
---------------
Principal
Amount + Description Value (a)
- ---------------------------------------------------------------------------------------------
Oil Field Services -- 0.3%
$ 110,000 North American Energy Partners, Inc., Senior Note
8.750%, 12/01/2011 $ 104,500
---------------
Packaging -- 1.5%
350,000 Owens-Illinois, Inc., Senior Note
7.500%, 5/15/2010 355,250
135,000 Owens-Illinois, Inc., Senior Note
7.800%, 5/15/2018 135,675
155,000 Solo Cup Co., Senior Subordinated Note
8.500%, 2/15/2014 137,175
---------------
628,100
---------------
Paper -- 3.8%
475,000 Abitibi-Consolidated, Inc.
7.500%, 4/01/2028 401,375
250,000 Abitibi-Consolidated, Inc.
8.500%, 8/01/2029 223,750
100,000 Arcel Finance, Ltd., 144A
6.361%, 5/01/2012 98,808
197,280 Arcel Finance, Ltd., 144A
7.048%, 9/01/2011 207,036
685,000 Bowater, Inc.
6.500%, 6/15/2013 638,763
---------------
1,569,732
---------------
Pharmaceuticals -- 6.1%
85,000 Elan Capital Corp., Ltd., Convertible
6.500%, 11/10/2008 115,286
120,000 Elan Finance Corp., Senior Note, 144A
7.750%, 11/15/2011 105,600
235,000 Enzon, Inc.
4.500%, 7/01/2008 213,263
127,000 EPIX Pharmaceuticals, Inc., Senior Note
3.000%, 6/15/2024 96,838
375,000 IVAX Corp., Senior Note, Convertible
1.500%, 3/01/2024 423,281
202,000 IVAX Corp., Senior Subordinated Note, Convertible
4.500%, 5/15/2008 201,748
250,000 Pharma Services Intermediate Holdings Corp., Senior Note,
0.00% (step to 11.50% on 4/01/2009), 4/01/2014(e) 185,000
315,000 Regeneron Pharmaceuticals, Inc., Subordinated Note, Convertible
5.500%, 10/17/2008 298,463
155,000 Valeant Pharmaceuticals International, Subordinated Note,
Convertible
3.000%, 8/16/2010 140,856
300,000 Valeant Pharmaceuticals International, Subordinated Note,
Convertible
4.000%, 11/15/2013 271,875
310,000 Vertex Pharmaceuticals, Inc., Convertible, 144A
5.750%, 2/15/2011 487,475
---------------
2,539,685
---------------
Pipelines -- 5.4%
65,000 Coastal Corp.
6.500%, 6/01/2008 64,025
415,000 El Paso CGP, Co.
6.375%, 2/01/2009 404,625
825,000 El Paso CGP, Co.
6.950%, 6/01/2028 742,500
982,000 Williams Cos., Inc., Series A
7.500%, 1/15/2031 1,043,375
---------------
2,254,525
---------------
See accompanying notes to financial statements.
24
LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- ----------------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 1.3%
$ 500,000 Crescent Real Estate Equities, LP, Senior Subordinated Note
9.250%, 4/15/2009 $ 531,875
---------------
Retailers -- 4.5%
250,000 Dillard's, Inc.
6.625%, 1/15/2018 232,500
600,000 Dillard's, Inc.
7.750%, 7/15/2026 582,000
400,000 Foot Locker, Inc.
8.500%, 1/15/2022 435,000
765,000 Toys R US, Inc.
7.375%, 10/15/2018 612,000
---------------
1,861,500
---------------
Sovereigns --7.2%
1,190,000 Republic of Argentina
2.000%, 9/30/2014 (ARS)(c) 421,997
520,000 Republic of Brazil
8.250%, 1/20/2034 522,600
175,000 Republic of Colombia
8.125%, 5/21/2024 187,688
100,000,000 Republic of Colombia
11.750%, 3/01/2010 (COP) 49,950
4,420,000 United Mexican States
8.000%, 12/07/2023 (MXN) 380,339
14,850,000 United Mexican States
9.000%, 12/20/2012 (MXN) 1,414,910
---------------
2,977,484
---------------
Supermarkets -- 0.8%
305,000 Albertson's, Inc., Senior Note
7.450%, 8/01/2029 263,094
20,000 Albertson's, Inc., Senior Note
8.000%, 5/01/2031 18,212
55,000 Albertson's, Inc., Series C, (MTN)
6.625%, 6/01/2028 43,915
---------------
325,221
---------------
Supranational -- 3.8%
6,000,000 Inter-American Development Bank, Series E, (MTN),
Zero Coupon, 5/11/2009 (BRL) 1,583,804
---------------
Technology -- 11.7%
125,000 Amkor Technology, Inc.
5.000%, 3/15/2007 110,156
125,000 Amkor Technology, Inc., Senior Note
7.750%, 5/15/2013 106,875
225,000 Corning, Inc.
5.900%, 3/15/2014 228,275
270,000 Corning, Inc.
6.200%, 3/15/2016 277,721
225,000 Corning, Inc.
6.750%, 9/15/2013 240,985
155,000 Corning, Inc.
6.850%, 3/01/2029 156,432
215,000 Kulicke & Soffa Industries, Inc., Subordinated Note, Convertible
0.500%, 11/30/2008 158,831
910,000 Lucent Technologies, Inc.
6.450%, 3/15/2029 796,250
315,000 Maxtor Corp., Subordinated Note
5.750%, 3/01/2012(f) 283,500
Principal
Amount + Description Value (a)
- ---------------------------------------------------------------------------------------
Technology -- continued
$ 425,000 Nortel Networks Corp.
6.875%, 9/01/2023 $ 395,250
300,000 Nortel Networks Corp., Guaranteed Senior Note
4.250%, 9/01/2008 282,375
65,000 Northern Telecom Capital Corp.
7.875%, 6/15/2026 63,700
100,000 SCI Systems, Inc., Subordinated Note, Convertible
3.000%, 3/15/2007 96,250
120,000 Sungard Data Systems, Inc., 144A
10.250%, 8/15/2015 121,500
85,000 Sungard Data Systems, Inc., Senior Note, 144A
9.125%, 8/15/2013 88,081
105,000 Unisys Corp.
6.875%, 3/15/2010 101,325
145,000 Unisys Corp., Senior Note
8.000%, 10/15/2012 142,463
325,000 Xerox Capital Trust I, Guaranteed Note
8.000%, 2/01/2027 337,188
300,000 Xerox Corp., (MTN)
7.200%, 4/01/2016 327,000
500,000 Xerox Corp., Senior Note
6.875%, 8/15/2011 522,500
---------------
4,836,657
---------------
Transportation Services -- 5.8%
275,000 American President Cos., Ltd., Senior Note
8.000%, 1/15/2024 282,219
120,035 Atlas Air, Inc., Series 1998-1, Class 1A
7.380%, 1/02/2018 119,514
117,634 Atlas Air, Inc., Series 1999-1, Class A1
7.200%, 1/02/2019 116,904
117,737 Atlas Air, Inc., Series 2000-1, Class A
8.707%, 1/02/2019 121,946
250,000 Bombardier Capital Funding, LP
6.750%, 5/14/2009 (GBP) 434,919
120,000 Hertz Corp., Senior Note
6.350%, 6/15/2010 113,475
335,000 Hertz Corp., Senior Note
6.900%, 8/15/2014 310,280
300,000 Overseas Shipholding Group, Senior Note
7.500%, 2/15/2024 297,750
295,000 Stena AB, Senior Note
7.000%, 12/01/2016 272,875
350,000 Stena AB, Senior Note
7.500%, 11/01/2013 340,375
---------------
2,410,257
---------------
Wireless -- 0.4%
150,000 Rogers Wireless Communications, Inc., Senior Secured Note
6.375%, 3/01/2014 150,750
---------------
Wirelines -- 5.6%
50,000 Cincinnati Bell, Inc.
8.375%, 1/15/2014 49,250
95,000 Citizens Communications Co.
7.000%, 11/01/2025 83,600
155,000 Citizens Communications Co., Senior Note
9.000%, 8/15/2031 157,131
375,000 Qwest Capital Funding, Inc.
6.875%, 7/15/2028 308,438
See accompanying notes to financial statements.
25
LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- -------------------------------------------------------------------------------------------
Wirelines -- continued
$ 1,890,000 Qwest Capital Funding, Inc.
7.750%, 2/15/2031 $ 1,630,125
75,000 Qwest Capital Funding, Inc., Guaranteed Note
7.000%, 8/03/2009 73,313
---------------
2,301,857
---------------
Total Bonds and Notes (Identified Cost $36,913,116) 38,979,372
---------------
Shares
- -------------------------------------------------------------------------------------------
Preferred Stocks -- 4.2%
Electric -- 1.7%
6,475 AES Trust III, Convertible,
6.75%, 10/15/2029 314,037
8,000 CMS Energy Trust I, Convertible,
7.75%, 7/15/2027 400,000
---------------
714,037
---------------
Packaging -- 0.6%
6,500 Owens-Illinois, Inc., Convertible,
4.75%, 12/31/2049 234,813
---------------
Pipelines -- 1.1%
4,000 Williams Holdings of Delaware, Convertible,
5.50%, 6/01/2033 464,500
---------------
Technology -- 0.5%
225 Lucent Technologies Capital Trust I, Convertible,
7.75%, 3/15/2017 226,969
---------------
Wirelines -- 0.3%
2,000 Philippine Long Distance Telephone Co., Sponsored GDR,
Convertible,
$3.50, 12/31/2049 105,000
---------------
Total Preferred Stocks (Identified Cost $1,412,789) 1,745,319
---------------
Shares
- -------------------------------------------------------------------------------------------
Common Stocks -- 0.3%
Investment Companies -- 0.2%
3,005 CIM High Yield Securities Fund 12,621
2,175 High Income Opportunity Fund, Inc. 13,680
3,835 Morgan Stanley Emerging Markets Debt Fund, Inc.(d) 39,769
---------------
66,070
---------------
Metals and Mining -- 0.1%
900 Cia Vale do Rio Doce, ADR 39,474
---------------
Total Common Stocks (Identified Cost $77,853) 105,544
---------------
Principal
Amount +
- -------------------------------------------------------------------------------------------
Short-Term Investments -- 2.6%
$ 743,850 Repurchase Agreement with Investors Bank & Trust Co. dated
9/30/2005 at 2.75% to be repurchased at $744,020 on
10/03/2005, collateralized by $12,418 Federal Home Loan
Mortgage Association Bond, with rates of 4.168% -- 4.268%,
with maturities from 1/15/2028 -- 1/15/2033 valued at
$12,509, $554,001 Federal National Mortgage Association Bond,
with rates of 3.815% -- 4.612%, with maturities from
12/25/2021 -- 11/1/2034 valued at $543,095, $13,232
Government National Mortgage Association Bond, with rates of
4.00% -- 4.875%, with maturities from 2/20/2033 --
4/20/2034 valued at $13,386, and $197,964 Small Business
Administration Bond, with rates of 5.875% -- 7.375%, with
maturities from 8/25/2014 -- 3/25/2030 valued at $212,052 743,850
Principal
Amount + Description Value (a)
- ---------------------------------------------------------------------------------------------------
$ 326,432 Repurchase Agreement with Merrill Lynch & Co, dated 9/30/2005
at 3.93% to be repurchased at $326,539 on 10/03/2005,
collateralized by $326,433 Federal Home Loan Mortgage
Association Bond, with rates of 0.00% -- 6.25%, with maturities
from 1/30/07 -- 7/15/32 valued at $332,962(g) $ 326,432
---------------
Total Short-Term Investments (Identified Cost $1,070,282) 1,070,282
---------------
Total Investments -- 101.2%
(Identified Cost $39,474,040)(b) 41,900,517
Other assets less liabilities -- (1.2)% (495,356)
---------------
Total Net Assets -- 100% $ 41,405,161
===============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on
investments based on cost of $39,477,512 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $ 3,177,582
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (754,577)
---------------
Net unrealized appreciation $ 2,423,005
===============
(c) Variable rate security whose interest rate varies with changes in a
designated base rate (such as the prime interest rate) on a
specified date (such as coupon date or interest payment date).
(d) All or a portion of this security was on loan to brokers at
September 30, 2005.
(e) Step Bond: Coupon rate is zero or below market for an initial period
and then increases to a higher coupon rate at a specified date.
(f) Illiquid security. At September 30, 2005, the value of this security
amounted to $283,500 or 0.7% of net assets.
(g) Represents investment of securities lending collateral.
+ Principal amount is in U.S. dollars unless otherwise noted.
ADR/GDR An American Depositary Receipt (ADR) or Global Depositary Receipt (GDR) is a
certificate issued by a U.S. Bank representing the right to receive securities of the
foreign issuer described. The values of ADRs and GDRs are significantly influenced by
trading on exchanges not located in the United States.
MTN Medium Term Note
REIT Real Estate Investment Trust
144A Securities exempt from registration under Rule 144A of the Securities Act of 1933.
These securities may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At September 30, 2005, the value of these securities
amounted to $4,244,496 or 10.3% of net assets.
ARS Argentine Peso
BRL Brazilian Real
COP Colombian Peso
GBP British Pound
MXN Mexican Peso
THB Thai Baht
See accompanying notes to financial statements.
26
LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited)
Technology 12.2%
Sovereigns 7.2
Automotive 6.7
Pipelines 6.5
Pharmaceuticals 6.1
Wirelines 5.9
Transportation Services 5.8
Retailers 4.5
Electric 4.4
Media Cable 4.1
Supranational 3.8
Paper 3.8
Banking 3.2
Construction Machinery 2.8
Chemicals 2.6
Healthcare 2.2
Packaging 2.1
Airlines 2.0
Other, less than 2% each 12.7
See accompanying notes to financial statements.
27
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------
Bonds and Notes -- 98.8% of Total Net Assets
Asset Backed Securities -- 4.3%
$ 1,035,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3
4.615%, 2/25/2035 $ 1,013,825
2,240,000 Residential Asset Mortgage Products, Inc., Series 2003-RZ5,
Class A3
3.800%, 7/25/2030 2,230,550
1,376,000 Residential Funding Mortgage Securities II, Series 2003-HI4,
Class AI4
4.590%, 4/25/2018 1,365,243
1,900,000 Residential Funding Mortgage Securities II, Series 2004-HI3,
Class A3
3.810%, 8/25/2017 1,875,143
670,000 Residential Funding Mortgage Securities II, Series 2004-HI3,
Class A4
4.630%, 1/25/2020 663,344
---------------
7,148,105
---------------
Government Agencies -- 7.7%
2,935,000 Federal Farm Credit Bank
2.375%, 10/02/2006 2,878,457
6,200,000 Federal Home Loan Bank
3.625%, 11/14/2008(c) 6,056,544
3,000,000 FNMA
5.500%, 5/02/2006 3,020,811
600,000 FNMA
6.625%, 9/15/2009 644,773
---------------
12,600,585
---------------
Mortgage Related -- 55.8%
7,050,916 FHLMC
4.000%, with various maturities to 2019(d) 6,775,734
6,214,548 FHLMC
4.500%, with various maturities to 2034(d) 6,061,214
7,949,950 FHLMC
5.000%, 7/01/2019(e) 7,931,955
3,329,397 FHLMC
5.500%, 12/01/2034 3,331,347
312,873 FHLMC
6.000%, 11/01/2019 321,454
11,272,754 FHLMC
6.500%, with various maturities to 2034(d) 11,592,148
387,818 FHLMC
7.000%, 2/01/2016 404,989
81,767 FHLMC
7.500%, with various maturities to 2026(d) 86,365
68,204 FHLMC
8.000%, with various maturities to 2015(d) 71,711
7,293 FHLMC
10.000%, 7/01/2019 8,119
517,736 FHLMC
11.500%, with various maturities to 2020(d) 566,828
7,995,000 FHLMC (TBA)
4.500%, 10/01/2020 7,827,601
18,032,997 FNMA
4.000%, with various maturities to 2020(d) 17,372,095
1,474,347 FNMA
4.500%, 9/01/2019 1,444,764
5,494,865 FNMA
5.500%, with various maturities to 2034(d) 5,512,085
Principal
Amount Description Value (a)
- ----------------------------------------------------------------------------------
Mortgage Related -- continued
$ 7,075,653 FNMA
6.000%, with various maturities to 2034(d) $ 7,257,101
10,705,894 FNMA
6.500%, with various maturities to 2034(d) 11,025,411
417,886 FNMA
7.000%, 12/01/2022 443,161
1,102,893 FNMA
7.500%, with various maturities to 2032(d) 1,166,974
183,674 FNMA
8.000%, with various maturities to 2016(d) 196,921
210,981 GNMA
6.000%, 12/15/2031 216,168
870,320 GNMA
6.500%, 5/15/2031 906,011
851,390 GNMA
7.000%, with various maturities to 2031(d) 896,150
646 GNMA
8.500%, 2/15/2006 658
49,943 GNMA
9.000%, with various maturities to 2009(d) 52,339
15,233 GNMA
9.500%, 8/15/2009 16,219
1,190 GNMA
10.000%, 9/15/2016 1,329
26,925 GNMA
12.500%, with various maturities to 2015(d) 30,176
213,151 GNMA
16.000%, with various maturities to 2012(d) 245,554
83,721 GNMA
17.000%, with various maturities to 2011(d) 97,712
---------------
91,860,293
---------------
Treasuries -- 31.0%
5,155,000 U.S. Treasury Bond
7.250%, 5/15/2016 6,377,096
3,200,000 U.S. Treasury Note
1.875%, 12/31/2005 3,186,125
790,000 U.S. Treasury Note
2.250%, 2/15/2007 769,972
5,330,000 U.S. Treasury Note
2.375%, 8/15/2006 5,252,966
1,290,000 U.S. Treasury Note
2.500%, 10/31/2006 1,267,980
8,095,000 U.S. Treasury Note
3.000%, 12/31/2006 7,980,529
2,500,000 U.S. Treasury Note
3.125%, 10/15/2008 2,424,220
17,960,000 U.S. Treasury Note
3.375%, 2/28/2007(c) 17,763,554
1,930,000 U.S. Treasury Note
6.125%, 8/15/2007 1,997,324
750,000 U.S. Treasury Note
6.625%, 5/15/2007 779,092
4,000,000 U.S. Treasury STRIPS,
Zero Coupon, 11/15/2009 3,357,016
---------------
51,155,874
---------------
Total Bonds and Notes (Identified Cost $163,819,775) 162,764,857
---------------
See accompanying notes to financial statements.
28
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND
SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- --------------------------------------------------------------------------------------------------
Short-Term Investment -- 10.5%
$ 17,368,595 Repurchase Agreement with Investors Bank & Trust Co. dated
9/30/2005 at 2.75% to be repurchased at $17,372,575 on
10/03/2005, collateralized by $16,911,123 Small Business
Administration Bond, with rates of 6.30% -- 7.375%, with
maturities from 1/25/2016 -- 4/25/2030 valued at
$18,237,025 $ 17,368,595
---------------
Total Short-Term Investment (Identified Cost $17,368,595) 17,368,595
---------------
Total Investments -- 109.3%
(Identified Cost $181,188,370)(b) 180,133,452
Other assets less liabilities -- (9.3)% (15,354,625)
---------------
Total Net Assets -- 100% $ 164,778,827
===============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2005, the net unrealized depreciation on
investments based on cost of $182,303,838 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $ --
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (2,170,386)
---------------
Net unrealized depreciation $ (2,170,386)
===============
(c) All or a portion of this security has been segregated to cover
collateral requirements on TBA obligations.
(d) The Fund's investment in mortgage related securities of the
Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association and the Government National Mortgage
Association are interests in separate pools of mortgages. All
separate investments in securities of each issuer which have the
same coupon rate have been aggregated for the purpose of
presentation in the Schedule of Investments.
(e) Security purchased on a delayed delivery basis.
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
STRIPS Separate Trading of Registered Interest and Principal of Securities
TBA To Be Announced (see Note 2g of Notes to Financial Statements)
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited)
Mortgage Related 55.8%
Treasuries 31.0
Government Agencies 7.7
Asset Backed Securities 4.3
See accompanying notes to financial statements.
29
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------
Tax Exempt Obligations -- 97.6% of Total Net Assets
Highlands County, FL, Health Facilities Authority -- 1.4%
$ 1,000,000 Adventis Health System,
5.875%, 11/15/2029 $ 1,084,040
---------------
Martha's Vineyard, MA -- 1.3%
1,000,000 Land Bank Revenue,
5.000%, 5/01/2032, (AMBAC insured) 1,039,560
---------------
Massachusetts -- 6.0%
4,000,000 State Refunding Series A,
6.500%, 11/01/2014, (AMBAC insured) 4,818,680
---------------
Massachusetts Bay Transportation Authority -- 5.4%
2,500,000 Series A,
5.000%, 7/01/2032 2,586,500
1,000,000 Series A, Prerefunded,
5.250%, 7/01/2030 1,085,760
630,000 Series A, Unrefunded,
5.250%, 7/01/2030 663,094
---------------
4,335,354
---------------
Massachusetts Development Finance Agency -- 16.6%
2,000,000 Cambridge Street Development Series A,
5.125%, 2/01/2034, (MBIA insured) 2,102,800
1,000,000 Hampshire College,
5.625%, 10/01/2024 1,067,930
4,000,000 Mount Holyoke College,
5.250%, 7/01/2031 4,237,040
2,800,000 Refunding Springfield Resource Recovery-A,
5.625%, 6/01/2019 2,951,536
1,100,000 Visual and Performing Arts,
6.000%, 8/01/2021 1,318,603
1,500,000 WGBH Educational Foundation Series A,
5.375%, 1/01/2042, (AMBAC insured) 1,621,050
---------------
13,298,959
---------------
Massachusetts Health & Educational Facilities
Authority -- 33.1%
1,160,000 Baystate Medical Center Series F,
5.700%, 7/01/2027 1,227,616
2,000,000 Boston University,
5.000%, 10/01/2039 2,076,240
2,200,000 Catholic Health East,
5.500%, 11/15/2032 2,320,186
3,000,000 Harvard University Series N,
6.250%, 4/01/2020 3,736,800
2,845,000 Nichols College Series C,
6.000%, 10/01/2017 3,002,983
2,000,000 Partners Healthcare Systems Series B,
5.250%, 7/01/2029 2,096,740
2,500,000 Partners Healthcare Systems Series C,
5.750%, 7/01/2021 2,761,050
1,500,000 Tufts University Series I,
5.250%, 2/15/2030 1,585,140
1,000,000 University of Massachusetts Project Series C,
5.250%, 10/01/2031, (MBIA insured) 1,068,010
2,000,000 University of Massachusetts Series C,
5.125%, 10/01/2034, (FGIC insured) 2,106,080
2,000,000 Wellesley College Series F,
5.125%, 7/01/2039 2,070,540
Principal
Amount Description Value (a)
- ------------------------------------------------------------------------------------
Massachusetts Health & Educational Facilities
Authority -- continued
$ 1,315,000 Wheaton College Series E,
5.000%, 7/01/2017 $ 1,396,149
1,030,000 Williams College Series H,
5.000%, 7/01/2017 1,103,573
---------------
26,551,107
---------------
Massachusetts Housing Finance Agency -- 3.0%
410,000 Single Family Mortgage Series 21,
7.125%, 6/01/2025 410,471
2,000,000 Single Family Mortgage Series A,
4.600%, 12/01/2015 2,019,320
---------------
2,429,791
---------------
Massachusetts Port Authority -- 3.8%
1,750,000 Delta Air Lines, Inc. Project Series A,
5.500%, 1/01/2019, (AMBAC insured) 1,826,738
1,200,000 Series A,
5.000%, 7/01/2033, (MBIA insured) 1,234,020
---------------
3,060,758
---------------
Massachusetts Water Resources Authority -- 6.3%
1,000,000 General Series A,
5.250%, 8/01/2020, (MBIA insured) 1,105,840
3,240,000 Series A,
6.500%, 7/15/2019, (FGIC insured) 3,931,027
---------------
5,036,867
---------------
Michigan Hospital Finance Authority -- 2.0%
1,500,000 Oakwood Obligated Group,
5.500%, 11/01/2017 1,625,880
---------------
New England Education Loan Marketing -- 4.0%
3,000,000 Student Loan Revenue Bond Sub-Issue H,
6.900%, 11/01/2009 3,188,250
---------------
New Jersey Economic Development Authority -- 2.1%
1,610,000 Series A,
5.625%, 6/15/2018 1,700,627
---------------
Puerto Rico Commonwealth Aqueduct & Sewer
Authority -- 4.3%
3,000,000 Aqueduct & Sewer Authority,
6.250%, 7/01/2013 3,449,550
---------------
Puerto Rico Public Finance Corporation -- 4.1%
3,000,000 Commonwealth Appropriation Series A,
5.750%, 8/01/2027(c) 3,278,280
---------------
Tennessee Housing Development Agency -- 1.3%
1,000,000 Series A,
5.200%, 7/01/2023 1,042,920
---------------
University of Massachusetts Building Authority -- 2.9%
2,200,000 SR -- Series 1,
5.250%, 11/01/2028, (AMBAC insured) 2,364,494
---------------
Total Tax Exempt Obligations (Cost $73,944,884) 78,305,117
---------------
See accompanying notes to financial statements.
30
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND
SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- --------------------------------------------------------------------------------------------------
Short-Term Investment -- 0.9%
$ 760,125 Repurchase Agreement with Investors Bank & Trust Co. dated
9/30/2005 at 2.75% to be repurchased at $760,299 on
10/03/2005, collateralized by $61,763 Federal Home Loan
Mortgage Association Bond, with rates of 4.22% -- 4.27% with
maturities from 7/15/2031 -- 11/15/2031 valued at $62,293,
$176,539 Federal National Mortgage Association Bond, with rates
of 4.00% -- 4.38%, with maturities from 1/15/2027 --
7/20/2034 valued at $177,989, and $519,991 Small Business
Administration Bond, with rates of 6.375% -- 7.625%, with
maturities from 8/25/2014 -- 5/25/2028 valued at $557,879 $ 760,125
---------------
Total Short-Term Investment (Cost $760,125) 760,125
---------------
Total Investments -- 98.5%
(Identified Cost $74,705,009)(b) 79,065,242
Other assets less liabilities -- 1.5% 1,159,757
---------------
Total Net Assets -- 100.0% $ 80,224,999
===============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on
investments based on cost of $74,840,937 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $ 4,316,539
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (92,234)
---------------
Net unrealized appreciation $ 4,224,305
===============
(c) Variable rate security whose interest rate varies with changes in a
designated base rate (such as the prime interest rate) on a
specified date (such as coupon date or interest payment date).
AMBAC American Municipal Bond Assurance Corporation
FGIC Financial Guarantee Insurance Company
MBIA Municipal Bond Investors Assurance Corporation
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited)
College & University 33.8%
Hospital -- Obligated Group 13.9
Water & Sewerage 10.6
State General Obligation 10.1
Mass Transit 4.0
Student Loan 4.0
Airport 3.8
Resource Recovery 3.7
Redevelopment Agency/Urban Renewal 2.6
Housing -- Multifamily 2.5
Special Tax 2.1
Non-Profit 2.0
Other, less than 2% each 4.5
See accompanying notes to financial statements.
31
LOOMIS SAYLES MUNICIPAL INCOME FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------------
Tax Exempt Obligations -- 98.2% of Total Net Assets
California -- 7.4%
$ 1,000,000 California Health Facilities Financing Authority (Cedar-Sinai
Medical Center),
5.000%, 11/15/2027 $ 1,031,190
1,000,000 California Health Facilities Financing Authority, Multiple Obligors,
4.950%, 7/01/2026 1,041,690
2,000,000 California State,
5.125%, 6/01/2027 2,097,300
1,000,000 California State Public Works Board, (Coalinga State Hospital),
5.000%, 6/01/2010 1,064,320
2,655,000 California Statewide Communities Development Authority,
5.250%, 7/01/2023 2,862,860
---------------
8,097,360
---------------
Colorado -- 2.2%
2,500,000 Colorado Health Facility Authority Revenue, (Covenant Retirement
Communities),
5.000%, 12/01/2035 2,455,300
---------------
District of Columbia -- 3.8%
1,000,000 District of Columbia,
5.500%, 6/01/2014 1,079,690
3,000,000 Metropolitan Washington D.C. Airports Authority,
5.125%, 10/01/2029, (FGIC insured) 3,118,530
---------------
4,198,220
---------------
Florida -- 4.6%
1,750,000 Coral Gables, FL, Health Facilities Authority, Multiple Obligors,
5.000%, 8/15/2034 1,872,657
3,000,000 Highlands County, FL, Health Facilities Authority, Multiple Obligors,
5.375%, 11/15/2035 3,128,940
---------------
5,001,597
---------------
Illinois -- 5.9%
1,910,000 Illinois Educational Facility Authority Revenue,
5.000%, 7/01/2033 1,974,214
1,200,000 Illinois State,
5.400%, 12/01/2020, (MBIA insured) 1,307,232
3,000,000 Metropolitan Pier & Exposition Authority, IL,
5.250%, 6/15/2042, (MBIA insured) 3,172,740
---------------
6,454,186
---------------
Indiana -- 1.9%
2,000,000 Indianapolis, IN, Local Public Improvement Bond Bank,
5.250%, 7/01/2033, (MBIA insured) 2,098,080
---------------
Louisiana -- 4.6%
4,000,000 Desoto Parish, LA, Environmental Improvement,
5.000%, 11/01/2018 4,014,320
1,000,000 Ernest N. Morial, New Orleans, LA, Exhibit Hall Authority,
5.000%, 7/15/2033 1,023,210
---------------
5,037,530
---------------
Massachusetts -- 3.8%
3,000,000 Massachusetts State,
5.000%, 3/01/2019 3,201,600
1,045,000 Massachusetts State Health & Educational Facilities Authority,
(Lahey Clinic Medical Center)
4.500%, 8/15/2035, (FGIC insured) 992,301
---------------
4,193,901
---------------
Principal
Amount Description Value (a)
- ----------------------------------------------------------------------------------------------
Michigan -- 7.8%
$ 1,000,000 Michigan State Comprehensive Transportation,
5.250%, 5/15/2022 $ 1,103,690
2,850,000 Michigan State Hospital Finance Authority, Henry Ford
Health System,
5.500%, 3/01/2014 3,096,810
1,100,000 Michigan State Hospital Finance Authority, Oakwood
Obligated Group,
5.500%, 11/01/2014 1,199,363
1,000,000 Taylor Brownfield Redevelopment Authority, MI,
5.000%, 5/01/2025, (MBIA insured) 1,055,230
2,000,000 University of Michigan,
5.250%, 12/01/2020 2,119,640
---------------
8,574,733
---------------
Minnesota -- 2.9%
1,000,000 Chaska Minnesota Electric Revenue,
5.250%, 10/01/2025 1,073,120
2,000,000 Minnesota State Municipal Power Agency,
5.250%, 10/01/2024 2,146,580
---------------
3,219,700
---------------
Mississippi -- 5.0%
2,000,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control,
6.700%, 4/01/2022 2,424,380
2,500,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control,
6.800%, 4/01/2022 3,058,675
---------------
5,483,055
---------------
New Jersey -- 2.9%
1,000,000 New Jersey Economic Development Authority,
5.500%, 6/15/2024 1,048,850
1,000,000 New Jersey Economic Development Authority,
5.625%, 6/15/2018 1,056,290
1,000,000 New Jersey Health Care Facilities Financing Authority,
Catholic Health East,
5.375%, 11/15/2033 1,050,210
---------------
3,155,350
---------------
New York -- 16.8%
3,000,000 New York State Dormitory Authority,
5.500%, 5/15/2013 3,308,850
2,740,000 New York State Dormitory Authority,
5.750%, 7/01/2013 3,035,098
1,000,000 New York State Dormitory Authority, Rockefeller University,
5.000%, 7/01/2032 1,043,480
1,000,000 New York State Housing Finance Agency,
5.250%, 9/15/2019 1,082,850
3,000,000 New York State Municipal Bond Bank Agency,
5.250%, 6/01/2020 3,210,300
1,000,000 New York, NY,
4.250%, 5/15/2019 991,800
1,020,000 New York, NY,
6.000%, 1/15/2020 1,153,141
1,400,000 New York, NY, City Health & Hospital Corp.,
5.000%, 2/15/2020 1,469,048
2,000,000 New York, NY, City Municipal Water Finance Authority,
5.000%, 6/15/2025 2,122,940
1,000,000 New York, NY, City Municipal Water Finance Authority,
5.125%, 6/15/2034 1,050,450
---------------
18,467,957
---------------
See accompanying notes to financial statements.
32
LOOMIS SAYLES MUNICIPAL INCOME FUND --SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- ------------------------------------------------------------------------------------------
North Carolina -- 1.3%
$ 1,300,000 North Carolina Eastern Municipal Power Agency,
5.500%, 1/01/2012 $ 1,394,029
---------------
Oregon -- 5.4%
1,750,000 Multnomah County, OR, Hospital Facilities Authority,
Providence Health System,
5.250%, 10/01/2012 1,912,312
4,000,000 Western Generation Agency
7.400%, 1/01/2016(c) 4,055,320
---------------
5,967,632
---------------
Pennsylvania -- 4.0%
4,000,000 Pennsylvania State Industrial Development Authority,
5.500%, 7/01/2019, (AMBAC insured) 4,426,680
---------------
Puerto Rico -- 3.0%
1,000,000 Puerto Rico Commonwealth Infrastructure Financing Authority,
5.500%, 10/01/2040 1,090,780
2,000,000 Puerto Rico Public Finance Corp.,
5.750%, 8/01/2027(d) 2,185,520
---------------
3,276,300
---------------
South Carolina -- 3.7%
3,000,000 Greenville County, SC, School District,
5.500%, 12/01/2028 3,235,890
800,000 Newberry Investing in Childrens Education, (Newberry County
School District),
5.250%, 12/01/2022 828,616
---------------
4,064,506
---------------
South Dakota -- 1.2%
1,250,000 South Dakota Health & Educational Facilities Authority,
Sioux Valley Hospital,
5.250%, 11/01/2027 1,309,663
---------------
Tennessee -- 2.2%
1,500,000 Tennessee Housing Development Agency,
5.200%, 7/01/2023 1,564,380
810,000 Tennessee Housing Development Agency, Homeownership
Program,
5.150%, 7/01/2022 836,147
---------------
2,400,527
---------------
Texas -- 5.8%
2,000,000 Dallas-Fort Worth, TX, International Airport,
5.500%, 11/01/2033, (MBIA insured) 2,132,660
1,000,000 Katy, TX, Independent School District,
5.125%, 2/15/2020 1,062,580
3,000,000 Lewisville, TX, Independent School District,
5.250%, 8/15/2027 3,164,040
---------------
6,359,280
---------------
Washington -- 2.0%
2,000,000 Energy Northwest, WA, Electric, Project No. 1,
5.500%, 7/01/2014 2,234,920
---------------
Total Tax Exempt Obligations (Identified Cost $103,666,989) 107,870,506
---------------
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------------
Short-Term Investment -- 1.7%
$ 1,936,077 Repurchase Agreement with Investors Bank & Trust Co. dated
9/30/2005 at 2.75% to be repurchased at $1,936,520 on
10/03/2005, collateralized by $930,455 Federal National
Mortgage Association Bond, with rates of 4.18% -- 4.437%, with
maturities from 2/1/2034 -- 5/25/2034 valued at $933,298,
and $1,020,278 Small Business Administration Bond, with rates of
6.30% -- 6.375%, with maturities from 7/25/2028 --
9/25/2028 valued at $1,099,583 $ 1,936,077
---------------
Total Short-Term Investment (Cost $1,936,077) 1,936,077
---------------
Total Investments -- 99.9%
(Identified Cost $105,603,066)(b) 109,806,583
Other assets less liabilities -- 0.1% 58,187
---------------
Total Net Assets -- 100.0% $ 109,864,770
===============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on
investments based on cost of $105,722,453 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $ 4,489,726
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (405,596)
---------------
Net unrealized appreciation $ 4,084,130
===============
(c) Illiquid security. At September 30, 2005, the value of this security
amounted to $4,055,320 or 3.7% of net assets.
(d) Variable rate security whose interest rate varies with changes in a
designated base rate (such as the prime interest rate) on a
specified date (such as coupon date or interest payment date).
AMBAC American Municipal Bond Assurance Corporation
FGIC Financial Guarantee Insurance Company
MBIA Municipal Bond Investors Assurance Corporation
See accompanying notes to financial statements.
33
LOOMIS SAYLES MUNICIPAL INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited)
Hospital -- Obligated Group 17.5%
Corporate Backed/Industrial Revenue/Pollution Control 13.6
College & University 8.5
State General Obligation 8.0
Special Tax 6.7
Electric 6.2
Airport 4.8
Water & Sewerage 4.8
City and Town 3.9
School District 3.9
Lease 3.7
Resource Recovery 3.7
Bond Bank/Pooled Loan Program 2.9
Non-Profit 2.6
Senior Living 2.2
Housing -- Single Family 2.2
Other, less than 2% each 3.0
See accompanying notes to financial statements.
34
LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- ------------------------------------------------------------------------------------
Bonds and Notes -- 87.8% of Total Net Assets
Convertible Bonds -- 5.6%
Canada -- 0.6%
$ 6,525,000 Nortel Networks Corp., Guaranteed Senior Note
4.250%, 9/01/2008 $ 6,141,656
5,300,000 Province of Saskatchewan
6.000%, 6/01/2006, (CAD) 4,642,344
---------------
10,784,000
---------------
Ireland -- 0.1%
2,045,000 Elan Capital Corp., Ltd.
6.500%, 11/10/2008 2,773,633
---------------
United Kingdom -- 0.3%
3,270,000 Colt Telecom Group PLC
2.000%, 4/03/2007, (EUR) 4,835,168
---------------
United States -- 4.6%
5,469,000 Amkor Technology, Inc.
5.000%, 3/15/2007 4,819,556
3,035,000 AMR Corp., Senior Note
4.500%, 2/15/2024 2,097,944
200,000 Builders Transport, Inc., Subordinated Note
6.500%, 5/01/2011(c) (d) (e) (f) (g) 20
1,000,000 Builders Transport, Inc., Subordinated Note
8.000%, 8/15/2005(c) (d) (e) (f) (g) 100
7,270,000 Chiron Corp.
1.625%, 8/01/2033 7,106,425
3,120,000 Continental Airlines, Inc.
5.000%, 6/15/2023 2,141,100
176,000 Dixie Group, Inc., Subordinated Note
7.000%, 5/15/2012 166,540
9,018,000 Enzon, Inc.
4.500%, 7/01/2008 8,183,835
3,901,000 EPIX Pharmaceuticals, Inc., Senior Note
3.000%, 6/15/2024 2,974,512
4,865,000 Inhale Therapeutic Systems, Inc., Subordinated Note
3.500%, 10/17/2007 4,761,619
500,000 IVAX Corp., Senior Note
1.500%, 3/01/2024(h) 564,375
2,360,000 IVAX Corp., Senior Note
4.500%, 5/15/2008 2,357,050
5,810,000 Kulicke & Soffa Industries, Inc., Subordinated Note
0.500%, 11/30/2008 4,292,137
100,000 Kulicke & Soffa Industries, Inc., Subordinated Note
1.000%, 6/30/2010 75,875
7,330,000 Level 3 Communications, Inc.
6.000%, 9/15/2009 3,839,087
275,000 Level 3 Communications, Inc.
6.000%, 3/15/2010 141,281
2,335,000 Liberty Media Corp.
3.500%, 1/15/2031 2,314,569
2,822,000 Maxtor Corp., Subordinated Note
5.750%, 3/01/2012(g) 2,539,800
1,180,000 Nektar Therapeutics, Subordinated Note, 144A
3.250%, 9/28/2012 1,241,950
625,000 Nextel Communications, Inc., Senior Note
5.250%, 1/15/2010 629,687
500,000 Preston Corp., Subordinated Note
7.000%, 5/01/2011 466,250
10,385,000 Regeneron Pharmaceuticals, Inc., Subordinated Note
5.500%, 10/17/2008 9,839,787
Principal
Amount + Description Value (a)
- -----------------------------------------------------------------------------------------------
United States -- continued
$ 311,000 Richardson Electronics, Ltd., 144A
7.750%, 12/15/2011 $ 287,675
600,000 SCI Systems, Inc. Subordinated Note
3.000%, 3/15/2007 577,500
12,316,000 Valeant Pharmaceuticals International, Subordinated Note
3.000%, 8/16/2010 11,192,165
8,885,000 Valeant Pharmaceuticals International, Subordinated Note
4.000%, 11/15/2013 8,052,031
5,225,000 Vertex Pharmaceuticals, Inc., 144A
5.750%, 2/15/2011 8,216,312
---------------
88,879,182
---------------
Total Convertible Bonds (Identified Cost $101,836,543) 107,271,983
---------------
Non-Convertible Bonds -- 82.2%
Argentina -- 0.8%
2,405,000 Pecom Energia SA, 144A
8.125%, 7/15/2010 2,573,350
34,415,000 Republic of Argentina
2.000%, 9/30/2014, (ARS)(i) 12,204,236
1,294,608 Republic of Argentina
8.280%, 12/31/2033(k) 1,335,388
---------------
16,112,974
---------------
Brazil -- 1.2%
11,297,000 Republic of Brazil
8.250%, 1/20/2034 11,353,485
6,000,000 Republic of Brazil
8.875%, 4/15/2024 6,402,000
5,026,000 Republic of Brazil
10.125%, 5/15/2027 6,021,148
---------------
23,776,633
---------------
Canada -- 15.0%
6,105,000 Abitibi-Consolidated, Inc.
7.500%, 4/01/2028 5,158,725
1,295,000 Bombardier, Inc.
7.350%, 12/22/2026, (CAD) 921,305
6,450,000 Bombardier, Inc., 144A
7.450%, 5/01/2034 5,450,250
9,005,000 Calpine Canada Energy Finance ULC
8.500%, 5/01/2008(h) 5,380,487
2,800,000 Calpine Canada Energy Finance ULC
8.750%, 10/15/2007, (CAD) 1,493,333
27,540,000 Canadian Government
4.250%, 9/01/2008, (CAD) 24,225,250
111,010,000 Canadian Government
4.500%, 9/01/2007, (CAD) 97,545,561
24,200,000 Canadian Government
6.000%, 6/01/2008, (CAD) 22,180,731
335,000 General Motors Acceptance Corp. of Canada, Ltd., Series E., (MTN)
6.625%, 12/17/2010, (GBP) 532,911
825,000 General Motors Nova Scotia Finance Co.
8.875%, 7/10/2023, (GBP) 1,105,717
945,000 GMAC Canada Ltd.
7.750%, 9/26/2008, (NZD) 588,532
3,750,000 Nortel Networks Corp.
6.875%, 9/01/2023 3,487,500
8,435,000 North American Energy Partners, Inc., Senior Note
8.750%, 12/01/2011 8,013,250
See accompanying notes to financial statements.
35
LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- ---------------------------------------------------------------------------------------
Canada -- continued
$ 5,990,000 Province of British Columbia
5.250%, 12/01/2006, (CAD) $ 5,265,584
29,235,000 Province of British Columbia
6.000%, 6/09/2008, (CAD) 26,770,207
13,000,000 Province of Manitoba
4.450%, 12/01/2008, (CAD) 11,495,131
6,685,000 Province of Manitoba
5.750%, 6/02/2008, (CAD) 6,081,941
1,525,000 Province of Ontario
3.500%, 9/08/2006, (CAD) 1,314,268
33,780,000 Province of Ontario
5.700%, 12/01/2008, (CAD) 30,903,833
6,240,000 Province of Ontario
5.900%, 3/08/2006, (CAD) 5,433,175
18,470,000 Province of Saskatchewan
5.500%, 6/02/2008, (CAD) 16,701,011
8,500,000 Rogers Wireless Communications, Inc., Senior Note
7.625%, 12/15/2011, (CAD) 7,768,817
2,525,000 Rogers Wireless Communications, Inc., Senior Secured Note
6.375%, 3/01/2014 2,537,625
---------------
290,355,144
---------------
Cayman Islands -- 0.3%
1,000,000 Enersis SA, Cayman Island
7.400%, 12/01/2016 1,065,759
3,905,000 Vale Overseas, Ltd.
8.250%, 1/17/2034 4,402,887
---------------
5,468,646
---------------
Chile -- 0.6%
4,875,000 Empresa Nacional de Electricidad SA, Chile
7.875%, 2/01/2027 5,247,387
250,000 Empresa Nacional de Electricidad SA, Chile
8.350%, 8/01/2013 284,578
1,700,000 Empresa Nacional de Electricidad SA, Chile
8.625%, 8/01/2015 1,984,889
4,525,000 Enersis SA, Chile
7.375%, 1/15/2014 4,781,273
---------------
12,298,127
---------------
Ireland -- 0.6%
12,230,000 Elan Finance Corp., Senior Note, 144A
7.750%, 11/15/2011 10,762,400
---------------
Mexico -- 3.8%
141,400,000 United Mexican States
8.000%, 12/07/2023, (MXN) 12,167,412
473,800,000 United Mexican States
9.000%, 12/20/2012, (MXN) 45,143,734
160,000,000 United Mexican States
10.000%, 12/05/2024, (MXN) 16,501,592
---------------
73,812,738
---------------
Netherlands -- 0.0%
337,000 GMAC International Finance BV
8.000%, 3/14/2007, (NZD) 228,477
---------------
Principal
Amount + Description Value (a)
- -------------------------------------------------------------------------------
Norway -- 0.3%
$ 10,000,000 Kingdom of Norway
5.500%, 5/15/2009, (NOK) $ 1,649,558
22,740,000 Kingdom of Norway
6.750%, 1/15/2007, (NOK) 3,650,534
---------------
5,300,092
---------------
Philippines -- 0.3%
3,700,000 Philippine Long Distance Telephone Co., (MTN)
8.350%, 3/06/2017 3,824,875
1,851,938 Quezon Power, Ltd., Senior Secured Note,
8.860%, 6/15/2017 1,805,639
---------------
5,630,514
---------------
Republic of Korea -- 0.6%
5,470,000 Hanarotelecom, Inc., 144A
7.000%, 2/01/2012 5,398,666
5,000,000 Hynix Semiconductor, Inc., 144A
9.875%, 7/01/2012 5,550,000
300,000 Samsung Electronics Co., Ltd., 144A
7.700%, 10/01/2027 333,555
---------------
11,282,221
---------------
Singapore -- 0.1%
1,050,000 SP PowerAssets, Ltd., Series E, (MTN)
3.730%, 10/22/2010, (SGD) 645,943
---------------
South Africa -- 0.1%
11,405,000 Republic of South Africa
12.500%, 12/21/2006, (ZAR) 1,883,214
---------------
Supranational -- 2.2%
15,543,570 European Investment Bank, 144A
Zero Coupon, 9/12/2008, (BRL) 4,575,624
24,450,000 Inter-American Development Bank, Series E, (MTN)
6.000%, 12/15/2017, (NZD) 16,700,576
80,000,000 Inter-American Development Bank, Series E, (MTN),
Zero Coupon, 5/11/2009, (BRL) 21,117,389
---------------
42,393,589
---------------
Sweden -- 1.5%
207,265,000 Kingdom of Sweden
6.500%, 5/05/2008, (SEK) 29,478,248
---------------
United Kingdom -- 0.4%
4,570,000 NTL Cable PLC
9.750%, 4/15/2014, (GBP) 8,122,862
---------------
United States -- 52.7%
5,565,000 AES Corp. (The)
8.375%, 3/01/2011, (GBP) 10,112,306
4,020,000 AES Corp. (The), Senior Note
7.750%, 3/01/2014 4,261,200
1,975,000 AES Corp. (The), Senior Subordinated Note
8.875%, 11/01/2027 2,152,749
9,525,000 AK Steel Corp., Guaranteed Senior Note
7.750%, 6/15/2012 8,786,812
9,520,000 Albertson's, Inc., Senior Note
7.450%, 8/01/2029 8,211,981
775,000 Albertson's, Inc., Senior Note
8.000%, 5/01/2031 705,720
1,240,000 Albertson's, Inc., Series C, (MTN)
6.625%, 6/01/2028 990,090
See accompanying notes to financial statements.
36
LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- --------------------------------------------------------------------------------
United States -- continued
$ 1,750,000 Altria Group, Inc.
7.000%, 11/04/2013 $ 1,915,485
1,442,789 American Airlines, Inc., Series 93A6
8.040%, 9/16/2011 1,278,470
750,000 American Airlines, Inc., Series 1999-1, Class A2
7.024%, 10/15/2009 759,865
825,000 American Airlines, Inc., Series 1999-1, Class B
7.324%, 10/15/2009 722,830
700,000 American Airlines, Inc., Series 2001-2, Class B
8.608%, 4/01/2011 655,142
9,853,000 American President Cos., Ltd., Senior Note
8.000%, 1/15/2024 10,111,641
6,450,000 Amkor Technology, Inc., Senior Note
7.125%, 3/15/2011 5,563,125
475,000 Amkor Technology, Inc., Senior Note
7.750%, 5/15/2013 406,125
925,000 Amkor Technology, Inc., Senior Subordinated Note
10.500%, 5/01/2009(h) 786,250
8,000,000 ASIF Global Financing, 144A
2.380%, 2/26/2009, (SGD) 4,682,243
10,155,000 Astoria Depositor Corp., 144A
8.144%, 5/01/2021 10,090,516
7,786,254 Atlas Air, Inc., Series 1998-1, Class 1A
7.380%, 1/02/2018 7,752,461
16,288,877 Atlas Air, Inc., Series 1998-1, Class 1B
7.680%, 1/02/2014(c) 13,748,626
3,709,380 Atlas Air, Inc., Series 1999-1, Class A1
7.200%, 1/02/2019 3,686,385
440,293 Atlas Air, Inc., Series 1999-1, Class A2
6.880%, 7/02/2009 423,468
8,319,594 Atlas Air, Inc., Series 1999-1, Class B
7.630%, 1/02/2015(c) 6,918,750
784,915 Atlas Air, Inc., Series 2000-1, Class A
8.707%, 1/02/2019 812,976
5,323,737 Atlas Air, Inc., Series 2000-1, Class B
9.057%, 1/02/2014(c) 4,915,619
975,000,000 Barclays Bank PLC, 144A
4.160%, 2/22/2010, (THB) 22,352,905
17,310,000,000 Barclays Financial LLC, 144A
4.060%, 9/16/2010, (KRW) 16,232,250
529,000,000 Barclays Financial LLC, 144A
4.100%, 3/22/2010, (THB) 12,085,353
21,340,000,000 Barclays Financial LLC, 144A
4.460%, 9/23/2010, (KRW) 20,355,925
800,000 Bausch & Lomb, Inc.
7.125%, 8/01/2028 861,949
16,381,000 Borden, Inc.
7.875%, 2/15/2023 13,104,800
3,079,000 Borden, Inc.
8.375%, 4/15/2016 2,863,470
4,557,000 Borden, Inc.
9.200%, 3/15/2021 4,146,870
500,000 Bowater, Inc.
6.500%, 6/15/2013 466,250
8,470,000 Calpine Corp., Senior Note
7.750%, 4/15/2009 4,404,400
900,000 Calpine Corp., Senior Note
7.875%, 4/01/2008(h) 531,000
7,410,000 Calpine Corp., Senior Note
8.500%, 2/15/2011(h) 3,927,300
Principal
Amount + Description Value (a)
- ------------------------------------------------------------------------------------
United States -- continued
$ 3,560,000 Calpine Corp., Senior Note
8.625%, 8/15/2010(h) $ 1,869,000
355,000 Chesapeake Energy Corp. 144A
6.500%, 8/15/2017 361,212
425,000 Cincinnati Bell, Inc.
8.375%, 1/15/2014 418,625
2,500,000 CIT Group, Inc., Series E, Senior Note, (MTN)
5.500%, 12/01/2014, (GBP) 4,514,301
18,650,000 Citibank NA, 144A
15.000%, 7/02/2010, (BRL) 8,755,022
925,000 Coastal Corp.
7.750%, 6/15/2010 943,500
5,320,000 Columbia/HCA, Inc.
7.050%, 12/01/2027 5,024,804
500,000 Columbia/HCA, Inc.
7.500%, 12/15/2023 496,539
500,000 Columbia/HCA, Inc. (MTN)
7.580%, 9/15/2025 495,456
1,204,453 Continental Airlines, Inc., Series 1997-4, Class 4A
6.900%, 1/02/2018 1,177,218
4,111,029 Continental Airlines, Inc., Series 1997-4, Class 4B
6.900%, 1/02/2017 3,516,385
1,544,726 Continental Airlines, Inc., Series 1998-1, Class 1B
6.748%, 3/15/2017 1,336,188
1,646,119 Continental Airlines, Inc., Series 1999-1, Class A
6.545%, 2/02/2019 1,614,052
7,670,702 Continental Airlines, Inc., Series 1999-1, Class B
6.795%, 8/02/2018 6,637,699
3,471,945 Continental Airlines, Inc., Series 1999-1, Class C
6.954%, 8/02/2009 3,042,420
2,003,332 Continental Airlines, Inc., Series 1999-2, Class B
7.566%, 3/15/2020 1,742,265
556,537 Continental Airlines, Inc., Series 2001-1, Class A1
6.703%, 6/15/2021 528,750
950,546 Continental Airlines, Inc., Series 2001-1, Class B
7.373%, 12/15/2015 830,452
6,589,682 Continental Airlines, Inc., Series 2002-2, Class B
8.307%, 4/02/2018 5,819,683
6,225,000 Corning, Inc.
5.900%, 3/15/2014 6,315,605
6,220,000 Corning, Inc.
6.200%, 3/15/2016 6,397,880
650,000 Corning, Inc.
6.750%, 9/15/2013 696,178
1,000,000 Corning, Inc.
6.850%, 3/01/2029 1,009,241
400,000 CSC Holdings, Inc., Senior Note
7.875%, 2/15/2018 382,000
250,000 CSC Holdings, Inc., Series B, Senior Note
8.125%, 7/15/2009 251,875
250,000 CSC Holdings, Inc., Series B, Senior Note
8.125%, 8/15/2009 251,875
2,145,000 Cummins, Inc.
7.125%, 3/01/2028 2,177,175
310,000 Dana Corp.
5.850%, 1/15/2015 243,158
460,000 Dana Corp.
7.000%, 3/15/2028 349,922
1,610,000 Dana Corp.
7.000%, 3/01/2029 1,226,044
See accompanying notes to financial statements.
37
LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- ---------------------------------------------------------------------------------
United States -- continued
$ 200,000 Delphi Automotive Systems Corp.
6.550%, 6/15/2006(l) $ 147,000
11,700,000 Delphi Automotive Systems Corp.
7.125%, 5/01/2029(l) 7,488,000
425,000 Dillard's, Inc.
7.875%, 1/01/2023 420,750
7,285,000 Dillard's, Inc.
6.625%, 1/15/2018 6,775,050
1,350,000 Dillard's, Inc.
7.000%, 12/01/2028 1,242,000
1,600,000 Dillard's, Inc.
7.130%, 8/01/2018 1,520,000
1,500,000 Dillard's, Inc.
7.750%, 7/15/2026 1,455,000
900,000 Dynegy Holdings, Inc.
7.125%, 5/15/2018 832,500
3,705,000 Edison Mission Energy Corp., Senior Note
7.730%, 6/15/2009 3,908,775
260,000 El Paso CGP, Co.
6.375%, 2/01/2009 253,500
14,215,000 El Paso CGP, Co.
6.950%, 6/01/2028 12,793,500
1,965,000 EL Paso Corp.
7.000%, 5/15/2011 1,960,088
750,000 EL Paso Corp., Senior Note, (MTN)
7.800%, 8/01/2031 751,875
1,600,000 El Paso Energy Corp.
6.750%, 5/15/2009 1,584,000
1,000,000 EL Paso Energy Corp., (MTN)
7.750%, 1/15/2032(i) 1,007,500
4,000,000 FHLMC
3.220%, 6/20/2007, (SGD) 2,395,624
29,200,000 FNMA
2.290%, 2/19/2009, (SGD) 17,108,411
6,500,000 FNMA
2.375%, 2/15/2007 6,328,335
9,000,000 FNMA,
Zero Coupon, 10/29/2007, (NZD) 5,415,945
1,000,000 Foot Locker, Inc.
8.500%, 1/15/2022 1,087,500
150,000 Ford Motor Co.
6.625%, 10/01/2028 108,375
2,110,000 Friendly Ice Cream Corp., Guaranteed Senior Note
8.375%, 6/15/2012 1,993,950
50,275,000 General Electric Capital Corp.
6.500%, 9/28/2015, (NZD) 34,067,679
30,350,000 General Electric Capital Corp.
6.625%, 2/04/2010, (NZD) 20,873,607
500,000 General Electric Capital Corp., Series E, (MTN)
1.725%, 6/27/2008, (SGD) 288,850
3,100,000 General Electric Capital Corp., Series E, (MTN)
6.125%, 5/17/2012, (GBP) 5,890,703
6,625,000 General Motors Acceptance Corp.
4.5588%, 7/16/2007(i) 6,442,309
8,000,000 General Motors Acceptance Corp.
4.670%, 3/20/2007(i) 7,832,112
3,401,000 General Motors Acceptance Corp., Series E, (MTN)
7.500%, 12/01/2006, (NZD) 2,249,849
Principal
Amount + Description Value (a)
- ---------------------------------------------------------------------------------------
United States -- continued
$ 1,350,000 Georgia-Pacific Corp.
7.250%, 6/01/2028 $ 1,388,813
3,200,000 Georgia-Pacific Corp.
7.375%, 12/01/2025 3,328,000
3,775,000 Georgia-Pacific Corp.
7.750%, 11/15/2029 4,048,688
885,000 Goodyear Tire & Rubber
7.000%, 3/15/2028 716,850
1,845,000 Goodyear Tire & Rubber, 144A
9.000%, 7/01/2015 1,817,325
2,590,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note
7.750%, 12/15/2013 2,376,325
840,000 Hawaiian Telcom Communications, Inc., Senior Subordinated
Note, 144A
12.500%, 5/01/2015 848,400
1,000,000 HCA, Inc., Senior Note
5.750%, 3/15/2014 953,172
270,000 Hercules, Inc., Subordinated Note
6.500%, 6/30/2029 211,275
1,780,000 Hertz Corp., Senior Note
6.350%, 6/15/2010 1,683,218
695,000 Hertz Corp., Senior Note
6.900%, 8/15/2014 643,715
16,050,000 HSBC Bank USA, 144A
3.310%, 8/25/2010 16,255,440
2,515,000 IMC Global, Inc.
7.300%, 1/15/2028 2,584,163
1,880,000 IMC Global, Inc.
7.375%, 8/01/2018 1,929,350
640,000 JC Penney Co., Inc.
7.125%, 11/15/2023 704,000
92,000,000 JPMorgan Chase Bank NA, 144A,
Zero Coupon, 5/17/2010, (BRL) 22,114,404
1,500,000 K Hovnanian Enterprises, Inc., Senior Note
6.375%, 12/15/2014 1,426,502
500,000 K Hovnanian Enterprises, Inc., Senior Note, 144A
6.250%, 1/15/2016 465,574
12,035,000 Lucent Technologies, Inc.
6.450%, 3/15/2029 10,530,625
1,250,000 McDonald's Corp., Series E, (MTN)
3.6275%, 10/10/2010, (SGD) 760,520
1,131,000 Missouri Pacific Railroad Co.
5.000%, 1/01/2045 843,241
1,000,000 Morgan Stanley
5.375%, 11/14/2013, (GBP) 1,805,853
1,000,000 Navistar International
6.250%, 3/01/2012 950,000
2,145,000 NGC Corp.
7.625%, 10/15/2026 1,984,125
7,670,000 NGC Corp. Capital Trust, Series B
8.316%, 6/01/2027 6,883,825
3,175,000 Northern Telecom Capital Corp.
7.875%, 6/15/2026 3,111,500
250,235 Northwest Airlines Corp.
7.950%, 3/01/2015(d) 190,581
6,145,000 Owens-Illinois, Inc., Senior Note
7.800%, 5/15/2018 6,175,725
3,000,000 Pemex Project Funding Master Trust, 144A
8.625%, 12/01/2023 3,652,500
See accompanying notes to financial statements.
38
LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount + Description Value (a)
- ---------------------------------------------------------------------------------------------
United States -- continued
$ 4,350,000 Pemex Project Funding Master Trust, 144A
9.500%, 9/15/2027 $ 5,713,725
2,000,000 Pharma Services Intermediate Holdings Corp., Senior Note,
Convertible,
0.00% (step to 11.50% on 4/01/2009), 4/01/2014(j) 1,480,000
1,920,000 Pioneer Natural Resource
5.875%, 7/15/2016 1,889,002
800,000 Qwest Capital Funding, Inc.
6.500%, 11/15/2018 664,000
33,450,000 Qwest Capital Funding, Inc.
6.875%, 7/15/2028 27,512,625
950,000 Qwest Capital Funding, Inc.
7.250%, 2/15/2011 904,875
1,700,000 Qwest Capital Funding, Inc.
7.750%, 2/15/2031 1,466,250
2,025,000 Qwest Capital Funding, Inc., Guaranteed Note
7.000%, 8/03/2009 1,979,438
2,420,000 Qwest Capital Funding, Inc., Guaranteed Note
7.625%, 8/03/2021 2,117,500
1,350,000 Qwest Corp.
7.250%, 9/15/2025 1,258,875
6,100,000 SLM Corp.
6.500%, 6/15/2010, (NZD) 4,178,682
2,595,000 Sungard Data Systems, Inc., 144A
10.250%, 8/15/2015 2,627,438
1,810,000 Sungard Data Systems, Inc., Senior Note, 144A
9.125%, 8/15/2013 1,875,613
6,405,000 Telcordia Technologies, Inc., Senior Subordinated Note, 144A
10.000%, 3/15/2013 6,052,725
496,687 Tiverton Power Associates, LP, 144A
9.000%, 7/15/2018 342,714
3,680,000 Toys R US, Inc.
7.375%, 10/15/2018 2,944,000
315,000 TXU Corp.
5.550%, 11/15/2014 299,038
2,225,000 TXU Corp.
6.550%, 11/15/2034 2,065,027
5,000,000 U.S. Treasury Note
1.625%, 2/28/2006 4,954,885
95,775,000 U.S. Treasury Note
2.500%, 5/31/2006 94,820,985
49,730,000 U.S. Treasury Note
2.625%, 5/15/2008 47,822,407
29,225,000 U.S. Treasury Note
2.750%, 6/30/2006 28,948,736
50,270,000 U.S. Treasury Note
3.000%, 2/15/2008 48,940,610
100,000,000 U.S. Treasury Note
3.625%, 4/30/2007 99,156,200
25,000,000 U.S. Treasury Note
3.625%, 6/30/2007 24,761,725
38,000,000 U.S. Treasury Note
4.375%, 5/15/2007 38,126,160
1,020,000 United Rentals North America, Inc., Senior Subordinated Note
7.000%, 2/15/2014 946,050
2,500,000 Wal-Mart Stores, Inc.
4.750%, 1/29/2013, (GBP) 4,430,074
600,000 Williams Cos., Inc.
7.875%, 9/01/2021 660,000
Principal
Amount + Description Value (a)
- ------------------------------------------------------------------------------------------
United States -- continued
$ 965,000 Williams Cos., Inc., Senior Note
7.750%, 6/15/2031 $ 1,044,613
8,600,000 Williams Cos., Inc., Series A
7.500%, 1/15/2031 9,137,500
15,550,000 Xerox Capital Trust I, Guaranteed Note
8.000%, 2/01/2027 16,133,125
1,730,000 Xerox Corp., (MTN)
7.200%, 4/01/2016 1,885,700
---------------
1,021,954,624
---------------
Uruguay -- 0.2%
1,600,000 Republic of Uruguay
7.500%, 3/15/2015 1,640,000
2,877,483 Republic of Uruguay
7.875%, 1/15/2033(k) 2,823,530
---------------
4,463,530
---------------
Venezuela -- 1.5%
16,535,000 Cerro Negro Finance, Ltd., 144A
7.900%, 12/01/2020 15,749,588
13,790,000 Petrozuata Finance, Inc., Series B, 144A
8.220%, 4/01/2017 13,169,450
---------------
28,919,038
---------------
Total Non-Convertible Bonds (Identified Cost $1,539,895,373) 1,592,889,014
---------------
Total Bonds and Notes (Identified Cost $1,641,731,916) 1,700,160,997
---------------
Shares
- ------------------------------------------------------------------------------------------
Common Stocks -- 4.4%
Brazil -- 0.3%
117,000 Cia Vale do Rio Doce, ADR 5,131,620
---------------
United States -- 4.1%
1,371,000 Associated Estates Realty Corp. (REIT) 13,435,800
137,000 Camden Property Trust (REIT) 7,637,750
53,260 Chesapeake Energy Corp. 2,037,195
36,565 CIM High Yield Securities Fund 153,573
41,343 Corning, Inc. 799,160
182,500 Developers Diversified Realty Corp. (REIT) 8,522,750
282,500 Duke Energy Corp. 8,240,525
460,000 Equity Residential Properties Trust (REIT) 17,411,000
1,063,850 High Income Opportunity Fund, Inc. 6,691,617
632,475 Managed High Income Portfolio, Inc. 3,946,644
110,211 Morgan Stanley Emerging Markets Debt Fund, Inc.(h) 1,142,888
117,700 Simon Property Group, Inc. (REIT) 8,723,924
---------------
78,742,826
---------------
Total Common Stocks (Identified Cost $66,439,343) 83,874,446
---------------
Preferred Stocks -- 2.8%
Philippines -- 0.4%
156,314 Philippine Long Distance Telephone Co., Sponsored GDR,
Convertible,
$3.50, 12/31/2049 8,206,485
---------------
United States -- 2.4%
121,150 AES Trust III, Convertible,
6.75%, 10/15/2029 5,875,775
36,725 CMS Energy Trust I, Convertible,
7.75%, 7/15/2027 1,836,250
See accompanying notes to financial statements.
39
LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Shares Description Value (a)
- ----------------------------------------------------------------------------------------------
Preferred Stocks -- continued
United States -- continued
51,500 Cummins Capital Trust I, Convertible,
7.00%, 6/15/2031 $ 4,802,375
1,100 Delphi Trust I,
8.25%, 10/15/2033 10,285
41,300 Felcor Lodging Trust, Inc. (REIT), Convertible,
8.08%, 12/13/2049 1,011,850
24,550 Host Marriott Finance Trust (REIT), Convertible,
6.75%, 12/2/2026 1,350,250
13,100 Lucent Technologies Capital Trust I, Convertible,
7.75%, 3/15/2017 13,214,625
15,000 Newell Financial Trust I, Convertible,
5.25%, 12/1/2027 658,125
312,900 Owens-Illinois, Inc., Convertible,
4.75%, 12/31/2049 11,303,513
800 Pacific Gas & Electric Co., Series G,
4.80% 17,200
267,925 Travelers Property Casualty, Convertible,
4.50%, 4/15/2032 6,446,275
11,000 United Rentals Trust I, Convertible,
6.50%, 8/1/2028 442,750
---------------
46,969,273
---------------
Total Preferred Stocks (Identified Cost $48,853,165) 55,175,758
---------------
Principal
Amount +
- ----------------------------------------------------------------------------------------------
Short-Term Investments -- 6.4%
$ 116,460,129 Repurchase Agreement with Investors Bank & Trust Co. dated
9/30/2005 at 2.75% to be repurchased at $116,486,818 on
10/03/2005, collateralized by $20,742,826 Federal Home Loan
Mortgage Association Bond, 4.268%, due 1/15/2033 valued at
$21,000,000, $62,521,043 Federal National Mortgage
Association Bond, with rates of 3.872% -- 4.180%, with
maturities from 5/25/2034 -- 10/1/2041 valued at
$63,000,000, $20,739,274 Government National Mortgage
Association Bond, 4.625%, due 1/20/2034 valued at
$21,000,000, and $16,040,480 Small Business Administration
Bond, with rates of 6.125% -- 6.74%, with maturities from
6/25/2019 -- 1/25/2029 valued at $17,283,136 116,460,129
7,747,758 Repurchase Agreement with Merrill Lynch & Co, dated 9/30/2005
at 3.93% to be repurchased at $7,750,295 on 10/03/2005,
collateralized by $7,747,580 Federal Home Loan Mortgage
Association Bond, with rates of 0.00% -- 6.25%, with maturities
from 1/30/07 -- 7/15/32 valued at $7,902,725(m) 7,747,758
---------------
Total Short-Term Investments (Identified Cost $124,207,887) 124,207,887
---------------
Total Investments -- 101.4%
(Identified Cost $1,881,232,311)(b) 1,963,419,088
Other assets less liabilities -- (1.4)% (26,571,347)
---------------
Total Net Assets -- 100% $ 1,936,847,741
===============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on
investments based on cost of $1,883,611,622 for federal income
tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost $ 109,892,422
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value (30,084,956)
---------------
Net unrealized appreciation $ 79,807,466
===============
(c) Non-income producing security.
(d) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code.
(e) Security valued at fair value as determined in good faith by or under the direction of the
Board of Trustees.
(f) Security is in default of principal and/or interest payments.
(g) Illiquid security. At September 30, 2005, the value of these securities amounted to
$2,539,920 or 0.1% of net assets.
(h) All or a portion of this security was on loan to brokers at September 30, 2005.
(i) Variable rate security whose interest rate varies with changes in a designated base rate
(such as the prime interest rate) on a specified date (such as coupon date or interest
payment date).
(j) Step Bond: Coupon rate is zero or below market for an initial period and then increases to
a higher coupon rate at a specified date.
(k) All or a portion of interest payment is paid in-kind.
(l) Became non-income producing effective October 8, 2005 due to bankruptcy filing.
(m) Represents investment of securities lending collateral.
+ Principal amount is in U.S. dollars unless otherwise noted.
ADR/GDR An American Depositary Receipt (ADR) or Global Depositary Receipt (GDR) is a certificate
issued by a U.S. Bank representing the right to receive securities of the foreign issuer
described. The values of ADRs and GDRs are significantly influenced by trading on
exchanges not located in the United States.
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
MTN Medium Term Note
REIT Real Estate Investment Trust
144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers. At September 30, 2005, the value of these securities amounted to
$229,990,104 or 11.9% of net assets.
ARS Argentine Peso
BRL Brazilian Real
CAD Canadian Dollar
EUR Euro
GBP British Pound
KRW South Korean Won
MXN Mexican Peso
NOK Norwegian Krone
NZD New Zealand Dollar
SEK Swedish Krona
SGD Singapore Dollar
THB Thai Baht
ZAR South African Rand
See accompanying notes to financial statements.
40
LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited)
Treasuries 20.0%
Sovereigns 13.0
Foreign Local Governments 7.1
Banking 6.3
Technology 5.9
Electric 4.2
Pharmaceuticals 3.9
Wirelines 3.4
Non Captive Diversified 3.1
REITs 2.9
Transportation Services 2.9
Supranational 2.2
Other, less than 2% each 20.1
See accompanying notes to financial statements.
41
This Page Intentionally Left Blank
42
STATEMENTS OF ASSETS & LIABILITIES
September 30, 2005
Limited Term
Government and
Core Plus Bond Fund High Income Fund Agency Fund
--------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
ASSETS
Investments at cost $ 246,909,334 $ 38,403,758 $ 163,819,775
Repurchase agreements at cost 2,904,133 1,070,282 17,368,595
Net unrealized appreciation
(depreciation) 585,115 2,426,477 (1,054,918)
--------------------- --------------------- ---------------------
Investments at value 250,398,582 41,900,517 180,133,452
Receivable for Fund shares sold 1,197,630 28,087 63,292
Receivable for securities sold 2,841,357 32,402 1,308,495
Dividends and interest receivable 2,734,531 651,838 972,826
Tax reclaims receivable -- 144 --
Receivable from investment adviser -- 30,944 --
Securities lending income receivable 969 5,191 1,853
Prepaid expense 720 82 242
--------------------- --------------------- ---------------------
TOTAL ASSETS 257,173,789 42,649,205 182,480,160
--------------------- --------------------- ---------------------
LIABILITIES
Collateral on securities loaned, at
value -- 326,432 --
Payable for securities purchased 3,242,337 576,144 17,110,136
Payable for Fund shares redeemed 453,986 101,695 131,114
Dividends payable 365,132 98,041 108,675
Management fees payable 151,966 20,673 68,475
Deferred Trustees' fees 201,381 49,660 176,337
Transfer agent fees payable 206,422 17,498 40,377
Administrative fees payable 13,396 2,154 9,205
Other accounts payable and accrued
expenses 81,424 51,747 57,014
--------------------- --------------------- ---------------------
TOTAL LIABILITIES 4,716,044 1,244,044 17,701,333
--------------------- --------------------- ---------------------
NET ASSETS $ 252,457,745 $ 41,405,161 $ 164,778,827
===================== ===================== =====================
NET ASSETS CONSIST OF:
Paid-in capital $ 271,877,715 $ 122,535,799 $ 191,851,664
Undistributed (overdistributed) net
investment income 2,160,307 (64,686) (134,584)
Accumulated net realized gain (loss)
on investments and foreign currency
transactions (22,171,364) (83,494,563) (25,883,335)
Net unrealized appreciation
(depreciation) on investments and
foreign currency translations 591,087 2,428,611 (1,054,918)
--------------------- --------------------- ---------------------
NET ASSETS $ 252,457,745 $ 41,405,161 $ 164,778,827
===================== ===================== =====================
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE:
Class A shares:
Net assets $ 105,111,457 $ 25,817,076 $ 141,417,316
===================== ===================== =====================
Shares of beneficial interest 9,211,887 5,184,679 12,748,538
===================== ===================== =====================
Net asset value and redemption price
per share $ 11.41 $ 4.98 $ 11.09
===================== ===================== =====================
Offering price per share
(100/[100-maximum sales charge] of
net asset value) $ 11.95 $ 5.21 $ 11.43
===================== ===================== =====================
Class B shares: (redemption price is
equal to net asset value less any
applicable contingent deferred sales
charge)
Net assets $ 132,221,276 $ 12,033,607 $ 15,114,209
===================== ===================== =====================
Shares of beneficial interest 11,583,483 2,415,247 1,365,648
===================== ===================== =====================
Net asset value and offering price
per share $ 11.41 $ 4.98 $ 11.07
===================== ===================== =====================
Class C shares: (redemption price is
equal to net asset value less any
applicable contingent deferred sales
charge)
Net assets $ 6,065,000 $ 3,554,478 $ 5,714,799
===================== ===================== =====================
Shares of beneficial interest 530,974 713,702 515,548
===================== ===================== =====================
Net asset value and offering price
per share $ 11.42 $ 4.98 $ 11.08
===================== ===================== =====================
Class Y shares:
Net assets $ 9,060,012 $ -- $ 2,532,503
===================== ===================== =====================
Shares of beneficial interest 790,604 -- 227,492
===================== ===================== =====================
Net asset value, offering and
redemption price per share $ 11.46 $ -- $ 11.13
===================== ===================== =====================
Total value of securities on loan $ -- $ 317,864 $ --
===================== ===================== =====================
See accompanying notes to financial statements.
43
Massachusetts
Tax Free Municipal Strategic
Income Fund Income Fund Income Fund
--------------------- --------------------- ---------------------
--------------------- ---------------------
$ 73,944,884 $ 103,666,989 $ 1,757,024,424
760,125 1,936,077 124,207,887
4,360,233 4,203,517 82,186,777
--------------------- --------------------- ---------------------
79,065,242 109,806,583 1,963,419,088
988 3,236 25,497,633
115,942 35,451 --
1,300,457 1,620,239 23,616,872
-- -- 11,264
3,589 -- --
-- -- 110,999
189 182 1,505
--------------------- --------------------- ---------------------
80,486,407 111,465,691 2,012,657,361
--------------------- --------------------- ---------------------
-- -- 7,747,758
-- 837,377 61,451,482
50,686 433,004 1,778,164
62,735 103,850 3,232,172
39,931 44,588 922,128
57,419 119,045 134,675
9,362 12,368 234,990
4,415 5,924 68,898
36,860 44,765 239,353
--------------------- --------------------- ---------------------
261,408 1,600,921 75,809,620
--------------------- --------------------- ---------------------
$ 80,224,999 $ 109,864,770 $ 1,936,847,741
===================== ===================== =====================
$ 78,407,023 $ 106,343,460 $ 1,884,673,306
17,655 140,917 13,786,896
(2,559,912) (823,124) (43,592,817)
4,360,233 4,203,517 81,980,356
--------------------- --------------------- ---------------------
$ 80,224,999 $ 109,864,770 $ 1,936,847,741
===================== ===================== =====================
$ 77,018,486 $ 102,255,243 $ 977,198,057
===================== ===================== =====================
4,635,184 13,673,934 68,946,276
===================== ===================== =====================
$ 16.62 $ 7.48 $ 14.17
===================== ===================== =====================
$ 17.36 $ 7.83 $ 14.84
===================== ===================== =====================
$ 3,206,513 $ 7,609,527 $ 144,080,835
===================== ===================== =====================
193,407 1,016,400 10,132,667
===================== ===================== =====================
$ 16.58 $ 7.49 $ 14.22
===================== ===================== =====================
$ -- $ -- $ 765,199,863
===================== ===================== =====================
-- -- 53,825,835
===================== ===================== =====================
$ -- $ -- $ 14.22
===================== ===================== =====================
$ -- $ -- $ 50,368,986
===================== ===================== =====================
-- -- 3,553,734
===================== ===================== =====================
$ -- $ -- $ 14.17
===================== ===================== =====================
$ -- $ -- $ 7,542,497
===================== ===================== =====================
44
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 2005
Limited Term Government
Core Plus Bond Fund High Income Fund and Agency Fund
--------------------- --------------------- -----------------------
--------------------- --------------------- ---------------------
NET INVESTMENT INCOME
Dividends $ -- $ 102,887 $ --
Interest 13,647,132 3,415,219 5,552,283
Securities lending income 20,238 37,568 23,347
Less net foreign taxes withheld -- (676) --
--------------------- --------------------- ---------------------
13,667,370 3,554,998 5,575,630
--------------------- --------------------- ---------------------
Expenses
Management fees 1,138,592 260,872 785,427
Service fees - Class A 279,297 61,987 318,965
Service and distribution fees -
Class B 1,420,420 155,393 131,049
Service and distribution fees -
Class C 62,026 31,446 62,191
Trustees' fees and expenses 56,309 21,175 39,024
Administrative fees 170,210 27,317 96,860
Custodian fees 88,441 57,987 60,700
Transfer agent fees - Class A, Class
B, Class C 779,995 132,796 301,044
Transfer agent fees - Class Y 36,549 -- 16,619
Audit and tax services 31,412 38,685 24,909
Legal fees 19,161 5,216 8,983
Shareholder reporting 123,351 40,103 80,290
Registration 57,505 46,554 64,594
Miscellaneous 20,929 9,422 12,735
--------------------- --------------------- ---------------------
Total expenses 4,284,197 888,953 2,003,390
Less waiver/reimbursement (154,449) (61,643) (11,830)
--------------------- --------------------- ---------------------
Net expenses 4,129,748 827,310 1,991,560
--------------------- --------------------- ---------------------
Net investment income 9,537,622 2,727,688 3,584,070
--------------------- --------------------- ---------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net 4,285,731 1,682,732 (6,238)
Foreign currency transactions - net 57,608 14,573 --
Change in unrealized appreciation
(depreciation) of:
Investments - net (8,318,611) (252,818) (1,789,947)
Foreign currency translations - net (14,780) 1,492 --
--------------------- --------------------- ---------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (3,990,052) 1,445,979 (1,796,185)
--------------------- --------------------- ---------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,547,570 $ 4,173,667 $ 1,787,885
===================== ===================== =====================
See accompanying notes to financial statements.
