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
(Exact name of Registrant as specified in charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip code)
Coleen Downs Dinneen, Esq.
IXIS Asset Management Distributors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(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, 2006
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] IXIS ADVISOR FUNDS
Income Funds
Annual Report
September 30, 2006
[LOGO] LOOMIS SAYLES & COMPANY, L.P.
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
Portfolio of InvestmentsPage 20
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
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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
- --------------------------------------------------------------------------------
Rising energy prices and rapid economic growth during much of the fiscal year
ended September 30, 2006, prompted the Federal Reserve Board to raise interest
rates in an effort to subdue inflation pressures. However, by late summer,
falling energy prices and slower economic growth caused the Fed to pause in its
tightening cycle. In this environment, interest rates declined and bond prices
rebounded. Performance was strong across all fixed-income sectors.
For its 2006 fiscal year, Loomis Sayles Core Plus Bond Fund's Class A shares
returned 4.03% at net asset value, including $0.61 per share in reinvested
dividends. The fund's benchmark, the Lehman Aggregate Bond Index, returned
3.67% for the same period, while the average return on Morningstar's
Intermediate-Term Bond category was 3.21%. The fund's 30-day SEC yield was
4.93% as of September 30, 2006.
U.S. CORPORATE BONDS DROVE PERFORMANCE
The fund was well diversified during the period, with positions in high-yield
and investment-grade corporate bonds, mortgage- and asset-backed securities,
government and agency bonds, and securities issued in developed and emerging
markets overseas. Investments in high-yielding U.S. corporate bonds had the
biggest positive impact on performance, with a major automaker and a global
finance company among the fund's best performers. The auto company bonds
delivered a combination of high yield and price appreciation as investors
reacted favorably to news of a restructuring. A consortium of investors is
expected to purchase a major share of the financing company, leading to
speculation that its bond rating may rise. Among investment-grade bonds,
attractive yields from industrials stimulated demand, lifting prices.
Early in the fiscal year we maintained the portfolio in a "barbell" structure,
with emphasis on both long- and short-maturity bonds. While this configuration
aided results early in the period, we subsequently shifted emphasis, adding
more intermediate-term bonds, which we felt offered better value. Although the
fund's duration - its price sensitivity to interest-rate changes - remained
modestly longer than the benchmark, we gradually shortened it during fiscal
2006 to reflect the decline in bond yields and the presence of portfolio
holdings that were not denominated in U.S. dollars.
MORTGAGE-BACKED AND JAPANESE SECURITIES DETRACTED
The fund's position in mortgage-backed securities was a slight drag on
performance, especially early in the period when refinancing remained a
concern. However, the fund had a smaller allocation to mortgage securities than
the benchmark. The fund's position in bonds denominated in the Japanese yen
also detracted from performance. The yen declined against the dollar during the
period, but we continue to hold these bonds in anticipation of a recovery.
SECTOR DIVERSIFICATION SHOULD CONTRIBUTE TO STRONG RETURNS
We believe the inversion of the yield curve late in the fiscal period reflected
undue investor pessimism. Now that its goal - a "soft landing" for the economy,
with moderate growth and subdued inflation - seems to be in sight, we think the
Fed may be nearing the end of its rate-raising cycle. We believe interest rates
will remain near current levels through the calendar year and into 2007.
Demand for investment-grade bonds remains robust, as corporations continue to
generate solid earnings, and we believe careful security selection in the
sector could produce favorable returns over Treasuries. As long as the economy
remains healthy, we think investors may continue to find higher-risk assets
attractive, and the fund's emphasis on high-yield bonds with stable to
improving credit trends could prove beneficial. We anticipate modest
performance from global sectors, and positions in non-U.S.-dollar-denominated
bonds, including Asian and emerging market debt, could provide favorable
returns. Because we believe the U.S. dollar may weaken, foreign currency
exposure should be increasingly important for the fund. In our opinion, the
best returns should come from maintaining the portfolio diversified across all
market sectors.
1
LOOMIS SAYLES CORE PLUS BOND FUND
Investment Results through September 30, 2006
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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/
September 30, 1996 through September 30, 2006
[CHART]
Net Asset Maximum Sales Lehman Aggregate Lehman U.S.
Value/1/ Charge/2/ Bond Index/3/ Credit Index /4/
---------- ------------- ---------------- ----------------
9/30/1996 $10,000 $ 9,550 $10,000 $10,000
10/31/1996 10,254 9,793 10,222 10,273
11/30/1996 10,501 10,029 10,397 10,493
12/31/1996 10,379 9,912 10,300 10,348
1/31/1997 10,437 9,968 10,331 10,362
2/28/1997 10,503 10,031 10,357 10,406
3/31/1997 10,347 9,881 10,242 10,244
4/30/1997 10,461 9,990 10,396 10,399
5/31/1997 10,602 10,125 10,494 10,517
6/30/1997 10,788 10,303 10,619 10,665
7/31/1997 11,222 10,717 10,905 11,056
8/31/1997 11,031 10,535 10,812 10,893
9/30/1997 11,251 10,744 10,971 11,083
10/31/1997 11,358 10,847 11,131 11,224
11/30/1997 11,410 10,896 11,182 11,287
12/31/1997 11,527 11,009 11,294 11,407
1/31/1998 11,681 11,155 11,439 11,542
2/28/1998 11,718 11,191 11,431 11,538
3/31/1998 11,791 11,260 11,470 11,581
4/30/1998 11,845 11,312 11,530 11,654
5/31/1998 11,966 11,427 11,639 11,792
6/30/1998 12,010 11,470 11,738 11,879
7/31/1998 11,979 11,440 11,763 11,868
8/31/1998 11,860 11,327 11,954 11,924
9/30/1998 12,318 11,764 12,234 12,310
10/31/1998 12,189 11,640 12,170 12,120
11/30/1998 12,431 11,872 12,239 12,349
12/31/1998 12,451 11,891 12,275 12,384
1/31/1999 12,586 12,019 12,363 12,507
2/28/1999 12,331 11,776 12,147 12,210
3/31/1999 12,502 11,939 12,215 12,296
4/30/1999 12,600 12,033 12,253 12,332
5/31/1999 12,327 11,772 12,146 12,168
6/30/1999 12,248 11,697 12,107 12,104
7/31/1999 12,200 11,651 12,056 12,037
8/31/1999 12,151 11,605 12,050 12,008
9/30/1999 12,357 11,801 12,189 12,138
10/31/1999 12,385 11,828 12,234 12,194
11/30/1999 12,404 11,846 12,234 12,207
12/31/1999 12,410 11,852 12,175 12,142
1/31/2000 12,358 11,802 12,135 12,100
2/29/2000 12,498 11,935 12,281 12,212
3/31/2000 12,669 12,099 12,443 12,316
4/30/2000 12,436 11,876 12,408 12,208
5/31/2000 12,344 11,788 12,402 12,162
6/30/2000 12,718 12,145 12,660 12,468
7/31/2000 12,793 12,217 12,775 12,619
8/31/2000 12,958 12,375 12,960 12,783
9/30/2000 12,977 12,393 13,041 12,850
10/31/2000 12,903 12,323 13,128 12,863
11/30/2000 13,026 12,440 13,342 13,029
12/31/2000 13,328 12,728 13,590 13,282
1/31/2001 13,658 13,044 13,812 13,646
2/28/2001 13,794 13,173 13,933 13,765
3/31/2001 13,810 13,189 14,002 13,850
4/30/2001 13,732 13,114 13,944 13,800
5/31/2001 13,819 13,198 14,028 13,927
6/30/2001 13,824 13,201 14,081 13,997
7/31/2001 14,173 13,535 14,396 14,363
8/31/2001 14,331 13,686 14,561 14,555
9/30/2001 14,270 13,628 14,731 14,534
10/31/2001 14,552 13,897 15,039 14,895
11/30/2001 14,456 13,805 14,832 14,765
12/31/2001 14,294 13,650 14,738 14,664
1/31/2002 14,261 13,619 14,857 14,788
2/28/2002 14,205 13,566 15,001 14,899
3/31/2002 14,050 13,418 14,751 14,624
4/30/2002 14,182 13,544 15,037 14,828
5/31/2002 14,301 13,658 15,165 15,024
6/30/2002 13,957 13,329 15,296 15,049
7/31/2002 13,795 13,174 15,481 15,041
8/31/2002 14,109 13,475 15,742 15,431
9/30/2002 14,156 13,519 15,997 15,724
10/31/2002 14,077 13,443 15,924 15,542
11/30/2002 14,344 13,699 15,920 15,743
12/31/2002 14,700 14,038 16,249 16,207
1/31/2003 14,782 14,117 16,263 16,260
2/28/2003 14,995 14,320 16,488 16,585
3/31/2003 15,039 14,362 16,475 16,597
4/30/2003 15,264 14,577 16,611 16,904
5/31/2003 15,568 14,867 16,921 17,437
6/30/2003 15,593 14,891 16,887 17,394
7/31/2003 15,058 14,380 16,319 16,652
8/31/2003 15,203 14,518 16,428 16,783
9/30/2003 15,640 14,937 16,863 17,369
10/31/2003 15,601 14,899 16,705 17,184
11/30/2003 15,696 14,990 16,745 17,263
12/31/2003 15,951 15,233 16,916 17,455
1/31/2004 16,088 15,364 17,052 17,632
2/29/2004 16,212 15,482 17,236 17,854
3/31/2004 16,333 15,598 17,365 18,026
4/30/2004 15,917 15,201 16,914 17,458
5/31/2004 15,777 15,067 16,846 17,336
6/30/2004 15,873 15,159 16,941 17,409
7/31/2004 16,052 15,330 17,109 17,623
8/31/2004 16,373 15,637 17,435 18,039
9/30/2004 16,467 15,726 17,483 18,141
10/31/2004 16,646 15,897 17,629 18,316
11/30/2004 16,613 15,865 17,489 18,133
12/31/2004 16,764 16,010 17,650 18,370
1/31/2005 16,804 16,048 17,760 18,515
2/28/2005 16,788 16,032 17,656 18,406
3/31/2005 16,569 15,824 17,565 18,177
4/30/2005 16,639 15,890 17,803 18,421
5/31/2005 16,794 16,038 17,995 18,678
6/30/2005 16,905 16,144 18,093 18,827
7/31/2005 16,857 16,099 17,929 18,638
8/31/2005 17,029 16,263 18,159 18,921
9/30/2005 16,866 16,107 17,971 18,638
10/31/2005 16,748 15,994 17,829 18,434
11/30/2005 16,810 16,053 17,908 18,546
12/31/2005 16,947 16,185 18,078 18,729
1/31/2006 17,003 16,238 18,079 18,691
2/28/2006 17,065 16,297 18,139 18,774
3/31/2006 16,938 16,176 17,961 18,510
4/30/2006 16,950 16,187 17,929 18,442
5/31/2006 16,901 16,140 17,910 18,410
6/30/2006 16,915 16,153 17,948 18,438
7/31/2006 17,145 16,373 18,190 18,710
8/31/2006 17,378 16,596 18,469 19,056
9/30/2006 17,546 16,757 18,631 19,269
Average Annual Total Returns -- September 30, 2006
1 YEAR 5 YEARS 10 YEARS
CLASS A (Inception 11/7/73)
Net Asset Value/1/ 4.03%/7/ 4.22%/7/ 5.78%/7/
With Maximum Sales Charge/2/ -0.67/7/ 3.27/7/ 5.29/7/
CLASS B (Inception 9/13/93)
Net Asset Value/1/ 3.26/7/ 3.46/7/ 5.00/7/
With CDSC/5/ -1.67/7/ 3.12/7/ 5.00/7/
CLASS C (Inception 12/30/94)
Net Asset Value/1/ 3.26/7/ 3.46/7/ 5.00/7/
With CDSC/5/ 2.27/7/ 3.46/7/ 5.00/7/
CLASS Y (Inception 12/30/94)
Net Asset Value/1/ 4.28 4.62/7/ 6.12/7/
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COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Lehman Aggregate Bond Index/3/ 3.67% 4.81% 6.42%
Lehman U.S. Credit Index/4/ 3.39 5.80 6.78
Morningstar Int.-Term Bond Fund Avg./6/ 3.21 4.37 5.67
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 9/30/06 9/30/05
- ----------------------------------------
Aaa 56.4 51.4
- ----------------------------------------
Aa 1.5 0.3
- ----------------------------------------
A 1.2 3.3
- ----------------------------------------
Baa 16.6 22.5
- ----------------------------------------
Ba 13.1 15.8
- ----------------------------------------
B 5.0 2.7
- ----------------------------------------
Not rated* 4.7 2.2
- ----------------------------------------
Short-term & other 1.5 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 9/30/06 9/30/05
- --------------------------------------------------
1 year or less 6.8 6.0
- --------------------------------------------------
1-5 years 39.4 46.1
- --------------------------------------------------
5-10 years 38.5 31.8
- --------------------------------------------------
10+ years 15.3 16.1
- --------------------------------------------------
Average Effective Maturity 7.6 years 6.8 years
- --------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes 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 of 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% CDSC applied when you sell shares
within one year of purchase.
/6/Morningstar Intermediate-Term 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/reimbursements,
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:
Matthew J. Eagan, CFA
Kathleen C. Gaffney, CFA
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
A resilient economy and strong corporate profits were hallmarks of Loomis
Sayles High Income Fund's fiscal year, which ended September 30, 2006. A
slowing housing market and declining energy prices late in the period
contributed to the Federal Reserve Board's decision to pause from its
rate-tightening policies in August and September, calming investors' concerns
that the Fed might tighten the economy into a recession. The yield curve, (a
graphical representation of the difference in yields between short- and
long-term interest rates), "flattened" during the year and eventually became
inverted, as yields on short-term Treasury securities rose above long-term
rates. However, during the fund's closing fiscal quarter, longer-term issues
recouped some of the losses they suffered earlier in fiscal 2006 and provided
the highest returns for the year as a whole.
For the 12 months ended September 30, 2006, the fund's total return was 9.39%
based on the net asset value of Class A shares and $0.34 in reinvested
dividends. The fund surpassed its benchmark, the Lehman High Yield Composite
Index, which returned 8.07% for the period, and came in well above the 6.76%
average return on Morningstar's High Yield Bond category. The fund's 30-day SEC
yield as of the end of September 2006 was 6.72%.
STRATEGY REMAINED MODERATELY AGGRESSIVE
After a short-lived flight to quality in May and June, the higher-risk/return
segments of the market rebounded as the economy grew and default rates remained
low. Although the difference in yield between high- and low-quality bonds
fluctuated within a tight range, investors generally seemed to be comfortable
focusing on income more than safety. Emerging markets also provided attractive
returns, as improving economies helped investors look past country-specific
events.
Although the fund's duration (its price sensitivity to changes in interest
rates) has been somewhat longer than its benchmark during fiscal 2006, we
shortened it slightly in the first half, and built up some liquidity from
short-term investments while we waited patiently for attractive opportunities
in high-yield bonds. We also maintained an average quality rating of Ba2
throughout the fiscal year, another moderately aggressive strategy, although we
shifted some assets into higher-quality issues in the course of the year, as
spreads continued to narrow.
DIVERSIFIED BY ECONOMIC SECTOR, TYPE OF SECURITY, AND CURRENCY
Communications and consumer non-cyclicals, including biotech and
pharmaceuticals, were the strongest sectors during fiscal 2006. Our selections
in the transportation sector also performed well. However, the auto parts and
electric utility industries both experienced setbacks during the period, which
detracted somewhat from the fund's results. Convertible preferreds, which
convey the right to be converted to the issuer's preferred stock, performed
well, accounting for 5.4% of the fund's net assets as of September 30, 2006.
We also continued to invest in issues denominated in foreign currencies, which
are not part of the benchmark. Issues denominated in U.S. dollars accounted for
more than 82% of the fund's total investments at the end of September 2006,
slightly less than 85% one year ago. We gradually increased the fund's position
in certain high-quality, short-duration issues denominated in other currencies,
including Brazil, Mexico, Thailand, and Britain, all of which provided positive
results. Issues denominated in the currencies of Argentina and Malaysia were
detractors during the period.
OUTLOOK INCLUDES STABLE ECONOMIC GROWTH AND BENIGN INFLATION
In the United States, the slowdown in housing, coupled with falling prices of
energy and other commodities, helped reduce inflation pressures and allowed the
Fed to take a "wait and see" attitude. If the economy picks up speed in 2007,
then we believe Treasury yields are vulnerable to a modest rise. Given today's
historically low interest rates, we believe investors will continue to favor
the high-yield sector. As always, we will focus our efforts on careful credit
research, seeking the potential for improving credit quality in selected names.
3
LOOMIS SAYLES HIGH INCOME FUND
Investment Results through September 30, 2006
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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/
September 30, 1996 through September 30, 2006
[CHART]
Net Asset Maximum Sales Lehman High Yield
Value/1/ Charge/2/ Composite Index/3/
--------- ------------- ------------------
9/30/1996 $10,000 $ 9,550 $10,000
10/31/1996 9,978 9,529 10,077
11/30/1996 10,184 9,725 10,278
12/31/1996 10,356 9,890 10,349
1/31/1997 10,364 9,898 10,444
2/28/1997 10,727 10,244 10,618
3/31/1997 10,584 10,108 10,465
4/30/1997 10,643 10,164 10,567
5/31/1997 10,997 10,502 10,802
6/30/1997 11,068 10,570 10,951
7/31/1997 11,370 10,859 11,252
8/31/1997 11,443 10,928 11,227
9/30/1997 11,784 11,254 11,449
10/31/1997 11,682 11,156 11,459
11/30/1997 11,838 11,305 11,569
12/31/1997 11,948 11,410 11,670
1/31/1998 12,127 11,582 11,880
2/28/1998 12,110 11,565 11,950
3/31/1998 12,235 11,685 12,062
4/30/1998 12,301 11,748 12,110
5/31/1998 12,282 11,729 12,152
6/30/1998 12,323 11,769 12,195
7/31/1998 12,305 11,751 12,265
8/31/1998 11,451 10,936 11,588
9/30/1998 11,342 10,832 11,640
10/31/1998 11,104 10,604 11,402
11/30/1998 11,901 11,366 11,875
12/31/1998 11,743 11,214 11,888
1/31/1999 12,007 11,467 12,065
2/28/1999 12,083 11,539 11,993
3/31/1999 12,278 11,726 12,108
4/30/1999 12,542 11,978 12,343
5/31/1999 12,235 11,685 12,175
6/30/1999 12,201 11,652 12,149
7/31/1999 12,152 11,605 12,198
8/31/1999 11,963 11,424 12,064
9/30/1999 11,885 11,350 11,977
10/31/1999 11,992 11,452 11,897
11/30/1999 12,071 11,528 12,036
12/31/1999 12,212 11,663 12,172
1/31/2000 12,077 11,533 12,120
2/29/2000 12,131 11,585 12,143
3/31/2000 11,765 11,235 11,888
4/30/2000 11,757 11,228 11,907
5/31/2000 11,429 10,915 11,785
6/30/2000 11,776 11,246 12,025
7/31/2000 11,845 11,312 12,117
8/31/2000 11,798 11,267 12,200
9/30/2000 11,554 11,034 12,093
10/31/2000 10,977 10,483 11,706
11/30/2000 10,065 9,612 11,242
12/31/2000 10,245 9,784 11,459
1/31/2001 11,435 10,920 12,318
2/28/2001 11,377 10,865 12,482
3/31/2001 10,796 10,310 12,188
4/30/2001 10,465 9,994 12,036
5/31/2001 10,493 10,021 12,253
6/30/2001 9,890 9,445 11,909
7/31/2001 10,085 9,631 12,084
8/31/2001 10,008 9,557 12,227
9/30/2001 9,097 8,688 11,405
10/31/2001 8,997 8,592 11,687
11/30/2001 9,288 8,870 12,114
12/31/2001 9,154 8,742 12,064
1/31/2002 9,210 8,796 12,148
2/28/2002 8,930 8,529 11,979
3/31/2002 9,171 8,758 12,267
4/30/2002 9,096 8,686 12,463
5/31/2002 8,963 8,559 12,394
6/30/2002 8,322 7,947 11,480
7/31/2002 7,761 7,412 10,979
8/31/2002 8,033 7,672 11,292
9/30/2002 7,735 7,387 11,143
10/31/2002 7,731 7,384 11,046
11/30/2002 8,246 7,875 11,730
12/31/2002 8,344 7,968 11,894
1/31/2003 8,521 8,137 12,290
2/28/2003 8,640 8,251 12,442
3/31/2003 8,863 8,464 12,800
4/30/2003 9,375 8,953 13,559
5/31/2003 9,539 9,110 13,699
6/30/2003 9,745 9,307 14,093
7/31/2003 9,551 9,121 13,938
8/31/2003 9,653 9,218 14,099
9/30/2003 9,969 9,521 14,484
10/31/2003 10,181 9,723 14,777
11/30/2003 10,394 9,927 15,001
12/31/2003 10,672 10,192 15,340
1/31/2004 10,837 10,350 15,633
2/29/2004 10,790 10,304 15,594
3/31/2004 10,851 10,363 15,700
4/30/2004 10,603 10,125 15,593
5/31/2004 10,328 9,863 15,329
6/30/2004 10,551 10,076 15,549
7/31/2004 10,636 10,158 15,760
8/31/2004 10,927 10,435 16,069
9/30/2004 11,079 10,580 16,302
10/31/2004 11,324 10,814 16,597
11/30/2004 11,503 10,985 16,797
12/31/2004 11,776 11,246 17,047
1/31/2005 11,815 11,283 17,025
2/28/2005 12,089 11,545 17,276
3/31/2005 11,661 11,137 16,773
4/30/2005 11,423 10,909 16,610
5/31/2005 11,720 11,193 16,905
6/30/2005 11,999 11,459 17,236
7/31/2005 12,188 11,639 17,538
8/31/2005 12,252 11,701 17,571
9/30/2005 12,224 11,674 17,396
10/31/2005 12,073 11,529 17,275
11/30/2005 12,191 11,642 17,365
12/31/2005 12,369 11,812 17,514
1/31/2006 12,737 12,164 17,793
2/28/2006 12,932 12,350 17,912
3/31/2006 12,981 12,397 18,019
4/30/2006 13,057 12,469 18,130
5/31/2006 12,820 12,244 18,128
6/30/2006 12,844 12,266 18,064
7/31/2006 12,967 12,383 18,241
8/31/2006 13,244 12,648 18,537
9/30/2006 13,373 12,771 18,800
Average Annual Total Returns -- September 30, 2006
SINCE
1 YEAR/6/ 5 YEARS/6/ 10 YEARS/6/ INCEPTION/6/
CLASS A (Inception 2/22/84)
Net Asset Value/1/ 9.39% 8.01% 2.95% --
With Maximum Sales Charge/2/ 4.56 7.01 2.48 --
CLASS B (Inception 9/20/93)
Net Asset Value/1/ 8.79 7.21 2.22 --
With CDSC/4/ 3.79 6.91 2.22 --
CLASS C (Inception 3/2/98)
Net Asset Value/1/ 8.58 7.17 -- 0.39
With CDSC/4/ 7.58 7.17 -- 0.39
- --------------------------------------------------------------------------------------
SINCE
CLASS C
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/7/
Lehman High Yield Composite Index/3/ 8.07% 10.51% 6.52% 5.36%
Morningstar High Yield Bond Fund Avg./5/ 6.76 9.21 5.17 3.65
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 9/30/06 9/30/05
- ----------------------------------------
Aaa 8.0 --
- ----------------------------------------
Aa 2.5 0.9
- ----------------------------------------
A 0.5 --
- ----------------------------------------
Baa 6.8 6.6
- ----------------------------------------
Ba 17.4 29.7
- ----------------------------------------
B 39.4 23.6
- ----------------------------------------
Caa 6.8 16.3
- ----------------------------------------
Ca -- 0.5
- ----------------------------------------
Not rated* 13.7 21.0
- ----------------------------------------
Short-term & other 4.9 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 9/30/06 9/30/05
- --------------------------------------------------
1 year or less 4.0 1.8
- --------------------------------------------------
1-5 years 25.9 24.4
- --------------------------------------------------
5-10 years 23.1 31.2
- --------------------------------------------------
10+ years 47.0 42.6
- --------------------------------------------------
Average Effective Maturity 12.0 years 12.3 years
- --------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes 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 of 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% 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/reimbursements,
without which performance would have been lower.
/7/The since-inception comparative performance figures shown for Class C shares
are calculated from 4/1/98.
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, CFA
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
- --------------------------------------------------------------------------------
After raising the federal funds rate (the interest rate banks charge one
another for overnight loans) at successive meetings in the fiscal year ended
September 30, 2006, the Federal Reserve Board left rates unchanged during
August and September. This suggests that the Fed is confident that inflationary
pressures have subsided, at least for the time being. It has been a volatile
period for the bond markets. Long-term interest rates were slower to respond to
the Fed's tightening pressure than short-term rates. The yield curve (a
graphical representation of difference in yields between long- and short-term
interest rates) flattened during the year and eventually became inverted, as
yields on short-term Treasury securities rose above long-term rates.
Loomis Sayles Limited Term Government and Agency Fund's total return for the
fiscal year ended September 30, 2006 was 3.20% based on the net asset value of
Class A shares and $0.43 in reinvested dividends. The fund's benchmark, the
Lehman 1-5 Year Government Bond Index, returned 3.69%, while the average return
on Morningstar's Short Government category was 3.12%. The fund's 30-day SEC
yield was 4.47% as of September 30, 2006.
HIGHER-YIELDING SECURITIES CONTRIBUTED TO PERFORMANCE
Its emphasis on mortgage-backed securities (MBS) helped put the fund in the
upper half of its Morningstar category, which is composed of managed mutual
funds that invest in short-term U.S. government bonds. The fund's results were
slightly behind its Lehman benchmark, an index of government bonds maturing in
1-5 years.
For the bond market as a whole, U.S. Treasury securities were among the weaker
performers during the fiscal year, largely because these top-quality securities
have a lower yield than mortgage-backed securities, which are regarded as
riskier. Although there were periods during the year when investors chose
safety and liquidity over yield and Treasuries outperformed, for the full
period, higher current income provided a performance edge.
The fund emphasized mortgage-backed securities throughout the year, and
holdings in Treasury securities were reduced. Despite periods of price
volatility, the net effect of our strategy was positive for the fund. We used
periods when prices dipped to add to the fund's holdings, and we initiated a
position in commercial mortgage-backed securities (CMBS) - loan portfolios
backed by mortgages on commercial property as opposed to home mortgages. The
CMBS in the fund's portfolio are top rated (AAA) and have pre-payment
protection, but they also offer the potential for a significantly higher
interest rate than Treasury securities. We will continue to look for
opportunities in this sector.
DURATION STRATEGY REFLECTS OUTLOOK FOR DECLINING INTEREST RATES
Because we had gradually increased the portfolio's duration during the fiscal
year, the fund was able to benefit from a decline in interest rates as the
period drew to a close. However, we are not yet convinced that rates have begun
a secular downtrend, so recently we again reduced the fund's duration modestly.
The portfolio remains in what we describe as a barbelled maturity structure,
with greater concentrations of assets at the shorter and longer ends of the
yield curve. This allows the fund to benefit from relative stability on the
short end and higher yields on the long end of the curve. Down the line, we
believe the yield curve should move out of its current configuration, resuming
a pattern that is historically more normal.
We do not expect the Fed to significantly increase interest rates in the near
future, although we are not ruling out the potential for an additional 0.25%
rate hike. Based on this relatively benign interest rate outlook, we are
focusing on identifying income opportunities rather than looking for capital
appreciation.
5
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND
Investment Results through September 30, 2006
- --------------------------------------------------------------------------------
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/
September 30, 1996 through September 30, 2006
[CHART]
Lehman 1-5 Year
Net Asset Maximum Sales Government Bond
Value/1/ Charge/2/ Index/3/
--------- ------------- ----------------
9/30/1996 $10,000 $ 9,700 $10,000
10/31/1996 10,161 9,856 10,137
11/30/1996 10,288 9,979 10,232
12/31/1996 10,206 9,900 10,207
1/31/1997 10,249 9,941 10,253
2/28/1997 10,262 9,954 10,272
3/31/1997 10,209 9,902 10,241
4/30/1997 10,298 9,989 10,340
5/31/1997 10,361 10,050 10,415
6/30/1997 10,461 10,147 10,495
7/31/1997 10,633 10,314 10,646
8/31/1997 10,615 10,297 10,634
9/30/1997 10,726 10,404 10,730
10/31/1997 10,846 10,520 10,831
11/30/1997 10,864 10,538 10,852
12/31/1997 10,947 10,618 10,933
1/31/1998 11,105 10,772 11,058
2/28/1998 11,080 10,747 11,056
3/31/1998 11,061 10,729 11,094
4/30/1998 11,104 10,771 11,147
5/31/1998 11,176 10,841 11,214
6/30/1998 11,258 10,920 11,278
7/31/1998 11,273 10,934 11,326
8/31/1998 11,453 11,109 11,500
9/30/1998 11,781 11,427 11,709
10/31/1998 11,666 11,316 11,755
11/30/1998 11,630 11,281 11,729
12/31/1998 11,655 11,305 11,769
1/31/1999 11,717 11,366 11,820
2/28/1999 11,583 11,235 11,720
3/31/1999 11,637 11,288 11,802
4/30/1999 11,671 11,321 11,836
5/31/1999 11,583 11,236 11,797
6/30/1999 11,508 11,163 11,830
7/31/1999 11,453 11,109 11,849
8/31/1999 11,448 11,105 11,878
9/30/1999 11,579 11,231 11,968
10/31/1999 11,601 11,253 11,995
11/30/1999 11,612 11,264 12,011
12/31/1999 11,575 11,228 12,000
1/31/2000 11,525 11,180 11,976
2/29/2000 11,628 11,279 12,066
3/31/2000 11,772 11,419 12,162
4/30/2000 11,734 11,382 12,178
5/31/2000 11,740 11,388 12,218
6/30/2000 11,908 11,551 12,378
7/31/2000 11,968 11,609 12,459
8/31/2000 12,093 11,731 12,572
9/30/2000 12,187 11,821 12,681
10/31/2000 12,230 11,864 12,756
11/30/2000 12,397 12,025 12,903
12/31/2000 12,542 12,166 13,091
1/31/2001 12,701 12,320 13,270
2/28/2001 12,796 12,412 13,370
3/31/2001 12,877 12,491 13,476
4/30/2001 12,851 12,466 13,485
5/31/2001 12,915 12,528 13,552
6/30/2001 12,925 12,537 13,597
7/31/2001 13,165 12,770 13,796
8/31/2001 13,252 12,854 13,899
9/30/2001 13,460 13,056 14,170
10/31/2001 13,662 13,252 14,340
11/30/2001 13,484 13,080 14,246
12/31/2001 13,402 13,000 14,223
1/31/2002 13,473 13,069 14,268
2/28/2002 13,606 13,198 14,361
3/31/2002 13,410 13,008 14,211
4/30/2002 13,656 13,246 14,424
5/31/2002 13,749 13,336 14,505
6/30/2002 13,886 13,470 14,657
7/31/2002 14,085 13,662 14,885
8/31/2002 14,223 13,796 14,991
9/30/2002 14,351 13,920 15,172
10/31/2002 14,382 13,951 15,197
11/30/2002 14,316 13,887 15,113
12/31/2002 14,495 14,060 15,317
1/31/2003 14,488 14,053 15,302
2/28/2003 14,614 14,175 15,413
3/31/2003 14,604 14,166 15,437
4/30/2003 14,629 14,190 15,472
5/31/2003 14,718 14,276 15,608
6/30/2003 14,691 14,251 15,615
7/31/2003 14,386 13,954 15,408
8/31/2003 14,433 14,000 15,416
9/30/2003 14,673 14,233 15,649
10/31/2003 14,570 14,133 15,545
11/30/2003 14,609 14,171 15,538
12/31/2003 14,712 14,270 15,648
1/31/2004 14,775 14,332 15,703
2/29/2004 14,889 14,442 15,820
3/31/2004 14,945 14,497 15,900
4/30/2004 14,676 14,236 15,647
5/31/2004 14,628 14,189 15,614
6/30/2004 14,683 14,243 15,631
7/31/2004 14,766 14,323 15,714
8/31/2004 14,952 14,503 15,884
9/30/2004 14,947 14,499 15,877
10/31/2004 15,025 14,574 15,951
11/30/2004 14,957 14,509 15,836
12/31/2004 15,007 14,556 15,889
1/31/2005 15,028 14,577 15,884
2/28/2005 14,969 14,520 15,821
3/31/2005 14,924 14,476 15,800
4/30/2005 15,055 14,604 15,931
5/31/2005 15,132 14,678 16,019
6/30/2005 15,155 14,700 16,057
7/31/2005 15,087 14,634 15,967
8/31/2005 15,192 14,737 16,104
9/30/2005 15,106 14,653 16,025
10/31/2005 15,039 14,588 15,993
11/30/2005 15,084 14,632 16,052
12/31/2005 15,184 14,728 16,125
1/31/2006 15,190 14,734 16,144
2/28/2006 15,240 14,783 16,149
3/31/2006 15,167 14,712 16,146
4/30/2006 15,175 14,719 16,190
5/31/2006 15,170 14,715 16,203
6/30/2006 15,193 14,737 16,230
7/31/2006 15,343 14,883 16,374
8/31/2006 15,481 15,017 16,518
9/30/2006 15,590 15,122 16,616
Average Annual Total Returns -- September 30, 2006
1 YEAR 5 YEARS 10 YEARS
CLASS A (Inception 1/3/89)
Net Asset Value/1/ 3.20%/6/ 2.98%/6/ 4.54%/6/
With Maximum Sales Charge/2/ 0.13/6/ 2.35/6/ 4.22/6/
CLASS B (Inception 9/27/93)
Net Asset Value/1/ 2.36/6/ 2.26/6/ 3.84/6/
With CDSC/4/ -2.60/6/ 1.91/6/ 3.84/6/
CLASS C (Inception 12/30/94)
Net Asset Value/1/ 2.46/6/ 2.28/6/ 3.85/6/
With CDSC/4/ 1.47/6/ 2.28/6/ 3.85/6/
CLASS Y (Inception 3/31/94)
Net Asset Value/1/ 3.43 3.28 4.90
- -------------------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Lehman 1-5 Yr Gov't Bond Index/3/ 3.69% 3.24% 5.21%
Morningstar Short Gov't Fund Avg./5/ 3.12 2.74 4.55
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 9/30/06 9/30/05
- ----------------------------------------------------
Mortgage Related 65.4 55.8
- ----------------------------------------------------
Treasuries 19.4 31.0
- ----------------------------------------------------
Government Sponsored 5.8 7.7
- ----------------------------------------------------
Asset-Backed Securities 4.5 4.3
- ----------------------------------------------------
Hybrid ARMs 2.0 --
- ----------------------------------------------------
Mortgage Backed Securities 1.1 --
- ----------------------------------------------------
Short-Term Investments & Other 1.8 1.2
- ----------------------------------------------------
% of Net Assets as of
EFFECTIVE MATURITY 9/30/06 9/30/05
- --------------------------------------------------
1 year or less 21.3 9.3
- --------------------------------------------------
1-5 years 59.6 80.9
- --------------------------------------------------
5-10 years 19.1 5.9
- --------------------------------------------------
10+ years n/a 3.9
- --------------------------------------------------
Average Effective Maturity 3.5 years 3.5 years
- --------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes maximum sales charge of 3.00%.
/3/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 one and five years.
/4/Performance for Class B shares assumes a maximum of 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% CDSC applied when you sell shares
within one year of purchase.
/5/Morningstar Short Government 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/reimbursements,
without which performance would have been lower.
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:
Robert Payne
Martha A. Strom
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. Realized capital gains are fully taxable. Some investors may be subject
to the Alternative Minimum Tax (AMT). Lower-rated bonds entail higher risks.
Management Discussion
- --------------------------------------------------------------------------------
During the fiscal year ended September 30, 2006, the Federal Reserve Board
gradually raised the federal funds rate (the rate banks charge one another on
overnight loans) by 1.5%, which caused bond prices to decline. Short-term bonds
were most affected, but long-term rates eventually followed suit, leaving
spreads (the difference between short- and long-term interest rates) near
historic lows.
For fiscal 2006, the total return on Loomis Sayles Massachusetts Tax Free
Income Fund was 4.24%, based on the net asset value of Class A shares and $0.64
per share in reinvested dividends. The fund's results were better than the
3.75% average return on Morningstar's Muni Massachusetts category, but lagged
the 4.45% return on the Lehman Municipal Bond Index. The fund's 30-day SEC
yield at the end of September was 3.76%, equivalent to a taxable yield of
6.07%, adjusted for the combined maximum federal and Massachusetts income tax
rates of 38.45%.
MASSACHUSETTS BONDS UNDERPERFORMED NATIONAL MUNI MARKET
Both in terms of supply and demand, Massachusetts bonds were lackluster during
the fiscal year relative to the national markets. The best performers were
longer maturity, structured, insured bonds. Higher-yielding bonds also
performed well as investors in pursuit of more income bid up bond prices.
Higher education and healthcare-related issues did well because they tend to
offer relatively high yields.
The weakest performers during the period were general obligation bonds, which
are backed by local taxpayer receipts and issued for states, counties, school
districts, cities and towns. These bonds are regarded as higher in quality than
bonds backed by revenues from service fees so their yield is lower. Demand for
higher-quality, intermediate maturity, structured issues was generally tepid.
Municipal bonds issued in Puerto Rico are popular additions to many
single-state bond funds because they add diversification and the interest they
pay is not taxable at either the state or federal levels. Puerto Rico bonds
accounted for a portion of the fund's assets throughout the period, but this
spring budget woes experienced by this island protectorate brought down the
value of these bonds. The timing of our purchase of some Puerto Rico
Infrastructure Financing Authority revenue bonds also proved unfortunate, as it
preceded a downturn in the market. We believe the seeds for recovery in the
Puerto Rican economy may already have been sown, and these holdings continue in
the portfolio.
Individual holdings that contributed most to performance during the period
included higher-coupon, Massachusetts general obligation bonds. Our strategy
for the year has been to keep the fund's maturity longer than the benchmark,
seeking higher yields. We also focused on revenue bonds (as opposed to
tax-backed issues) again in pursuit of higher yields. Although the portfolio's
duration - its sensitivity to changes in interest rates - is slightly shorter
now than it has been, this reflects market movements rather than a change in
our strategy.
OUTLOOK IS FOR RELATIVELY MINOR CHANGES IN MUNICIPAL BOND RATES
Currently we expect yields to fluctuate close to their current range, and we
are not looking for major changes in the yield curve. We will continue to add
to the fund's yield as opportunities present themselves. Overall credit quality
in the municipal markets appears to be steady or improving slightly with the
economy as a whole. Long term, we believe the municipal yield curve should
remain flat - with relatively little difference between long- and short-term
rates - although the curve in the municipal market is significantly steeper
than in the Treasury market. As long as the Fed continues to exercise restraint
in its tightening efforts, we believe the municipal market should hold its own
or slightly underperform the taxable markets.
7
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND
Investment Results through September 30, 2006
- --------------------------------------------------------------------------------
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/
September 30, 1996 through September 30, 2006
[CHART]
Net Asset Maximum Sales Lehman Municipal
Value/1/ Charge/2/ Bond Index/3/
--------- ------------- ----------------
9/30/1996 $10,000 $ 9,575 $10,000
10/31/1996 10,105 9,676 10,113
11/30/1996 10,279 9,842 10,298
12/31/1996 10,211 9,777 10,255
1/31/1997 10,229 9,795 10,274
2/28/1997 10,328 9,889 10,369
3/31/1997 10,211 9,777 10,230
4/30/1997 10,294 9,856 10,316
5/31/1997 10,440 9,996 10,471
6/30/1997 10,548 10,100 10,583
7/31/1997 10,849 10,388 10,876
8/31/1997 10,748 10,291 10,774
9/30/1997 10,891 10,428 10,902
10/31/1997 10,944 10,479 10,972
11/30/1997 11,010 10,542 11,037
12/31/1997 11,162 10,688 11,197
1/31/1998 11,252 10,774 11,313
2/28/1998 11,237 10,759 11,316
3/31/1998 11,205 10,729 11,326
4/30/1998 11,166 10,691 11,275
5/31/1998 11,338 10,856 11,454
6/30/1998 11,378 10,894 11,499
7/31/1998 11,384 10,901 11,528
8/31/1998 11,565 11,074 11,706
9/30/1998 11,694 11,197 11,852
10/31/1998 11,646 11,151 11,851
11/30/1998 11,666 11,170 11,893
12/31/1998 11,710 11,212 11,923
1/31/1999 11,845 11,341 12,065
2/28/1999 11,790 11,289 12,012
3/31/1999 11,776 11,276 12,029
4/30/1999 11,811 11,309 12,059
5/31/1999 11,735 11,236 11,989
6/30/1999 11,543 11,053 11,816
7/31/1999 11,584 11,091 11,859
8/31/1999 11,419 10,934 11,764
9/30/1999 11,385 10,901 11,769
10/31/1999 11,226 10,748 11,642
11/30/1999 11,324 10,843 11,765
12/31/1999 11,226 10,749 11,678
1/31/2000 11,134 10,661 11,627
2/29/2000 11,272 10,793 11,762
3/31/2000 11,483 10,995 12,019
4/30/2000 11,431 10,945 11,948
5/31/2000 11,386 10,902 11,886
6/30/2000 11,615 11,122 12,201
7/31/2000 11,763 11,263 12,371
8/31/2000 11,910 11,404 12,561
9/30/2000 11,862 11,358 12,496
10/31/2000 11,958 11,450 12,632
11/30/2000 12,008 11,498 12,728
12/31/2000 12,264 11,743 13,042
1/31/2001 12,307 11,784 13,172
2/28/2001 12,350 11,825 13,213
3/31/2001 12,346 11,822 13,332
4/30/2001 12,219 11,700 13,187
5/31/2001 12,338 11,813 13,329
6/30/2001 12,425 11,897 13,418
7/31/2001 12,614 12,078 13,617
8/31/2001 12,851 12,305 13,841
9/30/2001 12,779 12,236 13,795
10/31/2001 12,898 12,350 13,959
11/30/2001 12,803 12,259 13,842
12/31/2001 12,658 12,120 13,711
1/31/2002 12,729 12,188 13,949
2/28/2002 12,873 12,326 14,117
3/31/2002 12,636 12,099 13,840
4/30/2002 12,867 12,320 14,111
5/31/2002 12,968 12,417 14,196
6/30/2002 13,118 12,561 14,346
7/31/2002 13,285 12,720 14,531
8/31/2002 13,447 12,875 14,706
9/30/2002 13,749 13,165 15,028
10/31/2002 13,499 12,925 14,779
11/30/2002 13,414 12,844 14,717
12/31/2002 13,682 13,101 15,028
1/31/2003 13,654 13,073 14,990
2/28/2003 13,868 13,279 15,199
3/31/2003 13,880 13,291 15,208
4/30/2003 13,969 13,376 15,309
5/31/2003 14,327 13,718 15,667
6/30/2003 14,262 13,656 15,601
7/31/2003 13,643 13,064 15,055
8/31/2003 13,732 13,149 15,167
9/30/2003 14,104 13,505 15,613
10/31/2003 14,082 13,483 15,534
11/30/2003 14,238 13,633 15,696
12/31/2003 14,370 13,760 15,826
1/31/2004 14,468 13,853 15,917
2/29/2004 14,681 14,057 16,156
3/31/2004 14,647 14,025 16,100
4/30/2004 14,253 13,647 15,719
5/31/2004 14,190 13,587 15,662
6/30/2004 14,207 13,604 15,719
7/31/2004 14,411 13,798 15,926
8/31/2004 14,693 14,069 16,245
9/30/2004 14,791 14,163 16,331
10/31/2004 14,925 14,290 16,472
11/30/2004 14,772 14,144 16,336
12/31/2004 14,969 14,333 16,535
1/31/2005 15,148 14,505 16,690
2/28/2005 15,086 14,445 16,634
3/31/2005 14,985 14,348 16,529
4/30/2005 15,256 14,608 16,790
5/31/2005 15,383 14,729 16,909
6/30/2005 15,448 14,791 17,013
7/31/2005 15,347 14,695 16,937
8/31/2005 15,513 14,854 17,108
9/30/2005 15,367 14,714 16,992
10/31/2005 15,247 14,599 16,889
11/30/2005 15,331 14,680 16,970
12/31/2005 15,471 14,813 17,116
1/31/2006 15,489 14,831 17,162
2/28/2006 15,616 14,953 17,278
3/31/2006 15,498 14,839 17,158
4/30/2006 15,512 14,852 17,153
5/31/2006 15,572 14,910 17,229
6/30/2006 15,500 14,842 17,164
7/31/2006 15,676 15,009 17,368
8/31/2006 15,919 15,242 17,626
9/30/2006 16,019 15,338 17,749
Average Annual Total Returns -- September 30, 2006
1 YEAR/5/ 5 YEARS/5/ 10 YEARS/5/
CLASS A (Inception 3/23/84)
Net Asset Value/1/ 4.24% 4.63% 4.83%
With Maximum Sales Charge/2/ -0.20 3.72 4.38
CLASS B (Inception 9/13/93)
Net Asset Value/1/ 3.53 3.92 4.14
With CDSC/4/ -1.47 3.58 4.14
- ----------------------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Lehman Municipal Bond Index/3/ 4.45% 5.17% 5.90%
Morningstar Muni Massachusetts Fund Avg./6/ 3.75 4.28 4.94
Yields as of September 30, 2006
CLASS A CLASS B
SEC 30-Day Yield/7/ 3.76% 3.18%
Taxable Equivalent Yield/8/ 6.07 5.14
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 9/30/06 9/30/05
- ----------------------------------------
Aaa 36.8 36.2
- ----------------------------------------
Aa 20.5 27.1
- ----------------------------------------
A 20.3 18.8
- ----------------------------------------
Baa 9.5 11.8
- ----------------------------------------
Ba 4.3 --
- ----------------------------------------
Not rated* 6.0 3.9
- ----------------------------------------
Short-term & other 2.6 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 9/30/06 9/30/05
- --------------------------------------------------
1 year or less 1.9 1.5
- --------------------------------------------------
1-5 years 30.7 21.3
- --------------------------------------------------
5-10 years 49.3 64.4
- --------------------------------------------------
10+ years 18.1 12.8
- --------------------------------------------------
Average Effective Maturity 6.9 years 7.3 years
- --------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes 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 of 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/reimbursements,
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:
Robert Payne
Martha A. Strom
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. Realized
capital gains are fully taxable. Some investors may be subject to the
Alternative Minimum Tax (AMT). Lower-rated bonds entail higher risks.
Management Discussion
- --------------------------------------------------------------------------------
During the fiscal year ended September 30, 2006, the Federal Reserve Board
gradually raised the federal funds rate (the rate banks charge one another on
overnight loans) by 1.5%, causing bond prices to decline. Short-term bonds were
most affected, but long-term rates eventually followed suit. By the end of the
period, spreads (the difference between short- and long-term interest rates)
were near historic lows.
For fiscal 2006, the total return on Class A shares of Loomis Sayles Municipal
Income Fund was 4.82%, based on net asset value and $0.28 per share in
reinvested dividends. The fund's results were ahead of both the 4.45% return on
the fund's benchmark, the Lehman Municipal Bond Index, and the 4.26% average
return on Morningstar's Muni National Long category. The fund's 30-day SEC
yield at the end of September was 4.07%, equivalent to a taxable yield of 6.18%
based on the maximum federal income tax rate of 35.00%.
MARKET FAVORED LONG-TERM AND INSURED BONDS
The fund's emphasis on some of the better-performing revenue sectors -
including corporate-backed industrial development bonds (IDBs) and
healthcare-related issues - contributed to its positive results.
Longer-maturity, structured, insured bonds performed well as the market saw
steady demand but lower supply over the period. Higher-yielding IDBs and
healthcare issues were also in demand as investors continued to search for
higher yield in a lower interest-rate environment.
The weakest performers during the period were general obligation bonds, which
are backed by local taxpayer receipts and issued for states, counties, school
districts, cities and towns. These bonds are regarded as higher in quality than
bonds backed by service fees, so their yield is generally lower. Demand for
higher-quality, intermediate quality, structured issues was generally tepid.
On a geographical basis, the strongest areas were New York, Michigan, and
California. In these states, credit spreads were tighter and many lower-quality
bonds were pre-refunded, raising their perceived quality and market value,
although shortening maturities. Weaker geographic areas included Puerto Rico,
which has been experiencing budget problems, and Massachusetts and Florida due
to fluctuating supply/demand. However, we believe the seeds for recovery in the
Puerto Rican economy may already have been sown, so these holdings continue in
the portfolio.
Our strategy this year has been to keep the fund's maturity longer than the
benchmark, in pursuit of higher yields. We have also tended to focus on revenue
as opposed to tax-backed bonds, again in search of current income, and that
strategy has proved to be sound. Although the portfolio's duration - its
sensitivity to changes in interest rates - was slightly shorter at the end of
fiscal 2006 than it has been, this reflects market movements rather than a
change in our strategy.
OUTLOOK IS FOR RELATIVELY MINOR CHANGES IN MUNICIPAL BOND RATES
Currently we expect yields to fluctuate close to their current range, and we
are not looking for major changes in the yield curve. We will continue to build
up the fund's yield as opportunities present themselves. Overall credit quality
in the municipal markets appears to be stable or improving slightly with the
economy as a whole. Long-term, we believe the municipal yield curve should
remain flat - with relatively little difference between long- and short-term
rates - although the curve in the municipal market is significantly steeper
than in the Treasury market. As long as the Fed continues to exercise restraint
in its tightening efforts, we believe the municipal market should hold its own
or slightly underperform the taxable markets.
9
LOOMIS SAYLES MUNICIPAL INCOME FUND
Investment Results through September 30, 2006
- --------------------------------------------------------------------------------
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/8/
September 30, 1996 through September 30, 2006
[CHART]
Net Asset Maximum Sales Lehman Municipal
Value/1/ Charge/2/ Bond Index/3/
--------- ---------- ----------------
9/30/1996 $10,000 $ 9,550 $10,000
10/31/1996 10,113 9,658 10,113
11/30/1996 10,267 9,805 10,298
12/31/1996 10,236 9,775 10,255
1/31/1997 10,246 9,785 10,274
2/28/1997 10,337 9,872 10,369
3/31/1997 10,206 9,747 10,230
4/30/1997 10,281 9,818 10,316
5/31/1997 10,397 9,929 10,471
6/30/1997 10,541 10,067 10,583
7/31/1997 10,826 10,339 10,876
8/31/1997 10,761 10,277 10,774
9/30/1997 10,851 10,363 10,902
10/31/1997 10,927 10,436 10,972
11/30/1997 10,961 10,468 11,037
12/31/1997 11,112 10,612 11,197
1/31/1998 11,250 10,744 11,313
2/28/1998 11,328 10,818 11,316
3/31/1998 11,345 10,834 11,326
4/30/1998 11,291 10,783 11,275
5/31/1998 11,413 10,900 11,454
6/30/1998 11,461 10,946 11,499
7/31/1998 11,481 10,964 11,528
8/31/1998 11,634 11,110 11,706
9/30/1998 11,728 11,200 11,852
10/31/1998 11,688 11,162 11,851
11/30/1998 11,737 11,209 11,893
12/31/1998 11,751 11,222 11,923
1/31/1999 11,866 11,332 12,065
2/28/1999 11,841 11,308 12,012
3/31/1999 11,846 11,313 12,029
4/30/1999 11,882 11,347 12,059
5/31/1999 11,840 11,307 11,989
6/30/1999 11,705 11,178 11,816
7/31/1999 11,740 11,212 11,859
8/31/1999 11,620 11,097 11,764
9/30/1999 11,625 11,102 11,769
10/31/1999 11,456 10,941 11,642
11/30/1999 11,564 11,044 11,765
12/31/1999 11,471 10,954 11,678
1/31/2000 11,410 10,896 11,627
2/29/2000 11,536 11,017 11,762
3/31/2000 11,714 11,187 12,019
4/30/2000 11,650 11,125 11,948
5/31/2000 11,617 11,094 11,886
6/30/2000 11,830 11,297 12,201
7/31/2000 11,961 11,423 12,371
8/31/2000 12,126 11,580 12,561
9/30/2000 12,093 11,549 12,496
10/31/2000 12,192 11,644 12,632
11/30/2000 12,275 11,723 12,728
12/31/2000 12,478 11,916 13,042
1/31/2001 12,565 12,000 13,172
2/28/2001 12,585 12,019 13,213
3/31/2001 12,688 12,117 13,332
4/30/2001 12,553 11,988 13,187
5/31/2001 12,672 12,102 13,329
6/30/2001 12,773 12,199 13,418
7/31/2001 12,997 12,412 13,617
8/31/2001 13,204 12,609 13,841
9/30/2001 12,976 12,392 13,795
10/31/2001 13,152 12,560 13,959
11/30/2001 13,010 12,424 13,842
12/31/2001 12,851 12,273 13,711
1/31/2002 13,062 12,474 13,949
2/28/2002 13,238 12,642 14,117
3/31/2002 13,021 12,435 13,840
4/30/2002 13,234 12,639 14,111
5/31/2002 13,302 12,703 14,196
6/30/2002 13,426 12,821 14,346
7/31/2002 13,511 12,903 14,531
8/31/2002 13,617 13,004 14,706
9/30/2002 13,835 13,212 15,028
10/31/2002 13,483 12,877 14,779
11/30/2002 13,462 12,856 14,717
12/31/2002 13,790 13,170 15,028
1/31/2003 13,618 13,005 14,990
2/28/2003 13,818 13,196 15,199
3/31/2003 13,811 13,190 15,208
4/30/2003 13,934 13,307 15,309
5/31/2003 14,281 13,638 15,667
6/30/2003 14,251 13,610 15,601
7/31/2003 13,633 13,019 15,055
8/31/2003 13,776 13,156 15,167
9/30/2003 14,188 13,549 15,613
10/31/2003 14,121 13,485 15,534
11/30/2003 14,303 13,659 15,696
12/31/2003 14,429 13,780 15,826
1/31/2004 14,517 13,864 15,917
2/29/2004 14,742 14,079 16,156
3/31/2004 14,732 14,069 16,100
4/30/2004 14,369 13,723 15,719
5/31/2004 14,338 13,692 15,662
6/30/2004 14,346 13,701 15,719
7/31/2004 14,531 13,877 15,926
8/31/2004 14,794 14,129 16,245
9/30/2004 14,880 14,210 16,331
10/31/2004 15,005 14,330 16,472
11/30/2004 14,872 14,202 16,336
12/31/2004 15,057 14,380 16,535
1/31/2005 15,222 14,537 16,690
2/28/2005 15,147 14,465 16,634
3/31/2005 15,050 14,373 16,529
4/30/2005 15,321 14,631 16,790
5/31/2005 15,434 14,740 16,909
6/30/2005 15,524 14,825 17,013
7/31/2005 15,428 14,733 16,937
8/31/2005 15,619 14,916 17,108
9/30/2005 15,460 14,764 16,992
10/31/2005 15,341 14,650 16,889
11/30/2005 15,430 14,735 16,970
12/31/2005 15,561 14,860 17,116
1/31/2006 15,587 14,886 17,162
2/28/2006 15,721 15,014 17,278
3/31/2006 15,602 14,900 17,158
4/30/2006 15,609 14,907 17,153
5/31/2006 15,659 14,955 17,229
6/30/2006 15,603 14,901 17,164
7/31/2006 15,781 15,071 17,368
8/31/2006 16,067 15,344 17,626
9/30/2006 16,203 15,474 17,749
Average Annual Total Returns -- September 30, 2006
1 YEAR/8/ 5 YEARS/8/ 10 YEARS/8/
CLASS A (Inception 5/9/77)
Net Asset Value/1/ 4.82% 4.54% 4.95%
With Maximum Sales Charge/2/ 0.13 3.58 4.47
CLASS B (Inception 9/13/93)
Net Asset Value/1/ 4.03 3.80 4.10
With CDSC/4/ -0.97 3.45 4.10
- ----------------------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Lehman Municipal Bond Index/3/ 4.45% 5.17% 5.90%
Morningstar Muni National Long Fund Avg./5/ 4.26 4.56 5.08
Yields as of September 30, 2006
CLASS A CLASS B
SEC 30-Day Yield/6/ 4.07% 3.51%
Taxable Equivalent Yield/7/ 6.18 5.30
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 9/30/06 9/30/05
- ----------------------------------------
Aaa 28.2 35.8
- ----------------------------------------
Aa 13.8 12.8
- ----------------------------------------
A 27.1 24.3
- ----------------------------------------
Baa 14.1 14.6
- ----------------------------------------
Ba 3.3 --
- ----------------------------------------
Not rated* 12.0 10.7
- ----------------------------------------
Short-term & other 1.5 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 9/30/06 9/30/05
- --------------------------------------------------
1 year or less 4.4 4.7
- --------------------------------------------------
1-5 years 3.7 6.8
- --------------------------------------------------
5-10 years 76.0 76.6
- --------------------------------------------------
10+ years 15.9 11.9
- --------------------------------------------------
Average Effective Maturity 8.4 years 8.6 years
- --------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes 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 of 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.
/8/Fund performance has been increased by expense waivers/reimbursements,
without which performance would have been lower.
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, CFA, CIC
Kathleen C. Gaffney, CFA
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
- --------------------------------------------------------------------------------
A resilient economy and strong corporate profits were hallmarks of Loomis
Sayles Strategic Income Fund's fiscal year, which ended September 30, 2006. A
slowing housing market and declining energy prices late in the period
contributed to the Federal Reserve Board's decision to pause from its
rate-tightening policies at its meetings in August and September, calming
investors' concerns that the Fed might tighten the economy into a recession.
The yield curve, (a graphical representation of the difference in yields
between short- and long-term interest rates), "flattened" during the year and
eventually became inverted, as yields on short-term Treasury securities rose
above long-term rates. However, during the closing quarter of the fund's fiscal
year, longer-term issues recouped some of the losses they suffered earlier in
fiscal 2006 and provided the highest returns for the year as a whole.
For the fund's 2006 fiscal year, Class A shares of the fund provided a total
return of 9.03% at net asset value, including $0.81 in reinvested dividends.
The fund's results were significantly ahead of its benchmark, the Lehman
Aggregate Bond Index, which returned 3.67% for the period. Bear in mind that
the fund has greater investment flexibility than the benchmark. It also
outperformed Morningstar's Multisector Bond category, which had an average
return of 4.44%. The fund's 30-day SEC yield at September 30, 2006 was 4.82%.
STRATEGY REMAINED AGGRESSIVE
In general during the fiscal year, investors who took on risk were well
rewarded, as corporate earnings remained sound. After a short-lived flight to
quality in May and June, the high-yielding segments of the market rebounded.
Emerging markets also rewarded bondholders as improving economies in many
countries generated confidence. During the year the fund maintained a longer
duration than the Lehman benchmark, which made the fund more sensitive to
changes in interest rates. We extended duration further late in the period,
when the Fed paused in its interest tightening cycle, allowing the fund to
capitalize on the bond price rally. This flexibility in the fund's duration
strategy contributed to its strong performance.
DIVERSIFIED BY SECURITY TYPE, INDUSTRY AND CURRENCY
The fund was broadly diversified, with roughly 60% of assets in
investment-grade bonds. Non-U.S.-dollar securities, high-yielding industrial
bonds and convertible bonds were the largest positive contributors to
performance during the period. The strongest industries and sectors included
airlines, telecommunications, and pharmaceuticals. U.S. Treasury securities
were modestly positive, although some high-yielding utilities detracted from
results.
Securities denominated in Canadian dollars posted the strongest returns over
the year. The fund's relatively large position in securities denominated in the
currencies of Brazil, Mexico, and the Philippines, as well as its holdings
denominated in euros, were also strongly positive. Laggards among currencies
included South Africa, New Zealand, and Argentina.
OUTLOOK INCLUDES STABLE ECONOMIC GROWTH WITH BENIGN INFLATION
In the United States, reduced inflation pressures and the Fed's "wait and see"
policy with respect to interest rates should provide a positive environment for
investment-grade and high-yielding domestic bonds, in our opinion. However, it
may be difficult for Treasuries to provide decent returns if interest rates
snap back. As long as corporate profits remain solid, we think demand for
corporate bonds should persist.
Overall, we anticipate modest performance - not home runs - from global sectors
as well. Emerging markets did well during the closing quarter of fiscal 2006
and, going forward, we think they should offer lower (although still favorable)
returns. Foreign currency exposure may grow increasingly important if, as we
expect, the dollar experiences some weakness.
11
LOOMIS SAYLES STRATEGIC INCOME FUND
Investment Results through September 30, 2006
- --------------------------------------------------------------------------------
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/
September 30, 1996 through September 30, 2006
[CHART]
Lehman
Net Asset Maximum Sales Lehman Aggregate Universal Bond
Value/1/ Charge/2/ Bond Index/3/ Index/4/
--------- ------------- ---------------- ---------------
9/30/1996 $10,000 $ 9,550 $10,000 $10,000
10/31/1996 10,286 9,823 10,222 10,208
11/30/1996 10,704 10,222 10,397 10,389
12/31/1996 10,555 10,080 10,300 10,305
1/31/1997 10,585 10,109 10,331 10,350
2/28/1997 10,753 10,269 10,357 10,386
3/31/1997 10,635 10,157 10,242 10,265
4/30/1997 10,704 10,222 10,396 10,420
5/31/1997 10,934 10,442 10,494 10,530
6/30/1997 11,182 10,679 10,619 10,659
7/31/1997 11,685 11,159 10,905 10,950
8/31/1997 11,384 10,871 10,812 10,860
9/30/1997 11,785 11,255 10,971 11,027
10/31/1997 11,538 11,019 11,131 11,132
11/30/1997 11,600 11,078 11,182 11,193
12/31/1997 11,541 11,022 11,294 11,312
1/31/1998 11,729 11,201 11,439 11,454
2/28/1998 11,944 11,406 11,431 11,463
3/31/1998 12,199 11,650 11,470 11,516
4/30/1998 12,203 11,654 11,530 11,574
5/31/1998 12,004 11,464 11,639 11,658
6/30/1998 11,813 11,282 11,738 11,734
7/31/1998 11,666 11,141 11,763 11,763
8/31/1998 10,233 9,773 11,954 11,762
9/30/1998 10,565 10,089 12,234 12,041
10/31/1998 10,679 10,198 12,170 11,991
11/30/1998 11,395 10,883 12,239 12,111
12/31/1998 11,343 10,832 12,275 12,138
1/31/1999 11,539 11,020 12,363 12,219
2/28/1999 11,374 10,862 12,147 12,026
3/31/1999 11,975 11,436 12,215 12,118
4/30/1999 12,742 12,169 12,253 12,189
5/31/1999 12,347 11,792 12,146 12,066
6/30/1999 12,383 11,826 12,107 12,045
7/31/1999 12,139 11,593 12,056 11,996
8/31/1999 11,987 11,448 12,050 11,983
9/30/1999 12,064 11,521 12,189 12,112
10/31/1999 12,165 11,618 12,234 12,163
11/30/1999 12,386 11,828 12,234 12,183
12/31/1999 12,722 12,150 12,175 12,159
1/31/2000 12,604 12,037 12,135 12,118
2/29/2000 13,101 12,511 12,281 12,272
3/31/2000 13,233 12,638 12,443 12,415
4/30/2000 12,855 12,276 12,408 12,376
5/31/2000 12,439 11,880 12,402 12,354
6/30/2000 12,913 12,332 12,660 12,620
7/31/2000 13,027 12,441 12,775 12,742
8/31/2000 13,314 12,714 12,960 12,928
9/30/2000 12,962 12,379 13,041 12,994
10/31/2000 12,435 11,875 13,128 13,045
11/30/2000 12,370 11,813 13,342 13,221
12/31/2000 12,809 12,233 13,590 13,475
1/31/2001 13,216 12,622 13,812 13,738
2/28/2001 13,197 12,603 13,933 13,854
3/31/2001 12,698 12,126 14,002 13,900
4/30/2001 12,491 11,929 13,944 13,839
5/31/2001 12,769 12,195 14,028 13,938
6/30/2001 12,735 12,162 14,081 13,978
7/31/2001 12,744 12,170 14,396 14,252
8/31/2001 13,025 12,439 14,561 14,431
9/30/2001 12,379 11,822 14,731 14,535
10/31/2001 12,671 12,101 15,039 14,827
11/30/2001 12,851 12,273 14,832 14,653
12/31/2001 12,792 12,217 14,738 14,565
1/31/2002 12,938 12,356 14,857 14,688
2/28/2002 13,093 12,504 15,001 14,825
3/31/2002 13,244 12,648 14,751 14,611
4/30/2002 13,564 12,954 15,037 14,889
5/31/2002 13,852 13,229 15,165 15,001
6/30/2002 13,632 13,018 15,296 15,056
7/31/2002 13,309 12,710 15,481 15,184
8/31/2002 13,681 13,066 15,742 15,463
9/30/2002 13,497 12,889 15,997 15,685
10/31/2002 13,765 13,146 15,924 15,631
11/30/2002 14,280 13,637 15,920 15,673
12/31/2002 14,774 14,109 16,249 15,998
1/31/2003 15,189 14,506 16,263 16,042
2/28/2003 15,599 14,897 16,488 16,269
3/31/2003 15,751 15,042 16,475 16,285
4/30/2003 16,655 15,905 16,611 16,477
5/31/2003 17,488 16,701 16,921 16,792
6/30/2003 17,708 16,911 16,887 16,788
7/31/2003 17,226 16,451 16,319 16,248
8/31/2003 17,424 16,640 16,428 16,365
9/30/2003 18,276 17,454 16,863 16,801
10/31/2003 18,689 17,848 16,705 16,681
11/30/2003 19,209 18,345 16,745 16,739
12/31/2003 19,922 19,025 16,916 16,929
1/31/2004 20,276 19,364 17,052 17,075
2/29/2004 20,262 19,350 17,236 17,243
3/31/2004 20,527 19,604 17,365 17,381
4/30/2004 19,676 18,790 16,914 16,937
5/31/2004 19,347 18,476 16,846 16,851
6/30/2004 19,715 18,827 16,941 16,958
7/31/2004 19,906 19,010 17,109 17,138
8/31/2004 20,519 19,596 17,435 17,477
9/30/2004 21,057 20,109 17,483 17,545
10/31/2004 21,556 20,586 17,629 17,706
11/30/2004 22,073 21,080 17,489 17,596
12/31/2004 22,499 21,486 17,650 17,771
1/31/2005 22,335 21,330 17,760 17,873
2/28/2005 22,627 21,609 17,656 17,800
3/31/2005 22,256 21,255 17,565 17,669
4/30/2005 22,080 21,087 17,803 17,885
5/31/2005 22,301 21,298 17,995 18,093
6/30/2005 22,720 21,698 18,093 18,217
7/31/2005 22,918 21,887 17,929 18,086
8/31/2005 23,184 22,141 18,159 18,308
9/30/2005 23,205 22,161 17,971 18,137
10/31/2005 22,975 21,941 17,829 17,991
11/30/2005 23,090 22,051 17,908 18,079
12/31/2005 23,339 22,289 18,078 18,253
1/31/2006 23,932 22,855 18,079 18,279
2/28/2006 24,193 23,104 18,139 18,352
3/31/2006 24,057 22,975 17,961 18,189
4/30/2006 24,421 23,322 17,929 18,167
5/31/2006 24,164 23,077 17,910 18,141
6/30/2006 24,097 23,012 17,948 18,169
7/31/2006 24,453 23,353 18,190 18,419
8/31/2006 25,045 23,918 18,469 18,706
9/30/2006 25,301 24,162 18,631 18,877
Average Annual Total Returns -- September 30, 2006
SINCE
1 YEAR 5 YEARS/7/ 10 YEARS/7/ INCEPTION/7/
CLASS A (Inception 5/1/95)
Net Asset Value/1/ 9.03% 15.36% 9.72% --
With Maximum Sales Charge/2/ 4.11 14.30 9.21 --
CLASS B (Inception 5/1/95)
Net Asset Value/1/ 8.22 14.49 8.91 --
With CDSC/5/ 3.22 14.26 8.91 --
CLASS C (Inception 5/1/95)
Net Asset Value/1/ 8.14 14.50 8.90 --
With CDSC/5/ 7.14 14.50 8.90 --
CLASS Y (Inception 12/1/99)
Net Asset Value/1/ 9.28 15.68 -- 11.35%
- ------------------------------------------------------------------------------------
SINCE
CLASS Y
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/8/
Lehman Aggregate Bond Index/3/ 3.67% 4.81% 6.42% 6.35%
Lehman U.S. Universal Bond Index/4/ 4.08 5.37 6.56 6.62
Morningstar Multisector Bond Fund Avg./6/ 4.44 8.47 6.14 6.56
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 9/30/06 9/30/05
- ----------------------------------------
Aaa 32.1 35.1
- ----------------------------------------
Aa 6.1 9.9
- ----------------------------------------
A 3.5 0.5
- ----------------------------------------
Baa 15.3 4.0
- ----------------------------------------
Ba 9.5 8.7
- ----------------------------------------
B 13.6 10.2
- ----------------------------------------
Caa 3.5 7.2
- ----------------------------------------
Ca -- 0.8
- ----------------------------------------
C -- 0.2
- ----------------------------------------
Not rated* 5.6 14.6
- ----------------------------------------
Short-term & other 10.8 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 9/30/06 9/30/05
- --------------------------------------------------
1 year or less 14.5 10.5
- --------------------------------------------------
1-5 years 25.7 48.8
- --------------------------------------------------
5-10 years 18.0 17.7
- --------------------------------------------------
10+ years 41.8 23.0
- --------------------------------------------------
Average Effective Maturity 12.7 years 8.1 years
- --------------------------------------------------
Portfolio characteristics will vary.
NOTES TO CHARTS
/1/Does not include a sales charge.
/2/Includes 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 Index, among other indexes.
/5/Performance for Class B shares assumes a maximum of 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/reimbursements,
without which performance would have been lower.
/8/The since-inception comparative performance figures shown for Class Y are
calculated from 12/1/99.
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 (SEC'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, 2006 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 FUND 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, 2006 through September 30, 2006. 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 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,035.90 $5.36
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,019.80 $5.32
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,031.40 $9.17
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.04 $9.10
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,032.30 $9.17
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.04 $9.10
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,037.00 $4.09
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,021.06 $4.05
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after
waiver/reimbursement): 1.05%, 1.80%, 1.80% and 0.80% 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 reflect the half-year period).
14
UNDERSTANDING FUND EXPENSES
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES HIGH INCOME FUND 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,030.10 $6.36
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,018.80 $6.33
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,028.20 $10.17
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,026.20 $10.16
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after
waiver/reimbursement): 1.25%, 2.00% and 2.00% 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 reflect the half-year period).
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
AGENCY FUND 4/1/06 9/30/06 4/1/06 - 9/30/06
- -------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,027.80 $5.08
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.05 $5.06
- -------------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,024.00 $8.88
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.29 $8.85
- -------------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,024.00 $8.88
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.29 $8.85
- -------------------------------------------------------------------------------------------------------------------
CLASS Y
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,028.30 $3.61
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,021.51 $3.60
- -------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after
waiver/reimbursement): 1.00%, 1.75%, 1.75% and 0.71% 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 reflect the half-year period).
15
UNDERSTANDING FUND EXPENSES
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
FUND 4/1/06 9/30/06 4/1/06 - 9/30/06
- ---------------------------------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,033.60 $4.84
- ---------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.31 $4.81
- ---------------------------------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,030.40 $8.65
- ---------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
- ---------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after
waiver/reimbursement): 0.95% and 1.70% 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 reflect
the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES MUNICIPAL INCOME FUND 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,038.60 $4.85
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.31 $4.81
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,034.70 $8.67
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
*Expenses are equal to the Fund's annualized expense ratio (after
waiver/reimbursement): 0.95% and 1.70% 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 reflect
the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES STRATEGIC INCOME FUND 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,051.80 $5.40
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,019.80 $5.32
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,047.80 $9.19
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.09 $9.05
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,047.70 $9.19
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.09 $9.05
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,052.50 $3.96
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,021.21 $3.90
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio: 1.05%, 1.79%, 1.79%
and 0.77% 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 reflect 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 (collectively, 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,
also consider other matters 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.
The Board of Trustees most recently approved the continuation of the Agreements
at their meeting held in May, 2006. 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, including
recent or planned investments by the Adviser in additional personnel or other
resources. They also took note of the competitive market for talented
personnel, in particular, for personnel who have contributed to the generation
of strong investment performance. They also considered the need for the Adviser
to offer competitive compensation in order to attract and retain capable
personnel. The Trustees considered not only the advisory services provided by
the Adviser 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. In particular, the Trustees noted that
IXIS Advisors had over the past year negotiated changes to the Funds' transfer
agency and custodial arrangements, resulting in significant cost savings for
the Funds. The Trustees also noted that some of these changes had resulted in
increases in costs or decreases in revenues for IXIS Advisors and its
affiliates. They also considered the administrative services provided by IXIS
Advisors and its affiliates to the Funds. 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.
With respect to each Fund, the Board concluded that the Fund's performance or
other relevant factors supported the renewal of the Agreement relating to that
Fund. In the case of each Fund that had performance that lagged that of a
relevant peer group for certain (although, not necessarily all) periods, the
Board concluded that other factors relevant to performance supported renewal of
the
17
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS
Funds' Agreements. These factors varied from Fund to Fund, but included one or
more of the following: (1) that the Fund's performance, although lagging in
certain recent periods was stronger over the longer term; (2) that the
underperformance was attributable, to a significant extent, to investment
decisions by the Fund's Adviser that were reasonable and consistent with the
Fund's investment objective and policies; (3) that the Fund's Adviser had taken
or is taking steps designed to help improve the Fund's investment performance;
(4) that the Fund's advisory fee had recently been, or is proposed to be,
reduced or the Fund's expenses capped, with the goal of helping the Fund's net
return to shareholders become more competitive; and (5) that reductions in the
Fund's expense levels resulting from decreased expenses and/or increased assets
were not yet fully reflected in the Fund's performance results.
The Trustees also considered the Adviser's performance and reputation
generally, the Funds' performance as a fund family generally, and the
historical responsiveness of the Adviser 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. 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 fees, the Trustees also
took into account the demands, complexity and quality of the investment
management of such Fund. The Trustees considered that over the past several
years, management had made recommendations regarding reductions in advisory fee
rates, the implementation of advisory fee breakpoints and the institution of
advisory fee waivers and expense caps. They noted that currently all of the
IXIS Advisor Funds in the report have expense caps in place, and they
considered the amounts waived or reimbursed by the Adviser under these caps.
The Trustees noted that several Funds had total expense ratios or advisory fee
rates that were above the median of a peer group of Funds. The Trustees
considered the circumstances that accounted for such relatively higher
expenses. The Trustees noted that for the Loomis Sayles Limited Term Government
and Agency Fund, the relatively higher expense ratio resulted to a significant
extent from relatively higher transfer agency expenses.
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's and its affiliates' relationships with the Funds, and information
about the allocation of expenses used to calculate profitability. In this
regard, the Funds, at the request of the Independent Trustees, retained an
independent accounting firm to review the cost allocation methods used by the
Adviser to determine profitability, and engaged in extensive discussions with
the Adviser regarding such methods and Adviser profitability generally. They
also reviewed information provided by management about the effect of
distribution costs and Fund growth on Adviser profitability. When reviewing
profitability, the Trustees also considered information about court cases in
which adviser profitability was an issue, 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 fees charged to each of the Funds were 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 its investment advisory fees
(lower fee rates applicable to assets in excess of certain threshold levels) or
other means, such as expense waivers. The Trustees noted that four of the IXIS
Advisor Funds in this report had breakpoints in their advisory fees and the
remaining Funds were subject to expense caps. The Trustees also considered
management's representation that for certain Funds the Adviser did not benefit
from economies of scale in providing services to the Funds (because of the
investment style of the Fund, the small size of the Fund or for other reasons).
In considering
18
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS
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 a separate agreement covering administrative services.
.. so-called "fallout benefits" to the Adviser, such as the engagement of
affiliates of the Adviser to provide distribution and brokerage 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 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, 2007.
