Filed On 12/9/04 4:21pm ET · SEC File 333-121113 · Accession Number 1193125-4-210337
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
12/09/04 Loomis Sayles Funds II N-14AE 5:198 1193125
Registration Statement of an Open-End Investment Company (Business Combination) with Automatic Effectiveness · Form N-14
Filing Table of Contents
Document/Exhibit Description Pages Size
1: N-14AE Loomis Sayles Funds Ii 183 782K
2: EX-99.(7)(B) Form of Dealer Agreement Used by Ixis Asset 10± 45K
Management Distributors, L.P.
3: EX-99.(11)(A) Opinion and Consent of Ropes & Gray Llp 2 12K
4: EX-99.(14) Consent of Pricewaterhousecoopers Llp 1 6K
5: EX-99.(17)(A) Form of Proxy 2 8K
Registration Nos. 811-06241
333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
----
[ ] Post-Effective Amendment No.
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(Check appropriate Box or Boxes)
LOOMIS SAYLES FUNDS II
(Exact Name of Registrant as Specified in Charter)
(617) 449-2810
(Area Code and Telephone Number)
399 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices, including 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)
Copy to:
John M. Loder, Esq.
Ropes & Gray LLP
One International Place
Boston, Massachusetts 02110
As soon as practicable after this Registration Statement becomes effective.
(Approximate Date of Proposed Public Offering)
CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933
Title of Securities Being Registered: Shares of beneficial interest, no par
value, of Loomis Sayles Limited Term Government and Agency Fund.
The Registrant has registered an indefinite amount of its shares of beneficial
interest under the Securities Act of 1933, pursuant to Rule 24f-2 under the
Investment Company Act of 1940. No filing fee is due because of reliance on
Section 24(f).
It is proposed that this filing will become effective on January 9, 2005
pursuant to Rule 488.
January 18, 2005
Dear Shareholder:
The enclosed prospectus/proxy statement provides detailed information about an
important proposal for Loomis Sayles Government Securities Fund. The fund will
hold a special meeting of shareholders on March 10, 2005 at 2:00 p.m. Eastern
time, at the offices of IXIS Asset Management Advisors, L.P., 399 Boylston
Street, 10th Floor, Boston, Massachusetts 02116. A formal Notice of Special
Meeting of Shareholders is enclosed, followed by a prospectus/proxy statement
that explains in more detail the proposal to be considered. Please refer to the
"Questions and Answers" section of the prospectus/proxy statement for an
overview of the proposed changes. We've summarized some important facts here.
Reading this letter completely may make your review of the prospectus/proxy
statement easier.
Q: What is the You are being asked to approve the merger of Loomis
proposal? Sayles Government Securities Fund into Loomis Sayles
Limited Term Government and Agency Fund. If the
merger is approved, you will receive corresponding
shares of Loomis Sayles Limited Term Government and
Agency Fund.
Q: Why is this change The proposed merger of Loomis Sayles Government
being proposed and Securities Fund into Loomis Sayles Limited Term
what does it mean to Government and Agency Fund seeks to provide
me? shareholders of Loomis Sayles Government Securities
Fund with an opportunity to invest in a larger
combined fund that we believe has better prospects
for long-term growth. Here are some of the advantages
of this merger:
Lower expenses and better growth prospects. The net
expense ratio of the combined fund is expected to be
lower than that of Loomis Sayles Government
Securities Fund. Additionally, we believe that the
larger asset base of the combined fund will help the
fund to grow in size and benefit from possible
economies of scale.
Same level of service. As a shareholder of Loomis
Sayles Limited Term Government and Agency Fund, you
will continue to enjoy the same services you
currently receive as a Loomis Sayles Government
Securities Fund shareholder. These services include
automatic investment options and a variety of ways to
access your investment.
Continued investment in CDC Nvest Funds. If the
acquisition is approved, Loomis Sayles Government
Securities Fund shareholders will keep their
investment in the CDC Nvest Funds family - as well as
the benefit of exchange privileges.
(Over, please)
Q: What are some of the Both Funds invest primarily in securities issued or
differences in the guaranteed by the U.S. government, its agencies or
principal investment instrumentalities. However, the Loomis Sayles
strategies of both funds? Government Securities Fund generally seeks securities
with an average maturity of ten years or more where
the Loomis Sayles Limited Term Government and Agency
Fund generally seeks securities with an effective
duration range of two to four years.
Please review the enclosed prospectus/proxy statement
for a more complete comparison of the investment
goals, strategies, and policies of Loomis Sayles
Limited Term Government and Agency Fund and Loomis
Sayles Government Securities Fund.
Q: Who are the portfolio Loomis Sayles Limited Term Government and Agency Fund
managers of the Loomis is managed by the same experienced team as Loomis
Sayles Limited Term Sayles Government Securities Fund. The managers, John
Government and Hyll and Clifton Rowe, CFA, have nearly 35 years of
Agency Fund? combined investment experience.
Q: Who will bear the The expenses related to the meeting and the
costs of this meeting? solicitation of proxies will be borne by IXIS Asset
Management Advisors, L.P., and its affiliates, not by
the Loomis Sayles Government Securities Fund.
Q: What are the tax The acquisition of Loomis Sayles Government
implications? Securities Fund is expected to be tax-free to
shareholders for federal income tax purposes. No gain
or loss is expected to be realized by the fund or any
shareholders as a result of this change.
Remember - your vote counts
Your vote is extremely important, regardless of the number of shares you own.
Please vote your shares whether or not you plan to attend the meeting. Alamo
Direct, a professional proxy solicitation firm, has been retained to assist
shareholders in the voting process. As the date of the meeting approaches, if we
have not yet received your vote, you may receive a telephone call from Alamo
Direct reminding you to exercise your right to vote.
Vote on the Internet or by toll-free telephone - it's your choice
You may vote simply by returning the enclosed proxy card. A self-addressed,
postage-paid envelope has been enclosed for your convenience. You may also vote
via the Internet or by calling the toll-free number from a touch-tone telephone.
Please see your proxy card for more information and voting instructions. If you
do vote electronically, you do not need to mail your proxy card. However, if you
want to change your vote, you may do so using the proxy card, telephone, or
Internet.
Thank you for your cooperation in voting on this important proposal. Please take
a few moments to review the details of the proposal. If you have any questions
regarding the prospectus/proxy statement, please call your financial advisor, or
call CDC Nvest Funds at 800-225-5478.
Sincerely,
/s/ John T. Hailer
John T. Hailer
President
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 10, 2005
CDC NVEST FUNDS TRUST I
Loomis Sayles Government Securities Fund
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Loomis Sayles Government Securities Fund will be held at 2:00 p.m.
Eastern time on March 10, 2005 at the offices of IXIS Asset Management Advisors,
L.P., 399 Boylston Street, 10th Floor, Boston, Massachusetts 02116, for the
following purposes:
1. To consider the approval of an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of Loomis Sayles
Government Securities Fund to, and the assumption of all of the
liabilities of Loomis Sayles Government Securities Fund by, Loomis
Sayles Limited Term Government and Agency Fund, a series of Loomis
Sayles Funds II, in exchange for shares of the Loomis Sayles Limited
Term Government and Agency Fund, and the distribution of such shares
to the shareholders of Loomis Sayles Government Securities Fund in
complete liquidation of Loomis Sayles Government Securities Fund.
2. To consider and act upon any other matters that properly come before
the Meeting and any adjourned session of the Meeting.
Shareholders of record at the close of business on January 18, 2005 are
entitled to notice of and to vote at the Meeting and any adjourned session
thereof.
By order of the Board of Trustees,
Coleen Downs Dinneen, Secretary
January 18, 2005
PLEASE RESPOND. YOUR VOTE IS IMPORTANT. PLEASE VOTE YOUR SHARES ON THE INTERNET,
BY TELEPHONE OR COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD, WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING.
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PROSPECTUS/PROXY STATEMENT
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January 18, 2005
Acquisition of the Assets and Liabilities of
Loomis Sayles Government Securities Fund
a series of CDC Nvest Funds Trust I
399 Boylston Street
Boston, Massachusetts 02116
800-225-5478
By and in Exchange for Shares of
Loomis Sayles Limited Term Government and Agency Fund
a series of Loomis Sayles Funds II
399 Boylston Street
Boston, Massachusetts 02116
800-225-5478
This combined Prospectus/Proxy Statement (the "Prospectus/Proxy Statement")
contains information you should know before voting on the proposed acquisition
of Loomis Sayles Government Securities Fund (the "Government Securities Fund")
by Loomis Sayles Limited Term Government and Agency Fund (the "Limited Term
Fund" and, together with the Government Securities Fund, the "Funds") at a
Special Meeting of Shareholders of the Government Securities Fund (the
"Meeting"), which will be held at 2:00 p.m. Eastern time on March 10, 2005, at
the offices of IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), 399
Boylston Street, 10th Floor, Boston, Massachusetts 02116. Please read this
Prospectus/Proxy Statement and keep it for future reference.
The Proposal in this Prospectus/Proxy Statement relates to the acquisition
of the Government Securities Fund by the Limited Term Fund (the "Acquisition").
The Funds are each registered open-end management investment companies. The
investment goal of the Limited Term Fund is to seek high current return
consistent with preservation of capital. The investment goal of the Government
Securities Fund is to seek a high level of current income consistent with safety
of principal by investing in U.S. government securities. If shareholders of the
Government Securities Fund approve the Agreement and Plan of Reorganization
relating to the Acquisition and the Acquisition occurs, the Government
Securities Fund will transfer all of the assets and liabilities attributable to
each class of its shares to the Limited Term Fund in exchange for shares of the
same class of the Limited Term Fund with the same aggregate net asset value as
the net asset value of the assets and liabilities transferred. After that
exchange, shares of each class received by the Government Securities Fund will
be distributed pro rata to its shareholders of the same class, and shareholders
of the Government Securities Fund will become shareholders of the Limited Term
Fund.
-2-
The Trustees of CDC Nvest Funds Trust I ("Trust I"), who are also Trustees
of Loomis Sayles Funds II (the "Loomis Sayles Trust" and, together with Trust I,
the "Trusts"), have set January 18, 2005 as the record date (the "Record Date")
for determining which shareholders of the Government Securities Fund are
entitled to vote at the Meeting and any adjourned session thereof.
The following documents have been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated in this Prospectus/Proxy Statement
by reference:
. The Class A, B and C Prospectus of the CDC Nvest Income Funds, which
includes the Government Securities Fund, dated February 1, 2004, as
supplemented on February 27, 2004, May 3, 2004, June 24, 2004,
September 29, 2004, October 1, 2004 and November 23, 2004.
. The Class Y Prospectus of the CDC Nvest Income Funds, which includes
the Government Securities Fund, dated February 1, 2004, as
supplemented on February 27, 2004, May 3, 2004, June 24, 2004,
September 29, 2004, October 1, 2004 and November 23, 2004.
. The Statement of Additional Information Parts I and II of the CDC
Nvest Income Funds, which includes the Government Securities Fund,
dated February 1, 2004, as supplemented on July 1, 2004 for Part I and
May 3, 2004 and July 1, 2004 for Part II.
. Management's discussion of Fund performance, the Report of Independent
Auditors and financial statements included in the Annual Report to
shareholders of the Government Securities Fund for the fiscal year
ended September 30, 2004.
. The Statement of Additional Information of Limited Term Fund dated
January 18, 2005, relating to the Acquisition described in this
Prospectus/Proxy Statement.
This Prospectus/Proxy Statement concisely sets forth information about the
Limited Term Fund that a prospective investor ought to know before investing and
should be retained for future reference. Each Fund has previously sent its
Annual Report to its shareholders. For a free copy of these Reports or any of
the documents listed above, you may call 800-225-5478 or you may write to either
Fund at the address listed on the cover of this Prospectus/Proxy Statement. You
may also obtain many of these documents by accessing your Fund's web site at
www.cdcnvestfunds.com. Text-only versions of all the documents listed above can
be viewed online or downloaded from the EDGAR database on the SEC's Internet
site at www.sec.gov. You can review and copy information about the Funds by
visiting the Public Reference Room, U.S. Securities and Exchange Commission,
Washington, DC 20549-0102 or the regional offices of the SEC located at 233
Broadway, New York, NY 10279 and 175 W. Jackson Boulevard, Suite 900, Chicago,
IL 60604. You can obtain copies, upon payment of a duplicating fee, by sending
an e-mail request to publicinfo@sec.gov, or by writing the Public Reference Room
at its Washington, DC address above. Information on the operation of the Public
Reference Room may be obtained by calling 202-942-8090.
-3-
The SEC has not approved or disapproved these securities or determined if
this Prospectus/Proxy Statement is truthful or complete. Any representation to
the contrary is a criminal offense.
Shares of the Limited Term Fund are not bank deposits and are not
guaranteed, endorsed or insured by the Federal Deposit Insurance Corporation or
any other government agency, and are subject to investment risks, including
possible loss of the principal invested.
-4-
TABLE OF CONTENTS
QUESTIONS AND ANSWERS..........................................................6
THE PROPOSAL..................................................................13
The Proposal...............................................................13
Principal Investment Risks.................................................14
Information about the Acquisition..........................................14
Terms of the Agreement and Plan of Reorganization.......................14
Shares You Will Receive.................................................16
Reasons for the Acquisition.............................................16
Performance Information.................................................18
Federal Income Tax Consequences.........................................20
Declarations of Trust...................................................22
Dividends and Distributions.............................................26
Capitalization..........................................................26
Required Vote for the Proposal..........................................27
INFORMATION REGARDING VOTING AND CONDUCT OF MEETING...........................27
Voting Information.........................................................27
Information About Proxies and the Conduct of the Meeting...................27
OTHER INFORMATION.............................................................29
Appendix A................................................................A-1
Appendix B................................................................B-1
Appendix C................................................................C-1
Appendix D................................................................D-1
Appendix E................................................................E-1
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Questions and Answers
The following questions and answers provide an overview of key features of the
Acquisition and of the information contained in this Prospectus/Proxy Statement.
Please review the full Prospectus/Proxy Statement prior to submitting your vote.
1. What is being proposed?
The Trustees of Trust I are recommending that shareholders approve the
acquisition of the Government Securities Fund by the Limited Term Fund. This
means that the Limited Term Fund would acquire all of the assets and assume all
the liabilities of the Government Securities Fund in exchange for shares of the
Limited Term Fund. If the Acquisition is approved and consummated, you will
receive shares of Limited Term Fund of the same class and with an aggregate net
asset value equal to the aggregate net asset value of your Government Securities
Fund shares as of the closing of the Acquisition. The Acquisition is currently
scheduled to take place on or around March 18, 2005, or on such other date as
the Trusts may agree.
Please note that if shareholders of the Government Securities Fund do
not approve the Acquisition, the Trustees of the Trusts may take such further
action, potentially including the liquidation of the Government Securities Fund,
as they may deem to be in the best interests of the Government Securities Fund.
2. Why is the Acquisition being proposed?
Loomis, Sayles & Company, L.P. ("Loomis Sayles") the investment
adviser to each Fund, and IXIS Advisors, the advisory administrator for the
Government Securities Fund and an affiliate of Loomis Sayles, are proposing the
Acquisition to enable shareholders of the Government Securities Fund to invest
in a larger combined fund which Loomis Sayles and IXIS Advisors believe has
better long-term growth prospects. The Trustees of Trust I recommend approval of
the Acquisition because of the advantages that Loomis Sayles and IXIS Advisors
believe the Acquisition will offer to shareholders of the Government Securities
Fund. These advantages include the following:
. Lower expenses. Shareholders of the Government Securities Fund are
expected to experience lower expenses after the Acquisition.
. Sales trends. Loomis Sayles and IXIS Advisors believe the Government
Securities Fund has not achieved sufficient sales growth and is not
expected to do so in the near future and that the combined fund would
be better positioned to achieve long-term viability.
. Good performance. The Limited Term Fund has a better performance
record relative to its Morningstar peer group than the Government
Securities Fund has relative to its Morningstar peer group. Loomis
Sayles and IXIS Advisors believe that the better relative performance
of the Limited Term Fund should result in better opportunities for
Fund sales.
-6-
. Same level of shareholder services. Government Securities Fund
shareholders will continue to enjoy the same shareholder services as
shareholders of the Limited Term Fund as they currently enjoy as
Government Securities Fund shareholders.
. Continued availability of the CDC Nvest Funds. The proposed
Acquisition will permit Government Securities Fund shareholders to
keep their investment in an open-end mutual fund with exchange
privileges with the mutual funds comprising the CDC Nvest Funds
family.
Please review "Information about the Acquisition - Reasons for the
Acquisition" in the Proposal section of this Prospectus/Proxy Statement for more
information regarding the factors considered by the Trustees of the Trusts.
3. How do the advisory arrangements, investment goals, strategies and policies
of the Government Securities Fund and the Limited Term Fund compare?
Although the investment goal and principal investment strategies of
the Government Securities Fund are generally similar to those of the Limited
Term Fund, there are differences. For example, although each Fund invests (under
normal market conditions) at least 80% of its net assets in investments issued
or guaranteed by the U.S. government, its agencies or instrumentalities, only
the Government Securities Fund has a policy of not investing more than 20% of
its net assets in securities that are not backed by the full faith and credit of
the U.S. government. Each Fund follows a total return oriented investment
approach, though the Government Securities Fund seeks securities with an average
maturity of 10 years or more while the Limited Term Fund seeks securities with
an effective duration range of two to four years. Please see the table below for
more information comparing the investment goals and strategies of the Funds.
This table shows the investment goal and principal investment
strategies of each Fund. For more detail on the investment goals, strategies and
policies of the Government Securities Fund and the Limited Term Fund, see the
Government Securities Fund's prospectuses and Appendix A, respectively.
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Government Securities Fund Limited Term Fund
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Investment Goal: Seeks a high level of Investment Goal: Seeks a high current
current income consistent with safety return consistent with preservation of
of principal by investing in U.S. capital. The Fund's investment goal may
government securities. be changed without shareholder
approval.
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Principal Investment Strategies: The Principal Investment Strategies: The
Government Securities Fund seeks to Limited Term Fund seeks to achieve its
achieve its investment goal as investment goal as follows:
follows:
.. Under normal market conditions, . Under normal market conditions,
the Fund the
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invests at least 80% of Fund invests at least 80% of
its net assets in investments its net assets in investments
issued or guaranteed by the U.S. issued or guaranteed by the U.S.
government, its agencies or government, its agencies or
instrumentalities. In accordance instrumentalities. In accordance
with applicable Securities and with applicable Securities and
Exchange Commission requirements, Exchange Commission requirements,
the Fund will notify shareholders the Fund will notify shareholders
prior to any change to such of any change to such policy
policy taking effect. The Fund taking effect.
will not invest more than 20% of
its net assets (plus borrowings . Loomis Sayles follows a total
made for investment purposes) in return oriented investment
securities that are not backed or approach in selecting securities
guaranteed by the full faith and for the Fund. It seeks securities
credit of the U.S. government. that give the Fund's portfolio the
following characteristics,
.. Loomis Sayles follows a total although not all of the securities
return oriented investment selected will have these
approach in selecting securities characteristics and Loomis Sayles
for the Fund. It seeks securities may look for other characteristics
that give the Fund's portfolio if market conditions change:
the following characteristics, [X] Average credit quality of
although these characteristics "AAA" by Standard & Poor's
may change depending on market Ratings Group ("S&P") or
conditions: "Aaa" by Moody's Investors
[X] Average credit quality of Service, Inc. ("Moody's").
"AAA" by Standard & Poor's [X] Effective duration range of
Ratings Group or "Aaa" by two to four years.
Moody's Investors Service,
Inc. In selecting investments for the Fund,
[X] Average maturity of 10 years Loomis Sayles employs the following
or more. strategies:
In selecting investments for the . Its research analysts work closely
Fund's portfolio, Loomis Sayles with the Fund's portfolio managers
employs the following strategies: to develop an outlook on the
economy from research produced by
.. Its research analysts work various Wall Street firms and
closely with the Fund's portfolio specific forecasting services or
managers to develop an outlook on from economic data released by the
the economy from research U.S. and foreign governments as
produced by various Wall Street well as the Federal Reserve Bank.
firms and specific forecasting
services or from economic data . Next, the analysts conduct a
released by the U.S. and foreign through review of individual
governments as well as the securities to identify what they
Federal Reserve Bank. consider attractive values in the
U.S. government security
.. Next, the analysts conduct a marketplace. This value analysis
through review of individual uses quantitative tools such as
securities to identify what they internal and external computer
consider attractive values in the systems and software.
U.S. government security
marketplace. This value analysis . Loomis Sayles continuously
uses quantitative tools such as monitors an issuer's
internal and external computer creditworthiness to assess whether
systems and software. the obligation remains an
appropriate investment to the
.. Loomis Sayles seeks to balance Fund.
opportunities for yield and price
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performance by combining . Loomis Sayles seeks to balance
macroeconomic analysis with opportunities for yield and price
individual security selection. It performance by combining
will emphasize securities that macroeconomic analysis with
tend to perform particularly well individual security selection. It
in response to interest rate emphasizes securities that tend to
changes, such as U.S. Treasury perform particularly well in
securities in a declining response to interest rate changes,
interest rate environment and such as U.S. Treasury securities
mortgage-backed or U.S. in a declining interest rate
government agency securities in a environment and mortgage-backed or
steady or rising interest rate U.S.government agency securities
environment. in a steady or rising interest
rate environment.
.. Loomis Sayles seeks to maximize
the opportunity for high yields . Loomis Sayles seeks to increase
while taking into account the the opportunity for higher yields
price volatility inherent in while maintaining the greater
bonds with longer maturities. price stability that
intermediate-term bonds have
compared to bonds with longer
maturities.
The Fund may also:
- Invest in zero-coupon bonds. The Fund may also:
- Invest in mortgage-related - Invest in investment-grade corporate
securities, including stripped notes and bonds (those rated BBB or
securities. higher by S&P and Baa or higher by
- Invest in futures. Moody's).
- Engage in active and frequent - Invest in zero-coupon bonds.
trading of securities. Frequent - Invest in foreign bonds denominated
trading may produce high transaction in U.S. dollars.
costs and a high level of taxable - Invest in asset-backed securities (if
capital gains, which may lower the rated AAA by S&P or Aaa by Moody's).
Fund's return. - Invest in mortgage-related
securities, including mortgage dollar
rolls.
- Invest in futures.
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The Government Securities Fund and Limited Term Fund generally are
subject to similar fundamental investment restrictions. However, the Limited
Term Fund is subject to certain fundamental policies to which the Government
Securities Fund is not subject. Limited Term Fund may not: (1) purchase any
securities (other than U.S. government securities) if, as a result, more than
25% of the Fund's total assets (taken at current value) would be invested in any
one industry; and (2) purchase or sell real estate, although it may purchase
securities of issuers that deal in real estate, securities that are secured by
interests in real estate, and it may acquire and dispose of real estate or
interests in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein. Unlike the
Government Securities Fund, the Limited Term Fund also may make short sales,
though it has no current intention of doing so. For a complete list of each
Fund's investment policies and restrictions, see each Fund's Statement of
Additional Information.
-9-
4. How do the risks of investing in the Government Securities Fund compare to
the risks of investing in Limited Term Fund?
Because the two Funds have similar investment goals and policies, they
are subject to similar, although not identical, risks. To the extent that the
Limited Term Fund invests a greater percentage of its assets in securities that
are not backed by the full faith and credit of the U.S. government, it will be
subject to greater credit risk. To the extent that the Government Securities
Fund invests in securities with longer effective durations, it may be subject to
a greater extent to interest rate risk. For a discussion of the principal risks
associated with an investment in the Funds, please see "Principal Investment
Risks" in the Proposal section of this Prospectus/Proxy Statement.
5. How do the management fees and expenses of the Funds compare and what are
they estimated to be following the Acquisition?
The following tables allow you to compare the management fees and
expenses of the Government Securities Fund and the Limited Term Fund, and to
analyze the estimated expenses that Loomis Sayles, the investment adviser to the
Limited Term Fund, expects the combined fund to bear in the first year following
the Acquisition.
The shareholder fees presented below apply to shares of each Fund, and
will apply to the combined fund after giving effect to the Acquisition.
Shareholders of the Government Securities Fund will not pay additional sales
charges as a result of the Acquisition, although contingent deferred sales
charges ("CDSCs") will continue to apply. For purposes of determining the CDSC
applicable to Government Securities Fund shareholders who become Limited Term
Fund shareholders as a result of the Acquisition, the amount of time that the
shareholder held his or her Government Securities Fund shares will be added (or
"tacked") to the length of time the shareholder held Limited Term Fund shares
acquired in the Acquisition.
Annual Fund Operating Expenses are deducted from each Fund's assets.
They include management and administration fees, Rule 12b-1 fees (if applicable)
and administrative costs, including pricing and custody services. The Annual
Fund Operating Expenses shown in the tables below represent expenses incurred by
Government Securities Fund for its fiscal year ended September 30, 2004 and
Limited Term Fund for its fiscal year ended September 30, 2004, restated to
reflect current fees and expenses, and expenses that Loomis Sayles estimates the
combined fund would have incurred during the twelve months ended September 30,
2004, after giving effect to the Acquisition on a pro forma basis assuming the
Acquisition had occurred on October 1, 2003.
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Shareholder Fees (For Both Funds)
(fees paid directly from your investment)
· Enlarge/Download Table
Government Securities Fund Limited Term Fund
----------------------------- -----------------------------
Class A Class B Class Y Class A Class B Class Y
------- ------- ------- ------- ------- -------
Maximum sales charge (load) imposed on 4.50% None None None None
purchases (as a percentage of the offering 3.00%
price) /(1)(2)/
Maximum deferred sales charge (load) (as a 1.00%/(3)/ 5.00% None 1.00%/(3)/ 5.00% 1.00%
percentage of original purchase price or
redemption proceeds, as applicable) /(2)/
Redemption fee /(4)/ None None None None None None
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/(1)/ A reduced sales charge on Class A shares may apply. See "How Sales Charges
Are Calculated" in Appendix A.
/(2)/ Does not apply to reinvested distributions.
/(3)/ A 1.00% CDSC applies with respect to certain purchases of Class A shares
greater than $1,000,000 that are redeemed within one year after purchase,
but not to any other purchases or redemptions of Class A shares. See "How
Sales Charges Are Calculated" in Appendix A.
/(4)/ Generally, a transaction fee will be charged for expedited payment of
redemption proceeds, such as by wire or overnight delivery.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets, as a percentage of average daily
net assets)
Government Securities Fund Limited Term Fund*
--------------------------- ---------------------------
Class A Class B Class Y Class A Class B Class Y
------- ------- ------- ------- ------- -------
Management fees 0.55% 0.55% 0.55% 0.57% 0.57% 0.57%
Distribution and/or
service (12b-1) fees 0.25% 1.00%** 0.00% 0.25% 1.00%** 0.00%
Other expenses/1/ 0.58% 0.58% 1.12% 0.40% 0.40% 0.61%
Total annual fund
operating expenses 1.38% 2.13% 1.67% 1.22% 1.97% 1.18%
Limited Term Fund
(pro forma combined)
---------------------------
Class A Class B Class Y
------- ------- -------
Management fees/2/ 0.50% 0.50% 0.50%
Distribution and/or service
(12b-1) fees 0.25% 1.00%** 0.00%
Other expenses/1/ 0.42% 0.42% 0.49%
Total annual fund operating
expenses 1.17% 1.92% 0.99%
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* Expense information in the table has been restated to reflect current fees
and expenses.
** Because of the higher Rule 12b-1 fees, long-term Class B shareholders may
pay more than the economic equivalent of the maximum front-end sales charge
permitted by the rules of the National Association of Securities Dealers,
Inc.
/1/ Other expenses have been restated to reflect contractual changes to the
transfer agency fees effective January 1, 2005.
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/2/ Loomis Sayles has agreed that if the Acquisition is consummated it will
reduce the advisory fee on the Limited Term Fund to 0.50%.
Expense Examples*
(your actual costs may be higher or lower)
The following examples help you compare the cost of investing in the
Government Securities Fund with the cost of investing in the Limited Term Fund,
both for the fiscal years set forth above and on a pro forma basis, and also
allow you to compare this with the cost of investing in other mutual funds. The
examples, which are based on the expenses shown above, use the following
hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Each Fund's operating expenses remain the same; and
. Assumes reinvestment of all dividends and distributions.
Although your actual costs and returns may be higher or lower, the
examples show what your costs would be based on these assumptions.
· Download Table
Government Securities Fund* Limited Term Fund*
----------------------------------- -----------------------------------
Class A Class B Class Y Class A Class B Class Y
------- --------------- ------- -----------------------------------
(1) (2) (1) (2)
------ ------ ------ ------
1 year $ 584 $ 716 $ 216 $ 170 $ 421 $ 700 $ 200 $ 120
3 years $ 867 $ 967 $ 667 $ 526 $ 676 $ 918 $ 618 $ 375
5 years $1,171 $1,344 $1,144 $ 907 $ 950 $1,262 $1,062 $ 649
10 years** $2,033 $2,271 $2,271 $1,976 $1,733 $2,102 $2,102 $1,432
Limited Term Fund*
(pro forma combined)
-----------------------------------
Class A Class B Class Y
------- --------------- -------
(1) (2)
------ ------
1 year $ 416 $ 695 $ 195 $ 101
3 years $ 660 $ 903 $ 603 $ 315
5 years $ 924 $1,237 $1,037 $ 547
10 years** $1,678 $2,048 $2,048 $1,213
----------
* The examples reflect contractual changes to the transfer agency fees effective
January 1, 2005 (see footnote 1 above). The examples for the pro forma combined
fund reflect a reduction in the advisory fee for the Limited Term Fund (see
footnote 2 above).
** Class B shares automatically convert to Class A shares after 8 years;
therefore, in years 9 and 10 Class B amounts are calculated using Class A
expenses.
(1) Assumes redemption of shares at end of each period.
(2) Assumes no redemption of shares.
Significant assumptions underlying the pro forma Annual Fund Operating
Expenses and Expenses Examples are as follows: (1) certain duplicate costs
involved in operating the Government Securities Fund will be eliminated as a
result of the Acquisition and (2) expense ratios are based on pro forma combined
average net assets for the twelve months ended September 30, 2004, assuming the
Acquisition occurred on October 1, 2003.
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6. What class of shares will you receive in Limited Term Fund if the
Acquisition occurs?