45
Massachusetts Tax Municipal Strategic
Free Income Fund Income Fund Income Fund
--------------------- --------------------- ---------------------
--------------------- ---------------------
$ -- $ -- $ 4,642,868
3,968,317 5,454,265 69,081,045
-- -- 474,028
-- -- (55,901)
--------------------- --------------------- ---------------------
3,968,317 5,454,265 74,142,040
--------------------- --------------------- ---------------------
495,163 558,306 7,659,002
196,494 268,285 1,531,878
39,296 82,344 1,366,616
-- -- 4,824,725
24,118 35,995 83,418
52,354 73,067 773,439
36,828 39,328 349,740
102,737 129,268 1,980,198
-- -- 39,437
25,906 26,137 40,474
5,436 7,491 72,852
28,754 31,690 498,570
20,115 35,237 193,471
8,941 8,973 67,938
--------------------- --------------------- ---------------------
1,036,142 1,296,121 19,481,758
(3,589) -- --
--------------------- --------------------- ---------------------
1,032,553 1,296,121 19,481,758
--------------------- --------------------- ---------------------
2,935,764 4,158,144 54,660,282
--------------------- --------------------- ---------------------
447,715 1,495,771 21,255,490
-- -- 707,981
(258,210) (1,327,773) 28,039,775
-- -- (505,997)
--------------------- --------------------- ---------------------
189,505 167,998 49,497,249
--------------------- --------------------- ---------------------
$ 3,125,269 $ 4,326,142 $ 104,157,531
===================== ===================== =====================
46
STATEMENTS OF CHANGES IN NET ASSETS
Core Plus Bond Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2005 2004
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income $ 9,537,622 $ 11,076,363
Net realized gain (loss) on investments and
foreign currency transactions 4,343,339 9,525,887
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations (8,333,391) (6,354,947)
--------------------- ---------------------
Increase (decrease) in net assets resulting
from operations 5,547,570 14,247,303
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A (5,451,945) (5,832,828)
Class B (5,851,384) (5,866,726)
Class C (254,068) (259,130)
Class Y (529,060) (806,864)
--------------------- ---------------------
Total distributions (12,086,457) (12,765,548)
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 10) (26,672,030) (36,519,835)
--------------------- ---------------------
Redemption Fees
Class A 578 164
Class B 727 204
Class C 32 7
Class Y 53 17
--------------------- ---------------------
1,390 392
--------------------- ---------------------
Net increase (decrease) in net assets (33,209,527) (35,037,688)
--------------------- ---------------------
NET ASSETS
Beginning of year 285,667,272 320,704,960
--------------------- ---------------------
End of year $ 252,457,745 $ 285,667,272
===================== =====================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME $ 2,160,307 $ 2,485,658
===================== =====================
High Income Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2005 2004
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income $ 2,727,688 $ 3,223,716
Net realized gain (loss) on investments and
foreign currency transactions 1,697,305 2,160,377
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations (251,326) (389,892)
--------------------- ---------------------
Increase (decrease) in net assets resulting
from operations 4,173,667 4,994,201
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A (1,635,303) (1,756,090)
Class B (908,339) (1,304,202)
Class C (182,735) (172,398)
Class Y -- --
--------------------- ---------------------
Total distributions (2,726,377) (3,232,690)
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 10) (5,264,082) (6,616,858)
--------------------- ---------------------
Redemption Fees
Class A 3,017 146
Class B 1,868 110
Class C 370 16
Class Y -- --
--------------------- ---------------------
5,255 272
--------------------- ---------------------
Net increase (decrease) in net assets (3,811,537) (4,855,075)
--------------------- ---------------------
NET ASSETS
Beginning of year 45,216,698 50,071,773
--------------------- ---------------------
End of year $ 41,405,161 $ 45,216,698
===================== =====================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME $ (64,686) $ (110,020)
===================== =====================
Limited Term Government and Agency Fund
--------------------------------------------
Year Ended
Year Ended September 30,
September 30, 2005 2004
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income $ 3,584,070 $ 3,418,590
Net realized gain (loss) on investments and
foreign currency transactions (6,238) 1,021,149
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations (1,789,947) (2,043,680)
--------------------- ---------------------
Increase (decrease) in net assets resulting
from operations 1,787,885 2,396,059
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A (3,733,934) (4,112,174)
Class B (285,636) (358,642)
Class C (135,224) (232,332)
Class Y (65,428) (214,192)
--------------------- ---------------------
Total distributions (4,220,222) (4,917,340)
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 10) 39,221,920 (16,942,090)
--------------------- ---------------------
Redemption Fees
Class A -- --
Class B -- --
Class C -- --
Class Y -- --
--------------------- ---------------------
-- --
--------------------- ---------------------
Net increase (decrease) in net assets 36,789,583 (19,463,371)
--------------------- ---------------------
NET ASSETS
Beginning of year 127,989,244 147,452,615
--------------------- ---------------------
End of year $ 164,778,827 $ 127,989,244
===================== =====================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME $ (134,584) $ (110,117)
===================== =====================
See accompanying notes to financial statements.
47
Massachusetts Tax Free Income Fund Municipal Income Fund
- -------------------------------------------- --------------------------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
- --------------------- --------------------- --------------------- ---------------------
$ 2,935,764 $ 3,273,976 $ 4,158,144 $ 5,063,313
447,715 (325,070) 1,495,771 (199,243)
(258,210) 1,181,062 (1,327,773) 1,189,663
- --------------------- --------------------- --------------------- ---------------------
3,125,269 4,129,968 4,326,142 6,053,733
- --------------------- --------------------- --------------------- ---------------------
(2,824,718) (3,115,670) (3,981,690) (4,693,919)
(111,486) (157,408) (243,518) (324,812)
-- -- -- --
-- -- -- --
- --------------------- --------------------- --------------------- ---------------------
(2,936,204) (3,273,078) (4,225,208) (5,018,731)
- --------------------- --------------------- --------------------- ---------------------
(5,825,158) (7,548,538) (11,124,657) (17,936,186)
- --------------------- --------------------- --------------------- ---------------------
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
- --------------------- --------------------- --------------------- ---------------------
-- -- -- --
- --------------------- --------------------- --------------------- ---------------------
(5,636,093) (6,691,648) (11,023,723) (16,901,184)
- --------------------- --------------------- --------------------- ---------------------
85,861,092 92,552,740 120,888,493 137,789,677
- --------------------- --------------------- --------------------- ---------------------
$ 80,224,999 $ 85,861,092 $ 109,864,770 $ 120,888,493
===================== ===================== ===================== =====================
$ 17,655 $ 18,623 $ 140,917 $ 146,840
===================== ===================== ===================== =====================
Strategic Income Fund
- --------------------------------------------
Year Ended Year Ended
September 30, September 30,
2005 2004
- --------------------- ---------------------
$ 54,660,282 $ 27,670,276
21,963,471 15,404,828
27,533,778 21,984,923
- --------------------- ---------------------
104,157,531 65,060,027
- --------------------- ---------------------
(31,992,206) (14,995,915)
(6,262,718) (6,962,890)
(21,270,824) (8,540,977)
(1,531,716) (428,194)
- --------------------- ---------------------
(61,057,464) (30,927,976)
- --------------------- ---------------------
1,154,844,870 377,319,844
- --------------------- ---------------------
32,202 1,885
6,890 817
25,315 1,391
1,499 65
- --------------------- ---------------------
65,906 4,158
- --------------------- ---------------------
1,198,010,843 411,456,053
- --------------------- ---------------------
738,836,898 327,380,845
- --------------------- ---------------------
$ 1,936,847,741 $ 738,836,898
===================== =====================
$ 13,786,896 $ 5,317,888
===================== =====================
48
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions:
--------------------------------------- ---------------------------
Net asset
value, Dividends
beginning Net Net realized Total from from
of investment and unrealized investment net investment Total Redemption
period income gain (loss) operations income distributions fee
---------- ---------- -------------- ---------- -------------- ------------- ----------
CORE PLUS BOND FUND
Class A
9/30/2005 $ 11.69 $ 0.46(c) $ (0.18) $ 0.28 $ (0.56) $ (0.56) $ 0.00(g)
9/30/2004 11.63 0.47(c) 0.13 0.60 (0.54) (0.54) 0.00(g)
9/30/2003(f) 11.28 0.37(c) 0.34 0.71 (0.36) (0.36) --
12/31/2002 11.59 0.63(c) (0.32) 0.31 (0.62) (0.62) --
12/31/2001(d) 11.52 0.73 0.10 0.83 (0.76) (0.76) --
12/31/2000 11.51 0.78 0.03 0.81 (0.80) (0.80) --
Class B
9/30/2005 11.70 0.37(c) (0.18) 0.19 (0.48) (0.48) 0.00(g)
9/30/2004 11.62 0.38(c) 0.14 0.52 (0.44) (0.44) 0.00(g)
9/30/2003(f) 11.28 0.30(c) 0.34 0.64 (0.30) (0.30) --
12/31/2002 11.59 0.55(c) (0.32) 0.23 (0.54) (0.54) --
12/31/2001(d) 11.51 0.64 0.10 0.74 (0.66) (0.66) --
12/31/2000 11.51 0.70 0.02 0.72 (0.72) (0.72) --
Class C
9/30/2005 11.71 0.37(c) (0.18) 0.19 (0.48) (0.48) 0.00(g)
9/30/2004 11.63 0.38(c) 0.14 0.52 (0.44) (0.44) 0.00(g)
9/30/2003(f) 11.29 0.30(c) 0.34 0.64 (0.30) (0.30) --
12/31/2002 11.60 0.55(c) (0.32) 0.23 (0.54) (0.54) --
12/31/2001(d) 11.52 0.65 0.09 0.74 (0.66) (0.66) --
12/31/2000 11.52 0.70 0.02 0.72 (0.72) (0.72) --
Class Y
9/30/2005 11.74 0.49(c) (0.18) 0.31 (0.59) (0.59) 0.00(g)
9/30/2004 11.69 0.50(c) 0.13 0.63 (0.58) (0.58) 0.00(g)
9/30/2003(f) 11.33 0.41(c) 0.35 0.76 (0.40) (0.40) --
12/31/2002 11.63 0.69(c) (0.32) 0.37 (0.67) (0.67) --
12/31/2001(d) 11.54 0.79 0.10 0.89 (0.80) (0.80) --
12/31/2000 11.54 0.83 0.01 0.84 (0.84) (0.84) --
HIGH INCOME FUND*
Class A
9/30/2005 $ 4.82 $ 0.33(c) $ 0.16 $ 0.49 $ (0.33) $ (0.33) $ 0.00(g)
9/30/2004 4.65 0.33(c) 0.17 0.50 (0.33) (0.33) 0.00(g)
9/30/2003(f) 4.12 0.25(c) 0.53 0.78 (0.25) (0.25) --
12/31/2002 4.94 0.39(c) (0.82) (0.43) (0.39) (0.39) --
12/31/2001(d) 6.21 0.66 (1.25) (0.59) (0.68) (0.68) --
12/31/2000 8.30 0.86 (2.11) (1.25) (0.84) (0.84) --
Class B
9/30/2005 4.83 0.29(c) 0.15 0.44 (0.29) (0.29) 0.00(g)
9/30/2004 4.65 0.30(c) 0.18 0.48 (0.30) (0.30) 0.00(g)
9/30/2003(f) 4.12 0.23(c) 0.53 0.76 (0.23) (0.23) --
12/31/2002 4.95 0.36(c) (0.83) (0.47) (0.36) (0.36) --
12/31/2001(d) 6.22 0.62 (1.26) (0.64) (0.63) (0.63) --
12/31/2000 8.30 0.81 (2.11) (1.30) (0.78) (0.78) --
(a)A sales charge for Class A and Class C (prior to February 1, 2004) shares
and a contingent deferred sales charge for Class B and Class C shares are
not reflected in total return calculations. Periods less than one year are
not annualized.
(b)Computed on an annualized basis for periods less than one year.
(c)Per share net investment income has been calculated using the average shares
outstanding during the period.
(d)As required, effective January 1, 2001, the Funds adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. The effect of this change for the
year ended December 31, 2001 for Core Plus Bond Fund was to decrease net
investment income per share by $.01 for Class A, $.02 for Class B, and $.01
for Class C and to decrease the ratio of net investment income to average
net assets from 6.34% to 6.26% for Class A, 5.57% to 5.49% for Class B,
5.59% to 5.52% for Class C and 6.75% to 6.68% for Class Y shares. For High
Income Fund, the effect of this change was to decrease net investment income
per share by $.01 for Class A and Class B and to decrease the ratio of net
investment income to average net assets from 11.39% to 11.31% for Class A
and 10.64% to 10.56% for Class B. Per share data and ratios for the periods
prior to January 1, 2001 have not been restated to reflect this change in
presentation.
See accompanying notes to financial statements.
49
Ratios to average net assets:
------------------------------------
Net asset Net assets
value, end Total end of Gross Net Net investment Portfolio
of return period Expenses Expenses income turnover
period (%) (a) (000's) (%) (b) (e) (%) (b) (%) (b) rate (%)
- ---------- --------- ---------- ----------- --------- -------------- ---------
$ 11.41 2.4(h) $ 105,111 1.18 1.13 3.93 64
11.69 5.3(h) 120,009 1.22 1.19 4.05 69
11.63 6.4 133,887 1.28 N/A 4.31 61
11.28 2.8 147,647 1.18 N/A 5.65 65
11.59 7.2 173,836 1.09 N/A 6.26 84
11.52 7.4 174,969 1.04 N/A 7.03 83
11.41 1.6(h) 132,221 1.93 1.88 3.18 64
11.70 4.6(h) 148,556 1.97 1.94 3.29 69
11.62 5.8 161,317 2.03 N/A 3.55 61
11.28 2.1 141,188 1.93 N/A 4.90 65
11.59 6.5 127,520 1.84 N/A 5.49 84
11.51 6.5 100,353 1.79 N/A 6.28 83
11.42 1.6(h) 6,065 1.93 1.88 3.17 64
11.71 4.6(h) 6,162 1.98 1.94 3.30 69
11.63 5.8 7,612 2.03 N/A 3.55 61
11.29 2.1 9,024 1.93 N/A 4.90 65
11.60 6.5 11,470 1.84 N/A 5.52 84
11.52 6.5 12,541 1.79 N/A 6.28 83
11.46 2.7(h) 9,060 0.99 0.88 4.18 64
11.74 5.5(h) 10,941 0.98 0.94 4.30 69
11.69 6.9 17,889 0.73 N/A 4.85 61
11.33 3.5 18,346 0.67 N/A 6.15 65
11.63 7.8 17,351 0.67 N/A 6.68 84
11.54 7.6 14,013 0.67 N/A 7.40 83
$ 4.98 10.3(h) $ 25,817 1.72 1.58 6.60 42
4.82 11.1 24,641 1.65 N/A 6.97 51
4.65 19.5 23,809 1.71 N/A 7.62 41
4.12 (8.9) 22,454 1.58 N/A 8.85 114
4.94 (10.7) 33,471 1.47 N/A 11.31 65
6.21 (16.1) 46,960 1.36 N/A 11.47 60
4.98 9.3(h) 12,034 2.47 2.33 5.85 42
4.83 10.5 17,967 2.40 N/A 6.22 51
4.65 18.8 23,405 2.46 N/A 6.89 41
4.12 (9.7) 23,031 2.33 N/A 8.10 114
4.95 (11.3) 34,713 2.22 N/A 10.56 65
6.22 (16.6) 47,793 2.11 N/A 10.72 60
(e)Represents the total expenses prior to advisory fee waiver and/or
reimbursement of a portion of the Fund's expenses.
(f)For the nine months ended September 30, 2003.
(g)Amount rounds to less than $0.01.
(h)Had certain expenses not been reduced during the period, total return would
have been lower.
* The financial information for periods prior to September 30, 2004 reflects
the financial information for the CDC Nvest High Income Fund's Class A and
Class B shares, which were reorganized into Class A and Class B shares,
respectively, of the Loomis Sayles High Income Fund, effective September 12,
2003. Prior to September 1, 2003, the predecessor Fund was advised by CDC
IXIS Asset Management Advisers, L.P. and subadvised by Loomis, Sayles &
Company, L.P. (the Fund's current adviser) and, prior to September 12, 2003,
had a December 31 fiscal year end. The Fund's current fiscal year end is
September 30.
50
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions:
--------------------------------------- ---------------------------
Net asset
value, Dividends
beginning Net Net realized Total from from
of investment and unrealized investment net investment Total Redemption
period income gain (loss) operations income distributions fee
---------- ---------- -------------- ---------- -------------- ------------- ----------
HIGH INCOME FUND *
(continued)
Class C
9/30/2005 $ 4.83 $ 0.29(c) $ 0.15 $ 0.44 $ (0.29) $ (0.29) $ 0.00(f)
9/30/2004 4.65 0.30(c) 0.18 0.48 (0.30) (0.30) 0.00(f)
9/30/2003(e) 4.12 0.23(c) 0.53 0.76 (0.23) (0.23) --
12/31/2002 4.94 0.36(c) (0.82) (0.46) (0.36) (0.36) --
12/31/2001(d) 6.22 0.61 (1.26) (0.65) (0.63) (0.63) --
12/31/2000 8.30 0.81 (2.11) (1.30) (0.78) (0.78) --
LIMITED TERM GOVERNMENT
AND AGENCY FUND**
Class A
9/30/2005 $ 11.30 $ 0.28(c) $ (0.16) $ 0.12 $ (0.33) $ (0.33) $ --
9/30/2004 11.51 0.30(c) (0.09) 0.21 (0.42) (0.42) --
9/30/2003(e) 11.73 0.21(c) (0.07) 0.14 (0.36) (0.36) --
12/31/2002 11.36 0.42(c) 0.49 0.91 (0.54) (0.54) --
12/31/2001(d) 11.16 0.51 0.25 0.76 (0.56) (0.56) --
12/31/2000 10.97 0.69 0.20 0.89 (0.70) (0.70) --
Class B
9/30/2005 11.28 0.20(c) (0.17) 0.03 (0.24) (0.24) --
9/30/2004 11.49 0.22(c) (0.09) 0.13 (0.34) (0.34) --
9/30/2003(e) 11.71 0.15(c) (0.06) 0.09 (0.31) (0.31) --
12/31/2002 11.34 0.35(c) 0.48 0.83 (0.46) (0.46) --
12/31/2001(d) 11.14 0.44 0.24 0.68 (0.48) (0.48) --
12/31/2000 10.95 0.62 0.20 0.82 (0.63) (0.63) --
Class C
9/30/2005 11.30 0.20(c) (0.18) 0.02 (0.24) (0.24) --
9/30/2004 11.50 0.22(c) (0.08) 0.14 (0.34) (0.34) --
9/30/2003(e) 11.72 0.15(c) (0.06) 0.09 (0.31) (0.31) --
12/31/2002 11.35 0.35(c) 0.48 0.83 (0.46) (0.46) --
12/31/2001(d) 11.15 0.44 0.24 0.68 (0.48) (0.48) --
12/31/2000 10.96 0.62 0.20 0.82 (0.63) (0.63) --
Class Y
9/30/2005 11.34 0.31(c) (0.17) 0.14 (0.35) (0.35) --
9/30/2004 11.55 0.32(c) (0.09) 0.23 (0.44) (0.44) --
9/30/2003(e) 11.78 0.25(c) (0.08) 0.17 (0.40) (0.40) --
12/31/2002 11.41 0.48(c) 0.48 0.96 (0.59) (0.59) --
12/31/2001(d) 11.20 0.56 0.26 0.82 (0.61) (0.61) --
12/31/2000 11.00 0.75 0.19 0.94 (0.74) (0.74) --
(a)A sales charge for Class A and Class C (prior to February 1, 2004) shares
and a contingent deferred sales charge for Class B and Class C shares are
not reflected in total return calculations. Periods less than one year are
not annualized.
(b)Computed on an annualized basis for periods less than one year.
(c)Per share net investment income has been calculated using the average shares
outstanding during the period.
(d)As required, effective January 1, 2001, the Funds adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. The effect of this change for the
year ended December 31, 2001 for High Income Fund was to decrease net
investment income per share by $.01 for Class C and to decrease the ratio of
net investment income to average net assets from 10.63% to 10.54% for Class
C. For Limited Term Government and Agency Fund, the effect of this change
was to decrease net investment income per share by $.04 for Class A, B, C,
and Y and to decrease the ratio of net investment income to average net
assets from 4.88% to 4.52% for Class A, 4.22% to 3.85% for Class B, 4.25% to
3.89% for Class C, and 5.34% to 4.98% for Class Y. Per share data and ratios
for periods prior to January 1, 2001, have not been restated to reflect this
change in presentation.
(e)For the nine months ended September 30, 2003.
(f)Amounts round to less than $0.01.
See accompanying notes to financial statements.
51
Ratios to average net assets:
-------------------------------------
Net asset Net assets,
value, Total end of Gross Net Net investment Portfolio
end of return period Expenses Expenses income turnover
period (%) (a) (000's) (%) (b) (%) (b) (%) (b) rate (%)
- --------- --------- ----------- --------- --------- -------------- ---------
$ 4.98 9.3(h) $ 3,554 2.47(i) 2.33 5.82 42
4.83 10.5 2,608 2.40 N/A 6.22 51
4.65 18.8 2,858 2.46 N/A 6.89 41
4.12 (9.5) 2,605 2.33 N/A 8.10 114
4.94 (11.5) 4,153 2.22 N/A 10.54 65
6.22 (16.6) 5,369 2.11 N/A 10.72 60
$11.09 1.1 $ 141,417 1.24 N/A 2.50 93
11.30 1.9 106,701 1.32 N/A 2.60 80
11.51 1.2 117,225 1.37 N/A 2.41 53
11.73 8.2 106,013 1.35 N/A 3.66 88
11.36 6.9 109,189 1.42 N/A 4.52 275
11.16 8.3 118,833 1.40 N/A 6.18 384
11.07 0.3 15,114 1.99 N/A 1.75 93
11.28 1.2 10,107 2.00 N/A 1.95 80
11.49 0.7 14,637 2.02 N/A 1.77 53
11.71 7.5 16,263 2.00 N/A 3.01 88
11.34 6.2 14,317 2.07 N/A 3.85 275
11.14 7.7 11,884 2.05 N/A 5.53 384
11.08 0.2 5,715 1.99 N/A 1.75 93
11.30 1.3 6,949 2.00 N/A 1.94 80
11.50 0.7 8,704 2.02 N/A 1.77 53
11.72 7.5 8,079 2.00 N/A 3.01 88
11.35 6.2 5,851 2.07 N/A 3.89 275
11.15 7.7 6,617 2.05 N/A 5.53 384
11.13 1.2(h) 2,533 1.59(g) 1.02 2.77 93
11.34 2.1 4,233 1.13 N/A 2.82 80
11.55 1.5 6,886 0.93 N/A 2.87 53
11.78 8.6 8,529 0.88 N/A 4.14 88
11.41 7.4 3,441 0.95 N/A 4.98 275
11.20 8.8 3,254 0.95 N/A 6.63 384
(g)Represents total expenses prior to waiver of a portion of the Class's
transfer agent expenses.
(h)Had certain expenses not been reduced during the period, total return would
have been lower.
(i)Represents the total expenses prior to advisory fee waiver and/or
reimbursement of a portion of the Fund's expenses.
* The financial information for periods prior to September 30, 2004 reflects
the financial information for the CDC Nvest High Income Fund's Class C
shares which were reorganized into Class C shares of the Loomis Sayles High
Income Fund, effective September 12, 2003. Prior to September 1, 2003, the
predecessor Fund was advised by CDC IXIS Asset Management Advisers, L.P. and
subadvised by Loomis, Sayles & Company, L.P. (the Fund's current adviser)
and, prior to September 12, 2003, had a December 31 fiscal year end. The
Fund's current fiscal year end is September 30.
** The financial information for periods prior to September 30, 2004 reflects
the financial information for the CDC Nvest Limited Term U.S. Government
Fund's Class A, Class B, Class C, and Class Y shares which were reorganized
into Class A, Class B, Class C, and Class Y shares, respectively, of the
Loomis Sayles Limited Term Government and Agency Fund, effective September
12, 2003. Prior to September 1, 2003, the predecessor Fund was advised by
CDC IXIS Asset Management Advisers, L.P. and subadvised by Loomis, Sayles &
Company, L.P. (the Fund's current adviser) and, prior to September 12, 2003,
had a December 31 fiscal year end. The Fund's current fiscal year end is
September 30.
52
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions:
----------------------------------------- ---------------------------
Net asset Dividends
value, Net Net realized Total from from
beginning investment and unrealized investment net investment Total
of period income gain (loss) operations income distributions
---------- ---------- -------------- ---------- -------------- -------------
MASSACHUSETTS TAX FREE INCOME FUND
Class A
9/30/2005 $ 16.58 $ 0.60 $ 0.04 $ 0.64 $ (0.60) $ (0.60)
9/30/2004 16.41 0.61 0.17 0.78 (0.61) (0.61)
9/30/2003(f) 16.40 0.49 0.01 0.50 (0.49) (0.49)
12/31/2002 15.82 0.67 0.59 1.26 (0.68) (0.68)
12/31/2001(d) 16.06 0.75 (0.24) 0.51 (0.75) (0.75)
12/31/2000 15.48 0.82 0.57 1.39 (0.81) (0.81)
Class B
9/30/2005 16.54 0.46 0.05 0.51 (0.47) (0.47)
9/30/2004 16.37 0.49 0.18 0.67 (0.50) (0.50)
9/30/2003(f) 16.36 0.41 0.01 0.42 (0.41) (0.41)
12/31/2002 15.78 0.57 0.58 1.15 (0.57) (0.57)
12/31/2001(d) 16.03 0.64 (0.24) 0.40 (0.65) (0.65)
12/31/2000 15.45 0.71 0.58 1.29 (0.71) (0.71)
MUNICIPAL INCOME FUND
Class A
9/30/2005 $ 7.47 $ 0.28 $ 0.01 $ 0.29 $ (0.28) $ (0.28)
9/30/2004 7.41 0.29 0.06 0.35 (0.29) (0.29)
9/30/2003(f) 7.43 0.23 (0.02) 0.21 (0.23) (0.23)
12/31/2002 7.25 0.34 0.18 0.52 (0.34) (0.34)
12/31/2001(d) 7.39 0.36 (0.14) 0.22 (0.36) (0.36)
12/31/2000 7.17 0.40 0.21 0.61 (0.39) (0.39)
Class B
9/30/2005 7.48 0.22 0.01 0.23 (0.22) (0.22)
9/30/2004 7.41 0.24 0.07 0.31 (0.24) (0.24)
9/30/2003(f) 7.44 0.19 (0.03) 0.16 (0.19) (0.19)
12/31/2002 7.25 0.29 0.19 0.48 (0.29) (0.29)
12/31/2001(d) 7.39 0.31 (0.14) 0.17 (0.31) (0.31)
12/31/2000 7.17 0.35 0.21 0.56 (0.34) (0.34)
(a)A sales charge for Class A shares and a contingent deferred sales charge for
Class B shares are not reflected in total return calculations. Periods less
than one year are not annualized.
(b)Computed on an annualized basis for periods less than one year.
(c)Represents total expenses prior to advisory fee waiver and/or reimbursement
of a portion of the Fund's expenses.
(d)As required, effective January 1, 2001, the Funds adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium and accreting discount on debt securities. The effect of
this change for the year ended December 31, 2001, for Massachusetts Tax Free
Income Fund was to increase the ratio of net investment income to average
net assets from 4.66% to 4.67% for Class A and from 4.02% to 4.03% for Class
B shares. For Municipal Income Fund, the effect of this change was to
increase net investment income per share by $0.01 and to decrease net
realized and unrealized gains and losses per share by $0.01 for Class A
shares and Class B shares and increase the ratio of net investment income to
average net assets from 4.84% to 4.89% for Class A shares and from 4.09% to
4.14% for Class B shares. Per share data and ratios for periods prior to
January 1, 2001 have not been restated to reflect this change in
presentation.
See accompanying notes to financial statements.
53
Ratios to average net assets:
--------------------------------
Net asset Net assets, Net
value, Total end of Gross Net investment Portfolio
end of return period Expenses Expenses income turnover
period (%) (a) (000's) (%) (b) (c) (%) (b) (%) (b) rate (%)
---------- --------- ----------- ----------- --------- ---------- ---------
$ 16.62 3.9(e) $ 77,018 1.22 1.22 3.59 5
16.58 4.9 81,427 1.33 N/A 3.74 21
16.41 3.1 86,368 1.38 N/A 3.99 9
16.40 8.1 92,053 1.34 N/A 4.19 33
15.82 3.2(e) 89,376 1.35 1.33 4.67 60
16.06 9.3(e) 91,785 1.39 1.13 5.24 68
16.58 3.1(e) 3,207 1.97 1.97 2.84 5
16.54 4.2 4,435 2.00 N/A 3.08 21
16.37 2.6 6,185 2.03 N/A 3.34 9
16.36 7.4 6,742 1.99 N/A 3.54 33
15.78 2.5(e) 8,313 2.00 1.98 4.03 60
16.03 8.6(e) 8,715 2.04 1.78 4.59 68
$ 7.48 3.9 $ 102,255 1.07 N/A 3.65 29
7.47 4.9 111,801 1.11 N/A 4.00 35
7.41 2.9 126,906 1.10 N/A 4.14 42
7.43 7.3 133,005 1.06 N/A 4.67 33
7.25 3.0 137,852 1.07 N/A 4.89 80
7.39 8.8 142,539 0.95 N/A 5.39 156
7.49 3.1 7,610 1.82 N/A 2.90 29
7.48 4.2 9,087 1.86 N/A 3.25 35
7.41 2.2 10,884 1.85 N/A 3.39 42
7.44 6.7 12,326 1.81 N/A 3.92 33
7.25 2.2 14,549 1.82 N/A 4.14 80
7.39 8.0 14,520 1.70 N/A 4.64 156
(e)Had certain expenses not been reduced during the period, total returns would
have been lower.
(f)For the nine months ended September 30, 2003.
54
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions:
---------------------------------------- ---------------------------
Net asset Dividends
value, Net Net realized Total from from
beginning investment and unrealized investment net investment Total
of period income (c) gain (loss) operations income distributions
---------- ---------- -------------- ---------- -------------- -------------
STRATEGIC INCOME FUND*
Class A
9/30/2005 $ 13.57 $ 0.66 $ 0.70 $ 1.36 $ (0.76) $ (0.76)
9/30/2004 12.57 0.75 1.11 1.86 (0.86) (0.86)
9/30/2003(d) 10.72 0.57 1.93 2.50 (0.65) (0.65)
12/31/2002 9.88 0.75 0.72 1.47 (0.63) (0.63)
12/31/2001(f) 10.80 0.91 (0.92) (0.01) (0.91) (0.91)
12/31/2000 11.65 0.99 (0.91) 0.08 (0.93) (0.93)
Class B
9/30/2005 13.60 0.56 0.71 1.27 (0.65) (0.65)
9/30/2004 12.59 0.65 1.10 1.75 (0.74) (0.74)
9/30/2003(d) 10.71 0.51 1.92 2.43 (0.55) (0.55)
12/31/2002 9.88 0.67 0.73 1.40 (0.57) (0.57)
12/31/2001(f) 10.79 0.83 (0.90) (0.07) (0.84) (0.84)
12/31/2000 11.65 0.90 (0.91) (0.01) (0.85) (0.85)
Class C
9/30/2005 13.60 0.55 0.72 1.27 (0.65) (0.65)
9/30/2004 12.58 0.64 1.11 1.75 (0.73) (0.73)
9/30/2003(d) 10.70 0.50 1.93 2.43 (0.55) (0.55)
12/31/2002 9.87 0.67 0.73 1.40 (0.57) (0.57)
12/31/2001(f) 10.78 0.83 (0.91) (0.08) (0.83) (0.83)
12/31/2000 11.64 0.90 (0.91) (0.01) (0.85) (0.85)
Class Y
9/30/2005 13.57 0.70 0.70 1.40 (0.80) (0.80)
9/30/2004 12.58 0.78 1.11 1.89 (0.90) (0.90)
9/30/2003(d) 10.74 0.60 1.93 2.53 (0.69) (0.69)
12/31/2002 9.90 0.80 0.71 1.51 (0.67) (0.67)
12/31/2001(f) 10.81 0.94 (0.92) 0.02 (0.93) (0.93)
12/31/2000 11.65 0.96 (0.84) 0.12 (0.96) (0.96)
Redemption
fee
----------
STRATEGIC INCOME FUND*
Class A
9/30/2005 $ 0.00(g)
9/30/2004 0.00(g)
9/30/2003(d) --
12/31/2002 --
12/31/2001(f) --
12/31/2000 --
Class B
9/30/2005 0.00(g)
9/30/2004 0.00(g)
9/30/2003(d) --
12/31/2002 --
12/31/2001(f) --
12/31/2000 --
Class C
9/30/2005 0.00(g)
9/30/2004 0.00(g)
9/30/2003(d) --
12/31/2002 --
12/31/2001(f) --
12/31/2000 --
Class Y
9/30/2005 0.00(g)
9/30/2004 0.00(g)
9/30/2003(d) --
12/31/2002 --
12/31/2001(f) --
12/31/2000 --
(a)A sales charge for Class A and Class C (prior to February 1, 2004) shares
and a contingent deferred sales charge for Class B and Class C shares are
not reflected in total return calculations. Periods of less than one year
are not annualized.
(b)Computed on an annualized basis for period less than one year.
(c)Per share net investment income has been calculated using the average shares
outstanding during the period.
(d)For the nine months ended September 30, 2003.
(e)Had certain expenses not been reduced during the period, total return would
have been lower.
(f)As required, effective January 1, 2001, the Funds adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. There was no effect on net investment
income per share, however, the effect of this change was to decrease the
ratio of net investment income to average net assets from 8.78% to 8.77% for
Class A, 8.03% to 8.02% for Class B and 8.04% to 8.02% for Class C. Per
share data and ratios for periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
See accompanying notes to financial statements.
55
Ratios to average net assets:
-------------------------------
Net asset Net assets, Net
value, end Total end of Gross Net investment Portfolio
of return period Expenses Expenses income turnover
period (%) (a) (000's) (%) (b)(h) (%) (b) (%) (b) rate (%)
---------- --------- ----------- ---------- --------- ---------- ---------
$ 14.17 10.2 $ 977,198 1.18 N/A 4.71 14
13.57 15.2 343,586 1.23 N/A 5.66 28
12.57 23.7(e) 140,576 1.31 1.28 6.49 27
10.72 15.5 92,303 1.33 N/A 7.38 30
9.88 (0.1) 94,156 1.31 N/A 8.77 10
10.80 0.7 116,986 1.24 N/A 8.73 13
14.22 9.5 144,081 1.93 N/A 3.98 14
13.60 14.3 128,714 1.98 N/A 4.91 28
12.59 23.0(e) 118,217 2.06 2.03 5.73 27
10.71 14.6 98,501 2.08 N/A 6.63 30
9.88 (0.8) 102,159 2.06 N/A 8.02 10
10.79 (0.2) 120,200 1.99 N/A 7.98 13
14.22 9.5 765,200 1.93 N/A 3.93 14
13.60 14.3 255,705 1.98 N/A 4.87 28
12.58 23.0(e) 66,394 2.06 2.03 5.73 27
10.70 14.7 27,727 2.08 N/A 6.63 30
9.87 (0.8) 28,925 2.06 N/A 8.02 10
10.78 (0.2) 37,208 1.99 N/A 7.98 13
14.17 10.5 50,369 0.91 N/A 4.98 14
13.57 15.5(e) 10,833 1.08 1.00 5.93 28
12.58 24.0 2,193 0.97 N/A 6.83 27
10.74 15.9 1,039 0.94 N/A 7.77 30
9.90 0.3 445 0.93 N/A 9.10 10
10.81 1.0 335 0.90 N/A 9.07 13
(g)Amount rounds to less than $0.01.
(h)Represents total expenses prior to advisory fee waiver and/or reimbursement
of a portion of the Fund's expenses.
* The financial information for periods prior to September 30, 2004 reflects
the financial information for CDC Nvest Strategic Income Fund's Class A,
Class B, Class C and Class Y shares, which were reorganized into Class A,
Class B, Class C and Class Y shares, respectively, of Loomis Sayles
Strategic Income Fund, effective September 12, 2003. Prior to September 1,
2003, the predecessor Fund was advised by CDC IXIS Asset Management
Advisers, L.P. and subadvised by Loomis, Sayles & Company, L.P. (the Fund's
current adviser) and, prior to September 12, 2003, had a December 31 fiscal
year end. The Fund's current fiscal year end is September 30.
56
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
1. Organization. IXIS Advisor Funds Trust I (formerly CDC Nvest Funds Trust I),
IXIS Advisor Funds Trust II (formerly CDC Nvest Funds Trust II) and Loomis
Sayles Funds II (the "Trusts" and each a "Trust") are each organized as a
Massachusetts business trust. Each Trust is registered under the Investment
Company Act of 1940, as amended ("1940 Act"), as an open-end management
investment company. Each Declaration of Trust permits the Board of Trustees to
authorize the issuance of an unlimited number of shares of the Trust in
multiple series (individually, a "Fund" and collectively, the "Funds").
Information presented in these financial statements pertains to certain fixed
income Funds of the Trusts; the financial statements of the other Funds of the
Trusts are presented in separate reports. The following Funds are included in
this report:
IXIS Advisor Funds Trust I:
Loomis Sayles Core Plus Bond Fund (the "Core Plus Bond Fund")
IXIS Advisor Funds Trust II:
Loomis Sayles Massachusetts Tax Free Income Fund (the "Massachusetts Tax Free
Income Fund")
Loomis Sayles Funds II:
Loomis Sayles High Income Fund (the "High Income Fund")
Loomis Sayles Limited Term Government and Agency Fund (the "Limited Term
Government and Agency Fund")
Loomis Sayles Municipal Income Fund (the "Municipal Income Fund")
Loomis Sayles Strategic Income Fund (the "Strategic Income Fund")
Core Plus Bond Fund, Limited Term Government and Agency Fund and Strategic
Income Fund each offer Class A, Class B, Class C and Class Y shares. High
Income Fund offers Class A, Class B, and Class C shares. Massachusetts Tax Free
Income Fund and Municipal Income Fund each offer Class A and Class B shares.
Class A shares of all Funds except Limited Term Government and Agency Fund and
Massachusetts Tax Free Income Fund are sold with a maximum front end sales
charge of 4.50%. Class A shares of Limited Term Government and Agency Fund are
sold with a maximum front end sales charge of 3.00% and Class A shares of
Massachusetts Tax Free Income Fund are sold with a maximum front end sales
charge of 4.25%. Class B shares do not pay a front end sales charge, but pay
higher ongoing Rule 12b-1 fees than Class A shares for eight years (at which
point they automatically convert to Class A shares), and are subject to a
contingent deferred sales charge ("CDSC") if those shares are redeemed within
six years of purchase. Class C shares do not pay a front end sales charge, do
not convert to any other class of shares and pay higher ongoing Rule 12b-1 fees
than Class A shares and may be subject to a CDSC of 1.00% if those shares are
redeemed within one year. Class Y shares do not pay a front end sales charge, a
CDSC or Rule 12b-1 fees. They are generally intended for institutional
investors with a minimum initial investment of $1,000,000, though some
categories of investors are excepted from the minimum investment amount.
Most expenses of the Trusts can be directly attributed to a Fund. Expenses
which cannot be directly attributed are generally apportioned based on the
relative net assets of each of the funds in the Trusts. Expenses of a Fund are
borne pro rata by the holders of each class of shares, except that each class
bears expenses unique to that class (including the Rule 12b-1 service and
distribution fees and, for those Funds that offer Class Y shares, transfer
agent fees applicable to such class), and votes as a class only with respect to
its own Rule 12b-1 Plan. Shares of each class would receive their pro rata
share of the net assets of a Fund, if the Fund were liquidated. The Trustees
approve separate dividends from net investment income on each class of shares.
2. Significant Accounting Policies. The following is a summary of significant
accounting policies consistently followed by each Fund in the preparation of
its financial statements. The Funds' financial statements are prepared in
accordance with accounting principles generally accepted in the United States
of America, which require the use of management estimates that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
a. Security Valuation. Debt securities for which market quotations are readily
available (other than short-term obligations with a remaining maturity of less
than sixty days) are generally valued at market price on the basis of
valuations furnished to the Funds by a pricing service authorized by the Board
of Trustees, which service determines valuations for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates market value. Equity securities for which market quotations are
readily available are valued at market price on the basis of valuations
furnished to the Funds by a pricing service which has been authorized by the
Board of Trustees. The pricing service provides the last reported sale price
for securities listed on an applicable securities exchange or, if no sale was
reported and in the case of over-the-counter securities not so listed, the last
reported bid price. Securities traded on the NASDAQ National Market are valued
at the NASDAQ Official Closing Price ("NOCP"), or if lacking NOCP, at the most
recent bid quotation on the NASDAQ National Market. Securities traded on
foreign exchanges are valued at the market price on the non-U.S. exchange,
unless a Fund believes that an occurrence after the closing of that exchange
will materially affect a security's value. In that case, the security may be
fair valued at the time the Fund determines its net asset value by or pursuant
to procedures approved by the Board of Trustees. When fair valuing their
securities, the Funds may, among other things, use modeling tools or other
processes that may take into account factors such as securities market activity
and/or significant events that occur after the close of the local market and
before the time a Fund's net asset value is calculated. All other securities
and assets are valued at their fair value as determined in good faith by the
Funds' investment adviser, pursuant to the procedures approved by the Board of
Trustees.
Certain securities held by High Income Fund and Strategic Income Fund were
valued on the basis of a price provided by a principal market maker. The prices
provided by the principal market makers may differ from Fund value that would
be realized if the securities were sold.
57
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on trade date. Dividend income is recorded on ex-dividend
date, or in the case of certain foreign securities, as soon thereafter as the
Fund is notified, and interest income is recorded on an accrual basis. Interest
income is increased by the accretion of discount and decreased by the
amortization of premium. In determining net gain or loss on securities sold,
the cost of securities has been determined on an identified cost basis.
Investment income and non-class specific expenses are allocated on a pro rata
basis to each class based on the relative value of settled shares of each class
to the total for the Fund. Realized and unrealized gains and losses are
allocated on a pro rata basis to each class based on the relative net assets of
each class to the total net assets for the Fund.
c. Foreign Currency Translation. The books and records of the Funds are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities, income and
expenses are translated on the respective dates of such transactions.
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates
from fluctuations arising from changes in market prices of the investment
securities. Such changes are included with the net realized and unrealized gain
or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the amounts of
dividends, interest and foreign withholding taxes recorded on the Funds' books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities at the end of the fiscal period, resulting from changes
in exchange rates.
Each Fund (except Massachusetts Tax Free Income Fund and Municipal Income Fund)
may purchase investments of foreign issuers. Investing in securities of foreign
issuers involves special risks and considerations not typically associated with
investing in U.S. companies and securities of the U.S. government. These risks
include revaluation of currencies and the risk of appropriation. Moreover, the
markets for securities of many foreign issuers may be less liquid and the
prices of such securities may be more volatile than those of comparable U.S.
companies and the U.S. government.
d. Federal and Foreign Income Taxes. The Trusts treat each Fund as a separate
entity for federal income tax purposes. Each Fund intends to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies, and to distribute to its shareholders substantially all of its net
investment income and any net realized capital gains at least annually.
Accordingly, no provision for federal income tax has been made. A Fund may be
subject to foreign taxes on income and gains on investments that are accrued
based upon the Fund's understanding of the tax rules and regulations that exist
in the countries in which the Fund invests. Foreign governments may also impose
taxes or other payments on investments with respect to foreign securities. Such
taxes are accrued as applicable.
e. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on ex-dividend date. The timing and characterization of certain income
and capital gain distributions are determined in accordance with federal tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. Permanent differences are primarily due to
differing treatments for book and tax purposes of items such as paydowns on
mortgage-backed securities and foreign currency transactions. Permanent book
and tax basis differences relating to shareholder distributions, net investment
income, and net realized gains will result in reclassifications to the capital
accounts. Temporary differences between book and tax distributable earnings are
primarily due to deferred Trustees' fees, defaulted bond income accruals,
premium amortization accruals, market discounts, capital loss carryforwards,
and wash sales. Distributions from net investment income and short-term capital
gains are considered to be ordinary income for tax purposes.
The tax character of distributions paid to shareholders during the years ended
September 30, 2005 and 2004 was as follows:
2005 Distributions Paid From: 2004 Distributions Paid From:
- - ----------------------------- -----------------------------
Exempt Exempt
Ordinary Interest Ordinary Interest
Fund Income Dividends Total Income Dividends Total
- ---- ------ --------- ----- ------ --------- -----
Core Plus Bond Fund $12,086,457 $ -- $12,086,457 $12,765,548 $ -- $12,765,548
High Income Fund 2,726,377 -- 2,726,377 3,232,690 -- 3,232,690
Limited Term Government and Agency Fund 4,220,222 -- 4,220,222 4,917,340 -- 4,917,340
Massachusetts Tax Free Income Fund 11,120 2,925,084 2,936,204 4,733 3,268,345 3,273,078
Municipal Income Fund 105,537 4,119,671 4,225,208 22,140 4,996,591 5,018,731
Strategic Income Fund 61,057,464 -- 61,057,464 30,927,976 -- 30,927,976
58
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
Limited Term Massachusetts
Core Plus High Government and Tax Free Municipal Strategic
Bond Fund Income Fund Agency Fund Income Fund Income Fund Income Fund
------------ ------------ -------------- ------------- ----------- ------------
Undistributed ordinary income/tax exempt
income $ 2,701,746 $ 83,014 $ 149,838 $ 138,099 $ 363,811 $ 15,613,715
Capital loss carryforward:
Expires September 30, 2007 -- -- (9,755,614) (1,149,888) (564,858) --
Expires September 30, 2008 -- (13,289,736) (4,165,768) (116,500) -- --
Expires September 30, 2009 -- (43,374,721) (4,128,091) -- -- (10,758,584)
Expires September 30, 2010 (20,960,955) (26,826,634) (663,109) (1,003,440) -- (21,770,312)
Expires September 30, 2011 -- -- (425,323) -- -- (7,096,274)
Expires September 30, 2012 -- -- (193,904) -- (138,879) --
Expires September 30, 2013 -- -- -- (154,156) -- --
------------ ------------ ------------ ----------- ---------- ------------
Total capital loss carryforward (20,960,955) (83,491,091) (19,331,809) (2,423,984) (703,737) (39,625,170)
Deferred net capital losses (post October) -- -- (5,436,058) -- -- --
Unrealized appreciation (depreciation) (619,322) 2,425,139 (2,170,386) 4,224,305 4,084,130 79,601,045
------------ ------------ ------------ ----------- ---------- ------------
Total accumulated earnings (losses) $(18,878,531) $(80,982,938) $(26,788,415) $ 1,938,420 $3,744,204 $ 55,589,590
============ ============ ============ =========== ========== ============
Capital loss carryforward utilized in the
current year $ 2,332,785 $ 1,649,813 $ 3,602,040 $ -- $1,135,534 $ 9,757,916
f. Repurchase Agreements. Each Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is each
Fund's policy that the market value of the collateral be at least equal to 102%
of the repurchase price, including interest. Each Fund's subadviser is
responsible for determining that the value of the collateral is at all times at
least equal to 102% of the repurchase price, including interest. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the counterparty including possible delays or restrictions upon a Fund's
ability to dispose of the underlying securities.
g. Delayed Delivery Commitments. Each Fund may purchase or sell securities on a
when-issued or forward commitment basis. Payment and delivery may take place a
month or more after the date of the transaction. The price of the underlying
securities and the date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated. Losses may arise due to
changes in the market value of the underlying securities or if the counterparty
does not perform under the contract. Collateral consisting of liquid securities
or cash and cash equivalents is maintained in an amount at least equal to these
commitments with the custodian.
h. Indemnifications. Under the Funds' organizational documents, their officers
and Trustees are indemnified against certain liability arising out of the
performance of their duties to the Funds. Additionally, in the normal course of
business, the Funds enter into contracts with service providers that contain
general indemnification clauses. The Funds' maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Funds that have not yet occurred. However, based on experience, the
Funds expect the risk of loss to be remote.
3. Purchases and Sales of Securities. For the year ended September 30, 2005,
purchases and sales of securities (excluding short-term investments and
including paydowns) were as follows:
U.S. Government/Agency Other Securities
---------------------- ----------------
Fund Purchases Sales Purchases Sales
- ---- --------- ----- --------- -----
Core Plus Bond Fund $114,409,343 $116,343,689 $ 55,862,139 $ 75,460,212
High Income Fund -- -- 17,647,831 22,351,675
Limited Term Government and Agency Fund 136,788,628 153,665,258 1,034,963 --
Massachusetts Tax Free Income Fund -- -- 4,399,207 9,486,002
Municipal Income Fund -- -- 33,180,737 43,417,989
Strategic Income Fund 400,472,116 39,145,189 867,103,078 120,491,121
59
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
4. Management Fees and Other Transactions with Affiliates.
a. Management Fees. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as
the investment adviser to each Fund. Under the terms of the management
agreements, each Fund pays a management fee at the following annual rates,
calculated daily and payable monthly, based on each Fund's average daily net
assets:
Percentage of Average Daily Net Assets
-------------------------------------------------
First Next Next Over
Fund $100 million $100 million $1.8 billion $2 billion
- ---- ------------ ------------ ------------ ----------
Core Plus Bond Fund 0.2500% 0.1875% 0.1875% 0.1875%
High Income Fund 0.6000% 0.6000% 0.6000% 0.6000%
Limited Term Government and Agency Fund 0.5000% 0.5000% 0.5000% 0.5000%
Massachusetts Tax Free Income Fund 0.3000% 0.2500% 0.2500% 0.2500%
Municipal Income Fund 0.5000% 0.3750% 0.3750% 0.3750%
Strategic Income Fund 0.6500% 0.6500% 0.6000% 0.5500%
Prior to March 21, 2005, the management fee for Limited Term Government and
Agency Fund was 0.57% on the first $200 million of its average daily net
assets, 0.545% on the next $300 million and 0.52% on such assets in excess of
$500 million. Prior to July 1, 2005, the management fee for Strategic Income
Fund was 0.65% on the first $200 million of its average daily net assets and
0.60% on such assets in excess of $200 million.
For the year ended September 30, 2005, the management fees for each Fund were
as follows:
Percentage of
Management Average
Fund Fee Daily Net Assets
---- ---------- ----------------
Core Plus Bond Fund $ 569,296 0.211%
High Income Fund 260,872 0.600%
Limited Term Government and Agency Fund 785,427 0.527%
Massachusetts Tax Free Income Fund 247,582 0.300%
Municipal Income Fund 558,306 0.483%
Strategic Income Fund 7,659,002 0.608%
IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), formerly CDC IXIS Asset
Management Advisers, L.P., serves as the advisory administrator to Core Plus
Bond Fund and Massachusetts Tax Free Income Fund. Under the terms of the
advisory administration agreements, each Fund pays an advisory administration
fee at the following annual rates, calculated daily and payable monthly, based
on its average daily net assets:
Percentage of Average Daily
Net Assets
---------------------------
First Over
Fund $100 million $100 million
---- ------------ ------------
Core Plus Bond Fund 0.2500% 0.1875%
Massachusetts Tax Free Income Fund 0.3000% 0.2500%
For the year ended September 30, 2005, the advisory administration fees for
each Fund were as follows:
Advisory Percentage of
Administration Average
Fund Fee Daily Net Assets
---- -------------- ----------------
Core Plus Bond Fund $569,296 0.211%
Massachusetts Tax Free Income Fund 247,581 0.300%
60
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
Loomis Sayles and IXIS Advisors are wholly-owned subsidiaries of IXIS Asset
Management North America, L.P. ("IXIS North America"), formerly CDC IXIS Asset
Management North America, L.P., which is part of IXIS Asset Management Group,
an international asset management group based in Paris, France. IXIS Asset
Management Group is ultimately owned principally, directly or indirectly by the
following three large affiliated French financial services entities: the Caisse
des Depots et Consignations ("CDC"), a public sector financial institution
created by the French government in 1816; the Caisse Nationales des Caisses
d'Epargne, a financial institution owned by CDC and by the French regional
savings banks known as Caisses d'Epargne; and CNP Assurances, a large French
life insurance company. Certain officers and directors of Loomis Sayles and
IXIS Advisors are also Trustees of the Funds.
Management and advisory administration fees are presented in the Statements of
Operations as management fees.
b. Administrative Expense. IXIS Advisors provides certain administrative
services to the Funds. Prior to January 3, 2005, IXIS Asset Management Services
Company ("IXIS Services"), formerly CDC IXIS Asset Management Services, Inc., a
wholly-owned subsidiary of IXIS North America, performed administrative
services for the Funds and subcontracted with Investors Bank & Trust Company
("IBT") to serve as subadministrator. Effective October 1, 2005, State Street
Bank & Trust Company ("State Street Bank") became the subadministrator.
Pursuant to an agreement among IXIS Advisor Funds Trust I, IXIS Advisor Funds
Trust II, IXIS Advisor Funds Trust III (formerly CDC Nvest Funds Trust III),
IXIS Advisor Funds Trust IV (formerly CDC Nvest Companies Trust I) and IXIS
Advisor Cash Management Trust (formerly CDC Nvest Cash Management Trust) ("IXIS
Advisor Funds Trusts"), Loomis Sayles Funds I, Loomis Sayles Funds II ("Loomis
Sayles Funds Trusts") and IXIS Advisors (IXIS Services prior to January 3,
2005), each Fund pays IXIS Advisors monthly its pro rata portion of fees equal
to an annual rate of 0.0675% of the first $5 billion of the average daily net
assets of the IXIS Advisor Funds Trusts and Loomis Sayles Funds Trusts, 0.0625%
of the next $5 billion, and 0.0500% of such assets in excess of $10 billion,
subject to an annual aggregate minimum fee for the IXIS Advisor Funds Trusts
and Loomis Sayles Funds Trusts of $5 million.
For the year ended September 30, 2005, amounts paid to IXIS Services and IXIS
Advisors for administrative expense were as follows:
Administrative
Fund Fees
---- --------------
Core Plus Bond Fund $170,210
High Income Fund 27,317
Limited Term Government and Agency Fund 96,860
Massachusetts Tax Free Income Fund 52,354
Municipal Income Fund 73,067
Strategic Income Fund 773,439
c. Transfer Agent Fees. IXIS Services is the transfer and shareholder servicing
agent for each Fund and has subcontracted with Boston Financial Data Services
("BFDS") to serve as sub-transfer agent. Effective January 1, 2005, each Fund,
for its Class A, B and C shares, pays fees monthly to IXIS Services equal to an
annual rate of $25.25 for each open account and $2.00 for each closed account,
subject to a monthly minimum of $1,500 per class and an annual aggregate
minimum fee for all Load Fixed Income Funds* of approximately $1.7 million.
Each Fund, for its Class Y shares, pays fees monthly to IXIS Services equal to
an annual rate of $25.25 for each open account and $2.00 for each closed
account, subject to a monthly minimum of $1,500 and an annual aggregate minimum
fee for all No-Load Retail Funds** and Load Funds - Class Y*** of approximately
$1 million.
Prior to January 1, 2005, each Fund, for its Class A, B and C shares, paid
monthly to IXIS Services its pro rata portion of an annual aggregate fee equal
to 0.142% of the first $1.2 billion of average daily net assets for Class A, B
and C of all Load Fixed Income Funds*, 0.135% of the next $5 billion, and
0.130% of such assets in excess of $6.2 billion, subject to a monthly minimum
of $1,500 per class and an annual aggregate minimum equal to approximately $1.5
million. Each Fund for its Class Y shares paid monthly to IXIS Services its pro
rata portion of an annual aggregate fee equal to 0.026% of the average daily
net assets for all No-Load Retail Funds** and Load Funds - Class Y***, subject
to a monthly minimum of $1,250 and an annual aggregate minimum equal to
approximately $650,000.
* Load Fixed Income Funds consist of Core Plus Bond Fund, Massachusetts Tax
Free Income Fund, High Income Fund, Limited Term Government and Agency Fund,
Municipal Income Fund, Strategic Income Fund and Loomis Sayles Investment Grade
Bond Fund.
** No-Load Retail Funds consist of Loomis Sayles Aggressive Growth Fund, Loomis
Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles Small Cap
Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis Sayles Tax-Managed
Equity Fund, Loomis Sayles Value Fund and Loomis Sayles Worldwide Fund.
*** Load Funds - Class Y consist of all Funds with Class Y offered within the
IXIS Advisor Funds Trusts and Loomis Sayles Funds Trusts.
61
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
Effective October 1, 2005, BFDS became the transfer and shareholder servicing
agent for the Funds.
For the year ended September 30, 2005, amounts paid to IXIS Services as
compensation for its services as transfer agent were as follows:
Transfer Agent
Fund Fee
---- --------------
Core Plus Bond Fund $ 314,229
High Income Fund 95,373
Limited Term Government and Agency Fund 243,164
Massachusetts Tax Free Income Fund 86,855
Municipal Income Fund 104,381
Strategic Income Fund 1,028,317
For the year ended September 30, 2005, IXIS Services waived a portion of its
fees for Limited Term Government and Agency Fund Class Y in the amount of
$11,830.
IXIS Services, BFDS and other firms are also reimbursed by the Funds for
out-of-pocket expenses. In addition, pursuant to other servicing agreements,
each Fund pays service fees to other firms that provide similar services for
their own shareholder accounts.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act,
the Trusts have adopted a Service Plan relating to each Fund's Class A shares
(the "Class A Plan") and Service and Distribution Plans relating to each Fund's
Class B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, each Fund pays IXIS Asset Management Distributors, L.P.
("IXIS Distributors"), formerly CDC IXIS Asset Management Distributors, L.P.,
the Fund's distributor (a wholly-owned subsidiary of IXIS North America), a
monthly service fee at an annual rate not to exceed 0.25% of the average daily
net assets attributable to the Fund's Class A shares, as reimbursement for
expenses incurred by IXIS Distributors in providing personal services to
investors in Class A shares and/or the maintenance of shareholder accounts.
Under the Class B and Class C Plans, each Fund pays IXIS Distributors a monthly
service fee at an annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses incurred by IXIS Distributors in providing
personal services to investors in Class B and Class C shares and/or the
maintenance of shareholder accounts.
Also under the Class B and Class C Plans, each Fund pays IXIS Distributors a
monthly distribution fee at the annual rate of 0.75% of the average daily net
assets attributable to the Fund's Class B and Class C shares, as compensation
for services provided and expenses incurred by IXIS Distributors in connection
with the marketing or sale of Class B and Class C shares.
For the year ended September 30, 2005, the Funds paid the following service and
distribution fees:
Service Fee Distribution Fee
- - ----------------------------------------- ---------------------------
Fund Class A Class B Class C Class B Class C
- ---- ------- ------- ------- ------- -------
Core Plus Bond Fund $ 279,297 $ 355,105 $ 15,506 $ 1,065,315 $ 46,520
High Income Fund 61,987 38,848 7,861 116,545 23,585
Limited Term Government and Agency Fund 318,965 32,762 15,548 98,287 46,643
Massachusetts Tax Free Income Fund 196,494 9,824 -- 29,472 --
Municipal Income Fund 268,285 20,586 -- 61,758 --
Strategic Income Fund 1,531,878 341,654 1,206,181 1,024,962 3,618,544
Commissions (including CDSC) on Fund shares paid to IXIS Distributors by
investors in shares of the Funds during the year ended September 30, 2005 were
as follows:
Fund
---- -
Core Plus Bond Fund $ 151,914
High Income Fund 81,866
Limited Term Government and Agency Fund 92,488
Massachusetts Tax Free Income Fund 22,707
Municipal Income Fund 61,673
Strategic Income Fund 3,821,485
62
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
e. Trustees Fees and Expenses. The IXIS Advisor Funds Trusts and the Loomis
Sayles Funds Trusts do not pay any compensation directly to their officers or
Trustees who are directors, officers or employees of IXIS Advisors, IXIS
Distributors, IXIS North America, IXIS Services or their affiliates. Each
Trustee who is an independent Trustee of the IXIS Advisor Funds Trusts and the
Loomis Sayles Funds Trusts receives, in the aggregate, a retainer fee at the
annual rate of $50,000 and meeting attendance fees of $5,000 for each meeting
of the Board of Trustees attended. The co-chairmen of the Board each receive an
additional annual retainer fee at the annual rate of $25,000. Each committee
chairman receives an additional retainer fee at the annual rate of $7,000. Each
committee member receives a meeting attendance fee of $3,750 per committee
meeting attended. These fees are allocated to the various funds of the IXIS
Advisor Funds Trusts and the Loomis Sayles Funds Trusts based on a formula that
takes into account, among other factors, the relative net assets of each fund.
Trustees are reimbursed for travel expenses in connection with attendance at
meetings.
Effective October 1, 2005, the compensation schedule for independent Trustees
will change. Each independent Trustee will receive a retainer fee at the annual
rate of $55,000 and meeting attendance fees of $6,000 for each meeting of the
Board of Trustees attended in person and $3,000 for each meeting of the Board
of Trustees attended telephonically. Each co-chairman of the Board will receive
an additional retainer fee at the annual rate of $25,000. Each committee
chairman will receive an additional retainer fee at the annual rate of $10,000.
Each committee member will receive a meeting attendance fee of $4,000 per
committee meeting attended in person and $2,000 for each committee meeting
attended telephonically.
A deferred compensation plan (the "Plan") is available to the Trustees on a
voluntary basis. Each participating Trustee will receive an amount equal to the
value that such deferred compensation would have been had it been invested in a
designated fund or certain other funds of the IXIS Advisor Funds Trusts and the
Loomis Sayles Funds Trusts on the normal payment date. Deferred amounts remain
in the Funds until distributed in accordance with the Plan.
Additionally, the Board of Trustees has approved the use of Fund assets to pay
their portion of the annual salary for 2005 of an employee of IXIS Advisors who
supports the Funds' Chief Compliance Officer. For the year ended September 30,
2005, each Fund's portion of such expense was approximately $900.
f. Redemption Fees. Shareholders of Class A shares of Core Plus Bond Fund, High
Income Fund and Strategic Income Fund and shareholders of Class Y shares of
Core Plus Bond Fund and Strategic Income Fund will be charged a 2% redemption
fee if they redeem, including redeeming by exchange, Class A shares and Class Y
shares within 60 days of their acquisition (including acquisition by exchange).
The redemption fee is intended to offset the costs of the Funds of short-term
trading, such as portfolio transaction and market impact costs associated with
redemption activity and administrative costs associated with processing
redemptions. The redemption fee is deducted from the shareholder's redemption
or exchange proceeds and is paid to the Fund. The "first-in, first-out" (FIFO)
method is used to determine the holding period of redeemed or exchanged shares,
which means that if a shareholder acquired shares on different days, the shares
acquired first will be redeemed or exchanged first for purposes of determining
whether the redemption fee applies. A new holding period begins with each
purchase or exchange. These fees are accounted for as an addition to paid-in
capital and are presented on the Statements of Changes in Net Assets.
5. Line of Credit. High Income Fund and Strategic Income Fund, together with
certain other funds of IXIS Advisor Funds Trusts and Loomis Sayles Funds
Trusts, participated in a $50,000,000 committed line of credit provided by IBT
under a credit agreement (the "Agreement") dated April 30, 2002. Advances under
the Agreement were taken primarily for temporary or emergency purposes.
Interest was charged to each participating fund based on its borrowing at a
rate per annum equal to the Federal Funds rate plus 0.45%. In addition, each
Fund was charged its pro rata portion of a facility fee equal to 0.10% per
annum on the unused portion of the line of credit. There were no borrowings by
High Income Fund and Strategic Income Fund during the year ended September 30,
2005.
Effective October 1, 2005, High Income Fund and Strategic Income Fund, along
with certain other portfolios, will participate in a $75,000,000 committed line
of credit provided by State Street Bank. Interest is charged to a Fund based on
its borrowing at a rate per annum equal to the Federal Funds rate plus 0.50%.
In addition, a Fund is charged its pro rata portion of a facility fee equal to
0.09% per annum on the unused portion of the line of credit.
6. Securities Lending. Each Fund has entered into an agreement with IBT, as an
agent of the Funds, to lend securities to certain designated borrowers. The
loans are collateralized with cash or securities in an amount equal to at least
105% or 102% of the market value of the loaned international or domestic
securities, respectively, when the loan is initiated and at not less than
104.5% or 101.5% of the market value of loaned international or domestic
securities, respectively, thereafter. The Funds invest cash collateral in
short-term investments, a portion of the income from which is remitted to the
borrowers and the remainder allocated between the Funds and IBT as lending
agent. The Funds bear the risk of loss with respect to the investment of cash
collateral. The market value of securities on loan to borrowers and the value
of collateral held by the Funds with respect to such loans at September 30,
2005 were as follows:
Market Value of Value of Collateral
Fund Securities on Loan Received
---- ------------------ -------------------
High Income Fund $ 317,864 $ 326,432
Strategic Income Fund 7,542,497 7,747,758
Effective October 1, 2005, State Street Bank became the securities lending
agent for the Funds.
63
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
7. Contingent Expense Obligations. Loomis Sayles has given binding undertakings
to certain Funds to defer its management fees and, if necessary, bear certain
expenses associated with these Funds to limit their operating expenses. These
undertakings are in effect until the dates under "Expiration of Waiver" below
and will be reevaluated on an annual basis. For the year ended September 30,
2005, expenses were waived as follows: Core Plus Bond Fund $154,449, High
Income Fund $61,643 and Massachusetts Tax Free Income Fund $3,589.
Loomis Sayles is permitted to recover expenses it has borne (whether through
reduction of its management fee or otherwise) in later periods to the extent
the Funds' expenses fall below the expense limits, provided, however, that the
Funds are not obligated to pay such deferred fees more than one year after the
end of the fiscal year in which the fee was deferred.
At September 30, 2005, the expense limits as a percentage of average daily net
assets and amount subject to possible reimbursement under the expense
limitation agreement were as follows:
Expense Limit as a Percentage of Average Expenses Subject
Daily Net Assets to possible
--------------------------------------- Expiration of Reimbursement
Fund Class A Class B Class C Class Y Waiver until September 30, 2006
- ---- ------- ------- ------- ------- ---------------- ------------------------
Core Plus Bond Fund 1.05% 1.80% 1.80% 0.80% January 31, 2006 $154,449
High Income Fund 1.45% 2.20% 2.20% -- January 31, 2006 61,643
Massachusetts Tax Free Income Fund 1.15% 1.90% -- -- January 31, 2006 3,589
Strategic Income Fund 1.25% 2.00% 2.00% 1.00% January 31, 2006 --
Prior to July 1, 2005, the expense limits as a percentage of average daily net
assets were as follows:
Fund Class A Class B Class C Class Y
---- ------- ------- ------- -------
Core Plus Bond Fund 1.15% 1.90% 1.90% 0.90%
High Income Fund -- -- -- --
Massachusetts Tax Free Income Fund 1.40% 2.05% -- --
Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
8. Concentration of Credit. Massachusetts Tax Free Income Fund primarily
invests in debt obligations issued by the Commonwealth of Massachusetts and its
political subdivisions, agencies and public authorities to obtain funds for
various public purposes. The Fund is more susceptible to factors adversely
affecting issuers of Massachusetts municipal securities than is a comparable
municipal bond fund that is not so concentrated. Uncertain economic and fiscal
conditions may affect the ability of issuers of Massachusetts municipal
securities to meet their financial obligations. At September 30, 2005, the Fund
had the following concentrations by revenue source in excess of 10% as a
percentage of the Fund's net assets: College and University 33.8%, Hospital
13.9%, Water and Sewerage 10.6%, and State General Obligation 10.1%. The Fund
had investments in securities of issuers insured by American Municipal Bond
Assurance Corporation (AMBAC), Financial Guaranty Insurance Company (FGIC), and
Municipal Bond Investors Assurance Corporation (MBIA) which aggregated 14.5%,
7.5%, and 6.9% of its net assets, respectively, at September 30, 2005.
At September 30, 2005, Municipal Income Fund had more than 10% of its net
assets invested in the following: New York 16.8%. Certain revenue or tax
related events in a state may impair the ability of issuers of municipal
securities to pay principal and interest on their obligations.
9. Acquisition of Assets. After the close of business on March 18, 2005, the
Limited Term Government and Agency Fund (the "Fund") acquired all of the assets
and liabilities of Loomis Sayles Government Securities Fund ("Government
Securities Fund"), pursuant to a plan of reorganization approved by the
shareholders of the Government Securities Fund on March 10, 2005. The
acquisition was accomplished by a tax-free exchange of 4,449,445.112 Class A
shares of the Fund for 4,190,454.806 shares of Government Securities Fund
Class A, 834,916.727 Class B shares of the Fund for 783,996.906 shares of
Government Securities Fund Class B, and 356.134 Class Y shares of the Fund for
337.738 shares of Government Securities Fund Class Y. Government Securities
Fund net assets at that date of $58,846,725, including $237,787 of net
unrealized appreciation, were combined with those of the Fund. The aggregate
net assets of the Fund immediately before the acquisition were $116,337,680.
The combined net assets of the Fund immediately following the acquisition were
$175,184,405. The Fund acquired capital loss carryovers, subject to
limitations, of $4,791,200 from Government Securities Fund.
64
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
10. Capital Shares. Each Fund may issue an unlimited number of shares of
beneficial interest, without par value. Transactions in capital shares were as
follows:
Year Ended Year Ended
September 30, 2005 September 30, 2004
----------------------------------- -----------------------------------
Core Plus Bond Fund Shares Amount Shares Amount
- ----------------------------------- ---------------- ----------------- ---------------- -----------------
Class A:
Shares sold 1,388,801 $ 16,079,888 1,605,711 $ 18,625,859
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 374,646 4,342,323 399,777 4,638,774
---------------- ----------------- ---------------- -----------------
1,763,447 20,422,211 2,005,488 23,264,633
Shares repurchased (2,814,749) (32,644,448) (3,251,762) (37,683,812)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) (1,051,302) $ (12,222,237) (1,246,274) $ (14,419,179)
---------------- ----------------- ---------------- -----------------
Class B:
Shares sold 3,051,314 $ 35,378,116 3,593,650 $ 41,729,759
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 138,384 1,605,875 162,394 1,885,405
---------------- ----------------- ---------------- -----------------
3,189,698 36,983,991 3,756,044 43,615,164
Shares repurchased (4,304,577) (49,860,073) (4,934,717) (57,311,673)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) (1,114,879) $ (12,876,082) (1,178,673) $ (13,696,509)
---------------- ----------------- ---------------- -----------------
Class C:
Shares sold 117,915 $ 1,367,189 94,805 $ 1,102,148
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 12,453 144,537 13,177 153,074
---------------- ----------------- ---------------- -----------------
130,368 1,511,726 107,982 1,255,222
Shares repurchased (125,755) (1,458,081) (236,056) (2,722,618)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 4,613 $ 53,645 (128,074) $ (1,467,396)
---------------- ----------------- ---------------- -----------------
Class Y:
Shares sold 294,003 $ 3,417,059 330,962 $ 3,859,687
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 36,213 421,543 59,164 689,033
---------------- ----------------- ---------------- -----------------
330,216 3,838,602 390,126 4,548,720
Shares repurchased (471,320) (5,465,958) (989,193) (11,485,471)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) (141,104) $ (1,627,356) (599,067) $ (6,936,751)
---------------- ----------------- ---------------- -----------------
Increase (decrease) from capital
share transactions (2,302,672) $ (26,672,030) (3,152,088) $ (36,519,835)
================ ================= ================ =================
65
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
10. Capital Shares (continued).
Year Ended Year Ended
September 30, 2005 September 30, 2004
----------------------------------- -----------------------------------
High Income Fund Shares Amount Shares Amount
- ----------------------------------- ---------------- ----------------- ---------------- -----------------
Class A:
Shares sold 1,843,627 $ 9,144,401 1,288,493 $ 6,184,887
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 201,974 1,002,839 229,520 1,097,920
---------------- ----------------- ---------------- -----------------
2,045,601 10,147,240 1,518,013 7,282,807
Shares repurchased (1,968,099) (9,761,214) (1,529,706) (7,301,820)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 77,502 $ 386,026 (11,693) $ (19,013)
---------------- ----------------- ---------------- -----------------
Class B:
Shares sold 127,125 $ 632,910 226,956 $ 1,090,578
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 79,627 395,537 117,713 563,684
---------------- ----------------- ---------------- -----------------
206,752 1,028,447 344,669 1,654,262
Shares repurchased (1,513,258) (7,517,536) (1,651,156) (7,900,417)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) (1,306,506) $ (6,489,089) (1,306,487) $ (6,246,155)
---------------- ----------------- ---------------- -----------------
Class C:
Shares sold 304,056 $ 1,494,195 84,117 $ 402,199
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 17,043 84,652 16,780 80,318
---------------- ----------------- ---------------- -----------------
321,099 1,578,847 100,897 482,517
Shares repurchased (147,783) (739,866) (174,710) (834,207)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 173,316 $ 838,981 (73,813) $ (351,690)
---------------- ----------------- ---------------- -----------------
Increase (decrease) from capital
share transactions (1,055,688) $ (5,264,082) (1,391,993) $ (6,616,858)
================ ================= ================ =================
66
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
10. Capital Shares (continued).
Year Ended Year Ended
September 30, 2005 September 30, 2004
----------------------------------- -----------------------------------
Limited Term Government and Agency
Fund Shares Amount Shares Amount
- ----------------------------------- ---------------- ----------------- ---------------- -----------------
Class A:
Shares sold 1,025,368 $ 11,507,822 1,157,697 $ 13,126,606
Shares issued in connection with
acquisition of Loomis Sayles
Government Securities Fund 4,449,445 49,566,819 -- --
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 223,935 2,506,659 239,161 2,713,978
---------------- ----------------- ---------------- -----------------
5,698,748 63,581,300 1,396,858 15,840,584
Shares repurchased (2,390,415) (26,770,920) (2,142,804) (24,327,014)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 3,308,333 $ 36,810,380 (745,946) $ (8,486,430)
---------------- ----------------- ---------------- -----------------
Class B:
Shares sold 90,600 $ 1,011,141 134,092 $ 1,517,724
Shares issued in connection with
acquisition of Loomis Sayles
Government Securities Fund 834,917 9,275,925 -- --
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 20,684 230,974 25,006 283,349
---------------- ----------------- ---------------- -----------------
946,201 10,518,040 159,098 1,801,073
Shares repurchased (476,529) (5,324,127) (537,206) (6,100,694)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 469,672 $ 5,193,913 (378,108) $ (4,299,621)
---------------- ----------------- ---------------- -----------------
Class C:
Shares sold 67,790 $ 759,450 106,715 $ 1,211,584
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 7,387 82,688 12,725 144,384
---------------- ----------------- ---------------- -----------------
75,177 842,138 119,440 1,355,968
Shares repurchased (174,813) (1,960,779) (260,938) (2,968,972)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) (99,636) $ (1,118,641) (141,498) $ (1,613,004)
---------------- ----------------- ---------------- -----------------
Class Y:
Shares sold 206,094 $ 2,316,707 57,198 $ 653,419
Shares issued in connection with
acquisition of Loomis Sayles
Government Securities Fund 356 3,981 -- --
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 5,628 63,325 18,709 213,178
---------------- ----------------- ---------------- -----------------
212,078 2,384,013 75,907 866,597
Shares repurchased (357,795) (4,047,745) (298,779) (3,409,632)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) (145,717) $ (1,663,732) (222,872) $ (2,543,035)
---------------- ----------------- ---------------- -----------------
Increase (decrease) from capital
share transactions 3,532,652 $ 39,221,920 (1,488,424) $ (16,942,090)
================ ================= ================ =================
On September 30, 2005, one shareholder owned 9.25% of the Fund's total shares
outstanding.