19
LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ----------------------------------------------------------------------------------------------
Bonds and Notes -- 98.5% of Net Assets
Agencies -- 1.0%
$ 2,145,000 Pemex Project Funding Master Trust,
7.875%, 2/01/2009 $ 2,245,815
---------------
Asset-Backed Securities -- 6.1%
480,303 AmeriCredit Automobile Receivables Trust, Series 2003-D-M,
Class A-4,
2.840%, 8/06/2010 473,549
2,595,000 AmeriCredit Automobile Receivables Trust, Series 2005-CF,
Class A-3,
4.470%, 5/06/2010(j) 2,579,093
788,214 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A2,
3.872%, 3/25/2020 775,831
1,095,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3,
4.615%, 2/25/2035 1,059,643
2,190,000 Countrywide Asset-Backed Certificates, Series 2006-S4, Class A3,
5.804%, 7/25/2034 2,183,046
1,730,000 Ford Credit Auto Owner Trust, Series 2004-A, Class A4,
3.540%, 11/15/2008 1,703,509
1,800,000 Greenwich Capital Commercial Funding Corp., Series 2005-GG5,
Class A2,
5.117%, 4/10/2037 1,796,987
1,832,687 Residential Asset Securities Corp., Series 2003-KS10, Class AI4,
4.470%, 3/25/2032 1,798,162
644,789 WFS Financial Owner Trust, Series 2004-4, Class A3,
2.980%, 9/17/2009 637,788
515,000 WFS Financial Owner Trust, Series 2004-4, Class A4,
3.440%, 5/17/2012 501,483
---------------
13,509,091
---------------
Automotive -- 3.9%
1,645,000 Ford Motor Co.,
7.450%, 7/16/2031(c) 1,270,763
1,510,000 Ford Motor Credit Co., Global Note,
5.625%, 10/01/2008 1,448,585
655,000 GMAC LLC, (MTN),
6.750%, 12/01/2014(c) 639,447
4,240,000 GMAC LLC,
8.000%, 11/01/2031 4,433,263
105,000,000 Toyota Motor Credit Corp.,
0.750%, 6/09/2008 (JPY) 890,318
---------------
8,682,376
---------------
Banking -- 0.6%
1,200,000 State Street Institutional Capital A, Series A, Guaranteed Note,
144A,
7.940%, 12/30/2026 1,252,462
---------------
Brokerage -- 0.5%
1,045,000 Goldman Sachs Group, Inc., Senior Note,
6.600%, 1/15/2012 1,102,675
---------------
Chemicals -- 0.3%
600,000 Methanex Corp., Senior Note,
6.000%, 8/15/2015 574,406
---------------
Construction Machinery -- 0.8%
1,600,000 Case New Holland, Inc., Senior Note,
9.250%, 8/01/2011 1,696,000
---------------
Consumer Products -- 1.9%
431,000,000 General Electric Capital Corp., (MTN),
0.550%, 10/14/2008 (JPY) 3,633,083
68,400,000 International Bank for Reconstruction & Development,
2.000%, 2/18/2008 (JPY) 589,614
---------------
4,222,697
---------------
Principal
Amount+ Description Value (a)
- ----------------------------------------------------------------------------
Electric -- 4.1%
$ 1,455,000 Duke Energy Corp., Senior Note,
4.200%, 10/01/2008 $ 1,424,606
2,030,000 Empresa Nacional de Electricidad SA, Chile,
8.350%, 8/01/2013(c) 2,277,642
1,325,000 Enersis SA, Chile,
7.375%, 1/15/2014 1,408,323
1,325,000 Ipalco Enterprises, Inc., Senior Secured Note,
8.375%, 11/14/2008 1,361,437
1,710,000 Progress Energy, Inc.,
7.100%, 3/01/2011 1,833,019
790,000 Southern California Edison Co.,
7.625%, 1/15/2010 844,135
---------------
9,149,162
---------------
Financial Services -- 4.0%
271,000,000 General Electric Capital Corp. (MTN),
1.400%, 11/02/2006 (JPY) 2,296,027
1,050,000 HSBC Finance Corp.,
7.000%, 5/15/2012 1,135,278
1,185,000 Morgan Stanley,
4.000%, 1/15/2010 1,143,564
2,270,000 Residential Capital Corp.,
6.500%, 4/17/2013 2,305,282
1,805,000 Residential Capital Corp.,
6.875%, 6/30/2015 1,874,924
---------------
8,755,075
---------------
Food & Beverage -- 1.4%
1,345,000 Constellation Brands, Inc.,
7.250%, 9/01/2016 1,360,131
1,750,000 Smithfield Foods, Inc.,
7.000%, 8/01/2011 1,763,125
---------------
3,123,256
---------------
Gaming -- 0.3%
770,000 Harrah's Operating Co., Inc., Senior Note,
7.125%, 6/01/2007 775,673
---------------
Healthcare -- 2.1%
1,470,000 Caremark Rx, Inc., Senior Note,
7.375%, 10/01/2006 1,470,000
575,000 HCA, Inc.,
7.500%, 12/15/2023 445,856
1,250,000 Medco Health Solutions,
7.250%, 8/15/2013 1,356,727
1,315,000 WellPoint, Inc.,
3.750%, 12/14/2007 1,289,514
---------------
4,562,097
---------------
Home Construction -- 1.8%
1,665,000 Desarrolladora Homex SA de CV,
7.500%, 9/28/2015 1,631,700
1,220,000 K. Hovnanian Enterprises, Inc., Senior Note,
6.500%, 1/15/2014 1,116,300
1,315,000 Pulte Homes, Inc., Senior Note,
4.875%, 7/15/2009 1,291,663
---------------
4,039,663
---------------
Independent Energy -- 0.3%
645,000 Anadarko Petroleum Corp.,
6.450%, 9/15/2036 658,822
---------------
See accompanying notes to financial statements.
20
LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- --------------------------------------------------------------------------------------------
Media Cable -- 1.0%
$ 1,060,000 Cox Communications, Inc.,
6.750%, 3/15/2011 $ 1,103,980
1,085,000 CSC Holdings, Inc., Senior Note, Series B,
7.625%, 4/01/2011 1,113,481
---------------
2,217,461
---------------
Media Non-Cable -- 0.8%
1,515,000 Time Warner, Inc.,
7.700%, 5/01/2032 1,691,858
---------------
Mortgage Backed Securities -- 7.1%
795,000 Banc of America Commercial Mortgage, Inc., Series 2005-6,
Class A2,
5.165%, 9/10/2047 795,013
850,000 Banc of America Commercial Mortgage, Inc., Series 2006-1,
Class A2,
5.334%, 9/10/2045 854,437
1,245,000 Bear Stearns Commercial Mortgage Securities, Inc.,
Series 2005-PW10, Class A2,
5.270%, 12/11/2040 1,249,214
2,150,000 Bear Stearns Commercial Mortgage Securities, Inc.,
Series 2006-PW12, Class A4,
5.711%, 9/11/2038(d) 2,223,564
710,000 Citigroup/Deutsche Bank Commercial Mortgage Trust,
Series 2006-CD2, Class A2,
5.408%, 1/15/2046 715,769
2,160,000 Commercial Mortgage Pass Through Certificates, Series 2006-C7,
Class A4,
5.769%, 6/10/2046(d) 2,237,560
1,500,000 GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A,
4.751%, 7/10/2039 1,441,702
1,710,000 LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class A3,
4.647%, 7/15/2030 1,669,442
2,400,000 Morgan Stanley Capital I, Series 2005-T19, Class A4A,
4.890%, 6/12/2047 2,326,960
2,195,000 Wachovia Bank Commercial Mortgage Trust, Series 2005-C20,
Class A2,
4.519%, 7/15/2042 2,144,064
---------------
15,657,725
---------------
Mortgage Related -- 29.9%
2,290,171 FHLMC,
4.000%, 7/01/2019 2,164,412
6,712,901 FHLMC
4.500%, with various maturities to 2034(e) 6,411,559
12,749,980 FHLMC
5.000%, with various maturities to 2036(e) 12,330,911
1,792,536 FHLMC
5.500%, with various maturities to 2018(e) 1,795,408
247,559 FHLMC,
6.000%, 6/01/2035 249,365
140,000,000 FNMA,
1.750%, 3/26/2008 (JPY) 1,205,772
140,000,000 FNMA,
2.125%, 10/09/2007 (JPY) 1,204,868
908,790 FNMA,
4.000%, 6/01/2019 860,083
6,308,897 FNMA
4.500%, with various maturities to 2035(e) 6,020,706
6,207,849 FNMA,
5.000%, 7/01/2035 5,968,952
10,614,826 FNMA
5.500%, with various maturities to 2036(e)(i) 10,496,848
Principal
Amount+ Description Value (a)
- ------------------------------------------------------------------------------------------
Mortgage Related -- continued
$ 6,313,901 FNMA
6.000%, with various maturities to 2034(e) $ 6,389,955
6,042,261 FNMA
6.500%, with various maturities to 2036(e) 6,155,144
289,443 FNMA
7.000%, with various maturities to 2030(e) 298,260
352,345 FNMA
7.500%, with various maturities to 2032(e) 364,867
1,258,237 GNMA,
5.500%, 2/20/2034 1,246,947
469,880 GNMA,
6.000%, 1/15/2029 476,835
992,336 GNMA
6.500%, with various maturities to 2032(e) 1,019,728
583,716 GNMA
7.000%, with various maturities to 2029(e) 603,134
171,720 GNMA
7.500%, with various maturities to 2030(e) 178,962
90,939 GNMA,
8.000%, 11/15/2029 96,455
171,710 GNMA
8.500%, with various maturities to 2023(e) 184,407
24,415 GNMA
9.000%, with various maturities to 2016(e) 26,117
64,045 GNMA
11.500%, with various maturities to 2015(e) 71,273
---------------
65,820,968
---------------
Paper -- 1.1%
1,200,000 Georgia-Pacific Corp.,
7.375%, 12/01/2025 1,134,000
755,000 Georgia-Pacific Corp.,
7.750%, 11/15/2029 724,800
480,000 Georgia-Pacific Corp.,
8.875%, 5/15/2031 499,200
---------------
2,358,000
---------------
Pharmaceuticals -- 2.0%
660,000 AmerisourceBergen Corp.,
5.875%, 9/15/2015 647,048
760,000 Valeant Pharmaceuticals International, Subordinated Note,
3.000%, 8/16/2010 718,200
520,000 Valeant Pharmaceuticals International, Subordinated Note,
4.000%, 11/15/2013(c) 488,150
2,750,000 Valeant Pharmaceuticals International, Senior Note,
7.000%, 12/15/2011 2,591,875
---------------
4,445,273
---------------
Pipelines -- 0.8%
1,695,000 Kinder Morgan, Inc.,
6.500%, 9/01/2012 1,696,388
---------------
Real Estate Investment Trusts -- 2.4%
195,000 Colonial Realty, LP, Senior Note,
4.750%, 2/01/2010 189,965
1,350,000 Colonial Realty, LP, Senior Note,
5.500%, 10/01/2015 1,315,428
1,180,000 EOP Operating, LP, Guaranteed Note,
4.650%, 10/01/2010 1,144,855
1,250,000 iStar Financial, Inc., Senior Note,
6.000%, 12/15/2010 1,270,855
See accompanying notes to financial statements.
21
LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ------------------------------------------------------------------------
Real Estate Investment Trusts -- continued
$ 1,340,000 Simon Property Group, LP,
6.375%, 11/15/2007 $ 1,351,579
---------------
5,272,682
---------------
Refining -- 0.5%
1,105,000 Premcor Refining Group, Inc. (The),
6.125%, 5/01/2011 1,128,670
---------------
Sovereigns -- 1.5%
11,445,000 Kingdom of Norway,
5.500%, 5/15/2009 (NOK) 1,820,279
2,165,000 Kingdom of Norway,
6.000%, 5/16/2011 (NOK) 359,370
4,680,000 Kingdom of Sweden,
3.000%, 7/12/2016 (SEK) 604,466
3,555,000 Kingdom of Sweden,
4.000%, 12/01/2009 (SEK) 492,150
---------------
3,276,265
---------------
Supermarkets -- 2.3%
1,535,000 Albertson's, Inc.,
7.450%, 8/01/2029 1,421,809
370,000 Albertson's, Inc.,
7.750%, 6/15/2026 351,518
610,000 Albertson's, Inc., Senior Note,
8.000%, 5/01/2031 592,989
35,000 Albertson's, Inc., Senior Note,
8.700%, 5/01/2030 35,290
270,000 Albertson's, Inc., Series C, (MTN),
6.625%, 6/01/2028 231,650
125,000 American Stores Co.,
8.000%, 6/01/2026 126,641
935,000 Delhaize America, Inc.,
9.000%, 4/15/2031 1,095,249
1,015,000 Kroger Co. (The),
7.500%, 4/01/2031(c) 1,122,539
---------------
4,977,685
---------------
Supranational -- 0.5%
120,000,000 Inter-American Development Bank,
1.900%, 7/08/2009 (JPY) 1,046,696
---------------
Technology -- 2.2%
270,000 Avnet, Inc., Convertible,
2.000%, 3/15/2034 257,175
175,000 Avnet, Inc.,
6.000%, 9/01/2015 170,753
390,000 Avnet, Inc.,
6.625%, 9/15/2016 396,933
665,000 Corning, Inc.,
6.200%, 3/15/2016 680,230
355,000 Corning, Inc.,
7.250%, 8/15/2036 378,086
1,280,000 Lucent Technologies, Inc.,
6.450%, 3/15/2029 1,139,200
920,000 Northern Telecom Capital Corp.,
7.875%, 6/15/2026 800,400
978,000 Xerox Corp.,
6.400%, 3/15/2016 973,110
---------------
4,795,887
---------------
Principal
Amount+ Description Value (a)
- ------------------------------------------------------------------------------------------
Treasuries -- 10.6%
$ 7,637,392 U.S. Treasury Bond,
2.375%, 1/15/2025(c)(f) $ 7,760,308
3,045,000 U.S. Treasury Bond
4.000%, with various maturities to 2014(c)(g) 2,958,491
575,000 U.S. Treasury Bond,
4.500%, 2/15/2036(c) 550,967
420,000 U.S. Treasury Note,
3.000%, 11/15/2007 411,469
565,000 U.S. Treasury Note,
3.375%, 10/15/2009(c) 545,313
3,350,000 U.S. Treasury Note,
4.375%, 8/15/2012(c) 3,315,060
6,125,000 U.S. Treasury Note,
4.500%, 2/15/2016(c) 6,063,511
1,680,000 U.S. Treasury Note,
5.125%, 5/15/2016(c) 1,742,738
---------------
23,347,857
---------------
Wireless -- 0.3%
730,000 Sprint Capital Corp.,
6.125%, 11/15/2008 740,693
---------------
Wirelines -- 6.4%
2,760,000 Embarq Corp.,
7.995%, 6/01/2036 2,922,572
1,650,000 GTE Corp.,
7.900%, 2/01/2027 1,720,638
3,200,000 LCI International, Inc., Senior Note,
7.250%, 6/15/2007 3,208,000
210,000 Qwest Capital Funding, Inc.,
6.500%, 11/15/2018 190,050
1,240,000 Qwest Corp.,
7.200%, 11/10/2026(c) 1,190,400
850,000 Qwest Corp.
7.250%, 9/15/2025 823,438
255,000 Qwest Corp.
7.250%, 10/15/2035 241,613
1,675,000 Qwest Corp.,
7.500%, 6/15/2023 1,658,251
2,160,000 Telefonica Emisones SAU,
6.421%, 6/20/2016 2,222,266
---------------
14,177,228
---------------
Total Bonds and Notes (Identified Cost $217,755,584) 217,000,606
---------------
Shares/
Principal
Amount+
- ------------------------------------------------------------------------------------------
Short-Term Investments -- 13.8%
27,548,560 State Street Securities Lending Quality Trust(h) 27,548,560
$ 2,779,660 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/2006 at 3.45% to be repurchased at
$2,780,460 on 10/02/2006, collateralized by $2,875,000 U.S.
Treasury Bond, 3.375% due 11/15/2008 valued at $2,872,420
including accrued interest (Note 2f) $ 2,779,660
---------------
Total Short-Term Investments (Identified Cost $30,328,220) 30,328,220
---------------
Total Investments -- 112.3%
(Identified Cost $248,083,804)(b) 247,328,826
Other assets less liabilities--(12.3)% (27,113,374)
---------------
Total Net Assets -- 100% $ 220,215,452
===============
See accompanying notes to financial statements.
22
LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
+ Principal amount is in U.S. dollars unless otherwise noted.
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2006, the net unrealized depreciation on investments based
on cost of $248,760,557 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 $ 2,482,059
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (3,913,790)
-----------
Net unrealized depreciation $(1,431,731)
===========
(c) All or a portion of this security was on loan to brokers at September 30, 2006.
(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).
(e) 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.
(f) Treasury Inflation Protected Security (TIPS).
(g) All separate investments in U.S. Treasury securities which have the same coupon rate have been
aggregated for the purpose of presentation in the schedule of investments.
(h) Represents investment of securities lending collateral.
(i) A portion of this security is a delayed delivery security. (Note 2h)
(j) All or a portion of this security has been segregated to cover requirements on delayed delivery
securities.
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
MTN Medium Term Note
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, 2006, the total value of these securities amounted to
$1,252,462 or 0.6% of total net assets.
JPY Japanese Yen
NOK Norwegian Krone
SEK Swedish Krona
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited)
Mortgage Related 29.9%
Treasuries 10.6
Mortgage Backed Securities 7.1
Wirelines 6.4
Asset-Backed Securities 6.1
Electric 4.1
Financial Services 4.0
Automotive 3.9
Real Estate Investment Trusts 2.4
Supermarkets 2.3
Technology 2.2
Healthcare 2.1
Pharmaceuticals 2.0
Other, less than 2% each 15.4
See accompanying notes to financial statements.
23
LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ----------------------------------------------------------------------------------
Bonds and Notes -- 87.4% of Net Assets
Airlines -- 1.2%
$ 82,157 Continental Airlines, Inc., Series 1997-4, Class 4B,
6.900%, 1/02/2017 $ 78,783
154,044 Continental Airlines, Inc., Series 1998-1, Class 1B,
6.748%, 3/15/2017 150,193
43,834 Continental Airlines, Inc., Series 1999-1, Class C,
6.954%, 8/02/2009 41,971
210,553 Continental Airlines, Inc., Series 2000-2, Class B,
8.307%, 4/02/2018 204,237
---------------
475,184
---------------
Automotive -- 8.5%
420,000 Ford Motor Co.,
6.375%, 2/01/2029(e) 307,125
815,000 Ford Motor Co.,
6.625%, 10/01/2028(e) 608,194
170,000 Ford Motor Co.,
7.450%, 7/16/2031(e) 131,325
905,000 Ford Motor Credit Co.,
5.700%, 1/15/2010 836,082
125,000 GMAC Canada, Ltd., Series E., (MTN),
6.625%, 12/17/2010 (GBP) 229,070
10,000 GMAC International Finance BV,
8.000%, 3/14/2007 (NZD) 6,486
330,000 GMAC LLC, (MTN),
6.750%, 12/01/2014(e) 322,164
180,000 GMAC LLC, Series E, (MTN),
7.500%, 12/01/2006 (NZD) 116,822
405,000 GMAC LLC,
8.000%, 11/01/2031(e) 423,460
430,000 Goodyear Tire & Rubber Co. (The),
7.857%, 8/15/2011(e) 418,175
---------------
3,398,903
---------------
Banking -- 4.2%
250,000,000 Barclays Financial LLC, 144A,
4.060%, 9/16/2010 (KRW) 262,219
9,000,000 Barclays Financial LLC, 144A,
4.100%, 3/22/2010 (THB) 228,358
7,000,000 Barclays Financial LLC, 144A,
4.160%, 2/22/2010 (THB) 178,141
990,000 Citibank NA, 144A,
15.000%, 7/02/2010 (BRL) 494,731
500,000 HSBC Bank USA, 144A,
3.310%, 8/25/2010 503,600
---------------
1,667,049
---------------
Chemicals -- 4.2%
450,000 Borden, Inc.,
7.875%, 2/15/2023 369,000
550,000 Borden, Inc.,
9.200%, 3/15/2021 511,500
60,000 Georgia Gulf Corp., 144A,
10.750%, 10/15/2016 59,100
380,000 Hercules, Inc., Subordinated Note,
6.500%, 6/30/2029 306,375
125,000 LPG International, Inc.,
7.250%, 12/20/2015 123,438
300,000 Lyondell Chemical Co.,
8.000%, 9/15/2014 303,750
---------------
1,673,163
---------------
Principal
Amount+ Description Value (a)
- -----------------------------------------------------------------------------------------
Construction Machinery -- 0.3%
$ 120,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note,
7.750%, 12/15/2013 $ 111,600
---------------
Diversified Financial Services -- 0.3%
1,436,358,000 JPMorgan Chase & Co., 144A,
Zero Coupon,
3/28/2011 (IDR) 101,502
---------------
Electric -- 1.3%
375,000 Dynegy Holdings, Inc.,
7.125%, 5/15/2018 343,125
180,000 Dynegy Holdings, Inc.,
7.625%, 10/15/2026 164,250
---------------
507,375
---------------
Food & Beverage -- 0.2%
100,000 Dole Food Co., Inc.,
8.625%, 5/01/2009 97,750
---------------
Healthcare -- 1.7%
150,000 HCA, Inc.,
7.500%, 12/15/2023 116,310
400,000 HCA, Inc.,
7.500%, 11/06/2033 312,000
200,000 HCA, Inc., (MTN),
7.580%, 9/15/2025 154,150
30,000 Invitrogen Corp., Convertible,
1.500%, 2/15/2024 26,025
5,000 Tenet Healthcare Corp.,
6.875%, 11/15/2031(e) 3,919
80,000 Tenet Healthcare Corp.,
9.250%, 2/01/2015 77,000
---------------
689,404
---------------
Home Construction -- 2.9%
320,000 K. Hovnanian Enterprises, Inc.,
6.250%, 1/15/2015 283,600
150,000 K. Hovnanian Enterprises, Inc., Senior Note,
6.250%, 1/15/2016(e) 132,000
30,000 K. Hovnanian Enterprises, Inc., Senior Note,
6.500%, 1/15/2014 27,450
590,000 KB Home,
7.250%, 6/15/2018 565,603
155,000 Pulte Homes, Inc.,
6.000%, 2/15/2035 139,750
---------------
1,148,403
---------------
Independent Energy -- 2.0%
615,000 Chesapeake Energy Corp.,
6.500%, 8/15/2017 576,562
60,000 NRG Energy, Inc.,
7.250%, 2/01/2014 59,550
165,000 NRG Energy, Inc.,
7.375%, 2/01/2016 163,969
---------------
800,081
---------------
Integrated Energy -- 1.4%
265,000 Cerro Negro Finance, Ltd., 144A,
7.900%, 12/01/2020 245,788
300,000 Petrozuata Finance, Inc., Series B, 144A,
8.220%, 4/01/2017 292,500
---------------
538,288
---------------
Media Cable -- 4.5%
550,000 CSC Holdings, Inc., Senior Note,
7.625%, 7/15/2018(e) 563,063
See accompanying notes to financial statements.
24
LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- -----------------------------------------------------------------------------------------------
Media Cable -- continued
$ 175,000 Intelsat Corp.,
6.875%, 1/15/2028 $ 154,000
250,000 NTL Cable PLC,
9.750%, 4/15/2014 (GBP) 482,130
650,000 Rogers Cable, Inc., Senior Note,
5.500%, 3/15/2014 611,000
---------------
1,810,193
---------------
Oil Field Services -- 0.3%
110,000 North American Energy Partners, Inc., Senior Note,
8.750%, 12/01/2011 109,725
---------------
Packaging -- 0.3%
135,000 Owens-Illinois, Inc., Senior Note
7.800%, 5/15/2018 128,250
---------------
Paper -- 5.6%
215,000 Abitibi-Consolidated, Inc.,
7.500%, 4/01/2028 169,850
250,000 Abitibi-Consolidated, Inc.,
8.500%, 8/01/2029 207,500
685,000 Bowater, Inc.,
6.500%, 6/15/2013(e) 607,937
60,000 Domtar, Inc.,
5.375%, 12/01/2013 51,300
75,000 Georgia-Pacific Corp.,
7.250%, 6/01/2028 70,125
155,000 Georgia-Pacific Corp.,
7.375%, 12/01/2025 146,475
370,000 Georgia-Pacific Corp.,
7.750%, 11/15/2029 355,200
170,000 Georgia-Pacific Corp.,
8.000%, 1/15/2024 167,450
430,000 Georgia-Pacific Corp.,
8.875%, 5/15/2031 447,200
10,000 Jefferson Smurfit Corp.,
7.500%, 6/01/2013 9,225
---------------
2,232,262
---------------
Pharmaceuticals -- 8.9%
185,000 Bristol-Myers Squibb Co.,
5.750%, 10/01/2011 188,447
85,000 Elan Capital Corp., Ltd., Convertible,
6.500%, 11/10/2008 181,156
440,000 Elan Finance Corp., Senior Note,
7.750%, 11/15/2011 428,450
425,000 Enzon, Inc., Convertible,
4.500%, 7/01/2008 408,000
127,000 EPIX Pharmaceuticals, Inc., Senior Note, Convertible,
3.000%, 6/15/2024 81,280
45,000 Human Genome Sciences, Inc., Convertible,
2.250%, 8/15/2012 41,513
265,000 Incyte Corp., Convertible,
3.500%, 2/15/2011 201,069
360,000 Inhale Therapeutic Systems, Inc., Subordinated Note, Convertible,
3.500%, 10/17/2007 349,200
202,000 IVAX Corp., Senior Subordinated Note, Convertible,
4.500%, 5/15/2008 202,758
210,000 Merck & Co., Inc.,
4.750%, 3/01/2015 200,439
345,000 Regeneron Pharmaceuticals, Inc., Subordinated Note, Convertible,
5.500%, 10/17/2008 339,825
Principal
Amount+ Description Value (a)
- ---------------------------------------------------------------------------------------
Pharmaceuticals -- continued
$ 190,000 Valeant Pharmaceuticals International, Subordinated Note,
Convertible,
3.000%, 8/16/2010 $ 179,550
450,000 Valeant Pharmaceuticals International, Subordinated Note,
Convertible,
4.000%, 11/15/2013 422,437
139,000 Vertex Pharmaceuticals, Inc., 144A, Convertible,
5.750%, 2/15/2011 314,487
---------------
3,538,611
---------------
Pipelines -- 3.6%
915,000 El Paso Corp,
6.950%, 6/01/2028 860,100
125,000 Kinder Morgan Energy Partners, LP, Senior Note,
5.800%, 3/15/2035 113,715
65,000 Kinder Morgan Finance Co. ULC, Guaranteed Note,
5.700%, 1/05/2016 60,002
415,000 Kinder Morgan Finance Co. ULC, Guaranteed Note,
6.400%, 1/05/2036 371,610
25,000 Kinder Morgan, Inc., Senior Note,
5.150%, 3/01/2015 22,464
---------------
1,427,891
---------------
Retailers -- 2.0%
250,000 Dillard's, Inc.,
6.625%, 1/15/2018 238,125
765,000 Toys R US, Inc.,
7.375%, 10/15/2018 553,669
---------------
791,794
---------------
Sovereigns -- 5.5%
1,190,000 Republic of Argentina,
2.418%, 9/30/2014 (ARS)(d) 392,292
4,420,000 United Mexican States, Series M-10,
8.000%, 12/07/2023 (MXN) 383,865
14,850,000 United Mexican States,
9.000%, 12/20/2012 (MXN) 1,404,091
---------------
2,180,248
---------------
Supermarkets -- 2.7%
720,000 Albertson's, Inc., Senior Note
7.450%, 8/01/2029 666,907
115,000 Albertson's, Inc.,
7.750%, 6/15/2026 109,256
130,000 Albertson's, Inc., Senior Note,
8.000%, 5/01/2031 126,375
25,000 Albertson's, Inc., Senior Note,
8.700%, 5/01/2030 25,207
130,000 Albertson's, Inc., Series C, (MTN),
6.625%, 6/01/2028 111,535
50,000 American Stores Co.,
8.000%, 6/01/2026 50,656
---------------
1,089,936
---------------
Supranational -- 4.8%
6,000,000 Inter-American Development Bank, Series E, (MTN),
Zero Coupon,
5/11/2009 (BRL) 1,917,859
---------------
Technology -- 8.8%
125,000 Amkor Technology, Inc., Senior Note,
7.750%, 5/15/2013 114,688
155,000 Corning, Inc.,
6.850%, 3/01/2029 162,282
See accompanying notes to financial statements.
25
LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- -----------------------------------------------------------------------------------------------
Technology -- continued
$ 250,000 JDS Uniphase Corp.,
Zero Coupon, 11/15/2010 $ 227,187
215,000 Kulicke & Soffa Industries, Inc., Subordinated Note, Convertible,
0.500%, 11/30/2008 187,587
35,000 Kulicke & Soffa Industries, Inc., Convertible,
1.000%, 6/30/2010 32,988
910,000 Lucent Technologies, Inc.,
6.450%, 3/15/2029 809,900
293,000 Maxtor Corp., Subordinated Note,
5.750%, 3/01/2012(f) 269,560
300,000 Nortel Networks Corp., Convertible,
4.250%, 9/01/2008 286,500
425,000 Nortel Networks Corp.,
6.875%, 9/01/2023 350,625
40,000 Northern Telecom Capital Corp.,
7.875%, 6/15/2026 34,800
210,000 Sanmina-SCI Corp.,
8.125%, 3/01/2016 205,800
105,000 Unisys Corp.,
6.875%, 3/15/2010(e) 99,225
145,000 Unisys Corp., Senior Note,
8.000%, 10/15/2012 135,575
596,000 Xerox Corp.,
6.400%, 3/15/2016 593,020
---------------
3,509,737
---------------
Transportation Services -- 2.9%
275,000 American President Cos., Ltd., Senior Note,
8.000%, 1/15/2024(f) 247,500
300,000 Overseas Shipholding Group, Senior Note,
7.500%, 2/15/2024 292,500
295,000 Stena AB, Senior Note,
7.000%, 12/01/2016 278,038
350,000 Stena AB, Senior Note,
7.500%, 11/01/2013 343,875
---------------
1,161,913
---------------
Treasuries -- 2.0%
785,000 U.S. Treasury Note,
4.625%, 9/30/2008 784,080
---------------
Wireless -- 1.2%
435,000 Level 3 Communications, Inc., Convertible,
2.875%, 7/15/2010 438,806
5,000 Level 3 Communications, Inc., Convertible,
6.000%, 3/15/2010(e) 4,394
20,000 Level 3 Communications, Inc., Senior Note,
11.500%, 3/01/2010(e) 20,550
---------------
463,750
---------------
Wirelines -- 6.1%
65,000 Cincinnati Bell Telephone Co.,
6.300%, 12/01/2028(e) 56,225
50,000 Cincinnati Bell, Inc.,
8.375%, 1/15/2014(e) 50,500
95,000 Citizens Communications Co.,
7.000%, 11/01/2025 81,937
375,000 Qwest Capital Funding, Inc., Guaranteed Note,
6.875%, 7/15/2028 335,625
Principal
Amount+ Description Value (a)
- -----------------------------------------------------------------------------------------------
Wirelines -- continued
$ 75,000 Qwest Capital Funding, Inc., Guaranteed Note,
7.000%, 8/03/2009(e) $ 75,375
1,890,000 Qwest Capital Funding, Inc.,
7.750%, 2/15/2031 1,823,850
---------------
2,423,512
---------------
Total Bonds and Notes (Identified Cost $32,696,127) 34,778,463
---------------
Shares
- -----------------------------------------------------------------------------------------------
Preferred Stocks -- 5.4%
Automotive -- 0.1%
1,675 Ford Motor Co. Capital Trust II, Convertible,
6.500%, 1/15/2032 56,263
---------------
Electric -- 2.1%
6,475 AES Trust III, Convertible,
6.750%, 10/15/2029 316,628
8,000 CMS Energy Trust I, Convertible,
7.750%, 7/15/2027 399,000
140,000 NGC Corp. Capital Trust I, Series B, Convertible,
8.316%, 6/01/2027 127,400
---------------
843,028
---------------
Packaging -- 0.6%
6,500 Owens-Illinois, Inc., Convertible,
4.750%, 12/31/2049 227,825
---------------
Pipelines -- 2.0%
9,500 El Paso Energy Capital Trust I, Convertible,
4.750%, 3/31/2028 353,685
4,000 Williams Holdings of Delaware, Convertible,
5.500%, 6/01/2033 450,500
---------------
804,185
---------------
Technology -- 0.6%
225 Lucent Technologies Capital Trust I, Convertible,
7.750%, 3/15/2017 229,922
---------------
Total Preferred Stocks (Identified Cost $1,838,475) 2,161,223
---------------
Shares
- -----------------------------------------------------------------------------------------------
Common Stocks -- 2.2%
Home Construction -- 0.2%
1,775 KB Home(e) 77,745
---------------
Metals & Mining -- 0.1%
1,800 Companhia Vale do Rio Doce, ADR 38,808
---------------
Pharmaceuticals -- 1.9%
6,875 Merck & Co., Inc. 288,062
1,717 Teva Pharmaceutical Industries, Ltd., ADR(e) 58,533
11,998 Vertex Pharmaceuticals, Inc.(c)(e) 403,733
---------------
750,328
---------------
Total Common Stocks (Identified Cost $565,801) 866,881
---------------
Shares
- -----------------------------------------------------------------------------------------------
Closed-End Investment Companies -- 0.1%
3,835 Morgan Stanley Emerging Markets Debt Fund, Inc.(e) 38,772
2,175 High Income Opportunity Fund, Inc. 13,855
---------------
Total Closed-End Investment Companies (Identified Cost $45,444) 52,627
---------------
See accompanying notes to financial statements.
26
LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Shares/
Principal
Amount Description Value (a)
- ----------------------------------------------------------------------------------------------------------
Short-Term Investments -- 17.1%
4,281,021 State Street Securities Lending Quality Trust(g) $ 4,281,021
$ 2,535,361 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/2006 at 3.45% to be repurchased at
$2,536,090 on 10/02/2006, collateralized by $2,625,000 U.S.
Treasury Note, 3.375% due 11/15/2008 valued at $2,622,645,
including accrued interest (Note 2f) 2,535,361
---------------
Total Short-Term Investments (Identified Cost $6,816,382) 6,816,382
---------------
Total Investments -- 112.2%
(Identified Cost $41,962,229)(b) 44,675,576
Other assets less liabilities -- (12.2)% (4,867,483)
---------------
Net Assets -- 100% $ 39,808,093
===============
+ Principal amount is in U.S. dollars unless otherwise noted.
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $41,965,589 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 $ 3,446,702
Aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value (736,715)
---------------
Net unrealized appreciation $ 2,709,987
===============
(c) Non-income producing security.
(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).
(e) All or a portion of this security was on loan to brokers at September 30, 2006.
(f) Illiquid security. At September 30, 2006, the value of these securities amounted to
$517,060 or 1.3% of net assets.
(g) Represents investment of securities lending collateral.
ADR An 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.
MTN Medium Term Note
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, 2006, the total value of these securities
amounted to $2,680,426 or 6.7% of total net assets.
ARS Argentine Peso
BRL Brazilian Real
GBP British Pound
IDR Indonesian Rupiah
KRW South Korean Won
MXN Mexican Peso
NZD New Zealand Dollar
THB Thailand Baht
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited)
Pharmaceuticals 10.8%
Technology 9.4
Automotive 8.6
Wirelines 6.1
Paper 5.6
Pipelines 5.6
Sovereigns 5.5
Supranational 4.8
Media Cable 4.5
Chemicals 4.2
Banking 4.2
Electric 3.4
Home Construction 3.1
Transportation Services 2.9
Supermarkets 2.7
Independent Energy 2.0
Retailers 2.0
Treasuries 2.0
Others, less than 2% each 7.7
See accompanying notes to financial statements.
27
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND
PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------------
Bonds and Notes -- 98.2% of Net Assets
Asset-Backed Securities -- 4.5%
$ 1,035,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3,
4.615%, 2/25/2035 $ 1,001,580
2,200,000 Countrywide Asset-Backed Certificates, Series 2006-S1, Class A2,
5.549%, 8/25/2021 2,196,177
51,852 Residential Asset Mortgage Products, Inc., Series 2003-RZ5, Class
A3, 3.800%, 7/25/2030 51,679
430,382 Residential Funding Mortgage Securities II, Inc., Series 2004-HI3,
Class A3,
3.810%, 8/25/2017 427,840
670,000 Residential Funding Mortgage Securities II, Inc., Series 2004-HI3,
Class A4,
4.630%, 1/25/2020 662,655
660,000 Residential Funding Mortgage Securities II, Inc., Series 2005-HI3,
Class A4,
5.490%, 9/25/2035 653,220
853,476 Residential Funding Mortgage Securities II, Inc., Series 2002-HI5,
Class A7,
5.700%, 1/25/2028 860,366
---------------
5,853,517
---------------
Government Sponsored -- 5.8%
600,000 Fannie Mae,
6.625%, 9/15/2009(d) 627,920
2,935,000 Federal Farm Credit Bank,
2.375%, 10/02/2006 2,935,000
4,200,000 Federal Home Loan Bank,
3.625%, 11/14/2008(d) 4,085,819
---------------
7,648,739
---------------
Hybrid ARMs -- 2.0%
2,014,504 Morgan Stanley Mortgage Loan Trust, Series 2005-3AR, Class 5A,
5.589%, 7/25/2035(c) 1,986,170
630,071 Washington Mutual, Series 2004-AR7, Class A2A,
3.537%, 7/25/2034 626,983
---------------
2,613,153
---------------
Mortgage Backed Securities -- 1.1%
1,400,000 Commercial Mortgage Pass Through Certificates, Series 2006-C7,
Class A4,
5.769%, 6/10/2046(c) 1,450,270
---------------
Mortgage Related -- 65.4%
903,254 FHLMC,
4.500%, 5/01/2034 846,081
12,452,936 FHLMC
5.000%, with various maturities to 2035(e) 12,172,279
2,841,331 FHLMC,
5.500%, 12/01/2034 2,807,621
7,585,000 FHLMC (TBA),
6.000%, 7/01/2016(h) 7,689,294
248,617 FHLMC,
6.000%, 11/01/2019 252,111
13,635,344 FHLMC
6.500%, with various maturities to 2034(e) 13,912,563
296,328 FHLMC,
7.000%, 2/01/2016 303,946
Principal
Amount Description Value (a)
- -------------------------------------------------------------------------------------
Mortgage Related -- continued
$ 57,381 FHLMC
7.500%, with various maturities to 2026(e) $ 59,294
37,285 FHLMC
8.000%, with various maturities to 2015(e) 38,815
6,789 FHLMC,
10.000%, 7/01/2019 7,478
345,816 FHLMC
11.500%, with various maturities to 2020(e) 375,182
15,570,519 FNMA
4.000%, with various maturities to 2019(e) 14,751,869
3,001,495 FNMA
4.500%, with various maturities to 2035(e) 2,846,308
8,035,833 FNMA
5.000%, with various maturities to 2035(e) 7,726,588
4,587,790 FNMA
5.500%, with various maturities to 2034(e) 4,544,031
5,412,375 FNMA
6.000%, with various maturities to 2034(e) 5,483,239
8,556,131 FNMA
6.500%, with various maturities to 2036(e) 8,718,595
307,741 FNMA,
7.000%, 12/01/2022 320,071
764,656 FNMA
7.500%, with various maturities to 2032(e) 791,302
137,156 FNMA
8.000%, with various maturities to 2016(e) 144,082
159,261 GNMA,
6.000%, 12/15/2031 161,444
630,392 GNMA,
6.500%, 5/15/2031 647,850
637,455 GNMA
7.000%, with various maturities to 2029(e) 658,430
32,512 GNMA
9.000%, with various maturities to 2009(e) 33,264
11,737 GNMA,
9.500%, 8/15/2009 12,173
10,787 GNMA
12.500%, with various maturities to 2015(e) 12,018
144,438 GNMA
16.000%, with various maturities to 2012(e) 165,687
73,375 GNMA 17.000%, with various maturities to 2011(e) 85,517
---------------
85,567,132
---------------
Treasuries -- 19.4%
1,290,000 U.S. Treasury Note, 2.500%, 10/31/2006(d) 1,287,481
8,095,000 U.S. Treasury Note, 3.000%, 12/31/2006(g) 8,053,578
1,000,000 U.S. Treasury Note, 3.125%, 10/15/2008(d) 970,000
8,985,000 U.S. Treasury Note, 3.375%, 2/28/2007(g) 8,924,980
1,930,000 U.S. Treasury Note, 6.125%, 8/15/2007(d) 1,948,621
750,000 U.S. Treasury Note, 6.625%, 5/15/2007(d) 757,294
4,000,000 U.S. Treasury STRIPS, Zero Coupon, 11/15/2009 3,469,352
---------------
25,411,306
---------------
Total Bonds and Notes (Identified Cost $129,744,739) 128,544,117
---------------
See accompanying notes to financial statements.
28
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND
PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Shares/
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------------------
Short-Term Investments -- 5.4%
4,765,375 State Street Securities Lending Quality Trust(f) $ 4,765,375
$ 2,280,582 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/2006 at 3.45% to be repurchased at
$2,281,237 on 10/02/2006, collateralized by $2,340,000 U.S.
Treasury Bond, 3.875% due 5/15/2009 valued at $2,365,143
including accrued interest (Note 2f) 2,280,582
---------------
Total Short-Term Investments (Identified Cost $7,045,957) 7,045,957
---------------
Total Investments -- 103.6%
(Identified Cost $136,790,696)(b) 135,590,074
Other assets less liabilities--(3.6)% (4,766,882)
---------------
Net Assets -- 100% $ 130,823,192
===============
(a) See Note 2a of Notes to Financial statements.
(b) Federal Tax Information:
At September 30, 2006, the unrealized depreciation on
investments based on cost of $137,035,116 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 $ 398,459
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (1,843,501)
---------------
Net unrealized depreciation $ (1,445,042)
===============
(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, 2006.
(e) 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 Portfolio of Investments.
(f) Represents investment of securities lending collateral.
(g) All or a portion of this security has been segregated to cover requirements on delayed
delivery obligations.
(h) Delayed delivery security. (Note 2h)
ARM Adjustable Rate Mortgage
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 2h of Notes to Financial Statements)
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited)
Mortgage Related 65.4%
Treasuries 19.4
Government Sponsored 5.8
Asset-Backed Securities 4.5
Hybrid ARMs 2.0
Mortgage Backed Securities 1.1
See accompanying notes to financial statements.
29
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Principal
Amount Description Value (a)
- --------------------------------------------------------------------------------
Tax Exempt Obligations -- 97.3% of Net Assets
Highlands County, FL, Health Facilities
Authority -- 1.5%
$ 1,000,000 Adventis Health System,
5.875%, 11/15/2029 $ 1,091,120
---------------
Marthas Vineyard, MA -- 1.4%
1,000,000 Land Bank Revenue,
5.000%, 5/01/2032 (AMBAC insured) 1,045,520
---------------
Massachusetts -- 6.4%
4,000,000 State Refunding Series A,
6.500%, 11/01/2014 (AMBAC insured) 4,769,360
---------------
Massachusetts Bay Transportation Authority -- 3.8%
2,000,000 Sales Tax Revenue Series C,
5.000%, 7/01/2028 2,150,820
630,000 Series A, Unrefunded,
5.250%, 7/01/2030 661,097
---------------
2,811,917
---------------
Massachusetts Development Finance Agency -- 16.9%
2,000,000 Cambridge Street Development Series A,
5.125%, 2/01/2034 (MBIA insured) 2,102,920
1,450,000 Curry College, Series A,
5.000%, 3/01/2036 (ACA insured) 1,486,033
1,000,000 Hampshire College,
5.625%, 10/01/2024 1,069,280
2,500,000 Mount Holyoke College,
5.250%, 7/01/2031 2,638,025
2,800,000 Springfield Resource Recovery Series A,
5.625%, 6/01/2019 2,934,148
1,100,000 Visual and Performing Arts,
6.000%, 8/01/2021 1,327,656
1,000,000 WGBH Educational Foundation Series A,
5.375%, 1/01/2042 (AMBAC insured) 1,092,840
---------------
12,650,902
---------------
Massachusetts Health & Educational Facilities
Authority -- 35.4%
1,160,000 Baystate Medical Center Series F,
5.700%, 7/01/2027 1,230,261
2,000,000 Boston University,
5.000%, 10/01/2039 (FGIC insured) 2,086,960
2,200,000 Catholic Health East,
5.500%, 11/15/2032 2,335,652
3,000,000 Harvard University Series N,
6.250%, 4/01/2020 3,734,160
2,845,000 Nichols College Series C,
6.000%, 10/01/2017 2,995,785
2,000,000 Partners Healthcare Systems Series B,
5.250%, 7/01/2029 2,079,480
2,500,000 Partners Healthcare Systems Series C,
5.750%, 7/01/2021 2,717,975
1,500,000 Tufts University Series I,
5.250%, 2/15/2030 1,582,935
1,000,000 University of Massachusetts Project Series C,
5.250%, 10/01/2031 (MBIA insured) 1,070,410
2,000,000 University of Massachusetts Series C,
5.125%, 10/01/2034 (FGIC insured) 2,119,920
2,000,000 Wellesley College Series F,
5.125%, 7/01/2039 2,066,740
Principal
Amount Description Value (a)
- ----------------------------------------------------------------------------------------
Massachusetts Health & Educational Facilities
Authority -- continued
$ 1,315,000 Wheaton College Series E,
5.000%, 7/01/2017 $ 1,398,134
1,030,000 Williams College Series H,
5.000%, 7/01/2017 1,102,213
---------------
26,520,625
---------------
Massachusetts Housing Finance Agency -- 0.5%
340,000 Single Family Mortgage Series 21,
7.125%, 6/01/2025 340,993
---------------
Massachusetts Port Authority -- 4.1%
1,750,000 Delta Air Lines, Inc. Project Series A,
5.500%, 1/01/2019 (AMBAC insured) 1,836,782
1,200,000 Series A,
5.000%, 7/01/2033 (MBIA insured) 1,254,348
---------------
3,091,130
---------------
Massachusetts Water Resources Authority -- 6.7%
1,000,000 General Series A,
5.250%, 8/01/2020 (MBIA insured) 1,108,900
3,240,000 Series A,
6.500%, 7/15/2019 (FGIC insured) 3,903,876
---------------
5,012,776
---------------
Michigan Hospital Finance Authority -- 2.2%
1,500,000 Oakwood Obligated Group,
5.500%, 11/01/2017 1,626,825
---------------
New England Education Loan Marketing -- 2.8%
2,000,000 Student Loan Revenue Bond Sub-Issue H,
6.900%, 11/01/2009 2,113,320
---------------
New Jersey Economic Development Authority -- 1.4%
1,000,000 Series A,
5.625%, 6/15/2018 1,041,870
---------------
New Jersey Transportation Trust Fund
Authority -- 1.5%
1,000,000 Series A,
5.500%, 12/15/2023 1,158,010
---------------
Puerto Rico Commonwealth Aqueduct & Sewer
Authority -- 4.5%
3,000,000 Aqueduct & Sewer Authority,
6.250%, 7/01/2013 3,399,000
---------------
Puerto Rico Commonwealth Infrastructure Financing
Authority -- 2.1%
1,500,000 Series B,
5.000%, 7/01/2031 1,557,330
---------------
Puerto Rico Public Finance Corp. -- 4.3%
3,000,000 Commonwealth Appropriation Series A,
5.750%, 8/01/2027(c) 3,232,980
---------------
University of Massachusetts Building Authority -- 1.8%
1,250,000 SR - Series 1,
5.250%, 11/01/2028 (AMBAC insured) 1,376,138
---------------
Total Tax Exempt Obligations (Identified Cost $68,612,972) 72,839,816
---------------
See accompanying notes to financial statements.
30
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount Description Value (a)
- --------------------------------------------------------------------------------------------------
Short-Term Investments -- 3.6%
$ 2,677,532 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/2006 at 3.45% to be repurchased at
$2,678,302 on 10/02/2006, collateralized by $2,180,000 U.S.
Treasury Bond, 6.875% due 8/15/2025 valued at $2,846,490
including accrued interest (Note 2F)
(Identified Cost $2,677,532) $ 2,677,532
---------------
Total Investments -- 100.9%
(Identified Cost $71,290,504)(b) 75,517,348
Other assets less liabilities--(0.9)% (693,949)
---------------
Total Net Assets -- 100% $ 74,823,399
===============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $71,427,894 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 $ 4,121,153
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (31,699)
---------------
Net unrealized appreciation $ 4,089,454
===============
(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).
ACA American Capital Access
AMBAC American Municipal Bond Assurance Corporation
FGIC Financial Guarantee Insurance Company
MBIA Municipal Bond Investors Assurance Corporation
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited)
Colleges & Universities 33.0%
Water & Sewerage 13.3
State Appropriations 12.2
Hospital 11.2
Airport 4.1
Resource Recovery 3.9
Sales Tax 3.8
Pre-Refunded 3.3
Student Loan 2.8
Redevelopment Agency/Urban Renewal 2.8
Hospital-Obligated Group 2.2
Other, less than 2% each 4.7
See accompanying notes to financial statements.
31
LOOMIS SAYLES MUNICIPAL INCOME FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Principal
Amount Description Value (a)
- -------------------------------------------------------------------------------------------
Tax Exempt Obligations -- 98.5% of Net Assets
California -- 8.2%
$ 2,655,000 California Statewide Communities Development Authority
(California Endowment),
5.250%, 7/01/2023 $ 2,873,692
1,000,000 California Health Facilities Financing Authority
(Cedar-Sinai Medical Center),
5.000%, 11/15/2027 1,043,080
1,000,000 California Health Facilities Financing Authority
(California Healthcare West),
4.950%, 7/01/2026 1,049,740
1,500,000 California State,
5.125%, 6/01/2027 1,555,500
1,500,000 California Statewide Communities Development Authority
(Sutter Health), Series A,
5.000%, 11/15/2043 1,552,095
---------------
8,074,107
---------------
Colorado -- 2.5%
2,500,000 Colorado Health Facilities Authority,
5.000%, 12/01/2035 2,514,975
---------------
District of Columbia -- 3.2%
3,000,000 Metropolitan Washington D.C. Airports Authority,
5.125%, 10/01/2029 (FGIC insured) 3,146,220
---------------
Florida -- 2.7%
1,500,000 Highlands County, FL, Health Facilities Authority
(Adventist Health System),
5.375%, 11/15/2035 1,580,940
1,000,000 Jacksonville, FL, Economic Development Community Health Care
Facilities (Mayo Clinic),
5.000%, 11/15/2036 1,045,780
---------------
2,626,720
---------------
Guam -- 1.1%
1,000,000 Guam Government Waterworks Authority,
5.875%, 7/01/2035 1,071,580
---------------
Illinois -- 3.2%
1,000,000 Illinois Educational Facility Authority Revenue,
5.000%, 7/01/2033 1,038,750
2,000,000 Metropolitan Pier & Exposition Authority, IL,
5.250%, 6/15/2042 (MBIA insured) 2,120,040
---------------
3,158,790
---------------
Indiana -- 1.0%
1,000,000 Indiana Health & Educational Facility, Financing Authority
(Clarian Health Obligation), Series A,
5.000%, 2/15/2039 1,032,410
---------------
Louisiana -- 5.2%
4,000,000 DeSoto Parish, LA, Environmental Improvement,
5.000%, 11/01/2018 4,085,120
1,000,000 Ernest N. Morial, New Orleans, LA, Exhibit Hall Authority,
5.000%, 7/15/2033 (AMBAC insured) 1,025,930
---------------
5,111,050
---------------
Massachusetts -- 2.7%
1,500,000 Massachusetts State,
5.000%, 3/01/2019 1,608,375
1,045,000 Massachusetts State Health & Educational Facilities Authority
(Lahey Clinic Medical Center),
4.500%, 8/15/2035 (FGIC insured) 1,031,634
---------------
2,640,009
---------------
Principal
Amount Description Value (a)
- -------------------------------------------------------------------------------------------
Michigan -- 6.0%
$ 1,500,000 Michigan State Hospital Finance Authority
(Henry Ford Health System), Series A,
5.000%, 11/15/2038 $ 1,555,395
1,100,000 Michigan State Hospital Finance Authority
(Oakwood Obligated Group),
5.500%, 11/01/2014 1,198,648
1,000,000 Taylor Brownfield Redevelopment Authority, MI,
5.000%, 5/01/2025 (MBIA insured) 1,058,550
2,000,000 University of Michigan Hospital,
5.250%, 12/01/2020 2,132,920
---------------
5,945,513
---------------
Minnesota -- 3.3%
1,000,000 Chaska Minnesota Electric Revenue,
5.250%, 10/01/2025 1,079,510
2,000,000 Minnesota State Municipal Power Agency,
5.250%, 10/01/2024 2,146,920
---------------
3,226,430
---------------
Mississippi -- 5.5%
2,000,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control,
6.700%, 4/01/2022 2,419,340
2,500,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control,
6.800%, 4/01/2022 3,051,350
---------------
5,470,690
---------------
New Jersey -- 5.5%
1,000,000 New Jersey Economic Development Authority,
5.500%, 6/15/2024 1,052,040
1,000,000 New Jersey Economic Development Authority, Series A,
5.625%, 6/15/2018 1,041,870
1,000,000 New Jersey Health Care Facilities Financing Authority
(Catholic Health East),
5.375%, 11/15/2033 1,057,210
2,000,000 New Jersey Transportation Trust Fund Authority, Series A,
5.500%, 12/15/2023 2,316,020
---------------
5,467,140
---------------
New York -- 17.6%
1,020,000 New York, NY,
6.000%, 1/15/2020 1,146,694
1,400,000 New York, NY, City Health & Hospital Corp.,
5.000%, 2/15/2020 (FSA insured) 1,467,606
1,000,000 New York, NY, City Industrial Development Agency,
5.500%, 1/01/2024 1,079,560
2,000,000 New York, NY, City Municipal Water Finance Authority,
5.000%, 6/15/2025 (MBIA insured) 2,125,940
1,000,000 New York, NY, City Municipal Water Finance Authority,
5.125%, 6/15/2034 (FSA insured) 1,049,990
1,000,000 New York State Dormitory Authority (Rockefeller University),
5.000%, 7/01/2032 1,042,450
2,000,000 New York State Dormitory Authority,
5.500%, 5/15/2013 2,187,280
2,740,000 New York State Dormitory Authority,
5.750%, 7/01/2013 2,978,819
1,000,000 New York State Housing Finance Agency,
5.250%, 9/15/2019 1,089,880
3,000,000 New York State Municipal Bond Bank Agency,
5.250%, 6/01/2020 3,209,910
---------------
17,378,129
---------------
See accompanying notes to financial statements.
32
LOOMIS SAYLES MUNICIPAL INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------
North Carolina -- 1.4%
$ 1,300,000 North Carolina Eastern Municipal Power Agency,
5.500%, 1/01/2012 $ 1,393,847
---------------
Oregon -- 6.0%
1,750,000 Multnomah County, OR, Hospital Facilities Authority
(Providence Health System),
5.250%, 10/01/2012 1,889,685
4,000,000 Western Generation Agency,
7.400%, 1/01/2016(c) 4,011,840
---------------
5,901,525
---------------
Pennsylvania -- 4.5%
4,000,000 Pennsylvania State Industrial Development Authority,
5.500%, 7/01/2019 (AMBAC insured) 4,395,000
---------------
Puerto Rico -- 3.3%
1,000,000 Puerto Rico Commonwealth Infrastructure Financing Authority,
5.500%, 10/01/2040 1,074,480
2,000,000 Puerto Rico Public Finance Corp., Commonwealth Appropriation
Series A, 5.750%, 8/01/2027(d) 2,155,320
---------------
3,229,800
---------------
South Carolina -- 3.3%
1,100,000 Charleston Educational Excellence Finance Corp.,
5.250%, 12/01/2030 1,173,205
1,155,000 Lexington One School Facilities Corp.,
5.000%, 12/01/2026 1,214,113
800,000 Newberry Investing in Children's Education
(Newberry County School District),
5.250%, 12/01/2022 843,352
---------------
3,230,670
---------------
South Dakota -- 1.3%
1,250,000 South Dakota Health & Educational Facilities Authority
(Sioux Valley Hospital),
5.250%, 11/01/2027 1,320,638
---------------
Tennessee -- 4.4%
2,500,000 Tennessee Energy Acquisition Corp., Gas Revenue, Series A,
5.250%, 9/01/2026 2,804,675
1,500,000 Tennessee Housing Development Agency, Series A,
5.200%, 7/01/2023 1,572,360
---------------
4,377,035
---------------
Texas -- 4.3%
2,000,000 Dallas-Fort Worth, TX, International Airport,
5.500%, 11/01/2033 (MBIA insured) 2,142,480
1,000,000 Katy, TX, Independent School District,
5.125%, 2/15/2020 1,056,250
1,000,000 Lewisville, TX, Independent School District,
5.250%, 8/15/2027 1,048,310
---------------
4,247,040
---------------
Washington -- 2.3%
2,000,000 Energy Northwest, WA, Electric, Project No.
1, 5.500%, 7/01/2014 2,227,480
---------------
Total Tax Exempt Obligations (Identified Cost $93,378,364) 97,186,798
---------------
Principal
Amount Description Value (a)
- ------------------------------------------------------------------------------------------------------
Short-Term Investments -- 0.3%
$ 271,524 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 09/29/2006 at 3.45% to be repurchased at
$271,602 on 10/02/2006, collateralized by $285,000 U.S.
Treasury Note, 3.375% due 11/15/2008 valued at $285,122,
including accrued interest (Note 2f)
(Identified Cost $271,524) $ 271,524
---------------
Total Investments -- 98.8%
(Identified Cost $93,649,888)(b) 97,458,322
Other assets less liabilities--1.2% 1,177,525
---------------
Net Assets -- 100% $ 98,635,847
===============
(a) See Note 2a of Notes to Financial Statements.
(b) Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $93,754,016 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over of tax cost $ 3,798,375
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (94,069)
---------------
Net unrealized appreciation $ 3,704,306
===============
(c) Illiquid security. At September 30, 2006, the value of this security amounted to
$4,011,840 or 4.1% 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 Corp.
FGIC Financial Guarantee Insurance Company
MBIA Municipal Bond Investors Assurance Corp.
FSA Financial Security Assurance, Inc.
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited)
Corporate Backed/Industrial Revenue/Pollution
Control 14.1%
Hospital Obligated Group 10.8
Hospital 8.4
Colleges & Universities 7.4
Electric 6.9
Special Tax 6.4
Airport 5.4
State Appropriation 4.5
Lease 4.4
Water & Sewerage 4.3
Resource Recovery 4.1
Bond Bank/Pooled Loan Program 3.3
State General Obligation 3.2
Non-Profit 2.9
Gas 2.8
Senior Living 2.6
City & Town 2.2
School District 2.1
Other, less than 2% each 2.7
See accompanying notes to financial statements.
33
LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ----------------------------------------------------------------------------------
Bonds and Notes -- 87.5% of Net Assets
Convertible Bonds -- 4.9%
Canada -- 0.2%
$ 8,499,000 Nortel Networks Corp., Guaranteed Senior Note,
4.250%, 9/01/2008 $ 8,116,545
---------------
Ireland -- 0.1%
2,045,000 Elan Capital Corp., Ltd.,
6.500%, 11/10/2008 4,358,406
---------------
United States -- 4.6%
7,809,000 Amkor Technology, Inc.,
5.000%, 3/15/2007(c) 7,340,460
11,820,000 Avnet, Inc.,
2.000%, 3/15/2034 11,258,550
32,815,000 Bristol-Myers Squibb Co.,
4.890%, 9/15/2023(d) 32,874,067
200,000 Builders Transport, Inc., Subordinated Note,
6.500%, 5/01/2011(g) --
1,000,000 Builders Transport, Inc., Subordinated Note,
8.000%, 8/15/2005(g) --
750,000 Ciena Corp.,
3.750%, 2/01/2008 723,750
2,000,000 CONMED Corp.,
2.500%, 11/15/2024 1,732,500
157,000 Dixie Group, Inc., Subordinated Note,
7.000%, 5/15/2012 148,954
14,933,000 Enzon, Inc.,
4.500%, 7/01/2008 14,335,680
5,111,000 EPIX Pharmaceuticals, Inc., Senior Note,
3.000%, 6/15/2024 3,271,040
6,060,000 Human Genome Sciences, Inc.,
2.250%, 8/15/2012 5,590,350
16,305,000 Incyte Corp.,
3.500%, 2/15/2011 12,371,419
4,865,000 Inhale Therapeutic Systems, Inc., Subordinated Note,
3.500%, 10/17/2007 4,719,050
3,780,000 Invitrogen Corp.,
1.500%, 2/15/2024 3,279,150
2,360,000 IVAX Corp., Senior Subordinated Note,
4.500%, 5/15/2008 2,368,850
5,355,000 Kellwood Co.,
3.500%, 6/15/2034 4,792,725
3,540,000 Kulicke & Soffa Industries, Inc.,
1.000%, 6/30/2010 3,336,450
5,810,000 Kulicke & Soffa Industries, Inc., Subordinated Note,
0.500%, 11/30/2008 5,069,225
12,100,000 Level 3 Communications, Inc.,
6.000%, 9/15/2009 10,874,875
1,085,000 Level 3 Communications, Inc.,
6.000%, 3/15/2010(c) 953,444
2,335,000 Liberty Media Corp.,
3.500%, 1/15/2031 2,577,256
5,050,000 Maxtor Corp., Subordinated Note,
5.750%, 3/01/2012(b) 4,646,000
5,925,000 Nektar Therapeutics,
3.250%, 9/28/2012 5,791,687
625,000 Nextel Communications, Inc., Senior Note,
5.250%, 1/15/2010 614,844
500,000 Preston Corp., Subordinated Note,
7.000%, 5/01/2011 460,000
20,000,000 Regeneron Pharmaceuticals, Inc., Subordinated Note,
5.500%, 10/17/2008 19,700,000
Principal
Amount+ Description Value (a)
- ---------------------------------------------------------------------------------------
United States -- continued
$ 311,000 Richardson Electronics, Ltd., 144A,
7.750%, 12/15/2011 $ 280,678
1,950,000 SCI Systems, Inc., Subordinated Note,
3.000%, 3/15/2007 1,911,000
7,716,000 Sinclair Broadcast Group, Inc.,
(step to 2.000% on 1/15/2011),
4.875%, 7/15/2018(i) 6,857,595
19,005,000 Valeant Pharmaceuticals International, Subordinated Note,
3.000%, 8/16/2010 17,959,725
19,430,000 Valeant Pharmaceuticals International,
Subordinated Note,
4.000%, 11/15/2013(c) 18,239,912
2,349,000 Vertex Pharmaceuticals, Inc., 144A,
5.750%, 2/15/2011 5,314,613
23,130,000 Wells Fargo & Co.,
5.239%, 5/01/2033(d) 23,368,239
---------------
232,762,088
---------------
Total Convertible Bonds (Identified Cost $234,655,326) 245,237,039
---------------
Non-Convertible Bonds -- 82.6%
Argentina -- 0.5%
2,405,000 Pecom Energia SA, 144A,
8.125%, 7/15/2010 2,501,200
3,603,539 Republic of Argentina,
Zero Coupon, 12/15/2035(d) 358,192
40,415,000 Republic of Argentina,
2.418%, 9/30/2014, (ARS)(d) 13,326,318
10,390,625 Republic of Argentina,
5.590%, 8/03/2012(d) 8,226,087
1,351,006 Republic of Argentina,
8.280%, 12/31/2033(c)(f) 1,300,343
---------------
25,712,140
---------------
Australia -- 0.0%
1,000,000 General Motors Acceptance Corp. of Australia, Ltd.,
6.500%, 8/10/2007, (AUD) 720,589
---------------
Brazil -- 3.3%
92,000,000 JPMorgan Chase Bank, 144A,
Zero Coupon, 5/17/2010, (BRL) 26,626,390
17,907,000 Republic of Brazil,
8.250%, 1/20/2034(c) 20,593,050
6,000,000 Republic of Brazil,
8.875%, 4/15/2024 7,215,000
107,840,000 Republic of Brazil,
12.500%, 1/05/2022, (BRL) 48,707,295
140,235,000 Republic of Brazil,
12.500%, 1/05/2016, (BRL)(c) 64,738,482
---------------
167,880,217
---------------
Canada -- 14.7%
250,000 Abitibi-Consolidated, Inc.,
6.000%, 6/20/2013 203,125
2,060,000 Abitibi-Consolidated, Inc.,
7.400%, 4/01/2018 1,689,200
7,375,000 Abitibi-Consolidated, Inc.,
7.500%, 4/01/2028 5,826,250
1,650,000 Alcan, Inc.,
5.750%, 6/01/2035 1,563,562
750,000 Avenor, Inc.,
10.850%, 11/30/2014, (CAD) 707,895
See accompanying notes to financial statements.
34
LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ----------------------------------------------------------------------------------------
Canada -- continued
$ 2,445,000 Bombardier, Inc.,
7.350%, 12/22/2026, (CAD) $ 1,985,093
11,600,000 Bombardier, Inc., 144A,
7.450%, 5/01/2034 9,990,500
361,535,000 Canadian Government,
2.750%, 12/01/2007, (CAD) 318,920,608
70,540,000 Canadian Government,
4.250%, 9/01/2008, (CAD)(c) 63,481,267
10,555,000 Canadian Government,
4.250%, 9/01/2009, (CAD) 9,531,748
111,010,000 Canadian Government,
4.500%, 9/01/2007, (CAD)(c) 99,702,920
24,200,000 Canadian Government,
6.000%, 6/01/2008, (CAD)(c) 22,356,448
7,955,000 Domtar, Inc.,
5.375%, 12/01/2013 6,801,525
945,000 GMAC Canada, Ltd.,
7.750%, 9/26/2008, (NZD) 569,744
335,000 GMAC Canada, Ltd., Series E., (MTN),
6.625%, 12/17/2010, (GBP) 613,909
9,790,000 Kinder Morgan Finance Co. ULC, Guaranteed Note,
5.700%, 1/05/2016 9,037,306
22,350,000 Kinder Morgan Finance Co. ULC, Guaranteed Note,
6.400%, 1/05/2036 20,013,218
6,840,000 Nortel Networks Corp.,
6.875%, 9/01/2023 5,643,000
22,320,000 Nortel Networks, Ltd., 144A,
10.125%, 7/15/2013 23,547,600
14,010,000 North American Energy Partners, Inc., Senior Note,
8.750%, 12/01/2011 13,974,975
5,800,000 Northern Telecom Capital Corp.,
7.875%, 6/15/2026 5,046,000
5,990,000 Province of British Columbia,
5.250%, 12/01/2006, (CAD) 5,367,340
29,235,000 Province of British Columbia,
6.000%, 6/09/2008, (CAD) 26,957,926
13,000,000 Province of Manitoba,
4.450%, 12/01/2008, (CAD) 11,724,017
6,685,000 Province of Manitoba,
5.750%, 6/02/2008, (CAD) 6,139,494
6,745,000 Province of Ontario,
3.875%, 3/08/2008, (CAD) 6,013,927
40,020,000 Province of Ontario,
5.700%, 12/01/2008, (CAD) 37,018,545
18,470,000 Province of Saskatchewan,
5.500%, 6/02/2008, (CAD) 16,896,725
8,500,000 Rogers Wireless Communications, Inc., Senior Note,
7.625%, 12/15/2011, (CAD) 8,231,939
2,525,000 Rogers Wireless Communications, Inc., Senior Secured Note,
6.375%, 3/01/2014 2,515,531
---------------
742,071,337
---------------
Cayman Islands -- 0.0%
1,000,000 Enersis SA, Cayman Island,
7.400%, 12/01/2016 1,071,954
---------------
Chile -- 0.3%
4,875,000 Empresa Nacional de Electricidad SA, Chile,
7.875%, 2/01/2027 5,403,294
250,000 Empresa Nacional de Electricidad SA, Chile,
8.350%, 8/01/2013(c) 280,498
Principal
Amount+ Description Value (a)
- ---------------------------------------------------------------------------------------
Chile -- continued
$ 1,700,000 Empresa Nacional de Electricidad SA, Chile,
8.625%, 8/01/2015(c) $ 1,968,834
4,525,000 Enersis SA, Chile,
7.375%, 1/15/2014(c) 4,809,555
---------------
12,462,181
---------------
France -- 0.3%
224,520,000,000 BNP Paribas SA, 144A,
Zero Coupon, 6/13/2011, (IDR) 15,574,630
---------------
Ireland -- 0.6%
32,115,000 Elan Finance Corp., Senior Note,
7.750%, 11/15/2011 31,271,981
---------------
Mexico -- 3.5%
5,850,000 Desarrolladora Homex SA de CV,
7.500%, 9/28/2015 5,733,000
473,800,000 United Mexican States,
9.000%, 12/20/2012, (MXN) 44,798,536
324,500,000 United Mexican States, Series M-10,
8.000%, 12/17/2015, (MXN) 28,961,197
1,138,400,000 United Mexican States, Series M-10,
8.000%, 12/07/2023, (MXN) 98,867,047
---------------
178,359,780
---------------
Netherlands -- 0.1%
1,330,000 GMAC International Finance BV,
8.000%, 3/14/2007, (NZD) 862,580
1,120,000 Koninklijke (Royal) KPN NV, Series E, (MTN),
5.750%, 3/18/2016, (GBP) 2,074,452
1,800,000 Koninklijke (Royal) KPN NV, Series G (MTN),
4.000%, 6/22/2015, (EUR) 2,134,269
---------------
5,071,301
---------------
Norway -- 0.1%
22,740,000 Kingdom of Norway,
6.750%, 1/15/2007, (NOK) 3,514,286
10,000,000 Kingdom of Norway,
5.500%, 5/15/2009, (NOK) 1,590,457
---------------
5,104,743
---------------
Philippines -- 0.1%
3,700,000 Philippine Long Distance Telephone Co., (MTN),
8.350%, 3/06/2017(c) 4,042,250
1,784,500 Quezon Power (Philippines), Ltd., Senior Secured Note,
8.860%, 6/15/2017 1,793,422
---------------
5,835,672
---------------
Republic of Korea -- 0.2%
5,470,000 Hanarotelecom, Inc., 144A,
7.000%, 2/01/2012 5,374,275
5,000,000 Hynix Semiconductor, Inc., 144A,
9.875%, 7/01/2012(c) 5,450,000
300,000 Samsung Electronics Co., Ltd., 144A,
7.700%, 10/01/2027 322,022
---------------
11,146,297
---------------
Singapore -- 0.0%
1,050,000 SP PowerAssets, Ltd., Series E, (MTN),
3.730%, 10/22/2010, (SGD) 666,773
---------------
South Africa -- 1.0%
11,405,000 Republic of South Africa,
12.500%, 12/21/2006, (ZAR) 1,474,835
See accompanying notes to financial statements.
35
LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ---------------------------------------------------------------------------------
South Africa -- continued
$ 320,500,000 Republic of South Africa, Series R153,
13.000%, 8/31/2010, (ZAR) $ 47,000,494
---------------
48,475,329
Spain -- 2.4%
113,785,000 Telefonica Emisiones SAU, Guaranteed Note,
7.045%, 6/20/2036 120,080,383
---------------
Supranational -- 1.9%
15,543,570 European Investment Bank, 144A,
Zero Coupon, 9/12/2008, (BRL) 5,565,725
128,250,000 European Investment Bank, Senior Note,
Zero Coupon, 3/10/2021, (AUD) 42,580,210
24,450,000 Inter-American Development Bank,
6.000%, 12/15/2017, (NZD) 15,516,317
80,000,000 Inter-American Development Bank, Series E, (MTN),
Zero Coupon, 5/11/2009, (BRL) 25,571,448
12,125,000 Inter-American Development Bank, Series G, (MTN),
6.250%, 6/22/2016, (NZD) 7,826,287
---------------
97,059,987
---------------
Sweden -- 0.6%
207,265,000 Kingdom of Sweden,
6.500%, 5/05/2008, (SEK) 29,641,003
---------------
United Kingdom -- 0.3%
72,717,436,000 JPMorgan Chase Bank, 144A,
Zero Coupon, 10/21/2010, (IDR) 5,347,881
1,000,000 NTL Cable PLC,
9.125%, 8/15/2016 1,032,500
4,570,000 NTL Cable PLC,
9.750%, 4/15/2014, (GBP) 8,813,341
---------------
15,193,722
---------------
United States -- 52.0%
5,565,000 AES Corp. (The),
8.375%, 3/01/2011, (GBP) 10,628,024
4,020,000 AES Corp. (The), Senior Note,
7.750%, 3/01/2014 4,180,800
1,190,000 Affiliated Computer Services, Inc.,
5.200%, 6/01/2015 1,097,775
15,475,000 Albertson's, Inc.,
7.750%, 6/15/2026 14,702,008
56,921,000 Albertson's, Inc., Senior Note,
7.450%, 8/01/2029 52,723,645
4,895,000 Albertson's, Inc., Senior Note,
8.000%, 5/01/2031 4,758,493
1,510,000 Albertson's, Inc., Senior Note,
8.700%, 5/01/2030 1,522,528
9,917,000 Albertson's, Inc., Series C, (MTN),
6.625%, 6/01/2028 8,508,399
4,785,000 Allstate Corp.,
5.950%, 4/01/2036(c) 4,781,545
1,750,000 Altria Group, Inc.,
7.000%, 11/04/2013 1,908,067
825,000 American Airlines, Inc., Series 1999-1, Class B,
7.324%, 10/15/2009 804,375
1,225,697 American Airlines, Inc., Series 93A6,
8.040%, 9/16/2011 1,188,926
10,103,000 American President Cos., Ltd., Senior Note,
8.000%, 1/15/2024(b) 9,092,700
6,950,000 Amkor Technology, Inc., Senior Note,
7.125%, 3/15/2011(c) 6,394,000
Principal
Amount+ Description Value (a)
- ---------------------------------------------------------------------------------
United States -- continued
$ 475,000 Amkor Technology, Inc., Senior Note,
7.750%, 5/15/2013 $ 435,813
1,511,000 Amkor Technology, Inc., Senior Subordinated Note,
10.500%, 5/01/2009 1,518,555
37,190,000 Anadarko Petroleum Corp.,
5.950%, 9/15/2016 37,634,346
27,460,000 Anadarko Petroleum Corp.,
6.450%, 9/15/2036 28,048,440
1,015,000 Arrow Electronics, Inc.,
6.875%, 6/01/2018 1,037,332
8,000,000 ASIF Global Financing, 144A,
2.380%, 2/26/2009, (SGD) 4,896,358
8,500,000 AT&T, Inc.,
6.150%, 9/15/2034(c) 8,228,961
17,574,841 Atlas Air, Inc., Series 1998-1, Class 1B,
7.680%, 1/02/2014(h) 18,453,583
1,078,922 Atlas Air, Inc., Series 1999-1, Class A1,
7.200%, 1/02/2019 1,070,830
376,285 Atlas Air, Inc., Series 1999-1, Class A2,
6.880%, 7/02/2009 364,996
12,740,207 Atlas Air, Inc., Series 1999-1, Class B,
7.630%, 1/02/2015(h) 13,249,815
3,745,702 Atlas Air, Inc., Series 1999-1, Class C,
8.770%, 1/02/2011(h) 3,240,032
5,323,737 Atlas Air, Inc., Series 2000-1, Class B,
9.057%, 1/02/2014(h) 5,909,348
4,050,532 Atlas Air, Inc., Series C,
8.010%, 1/02/2010(h) 3,260,678
23,105,000 Avnet, Inc.,
6.000%, 9/01/2015 22,544,288
5,220,000 Avnet, Inc.,
6.625%, 9/15/2016 5,312,796
22,125,000 BAC Capital Trust VI,
5.625%, 3/08/2035 20,516,866
17,310,000,000 Barclays Financial LLC, 144A,
4.060%, 9/16/2010, (KRW) 18,156,063
529,000,000 Barclays Financial LLC, 144A,
4.100%, 3/22/2010, (THB) 13,422,363
1,006,000,000 Barclays Financial LLC, 144A,
4.160%, 2/22/2010, (THB) 25,601,381
21,340,000,000 Barclays Financial LLC, 144A,
4.460%, 9/23/2010, (KRW) 22,608,560
337,000,000 Barclays Financial LLC, 144A,
5.500%, 11/01/2010, (THB) 8,931,823
15,195,000 BellSouth Corp.,
6.000%, 11/15/2034(c) 14,262,984
19,671,000 Borden, Inc.,
7.875%, 2/15/2023 16,130,220
6,560,000 Borden, Inc.,
8.375%, 4/15/2016 5,904,000
8,372,000 Borden, Inc.,
9.200%, 3/15/2021 7,785,960
2,685,000 Bowater, Inc.,
6.500%, 6/15/2013(c) 2,382,938
2,840,000 Centex Corp.,
5.250%, 6/15/2015(c) 2,653,193
17,740,000 Chesapeake Energy Corp.,
6.500%, 8/15/2017 16,631,250
425,000 Cincinnati Bell, Inc.,
8.375%, 1/15/2014 429,250
See accompanying notes to financial statements.