You will receive the same class of shares of Limited Term Fund that
you currently own in the Government Securities Fund. These shares will have the
same exchange rights, will bear the same CDSC upon redemption, and, in the case
of Class B shares, will convert to Class A shares at the same time as your
current shares. The shares will also have the same distribution, purchase and
redemption procedures as your current shares. Please see Appendix A for more
information about shares of Limited Term Fund.
7. Will you be permitted to redeem your shares prior to the Acquisition?
You are not required to remain a shareholder of the Government
Securities Fund until the Acquisition. Prior to the Acquisition, you may redeem
your shares or exchange your shares for shares of the same class of other CDC
Nvest Funds, as described and subject to the limitations in the current
prospectuses of the Government Securities Fund or other CDC Nvest Fund. Please
note that any redemptions will be subject to CDSCs, if applicable to your class
of shares, and that both redemptions and exchanges may have negative tax
consequences.
8. What are the federal income tax consequences of the Acquisition?
The Acquisition is intended to be tax free to you for federal income
tax purposes. This means that no gain or loss will be recognized by the
Government Securities Fund, or any of its shareholders, directly as a result of
the Acquisition. Furthermore, the aggregate federal tax basis of your Government
Securities Fund shares will equal the aggregate federal tax basis of your new
shares in Limited Term Fund, and your holding period in your new shares in
Limited Term Fund will, for federal income tax purposes, include the time you
held the Government Securities Fund shares you surrendered in the Acquisition if
you held your Government Securities Fund shares as capital assets.
Immediately prior to the Acquisition, the Government Securities Fund
will declare and pay a distribution of all net investment company taxable
income, if any, and net realized capital gains (after reduction by any available
capital loss carryforwards), if any, to its shareholders.
At any time prior to the Acquisition, a shareholder of the Government
Securities Fund may redeem shares therein, likely resulting in the recognition
of gain or loss to such shareholder for federal income tax purposes.
The federal income tax consequences of the Acquisition are described
in more detail below under "Federal Income Tax Consequences."
THE PROPOSAL - ACQUISITION OF LOOMIS SAYLES GOVERNMENT
SECURITIES FUND BY LOOMIS SAYLES LIMITED TERM GOVERNMENT AND
AGENCY FUND
The Proposal
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You are being asked to approve an Agreement and Plan of Reorganization
pursuant to which the Limited Term Fund will acquire the assets and assume the
liabilities of the Government Securities Fund in exchange for shares of the
Limited Term Fund. A form of Agreement and Plan of Reorganization is attached as
Appendix B to this Prospectus/Proxy Statement. It is important to note that by
approving the Agreement and Plan of Reorganization, you are also approving the
Acquisition pursuant to the Agreement and Plan of Reorganization.
Principal Investment Risks
What are the principal investment risks of the Limited Term Fund, and how
do they compare with those of the Government Securities Fund?
Because both Funds invest in fixed-income securities, they are each
subject to the risks commonly associated with investing in fixed-income
securities, which include credit risk, interest rate risk and liquidity risk.
Generally, the value of fixed income securities rises when prevailing interest
rates fall and falls when interest rates rise. Thus, you may lose money on your
investment due to unpredictable drops in a security's value or period of below
average performance in a given security or in the securities markets as a whole.
The principal investment risks of the Funds also include the particular risks
associated with investing in agency securities. Agencies of the U.S. government
are guaranteed as to the payment of principal and interest but are not backed by
the full faith and credit of the U.S. government, therefore, an event affecting
the guaranteeing entity could adversely affect the payment of principal or
interest or both of the security. Both Funds bear the risk of investment in
mortgage-related securities, which are subject to prepayment risk of receiving a
lower yield than the prepaid obligations and thus the Funds may incur a loss
when there is a prepayment of securities that were purchased at a premium. Both
Funds are also subject to derivatives risk. Even a small investment in
derivatives (which includes futures) may give rise to leverage risk, and can
have a significant impact on the Funds' exposure to stock market values,
interest rates or the currency exchange rate. In addition, the Limited Term Fund
may invest in foreign bonds denominated in U.S. dollars, which may be more
volatile than U.S. securities and carry greater political, economic and
information risks.
For more information about the principal investment risks of the
Limited Term Fund, please see Appendix A. The actual risks of investing in each
Fund depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time.
Information about the Acquisition
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of the Government Securities Fund, the
Acquisition is expected to occur on or around March 18, 2005, or on such other
date as the Trusts may agree, pursuant to the Agreement and Plan of
Reorganization, a form of which is attached as Appendix B to this
Prospectus/Proxy Statement. Please review Appendix B. The following discussion
of the principal terms of the Agreement and Plan of Reorganization is only a
summary and is
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qualified in its entirety by reference to the full text of the Agreement and
Plan of Reorganization, the form of which is attached as Appendix B to this
Prospectus/Proxy Statement:
. The Government Securities Fund will transfer all of its assets
and liabilities attributable to each class of its shares to the
Limited Term Fund in exchange for shares of the same class of the
Limited Term Fund with an aggregate net asset value equal to the
net asset value of the transferred assets and liabilities.
. The Acquisition will occur immediately after the time (currently
scheduled to be 4:00 p.m. Eastern time on March 18, 2005, or such
other date and time as the parties may determine) when the assets
of the Government Securities Fund are valued for purposes of the
Acquisition.
. The shares of each class of the Limited Term Fund received by the
Government Securities Fund will be distributed to the
shareholders of the same class of the Government Securities Fund
pro rata in accordance with their percentage ownership of the
Government Securities Fund in full liquidation of the Government
Securities Fund.
. After the Acquisition, the Government Securities Fund will be
terminated, and its affairs will be wound up in an orderly
fashion.
. The Acquisition requires approval by the Government Securities
Fund's shareholders and satisfaction of a number of other
conditions. In addition, the Acquisition may be terminated at any
time by mutual consent of the Trustees on behalf of each Fund.
Shareholders of the Limited Term Fund are not being asked to
approve the Acquisition.
Shareholders who object to the Acquisition will not be entitled under
Massachusetts law or the Declaration of Trust of Trust I to demand payment for,
or an appraisal of, their shares. However, shareholders should be aware that the
Acquisition as proposed is not expected to result in recognition of gain or loss
to shareholders for federal income tax purposes and that, if the Acquisition is
consummated, shareholders will be free to redeem the shares which they receive
in the transaction at their then-current net asset value, less any applicable
CDSC. In addition, shares may be redeemed at any time prior to the consummation
of the Acquisition, subject to any applicable CDSC.
All legal and accounting fees and expenses, printing and other fees
and expenses incurred in connection with the consummation of the Acquisition
will be borne by IXIS Advisors and/or its affiliates, and not by the Funds. The
Limited Term Fund will pay all governmental fees required in connection with the
registration or qualification of its fund shares issued in connection with the
Acquisition under applicable state and federal laws. The SEC registration fees
incurred by the Limited Term Fund will be calculated based on the dollar value
of the shares issued in the Acquisition. The Funds will bear any portfolio
transaction costs (such as brokerage commissions and transfer taxes) incurred by
them in connection with selling securities held by the Government Securities
Fund and purchasing securities to be held by the combined fund.
-15-
These transaction costs are currently estimated to be $15,000. To the extent
these transactions occur before the Acquisition, these costs will be borne by
the Acquired Fund; to the extent they occur after, they will be borne by the
combined fund. In addition, these transactions may cause the combined fund to
realize capital gains or losses after the exchange date. Notwithstanding the
foregoing, expenses will in any event be paid by the party directly incurring
such expense if and to the extent that the payment by any other party of such
expenses would result in the disqualification of the first party as a "regulated
investment company" within the meaning of Section 851 of the Internal Revenue
Code of 1986, as amended (the "Code").
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the Limited Term
Fund of the same class as the shares you currently own in the Government
Securities Fund. The shares you receive will have the following characteristics:
. The shares you receive will have an aggregate net asset value
equal to the aggregate net asset value of your current shares as
of the closing of the Acquisition.
. The shares you receive will bear the same sales charges and CDSCs
as your current shares to the extent such charges apply. For
purposes of determining the CDSC applicable to any redemption and
for determining the conversion of Class B shares to Class A
shares, if applicable, the Limited Term Fund shares you receive
will have the same age characteristics as your Government
Securities Fund shares.
. The procedures for buying and selling your shares will not change
as a result of the Acquisition.
. You will have the same exchange options that you currently have.
. You will have similar voting rights as you currently have, but as
a shareholder of the Limited Term Fund, a series of Loomis Sayles
Trust. For more information on your voting rights as a Limited
Term Fund shareholder, see the section "Declarations of Trust."
Information concerning the capitalization of each of the Government
Securities Fund and the Limited Term Fund is provided below under
"Capitalization."
Reasons for the Acquisition
The Trustees of Trust I, including all Trustees who are not
"interested persons" of the Trust (the "Independent Trustees"), have determined
that the Acquisition would be in the best interests of the Government Securities
Fund and the Government Securities Fund's shareholders, and that the interests
of existing shareholders of the Government Securities Fund would not be diluted
as a result of the Acquisition. The Trustees (including the Independent
Trustees) have
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unanimously approved the Acquisition and recommend that you vote in favor of the
Acquisition by approving the Agreement and Plan of Reorganization, a form of
which is attached as Appendix B to this Prospectus/Proxy Statement. Each
shareholder should carefully consider whether remaining a shareholder of the
Limited Term Fund after the Acquisition is consistent with that shareholder's
financial needs and circumstances.
In proposing the Acquisition, IXIS Advisors presented to the Trustees,
at a meeting held on November 19, 2004, the following reasons for the Government
Securities Fund to enter into the Acquisition:
. The Acquisition is intended to permit the Government Securities
Fund's shareholders to exchange their investment for a similar
mutual fund with better returns relative to its peer group.
. Over the past several years, the Government Securities Fund has
not been able to achieve significant net sales to maintain
long-term viability and is not expected to do so in the near
future. Loomis Sayles and IXIS Advisors' believe that the Limited
Term Fund has better prospects for growth, which may result in
economies of scale and decreased Fund expenses.
. Based on pro forma estimates as of September 30, 2004,
shareholders of the Government Securities Fund are expected to
experience lower expenses after the Acquisition.
. Government Securities Fund shareholders will continue to enjoy
the same shareholder services as shareholders of the Limited Term
Fund as they currently enjoy as Government Securities Fund
shareholders.
. Shareholders of the Government Securities Fund who do not wish to
become shareholders of the Limited Term Fund may redeem their
shares in the Government Securities Fund in taxable transactions
prior to the Acquisition.
. The Trustees considered the tax consequences of the Acquisition
on the Funds and their respective shareholders, including, in
particular, the historical and pro forma tax attributes of the
Limited Term Fund and the Government Securities Fund and the
effect of the Acquisition on certain tax losses of the Funds (see
"Federal Income Tax Consequences" below). Based on estimates as
of August 31, 2004, the combined fund is expected to have more
net losses (assuming recognition of each Fund's pre-merger gains)
with which to offset future gains than the Government Securities
Fund would have had before the Acquisition, both in terms of the
dollar amount of available losses and as a percentage of net
assets.
The Trustees were also presented with information comparing the Funds,
including information about the management of the Funds, information about the
differences in the Funds' investment goals, policies and strategies and
performance information.
-17-
Performance Information
The first bar chart shows the percentage gain or loss for Class A
shares of the Government Securities Fund in each calendar year beginning with
the Fund's inception and the second bar chart shows the percentage gain or loss
for Class A shares of the Limited Term Fund for each of the last ten calendar
years. The returns for Classes B and Y shares differ to the extent their
respective expenses differ. They should give you a general idea of how each
Fund's return has varied from year to year. The bar charts include the effects
of Fund expenses, but not sales charges. Returns would be lower if applicable
sales charges were included. The calculations of total return assume the
reinvestment of all dividends and capital gain distributions on the reinvestment
date. [The bar charts and average annual total return tables will be updated by
post effective amendment to include performance information as of December 31,
2004.] Past performance is not necessarily an indication of future results.
Additional discussion of the manner of calculation of total return is
contained in the Statement of Additional Information relating to the
Acquisition, which is incorporated by reference in this Prospectus/Proxy
Statement.
Government Securities Fund (Class A)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
----- ----- ---- ----- ---- ----- ----- ---- ----- ----
-5.44% 20.03% 0.78% 10.32% 9.02% -6.42% 12.89% 4.93% 13.35% 1.48%
For period shown in bar chart:
Best quarter: Third Quarter 2002, up 8.02%
Worst quarter: First Quarter 1994, down 3.18%
Limited Term Fund (Class A)+
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
----- ----- ---- ---- ---- ----- ---- ---- ---- ----
-2.22% 13.02% 2.38% 7.27% 6.46% -0.67% 8.34% 6.86% 8.18% 1.50%
For period shown in bar chart:
Best quarter: Third Quarter 1998, up 4.63%
Worst quarter: First Quarter 1994, down 1.62%
+ The returns shown for the periods prior to September 15, 2003 reflect the
results of the CDC Nvest Limited Term U.S. Government Securities Fund, whose
assets and liabilities were reorganized into the Fund on September 12, 2003.
-18-
The following tables list each Fund's average annual total return for
each class of its shares for the one-year, five-year and ten-year periods (or
since inception, if shorter) ending December 31, 2003. The Funds' total returns
reflect, on a per class basis, the maximum sales charge that you may be required
to pay when you buy or redeem a Fund's shares. See Question 5 under "Questions
and Answers" above. These tables are intended to provide you with some
indication of the risks of investing in the Funds. At the bottom of each table,
you can compare the Funds' performance with an index. Unlike the Funds, an index
is not an investment and is not professionally managed. Unlike the returns of
the Funds, an index does not reflect ongoing management, distribution and
operating expenses.
After-tax returns are calculated using the historical highest
individual marginal federal 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 are not relevant to
investors who hold shares through tax-deferred arrangements, such as 401(k)
plans, qualified plans, education savings accounts such as 529 plans or
individual retirement accounts. The after-tax returns are shown only for Class A
shares of the Government Securities Fund and Class A shares of the Limited Term
Fund. After-tax returns for other classes of the Funds will vary. In some cases,
the after-tax returns may exceed the return before taxes due to an assumed tax
benefit from any losses on a sale of Fund shares at the end of the measurement
period.
Government Securities Fund
· Enlarge/Download Table
Past 10 Since Class Y Inception
1 Year Past 5 Years Years (3/31/94)
------ ------------ ------- -----------------------
Class A - Return Before Taxes -3.08% 4.02% 5.30% --
Return After Taxes on Distributions -4.39% 2.04% 3.04% --
Return After Taxes on Distributions and
Sale of Fund Shares -2.00% 2.16% 3.06% --
Class B - Return Before Taxes -4.08% 3.88% 5.00% --
Class Y - Return Before Taxes 1.64% 5.30% -- 6.60%
Lehman Long Term Government Bond Index* 2.61% 6.58% 7.96% 8.87%
----------
* The Lehman Long Term Government Bond Index, is an unmanaged index of U.S.
Treasury and government agency securities with a maturity of 10 years or more.
The returns of the Index do not reflect the effect of taxes. Class A commenced
operations on 9/16/85, Class B commenced operations on 9/23/93 and Class Y
commenced operations on 3/31/94.
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Limited Term Fund+
· Download Table
Since Class Y
1 Year 5 Years 10 Years Inception
------ ------- -------- -------------
Class A - Return Before Taxes -1.52% 4.14% 4.69% --
Return After Taxes on Distributions -2.95% 2.10% 2.35% --
Return After Taxes on Distributions
and Sale of Fund Shares -1.00% 2.24% 2.49% --
Class B - Return Before Taxes -4.02% 3.75% 4.33% --
Class Y - Return Before Taxes 1.83% 5.20% -- 5.73%
Lehman Intermediate Government Bond
Index 2.29% 6.18% 6.32% 6.69%
Lehman 1-5 yr Government Bond Index+ 2.16% 5.86% 6.01% 6.30%
* The Lehman Intermediate Government Bond Index is an unmanaged index of bonds
issued by the U.S. government and its agencies having maturities between one and
ten years. The Fund's returns are also compared to the Lehman 1-5 Year
Government Bond Index, an unmanaged, market-weighted index of bonds issued by
the U.S. government and its agencies, with maturities between 1 and 5 years. The
returns of the Indices do not reflect the effect of taxes. Class A commenced
operations on 1/03/89, Class B commenced operations on 9/27/83 and Class Y
commenced operations on 3/31/94.
+ The returns shown for the periods prior to September 15, 2003 reflect the
results of CDC Nvest Limited Term U.S. Government Fund, whose assets and
liabilities were reorganized into the Fund on September 12, 2003.
Federal Income Tax Consequences
The Acquisition is intended to be a tax-free reorganization for U.S.
federal income tax purposes. As a condition to the Acquisition, Ropes & Gray LLP
will deliver to the Government Securities Fund and the Limited Term Fund an
opinion, which will be based upon certain factual representations and subject to
certain qualifications, to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court decisions,
generally for federal income tax purposes, except as noted below:
. the Acquisition will constitute a "reorganization" within the
meaning of Section 368(a) of the Code and the Government
Securities Fund and the Limited Term Fund will each be a "party
to the reorganization" within the meaning of Section 368(b) of
the Code;
. under Section 361 of the Code, no gain or loss will be recognized
by the Government Securities Fund upon the transfer of its assets
to the Limited Term Fund in exchange for Limited Term Fund shares
and the assumption by the Limited Term Fund of the Government
Securities Fund's liabilities, or upon the distribution of the
Limited Term Fund shares by the Government Securities Fund to its
shareholders in liquidation;
. under Section 354 of the Code, no gain or loss will be recognized
by the shareholders of the Government Securities Fund on the
distribution of the Limited Term Fund shares to them in exchange
for their shares of the Government Securities Fund;
-20-
. under Section 358 of the Code, the aggregate tax basis of the
Limited Term Fund shares received by the Government Securities
Fund shareholders in connection with the Acquisition will be the
same as the aggregate tax basis of the Government Securities Fund
shares exchanged therefore;
. under Section 1223(1) of the Code, the holding period for the
Limited Term Fund shares received will include the holding period
for the Government Securities Fund shares exchanged for the
Limited Term Fund shares, provided that the shareholder held the
Government Securities Fund shares as a capital asset;
. under Section 1032 of the Code, no gain or loss will be
recognized by Limited Term Fund upon receipt of the assets
transferred to the Limited Term Fund pursuant to the Agreement
and Plan of Reorganization in exchange for shares of the Limited
Term Fund and the assumption by the Limited Term Fund of the
liabilities of the Government Securities Fund;
. under Section 362(b) of the Code, the Limited Term Fund's tax
basis in the assets that the Limited Term Fund receives from the
Government Securities Fund will be the same as the Government
Securities Fund's tax basis in such assets immediately prior to
the transfer;
. under Section 1223(2) of the Code, the Limited Term Fund's
holding period in such assets will include the Government
Securities Fund's holding period in such assets; and
. Limited Term Fund will succeed to and take into account the items
of the Government Securities Fund described in Section 381(c) of
the Code, subject to the conditions and limitations specified in
Sections 381, 382, 383 and 384 of the Code and Regulations
thereunder.
The opinion will be based on certain factual certifications made by
officers of Trust I and Loomis Sayles Trust, and will also be based on customary
assumptions. The opinion will express no view with respect to the effect of the
reorganization on any transferred asset as to which any unrealized gain or loss
is required to be recognized at the end of a taxable year (or on the termination
or transfer thereof) under federal income tax principles. The opinion is not a
guarantee that the tax consequences of the Acquisition will be as described
above.
The tax-free nature of the Acquisition will preserve the Funds'
capital losses, both realized and unrealized, subject to applicable limitations.
As of August 31, 2004, the Government Securities Fund had $8.77 million of net
capital loss carryforwards, the majority of which expire by 2008. These losses
represented 13% of the Fund's net assets at that time (approximately $68
million). The Limited Term Fund had net capital loss carryforwards of
approximately $23 million as of August 31, 2004, expiring by 2011. These losses
represented 18% of the Fund's net assets at that time (approximately $130
million). The smaller of the two funds at the time of the Acquisition will
undergo a so-called "ownership
-21-
change" that will limit the losses available to reduce gains of the combined
fund. If the Acquisition had taken place on August 31, 2004, the combined fund
would still have had net losses available to it of about 15% of the combined
fund's net assets due to the contribution of the Limited Term Fund's losses
(which would not have been limited because it was the larger fund at that time
and therefore would not have undergone a change in control). Thus, the
Government Securities Fund would have gained the benefit of an additional 2% of
losses. As is always the case with mutual funds, the timing of the use of these
loss carryforwards depends on the timing and amount of future gains, which
cannot be predicted, and the benefit of using these carryforwards will be
realized by the persons who are shareholders at the time the losses are used.
While, as noted above, no tax liability for shareholders is expected
to arise directly from the Acquisition, differences in the Funds' portfolio
turnover rates, and net investment income and net realized capital gains may
result in the acceleration of future taxable distributions to shareholders
arising indirectly from the merger. Prior to the closing of the Acquisition, the
Government Securities Fund will distribute to its shareholders all of its
investment company taxable income, if any, and net realized capital gains, if
any, that have not previously been distributed to shareholders. Such
distributions will generally be taxable for U.S. federal income tax purposes to
the shareholders of the Government Securities Fund.
It is anticipated that a portion of the assets of the Government
Securities Fund may be sold in connection with the Acquisition, either before or
after the Acquisition. Capital gain or loss will be recognized on a sale of
assets in connection with the Acquisition equal to the difference between the
amount realized on the sale of assets and the tax basis in the assets. Any net
capital gains recognized prior to the Acquisition will, after reduction by any
available capital loss carryforwards of the Government Securities Fund, be
distributed to the Government Securities Fund's shareholders prior to the
Acquisition. Any net capital gains recognized from such sales after the
Acquisition will, after reduction by any available capital loss carryforwards of
the Limited Term Fund, be distributed to the Limited Term Fund's shareholders
after the Acquisition.
This description of the federal income tax consequences of the
Acquisition does not take into account each shareholder's particular facts and
circumstances. Shareholders should consult their own tax advisors as to the
specific individual consequences of the Acquisition, including the applicability
and effect of state, local, foreign and other tax laws.
Declarations of Trust
-22-
The Government Securities Fund is governed by the Second Restatement
of Amended Agreement and Declaration of Trust of CDC Nvest Funds Trust I (as
amended, the "Trust I Declaration of Trust"). The Limited Term Fund is governed
by the Agreement and Declaration of Trust, as amended, of Loomis Sayles Funds II
(the "Loomis Declaration of Trust" and, together with the Trust I Declaration of
Trust, the "Declarations of Trust"). The Declarations of Trust are substantially
similar to each other, and therefore the Funds are governed by substantially
similar provisions relating to the powers and liabilities of shares of the
Trusts, shareholder voting requirements generally, and indemnification of the
officers and Trustees of the Trusts. In addition, the Trustees of Trust I are
also the Trustees of the Loomis Sayles Trust. Additional information about the
Declarations of Trust is provided below.
Powers and Liabilities Relating to Shares. The Trust I Declaration of
Trust permits the Trustees, without shareholder approval, to divide shares of
Trust I into two or more series of shares representing separate investment
portfolios and to further divide any such series into two or more classes of
shares having such preferences and rights as the Trustees may determine.
Currently, the Government Securities Fund's shares are divided into three
classes: Class A, Class B and Class Y.
The Loomis Declaration of Trust permits the Trustees, without
shareholder approval, to issue shares of the Loomis Sayles Trust in one or more
series of shares representing separate investment portfolios and to further
divide any such series into two or more classes of shares having such
preferences and rights as the Trustees may determine. Currently, the Limited
Term Fund's shares are divided into four classes: Class A, Class B, Class C and
Class Y.
The Declarations of Trust limit personal liability of any shareholder
to any sum of money or assessment the shareholder may at any time personally
agree to pay. The Declarations of Trust disclaim shareholder liability for acts
or obligations of the respective Trust and require that a notice of such
disclaimer be given in each note, bond, contract, instrument, certificate or
undertaking entered into or executed by such Trust or its Trustees. The
Declarations of Trust provide that in case any shareholder or former shareholder
shall be held to be personally liable solely by reason of his, her or it being
or having been a shareholder and not because of his or her acts or omissions or
for some other reason, the shareholder or former shareholder (or his or her
heirs, executors, administrators or other legal representatives or, in the case
of a corporation or other entity, its corporate or other general successor)
shall be entitled out of the assets of the series of which such person is a
shareholder or former shareholder to be held harmless from and indemnified
against all loss and expense arising from such liability. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the particular series of which he or she is or
was a shareholder would be unable to meet its obligations.
Shareholder Voting Requirements--Generally. The Declarations of Trust
require a separate vote of the series or class if any issue on which
shareholders are entitled to vote would adversely affect the rights of any
series or class of shares and provide as a general matter that there will be a
separate vote by each series unless otherwise required by law. The provisions
regarding separate voting by series or class do not apply (i) if the Investment
Company Act of 1940 Act requires all shares to be voted as a class or (ii) if
the matter affects only the interests of
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some but not all of the series or classes, then only the affected series or
classes will have the right to vote on the matter.
The Declarations of Trust give shareholders the power to vote: (i) on
the election of Trustees, (ii) on certain amendments to the Declarations of
Trust, (iii) to the same extent as stockholders of a Massachusetts business
corporation as to whether or not a claim should be brought derivatively or as a
class action, (iv) with respect to the termination of the Trust or any series or
class as provided in the Declaration of Trust, (v) to remove Trustees in certain
cases, and (vi) on additional matters that may be required by the Declaration of
Trust, by-laws, applicable law, or as the Trustees may consider necessary or
desirable.
In general, a majority of shares voted shall decide any question and a
plurality shall elect a Trustee. There is no cumulative voting for the election
of Trustees. A vote of two-thirds of the voting interests of the Trust is
required to remove a Trustee. If an action adversely affects the rights of a
series or class, the vote of a majority of the shares of such series or class
which are entitled to vote shall be required to decide such question. Action may
be taken by written consent of the shareholders and treated for all purposes as
a vote taken at a meeting of the shareholders.
The Declarations of Trust require a vote of 66 2/3% of the shares of
each series entitled to vote or written notice by the Trustees to terminate the
respective Trust. Any series or class of shares of the Trusts may be terminated
at any time by vote of shareholders holding at least 66 2/3% of the shares of
such series or class entitled to vote, or by the Trustees with written notice to
the shareholders.
The Declarations of Trust may be amended by a vote of a majority of
shareholders entitled to vote and a majority of the Trustees, except that
certain enumerated actions and minor changes, such as changing the name of the
Trust, correcting or supplementing any defective provision and the like, may be
taken without a shareholder vote.
Shareholder Voting Requirements--Merger and Consolidation. The Trust I
Declaration of Trust provides that the Trustees may cause Trust I to be merged
into or consolidated with another entity, or the shares of the Trust to be
exchanged, if such merger or consolidation or share exchange has been authorized
by a vote of the majority of the outstanding voting shares of Trust I.
The Loomis Declaration of Trust does not require shareholder approval
in case of a merger or consolidation, unless the Trustees of the Loomis Sayles
Trust decide to submit such merger or consolidation to a vote of shareholders or
as otherwise required by law. Shareholders of the Limited Term Fund are not
being asked to approve the Acquisition.
Trustees and Officers. The Trustees of the Trusts are the same. The
Trusts share the same officers, except for Robert J. Blanding, who serves as
President and Chief Executive Officer of Loomis Sayles Trust but is not an
officer of Trust I, and Daniel J. Fuss, who serves as Executive Vice President
of Loomis Sayles Trust but is not an officer of Trust I.
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Governing Law. Both Declarations of Trust are governed by
Massachusetts law.
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Dividends and Distributions
The Funds generally distribute most or all of their net investment
income and net capital gains at least annually. Each Fund declares dividends for
each Class daily and pays them monthly. Each Fund expects to distribute all of
its net realized capital gains annually, after applying any available loss
carryforwards.
Capitalization
The following table shows on an unaudited basis the capitalization of
each of the Funds as of September 30, 2004, and on a pro forma combined basis,
giving effect to the acquisition of the assets and liabilities of the Government
Securities Fund by the Limited Term Fund at net asset value as of that date:
· Enlarge/Download Table
Limited Term
Pro Fund
Limited Term Government Forma Pro Forma
Fund Securities Fund Adjustments Combined*
------------ --------------- ----------- ------------
Class A
Net assets $106,701,169 $54,704,267 $ -- $161,405,436
------------ ----------- ---------- ------------
Shares of beneficial interest 9,440,205 4,571,299 268,568 14,280,072
------------ ----------- ---------- ------------
Net asset value per share $ 11.30 $ 11.97 $ -- $ 11.30
------------ ----------- ---------- ------------
Class B
Net assets $ 10,106,991 $10,689,247 -- $ 20,796,238
------------ ----------- ---------- ------------
Shares of beneficial interest 895,976 893,053 54,539 1,843,568
------------ ----------- ---------- ------------
Net asset value per share $ 11.28 $ 11.97 -- $ 11.28
------------ ----------- ---------- ------------
Class C
Net assets $ 6,948,569 $ -- $ -- $ 6,948,569
------------ ----------- ---------- ------------
Shares of beneficial interest 615,184 -- -- 615,184
------------ ----------- ---------- ------------
Net asset value per share $ 11.30 $ -- $ -- $ 11.30
------------ ----------- ---------- ------------
Class Y
Net assets $ 4,232,515 $ 2,257,659 $ -- $ 6,490,174
------------ ----------- ---------- ------------
Shares of beneficial interest 373,209 189,140 9,933 572,282
------------ ----------- ---------- ------------
Net asset value per share $ 11.34 $ 11.94 $ -- $ 11.34
------------ ----------- ---------- ------------
* Reflects the pro forma capitalization of the combined fund at September 30,
2004 as though the Acquisition had occurred on October 1, 2003 and is for
informational purposes only. No assurance can be given as to how many shares of
the Limited Term Fund will be received by the shareholders of the Government
Securities Fund on the date the Acquisition takes place, and the foregoing
should not be relied upon to reflect the number of shares of the Limited Term
Fund that actually will be received on or after such date.
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THE TRUSTEES OF TRUST I UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN
OF REORGANIZATION
Required Vote for the Proposal
Approval of the Agreement and Plan of Reorganization will require the
affirmative vote of a majority of the outstanding shares of the Government
Securities Fund. Shareholders of the Limited Term Fund are not being asked to
approve the Acquisition.