67
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
10. Capital Shares (continued).
Year Ended
September 30, 2005
-----------------------------------
Massachusetts Tax Free Income Fund Shares Amount
- -------------------------------------------------------- ---------------- -----------------
Class A:
Shares sold 108,967 $ 1,818,083
Shares issued in connection with the reinvestment of:
Dividends from net investment income 124,767 2,082,631
---------------- -----------------
233,734 3,900,714
Shares repurchased (509,747) (8,484,290)
---------------- -----------------
Net increase (decrease) (276,013) $ (4,583,576)
---------------- -----------------
Class B:
Shares sold 3,203 $ 53,537
Shares issued in connection with the reinvestment of:
Dividends from net investment income 4,326 72,024
---------------- -----------------
7,529 125,561
Shares repurchased (82,197) (1,367,143)
---------------- -----------------
Net increase (decrease) (74,668) $ (1,241,582)
---------------- -----------------
Increase (decrease) from capital share transactions (350,681) $ (5,825,158)
================ =================
Year Ended
September 30, 2004
-----------------------------------
Massachusetts Tax Free Income Fund Shares Amount
- -------------------------------------------------------- ---------------- -----------------
Class A:
Shares sold 92,298 $ 1,517,739
Shares issued in connection with the reinvestment of:
Dividends from net investment income 138,812 2,281,926
---------------- -----------------
231,110 3,799,665
Shares repurchased (583,207) (9,546,927)
---------------- -----------------
Net increase (decrease) (352,097) $ (5,747,262)
---------------- -----------------
Class B:
Shares sold 6,385 $ 104,899
Shares issued in connection with the reinvestment of:
Dividends from net investment income 5,985 98,181
---------------- -----------------
12,370 203,080
Shares repurchased (122,073) (2,004,356)
---------------- -----------------
Net increase (decrease) (109,703) $ (1,801,276)
---------------- -----------------
Increase (decrease) from capital share transactions (461,800) $ (7,548,538)
================ =================
Year Ended Year Ended
September 30, 2005 September 30, 2004
----------------------------------- -----------------------------------
Municipal Income Fund Shares Amount Shares Amount
- ----------------------------------- ---------------- ----------------- ---------------- -----------------
Class A:
Shares sold 417,124 $ 3,133,149 562,771 $ 4,169,045
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 359,731 2,701,656 431,284 3,197,822
---------------- ----------------- ---------------- -----------------
776,855 5,834,805 994,055 7,366,867
Shares repurchased (2,060,532) (15,468,783) (3,170,451) (23,420,778)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) (1,283,677) $ (9,633,978) (2,176,396) $ (16,053,911)
---------------- ----------------- ---------------- -----------------
Class B:
Shares sold 91,090 $ 683,767 128,884 $ 956,534
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 20,236 152,169 27,197 201,837
---------------- ----------------- ---------------- -----------------
111,326 835,936 156,081 1,158,371
Shares repurchased (309,437) (2,326,615) (409,784) (3,040,646)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) (198,111) $ (1,490,679) (253,703) $ (1,882,275)
---------------- ----------------- ---------------- -----------------
Increase (decrease) from capital
share transactions (1,481,788) $ (11,124,657) (2,430,099) $ (17,936,186)
================ ================= ================ =================
68
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
10. Capital Shares (continued).
Year Ended Year Ended
September 30, 2005 September 30, 2004
----------------------------------- -----------------------------------
Strategic Income Fund Shares Amount Shares Amount
- ----------------------------------- ---------------- ----------------- ---------------- -----------------
Class A:
Shares sold 50,308,376 $ 706,576,467 18,605,688 $ 246,707,247
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 1,468,469 20,639,715 769,347 10,148,557
---------------- ----------------- ---------------- -----------------
51,776,845 727,216,182 19,375,035 256,855,804
Shares repurchased (8,154,982) (114,434,654) (5,231,023) (68,866,251)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 43,621,863 $ 612,781,528 14,144,012 $ 187,989,553
---------------- ----------------- ---------------- -----------------
Class B:
Shares sold 3,250,360 $ 45,753,417 2,393,606 $ 31,720,078
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 252,300 3,556,640 330,396 4,369,393
---------------- ----------------- ---------------- -----------------
3,502,660 49,310,057 2,724,002 36,089,471
Shares repurchased (2,831,055) (39,810,800) (2,654,105) (34,998,138)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 671,605 $ 9,499,257 69,897 $ 1,091,333
---------------- ----------------- ---------------- -----------------
Class C:
Shares sold 37,693,843 $ 531,354,799 14,515,841 $ 193,058,623
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 386,067 5,441,310 242,679 3,207,880
---------------- ----------------- ---------------- -----------------
38,079,910 536,796,109 14,758,520 196,266,503
Shares repurchased (3,055,156) (42,960,385) (1,236,758) (16,245,858)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 35,024,754 $ 493,835,724 13,521,762 $ 180,020,645
---------------- ----------------- ---------------- -----------------
Class Y:
Shares sold 3,058,044 $ 42,955,389 850,431 $ 11,206,980
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income 30,007 421,552 14,335 188,666
---------------- ----------------- ---------------- -----------------
3,088,051 43,376,941 864,766 11,395,646
Shares repurchased (332,834) (4,648,580) (240,560) (3,177,333)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) 2,755,217 $ 38,728,361 624,206 $ 8,218,313
---------------- ----------------- ---------------- -----------------
Increase (decrease) from capital
share transactions 82,073,439 $ 1,154,844,870 28,359,877 $ 377,319,844
================ ================= ================ =================
69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, and
Loomis Sayles Funds II and Shareholders of Loomis Sayles Core Plus Bond Fund,
Loomis Sayles Massachusetts Tax Free Income Fund, Loomis Sayles High Income
Fund, Loomis Sayles Limited Term Government and Agency Fund, Loomis Sayles
Municipal Income Fund and Loomis Sayles Strategic Income Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Loomis Sayles
Core Plus Bond Fund, a series of IXIS Advisor Funds Trust I, the Loomis Sayles
Massachusetts Tax Free Income Fund, a series of IXIS Advisor Funds Trust II,
and the Loomis Sayles High Income Fund, Loomis Sayles Limited Term Government
and Agency Fund, Loomis Sayles Municipal Income Fund and the Loomis Sayles
Strategic Income Fund, each a series of Loomis Sayles Funds II (collectively,
"the Funds"), at September 30, 2005, and the results of each of their
operations, the changes in each of their net assets and the financial
highlights for each of the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 23, 2005
70
ADDITIONAL INFORMATION
Shareholder Meetings (Unaudited)
At a special shareholders' meeting held on June 2, 2005, shareholders of IXIS
Advisor Funds Trust I, of which the Loomis Sayles Core Plus Bond Fund is a
series, voted for the following proposals:
1. Election of Trustees for IXIS Advisor Funds Trust I ("Trust I")
Votes
Votes For Withheld Total Votes
- --------- -------- -----------
Graham T. Allison, Jr. 131,745,061.272 3,213,785.211 134,958,846.483
Edward A. Benjamin 131,812,753.170 3,146,093.313 134,958,846.483
Daniel M. Cain 131,896,620.650 3,062,225.833 134,958,846.483
Paul G. Chenault 131,736,188.725 3,222,657.758 134,958,846.483
Kenneth J. Cowan 131,624,646.555 3,334,199.928 134,958,846.483
Richard Darman 131,920,983.533 3,037,862.950 134,958,846.483
Sandra O. Moose 131,873,816.605 3,085,029.878 134,958,846.483
John A. Shane 131,718,823.070 3,240,023.413 134,958,846.483
Charles D. Baker 131,824,162.901 3,134,683.582 134,958,846.483
Cynthia L. Walker 131,866,957.031 3,091,889.452 134,958,846.483
Robert J. Blanding 131,879,975.460 3,078,871.023 134,958,846.483
John T. Hailer 131,817,344.611 3,141,501.872 134,958,846.483
2. Approval of an Amended and Restated Agreement and Declaration
of Trust for Trust I
Voted Abstained Broker
Voted For Against Votes Non-Votes Total Votes
--------- ------- ----- --------- -----------
96,227,281.438 3,171,004.690 3,467,338.355 32,093,222.000 134,958,846.483
At a special shareholders' meeting held on June 2, 2005, shareholders of IXIS
Advisor Funds Trust II, of which the Loomis Sayles Massachusetts Tax Free
Income Fund is a series, voted for the following proposals:
1. Election of Trustees for IXIS Advisor Funds Trust II ("Trust
II")
Votes
Votes For Withheld Total Votes
- --------- -------- -----------
Graham T. Allison, Jr. 22,764,239.374 514,958.204 23,279,197.578
Edward A. Benjamin 22,770,172.406 509,025.172 23,279,197.578
Daniel M. Cain 22,772,091.712 507,105.866 23,279,197.578
Paul G. Chenault 22,749,975.557 529,222.021 23,279,197.578
Kenneth J. Cowan 22,758,192.528 521,005.050 23,279,197.578
Richard Darman 22,761,355.077 517,842.501 23,279,197.578
Sandra O. Moose 22,783,421.156 495,776.422 23,279,197.578
John A. Shane 22,758,852.839 520,344.739 23,279,197.578
Charles D. Baker 22,746,708.764 532,488.814 23,279,197.578
Cynthia L. Walker 22,774,049.885 505,147.693 23,279,197.578
Robert J. Blanding 22,771,113.391 508,084.187 23,279,197.578
John T. Hailer 22,773,708.397 505,489.181 23,279,197.578
2. Approval of an Amended and Restated Agreement and Declaration
of Trust for Trust II
Voted Abstained Broker
Voted For Against Votes Non-Votes Total Votes
--------- ------- ----- --------- -----------
16,078,256.237 402,230.847 539,405.494 6,259,305.000 23,279,197.578
71
ADDITIONAL INFORMATION
At a special shareholders' meeting held on June 2, 2005, shareholders of Loomis
Sayles Funds II, of which the Loomis Sayles High Income Fund, Loomis Sayles
Limited Term Government and Agency Fund, Loomis Sayles Municipal Income Fund
and Loomis Sayles Strategic Income Fund are series, voted for the following
proposals:
1. Election of Trustees for Loomis Sayles Funds II ("Loomis Trust
II")
Votes
Votes For Withheld Total
- --------- -------- -----
Graham T. Allison, Jr. 132,584,909.794 22,128,560.082 154,713,469.876
Edward A. Benjamin 132,612,377.523 22,101,092.353 154,713,469.876
Daniel M. Cain 132,610,853.597 22,102,616.279 154,713,469.876
Paul G. Chenault 132,528,522.129 22,184,947.747 154,713,469.876
Kenneth J. Cowan 132,560,768.058 22,152,701.818 154,713,469.876
Richard Darman 132,450,040.167 22,263,429.709 154,713,469.876
Sandra O. Moose 132,566,101.551 22,147,368.325 154,713,469.876
John A. Shane 132,564,423.970 22,149,045.906 154,713,469.876
Charles D. Baker 132,593,048.677 22,120,421.199 154,713,469.876
Cynthia L. Walker 132,584,766.724 22,128,703.152 154,713,469.876
Robert J. Blanding 132,514,900.631 22,198,569.245 154,713,469.876
John T. Hailer 132,593,553.721 22,119,916.155 154,713,469.876
2. Approval of an Amended and Restated Agreement and Declaration
of Trust for Loomis Trust II
Voted Abstained Broker
Voted For Against Votes Non-Votes Total Votes
--------- ------- ----- --------- -----------
103,245,838.162 2,321,818.870 22,868,247.134 32,828,038.000 161,263,942.166
With respect to this proposal, the meeting was adjourned initially to June 22,
2005 and again to July 21, 2005 due to insufficient votes to pass the proposal.
72
TRUSTEE AND OFFICER INFORMATION
The table below provides certain information regarding the Trustees and
officers of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II and Loomis
Sayles Funds II (the "Trusts"). Unless otherwise indicated, the address of all
persons below is 399 Boylston Street, Boston, MA 02116. The Statements of
Additional Information include additional information about the Trustees of the
Trusts and are available by calling Loomis Sayles at 800-343-2029.
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held
- ---------------------- -------------------------- --------------------- ----------------------------
INDEPENDENT TRUSTEES
Graham T. Allison, Jr. Trustee, since 1984 for Douglas Dillon Professor and 38;
(3/23/40) IXIS Advisor Funds Trust I; Director of the Belfer Center Director, Taubman Centers,
since 1993 for IXIS Advisor of Science and International Inc. (real estate investment
Funds Trust II; since 2003 Affairs, John F. Kennedy trust); Advisory Board
for Loomis Sayles Funds II; School of Government, Member, USEC Inc. (energy
Contract Review and Harvard University supplier)
Governance Committee
Member
Charles D. Baker Trustee, since 2005; President and Chief Executive 38;
(11/13/56) Contract Review and Officer, Harvard Pilgrim None
Governance Committee Health Care (health plan)
Member
Edward A. Benjamin Trustee, since 2003 for Retired 38;
(5/30/38) IXIS Advisor Funds Trust I Director, Coal, Energy
and II; since 2002 for Investments & Management,
Loomis Sayles Funds II; LLC; Director, Precision
Contract Review and Optics Corporation (optics
Governance Committee manufacturer)
Member
Daniel M. Cain Trustee, since 1996 for President and Chief Executive 38;
(2/24/45) IXIS Advisor Funds Trust I Officer, Cain Brothers & Trustee, Universal Health
and II; since 2003 for Company, Incorporated Realty Income Trust;
Loomis Sayles Funds II; (investment banking) Director, Sheridan
Co-Chairman of the Board, Healthcorp (physician
since 2004; Chairman of practice management)
the Audit Committee
Paul G. Chenault Trustee, since 2003 for Retired; Trustee, First Variable 38;
(9/12/33) IXIS Advisor Funds Trust I Life (variable life insurance) Director, Mailco Office
and II; since 2000 for Products, Inc. (mailing
Loomis Sayles Funds II; equipment)
Contract Review and
Governance Committee
Member
73
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held
- ---------------------- -------------------------- --------------------- ----------------------------
INDEPENDENT TRUSTEES
continued
Kenneth J. Cowan Trustee, since 1993 for Retired 38;
(4/5/32) IXIS Advisor Funds Trust I; None
since 1975 for IXIS Advisor
Funds Trust II; since 2003
for Loomis Sayles Funds II;
Co-Chairman of the Board,
since 2004; Chairman of
the Contract Review and
Governance Committee
Richard Darman Trustee, since 1996 for Partner, The Carlyle Group 38;
(5/10/43) IXIS Advisor Funds Trust I (investments); formerly, Director and Chairman of the
and II; since 2003 for Professor, John F. Kennedy Board of Directors, AES
Loomis Sayles Funds II; School of Government, Corporation (independent
Contract Review and Harvard University power company); Chairman-
Governance Committee Designate of the Smithsonian
Member National Museum of
American History; Trustee,
Howard Hughes Medical
Institute
Sandra O. Moose Trustee, since 1982 for President, Strategic Advisory 38;
(2/17/42) IXIS Advisor Funds Trust I; Services (management Director, Verizon
since 1993 for IXIS Advisor consulting); formerly, Senior Communications; Director,
Funds Trust II and III; since Vice President and Director, Rohm and Haas Company
2003 for Loomis Sayles The Boston Consulting Group, (specialty chemicals);
Funds II; Audit Committee Inc. (management consulting) Director, AES Corporation
Member
John A. Shane Trustee, since 1993 for President, Palmer Service 38;
(2/22/33) IXIS Advisor Funds Trust I; Corporation (venture capital Director, Gensym
since 1982 for IXIS Advisor organization) Corporation (software and
Funds Trust II and III; technology services provider);
since 2003 for Loomis Director, Abt Associates Inc.
Sayles Funds II; Contract (research and consulting
Review and Governance firm)
Committee Member
Cynthia L. Walker Trustee, since 2005; Audit Dean for Finance and CFO 38;
(7/25/56) Committee Member (formerly, Associate Dean for None
Finance & CFO), Harvard
Medical School
74
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held
- ---------------------- -------------------------- --------------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Blanding/1/ Trustee, since 2002; President, Chairman, Director 38;
(4/14/47) Chief Executive Officer of and Chief Executive Officer, None
555 California Street Loomis Sayles Funds II, Loomis, Sayles & Company,
San Francisco, CA 94104 since 2003 L.P.
John T. Hailer/2/ Trustee, since 2000; President and Chief Executive 38;
(11/23/60) President and Chief Officer, IXIS Asset None
Executive Officer of IXIS Management Distributors,
Advisor Funds I and II, L.P.; President and Chief
since 2000; President of Executive Officer, IXIS
Loomis Sayles Funds II, Advisor Funds
since 2003
OFFICERS
Coleen Downs Dinneen Secretary, Clerk and Chief Senior Vice President, General Not Applicable
(12/16/60) Legal Officer, since 2004 Counsel, Secretary and Clerk
(formerly, Deputy General
Counsel, Assistant Secretary
and Assistant Clerk) IXIS
Asset Management
Distribution Corporation, IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.
Michael C. Kardok Treasurer, Principal Senior Vice President, IXIS Not Applicable
(7/17/59) Financial and Accounting Asset Management Advisors,
Officer, since 2004 L.P. and IXIS Asset
Management Distributors,
L.P.; formerly, Senior Director,
PFPC Inc.
Max J. Mahoney Anti-Money Laundering Senior Vice President, Deputy Not Applicable
(5/1/62) Officer and Assistant General Counsel, Assistant
Secretary, since 2005 Secretary and Assistant Clerk,
IXIS Asset Management
Distribution Corporation, IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; Chief Compliance
Officer, IXIS Asset
Management Advisors, L.P.;
formerly, Senior Counsel,
MetLife, Inc.; formerly,
Associate Counsel, LPL
Financial Services, Inc.
75
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held
- ---------------------- -------------------------- --------------------- ----------------------------
OFFICERS
continued
John E. Pelletier Chief Operating Officer, Executive Vice President and Not Applicable
(6/24/64) since 2004 Chief Operating Officer
(formerly, General Counsel,
Secretary and Clerk), IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; Executive Vice President
(formerly, Senior Vice
President, General Counsel,
Secretary and Clerk), IXIS
Asset Management
Distribution Corporation;
formerly, Director IXIS Asset
Management Services
Company
Daniel J. Fuss Executive Vice President of Vice Chairman and Director, Not Applicable
(9/27/33) Loomis Sayles Funds II, Loomis, Sayles & Company,
One Financial Center since 2003 L.P.; Prior to 2002, President
Boston, MA 02111 and Trustee of Loomis Sayles
Funds II
Kristin Vigneaux Chief Compliance Officer, Chief Compliance Officer for Not Applicable
(9/25/69) since 2004 Mutual Funds, IXIS Asset
Management Distributors, L.P.
and IXIS Asset Management
Advisors, L.P.; formerly, Vice
President, IXIS Asset
Management Services
Company
* The year provided is the earliest year during which a Trustee was elected
or appointed to the Trusts. All Trustees serve until retirement,
resignation or removal from the Board. The current retirement age is 72,
but was suspended for the calendar year 2006. At a meeting held on
August 26, 2005, the Trustees voted to lift the suspension of the
retirement policy but to designate 2006 as a transition period so that any
Trustees who are currently 72 or older or who reach age 72 during the
remainder of 2005 or in 2006 will not be required to retire until the end
of calendar year 2006.
** Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor and Loomis Sayles Trusts. Previous positions during the
past five years with IXIS Asset Management Distributors, L.P. (the
"Distributor"), IXIS Asset Management Advisors, L.P. ("IXIS Advisors"),
IXIS Asset Management Services Company ("IXIS Services") or Loomis,
Sayles & Company, L.P. ("Loomis Sayles") are omitted if not materially
different from a Trustee's or officer's current position with such entity.
*** The Trustees of the Trusts serve as Trustees of a fund complex that
includes all series of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust
II, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor
Cash Management Trust, AEW Real Estate Income Fund, Loomis Sayles Funds I
and Loomis Sayles Funds II.
/1/ Mr. Blanding is deemed an "interested person" of the Trust because he
holds the following positions with affiliated persons of the Trust:
President, Chairman, Director and Chief Executive Officer of Loomis,
Sayles & Company, L.P.
/2/ Mr. Hailer is deemed an "interested person" of the Trust because he holds
the following positions with affiliated persons of the Trust: Director
and Executive Vice President of IXIS Asset Management Distribution
Corporation, President and Chief Executive Officer of IXIS Asset
Management Advisors, L.P.
76
[LOGO]
Equity Funds
Annual Report
September 30, 2005
[LOGO]
Loomis Sayles Growth Fund
Loomis Sayles Research Fund
TABLE OF CONTENTS
Management Discussion
and Performance.........Page 1
Schedule of InvestmentsPage 10
Financial Statements...Page 14
LOOMIS SAYLES GROWTH FUND
PORTFOLIO PROFILE
Objective:
Long-term growth of capital
- --------------------------------------------------------------------------------
Strategy:
Invests primarily in equity securities, including common stocks, convertible
securities, and warrants; focuses on stocks of large-capitalization companies,
but may invest in companies of any size
- --------------------------------------------------------------------------------
Fund Inception:
May 16, 1991
- --------------------------------------------------------------------------------
Managers:
Mark Baribeau
Pamela Czekanski
Richard Skaggs
Loomis, Sayles &
Company, L.P.
- --------------------------------------------------------------------------------
Symbols:
Class A LGRRX
Class B LGRBX
Class C LGRCX
Class Y LSGRX
- --------------------------------------------------------------------------------
What You Should Know:
Growth stocks are generally more sensitive to market movements because their
stock prices are based on future expectations. This fund may invest in foreign
securities, which involves risks not associated with domestic securities, such
as currency fluctuations, differing political and economic conditions, and
different accounting standards.
Management Discussion
- --------------------------------------------------------------------------------
Above-average revenue and earnings growth of the companies selected for its
portfolio led to strong performance for Loomis Sayles Growth Fund for the
fiscal year ended September 30, 2005. For the 12-month period, Class A shares
of the fund produced a total return of 21.08% at net asset value, well ahead of
the 11.60% return of the fund's benchmark, the Russell 1000 Growth Index. The
fund also did better than the funds in Morningstar's Large Growth category,
which had an average return of 13.39%.
FINANCIAL STOCKS, TECH HOLDINGS LED FUND PERFORMANCE
Our emphasis on the financial sector and solid performance from the individual
stocks we selected made this the fund's best-performing sector during the
period. Legg Mason and Moody's Corp. were both standouts. Legg Mason
appreciated as the stock market reacted favorably to the news that the company
had decided to focus exclusively on the asset management business. Moody's
experienced healthy revenue and earnings growth in its mortgage-backed
securities and international finance businesses. Our technology selections also
performed well, led by Apple Computer, which benefited from the popularity of
its iPod products and solid growth in its Macintosh computer and on-line music
businesses. Texas Instruments, which enjoyed excellent earnings growth in its
semiconductor business for the fast-growing wireless communications industry,
was another positive contributor among our technology holdings. Internet search
company Google exceeded sales and earnings targets with impressive growth in
advertising revenues.
A FEW INDIVIDUAL HOLDINGS DISAPPOINTED
On-line auctioneer eBay failed to meet expectations early in 2005, primarily
because of slowing earnings in the United States and Germany. We sold the
holding, but then bought it back later in the fiscal year when the outlook for
the company brightened again. Shares of software company Symantec declined as
investors expressed doubts about its planned acquisition of Veritas, which
provides data management systems for computer networks. Shares of Biogen Idec,
a biotechnology company, fell after it withdrew its multiple sclerosis drug,
Tysabri, from the market following reports of two patient deaths. We sold both
Symantec and Biogen Idec.
FINANCIAL AND ENERGY HOLDINGS WERE INCREASED
We made adjustments to our sector weightings during the fiscal year, but
remained focused on companies with strong revenue and earnings growth, which
appeared likely to sustain that growth in the current economic environment. We
also reduced the fund's positions in the consumer discretionary, and technology
sectors, as well as the home building industry, and added to our investments in
energy and financial services companies during the fiscal year. Within the
energy sector, we emphasized natural gas exploration and production companies,
while in financial services we focused on asset managers, specialty finance
companies, and investment banks.
MARKET'S POST-KATRINA RESILIENCE ENCOURAGES POSITIVE OUTLOOK
As the fiscal year drew to a close in late September, we expected some economic
weakening in the wake of Hurricanes Katrina and Rita, which caused such
devastation in the Gulf Coast area. Consumer sentiment and employment trends
may continue to slip and economic growth may slow. Moreover, even if they
decline to pre-hurricane levels, high oil prices are likely to remain a drag on
the economy. Despite these concerns, we see reason for optimism. The stock
market showed vigor in the weeks after the hurricanes and we believe the
Federal Reserve Board may be nearing the end of its program of gradually
increasing short-term interest rates. In this environment, we believe the
market averages may finish 2005 with positive performance for the year.
1
LOOMIS SAYLES GROWTH FUND
Investment Results through September 30, 2005
- --------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares/1/
[CHART]
September 30, 1995 through September 30, 2005
Net Maximum Lipper Russell
Asset Sales Large-Cap Growth 1000 Growth
Value/2/ Charge/3/ Funds Index Index
--------- --------- ------------------ -----------
9/30/1995 $10,000 $ 9,425 $10,000 $10,000
10/31/1995 9,914 9,344 9,943 10,007
11/30/1995 10,141 9,558 10,256 10,396
12/31/1995 10,026 9,450 10,260 10,455
1/31/1996 10,019 9,443 10,562 10,805
2/29/1996 10,341 9,746 10,799 11,003
3/31/1996 10,354 9,759 10,804 11,017
4/30/1996 10,952 10,322 11,062 11,307
5/31/1996 11,234 10,589 11,388 11,702
6/30/1996 11,255 10,608 11,285 11,718
7/31/1996 10,236 9,648 10,681 11,031
8/31/1996 10,670 10,057 11,002 11,316
9/30/1996 11,399 10,744 11,768 12,140
10/31/1996 11,864 11,182 11,914 12,213
11/30/1996 12,364 11,653 12,685 13,130
12/31/1996 12,027 11,336 12,370 12,873
1/31/1997 13,083 12,331 13,154 13,776
2/28/1997 12,368 11,656 12,965 13,683
3/31/1997 11,634 10,965 12,300 12,942
4/30/1997 11,527 10,864 12,975 13,802
5/31/1997 12,664 11,936 13,856 14,798
6/30/1997 13,066 12,315 14,436 15,390
7/31/1997 14,390 13,563 15,816 16,751
8/31/1997 14,056 13,248 14,953 15,770
9/30/1997 15,306 14,426 15,779 16,547
10/31/1997 15,139 14,268 15,232 15,935
11/30/1997 14,685 13,840 15,570 16,612
12/31/1997 14,937 14,078 15,782 16,798
1/31/1998 14,320 13,497 16,062 17,300
2/28/1998 15,329 14,447 17,288 18,602
3/31/1998 15,862 14,950 18,093 19,343
4/30/1998 16,313 15,375 18,396 19,611
5/31/1998 15,684 14,783 17,985 19,054
6/30/1998 16,384 15,442 19,014 20,221
7/31/1998 15,494 14,603 19,005 20,087
8/31/1998 12,386 11,674 15,901 17,073
9/30/1998 13,751 12,960 17,058 18,384
10/31/1998 14,689 13,844 18,158 19,862
11/30/1998 14,784 13,934 19,405 21,373
12/31/1998 16,817 15,850 21,539 23,300
1/31/1999 17,337 16,340 22,937 24,668
2/28/1999 16,623 15,667 21,995 23,541
3/31/1999 18,100 17,060 23,246 24,781
4/30/1999 18,345 17,290 23,325 24,812
5/31/1999 17,842 16,816 22,553 24,050
6/30/1999 19,093 17,995 24,120 25,735
7/31/1999 18,249 17,200 23,363 24,917
8/31/1999 18,395 17,337 23,368 25,324
9/30/1999 17,957 16,925 23,131 24,792
10/31/1999 19,338 18,226 24,905 26,664
11/30/1999 20,657 19,469 26,136 28,103
12/31/1999 23,917 22,541 29,038 31,026
1/31/2000 22,981 21,660 27,873 29,571
2/29/2000 25,836 24,350 29,338 31,016
3/31/2000 26,523 24,998 31,397 33,236
4/30/2000 24,409 23,006 28,968 31,655
5/31/2000 22,788 21,478 27,300 30,061
6/30/2000 25,063 23,622 29,106 32,339
7/31/2000 24,835 23,407 28,516 30,991
8/31/2000 27,514 25,932 30,982 33,797
9/30/2000 26,086 24,586 28,620 30,600
10/31/2000 24,130 22,742 27,106 29,152
11/30/2000 20,020 18,869 23,470 24,855
12/31/2000 20,038 18,886 23,324 24,068
1/31/2001 19,477 18,357 24,002 25,731
2/28/2001 17,144 16,158 20,286 21,363
3/31/2001 15,651 14,751 18,179 19,038
4/30/2001 16,828 15,860 20,130 21,446
5/31/2001 16,267 15,332 19,977 21,130
6/30/2001 16,062 15,139 19,402 20,641
7/31/2001 15,352 14,470 18,706 20,125
8/31/2001 14,176 13,361 17,284 18,479
9/30/2001 12,810 12,073 15,546 16,634
10/31/2001 13,525 12,747 16,191 17,507
11/30/2001 14,707 13,861 17,675 19,189
12/31/2001 15,080 14,213 17,757 19,153
1/31/2002 15,049 14,183 17,355 18,814
2/28/2002 14,240 13,422 16,637 18,034
3/31/2002 14,863 14,008 17,306 18,657
4/30/2002 14,396 13,568 16,154 17,135
5/31/2002 14,302 13,480 15,860 16,720
6/30/2002 13,307 12,542 14,568 15,173
7/31/2002 12,188 11,487 13,472 14,339
8/31/2002 12,188 11,487 13,546 14,382
9/30/2002 11,348 10,696 12,234 12,890
10/31/2002 12,188 11,487 13,175 14,073
11/30/2002 12,499 11,780 13,721 14,837
12/31/2002 11,598 10,931 12,765 13,812
1/31/2003 11,505 10,843 12,470 13,477
2/28/2003 11,443 10,785 12,336 13,415
3/31/2003 11,691 11,019 12,568 13,665
4/30/2003 12,437 11,722 13,488 14,675
5/31/2003 13,152 12,396 14,149 15,408
6/30/2003 13,184 12,425 14,266 15,620
7/31/2003 13,744 12,954 14,680 16,009
8/31/2003 14,116 13,305 15,041 16,407
9/30/2003 13,713 12,924 14,721 16,231
10/31/2003 15,018 14,154 15,614 17,143
11/30/2003 15,143 14,272 15,762 17,322
12/31/2003 15,329 14,447 16,207 17,921
1/31/2004 15,671 14,770 16,517 18,287
2/29/2004 15,795 14,886 16,589 18,403
3/31/2004 15,733 14,828 16,404 18,062
4/30/2004 15,236 14,360 16,036 17,852
5/31/2004 15,702 14,799 16,326 18,185
6/30/2004 16,168 15,239 16,560 18,412
7/31/2004 15,049 14,184 15,580 17,371
8/31/2004 14,863 14,008 15,470 17,285
9/30/2004 15,484 14,594 15,833 17,450
10/31/2004 16,043 15,121 16,024 17,722
11/30/2004 17,070 16,088 16,739 18,332
12/31/2004 17,724 16,705 17,414 19,050
1/31/2005 17,008 16,030 16,815 18,415
2/28/2005 17,256 16,264 16,925 18,611
3/31/2005 16,759 15,795 16,617 18,272
4/30/2005 16,231 15,298 16,256 17,924
5/31/2005 17,288 16,294 17,158 18,791
6/30/2005 17,723 16,704 17,192 18,722
7/31/2005 18,594 17,524 18,057 19,637
8/31/2005 18,283 17,232 17,864 19,384
9/30/2005 18,737 17,655 18,078 19,473
Average Annual Total Returns -- September 30, 2005
1 YEAR/5/ 5 YEARS/5/ 10 YEARS/5/
CLASS A/1/
Net Asset Value/2/ 21.08% -6.40% 6.48%
With Maximum Sales Charge/3/ 14.20 -7.49 5.85
CLASS B/1/
Net Asset Value/2/ 20.24 -7.09 5.72
With CDSC/4/ 15.24 -7.30 5.72
CLASS C/1/
Net Asset Value/2/ 20.24 -7.09 5.72
With CDSC/4/ 19.24 -7.09 5.72
CLASS Y/1/
Net Asset Value/2/ 21.55 -6.16 6.72
- --------------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Russell 1000 Growth Index 11.60% -8.64% 6.89%
Lipper Large-Cap Growth Funds Index 14.18 -8.78 6.10
Lipper Large-Cap Growth Funds Avg. 12.55 -7.83 6.51
Morningstar Large Growth Fund Avg. 13.39 -7.28 6.94
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of dividends and capital gains. Current returns may be
higher or lower than those shown. For performance current to the most recent
month-end, visit www.ixisadvisorfunds.com.
Class Y shares, the successor to the fund's Institutional Class, are available
to certain institutional investors only.
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
PORTFOLIO FACTS
% of Net Assets as of
FUND COMPOSITION 3/31/05 9/30/05
- -----------------------------------------------------
Common Stock 95.8 96.3
- -----------------------------------------------------
Short Term Invest. & Other 4.2 3.7
- -----------------------------------------------------
% of Net Assets as of
TEN LARGEST HOLDINGS 3/31/05 9/30/05
- -----------------------------------------------------
Google, Inc., Class A 2.9 4.0
- -----------------------------------------------------
Legg Mason, Inc. 2.8 3.5
- -----------------------------------------------------
Procter & Gamble Co. 2.5 3.5
- -----------------------------------------------------
Intel Corp. 2.3 2.9
- -----------------------------------------------------
WellPoint, Inc. 2.7 2.8
- -----------------------------------------------------
Moody's Corp. 1.6 2.6
- -----------------------------------------------------
Whole Foods Market, Inc. 1.5 2.6
- -----------------------------------------------------
QUALCOMM, Inc. 2.1 2.5
- -----------------------------------------------------
Franklin Resources, Inc. 0.0 2.5
- -----------------------------------------------------
Lowe's Cos., Inc. 0.0 2.5
- -----------------------------------------------------
% of Net Assets as of
FIVE LARGEST INDUSTRIES 3/31/05 9/30/05
- -----------------------------------------------------
Capital Markets 8.3 13.3
- -----------------------------------------------------
Healthcare Providers & Services 9.8 11.0
- -----------------------------------------------------
Communications Equipment 3.2 7.1
- -----------------------------------------------------
Semiconductors & Semiconductor
Equipment 4.3 7.0
- -----------------------------------------------------
Oil, Gas & Consumable Fuels 3.8 6.6
- -----------------------------------------------------
Portfolio holdings and asset allocations will vary.
See page 5 for a description of the indexes.
NOTES TO CHARTS
/1/Returns shown in the chart include performance of the fund's Retail Class
shares, which were converted to Class A shares on 9/12/03. The prior Retail
Class performance has been restated to reflect expenses of Class A shares.
For periods before the inception of Retail Class shares (12/31/96),
performance shown for Class A has been based on the performance of the
fund's Institutional Class shares, adjusted to reflect the higher expenses
paid by Class A shares. The restatement of the fund's performance to reflect
Class A expenses is based on the net expenses of the Class after taking into
effect the fund's current expense cap arrangements. For periods prior to the
inception of Class B and Class C shares (9/12/03), performance is based on
prior Institutional Class performance, restated to reflect the loads and
expenses of Class B and Class C shares, respectively. Class Y performance
has been restated to reflect the net expenses of the Institutional Class
after taking into effect the fund's current expense cap arrangements. The
growth of $10,000 chart reflects the performance of Class A shares rather
than Class Y shares, because Class A shares include the highest sales
charge. Prior to 9/12/03, the fund was offered without a sales charge.
/2/Does not include a sales charge.
/3/Includes maximum sales charge of 5.75%.
/4/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
Class C shares performance assumes a 1.00% CDSC applied when you sell shares
within one year of purchase.
/5/Fund performance has been increased by expense waivers, without which
performance would have been lower.
2
LOOMIS SAYLES RESEARCH FUND
PORTFOLIO PROFILE
Objective:
Long-term growth of capital
- --------------------------------------------------------------------------------
Strategy:
Invests primarily in equity securities, including common stocks, convertible
securities, and warrants; focuses on stocks of large-capitalization companies,
but may invest in companies of any size
- --------------------------------------------------------------------------------
Fund Inception:
July 31, 2000
- --------------------------------------------------------------------------------
Managers:
Maureen G. Depp
Brian James
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
Symbols:
Class A LSRRX
Class B LSCBX
Class C LSCCX
Class Y LISRX
- --------------------------------------------------------------------------------
What You Should Know:
Growth stocks are generally more sensitive to market movements than value
stocks. Foreign securities involve risks not associated with domestic
securities, such as currency fluctuations, differing political and economic
conditions, and different accounting standards. Small-cap stocks are generally
more volatile than the market.
Management Discussion
- --------------------------------------------------------------------------------
Strong stock selection, especially in the financial and energy sectors, helped
drive the performance of Loomis Sayles Research Fund for the fiscal year ended
September 30, 2005. Based on the net asset value of Class A shares, the fund's
total return was 18.42%, well ahead of its benchmark, Standard & Poor's 500
Index, which returned 12.25%. The fund also finished the period well ahead of
Morningstar's Large Blend Category, which had an average return of 13.17%.
NON-BANK FINANCIAL HOLDINGS AND ENERGY ADDED TO PERFORMANCE
Rising short-term interest rates during the period caused concern that lenders'
profit margins might be squeezed, so we focused on non-bank institutions in the
financial sector. These included major brokerage firms like Lehman Brothers
Holdings and Goldman Sachs, which benefited from increased activity both in
equity issuance and in merger-and-acquisition activity. Rising oil and natural
gas prices and the resulting increases in corporate earnings helped make energy
the best-performing sector in the S&P 500 index, and the specific energy stocks
we picked outperformed those in the index. Among our energy selections,
Halliburton was the top performer; its earnings grew robustly as investors
became less concerned about the company's exposure to asbestos liability and
controversies over its political influence. Apple Computer also made a solid
contribution as the company benefited from accelerating sales of its iPod
product line and Macintosh computers. We sold the fund's position in Apple at a
profit before the end of the fiscal year.
SOME INDIVIDUAL SELECTIONS FALTERED
Most of our disappointments resulted from company-specific issues rather than
broad sector themes. Countrywide Financial reported disappointing
second-quarter earnings as the company's banking-related operations became a
more prominent part of the business at a time when investors worried about the
impact of rising interest rates. Kinetic Concepts, a specialized healthcare
equipment company, and American Eagle Outfitters, a retailer focusing on
apparel for the teen market, both had disappointing earnings results. We
reduced the fund's position in Kinetic and eliminated American Eagle. The
telecommunication services sector also held back performance, primarily because
we did not own several wireless service companies that performed particularly
well. In the materials sector, we generally avoided companies whose earnings
tend to be closely tied to the economic cycle because of our concern about a
possible slowdown and the effects of rising interest rates. One of our more
cyclical holdings, Smurfit-Stone Container, declined in value because of its
exposure to commodity prices and the fact that an anticipated restructuring of
its containerboard operations was delayed. The stock remains in the portfolio.
FUNDAMENTAL RESEARCH, NOT SECTOR DECISIONS, DROVE STRATEGY
We remained steadfast to our strategy during the year, continuing to use
bottom-up, fundamental analysis to seek specific investment candidates with
competitive prospects in their individual markets. We kept our sector
weightings close to those of the S&P 500. As the year progressed and several
holdings rose in price, we took some profits from stocks that seemed riskier
and redeployed assets into companies we believe have more stable growth
prospects.
POST-KATRINA MARKETS SEEM RESILIENT
We believe Hurricane Katrina may cause some weakness in the economy, especially
because of its short-term effects on consumer sentiment, employment, and the
pace of economic growth. In addition, although oil prices are beginning to
recede from their post-Katrina peaks, we believe high energy prices will remain
a cause for concern. However, we also think the Federal Reserve Board, which
has been steadily raising short-term rates since June 2004, may end its program
of rate hikes soon, and that short-term interest rates may stabilize at lower
levels than had been anticipated. Overall, the stock market's reaction to
Katrina has been surprisingly resilient, which encourages a more optimistic
long-term outlook for the economy and equity prices.
3
LOOMIS SAYLES RESEARCH FUND
Investment Results through September 30, 2005
- --------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares/1/
[CHART]
July 31, 2000 (inception) through September 30, 2005
Lipper Large-Cap
Net Asset Maximum Sales Growth Funds S&P 500
Value/2/ Charge/3/ Index Index
--------- ------------- ---------------- ---------
7/31/2000 $10,000 $ 9,425 $10,000 $10,000
8/31/2000 10,937 10,308 10,865 10,621
9/30/2000 10,538 9,932 10,036 10,060
10/31/2000 10,109 9,528 9,506 10,018
11/30/2000 8,698 8,198 8,230 9,228
12/31/2000 9,039 8,519 8,179 9,273
1/31/2001 9,149 8,623 8,417 9,602
2/28/2001 8,147 7,679 7,114 8,727
3/31/2001 7,646 7,206 6,375 8,174
4/30/2001 8,298 7,820 7,059 8,809
5/31/2001 8,368 7,887 7,006 8,868
6/30/2001 8,227 7,754 6,804 8,652
7/31/2001 7,997 7,537 6,560 8,567
8/31/2001 7,526 7,093 6,061 8,031
9/30/2001 6,865 6,470 5,452 7,382
10/31/2001 7,105 6,696 5,678 7,523
11/30/2001 7,626 7,187 6,198 8,100
12/31/2001 7,793 7,345 6,227 8,171
1/31/2002 7,713 7,270 6,086 8,052
2/28/2002 7,623 7,185 5,834 7,896
3/31/2002 7,903 7,449 6,069 8,193
4/30/2002 7,582 7,146 5,665 7,697
5/31/2002 7,492 7,061 5,562 7,640
6/30/2002 7,001 6,598 5,109 7,096
7/31/2002 6,429 6,059 4,724 6,543
8/31/2002 6,389 6,022 4,750 6,586
9/30/2002 5,707 5,378 4,290 5,870
10/31/2002 6,148 5,794 4,620 6,387
11/30/2002 6,399 6,031 4,812 6,762
12/31/2002 6,079 5,729 4,476 6,365
1/31/2003 5,938 5,597 4,373 6,198
2/28/2003 5,848 5,512 4,326 6,105
3/31/2003 5,928 5,587 4,407 6,165
4/30/2003 6,360 5,994 4,730 6,672
5/31/2003 6,712 6,326 4,962 7,024
6/30/2003 6,803 6,411 5,003 7,114
7/31/2003 6,954 6,554 5,148 7,239
8/31/2003 7,054 6,649 5,275 7,380
9/30/2003 6,934 6,535 5,162 7,302
10/31/2003 7,376 6,952 5,475 7,715
11/30/2003 7,467 7,037 5,527 7,783
12/31/2003 7,760 7,313 5,683 8,191
1/31/2004 7,860 7,408 5,792 8,341
2/29/2004 8,022 7,560 5,817 8,457
3/31/2004 7,951 7,494 5,752 8,330
4/30/2004 7,729 7,285 5,623 8,199
5/31/2004 7,840 7,389 5,725 8,311
6/30/2004 8,031 7,569 5,807 8,473
7/31/2004 7,658 7,218 5,464 8,193
8/31/2004 7,648 7,209 5,425 8,226
9/30/2004 7,850 7,399 5,552 8,315
10/31/2004 7,921 7,465 5,619 8,442
11/30/2004 8,354 7,874 5,870 8,783
12/31/2004 8,671 8,172 6,107 9,082
1/31/2005 8,560 8,068 5,897 8,861
2/28/2005 8,752 8,248 5,935 9,047
3/31/2005 8,689 8,189 5,827 8,887
4/30/2005 8,417 7,933 5,701 8,719
5/31/2005 8,780 8,275 6,017 8,996
6/30/2005 8,951 8,436 6,029 9,009
7/31/2005 9,273 8,740 6,332 9,344
8/31/2005 9,122 8,598 6,264 9,259
9/30/2005 9,294 8,761 6,339 9,334
Average Annual Total Returns -- September 30, 2005
SINCE FUND
1 YEAR/6/ 5 YEARS/6/ INCEPTION/6/
CLASS A/1/
Net Asset Value/2/ 18.42% -2.48% -1.41%
With Maximum Sales Charge/3/ 11.54 -3.62 -2.53
CLASS B/1/
Net Asset Value/2/ 17.77 -3.29 -2.23
With CDSC/4/ 12.77 -3.68 -2.42
CLASS C/1/
Net Asset Value/2/ 17.51 -3.38 -2.31
With CDSC/4/ 16.51 -3.38 -2.31
Class Y/1/
Net Asset Value/2/ 18.99 -2.17 -1.10
- ---------------------------------------------------------------------
SINCE FUND
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS INCEPTION/5/
S&P 500 Index 12.25% -1.49% -1.33%
Lipper Large-Cap Growth Funds Index 14.18 -8.78 -8.44
Lipper Large-Cap Growth Funds Avg. 12.55 -7.83 -7.35
Morningstar Large Blend Fund Avg. 13.17 -1.17 -0.89
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of dividends and capital gains. Current returns may be
higher or lower than those shown. For performance current to the most recent
month-end, visit www.ixisadvisorfunds.com.
Class Y shares, the successor to the fund's Institutional Class, are available
to certain institutional investors only.
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
PORTFOLIO FACTS
% of Net Assets as of
FUND COMPOSITION 3/31/05 9/30/05
- -----------------------------------------------------
Common Stock 99.3 99.9
- -----------------------------------------------------
Short Term Invest. & Other 0.07 0.1
- -----------------------------------------------------
% of Net Assets as of
TEN LARGEST HOLDINGS 3/31/05 9/30/05
- -----------------------------------------------------
General Electric Co. 4.7 3.8
- -----------------------------------------------------
Chevron Corp. 0.0 2.8
- -----------------------------------------------------
Coca-Cola Co. 0.0 2.8
- -----------------------------------------------------
Lehman Brothers Holdings, Inc. 2.9 2.7
- -----------------------------------------------------
Procter & Gamble Co. 2.6 2.7
- -----------------------------------------------------
Halliburton Co. 1.3 2.4
- -----------------------------------------------------
Goldman Sachs Group, Inc. 2.3 2.4
- -----------------------------------------------------
PepsiCo, Inc. 1.4 2.2
- -----------------------------------------------------
United Technologies Corp. 1.9 2.2
- -----------------------------------------------------
Legg Mason, Inc. 1.5 2.1
- -----------------------------------------------------
% of Net Assets as of
FIVE LARGEST INDUSTRIES 3/31/05 9/30/05
- -----------------------------------------------------
Capital Markets 10.2 11.3
- -----------------------------------------------------
Healthcare Providers & Services 5.9 6.2
- -----------------------------------------------------
Energy Equipment & Services 2.3 5.7
- -----------------------------------------------------
Communications Equipment 3.0 5.2
- -----------------------------------------------------
Beverages 1.4 5.0
- -----------------------------------------------------
Portfolio holdings and asset allocations will vary.
See page 5 for a description of the indexes.
NOTES TO CHARTS
/1/Returns shown in the chart include the performance of the fund's Retail
Class shares, which were converted to Class A shares on 9/12/03. The prior
Retail Class performance has been restated to reflect expenses of Class A
shares. For periods before the inception of Retail Class shares (11/30/01),
performance shown for Class A has been based on the performance of the fund's
Institutional Class shares, adjusted to reflect the higher expenses paid by
Class A shares. The restatement of the fund's performance to reflect Class A
expenses is based on the net expenses of the Class after taking into effect
the fund's current expense cap arrangements. For periods prior to the
inception of Class B and C shares (9/12/03), performance is based on prior
Institutional Class performance, restated to reflect the loads and expenses
of Class B and C shares, respectively. Class Y performance has been restated
to reflect the net expenses of the Institutional Class after taking into
effect the fund's current expense cap arrangements. The growth of $10,000
chart reflects the performance of Class A shares rather than Class Y shares
because Class A shares include the highest sales charge. Prior to 9/12/03,
the fund was offered without a sales charge.
/2/Does not include a sales charge.
/3/Includes maximum sales charge of 5.75%.
/4/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
Class C shares performance assumes a 1.00% CDSC applied when you sell shares
within one year of purchase.
/5/The since-inception performance comparisons shown are calculated from
7/31/00.
/6/Fund performance has been increased by expense waivers, without which
performance would have been lower.
4
ADDITIONAL INFORMATION
The views expressed in this report reflect those of the portfolio managers as
of the dates indicated. The managers' views are subject to change at any time
without notice based on changes in market or other conditions. References to
specific securities or industries should not be regarded as investment advice.
Because these funds are actively managed, there is no assurance that they will
continue to invest in the securities or industries mentioned.
For more complete information on any IXIS Advisor Fund, contact your financial
professional or call IXIS Advisor Funds and ask for a free prospectus, which
contains more complete information including charges and other ongoing
expenses. Investors should consider a fund's objective, risks and expenses
carefully before investing. This and other fund information can be found in the
prospectus. Please read the prospectus carefully before investing.
INDEX/AVERAGE DESCRIPTIONS:
Standard & Poor's 500 ("S&P 500") Stock Index is an unmanaged index of U.S.
common stock performance.
Russell 1000 Growth Index is an unmanaged index measuring the performance of
the largest 1000 U.S. growth companies within the Russell 3000 Index.
Lipper Fund Indexes are equally weighted indexes typically consisting of the 30
largest mutual funds within each fund's category, as calculated by Lipper, Inc.
Lipper Fund Averages are the average performance without sales charges of the
mutual funds in a stated category, as calculated by Lipper, Inc.
Morningstar Fund Averages are the average performance without sales charges of
funds with similar investment objectives, as calculated by Morningstar, Inc.
PROXY VOTING INFORMATION
A description of the funds' proxy voting policies and procedures is available
without charge, upon request, by calling IXIS Advisor Funds at 800-225-5478; on
the funds' website at www.ixisadvisorfunds.com; and on the Securities and
Exchange Commission's website at www.sec.gov. Information regarding how the
funds voted proxies relating to portfolio securities during the 12-month period
ended June 30, 2005 is available from the funds' website and the SEC's website.
QUARTERLY PORTFOLIO SCHEDULES
The funds will file a complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The funds' Forms
N-Q are available on the SEC's website at www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
5
UNDERSTANDING YOUR FUNDS' EXPENSES
As a mutual fund shareholder, you incur different types of costs: transaction
costs, including sales charges (loads) on purchases and contingent deferred
sales charges on redemptions; redemption fees; certain exchange fees; and
minimum account fee charges; and ongoing costs, including management fees,
distribution and/or service fees (12b-1 fees), and other fund expenses. In
addition, each fund assesses a minimum balance fee of $20 on an annual basis
for accounts that fall below the required minimum to establish account (certain
exceptions may apply). These costs are described in more detail in the funds'
prospectus. The examples below are intended to help you understand the ongoing
costs of investing in the funds and help you compare these with the ongoing
costs of investing in other mutual funds.
The first line in the table for each Class shows the actual amount of fund
expenses you would have paid on a $1,000 investment in the fund from April 1,
2005 through September 30, 2005. It also shows how much a $1,000 investment
would be worth at the close of the period, assuming actual fund returns and
expenses. To estimate the expenses you paid over the period, simply divide your
account value by $1,000 (for example $8,600 account value divided by $1,000 =
8.6) and multiply the result by the number in the Expenses Paid During the
Period row as shown below for your class.
The second line in the table for each Class provides information about
hypothetical account values and hypothetical expenses based on the fund's
actual expense ratios and an assumed rate of return of 5% per year before
expenses, which is not the fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid on your investment for the period. You may use
this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown reflect ongoing costs only, and do not
include any transaction costs. Therefore, the second line in the table of each
fund is useful in comparing ongoing costs only, and will not help you determine
the relative costs of owning different funds. If transaction costs were
included, total costs would be higher.
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES GROWTH FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,118.70 $5.84
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,019.55 $5.57
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,114.40 $9.81
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.79 $9.35
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,114.40 $9.81
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.79 $9.35
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,121.90 $4.52
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.81 $4.31
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio: 1.10%, 1.85%, 1.85%
and 0.85% for Class A, B, C and Y, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the half-year
period).
6
UNDERSTANDING YOUR FUNDS' EXPENSES
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES RESEARCH FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,069.60 $6.49
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,018.80 $6.33
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,065.60 $10.36
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,064.50 $10.35
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,071.70 $4.41
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.81 $4.31
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio: 1.25%, 2.00%, 2.00%
and 0.85% for Class A, B, C and Y, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the half-year
period).
7
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS
The Board of Trustees, including the Independent Trustees, considers matters
bearing on each Fund's advisory agreement (the "Agreements") at most of its
meetings throughout the year. Once a year, usually in the spring, the Contract
Review and Governance Committee of the Board meets to review the Agreements to
determine whether to recommend that the full Board approve the continuation of
the Agreements for an additional one-year period. After the Committee has made
its recommendation, the full Board, including the Independent Trustees,
determines whether to approve the continuation of the Agreements.
In connection with these meetings, the Trustees receive materials that the
Funds' investment adviser believes to be reasonably necessary for the Trustees
to evaluate the Agreements. These materials generally include, among other
items, (i) information on the investment performance of the Funds and the
performance of peer groups of funds and the Funds' performance benchmarks,
(ii) information on the Funds' advisory fees and other expenses, including
information comparing the Funds' expenses to those of peer groups of funds and
information about any applicable expense caps and fee "breakpoints,"
(iii) sales and redemption data in respect of the Funds, (iv) information about
the profitability of the Agreements to the Funds' adviser (the "Adviser"), and
(v) information obtained through the completion of a questionnaire by the
Adviser (the Trustees are consulted as to the information requested through
that questionnaire). The Board of Trustees, including the Independent Trustees,
may also consider other material facts such as (i) the Adviser's financial
results and financial condition, (ii) each Fund's investment objective and
strategies and the size, education and experience of the Adviser's investment
staff and their use of technology, external research and trading cost
measurement tools, (iii) arrangements in respect of the distribution of the
Funds' shares, (iv) the procedures employed to determine the value of the
Funds' assets, (v) the allocation of the Funds' brokerage, if any, including
allocations to brokers affiliated with the Adviser and the use of "soft"
commission dollars to pay Fund expenses and to pay for research and other
similar services, (vi) the resources devoted to, and the record of compliance
with, the Funds' investment policies and restrictions, policies on personal
securities transactions and other compliance policies, and (vii) the general
economic outlook with particular emphasis on the mutual fund industry.
Throughout the process, the Trustees are afforded the opportunity to ask
questions of and request additional materials from the Adviser and its
affiliates.
The Board of Trustees most recently approved the continuation of the Agreements
at their meeting held in May, 2005. In considering whether to approve the
continuation of the Agreements, the Board of Trustees, including the
Independent Trustees, did not identify any single factor as determinative.
Matters considered by the Trustees, including the Independent Trustees, in
connection with their approval of the Agreements included the following:
The nature, extent and quality of the services provided to the Funds under the
Agreements. The Trustees considered the nature, extent and quality of the
services provided by the Adviser and its affiliates to the Funds and the
resources dedicated to the Funds by the Adviser and its affiliates. The
Trustees also considered the services provided by the Adviser's affiliates to
the Funds, including the monitoring and board reporting services provided. For
each Fund, the Trustees also considered the benefits to shareholders of
investing in a mutual fund that is part of a family of funds offering a variety
of investment disciplines and providing for a variety of fund and shareholder
services. After reviewing these and related factors, the Trustees concluded,
within the context of their overall conclusions regarding each of the
Agreements, that the nature, extent and quality of services provided supported
the renewal of the Agreements.
Investment performance of the Funds and the Adviser. As noted above, the
Trustees received information about the performance of the Funds over various
time periods, including information which compared the performance of the Funds
to the performance of peer groups of funds and the Funds' respective
performance benchmarks. In addition, the Trustees also reviewed data prepared
by an independent third party which analyzed the performance of the Funds using
a variety of performance metrics, including metrics which also measured the
performance of the Funds on a risk adjusted basis.
After reviewing the information with respect to each Fund, the Board concluded
that the Fund's performance supported the renewal of the Agreement relating to
that Fund. The Trustees also considered the Adviser's performance and
reputation generally, these Funds' performance as a fund family generally, and
the historical responsiveness of the Adviser and its affiliates to Trustee
concerns about performance and the willingness of the Adviser to take steps
intended to improve performance.
After reviewing these and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
performance of the Funds and the Adviser supported the renewal of the
Agreements.
The costs of the services to be provided and profits to be realized by the
Adviser and its affiliates from their respective relationships with the Funds.
The Trustees considered the fees charged to the Funds for advisory services as
well as the total expense levels of the Funds.
8
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS
This information included comparisons (provided both by management and also by
an independent third party) of the Funds' advisory fees and total expense
levels to those of their peer groups and information about the advisory fees
charged by the Adviser to comparable accounts. In considering the fees charged
to comparable accounts, the Trustees considered, among other things,
management's representations about the differences between managing mutual
funds as compared to other types of accounts, including the additional
resources required to effectively manage mutual fund assets. In evaluating each
Fund's advisory fee, the Trustees also took into account the demands,
complexity and quality of the investment management of such Fund. The Trustees
also noted management's stated justification for the fees charged to the Funds,
which included information about the performance of the Funds, the services
provided to the Funds and management's view as to why it was appropriate that
some Funds bear total expenses greater than their peer group median.
The Trustees also considered the compensation directly or indirectly received
by the Adviser and its affiliates from their relationships with the Funds. The
Trustees reviewed information provided by management as to the profitability of
the Adviser and its affiliates' relationships with the Funds, and information
about the allocation of expenses used to calculate profitability. When
reviewing profitability, the Trustees also considered information about court
cases in which adviser profitability was an issue in whole or in part, the
performance of the relevant Funds, the expense levels of the Funds, and whether
the Adviser had implemented breakpoints and/or expense caps with respect to
such Funds.
After reviewing these and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fee charged to each of the Funds was fair and reasonable, and that the
costs of these services generally and the related profitability of the Adviser
and its affiliates in respect of their relationships with the Funds supported
the renewal of the Agreements.
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision of services by the Adviser and whether those economies
are shared with the Funds through breakpoints in their investment advisory fee
or other means, such as expense waivers. The Trustees noted that the Funds
benefited from expense caps. In considering these issues, the Trustees also
took note of the costs of the services provided (both on an absolute and a
relative basis) and the profitability to the Adviser and its affiliates of
their relationships with the Funds, as discussed above.
After reviewing these and related factors, the Trustees considered, within the
context of their overall conclusions regarding each of the Agreements, that the
extent to which economies of scale were shared with the Funds supported the
renewal of the Agreements.
The Trustees also considered other factors, which included but were not limited
to the following:
.. whether each Fund has operated in accordance with its investment objective
and the Fund's record of compliance with its investment restrictions, and
the compliance programs of the Funds and the Adviser. They also considered
the compliance related resources the Adviser and its affiliates were
providing to the Funds.
.. the nature, quality, cost and extent of administrative and shareholder
services performed by the Adviser and its affiliates, both under the
Agreements and under separate agreements covering transfer agency and
administrative services.
.. so-called "fallout benefits" to the Adviser and its affiliates, such as the
engagement of affiliates of the Adviser to provide distribution, brokerage
and transfer agency services to the Funds, and the benefits of research made
available to the Adviser by reason of brokerage commissions generated by the
Funds' securities transactions. The Trustees also considered the fact that
Loomis Sayles' parent company benefits from the retention of affiliated
service providers. The Trustees considered the possible conflicts of
interest associated with these fallout and other benefits, and the
reporting, disclosure and other processes in place to disclose and monitor
such possible conflicts of interest
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees,
concluded that each of the existing advisory agreements should be continued
through June 30, 2006.
9
LOOMIS SAYLES GROWTH FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Shares Description Value (a)
- -----------------------------------------------------------------------
Common Stocks -- 96.3% of Total Net Assets
Biotechnology -- 4.4%
62,800 Amgen, Inc.(c) $ 5,003,276
51,325 Genentech, Inc.(c) 4,322,078
---------------
9,325,354
---------------
Capital Markets -- 13.3%
126,500 Ameritrade Holding Corp.(c)(d) 2,717,220
24,675 Bear Stearns Cos., Inc. 2,708,081
63,825 Franklin Resources, Inc. 5,358,747
21,500 Goldman Sachs Group, Inc. 2,613,970
66,469 Legg Mason, Inc. 7,290,985
36,226 Lehman Brothers Holdings, Inc. 4,219,604
47,273 T. Rowe Price Group, Inc. 3,086,927
---------------
27,995,534
---------------
Communications Equipment -- 7.1%
103,250 Cisco Systems, Inc.(c) 1,851,272
154,400 Corning, Inc.(c) 2,984,552
214,650 Motorola, Inc. 4,741,618
119,875 QUALCOMM, Inc. 5,364,406
---------------
14,941,848
---------------
Computers & Peripherals -- 4.9%
84,362 Apple Computer, Inc.(c) 4,522,647
64,475 Dell, Inc.(c) 2,205,045
127,125 Hewlett-Packard Co. 3,712,050
---------------
10,439,742
---------------
Diversified Financial Services -- 4.3%
10,475 Chicago Mercantile Exchange Holdings, Inc. 3,533,217
108,837 Moody's Corp. 5,559,394
---------------
9,092,611
---------------
Energy Equipment & Services -- 1.7%
53,550 National Oilwell Varco, Inc.(c) 3,523,590
---------------
Food & Staples Retailing -- 2.6%
40,509 Whole Foods Market, Inc. 5,446,435
---------------
Healthcare Equipment & Supplies -- 5.4%
71,950 Medtronic, Inc. 3,857,959
92,900 St. Jude Medical, Inc.(c) 4,347,720
66,375 Stryker Corp. 3,280,916
---------------
11,486,595
---------------
Healthcare Providers & Services -- 11.0%
55,700 Aetna, Inc. 4,797,998
94,875 Caremark Rx, Inc.(c) 4,737,109
28,875 CIGNA Corp. 3,403,207
75,817 UnitedHealth Group, Inc. 4,260,915
79,002 WellPoint, Inc.(c) 5,989,932
---------------
23,189,161
---------------
Household Durables -- 2.8%
29,325 Harman International Industries, Inc. 2,999,068
39,800 KB HOME(d) 2,913,360
---------------
5,912,428
---------------
Household Products -- 3.5%
122,575 Procter & Gamble Co. 7,288,310
---------------
Industrial Conglomerates -- 2.0%
123,861 General Electric Co. 4,170,400
---------------
Shares Description Value (a)
- -------------------------------------------------------------------------------------------
Insurance -- 3.1%
58,050 Metlife, Inc. $ 2,892,632
53,600 Prudential Financial, Inc. 3,621,216
---------------
6,513,848
---------------
Internet & Catalog Retail -- 1.7%
88,950 eBay, Inc.(c) 3,664,740
---------------
Internet Software & Services -- 5.4%
26,580 Google, Inc., Class A(c) 8,411,507
86,600 Yahoo! Inc.(c) 2,930,544
---------------
11,342,051
---------------
IT Services -- 1.0%
43,525 Cognizant Technology Solutions Corp.(c)(d) 2,027,830
---------------
Media -- 1.7%
42,250 Getty Images, Inc.(c)(d) 3,635,190
---------------
Oil, Gas & Consumable Fuels -- 6.6%
29,325 Apache Corp. 2,205,827
32,900 Burlington Resources, Inc. 2,675,428
93,500 Chesapeake Energy Corp.(d) 3,576,375
37,715 EOG Resources, Inc. 2,824,854
59,795 XTO Energy, Inc. 2,709,909
---------------
13,992,393
---------------
Semiconductors & Semiconductor Equipment -- 7.0%
79,250 Broadcom Corp., Class A(c) 3,717,618
245,975 Intel Corp. 6,063,284
145,925 Texas Instruments, Inc. 4,946,857
---------------
14,727,759
---------------
Specialty Retail -- 5.0%
79,048 Chico's FAS, Inc.(c) 2,908,966
80,875 Lowe's Cos., Inc. 5,208,350
84,925 Urban Outfitters, Inc.(c)(d) 2,496,795
---------------
10,614,111
---------------
Textiles Apparel & Luxury Goods -- 1.8%
119,706 Coach, Inc.(c) 3,753,980
---------------
Total Common Stocks (Identified Cost $174,540,275) 203,083,910
---------------
Principal
Amount
- -------------------------------------------------------------------------------------------
Short-Term Investment -- 9.6% of Total Net Assets
$ 6,312,000 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/30/05 at 1.750% to be repurchased at
$6,312,921 on 10/3/05 collateralized by $6,625,000
U.S. Treasury Note, 3.375% due 9/15/09 with a value of
$6,442,813 (Note 2g) 6,312,000
---------------
Shares
- -------------------------------------------------------------------------------------------
14,032,341 State Street Navigator Securities Lending Prime Portfolio(e) 14,032,341
---------------
Total Short-Term Investment (Identified Cost $20,344,341) 20,344,341
---------------
Total Investments--105.9%
(Identified Cost $194,884,616)(b) 223,428,251
Other assets less liabilities -- (5.9)% (12,374,489)
---------------
Total Net Assets -- 100% $ 211,053,762
===============
See accompanying notes to financial statements.
10
LOOMIS SAYLES GROWTH FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on
investments based on cost of $194,959,368 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost $ 29,797,375
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value (1,328,492)
--------------
Net unrealized appreciation $ 28,468,883
==============
(c) Non-income producing security.
(d) All or a portion of this security was on loan to brokers at September 30, 2005.
(e) Represents investment of securities lending collateral.
Holdings at September 30, 2005 as a Percentage of Net Assets (Unaudited)
Capital Markets 13.3%
Healthcare Providers & Services 11.0
Communications Equipment 7.1
Semiconductors & Semiconductor Equipment 7.0
Oil, Gas & Consumable Fuels 6.6
Healthcare Equipment & Supplies 5.4
Internet Software & Services 5.4
Specialty Retail 5.0
Computers & Peripherals 4.9
Biotechnology 4.4
Diversified Financial Services 4.3
Household Products 3.5
Insurance 3.1
Household Durables 2.8
Food & Staples Retailing 2.6
Industrial Conglomerates 2.0
Other, less than 2% each 7.9
See accompanying notes to financial statements.
11
LOOMIS SAYLES RESEARCH FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Shares Description Value (a)
- ---------------------------------------------------------------------------
Common Stocks -- 99.9% of Total Net Assets
Aerospace & Defense -- 2.2%
10,525 United Technologies Corp. $ 545,616
---------------
Air Freight & Logistics -- 1.9%
6,900 United Parcel Service, Inc., Class B 476,997
---------------
Beverages -- 5.0%
16,475 Coca-Cola Co. 711,555
9,625 PepsiCo, Inc. 545,834
---------------
1,257,389
---------------
Biotechnology -- 2.3%
4,075 Amgen, Inc.(c) 324,656
3,125 Genentech, Inc.(c) 263,156
---------------
587,812
---------------
Capital Markets -- 11.3%
4,700 Bear Stearns Cos., Inc. 515,825
6,050 Franklin Resources, Inc. 507,958
4,950 Goldman Sachs Group, Inc. 601,821
4,925 Legg Mason, Inc. 540,223
5,975 Lehman Brothers Holdings, Inc. 695,968
---------------
2,861,795
---------------
Chemicals -- 1.7%
7,475 Ecolab, Inc. 238,677
4,000 Praxair, Inc. 191,720
---------------
430,397
---------------
Communications Equipment -- 5.2%
7,525 Harris Corp. 314,545
24,450 Motorola, Inc. 540,100
5,450 QUALCOMM, Inc. 243,888
21,475 Tellabs, Inc.(c) 225,917
---------------
1,324,450
---------------
Computers & Peripherals -- 1.3%
11,400 Hewlett-Packard Co. 332,880
---------------
Container & Packaging -- 0.9%
21,225 Smurfit-Stone Container Corp. 219,891
---------------
Diversified Financial Services -- 1.1%
5,350 Moody's Corp. 273,278
---------------
Diversified Telecommunication Services -- 3.0%
11,275 BellSouth Corp. 296,532
7,075 CenturyTel, Inc. 247,484
9,325 SBC Communications, Inc. 223,520
---------------
767,536
---------------
Electric Utilities -- 3.6%
7,775 Edison International 367,602
10,100 Exelon Corp. 539,744
---------------
907,346
---------------
Energy Equipment & Services -- 5.7%
9,025 Halliburton Co. 618,393
4,575 National Oilwell Varco, Inc.(c) 301,035
8,700 Transocean, Inc.(c) 533,397
---------------
1,452,825
---------------
Food & Staples Retailing -- 1.4%
12,525 CVS Corp. 363,350
---------------
Healthcare Equipment & Supplies -- 3.4%
4,400 Kinetic Concepts, Inc.(c) 249,920
4,225 Medtronic, Inc. 226,544
8,000 St. Jude Medical, Inc.(c) 374,400
---------------
850,864
---------------
Shares Description Value (a)
- -----------------------------------------------------------------------------
Healthcare Providers & Services -- 6.2%
4,175 Aetna, Inc. $ 359,635
7,275 Caremark Rx, Inc.(c) 363,241
7,675 UnitedHealth Group, Inc. 431,335
5,375 WellPoint, Inc.(c) 407,532
---------------
1,561,743
---------------
Hotels, Restaurants & Leisure -- 3.1%
6,800 Marriott International, Inc., Class A 428,400
6,450 Starwood Hotels & Resorts Worldwide, Inc. 368,746
---------------
797,146
---------------
Household Durables -- 1.1%
3,775 KB HOME 276,330
---------------
Household Products -- 2.7%
11,550 Procter & Gamble Co. 686,763
---------------
Industrial Conglomerates -- 4.5%
28,800 General Electric Co. 969,696
2,575 Textron, Inc. 184,679
---------------
1,154,375
---------------
Insurance -- 4.7%
6,800 Allstate Corp. 375,972
7,825 American International Group, Inc. 484,837
4,950 Prudential Financial, Inc. 334,422
---------------
1,195,231
---------------
Internet Software & Services -- 1.8%
625 Google, Inc., Class A(c) 197,788
7,550 Yahoo! Inc.(c) 255,492
---------------
453,280
---------------
Media -- 4.1%
23,350 DIRECTV Group, Inc., (The)(c) 349,783
2,650 Getty Images, Inc.(c) 228,006
9,425 McGraw-Hill Cos., Inc. 452,777
---------------
1,030,566
---------------
Multiline Retail -- 1.5%
5,575 Federated Department Stores, Inc. 372,800
---------------
Oil, Gas & Consumable Fuels -- 4.3%
11,125 Chevron Corp. 720,121
5,775 Exxon Mobil Corp. 366,944
---------------
1,087,065
---------------
Personal Products -- 1.0%
4,350 Gillette Co., (The) 253,170
---------------
Pharmaceuticals -- 2.0%
7,875 Johnson & Johnson 498,330
---------------
Real Estate -- 1.3%
6,825 CB Richard Ellis Group, Inc., Class A(c) 335,790
---------------
Road & Rail -- 1.7%
7,450 Burlington Northern Santa Fe Corp. 445,510
---------------
Semiconductors & Semiconductor Equipment -- 3.3%
19,550 Intel Corp. 481,907
10,575 Texas Instruments, Inc. 358,493
---------------
840,400
---------------
Software -- 3.6%
12,250 Activision, Inc.(c) 250,512
4,250 Intuit, Inc.(c) 190,443
37,125 Oracle Corp.(c) 459,979
---------------
900,934
---------------
See accompanying notes to financial statements.
12
LOOMIS SAYLES RESEARCH FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Shares Description Value (a)
- --------------------------------------------------------------------------------------------------
Textiles Apparel & Luxury Goods -- 0.9%
7,250 Coach, Inc.(c) $ 227,360
---------------
Thrifts & Mortgage Finance -- 2.1%
8,225 Countrywide Financial Corp. 271,260
4,550 Golden West Financial Corp. 270,225
---------------
541,485
---------------
Total Common Stocks (Identified Cost $21,829,117) 25,310,704
---------------
Principal
Amount
- --------------------------------------------------------------------------------------------------
Short-Term Investment -- 1.0% of Total Net Assets
$ 259,000 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/30/05 at 1.75% to be repurchased at
$259,038 on 10/03/05 collateralized by $275,000 U.S. Treasury
Note, 3.375% due 9/15/09 with a value of $267,438 (Note 2g) 259,000
---------------
Total Short-Term Investment (Identified Cost $259,000) 259,000
---------------
Total Investments -- 100.9%
(Identified Cost $22,088,117)(b) 25,569,704
Other assets less liabilities -- (0.9)% (223,648)
---------------
Total Net Assets -- 100% $ 25,346,056
===============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on
investments based on cost of $22,120,119 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which
there is an excess of value over tax cost $ 3,828,286
Aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value (378,701)
---------------
Net unrealized appreciation $ 3,449,585
===============
(c) Non-income producing security.
Industry Holdings at September 30, 2005 as a Percentage of Net Assets
(Unaudited)
Capital Markets 11.3%
Healthcare Providers & Services 6.2
Energy Equipment & Services 5.7
Communications Equipment 5.2
Beverages 5.0
Insurance 4.7
Industrial Conglomerates 4.5
Oil, Gas & Consumable Fuels 4.3
Media 4.1
Electric Utilities 3.6
Software 3.6
Healthcare - Equipment & Supplies 3.4
Semiconductors & Semiconductor Equipment 3.3
Hotels Restaurants & Leisure 3.1
Diversified Telecommunication Services 3.0
Household Products 2.7
Biotechnology 2.3
Aerospace & Defense 2.2
Thrifts & Mortgage 2.1
Pharmaceuticals 2.0
Other, less than 2% each 17.6
See accompanying notes to financial statements.
13
STATEMENT OF ASSETS & LIABILITIES
September 30, 2005
Growth Fund Research Fund
--------------------- ---------------------
--------------------- ---------------------
ASSETS
Investments at cost $ 194,884,616 $ 22,088,117
Net unrealized appreciation 28,543,635 3,481,587
--------------------- ---------------------
Investments at value 223,428,251 25,569,704
Cash 434 685
Receivable for Fund shares sold 2,219,554 11,399
Receivable for securities sold 1,091,455 215,676
Dividends and interest receivable 92,972 24,353
Receivable from investment adviser 198,899 39,116
Securities lending income receivable 665 --
Other assets 259 --
--------------------- ---------------------
TOTAL ASSETS 227,032,489 25,860,933
--------------------- ---------------------
LIABILITIES
Payable for Fund shares redeemed 93,876 --
Payable for securities purchased 1,596,422 356,643
Collateral on securities loaned, at
value (Note 2) 14,032,341 --
Management fees payable 147,473 10,285
Deferred Trustees' fees 38,575 13,063
Administrative fees payable 17,743 3,331
Service and distribution fees payable 2,097 12
Transfer agent fees payable 46,938 112,025
Other accounts payable and accrued
expenses 3,262 19,518
--------------------- ---------------------
TOTAL LIABILITIES 15,978,727 514,877
--------------------- ---------------------
NET ASSETS $ 211,053,762 $ 25,346,056
===================== =====================
NET ASSETS CONSIST OF:
Paid-in capital $ 417,507,450 $ 20,566,523
Undistributed (overdistributed) net
investment income (loss) (38,575) 91,182
Accumulated net realized gain (loss)
on investments (234,958,748) 1,206,764
Net unrealized appreciation
(depreciation) on investments 28,543,635 3,481,587
--------------------- ---------------------
NET ASSETS $ 211,053,762 $ 25,346,056
===================== =====================
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE
Class A shares:
Net assets $ 51,248,259 $ 344,290
===================== =====================
Shares of beneficial interest 8,495,357 37,329
===================== =====================
Net asset value and redemption price
per share $ 6.03 $ 9.22
===================== =====================
Offering price per share (100/94.25
of $6.03, $9.22) $ 6.40 $ 9.78
===================== =====================
Class B shares: (redemption price is
equal to net asset value less any
applicable contingent deferred sales
charges)
Net assets $ 38,537,555 $ 210,255
===================== =====================
Shares of beneficial interest 6,485,729 23,101
===================== =====================
Net asset value and offering price
per share $ 5.94 $ 9.10
===================== =====================
Class C shares: (redemption price is
equal to net asset value less any
applicable contingent deferred sales
charges)
Net assets $ 25,734,068 $ 140,187
===================== =====================
Shares of beneficial interest 4,330,145 15,436
===================== =====================
Net asset value and offering price
per share $ 5.94 $ 9.08
===================== =====================
Class Y shares:
Net assets $ 95,533,880 $ 24,651,324
===================== =====================
Shares of beneficial interest 15,262,846 2,660,446
===================== =====================
Net asset value, offering and
redemption price per share $ 6.26 $ 9.27
===================== =====================
Value of securities on loan (Note 2) $ 13,711,627 $ --
===================== =====================
See accompanying notes to financial statements.
14
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2005
Growth Fund Research Fund
--------------------- ---------------------
--------------------- ---------------------
INVESTMENT INCOME
Dividends $ 1,107,240 $ 310,963
Interest 42,262 1,092
Securities lending income 3,932 26
--------------------- ---------------------
1,153,434 312,081
--------------------- ---------------------
Expenses
Management fees 761,483 122,297
Service fees - Class A 94,012 492
Service and distribution fees -
Class B 328,627 1,377
Service and distribution fees -
Class C 165,865 459
Trustees' fees and expenses 20,937 13,568
Administrative 99,168 15,927
Custodian 63,548 48,286
Transfer agent fees and expenses -
Class A, Class B, Class C 475,007 136,116
Transfer agent fees and expenses -
Class Y 105,156 48,322
Audit and tax services 23,207 20,733
Registration 90,555 36,632
Shareholder reporting 146,942 8,016
Legal 6,384 1,471
Miscellaneous 12,181 5,117
--------------------- ---------------------
Total expenses 2,393,072 458,813
Less reimbursement/waiver (510,048) (248,008)
--------------------- ---------------------
Net expenses 1,883,024 210,805
--------------------- ---------------------
Net investment income (loss) (729,590) 101,276
--------------------- ---------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments - net 4,632,543 2,844,052
Change in unrealized appreciation on:
Investments - net 21,803,498 1,214,106
--------------------- ---------------------
Net realized and unrealized gain on
investments 26,436,041 4,058,158
--------------------- ---------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 25,706,451 $ 4,159,434
===================== =====================
See accompanying notes to financial statements.