36
LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ----------------------------------------------------------------------------------
United States -- continued
$ 3,055,000 CIT Group, Inc.,
6.000%, 4/01/2036 $ 2,974,699
2,500,000 CIT Group, Inc., Series E, Senior Note,
(MTN), 5.500%, 12/01/2014, (GBP) 4,666,464
18,650,000 Citibank NA, 144A,
15.000%, 7/02/2010, (BRL) 9,319,939
1,675,000 Colorado Interstate Gas Co.,
5.950%, 3/15/2015 1,601,838
38,780,000 Comcast Corp.,
5.650%, 6/15/2035 35,183,543
34,570,000 Comcast Corp.,
6.450%, 3/15/2037 34,586,697
20,175,000 Comcast Corp.,
6.500%, 11/15/2035 20,315,519
3,910,660 Continental Airlines, Inc., Series 1997-4, Class 4B,
6.900%, 1/02/2017 3,750,099
2,744,779 Continental Airlines, Inc., Series 1998-1, Class 1B,
6.748%, 3/15/2017 2,676,160
7,594,570 Continental Airlines, Inc., Series 1999-1, Class B,
6.795%, 8/02/2018 7,389,924
2,830,444 Continental Airlines, Inc., Series 1999-1, Class C,
6.954%, 8/02/2009 2,710,150
4,496,470 Continental Airlines, Inc., Series 1999-2, Class B,
7.566%, 3/15/2020 4,485,229
7,841,002 Continental Airlines, Inc., Series 2000-2, Class B,
8.307%, 4/02/2018 7,605,772
3,031,961 Continental Airlines, Inc., Series 2001-1, Class B,
7.373%, 12/15/2015 3,001,642
349,193 Continental Airlines, Inc., Series 96-A,
6.940%, 10/15/2013 348,924
2,886,433 Continental Airlines, Inc., Series 971A,
7.461%, 4/01/2015 2,886,433
6,225,000 Corning, Inc.,
5.900%, 3/15/2014(c) 6,348,921
6,220,000 Corning, Inc.,
6.200%, 3/15/2016 6,362,450
650,000 Corning, Inc.,
6.750%, 9/15/2013 694,862
1,000,000 Corning, Inc.,
6.850%, 3/01/2029 1,046,981
2,810,000 Corning, Inc.,
7.250%, 8/15/2036 2,992,737
400,000 CSC Holdings, Inc., Senior Note,
7.875%, 2/15/2018 415,000
250,000 CSC Holdings, Inc., Series B, Senior Note,
8.125%, 7/15/2009 258,750
250,000 CSC Holdings, Inc., Series B, Senior Note,
8.125%, 8/15/2009 259,063
2,145,000 Cummins, Inc.,
7.125%, 3/01/2028 2,195,959
8,558,000 Dillard's, Inc.,
6.625%, 1/15/2018(c) 8,151,495
1,685,000 Dillard's, Inc.,
7.130%, 8/01/2018 1,651,300
1,500,000 Dillard's, Inc.,
7.750%, 7/15/2026 1,443,750
425,000 Dillard's, Inc.,
7.875%, 1/01/2023 418,625
3,125,000 Dillard's, Inc., Class A,
7.000%, 12/01/2028 2,855,469
Principal
Amount+ Description Value (a)
- ------------------------------------------------------------------------------
United States -- continued
$ 8,180,000 Dominion Resources, Inc., Senior Note, Series B,
5.950%, 6/15/2035 $ 7,942,723
4,335,000 DR Horton, Inc.,
5.625%, 9/15/2014 4,087,068
1,625,000 DR Horton, Inc.,
6.500%, 4/15/2016 1,594,502
16,160,000 DR Horton, Inc., Guaranteed Note,
5.625%, 1/15/2016 15,014,078
31,875,000 DR Horton, Inc., Senior Note,
5.250%, 2/15/2015 29,101,811
9,830,000 Dynegy Holdings, Inc.,
7.125%, 5/15/2018 8,994,450
7,735,000 Dynegy Holdings, Inc.,
7.625%, 10/15/2026 7,058,188
7,455,000 Dynegy Holdings, Inc.,
8.375%, 5/01/2016(c) 7,585,463
3,705,000 Edison Mission Energy Corp., Senior Note,
7.730%, 6/15/2009 3,806,888
260,000 El Paso Corp,
6.375%, 2/01/2009 259,350
14,705,000 El Paso Corp.,
6.95%, 6/01/2028 13,822,700
1,965,000 El Paso Corp.,
7.000%, 5/15/2011 1,977,281
925,000 El Paso Corp.,
7.750%, 6/15/2010 957,375
750,000 El Paso Corp., Senior Note, (MTN),
7.800%, 8/01/2031(c) 768,750
1,600,000 El Paso Energy Corp.,
6.750%, 5/15/2009(c) 1,608,000
1,000,000 El Paso Energy Corp.,
(MTN), 7.750%, 1/15/2032(c) 1,025,000
5,330,000 Embarq Corp.,
7.995%, 6/01/2036 5,643,953
5,000,000 FHLMC,
3.220%, 6/20/2007, (SGD) 3,138,045
29,200,000 FNMA,
2.290%, 2/19/2009, (SGD) 17,879,335
17,816,000 Ford Motor Co.,
6.375%, 2/01/2029(c) 13,027,950
31,929,000 Ford Motor Co.,
6.625%, 10/01/2028(c) 23,827,016
26,070,000 Ford Motor Credit Co.,
5.700%, 1/15/2010 24,084,691
10,685,000 Ford Motor Credit Co.,
7.000%, 10/01/2013(c) 9,913,949
15,465,000 Ford Motor Credit Co.,
7.250%, 10/25/2011 14,584,670
9,905,000 Ford Motor Credit Co.,
8.625%, 11/01/2010 9,867,272
3,100,000 General Electric Capital Corp.,
6.125%, 5/17/2012, (GBP) 6,046,314
30,350,000 General Electric Capital Corp.,
6.625%, 2/04/2010, (NZD) 19,522,878
36,745,000 General Electric Capital Corp.,
6.750%, 9/26/2016, (NZD) 24,159,240
222,777,000 General Electric Capital Corp.,
6.500%, 9/28/2015, (NZD) 142,146,473
500,000 General Electric Capital Corp., Series E,
(MTN), 1.725%, 6/27/2008, (SGD) 305,318
See accompanying notes to financial statements.
37
LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ----------------------------------------------------------------------------------------
United States -- continued
$ 10,375,000 Georgia-Pacific Corp.,
7.250%, 6/01/2028 $ 9,700,625
1,845,000 Georgia Gulf Corp., 144A,
10.750%, 10/15/2016 1,817,325
10,040,000 Georgia-Pacific Corp.,
7.375%, 12/01/2025 9,487,800
38,410,000 Georgia-Pacific Corp.,
7.750%, 11/15/2029 36,873,600
6,840,000 Georgia-Pacific Corp.,
8.000%, 1/15/2024 6,737,400
11,455,000 Georgia-Pacific Corp.,
8.875%, 5/15/2031 11,913,200
8,000,000 GMAC LLC,
6.243%, 3/20/2007(d) 7,972,992
6,625,000 GMAC LLC,
6.457%, 7/16/2007(d) 6,587,774
820,000 GMAC LLC,
8.000%, 11/01/2031 857,376
4,650,000 GMAC LLC, (MTN),
6.750%, 12/01/2014(c) 4,539,586
5,321,000 GMAC LLC, Series E, (MTN),
7.500%, 12/01/2006, (NZD) 3,453,388
4,085,000 Goodyear Tire & Rubber Co.,
7.000%, 3/15/2028 3,421,188
1,845,000 Goodyear Tire & Rubber Co.,
9.000%, 7/01/2015(c) 1,872,675
2,590,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note,
7.750%, 12/15/2013 2,408,700
5,790,000 GTE Corp.,
6.940%, 4/15/2028 5,996,767
185,000 Hawaiian Telcom Communications, Inc.,
12.500%, 5/01/2015(c) 194,250
1,000,000 HCA, Inc., Senior Note,
5.750%, 3/15/2014 785,000
2,740,000 HCA, Inc.,
6.500%, 2/15/2016 2,192,000
12,525,000 HCA, Inc.,
7.050%, 12/01/2027 8,988,128
7,642,000 HCA, Inc.,
7.500%, 12/15/2023 5,925,614
12,355,000 HCA, Inc.,
7.500%, 11/06/2033 9,636,900
5,820,000 HCA, Inc., (MTN),
7.580%, 9/15/2025 4,485,777
15,847,000 HCA, Inc.,
7.690%, 6/15/2025 12,370,659
3,685,000 HCA, Inc., (MTN),
7.750%, 7/15/2036 2,854,069
7,885,000 Hercules, Inc., Subordinated Note,
6.500%, 6/30/2029 6,357,281
16,050,000 HSBC Bank USA, 144A,
3.310%, 8/25/2010 16,165,560
4,215,000 IMC Global, Inc.,
7.300%, 1/15/2028 3,667,050
2,570,000 IMC Global, Inc.,
7.375%, 8/01/2018 2,361,188
640,000 JC Penney Co., Inc.,
7.125%, 11/15/2023(c) 708,301
2,865,000 Jefferson Smurfit Corp.,
7.500%, 6/01/2013 2,642,963
Principal
Amount+ Description Value (a)
- ---------------------------------------------------------------------------------------
United States -- continued
$709,038,100,000 JPMorgan Chase & Co., 144A
Zero Coupon, 3/28/2011, (IDR) $ 50,105,205
2,545,000 K. Hovnanian Enterprises, Inc., Guaranteed Note,
6.375%, 12/15/2014(c) 2,277,775
6,180,000 K. Hovnanian Enterprises, Inc.,
7.500%, 5/15/2016(c) 5,770,575
6,440,000 K. Hovnanian Enterprises, Inc., Senior Note,
6.250%, 1/15/2016(c) 5,667,200
1,630,000 K. Hovnanian Enterprises, Inc., Senior Note,
6.500%, 1/15/2014 1,491,450
765,000 K N Capital Trust III,
7.630%, 4/15/2028 716,396
4,300,000 K N Energy, Inc.,
6.670%, 11/01/2027 3,876,080
10,975,000 KB Home,
7.250%, 6/15/2018 10,521,173
7,515,000 Kellwood Co.,
7.625%, 10/15/2017 6,982,607
11,288,000 Kinder Morgan, Inc., Senior Note,
5.150%, 3/01/2015 10,142,742
1,650,000 Koppers Holdings, Inc, (step to 9.875% on 11/15/2009),
0.000%, 11/15/2014(i) 1,212,750
22,525,000 Lennar Corp., 144A,
6.500%, 4/15/2016 22,646,545
1,600,000 Lennar Corp., Series B, Class A, Guaranteed Note,
5.600%, 5/31/2015 1,521,595
30,795,000 Level 3 Communications, Inc.,
2.875%, 7/15/2010 31,064,456
380,000 Level 3 Communications, Inc., Senior Note,
11.500%, 3/01/2010(c) 390,450
22,100,000 Lucent Technologies, Inc.,
6.450%, 3/15/2029 19,669,000
1,105,000 Lucent Technologies, Inc.,
6.500%, 1/15/2028 983,450
8,310,000 Lyondell Chemical Co.,
8.000%, 9/15/2014 8,413,875
1,250,000 McDonalds Corp., Series E, (MTN),
3.628%, 10/10/2010, (SGD) 786,483
4,185,000 Methanex Corp., Senior Note,
6.000%, 8/15/2015 4,006,485
13,405,000 Michigan Tobacco Settlement Finance Authority,
Taxable Turbo Series A,
7.309%, 6/01/2034 13,867,204
1,000,000 Midamerican Energy Holdings Co., 144A,
6.125%, 4/01/2036 1,010,803
1,153,000 Missouri Pacific Railroad Co.,
5.000%, 1/01/2045 923,159
2,730,000 Nektar Therapeutics, 144A,
3.250%, 9/28/2012 2,668,575
28,790,000 NGC Corp. Capital Trust I, Series B,
8.316%, 6/01/2027 26,198,900
3,346,000 New England Telephone & Telegraph Co.,
7.875%, 11/15/2029 3,631,584
2,500,000 NRG Energy, Inc.,
7.250%, 2/01/2014 2,481,250
5,000,000 NRG Energy, Inc.,
7.375%, 2/01/2016 4,968,750
2,275,000 Owens & Minor, Inc.,
6.350%, 4/15/2016 2,294,331
See accompanying notes to financial statements.
38
LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount+ Description Value (a)
- ------------------------------------------------------------------------------
United States -- continued
$ 225,000 Owens-Illinois, Inc., Senior Note,
7.500%, 5/15/2010 $ 225,000
39,943,000 Owens-Illinois, Inc., Senior Note,
7.800%, 5/15/2018(c) 37,945,850
3,000,000 Pemex Project Funding Master Trust,
8.625%, 12/01/2023(c) 3,607,500
4,350,000 Pemex Project Funding Master Trust,
9.500%, 9/15/2027(c) 5,676,750
1,920,000 Pioneer Natural Resource,
5.875%, 7/15/2016(c) 1,797,903
3,165,000 Pulte Homes, Inc.,
5.200%, 2/15/2015(c) 2,963,779
41,615,000 Pulte Homes, Inc.,
6.000%, 2/15/2035(c) 37,520,625
8,835,000 Pulte Homes, Inc.,
6.375%, 5/15/2033 8,267,342
11,580,000 Qwest Capital Funding, Inc.,
6.500%, 11/15/2018 10,479,900
950,000 Qwest Capital Funding, Inc.,
7.250%, 2/15/2011 950,000
17,305,000 Qwest Capital Funding, Inc.,
7.750%, 2/15/2031 16,699,325
36,410,000 Qwest Capital Funding, Inc., Guaranteed Note,
6.875%, 7/15/2028(c) 32,586,950
2,025,000 Qwest Capital Funding, Inc., Guaranteed Note,
7.000%, 8/03/2009(c) 2,035,125
5,640,000 Qwest Capital Funding, Inc., Guaranteed Note,
7.625%, 8/03/2021(c) 5,463,750
20,420,000 Qwest Corp.,
6.875%, 9/15/2033 18,633,250
2,785,000 Qwest Corp.,
7.250%, 9/15/2025 2,697,969
6,100,000 SLM Corp.,
6.500%, 6/15/2010, (NZD) 3,908,741
2,550,000 Southern Natural Gas Co.,
7.350%, 2/15/2031 2,642,371
4,000,000 St. Paul Travelers Cos, Inc. (The),
6.750%, 6/20/2036 4,309,532
1,810,000 Sungard Data Systems, Inc.,
9.125%, 8/15/2013 1,873,350
2,595,000 Sungard Data Systems, Inc.,
10.250%, 8/15/2015 2,672,850
690,000 Tenet Healthcare Corp.,
6.875%, 11/15/2031(c) 540,788
2,925,000 Tenet Healthcare Corp.,
9.250%, 2/01/2015 2,815,313
3,267,000 Tennessee Gas Pipeline Co., Senior Note,
7.000%, 10/15/2028(c) 3,253,814
11,145,000 Time Warner, Inc.,
6.625%, 5/15/2029 11,142,637
4,795,000 Time Warner, Inc.,
6.950%, 1/15/2028(c) 4,942,475
3,150,000 Time Warner, Inc.,
7.625%, 4/15/2031 3,479,711
2,025,000 Time Warner, Inc.,
7.700%, 5/01/2032 2,261,394
496,687 Tiverton Power Associates, LP, 144A,
9.000%, 7/15/2018(g) 474,336
Principal
Amount+ Description Value (a)
- -------------------------------------------------------------------------------------------
United States -- continued
$ 4,245,000 Toll Brothers Financial Corp.,
5.150%, 5/15/2015(c) $ 3,773,308
7,330,000 Toys R US, Inc.,
7.375%, 10/15/2018 5,305,088
1,000,000 Travelers Property Casualty Corp.,
6.375%, 3/15/2033 1,018,634
315,000 TXU Corp.,
5.550%, 11/15/2014 297,605
2,225,000 TXU Corp.,
6.550%, 11/15/2034(c) 2,095,670
288,680,000 U.S. Treasury Bond,
5.375%, 2/15/2031(c) 311,796,917
17,265,000 U.S. Treasury Note,
3.000%, 2/15/2008(c) 16,855,630
214,405,000 U.S. Treasury Note,
3.250%, 8/15/2007(c) 211,289,481
210,595,000 U.S. Treasury Note,
3.875%, 7/31/2007(c) 208,735,867
4,160,000 United Rentals North America, Inc., Senior Subordinated Note,
7.000%, 2/15/2014(c) 3,910,400
51,815,000 Verizon Global Funding Corp.,
5.850%, 9/15/2035 48,817,969
3,365,000 Verizon Maryland, Inc.,
5.125%, 6/15/2033 2,728,985
12,050,000 Verizon New York, Inc., Series B,
7.375%, 4/01/2032 12,560,149
32,790,000 Viacom, Inc., 144A,
6.875%, 4/30/2036 32,415,801
600,000 Williams Cos., Inc.,
7.875%, 9/01/2021 627,000
965,000 Williams Cos., Inc., Senior Note,
7.750%, 6/15/2031 965,000
8,600,000 Williams Cos., Inc., Series A,
7.500%, 1/15/2031 8,492,500
10,070,000 Woolworth Corp.,
8.500%, 1/15/2022 9,516,150
18,050,000 Xerox Capital Trust I, Guaranteed Note,
8.000%, 2/01/2027 18,411,000
1,730,000 Xerox Corp., (MTN),
7.200%, 4/01/2016 1,816,500
---------------
2,623,827,400
---------------
Uruguay -- 0.1%
1,595,000 Republic of Uruguay,
7.625%, 3/21/2036 1,591,013
2,935,319 Republic of Uruguay,
7.875%, 1/15/2033(c)(f) 3,038,055
---------------
4,629,068
---------------
Venezuela -- 0.6%
16,535,000 Cerro Negro Finance, Ltd., 144A,
7.900%, 12/01/2020 15,336,212
13,790,000 Petrozuata Finance, Inc., Series B, 144A,
8.220%, 4/01/2017 13,445,250
---------------
28,781,462
---------------
Total Non-Convertible Bonds (Identified Cost $4,007,532,692) 4,170,637,949
---------------
Total Bonds and Notes (Identified Cost $4,242,188,018) 4,415,874,988
---------------
See accompanying notes to financial statements.
39
LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Shares Description Value (a)
- -----------------------------------------------------------------------------------------------
Common Stocks -- 5.3%
Israel -- 0.0%
2,288 Teva Pharmaceutical Industries, Ltd., ADR $ 77,998
---------------
Philippines -- 0.2%
240,975 Philippine Long Distance Telephone Co., Sponsored GDR, Convertible 10,496,871
---------------
United States -- 5.1%
200,925 Apartment Investment & Management Co., Class A 10,932,329
889,730 Associated Estates Realty Corp., (REIT) 13,764,123
2,238,800 Bristol-Myers Squibb Co. 55,790,896
137,000 Camden Property Trust, (REIT) 10,413,370
53,260 Chesapeake Energy Corp.(c) 1,543,475
2,309,175 ConAgra Foods, Inc. 56,528,604
41,343 Corning, Inc.(h) 1,009,183
182,500 Developers Diversified Realty Corp., (REIT) 10,176,200
282,500 Duke Energy Corp. 8,531,500
460,000 Equity Residential Properties Trust, (REIT) 23,266,800
477,725 KB Home(c) 20,924,355
549,450 Lennar Corp., Class A 24,862,612
117,700 Simon Property Group, Inc., (REIT) 10,665,974
202,221 Vertex Pharmaceuticals, Inc.(c)(h) 6,804,737
---------------
255,214,158
---------------
Total Common Stocks (Identified Cost $222,671,993) 265,789,027
---------------
Shares
- -----------------------------------------------------------------------------------------------
Preferred Stocks -- 1.4%
United States -- 1.4%
249,825 AES Trust III, Convertible,
6.750%, 10/15/2029(c) 12,216,442
107,725 CMS Energy Trust I, Convertible,
7.750%, 7/15/2027 5,372,784
113,750 El Paso Energy Capital Trust I,
4.750%, 3/31/2028 4,234,913
393 Entergy New Orleans, Inc.,
4.750%, 12/31/2045(g) 18,471
42,700 Felcor Lodging Trust, Inc., (REIT) Convertible,
1.950%, 12/31/2049 1,063,657
15,600 Lucent Technologies Capital Trust I, Convertible,
7.750%, 3/15/2017 15,941,250
62,475 Newell Financial Trust I,
5.250%, 12/01/2027 2,858,231
455,100 Owens-Illinois, Inc., Convertible,
4.750%, 12/31/2049 15,951,255
800 Pacific Gas & Electric Co., Series G,
4.800%, 12/12/2006 16,648
263,275 Six Flags, Inc.,
7.125%, 8/15/2009(c) 5,607,758
352,925 Travelers Property Casualty, Convertible,
4.500%, 4/15/2032(c) 8,689,014
10,198 United Rentals Trust I, Convertible,
6.500%, 8/01/2028 476,757
---------------
Total Preferred Stocks (Identified Cost $69,406,683) 72,447,180
---------------
Shares
- -----------------------------------------------------------------------------------------------
Closed-End Investment Companies -- 0.4%
1,368,400 Managed High Income Portfolio, Inc. 8,525,132
110,211 Morgan Stanley Emerging Markets Debt Fund, Inc.(c) 1,114,233
1,755,800 High Income Opportunity Fund, Inc. 11,184,444
---------------
Total Closed-End Investment Companies
(Identified Cost $20,353,073) 20,823,809
---------------
Shares/
Principal
Amount+ Description Value (a)
- ----------------------------------------------------------------------------------------------------------
Short-Term Investments -- 21.4%
918,797,771 State Street Securities Lending Quality Trust(j) $ 918,797,771
$ 161,229,725 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/06 at 3.45% to be repurchased at
$161,276,079 on 10/02/06, collateralized by $26,745,000 U.S.
Treasury Note, 3.375% due 11/15/2008 valued at $26,721,003
and collateralized by $138,635,000 U.S. Treasury Note, 3.875%
due 5/15/2009 valued at $140,124,612, including accrued
interest (Note 2f) 161,229,725
---------------
Total Short-Term Investments (Identified Cost $1,080,027,496) 1,080,027,496
---------------
Total Investments -- 116.0%
(Identified Cost $5,634,647,263)(e) 5,854,962,500
Other assets less liabilities--(16.0)% (808,806,255)
---------------
Total Net Assets -- 100% $ 5,046,156,245
===============
+ Principal amount is in U.S. dollars unless otherwise noted.
(a) See Note 2a of Notes to Financial Statements.
(b) Illiquid security. At September 30, 2006, the value of these
securities amounted to $13,738,700 or 0.3% of net assets.
(c) All or a portion of this security was on loan to brokers at
September 30, 2006.
(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).
(e) Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $5,641,868,896 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 $ 259,411,296
Aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value (46,317,692)
---------------
Net unrealized appreciation $ 213,093,604
===============
(f) All or a portion of interest payment is paid-in-kind.
(g) Non-income producing security due to default or bankruptcy filing.
(h) Non-income producing security.
(i) Step Bond: Coupon is a fixed rate for an initial period and then
resets at a specified date and rate.
(j) Represents investment of security lending collateral.
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, 2006, the total value of these securities amounted
to $364,917,612 or 7.2% of total net assets.
ADR An 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 ADR's are significantly
influenced by trading on exchanges not located in the United
States.
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GDR A 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 GDRs are significantly influenced by
trading on exchanges not located in the United States.
See accompanying notes to financial statements.
40
LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (CONTINUED)
Investments as of September 30, 2006
MTN Medium Term Note
REIT Real Estate Investment Trust
Key to Abbreviations:
ARS Argentine Peso
AUD Australian Dollar
BRL Brazilian Real
CAD Canadian Dollar
EUR Euro
GBP British Pound
IDR Indonesian Rupiah
KRW South Korean Won
MXN Mexican Peso
NOK Norwegian Krone
NZD New Zealand Dollar
SEK Swedish Krona
SGD Singapore Dollar
THB Thailand Baht
ZAR South African Rand
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited)
Sovereigns 20.8%
Treasuries 14.8
Pharmaceuticals 4.8
Telecommunications 4.3
Technology 3.9
Banking 3.9
Non-Captive Diversified 3.8
Home Construction 3.0
Automotive 2.5
Electric 2.4
Wirelines 2.4
Media Cable 2.0
Other, less than 2% each 26.0
See accompanying notes to financial statements.
41
This Page Intentionally Left Blank
42
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 2006
Limited Term Government
Core Plus Bond Fund High Income Fund and Agency Fund
--------------------- --------------------- -----------------------
--------------------- --------------------- ---------------------
ASSETS
Investments at cost $ 248,083,804 $ 41,962,229 $ 136,790,696
Net unrealized appreciation
(depreciation) (754,978) 2,713,347 (1,200,622)
--------------------- --------------------- ---------------------
Investments at value (a) 247,328,826 44,675,576 135,590,074
Cash -- -- --
Foreign currency at value (identified
cost $10,395, $4,983, $0, $0, $0 and
$5,156,176) 10,370 4,954 --
Receivable for Fund shares sold 950,225 191,714 106,655
Receivable for securities sold 1,308,416 -- 7,803,020
Dividends and interest receivable 2,357,932 616,822 695,412
Tax reclaims receivable -- -- --
Securities lending income receivable 982 773 616
--------------------- --------------------- ---------------------
TOTAL ASSETS 251,956,751 45,489,839 144,195,777
--------------------- --------------------- ---------------------
LIABILITIES
Collateral on securities loaned, at
value (Note 2) 27,548,560 4,281,021 4,765,375
Payable for securities purchased 1,174,802 1,119,410 --
Payable for delayed delivery security
purchased (Note 2) 1,636,230 -- 7,703,595
Payable for Fund shares redeemed 273,701 30,140 385,806
Dividends payable 323,575 89,967 125,799
Management fees payable (Note 4) 238,280 41,934 102,150
Deferred Trustees' fees (Note 4) 224,228 60,777 195,814
Administrative fees payable (Note 4) 10,827 1,898 6,779
Other accounts payable and accrued
expenses 311,096 56,599 87,267
--------------------- --------------------- ---------------------
TOTAL LIABILITIES 31,741,299 5,681,746 13,372,585
--------------------- --------------------- ---------------------
NET ASSETS $ 220,215,452 $ 39,808,093 $ 130,823,192
===================== ===================== =====================
NET ASSETS CONSIST OF:
Paid-in capital $ 243,662,207 $ 120,108,640 $ 158,791,054
Undistributed (overdistributed) net
investment income 784,748 (82,641) (152,331)
Accumulated net realized gain (loss)
on investments and foreign currency
transactions (23,475,813) (82,931,659) (26,614,909)
Net unrealized appreciation
(depreciation) on investments and
foreign currency translations (755,690) 2,713,753 (1,200,622)
--------------------- --------------------- ---------------------
NET ASSETS $ 220,215,452 $ 39,808,093 $ 130,823,192
===================== ===================== =====================
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE:
Class A shares:
Net assets $ 91,463,649 $ 29,068,770 $ 114,179,702
===================== ===================== =====================
Shares of beneficial interest 8,141,254 5,708,763 10,383,892
===================== ===================== =====================
Net asset value and redemption price
per share $ 11.23 $ 5.09 $ 11.00
===================== ===================== =====================
Offering price per share
(100/[100-maximum sales charge] of
net asset value) (Note 1) $ 11.76 $ 5.33 $ 11.34
===================== ===================== =====================
Class B shares: (redemption price per
share is equal to net asset value
less any applicable contingent
deferred sales charge) (Note 1)
Net assets $ 109,782,403 $ 7,282,537 $ 9,952,407
===================== ===================== =====================
Shares of beneficial interest 9,768,684 1,429,290 906,625
===================== ===================== =====================
Net asset value and offering price
per share $ 11.24 $ 5.10 $ 10.98
===================== ===================== =====================
Class C shares: (redemption price per
share is equal to net asset value
less any applicable contingent
deferred sales charge) (Note 1)
Net assets $ 6,983,062 $ 3,456,786 $ 4,230,279
===================== ===================== =====================
Shares of beneficial interest 620,950 678,783 384,772
===================== ===================== =====================
Net asset value and offering price
per share $ 11.25 $ 5.09 $ 10.99
===================== ===================== =====================
Class Y shares:
Net assets $ 11,986,338 $ -- $ 2,460,804
===================== ===================== =====================
Shares of beneficial interest 1,062,133 -- 223,070
===================== ===================== =====================
Net asset value, offering and
redemption price per share $ 11.29 $ -- $ 11.03
===================== ===================== =====================
(a) Including securities on loan
with market values of: $ 26,982,787 $ 4,193,476 $ 4,684,867
===================== ===================== =====================
See accompanying notes to financial statements.
43
Massachusetts
Tax Free Municipal Strategic
Income Fund Income Fund Income Fund
--------------------- --------------------- ---------------------
--------------------- ---------------------
$ 71,290,504 $ 93,649,888 $ 5,634,647,263
4,226,844 3,808,434 220,315,237
--------------------- --------------------- ---------------------
75,517,348 97,458,322 5,854,962,500
-- -- 13,071,087
-- -- 5,144,472
3,471 4,830 78,983,240
-- -- 762,449
1,180,175 1,560,034 57,655,639
-- -- 3,332
-- -- 62,054
--------------------- --------------------- ---------------------
76,700,994 99,023,186 6,010,644,773
--------------------- --------------------- ---------------------
-- -- 918,797,771
1,567,552 -- 28,400,810
-- -- --
88,455 23,278 4,853,283
61,600 98,629 8,692,007
43,967 79,659 2,242,974
69,885 134,859 229,477
3,677 4,893 235,000
42,459 46,021 1,037,206
--------------------- --------------------- ---------------------
1,877,595 387,339 964,488,528
--------------------- --------------------- ---------------------
$ 74,823,399 $ 98,635,847 $ 5,046,156,245
===================== ===================== =====================
$ 72,798,951 $ 94,283,248 $ 4,865,381,828
13,263 177,784 3,854,962
(2,215,659) 366,381 (43,380,774)
4,226,844 3,808,434 220,300,229
--------------------- --------------------- ---------------------
$ 74,823,399 $ 98,635,847 $ 5,046,156,245
===================== ===================== =====================
$ 72,478,537 $ 93,448,200 $ 2,782,887,259
===================== ===================== =====================
4,346,993 12,380,067 190,666,685
===================== ===================== =====================
$ 16.67 $ 7.55 $ 14.60
===================== ===================== =====================
$ 17.41 $ 7.91 $ 15.29
===================== ===================== =====================
$ 2,344,862 $ 5,187,647 $ 179,926,633
===================== ===================== =====================
140,950 686,491 12,276,776
===================== ===================== =====================
$ 16.64 $ 7.56 $ 14.66
===================== ===================== =====================
$ -- $ -- $ 1,812,277,782
===================== ===================== =====================
-- -- 123,711,940
===================== ===================== =====================
$ -- $ -- $ 14.65
===================== ===================== =====================
$ -- $ -- $ 271,064,571
===================== ===================== =====================
-- -- 18,575,716
===================== ===================== =====================
$ -- $ -- $ 14.59
===================== ===================== =====================
$ -- $ -- $ 904,049,930
===================== ===================== =====================
44
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 2006
Limited Term Government
Core Plus Bond Fund High Income Fund and Agency Fund
--------------------- --------------------- -----------------------
--------------------- --------------------- ---------------------
INVESTMENT INCOME
Dividends $ -- $ 145,302 $ --
Interest 12,569,121 2,985,590 6,684,798
Securities lending income (Note 2) 50,426 24,165 22,572
Less net foreign taxes withheld -- (626) --
--------------------- --------------------- ---------------------
12,619,547 3,154,431 6,707,370
--------------------- --------------------- ---------------------
Expenses
Management fees (Note 4) 984,263 235,740 728,190
Service fees - Class A (Note 4) 239,223 66,667 315,317
Service and distribution fees -
Class B (Note 4) 1,182,431 92,594 121,713
Service and distribution fees -
Class C (Note 4) 59,983 33,638 48,846
Trustees' fees and expenses (Note 4) 44,358 19,872 37,558
Administrative fees (Note 4) 136,903 23,472 86,859
Custodian fees and expenses 35,255 20,351 27,226
Transfer agent fees and expenses -
Class A 225,532 46,707 168,849
Transfer agent fees and expenses -
Class B 279,638 16,974 16,248
Transfer agent fees and expenses -
Class C 13,883 5,980 6,534
Transfer agent fees and expenses -
Class Y 14,972 -- 1,028
Audit fees 40,211 46,645 36,846
Legal fees 9,136 9,672 6,768
Shareholder reporting expenses 53,200 10,558 34,746
Registration fees 42,039 35,756 50,853
Expense recapture - Class A (Note 4) -- -- --
Expense recapture - Class B (Note 4) -- -- --
Expense recapture - Class Y (Note 4) 5,495 -- --
Miscellaneous expenses 21,291 11,993 14,644
--------------------- --------------------- ---------------------
Total expenses 3,387,813 676,619 1,702,225
Less reimbursement/waiver (Note 4) (73,029) (64,092) (70,282)
--------------------- --------------------- ---------------------
Net expenses 3,314,784 612,527 1,631,943
--------------------- --------------------- ---------------------
Net investment income 9,304,763 2,541,904 5,075,427
--------------------- --------------------- ---------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain (loss) on:
Investments - net (251,820) 587,425 (845,533)
Foreign currency transactions - net 1,762 1,458 --
Change in unrealized appreciation
(depreciation) on:
Investments - net (1,340,093) 286,870 (145,704)
Foreign currency translations - net (6,684) (1,728) --
--------------------- --------------------- ---------------------
Total net realized and unrealized gain
(loss) on investments and foreign
currency transactions (1,596,835) 874,025 (991,237)
--------------------- --------------------- ---------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 7,707,928 $ 3,415,929 $ 4,084,190
===================== ===================== =====================
See accompanying notes to financial statements.
45
Massachusetts Tax Municipal Strategic
Free Income Fund Income Fund Income Fund
--------------------- --------------------- ---------------------
--------------------- ---------------------
$ -- $ -- $ 13,671,838
3,718,192 4,950,148 175,170,351
-- -- 1,176,781
-- -- (160,354)
--------------------- --------------------- ---------------------
3,718,192 4,950,148 189,858,616
--------------------- --------------------- ---------------------
457,744 510,697 18,365,690
183,746 241,651 4,219,448
27,924 63,570 1,539,392
-- -- 11,663,416
22,399 30,051 178,734
45,404 61,500 1,899,235
18,139 19,788 319,102
51,742 56,754 1,672,790
1,959 3,735 147,457
-- -- 1,147,912
-- -- 94,584
36,867 34,917 44,211
3,035 3,523 160,390
13,783 8,434 464,041
17,077 25,509 321,188
756 -- --
36 -- --
-- -- --
10,033 10,511 115,144
--------------------- --------------------- ---------------------
890,644 1,070,640 42,352,734
(92,157) (20,044) --
--------------------- --------------------- ---------------------
798,487 1,050,596 42,352,734
--------------------- --------------------- ---------------------
2,919,705 3,899,552 147,505,882
--------------------- --------------------- ---------------------
345,282 1,173,164 5,784,381
-- -- 431,141
(133,389) (395,083) 138,128,460
-- -- 191,413
--------------------- --------------------- ---------------------
211,893 778,081 144,535,395
--------------------- --------------------- ---------------------
$ 3,131,598 $ 4,677,633 $ 292,041,277
===================== ===================== =====================
46
STATEMENTS OF CHANGES IN NET ASSETS
Core Plus Bond Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2006 2005
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income $ 9,304,763 $ 9,537,622
Net realized gain (loss) on investments and
foreign currency transactions (250,058) 4,343,339
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations (1,346,777) (8,333,391)
--------------------- ---------------------
Net increase in net assets resulting from
operations 7,707,928 5,547,570
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A (5,268,788) (5,451,945)
Class B (5,666,228) (5,851,384)
Class C (281,535) (254,068)
Class Y (518,162) (529,060)
--------------------- ---------------------
Total distributions (11,734,713) (12,086,457)
--------------------- ---------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8) (28,217,204) (26,672,030)
--------------------- ---------------------
Redemption fees
Class A 707 578
Class B 886 727
Class C 42 32
Class Y 61 53
--------------------- ---------------------
1,696 1,390
--------------------- ---------------------
Net increase (decrease) in net assets (32,242,293) (33,209,527)
--------------------- ---------------------
NET ASSETS
Beginning of the year 252,457,745 285,667,272
--------------------- ---------------------
End of the year $ 220,215,452 $ 252,457,745
===================== =====================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME $ 784,748 $ 2,160,307
===================== =====================
High Income Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2006 2005
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income $ 2,541,904 $ 2,727,688
Net realized gain (loss) on investments and
foreign currency transactions 588,883 1,697,305
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations 285,142 (251,326)
--------------------- ---------------------
Net increase in net assets resulting from
operations 3,415,929 4,173,667
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A (1,818,161) (1,635,303)
Class B (563,592) (908,339)
Class C (204,085) (182,735)
Class Y -- --
--------------------- ---------------------
Total distributions (2,585,838) (2,726,377)
--------------------- ---------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8) (2,428,478) (5,264,082)
--------------------- ---------------------
Redemption fees
Class A 866 3,017
Class B 337 1,868
Class C 116 370
Class Y -- --
--------------------- ---------------------
1,319 5,255
--------------------- ---------------------
Net increase (decrease) in net assets (1,597,068) (3,811,537)
--------------------- ---------------------
NET ASSETS
Beginning of the year 41,405,161 45,216,698
--------------------- ---------------------
End of the year $ 39,808,093 $ 41,405,161
===================== =====================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME $ (82,641) $ (64,686)
===================== =====================
Limited Term Government and Agency Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2006 2005
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income $ 5,075,427 $ 3,584,070
Net realized gain (loss) on investments and
foreign currency transactions (845,533) (6,238)
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations (145,704) (1,789,947)
--------------------- ---------------------
Net increase in net assets resulting from
operations 4,084,190 1,787,885
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A (4,997,550) (3,733,934)
Class B (381,270) (285,636)
Class C (153,472) (135,224)
Class Y (105,197) (65,428)
--------------------- ---------------------
Total distributions (5,637,489) (4,220,222)
--------------------- ---------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8) (32,402,336) 39,221,920
--------------------- ---------------------
Redemption fees
Class A -- --
Class B -- --
Class C -- --
Class Y -- --
--------------------- ---------------------
-- --
--------------------- ---------------------
Net increase (decrease) in net assets (33,955,635) 36,789,583
--------------------- ---------------------
NET ASSETS
Beginning of the year 164,778,827 127,989,244
--------------------- ---------------------
End of the year $ 130,823,192 $ 164,778,827
===================== =====================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME $ (152,331) $ (134,584)
===================== =====================
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,
2006 2005 2006 2005
- --------------------- --------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
$ 2,919,705 $ 2,935,764 $ 3,899,552 $ 4,158,144
345,282 447,715 1,173,164 1,495,771
(133,389) (258,210) (395,083) (1,327,773)
- --------------------- --------------------- --------------------- ---------------------
3,131,598 3,125,269 4,677,633 4,326,142
- --------------------- --------------------- --------------------- ---------------------
(2,838,521) (2,824,718) (3,654,019) (3,981,690)
(86,605) (111,486) (192,325) (243,518)
-- -- -- --
-- -- -- --
- --------------------- --------------------- --------------------- ---------------------
(2,925,126) (2,936,204) (3,846,344) (4,225,208)
- --------------------- --------------------- --------------------- ---------------------
(5,608,072) (5,825,158) (12,060,212) (11,124,657)
- --------------------- --------------------- --------------------- ---------------------
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
- --------------------- --------------------- --------------------- ---------------------
-- -- -- --
- --------------------- --------------------- --------------------- ---------------------
(5,401,600) (5,636,093) (11,228,923) (11,023,723)
- --------------------- --------------------- --------------------- ---------------------
80,224,999 85,861,092 109,864,770 120,888,493
- --------------------- --------------------- --------------------- ---------------------
$ 74,823,399 $ 80,224,999 $ 98,635,847 $ 109,864,770
===================== ===================== ===================== =====================
$ 13,263 $ 17,655 $ 177,784 $ 140,917
===================== ===================== ===================== =====================
Strategic Income Fund
- --------------------------------------------
Year Ended Year Ended
September 30, September 30,
2006 2005
- --------------------- ---------------------
- --------------------- ---------------------
$ 147,505,882 $ 54,660,282
6,215,522 21,963,471
138,319,873 27,533,778
- --------------------- ---------------------
292,041,277 104,157,531
- --------------------- ---------------------
(93,282,911) (31,992,206)
(7,447,638) (6,262,718)
(55,187,294) (21,270,824)
(7,523,452) (1,531,716)
- --------------------- ---------------------
(163,441,295) (61,057,464)
- --------------------- ---------------------
2,980,503,923 1,154,844,870
- --------------------- ---------------------
110,642 32,202
9,525 6,890
75,367 25,315
9,065 1,499
- --------------------- ---------------------
204,599 65,906
- --------------------- ---------------------
3,109,308,504 1,198,010,843
- --------------------- ---------------------
1,936,847,741 738,836,898
- --------------------- ---------------------
$ 5,046,156,245 $ 1,936,847,741
===================== =====================
$ 3,854,962 $ 13,786,896
===================== =====================
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
9/30/2006 $ 11.41 $ 0.50(c) $ (0.07) $ 0.43 $ (0.61) $ (0.61) $ 0.00(g)
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) --
Class B
9/30/2006 11.41 0.41(c) (0.05) 0.36 (0.53) (0.53) 0.00(g)
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) --
Class C
9/30/2006 11.42 0.41(c) (0.05) 0.36 (0.53) (0.53) 0.00(g)
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) --
Class Y
9/30/2006 11.46 0.51(c) (0.04) 0.47 (0.64) (0.64) 0.00(g)
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) --
HIGH INCOME FUND*
Class A
9/30/2006 $ 4.98 $ 0.34(c) $ 0.11 $ 0.45 $ (0.34) $ (0.34) $ 0.00(g)
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) --
Class B
9/30/2006 4.98 0.30(c) 0.12 0.42 (0.30) (0.30) 0.00(g)
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) --
(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, if
applicable, 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 $0.01 for Class A, $0.02 for Class B, and
$0.01 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 $0.01 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.
(e)Represents the total expenses prior to advisory fee waiver and/or
reimbursement of a portion of the Fund's expenses.
See accompanying notes to financial statements.
49
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 (%)
- ---------- --------- ----------- --------- --------- -------------- ---------
$ 11.23 4.0(h) $ 91,464 1.08(e) 1.05(i) 4.46 91
11.41 2.4(h) 105,111 1.18(e) 1.13(i) 3.93 64
11.69 5.3(h) 120,009 1.22(e) 1.19(i) 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
11.24 3.3(h) 109,782 1.83(e) 1.80(i) 3.72 91
11.41 1.6(h) 132,221 1.93(e) 1.88(i) 3.18 64
11.70 4.6(h) 148,556 1.97(e) 1.94(i) 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
11.25 3.3(h) 6,983 1.82(e) 1.80(i) 3.63 91
11.42 1.6(h) 6,065 1.93(e) 1.88(i) 3.17 64
11.71 4.6(h) 6,162 1.98(e) 1.94(i) 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
11.29 4.3 11,986 0.80(j) N/A 4.58 91
11.46 2.7(h) 9,060 0.99(e) 0.88(i) 4.18 64
11.74 5.5(h) 10,941 0.98(e) 0.94(i) 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
$ 5.09 9.4(h) $ 29,069 1.48(e) 1.31(i) 6.70 41
4.98 10.3(h) 25,817 1.72(e) 1.58(i) 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
5.10 8.8(h) 7,283 2.25(e) 2.08(i) 6.00 41
4.98 9.3(h) 12,034 2.47(e) 2.33(i) 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
(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.
(i)The investment adviser agreed to reimburse a portion of the Fund's expenses
and/or waive its management fee during the period. Without this
reimbursement/waiver, expenses would have been higher. See Note 4.
(j)Includes expense recapture of 0.06%. See Note 4.
* 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
period income gain (loss) operations income distributions
---------- ---------- -------------- ---------- -------------- -------------
HIGH INCOME FUND* (continued)
Class C
9/30/2006 $ 4.98 $ 0.30(c) $ 0.11 $ 0.41 $ (0.30) $ (0.30)
9/30/2005 4.83 0.29(c) 0.15 0.44 (0.29) (0.29)
9/30/2004 4.65 0.30(c) 0.18 0.48 (0.30) (0.30)
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)
LIMITED TERM GOVERNMENT AND AGENCY FUND**
Class A
9/30/2006 $ 11.09 $ 0.39(c) $ (0.05) $ 0.34 $ (0.43) $ (0.43)
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)
Class B
9/30/2006 11.07 0.31(c) (0.05) 0.26 (0.35) (0.35)
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)
Class C
9/30/2006 11.08 0.31(c) (0.05) 0.26 (0.35) (0.35)
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)
Class Y
9/30/2006 11.13 0.43(c) (0.06) 0.37 (0.47) (0.47)
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)
Redemption
fee
----------
HIGH INCOME FUND* (continued)
Class C
9/30/2006 $ 0.00(f)
9/30/2005 0.00(f)
9/30/2004 0.00(f)
9/30/2003(e) --
12/31/2002 --
12/31/2001(d) --
LIMITED TERM GOVERNMENT AND AGENCY FUND**
Class A
9/30/2006 $ --
9/30/2005 --
9/30/2004 --
9/30/2003(e) --
12/31/2002 --
12/31/2001(d) --
Class B
9/30/2006 --
9/30/2005 --
9/30/2004 --
9/30/2003(e) --
12/31/2002 --
12/31/2001(d) --
Class C
9/30/2006 --
9/30/2005 --
9/30/2004 --
9/30/2003(e) --
12/31/2002 --
12/31/2001(d) --
Class Y
9/30/2006 --
9/30/2005 --
9/30/2004 --
9/30/2003(e) --
12/31/2002 --
12/31/2001(d) --
(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, if
applicable, 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 $0.01 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 $0.04 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.
(e)For the nine months ended September 30, 2003.
(f)Amounts round to less than $0.01.
(g)Represents total expenses prior to waiver of a portion of the Class's
transfer agent expenses.
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 (%)
- ---------- --------- ----------- --------- --------- -------------- ---------
$ 5.09 8.6(h) $ 3,457 2.23(i) 2.07(j) 5.96 41
4.98 9.3(h) 3,554 2.47(i) 2.33(j) 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
$ 11.00 3.2(h) $ 114,180 1.09(i) 1.04(j) 3.57 50
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
10.98 2.4(h) 9,952 1.84(i) 1.79(j) 2.79 50
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
10.99 2.5(h) 4,230 1.84(i) 1.79(j) 2.81 50
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
11.03 3.4 2,461 0.74 N/A 3.89 50
11.13 1.2(h) 2,533 1.59(g) 1.02(j) 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
(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.
(j)The investment adviser agreed to reimburse a portion of the Fund's expenses
and/or waive its management fee during the period. Without this
reimbursement/waiver, expenses would have been higher. See Note 4.
* The financial information 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
value, Dividends
beginning Net Net realized Total from from
of investment and unrealized investment net investment Total
period income gain (loss) operations income distributions
---------- ---------- -------------- ---------- -------------- -------------
MASSACHUSETTS TAX FREE INCOME FUND
Class A
9/30/2006 $ 16.62 $ 0.64 $ 0.05 $ 0.69 $ (0.64) $ (0.64)
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)
Class B
9/30/2006 16.58 0.51 0.06 0.57 (0.51) (0.51)
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)
MUNICIPAL INCOME FUND
Class A
9/30/2006 $ 7.48 $ 0.28 $ 0.07 $ 0.35 $ (0.28) $ (0.28)
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)
Class B
9/30/2006 7.49 0.23 0.07 0.30 (0.23) (0.23)
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)
Net asset
value, end
of period
----------
MASSACHUSETTS TAX FREE INCOME FUND
Class A
9/30/2006 $ 16.67
9/30/2005 16.62
9/30/2004 16.58
9/30/2003(f) 16.41
12/31/2002 16.40
12/31/2001(d) 15.82
Class B
9/30/2006 16.64
9/30/2005 16.58
9/30/2004 16.54
9/30/2003(f) 16.37
12/31/2002 16.36
12/31/2001(d) 15.78
MUNICIPAL INCOME FUND
Class A
9/30/2006 $ 7.55
9/30/2005 7.48
9/30/2004 7.47
9/30/2003(f) 7.41
12/31/2002 7.43
12/31/2001(d) 7.25
Class B
9/30/2006 7.56
9/30/2005 7.49
9/30/2004 7.48
9/30/2003(f) 7.41
12/31/2002 7.44
12/31/2001(d) 7.25
(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, if applicable, 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.
See accompanying notes to financial statements.
53
Ratios to average net assets:
-------------------------------------------
Net assets,
Total end of Gross Net Net investment Portfolio
return period Expenses Expenses income turnover
(%) (a) (000's) (%) (b) (%) (b) (%) (b) rate (%)
--------- ----------- --------- --------- -------------- ---------
4.2(e) $ 72,479 1.14(c)(h) 1.02(g) 3.86 8
3.9(e) 77,018 1.22(c) 1.22(g) 3.59 5
4.9 81,427 1.33 N/A 3.74 21
3.1 86,368 1.38 N/A 3.99 9
8.1 92,053 1.34 N/A 4.19 33
3.2(e) 89,376 1.35(c) 1.33(g) 4.67 60
3.5(e) 2,345 1.89(c)(h) 1.77(g) 3.10 8
3.1(e) 3,207 1.97(c) 1.97(g) 2.84 5
4.2 4,435 2.00 N/A 3.08 21
2.6 6,185 2.03 N/A 3.34 9
7.4 6,742 1.99 N/A 3.54 33
2.5(e) 8,313 2.00(c) 1.98(g) 4.03 60
4.8(e) $ 93,448 0.99(c) 0.97(g) 3.83 14
3.9 102,255 1.07 N/A 3.65 29
4.9 111,801 1.11 N/A 4.00 35
2.9 126,906 1.10 N/A 4.14 42
7.3 133,005 1.06 N/A 4.67 33
3.0 137,852 1.07 N/A 4.89 80
4.0(e) 5,188 1.75(c) 1.72(g) 3.07 14
3.1 7,610 1.82 N/A 2.90 29
4.2 9,087 1.86 N/A 3.25 35
2.2 10,884 1.85 N/A 3.39 42
6.7 12,326 1.81 N/A 3.92 33
2.2 14,549 1.82 N/A 4.14 80
(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.
(g)The investment adviser agreed to reimburse a portion of the Fund's expenses
and/or waive its management fee during the period. Without this
reimbursement/waiver, expenses would have been higher. See Note 4.
(h)Includes expense recapture of less than 0.01%. See Note 4.
54
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 (c) gain (loss) operations income distributions fee
---------- ---------- -------------- ---------- -------------- ------------- ----------
STRATEGIC INCOME FUND*
Class A
9/30/2006 $ 14.17 $ 0.71 $ 0.53 $ 1.24 $ (0.81) $ (0.81) $ 0.00(g)
9/30/2005 13.57 0.66 0.70 1.36 (0.76) (0.76) 0.00(g)
9/30/2004 12.57 0.75 1.11 1.86 (0.86) (0.86) 0.00(g)
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) --
Class B
9/30/2006 14.22 0.61 0.52 1.13 (0.69) (0.69) 0.00(g)
9/30/2005 13.60 0.56 0.71 1.27 (0.65) (0.65) 0.00(g)
9/30/2004 12.59 0.65 1.10 1.75 (0.74) (0.74) 0.00(g)
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) --
Class C
9/30/2006 14.22 0.61 0.51 1.12 (0.69) (0.69) 0.00(g)
9/30/2005 13.60 0.55 0.72 1.27 (0.65) (0.65) 0.00(g)
9/30/2004 12.58 0.64 1.11 1.75 (0.73) (0.73) 0.00(g)
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) --
Class Y
9/30/2006 14.17 0.76 0.51 1.27 (0.85) (0.85) 0.00(g)
9/30/2005 13.57 0.70 0.70 1.40 (0.80) (0.80) 0.00(g)
9/30/2004 12.58 0.78 1.11 1.89 (0.90) (0.90) 0.00(g)
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) --
(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,
if applicable, 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,
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 (%)
- ---------- --------- ----------- --------- --------- -------------- ---------
$ 14.60 9.0 $2,782,887 1.05 N/A 5.01 21
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(h) 1.28(i) 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
14.66 8.2 179,927 1.79 N/A 4.26 21
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(h) 2.03(i) 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
14.65 8.1 1,812,278 1.79 N/A 4.24 21
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(h) 2.03(i) 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
14.59 9.3 271,065 0.78 N/A 5.30 21
14.17 10.5 50,369 0.91 N/A 4.98 14
13.57 15.5(e) 10,833 1.08(h) 1.00(i) 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
(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.
(i)The investment adviser agreed to reimburse a portion of the Fund's expenses
and/or waive its management fee during the period. Without this
reimbursement/waiver, expenses would have been higher. See Note 4.
* 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, 2006
1. Organization. IXIS Advisor Funds Trust I, IXIS Advisor 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. Information presented in these financial statements pertains
to certain fixed income funds of the Trusts; the financial statements for the
other funds of the Trusts are presented in separate reports. The following
funds (individually, a "Fund" and collectively, the "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 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 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 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. Debt securities for which market quotations are readily
available (other than short-term obligations with a remaining maturity of sixty
days or less) are generally valued at market price on the basis of valuations
furnished to the Funds by a pricing service recommended by the investment
adviser's pricing committee and approved 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. Equity securities, including closed-end
investment companies, 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.
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. In instances where
broker-dealer bid quotations are not available, certain securities held by the
Funds may be 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. Short-term
obligations with a remaining maturity of sixty days or less are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available 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 their net asset value each
day.
57
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
Certain 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 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 foreign market and before
the Funds calculate their net asset values.
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 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 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 period, 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 (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 annually 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, premium amortization 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, post-October capital loss
deferrals and wash sales. Distributions from net investment income and
short-term capital gains are considered to be ordinary income for tax purposes.
58
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
The tax characterization of distributions is determined on an annual basis. The
tax character of distributions paid to shareholders during the years ended
September 30, 2006 and 2005 was as follows:
2006 Distributions Paid From: 2005 Distributions Paid From:
- - ------------------------------------ ----------------------------------
Exempt Exempt
Ordinary Interest Ordinary Interest
Fund Income Dividends Total Income Dividends Total
- ---- ------ --------- ----- ------ --------- -----
Core Plus Bond Fund $ 11,734,713 $ -- $ 11,734,713 $12,086,457 $ -- $12,086,457
High Income Fund 2,585,838 -- 2,585,838 2,726,377 -- 2,726,377
Limited Term Government and
Agency Fund 5,637,489 -- 5,637,489 4,220,222 -- 4,220,222
Massachusetts Tax Free Income
Fund 19,311 2,905,815 2,925,126 11,120 2,925,084 2,936,204
Municipal Income Fund 52,251 3,794,093 3,846,344 105,537 4,119,671 4,225,208
Strategic Income Fund 163,441,295 -- 163,441,295 61,057,464 -- 61,057,464
As of September 30, 2006, 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 $ 1,306,048 $ 70,994 $ 178,496 $ 148,336 $ 418,263 $ 13,368,246
Undistributed long-term capital gains 470,510
Capital loss carryforward:
Expires September 30, 2007 -- -- (9,755,614) (804,173) -- --
Expires September 30, 2008 -- (12,726,943) (4,165,768) (116,500) -- --
Expires September 30, 2009 -- (43,374,721) (4,128,091) -- -- (7,292,580)
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) -- -- --
Expires September 30, 2013 -- -- -- (154,156) -- --
Expires September 30, 2014 (181,728) -- (2,770,324) -- -- --
------------ ------------ ------------ ----------- ---------- ------------
Total capital loss carryforward (21,142,683) (82,928,298) (22,102,133) (2,078,269) -- (36,159,166)
Deferred net capital losses (post
October 2005) (1,656,378) -- (4,268,354) -- -- --
Unrealized appreciation (depreciation) (1,432,443) 2,710,393 (1,445,042) 4,089,454 3,704,306 213,078,596
------------ ------------ ------------ ----------- ---------- ------------
Total accumulated earnings (losses) $(22,925,456) $(80,146,911) $(27,637,033) $ 2,159,521 $4,593,079 $190,287,676
============ ============ ============ =========== ========== ============
Capital loss carryforward utilized in
the current year $ -- $ 562,793 $ -- $ 345,715 $ 703,737 $ 3,204,308
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. 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 on behalf of 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.
59
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
g. 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 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. In the event that the market value of the
collateral falls below the required percentages described above, the borrower
will deliver additional collateral on the next business day. 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, 2006
were as follows:
Market Value of Value of Collateral
Fund Securities on Loan Received
---- ------------------ -------------------
Core Plus Bond Fund $ 26,982,787 $ 27,548,560
High Income Fund 4,193,476 4,281,021
Limited Term Government and Agency Fund 4,684,867 4,765,375
Strategic Income Fund 904,049,930 918,797,771
h. 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.
i. Indemnifications. Under the Trusts' 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.
j. New Accounting Pronouncements. In July, 2006, Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement 109 ("FIN 48") was issued and is effective for
fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold
for financial statement recognition, measurement and disclosure of a tax
position taken or expected to be taken on a tax return. Management is currently
evaluating the impact, if any, the adoption of FIN 48 will have on each Fund's
net assets and results of operations.
In addition, in September, 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements ("SFAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact, if any,
the adoption of SFAS 157 will have on the Funds' financial statements.
3. Purchases and Sales of Securities. For the year ended September 30, 2006,
purchases and sales of securities (excluding short-term investments and
including paydowns) were as follows:
U.S. Government/Agency Securities Other Securities
- - --------------------------------- ----------------
Fund Purchases Sales Purchases Sales
- ---- ------- - ------- -
Core Plus Bond Fund $111,883,545 $117,897,937 $ 92,284,709 $112,191,868
High Income Fund 1,134,167 346,234 14,248,403 19,414,126
Limited Term Government and Agency Fund 64,302,418 101,723,034 7,833,462 3,569,262
Massachusetts Tax Free Income Fund -- -- 6,217,013 11,681,322
Municipal Income Fund -- -- 14,286,165 25,470,040
Strategic Income Fund 715,481,187 387,109,045 2,694,592,372 250,925,436
60
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
4. Management Fees and Other Transactions with Affiliates.
a. Management Fees. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as
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%
IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), 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%
Management and advisory administration fees are presented in the Statements of
Operations as management fees.
Loomis Sayles has given binding undertakings to the Funds to defer its
management fees and/or reimburse certain expenses associated with these Funds
to limit their operating expenses. These undertakings are in effect until
January 31, 2007 and will be reevaluated on an annual basis. For the period
from February 1, 2006 to September 30, 2006, the expense limits as a percentage
of average daily net assets under the expense limitation agreements were as
follows:
Expense Limit as a Percentage of
Average Daily Net Assets
- -------------------------------
Fund Class A Class B Class C Class Y
---- ------- ------- ------- -------
Core Plus Bond Fund 1.05% 1.80% 1.80% 0.80%
High Income Fund 1.25% 2.00% 2.00% --
Limited Term Government and Agency Fund 1.00% 1.75% 1.75% 0.75%
Massachusetts Tax Free Income Fund 0.95% 1.70% -- --
Municipal Income Fund 0.95% 1.70% -- --
Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
Prior to February 1, 2006, 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 1.05% 1.80% 1.80% 0.80%
High Income Fund 1.45% 2.20% 2.20% --
Limited Term Government and Agency Fund -- -- -- --
Massachusetts Tax Free Income Fund 1.15% 1.90% -- --
Municipal Income Fund -- -- -- --
Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
61
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
Loomis Sayles and IXIS Advisors have agreed to equally bear the fee waivers
and/or expense reimbursements for the Core Plus Bond Fund and Massachusetts Tax
Free Income Fund.
For the year ended September 30, 2006, 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
- ---- ----------- ---------- ----------- ------ ------
Core Plus Bond Fund $ 492,131 $ -- $ 492,131 0.214% 0.214%
High Income Fund 235,740 -- 235,740 0.600% 0.600%
Limited Term Government and Agency Fund 728,190 -- 728,190 0.500% 0.500%
Massachusetts Tax Free Income Fund 228,872 28,465 200,407 0.300% 0.256%
Municipal Income Fund 510,697 -- 510,697 0.495% 0.495%
Strategic Income Fund 18,365,690 -- 18,365,690 0.585% 0.585%
For the year ended September 30, 2006, the advisory administration fees and
waivers for each Fund were as follows:
Percentage of
Waiver of Average
Advisory Advisory Net Advisory Daily Net Assets
Administration Administration Administration ----------------
Fund Fee Fee Fee Gross Net
- ---- -------------- -------------- -------------- ------ ------
Core Plus Bond Fund $492,132 $ -- $492,132 0.214% 0.214%
Massachusetts Tax Free Income Fund 228,872 28,465 200,407 0.300% 0.256%
For the year ended September 30, 2006, in addition to the waiver of management
fees and/or advisory administration fees, expenses have been reimbursed as
follows:
Fund Reimbursement
---- -------------
Core Plus Bond Fund $73,029
High Income Fund 64,092
Limited Term Government and Agency Fund 70,282
Massachusetts Tax Free Income Fund 35,227
Municipal Income Fund 20,044
Loomis Sayles and IXIS Advisors shall be permitted to recover management
fees/advisory administration fees waived and/or expenses borne under the
expense limitation agreements on a Class by Class basis in later periods to the
extent a Class' expenses fall below a Class' expense limits, provided, however,
that a Class is not obligated to pay such deferred fees/expenses more than one
year after the end of the fiscal year in which the fee/expense was deferred.
The amounts subject to possible reimbursement under the expense limitation
agreements at September 30, 2006 were as follows:
Expenses Subject to Possible Reimbursement until
September 30, 2007
- - ------------------------------------------------
Fund Class A Class B Class C Class Y Total
- ---- ------- ------- ------- ------- -----
Core Plus Bond Fund $31,145 $40,795 $1,089 -- $73,029
High Income Fund 42,950 15,738 5,404 -- 64,092
Limited Term Government and Agency Fund 61,913 6,019 2,350 -- 70,282
Massachusetts Tax Free Income Fund 88,881 3,276 -- -- 92,157
Municipal Income Fund 18,551 1,493 -- -- 20,044
Certain officers and directors of Loomis Sayles and IXIS Advisors are also
Trustees of the Funds. Loomis Sayles and IXIS Advisors are both limited
partnerships whose sole general partner is indirectly owned by IXIS Asset
Management US Group, L.P. ("IXIS US Group") (formerly IXIS Asset Management
North America, L.P.), which is part of IXIS Asset Management Group, an
international asset management group based in Paris, France.
62
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
b. Administrative Fees. IXIS Advisors provides certain administrative services
for the Funds and has subcontracted with State Street Bank to serve as
sub-administrator. IXIS Advisors is a limited partnership whose sole general
partner, IXIS Asset Management Distribution Corporation, is an indirect
wholly-owned subsidiary of IXIS US Group. Pursuant to an agreement among 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 ("IXIS
Advisor Funds Trusts"), Loomis Sayles Funds I, Loomis Sayles Funds II ("Loomis
Sayles Funds Trusts") and IXIS Advisors, 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,
which is reevaluated on an annual basis.
For the year ended September 30, 2006, amounts paid to IXIS Advisors for
administrative fees were as follows:
Administrative
Fund Fees
---- ----
Core Plus Bond Fund $ 136,903
High Income Fund 23,472
Limited Term Government and Agency Fund 86,859
Massachusetts Tax Free Income Fund 45,404
Municipal Income Fund 61,500
Strategic Income Fund 1,899,235
c. Service and Distribution Fees. The Trusts have entered into a distribution
agreement with IXIS Asset Management Distributors, L.P. ("IXIS Distributors"),
a wholly-owned subsidiary of IXIS US Group. Pursuant to this agreement, IXIS
Distributors serves as principal underwriter of the funds of the Trusts.
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 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 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, 2006, the Funds paid the following service and
distribution fees:
Service Fees Distribution Fees
- - ------------------------------ ---------------------
Fund Class A Class B Class C Class B Class C
- ---- ------- ------- ------- ------- -------
Core Plus Bond Fund $ 239,223 $295,608 $ 14,996 $ 886,823 $ 44,987
High Income Fund 66,667 23,149 8,409 69,445 25,229
Limited Term Government and Agency Fund 315,317 30,429 12,212 91,284 36,634
Massachusetts Tax Free Income Fund 183,746 6,982 -- 20,942 --
Municipal Income Fund 241,651 15,893 -- 47,677 --
Strategic Income Fund 4,219,448 384,848 2,915,854 1,154,544 8,747,562
63
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
d. Commissions. The Funds have been informed that commissions (including CDSC)
on Fund shares paid to IXIS Distributors by investors in shares of the Funds
during the year ended September 30, 2006 were as follows:
Fund Commission
---- ----------
Core Plus Bond Fund $ 104,447
High Income Fund 76,029
Limited Term Government and Agency Fund 71,751
Massachusetts Tax Free Income Fund 25,430
Municipal Income Fund 64,488
Strategic Income Fund 7,296,525
e. Trustees Fees and Expenses. The Funds do not pay any compensation directly
to their officers or Trustees who are directors, officers or employees of IXIS
Advisors, IXIS Distributors, IXIS US Group, Loomis Sayles or their affiliates.
The Chairperson of the Board receives a retainer fee at the annual rate of
$200,000. The Chairperson does not receive any meeting attendance fees for
Board of Trustees meetings or committee meetings that she attends. Each
Independent Trustee (other than the Chairperson) receives, in the aggregate, a
retainer fee at the annual rate of $55,000. Each Independent Trustee also
receives a meeting attendance fee of $6,000 for each meeting of the Board of
Trustees that he or she attends in person and $3,000 for each meeting of the
Board of Trustees that he or she attends telephonically. In addition, each
committee chairman receives an additional retainer fee at the annual rate of
$10,000. Each Contract Review and Governance Committee member is compensated
$4,000 for each Committee meeting that he or she attends in person and $2,000
for each meeting that he or she attends telephonically. Each Audit Committee
member is compensated $5,000 for each Committee meeting that he or she attends
in person and $2,500 for each meeting that he or she attends telephonically.
These fees are allocated among the funds in 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.
Prior to January 1, 2006, each committee member was compensated $4,000 for each
Audit Committee meeting that he or she attended in person and $2,000 for each
such meeting he or she attended telephonically.
Prior to November 18, 2005, the Trusts had co-chairmen of the Board who each
received an annual retainer of $25,000. In addition, during the period
October 1, 2005 to November 18, 2005, each co-chairman received an additional
one-time payment of $25,000 as compensation for their services as chairmen.
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 the Funds' assets
to pay their portion of the annual salary for 2005 of an employee of IXIS
Advisors who supported the Funds' Chief Compliance Officer. For the period from
October 1, 2005 to December 31, 2005, each Fund's portion of such expense was
approximately $575.
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 are 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 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 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, participate in a $75,000,000 committed line of credit provided by State
Street Bank. 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 year
ended September 30, 2006, the Funds had no borrowings under this agreement.
64
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
6. 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, 2006, the Fund
had the following concentrations by revenue source in excess of 10% as a
percentage of the Fund's net assets: Colleges and Universities 33.0%, Water and
Sewerage 13.3%, State Appropriations 12.2% and Hospitals 11.2%. 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 13.5%,
10.8%, and 7.4% of its net assets, respectively, at September 30, 2006.
At September 30, 2006, Municipal Income Fund had more than 10% of its net
assets invested in the following: New York State and City Obligations 17.6%.
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.
7. 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.
65
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
8. 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
September 30, 2006
-----------------------------------
Core Plus Bond Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 1,382,171 $ 15,380,850
Issued in connection with the reinvestment of distributions 372,669 4,153,500
---------------- -----------------
1,754,840 19,534,350
Redeemed (2,825,473) (31,498,913)
---------------- -----------------
Net change (1,070,633) $ (11,964,563)
---------------- -----------------
Class B:
Issued from the sale of shares 2,443,291 $ 27,246,501
Issued in connection with the reinvestment of distributions 124,023 1,383,392
---------------- -----------------
2,567,314 28,629,893
Redeemed (4,382,113) (48,867,417)
---------------- -----------------
Net change (1,814,799) $ (20,237,524)
---------------- -----------------
Class C:
Issued from the sale of shares 217,848 $ 2,421,818
Issued in connection with the reinvestment of distributions 13,202 147,350
---------------- -----------------
231,050 2,569,168
Redeemed (141,074) (1,577,745)
---------------- -----------------
Net change 89,976 $ 991,423
---------------- -----------------
Class Y:
Issued from the sale of shares 531,672 $ 5,901,516
Issued in connection with the reinvestment of distributions 36,711 411,038
---------------- -----------------
568,383 6,312,554
Redeemed (296,854) (3,319,094)
---------------- -----------------
Net change 271,529 $ 2,993,460
---------------- -----------------
Increase (decrease) from capital share transactions (2,523,927) $ (28,217,204)
================ =================
Year Ended
September 30, 2005
-----------------------------------
Core Plus Bond Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 1,388,801 $ 16,079,888
Issued in connection with the reinvestment of distributions 374,646 4,342,323
---------------- -----------------
1,763,447 20,422,211
Redeemed (2,814,749) (32,644,448)
---------------- -----------------
Net change (1,051,302) $ (12,222,237)
---------------- -----------------
Class B:
Issued from the sale of shares 3,051,314 $ 35,378,116
Issued in connection with the reinvestment of distributions 138,384 1,605,875
---------------- -----------------
3,189,698 36,983,991
Redeemed (4,304,577) (49,860,073)
---------------- -----------------
Net change (1,114,879) $ (12,876,082)
---------------- -----------------
Class C:
Issued from the sale of shares 117,915 $ 1,367,189
Issued in connection with the reinvestment of distributions 12,453 144,537
---------------- -----------------
130,368 1,511,726
Redeemed (125,755) (1,458,081)
---------------- -----------------
Net change 4,613 $ 53,645
---------------- -----------------
Class Y:
Issued from the sale of shares 294,003 $ 3,417,059
Issued in connection with the reinvestment of distributions 36,213 421,543
---------------- -----------------
330,216 3,838,602
Redeemed (471,320) (5,465,958)
---------------- -----------------
Net change (141,104) $ (1,627,356)
---------------- -----------------
Increase (decrease) from capital share transactions (2,302,672) $ (26,672,030)
================ =================
66
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
8. Capital Shares (continued).
Year Ended
September 30, 2006
-----------------------------------
High Income Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 1,613,908 $ 8,110,484
Issued in connection with the reinvestment of distributions 225,645 1,132,995
---------------- -----------------
1,839,553 9,243,479
Redeemed (1,315,469) (6,579,692)
---------------- -----------------
Net change 524,084 $ 2,663,787
---------------- -----------------
Class B:
Issued from the sale of shares 139,925 $ 704,223
Issued in connection with the reinvestment of distributions 49,894 250,269
---------------- -----------------
189,819 954,492
Redeemed (1,175,776) (5,886,573)
---------------- -----------------
Net change (985,957) $ (4,932,081)
---------------- -----------------
Class C:
Issued from the sale of shares 245,364 $ 1,234,623
Issued in connection with the reinvestment of distributions 16,606 83,348
---------------- -----------------
261,970 1,317,971
Redeemed (296,889) (1,478,155)
---------------- -----------------
Net change (34,919) $ (160,184)
---------------- -----------------
Increase (decrease) from capital share transactions (496,792) $ (2,428,478)
================ =================
Year Ended
September 30, 2005
-----------------------------------
High Income Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 1,843,627 $ 9,144,401
Issued in connection with the reinvestment of distributions 201,974 1,002,839
---------------- -----------------
2,045,601 10,147,240
Redeemed (1,968,099) (9,761,214)
---------------- -----------------
Net change 77,502 $ 386,026
---------------- -----------------
Class B:
Issued from the sale of shares 127,125 $ 632,910
Issued in connection with the reinvestment of distributions 79,627 395,537
---------------- -----------------
206,752 1,028,447
Redeemed (1,513,258) (7,517,536)
---------------- -----------------
Net change (1,306,506) $ (6,489,089)
---------------- -----------------
Class C:
Issued from the sale of shares 304,056 $ 1,494,195
Issued in connection with the reinvestment of distributions 17,043 84,652
---------------- -----------------
321,099 1,578,847
Redeemed (147,783) (739,866)
---------------- -----------------
Net change 173,316 $ 838,981
---------------- -----------------
Increase (decrease) from capital share transactions (1,055,688) $ (5,264,082)
================ =================
67
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
8. Capital Shares (continued).
Year Ended
September 30, 2006
-----------------------------------
Limited Term Government and Agency Fund Shares Amount
- ---------------------------------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 555,196 $ 6,089,078
Issued in connection with the acquisition of Loomis Sayles Government Securities Fund -- --
Issued in connection with the reinvestment of distributions 317,378 3,476,250
---------------- -----------------
872,574 9,565,328
Redeemed (3,237,220) (35,466,514)
---------------- -----------------
Net change (2,364,646) $ (25,901,186)
---------------- -----------------
Class B:
Issued from the sale of shares 74,303 $ 814,813
Issued in connection with the acquisition of Loomis Sayles Government Securities Fund -- --
Issued in connection with the reinvestment of distributions 29,021 317,417
---------------- -----------------
103,324 1,132,230
Redeemed (562,347) (6,150,376)
---------------- -----------------
Net change (459,023) $ (5,018,146)
---------------- -----------------
Class C:
Issued from the sale of shares 63,287 $ 692,417
Issued in connection with the reinvestment of distributions 8,700 95,297
---------------- -----------------
71,987 787,714
Redeemed (202,763) (2,222,285)
---------------- -----------------
Net change (130,776) $ (1,434,571)
---------------- -----------------
Class Y:
Issued from the sale of shares 16,475 $ 181,528
Issued in connection with the acquisition of Loomis Sayles Government Securities Fund -- --
Issued in connection with the reinvestment of distributions 9,128 100,325
---------------- -----------------
25,603 281,853
Redeemed (30,025) (330,286)
---------------- -----------------
Net change (4,422) $ (48,433)
---------------- -----------------
Increase (decrease) from capital share transactions (2,958,867) $ (32,402,336)
================ =================
Year Ended
September 30, 2005
-----------------------------------
Limited Term Government and Agency Fund Shares Amount
- ---------------------------------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 1,025,368 $ 11,507,822
Issued in connection with the acquisition of Loomis Sayles Government Securities Fund 4,449,445 49,566,819
Issued in connection with the reinvestment of distributions 223,935 2,506,659
---------------- -----------------
5,698,748 63,581,300
Redeemed (2,390,415) (26,770,920)
---------------- -----------------
Net change 3,308,333 $ 36,810,380
---------------- -----------------
Class B:
Issued from the sale of shares 90,600 $ 1,011,141
Issued in connection with the acquisition of Loomis Sayles Government Securities Fund 834,917 9,275,925
Issued in connection with the reinvestment of distributions 20,684 230,974
---------------- -----------------
946,201 10,518,040
Redeemed (476,529) (5,324,127)
---------------- -----------------
Net change 469,672 $ 5,193,913
---------------- -----------------
Class C:
Issued from the sale of shares 67,790 $ 759,450
Issued in connection with the reinvestment of distributions 7,387 82,688
---------------- -----------------
75,177 842,138
Redeemed (174,813) (1,960,779)
---------------- -----------------
Net change (99,636) $ (1,118,641)
---------------- -----------------
Class Y:
Issued from the sale of shares 206,094 $ 2,316,707
Issued in connection with the acquisition of Loomis Sayles Government Securities Fund 356 3,981
Issued in connection with the reinvestment of distributions 5,628 63,325
---------------- -----------------
212,078 2,384,013
Redeemed (357,795) (4,047,745)
---------------- -----------------
Net change (145,717) $ (1,663,732)
---------------- -----------------
Increase (decrease) from capital share transactions 3,532,652 $ 39,221,920
================ =================
68
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
8. Capital Shares (continued).
Year Ended
September 30, 2006
-----------------------------------
Massachusetts Tax Free Income Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 116,584 $ 1,927,090
Issued in connection with the reinvestment of distributions 128,646 2,122,198
---------------- -----------------
245,230 4,049,288
Redeemed (533,421) (8,795,072)
---------------- -----------------
Net change (288,191) $ (4,745,784)
---------------- -----------------
Class B:
Issued from the sale of shares 3,138 $ 51,637
Issued in connection with the reinvestment of distributions 3,663 60,307
---------------- -----------------
6,801 111,944
Redeemed (59,258) (974,232)
---------------- -----------------
Net change (52,457) $ (862,288)
---------------- -----------------
Increase (decrease) from capital share transactions (340,648) $ (5,608,072)
================ =================
Year Ended
September 30, 2006
-----------------------------------
Municipal Income Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 462,407 $ 3,433,795
Issued in connection with the reinvestment of distributions 334,961 2,490,096
---------------- -----------------
797,368 5,923,891
Redeemed (2,091,235) (15,530,757)
---------------- -----------------
Net change (1,293,867) $ (9,606,866)
---------------- -----------------
Class B:
Issued from the sale of shares 53,879 $ 401,621
Issued in connection with the reinvestment of distributions 15,598 116,046
---------------- -----------------
69,477 517,667
Redeemed (399,386) (2,971,013)
---------------- -----------------
Net change (329,909) $ (2,453,346)
---------------- -----------------
Increase (decrease) from capital share transactions (1,623,776) $ (12,060,212)
================ =================
Year Ended
September 30, 2005
-----------------------------------
Massachusetts Tax Free Income Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 108,967 $ 1,818,083
Issued in connection with the reinvestment of distributions 124,767 2,082,631
---------------- -----------------
233,734 3,900,714
Redeemed (509,747) (8,484,290)
---------------- -----------------
Net change (276,013) $ (4,583,576)
---------------- -----------------
Class B:
Issued from the sale of shares 3,203 $ 53,537
Issued in connection with the reinvestment of distributions 4,326 72,024
---------------- -----------------
7,529 125,561
Redeemed (82,197) (1,367,143)
---------------- -----------------
Net change (74,668) $ (1,241,582)
---------------- -----------------
Increase (decrease) from capital share transactions (350,681) $ (5,825,158)
================ =================
Year Ended
September 30, 2005
-----------------------------------
Municipal Income Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 417,124 $ 3,133,149
Issued in connection with the reinvestment of distributions 359,731 2,701,656
---------------- -----------------
776,855 5,834,805
Redeemed (2,060,532) (15,468,783)
---------------- -----------------
Net change (1,283,677) $ (9,633,978)
---------------- -----------------
Class B:
Issued from the sale of shares 91,090 $ 683,767
Issued in connection with the reinvestment of distributions 20,236 152,169
---------------- -----------------
111,326 835,936
Redeemed (309,437) (2,326,615)
---------------- -----------------
Net change (198,111) $ (1,490,679)
---------------- -----------------
Increase (decrease) from capital share transactions (1,481,788) $ (11,124,657)
================ =================
69
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
8. Capital Shares (continued).
Year Ended
September 30, 2006
-----------------------------------
Strategic Income Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 138,264,882 $ 1,969,973,470
Issued in connection with the reinvestment of distributions 4,434,461 63,237,389
---------------- -----------------
142,699,343 2,033,210,859
Redeemed (20,978,934) (298,257,925)
---------------- -----------------
Net change 121,720,409 $ 1,734,952,934
---------------- -----------------
Class B:
Issued from the sale of shares 4,378,474 $ 62,611,798
Issued in connection with the reinvestment of distributions 254,799 3,636,750
---------------- -----------------
4,633,273 66,248,548
Redeemed (2,489,164) (35,488,933)
---------------- -----------------
Net change 2,144,109 $ 30,759,615
---------------- -----------------
Class C:
Issued from the sale of shares 76,685,324 $ 1,097,132,921
Issued in connection with the reinvestment of distributions 1,024,379 14,656,353
---------------- -----------------
77,709,703 1,111,789,274
Redeemed (7,823,598) (111,619,466)
---------------- -----------------
Net change 69,886,105 $ 1,000,169,808
---------------- -----------------
Class Y:
Issued from the sale of shares 16,186,079 $ 231,166,734
Issued in connection with the reinvestment of distributions 92,338 1,318,567
---------------- -----------------
16,278,417 232,485,301
Redeemed (1,256,435) (17,863,735)
---------------- -----------------
Net change 15,021,982 $ 214,621,566
---------------- -----------------
Increase (decrease) from capital share transactions 208,772,605 $ 2,980,503,923
================ =================
Year Ended
September 30, 2005
-----------------------------------
Strategic Income Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A:
Issued from the sale of shares 50,308,376 $ 706,576,467
Issued in connection with the reinvestment of distributions 1,468,469 20,639,715
---------------- -----------------
51,776,845 727,216,182
Redeemed (8,154,982) (114,434,654)
---------------- -----------------
Net change 43,621,863 $ 612,781,528
---------------- -----------------
Class B:
Issued from the sale of shares 3,250,360 $ 45,753,417
Issued in connection with the reinvestment of distributions 252,300 3,556,640
---------------- -----------------
3,502,660 49,310,057
Redeemed (2,831,055) (39,810,800)
---------------- -----------------
Net change 671,605 $ 9,499,257
---------------- -----------------
Class C:
Issued from the sale of shares 37,693,843 $ 531,354,799
Issued in connection with the reinvestment of distributions 386,067 5,441,310
---------------- -----------------
38,079,910 536,796,109
Redeemed (3,055,156) (42,960,385)
---------------- -----------------
Net change 35,024,754 $ 493,835,724
---------------- -----------------
Class Y:
Issued from the sale of shares 3,058,044 $ 42,955,389
Issued in connection with the reinvestment of distributions 30,007 421,552
---------------- -----------------
3,088,051 43,376,941
Redeemed (332,834) (4,648,580)
---------------- -----------------
Net change 2,755,217 $ 38,728,361
---------------- -----------------
Increase (decrease) from capital share transactions 82,073,439 $ 1,154,844,870
================ =================
70
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 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
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 Loomis Sayles
Strategic Income Fund, each a series of Loomis Sayles Funds II (collectively,
"the Funds"), at September 30, 2006, 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, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 22, 2006
71
2006 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (unaudited)
Corporate Dividends Received Deduction. For the fiscal year ended September 30,
2006, a percentage of dividends distributed by the Funds listed below qualify
for the dividends received deduction for corporate shareholders. These
percentages are as follows:
Qualifying
Fund Percentage
---- ----------
High Income Fund 5.45%
Strategic Income Fund 5.72%
Qualified Dividend Income. For the fiscal year ended September 30, 2006, the
Funds below 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 2006, complete
information will be reported in conjunction with Form 1099-DIV.