If the Proposal is not approved by shareholders of the Government
Securities Fund, or if for any other reason the Acquisition is not consummated,
the Trustees may take such further action as they deem to be in the best
interests of the Government Securities Fund, which may include the liquidation
of the Fund.
INFORMATION REGARDING VOTING AND CONDUCT OF MEETING
Voting Information
The Trustees of Trust I are soliciting proxies from the shareholders
of the Government Securities Fund in connection with the Meeting, which has been
called to be held at 2:00 p.m. Eastern time on March 10, 2005 at the offices of
IXIS Advisors, 399 Boylston Street, 10th Floor, Boston, Massachusetts 02116. The
Meeting notice, this Prospectus/Proxy Statement and proxy cards are being mailed
to shareholders beginning on or about January 18, 2005.
Information About Proxies and the Conduct of the Meeting
Solicitation of Proxies. Proxies will be solicited primarily by
mailing this Prospectus/Proxy Statement and its enclosures (which may include
electronic delivery), but proxies may also be solicited through further
mailings, telephone calls, personal interviews or e-mail by officers of the
Government Securities Fund or by employees or agents of IXIS Advisors and its
affiliated companies. In addition, Alamo Direct has been engaged to assist in
the solicitation of proxies, at a total estimated cost of approximately $38,000,
which will be borne by IXIS Advisors and/or its affiliates.
Voting Process. You can vote in any one of the following four ways:
. By Internet - Use the Internet to vote by visiting
https://vote.proxy-direct.com.
. By telephone - Use a touch-tone telephone to call toll-free
866-241-6192, which is available 24 hours a day.
. By mail - Complete and return the enclosed proxy card(s).
. In person - Vote your shares in person at the Meeting.
Shareholders who owned Government Securities Fund shares on the Record
Date are entitled to vote at the Meeting. Shareholders of the Government
Securities Fund are entitled to cast one vote for each share, and a
proportionate fractional vote for each fractional share, owned on the Record
Date. If you choose to vote by mail, and you are an individual account owner,
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please sign exactly as your name appears on the proxy card. Either owner of a
joint account may sign the proxy card, but the signer's name must exactly match
the name that appears on the card.
Costs of Solicitation. None of the costs of the Meeting, including the
costs of soliciting proxies, and the costs of the Acquisition, will be borne by
the Government Securities Fund or the Limited Term Fund. IXIS Advisors and/or
its affiliates shall bear all such costs, even in the event that the Acquisition
is not approved by the shareholders of the Government Securities Fund or the
Acquisition does not close for any other reason, except that expenses will be
paid by the party directly incurring such expense if and to the extent that the
payment by any other party of such expense would result in the disqualification
of the first party as a "regulated investment company" within the meaning of
Section 851 of the Code.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy. If no instructions are given,
the proxy will be voted in favor of the Proposal. Votes made through use of the
Internet or by telephone must have an indicated choice in order to be accepted.
At any time before it has been voted, your proxy may be revoked in any one of
the following ways: (i) by sending a signed, written letter of revocation to the
Secretary of Trust I, (ii) by properly executing a later-dated proxy or (iii) by
attending the Meeting, requesting return of any previously delivered proxy and
voting in person.
Votes cast in person or by proxy at the Meeting will be counted by
persons appointed as tellers for the Meeting (the "Tellers"). Forty percent
(40%) of the shares of the Government Securities Fund outstanding on the Record
Date, present in person or represented by proxy, constitutes a quorum for the
transaction of business by the shareholders of the Government Securities Fund at
the Meeting. However, as noted above, the approval of the Proposal will require
the vote of a majority of the Fund's outstanding voting shares. In determining
whether a quorum is present, the Tellers will count shares represented by
proxies that reflect abstentions and "broker non-votes" as shares that are
present and entitled to vote. Since these shares will be counted as present, but
not as voting in favor of the Proposal, these shares will have the same effect
as if they cast votes against the Proposal. "Broker non-votes" are proxies for
shares held by brokers or nominees as to which (i) the broker or nominee does
not have discretionary voting power and (ii) the broker or nominee has not
received instructions from the beneficial owner or other person who is entitled
to instruct how the shares will be voted.
With respect to Government Securities Fund shares held in individual
retirement accounts (including Traditional, Rollover, SEP, SAR-SEP, Roth and
SIMPLE IRAs) for which State Street Bank and Trust Company (the "IRA Custodian")
serves as the custodian ("CDC Nvest IRAs"), the IRA Custodian will vote those
shares for which it has received voting instructions from shareholders in
accordance with such instructions. If no voting instructions are received by the
IRA Custodian, the IRA Custodian will vote the shares (including abstentions)
for a shareholder in the same proportion as other CDC Nvest IRA shareholders
have voted. The Tellers will count shares represented by proxies representing
Fund shares held in CDC Nvest IRAs as shares that are present and entitled to
vote.
Adjournments; Other Business. If the Government Securities Fund has
not received enough votes by the time of the Meeting to approve the Proposal,
the persons named as proxies may propose that such Meeting be adjourned one or
more times to permit further solicitation of
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proxies. Any adjournment requires the affirmative vote of more than 50% of the
total number of shares of the Government Securities Fund that are present in
person or by proxy, whether or not a quorum is present, when the adjournment is
being voted on. The persons named as proxies will vote in favor of any such
adjournment all proxies that they are entitled to vote in favor of the Proposal.
They will vote against any such adjournment any proxy that directs them to vote
against the Proposal. They will not vote any proxy that directs them to abstain
from voting on the Proposal.
The Meeting has been called to transact any business that properly
comes before it. The only business that management of the Government Securities
Fund intends to present or knows that others will present is the Proposal. If
any other matters properly come before the Meeting, and on all matters
incidental to the conduct of the Meeting, the persons named as proxies intend to
vote the proxies in accordance with their judgment, unless the Secretary of
Trust I has previously received written contrary instructions from the
shareholder entitled to vote the shares.
OTHER INFORMATION
Portfolio Trades. In placing portfolio trades for the Limited Term
Fund, Loomis Sayles may use brokerage firms that market the Fund's shares or are
affiliated with Loomis Sayles or its parent company. In placing trades, Loomis
Sayles will seek to obtain the best combination of price and execution, which
involves a number of judgmental factors. Such portfolio trades are subject to
applicable regulatory restrictions and related procedures adopted by the Board
of Trustees. Additional information about the Loomis Sayles' portfolio trading
and brokerage practices is included in Appendix A to the Statement of Additional
Information relating to the Acquisition.
Interests of Certain Persons in the Acquisition. IXIS Asset Management
North America, L.P. ("IXIS NA"), the parent of IXIS Advisors and Loomis Sayles,
is, in the long-term, expected to incur lower expenses as a result of the
Acquisition, and therefore, along with IXIS Advisors and Loomis Sayles, may be
considered to have an interest in the transaction. Because Mr. Robert J.
Blanding and Mr. John T. Hailer, Trustees of the Trusts, are officers of IXIS NA
or its affiliates, they may also be considered to have an interest in the
transaction. Because Messrs. John E. Pelletier, Michael Kardok, Daniel J. Fuss
and Frank J. LoPiccolo and Ms. Coleen Downs Dinneen, officers of the Trusts, are
officers of IXIS Advisors or Loomis Sayles, they may also be considered to have
an interest in the transaction.
Address of the Adviser, Underwriter and Administrator. The address of
Loomis Sayles is One Financial Center, Boston, Massachusetts 02111. The address
of IXIS Asset Management Distributors, L.P. (the principal underwriter of the
Funds) and IXIS Asset Management Services Company (a subsidiary of IXIS NA and
the Funds' shareholder servicing and transfer agent) is 399 Boylston Street,
Boston, Massachusetts 02116. For information about Loomis Sayles, please see
Appendix A. Information about IXIS Advisors, the advisory administrator to the
Government Securities Fund, is incorporated by reference into this
Prospectus/Proxy Statement from the Governments Fund's prospectus.
Outstanding Shares and Significant Shareholders. Appendix C to this
Prospectus/Proxy Statement lists the total number of shares outstanding as of
November 17, 2004 for each class of the Government Securities Fund entitled to
vote at the Meeting. It also identifies holders of more than 5% or 25% of any
class of shares of each Fund, and contains information about the
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executive officers and Trustees of Trust I and their shareholdings in the
Government Securities Fund and about the executive officers and Trustees of
Loomis Sayles Trust and their shareholdings in the Limited Term Fund.
Other Financial and Performance Information. Financial highlights for
Limited Term Fund are included in Appendix D to this Prospectus/Proxy Statement.
Information and commentary about the recent performance of the Limited Term Fund
is included in Appendix E to this Prospectus/Proxy Statement. Other financial
information for the Government Securities Fund, as well as information and
commentary about the recent performance of the Government Securities Fund, is
incorporated by reference from the Government Securities Fund's Prospectus and
Statement of Additional Information and its Annual Report to Shareholders for
the period ending September 30, 2004. The Funds' Annual Reports (which also
include the report of independent accountants of both the Government Securities
Fund and the Limited Term Fund) are available free of charge at the address and
telephone number set forth on the cover page of this Prospectus/Proxy Statement.
Shareholder Proposals at Future Meetings. Trust I and Loomis Sayles
Trust do not hold annual or other regular meetings of shareholders. Shareholder
proposals to be presented at any future meeting of shareholders of the Funds or
the Trusts must be received by the relevant Fund or Trust in writing a
reasonable amount of time before the Trust solicits proxies for that meeting in
order to be considered for inclusion in the proxy materials for that meeting.
Contents of the Appendices.
. Appendix A - Information relating to the Limited Term Fund,
including information with respect to its investment goal,
principal investment strategies and risks, procedures for buying,
selling and exchanging shares, pricing of shares, dividends and
distributions and certain tax matters.
. Appendix B - Form of Agreement and Plan of Reorganization
relating to the Acquisition.
. Appendix C - Information regarding the share ownership of the
Government Securities Fund and the Limited Term Fund.
. Appendix D - Financial highlights for Limited Term Fund.
. Appendix E - Management's discussion of Fund performance as of
September 30, 2004 for the Limited Term Fund.
Other Information About the Funds. Additional information about the
Government Securities Fund is incorporated by reference into this
Prospectus/Proxy Statement from the Fund's Classes A and B Prospectus dated
February 1, 2004, as supplemented on February 27, 2004, May 3, 2004, June 24,
2004, September 29, 2004, October 1, 2004 and November 23, 2004, Class Y
Prospectus dated February 1, 2004, as supplemented on February 27, 2004, May 3,
2004, June 24, 2004, September 29, 2004, October 1, 2004 and November 23, 2004
and
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Statement of Additional Information Parts I and II, dated February 1, 2004, as
supplemented on July 1, 2004 for Part I and May 3, 2004 and July 1, 2004 for the
Part II, which are available free of charge by calling 800-225-5478.
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Appendix A
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND
INVESTMENT GOALS, STRATEGIES AND RISKS
Investment Goal
The Fund seeks a high current return consistent with preservation of capital.
The Fund's investment goal may be changed without shareholder approval.
Principal Investment Strategies
The Fund will, under normal market conditions, invest at least 80% of its net
assets in investments issued or guaranteed by the U.S. government, its agencies
or instrumentalities. In accordance with applicable Securities and Exchange
Commission requirements, the Fund will notify shareholders prior to any change
to such policy taking effect.
Loomis Sayles follows a total return oriented investment approach in selecting
securities for the Fund. It seeks securities that give the Fund's portfolio the
following characteristics, although not all securities selected will have these
characteristics and Loomis Sayles may look for other characteristics if market
conditions change:
[X] average credit rating of "AAA" by Standard & Poor's Ratings Group ("S&P")
or "Aaa" by Moody's Investors Service, Inc., ("Moody's").
[X] effective duration range of two to four years.
In selecting investments for the Fund, Loomis Sayles employs the following
strategies:
.. Its research analysts work closely with the Fund's portfolio managers to
develop an outlook on the economy from research produced by various Wall
Street firms and specific forecasting services or from economic data
released by the U.S. and foreign governments as well as the Federal Reserve
Bank.
.. Next, the analysts conduct a thorough review of individual securities to
identify what they consider attractive values in the U.S. government
security marketplace. This value analysis uses quantitative tools such as
internal and external computer systems and software.
.. Loomis Sayles continuously monitors an issuer's creditworthiness to assess
whether the obligation remains an appropriate investment to the Fund.
.. It seeks to balance opportunities for yield and price performance by
combining macroeconomic analysis with individual security selection. It
emphasizes securities that tend to perform particularly well in response to
interest rate changes, such as U.S. Treasury securities in a declining
interest rate environment and mortgage-backed or U.S. government agency
securities in a steady or rising interest rate environment.
.. Loomis Sayles seeks to increase the opportunity for higher yields while
maintaining the greater price stability that intermediate-term bonds have
compared to bonds with longer maturities.
A-1
The Fund may also:
.. Invest in investment-grade corporate notes and bonds (those rated BBB or
higher by S&P and Baa or higher by Moody's).
.. Invest in zero-coupon bonds.
.. Invest in foreign bonds denominated in U.S. dollars.
.. Invest in asset-backed securities (if rated AAA by S&P or Aaa by Moody's).
.. Invest in mortgage-related securities, including mortgage dollar rolls.
.. Invest in futures.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report. In addition, a list of the Fund's portfolio holdings, which
is updated monthly after an aging period of at least 30 days, is available on
the Fund's website at www.cdcnvestfunds.com. A description of policies and
procedures with respect to the disclosure of the Fund's portfolio securities is
available in the Statement of Additional Information.
Principal Investment Risks
Agency Securities: Assets in agencies of the U.S. government are guaranteed as
to the payment of principal and interest of the relevant entity but are not
backed by the full faith and credit of the U.S. government. An event affecting
the guaranteeing entity could adversely affect the payment of principal or
interest or both on the security, and therefore, these types of securities
should be considered to be riskier than U.S. government securities. Please see
the Statement of Additional Information (the "SAI") for details.
Derivative Securities: Subject to changes in the underlying securities or
indices on which such transactions are based. There is no guarantee that the use
of derivatives for hedging purposes will be effective or that suitable
transactions will be available. Even a small investment in derivatives may give
rise to leverage risk, and can have a significant impact on the Fund's exposure
to stock market values, interest rates or the currency exchange rate.
Fixed-income securities: Subject to credit risk, interest rate risk and
liquidity risk. Generally, the value of fixed-income securities rises when
prevailing interest rates fall and falls when interest rates rise. This means
that you may lose money on your investment due to unpredictable drops in a
security's value or periods of below-average performance in a given security or
in the securities market as a whole. Zero-coupon bonds may be subject to these
risks to a greater extent than other fixed-income securities.
Foreign securities: Foreign bonds denominated in U.S. dollars may be more
volatile than U.S. securities and carry political, economic and information
risks that are associated with foreign securities.
Mortgage-related and asset-backed securities: Subject to prepayment risk. With
prepayment, the Fund may reinvest the prepaid amounts in securities with lower
yields than the prepaid obligations. The Fund may also incur a loss when there
is a prepayment of securities that were purchased at a premium.
A-2
MORE ABOUT RISK
Limited Term Fund has principal investment strategies that come with
inherent risks. The following is a list of risks to which Limited Term Fund may
be subject because of its investment in various types of securities or
engagement in various practices.
Correlation Risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged.
Credit Risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. A Fund that invests in securities rated below investment grade
quality (i.e., below a rating of Baa or BBB by Moody's or S&P, respectively), or
that are unrated but judged to be of comparable quality by the Fund's adviser is
subject to greater credit risk than a Fund that does not invest in such
securities.
Extension Risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage- or asset-backed security beyond the expected prepayment
time, typically reducing the security's value.
Foreign Risk The risk associated with investments in issuers located in foreign
countries. A Fund's investments in foreign securities may experience more rapid
and extreme changes in value than investments in securities of U.S. companies.
In the event of a nationalization, expropriation or other confiscation, a Fund
that invests in foreign securities could lose its entire investment. When a Fund
invests in securities from issuers located in countries with emerging markets,
it may face greater foreign risk since emerging market countries may be more
likely to experience political and economic instability.
Information Risk The risk that key information about a security is inaccurate or
unavailable.
Interest Rate Risk The risk of market losses attributable to changes in interest
rates. In general, the prices of fixed-income securities rise when interest
rates fall, and prices fall when interest rates rise.
Leverage Risk The risk associated with securities or practices (e.g., borrowing)
that multiply small index or market movements into larger changes in value. When
a derivative security (a security whose value is based on another security or
index) is used as a hedge against an offsetting position that a Fund also holds,
any loss generated by the derivative security should be substantially offset by
gains on the hedged instrument, and vice versa. To the extent that a Fund uses a
derivative security for purposes other than as a hedge, or, if a Fund hedges
imperfectly, that Fund is directly exposed to the risks of that derivative
security and any loss generated by the derivative security will not be offset by
a gain.
Liquidity Risk The risk that certain securities may be difficult or impossible
to sell at the time and at the price that the seller would like. This may result
in a loss or may otherwise be costly to a Fund. These types of risks may also
apply to restricted securities, Section 4(2) Commercial Paper, and Rule 144A
Securities.
Management Risk The risk that a strategy used by a Fund's portfolio management
may fail to produce the intended result.
A-3
Market Risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably, based upon a change in an issuer's
financial condition as well as overall market and economic conditions.
Opportunity Risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are invested in less profitable
investments.
Options, Futures, Swap Contracts and Other Derivatives Risks These transactions
are subject to changes in the underlying security on which such transactions are
based. It is important to note that even a small investment in these types of
derivative securities may give rise to leverage risk, and can have a significant
impact on a Fund's exposure to stock market values, interest rates or currency
exchange rates. These types of transactions will be used primarily for hedging
purposes.
Political Risk The risk of losses directly attributable to government or
political actions.
Prepayment Risk The risk that unanticipated prepayments may occur, reducing the
return from mortgage- or asset-backed securities, or real estate investment
trusts.
Valuation Risk The risk that a Fund has valued certain securities at a higher
price than the price at which they can be sold.
MANAGEMENT OF LIMITED TERM FUND
The CDC Nvest Funds family (as defined below) currently includes 23 mutual
funds. The CDC Nvest Funds family had combined assets of $5 billion as of
September 30, 2004. CDC Nvest Funds are distributed through IXIS Asset
Management Distributors, L.P. (the "Distributor"). This Prospectus covers the
Limited Term Fund (the "Fund"), which, along with the CDC Nvest Income Funds,
CDC Nvest Equity Funds, CDC Nvest Star Funds, CDC Nvest Tax Free Income Funds,
Loomis Sayles Research Fund, Loomis Sayles Growth Fund, CDC IXIS International
Equity Fund, CDC IXIS Moderate Diversified Portfolio and CDC Nvest Cash
Management Trust - Money Market Series (the "Money Market Fund"), constitute the
"CDC Nvest Funds."
Adviser - Loomis Sayles
Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111,
serves as adviser to the Fund. Loomis Sayles is a subsidiary of IXIS Asset
Management North America, L.P. ("IXIS NA"), which is part of IXIS Asset
Management Group, an international asset management group based in Paris,
France. Founded in 1926, Loomis Sayles is one of America's oldest investment
advisory firms with over $58 billion in assets under management as of September
30, 2004. Loomis Sayles is well known for its professional research staff, which
is one of the largest in the industry. Loomis Sayles makes investment decisions
for the Fund.
The aggregate advisory fee paid by the Limited Term Fund during the fiscal year
ended September 30, 2004, as a percentage of the Fund's average daily net
assets, was 0.57%.
Portfolio Trades
In placing portfolio trades, Loomis Sayles may use brokerage firms that market
the Fund's shares or are affiliated with IXIS NA, Loomis Sayles' parent company.
In placing trades, Loomis Sayles will seek to obtain the best combination of
price and execution, which involves a number of
A-4
judgmental factors. Such portfolio trades are subject to applicable regulatory
restrictions and related procedures adopted by the Board of Trustees.
Transactions with Other Investment Companies. To the extent permitted by
applicable law and/or pursuant to exemptive relief from the SEC, the Fund may
invest any of its daily cash balances in shares of investment companies that are
advised by IXIS Advisors or its affiliates (including affiliated money market
and short-term bond funds).
The Fund may borrow money for temporary or emergency purposes in accordance with
its investment restrictions. Subject to the terms of any applicable exemptive
relief that may be granted by the SEC, the Fund may borrow for such purposes
from other funds under an interfund lending program. In such a program, the Fund
and affiliated funds would be permitted to lend and borrow money for certain
temporary or emergency purposes directly to and from one another. Participation
in such an interfund lending program would be voluntary for both borrowing and
lending funds, and the Fund would participate in an interfund lending program
only if the Board of Trustees determined that doing so would benefit the Fund.
Should the Fund participate in such an interfund lending program, the Board of
Trustees would establish procedures for the operation of the program by Loomis
Sayles or an affiliate.
Portfolio Managers
John Hyll
John Hyll has served as co-portfolio manager of the Limited Term Government and
Agency Fund since April 2003. Mr. Hyll, Portfolio Manager and Vice President of
Loomis Sayles, began his investment career in 1983 and joined Loomis Sayles in
1989. Mr. Hyll received a B.A. and an M.B.A. from Baldwin-Wallace College. He
has over 21 years of investment experience.
Clifton V. Rowe
Cliff Rowe has served as co-portfolio manager of the Limited Term Government and
Agency Fund since June 2001. Mr. Rowe, Portfolio Manager and Vice President of
Loomis Sayles, joined the company in 1992. Prior to becoming a Portfolio
Manager, he served Loomis Sayles as a Trader from 1999 until 2001. He holds the
designation of Chartered Financial Analyst. Mr. Rowe received a B.B.A. from
James Madison University and an M.B.A. from the University of Chicago, and has
over 13 years of investment experience.
CHOOSING A SHARE CLASS
The Limited Term Fund offers Classes A, B, C and Y shares to the public (though
only Classes A, B and Y shares are being exchanged in the Acquisition). Each
class has different costs associated with buying, selling and holding Fund
shares, which allows you to choose the class that best meets your needs. Which
class is best for you depends upon the size of your investment and how long you
intend to hold your shares. Class B shares, Class C shares and certain
shareholder features may not be available to you if you hold your shares in a
street name account. Your financial representative can help you decide which
class of shares is most appropriate for you.
Class A Shares
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. You pay a sales charge when you buy Fund shares. There are several
ways to reduce this charge. See the section "How Sales Charges are
Calculated."
. You pay lower annual expenses than Class B and Class C shares, giving
you the potential for higher returns per share.
. You do not pay a sales charge on orders of $1 million or more, but you
may pay a charge on redemption if you redeem these shares within one
year of purchase.
Class B Shares
. You do not pay a sales charge when you buy Fund shares. All of your
money goes to work for you right away.
. You pay higher annual expenses than Class A shares.
. You will pay a charge on redemptions if you sell your shares within
six years of purchase, as described in the section "How Sales Charges
Are Calculated."
. Your Class B shares will automatically convert into Class A shares
after eight years, which reduces your annual expenses.
. Investors will not be permitted to purchase $100,000 or more of Class
B shares as a single investment per account. There may be certain
exceptions to this restriction for omnibus accounts and other nominee
accounts. Investors may want to consider the lower operating expense
of Class A shares in such instances. You may pay a charge on
redemption if you redeem Class A shares within one year of purchase.
Class C Shares
. You pay higher annual expenses than Class A shares.
. You may pay a charge on redemptions if you sell your shares within one
year of purchase.
. Your Class C shares will not automatically convert into Class A
shares. If you hold your shares for longer than eight years, you'll
pay higher expenses than shareholders of other classes.
. Investors purchasing $1 million or more of Class C shares may want to
consider the lower operating expense of Class A shares. You may pay a
charge on redemption if you redeem Class A shares within one year of
purchase.
Classes A, B and C Shares
The following chart shows the investment minimums for various types of accounts:
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Minimum
Minimum to Open Minimum to Open an Account for Existing
Type of Account an Account Using Investment Builder Accounts
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Any account other than those listed below $2,500 $25 $100
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Accounts registered under the Uniform Gifts
to Minors Act ("UGMA") or the Uniform
Transfers to Minors Act $2,500 $25 $100
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("UTMA")
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Individual Retirement Accounts ("IRAs") $ 500 $25 $100
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Coverdell Education Savings Accounts $ 500 $25 $100
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Retirement plans with tax benefits such as
corporate pension, profit sharing and Keogh
plans $ 250 $25 $100
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Payroll Deduction Investment Programs for
SARSEP*, SEP, SIMPLE IRA, 403(b)(7) and
certain other retirement plans $ 25 N/A $ 25
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*Effective January 1, 1997, the Savings Incentive Match Plan for Employees of
Small Employers (SIMPLE) IRA became available replacing SARSEP plans. SARSEP
plans established prior to January 1, 1997, may remain active and continue to
add new employees.
Class Y Shares
. Class Y shares may be purchased by mutual funds, endowments,
foundations, bank trust departments or trust companies with a minimum
initial investment of $1 million. The minimum subsequent investment
for such entities is $10,000.
. You do not pay a sales charge when you buy Class Y shares. All of your
money goes to work for you right away.
. You pay lower annual expenses than Classes A, B and C shares, giving
you the potential for higher returns per share.
There is no initial or subsequent investment minimum for:
. Retirement Plans (401(a), 401(k), 457 or 403(b) plans) that have total
investment assets of at least $10 million. Plan sponsor accounts can
be aggregated to meet this minimum.
. Insurance Company Accounts of New England Financial, Metropolitan Life
Insurance Company ("MetLife") or their affiliates.
. Separate Accounts of New England Financial, MetLife or their
affiliates.
. Wrap Fee Programs of certain broker-dealers not being paid by the
Fund, Loomis Sayles or the Distributor. Such wrap fee programs may be
subject to additional or different conditions, including a wrap
account fee. Each broker-dealer is responsible for transmitting to its
customer a schedule of fees and other information regarding any such
conditions. If the participant who purchased Class Y shares through a
wrap fee program should terminate the wrap fee arrangement with the
broker-dealer, then the Class Y shares will, at the discretion of the
broker-dealer, automatically be converted to a number of Class A
shares of the same Fund having the same dollar value of the shares
converted, and the broker-dealer may thereafter
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be entitled to receive from that Fund an annual service fee of 0.25%
of the value of Class A shares owned by that shareholder.
. Certain individual retirement accounts if the amounts invested
represent rollover distributions from investments by any of the
Retirement Plans set forth above.
. Deferred Compensation Plan Accounts of New England Life Insurance
Company ("NELICO"), MetLife or their affiliates ("Deferred
Compensation Accounts").
. Service Accounts through an omnibus account by investment advisers,
financial planners, broker-dealers or other intermediaries who have
entered into a service agreement with a Fund. A fee may be charged to
shareholders purchasing through a service account if they effect
transactions through such parties and should contact such parties
regarding information about such fees.
At the discretion of Loomis Sayles, employees and clients of Loomis Sayles
may purchase Class Y shares of the Fund in amounts less than the stated
minimums.
HOW SALES CHARGES ARE CALCULATED
Class A Shares
The price that you pay when you buy Class A shares (the "offering price") is
their net asset value plus a sales charge (sometimes called a "front-end sales
charge") which varies depending upon the size of your purchase:
--------------------------------------------------------------------------------
CLASS A SHARES
--------------------------------------------------------------------------------
Your Investment As a % of offering price As a % of your investment
--------------------------------------------------------------------------------
Less than $100,000 3.00% 3.09%
--------------------------------------------------------------------------------
$ 100,000 - $249,999 2.50% 2.56%
--------------------------------------------------------------------------------
$ 250,000 - $499,999 2.00% 2.04%
--------------------------------------------------------------------------------
$ 500,000 - $999,999 1.25% 1.27%
--------------------------------------------------------------------------------
$1,000,000 or more* 0.00% 0.00%
--------------------------------------------------------------------------------
* For purchases of Class A shares of the Fund of $1 million or more or purchases
by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Internal
Revenue Code with investments of $1 million or more or that have 100 or more
eligible employees), there is no front-end sales charge, but a CDSC of 1.00% may
apply to redemptions of your shares within one year of the date of purchase. See
the section "How the CDSC is Applied to Your Shares."
**Not imposed on shares that are purchased with reinvested dividends or other
distributions.
If you invest in Class A shares through a financial intermediary, it is the
responsibility of the financial intermediary to ensure that you obtain the
proper "breakpoint" discount. It will be necessary at the time of purchase to
inform the Distributor and the financial intermediary of the existence of other
accounts in which there are holdings eligible to be aggregated to meet sales
load breakpoints. You may be required to provide certain records and
information, such as account statements, with respect to all of your accounts
which hold Fund shares, including accounts with other financial intermediaries
and your family members' and other related parties' accounts, in order to verify
your eligibility for a reduced sales charge. If the Distributor is not notified
that you are eligible for a reduced sales charge, the Distributor will be unable
to ensure that the reduction is
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applied to your account. Additional information concerning sales load
breakpoints is available from your financial intermediary, by visiting the
Fund's website at www.cdcnvestfunds.com (click on "sales charges" at the bottom
of the home page) or in the Fund's statement of additional information.
Reducing Front-End Sales Charges
There are several ways you can lower your sales charge for Class A shares,
including:
. Letter of Intent - By signing a Letter of Intent, you may purchase
Class A shares of any CDC Nvest Fund over a 13-month period but pay
sales charges as if you had purchases all shares at once. This program
can save you money if you plan to invest $50,000 or more over 13
months. Purchases of Class B and Class C shares may be used toward
meeting the letter of intent.
. Cumulative Purchase Discount - You may be entitled to a reduced sales
charge if your "total investment" reaches a breakpoint for a reduced
sales charge. The total investment is determined by adding the amount
of your current purchase in the Fund, including the applicable sales
charge, to the current public offering price of all series and classes
of shares of the CDC Nvest Funds held by you in one or more accounts.
If your total investment exceeds a sales charge breakpoint in the
table above, the lower sales charge applies to entire amount of your
current purchase in the Fund.
. Combining Accounts - allows you to combine shares of multiple CDC
Nvest Funds and classes for purposes of calculating your sales charge.
Individual Accounts: You may elect to combine your purchase(s) and
your total investment, as defined above, with the purchases and total
investment of your spouse, parents, children, siblings, in-laws,
grandparents, grandchildren, individual fiduciary accounts, sole
proprietorships, single trust estates and any other individuals
acceptable to the Distributor.