15
STATEMENTS OF CHANGES IN NET ASSETS
Growth Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2005 2004
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income (loss) $ (729,590) $ (378,883)
Net realized gain (loss) on investments 4,632,543 3,743,920
Net change in unrealized appreciation (depreciation) on investments 21,803,498 1,584,019
--------------------- ---------------------
Increase (decrease) in net assets resulting from operations 25,706,451 4,949,056
--------------------- ---------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A -- --
Class B -- --
Class C -- --
Class Y -- --
--------------------- ---------------------
Total distributions -- --
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 111,752,129 38,796,156
--------------------- ---------------------
Total increase (decrease) in net assets 137,458,580 43,745,212
--------------------- ---------------------
NET ASSETS
Beginning of the period 73,595,182 29,849,970
--------------------- ---------------------
End of the period $ 211,053,762 $ 73,595,182
===================== =====================
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ (38,575) $ (6,344)
===================== =====================
Research Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2005 2004
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income (loss) $ 101,276 $ 99,405
Net realized gain (loss) on investments 2,844,052 1,970,659
Net change in unrealized appreciation (depreciation) on investments 1,214,106 793,800
--------------------- ---------------------
Increase (decrease) in net assets resulting from operations 4,159,434 2,863,864
--------------------- ---------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (59) (179)
Class B (32) (21)
Class C (13) --
Class Y (91,263) (92,653)
--------------------- ---------------------
Total distributions (91,367) (92,853)
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (609,338) (2,810,514)
--------------------- ---------------------
Total increase (decrease) in net assets 3,458,729 (39,503)
--------------------- ---------------------
NET ASSETS
Beginning of the period 21,887,327 21,926,830
--------------------- ---------------------
End of the period $ 25,346,056 $ 21,887,327
===================== =====================
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ 91,182 $ 82,855
===================== =====================
See accompanying notes to financial statements.
16
FINANCIAL HIGHLIGHTS
Income (loss) from investment operations: Less distributions:
------------------------------------------- -----------------------------------------
Net asset
value, Net realized Dividends Distributions Net asset
beginning Net and unrealized Total from from from net value,
of investment gain (loss) on investment net investment realized Total end of
the period income (loss) investments operations income capital gains distributions the period
---------- ------------- -------------- ---------- -------------- ------------- ------------- ----------
GROWTH FUND
Class A
9/30/2005 $ 4.98 $ (0.02)(c) $ 1.07 $ 1.05 $ -- $ -- $ -- $ 6.03
9/30/2004 4.41 (0.03)(c) 0.60 0.57 -- -- -- 4.98
9/30/2003 3.65 (0.02)(c) 0.78 0.76 -- -- -- 4.41
9/30/2002 4.12 (0.03)(c) (0.44) (0.47) -- -- -- 3.65
9/30/2001 14.80 (0.04)(c) (7.31) (7.35) -- (3.33) (3.33) 4.12
Class B
9/30/2005 4.94 (0.06)(c) 1.06 1.00 -- -- -- 5.94
9/30/2004 4.41 (0.07)(c) 0.60 0.53 -- -- -- 4.94
9/30/2003* 4.54 --(c)(d) (0.13) (0.13) -- -- -- 4.41
Class C
9/30/2005 4.94 (0.06)(c) 1.06 1.00 -- -- -- 5.94
9/30/2004 4.41 (0.06)(c) 0.59 0.53 -- -- -- 4.94
9/30/2003* 4.54 --(c)(d) (0.13) (0.13) -- -- -- 4.41
Class Y
9/30/2005 5.15 --(c)(d) 1.11 1.11 -- -- -- 6.26
9/30/2004 4.55 (0.02)(c) 0.62 0.60 -- -- -- 5.15
9/30/2003 3.75 (0.01)(c) 0.81 0.80 -- -- -- 4.55
9/30/2002 4.23 (0.02)(c) (0.46) (0.48) -- -- -- 3.75
9/30/2001 15.00 (0.02)(c) (7.42) (7.44) -- (3.33) (3.33) 4.23
* From commencement of Class operations on September 12, 2003 through
September 30, 2003.
(a)Total returns would have been lower had the adviser not reduced its advisory
fees and/or borne other operating expenses. Periods less than one year are
not annualized.
(b)The adviser has agreed to reimburse a portion of the Fund's expenses during
the period. Without this reimbursement the Fund's ratio of operating
expenses would have been higher.
(c)Per share net investment income (loss) has been determined on the basis of
the weighted average number of shares outstanding during the period.
(d)Amount rounds to less than $0.01 per share.
(e)A sales charge for Class A shares and a contingent deferred sales charge for
Class B and Class C shares are not reflected in total return calculations.
Periods less than one year are not annualized.
(f)A sales charge for Class A and Class C shares and a contingent deferred
sales charge for Class B and Class C shares are not reflected in total
return calculations. Periods less than one year are not annualized.
(g)Annualized for periods less than one year.
See accompanying notes to financial statements.
17
Ratios to average net assets:
----------------------------------
Net assets,
Total end of Net Gross Net investment Portfolio
return the period Expenses Expenses income (loss) turnover
(%) (a) (000) (%) (b)(g) (%) (g) (%) (g) rate (%)
--------- ----------- ---------- --------- -------------- ---------
21.1(e) $ 51,248 1.10 1.60 (0.38) 164
12.9(e) 14,072 1.10 1.70 (0.58) 171
20.8(f) 947 1.10 3.11 (0.45) 201
(11.4) 456 1.10 5.20 (0.65) 192
(50.9) 518 1.10 4.11 (0.42) 281
20.2(e) 38,538 1.85 2.33 (1.14) 164
12.0(e) 12,532 1.85 2.45 (1.33) 171
(2.9)(f) 2 1.85 7.92 (1.29) 201
20.2(e) 25,734 1.85 2.35 (1.10) 164
12.0(e) 6,826 1.85 2.45 (1.30) 171
(2.9)(f) 2 1.85 7.92 (1.29) 201
21.6 95,534 0.85 0.97 (0.05) 164
13.2 40,165 0.85 1.04 (0.32) 171
21.3 28,898 0.85 1.18 (0.20) 201
(11.4) 19,635 0.85 1.32 (0.39) 192
(50.8) 21,653 0.85 1.24 (0.17) 281
See accompanying notes to financial statements.
18
FINANCIAL HIGHLIGHTS (continued)
Income (loss) from investment operations: Less distributions:
------------------------------------------- -----------------------------------------
Net asset
value, Net realized Dividends Distributions Net asset
beginning Net and unrealized Total from from from net value,
of investment gain (loss) on investment net investment realized Total end of
the period income (loss) investments operations income capital gains distributions the period
---------- ------------- -------------- ---------- -------------- ------------- ------------- ----------
RESEARCH FUND
Class A
9/30/2005 $ 7.79 $ --(c)(d) $ 1.43 $ 1.43 $ --(d) $ -- $ --(d) $ 9.22
9/30/2004 6.90 0.01(c) 0.90 0.91 (0.02) -- (0.02) 7.79
9/30/2003 5.69 0.02(c) 1.20 1.22 (0.01) -- (0.01) 6.90
9/30/2002* 7.61 0.01(c) (1.92) (1.91) (0.01) -- (0.01) 5.69
Class B
9/30/2005 7.73 (0.06)(c) 1.43 1.37 --(d) -- --(d) 9.10
9/30/2004 6.90 (0.05)(c) 0.90 0.85 (0.02) -- (0.02) 7.73
9/30/2003** 7.05 0.00(c)(d) (0.15) (0.15) -- -- -- 6.90
Class C
9/30/2005 7.73 (0.07)(c) 1.42 1.35 --(d) -- --(d) 9.08
9/30/2004 6.90 (0.05)(c) 0.88 0.83 -- -- -- 7.73
9/30/2003** 7.05 0.00(c)(d) (0.15) (0.15) -- -- -- 6.90
Class Y
9/30/2005 7.82 0.04(c) 1.44 1.48 (0.03) -- (0.03) 9.27
9/30/2004 6.92 0.03(c) 0.90 0.93 (0.03) -- (0.03) 7.82
9/30/2003 5.71 0.04(c) 1.20 1.24 (0.03) -- (0.03) 6.92
9/30/2002 6.85 0.03(c) (1.16) (1.13) (0.01) -- (0.01) 5.71
9/30/2001 10.54 0.01(c) (3.65) (3.64) -- (0.05) (0.05) 6.85
* From commencement of Class operations on November 30, 2001 through September
30, 2002.
** From commencement of Class operations on September 12, 2003 through
September 30, 2003.
(a)Total returns would have been lower had the adviser not reduced its advisory
fees and/or borne other operating expenses. Periods less than one year are
not annualized.
(b)The adviser has agreed to reimburse a portion of the Fund's expenses during
the period. Without this reimbursement the Fund's ratio of operating
expenses would have been higher.
(c)Per share net investment income (loss) has been determined on the basis of
the weighted average number of shares outstanding during the period.
(d)Amount rounds to less than $0.01 per share.
(e)A sales charge for Class A shares and a contingent deferred sales charge for
Class B and Class C shares are not reflected in total return calculations.
Periods less than one year are not annualized.
(f)A sales charge for Class A and Class C shares and a contingent deferred
sales charge for Class B and Class C shares are not reflected in total
return calculations. Periods less than one year are not annualized.
(g)Annualized for periods less than one year.
See accompanying notes to financial statements.
19
Ratios to average net assets:
----------------------------------
Net assets,
Total end of Net Gross Net investment Portfolio
return the period Expenses Expenses income (loss) turnover
(%) (a) (000) (%) (b)(g) (%) (g) (%) (g) rate (%)
--------- ----------- ---------- --------- -------------- ---------
18.4(e) $ 344 1.25 34.73 0.03 133
13.2(e) 106 1.21 39.85 0.07 151
21.5(f) 41 1.10 28.75 0.35 138
(25.2) 17 1.10 213.89 0.22 130
17.8(e) 210 2.00 41.40 (0.71) 133
12.3(e) 57 2.00 40.60 (0.71) 151
(2.1)(f) 2 2.00 125.11 (0.72) 138
17.5(e) 140 2.00 37.60 (0.76) 133
12.0(e) 3 2.00 40.60 (0.59) 151
(2.1)(f) 2 2.00 125.11 (0.72) 138
19.0 24,651 0.85 1.31 0.43 133
13.5 21,721 0.85 1.50 0.44 151
21.8 21,881 0.85 1.31 0.59 138
(16.6) 15,889 0.89 1.46 0.36 130
(34.7) 4,245 1.15 4.26 0.09 171
See accompanying notes to financial statements.
20
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
1. Organization. Loomis Sayles Funds II (the "Trust") is organized as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940 (the "1940 Act"), as amended, as an open-end investment
management company. The Declaration of Trust permits the Board of Trustees to
authorize the issuance of an unlimited number of shares of the Trust in
multiple series (individually, a "Fund" and collectively, the "Funds").
Information presented in these financial statements pertains to certain equity
Funds of the Trust; the financial statements for the remaining equity funds and
the fixed income funds are presented in separate reports. The following Funds
are included in this report:
Loomis Sayles Growth Fund (the "Growth Fund")
Loomis Sayles Research Fund (the "Research Fund")
Each Fund offers Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front end sales charge of 5.75%. Class B shares do not
pay a front end sales charge, but pay higher Rule 12b-1 fees than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge ("CDSC") if
those shares are redeemed within six years of purchase. Class C shares do not
pay a front end sales charge, do not convert to any other class of shares and
pay higher Rule 12b-1 fees than Class A shares and may be subject to a CDSC of
1.00% if those shares are redeemed within one year. Class Y shares do not pay a
front end sales charge, a CDSC or distribution fees. They are intended for
institutional investors with a minimum initial investment of $1,000,000, though
some categories of investors are excepted from the minimum investment amounts.
The Hansberger Foreign Growth Fund (formerly the CDC IXIS International Equity
Fund) was liquidated on March 11, 2005, and ceased operations.
Most expenses of the Trust can be directly attributed to a Fund. Expenses which
can not be directly attributed to a Fund are generally apportioned based on the
relative net assets of each of the funds in the Trust. Expenses of a Fund are
borne pro rata by the holders of each Class of shares, except that each Class
bears expenses unique to that Class (including the Rule 12b-1 service and
distribution fees and transfer agent fees applicable to such Class) and votes
as a Class only with respect to its own Rule 12b-1 Plan. Shares of each Class
would receive their pro rata share of the net assets of a Fund, if the Fund
were liquidated. The Trustees approve separate dividends from net investment
income on each class of shares.
2. Significant Accounting Policies. The following is a summary of significant
accounting policies consistently followed by each Fund in the preparation of
its financial statements. The Funds' financial statements are prepared in
accordance with accounting principles generally accepted in the United States
of America which require the use of management estimates that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
a. Security Valuation. Equity securities for which market quotations are
readily available are valued at market value, as reported by pricing services
recommended by the investment adviser's pricing committee and approved by the
Board of Trustees. Such pricing services generally use the security's last sale
price on the exchange or market where primarily traded or, if there is no
reported sale during the day, the closing bid price. Securities traded on the
NASDAQ National Market are valued at the NASDAQ Official Closing Price
("NOCP"), or if lacking a NOCP, at the most recent bid quotation on the NASDAQ
National Market. Debt securities for which market quotations are readily
available are generally valued at market value, as reported by pricing services
recommended by the investment adviser's pricing committee and approved by the
Board of Trustees. Such pricing services generally use the most recent bid
prices in the principal market in which such securities are normally traded.
Broker-dealer bid quotations may also be used to value debt and equity
securities where a pricing service does not price a security or where a pricing
service does not provide a reliable price for the security. Short-term
obligations with a remaining maturity of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available (including restricted securities, if any)
are valued at fair value as determined in good faith by the Fund's investment
adviser using consistently applied procedures under the general supervision of
the Board of Trustees.
The Funds may hold securities traded in foreign markets. Foreign securities are
valued at the market price in the foreign market. However, if events occurring
after the close of the foreign market (but before the close of regular trading
on the New York Stock Exchange) are believed to materially affect the value of
those securities, such securities are fair valued pursuant to procedures
approved by the Board of Trustees. When fair valuing equity securities, a Fund
may, among other things, use modeling tools or other processes that may take
into account factors such as securities market activity and/or significant
events that occur after the close of the foreign market and before the Fund
calculates its net asset value.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on trade date. Dividend income is recorded on ex-dividend
date, or in the case of certain foreign securities, as soon as the Fund is
notified. Interest income is recorded on an accrual basis. Interest income is
increased by the accretion of discount and decreased by the amortization of
premium. Investment income is recorded net of foreign taxes withheld when
applicable. In determining net gain or loss on securities sold, the cost of
securities has been determined on an identified cost basis. Investment income
and realized and unrealized gains and losses are allocated on a pro rata basis
to each Class based on the relative net assets of each Class to the total net
assets of the Fund.
c. Foreign Currency Translation. The books and records of the Funds are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities, income and
expenses are translated on the respective dates of such transactions.
21
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates
from fluctuations arising from changes in market prices of the investment
securities. Such changes are included with the net realized and unrealized gain
or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the amounts of
dividends, interest and foreign withholding taxes recorded on the Funds' books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities, other than investment securities, at the end of the
fiscal periods, resulting from changes in exchange rates.
The Funds use foreign currency exchange contracts to facilitate transactions in
foreign-denominated investments. Losses may arise from changes in the value of
the foreign currency or if the counterparties do not perform under the
contracts' terms.
Each Fund may purchase investments of foreign issuers. Investing in securities
of foreign issuers involves special risks and considerations not typically
associated with investing in U.S. companies and securities of the U.S.
government. These risks include revaluation of currencies and the risk of
appropriation. Moreover, the markets for securities of many foreign issuers may
be less liquid and the prices of such securities may be more volatile than
those of comparable U.S. companies and the U.S. government.
d. Forward Foreign Currency Contracts. Each Fund may enter into forward foreign
currency exchange contracts. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell generally are used to
hedge a Fund's investments against currency fluctuation. Also, a contract to
buy or sell can offset a previous contract. These contracts involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement of
Assets and Liabilities. These amounts represent the aggregate exposure to each
currency the Fund has acquired or hedged through currency contracts outstanding
at period end.
All contracts are "marked-to-market" daily at the applicable exchange rates and
any gains or losses are recorded for financial statement purposes as unrealized
until settlement date. Risks may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their contracts
and from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. At September 30, 2005, there were no open forward currency
contracts.
e. Federal and Foreign Income Taxes. The Trust treats each Fund as a separate
entity for federal income tax purposes. Each Fund intends to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies, and to distribute to its shareholders substantially all of its net
investment income and any net realized capital gains, at least annually.
Accordingly, no provisions for federal income and excise taxes have been made.
A Fund may be subject to foreign taxes on income and gains on investments that
are accrued based upon the Fund's understanding of the tax rules and
regulations that exist in the countries in which the Fund invests. Foreign
governments may also impose taxes or other payments on investments with respect
to foreign securities, such taxes are accrued as applicable.
f. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on ex-dividend date. The timing and characterization of certain income
and capital gains distributions are determined in accordance with federal tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. Permanent differences are primarily due to
differing treatments for book and tax purposes of items such as net operating
losses, foreign currency transactions and losses acquired in mergers. Temporary
differences between book and tax distributable earnings are primarily due to
deferred trustees' fees and wash sales. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to capital accounts. Distributions from net investment income
and short-term capital gains are considered to be ordinary income for tax
purposes.
The tax character of distributions paid to shareholders during the years ended
September 30, 2005 and 2004 were as follows:
2005 Distributions Paid From: 2004 Distributions Paid From:
- ------------------------------ ------------------------------
Ordinary Long-Term Ordinary Long-Term
Income Capital Gains Total Income Capital Gains Total
- ------ ------------- ----- ------ ------------- -----
Growth Fund $ -- $-- $ -- $ -- $-- $ --
Research Fund 91,367 -- 91,367 92,853 -- 92,853
22
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
Growth Fund Research Fund
- ------------- -------------
Undistributed ordinary income $ -- $ 104,245
Undistributed long-term capital gains -- 1,238,765
------------- ----------
Total undistributed earnings -- 1,343,010
Capital loss carryforward:
Expires September 30, 2008 (21,713,204) --
Expires September 30, 2009 (163,859,849) --
Expires September 30, 2010 (43,118,629) --
Expires September 30, 2011 (6,192,314) --
------------- ----------
Total capital loss carryforward (234,883,996) --
Deferred net capital losses (post October 2004) -- --
Unrealized Appreciation 28,468,883 3,449,585
------------- ----------
Total accumulated earnings (losses) $(206,415,113) $4,792,595
============= ==========
Capital loss carryforward
utilized in current year $ 4,378,494 $1,535,221
------------- ----------
g. Repurchase Agreements. Each Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is each
Fund's policy that the market value of the collateral be at least equal to 102%
of the repurchase price, including interest. The Fund's adviser is responsible
for determining that the value of the collateral is at all times at least equal
to 102% of the repurchase price, including interest. The repurchase agreements
are tri-party arrangements whereby the collateral is held at the custodian bank
in a segregated account for the benefit of the Fund and the counterparty.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the counterparty including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities.
h. Securities Lending. The Funds have entered into an agreement with State
Street Bank and Trust Company ("State Street Bank"), as agent of the Funds, to
lend securities to certain designated borrowers. The loans are collateralized
with cash or securities in an amount equal to at least 105% or 102% of the
market value of the loaned international equity or domestic securities,
respectively, when the loan is initiated. Thereafter, the value of the
collateral must remain at least 102% of the market value of loaned securities
for U.S. equities and U.S. corporate debt; at least 105% of the market value of
loaned securities for non-U.S. equities; and at least 100% of the market value
of loaned securities for U.S. government and agency securities, sovereign debt
issued by non-U.S. governments and non-U.S. corporate debt. As with other
extensions of credit, the Funds may bear the risk of loss with respect to the
investment of the collateral. The Funds invest cash collateral in short-term
investments, a portion of the income from which is remitted to the borrowers
and the remainder allocated between the Funds and State Street Bank as lending
agent. The market value of securities on loan to borrowers and the value of
collateral held by the Funds with respect to such loans at September 30, 2005,
were as follows:
Market Value Value of
Fund on Loan Collateral
---- ------------ -----------
Growth Fund $13,711,627 $14,032,341
Research Fund -- --
i. Indemnifications. Under the Funds' organizational documents, its officers
and trustees are indemnified against certain liability arising out of the
performance of their duties to the Funds. Additionally, in the normal course of
business, the Funds enter into contracts with service providers that contain
general indemnification clauses. The Funds' maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Funds that have not yet occurred. However, based on experience the
Funds expect the risk of loss to be remote.
3. Purchases and Sales of Securities. For the year ended September 30, 2005,
purchases and sales of securities (excluding short-term investments) were as
follows:
Fund Purchases Sales
---- ------------ ------------
Growth Fund $296,442,912 $244,456,210
Research Fund 32,152,522 32,700,805
4. Management Fees and Other Transactions with Affiliates.
a. Management Fees. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as
investment adviser to each of the Funds. Under the terms of the management
agreements, each Fund pays a management fee at the following annual rates,
calculated daily and payable monthly, based on each Fund's average daily net
assets:
Percentage of
Average
Fund Daily Net Assets
---- ----------------
Growth Fund 0.50%
Research Fund 0.50%
23
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
For the year ended September 30, 2005, the management fees and waivers of
management fees for each Fund were as follows:
Percentage of
Average
Gross Waiver of Net Daily Net Assets
Management Management Management ----------------
Fund Fee Fee Fee Gross Net
---- ---------- ---------- ---------- ----- -----
Growth Fund $761,483 $510,048 $251,435 0.50% 0.17%
Research Fund 122,297 122,297 -- 0.50% 0.00%
For the year ended September 30, 2005, in addition to the waiver of management
fees, expenses have been reimbursed as follows:
Fund Amount
---- --------
Growth Fund $ --
Research Fund 125,711
Certain officers and employees of Loomis Sayles are also officers or Trustees
of the Trust. Loomis Sayles' general partner is indirectly owned by IXIS Asset
Management North America, L.P. ("IXIS North America"), formerly CDC IXIS Asset
Management North America, L.P. IXIS North America is ultimately owned
principally, directly or indirectly by three large affiliated French financial
services entities: the Caisse des Depots et Consignations ('CDC"), a public
sector financial institution created by the French government in 1816; the
Caisse Nationale des Caisses d'Epargne, a financial institution owned by CDC
and by French regional savings banks known as the Caisses d'Epargne and CNP
Assurances, a large French life insurance company.
b. Administrative Expense. During the period October 1, 2004 through
December 31, 2004, IXIS Asset Management Services Company ("IXIS Services"),
formerly CDC IXIS Asset Management Services, Inc., a wholly owned subsidiary of
IXIS North America, performed certain administrative services for the Funds and
subcontracted with State Street Bank to serve as sub-administrator. Effective
January 3, 2005, IXIS Asset Management Advisors, L.P. ("IXIS Advisors") assumed
responsibility for providing administrative services to the Funds. Pursuant to
an agreement among the Loomis Sayles Funds Trusts (the Trust and Loomis Sayles
Funds I), IXIS Advisor Funds Trust I (formerly CDC Nvest Funds Trust I), IXIS
Advisor Funds Trust II (formerly CDC Nvest Funds Trust II), IXIS Advisor Funds
Trust III (formerly CDC Nvest Funds Trust III), IXIS Advisor Funds Trust IV
(formerly CDC Nvest Companies Trust I) and IXIS Cash Management Trust (formerly
CDC Nvest Cash Management Trust)("IXIS Advisor Funds Trusts") and IXIS
Advisors, each Fund pays IXIS Advisors its pro rata portion of a group fee for
these services representing the higher amount based on the following
calculations:
(1)Percentage of Average Daily Net Assets
First Next Over
$5 billion $5 billion $10 billion
---------- ---------- -----------
0.0675% 0.0625% 0.0500%
or
(2)Each Fund's pro rata portion, allocated based on the combined
assets of the Loomis Sayles Funds Trusts and the IXIS Advisor
Funds Trusts, of the annual aggregate minimum fee of $5 million.
For the year ended September 30, 2005, fees paid to IXIS Services and IXIS
Advisors for administrative expense were as follows:
Administrative
Fund Fee
---- --------------
Growth Fund $99,168
Research Fund 15,927
c. Transfer Agent Fees. IXIS Services serves as transfer and shareholder
servicing agent for the Funds and has subcontracted with Boston Financial Data
Services ("BFDS") to serve as sub-transfer agent.
Effective January 1, 2005, each Load Equity Fund, for its Class A, B, and C
shares pays fees monthly to IXIS Advisors equal to an annual rate of $25.44 for
each open account and $2.00 for each closed account, subject to a monthly
minimum of $1,500 per class and an annual aggregate minimum fee of
approximately $6.8 million for all Load Equity Funds, Load Equity Funds consist
of Growth Fund, Research Fund and all equity funds in the IXIS Advisor Fund
Trusts.
Each Load Equity Fund, for its Class Y shares pays fees monthly to IXIS
Advisors equal to an annual rate of $25.44 for each open account in an Equity
Fund and $2.00 for each closed account, subject to a monthly minimum of $1,500
per class and an annual aggregate minimum fee of approximately $1 million for
all No-Load Retail Funds and Load Funds-Class Y. Load Funds-Class Y consist of
all Funds with Class Y shares offered within the Loomis Sayles Funds Trusts and
IXIS Advisor Funds Trusts. No-Load Retail Funds consist of Aggressive Growth
Fund, Small Cap Growth Fund, Small Cap Value Fund, Tax-Managed Equity Fund,
Value Fund, Worldwide Fund, Loomis Sayles Bond Fund and Loomis Sayles Global
Fund.
24
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
Prior to January 1, 2005, the Fund for its Classes A, B and C paid monthly to
IXIS Services its pro rata portion of an annual aggregate fee equal to 0.184%
of the first $5.7 billion, 0.180% of the next $5 billion and 0.175% over $10.7
billion of the average net assets for all Load Equity Funds, subject to a
monthly minimum of $1,500 per class and an annual aggregate minimum of $8.4
million.
Prior to January 1, 2005, the Fund for its Class Y paid monthly to IXIS
Services its pro rata portion of an annual aggregate fee equal to 0.026% of the
average daily net assets for all No-Load Retail Funds and Load Funds-Class Y,
subject to a monthly minimum of $1,250 per class and an annual aggregate
minimum of $650,000.
Effective October 1, 2005, BFDS became the transfer and shareholder servicing
agent for the Funds.
IXIS Services, BFDS and other firms are also reimbursed by the Funds for
out-of-pocket expenses. In addition, pursuant to other servicing agreements,
each Class pays service fees to other firms that provide similar services for
their own shareholder accounts.
For the year ended September 30, 2005, amounts paid to IXIS Services as
compensation for its services as transfer agent were as follows:
Transfer Agent
Fund Fee
---- --------------
Growth Fund $430,710
Research Fund 69,496
d. Service and Distribution Fees. The Trust entered into a distribution
agreement with IXIS Asset Management Distributors, L.P. ("IXIS Distributors"),
formerly CDC IXIS Asset Management Distributors, L.P., a wholly owned
subsidiary of IXIS North America. Pursuant to this agreement, IXIS Distributors
serves as principal underwriter of the Funds of the Trust, except Loomis Sayles
Investment Grade Bond Fund, Class J.
Pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1"), the Funds have
adopted a Service Plan relating to each Fund's Class A shares (the "Class A
Plan") and Service and Distribution Plans relating to each Fund's Class B and
Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, each Fund pays IXIS Distributors a monthly service fee
at an annual rate not to exceed 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
incurred by IXIS Distributors in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts.
Under the Class B and Class C Plans, each Fund pays IXIS Distributors a monthly
service fee at an annual rate not to exceed 0.25% of the average daily net
assets attributable to each Fund's Class B and Class C shares, as compensation
for services provided and expenses incurred by IXIS Distributors in providing
personal services to investors in Class B and Class C shares and/or the
maintenance of shareholder accounts.
Also under the Class B and Class C Plans, each Fund pays IXIS Distributors a
monthly distribution fee at an annual rate of 0.75% of the average daily net
assets attributable to each Fund's Class B and Class C shares, as compensation
for services provided and expenses incurred by IXIS Distributors in connection
with the marketing or sale of Class B and Class C shares.
For the year ended September 30, 2005 the Funds paid the following service and
distribution fees:
Service Fee Distribution Fee
- - ----------------------------------------- ---------------------------
Fund Class A Class B Class C Class B Class C
- ---- ------- ------- ------- ------- -------
Growth Fund $ 94,012 $ 246,470 $ 124,399 $ 82,157 $ 41,466
Research Fund 492 1,033 344 344 115
Commissions (including CDSCs) on Fund shares paid to IXIS Distributors by
investors in shares of the Funds for the year ended September 30, 2005, were as
follows:
Fund Commissions
---- -----------
Growth Fund $193,018
Research Fund 3,094
25
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
e. Trustees Fees and Expenses. The Loomis Sayles Funds Trusts and the IXIS
Advisor Funds Trusts do not pay any compensation directly to their officers or
Trustees who are directors, officers or employees of Loomis Sayles, IXIS
Distributors, IXIS North America, IXIS Services, IXIS Advisors or their
affiliates. Each Trustee who is an independent Trustee of the Loomis Sayles
Funds Trusts and the IXIS Advisor Funds Trusts receives, in the aggregate, a
retainer fee at the annual rate of $50,000 and meeting attendance fees of
$5,000 for each meeting of the Board of Trustees attended. Each committee
chairman receives an additional retainer fee at the annual rate of $7,000. Each
committee member receives a meeting attendance fee of $3,750 per committee
meeting attended. The co-chairmen of the Board each receive an annual retainer
fee of $25,000. The retainer fees assume four Board or Committee meetings per
year. These fees are allocated to the various series of the Loomis Sayles Funds
Trusts and the IXIS Advisor Funds Trusts based on a formula that takes into
account, among other factors, the relative net assets of each Fund. Trustees
are reimbursed for travel expenses in connection with attendance at meetings.
Effective October 1, 2005, the compensation schedule for independent Trustees
will change. Each independent Trustee will receive a retainer fee at the annual
rate of $55,000 and meeting attendance fees of $6,000 for each meeting of the
Board of Trustees attended in person and $3,000 for each meeting of the Board
of Trustees attended telephonically. Each co-chairman of the Board will receive
an additional retainer fee at the annual rate of $25,000. Each committee
chairman will receive an additional retainer fee at the annual rate of $10,000.
Each committee member will receive a meeting attendance fee of $4,000 per
committee meeting attended in person and $2,000 for each committee meeting
attended telephonically.
A deferred compensation plan (the "Plan") is available to the Trustees on a
voluntary basis. Each participating Trustee will receive an amount equal to the
value that such deferred compensation would have been had it been invested in
the Fund or certain other series of the Loomis Sayles Funds Trusts or IXIS
Advisor Trusts on the normal payment date. Deferred amounts remain in the Fund
until distributed in accordance with the Plan.
Additionally, the Board of Trustees has approved the use of Fund assets to pay
their portion of the annual salary for 2005 of an employee at IXIS Advisors who
supports the Funds' Chief Compliance Officer. For the year ended September 30,
2005, each Funds' portion of such expense was approximately $900.
f. Publishing Services. IXIS Services performs certain desktop publishing
services for the Funds. Fees for these services are presented in the statements
of operations as shareholder reporting. For the year ended September 30, 2005,
amounts paid to IXIS Services as compensation for these services were as
follows:
Publishing Services
Fund Fees
---- -------------------
Growth Fund $77
Research Fund 77
5. Line of Credit. Prior to September 1, 2005 each Fund, together with certain
other Funds of the Loomis Sayles Funds Trusts, participated in a $25 million
committed unsecured revolving line of credit provided by State Street Bank.
Borrowings under the line of credit were to be made solely to temporarily
finance the repurchase of capital shares. Interest was to be charged to each
participating Fund based on its borrowings at a rate per annum equal to the
Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.09% per
annum, payable at the end of each calendar quarter, was accrued and apportioned
among the participating Funds based on their average daily unused portion of
the line of credit. For the period ended August 31, 2005, the Funds had no
borrowings under the agreement.
Effective September 1, 2005, each Fund, together with certain other Funds of
the Loomis Sayles Funds Trusts and IXIS Advisor Funds Trusts, participate in a
$75 million committed line of credit provided by State Street Bank. Borrowings
under the line of credit due to be made solely to temporarily finance the
repurchase of shares. Interest is charged to each participating Fund based on
its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%.
In addition, a commitment fee of 0.09% per annum, payable at the end of each
calendar quarter, is accrued and apportioned among the participating Funds
based on their average daily unused portion of the line of credit. For the
period of September 1/st/ through September 30, 2005, the Funds had no
borrowing under this agreement.
6. Brokerage Commission Recapture. Each Fund has entered into agreements with
certain brokers whereby the brokers will rebate a portion of brokerage
commissions. All amounts rebated by the brokers are returned to the Funds under
such agreements and are included in as realized gains on investments in the
Statements of Operations. For the year ended September 30, 2005, amounts
rebated under these agreements were as follows:
Fund Rebates
---- -------
Growth Fund $30,739
Research Fund 8,247
26
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
7. Shareholders. At September 30, 2005, Loomis Sayles Funded Pension Plan
("Pension Plan") and Loomis Sayles Employees' Profit Sharing Retirement Plan
held shares of beneficial interest in the Funds as follows:
Profit Sharing
Fund Pension Plan Retirement Plan
---- ------------ ---------------
Growth Fund 1,615,159 2,206,878
Research Fund 1,458,728 593,741
8. Expense Reductions and Contingent Expense Obligations. Loomis Sayles has
given binding undertakings to certain Funds to defer its management fees and,
if necessary, bear certain expenses associated with these Funds to limit their
operating expenses. These undertakings are in effect until the dates indicated
below and will be reevaluated on an annual basis. For the year ended
September 30, 2005, in addition to any waiver of management fees as discussed
in Note 4, $125,711 of certain class level expenses have been reimbursed to
Research Fund.
Loomis Sayles shall be permitted to recover expenses it has borne (whether
through reduction of its management fee or otherwise) in later periods to the
extent the Funds' expenses fall below the expense limits, provided, however,
that the Funds are not obligated to pay such deferred fees more than one year
after the end of the fiscal year in which the fee was deferred.
At September 30, 2005, the expense limits as a percentage of average daily net
assets and amounts subject to possible reimbursement under the expense
limitation agreement were as follows:
Expense Limit as a Percentage of Average Expenses Subject
Daily Net Assets to Possible
- - --------------------------------------- Expiration Reimbursement
Fund Class A Class B Class C Class Y of Waiver Until September 30, 2006
- ---- ------- ------- ------- ------- ---------------- ------------------------
Growth Fund 1.10% 1.85% 1.85% 0.85% January 31, 2006 $510,048
Research Fund 1.25% 2.00% 2.00% 0.85% January 31, 2006 248,008
27
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
9. Capital Shares. Each Fund may issue an unlimited number of shares of
beneficial interest. Transactions in capital shares were as follows:
Year Ended
September 30, 2005
-------------------------------------
Growth Fund Shares Amount
- -------------------------------------------------------------- ----------------- ------------------
Class A
Issued from the sale of shares 2,891,752 $ 16,226,988
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 10) 4,629,768 25,972,996
Redeemed (1,850,918) (10,329,710)
----------------- ------------------
Net change 5,670,602 $ 31,870,274
================= ==================
Class B
Issued from the sale of shares 417,659 $ 2,291,627
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 10) 4,956,246 27,556,727
Redeemed (1,424,287) (7,852,340)
----------------- ------------------
Net change 3,949,618 $ 21,996,014
================= ==================
Class C
Issued from the sale of shares 3,050,164 $ 16,889,388
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 10) 636,031 3,536,331
Redeemed (737,262) (4,155,230)
----------------- ------------------
Net change 2,948,933 $ 16,270,489
================= ==================
Class Y
Issued from the sale of shares 11,677,737 65,052,505
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 10) -- --
Redeemed (4,211,591) (23,437,153)
----------------- ------------------
Net change 7,466,146 $ 41,615,352
================= ==================
Year Ended
September 30, 2004
-------------------------------------
Growth Fund Shares Amount
- -------------------------------------------------------------- ----------------- ------------------
Class A
Issued from the sale of shares 871,187 $ 4,321,851
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 10) 2,397,395 11,512,024
Redeemed (658,386) (3,266,161)
----------------- ------------------
Net change 2,610,196 $ 12,567,714
================= ==================
Class B
Issued from the sale of shares 374,023 $ 1,830,522
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 10) 2,628,461 12,600,689
Redeemed (466,924) (2,312,177)
----------------- ------------------
Net change 2,535,560 $ 12,119,034
================= ==================
Class C
Issued from the sale of shares 1,224,578 $ 6,071,312
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 10) 216,384 1,037,340
Redeemed (60,301) (294,093)
----------------- ------------------
Net change 1,380,661 $ 6,814,559
================= ==================
Class Y
Issued from the sale of shares 2,199,824 $ 11,053,935
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 10) 101,251 501,688
Redeemed (851,367) (4,260,774)
----------------- ------------------
Net change 1,449,708 $ 7,294,849
================= ==================
Year Ended
September 30, 2005
-------------------------------------
Research Fund Shares Amount
- -------------------------------------------------------------- ----------------- ------------------
Class A
Issued from the sale of shares 24,722 $ 218,280
Issued in connection with the reinvestment of distributions 7 59
Redeemed (1,008) (8,728)
----------------- ------------------
Net change 23,721 $ 209,611
================= ==================
Class B
Issued from the sale of shares 27,651 $ 232,970
Issued in connection with the reinvestment of distributions 3 26
Redeemed (11,937) (99,081)
----------------- ------------------
Net change 15,717 $ 133,915
================= ==================
Class C
Issued from the sale of shares 20,933 $ 181,888
Issued in connection with the reinvestment of distributions 1 12
Redeemed (5,853) (49,291)
----------------- ------------------
Net change 15,081 $ 132,609
================= ==================
Class Y
Issued from the sale of shares 828,044 $ 7,048,438
Issued in connection with the reinvestment of distributions 10,737 91,263
Redeemed (955,495) (8,225,174)
----------------- ------------------
Net change (116,714) $ (1,085,473)
================= ==================
Year Ended
September 30, 2004
-------------------------------------
Research Fund Shares Amount
- -------------------------------------------------------------- ----------------- ------------------
Class A
Issued from the sale of shares 8,336 $ 63,400
Issued in connection with the reinvestment of distributions 24 179
Redeemed (737) (5,753)
----------------- ------------------
Net change 7,623 $ 57,826
================= ==================
Class B
Issued from the sale of shares 9,492 $ 73,333
Issued in connection with the reinvestment of distributions 1 9
Redeemed (2,464) (19,545)
----------------- ------------------
Net change 7,029 $ 53,797
================= ==================
Class C
Issued from the sale of shares 7,226 $ 56,910
Issued in connection with the reinvestment of distributions -- --
Redeemed (7,226) (54,626)
----------------- ------------------
Net change -- $ 2,284
================= ==================
Class Y
Issued from the sale of shares 527,369 $ 3,948,133
Issued in connection with the reinvestment of distributions 12,572 92,653
Redeemed (925,801) (6,965,207)
----------------- ------------------
Net change (385,860) $ (2,924,421)
================= ==================
28
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
10. Acquisition of Assets. After the close of business on November 14, 2003,
Growth Fund acquired all assets and liabilities of CDC Nvest Large Cap Growth
Fund ("Large Cap Growth Fund"), pursuant to a plan of reorganization approved
by Large Cap Growth Fund shareholders on November 11, 2003. The acquisition was
accomplished by a tax-free exchange of 2,397,395 Class A shares of the Growth
Fund for 1,072,307 shares of the Large Cap Growth Fund Class A, 2,628,461 Class
B shares of the Growth Fund for 1,206,169 shares of the Large Cap Growth Fund
Class B, 216,384 Class C shares of the Growth Fund for 99,268 shares of the
Large Cap Growth Fund Class C; and 101,251 Class Y shares of the Growth Fund
for 46,248 shares of the Large Cap Growth Fund Class Y. Large Cap Growth Fund
net assets at that date of $25,651,741, including $1,082,424 of net unrealized
appreciation, were combined with those of the Growth Fund. The aggregate net
assets of the Growth Fund immediately before the acquisition were $32,638,783.
The combined net assets of the Growth Fund immediately following the
acquisition were $58,290,524. The Growth Fund acquired capital loss carryovers,
subject to limitations, of $44,043,168 from the Large Cap Growth Fund.
After the close of business on December 17, 2004, Growth Fund acquired all
assets and liabilities of CDC Nvest Star Growth Fund ("Star Growth Fund"),
pursuant to a plan of reorganization approved by Large Cap Growth Fund
shareholders on December 17, 2004. The acquisition was accomplished by a
tax-free exchange of 4,629,768 Class A shares of the Growth Fund for 3,026,518
shares of the Star Growth Fund Class A, 4,956,246 Class B shares of the Growth
Fund for 3,333,608 shares of the Star Growth Fund Class B and 636,031 Class C
shares of the Growth Fund for 427,538 shares of the Star Growth Fund Class C.
Star Growth Fund net assets at that date of $57,066,054, including $1,346,493
of net unrealized appreciation, were combined with those of the Growth Fund.
The aggregate net assets of the Growth Fund immediately before the acquisition
were $89,294,106. The combined net assets of the Growth Fund immediately
following the acquisition were $146,360,160. The Growth Fund acquired capital
loss carryovers, subject to limitations, of $180,747,975 from the Star Growth
Fund.
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Loomis Sayles Funds II and Shareholders of Loomis Sayles
Growth Fund and Loomis Sayles Research Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Loomis Sayles
Growth Fund and Loomis Sayles Research Fund, each a series of Loomis Sayles
Funds II (collectively, "the Funds"), at September 30, 2005, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 23, 2005
30
2005 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (UNAUDITED)
Corporate Dividends Received Deduction. For the fiscal year ended September 30,
2005, a percentage of dividends distributed by the Fund listed below qualify
for the dividends received deduction for corporate shareholders. These
percentages are as follows:
Qualifying
Fund Percentage
---- ----------
Research Fund 100.00%
Qualified Dividend Income. For the fiscal year ended September 30, 2005, the
Funds will designate up to the maximum amount allowable pursuant to the
Internal Revenue Code, as qualified dividend income eligible for reduced tax
rates. These lower rates range from 5% to 15% depending on an individual's tax
bracket. If the funds pay a distribution during calendar year 2005, complete
information will be reported in conjunction with Form 1099-DIV.
31
ADDITIONAL INFORMATION
Shareholder Meetings (Unaudited)
At a special shareholders' meeting held on June 2, 2005, shareholders of Loomis
Sayles Funds II, of which the Loomis Sayles Growth Fund and Loomis Sayles
Research Fund are series, voted for the following proposals:
1. Election of Trustees for Loomis Sayles Funds II ("Loomis Trust
II")
Votes
Votes For Withheld Total
- --------- -------- -----
Graham T. Allison, Jr. 132,584,909.794 22,128,560.082 154,713,469.876
Edward A. Benjamin 132,612,377.523 22,101,092.353 154,713,469.876
Daniel M. Cain 132,610,853.597 22,102,616.279 154,713,469.876
Paul G. Chenault 132,528,522.129 22,184,947.747 154,713,469.876
Kenneth J. Cowan 132,560,768.058 22,152,701.818 154,713,469.876
Richard Darman 132,450,040.167 22,263,429.709 154,713,469.876
Sandra O. Moose 132,566,101.551 22,147,368.325 154,713,469.876
John A. Shane 132,564,423.970 22,149,045.906 154,713,469.876
Charles D. Baker 132,593,048.677 22,120,421.199 154,713,469.876
Cynthia L. Walker 132,584,766.724 22,128,703.152 154,713,469.876
Robert J. Blanding 132,514,900.631 22,198,569.245 154,713,469.876
John T. Hailer 132,593,553.721 22,119,916.155 154,713,469.876
2. Approval of an Amended and Restated Agreement and Declaration
of Trust for Loomis Trust II
Voted Abstained Broker
Voted For Against Votes Non-Votes Total Votes
--------- ------- ----- --------- -----------
103,245,838.162 2,321,818.870 22,868,247.134 32,828,038.000 161,263,942.166
With respect to this proposal, the meeting was adjourned initially to June 22,
2005 and again to July 21, 2005 due to insufficient votes to pass the proposal.
The proposal passed on July 21, 2005.
32
TRUSTEE AND OFFICER INFORMATION
The table below provides certain information regarding the Trustees and
officers of Loomis Sayles Funds II (the "Trust"). Unless otherwise indicated,
the address of all persons below is 399 Boylston Street, Boston, MA 02116. The
Statements of Additional Information include additional information about the
Trustees of the Trusts and are available by calling Loomis Sayles at
800-343-2029.
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen*** and
Name and Date of Birth Served and Term of Office* During Past 5 Years** Other Directorships Held
- ---------------------- -------------------------- --------------------- ------------------------
INDEPENDENT TRUSTEES
Graham T. Allison, Jr. Trustee, since 2003; Douglas Dillon Professor and 38;
(3/23/40) Contract Review and Director of the Belfer Center Director, Taubman Centers,
Governance Committee of Science and International Inc. (real estate investment
Member Affairs, John F. Kennedy trust); Advisory Board Member,
School of Government, USEC Inc. (energy supplier)
Harvard University
Charles D. Baker Trustee, since 2005; President and Chief Executive 38;
(11/13/56) Contract Review and Officer, Harvard Pilgrim None
Governance Committee Health Care (health plan)
Member
Edward A. Benjamin Trustee, since 2002; Retired 38;
(5/30/38) Contract Review and Director, Coal, Energy
Governance Committee Investments & Management,
Member LLC; Director, Precision Optics
Corporation (optics
manufacturer)
Daniel M. Cain Trustee, since 2003; Co- President and Chief Executive 38;
(2/24/45) Chairman of the Board, Officer, Cain Brothers & Trustee, Universal Health
since 2004 Chairman of the Company, Incorporated Realty Income Trust; Director,
Audit Committee (investment banking) Sheridan Healthcorp (physician
practice management)
Paul G. Chenault Trustee, since 2000 for Retired; Trustee, First Variable 38;
(9/12/33) Loomis Sayles II; Life (variable life insurance) Director, Mailco Office
Contract Review and Products, Inc. (mailing
Governance Committee equipment)
Member
Kenneth J. Cowan Trustee, since 2003; Co- Retired 38;
(4/5/32) Chairman of the Board, None
since 2004; Chairman of
the Contract Review and
Governance Committee
33
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen*** and
Name and Date of Birth Served and Term of Office* During Past 5 Years** Other Directorships Held
- ---------------------- -------------------------- --------------------- ------------------------
INDEPENDENT TRUSTEES
continued
Richard Darman Trustee, since 2003; Partner, The Carlyle Group 38;
(5/10/43) Contract Review and (investments); formerly, Director and Chairman of the
Governance Committee Professor, John F. Kennedy Board of Directors, AES
Member School of Government, Corporation (independent
Harvard University power company); Chairman of
the Smithsonian National
Museum of American History;
Trustee, Howard Hughes
Medical Institute
Sandra O. Moose Trustee, since 2003; Audit President, Strategic Advisory 38;
(2/17/42) Committee Member Services (management Director, Verizon
consulting); formerly, Senior Communications; Director,
Vice President and Director, Rohm and Haas Company
The Boston Consulting Group, (specialty chemicals); Director,
Inc. (management consulting) AES Corporation
John A. Shane Trustee, since 2003; President, Palmer Service 38;
(2/22/33) Contract Review and Corporation (venture capital Director, Gensym Corporation
Governance Committee organization) (software and technology
Member services provider); Director, Abt
Associates Inc. (research and
consulting firm)
Cynthia L. Walker Trustee, since 2005; Audit Dean for Finance and CFO 38;
(7/25/56) Committee Member (formerly, Associate Dean for None
Finance & CFO), Harvard
Medical School
INTERESTED TRUSTEES
Robert J. Blanding/1/ Trustee, since 2002; President, Chairman, Director 38;
(4/14/47) Chief Executive Officer of and Chief Executive Officer, None
555 California Street Loomis Sayles Funds II, Loomis, Sayles & Company,
San Francisco, CA 94104 since 2003 L.P.;
John T. Hailer/2/ Trustee, since 2003; President and Chief Executive 38;
(11/23/60) President of Loomis Sayles Officer, IXIS Asset None
Funds II Since 2003 Management Distributors,
L.P.; President and Chief
Executive Officer, IXIS
Advisor Funds
34
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen*** and
Name and Date of Birth Served and Term of Office* During Past 5 Years** Other Directorships Held
- ---------------------- -------------------------- --------------------- ------------------------
OFFICERS
Coleen Downs Dinneen Secretary, Clerk and Chief Senior Vice President, General Not Applicable
(12/16/60) Legal Officer, since 2004 Counsel, Secretary and Clerk
(formerly, Deputy General
Counsel, Assistant Secretary
and Assistant Clerk) IXIS
Asset Management
Distribution Corporation, IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.
Michael C. Kardok Treasurer, Principal Senior Vice President, IXIS Not Applicable
(7/17/59) Financial and Accounting Asset Management Advisors,
Officer, since 2004 L.P. and IXIS Asset
Management Distributors,
L.P.; formerly, Senior Director,
PFPC Inc.
Max J. Mahoney Anti-Money Laundering Senior Vice President, Deputy Not Applicable
(5/1/62) Officer and Assistant General Counsel, Assistant
Secretary, since 2005 Secretary and Assistant Clerk,
IXIS Asset Management
Distribution Corporation, IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; Chief Compliance
Officer, IXIS Asset
Management Advisors, L.P.;
formerly, Senior Counsel,
MetLife, Inc.; formerly,
Associate Counsel, LPL
Financial Services, Inc.
John E. Pelletier Chief Operating Officer, Executive Vice President and Not Applicable
(6/24/64) since 2004 Chief Operating Officer
(formerly, General Counsel,
Secretary and Clerk), IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; Executive Vice President
(formerly, Senior Vice
President, General Counsel,
Secretary and Clerk), IXIS
Asset Management
Distribution Corporation;
formerly, Director IXIS Asset
Management Services
Company
35
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen*** and
Name and Date of Birth Served and Term of Office* During Past 5 Years** Other Directorships Held
- ---------------------- -------------------------- --------------------- ------------------------
OFFICERS
continued
Daniel J. Fuss Executive Vice President, Vice Chairman and Director, Not Applicable
(9/27/33) since 2003 Loomis Sayles & Company,
One Financial Center L.P.; Prior to 2002, President
Boston, MA 02111 and Trustee of Loomis Sayles
Funds II
Kristin Vigneaux Chief Compliance Officer, Chief Compliance Officer for Not Applicable
(9/25/69) since 2004 Mutual Funds,
IXIS Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; formerly, Vice President,
IXIS Asset Management
Services Company
* The year provided is the earliest year during which a Trustee was elected or
appointed to the Trust. All Trustees serve until retirement, resignation or
removal from the Board. The current retirement age is 72, but was suspended
for the calendar year 2006. At a meeting held on August 26, 2005, the
Trustees voted to lift the suspension of the retirement policy but to
designate 2006 as a transition period so that any Trustees who are currently
72 or older or who reach age 72 during the remainder of 2005 or in 2006 will
not be required to retire until the end of calendar year 2006.
** Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor and Loomis Sayles Trusts. Previous positions during the
past five years with IXIS Asset Management Distributors, L.P. (the
"Distributor"), IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), IXIS
Asset Management Services Company ("IXIS Services") or Loomis, Sayles &
Company, L.P.("Loomis Sayles") are omitted if not materially different from
a trustee's or officer's current position with such entity.
***The Trustees of the Trust serve as Trustees of a fund complex that includes
all series of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, IXIS
Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash
Management Trust, AEW Real Estate Income Fund, Loomis Sayles Funds I and
Loomis Sayles Funds II.
/1/ Mr. Blanding is deemed an "interested person" of the Trust because he
holds the following positions with affiliated persons of the Trust:
President, Chairman, Director and Chief Executive Officer of Loomis,
Sayles & Company, L.P.
/2/ Mr. Hailer is deemed an "interested person" of the Trust because he holds
the following positions with affiliated persons of the Trust: Director and
Executive Vice President of IXIS Asset Management Distribution
Corporation, President and Chief Executive Officer of IXIS Asset
Management Advisors, L.P.
36
[LOGO] LS LOOMIS SAYLES FUNDS
Loomis Sayles Aggressive Growth Fund
Loomis Sayles Small Cap Growth Fund
Loomis Sayles Small Cap Value Fund
Loomis Sayles Tax-Managed Equity Fund
Loomis Sayles Value Fund
Loomis Sayles Worldwide Fund
TABLE OF CONTENTS
Fund and Manager Review 1
Portfolio of Investments 18
Statements of Assets and Liabilities 47
Statements of Operations 49
Statements of Changes in Net Assets 51
Financial Highlights 55
Notes to Financial Statements 61
ANNUAL REPORT
SEPTEMBER 30, 2005
FUND AND MANAGER REVIEW
LOOMIS SAYLES AGGRESSIVE GROWTH FUND
[PHOTO]
Phil Fine
Manager since February 1999
Manager since February 1999
FUND FACTS
SYMBOL | Institutional: LSAIX;
Retail: LAGRX
OBJECTIVE | Long-term capital growth from investments in common stocks or
their equivalent
STRATEGY | Invests primarily in common stocks or other equity securities
(which may include securities offered in the secondary markets or in Initial
Public Offerings) of companies with market capitalizations that fall within
the capitalization range of the Russell Midcap Growth Index, although the Fund
may invest in companies of any size
FUND INCEPTION DATE | 12/31/96
COMMENCEMENT OF OPERATIONS OF CLASS | Institutional: 1/2/97;
Retail: 1/2/97
EXPENSE RATIO | Institutional: 1.00%;
Retail: 1.25%
TOTAL NET ASSETS | $52.0 million
PORTFOLIO REVIEW
Favorable stock selection, particularly in the overweighted consumer
discretionary and energy sectors, accounted for the Fund's strong one-year
return and enabled it to outperform its benchmark, the Russell Midcap Growth
Index, for the fiscal year ended September 30, 2005. Our strategy throughout
much of the period included striking a balance between cyclical companies and
defensive, non-cyclical stocks. However, as the cycle matured, we started to
reduce the Fund's exposure to the cyclical areas of the economy, placing
greater emphasis on stocks in non-cyclical sectors. In particular, we reduced
exposure to homebuilders, retailers and apparel companies, and increased
exposure to healthcare, consumer staples, and select consumer services. We
focused on a few high-confidence themes--industries and stocks where we have
strong conviction that the companies involved should benefit from macro tail
winds, company-specific events, or both.
Due to the potential impact rising interest rates and higher energy prices may
have on consumer spending, we reduced the Fund's weighting in consumer
discretionary stocks from a significant overweight to an underweight. We also
shifted the Fund's healthcare underweight to an overweight by adding exposure
to healthcare services because these companies' earnings appeared to be more
stable. Finally, our purchase of several wireless companies and Southwestern
Energy led to a significant overweight in the utilities sector. Southwestern
Energy was one of the Fund's best performers. The company has accumulated a
large acreage position in Fayetteville shale in Arkansas, which is proving to
be one of the most exciting and potentially most lucrative natural gas plays in
North America.
We have been working to reduce the Fund's exposure to the consumer
discretionary sector, even though our stock picks in this area had the greatest
positive impact on performance for the period. Apparel and specialty retail
stocks paced performance in the sector, as companies such as Coach and Chico's
FAS continued to report strong same-store sales and profit growth. We sold both
stocks. Energy had the second- greatest positive impact, as soaring commodity
prices drove earnings and cash flow growth for the exploration, production and
oilfield-service companies. The technology sector also had a positive impact on
the Fund's results in absolute terms, although it had a negative impact
relative to the Fund's benchmark. Semiconductor and storage stocks led this
sector. In addition, the Fund benefited from a position in Apple Computer,
which reported significant earnings growth on strong sales of the iPod and
Macintosh notebooks and computers.
Healthcare was the Fund's weakest sector--and the only sector that generated a
negative return for the year. In particular, stocks in the biotech and medical
devices industries lagged, as several of our holdings reported disappointing
results from their clinical trials. For example, Biogen Idec announced that its
potential blockbuster drug for multiple sclerosis was implicated in cases of a
rare brain disease, and it now seems unlikely the drug ever will come to
market. We subsequently sold the position.
1
OUTLOOK
As we enter the final months of 2005, we anticipate some weakness in consumer
sentiment, employment and GDP growth as a result of fallout from the
hurricanes. Although oil prices already have returned to pre-hurricane levels,
we believe prices are likely to remain a concern for the next several months.
We also believe the Federal Reserve Board is likely to end its cycle of rate
hikes earlier and at lower levels than previously expected.
The stock market has been surprisingly resilient, bouncing back from the
initial shock of back-to-back hurricanes. Given this performance, our long term
outlook for the market remains positive. If the "rate hikes are nearly over"
rally has already begun, we believe the market's one-year return may reach the
higher end of our expected range.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2005
SINCE
1 YEAR 5 YEARS INCEPTION
----------------------------------------------
LOOMIS SAYLES AGGRESSIVE GROWTH: INSTITUTIONAL
23.85% -16.40% 9.71%
----------------------------------------------
LOOMIS SAYLES AGGRESSIVE GROWTH: RETAIL
23.55 -16.63 9.41
----------------------------------------------
LIPPER MID-CAP GROWTH FUNDS INDEX(c)
20.92 -6.30 6.22
----------------------------------------------
RUSSELL MIDCAP GROWTH INDEX(c)
23.47 -4.50 8.22
----------------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2005(a)(b)
[CHART]
Loomis Sayles Lipper Mid-Cap
Aggressive Growth Russell Midcap
Growth Fund Funds Index(c) Growth Index(c)
-------------- -------------- --------------
12/96 $ 250,000 $250,000 $250,000
1/97 265,500 256,397 261,061
2/97 257,243 239,354 255,313
3/97 240,754 221,150 240,886
4/97 243,498 219,235 246,786
5/97 265,486 247,788 268,901
6/97 267,982 258,228 276,343
7/97 295,235 273,998 302,793
8/97 288,475 273,237 299,837
9/97 314,235 292,801 315,012
10/97 307,228 276,403 299,240
11/97 297,735 271,981 302,386
12/97 306,607 278,351 306,356
1/98 290,602 273,087 300,840
2/98 313,821 296,284 329,124
3/98 324,491 311,625 342,920
4/98 333,025 312,981 347,577
5/98 318,072 294,737 333,279
6/98 334,358 308,295 342,709
7/98 317,272 287,776 328,029
8/98 252,961 225,733 265,422
9/98 280,433 249,272 285,500
10/98 299,390 258,441 306,521
11/98 301,785 278,080 327,197
12/98 341,983 313,952 361,083
1/99 345,300 329,536 371,908
2/99 338,394 303,940 353,720
3/99 434,058 325,607 373,420
4/99 456,195 338,963 390,435
5/99 473,074 337,552 385,412
6/99 535,000 364,759 412,319
7/99 530,827 359,767 399,191
8/99 561,774 357,945 395,042
9/99 555,145 368,394 391,679
10/99 695,041 400,964 421,963
11/99 815,700 451,259 465,661
12/99 1,018,402 545,390 546,293
1/00 1,046,917 536,026 546,182
2/00 1,423,493 670,359 661,006
3/00 1,292,817 623,177 661,685
4/00 1,170,516 540,968 597,454
5/00 1,052,645 492,337 553,903
6/00 1,201,700 568,843 612,677
7/00 1,173,099 545,247 573,879
8/00 1,388,480 616,555 660,427
9/00 1,377,234 586,921 628,140
10/00 1,166,792 539,463 585,150
11/00 873,461 426,655 457,993
12/00 961,331 457,408 482,109
1/01 881,925 463,620 509,649
2/01 688,607 394,076 421,494
3/01 589,930 352,264 361,172
4/01 686,029 398,709 421,375
5/01 654,129 401,997 419,393
6/01 634,178 400,428 419,614
7/01 570,887 379,366 391,316
8/01 498,556 353,948 362,953
9/01 397,199 302,898 302,968
10/01 435,847 319,762 334,814
11/01 480,957 346,026 370,860
12/01 486,825 361,034 384,958
1/02 470,126 347,226 372,458
2/02 422,691 329,962 351,343
3/02 457,859 350,761 378,158
4/02 433,821 339,101 358,137
5/02 405,709 327,786 347,451
6/02 367,045 298,335 309,107
7/02 330,414 266,160 279,076
8/02 325,128 262,987 278,104
9/02 313,423 246,647 256,009
10/02 326,023 259,085 275,839
11/02 350,637 274,472 297,429
12/02 309,052 258,247 279,459
1/03 305,250 254,417 276,716
2/03 302,625 250,489 274,309
3/03 303,805 254,073 279,417
4/03 326,652 271,896 298,442
5/03 362,975 294,377 327,158
6/03 363,266 298,986 331,824
7/03 382,591 310,778 343,682
8/03 417,445 326,063 362,609
9/03 401,040 315,122 355,578
10/03 440,302 339,841 384,234
11/03 443,516 347,922 394,516
12/03 432,960 349,706 398,822
1/04 450,235 358,542 411,991
2/04 441,141 363,487 418,902
3/04 451,110 363,400 418,102
4/04 445,246 351,872 406,298
5/04 466,351 359,534 415,886
6/04 483,932 368,183 422,505
7/04 442,943 342,024 394,524
8/04 429,167 336,100 389,660
9/04 454,059 350,478 404,208
10/04 464,003 360,835 417,918
11/04 495,045 380,891 439,501
12/04 516,728 398,778 460,556
1/05 501,949 385,893 448,228
2/05 517,911 390,875 459,578
3/05 498,386 383,086 452,864
4/05 470,576 364,634 434,944
5/05 503,422 386,263 459,855
6/05 516,159 395,103 468,405
7/05 544,290 417,847 495,736
8/05 543,691 416,539 492,708
9/05 562,358 423,811 499,088
Data quoted reflects past performance and cannot guarantee future results.
Average annual total returns assume reinvestment of dividends and capital gain
distributions. Investment return and principal value will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost. For
performance current to the most recent month end, please visit the Loomis
Sayles website. Current performance may be higher or lower than quoted.
Returns do not reflect the taxes that a shareholder would pay on fund
distributions or the redemption of shares. Performance data reflects certain
fee waivers and reimbursements. Without such waivers, performance would be
lower.
(a) Cumulative performance is shown for the Institutional Class of shares.
Performance of the Retail Class of shares would be lower due to higher fees.
(b) The mountain chart is based on the initial investment minimum of $250,000
for the Institutional Class. (c) See page 13 for a description of the indexes.
WHAT YOU SHOULD KNOW
Small- and mid-cap stocks may be more volatile than larger, more established
companies. The secondary market for these stocks may be less liquid, which
could adversely impact the Fund's value. Foreign investments involve special
risks, including greater economic, political and currency fluctuation risks,
which may be even greater in emerging markets. Foreign countries may have
different accounting standards than U.S. standards. Growth funds involve
increased risks, in part, because the value of the underlying securities is
based on future expectations that may or may not be met.
2
FUND AND MANAGER REVIEW
LOOMIS SAYLES SMALL CAP GROWTH FUND
[PHOTO]
JOHN SLAVIK
Manager since April 2005
[PHOTO]
Mark F. Burns
Manager since January 2005
MARK F. BURNS
Manager since January 2005
FUND FACTS
SYMBOL | Institutional: LSSIX;
Retail: LCGRX
OBJECTIVE | Long-term capital growth from investments in common stocks or
other equity securities
STRATEGY | Invests at least 80% of its net assets (plus any borrowings made
for investment purposes) in equity securities of companies with market
capitalizations that fall within the capitalization range of the Russell 2000
Index, an index that tracks stocks of the 2,000 smallest U.S. companies
FUND INCEPTION DATE | 12/31/96
COMMENCEMENT OF OPERATIONS OF CLASS | Institutional: 1/2/97;
Retail: 1/2/97
EXPENSE RATIO | Institutional: 1.00%;
Retail: 1.25%
TOTAL NET ASSETS | $19.4 million
PORTFOLIO REVIEW
Our stock selections were primarily responsible for the Fund's ability to
outperform its benchmark, the Russell 2000 Growth Index, for the fiscal year
ended September 30, 2005. The risk control measures implemented early in the
period also contributed to the Fund's strong return. In particular, we expanded
the number of securities in the portfolio to spread risk over a greater number
of stocks, and placed greater restraints on sector allocations. These measures
helped reduce the Fund's volatility while still delivering strong results.
The Fund realized its best performance from stocks in the healthcare and
technology sectors. Healthcare was a strong benchmark performer, and our
overweight of the sector contributed to performance. More importantly, our
stock selections boosted results. For example, Intuitive Surgical, a company
that makes robots for surgical procedures, experienced rapid margin expansion
and revenue growth of more than 50% and was sold at a healthy profit. Stock
selection also made the difference in the technology sector where our holdings
in the semiconductor industry generated notable results.
The Fund's producer durables holdings also generated strong performance.
Specifically, companies serving the energy and home building industries posted
stellar results.
Consumer staples was the only sector that had a negative impact on the Fund's
one-year return. The group's poor performance was due to a single holding,
Provide Commerce, an on-line flower merchant that experienced some advertising
cost issues which derailed its earnings profile. The stock is no longer held by
the Fund. Although the results generated by investments in the materials and
transportation sectors were positive on an absolute basis, they underperformed
somewhat relative to the benchmark.
OUTLOOK
As we enter the final months of 2005, we anticipate some initial economic
weakness to reflect itself in consumer sentiment, employment and GDP growth as
a result of the destruction from hurricanes Katrina and Rita. Although oil
prices have been volatile, they are likely to remain a concern and require
active monitoring for the next several months.
While recent changes at the head of the Federal Reserve Board add some
uncertainty, we believe the market will begin to anticipate the end of the rate
hike cycle. The market has been surprisingly resilient in the face of
aforementioned economic headwinds, especially given the initial shock of
back-to-back major hurricanes. Given this performance, our long-term outlook
for the market remains positive. As the market begins to discount the end of
the Fed tightening cycle, we believe the high end of our expected one-year
return range could be reached.
3
Although some funds have relied on aggressive sector allocation to generate
performance, we continue to focus on a bottom-up stock selection process. We
believe this process will be an increasingly important driver of performance as
the market will be willing to pay a premium for companies able to demonstrate
predictable and/or above-average growth and profitability.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2005
SINCE
1 YEAR 5 YEARS INCEPTION
---------------------------------------------
LOOMIS SAYLES SMALL CAP GROWTH: INSTITUTIONAL
23.66% -15.25% 2.53%
---------------------------------------------
LOOMIS SAYLES SMALL CAP GROWTH: RETAIL
23.46 -15.46 2.28
---------------------------------------------
LIPPER SMALL-CAP GROWTH FUNDS INDEX(c)
18.96 -2.66 6.52
---------------------------------------------
RUSSELL 2000 INDEX(c)
17.95 6.45 8.60
---------------------------------------------
RUSSELL 2000 GROWTH INDEX(c)
17.97 -2.54 3.91
---------------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2005(a)(b)
[CHART]
Lipper Russell
Loomis Sayles Small-Cap 2000 Russell
Small Cap Growth Funds Growth 2000
Growth Fund Index(c) Index(c) Index(c)
----------- ------------ -------- --------
12/96 $250,000 $250,000 $250,000 $250,000
1/97 256,500 255,797 256,245 254,996
2/97 237,493 237,326 240,769 248,813
3/97 212,747 220,207 223,779 237,073
4/97 208,747 216,928 221,191 237,734
5/97 242,752 247,023 254,436 264,182
6/97 257,001 260,237 263,063 275,503
7/97 277,741 275,899 276,542 288,323
8/97 282,491 280,282 284,841 294,920
9/97 313,734 303,870 307,571 316,506
10/97 291,741 288,334 289,097 302,603
11/97 288,503 281,817 282,204 300,645
12/97 298,572 278,064 282,363 305,908
1/98 288,809 273,937 278,596 301,080
2/98 320,202 296,085 303,193 323,343
3/98 334,707 309,478 315,911 336,678
4/98 330,222 311,729 317,848 338,541
5/98 302,516 289,667 294,756 320,308
6/98 332,042 298,156 297,767 320,982
7/98 299,336 275,720 272,902 294,997
8/98 231,806 215,500 209,905 237,715
9/98 259,228 227,024 231,187 256,318
10/98 269,520 235,975 243,245 266,771
11/98 303,264 255,166 262,115 280,748
12/98 354,424 280,746 285,834 298,121
1/99 364,702 287,535 298,691 302,083
2/99 341,763 259,868 271,368 277,616
3/99 367,873 271,613 281,033 281,950
4/99 371,295 282,219 305,852 307,215
5/99 364,426 283,757 306,336 311,702
6/99 419,017 310,316 322,473 325,797
7/99 406,614 309,220 312,501 316,858
8/99 418,487 304,885 300,814 305,131
9/99 441,420 315,937 306,616 305,198
10/99 498,098 334,359 314,470 306,434
11/99 550,847 376,545 347,721 324,731
12/99 679,800 452,471 409,007 361,491
1/00 667,428 447,759 405,201 355,685
2/00 908,703 578,948 499,476 414,422
3/00 788,481 533,505 446,973 387,099
4/00 725,166 467,554 401,845 363,805
5/00 627,051 429,327 366,657 342,602
6/00 701,420 504,937 414,022 372,467
7/00 629,454 472,086 378,540 360,483
8/00 734,950 522,857 418,358 387,989
9/00 711,506 496,964 397,574 376,585
10/00 641,849 459,679 365,301 359,775
11/00 476,188 381,396 298,975 322,843
12/00 556,378 415,131 317,270 350,570
1/01 531,174 427,780 342,949 368,822
2/01 413,519 373,014 295,939 344,622
3/01 352,235 336,786 269,033 327,764
4/01 416,835 373,146 301,970 353,405
5/01 405,331 383,257 308,964 362,092
6/01 415,180 392,921 317,390 374,595
7/01 356,598 371,018 290,313 354,318
8/01 316,374 349,053 272,183 342,874
9/01 247,816 294,576 228,265 296,719
10/01 276,439 316,162 250,225 314,083
11/01 297,476 340,661 271,112 338,398
12/01 309,256 361,298 287,991 359,285
1/02 294,380 350,373 277,746 355,548
2/02 257,612 329,170 259,769 345,804
3/02 273,610 356,082 282,348 373,597
4/02 263,514 346,687 276,239 377,002
5/02 250,891 332,779 260,087 360,270
6/02 229,290 308,052 238,032 342,394
7/02 196,731 264,364 201,449 290,682
8/02 194,488 263,980 201,355 289,942
9/02 178,209 247,970 186,811 269,120
10/02 189,722 258,551 196,260 277,749
11/02 200,668 280,207 215,716 302,536
12/02 180,742 261,487 200,840 285,691
1/03 174,850 254,582 195,384 277,784
2/03 172,612 246,649 190,173 269,391
3/03 170,920 251,735 193,052 272,859
4/03 188,884 272,540 211,323 298,731
5/03 209,926 300,331 235,137 330,789
6/03 214,145 310,509 239,668 336,775
7/03 229,028 328,666 257,786 357,847
8/03 247,282 346,094 271,633 374,254
9/03 241,100 337,594 264,757 367,346
10/03 261,039 368,222 287,629 398,194
11/03 269,731 378,027 297,006 412,325
12/03 259,077 378,566 298,334 420,691
1/04 277,601 396,277 314,007 438,968
2/04 266,663 394,788 313,521 442,903
3/04 265,543 392,059 314,986 447,031
4/04 254,045 372,901 299,175 424,239
5/04 262,175 380,679 305,126 430,991
6/04 272,557 391,533 315,278 449,142
7/04 247,563 356,991 286,979 418,900
8/04 236,893 345,426 280,801 416,747
9/04 251,486 365,160 296,328 436,311
10/04 254,856 375,398 303,528 444,900
11/04 269,459 401,685 329,184 483,490
12/04 283,498 419,415 341,015 497,801
1/05 278,735 403,540 325,652 477,031
2/05 283,780 411,512 330,122 485,111
3/05 275,636 397,685 317,739 471,224
4/05 261,330 375,467 297,517 444,237
5/05 279,859 400,351 318,494 473,313
6/05 293,040 414,342 328,792 491,569
7/05 312,117 439,625 351,774 522,713
8/05 307,903 432,032 346,817 513,021
9/05 311,048 434,380 349,566 514,631
Data quoted reflects past performance and cannot guarantee future results.
Average annual total returns assume reinvestment of dividends and capital gains
distributions. Investment return and principal value will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost. For
performance current to the most recent month end, please visit the Loomis
Sayles website. Current performance may be higher or lower than quoted.
Returns do not reflect the taxes that a shareholder would pay on fund
distributions or the redemption of shares. Performance data reflects certain
fee waivers and reimbursements. Without such waivers, performance would be
lower.
(a) Cumulative performance is shown for the Institutional Class of shares.
Performance of the Retail Class would be lower due to higher fees. (b) The
mountain chart is based on the initial investment minimum of $250,000 for the
Institutional Class. (c) See page 13 for a description of the indexes.
WHAT YOU SHOULD KNOW
Small- and mid-cap stocks may be more volatile than larger, more established
companies. The secondary market for these stocks may be less liquid, which
could adversely impact the Fund's value. Foreign investments involve special
risks, including greater economic, political and currency fluctuation risks,
which may be even greater in emerging markets. Foreign countries may have
different accounting standards than U.S. standards. Growth funds involve
increased risks, in part, because the value of the underlying securities is
based on future expectations that may or may not be met.
4
FUND AND MANAGER REVIEW
LOOMIS SAYLES SMALL CAP VALUE FUND
/s/ Joseph Katz
Manager since January 2000
[PHOTO]
Daniel Thelen
Manager since April 2000
Manager since April 2000
FUND FACTS
SYMBOL | Institutional: LSSCX;
Retail: LSCRX; Admin: LSVAX
OBJECTIVE | Long-term capital growth from investments in common stocks or
other equity securities
STRATEGY | Invests at least 80% of its net assets (plus any borrowings made
for investment purposes) in equity securities of companies with market
capitalizations that fall within the capitalization range of the Russell 2000
Index
FUND INCEPTION DATE | 5/13/91
COMMENCEMENT OF OPERATIONS OF CLASS | Institutional: 5/13/91;
Retail: 1/2/97; Admin; 1/2/98
EXPENSE RATIO | Institutional: 0.90%; Retail: 1.15%; Admin: 1.40%
TOTAL NET ASSETS | $706.6 million
PORTFOLIO REVIEW
The Fund's performance for the fiscal year ended September 30, 2005 was in line
with that of its benchmark, the Russell 2000 Value Index. Throughout the year
we positioned the Fund in a fairly conservative manner, focusing on
higher-quality companies with solid balance sheets, positive earnings
trends and healthy cash flows. We continued to seek misunderstood and
undiscovered small companies operating in niche environments--companies that
appeared to be attractively valued, with a catalyst for improvement.
Our overall sector weightings and our individual stock selections contributed
positively to the Fund's attractive one-year return. Most notably, the Fund
kept pace with the market in the energy sector, which was the
strongest-performing sector for the period. Sharply rising commodity
prices--fueled by a tightening of supply and continued strong demand--provided
a favorable backdrop for rapidly growing earnings and cash flow. In particular,
Energy Partners, an exploration and production company operating out of the
Gulf of Mexico, saw its stock price nearly double during the year due to rising
commodity prices and increased production volume. Cal Dive International, a
provider of construction and maintenance services to oil and gas exploration
companies, experienced excellent growth in its marine construction operations.
The company's oil and gas production subsidiary also saw improving trends on
higher commodity prices.
We increased the Fund's weighting in the materials and processing sector, as we
expected good results from select basic materials and construction-related
companies. Since the economy appears to be growing at a solid pace, certain
companies were able to pass along price increases to their customers. In
addition, favorable stock selections and a healthy weighting in basic materials
stocks contributed positively to performance.
We reduced the Fund's exposure to its weakest sector, healthcare, by
eliminating some underperforming stocks. In particular, stock selection in the
generic drug industry hurt performance. Perrigo, a manufacturer of store-brand
pharmaceutical and nutritional products, was a disappointment, as two primary
issues weighed on the stock. First, several retailers have moved
pseudo-ephedrine-based products off their shelves, putting them behind the
pharmacy counter, because of selective instances of consumer abuse of the
products. The Perrigo products are still available, but there may be a negative
impact on product sales. Second, the company recently completed a sizeable
acquisition in the generic pharmaceutical industry, which depressed the stock's
value due to generally weak trends in the over-the-counter generic drug
industry. Two other pharmaceutical stocks in the portfolio--Andrx Corporation
and Par Pharmaceutical Companies--declined on the negative sentiment in the
generic drug industry. Andrx was sold.
The Fund's automotive-related stocks were also weak as a result of price
increases for raw materials and uninspiring demand. In addition, a generally
weak retail environment put pressure on certain consumer-related holdings,
including Cost Plus Inc. With consumer spending facing strong headwinds from
higher fuel prices and a slowing housing/mortgage arena, we reduced the Fund's
weighting in the consumer discretionary sector.