Fund
---- -
High Income Fund
Strategic Income Fund
Tax Exempt Income. For the fiscal year ended September 30, 2006, a percentage
of dividends distributed by the Funds listed below qualify as tax exempt income
for Federal income tax purposes. These percentages are as follows:
Qualifying
Fund Percentage
---- ----------
Massachusetts Tax Free Income Fund 99.34%
Municipal Income Fund 98.62%
72
TRUSTEE AND OFFICER INFORMATION
The tables below provide 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 Trusts' Statements
of Additional Information include additional information about the Trustees of
the Trusts and are available by calling Loomis Sayles at 800-314-2029.
Position(s) Held with the Number of Portfolios in
Trusts, 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, Douglas Dillon Professor and 38
(3/23/40) since 1984 for IXIS Advisor Director of the Belfer Center Director, Taubman Centers,
Funds Trust I, (including its for Science and International Inc. (real estate investment
predecessors) since 1995 Affairs, John F. Kennedy trust)
for IXIS Advisor Funds School of Government,
Trust II and since 2003 Harvard University
Loomis Sayles Funds II
Contract Review and
Governance Committee
Member
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 2003 for IXIS Advisor Director, Precision Optics
Funds Trust I, IXIS Advisor Corporation (optics
Funds Trust II, and since manufacturer)
2002 for Loomis Sayles
Funds II
Chairman of the Contract
Review and Governance
Committee Member
Daniel M. Cain Trustee, President and Chief Executive 38
(2/24/45) since 1996 for IXIS Advisor Officer, Cain Brothers & Director, Sheridan
Funds Trust I and IXIS Company, Incorporated Healthcare Inc. (physician
Advisor Funds Trust II and (investment banking) practice management)
since 2003 for Loomis
Sayles Funds II
Chairman of the Audit
Committee
Paul G. Chenault + Trustee, Retired; Trustee, First Variable 38
(9/12/33) since 2003 for IXIS Advisor Life (variable life insurance) Director, Mailco Office
Funds Trust I and IXIS Products, Inc. (mailing
Advisor Funds Trust II and equipment)
since 2000 for Loomis
Sayles Funds II
Contract Review and
Governance Committee
Member
73
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trusts, 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, Retired 38
(4/5/32) since 1993 for IXIS Advisor None
Funds Trust I, since 1975
for IXIS Advisor Funds
Trust II and since 2003 for
Loomis Sayles Funds II
Contract Review and
Governance Committee
Member
Richard Darman Trustee, Partner, The Carlyle Group 38
(5/10/43) since 1996 for IXIS Advisor (investments); formerly, Director and Chairman of
Funds Trust I and IXIS Professor, John F. Kennedy Board of Directors, AES
Advisor Funds Trust II and School of Government, Corporation (international
since 2003 for Loomis Harvard University power company)
Sayles Funds II
Contract Review and
Governance Committee
Member
Sandra O. Moose Trustee, since 1982 for President, Strategic Advisory 38
(2/17/42) IXIS Advisor Funds Trust I Services (management Director, Verizon
(including its predecessors) consulting); formerly, Senior Communications;
since 1993 for IXIS Advisor Vice President and Director, Director, Rohm and Haas
Funds Trust II; and since The Boston Consulting Group, Company (specialty
2003 for Loomis Sayles Inc. (management consulting) chemicals);
Funds II Director, AES Corporation
Chairperson of the Board (international power
of Trustees since November company)
2005
Ex officio member of the
Audit Committee and
Contract Review and
Governance Committee
John A. Shane+ Trustee, President, Palmer Service 38
(2/22/33) since 1982 for IXIS Advisor Corporation (venture capital Director, Gensym
Funds Trust I (including its organization) Corporation (software and
predecessors) since 1995 technology service provider);
for IXIS Advisor Funds Director and Chairman of the
Trust II and since 2003 for Board, Abt Associates Inc.
Loomis Sayles Funds II (research and consulting
Audit Committee Member firm)
74
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trusts, 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
Cynthia L. Walker Trustee, Executive Dean for 38
(7/25/56) since 2005 Administration (formerly, None
Audit Committee Member Dean for Finance and CFO),
Harvard Medical School
INTERESTED TRUSTEES
Robert J. Blanding/1/ Trustee, President, Chairman, Director, 38
(4/14/47) since 2003 for IXIS Advisor and Chief Executive Officer, None
555 California Street Funds Trust I and IXIS Loomis, Sayles & Company,
San Francisco, CA 94104 Advisor Funds Trust II, L.P.; President and Chief
Chief Executive Officer and Executive Officer for Loomis
Trustee since 2002 for Sayles Funds I; Chief Executive
Loomis Sayles Funds II Officer for Loomis Sayles
Funds II
John T. Hailer/2/ President, Chief Executive President and Chief Executive 38
(11/23/60) Officer and Trustee since Officer, IXIS Asset None
2000 for IXIS Advisor Management Advisors, L.P.,
Funds Trust I and IXIS IXIS Asset Management
Advisor Funds Trust II, Distributors, L.P. and IXIS
President and Trustee since Asset Management Global
2003 for Loomis Sayles Associates, L.P.; Executive
Funds II Vice President, Loomis Sayles
Funds I; President and Chief
Executive Officer, AEW Real
Estate Income Fund, IXIS
Advisor Cash Management
Trust, IXIS Advisor Funds
Trust I, IXIS Advisor Funds
Trust II, IXIS Advisor Funds
Trust III and IXIS Advisor
Funds Trust IV
* Each Trustee serves until retirement, resignation or removal from the Board
of Trustees. The current retirement age is 72, but the retirement policy was
suspended for the calendar year 2005. At a meeting held on August 26, 2005,
the trustees voted to lift the suspension of the retirement policy and to
designate 2006 as a transition period so that any trustees who are currently
age 72 or older or who reach age 72 during the remainder of 2006 will not be
required to retire until the end of calendar year 2006. The position of
Chairperson of the Board is appointed for a two-year term.
** Each person listed above, except as noted, holds the same position(s) with
the 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") or Loomis, Sayles & Company, L.P. 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 (together the "IXIS Advisor Funds and Loomis Sayles
Funds Trusts").
+ Effective December 31, 2006, Messrs. Chenault, Cowan and Shane will be
retiring as members of the IXIS Advisor Funds and Loomis Sayles Funds Trusts
Board of Trustees.
/1/ Mr. Blanding is deemed an "interested person" of the Trusts because he
holds the following positions with affiliated persons of the Trusts:
President, Chairman, Director and Chief Executive Officer of Loomis Sayles.
/2/ Mr. Hailer is deemed an "interested person" of the Trusts because he holds
the following positions with affiliated persons of the Trusts: Director
and Executive Vice President of IXIS Asset Management Distribution
Corporation ("IXIS Distribution Corporation"); and President and Chief
Executive Officer of IXIS Asset Management Global Associates, L.P., IXIS
Asset Management Advisors and IXIS Asset Management Distributors, L.P.
75
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Trusts Term of Principal Occupation(s)
Name and Date of Birth Office and Length of Time Served* During Past 5 Years**
- ---------------------- --------------------------------- ---------------------
OFFICERS OF THE TRUSTS
Coleen Downs Dinneen Secretary, Clerk and Chief Legal Officer Senior Vice President, General
(12/16/60) Since September 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.
Daniel J. Fuss Executive Vice President for Vice Chairman and Director, Loomis,
(9/27/33) Loomis Sayles Funds II Sayles & Company, L.P.; Prior to
One Financial Center Since June 2003 2002, President and Trustee of
Boston, MA 02111 Loomis Sayles Funds II
Russell L. Kane Chief Compliance Officer, Chief Compliance Officer for Mutual
(7/23/69) Since May 2006; Assistant Secretary Funds, Vice President, Associate
Since June 2004 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.;
formerly, Senior Counsel, Columbia
Management Group.
Michael C. Kardok Treasurer, Principal Financial and Senior Vice President, IXIS Asset
(7/17/59) Accounting Officer Management Advisors, L.P. and IXIS
Since October 2004 Asset Management Distributors, L.P.;
formerly, Senior Director, PFPC Inc;
formerly, Vice President--Division
Manager, First Data Investor
Services, Inc.
Max J. Mahoney Anti-Money Laundering Officer Vice President, Deputy General
(5/1/62) and Assistant Secretary Counsel, Assistant Secretary and
Since August 2005 Assistant Clerk, IXIS Asset
Management Distribution
Corporation. Senior Vice President,
Deputy General Counsel, Assistant
Secretary, Assistant Clerk and Chief
Compliance Officer--Investment
Adviser, IXIS Asset Management
Distributors, L.P. and IXIS Asset
Management Advisors, L.P.;
formerly, Senior Counsel, MetLife,
Inc.; formerly, Associate Counsel,
LPL Financial Services, Inc.
76
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Trusts Term of Principal Occupation(s)
Name and Date of Birth Office and Length of Time Served* During Past 5 Years**
- ---------------------- --------------------------------- ---------------------
OFFICERS OF THE TRUSTS
continued
John E. Pelletier Chief Operating Officer Executive Vice President and Chief
(6/24/64) Since September 2004 Operating Officer (formerly, Senior
Vice President, General Counsel,
Secretary and Clerk), IXIS Asset
Management Distribution
Corporation, IXIS Asset Management
Distributors, L.P. and IXIS Asset
Management Advisors, L.P.;
Executive Vice President, Chief
Operating Officer and Director
(formerly, President, Chief Operating
Officer and Director), IXIS Asset
Management Services Company.
* Each officer of the Trusts serves for an indefinite term in accordance with
their current By-laws until the date his or her successor is elected and
qualified, or until he or she sooner dies, retires, is removed or becomes
disqualified.
** Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor Funds and Loomis Sayles Funds Trusts. Previous positions
during the past five years with the Distributor, IXIS Advisors or Loomis
Sayles are omitted, if not materially different from a trustee's or
officer's current position with such entity.
77
[LOGO]
Equity Funds
Annual Report
September 30, 2006
[LOGO]
Loomis Sayles Global Markets Fund
Loomis Sayles Growth Fund
Loomis Sayles Research Fund
TABLE OF CONTENTS
Management Discussion
and Performance..........Page 1
Portfolio of InvestmentsPage 12
Financial Statements....Page 21
LOOMIS SAYLES GLOBAL MARKETS FUND
PORTFOLIO PROFILE
Objective:
Seeks high total 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 markets
- --------------------------------------------------------------------------------
Fund Inception:
May 1, 1996
- --------------------------------------------------------------------------------
Managers:
Mark Baribeau, CFA
Dan Fuss, CFA, CIC
Warren Koontz, CFA, CIC
David Rolley, CFA
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
Symbols:
Class A LGMAX
Class C LGMCX
Class Y LSWWX
- --------------------------------------------------------------------------------
What You Should Know:
Foreign and emerging market securities involve risks not associated with
domestic securities, including fluctuations in currencies, differing political
and economic conditions and accounting standards. Value stocks may fall out of
favor and underperform the overall market during any given period. Growth
stocks can be more sensitive to market movements because their prices are based
in part on future expectations. Fixed-income securities are subject to credit
risk and interest-rate risk; their value generally rises when prevailing
interest rates fall and declines when rates rise. Lower-rated bonds may offer
higher yields in return for more risk.
Management Discussion
- --------------------------------------------------------------------------------
On a worldwide basis, common stocks outperformed bonds during the fiscal year
ended September 30, 2006. Loomis Sayles Global Markets Fund provided a total
return of 6.81%, based on the net asset value of Class A shares (Class A shares
total return includes the historical performance of Class Y shares adjusted to
reflect the expenses of Class A for the period of the year ended September 30,
2006 when Class A shares were not offered by the Fund). Although equity
securities dominated the fund's portfolio during the fiscal year, bonds in both
the United States and in foreign markets were weaker than stocks.
For the period, the fund's primary benchmark, the MSCI World Index (common
stocks from developed countries around the world) returned 14.74%, while its
secondary benchmark, Citigroup World Government Bond Index (government bonds
issued in the United States and other developed countries) returned 2.23%. The
average return on Morningstar's World Allocation category (primarily global
equity funds) was 11.48% for the period, while the total return on the Standard
& Poor's 500 Index, the fund's former benchmark, was 10.79% for the 12 months
ended September 30, 2006. The MSCI World Index replaced the S&P 500 Index as
the primary broad-based equity index and the Citigroup World Government Bond
Index was added as a secondary bond index because Loomis Sayles believes these
indexes better reflect the global nature of the securities in which the fund
may invest.
INTERNATIONAL FINANCIAL AND TELECOM SECTORS PERFORMED WELL
On the equity side of the fund, finance and telecommunications were the
strongest sectors. Piraeus Bank, a rapidly expanding Greek bank, was the best
performer among the fund's financial stocks. All the fund's telecom holdings
did well. Good examples include, America Movil, China Mobile and BellSouth. In
China and Latin America, low levels of wireless penetration set the stage for
subscriber growth, compounded by a decrease in handset costs and a lack of
competition in those markets. Domestically, the price of BellSouth stock rose
when AT&T (not a portfolio stock) announced plans to acquire it. Switzerland's
ABB Ltd. was another top performer. The company, which sells power and
automation technology to utility companies, benefited from utilities' need to
improve and expand infrastructure worldwide.
BONDS DENOMINATED IN U.S. DOLLAR WERE POSITIVE
On the fixed-income side, leaders included Level 3 Communications (wireless
telephones), airlines (including Atlas Air and Continental Airlines) and
Albertson's, a domestic supermarket chain. By currency, the U.S. dollar portion
of the fund dominated fixed-income returns and accounted for more than half of
the bond portfolio at September 30, 2006. Other strong currencies included
Brazil, the U.K., and supranationals (multinational banking organizations that
can issue bonds in any currency).
HEALTHCARE EQUITY AND FIXED-INCOME HOLDINGS WERE WEAK
Healthcare was the largest detractor in the equity portion of the fund, due to
holdings like Alcon, a Swiss maker of eye-care products. The company reported
strong earnings during the first half of the fiscal year, but the stock price
fell when it lowered its forecast for the second half. We sold the stock in
March. Healthcare bonds were also the weakest sector in the fund's fixed-income
portfolio, along with some financial companies and industrials. Bonds issued by
the Canadian subsidiary of a major energy company were also negative
contributors and were sold, but the healthcare issues remain in the portfolio.
Currency laggards included the Japanese yen, the Argentine peso, and South
African rand.
OUTLOOK IS FOR SLOWER, BUT STEADY GROWTH
Despite volatile energy prices, the equity markets have advanced with the
economy. We believe corporate earnings growth may slow in the United States as
the Federal Reserve Boards' tightening policies take effect, although we expect
growth to remain healthy. Our equity strategy is to maintain a globally
diversified portfolio made up of the best value and growth ideas we can find,
and to focus on stock selection rather than country allocation.
On the fixed-income side, we are positioned for a slower U.S. economy, but we
do not foresee a recession. Consumers may cut back on housing-financed
expenditures, including home-equity loans and cash-out mortgage refinancings.
We also believe economic momentum is more likely to be led by export and
investments than driven by consumers. Abroad, we are more cautious on the
overall direction of bond markets. We have shortened the fund's duration in the
euro and the Japanese yen.
1
LOOMIS SAYLES GLOBAL MARKETS FUND
Investment Results through September 30, 2006
- --------------------------------------------------------------------------------
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/
September 30, 1996 through September 30, 2006
[CHART]
Net Maximum S&P
Asset Sales MSCI World Citigroup 500
Value/2/ Charge/3/ Index WGBI Index
--------- ---------- ---------- --------- --------
9/30/1996 $10,000 $ 9,425 $10,000 $10,000 $10,000
10/31/1996 10,190 9,604 10,072 10,187 10,276
11/30/1996 10,676 10,062 10,638 10,321 11,053
12/31/1996 10,556 9,949 10,469 10,238 10,834
1/31/1997 10,556 9,949 10,597 9,964 11,510
2/28/1997 10,566 9,958 10,721 9,890 11,601
3/31/1997 10,546 9,940 10,511 9,814 11,124
4/30/1997 10,644 10,032 10,856 9,728 11,788
5/31/1997 10,947 10,318 11,528 9,993 12,506
6/30/1997 11,074 10,438 12,105 10,112 13,066
7/31/1997 11,669 10,998 12,664 10,033 14,106
8/31/1997 11,383 10,729 11,819 10,027 13,315
9/30/1997 11,837 11,157 12,463 10,241 14,045
10/31/1997 11,146 10,505 11,809 10,453 13,576
11/30/1997 11,156 10,515 12,020 10,293 14,204
12/31/1997 10,897 10,271 12,168 10,262 14,448
1/31/1998 11,224 10,579 12,509 10,362 14,608
2/28/1998 11,900 11,216 13,357 10,446 15,661
3/31/1998 12,009 11,319 13,923 10,342 16,463
4/30/1998 11,857 11,175 14,062 10,508 16,629
5/31/1998 11,345 10,692 13,887 10,532 16,343
6/30/1998 10,865 10,240 14,219 10,548 17,007
7/31/1998 10,865 10,240 14,198 10,562 16,826
8/31/1998 9,710 9,151 12,307 10,850 14,393
9/30/1998 9,688 9,131 12,527 11,426 15,315
10/31/1998 10,386 9,789 13,661 11,765 16,561
11/30/1998 10,997 10,364 14,476 11,599 17,565
12/31/1998 11,186 10,543 15,185 11,832 18,577
1/31/1999 11,340 10,688 15,520 11,724 19,354
2/28/1999 11,126 10,486 15,109 11,347 18,752
3/31/1999 11,471 10,811 15,740 11,376 19,503
4/30/1999 11,947 11,260 16,363 11,371 20,258
5/31/1999 12,007 11,316 15,767 11,179 19,779
6/30/1999 12,280 11,574 16,505 10,984 20,877
7/31/1999 12,506 11,787 16,458 11,253 20,225
8/31/1999 12,459 11,742 16,431 11,305 20,125
9/30/1999 12,364 11,653 16,274 11,481 19,573
10/31/1999 12,840 12,102 17,122 11,476 20,812
11/30/1999 14,842 13,988 17,606 11,355 21,235
12/31/1999 17,923 16,892 19,033 11,328 22,486
1/31/2000 17,306 16,311 17,945 11,086 21,356
2/29/2000 19,774 18,637 17,996 11,007 20,952
3/31/2000 19,466 18,347 19,242 11,347 23,002
4/30/2000 18,578 17,510 18,431 10,977 22,310
5/31/2000 18,103 17,062 17,966 11,062 21,852
6/30/2000 18,695 17,620 18,574 11,331 22,390
7/31/2000 18,078 17,038 18,053 11,139 22,041
8/31/2000 18,578 17,510 18,643 11,055 23,409
9/30/2000 18,064 17,025 17,654 11,033 22,174
10/31/2000 17,202 16,213 17,360 10,893 22,080
11/30/2000 16,340 15,401 16,308 11,109 20,339
12/31/2000 17,081 16,098 16,574 11,508 20,439
1/31/2001 17,224 16,234 16,896 11,493 21,164
2/28/2001 16,776 15,812 15,470 11,489 19,234
3/31/2001 16,008 15,087 14,457 11,157 18,016
4/30/2001 16,277 15,341 15,529 11,118 19,416
5/31/2001 16,510 15,560 15,336 11,084 19,546
6/30/2001 16,384 15,442 14,858 10,982 19,070
7/31/2001 16,205 15,274 14,662 11,260 18,882
8/31/2001 16,116 15,190 13,961 11,683 17,700
9/30/2001 15,365 14,482 12,733 11,768 16,271
10/31/2001 15,670 14,769 12,978 11,861 16,581
11/30/2001 15,920 15,005 13,748 11,695 17,853
12/31/2001 15,979 15,060 13,836 11,394 18,009
1/31/2002 15,744 14,839 13,418 11,183 17,747
2/28/2002 15,763 14,857 13,304 11,241 17,404
3/31/2002 16,056 15,133 13,922 11,210 18,059
4/30/2002 16,135 15,207 13,429 11,611 16,964
5/31/2002 16,408 15,464 13,460 11,940 16,839
6/30/2002 16,037 15,115 12,646 12,516 15,640
7/31/2002 15,275 14,397 11,581 12,639 14,421
8/31/2002 15,451 14,562 11,606 12,860 14,515
9/30/2002 14,825 13,973 10,332 13,000 12,938
10/31/2002 15,196 14,322 11,096 12,947 14,076
11/30/2002 15,820 14,911 11,697 12,963 14,905
12/31/2002 15,895 14,981 11,132 13,615 14,029
1/31/2003 16,036 15,114 10,796 13,801 13,662
2/28/2003 16,198 15,267 10,611 13,995 13,457
3/31/2003 16,217 15,285 10,582 14,038 13,587
4/30/2003 17,046 16,066 11,527 14,206 14,707
5/31/2003 17,934 16,903 12,192 14,822 15,481
6/30/2003 18,076 17,037 12,407 14,583 15,679
7/31/2003 17,834 16,808 12,661 14,149 15,955
8/31/2003 18,198 17,151 12,938 14,072 16,266
9/30/2003 18,925 17,837 13,020 14,870 16,094
10/31/2003 19,633 18,504 13,795 14,796 17,004
11/30/2003 19,816 18,676 14,009 15,045 17,154
12/31/2003 20,793 19,597 14,891 15,645 18,053
1/31/2004 21,107 19,893 15,133 15,687 18,385
2/29/2004 21,358 20,130 15,392 15,711 18,640
3/31/2004 21,567 20,327 15,296 15,936 18,359
4/30/2004 20,752 19,559 14,991 15,254 18,071
5/31/2004 20,690 19,500 15,126 15,373 18,319
6/30/2004 21,128 19,913 15,455 15,406 18,675
7/31/2004 20,668 19,479 14,955 15,328 18,057
8/31/2004 20,941 19,736 15,026 15,690 18,130
9/30/2004 21,380 20,151 15,316 15,911 18,326
10/31/2004 21,966 20,703 15,694 16,382 18,606
11/30/2004 23,012 21,689 16,525 16,973 19,359
12/31/2004 23,674 22,313 17,161 17,264 20,018
1/31/2005 23,352 22,010 16,778 17,022 19,530
2/28/2005 23,974 22,595 17,317 17,047 19,941
3/31/2005 23,310 21,969 16,990 16,819 19,588
4/30/2005 22,946 21,627 16,630 17,069 19,216
5/31/2005 23,676 22,314 16,938 16,724 19,828
6/30/2005 24,083 22,698 17,092 16,578 19,856
7/31/2005 24,984 23,547 17,693 16,417 20,594
8/31/2005 25,133 23,688 17,835 16,712 20,407
9/30/2005 25,412 23,951 18,303 16,392 20,572
10/31/2005 25,240 23,788 17,863 16,094 20,229
11/30/2005 25,989 24,495 18,467 15,898 20,994
12/31/2005 26,532 25,007 18,881 16,077 21,001
1/31/2006 27,641 26,052 19,728 16,285 21,557
2/28/2006 27,423 25,846 19,707 16,201 21,616
3/31/2006 27,555 25,970 20,149 16,012 21,885
4/30/2006 27,750 26,155 20,772 16,394 22,179
5/31/2006 26,316 24,803 20,081 16,695 21,540
6/30/2006 26,208 24,701 20,083 16,519 21,570
7/31/2006 26,360 24,844 20,213 16,652 21,703
8/31/2006 26,750 25,212 20,748 16,806 22,219
9/30/2006 27,140 25,580 21,001 16,758 22,792
Average Annual Total Returns -- September 30, 2006
1 YEAR/5/ 5 YEARS/5/ 10 YEARS/5/
CLASS A/1/
Net Asset Value/2,6/ 6.81% 12.05% 10.50%
With Maximum Sales Charge/3/ 0.69 10.74 9.84
CLASS C/1/
Net Asset Value/2,6/ 6.11 11.23 9.68
With CDSC/4/ 5.11 11.23 9.68
CLASS Y/1/
Net Asset Value/2/ 7.07 12.32 10.78
- -----------------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
MSCI World Index 14.74% 10.53% 7.70%
Citigroup World Government Bond Index 2.23 7.33 5.30
S&P 500 Index 10.79 6.97 8.59
Morningstar World Allocation Fund Avg. 11.48 12.52 9.85
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 9/30/06 9/30/05
- -------------------------------------------------
Common Stocks 65.2 64.3
- -------------------------------------------------
Bonds and Notes 31.5 30.1
- -------------------------------------------------
Short Term Investments and
Other 3.3 5.6
- -------------------------------------------------
% of Net Assets as of
TEN LARGEST HOLDINGS 9/30/06 9/30/05
- -------------------------------------------------
America Movil S.A. de C.V.,
Series L 2.2 1.1
- -------------------------------------------------
Roche Holding AG 2.0 2.0
- -------------------------------------------------
Google Inc. 1.9 2.1
- -------------------------------------------------
Piraeus Bank S.A. 1.9 1.5
- -------------------------------------------------
Bank of America Corp. 1.7 0.0
- -------------------------------------------------
Capita Group Plc 1.7 0.0
- -------------------------------------------------
Network Appliance, Inc. 1.6 0.0
- -------------------------------------------------
Goldman Sachs Group, Inc. 1.6 0.0
- -------------------------------------------------
Apple Computer, Inc. 1.6 0.9
- -------------------------------------------------
Heineken NV 1.6 0.0
- -------------------------------------------------
% of Net Assets as of
FIVE LARGEST INDUSTRIES 9/30/06 9/30/05
- -------------------------------------------------
Capital Markets 7.7 4.8
- -------------------------------------------------
Sovereigns 7.4 7.3
- -------------------------------------------------
Computers & Peripherals 5.2 1.6
- -------------------------------------------------
Pharmaceuticals 5.2 2.3
- -------------------------------------------------
Beverages 3.3 0.0
- -------------------------------------------------
Portfolio holdings and asset allocations will vary.
See page 7 for a description of the indexes.
NOTES TO CHARTS
Note: The MSCI World Index replaced the S&P 500 Index as the primary
broad-based equity index and the Citigroup World Government Bond Index was
added as a secondary bond index because Loomis Sayles believes these indexes
better reflect the global nature of the securities in which the fund may invest.
/1/Returns shown in the chart include performance of the fund's Institutional
Class shares, which were redesignated as Class Y shares on 2/1/06. For
periods prior to the inception of Class A and Class C shares (2/1/06), the
prior Institutional Class performance has been restated to reflect the loads
and expenses of Class A and Class C shares, respectively. 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. 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 compares the
performance of Class A shares, at net asset value, to the performance of
Class A shares including the maximum sales charge of 5.75%. This chart
reflects the performance of Class A Shares rather than Class Y shares
because Class A shares have the highest sales charge. Prior to 2/1/06, the
fund was offered without a sales charge.
/2/Does not include a sales charge.
/3/Includes the maximum sales charge of 5.75%.
/4/Performance for Class C shares assumes a 1% contingent deferred sales charge
("CDSC") applied when you sell shares within one year of purchase.
/5/Fund performance has been increased by expense waivers and/or
reimbursements, without which performance would have been lower.
/6/Total return from commencement of operations through September 30, 2006 is
listed in the Financial Highlights.
2
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, CFA
Pamela Czekanski, CFA
Richard Skaggs, CFA
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.
Frequent portfolio turnover may result in increased tax liabilities that will
reduce the fund's overall return.
Management Discussion
- --------------------------------------------------------------------------------
Loomis Sayles Growth Fund's total return for the 12 months ended September 30,
2006 was -3.15% based on the net asset value of Class A shares. The fund's
performance lagged its benchmark, the Russell 1000 Growth Index, which returned
6.04%, as well as the 4.59% average return of funds in the Morningstar Large
Growth category.
ENERGY, CONSUMER DISCRETIONARY, HEALTHCARE HOLDINGS DISAPPOINTED
The energy sector has been highly volatile in the past year. The two worst
performers in the portfolio were Halliburton, a leader in oil field services,
and EOG Resources, one of the nation's largest independent oil and gas
companies. A dramatic decline in natural gas prices, coupled with an earnings
report that missed consensus expectations for the second quarter, caused a
sharp drop in Halliburton's stock price. While EOG reported strong earnings,
its stock fell on investor concerns about falling energy prices, high
inventories, and forecasts of a mild winter. We sold the position.
Shares of internet auctioneer eBay fell after the company's third-quarter
earnings forecast proved disappointing and amid concerns about growing
competition for market share. Although sales and the stock price bounced back
in September, electronics retailer Best Buy declined early in the fiscal year
after two consecutive quarters of disappointing earnings. Despite solid
earnings early in 2006, the stock price of home improvement retailer Lowe's
slid on concerns about the slowing housing market. We sold eBay and Lowe's.
In healthcare, Humana, St. Jude Medical, and Amgen detracted from performance.
Increased costs in its Medicare business hurt Humana, one of the nation's
largest health benefits and medical insurance companies. St. Jude's earnings
came in above expectations early in the period, but the stock fell when the
company announced slowing sales of its implantable cardiac defibrillators.
Although biotech leader Amgen's earnings surpassed expectations, investors
found the company's forecasts disappointing. We sold all three of these
positions.
FINANCIAL AND TECH STOCKS SUPPORTED PERFORMANCE
Financial services and information technology were the fund's best performing
sectors. Investment banker Goldman Sachs reported robust earnings and solid
quarterly gains throughout fiscal 2006. Chicago Mercantile Exchange, the
world's leading diversified financial exchange, reported strong results and
technological enhancements designed to improve transaction speeds. Commercial
real estate broker CB Richard Ellis rose on strong revenue growth across
geographic markets and products.
Positive results from tech stocks were led by Apple Computer and Cognizant
Technology. Apple's second quarter earnings were well above expectations due to
the continued strength of its iPod products and rising sales of Macintosh
computers. New product introductions planned for next year also piqued investor
interest. Cognizant Technology, a leader in information technology services,
announced better-than-expected earnings and revenues.
Internet service provider Google was also a top contributor, as it gained
additional market share. However, QUALCOMM was a notable disappointment in
communications technology. While the company had strong fundamentals, investors
were concerned about a licensing agreement with Nokia.
ENERGY AND HEALTHCARE WERE TRIMMED, TECHNOLOGY EXPANDED
As the year progressed, we reduced fund positions in energy and cut back on
healthcare investments, reflecting our concerns about individual companies. We
also sought out information technology stocks that seemed attractively priced.
OUTLOOK IS FOR CONTINUED ECONOMIC EXPANSION
We believe stock prices are attractively valued and the market has the
potential to deliver positive performance. Despite volatile energy prices and
investor concerns, the economy has continued to expand. While we believe the
growth in corporate earnings and cash flow may slow somewhat, we expect both to
remain at healthy levels. We are hopeful that investors will be encouraged by a
clearer outlook for inflation, energy prices, and the Federal Reserve Board's
intentions.
3
LOOMIS SAYLES GROWTH FUND
Investment Results through September 30, 2006
- --------------------------------------------------------------------------------
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/
September 30, 1996 through September 30, 2006
[CHART]
Net Asset Maximum Sales Russell 1000
Value /2/ Charge/3/ Growth Index
--------- --------- ------------
9/30/1996 $10,000 $ 9,425 $10,000
10/31/1996 10,408 9,810 10,060
11/30/1996 10,846 10,223 10,816
12/31/1996 10,551 9,944 10,604
1/31/1997 11,478 10,818 11,348
2/28/1997 10,850 10,226 11,271
3/31/1997 10,206 9,619 10,661
4/30/1997 10,112 9,531 11,369
5/31/1997 11,110 10,471 12,189
6/30/1997 11,463 10,804 12,677
7/31/1997 12,624 11,898 13,798
8/31/1997 12,331 11,622 12,991
9/30/1997 13,427 12,655 13,630
10/31/1997 13,281 12,517 13,126
11/30/1997 12,883 12,142 13,684
12/31/1997 13,104 12,351 13,837
1/31/1998 12,563 11,841 14,251
2/28/1998 13,447 12,674 15,323
3/31/1998 13,915 13,115 15,933
4/30/1998 14,311 13,488 16,154
5/31/1998 13,760 12,968 15,696
6/30/1998 14,373 13,547 16,657
7/31/1998 13,593 12,811 16,547
8/31/1998 10,866 10,241 14,063
9/30/1998 12,064 11,370 15,144
10/31/1998 12,886 12,145 16,361
11/30/1998 12,970 12,224 17,605
12/31/1998 14,753 13,905 19,193
1/31/1999 15,209 14,335 20,320
2/28/1999 14,583 13,744 19,391
3/31/1999 15,879 14,966 20,413
4/30/1999 16,093 15,168 20,439
5/31/1999 15,652 14,752 19,811
6/30/1999 16,750 15,787 21,198
7/31/1999 16,009 15,089 20,524
8/31/1999 16,137 15,210 20,860
9/30/1999 15,753 14,848 20,422
10/31/1999 16,965 15,989 21,964
11/30/1999 18,122 17,080 23,149
12/31/1999 20,981 19,775 25,557
1/31/2000 20,161 19,002 24,358
2/29/2000 22,665 21,362 25,549
3/31/2000 23,268 21,930 27,378
4/30/2000 21,413 20,182 26,075
5/31/2000 19,992 18,842 24,762
6/30/2000 21,987 20,723 26,639
7/31/2000 21,787 20,534 25,528
8/31/2000 24,137 22,750 27,839
9/30/2000 22,885 21,569 25,206
10/31/2000 21,168 19,951 24,013
11/30/2000 17,563 16,554 20,474
12/31/2000 17,579 16,568 19,826
1/31/2001 17,087 16,105 21,195
2/28/2001 15,040 14,175 17,597
3/31/2001 13,730 12,941 15,682
4/30/2001 14,762 13,914 17,666
5/31/2001 14,271 13,450 17,406
6/30/2001 14,091 13,281 17,002
7/31/2001 13,468 12,694 16,578
8/31/2001 12,437 11,721 15,222
9/30/2001 11,238 10,592 13,702
10/31/2001 11,865 11,183 14,421
11/30/2001 12,902 12,160 15,806
12/31/2001 13,229 12,469 15,777
1/31/2002 13,202 12,443 15,498
2/28/2002 12,493 11,774 14,855
3/31/2002 13,039 12,289 15,369
4/30/2002 12,629 11,903 14,114
5/31/2002 12,547 11,826 13,773
6/30/2002 11,674 11,003 12,499
7/31/2002 10,692 10,077 11,812
8/31/2002 10,692 10,077 11,847
9/30/2002 9,955 9,383 10,618
10/31/2002 10,692 10,077 11,592
11/30/2002 10,965 10,334 12,222
12/31/2002 10,174 9,589 11,378
1/31/2003 10,093 9,512 11,101
2/28/2003 10,038 9,461 11,050
3/31/2003 10,256 9,666 11,256
4/30/2003 10,911 10,283 12,088
5/31/2003 11,538 10,874 12,692
6/30/2003 11,566 10,901 12,866
7/31/2003 12,057 11,364 13,187
8/31/2003 12,384 11,672 13,515
9/30/2003 12,030 11,338 13,370
10/31/2003 13,175 12,417 14,121
11/30/2003 13,284 12,520 14,269
12/31/2003 13,448 12,674 14,762
1/31/2004 13,748 12,957 15,064
2/29/2004 13,856 13,059 15,159
3/31/2004 13,802 13,008 14,878
4/30/2004 13,366 12,597 14,705
5/31/2004 13,775 12,983 14,979
6/30/2004 14,184 13,368 15,166
7/31/2004 13,203 12,443 14,309
8/31/2004 13,039 12,289 14,238
9/30/2004 13,584 12,803 14,374
10/31/2004 14,074 13,265 14,598
11/30/2004 14,975 14,114 15,100
12/31/2004 15,548 14,654 15,692
1/31/2005 14,920 14,062 15,169
2/28/2005 15,138 14,268 15,330
3/31/2005 14,702 13,857 15,051
4/30/2005 14,239 13,420 14,764
5/31/2005 15,166 14,294 15,479
6/30/2005 15,548 14,654 15,422
7/31/2005 16,312 15,374 16,175
8/31/2005 16,039 15,117 15,967
9/30/2005 16,448 15,502 16,041
10/31/2005 16,340 15,400 15,885
11/30/2005 17,130 16,145 16,570
12/31/2005 17,185 16,197 16,518
1/31/2006 17,785 16,762 16,808
2/28/2006 17,485 16,479 16,781
3/31/2006 17,457 16,453 17,029
4/30/2006 17,074 16,092 17,006
5/31/2006 15,710 14,807 16,430
6/30/2006 15,655 14,755 16,365
7/31/2006 15,192 14,318 16,053
8/31/2006 15,383 14,499 16,554
9/30/2006 15,929 15,013 17,009
Average Annual Total Returns -- September 30, 2006
1 YEAR 5 YEARS/5/ 10 YEARS/5/
CLASS A/1,5/
Net Asset Value/2/ -3.15% 7.23% 4.76%
With Maximum Sales Charge/3/ -8.75 5.97 4.14
CLASS B/1,5/
Net Asset Value/2/ -4.04 6.40 3.97
With CDSC/4/ -8.84 6.09 3.97
CLASS C/1,5/
Net Asset Value/2/ -3.87 6.44 3.99
With CDSC/4/ -4.83 6.44 3.99
CLASS Y/1/
Net Asset Value/2/ -2.88 7.53 5.02
- ----------------------------------------------------------------
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS
Russell 1000 Growth Index 6.04% 4.42% 5.46%
Morningstar Large Growth Fund Avg. 4.59 4.49 5.64
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 9/30/06 9/30/05
- ------------------------------------------------------
Common Stocks 98.4 96.3
- ------------------------------------------------------
Short Term Investments and Other 1.6 3.7
- ------------------------------------------------------
% of Net Assets as of
TEN LARGEST HOLDINGS 9/30/06 9/30/05
- ------------------------------------------------------
Google Inc. 3.9 4.0
- ------------------------------------------------------
PepsiCo, Inc. 3.7 0.0
- ------------------------------------------------------
Apple Computer, Inc. 3.6 2.1
- ------------------------------------------------------
Oracle Corp. 3.0 0.0
- ------------------------------------------------------
Gilead Sciences, Inc. 2.8 0.0
- ------------------------------------------------------
Goldman Sachs Group, Inc. 2.7 1.2
- ------------------------------------------------------
Genentech, Inc. 2.6 2.0
- ------------------------------------------------------
Lehman Brothers Holdings, Inc. 2.6 2.0
- ------------------------------------------------------
Chicago Mercantile Exchange
Holdings, Inc. 2.5 1.7
- ------------------------------------------------------
QUALCOMM, Inc. 2.4 2.5
- ------------------------------------------------------
% of Net Assets as of
FIVE LARGEST INDUSTRIES 9/30/06 9/30/05
- ------------------------------------------------------
Capital Markets 12.3 13.3
- ------------------------------------------------------
Communications Equipment 7.4 7.1
- ------------------------------------------------------
Healthcare Providers & Services 7.3 11.0
- ------------------------------------------------------
Computers & Peripherals 6.1 4.9
- ------------------------------------------------------
Software 5.6 0.0
- ------------------------------------------------------
Portfolio holdings and asset allocations will vary.
See page 7 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 compares the performance of Class A shares, at net
asset value, to the performance of Class A shares including the maximum
sales charge of 5.75%. This chart reflects the performance of Class A Shares
rather than Class Y shares because Class A shares have 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 of 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% CDSC applied when you sell shares
within one year of purchase.
/5/Fund performance has been increased by expense waivers and/or
reimbursements, without which performance would have been lower.
4
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, CFA
Brian James, CFA
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
- --------------------------------------------------------------------------------
In an environment where all sectors of the market provided positive average
returns, Loomis Sayles Research Fund's total return for the fiscal year ended
September 30, 2006 was 7.69% based on the net asset value of Class A shares. In
comparison, the fund's benchmark, the Standard & Poor's 500 Index returned
10.79%, while the average return of funds in Morningstar's Large Blend Fund
category was 9.14%. The fund's holdings in telecommunications, materials and
financials were strongly positive, but its energy and healthcare selections
performed poorly.
INDIVIDUAL STOCKS, NOT INDUSTRY ALLOCATION, DETERMINES INVESTMENT DECISIONS
In managing this fund, our focus is on "bottom-up" analysis of individual
companies, their industries, and competitive dynamics. Sector weightings are an
outgrowth of company selections more than broad business trends. Consistent
with this approach, the fund's top-performing stocks during the year came from
a variety of different industries and sectors.
For fiscal 2006, strong individual performers included BellSouth, a prominent
telecommunications service provider, CB Richard Ellis Group, a commercial real
estate broker; and Bear Stearns, a leading investment banker and broker.
BellSouth's share price rose dramatically following a takeover bid from AT&T
(not a portfolio holding), and earnings estimates for the combined company are
favorable. The rise in the price of CB Richard Ellis stock reflected favorable
trends in commercial real estate in both the United States and Europe. Strong
earnings due to growth in the capital markets boosted Bear Stearn's share price.
FINANCIAL AND INDUSTRIAL SELECTIONS WERE STRONGEST
When viewed by sector, the fund's best performers were found among financial
and industrial companies. Within financials, we emphasized companies active in
the capital markets, like Bear Stearns, and downplayed banks and other lenders
whose profit margins were vulnerable to a narrowing of the difference between
short- and long-term interest rates. This "flattening" of the yield curve
generally has a negative impact on lenders. Among our industrial selections, we
focused on companies with strong cash flows, disciplined management teams, and
solid end-market exposure. Late in the fiscal year, the fund benefited when we
increased holdings in the aerospace and defense industries, where we expect
demand to remain solid even if the economy shows signs of slowing
INVESTMENTS IN ENERGY, HEALTHCARE HELD BACK RETURNS
Our investments in the energy and healthcare sectors were disappointing. In the
case of energy, the sharp corrections in oil and natural gas prices late in the
fiscal year favored the more defensive stocks in the industry, including
integrated energy companies. Our positions in industries such as oil field
services were hit especially hard by the correction that occurred late in the
period, which hurt Halliburton and BJ Services. We sold BJ Services early in
the year. In healthcare, the fund was adversely impacted by a sell off in
service companies, such as United Health Group and Aetna. Other holdings that
hurt performance included Kinetic Concepts, St. Jude Medical and Caphalon, all
of which were sold. Kinetic Concepts, a manufacturer and distributor of medical
equipment, fell on concerns over regulatory pressures and reimbursement issues.
St. Jude was hurt by slower than expected sales of its implantable cardiac
defibrillators. Cephalon's share price declined after the FDA denied approval
of a key drug under development. Outside of energy and healthcare, information
technology company SanDisk was one of the most noteworthy disappointments. Its
share price fell when the company encountered a volatile pricing environment
for its flash-based memory chips used in cameras and other digital devices. We
sold the stock in July.
EARNINGS, CASH FLOW FAVOR EQUITIES
We believe the economic expansion will persist, even if corporate earnings and
cash flow soften. Stock prices continue to look attractive over the long-term.
Although short-term worries may slow or impede a market advance, we believe
that increased clarity about the direction of inflation, energy prices, and
interest rates should calm market fears. Assuming the underlying economic
fundamentals remain healthy, we think the equity market has the potential to
advance at a moderate rate.
5
LOOMIS SAYLES RESEARCH FUND
Investment Results through September 30, 2006
- --------------------------------------------------------------------------------
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/
July 31, 2000 (inception) through September 30, 2006
[CHART]
Net Asset Value/2/ Maximum Sales Charge/3/ S&P 500 Index
------------------ ----------------------- -------------
7/31/2000 $10,000 $ 9,425 $10,000
8/31/2000 10,937 10,308 10,621
9/30/2000 10,538 9,932 10,060
10/31/2000 10,109 9,528 10,018
11/30/2000 8,698 8,198 9,228
12/31/2000 9,039 8,519 9,273
1/31/2001 9,149 8,623 9,602
2/28/2001 8,147 7,679 8,727
3/31/2001 7,646 7,206 8,174
4/30/2001 8,298 7,820 8,809
5/31/2001 8,368 7,887 8,868
6/30/2001 8,227 7,754 8,652
7/31/2001 7,997 7,537 8,567
8/31/2001 7,526 7,093 8,031
9/30/2001 6,865 6,470 7,382
10/31/2001 7,105 6,696 7,523
11/30/2001 7,626 7,187 8,100
12/31/2001 7,793 7,345 8,171
1/31/2002 7,713 7,270 8,052
2/28/2002 7,623 7,185 7,896
3/31/2002 7,903 7,449 8,193
4/30/2002 7,582 7,146 7,697
5/31/2002 7,492 7,061 7,640
6/30/2002 7,001 6,598 7,096
7/31/2002 6,429 6,059 6,543
8/31/2002 6,389 6,022 6,586
9/30/2002 5,707 5,378 5,870
10/31/2002 6,148 5,794 6,387
11/30/2002 6,399 6,031 6,762
12/31/2002 6,079 5,729 6,365
1/31/2003 5,938 5,597 6,198
2/28/2003 5,848 5,512 6,105
3/31/2003 5,928 5,587 6,165
4/30/2003 6,360 5,994 6,672
5/31/2003 6,712 6,326 7,024
6/30/2003 6,803 6,411 7,114
7/31/2003 6,954 6,554 7,239
8/31/2003 7,054 6,649 7,380
9/30/2003 6,934 6,535 7,302
10/31/2003 7,376 6,952 7,715
11/30/2003 7,467 7,037 7,783
12/31/2003 7,760 7,313 8,191
1/31/2004 7,860 7,408 8,341
2/29/2004 8,022 7,560 8,457
3/31/2004 7,951 7,494 8,330
4/30/2004 7,729 7,285 8,199
5/31/2004 7,840 7,389 8,311
6/30/2004 8,031 7,569 8,473
7/31/2004 7,658 7,218 8,193
8/31/2004 7,648 7,209 8,226
9/30/2004 7,850 7,399 8,315
10/31/2004 7,921 7,465 8,442
11/30/2004 8,354 7,874 8,783
12/31/2004 8,671 8,172 9,082
1/31/2005 8,560 8,068 8,861
2/28/2005 8,752 8,248 9,047
3/31/2005 8,689 8,189 8,887
4/30/2005 8,417 7,933 8,719
5/31/2005 8,780 8,275 8,996
6/30/2005 8,951 8,436 9,009
7/31/2005 9,273 8,740 9,344
8/31/2005 9,122 8,598 9,259
9/30/2005 9,294 8,759 9,334
10/31/2005 9,102 8,579 9,178
11/30/2005 9,545 8,997 9,525
12/31/2005 9,572 9,022 9,528
1/31/2006 9,870 9,302 9,781
2/28/2006 9,892 9,323 9,807
3/31/2006 9,977 9,403 9,929
4/30/2006 9,966 9,393 10,063
5/31/2006 9,583 9,032 9,773
6/30/2006 9,562 9,012 9,786
7/31/2006 9,604 9,052 9,847
8/31/2006 9,721 9,162 10,081
9/30/2006 10,008 9,432 10,341
Average Annual Total Returns -- September 30, 2006
SINCE FUND
1 YEAR/6/ 5 YEARS/6/ INCEPTION/6/
CLASS A/1/
Net Asset Value/2/ 7.69% 7.83% 0.01%
With Maximum Sales Charge/3/ 1.52 6.56 -0.94
CLASS B/1/
Net Asset Value/2/ 6.90 6.95 -0.81
With CDSC/4/ 1.90 6.64 -0.81
CLASS C/1/
Net Asset Value/2/ 6.92 6.86 -0.87
With CDSC/4/ 5.92 6.86 -0.87
CLASS Y/1/
Net Asset Value/2/ 8.13 8.21 0.34
- -------------------------------------------------------------------
SINCE FUND
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS INCEPTION/5/
S&P 500 Index 10.79% 6.97% 0.54%
Morningstar Large Blend Fund Avg. 9.14 6.59 1.01
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 9/30/06 9/30/05
- ------------------------------------------------------
Common Stocks 99.7 99.9
- ------------------------------------------------------
Short Term Investments and Other 0.3 0.1
- ------------------------------------------------------
% of Net Assets as of
TEN LARGEST HOLDINGS 9/30/06 9/30/05
- ------------------------------------------------------
ExxonMobil Corp. 4.6 1.4
- ------------------------------------------------------
Hewlett-Packard Co. 3.0 1.3
- ------------------------------------------------------
Bank of America Corp. 2.9 0.0
- ------------------------------------------------------
BellSouth Corp. 2.8 1.2
- ------------------------------------------------------
PepsiCo, Inc. 2.6 2.2
- ------------------------------------------------------
Wells Fargo & Co. 2.6 0.0
- ------------------------------------------------------
Procter & Gamble Co. (The) 2.6 2.7
- ------------------------------------------------------
Bear Stearns Cos., Inc. 2.4 2.0
- ------------------------------------------------------
Citigroup, Inc. 2.4 0.0
- ------------------------------------------------------
United Technologies Corp. 2.4 2.2
- ------------------------------------------------------
% of Net Assets as of
FIVE LARGEST INDUSTRIES 9/30/06 9/30/05
- ------------------------------------------------------
Oil, Gas & Consumable Fuels 7.6 4.3
- ------------------------------------------------------
Computers & Peripherals 6.3 1.3
- ------------------------------------------------------
Aerospace & Defense 6.0 2.2
- ------------------------------------------------------
Capital Markets 5.9 11.3
- ------------------------------------------------------
Insurance 5.8 4.7
- ------------------------------------------------------
Portfolio holdings and asset allocations will vary.
See page 7 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 (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 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 compares the performance of Class A shares, at net
asset value, to the performance of Class A shares including the maximum
sales charge of 5.75%. This chart reflects the performance of Class A Shares
rather than Class Y shares because Class A shares have 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 of 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% CDSC applied when you sell shares
within one year of purchase.
/5/The since-inception performance comparisons shown are calculated from 8/1/00.
/6/Fund performance has been increased by expense waivers and/or
reimbursements, without which performance would have been lower.
6
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:
Citigroup World Government Bond Index ("Citigroup WGBI") is an unmanaged index
that measures the most significant and liquid government bond indices located
around the world with a rating of at least investment grade.
Morgan Stanley Capital International World Index ("MSCI World") is an unmanaged
index that measures global developed market equity performance.
Russell 1000 Growth Index is an unmanaged index of the 1,000 largest U.S.
companies within the Russell 3000 Index with higher price-to-book ratios and
higher forecasted growth values.
Standard & Poor's 500 Index ("S&P 500") is an unmanaged index of U.S. common
stock performance.
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, 2006 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
7
UNDERSTANDING FUND 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 an 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,
2006 through September 30, 2006. 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 GLOBAL MARKETS FUND 4/1/06 9/30/06 4/1/06 - 9/30/06
- -----------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $985.00 $6.22
- -----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,018.80 $6.33
- -----------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $981.80 $9.94
- -----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10
- -----------------------------------------------------------------------------------------------------------------
CLASS Y
- -----------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $986.60 $4.98
- -----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.00 $5.06
- -----------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after
waiver/reimbursement): 1.25%, 2.00% and 1.00% for Class A, 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 reflect the half-year period).
8
UNDERSTANDING FUND EXPENSES
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES GROWTH FUND 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $912.50 $5.11
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,019.72 $5.40
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $907.60 $9.58
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $909.20 $8.66
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.99 $9.15
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $915.70 $3.60
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,021.31 $3.80
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after
waiver/reimbursement): 1.07%, 2.00%, 1.81% and 0.75% 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 reflect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD*
LOOMIS SAYLES RESEARCH FUND 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,003.20 $6.28
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,018.80 $6.33
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,000.00 $10.03
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,000.00 $10.03
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,006.40 $4.28
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.81 $4.31
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio (after advisory
waiver and/or reimbursements): 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 the number of days in the most recent fiscal half-year divided
by 365 (to reflect the half-year period).
9
BOARD APPROVAL OF THE CONTRACTS
The Board of Trustees, including the Independent Trustees, considers matters
bearing on each Fund's advisory agreement (collectively, 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, also
consider other matters 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.
The Board of Trustees most recently approved the continuation of the Agreements
at their meeting held in May, 2006. 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, including
recent or planned investments by the Adviser in additional personnel or other
resources. They also took note of the competitive market for talented
personnel, in particular, for personnel who have contributed to the generation
of strong investment performance. They also considered the need for the Adviser
to offer competitive compensation in order to attract and retain capable
personnel. They also considered the administrative services provided by the
Adviser's affiliates to the Fund. 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, the Funds' performance as a fund family generally, and
the historical responsiveness of the Adviser 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
10
BOARD APPROVAL OF THE CONTRACTS
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 fees, the Trustees also took into account the demands,
complexity and quality of the investment management of such Fund. The Trustees
considered that over the past several years, management had made
recommendations regarding reductions in advisory fee rates, implementation of
advisory fee breakpoints and the institution of advisory fee waivers and
expense caps. They noted that all three of the IXIS Advisor Equity Funds in
this report have expense caps in place, and they considered the amounts waived
or reimbursed by the Adviser under these caps.
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's and its affiliates' relationships with the Funds, and information
about the allocation of expenses used to calculate profitability. In this
regard, the Funds, at the request of the Independent Trustees, retained an
independent accounting firm to review the cost allocation methods used by the
Adviser to determine profitability, and engaged in extensive discussions with
the Adviser regarding such methods and Adviser profitability generally. They
also reviewed information provided by management about the effect of
distribution costs and Fund growth on Adviser profitability. When reviewing
profitability, the Trustees also considered information about court cases in
which adviser profitability was an issue, 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 fees charged to each of the Funds were 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 its investment advisory fees
(lower fee rates applicable to assets in excess of certain threshold levels) or
other means, such as expense waivers. The Trustees noted that each of the Funds
was subject to 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 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 a separate agreement covering administrative services.
.. so-called "fallout benefits" to the Adviser, such as the engagement of
affiliates of the Adviser to provide distribution and brokerage 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 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, 2007.
11
LOOMIS SAYLES GLOBAL MARKETS FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- ----------------------------------------------------------------------------------
Bonds and Notes -- 31.5% of Total Net Assets
Non-Convertible Bonds -- 29.4%
Argentina -- 0.3%
$ 515,000 Republic of Argentina,
2.418%, 9/30/2014, (ARS) $ 169,814
96,250 Republic of Argentina,
5.590%, 8/03/2012(c) 76,200
-------------
246,014
-------------
Australia -- 0.1%
120,000 South Australia Government Finance Authority,
Zero Coupon, 12/21/2015, (AUD) 53,199
-------------
Austria -- 0.6%
60,000,000 Oesterreichische Kontrollbank AG,
1.800%, 3/22/2010, (JPY) 523,525
-------------
Brazil -- 0.2%
170,000 JBS SA,
10.500%, 8/04/2016, 144A 172,125
-------------
Canada -- 1.0%
120,000 Bowater, Inc.,
10.850%, 11/30/2014, (CAD) 113,263
195,000 Canadian Government Bond,
5.250%, 6/01/2013, (CAD) 187,786
25,000 Canadian Pacific Railway Ltd.,
4.900%, 6/15/2010, (CAD), 144A 22,810
120,000 Government of Quebec,
5.625%, 6/21/2011, (EUR) 163,783
25,000 Kinder Morgan Finance,
5.700%, 1/05/2016 23,078
20,000 Kinder Morgan Finance,
6.400%, 1/05/2036 17,909
50,000 Molson Coors Capital Finance,
5.000%, 9/22/2015, (CAD) 44,549
50,000 Nortel Networks Corp.,
6.875%, 9/01/2023 41,250
165,000 Rogers Wireless, Inc.,
7.625%, 12/15/2011, (CAD) 159,797
180,000 Shaw Communications, Inc.,
6.150%, 5/09/2016 159,851
-------------
934,076
-------------
Cayman Island -- 0.4%
150,000 CSN Islands IX Corp.,
10.500%, 1/15/2015, 144A 174,000
100,000 LPG International, Inc.,
7.250%, 12/20/2015 98,750
110,000 Vale Overseas Ltd.,
8.250%, 1/17/2034(e) 124,850
-------------
397,600
-------------
Chile -- 0.1%
100,000 Empresa Nacional de Electricidad SA (Endesa-Chile),
7.875%, 2/01/2027 110,837
-------------
Colombia -- 0.7%
40,000 Republic of Colombia,
8.125%, 5/21/2024(e) 44,000
94,000,000 Republic of Colombia,
11.750%, 3/01/2010, (COP) 42,039
1,055,000,000 Republic of Colombia,
12.000%, 10/22/2015, (COP) 507,544
-------------
593,583
-------------
Principal
Amount (a) Description Value (+)
- --------------------------------------------------------------------------------------
Denmark -- 0.1%
$ 525,000 Kingdom of Denmark,
4.000%, 8/15/2008, (DKK) $ 89,838
-------------
France -- 0.2%
1,665,190,000 BNP Paribas SA,
Zero Coupon, 6/13/2011, (IDR), 144A 115,512
75,000 France Telecom SA, Series EMTN,
3.625%, 10/14/2015, (EUR) 88,756
10,000 Thales SA, Series EMTN,
4.375%, 7/22/2011, (EUR) 12,836
-------------
217,104
-------------
Germany -- 0.7%
150,000 Eurohypo AG - Europaeische Hypothekenbank der Deutschen
Bank,
4.000%, 2/01/2007, (EUR) 190,372
115,000 Hypothekenbank in Essen AG,
5.250%, 1/22/2008, (EUR) 148,661
260,000 KFW,
2.500%, 10/11/2010, (EUR) 315,779
-------------
654,812
-------------
Indonesia -- 0.1%
125,000 Republic of Indonesia,
6.875%, 3/09/2017, 144A 128,125
-------------
Ireland -- 1.4%
50,000,000 Depfa ACS Bank,
0.750%, 9/22/2008, (JPY) 424,245
100,000 Depfa ACS Bank,
4.875%, 5/21/2019, (EUR) 137,314
50,000 Elan Financial Plc,
7.750%, 11/15/2011 48,687
460,000 Republic of Ireland,
4.600%, 4/18/2016, (EUR) 624,275
-------------
1,234,521
-------------
Japan -- 0.7%
70,000,000 Japan Government,
0.200%, 9/20/2007, (JPY) 591,251
-------------
Korea -- 0.2%
150,000 Hanarotelecom, Inc.,
7.000%, 2/01/2012, 144A 147,375
-------------
Mexico -- 1.5%
1,000,000 America Movil SA,
9.000%, 1/15/2016, (MXN) 92,705
125,000 America Movil SA de CV,
5.500%, 3/01/2014 121,640
165,000 Desarrolladora Homex SA,
7.500%, 9/28/2015 161,700
240,000 Mexican Fixed Rate Bonds,
4.250%, 6/16/2015, (EUR) 299,706
1,000,000 Mexican Fixed Rate Bonds,
9.500%, 12/18/2014, (MXN) 97,635
3,500,000 Mexican Fixed Rate Bonds, Series M-10,
8.000%, 12/17/2015, (MXN) 312,370
1,000,000 Mexican Fixed Rate Bonds, Series MI-10,
9.000%, 12/20/2012, (MXN) 94,552
150,000 United Mexican States,
6.750%, 9/27/2034(e) 159,225
-------------
1,339,533
-------------
See accompanying notes to financial statements.
12
LOOMIS SAYLES GLOBAL MARKETS FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- -----------------------------------------------------------------------------------
Netherlands -- 0.2%
$ 100,000 Excelcomindo Finance Co.,
7.125%, 1/18/2013, 144A $ 99,250
90,000 Kingdom of Netherlands,
5.000%, 7/15/2011, (EUR) 120,910
-------------
220,160
-------------
Norway -- 0.5%
2,320,000 Kingdom of Norway,
5.500%, 5/15/2009, (NOK) 368,986
350,000 Kingdom of Norway,
6.000%, 5/16/2011, (NOK) 58,097
-------------
427,083
-------------
Peru -- 0.3%
278,400 Republic of Peru,
5.000%, 3/07/2017(c) 273,528
-------------
Singapore -- 0.4%
495,000 Government of Singapore,
4.625%, 7/01/2010, (SGD) 328,861
-------------
South Africa -- 0.7%
235,000 Republic of South Africa,
4.500%, 4/05/2016, (EUR) 290,483
50,000 Republic of South Africa,
5.250%, 5/16/2013, (EUR) 65,527
1,550,000 Republic of South Africa,
13.000%, 8/31/2010, (ZAR) 227,303
-------------
583,313
-------------
Spain -- 0.1%
100,000 Telefonica Emisones SAU,
6.421%, 6/20/2016 102,883
-------------
Supranational -- 0.8%
370,085 European Investment Bank,
Zero Coupon, 9/12/2008, (BRL), 144A 132,517
4,000,000 Inter-American Development Bank,
1.900%, 7/08/2009, (JPY) 34,890
67,000,000 International Bank for Reconstruction & Development,
2.000%, 2/18/2008, (JPY) 577,546
-------------
744,953
-------------
Sweden -- 0.5%
1,575,000 Government of Sweden, Series 1040,
6.500%, 5/05/2008, (SEK) 225,241
495,000 Government of Sweden, Series 1045,
5.250%, 3/15/2011, (SEK) 72,161
125,000 Stena AB,
7.500%, 11/01/2013 122,813
-------------
420,215
-------------
Thailand -- 0.2%
160,000 Advance Agro Public Co., Ltd.,
11.000%, 12/19/2012, 144A 162,400
-------------
United Kingdom -- 0.6%
60,000 BSKYB Finance UK Plc,
5.750%, 10/20/2017, (GBP) 110,969
1,229,424,500 JPMorgan Chase London,
Zero Coupon, 10/21/2010, (IDR), 144A 90,416
80,000 Scottish Power UK Plc, Series EMTN,
6.625%, 1/14/2010, (GBP) 155,283
35,000 United Kingdom Treasury,
5.000%, 3/07/2025, (GBP) 71,064
Principal
Amount (a) Description Value (+)
- --------------------------------------------------------------------------
United Kingdom -- continued
$ 70,000 United Kingdom Treasury,
6.250%, 11/25/2010, (GBP) $ 138,524
-------------
566,256
-------------
United States -- 16.4%
50,000 Albertson's, Inc.,
6.625%, 6/01/2028(e) 42,898
500,000 Albertson's, Inc.,
7.450%, 8/01/2029 463,130
10,000 American Standard, Inc.,
8.250%, 6/01/2009, (GBP) 19,781
49,000 Amkor Technology, Inc.,
10.500%, 5/01/2009 49,245
100,000 Anadarko Petroleum Corp.,
5.950%, 9/15/2016 101,195
75,000 Anadarko Petroleum Corp.,
6.450%, 9/15/2036 76,607
75,000 Arrow Electronics, Inc.,
6.875%, 7/01/2013 78,575
100,000 ASIF Global Financing XXVII,
2.380%, 2/26/2009, (SGD), 144A 61,204
23,528 Atlas Air, Inc.,
7.200%, 1/02/2019 23,352
42,865 Atlas Air, Inc., Series B,
7.680%, 1/02/2014(f) 45,009
145,000 Avnet, Inc.,
6.000%, 9/01/2015 141,481
110,000,000 Barclays Financial LLC,
4.060%, 9/16/2010, (KRW), 144A 115,376
4,000,000 Barclays Financial LLC, Series EMTN
4.100%, 3/22/2010, (THB), 144A 101,492
4,000,000 Barclays Financial LLC,
4.160%, 2/22/2010, (THB), 144A 101,795
349,720,000 Barclays Financial LLC,
4.420%, 3/23/2009(b), (KRW), 144A 369,493
220,000,000 Barclays Financial LLC,
4.460%, 9/23/2010, (KRW), 144A 233,078
310,000 Borden, Inc.,
7.875%, 2/15/2023(e) 254,200
410,000 Borden, Inc.,
8.375%, 4/15/2016 369,000
5,000 Chesapeake Energy Corp.,
6.500%, 8/15/2017 4,688
70,000 Chesapeake Energy Corp.,
6.875%, 1/15/2016(e) 68,425
35,000 Chesapeake Energy Corp.,
6.875%, 11/15/2020 33,075
120,000 Citi Credit Card Issuance Trust,
5.375%, 4/10/2013, (EUR) 161,065
212,910 Continental Airlines, Inc., Series 1999-1C,
6.954%, 8/02/2009 203,861
160,000 Cummins Engine Co., Inc.,
7.125%, 3/01/2028 163,801
50,000 Dillard's, Inc.,
6.625%, 1/15/2018(e) 47,625
50,000 Dillard's, Inc.,
7.000%, 12/01/2028(e) 45,688
20,000 ESI Tractebel Acquisition Corp., Series B,
7.990%, 12/30/2011 20,629
See accompanying notes to financial statements.
13
LOOMIS SAYLES GLOBAL MARKETS FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- ------------------------------------------------------------------------
United States -- continued
$ 200,000 Federal Home Loan Mortgage Corp.,
5.125%, 1/15/2012, (EUR) $ 269,300
30,000,000 Federal National Mortgage Association,
2.125%, 10/09/2007, (JPY) 258,186
200,000 Federal National Mortgage Association,
2.290%, 2/19/2009, (SGD) 122,461
150,000 Foot Locker, Inc.,
8.500%, 1/15/2022 141,750
25,000,000 General Electric Capital Corp.,
0.550%, 10/14/2008, (JPY) 210,736
350,000 GMAC LLC,
6.243%, 3/20/2007(c) 348,818
75,000 GMAC LLC,
6.457%, 7/16/2007(c) 74,579
50,000 Georgia-Pacific Corp.,
7.375%, 12/01/2025 47,250
35,000 Georgia-Pacific Corp.,
7.750%, 11/15/2029 33,600
160,000 Georgia-Pacific Corp.,
8.000%, 1/15/2024 157,600
150,000 Goldman Sachs Group, Inc.,
3.594%, 5/23/2016,(EUR)(c) 188,789
25,000 GTE Corp.,
6.940%, 4/15/2028(e) 25,893
225,000 HCA, Inc.,
7.050%, 12/01/2027 161,463
50,000 HCA, Inc.,
7.190%, 11/15/2015 41,629
250,000 HCA, Inc.,
7.500%, 11/06/2033 195,000
100,000 HCA, Inc.,
7.580%, 9/15/2025 77,075
100,000 HSBC Bank USA,
3.310%, 8/25/2010, 144A 100,720
100,000 IMC Global, Inc.,
7.375%, 8/01/2018(e) 91,875
25,000 J.C. Penney Co., Inc.,
7.125%, 11/15/2023(e) 27,668
275,000 K. Hovnanian Enterprises, Inc.,
6.250%, 1/15/2016(e) 242,000
250,000 Kellwood Co.,
7.625%, 10/15/2017 232,289
2,000,000 KfW International Finance, Inc.,
1.750%, 3/23/2010, (JPY) 17,422
29,000,000 KfW International Finance, Inc.,
2.050%, 9/21/2009, (JPY) 254,151
10,000 Kinder Morgan, Inc.,
5.150%, 3/01/2015 8,985
55,000 Lennar Corp.,
5.600%, 5/31/2015(e) 52,305
55,000 Lennar Corp.,
6.500%, 4/15/2016, 144A(e) 55,297
20,000 Level 3 Communications, Inc.,
11.500%, 3/01/2010(e) 20,550
155,000 Lucent Technologies, Inc.,
6.450%, 3/15/2029 137,950
130,000 MBNA Credit Card Master Note Trust,
4.150%, 4/19/2010, (EUR) 166,123
85,000 Morgan Stanley,
5.375%, 11/14/2013, (GBP) 159,666
Principal
Amount (a) Description Value (+)
- -------------------------------------------------------------------------
United States -- continued
$ 150,000 News America Holdings, Inc.,
8.625%, 2/07/2014, (AUD)(d) $ 116,839
250,000 NGC Corporation Capital Trust I, Series B,
8.316%, 6/01/2027(e) 227,500
135,000 Northern Telecom Capital Corp.,
7.875%, 6/15/2026 117,450
1,000,000 NRG Energy, Inc.,
7.375%, 2/01/2016 993,750
40,000 Owens-Illinois, Inc.,
7.800%, 5/15/2018 38,000
115,000 Pemex Project Funding Master Trust,
7.875%, 2/01/2009 120,405
50,000 Pulte Homes, Inc.,
5.200%, 2/15/2015(e) 46,821
540,000 Pulte Homes, Inc.,
6.000%, 2/15/2035(e) 486,871
695,000 Pulte Homes, Inc.,
6.375%, 5/15/2033 650,346
140,000 Qwest Capital Funding, Inc.,
6.500%, 11/15/2018 126,700
205,000 Qwest Capital Funding, Inc.,
6.875%, 7/15/2028 183,475
30,000 Qwest Capital Funding, Inc.,
7.750%, 2/15/2031 28,950
45,000 Qwest Corp.,
6.875%, 9/15/2033(e) 41,063
5,000 Qwest Corp.,
7.250%, 9/15/2025 4,844
255,000 SLM Corp.,
6.500%, 6/15/2010, (NZD) 163,398
750,000 Tennessee Gas Pipeline Co.,
7.000%, 10/15/2028(e) 746,973
395,000 Time Warner, Inc.,
6.625%, 5/15/2029 394,916
160,000 Time Warner, Inc.,
6.950%, 1/15/2028 164,921
115,000 Time Warner, Inc.,
7.625%, 4/15/2031 127,037
75,000 Time Warner, Inc.,
7.700%, 5/01/2032 83,755
105,000 Toll Brothers Finance Corp.,
5.150%, 5/15/2015(e) 93,333
375,000 Toys R Us,
7.375%, 10/15/2018(e) 271,406
200,000 Transcontinental Gas Pipe Line Corp.,
6.400%, 4/15/2016, 144A 197,750
1,395,000 U.S. Treasury Notes,
4.500%, 2/15/2016(e) 1,380,996
90,000 Verizon Communications,
5.850%, 9/15/2035(e) 84,794
5,000 Verizon Maryland, Inc.,
5.125%, 6/15/2033 4,055
250,000 Verizon New York, Inc., Class B,
7.375%, 4/01/2032 260,584
70,000 Viacom, Inc., Class B,
6.875%, 4/30/2036, 144A 69,201
100,000 Williams Cos., Inc.,
7.500%, 1/15/2031 98,750
20,000 Xerox Corp.,
7.200%, 4/01/2016(e) 21,000
-------------
14,662,781
-------------
See accompanying notes to financial statements.
14
LOOMIS SAYLES GLOBAL MARKETS FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- ----------------------------------------------------------------------------------------
Uruguay -- 0.1%
$ 100,000 Republic of Uruguay,
8.000%, 11/18/2022 $ 105,500
-------------
Venezuela -- 0.3%
130,000 Cerro Negro Finance Ltd.,
7.900%, 12/01/2020, 144A 120,575
125,000 Petrozuata Finance, Inc.,
8.220%, 4/01/2017, 144A 121,875
-------------
242,450
-------------
Total Non-Convertible Bonds (Identified Cost $26,063,131) 26,273,901
-------------
Convertible Bonds -- 2.1%
United States -- 2.1%
435,000 Bristol-Myers Squibb Co.,
4.890%, 9/15/2023(c)(e) 435,783
95,000 Builders Transportation, Inc.,
8.000%, 8/15/2005(g) --
250,000 Enzon Pharmaceuticals, Inc.,
4.500%, 7/01/2008 240,000
140,000 Level 3 Communications, Inc.,
2.875%, 7/15/2010 141,225
25,000 Level 3 Communications, Inc.,
6.000%, 9/15/2009(e) 22,468
5,000 Level 3 Communications, Inc.,
6.000%, 3/15/2010(e) 4,394
500,000 Regeneron Pharmaceuticals, Inc.,
5.500%, 10/17/2008 492,500
500,000 Valeant Pharmaceuticals International,
3.000%, 8/16/2010 472,500
80,000 Valeant Pharmaceuticals International,
4.000%, 11/15/2013(e) 75,100
-------------
Total Convertible Bonds (Identified Cost $1,883,970) 1,883,970
-------------
Total Bonds and Notes (Identified Cost $27,947,101) 28,157,871
-------------
Shares
- ----------------------------------------------------------------------------------------
Common Stocks -- 65.2%
Argentina -- 0.6%
15,400 Tenaris SA ADR 544,852
-------------
China -- 1.9%
1,883,000 Bank of China Ltd. 809,695
119,100 China Mobile Hong Kong Ltd. 842,638
-------------
1,652,333
-------------
Germany -- 1.3%
3,325 Puma AG 1,133,068
-------------
Greece -- 1.9%
66,481 Piraeus Bank S.A. 1,721,728
-------------
Ireland -- 1.5%
83,592 Anglo Irish Bank Corp., Plc 1,371,280
-------------
Japan -- 6.1%
17,200 IBIDEN Co. Ltd.(e) 909,137
33,000 Komatsu Ltd.(e) 571,012
50 Mitsubishi UFJ Financial Group, Inc. 643,386
2,410 Orix Corp.(e) 665,869
25,000 Sumitomo Realty & Development Co. Ltd.(e) 735,393
20,200 Toyota Motor Corp.(e) 1,099,218
31,400 Yamaha Motor Co., Ltd.(e) 833,664
-------------
5,457,679
-------------
Shares Description Value (+)
- -------------------------------------------------------------------------------
Korea -- 1.5%
27,050 KT Corp. ADR $ 580,763
16,680 Shinhan Financial Group Co., Ltd. 750,037
-------------
1,330,800
-------------
Mexico -- 2.2%
995,425 America Movil S.A. de C.V., Series L(e) 1,964,774
-------------
Netherlands -- 2.5%
30,275 Heineken NV 1,385,007
14,625 Randstad Holding NV 832,889
-------------
2,217,896
-------------
Switzerland -- 4.7%
99,775 ABB Ltd. 1,312,922
10,450 Roche Holding AG 1,805,416
18,400 UBS AG 1,099,890
-------------
4,218,228
-------------
Taiwan -- 1.0%
34,000 High Tech Computer Corp. 898,803
-------------
Turkey -- 0.5%
20,237 Finansbank AS GDR(f) 404,740
-------------
United Kingdom -- 5.4%
41,750 BHP Billiton Plc 719,400
149,475 Capita Group Plc 1,531,621
153,175 Man Group Plc 1,284,631
103,975 Marks & Spencer Group Plc 1,250,891
-------------
4,786,543
-------------
United States -- 34.1%
17,550 Akamai Technologies, Inc.(f) 877,325
18,275 Apple Computer, Inc.(f) 1,407,723
28,725 Bank of America Corp. 1,538,798
27,475 BellSouth Corp. 1,174,556
34,325 CB Richard Ellis Group, Inc., Class A(f) 844,395
1,225 Chicago Mercantile Exchange Holdings, Inc. 585,856
33,025 Circuit City Stores, Inc. 829,258
43,675 Cisco Systems, Inc.(f) 1,004,525
33,525 Comcast Corp., Class A(f) 1,235,396
12,550 ExxonMobil Corp. 842,105
15,950 Gilead Sciences, Inc.(f) 1,095,765
8,325 Goldman Sachs Group, Inc. 1,408,340
4,325 Google Inc., Class A(f) 1,738,217
10,200 Hansen Natural Corp.(e)(f) 331,296
25,325 Hewlett-Packard Co. 929,174
16,475 Johnson & Johnson 1,069,887
17,925 Lehman Brothers Holdings, Inc. 1,323,941
19,475 McDonald's Corp. 761,862
18,375 Medco Health Solutions, Inc.(f) 1,104,521
15,375 Monster Worldwide, Inc.(f) 556,421
38,300 Network Appliance, Inc.(f) 1,417,483
61,500 News Corp.(e) 1,269,360
71,775 Oracle Corp.(f) 1,273,289
18,525 PepsiCo, Inc. 1,208,942
19,800 Precision Castparts Corp. 1,250,568
12,150 Prudential Financial, Inc. 926,438
37,100 QUALCOMM, Inc. 1,348,585
10,575 Schlumberger Ltd. 655,967
10,700 Ultra Petroleum Corp.(f) 514,777
-------------
30,524,770
-------------
Total Common Stocks (Identified Cost $53,688,270) 58,227,494
-------------
See accompanying notes to financial statements.
15
LOOMIS SAYLES GLOBAL MARKETS FUND -- PORTFOLIO OF INVESTMENTS (CONTINUED)
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- -----------------------------------------------------------------------------------------------------
Short-Term Investments -- 17.5%
$ 2,212,000 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/06 at 3.450% to be repurchased at
$2,212,636 on 10/02/06 collateralized by $1,800,000 U.S.
