Registration Nos. 333-22931
811-08282
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 |
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Pre-Effective Amendment No. |
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Post-Effective Amendment No. 38 |
x |
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 |
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Amendment No. 47 |
x |
(Check appropriate box or boxes.)
LOOMIS SAYLES FUNDS I
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrants Telephone Number, including Area Code (617) 449-2810
Coleen Downs Dinneen, Esq.
Natixis Distributors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Approximate Date of Public Offering
It is proposed that this filing will become effective (check appropriate box):
¨ | Immediately upon filing pursuant to paragraph (b) |
¨ | On (date) pursuant to paragraph (b) |
¨ | 60 days after filing pursuant to paragraph (a)(1) |
x | On May 28, 2010 pursuant to paragraph (a)(1) |
¨ | 75 days after filing pursuant to paragraph (a)(2) |
¨ | on (date) pursuant to paragraph (a)(2) of Rule 485. |
If appropriate, check the following box:
¨ | This post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
Retail
Class |
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Loomis Sayles Inflation Protected Securities Fund |
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Loomis Sayles Intermediate Duration Bond Fund (formerly, Loomis Sayles Intermediate Duration Fixed Income Fund) |
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PROSPECTUS
May 28, 2010
Loomis, Sayles & Company, L.P., which has been an investment adviser since 1926, is the investment adviser of the Funds.
The Securities and Exchange Commission has not approved or disapproved any Funds shares or determined whether this prospectus is truthful or complete. Any representation to the contrary is a crime.
fund summary |
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Distribution Plans and Administrative Services and Other Fees |
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Fund shares 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.
protected securities fund
INVESTMENT OBJECTIVE
The Funds investment objective is high total investment return through a combination of current
FUND FEES & EXPENSES
The following table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) |
Retail Class | ||
Management fees |
0.25 | % | |
Distribution and/or service (12b-1) fees |
0.25 | % | |
Other expenses (Other expenses are based on estimated amounts for the current fiscal year.) |
[ . | ]% | |
Total annual fund operating expenses |
[ . | ]% | |
Fee reduction and/or expense reimbursement 1 |
[ . | ]% | |
Total annual fund operating expenses after fee reduction and/or expense reimbursement |
[ . | ]% |
Example
The example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated. The example also assumes that your investment has a 5% return each year and the Funds operating expenses remain the same, [except that the examples are based on Total Annual Fund Operating Expenses after Fee Reduction and/or Expense Reimbursement for the first one year illustrated in the example and on Total Annual Fund Operating Expenses for the remaining years]. Although your actual costs may be higher
1 year | 3 years | 5 years | 10 years | |||||||||||||
Retail Class |
$ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] |
1 |
Loomis Sayles has given a binding contractual undertaking to the Fund to limit the amount of the Funds total annual fund operating expenses, exclusive of expenses estimated to be indirectly borne by the Fund through investments in certain pooled investment vehicles, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses, such as litigation and indemnification expenses, to 0.65% of the Funds average daily net assets. This undertaking is in effect through January 31, 2012, and is reevaluated on an annual basis. This undertaking may be terminated before then only with the consent of the Funds Board of Trustees. Loomis Sayles will be permitted to recover, on a class-by-class basis, expenses it has borne through this undertaking to the extent that the Funds expenses in later periods fall below the annual rates set forth in the undertaking. The Fund will not be obligated to pay any such reduced fees and expenses more than one year after the end of the fiscal year in which the fee and expense was reduced. |
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs
and may result in higher taxes for you if your Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During its most recently ended
INVESTMENTS, RISKS AND PERFORMANCE
Principal Investment Strategies
The Fund will normally invest at least 80% of its net assets (plus any borrowings made for investment purposes) in inflation-protected securities, with an emphasis on debt securities issued by the U.S. Treasury (Treasury Inflation-Protected Securities, or TIPS). The principal value of these securities is periodically adjusted according to the rate of inflation, and repayment of the original bond principal upon maturity is guaranteed by the U.S. Government.