5
OUTLOOK
We expect some post-hurricane weakness in the economy, particularly in the
areas of consumer sentiment, employment and GDP growth. High oil prices remain
a concern and will warrant continued monitoring throughout the next several
months. In response, we believe the Federal Reserve Board may end its cycle of
rate hikes earlier and at lower levels than previously expected. The market's
surprising resiliency--evidenced by its positive performance in the wake of
back-to-back hurricanes and the potential for a slowdown in economic
growth--leads us to believe that returns may reach the higher end of our
expected range for calendar 2005.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2005
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION(a)
--------------------------------------------
LOOMIS SAYLES SMALL CAP VALUE: INSTITUTIONAL
17.99% 12.79% 13.47% 15.17%
--------------------------------------------
LOOMIS SAYLES SMALL CAP VALUE: RETAIL(a)
17.69 12.52 13.21 14.99
--------------------------------------------
LOOMIS SAYLES SMALL CAP VALUE: ADMIN(a)
17.40 12.22 12.82 14.62
--------------------------------------------
LIPPER SMALL-CAP CORE FUNDS INDEX(b)(c)
17.89 7.90 10.91 N/A
--------------------------------------------
RUSSELL 2000 VALUE INDEX(c)
17.75 15.18 13.33 14.82
--------------------------------------------
RUSSELL 2000 INDEX(c)
17.95 6.45 9.37 11.50
--------------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2005(d)(e)
[CHART]
Loomis Sayles Lipper Small-
Small Cap Cap Core Russell 2000 Russell
Value Fund Funds Index(b)(c) Value Index(c) 2000 Index(c)
------------- ----------------- -------------- -------------
5/91 $ 250,000 $ 250,000 $ 250,000
5/91 255,500 261,728 261,916
6/91 246,506 249,473 246,653
7/91 266,005 255,952 255,308
8/91 286,248 263,720 264,758
9/91 286,506 264,026 266,831
10/91 292,264 267,028 273,889
11/91 285,016 256,192 261,221
12/91 326,201 $ 250,000 272,804 282,138
1/92 359,376 265,945 295,624 304,999
2/92 379,501 273,568 309,725 313,896
3/92 359,122 264,312 306,355 303,271
4/92 340,842 255,365 302,112 292,646
5/92 341,354 254,825 310,327 296,538
6/92 311,588 245,833 300,278 282,514
7/92 320,219 252,555 311,590 292,344
8/92 309,779 248,421 305,517 284,095
9/92 313,187 249,627 311,285 290,647
10/92 323,115 258,944 318,551 299,885
11/92 353,940 277,051 338,259 322,832
12/92 369,053 287,564 352,287 334,079
1/93 385,956 296,024 370,979 345,386
2/93 377,079 289,261 372,463 337,409
3/93 392,841 297,159 386,591 348,358
4/93 382,824 287,452 377,301 338,796
5/93 399,170 298,214 389,167 353,787
6/93 401,166 300,514 392,856 355,994
7/93 410,914 303,304 399,600 360,909
8/93 432,980 312,400 415,222 376,501
9/93 452,768 317,447 425,169 387,126
10/93 465,083 324,170 434,894 397,090
11/93 447,317 316,166 423,565 384,020
12/93 460,155 325,338 436,038 397,150
1/94 469,910 333,938 451,601 409,602
2/94 462,767 333,304 450,293 408,121
3/94 436,066 320,340 430,084 386,573
4/94 431,182 319,794 434,322 388,871
5/94 424,671 320,604 433,699 384,504
6/94 414,564 310,196 422,386 371,448
7/94 416,844 314,670 430,189 377,550
8/94 436,394 329,162 447,122 398,589
9/94 436,088 329,749 442,378 397,254
10/94 433,167 331,467 434,283 395,686
11/94 415,927 323,070 416,763 379,706
12/94 421,999 325,868 429,306 389,907
1/95 423,307 329,229 427,200 384,988
2/95 439,732 342,338 443,008 401,003
3/95 450,241 349,588 445,199 407,909
4/95 451,547 355,463 458,439 416,979
5/95 460,758 359,779 468,257 424,149
6/95 473,245 374,109 484,258 446,152
7/95 504,763 394,788 501,926 471,851
8/95 529,042 407,916 516,837 481,612
9/95 538,882 414,898 524,553 490,213
10/95 510,968 400,223 503,602 468,290
11/95 535,597 412,187 523,618 487,965
12/95 557,396 426,052 539,838 500,839
1/96 558,510 429,170 543,420 500,301
2/96 586,548 444,379 551,937 515,895
3/96 600,038 455,506 563,523 526,396
4/96 635,681 486,931 578,898 554,543
5/96 661,871 508,903 593,556 576,396
6/96 646,250 485,793 586,548 552,727
7/96 609,867 446,334 555,366 504,450
8/96 640,421 469,085 579,461 533,738
9/96 662,067 488,809 595,280 554,597
10/96 671,800 479,658 602,183 546,049
11/96 703,912 496,987 634,587 568,549
12/96 727,141 505,760 655,187 583,449
1/97 740,084 517,036 665,260 595,109
2/97 730,463 503,508 671,575 580,680
3/97 714,539 478,111 653,562 553,280
4/97 707,822 478,242 663,172 554,822
5/97 784,762 529,245 715,970 616,546
6/97 821,567 559,170 752,202 642,968
7/97 868,643 592,820 783,774 672,887
8/97 886,798 607,321 796,217 688,283
9/97 939,651 652,898 849,164 738,661
10/97 910,052 626,902 826,076 706,213
11/97 906,685 618,871 835,128 701,645
12/97 916,024 618,206 863,435 713,926
1/98 895,871 609,161 847,814 702,659
2/98 959,299 654,637 899,067 754,616
3/98 1,002,084 685,496 935,534 785,738
4/98 997,674 692,091 940,158 790,086
5/98 954,874 656,163 906,874 747,534
6/98 942,556 653,811 901,752 749,107
7/98 881,573 606,640 831,121 688,464
8/98 730,560 489,398 700,960 554,778
9/98 767,453 509,982 740,546 598,194
10/98 807,821 530,915 762,535 622,590
11/98 853,543 560,518 783,175 655,209
12/98 906,122 595,725 807,733 695,755
1/99 863,625 591,259 789,399 705,001
2/99 802,653 542,960 735,503 647,899
3/99 803,134 545,426 729,435 658,014
4/99 868,590 582,266 796,024 716,977
5/99 886,048 594,314 820,492 727,450
6/99 926,984 628,657 850,200 760,345
7/99 915,489 625,223 830,023 739,482
8/99 885,003 602,297 799,682 712,114
9/99 865,533 601,830 783,694 712,270
10/99 857,051 607,069 768,013 715,155
11/99 874,878 646,203 771,994 757,856
12/99 909,435 715,909 795,713 843,645
1/00 875,695 702,150 774,905 830,097
2/00 937,607 801,151 822,268 967,176
3/00 990,769 789,758 826,123 903,410
4/00 992,850 745,843 831,013 849,047
5/00 950,356 714,136 818,331 799,563
6/00 981,528 777,128 842,243 869,262
7/00 997,919 752,970 870,306 841,295
8/00 1,060,289 820,051 909,215 905,486
9/00 1,044,385 798,977 904,060 878,874
10/00 1,063,810 774,942 900,851 839,641
11/00 1,029,662 697,771 882,512 753,451
12/00 1,120,272 765,544 977,337 818,159
1/01 1,151,416 792,794 1,004,314 860,755
2/01 1,121,940 742,434 1,002,928 804,277
3/01 1,081,550 707,334 986,842 764,935
4/01 1,141,035 763,688 1,032,519 824,776
5/01 1,174,353 791,519 1,059,070 845,048
6/01 1,220,153 815,994 1,101,681 874,227
7/01 1,227,230 797,090 1,076,976 826,906
8/01 1,212,994 774,784 1,073,245 800,198
9/01 1,084,781 673,267 954,769 692,481
10/01 1,122,965 713,264 979,707 733,006
11/01 1,191,353 766,270 1,050,104 789,753
12/01 1,275,582 820,091 1,114,398 838,499
1/02 1,273,796 810,375 1,129,190 829,778
2/02 1,284,751 788,738 1,136,065 807,036
3/02 1,359,395 849,341 1,221,145 871,899
4/02 1,363,065 853,515 1,264,131 879,845
5/02 1,337,985 821,702 1,222,322 840,796
6/02 1,293,296 775,677 1,195,260 799,078
7/02 1,124,521 670,247 1,017,670 678,393
8/02 1,142,851 673,799 1,013,148 676,665
9/02 1,056,680 626,103 940,778 628,071
10/02 1,074,432 648,354 954,930 648,208
11/02 1,128,261 696,200 1,031,134 706,057
12/02 1,106,824 662,377 987,077 666,744
1/03 1,078,047 643,007 959,285 648,291
2/03 1,054,761 622,929 927,036 628,702
3/03 1,057,820 628,189 936,937 636,798
4/03 1,144,667 680,497 1,025,932 697,177
5/03 1,216,208 740,279 1,130,685 771,993
6/03 1,241,870 757,321 1,149,843 785,964
7/03 1,289,558 796,158 1,207,184 835,142
8/03 1,338,433 830,662 1,253,039 873,432
9/03 1,304,838 812,622 1,238,666 857,310
10/03 1,413,009 876,479 1,339,669 929,304
11/03 1,454,127 908,054 1,391,094 962,283
12/03 1,489,027 933,305 1,441,403 981,806
1/04 1,522,976 962,874 1,491,241 1,024,461
2/04 1,552,522 979,629 1,520,117 1,033,645
3/04 1,578,294 990,251 1,541,139 1,043,278
4/04 1,523,685 956,217 1,461,439 990,088
5/04 1,535,570 964,540 1,479,080 1,005,846
6/04 1,603,903 1,005,716 1,554,201 1,048,206
7/04 1,537,341 952,723 1,482,754 977,627
8/04 1,559,325 944,388 1,497,299 972,602
9/04 1,615,772 991,351 1,556,525 1,018,262
10/04 1,631,445 1,007,585 1,580,705 1,038,305
11/04 1,743,036 1,087,155 1,720,972 1,128,366
12/04 1,814,152 1,104,726 1,762,049 1,161,765
1/05 1,754,285 1,072,697 1,693,888 1,113,292
2/05 1,791,125 1,097,759 1,727,522 1,132,150
3/05 1,765,333 1,070,118 1,691,957 1,099,740
4/05 1,678,478 1,012,334 1,604,679 1,036,759
5/05 1,753,506 1,066,587 1,702,550 1,104,616
6/05 1,818,211 1,102,937 1,777,838 1,147,222
7/05 1,925,303 1,168,485 1,878,996 1,219,905
8/05 1,891,995 1,157,687 1,835,857 1,197,287
9/05 1,906,229 1,168,731 1,832,825 1,201,043
Data quoted reflects past performance and cannot guarantee future results.
Average annual total returns assume reinvestment of dividends and capital gains
distributions. Investment return and principal value will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost. For
performance current to the most recent month end, please visit the Loomis
Sayles website. Current performance may be higher or lower than quoted.
Returns do not reflect the taxes that a shareholder would pay on fund
distributions or the redemption of shares. Performance data reflects certain
fee waivers and reimbursements. Without such waivers, performance would be
lower.
(a) Performance shown for periods prior to the inception date of the Retail
Class (12/31/96) and Admin Class (1/02/98) represents the performance of the
Institutional Class of shares during the periods shown, adjusted to reflect the
current levels of management and 12b-1 fees payable by the respective Classes.
Since index performance data is not available coincident with the Fund's
inception date, the beginning value of the index is the value as of the month
end closest to the Fund's inception date. (b) The Lipper Small-Cap Core Funds
Index performance data is not available prior to January 1, 1992. (c) See page
13 for a description of the indexes. (d) Cumulative performance is shown for
the Institutional Class of shares. Performance of the Retail and Admin Classes
would be lower due to higher fees and expenses. (e) The mountain chart is based
on the initial investment minimum of $250,000 for the Institutional Class.
WHAT YOU SHOULD KNOW
Value stocks may fall out of favor with investors and underperform the overall
equity market during any given period. Small- and mid-cap stocks may be more
volatile than larger, more established companies. The secondary market for
these stocks may be less liquid, which could adversely impact the Fund's value.
Foreign investments involve special risks, including greater economic,
political and currency fluctuation risks, which may be even greater in emerging
markets. Foreign countries may have different accounting standards than U.S.
standards.
6
FUND AND MANAGER REVIEW
LOOMIS SAYLES TAX-MANAGED EQUITY FUND
[PHOTO]
DAVID SOWERBY
Manager since August 2005
[PHOTO]
Mark Shank
Manager since June 2003
FUND FACTS
SYMBOL | LSCGX
OBJECTIVE | Long-term capital growth
STRATEGY | Invests at least 80% of net assets (plus any borrowings made for
investment purposes) in equity securities and may invest in companies of any
size; the Fund uses a tax-managed approach in an effort to minimize the effect
of federal income tax
FUND INCEPTION DATE | 10/1/95
FUND REGISTRATION DATE | 3/7/97
EXPENSE RATIO | 0.65%
TOTAL NET ASSETS | $9.2 million
PORTFOLIO REVIEW
With the profit cycle moderating, our primary strategy during the fiscal year
focused on searching for companies with strong cash flows, which generally are
later-cycle plays. We found companies meeting this requirement within the
travel, lodging, semiconductor and software industries. We also reduced the
Fund's exposure to the consumer discretionary sector late in the period,
reflecting our concern that continued high energy prices might slow spending.
Relative weakness in the consumer discretionary, consumer staples, industrials
and healthcare sectors accounted for the Fund's underperformance relative to
its benchmark for the fiscal year ended September 30, 2005. Stock selection
relative to the Fund's benchmark, the Standard & Poor's 500 Index, was weak
early in the fiscal year, but our efforts improved throughout 2005,
particularly in the last quarter of the Fund's fiscal year.
In terms of sector performance, the energy and financials sectors had the
greatest positive influence on Fund performance. Oil prices continued to soar
throughout the period, and the Fund's energy stocks, including Devon Energy and
ConocoPhillips, generated strong gains. Devon Energy benefited from its
combination oil and gas business, valuation and long-term growth prospects that
made it one of the most compelling names in the energy sector. ConocoPhillips
benefited from the synergy of the Conoco and Phillips merger and subsequent
cost savings. The company also benefited from above-average earnings estimates
and positive revisions compared to its peers in the integrated oil industry.
In the financials sector, capital markets-related stocks, such as Franklin
Resources and Goldman Sachs Group, offered good results due to company-specific
earnings growth and a macroeconomic environment favorable for investment
banking and mutual fund flows.
The Fund's consumer discretionary sector lagged due to earnings shortfalls at
Harley-Davidson, Leggett & Platt, and Viacom. In technology, holdings in Cisco
Systems and Maxim Integrated Products failed to keep pace with the sector as a
whole. In addition, the Fund's below-market weighting in utilities, which we
trimmed due to our concerns about higher interest rates, had a negative impact
on the Fund's relative performance.
OUTLOOK
As we enter the final calendar quarter of 2005, we expect the fallout from
hurricanes Katrina and Rita to generate some initial economic weakness,
particularly in consumer sentiment, employment and a slowing of GDP growth.
Moreover, even though oil prices already have returned to pre-Katrina levels,
prices are likely to remain a concern and require active monitoring for the
next several months.
7
We believe the Federal Reserve Board may end its cycle of rate hikes earlier
and at lower levels than previously expected. Despite the effects of Katrina
and Rita and a potential slowdown in economic growth, the market has been
surprisingly resilient, bouncing back from the initial shock of back-to-back
hurricanes. Given this performance, our long term outlook for the market
remains positive. If the "rate hikes are nearly over" rally has already begun,
we believe the market's one-year return may reach the higher end of our
expected range.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2005
SINCE SINCE
1 YEAR 5 YEARS REGISTRATION(a)(b) INCEPTION(a)(b)
--------------------------------------------------------------
LOOMIS SAYLES TAX-MANAGED EQUITY: INSTITUTIONAL
8.74% 1.13% 9.01% 10.02%
--------------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS(c)
8.68 -0.56 5.61 7.03
--------------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES(c)
5.75 -0.05 5.98 7.17
--------------------------------------------------------------
LIPPER LARGE-CAP CORE FUNDS INDEX(c)
11.47 -2.75 5.94 8.08
--------------------------------------------------------------
S&P 500 INDEX(c)
12.25 -1.49 6.90 9.49
--------------------------------------------------------------
CUMULATIVE PERFORMANCE
REGISTRATION TO SEPTEMBER 30, 2005
[CHART]
Loomis Sayles Tax- Lipper Large-Cap
Managed Equity Fund Core Funds Index(b)(c) S&P 500 Index(b)(c)
------------------- ---------------------- ----------------
3/97 $10,000 $10,000 $10,000
3/97 9,576 9,572 9,589
4/97 10,000 10,102 10,162
5/97 10,416 10,715 10,780
6/97 10,587 11,180 11,263
7/97 11,403 12,063 12,159
8/97 10,890 11,449 11,478
9/97 11,273 12,039 12,107
10/97 10,907 11,667 11,703
11/97 10,956 12,048 12,244
12/97 10,825 12,267 12,455
1/98 11,001 12,388 12,592
2/98 11,813 13,266 13,501
3/98 12,405 13,923 14,192
4/98 12,652 14,064 14,335
5/98 12,290 13,823 14,088
6/98 12,670 14,480 14,660
7/98 12,767 14,363 14,504
8/98 10,904 12,213 12,407
9/98 11,999 12,820 13,202
10/98 12,502 13,782 14,276
11/98 13,102 14,602 15,141
12/98 14,529 15,571 16,014
1/99 15,010 16,116 16,683
2/99 14,506 15,618 16,165
3/99 15,327 16,246 16,812
4/99 15,773 16,682 17,463
5/99 15,538 16,239 17,050
6/99 16,558 17,145 17,997
7/99 16,476 16,642 17,435
8/99 16,276 16,473 17,348
9/99 15,794 16,026 16,873
10/99 16,006 17,008 17,941
11/99 16,112 17,425 18,305
12/99 17,225 18,584 19,383
1/00 16,710 17,833 18,410
2/00 17,597 17,827 18,061
3/00 19,318 19,377 19,828
4/00 19,318 18,744 19,231
5/00 19,585 18,267 18,837
6/00 19,301 18,936 19,301
7/00 18,928 18,641 19,000
8/00 20,418 19,926 20,180
9/00 19,797 18,865 19,114
10/00 19,780 18,647 19,033
11/00 19,283 17,007 17,533
12/00 20,222 17,215 17,619
1/01 19,377 17,702 18,244
2/01 18,922 16,055 16,580
3/01 18,314 15,069 15,530
4/01 18,964 16,215 16,737
5/01 19,116 16,306 16,849
6/01 18,399 15,873 16,439
7/01 18,204 15,643 16,277
8/01 17,467 14,722 15,258
9/01 16,642 13,604 14,026
10/01 16,924 13,925 14,293
11/01 17,531 14,837 15,390
12/01 17,859 15,005 15,525
1/02 17,704 14,769 15,298
2/02 17,638 14,521 15,003
3/02 18,478 15,015 15,567
4/02 18,169 14,230 14,623
5/02 18,080 14,127 14,516
6/02 17,109 13,151 13,482
7/02 15,961 12,174 12,431
8/02 15,896 12,274 12,512
9/02 14,969 11,082 11,153
10/02 15,521 11,943 12,134
11/02 15,986 12,476 12,848
12/02 15,549 11,819 12,094
1/03 15,061 11,509 11,777
2/03 14,972 11,356 11,600
3/03 15,017 11,452 11,713
4/03 15,971 12,296 12,677
5/03 16,747 12,892 13,345
6/03 16,768 13,019 13,516
7/03 17,057 13,224 13,754
8/03 17,390 13,480 14,022
9/03 16,990 13,306 13,873
10/03 17,744 13,957 14,658
11/03 17,900 14,074 14,787
12/03 18,722 14,751 15,563
1/04 19,199 14,959 15,848
2/04 19,585 15,136 16,068
3/04 19,471 14,899 15,826
4/04 19,199 14,667 15,578
5/04 19,289 14,816 15,791
6/04 19,765 15,081 16,098
7/04 18,949 14,547 15,566
8/04 18,835 14,557 15,629
9/04 19,267 14,724 15,798
10/04 19,313 14,923 16,039
11/04 20,130 15,489 16,688
12/04 20,541 15,973 17,256
1/05 20,428 15,612 16,835
2/05 20,724 15,904 17,190
3/05 20,336 15,612 16,885
4/05 19,767 15,265 16,565
5/05 20,291 15,759 17,092
6/05 20,199 15,813 17,116
7/05 20,997 16,375 17,753
8/05 20,724 16,225 17,591
9/05 20,946 16,413 17,733
INCEPTION TO SEPTEMBER 30, 2005
[CHART]
Loomis Sayles Tax- Lipper Large-Cap
Managed Equity Fund Core Funds Index(b)(c) S&P 500 Index(b)(c)
------------------- --------------------- -------------------
10/95 $10,000 $10,000 $10,000
10/95 9,800 9,954 9,964
11/95 10,040 10,342 10,402
12/95 10,042 10,499 10,602
1/96 10,032 10,808 10,963
2/96 10,213 10,939 11,065
3/96 10,213 11,039 11,171
4/96 10,443 11,199 11,336
5/96 10,604 11,423 11,628
6/96 10,534 11,439 11,672
7/96 9,953 10,972 11,157
8/96 10,283 11,221 11,392
9/96 10,824 11,803 12,033
10/96 11,085 12,038 12,365
11/96 11,886 12,818 13,300
12/96 11,609 12,582 13,036
1/97 12,337 13,270 13,851
2/97 12,236 13,254 13,959
3/97 11,883 12,686 13,386
4/97 12,409 13,389 14,185
5/97 12,925 14,201 15,048
6/97 13,137 14,817 15,723
7/97 14,150 15,988 16,974
8/97 13,513 15,174 16,023
9/97 13,989 15,955 16,900
10/97 13,534 15,463 16,336
11/97 13,595 15,968 17,092
12/97 13,432 16,259 17,386
1/98 13,651 16,419 17,578
2/98 14,658 17,583 18,846
3/98 15,393 18,452 19,811
4/98 15,699 18,639 20,010
5/98 15,250 18,321 19,666
6/98 15,721 19,191 20,465
7/98 15,842 19,036 20,247
8/98 13,531 16,187 17,320
9/98 14,890 16,992 18,429
10/98 15,513 18,266 19,928
11/98 16,258 19,353 21,136
12/98 18,029 20,638 22,354
1/99 18,625 21,359 23,289
2/99 18,000 20,700 22,565
3/99 19,018 21,532 23,468
4/99 19,572 22,109 24,377
5/99 19,280 21,523 23,801
6/99 20,547 22,724 25,122
7/99 20,444 22,057 24,338
8/99 20,197 21,832 24,217
9/99 19,599 21,240 23,553
10/99 19,862 22,542 25,044
11/99 19,993 23,095 25,553
12/99 21,374 24,631 27,058
1/00 20,735 23,635 25,698
2/00 21,836 23,627 25,212
3/00 23,972 25,682 27,678
4/00 23,972 24,843 26,846
5/00 24,302 24,210 26,295
6/00 23,950 25,096 26,943
7/00 23,488 24,705 26,522
8/00 25,336 26,410 28,169
9/00 24,566 25,003 26,682
10/00 24,544 24,714 26,569
11/00 23,928 22,540 24,475
12/00 25,093 22,816 24,594
1/01 24,044 23,462 25,467
2/01 23,479 21,279 23,145
3/01 22,726 19,972 21,679
4/01 23,532 21,490 23,363
5/01 23,721 21,611 23,520
6/01 22,831 21,037 22,947
7/01 22,589 20,732 22,721
8/01 21,674 19,512 21,299
9/01 20,651 18,031 19,579
10/01 21,000 18,455 19,952
11/01 21,754 19,665 21,483
12/01 22,161 19,888 21,671
1/02 21,968 19,574 21,355
2/02 21,887 19,246 20,943
3/02 22,929 19,901 21,731
4/02 22,546 18,860 20,413
5/02 22,435 18,723 20,263
6/02 21,230 17,430 18,820
7/02 19,806 16,135 17,353
8/02 19,725 16,267 17,466
9/02 18,575 14,688 15,568
10/02 19,260 15,829 16,938
11/02 19,836 16,535 17,935
12/02 19,295 15,665 16,882
1/03 18,689 15,253 16,439
2/03 18,578 15,051 16,193
3/03 18,634 15,178 16,350
4/03 19,817 16,296 17,697
5/03 20,781 17,086 18,629
6/03 20,808 17,255 18,867
7/03 21,165 17,527 19,199
8/03 21,578 17,866 19,574
9/03 21,082 17,635 19,366
10/03 22,018 18,498 20,462
11/03 22,212 18,653 20,642
12/03 23,231 19,550 21,724
1/04 23,824 19,826 22,123
2/04 24,302 20,060 22,430
3/04 24,161 19,746 22,092
4/04 23,823 19,439 21,745
5/04 23,935 19,637 22,044
6/04 24,526 19,988 22,472
7/04 23,513 19,281 21,728
8/04 23,372 19,293 21,816
9/04 23,908 19,514 22,053
10/04 23,965 19,778 22,390
11/04 24,979 20,529 23,295
12/04 25,488 21,171 24,088
1/05 25,348 20,692 23,501
2/05 25,716 21,078 23,996
3/05 25,235 20,692 23,571
4/05 24,528 20,231 23,124
5/05 25,178 20,886 23,859
6/05 25,065 20,958 23,893
7/05 26,055 21,703 24,782
8/05 25,716 21,504 24,556
9/05 25,991 21,753 24,755
Data quoted reflects past performance and cannot guarantee future results.
Average annual total returns assume reinvestment of dividends and capital gains
distributions. Investment return and principal value will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost. For
performance current to the most recent month end, please visit the Loomis
Sayles website. Current performance may be higher or lower than quoted.
Performance data reflects certain fee waivers and reimbursements, without
which, performance and rankings would be lower. Except as indicated in the
table above, returns do not reflect the taxes that a shareholder would pay on
fund distributions or the redemption of shares.
After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. After-tax returns shown are not relevant to
investors who hold their shares through tax-deferred arrangements, such as
401(k) plans, qualified plans, education savings accounts or individual
retirement accounts. Under certain circumstances, the addition of the tax
benefits from capital losses resulting from redemptions may cause the Return
After Taxes on Distributions and Sale of Fund Shares to be greater than the
Return After Taxes on Distributions or even the Return Before Taxes.
(a) Shares of the Fund were registered for offer under the Securities Act of
1933 on March 7, 1997. In accordance with regulations, performance information
is provided for the period beginning on March 7, 1997 ("Registration").
Performance from inception is also provided for the convenience of our
shareholders. (b) Index performance is not available coincident with the Fund's
inception and registration dates; comparative performance is presented from the
month end closest to the Fund's inception and registration dates. (c) See page
13 for a description of the indexes and disclosure related to after-tax returns.
WHAT YOU SHOULD KNOW
Growth funds involve increased risks, in part, because the value of the
underlying securities is based on future expectations that may or may not be
met.
8
FUND AND MANAGER REVIEW
LOOMIS SAYLES VALUE FUND
[PHOTO]
ARTHUR BARRY
Manager since July 2005
[PHOTO]
James Carroll
Manager since November 2002
/s/ Warren Koontz
Manager since June 2000
FUND FACTS
SYMBOL | LSGIX
OBJECTIVE | Long-term growth of capital and income
STRATEGY | Invests primarily in equity securities, including common stocks,
convertible securities, and warrants; Fund invests primarily in medium- and
large-sized companies
FUND INCEPTION DATE | 5/13/91
EXPENSE RATIO | 0.85%
TOTAL NET ASSETS | $37.3 million
PORTFOLIO REVIEW
Our stock selection efforts led to superior performance for the Fund compared
to its benchmark, the Russell 1000 Value Index, for the fiscal year ended
September 30, 2005. We continued to employ a disciplined, bottom-up stock
selection process designed to identify stocks trading at significant discounts
to their intrinsic value. We believe this strategy may result in attractive
long-term investment returns because, over time, stock prices are likely to
gravitate toward the value of the underlying business.
The Fund's energy sector was a significant contributor to performance. Energy
stocks outperformed for most of the period, primarily due to rising commodity
prices and robust earnings. Investors anticipate higher energy prices for the
long term, and this sentiment drove stronger earnings forecasts for producers
and refiners. Meanwhile, oil and gas producers increasingly have advanced their
investment plans, leading to strong pricing power and earnings leverage for
oil-service companies. Hurricanes Katrina and Rita provided additional
near-term uncertainty to natural gas and refined product supplies. Halliburton,
in particular, benefited from these fundamentals and from the catch-up
revaluation following the conclusion of its asbestos-related woes and perceived
political connections.
Our stock picks in the technology sector also were positive influences on
performance. In particular, Apple Computer's stock price rose significantly on
rapidly growing earnings, primarily due to accelerating iPod sales and to
strong sales of its Macintosh line of computers. In addition, the company's
operating margin increased dramatically. Strong contributions from Motorola,
Hewlett-Packard and Sungard Data Systems rounded out the technology sector's
performance. We sold both Apple Computer and Sungard Data Systems at a profit.
The Fund's financials sector also contributed positively to performance.
Throughout the fiscal year we favored non-bank financial stocks, owning
sizeable positions in securities brokerage firms such as Lehman Brothers
Holdings and Merrill Lynch, among others. Although bank stocks have stumbled on
interest rate concerns, brokerage firms have generated outstanding results and
upward earnings revisions due to the still-low environment for interest rates,
rebounding equity issuance, and merger-and-acquisition activity. These factors
have translated into strong stock performance for the Fund at a time when the
broader financial sector has struggled.
Telecommunications was the only Fund sector that did not contribute positively
to performance, lagging the Standard & Poor's 500 telecom sector for the
12-month period. Stock selection was the primary cause of the Fund's weakness
in this sector.
OUTLOOK
Due to the fallout from hurricanes Katrina and Rita, we believe the economy may
weaken slightly in the fourth calendar quarter of 2005, particularly in the
areas of
9
consumer sentiment and employment. As a result, GDP growth may slow somewhat.
Although oil prices already have returned to their pre-hurricane levels, we
expect the price of oil to remain a concern and to merit close scrutiny for the
next several months. We believe the Federal Reserve Board may end its cycle of
rate hikes earlier and at lower levels than previously expected. The market's
resilience in the wake of two major hurricanes and a potential slowdown in
economic growth has been surprising. While the markets will continue to analyze
interest rate hikes, energy prices and inflation, eventually the market will
follow the underlying earnings growth of Corporate America. Fortunately, the
earnings growth continues to be solid which leads us to be positively inclined
for the stock market.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2005
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION(a)
-------------------------------------
LOOMIS SAYLES VALUE: INSTITUTIONAL
19.19% 5.96% 9.07% 10.48%
-------------------------------------
LIPPER LARGE-CAP VALUE FUNDS INDEX(b)
13.50 1.96 9.15 10.59
-------------------------------------
RUSSELL 1000 VALUE INDEX(b)(d)
16.69 5.76 11.52 12.62
-------------------------------------
S&P 500 INDEX(b)
12.25 -1.49 9.49 10.79
-------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2005(c)
[CHART]
Lipper Large-Cap Russell 1000
Loomis Sayles Value Funds Value S&P 500
Value Fund Index(a)(b) Index(a)(b)(d) Index(a)(b)
------------- ----------------- -------------- ---------------
5/91 $ 250,000 $ 250,000 $ 250,000 $ 250,000
5/91 263,750 260,446 259,303 260,785
6/91 248,743 247,339 248,376 248,838
7/91 257,001 258,858 258,755 260,436
8/91 263,246 265,201 263,428 262,978
9/91 256,244 263,184 261,453 262,144
10/91 257,243 268,159 265,798 265,669
11/91 240,496 256,911 252,150 254,964
12/91 267,889 284,716 273,280 284,123
1/92 276,542 282,621 273,741 278,829
2/92 282,377 287,719 280,455 282,440
3/92 275,769 281,277 276,374 276,947
4/92 282,112 286,450 288,310 285,078
5/92 282,620 288,668 289,714 286,476
6/92 276,515 282,325 287,937 282,214
7/92 287,686 293,299 298,425 293,743
8/92 279,286 287,289 289,253 287,731
9/92 281,325 290,677 293,246 291,112
10/92 283,857 292,636 293,510 292,118
11/92 299,611 304,674 303,142 302,065
12/92 305,603 309,352 310,405 305,772
1/93 312,479 312,900 319,401 308,328
2/93 315,385 315,955 330,547 312,530
3/93 321,220 325,136 340,311 319,125
4/93 312,739 319,076 335,944 311,411
5/93 319,620 327,700 342,702 319,741
6/93 319,364 329,180 350,294 320,678
7/93 316,969 328,208 354,156 319,388
8/93 329,679 341,482 366,948 331,507
9/93 327,833 342,711 367,562 328,964
10/93 334,980 348,613 367,255 335,769
11/93 330,223 343,067 359,619 332,569
12/93 341,880 350,389 366,487 336,590
1/94 355,008 361,813 380,266 348,033
2/94 351,458 353,113 367,299 338,586
3/94 336,943 338,450 353,607 323,825
4/94 343,783 342,660 360,387 327,978
5/94 347,599 347,605 364,556 333,360
6/94 336,928 339,230 355,823 325,189
7/94 348,686 349,126 366,904 335,867
8/94 364,028 363,280 377,457 349,637
9/94 351,433 353,816 364,951 341,087
10/94 350,871 359,615 370,041 348,750
11/94 334,450 347,102 355,121 336,049
12/94 338,831 351,034 359,246 341,034
1/95 346,015 357,357 370,305 349,878
2/95 364,976 370,646 384,961 363,513
3/95 374,758 379,335 393,431 374,240
4/95 388,811 390,363 405,872 385,260
5/95 405,452 404,834 422,920 400,658
6/95 408,331 413,616 428,649 409,964
7/95 424,133 426,690 443,572 423,560
8/95 426,423 429,282 449,840 424,625
9/95 439,898 444,703 466,108 442,545
10/95 428,989 441,145 461,480 440,963
11/95 448,508 460,256 484,852 460,320
12/95 458,196 467,728 497,039 469,187
1/96 471,713 482,113 512,525 485,156
2/96 475,816 487,530 516,401 489,655
3/96 480,860 492,803 525,181 494,368
4/96 480,860 499,503 527,199 501,656
5/96 489,996 508,756 533,791 514,594
6/96 490,927 509,051 534,228 516,557
7/96 473,009 489,082 514,039 493,735
8/96 484,313 501,793 528,740 504,150
9/96 508,432 526,381 549,757 532,526
10/96 522,312 537,498 571,013 547,214
11/96 558,770 576,000 612,420 588,576
12/96 555,194 566,255 604,606 576,914
1/97 584,397 594,832 633,916 612,957
2/97 588,312 599,601 643,229 617,761
3/97 568,369 576,688 620,102 592,378
4/97 588,318 602,345 646,154 627,742
5/97 623,912 637,054 682,250 665,961
6/97 654,546 663,641 711,518 695,797
7/97 711,687 713,656 765,048 751,160
8/97 689,198 683,123 737,791 709,079
9/97 724,347 718,085 782,384 747,913
10/97 697,546 696,421 760,522 722,934
11/97 718,194 719,260 794,148 756,401
12/97 717,404 727,491 817,330 769,391
1/98 719,054 728,533 805,765 777,901
2/98 766,655 776,460 860,010 834,007
3/98 789,808 810,968 912,612 876,716
4/98 796,285 819,212 918,715 885,536
5/98 782,429 805,276 905,093 870,316
6/98 781,177 820,337 916,692 905,667
7/98 746,181 806,111 900,514 896,023
8/98 641,268 696,099 766,502 766,478
9/98 685,194 729,554 810,497 815,580
10/98 743,367 787,979 873,278 881,920
11/98 769,014 828,198 913,964 935,371
12/98 792,930 860,189 945,071 989,272
1/99 791,106 874,489 952,618 1,030,640
2/99 767,769 854,461 939,172 998,609
3/99 795,715 880,403 958,608 1,038,562
4/99 852,927 932,283 1,048,142 1,078,780
5/99 847,895 916,368 1,036,621 1,053,306
6/99 869,432 956,763 1,066,718 1,111,763
7/99 837,350 929,600 1,035,488 1,077,048
8/99 802,097 912,659 997,057 1,071,719
9/99 757,260 878,903 962,214 1,042,339
10/99 785,657 921,229 1,017,596 1,108,299
11/99 780,707 924,442 1,009,638 1,130,829
12/99 782,425 952,911 1,014,512 1,197,430
1/00 748,703 912,630 981,416 1,137,268
2/00 688,507 874,249 908,501 1,115,741
3/00 758,046 954,304 1,019,350 1,224,892
4/00 754,938 943,680 1,007,488 1,188,040
5/00 767,923 944,384 1,018,110 1,163,665
6/00 749,800 933,958 971,579 1,192,353
7/00 746,651 929,738 983,746 1,173,717
8/00 796,975 983,551 1,038,484 1,246,616
9/00 784,542 968,022 1,047,993 1,180,803
10/00 814,120 975,755 1,073,736 1,175,811
11/00 796,453 933,933 1,033,880 1,083,111
12/00 839,939 971,538 1,085,678 1,088,412
1/01 850,943 979,621 1,089,853 1,127,028
2/01 827,882 932,405 1,059,547 1,024,263
3/01 796,919 896,167 1,022,106 959,376
4/01 835,251 946,942 1,072,232 1,033,930
5/01 848,866 962,182 1,096,318 1,040,857
6/01 834,180 936,035 1,072,003 1,015,524
7/01 827,340 929,657 1,069,724 1,005,527
8/01 796,398 886,115 1,026,875 942,579
9/01 729,261 816,964 954,603 866,463
10/01 734,512 822,288 946,387 882,986
11/01 775,204 875,034 1,001,406 950,716
12/01 792,491 888,223 1,024,992 959,045
1/02 785,438 871,835 1,017,095 945,049
2/02 781,668 867,010 1,018,728 926,824
3/02 808,166 905,288 1,066,924 961,681
4/02 788,205 866,699 1,030,333 903,376
5/02 793,643 867,866 1,035,498 896,721
6/02 735,787 807,346 976,043 832,848
7/02 674,128 737,605 885,311 767,941
8/02 682,217 742,570 891,996 772,965
9/02 603,830 656,741 792,816 688,960
10/02 647,065 704,932 851,553 749,600
11/02 687,053 749,126 905,198 793,721
12/02 660,189 713,451 865,881 747,091
1/03 644,939 696,464 844,919 727,520
2/03 619,851 679,041 822,394 716,604
3/03 616,566 678,604 823,759 723,562
4/03 666,693 735,895 896,270 783,162
5/03 715,694 781,191 954,124 824,425
6/03 728,219 790,129 966,055 834,942
7/03 732,006 801,134 980,439 849,663
8/03 746,719 814,674 995,717 866,233
9/03 736,340 805,523 986,002 857,034
10/03 772,862 849,965 1,046,344 905,517
11/03 788,088 860,420 1,060,539 913,484
12/03 833,324 913,198 1,125,909 961,391
1/04 844,324 927,032 1,145,709 979,037
2/04 863,068 946,582 1,170,263 992,645
3/04 860,306 935,257 1,160,020 977,670
4/04 844,304 918,021 1,131,669 962,322
5/04 857,560 924,729 1,143,211 975,528
6/04 874,111 945,085 1,170,222 994,497
7/04 861,436 922,336 1,153,740 961,582
8/04 864,710 929,020 1,170,147 965,472
9/04 879,401 939,998 1,188,285 975,928
10/04 888,811 950,011 1,208,038 990,838
11/04 936,184 991,259 1,269,115 1,030,929
12/04 959,682 1,022,738 1,311,614 1,066,010
1/05 949,030 1,002,905 1,288,331 1,040,026
2/05 977,596 1,031,047 1,331,029 1,061,913
3/05 965,865 1,014,289 1,312,765 1,043,108
4/05 948,479 994,211 1,289,253 1,023,325
5/05 971,432 1,017,462 1,320,289 1,055,886
6/05 988,821 1,027,780 1,334,744 1,057,385
7/05 1,033,021 1,061,273 1,373,362 1,096,707
8/05 1,032,505 1,056,680 1,367,389 1,086,701
9/05 1,048,160 1,066,871 1,386,587 1,095,502
Data quoted reflects past performance and cannot guarantee future results.
Average annual total returns assume reinvestment of dividends and capital gains
distributions. Investment return and principal value will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost. For
performance current to the most recent month end, please visit the Loomis
Sayles website. Current performance may be higher or lower than quoted.
Returns do not reflect the taxes that a shareholder would pay on fund
distributions or the redemption of shares. Performance data reflects certain
fee waivers and reimbursements. Without such waivers, performance would be
lower.
(a) Index performance data is not available coincident with the Fund's
inception date; comparative performance is presented from the month end closest
to the Fund's inception date. (b) See page 13 for a description of the indexes.
(c) The mountain chart is based on the Fund's minimum initial investment of
$250,000. (d) The Russell 1000 Value Index replaces the S&P 500 Index as the
Fund's comparative index because Loomis Sayles believes it is more
representative of the types of stocks in which the Fund can invest.
WHAT YOU SHOULD KNOW
Value stocks may fall out of favor with investors and underperform the overall
equity market during any given period. Foreign investments involve special
risks, including greater economic, political and currency fluctuation risks,
which may be even greater in emerging markets. Foreign countries may have
different accounting standards than U.S. standards.
10
FUND AND MANAGER REVIEW
LOOMIS SAYLES WORLDWIDE FUND
[PHOTO]
Daniel Fuss
Manager Since May 1996
DANIEL FUSS
Manager Since May 1996
[PHOTO]
Mark B. Baribeau
Manager Since October 2004
MARK B. BARIBEAU
Manager Since October 2004
[PHOTO]
David Rolley
Manager Since September 2000
DAVID ROLLEY
Manager Since September 2000
/s/ Warren Koontz
WARREN KOONTZ
Manager Since October 2004
FUND FACTS
SYMBOL | LSWWX
OBJECTIVE | High total investment return through a combination of capital
appreciation and current income
STRATEGY | Invests primarily in equity and fixed-income securities of U.S. and
foreign issuers, including securities of issuers located in emerging
securities markets
FUND INCEPTION DATE | 5/1/96
EXPENSE RATIO | 1.00%
TOTAL NET ASSETS | $47.7 million
PORTFOLIO REVIEW
Favorable stock selection in the equity portfolio and currency gains in the
bond portfolio helped the Fund significantly outperform its benchmark, the
Standard & Poor's 500 Index, for the fiscal year ended September 30, 2005.
Financials, information technology and energy were the best-performing equity
sectors for the year. Energy stocks generated strong returns, primarily due to
rising commodity prices and robust earnings results. The market has anticipated
higher energy prices for the long term, and this has led to more robust
earnings forecasts for producers and refiners. Meanwhile, oil and gas producers
have increasingly advanced their investment plans, leading to strong pricing
power and earnings leverage for oil-service firms. Hurricanes Katrina and Rita
provided additional near-term uncertainty to natural gas and refined product
supplies.
In the finance sector, bank stocks stumbled on interest rate hikes, but
relatively low interest rates, and rebounding equity issuance and
merger-and-acquisition activity generated outstanding results and upward
earnings revisions for select brokerage companies. These results translated
into strong performance for the Fund's stock portfolio at a time when the
broader financial sector generally has struggled. The information technology
sector also performed well, driven by strong contributions from holdings in
Apple Computer and Google.
Our currency strategy has been to take advantage of a weaker US dollar, which
benefited performance until the end of calendar 2004, but generally reduced
returns in the first three quarters of 2005. Important exceptions to this
general pattern included the currencies of Canada, Mexico, Brazil and Colombia,
which were among the strongest currencies in the world versus the US dollar
during calendar 2005 to date. Throughout the period, more than half the
holdings in the global bond portfolio were denominated in non-US-dollar
currencies.
Within the global bond portfolio, most currency positions were positive, led by
double-digit gains in local Latin American currencies. Broadly speaking,
emerging market debt was the portfolio's most-profitable segment. The
portfolio's Asian positions were the most disappointing, as our expectations
for a more aggressive revaluation of the Chinese yuan and other Asian
currencies fell short. The notable losers included the Fund's securities
denominated in the Japanese yen, Korean won, and Thai baht.
Within local markets, we maintained a defensive duration strategy, which was
modestly negative overall for the year. Long-duration issues typically
outperformed, but we were somewhat underweighted in them because of our bearish
view on global bond yields. We also maintained a defensive quality strategy,
which worked against us during the fiscal year because lower-quality,
higher-yielding bonds were in greater demand during the period.
OUTLOOK
The US economic outlook has slowed somewhat in the wake of hurricanes Katrina
and Rita. Higher oil and gas prices may drive inflation higher and consumer
spending lower. In Asia, we expect a modest slowdown in Chinese growth in
11
reaction to policy tightening and oil price effects. By contrast, we believe
Japanese GDP growth may improve, possibly outpacing the positive euro-zone
growth in 2006. The net result for the world economy may be a weaker outlook
for real growth in 2006, accompanied by higher headline inflation as the world
absorbs the 2003-2005 doubling in oil prices.
We expect a modest increase in benchmark bond yields in the US and Japan. The
US Federal Reserve Board's rhetoric remains relentless, and we anticipate
further rate hikes. The result may be additional increases in Treasury yields,
despite a slower pace of US GDP growth. In Japan, positive economic sentiment
has pushed yields higher, and we believe this should continue into 2006.
Foreign exchange markets have concluded that the currency loser from higher oil
prices is the yen, and the winner is the Canadian dollar. If US growth is
perceived as slowing in 2006, we might see a reversal of these trends.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2005
SINCE
1 YEAR 5 YEARS INCEPTION(a)
-----------------------------------------------
LOOMIS SAYLES WORLDWIDE FUND
19.11% 7.33% 11.07%
-----------------------------------------------
LIPPER GLOBAL FLEXIBLE PORTFOLIO FUNDS INDEX(b)
15.58 3.64 7.37
-----------------------------------------------
S&P 500 INDEX(b)
12.25 -1.49 8.65
-----------------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2005(c)
[CHART]
Loomis Sayles Lipper Global Flexible
Worldwide Fund Portfolio Funds Index(a)(b) S&P 500 Index(a)(b)
-------------- --------------------------- -------------------
5/96 $250,000 $250,000 $250,000
5/96 250,750 251,586 256,447
6/96 242,325 252,629 257,426
7/96 248,262 246,466 246,053
8/96 256,181 250,102 251,243
9/96 261,126 257,121 265,384
10/96 273,764 260,291 272,704
11/96 270,643 271,371 293,316
12/96 270,643 271,756 287,504
1/97 271,157 276,787 305,466
2/97 270,642 278,385 307,860
3/97 273,186 273,834 295,211
4/97 281,081 276,512 312,835
5/97 284,398 288,138 331,881
6/97 299,613 296,211 346,750
7/97 292,423 308,392 374,340
8/97 303,973 299,543 353,369
9/97 286,495 312,306 372,722
10/97 286,753 301,232 360,274
11/97 280,129 302,170 376,952
12/97 288,645 304,762 383,426
1/98 306,252 305,506 387,666
2/98 309,100 319,280 415,627
3/98 305,113 329,994 436,911
4/98 292,054 332,904 441,306
5/98 279,846 330,053 433,721
6/98 279,846 329,795 451,338
7/98 250,014 326,570 446,532
8/98 249,739 290,436 381,974
9/98 267,646 295,085 406,443
10/98 283,544 310,493 439,504
11/98 288,478 324,396 466,142
12/98 292,516 332,163 493,003
1/99 286,929 336,107 513,619
2/99 295,939 327,933 497,656
3/99 308,368 338,611 517,566
4/99 309,910 356,802 537,609
5/99 317,038 351,118 524,914
6/99 322,935 364,134 554,046
7/99 321,708 363,883 536,746
8/99 319,231 362,603 534,090
9/99 331,649 360,621 519,449
10/99 383,585 367,933 552,320
11/99 463,064 380,851 563,548
12/99 447,273 406,460 596,738
1/00 511,054 398,155 566,757
2/00 503,337 420,307 556,028
3/00 480,486 418,265 610,424
4/00 468,378 404,266 592,059
5/00 483,506 397,916 579,912
6/00 467,744 412,180 594,208
7/00 480,841 407,090 584,921
8/00 467,762 420,974 621,250
9/00 445,590 408,554 588,452
10/00 423,088 400,636 585,964
11/00 442,465 385,157 539,767
12/00 446,226 400,748 542,409
1/01 434,981 405,929 561,653
2/01 414,842 385,458 510,441
3/01 421,852 366,444 478,104
4/01 428,433 385,129 515,258
5/01 425,134 382,183 518,710
6/01 420,458 376,598 506,085
7/01 418,103 371,266 501,103
8/01 398,871 362,098 469,733
9/01 406,848 338,224 431,801
10/01 413,398 346,217 440,035
11/01 414,928 358,725 473,789
12/01 408,787 359,167 477,939
1/02 409,809 356,843 470,965
2/02 417,513 353,916 461,882
3/02 419,559 363,747 479,253
4/02 426,733 358,846 450,197
5/02 417,004 363,067 446,880
6/02 397,530 349,394 415,049
7/02 402,141 328,712 382,703
8/02 385,734 330,347 385,207
9/02 395,454 310,026 343,343
10/02 411,866 323,079 373,562
11/02 413,801 336,044 395,550
12/02 417,526 327,497 372,312
1/03 421,784 322,306 362,559
2/03 422,839 318,934 357,119
3/03 444,023 318,595 360,586
4/03 467,334 337,122 390,288
5/03 471,026 355,162 410,851
6/03 465,186 359,456 416,092
7/03 474,722 362,263 423,429
8/03 493,806 369,911 431,687
9/03 512,373 375,567 427,102
10/03 517,138 389,936 451,263
11/03 542,788 396,191 455,234
12/03 551,038 409,462 479,108
1/04 557,651 418,719 487,902
2/04 563,116 424,606 494,684
3/04 542,280 426,515 487,221
4/04 540,654 414,215 479,572
5/04 552,169 416,130 486,154
6/04 540,077 421,928 495,607
7/04 547,746 411,174 479,204
8/04 559,249 412,788 481,142
9/04 574,628 422,703 486,353
10/04 602,095 430,456 493,783
11/04 619,496 450,385 513,762
12/04 611,071 463,206 531,245
1/05 627,386 454,984 518,296
2/05 610,510 465,661 529,203
3/05 600,925 456,995 519,832
4/05 620,034 452,210 509,973
5/05 630,699 460,876 526,200
6/05 654,917 465,901 526,947
7/05 658,847 477,010 546,543
8/05 672,165 479,751 541,556
9/05 672,165 488,573 545,943
Data quoted reflects past performance and cannot guarantee future results.
Average annual total returns assume reinvestment of dividends and capital gains
distributions. Investment return and principal value will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost. For
performance current to the most recent month end, please visit the Loomis
Sayles website. Current performance may be higher or lower than quoted.
Returns do not reflect the taxes that a shareholder would pay on fund
distributions or the redemption of shares. Performance data reflects certain
fee waivers and reimbursements. Without such waivers, performance would be
lower.
(a) Index performance data is not available coincident with the Fund's
inception date; comparative performance is presented from the month end closest
to the Fund's inception date. (b) See page 13 for a description of the indexes.
(c) The mountain chart is based on the Fund's minimum initial investment of
$250,000.
WHAT YOU SHOULD KNOW
Foreign investments involve special risks, including greater economic,
political and currency fluctuation risks, which may be even greater in emerging
markets. Foreign countries may have different accounting standards than U.S.
standards.
12
ADDITIONAL INFORMATION
INDEX DEFINITIONS
Indexes are unmanaged and do not have expenses that affect results, unlike
mutual funds. Index returns are adjusted for the reinvestment of capital gain
distributions and income dividends. It is not possible to invest directly in an
index.
Lipper Mid-Cap Growth Funds Index is an equally weighted index of typically the
30 largest mutual funds within the mid-cap growth funds investment objective.
Lipper Large-Cap Core Funds Index is an equally weighted index of typically the
30 largest mutual funds within the large-cap core funds investment objective.
Lipper Small-Cap Core Funds Index is an equally weighted index of typically the
30 largest mutual funds within the small-cap core funds investment objective.
Lipper Small-Cap Growth Funds Index is an equally weighted index of typically
the 30 largest mutual funds within the small-cap growth funds
investment objective.
Lipper Large-Cap Value Funds Index is an equally weighted index of typically
the 30 largest mutual funds within the large-cap value funds
investment objective.
Lipper Global Flexible Portfolio Funds Index is an equally weighted index of
typically the 30 largest mutual funds within the global flexible portfolio
funds investment objective.
Source: Lipper, Inc.
Russell Midcap Growth Index is an index that measures the performance of those
Russell Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth Index.
Russell 1000 Value Index is an index comprised of those Russell 1000 companies
with lower price-to-book ratios and lower forecasted growth values.
Russell 2000 Growth Index is an index comprised of those Russell 2000 companies
with higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Index is an index comprised of the 2,000 smallest companies in the
Russell 3000 Index (a broad market index), representing approximately 8% of the
Russell 3000 total market capitalization.
Russell 2000 Value Index is an index comprised of those Russell 2000 companies
with lower price-to-book ratios and lower forecasted growth values.
S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and
industry group representation. It is a market-value weighted index (stock price
times number of shares outstanding), with each stock's weight in the index
proportionate to its market value.
AFTER-TAX RETURNS
After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. After-tax returns shown are not relevant to
investors who hold their shares through tax-deferred arrangements, such as
401(k) plans, qualified plans, education savings accounts or individual
retirement accounts. Under certain circumstances, the addition of the tax
benefits from capital losses resulting from redemptions may cause the return
after taxes on distributions and sale of fund shares to be greater than the
return after taxes on distribution or even the return before taxes.
PROXY VOTING INFORMATION
A description of the Funds' proxy voting policies and procedures is available
without charge, upon request, (i) by calling Loomis Sayles at 800-633-3330;
(ii) on the Funds' website, www.loomissayles.com, and (iii) on the SEC's
website at www.sec.gov. Information about how the Funds voted proxies relating
to portfolio securities during the 12 months ended June 30, 2005 is available
on (i) the Funds' website and (ii) the SEC's website.
QUARTERLY PORTFOLIO SCHEDULES
The Funds file a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
UNDERSTANDING YOUR FUND'S EXPENSES
As a mutual fund shareholder you incur two types of costs: (1) transaction
costs, including redemption fees and certain exchange fees; and (2) ongoing
costs, including management fees, distribution and/or service fees (12b-1
fees), and other Fund expenses. These costs are described in more detail in the
Funds' prospectus. The examples below are intended to help you understand the
ongoing costs of investing in the Funds and help you compare these with the
ongoing costs of investing in other mutual funds.
13
The first line in the table of each Fund shows the actual amount of Fund
expenses you would have paid on a $1,000 investment in the Fund from April 1,
2005 through September 30, 2005. It also shows how much a $1,000 investment
would be worth at the close of the period, assuming actual fund returns and
expenses. To estimate the expenses you paid over the period, simply divide your
account value by $1,000 (for example $8,600 account value divided by $1,000 =
8.6) and multiply the result by the number in the Expenses Paid During the
Period column as shown below for your class.
The second line in the table of each Fund provides information about
hypothetical account values and hypothetical expenses based on the Fund's
actual expense ratios and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid on your investment for the period. You may use
this information to compare the ongoing costs of investing in the Funds and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown reflect ongoing costs only, and do not
include any transaction costs. Therefore, the second line in the table is
useful in comparing ongoing costs only, and will not help you determine the
relative costs of owning different funds. If transaction costs were included,
total costs would be higher.
LOOMIS SAYLES AGGRESSIVE GROWTH FUND
Beginning Ending Expenses Paid
Account Value Account Value During Period*
Institutional Class 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $1,128.30 $5.34
Hypothetical (5% return before expenses) $1,000.00 $1,020.05 $5.06
Retail Class
- ------------
Actual $1,000.00 $1,126.40 $6.66
Hypothetical (5% return before expenses) $1,000.00 $1,018.80 $6.33
*Expenses are equal to the Fund's annualized expense ratio of 1.00% and 1.25% for the Institutional and Retail Class,
respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the half-year period).
LOOMIS SAYLES SMALL CAP GROWTH FUND
Beginning Ending Expenses Paid
Account Value Account Value During Period*
Institutional Class 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $1,128.30 $5.34
Hypothetical (5% return before expenses) $1,000.00 $1,020.05 $5.06
Retail Class
- ------------
Actual $1,000.00 $1,126.80 $6.66
Hypothetical (5% return before expenses) $1,000.00 $1,018.80 $6.33
*Expenses are equal to the Fund's annualized expense ratio of 1.00% and 1.25% for the Institutional and Retail Class,
respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the half-year period).
LOOMIS SAYLES SMALL CAP VALUE FUND
Beginning Ending Expenses Paid
Account Value Account Value During Period*
Institutional Class 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $1,079.90 $4.69
Hypothetical (5% return before expenses) $1,000.00 $1,020.56 $4.56
Retail Class
- ------------
Actual $1,000.00 $1,078.40 $5.99
Hypothetical (5% return before expenses) $1,000.00 $1,019.30 $5.82
Admin Class
- -----------
Actual $1,000.00 $1,077.20 $7.29
Hypothetical (5% return before expenses) $1,000.00 $1,018.05 $7.08
*Expenses are equal to the Fund's annualized expense ratio of 0.90%, 1.15% and 1.40% for the Institutional, Retail and Admin
Classes, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the
half-year period).
14
LOOMIS SAYLES TAX-MANAGED EQUITY FUND
Beginning Ending Expenses Paid
Account Value Account Value During Period*
Institutional Class 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $1,030.20 $3.31
Hypothetical (5% return before expenses) $1,000.00 $1,021.81 $3.29
*Expenses are equal to the Fund's annualized expense ratio of 0.65%, multiplied by the average account value over the period,
multiplied by 183/365 (to reflect the half-year period).
LOOMIS SAYLES VALUE FUND
Beginning Ending Expenses Paid
Account Value Account Value During Period*
Institutional Class 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $1,085.20 $4.44
Hypothetical (5% return before expenses) $1,000.00 $1,020.81 $4.31
*Expenses are equal to the Fund's annualized expense ratio of 0.85%, multiplied by the average account value over the period,
multiplied by 183/365 (to reflect the half-year period).
LOOMIS SAYLES WORLDWIDE FUND
Beginning Ending Expenses Paid
Account Value Account Value During Period*
Institutional Class 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $1,091.20 $5.24
Hypothetical (5% return before expenses) $1,000.00 $1,020.05 $5.06
*Expenses are equal to the Fund's annualized expense ratio of 1.00%, multiplied by the average account value over the period,
multiplied by 183/365 (to reflect the half-year period).
15
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS
The Board of Trustees, including the Independent Trustees, considers matters
bearing on each Fund's advisory agreement (the "Agreements") at most of its
meetings throughout the year. Once a year, usually in the spring, the Contract
Review and Governance Committee of the Board meets to review the Agreements to
determine whether to recommend that the full Board approve the continuation of
the Agreements for an additional one-year period. After the Committee has made
its recommendation, the full Board, including the Independent Trustees,
determines whether to approve the continuation of the Agreements.
In connection with these meetings, the Trustees receive materials that the
Funds' investment adviser believes to be reasonably necessary for the Trustees
to evaluate the Agreements. These materials generally include, among other
items, (i) information on the investment performance of the Funds and the
performance of peer groups of funds and the Funds' performance benchmarks, (ii)
information on the Funds' advisory fees and other expenses, including
information comparing the Funds' expenses to those of peer groups of funds and
information about any applicable expense caps and fee "breakpoints," (iii)
sales and redemption data in respect of the Funds, (iv) information about the
profitability of the Agreements to the Funds' adviser (the "Adviser"), and (v)
information obtained through the completion of a questionnaire by the Adviser
(the Trustees are consulted as to the information requested through that
questionnaire). The Board of Trustees, including the Independent Trustees, may
also consider other material facts such as (i) the Adviser's financial results
and financial condition, (ii) each Fund's investment objective and strategies
and the size, education and experience of the Adviser's investment staff and
its use of technology, external research and trading cost measurement tools,
(iii) arrangements in respect of the distribution of the Funds' shares, (iv)
the procedures employed to determine the value of the Funds' assets, (v) the
allocation of the Funds' brokerage, if any, including allocations to brokers
affiliated with the Adviser and the use of "soft" commission dollars to pay
Fund expenses and to pay for research and other similar services, (vi) the
resources devoted to, and the record of compliance with, the Funds' investment
policies and restrictions, policies on personal securities transactions and
other compliance policies, and (vii) the general economic outlook with
particular emphasis on the mutual fund industry. Throughout the process, the
Trustees are afforded the opportunity to ask questions of and request
additional materials from the Adviser and its affiliates.
The Board of Trustees most recently approved the continuation of the Agreements
at their meeting held in May, 2005. In considering whether to approve the
continuation of the Agreements, the Board of Trustees, including the
Independent Trustees, did not identify any single factor as determinative.
Matters considered by the Trustees, including the Independent Trustees, in
connection with their approval of the Agreements included the following:
The nature, extent and quality of the services provided to the Funds under the
Agreements. The Trustees considered the nature, extent and quality of the
services provided by the Adviser and its affiliates to the Funds and the
resources dedicated to the Funds by the Adviser and its affiliates. The
Trustees also considered the services provided by the Adviser's affiliates to
the Funds, including the monitoring and board reporting services provided. For
each Fund, the Trustees also considered the benefits to shareholders of
investing in a mutual fund that is part of a family of funds offering a variety
of investment disciplines and providing for a variety of fund and shareholder
services. After reviewing these and related factors, the Trustees concluded,
within the context of their overall conclusions regarding each of the
Agreements, that the nature, extent and quality of services provided supported
the renewal of the Agreements.
Investment performance of the Funds and the Adviser. As noted above, the
Trustees received information about the performance of the Funds over various
time periods, including information which compared the performance of the Funds
to the performance of peer groups of funds and the Funds' respective
performance benchmarks. In addition, the Trustees also reviewed data prepared
by an independent third party which analyzed the performance of the Funds using
a variety of performance metrics, including metrics which also measured the
performance of the Funds on a risk adjusted basis. After reviewing the
information with respect to each Fund, the Board concluded that the Fund's
performance supported the renewal of the Agreement relating to that Fund. The
Trustees also considered the Adviser's performance and reputation generally,
these Funds' performance as a fund family generally, and the historical
responsiveness of the Adviser and its affiliates to Trustee concerns about
performance and the willingness of the Adviser to take steps intended to
improve performance.
After reviewing these and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
performance of the Funds and the Adviser supported the renewal of the
Agreements.
16
The costs of the services to be provided and profits to be realized by the
Adviser and its affiliates from their respective relationships with the Funds.
The Trustees considered the fees charged to the Funds for advisory services as
well as the total expense levels of the Funds. This information included
comparisons (provided both by management and also by an independent third
party) of the Funds' advisory fees and total expense levels to those of their
peer groups and information about the advisory fees charged by the Adviser to
comparable accounts. In considering the fees charged to comparable accounts,
the Trustees considered, among other things, management's representations about
the differences between managing mutual funds as compared to other types of
accounts, including the additional resources required to effectively manage
mutual fund assets. In evaluating each Fund's advisory fee, the Trustees also
took into account the demands, complexity and quality of the investment
management of such Fund.
The Trustees also considered the compensation directly or indirectly received
by the Adviser and its affiliates from their relationships with the Funds. The
Trustees reviewed information provided by management as to the profitability of
the Adviser and its affiliates' relationships with the Funds, and information
about the allocation of expenses used to calculate profitability. When
reviewing profitability, the Trustees also considered information about court
cases in which adviser profitability was an issue in whole or in part, the
performance of the relevant Funds, the expense levels of the Funds, and whether
the Adviser had implemented breakpoints and/or expense caps with respect to
such Funds.
After reviewing these and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fee charged to each of the Funds was fair and reasonable, and that the
costs of these services generally and the related profitability of the Adviser
and its affiliates in respect of their relationships with the Funds supported
the renewal of the Agreements.
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision of services by the Adviser and whether those economies
are shared with the Funds through breakpoints in their investment advisory fee
or other means, such as expense waivers. The Trustees noted that the Funds did
not benefit from breakpoints. In considering these issues, the Trustees also
took note of the costs of the services provided (both on an absolute and a
relative basis) and the profitability to the Adviser and its affiliates of
their relationships with the Funds, as discussed above.
After reviewing these and related factors, the Trustees considered, within the
context of their overall conclusions regarding each of the Agreements, that the
extent to which economies of scale were shared with the Funds supported the
renewal of the Agreements.
The Trustees also considered other factors, which included but were not limited
to the following:
.. whether each Fund has operated in accordance with its investment objective
and the Fund's record of compliance with its investment restrictions, and
the compliance programs of the Funds and the Adviser. They also considered
the compliance related resources the Adviser and its affiliates were
providing to the Funds.
.. the nature, quality, cost and extent of administrative and shareholder
services performed by the Adviser and its affiliates, both under the
Agreements and under separate agreements covering transfer agency and
administrative services.
.. so-called "fallout benefits" to the Adviser and its affiliates, such as the
engagement of affiliates of the Adviser to provide distribution, brokerage
and transfer agency services to the Funds, and the benefits of research made
available to the Adviser by reason of brokerage commissions generated by the
Funds' securities transactions. The Trustees also considered the fact that
Loomis Sayles' parent company benefits from the retention of affiliated
service providers. The Trustees considered the possible conflicts of
interest associated with these fallout and other benefits, and the
reporting, disclosure and other processes in place to disclose and monitor
such possible conflicts of interest.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees,
concluded that each of the existing advisory agreements should be continued
through June 30, 2006.
17
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES AGGRESSIVE GROWTH FUND
SHARES VALUE (a)
- ---------------------------------------------------------------
COMMON STOCKS - 99.1% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 3.9%
Armor Holdings, Inc.(c)(d) 12,375 $ 532,249
Precision Castparts Corp. 28,550 1,516,005
----------
2,048,254
----------
BIOTECHNOLOGY - 4.5%
Celgene Corp.(c)(d) 10,700 581,224
Human Genome Sciences, Inc.(c) 28,100 381,879
Idenix Pharmaceuticals, Inc.(c)(d) 22,000 552,200
Protein Design Labs, Inc.(c)(d) 18,750 525,000
Vertex Pharmaceuticals, Inc.(c) 12,325 275,464
----------
2,315,767
----------
CAPITAL MARKETS - 1.9%
Affiliated Managers Group, Inc.(c)(d) 13,800 999,396
----------
CHEMICALS - 2.4%
Lyondell Chemical Co. 43,025 1,231,376
----------
COMMERCIAL SERVICES & SUPPLIES - 2.4%
Corporate Executive Board Co. 16,175 1,261,327
----------
COMPUTERS & PERIPHERALS - 1.4%
Apple Computer, Inc.(c) 13,975 749,200
----------
DIVERSIFIED FINANCIAL SERVICES - 4.6%
Chicago Mercantile Exchange Holdings, Inc. 3,100 1,045,630
Moody's Corp. 26,550 1,356,174
----------
2,401,804
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.8%
Broadcom Corp., Class A(c) 30,475 1,429,582
----------
ENERGY EQUIPMENT & SERVICES - 6.6%
Grant Prideco, Inc.(c) 38,275 1,555,878
Todco, Class A 20,625 860,269
Weatherford International Ltd.(c) 15,050 1,033,333
----------
3,449,480
----------
FOOD & DRUG RETAILING - 2.5%
Whole Foods Market, Inc. 9,625 1,294,081
----------
HEALTHCARE EQUIPMENT & SUPPLIES - 3.0%
Intuitive Surgical, Inc.(c)(d) 6,925 507,533
St. Jude Medical, Inc.(c) 22,125 1,035,450
----------
1,542,983
----------
HEALTHCARE PROVIDERS & SERVICES - 12.7%
Covance, Inc.(c) 19,850 952,602
Coventry Health Care, Inc.(c) 15,450 1,329,009
Express Scripts, Inc.(c) 19,575 1,217,565
Health Net, Inc.(c) 22,950 1,085,994
Humana, Inc.(c) 26,000 1,244,880
Pharmaceutical Product Development, Inc.(c) 13,075 751,943
----------
6,581,993
----------
HOTELS, RESTAURANTS & LEISURE - 5.0%
Penn National Gaming, Inc.(c) 27,475 854,747
Starwood Hotels & Resorts Worldwide, Inc. 12,850 734,635
Station Casinos, Inc. 15,125 1,003,695
----------
2,593,077
----------
18
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES AGGRESSIVE GROWTH FUND - CONTINUED
SHARES VALUE (a)
- -------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
INTERNET & CATALOG RETAIL - 1.3%
Coldwater Creek, Inc.(c)(d) 26,750 $ 674,635
-----------
INTERNET SOFTWARE & SERVICES - 1.5%
Google, Inc., Class A(c) 2,500 791,150
-----------
IT SERVICES - 2.0%
Cognizant Technology Solutions Corp.(c) 22,075 1,028,474
-----------
MEDIA - 4.0%
Getty Images, Inc.(c) 14,700 1,264,788
XM Satellite Radio Holdings, Inc., Class A(c)(d) 22,125 794,509
-----------
2,059,297
-----------
OIL, GAS & CONSUMABLE FUELS - 5.0%
Range Resources Corp. 20,600 795,366
Southwestern Energy Co.(c) 24,900 1,827,660
-----------
2,623,026
-----------
OIL & GAS EXPLORATION - 4.0%
EOG Resources, Inc. 13,875 1,039,237
Ultra Petroleum Corp.(c)(d) 18,175 1,033,794
-----------
2,073,031
-----------
REAL ESTATE - 2.6%
CB Richard Ellis Group, Inc., Class A(c) 27,050 1,330,860
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 6.8%
Cypress Semiconductor Corp.(c)(d) 46,975 706,974
Marvell Technology Group Ltd.(c) 24,800 1,143,528
Microsemi Corp.(c)(d) 36,400 929,656
Varian Semiconductor Equipment Associates, Inc.(c)(d) 18,200 771,134
-----------
3,551,292
-----------
SOFTWARE - 8.8%
Activision, Inc.(c) 44,925 918,716
Autodesk, Inc. 32,225 1,496,529
Cognos, Inc.(c) 18,950 737,723
NAVTEQ(c) 16,925 845,404
Salesforce.com, Inc.(c)(d) 25,300 584,936
-----------
4,583,308
-----------
TEXTILES APPAREL & LUXURY GOODS - 1.5%
Carter's, Inc.(c)(d) 13,650 775,320
-----------
WIRELESS TELECOMMUNICATION SERVICES - 7.9%
Alamosa Holdings, Inc.(c) 59,800 1,023,178
American Tower Corp., Class A(c) 21,000 523,950
Nextel Partners, Inc., Class A(c) 39,675 995,843
NII Holdings Inc., Class B(c) 18,225 1,539,101
-----------
4,082,072
-----------
TOTAL COMMON STOCKS
(Identified Cost $43,342,069) 51,470,785
-----------
PRINCIPAL AMOUNT
- -------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 19.1%
Tri-Party Repurchase Agreement with Fixed Income
Clearing Corporation, dated 9/30/05 at 1.750% to be
repurchased at $406,059 on 10/03/05 collateralized by
$420,000 U.S. Treasury Note, 4.000% due 9/30/07 with
a value of $418,950 (Note 2g) $ 406,000 406,000
-----------
19
SHARES
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - CONTINUED
State Street Navigator Securities Lending Prime Portfolio(e) 9,540,403
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $9,946,403)
TOTAL INVESTMENTS - 118.2%
(Identified Cost $53,288,472)(b)
Other assets less liabilities--(18.2)%
TOTAL NET ASSETS - 100%
(a)See Note 2a of Notes to Financial Statements.
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $53,296,896 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost
Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value
Net unrealized appreciation
VALUE (a)
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - CONTINUED
State Street Navigator Securities Lending Prime Portfolio(e) $ 9,540,403
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $9,946,403) 9,946,403
-----------
TOTAL INVESTMENTS - 118.2%
(Identified Cost $53,288,472)(b) 61,417,188
Other assets less liabilities--(18.2)% (9,455,870)
-----------
TOTAL NET ASSETS - 100% $51,961,318
-----------
(a)See Note 2a of Notes to Financial Statements.
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $53,296,896 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost $ 8,507,177
Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value (386,885)
-----------
Net unrealized appreciation $ 8,120,292
-----------
(c)Non-income producing security.
(d)All or a portion of securities on loan to brokers at September 30, 2005.
(e)Represents investment of securities lending collateral.
HOLDINGS AT SEPTEMBER 30, 2005 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Healthcare Providers & Services 12.7% Oil & Gas Exploration 4.0%
Software 8.8 Aerospace & Defense 3.9
Wireless Telecommunication Services 7.9 Healthcare Equipment & Supplies 3.0
Semiconductors & Semiconductor Equipment 6.8 Electronic Equipment & Instruments 2.8
Energy Equipment & Services 6.6 Real Estate 2.6
Hotels Restaurants & Leisure 5.0 Food & Drug Retailing 2.5
Oil, Gas & Consumable Fuels 5.0 Chemicals 2.4
Diversified Financial Services 4.6 Commercial Services & Supplies 2.4
Biotechnology 4.5 IT Services 2.0
Media 4.0 Other, less than 2% each 7.6
See accompanying notes to financial statements.
20
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES SMALL CAP GROWTH FUND
SHARES VALUE (a)
- -------------------------------------------------------------
COMMON STOCKS - 98.3% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 2.5%
Aviall, Inc.(c) 6,825 $ 230,549
Essex Corp.(c)(d) 11,775 255,164
----------
485,713
----------
BIOTECHNOLOGY - 4.5%
Encysive Pharmaceuticals, Inc.(c)(d) 9,975 117,506
Human Genome Sciences, Inc.(c) 10,575 143,714
Idenix Pharmaceuticals, Inc.(c)(d) 5,875 147,462
Keryx Biopharmaceuticals, Inc.(c) 7,375 116,230
Nuvelo, Inc.(c)(d) 10,950 105,120
Senomyx, Inc.(c)(d) 4,675 79,615
Vertex Pharmaceuticals, Inc.(c)(d) 7,500 167,625
----------
877,272
----------
CAPITAL MARKETS - 2.1%
Affiliated Managers Group, Inc.(c)(d) 2,750 199,155
GFI Group, Inc.(c)(d) 4,925 202,762
----------
401,917
----------
CHEMICALS - 1.1%
Scotts Miracle-Gro Co., Class A 2,425 213,230
----------
COMMERCIAL BANKS - 0.9%
Hanmi Financial Corp.(d) 10,025 179,949
----------
COMMERCIAL SERVICES & SUPPLIES - 9.6%
Advisory Board Co.(c) 4,625 240,685
Corporate Executive Board Co. 2,875 224,192
CRA International, Inc.(c)(d) 4,950 206,366
Hudson Highland Group, Inc.(c) 10,575 264,058
LECG Corp.(c) 11,825 271,975
Mobile Mini, Inc.(c)(d) 4,950 214,582
On Assignment, Inc.(c) 11,800 100,890
PeopleSupport, Inc.(c)(d) 18,725 146,991
Resources Connection, Inc.(c) 6,725 199,262
----------
1,869,001
----------
COMMUNICATIONS EQUIPMENT - 0.7%
Redback Networks, Inc.(c)(d) 13,575 134,664
----------
DIVERSIFIED CONSUMER SERVICES - 4.0%
Bright Horizons Family Solutions, Inc.(c) 5,875 225,600
Laureate Education, Inc.(c) 5,625 275,456
Universal Technical Institute, Inc.(c)(d) 7,500 267,075
----------
768,131
----------
ENERGY EQUIPMENT & SERVICES - 6.3%
Allis-Chalmers Energy, Inc.(c)(d) 14,100 166,944
Cal Dive International, Inc.(c) 2,875 182,304
Oil States International, Inc.(c) 5,700 206,967
Pioneer Drilling Co.(c)(d) 11,575 225,944
Unit Corp.(c) 4,625 255,670
Universal Compression Holdings, Inc.(c) 4,525 179,959
----------
1,217,788
----------
21
SHARES VALUE (a)
- -------------------------------------------------------------------
COMMON STOCKS - CONTINUED
HEALTHCARE EQUIPMENT & SUPPLIES - 8.8%
American Medical Systems Holdings, Inc.(c) 9,575 $ 192,936
ArthroCare Corp.(c)(d) 6,275 252,380
Aspect Medical Systems, Inc.(c)(d) 4,725 140,002
ev3, Inc.(c)(d) 8,600 161,250
Foxhollow Technologies, Inc.(c)(d) 2,100 99,981
Meridian Bioscience, Inc. 10,625 219,937
NuVasive, Inc.(c)(d) 9,150 171,471
OraSure Technologies, Inc.(c)(d) 15,300 144,279
Palomar Medical Technologies, Inc.(c)(d) 4,850 127,216
Symmetry Medical, Inc.(c) 8,250 195,525
----------
1,704,977
----------
HEALTHCARE PROVIDERS & SERVICES - 9.5%
Chemed Corp. 4,850 210,199
Computer Programs and Systems, Inc.(d) 3,625 125,208
HealthExtras, Inc.(c) 11,225 239,990
Horizon Health Corp.(c) 7,275 197,662
LCA-Vision, Inc. 4,650 172,608
Matria Healthcare, Inc.(c) 4,862 183,540
Psychiatric Solutions, Inc.(c)(d) 3,025 164,046
SFBC International, Inc.(c) 3,425 152,036
Symbion, Inc.(c)(d) 7,375 190,791
United Surgical Partners International, Inc.(c) 5,287 206,775
----------
1,842,855
----------
HOTELS, RESTAURANTS & LEISURE - 1.1%
Pinnacle Entertainment, Inc.(c)(d) 11,450 209,879
----------
HOUSEHOLD PRODUCTS - 1.2%
Central Garden & Pet Co.(c) 5,175 234,169
----------
INSURANCE - 1.8%
ProAssurance Corp.(c) 4,525 211,182
Universal American Financial Corp.(c) 5,950 135,303
----------
346,485
----------
INTERNET & CATALOG RETAIL - 3.1%
Blue Nile, Inc.(c)(d) 5,825 184,303
Coldwater Creek, Inc.(c)(d) 6,475 163,300
GSI Commerce, Inc.(c)(d) 12,325 245,267
----------
592,870
----------
INTERNET SOFTWARE & SERVICES - 2.0%
j2 Global Communications, Inc.(c)(d) 4,525 182,901
Online Resources Corp.(c) 18,400 194,672
----------
377,573
----------
IT SERVICES - 3.3%
Anteon International Corp.(c) 3,200 136,832
CACI International, Inc., Class A(c) 2,300 139,380
Gevity HR, Inc.(d) 8,500 231,540
SRA International, Inc., Class A(c) 3,975 141,033
----------
648,785
----------
MACHINERY - 4.0%
American Science & Engineering, Inc.(c)(d) 2,250 147,578
Bucyrus International, Inc., Class A(d) 4,525 222,313
Freightcar America, Inc. 3,775 153,944
Joy Global, Inc. 4,837 244,075
----------
767,910
----------
22
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES SMALL CAP GROWTH FUND - CONTINUED
SHARES VALUE (a)
- ---------------------------------------------------------------------
COMMON STOCKS - CONTINUED
MEDIA - 0.5%
Morningstar, Inc.(c)(d) 3,050 $ 97,600
----------
OIL, GAS & CONSUMABLE FUELS - 2.0%
Energy Partners Ltd.(c)(d) 5,725 178,735
Range Resources Corp. 5,625 217,181
----------
395,916
----------
PHARMACEUTICALS - 0.9%
Kos Pharmaceuticals, Inc.(c) 2,575 172,345
----------
REAL ESTATE - 2.8%
CB Richard Ellis Group, Inc., Class A(c) 7,275 357,930
Jones Lang LaSalle, Inc. 3,975 183,088
----------
541,018
----------
RETAILERS - 0.9%
Phillips-Van Heusen Corp. 5,700 176,814
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 9.5%
ADE Corp.(c)(d) 6,475 145,558
ATMI, Inc.(c) 9,150 283,650
FormFactor, Inc.(c) 6,725 153,464
Mattson Technology, Inc.(c) 20,350 152,829
Microsemi Corp.(c) 12,125 309,672
Netlogic Microsystems, Inc.(c)(d) 6,425 138,716
PortalPlayer, Inc.(c) 4,725 129,607
Power Integrations, Inc.(c)(d) 7,350 159,862
Tessera Technologies, Inc.(c) 7,300 218,343
Volterra Semiconductor Corp.(c)(d) 12,200 149,694
----------
1,841,395
----------
SOFTWARE - 6.6%
Bottomline Technologies, Inc.(c) 17,850 269,356
Epicor Software Corp.(c)(d) 10,800 140,400
Open Solutions, Inc.(c)(d) 8,225 179,470
Quest Software, Inc.(c) 13,575 204,575
SS&C Technologies, Inc. 7,500 274,800
Ultimate Software Group, Inc.(c)(d) 11,450 210,909
----------
1,279,510
----------
SPECIALTY RETAIL - 2.7%
Children's Place Retail Stores, Inc., (The)(c)(d) 4,950 176,418
Guess?, Inc.(c)(d) 8,250 176,798
Guitar Center, Inc.(c) 3,200 176,672
----------
529,888
----------
TEXTILES APPAREL & LUXURY GOODS - 1.0%
Carter's, Inc.(c) 3,425 194,540
----------
THRIFTS & MORTGAGE FINANCE - 1.9%
FirstFed Financial Corp.(c)(d) 4,000 215,240
PFF Bancorp, Inc. 5,075 153,570
----------
368,810
----------
TRADING COMPANIES & DISTRIBUTORS - 0.9%
NuCo2, Inc.(c)(d) 6,600 169,950
----------
23
SHARES
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
WIRELESS TELECOMMUNICATION SERVICES - 2.1%
Alamosa Holdings, Inc.(c) 11,350
SBA Communications Corp.(c)(d) 13,550
TOTAL COMMON STOCKS
(Identified Cost $15,827,547)
PRINCIPAL AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 27.8%
Tri-Party Repurchase Agreement with Fixed Income
Clearing Corporation, dated 9/30/05 at 1.750% to be
repurchased at $548,080 on 10/03/05 collateralized by
$575,000 U.S. Treasury Note, 3.375% due 9/15/09 with
a value of $559,188 (Note 2g) $ 548,000
SHARES
- ------------------------------------------------------------------------------------------------------------------------
State Street Navigator Securities Lending Prime Portfolio(e) 4,844,544
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $5,392,544)
TOTAL INVESTMENTS - 126.1%
(Identified Cost $21,220,091)(b)
Other assets less liabilities--(26.1)%
TOTAL NET ASSETS - 100%
-
(a)See Note 2a of Notes to Financial Statements.