Treasury Bond, 6.875% due 8/15/25 with a value of
$2,272,685, including accrued interest (Note 2g) $ 2,212,000
-------------
Shares
- -----------------------------------------------------------------------------------------------------
13,368,726 State Street Securities Lending Quality Trust(h) 13,368,726
-------------
Total Short-Term Investments
(Identified Cost $15,580,726) 15,580,726
-------------
Total Investments -- 114.2%
(Identified Cost $97,216,097)(b) 101,966,091
-------------
Other assets less liabilities -- (14.2)% (12,650,317)
-------------
Total Net Assets -- 100.0% $ 89,315,774
=============
+ See Note 2a of Notes to Financial Statements.
(a) Principal Amount stated in U.S. Dollars unless otherwise noted.
(b) Federal Tax Information:
At September 30, 2006 the net unrealized appreciation
on investments based on cost of $97,525,508 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 $ 6,493,483
Aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost
over value (2,052,900)
-------------
Net unrealized appreciation $ 4,440,583
=============
(c) Variable rate security. Rate as of September 30, 2006 is disclosed.
(d) Illiquid security.
(e) All or a portion of this security was on loan to brokers at September 30, 2006.
(f) Non-income producing security.
(g) Non-income producing security due to default or bank filing.
(h) Represents investment of security lending collateral.
ADR American Depositary Receipt
GDR Global Depositary Receipt
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, 2006, the total value of these
securities amounted to $2,892,836 or 3.2% of total net assets.
Key to Abbreviations:
ARS Argentinean Peso
AUD Australian Dollar
BRL Brazilian Real
CAD Canadian Dollar
COP Colombian Peso
DKK Danish Krone
EUR Euro
GBP British Pound
IDR Indonesian Rupiah
JPY Japanese Yen
KRW South Korean Won
MXN Mexican Peso
NOK Norwegian Krone
NZD New Zealand Dollar
SEK Swedish Krona
SGD Singapore Dollar
THB Thailand Baht
ZAR South African Rand
Holdings at September 30, 2006 as a Percentage of Net Assets (Unaudited)
Capital Markets 7.7%
Sovereigns 7.4
Computers & Peripherals 5.2
Pharmaceuticals 5.2
Beverages 3.3
Commercial Services & Supplies 3.3
Diversified Financial Services 3.2
Wireless Telecommunication Services 3.1
Internet Software & Services 2.9
Commercial Banks 2.9
Media 2.8
Communications Equipment 2.6
Banking 2.4
Automobiles 2.2
Home Construction 2.0
Diversified Telecommunications Services 2.0
Other, less than 2% each 38.5
See accompanying notes to financial statements.
16
LOOMIS SAYLES GROWTH FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Shares Description Value (+)
- ------------------------------------------------------------------------
Common Stocks -- 98.4% of Total Net Assets
Aerospace & Defense -- 2.1%
143,650 Precision Castparts Corp. $ 9,072,934
--------------
Air Freight & Logistics -- 1.6%
149,850 Expeditors International of Washington, Inc. 6,680,313
--------------
Beverages -- 4.3%
80,225 Hansen Natural Corp.(b)(c) 2,605,708
241,650 PepsiCo, Inc. 15,770,079
--------------
18,375,787
--------------
Biotechnology -- 5.5%
137,425 Genentech, Inc.(b) 11,365,047
173,200 Gilead Sciences, Inc.(b) 11,898,840
--------------
23,263,887
--------------
Capital Markets -- 12.3%
43,800 BlackRock, Inc.(c) 6,526,200
69,725 Goldman Sachs Group, Inc. 11,795,378
152,752 Lehman Brothers Holdings, Inc. 11,282,263
87,625 Morgan Stanley 6,388,739
72,100 Northern Trust Corp. 4,212,803
101,125 State Street Corp. 6,310,200
111,300 T. Rowe Price Group, Inc. 5,325,705
--------------
51,841,288
--------------
Commercial Services & Supplies -- 1.1%
124,675 Monster Worldwide, Inc.(b) 4,511,988
--------------
Communications Equipment -- 7.4%
276,150 Cisco Systems, Inc.(b) 6,351,450
186,050 Corning, Inc.(b) 4,541,481
402,975 Motorola, Inc. 10,074,375
285,350 QUALCOMM, Inc. 10,372,472
--------------
31,339,778
--------------
Computers & Peripherals -- 6.1%
198,062 Apple Computer, Inc.(b) 15,256,716
279,350 Network Appliance, Inc.(b) 10,338,743
--------------
25,595,459
--------------
Diversified Financial Services -- 2.5%
22,375 Chicago Mercantile Exchange Holdings, Inc. 10,700,844
--------------
Electrical Equipment -- 1.4%
71,550 Emerson Electric Co. 6,000,183
--------------
Energy Equipment & Services -- 2.7%
181,775 Halliburton Co. 5,171,499
102,825 National Oilwell Varco, Inc.(b) 6,020,403
--------------
11,191,902
--------------
Food & Staples Retailing -- 2.5%
149,525 CVS Corp. 4,802,743
113,550 Wal-Mart Stores, Inc. 5,600,286
--------------
10,403,029
--------------
Food Products -- 1.4%
152,750 Archer-Daniels-Midland Co. 5,786,170
--------------
Healthcare Equipment & Supplies -- 1.3%
116,975 Baxter International, Inc. 5,317,684
--------------
Healthcare Providers & Services -- 7.3%
123,825 DaVita, Inc.(b) 7,165,753
148,250 Medco Health Solutions, Inc.(b) 8,911,308
75,850 Quest Diagnostics, Inc. 4,638,986
130,250 WellPoint, Inc.(b) 10,035,762
--------------
30,751,809
--------------
Shares Description Value (+)
- -----------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure -- 1.0%
72,725 Starwood Hotels & Resorts Worldwide, Inc. $ 4,159,143
--------------
Household Products -- 1.5%
103,575 Procter & Gamble Co. (The) 6,419,579
--------------
Industrial Conglomerates -- 2.4%
289,650 General Electric Co. 10,224,645
--------------
Insurance -- 3.1%
122,650 Chubb Corp. (The) 6,372,894
77,025 Hartford Financial Services Group, Inc. (The) 6,681,919
--------------
13,054,813
--------------
Internet Software & Services -- 5.6%
143,100 Akamai Technologies, Inc.(b)(c) 7,153,569
41,030 Google Inc., Class A(b) 16,489,957
--------------
23,643,526
--------------
IT Services -- 2.8%
55,175 Alliance Data Systems Corp.(b) 3,045,108
119,550 Cognizant Technology Solutions Corp., Class A(b) 8,853,873
--------------
11,898,981
--------------
Media -- 3.7%
106,050 McGraw-Hill Cos., Inc. (The) 6,154,082
490,050 News Corp., Class A 9,629,482
--------------
15,783,564
--------------
Multiline Retail -- 1.0%
102,200 Nordstrom, Inc. 4,323,060
--------------
Pharmaceuticals -- 1.4%
125,650 Abbott Laboratories 6,101,564
--------------
Real Estate -- 1.7%
298,525 CB Richard Ellis Group, Inc., Class A(b) 7,343,715
--------------
Semiconductors & Semiconductor Equipment -- 4.0%
312,800 Intel Corp. 6,434,296
140,225 Nvidia Corp.(b) 4,149,258
188,475 Texas Instruments, Inc. 6,266,793
--------------
16,850,347
--------------
Software -- 5.6%
311,175 BEA Systems, Inc.(b) 4,729,860
715,750 Oracle Corp.(b) 12,697,405
297,350 Symantec Corp.(b) 6,327,608
--------------
23,754,873
--------------
Specialty Retail -- 3.6%
123,925 American Eagle Outfitters, Inc. 5,431,633
103,800 Best Buy Co., Inc. 5,559,528
171,700 Staples, Inc. 4,177,461
--------------
15,168,622
--------------
Textiles Apparel & Luxury Goods -- 1.5%
186,275 Coach, Inc.(b) 6,407,860
--------------
Total Common Stocks (Identified Cost $402,017,741) 415,967,347
--------------
Principal
Amount
- -----------------------------------------------------------------------------------------
Short-Term Investments -- 4.0%
$ 2,697,000 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/06 at 3.450% to be repurchased at
$2,697,775 on 10/02/06 collateralized by $2,765,000 U.S.
Treasury Note, 3.875% due 5/15/09 with a value of $2,794,710
including accrued interest (Note 2g) 2,697,000
--------------
See accompanying notes to financial statements.
17
LOOMIS SAYLES GROWTH FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Shares Description Value (+)
- ---------------------------------------------------------------------------------------------------
14,375,488 State Street Securities Lending Quality Trust(d) $ 14,375,488
--------------
Total Short-Term Investments (Identified Cost $17,072,488) 17,072,488
--------------
Total Investments--102.4%
(Identified Cost $419,090,229)(a) 433,039,835
Other assets less liabilities -- (2.4)% (10,257,734)
--------------
Total Net Assets -- 100.0% $ 422,782,101
==============
+ See Note 2a of Notes to Financial Statements.
(a) Federal Tax Information:
At September 30, 2006, the unrealized appreciation on investments
based on cost of $420,330,893 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 $ 21,990,968
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value (9,282,026)
--------------
Net unrealized appreciation $ 12,708,942
==============
(b) Non-income producing security.
(c) All or a portion of this security was on loan to brokers at
September 30, 2006.
(d) Represents investment of security lending collateral.
Holdings at September 30, 2006 as a Percentage of Net Assets (Unaudited)
Capital Markets 12.3%
Communications Equipment 7.4
Healthcare Providers & Services 7.3
Computers & Peripherals 6.1
Internet Software & Services 5.6
Software 5.6
Biotechnology 5.5
Beverages 4.3
Semiconductors & Semiconductor Equipment 4.0
Media 3.7
Specialty Retail 3.6
Insurance 3.1
IT Services 2.8
Energy Equipment & Services 2.7
Diversified Financial Services 2.5
Food & Staples Retailing 2.5
Industrial Conglomerates 2.4
Aerospace & Defense 2.1
Other, less than 2% each 14.9
See accompanying notes to financial statements.
18
LOOMIS SAYLES RESEARCH FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Shares Description Value (+)
- -------------------------------------------------------------------------
Common Stocks -- 99.7% of Total Net Assets
Aerospace & Defense -- 6.0%
4,650 Lockheed Martin Corp. $ 400,179
5,825 Northrop Grumman Corp. 396,508
2,225 Precision Castparts Corp. 140,531
9,700 United Technologies Corp. 614,495
-------------
1,551,713
-------------
Beverages -- 5.5%
11,875 Coca-Cola Co. 530,575
6,300 Hansen Natural Corp.(b)(c) 204,624
10,500 PepsiCo, Inc. 685,230
-------------
1,420,429
-------------
Capital Markets -- 5.9%
4,500 Bear Stearns Cos., Inc.(c) 630,450
2,600 Goldman Sachs Group, Inc. 439,842
6,375 Lehman Brothers Holdings, Inc. 470,857
-------------
1,541,149
-------------
Chemicals -- 1.6%
3,475 Praxair, Inc. 205,581
4,625 Rohm & Haas Co. 218,994
-------------
424,575
-------------
Commercial Banks -- 2.6%
18,800 Wells Fargo & Co. 680,184
-------------
Communications Equipment -- 2.8%
19,125 Motorola, Inc. 478,125
7,000 QUALCOMM, Inc. 254,450
-------------
732,575
-------------
Computers & Peripherals -- 6.3%
7,825 Apple Computer, Inc.(b) 602,760
21,450 Hewlett-Packard Co. 787,000
6,825 Network Appliance, Inc.(b)(c) 252,593
-------------
1,642,353
-------------
Diversified Financial Services -- 5.3%
14,100 Bank of America Corp. 755,337
12,525 Citigroup, Inc. 622,117
-------------
1,377,454
-------------
Diversified Telecommunications Services -- 3.9%
8,675 AT&T, Inc. 282,458
17,025 BellSouth Corp. 727,819
-------------
1,010,277
-------------
Electric Utilities -- 3.3%
7,200 Edison International 299,808
9,375 Exelon Corp. 567,563
-------------
867,371
-------------
Electrical Equipment -- 1.2%
3,700 Emerson Electric Co. 310,282
-------------
Energy Equipment & Services -- 2.1%
10,075 Halliburton Co. 286,634
3,350 Transocean, Inc.(b) 245,320
-------------
531,954
-------------
Food & Staples Retailing -- 1.9%
15,275 CVS Corp. 490,633
-------------
Healthcare Equipment & Supplies -- 4.0%
7,800 Baxter International, Inc. 354,588
Shares Description Value (+)
- ----------------------------------------------------------------------
Healthcare Equipment & Supplies -- continued
3,200 Becton, Dickinson & Co. $ 226,144
3,300 C.R. Bard, Inc. 247,500
5,300 Hospira, Inc.(b) 202,831
-------------
1,031,063
-------------
Healthcare Providers & Services -- 3.1%
5,425 Caremark Rx, Inc. 307,435
4,900 Medco Health Solutions, Inc.(b) 294,539
2,625 WellPoint, Inc.(b) 202,256
-------------
804,230
-------------
Hotels, Restaurants & Leisure -- 1.5%
6,925 Starwood Hotels & Resorts Worldwide, Inc. 396,041
-------------
Household Products -- 2.6%
10,690 Procter & Gamble Co. (The) 662,566
-------------
Industrial Conglomerates -- 2.5%
12,200 General Electric Co. 430,660
2,450 Textron, Inc. 214,375
-------------
645,035
-------------
Insurance -- 5.8%
6,825 Chubb Corp. (The) 354,627
16,000 Genworth Financial, Inc. 560,160
7,650 Prudential Financial, Inc. 583,312
-------------
1,498,099
-------------
Internet Software & Services -- 3.2%
4,475 Akamai Technologies, Inc.(b) (c) 223,705
1,525 Google Inc., Class A(b) 612,898
-------------
836,603
-------------
Life Sciences Tools and Services -- 1.3%
4,200 Fisher Scientific International, Inc.(b) 328,608
-------------
Media -- 3.2%
7,225 Comcast Corp., Class A(b) 266,241
4,100 McGraw-Hill Cos., Inc. (The) 237,923
16,950 News Corp., Class A 333,068
-------------
837,232
-------------
Metals & Mining -- 1.3%
7,000 Nucor Corp. 346,430
-------------
Multiline Retail -- 4.1%
7,225 Federated Department Stores, Inc. 312,192
5,575 J.C. Penney Co., Inc.(c) 381,274
8,775 Nordstrom, Inc. 371,183
-------------
1,064,649
-------------
Oil, Gas & Consumable Fuels -- 7.6%
5,400 Anadarko Petroleum Corp. 236,682
17,925 ExxonMobil Corp. 1,202,767
7,000 Occidental Petroleum Corp. 336,770
4,700 XTO Energy, Inc. 198,011
-------------
1,974,230
-------------
Pharmaceuticals -- 4.3%
7,800 Abbott Laboratories 378,768
8,775 Johnson & Johnson 569,849
3,700 Merck & Co., Inc. 155,030
-------------
1,103,647
-------------
Real Estate -- 0.6%
6,800 CB Richard Ellis Group, Inc., Class A(b) 167,280
-------------
See accompanying notes to financial statements.
19
LOOMIS SAYLES RESEARCH FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Shares Description Value (+)
- -----------------------------------------------------------------------------------------------
Road & Rail -- 1.2%
4,075 Burlington Northern Santa Fe Corp. $ 299,268
-------------
Semiconductors & Semiconductor Equipment -- 3.0%
9,075 National Semiconductor Corp. 213,535
17,125 Texas Instruments, Inc. 569,406
-------------
782,941
-------------
Specialty Retail -- 1.1%
6,525 American Eagle Outfitters, Inc. 285,990
-------------
Thrifts & Mortgage -- 0.9%
6,650 Countrywide Financial Corp. 233,017
-------------
Total Common Stocks (Identified Cost $23,356,441) 25,877,878
-------------
Principal
Amount
- -----------------------------------------------------------------------------------------------
Short-Term Investments -- 6.6%
$ 277,000 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/06 at 3.450% to be repurchased at
$277,080 on 10/02/06 collateralized by $230,000 U.S. Treasury
Bond, 6.500% due 11/15/26 with a value of $289,168 including
accrued interest (Note 2g) 277,000
-------------
Shares
- -----------------------------------------------------------------------------------------------
1,445,033 State Street Securities Lending Quality Trust(d) 1,445,033
-------------
Total Short-Term Investments (Identified Cost $1,722,033) 1,722,033
-------------
Total Investments -- 106.3%
(Identified Cost $25,078,474) (a) 27,599,911
Other assets less liabilities -- (6.3)% (1,642,448)
-------------
Total Net Assets -- 100.0% $ 25,957,463
=============
+ See Note 2a of Notes to Financial Statements.
(a) Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $25,132,682 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 $ 2,706,993
Aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value (239,764)
-------------
Net unrealized appreciation $ 2,467,229
=============
(b) Non-income producing security.
(c) All or a portion of this security was on loan to brokers at
September 30, 2006.
(d) Represents investment of security lending collateral.
Holdings at September 30, 2006 as a Percentage of Net Assets (Unaudited)
Oil, Gas & Consumable Fuels 7.6%
Computers & Peripherals 6.3
Aerospace & Defense 6.0
Capital Markets 5.9
Insurance 5.8
Beverages 5.5
Diversified Financial Services 5.3
Pharmaceuticals 4.3
Multiline Retail 4.1
Healthcare Equipment & Supplies 4.0
Diversified Telecommunication Services 3.9
Electric Utilities 3.3
Media 3.2
Internet Software & Services 3.2
Healthcare Providers & Services 3.1
Semiconductors & Semiconductor Equipment 3.0
Communications Equipment 2.8
Commercial Banks 2.6
Household Products 2.6
Industrial Conglomerates 2.5
Energy Equipment & Services 2.1
Other, Less than 2% Each 12.6
See accompanying notes to financial statements.
20
STATEMENTS OF ASSETS & LIABILITIES
September 30, 2006
Global Markets Fund Growth Fund Research Fund
--------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
ASSETS
Investments at cost $ 97,216,097 $ 419,090,229 $ 25,078,474
Net unrealized appreciation 4,749,994 13,949,606 2,521,437
--------------------- --------------------- ---------------------
Investments at value (a) 101,966,091 433,039,835 27,599,911
Cash 55 703 99
Foreign currency at value (identified
cost $229,124) 228,603 -- --
Receivable for Fund shares sold 256,388 246,657 5,066
Receivable for securities sold 327,880 11,590,095 --
Dividends and interest receivable 548,319 270,215 27,032
Unrealized appreciation on forward
foreign currency contracts 38,318 -- --
Receivable from investment adviser
(Note 4) 46,776 25,884 --
Securities lending income receivable 1,291 1,295 44
Other assets 1,050 -- --
--------------------- --------------------- ---------------------
TOTAL ASSETS 103,414,771 445,174,684 27,632,152
--------------------- --------------------- ---------------------
LIABILITIES
Collateral on securities loaned, at
value (Note 2) 13,368,726 14,375,488 1,445,033
Payable for securities purchased 457,220 6,479,402 69,378
Payable for Fund shares redeemed 107,866 963,825 833
Unrealized depreciation on forward
foreign currency contracts 11,087 -- --
Management fees payable (Note 4) 54,446 172,056 92,464
Administrative fees payable (Note 4) 3,969 20,026 1,240
Deferred Trustees' fees (Note 4) 23,866 58,086 22,925
Service and distribution fees payable
(Note 4) 1,254 7,282 102
Other accounts payable and accrued
expenses 70,563 316,418 42,714
--------------------- --------------------- ---------------------
TOTAL LIABILITIES 14,098,997 22,392,583 1,674,689
--------------------- --------------------- ---------------------
NET ASSETS $ 89,315,774 $ 422,782,101 $ 25,957,463
===================== ===================== =====================
NET ASSETS CONSIST OF:
Paid-in capital $ 83,794,550 $ 650,265,684 $ 20,435,729
Undistributed net investment income
(loss) 1,202,135 (58,087) 196,320
Accumulated net realized gain (loss)
on investments and foreign currency
transactions (459,246) (241,375,102) 2,803,977
Net unrealized appreciation on
investments and foreign currency
translations 4,778,335 13,949,606 2,521,437
--------------------- --------------------- ---------------------
NET ASSETS $ 89,315,774 $ 422,782,101 $ 25,957,463
===================== ===================== =====================
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE:
Class A Shares:
Net assets $ 10,437,554 $ 225,728,949 $ 1,331,311
===================== ===================== =====================
Shares of beneficial interest 835,739 38,649,418 141,260
===================== ===================== =====================
Net asset value and redemption price
per share $ 12.49 $ 5.84 $ 9.42
===================== ===================== =====================
Offering price per (100/94.25 of
$12.49, $5.84, $9.42) (Note 1) $ 13.25 $ 6.20 $ 9.99
===================== ===================== =====================
Class B Shares: (redemption price per
share is equal to net asset value
less any applicable contingent
deferred sales charge) (Note 1)
Net assets $ -- $ 32,159,640 $ 331,449
===================== ===================== =====================
Shares of beneficial interest -- 5,640,083 35,831
===================== ===================== =====================
Net asset value and offering price
per share $ -- $ 5.70 $ 9.25
===================== ===================== =====================
Class C Shares: (redemption price per
share is equal to net asset value
less any applicable contingent
deferred sales charge) (Note 1)
Net assets $ 20,227,822 $ 43,415,457 $ 1,198,224
===================== ===================== =====================
Shares of beneficial interest 1,626,806 7,605,310 129,919
===================== ===================== =====================
Net asset value and offering price
per share $ 12.43 $ 5.71 $ 9.22
===================== ===================== =====================
Class Y Shares:
Net assets $ 58,650,398 $ 121,478,055 $ 23,096,479
===================== ===================== =====================
Shares of beneficial interest 4,689,112 19,993,618 2,434,479
===================== ===================== =====================
Net asset value, offering and
redemption price per share $ 12.51 $ 6.08 $ 9.49
===================== ===================== =====================
(a) Including securities on loan with a
market values of: $ 11,532,340 $ 13,864,106 $ 1,396,685
===================== ===================== =====================
See accompanying notes to financial statements.
21
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 2006
Global Markets Fund
---------------------
---------------------
INVESTMENT INCOME
Dividends $ 560,228
Interest 1,344,052
Securities lending income (Note 2) 17,907
Less net foreign taxes withheld (16,405)
---------------------
1,905,782
---------------------
Expenses
Management fees (Note 4) 546,802
Service fees - Class A (Note 4) 9,595
Service and distribution fees - Class B (Note 4) --
Service and distribution fees - Class C (Note 4) 73,396
Trustees' fees and expenses (Note 4) 17,798
Administrative fees (Note 4) 41,606
Custodian fees and expenses 63,984
Transfer agent fees and expenses - Class A 4,158
Transfer agent fees and expenses - Class B --
Transfer agent fees and expenses - Class C 9,183
Transfer agent fees and expenses - Class Y 19,072
Audit and tax services fees 57,846
Legal fees 3,743
Shareholder reporting expenses 34,984
Registration fees 64,671
Expense recapture - Class Y (Note 4) --
Miscellaneous expenses 19,895
---------------------
Total expenses 966,733
Less reimbursement/waiver (Note 4) (154,262)
---------------------
Net expenses 812,471
---------------------
Net investment income (loss) 1,093,311
---------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net 1,079,916
Foreign currency transactions - net (51,459)
Change in unrealized appreciation (depreciation) on:
Investments (net of change in foreign capital gains tax accrual of $5,599 on Global Markets Fund) 797,325
Foreign currency translations - net 31,284
---------------------
Net realized and unrealized gain (loss) on investments and foreign currency transactions 1,857,066
---------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 2,950,377
=====================
Growth Fund
---------------------
---------------------
INVESTMENT INCOME
Dividends $ 3,462,423
Interest 286,969
Securities lending income (Note 2) 12,378
Less net foreign taxes withheld --
---------------------
3,761,770
---------------------
Expenses
Management fees (Note 4) 1,726,735
Service fees - Class A (Note 4) 369,985
Service and distribution fees - Class B (Note 4) 370,987
Service and distribution fees - Class C (Note 4) 400,943
Trustees' fees and expenses (Note 4) 33,109
Administrative fees (Note 4) 198,292
Custodian fees and expenses 42,765
Transfer agent fees and expenses - Class A 346,400
Transfer agent fees and expenses - Class B 158,055
Transfer agent fees and expenses - Class C 107,404
Transfer agent fees and expenses - Class Y 58,840
Audit and tax services fees 34,493
Legal fees 17,499
Shareholder reporting expenses 176,189
Registration fees 115,724
Expense recapture - Class Y (Note 4) 78,279
Miscellaneous expenses 24,143
---------------------
Total expenses 4,259,842
Less reimbursement/waiver (Note 4) (207,663)
---------------------
Net expenses 4,052,179
---------------------
Net investment income (loss) (290,409)
---------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net (6,416,354)
Foreign currency transactions - net --
Change in unrealized appreciation (depreciation) on:
Investments (net of change in foreign capital gains tax accrual of $5,599 on Global Markets Fund) (14,594,029)
Foreign currency translations - net --
---------------------
Net realized and unrealized gain (loss) on investments and foreign currency transactions (21,010,383)
---------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (21,300,792)
=====================
Research Fund
---------------------
---------------------
INVESTMENT INCOME
Dividends $ 473,188
Interest 7,777
Securities lending income (Note 2) 1,026
Less net foreign taxes withheld --
---------------------
481,991
---------------------
Expenses
Management fees (Note 4) 131,788
Service fees - Class A (Note 4) 2,310
Service and distribution fees - Class B (Note 4) 2,916
Service and distribution fees - Class C (Note 4) 6,774
Trustees' fees and expenses (Note 4) 15,512
Administrative fees (Note 4) 13,700
Custodian fees and expenses 22,382
Transfer agent fees and expenses - Class A 2,172
Transfer agent fees and expenses - Class B 463
Transfer agent fees and expenses - Class C 980
Transfer agent fees and expenses - Class Y 25,637
Audit and tax services fees 39,263
Legal fees 1,419
Shareholder reporting expenses 7,521
Registration fees 64,683
Expense recapture - Class Y (Note 4) --
Miscellaneous expenses 7,999
---------------------
Total expenses 345,519
Less reimbursement/waiver (Note 4) (106,640)
---------------------
Net expenses 238,879
---------------------
Net investment income (loss) 243,112
---------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net 2,918,811
Foreign currency transactions - net --
Change in unrealized appreciation (depreciation) on:
Investments (net of change in foreign capital gains tax accrual of $5,599 on Global Markets Fund) (960,150)
Foreign currency translations - net --
---------------------
Net realized and unrealized gain (loss) on investments and foreign currency transactions 1,958,661
---------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 2,201,773
=====================
See accompanying notes to financial statements.
22
STATEMENTS OF CHANGES IN NET ASSETS
Global Markets Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2006 2005
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income (loss) $ 1,093,311 $ 405,344
Net realized gain (loss) on investments and
foreign currency transactions 1,028,457 1,077,096
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations 828,609 2,050,975
--------------------- ---------------------
Increase (decrease) in net assets resulting
from operations 2,950,377 3,533,415
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A -- --
Class B -- --
Class C -- --
Class Y (776,370) (480,214)
Net realized capital gain
Class A -- --
Class B -- --
Class C -- --
Class Y -- --
--------------------- ---------------------
Total distributions (776,370) (480,214)
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8) 39,428,816 27,384,406
--------------------- ---------------------
Redemption Fees
Class Y 895 22
--------------------- ---------------------
Net increase in net assets 41,603,718 30,437,629
--------------------- ---------------------
NET ASSETS
Beginning of year 47,712,056 17,274,427
--------------------- ---------------------
End of year $ 89,315,774 $ 47,712,056
===================== =====================
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS) $ 1,202,135 $ 593,309
===================== =====================
Growth Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2006 2005
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income (loss) $ (290,409) $ (729,590)
Net realized gain (loss) on investments and
foreign currency transactions (6,416,354) 4,632,543
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations (14,594,029) 21,803,498
--------------------- ---------------------
Increase (decrease) in net assets resulting
from operations (21,300,792) 25,706,451
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A -- --
Class B -- --
Class C -- --
Class Y -- --
Net realized capital gain
Class A -- --
Class B -- --
Class C -- --
Class Y -- --
--------------------- ---------------------
Total distributions -- --
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8) 233,029,131 111,752,129
--------------------- ---------------------
Redemption Fees
Class Y -- --
--------------------- ---------------------
Net increase in net assets 211,728,339 137,458,580
--------------------- ---------------------
NET ASSETS
Beginning of year 211,053,762 73,595,182
--------------------- ---------------------
End of year $ 422,782,101 $ 211,053,762
===================== =====================
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS) $ (58,087) $ (38,575)
===================== =====================
Research Fund
--------------------------------------------
Year Ended Year Ended
September 30, September 30,
2006 2005
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income (loss) $ 243,112 $ 101,276
Net realized gain (loss) on investments and
foreign currency transactions 2,918,811 2,844,052
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations (960,150) 1,214,106
--------------------- ---------------------
Increase (decrease) in net assets resulting
from operations 2,201,773 4,159,434
--------------------- ---------------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income
Class A (1,464) (59)
Class B -- (32)
Class C (293) (13)
Class Y (136,217) (91,263)
Net realized capital gain
Class A (24,273) --
Class B (11,723) --
Class C (13,059) --
Class Y (1,272,543) --
--------------------- ---------------------
Total distributions (1,459,572) (91,367)
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8) (130,794) (609,338)
--------------------- ---------------------
Redemption Fees
Class Y -- --
--------------------- ---------------------
Net increase in net assets 611,407 3,458,729
--------------------- ---------------------
NET ASSETS
Beginning of year 25,346,056 21,887,327
--------------------- ---------------------
End of year $ 25,957,463 $ 25,346,056
===================== =====================
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS) $ 196,320 $ 91,182
===================== =====================
See accompanying notes to financial statements.
23
This Page Intentionally Left Blank
FINANCIAL HIGHLIGHTS
Income (loss) from investment operations Less distributions
--------------------------------------- -----------------------------------------
Net asset
value, Dividends Distributions
beginning Net Net realized Total from from from net
of investment and unrealized investment net investment realized Total
the period income (c) gain (loss) operations income capital gains distributions
---------- ---------- -------------- ---------- -------------- ------------- -------------
GLOBAL MARKETS FUND
Class A
9/30/2006* $ 12.71 $ 0.12 $ (0.34) $ (0.22) $ -- $ -- $ --
Class C
9/30/2006* 12.71 0.06 (0.34) (0.28) -- -- --
Class Y
9/30/2006** 11.84 0.19 0.64 0.83 (0.16) -- (0.16)
9/30/2005 10.19 0.19 1.73 1.92 (0.27) -- (0.27)
9/30/2004 9.32 0.25 0.96 1.21 (0.34) -- (0.34)
9/30/2003 7.53 0.32 1.74 2.06 (0.27) -- (0.27)
9/30/2002*** 8.48 0.35 (0.55) (0.20) (0.75) -- (0.75)
Redemption
fee
----------
GLOBAL MARKETS FUND
Class A
9/30/2006* $ --
Class C
9/30/2006* --
Class Y
9/30/2006** 0.00(d)
9/30/2005 0.00(d)
9/30/2004 --
9/30/2003 --
9/30/2002*** --
* From commencement of Class operations on February 1, 2006 through
September 30, 2006.
** Prior to the close of business on February 1, 2006, the Fund offered
Institutional Class shares, which were redesignated as Class Y shares on
that date.
***As required 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 to the
Institutional Class 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 Institutional Class decreased from
4.29% to 4.26% on an annualized basis.
(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, if
applicable, are not annualized.
See accompanying notes to financial statements.
25
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's) (%) (b)(f) (%) (f) (%) (f) rate (%)
- ---------- --------- ----------- ---------- --------- -------------- ---------
$ 12.49 (1.7)(e) $ 10,438 1.25 1.56 1.52 103
12.43 (2.1)(e) 20,228 2.00 2.32 0.78 103
12.51 7.1 58,650 1.00 1.19 1.58 103
11.84 19.1 47,712 1.00 1.46 1.72 78
10.19 13.2 17,274 1.00 1.87 2.55 69
9.32 28.0 10,499 1.00 2.23 3.81 94
7.53 (3.0) 8,340 1.00 2.43 4.26 113
(b)The adviser has agreed to waive/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 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 C shares are not reflected in total return calculations. Periods less
than one year, if applicable, are not annualized.
(f)Annualized for periods less than one year.
26
FINANCIAL HIGHLIGHTS (continued)
Income (loss) from investment operations Less distributions
---------------------------------------- ------------------------------------------
Net asset
value, Net Dividends Distributions
beginning investment Net realized Total from from from net
of income and unrealized investment net investment realized Total
the period (loss) (c) gain (loss) operations income capital gains distributions
---------- ---------- -------------- ---------- -------------- ------------- -------------
GROWTH FUND
Class A
9/30/2006 $ 6.03 $ (0.00)(d) $ (0.19) $ (0.19) $ -- $ -- $ --
9/30/2005 4.98 (0.02) 1.07 1.05 -- -- --
9/30/2004 4.41 (0.03) 0.60 0.57 -- -- --
9/30/2003 3.65 (0.02) 0.78 0.76 -- -- --
9/30/2002 4.12 (0.03) (0.44) (0.47) -- -- --
Class B
9/30/2006 5.94 (0.05) (0.19) (0.24) -- -- --
9/30/2005 4.94 (0.06) 1.06 1.00 -- -- --
9/30/2004 4.41 (0.07) 0.60 0.53 -- -- --
9/30/2003* 4.54 (0.00)(d) (0.13) (0.13) -- -- --
Class C
9/30/2006 5.94 (0.04) (0.19) (0.23) -- -- --
9/30/2005 4.94 (0.06) 1.06 1.00 -- -- --
9/30/2004 4.41 (0.06) 0.59 0.53 -- -- --
9/30/2003* 4.54 (0.00)(d) (0.13) (0.13) -- -- --
Class Y
9/30/2006 6.26 0.02 (0.20) (0.18) -- -- --
9/30/2005 5.15 (0.00)(d) 1.11 1.11 -- -- --
9/30/2004 4.55 (0.02) 0.62 0.60 -- -- --
9/30/2003 3.75 (0.01) 0.81 0.80 -- -- --
9/30/2002 4.23 (0.02) (0.46) (0.48) -- -- --
* 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, if
applicable, are not annualized.
(b)The adviser has agreed to waive/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.
27
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's) (%) (b)(g) (%) (g) (loss) (%) (g) rate (%)
- ---------- --------- ----------- ---------- --------- -------------- ---------
$ 5.84 (3.2)(e) $ 225,729 1.10 1.17 (0.03) 174
6.03 21.1(e) 51,248 1.10 1.60 (0.38) 164
4.98 12.9(e) 14,072 1.10 1.70 (0.58) 171
4.41 20.8(f) 947 1.10 3.11 (0.45) 201
3.65 (11.4) 456 1.10 5.20 (0.65) 192
5.70 (4.0)(e) 32,160 1.95 2.11 (0.85) 174
5.94 20.2(e) 38,538 1.85 2.33 (1.14) 164
4.94 12.0(e) 12,532 1.85 2.45 (1.33) 171
4.41 (2.9)(f) 2 1.85 7.92 (1.29) 201
5.71 (3.9)(e) 43,415 1.85 1.95 (0.76) 174
5.94 20.2(e) 25,734 1.85 2.35 (1.10) 164
4.94 12.0(e) 6,826 1.85 2.45 (1.30) 171
4.41 (2.9)(f) 2 1.85 7.92 (1.29) 201
6.08 (2.9) 121,478 0.80(h) 0.80(h) 0.31 174
6.26 21.6 95,534 0.85 0.97 (0.05) 164
5.15 13.2 40,165 0.85 1.04 (0.32) 171
4.55 21.3 28,898 0.85 1.18 (0.20) 201
3.75 (11.4) 19,635 0.85 1.32 (0.39) 192
(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, if applicable, 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, if applicable, are not
annualized.
(g)Annualized for periods less than one year.
(h)Includes expense recapture of 0.07%. See Note 4 of Notes to Financial
Statements.
28
FINANCIAL HIGHLIGHTS (continued)
Income (loss) from investment operations Less distributions
--------------------------------------- ------------------------------------------
Net asset
value, Net Dividends Distributions
beginning investment Net realized Total from from from net
of income and unrealized investment net investment realized Total
the period (loss) (c) gain (loss) operations income capital gains distributions
---------- ---------- -------------- ---------- -------------- ------------- -------------
RESEARCH FUND
Class A
9/30/2006 $ 9.22 $ 0.05 $ 0.64 $ 0.69 $ (0.03) $ (0.46) $ (0.49)
9/30/2005 7.79 0.00(d) 1.43 1.43 (0.00)(d) -- (0.00)(d)
9/30/2004 6.90 0.01 0.90 0.91 (0.02) -- (0.02)
9/30/2003 5.69 0.02 1.20 1.22 (0.01) -- (0.01)
9/30/2002* 7.61 0.01 (1.92) (1.91) (0.01) -- (0.01)
Class B
9/30/2006 9.10 (0.02) 0.63 0.61 (0.00)(d) (0.46) (0.46)
9/30/2005 7.73 (0.06) 1.43 1.37 (0.00)(d) -- (0.00)(d)
9/30/2004 6.90 (0.05) 0.90 0.85 (0.02) -- (0.02)
9/30/2003** 7.05 0.00(d) (0.15) (0.15) -- -- --
Class C
9/30/2006 9.08 (0.02) 0.63 0.61 (0.01) (0.46) (0.47)
9/30/2005 7.73 (0.07) 1.42 1.35 (0.00)(d) -- (0.00)(d)
9/30/2004 6.90 (0.05) 0.88 0.83 -- -- --
9/30/2003** 7.05 0.00(d) (0.15) (0.15) -- -- --
Class Y
9/30/2006 9.27 0.09 0.64 0.73 (0.05) (0.46) (0.51)
9/30/2005 7.82 0.04 1.44 1.48 (0.03) -- (0.03)
9/30/2004 6.92 0.03 0.90 0.93 (0.03) -- (0.03)
9/30/2003 5.71 0.04 1.20 1.24 (0.03) -- (0.03)
9/30/2002 6.85 0.03 (1.16) (1.13) (0.01) -- (0.01)
* 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, if
applicable, are not annualized.
(b)The adviser has agreed to waive/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.
29
Ratios to average net assets
----------------------------------
Net asset Net assets,
value, Total end of the Net Gross Net investment Portfolio
end of return period expenses expenses income(loss) turnover
the period (%) (a) (000's) (%) (b)(g) (%) (g) (%) (g) rate (%)
- ---------- --------- ----------- ---------- --------- -------------- ---------
$ 9.42 7.7(e) $ 1,331 1.25 1.68 0.56 143
9.22 18.4(e) 344 1.25 34.73 0.03 133
7.79 13.2(e) 106 1.21 39.85 0.07 151
6.90 21.5(f) 41 1.10 28.75 0.35 138
5.69 (25.2) 17 1.10 213.89 0.22 130
9.25 6.9(e) 331 2.00 2.33 (0.19) 143
9.10 17.8(e) 210 2.00 41.40 (0.71) 133
7.73 12.3(e) 57 2.00 40.60 (0.71) 151
6.90 (2.1)(f) 2 2.00 125.11 (0.72) 138
9.22 6.9(e) 1,198 2.00 2.37 (0.18) 143
9.08 17.5(e) 140 2.00 37.60 (0.76) 133
7.73 12.0(e) 3 2.00 40.60 (0.59) 151
6.90 (2.1)(f) 2 2.00 125.11 (0.72) 138
9.49 8.1 23,096 0.85 1.26 0.98 143
9.27 19.0 24,651 0.85 1.31 0.43 133
7.82 13.5 21,721 0.85 1.50 0.44 151
6.92 21.8 21,881 0.85 1.31 0.59 138
5.71 (16.6) 15,889 0.89 1.46 0.36 130
(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, if applicable, 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, if applicable, are not
annualized.
(g)Annualized for periods less than one year.
30
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
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, as amended, (the "1940 Act"), as an open-end management
investment 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. 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 of the Trust are presented in
separate reports. The following funds (individually, a "Fund" and collectively,
the "Funds") are included in this report:
Loomis Sayles Global Markets Fund (the "Global Markets Fund"), formerly the
Loomis Sayles Worldwide Fund
Loomis Sayles Growth Fund (the "Growth Fund")
Loomis Sayles Research Fund (the "Research Fund")
On February 1, 2006, the Loomis Sayles Worldwide Fund changed its name to the
Loomis Sayles Global Markets Fund. In addition, on February 1, 2006, the
Institutional Class was redesignated as Class Y, and Classes A and C commenced
operations.
Each Fund offers Class A, Class C and Class Y shares. Growth Fund and Research
Fund also offer Class B 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 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 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). 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, including closed-end investment
companies, 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 (other than short-term
obligations with a remaining maturity of sixty days or less) are generally
valued at market price on the basis of valuations furnished to the Funds by a
pricing service recommended by the investment adviser's pricing committee and
approved 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.
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. In instances where
broker-dealer bid quotations are not available, certain securities held by the
Funds may be 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. Short-term
obligations with a remaining maturity of sixty days or less are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available 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. Investments
in other open-end investment companies are valued at their 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 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 foreign market and before the Funds calculate
their net asset values. As of September 30, 2006, approximately 25% of the
market value of investments of the Global Markets Fund were fair valued
pursuant to procedures approved by the Board of Trustees.
31
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
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,
non-class specific expenses 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.
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 period, 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. The U.S. dollar value of the currencies a Fund has
committed to buy or sell represents 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, 2006, the Global Markets Fund had the
following open forward foreign currency exchange contracts:
Local Aggregate Unrealized
Delivery Currency Face Total Appreciation
Date Amount Amount Value (Depreciation)
- - -------- -------- --------- -------- --------------
Australian Dollar (sell) 11/10/2006 225,000 $171,000 $167,758 $ 3,242
Canadian Dollar (sell) 10/30/2006 260,000 229,428 232,821 (3,393)
Canadian Dollar (sell) 11/20/2006 500,000 448,813 448,025 788
Mexican Peso (sell) 12/13/2006 6,700,000 602,621 607,289 (4,668)
New Zealand Dollar (sell) 12/08/2006 250,000 161,500 162,771 (1,271)
South African Rand (sell) 11/13/2006 1,800,000 264,781 230,586 34,195
South African Rand (buy) 11/13/2006 550,000 72,212 70,457 (1,755)
South African Rand (buy) 11/13/2006 550,000 70,364 70,457 93
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 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.
32
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
f. 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 annually 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 net operating losses, foreign
currency transactions, gains realized from passive foreign investment companies
("PFICs") and premium amortization accruals. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to capital accounts. Temporary differences between book and
tax distributable earnings are primarily due to deferred Trustees' fees, wash
sales, unrealized gains on PFICs, premium amortization accruals and defaulted
bond interest. Distributions from net investment income and short-term capital
gains are considered to be ordinary income for tax purposes.
The tax characterization of distributions is determined on an annual basis. The
tax character of distributions paid to shareholders during the years ended
September 30, 2006 and 2005 was as follows:
2006 Distributions Paid From: 2005 Distributions Paid From:
- - --------------------------------- -------------------------------
Ordinary Long-Term Ordinary Long-Term
Income Capital Gains Total Income Capital Gains Total
- - ------ ------------- ----- ------ ------------- -----
Global Markets Fund $776,370 $ -- $ 776,370 $480,214 $-- $480,214
Growth Fund -- -- -- -- -- --
Research Fund 137,974 1,321,598 1,459,572 91,367 -- 91,367
Differences between these amounts and those reported in the Statements of
Changes in Net Assets are primarily attributable to different book and tax
treatment for short-term capital gains.
As of September 30, 2006, the components of distributable earnings on a tax
basis were as follows:
Global
Markets Fund Growth Fund Research Fund
- - ------------ ----------- -------------
Undistributed ordinary income $1,402,631 $ -- $ 786,999
Undistributed long-term capital gains -- -- 2,290,431
---------- ------------ ----------
Total undistributed earnings 1,402,631 -- 3,077,430
Capital loss carryforward:
Expires September 30, 2008 -- -- --
Expires September 30, 2009 -- -- --
Expires September 30, 2010 -- (29,812,842)* --
Expires September 30, 2011 (311,587) (6,192,314)* --
---------- ------------ ----------
Total capital loss carryforward (311,587) (36,005,156)* --
Deferred net capital losses (post October 2005) -- (7,888,832) --
Unrealized appreciation 4,468,924 12,708,942 2,467,229
---------- ------------ ----------
Total accumulated earnings (losses) $5,559,968 $(31,185,046) $5,544,659
========== ============ ==========
Capital loss carryforward utilized in the current year $ 859,098 $ 2,638,390 $ --
---------- ------------ ----------
*A significant portion of the Loomis Sayles Growth Fund's losses are a result
of prior year mergers; therefore, these losses have been limited under
Section 382 of the Internal Revenue Code.
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 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 on behalf of 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 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. In the event that the market value of the
collateral falls below the required percentages described above, the borrower
will deliver additional collateral on the next business day. 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
33
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
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, 2006 were as follows:
Market Value Value of
Fund on Loan Collateral
---- ------------ -----------
Global Markets Fund $11,532,340 $13,368,726
Growth Fund 13,864,106 14,375,488
Research Fund 1,396,685 1,445,033
i. Indemnifications. Under the Trust's 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 Funds that have not yet occurred. However, based on experience, the
Funds expect the risk of loss to be remote.
j. New Accounting Pronouncements. In July, 2006, Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement 109 ("FIN 48") was issued and is effective for
fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold
for financial statement recognition, measurement and disclosure of a tax
position taken or expected to be taken on a tax return. Management is currently
evaluating the impact, if any, the adoption of FIN 48 will have on each Fund's
net assets and results of operations.
In addition, in September, 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements ("SFAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact, if any,
the adoption of SFAS 157 will have on the Funds' financial statements.
3. Purchases and Sales of Securities. For the year ended September 30, 2006,
purchases and sales of securities (excluding short-term investments and U.S.
Government/Agency Securities and including paydowns) were as follows:
Fund Purchases Sales
---- ------------ ------------
Global Markets Fund $107,752,446 $ 67,090,372
Growth Fund 814,559,503 580,702,891
Research Fund 37,386,355 38,759,522
For the year ended September 30, 2006 purchases and sales of U.S.
Government/Agency Securities by the Global Markets Fund were $2,593,039 and
$3,849,995, respectively.
4. Management Fees and Other Transactions with Affiliates.
a. Management Fees. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as
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
Fund Daily Net Assets
---- ----------------
Global Markets Fund 0.75%
Growth Fund 0.50%
Research Fund 0.50%
Loomis Sayles has given binding undertakings to certain Funds to defer its
management fees and/or reimburse certain expenses associated with these Funds
to limit their operating expenses. These undertakings are in effect until
January 31, 2007 and will be reevaluated on an annual basis. For the year ended
September 30, 2006, the expense limits as a percentage of average daily net
assets under the expense limitation agreements were as follows:
Expense Limit as a Percentage of Average
Daily Net Assets
- ----------------------------------------
Fund Class A Class B Class C Class Y
---- ------- ------- ------- -------
Global Markets Fund 1.25% N/A 2.00% 1.00%
Growth Fund 1.25% 2.00% 2.00% 0.85%
Research Fund 1.25% 2.00% 2.00% 0.85%
34
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
Prior to February 1, 2006, the Growth Fund limited its total operating expenses
on Class A, Class B and Class C to 1.10%, 1.85% and 1.85% of average daily net
assets, respectively.
For the year ended September 30, 2006, 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
---- ---------- ---------- ---------- ----- ---
Global Markets Fund $ 546,802 $(121,607) $ 425,195 0.75% 0.58%
Growth Fund 1,726,735 -- 1,726,735 0.50% 0.50%
Research Fund 131,788 (79,299) 52,489 0.50% 0.20%
For the year ended September 30, 2006, in addition to the waiver of management
fees, expenses have been reimbursed as follows:
Expense
Fund Reimbursed
---- ----------
Global Markets Fund $ 32,655
Growth Fund 207,663
Research Fund 27,341
Loomis Sayles shall be permitted to recover expenses borne under the expense
limitation agreements (whether through a reduction of its management fee or
otherwise) on a Class by Class basis in later periods to the extent a Class'
expenses fall below a Class' expense limits, provided, however, that a Class is
not obligated to pay such deferred fees more than one year after the end of the
fiscal year in which the fee was deferred. The amounts subject to possible
reimbursement under the expense limitation agreements at September 30, 2006
were as follows:
Expenses Subject to Possible Reimbursement Until
September 30, 2007
- ------------------------------------------------
Fund Class A Class B Class C Class Y Total
---- -------- ------- ------- -------- --------
Global Markets Fund $ 12,035 $ -- $24,157 $118,070 $154,262
Growth Fund 106,807 60,484 40,372 -- 207,663
Research Fund 3,935 967 2,498 99,240 106,640
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 US Group, L.P. ("IXIS US Group") (formerly IXIS Asset Management
North America, L.P.), which is part of IXIS Asset Management Group, an
international asset management group based in Paris, France.
b. Administrative Fees. IXIS Asset Management Advisors, L.P. ("IXIS Advisors")
provides certain administrative services for the Funds and has subcontracted
with State Street Bank to serve as sub-administrator. IXIS Advisors is a
limited partnership whose sole general partner, IXIS Asset Management
Distribution Corporation, is an indirect wholly-owned subsidiary of IXIS US
Group. Pursuant to an agreement among 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 ("IXIS Advisor Funds Trusts"), Loomis Sayles
Funds I, Loomis Sayles Funds II ("Loomis Sayles Funds Trusts") and IXIS
Advisors, 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, which is reevaluated on an
annual basis.
For the year ended September 30, 2006, amounts paid to IXIS Advisors for
administrative fees were as follows:
Administrative
Fund Fee
---- --------------
Global Markets Fund $ 41,606
Growth Fund 198,292
Research Fund 13,700
c. Service and Distribution Fees. The Trust has entered into a distribution
agreement with IXIS Asset Management Distributors, L.P. ("IXIS Distributors"),
a wholly-owned subsidiary of IXIS US Group. Pursuant to this agreement, IXIS
Distributors serves as principal underwriter of each fund.
35
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
Pursuant to Rule 12b-1 under the 1940 Act, the Funds have adopted a Service
Plan relating to each Fund's Class A shares (the "Class A Plan"), Service and
Distribution Plans relating to the Growth Fund's and Research Fund's Class B
shares (the "Class B Plans"), and Service and Distribution Plans relating to
each Fund's Class C shares (the "Class C Plan").
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 applicable 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, each applicable 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.
For the year ended September 30, 2006, the Funds paid the following service and
distribution fees:
Service Fees Distribution Fees
- ----------------------------------- ---------------------
Fund Class A Class B Class C Class B Class C
---- ------------- ------- ------------- ------- -------------
Global Markets Fund $ 9,595 N/A $ 18,349 N/A $ 55,047
Growth Fund 369,985 92,747 100,236 278,240 300,707
Research Fund 2,310 729 1,694 2,187 5,080
d. Commissions. The Funds have been informed that commissions (including CDSCs)
on Fund shares paid to IXIS Distributors by investors in shares of the Funds
for the year ended September 30, 2006, were as follows:
Fund Commissions
---- -----------
Global Markets Fund $199,528
Growth Fund 281,853
Research Fund 2,496
e. Trustees Fees and Expenses. The Funds do not pay any compensation directly
to their officers or Trustees who are directors, officers or employees of IXIS
Advisors, IXIS Distributors, IXIS US Group, Loomis Sayles or their affiliates.
The Chairperson of the Board receives a retainer fee at the annual rate of
$200,000. The Chairperson does not receive any meeting attendance fees for
Board of Trustees meetings or committee meetings that she attends. Each
Independent Trustee (other than the Chairperson) receives, in the aggregate, a
retainer fee at the annual rate of $55,000. Each Independent Trustee also
receives a meeting attendance fee of $6,000 for each meeting of the Board of
Trustees that he or she attends in person and $3,000 for each meeting of the
Board of Trustees that he or she attends telephonically. In addition, each
committee chairman receives an additional retainer fee at the annual rate of
$10,000. Each Contract Review and Governance Committee member is compensated
$4,000 for each Committee meeting that he or she attends in person and $2,000
for each meeting that he or she attends telephonically. Each Audit Committee
member is compensated $5,000 for each Committee meeting that he or she attends
in person and $2,500 for each meeting that he or she attends telephonically.
These fees are allocated among the funds in 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.
Prior to January 1, 2006, each committee member was compensated $4,000 for each
Audit Committee meeting that he or she attended in person and $2,000 for each
such meeting he or she attended telephonically.
Prior to November 18, 2005, the Trusts had co-chairmen of the Board who each
received an annual retainer of $25,000. In addition, during the period
October 1, 2005 to November 18, 2005, each co-chairman received an additional
one-time payment of $25,000 as compensation for their services as chairmen.
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 the Funds' assets
to pay their portion of the annual salary for 2005 of an employee of IXIS
Advisors who supported the Funds' Chief Compliance Officer. For the period from
October 1, 2005 to December 31, 2005, each Fund's portion of such expense was
approximately $575.
36
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
f. Redemption Fees. Shareholders of Class A and Class Y shares of Global
Markets Fund are charged a 2% redemption fee if they redeem, including
redeeming by exchange, such shares within 60 days of their acquisition
(including acquisition by exchange). The redemption fee is intended to offset
the costs to the Fund 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. Each Fund, together with certain other funds of IXIS Advisor
Funds Trusts and Loomis Sayles Funds Trusts, participates in a $75,000,000
committed line of credit provided by State Street Bank. 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 year ended September 30, 2006, 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 in the Statements of
Operations. For the year ended September 30, 2006, amounts rebated under these
agreements were as follows:
Fund Rebates
---- -------
Global Markets Fund $ 6,468
Growth Fund 157,866
Research Fund 18,211
7. Shareholders. At September 30, 2006, 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
---- ------------ ---------------
Global Markets Fund 891,975 382,786
Growth Fund 1,494,585 2,363,908
Research Fund 1,049,821 628,615
At September 30, 2006, one shareholder individually owned more than 5% of the
Global Markets Fund's total outstanding shares, representing, in aggregate,
28.9% of the Fund; two shareholders individually owned more than 5% of the
Research Fund's total outstanding shares, representing, in aggregate, 20.7% of
the Fund.
8. 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
September 30, 2006
-----------------------------------
Global Markets Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A*
Issued from the sale of shares 997,302 $ 12,371,308
Issued in connection with the reinvestment of distributions -- --
Redeemed (161,563) (1,961,910)
---------------- -----------------
Net change 835,739 $ 10,409,398
---------------- -----------------
Class C*
Issued from the sale of shares 1,718,496 $ 21,433,099
Issued in connection with the reinvestment of distributions -- --
Redeemed (91,690) (1,110,053)
---------------- -----------------
Net change 1,626,806 $ 20,323,046
---------------- -----------------
Class Y
Issued from the sale of shares 2,188,284 $ 27,043,724
Issued in connection with the reinvestment of distributions 53,613 656,760
Redeemed (1,582,610) (19,004,112)
---------------- -----------------
Net change 659,287 $ 8,696,372
---------------- -----------------
Increase (decrease) from capital share transactions 3,121,832 $ 39,428,816
================ =================
Year Ended
September 30, 2005
-----------------------------------
Global Markets Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A*
Issued from the sale of shares -- $ --
Issued in connection with the reinvestment of distributions --
Redeemed -- --
---------------- -----------------
Net change -- $ --
---------------- -----------------
Class C*
Issued from the sale of shares -- $ --
Issued in connection with the reinvestment of distributions -- --
Redeemed -- --
---------------- -----------------
Net change -- $ --
---------------- -----------------
Class Y
Issued from the sale of shares 2,600,338 $ 30,275,197
Issued in connection with the reinvestment of distributions 42,385 458,186
Redeemed (307,403) (3,348,977)
---------------- -----------------
Net change 2,335,320 $ 27,384,406
---------------- -----------------
Increase (decrease) from capital share transactions 2,335,320 $ 27,384,406
================ =================
*From commencement of Class operations on February 1, 2006 through
September 30, 2006.
37
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
Year Ended
September 30, 2006
-----------------------------------
Growth Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A
Issued from the sale of shares 40,187,712 $ 245,315,502
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 9) -- --
Redeemed (10,033,651) (60,439,234)
---------------- -----------------
Net change 30,154,061 $ 184,876,268
---------------- -----------------
Class B
Issued from the sale of shares 848,742 $ 5,201,694
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 9) -- --
Redeemed (1,694,388) (9,952,368)
---------------- -----------------
Net change (845,646) $ (4,750,674)
---------------- -----------------
Class C
Issued from the sale of shares 5,001,950 $ 30,681,945
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 9) -- --
Redeemed (1,726,785) (9,971,161)
---------------- -----------------
Net change 3,275,165 $ 20,710,784
---------------- -----------------
Class Y
Issued from the sale of shares 8,530,418 $ 55,495,055
Issued in connection with the reinvestment of distributions -- --
Issued in connection with Merger (Note 9) -- --
Redeemed (3,799,646) (23,302,302)
---------------- -----------------
Net change 4,730,772 $ 32,192,753
---------------- -----------------
Increase (decrease) from capital share transactions 37,314,352 $ 233,029,131
================ =================
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 9) 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 9) 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 9) 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 9) -- --
Redeemed (4,211,591) (23,437,153)
---------------- -----------------
Net change 7,466,146 $ 41,615,352
---------------- -----------------
Increase (decrease) from capital share transactions 20,035,299 $ 111,752,129
================ =================
Year Ended
September 30, 2006
-----------------------------------
Research Fund Shares Amount
- -------------------------------------------------------------- ---------------- -----------------
Class A
Issued from the sale of shares 152,482 $ 1,403,452
Issued in connection with the reinvestment of distributions 2,619 23,856
Redeemed (51,170) (465,833)
---------------- -----------------
Net change 103,931 $ 961,475
---------------- -----------------
Class B
Issued from the sale of shares 22,642 $ 206,776
Issued in connection with the reinvestment of distributions 646 5,804
Redeemed (10,558) (95,896)
---------------- -----------------
Net change 12,730 $ 116,684
---------------- -----------------
Class C
Issued from the sale of shares 124,848 $ 1,124,378
Issued in connection with the reinvestment of distributions 183 1,639
Redeemed (10,548) (95,088)
---------------- -----------------
Net change 114,483 $ 1,030,929
---------------- -----------------
Class Y
Issued from the sale of shares 281,350 $ 2,561,233
Issued in connection with the reinvestment of distributions 153,010 1,398,512
Redeemed (660,327) (6,199,627)
---------------- -----------------
Net change (225,967) $ (2,239,882)
---------------- -----------------
Increase (decrease) from capital share transactions 5,177 $ (130,794)
================ =================
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)
---------------- -----------------
Increase (decrease) from capital share transactions (62,195) $ (609,338)
================ =================
38
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
9. Acquisition of Assets. 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 Star
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.
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Loomis Sayles Funds II and Shareholders of Loomis Sayles
Global Markets Fund, Loomis Sayles Growth Fund and Loomis Sayles Research 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
Global Markets Fund (formerly, Loomis Sayles Worldwide Fund), Loomis Sayles
Growth Fund and Loomis Sayles Research Fund, each a series of Loomis Sayles
Funds II (collectively, "the Funds"), at September 30, 2006, 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, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 22, 2006
40
2006 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (unaudited)
Corporate Dividends Received Deduction. For the fiscal year ended September 30,
2006, a percentage of dividends distributed by the Funds listed below qualify
for the dividends received deduction for corporate shareholders. These
percentages are as follows:
Qualifying
Fund Percentage
---- ----------
Global Markets Fund 9.55%
Research Fund 89.36%
Capital Gains Distributions. Pursuant to Internal Revenue Section 852(b), the
following Funds paid distributions, which have been designated as capital gains
distributions for the fiscal year ended September 30, 2006.
Fund Amount
---- ----------
Research Fund $1,321,598
Qualified Dividend Income. For the fiscal year ended September 30, 2006, the
Funds below 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 tax
bracket. If the Funds pay a distribution during calendar year 2006, complete
information will be reported in conjunction with Form 1099-DIV.
Fund
---- -
Global Markets Fund
Research Fund
41
TRUSTEE AND OFFICER INFORMATION
The tables below provide 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
Trust's Statements of Additional Information include additional information
about the Trustees of the Trust 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 2003; Douglas Dillon Professor and 38;
(3/23/40) Contract Review and Director of the Belfer Center Director, Taubman Centers,
Governance Committee for Science and International Inc. (real estate investment
Member Affairs, John F. Kennedy trust)
School of Government,
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) Chairman of the Contract Director, Precision Optics
Review and Governance Corporation (optics
Committee Member manufacturer)
Daniel M. Cain Trustee since 2003; President and Chief Executive 38;
(2/24/45) Chairman of the Audit Officer, Cain Brothers & Director, Sheridan
Committee Company, Incorporated Healthcare Inc. (physician
(investment banking) practice management)
Paul G. Chenault+ Trustee since 2000; Retired; Trustee, First Variable 38;
(9/12/33) Contract Review and Life (variable life insurance) Director, Mailco Office
Governance Committee Products, Inc. (mailing
Member equipment)
Kenneth J. Cowan+ Trustee since 2003; Retired 38;
(4/5/32) Contract Review and None
Governance Committee
Member
Richard Darman Trustee since 2003; Partner, The Carlyle Group 38;
(5/10/43) Contract Review and (investments); formerly, Director and Chairman of
Governance Committee Professor, John F. Kennedy Board of Directors, AES
Member School of Government, Corporation (international
Harvard University power company)
Sandra O. Moose Trustee since 2003; President, Strategic Advisory 38;
(2/17/42) Chairperson of the Board Services (management Director, Verizon
of Trustees since November consulting); formerly, Senior Communications;
2005 Vice President and Director, Director, Rohm and Haas
Ex officio member of the The Boston Consulting Group, Company (specialty
Audit Committee and Inc. (management consulting) chemicals);
Contract Review and Director, AES Corporation
Governance Committee (international power
company)
42
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
John A. Shane+ Trustee since 2003; President, Palmer Service 38;
(2/22/33) Audit Committee Member Corporation (venture capital Director, Gensym
organization) Corporation (software and
technology service provider);
Director and Chairman of the
Board, Abt Associates Inc.
(research and consulting
firm)
Cynthia L. Walker Trustee since 2005 Executive Dean for 38;
(7/25/56) Audit Committee Member Administration (formerly, None
Dean for Finance and CFO),
Harvard Medical School
INTERESTED TRUSTEES
Robert J. Blanding/1/ Chief Executive Officer and President, Chairman, Director, 38;
(4/14/47) Trustee since 2002 and Chief Executive Officer, None
555 California Street Loomis, Sayles & Company,
San Francisco, CA 94104 L.P.; President and Chief
Executive Officer for Loomis
Sayles Funds I; Chief Executive
Officer for Loomis Sayles
Funds II
John T. Hailer/2/ President and Trustee since President and Chief Executive 38;
(11/23/60) 2003 Officer, IXIS Asset None
Management Advisors, L.P.,
IXIS Asset Management
Distributors, L.P. and IXIS
Asset Management Global
Associates, L.P.; Executive
Vice President, Loomis Sayles
Funds I; President and Chief
Executive Officer, AEW Real
Estate Income Fund, IXIS
Advisor Cash Management
Trust, IXIS Advisor Funds
Trust I, IXIS Advisor Funds
Trust II, IXIS Advisor Funds
Trust III and IXIS Advisor
Funds Trust IV
* Each Trustee serves until retirement, resignation or removal from the Board
of Trustees. The current retirement age is 72, but the retirement policy was
suspended for the calendar year 2005. At a meeting held on August 26, 2005,
the Trustees voted to lift the suspension of the retirement policy and to
designate 2006 as a transition period so that any Trustees who are currently
age 72 or older or who reach age 72 during the remainder of 2006 will not be
required to retire until the end of calendar year 2006. The position of
Chairperson of the Board is appointed for a two-year term.
43
TRUSTEE AND OFFICER INFORMATION
** Each person listed above, except as noted, holds the same position(s) with
the 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") or Loomis, Sayles & Company, L.P. 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 (together the "IXIS Advisor Funds and Loomis Sayles
Funds Trusts").
+ - Effective December 31, 2006, Messrs. Chenault, Cowan and Shane will be
retiring as members of the IXIS Advisor Funds and Loomis Sayles Funds Trusts
Board of Trustees.
/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.
/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
("IXIS Distribution Corporation"); and President and Chief Executive
Officer of IXIS Asset Management Global Associates, L.P., IXIS Asset
Management Advisors and the IXIS Asset Management Distributors, L.P.
44
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Trust Term of Principal Occupation(s)
Name and Date of Birth Office and Length of Time Served* During Past 5 Years**
- ---------------------- --------------------------------------- -----------------------
OFFICERS OF THE TRUSTS
Coleen Downs Dinneen Secretary, Clerk and Chief Legal Officer Senior Vice President, General
(12/16/60) Since September 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.
Daniel J. Fuss Executive Vice President Vice Chairman and Director, Loomis,
(9/27/33) Since June 2003 Sayles & Company, L.P.; Prior to
One Financial Center 2002, President and Trustee of
Boston, MA 02111 Loomis Sayles Funds II
Russell L. Kane Chief Compliance Officer, Since May Chief Compliance Officer for Mutual
(7/23/69) 2006; Assistant Secretary Since June Funds, Vice President, Associate
2004 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.;
formerly, Senior Counsel, Columbia
Management Group.
Michael C. Kardok Treasurer, Principal Financial and Senior Vice President, IXIS Asset
(7/17/59) Accounting Officer Since October 2004 Management Advisors, L.P. and IXIS
Asset Management Distributors, L.P.;
formerly, Senior Director, PFPC Inc;
formerly, Vice President--Division
Manager, First Data Investor
Services, Inc.
Max J. Mahoney Anti-Money Laundering Officer and Vice President, Deputy General
(5/1/62) Assistant Secretary Since August 2005 Counsel, Assistant Secretary and
Assistant Clerk, IXIS Asset
Management Distribution
Corporation. Senior Vice President,
Deputy General Counsel, Assistant
Secretary, Assistant Clerk and Chief
Compliance Officer--Investment
Adviser, IXIS Asset Management
Distributors, L.P. and IXIS Asset
Management Advisors, L.P.;
formerly, Senior Counsel, MetLife,
Inc.; formerly, Associate Counsel,
LPL Financial Services, Inc.
45
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Trust Term of Principal Occupation(s)
Name and Date of Birth Office and Length of Time Served* During Past 5 Years**
- ---------------------- --------------------------------------- -----------------------
OFFICERS OF THE TRUSTS
continued
John E. Pelletier Chief Operating Officer Executive Vice President and Chief
(6/24/64) Since September 2004 Operating Officer (formerly, Senior
Vice President, General Counsel,
Secretary and Clerk), IXIS Asset
Management Distribution
Corporation, IXIS Asset Management
Distributors, L.P. and IXIS Asset
Management Advisors, L.P.;
Executive Vice President, Chief
Operating Officer and Director
(formerly, President, Chief Operating
Officer and Director), IXIS Asset
Management Services Company.
* Each officer of the Trust serves for an indefinite term in accordance with
their current By-laws until the date his or her successor is elected and
qualified, or until he or she sooner dies, retires, is removed or becomes
disqualified.
** Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor Funds and Loomis Sayles Funds Trusts. Previous positions
during the past five years with the Distributor, IXIS Advisors or Loomis
Sayles are omitted, if not materially different from a trustee's or
officer's current position with such entity.
46
[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
TABLE OF CONTENTS
Fund and Manager Review 1
Portfolio of Investments 16
Statements of Assets and Liabilities 37
Statements of Operations 39
Statements of Changes in Net Assets 41
Financial Highlights 45
Notes to Financial Statements 51
ANNUAL REPORT
SEPTEMBER 30, 2006
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
similar securities
STRATEGY | Invests primarily in common stocks or other equity securities
(which may include securities offered in the secondary markets or in initial
public offering) 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 | $44.1 million
PORTFOLIO REVIEW
The Fund's performance was strong during the first six months of the 2006
fiscal year, primarily due to solid stock selections in the overweight
financials sector and, to a lesser extent, the technology area. Overall, the
stock selection effect was positive for the fiscal year ended September 30,
2006. Fueling the Fund's underperformance versus the Benchmark, the Russell
Midcap Growth Index, was the "allocation effect," or the timing of our over-
and under-weights to the various sectors. In particular, the Fund's performance
was disappointing during the early stages of the market recovery, when many
former laggards in such groups as semiconductors and specialty retail led
results. Our emphasis on energy as commodity prices collapsed and our
underweight in consumer discretionary stocks both detracted from performance.
At the beginning of the period, we focused on a select number of themes,
industries and stocks, where the risk/reward tradeoff still appeared
compelling, and where we expected benefits from macro tailwinds,
company-specific events (such as new product cycles), or both. As the year
unfolded, we also tried to balance our bottom-up stock-picking efforts with the
market's increasing focus on the macro environment. After the Federal Reserve
Board's May 9, 2006 meeting, we increased our weighting in more defensive
holdings, reflecting our concerns that the financial markets were signaling the
Fed had "overdone it" with interest rate hikes and the economy was poised for a
hard landing. We were also concerned that the slowdown in the housing market
might have a negative impact on consumer spending in 2007, and investors were
not sufficiently accounting for this risk. Nevertheless, the third calendar
quarter's strong rally in bonds and the dramatic sell-off in energy sparked a
late-summer stock market rally that extended into what typically is the weakest
period of the year, September and October. Accordingly, we positioned the Fund
to participate in this rally by increasing exposure to consumer discretionary
and technology stocks.
The financial services sector delivered the best performance due to our focus
on capital markets and commercial real estate services companies. Investors
expect the publicly traded stock and futures exchanges, such as the Chicago
Mercantile Exchange, the top-performing financial services holding, to show
increasing levels of profitability as electronic trading becomes more prevalent
and the industry consolidates. Our real estate services companies, notably CB
Richard Ellis Group, benefited from a worldwide cyclical upturn in commercial
leasing and from a secular increase in real estate investments. We sold CB
Richard Ellis at a profit. Technology was a strong contributor in the first and
third calendar quarters of 2006, with solid performance from internet services
company Akamai Technologies, the Fund's best performer, as well as software and
semiconductor companies. The utilities sector also outperformed, thanks in
large part to our position in wireless telecommunication company NII Holdings.
In contrast to 2005, energy was the Fund's worst-performing sector during
fiscal 2006. In particular, the timing of our trades was not effective. The
worst performer among the Fund's consumer staples holdings was Whole Foods
Market, which declined in value after management offered disappointing
guidance. We sold the position. Our holdings in materials contributed
positively in absolute terms, but lagged the Benchmark's materials sector. We
also underweighted this strong sector, creating a negative allocation effect.
1
OUTLOOK
Despite economic data gyrations, energy price volatility and considerable
investor worry, the economy has persevered, as we expected it would. The rate
of earnings and cash flow growth may slow as the full effects of the Federal
Reserve Board's tightening campaign unfold, but we expect both to remain at
healthy levels. Based on these measures, we think the market looks attractive
from a longer-term valuation standpoint. Near term, however, we are hopeful
that increased visibility with respect to inflation, energy prices and Fed
intentions will allow investors' risk appetite to return to more normal levels.
Should this happen in concert with healthy underlying fundamentals, we believe
the market could advance at the higher end of our 5%-10% forecast.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2006
SINCE
1 YEAR 5 YEARS INCEPTION
------------------------------------------------
LOOMIS SAYLES AGGRESSIVE GROWTH: INSTITUTIONAL
5.95% 8.45% 9.32%
------------------------------------------------
LOOMIS SAYLES AGGRESSIVE GROWTH: RETAIL
5.69 8.16 9.02
------------------------------------------------
RUSSELL MIDCAP GROWTH INDEX(c)
7.03 12.01 8.10
------------------------------------------------
LIPPER MID-CAP GROWTH FUNDS INDEX(c)
6.27 8.26 6.22
------------------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2006(a)(b)
[CHART]
Loomis Sayles Lipper Mid-Cap
Aggressive Growth Russell Midcap
Growth Fund Funds Index(c) Growth Index(c)
-------------- -------------- --------------
12/31/1996 $100,000 $100,000 $100,000
1/31/1997 106,200 102,559 104,425
2/28/1997 102,897 95,742 102,125
3/31/1997 96,301 88,460 96,355
4/30/1997 97,399 87,694 98,714
5/31/1997 106,194 99,115 107,560
6/30/1997 107,193 103,291 110,537
7/31/1997 118,094 109,599 121,117
8/31/1997 115,390 109,295 119,935
9/30/1997 125,694 117,120 126,005
10/31/1997 122,891 110,561 119,696
11/30/1997 119,094 108,793 120,954
12/31/1997 122,643 111,341 122,542
1/31/1998 116,241 109,235 120,336
2/28/1998 125,529 118,513 131,650
3/31/1998 129,796 124,650 137,168
4/30/1998 133,210 125,192 139,031
5/31/1998 127,229 117,895 133,312
6/30/1998 133,743 123,318 137,084
7/31/1998 126,909 115,110 131,211
8/31/1998 101,184 90,293 106,169
9/30/1998 112,173 99,709 114,200
10/31/1998 119,756 103,376 122,608
11/30/1998 120,714 111,232 130,879
12/31/1998 136,793 125,581 144,433
1/31/1999 138,120 131,815 148,763
2/28/1999 135,358 121,576 141,488
3/31/1999 173,623 130,243 149,368
4/30/1999 182,478 135,585 156,174
5/31/1999 189,230 135,021 154,165
6/30/1999 214,000 145,904 164,928
7/31/1999 212,331 143,907 159,676
8/31/1999 224,709 143,178 158,017
9/30/1999 222,058 147,358 156,671
10/31/1999 278,017 160,386 168,785
11/30/1999 326,280 180,504 186,265
12/31/1999 407,361 218,156 218,517
1/31/2000 418,767 214,410 218,473
2/29/2000 569,397 268,144 264,402
3/31/2000 517,127 249,271 264,674
4/30/2000 468,207 216,387 238,982
5/31/2000 421,058 196,935 221,561
6/30/2000 480,680 227,537 245,071
7/31/2000 469,240 218,099 229,552
8/31/2000 555,392 246,622 264,171
9/30/2000 550,894 234,769 251,256
10/31/2000 466,717 215,786 234,060
11/30/2000 349,384 170,662 183,197
12/31/2000 384,532 182,963 192,844
1/31/2001 352,770 185,448 203,859
2/28/2001 275,443 157,630 168,598
3/31/2001 235,972 140,906 144,469
4/30/2001 274,412 159,484 168,550
5/31/2001 261,652 160,799 167,757
6/30/2001 253,671 160,171 167,846
7/31/2001 228,355 151,747 156,526
8/31/2001 199,422 141,579 145,181
9/30/2001 158,880 121,159 121,187
10/31/2001 174,339 127,905 133,926
11/30/2001 192,383 138,410 148,344
12/31/2001 194,730 144,414 153,983
1/31/2002 188,051 138,891 148,983
2/28/2002 169,076 131,985 140,537
3/31/2002 183,143 140,305 151,263
4/30/2002 173,528 135,640 143,255
5/31/2002 162,284 131,115 138,980
6/30/2002 146,818 119,334 123,643
7/31/2002 132,166 106,464 111,630
8/31/2002 130,051 105,195 111,242
9/30/2002 125,369 98,659 102,404
10/31/2002 130,409 103,634 110,336
11/30/2002 140,255 109,789 118,972
12/31/2002 123,621 103,299 111,784
1/31/2003 122,100 101,767 110,686
2/28/2003 121,050 100,196 109,724
3/31/2003 121,522 101,629 111,767
4/30/2003 130,661 108,758 119,377
5/31/2003 145,190 117,751 130,863
6/30/2003 145,306 119,594 132,730
7/31/2003 153,037 124,311 137,473
8/31/2003 166,978 130,425 145,044
9/30/2003 160,416 126,049 142,231
10/31/2003 176,121 135,937 153,694
11/30/2003 177,406 139,169 157,806
12/31/2003 173,184 139,883 159,529
1/31/2004 180,094 143,417 164,796
2/29/2004 176,456 145,395 167,561
3/31/2004 180,444 145,360 167,241
4/30/2004 178,098 140,749 162,519
5/31/2004 186,540 143,814 166,354
6/30/2004 193,573 147,273 169,002
7/31/2004 177,177 136,810 157,809
8/31/2004 171,667 134,440 155,864
9/30/2004 181,624 140,191 161,683
10/31/2004 185,601 144,334 167,167
11/30/2004 198,018 152,357 175,800
12/31/2004 206,691 159,511 184,222
1/31/2005 200,780 154,357 179,291
2/28/2005 207,165 156,350 183,831
3/31/2005 199,354 153,235 181,145
4/30/2005 188,230 145,854 173,978
5/31/2005 201,369 154,505 183,942
6/30/2005 206,464 158,041 187,362
7/31/2005 217,716 167,139 198,294
8/31/2005 217,476 166,616 197,083
9/30/2005 224,936 169,525 199,635
10/31/2005 220,684 164,815 193,760
11/30/2005 235,956 173,726 204,271
12/31/2005 238,551 174,788 206,512
1/31/2006 260,689 186,792 218,879
2/28/2006 255,944 185,179 216,185
3/31/2006 268,486 191,357 222,226
4/30/2006 268,969 193,146 223,167
5/31/2006 246,725 182,397 212,663
6/30/2006 252,400 182,476 211,795
7/31/2006 236,297 174,761 204,204
8/31/2006 234,525 177,617 208,909
9/30/2006 238,324 180,159 213,676
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 and reimbursements,
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 $100,000 for the
Institutional Class. (c) See page 11 for a description of the Indices.