Certain Retirement Plan Accounts: The Distributor may, in its
discretion, combine the purchase(s) and total investment of all
qualified participants in the same retirement plan for purposes of
determining the availability of a reduced sales charge. In most
instances, individual accounts may not be linked with certain
retirement plan accounts for the purposes of calculating sales
charges. SIMPLE IRA contributions will automatically be linked with
those of other participants in the same SIMPLE IRA Plan (Class A
shares only). SIMPLE IRA accounts may not be linked with any other CDC
Nvest Funds account for rights of accumulation. Please refer to the
SAI for more detailed information on combining accounts.
The above-listed ways to reduce front-end sales chares may not apply to the
Money Market Fund unless shares are purchased through an exchange from another
CDC Nvest Fund.
Eliminating Front-End Sales Charges and CDSCs
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DRAFT
Class A shares may be offered without front-end sales charges or a CDSC to the
following individuals and institutions:
.. Any government entity that is prohibited from paying a sales charge or
commission to purchase mutual fund shares;
.. Selling brokers, sales representatives, registered investment advisers,
financial planners or other intermediaries under arrangements with the
Distributor;
.. Fund Trustees and other individuals who are affiliated with any CDC Nvest
Fund or Money Market Fund (this also applies to any spouse, parents,
children, siblings, grandparents, grandchildren and in-laws of those
mentioned);
.. Participants in certain Retirement Plans with at least 100 eligible
employees (one-year CDSC may apply);
.. Non-discretionary and non-retirement accounts of bank trust departments or
trust companies only if they principally engage in banking or trust
activities;
.. Investments of $5 million or more by corporations purchasing shares for
their own accord, credit unions, or bank trust departments and trust
companies with discretionary accounts which they hold in a fiduciary
capacity; and
.. Investments of $25,000 or more in CDC Nvest Funds or the Money Market Fund
by clients of an adviser or subadviser to any CDC Nvest Fund or the Money
Market Fund.
Repurchasing Fund Shares
You may apply proceeds from redeeming Class A shares of the Funds (without
paying a front-end sales charge) to repurchase Class A shares of any CDC Nvest
Fund. To qualify, you must reinvest some or all of the proceeds within 120 days
after your redemption and notify CDC Nvest Funds or your financial
representative at the time of reinvestment that you are taking advantage of this
privilege. You may reinvest your proceeds either by returning the redemption
check or by sending a new check for some or all of the redemption amount. Please
note: for federal income tax purposes, a redemption is a sale that involves tax
consequences, even if the proceeds are later reinvested. Please consult your tax
adviser to discuss how a redemption would affect you.
If you repurchase Class A shares of $1 million or more within 30 days after you
redeem such shares, the Distributor will rebate the amount of the CDSC charged
on the redemption.
Eliminating the CDSC
As long as the Distributor is notified at the time you sell, the CDSC for Class
A shares will generally be eliminated in the following cases: (1) to make
distributions from a Retirement Plan (a plan termination or total plan
redemption may incur a CDSC); (2) to make payments through a systematic
withdrawal plan; or (3) due to shareholder death or disability.
Class B Shares
The offering price of Class B shares is their net asset value, without a
front-end sales charge. However, there is a CDSC on shares that you sell within
six years of buying them. The amount of the CDSC, if any, declines each year
that you own your shares (except in the 3rd and 4th years, which have the same
CDSC). The holding period for purposes of timing the conversion to Class A
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shares and determining the CDSC will continue to run after an exchange to Class
B shares of another CDC Nvest Fund. The CDSC equals the following percentages of
the dollar amounts subject to the charge:
-----------------------------------------------
Class B Contingent Deferred Sales Charges
-----------------------------------------------
Year Since Purchase CDSC on Shares Being Sold
------------------- -------------------------
1st 5.00%
2nd 4.00%
3rd 3.00%
4th 3.00%
5th 2.00%
6th 1.00%
thereafter 0.00%
Eliminating the CDSC
As long as the Distributor is notified at the time you sell, the CDSC for Class
B shares will be generally be eliminated in the following cases: (1) to make
distributions from a Retirement Plan (a plan termination or total plan
redemption may incur a CDSC); (2) to make payments through a systematic
withdrawal plan; or (3) due to shareholder death or disability.
Class C Shares
The offering price of Class C shares is their net asset value, without a
front-end sales charge. Class C shares are subject to a CDSC of 1.00% on
redemptions made within one year of the date of purchase. The holding period for
determining the CDSC will continue to run after an exchange to Class C shares of
another CDC Nvest Fund.
-----------------------------------------------
Class C Contingent Deferred Sales Charges
-----------------------------------------------
Year Since Purchase CDSC on Shares Being Sold
------------------- -------------------------
1st 1.00%
thereafter 0.00%
Eliminating the CDSC
As long as the Distributor is notified at the time you sell, the CDSC for Class
C shares will be generally be eliminated in the following cases: (1) to make
distributions from a Retirement Plan (a plan termination or total plan
redemption may incur a CDSC); (2) to make payments through a systematic
withdrawal plan; or (3) due to shareholder death or disability.
How the CDSC Is Applied to Your Shares
The CDSC is a sales charge you pay when you redeem certain Fund shares. The
CDSC:
.. is calculated based on the number of shares you are selling;
.. is based on either your original purchase price or the current net asset
value of the shares being sold, whichever is lower;
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.. is deducted from the proceeds of the redemption, not from the amount
remaining in your account; and
.. for year one applies to redemptions through the day that is one year after
the date on which your purchase was accepted, and so on for subsequent
years.
A CDSC will not be charged on:
.. increases in net asset value above the purchase price; or
.. shares you acquired by reinvesting your dividends or capital gains
distributions.
To keep your CDSC as low as possible, each time that you place a request to sell
shares we will first sell any shares in your account that carry no CDSC. If
there are not enough of these shares available to meet your request, we will
sell the shares with the lowest CDSC.
Exchanges into Shares of the Money Market Fund
If you exchange shares of a Fund into shares of the Money Market Fund, the
holding period for purposes of determining the CDSC and conversion into Class A
shares stops until you exchange back into shares of another CDC Nvest Fund. If
you choose to redeem those Money Market Fund shares, a CDSC may apply.
Class Y Shares
Class Y shares are not subject to any front-end sales charge or CDSC.
Self-Servicing Your Account
Buying or selling shares is easy with the services described below:
CDC Nvest Funds Personal Access Line(R)
800-225-5478, press 1
CDC Nvest Funds Web Site
www.cdcnvestfunds.com
You have access to your account 24 hours a day by calling the Personal Access
Line(R) from a touch-tone telephone or by visiting us online. Using these
customer service options, you may:
.. purchase, exchange or redeem shares in your existing accounts (certain
restrictions may apply);
.. review your account balance, recent transactions, Fund prices and recent
performance;
.. order duplicate account statements; and
.. obtain tax information.
Please see the following pages for other ways to buy, exchange or sell your
shares.
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BUYING, SELLING AND EXCHANGING SHARES
Buying Shares
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Opening an Account Adding to an Account
------------------------------------------------------------------------------------------------------------
Through Your Investment Dealer
------------------------------------------------------------------------------------------------------------
. Call your investment dealer for information about opening or adding to
an account. Dealers may also charge you a processing or service fee in
connection with the purchase of fund shares.
------------------------------------------------------------------------------------------------------------
By Mail
------------------------------------------------------------------------------------------------------------
. Make out a check in U.S. . Make out a check in U.S.
dollars for the investment dollars for the investment
amount, payable to "CDC Nvest amount, payable to "CDC Nvest
Funds." Third party checks and Funds." Third party checks and
"starter" checks will not be "starter" checks will not be
accepted. accepted.
[envelope icon] . Mail the check with your . Complete the investment
completed application to CDC slip from an account statement
Nvest Funds, P.O. Box 219579, or include a letter specifying
Kansas City, MO 64121-9579. the Fund name, your class of
shares, your account number and
the registered account name(s).
------------------------------------------------------------------------------------------------------------
By Exchange (See the section "Exchanging Shares" for more details.)
------------------------------------------------------------------------------------------------------------
[exchange icon] . Obtain a current prospectus . Call your investment dealer
for the Fund into which you are or CDC Nvest Funds at
exchanging by calling your 800-225-5478 or (for Classes A,
investment dealer or CDC Nvest B and C shares) visit
Funds at 800-225-5478. www.cdcnvestfunds.com to
request an exchange.
. Call your investment dealer or
CDC Nvest Funds or visit
www.cdcnvestfunds.com to
request an exchange.
------------------------------------------------------------------------------------------------------------
By Wire
------------------------------------------------------------------------------------------------------------
. Opening an account by wire . Visit www.cdcnvestfunds.com
is not available. to add shares to your
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account by wire (for Classes A,
[wire icon] B and C shares). Instruct your
bank to transfer funds to State
Street Bank & Trust Company, ABA
#011000028, and DDA #99011538.
. Specify the Fund name, your
class of shares, your account
number and the registered
account name(s). Your bank may
charge you for such a transfer.
------------------------------------------------------------------------------------------------------------
Through Automated Clearing House ("ACH")
------------------------------------------------------------------------------------------------------------
. Although you cannot open an . Call CDC Nvest Funds at
account through ACH, you may 800-225-5478 or (for Classes A,
[ACH icon] add this feature by selecting B and C shares) visit
it on your account application. www.cdcnvestfunds.com to add
. Ask your bank or credit shares to your account through
union whether it is a member of ACH.
the ACH system. . If you have not signed up
for the ACH system, please call
CDC Nvest Funds or visit
www.cdcnvestfunds.com for a
Service Options Form. A
signature guarantee may be
required to add this privilege.
------------------------------------------------------------------------------------------------------------
Automatic Investing Through Investment Builder
------------------------------------------------------------------------------------------------------------
. Indicate on your application . Please call CDC Nvest Funds
[builder icon] that you would like to begin an at 800-225-5478 or (for Classes
automatic investment plan A, B and C shares) visit
through Investment Builder and www.cdcnvestfunds.com for a
the amount of the monthly Service Options Form. A
investment ($25 minimum). signature guarantee may be
. Include a check marked required to add this privilege.
"Void" or a deposit slip from . See the section entitled
your bank account. "Additional Investor Services."
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Selling Shares
To Sell Some or All of Your Shares
Certain restrictions may apply. See the section "Restrictions on Buying, Selling
and Exchanging Shares."
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Through Your Investment Dealer
------------------------------------------------------------------------------------------------------------
. Call your investment dealer for information. Dealers may also charge
you a processing or service fee in connection with the redemption of
fund shares.
------------------------------------------------------------------------------------------------------------
By Mail
------------------------------------------------------------------------------------------------------------
. Write a letter to request a redemption. Specify the name of your Fund,
class of shares, account number, the exact registered account name(s),
the number of shares or the dollar amount to be redeemed and the method
by which you wish to receive your proceeds. Additional materials may be
required. See the section "Selling Shares in Writing."
[envelope icon] . The request must be signed by all of the owners of the shares and must
include the capacity in which they are signing, if appropriate.
. Mail your request by regular mail to CDC Nvest Funds, P.O. Box 219579,
Kansas City, MO 64121-9579 or by registered, express or certified mail
to CDC Nvest Funds, 330 West 9th Street, Kansas City, MO 64105-1514.
. Your proceeds (less any applicable CDSC) will be delivered by the
method chosen in your letter. Proceeds delivered by mail will generally
be mailed to you on the business day after the request is received in
good order.
------------------------------------------------------------------------------------------------------------
By Exchange (See the section "Exchanging Shares" for more details.)
------------------------------------------------------------------------------------------------------------
. Obtain a current prospectus for the Fund into which you are exchanging
by calling your investment dealer or CDC Nvest Funds at 800-225-5478.
[exchange icon] . Call CDC Nvest Funds or (for Classes A, B and C shares) visit
www.cdcnvestfunds.com to request an exchange.
------------------------------------------------------------------------------------------------------------
By Wire
------------------------------------------------------------------------------------------------------------
. Complete the "Bank Information" section on your account application.
[wire icon] . Call CDC Nvest Funds at 800-225-5478 or (for Classes A, B and C shares)
visit www.cdcnvestfunds.com or indicate in your redemption request
letter (see above) that you wish to have your proceeds wired to your
bank.
. Proceeds (less any applicable CDSC) will generally be wired on the next
business day. A wire fee (currently $5.00) will be deducted from the
proceeds. Your bank may charge you a fee to receive the wire.
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Through Automated Clearing House
------------------------------------------------------------------------------------------------------------
. Ask your bank or credit union whether it is a member of the ACH system.
. Complete the "Bank Information" section on your account application.
[ACH icon] . If you have not signed up for the ACH system on your application,
please call CDC Nvest Funds at 800-225-5478 or visit
www.cdcnvestfunds.com for a Service Options Form.
. Call CDC Nvest Funds or (for Classes A, B and C shares) visit
www.cdcnvestfunds.com to request an ACH redemption.
. Proceeds (less any applicable CDSC) will generally arrive at your bank
within three business days.
------------------------------------------------------------------------------------------------------------
By Telephone
------------------------------------------------------------------------------------------------------------
[telephone icon] . Call CDC Nvest Funds at 800-225-5478 to choose the method you wish to
use to redeem your shares. You may receive your proceeds by mail, by
wire or through ACH (see above).
------------------------------------------------------------------------------------------------------------
By Systematic Withdrawal Plan (See the section "Additional Investor Services" for more details.)
------------------------------------------------------------------------------------------------------------
. Call CDC Nvest Funds at 800-225-5478 or your financial representative
for more information.
[systematic icon] . Because withdrawal payments may have tax consequences, you should
consult your tax adviser before establishing such a plan.
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By Check (for Class A shares only)
------------------------------------------------------------------------------------------------------------
. Select the checkwriting option on your application and complete the
signature card.
.. [check icon] . To add this privilege to an existing account, call CDC Nvest Funds at
800-225-5478 for a Service Options Form.
. Each check must be written for $500 or more.
. You may not close your account by withdrawal check. Please call your
financial representative or CDC Nvest Funds to close an account.
Selling Shares in Writing
If you wish to redeem your shares in writing, all owners of the shares must sign
the redemption request in the exact names in which the shares are registered and
indicate any special capacity in which they are signing. In certain situations,
you will be required to make your request to sell shares in writing. In these
instances, a letter of instruction signed by the authorized owner is necessary.
In certain situations, we also may require a medallion signature guarantee or
additional documentation.
A medallion signature guarantee protects you against fraudulent orders and is
necessary if:
.. your address of record has been changed within the past 30 days;
.. you are selling more than $100,000 worth of shares and you are requesting
the proceeds by check;
.. a proceeds check for any amount is either mailed to an address other than
the address of record or not payable to the registered owner(s); or
.. the proceeds are sent by check, wire, or in some circumstances ACH to a
bank account whose owner(s) do not match the owner(s) of the fund account.
A notary public cannot provide a medallion signature guarantee. The Funds will
only accept medallion signature guarantees bearing the STAMP2000 Medallion
imprint. A medallion signature guarantee can be obtained from one of the
following sources:
.. a financial representative or securities dealer;
.. a federal savings bank, cooperative, or other type of bank;
.. a savings and loan or other thrift institution;
.. a credit union; or
.. a securities exchange or clearing agency.
The table below shows some situations in which additional documentation may be
necessary. Please call your financial representative or CDC Nvest Funds
regarding requirements for other account types.
A-17
--------------------------------------------------------------------------------
Seller (Account Type) Requirements for Written Requests
--------------------------------------------------------------------------------
Qualified retirement benefit . The request must include the signatures of
plans (except CDC Nvest all those authorized to sign, including
Funds prototype documents) title.
. Medallion signature guarantee, if
applicable (see above).
. Additional documentation and distribution
forms may be required.
--------------------------------------------------------------------------------
Individual Retirement Accounts . Additional documentation and distribution
forms may be required.
--------------------------------------------------------------------------------
Individual, joint, sole . The request must include the signatures of
proprietorship, UGMA/UTMA all persons authorized to sign, including
(minor accounts) title, if applicable.
. Medallion signature guarantee, if
applicable (see above).
. Additional documentation may be required.
--------------------------------------------------------------------------------
Corporate or association . The request must include the signatures of
accounts all persons authorized to sign, including
title.
. Certified copy of corporate resolution or
similar documents.
--------------------------------------------------------------------------------
Owners or trustees of trust . The request must include the signatures of
accounts all trustees authorized to sign, including
title.
. If the names of the trustees are not
registered on the account, please provide
a copy of the trust document certified
within the past 60 days.
. Medallion signature guarantee, if
applicable (see above).
--------------------------------------------------------------------------------
Joint tenancy whose co-tenants . The request must include the signatures of
are deceased all surviving tenants of the account.
. Certified copy of the death certificate.
. Medallion signature guarantee if proceeds
check is issued to other than the
surviving tenants.
--------------------------------------------------------------------------------
Power of Attorney (POA) . The request must include the signatures of
the attorney-in-fact, indicating such
title.
. A medallion signature guarantee.
. Certified copy of the POA document stating
it is still in full force and effect,
specifying that the grantor is alive, the
exact Fund and account number, and
certified within 30 days of receipt of
instructions.*
--------------------------------------------------------------------------------
Executors of estates, . The request must include the signatures of
administrators, guardians, all those authorized to sign, including
conservators capacity.
. A medallion signature guarantee.
. Certified copy of court document where
signer derives authority, e.g., Letters of
Administration, Conservatorship and
Letters Testamentary.*
--------------------------------------------------------------------------------
* Certification may be made on court documents by the court, usually certified
by the clerk of the court. Power of Attorney certification may be made by a
commercial bank, broker/member of a domestic stock exchange or a practicing
attorney.
Exchanging Shares
In general, you may exchange shares of your Fund for shares of the same class of
another CDC Nvest Fund or series of Loomis Sayles Funds that offers such class
of shares, without paying a sales charge or a CDSC (see the sections "Buying
Shares" and "Selling Shares"). The exchange
A-18
must be for the minimum to open an account (or the total net asset value of your
account, whichever is less), or $100 if made under the Automatic Exchange Plan
(see the section entitled "Additional Investor Services"). All exchanges are
subject to the eligibility requirements of the fund into which you are
exchanging and any other limits on sales of or exchanges into that fund. The
exchange privilege may be exercised only in those states where shares of such
funds may be legally sold. For federal income tax purposes, an exchange of fund
shares for shares of another fund is generally treated as a sale on which gain
or loss may be recognized. Subject to the applicable rules of the SEC, the Board
of Trustees reserves the right to modify the exchange privilege at any time.
Before requesting an exchange into any other fund, please read its prospectus
carefully. Please refer to the SAI for more detailed information on exchanging
Fund shares.
Restrictions on Buying, Selling and Exchanging Shares
Frequent purchases and redemptions of Fund shares may present certain risks for
other shareholders in the Fund. This includes the risk of diluting the value of
Fund shares held by long-term shareholders, interfering with the efficient
management of the Fund's portfolio, and increasing brokerage and administrative
costs. Funds investing in securities that require special valuation processes
(such as foreign securities, high yield securities or small cap securities) may
also have increase exposure to these risks. The Fund discourages excessive,
short-term trading that may be detrimental to the Fund and its shareholders. The
Board of Trustees has adopted the following policies with respect to frequent
purchases and redemptions of Fund shares.
The Fund reserves the right to suspend or change the terms of purchasing or
exchanging shares. The Fund and the Distributor reserve the right to refuse or
limit any purchase or exchange order for any reason, including if the
transaction is deemed not to be in the best interests of the Fund's other
shareholders or possibly disruptive to the management of the Fund.
Limits on Frequent Trading. Without limiting the right of the Fund and the
Distributor to refuse any purchase or exchange order, the Fund and the
Distributor may (but are not obligated to) restrict purchases and exchanges for
the accounts of "market timers." With respect to exchanges, an account may be
deemed to be one of a market timer if (i) more than two exchange purchases of
any Fund are made for the account over a 90-day interval as determined by the
Fund; or (ii) the account makes one or more exchange purchases of any Fund over
a 90-day interval as determined by the Fund in an aggregate amount in excess of
1% of the Fund's total net assets. With respect to new purchases of a Fund, an
account may be deemed to be one of a market timer if (i) more than twice over a
90-day interval as determined by the Fund, there is a purchase in a Fund
followed by a subsequent redemption; or (ii) there are two purchases into a Fund
by an account, each followed by a subsequent redemption over a 90-day interval
as determined by the Fund in an aggregate amount in excess of 1% of the Fund's
total net assets. The preceding are not exclusive lists of activities that the
Fund and the Distributor may consider to be "market timing."
Trade Activity Monitoring. Trading activity is monitored selectively on a daily
basis in an effort to detect excessive short-term trading activities. If the
Fund or the Distributor believes that a shareholder or financial intermediary
has engaged in market timing or other excessive, short-term trading activity, it
may, in its discretion, request that the shareholder or financial intermediary
stop such activities or refuse to process purchases or exchanges in the
accounts. In
A-19
its discretion, the Fund or the Distributor may restrict or prohibit
transactions by such identified shareholders or intermediaries. In making such
judgments, the Fund and the Distributor seek to act in a manner that they
believe is consistent with the best interests of all shareholders. The Fund and
the Distributor also reserve the right to notify financial intermediaries of
your trading activity. Because the Fund and the Distributor will not always be
able to detect market timing activity, investors should not assume the Fund will
be able to detect or prevent all market timing or other trading practices that
may not be in the best interests of the Fund's shareholders. For example, the
ability of the Fund and the Distributor to monitor trades that are placed by
omnibus or other nominee accounts is severely limited in those instances in
which the broker, retirement plan administrator or fee-based program sponsor
maintains the record of a Fund's underlying beneficial owners.
Purchase Restrictions
The Fund is required by federal regulations to obtain certain personal
information from you and to use that information to verify your identity. The
Fund may not be able to open your account if the requested information is not
provided. The Fund reserves the right to refuse to open an account, close an
account and redeem your shares at the then current price or take other such
steps that the Fund deems necessary to comply with federal regulations if your
identity cannot be verified.
Selling Restrictions
The table below describes restrictions placed on selling shares of the Fund
described in this Prospectus:
--------------------------------------------------------------------------------
Restriction Situation
--------------------------------------------------------------------------------
The Fund may suspend the right . When the New York Stock Exchange (the
of redemption or postpone "Exchange") is closed (other than a
payment for more than 7 days: weekend/holiday)
. During an emergency
. During any other period permitted by the
SEC
--------------------------------------------------------------------------------
The Fund reserves the right to . With a notice of a dispute between
suspend account services or registered owners
refuse transaction requests: . With suspicion/evidence of a fraudulent
act
--------------------------------------------------------------------------------
The Fund may pay the redemption . When it is detrimental for the Fund to
price in whole or in part by a make cash payments as determined in the
distribution in kind of readily sole discretion of the adviser
marketable securities in lieu of
cash or may take up to 7 days to
pay a redemption request in
order to raise capital:
--------------------------------------------------------------------------------
The Fund may withhold redemption . When redemptions are made within 10
proceeds until the check or calendar days of purchase by check or
funds have cleared: ACH of the shares being redeemed
--------------------------------------------------------------------------------
If you hold certificates representing your shares, they must be sent with your
request for it to be honored.
It is recommended that certificates be sent by registered mail.
Although most redemptions are made in cash, as described in the SAI, the Fund
reserves the right to redeem shares in kind.
Small Account Policy
The Fund assesses a minimum balance fee on an annual basis for accounts that
fall below the
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minimum amount required to establish an account, as previously described in this
Prospectus. The minimum balance fee is assessed by the automatic redemption of
shares in the account in an amount sufficient to pay the fee. This minimum
balance fee does not apply to accounts with active investment builder and
payroll deduction programs, accounts that fall below the minimum as a result of
the automatic conversion from Class B shares to Class A shares, accounts held
through the National Securities Clearing Corporation, or retirement accounts. In
its discretion, the Fund may also close the account and send the account holder
the proceeds if the account falls below the minimum amount.
HOW FUND SHARES ARE PRICED
"Net asset value" is the price of one share of the Fund without a sales charge,
and is calculated each business day using this formula:
· Enlarge/Download Table
Net Asset Value = Total market value of securities + Cash and other assets - Liabilities
----------------------------------------------------------------------
Number of outstanding shares
The net asset value of Fund shares is determined according to this schedule:
.. A share's net asset value is determined at the close of regular trading on
the Exchange on the days the Exchange is open for trading. This is normally
4:00 p.m. Eastern time. Generally, Fund shares will not be priced on the
days on which the Exchange is closed for trading. However, in Loomis
Sayles' discretion, Fund shares may be priced on a day the Exchange is
closed for trading if Loomis Sayles in its discretion determines that there
has been enough trading in that Fund's portfolio securities to materially
affect the net asset value of the Fund's shares. This may occur, for
example, if the Exchange is closed but the fixed income markets are open
for trading. In addition, Fund shares will not be priced on the holidays
listed in the SAI. See the section "Net Asset Value and Public Offering
Price" in the SAI for more details.
.. The price you pay for purchasing, redeeming or exchanging a share will be
based upon the net asset value next calculated by the Fund's custodian
(plus or minus applicable sales charges as described earlier in this
Prospectus) after your order is received "in good order."
.. Requests received by the Distributor after the Exchange closes will be
processed based upon the net asset value determined at the close of regular
trading on the next day that the Exchange is open, with the exception that
those orders received by your investment dealer before the close of the
Exchange and received by the Distributor from the investment dealer before
5:00 p.m. Eastern time* on the same day will be based on the net asset
value determined on that day.
A Fund significantly invested in foreign securities may have net asset value
changes on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into contractual
agreements pursuant to which orders received by your investment dealer before
the close of the Exchange and
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transmitted to the Distributor prior to 9:30 a.m. on the next business day are
processed at the net asset value determined on the day the order was received by
your investment dealer.
Generally, during times of substantial economic or market change, it may be
difficult to place your order by phone. During these times, you may deliver your
order in person to the Distributor or send your order by mail as described in
the sections "Buying Shares" and "Selling Shares."
Generally, Fund securities are valued as follows:
.. Equity securities -- market price or as provided by a pricing service if
market price is unavailable.
.. Debt securities (other than short-term obligations) -- based upon pricing
service valuations, which determine valuations for normal,
institutional-size trading units of such securities using market
information, transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
.. Short-term obligations (remaining maturity of less than 60 days) --
amortized cost (which approximates market value).
.. Securities traded on foreign exchanges -- market price on the non-U.S.
exchange, unless the Fund believes that an occurrence after the close of
that exchange will materially affect the security's value. In that case,
the security may be fair valued at the time the Fund determines its net
asset value by or pursuant to procedures approved by the Board of Trustees.
When fair valuing its 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 local market and before the time the Fund's net asset
value is calculated.
.. Options -- last sale price, or if not available, last offering price.
.. Futures -- unrealized gain or loss on the contract using current settlement
price. When a settlement price is not used, futures contracts will be
valued at their fair value as determined by or pursuant to procedures
approved by the Board of Trustees.
.. All other securities -- fair market value as determined by the adviser of
the Fund pursuant to procedures approved by the Board of Trustees.
Because of fair value pricing, as described above for "Securities traded on
foreign exchanges" and "All other securities," securities may not be priced on
the basis of quotations from the primary market in which they are traded but
rather may be priced by another method that the Board of Trustees believes is
more likely to result in a price that reflects fair value (which is the amount
that the Fund might reasonably expect to receive from a current sale of the
security in the ordinary course of business). The Fund may also value securities
at fair value or estimate their value pursuant to procedures approved by the
Board of Trustees in other circumstances such as when extraordinary events occur
after the close of the relevant market but prior to the close of the Exchange.
This may include situations relating to a single issuer (such as a declaration
of bankruptcy or a delisting of the issuer's security from the primary market on
which it has traded) as well as events affecting the securities markets in
general (such as market disruptions or closings and significant fluctuations in
U.S. and/or foreign markets).
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DIVIDENDS AND DISTRIBUTIONS
The Fund generally distributes most or all of its net investment income (other
than capital gains) in the form of dividends. The Fund declares dividends for
each class daily and pays them monthly. The net investment income accruing on
Saturdays, Sundays and other days on which the Exchange is closed is declared as
a dividend on the immediately following business day. The Fund expects to
distribute all net realized long- and short-term capital gains annually, after
applying any available capital loss carryovers. To the extent permitted by law,
the Board of Trustees may adopt a different schedule as long as payments are
made at least annually.
Distributions will automatically be reinvested in shares of the same class of
the distributing Fund at net asset value, unless you select one of the following
alternatives:
.. Participate in the Dividend Diversification Program, which allows you to
have all dividends and distributions automatically invested at net asset
value in shares of the same class of another CDC Nvest Fund registered in
your name. Certain investment minimums and restrictions may apply. For more
information about this program, see the section "Additional Investor
Services."
.. Receive distributions from dividends and interest in cash while reinvesting
distributions from capital gains in additional shares of the same class of
the Fund, or in the same class of another CDC Nvest Fund.
.. Receive all distributions in cash.
For more information or to change your distribution option, contact CDC Nvest
Funds in writing or call 800-225-5478.
If you earn more than $10 annually in taxable income from a CDC Nvest Fund held
in a non-retirement plan account, you will receive a Form 1099 to help you
report the prior calendar year's distributions on your federal income tax
return. This information will also be reported to the Internal Revenue Service.
Be sure to keep this Form 1099 as a permanent record. A fee may be charged for
any duplicate information requested.
TAX CONSEQUENCES
The Fund intends to meet all requirements under Subchapter M of the Internal
Revenue Code (the "Code") necessary to qualify for treatment as a "regulated
investment company" and thus does not expect to pay any federal income tax on
income and capital gains distributed to shareholders.
Distributions from the Fund. For federal income tax purposes, distributions of
investment income are generally taxable as ordinary income. Taxes on
distributions of capital gains are determined by how long the Fund owned the
investments that generated them, rather than how long a shareholder has owned
his or her shares. Distributions of net capital gains from the sale of
investments that the Fund owned for more than one year and that are properly
designated by
A-23
the Fund as capital gain dividends will be taxable as long-term capital gains.
Distributions of gains from the sale of investments that the Fund owned for one
year or less will be taxable as ordinary income. For taxable years beginning on
or before December 31, 2008, distributions of investment income designated by
the Fund as derived from "qualified dividend income" will be taxed in the hands
of individuals at the reduced long-term capital gain rates described below.
"Qualified dividend income" generally includes dividends from domestic and some
foreign corporations. It does not include income from fixed-income securities.
In addition, the Fund must meet holding period and other requirements with
respect to the dividend paying stocks in its portfolio and the shareholder must
meet holding period and other requirements with respect to the Fund's shares for
such distributions to be eligible for treatment as qualified dividend income.