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $21,224,555 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost
Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value
Net unrealized appreciation
-
(c)Non-income producing security.
(d)All or a portion of this security was on loan to brokers at September 30, 2005.
(e)Represents investment of securities lending collateral.
VALUE (a)
- -------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
WIRELESS TELECOMMUNICATION SERVICES - 2.1%
Alamosa Holdings, Inc.(c) $ 194,199
SBA Communications Corp.(c)(d) 209,347
-----------
403,546
-----------
TOTAL COMMON STOCKS
(Identified Cost $15,827,547) 19,044,500
-----------
- -------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 27.8%
Tri-Party Repurchase Agreement with Fixed Income
Clearing Corporation, dated 9/30/05 at 1.750% to be
repurchased at $548,080 on 10/03/05 collateralized by
$575,000 U.S. Treasury Note, 3.375% due 9/15/09 with
a value of $559,188 (Note 2g) 548,000
-----------
- -------------------------------------------------------------------------------------
State Street Navigator Securities Lending Prime Portfolio(e) 4,844,544
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $5,392,544) 5,392,544
-----------
TOTAL INVESTMENTS - 126.1%
(Identified Cost $21,220,091)(b) 24,437,044
Other assets less liabilities--(26.1)% (5,060,126)
-----------
TOTAL NET ASSETS - 100% $19,376,918
-----------
(a)See Note 2a of Notes to Financial Statements.
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $21,224,555 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost $ 3,422,995
Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value (210,506)
-----------
Net unrealized appreciation $ 3,212,489
-----------
(c)Non-income producing security.
(d)All or a portion of this security was on loan to brokers at September 30, 2005.
(e)Represents investment of securities lending collateral.
HOLDINGS AT SEPTEMBER 30, 2005 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Commercial Services & Supplies 9.6% Internet & Catalog Retail 3.1%
Healthcare Providers & Services 9.5 Real Estate 2.8
Semiconductors & Semiconductor Equipment 9.5 Specialty Retail 2.7
Healthcare Equipment & Supplies 8.8 Aerospace & Defense 2.5
Software 6.6 Wireless Telecommunication Services 2.1
Energy Equipment & Services 6.3 Capital Markets 2.1
Biotechnology 4.5 Oil, Gas & Consumable Fuels 2.0
Diversified Consumer Services 4.0 Internet Software & Services 2.0
Machinery 4.0 Other, less than 2% each 12.9
IT Services 3.3
See accompanying notes to financial statements.
24
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES SMALL CAP VALUE FUND
SHARES VALUE (a)
- ---------------------------------------------------------------
COMMON STOCKS - 96.5% OF TOTAL NET ASSETS
AUTO COMPONENTS - 0.5%
Cooper Tire & Rubber Co.(e) 249,200 $ 3,805,284
-----------
BUILDING PRODUCTS - 1.1%
Lennox International, Inc.(e) 285,125 7,815,276
-----------
CAPITAL MARKETS - 0.8%
National Financial Partners Corp. 130,275 5,880,614
-----------
CHEMICALS - 3.2%
Cabot Corp. 109,725 3,622,022
Cytec Industries, Inc. 153,750 6,669,675
FMC Corp.(c) 53,600 3,066,992
Scotts Miracle-Gro Co., Class A 58,075 5,106,535
Spartech Corp.(e) 205,675 4,018,889
-----------
22,484,113
-----------
COMMERCIAL BANKS - 9.1%
Alabama National Bancorp(e) 61,075 3,905,136
Centerstate Banks of Florida, Inc. 87,575 3,021,338
Community Bancorp(c) 70,875 2,338,166
CVB Financial Corp.(e) 212,990 3,961,614
East West Bancorp, Inc. 163,300 5,558,732
First Midwest Bancorp, Inc.(e) 134,550 5,010,642
IBERIABANK Corp.(e) 82,019 4,359,310
Independent Bank Corp.(e) 201,875 5,862,453
Midwest Banc Holdings, Inc.(e) 109,775 2,537,998
Pennsylvania Commerce Bancorp, Inc.(c)(e) 93,050 3,320,024
PrivateBankcorp, Inc.(e) 155,025 5,314,257
Signature Bank(c)(e) 181,375 4,895,311
South Financial Group, Inc.(e) 141,175 3,789,137
Texas Regional Bancshares, Inc., Class A 150,175 4,323,538
Wintrust Financial Corp. 123,925 6,228,470
-----------
64,426,126
-----------
COMMERCIAL SERVICES & SUPPLIES - 5.0%
Adesa, Inc. 187,225 4,137,672
Hudson Highland Group, Inc.(c)(e) 288,050 7,192,608
Imagistics International, Inc.(c) 67,325 2,817,551
McGrath Rentcorp.(e) 208,675 5,911,763
Mine Safety Appliances Co.(e) 85,075 3,292,403
Navigant Consulting, Inc.(c) 330,450 6,331,422
Waste Connections, Inc.(c) 154,475 5,418,983
-----------
35,102,402
-----------
COMMUNICATIONS EQUIPMENT - 2.0%
ADTRAN, Inc. 166,700 5,251,050
Anaren, Inc.(c)(e) 191,500 2,700,150
Avocent Corp.(c) 83,625 2,645,895
SafeNet, Inc.(c)(e) 99,775 3,622,830
-----------
14,219,925
-----------
COMPUTERS & PERIPHERALS - 1.7%
Avid Technology, Inc.(c) 86,150 3,566,610
Imation Corp. 119,450 5,120,822
McDATA Corp., Class A(c)(e) 654,075 3,427,353
-----------
12,114,785
-----------
25
SHARES VALUE (a)
- -------------------------------------------------------------------
COMMON STOCKS - CONTINUED
CONSTRUCTION & ENGINEERING - 1.8%
Insituform Technologies, Inc., Class A(c)(e) 297,050 $ 5,135,995
Washington Group International, Inc.(c)(e) 141,325 7,616,004
-----------
12,751,999
-----------
CONSTRUCTION MATERIALS - 1.9%
Chaparral Steel Co.(c)(e) 143,725 3,624,744
Eagle Materials, Inc.(e) 36,400 4,417,868
Texas Industries, Inc. 96,825 5,267,280
-----------
13,309,892
-----------
CONSUMER FINANCE - 0.6%
Advanta Corp., Class B(e) 143,155 4,041,266
-----------
DIVERSIFIED CONSUMER SERVICES - 0.7%
Regis Corp. 67,925 2,568,923
Vertrue, Inc.(c)(e) 72,125 2,621,744
-----------
5,190,667
-----------
DIVERSIFIED FINANCIAL SERVICES - 0.9%
iShares Russell 2000 Value Index Fund(e) 100,700 6,639,151
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.9%
Commonwealth Telephone Enterprises, Inc.(e) 68,100 2,567,370
Iowa Telecommunications Services, Inc.(e) 226,875 3,816,038
-----------
6,383,408
-----------
ELECTRIC UTILITIES - 0.6%
ALLETE, Inc.(e) 50,658 2,320,643
Otter Tail Corp.(e) 57,725 1,786,011
-----------
4,106,654
-----------
ELECTRICAL EQUIPMENT - 1.6%
AMETEK, Inc. 169,525 7,284,489
General Cable Corp.(c)(e) 240,650 4,042,920
-----------
11,327,409
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.2%
Anixter International, Inc.(c)(e) 122,500 4,940,425
Excel Technology, Inc.(c)(e) 139,725 3,589,535
-----------
8,529,960
-----------
ENERGY EQUIPMENT & SERVICES - 3.6%
Cal Dive International, Inc.(c)(e) 127,325 8,073,679
Carbo Ceramics, Inc. 77,175 5,092,778
Core Laboratories N.V.(c) 66,900 2,158,194
FMC Technologies, Inc.(c)(e) 186,375 7,848,251
Hydril Co.(c) 34,925 2,397,252
-----------
25,570,154
-----------
FOOD & STAPLES RETAILING - 1.0%
Casey's General Stores, Inc. 185,725 4,308,820
Smart & Final, Inc.(c)(e) 226,925 2,936,410
-----------
7,245,230
-----------
FOOD PRODUCTS - 1.3%
J & J Snack Foods Corp. 60,041 3,470,370
Ralcorp Holdings, Inc.(e) 131,275 5,503,048
-----------
8,973,418
-----------
26
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES SMALL CAP VALUE FUND - CONTINUED
SHARES VALUE (a)
- ------------------------------------------------------------
COMMON STOCKS - CONTINUED
GAS UTILITIES - 2.7%
AGL Resources, Inc. 166,350 $ 6,173,248
Energen Corp. 86,875 3,758,213
ONEOK, Inc. 145,000 4,932,900
Southern Union Co. 160,054 4,124,592
-----------
18,988,953
-----------
HEALTHCARE EQUIPMENT & SUPPLIES - 2.3%
Arrow International, Inc.(e) 166,150 4,685,430
Intermagnetics General Corp.(c)(e) 187,225 5,231,067
Sybron Dental Specialties, Inc.(c) 148,875 6,190,222
-----------
16,106,719
-----------
HEALTHCARE PROVIDERS & SERVICES - 1.1%
Kindred Healthcare, Inc.(c)(e) 59,075 1,760,435
Lifepoint Hospitals, Inc.(c)(e) 91,700 4,010,041
RehabCare Group, Inc.(c) 87,775 1,801,143
-----------
7,571,619
-----------
HOTELS, RESTAURANTS & LEISURE - 1.8%
Dover Downs Entertainment, Inc. 270,261 3,675,550
Fairmont Hotels & Resorts, Inc. 128,775 4,303,660
Steak n Shake Co.(c)(e) 159,800 2,900,370
Sunterra Corp.(c)(e) 167,950 2,205,184
-----------
13,084,764
-----------
HOUSEHOLD DURABLES - 0.8%
Levitt Corp., Class A(e) 89,987 2,064,302
Tupperware Corp.(e) 162,100 3,692,638
-----------
5,756,940
-----------
INSURANCE - 5.4%
AmerUs Group Co.(e) 69,700 3,998,689
Delphi Financial Group, Inc. 132,425 6,197,490
Endurance Specialty Holdings Ltd. 177,800 6,064,758
KMG America Corp.(c) 314,075 2,512,600
Navigators Group, Inc.(c) 99,150 3,700,278
Ohio Casualty Corp. 193,675 5,252,466
Protective Life Corp. 111,925 4,609,071
RLI Corp. 129,900 6,009,174
-----------
38,344,526
-----------
INTERNET & CATALOG RETAIL - 0.4%
FTD Group, Inc.(c)(e) 287,000 2,970,450
-----------
INTERNET SOFTWARE & SERVICES - 1.3%
Aladdin Knowledge Systems(c)(e) 199,875 4,215,364
Digitas, Inc.(c) 416,425 4,730,588
-----------
8,945,952
-----------
IT SERVICES - 2.2%
Perot Systems Corp., Class A(c)(e) 310,575 4,394,636
SI International, Inc.(c)(e) 72,950 2,259,262
Wright Express Corp.(c)(e) 410,900 8,871,331
-----------
15,525,229
-----------
MACHINERY - 7.2%
Actuant Corp., Class A(e) 156,125 7,306,650
Albany International Corp., Class A 113,725 4,193,041
27
SHARES VALUE (a)
- ----------------------------------------------------------------
COMMON STOCKS - CONTINUED
MACHINERY - CONTINUED
Barnes Group, Inc.(e) 148,125 $ 5,311,762
CLARCOR, Inc. 111,425 3,200,126
Commercial Vehicle Group, Inc.(c)(e) 185,475 3,883,846
ESCO Technologies, Inc.(c)(e) 54,350 2,721,305
Greenbrier Cos., Inc.(e) 110,850 3,684,654
Harsco Corp. 96,875 6,352,094
IDEX Corp. 173,575 7,385,616
Nordson Corp. 81,750 3,108,953
RBC Bearings, Inc.(c) 230,775 3,680,861
-----------
50,828,908
-----------
MEDIA - 5.1%
ADVO, Inc. 111,987 3,504,073
Harte-Hanks, Inc. 151,600 4,006,788
John Wiley & Sons, Inc., Class A 87,700 3,660,598
R.H. Donnelley Corp.(c) 183,700 11,620,862
Saga Communications, Inc., Class A(c)(e) 151,800 2,018,940
Scholastic Corp.(c) 136,100 5,030,256
Valassis Communications, Inc.(c) 153,300 5,975,634
-----------
35,817,151
-----------
METALS & MINING - 0.9%
Reliance Steel & Aluminum Co.(e) 114,675 6,069,748
-----------
MULTI-UTILITIES & UNREGULATED POWER - 1.0%
NorthWestern Corp.(e) 226,275 6,831,242
-----------
OIL, GAS & CONSUMABLE FUELS - 3.2%
ATP Oil & Gas Corp.(c)(e) 53,475 1,756,119
Denbury Resources, Inc.(c) 145,925 7,360,457
Energy Partners Ltd.(c)(e) 222,650 6,951,133
Remington Oil & Gas Corp.(c) 90,025 3,736,037
Western Gas Resources, Inc.(e) 49,025 2,511,551
-----------
22,315,297
-----------
PHARMACEUTICALS - 0.7%
Par Pharmaceutical Cos., Inc.(c) 81,175 2,160,878
Perrigo Co.(e) 198,225 2,836,600
-----------
4,997,478
-----------
REAL ESTATE - 7.0%
American Home Mortgage Investment Corp. 179,625 5,442,638
BioMed Realty Trust, Inc. 239,150 5,930,920
CBL & Associates Properties, Inc. 136,150 5,580,788
Corporate Office Properties Trust 203,750 7,121,062
Eagle Hospitality Properties Trust, Inc. 420,875 4,200,333
First Potomac Realty Trust(e) 240,375 6,177,637
Kite Realty Group Trust 307,375 4,586,035
LaSalle Hotel Properties 168,000 5,787,600
Newcastle Investment Corp.(e) 164,900 4,600,710
-----------
49,427,723
-----------
RETAILERS - 0.2%
Retail Ventures, Inc.(c)(e) 104,550 1,147,959
-----------
28
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES SMALL CAP VALUE FUND - CONTINUED
SHARES VALUE (a)
- -------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
ROAD & RAIL - 2.6%
Genesee & Wyoming, Inc., Class A(c)(e) 181,550 $ 5,755,135
Laidlaw International, Inc. 281,075 6,793,583
Landstar System, Inc.(e) 75,950 3,040,278
Marten Transport Ltd.(c)(e) 113,900 2,881,670
------------
18,470,666
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 4.0%
AMIS Holdings, Inc.(c)(e) 117,125 1,389,103
Diodes, Inc.(c)(e) 117,500 4,260,550
DSP Group, Inc.(c)(e) 195,400 5,013,964
Fairchild Semiconductor International, Inc., Class A(c) 241,175 3,583,860
Integrated Device Technology, Inc.(c) 326,625 3,507,952
Keithley Instruments, Inc.(e) 172,325 2,515,945
Orbotech, Ltd.(c) 150,100 3,755,502
Rofin-Sinar Technologies, Inc.(c)(e) 103,425 3,929,116
------------
27,955,992
------------
SOFTWARE - 1.6%
Hyperion Solutions Corp.(c)(e) 91,475 4,450,259
Intervoice, Inc.(c)(e) 192,900 1,738,029
MRO Software, Inc.(c)(e) 87,625 1,475,605
Progress Software Corp.(c)(e) 123,775 3,932,332
------------
11,596,225
------------
SPECIALTY RETAIL - 1.8%
Charlotte Russe Holding, Inc.(c)(e) 240,250 3,200,130
Cost Plus, Inc.(c)(e) 171,450 3,111,817
Hot Topic, Inc.(c)(e) 132,050 2,028,288
Men's Wearhouse, Inc.(c) 86,174 2,300,846
Party City Corp.(c)(e) 132,950 2,249,514
------------
12,890,595
------------
THRIFTS & MORTGAGE FINANCE - 1.7%
BankAtlantic Bancorp, Inc., Class A(e) 267,000 4,536,330
BankUnited Financial Corp. 132,700 3,034,849
Provident New York Bancorp(e) 404,350 4,718,765
------------
12,289,944
------------
TRADING COMPANIES & DISTRIBUTORS - 1.5%
BlueLinx Holdings, Inc.(e) 700 9,408
Hughes Supply, Inc.(e) 183,350 5,977,210
UAP Holding Corp.(e) 262,625 4,753,513
------------
10,740,131
------------
WATER UTILITIES - 0.5%
American States Water Co.(e) 96,050 3,213,833
------------
TOTAL COMMON STOCK
(Identified Cost $530,719,082) 681,805,777
------------
29
PRINCIPAL AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 21.9%
COMMERCIAL PAPER - 4.6%
San Paolo United States Financial Co.,
2.450%, 10/03/2005(d) $ 32,098,000
SHARES
- -----------------------------------------------------------------------------------------------------------------------
State Street Navigator Securities Lending Prime
Portfolio(f) 122,331,459
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $154,425,090)
TOTAL INVESTMENTS - 118.4%
(Identified Cost $685,144,172)(b)
Other assets less liabilities--(18.4)%
TOTAL NET ASSETS - 100%
(a)See Note 2a of Notes to Financial Statements.
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $685,625,529 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value
Net unrealized appreciation
VALUE (a)
- ---------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 21.9%
COMMERCIAL PAPER - 4.6%
San Paolo United States Financial Co.,
2.450%, 10/03/2005(d) $ 32,093,631
-------------
- ---------------------------------------------------------------------------------
State Street Navigator Securities Lending Prime
Portfolio(f) 122,331,459
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $154,425,090) 154,425,090
-------------
TOTAL INVESTMENTS - 118.4%
(Identified Cost $685,144,172)(b) 836,230,867
Other assets less liabilities--(18.4)% (129,667,814)
-------------
TOTAL NET ASSETS - 100% $ 706,563,053
-------------
(a)See Note 2a of Notes to Financial Statements.
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $685,625,529 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 158,960,135
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (8,354,797)
-------------
Net unrealized appreciation $ 150,605,338
-------------
(c)Non-income producing security.
(d)Interest rate represents annualized yield at time of purchase; not a coupon
rate.
(e)All or a portion of this security was on loan to brokers at September 30,
2005.
(f)Represents investment of securities lending collateral.
HOLDINGS AT SEPTEMBER 30, 2005 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Commercial Banks 9.1% Chemicals 3.2%
Machinery 7.2 Oil, Gas & Consumable Fuels 3.2
Real Estate 7.0 Gas Utilities 2.7
Insurance 5.4 Road & Rail 2.6
Media 5.1 Healthcare Equipment & Supplies 2.3
Commercial Services & Supplies 5.0 IT Services 2.2
Semiconductors & Semiconductor Equipment 4.0 Communications Equipment 2.0
Energy Equipment & Services 3.6 Other, less than 2% each 31.9
See accompanying notes to financial statements.
30
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES TAX-MANAGED EQUITY FUND
SHARES VALUE (a)
- ----------------------------------------------------------------
COMMON STOCKS - 100.0% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 2.5%
United Technologies Corp. 4,500 $233,280
---------
AUTOMOBILES - 0.8%
Harley-Davidson, Inc. 1,500 72,660
---------
BEVERAGES - 3.2%
PepsiCo, Inc. 5,150 292,057
---------
BIOTECHNOLOGY - 3.4%
Amgen, Inc.(c) 3,900 310,713
---------
CAPITAL MARKETS - 8.1%
Bear Stearns Cos., Inc. 2,300 252,425
Franklin Resources, Inc. 2,300 193,108
Goldman Sachs Group, Inc. 2,500 303,950
---------
749,483
---------
CHEMICALS - 4.1%
Ecolab, Inc. 5,500 175,615
Praxair, Inc. 4,150 198,909
---------
374,524
---------
COMMERCIAL BANKS - 4.0%
Wells Fargo & Co. 3,925 229,887
Zions Bancorporation 2,000 142,420
---------
372,307
---------
COMMERCIAL SERVICES & SUPPLIES - 2.2%
ARAMARK Corp., Class B 7,500 200,325
---------
COMMUNICATIONS EQUIPMENT - 6.2%
Cisco Systems, Inc.(c) 9,825 176,162
Harris Corp. 5,800 242,440
QUALCOMM, Inc. 3,525 157,744
---------
576,346
---------
COMPUTERS & PERIPHERALS - 1.8%
Dell, Inc.(c) 5,000 171,000
---------
CONTAINERS & PACKAGING - 1.4%
Ball Corp. 3,625 133,183
---------
DIVERSIFIED FINANCIAL SERVICES - 2.2%
Citigroup, Inc. 4,400 200,288
---------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.8%
SBC Communications, Inc. 10,700 256,479
---------
ENERGY EQUIPMENT & SERVICES - 1.8%
GlobalSantaFe Corp. 3,675 167,654
---------
HEALTHCARE EQUIPMENT & SUPPLIES - 7.2%
Guidant Corp. 2,600 179,114
Kinetic Concepts, Inc.(c) 2,550 144,840
Medtronic, Inc. 3,600 193,032
Zimmer Holdings, Inc.(c) 2,100 144,669
---------
661,655
---------
HEALTHCARE PROVIDERS & SERVICES - 2.7%
Caremark Rx, Inc.(c) 3,100 154,783
WellPoint, Inc.(c) 1,250 94,775
---------
249,558
---------
31
SHARES VALUE (a)
- --------------------------------------------------------------------
COMMON STOCKS - CONTINUED
HOTELS, RESTAURANTS & LEISURE - 2.2%
Carnival Corp. 4,000 $ 199,920
----------
HOUSEHOLD DURABLES - 1.2%
Leggett & Platt, Inc. 5,350 108,070
----------
INDUSTRIAL CONGLOMERATES - 3.0%
General Electric Co. 8,250 277,778
----------
INSURANCE - 5.0%
AFLAC, Inc. 6,500 294,450
Allstate Corp. 3,000 165,870
----------
460,320
----------
IT SERVICES - 3.5%
Accenture Ltd., Class A(c) 9,650 245,689
First Data Corp. 1,950 78,000
----------
323,689
----------
MACHINERY - 3.6%
Danaher Corp. 2,775 149,378
Dover Corp. 4,475 182,535
----------
331,913
----------
MEDIA - 3.9%
DIRECTV Group, Inc. (The)(c) 11,500 172,270
Viacom, Inc., Class B 5,625 185,681
----------
357,951
----------
MULTILINE RETAIL - 1.8%
Target Corp. 3,200 166,176
----------
OIL, GAS & CONSUMABLE FUELS - 8.4%
ConocoPhillips 3,100 216,721
Devon Energy Corp. 4,325 296,868
Exxon Mobil Corp. 4,075 258,925
----------
772,514
----------
PERSONAL PRODUCTS - 2.3%
Alberto-Culver Co. 4,750 212,563
----------
PHARMACEUTICALS - 3.2%
Abbott Laboratories 4,175 177,020
Perrigo Co. 8,300 118,773
----------
295,793
----------
ROAD & RAIL - 1.8%
Burlington Northern Santa Fe Corp. 2,800 167,440
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 4.6%
DSP Group, Inc.(c) 5,550 142,413
Intel Corp. 5,825 143,586
Maxim Integrated Products, Inc. 3,325 141,811
----------
427,810
----------
SOFTWARE - 1.1%
Oracle Corp.(c) 8,500 105,315
----------
TOTAL COMMON STOCKS
(Identified Cost $8,105,297) 9,228,764
----------
32
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES TAX-MANAGED EQUITY FUND - CONTINUED
VALUE (a)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Identified Cost $8,105,297)(b) $9,228,764
Other assets less liabilities--0.0% 1,510
----------
TOTAL NET ASSETS - 100% $9,230,274
----------
(a)See Note 2a of Notes to Financial Statements.
(b)Federal Tax Information:
At September 30, 2005, the unrealized appreciation on investments based on cost of $8,120,185 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $1,280,422
Aggregate gross unrealized depreciation for all investments in which there is an excess tax cost over value (171,843)
----------
Net unrealized appreciation $1,108,579
----------
(c)Non-income producing security.
HOLDINGS AT SEPTEMBER 30, 2005 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Oil, Gas & Consumable Fuels 8.4% Beverages 3.2%
Capital Markets 8.1 Pharmaceuticals 3.2
Healthcare Equipment & Supplies 7.2 Industrial Conglomerates 3.0
Communications Equipment 6.2 Diversified Telecommunication Services 2.8
Insurance 5.0 Healthcare Providers & Services 2.7
Semiconductors & Semiconductor Equipment 4.6 Aerospace & Defense 2.5
Chemicals 4.1 Personal Products 2.3
Commercial Banks 4.0 Commercial Services & Supplies 2.2
Media 3.9 Diversified Financial Services 2.2
Machinery 3.6 Hotels Restaurants & Leisure 2.2
IT Services 3.5 Other, less than 2% each 11.7
Biotechnology 3.4
See accompanying notes to financial statements.
33
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES VALUE FUND
SHARES VALUE (a)
- -----------------------------------------------------------------
COMMON STOCKS - 96.2% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 5.3%
Honeywell International, Inc. 17,050 $ 639,375
Northrop Grumman Corp. 12,250 665,787
United Technologies Corp. 13,025 675,216
----------
1,980,378
----------
BEVERAGES - 1.3%
Molson Coors Brewing Co., Class B(e) 7,750 496,078
----------
CAPITAL MARKETS - 5.8%
Lehman Brothers Holdings, Inc. 7,600 885,248
Merrill Lynch & Co., Inc. 9,750 598,162
Morgan Stanley 12,450 671,553
----------
2,154,963
----------
CHEMICALS - 1.8%
Praxair, Inc. 13,675 655,443
----------
COMMERCIAL BANKS - 6.7%
Bank of America Corp. 10,325 434,683
SunTrust Banks, Inc. 4,625 321,206
U.S. Bancorp 26,050 731,484
Wachovia Corp. 12,504 595,065
Wells Fargo & Co. 7,200 421,704
----------
2,504,142
----------
COMMERCIAL SERVICES & SUPPLIES - 0.8%
ARAMARK Corp., Class B 11,650 311,172
----------
COMMUNICATIONS EQUIPMENT - 3.5%
Avaya, Inc.(c) 42,225 434,918
Motorola, Inc. 39,325 868,689
----------
1,303,607
----------
COMPUTERS & PERIPHERALS - 1.7%
Hewlett-Packard Co. 21,925 640,210
----------
CONSUMER FINANCE - 1.7%
American Express Co. 11,050 634,712
----------
DIVERSIFIED FINANCIAL SERVICES - 7.0%
CIT Group, Inc. 16,475 744,340
Citigroup, Inc. 21,100 960,472
J.P. Morgan Chase & Co. 26,775 908,476
----------
2,613,288
----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.7%
BellSouth Corp. 28,725 755,467
CenturyTel, Inc. 8,325 291,209
SBC Communications, Inc. 29,175 699,325
----------
1,746,001
----------
ELECTRIC UTILITIES - 2.5%
Exelon Corp. 17,200 919,168
----------
ELECTRICAL EQUIPMENT - 1.4%
ABB Ltd. ADR(c)(e) 69,000 507,840
----------
34
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES VALUE FUND - CONTINUED
SHARES VALUE (a)
- --------------------------------------------------------------
COMMON STOCKS - CONTINUED
ENERGY EQUIPMENT & SERVICES - 4.8%
GlobalSantaFe Corp. 15,625 $ 712,812
Halliburton Co. 15,925 1,091,181
----------
1,803,993
----------
HEALTHCARE EQUIPMENT & SUPPLIES - 1.8%
Baxter International, Inc. 16,650 663,835
----------
HEALTHCARE PROVIDERS & SERVICES - 1.1%
Quest Diagnostics, Inc. 8,400 424,536
----------
HOTELS, RESTAURANTS & LEISURE - 2.0%
McDonald's Corp. 22,450 751,850
----------
INDEPENDENT POWER PRODUCER & ENERGY - 2.4%
Constellation Energy Group, Inc. 8,100 498,960
NRG Energy, Inc.(c) 9,350 398,310
----------
897,270
----------
INDUSTRIAL CONGLOMERATES - 1.7%
Tyco International Ltd. 22,875 637,069
----------
INSURANCE - 5.9%
Allstate Corp. 15,975 883,258
American International Group, Inc. 12,250 759,010
Prudential Financial, Inc. 7,925 535,413
----------
2,177,681
----------
IT SERVICES - 2.3%
Accenture Ltd., Class A(c) 19,125 486,922
First Data Corp. 9,100 364,000
----------
850,922
----------
MEDIA - 6.2%
DIRECTV Group, Inc. (The)(c) 35,775 535,910
McGraw-Hill Cos., Inc. 10,875 522,435
News Corp., Class A 37,250 580,727
Time Warner, Inc. 36,225 656,035
----------
2,295,107
----------
MULTILINE RETAIL - 2.3%
Federated Department Stores, Inc. 7,325 489,823
J.C. Penney Co., Inc. (Holding Co.) 7,900 374,618
----------
864,441
----------
OIL, GAS & CONSUMABLE FUELS - 10.1%
BP Plc ADR 7,200 510,120
ChevronTexaco Corp. 8,550 553,441
ConocoPhillips 8,025 561,028
ExxonMobil Corp. 23,150 1,470,951
Peabody Energy Corp. 8,025 676,909
----------
3,772,449
----------
PHARMACEUTICALS - 2.6%
Abbott Laboratories 11,700 496,080
Pfizer, Inc. 18,800 469,436
----------
965,516
----------
35
SHARES VALUE (a)
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
PROPERTY & CASUALTY INSURANCE - 0.9%
Berkshire Hathaway, Inc., Class B(c) 119 $ 324,989
-----------
REAL ESTATE - 1.1%
Simon Property Group, Inc. 5,650 418,778
-----------
ROAD & RAIL - 2.0%
Burlington Northern Santa Fe Corp. 12,500 747,500
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.4%
Freescale Semiconductor, Inc., Class B(c) 22,198 523,429
-----------
SPECIALTY RETAIL - 1.1%
Office Depot, Inc.(c) 14,175 420,998
-----------
TOBACCO - 2.3%
Altria Group, Inc. 11,400 840,294
-----------
TOTAL COMMON STOCKS
(Identified Cost $27,544,119) 35,847,659
-----------
PRINCIPAL AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 5.6%
COMMERCIAL PAPER - 3.8%
San Paolo United States Financial Co.,
2.450%, 10/03/2005(d) $ 1,410,000 1,409,808
-----------
SHARES
- ------------------------------------------------------------------------------------------------------------------------------
State Street Navigator Securities Lending Prime Portfolio(f) 654,246 654,246
-----------
TOTAL SHORT-TERM INVESTMENT
(Identified Cost $2,064,054) 2,064,054
-----------
TOTAL INVESTMENTS - 101.8%
(Identified Cost $29,608,173)(b) 37,911,713
Other assets less liabilities--(1.8)% (657,112)
-----------
TOTAL NET ASSETS - 100% $37,254,601
-----------
(a)See Note 2a of Notes to Financial Statements.
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $29,629,665 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost $ 8,613,153
Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value (331,105)
-----------
Net unrealized appreciation $ 8,282,048
-----------
(c)Non-income producing security.
(d)Interest rate represents annualized yield at the time of purchase; not a
coupon rate.
(e)All or a portion of this security was on loan to brokers at September 30,
2005.
(f)Represents investment of securities lending collateral.
ADRAn American Depositary Receipt is a certificate issued by a custodian bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States.
36
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES VALUE FUND - CONTINUED
HOLDINGS AT SEPTEMBER 30, 2005 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Oil, Gas & Consumable Fuels 10.1%
Diversified Financial Services 7.0
Commercial Banks 6.7
Media 6.2
Insurance 5.9
Capital Markets 5.8
Aerospace & Defense 5.3
Energy Equipment & Services 4.8
Diversified Telecommunication Services 4.7
Communications Equipment 3.5
Pharmaceuticals 2.6
Electric Utilities 2.5
Independent Power Producer & Energy 2.4
IT Services 2.3
Multiline Retail 2.3
Tobacco 2.3
Hotels, Restaurants & Leisure 2.0
Road & Rail 2.0
Other, less than 2% each 17.8
See accompanying notes to financial statements.
37
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES WORLDWIDE FUND
PRINCIPAL AMOUNT VALUE (a)
- -------------------------------------------------------------------------------
BONDS AND NOTES - 30.1% OF TOTAL NET ASSETS
NON-CONVERTIBLE BONDS - 29.8%
ARGENTINA - 0.4%
Republic of Argentina, 2.000%, 9/30/2014 ARS 515,000 $ 182,629
----------
AUSTRALIA - 0.1%
South Australia Government Finance Authority,
Zero Coupon Bond, 12/21/2015 AUD 120,000 51,613
----------
AUSTRIA - 0.2%
Osterreichsche Kontrollbank AG,
1.800%, 3/22/2010 JPY 10,000,000 92,527
----------
BRAZIL - 0.1%
Republic of Brazil, 8.750%, 2/04/2025 USD 50,000 52,825
----------
CANADA - 0.9%
Avenor, Inc., 10.850%, 11/30/2014 CAD 20,000 19,785
Calpine Canada Energy Finance,
8.500%, 5/01/2008(f) USD 310,000 185,225
Canadian Government, 0.700%, 3/20/2006 JPY 10,000,000 88,336
Canadian Pacific Railway Ltd.,
4.900%, 6/15/2010, 144A CAD 25,000 22,238
Molson Coors Capital Finance, 5.000%, 9/22/2015 50,000 42,672
Rogers Wireless, Inc., 7.625%, 12/15/2011 25,000 22,850
Shaw Comunications, Inc., 7.500%, 11/20/2013 70,000 65,562
----------
446,668
----------
CAYMAN ISLAND - 0.4%
Arcel Finance Ltd., 7.048%, 9/01/2011, 144A USD 113,436 115,138
Vale Overseas Ltd., 8.250%, 1/17/2034 75,000 84,562
----------
199,700
----------
CHILE - 0.1%
Empresa Nacional de Electricidad SA, Series B,
8.500%, 4/01/2009(f) 50,000 55,012
----------
COLOMBIA - 0.1%
Republic of Columbia, 11.750%, 3/01/2010 COP 100,000,000 49,957
----------
DENMARK - 0.2%
Kingdom of Denmark, 4.000%, 8/15/2008 DKK 525,000 88,121
----------
FRANCE - 0.1%
Dexia Municipal Agency, 5.500%, 4/25/2006 EUR 25,000 30,592
----------
GERMANY - 2.6%
Eurohypo AG - Europaeische Hypothekenbank der
Deutschen Bank, 4.000%, 2/01/2007 150,000 184,175
Hypothekenbank in Essen AG, 5.250%, 1/22/2008 115,000 146,604
KFW 2.500%, 10/11/2010 260,000 308,669
Republic of Germany, 3.000%, 4/11/2008 170,000 207,063
Republic of Germany, 3.250%, 4/17/2009 305,000 374,964
----------
1,221,475
----------
IRELAND - 0.2%
Elan Financial Plc, 7.750%, 11/15/2011 USD 50,000 44,000
Republic of Ireland, 4.600%, 4/18/2016 EUR 30,000 40,595
----------
84,595
----------
38
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES WORLDWIDE FUND - CONTINUED
PRINCIPAL AMOUNT VALUE (a)
- ------------------------------------------------------------------------------
BONDS AND NOTES - CONTINUED
ITALY - 1.6%
Republic of Italy, 0.375%, 10/10/2006 JPY 68,000,000 $600,699
Republic of Italy, 4.500%, 3/01/2007 EUR 135,000 167,175
---------
767,874
---------
KOREA - 0.3%
Hanarotelecom, Inc., 7.000%, 2/01/2012(f), 144A USD 150,000 148,044
---------
MEXICO - 1.2%
American Movil SA de CV, 9.000%, 1/15/2016 MXN 1,000,000 93,092
Desarrolladora Homex SA,
7.500%, 9/28/2015, 144A USD 70,000 70,000
Government of Mexico, 6.750%, 6/06/2006 JPY 7,000,000 64,315
Innova S de RL, 9.375%, 9/19/2013(f) USD 25,000 28,375
Mexican Fixed Rate Bonds, 4.250%, 6/16/2015 EUR 100,000 121,062
Mexican Fixed Rate Bonds, 9.000%, 12/20/2012 MXN 1,000,000 95,287
Mexican Fixed Rate Bonds, 9.500%, 12/18/2014 1,000,000 98,420
---------
570,551
---------
NETHERLANDS - 0.7%
E. On International Finance, Series EMTN,
5.750%, 5/29/2009 EUR 10,000 13,225
GMAC International Finance BV,
8.000%, 3/14/2007 NZD 55,000 37,278
Kingdom of Netherlands, 5.000%, 7/15/2011 EUR 165,000 221,065
Olivetti Finance NV, 6.875%, 1/24/2013 10,000 14,549
RWE Finance B.V., 6.125%, 10/26/2012 25,000 35,563
---------
321,680
---------
PERU - 0.6%
Republic of Peru, 5.000%, 3/07/2017(e) USD 284,200 273,543
---------
SINGAPORE - 0.4%
Government of Singapore, 4.625%, 7/01/2010 SGD 280,000 180,479
Singapore Telecommunications Ltd.,
6.000%, 11/21/2011 EUR 10,000 13,862
---------
194,341
---------
SOUTH AFRICA - 0.1%
Republic of South Africa, 5.250%, 5/16/2013 50,000 66,619
---------
SUPRANATIONAL - 0.5%
European Investment Bank, Zero Coupon Bond,
9/12/2008, 144A BRL 370,085 108,944
Inter-American Development Bank,
Zero Coupon, 5/11/2009 400,000 105,587
Inter-American Development Bank,
1.900%, 7/08/2009 JPY 4,000,000 37,099
---------
251,630
---------
SWEDEN - 0.7%
Government of Sweden, Series 1040,
6.500%, 5/05/2008 SEK 1,575,000 223,896
Government of Sweden, Series 1045,
5.250%, 3/15/2011 495,000 71,689
Stena AB,
7.500%, 11/01/2013 USD 25,000 24,312
---------
319,897
---------
39
PRINCIPAL AMOUNT VALUE (a)
- ------------------------------------------------------------------------------
BONDS AND NOTES - CONTINUED
UNITED KINGDOM - 1.3%
Barclays Financial LLC, 4.060%, 9/16/2010, 144A KRW 110,000,000 $103,151
Barclays Financial LLC, 4.100%, 3/22/2010, 144A THB 4,000,000 91,382
Barclays Financial LLC, 4.160%, 2/22/2010, 144A 4,000,000 91,704
Barclays Financial LLC, 4.460%, 9/23/2010, 144A KRW 110,000,000 104,928
NGG Finance Plc, 6.125%, 8/23/2011 EUR 10,000 13,901
United Kingdom Treasury, 5.000%, 3/07/2025 GBP 35,000 67,516
United Kingdom Treasury, 6.250%, 11/25/2010 70,000 135,040
WPP Group Plc, 6.000%, 6/18/2008 EUR 10,000 12,991
---------
620,613
---------
UNITED STATES - 16.7%
AES Corp., 7.750%, 3/01/2014(f) USD 100,000 106,000
Agco Corp., 6.875%, 4/15/2014 EUR 20,000 25,269
AK Steel Corp., 7.750%, 6/15/2012(f) USD 200,000 184,500
Albertsons, Inc., 6.625%, 6/01/2028 45,000 35,931
Albertsons, Inc., 7.450%, 8/01/2029 165,000 142,329
American Standard, Inc., 8.250%, 6/01/2009 GBP 10,000 19,490
Amkor Technology, Inc., 10.500%, 5/01/2009(f) USD 50,000 42,500
Arrow Electronics, Inc., 6.875%, 7/01/2013 75,000 80,601
ASIF Global Financing XXVII,
2.380%, 2/26/2009, 144A SGD 100,000 58,530
Atlas Air Worldwide Holdings, Inc.,
7.200%, 1/02/2019 USD 78,422 77,936
Atlas Air, Inc., Series B, 7.680%, 1/02/2014(d) 42,865 36,181
Bausch & Lomb, Inc., 7.125%, 8/01/2028 95,000 102,356
Borden, Inc., 7.875%, 2/15/2023(f) 150,000 120,000
Chesapeake Energy Corp., 6.500%, 8/15/2017 5,000 5,087
Chesapeake Energy Corp., 6.875%, 1/15/2016 105,000 107,625
Columbia/HCA Healthcare Corp.,
7.050%, 12/01/2027 50,000 47,225
Columbia/HCA Healthcare Corp.,
7.190%, 11/15/2015 50,000 51,670
Continental Airlines, Inc., Series 1998-1A,
6.648%, 9/15/2017 41,062 39,690
Continental Airlines, Inc., Series 1999-1C,
6.954%, 8/02/2009 261,164 228,855
Continental Airlines, Inc., Series 2000-2,
7.487%, 4/02/2012 75,000 74,673
Corning Glass, 8.875%, 3/15/2016 25,000 30,235
Cummins Engine Co., Inc., 7.125%, 3/01/2028 160,000 162,400
Delphi Automotive Systems Corp.,
7.125%, 5/01/2029(d)(f) 70,000 44,800
Dillard's, Inc., 6.625%, 1/15/2018(f) 50,000 46,500
Dillard's, Inc., 7.000%, 12/01/2028(f) 50,000 46,000
ESI Tractebel Acquisition Corp., Series B,
7.990%, 12/30/2011(f) 21,000 22,025
Federal Home Loan Mortgage Corp.,
5.125%, 1/15/2012 EUR 200,000 270,065
Federal National Mortgage Association,
2.125%, 10/09/2007 JPY 30,000,000 274,016
Federal National Mortgage Association,
2.290%, 2/19/2009 SGD 200,000 117,184
Federal National Mortgage Association,
2.375%, 2/15/2007 USD 50,000 48,680
40
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES WORLDWIDE FUND - CONTINUED
PRINCIPAL AMOUNT VALUE (a)
- ---------------------------------------------------------------------------------
BONDS AND NOTES - CONTINUED
UNITED STATES - CONTINUED
General Electric Capital Corp.,
0.550%, 10/14/2008 JPY 25,000,000 $ 220,091
General Motors Acceptance Corp.,
4.559%, 7/16/2007(f) USD 75,000 72,932
General Motors Acceptance Corp.,
4.670%, 3/20/2007(e)(f) 350,000 342,655
Georgia-Pacific Group, 7.375%, 12/01/2025(f) 50,000 52,000
Georgia-Pacific Group, 7.750%, 11/15/2029 35,000 37,538
Hertz Corp., 6.350%, 6/15/2010 15,000 14,184
Hertz Corp., 6.900%, 8/15/2014 5,000 4,631
HSBC Bank USA, 3.310%, 8/25/2010, 144A 100,000 101,280
IMC Global, Inc., 7.375%, 8/01/2018 100,000 102,625
J.C. Penney Co., Inc., 7.125%, 11/15/2023 25,000 27,500
KfW International Finance, Inc.,
1.750%, 3/23/2010 JPY 2,000,000 18,459
KfW International Finance, Inc.,
2.050%, 9/21/2009 29,000,000 269,945
Lear Corp. 5.750%, 8/01/2014(f) USD 115,000 96,025
Lucent Technologies, Inc., 6.450%, 3/15/2029(f) 155,000 135,625
Morgan Stanley, 5.375%, 11/14/2013 GBP 20,000 36,109
Motorola, Inc., 8.000%, 11/01/2011(f) USD 75,000 87,685
News America Holdings, Inc., 8.625%, 2/07/2014 AUD 50,000 40,642
NGC Corp. Capital Trust, 8.316%, 6/01/2027(f) USD 250,000 224,375
Pemex Project Funding Master Trust,
7.875%, 2/01/2009 115,000 124,487
Qwest Capital Funding, Inc., 6.500%, 11/15/2018 75,000 62,250
Qwest Corp., 6.875%, 9/15/2033(f) 30,000 26,025
Toys R Us, 7.375%, 10/15/2018(f) 350,000 280,000
U.S. Treasury Notes, 2.500%, 5/31/2006 35,000 34,651
U.S. Treasury Notes, 2.625%, 5/15/2008 50,000 48,082
U.S. Treasury Notes, 2.750%, 6/30/2006 40,000 39,622
U.S. Treasury Notes, 3.000%, 2/15/2008 50,000 48,678
U.S. Treasury Notes, 3.250%, 8/15/2008 200,000 194,953
U.S. Treasury Notes, 4.375%, 5/15/2007 1,000,000 1,003,320
U.S. Treasury Notes, 4.000%, 8/31/2007 1,000,000 996,602
U.S. Treasury Bonds, 5.375%, 2/15/2031 80,000 89,625
US West Capital Funding, Inc.,
6.875%, 7/15/2028(f) 200,000 164,500
Williams Cos., Inc., 7.500%, 1/15/2031 100,000 106,250
Woolworth Corp., 8.500%, 1/15/2022 150,000 163,125
Xerox Capital Trust I, 8.000%, 2/01/2027(f) 50,000 51,875
Xerox Corp., 7.200%, 4/01/2016 20,000 21,800
-----------
7,988,499
-----------
VENEZUELA - 0.3%
Cerro Negro Finance Ltd.,
7.900%, 12/01/2020, 144A 130,000 123,825
-----------
TOTAL NON-CONVERTIBLE BONDS
(Identified Cost $13,915,849) $14,202,830
-----------
41
PRINCIPAL AMOUNT VALUE (a)
- -------------------------------------------------------------------------
CONVERTIBLE BONDS - 0.3%
UNITED STATES - 0.3%
Builders Transportation, Inc.,
8.000%, 8/15/2005(d)(h) 95,000 $ 9
Level 3 Communications, Inc.,
6.000%, 9/15/2009(f) 25,000 13,094
Regeneron Pharmaceuticals, Inc.,
5.500%, 10/17/2008 30,000 28,425
Valeant Pharmaceuticals International,
3.000%, 8/16/2010 90,000 81,787
Valeant Pharmaceuticals International,
4.000%, 11/15/2013 30,000 27,188
-----------
150,503
-----------
TOTAL CONVERTIBLE BONDS
(Identified Cost $245,657) 150,503
-----------
TOTAL BONDS AND NOTES
(Identified Cost $14,161,506) 14,353,333
-----------
SHARES
- -------------------------------------------------------------------------
COMMON STOCKS - 64.3% OF TOTAL NET ASSETS
AUSTRALIA - 1.1%
Aristocrat Leisure Ltd.(f) 55,975 507,131
-----------
AUSTRIA - 0.5%
Wienerberger AG 6,475 255,223
-----------
BELGIUM - 0.8%
Umicore 3,475 379,761
-----------
BERMUDA - 1.1%
Marvell Technology Group Ltd.(c) 10,988 506,657
-----------
FRANCE - 0.7%
Total S.A.(f) 1,200 326,659
-----------
GERMANY - 0.5%
Siemens AG 3,150 243,225
-----------
GREECE - 1.5%
Piraeus Bank S.A. 33,525 702,418
-----------
HONG KONG - 0.9%
Esprit Holdings Ltd. 60,275 450,772
-----------
IRELAND - 2.1%
Anglo Irish Bank Corp., Plc 43,392 593,089
Ryanair Holdings Plc, ADR(c) 9,525 433,673
-----------
1,026,762
-----------
ITALY - 0.6%
Eni Spa(f) 10,200 302,565
-----------
JAPAN - 4.4%
Honda Motor Co., Ltd.(f) 10,475 595,509
Orix Corp.(f) 4,800 869,956
Yamada Denki Co., Ltd. 8,100 615,777
-----------
2,081,242
-----------
42
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES WORLDWIDE FUND - CONTINUED
SHARES VALUE (a)
- -------------------------------------------------------------
COMMON STOCKS - CONTINUED
MEXICO - 1.1%
America Movil S.A. de C.V., Series L 396,575 $ 523,138
----------
SOUTH AFRICA - 1.3%
Sasol Ltd., Sponsored ADR 16,200 626,778
----------
SWITZERLAND - 4.9%
ABB Ltd.(c) 82,775 606,333
Alcon, Inc. 3,625 463,565
Roche Holding AG 6,875 955,147
Synthes, Inc. 2,650 310,485
----------
2,335,530
----------
THAILAND - 0.7%
PTT Public Company Ltd. 60,000 358,387
----------
UNITED KINGDOM - 3.0%
Standard Chartered Plc 32,650 705,347
Vodafone Group Plc 112,275 292,106
Wolseley Plc 20,075 425,707
----------
1,423,160
----------
UNITED STATES - 39.1%
Aetna, Inc. 5,175 445,775
Amgen, Inc.(c) 8,475 675,203
Apple Computer, Inc.(c) 7,925 424,859
Burlington Northern Santa Fe Corp. 10,650 636,870
Caremark Rx, Inc.(c) 11,850 591,670
CB Richard Ellis Group, Inc., Class A(c) 9,675 476,010
CenturyTel, Inc. 8,800 307,824
Chicago Mercantile Exchange, Inc. 725 244,543
Chico's FAS, Inc.(c) 11,900 437,920
Citigroup, Inc. 4,150 188,908
Coach, Inc.(c) 19,975 626,416
ConocoPhillips 5,900 412,469
Corning, Inc.(c) 5,167 99,878
Dell, Inc.(c) 9,425 322,335
DIRECTV Group, Inc. (The)(c) 20,700 310,086
eBay, Inc.(c) 13,550 558,260
Exxon Mobil Corp. 5,900 374,886
GlobalSantaFe Corp. 9,925 452,778
Google, Inc., Class A(c) 3,150 996,849
Intel Corp. 16,600 409,190
Johnson & Johnson 10,650 673,932
Legg Mason, Inc. 7,300 800,737
Lehman Brothers Holdings, Inc. 6,575 765,856
McDonald's Corp. 8,275 277,130
Motorola, Inc. 31,050 685,894
Peabody Energy Corp. 8,275 697,996
Praxair, Inc. 3,925 188,125
Prudential Financial, Inc. 9,625 650,265
QUALCOMM, Inc. 15,000 671,250
St. Jude Medical, Inc.(c) 13,300 622,440
Stryker Corp. 7,200 355,896
Texas Instruments, Inc. 20,850 706,815
UnitedHealth Group, Inc. 13,900 781,180
43
SHARES
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
UNITED STATES - CONTINUED
WellPoint, Inc.(c) 10,300
Wells Fargo & Co. 4,400
Whole Foods Market, Inc. 3,250
XTO Energy, Inc. 6,683
TOTAL COMMON STOCKS
(Identified Cost $26,931,703)
PRINCIPAL AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 18.4%
Tri-Party Repurchase Agreement with Fixed Income
Clearing Corporation, dated 9/30/2005 at 1.750% to be
repurchased at $4,314,629 on 10/3/2005 collateralized by
$4,525,000 U.S. Treasury Note 3.375% due 9/15/2009
with a value of $4,400,563 (Note 2g) $ 4,314,000
SHARES
- ----------------------------------------------------------------------------------------------------------------------
State Street Navigator Securities Lending Prime
Portfolio(g) 4,469,314
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $8,783,314)
TOTAL INVESTMENTS - 112.8%
(Identified Cost $49,876,523)(b)
Other assets less liabilities--(12.8)%
TOTAL NET ASSETS - 100%
(a)See Note 2a of Notes to Financial Statements
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $49,956,275 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost
Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value
Net unrealized appreciation
(c)Non-income producing security.
(d)Non-income producing security due to default or bankruptcy filing.
(e)Variable rate security. Rate disclosed is rate at September 30, 2005
(f)All or a portion of this security was on loan to brokers at September 30, 2005.
(g)Represents investment of securities lending collateral.
(h)Illiquid security.
VALUE (a)
- ----------------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
UNITED STATES - CONTINUED
WellPoint, Inc.(c) $ 780,946
Wells Fargo & Co. 257,708
Whole Foods Market, Inc. 436,963
XTO Energy, Inc. 302,874
-----------
18,648,736
-----------
TOTAL COMMON STOCKS
(Identified Cost $26,931,703) 30,698,144
-----------
- ----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 18.4%
Tri-Party Repurchase Agreement with Fixed Income
Clearing Corporation, dated 9/30/2005 at 1.750% to be
repurchased at $4,314,629 on 10/3/2005 collateralized by
$4,525,000 U.S. Treasury Note 3.375% due 9/15/2009
with a value of $4,400,563 (Note 2g) 4,314,000
-----------
- ----------------------------------------------------------------------------------------------
State Street Navigator Securities Lending Prime
Portfolio(g) 4,469,314
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $8,783,314) 8,783,314
-----------
TOTAL INVESTMENTS - 112.8%
(Identified Cost $49,876,523)(b) 53,834,791
Other assets less liabilities--(12.8)% (6,122,735)
-----------
TOTAL NET ASSETS - 100% $47,712,056
-----------
(a)See Note 2a of Notes to Financial Statements
(b)Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on investments based on cost of $49,956,275 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost $ 4,351,459
Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value (472,943)
-----------
Net unrealized appreciation $ 3,878,516
-----------
(c)Non-income producing security.
(d)Non-income producing security due to default or bankruptcy filing.
(e)Variable rate security. Rate disclosed is rate at September 30, 2005
(f)All or a portion of this security was on loan to brokers at September 30, 2005.
(g)Represents investment of securities lending collateral.
(h)Illiquid security.
144ASecurities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At September 30,
2005, the total value of these securities amounted to $1,139,164 of 2.39%
of total net assets.
44
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2005
LOOMIS SAYLES WORLDWIDE FUND - CONTINUED
ADRAn American Depositary Receipt (ADR) is a a certificate issued by a
custodian bank representing the right to receive securities of foreign
issuer described. The values of ADR's are significantly influenced by
trading on exchanges not located in the United States.
Key to Abbreviations: ARS: Argenintinian Neuvo Peso; AUD: Australian Dollar;
BRL: Brazilian Real; CAD: Canadian Dollar;
COP: Columbian Peso; DKK: Danish Krone; EUR: Euro; GBP: Great British Pound;
JPY: Japanese Yen; MXN: Mexican Peso; NZD: New Zealand Dollar; SGD:
Singapore Dollar; SEK: Swedish Krona; KRW: South Korean Won; THB: Thai Baht;
USD: United States Dollar.
HOLDINGS AT SEPTEMBER 30, 2005 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Sovereigns 7.3%
Healthcare Providers & Services 5.4
Treasuries 5.2
Capital Markets 4.8
Healthcare Equipment & Supplies 3.5
Semiconductors & Semiconductor Equipment 3.4
Oil & Gas 3.4
Communications Equipment 3.1
Metals & Mining 2.8
Specialty Retail 2.4
Pharmaceuticals 2.3
Oil, Gas & Consumable Fuels 2.3
Textiles Apparel & Luxury Goods 2.3
Internet Software & Services 2.1
Other, less than 2% each 44.1
See accompanying notes to financial statements.
45
THIS PAGE INTENTIONALLY LEFT BLANK
46
STATEMENTS OF ASSETS & LIABILITIES
SEPTEMBER 30, 2005
AGGRESSIVE SMALL CAP
GROWTH FUND GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Investments at cost $ 53,288,472 $ 21,220,091
Net unrealized appreciation 8,128,716 3,216,953
---------------- ----------------
Investments at value 61,417,188 24,437,044
Cash 504 573
Foreign cash at value (identified cost $20,180) -- --
Securities lending income receivable 1,353 938
Receivable for Fund shares sold 37,927 27,190
Receivable for securities sold 419,334 9,522
Dividends and interest receivable 876 1,522
Tax reclaims receivable -- --
Receivable from investment adviser 23,174 17,283
Other -- --
---------------- ----------------
TOTAL ASSETS 61,900,356 24,494,072
---------------- ----------------
LIABILITIES
Collateral on securities loaned, at value (Note 2) 9,540,403 4,844,544
Payable for securities purchased 272,005 189,495
Payable for Fund shares redeemed 30,515 5,306
Unrealized depreciation on forward foreign currency contracts -- --
Foreign taxes -- --
Management fees payable 31,330 11,853
Deferred Trustees' fees 14,525 13,570
Administrative fees payable 8,444 7,288
Service and distribution fees payable 175 25
Transfer agent fees payable 10,457 263
Other accounts payable and accrued expenses 31,184 44,810
---------------- ----------------
TOTAL LIABILITIES 9,939,038 5,117,154
---------------- ----------------
NET ASSETS $ 51,961,318 $ 19,376,918
---------------- ----------------
Net Assets consist of:
Paid-in capital $ 144,792,086 $ 220,842,356
Undistributed (overdistributed) net investment income (loss) (14,661) (13,569)
Accumulated net realized gain (loss) on investments (100,944,823) (204,668,822)
Net unrealized appreciation on investments and foreign currency translations 8,128,716 3,216,953
---------------- ----------------
NET ASSETS $ 51,961,318 $ 19,376,918
---------------- ----------------
NET ASSET VALUE AND OFFERING PRICE
INSTITUTIONAL CLASS
Net assets $ 26,159,049 $ 15,784,555
---------------- ----------------
Shares of beneficial interest 1,376,870 1,424,265
---------------- ----------------
Net asset value, offering and redemption price per share $ 19.00 $ 11.08
---------------- ----------------
RETAIL CLASS
Net assets $ 25,802,269 $ 3,592,363
---------------- ----------------
Shares of beneficial interest 1,385,086 331,444
---------------- ----------------
Net asset value, offering and redemption price per share $ 18.63 $ 10.84
---------------- ----------------
ADMIN CLASS
Net assets -- --
---------------- ----------------
Shares of beneficial interest -- --
---------------- ----------------
Net asset value, offering and redemption price per share -- --
---------------- ----------------
Value of securities on loan (Note 2) $ 9,315,725 $ 4,716,596
---------------- ----------------
See accompanying notes to financial statements.
47
SMALL CAP TAX-MANAGED
VALUE FUND EQUITY FUND VALUE FUND WORLDWIDE FUND
---------------------------------------------------------
$ 685,144,172 $ 8,105,297 $ 29,608,173 $ 49,876,523
151,086,695 1,123,467 8,303,540 3,958,268
---------------------------------------------------------
836,230,867 9,228,764 37,911,713 53,834,791
691 29,307 359 248
-- -- -- 19,866
12,422 -- 108 1,188
1,230,154 100 32,452 --
-- -- 304,890 950,792
799,628 6,260 39,232 217,031
-- -- -- 1,305
75,241 7,945 -- --
-- -- -- 1,050
---------------------------------------------------------
838,349,003 9,272,376 38,288,754 55,026,271
---------------------------------------------------------
122,331,459 -- 654,246 4,469,314
7,940,984 -- 312,182 2,769,663
797,219 -- 7,500 --
-- -- -- 652
-- -- -- 5,874
430,047 3,781 18,673 39,734
44,355 12,086 13,781 12,914
90,599 1,366 6,311 3,933
2,527 -- -- --
58,101 10,781 4,415 8,375
90,659 14,088 17,045 3,756
---------------------------------------------------------
131,785,950 42,102 1,034,153 7,314,215
---------------------------------------------------------
$ 706,563,053 $ 9,230,274 $ 37,254,601 $ 47,712,056
---------------------------------------------------------
$ 499,517,796 $ 12,261,035 $ 27,991,674 $ 44,364,839
2,086,781 42,058 388,984 593,309
53,871,781 (4,196,286) 570,403 (1,195,818)
151,086,695 1,123,467 8,303,540 3,949,726
---------------------------------------------------------
$ 706,563,053 $ 9,230,274 $ 37,254,601 $ 47,712,056
---------------------------------------------------------
$ 403,109,937 $ 9,230,274 $ 37,254,601 $ 47,712,056
---------------------------------------------------------
14,696,702 1,002,837 1,990,049 4,029,825
---------------------------------------------------------
$ 27.43 $ 9.20 $ 18.72 $ 11.84
---------------------------------------------------------
$ 235,948,334 -- -- --
---------------------------------------------------------
8,664,723 -- -- --
---------------------------------------------------------
$ 27.23 -- -- --
---------------------------------------------------------
$ 67,504,782 -- -- --
---------------------------------------------------------
2,506,142 -- -- --
---------------------------------------------------------
$ 26.94 -- -- --
---------------------------------------------------------
$ 119,358,669 $ -- $ 624,765 $ 4,319,872
---------------------------------------------------------
See accompanying notes to financial statements.
48
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2005
AGGRESSIVE SMALL CAP
GROWTH FUND GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 189,516 $ 20,614
Interest 12,055 5,081
Securities lending income 5,630 5,863
Less net foreign taxes withheld -- (80)
------------ ------------
207,201 31,478
------------ ------------
EXPENSES
Management fees 385,975 168,258
Distribution fees--Retail Class 64,455 17,147
Service and distribution fees--Admin Class -- --
Trustees' fees and expenses 14,897 13,571
Administrative fees 33,510 14,608
Custodian 48,417 50,162
Transfer agent fees--Institutional Class, Retail Class, Admin Class 61,507 38,845
Audit and tax services 19,852 27,510
Registration 27,440 34,073
Shareholder reporting 29,993 21,440
Legal 3,397 2,018
Miscellaneous 6,500 5,393
------------ ------------
Total expenses 695,943 393,025
Less reimbursement/waiver (116,730) (151,644)
------------ ------------
Net expenses 579,213 241,381
------------ ------------
Net investment income (loss) (372,012) (209,903)
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
REALIZED GAIN ON:
Investments--net 8,280,912 4,895,374
Foreign currency transactions--net -- --
------------ ------------
Total net realized gain on investments and foreign currency transactions 8,280,912 4,895,374
------------ ------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments--net 2,760,613 483,981
Foreign currency translations--net -- --
------------ ------------
Total net change in unrealized appreciation (depreciation) on investments and foreign
currency translations 2,760,613 483,981
------------ ------------
Total net realized and unrealized gain on investments and foreign currency transactions 11,041,525 5,379,355
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 10,669,513 $ 5,169,452
------------ ------------
See accompanying notes to financial statements.
49
SMALL CAP TAX-MANAGED
VALUE FUND EQUITY FUND VALUE FUND WORLDWIDE FUND
-----------------------------------------------------------
$ 8,270,879 $ 96,713 $ 683,471 $ 166,510
560,545 653 14,824 482,002
81,860 -- 208 4,378
(7,067) (342) (2,264) (11,251)
-----------------------------------------------------------
8,906,217 97,024 696,239 641,639
-----------------------------------------------------------
4,818,972 39,124 175,567 177,221
519,186 -- -- --
325,226 -- -- --
43,121 12,750 14,108 13,637
418,383 5,095 22,864 15,386
116,649 32,025 34,451 71,376
262,559 27,182 26,820 27,789
35,069 15,874 18,101 17,385
50,141 15,319 12,965 12,010
183,241 6,812 12,558 6,086
38,536 399 2,242 1,208
40,290 3,252 5,062 4,048
-----------------------------------------------------------
6,851,373 157,832 324,738 346,146
(225,273) (106,971) (26,275) (109,851)
-----------------------------------------------------------
6,626,100 50,861 298,463 236,295
-----------------------------------------------------------
2,280,117 46,163 397,776 405,344
-----------------------------------------------------------
58,138,015 19,715 2,769,664 1,061,469
-- -- -- 15,627
-----------------------------------------------------------
58,138,015 19,715 2,769,664 1,077,096
-----------------------------------------------------------
43,086,275 533,250 2,911,452 2,055,122
-- -- -- (4,147)
-----------------------------------------------------------
43,086,275 533,250 2,911,452 2,050,975
-----------------------------------------------------------
101,224,290 552,965 5,681,116 3,128,071
-----------------------------------------------------------
$ 103,504,407 $ 599,128 $ 6,078,892 $ 3,533,415
-----------------------------------------------------------
See accompanying notes to financial statements.
50
STATEMENTS OF CHANGES IN NET ASSETS
AGGRESSIVE GROWTH FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
- ----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ (372,012) $ (536,251)
Net realized gain (loss) on investments and foreign currency transactions 8,280,912 11,771,511
Net change in unrealized appreciation (depreciation) on investments and foreign
currency translations 2,760,613 (4,394,736)
------------------ ------------------
Increase in net assets resulting from operations 10,669,513 6,840,524
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class (280,790) --
Retail Class (217,988) --
CAPITAL GAINS:
Institutional Class -- --
Retail Class -- --
------------------ ------------------
Total distributions (498,778) --
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) (8,782,602) (12,946,996)
------------------ ------------------
REDEMPTION FEES
Institutional Class -- --
Retail Class -- --
------------------ ------------------
Total increase (decrease) in net assets 1,388,133 (6,106,472)
NET ASSETS
Beginning of year 50,573,185 56,679,657
------------------ ------------------
End of year $51,961,318 $ 50,573,185
------------------ ------------------
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ (14,661) $ (126,934)
------------------ ------------------
SMALL CAP GROWTH FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
- ----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ (209,903) $ (474,524)
Net realized gain (loss) on investments and foreign currency transactions 4,895,374 12,648,409
Net change in unrealized appreciation (depreciation) on investments and foreign
currency translations 483,981 (8,644,086)
------------------ ------------------
Increase in net assets resulting from operations 5,169,452 3,529,799
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class -- --
Retail Class -- --
CAPITAL GAINS:
Institutional Class -- --
Retail Class -- --
------------------ ------------------
Total distributions -- --
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) (16,249,525) (25,938,308)
------------------ ------------------
REDEMPTION FEES
Institutional Class 1,091 63
Retail Class 344 41
------------------ ------------------
Total increase (decrease) in net assets (11,078,638) (22,408,405)
NET ASSETS
Beginning of year 30,455,556 52,863,961
------------------ ------------------
End of year $ 19,376,918 $ 30,455,556
------------------ ------------------
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ (13,569) $ (4,989)
------------------ ------------------
See accompanying notes to financial statements.
51
SMALL CAP VALUE FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
- ----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ 2,280,117 $ 223,709
Net realized gain (loss) on investments and foreign currency transactions 58,138,015 65,900,639
Net change in unrealized appreciation (depreciation) on investments and foreign
currency translations 43,086,275 46,216,250
------------------ ------------------
Increase in net assets resulting from operations 103,504,407 112,340,598
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class (330,114) (755,336)
Retail Class -- (73,295)
Admin Class -- --
CAPITAL GAINS:
Institutional Class (36,097,787) (7,446,392)
Retail Class (18,456,167) (3,811,026)
Admin Class (6,757,571) (1,088,512)
------------------ ------------------
Total distributions (61,641,639) (13,174,561)
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) 82,243,991 15,767,810
------------------ ------------------
REDEMPTION FEES
Institutional Class 5,541 2,915
Retail Class 3,209 1,477
Admin Class 956 486
------------------ ------------------
Total increase (decrease) in net assets 124,116,465 114,938,725
NET ASSETS
Beginning of year 582,446,588 467,507,863
------------------ ------------------
End of year $706,563,053 $582,446,588
------------------ ------------------
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ 2,086,781 $ 76,941
------------------ ------------------
TAX-MANAGED EQUITY FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
- ----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ 46,163 $ 21,562
Net realized gain (loss) on investments and foreign currency transactions 19,715 (11,257)
Net change in unrealized appreciation (depreciation) on investments and foreign
currency translations 533,250 375,137
------------------ ------------------
Increase in net assets resulting from operations 599,128 385,442
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class (23,811) (62,322)
CAPITAL GAINS:
Institutional Class -- --
------------------ ------------------
Total distributions (23,811) (62,322)
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) 3,452,918 2,388,811
------------------ ------------------
REDEMPTION FEES
Institutional Class -- --
------------------ ------------------
Total increase (decrease) in net assets 4,028,235 2,711,931
NET ASSETS
Beginning of year 5,202,039 2,490,108
------------------ ------------------
End of year $9,230,274 $5,202,039
------------------ ------------------
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ 42,058 $ 19,706
------------------ ------------------
See accompanying notes to financial statements.
52
STATEMENTS OF CHANGES IN NET ASSETS
VALUE FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
- ----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ 397,776 $ 529,906
Net realized gain (loss) on investments and foreign currency transactions 2,769,664 3,827,567
Net change in unrealized appreciation (depreciation) on investments and foreign
currency translations 2,911,452 2,637,813
------------------ ------------------
Increase in net assets resulting from operations 6,078,892 6,995,286
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class (524,122) (456,216)
CAPITAL GAINS:
Institutional Class -- --
------------------ ------------------
Total distributions (524,122) (456,216)
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) (1,863,227) (10,935,484)
------------------ ------------------
REDEMPTION FEES
Institutional Class -- --
------------------ ------------------
Total increase (decrease) in net assets 3,691,543 (4,396,414)
NET ASSETS
Beginning of year 33,563,058 37,959,472
------------------ ------------------
End of year $37,254,601 $ 33,563,058
------------------ ------------------
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ 388,984 $ 519,100
------------------ ------------------
WORLDWIDE FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
- ----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ 405,344 $ 384,618
Net realized gain (loss) on investments and foreign currency transactions 1,077,096 501,611
Net change in unrealized appreciation (depreciation) on investments and foreign
currency translations 2,050,975 772,068
------------------ ------------------
Increase in net assets resulting from operations 3,533,415 1,658,297
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class (480,214) (448,271)
CAPITAL GAINS:
Institutional Class -- --
------------------ ------------------
Total distributions (480,214) (448,271)
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) 27,384,406 5,565,347
------------------ ------------------
REDEMPTION FEES
Institutional Class 22 --
------------------ ------------------
Total increase (decrease) in net assets 30,437,629 6,775,373
NET ASSETS
Beginning of year 17,274,427 10,499,054
------------------ ------------------
End of year $47,712,056 $17,274,427
------------------ ------------------
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ 593,309 $ 465,952
------------------ ------------------
See accompanying notes to financial statements.
53
THIS PAGE INTENTIONALLY LEFT BLANK
54
FINANCIAL HIGHLIGHTS
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------------- ----------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from from net
of the investment gain (loss) on investment net investment realized
period income (loss) investments operations income capital gains
- -----------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH FUND
INSTITUTIONAL CLASS
9/30/2005 $15.50 $(0.10)(c) $ 3.78 $ 3.68 $(0.18) $ --
9/30/2004 13.69 (0.13)(c) 1.94 1.81 -- --
9/30/2003 10.70 (0.10)(c) 3.09 2.99 -- --
9/30/2002 13.56 (0.13)(c) (2.73) (2.86) -- --
9/30/2001 47.71 (0.20)(c) (33.43) (33.63) -- (0.52)
RETAIL CLASS
9/30/2005 $15.20 $(0.14)(c) $ 3.70 $ 3.56 $(0.13) $ --
9/30/2004 13.46 (0.16)(c) 1.90 1.74 -- --
9/30/2003 10.55 (0.13)(c) 3.04 2.91 -- --
9/30/2002 13.41 (0.16)(c) (2.70) (2.86) -- --
9/30/2001 47.33 (0.25)(c) (33.15) (33.40) -- (0.52)
(a) Total returns would have been lower had the adviser not reduced its
advisory fees and/or borne other operating expenses.
(b) The adviser has agreed to reimburse a portion of the Fund's expenses during
the period. Without this reimbursement the Fund's ratio of operating expenses
would have been higher.
(c) Per share net investment income (loss) has been determined on the basis of
the weighted average number of shares outstanding during the period.
See accompanying notes to financial statements.
55
RATIOS TO AVERAGE NET ASSETS
- -------------- ----------------------------------------
Net asset Net assets,
value, end of Net Portfolio
Total Redemption end of the Total the period Net Gross investment turnover
distributions fee period return %(a) (000) expenses %(b) expenses % income(loss) % rate %
- -------------------------------------------------------------------------------------------------------------
$(0.18) $-- $19.00 23.9 $26,159 1.00 1.21 (0.60) 280
-- -- 15.50 13.2 25,191 1.00 1.17 (0.84) 284
-- -- 13.69 27.9 23,866 1.00 1.23 (0.88) 248
-- -- 10.70 (21.1) 13,421 1.00 1.31 (0.91) 220
(0.52) -- 13.56 (71.1) 16,347 1.00 1.13 (0.75) 258
$(0.13) $-- $18.63 23.6 $25,802 1.25 1.50 (0.85) 280
-- -- 15.20 12.9 25,382 1.25 1.42 (1.10) 284
-- -- 13.46 27.6 32,813 1.25 1.47 (1.13) 248
-- -- 10.55 (21.3) 26,885 1.25 1.45 (1.16) 220
(0.52) -- 13.41 (71.2) 41,456 1.25 1.37 (1.01) 258
See accompanying notes to financial statements.
56
FINANCIAL HIGHLIGHTS - CONTINUED
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------------- ----------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from from net
of the investment gain (loss) on investment net investment realized
period income (loss) investments operations income capital gains
- -------------------------------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
INSTITUTIONAL CLASS
9/30/2005 $ 8.96 $(0.08)(c) $ 2.20 $ 2.12 $ -- $ --
9/30/2004 8.59 (0.09)(c) 0.46 0.37 -- --
9/30/2003 6.35 (0.06)(c) 2.30 2.24 -- --
9/30/2002 8.83 (0.08)(c) (2.40) (2.48) -- --
9/30/2001 26.98 (0.12)(c) (17.06) (17.18) -- (0.97)
RETAIL CLASS
9/30/2005 $ 8.78 $(0.11)(c) $ 2.17 $ 2.06 $ -- $ --
9/30/2004 8.45 (0.11)(c) 0.44 0.33 -- --
9/30/2003 6.26 (0.08)(c) 2.27 2.19 -- --
9/30/2002 8.72 (0.10)(c) (2.36) (2.46) -- --
9/30/2001 26.74 (0.15)(c) (16.90) (17.05) -- (0.97)
SMALL CAP VALUE FUND
INSTITUTIONAL CLASS
9/30/2005 $25.75 $ 0.13(c) $ 4.22 $ 4.35 $(0.02) $(2.65)
9/30/2004 21.34 0.04(c) 4.97 5.01 (0.05) (0.55)
9/30/2003 17.28 0.05(c) 4.01 4.06 -- --
9/30/2002 19.89 0.10(c) (0.36) (0.26) (0.11) (2.24)
9/30/2001 20.42 0.16(c) 0.60 0.76 (0.20) (1.09)
RETAIL CLASS
9/30/2005 $25.62 $ 0.06(c) $ 4.20 $ 4.26 $ -- $(2.65)
9/30/2004 21.25 (0.02)(c) 4.95 4.93 (0.01) (0.55)
9/30/2003 17.25 (0.00)(c)(d) 4.00 4.00 -- --
9/30/2002 19.85 0.05(c) (0.35) (0.30) (0.06) (2.24)
9/30/2001 20.38 0.11(c) 0.60 0.71 (0.15) (1.09)
ADMIN CLASS
9/30/2005 $25.43 $(0.00)(c)(d) $ 4.16 $ 4.16 $ -- $(2.65)
9/30/2004 21.13 (0.08)(c) 4.93 4.85 -- (0.55)
9/30/2003 17.20 (0.05)(c) 3.98 3.93 -- --
9/30/2002 19.80 (0.00)(c)(d) (0.35) (0.35) (0.01) (2.24)
9/30/2001 20.34 0.05(c) 0.60 0.65 (0.10) (1.09)
(a) Total returns would have been lower had the adviser not reduced its
advisory fees and/or borne other operating expenses.