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 US 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]
Mark F. Burns
Manager since January 2005
MARK F. BURNS, CFA
Manager since January 2005
[PHOTO]
JOHN SLAVIK, CFA
Manager since April 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 2,000 of the smallest US 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 | $23.4 million
PORTFOLIO REVIEW
Our bottom-up stock selection process continued to drive the Fund's
performance. In particular, strong stock selections in the consumer
discretionary, financial services and producer durables sectors drove the
Fund's outperformance relative to the Benchmark, the Russell 2000 Growth Index,
for the fiscal year ended September 30, 2006. We continued to focus on
companies that we believe are positioned to grow profits in all economic
environments and to maintain broad portfolio diversification. Throughout the
12-month period, we reduced the Fund's weighting in the healthcare and more
cyclically-oriented sectors, such as energy, and redeployed the proceeds into
the financial services and consumer discretionary sectors.
Among the Fund's consumer-related holdings, our positions in PeopleSupport and
Guess? drove positive results. Strong demand from new and current clients
helped PeopleSupport, an offshore business processing outsourcing company,
report a solid second quarter, with earnings ahead of estimates and revenues up
approximately 60% from the same time period in 2005. Guess? advanced on strong
earnings, sales and profit data. Within the financial services sector, our real
estate-related holdings generally provided positive results. In particular, CB
Richard Ellis Group experienced strong growth and better-than-expected
earnings. The company's performance was broad-based by geography and
product/activity mix, and was largely attributed to a steady leasing market
recovery combined with increased revenue from investment management operations
and continued investment sales strength. We sold the stock at a profit. Jones
Lang LaSalle, a global real estate services company, also experienced growing
profits and revenues and significant growth across all business segments.
Mattson Technology and SBA Communications Corp. were largely responsible for
positive results from the Fund's technology sector. Mattson Technology, a
semiconductor equipment company, rose during the year after investors reacted
positively to continued market share gains by the company and an overall
acceleration in industry bookings. We sold the stock at a profit. SBA
Communications Corp., a mobile phone tower operator, advanced after investors
reacted favorably to the company's agreement to purchase AAT Communications
Corp. to expand across the United States.
Poor stock selections in the healthcare and energy sectors detracted somewhat
from the Fund's performance. Specifically, PharmaNet Development Group
(formerly known as SFBC International) and Neurocrine Biosciences were the
primary detractors in the healthcare sector. PharmaNet, which conducts clinical
research and provides drug development services, fell significantly in November
after a report was published about flaws in the US drug-testing industry.
Neurocrine, which develops therapies for neuron-related disorders, fell after
the FDA did not approve the company's insomnia treatment. We sold both stocks.
Carbo Ceramics and Oil States International were the leading detractors among
the Fund's energy holdings. Carbo Ceramics, a supplier of ceramic products for
the oil and gas industry, fell in July on disappointing earnings and we sold
the position. Oil States fell in sympathy with the declining price of crude oil
and natural gas, but we continue to hold the stock due to attractive business
trends in the company's capital equipment and well site services business lines.
3
OUTLOOK
Despite economic data gyrations, energy price volatility and considerable
investor worry, the economy has persevered, as we expected it would. We believe
the rate of earnings and cash flow growth may slow as the full effects of the
Federal Reserve Board's tightening campaign unfold, but we expect both to
remain at healthy levels. Based on these measures, we think the market looks
attractive from a longer-term valuation standpoint. Near term, however, we are
hopeful that increased visibility with respect to inflation, energy prices and
the Fed's intentions will allow investors' risk appetite to return to more
normal levels. Should this happen in concert with healthy underlying
fundamentals, we believe the market could advance at the higher end of our
5%-10% forecast.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2006
SINCE
1 YEAR 5 YEARS INCEPTION
-----------------------------------------------
LOOMIS SAYLES SMALL CAP GROWTH: INSTITUTIONAL
8.30% 6.33% 3.11%
-----------------------------------------------
LOOMIS SAYLES SMALL CAP GROWTH: RETAIL
8.03 6.07 2.85
-----------------------------------------------
RUSSELL 2000 GROWTH INDEX(c)
5.88 10.15 4.11
-----------------------------------------------
RUSSELL 2000 INDEX(c)
9.92 13.78 8.74
-----------------------------------------------
LIPPER SMALL-CAP GROWTH FUNDS INDEX(c)
4.06 8.94 6.26
-----------------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2006(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)
----------- ------------ --------- ---------
12/31/1996 $100,000 $100,000 $100,000 $100,000
1/31/1997 102,600 102,319 102,498 101,998
2/28/1997 94,997 94,931 96,308 99,525
3/31/1997 85,099 88,083 89,512 94,829
4/30/1997 83,499 86,771 88,476 95,093
5/31/1997 97,101 98,809 101,774 105,673
6/30/1997 102,801 104,095 105,225 110,201
7/31/1997 111,097 110,360 110,617 115,329
8/31/1997 112,996 112,113 113,936 117,968
9/30/1997 125,494 121,548 123,028 126,603
10/31/1997 116,697 115,333 115,639 121,041
11/30/1997 115,401 112,727 112,882 120,258
12/31/1997 119,429 111,226 112,945 122,363
1/31/1998 115,523 109,575 111,439 120,432
2/28/1998 128,081 118,434 121,277 129,337
3/31/1998 133,883 123,791 126,364 134,671
4/30/1998 132,089 124,691 127,139 135,416
5/31/1998 121,007 115,867 117,902 128,123
6/30/1998 132,817 119,262 119,107 128,393
7/31/1998 119,734 110,288 109,161 117,999
8/31/1998 92,722 86,200 83,962 95,086
9/30/1998 103,691 90,810 92,475 102,527
10/31/1998 107,808 94,390 97,298 106,709
11/30/1998 121,305 102,066 104,846 112,299
12/31/1998 141,770 112,299 114,334 119,249
1/31/1999 145,881 115,014 119,477 120,833
2/28/1999 136,705 103,947 108,547 111,046
3/31/1999 147,149 108,645 112,413 112,780
4/30/1999 148,518 112,888 122,341 122,886
5/31/1999 145,770 113,503 122,534 124,681
6/30/1999 167,607 124,127 128,989 130,319
7/31/1999 162,645 123,688 125,000 126,743
8/31/1999 167,395 121,954 120,325 122,053
9/30/1999 176,568 126,375 122,646 122,079
10/31/1999 199,239 133,743 125,788 122,574
11/30/1999 220,339 150,618 139,088 129,892
12/31/1999 271,920 180,988 163,603 144,596
1/31/2000 266,971 179,104 162,080 142,274
2/29/2000 363,481 231,579 199,791 165,769
3/31/2000 315,393 213,402 178,789 154,840
4/30/2000 290,067 187,021 160,738 145,522
5/31/2000 250,821 171,731 146,663 137,041
6/30/2000 280,568 201,975 165,609 148,987
7/31/2000 251,782 188,834 151,416 144,193
8/31/2000 293,980 209,143 167,343 155,196
9/30/2000 284,602 198,786 159,030 150,634
10/31/2000 256,740 183,871 146,121 143,910
11/30/2000 190,475 152,559 119,590 129,137
12/31/2000 222,551 166,052 126,908 140,228
1/31/2001 212,470 171,112 137,180 147,529
2/28/2001 165,408 149,206 118,376 137,849
3/31/2001 140,894 134,714 107,613 131,106
4/30/2001 166,734 149,258 120,788 141,362
5/31/2001 162,132 153,303 123,586 144,837
6/30/2001 166,072 157,168 126,956 149,838
7/31/2001 142,639 148,407 116,125 141,727
8/31/2001 126,550 139,621 108,873 137,150
9/30/2001 99,126 117,830 91,306 118,688
10/31/2001 110,575 126,465 100,090 125,633
11/30/2001 118,990 136,265 108,445 135,359
12/31/2001 123,702 144,519 115,196 143,714
1/31/2002 117,752 140,149 111,098 142,219
2/28/2002 103,045 131,668 103,908 138,322
3/31/2002 109,444 142,433 112,939 149,439
4/30/2002 105,405 138,675 110,496 150,801
5/31/2002 100,357 133,112 104,035 144,108
6/30/2002 91,716 123,221 95,213 136,958
7/31/2002 78,692 105,745 80,579 116,273
8/31/2002 77,795 105,592 80,542 115,977
9/30/2002 71,284 99,188 74,724 107,648
10/31/2002 75,889 103,420 78,504 111,099
11/30/2002 80,267 112,083 86,286 121,014
12/31/2002 72,297 104,595 80,336 114,276
1/31/2003 69,940 101,833 78,153 111,114
2/28/2003 69,045 98,659 76,069 107,756
3/31/2003 68,368 100,694 77,221 109,144
4/30/2003 75,554 109,016 84,529 119,492
5/31/2003 83,970 120,133 94,055 132,316
6/30/2003 85,658 124,204 95,867 134,710
7/31/2003 91,611 131,466 103,115 143,139
8/31/2003 98,913 138,438 108,653 149,702
9/30/2003 96,440 135,037 105,903 146,938
10/31/2003 104,415 147,289 115,051 159,278
11/30/2003 107,892 151,211 118,802 164,930
12/31/2003 103,631 151,426 119,334 168,276
1/31/2004 111,040 158,511 125,603 175,587
2/29/2004 106,665 157,915 125,408 177,161
3/31/2004 106,217 156,824 125,994 178,812
4/30/2004 101,618 149,160 119,670 169,696
5/31/2004 104,870 152,272 122,050 172,397
6/30/2004 109,023 156,613 126,111 179,657
7/31/2004 99,025 142,796 114,792 167,560
8/31/2004 94,757 138,170 112,320 166,699
9/30/2004 100,594 146,064 118,531 174,525
10/31/2004 101,942 150,159 121,411 177,960
11/30/2004 107,784 160,674 131,674 193,396
12/31/2004 113,399 167,766 136,406 199,120
1/31/2005 111,494 161,416 130,261 190,812
2/28/2005 113,512 164,605 132,049 194,044
3/31/2005 110,254 159,074 127,096 188,490
4/30/2005 104,532 150,187 119,007 177,695
5/31/2005 111,943 160,140 127,398 189,325
6/30/2005 117,216 165,737 131,517 196,628
7/31/2005 124,847 175,850 140,710 209,085
8/31/2005 123,161 172,813 138,727 205,209
9/30/2005 124,393 173,752 139,826 205,852
10/31/2005 118,783 167,867 134,659 199,461
11/30/2005 125,850 176,867 142,283 209,144
12/31/2005 125,511 176,718 142,071 208,188
1/31/2006 140,446 191,121 155,775 226,857
2/28/2006 138,873 190,374 154,945 226,232
3/31/2006 146,734 198,307 162,475 237,208
4/30/2006 146,616 198,975 162,006 237,169
5/31/2006 137,526 186,594 150,605 223,850
6/30/2006 135,614 185,040 150,696 225,289
7/31/2006 129,105 174,949 142,868 217,959
8/31/2006 133,146 178,473 147,052 224,412
9/30/2006 134,717 180,804 148,048 226,280
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 and reimbursements,
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 $100,000 for the
Institutional Class. (c) See page 11 for a description of the Indices.
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 US 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 which tracks stocks of 2,000 of the smallest US companies
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: 0.89%; Retail: 1.15%; Admin: 1.40%
TOTAL NET ASSETS | $798.8 million
PORTFOLIO REVIEW
In general, small-cap stock fund managers had difficulty keeping pace with the
Russell benchmarks throughout the past several quarters, as typically
underweighted sectors, such as REITs (real estate investment trusts) and
utilities, were exceptionally strong performers. In addition, sharp reversals
from sectors that formerly led the market, including energy and producer
durables, caught many managers off guard. Defying conventional wisdom,
small-cap consumer discretionary stocks performed well during the quarter ended
September 30, 2006, despite fears of higher gasoline and energy prices and a
deteriorating housing market. An additional challenge came from the annual
rebalancing of the Russell indexes at the end of June, which resulted in a
significant reduction in energy and producer durables stocks within the Russell
2000 Value Index, just as those sectors were poised to underperform during the
third quarter.
Many of these factors, along with relatively weak stock selections in the
technology and financial services sectors, negatively influenced the Fund's
return versus its Benchmark, the Russell 2000 Value Index, for the fiscal year
ended September 30, 2006. Nevertheless, our timely reductions in energy and
materials holdings earlier in the year, strong stock selections within the
transportation sector, and a healthy representation in recovering technology
stocks helped performance relative to our peer group.
Our financial services, materials and processing, and technology holdings
contributed positively to the Fund's absolute return. REITs drove performance
in the financials sector, as investors sought exposure to the continued rebound
in commercial real estate and to higher-yielding and defensive investments.
Materials and processing stocks were exceptionally strong early in the period,
as non-residential construction and global infrastructure spending pushed
commodity prices higher. Technology stocks were predictably volatile but
climbed higher during the period.
Energy, healthcare and consumer staples were the Fund's weakest sectors. In
recent months, energy stocks reversed their previous trend of market-leading
appreciation, as natural gas and oil prices declined on concerns about global
economic slowing. Although the healthcare and consumer staples sectors posted
positive returns, these defensive sectors lagged the more cyclical segments of
the market.
We made modest changes in the Fund's sector weightings, with steady reductions
in "late-cycle," or economically sensitive sectors, including materials and
processing, energy, and producer durables, as well as additions to the consumer
discretionary, financial services, and technology sectors. We expect
capital-spending trends to remain solid for the near term, driven by global
infrastructure expansion combined with strong corporate balance sheets and
healthy cash flows across many economic sectors. Nevertheless, we believe
valuations across many industries are not as attractive as they were in
previous quarters. Our exposure to the consumer discretionary sector remains
below average, but it is now closer to the Benchmark weight. Recent declines in
interest rates and lower gasoline and energy prices may remove some pressure on
consumers, but we continue to monitor the housing market as a key risk factor.
5
OUTLOOK
Despite economic data gyrations, energy price volatility and considerable
investor worry, the economy has persevered, as we expected it would. We believe
the rate of earnings and cash flow growth may slow as the full effects of the
Federal Reserve Board's tightening campaign unfold, but we expect both to
remain at healthy levels. Based on these measures, we think the market looks
attractive from a longer-term valuation standpoint. Near term, however, we are
hopeful that increased visibility with respect to inflation, energy prices and
Fed intentions will allow investors' risk appetite to return to more normal
levels. Should this happen in concert with healthy underlying fundamentals, we
believe the market could advance at the higher end of our 5%-10% forecast.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2006
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION(a)(b)
----------------------------------------------
LOOMIS SAYLES SMALL CAP VALUE: INSTITUTIONAL
11.17% 14.34% 12.34% 14.90%
----------------------------------------------
LOOMIS SAYLES SMALL CAP VALUE: RETAIL(a)
10.87 14.05 12.06 14.71
----------------------------------------------
LOOMIS SAYLES SMALL CAP VALUE: ADMIN(a)
10.59 13.77 11.70 14.35
----------------------------------------------
RUSSELL 2000 VALUE INDEX(c)
14.01 16.96 13.38 14.77
----------------------------------------------
RUSSELL 2000 INDEX(c)
9.92 13.78 9.06 11.40
----------------------------------------------
LIPPER SMALL-CAP CORE FUNDS INDEX(b)(c)
6.96 13.18 9.85 N/A
----------------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2006(d)(e)
[CHART]
Loomis
Sayles Lipper Small Russell
Small Cap -Cap Core Midcap
Value Fund Funds Index Growth Index Russell 2000 Index
---------- ----------- ------------ ------------------
5/13/1991 $100,000 $100,000 $100,000
5/31/1991 102,200 104,691 104,767
6/30/1991 98,603 99,789 98,661
7/31/1991 106,402 102,381 102,123
8/31/1991 114,499 105,488 105,903
9/30/1991 114,602 105,611 106,733
10/31/1991 116,906 106,811 109,555
11/30/1991 114,007 102,477 104,488
12/31/1991 130,480 $100,000 109,121 112,855
1/31/1992 143,750 106,378 118,250 122,000
2/29/1992 151,800 109,427 123,890 125,558
3/31/1992 143,649 105,725 122,542 121,309
4/30/1992 136,337 102,146 120,845 117,059
5/31/1992 136,541 101,930 124,131 118,615
6/30/1992 124,635 98,333 120,111 113,006
7/31/1992 128,087 101,022 124,636 116,938
8/31/1992 123,912 99,368 122,207 113,638
9/30/1992 125,275 99,851 124,514 116,259
10/31/1992 129,246 103,578 127,420 119,954
11/30/1992 141,576 110,820 135,304 129,133
12/31/1992 147,621 115,026 140,915 133,632
1/31/1993 154,382 118,409 148,392 138,155
2/28/1993 150,832 115,704 148,985 134,964
3/31/1993 157,136 118,864 154,636 139,343
4/30/1993 153,129 114,981 150,920 135,518
5/31/1993 159,668 119,286 155,667 141,515
6/30/1993 160,466 120,206 157,142 142,398
7/31/1993 164,366 121,322 159,840 144,364
8/31/1993 173,192 124,960 166,089 150,600
9/30/1993 181,107 126,979 170,067 154,850
10/31/1993 186,033 129,668 173,958 158,836
11/30/1993 178,927 126,466 169,426 153,608
12/31/1993 184,062 130,135 174,415 158,860
1/31/1994 187,964 133,575 180,640 163,841
2/28/1994 185,107 133,322 180,117 163,248
3/31/1994 174,426 128,136 172,034 154,629
4/30/1994 172,473 127,918 173,729 155,548
5/31/1994 169,868 128,241 173,480 153,802
6/30/1994 165,825 124,078 168,954 148,579
7/31/1994 166,738 125,868 172,076 151,020
8/31/1994 174,558 131,665 178,849 159,435
9/30/1994 174,435 131,900 176,951 158,902
10/31/1994 173,267 132,587 173,713 158,274
11/30/1994 166,371 129,228 166,705 151,882
12/31/1994 168,800 130,347 171,722 155,963
1/31/1995 169,323 131,692 170,880 153,995
2/28/1995 175,893 136,935 177,203 160,401
3/31/1995 180,096 139,835 178,080 163,164
4/30/1995 180,619 142,185 183,375 166,792
5/31/1995 184,303 143,911 187,303 169,659
6/30/1995 189,298 149,643 193,703 178,461
7/31/1995 201,905 157,915 200,770 188,740
8/31/1995 211,617 163,166 206,735 192,645
9/30/1995 215,553 165,959 209,821 196,085
10/31/1995 204,387 160,089 201,441 187,316
11/30/1995 214,239 164,875 209,447 195,186
12/31/1995 222,958 170,421 215,935 200,336
1/31/1996 223,404 171,668 217,368 200,120
2/29/1996 234,619 177,751 220,775 206,358
3/31/1996 240,015 182,202 225,409 210,558
4/30/1996 254,272 194,772 231,559 221,817
5/31/1996 264,748 203,561 237,422 230,558
6/30/1996 258,500 194,317 234,619 221,091
7/31/1996 243,947 178,534 222,146 201,780
8/31/1996 256,168 187,634 231,784 213,495
9/30/1996 264,827 195,523 238,112 221,839
10/31/1996 268,720 191,863 240,873 218,420
11/30/1996 281,565 198,795 253,835 227,419
12/31/1996 290,856 202,304 262,075 233,380
1/31/1997 296,033 206,814 266,104 238,044
2/28/1997 292,185 201,403 268,630 232,272
3/31/1997 285,815 191,245 261,425 221,312
4/30/1997 283,129 191,297 265,269 221,929
5/31/1997 313,905 211,698 286,388 246,618
6/30/1997 328,627 223,668 300,881 257,187
7/31/1997 347,457 237,128 313,510 269,155
8/31/1997 354,719 242,928 318,487 275,313
9/30/1997 375,860 261,159 339,665 295,465
10/31/1997 364,021 250,761 330,430 282,485
11/30/1997 362,674 247,548 334,051 280,658
12/31/1997 366,409 247,282 345,374 285,570
1/31/1998 358,348 243,664 339,125 281,064
2/28/1998 383,720 261,855 359,627 301,846
3/31/1998 400,833 274,198 374,214 314,295
4/30/1998 399,070 276,836 376,063 316,034
5/31/1998 381,950 262,465 362,750 299,014
6/30/1998 377,023 261,524 360,701 299,643
7/31/1998 352,629 242,656 332,448 275,385
8/31/1998 292,224 195,759 280,384 221,911
9/30/1998 306,981 203,993 296,218 239,277
10/31/1998 323,128 212,366 305,014 249,036
11/30/1998 341,417 224,207 313,270 262,084
12/31/1998 362,449 238,290 323,093 278,302
1/31/1999 345,450 236,503 315,760 282,000
2/28/1999 321,061 217,184 294,201 259,160
3/31/1999 321,254 218,170 291,774 263,206
4/30/1999 347,436 232,906 318,410 286,791
5/31/1999 354,419 237,725 328,197 290,980
6/30/1999 370,794 251,463 340,080 304,138
7/31/1999 366,196 250,089 332,009 295,793
8/31/1999 354,001 240,919 319,873 284,846
9/30/1999 346,213 240,732 313,478 284,908
10/31/1999 342,820 242,827 307,205 286,062
11/30/1999 349,951 258,481 308,797 303,142
12/31/1999 363,774 286,363 318,285 337,458
1/31/2000 350,278 280,860 309,962 332,039
2/29/2000 375,043 320,461 328,907 386,870
3/31/2000 396,308 315,903 330,449 361,364
4/30/2000 397,140 298,337 332,405 339,619
5/31/2000 380,142 285,654 327,333 319,825
6/30/2000 392,611 310,851 336,897 347,705
7/31/2000 399,168 301,188 348,122 336,518
8/31/2000 424,116 328,020 363,686 362,194
9/30/2000 417,754 319,591 361,624 351,549
10/31/2000 425,524 309,977 360,340 335,856
11/30/2000 411,865 279,108 353,005 301,380
12/31/2000 448,109 306,218 390,935 327,263
1/31/2001 460,566 317,118 401,726 344,302
2/28/2001 448,776 296,974 401,171 321,711
3/31/2001 432,620 282,934 394,737 305,974
4/30/2001 456,414 305,475 413,008 329,910
5/31/2001 469,741 316,608 423,628 338,019
6/30/2001 488,061 326,398 440,673 349,691
7/31/2001 490,892 318,836 430,791 330,762
8/31/2001 485,198 309,914 429,298 320,079
9/30/2001 433,912 269,307 381,908 276,992
10/31/2001 449,186 285,306 391,883 293,202
11/30/2001 476,541 306,508 420,042 315,901
12/31/2001 510,233 328,037 445,759 335,399
1/31/2002 509,519 324,150 451,676 331,911
2/28/2002 513,900 315,495 454,426 322,814
3/31/2002 543,758 339,737 488,458 348,760
4/30/2002 545,226 341,406 505,653 351,938
5/31/2002 535,194 328,681 488,929 336,318
6/30/2002 517,319 310,271 478,104 319,631
7/31/2002 449,808 268,099 407,068 271,357
8/31/2002 457,140 269,520 405,259 270,666
9/30/2002 422,672 250,441 376,311 251,228
10/31/2002 429,773 259,342 381,972 259,283
11/30/2002 451,304 278,480 412,454 282,423
12/31/2002 442,730 264,951 394,831 266,698
1/31/2003 431,219 257,203 383,714 259,316
2/28/2003 421,904 249,172 370,815 251,481
3/31/2003 423,128 251,276 374,775 254,719
4/30/2003 457,867 272,199 410,373 278,871
5/31/2003 486,483 296,112 452,274 308,797
6/30/2003 496,748 302,929 459,937 314,386
7/31/2003 515,823 318,463 482,874 334,057
8/31/2003 535,373 332,265 501,216 349,373
9/30/2003 521,935 325,049 495,467 342,924
10/31/2003 565,204 350,592 535,868 371,722
11/30/2003 581,651 363,222 556,438 384,913
12/31/2003 595,611 373,322 576,561 392,722
1/31/2004 609,191 385,150 596,497 409,784
2/29/2004 621,009 391,852 608,047 413,458
3/31/2004 631,318 396,101 616,456 417,311
4/30/2004 609,474 382,487 584,576 396,035
5/31/2004 614,228 385,816 591,632 402,338
6/30/2004 641,561 402,286 621,681 419,282
7/31/2004 614,936 381,089 593,102 391,050
8/31/2004 623,730 377,755 598,920 389,041
9/30/2004 646,309 396,540 622,610 407,304
10/31/2004 652,578 403,034 632,282 415,322
11/30/2004 697,214 434,862 688,389 451,346
12/31/2004 725,661 441,891 704,820 464,706
1/31/2005 701,714 429,079 677,555 445,317
2/28/2005 716,450 439,104 691,009 452,860
3/31/2005 706,133 428,047 676,783 439,896
4/30/2005 671,391 404,934 641,872 414,704
5/31/2005 701,402 426,635 681,020 441,846
6/30/2005 727,284 441,175 711,135 458,889
7/31/2005 770,121 467,394 751,599 487,962
8/31/2005 756,798 463,075 734,343 478,915
9/30/2005 762,626 467,493 733,130 480,417
10/31/2005 743,712 453,141 714,716 465,500
11/30/2005 771,527 473,848 743,709 488,098
12/31/2005 770,987 475,286 738,000 485,868
1/31/2006 833,746 511,500 799,026 529,437
2/28/2006 836,497 508,119 798,972 527,979
3/31/2006 870,208 530,500 837,670 553,595
4/30/2006 873,863 534,486 839,910 553,505
5/31/2006 845,724 508,686 805,131 522,420
6/30/2006 848,177 505,230 815,021 525,779
7/31/2006 820,950 488,072 803,718 508,671
8/31/2006 836,548 497,727 827,742 523,731
9/30/2006 847,842 500,052 835,821 528,091
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 and reimbursements,
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
current levels of 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 11 for
a description of the Indices. (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 $100,000 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 US
standards.
6
FUND AND MANAGER REVIEW
LOOMIS SAYLES TAX-MANAGED EQUITY FUND
[PHOTO]
Mark Shank
Manager since June 2003
[PHOTO]
DAVID SOWERBY, CFA
Manager since August 2005
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 US federal income tax
FUND INCEPTION DATE | 10/1/95
FUND REGISTRATION DATE | 3/7/97
EXPENSE RATIO | 0.65%
TOTAL NET ASSETS | $9.1 million
PORTFOLIO REVIEW
The Fund outperformed its benchmark, the S&P 500 Index, for the fiscal year
ended September 30, 2006, primarily due to our stock selection efforts, which
focused on high-quality companies with accelerating business models. In
addition, overweights in the industrials and materials sectors helped the Fund
outpace its Benchmark for the period.
We continued to emphasize market sectors in which we believe companies
demonstrate earnings leverage. For example, we increased the Fund's weighting
in technology, where we identified stocks that exhibited attractive valuations
and strong earnings-growth potential in our opinion. We added to existing
positions and established new positions in Corning, Hewlett-Packard, QUALCOMM
and Texas Instruments. We also decreased the Fund's weightings in consumer
discretionary and financials because we were concerned about future earnings
growth for Target, Viacom and Wells Fargo, all three of which were sold.
The financials, industrials and materials sectors had the greatest impact on
the Fund's performance for the period. In the industrials and materials
sectors, the Fund benefited from its emphasis on these areas and from favorable
stock selections. Specific holdings that had the greatest positive impact
included United Technologies, ARAMARK, Dover and Danaher, and materials stocks
Praxair and Ecolab. We sold ARAMARK at a profit. Strong performance from Bear
Stearns, Franklin Resources and Goldman Sachs compensated for our underweight
in financial stocks.
The Fund's healthcare and energy holdings detracted most from performance.
Energy was one of the weakest sectors within the S&P 500 Index for fiscal 2006.
The Fund was approximately equal-weighted in energy, but poor performance from
ConocoPhillips and Devon Energy compounded the decline. We overweighted
healthcare, but poor performance from the Fund's positions in Kinetic Concepts
and Medtronic were primarily responsible for the Fund's underperformance.
Kinetic Concepts was sold.
OUTLOOK
Despite economic data gyrations, energy price volatility and considerable
investor worry, the economy has persevered, as we believed it would. The rate
of earnings and cash flow growth may slow as the full effects of the Federal
Reserve Board's tightening campaign unfold, but we think both should remain at
healthy levels. Based on these measures, we believe the market looks attractive
from a longer-term valuation standpoint. Near term, however, we are hopeful
that increased visibility with respect to inflation, energy prices and Fed
intentions will allow investors' risk appetite to return to more normal levels.
Should this happen in concert with healthy underlying fundamentals, we think
the market could reach the higher end of our 5%-10% forecast.
7
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2006
SINCE SINCE
1 YEAR 5 YEARS 10 YEARS REGISTRATION(a)(b) INCEPTION(a)(b)
----------------------------------------------------------
LOOMIS SAYLES TAX-MANAGED EQUITY: INSTITUTIONAL
11.32% 6.98% 10.33% 9.25% 10.14%
----------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS(c)
11.09 6.64 7.31 6.17 7.39
----------------------------------------------------------
RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND
SHARES(c)
7.35 5.85 7.35 6.32 7.37
----------------------------------------------------------
S&P 500 INDEX(c)
10.79 6.97 8.59 7.30 9.61
----------------------------------------------------------
LIPPER LARGE-CAP CORE FUNDS INDEX(c)
9.63 5.75 7.29 6.32 8.22
----------------------------------------------------------
CUMULATIVE PERFORMANCE
REGISTRATION TO SEPTEMBER 30, 2006(d)
[CHART]
Loomis Sayles Tax- Lipper Large-Cap
Managed Equity Fund S&P 500 Index(b)(c) Core Funds Index(b)(c)
------------------- ------------------ ----------------------
3/7/1997 $25,000 $25,000 $25,000
3/31/1997 23,940 23,973 23,930
4/30/1997 25,001 25,404 25,255
5/31/1997 26,041 26,951 26,788
6/30/1997 26,468 28,158 27,950
7/31/1997 28,508 30,399 30,157
8/31/1997 27,225 28,696 28,623
9/30/1997 28,184 30,267 30,096
10/31/1997 27,268 29,256 29,168
11/30/1997 27,390 30,611 30,121
12/31/1997 27,062 31,136 30,668
1/31/1998 27,503 31,481 30,971
2/28/1998 29,533 33,751 33,166
3/31/1998 31,012 35,480 34,806
4/30/1998 31,629 35,837 35,159
5/31/1998 30,725 35,221 34,559
6/30/1998 31,674 36,651 36,200
7/31/1998 31,918 36,261 35,908
8/31/1998 27,261 31,018 30,534
9/30/1998 29,998 33,005 32,051
10/31/1998 31,255 35,690 34,455
11/30/1998 32,755 37,853 36,505
12/31/1998 36,322 40,035 38,928
1/31/1999 37,525 41,709 40,290
2/28/1999 36,264 40,412 39,045
3/31/1999 38,316 42,029 40,616
4/30/1999 39,431 43,657 41,704
5/31/1999 38,844 42,626 40,598
6/30/1999 41,396 44,992 42,863
7/31/1999 41,189 43,587 41,606
8/31/1999 40,691 43,371 41,181
9/30/1999 39,486 42,182 40,065
10/31/1999 40,015 44,852 42,520
11/30/1999 40,279 45,763 43,563
12/31/1999 43,063 48,459 46,461
1/31/2000 41,775 46,024 44,582
2/29/2000 43,993 45,153 44,568
3/31/2000 48,296 49,570 48,443
4/30/2000 48,296 48,079 46,861
5/31/2000 48,962 47,092 45,667
6/30/2000 48,252 48,253 47,339
7/31/2000 47,321 47,499 46,601
8/31/2000 51,045 50,449 49,816
9/30/2000 49,494 47,786 47,163
10/31/2000 49,449 47,584 46,617
11/30/2000 48,208 43,832 42,517
12/31/2000 50,556 44,047 43,037
1/31/2001 48,442 45,609 44,256
2/28/2001 47,304 41,451 40,138
3/31/2001 45,785 38,825 37,674
4/30/2001 47,411 41,842 40,537
5/31/2001 47,790 42,122 40,765
6/30/2001 45,998 41,097 39,682
7/31/2001 45,510 40,692 39,107
8/31/2001 43,667 38,145 36,804
9/30/2001 41,606 35,065 34,011
10/31/2001 42,309 35,733 34,812
11/30/2001 43,828 38,474 37,093
12/31/2001 44,648 38,811 37,514
1/31/2002 44,259 38,245 36,922
2/28/2002 44,096 37,507 36,303
3/31/2002 46,195 38,918 37,539
4/30/2002 45,423 36,559 35,576
5/31/2002 45,201 36,289 35,317
6/30/2002 42,773 33,704 32,878
7/31/2002 39,903 31,078 30,434
8/31/2002 39,740 31,281 30,685
9/30/2002 37,423 27,881 27,705
10/31/2002 38,804 30,335 29,857
11/30/2002 39,964 32,121 31,191
12/31/2002 38,873 30,234 29,548
1/31/2003 37,652 29,442 28,772
2/28/2003 37,430 29,000 28,391
3/31/2003 37,542 29,282 28,630
4/30/2003 39,926 31,694 30,740
5/31/2003 41,867 33,363 32,229
6/30/2003 41,921 33,789 32,548
7/31/2003 42,642 34,385 33,061
8/31/2003 43,474 35,055 33,700
9/30/2003 42,474 34,683 33,264
10/31/2003 44,360 36,645 34,892
11/30/2003 44,750 36,968 35,185
12/31/2003 46,804 38,906 36,877
1/31/2004 47,998 39,620 37,398
2/29/2004 48,962 40,171 37,840
3/31/2004 48,678 39,565 37,247
4/30/2004 47,997 38,944 36,668
5/31/2004 48,222 39,478 37,041
6/30/2004 49,414 40,246 37,704
7/31/2004 47,373 38,914 36,369
8/31/2004 47,089 39,071 36,392
9/30/2004 48,167 39,495 36,809
10/31/2004 48,282 40,098 37,307
11/30/2004 50,325 41,720 38,723
12/31/2004 51,351 43,140 39,934
1/31/2005 51,069 42,089 39,031
2/28/2005 51,810 42,974 39,759
3/31/2005 50,841 42,213 39,031
4/30/2005 49,417 41,413 38,162
5/31/2005 50,727 42,730 39,397
6/30/2005 50,498 42,791 39,532
7/31/2005 52,493 44,382 40,938
8/31/2005 51,811 43,977 40,563
9/30/2005 52,381 44,334 41,032
10/31/2005 51,296 43,595 40,540
11/30/2005 52,948 45,243 42,093
12/31/2005 53,213 45,259 42,217
1/31/2006 54,703 46,457 43,399
2/28/2006 55,217 46,584 43,205
3/31/2006 56,018 47,163 43,986
4/30/2006 56,533 47,797 44,443
5/31/2006 54,984 46,421 43,096
6/30/2006 54,984 46,484 43,132
7/31/2006 55,842 46,771 42,985
8/31/2006 56,931 47,884 44,051
9/30/2006 58,303 49,118 44,982
INCEPTION TO SEPTEMBER 30, 2006(d)
[CHART]
Loomis Sayles Tax- Lipper Large-Cap
Managed Equity Fund S&P 500 Index(b)(c) Core Funds Index(b)(c)
------------------- ------------------- ---------------------
10/1/1995 $25,000 $25,000 $25,000
10/31/1995 24,500 24,911 24,884
11/30/1995 25,100 26,004 25,856
12/31/1995 25,105 26,505 26,247
1/31/1996 25,080 27,407 27,019
2/29/1996 25,532 27,661 27,348
3/31/1996 25,532 27,928 27,597
4/30/1996 26,109 28,339 27,998
5/31/1996 26,511 29,070 28,557
6/30/1996 26,336 29,181 28,598
7/31/1996 24,882 27,892 27,430
8/31/1996 25,708 28,480 28,053
9/30/1996 27,060 30,083 29,507
10/31/1996 27,712 30,913 30,094
11/30/1996 29,716 33,250 32,045
12/31/1996 29,024 32,591 31,454
1/31/1997 30,843 34,627 33,174
2/28/1997 30,591 34,898 33,134
3/31/1997 29,707 33,464 31,715
4/30/1997 31,022 35,462 33,472
5/31/1997 32,313 37,621 35,503
6/30/1997 32,843 39,307 37,043
7/31/1997 35,375 42,434 39,969
8/31/1997 33,783 40,057 37,935
9/30/1997 34,972 42,251 39,888
10/31/1997 33,836 40,840 38,658
11/30/1997 33,988 42,730 39,921
12/31/1997 33,580 43,464 40,646
1/31/1998 34,128 43,945 41,047
2/28/1998 36,646 47,114 43,957
3/31/1998 38,482 49,527 46,131
4/30/1998 39,248 50,025 46,598
5/31/1998 38,126 49,165 45,802
6/30/1998 39,304 51,162 47,978
7/31/1998 39,606 50,618 47,591
8/31/1998 33,828 43,299 40,468
9/30/1998 37,224 46,073 42,479
10/31/1998 38,784 49,821 45,666
11/30/1998 40,645 52,841 48,381
12/31/1998 45,072 55,885 51,594
1/31/1999 46,563 58,222 53,398
2/28/1999 44,999 56,413 51,749
3/31/1999 47,546 58,670 53,831
4/30/1999 48,929 60,942 55,273
5/31/1999 48,200 59,503 53,807
6/30/1999 51,367 62,805 56,809
7/31/1999 51,110 60,844 55,142
8/31/1999 50,492 60,543 54,580
9/30/1999 48,997 58,883 53,101
10/31/1999 49,654 62,609 56,354
11/30/1999 49,982 63,882 57,737
12/31/1999 53,435 67,645 61,577
1/31/2000 51,838 64,246 59,087
2/29/2000 54,590 63,030 59,068
3/31/2000 59,929 69,196 64,204
4/30/2000 59,929 67,114 62,108
5/31/2000 60,756 65,737 60,526
6/30/2000 59,875 67,358 62,741
7/31/2000 58,720 66,305 61,763
8/31/2000 63,341 70,423 66,024
9/30/2000 61,415 66,705 62,508
10/31/2000 61,360 66,423 61,784
11/30/2000 59,820 61,187 56,350
12/31/2000 62,733 61,486 57,040
1/31/2001 60,111 63,667 58,655
2/28/2001 58,698 57,862 53,196
3/31/2001 56,814 54,197 49,931
4/30/2001 58,831 58,408 53,725
5/31/2001 59,302 58,800 54,028
6/30/2001 57,078 57,368 52,593
7/31/2001 56,473 56,804 51,831
8/31/2001 54,186 53,248 48,779
9/30/2001 51,628 48,948 45,077
10/31/2001 52,500 49,881 46,139
11/30/2001 54,385 53,707 49,161
12/31/2001 55,402 54,178 49,719
1/31/2002 54,920 53,387 48,935
2/28/2002 54,717 52,358 48,115
3/31/2002 57,322 54,327 49,752
4/30/2002 56,364 51,033 47,150
5/31/2002 56,088 50,657 46,807
6/30/2002 53,076 47,049 43,575
7/31/2002 49,515 43,382 40,336
8/31/2002 49,312 43,666 40,668
9/30/2002 46,437 38,920 36,719
10/31/2002 48,150 42,346 39,572
11/30/2002 49,590 44,838 41,338
12/31/2002 48,236 42,204 39,162
1/31/2003 46,722 41,099 38,134
2/28/2003 46,446 40,482 37,628
3/31/2003 46,585 40,875 37,945
4/30/2003 49,544 44,242 40,741
5/31/2003 51,951 46,573 42,715
6/30/2003 52,019 47,167 43,137
7/31/2003 52,914 47,999 43,817
8/31/2003 53,945 48,935 44,665
9/30/2003 52,705 48,415 44,087
10/31/2003 55,045 51,154 46,244
11/30/2003 55,529 51,604 46,633
12/31/2003 58,078 54,310 48,876
1/31/2004 59,559 55,307 49,566
2/29/2004 60,756 56,076 50,151
3/31/2004 60,404 55,230 49,366
4/30/2004 59,558 54,363 48,599
5/31/2004 59,838 55,109 49,093
6/30/2004 61,316 56,181 49,971
7/31/2004 58,784 54,321 48,201
8/31/2004 58,431 54,541 48,233
9/30/2004 59,769 55,132 48,785
10/31/2004 59,912 55,974 49,445
11/30/2004 62,447 58,239 51,322
12/31/2004 63,721 60,220 52,926
1/31/2005 63,370 58,753 51,730
2/28/2005 64,289 59,989 52,695
3/31/2005 63,087 58,927 51,730
4/30/2005 61,320 57,809 50,578
5/31/2005 62,945 59,649 52,215
6/30/2005 62,662 59,733 52,394
7/31/2005 65,137 61,955 54,257
8/31/2005 64,291 61,389 53,760
9/30/2005 64,998 61,887 54,382
10/31/2005 63,652 60,855 53,730
11/30/2005 65,702 63,157 55,788
12/31/2005 66,030 63,178 55,952
1/31/2006 67,879 64,851 57,519
2/28/2006 68,517 65,027 57,262
3/31/2006 69,511 65,837 58,296
4/30/2006 70,150 66,721 58,902
5/31/2006 68,228 64,800 57,118
6/30/2006 68,228 64,888 57,166
7/31/2006 69,293 65,289 56,970
8/31/2006 70,644 66,842 58,383
9/30/2006 72,346 68,564 59,617
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 such
waivers and reimbursements, performance 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
11 for a description of the Indices and disclosure related to after-tax
returns. (d) The mountain chart is based on the Fund's initial minimum
investment of $25,000.
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, CFA
Manager since July 2005
[PHOTO]
James Carroll
Manager since November 2002
/s/ Warren Koontz
Manager since June 2000
FUND FACTS
SYMBOL | Institutional: LSGIX;
Retail: LSVRX
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, although it may invest in companies of any size
FUND INCEPTION DATE | 5/13/91
COMMENCEMENT OF OPERATIONS OF CLASS | Institutional: 5/13/91;
Retail: 6/30/06
EXPENSE RATIO | Institutional: 0.85%;
Retail: 1.10%
TOTAL NET ASSETS | $71.6 million
PORTFOLIO REVIEW
Our stock selection efforts helped the Fund significantly outperform its
Benchmark, the Russell 1000 Value Index, for the fiscal year ended September
30, 2006. 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, as stock prices gravitate toward the value of the
underlying businesses over time. We believe we can find value in every sector,
and our overweights represent our best ideas.
During the fiscal year, we increased the Fund's exposure to utilities by
initiating positions in Embarq, a wire-line spin off from Sprint, and Entergy,
a large, regulated utility in the South that has recovered nicely since last
year's hurricane season. Earlier in the year, we also increased the Fund's
weighting in the healthcare sector, adding Pfizer due to its earnings leverage
and financial flexibility. At the same time, we decreased our energy weighting
as oil and natural gas prices fell in the second half of the year.
Every sector made positive contributions to the Fund's fiscal-year performance.
The strongest performers included the financials, utilities and consumer
discretionary sectors. The Fund's position in JPMorgan Chase & Co. was
primarily responsible for strong performance from the Fund's financial
holdings. In addition to beating the market's earnings expectations, JPMorgan
advanced on a strong investment management pipeline and excellent credit
quality. The utilities sector's largest contributor was BellSouth; the stock
rose sharply following AT&T's takeover offer. Several of the Fund's consumer
discretionary holdings also bolstered performance. Specifically, Office Depot
benefited from cost cutting measures; DIRECTV advanced on strong industry
fundamentals and cash flows; and Federated Department Stores posted solid
returns stemming from its acquisition of May Department Stores.
The energy sector was volatile due to the sharp correction in the price of key
oil and natural gas benchmarks. Relative equity performance shifted in favor of
more defensive sector participants, such as ExxonMobil, which we continue to
hold, and other major, integrated producers. Most oil service and integrated
oil companies also underperformed during the later part of the fiscal year.
Detractors included Halliburton and ConocoPhillips.
OUTLOOK
Despite economic data gyrations, energy price volatility and considerable
investor worry, the economy has persevered, as we expected it would. The rate
of earnings and cash flow growth may slow as the full effects of the Federal
Reserve Board's tightening campaign unfold, but we expect both to remain at
healthy levels. Based on these measures, we think the market looks attractive
from a longer-term valuation standpoint. Near term, however, we
9
are hopeful that increased visibility with respect to inflation, energy prices
and Fed intentions will allow investors' risk appetite to return to more normal
levels. Should this happen in concert with healthy underlying fundamentals, we
believe the market could advance at the higher end of our 5%-10% forecast.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 2006
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION(a)
--------------------------------------------------
LOOMIS SAYLES VALUE: INSTITUTIONAL
18.92% 11.31% 9.38% 11.01%
--------------------------------------------------
LOOMIS SAYLES VALUE: RETAIL(a)
18.61 11.02 9.00 10.41
--------------------------------------------------
RUSSELL 1000 VALUE INDEX(b)
14.62 10.73 11.20 12.75
--------------------------------------------------
LIPPER LARGE-CAP VALUE FUNDS INDEX(b)
12.59 8.01 8.60 10.72
--------------------------------------------------
CUMULATIVE PERFORMANCE
INCEPTION TO SEPTEMBER 30, 2006(c)(d)
[CHART]
Russell 1000 Lipper Large-Cap
Loomis Sayles Value Value Funds
Value Fund Index(a)(b)(d) Index(a)(b)
------------- -------------- -----------------
5/13/1991 $100,000 $100,000 $100,000
5/31/1991 105,500 103,721 104,178
6/30/1991 99,497 99,351 98,936
7/31/1991 102,800 103,502 103,543
8/31/1991 105,298 105,371 106,080
9/30/1991 102,497 104,581 105,274
10/31/1991 102,897 106,319 107,264
11/30/1991 96,199 100,860 102,764
12/31/1991 107,156 109,312 113,886
1/31/1992 110,617 109,496 113,049
2/29/1992 112,951 112,182 115,088
3/31/1992 110,308 110,549 112,511
4/30/1992 112,845 115,324 114,580
5/31/1992 113,048 115,886 115,467
6/30/1992 110,606 115,175 112,930
7/31/1992 115,075 119,370 117,320
8/31/1992 111,714 115,701 114,916
9/30/1992 112,530 117,299 116,271
10/31/1992 113,543 117,404 117,054
11/30/1992 119,844 121,257 121,870
12/31/1992 122,241 124,162 123,741
1/31/1993 124,992 127,760 125,160
2/28/1993 126,154 132,219 126,382
3/31/1993 128,488 136,124 130,055
4/30/1993 125,096 134,378 127,630
5/31/1993 127,848 137,081 131,080
6/30/1993 127,746 140,118 131,672
7/31/1993 126,788 141,662 131,283
8/31/1993 131,872 146,779 136,593
9/30/1993 131,133 147,025 137,084
10/31/1993 133,992 146,902 139,445
11/30/1993 132,089 143,848 137,227
12/31/1993 136,752 146,595 140,156
1/31/1994 142,003 152,106 144,725
2/28/1994 140,583 146,919 141,245
3/31/1994 134,777 141,443 135,380
4/30/1994 137,513 144,155 137,064
5/31/1994 139,040 145,822 139,042
6/30/1994 134,771 142,329 135,692
7/31/1994 139,475 146,761 139,650
8/31/1994 145,611 150,983 145,312
9/30/1994 140,573 145,980 141,527
10/31/1994 140,348 148,017 143,846
11/30/1994 133,780 142,048 138,841
12/31/1994 135,533 143,698 140,414
1/31/1995 138,406 148,122 142,943
2/28/1995 145,990 153,985 148,258
3/31/1995 149,903 157,372 151,734
4/30/1995 155,524 162,349 156,145
5/31/1995 162,181 169,168 161,933
6/30/1995 163,332 171,460 165,446
7/31/1995 169,653 177,429 170,676
8/31/1995 170,569 179,936 171,713
9/30/1995 175,959 186,443 177,881
10/31/1995 171,596 184,592 176,458
11/30/1995 179,403 193,941 184,102
12/31/1995 183,278 198,815 187,091
1/31/1996 188,685 205,010 192,845
2/29/1996 190,327 206,560 195,012
3/31/1996 192,344 210,072 197,121
4/30/1996 192,344 210,880 199,801
5/31/1996 195,999 213,517 203,502
6/30/1996 196,371 213,691 203,620
7/31/1996 189,203 205,615 195,633
8/31/1996 193,725 211,496 200,717
9/30/1996 203,373 219,903 210,552
10/31/1996 208,925 228,405 214,999
11/30/1996 223,508 244,968 230,400
12/31/1996 222,077 241,842 226,502
1/31/1997 233,759 253,566 237,933
2/28/1997 235,325 257,292 239,840
3/31/1997 227,347 248,041 230,675
4/30/1997 235,327 258,462 240,938
5/31/1997 249,565 272,900 254,822
6/30/1997 261,818 284,607 265,456
7/31/1997 284,675 306,019 285,462
8/31/1997 275,679 295,116 273,249
9/30/1997 289,739 312,953 287,234
10/31/1997 279,019 304,209 278,568
11/30/1997 287,278 317,659 287,704
12/31/1997 286,962 326,932 290,996
1/31/1998 287,622 322,306 291,413
2/28/1998 306,662 344,004 310,584
3/31/1998 315,923 365,045 324,387
4/30/1998 318,514 367,486 327,685
5/31/1998 312,972 362,037 322,110
6/30/1998 312,471 366,677 328,135
7/31/1998 298,472 360,206 322,445
8/31/1998 256,507 306,601 278,440
9/30/1998 274,078 324,199 291,822
10/31/1998 297,347 349,311 315,192
11/30/1998 307,605 365,585 331,279
12/31/1998 317,172 378,028 344,076
1/31/1999 316,442 381,047 349,796
2/28/1999 307,107 375,669 341,785
3/31/1999 318,286 383,443 352,161
4/30/1999 341,171 419,257 372,913
5/31/1999 339,158 414,648 366,547
6/30/1999 347,773 426,687 382,705
7/31/1999 334,940 414,195 371,840
8/31/1999 320,839 398,823 365,064
9/30/1999 302,904 384,885 351,561
10/31/1999 314,263 407,038 368,492
11/30/1999 312,283 403,855 369,777
12/31/1999 312,970 405,805 381,164
1/31/2000 299,481 392,566 365,052
2/29/2000 275,403 363,400 349,700
3/31/2000 303,218 407,740 381,722
4/30/2000 301,975 402,995 377,472
5/31/2000 307,169 407,244 377,754
6/30/2000 299,920 388,631 373,583
7/31/2000 298,660 393,498 371,895
8/31/2000 318,790 415,393 393,420
9/30/2000 313,817 419,197 387,209
10/31/2000 325,648 429,494 390,302
11/30/2000 318,581 413,552 373,573
12/31/2000 335,976 434,271 388,615
1/31/2001 340,377 435,941 391,848
2/28/2001 331,153 423,819 372,962
3/31/2001 318,768 408,842 358,467
4/30/2001 334,100 428,893 378,777
5/31/2001 339,546 438,527 384,873
6/30/2001 333,672 428,801 374,414
7/31/2001 330,936 427,889 371,863
8/31/2001 318,559 410,750 354,446
9/30/2001 291,705 381,841 326,785
10/31/2001 293,805 378,555 328,915
11/30/2001 310,082 400,562 350,014
12/31/2001 316,996 409,997 355,289
1/31/2002 314,175 406,838 348,734
2/28/2002 312,667 407,491 346,804
3/31/2002 323,266 426,770 362,115
4/30/2002 315,282 412,133 346,679
5/31/2002 317,457 414,199 347,146
6/30/2002 294,315 390,417 322,938
7/31/2002 269,651 354,124 295,042
8/31/2002 272,887 356,798 297,028
9/30/2002 241,532 317,126 262,697
10/31/2002 258,826 340,621 281,973
11/30/2002 274,821 362,079 299,650
12/31/2002 264,076 346,352 285,380
1/31/2003 257,976 337,968 278,585
2/28/2003 247,940 328,958 271,616
3/31/2003 246,626 329,504 271,441
4/30/2003 266,677 358,508 294,358
5/31/2003 286,278 381,650 312,476
6/30/2003 291,288 386,422 316,052
7/31/2003 292,802 392,176 320,454
8/31/2003 298,688 398,287 325,869
9/30/2003 294,536 394,401 322,209
10/31/2003 309,145 418,538 339,986
11/30/2003 315,235 424,216 344,168
12/31/2003 333,330 450,364 365,279
1/31/2004 337,729 458,283 370,813
2/29/2004 345,227 468,105 378,633
3/31/2004 344,122 464,008 374,103
4/30/2004 337,722 452,668 367,208
5/31/2004 343,024 457,284 369,891
6/30/2004 349,644 468,089 378,034
7/31/2004 344,574 461,496 368,935
8/31/2004 345,884 468,059 371,608
9/30/2004 351,625 475,314 375,999
10/31/2004 355,388 483,215 380,005
11/30/2004 374,330 507,646 396,504
12/31/2004 383,726 524,645 409,095
1/31/2005 379,466 515,333 401,162
2/28/2005 390,888 532,411 412,419
3/31/2005 386,198 525,106 405,716
4/30/2005 379,246 515,701 397,685
5/31/2005 388,424 528,116 406,985
6/30/2005 395,377 533,898 411,112
7/31/2005 413,050 549,345 424,509
8/31/2005 412,843 546,955 422,672
9/30/2005 419,119 554,635 426,748
10/31/2005 412,413 540,548 417,847
11/30/2005 428,744 558,318 432,221
12/31/2005 432,860 561,653 434,709
1/31/2006 450,867 583,466 447,397
2/28/2006 457,044 587,028 448,197
3/31/2006 464,128 594,980 453,858
4/30/2006 477,170 610,100 465,137
5/31/2006 466,768 594,689 453,774
6/30/2006 466,301 598,493 454,102
7/31/2006 476,980 613,039 461,048
8/31/2006 485,517 623,299 469,552
9/30/2006 498,529 635,724 480,475
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 and reimbursements,
performance would be lower.
(a) Index performance 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. Performance shown for periods prior to the inception
date of the Retail Class (6/30/06) represents the performance of the
Institutional Class of shares during the periods shown, adjusted to reflect
current levels of 12b-1 fees payable by the respective Classes. (b) See page 11
for a description of the Indices. (c) The mountain chart is based on the Fund's
initial minimum investment of $100,000 for Institutional Class shares. (d)
Cumulative performance is shown for Institutional Class shares. Performance of
the Retail Class would be lower due to higher fees.
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 US standards.
10
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.
Source: Lipper, Inc.
Russell Midcap Growth Index is a market capitalization weighted index of medium
capitalization stocks determined by Russell to be growth stocks as measured by
their price-to-book ratios and 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. A commonly used benchmark of US equity
securities, 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, www.sec.gov. Information about how the Funds voted proxies relating to
portfolio securities during the 12 months ended June 30, 2006 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 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.
11
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,
2006 (or commencement of operations if later) through September 30, 2006. 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 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $ 887.60 $4.73
Hypothetical (5% return before expenses) $1,000.00 $1,020.05 $5.06
Retail Class
- ------------
Actual $1,000.00 $ 886.50 $5.91
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 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $ 918.10 $4.81
Hypothetical (5% return before expenses) $1,000.00 $1,020.05 $5.06
Retail Class
- ------------
Actual $1,000.00 $ 917.70 $6.01
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 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $ 974.30 $4.40
Hypothetical (5% return before expenses) $1,000.00 $1,020.61 $4.51
Retail Class
- ------------
Actual $1,000.00 $ 973.10 $5.69
Hypothetical (5% return before expenses) $1,000.00 $1,019.30 $5.82
Admin Class
- -----------
Actual $1,000.00 $ 972.10 $6.92
Hypothetical (5% return before expenses) $1,000.00 $1,018.05 $7.08
*Expenses are equal to the Fund's annualized expense ratio of
0.89%, 1.15% and 1.40% for the Institutional, Retail and Admin
Class, respectively, multiplied by the average account value
over the period, multiplied by 183/365 (to reflect the half-year
period).
12
LOOMIS SAYLES TAX-MANAGED EQUITY FUND
Beginning Ending Expenses Paid
Account Value Account Value During Period*
Institutional Class 4/1/06(1) 9/30/06 4/1/06 - 9/30/06
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $1,040.90 $3.33
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(1)
Institutional Class 4/1/06(1) 9/30/06 4/1/06 - 9/30/06
- ------------------- ------------- ------------- ----------------
Actual $1,000.00 $1,074.00 $4.42*
Hypothetical (5% return before expenses) $1,000.00 $1,020.81 $4.31*
Retail Class
- ------------
Actual $1,000.00 $1,068.60 $2.87+
Hypothetical (5% return before expenses) $1,000.00 $1,009.83 $2.79+
/(1)/Retail Class commenced operations on June 30, 2006.
*Expenses are equal to the Fund's annualized expense ratio of 0.85% for the Institutional Class, multiplied by the average account
value over the period, multiplied by 183/365 (to reflect the half-year period).
+Expenses are equal to the Fund's annualized expense ratio of 1.10% for the Retail Class, multiplied by the average account value
over the period, multiplied by 92/365 (to reflect the period from commencement of operations on June 30, 2006).
13
BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS
The Board of Trustees, including the Independent Trustees, considers matters
bearing on each Fund's advisory agreement (collectively, 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, also
consider other matters 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.
The Board of Trustees most recently approved the continuation of the Agreements
at their meeting held in May, 2006. 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, including
recent or planned investments by the Adviser in additional personnel or other
resources. They also took note of the competitive market for talented
personnel, in particular, for personnel who have contributed to the generation
of strong investment performance. They also considered the need for the Adviser
to offer competitive compensation in order to attract and retain capable
personnel. They also considered the administrative services provided by the
Adviser's affiliates to the Funds. 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.
With respect to each Fund, the Board concluded that the Fund's performance or
other relevant factors supported the renewal of the Agreement relating to that
Fund. In the case of each Fund that had performance that lagged that of a
relevant peer group for certain (although not necessarily all) periods, the
Board concluded that other factors relevant to performance supported renewal of
the Funds' Agreements. These factors varied from Fund to Fund, but included one
or more of the following: (1) that the Fund's performance, although lagging in
certain recent periods, was strong over the longer term; and (2) that the
underperformance was attributable, to a significant extent, to investment
decisions by the Fund's Adviser that were reasonable and consistent with the
Fund's investment objective and policies.
The Trustees also considered the Adviser's performance and reputation
generally, the Funds' performance as a fund family generally, and the
historical responsiveness of the Adviser 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.
14
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 fees, the Trustees also
took into account the demands, complexity and quality of the investment
management of such Fund. The Trustees considered that over the past several
years, management had made recommendations regarding the institution of
advisory fee waivers and expense caps. They noted that all of the Loomis Sayles
Funds in this report have expense caps in place, and they considered the
amounts waived or reimbursed by the Adviser under these caps.
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's and its affiliates' relationships with the Funds, and information
about the allocation of expenses used to calculate profitability. In this
regard, the Funds, at the request of the Independent Trustees, retained an
independent accounting firm to review the cost allocation methods used by the
Adviser to determine profitability, and engaged in extensive discussions with
the Adviser regarding such methods and Adviser profitability generally. They
also reviewed information provided by management about the effect of
distribution costs and Fund growth on Adviser profitability. When reviewing
profitability, the Trustees also considered information about court cases in
which adviser profitability was an issue, 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 fees charged to each of the Funds were 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 its investment advisory fees
(lower fee rates applicable to assets in excess of certain threshold levels) or
other means, such as expense waivers. The Trustees noted that each of the Funds
was subject to an expense waiver or 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 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 a separate agreement covering administrative services.
.. so-called "fallout benefits" to the Adviser, such as the engagement of
affiliates of the Adviser to provide distribution and brokerage 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 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, 2007.
15
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES AGGRESSIVE GROWTH FUND
SHARES VALUE (+)
- -----------------------------------------------------------------------------
COMMON STOCKS - 95.9% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 5.2%
Precision Castparts Corp. 20,475 $1,293,201
Rockwell Collins, Inc.(b) 18,450 1,011,798
----------
2,304,999
----------
AIR FREIGHT & LOGISTICS - 2.0%
Expeditors International of Washington, Inc.(b) 19,700 878,226
----------
BEVERAGES - 3.1%
Hansen Natural Corp.(b)(c) 13,750 446,600
Pepsi Bottling Group, Inc. 25,300 898,150
----------
1,344,750
----------
BIOTECHNOLOGY - 2.9%
Amylin Pharmaceuticals, Inc.(b)(c) 9,675 426,377
Celgene Corp.(b)(c) 13,100 567,230
Vertex Pharmaceuticals, Inc.(b)(c) 9,075 305,374
----------
1,298,981
----------
CAPITAL MARKETS - 4.4%
BlackRock, Inc.(b) 7,175 1,069,075
Northern Trust Corp. 15,175 886,675
----------
1,955,750
----------
CHEMICALS - 2.0%
Ecolab, Inc. 21,050 901,361
----------
COMMERCIAL SERVICES & SUPPLIES - 4.1%
Corporate Executive Board Co. 7,525 676,573
Stericycle, Inc.(b)(c) 16,425 1,146,301
----------
1,822,874
----------
DIVERSIFIED CONSUMER SERVICES - 1.1%
Sotheby's 15,175 489,242
----------
DIVERSIFIED FINANCIAL SERVICES - 6.4%
Chicago Mercantile Exchange Holdings, Inc. 2,475 1,183,669
IntercontinentalExchange, Inc.(c) 8,950 671,876
International Securities Exchange Holdings, Inc., Class A 7,000 328,230
Nasdaq Stock Market, Inc.(b)(c) 21,025 635,796
----------
2,819,571
----------
ELECTRICAL EQUIPMENT - 0.9%
Suntech Power Holdings Co., Ltd. ADR(c) 15,325 395,845
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.4%
Mettler-Toledo International, Inc.(c) 16,075 1,063,361
----------
HEALTHCARE EQUIPMENT & SUPPLIES - 4.1%
C.R. Bard, Inc. 10,325 774,375
Hologic, Inc.(c) 9,425 410,176
Intuitive Surgical, Inc.(b)(c) 5,775 608,974
----------
1,793,525
----------
HEALTHCARE PROVIDERS & SERVICES - 4.4%
Express Scripts, Inc.(c) 11,000 830,390
Humana, Inc.(c) 16,525 1,092,137
----------
1,922,527
----------
16
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES AGGRESSIVE GROWTH FUND - CONTINUED
SHARES VALUE (+)
- --------------------------------------------------------------------
COMMON STOCKS - CONTINUED
HOTELS, RESTAURANTS & LEISURE - 3.1%
International Game Technology 16,225 $ 673,338
Wendy's International, Inc. 10,250 686,750
----------
1,360,088
----------
INDEPENDENT POWER PRODUCER & ENERGY - 3.4%
AES Corp.(c) 32,700 666,753
NRG Energy, Inc.(b)(c) 18,600 842,580
----------
1,509,333
----------
INDUSTRIAL CONGLOMERATES - 1.5%
McDermott International, Inc.(c) 16,100 672,980
----------
INTERNET SOFTWARE & SERVICES - 4.8%
Akamai Technologies, Inc.(b)(c) 33,825 1,690,912
WebEx Communications, Inc.(b)(c) 11,425 445,803
----------
2,136,715
----------
IT SERVICES - 3.4%
Cognizant Technology Solutions Corp., Class A(c) 20,300 1,503,418
----------
LIFE SCIENCES TOOLS & SERVICES - 4.4%
Covance, Inc.(c) 13,150 872,897
Pharmaceutical Product Development, Inc. 29,925 1,068,023
----------
1,940,920
----------
OIL, GAS & CONSUMABLE FUELS - 3.5%
Denbury Resources, Inc.(c) 35,425 1,023,783
Southwestern Energy Co.(c) 17,500 522,725
----------
1,546,508
----------
PHARMACEUTICALS - 1.8%
Allergan, Inc. 6,875 774,194
----------
REAL ESTATE - 2.3%
Jones Lang LaSalle, Inc.(b) 11,675 997,979
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.8%
FormFactor, Inc.(c) 14,400 606,672
Linear Technology Corp. 20,575 640,294
----------
1,246,966
----------
SOFTWARE - 5.8%
BEA Systems, Inc.(c) 49,850 757,720
Citrix Systems, Inc.(c) 12,200 441,762
Intuit, Inc.(c) 20,750 665,867
Salesforce.com, Inc.(b)(c) 19,650 705,042
----------
2,570,391
----------
SPECIALTY RETAIL - 8.3%
American Eagle Outfitters, Inc. 19,725 864,547
AnnTaylor Stores Corp.(c) 17,250 722,085
Circuit City Stores, Inc.(b) 16,700 419,337
GameStop Corp., Class A(b)(c) 18,850 872,378
Guess?, Inc.(b)(c) 15,900 771,627
----------
3,649,974
----------
17
SHARES VALUE (+)
- ---------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
WIRELESS TELECOMMUNICATION SERVICES - 7.8%
American Tower Corp., Class A(c) 30,200 $ 1,102,300
Leap Wireless International, Inc.(b)(c) 15,150 734,623
NII Holdings, Inc.(b)(c) 25,625 1,592,850
-------------
3,429,773
-------------
TOTAL COMMON STOCKS
(Identified Cost $37,371,105) 42,330,251
-------------
PRINCIPAL AMOUNT
- ---------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 29.9%
Tri-Party Repurchase Agreement with Fixed
Income Clearing Corporation, dated 9/29/06
at 3.450% to be repurchased at $2,016,580
on 10/02/06 collateralized by $1,645,000
U.S. Treasury Bond, 6.875% due 8/15/25
with a value of $2,076,982, including
accrued interest (Note 2g of Notes to
Financial Statements) $ 2,016,000 2,016,000
-------------
SHARES
- ---------------------------------------------------------------------------------
State Street Securities Lending Quality
Trust(d) 11,173,322 11,173,322
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $13,189,322) 13,189,322
-------------
TOTAL INVESTMENTS - 125.8%
(Identified Cost $50,560,427)(a) 55,519,573
Other assets less liabilities--(25.8)% (11,384,636)
-------------
TOTAL NET ASSETS - 100.0% $ 44,134,937
-------------
+ See Note 2a of Notes to Financial
Statements.
(a)Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $50,561,216 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 $ 5,482,512
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value (524,155)
-------------
Net unrealized appreciation $ 4,958,357
-------------
(b)All or a portion of this security was on loan to brokers at September 30,
2006.
(c)Non-income producing security.
(d)Represents investment of security 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 ADR's are significantly influenced by trading on
exchanges not located in the United States.
HOLDINGS AT SEPTEMBER 30, 2006 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Specialty Retail 8.3% Independent Power Producer & Energy 3.4%
Wireless Telecommunication Services 7.8 IT Services 3.4
Diversified Financial Services 6.4 Hotels, Restaurants & Leisure 3.1
Software 5.8 Beverages 3.1
Aerospace & Defense 5.2 Biotechnology 2.9
Internet Software & Services 4.8 Semiconductors & Semiconductor Equipment 2.8
Capital Markets 4.4 Electronic Equipment & Instruments 2.4
Life Sciences Tools & Services 4.4 Real Estate 2.3
Healthcare Providers & Services 4.4 Chemicals 2.0
Commercial Services & Supplies 4.1 Air Freight & Logistics 2.0
Healthcare Equipment & Supplies 4.1 Other, less than 2% each 5.3
Oil, Gas & Consumable Fuels 3.5
See accompanying notes to financial statements.
18
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES SMALL CAP GROWTH FUND
SHARES VALUE (+)
- ------------------------------------------------------------------
COMMON STOCKS - 97.3% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 2.0%
Essex Corp.(b)(c) 11,975 $ 208,365
Moog, Inc., Class A(b)(c) 7,575 262,550
----------
470,915
----------
BIOTECHNOLOGY - 4.5%
BioMarin Pharmaceutical, Inc.(b)(c) 12,075 171,827
Cubist Pharmaceuticals, Inc.(b)(c) 6,250 135,875
Digene Corp.(b)(c) 4,000 172,600
Keryx Biopharmaceuticals, Inc.(b)(c) 12,225 144,622
Myogen, Inc.(c) 4,150 145,582
Nuvelo, Inc.(b)(c) 7,925 144,552
Theravance, Inc.(c) 5,350 144,664
----------
1,059,722
----------
CAPITAL MARKETS - 2.4%
Affiliated Managers Group, Inc.(b)(c) 1,250 125,138
GFI Group, Inc.(b)(c) 3,825 211,484
Investment Technology Group, Inc.(c) 4,850 217,037
----------
553,659
----------
COMMERCIAL BANKS - 1.4%
East West Bancorp, Inc.(b) 8,350 330,744
----------
COMMERCIAL SERVICES & SUPPLIES - 13.3%
Advisory Board Co.(b)(c) 7,175 362,481
American Reprographics Co.(b)(c) 7,350 235,641
Corporate Executive Board Co.(b) 2,800 251,748
CRA International, Inc.(b)(c) 5,225 249,024
Huron Consulting Group, Inc.(b)(c) 8,525 334,180
ICT Group, Inc.(b)(c) 10,450 328,861
Kenexa Corp.(b)(c) 8,050 203,021
Mobile Mini, Inc.(b)(c) 9,100 258,531
Navigant Consulting, Inc.(b)(c) 13,375 268,302
On Assignment, Inc.(b)(c) 23,000 225,630
PeopleSupport, Inc.(c) 20,800 384,800
----------
3,102,219
----------
COMMUNICATIONS EQUIPMENT - 3.6%
Foundry Networks, Inc.(b)(c) 20,925 275,164
Oplink Communications, Inc.(b)(c) 11,125 222,277
Redback Networks, Inc.(b)(c) 12,400 172,112
Sonus Networks, Inc.(b)(c) 32,525 171,082
----------
840,635
----------
DIVERSIFIED CONSUMER SERVICES - 2.9%
Bright Horizons Family Solutions, Inc.(b)(c) 2,925 122,060
Sotheby's 8,400 270,816
Steiner Leisure Ltd.(c) 6,575 276,479
----------
669,355
----------
DIVERSIFIED TELECOMMUNICATIONS SERVICES - 1.1%
Cogent Communications Group, Inc.(b)(c) 21,175 245,418
----------
ENERGY EQUIPMENT & SERVICES - 3.6%
Dril-Quip, Inc.(b)(c) 3,600 243,648
Oil States International, Inc.(c) 7,950 218,625
19
SHARES VALUE (+)
- ----------------------------------------------------------------------
COMMON STOCKS - CONTINUED
ENERGY EQUIPMENT & SERVICES - CONTINUED
Tesco Corp.(c) 8,550 $ 132,440
Universal Compression Holdings, Inc.(b)(c) 4,750 253,887
----------
848,600
----------
HEALTH CARE TECHNOLOGY - 1.8%
Allscripts Healthcare Solutions, Inc.(c) 7,875 176,794
Emageon, Inc.(b)(c) 15,575 242,814
----------
419,608
----------
HEALTHCARE EQUIPMENT & SUPPLIES - 10.1%
American Medical Systems Holdings, Inc.(b)(c) 14,500 267,235
ArthroCare Corp.(b)(c) 5,675 265,930
Conor Medsystems, Inc.(b)(c) 7,075 166,758
Hologic, Inc.(b)(c) 5,375 233,920
Inverness Medical Innovations, Inc.(b)(c) 7,225 251,141
Meridian Bioscience, Inc.(b) 8,450 198,659
NuVasive, Inc.(b)(c) 11,675 234,784
PolyMedica Corp.(b) 7,075 302,881
Spectranetics Corp. (The)(b)(c) 15,225 178,133
Viasys Healthcare, Inc.(c) 9,575 260,823
----------
2,360,264
----------
HEALTHCARE PROVIDERS & SERVICES - 4.9%
AMN Healthcare Services, Inc.(b)(c) 11,425 271,344
HealthExtras, Inc.(b)(c) 9,850 278,853
inVentiv Health, Inc.(c) 11,325 362,740
NovaMed, Inc.(c) 28,700 226,156
----------
1,139,093
----------
HOTELS, RESTAURANTS & LEISURE - 1.7%
McCormick & Schmick's Seafood Restaurants, Inc.(c) 11,850 266,507
Pinnacle Entertainment, Inc.(c) 4,250 119,510
----------
386,017
----------
HOUSEHOLD DURABLES - 0.4%
Lifetime Brands, Inc.(b) 5,600 103,712
----------
INSURANCE - 3.3%
Arch Capital Group Ltd.(c) 5,400 342,846
Argonaut Group, Inc.(b)(c) 5,675 176,095
ProAssurance Corp.(b)(c) 4,950 243,936
----------
762,877
----------
INTERNET & CATALOG RETAIL - 0.8%
Coldwater Creek, Inc.(b)(c) 6,862 197,351
----------
INTERNET SOFTWARE & SERVICES - 3.2%
aQuantive, Inc.(b)(c) 7,650 180,693
j2 Global Communications, Inc.(b)(c) 5,875 159,624
Online Resources Corp.(b)(c) 20,200 247,450
Websense, Inc.(b)(c) 7,750 167,477
----------
755,244
----------
IT SERVICES - 3.0%
Heartland Payment Systems, Inc.(b) 8,625 224,250
Lightbridge, Inc.(c) 17,475 204,807
SRA International, Inc., Class A(b)(c) 9,075 272,795
----------
701,852
----------
20
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES SMALL CAP GROWTH FUND - CONTINUED
SHARES VALUE (+)
- -------------------------------------------------------------------
COMMON STOCKS - CONTINUED
LEISURE EQUIPMENT & PRODUCTS - 0.8%
Smith & Wesson Holding Corp.(b)(c) 13,325 $ 184,951
----------
MACHINERY - 3.4%
American Science & Engineering, Inc.(b)(c) 4,375 212,275
Flow International Corp.(b)(c) 22,850 296,364
RBC Bearings, Inc.(c) 12,193 294,461
----------
803,100
----------
MEDIA - 0.9%
Morningstar, Inc.(b)(c) 5,975 220,478
----------
OIL, GAS & CONSUMABLE FUELS - 2.1%
Arena Resources, Inc.(b)(c) 4,475 143,737
Helix Energy Solutions Group, Inc.(b)(c) 6,000 200,400
Parallel Petroleum Corp.(b)(c) 7,400 148,444
----------
492,581
----------
PHARMACEUTICALS - 0.8%
Santarus, Inc.(b)(c) 25,250 187,355
----------
REAL ESTATE - 2.0%
Jones Lang LaSalle, Inc.(b) 2,700 230,796
Trammell Crow Co.(c) 6,575 240,053
----------
470,849
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 5.0%
ATMI, Inc.(b)(c) 7,525 218,752
Cypress Semiconductor Corp.(b)(c) 10,850 192,805
Netlogic Microsystems, Inc.(b)(c) 7,475 189,641
Tessera Technologies, Inc.(b)(c) 8,925 310,411
Volterra Semiconductor Corp.(b)(c) 15,125 245,781
----------
1,157,390
----------
SOFTWARE - 4.8%
Blackboard, Inc.(b)(c) 8,450 223,925
Informatica Corp.(b)(c) 20,100 273,159
Opsware, Inc.(c) 14,600 131,546
Quest Software, Inc.(b)(c) 14,850 212,058
Ultimate Software Group, Inc.(b)(c) 12,050 283,536
----------
1,124,224
----------
SPECIALTY RETAIL - 2.4%
Dick's Sporting Goods, Inc.(b)(c) 7,450 339,124
Guess?, Inc.(b)(c) 4,500 218,385
----------
557,509
----------
TEXTILES APPAREL & LUXURY GOODS - 5.5%
Carter's, Inc.(b)(c) 4,850 127,992
Movado Group, Inc.(b) 11,125 282,797
Phillips-Van Heusen Corp. 7,975 333,116
Quiksilver, Inc.(b)(c) 28,400 345,060
Under Armour, Inc., Class A(b)(c) 4,825 193,096
----------
1,282,061
----------
THRIFTS & MORTGAGE FINANCE - 1.2%
PFF Bancorp, Inc. 7,775 287,986
----------
21
SHARES VALUE (+)
- ---------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
TRADING COMPANIES & DISTRIBUTORS - 3.3%
Aircastle Ltd.(b) 6,200 $ 180,172
NuCo2, Inc.(b)(c) 12,225 328,853
Williams Scotsman International, Inc.(b)(c) 12,225 261,126
------------
770,151
------------
WIRELESS TELECOMMUNICATION SERVICES - 1.1%
SBA Communications Corp., Class A(b)(c) 11,000 267,630
------------
TOTAL COMMON STOCKS
(Identified Cost $20,471,943) 22,753,550
------------
PRINCIPAL AMOUNT
- ---------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 29.3%
Tri-Party Repurchase Agreement with Fixed
Income Clearing Corporation, dated 9/29/06
at 3.450% to be repurchased at $888,255 on
10/02/06 collateralized by $920,000 U.S.
Treasury Note, 3.375% due 11/15/2008 with a
value of $919,175, including accrued
interest (Note 2g of Notes to Financial
Statements) $ 888,000 888,000
------------
SHARES
- ---------------------------------------------------------------------------------
State Street Securities Lending Quality
Trust(d) 5,968,124 5,968,124
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $6,856,124) 6,856,124
------------
TOTAL INVESTMENTS - 126.6%
(Identified Cost $27,328,067)(a) 29,609,674
Other assets less liabilities--(26.6)% (6,214,047)
------------
TOTAL NET ASSETS - 100.0% $ 23,395,627
------------
+ See Note 2a of Notes to Financial
Statements.
(a)Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $27,340,802 for federal income
tax purposes was as follows:
Aggregate gross unrealized appreciation for all securities
in which there is an excess of value over cost $ 2,829,265
Aggregate gross unrealized depreciation for all securities
in which there is an excess of cost over value (560,393)
------------
Net unrealized appreciation $ 2,268,872
------------
(b)All or a portion of this security was on loan to brokers at September 30,
2006.
(c)Non-income producing security.
(d)Represents investment of security lending collateral.
HOLDINGS AT SEPTEMBER 30, 2006 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Commercial Services & Supplies 13.3% Insurance 3.3%
Healthcare Equipment & Supplies 10.1 Internet Software & Services 3.2
Textiles Apparel & Luxury Goods 5.5 IT Services 3.0
Semiconductors & Semiconductor Equipment 5.0 Diversified Consumer Services 2.9
Healthcare Providers & Services 4.9 Specialty Retail 2.4
Software 4.8 Capital Markets 2.4
Biotechnology 4.5 Oil, Gas & Consumable Fuels 2.1
Energy Equipment & Services 3.6 Aerospace & Defense 2.0
Communications Equipment 3.6 Real Estate 2.0
Machinery 3.4 Other, less than 2% each 12.0
Trading Companies & Distributors 3.3
See accompanying notes to financial statements.