1
In deciding which securities to buy and sell, Loomis, Sayles & Company, L.P. (Loomis Sayles) may consider a number of factors related to the bond issue and the current bond market, for example, the stability and volatility of a countrys bond markets, the financial strength of the issuer, current interest rates, Loomis Sayles expectations regarding general trends in interest rates and currency considerations. Loomis Sayles will also consider how purchasing or selling a bond would impact the overall portfolios risk profile (for example, its sensitivity to currency risk, interest rate risk and sector-specific risk) and potential return (income and capital gains).
The Fund may invest in other securities, including but not limited to inflation-protected debt securities issued by U.S. Government agencies and instrumentalities other than the U.S. Treasury, by other entities such as corporations and foreign governments and by foreign issuers. The Fund may also invest in nominal ( i.e. , non-inflation-protected) treasury securities, corporate bonds, Rule 144A securities, structured notes, asset-backed securities and mortgage-related securities, including mortgage dollar rolls, and may invest up to 10% of its assets in below investment-grade fixed-income securities (commonly known as junk bonds). Lower-quality fixed-income securities are rated below investment-grade quality ( i.e. , none of the three major rating agencies (Moodys Investors Service, Inc., Fitch Investor Services, Inc. or Standard & Poors Ratings Group) have rated the securities in one of their respective top four ratings categories) or, if the security is unrated, determined by Loomis Sayles to be of comparable quality. The Fund may invest in fixed-income securities of any maturity. The Fund may also invest in swaps (including credit default swaps) and other derivatives. The Fund may also engage in futures transactions and foreign currency transactions.
The Fund may purchase unrated securities (securities that are not rated by a rating agency) if Loomis Sayles determines that the securities are of comparable quality to rated securities that the Fund may purchase.
Principal Risks
The principal risks of investing in the Fund are summarized below. The Fund does not represent a complete investment program. You may lose money by investing in the Fund.
Credit Risk is the risk that companies in which the Fund invests, or with which it does business, will fail financially or otherwise be unwilling or unable to meet their obligations to the Fund.
Currency Risk is the risk that the value of the Funds investments will fall as a result of changes in exchange rates. Loomis Sayles may elect not to hedge currency risk, which may cause the Fund to incur losses that would not have been incurred had the risk been hedged.
Derivatives Risk is the risk that the value of the Funds derivative investments will fall, for example, because of changes in the value of the underlying reference instruments, pricing difficulties or lack of correlation with the underlying investments. Investing in derivatives gives rise to other risks, such as leveraging risk, liquidity risk, credit risk, counterparty risk, interest-rate risk and market risk.
Extension Risk is 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 securitys value.
Focused Investment Risk is the risk that the Funds portfolio is not as diversified as some of the other Funds portfolios, which means that the Fund generally invests more of its assets in a smaller number of issuers. As a result, changes in the value of a single security may have a more significant effect on the Funds net asset value (NAV).
Foreign Securities Risk is the risk that the value of the Funds foreign investments will fall as a result of foreign political, social, economic or currency changes or other issues relating to foreign investing generally.
Interest Rate Risk is the risk that the value of the Funds investments will fall if interest rates rise. Interest rate risk generally is greater for funds that invest in fixed-income securities with relatively longer durations than for funds that invest in fixed-income securities with shorter durations.
Issuer Risk is the risk that the value of securities may decline due to a number of reasons relating to the issuer, such as management performance, financial leverage and reduced demand for the issuers goods and services.
Liquidity Risk is the risk that the Fund may be unable to find a buyer for its investments when it seeks to sell them or to receive the price it expects. Liquidity issues may also make it difficult to value the Funds investments.
2
Below Investment-Grade Fixed-Income Securities Risk is the risk that the Funds investments in below investment-grade fixed-income securities may be subject to greater risks than other fixed-income securities. The ability of the issuer to make principal and interest payments is predominantly speculative for below investment-grade fixed-income securities. The Fund may also be subject to the risks associated with investing in high-yield securities and unrated securities of similar quality (commonly known as junk bonds), which may be subject to greater levels of interest rate, credit and liquidity risk than other securities.
Management Risk is the risk that Loomis Sayles investment techniques will be unsuccessful and cause the Fund to incur losses.
Market Risk is the risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuers financial condition, as well as overall market and economic conditions.