(b) The adviser has agreed to reimburse a portion of the Fund's expenses during
the period. Without this reimbursement the Fund's ratio of operating expenses
would have been higher.
(c) Per share net investment income (loss) has been determined on the basis of
the weighted average number of shares outstanding during the period.
(d) Amount rounds to less than $0.01 per share.
See accompanying notes to financial statements.
57
RATIOS TO AVERAGE NET ASSETS
- -------------- --------------------------------------
Net asset Net assets,
value, end of Net Portfolio
Total Redemption end of the Total the period Net Gross investment turnover
distributions fee period return%(a) (000) expenses%(b) expenses% income (loss)% rate%
- ----------------------------------------------------------------------------------------------------------
$ -- $0.00(d) $11.08 23.7 $ 15,785 1.00 1.70 (0.85) 227
-- 0.00(d) 8.96 4.3 15,867 1.00 1.31 (0.95) 217
-- -- 8.59 35.3 22,519 1.00 1.19 (0.91) 190
-- -- 6.35 (28.1) 42,415 1.00 1.07 (0.90) 162
(0.97) -- 8.83 (65.2) 124,479 0.99 0.99 (0.74) 140
$ -- 0.00(d) $10.84 23.5 $ 3,592 1.25 1.87 (1.14) 227
-- 0.00(d) 8.78 3.9 14,589 1.25 1.52 (1.19) 217
-- -- 8.45 35.0 30,345 1.25 1.43 (1.17) 190
-- -- 6.26 (28.2) 32,135 1.25 1.33 (1.15) 162
(0.97) -- 8.72 (65.3) 50,197 1.25 1.26 (1.01) 140
$(2.67) $0.00(d) $27.43 18.0 $403,110 0.90 0.93 0.48 59
(0.60) 0.00(d) 25.75 23.8 346,356 0.90 0.93 0.16 70
-- -- 21.34 23.5 289,945 0.90 0.94 0.26 74
(2.35) -- 17.28 (2.6) 234,370 0.94 0.96 0.48 86
(1.29) -- 19.89 3.9 215,439 0.98 0.98 0.76 98
$(2.65) $0.00(d) $27.23 17.7 $235,948 1.15 1.20 0.24 59
(0.56) 0.00(d) 25.62 23.5 173,411 1.15 1.18 (0.08) 70
-- -- 21.25 23.2 140,152 1.15 1.20 (0.01) 74
(2.30) -- 17.25 (2.8) 86,816 1.19 1.20 0.22 86
(1.24) -- 19.85 3.6 97,544 1.22 1.22 0.51 98
$(2.65) $0.00(d) $26.94 17.4 $ 67,505 1.40 1.43 (0.01) 59
(0.55) 0.00(d) 25.43 23.3 62,680 1.40 1.43 (0.33) 70
-- -- 21.13 22.9 37,411 1.40 1.47 (0.27) 74
(2.25) -- 17.20 (3.0) 24,655 1.44 1.53 (0.01) 86
(1.19) -- 19.80 3.3 16,471 1.50 1.59 0.23 98
See accompanying notes to financial statements.
58
FINANCIAL HIGHLIGHTS - CONTINUED
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------------- ------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from net from net
of the investment gain (loss) on investment investment realized
period income investments operations income capital gains
- -------------------------------------------------------------------------------------------------
TAX-MANAGED EQUITY FUND
INSTITUTIONAL CLASS
9/30/2005 $ 8.49 $0.05(c) $ 0.69 $ 0.74 $(0.03) $ --
9/30/2004 7.66 0.05(c) 0.97 1.02 (0.19) --
9/30/2003 6.78 0.06(c) 0.85 0.91 (0.03) --
9/30/2002 7.67 0.06(c) (0.81) (0.75) (0.14) --
9/30/2001 11.16 0.12(c) (1.60) (1.48) (0.09) (1.92)
VALUE FUND
INSTITUTIONAL CLASS
9/30/2005 $15.95 $0.20(c) $ 2.83 $ 3.03 $(0.26) $ --
9/30/2004 13.52 0.21(c) 2.39 2.60 (0.17) --
9/30/2003 11.17 0.15(c) 2.29 2.44 (0.09) --
9/30/2002 13.90 0.13(c) (2.42) (2.29) (0.16) (0.28)
9/30/2001 15.12 0.14(c) (1.19) (1.05) (0.17) --
WORLDWIDE FUND
INSTITUTIONAL CLASS
9/30/2005 $10.19 $0.19(c) $ 1.73 $ 1.92 $(0.27) $ --
9/30/2004 9.32 0.25(c) 0.96 1.21 (0.34) --
9/30/2003 7.53 0.32(c) 1.74 2.06 (0.27) --
9/30/2002* 8.48 0.35(c) (0.55) (0.20) (0.75) --
9/30/2001 13.93 0.65(c) (2.44) (1.79) (0.35) (3.31)
(a) Total returns would have been lower had the adviser not reduced its
advisory fees and/or borne other operating expenses. (b) The adviser has agreed
to reimburse a portion of the Fund's expenses during the period. Without this
reimbursement the Fund's ratio of operating expenses would have been
higher. (c) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period. (d) Amount rounds to less than $0.01 per share * As required effective
October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies, and began amortizing
premium on debt securities and reclassifying paydown gains and losses to
interest income for financial statement purposes only. For the year ended
September 30, 2002, the impact to the Fund's per share net investment income
and net realized and unrealized gain (loss) was less than $0.01. The ratio of
net investment income to average net assets for the Fund decreased from 4.29%
to 4.26% on an annualized basis. Per share ratios and supplemental data for
periods prior to October 1, 2001, have not been restated to reflect this change
in presentation.
See accompanying notes to financial statements.
59
RATIOS TO AVERAGE NET ASSETS
- -------------- ------------------------------------
Net asset Net assets,
value, end of the Net Portfolio
Total Redemption end of the Total period Net Gross investment turnover
distributions fee period return %(a) (000) expenses %(b) expenses % income % rate %
- ---------------------------------------------------------------------------------------------------------
$(0.03) $ -- $ 9.20 8.7 $ 9,230 0.65 2.02 0.59 38
(0.19) -- 8.49 13.4 5,202 0.65 3.39 0.59 27
(0.03) -- 7.66 13.5 2,490 0.65 1.82 0.81 200
(0.14) -- 6.78 (10.1) 17,426 0.65 1.14 0.72 188
(2.01) -- 7.67 (15.9) 19,211 0.65 1.05 1.29 300
$(0.26) $ -- $18.72 19.2 $37,255 0.85 0.92 1.13 34
(0.17) -- 15.95 19.4 33,563 0.85 0.93 1.38 47
(0.09) -- 13.52 22.0 37,959 0.85 0.92 1.23 56
(0.44) -- 11.17 (17.2) 33,025 0.85 0.90 0.90 66
(0.17) -- 13.90 (7.1) 39,549 0.85 0.96 0.87 90
$(0.27) $0.00(d) $11.84 19.1 $47,712 1.00 1.46 1.72 78
(0.34) -- 10.19 13.2 17,274 1.00 1.87 2.55 69
(0.27) -- 9.32 28.0 10,499 1.00 2.23 3.81 94
(0.75) -- 7.53 (3.0) 8,340 1.00 2.43 4.26 113
(3.66) -- 8.48 (15.0) 8,528 1.00 2.58 6.85 160
See accompanying notes to financial statements.
60
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
1. ORGANIZATION. Loomis Sayles Funds I and Loomis Sayles Funds II (the "Trusts"
and each a "Trust") are each organized as a Massachusetts business trust. Each
Trust is registered under the Investment Company Act of 1940 (the "1940 Act"),
as amended, as an open-end investment management company. Each Declaration of
Trust permits the Board of Trustees to authorize the issuance of an unlimited
number of shares of the Trusts in multiple series (individually, a "Fund" and
collectively, the "Funds"). Shares of Loomis Sayles Tax-Managed Equity Fund
were first registered under the Securities Act of 1933 (the "1933 Act")
effective March 7, 1997 (subsequent to its commencement of investment
operations). Information presented in these financial statements pertains to
certain equity Funds of the Trusts; the financial statements for the remaining
equity funds and the fixed income funds are presented in separate reports. The
following Funds are included in this report:
LOOMIS SAYLES FUNDS I:
Loomis Sayles Small Cap Value Fund (the "Small Cap Value Fund")
LOOMIS SAYLES FUNDS II:
Loomis Sayles Aggressive Growth Fund (the "Aggressive Growth Fund")
Loomis Sayles Small Cap Growth Fund (the "Small Cap Growth Fund")
Loomis Sayles Tax-Managed Equity Fund (the "Tax-Managed Equity Fund")
Loomis Sayles Value Fund (the "Value Fund")
Loomis Sayles Worldwide Fund (the "Worldwide Fund")
Each Fund offers Institutional Class Shares. Aggressive Growth Fund, Small Cap
Growth Fund and Small Cap Value Fund also offer Retail Class Shares. In
addition, Small Cap Value Fund offers Admin Class Shares.
Loomis Sayles Small Company Growth Fund and Loomis Sayles Mid Cap Growth Fund
were liquidated on March 31, 2005 and April 29, 2005, respectively, and have
ceased operations.
Most expenses of the Trusts can be directly attributed to a Fund. Expenses
which can not be directly attributed to a Fund are generally apportioned based
on the relative net assets of each of the funds in the Trusts. Expenses of a
Fund are borne pro rata by the holders of each Class of shares, except that
each Class bears expenses unique to that Class (including the Rule 12b-1
service and distribution fees and transfer agent fees applicable to such
Class). In addition, each Class votes as a Class only with respect to its own
Rule 12b-1 Plan. Shares of each Class would receive their pro rata share of the
net assets of a Fund, if the Fund were liquidated. The Trustees approve
separate dividends from net investment income on each Class of shares.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant
accounting policies consistently followed by each Fund in the preparation of
its financial statements. The Funds' financial statements are prepared in
accordance with accounting principles generally accepted in the United States
of America which require the use of management estimates that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. SECURITY VALUATION. Equity securities for which market quotations are
readily available are valued at market value, as reported by pricing services
recommended by the investment adviser's pricing committee and approved by the
Board of Trustees. Such pricing services generally use the security's last sale
price on the exchange or market where primarily traded or, if there is no
reported sale during the day, the closing bid price. Securities traded on the
NASDAQ National Market are valued at the NASDAQ Official Closing Price
("NOCP"), or if lacking an NOCP, at the most recent bid quotation on the NASDAQ
National Market. Debt securities for which market quotations are readily
available are generally valued at market value, as reported by pricing services
recommended by the investment adviser's pricing committee and approved by the
Board of Trustees. Such pricing services generally use the most recent bid
prices in the principal market in which such securities are normally traded.
Broker-dealer bid quotations may also be used to value debt and equity
securities where a pricing service does not price a security or where a pricing
service does not provide a reliable price for the security. Short-term
obligations with a remaining maturity of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available (including restricted securities, if any)
are valued at fair value as determined in good faith by the Funds' investment
adviser using consistently applied procedures under the general supervision of
the Board of Trustees. Investments in other open-end investment companies are
valued at the net asset value each day.
The Funds may hold securities traded in foreign markets. Foreign securities are
valued at the market price in the foreign market. However, if events occurring
after the close of the foreign market (but before the close of regular trading
on the New York Stock Exchange) are believed to materially affect the value of
those securities, such securities are fair valued pursuant to procedures
approved by the Board of Trustees. When fair valuing equity securities, a Fund
may, among other things, use modeling tools or
61
other processes that may take into account factors such as securities market
activity and/or significant events that occur after the close of the foreign
market and before the Fund calculates its net asset value. As of September 30,
2005, approximately 16% of the market value of the investments for the Loomis
Sayles Worldwide Fund were fair valued pursuant to procedures approved by the
Board of Trustees.
Certain securities held by Worldwide Fund were valued on the basis of a price
provided by a principal market maker. The prices provided by the principal
market makers may differ from the value that would be realized if the
securities were sold.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on trade date. Dividend income is recorded on ex-dividend
date, or in the case of certain foreign securities, as soon as the Fund is
notified, and interest income is recorded on an accrual basis. Interest income
is increased by the accretion of discount and decreased by the amortization of
premium. Investment income is recorded net of foreign taxes withheld when
applicable. The Funds estimate the character of distributions from real estate
investment trusts (REITs). These investments pay ordinary income, capital gains
or return of capital dividends. The actual character of these dividends cannot
be determined until REITs complete their shareholder reporting filings next
January. Differences between the actual and estimated calculations will be
included in next years financial statements. In determining net gain or loss on
securities sold, the cost of securities has been determined on an identified
cost basis. Investment income and realized and unrealized gains and losses are
allocated on a pro rata basis to each class based on relative net assets of
each class to the total net assets of the Fund.
C. FOREIGN CURRENCY TRANSLATION. The books and records of the Funds are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities, income and
expenses are translated on the respective dates of such transactions.
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates
from fluctuations arising from changes in market prices of the investment
securities. Such changes are included with the net realized and unrealized gain
or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the amounts of
dividends, interest and foreign withholding taxes recorded on the Funds' books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities, other than investment securities, at the end of the
fiscal periods, resulting from changes in exchange rates.
Each Fund may use foreign currency exchange contracts to facilitate
transactions in foreign-denominated investments. Losses may arise from changes
in the value of the foreign currency or if the counterparties do not perform
under the contracts' terms.
Each Fund may purchase investments of foreign issuers. Investing in securities
of foreign issuers involves special risks and considerations not typically
associated with investing in U.S. companies and securities of the U.S.
government. These risks include revaluation of currencies and the risk of
appropriation. Moreover, the markets for securities of many foreign issuers may
be less liquid and the prices of such securities may be more volatile than
those of comparable U.S. companies and the U.S. government.
D. FORWARD FOREIGN CURRENCY CONTRACTS. Each Fund may enter into forward foreign
currency exchange contracts. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell generally are used to
hedge a Fund's investments against currency fluctuation. Also, a contract to
buy or sell can offset a previous contract. These contracts involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement of
Assets and Liabilities. These amounts represent the aggregate exposure to each
currency the Fund has acquired or hedged through currency contracts outstanding
at period end.
All contracts are "marked-to-market" daily at the applicable exchange rates and
any gains or losses are recorded for financial statement purposes as unrealized
until settlement date. Risks may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their contracts
and from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. At September 30, 2005, the Worldwide Fund had the following
open forward foreign currency exchange contract:
LOCAL AGGREGATE
DELIVERY CURRENCY FACE TOTAL UNREALIZED
DATE AMOUNT AMOUNT VALUE DEPRECIATION
-------------------------------------------------------------------
Australian
Dollar (sell) 11/14/2005 120,000 $90,720 $91,372 $(652)
62
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2005
E. FEDERAL AND FOREIGN INCOME TAXES. The Trusts treat each Fund as a separate
entity for federal income tax purposes. Each Fund intends to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies, and to distribute to its shareholders substantially all of its net
investment income and any net realized capital gains, at least annually.
Accordingly, no provisions for federal income and excise taxes have been made.
A Fund may be subject to foreign taxes on income and gains on investments that
are accrued based upon the Fund's understanding of the tax rules and
regulations that exist in the countries in which the Fund invests. Foreign
governments may also impose taxes or other payments on investments with respect
to foreign securities, such taxes are accrued as applicable.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on ex-dividend date. The timing and characterization of certain income
and capital gains distributions are determined in accordance with federal tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. These differences are primarily due to differing
treatments for book and tax purposes of items such as distributions from real
estate investment trusts, net operating losses, non-deductible expenses,
foreign currency transactions and gains realized from passive foreign
investment companies. Temporary differences between book and tax distributable
earnings are primarily due to deferred Trustees' fees, defaulted bond income
accruals, premium amortization, return of capital distributions from securities
held, unrealized gains on passive foreign investment companies and wash sales.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to capital accounts. Distributions from net
investment income and short-term capital gains are considered to be ordinary
income for tax purposes.
The tax character of distributions paid to shareholders during the years ended
September 30, 2005 and 2004 were as follows:
2005 DISTRIBUTIONS PAID FROM: 2004 DISTRIBUTIONS PAID FROM:
------------------------------------- ------------------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME CAPITAL GAINS TOTAL INCOME CAPITAL GAINS TOTAL
----------- ------------- ----------- ---------- ------------- -----------
Aggressive Growth Fund $ 498,778 $ -- $ 498,778 $ -- $ -- $ --
Small Cap Growth Fund -- -- -- -- -- --
Small Cap Value Fund 24,071,753 37,569,886 61,641,639 4,693,734 8,480,827 13,174,561
Tax-Managed Equity Fund 23,811 -- 23,811 62,322 -- 62,322
Value Fund 524,122 -- 524,122 456,216 -- 456,216
Worldwide Fund 480,214 -- 480,214 448,271 -- 448,271
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
AGGRESSIVE SMALL CAP SMALL CAP TAX-MANAGED VALUE WORLDWIDE
GROWTH FUND GROWTH FUND VALUE FUND EQUITY FUND FUND FUND
- - ------------- ------------- ------------ ----------- ---------- -----------
Undistributed ordinary income $ -- $ -- $ 6,894,918 $ 54,144 $ 402,764 $ 671,785
Undistributed long-term
capital gains -- -- 49,589,356 -- 591,896 --
------------- ------------- ------------ ----------- ---------- -----------
Total undistributed earnings -- -- 56,484,274 54,144 994,660 671,785
Capital loss carryforward:
Expires September 30, 2009 -- -- -- (214,505) -- --
Expires September 30, 2010 (79,794,012) (145,381,318) -- (2,177,191) -- (130,022)
Expires September 30, 2011 (21,142,388) (59,283,040) -- (1,662,157) -- (1,040,663)
Expires September 30, 2012 -- -- -- (110,150) -- --
Expires September 30, 2013 -- -- -- (17,395) -- --
------------- ------------- ------------ ----------- ---------- -----------
Total capital loss carryforward (100,936,400) (204,664,358) -- (4,181,398) -- (1,170,685)
Deferred net capital losses
(post October 2004) -- -- -- -- -- --
Unrealized Appreciation 8,120,292 3,212,489 150,605,338 1,108,579 8,282,048 3,875,574
------------- ------------- ------------ ----------- ---------- -----------
Total accumulated earnings
(losses) $ (92,816,108) $(201,451,869) $207,089,612 $(3,018,675) $9,276,708 $ 3,376,674
------------- ------------- ------------ ----------- ---------- -----------
Capital loss carryforward
utilized in current year $ 7,494,196 $ 4,881,669 -- -- $2,113,179 $ 878,759
------------- ------------- ------------ ----------- ---------- -----------
G. REPURCHASE AGREEMENTS. Each Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is each
Fund's policy that the market value of the collateral be at least equal to 102%
of the repurchase price,
63
including interest. The Fund's adviser is responsible for determining that the
value of the collateral is at all times at least equal to 102% of the
repurchase price, including interest. The repurchase agreements are tri-party
arrangements whereby the collateral is held at the custodian bank in a
segregated account for the benefit of the Fund and the counter party.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the counterparty including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities.
H. SECURITIES LENDING. The Funds have entered into an agreement with State
Street Bank and Trust Company ("State Street Bank"), as agent of the Funds, to
lend securities to certain designated borrowers. The loans are collateralized
with cash or securities in an amount equal to at least 105% or 102% of the
market value of the loaned international equity or domestic securities,
respectively, when the loan is initiated. Thereafter, the value of the
collateral must remain at least 102% of the market value of loaned securities
for U.S. equities and U.S. corporate debt, at least 105% of the market value of
loaned securities for non-U.S. equities; and at least 100% of the market value
of loaned securities for U.S. government and agency securities, sovereign debt
issued by non-U.S. governments and non-U.S. corporate debt. As with other
extensions of credit, the Funds may bear the risk of loss with respect to the
investment of the collateral. The Funds invest cash collateral in short-term
investments, a portion of the income from which is remitted to the borrowers
and the remainder allocated between the Funds and State Street Bank as lending
agent. The market value of securities on loan to borrowers and the value of
collateral held by the Funds with respect to such loans at September 30, 2005,
were as follows:
MARKET VALUE VALUE OF
FUND ON LOAN COLLATERAL
- ---- ------------ ------------
Aggressive Growth Fund $ 9,315,725 $ 9,540,403
Small Cap Growth Fund 4,716,596 4,844,544
Small Cap Value Fund 119,358,669 122,331,459
Tax-Managed Fund -- --
Value Fund 624,765 654,246
Worldwide Fund 4,319,872 4,469,314
I. INDEMNIFICATIONS. Under the Funds' organizational documents, its officers
and trustees are indemnified against certain liability arising out of the
performance of their duties to the Funds. Additionally, in the normal course of
business, the Funds enter into contracts with service providers that contain
general indemnification clauses. The Funds' maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Funds that have not yet occurred. However, based on experience the
Funds expect the risk of loss to be remote.
3. PURCHASES AND SALES OF SECURITIES. For the year ended September 30, 2005,
purchases and sales of securities (excluding short-term investments and U.S.
Government/Agency Securities) were as follows:
FUND PURCHASES SALES
- ---- ------------ ------------
Aggressive Growth Fund $142,175,256 $151,111,779
Small Cap Growth Fund 50,819,799 67,755,792
Small Cap Value Fund 392,923,652 370,010,149
Tax-Managed Equity Fund 6,361,502 2,911,765
Value Fund 11,781,568 14,734,053
Worldwide Fund 40,573,963 17,829,341
For the year ended September 30, 2005, purchases and sales of U.S.
Government/Agency securities by Worldwide Fund were $2,939,116 and $123,672,
respectively.
64
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2005
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
A. MANAGEMENT FEES. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the
investment adviser to each of the Funds. Separate management agreements for
each Fund in effect for the year ended September 30, 2005, provide for fees at
the following annual percentage rates of each Fund's average daily net assets.
Loomis Sayles has contractually agreed, until January 31, 2006, to reduce its
advisory fees and/or bear other expenses, to the extent necessary to limit the
total operating expenses of each Fund, to the following annual percentage rate
of the Fund's average daily net assets:
EXPENSE LIMIT AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
MANAGEMENT --------------------------------
FUND FEES INSTITUTIONAL RETAIL ADMIN
- ---- ---------- ------------- ------ -----
Aggressive Growth Fund 0.75% 1.00% 1.25% --
Small Cap Growth Fund 0.75% 1.00% 1.25% --
Small Cap Value Fund 0.75% 0.90% 1.15% 1.40%
Tax-Managed Equity Fund 0.50% 0.65% -- --
Value Fund 0.50% 0.85% -- --
Worldwide Fund 0.75% 1.00% -- --
For the year ended September 30, 2005, the management fees and waivers for each
Fund were as follows:
PERCENTAGE OF
GROSS WAIVER OF NET AVERAGE DAILY NET ASSETS
MANAGEMENT MANAGEMENT MANAGEMENT ------------------------
FUND FEE FEE FEE GROSS NET
- ---- ---------- ---------- ---------- ----- -----
Aggressive Growth Fund $ 385,975 $116,730 $ 269,245 0.75% 0.52%
Small Cap Growth Fund 168,258 151,644 16,614 0.75% 0.07%
Small Cap Value Fund 4,818,972 225,273 4,593,699 0.75% 0.71%
Tax-Managed Equity Fund 39,124 39,124 -- 0.50% 0.00%
Value Fund 175,567 26,275 149,292 0.50% 0.43%
Worldwide Fund 177,221 109,851 67,370 0.75% 0.29%
For the year ended September 30, 2005, in addition to the waiver of management
fees, expenses of $67,847 have been reimbursed on the Tax-Managed Equity Fund.
Certain officers and employees of Loomis Sayles are also officers or Trustees
of the Trusts. Loomis Sayles' general partner is indirectly owned by IXIS Asset
Management North America, L.P. ("IXIS North America"), formerly CDC IXIS Asset
Management North America, L.P. IXIS North America is ultimately owned
principally, directly or indirectly, by three large affiliated French financial
services entities: the Caisse des Depots et Consignations ("CDC"), a public
sector financial institution created by the French government in 1816; the
Caisse Nationale des Caisses d'Epargne, a financial institution owned by CDC
and by French regional savings banks known as the Caisses d'Epargne; and CNP
Assurances, a large French life insurance company.
B. ADMINISTRATIVE FEES. For the period October 1, 2004 through December 31,
2004, IXIS Asset Management Services Company ("IXIS Services") formerly CDC
IXIS Asset Management Services, Inc., a wholly owned subsidiary of IXIS North
America, performed certain administrative services for the Funds and
subcontracted with State Street Bank to serve as sub-administrator. Effective
January 3, 2005, IXIS Asset Management Advisors, L.P. ("IXIS Advisors") assumed
responsibility for providing administrative services to the Funds. Pursuant to
the agreement between the Trusts, IXIS Advisor Funds Trust I (formerly CDC
Nvest Funds Trust I), IXIS Advisor Funds Trust II (formerly CDC Nvest Funds
Trust II), IXIS Advisor Funds Trust III (formerly CDC Nvest Funds Trust III),
IXIS Advisor Funds Trust IV (formerly CDC Nvest Companies Trust I) and IXIS
Advisor Cash Management Trust (formerly CDC Nvest Cash Management Trust) ("IXIS
Advisor Funds Trusts") and IXIS Advisors, each Fund pays IXIS Advisors its pro
rata portion of a group fee for these services representing the higher amount
based on the following calculations:
(1)Percentage of Average Daily Net Assets
FIRST NEXT OVER
$5 BILLION $5 BILLION $10 BILLION
---------- ---------- -----------
0.0675% 0.0625% 0.0500%
or
(2)Each Fund's pro rata portion, allocated based on the combined
assets of the Trusts and the IXIS Advisors Funds Trusts, of the
annual aggregate minimum fee of $5 million.
65
For the year ended September 30, 2005, fees paid to IXIS Services and IXIS
Advisors for administrative expense were as follows:
ADMINISTRATIVE
FUND FEES
- ---- --------------
Aggressive Growth Fund $ 33,510
Small Cap Growth Fund 14,608
Small Cap Value Fund 418,383
Tax-Managed Equity Fund 5,095
Value Fund 22,864
Worldwide Fund 15,386
C. TRANSFER AGENT FEES. IXIS Services is the transfer and shareholder servicing
agent for each Fund and has subcontracted with Boston Financial Data Services
("BFDS") to serve as sub-transfer agent.
Effective January 1, 2005, Aggressive Growth Fund, Small Cap Growth Fund, Small
Cap Value Fund, Tax-Managed Equity Fund, Value Fund and Worldwide Fund pay fees
monthly to IXIS Advisors equal to an annual rate of $25.44 for each open
account and $2.00 for each closed account, subject to a monthly minimum of
$1,500 per class and an annual aggregate minimum fee of approximately $1
million for all No-Load Retail Funds and Load Funds-Class Y. No-Load Retail
Funds consist of Aggressive Growth Funds, Small Cap Growth Fund, Small Cap
Value Fund, Tax-Managed Equity Fund, Value Fund, Worldwide Fund, Loomis Sayles
Bond Fund and Loomis Sayles Global Bond Fund.
Prior to January 1, 2005, each Fund, for its Institutional, Retail and Admin
class shares, paid monthly to IXIS Services its pro rata portion of an annual
aggregate fee equal to 0.026% of the average daily net assets for all No-Load
Retail Funds and Load Funds-Class Y, subject to a monthly minimum of $1,250 per
class and an annual aggregate minimum of $650,000. Load Funds-Class Y consist
of all Funds with Class Y shares offered within the Loomis Sayles Funds Trusts
and IXIS Advisor Fund Trusts.
Effective October 1, 2005, BFDS became the transfer and shareholder servicing
agent for the Funds.
IXIS Advisors Services, BFDS and other firms are also reimbursed by the Funds
for out-of-pocket expenses. In addition, effective July 1, 2005, pursuant to
other service agreements, the Funds pay service fees to other firms that
provide similar services for their own shareholder accounts.
For the year ended September 30, 2005, amounts paid to IXIS Services and IXIS
Advisors as compensation for its services as transfer agent were as follows:
TRANSFER
FUND AGENT FEE
- ---- ---------
Aggressive Growth Fund $31,000
Small Cap Growth Fund 31,000
Small Cap Value Fund 98,289
Tax-Managed Equity 15,500
Value Fund 15,500
Worldwide Fund 15,500
D. SERVICE AND DISTRIBUTION FEES. The Trusts have entered into a distribution
agreement with IXIS Asset Management Distributors, L.P. ("IXIS Distributors")
formerly CDC IXIS Asset Management Distributors, L.P., a wholly owned
subsidiary of IXIS North America. Pursuant to this agreement, IXIS Distributors
serves as principal underwriter of the Funds.
Pursuant to Rule 12b-1 under the 1940 Act, Aggressive Growth Fund, Small Cap
Growth Fund and Small Cap Value Fund have adopted Distribution Plans relating
to each Fund's Retail Class shares (the "Retail Class Plan") and Small Cap
Value Fund has adopted a separate Distribution Plan relating to Admin Class
shares (the "Admin Class Plan").
Under the respective Retail Class and Admin Class Plans, each Fund pays IXIS
Distributors a monthly distribution fee at an annual rate not to exceed 0.25%
of the average daily net assets attributable to the Fund's Retail Class and
Admin Class Shares, as reimbursement for expenses incurred by IXIS Distributors
in providing personal services to investors in Retail Class and Admin Class
Shares and/or maintenance of shareholder accounts. In addition, the Admin Class
shares of the Small Cap Value Fund may pay a shareholder service fee, at an
annual rate not to exceed 0.25% of the average daily net assets attributable to
Admin Class shares, to securities dealers or financial intermediaries for
providing personal service and account maintenance for their customers who hold
such shares.
E. TRUSTEES FEES AND EXPENSES. The Loomis Sayles Funds Trusts and the IXIS
Advisor Funds Trusts do not pay any compensation directly to their officers or
Trustees who are directors, officers or employees of Loomis Sayles, IXIS
Distributors, IXIS North America, IXIS Services, IXIS Advisors or their
affiliates. Each Trustee who is an independent Trustee of the Loomis
66
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2005
Sayles Funds Trusts and the IXIS Advisor Funds Trusts receives, in the
aggregate, a retainer fee at the annual rate of $50,000 and meeting attendance
fees of $5,000 for each meeting of the Board of Trustees that he or she
attends. Each committee chairman will receive an additional retainer fee at the
annual rate of $7,000. Each committee member receives a meeting attendance fee
of $3,750 per committee meeting that he or she attends. The co-chairmen of the
Board each receive an additional annual retainer fee of $25,000. The retainer
fees assume four Board or Committee meetings per year. These fees are allocated
to the various series of the Loomis Sayles Funds Trusts and the IXIS Advisor
Funds Trusts based on a formula that takes into account, among other factors,
the relative net assets of each Fund. Trustees are reimbursed for travel
expenses in connection with attendance at meetings.
Effective October 1, 2005, the compensation schedule for independent Trustees
changed. Each independent Trustee will receive a retainer fee at the annual
rate of $55,000 and meeting attendance fees of $6,000 for each meeting of the
Board of Trustees attended in person and $3,000 for each meeting of the Board
of Trustees attended telephonically. Each co-chairman of the Board will receive
an additional retainer fee at the annual rate of $25,000. Each committee
chairman will receive an additional retainer fee at the annual rate of $10,000.
Each committee member will receive a meeting attendance fee of $4,000 per
committee meeting attended in person and $2,000 for each committee meeting
attended telephonically.
A deferred compensation plan (the "Plan") is available to the Trustees on a
voluntary basis. Each participating Trustee will receive an amount equal to the
value that such deferred compensation would have been had it been invested in a
designated Fund or certain other series of the Trusts or IXIS Advisor Funds
Trusts on the normal payment date. Deferred amounts remain in the Funds until
distributed in accordance with the Plan.
Additionally, the Board of Trustees has approved the use of Fund assets to pay
their portion of the annual salary for 2005 of an employee at IXIS Advisors who
supports the Funds' Chief Compliance Officer. For the year ended September 30,
2005, each Fund's portion of such expense was approximately $900.
F. PUBLISHING SERVICES. IXIS Services performs certain desktop publishing
services for the Funds. Fees for these services are presented in the Statements
of Operations as shareholder reporting. For the year ended September 30, 2005,
amounts paid to IXIS Services as compensation for these services were as
follows:
PUBLISHING
FUND SERVICES FEE
- ---- ------------
Aggressive Growth Fund $ 23
Small Cap Growth Fund 20
Small Cap Value Fund 69
Tax-Managed Equity Fund 14
Value Fund 136
Worldwide Fund 207
G. REDEMPTION FEES. Shareholders of Small Cap Growth Fund, Small Cap Value Fund
and Worldwide Fund will be charged a 2% redemption fee if they redeem,
including redeeming by exchange, any class of shares of these Funds within 60
days of their acquisition (including acquisition by exchange). The redemption
fee is intended to offset the costs to the Funds of short-term trading, such as
portfolio transaction and market impact costs associated with redemption
activity and administrative costs associated with processing redemptions. The
redemption fee is deducted from the shareholder's redemption or exchange
proceeds and is paid to the Fund. The "first-in, first-out" (FIFO) method is
used to determine the holding period of redeemed or exchanged shares, which
means that if shares were acquired on different days, the shares acquired first
will be redeemed or exchanged first for purposes of determining whether the
redemption fee applies. A new holding period begins with each purchase or
exchange. These fees are accounted for as an addition to paid-in capital and
are presented on the Statements of Changes in Net Assets.
5. LINE OF CREDIT. Prior to September 1, 2005, each Fund, together with certain
other Funds of the Trusts, participated in a $25 million committed unsecured
revolving line of credit provided by State Street Bank. Borrowings under the
line of credit were to be made solely to temporarily finance the repurchase of
capital shares. Interest was to be charged to each participating Fund based on
its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%.
In addition, a commitment fee of 0.09% per annum, payable at the end of each
calendar quarter, was accrued and apportioned among the participating Funds
based on their average daily unused portion of the line of credit. For the
period ended August 31, 2005, the Funds had no borrowings under the agreement.
Effective September 1, 2005, each Fund, together with certain other Funds of
the Trusts, participate in a $75 million committed line of credit provided by
State Street Bank. Borrowings under the line of credit are to be made solely to
temporarily finance the repurchase of capital shares. Interest is charged to
each participating Fund based on its borrowings at a rate per annum equal to the
67
Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.09% per
annum, payable at the end of each calendar quarter, is accrued and apportioned
among the participating Funds based on their average daily unused portion of
the line of credit. For the period of September 1 through September 30, 2005,
the Funds had no borrowings under this agreement.
6. BROKERAGE COMMISSION RECAPTURE. Each Fund has entered into agreements with
certain brokers whereby the brokers will rebate a portion of brokerage
commissions. All amounts rebated by the brokers are returned to the Funds under
such agreements and are included in realized gains on investments in the
Statements of Operations. For the year ended September 30, 2005, amounts
rebated under these agreements were as follows:
FUND REBATES
- ---- -------
Aggressive Growth Fund $26,464
Small Cap Growth Fund 4,498
Small Cap Value Fund 4,572
7. SHAREHOLDERS. At September 30, 2005, Loomis Sayles owned 257,755 shares,
equating to 25.7% of Tax-Managed Equity Fund's shares outstanding. At
September 30, 2005, the Loomis Sayles Funded Pension Plan ("Pension Plan") and
the Loomis Sayles Employees' Profit Sharing Retirement Plan held shares of
beneficial interest in the Funds as follows:
PROFIT SHARING
FUND PENSION PLAN RETIREMENT PLAN
- ---- ------------ ---------------
Aggressive Growth Fund 282,515 371,813
Small Cap Growth Fund 173,101 347,973
Small Cap Value Fund 344,408 575,037
Value Fund 481,499 398,662
Worldwide Fund 908,178 305,241
At September 30, 2005, five shareholders individually owned more than 5% of the
Loomis Sayles Aggressive Growth Fund's total outstanding shares, representing,
in aggregate, 40.2% of the Fund; two shareholders individually owned more than
5% of the Loomis Sayles Small Cap Growth Fund's total outstanding shares,
representing, in aggregate, 26.6% of the Fund; five shareholders individually
owned more than 5% of the Loomis Sayles Tax-Managed Equity Fund's total
outstanding shares, representing, in aggregate, 51.7% of the Fund; three
shareholders individually owned more than 5% of the Loomis Sayles Value Fund's
total outstanding shares, representing, in aggregate, 17.4% of the Fund; and
one shareholder owned 50.6% of the Loomis Sayles Worldwide Fund's total
outstanding shares.
8. EXPENSE REDUCTIONS AND CONTINGENT EXPENSE OBLIGATIONS. Loomis Sayles has
given binding undertakings to certain Funds to defer its management fees and,
if necessary, bear certain expenses associated with these Funds to limit their
operating expenses. These undertakings are in effect until the dates indicated
below and will be reevaluated on an annual basis.
Loomis Sayles shall be permitted to recover expenses it has borne (whether
through reduction of its management fee or otherwise) in later periods to the
extent the Funds' expenses fall below the expense limits provided, however,
that the Funds are not obligated to pay such deferred fees more than one year
after the end of the fiscal year in which the fee was deferred.
At September 30, 2005, the expense limits as a percentage of average daily net
assets and amounts subject to possible reimbursement under the expense
limitation agreement were as follows:
EXPENSE LIMIT AS A PERCENTAGE OF EXPENSES SUBJECT
AVERAGE DAILY NET ASSETS TO POSSIBLE
------------------------------- REIMBURSEMENT
INSTITUTIONAL RETAIL ADMIN EXPIRATION OF UNTIL
FUND CLASS CLASS CLASS WAIVER SEPTEMBER 30, 2006
- ---- ------------- ------ ----- ---------------- ------------------
Aggressive Growth Fund 1.00% 1.25% -- January 31, 2006 $116,730
Small Cap Growth Fund 1.00% 1.25% -- January 31, 2006 151,644
Small Cap Value Fund 0.90% 1.15% 1.40% January 31, 2006 225,273
Tax-Managed Equity Fund 0.65% -- -- January 31, 2006 106,971
Value Fund 0.85% -- -- January 31, 2006 26,275
Worldwide Fund 1.00% -- -- January 31, 2006 109,851
68
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2005
9. CAPITAL SHARES. Each Fund may issue an unlimited number of shares of
beneficial interest without par value. Transactions in capital shares were as
follows:
AGGRESSIVE GROWTH FUND
Year Ended September 30, 2005 Year Ended September 30, 2004
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS ----------- ------------ ----------- ------------
Issued from the sale of shares 53,494 $ 915,359 187,450 $ 2,792,212
Issued in connection with the
reinvestment of distributions 16,185 277,892 -- --
Redeemed (318,259) (5,344,666) (305,139) (4,700,924)
----------- ------------- ------------- -------------
Net change (248,580) $ (4,151,415) (117,689) $ (1,908,712)
----------- ------------- ------------- -------------
Shares Amount Shares Amount
RETAIL CLASS ----------- ------------ ----------- ------------
Issued from the sale of shares 318,102 $ 5,337,862 834,755 $ 12,658,043
Issued in connection with the
reinvestment of distributions 12,860 216,942 -- --
Redeemed (615,930) (10,185,991) (1,602,142) (23,696,327)
----------- ------------- ------------- -------------
Net change (284,968) $ (4,631,187) (767,387) $(11,038,284)
----------- ------------- ------------- -------------
SMALL CAP GROWTH FUND
Year Ended September 30, 2005 Year Ended September 30, 2004
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS ----------- ------------ ----------- ------------
Issued from the sale of shares 113,316 $ 1,131,916 561,970 $ 5,208,033
Issued in connection with the
reinvestment of distributions -- -- -- --
Redeemed (460,764) (4,575,642) (1,411,141) (12,951,799)
----------- ------------- ------------- -------------
Net change (347,448) $ (3,443,726) (849,171) $ (7,743,766)
----------- ------------- ------------- -------------
Shares Amount Shares Amount
RETAIL CLASS ----------- ------------ ----------- ------------
Issued from the sale of shares 216,852 $ 2,124,356 876,244 $ 8,100,386
Issued in connection with the
reinvestment of distributions -- -- -- --
Redeemed (1,546,953) (14,930,155) (2,807,828) (26,294,928)
----------- ------------- ------------- -------------
Net change (1,330,101) $(12,805,799) (1,931,584) $(18,194,542)
----------- ------------- ------------- -------------
69
SMALL CAP VALUE FUND
Year Ended September 30, 2005 Year Ended September 30, 2004
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS ------------ ------------ ------------ ------------
Issued from the sale of shares 3,605,383 $ 93,881,608 2,569,944 $ 62,664,283
Issued in connection with the
reinvestment of distributions 1,389,061 34,567,270 344,051 7,949,633
Redeemed (3,747,820) (95,533,263) (3,052,059) (74,375,223)
------------ ------------- ------------- -------------
Net change 1,246,624 $ 32,915,615 (138,064) $ (3,761,307)
------------ ------------- ------------- -------------
Shares Amount Shares Amount
RETAIL CLASS ------------ ------------ ------------ ------------
Issued from the sale of shares 3,302,664 $ 85,184,696 2,508,851 $ 60,345,432
Issued in connection with the
reinvestment of distributions 739,424 18,285,960 168,096 3,867,490
Redeemed (2,145,167) (55,041,964) (2,506,061) (61,304,611)
------------ ------------- ------------- -------------
Net change 1,896,921 $ 48,428,692 170,886 $ 2,908,311
------------ ------------- ------------- -------------
Shares Amount Shares Amount
ADMIN CLASS ------------ ------------ ------------ ------------
Issued from the sale of shares 1,009,094 $ 25,783,740 1,146,366 $ 27,558,818
Issued in connection with the
reinvestment of distributions 263,038 6,449,687 46,216 1,056,963
Redeemed (1,230,767) (31,333,743) (498,189) (11,994,975)
------------ ------------- ------------- -------------
Net change 41,365 $ 899,684 694,393 $ 16,620,806
------------ ------------- ------------- -------------
TAX-MANAGED EQUITY FUND
Year Ended September 30, 2005 Year Ended September 30, 2004
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS ------------ ------------ ------------ ------------
Issued from the sale of shares 421,995 $ 3,741,887 308,699 $ 2,572,021
Issued in connection with the
reinvestment of distributions 2,601 23,491 7,563 62,319
Redeemed (34,673) (312,460) (28,467) (245,529)
------------ ------------- ------------- -------------
Net change 389,923 $ 3,452,918 287,795 $ 2,388,811
------------ ------------- ------------- -------------
VALUE FUND
Year Ended September 30, 2005 Year Ended September 30, 2004
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS ------------ ----------- ------------ ------------
Issued from the sale of shares 141,305 $ 2,428,427 183,031 $ 2,766,965
Issued in connection with the
reinvestment of distributions 30,355 515,434 26,133 376,057
Redeemed (285,225) (4,807,088) (458,838) (6,884,071)
Redeemed in kind* -- -- (455,344) (7,194,435)
------------ ------------ ------------- -------------
Net change (113,565) $(1,863,227) (705,018) $(10,935,484)
------------ ------------ ------------- -------------
* Redeemed in kind to a shareholder on June 25, 2004.
WORLDWIDE FUND
Year Ended September 30, 2005 Year Ended September 30, 2004
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS ------------ ----------- ------------ ----------
Issued from the sale of shares 2,600,338 $30,275,197 569,127 $5,599,341
Issued in connection with the
reinvestment of distributions 42,385 458,186 46,883 447,733
Redeemed (307,403) (3,348,977) (48,543) (481,727)
------------ ------------ -------------- ------------
Net change 2,335,320 $27,384,406 567,467 $5,565,347
------------ ------------ -------------- ------------
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Loomis Sayles Funds I and Loomis Sayles Funds II and
Shareholders of Loomis Sayles Aggressive Growth Fund, Loomis Sayles Small Cap
Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis Sayles Tax-Managed
Equity Fund, Loomis Sayles Value Fund and Loomis Sayles Worldwide Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Loomis Sayles
Small Cap Value Fund, a series of Loomis Sayles Funds I and the Loomis Sayles
Aggressive Growth Fund, Loomis Sayles Small Cap Growth Fund, Loomis Sayles
Tax-Managed Equity Fund , Loomis Sayles Value Fund and Loomis Sayles Worldwide
Fund, each a series of Loomis Sayles Funds II (collectively, "the Funds"), at
September 30, 2005, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at September 30, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 23, 2005
71
2005 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION. For the fiscal year ended September 30,
2005, a percentage of dividends distributed by the Funds listed below qualify
for the dividends received deduction for corporate shareholders. These
percentages are as follows:
FUND QUALIFYING PERCENTAGE
Aggressive Growth Fund 14.13%
Small Cap Value Fund 14.99%
Tax-Managed Equity Fund 100.00%
Value Fund 100.00%
Worldwide Fund 8.80%
CAPITAL GAINS DISTRIBUTIONS. Pursuant to Internal Revenue Section 852(b), the
following Fund paid distributions, which have been designated as long-term
capital gains distributions for the fiscal year ended September 30, 2005.
FUND AMOUNT
Small Cap Value Fund $37,569,886
QUALIFIED DIVIDEND INCOME. For the fiscal year ended September 30, 2005, the
Funds will designate up to the maximum amount allowable pursuant to the
Internal Revenue Code, as qualified dividend income eligible for reduced tax
rates. These lower rates range from 5% to 15% depending on an individual's tax
bracket. If the Funds pay a distribution during calendar year 2005, complete
information will be reported in conjunction with Form 1099-DIV.
72
ADDITIONAL INFORMATION
SHAREHOLDER MEETINGS (UNAUDITED) At a special shareholders' meeting held on
June 2, 2005, shareholders of Loomis Sayles Funds I, of which the Loomis Sayles
Small Cap Value Fund is a series, voted for the following proposals:
1. ELECTION OF TRUSTEES FOR LOOMIS SAYLES FUNDS I ("TRUST I")
VOTES
VOTES FOR WITHHELD TOTAL VOTES
- --------------------------------------------------------------------
Graham T. Allison, Jr. 347,025,779.284 4,735,065.448 351,760,844.732
Edward A. Benjamin 346,930,115.794 4,830,728.938 351,760,844.732
Daniel M. Cain 347,183,613.372 4,577,231.360 351,760,844.732
Paul G. Chenault 346,203,202.638 5,557,642.094 351,760,844.732
Kenneth J. Cowan 346,241,626.349 5,519,218.383 351,760,844.732
Richard Darman 347,067,297.262 4,693,547.470 351,760,844.732
Sandra O. Moose 347,038,363.631 4,722,481.101 351,760,844.732
John A. Shane 346,222,682.010 5,538,162.722 351,760,844.732
Charles D. Baker 347,063,088.707 4,697,756.025 351,760,844.732
Cynthia L. Walker 347,100,786.272 4,660,058.460 351,760,844.732
Robert J. Blanding 347,078,637.142 4,682,207.590 351,760,844.732
John T. Hailer 347,043,417.083 4,717,427.649 351,760,844.732
2. APPROVAL OF AN AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST FOR
TRUST I
ABSTAINED BROKER
VOTED FOR VOTED AGAINST VOTES NON-VOTES TOTAL VOTES
- ---------------------------------------------------------------------------
215,088,492.394 3,939,453.029 6,414,873.936 142,944,516.000 368,387,335.359
With respect to this proposal, the meeting was adjourned to June 22, 2005 due
to insufficient votes to pass the proposal. The proposal passed on June 22,
2005.
At a special shareholders' meeting held on June 2, 2005, shareholders of Loomis
Sayles Funds II, of which the Loomis Sayles Aggressive Growth Fund, Loomis
Sayles Small Cap Growth Fund, Loomis Sayles Tax-Managed Equity Fund, Loomis
Sayles Value Fund and Loomis Sayles Worldwide Fund are series, voted for the
following proposals:
1. ELECTION OF TRUSTEES FOR LOOMIS SAYLES FUNDS II ("TRUST II")
VOTES
VOTES FOR WITHHELD TOTAL
- ---------------------------------------------------------------------
Graham T. Allison, Jr. 132,584,909.794 22,128,560.082 154,713,469.876
Edward A. Benjamin 132,612,377.523 22,101,092.353 154,713,469.876
Daniel M. Cain 132,610,853.597 22,102,616.279 154,713,469.876
Paul G. Chenault 132,528,522.129 22,184,947.747 154,713,469.876
Kenneth J. Cowan 132,560,768.058 22,152,701.818 154,713,469.876
Richard Darman 132,450,040.167 22,263,429.709 154,713,469.876
Sandra O. Moose 132,566,101.551 22,147,368.325 154,713,469.876
John A. Shane 132,564,423.970 22,149,045.906 154,713,469.876
Charles D. Baker 132,593,048.677 22,120,421.199 154,713,469.876
Cynthia L. Walker 132,584,766.724 22,128,703.152 154,713,469.876
Robert J. Blanding 132,514,900.631 22,198,569.245 154,713,469.876
John T. Hailer 132,593,553.721 22,119,916.155 154,713,469.876
2. APPROVAL OF AN AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST FOR
TRUST II
ABSTAINED BROKER
VOTED FOR VOTED AGAINST VOTES NON-VOTES TOTAL VOTES
- ---------------------------------------------------------------------------
103,245,838.162 2,321,818.870 22,868,247.134 32,828,038.000 161,263,942.166
With respect to this proposal, the meeting was adjourned initially to June 22,
2005 and again to July 21, 2005 due to insufficient votes to pass the proposal.
The proposal passed on July 21, 2005.
73
TRUSTEE AND OFFICER INFORMATION
The table below provides certain information regarding the Trustees and
officers of Loomis Sayles Funds I and Loomis Sayles Funds II (the "Trusts").
Unless otherwise indicated, the address of all persons below is 399 Boylston
Street, Boston, MA 02116. The Statements of Additional Information include
additional information about the Trustees of the Trusts and are available by
calling Loomis Sayles at 800-343-2029.
POSITION(S) HELD WITH
THE TRUST, LENGTH NUMBER OF PORTFOLIOS IN FUND
OF TIME SERVED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN*** AND OTHER
NAME AND DATE OF BIRTH AND TERM OF OFFICE* DURING PAST 5 YEARS** DIRECTORSHIPS HELD
- ---------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Graham T. Allison, Jr. Trustee, since 2003 Douglas Dillon Professor and Director of 38; Director, Taubman Centers,
(3/23/40) Contract Review the Belfer Center of Science and Inc. (real estate investment trust);
and Governance International Affairs, John F. Kennedy Advisory Board Member, USEC
Committee Member School of Government, Harvard Inc. (energy supplier)
University
Charles D. Baker Trustee, since 2005 President and Chief Executive Officer, 38; None
(11/13/56) Contract Review Harvard Pilgrim Health Care (health plan)
and Governance
Committee Member
Edward A. Benjamin Trustee, since 2002 Retired 38; Director, Coal, Energy
(5/30/38) Contract Review Investments & Management,
and Governance LLC; Director, Precision Optics
Committee Member Corporation (optics manufacturer)
Daniel M. Cain Trustee, since 2003; President and Chief Executive Officer, 38; Trustee, Universal Health
(2/24/45) Co-Chairman of the Cain Brothers & Company, Incorporated Realty Income Trust; Director,
Board, since 2004 (investment banking) Sheridan Healthcorp (physician
Chairman of the practice management)
Audit Committee
Paul G. Chenault Trustee, since 2002 Retired; Trustee, First Variable Life 38; Director, Mailco Office
(9/12/33) for Loomis Sayles I (variable life insurance) Products, Inc. (mailing
and since 2000 for equipment)
Loomis Sayles II
Contract Review
and Governance
Committee Member
Kenneth J. Cowan Trustee, since 2003; Retired 38; None
(4/5/32) Co-Chairman of the
Board, since 2004
Chairman of the
Contract Review
and Governance
Committee
Richard Darman Trustee, since 2003 Partner, The Carlyle Group (investments); 38; Director and Chairman of the
(5/10/43) Contract Review formerly, Professor, John F. Kennedy Board of Directors, AES
and Governance School of Government, Harvard Corporation (independent power
Committee Member University company); Chairman of the
Smithsonian National Museum of
American History; Trustee,
Howard Hughes Medical Institute
74
POSITION(S) HELD WITH
THE TRUST, LENGTH NUMBER OF PORTFOLIOS IN FUND
OF TIME SERVED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN*** AND OTHER
NAME AND DATE OF BIRTH AND TERM OF OFFICE* DURING PAST 5 YEARS** DIRECTORSHIPS HELD
- --------------------------------------------------------------------------------------------------------------------------
Sandra O. Moose Trustee, since 2003 President, Strategic Advisory Services 38; Director, Verizon
(2/17/42) Audit Committee (management consulting); formerly, Communications; Director, Rohm
Member Senior Vice President and Director, The and Haas Company (specialty
Boston Consulting Group, Inc. chemicals); Director, AES
(management consulting) Corporation
John A. Shane Trustee, since 2003 President, Palmer Service Corporation 38; Director, Gensym Corporation
(2/22/33) Contract Review (venture capital organization) (software and technology services
and Governance provider); Director, Abt Associates
Committee Inc. (research and consulting firm)
Member
Cynthia L. Walker Trustee, since 2005 Dean for Finance and CFO (formerly, 38; None
(7/25/56) Audit Committee Associate Dean for Finance & CFO),
Member Harvard Medical School
INTERESTED TRUSTEES
Robert J. Blanding/1/ Trustee, since President, Chairman, Director and Chief 38; None
(4/14/47) 2002; Executive Officer, Loomis, Sayles &
555 California Street President and Chief Company, L.P.;
San Francisco, CA 94104 Executive Officer of
Loomis Sayles
Funds I and Chief
Executive Officer of
Loomis Sayles
Funds II, since
2003
John T. Hailer/2/ Trustee, since 2003 President and Chief Executive Officer, 38; None
(11/23/60) President of IXIS Asset Management Distributors,
Loomis Sayles L.P.; President and Chief Executive
Funds II and Officer, IXIS Advisor Funds
Executive Vice
President of
Loomis Sayles
Funds I, since 2003
OFFICERS
Coleen Downs Dinneen Secretary, Clerk Senior Vice President, General Counsel, Not Applicable
(12/16/60) and Chief Legal Secretary and Clerk (formerly, Deputy
Officer, since 2003 General Counsel, Assistant Secretary and
Assistant Clerk) IXIS Asset Management
Distribution Corporation, IXIS Asset
Management Distributors, L.P. and IXIS
Asset Management Advisors, L.P.
Michael C. Kardok Treasurer, Principal Senior Vice President, IXIS Asset Not Applicable
(7/17/59) Financial and Management Advisors, L.P. and IXIS
Accounting Officer, Asset Management Distributors, L.P.;
since 2004 formerly, Senior Director, PFPC Inc.
75
POSITION(S) HELD WITH
THE TRUST, LENGTH NUMBER OF PORTFOLIOS IN FUND
OF TIME SERVED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN*** AND OTHER
NAME AND DATE OF BIRTH AND TERM OF OFFICE* DURING PAST 5 YEARS** DIRECTORSHIPS HELD
- ---------------------------------------------------------------------------------------------------------------------
Max J. Mahoney Anti-Money Senior Vice President, Deputy General Not Applicable
(5/1/62) Laundering Officer Counsel, Assistant Secretary and Assistant
and Assistant Clerk, IXIS Asset Management
Secretary, since Distribution Corporation, IXIS Asset
2005 Management Distributors, L.P. and IXIS
Asset Management Advisors, L.P.; Chief
Compliance Officer, IXIS Asset
Management Advisors, L.P.; formerly,
Senior Counsel, MetLife, Inc.; formerly,
Associate Counsel, LPL Financial Services,
Inc.
John E. Pelletier Chief Operating Executive Vice President and Chief Not Applicable
(6/24/64) Officer, since 2004 Operating Officer (formerly, General
Counsel, Secretary and Clerk), IXIS Asset
Management Distributors, L.P. and IXIS
Asset Management Advisors, L.P.;
Executive Vice President (formerly, Senior
Vice President, General Counsel, Secretary
and Clerk), IXIS Asset Management
Distribution Corporation; formerly,
Director IXIS Asset Management Services
Company
Daniel J. Fuss Executive Vice Vice Chairman and Director, Loomis Not Applicable
(9/27/33) President, since Sayles & Company, L.P.; Prior to 2002,
One Financial Center 2003 President and Trustee of Loomis Sayles
Boston, MA 02111 Funds II
Kristin Vigneaux Chief Compliance Chief Compliance Officer for Mutual Not Applicable
(9/25/69) Officer, since 2004 Funds, IXIS Asset Management
Distributors, L.P. and IXIS Asset
Management Advisors, L.P; formerly, Vice
President, IXIS Asset Management
Services Company
* The year provided is the earliest year during which a Trustee was elected or
appointed to the Trusts. All Trustees serve until retirement, resignation or
removal from the Board. The current retirement age is 72, but was suspended
for the calendar year 2006. At a meeting held on August 26, 2005, the
Trustees voted to lift the suspension of the retirement policy but to
designate 2006 as a transition period so that any Trustees who are currently
72 or older or who reach age 72 during the remainder of 2005 or in 2006 will
not be required to retire until the end of calendar year 2006.
** Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor and Loomis Sayles Trusts. Previous positions during the
past five years with IXIS Asset Management Distributors, L.P. (the
"Distributor"), IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), IXIS
Asset Management Services Company ("IXIS Services") or Loomis, Sayles &
Company, L.P.("Loomis Sayles") are omitted if not materially different from
a trustee's or officer's current position with such entity.
*** The Trustees of the Trusts serve as Trustees of a fund complex that
includes all series of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust
II, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor
Cash Management Trust, AEW Real Estate Income Fund, Loomis Sayles Funds I
and Loomis Sayles Funds II.
1 Mr. Blanding is deemed an "interested person" of the Trusts because he holds
the following positions with affiliated persons of the Trust: President,
Chairman, Director and Chief Executive Officer of Loomis, Sayles & Company,
L.P.
2 Mr. Hailer is deemed an "interested person" of the Trusts because he holds
the following positions with affiliated persons of the Trust: Director and
Executive Vice President of IXIS Asset Management Distribution Corporation,
President and Chief Executive Officer of IXIS Asset Management Advisors, L.P.
76
[LOGO]
Annual Report
September 30, 2005
[LOGO]
Loomis Sayles Investment Grade Bond Fund
TABLE OF CONTENTS
Management Discussion
and Performance........Page 1
Schedule of InvestmentsPage 7
Financial Statements..Page 11
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
PORTFOLIO PROFILE
Objective:
High total investment return through a combination of current income and
capital appreciation
- --------------------------------------------------------------------------------
Strategy:
Invests primarily in investment-grade, fixed-income securities, although it may
invest up to 10% of its assets in lower-rated, fixed-income securities
- --------------------------------------------------------------------------------
Fund Inception:
December 31, 1996
- --------------------------------------------------------------------------------
Managers:
Daniel Fuss
Steven Kaseta
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
Symbols:
Class A LIGRX
Class B LGBBX
Class C LGBCX
Class Y LSIIX
Class J LIGJX
- --------------------------------------------------------------------------------
What You Should Know:
This fund invests in fixed-income securities that are subject to credit risk,
interest rate risk and liquidity risk. It may also invest in foreign and
emerging market securities, which have special risks, as well as in
mortgage-related securities that are subject to prepayment risk.
Management Discussion
- --------------------------------------------------------------------------------
High-yielding domestic corporate bonds and international investment-grade bonds
both outperformed U.S. government securities and investment-grade domestic
corporate bonds during the fiscal year ended September 30, 2005. Within the
U.S. high-grade market, long-term securities provided better returns than
short- and intermediate-term debt, as 30-year Treasuries rallied, despite
increases in short-term interest rates.
For the fiscal year ended September 30, 2005, Loomis Sayles Investment Grade
Bond Fund substantially outperformed its benchmark and its Morningstar peer
group average. The fund's Class A shares had a total return of 6.83% at net
asset value, assuming $0.91 in reinvested dividends during the period, while
the benchmark Lehman U.S. Government/Credit Index returned 2.58%. For the same
period, the average return on Morningstar's Long-Term Bond category was 4.04%.
The fund's 30-day SEC yield was 4.02% at September 30, 2005.
EMPHASIS ON FOREIGN BONDS, HIGH-YIELD DEBT HELPED PERFORMANCE
Throughout the 12 months, we maintained the fund's emphasis in debt securities
denominated in Canadian dollars and in international currencies, reducing its
exposure to the effects of rising interest rates in the U.S. bond market. These
non-U.S. holdings were the largest contributors to the fund's performance, as
yields of U.S. bonds maturing in ten years or less tended to rise, causing
prices to fall. In fact, the three individual issues with the greatest positive
impact on the fund's return were issued by government agencies in Brazil,
Mexico and Canada. Performance was also supported by our investments in
lower-rated, higher-yielding securities, including domestic corporate bonds and
emerging market debt.
Our strategy was to diversify among securities of different maturities,
favoring short-term bonds that typically are less volatile in response to
interest-rate changes, and to continue taking advantage of global
opportunities. In implementing that policy, we shortened the portfolio's
duration (a measure of sensitivity to interest rates) from 5.5 years at the
start of the fiscal year to slightly less than 4.1 years by September 30, 2005.
Relative to the benchmark, the fund remained underweight in U.S. Treasuries. We
also de-emphasized investment-grade domestic corporate bonds because we believe
they offered little yield advantage over foreign government securities during
this period. However, we actively pursued opportunities within the U.S.
high-yield markets and in emerging-market sectors.
SHORT-TERM GOVERNMENT AND AUTO-INDUSTRY BONDS WERE NEGATIVE
Our investments in shorter-term Treasuries and government agency securities
held back performance. Long-term Treasuries substantially outperformed
shorter-term securities as long-term yields declined over the period, while
yields on shorter-term issues rose. In addition, bonds issued by the major U.S.
auto companies were downgraded, many to junk bond status, and their prices fell
sharply. The fund's holdings in bonds issued by General Motors and Ford Motor
declined during the period, along with bonds issued by auto-parts giant, Delphi
Corporation.
GLOBAL BONDS CONTINUE TO LOOK ATTRACTIVE
We believe there is greater potential in global bonds than in domestic
securities in the coming months. Some markets, such as the United Kingdom, have
raised their short-term interest rates more than has the United States and so
may offer the potential for higher returns. Prospects for foreign currencies,
particularly in Asia, also may continue to provide opportunities, assuming the
government in China allows that country's currency to be revalued.
Domestically, we think the Federal Reserve will continue to raise short-term
rates, at least through early 2006, and the yield curve - which reflects the
difference between short- and long-term interest rates - will continue to
flatten. Consequently, we expect to maintain a relatively short duration,
making the fund less sensitive to changes in interest rates than the benchmark.
Within the fund's domestic investment-grade universe, BBB-rated securities
appear to offer the best potential opportunities.
1
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
Investment Results through September 30, 2005
- --------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE
The charts comparing the fund's performance to an index provide you with a
general sense of how it performed. The fund's total return for the period shown
below appears with and without sales charges and includes fund expenses and
fees. An index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. Investors would
incur transaction costs and other expenses if they purchased the securities
necessary to match the index.
Growth of a $10,000 Investment in Class A Shares/1/
[CHART]
December 31, 1996 (inception) through March 31, 2005
Lehman
Net Asset Maximum Lipper BBB U.S. Government/
Value (2) Sales Charge (3) Rated Funds Index Credit Index
--------- --------------- ----------------- ------------------
12/31/1996 $10,000 $ 9,550 $10,000 $10,000
1/31/1997 9,950 9,502 10,032 10,012
2/28/1997 10,150 9,693 10,089 10,033
3/31/1997 9,930 9,483 9,933 9,914
4/30/1997 10,130 9,674 10,080 10,059
5/31/1997 10,323 9,858 10,195 10,153
6/30/1997 10,586 10,110 10,347 10,274
7/31/1997 11,272 10,765 10,705 10,589
8/31/1997 10,953 10,460 10,563 10,470
9/30/1997 11,262 10,755 10,749 10,635
10/31/1997 11,427 10,913 10,858 10,805
11/30/1997 11,407 10,894 10,911 10,862
12/31/1997 11,429 10,914 11,029 10,976
1/31/1998 11,536 11,017 11,169 11,131
2/28/1998 11,568 11,048 11,165 11,108
3/31/1998 11,708 11,181 11,222 11,142
4/30/1998 11,754 11,225 11,270 11,198
5/31/1998 11,820 11,288 11,366 11,318
6/30/1998 11,797 11,266 11,450 11,434
7/31/1998 11,650 11,126 11,441 11,443
8/31/1998 11,150 10,648 11,358 11,666
9/30/1998 11,405 10,892 11,592 12,000
10/31/1998 11,291 10,783 11,449 11,915
11/30/1998 11,665 11,140 11,660 11,986
12/31/1998 11,764 11,235 11,689 12,016
1/31/1999 11,952 11,415 11,791 12,101
2/28/1999 11,799 11,268 11,536 11,813
3/31/1999 12,070 11,527 11,665 11,872
4/30/1999 12,354 11,799 11,748 11,901
5/31/1999 12,247 11,696 11,590 11,779
6/30/1999 12,211 11,662 11,529 11,742
7/31/1999 11,994 11,454 11,471 11,709
8/31/1999 11,951 11,413 11,428 11,700
9/30/1999 12,115 11,570 11,526 11,805
10/31/1999 12,112 11,567 11,549 11,836
11/30/1999 12,145 11,598 11,577 11,829
12/31/1999 12,194 11,645 11,558 11,757
1/31/2000 12,194 11,645 11,524 11,754
2/29/2000 12,580 12,014 11,666 11,902
3/31/2000 12,754 12,180 11,774 12,074
4/30/2000 12,423 11,864 11,631 12,015
5/31/2000 12,305 11,752 11,542 12,004
6/30/2000 12,663 12,094 11,834 12,249
7/31/2000 12,814 12,237 11,885 12,379
8/31/2000 13,056 12,469 12,102 12,553
9/30/2000 12,949 12,367 12,136 12,601
10/31/2000 12,844 12,266 12,097 12,680
11/30/2000 13,090 12,501 12,209 12,896
12/31/2000 13,529 12,921 12,465 13,151
1/31/2001 13,755 13,136 12,767 13,372
2/28/2001 13,861 13,238 12,893 13,509
3/31/2001 13,683 13,067 12,885 13,571
4/30/2001 13,473 12,867 12,814 13,470
5/31/2001 13,594 12,983 12,930 13,547
6/30/2001 13,662 13,048 12,945 13,612
7/31/2001 14,009 13,379 13,238 13,951
8/31/2001 14,327 13,683 13,397 14,131
9/30/2001 14,035 13,404 13,283 14,261
10/31/2001 14,647 13,988 13,564 14,622
11/30/2001 14,441 13,791 13,476 14,382
12/31/2001 14,295 13,651 13,394 14,269
1/31/2002 14,393 13,746 13,467 14,374
2/28/2002 14,536 13,882 13,532 14,496
3/31/2002 14,191 13,553 13,354 14,202
4/30/2002 14,600 13,943 13,559 14,477
5/31/2002 14,786 14,120 13,666 14,610
6/30/2002 14,753 14,089 13,602 14,735
7/31/2002 14,471 13,820 13,533 14,912
8/31/2002 14,991 14,316 13,807 15,247
9/30/2002 15,018 14,342 13,931 15,575
10/31/2002 14,928 14,256 13,832 15,426
11/30/2002 15,243 14,557 14,031 15,435
12/31/2002 15,810 15,098 14,358 15,844
1/31/2003 16,078 15,355 14,453 15,843
2/28/2003 16,427 15,688 14,696 16,125
3/31/2003 16,508 15,765 14,721 16,104
4/30/2003 17,072 16,304 15,019 16,277
5/31/2003 17,921 17,114 15,412 16,739
6/30/2003 18,007 17,197 15,432 16,672
7/31/2003 17,148 16,376 14,906 15,973
8/31/2003 17,230 16,455 15,024 16,079
9/30/2003 18,116 17,307 15,486 16,588
10/31/2003 18,071 17,257 15,425 16,378
11/30/2003 18,408 17,580 15,531 16,421
12/31/2003 18,869 18,020 15,757 16,583
1/31/2004 18,997 18,142 15,901 16,734
2/29/2004 19,143 18,282 16,041 16,939
3/31/2004 19,346 18,476 16,151 17,094
4/30/2004 18,588 17,751 15,740 16,569
5/31/2004 18,432 17,602 15,620 16,485
6/30/2004 18,574 17,738 15,712 16,552
7/31/2004 18,796 17,951 15,877 16,727
8/31/2004 19,321 18,451 16,199 17,081
9/30/2004 19,700 18,813 16,300 17,141
10/31/2004 20,115 19,210 16,461 17,289
11/30/2004 20,401 19,483 16,406 17,097
12/31/2004 20,650 19,721 16,593 17,279
1/31/2005 20,528 19,604 16,681 17,399
2/28/2005 20,661 19,732 16,654 17,284
3/31/2005 20,420 19,501 16,467 17,163
4/30/2005 20,444 19,524 16,601 17,420
5/31/2005 20,538 19,614 16,774 17,638
6/30/2005 20,762 19,828 16,916 17,754
7/31/2005 20,712 19,780 16,838 17,554
8/31/2005 21,077 20,128 17,047 17,816
9/30/2005 21,052 20,107 16,877 17,583
Average Annual Total Returns -- September 30, 2005
SINCE FUND
1 YEAR/5/ 5 YEARS/5/ INCEPTION/5/
CLASS A/1/
Net Asset Value/2/ 6.83% 10.20% 8.88%
With Maximum Sales Charge/3/ 2.01 9.18 8.31
CLASS B/1/
Net Asset Value/2/ 5.89 9.21 7.90
With CDSC/4/ 0.96 8.93 7.90
CLASS C/1/
Net Asset Value/2/ 5.91 9.21 7.90
With CDSC/4/ 4.92 9.21 7.90
CLASS Y/1/
Net Asset Value/2/ 7.13 10.48 9.16
CLASS J/1/
Net Asset Value/2/ 6.36 9.67 8.35
With Sales Charge/4/ 2.63 8.89 7.90
- ----------------------------------------------------------------------
SINCE FUND
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS INCEPTION/6/
Lipper BBB Rated Funds Index 3.54% 6.82% 6.16%
Lipper BBB Rated Funds Avg. 3.19 6.93 6.11
Lehman U.S. Government/Credit Index 2.58 6.89 6.66
Morningstar Long-Term Bond Fund Avg. 4.04 7.61 6.62
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. All results
include reinvestment of any dividends and capital gains. Current returns may be
higher or lower than those shown. For performance current to the most recent
month-end, visit www.ixisadvisorfunds.com. Class Y, the successor to the fund's
Institutional Class, is only available to certain institutional investors.
Class J shares are not offered for sale in the United States and are not
eligible for sale to U.S. investors.
Portfolio Facts
% of Net Assets as of
CREDIT QUALITY 3/31/05 9/30/05
- ----------------------------------------
A 2.8 3.1
- ----------------------------------------
Aa 13.0 13.5
- ----------------------------------------
Aaa 45.4 43.3
- ----------------------------------------
B 1.4 0.7
- ----------------------------------------
Ba 9.0 9.2
- ----------------------------------------
Baa 18.8 16.8
- ----------------------------------------
Caa 1.5 1.6
- ----------------------------------------
Not rated* 4.2 8.3
- ----------------------------------------
Short term & other 3.9 3.0
- ----------------------------------------
Credit quality is based on ratings from Moody's Investors Service.
* Securities that are not rated by Moody's may be rated by another rating
agency or by Loomis Sayles.
% of Net Assets as of
EFFECTIVE MATURITY 3/31/05 9/30/05
- --------------------------------------------------
1 year or less 5.9 11.8
- --------------------------------------------------
1-5 years 45.4 48.4
- --------------------------------------------------
5-10 years 34.3 26.3
- --------------------------------------------------
10+ years 14.4 13.5
- --------------------------------------------------
Average Effective Maturity 6.3 years 5.7 years
- --------------------------------------------------
Portfolio characteristics will vary.
See page 3 for descriptions of the fund's indexes.
NOTES TO CHARTS
The table and graph do not reflect taxes shareholders might owe on any fund
distributions or when they redeem their shares.
/1/Returns shown in the chart include performance of the fund's Retail Class
shares (inception: 12/31/96), which were converted to Class A shares on
9/12/03. Retail Class was closed on 12/18/00 and recommenced operations on
1/31/02; Institutional Class performance is shown for the intervening period,
adjusted to reflect the higher expenses paid by Class A shares. The
restatement of the fund's performance to reflect Class A expenses is based on
the net expenses of the Class after taking into effect the fund's current
expense cap arrangements. For periods prior to the inception of Class B and C
shares (9/12/03), performance is based on prior Institutional Class
performance, restated to reflect the loads and expenses of Class B and C
shares, respectively. Class Y performance has been restated to reflect the
net expenses of the Institutional Class after taking into effect the fund's
current expense cap arrangements. For periods prior to the inception of Class
J shares (5/24/99), performance is based on prior Institutional Class
performance, restated to reflect the load and expenses of Class J shares. The
growth of $10,000 chart reflects the performance of Class A shares rather
than Class Y shares, because Class A shares include the highest sales charge.
Prior to 9/12/03, the fund (except Class J) was offered without a sales
charge.
/2/Does not include a sales charge.
/3/Includes maximum sales charge of 4.50%.
/4/Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%.
Class C shares performance assumes a 1.00% CDSC applied when you sell shares
within one year of purchase. Performance for Class J shares assumes a 3.50%
sales charge.
/5/Fund performance has been increased by expense waivers, without which
performance would have been lower.
/6/The since-inception performance comparisons shown are calculated from
12/31/96.
2
ADDITIONAL INFORMATION
The views expressed in this report reflect those of the portfolio managers as
of the dates indicated. The managers' views are subject to change at any time
without notice based on changes in market or other conditions. References to
specific securities or industries should not be regarded as investment advice.
Because the fund is actively managed, there is no assurance that it will
continue to invest in the securities, countries or industries mentioned.
For more complete information on any IXIS Advisor Fund, contact your financial
professional or call IXIS Advisor Funds and ask for a free prospectus, which
contains more complete information including charges and other ongoing
expenses. Investors should consider a fund's objective, risks and expenses
carefully before investing. This and other fund information can be found in the
prospectus. Please read the prospectus carefully before investing.
INDEX/AVERAGE DESCRIPTIONS:
Lehman U.S. Government/Credit Index is an unmanaged list of publicly traded
bonds, including U.S. government bonds, U.S. Treasury securities and corporate
bonds.
Lipper BBB Rated Funds Average is the average performance without sales charges
of all mutual funds in a stated category, as calculated by Lipper, Inc.
Lipper BBB Rated Funds Index is an equally weighted index typically consisting
of the 30 largest mutual funds within the category, as calculated by Lipper,
Inc.
Morningstar Long-Term Bond Fund Average is the average performance without
sales charges of funds with similar investment objectives, as calculated by
Morningstar, Inc.
PROXY VOTING INFORMATION
A description of the fund's proxy voting policies and procedures is available
without charge, upon request, by calling IXIS Advisor Funds at 800-225-5478; on
the funds' website at www.ixisadvi-sorfunds.com; and on the Securities and
Exchange Commission's website at www.sec.gov. Information regarding how the
fund voted proxies relating to portfolio securities during the 12-month period
ended June 30, 2005 is available from the fund's website and the SEC's website.
QUARTERLY PORTFOLIO SCHEDULES
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
3
UNDERSTANDING YOUR FUND'S EXPENSES
As a mutual fund shareholder, you incur different types of costs: transaction
costs, including sales charges (loads) on purchases and contingent deferred
sales charges on redemptions; redemption fees; certain exchange fees; and
minimum account fee charges; and ongoing costs, including management fees,
distribution fees (12b-1 fees) and/or service fees, and other fund expenses. In
addition, the fund assesses a minimum balance fee of $20 on an annual basis for
accounts that fall below the required minimum to establish an account (certain
exceptions may apply). These costs are described in more detail in the fund's
prospectus. The examples below are intended to help you understand the ongoing
costs of investing in the fund and help you compare these with the ongoing
costs of investing in other mutual funds.
The first line in the table for each Class shows the actual amount of fund
expenses you would have paid on a $1,000 investment in the fund from April 1,
2005 through September 30, 2005. It also shows how much a $1,000 investment
would be worth at the close of the period, assuming actual fund returns and
expenses. To estimate the expenses you paid over the period, simply divide your
account value by $1,000 (for example $8,600 account value divided by $1,000 =
8.6) and multiply the result by the number in the Expenses Paid During the
Period row as shown below for your class.
The second line in the table for each Class provides information about
hypothetical account values and hypothetical expenses based on the fund's
actual expense ratios and an assumed rate of return of 5% per year before
expenses, which is not the fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid on your investment for the period. You may use
this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown reflect ongoing costs only, and do not
include any transaction costs. Therefore, the second line in the table of the
fund is useful in comparing ongoing costs only, and will not help you determine
the relative costs of owning different funds. If transaction costs were
included, total costs would be higher.
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES INVESTMENT GRADE BOND FUND 4/1/05 9/30/05 4/1/05 - 9/30/05
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,030.70 $4.84
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.30 $4.81
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,027.00 $8.64
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,026.30 $8.64
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,032.70 $2.80
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,022.31 $2.79
- ------------------------------------------------------------------------------------------------------------------
CLASS J
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,028.80 $6.61
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,018.55 $6.58
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio: 0.95%, 1.70%,
1.70%, 1.30% and 0.55% for Class A, B, C, J and Y, respectively, multiplied by
the average account value over the period, multiplied by 183/365 (to reflect
the half-year period).
4
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENT
The Board of Trustees, including the Independent Trustees, considers matters
bearing on the Fund's advisory agreement (the "Agreement") at most of its
meetings throughout the year. Once a year, usually in the spring, the Contract
Review and Governance Committee of the Board meets to review the Agreement to
determine whether to recommend that the full Board approve the continuation of
the Agreement for an additional one-year period. After the Committee has made
its recommendation, the full Board, including the Independent Trustees,
determines whether to approve the continuation of the Agreement.