22
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES SMALL CAP VALUE FUND
SHARES VALUE (+)
- -----------------------------------------------------------------
COMMON STOCKS - 96.8% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 1.0%
Moog, Inc., Class A(c) 231,250 $ 8,015,125
-----------
AUTO COMPONENTS - 0.4%
Gentex Corp.(b) 230,275 3,272,208
-----------
AUTOMOBILES - 0.4%
Winnebago Industries, Inc.(b) 108,625 3,408,653
-----------
BUILDING PRODUCTS - 1.2%
Griffon Corp.(b)(c) 288,400 6,884,108
Lennox International, Inc. 104,600 2,395,340
-----------
9,279,448
-----------
CAPITAL MARKETS - 0.3%
Stifel Financial Corp.(b)(c) 76,975 2,443,187
-----------
CHEMICALS - 3.3%
Cytec Industries, Inc. 129,550 7,201,684
FMC Corp. 72,825 4,665,898
MacDermid, Inc. 145,275 4,738,871
Minerals Technologies, Inc.(b) 74,975 4,003,665
Spartech Corp.(b) 211,225 5,654,493
-----------
26,264,611
-----------
COMMERCIAL BANKS - 10.7%
Alabama National Bancorp(b) 88,525 6,041,831
Capital Corporation of the West(b) 68,825 2,134,952
Centerstate Banks of Florida, Inc.(b) 179,875 3,615,488
Community Bancorp(b)(c) 108,700 3,316,437
CVB Financial Corp.(b) 273,411 4,038,280
East West Bancorp, Inc.(b) 181,825 7,202,088
First Charter Corp. 192,800 4,638,768
First Midwest Bancorp, Inc.(b) 195,525 7,408,442
First State Bancorporation(b) 217,002 5,635,542
IBERIABANK Corp.(b) 96,869 5,909,009
Independent Bank Corp.(b) 120,671 2,929,898
Midwest Banc Holdings, Inc.(b) 103,550 2,528,691
Pennsylvania Commerce Bancorp, Inc.(b)(c) 95,525 2,507,531
PrivateBankcorp, Inc.(b) 123,325 5,638,419
Seacoast Banking Corp. of Florida(b) 156,525 4,727,055
Signature Bank(b)(c) 200,800 6,210,744
Sterling Bancshares, Inc. 180,900 3,663,225
Texas Regional Bancshares, Inc., Class A(b) 112,117 4,310,899
United Community Banks, Inc.(b) 105,100 3,158,255
-----------
85,615,554
-----------
COMMERCIAL SERVICES & SUPPLIES - 3.8%
Adesa, Inc. 92,500 2,137,675
American Ecology Corp.(b) 163,450 3,226,503
McGrath Rentcorp.(b) 271,200 6,942,720
Navigant Consulting, Inc.(b)(c) 164,700 3,303,882
Rollins, Inc.(b) 371,475 7,841,837
Standard Parking Corp.(c) 32,775 1,028,479
Waste Connections, Inc.(b)(c) 158,625 6,013,474
-----------
30,494,570
-----------
23
SHARES VALUE (+)
- --------------------------------------------------------------------
COMMON STOCKS - CONTINUED
COMMUNICATIONS EQUIPMENT - 3.9%
ADTRAN, Inc. 342,375 $ 8,162,220
Anaren, Inc.(b)(c) 149,800 3,156,286
CommScope, Inc.(b)(c) 323,375 10,626,103
Comtech Telecommunications Corp.(b)(c) 131,925 4,416,849
Stratex Networks, Inc.(c) 403,594 1,791,957
Tekelec(b)(c) 203,375 2,635,740
-----------
30,789,155
-----------
COMPUTERS & PERIPHERALS - 1.7%
Electronics for Imaging, Inc.(b)(c) 245,300 5,612,464
Hutchinson Technology, Inc.(b)(c) 94,075 1,978,397
Imation Corp.(b) 99,850 4,008,978
Komag, Inc.(b)(c) 64,775 2,070,209
-----------
13,670,048
-----------
CONSTRUCTION & ENGINEERING - 1.8%
Insituform Technologies, Inc., Class A(b)(c) 303,000 7,356,840
Michael Baker Corp.(b)(c) 116,175 2,365,323
Washington Group International, Inc.(b)(c) 75,050 4,417,443
-----------
14,139,606
-----------
CONSTRUCTION MATERIALS - 0.9%
Eagle Materials, Inc.(b) 57,500 1,936,600
Texas Industries, Inc.(b) 99,425 5,176,065
-----------
7,112,665
-----------
CONSUMER FINANCE - 3.2%
Advanta Corp., Class B(b) 255,280 9,419,832
Dollar Financial Corp.(c) 278,975 6,087,235
First Cash Financial Services, Inc.(b)(c) 298,650 6,149,203
United PanAm Financial Corp.(c) 227,875 3,527,505
-----------
25,183,775
-----------
CONTAINERS & PACKAGING - 0.7%
Rock-Tenn Co., Class A(b) 296,250 5,865,750
-----------
DIVERSIFIED CONSUMER SERVICES - 0.8%
Regis Corp.(b) 59,200 2,122,320
Vertrue, Inc.(b)(c) 113,500 4,462,820
-----------
6,585,140
-----------
DIVERSIFIED FINANCIAL SERVICES - 0.2%
Medallion Financial Corp.(b) 125,500 1,384,265
-----------
DIVERSIFIED TELECOMMUNICATIONS SERVICES - 0.9%
Commonwealth Telephone Enterprises, Inc.(b) 69,925 2,883,008
Iowa Telecommunications Services, Inc.(b) 233,000 4,611,070
-----------
7,494,078
-----------
ELECTRIC UTILITIES - 1.0%
ALLETE, Inc.(b) 47,958 2,083,775
ITC Holdings Corp.(b) 76,975 2,401,620
Portland General Electric Co.(b) 146,425 3,574,234
-----------
8,059,629
-----------
24
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES SMALL CAP VALUE FUND - CONTINUED
SHARES VALUE (+)
- ----------------------------------------------------------------
COMMON STOCKS - CONTINUED
ELECTRICAL EQUIPMENT - 2.5%
General Cable Corp.(b)(c) 234,125 $ 8,945,916
II-VI, Inc.(b)(c) 294,500 7,338,940
Lamson & Sessions Co. (The)(b)(c) 162,125 3,861,818
-----------
20,146,674
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.8%
Anixter International, Inc.(b) 136,975 7,734,978
Daktronics, Inc.(b) 82,775 1,712,615
Excel Technology, Inc.(b)(c) 133,550 3,951,745
Keithley Instruments, Inc. 251,875 3,211,406
Rofin-Sinar Technologies, Inc.(b)(c) 90,825 5,519,435
-----------
22,130,179
-----------
ENERGY EQUIPMENT & SERVICES - 0.9%
FMC Technologies, Inc.(c) 76,925 4,130,872
Universal Compression Holdings, Inc.(b)(c) 63,275 3,382,049
-----------
7,512,921
-----------
FOOD & STAPLES RETAILING - 1.2%
Casey's General Stores, Inc. 168,350 3,749,154
Smart & Final, Inc.(b)(c) 334,625 5,712,049
-----------
9,461,203
-----------
FOOD PRODUCTS - 1.0%
J & J Snack Foods Corp.(b) 117,607 3,657,578
Ralcorp Holdings, Inc.(c) 91,075 4,392,547
-----------
8,050,125
-----------
GAS UTILITIES - 2.1%
ONEOK, Inc. 95,725 3,617,448
UGI Corp.(b) 549,500 13,435,275
-----------
17,052,723
-----------
HEALTHCARE EQUIPMENT & SUPPLIES - 2.3%
Arrow International, Inc.(b) 156,175 4,967,927
Intermagnetics General Corp.(b)(c) 217,912 5,894,519
Symmetry Medical, Inc.(b)(c) 170,925 2,579,258
West Pharmaceutical Services, Inc. 118,125 4,638,769
-----------
18,080,473
-----------
HEALTHCARE PROVIDERS & SERVICES - 1.0%
Healthspring, Inc.(c) 223,425 4,300,931
Option Care, Inc.(b) 248,125 3,322,394
-----------
7,623,325
-----------
HOTELS, RESTAURANTS & LEISURE - 2.6%
Bob Evans Farms, Inc.(b) 196,175 5,940,179
CEC Entertainment, Inc.(c) 248,275 7,823,145
Morton's Restaurant Group, Inc.(b)(c) 224,075 3,452,996
Trump Entertainment Resorts, Inc.(b)(c) 210,650 3,572,624
-----------
20,788,944
-----------
HOUSEHOLD DURABLES - 0.4%
Sealy Corp. 272,025 3,552,647
-----------
25
SHARES VALUE (+)
- --------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
INSURANCE - 6.4%
American Equity Investment Life Holding Co.(b) 473,050 $ 5,804,323
AmerUs Group Co. 60,525 4,116,305
Delphi Financial Group, Inc.(b) 219,512 8,754,139
Midland Co. (The)(b) 81,718 3,540,024
National Financial Partners Corp.(b) 188,575 7,737,232
Navigators Group, Inc.(b)(c) 121,325 5,824,813
Protective Life Corp. 86,350 3,950,513
RLI Corp.(b) 126,325 6,416,047
United Fire & Casualty Co.(b) 160,075 5,010,347
-----------
51,153,743
-----------
INTERNET & CATALOG RETAIL - 0.0%
FTD Group, Inc.(b)(c) 13,400 207,030
-----------
INTERNET SOFTWARE & SERVICES - 0.5%
Digitas, Inc.(b)(c) 421,900 4,058,678
-----------
IT SERVICES - 1.8%
Perot Systems Corp., Class A(b)(c) 411,625 5,676,309
Wright Express Corp.(c) 375,900 9,044,154
-----------
14,720,463
-----------
LIFE SCIENCES TOOLS & SERVICES - 0.3%
Charles River Laboratories International, Inc.(b)(c) 46,450 2,016,395
-----------
MACHINERY - 5.4%
Actuant Corp., Class A(b) 138,100 6,918,810
Albany International Corp., Class A(b) 207,175 6,592,308
Barnes Group, Inc.(b) 354,475 6,224,581
Commercial Vehicle Group, Inc.(b)(c) 190,475 3,668,549
ESCO Technologies, Inc.(b)(c) 34,350 1,581,474
Harsco Corp. 77,950 6,052,817
IDEX Corp.(b) 62,500 2,690,625
Nordson Corp.(b) 72,175 2,876,896
RBC Bearings, Inc.(b)(c) 264,483 6,387,264
-----------
42,993,324
-----------
MARINE - 0.5%
American Commercial Lines, Inc.(b)(c) 66,250 3,938,562
-----------
MEDIA - 4.1%
Alloy, Inc.(b)(c) 348,650 4,117,556
Harte-Hanks, Inc. 248,025 6,535,459
John Wiley & Sons, Inc., Class A 281,900 10,151,219
Journal Communications, Inc.(b) 357,550 4,029,589
Live Nation, Inc.(b)(c) 394,650 8,058,753
-----------
32,892,576
-----------
METALS & MINING - 1.2%
Chaparral Steel Co.(c) 146,075 4,975,314
Reliance Steel & Aluminum Co. 144,625 4,648,248
-----------
9,623,562
-----------
MULTI-UTILITIES & UNREGULATED POWER - 1.0%
NorthWestern Corp.(b) 232,350 8,127,603
-----------
26
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES SMALL CAP VALUE FUND - CONTINUED
SHARES VALUE (+)
- -----------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
MULTILINE RETAIL - 0.7%
Big Lots, Inc.(b)(c) 101,825 $ 2,017,153
Dollar Tree Stores, Inc.(b)(c) 122,275 3,785,634
-----------
5,802,787
-----------
OIL, GAS & CONSUMABLE FUELS - 3.1%
Alpha Natural Resources, Inc.(b)(c) 290,850 4,583,796
ATP Oil & Gas Corp.(b)(c) 102,100 3,771,574
Denbury Resources, Inc.(c) 209,300 6,048,770
Helix Energy Solutions Group, Inc.(b)(c) 183,497 6,128,800
Mariner Energy, Inc.(b)(c) 206,425 3,792,027
-----------
24,324,967
-----------
PHARMACEUTICALS - 0.3%
Perrigo Co. 129,275 2,193,797
-----------
REAL ESTATE - 6.7%
BioMed Realty Trust, Inc. REIT 245,575 7,450,746
CBL & Associates Properties, Inc. REIT(b) 139,800 5,859,018
Corporate Office Properties Trust REIT(b) 174,975 7,831,881
First Potomac Realty Trust REIT(b) 246,850 7,459,807
Kite Realty Group Trust REIT(b) 360,775 6,147,606
LaSalle Hotel Properties REIT(b) 172,525 7,477,233
Newcastle Investment Corp. REIT(b) 169,325 4,641,198
Potlatch Corp.(b) 84,586 3,138,141
Windrose Medical Properties Trust REIT(b) 191,950 3,393,676
-----------
53,399,306
-----------
ROAD & RAIL - 1.9%
Genesee & Wyoming, Inc., Class A(b)(c) 137,762 3,198,834
Laidlaw International, Inc. 248,875 6,801,754
Landstar System, Inc.(b) 65,150 2,781,905
Marten Transport Ltd.(b)(c) 117,950 2,015,765
-----------
14,798,258
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.2%
Diodes, Inc.(b)(c) 101,175 4,367,725
DSP Group, Inc.(c) 177,850 4,063,872
Entegris, Inc.(b)(c) 599,225 6,537,545
Fairchild Semiconductor International, Inc., Class A(c) 318,275 5,951,742
Integrated Device Technology, Inc.(c) 288,500 4,633,310
-----------
25,554,194
-----------
SOFTWARE - 1.9%
Hyperion Solutions Corp.(c) 206,187 7,109,328
MapInfo Corp.(b)(c) 257,600 3,305,008
Progress Software Corp.(c) 102,750 2,671,500
Quest Software, Inc.(b)(c) 158,300 2,260,524
-----------
15,346,360
-----------
SPECIALTY RETAIL - 2.3%
Jo-Ann Stores, Inc.(b)(c) 271,925 4,546,586
Pier 1 Imports, Inc.(b) 222,150 1,648,353
Rent-A-Center, Inc.(c) 254,525 7,455,037
Sonic Automotive, Inc.(b) 218,775 5,051,515
-----------
18,701,491
-----------
27
SHARES VALUE (+)
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
TEXTILES APPAREL & LUXURY GOODS - 1.6%
Fossil, Inc.(b)(c) 397,500 $ 8,562,150
Hanesbrands, Inc.(b)(c) 187,425 4,218,937
--------------
12,781,087
--------------
TRADING COMPANIES & DISTRIBUTORS - 0.4%
Electro Rent Corp.(b)(c) 168,532 2,866,729
--------------
WATER UTILITIES - 0.5%
American States Water Co.(b) 98,625 3,772,406
--------------
TOTAL COMMON STOCKS
(Identified Cost $640,455,511) 772,749,999
--------------
EXCHANGE TRADED FUNDS - 1.0%
iShares Russell 2000 Value Index Fund(b) 109,650 8,086,688
--------------
TOTAL EXCHANGE TRADED FUNDS
(Identified Cost $7,788,841) 8,086,688
--------------
PRINCIPAL AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 29.4%
COMMERCIAL PAPER - 3.7%
New Center Asset Trust, 3.75%, 10/02/2006(d) $ 29,569,000 29,565,920
--------------
SHARES
- -----------------------------------------------------------------------------------------------------------------------
State Street Securities Lending Quality Trust(e) 205,404,052 205,404,052
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $234,969,972) 234,969,972
--------------
TOTAL INVESTMENTS - 127.2%
(Identified Cost $883,214,324)(a) 1,015,806,659
Other assets less liabilities--(27.2)% (217,035,371)
--------------
TOTAL NET ASSETS - 100.0% $ 798,771,288
--------------
+ See Note 2a of Notes to Financial Statements.
(a)Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on investments based on cost of
$883,475,427 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 $ 145,491,816
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax
cost over value (13,160,584)
--------------
Net unrealized appreciation $ 132,331,232
--------------
(b)All or a portion of this security was on loan to brokers at September 30,
2006.
(c)Non-income producing security.
(d)Interest rate represents annualized yield at time of purchase; not a coupon
rate.
(e)Represents investment of security lending collateral.
REITReal Estate Investment Trust.
28
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES SMALL CAP VALUE FUND - CONTINUED
HOLDINGS AT SEPTEMBER 30, 2006 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Commercial Banks 10.7% Consumer Finance 3.2%
Real Estate 6.7 Oil, Gas & Consumable Fuels 3.1
Insurance 6.4 Electronic Equipment & Instruments 2.8
Machinery 5.4 Hotels, Restaurants & Leisure 2.6
Media 4.1 Electrical Equipment 2.5
Communications Equipment 3.9 Specialty Retail 2.3
Commercial Services & Supplies 3.8 Healthcare Equipment & Supplies 2.3
Chemicals 3.3 Gas Utilities 2.1
Semiconductors & Semiconductor Equipment 3.2 Other, less than 2% each 29.4
See accompanying notes to financial statements.
29
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES TAX-MANAGED EQUITY FUND
SHARES VALUE (+)
- -----------------------------------------------------------------
COMMON STOCKS - 95.9% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 4.9%
Honeywell International, Inc. 4,025 $164,623
United Technologies Corp. 4,450 281,907
---------
446,530
---------
BEVERAGES - 3.0%
Molson Coors Brewing Co., Class B(b) 2,050 141,245
PepsiCo, Inc. 2,050 133,783
---------
275,028
---------
BIOTECHNOLOGY - 2.6%
Amgen, Inc.(c) 3,300 236,049
---------
CAPITAL MARKETS - 7.5%
Bear Stearns Cos., Inc.(b) 1,100 154,110
Franklin Resources, Inc. 2,125 224,719
Goldman Sachs Group, Inc. 1,800 304,506
---------
683,335
---------
CHEMICALS - 5.1%
Ecolab, Inc.(b) 5,300 226,946
Praxair, Inc.(b) 4,025 238,119
---------
465,065
---------
COMMERCIAL BANKS - 1.6%
Zions Bancorporation 1,775 141,663
---------
COMMUNICATIONS EQUIPMENT - 9.1%
Cisco Systems, Inc.(c) 13,675 314,525
Corning, Inc.(c) 6,725 164,157
Harris Corp. 5,250 233,572
QUALCOMM, Inc. 3,050 110,868
---------
823,122
---------
COMPUTERS & PERIPHERALS - 3.0%
Hewlett-Packard Co. 7,500 275,175
---------
DIVERSIFIED FINANCIAL SERVICES - 4.3%
Bank of America Corp. 5,200 278,564
Citigroup, Inc. 2,225 110,516
---------
389,080
---------
DIVERSIFIED TELECOMMUNICATIONS SERVICES - 2.2%
AT&T, Inc.(b) 6,200 201,872
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.8%
Flextronics International, Ltd.(c) 12,750 161,160
---------
ENERGY EQUIPMENT & SERVICES - 1.9%
GlobalSantaFe Corp.(b) 3,500 174,965
---------
FOOD & STAPLES RETAILING - 1.5%
CVS Corp. 4,200 134,904
---------
HEALTHCARE EQUIPMENT & SUPPLIES - 3.5%
Medtronic, Inc. 4,225 196,209
Zimmer Holdings, Inc.(b)(c) 1,775 119,812
---------
316,021
---------
30
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES TAX-MANAGED EQUITY FUND - CONTINUED
SHARES VALUE (+)
- --------------------------------------------------------------------
COMMON STOCKS - CONTINUED
HEALTHCARE PROVIDERS & SERVICES - 4.8%
Caremark Rx, Inc.(b) 3,075 $ 174,260
WellPoint, Inc.(c) 3,350 258,118
----------
432,378
----------
HOTELS, RESTAURANTS & LEISURE - 2.2%
Marriott International, Inc., Class A 5,125 198,030
----------
INSURANCE - 5.6%
AFLAC, Inc. 3,575 163,592
Allstate Corp. 2,600 163,098
Everest Re Group Ltd. 1,825 177,992
----------
504,682
----------
IT SERVICES - 0.9%
First Data Corp.(b) 2,025 85,050
----------
MACHINERY - 5.0%
Danaher Corp.(b) 3,800 260,946
Dover Corp. 4,050 192,132
----------
453,078
----------
MEDIA - 3.1%
DIRECTV Group, Inc. (The)(b)(c) 14,525 285,852
----------
MULTILINE RETAIL - 1.7%
Federated Department Stores, Inc.(b) 3,550 153,396
----------
OIL, GAS & CONSUMABLE FUELS - 7.7%
ConocoPhillips 3,200 190,496
Devon Energy Corp. 4,000 252,600
ExxonMobil Corp. 3,800 254,980
----------
698,076
----------
PERSONAL PRODUCTS - 1.6%
Alberto-Culver Co. 2,850 144,182
----------
PHARMACEUTICALS - 3.6%
Abbott Laboratories 4,675 227,018
Perrigo Co.(b) 5,950 100,971
----------
327,989
----------
ROAD & RAIL - 2.3%
Burlington Northern Santa Fe Corp.(b) 2,900 212,976
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.4%
DSP Group, Inc.(c) 3,675 83,974
Texas Instruments, Inc. 6,725 223,606
----------
307,580
----------
SOFTWARE - 2.0%
Microsoft Corp. 6,650 181,744
----------
TOTAL COMMON STOCKS
(Identified Cost $6,933,410) 8,708,982
----------
31
SHARES VALUE (+)
- ---------------------------------------------------------------------------------------------------------------------------------
WARRANTS - 0.1%
AEROSPACE & DEFENSE - 0.1%
Raytheon Co.(c) 533 $ 7,606
------------
TOTAL WARRANTS
(Identified Cost $2,398) 7,606
------------
PRINCIPAL AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 29.4%
Tri-Party Repurchase Agreement with Fixed Income
Clearing Corporation, dated 9/29/06 at 3.450% to be
repurchased at $402,116 on 10/02/06 collateralized by
$415,000 U.S. Treasury Note, 3.875% due 5/15/2009
with a value of $419,459, including accrued interest
(Note 2g of Notes to Financial Statements) $ 402,000 402,000
------------
SHARES
- ---------------------------------------------------------------------------------------------------------------------------------
State Street Securities Lending Quality Trust(d) 2,266,006 2,266,006
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $2,668,006) 2,668,006
TOTAL INVESTMENTS - 125.4%
(Identified Cost $9,603,814)(a) 11,384,594
Other assets less liabilities--(25.4)% (2,308,946)
------------
TOTAL NET ASSETS - 100.0% $ 9,075,648
------------
+See Note 2a of Notes to Financial Statements.
(a)Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on investments based on cost of $9,609,922 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 $ 1,817,370
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (42,698)
------------
Net unrealized appreciation $ 1,774,672
------------
(b)All or a portion of this security was on loan to brokers at September 30,
2006.
(c)Non-income producing security.
(d)Represents investment of securities lending collateral.
HOLDINGS AT SEPTEMBER 30, 2006 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Communications Equipment 9.1% Semiconductors & Semiconductor Equipment 3.4%
Oil, Gas & Consumable Fuels 7.7 Media 3.1
Capital Markets 7.5 Computers & Peripherals 3.0
Insurance 5.6 Beverages 3.0
Chemicals 5.1 Biotechnology 2.6
Aerospace & Defense 5.0 Road & Rail 2.3
Machinery 5.0 Diversified Telecommunications Services 2.2
Healthcare Providers & Services 4.8 Hotels, Restaurants & Leisure 2.2
Diversified Financial Services 4.3 Software 2.0
Pharmaceuticals 3.6 Other, less than 2% each 11.0
Healthcare Equipment & Supplies 3.5
See accompanying notes to financial statements.
32
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES VALUE FUND
SHARES VALUE (+)
- ------------------------------------------------------------------
COMMON STOCKS - 95.0% OF TOTAL NET ASSETS
AEROSPACE & DEFENSE - 2.7%
Northrop Grumman Corp. 18,475 $1,257,594
United Technologies Corp. 11,000 696,850
----------
1,954,444
----------
BEVERAGES - 1.5%
Molson Coors Brewing Co., Class B 15,125 1,042,113
----------
CAPITAL MARKETS - 8.5%
Ameriprise Financial, Inc. 16,435 770,802
Lehman Brothers Holdings, Inc. 17,550 1,296,243
Mellon Financial Corp. 29,625 1,158,337
Merrill Lynch & Co., Inc. 16,450 1,286,719
Morgan Stanley 21,800 1,589,438
----------
6,101,539
----------
CHEMICALS - 3.0%
E.I. du Pont de Nemours & Co. 22,000 942,480
Praxair, Inc. 20,625 1,220,175
----------
2,162,655
----------
COMMERCIAL BANKS - 3.3%
U.S. Bancorp(b) 41,550 1,380,291
Wells Fargo & Co. 26,475 957,865
----------
2,338,156
----------
COMMERCIAL SERVICES & SUPPLIES - 0.9%
ARAMARK Corp., Class B(b) 19,075 626,805
----------
COMMUNICATIONS EQUIPMENT - 2.7%
Avaya, Inc.(c) 63,775 729,586
Motorola, Inc. 47,725 1,193,125
----------
1,922,711
----------
COMPUTERS & PERIPHERALS - 1.9%
Hewlett-Packard Co. 37,025 1,358,447
----------
CONSTRUCTION & ENGINEERING - 1.7%
Chicago Bridge & Iron Co. NV 27,125 652,627
Foster Wheeler Ltd.(c) 15,300 590,427
----------
1,243,054
----------
CONSUMER FINANCE - 1.1%
American Express Co. 14,400 807,552
----------
DIVERSIFIED FINANCIAL SERVICES - 9.9%
Bank of America Corp. 36,275 1,943,252
CIT Group, Inc. 24,875 1,209,671
Citigroup, Inc. 37,725 1,873,801
JPMorgan Chase & Co. 42,975 2,018,106
----------
7,044,830
----------
DIVERSIFIED TELECOMMUNICATIONS SERVICES - 5.4%
AT&T, Inc. 37,625 1,225,070
BellSouth Corp. 44,050 1,883,137
Embarq Corp.(b) 16,050 776,339
----------
3,884,546
----------
33
SHARES VALUE (+)
- --------------------------------------------------------------
COMMON STOCKS - CONTINUED
ELECTRIC UTILITIES - 3.4%
Entergy Corp. 18,200 $1,423,786
Exelon Corp. 17,075 1,033,720
----------
2,457,506
----------
ELECTRICAL EQUIPMENT - 1.0%
ABB Ltd. ADR 52,825 696,234
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.0%
Flextronics International, Ltd.(c) 57,975 732,804
----------
ENERGY EQUIPMENT & SERVICES - 3.3%
Halliburton Co. 39,950 1,136,578
Schlumberger Ltd. 19,375 1,201,831
----------
2,338,409
----------
HEALTHCARE EQUIPMENT & SUPPLIES - 2.2%
Baxter International, Inc. 20,500 931,930
Beckman Coulter, Inc.(b) 11,400 656,184
----------
1,588,114
----------
HOTELS, RESTAURANTS & LEISURE - 3.1%
McDonald's Corp. 37,400 1,463,088
OSI Restaurant Partners, Inc.(b) 23,750 753,112
----------
2,216,200
----------
INDEPENDENT POWER PRODUCER & ENERGY - 1.2%
NRG Energy, Inc.(b)(c) 19,525 884,483
----------
INDUSTRIAL CONGLOMERATES - 1.6%
Tyco International Ltd. 41,325 1,156,687
----------
INSURANCE - 7.5%
Allstate Corp. 29,225 1,833,284
American International Group, Inc. 22,400 1,484,224
Berkshire Hathaway, Inc., Class B(c) 295 936,330
Prudential Financial, Inc. 14,700 1,120,875
----------
5,374,713
----------
MEDIA - 7.9%
Comcast Corp., Class A(b)(c) 31,075 1,145,114
DIRECTV Group, Inc. (The)(b)(c) 60,325 1,187,196
EchoStar Communications Corp., Class A(c) 21,100 690,814
News Corp., Class A 56,925 1,118,576
Time Warner, Inc.(b) 82,205 1,498,597
----------
5,640,297
----------
MULTILINE RETAIL - 1.5%
Federated Department Stores, Inc. 23,800 1,028,398
----------
OIL, GAS & CONSUMABLE FUELS - 6.5%
ExxonMobil Corp. 44,125 2,960,787
Occidental Petroleum Corp. 19,450 935,739
XTO Energy, Inc. 18,350 773,086
----------
4,669,612
----------
PHARMACEUTICALS - 6.3%
Abbott Laboratories 22,575 1,096,242
Bristol-Myers Squibb Co. 30,350 756,322
34
PORTFOLIO OF INVESTMENTS - AS OF SEPTEMBER 30, 2006
LOOMIS SAYLES VALUE FUND - CONTINUED
SHARES VALUE (+)
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
PHARMACEUTICALS - CONTINUED
Johnson & Johnson 21,025 $ 1,365,364
Pfizer, Inc. 46,090 1,307,112
------------
4,525,040
------------
SOFTWARE - 1.4%
Microsoft Corp. 35,225 962,699
------------
SPECIALTY RETAIL - 2.9%
Gap, Inc. (The) 46,975 890,176
Office Depot, Inc.(c) 30,325 1,203,903
------------
2,094,079
------------
TOBACCO - 1.6%
Altria Group, Inc. 15,300 1,171,215
------------
TOTAL COMMON STOCKS
(Identified Cost $56,909,365) 68,023,342
------------
PRINCIPAL AMOUNT
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 18.0%
COMMERCIAL PAPER - 8.5%
New Center Asset Trust, 3.75%, 10/02/06(d) $ 6,096,000 6,095,365
------------
SHARES
- --------------------------------------------------------------------------------
State Street Securities Lending Quality
Trust(e) 6,824,407 6,824,407
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $12,919,772) 12,919,772
------------
TOTAL INVESTMENTS - 113.0%
(Identified Cost $69,829,137)(a) 80,943,114
Other assets less liabilities--(13.0)% (9,329,737)
------------
TOTAL NET ASSETS - 100.0% $ 71,613,377
------------
+ See Note 2a of Notes to Financial
Statements.
(a)Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $69,864,600 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 $ 11,382,199
Aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over value (303,685)
------------
Net unrealized appreciation $ 11,078,514
------------
(b)All or a portion of this security was on loan to brokers at September 30,
2006.
(c)Non-income producing security.
(d)Interest rate represents annualized yield at time of purchase; not a coupon
rate.
(e)Represents investment of security 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 ADR's are significantly influenced by trading on
exchanges not located in the United States.
35
HOLDINGS AT SEPTEMBER 30, 2006 AS A PERCENTAGE OF NET ASSETS (UNAUDITED)
Diversified Financial Services 9.9% Commercial Banks 3.3%
Capital Markets 8.5 Hotels, Restaurants & Leisure 3.1
Media 7.9 Chemicals 3.0
Insurance 7.5 Specialty Retail 2.9
Oil, Gas & Consumable Fuels 6.5 Aerospace & Defense 2.7
Pharmaceuticals 6.3 Communications Equipment 2.7
Diversified Telecommunication Services 5.4 Healthcare Equipment & Supplies 2.2
Electric Utilities 3.4 Other, less than 2% each 16.4
Energy Equipment & Services 3.3
See accompanying notes to financial statements.
36
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2006
AGGRESSIVE GROWTH SMALL CAP GROWTH
FUND FUND
- -------------------------------------------------------------------------------------------------
ASSETS
Investments at cost $ 50,560,427 $ 27,328,067
Net unrealized appreciation 4,959,146 2,281,607
---------------- ----------------
Investments at value 55,519,573 29,609,674
Cash 898 194
Receivable for Fund shares sold 38,181 656
Receivable for securities sold 1,206,511 43,366
Dividends and interest receivable 11,316 170
Tax reclaims receivable -- --
Receivable from investment adviser (Note 4) 5,250 4,919
Securities lending income receivable 638 1,188
---------------- ----------------
TOTAL ASSETS 56,782,367 29,660,167
---------------- ----------------
LIABILITIES
Collateral on securities loaned, at value (Note 2) 11,173,322 5,968,124
Payable for securities purchased 1,220,267 211,311
Payable for Fund shares redeemed 161,748 7,301
Management fees payable (Note 4) 27,005 14,361
Administrative fees payable (Note 4) 2,063 994
Deferred Trustees' fees (Note 4) 25,310 23,292
Service and distribution fees payable (Note 4) 370 41
Other accounts payable and accrued expenses 37,345 39,116
---------------- ----------------
TOTAL LIABILITIES 12,647,430 6,264,540
---------------- ----------------
NET ASSETS $ 44,134,937 $ 23,395,627
---------------- ----------------
Net Assets consist of:
Paid-in capital $ 134,337,341 $ 223,326,816
Undistributed (accumulated) net investment income (loss) (25,310) (23,291)
Accumulated net realized gain (loss) on investments (95,136,240) (202,189,505)
Net unrealized appreciation on investments 4,959,146 2,281,607
---------------- ----------------
NET ASSETS $ 44,134,937 $ 23,395,627
---------------- ----------------
NET ASSET VALUE AND OFFERING PRICE
INSTITUTIONAL CLASS
Net assets $ 17,467,018 $ 20,414,154
---------------- ----------------
Shares of beneficial interest 867,640 1,700,673
---------------- ----------------
Net asset value, offering and redemption price per share $ 20.13 $ 12.00
---------------- ----------------
RETAIL CLASS
Net assets $ 26,667,919 $ 2,981,473
---------------- ----------------
Shares of beneficial interest 1,354,155 254,594
---------------- ----------------
Net asset value, offering and redemption price per share $ 19.69 $ 11.71
---------------- ----------------
ADMIN CLASS
Net assets $ -- $ --
---------------- ----------------
Shares of beneficial interest -- --
---------------- ----------------
Net asset value, offering and redemption price per share $ -- $ --
---------------- ----------------
Value of securities on loan (Note 2) $ 10,834,515 $ 5,767,493
---------------- ----------------
See accompanying notes to financial statements.
37
SMALL CAP TAX-MANAGED
VALUE FUND EQUITY FUND VALUE FUND
---------------------------------------------------
$ 883,214,324 $ 9,603,814 $ 69,829,137
132,592,335 1,780,780 11,113,977
---------------- ---------------- ----------------
1,015,806,659 11,384,594 80,943,114
600 766 1,018
2,001,103 -- 260,042
6,130,221 -- 373,568
1,002,873 4,786 53,302
-- -- 78
-- 6,221 1,459
16,612 53 130
---------------------------------------------------
1,024,958,068 11,396,420 81,632,711
---------------------------------------------------
205,404,052 2,266,006 6,824,407
4,032,580 -- 3,101,721
15,933,125 -- --
589,875 3,666 25,548
38,336 417 2,845
77,454 21,365 24,119
6,014 -- 6
105,344 29,318 40,688
---------------------------------------------------
226,186,780 2,320,772 10,019,334
---------------------------------------------------
$ 798,771,288 $ 9,075,648 $ 71,613,377
---------------------------------------------------
$ 580,242,431 $ 11,226,449 $ 56,466,877
1,659,056 53,966 359,624
84,277,466 (3,985,547) 3,672,899
132,592,335 1,780,780 11,113,977
---------------------------------------------------
$ 798,771,288 $ 9,075,648 $ 71,613,377
---------------------------------------------------
$ 442,713,613 $ 9,075,648 $ 71,146,891
---------------------------------------------------
15,990,005 891,655 3,380,028
---------------------------------------------------
$ 27.69 $ 10.18 $ 21.05
---------------------------------------------------
$ 291,690,361 $ -- $ 466,486
---------------------------------------------------
10,620,473 -- 22,169
---------------------------------------------------
$ 27.46 $ -- $ 21.04
---------------------------------------------------
$ 64,367,314 $ -- $ --
---------------------------------------------------
2,371,799 -- --
---------------------------------------------------
$ 27.14 $ -- $ --
---------------------------------------------------
$ 198,439,289 $ 2,222,079 $ 6,672,959
---------------------------------------------------
See accompanying notes to financial statements.
38
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2006
AGGRESSIVE SMALL CAP
GROWTH FUND GROWTH FUND
- ---------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 181,978 $ 30,359
Interest 37,996 27,918
Securities lending income (Note 2) 30,276 11,339
Less net foreign taxes withheld (209) --
-------------- --------------
250,041 69,616
-------------- --------------
EXPENSES
Management fees (Note 4) 360,159 168,944
Distribution fees--Retail Class (Note 4) 72,783 8,704
Service and distribution fees--Admin Class (Note 4) -- --
Trustees' fees and expenses (Note 4) 16,874 15,269
Administrative fees (Note 4) 22,806 7,008
Custodian fees and expenses 15,461 15,204
Transfer agent fees and expenses--Institutional Class 12,175 22,163
Transfer agent fees and expenses--Retail Class 61,145 13,703
Transfer agent fees and expenses--Admin Class -- --
Audit and tax services fees 35,967 34,377
Registration fees 34,645 28,248
Shareholder reporting expenses 10,580 8,698
Legal fees 2,458 724
Expense recapture--Institutional Class (Note 4) -- --
Miscellaneous expenses 8,333 6,739
-------------- --------------
Total expenses 653,386 329,781
Less reimbursement/waiver (Note 4) (100,433) (95,818)
-------------- --------------
Net expenses 552,953 233,963
-------------- --------------
Net investment income (loss) (302,912) (164,347)
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
REALIZED GAIN ON:
Investments--net 5,806,076 2,479,317
-------------- --------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments--net (3,169,570) (935,346)
-------------- --------------
Net realized and unrealized gain on investments 2,636,506 1,543,971
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,333,594 $ 1,379,624
-------------- --------------
See accompanying notes to financial statements.
39
SMALL CAP TAX-MANAGED
VALUE FUND EQUITY FUND VALUE FUND
-----------------------------------------------
$ 9,061,893 $ 123,055 $ 813,238
1,198,181 3,020 67,244
193,470 182 2,227
(740) -- (1,229)
-----------------------------------------------
10,452,804 126,257 881,480
-----------------------------------------------
5,772,364 46,295 222,326
678,990 -- 65
331,716 -- --
56,860 14,492 16,419
404,043 4,625 21,947
59,597 12,831 17,258
76,262 2,606 23,920
259,217 -- 1,964
71,463 -- --
30,922 30,662 33,025
77,107 27,892 42,688
90,488 5,384 16,058
40,078 535 2,203
97,106 -- --
39,504 6,214 7,962
-----------------------------------------------
8,085,717 151,536 405,835
(174,650) (91,352) (27,337)
-----------------------------------------------
7,911,067 60,184 378,498
-----------------------------------------------
2,541,737 66,073 502,982
-----------------------------------------------
94,104,228 210,739 4,648,831
-----------------------------------------------
(18,494,360) 657,313 2,810,437
-----------------------------------------------
75,609,868 868,052 7,459,268
-----------------------------------------------
$ 78,151,605 $ 934,125 $ 7,962,250
-----------------------------------------------
See accompanying notes to financial statements.
40
STATEMENTS OF CHANGES IN NET ASSETS
AGGRESSIVE GROWTH FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment loss $ (302,912) $ (372,012)
Net realized gain on investments 5,806,076 8,280,912
Net change in unrealized appreciation (depreciation) on investments (3,169,570) 2,760,613
------------------ ------------------
Increase in net assets resulting from operations 2,333,594 10,669,513
------------------ ------------------
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)
------------------ ------------------
DECREASE IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) (10,159,975) (8,782,602)
------------------ ------------------
REDEMPTION FEES
Institutional Class -- --
Retail Class -- --
------------------ ------------------
Total increase (decrease) in net assets (7,826,381) 1,388,133
NET ASSETS
Beginning of year 51,961,318 50,573,185
------------------ ------------------
End of year $ 44,134,937 $51,961,318
------------------ ------------------
UNDISTRIBUTED NET INVESTMENT INCOME/ACCUMULATED NET INVESTMENT LOSS $ (25,310) $ (14,661)
------------------ ------------------
SMALL CAP GROWTH FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
- -------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment loss $ (164,347) $ (209,903)
Net realized gain on investments 2,479,317 4,895,374
Net change in unrealized appreciation (depreciation) on investments (935,346) 483,981
------------------ ------------------
Increase in net assets resulting from operations 1,379,624 5,169,452
------------------ ------------------
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) 2,617,609 (16,249,525)
------------------ ------------------
REDEMPTION FEES
Institutional Class 18,107 1,091
Retail Class 3,369 344
------------------ ------------------
Total increase (decrease) in net assets 4,018,709 (11,078,638)
NET ASSETS
Beginning of year 19,376,918 30,455,556
------------------ ------------------
End of year $23,395,627 $ 19,376,918
------------------ ------------------
UNDISTRIBUTED NET INVESTMENT INCOME/ACCUMULATED NET INVESTMENT LOSS $ (23,291) $ (13,569)
------------------ ------------------
See accompanying notes to financial statements.
41
SMALL CAP VALUE FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 2,541,737 $ 2,280,117
Net realized gain on investments 94,104,228 58,138,015
Net change in unrealized appreciation (depreciation) on investments (18,494,360) 43,086,275
------------------ ------------------
Increase in net assets resulting from operations 78,151,605 103,504,407
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class (2,173,458) (330,114)
Retail Class (748,627) --
Admin Class (47,377) --
CAPITAL GAINS:
Institutional Class (36,009,634) (36,097,787)
Retail Class (21,502,778) (18,456,167)
Admin Class (6,186,131) (6,757,571)
------------------ ------------------
Total distributions (66,668,005) (61,641,639)
------------------ ------------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) 80,692,685 82,243,991
------------------ ------------------
REDEMPTION FEES
Institutional Class 17,840 5,541
Retail Class 11,357 3,209
Admin Class 2,753 956
------------------ ------------------
Total increase in net assets 92,208,235 124,116,465
NET ASSETS
Beginning of year 706,563,053 582,446,588
------------------ ------------------
End of year $798,771,288 $706,563,053
------------------ ------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ 1,659,056 $ 2,086,781
------------------ ------------------
TAX-MANAGED EQUITY FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
- -------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 66,073 $ 46,163
Net realized gain on investments 210,739 19,715
Net change in unrealized appreciation (depreciation) on investments 657,313 533,250
------------------ ------------------
Increase in net assets resulting from operations 934,125 599,128
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class (54,165) (23,811)
CAPITAL GAINS:
Institutional Class -- --
------------------ ------------------
Total distributions (54,165) (23,811)
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) (1,034,586) 3,452,918
------------------ ------------------
REDEMPTION FEES
Institutional Class -- --
------------------ ------------------
Total increase (decrease) in net assets (154,626) 4,028,235
NET ASSETS
Beginning of year 9,230,274 5,202,039
------------------ ------------------
End of year $ 9,075,648 $9,230,274
------------------ ------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ 53,966 $ 42,058
------------------ ------------------
See accompanying notes to financial statements.
42
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
VALUE FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
- -------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 502,982 $ 397,776
Net realized gain on investments 4,648,831 2,769,664
Net change in unrealized appreciation (depreciation) on investments 2,810,437 2,911,452
------------------ ------------------
Increase in net assets resulting from operations 7,962,250 6,078,892
------------------ ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME:
Institutional Class (530,299) (524,122)
Retail Class -- --
CAPITAL GAINS:
Institutional Class (1,548,378) --
Retail Class -- --
------------------ ------------------
Total distributions (2,078,677) (524,122)
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARES TRANSACTIONS (NOTE 8) 28,475,203 (1,863,227)
------------------ ------------------
REDEMPTION FEES
Institutional Class -- --
Retail Class -- --
------------------ ------------------
Total increase in net assets 34,358,776 3,691,543
NET ASSETS
Beginning of year 37,254,601 33,563,058
------------------ ------------------
End of year $71,613,377 $37,254,601
------------------ ------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ 359,624 $ 388,984
------------------ ------------------
See accompanying notes to financial statements.
43
THIS PAGE INTENTIONALLY LEFT BLANK
44
FINANCIAL HIGHLIGHTS
See accompanying notes to financial statements.
45
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------------- ----------------------------
Net asset Dividends Distributions
value, Net Net realized Total from from from net
beginning investment and unrealized investment net investment realized
of the period loss(c) gain (loss) operations income capital gains
- ---------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH FUND
INSTITUTIONAL CLASS
9/30/2006 $19.00 $(0.10) $ 1.23 $ 1.13 $ -- $ --
9/30/2005 15.50 (0.10) 3.78 3.68 (0.18) --
9/30/2004 13.69 (0.13) 1.94 1.81 -- --
9/30/2003 10.70 (0.10) 3.09 2.99 -- --
9/30/2002 13.56 (0.13) (2.73) (2.86) -- --
RETAIL CLASS
9/30/2006 $18.63 $(0.15) $ 1.21 $ 1.06 $ -- $ --
9/30/2005 15.20 (0.14) 3.70 3.56 (0.13) --
9/30/2004 13.46 (0.16) 1.90 1.74 -- --
9/30/2003 10.55 (0.13) 3.04 2.91 -- --
9/30/2002 13.41 (0.16) (2.70) (2.86) -- --
(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, if applicable, are not annualized.
(b) The adviser has agreed to waive/reimburse a portion of the Fund's expenses
during the period. Without this waiver/reimbursement the Fund's ratio of
operating expenses would have been higher.
(c) Per share net investment loss has been determined on the basis of the
weighted average number of shares outstanding during the period.
RATIOS TO AVERAGE NET ASSETS
- -------------- ----------------------------------
Net asset Net assets, Portfolio
value, Total end of Net Gross Net turnover
Total Redemption end of return the period expenses expenses investment loss rate
distributions fee the period %(a) (000's) %(b) % % %
- --------------------------------------------------------------------------------------------------
$ -- $-- $20.13 6.0 $17,467 1.00 1.12 (0.49) 211
(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
$ -- $-- $19.69 5.7 $26,668 1.25 1.52 (0.72) 211
(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
See accompanying notes to financial statements.
46
FINANCIAL HIGHLIGHTS - CONTINUED
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------------- ----------------------------
Net asset Net Dividends Distributions
value, investment Net realized Total from from from net
beginning income and unrealized investment net investment realized
of the period (loss)(c) gain (loss) operations income capital gains
- ---------------------------------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
INSTITUTIONAL CLASS
9/30/2006 $11.08 $(0.08) $ 0.99 $ 0.91 $ -- $ --
9/30/2005 8.96 (0.08) 2.20 2.12 -- --
9/30/2004 8.59 (0.09) 0.46 0.37 -- --
9/30/2003 6.35 (0.06) 2.30 2.24 -- --
9/30/2002 8.83 (0.08) (2.40) (2.48) -- --
RETAIL CLASS
9/30/2006 $10.84 $(0.11) $ 0.97 $ 0.86 $ -- $ --
9/30/2005 8.78 (0.11) 2.17 2.06 -- --
9/30/2004 8.45 (0.11) 0.44 0.33 -- --
9/30/2003 6.26 (0.08) 2.27 2.19 -- --
9/30/2002 8.72 (0.10) (2.36) (2.46) -- --
SMALL CAP VALUE FUND
INSTITUTIONAL CLASS
9/30/2006 $27.43 $ 0.13 $ 2.70 $ 2.83 $(0.15) $(2.42)
9/30/2005 25.75 0.13 4.22 4.35 (0.02) (2.65)
9/30/2004 21.34 0.04 4.97 5.01 (0.05) (0.55)
9/30/2003 17.28 0.05 4.01 4.06 -- --
9/30/2002 19.89 0.10 (0.36) (0.26) (0.11) (2.24)
RETAIL CLASS
9/30/2006 $27.23 $ 0.06 $ 2.67 $ 2.73 $(0.08) $(2.42)
9/30/2005 25.62 0.06 4.20 4.26 -- (2.65)
9/30/2004 21.25 (0.02) 4.95 4.93 (0.01) (0.55)
9/30/2003 17.25 (0.00)(d) 4.00 4.00 -- --
9/30/2002 19.85 0.05 (0.35) (0.30) (0.06) (2.24)
ADMIN CLASS
9/30/2006 $26.94 $(0.01) $ 2.65 $ 2.64 $(0.02) $(2.42)
9/30/2005 25.43 (0.00)(d) 4.16 4.16 -- (2.65)
9/30/2004 21.13 (0.08) 4.93 4.85 -- (0.55)
9/30/2003 17.20 (0.05) 3.98 3.93 -- --
9/30/2002 19.80 (0.00)(d) (0.35) (0.35) (0.01) (2.24)
(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, if applicable, are not annualized.
(b) The adviser has agreed to waive/reimburse a portion of the Fund's expenses
during the period. Without this waiver/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) Includes expense recapture of 0.02%. See Note 4 of Notes to Financial
Statements.
See accompanying notes to financial statements.
47
See accompanying notes to financial statements.
48
RATIOS TO AVERAGE NET ASSETS
- -------------- ----------------------------------
Net asset Net assets, Net Portfolio
value, Total end of Net Gross investment turnover
Total Redemption end of return the period expenses expenses income (loss) rate
distributions fee the period %(a) (000's) %(b) % % %
- --------------------------------------------------------------------------------------------------
$ -- $0.01 $12.00 8.3 $ 20,414 1.00 1.38 (0.69) 100
-- 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
$ -- $0.01 $11.71 8.0 $ 2,981 1.25 1.92 (0.94) 100
-- 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
$(2.57) $0.00(d) $27.69 11.2 $442,714 0.89(e) 0.89(e) 0.47 62
(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
$(2.50) $0.00(d) $27.46 10.9 $291,690 1.15 1.20 0.21 62
(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
$(2.44) $0.00(d) $27.14 10.6 $ 64,367 1.40 1.46 (0.04) 62
(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
FINANCIAL HIGHLIGHTS - CONTINUED
INCOME (LOSS) FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------------------------- ----------------------------
Net asset Dividends Distributions
value, Net Net realized Total from from from net
beginning investment and unrealized investment net investment realized
of the period income(c) gain (loss) operations income capital gains
- ---------------------------------------------------------------------------------------------------------
TAX-MANAGED EQUITY FUND
INSTITUTIONAL CLASS
9/30/2006 $ 9.20 $0.07 $ 0.97 $ 1.04 $(0.06) $ --
9/30/2005 8.49 0.05 0.69 0.74 (0.03) --
9/30/2004 7.66 0.05 0.97 1.02 (0.19) --
9/30/2003 6.78 0.06 0.85 0.91 (0.03) --
9/30/2002 7.67 0.06 (0.81) (0.75) (0.14) --
VALUE FUND
INSTITUTIONAL CLASS
9/30/2006 $18.72 $0.22 $ 3.17 $ 3.39 $(0.27) $(0.79)
9/30/2005 15.95 0.20 2.83 3.03 (0.26) --
9/30/2004 13.52 0.21 2.39 2.60 (0.17) --
9/30/2003 11.17 0.15 2.29 2.44 (0.09) --
9/30/2002 13.90 0.13 (2.42) (2.29) (0.16) (0.28)
RETAIL CLASS
9/30/2006* $19.69 $0.02 $ 1.33 $ 1.35 $ -- $ --
* From commencement of Class operations on June 30, 2006, through September 30,
2006.
(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, if applicable, are not annualized.
(b) The adviser has agreed to waive/reimburse a portion of the Fund's expenses
during the period. Without this waiver/reimbursement the Fund's ratio of
operating expenses would have been higher.
(c) Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
(d) Annualized for periods less than one year.
See accompanying notes to financial statements.
49
See accompanying notes to financial statements.
50
RATIOS TO AVERAGE NET ASSETS
- -------------- -------------------------------
Net asset Net assets, Net Portfolio
value, Total end of the Net Gross investment turnover
Total Redemption end of the return period expenses expenses income rate
distributions fee period %(a) (000's) %(b) % % %
- -----------------------------------------------------------------------------------------------
$(0.06) $-- $10.18 11.3 $ 9,076 0.65 1.64 0.71 40
(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
$(1.06) $-- $21.05 18.9 $71,147 0.85 0.91 1.13 36
(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
$ -- $-- $21.04 6.9 $ 466 1.10(d) 8.65(d) 0.42(d) 36
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
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, as amended (the
"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 Trusts in multiple series. 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 of the Trusts are
presented in separate reports. The following funds (individually, a "Fund" and
collectively, the "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")
Each Fund offers Institutional Class Shares. Aggressive Growth Fund, Small Cap
Growth Fund, Small Cap Value Fund and Value Fund also offer Retail Class
Shares. In addition, Small Cap Value Fund offers Admin Class Shares.
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, including closed-end investment
companies, 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 (other than short-term
obligations with a remaining maturity of sixty days or less) are generally
valued at market price on the basis of valuations furnished to the Funds by a
pricing service recommended by the investment adviser's pricing committee and
approved 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.
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 sixty days or less are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available 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. Investments
in other open-end investment companies are valued at their 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 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 foreign market and before the Funds calculate
their net asset values.
51
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 components of distributions received from
Real Estate Investment Trusts (REITs). In determining net gain or loss on
securities sold, the cost of securities has been determined on an identified
cost basis. Investment income, non-class specific expenses 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.
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 period, 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. The U.S. dollar value of the currencies a Fund has
committed to buy or sell represents 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, 2006, there were no open forward currency
contracts.
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 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.
F. 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 annually 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
distributions from REITs and net operating losses. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to
52
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2006
capital accounts. Temporary differences between book and tax distributable
earnings are primarily due to deferred Trustees' fees and wash sales.
Distributions from net investment income and short-term capital gains are
considered to be ordinary income for tax purposes.
The tax characterization of distributions is determined on an annual basis. The
tax character of distributions paid to shareholders during the years ended
September 30, 2006 and 2005 was as follows:
2006 DISTRIBUTIONS PAID FROM: 2005 DISTRIBUTIONS PAID FROM:
---------------------------------- -----------------------------------
LONG-TERM LONG-TERM
ORDINARY CAPITAL ORDINARY CAPITAL
INCOME GAINS TOTAL INCOME GAINS TOTAL
---------- ----------- ----------- ----------- ----------- -----------
Aggressive Growth Fund $ -- $ -- $ -- $ 498,778 $ -- $ 498,778
Small Cap Growth Fund -- -- -- -- -- --
Small Cap Value Fund 8,314,591 58,353,414 66,668,005 24,071,753 37,569,886 61,641,639
Tax-Managed Equity
Fund 54,165 -- 54,165 23,811 -- 23,811
Value Fund 634,233 1,444,444 2,078,677 524,122 -- 524,122
Differences between these amounts and those reported in the Statements of
Changes in Net Assets are primarily attributable to different book and tax
treatment for short-term capital gains.
As of September 30, 2006, the components of distributable earnings on a tax
basis were as follows:
AGGRESSIVE SMALL CAP SMALL CAP TAX-MANAGED
GROWTH FUND GROWTH FUND VALUE FUND EQUITY FUND VALUE FUND
------------ ------------- ------------ ----------- -----------
Undistributed ordinary income $ -- $ -- $ 17,071,954 $ 75,331 $ 605,349
Undistributed long-term capital
gains -- -- 69,203,123 -- 3,486,756
------------ ------------- ------------ ----------- -----------
Total undistributed earnings -- -- 86,275,077 75,331 4,092,105
Capital loss carryforward:
Expires September 30, 2009 -- -- -- (12,547) --
Expires September 30, 2010 (73,993,065) (142,893,730) -- (2,177,191) --
Expires September 30, 2011 (21,142,388) (59,283,040) -- (1,662,157) --
Expires September 30, 2012 -- -- -- (110,150) --
Expires September 30, 2013 -- -- -- (17,395) --
------------ ------------- ------------ ----------- -----------
Total capital loss carryforward (95,135,453) (202,176,770) -- (3,979,440) --
Deferred net capital losses
(post October 2005) -- -- -- -- --
Unrealized appreciation 4,958,357 2,268,872 132,331,232 1,774,672 11,078,514
------------ ------------- ------------ ----------- -----------
Total accumulated earnings
(losses) $(90,177,096) $(199,907,898) $218,606,309 $(2,129,437) $15,170,619
------------ ------------- ------------ ----------- -----------
Capital loss carryforward utilized
in the current year $ 5,800,947 $ 2,487,588 $ -- $ 201,958 $ --
------------ ------------- ------------ ----------- -----------
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 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 on behalf of 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 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
53
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. In
the event that the market value of the collateral falls below the required
percentages described above, the borrower will deliver additional collateral on
the next business day. 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, 2006 were as follows:
MARKET VALUE
OF SECURITIES VALUE OF
FUND ON LOAN COLLATERAL
- ---- ------------- ------------
Aggressive Growth Fund $ 10,834,515 $ 11,173,322
Small Cap Growth Fund 5,767,493 5,968,124
Small Cap Value Fund 198,439,289 205,404,052
Tax-Managed Equity Fund 2,222,079 2,266,006
Value Fund 6,672,959 6,824,407
I. INDEMNIFICATIONS. Under the Trusts' 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 Funds that have not yet occurred. However, based on experience, the
Funds expect the risk of loss to be remote.
J. NEW ACCOUNTING PRONOUNCEMENTS. In July, 2006, Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an
Interpretation of FASB Statement 109 ("FIN 48") was issued and is effective for
fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold
for financial statement recognition, measurement and disclosure of a tax
position taken or expected to be taken on a tax return. Management is currently
evaluating the impact, if any, the adoption of FIN 48 will have on each Fund's
net assets and results of operations.
In addition, in September, 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements ("SFAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact, if any,
the adoption of SFAS 157 will have on the Funds' financial statements.
3. PURCHASES AND SALES OF SECURITIES. For the year ended September 30, 2006,
purchases and sales of securities (excluding short-term investments) were as
follows:
FUND PURCHASES SALES
- ---- ------------ ------------
Aggressive Growth Fund $ 99,337,705 $111,091,278
Small Cap Growth Fund 23,891,744 21,691,400
Small Cap Value Fund 479,569,042 455,285,420
Tax-Managed Equity Fund 3,677,308 5,043,106
Value Fund 40,530,129 15,798,698
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
A. MANAGEMENT FEES. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as
investment adviser to each Fund. Separate management agreements for each Fund
in effect for the year ended September 30, 2006, provide for fees at the
following annual percentage rates of each Fund's average daily net assets:
MANAGEMENT
FUND FEES
- ---- ----------
Aggressive Growth Fund 0.75%
Small Cap Growth Fund 0.75%
Small Cap Value Fund 0.75%
Tax-Managed Equity Fund 0.50%
Value Fund 0.50%
54
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2006
Loomis Sayles has given binding undertakings to certain Funds to defer its
management fees and/or reimburse certain expenses associated with these Funds
to limit their operating expenses. These undertakings are in effect until
January 31, 2007 and will be reevaluated on an annual basis. For the year ended
September 30, 2006, the expense limits as a percentage of average daily net
assets under the expense limitation agreements were as follows:
EXPENSE LIMIT AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
--------------------------------------------
FUND INSTITUTIONAL CLASS RETAIL CLASS ADMIN CLASS
---- ------------------- ------------ -----------
Aggressive Growth Fund 1.00% 1.25% --
Small Cap Growth Fund 1.00% 1.25% --
Small Cap Value Fund 0.90% 1.15% 1.40%
Tax-Managed Equity Fund 0.65% -- --
Value Fund 0.85% 1.10% --
For the year ended September 30, 2006, the management fees and waivers of
management fees 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 $ 360,159 $ 27,550 $ 332,609 0.75% 0.69%
Small Cap Growth Fund 168,944 62,772 106,172 0.75% 0.47%
Small Cap Value Fund 5,772,364 -- 5,772,364 0.75% 0.75%
Tax-Managed Equity Fund 46,295 -- 46,295 0.50% 0.50%
Value Fund 222,326 12,894 209,432 0.50% 0.47%
For the year ended September 30, 2006, in addition to the waiver of management
fees, expenses have been reimbursed as follows:
EXPENSES
FUND REIMBURSED
- ---- ----------
Aggressive Growth Fund $ 72,883
Small Cap Growth Fund 33,046
Small Cap Value Fund 174,650
Tax-Managed Equity Fund 91,352
Value Fund 14,443
Loomis Sayles shall be permitted to recover expenses borne under the expense
limitation agreements (whether through a reduction of its management fee or
otherwise) on a Class by Class basis in later periods to the extent a Class'
expenses fall below a Class' expense limits, provided, however, that a Class is
not obligated to pay such deferred fees more than one year after the end of the
fiscal year in which the fee was deferred. The amounts subject to possible
reimbursement under the expense limitation agreements at September 30, 2006
were as follows:
EXPENSES SUBJECT TO POSSIBLE REIMBURSEMENT UNTIL
SEPTEMBER 30, 2007
------------------------------------------------------
FUND INSTITUTIONAL CLASS RETAIL CLASS ADMIN CLASS TOTAL
- ---- ------------------- ------------ ----------- ---------
Aggressive Growth Fund $ 22,586 $ 77,847 $ -- $ 100,433
Small Cap Growth Fund 72,414 23,404 -- 95,818
Small Cap Value Fund -- 134,548 40,102 174,650
Tax-Managed Equity Fund 91,352 -- -- 91,352
Value Fund 25,367 1,970 -- 27,337
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 US Group, L.P. ("IXIS US Group") (formerly IXIS Asset Management
North America, L.P.), which is part of IXIS Asset Management Group, an
international asset management group based in Paris, France.
55
B. ADMINISTRATIVE FEES. IXIS Asset Management Advisors, L.P. ("IXIS Advisors")
provides certain administrative services for the Funds and has subcontracted
with State Street Bank to serve as sub-administrator. IXIS Advisors is a
limited partnership whose sole general partner, IXIS Asset Management
Distribution Corporation, is an indirect wholly-owned subsidiary of IXIS US
Group. Pursuant to an agreement among the Trusts, 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 ("IXIS Advisor Funds Trusts") and
IXIS Advisors, 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 Trusts and IXIS Advisor 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 Trusts and IXIS Advisor Funds Trusts
of $5 million, which is reevaluated on an annual basis.
For the year ended September 30, 2006, amounts paid to IXIS Advisors for
administrative fees were as follows:
FUND ADMINISTRATIVE FEES
- ---- -------------------
Aggressive Growth Fund $ 22,806
Small Cap Growth Fund 7,008
Small Cap Value Fund 404,043
Tax-Managed Equity Fund 4,625
Value Fund 21,947
C. SERVICE AND DISTRIBUTION FEES. The Trusts have entered into a distribution
agreement with IXIS Asset Management Distributors, L.P. ("IXIS Distributors"),
a wholly-owned subsidiary of IXIS US Group. 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, Small Cap Value Fund and Value Fund have adopted Distribution
Plans relating to their Retail Class shares (the "Retail Class Plan") and Small
Cap Value Fund has adopted a separate Distribution Plan relating to its 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.
For the year ended September 30, 2006, the Funds paid the following service and
distributions fees:
SERVICE FEES DISTRIBUTION FEES
------------ ------------------------
FUND ADMIN CLASS RETAIL CLASS ADMIN CLASS
- ---- ------------ ------------ -----------
Aggressive Growth Fund $ -- $ 72,783 $ --
Small Cap Growth Fund -- 8,704 --
Small Cap Value Fund 165,858 678,990 165,858
Tax-Managed Equity Fund -- -- --
Value Fund -- 65 --
D. TRUSTEES FEES AND EXPENSES. The Funds do not pay any compensation directly
to their officers or Trustees who are directors, officers or employees of IXIS
Advisors, IXIS Distributors, IXIS US Group, Loomis Sayles or their affiliates.
The Chairperson of the Board receives a retainer fee at the annual rate of
$200,000. The Chairperson does not receive any meeting attendance fees for
Board of Trustees meetings or committee meetings that she attends. Each
Independent Trustee (other than the Chairperson) receives, in the aggregate, a
retainer fee at the annual rate of $55,000. Each Independent Trustee also
receives a meeting attendance fee of $6,000 for each meeting of the Board of
Trustees that he or she attends in person and $3,000 for each meeting of the
Board of Trustees that he or she attends telephonically. In addition, each
committee chairman receives an additional retainer fee at the annual rate of
$10,000. Each Contract Review and Governance Committee member is compensated
$4,000 for each Committee meeting that he or she attends in person and $2,000
for each meeting that he or she attends telephonically. Each Audit Committee
member is compensated $5,000 for each Committee meeting that he or she attends
in person and $2,500 for each meeting that he or she attends telephonically.
These fees are allocated among the funds in the IXIS Advisor Funds Trusts and
56
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2006
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.
Prior to January 1, 2006, each committee member was compensated $4,000 for each
Audit Committee meeting that he or she attended in person and $2,000 for each
such meeting he or she attended telephonically.
Prior to November 18, 2005, the Trusts had co-chairmen of the Board who each
received an annual retainer of $25,000. In addition, during the period
October 1, 2005 to November 18, 2005, each co-chairman received an additional
one-time payment of $25,000 as compensation for their services as chairmen.
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 the Funds' assets
to pay their portion of the annual salary for 2005 of an employee of IXIS
Advisors who supported the Funds' Chief Compliance Officer. For the period from
October 1, 2005 to December 31, 2005, each Fund's portion of such expense was
approximately $575.
E. REDEMPTION FEES. Shareholders of Small Cap Growth Fund and Small Cap Value
Fund are charged a 2% redemption fee if they redeem, including redeeming by
exchange, any class of shares of such 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 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. Each Fund, together with certain other funds of IXIS Advisor
Funds Trusts and Loomis Sayles Funds Trusts, participates in a $75,000,000
committed line of credit provided by State Street Bank. 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 year ended September 30, 2006, 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 in the Statements of
Operations. For the year ended September 30, 2006, amounts rebated under these
agreements were as follows:
FUND REBATES
- ---- --------
Aggressive Growth Fund $ 21,790
Small Cap Growth Fund 4,975
Small Cap Value Fund 137,046
Tax-Managed Equity Fund 870
Value Fund 1,252
7. SHAREHOLDERS. At September 30, 2006, IXIS US Group owned 259,319 shares,
equating to 29.1% of Tax-Managed Equity Fund's shares outstanding. At
September 30, 2006, 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 319,727 357,978
Small Cap Growth Fund 364,448 350,076
Small Cap Value Fund 331,894 623,346
Value Fund 494,545 479,617
57
At September 30, 2006, two shareholders individually owned more than 5% of the
Small Cap Growth Fund's total outstanding shares, representing, in aggregate,
19.4% of the Fund; three shareholders individually owned more than 5% of the
Tax-Managed Equity Fund's total outstanding shares, representing, in aggregate,
42.4% of the Fund; and one shareholder individually owned more than 5% of the
Value Fund's total outstanding shares, representing, in aggregate, 16.5% of the
Fund.
8. 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, 2006 Year Ended September 30, 2005
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS -------- ------------ ---------- ------------
Issued from the sale of shares 113,035 $ 2,403,816 53,494 $ 915,359
Issued in connection with
the reinvestment of distributions -- -- 16,185 277,892
Redeemed (622,265) (12,061,960) (318,259) (5,344,666)
-------- --------------- ------------ --------------
Net change (509,230) $ (9,658,144) (248,580) $ (4,151,415)
-------- --------------- ------------ --------------
Shares Amount Shares Amount
RETAIL CLASS -------- ------------ ---------- ------------
Issued from the sale of shares 466,779 $ 9,602,643 318,102 $ 5,337,862
Issued in connection with
the reinvestment of distributions -- -- 12,860 216,942
Redeemed (497,710) (10,104,474) (615,930) (10,185,991)
-------- --------------- ------------ --------------
Net change (30,931) $ (501,831) (284,968) $ (4,631,187)
-------- --------------- ------------ --------------
Increase (decrease) from capital
share transactions (540,161) $(10,159,975) (533,548) $ (8,782,602)
-------- --------------- ------------ --------------
SMALL CAP GROWTH FUND
Year Ended September 30 2006 Year Ended September 30, 2005
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS -------- ------------ ---------- ------------
Issued from the sale of shares 514,581 $ 6,313,604 113,316 $ 1,131,916
Issued in connection with
the reinvestment of distributions -- -- -- --
Redeemed (238,173) (2,861,514) (460,764) (4,575,642)
-------- --------------- ------------ --------------
Net change 276,408 $ 3,452,090 (347,448) $ (3,443,726)
-------- --------------- ------------ --------------
Shares Amount Shares Amount
RETAIL CLASS -------- ------------ ---------- ------------
Issued from the sale of shares 118,067 $ 1,415,130 216,852 $ 2,124,356
Issued in connection with
the reinvestment of distributions -- -- -- --
Redeemed (194,917) (2,249,611) (1,546,953) (14,930,155)
-------- --------------- ------------ --------------
Net change (76,850) $ (834,481) (1,330,101) $(12,805,799)
-------- --------------- ------------ --------------
Increase (decrease) from
capital share transactions 199,558 $ 2,617,609 (1,677,549) $(16,249,525)
-------- --------------- ------------ --------------
58
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2006
SMALL CAP VALUE FUND
Year Ended September 30, 2006 Year Ended September 30, 2005
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS ---------- ------------ ---------- ------------
Issued from the sale of shares 2,676,286 $ 73,004,753 3,605,383 $ 93,881,608
Issued in connection with
the reinvestment of distributions 1,409,958 35,671,938 1,389,061 34,567,270
Redeemed (2,792,941) (76,314,037) (3,747,820) (95,533,263)
---------- -------------- ------------ --------------
Net change 1,293,303 $ 32,362,654 1,246,624 $ 32,915,615
---------- -------------- ------------ --------------
Shares Amount Shares Amount
RETAIL CLASS ---------- ------------ ---------- ------------
Issued from the sale of shares 4,178,708 $113,429,036 3,302,664 $ 85,184,696
Issued in connection with
the reinvestment of distributions 879,102 22,100,621 739,424 18,285,960
Redeemed (3,102,060) (83,870,790) (2,145,167) (55,041,964)
---------- -------------- ------------ --------------
Net change 1,955,750 $ 51,658,867 1,896,921 $ 48,428,692
---------- -------------- ------------ --------------
Shares Amount Shares Amount
ADMIN CLASS ---------- ------------ ---------- ------------
Issued from the sale of shares 834,549 $ 22,351,432 1,009,094 $ 25,783,740
Issued in connection with
the reinvestment of distributions 237,129 5,902,138 263,038 6,449,687
Redeemed (1,206,021) (31,582,406) (1,230,767) (31,333,743)
---------- -------------- ------------ --------------
Net change (134,343) $ (3,328,836) 41,365 $ 899,684
---------- -------------- ------------ --------------
Increase (decrease) from
capital share transactions 3,114,710 $ 80,692,685 3,184,910 $ 82,243,991
---------- -------------- ------------ --------------
TAX-MANAGED EQUITY FUND
Year Ended September 30, 2006 Year Ended September 30, 2005
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS ---------- ------------ ---------- ------------
Issued from the sale of shares 110,105 $ 1,042,547 421,995 $ 3,741,887
Issued in connection with
the reinvestment of distributions 4,870 45,436 2,601 23,491
Redeemed (226,157) (2,122,569) (34,673) (312,460)
---------- -------------- ------------ --------------
Increase (decrease) from
capital share transactions (111,182) $ (1,034,586) 389,923 $ 3,452,918
---------- -------------- ------------ --------------
59
VALUE FUND
Year Ended September 30, 2006 Year Ended September 30, 2005
---------------------------- ----------------------------
Shares Amount Shares Amount
INSTITUTIONAL CLASS --------- ----------- -------- -----------
Issued from the sale of shares 1,543,164 $31,129,107 141,305 $ 2,428,427
Issued in connection with
the reinvestment of distributions 111,464 2,043,141 30,355 515,434
Redeemed (264,649) (5,153,539) (285,225) (4,807,088)
--------- -------------- ------------ --------------
Net change 1,389,979 $28,018,709 (113,565) $(1,863,227)
--------- -------------- ------------ --------------
Period Ended September 30, 2006 (a)
----------------------------
Shares Amount
RETAIL CLASS --------- -----------
Issued from the sale of shares 22,169 $ 456,494
Issued in connection with
the reinvestment of distributions -- --
Redeemed -- --
--------- --------------
Net change 22,169 $ 456,494
--------- --------------
Increase (decrease) from
capital share transactions 1,412,148 $28,475,203
--------- --------------
(a) From June 30, 2006, commencement of operations.
9. SUBSEQUENT EVENT. On October 20, 2006, IXIS US Group liquidated its position
of 261,354 shares in the Tax-Managed Equity Fund (27.8% of the total shares
outstanding of the Fund). This was accomplished through a
redemption-in-kind which included $2,453,150 of securities and $249,255 in
cash. Because the Trust's Board of Trustees has adopted procedures for any
redemption-in-kind in which the redeeming shareholder is an affiliated person,
IXIS US Group received its redemption proceeds through a pro rata, in-kind
distribution of portfolio investments consistent with these redemption-in-kind
procedures. Specifically, these procedures provide that a redemption-in-kind
shall be effected at the affiliated shareholder's proportionate share of the
Fund's current net assets and are designed so that such redemptions will not
favor the affiliated shareholder to the detriment of any other shareholder. As
a result, the Tax-Managed Equity Fund avoided having to sell significant
portfolio assets to raise cash to meet the affiliated shareholder's
request--thus limiting the potential adverse effect on the Tax-Managed Equity
Fund's net asset value per share.
60
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 Small Cap Value Fund, Loomis Sayles Aggressive
Growth Fund, Loomis Sayles Small Cap Growth Fund, Loomis Sayles Tax-Managed
Equity Fund and Loomis Sayles Value 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 and Loomis Sayles Value Fund, each a series of Loomis
Sayles Funds II (collectively, "the Funds"), at September 30, 2006, 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, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 22, 2006
61
2006 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION. For the fiscal year ended September 30,
2006, 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
- ---- ---------------------
Small Cap Value Fund 76.31%
Tax-Managed Equity Fund 100.00%
Value Fund 96.79%
CAPITAL GAINS DISTRIBUTIONS. Pursuant to Internal Revenue Section 852(b), the
following Funds paid distributions, which have been designated as capital gains
distributions for the fiscal year ended September 30, 2006.
FUND AMOUNT
- ---- --------
Small Cap Value Fund $58,353,414
Value Fund 1,444,444
QUALIFIED DIVIDEND INCOME. For the fiscal year ended September 30, 2006, the
Funds below 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 2006, complete
information will be reported in conjunction with Form 1099-DIV.
FUND
- ----
Small Cap Value Fund
Tax-Managed Equity Fund
Value Fund
62
TRUSTEE AND OFFICER INFORMATION
The tables below provide 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 Trust's 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 TRUSTS, LENGTH NUMBER OF PORTFOLIOS IN FUND
OF TIME SERVED AND PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN*** AND
NAME AND DATE OF BIRTH TERM OF OFFICE* DURING PAST 5 YEARS** OTHER 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 for Science and Inc. (real estate investment trust)
and Governance International Affairs, John F. Kennedy
Committee Member School of Government,
Harvard 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, Precision Optics
(5/30/38) Chairman of the Corporation (optics manufacturer)
Contract Review
and Governance
Committee
Daniel M. Cain Trustee since 2003 President and Chief Executive Officer, 38; Director, Sheridan Healthcare
(2/24/45) Chairman of the Cain Brothers & Company, Incorporated Inc. (physician practice
Audit Committee (investment banking) management)
Paul G. Chenault+ Trustee since 2002 Retired; Trustee, First Variable Life 38; Director, Mailco Office
(9/12/33) for Loomis Sayles (variable life insurance) Products, Inc. (mailing
Trust I; since 2000 equipment)
for Loomis Sayles
Funds II
Contract Review
and Governance
Committee Member
Kenneth J. Cowan+ Trustee since 2003 Retired 38; None
(4/5/32) Contract Review
and Governance
Committee Member
Richard Darman Trustee since 2003 Partner, The Carlyle Group (investments); 38; Director and Chairman of
(5/10/43) Contract Review formerly, Professor, John F. Kennedy Board of Directors, AES
and Governance School of Government, Harvard Corporation (international power
Committee Member University company)
Sandra O. Moose Trustee since 2003; President, Strategic Advisory Services 38; Director, Verizon
(2/17/42) Chairperson of the (management consulting); formerly, Communications;
Board of Trustees Senior Vice President and Director, The Director, Rohm and Haas
since Boston Consulting Group, Inc. Company (specialty chemicals);
November 2005 (management consulting) Director, AES Corporation
Ex officio member of (international power company)
the Audit
Committee and
Contract Review
and Governance
Committee
63
POSITION(S)
HELD WITH
THE TRUSTS, LENGTH NUMBER OF PORTFOLIOS IN FUND
OF TIME SERVED AND PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN*** AND
NAME AND DATE OF BIRTH TERM OF OFFICE* DURING PAST 5 YEARS** OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------------
John A. Shane+ Trustee since 2003; President, Palmer Service Corporation 38; Director, Gensym Corporation
(2/22/33) Audit Committee (venture capital organization) (software and technology service
Member provider); Director and Chairman
of the Board, Abt Associates Inc.
(research and consulting firm)
Cynthia L. Walker Trustee since 2005; Executive Dean for Administration 38; None
(7/25/56) Audit Committee (formerly, Dean for Finance and CFO),
Member Harvard Medical School
INTERESTED TRUSTEES
Robert J. Blanding/1/ President, Chief President, Chairman, Director, and Chief 38; None
(4/14/47) Executive Officer Executive Officer, Loomis, Sayles &
555 California Street and Trustee since Company, L.P.; President and Chief
San Francisco, CA 94104 2002 for Loomis Executive Officer for Loomis Sayles
Sayles Funds I; Funds I; Chief Executive Officer for
Chief Executive Loomis Sayles Funds II
Officer and Trustee
since 2002 for
Loomis Sayles
Funds II
John T. Hailer/2/ Executive Vice President and Chief Executive Officer, 38; None
(11/23/60) President and IXIS Asset Management Advisors, L.P.,
Trustee since 2003 IXIS Asset Management Distributors, L.P.
for Loomis Sayles and IXIS Asset Management Global
Funds I; President Associates, L.P.; Executive Vice President,
and Trustee since Loomis Sayles Funds I; President and
2003 for Loomis Chief Executive Officer, AEW Real Estate
Sayles Funds II Income Fund, IXIS Advisor Cash
Management Trust, IXIS Advisor Funds
Trust I, IXIS Advisor Funds Trust II, IXIS
Advisor Funds Trust III and IXIS Advisor
Funds Trust IV
* Each Trustee serves until retirement, resignation or removal from the Board
of Trustees. The current retirement age is 72, but the retirement policy was
suspended for the calendar year 2005. At a meeting held on August 26, 2005,
the Trustees voted to lift the suspension of the retirement policy and to
designate 2006 as a transition period so that any Trustees who are currently
age 72 or older or who reach age 72 during the remainder of 2006 will not be
required to retire until the end of calendar year 2006. The position of
Chairperson of the Board is appointed for a two-year term.