Mortgage-Related and Asset-Backed Securities Risk is the risk that the securities may be prepaid and result in the reinvestment of the prepaid amounts in securities with lower yields than the prepaid obligations. Conversely, there is a risk that an unexpected rise in interest rates will extend the life of a mortgage-related or asset-backed security beyond the expected prepayment time, typically reducing the securitys value. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. It also includes risks associated with investing in the mortgages underlying the mortgage-backed securities. The market for mortgage-backed securities (and other asset-backed securities) has experienced high volatility and a lack of liquidity. As a result, the value of many of these securities has significantly declined. The Funds investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets.
TIPS Risk is the risk that the rate of inflation will be lower than expected. Inflation-protected securities are intended to protect against inflation by adjusting the interest or principal payable on the security by an amount based upon an index intended to measure the rate of inflation. There can be no assurance that the relevant index will accurately measure the rate of inflation, in which case the securities may not work as intended.
Risk/Return Bar Chart and Table
The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Funds performance from year to year and by showing how the Funds average annual returns for the one-year, five-year, ten-year and life-of-fund periods compare to those of a broad measure of market performance. The Funds past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. Prior to December 15, 2004, the Fund was managed using different principal investment strategies. The Funds performance may have been different had the current principal investment strategies been in place for all periods. Updated performance information is available online at www.loomissayles.com and/or by calling the Fund toll-free at 800-633-3330.
The total returns shown in the bar chart and table are based on the performance of the Funds Institutional Class shares, restated to reflect the net expenses of Retail Class shares. For periods prior to September 12, 2003, total returns shown for the Fund reflect the results of the Loomis Sayles U.S. Government Securities Fund (the Predecessor Fund) whose assets and liabilities were reorganized into the Fund on September 12, 2003.
Total Returns for Retail Class Shares[BAR CHART TO BE INSERTED]
The Funds best quarter was up [ . ]% ([ ] quarter [ ]), and the Funds worst quarter was down [ . ]% ([ ] quarter [ ]).
The following table shows how the average annual total returns of the Fund compare to those of the Barclays Capital U.S. Treasury Inflation Protected Securities Index, an unmanaged index that measures the performance of the inflation protected securities issued by the U.S. Treasury. Return data is unavailable for Barclays Capital U.S. Treasury Inflated Protected Securities Index prior to March 1, 1997.
Average Annual Total Returns for the periods ended December 31, 2009
One
Year |
Five
Years |
Ten
Years |
Life-of-Fund
(5/20/91) |
|||||||||
Return Before Taxes |
[ . | ]% | [ . | ]% | [ . | ]% | [ . | ]% | ||||
Return After Taxes on Distributions |
[ . | ]% | [ . | ]% | [ . | ]% | [ . | ]% | ||||
Return After Taxes on Distributions and Sale of Fund Shares |
[ . | ]% | [ . | ]% | [ . | ]% | [ . | ]% | ||||
Barclays Capital U.S. Treasury Inflation Protected Securities Index |
11.41 | % | 4.63 | % | 7.70 | % | N/A |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k)
3
plans, qualified plans, education savings accounts, such as 529 plans, or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed
MANAGEMENT
Investment Adviser
Loomis, Sayles & Company, L.P.
Portfolio Managers
John Hyll, Vice President of Loomis Sayles, has served as portfolio manager of the Fund since January 2003.
Clifton V. Rowe, CFA, Vice President of Loomis Sayles, has served as portfolio manager of the Fund since January 2003.
PURCHASE AND SALE OF FUND SHARES
The following chart shows the investment minimum for the Fund:
Minimum
Initial Investment |
Minimum
Subsequent Investment |
|||||
Retail Class |
$ | 2,500 | $ | 50 |
The Funds shares are redeemable on any business day through your financial adviser, through your broker-dealer, directly from the Fund, by writing to the Funds at Loomis Sayles Funds, P.O. Box 219594, Kansas City, MO 64121-9594, by exchange, by wire, by internet at www.loomissayles.com, through the Automated Clearing House system, by telephone at 800-633-3330 or by the Systematic Withdrawal Plan.