In connection with these meetings, the Trustees receive materials that the
Fund's investment adviser believes to be reasonably necessary for the Trustees
to evaluate the Agreement. These materials generally include, among other
items, (i) information on the investment performance of the Fund and the
performance of peer groups of funds and the Fund's performance benchmarks,
(ii) information on the Fund's advisory fee and other expenses, including
information comparing the Fund's expenses to those of a peer group of funds and
information about any applicable expense caps and fee "breakpoints,"
(iii) sales and redemption data in respect of the Fund, (iv) information about
the profitability of the Agreement to the Fund's adviser (the "Adviser"), and
(v) information obtained through the completion of a questionnaire by the
Adviser (the Trustees are consulted as to the information requested through
that questionnaire). The Board of Trustees, including the Independent Trustees,
may also consider other material facts such as (i) the Adviser's financial
results and financial condition, (ii) the Fund's investment objective and
strategies and the size, education and experience of the Adviser's investment
staff and their use of technology, external research and trading cost
measurement tools, (iii) arrangements in respect of the distribution of the
Fund's shares, (iv) the procedures employed to determine the value of the
Fund's assets, (v) the allocation of the Fund's brokerage, if any, including
allocations to brokers affiliated with the Adviser and the use of "soft"
commission dollars to pay Fund expenses and to pay for research and other
similar services, (vi) the resources devoted to, and the record of compliance
with, the Fund's investment policies and restrictions, policies on personal
securities transactions and other compliance policies, and (vii) the general
economic outlook with particular emphasis on the mutual fund industry.
Throughout the process, the Trustees are afforded the opportunity to ask
questions of and request additional materials from the Adviser and its
affiliates.
The Board of Trustees most recently approved the continuation of the Agreement
at their meeting held in May 2005. In considering whether to approve the
continuation of the Agreement, the Board of Trustees, including the Independent
Trustees, did not identify any single factor as determinative. Matters
considered by the Trustees, including the Independent Trustees, in connection
with their approval of the Agreement included the following:
The nature, extent and quality of the services provided to the Fund under the
Agreement. The Trustees considered the nature, extent and quality of the
services provided by the Adviser and its affiliates to the Fund and the
resources dedicated to the Fund by the Adviser and its affiliates. The Trustees
considered not only the advisory services provided by the Adviser but also the
services provided by the Adviser's affiliates to the Fund, including the
monitoring and board reporting services provided. The Trustees also considered
the benefits to shareholders of investing in a mutual fund that is part of a
family of funds offering a variety of investment disciplines and providing for
a variety of fund and shareholder services. After reviewing these and related
factors, the Trustees concluded, within the context of their overall
conclusions regarding the Agreement, that the nature, extent and quality of
services provided supported the renewal of the Agreement.
Investment performance of the Fund and the Adviser. As noted above, the
Trustees received information about the performance of the Fund over various
time periods, including information which compared the performance of the Fund
to the performance of peer groups of funds and the Fund's performance
benchmark. In addition, the Trustees also reviewed data prepared by an
independent third party which analyzed the performance of the Fund using a
variety of performance metrics, including metrics which also measured the
performance of the Fund on a risk adjusted basis.
After reviewing the information, the Board concluded that the Fund's
performance supported the renewal of the Agreement. The Trustees also
considered the Adviser's performance and reputation generally, the performance
of the fund family generally, and the historical responsiveness of the Adviser
and its affiliates to Trustee concerns about performance and the willingness of
the Adviser to take steps intended to improve performance.
After reviewing these and related factors, the Trustees concluded, within the
context of their overall conclusions regarding the Agreement, that the
performance of the Fund and the Adviser supported the renewal of the Agreement.
The costs of the services to be provided and profits to be realized by the
Adviser and its affiliates from their respective relationships with the Fund.
The Trustees considered the fees charged to the Fund for advisory services as
well as the total expense levels of the Fund. This
5
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENT
information included comparisons (provided both by management and also by an
independent third party) of the Fund's advisory fee and total expense levels to
those of its peer group and information about the advisory fee charged by the
Adviser to comparable accounts. In considering the fees charged to comparable
accounts, the Trustees considered, among other things, management's
representations about the differences between managing mutual funds as compared
to other types of accounts, including the additional resources required to
effectively manage mutual fund assets. In evaluating the Fund's advisory fee,
the Trustees also took into account the demands, complexity and quality of the
investment management of the Fund. The Trustees also noted management's stated
justification for the fees charged to the Fund, which included information
about the performance of the Fund, the services provided to the Fund and
management's view as to why it was appropriate that the Funds bear total
expenses greater than their peer group median for Class J shares.
The Trustees also considered the compensation directly or indirectly received
by the Adviser and its affiliates from their relationships with the Fund. The
Trustees reviewed information provided by management as to the profitability of
the Adviser's and its affiliates' relationships with the Fund, and information
about the allocation of expenses used to calculate profitability. When
reviewing profitability, the Trustees also considered information about court
cases in which adviser profitability was an issue in whole or in part, the
performance of the Fund, the expense levels of the Fund, and whether the
Adviser had implemented expense caps with respect to the Fund.
After reviewing these and related factors, the Trustees concluded, within the
context of their overall conclusions regarding the Agreement, that the advisory
fee charged to the Fund was fair and reasonable, and that the costs of these
services generally and the related profitability of the Adviser and its
affiliates in respect of their relationships with the Fund supported the
renewal of the Agreement.
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision of services by the Adviser and whether those economies
are shared with the Fund through breakpoints in its investment advisory fee or
other means, such as expense waivers. The Trustees noted that the Fund
benefited from an expense cap. In considering these issues, the Trustees also
took note of the costs of the services provided (both on an absolute and a
relative basis) and the profitability to the Adviser and its affiliates of
their relationships with the Fund, as discussed above.
After reviewing these and related factors, the Trustees considered, within the
context of their overall conclusions regarding the Agreement, that the extent
to which economies of scale were shared with the Fund supported the renewal of
the Agreement.
The Trustees also considered other factors, which included but were not limited
to the following:
.. whether the Fund has operated in accordance with its investment objective
and the Fund's record of compliance with its investment restrictions, and
the compliance programs of the Fund and the Adviser. They also considered
the compliance related resources the Adviser and its affiliates were
providing to the Fund.
.. the nature, quality, cost and extent of administrative and shareholder
services performed by the Adviser and its affiliates, both under the
Agreement and under separate agreements covering transfer agency and
administrative services.
.. so-called "fallout benefits" to the Adviser and its affiliates, such as the
engagement of affiliates of the Adviser to provide distribution, brokerage
and transfer agency services to the Fund, and the benefits of research made
available to the Adviser by reason of brokerage commissions generated by the
Fund's securities transactions. The Trustees also considered the fact that
Loomis Sayles' parent company benefits from the retention of affiliated
service providers. The Trustees considered the possible conflicts of
interest associated with these fallout and other benefits, and the
reporting, disclosure and other processes in place to disclose and monitor
such possible conflicts of interest.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees,
concluded that the existing advisory agreement should be continued through
June 30, 2006.
6
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- SCHEDULE OF INVESTMENTS
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- --------------------------------------------------------------------------------------
Bond and Notes -- 97.1% of Total Net Assets
Non-Convertible Bonds -- 94.6%
Aerospace & Defense -- 0.0%
$ 145,000 Raytheon Co.,
7.375%, 7/15/2025 $ 148,848
---------------
Airlines -- 1.9%
449,167 American Airlines, Inc.,
6.978%, 4/01/2011 454,929
1,000,000 American Airlines, Inc., Class B,
8.608%, 4/01/2011 935,918
1,814,793 Continental Airlines, Inc.,
6.703%, 12/15/2022 1,724,186
780,178 Continental Airlines, Inc., Series 1998-1A,
6.648%, 9/15/2017 754,108
1,111,131 Continental Airlines, Inc., Series 1999-1A,
6.545%, 2/02/2019 1,089,485
354,513 Continental Airlines, Inc., Series 1999-2,
7.256%, 3/15/2020 356,114
1,767,095 Continental Airlines, Inc., Series 2000-2,
7.707%, 10/02/2022 1,752,871
601,716 US Airways,
6.850%, 1/30/2018 598,596
---------------
7,666,207
---------------
Asset-Backed Securities -- 0.6%
966,446 Community Program Loan Trust, Series 1987-A, Class A4,
4.500%, 10/01/2018 956,903
1,700,000 Community Program Loan Trust, Series 1987-A, Class A5,
4.500%, 4/01/2029 1,591,406
---------------
2,548,309
---------------
Automotive -- 3.6%
375,000 Cummins Engine Co., Inc.,
7.125%, 3/01/2028 380,625
3,150,000 Delphi Automotive Systems Corp.,
7.125%, 5/01/2029(c)(g) 2,016,000
2,500,000 Ford Motor Co.,
6.375%, 2/01/2029 1,793,750
700,000 Ford Motor Credit Co.,
7.375%, 10/28/2009 676,163
1,500,000 General Motors Acceptance Corp.,
6.875%, 9/15/2011 1,364,419
3,000,000 General Motors Acceptance Corp.,
7.000%, 12/07/2005, (GBP) 5,301,451
3,050,000 General Motors Acceptance Corp.,
7.500%, 12/01/2006, (NZD) 2,017,070
700,000 General Motors Corp.,
6.750%, 5/01/2028 484,750
950,000 GMAC International Finance BV,
8.000%, 3/14/2007, (NZD) 643,888
---------------
14,678,116
---------------
Banking -- 6.8%
2,120,000,000 Barclays Financial LLC,
4.060%, 9/16/2010, (KRW), 144A 1,988,005
144,000,000 Barclays Financial LLC,
4.100%, 3/22/2010, (THB), 144A 3,289,775
140,000,000 Barclays Financial LLC,
4.160%, 2/22/2010, (THB), 144A 3,209,648
3,000,000,000 Barclays Financial LLC,
4.460%, 9/23/2010, (KRW), 144A 2,861,658
Principal
Amount Description Value (a)
- -----------------------------------------------------------------------------------
Banking -- continued
$ 1,500,000 CIT Group, Inc.,
5.500%, 12/01/2014, (GBP) $ 2,707,965
9,860,000 Citibank NA,
15.000%, 7/02/2010, (BRL), 144A 4,628,660
4,500,000 HSBC Bank USA,
3.310%, 8/25/2010, 144A 4,557,600
18,000,000 J.P. Morgan Chase & Co.,
Zero Coupon Bond, 5/10/2010, (BRL), 144A 4,326,731
250,000 J.P. Morgan Chase & Co.,
4.000%, 2/01/2008 246,702
100,000 Key Bank NA,
6.950%, 2/01/2028(c) 115,292
---------------
27,932,036
---------------
Beverages -- 0.4%
1,525,000 Cia Brasileira de Bebidas,
8.750%, 9/15/2013 1,810,938
---------------
Brokerage -- 0.2%
1,000,000 Morgan Stanley,
3.625%, 4/01/2008 976,177
---------------
Consumer Products -- 0.4%
1,400,000 Bausch & Lomb, Inc.,
7.125%, 8/01/2028 1,508,410
---------------
Electric -- 2.7%
2,750,000 Constellation Energy Group, Inc.,
4.550%, 6/15/2015 2,583,482
5,500,000 Empresa Nacional de Electricidad SA (Endesa-Chile),
7.875%, 2/01/2027 5,920,128
1,000,000 Empresa Nacional de Electricidad SA (Endesa-Chile),
8.350%, 8/01/2013 1,138,314
1,500,000 MidAmerican Energy Holdings Co.,
5.875%, 10/01/2012 1,565,111
44,625 Quezon Power Philippines Co.,
8.860%, 6/15/2017 43,509
---------------
11,250,544
---------------
Foreign Agencies -- 1.1%
220,000 Alberta Municipal Funding Corp.,
5.700%, 9/01/2011, (CAD) 206,590
3,670,000 Pemex Project Funding Master Trust,
8.625%, 12/01/2023, 144A 4,468,225
---------------
4,674,815
---------------
Foreign Local Governments -- 9.6%
19,100,000 Kommunekredit,
5.000%, 6/07/2006, (NOK) 2,959,219
34,839 Province of Alberta,
5.930%, 9/16/2016, (CAD) 32,990
4,525,000 Province of British Columbia,
5.250%, 12/01/2006, (CAD) 3,977,757
5,175,000 Province of British Columbia,
6.000%, 6/09/2008, (CAD) 4,738,698
3,275,000 Province of British Columbia,
6.250%, 12/01/2009, (CAD) 3,097,685
3,285,000 Province of Manitoba,
4.450%, 12/01/2008, (CAD) 2,902,838
6,510,000 Province of Manitoba,
5.750%, 6/02/2008, (CAD) 5,922,728
500,000 Province of Nova Scotia,
6.600%, 6/01/2027, (CAD) 543,325
See accompanying notes to financial statements.
7
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------
Foreign Local Governments -- continued
$ 700,000 Province of Ontario,
3.500%, 9/08/2006, (CAD) $ 603,270
4,490,000 Province of Ontario,
5.900%, 3/08/2006, (CAD) 3,909,448
7,500,000 Province of Saskatchewan,
4.750%, 12/01/2006, (CAD) 6,555,097
550,000 Province of Saskatchewan,
5.500%, 6/02/2008, (CAD) 497,323
4,110,000 Province of Saskatchewan,
6.000%, 6/01/2006, (CAD) 3,599,653
---------------
39,340,031
---------------
Government Owned -- No Guarantee -- 0.9%
5,150,000 SLM Corp.,
6.500%, 6/15/2010, (NZD) 3,526,884
---------------
Government Agencies -- 11.8%
1,250,000 Federal Home Loan Mortgage Corp.,
3.220%, 6/20/2007, (SGD) 748,655
244,408 Federal Home Loan Mortgage Corp.,
5.000%, 12/01/2031 239,943
9,250,000 Federal Home Loan Mortgage Corp.,
5.500%, 9/15/2011 9,680,254
7,500,000 Federal Home Loan Mortgage Corp.,
5.750%, 1/15/2012 7,960,545
700,000 Federal National Mortgage Association,
Zero Coupon Bond, 10/29/2007, (NZD) 421,118
16,000,000 Federal National Mortgage Association,
2.290%, 2/19/2009, (SGD) 9,374,749
1,850,000 Federal National Mortgage Association,
5.375%, 11/15/2011(c) 1,926,962
17,450,000 Federal National Mortgage Association,
5.500%, 3/15/2011(c) 18,226,228
58,491 Federal National Mortgage Association,
6.000%, 7/01/2029 59,597
---------------
48,638,051
---------------
Healthcare -- 3.2%
2,625,000 Columbia/HCA Healthcare Corp.,
7.050%, 12/01/2027 2,479,344
250,000 Columbia/HCA Healthcare Corp.,
7.500%, 12/15/2023 248,269
620,000 Columbia/HCA Healthcare Corp.,
7.580%, 9/15/2025 614,366
1,000,000 Columbia/HCA Healthcare Corp.,
7.750%, 7/15/2036 991,825
5,000,000 HCA, Inc.,
5.750%, 3/15/2014 4,765,860
800,000 HCA, Inc.,
6.250%, 2/15/2013 790,752
3,250,000 HCA, Inc.,
6.300%, 10/01/2012 3,230,438
---------------
13,120,854
---------------
Home Construction -- 0.1%
250,000 Pulte Homes, Inc.,
5.250%, 1/15/2014 240,515
---------------
Independent/Energy -- 0.2%
500,000 Devon Financing Corp. LLC,
7.875%, 9/30/2031 629,641
---------------
Principal
Amount Description Value (a)
- ----------------------------------------------------------------------------
Integrated/Energy -- 0.1%
$ 150,000 Cerro Negro Finance Ltd.,
7.900%, 12/01/2020, 144A $ 142,875
200,000 Petrozuata Finance, Inc.,
8.220%, 4/01/2017, 144A 191,000
---------------
333,875
---------------
Life Insurance -- 1.7%
11,700,000 ASIF Global Financing XXVII,
2.380%, 2/26/2009, (SGD), 144A 6,847,983
---------------
Media Cable -- 1.1%
3,750,000 Cox Communications, Inc., Class A,
6.750%, 3/15/2011, 4,002,615
350,000 NTL Cable PLC,
9.750%, 4/15/2014, (GBP) 621,960
---------------
4,624,575
---------------
Media NonCable -- 0.8%
2,500,000 Clear Channel Communications, Inc.,
4.250%, 5/15/2009(c) 2,411,130
1,000,000 Clear Channel Communications, Inc.,
5.750%, 1/15/2013(c) 989,497
---------------
3,400,627
---------------
Metals & Mining -- 0.4%
1,500,000 Teck Cominco Ltd.,
7.000%, 9/15/2012 1,639,386
---------------
Mortgage Related -- 0.8%
3,000,000 Bank of America Commercial Mortgage, Inc.,
5.464%, 4/11/2037 3,083,217
---------------
Non-Captive Consumer -- 0.3%
1,000,000 Capital One Bank,
6.700%, 5/15/2008 1,045,035
---------------
Non-Captive Diversified -- 0.8%
4,200,000 General Electric Capital Corp.,
6.625%, 2/04/2010, (NZD) 2,887,770
500,000 General Electric Capital Corp., Series EMTN,
1.725%, 6/27/2008, (SGD) 288,858
---------------
3,176,628
---------------
Oil Field Services -- 0.4%
250,000 Ensco International, Inc.,
6.750%, 11/15/2007 259,818
665,000 Pecom Energia SA,
8.125%, 7/15/2010, 144A 711,550
600,000 Transocean Sedco Forex, Inc.,
7.375%, 4/15/2018 714,362
---------------
1,685,730
---------------
Paper -- 1.1%
2,225,000 Georgia-Pacific Corp.,
7.375%, 12/01/2025 2,314,000
750,000 International Paper Co.,
4.000%, 4/01/2010(c) 714,374
300,000 International Paper Co.,
5.250%, 4/01/2016 290,368
145,000 Weyerhaeuser Co.,
6.750%, 3/15/2012 156,680
1,000,000 Weyerhaeuser Co.,
7.125%, 7/15/2023 1,103,248
---------------
4,578,670
---------------
See accompanying notes to financial statements.
8
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------
Pharmaceuticals -- 0.1%
$ 500,000 Schering-Plough Corp.,
5.550%, 12/01/2013 $ 515,563
---------------
Pipelines -- 1.3%
70,000 Coastal Corp.,
6.375%, 2/01/2009 68,250
2,425,000 Coastal Corp.,
6.950%, 6/01/2028 2,182,500
250,000 Coastal Corp.,
7.750%, 6/15/2010 255,000
935,000 El Paso Corp.,
7.000%, 5/15/2011(c) 932,662
1,720,000 El Paso Energy Corp.,
6.750%, 5/15/2009(c) 1,702,800
---------------
5,141,212
---------------
Railroads -- 1.2%
5,000,000 Canadian Pacific Railway Ltd.,
4.900%, 6/15/2010, (CAD), 144A 4,447,656
195,000 Missouri Pacific Railroad Co.,
4.750%, 1/01/2020 164,833
243,000 Missouri Pacific Railroad Co.,
4.750%, 1/01/2030 197,800
281,000 Missouri Pacific Railroad Co.,
5.000%, 1/01/2045 209,506
---------------
5,019,795
---------------
Real Estate Investment Trusts -- 1.5%
4,000,000 Colonial Reality LP
4.800%, 4/01/2011 3,870,680
1,000,000 EOP Operating LP,
6.750%, 2/15/2012 1,081,528
234,000 iStar Financial, Inc., Series REGS,
5.700%, 3/01/2014 234,219
1,000,000 Spieker Properties, Inc.,
7.350%, 12/01/2017 1,155,557
---------------
6,341,984
---------------
Restaurants -- 0.2%
1,000,000 McDonald's Corp.,
3.627%, 10/10/2010, (SGD) 608,434
---------------
Retailers -- 0.0%
22,000 J.C. Penney Co., Inc.,
7.125%, 11/15/2023 24,200
---------------
Sovereigns -- 18.2%
13,725,000 Canadian Government,
4.250%, 9/01/2008, (CAD) 12,073,041
16,265,000 Canadian Government,
4.500%, 9/01/2007, (CAD) 14,292,213
9,600,000 Canadian Government,
5.500%, 6/01/2010, (CAD) 8,924,490
5,000,000 Canadian Government, Series WH31,
6.000%, 6/01/2008, (CAD) 4,582,796
14,310,000 Government of Sweden, Series 1040,
6.500%, 5/05/2008, (SEK) 2,034,254
55,815,000 Government of Sweden, Series 1045,
5.250%, 3/15/2011, (SEK) 8,083,445
15,000,000 Kingdom of Norway,
5.500%, 5/15/2009, (NOK) 2,474,470
44,930,000 Kingdom of Norway,
6.750%, 1/15/2007, (NOK) 7,212,048
Principal
Amount Description Value (a)
- -----------------------------------------------------------------------------
Sovereigns -- continued
$ 23,000,000 Mexican Fixed Rate Bonds
8.000%, 12/07/2023, (MXN) $ 1,979,279
77,000,000 Mexican Fixed Rate Bonds,
9.000%, 12/20/2012, (MXN) 7,337,083
2,202,913 PF Export Receivables Master Trust,
6.436%, 6/01/2015, 144A 2,215,117
1,500,000 Republic of Brazil,
8.250%, 1/20/2034 1,507,500
325,000 Republic of Brazil,
8.875%, 4/15/2024(c) 346,775
10,000 Republic of Brazil,
10.125%, 5/15/2027(c) 11,980
250,000 Republic of Brazil,
11.000%, 8/17/2040(c) 306,500
245,000 Republic of Peru,
5.000%, 3/07/2017(d) 235,812
500,000 Republic of South Africa,
5.250%, 5/16/2013, (EUR) 666,185
150,000 Republic of South Africa,
12.500%, 12/21/2006, (ZAR) 24,778
500,000 SP Powerassets Ltd.,
3.730%, 10/22/2010, (SGD) 307,601
---------------
74,615,367
---------------
Supranational -- 3.6%
22,000,000 Inter-American Development Bank,
Zero Coupon Bond, 5/11/2009, (BRL) 5,807,282
13,265,000 Inter-American Development Bank, Series EMTN,
6.000%, 12/15/2017, (NZD) 9,058,041
---------------
14,865,323
---------------
Technology -- 2.1%
2,500,000 Arrow Electronics, Inc.,
6.875%, 7/01/2013 2,686,712
495,000 Motorola, Inc.,
5.800%, 10/15/2008 509,855
99,000 Motorola, Inc.,
7.625%, 11/15/2010 112,044
1,625,000 Motorola, Inc.,
8.000%, 11/01/2011(c) 1,899,836
3,115,000 Samsung Electronics Co. Ltd.,
7.700%, 10/01/2027, 144A 3,463,413
---------------
8,671,860
---------------
Textile -- 0.0%
25,000 Kellwood Co.,
7.625%, 10/15/2017(f) 22,712
---------------
Tobacco -- 0.5%
2,000,000 Altria Group, Inc.,
7.000%, 11/04/2013 2,189,126
---------------
Transportation Services -- 0.5%
450,929 Atlas Air Worldwide Holdings, Inc.,
7.200%, 1/02/2019 448,133
560,162 Atlas Air, Inc., Series A,
7.380%, 1/02/2018 557,731
1,000,000 ERAC USA Finance Co.,
6.800%, 2/15/2008, 144A 1,039,371
---------------
2,045,235
---------------
See accompanying notes to financial statements.
9
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- SCHEDULE OF INVESTMENTS (continued)
Investments as of September 30, 2005
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------
Treasuries -- 13.2%
$ 5,000,000 U.S. Treasury Notes,
2.500%, 9/30/2006(c) $ 4,921,875
5,965,000 U.S. Treasury Notes,
2.625%, 5/15/2008(c) 5,736,189
1,045,000 U.S. Treasury Notes,
2.750%, 6/30/2006(c) 1,035,122
19,000,000 U.S. Treasury Notes,
2.750%, 7/31/2006(c) 18,795,902
6,035,000 U.S. Treasury Notes,
3.000%, 2/15/2008(c) 5,875,404
18,000,000 U.S. Treasury Notes
4.375%, 5/15/2007(c) 18,059,760
---------------
54,424,252
---------------
Wireless -- 0.2%
1,000,000 America Movil SA de CV,
4.125%, 3/01/2009 972,871
---------------
Wirelines -- 1.0%
1,400,000 Philippine Long Distance Telephone Co.,
8.350%, 3/06/2017 1,447,250
1,000,000 Telekom Malaysia Berhad,
7.875%, 8/01/2025, 144A 1,239,856
250,000 US West Capital Funding, Inc.,
6.500%, 11/15/2018 207,500
1,650,000 US West Capital Funding, Inc.,
6.875%, 7/15/2028 1,357,125
---------------
4,251,731
---------------
Total Non-Convertible Bonds (Identified Cost $366,276,290) 388,815,767
---------------
Principal
Amount
- ---------------------------------------------------------------------------------------------
Convertible Bonds -- 2.5%
Independent/Energy -- 0.7%
500,000 Devon Energy Corp.,
4.900%, 8/15/2008(c) 615,000
1,750,000 Devon Energy Corp.,
4.950%, 8/15/2008(c) 2,152,500
---------------
2,767,500
---------------
Pharmaceuticals -- 1.8%
7,685,000 Chiron Corp.,
1.625%, 8/01/2033 7,512,088
---------------
Total Convertible Bonds (Identified Cost $9,372,838) 10,279,588
---------------
Total Bonds and Notes (Identified Cost $375,649,128) 399,095,355
---------------
- ---------------------------------------------------------------------------------------------
Short-Term Investments -- 22.6% of Total Net Assets
6,014,000 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation,
dated 9/30/05 at 1.750% to be repurchased at $6,014,877
on 10/3/05 collateralized by $6,150,000 U.S. Treasury Note,
4.00% due 9/30/07 with a value of $6,134,625 (Note 2g) 6,014,000
---------------
Shares
- ---------------------------------------------------------------------------------------------
86,992,852 State Street Navigator Securities Lending Prime Portfolio(e) 86,992,852
---------------
Total Short-Term Investments (Identified Cost $93,006,852) 93,006,852
---------------
Total Investments -- 119.7%
(Identified Cost $468,655,980)(b) 492,102,207
Other assets less liabilities -- (19.7)% (81,069,202)
---------------
Total Net Assets -- 100% $ 411,033,005
===============
(a) See Note 2a of Notes to Financial Statements
(b) Federal Tax Information:
At September 30, 2005, the net unrealized appreciation on
investments based on cost of $471,350,777 for federal income
tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities in
which there is an excess of value over tax cost $ 28,325,427
Aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value (7,573,997)
---------------
Net unrealized appreciation $ 20,751,430
===============
(c) All or a portion of this security was on loan to brokers at September 30, 2005.
(d) Variable rate security. Rate disclosed is rate at September 30, 2005.
(e) Represents investment of securities lending collateral.
(f) Illiquid security
(g) Became non-income producing as of October 8, 2005 due to
bankruptcy filing.
144A Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At September 30, 2005, the total value of
these securities amounted to $49,629,123 or 12.1% of net assets.
Key to Abbreviations:
BRL Brazilian Real
CAD Canadian Dollar
EUR Euro
GBP Great British Pound
MXN Mexican Peso
NOK Norwegian Krone
NZD New Zealand Dollar
KRW South Korean Won
SEK Swedish Krona
SGD Singapore Dollar
THB Thailand Baht
ZAR South African Rand
Holdings at September 30, 2005 as a Percentage of Net Assets (Unaudited)
Sovereigns 18.1%
Treasuries 13.2
Government Agencies 11.8
Foreign Local Governments 9.6
Banking 6.8
Supranational 3.6
Automotive 3.6
Healthcare 3.2
Electric 2.7
Technology 2.1
Other, less than 2% each 22.3
See accompanying notes to financial statements.
10
STATEMENT OF ASSETS & LIABILITIES
September 30, 2005
ASSETS
Investments at cost $468,655,980
Net unrealized appreciation 23,446,227
------------
Investments at value 492,102,207
Cash 553
Foreign cash at value (identified cost
$944) 956
Receivable for Fund shares sold 2,454,199
Interest receivable 5,460,087
Securities lending income receivable 6,510
Receivable from investment adviser 102,020
------------
TOTAL ASSETS 500,126,532
------------
LIABILITIES
Collateral on securities on loan, at
value (Note 2) 86,992,852
Payable for Fund shares redeemed 1,678,283
Management fees payable 136,677
Deferred Trustees' fees 32,775
Transfer agent fees payable 68,111
Administrative fees payable 57,860
Service and distribution fees payable 7,591
Other accounts payable and accrued
expenses 119,378
------------
TOTAL LIABILITIES 89,093,527
------------
NET ASSETS $411,033,005
============
NET ASSETS CONSIST OF:
Paid-in capital $374,246,827
Undistributed net investment income 8,366,427
Accumulated net realized gain on
investments 4,973,806
Net unrealized appreciation on
investments and foreign currency
translations 23,445,945
------------
NET ASSETS $411,033,005
============
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE:
Class A shares:
Net assets $ 39,168,083
============
Shares of beneficial interest 3,345,424
============
Net asset value and redemption price
per share $ 11.71
============
Offering price per share (100/95.50
of $11.71) $ 12.26
============
Class B shares: (redemption price is
equal to net asset value less any
applicable contingent deferred sales
charges)
Net assets $ 3,443,187
============
Shares of beneficial interest 295,078
============
Net asset value and offering price
per share $ 11.67
============
Class C shares: (redemption price is
equal to net asset value less any
applicable contingent deferred sales
charges)
Net assets $ 27,992,040
============
Shares of beneficial interest 2,400,664
============
Net asset value and offering price
per share $ 11.66
============
Class Y shares:
Net assets $ 26,012,031
============
Shares of beneficial interest 2,221,521
============
Net asset value, offering and
redemption price per share $ 11.71
============
Class J shares:
Net assets $314,417,664
============
Shares of beneficial interest 26,897,820
============
Net asset value and redemption price
per share $ 11.69
============
Offering price per share (100/96.50
of $11.69) $ 12.11
============
Value of securities on loan (Note 2) $ 85,241,876
============
See accompanying notes to financial statements.
11
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2005
INVESTMENT INCOME
Interest $20,073,397
Less net foreign taxes withheld (2,317)
Securities lending income 35,555
-----------
20,106,635
-----------
Expenses
Management fees 1,551,924
Service fees - Class A 59,185
Service and distribution fees -
Class B 27,503
Service and distribution fees -
Class C 168,309
Service and distribution fees -
Class J 2,454,146
Trustees' fees and expenses 31,140
Administrative 252,634
Custodian 181,131
Transfer agent fees - Class A, Class
B, Class C 123,655
Transfer agent fees - Class Y 28,132
Transfer agent fees - Class J 10,134
Audit and tax services 44,034
Registration - Class A, Class B,
Class C, Class Y 45,237
Registration - Class J 293
Shareholder reporting - Class A,
Class B, Class C, Class Y 23,616
Shareholder reporting - Class J 157,696
Legal - Class A, Class B, Class C,
Class Y 2,227
Legal - Class J 46,882
Miscellaneous 24,058
-----------
Total expenses 5,231,936
Less reimbursement/waiver (323,993)
-----------
Net expenses 4,907,943
-----------
Net investment income 15,198,692
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments - net 15,799,227
Foreign currency transactions - net 163,958
Change in unrealized depreciation on:
Investments - net (7,210,573)
Foreign currency translations - net (77,065)
-----------
Net realized and unrealized gain on
investments and foreign currency
transactions 8,675,547
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $23,874,239
===========
See accompanying notes to financial statements.
12
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
September 30, September 30,
2005 2004
------------- -------------
------------ ------------
FROM OPERATIONS:
Net investment income $ 15,198,692 $ 15,716,537
Net realized gain on investments and foreign currency transactions 15,963,185 11,166,256
Change in unrealized appreciation (depreciation) on investments and foreign currency translations (7,287,638) 1,854,609
------------ ------------
Increase in net assets resulting from operations 23,874,239 28,737,402
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (1,380,960) (271,806)
Class B (143,680) (42,016)
Class C (807,975) (175,999)
Class Y (1,072,660) (583,747)
Class J (19,375,156) (16,876,388)
Capital gains:
Class A (312,527) (13,621)
Class B (35,217) (3,141)
Class C (164,210) (4,478)
Class Y (200,515) (60,972)
Class J (4,635,137) (2,012,830)
------------ ------------
Total distributions (28,128,037) (20,044,998)
------------ ------------
INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 39,379,478 20,028,707
------------ ------------
Total increase in net assets 35,125,680 28,721,111
NET ASSETS
Beginning of year 375,907,325 347,186,214
------------ ------------
End of year $411,033,005 $375,907,325
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ 8,366,427 $ 7,593,506
============ ============
See accompanying notes to financial statements.
13
This Page Intentionally Left Blank
14
FINANCIAL HIGHLIGHTS
Income (loss) from investment operations: Less distributions:
----------------------------------------- -----------------------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from from net
of investment gain (loss) on investment net investment realized Total
the period income (d) investments operations income capital gains distributions
---------- ---------- -------------- ---------- -------------- ------------- -------------
Class A
9/30/2005 $11.84 $0.49 $0.29 $0.78 $(0.74) $(0.17) $(0.91)
9/30/2004 11.54 0.52 0.45 0.97 (0.60) (0.07) (0.67)
9/30/2003 10.23 0.58 1.46 2.04 (0.59) (0.14) (0.73)
9/30/2002(f)(h) 10.18 0.39 0.04 0.43 (0.38) -- (0.38)
12/18/2000(i) 9.91 0.13 0.24 0.37 (0.14) -- (0.14)
Class B
9/30/2005 11.82 0.41 0.27 0.68 (0.66) (0.17) (0.83)
9/30/2004 11.53 0.43 0.45 0.88 (0.52) (0.07) (0.59)
9/30/2003(g) 11.21 0.02 0.30 0.32 -- -- --
Class C
9/30/2005 11.81 0.40 0.28 0.68 (0.66) (0.17) (0.83)
9/30/2004 11.53 0.43 0.45 0.88 (0.53) (0.07) (0.60)
9/30/2003(g) 11.21 0.02 0.30 0.32 -- -- --
Class Y
9/30/2005 11.85 0.54 0.28 0.82 (0.79) (0.17) (0.96)
9/30/2004 11.54 0.57 0.45 1.02 (0.64) (0.07) (0.71)
9/30/2003 10.23 0.61 1.46 2.07 (0.62) (0.14) (0.76)
9/30/2002(f) 10.09 0.62 0.09 0.71 (0.55) (0.02) (0.57)
9/30/2001 9.92 0.65 0.18 0.83 (0.66) -- (0.66)
Class J
9/30/2005 11.83 0.46 0.27 0.73 (0.70) (0.17) (0.87)
9/30/2004 11.53 0.48 0.44 0.92 (0.55) (0.07) (0.62)
9/30/2003 10.22 0.52 1.47 1.99 (0.54) (0.14) (0.68)
9/30/2002(f) 10.09 0.54 0.09 0.63 (0.48) (0.02) (0.50)
9/30/2001 9.91 0.57 0.19 0.76 (0.58) -- (0.58)
(a)Total returns would have been lower had the adviser not reduced its advisory
fees and/or borne other operating expenses. Periods less than one year are
not annualized.
(b)The adviser has agreed to reimburse a portion of the Fund's expenses during
the period. Without this reimbursement the Fund's ratio of operating
expenses would have been higher.
(c)Annualized basis for periods less than one year.
(d)Per share net investment income has been calculated using the average shares
outstanding during the period.
(e)A sales charge for Class A, Class C and Class J and a contingent deferred
sales charge for Class B and Class C shares are not reflected in total
return calculations.
See accompanying notes to financial statements.
15
Ratios to average net assets:
----------------------------------
Net asset Net assets,
value, Total end of Net Gross Net investment Portfolio
end of return the period Expenses Expenses income turnover
the period (%) (a) (000) (%) (b)(c) (%) (c) (%) (c) rate (%)
---------- ------- ----------- ---------- -------- -------------- ---------
$11.71 6.8(j) $ 39,168 0.95 1.14 4.21 28
11.84 8.8(j) 9,506 0.93 1.67 4.52 29
11.54 20.6(e) 1,128 0.80 4.67 5.21 34
10.23 4.3 11 0.80 191.59 5.85 39
10.14 3.8 2,426 0.80 1.91 6.31 1
11.67 5.9(j) 3,443 1.70 2.18 3.47 28
11.82 7.9(j) 1,797 1.70 2.42 3.77 29
11.53 2.9(e) 160 1.70 7.81 5.83 34
11.66 5.9(j) 27,992 1.70 1.97 3.45 28
11.81 7.9(j) 9,191 1.70 2.42 3.74 29
11.53 2.9(e) 3 1.70 7.81 4.35 34
11.71 7.1(j) 26,012 0.55 0.82 4.61 28
11.85 9.2 12,543 0.55 1.08 4.92 29
11.54 20.9 10,230 0.55 1.34 5.58 34
10.23 7.2 7,874 0.55 1.13 6.08 39
10.09 8.6 8,549 0.55 1.36 6.43 15
11.69 6.4(j) 314,418 1.30 1.35 3.89 28
11.83 8.3(j) 342,871 1.30 1.33 4.15 29
11.53 20.0(e) 335,666 1.30 1.36 4.79 34
10.22 6.4(e) 211,105 1.30 1.55 5.33 39
10.09 7.9(e) 91,569 1.30 1.71 5.65 15
(f)As required effective October 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and
began amortizing premium on debt securities and reclassifying paydown gains
and losses to interest income for financial statement purposes only. For the
year ended September 30, 2002, the effect of this change per share for
Class A, Class Y, and Class J net investment income and net realized and
unrealized gain (loss) was less than $0.01. The ratio of net investment
income to average net assets for Class A, Class Y and Class J decreased from
5.88% to 5.85%, 6.10% to 6.08%, and 5.35% to 5.33%, respectively, on an
annualized basis. Per share ratios and supplemental data for periods prior
to October 1, 2001, have not been restated to reflect this change in
presentation.
(g)From commencement of class operations on September 12, 2003 through
September 30, 2003.
(h)From commencement of class operations on January 31, 2002 through
September 30, 2002.
(i)For the period from October 1, 2000 through December 18, 2000. Class A,
formerly Retail Class shares, of the Fund were converted into Class Y,
formerly Institutional Class shares, on December 18, 2000.
(j)A sales charge for Class A and Class J and a contingent deferred sales
charge for Class B and Class C shares are not reflected in total return
calculations.
16
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
1. Organization. Loomis Sayles Funds II (the "Trust") is organized as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940 (the "1940 Act"), as amended, as an open-end investment
management company. The Declaration of Trust permits the Board of Trustees to
authorize the issuance of an unlimited number of shares of the Trust in
multiple series (individually, a "Fund" and collectively, the "Funds").
Information presented in these financial statements pertains to Loomis Sayles
Investment Grade Bond Fund. The financial statements for the remaining fixed
income funds and the equity funds of the Trust are presented in separate
reports.
The Fund offers Class A, Class B, Class C, Class Y and Class J shares. Class A
shares are sold with a maximum front end sales charge of 4.50%. Class B shares
do not pay a front end sales charge, but pay higher ongoing Rule 12b-1 fees
than Class A shares for eight years (at which point they automatically convert
to Class A shares), and are subject to a contingent deferred sales charge
("CDSC") if those shares are redeemed within six years of purchase. Class C
shares do not pay a front end sales charge, do not convert to any other Class
of shares, pay higher ongoing Rule 12b-1 fees than Class A shares and may be
subject to a CDSC of 1.00% if those shares are redeemed within one year. Class
Y shares do not pay a front end sales charge, a CDSC or distribution fees.
Class Y shares are intended for institutional investors with a minimum initial
investment of $1,000,000, though some categories of investors are excepted from
the minimum investment amounts. Class J shares are only offered to non-U.S.
investors and are sold with a maximum front end sales charge of 3.50%.
Most expenses of the Trust can be directly attributed to a Fund. Expenses which
can not be directly attributed to a Fund are generally apportioned based on the
relative net assets of each of the funds in the Trust. Expenses of the Fund are
borne pro rata by the holders of each class of shares, except that each class
bears expenses unique to that class (including the Rule 12b-1 service and
distribution fees and transfer agent fees applicable to such class). In
addition, each class votes as a class only with respect to its own Rule 12b-1
Plan. Shares of each class would receive their pro rata share of the net assets
of the Fund, if the Fund were liquidated. The Trustees approve separate
dividends from net investment income on each class of shares.
2. Significant Accounting Policies. The following is a summary of significant
accounting policies consistently followed by the Fund in preparation of its
financial statements. The Fund's financial statements are prepared in
accordance with accounting principles generally accepted in the United States
of America which require the use of management estimates that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
a. Security Valuation. Debt securities for which market quotations are readily
available (other than short-term obligations with a remaining maturity of less
than sixty days) are generally valued at market price, as reported by pricing
services recommended by the adviser's pricing committee and approved by the
Board of Trustees. Such pricing services generally use the most recent bid
prices in the principal market in which such securities are normally traded.
Broker-dealer bid quotations may also be used to value debt securities where a
pricing service does not price a security or where a pricing service does not
provide a reliable price for the security. Short-term obligations with a
remaining maturity of 60 days or less are valued at amortized cost, which
approximates market value. Investments in other open-end investment companies
are valued at net asset value each day. Securities for which market quotations
are not readily available (including restricted securities, if any) are valued
at fair value as determined in good faith by the Fund's investment adviser
using consistently applied procedures under the general supervision of the
Board of Trustees.
The Fund may hold securities traded in foreign markets. Foreign securities are
valued at the market price in the foreign market. However, if events occurring
after the close of the foreign market (but before the close of regular trading
on the New York Stock Exchange) are believed to materially affect the value of
those securities, such securities are fair valued pursuant to procedures
approved by the Board of Trustees.
Certain securities held by the Fund were valued on the basis of a price
provided by a principal market maker. The prices provided by the principal
market makers may differ from the value that would be realized if the
securities were sold.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on trade date. Dividend income is recorded on ex-dividend
date, or in the case of certain foreign securities, as soon as the Fund is
notified, and interest income is recorded on an accrual basis. Interest income
is increased by the accretion of discount and decreased by the amortization of
premium. Investment income is recorded net of foreign taxes withheld when
applicable. In determining net gain or loss on securities sold, the cost of
securities has been determined on an identified cost basis. Investment income
and realized and unrealized gains and losses are allocated on a pro rata basis
to each class based on the relative net assets of each class to the total net
assets of the Fund.
c. Foreign Currency Translation. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities, income and
expenses are translated on the respective dates of such transactions.
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates
from fluctuations arising from changes in market prices of the investment
securities. Such changes are included with the net realized and unrealized gain
or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the amounts of
dividends, interest and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities, other than investment securities, at the end of the
fiscal periods, resulting from changes in exchange rates.
17
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
The Fund uses foreign currency exchange contracts to facilitate transactions in
foreign-denominated investments. Losses may arise from changes in the value of
the foreign currency or if the counterparties do not perform under the
contracts' terms.
The Fund may purchase investments of foreign issuers. Investing in securities
of foreign issuers involves special risks and considerations not typically
associated with investing in U.S. companies and securities of the U.S.
government. These risks include revaluation of currencies and the risk of
appropriation. Moreover, the markets for securities of many foreign issuers may
be less liquid and the prices of such securities may be more volatile than
those of comparable U.S. companies and the U.S. government.
d. Forward Foreign Currency Contracts. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell generally are
used to hedge the Fund's investments against currency fluctuation. Also, a
contract to buy or sell can offset a previous contract. These contracts involve
market risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. The U.S. dollar value of the currencies
the Fund has committed to buy or sell (if any) is shown in the portfolio
composition under the caption "Forward Currency Contracts Outstanding." These
amounts represent the aggregate exposure to each currency the Fund has acquired
or hedged through currency contracts outstanding at period end.
All contracts are "marked-to-market" daily at the applicable exchange rates and
any gains or losses are recorded for financial statement purposes as unrealized
until settlement date.
Risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. At
September 30, 2005, there were no open forward currency contracts.
e. Federal and Foreign Income Taxes. The Trust treats the Fund as a separate
entity for federal income tax purposes. The Fund intends to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies, and to distribute to its shareholders substantially all of its net
investment income and any net realized capital gains, at least annually.
Accordingly, no provisions for federal income and excise taxes have been made.
The Fund may be subject to foreign taxes on income and gains on investments
that are accrued based upon the Fund's understanding of the tax rules and
regulations that exist in the countries in which the Fund invests. Foreign
governments may also impose taxes or other payments on investments with respect
to foreign securities. Such taxes are accrued as applicable.
f. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on ex-dividend date. The timing and characterization of certain income
and capital gains distributions are determined in accordance with federal tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. Permanent differences are primarily due to
differing treatments for book and tax purposes of items such as foreign
currency transactions. Temporary differences between book and tax distributable
earnings are primarily due to premium amortization, deferred Trustees' fees and
corporate action adjustments. Permanent book and tax differences relating to
shareholder distributions will result in reclassifications to capital accounts.
Distributions from net investment income and short-term capital gains are
considered to be ordinary income for tax purposes.
The tax character of distributions paid to shareholders during the years ended
September 30, 2005 and 2004 were as follows:
2005 Distributions Paid From: 2004 Distributions Paid From:
------------------------------------- -------------------------------------
Ordinary Long-Term Ordinary Long-Term
Income Capital Gains Total Income Capital Gains Total
------ ------------- ----- ------ ------------- -----
$22,981,935 $5,146,102 $28,128,037 $17,982,737 $2,062,261 $20,044,998
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ 8,399,202
Undistributed long-term capital gains 7,668,603
-----------
Total undistributed earnings 16,067,805
Deferred net capital losses (post October 2004) --
Unrealized appreciation 20,751,148
-----------
Total accumulated earnings $36,818,953
===========
g. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 102%
of the repurchase price, including interest. The Fund's adviser is responsible
for determining that the value of the collateral is at all times at least equal
to 102% of the repurchase price, including interest. The repurchase agreements
are tri-party arrangements whereby the collateral is held at the custodian bank
in a segregated account for the benefit of the Fund and the counterparty.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the counterparty including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities.
18
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
h. Securities Lending. The Fund has entered into an agreement with State Street
Bank and Trust Company ("State Street Bank"), as agent of the Fund, to lend
securities to certain designated borrowers. The loans are collateralized with
cash or securities in an amount equal to at least 105% or 102% of the market
value of the loaned international or domestic securities, respectively, when
the loan is initiated. Thereafter, the value of the collateral must remain at
least 102% of the market value of loaned securities for U.S. equities and U.S.
corporate debt, at least 105% of the market value of loaned securities for
non-U.S. equities and at least 100% of the market value of loaned securities
for U.S. government securities, sovereign debt issued by non-U.S. governments
and non-U.S. corporate debt. As with other extensions of credit, the Fund may
bear the risk of loss with respect to the investment of the collateral. The
Fund invests cash collateral in short-term investments, a portion of the income
from which is remitted to the borrowers and the remainder allocated between the
Fund and State Street Bank as lending agent. The market value of securities on
loan to borrowers and the value of the collateral held by the Fund with respect
to such loans at September 30, 2005, were $85,241,876 and $86,992,852,
respectively.
i. Indemnifications. Under the Fund's organizational documents, its officers
and trustees are indemnified against certain liability arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience the
Fund expects the risk of loss to be remote.
3. Purchases and Sales of Securities. For the year ended September 30, 2005,
purchases and sales of securities (excluding short-term investments and U.S.
Government/Agency securities) were $77,483,312 and $86,265,602, respectively.
Purchases and sales of U.S. Government/Agency securities (excluding short-term
investments) were $47,793,671 and $16,545,237, respectively.
4. Management Fees and Other Transactions with Affiliates.
a. Management Fees. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as
investment adviser to the Fund. Under the terms of the management agreement,
the Fund pays a management fee at the annual rate of 0.40% of average daily net
assets, calculated daily and payable monthly. For the year ended September 30,
2005, the management fee for the Fund was as follows:
Percentage of Average
Gross Waiver of Net Daily Net Assets
Management Management Management --------------------
Fee Fee Fee Gross Net
---------- ---------- ---------- ----- ---
$1,551,924 $323,993 $1,227,931 0.40% 0.32%
Certain officers and employees of Loomis Sayles are also officers or Trustees
of the Trust. Loomis Sayles' general partner is indirectly owned by IXIS Asset
Management North America, L.P. ("IXIS North America"), formerly CDC IXIS Asset
Management North America, L.P. IXIS North America is ultimately owned
principally, directly or indirectly, by three large affiliated French financial
services entities: the Caisse des Depots et Consignations ("CDC"), a public
sector financial institution created by the French government in 1816; the
Caisse Nationale des Caisses d'Epargne, a financial institution owned by CDC
and by French regional savings banks known as the Caisses d'Epargne; and CNP
Assurances, a large French life insurance company.
b. Administrative Fees. IXIS Asset Management Services Company ("IXIS
Services"), formerly CDC IXIS Asset Management Services, Inc., a wholly owned
subsidiary of IXIS North America, performed certain administrative services for
the Fund and subcontracted with State Street Bank, to serve as
sub-administrator. Effective January 3, 2005, IXIS Asset Management Advisors,
L.P. ("IXIS Advisors") assumed responsibility for providing administrative
services to the Fund. Pursuant to an agreement among the Loomis Sayles Funds
Trusts (the Trust and Loomis Sayles Funds I), IXIS Advisor Funds Trust I
(formerly CDC Nvest Funds Trust I), IXIS Advisor Funds Trust II (formerly CDC
Nvest Funds Trust II), IXIS Advisor Funds Trust III (formerly CDC Nvest Funds
Trust III), IXIS Advisor Funds Trust IV (formerly CDC Nvest Companies Trust I)
and IXIS Advisor Cash Management Trust (formerly CDC Nvest Cash Management
Trust) ("IXIS Advisor Funds Trusts") and IXIS Advisors, each Fund pays IXIS
Advisors its pro rata portion of a group fee for these services representing
the higher amount based on the following calculations:
(1)Percentage of Average Daily Net Assets
First Next Over
$5 billion $5 billion $10 billion
---------- ---------- -----------
0.0675% 0.0625% 0.0500%
or
(2)Each Fund's pro rata portion, allocated based on the combined
net assets of the Loomis Sayles Funds Trusts and the IXIS
Advisor Funds Trusts, of the annual aggregate minimum fee of $5
million.
State Street Bank continues to serve as sub-administrator.
For the year ended September 30, 2005, fees paid to IXIS Services and IXIS
Advisors for administrative expense were $252,634.
19
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
c. Transfer Agent Fees. IXIS Services serves as transfer and shareholder
servicing agent for the Fund (except Class J shares) and has subcontracted with
Boston Financial Data Services ("BFDS") to serve as sub-transfer agent. State
Street Bank serves as transfer and shareholder servicing agent for Class J
shares.
Effective January 1, 2005, Class A, B and C shares pay fees monthly to IXIS
Advisors equal to an annual rate of $25.25 for each open account and $2.00 for
each closed account, subject to a monthly minimum of $1,500 per class and an
annual aggregate minimum fee of approximately $1.7 million for all Load Fixed
Income Funds. Load Fixed Income Funds consist of the Fund, Loomis Sayles High
Income Fund, Loomis Sayles Limited Term Government and Agency Fund, Loomis
Sayles Municipal Income Fund and Loomis Sayles Strategic Income Fund and all
fixed income funds in the IXIS Advisors Funds Trust.
Effective January 1, 2005, Class Y shares pay fees monthly to IXIS Advisors
equal to an annual rate of $25.25 for each open account and $2.00 for each
closed account, subject to a monthly minimum of $1,500 per class and an annual
aggregate minimum fee of approximately $1 million for all Load Funds - Class Y.
Load Funds - Class Y consist of all Funds with Class Y shares offered within
the Loomis Sayles Funds Trusts and IXIS Advisors Funds Trusts.
Prior to January 1, 2005, the Fund for its Classes A, B and C paid monthly to
IXIS Services its pro rata portion of an annual aggregate fee equal to 0.142%
of the first $1.2 billion, 0.135% of the next $5 billion and 0.130% over $6.2
billion of the average net assets for all Load Fixed Income Funds, subject to a
monthly minimum of $1,500 per class and an annual aggregate minimum of $650,000.
Prior to January 1, 2005, the Fund for its Class Y paid monthly to IXIS
Services its pro rata portion of an annual aggregate fee equal to 0.026% of an
average daily net assets for all Load Funds - Class Y, subject to a monthly
minimum of $1,250 per class and an annual aggregate minimum of $650,000.
Effective October 1, 2005, BFDS became the transfer and shareholder servicing
agent for the Fund.
IXIS Services, BFDS and other firms are reimbursed by the Fund for
out-of-pocket expenses. In addition, pursuant to other servicing agreements,
each Class, except Class J, pays service fees to other firms that provide
similar services for their own shareholder accounts.
For the year ended September 30, 2005, amounts paid to IXIS Services as
compensation for its services as transfer agent were $70,007.
d. Service and Distribution Fees. The Trust entered into a distribution
agreement with IXIS Asset Management Distributors, L.P. ("IXIS Distributors"),
formerly CDC IXIS Asset Management Distributors, L.P., a wholly owned
subsidiary of IXIS North America. Pursuant to this agreement, IXIS Distributors
serves as principal underwriter of the Fund, except Class J. The Fund has
entered into a distribution agreement relating to Class J shares with Loomis
Sayles Distributors, L.P. ("Loomis Sayles Distributors"), a wholly-owned
subsidiary of IXIS North America.
Pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1"), the Fund has adopted
a Service Plan relating to the Fund's Class A shares (the "Class A Plan") and
Service and Distribution Plans relating to the Fund's Class B and Class C
shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays IXIS Distributors a monthly service fee
at an annual rate not to exceed 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
incurred by IXIS Distributors in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts.
Under the Class B and Class C Plans, the Fund pays IXIS Distributors a monthly
service fee at an annual rate not to exceed 0.25% of the average daily net
assets attributable to the Fund's Class B and Class C shares, as compensation
for services provided and expenses incurred by IXIS Distributors in providing
personal services to investors in Class B and Class C shares and/or the
maintenance of shareholder accounts.
Also under the Class B and Class C Plans, the Fund pays IXIS Distributors a
monthly distribution fee at an annual rate of 0.75% of the average daily net
assets attributable to the Fund's Class B and Class C shares, as compensation
for services provided and expenses incurred by IXIS Distributors in connection
with the marketing or sale of Class B and Class C shares.
Class J shares are subject to a monthly shareholder service fee at an annual
rate not to exceed 0.25% and a monthly distribution fee payable to Loomis
Sayles Distributors, at an annual rate not to exceed 0.50% of the average daily
net assets attributable to the Fund's Class J shares, pursuant to a shareholder
service and distribution plan adopted under Rule 12b-1.
For the year ended September 30, 2005, the Fund paid the following service and
distribution fees:
Service Fee Distribution Fee
-------------------------------- ---------------------------
Class A Class B Class C Class J Class B Class C Class J
------- ------- ------- ------- ------- ------- -------
$59,185 $6,876 $42,077 $809,868 $20,627 $126,232 $1,644,278
20
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
Commissions (including CDSCs) on Fund shares paid to IXIS Distributors by
investors in Class B and C shares of the Fund were $141,355 and commissions
paid to Loomis Sayles Distributors by investors in Class J shares of the Fund
were $554,102 for the year ended September 30, 2005.
e. Trustees Fees and Expenses. The Loomis Sayles Funds Trusts and the IXIS
Advisor Funds Trusts do not pay any compensation directly to their officers or
Trustees who are directors, officers or employees of Loomis Sayles, IXIS
Distributors, IXIS North America, IXIS Services, IXIS Advisors or their
affiliates. Each Trustee who is an independent Trustee of the Loomis Sayles
Funds Trusts and the IXIS Advisor Funds Trusts receives, in the aggregate, a
retainer fee at the annual rate of $50,000 and meeting attendance fees of
$5,000 for each meeting of the Board of Trustees attended. Each committee
chairman receives an additional retainer fee at the annual rate of $7,000. Each
committee member receives a meeting attendance fee of $3,750 per committee
meeting that he or she attends. The co-chairmen of the Board each receive an
annual retainer fee of $25,000. The retainer fees assume four Board or
Committee meetings per year. These fees are allocated to the various series of
the Loomis Sayles Funds Trusts and the IXIS Advisor Funds Trusts based on a
formula that takes into account, among other factors, the relative net assets
of each Fund. Trustees are reimbursed for travel expenses in connection with
attendance at meetings.
Effective October 1, 2005, the compensation schedule for independent Trustees
will change. Each independent Trustee will receive a retainer fee at the annual
rate of $55,000 and meeting attendance fees of $6,000 for each meeting of the
Board of Trustees attended in person and $3,000 for each meeting of the Board
of Trustees attended telephonically. Each co-chairman of the Board will receive
an additional retainer fee at the annual rate of $25,000. Each committee
chairman will receive an additional retainer fee at the annual rate of $10,000.
Each committee member will receive a meeting attendance fee of $4,000 per
committee meeting attended in person and $2,000 for each committee meeting
attended telephonically.
A deferred compensation plan (the "Plan") is available to the Trustees on a
voluntary basis. Each participating Trustee will receive an amount equal to the
value that such deferred compensation would have been had it been invested in
the Fund or certain other series of the Loomis Sayles Funds Trusts or IXIS
Advisor Funds Trusts on the normal payment date. Deferred amounts remain in the
Fund until distributed in accordance with the Plan.
Additionally, the Board of Trustees has approved the use of Fund assets to pay
a portion of the annual salary for 2005 of an employee at IXIS Advisors who
supports the Funds' Chief Compliance Officer. For the year ended September 30,
2005, the Fund's portion of such expense was approximately $900.
f. Publishing Services. IXIS Services performs certain desktop publishing
services for the Fund. Fees for these services are presented in the Statement
of Operations as part of shareholder reporting. For year ended September 30,
2005, the amount paid to IXIS Services as compensation for these services was
$175.
5. Line of Credit. Prior to September 1, 2005, the Fund, together with certain
other Funds of the Loomis Sayles Funds Trusts, participated in a $25 million
committed unsecured revolving line of credit provided by State Street Bank.
Borrowings under the line of credit were to be made solely to temporarily
finance the repurchase of capital shares. Interest was to be charged to each
participating Fund based on its borrowings at a rate per annum equal to the
Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.09% per
annum, payable at the end of each calendar quarter, was accrued and apportioned
among the participating Funds based on their average daily unused portion of
the line of credit. For the period ended August 31, 2005, the Fund had no
borrowings under the agreement.
Effective September 1, 2005, the Fund, together with certain other Funds of the
Loomis Sayles Funds Trusts and IXIS Advisor Funds Trusts, participate in a $75
million committed line of credit provided by State Street Bank. Borrowings
under the line of credit are to be made solely to temporarily finance the
repurchase of capital shares. Interest is charged to each participating Fund
based on its borrowings at a rate per annum equal to the Federal Funds rate
plus 0.50%. In addition, a commitment fee of 0.09% per annum, payable at the
end of each calendar quarter, is accrued and apportioned among the
participating Funds based on their average daily unused portion of the line of
credit. For the period from September 1 through September 30, 2005, the Fund
had no borrowings under this agreement.
6. Shareholders. At September 30, 2005, the Loomis Sayles Employees' Profit
Sharing Retirement Plan held 129,232 shares of beneficial interest of Class Y
shares, equating to 5.8% of the Class and 0.4% of the Fund.
7. Expense Reductions and Contingent Expense Obligations. Loomis Sayles has
given a binding undertaking to the Fund to defer its management fees and, if
necessary, bear certain expenses associated with the Fund to limit its
operating expenses. This undertaking is in effect until January 31, 2006 and
will be reevaluated on an annual basis.
If in the following fiscal year the actual operating expenses of the Fund are
less than the expense limit for the Fund and the Fund had previously received a
deferral or reimbursement, the Fund is required to pay an amount of additional
expense that is the lower of the difference between the actual operating
expenses and the expense limit or the actual amount of fees previously waived
or expenses reimbursed.
21
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2005
At September 30, 2005, the expense limits as a percentage of average daily net
assets and amount subject to possible reimbursement under the expense
limitation agreement were as follows:
Expense Limit as a Percentage of Average Expenses Subject
Daily Net Assets to Possible
- -------------------------------------- Expiration Reimbursement
Class A Class B Class C Class Y Class J of Waiver until September 30, 2006
- ------- ------- ------- ------- ------- ---------------- ------------------------
0.95% 1.70% 1.70% 0.55% 1.30% January 31, 2006 $323,993
8. Capital Shares. The Fund may issue an unlimited number of shares of
beneficial interest without par value. Transactions in capital shares were as
follows:
Year Ended Year Ended
September 30, 2005 September 30, 2004
------------------------------ ------------------------------
Shares Amount Shares Amount
----------- ----------------- ----------- -----------------
Class A
Issued from the sale of shares 3,673,755 $ 43,260,058 845,179 $ 9,901,942
Issued in connection with the reinvestment of distributions 117,060 1,374,999 18,301 210,238
Redeemed (1,248,177) (14,457,682) (158,442) (1,832,451)
----------- ----------------- ----------- -----------------
Net change 2,542,638 $ 30,177,375 705,038 $ 8,279,729
=========== ================= =========== =================
Class B
Issued from the sale of shares 178,693 $ 2,100,081 149,404 $ 1,701,993
Issued in connection with the reinvestment of distributions 9,317 109,318 1,756 20,158
Redeemed (44,982) (526,800) (12,955) (148,655)
----------- ----------------- ----------- -----------------
Net change 143,028 $ 1,682,599 138,205 $ 1,573,496
=========== ================= =========== =================
Class C
Issued from the sale of shares 1,772,891 $ 20,667,457 844,455 $ 9,807,856
Issued in connection with the reinvestment of distributions 12,470 145,879 754 8,655
Redeemed (163,058) (1,894,867) (67,071) (768,164)
----------- ----------------- ----------- -----------------
Net change 1,622,303 $ 18,918,469 778,138 $ 9,048,347
=========== ================= =========== =================
Class Y
Issued from the sale of shares 1,856,725 $ 21,663,391 482,697 $ 5,495,572
Issued in connection with the reinvestment of distributions 91,507 1,075,420 45,115 519,122
Redeemed (785,313) (9,152,896) (355,309) (4,043,025)
----------- ----------------- ----------- -----------------
Net change 1,162,919 $ 13,585,915 172,503 $ 1,971,669
=========== ================= =========== =================
Class J
Issued from the sale of shares 9,384,600 $ 110,412,999 12,912,010 $ 149,860,044
Issued in connection with the reinvestment of distributions -- -- -- --
Redeemed (11,470,140) (135,397,879) (13,039,250) (150,704,578)
----------- ----------------- ----------- -----------------
Net change (2,085,540) $ (24,984,880) (127,240) $ (844,534)
=========== ================= =========== =================
22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Loomis Sayles Funds II and Shareholders of Loomis Sayles
Investment Grade Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Loomis Sayles Investment Grade
Bond Fund, a series of Loomis Sayles Funds II ("the Fund"), at September 30,
2005, and the results of its operations, the changes in its net assets and the
financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 2005 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 23, 2005
23
2005 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (unaudited)
Capital Gains Distributions. Pursuant to Internal Revenue Section 852(b), the
Fund paid distributions of $5,146,102, which have been designated as capital
gains distributions for the fiscal year ended September 30, 2005.
24
ADDITIONAL INFORMATION
Shareholder Meetings (unaudited)
At a special shareholders' meeting held on June 2, 2005, shareholders of Loomis
Sayles Funds II, of which the Loomis Sayles Investment Grade Bond Fund is a
series, voted for the following proposals:
1. Election of Trustees for Loomis Sayles Funds II ("Trust II")
Votes
Votes For Withheld Total
- --------- -------- -----
Graham T. Allison, Jr. 132,584,909.794 22,128,560.082 154,713,469.876
Edward A. Benjamin 132,612,377.523 22,101,092.353 154,713,469.876
Daniel M. Cain 132,610,853.597 22,102,616.279 154,713,469.876
Paul G. Chenault 132,528,522.129 22,184,947.747 154,713,469.876
Kenneth J. Cowan 132,560,768.058 22,152,701.818 154,713,469.876
Richard Darman 132,450,040.167 22,263,429.709 154,713,469.876
Sandra O. Moose 132,566,101.551 22,147,368.325 154,713,469.876
John A. Shane 132,564,423.970 22,149,045.906 154,713,469.876
Charles D. Baker 132,593,048.677 22,120,421.199 154,713,469.876
Cynthia L. Walker 132,584,766.724 22,128,703.152 154,713,469.876
Robert J. Blanding 132,514,900.631 22,198,569.245 154,713,469.876
John T. Hailer 132,593,553.721 22,119,916.155 154,713,469.876
2. Approval of an Amended and Restated Agreement and Declaration
of Trust for Trust II
Voted Abstained Broker
Voted For Against Votes Non-Votes Total Votes
--------- ------- ----- --------- -----------
103,245,838.162 2,321,818.870 22,868,247.134 32,828,038.000 161,263,942.166
With respect to this proposal, the meeting was adjourned initially to June 22,
2005 and again to July 21, 2005, on which date the proposal eventually passed.
See accompanying notes to financial statements.
25
TRUSTEE AND OFFICER INFORMATION
The table below provides certain information regarding the Trustees and
officers of Loomis Sayles Funds II (the "Trust"). Unless otherwise indicated,
the address of all persons below is 399 Boylston Street, Boston, MA 02116. The
Statements of Additional Information include additional information about the
Trustees of the Trusts and are available by calling Loomis Sayles at
800-343-2029.
Position(s) Held with
the Trust, Length of Number of Portfolios in
Time Served and Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Term of Office* During Past 5 Years** and Other Directorships Held
- ---------------------- --------------- --------------------- ----------------------------
INDEPENDENT TRUSTEES
Graham T. Allison, Jr. Trustee, Douglas Dillon Professor and 38;
(3/23/40) since 2003; Director of the Belfer Center Director, Taubman Centers,
Contract Review and of Science and International Inc. (real estate investment
Governance Affairs, John F. Kennedy trust); Advisory Board
Committee Member School of Government, Member, USEC Inc. (energy
Harvard University supplier)
Charles D. Baker Trustee, President and Chief Executive 38;
(11/13/56) since 2005; Officer, Harvard Pilgrim None
Contract Review and Health Care (health plan)
Governance
Committee Member
Edward A. Benjamin Trustee, Retired 38;
(5/30/38) since 2002; Director, Coal, Energy
Contract Review and Investments & Management,
Governance LLC; Director, Precision
Committee Member Optics Corporation (optics
manufacturer)
Daniel M. Cain Trustee, President and Chief Executive 38;
(2/24/45) since 2003; Officer, Cain Brothers & Trustee, Universal Health
Co-Chairman of the Company, Incorporated Realty Income Trust;
Board, since 2004; (investment banking) Director, Sheridan
Chairman of the Healthcorp (physician
Audit Committee practice management)
Paul G. Chenault Trustee, Retired; Trustee, First Variable 38;
(9/12/33) since 2000; Life (variable life insurance) Director, Mailco Office
for Loomis Sayles II Products, Inc. (mailing
Contract Review and equipment)
Governance
Committee Member
Kenneth J. Cowan Trustee, since 2003; Retired 38;
(4/5/32) Co-Chairman of the None
Board, since 2004;
Chairman of the
Contract Review and
Governance
Committee
26
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with
the Trust, Length of Number of Portfolios in
Time Served and Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Term of Office* During Past 5 Years** and Other Directorships Held
- ---------------------- --------------- --------------------- ----------------------------
INDEPENDENT TRUSTEES
continued
Richard Darman Trustee, since 2003; Partner, The Carlyle Group 38;
(5/10/43) Contract Review and (investments); formerly, Director and Chairman of
Governance Professor, John F. Kennedy the Board of Directors, AES
Committee Member School of Government, Corporation (independent
Harvard University power company); Chairman-
Designate of the Smithsonian
National Museum of
American History; Trustee,
Howard Hughes Medical
Institute
Sandra O. Moose Trustee, since 2003; President, Strategic Advisory 38;
(2/17/42) Audit Committee Services (management Director, Verizon
Member consulting); formerly, Senior Communications; Director,
Vice President and Director, Rohm and Haas Company
The Boston Consulting Group, (specialty chemicals);
Inc. (management consulting) Director, AES Corporation
John A. Shane Trustee, since 2003; President, Palmer Service 38;
(2/22/33) Contract Review and Corporation (venture capital Director, Gensym
Governance organization) Corporation (software and
Committee Member technology services provider);
Director, Abt Associates Inc.
(research and consulting
firm)
Cynthia L. Walker Trustee, since 2005; Dean for Finance and CFO 38;
(7/25/56) Audit Committee (formerly, Associate Dean for None
Member Finance & CFO), Harvard
Medical School
INTERESTED TRUSTEES
Robert J. Blanding/1/ Trustee, President, Chairman, Director 38;
(4/14/47) since 2002; and Chief Executive Officer, None
555 California Street Chief Executive Loomis, Sayles & Company,
San Francisco, CA Officer of Loomis L.P.
94104 Sayles Funds II,
since 2003
John T. Hailer/2/ Trustee, President and Chief Executive 38;
(11/23/60) since 2003; Officer, IXIS Asset None
President of Loomis Management Distributors,
Sayles Funds II L.P.; President and Chief
since 2003 Executive Officer, IXIS
Advisor Funds
27
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with
the Trust, Length of Number of Portfolios in
Time Served and Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Term of Office* During Past 5 Years** and Other Directorships Held
- ---------------------- --------------- --------------------- ----------------------------
OFFICERS
Coleen Downs Dinneen Secretary, Clerk and Senior Vice President, General Not Applicable
(12/16/60) Chief Legal Officer, Counsel, Secretary and Clerk
since 2004 (formerly, Deputy General
Counsel, Assistant Secretary
and Assistant Clerk) IXIS Asset
Management Distribution
Corporation, IXIS Asset
Management Distributors, L.P.
and IXIS Asset Management
Advisors, L.P.
Michael C. Kardok Treasurer, Principal Senior Vice President, IXIS Not Applicable
(7/17/59) Financial and Asset Management Advisors,
Accounting Officer, L.P. and IXIS Asset
since 2004 Management Distributors,
L.P.; formerly, Senior
Director, PFPC Inc.
Max J. Mahoney Anti-Money Senior Vice President, Deputy Not Applicable
(5/1/62) Laundering Officer General Counsel, Assistant
and Assistant Secretary and Assistant Clerk,
Secretary, since 2005 IXIS Asset Management
Distribution Corporation, IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; Chief Compliance
Officer, IXIS Asset
Management Advisors, L.P.;
formerly, Senior Counsel,
MetLife, Inc.; formerly,
Associate Counsel, LPL
Financial Services, Inc.
John E. Pelletier Chief Operating Executive Vice President and Not Applicable
(6/24/64) Officer, since 2004 Chief Operating Officer
(formerly, General Counsel,
Secretary and Clerk), IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; Executive Vice President
(formerly, Senior Vice
President, General Counsel,
Secretary and Clerk), IXIS
Asset Management
Distribution Corporation;
formerly, Director IXIS Asset
Management Services
Company
28
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with
the Trust, Length of Number of Portfolios in
Time Served and Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Term of Office* During Past 5 Years** and Other Directorships Held
- ---------------------- --------------- --------------------- ----------------------------
OFFICERS
continued
Daniel J. Fuss Executive Vice Vice Chairman and Director, Not Applicable
(9/27/33) President, since 2003 Loomis, Sayles & Company,
One Financial Center L.P.; Prior to 2002, President
Boston, MA 02111 and Trustee of Loomis Sayles
Funds II
Kristin Vigneaux Chief Compliance Chief Compliance Officer for Not Applicable
(9/25/69) Officer, since 2004 Mutual Funds, IXIS Asset
Management Distributors, L.P.
and IXIS Asset Management
Advisors, L.P.; formerly, Vice
President, IXIS Asset
Management Services
Company
* The year provided is the earliest year during which a Trustee was elected or
appointed to the Trust. All Trustees serve until retirement, resignation or
removal from the Board. The current retirement age is 72, but was suspended
for the calendar year 2006. At a meeting held on August 26, 2005, the
Trustees voted to lift the suspension of the retirement policy but to
designate 2006 as a transition period so that any Trustees who are currently
72 or older or who reach age 72 during the remainder of 2005 or in 2006 will
not be required to retire until the end of calendar year 2006.
** Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor and Loomis Sayles Trusts. Previous positions during the
past five years with IXIS Asset Management Distributors, L.P. (the
"Distributor"), IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), IXIS
Asset Management Services Company ("IXIS Services") or Loomis, Sayles &
Company, L.P.("Loomis Sayles") are omitted if not materially different from
a trustee's or officer's current position with such entity.
***The Trustees of the Trust serve as Trustees of a fund complex that includes
all series of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, IXIS
Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash
Management Trust, AEW Real Estate Income Fund, Loomis Sayles Funds I and
Loomis Sayles Funds II.
/1/ Mr. Blanding is deemed an "interested person" of the Trust because he
holds the following positions with affiliated persons of the Trust:
President, Chairman, Director and Chief Executive Officer of Loomis,
Sayles & Company, L.P.
/2/ Mr. Hailer is deemed an "interested person" of the Trust because he holds
the following positions with affiliated persons of the Trust: Director and
Executive Vice President of IXIS Asset Management Distribution
Corporation, President and Chief Executive Officer of IXIS Asset
Management Advisors, L.P.
29
Item 2. Code of Ethics.
The Registrant has adopted a code of ethics that applies to the Registrant's
principal executive officer, principal financial officer and persons performing
similar functions.
Item 3. Audit Committee Financial Expert.
The Board of Trustees of the Registrant has established an audit committee. As
of the date hereof, Ms. Cynthia L. Walker, and Mr. Daniel M. Cain, both members
of the audit committee, have been designated as `audit committee financial
experts" by the Board of Trustees. Each of these individuals is also an
Independent Trustee of the Registrant.
Item 4. Principal Accountant Fees and Services.
Fees paid to Principal Accountant by the Fund.
The table below sets forth fees billed by the principal accountant,
PricewaterhouseCoopers LLP, for the past two fiscal years for professional
services rendered in connection with a) the audit of the Trust's annual
financial statements and services provided in connection with regulatory
filings; b) audit-related services (including services that are reasonably
related to the performance of the audit of the Registrant's financial statements
and but not reported under "Audit Fees"); c) tax compliance, tax advice and tax
planning and d) all other fees billed for professional services rendered by the
principal accountant to the Trust, other than the services provided reported as
a part of (a) through (c) of this Item.
Audit-related
Audit fees fees/1/ Tax fees/2/ All other fees/3/
-------------------- --------------------- ------------------ ----------------
2004 2005 2004 2005 2004 2005 2004 2005
--------- --------- ---------- ------ -------- -------- ------ --------
Loomis Sayles Funds II $ 345,500 $ 316,550 $ 40,000 -- $ 74,515 $ 34,687 -- $ 11,320
1. The audit-related fees are related to the performance of agreed-upon
procedures relating to the Registrant's semiannual financial statements.
2. The tax fees consist of a review of the Registrant's tax returns (2004),
preparation of fiscal year-end distribution analysis, financial statement
disclosures, and tax return (2005), and review of year-end shareholder
reporting (2005).
3. All other fees consist of filing and translation services with respect to
Japanese shareholders in Loomis Sayles Investment Grade Bond Fund.
Aggregate fees billed to the Registrant for non-audit services during 2004 and
2005 were $114,515 and $46,007, respectively.
Fees paid to Principal Accountant By Adviser and Control Affiliates.
The following table sets forth the non-audit services provided by the Trust's
principal accountant to Loomis, Sayles & Company, L.P. and entities controlling,
controlled by or under common control with Loomis, Sayles & Company, L.P. that
provide ongoing services to the Trust ("Control Affiliates") for the last two
fiscal years.
Audit-related fees Tax fees All other fees
-------------------- ------------------ ------------------
2004 2005 2004 2005 2004 2005
--------- --------- ------ ---------- -------- --------
Control Affiliates $ 73,600 $ 97,600 -- $ 86,450 $ 54,400 $ 47,800
Aggregate fees billed to Control Affiliates for non-audit services during 2004
and 2005 were $128,000 and $231,850, respectively.
None of the audit-related, tax and other services provided by the Registrant's
principal accountant were approved by the Audit Committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Audit Committee Pre Approval Policies.
Annually, the Registrant's Audit Committee reviews the audit,
audit-related, tax and other non-audit services together with the projected
fees, for services proposed to be rendered to the Trust and/or other entities
for which pre-approval is required during the upcoming year. Any subsequent
revisions to already pre-approved services or fees (including fee increases) and
requests for pre-approval of new services would be presented for consideration
quarterly as needed.
If, in the opinion of management, a proposed engagement by the Registrant's
independent accountants needs to commence before the next regularly scheduled
Audit Committee meeting, any member of the Audit Committee who is an independent
Board member is authorized to pre-approve the engagement, but only for
engagements to provide audit, audit related and tax services. This approval is
subject to review of the full Audit Committee at its next quarterly meeting. All
other engagements require the approval of all the members of the audit
committee.
Item 5. Audit Committee of Listed Registrants.
Not applicable
Item 6. Schedule of Investments.
Included as part of the Report to Shareholders filed as Item 1 herewith.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers.
Not applicable
Item 10. Submission of Matters to a Vote of Securities Holders.
There were no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Trustees.
Item 11. Controls and Procedures.
The Registrant's principal executive officer and principal financial officer
have concluded that the Registrant's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the Registrant
in this Form N-CSR was recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, based upon such officers' evaluation of these controls and procedures as
of a date within 90 days of the filing date of the report.
There were no changes in the Registrant's internal control over financial
reporting that occurred during the Registrant's last fiscal quarter of the
period covered by the report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a) (1) Code of Ethics required by Item 2 hereof, filed herewith as
exhibit (a)(1)
(a) (2) Certifications of Principal Executive Officer and Principal
Financial Officer pursuant to 30a-2 under the Investment Company
Act of 1940 (17 CFR 270.30a-2), as herewith as exhibit (a)(2)(1)
and a(2)(2), respectively
(a) (3) Not applicable.
(b) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 are
filed herewith as Exhibit (b).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Loomis Sayles Funds II
By: /s/ Robert J. Blanding
Name: Robert J. Blanding
Title: Chief Executive Officer
Date: November 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
By: /s/ Robert J. Blanding
Name: Robert J. Blanding
Title: Chief Executive Officer
Date: November 28, 2005
By: /s/ Michael C. Kardok
Name: Michael C. Kardok
Title: Treasurer
Date: November 28, 2005