**Each person listed above, except as noted, holds the same position(s) with
the 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") or Loomis, Sayles & Company, L.P. 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 (together the "IXIS Advisor Funds and Loomis Sayles
Funds Trusts").
+ Effective December 31, 2006, Messrs. Chenault, Cowan and Shane will be
retiring as members of the IXIS Advisor Funds and Loomis Sayles Funds Trusts
Board of Trustees.
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.
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;
and President and Chief Executive Officer of IXIS Asset Management Global
Associates, L.P., IXIS Asset Management Advisors and the IXIS Asset
Management Distributors, L.P.
64
POSITION(S)
HELD WITH TERM OF OFFICE AND PRINCIPAL OCCUPATION(S)
NAME AND DATE OF BIRTH THE TRUSTS LENGTH OF TIME SERVED* DURING PAST 5 YEARS**
- ------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE TRUSTS
Coleen Downs Dinneen Secretary, Clerk and Since September 2004 Senior Vice President, General Counsel, Secretary
(12/16/60) Chief Legal Officer 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.
Daniel J. Fuss Executive Vice Since June 2003 Vice Chairman and Director, Loomis, Sayles &
(9/27/33) President Company, L.P.; Prior to 2002, President and
One Financial Center Trustee of Loomis Sayles Funds II
Boston, MA 02111
Russell L. Kane Chief Compliance Chief Compliance Officer, Chief Compliance Officer for Mutual Funds,
(7/23/69) Officer; Assistant since May 2006; Assistant Vice President, Associate General Counsel,
Secretary Secretary since June 2004 Assistant Secretary and Assistant Clerk, IXIS
Asset Management Distribution Corporation,
IXIS Asset Management Distributors, L.P. and
IXIS Asset Management Advisors, L.P.; formerly,
Senior Counsel, Columbia Management Group.
Michael C. Kardok Treasurer, Principal Since October 2004 Senior Vice President, IXIS Asset Management
(7/17/59) Financial and Advisors, L.P. and IXIS Asset Management
Accounting Officer Distributors, L.P.; formerly, Senior Director,
PFPC Inc; formerly, Vice President - Division
Manager, First Data Investor Services, Inc.
Max J. Mahoney Anti-Money Since August 2005 Vice President, Deputy General Counsel,
(5/1/62) Laundering Officer Assistant Secretary and Assistant Clerk, IXIS
and Assistant Asset Management Distribution Corporation.
Secretary Senior Vice President, Deputy General Counsel,
Assistant Secretary, Assistant Clerk and Chief
Compliance Officer--Investment Adviser, IXIS
Asset Management Distributors, L.P. and IXIS
Asset Management Advisors, L.P.; formerly,
Senior Counsel, MetLife, Inc.; formerly, Associate
Counsel, LPL Financial Services, Inc.
John E. Pelletier Chief Operating Since September 2004 Executive Vice President and Chief Operating
(6/24/64) Officer Officer (formerly, Senior Vice President, General
Counsel, Secretary and Clerk), IXIS Asset
Management Distribution Corporation, IXIS
Asset Management Distributors, L.P. and IXIS
Asset Management Advisors, L.P.; Executive Vice
President, Chief Operating Officer and Director
(formerly, President, Chief Operating Officer and
Director), IXIS Asset Management Services
Company.
* Each officer of the Trusts serves for an indefinite term in accordance with
their current By-laws until the date his or her successor is elected and
qualified, or until he or she sooner dies, retires, is removed or becomes
disqualified.
**Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor Funds and Loomis Sayles Funds Trusts. Previous positions
during the past five years with the Distributor, IXIS Advisors or Loomis
Sayles are omitted, if not materially different from a trustee's or officer's
current position with such entity.
65
[LOGO]
Annual Report
September 30, 2006
[LOGO]
Loomis Sayles Investment Grade Bond Fund
TABLE OF CONTENTS
Management Discussion
and Performance.........Page 1
Portfolio of InvestmentsPage 7
Financial Statements...Page 12
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. The
fund may invest any portion of its assets in securities of Canadian issuers and
up to 20% in other foreign or emerging market securities
- --------------------------------------------------------------------------------
Fund Inception:
December 31, 1996
- --------------------------------------------------------------------------------
Managers:
Matt Eagan, CFA
Daniel Fuss, CFA, CIC
Kathleen Gaffney, CFA
Steven Kaseta, CFA
Elaine Stokes, CFA
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
- --------------------------------------------------------------------------------
Rising corporate profits in a generally expanding economy created a positive
backdrop for corporate bonds - both investment-grade and high-yield - during
the fiscal year ended September 30, 2006. All major bond indexes were positive
during the period. The best results occurred in the final quarter of the fiscal
year, when the Federal Reserve Board surveyed encouraging evidence that
economic growth was decelerating and inflationary pressures were abating. This
prompted the Fed to pause in its cycle of raising interest rates.
For the 12 months ended September 30, 2006, the Loomis Sayles Investment Grade
Bond Fund's Class A shares returned 5.63% at net asset value. The fund's
results were ahead of the 3.33% return on its benchmark, the Lehman U.S.
Government/Credit Index, and the 3.21% average return on Morningstar's
Intermediate-Term Bond Fund category. The fund's 30-day SEC yield was 4.89% as
of September 30, 2006.
DURATION STRATEGY HELPED FUND PERFORMANCE
The flexibility of our duration strategy helped relative performance during the
year. At the beginning of the fiscal period, when rising interest rates caused
bond prices to decline, the fund maintained a relatively short duration (4.08
years) as a defensive measure. A shorter duration reduces the fund's price
sensitivity to changing interest rates, which is a plus when interest rates are
rising, but a disadvantage when declining rates cause bond prices to rise. By
September 2006, we had shifted the portfolio to a more aggressive duration
(6.05 years), as rates fell during the closing quarter of the fiscal year. The
duration of the fund's benchmark was 5.04 years at both the beginning and end
of the period. Modest positions in some below-investment-grade, high-yield
securities also added to performance, thanks to successful security selection
and income-oriented investors who bid up prices on these bonds.
FOREIGN BONDS GENERALLY AIDED RESULTS
Our investments in securities denominated in foreign currencies also had a
positive influence on results. Positions in securities of commodity-rich
exporting countries like Canada and Brazil were particularly helpful when these
markets sharply recovered through the second quarter of the fiscal year. We
maintained a sizeable position in shorter-duration securities denominated in
Canadian dollars, which appreciated amid strong demand for natural resources.
The fund's Brazilian bonds were also helpful, and although Mexican bonds lost
some ground due to political uncertainty, their net contribution for the fiscal
year was positive.
SOME CORPORATE AND FOREIGN INVESTMENTS HURT RETURNS
While the fund's modest positions in below-investment-grade corporate bonds
tended to help performance, a few individual holdings proved disappointing. In
addition, bonds denominated in New Zealand dollars and securities issued by the
Republic of South Africa detracted from results as their underlying currencies
weakened during the fiscal year.
RISKS REMAIN IN MARKET
We believe the U.S. economy has entered a typical mid-cycle slowdown in
economic activity and we think growth (as measured by gross domestic product)
should move back toward 3% in 2007. If the economy picks up speed, as we have
forecasted, then we believe interest rates are vulnerable to a modest rise. If
the housing market remains cool, and energy and commodity prices remain
moderate, keeping inflation pressures in check, we believe the Fed will
continue its "wait and see" attitude. In this environment, we think investors
will continue to be drawn to investment-grade and corporate bonds as long as
corporate earnings remain healthy. Because of cyclical and structural concerns,
it is our opinion that the U.S. dollar may show some weakness, creating
opportunities in some foreign currencies. We also think investing in emerging
markets may offer some limited potential.
1
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
Investment Results through September 30, 2006
- --------------------------------------------------------------------------------
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 September 30, 2006
Lehman
Net Asset Maximum U.S. Government/
Value (2) Sales Charge (3) Credit Index
--------- ---------------- -----------------
12/31/1996 $10,000 9,550 $10,000
1/31/1997 9,950 9,502 10,012
2/28/1997 10,150 9,693 10,033
3/31/1997 9,930 9,483 9,914
4/30/1997 10,130 9,674 10,059
5/31/1997 10,323 9,858 10,153
6/30/1997 10,586 10,110 10,274
7/31/1997 11,272 10,765 10,589
8/31/1997 10,953 10,460 10,470
9/30/1997 11,262 10,755 10,635
10/31/1997 11,427 10,913 10,805
11/30/1997 11,407 10,894 10,862
12/31/1997 11,429 10,914 10,976
1/31/1998 11,536 11,017 11,131
2/28/1998 11,568 11,048 11,108
3/31/1998 11,708 11,181 11,142
4/30/1998 11,754 11,225 11,198
5/31/1998 11,820 11,288 11,318
6/30/1998 11,797 11,266 11,434
7/31/1998 11,650 11,126 11,443
8/31/1998 11,150 10,648 11,666
9/30/1998 11,405 10,892 12,000
10/31/1998 11,291 10,783 11,915
11/30/1998 11,665 11,140 11,986
12/31/1998 11,764 11,235 12,016
1/31/1999 11,952 11,415 12,101
2/28/1999 11,799 11,268 11,813
3/31/1999 12,070 11,527 11,872
4/30/1999 12,354 11,799 11,901
5/31/1999 12,247 11,696 11,779
6/30/1999 12,211 11,662 11,742
7/31/1999 11,994 11,454 11,709
8/31/1999 11,951 11,413 11,700
9/30/1999 12,115 11,570 11,805
10/31/1999 12,112 11,567 11,836
11/30/1999 12,145 11,598 11,829
12/31/1999 12,194 11,645 11,757
1/31/2000 12,194 11,645 11,754
2/29/2000 12,580 12,014 11,902
3/31/2000 12,754 12,180 12,074
4/30/2000 12,423 11,864 12,015
5/31/2000 12,305 11,752 12,004
6/30/2000 12,663 12,094 12,249
7/31/2000 12,814 12,237 12,379
8/31/2000 13,056 12,469 12,553
9/30/2000 12,949 12,367 12,601
10/31/2000 12,844 12,266 12,680
11/30/2000 13,090 12,501 12,896
12/31/2000 13,529 12,921 13,151
1/31/2001 13,755 13,136 13,372
2/28/2001 13,861 13,238 13,509
3/31/2001 13,683 13,067 13,571
4/30/2001 13,473 12,867 13,470
5/31/2001 13,594 12,983 13,547
6/30/2001 13,662 13,048 13,612
7/31/2001 14,009 13,379 13,951
8/31/2001 14,327 13,683 14,131
9/30/2001 14,035 13,404 14,261
10/31/2001 14,647 13,988 14,622
11/30/2001 14,441 13,791 14,382
12/31/2001 14,295 13,651 14,269
1/31/2002 14,393 13,746 14,374
2/28/2002 14,536 13,882 14,496
3/31/2002 14,191 13,553 14,202
4/30/2002 14,600 13,943 14,477
5/31/2002 14,786 14,120 14,610
6/30/2002 14,753 14,089 14,735
7/31/2002 14,471 13,820 14,912
8/31/2002 14,991 14,316 15,247
9/30/2002 15,018 14,342 15,575
10/31/2002 14,928 14,256 15,426
11/30/2002 15,243 14,557 15,435
12/31/2002 15,810 15,098 15,844
1/31/2003 16,078 15,355 15,843
2/28/2003 16,427 15,688 16,125
3/31/2003 16,508 15,765 16,104
4/30/2003 17,072 16,304 16,277
5/31/2003 17,921 17,114 16,739
6/30/2003 18,007 17,197 16,672
7/31/2003 17,148 16,376 15,973
8/31/2003 17,230 16,455 16,079
9/30/2003 18,116 17,301 16,588
10/31/2003 18,071 17,257 16,378
11/30/2003 18,408 17,580 16,421
12/31/2003 18,869 18,020 16,583
1/31/2004 18,997 18,142 16,734
2/29/2004 19,143 18,282 16,939
3/31/2004 19,346 18,476 17,094
4/30/2004 18,588 17,751 16,569
5/31/2004 18,432 17,602 16,485
6/30/2004 18,574 17,738 16,552
7/31/2004 18,796 17,951 16,727
8/31/2004 19,321 18,451 17,081
9/30/2004 19,700 18,813 17,141
10/31/2004 20,115 19,210 17,289
11/30/2004 20,401 19,483 17,097
12/31/2004 20,650 19,721 17,279
1/31/2005 20,528 19,604 17,399
2/28/2005 20,661 19,732 17,284
3/31/2005 20,420 19,501 17,163
4/30/2005 20,444 19,524 17,420
5/31/2005 20,538 19,614 17,638
6/30/2005 20,762 19,828 17,754
7/31/2005 20,712 19,780 17,554
8/31/2005 21,077 20,128 17,816
9/30/2005 21,047 20,100 17,583
10/31/2005 20,837 19,899 17,432
11/30/2005 20,931 19,989 17,522
12/31/2005 21,077 20,129 17,688
1/31/2006 21,418 20,455 17,656
2/28/2006 21,506 20,539 17,704
3/31/2006 21,188 20,235 17,509
4/30/2006 21,523 20,554 17,454
5/31/2006 21,402 20,439 17,444
6/30/2006 21,357 20,396 17,485
7/31/2006 21,582 20,610 17,712
8/31/2006 22,082 21,089 17,992
9/30/2006 22,235 21,234 18,168
Average Annual Total Returns -- September 30, 2006
SINCE FUND
1 YEAR 5 YEARS/4/ INCEPTION/4/
CLASS A/1/
Net Asset Value/2/ 5.63% 9.64% 8.54%
With Maximum Sales Charge/3/ 0.89 8.62 8.03
CLASS B/1,4/
Net Asset Value/2/ 4.83 8.69 7.58
With CDSC/5/ -0.01 8.40 7.58
CLASS C/1/
Net Asset Value/2/ 4.87 8.69 7.58
With CDSC/5/ 3.90 8.69 7.58
CLASS Y/1,4/
Net Asset Value/2/ 6.09 9.97 8.84
CLASS J/1/
Net Asset Value/2/ 5.29 9.14 8.03
With Sales Charge/5/ 1.64 8.35 7.63
- ---------------------------------------------------------------------------
SINCE FUND
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS INCEPTION/6/
Lehman U.S. Government/Credit Index 3.33% 4.96% 6.32%
Morningstar Intermediate-Term Bond Fund Avg. 3.21 4.37 5.50
All returns represent past performance and do not guarantee future results.
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 9/30/06 9/30/05
- ----------------------------------------
Aaa 27.4 43.3
- ----------------------------------------
Aa 13.0 13.5
- ----------------------------------------
A 9.1 3.1
- ----------------------------------------
Baa 30.1 16.8
- ----------------------------------------
Ba 9.1 9.2
- ----------------------------------------
B 2.8 0.7
- ----------------------------------------
Caa 0.0 1.6
- ----------------------------------------
Not rated* 5.1 8.3
- ----------------------------------------
Short-term & other 3.4 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 9/30/06 9/30/05
- --------------------------------------------------
1 year or less 14.7 11.8
- --------------------------------------------------
1-5 years 33.3 48.4
- --------------------------------------------------
5-10 years 16.9 26.3
- --------------------------------------------------
10+ years 35.1 13.5
- --------------------------------------------------
Average Effective Maturity 11.1 years 5.7 years
- --------------------------------------------------
Portfolio characteristics will vary.
See page 3 for descriptions of the index.
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
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. Institutional Class became the Class Y on 9/12/03.
Class Y performance has been restated to reflect the net expenses of the
Institutional Class after taking into effect Class Y'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
compares the performance of Class A shares at net asset value, to the
performance of Class A shares including the maximum sales charge of 4.50%.
This chart reflects the performance of Class A shares rather than Class Y
shares because Class A shares have 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/Fund performance has been increased by expense waivers/reimbursements,
without which performance would have been lower.
/5/Performance for Class B shares assumes a maximum of 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% CDSC applied when you sell shares
within one year of purchase. Performance for Class J assumes a 3.50% sales
charge.
/6/The since-inception performance comparisons shown are calculated from 1/1/97.
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
index of publicly traded bonds, including U.S. government bonds, U.S.
Treasury securities and corporate bonds.
Morningstar Intermediate-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 fund's website at www.ixisadvisorfunds.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, 2006 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 FUND 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,
2006 through September 30, 2006. 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 4/1/06 9/30/06 4/1/06 - 9/30/06
- ------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,049.40 $4.62
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,020.56 $4.56
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,045.50 $8.72
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,045.70 $8.72
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
- ------------------------------------------------------------------------------------------------------------------
CLASS J
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,048.20 $6.67
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,018.55 $6.58
- ------------------------------------------------------------------------------------------------------------------
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,052.20 $2.83
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000.00 $1,022.31 $2.79
- ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after
waiver/reimbursement): 0.90%, 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 the number of days in the most recent fiscal half-year,
divided by 365 (to reflect the half-year period).
4
BOARD APPROVAL OF CONTRACTS
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 a peer group of funds and the Fund's performance benchmark, (ii)
information on the Fund's advisory fees 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, also
consider other matters 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 its
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.
The Board of Trustees most recently approved the continuation of the Agreement
at their meeting held in May, 2006. 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, including
recent or planned investments by the Adviser in additional personnel or other
resources. They also took note of the competitive market for talented
personnel, in particular, for personnel who have contributed to the generation
of strong investment performance. They also considered the need for the Adviser
to offer competitive compensation in order to attract and retain capable
personnel. They also considered the administrative services provided by the
Adviser's affiliates to the 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
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 a peer group 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 this information, the Board concluded that the Fund's
performance supported the renewal of the Agreement. Although the Fund had
performance that lagged that of a relevant peer group for certain (although not
all) periods, the Board concluded that other factors relevant to performance
supported renewal of the Fund's Agreements. These factors included the
following: (1) that the Fund's performance, although lagging in certain recent
periods, was strong over the longer term; (2) that the underperformance was
attributable, to a significant extent, to investment decisions by the Fund's
Adviser that were reasonable and consistent with the Fund's investment
objective and policies; (3) that the Fund's performance was competitive when
compared to other relevant performance benchmarks or peer groups; and (4) that
the Fund's expenses were capped, with the goal of helping the Fund's net return
to shareholders become more competitive.
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 to Trustee concerns about performance and the
willingness of the Adviser to take steps intended to improve performance.
5
BOARD APPROVAL OF CONTRACTS
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 information included
comparisons (provided both by management and also by an independent third
party) of the Fund's 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 the Fund's advisory fees, the Trustees also
took into account the demands, complexity and quality of the investment
management of the Fund. The Trustees considered that over the past several
years, management had made recommendations regarding the institution of
advisory fee waivers and expense caps. They noted that the Fund currently has
an expense cap in place, and they considered the amounts waived or reimbursed
by the Adviser under the cap.
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. In this
regard, the Fund, at the request of the Independent Trustees, retained an
independent accounting firm to review the cost allocation methods used by the
Adviser to determine profitability, and engaged in extensive discussions with
the Adviser regarding such methods and Adviser profitability generally. They
also reviewed information provided by management about the effect of
distribution costs and Fund growth on Adviser profitability. When reviewing
profitability, the Trustees also considered information about court cases in
which adviser profitability was an issue, the performance of the Fund, the
expense levels of the Fund, and whether the Adviser had implemented breakpoints
and/or an expense cap 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
fees charged to the Fund were 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 fees
(lower fee rates applicable to assets in excess of certain threshold levels) or
other means, such as an expense waiver. 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 a separate agreement covering administrative services.
.. so-called "fallout benefits" to the Adviser, such as the engagement of
affiliates of the Adviser to provide distribution and brokerage 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 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, 2007.
6
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- PORTFOLIO OF INVESTMENTS
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- ---------------------------------------------------------------------------------------
Bonds and Notes -- 96.5% of Total Net Assets
Non-Convertible Bonds -- 93.3%
Agencies -- 0.8%
$ 3,670,000 Pemex Project Funding Master Trust,
8.625%, 12/01/2023(d) $ 4,413,175
--------------
Airlines -- 1.5%
8,115,000 Qantas Airways Ltd.,
6.050%, 4/15/2016, 144A(d) 8,155,607
--------------
Asset-Backed Securities -- 0.4%
782,556 Community Program Loan Trust, Series 1987-A, Class A4,
4.500%, 10/01/2018 770,964
1,700,000 Community Program Loan Trust, Series 1987-A, Class A5,
4.500%, 4/01/2029 1,596,479
--------------
2,367,443
--------------
Automotive -- 1.4%
375,000 Cummins Engine Co., Inc.,
7.125%, 3/01/2028 383,909
1,990,000 Ford Motor Co.,
6.375%, 2/01/2029(d) 1,455,187
700,000 Ford Motor Credit Co.,
7.375%, 10/28/2009 680,263
1,000,000 GMAC Australia,
6.500%, 8/10/2007, (AUD) 720,588
950,000 GMAC International Finance BV,
8.000%, 3/14/2007, (NZD) 616,129
1,500,000 GMAC LLC,
6.875%, 9/15/2011 1,492,053
3,050,000 GMAC LLC,
7.500%, 12/01/2006, (NZD) 1,979,484
--------------
7,327,613
--------------
Banking -- 7.2%
2,595,000 BAC Capital Trust VI,
5.625%, 3/08/2035 2,406,385
2,120,000,000 Barclays Financial LLC,
4.060%, 9/16/2010, (KRW), 144A 2,223,620
144,000,000 Barclays Financial LLC,
4.100%, 3/22/2010, (THB), 144A 3,653,724
140,000,000 Barclays Financial LLC,
4.160%, 2/22/2010, (THB), 144A 3,562,816
3,000,000,000 Barclays Financial LLC,
4.460%, 9/23/2010, (KRW), 144A 3,178,336
16,371,250,000 BNP Paribas SA,
Zero Coupon, 6/13/2011, (IDR), 144A 1,135,650
1,500,000 CIT Group, Inc.,
5.500%, 12/01/2014, (GBP) 2,799,878
9,860,000 Citibank NA,
15.000%, 7/02/2010, (BRL), 144A 4,927,324
4,500,000 HSBC Bank USA,
3.310%, 8/25/2010, 144A 4,532,400
18,000,000 JPMorgan Chase & Co.,
Zero Coupon, 5/17/2010, (BRL), 144A 5,209,511
17,920,000,000 JPMorgan Chase & Co.,
Zero Coupon, 3/28/2011, (IDR), 144A 1,266,343
22,683,264,000 JPMorgan Chase & Co.,
Zero Coupon, 3/28/2011, (IDR), 144A 1,602,946
24,124,936,500 JPMorgan Chase London,
Zero Coupon, 10/21/2010, (IDR), 144A 1,774,228
100,000 KeyBank NA,
6.950%, 2/01/2028 111,117
--------------
38,384,278
--------------
Principal
Amount (a) Description Value (+)
- ------------------------------------------------------------------------------------
Beverages -- 0.3%
$ 1,525,000 Cia Brasileira de Bebidas,
8.750%, 9/15/2013 $ 1,757,562
--------------
Chemicals -- 1.3%
6,305,000 Lubrizol Corp.,
6.500%, 10/01/2034 6,353,725
285,000 Methanex Corp.,
6.000%, 8/15/2015 272,843
--------------
6,626,568
--------------
Electric -- 3.0%
895,000 Commonwealth Edison Co.,
4.700%, 4/15/2015 836,156
1,700,000 Commonwealth Edison Co.,
5.875%, 2/01/2033 1,661,772
2,750,000 Constellation Energy Group, Inc.,
4.550%, 6/15/2015 2,534,738
960,000 Dominion Resources, Inc.,
5.950%, 6/15/2035 932,153
5,500,000 Empresa Nacional de Electricidad SA (Endesa-Chile),
7.875%, 2/01/2027 6,096,024
1,000,000 Empresa Nacional de Electricidad SA (Endesa-Chile),
8.350%, 8/01/2013 1,121,991
1,500,000 MidAmerican Energy Holdings Co.,
5.875%, 10/01/2012 1,527,380
1,000,000 MidAmerican Energy Holdings Co.,
6.125%, 4/01/2036, 144A 1,010,803
43,000 Quezon Power Philippines Co.,
8.860%, 6/15/2017 43,215
--------------
15,764,232
--------------
Entertainment -- 1.3%
1,805,000 Time Warner, Inc.,
6.625%, 5/15/2029 1,804,617
755,000 Time Warner, Inc.,
6.950%, 1/15/2028 778,221
505,000 Time Warner, Inc.,
7.625%, 4/15/2031 557,858
330,000 Time Warner, Inc.,
7.700%, 5/01/2032 368,524
3,590,000 Viacom, Inc., Class B,
6.875%, 4/30/2036, 144A 3,549,031
--------------
7,058,251
--------------
Foreign Agency -- 0.0%
220,000 Alberta Municipal Funding Corp.,
5.700%, 9/01/2011, (CAD) 210,377
--------------
Foreign Local Governments -- 7.0%
33,694 Province of Alberta,
5.930%, 9/16/2016, (CAD) 32,484
4,525,000 Province of British Columbia,
5.250%, 12/01/2006, (CAD) 4,054,627
5,175,000 Province of British Columbia,
6.000%, 6/09/2008, (CAD) 4,771,926
3,275,000 Province of British Columbia,
6.250%, 12/01/2009, (CAD) 3,118,743
3,285,000 Province of Manitoba,
4.450%, 12/01/2008, (CAD) 2,962,569
6,510,000 Province of Manitoba,
5.750%, 6/02/2008, (CAD) 5,978,775
500,000 Province of Nova Scotia,
6.600%, 6/01/2027, (CAD) 569,568
See accompanying notes to financial statements.
7
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- -----------------------------------------------------------------------
Foreign Local Governments -- continued
$ 4,810,000 Province of Ontario,
3.875%, 3/08/2008, (CAD) $ 4,288,657
4,320,000 Province of Ontario,
5.700%, 12/01/2008, (CAD) 3,996,005
7,500,000 Province of Saskatchewan,
4.750%, 12/01/2006, (CAD) 6,715,343
550,000 Province of Saskatchewan,
5.500%, 6/02/2008, (CAD) 503,151
--------------
36,991,848
--------------
Healthcare -- 2.0%
5,000,000 HCA, Inc.,
5.750%, 3/15/2014 3,925,000
800,000 HCA, Inc.,
6.250%, 2/15/2013 668,000
3,250,000 HCA, Inc.,
6.300%, 10/01/2012 2,750,313
2,625,000 HCA, Inc.,
7.050%, 12/1/2027 1,883,739
250,000 HCA, Inc.,
7.500%, 12/15/2023 193,850
620,000 HCA, Inc.,
7.580%, 9/15/2025 477,866
1,000,000 HCA, Inc., Series MTN,
7.750%, 7/15/2036 774,510
--------------
10,673,278
--------------
Home Construction -- 4.4%
850,000 Centex Corp.,
5.250%, 6/15/2015 794,090
2,050,000 Desarrolladora Homex SA,
7.500%, 9/28/2015 2,009,000
1,870,000 Lennar Corp.,
6.500%, 4/15/2016, 144A(d) 1,880,091
2,605,000 Lennar Corp., Series B, Class A,
5.600%, 5/31/2015 2,477,347
2,630,000 Pulte Homes, Inc.,
5.200%, 2/15/2015(d) 2,462,793
250,000 Pulte Homes, Inc.,
5.250%, 1/15/2014 236,736
8,340,000 Pulte Homes, Inc.,
6.000%, 2/15/2035 7,519,452
2,980,000 Pulte Homes, Inc.,
6.375%, 5/15/2033 2,788,532
3,605,000 Toll Brothers Finance Corp.,
5.150%, 5/15/2015(d) 3,204,423
--------------
23,372,464
--------------
Independent/Energy -- 1.5%
4,020,000 Anadarko Petroleum Corp.,
5.950%, 9/15/2016 4,068,031
2,970,000 Anadarko Petroleum Corp.,
6.450%, 9/15/2036 3,033,644
500,000 Devon Financing Corp. LLC,
7.875%, 9/30/2031 609,369
160,000 XTO Energy, Inc.,
6.100%, 4/01/2036 158,272
--------------
7,869,316
--------------
Principal
Amount (a) Description Value (+)
- ------------------------------------------------------------------------------------------------
Integrated/Energy -- 0.1%
$ 150,000 Cerro Negro Finance Ltd.,
7.900%, 12/01/2020, 144A $ 139,125
200,000 Petrozuata Finance, Inc.,
8.220%, 4/01/2017, 144A 195,000
--------------
334,125
--------------
Life Insurance -- 2.2%
11,700,000 ASIF Global Financing XXVII,
2.380%, 2/26/2009, (SGD), 144A 7,160,923
4,260,000 Mutual of Omaha Insurance Co.,
6.800%, 6/15/2036, 144A 4,502,356
--------------
11,663,279
--------------
Media Cable -- 2.8%
5,985,000 Comcast Corp.,
5.650%, 6/15/2035 5,429,951
2,255,000 Comcast Corp.,
6.450%, 3/15/2037 2,256,089
2,825,000 Comcast Corp.,
6.500%, 11/15/2035 2,844,676
3,750,000 Cox Communications, Inc., Class A,
6.750%, 3/15/2011(d) 3,905,588
350,000 NTL Cable Plc,
9.750%, 4/15/2014, (GBP) 674,982
--------------
15,111,286
--------------
Media Non-Cable -- 2.0%
2,500,000 Clear Channel Communications, Inc.,
4.250%, 5/15/2009 2,416,090
1,000,000 Clear Channel Communications, Inc.,
5.750%, 1/15/2013 961,066
2,370,000 News America, Inc.,
6.200%, 12/15/2034 2,263,651
4,930,000 News America, Inc.,
6.400%, 12/15/2035 4,835,009
--------------
10,475,816
--------------
Metals & Mining -- 0.3%
200,000 Alcan, Inc.,
5.750%, 6/01/2035 189,523
1,500,000 Teck Cominco Ltd.,
7.000%, 9/15/2012 1,600,788
--------------
1,790,311
--------------
Mortgage Related -- 5.4%
3,000,000 Bank of America - First Union NB Commercial Mortgage, Series
2001-3, Class A2,
5.464%, 4/11/2037 3,029,915
2,352,327 CS First Boston Mortgage Securities Corp., Series 2005-7, Class
3A1,
5.000%, 8/25/2020 2,333,331
203,435 Federal Home Loan Mortgage Corp.,
5.000%, 12/01/2031 196,369
3,000,000 Federal Home Loan Mortgage Corp.,
5.750%, 1/15/2012 (d) 3,113,580
1,850,000 Federal National Mortgage Association,
5.375%, 11/15/2011(d) 1,889,666
17,450,000 Federal National Mortgage Association,
5.500%, 3/15/2011(d) 17,860,633
47,454 Federal National Mortgage Association,
6.000%, 7/01/2029 47,941
--------------
28,471,435
--------------
See accompanying notes to financial statements.
8
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- -----------------------------------------------------------------------------
Non-Captive Consumer -- 0.6%
$ 5,150,000 SLM Corp.,
6.500%, 6/15/2010, (NZD) $ 3,300,003
--------------
Non-Captive Diversified -- 2.1%
2,370,000 CIT Group, Inc.,
6.000%, 4/01/2036 2,307,705
9,160,000 General Electric Capital Corp.,
6.500%, 9/28/2015, (NZD) 5,844,686
4,200,000 General Electric Capital Corp.,
6.625%, 2/04/2010, (NZD) 2,701,683
465,000 General Electric Capital Corp., Series EMTN,
6.750%, 9/26/2016, (NZD) 305,730
--------------
11,159,804
--------------
Oil Field Services -- 0.3%
665,000 Pecom Energia SA,
8.125%, 7/15/2010, 144A 691,600
600,000 Transocean Sedco Forex, Inc.,
7.375%, 4/15/2018 670,790
--------------
1,362,390
--------------
Paper -- 1.1%
1,395,000 Bowater, Inc.,
6.500%, 6/15/2013(d) 1,238,062
2,225,000 Georgia-Pacific Corp.,
7.375%, 12/01/2025 2,102,625
1,495,000 Georgia-Pacific Corp.,
8.875%, 5/15/2031 1,554,800
750,000 International Paper Co.,
4.000%, 4/01/2010 719,518
300,000 International Paper Co.,
5.250%, 4/01/2016 285,980
--------------
5,900,985
--------------
Pharmaceuticals -- 0.1%
500,000 Schering-Plough Corp.,
5.550%, 12/01/2013 501,628
--------------
Pipelines -- 1.9%
3,685,000 Colorado Interstate Gas Co.,
5.950%, 3/15/2015 3,524,043
70,000 El Paso Corp.,
6.375%, 2/01/2009 69,825
2,425,000 El Paso Corp.,
6.950%, 6/01/2028 2,279,500
935,000 El Paso Corp.,
7.000%, 5/15/2011 940,844
250,000 El Paso Corp.,
7.750%, 6/15/2010 258,750
310,000 Kinder Morgan Finance,
5.700%, 1/05/2016 286,166
130,000 Kinder Morgan Finance,
6.400%, 1/05/2036 116,408
320,000 Kinder Morgan, Inc.,
5.150%, 3/01/2015 287,533
2,190,000 Tennessee Gas Pipeline Co.,
7.000%, 10/15/2028 2,181,161
--------------
9,944,230
--------------
Property & Casualty Insurance -- 1.5%
5,530,000 Marsh & McLennan, Inc.,
5.875%, 8/01/2033 5,060,664
Principal
Amount (a) Description Value (+)
- ---------------------------------------------------------------------------
Property & Casualty Insurance -- continued
$ 2,830,000 Travelers Property Casualty Corp.,
6.375%, 3/15/2033 $ 2,882,734
--------------
7,943,398
--------------
Railroads -- 1.0%
5,000,000 Canadian Pacific Railway Ltd.,
4.900%, 6/15/2010, (CAD), 144A 4,561,888
195,000 Missouri Pacific Railroad Co.,
4.750%, 1/01/2020(d) 170,286
243,000 Missouri Pacific Railroad Co.,
4.750%, 1/01/2030 192,746
351,000 Missouri Pacific Railroad Co.,
5.000%, 1/01/2045 281,031
--------------
5,205,951
--------------
Real Estate Investment Trusts -- 1.7%
4,000,000 Colonial Realty LP,
4.800%, 4/01/2011 3,845,248
625,000 Colonial Realty LP,
5.500%, 10/01/2015 608,994
1,000,000 EOP Operating LP,
6.750%, 2/15/2012 1,049,910
2,195,000 Highwoods Realty LP,
7.500%, 4/15/2018 2,421,493
234,000 iStar Financial, Inc., Series REGS,
5.700%, 3/01/2014 232,638
1,000,000 Spieker Properties, Inc.,
7.350%, 12/01/2017 1,118,030
--------------
9,276,313
--------------
Restaurants -- 0.1%
1,000,000 McDonald's Corp.,
3.628%, 10/10/2010, (SGD) 629,186
--------------
Retailers -- 0.0%
22,000 J.C. Penney Co., Inc.,
7.125%, 11/15/2023 24,348
25,000 Kellwood Co.,
7.625%, 10/15/2017 23,229
--------------
47,577
--------------
Sovereigns -- 12.0%
13,725,000 Canadian Government,
4.250%, 9/01/2008, (CAD) 12,351,579
16,265,000 Canadian Government,
4.500%, 9/01/2007, (CAD) 14,608,306
9,600,000 Canadian Government,
5.500%, 6/01/2010, (CAD) 9,054,189
5,000,000 Canadian Government, Series WH31,
6.000%, 6/01/2008, (CAD) 4,619,101
42,500,000 Mexican Fixed Rate Bonds, Series M-20,
8.000%, 12/07/2023, (MXN) 3,691,013
77,000,000 Mexican Fixed Rate Bonds, Series MI-10,
9.000%, 12/20/2012, (MXN) 7,280,471
1,976,978 PF Export Receivables Master Trust,
6.436%, 6/01/2015, 144A 1,996,748
1,515,000 Republic of Brazil,
8.250%, 1/20/2034 1,742,250
325,000 Republic of Brazil,
8.875%, 4/15/2024 390,813
250,000 Republic of Brazil,
11.000%, 8/17/2040(d) 325,625
See accompanying notes to financial statements.
9
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- -------------------------------------------------------------------------------
Sovereigns -- continued
$ 6,285,000 Republic of Brazil,
12.500%, 1/05/2022, (BRL) $ 2,838,700
240,000 Republic of Peru,
5.000%, 3/07/2017(c) 235,800
500,000 Republic of South Africa,
5.250%, 5/16/2013, (EUR) 655,265
150,000 Republic of South Africa,
12.500%, 12/21/2006, (ZAR) 19,397
26,245,000 Republic of South Africa,
13.000%, 8/31/2010, (ZAR) 3,848,761
500,000 SP Powerassets Ltd.,
3.730%, 10/22/2010, (SGD) 317,511
--------------
63,975,529
--------------
Supranational -- 2.9%
22,000,000 Inter-American Development Bank, Series EMTN,
Zero Coupon, 5/11/2009, (BRL) 7,032,149
13,265,000 Inter-American Development Bank, Series EMTN,
6.000%, 12/15/2017, (NZD) 8,418,157
--------------
15,450,306
--------------
Technology -- 3.8%
2,500,000 Arrow Electronics, Inc.,
6.875%, 7/01/2013 2,619,155
1,000,000 Arrow Electronics, Inc.,
6.875%, 6/01/2018 1,022,002
5,335,000 Avnet, Inc.,
6.000%, 9/01/2015 5,205,530
1,145,000 Avnet, Inc.,
6.625%, 9/15/2016 1,165,355
4,590,000 Corning, Inc.,
7.250%, 8/15/2036 4,888,492
1,625,000 Motorola, Inc.,
8.000%, 11/01/2011 1,813,396
3,115,000 Samsung Electronics Co. Ltd.,
7.700%, 10/01/2027, 144A 3,343,660
--------------
20,057,590
--------------
Tobacco -- 0.4%
2,000,000 Altria Group, Inc.,
7.000%, 11/04/2013 2,180,648
--------------
Tobacco Settlement Revenue -- 0.5%
2,730,000 Michigan Tobacco Settlement Finance Authority,
7.309%, 6/01/2034 2,824,130
--------------
Transportation Services -- 0.2%
131,084 Atlas Air, Inc.,
7.200%, 1/02/2019 130,101
1,000,000 ERAC USA Finance Co.,
7.875%, 2/15/2008, 144A 1,014,180
--------------
1,144,281
--------------
Treasuries -- 9.9%
11,940,000 U.S. Treasury Bond,
5.375%, 2/15/2031(d) 12,896,131
25,205,000 U.S. Treasury Note,
3.250%, 8/15/2007(d) 24,838,746
14,865,000 U.S. Treasury Note,
3.875%, 7/31/2007(d) 14,733,772
--------------
52,468,649
--------------
Principal
Amount (a) Description Value (+)
- -------------------------------------------------------------------------------------------
Wireless -- 2.5%
$ 1,000,000 America Movil SA de CV,
4.125%, 3/01/2009 $ 970,013
1,750,000 Motorola, Inc.,
5.220%, 10/01/2097 1,394,376
10,520,000 Telefonica Emisiones SAU,
7.045%, 6/20/2036 11,102,040
--------------
13,466,429
--------------
Wirelines -- 5.8%
6,380,000 AT&T Corp.,
6.500%, 3/15/2029 6,293,774
1,205,000 AT&T, Inc.,
6.150%, 9/15/2034 1,166,576
8,125,000 BellSouth Corp.,
6.000%, 11/15/2034(d) 7,626,637
350,000 GTE Corp.,
6.940%, 4/15/2028 362,499
620,000 New England Telephone & Telegraph,
7.875%, 11/15/2029 672,917
1,400,000 Philippine Long Distance Telephone Co.,
8.350%, 3/06/2017 1,529,500
250,000 Qwest Capital Funding, Inc.,
6.500%, 11/15/2018 226,250
1,650,000 Qwest Capital Funding, Inc.,
6.875%, 7/15/2028 1,476,750
1,440,000 Qwest Capital Funding, Inc.,
7.625%, 8/03/2021 1,395,000
90,000 Qwest Corp.,
6.875%, 9/15/2033 82,125
1,000,000 Telekom Malaysia Berhad,
7.875%, 8/01/2025, 144A 1,201,263
7,175,000 Verizon Communications,
5.850%, 9/15/2035 6,759,991
1,015,000 Verizon Maryland, Inc.,
5.125%, 6/15/2033 823,156
1,330,000 Verizon New York, Inc., Series B,
7.375%, 4/01/2032 1,386,307
--------------
31,002,745
--------------
Total Non-Convertible Bonds (Identified Cost $472,218,456) 496,660,036
--------------
Convertible Bonds -- 3.2%
Banking -- 1.4%
7,185,000 Wells Fargo & Co.,
5.239%, 5/01/2033(c)(d) 7,259,005
--------------
Independent/Energy -- 0.5%
500,000 Devon Energy Corp.,
4.900%, 8/15/2008 628,125
1,750,000 Devon Energy Corp.,
4.950%, 8/15/2008 2,198,438
--------------
2,826,563
--------------
Pharmaceuticals -- 1.2%
5,920,000 Bristol-Myers Squibb Co.,
4.890%, 9/15/2023(c)(d) 5,930,656
360,000 Watson Pharmaceuticals, Inc.,
1.750%, 3/15/2023(d) 329,400
--------------
6,260,056
--------------
See accompanying notes to financial statements.
10
LOOMIS SAYLES INVESTMENT GRADE BOND FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of September 30, 2006
Principal
Amount (a) Description Value (+)
- ----------------------------------------------------------------------------------------------------
Technology -- 0.1%
$ 655,000 Avnet, Inc.,
2.000%, 3/15/2034 $ 623,888
--------------
Total Convertible Bonds (Identified Cost $16,190,343) 16,969,512
--------------
Total Bonds and Notes (Identified Cost $488,408,799) 513,629,548
--------------
Principal
Amount (a) Description
- ----------------------------------------------------------------------------------------------------
Short-Term Investments -- 21.4%
8,866,000 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 9/29/06 at 3.450% to be repurchased at
$8,868,549 on 10/02/06 collateralized by $9,170,000 U.S.
Treasury Note, 3.375% due 11/15/08 with a value of
$9,160,924 including accrued interest 8,866,000
--------------
Shares
- ----------------------------------------------------------------------------------------------------
104,819,588 State Street Securities Lending Quality Trust(e) 104,819,588
--------------
Total Short-Term Investments (Identified Cost $113,685,588) 113,685,588
--------------
Total Investments -- 117.9%
(Identified Cost $602,094,387)(b) 627,315,136
Other assets less liabilities -- (17.9)% (95,430,140)
--------------
Total Net Assets -- 100.0% $ 531,884,996
==============
+ See Note 2a of Notes to Financial Statements.
(a) Principal amount stated in U.S. dollars unless otherwise noted.
(b) Federal Tax Information:
At September 30, 2006, the net unrealized appreciation on
investments based on cost of $605,229,450 for federal tax
purposes was as follows:
Aggregate gross unrealized appreciation for all securities in
which there is an excess of value over tax cost $ 30,251,605
Aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value (8,165,919)
--------------
Net unrealized appreciation $ 22,085,686
==============
(c) Variable rate security. Rate as of September 30, 2006 is disclosed.
(d) All or a portion of this security was on loan to brokers at September 30, 2006.
(e) Represents investment of security lending collateral.
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, 2006, the total value of these
securities amounted to $72,469,173 or 13.62% of total net assets.
Key to Abbreviations:
AUD Australian Dollar
BRL Brazilian Real
CAD Canadian Dollar
EUR Euro
GBP British Pound
IDR Indonesian Rupiah
KRW South Korean Won
MXN Mexican Peso
NZD New Zealand Dollar
SGD Singapore Dollar
THB Thailand Baht
ZAR South African Rand
Holdings at September 30, 2006 as a Percentage of Net Assets (Unaudited)
Sovereigns 12.0%
Treasuries 9.9
Banking 8.6
Foreign Local Governments 7.0
Wirelines 5.8
Mortgage Related 5.4
Home Construction 4.4
Technology 3.9
Electric 3.0
Supranational 2.9
Media Cable 2.8
Wireless 2.5
Life Insurance 2.2
Non-Captive Diversified 2.1
Independent/Energy 2.0
Healthcare 2.0
Media Non-Cable 2.0
Others, less than 2% each 18.0
Currency Exposure at September 30, 2006 as a Percentage of Net Assets
(Unaudited)
Unites States Dollar 64.3%
Canadian Dollar 15.5
New Zealand Dollar 4.3
Brazilian Real 3.8
Mexican Peso 2.1
Others, less then 2% each 6.5
See accompanying notes to financial statements.
11
STATEMENT OF ASSETS & LIABILITIES
September 30, 2006
ASSETS
Investments at cost $ 602,094,387
Net unrealized appreciation 25,220,749
---------------------
Investments at value(a) 627,315,136
Cash 944
Foreign currency at value (identified
cost $274,333) 273,568
Receivable for Fund shares sold 7,904,867
Interest receivable 6,767,975
Securities lending income receivable 2,679
---------------------
TOTAL ASSETS 642,265,169
---------------------
LIABILITIES
Collateral on securities loaned, at
value (Note 2) 104,819,588
Payable for securities purchased 1,117,766
Payable for Fund shares redeemed 3,880,185
Management fees payable (Note 4) 325,175
Administrative fees payable (Note 4) 24,094
Deferred Trustees' fees (Note 4) 55,572
Service and distribution fees payable
(Note 4) 15,802
Other accounts payable and accrued
expenses 141,991
---------------------
TOTAL LIABILITIES 110,380,173
---------------------
NET ASSETS $ 531,884,996
=====================
NET ASSETS CONSIST OF :
Paid-in capital $ 505,164,478
Undistributed net investment income 6,585,027
Accumulated net realized loss on
investments and foreign currency
transactions (5,098,565)
Net unrealized appreciation on
investments and foreign currency
translations 25,234,056
---------------------
NET ASSETS $ 531,884,996
=====================
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE:
Class A shares:
Net assets $ 152,053,857
=====================
Shares of beneficial interest 13,393,501
=====================
Net asset value and redemption price
per share $ 11.35
=====================
Offering price per share (100/95.50
of $11.35) (Note 1) $ 11.88
=====================
Class B shares: (redemption price per
share is equal to net asset value
less any applicable contingent
deferred sales charge) (Note 1)
Net assets $ 5,525,285
=====================
Shares of beneficial interest 488,398
=====================
Net asset value and offering price
per share $ 11.31
=====================
Class C shares: (redemption price per
share is equal to net asset value
less any applicable contingent
deferred sales charge) (Note 1)
Net assets $ 82,863,423
=====================
Shares of beneficial interest 7,333,242
=====================
Net asset value and offering price
per share (Note 1) $ 11.30
=====================
Class Y shares:
Net assets $ 76,547,953
=====================
Shares of beneficial interest 6,740,726
=====================
Net asset value, offering and
redemption price per share $ 11.36
=====================
Class J shares:
Net assets $ 214,894,478
=====================
Shares of beneficial interest 18,954,030
=====================
Net asset value and redemption price
per share $ 11.34
=====================
Offering price per share (100/96.50
of $11.34) (Note 1) $ 11.75
=====================
(a) Including securities on loan with a
market values of: $ 102,656,052
=====================
See accompanying notes to financial statements.
12
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2006
INVESTMENT INCOME
Interest $ 23,219,438
Securities lending income (Note 2) 76,894
Less net foreign taxes withheld (422)
---------------------
23,295,910
---------------------
Expenses
Management fees (Note 4) 1,714,761
Service fees - Class A (Note 4) 204,367
Service and distribution fees -
Class B (Note 4) 41,770
Service and distribution fees -
Class C (Note 4) 481,084
Service and distribution fees -
Class J (Note 4) 1,916,012
Trustees' fees and expenses (Note 4) 38,565
Administrative fees (Note 4) 218,559
Custodian fees and expenses 55,786
Transfer agent fees and expenses -
Class A 28,445
Transfer agent fees and expenses -
Class B 2,699
Transfer agent fees and expenses -
Class C 9,808
Transfer agent fees and expenses -
Class Y 11,610
Transfer agent fees and expenses -
Class J 10,995
Audit fees 71,104
Legal fees - Class A 4,365
Legal fees - Class B 288
Legal fees - Class C 2,566
Legal fees - Class Y 2,384
Legal fees - Class J 6,716
Shareholder reporting expenses -
Class A 27,868
Shareholder reporting expenses -
Class B 2,548
Shareholder reporting expenses -
Class C 14,641
Shareholder reporting expenses -
Class Y 16,635
Shareholder reporting expenses -
Class J 39,995
Registration fees - Class A 31,171
Registration fees - Class B 11,031
Registration fees - Class C 23,889
Registration fees - Class Y 20,406
Registration fees - Class J 4,486
Expense recapture (Note 4) 169,468
Miscellaneous expenses 27,051
---------------------
Total expenses 5,211,073
Less reimbursement (Note 4) (38,905)
---------------------
Net expenses 5,172,168
---------------------
Net investment income 18,123,742
---------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments - net 4,078,452
Foreign currency transactions - net 6,939
Change in unrealized appreciation
(depreciation) on:
Investments - net 1,774,522
Foreign currency translations - net 13,589
---------------------
Net realized and unrealized gain on
investments and foreign currency
transactions 5,873,502
---------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 23,997,244
=====================
See accompanying notes to financial statements.
13
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
September 30, September 30,
2006 2005
--------------------- ---------------------
--------------------- ---------------------
FROM OPERATIONS:
Net investment income $ 18,123,742 $ 15,198,692
Net realized gain on investments and
foreign currency transactions 4,085,391 15,963,185
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations 1,788,111 (7,287,638)
--------------------- ---------------------
Increase in net assets resulting from
operations 23,997,244 23,874,239
--------------------- ---------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (4,862,695) (1,380,960)
Class B (236,234) (143,680)
Class C (2,545,779) (807,975)
Class Y (2,385,934) (1,072,660)
Class J (16,362,403) (19,375,156)
Capital gains:
Class A (1,094,552) (312,527)
Class B (72,697) (35,217)
Class C (662,167) (164,210)
Class Y (499,013) (200,515)
Class J (5,341,430) (4,635,137)
--------------------- ---------------------
Total distributions (34,062,904) (28,128,037)
--------------------- ---------------------
INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 7) 130,917,651 39,379,478
--------------------- ---------------------
Total increase in net assets 120,851,991 35,125,680
--------------------- ---------------------
NET ASSETS
Beginning of year 411,033,005 375,907,325
--------------------- ---------------------
End of year $ 531,884,996 $ 411,033,005
===================== =====================
UNDISTRIBUTED NET INVESTMENT INCOME $ 6,585,027 $ 8,366,427
===================== =====================
See accompanying notes to financial statements.
14
FINANCIAL HIGHLIGHTS
Income (loss) from investment operations: Less distributions:
----------------------------------------- -----------------------------------------
Net asset
value, Dividends Distributions
beginning Net Net realized Total from from from net
of investment and unrealized investment net investment realized Total
the period income (d) gain (loss) operations income capital gains distributions
---------- ---------- -------------- ---------- -------------- ------------- -------------
Class A
9/30/2006 $ 11.71 $ 0.51 $ 0.10 $ 0.61 $ (0.75) $ (0.22) $ (0.97)
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)
Class B
9/30/2006 11.67 0.42 0.10 0.52 (0.66) (0.22) (0.88)
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
9/30/2006 11.66 0.42 0.11 0.53 (0.67) (0.22) (0.89)
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
9/30/2006 11.71 0.55 0.11 0.66 (0.79) (0.22) (1.01)
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)
Class J
9/30/2006 11.69 0.46 0.11 0.57 (0.70) (0.22) (0.92)
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)
(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/waive a portion of the Fund's expenses
during the period. Without this reimbursement/waiver 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 (prior to February 1, 2004) 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's) (%) (b)(c) (%) (c) (%) (c) rate (%)
- ---------- --------- ----------- ---------- --------- -------------- ---------
$ 11.35 5.6(e) $ 152,054 0.92(i) 0.92(i) 4.59 35
11.71 6.8(e) 39,168 0.95 1.14 4.21 28
11.84 8.8(e) 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
11.31 4.8(e) 5,525 1.70 1.89 3.75 35
11.67 5.9(e) 3,443 1.70 2.18 3.47 28
11.82 7.9(e) 1,797 1.70 2.42 3.77 29
11.53 2.9(e) 160 1.70 7.81 5.83 34
11.30 4.9(e) 82,863 1.70(i) 1.70(i) 3.79 35
11.66 5.9(e) 27,992 1.70 1.97 3.45 28
11.81 7.9(e) 9,191 1.70 2.42 3.74 29
11.53 2.9(e) 3 1.70 7.81 4.35 34
11.36 6.1 76,548 0.55 0.63 4.94 35
11.71 7.1 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
11.34 5.3(e) 214,894 1.30(i) 1.30(i) 4.09 35
11.69 6.4(e) 314,418 1.30 1.35 3.89 28
11.83 8.3(e) 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
(f)As required effective October 1, 2001, the Fund 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.
(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)Includes expense recapture of 0.06%, 0.09%, and 0.03% for Class A, Class C,
and Class J, respectively. See Note 4.
16
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
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, as amended (the "1940 Act"), as an open-end management
investment 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. Information presented in these financial statements pertains
to Loomis Sayles Investment Grade Bond Fund (the "Fund" or the "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 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 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 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. 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, registration, legal, shareholder reporting 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 the 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 sixty
days or less) are generally valued at market price on the basis of valuations
furnished to the Fund by a pricing service recommended by the investment
adviser's pricing committee and approved 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. Equity securities, including closed-end
investment companies, 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.
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. In instances where
broker-dealer bid quotations are not available, certain securities held by the
Fund may be 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. Short-term
obligations with a remaining maturity of sixty days or less are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available 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. Investments
in other open-end investment companies are valued at their net asset value each
day.
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. When fair valuing securities, the 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, 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,
non-class specific expenses 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.
17
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
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 period, resulting from changes in exchange rates.
The Fund may use foreign currency exchange contracts to facilitate transactions
in foreign-denominated investments. Losses may arise from changes in the value
of the foreign currency or if the counterparties do not perform under the
contracts' terms.
The 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. The 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 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 represents 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, 2006, 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 provision for federal income tax has 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 annually 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 and premium amortization accruals. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications to capital accounts. Temporary differences between book and
tax distributable earnings are primarily due to premium amortization accruals,
deferred Trustees' fees and corporate action adjustments. Distributions from
net investment income and short-term capital gains are considered to be
ordinary income for tax purposes.
The tax characterization of distributions is determined on an annual basis. The
tax character of distributions paid to shareholders during the years ended
September 30, 2006 and 2005 was as follows:
2006 Distributions Paid From: 2005 Distributions Paid From:
------------------------------------- -------------------------------------
Ordinary Long-Term Ordinary Long-Term
Income Capital Gains Total Income Capital Gains Total
----------- ------------- ----------- ----------- ------------- -----------
$26,394,301 $7,668,603 $34,062,904 $22,981,935 $5,146,102 $28,128,037
Differences between these amounts and those reported in the Statement of
Changes in Net Assets are primarily attributable to different book and tax
treatment for short-term capital gains.
18
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
As of September 30, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ 6,640,600
Capital loss carryforward:
Expires September 30, 2014 (215,200)
-----------
Total capital loss carryforward (215,200)
Deferred net capital losses (post October 2005) (1,723,678)
Unrealized appreciation (depreciation) 22,098,993
-----------
Total accumulated earnings (losses) $26,800,715
===========
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 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 on behalf of 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.
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. In the event that the market value of the
collateral falls below the required percentages described above, the borrower
will deliver additional collateral on the next business day. 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
collateral held by the Fund with respect to such loans at September 30, 2006
were $102,656,052 and $104,819,588, respectively.
i. Indemnifications. Under the Trust'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.
j. New Accounting Pronouncements. In July, 2006, Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement 109 ("FIN 48") was issued and is effective for
fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold
for financial statement recognition, measurement and disclosure of a tax
position taken or expected to be taken on a tax return. Management is currently
evaluating the impact, if any, the adoption of FIN 48 will have on the Fund's
net assets and results of operations.
In addition, in September, 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements ("SFAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact, if any,
the adoption of SFAS 157 will have on the Fund's financial statements.
3. Purchases and Sales of Securities. For the year ended September 30, 2006,
purchases and sales of securities (excluding short-term investments and U.S.
Government/Agency Securities and including paydowns) were $203,034,284 and
$67,216,215, respectively. Purchases and sales of U.S. Government/Agency
Securities (excluding short-term investments and including paydowns) were
$51,459,771 and $79,054,003, 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.
Loomis Sayles has given a binding undertaking to the Fund to defer its
management fees and/or reimburse certain expenses associated with the Fund to
limit its operating expenses. This undertaking is in effect until January 31,
2007 and will be reevaluated on an annual basis. For the year ended
September 30, 2006, the expense limits as a percentage of average daily net
assets under the expense limitation agreement were as follows:
Expense Limit as a Percentage of
Average Daily Net Assets
- --------------------------------------
Class A Class B Class C Class Y Class J
- ------- ------- ------- ------- -------
0.95% 1.70% 1.70% 0.55% 1.30%
19
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
For the year ended September 30, 2006, the management fees for the Fund were
$1,714,761 (0.40% of average daily net assets).
For the year ended September 30, 2006, expenses have been reimbursed to the
Fund in the amount of $38,905.
Loomis Sayles shall be permitted to recover expenses borne under the expense
limitation agreements (whether through reduction of the management fees or
otherwise) in later periods to the extent a class' expenses fall below the
expense limits, provided, however, that the classes 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. For the year ended September 30, 2006 the expense
recaptured and the amounts reimbursed and subject to possible reimbursement
under the expense limitation agreements until September 30, 2007 were as
follows:
Expense Subject
Expense Recaptured For to Possible
the year ended Reimbursement
Class September 30, 2006 until September 30, 2007
----- ------------------ ------------------------
A $ 46,050 $ --
B -- 8,037
C 45,335 --
Y -- 30,868
J 78,083 --
-------- -------
Total $169,468 $38,905
======== =======
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 US Group, L.P. ("IXIS US Group") (formerly IXIS Asset Management
North America, L.P.), which is part of IXIS Asset Management Group, an
international asset management group based in Paris, France.
b. Administrative Fees. IXIS Asset Management Advisors, L.P. ("IXIS Advisors")
provides certain administrative services for the Fund and has subcontracted
with State Street Bank to serve as sub-administrator. IXIS Advisors is a
limited partnership whose sole general partner, IXIS Asset Management
Distribution Corporation, is an indirect wholly-owned subsidiary of IXIS US
Group. Pursuant to an agreement among 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 ("IXIS Advisor Funds Trusts"), Loomis Sayles
Funds I and the Trust ("Loomis Sayles Funds Trusts") and IXIS Advisors, 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, which is reevaluated on an annual basis.
For the year ended September 30, 2006, amounts paid to IXIS Advisors for
administrative fees were $218,559.
c. Service and Distribution Fees. The Trust has entered into a distribution
agreement with IXIS Asset Management Distributors, L.P. ("IXIS Distributors"),
a wholly-owned subsidiary of IXIS US Group. Pursuant to this agreement, IXIS
Distributors serves as principal underwriter of the Fund, except Class J shares
of the Fund. 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 US Group.
Pursuant to Rule 12b-1 under the 1940 Act, 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.
20
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
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, at an annual rate not
to exceed 0.50% of the average daily net assets attributable to the Fund's
Class J shares, both payable to Loomis Sayles Distributors, pursuant to a
shareholder service and distribution plan adopted under Rule 12b-1.
For the year ended September 30, 2006 the Fund paid the following service and
distribution fees:
Service Fees Distribution Fees
---------------------------------- ---------------------------
Class A Class B Class C Class J Class B Class C Class J
-------- ------- -------- -------- ------- -------- ----------
$204,367 $10,442 $120,271 $632,283 $31,328 $360,813 $1,283,729
d. Commissions. The Fund has been informed that commissions (including CDSCs)
on Fund shares paid to IXIS Distributors by investors in Class B and C shares
of the Fund were $659,853 and commissions paid to Loomis Sayles Distributors by
investors in Class J shares of the Fund were $64,981 for the year ended
September 30, 2006.
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of IXIS
Advisors, IXIS Distributors, IXIS US Group, Loomis Sayles or their affiliates.
The Chairperson of the Board receives a retainer fee at the annual rate of
$200,000. The Chairperson does not receive any meeting attendance fees for
Board of Trustees meetings or committee meetings that she attends. Each
Independent Trustee (other than the Chairperson) receives, in the aggregate, a
retainer fee at the annual rate of $55,000. Each Independent Trustee also
receives a meeting attendance fee of $6,000 for each meeting of the Board of
Trustees that he or she attends in person and $3,000 for each meeting of the
Board of Trustees that he or she attends telephonically. In addition, each
committee chairman receives an additional retainer fee at the annual rate of
$10,000. Each Contract Review and Governance Committee member is compensated
$4,000 for each Committee meeting that he or she attends in person and $2,000
for each meeting that he or she attends telephonically. Each Audit Committee
member is compensated $5,000 for each Committee meeting that he or she attends
in person and $2,500 for each meeting that he or she attends telephonically.
These fees are allocated among the funds in 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.
Prior to January 1, 2006, each committee member was compensated $4,000 for each
Audit Committee meeting that he or she attended in person and $2,000 for each
such meeting he or she attended telephonically.
Prior to November 18, 2005, the Trust had co-chairmen of the Board who each
received an annual retainer of $25,000. In addition, during the period
October 1, 2005 to November 18, 2005, each co-chairman received an additional
one-time payment of $25,000 as compensation for their services as chairmen.
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 Fund until distributed in accordance with the Plan.
Additionally, the Board of Trustees has approved the use of the Fund's assets
to pay its portion of the annual salary for 2005 of an employee of IXIS
Advisors who supported the Fund's Chief Compliance Officer. For the period from
October 1, 2005 to December 31, 2005, the Fund's portion of such expense was
approximately $575.
5. Line of Credit. The Fund, together with certain other funds of IXIS Advisor
Funds Trusts and Loomis Sayles Funds Trusts, participates in a $75,000,000
committed line of credit provided by State Street Bank. 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 year ended September 30, 2006, the Fund had no
borrowings under this agreement.
6. Shareholders. At September 30, 2006, the Loomis Sayles Employees' Profit
Sharing Retirement Plan held 145,954 shares of beneficial interest of Class Y
shares.
21
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
7. 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
September 30, 2006
-----------------------------------
Shares Amount
---------------- -----------------
Class A
Issued from the sale of shares 11,230,945 $ 126,226,876
Issued in connection with the reinvestment of distributions 352,275 3,935,430
Redeemed (1,535,143) (17,175,742)
---------------- -----------------
Net change 10,048,077 $ 112,986,564
---------------- -----------------
Class B
Issued from the sale of shares 240,949 $ 2,698,624
Issued in connection with the reinvestment of distributions 16,025 178,511
Redeemed (63,654) (714,457)
---------------- -----------------
Net change 193,320 $ 2,162,678
---------------- -----------------
Class C
Issued from the sale of shares 5,470,170 $ 61,111,182
Issued in connection with the reinvestment of distributions 70,352 782,300
Redeemed (607,944) (6,782,002)
---------------- -----------------
Net change 4,932,578 $ 55,111,480
---------------- -----------------
Class Y
Issued from the sale of shares 5,065,197 $ 56,470,540
Issued in connection with the reinvestment of distributions 181,821 2,031,990
Redeemed (727,813) (8,198,573)
---------------- -----------------
Net change 4,519,205 $ 50,303,957
---------------- -----------------
Class J
Issued from the sale of shares 1,154,600 $ 12,921,601
Issued in connection with the reinvestment of distributions -- --
Redeemed (9,098,390) (102,568,629)
---------------- -----------------
Net change (7,943,790) $ (89,647,028)
---------------- -----------------
Increase (decrease) from capital share transactions 11,749,390 $ 130,917,651
================ =================
Year Ended
September 30, 2005
-----------------------------------
Shares Amount
---------------- -----------------
Class A
Issued from the sale of shares 3,673,755 $ 43,260,058
Issued in connection with the reinvestment of distributions 117,060 1,374,999
Redeemed (1,248,177) (14,457,682)
---------------- -----------------
Net change 2,542,638 $ 30,177,375
---------------- -----------------
Class B
Issued from the sale of shares 178,693 $ 2,100,081
Issued in connection with the reinvestment of distributions 9,317 109,318
Redeemed (44,982) (526,800)
---------------- -----------------
Net change 143,028 $ 1,682,599
---------------- -----------------
Class C
Issued from the sale of shares 1,772,891 $ 20,667,457
Issued in connection with the reinvestment of distributions 12,470 145,879
Redeemed (163,058) (1,894,867)
---------------- -----------------
Net change 1,622,303 $ 18,918,469
---------------- -----------------
Class Y
Issued from the sale of shares 1,856,725 $ 21,663,391
Issued in connection with the reinvestment of distributions 91,507 1,075,420
Redeemed (785,313) (9,152,896)
---------------- -----------------
Net change 1,162,919 $ 13,585,915
---------------- -----------------
Class J
Issued from the sale of shares 9,384,600 $ 110,412,999
Issued in connection with the reinvestment of distributions -- --
Redeemed (11,470,140) (135,397,879)
---------------- -----------------
Net change (2,085,540) $ (24,984,880)
---------------- -----------------
Increase (decrease) from capital share transactions 3,385,348 $ 39,379,478
================ =================
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 portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Loomis Sayles Investment Grade
Bond Fund, a series of Loomis Sayles Funds II ("the Fund"), at September 30,
2006, 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, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 22, 2006
23
2006 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (unaudited)
Capital Gains Distributions. Pursuant to Internal Revenue Section 852(b), the
Fund paid distributions of $7,668,603, which have been designated as capital
gains distributions for the fiscal year ended September 30, 2006.
Qualified Interest Income. Pursuant to the American Jobs Creation Act of 2004
("the Act"), regulated investment companies are permitted to designate
distributions of short-term gains and qualified interest income as exempt from
U.S. withholding tax when paid to foreign investors. The Fund intends to
designate the maximum amount allowable pursuant to the Act as qualified
interest income eligible for tax exempt status.
24
TRUSTEE AND OFFICER INFORMATION
The tables below provide 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
Trust's Statement of Additional Information includes additional information
about the Trustees of the Trust and is 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 2003 Douglas Dillon Professor and 38
(3/23/40) Contract Review and Director of the Belfer Center Director, Taubman Centers,
Governance Committee for Science and International Inc. (real estate investment
Member Affairs, John F. Kennedy trust)
School of Government,
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) Chairman of the Contract Director, Precision Optics
Review and Governance Corporation (optics
Committee manufacturer)
Daniel M. Cain Trustee since 2003 President and Chief Executive 38
(2/24/45) Chairman of the Audit Officer, Cain Brothers & Director, Sheridan Healthcare
Committee Company, Incorporated Inc. (physician practice
(investment banking) management)
Paul G. Chenault + Trustee since 2000 Retired; Trustee, First Variable 38
(9/12/33) Contract Review and Life (variable life insurance) Director, Mailco Office
Governance Committee Products, Inc. (mailing
Member equipment)
Kenneth J. Cowan + Trustee since 2003 Retired 38
(4/5/32) Contract Review and None
Governance Committee
Member
Richard Darman Trustee since 2003 Partner, The Carlyle Group 38
(5/10/43) Contract Review and (investments); formerly, Director and Chairman of
Governance Committee Professor, John F. Kennedy Board of Directors, AES
Member School of Government, Corporation (international
Harvard University power company)
Sandra O. Moose Trustee since 2003 President, Strategic Advisory 38
(2/17/42) Chairperson Services (management Director, Verizon
of the Board of Trustees consulting); formerly, Senior Communications; Director,
since November 2005 Vice President and Director, Rohm and Haas Company
Ex officio member of the The Boston Consulting Group, (specialty chemicals);
Audit Committee and Inc. (management consulting) Director, AES Corporation
Contract Review and (international power
Governance Committee company)
25
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
John A. Shane + Trustee since 2003 President, Palmer Service 38
(2/22/33) Audit Committee Member Corporation (venture capital Director, Gensym
organization) Corporation (software and
technology service provider);
Director and Chairman of the
Board, Abt Associates Inc.
(research and consulting firm)
Cynthia L. Walker Trustee since 2005 Executive Dean for 38
(7/25/56) Audit Committee Member Administration (formerly, None
Dean for Finance and CFO),
Harvard Medical School
INTERESTED TRUSTEES
Robert J. Blanding/1/ Chief Executive Officer and President, Chairman, Director, 38
(4/14/47) Trustee since 2002 and Chief Executive Officer, None
555 California Street Loomis, Sayles & Company,
San Francisco, CA 94104 L.P.; President and Chief
Executive Officer for Loomis
Sayles Funds I; Chief Executive
Officer for Loomis Sayles
Funds II
John T. Hailer/2/ President and Trustee since President and Chief Executive 38
(11/23/60) 2003 Officer, IXIS Asset None
Management Advisors, L.P.,
IXIS Asset Management
Distributors, L.P. and IXIS
Asset Management Global
Associates, L.P.; Executive
Vice President, Loomis Sayles
Funds I; President and Chief
Executive Officer, AEW Real
Estate Income Fund, IXIS
Advisor Cash Management
Trust, IXIS Advisor Funds
Trust I, IXIS Advisor Funds
Trust II, IXIS Advisor Funds
Trust III and IXIS Advisor
Funds Trust IV
* Each Trustee serves until retirement, resignation or removal from the Board
of Trustees. The current retirement age is 72, but the retirement policy was
suspended for the calendar year 2005. At a meeting held on August 26, 2005,
the Trustees voted to lift the suspension of the retirement policy and to
designate 2006 as a transition period so that any Trustees who are currently
age 72 or older or who reach age 72 during the remainder of 2006 will not be
required to retire until the end of calendar year 2006. The position of
Chairperson of the Board is appointed for a two-year term.
**Each person listed above, except as noted, holds the same position(s) with
the Trust. Previous positions during the past five years with IXIS Asset
Management Distributors, L.P. (the "Distributor"), IXIS Asset Management
Advisors, L.P. ("IXIS Advisors") or Loomis, Sayles & Company, L.P. 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 (together the "IXIS Advisor Funds and Loomis Sayles
Funds Trusts").
+ Effective December 31, 2006, Messrs. Chenault, Cowan and Shane will be
retiring as members of the IXIS Advisor Funds and Loomis Sayles Funds Trusts
Board of Trustees.
/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.
/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
("IXIS Distribution Corporation"); and President and Chief Executive
Officer of IXIS Asset Management Global Associates, L.P., IXIS Advisors and
IXIS Asset Management Distributors L.P.
26
TRUSTEE AND OFFICER INFORMATION
Position(s) Held Term of Office and Principal Occupation(s)
Name and Date of Birth with the Trust Length of Time Served* During Past 5 Years**
- ---------------------- -------------- ---------------------- ---------------------
OFFICERS OF THE TRUST
Coleen Downs Dinneen Secretary, Clerk and Chief Since September 2004 Senior Vice President, General
(12/16/60) Legal Officer 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.
Daniel J. Fuss Executive Vice President Since June 2003 Vice Chairman and Director,
(9/27/33) Loomis, Sayles & Company,
One Financial Center L.P.; Prior to 2002, President
Boston, MA 02111 and Trustee of Loomis Sayles
Funds II
Russell L. Kane Chief Compliance Officer; Chief Compliance Officer, Chief Compliance Officer for
(7/23/69) Assistant Secretary Since May 2006; Assistant Mutual Funds, Vice President,
Secretary Since June 2004 Associate 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.;
formerly, Senior Counsel,
Columbia Management
Group.
Michael C. Kardok Treasurer, Principal Since October 2004 Senior Vice President, IXIS
(7/17/59) Financial and Accounting Asset Management Advisors,
Officer L.P. and IXIS Asset
Management Distributors,
L.P.; formerly, Senior
Director, PFPC Inc; formerly,
Vice President -- Division
Manager, First Data Investor
Services, Inc.
27
TRUSTEE AND OFFICER INFORMATION
Position(s) Held Term of Office and Principal Occupation(s)
Name and Date of Birth with the Trust Length of Time Served* During Past 5 Years**
- ---------------------- -------------- ---------------------- ---------------------
OFFICERS OF THE TRUST
continued
Max J. Mahoney Anti-Money Laundering Since August 2005 Vice President, Deputy
(5/1/62) Officer and Assistant General Counsel, Assistant
Secretary Secretary and Assistant Clerk,
IXIS Asset Management
Distribution Corporation.
Senior Vice President, Deputy
General Counsel, Assistant
Secretary, Assistant Clerk and
Chief Compliance Officer --
Investment Adviser, IXIS Asset
Management Distributors, L.P.
and IXIS Asset Management
Advisors, L.P.; formerly,
Senior Counsel, MetLife, Inc.;
formerly, Associate Counsel,
LPL Financial Services, Inc.
John E. Pelletier Chief Operating Officer Since September 2004 Executive Vice President and
(6/24/64) Chief Operating Officer
(formerly, Senior Vice
President, General Counsel,
Secretary and Clerk), IXIS
Asset Management
Distribution Corporation,
IXIS Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; Executive Vice President,
Chief Operating Officer and
Director (formerly, President,
Chief Operating Officer and
Director), IXIS Asset
Management Services
Company.
* Each officer of the Trust serves for an indefinite term in accordance with
its current By-laws until the date his or her successor is elected and
qualified, or until he or she sooner dies, retires, is removed or becomes
disqualified.
**Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor Funds and Loomis Sayles Funds Trusts. Previous positions
during the past five years with the Distributor, IXIS Advisors or Loomis
Sayles are omitted, if not materially different from a trustee's or officer's
current position with such entity.
28
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.
Ms. Cynthia L. Walker, Mr. Daniel M. Cain and Mr. John A. Shane are members of
the audit committee and 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 Registrant'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 Registrant, other than the services
provided reported as a part of (a) through (c) of this Item.
Audit-related
Audit fees fees Tax fees/1/ All other fees/2/
----------------- ------------ --------------- -----------------
2005 2006 2005 2006 2005 2006 2005 2006
-------- -------- ---- ------- ------- ------- ------- -------
Loomis Sayles Funds II........ $316,550 $351,270 -- $13,873 $34,687 $17,570 $11,320 $50,402
1. The tax fees consist of preparation of fiscal year-end distribution
analysis, financial statement disclosures, and tax return (2005) and review
of year-end shareholder reporting (2005, 2006).
2. All other fees consist of filing and translation services with respect to
Japanese shareholders in Loomis Sayles Investment Grade Bond Fund (2005,
2006) and a review of income and expense allocation methods in conjunction
with the annual renewal of the Trust's management contract (2006).
Aggregate fees billed to the Registrant for non-audit services during 2005 and
2006 were $46,007 and $81,845, 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
------------------ ---------------- ---------------
2005 2006 2005 2006 2005 2006
------- ------- ------- -------- ------- -------
Control Affiliates......... $97,600 $17,250 $86,450 $154,130 $47,800 $45,800
Aggregate fees billed to Control Affiliates for non-audit services during 2005
and 2006 were $231,850 and $217,180, 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.
As part of the September 30, 2006 annual audit of the financial statements for
the Loomis Sayles Global Markets Fund it was determined that the beginning net
asset values for the Fund's Class A shares and Class C shares were incorrectly
reported in the semiannual report dated March 31, 2006 and in drafts of the
annual report dated September 30, 2006 (although the issue was identified and
corrected before the annual report was finalized). In addition, the total
returns for Class A shares and Class C shares for the period ending March 31,
2006 were also incorrectly reported. Listed below is a summary of the correct
and incorrect information:
March 31, 2006 Semiannual Report (unaudited)
Incorrect Inception Correct Inception Incorrect Total Correct Total
Net Asset Value Net Asset Value Return Return
------------------- ----------------- --------------- -------------
Class A.... $10.00 $12.71 8.4% (0.2%)
Class C.... $10.00 $12.71 8.1% (0.3%)
Draft September 30, 2006 Annual Report
Incorrect Inception Correct Inception
Net Asset Value Net Asset Value
------------------- -----------------
Class A.................................. $10.00 $12.71
Class C.................................. $10.00 $12.71
In connection with these findings, the registrant's principal executive and
principal financial officers reevaluated the registrant's disclosure controls
and procedures within 90 days of this report and determined that those
disclosure controls and procedures were not effective for the periods ended
March 31, 2006 and September 30, 2006 in that there was a failure by certain of
the registrant's service providers to follow necessary processes for new
classes of shares. The Chief Financial Officer of the registrant disclosed to
the registrant's auditors, PricewaterhouseCoopers LLP, and the Audit Committee
of the registrant's Board of Trustees his conclusion that the failure to follow
the above-mentioned processes is a significant deficiency in the operation of
the registrant's internal control over financial reporting.
The registrant is remediating the significant deficiency in the operation of
its internal control over financing reporting by taking the following actions:
. Management has discussed with the relevant service providers the cause
of the error and the corrective actions they have taken, or are taking,
to detect and/or prevent future errors of this type. One service
provider is strengthening its internal processes relating to the
validation of information supporting the disclosures for new classes of
shares while the other service provider is enhancing its existing
controls to place more focus on the financial information related to the
commencement of new classes of shares.
. Each of the service providers has made personnel changes and has
provided additional training to remaining personnel involved in the
preparation and review of financial statements.
Other than as described above, there were no changes in the registrant's
internal control over financial reporting during the quarter ended
September 30, 2006 that materially effected, 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 Rule 30a-2(a) 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, 2006
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, 2006
By: /s/ Michael C. Kardok
------------------------------
Name: Michael C. Kardok
Title: Treasurer
Date: November 28, 2006