TAX INFORMATION
Fund distributions are generally taxable to you as ordinary income or capital gain. Distributions by the Fund to retirement plans and other investors that qualify for tax-exempt treatment under U.S. federal income tax law generally will not be taxable. Special rules apply to investments through such retirement plans. If your investment is through such a plan, you should consult your tax adviser to determine the suitability of the Fund as an investment through your plan and the tax treatment of distributions to you (including distributions of amounts attributable to an investment in the Fund) from the plan.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
4
duration bond fund
INVESTMENT OBJECTIVE
The Funds investment objective is above-average total return through a combination of current
FUND FEES & EXPENSES
The following table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) |
Retail Class | ||
Management fees |
0.25 | % | |
Distribution and/or service (12b-1) fees |
0.25 | % | |
Other expenses (Other expenses are based on estimated amounts for the current fiscal year.) |
[ . | ]% | |
Total annual fund operating expenses |
[ . | ]% | |
Fee reduction and/or expense reimbursement 1 |
[ . | ]% | |
Total annual fund operating expenses after fee reduction and/or expense reimbursement |
[ . | ]% |
Example
The example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated. The example also assumes that your investment has a 5% return each year and the Funds operating expenses remain the same, [except that the examples are based on Total Annual Fund Operating Expenses after Fee Reduction and/or Expense Reimbursement for the first one year illustrated in the example and on Total Annual Fund Operating Expenses for the remaining years]. Although your actual costs may be higher
1 year | 3 years | 5 years | 10 years | |||||||||||||
Retail Class |
$ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] |
1 |
Loomis Sayles has given a binding contractual undertaking to the Fund to limit the amount of the Funds total annual fund operating expenses, exclusive of expenses estimated to be indirectly borne by the Fund through investments in certain pooled investment vehicles, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses, such as litigation and indemnification expenses, to 0.65% of the Funds average daily net assets. This undertaking is in effect through January 31, 2012, and is reevaluated on an annual basis. This undertaking may be terminated before then only with the consent of the Funds Board of Trustees. Loomis Sayles will be permitted to recover, on a class-by-class basis, expenses it has borne through this undertaking to the extent that the Funds expenses in later periods fall below the annual rates set forth in the undertaking. The Fund will not be obligated to pay any such reduced fees and expenses more than one year after the end of the fiscal year in which the fee and expense was reduced. |
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes for you if your Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During its most recently ended
INVESTMENTS, RISKS AND PERFORMANCE
Principal Investment Strategies
Under normal circumstances, the Fund will invest at least 80% of its net assets (plus any borrowings made for investment purposes) in fixed-income securities. It is anticipated that the Funds weighted average duration will generally be between two and five years.
5
The Fund will purchase only investment-grade fixed-income securities, which are those securities that are rated as such at the time of purchase by at least one of the three major ratings agencies (Moodys Investors Service, Inc., Fitch Investor Services, Inc. or Standard & Poors Ratings Group) or, if unrated, are determined by Loomis, Sayles & Company, L.P. (Loomis Sayles) to be of comparable quality. The Fund may continue to hold up to 10% of its net assets in securities that are downgraded to a rating below investment-grade subsequent to their purchase if Loomis Sayles believes it is appropriate to do so.
In deciding which securities to buy and sell, Loomis Sayles may consider a number of factors related to the bond issue and the current bond market, for example, the stability and volatility of a countrys bond markets, the financial strength of the issuer, current interest rates, Loomis Sayles expectations regarding general trends in interest rates and currency considerations. Loomis Sayles will also consider how purchasing or selling a bond would impact the overall portfolios risk profile (for example, its sensitivity to currency risk, interest rate risk and sector-specific risk) and potential return (income and capital gains).
Three themes typically drive the Funds investment approach. First, Loomis Sayles generally seeks fixed-income securities of issuers whose credit profiles it believes are improving. Loomis Sayles credit research team provides deep fundamental and quantitative analysis as well as ratings on over 1,000 issuers worldwide. The broad coverage combined with the objective of identifying attractive investment opportunities makes this an important component of the investment approach. Second, the Fund makes significant use of non-market-related securities in an effort to diversify the portfolio away from prevalent systemic risks. These securities may not have a direct correlation with changes in interest rates, thus helping to manage interest rate risk and to offer diversified sources for return. Third, Loomis Sayles analyzes different sectors of the economy and differences in the yields (spreads) of various fixed-income securities (U.S. governments, investment-grade corporates, securitized assets, high-yield corporates, emerging markets, non-U.S. sovereigns and credits, convertibles, bank loans and municipals) in an effort to find securities that it believes may produce attractive returns for the Fund in comparison to their risk.