For taxable years beginning on or before December 31, 2008, long-term capital
gain rates applicable to individuals have been temporarily reduced. For more
information, see the SAI, under "Income Dividends, Capital Gain Distributions
and Tax Status."
Distributions are taxable to shareholders even if they are paid from income or
gains earned by the Fund before a shareholder's investment (and thus were
included in the price the shareholder paid). Distributions are taxable whether
shareholders receive them in cash or reinvest them in additional shares.
The Fund's investments in foreign securities may be subject to foreign
withholding and other taxes. In that case, the Fund's yield on those securities
would be decreased. We do not expect shareholders to be entitled to claim a
credit or deduction with respect to foreign taxes in any Fund that invests 50%
or less of its assets in foreign securities. In addition, the Fund's investments
in foreign securities or foreign currencies may increase or accelerate the
Fund's recognition of ordinary income and may affect the timing or amount of the
Fund's distributions. Because the Funds invest in foreign securities,
shareholders should consult their tax advisers about consequences of their
investments under foreign laws.
Dividends derived from interest on securities issued by the U.S. government or
its agencies or instrumentalities may be exempt from state and local income
taxes. The Fund advises shareholders of the proportion of the Fund's dividends
that are derived from such interest.
The Fund's investments in certain debt obligations may cause that Fund to
recognize taxable income in excess of the cash generated by such obligations.
Thus, the Fund could be required at times to liquidate other investments in
order to satisfy its distribution requirements. Income generated by investments
in fixed-income securities is not eligible for treatment as qualified dividend
income.
Sales or Exchanges of Fund Shares. The redemption, sale or exchange of Fund
shares (including an exchange of Fund shares for shares of another CDC Nvest
Fund or Money Market Fund) is a taxable event and may result in the recognition
of a gain or loss. Gain or loss, if any, recognized on the redemption, sale,
exchange or other disposition of Fund shares will be taxed as a long-term
capital gain or loss if the shares are capital assets in the shareholder's hands
and if the shareholder held the shares for more than one year.
A-24
Under current law, dividends (other than capital gain dividends) paid by the
Fund to a person who is not a "U.S. person" within the meaning of the Code (a
"foreign person") are generally subject to withholding of U.S. federal income
tax at a rate of 30% (or lower applicable treaty rate). Under the American Jobs
Creation Act of 2004 signed by President Bush on October 22, 2004, effective for
taxable years of the Fund beginning after December 31, 2004 and before January
1, 2008, the Fund will no longer be required to withhold any amounts with
respect to distributions of net short-term capital gains in excess of net
long-term capital losses that the Fund properly designates nor with respect to
distributions of U.S. source interest income that would not be subject to U.S.
federal income tax if earned directly by a foreign person. This provision will
first apply to the Fund in its taxable year beginning October 1, 2005.
You should consult your tax adviser for more information on your own situation,
including possible foreign, state or local taxes.
COMPENSATION TO SECURITIES DEALERS
As part of their business strategies, the Fund pays securities dealers that sell
its shares. This compensation originates from two sources: sales charges
(front-end or deferred) and 12b-1 fees (comprising the annual service and/or
distribution fees paid under a plan adopted pursuant to Rule 12b-1 under the
1940 Act). (Class Y shares are not subject to sales charges and do not pay 12b-1
fees). The sales charges are detailed in the section "How Sales Charges Are
Calculated." Each of Class A, B and C shares pays an annual service fee of 0.25%
of its average daily net assets. In addition to a service fee, the Fund's Class
B shares pay an annual distribution fee of 0.75% of their average daily net
assets for 8 years (at which time they automatically convert into Class A
shares). Class C shares are subject to a distribution fee of 0.75% of their
average daily net assets. Generally, the 12b-1 fees are paid to securities
dealers on a quarterly basis. The Distributor retains the first year of such
fees for Class B and Class C shares. Some or all of such fees may also be paid
to financial institutions that finance the payment of commissions or similar
charges on Class B shares. Because these distribution fees are paid out of the
Fund's assets on an ongoing basis, over time these fees for Class B and Class C
shares will increase the cost of your investment and may cost you more than
paying the front-end sales charge on Class A shares.
The Distributor and its affiliates may, out of their own resources, make
payments in addition to the payments described above to dealers which satisfy
certain criteria established from time to time by the Distributor. Payments may
vary based on net sales, the length of time assets of a dealer's clients have
remained invested in the Funds, and other factors. See the SAI for more details.
ADDITIONAL INVESTOR SERVICES
Retirement Plans
CDC Nvest Funds offer a range of retirement plans, including Coverdell Education
Savings Accounts, IRAs, SEPs, SARSEPs*, SIMPLE IRAs, 403(b) plans and other
pension and profit
A-25
sharing plans. Refer to the section "It's Easy to Open an Account" for
investment minimums. For more information about our Retirement Plans, call us at
800-225-5478.
Investment Builder Program
This is CDC Nvest Funds' automatic investment plan. You may authorize automatic
monthly transfers of $25 or more from your bank checking or savings account to
purchase shares of one or more CDC Nvest Funds. To join the Investment Builder
Program, please refer to the section "Buying Shares."
Dividend Diversification Program
This program allows you to have all dividends and any other distributions
automatically invested in shares of the same class of another CDC Nvest Fund or
Money Market Fund, subject to the eligibility requirements of that other fund
and to state securities law requirements. Shares will be purchased at the
selected Fund's net asset value without a front-end sales charge or CDSC on the
dividend record date. Before establishing a Dividend Diversification Program
into any other CDC Nvest Fund or Money Market Fund, please read its prospectus
carefully.
Automatic Exchange Plan
CDC Nvest Funds have an automatic exchange plan under which shares of a class of
a CDC Nvest Fund are automatically exchanged each month for shares of the same
class of another CDC Nvest Fund or Money Market Fund. There is no fee for
exchanges made under this plan, but there may be a sales charge in certain
circumstances. Please see the section "Exchanging Shares" above and refer to the
SAI for more information on the Automatic Exchange Plan.
Systematic Withdrawal Plan
This plan allows you to redeem shares and receive payments from your Fund on a
regular schedule. Redemption of shares that are part of the Systematic
Withdrawal Plan is not subject to a CDSC. However, the amount or percentage you
specify in the plan may not exceed, on an annualized basis, 10% of the value of
your Fund account based upon the value of your Fund account on the day you
establish your plan. For information on establishing a Systematic Withdrawal
Plan, please refer to the section "Selling Shares."
CDC Nvest Funds Personal Access Line(R)
This automated customer service system allows you to have access to your account
24 hours a day by calling 800-225-5478, and pressing 1. With a touch-tone
telephone, you can obtain information about your current account balance, recent
transactions, Fund prices and recent performance. You may also use Personal
Access Line(R) to purchase, exchange or redeem shares in any of your existing
accounts. Certain restrictions may apply.
CDC Nvest Funds Web Site
Visit us at www.cdcnvestfunds.com to review your account balance and recent
transactions, to view daily prices and performance information or to order
duplicate account statements and tax information. You may also go online to
purchase, exchange or redeem shares in your existing accounts. Certain
restrictions may apply.
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* Effective January 1, 1997, the Savings Incentive Match Plan for Employees
of Small Employers (SIMPLE) IRA became available, replacing SARSEP plans.
SARSEP plans established prior to January 1, 1997, may remain active and
continue to add new employees.
A-27
Appendix B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
[ ], 2005, by and between Loomis Sayles Government Securities Fund (the
----- --
"Acquired Fund"), a series of CDC Nvest Funds Trust I, a Massachusetts business
trust (the "Trust"), and Loomis Sayles Limited Term Government and Agency Fund
(the "Acquiring Fund"), a series of Loomis Sayles Funds II, a Massachusetts
business trust (the "Loomis Trust").
PLAN OF REORGANIZATION
(a) The Acquired Fund shall sell, assign, convey, transfer and deliver to
the Acquiring Fund on the Exchange Date (as defined in Section 6) all of its
properties and assets, subject to liabilities. In consideration therefor, the
Acquiring Fund shall, on the Exchange Date, assume all of the liabilities of the
Acquired Fund existing at the Valuation Time (as defined in Section 3(c)) and
deliver to the Acquired Fund a number of full and fractional Class A, Class B
and Class Y shares of beneficial interest of the Acquiring Fund (the "Merger
Shares") having an aggregate net asset value equal to the value of the assets of
the Acquired Fund transferred to the Acquiring Fund on such date less the value
of the liabilities of the Acquired Fund assumed by the Acquiring Fund on that
date. It is intended that the reorganization described in this Agreement shall
be a reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended and in effect from time to time (the "Code").
(b) Upon consummation of the transactions described in paragraph (a) of
this Plan of Reorganization, the Acquired Fund shall distribute the Merger
Shares in complete liquidation to its shareholders of record as of the Exchange
Date, each shareholder being entitled to receive that proportion of Merger
Shares of each class (consisting in the case of each shareholder of Merger
Shares of the same designated class as the shares of the Acquired Fund which
that shareholder holds) which the number of shares of that class of the Acquired
Fund held by such shareholder bears to the total number of shares of that class
of the Acquired Fund outstanding on such date. Certificates representing the
Merger Shares will not be issued. All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of the Acquired
Fund.
(c) As soon as practicable following the liquidation of the Acquired Fund
as aforesaid, the Acquired Fund shall be dissolved pursuant to the provisions of
the Agreement and Declaration of Trust of the Trust, as amended, and applicable
law, and its legal existence terminated. Any reporting responsibility of the
Acquired Fund is and shall remain the responsibility of the Acquired Fund up to
and including the Exchange Date and, if applicable, such later date on which the
Acquired Fund is dissolved.
B-1
AGREEMENT
The Loomis Trust, on behalf of the Acquiring Fund, and the Trust, on behalf
of the Acquired Fund, agree as follows:
1. Representations, Warranties and Agreements of the Acquiring Fund. The
Loomis Trust, and not the individual Trustees and officers thereof, on behalf of
the Acquiring Fund, represents and warrants to and agrees with the Acquired Fund
that:
a. The Acquiring Fund is a series of shares of the Loomis Trust, a
Massachusetts business trust duly established and validly existing under
the laws of the Commonwealth of Massachusetts, and has power to own all of
its properties and assets and to carry out its obligations under this
Agreement. The Loomis Trust is qualified as a foreign association in every
jurisdiction where required, except to the extent that failure to so
qualify would not have a material adverse effect on the Loomis Trust. Each
of the Loomis Trust and the Acquiring Fund has all necessary federal, state
and local authorizations to carry on its business as now being conducted
and to carry out this Agreement.
b. The Loomis Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment
company, and such registration has not been revoked or rescinded and is in
full force and effect.
c. A statement of assets and liabilities, statement of operations,
statement of changes in net assets and a portfolio of investments
(indicating their market values) of the Acquiring Fund as of and for the
period ended September 30, 2004 have been furnished to the Acquired Fund
prior to the Exchange Date. Such statement of assets and liabilities and
schedule fairly present the financial position of the Acquiring Fund as of
such date and said statements of operations and changes in net assets
fairly reflect the results of its operations and changes in net assets for
the periods covered thereby in conformity with generally accepted
accounting principles.
d. Since September 30, 2004, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business (other than changes occurring in the ordinary course of business),
or any incurrence by the Acquiring Fund of indebtedness. For the purposes
of this subparagraph (d), distributions of net investment income and net
realized capital gains, changes in portfolio securities, changes in the
market value of portfolio securities or net redemptions shall be deemed to
be in the ordinary course of business.
e. The Loomis Trust is not in violation in any material respect of any
provisions of its Agreement and Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to
which the Loomis Trust is a party or by which the Acquiring Fund is bound,
and the execution, delivery and performance of this Agreement will not
result in any such violation.
B-2
f. The prospectuses and statement of additional information of the
Acquiring Fund, each dated February 1, 2004, and each as from time to time
amended or supplemented (collectively, the "Acquiring Fund Prospectus"),
previously furnished to the Acquired Fund, (i) conform in all material
respects to the applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), and (ii) did not as of such date and do not
contain, with respect to the Loomis Trust or the Acquiring Fund, any untrue
statements of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading.
g. There are no material legal, administrative or other proceedings
pending or, to the knowledge of the Loomis Trust or the Acquiring Fund,
threatened against the Loomis Trust or the Acquiring Fund, which assert
liability on the part of the Loomis Trust or the Acquiring Fund. Neither
the Loomis Trust nor the Acquiring Fund knows of any facts which might form
the basis for the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated.
h. The Acquiring Fund has no known liabilities of a material nature,
contingent or otherwise, other than those that will be shown as belonging
to it on its statement of assets and liabilities as of September 30, 2004,
and those incurred in the ordinary course of business as an investment
company since such date. Prior to the Exchange Date, the Acquiring Fund
will quantify and reflect on its balance sheet all of its material known
liabilities and will advise the Acquired Fund of all material liabilities,
contingent or otherwise, incurred by it subsequent to September 30, 2004,
whether or not incurred in the ordinary course of business.
i. As of the Exchange Date, the Acquiring Fund will have filed all
federal and other tax returns and reports (giving effect to extensions)
which, to the knowledge of the officers of the Loomis Trust, are required
to be filed by the Acquiring Fund and has paid or will pay all federal and
other taxes shown to be due on said returns or on any assessments received
by the Acquiring Fund. All tax liabilities of the Acquiring Fund have been
adequately provided for on its books, and no tax deficiency or liability of
the Acquiring Fund has been asserted, and no question with respect thereto
has been raised or is under audit, by the Internal Revenue Service or by
any state, local or other tax authority for taxes in excess of those
already paid.
j. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated by this Agreement, except such as may
be required under the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act and state securities or blue sky
laws (which term as used herein shall include the laws of the District of
Columbia and of Puerto Rico).
k. There are no material contracts outstanding to which the Acquiring
Fund is a party, other than as are or will be disclosed in the Registration
Statement or the
B-3
Acquired Fund Proxy Statement (each as defined in Section l(r) herein) or
the Acquiring Fund Prospectus.
l. To the best of its knowledge, all of the issued and outstanding
shares of beneficial interest of the Acquiring Fund have been offered for
sale and sold in conformity with all applicable federal and state
securities laws (including any applicable exemptions therefrom), or the
Acquiring Fund has taken any action necessary to remedy any prior failure
to have offered for sale and sold such shares in conformity with such laws.
m. The Acquiring Fund qualifies and will at all times through the
Exchange Date qualify for taxation as a "regulated investment company"
under Subchapter M of the Code.
n. The issuance of the Merger Shares pursuant to this Agreement will
be in compliance with all applicable federal and state securities laws.
o. The Merger Shares to be issued to the Acquired Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
be legally and validly issued Class A, Class B and Class Y shares of
beneficial interest in the Acquiring Fund and will be fully paid and,
except as set forth in the Registration Statement, nonassessable by the
Acquiring Fund, and no shareholder of the Acquiring Fund will have any
preemptive right of subscription or purchase in respect thereof.
p. All issued and outstanding shares of the Acquiring Fund are, and at
the Exchange Date will be, duly and validly issued and outstanding, fully
paid and, except as set forth in the Registration Statement, nonassessable
by the Acquiring Fund. The Acquiring Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Acquiring Fund shares, nor is there outstanding any security convertible
into any of the Acquiring Fund shares, except that Class B shares of the
Acquiring Fund are convertible into Class A shares of the Acquiring Fund in
the manner and on the terms described in the Acquiring Fund Prospectus and
the Registration Statement.
q. The Acquiring Fund's investment operations from inception to the
date hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in the Acquiring
Fund Prospectus and the Registration Statement.
r. The registration statement on Form N-14 (the "Registration
Statement") filed with the Securities and Exchange Commission (the
"Commission") by the Loomis Trust on behalf of the Acquiring Fund and
relating to the Merger Shares issuable hereunder, and the proxy statement
of the Acquired Fund relating to the meeting of the Acquired Fund's
shareholders referred to in Section 7 herein (together with the documents
incorporated therein by reference, the "Acquired Fund Proxy Statement"), on
the effective date of the Registration Statement (i) complied in all
material respects with the provisions of the 1933 Act, the 1934 Act and the
1940 Act and the rules and
B-4
regulations thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and at
the time of the shareholders' meeting referred to in Section 7 and on the
Exchange Date, the prospectus which is contained in the Registration
Statement, as amended or supplemented by any amendments or supplements
filed with the Commission by the Loomis Trust, and the Acquired Fund Proxy
Statement did not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that none of the representations and warranties in this subparagraph (r)
shall apply to statements in or omissions from the Registration Statement
or the Acquired Fund Proxy Statement made in reliance upon and in
conformity with information furnished by the Acquired Fund for use in the
Registration Statement or the Acquired Fund Proxy Statement.
2. Representations, Warranties and Agreements of the Acquired Fund. The
Trust, and not the individual Trustees and officers thereof, on behalf of the
Acquired Fund, represents and warrants to and agrees with the Acquiring Fund
that:
a. The Acquired Fund is a series of shares of the Trust, a
Massachusetts business trust duly established and validly existing under
the laws of the Commonwealth of Massachusetts, and has power to own all of
its properties and assets and to carry out this Agreement. The Trust is
qualified as a foreign association in every jurisdiction where required,
except to the extent that failure to so qualify would not have a material
adverse effect on the Trust. Each of the Trust and the Acquired Fund has
all necessary federal, state and local authorizations to own all of its
properties and assets and to carry on its business as now being conducted
and to carry out this Agreement.
b. The Trust is registered under the 1940 Act as an open-end
management investment company, and such registration has not been revoked
or rescinded and is in full force and effect.
c. A statement of assets and liabilities, statement of operations,
statement of changes in net assets and a schedule of investments
(indicating their market values) of the Acquired Fund as of and for the
period ended September 30, 2004 have been furnished to the Acquiring Fund
prior to the Exchange Date. Such statement of assets and liabilities and
schedule fairly present the financial position of the Acquired Fund as of
such date and said statements of operations and changes in net assets
fairly reflect the results of its operations and changes in net assets for
the periods covered thereby in conformity with generally accepted
accounting principles.
d. Since September 30, 2004, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business (other than changes occurring in the ordinary course of business),
or any incurrence by the Acquired Fund of indebtedness, except as disclosed
in writing to the Acquiring Fund. For the purposes of this subsection (d)
and of Section 9(a) of this Agreement, distributions of net investment
income and net realized capital gains, changes in portfolio securities,
changes
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in the market value of portfolio securities or net redemptions shall be
deemed to be in the ordinary course of business.
e. The Trust is not in violation in any material respect of any
provision of its Agreement and Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to
which the Trust is a party or by which the Acquired Fund is bound, and the
execution, delivery and performance of this Agreement will not result in
any such violation.
f. The prospectuses and the statement of additional information of the
Acquired Fund, each dated February 1, 2004, and each as from time to time
amended or supplemented (collectively, the "Acquired Fund Prospectus"),
previously furnished to the Acquiring Fund (i) conform in all material
respects to the applicable requirements of the 1933 Act and (ii) did not
contain as of such date and do not contain, with respect to the Trust and
the Acquired Fund, any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
g. The Acquired Fund's investment operations from inception to the
date hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in the Acquired
Fund Prospectus.
h. At the Exchange Date, the Trust, on behalf of the Acquired Fund,
will have good and marketable title to its assets to be transferred to the
Acquiring Fund pursuant to this Agreement and will have full right, power
and authority to sell, assign, transfer and deliver the Investments (as
defined below) and any other assets and liabilities of the Acquired Fund to
be transferred to the Acquiring Fund pursuant to this Agreement. At the
Exchange Date, subject only to the delivery of the Investments and any such
other assets and liabilities and payment therefor as contemplated by this
Agreement, the Acquiring Fund will acquire good and marketable title
thereto and will acquire the Investments and any such other assets and
liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof, except
as previously disclosed in writing to the Acquiring Fund.
i. There are no material legal, administrative or other proceedings
pending or, to the knowledge of the Trust or the Acquired Fund, threatened
against the Trust or the Acquired Fund, which assert liability on the part
of the Trust or the Acquired Fund. The Acquired Fund knows of no facts
which might form the basis for the institution of such proceedings and is
not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated.
j. There are no material contracts outstanding to which the Acquired
Fund is a party, other than as are or will be disclosed in Acquired Fund
Prospectus, the registration statement on Form N-1A of the Acquired Fund
(the "Acquired Fund Registration Statement") or the Acquired Fund Proxy
Statement.
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k. The Acquired Fund has no known liabilities of a material nature,
contingent or otherwise, other than those that are shown on the Acquired
Fund's statement of assets and liabilities as of September 30, 2004,
referred to above and those incurred in the ordinary course of its business
as an investment company since such date. Prior to the Exchange Date, the
Acquired Fund will quantify and reflect on its balance sheet all of its
material known liabilities and will advise the Acquiring Fund of all
material liabilities, contingent or otherwise, incurred by it subsequent to
September 30, 2004, whether or not incurred in the ordinary course of
business.
l. As of the Exchange Date, the Acquired Fund will have filed all
required federal and other tax returns and reports (giving effect to
extensions) which, to the knowledge of the Trust's officers, are required
to have been filed by the Acquired Fund by such date and has paid or will
pay all federal and other taxes shown to be due on said returns or on any
assessments received by the Acquired Fund. All tax liabilities of the
Acquired Fund have been adequately provided for on its books, and no tax
deficiency or liability of the Acquired Fund has been asserted, and no
question with respect thereto has been raised or is under audit, by the
Internal Revenue Service or by any state, local or other tax authority for
taxes in excess of those already paid.
m. The Trust has and, at the Exchange Date, the Trust, on behalf of
the Acquired Fund, will have, full right, power and authority to sell,
assign, transfer and deliver the Investments (as defined below) and any
other assets and liabilities of the Acquired Fund to be transferred to the
Acquiring Fund pursuant to this Agreement. At the Exchange Date, subject
only to the delivery of the Investments and any such other assets and
liabilities as contemplated by this Agreement, the Acquiring Fund will
acquire the Investments and any such other assets and liabilities subject
to no encumbrances, liens or security interests whatsoever and without any
restrictions upon the transfer thereof. As used in this Agreement, the term
"Investments" shall mean the Acquired Fund's investments shown on the
schedule of its investments as of September 30, 2004, referred to in
Section 2(c) hereof, as modified by such changes in the portfolio as the
Acquired Fund shall make, and changes resulting from stock dividends, stock
split-ups, mergers and similar corporate actions through the Exchange Date.
n. No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of the Acquiring Fund or the Acquired Fund,
except as previously disclosed to the Acquiring Fund by the Acquired Fund.
o. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement, except such as may
be required under the 1933 Act, 1934 Act, the 1940 Act or state securities
or blue sky laws.
p. The Acquired Fund qualifies and will at all times through the
Exchange Date qualify for taxation as a "regulated investment company"
under Subchapter M of the Code.
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q. At the Exchange Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to assure that, after giving effect to the
acquisition of the assets of the Acquired Fund pursuant to this Agreement,
the Acquiring Fund will remain a "diversified company" within the meaning
of Section 5(b)(1) of the 1940 Act and in compliance with such other
mandatory investment restrictions as are set forth in the Acquired Fund
Prospectus, as amended through the Exchange Date.
r. To the best of its knowledge, all of the issued and outstanding
shares of beneficial interest of the Acquired Fund have been offered for
sale and sold in conformity with all applicable federal and state
securities laws (including any applicable exemptions therefrom), or the
Acquired Fund has taken any action necessary to remedy any prior failure to
have offered for sale and sold such shares in conformity with such laws.
s. All issued and outstanding shares of the Acquired Fund are, and at
the Exchange Date will be, duly and validly issued and outstanding, fully
paid and, except as set forth in the registration statement of the Trust,
non-assessable by the Acquired Fund. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
t. The Acquired Fund Proxy Statement, on the date of its filing (i)
complied in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder and (ii)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date, the Acquired
Fund Proxy Statement did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Acquired Fund
Proxy Statement made in reliance upon and in conformity with information
furnished by the Acquiring Fund for use in the Acquired Fund Proxy
Statement.
u. The Trust has no material contracts or other commitments (other
than this Agreement and such other contracts as may be entered into in the
ordinary course of its business) which if terminated may result in material
liability to the Acquired Fund (or to the Acquiring Fund as a result of the
transactions contemplated by this Agreement) or under which (whether or not
terminated) any material payments for periods subsequent to the Exchange
Date will be due from the Acquired Fund (or from the Acquiring Fund as a
result of the transactions contemplated by this Agreement).
v. The information provided by the Acquired Fund for use in the
Registration Statement and Proxy Statement was accurate and complete in all
material respects when supplied and as of January 18, 2005 shall be
accurate and complete in all material respects and shall comply with
federal securities and other laws and regulations applicable thereto in all
material respects.
B-8
3. Reorganization.
a. Subject to the requisite approval of the shareholders of the
Acquired Fund and to the other terms and conditions contained herein
(including the Acquired Fund's obligation (if any) to distribute to its
shareholders all of its investment company taxable income and net capital
gain as described in Section 8(j) hereof), the Acquired Fund agrees to
sell, assign, convey, transfer and deliver to the Acquiring Fund, and the
Acquiring Fund agrees to acquire from the Acquired Fund, on the Exchange
Date all of the Investments and all of the cash and other properties and
assets of the Acquired Fund, whether accrued or contingent (including cash
received by the Acquired Fund upon the liquidation of the Acquired Fund of
any Acquired Fund investments designated by the Acquiring Fund as being
unsuitable for it to acquire pursuant to the investment restrictions of the
Acquiring Fund set forth in the Acquiring Fund Prospectus and the
Registration Statement), in exchange for that number of shares of
beneficial interest of the Acquiring Fund provided for in Section 4 and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired
Fund, whether accrued or contingent, existing at the Valuation Time except
for the Acquired Fund's liabilities, if any, arising in connection with
this Agreement. The Acquired Fund will, as soon as practicable after the
Exchange Date, distribute in complete liquidation all of the Merger Shares
received by it to the shareholders of the Acquired Fund in exchange for
their shares of the Acquired Fund.
b. The Acquired Fund will pay or cause to be paid to the Acquiring
Fund any interest, cash or such dividends, rights and other payments
received by it on or after the Exchange Date with respect to the
Investments and other properties and assets of the Acquired Fund, whether
accrued or contingent, received by it on or after the Exchange Date. Any
such distribution shall be deemed included in the assets transferred to the
Acquiring Fund at the Exchange Date and shall not be separately valued
unless the securities in respect of which such distribution is made shall
have gone "ex" such distribution prior to the Valuation Time, in which case
any such distribution which remains unpaid at the Exchange Date shall be
included in the determination of the value of the assets of the Acquired
Fund acquired by the Acquiring Fund.
c. The Valuation Time shall be 4:00 p.m. Eastern time on the Exchange
Date or such other time as may be mutually agreed upon in writing by the
parties hereto (the "Valuation Time").
4. Exchange Date; Valuation Time. On the Exchange Date, the Acquiring Fund
will deliver to the Acquired Fund a number of full and fractional Merger Shares
having an aggregate net asset value equal, in the case of each such class of
Merger Shares, to the value of the assets of the Acquired Fund attributable to
the same class of shares of the Acquired Fund on such date less the value of the
liabilities attributable to the same class of shares of the Acquired Fund
assumed by the Acquiring Fund on that date, determined as hereinafter provided
in this Section 4.
a. The net asset value of the Merger Shares to be delivered to the
Acquired Fund, the value of the assets attributable to the shares of the
Acquired Fund, and the
B-9
value of the liabilities of the Acquired Fund to be assumed by the
Acquiring Fund, shall in each case be determined as of the Valuation Time.
b. The net asset value of the Merger Shares shall be computed in the
manner set forth in the Acquiring Fund Prospectus. The value of the assets
and liabilities of the Acquired Fund shall be determined by the Acquiring
Fund, in cooperation with the Acquired Fund, pursuant to procedures which
the Acquiring Fund would use in determining the fair market value of the
Acquiring Fund's assets and liabilities.
c. No adjustment shall be made in the net asset value of either the
Acquired Fund or the Acquiring Fund to take into account differences in
realized and unrealized gains and losses.
d. The Acquiring Fund shall issue the Merger Shares to the Acquired
Fund. The Acquired Fund shall promptly distribute the Merger Shares to the
shareholders of the Acquired Fund by establishing open accounts for each
Acquired Fund shareholder on the transfer records of the Acquiring Fund.
Certificates representing Merger Shares will not be issued to Acquired Fund
shareholders.
e. The Acquiring Fund shall assume all liabilities of the Acquired
Fund, whether accrued or contingent, in connection with the acquisition of
assets and subsequent liquidation and dissolution of the Acquired Fund or
otherwise, except for the Acquired Fund's liabilities, if any, arising
pursuant to this Agreement.
5. Expenses, Fees, etc.
a. Except as otherwise provided in this Section 5, IXIS Asset
Management Advisors, L.P., by countersigning this Agreement, agrees that it
will bear any and all costs and expenses of the transaction incurred by the
Acquiring Fund and the Acquired Fund; provided, however, that the Acquiring
Fund and the Acquired Fund will each pay any brokerage commissions, dealer
mark-ups and similar expenses ("Portfolio Expenses") that it may incur in
connection with the purchases or sale of portfolio securities; and provided
further that, the Acquiring Fund will pay all governmental fees required in
connection with the registration or qualification of the Merger Shares
under applicable state and federal laws.
b. In the event the transactions contemplated by this Agreement are
not consummated, then IXIS Asset Management Advisors, L.P. agrees that it
shall bear all of the costs and expenses (other than Portfolio Expenses)
incurred by both the Acquiring Fund and the Acquired Fund in connection
with such transactions.
c. Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated,
neither the Acquiring Fund nor the Acquired Fund shall be liable to the
other for any damages resulting therefrom, including, without limitation,
consequential damages, except as specifically set forth above.
B-10
d. Notwithstanding any of the foregoing, costs and expenses will in
any event be paid by the party directly incurring them if and to the extent
that the payment by another party of such costs and expenses would result
in the disqualification of such party as a "regulated investment company"
within the meaning of Subchapter M of the Code.
6. Exchange Date. Delivery of the assets of the Acquired Fund to be
transferred, assumption of the liabilities of the Acquired Fund to be assumed,
and delivery of the Merger Shares to be issued shall be made at the offices of
IXIS Asset Management Services Company, 399 Boylston Street, Boston, MA 02116,
as of the close of business on March 18, 2005, or at such other time and date
agreed to by the Acquiring Fund and the Acquired Fund, the date and time upon
which such delivery is to take place being referred to herein as the "Exchange
Date."