The Fund may invest any portion of its assets in U.S. dollar-denominated securities of Canadian issuers and up to 20% of its assets in other U.S. dollar-denominated foreign securities, including emerging market securities. The Fund may invest without limit in obligations of supranational entities ( e.g. , the World Bank). The Fund may also invest in mortgage-related securities, including mortgage dollar rolls. The Fund may also engage in futures transactions, swaps (including credit default swaps) and other derivative transactions.
The fixed-income securities in which the Fund may invest include, among other things, corporate bond and other debt securities (including junior and senior bonds), U.S. Government securities, zero-coupon securities, mortgage-backed securities and other asset-backed securities, real estate investment trusts (REITs), Rule 144A securities and convertible securities.
Principal Risks
The principal risks of investing in the Fund are summarized below. The Fund does not represent a complete investment program. You may lose money by investing in the Fund.
Credit Risk is the risk that companies in which the Fund invests, or with which it does business, will fail financially or otherwise be unwilling or unable to meet their obligations to the Fund.
Currency Risk is the risk that the value of the Funds investments will fall as a result of changes in exchange rates.
Derivatives Risk is the risk that the value of the Funds derivative investments will fall, for example, because of changes in the value of the underlying reference instruments, pricing difficulties or lack of correlation with the underlying investments. Investing in derivatives gives rise to other risks, such as leveraging risk, liquidity risk, credit risk, counterparty risk, interest-rate risk and market risk.
Emerging Markets Risk is the risk that the Funds investments may face greater foreign securities risk. Investing in companies traded in emerging securities markets, which may be smaller and have shorter operating histories than companies in developed markets, involves risks in addition to, and greater than, those generally associated with investing in developed foreign markets. The extent of economic development, political stability, market depth, infrastructure, capitalization and regulatory oversight in emerging market economies is generally less than in more developed markets.
Extension Risk is 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 securitys value.
Foreign Securities Risk is the risk that the value of the Funds foreign investments will fall as a result of foreign political, social, economic or currency changes or other issues relating to foreign investing generally.
6
Interest Rate Risk is the risk that the value of the Funds investments will fall if interest rates rise. Interest rate risk generally is greater for funds that invest in fixed-income securities with relatively longer durations than for funds that invest in fixed-income securities with shorter durations.
Issuer Risk is the risk that the value of securities may decline due to a number of reasons relating to the issuer, such as management performance, financial leverage and reduced demand for the issuers goods and services.
Liquidity Risk is the risk that the Fund may be unable to find a buyer for its investments when it seeks to sell them or to receive the price it expects. Liquidity issues may also make it difficult to value the Funds investments.
Management Risk is the risk that Loomis Sayles investment techniques will be unsuccessful and cause the Fund to incur losses.
Market Risk is the risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuers financial condition, as well as overall market and economic conditions.
Mortgage-Related and Asset-Backed Securities Risk is the risk that the securities may be prepaid and result in the reinvestment of the prepaid amounts in securities with lower yields than the prepaid obligations. Conversely, there is a risk that an unexpected rise in interest rates will extend the life of a mortgage-related or asset-backed security beyond the expected prepayment time, typically reducing the securitys value. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. It also includes risks associated with investing in the mortgages underlying the mortgage-backed securities. The market for mortgage-backed securities (and other asset-backed securities) has experienced high volatility and a lack of liquidity. As a result, the value of many of these securities has significantly declined. The Funds investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets.
REITs Risk is the risk that the value of the Funds investments in REITs will fall as a result of changes in underlying real estate values, rising interest rates, limited diversification of holdings, higher costs and prepayment risk associated with related mortgages, as well as other risks particular to investments in real estate.
Risk/Return Bar Chart and Table
The following bar chart and table give an indication of the risks of investing in the Fund by showing changes in the Funds performance from year to year and by showing how the Funds average annual returns for the one-year, five-year, ten-year and life-of-fund periods compare to those of a broad measure of market performance. The Funds past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. Updated performance information is available online at www.loomissayles.com and/or by calling the Fund toll-free at 800-633-3330.
Total returns shown in the bar chart and table are based on the performance of the Funds Institutional Class shares, restated to reflect the net expenses of the Funds Retail Class shares.