7. Meeting of Shareholders; Dissolution.
a. The Trust, on behalf of the Acquired Fund, shall call a meeting of
the Acquired Fund's shareholders to take place after the effective date of
the Registration Statement for the purpose of considering the approval of
this Agreement.
b. The Acquired Fund agrees that the liquidation and dissolution of
the Acquired Fund will be effected in the manner provided in the Agreement
and Declaration of Trust of the Trust in accordance with applicable law and
that, after the Exchange Date, the Acquired Fund shall not conduct any
business except in connection with its liquidation and dissolution.
c. The Acquiring Fund shall, after the preparation and delivery to the
Acquiring Fund by the Acquired Fund of a preliminary version of the
Acquired Fund Proxy Statement information, which shall be satisfactory to
the Acquiring Fund and to Ropes & Gray LLP for inclusion in the
Registration Statement, file the Registration Statement with the
Commission. Each of the Acquired Fund and the Acquiring Fund shall
cooperate with the other, and each will furnish to the other the
information relating to itself required by the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder to be set forth in
the Registration Statement.
8. Conditions to the Acquiring Fund's Obligations. The obligations of the
Acquiring Fund hereunder shall be subject to the following conditions:
a. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, with values
determined as provided in Section 4 of this Agreement, together with a list
of Investments with their respective tax costs, all as of the Valuation
Time, certified on the Acquired Fund's behalf by the President (or any Vice
President) and Treasurer (or any Assistant Treasurer) of the Trust, and a
certificate of both such officers, dated the Exchange Date, that there has
been no material adverse change in the financial position of the Acquired
Fund since September 30, 2004, other than changes in the Investments and
other assets and properties since that date or changes in the market value
of the Investments and other assets of the Acquired Fund, or changes due to
dividends paid, and a certificate of both such officers representing and
warranting that there are no known liabilities, contingent
B-11
or otherwise, of the Acquired Fund required to be reflected on a balance
sheet (including notes thereto) in accordance with generally accepted
accounting principles as of September 30, 2004 and in the Acquired Fund's
statement of assets and liabilities as of the Valuation Time.
b. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement, dated the Exchange Date, signed by the President (or any Vice
President) and Treasurer (or any Assistant Treasurer) of the Trust
certifying that as of the Exchange Date all representations and warranties
of the Acquired Fund made in this Agreement are true and correct in all
material respects as if made at and as of such date and the Acquired Fund
has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to such date.
c. That the Acquired Fund shall have delivered to the Acquiring Fund a
letter from the independent accountants of the Trust, dated the Exchange
Date, stating that such firm has employed certain procedures whereby it has
obtained schedules of the tax provisions and qualifying tests for regulated
investment companies and that, in the course of such procedures, nothing
came to their attention which caused them to believe that the Acquired Fund
(i) would not qualify as a regulated investment company for federal, state,
local or other income tax purposes or (ii) would owe any federal, state or
local income tax or excise tax, in each case for both the taxable year
ended September 30, 2004, and for any taxable year or period beginning on
October 1, 2004 and ending on or prior to the Exchange Date (the latter
period being based on unaudited data).
d. That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
e. That the Acquiring Fund shall have received an opinion of Ropes &
Gray LLP, counsel to the Acquired Fund, dated the Exchange Date, to the
effect that (i) the Trust is a Massachusetts business trust duly formed and
validly existing under the laws of the Commonwealth of Massachusetts, and
the Acquired Fund is a separate series thereof duly constituted in
accordance with the applicable provisions of the 1940 Act and the Agreement
and Declaration of Trust and By-Laws of the Trust; (ii) this Agreement has
been duly authorized, executed and delivered by the Trust on behalf of the
Acquired Fund and, assuming that the Registration Statement, the Acquired
Fund Prospectus and the Acquired Fund Proxy Statement comply with the 1933
Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by the Loomis Trust on behalf of
the Acquiring Fund, is a valid and binding obligation of the Trust and the
Acquired Fund enforceable against the Trust and the Acquired Fund in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles; (iii) the
Trust, on behalf of the Acquired Fund, has power to sell, assign, convey,
transfer and deliver the assets contemplated hereby and, upon consummation
of the transactions contemplated hereby in accordance with the terms of
this Agreement, the Acquired Fund will have duly sold, assigned, conveyed,
transferred and delivered such assets to the Acquiring Fund; (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions
B-12
contemplated hereby will not, violate the Agreement and Declaration of
Trust or By-Laws of the Trust, or any provision of any agreement known to
such counsel to which the Trust or the Acquired Fund is a party or by which
it is bound or, to the knowledge of such counsel, result in the
acceleration of any penalty under any agreement, judgment or decree to
which the Trust or the Acquired Fund is party or by which either of them is
bound, it being understood that with respect to investment restrictions
contained in the Agreement and Declaration of Trust, By-Laws or
then-current prospectuses or statement of additional information of the
Trust, such counsel may rely upon a certificate of an officer of the Trust;
(v) to the knowledge of such counsel, no consent, approval, authorization
or order of any court or governmental authority is required for the
consummation by the Trust on behalf of the Acquired Fund of the
transactions contemplated hereby, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required
under state securities or blue sky laws; (vi) the Trust is registered with
the Commission as an investment company under the 1940 Act; and (vii) to
the knowledge of such counsel, no litigation or administrative proceeding
or investigation of or before any court or governmental body is presently
pending or threatened as to the Trust or the Acquired Fund or any of their
properties or assets that challenges or seeks to prohibit, restrain or
enjoin the transactions contemplated by this Agreement.
f. That the Acquiring Fund shall have received an opinion of Ropes &
Gray LLP, dated the Exchange Date (which opinion would be based upon
certain factual representations and subject to certain qualifications), to
the effect that, on the basis of the existing provisions of the Code,
current administrative rules and court decisions, for federal income tax
purposes: (i) the transactions contemplated by this Agreement will
constitute a reorganization within the meaning of Section 368(a) of the
Code, and the Acquiring Fund and the Acquired Fund will each be "a party to
the reorganization" within the meaning of Section 368(b) of the Code; (ii)
under Section 1032 of the Code, no gain or loss will be recognized by the
Acquiring Fund upon receipt of the Investments transferred to the Acquiring
Fund pursuant to this Agreement in exchange for the Merger Shares and the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund as
contemplated in Section 3 hereof; (iii) under Section 362(b) of the Code,
the basis to the Acquiring Fund of the Investments will be the same as the
basis of the Investments in the hands of the Acquired Fund immediately
prior to such exchange; (iv) under Section 1223(2) of the Code, the
Acquiring Fund's holding periods with respect to the Investments will
include the respective periods for which the Investments were held by the
Acquired Fund; and (v) the Acquiring Fund will succeed to and take into
account the items of the Acquired Fund described in Section 381(c) of the
Code, subject to the conditions and limitations specified in Sections 381,
382, 383 and 384 of the Code and the regulations thereunder.
g. That the assets of the Acquired Fund to be acquired by the
Acquiring Fund will include no assets which the Acquiring Fund, by reason
of charter limitations or of investment restrictions disclosed in the
Acquiring Fund Prospectus or the Registration Statement as in effect on the
Exchange Date, may not properly acquire.
B-13
h. That the Trust shall have received from the Commission and any
relevant state securities administrator such order or orders as are
reasonably necessary or desirable under the 1933 Act, the 1934 Act, the
1940 Act and any applicable state securities or blue sky laws in connection
with the transactions contemplated hereby, and that all such orders shall
be in full force and effect.
i. That all actions taken by the Trust on behalf of the Acquired Fund
in connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance to
the Acquiring Fund and Ropes & Gray LLP.
j. That, prior to the Exchange Date, the Acquired Fund shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to the shareholders of the
Acquired Fund (i) all of the excess of (x) the Acquired Fund's investment
income excludable from gross income under Section 103 of the Code over (y)
the Acquired Fund's deductions disallowed under Sections 265 and 171 of the
Code, (ii) all of the Acquired Fund's investment company taxable income as
defined in Section 852 of the Code, computed in each case without regard to
any deduction for dividends paid, and (iii) all of the Acquired Fund's net
capital gain realized (after reduction for any capital loss carryover), in
each case for both the taxable year ended on December 31, 2004, and for any
taxable year or period beginning on January 1, 2005 and ending on or prior
to the Exchange Date.
k. That the Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer (or any Assistant Treasurer) of the Trust, as to the tax cost to
the Acquired Fund of the securities delivered to the Acquiring Fund
pursuant to this Agreement, together with any such other evidence as to
such tax cost as the Acquiring Fund may reasonably request.
l. That the Acquired Fund's custodian shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the Acquired
Fund held or maintained by such custodian as of the Valuation Time.
m. That the Acquired Fund's transfer agent shall have provided to the
Acquiring Fund (i) the originals or true copies of all of the records of
the Acquired Fund in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Acquired Fund outstanding as of the Valuation Time, and (iii) the name and
address of each holder of record of any shares and the number of shares
held of record by each such shareholder.
n. That all of the issued and outstanding shares of beneficial
interest of the Acquired Fund shall have been offered for sale and sold in
conformity with all applicable state securities or blue sky laws (including
any applicable exemptions therefrom) and, to the extent that any audit of
the records of the Acquired Fund or its transfer agent by the Acquiring
Fund or its agents shall have revealed otherwise, either (i) the Acquired
Fund shall have taken all actions that in the opinion of the Acquiring Fund
or Ropes & Gray LLP are necessary to remedy any prior failure on the part
of the Acquired Fund to
B-14
have offered for sale and sold such shares in conformity with such laws or
(ii) the Acquired Fund shall have furnished (or caused to be furnished)
surety, or deposited (or caused to be deposited) assets in escrow, for the
benefit of the Acquiring Fund in amounts sufficient and upon terms
satisfactory, in the opinion of the Acquiring Fund or Ropes & Gray LLP, to
indemnify the Acquiring Fund against any expense, loss, claim, damage or
liability whatsoever that may be asserted or threatened by reason of such
failure on the part of the Acquired Fund to have offered and sold such
shares in conformity with such laws.
o. That the Acquiring Fund shall have received from the independent
accountants of the Trust a letter addressed to the Acquiring Fund, dated as
of the Exchange Date, satisfactory in form and substance to the Acquiring
Fund with respect to the performance of limited procedures agreed upon by
the Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), as of the Valuation
Time.
p. That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite votes of the
holders of the outstanding shares of beneficial interest of the Acquired
Fund entitled to vote.
q. That the Acquiring Fund shall have received an opinion of Ropes &
Gray LLP with respect to the matters specified in Section 9(f) of this
Agreement, and such other matters as the Acquiring Fund may reasonably deem
necessary or desirable.
r. That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of the Loomis Trust or the Acquiring
Fund, threatened by the Commission.
9. Conditions to the Acquired Fund's Obligations. The obligations of the
Acquired Fund hereunder shall be subject to the following conditions:
a. That the Acquiring Fund shall have furnished to the Acquired Fund a
statement of the Acquiring Fund's net assets, together with a list of
portfolio holdings with values determined as provided in Section 4, all as
of the Valuation Time, certified on the Acquiring Fund's behalf by the
President (or any Vice President) and Treasurer (or any Assistant
Treasurer) of the Loomis Trust, and a certificate of both such officers,
dated the Exchange Date, to the effect that as of the Valuation Time and as
of the Exchange Date there has been no material adverse change in the
financial position of the Acquiring Fund since September 30, 2004, other
than changes occurring in the ordinary course of business.
b. That the Loomis Trust, on behalf of the Acquiring Fund, shall have
executed and delivered to the Acquired Fund an Assumption of Liabilities
dated as of the Exchange Date, pursuant to which the Acquiring Fund will,
in connection with the transactions contemplated by this Agreement, assume
all of the liabilities of the Acquired
B-15
Fund existing as of the Valuation Time, other than liabilities arising
pursuant to this Agreement.
c. That the Acquiring Fund shall have furnished to the Acquired Fund a
statement, dated the Exchange Date, signed by the President (or any Vice
President) and Treasurer (or any Assistant Treasurer) of the Loomis Trust
certifying that as of the Exchange Date all representations and warranties
of the Acquiring Fund made in this Agreement are true and correct in all
material respects as if made at and as of such date, and that the Acquiring
Fund has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to such
date.
d. That there shall not be any material litigation pending or
threatened with respect to the matters contemplated by this Agreement.
e. That the Acquired Fund shall have received an opinion of Ropes &
Gray LLP, counsel to the Acquiring Fund, dated the Exchange Date, to the
effect that (i) the Loomis Trust is a Massachusetts business trust duly
formed and validly existing under the laws of the Commonwealth of
Massachusetts, and the Acquiring Fund is a separate series thereof duly
constituted in accordance with the applicable provisions of the 1940 Act
and the Agreement and Declaration of Trust and By-Laws of the Loomis Trust;
(ii) the Merger Shares to be delivered to the Acquired Fund as provided for
by this Agreement are duly authorized and upon such delivery will be
validly issued and will be fully paid and nonassessable by Loomis Trust and
the Acquiring Fund and no shareholder of the Acquiring Fund has any
preemptive right to subscription or purchase in respect thereof; (iii) this
Agreement has been duly authorized, executed and delivered by the Loomis
Trust on behalf of the Acquiring Fund and, assuming that the Acquiring Fund
Prospectus, the Registration Statement and the Acquired Fund Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and
assuming due authorization, execution and delivery of this Agreement by the
Trust on behalf of the Acquired Fund, is a valid and binding obligation of
the Loomis Trust and the Acquiring Fund enforceable against the Loomis
Trust and the Acquiring Fund in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and
other equitable principles; (iv) the execution and delivery of this
Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate the Agreement and Declaration of Trust or By-Laws
of the Loomis Trust, or any provision of any agreement known to such
counsel to which the Loomis Trust or the Acquiring Fund is a party or by
which it is bound or, to the knowledge of such counsel, result in the
acceleration of any obligation or the imposition of any penalty under any
agreement, judgment or decree to which the Loomis Trust or the Acquiring
Fund is party or by which either of them is bound, it being understood that
with respect to investment restrictions as contained in the Agreement and
Declaration of Trust, By-Laws or then-current prospectuses or statement of
additional information of the Loomis Trust, such counsel may rely upon a
certificate of an officer of the Loomis Trust; (v) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Loomis Trust
on behalf of the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act
B-16
and the 1940 Act and such as may be required under state securities or blue
sky laws; (vi) the Loomis Trust is registered with the Commission as an
investment company under the 1940 Act; and (vii) to the knowledge of such
counsel, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or threatened as
to the Loomis Trust or the Acquiring Fund or any of their properties or
assets that challenges or seeks to prohibit, restrain or enjoin the
transactions contemplated by this Agreement.
f. That the Acquired Fund shall have received an opinion of Ropes &
Gray LLP, dated the Exchange Date (which opinion would be based upon
certain factual representations and subject to certain qualifications), in
form satisfactory to the Acquired Fund to the effect that, on the basis of
the existing provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes: (i) the transactions
contemplated by this Agreement will constitute a reorganization within the
meaning of Section 368(a) of the Code, and the Acquiring Fund and the
Acquired Fund will each be "a party to the reorganization" within the
meaning of Section 368(b) of the Code; (ii) under Section 361 of the Code,
no gain or loss will be recognized by the Acquired Fund (x) upon the
transfer of its assets to the Acquiring Fund in exchange for the Merger
Shares and the assumption by the Acquiring Fund of the liabilities of the
Acquired Fund as contemplated in Section 3 hereof or (y) upon the
distribution of the Merger Shares to the shareholders of the Acquired Fund
as contemplated in Section 3 hereof; (iii) under Section 354 of the Code,
no gain or loss will be recognized by shareholders of the Acquired Fund on
the distribution of Merger Shares to them in exchange for their shares of
the Acquired Fund; (iv) under Section 358 of the Code, the aggregate tax
basis of the Merger Shares that the Acquired Fund's shareholders receive in
place of their Acquired Fund shares will be the same as the aggregate tax
basis of the Acquired Fund shares surrendered in exchange therefor; and (v)
under Section 1223(1) of the Code, an Acquired Fund's shareholder's holding
period for the Merger Shares received pursuant to the Agreement will be
determined by including the holding period for the Acquired Fund shares
exchanged for the Merger Shares, provided that the shareholder held the
Acquired Fund shares as a capital asset.
g. That all actions taken by the Loomis Trust on behalf of the
Acquiring Fund in connection with the transactions contemplated by this
Agreement and all documents incidental thereto shall be satisfactory in
form and substance to the Acquired Fund and Ropes & Gray LLP.
h. That the Loomis Trust shall have received from the Commission and
any relevant state securities administrator such order or orders as are
reasonably necessary or desirable under the 1933 Act, the 1934 Act, the
1940 Act and any applicable state securities or blue sky laws in connection
with the transactions contemplated hereby, and that all such orders shall
be in full force and effect.
i. That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite votes of the
holders of the outstanding shares of beneficial interest of the Acquired
Fund entitled to vote.
B-17
j. That the Registration Statement on Form N-1A of the Loomis Trust,
with respect to the Acquiring Fund, shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Loomis Trust or the Acquiring Fund,
threatened by the Commission.
10. Indemnification.
a. The Acquired Fund shall indemnify and hold harmless, out of the
assets of the Acquired Fund but no other assets, the Loomis Trust and the
Trustees and officers of the Loomis Trust (for purposes of this Section
10(a), the "Loomis Trust Indemnified Parties") against any and all
expenses, losses, claims, damages and liabilities at any time imposed upon
or reasonably incurred by any one or more of the Loomis Trust Indemnified
Parties in connection with, arising out of or resulting from any claim,
action, suit or proceeding in which any one or more of the Loomis Trust
Indemnified Parties may be involved or with which any one or more of the
Loomis Trust Indemnified Parties may be threatened by reason of any untrue
statement or alleged untrue statement of a material fact relating to the
Trust or the Acquired Fund contained in this Agreement, the Registration
Statement, the Acquired Fund Prospectus or the Acquired Fund Proxy
Statement or any amendment or supplement to any of the foregoing, or
arising out of or based upon the omission or alleged omission to state in
any of the foregoing a material fact relating to the Trust or the Acquired
Fund required to be stated therein or necessary to make the statements
relating to the Trust or the Acquired Fund therein not misleading,
including, without limitation, any amounts paid by any one or more of the
Loomis Trust Indemnified Parties in a reasonable compromise or settlement
of any such claim, action, suit or proceeding, or threatened claim, action,
suit or proceeding made with the consent of the Trust or the Acquired Fund.
The Loomis Trust Indemnified Parties will notify the Trust and the Acquired
Fund in writing within ten days after the receipt by any one or more of the
Loomis Trust Indemnified Parties of any notice of legal process or any suit
brought against or claim made against such Loomis Trust Indemnified Party
as to any matters covered by this Section 10(a). The Acquired Fund shall be
entitled to participate at its own expense in the defense of any claim,
action, suit or proceeding covered by this Section 10(a), or, if it so
elects, to assume at its expense by counsel satisfactory to the Loomis
Trust Indemnified Parties the defense of any such claim, action, suit or
proceeding, and if the Acquired Fund elects to assume such defense, the
Loomis Trust Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their expense. The
Acquired Fund's obligation under this Section 10(a) to indemnify and hold
harmless the Loomis Trust Indemnified Parties shall constitute a guarantee
of payment so that the Acquired Fund will pay in the first instance any
expenses, losses, claims, damages and liabilities required to be paid by it
under this Section 10(a) without the necessity of the Loomis Trust
Indemnified Parties' first paying the same.
b. The Acquiring Fund shall indemnify and hold harmless, out of the
assets of the Acquiring Fund but no other assets, the Trust and the
Trustees and officers of the Trust (for purposes of this Section 10(b), the
"Trust Indemnified Parties") against any and all expenses, losses, claims,
damages and liabilities at any time imposed upon or reasonably incurred by
any one or more of the Trust Indemnified Parties in connection
B-18
with, arising out of, or resulting from any claim, action, suit or
proceeding in which any one or more of the Trust Indemnified Parties may be
involved or with which any one or more of the Trust Indemnified Parties may
be threatened by reason of any untrue statement or alleged untrue statement
of a material fact relating to the Acquiring Fund contained in this
Agreement, the Registration Statement, the Acquiring Fund Prospectus or the
Acquired Fund Proxy Statement or any amendment or supplement to any
thereof, or arising out of, or based upon, the omission or alleged omission
to state in any of the foregoing a material fact relating to the Loomis
Trust or the Acquiring Fund required to be stated therein or necessary to
make the statements relating to the Loomis Trust or the Acquiring Fund
therein not misleading, including, without limitation, any amounts paid by
any one or more of the Trust Indemnified Parties in a reasonable compromise
or settlement of any such claim, action, suit or proceeding, or threatened
claim, action, suit or proceeding made with the consent of the Loomis Trust
or the Acquiring Fund. The Trust Indemnified Parties will notify the Loomis
Trust and the Acquiring Fund in writing within ten days after the receipt
by any one or more of the Trust Indemnified Parties of any notice of legal
process or any suit brought against or claim made against such Trust
Indemnified Party as to any matters covered by this Section 10(b). The
Acquiring Fund shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this Section
10(b), or, if it so elects, to assume at its expense by counsel
satisfactory to the Trust Indemnified Parties the defense of any such
claim, action, suit or proceeding, and, if the Acquiring Fund elects to
assume such defense, the Trust Indemnified Parties shall be entitled to
participate in the defense of any such claim, action, suit or proceeding at
their own expense. The Acquiring Fund's obligation under this Section 10(b)
to indemnify and hold harmless the Trust Indemnified Parties shall
constitute a guarantee of payment so that the Acquiring Fund will pay in
the first instance any expenses, losses, claims, damages and liabilities
required to be paid by it under this Section 10(b) without the necessity of
the Trust Indemnified Parties' first paying the same.
11. No Broker, etc. Each of the Acquired Fund and the Acquiring Fund
represents that there is no person who has dealt with it or the Trust or the
Loomis Trust, respectively, who, by reason of such dealings, is entitled to any
broker's or finder's or other similar fee or commission arising out of the
transactions contemplated by this Agreement.
12. Termination. The Acquired Fund and the Acquiring Fund may, by mutual
consent of the trustees on behalf of each Fund, terminate this Agreement, and
the Acquired Fund or the Acquiring Fund, after consultation with counsel and by
consent of its Trustees or an officer authorized by such Trustees, may waive any
condition to its respective obligations hereunder. If the transactions
contemplated by this Agreement have not been substantially completed by
September 30, 2005, this Agreement shall automatically terminate on that date
unless a later date is agreed to by the Acquired Fund and the Acquiring Fund.
13. Covenants, etc. Deemed Material. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any investigation made by
them or on their behalf.
B-19
14. Rule 145. Pursuant to Rule 145 under the 1933 Act, the Acquiring Fund
will, in connection with the issuance of any Merger Shares to any person who at
the time of the transaction contemplated hereby is deemed to be an affiliate of
a party to the transaction pursuant to Rule 145(c), cause to be affixed upon the
certificates issued to such person (if any) a legend as follows:
"THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO LOOMIS
SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND OR ITS PRINCIPAL UNDERWRITER
UNLESS (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE FUND SUCH REGISTRATION IS NOT REQUIRED."
and, further, the Acquiring Fund will issue stop transfer instructions to the
Acquiring Fund's transfer agent with respect to such shares. The Acquired Fund
will provide the Acquiring Fund on the Exchange Date with the name of any
Acquired Fund shareholder who is to the knowledge of the Acquired Fund an
affiliate of the Acquired Fund on such date.
15. Sole Agreement; Amendments; Governing Law. This Agreement supersedes
all previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding with
respect to such subject matter, may not be changed except by a letter of
agreement signed by each party hereto, and shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts.
16. Declaration of Trust.
a. A copy of the Agreement and Declaration of Trust of the Loomis
Trust is on file with the Secretary of the Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on behalf of
the Trustees of the Loomis Trust on behalf of the Acquiring Fund as
trustees and not individually, and that the obligations of this instrument
are not binding upon any of the trustees, officers or shareholders of the
Loomis Trust individually but are binding only upon the assets and property
of the Acquiring Fund.
b. A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of the Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of
the Trust on behalf of the Acquired Fund as trustees and not individually,
and that the obligations of this instrument are not binding upon any of the
trustees, officers or shareholders of the Trust individually but are
binding only upon the assets and property of the Acquired Fund.
* * * *
B-20
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as a sealed instrument as of the day and year first above written.
CDC NVEST FUNDS TRUST I,
on behalf of its Loomis Sayles Government Securities Fund
By:
------------------------------------
Name:
Title:
LOOMIS SAYLES FUNDS II,
on behalf of its Loomis Sayles Limited Term Government and Agency Fund
By:
------------------------------------
Name:
Title:
Agreed and accepted as to Section 5 only:
IXIS ASSET MANAGEMENT ADVISORS, L.P.
By: IXIS Asset Management Distribution Corporation, its general partner
By:
------------------------------------
Name:
Title:
B-21
Appendix C
SHARES OUTSTANDING AND OWNERSHIP INFORMATION
Shares Outstanding of the Government Securities Fund (unaudited)
As of November 17, 2004, the number of shares outstanding of each class of
shares of the Government Securities Fund entitled to vote at the Meeting:
Class Number of Shares Outstanding
----- ----------------------------
Government Securities Fund A 4,454,134
B 868,491
Y 132,249
Ownership of Shares (unaudited)
As of November 17, 2004, (i) the Trustees and officers of Trust I, as a
group, owned less than one percent of each class of shares of the Government
Securities Fund, and (ii) the Trustees and officers of Loomis Sayles Trust, as a
group, owned less than one percent of each class of shares of the Limited Term
Fund. As of November 17, 2004, the following shareholders of record owned 5% or
more of the outstanding shares of the noted class of the noted Fund.
· Download Table
Percentage
of Shares
Number of of Class
Fund and Class Name and Address of Record Owner** Shares Owned Owned
-------------- ---------------------------------- ------------ ----------
Government
Securities Fund
Class Y New England Mutual Life Ins Co* 132,234 99.99%
Separate Investment Accounting
Attn Larry Hoisington
501 Boylston Street - 6th Fl
Boston, MA 02116-3769
Limited Term Fund
Class Y Charles Schwab & Co Inc* 174,829 66.32%
Special Custody Account
For Bnft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
New England Mutual Life Ins Co* 84,614 32.10%
Separate Investment Accounting
Attn Larry Hoisington
501 Boylston Street - 6th Fl
Boston, MA 02116-3769
* Such ownership may be beneficially held by individuals or entities other
than the owner listed.
C-1
** Entity owned more than 25% or more of the outstanding shares of the noted
class of the noted Fund and therefore may be presumed to "control" the Fund, as
that term is defined in the Investment Company Act of 1940. However, such
ownership may be beneficially held by individuals or other entities other than
the owner listed.
Ownership of Shares Upon Consummation of Acquisition (unaudited)
As of November 17, 2004, the following shareholders of record owned 5% or
more of the outstanding shares of the noted class of the noted Fund upon the
consummation of the Acquisition.
Percentage of Shares
Owned Upon
Consummation of
Fund and Class Name and Address of Record Owner Acquisition*
----------------- -------------------------------- --------------------
Limited Term Fund
Class Y New England Mutual Life Ins Co** 34.63%
Separate Investment Accounting
Attn Larry Hoisington
501 Boylston Street - 6th Fl
Boston, MA 02116-3769
Charles Schwab & Co Inc** 43.35%
Special Custody Account
For Bnft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
New England Mutual Life Ins Co** 20.98%
Separate Investment Accounting
Attn Larry Hoisington
501 Boylston Street - 6th Fl
Boston, MA 02116-3769
* The column captioned "Percentage of Shares Owned Upon Consummation of
Acquisition" assumes the Acquisition was consummated on November 17, 2004 and is
for informational purposes only. No assurances can be given as to how many
shares of the Limited Term Fund will be received by the shareholders of the
Government Securities Fund on the actual date on which the Acquisition will take
place and the foregoing should not be relied upon to reflect the number of
shares of the Limited Term Fund that actually will be received on or after such
date.
** Such ownership may be beneficially held by individuals or entities other than
the owner listed.
C-2
Appendix D
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the last five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the return that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, independent registered public accounting firm, whose
report, along with each Fund's financial statements, is included in the Fund's
annual report to shareholders. The annual report is incorporated by reference
into the SAI, both of which are available free of charge upon request from the
Distributor.
D-1
· Enlarge/Download Table
Income (loss) from investment operations: Less distributions:
----------------------------------------- --------------------------------------------
Net asset Net realized and Distributions
value, Net unrealized gain Total from Dividends from from net
beginning of investment (loss) on investment net investment realized Total Redemption
the period income investments operations income capital gains distributions fee
------------ ---------- ---------------- ---------- -------------- ------------- ------------- ----------
Limited Term Government and
Agency Fund*
Class A
09/30/2004 $11.51 $0.30(c) $(0.09) $ 0.21 $(0.42) $-- $(0.42) $--
09/30/2003 (e) 11.73 0.21(c) (0.07) 0.14 (0.36) -- (0.36) --
12/31/2002 11.36 0.42(c) 0.49 0.91 (0.54) -- (0.54) --
12/31/2001 (d) 11.16 0.51 0.25 0.76 (0.56) -- (0.56) --
12/31/2000 10.97 0.69 0.20 0.89 (0.70) -- (0.70) --
12/31/1999 11.70 0.66 (0.74) (0.08) (0.65) -- (0.65) --
Class B
09/30/2004 11.49 0.22(c) (0.09) 0.13 (0.34) -- (0.34) --
09/30/2003 (e) 11.71 0.15(c) (0.06) 0.09 (0.31) -- (0.31) --
12/31/2002 11.34 0.35(c) 0.48 0.83 (0.46) -- (0.46) --
12/31/2001 (d) 11.14 0.44 0.24 0.68 (0.48) -- (0.48) --
12/31/2000 10.95 0.62 0.20 0.82 (0.63) -- (0.63) --
12/31/1999 11.69 0.59 (0.75) (0.16) (0.58) -- (0.58) --
Class C
09/30/2004 11.50 0.22(c) (0.08) 0.14 (0.34) -- (0.34) --
09/30/2003 (e) 11.72 0.15(c) (0.06) 0.09 (0.31) -- (0.31) --
12/31/2002 11.35 0.35(c) 0.48 0.83 (0.46) -- (0.46) --
12/31/2001 (d) 11.15 0.44 0.24 0.68 (0.48) -- (0.48) --
12/31/2000 10.96 0.62 0.20 0.82 (0.63) -- (0.63) --
12/31/1999 11.70 0.59 (0.75) (0.16) (0.58) -- (0.58) --
Class Y
09/30/2004 11.55 0.32(c) (0.09) 0.23 (0.44) -- (0.44) --
09/30/2003 (e) 11.78 0.25(c) (0.08) 0.17 (0.40) -- (0.40) --
12/31/2002 11.41 0.48(c) 0.48 0.96 (0.59) -- (0.59) --
12/31/2001 (d) 11.20 0.56 0.26 0.82 (0.61) -- (0.61) --
12/31/2000 11.00 0.75 0.19 0.94 (0.74) -- (0.74) --
12/31/1999 11.73 0.70 (0.74) (0.04) (0.69) -- (0.69) --
(a) A sales charge for Class A shares and a contingent deferred sales charge
for Class B and Class C shares are not reflected in total return
calculations. Periods less than one year are not annualized.
(b) Computed on an annualized basis for periods less than one year.
(c) Per share net investment income (loss) has been calculated using the
average shares outstanding during the period.
(d) As required, effective January 1, 2001, the Fund has 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 the Limited Term Government and Agency
Fund was to decrease net investment income per share by $.04 for Class A,
and to decrease the ratio of net investment income to average net assets
from 4.88% to 4.52% for Class A. Per share, ratios and supplemental data
for periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
D-2
· Enlarge/Download Table
Ratios to average net assets:
-----------------------------
Net asset New
value, end Total investment Portfolio
of the return (%) Net assets, end of Expenses (%) income (%) turnover rate
period (a) the period (000) (b) (b) (%)
---------- ---------- ------------------ ------------ ---------- -------------
Limited Term
Government and Agency
Fund*
Class A
09/30/2004 $11.30 1.9 $106,701 1.32 2.60 80
09/30/2003 (e) 11.51 1.2 117,225 1.37 2.41 53
12/31/2002 11.73 8.2 106,013 1.35 3.66 88
12/31/2001 (d) 11.36 6.9 109,189 1.42 4.52 275
12/31/2000 11.16 8.3 118,833 1.40 6.18 384
12/31/1999 10.97 (0.7) 149,756 1.33 5.91 400
Class B
09/30/2004 $11.28 1.2 $ 10,107 2.00 1.95 80
09/30/2003 (e) 11.49 0.7 14,637 2.02 1.77 53
12/31/2002 11.71 7.5 16,263 2.00 3.01 88
12/31/2001 (d) 11.34 6.2 14,317 2.07 3.85 275
12/31/2000 11.14 7.7 11,884 2.05 5.53 384
12/31/1999 10.95 (1.4) 14,601 1.98 5.26 400
Class C
09/30/2004 11.30 1.3 6,949 2.00 1.94 80
09/30/2003 (e) 11.50 0.7 8,704 2.02 1.77 53
12/31/2002 11.72 7.5 8,079 2.00 3.01 88
12/31/2001 (d) 11.35 6.2 5,851 2.07 3.89 275
12/31/2000 11.15 7.7 6,617 2.05 5.53 384
12/31/1999 10.96 (1.4) 9,054 1.98 5.26 400
Class Y
09/30/2004 11.34 2.1 4,233 1.13 2.82 80
09/30/2003 (e) 11.55 1.5 6,886 0.93 2.87 53
12/31/2002 11.78 8.6 8,529 0.88 4.14 88
12/31/2001 (d) 11.41 7.4 3,441 0.95 4.98 275
12/31/2000 11.20 8.8 3,254 0.95 6.63 384
12/31/1999 11.00 (0.3) 7,086 0.98 6.26 400
(e) For the nine months ended September 30, 2003.
(f) Amount rounds to less than $0.01.
D-3
* 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 shares, which were reorganized into Class A shares 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
IXIS Asset Management Advisors, L.P. (formerly 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.
D-4
Appendix E
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
AS OF SEPTEMBER 30, 2004
Loomis Sayles Limited Term Government and Agency Fund
Loomis Sayles Limited Term Government and Agency Fund provided a total
return of 1.87% during the fiscal year ended September 30, 2004, based on the
net asset value of Class A shares and $0.42 in dividends reinvested. The fund's
benchmark, the Lehman Intermediate Government Bond Index, had a slight edge over
the fund for the period, returning 1.91%, while the average return on the fund's
category, Morningstar's Short Government, was 1.15%. For the same period, the
Lehman 1-5 Year Government Bond Index returned 1.46%. The fund's 30-day SEC
yield was 2.51% at the end of September, 2004.
Yield curve flattens, giving advantage to higher-yielding securities
Between June and September of 2004, the Federal Reserve Board raised the
federal funds rate (the only rate the Fed directly controls) from 1.00% to
1.75%, in a series of three highly publicized moves. Although yields on
short-term Treasury bills rose along with the federal funds rate, the strength
of the economy and the low inflation rate seemed to ease investor concerns about
the future. As a result, long-term interest rates actually fell during the
period. On the long-end of the yield curve, falling interest rates meant rising
prices, while rising rates hurt prices in the short-term market.
Even though long- and short-term interest rates converged during the period -
flattening the yield curve - securities with more distant maturity dates
continue to offer investors a yield advantage because longer timelines mean
higher risk. Mortgage-backed securities also typically offer higher coupons than
Treasury securities because they are regarded as higher risk. The fund was able
to outperform its Morningstar category for the fiscal year because it had a
slightly longer duration and relatively high income from the mortgage-backed and
agency securities in the portfolio.
Outlook for a stronger economy and moderate increases in interest rates
We expect the Fed to continue to raise interest rates through the end of
the calendar year, maintaining what has been described as a measured pace.
However, we are less convinced than we were of the need for continued Fed
tightening in 2005. We believe the Fed may pause once the federal funds rate
reaches 2%. If data suggests that what Fed Chairman Alan Greenspan described as
an economic "soft patch" is decisively past, yields could rise again.
Given the fact that interest rates at the short end of the yield curve have
risen, we believe the opportunities to extend duration to earn additional income
currently outweigh our concerns. We plan to continue to look for opportunities
in intermediate-term securities because we believe they will provide the best
price return for the fund and its sharehold-
E-1
ers. Although they continue to account for a major portion of assets, we have
reduced the fund's position in mortgage-backed securities. We believe they will
perform well in a moderately rising interest-rate environment, but the sector as
a whole no longer has the attractive valuations it had one year ago.
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 01/03/89 Symbols:
Class A NEFLX
Managers: Class B NELBX
John Hyll Class C NECLX
Clifton Rowe Class Y NELYX
Loomis, Sayles & Company, L.P.
What You Should Know:
Fixed-income securities are subject to credit and interest rate risk; their
value generally rises when prevailing interest rates rise 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.
Investment Results through September 30, 2004
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.
E-2
Loomis Sayles Limited Term U.S. Government Fund
Growth of $10,000 Investment in Class A Shares
September 30, 1994 through September 30, 2004
[CHART]
Line chart
Class A Lehman
@ Maximum Intermediate Lehman 1-5 Yr.
Month Net Asset Sales Gov't Bond Gov't Bond
End Value(1) Charge(2) Index(3) Index
---------- --------- --------- ------------ --------------
9/30/1994 10,000 9,700 10,000 10000
10/31/1994 10,000 9,700 10,002 10013
11/30/1994 9,966 9,667 9,957 9962
12/31/1994 9,973 9,674 9,990 9984
1/31/1995 10,107 9,803 10,153 10136
2/28/1995 10,250 9,943 10,348 10308
3/31/1995 10,279 9,970 10,405 10365
4/30/1995 10,381 10,069 10,526 10471
5/31/1995 10,671 10,351 10,823 10711
6/30/1995 10,718 10,397 10,892 10774
7/31/1995 10,713 10,391 10,897 10798
8/31/1995 10,807 10,483 10,987 10873
9/30/1995 10,874 10,548 11,060 10934
10/31/1995 11,024 10,693 11,182 11039
11/30/1995 11,156 10,822 11,318 11153
12/31/1995 11,274 10,935 11,430 11249
1/31/1996 11,336 10,996 11,526 11349
2/29/1996 11,200 10,864 11,404 11273
3/31/1996 11,129 10,795 11,352 11239
4/30/1996 11,100 10,767 11,319 11230
5/31/1996 11,062 10,730 11,313 11237
6/30/1996 11,149 10,814 11,428 11335
7/31/1996 11,173 10,838 11,464 11375
8/31/1996 11,169 10,834 11,477 11404
9/30/1996 11,311 10,971 11,625 11528
10/31/1996 11,493 11,148 11,816 11686
11/30/1996 11,636 11,287 11,958 11795
12/31/1996 11,543 11,197 11,894 11766
1/31/1997 11,592 11,244 11,940 11819
2/28/1997 11,607 11,259 11,959 11842
3/31/1997 11,546 11,200 11,891 11806
4/30/1997 11,648 11,299 12,025 11920
5/31/1997 11,719 11,367 12,119 12006
6/30/1997 11,832 11,477 12,222 12098
7/31/1997 12,027 11,666 12,448 12272
8/31/1997 12,006 11,646 12,400 12258
9/30/1997 12,131 11,767 12,535 12370
10/31/1997 12,267 11,899 12,681 12486
11/30/1997 12,288 11,919 12,709 12510
12/31/1997 12,381 12,010 12,812 12603
1/31/1998 12,561 12,184 12,980 12748
2/28/1998 12,532 12,156 12,966 12745
3/31/1998 12,511 12,135 13,006 12789
4/30/1998 12,559 12,183 13,068 12850
E-3
5/31/1998 12,641 12,262 13,158 12927
6/30/1998 12,733 12,351 13,247 13001
7/31/1998 12,750 12,367 13,298 13056
8/31/1998 12,954 12,565 13,549 13257
9/30/1998 13,324 12,925 13,865 13498
10/31/1998 13,195 12,799 13,888 13551
11/30/1998 13,154 12,760 13,846 13521
12/31/1998 13,182 12,786 13,900 13567
1/31/1999 13,253 12,855 13,962 13626
2/28/1999 13,101 12,708 13,770 13511
3/31/1999 13,162 12,767 13,861 13605
4/30/1999 13,200 12,804 13,899 13644
5/31/1999 13,101 12,708 13,814 13599
6/30/1999 13,016 12,626 13,834 13637
7/31/1999 12,954 12,565 13,836 13660
8/31/1999 12,949 12,560 13,855 13693
9/30/1999 13,096 12,703 13,974 13796
10/31/1999 13,121 12,727 14,002 13828
11/30/1999 13,134 12,740 14,011 13846
12/31/1999 13,092 12,699 13,967 13833
1/31/2000 13,036 12,645 13,920 13805
2/29/2000 13,152 12,757 14,036 13910
3/31/2000 13,315 12,916 14,196 14020
4/30/2000 13,272 12,874 14,190 14038
5/31/2000 13,279 12,881 14,228 14085
6/30/2000 13,469 13,065 14,454 14269
7/31/2000 13,536 13,130 14,550 14362
8/31/2000 13,678 13,268 14,713 14493
9/30/2000 13,784 13,370 14,842 14619
10/31/2000 13,833 13,418 14,943 14705
11/30/2000 14,021 13,601 15,163 14875
12/31/2000 14,185 13,760 15,430 15091
1/31/2001 14,366 13,935 15,635 15297
2/28/2001 14,473 14,039 15,779 15413
3/31/2001 14,565 14,128 15,893 15535
4/30/2001 14,535 14,099 15,843 15545
5/31/2001 14,608 14,170 15,909 15622
6/30/2001 14,618 14,180 15,960 15675
7/31/2001 14,890 14,444 16,257 15904
8/31/2001 14,989 14,539 16,402 16023
9/30/2001 15,224 14,767 16,752 16335
10/31/2001 15,452 14,989 17,013 16531
11/30/2001 15,251 14,794 16,810 16422
12/31/2001 15,158 14,704 16,729 16396
1/31/2002 15,239 14,781 16,801 16448
2/28/2002 15,389 14,928 16,940 16555
3/31/2002 15,168 14,713 16,685 16383
4/30/2002 15,445 14,982 16,997 16628
5/31/2002 15,550 15,084 17,116 16721
6/30/2002 15,706 15,235 17,329 16897
7/31/2002 15,931 15,453 17,656 17159
8/31/2002 16,087 15,604 17,858 17281
9/30/2002 16,231 15,745 18,165 17490
10/31/2002 16,267 15,779 18,152 17518
11/30/2002 16,192 15,707 18,009 17422
12/31/2002 16,395 15,903 18,341 17657
1/31/2003 16,387 15,895 18,301 17640
2/28/2003 16,529 16,033 18,507 17768
3/31/2003 16,518 16,022 18,511 17795
E-4
4/30/2003 16,546 16,049 18,563 17836
5/31/2003 16,647 16,147 18,855 17993
6/30/2003 16,617 16,118 18,824 18001
7/31/2003 16,271 15,783 18,367 17762
8/31/2003 16,325 15,835 18,400 17771
9/30/2003 16,596 16,098 18,799 18040
10/31/2003 16,479 15,985 18,615 17920
11/30/2003 16,524 16,028 18,616 17912
12/31/2003 16,640 16,140 18,761 18038
1/31/2004 16,711 16,210 18,863 18103
2/29/2004 16,840 16,335 19,042 18237
3/31/2004 16,904 16,397 19,175 18330
4/30/2004 16,600 16,102 18,746 18038
5/31/2004 16,545 16,048 18,686 17999
6/30/2004 16,608 16,109 18,734 18019
7/31/2004 16,701 16,200 18,869 18115
8/31/2004 16,911 16,404 19,150 18311
9/30/2004 16,903 16,399 19,157 18303
Portfolio as of September 30, 2004
Portfolio Mix
-----------------------
Mortgage-Backed 50.0%
Treasuries 30.7%
Government Agencies 13.8%
Asset-Backed Securities 4.8%
Short-Term & Other 0.7%
Effective Maturity
-------------------------------------
1 year or less 61.4%
1-5 years 30.2%
5-10 years 8.4%
Average Effective Maturity: 3.7 years
Average Annual Total Returns -- September 30, 2004
Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A (Inception 1/3/89)
Net Asset Value/1/ 1.87% 5.24% 5.39% --
With Maximum Sales Charge/2/ -1.22% 4.61% 5.07% --
Class B (Inception 9/24/93)
Net Asset Value/1/ 1.18% 4.56% 4.70% --
With CDSC/5/ -3.73% 4.23% 4.70% --
E-5
Class C (Inception 12/30/94)
Net Asset Value/1/ 1.27% 4.58% -- 4.79%
With CDSC/5/ 0.29% 4.58% -- 4.79%
Class Y (Inception 3/31/94)
Net Asset Value/1/ 2.07% 5.64% 5.77% --
· Download Table
Since Class
Comparative Performance 1 Year 5 Years 10 Years C Inception/7/
----------------------- ------ ------- -------- --------------
Lehman Int. Gov't. Bond Index/3/ 1.91% 6.51% 6.72% 6.91%
Lehman 1-5 Yr. Gov't Bond Index/4/ 1.46% 5.82% 6.23% 6.41%
Morningstar Short Gov't Fund Avg./6/ 1.15% 5.00% 5.49% 5.63%
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.cdcnvestfunds.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.
Notes to Charts
/1/ Does not include a sales charge. Effective 2/1/04, a 1% front end sales
charge was removed from Class C shares.
/2/ Includes the maximum sales charge of 3.00%.
/3/ Lehman Intermediate Government Bond Index is an unmanaged index of bonds
issued by the U.S. government and its agencies with maturities between one
and ten years.
/4/ Lehman 1-5 Year Government Bond Index is an unmanaged, market-weighted
index of bonds issued by the U.S. government and its agencies, with
maturities between 1 and 5 years.
/5/ Performance for Class B shares assumes a maximum 5% contingent deferred
sales charge ("CDSC") applied when you sell shares, which declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1%.
Class C share performance assumes a 1.00% CDSC applied when you sell shares
within one year of purchase.
/6/ Morningstar Short Government Fund Average is the average performance
without sales charge of funds with similar investment objectives, as
calculated by Morningstar, Inc.
/7/ The since-inception comparative performance figures shown for Class C
shares are calculated from 12/31/94.
E-6
LOOMIS SAYLES FUNDS II
Loomis Sayles Limited Term Government and Agency Fund
Form N-14
Part B
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
January 18, 2005
This Statement of Additional Information (the "SAI" or "Statement")
relates to the proposed acquisition (the "Acquisition") of the assets and
liabilities of Loomis Sayles Government Securities Fund ("Acquired Fund"), a
series of CDC Nvest Funds Trust I, by Loomis Sayles Limited Term Government and
Agency Fund (the "Fund" or the "Acquiring Fund"), a series of Loomis Sayles
Funds II, in exchange for shares of the Acquiring Fund, followed by the
distribution of such shares to Acquired Fund shareholders in liquidation of the
Acquired Fund.
This SAI contains information which may be of interest to shareholders
but which is not included in the Prospectus/Proxy Statement dated January 18,
2005 (the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to
the Acquisition. As described in the Prospectus/Proxy Statement, the Acquisition
would involve the transfer of all the assets of the Acquired Fund in exchange
for shares of the Acquiring Fund and the assumption by the Acquiring Fund of all
the liabilities of the Acquired Fund. The Acquired Fund would distribute the
Acquiring Fund shares it receives to its shareholders in complete liquidation of
the Acquired Fund.
This SAI is not a prospectus and should be read in conjunction with
the Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed
with the Securities and Exchange Commission and is available upon request and
without charge by writing to CDC Nvest Funds at Prospectus Fulfillment Desk, 399
Boylston Street, Boston, Massachusetts 02116, or by calling 1-800-225-5478.
Table of Contents
I. Additional Information about the Acquiring Fund and the Acquired Fund......2
II. Financial Statements.......................................................2
A. Incorporation by Reference...........................................2
B. Unaudited Pro Forma Combined Financial Statements....................2
Appendix A - Additional Information About the Acquiring Fund.................A-1
1
I. Additional Information About the Acquiring Fund and the Acquired Fund.
This SAI is accompanied by the current Statement of Additional
Information Parts I and II of the CDC Nvest Income Funds, which includes the
Government Securities Fund, dated February 1, 2004, as supplemented on July 1,
2004 for Part I and May 3, 2004 and July 1, 2004 for Part II (the "CDC SAI").
Additional information about the Acquired Fund is contained in and incorporated
herein by reference to the CDC SAI. The CDC SAI has previously been filed with
the Securities and Exchange Commission.
Additional information about the Acquiring Fund is set forth in
Appendix A to this SAI.
II. Financial Statements.
A. Incorporation by Reference.
This SAI is accompanied by the Annual Report to shareholders of the
Acquired Fund for the year ended September 30, 2004 and the Annual Report
to shareholders of the Acquiring Fund for the year ended September 30, 2004
(together, the "Annual Reports"), including the reports of
PricewaterhouseCoopers LLP contained therein. The Annual Reports, which are
incorporated by reference into this SAI, contain historical financial
information regarding the Acquired Fund and the Acquiring Fund and have
been filed with the Securities and Exchange Commission.
B. Unaudited Pro Forma Combined Financial Statements
Unaudited pro forma combined financial statements for the Acquiring
Fund relating to the Acquisition, including notes to such pro forma
financial statements, are set forth below. The following pro forma combined
financial statements should be read in conjunction with the separate
financial statements of the Funds contained within the Annual Reports
referred to in the preceding section.
2
PRO FORMA COMBINED STATEMENT OF ASSETS & LIABILITIES
AS OF SEPTEMBER 30, 2004
UNAUDITED
· Enlarge/Download Table
Loomis Sayles
Limited Term Loomis Sayles
Government and Goverment Pro Forma Pro Forma
Agency Fund Securities Fund Adjustments Combined
-------------- --------------- ----------- ------------
ASSETS
Investments at value $147,487,006 $67,841,865 -- $215,328,871
Dividnd and Interest Receivable $ 846,380 $ 823,586 -- $ 1,669,966
Receivable for securities sold $ 64,260 -- -- $ 64,260
Other assets $ 27,009 $ 5,484 -- $ 32,493
------------ ----------- ------------
TOTAL ASSETS $148,424,655 $68,670,935 -- $217,095,590
------------ ----------- ------------
LIABILITIES
Collateral on securities loaned, at value $ 19,922,719 $ 651,750 -- $ 20,574,469
Dividends Payable $ 100,247 $ 16,166 -- $ 116,413
Other accounts payable and accrued expenses $ 412,445 $ 351,846 -- $ 764,291
------------ ----------- ------------
TOTAL LIABILITIES $ 20,435,411 $ 1,019,762 -- $ 21,455,173
------------ ----------- ------------
TOTAL NET ASSETS $127,989,244 $67,651,173 -- $195,640,417
============ =========== ============
NET ASSETS
Class A $106,701,169 $54,704,267 -- $161,405,436
Class B $ 10,106,991 $10,689,247 -- $ 20,796,238
Class C $ 6,948,569 -- -- $ 6,948,569
Class Y $ 4,232,515 $ 2,257,659 -- $ 6,490,174
SHARES OF BENEFICIAL INTEREST
Class A 9,440,205 4,571,299 268,568 14,280,072
Class B 895,976 893,053 54,539 1,843,568
Class C 615,184 -- -- 615,184
Class Y 373,209 189,140 9,933 572,282
NET ASSET VALUE PER SHARE
Class A 11.30 11.97 -- 11.30
Class B 11.28 11.97 -- 11.28
Class C 11.30 -- -- 11.30
Class Y 11.34 11.94 -- 11.34
See accompanying notes to the pro forma financial statements
3
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2004
UNAUDITED
Loomis Sayles Limited Term Government and Agency Fund
-------------------------------------------------------------------------------
Security Description Principal Value (c)
--------------------------------------------------- ----------- -----------
BONDS AND NOTES:
FEDERAL FARM CREDIT BANK, 2.375%, 10/02/2006 $ 2,935,000 $ 2,906,275
FEDERAL HOME LOAN BANK, 3.625%, 11/14/2008 6,200,000 6,226,176
FHLMC, 10.000%, 7/01/2019 7,625 8,557
FHLMC, 11.500%, WITH VARIOUS MATURITIES TO 2020 (d) 733,530 825,693
FHLMC, 4.000%, WITH VARIOUS MATURITIES TO 2019 (d) 8,133,609 7,944,468
FHLMC, 4.500%, 5/01/2034 994,554 959,081
FHLMC, 5.750%, 4/15/2008 5,000,000 5,399,950
FHLMC, 7.000%, 2/01/2016 623,302 661,130
FHLMC, 7.500%, WITH VARIOUS MATURITIES TO 2026 (d) 118,480 126,056
FHLMC, 8.000%, WITH VARIOUS MATURITIES TO 2015 (d) 103,911 107,809
FNMA, 4.000%, WITH VARIOUS MATURITIES TO 2019 (d) 8,978,017 8,771,295
FNMA, 4.500%, WITH VARIOUS MATURITIES TO 2034 (d) 8,132,814 7,846,741
FNMA, 5.500%, WITH VARIOUS MATURITIES TO 2033 (d) 6,904,241 7,121,218
FNMA, 5.500%, 5/02/2006 3,000,000 3,131,991
FNMA, 6.000%, WITH VARIOUS MATURITIES TO 2033 (d) 14,081,345 14,739,561
FNMA, 6.500%, WITH VARIOUS MATURITIES TO 2034 (d) 9,289,853 9,764,691
FNMA, 7.000%, 12/01/2022 585,902 631,372
GNMA, 7.000%, WITH VARIOUS MATURITIES TO 2031 (d) 1,341,086 1,431,924
· Enlarge/Download Table
Loomis Sayles Government Securities Fund Pro Forma Combined
--------------------------------------------------------------------------- -------------------------
Security Description (a) Principal Value (c) Principal Value (c)
------------------------------------------------- ---------- ---------- ----------- -----------
$ 2,935,000 $ 2,906,275
6,200,000 6,226,176
7,625 8,557
733,530 825,693
8,133,609 7,944,468
994,554 959,081
5,000,000 5,399,950
623,302 661,130
118,480 126,056
103,911 107,809
8,978,017 8,771,295
FNMA, 4.500%, 9/01/2033 $4,267,148 $4,119,963 12,399,962 11,966,704
FNMA, 5.500%, WITH VARIOUS MATURITIES TO 2034 (d) 4,244,966 4,310,477 11,149,207 11,431,695
3,000,000 3,131,991
14,081,345 14,739,561
9,289,853 9,764,691
FNMA, 6.500%, 11/01/2031 280,108 294,015 280,108 294,015
FNMA, 6.625%, 9/15/2009 600,000 675,966 600,000 675,966
585,902 631,372
1,341,086 1,431,924
4
FNMA, 7.500%, WITH VARIOUS MATURITIES TO 2032 (d) 1,908,154 2,040,238
FNMA, 8.000%, WITH VARIOUS MATURITIES TO 2016 (d) 279,419 298,452
GNMA, 6.000%, 12/15/2031 284,180 295,259
GNMA, 12.500%, WITH VARIOUS MATURITIES TO 2015 (d) 25,106 29,016
GNMA, 16.000%, WITH VARIOUS MATURITIES TO 2012 (d) 268,892 318,103
GNMA, 17.000%, WITH VARIOUS MATURITIES TO 2011 (d) 92,419 110,763
RESIDENTIAL ASSET MORTGAGE PRODUCTS, INC., SERIES
2003-RZ5, CLASS A3, 3.800%, 7/25/2030 2,240,000 2,205,889
RESIDENTIAL FUNDING MORTGAGE SECURITIES II, SERIES
2003-HI4, CLASS AI4, 4.590%, 4/25/2018 1,376,000 1,390,678
RESIDENTIAL FUNDING MORTGAGE SECURITIES II, SERIES
2004-HI3, CLASS A3, 3.810%, 12/25/2016 1,900,000 1,896,734
RESIDENTIAL FUNDING MORTGAGE SECURITIES II, SERIES
2004-HI3, CLASS A4, 4.630%, 3/25/2019 670,000 669,477
U.S. TREASURY NOTE, 1.625%, 2/28/2006 6,100,000 6,037,811
U.S. TREASURY NOTE, 1.875%, 12/31/2005 4,300,000 4,277,997
U.S. TREASURY NOTE, 2.000%, 8/31/2005 (b) 10,200,000 10,184,465
U.S. TREASURY NOTE, 2.250%, 2/15/2007 (b) 1,290,000 1,276,243
U.S. TREASURY NOTE, 2.375%, 8/15/2006 5,330,000 5,312,928
U.S. TREASURY NOTE, 3.125%, 10/15/2008 2,500,000 2,496,290
U.S. TREASURY NOTE, 3.375%, 11/15/2008 (b) 4,250,000 4,280,048
· Enlarge/Download Table
FNMA, 7.500%, 12/01/2030 204,322 218,994 2,112,476 2,259,232
279,419 298,452
284,180 295,259
GNMA, 6.500%, 5/15/2031 1,378,410 1,456,303 1,378,410 1,456,303
GNMA, 8.500%, 2/15/2006 12,139 12,650 12,139 12,650
GNMA, 9.000%, WITH VARIOUS MATURITIES TO 2009 (d) 80,983 87,389 80,983 87,389
GNMA, 9.500%, 8/15/2009 33,202 36,444 33,202 36,444
GNMA, 10.000%, 9/15/2016 2,260 2,532 2,260 2,532
GNMA, 12.500%, 6/15/2014 4,053 4,674 29,159 33,690
268,892 318,103
92,419 110,763
2,240,000 2,205,889
1,376,000 1,390,678
1,900,000 1,896,734
670,000 669,477
U.S. TREASURY BOND, 5.250%, 2/15/2029 (b) 3,005,000 3,128,369 3,005,000 3,128,369
U.S. TREASURY BOND, 7.250%, 5/15/2016 13,000,000 16,364,764 13,000,000 16,364,764
U.S. TREASURY BOND, 8.750%, 5/15/2017 10,000,000 14,108,980 10,000,000 14,108,980
U.S. TREASURY INFLATION INDEXED BOND, 2.375%, 1/15/2025 13,665,828 14,236,486 13,665,828 14,236,486
U.S. TREASURY NOTE, 1.625%, 9/30/2005 4,615,000 4,589,581 4,615,000 4,589,581
6,100,000 6,037,811
4,300,000 4,277,997
10,200,000 10,184,465
1,290,000 1,276,243
5,330,000 5,312,928
2,500,000 2,496,290
4,250,000 4,280,048
5
U.S. TREASURY NOTE, 6.125%, 8/15/2007 (b) 4,180,000 4,554,729
U.S. TREASURY NOTE, 6.625%, 5/15/2007 (b) 750,000 822,392
------------
127,101,500
------------
SHORT-TERM:
REPURCHASE AGREEMENT WITH INVESTORS BANK &
TRUST CO. 462,787 462,787
INVESTMENTS OF SECURITIES LENDING COLLATERAL -
BANK OF AMERICA, 1.875% DUE 10/19/2004 2,556,513 2,556,513
BANK OF MONTREAL, 1.76% DUE 10/25/2004 412,594 412,594
BANK OF NOVA SCOTIA, 1.75% DUE 10/21/2004 613,563 613,563
BANK OF NOVA SCOTIA, 1.76% DUE 11/12/2004 1,278,256 1,278,256
BGI INSTITUTIONAL MONEY MARKET FUND 1,457,212 1,457,212
BNP PARIBAS, 1.80% DUE 11/23/2004 1,278,256 1,278,256
FALCON ASSET SECURITIZATION CORP., 1.612% DUE
10/1/2004 766,954 766,954
FORTIS BANK, 1.69%, DUE 10/14/2004 255,651 255,651
GREYHAWK FUNDING, 1.772%, DUE 10/19/2004 763,434 763,434
MERRILL LYNCH PREMIER INSTITUTIONAL FUND 829,218 829,218
MERRIMAC CASH FUND-PREMIUM CLASS 2,045,210 2,045,210
ROYAL BANK OF CANADA, 1.78%, DUE 11/10/2004 2,045,210 2,045,210
ROYAL BANK OF SCOTLAND, 1.60%, DUE 10/15/2004 766,954 766,954
ROYAL BANK OF SCOTLAND, 1.65%, DUE 10/29/2004 766,954 766,954
ROYAL BANK OF SCOTLAND, 1.67%, DUE 11/02/2004 76,695 76,695
ROYAL BANK OF SCOTLAND, 1.88%, DUE 12/23/2004 1,712,864 1,712,864
SHEFFIELD RECEIVABLES CORP, 1.622% DUE 10/04/2004 251,970 251,970
SHEFFIELD RECEIVABLES CORP, 1.773% DUE 10/20/2004 766,954 766,954
TORONTO DOMINION BANK, 1.70%, DUE 11/8/2004 511,303 511,303
WELLS FARGO, 1.60% DUE 10/04/2004 766,954 766,954
------------
Total Short Term Investments 20,385,506
------------
· Enlarge/Download Table
4,180,000 4,554,729
750,000 822,392
U.S. TREASURY STRIPS, ZERO COUPON, 11/15/2014 4,000,000 3,324,336 4,000,000 3,324,336
----------- ------------
66,971,923 194,073,423
----------- ------------
REPURCHASE AGREEMENT WITH INVESTORS BANK & TR UST
CO. 218,192 218,192 680,979 680,979
INVESTMENTS OF SECURITIES LENDING COLLATERAL -
BANK OF AMERICA, 1.875% DUE 10/19/2004 83,633 83,633 2,640,146 2,640,146
BANK OF MONTREAL, 1.76% DUE 10/25/2004 13,498 13,498 426,092 426,092
BANK OF NOVA SCOTIA, 1.75% DUE 10/21/2004 20,072 20,072 633,635 633,635
BANK OF NOVA SCOTIA, 1.76% DUE 11/12/2004 41,817 41,817 1,320,073 1,320,073
BGI INSTITUTIONAL MONEY MARKET FUND 47,671 47,671 1,504,883 1,504,883
BNP PARIBAS, 1.80% DUE 11/23/2004 41,817 41,817 1,320,073 1,320,073
FALCON ASSET SECURITIZATION CORP., 1.612% DUE
10/1/2004 25,090 25,090 792,044 792,044
FORTIS BANK, 1.69%, DUE 10/14/2004 8,363 8,363 264,014 264,014
GREYHAWK FUNDING, 1.772%, DUE 10/19/2004 24,975 24,975 788,409 788,409
MERRILL LYNCH PREMIER INSTITUTIONAL FUND 27,127 27,127 856,345 856,345
MERRIMAC CASH FUND-PREMIUM CLASS 66,907 66,907 2,112,117 2,112,117
ROYAL BANK OF CANADA, 1.78%, DUE 11/10/2004 66,907 66,907 2,112,117 2,112,117
ROYAL BANK OF SCOTLAND, 1.60%, DUE 10/15/2004 25,090 25,090 792,044 792,044
ROYAL BANK OF SCOTLAND, 1.65%, DUE 10/29/2004 25,090 25,090 792,044 792,044
ROYAL BANK OF SCOTLAND, 1.67%, DUE 11/02/2004 2,509 2,509 79,204 79,204
ROYAL BANK OF SCOTLAND, 1.88%, DUE 12/23/2004 56,034 56,034 1,768,898 1,768,898
SHEFFIELD RECEIVABLES CORP, 1.622% DUE 10/04/2004 8,243 8,243 260,213 260,213
SHEFFIELD RECEIVABLES CORP, 1.773% DUE 10/20/2004 25,090 25,090 792,044 792,044
TORONTO DOMINION BANK, 1.70%, DUE 11/8/2004 16,727 16,727 528,030 528,030
WELLS FARGO, 1.60% DUE 10/04/2004 25,090 25,090 792,044 792,044
----------- ------------
869,942 21,255,448
----------- ------------
6
· Download Table
Total Investments $147,487,006
============
· Download Table
$67,841,865 $215,328,871
=========== ============
(a) Certain securities that do not conform to the investment strategies to be
in effect after the reorganization may be disposed of prior to or after
reorganization. Selection of securities for disposition will depend on
market conditions, investment outlook of the Fund's adviser and composition
of the Acquired Fund at such time. Disposition of these securities may
result in realized capital gains or losses before or after the
reorganization.
(b) All or a portion of this security was on loan to brokers at September 30,
2004.
(c) See notes to pro forma combined financial statements.
(d) The Fund's investments 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.
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
7
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED SEPTEMBER 30, 2004
UNAUDITED
· Enlarge/Download Table
Limited Term Government Pro Pro
Government and Securities Forma Forma
Agency Fund Fund Adjustments Combined
-------------- ---------- ----------- -----------
INVESTMENT INCOME
Interest income $ 5,323,114 $3,277,228 $ 8,600,342
Security lending income 11,603 19,185 30,788
----------- ---------- --------- -----------
5,334,717 3,296,413 -- 8,631,130
----------- ---------- --------- -----------
EXPENSES
Management fees 773,694 410,046 (132,292) 1,051,448(1)
Service and distribution fees - Class A 361,411 149,737 (83,989) 427,159(2)
Service and distribution fees - Class B 116,983 121,316 238,299
Service and distribution fees - Class C 76,233 -- 76,233
Trustees' fees and expenses 22,937 25,336 (6,662) 41,611(3)
Accounting and administrative 88,981 48,897 137,878
Custodian 68,532 48,834 (37,427) 79,939(4)
Transfer agent fees - Class A, B and C 257,277 150,534 1,893 409,704(5)
Transfer agent fees - Class Y 17,747 15,657 (12,000) 21,404(5)
Audit and Tax Services 24,705 24,657 (24,657) 24,705(6)
Legal 7,774 3,418 (500) 10,692(7)
Shareholder reporting 23,605 28,325 (7,000) 44,930(7)
Registration 49,716 34,939 14,936 99,591(8)
Miscellaneous 26,532 12,090 (2,989) 35,633(7)
----------- ---------- --------- -----------
Total expenses 1,916,127 1,073,786 (290,687) 2,699,226
----------- ---------- --------- -----------
Net investment income 3,418,590 2,222,627 290,687 5,931,904
----------- ---------- --------- -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain (loss) on investments, net 1,021,149 (202,144) -- 819,005
Change in unrealized appreciation
(depreciation) of investments, net (2,043,680) (524,082) -- (2,567,762)
----------- ---------- --------- -----------
Net realized and unrealized gain (loss) on
investments (1,022,531) (726,226) -- (1,748,757)
----------- ---------- --------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 2,396,059 $1,496,401 $ 290,687 $ 4,183,147
=========== ========== ========= ===========
8
See accompanying notes to the pro forma financial statements
(1) Management fees
Management fees have been adjusted to reflect the new fee equal to 50bp of
the combined funds' average daily net assets.
(2) Service and distribution fees - Class A
Expense has been adjusted to eliminate the 10bp distribution fee for
Limited Term Government and Agency Fund Class A shares that was in effect
from October 1, 2003 through June 30, 2004.
(3) Trustee fees and expenses
Trustee fees and expenses have been restated to reflect the reallocation of
these expenses over all of the remaining funds serviced by the Board.
(4) Custodian
Fees have been restated to reflect the elimination of minimum per fund fees
and certain other fixed charges that will not be in effect for the combined
fund.
(5) Transfer agent fees
Fees have been restated to reflect the new Transfer Agent fee agreement
that is effective on January 1, 2005.
(6) Audit and Tax Services
Fees have been restated to eliminate the services for the Government
Securities Fund that will no longer be required.
(7) Legal, Shareholder reporting and Miscellaneous
Fees have been restated to eliminate the effect of charges that apply only
to the Government Securities Fund.
(8) Registration
Fees have been restated to reflect costs incurred as a result of the merger
as well as the reduction of costs that applied only to the Government
Securities Fund.
9
Loomis Sayles Limited Term Government and Agency Fund
Notes to Pro Forma Combined Financial Statements
September 30, 2004
Basis of Presentation:
Subject to the approval of the Agreement and Plan of Reorganization
("Plan of Reorganization") by the shareholders of the Loomis Sayles Government
Securities Fund ("Government Securities Fund"), a series of CDC Nvest Funds
Trust I, the Loomis Sayles Limited Term Government and Agency Fund (the "Limited
Term Fund"), a series of Loomis Sayles Funds II, would acquire all the assets of
the Government Securities Fund in exchange for newly issued shares of beneficial
interest of the Limited Term Fund (the "Merger Shares") and the assumption by
the Limited Term Fund of all of the liabilities of the Government Securities
Fund followed by a distribution of the Merger Shares to the shareholders of the
Government Securities Fund in complete liquidation of the Government Securities
Fund. Under the Plan of Reorganization, the transaction will be treated and
accounted for as a tax-free reorganization.
As a result of the proposed transaction, the Government Securities
Fund will receive a number of Class A, Class B and Class Y Merger Shares of the
Limited Term Fund equal in value to the value of the net assets of the
Government Securities Fund being transferred and attributable to the Class A,
Class B and Class Y shares, respectively, of the Government Securities Fund.
Following the transfer, Government Securities Fund shareholders will receive, on
a tax-free basis, a number of full and fractional Class A, Class B and Class Y
Merger Shares of the Limited Term Fund equal in value, as of the close of
business on the day the assets and liabilities of the Government Securities Fund
and the Merger Shares are valued for purposes of the exchange, to the value of
the shareholder's Class A, Class B or Class Y Government Securities Fund shares.
The Government Securities Fund does not offer Class C shares.
The pro forma financial statements reflect the combined financial
position of the Government Securities Fund with the Limited Term Fund at
September 30, 2004, and the pro forma combined results of operations for the
year ended September 30, 2004, as though the acquisition had occurred on October
1, 2003.
The pro forma combined financial statements are presented for the
information of the reader. The pro forma combined financial statements are
accounting estimates only and may not necessarily be representative of how the
combined financial statements would have appeared had the reorganization
actually occurred. The pro forma combined financial statements should be read in
conjunction with the historical financial statements of the respective
portfolios.
Pro Forma Adjustments:
The pro forma combined Statement of Assets and Liabilities reflects
the reclassification of capital for the Government Securities Fund into shares
of beneficial interest of the Limited Term Fund.
The pro forma combined Statement of Operations reflects the following
adjustments:
10
Management fees, Distribution fees, Classes A, B and Y transfer agent fees and
custodian fees have been restated to reflect current fees.
Certain other expenses including trustees, legal, audit and tax shareholder
reporting, registration fees and miscellaneous have been adjusted reflective of
the savings or additional costs expected to occur as a result of the
transaction.
Security Valuation:
Debt securities for which market quotations are readily available
(other than short-term obligations with a remaining maturity of less than sixty
days) are generally valued at market price on the basis of valuations furnished
by a pricing service authorized by the Board of Trustees, which service
determines valuations for normal, institutional-size trading units of such
securities using market information, transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders. Short-term obligations with a remaining maturity of less
than sixty days are stated at amortized cost, which approximates market value.
All other securities and assets are valued at their fair value as determined in
good faith by the Fund's investment adviser, under the supervision of the Fund's
Trustees. Equity securities for which market quotations are readily available
are valued at market price on the basis of valuations furnished to the Fund by a
pricing service which has been authorized by the Board of Trustees. The pricing
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Securities traded on the NASDAQ National
Market are valued at the NASDAQ Official Closing Price ("NOCP"), or if lacking
an NOCP, at the most recent bid quotation on the NASDAQ National Market.
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.
11
APPENDIX A
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
--------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
The investment goal and principal investment strategies of the
Acquiring Fund (also referred to as the "Fund") are described in the
Prospectus/Proxy Statement. The investment policies of the Fund set forth in its
Prospectus/Proxy Statement and in this SAI may be changed by the Board of
Trustees of Loomis Sayles Funds II (the "Loomis Sayles Trust") without
shareholder approval, except any policy explicitly identified as "fundamental"
may not be changed without the approval of the holders of a majority of the
outstanding shares of the Fund (which in this SAI means the lesser of (i) 67% of
the shares of the Acquiring Fund present at a meeting at which more than 50% of
the outstanding shares are present or represented by proxy or (ii) more than 50%
of the outstanding shares). Except in the case of the 15% limitation on illiquid
securities, the percentage limitations set forth below and in the
Prospectus/Proxy Statement will apply at the time a security is purchased and
will not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such purchase.
In addition to its investment goal and policies set forth in the
Prospectus/Proxy Statement, the following investment restrictions are policies
of the Fund (and those marked with an asterisk are fundamental policies of the
Fund):
The Fund will not:
*(1) Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of security transactions, and the Fund may make
any short sales or maintain any short positions where the short sales or
short positions would not constitute "senior securities" under the
Investment Company Act of 1940 (the "1940 Act").
*(2) Issue senior securities, except for permitted borrowings or as otherwise
permitted under the 1940 Act.
*(3) Borrow money except for temporary or emergency purposes; provided, however,
that the Fund may loan securities, engage in reverse repurchase agreements
and dollar rolls, in an amount not exceeding 33 1/3% of its total assets
taken at cost.
*(4) Purchase any securities (other than U.S. government securities) if, as a
result, more than 25% of the Fund's total assets (taken at current value)
would be invested in any one industry. For purposes of this restriction,
telephone, gas and electric public utilities are each regarded as separate
industries and finance companies whose financing activities are related
primarily to the activities of their parent companies are classified in the
industry of their parents. For purposes of this restriction with regard to
bank obligations, bank obligations are considered to be one industry, and
asset-backed securities are not considered to be bank obligations.
A-1
*(5) Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; provided, however,
that this restriction does not apply to repurchase agreements or loans of
portfolio securities.
*(6) Purchase or sell commodities, except that the Fund may purchase and sell
future contracts and options, may enter into foreign exchange contracts and
swap agreements and other financial transactions not requiring the delivery
of physical commodities.
*(7) Purchase or sell real estate, although it may purchase securities of
issuers that deal in real estate, securities that are secured by interests
in real estate, and securities that represent interests in real estate, and
it may acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as a holder of debt obligations
secured by real estate or interests therein.
*(8) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
(9) Write, purchase or sell puts, calls or combinations thereof, except that
the Fund may write, purchase and sell puts, calls or combinations thereof
with respect to financial instruments or indices thereof and currencies and
with respect to futures contracts on financial instruments or indices
thereof.
+(10) Invest more than 15% of the Fund's total net assets in illiquid securities
(excluding Rule 144A securities and certain Section 4(2) commercial paper
deemed to be liquid under guidelines established by Loomis Sayles Funds II
trustees).
(11) Invest less than 80% of the Fund's net assets (plus borrowings made for
investment purposes) in investments issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Prior to any change to such
policy adopted by the Board of Trustees of the Fund, the Fund will provide
notice to shareholders as required by Rule 35d-1 under the 1940 Act, as
such Rule may be interpreted from time to time by the staff of the SEC.
Although the Fund may from time to time make short sales, issue senior
securities, borrow money or pledge its assets to the extent permitted by the
investment restrictions set forth above, the Fund has no current intention of
engaging in such investment techniques.
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are illiquid and thus subject to
restriction (10) above.
In restriction (11), the 80% policy is applied at the time of
investment. However, if the Fund no longer meets the 80% policy (due to changes
in the value of its portfolio holdings or other circumstances beyond its
control), it must make future investments in a manner that would bring the Fund
into compliance with the 80% requirement, but would not be required to sell
portfolio holdings that have increased in value.
A-2
--------------------------------------------------------------------------------
FUND CHARGES AND EXPENSES
--------------------------------------------------------------------------------
Investment Advisory And Other Services
Advisory Agreements. Under the advisory agreement, Loomis Sayles
manages the investment and reinvestment of the assets of the Fund, subject to
supervision by the Board of Trustees of the Loomis Sayles Trust. Loomis Sayles
furnishes, at its own expense, all necessary office space, facilities and
equipment, services of executive and other personnel of the Fund, and certain
administrative services. For these services, the advisory agreement provides
that the Fund shall pay Loomis Sayles a monthly investment advisory fee at the
annual percentage rate of 0.57% of the first $200 million of the average daily
net assets of the Fund, 0.545% of the next $300 million and 0.520% of such
assets in excess of $500 million. If and when the Acquisition is consummated,
Loomis Sayles will reduce the advisory fee to 0.50% of the average daily net
assets of the Fund.
During the periods shown below, pursuant to the advisory agreement
described above, Loomis Sayles received the following amount of investment
advisory fees from the Fund:
1/1/02 - 1/01/03 - 10/01/03 -
12/31/02 9/30/03 9/30/04
-------- --------- ----------
Total Advisory Fee $774,861 $628,035 $773,694
IXIS Advisors
Total Paid $387,430 $279,606 $ 0
Loomis Sayles
Total Paid $387,431 $348,429 $773,694
On September 12, 2003, the CDC Nvest Limited Term Government
Securities Fund reorganized into the Loomis Sayles Limited Term Government and
Agency Fund and, as a result, Loomis Sayles Limited Term Government and Agency
Fund assumed the financial and accounting information of CDC Nvest Limited Term
Government Securities Fund. The table therefore includes fees under previous
investment advisory and subadvisory arrangements applicable to the CDC Nvest
Limited Term Government Securities Fund. The advisory fees reported for fiscal
year 2002 and part of the fiscal year 2003 reflect these arrangements. Prior to
September 1, 2003, Loomis Sayles managed the assets of the Fund as subadviser
under an investment subadvisory agreement that terminated on September 1, 2003
and IXIS Asset Management Advisors, L.P. ("IXIS Advisors") served as adviser to
the Fund under investment advisory agreement that terminated on September 1,
2003. The table reflects a change to the Fund's fiscal year end effective
September 12, 2003, from a prior fiscal year end of December 31 to the current
fiscal year end of September 30.
Brokerage Commissions
For the fiscal years ended December 31, 2002, September 30, 2003 and
September 30, 2004, the Fund paid $0, $0 and $0, respectively, in brokerage
commissions. For the fiscal year ended September 30, 2004, the Fund paid $0 in
brokerage transactions and brokerage commissions to brokers providing research
services. For a description of how transactions in portfolio securities are
effected, see the section "Portfolio Transactions" below.
A-3
Regular Broker-Dealers
The Fund did not hold any securities of its regular broker-dealers*
(or the parent of the regular broker-dealers) as of September 30, 2004.
* "Regular Broker-Dealers" are defined by the SEC as: (a) one of the 10 brokers
or dealers that received the greatest dollar amount of brokerage commissions by
virtue of direct or indirect participation in the company's portfolio
transactions during the company's most recent fiscal year; (b) one of the 10
brokers or dealers that engaged as principal in the largest dollar amount of
portfolio transactions of the investment company during the company's most
recent fiscal year; or (c) one of the 10 brokers or dealers that sold the
largest dollar amount of securities of the investment company during the
company's most recent fiscal year.
Sales Charges and 12b-1 Fees
As explained below, certain classes of shares of the Acquiring Fund
paid the IXIS Asset Management Distributors, L.P. (the "Distributor") fees under
separate plans adopted pursuant to Rule 12b-1 under the 1940 Act ("Plans"). The
following table shows the amounts of Rule 12b-1 fees paid by the Fund under
these Plans during the past three fiscal years. For periods prior to July 1,
2003, amounts shown in the table were paid to the Fund's prior distributor.
Compensation payable under the Plans may be paid regardless of the Distributor's
expenses. The anticipated benefits to the Fund of the Plans include the ability
to attract and maintain assets.
A-4
Rule 12b-1 Fees paid by the Fund
--------------------------------------------------------
Fund Class 1/1/02 - 12/31/02 1/1/03 - 9/30/03 10/1/04 - 9/30/04
---------- ----------------- ---------------- -----------------
A $373,753 $301,134 $361,411
B $144,101 $119,150 $116,983
C $ 68,615 $ 65,626 $ 76,233
See "Distribution Agreement and Rule 12b-1 Plans" in this SAI for a description
of the current distribution agreement and Rule 12b-1 plans, if any, in effect
for Classes A, B, C and Y shares.
During the fiscal year ended September 30, 2004, the expenses of the
Distributor and the Fund's prior distributor relating to the Fund's Rule 12b-1
plans were as follows (Class B compensation to investment dealers exclude
advanced commissions sold to a third party):
Loomis Sayles Limited Term Government and Agency Fund
(Class A Shares)
Compensation to Investment Dealers $272,709
Compensation to Distributor's Sales Personnel and Other Related Costs $161,069
--------
TOTAL $433,778
(Class B shares)
Compensation to Investment Dealers $ 26,561
Compensation to Distributor's Sales Personnel and Other Related Costs $ 8,316
--------
TOTAL $ 34,877
(Class C shares)
Compensation to Investment Dealers $ 67,513
Compensation to Distributor's Sales Personnel and Other Related Costs $ 16,129
--------
TOTAL $ 83,642
--------------------------------------------------------------------------------
OWNERSHIP OF FUND SHARES
--------------------------------------------------------------------------------
As of November 17, 2004, to the Trust's knowledge, the following persons owned
of record or beneficially 5% or more of the indicated classes of the Fund as set
forth below.*
Number of Percentage
Fund shares owned of class
------- ------------ ----------
Class Y Charles Schwab & Co Inc* 174,829 66.32%**
Special Custody Account
For Bnft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
New England Mutual Life Ins Co* 84,614 32.10%**
Separate Investment Accounting
Attn Larry Hoisington
501 Boylston Street - 6th Fl
Boston, MA 02116-3769
A-5
* Such ownership may be beneficially held by individuals or entities other than
the owner listed.
** To the extent that any listed shareholder beneficially owns more than 25% a
Fund, it may be deemed to "control" the Fundwithin the meaning of the 1940 Act.
The effect of such control may be to reduce the ability of other shareholders of
the Fund to take action requiring the affirmative note of holders of a plurality
or majority of the Fund's shares without approval of the controlling
shareholder.
--------------------------------------------------------------------------------
MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS
--------------------------------------------------------------------------------
The following is a list of certain investment strategies, including
particular types of securities or specific practices that may be used by the
adviser in managing the Fund and that are not principal strategies. The Fund's
principal strategies are detailed in its Prospectus/Proxy Statement. The list of
securities under each category below is not intended to be an exclusive list of
securities for investment. The adviser may invest in a general category listed
below and where applicable with particular emphasis on a certain type of
security but investment is not limited to the securities specially enumerated
under each category. The adviser may invest in some securities under a given
category as a primary strategy and in other securities under the same category
as a secondary strategy. The adviser may invest in any security that falls under
the specific category including securities that are not listed below.
Securities Practices
---------- ---------
Debt Securities (Mortgage-related Securities, When-issued Securities
Collateralized Mortgage Obligations, Stripped Futures Contracts
Securities) Options
Foreign Securities (Currency Hedging) Illiquid Securities
TYPES OF SECURITIES
DEBT SECURITIES
The Fund may invest in debt securities. Debt securities are used by issuers to
borrow money. The issuer usually pays a fixed, variable or floating rate of
interest and must repay the amount borrowed at the maturity of the security.
Some debt securities, such as zero-coupon securities, do not pay interest but
are sold at a discount from their face values. Debt securities include corporate
bonds, government securities and mortgage and other asset-backed securities.
Debt securities include a broad array of short, medium and long term obligations
issued by the U.S. or foreign governments, government or international agencies
and instrumentalities, and corporate issuers of various types. Some debt
securities represent uncollateralized obligations of their issuers; in other
cases, the securities may be backed by specific assets (such as mortgages or
other receivables) that have been set aside as collateral for the issuer's
obligation. Debt securities generally involve an obligation of the issuer to pay
interest or dividends on either a current basis or at the maturity of the
securities, as well as the obligation to repay the principal amount of the
security at maturity.
Risks. Debt securities are subject to market risk and credit risk.
Credit risk relates to the ability of the issuer to make payments of principal
and interest and includes the risk of default. Sometimes, an issuer may make
these payments from money raised through a variety of sources, including, with
respect to issuers of municipal securities, (i) the issuer's general taxing
power, (ii) a specific type of tax such as a property tax, or (iii) a particular
facility or project such as a
A-6
highway. The ability of an issuer to make these payments could be affected by
general economic conditions, issues specific to the issuer, litigation,
legislation or other political events, the bankruptcy of the issuer or war,
natural disasters, terrorism or other major events. U.S. government securities
do not involve the credit risks associated with other types of fixed-income
securities; as a result, the yields available from U.S. government securities
are generally lower than the yields available from corporate and municipal debt
securities. Market risk is the risk that the value of the security will fall
because of changes in market rates of interest. (Generally, the value of debt
securities falls when market rates of interest are rising.) Some debt securities
also involve prepayment or call risk. This is the risk that the issuer will
repay a Fund the principal on the security before it is due, thus depriving the
Fund of a favorable stream of future interest payments.
Because interest rates vary, it is impossible to predict the income of
a Fund that invests in debt securities for any particular period. Fluctuations
in the value of the Fund's investments in debt securities will cause the Fund's
net asset value to increase or decrease.
Adjustable Rate Mortgage Security ("ARM"). ARM, like a traditional mortgage
security, is an interest in a pool of mortgage loans that provides investors
with payments consisting of both principal and interest as mortgage loans in the
underlying mortgage pool are paid off by the borrowers. ARMs have interest rates
that are reset at periodic intervals, usually by reference to some interest rate
index or market interest rate. Although the rate adjustment feature may act as a
buffer to reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the interest
rates are reset only periodically, changes in the interest rate on ARMs may lag
behind changes in prevailing market interest rates. Also, some ARMs (or the
underlying mortgages) are subject to caps or floors that limit the maximum
change in interest rate during a specified period or over the life of the
security. As a result, changes in the interest rate on an ARM may not fully
reflect changes in prevailing market interest rates during certain periods.
Because of the resetting of interest rates, ARMs are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall.
Asset-backed Securities. The Fund may invest in asset-backed securities. The
securitization techniques used to develop mortgage securities are also being
applied to a broad range of other assets. Through the use of trusts and special
purpose vehicles, assets, such as automobile and credit card receivables, are
being securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to a Collateralized Mortgage
Obligation structure. Generally, the issuers of asset-backed bonds, notes or
pass-through certificates are special purpose entities and do not have any
significant assets other than the receivables securing such obligations. In
general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans. Instruments backed by pools of receivables are
similar to mortgage-backed securities in that they are subject to unscheduled
prepayments of principal prior to maturity. When the obligations are pre-paid,
the Fund will ordinarily reinvest the prepaid amounts in securities the yields
of which reflect interest rates prevailing at the time. Therefore, the Fund's
ability to maintain a portfolio that includes high-yielding asset-backed
securities will be adversely affected to the extent that prepayments of
principal must be reinvested in securities that have lower yields than the
prepaid obligations. Moreover, prepayments of securities purchased at a premium
could result in a realized loss.
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Collateralized Mortgage Obligations ("CMOs"). The Fund may invest in CMOs, which
are securities backed by a portfolio of mortgages or mortgage securities held
under indentures. The underlying mortgages or mortgage securities are issued or
guaranteed by the U.S. government or an agency or instrumentality thereof. The
issuer's obligation to make interest and principal payments is secured by the
underlying portfolio of mortgages or mortgage securities. CMOs are issued with a
number of classes or series which have different maturities and which may
represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of CMO first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of CMO
held by the Fund would have the same effect as the prepayment of mortgages
underlying a mortgage pass-through security. CMOs and other asset-backed and
mortgage-backed securities may be considered derivative securities.
Investment-Grade Debt Securities. Investment grade debt securities include all
types of debt instruments that are of medium and high-quality. Some possess
speculative characteristics and may be more sensitive to economic changes and to
changes in the financial conditions of issuers. A debt security is considered to
be investment-grade if it is rated investment-grade by Standard & Poor's Rating
Group ("Standard & Poor's" or "S&P") or Moody's Investor's Service, Inc.
("Moody's") or is unrated but considered to be of equivalent quality by an
investment adviser. For more information, including a detailed description of
the ratings assigned by S&P and Moody's, please refer to the Statement's
"Appendix A -- Description of Securities Ratings."
Lower Quality Debt Securities. The Fund may invest in lower quality fixed-income
securities. Fixed-income securities rated BB or lower by Standard & Poor's or Ba
or lower by Moody's (and comparable unrated securities) are of below "investment
grade" quality. Lower quality fixed-income securities generally provide higher
yields, but are subject to greater credit and market risk than higher quality
fixed-income securities, including U.S. government and many foreign government
securities. Lower quality fixed-income securities are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. Achievement of the investment objective of a Fund investing
in lower quality fixed-income securities may be more dependent on the Fund's
adviser's own credit analysis than for a Fund investing in higher quality bonds.
The market for lower quality fixed-income securities may be more severely
affected than some other financial markets by economic recession or substantial
interest rate increases, by changing public perceptions of this market or by
legislation that limits the ability of certain categories of financial
institutions to invest in these securities. In addition, the secondary market
may be less liquid for lower rated fixed-income securities. This lack of
liquidity at certain times may affect the valuation of these securities and may
make the valuation and sale of these securities more difficult. Securities of
below investment grade quality are considered high yield, high risk securities
and are commonly known as "junk bonds." For more information, including a
detailed description of the ratings assigned by S&P and Moody's, please refer to
the Statement's "Appendix A -- Description of Securities Ratings."
Mortgage-related Securities. The Fund may invest in mortgage-related securities,
such as Government National Mortgage Association ("GNMA") or Federal National
Mortgage Association ("FNMA") certificates, which differ from traditional debt
securities. Among the
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major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time. As a
result, if the Fund purchases these assets at a premium, a faster-than-expected
prepayment rate will tend to reduce yield to maturity, and a
slower-than-expected prepayment rate may have the opposite effect of increasing
yield to maturity. If the Fund purchases mortgage-related securities at a
discount, faster-than-expected prepayments will tend to increase, and
slower-than-expected prepayments tend to reduce, yield to maturity. Prepayments,
and resulting amounts available for reinvestment by the Fund, are likely to be
greater during a period of declining interest rates and, as a result, are likely
to be reinvested at lower interest rates. Accelerated prepayments on securities
purchased at a premium may result in a loss of principal if the premium has not
been fully amortized at the time of prepayment. Although these securities will
decrease in value as a result of increases in interest rates generally, they are
likely to appreciate less than other fixed-income securities when interest rates
decline because of the risk of prepayments. In addition, an increase in interest
rates would also increase the inherent volatility of the Fund by increasing the
average life of the Fund's portfolio securities.
Mortgage Dollar Rolls. The Fund may enter into mortgage dollar rolls. A dollar
roll involves the sale of a security by the Funds and its agreement to
repurchase the instrument at a specified time and price, and may be considered a
form of borrowing for some purposes. The Fund will segregate assets determined
to be liquid in an amount sufficient to meet its obligations under the
transactions. A dollar roll involves potential risks of loss that are different
from those related to the securities underlying the transactions. The Fund may
be required to purchase securities at a higher price 