Total Returns for Retail Class Shares[BAR CHART TO BE INSERTED]
The Funds best quarter was up [ . ]% ([ ] quarter [ ]), and the Funds worst quarter was down [ . ]% ([ ] quarter [ ]).
The following table shows how the average annual total returns of the Fund compare to those of the Barclays Capital U.S. Intermediate Government/Credit Bond Index, an unmanaged index that includes securities which have a remaining maturity of one to ten years, including Treasuries and agencies, as well as other publicly issued investment-grade corporate and non-corporate debentures that meet specified maturity, liquidity and quality requirements. Life-of-Fund data for the Barclays Capital U.S.
Intermediate Government/Credit Bond Index covers the period from the month-end closest to the Funds inception date through December 31, 2009.
Average Annual Total Returns for the periods ended December 31, 2009
One
Year |
Five
Years |
Ten
Years |
Life-of-Fund
(1/28/98) |
|||||||||
Return Before Taxes |
[ . | ]% | [ . | ]% | [ . | ]% | [ . | ]% | ||||
Return After Taxes on Distributions |
[ . | ]% | [ . | ]% | [ . | ]% | [ . | ]% | ||||
Return After Taxes on Distributions and Sale of Fund Shares |
[ . | ]% | [ . | ]% | [ . | ]% | [ . | ]% | ||||
Barclays Capital U.S. Intermediate Government/Credit Bond Index |
5.24 | % | 4.66 | % | 5.93 | % | 5.58 | % |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k)
7
plans, qualified plans, education savings accounts, such as 529 plans, or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed
MANAGEMENT
Investment Adviser
Loomis, Sayles & Company, L.P.
Portfolio Managers
Neil A. Burke, Vice President of Loomis Sayles, has served as co-portfolio manager of the Fund since December 2005.
Richard Raczkowski, Vice President of Loomis Sayles, has served as co-portfolio manager of the Fund since December 2005.
Clifton V. Rowe, CFA, Vice President of Loomis Sayles, has served as portfolio manager of the Fund since December 2005.
PURCHASE AND SALE OF FUND SHARES
The following chart shows the investment minimum for the Fund:
Minimum
Initial Investment |
Minimum
Subsequent Investment |
|||||
Retail Class |
$ | 2,500 | $ | 50 |
The Funds shares are redeemable on any business day through your financial adviser, through your broker-dealer, directly from the Fund, by writing to the Funds at Loomis Sayles Funds, P.O. Box 219594, Kansas City, MO 64121-9594, by exchange, by wire, by internet at www.loomissayles.com, through the Automated Clearing House system, by telephone at 800-633-3330 or by the Systematic Withdrawal Plan.
TAX INFORMATION
Fund distributions are generally taxable to you as ordinary income or capital gain. Distributions by the Fund to retirement plans and other investors that qualify for tax-exempt treatment under U.S. federal income tax law generally will not be taxable. Special rules apply to investments through such retirement plans. If your investment is through such a plan, you should consult your tax adviser to determine the suitability of the Fund as an investment through your plan and the tax treatment of distributions to you (including distributions of amounts attributable to an investment in the Fund) from the plan.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of the Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
8
investment strategies
Loomis Sayles Inflation Protected Securities Fund
Investment Objective The Funds investment objective may be changed without shareholder approval. The Fund will provide prior written notice to shareholders before changing the investment objective.
Principal Investment Strategies The Fund will normally invest at least 80% of its net assets (plus any borrowings made for investment purposes) in inflation-protected securities with an emphasis on debt securities issued by the U.S. Treasury. In accordance with applicable Securities and Exchange Commission (SEC) requirements, the Fund will notify shareholders prior to any change to such policy taking effect.
Frequent Trading The Fund may also engage in active and frequent trading of securities. Frequent trading may produce a high level of taxable gains, as well as increased trading costs, which may lower the Funds return.
Loomis Sayles Intermediate Duration Bond Fund
Investment Objective The Funds investment objective may be changed without shareholder approval. The Fund will provide prior written notice to shareholders before changing the investment objective.
Principal Investment Strategies The Fund will normally invest at least 80% of its net assets (plus any borrowing made for investment purposes) in fixed-income securities. In accordance with applicable SEC requirements, the Fund will notify shareholders prior to any change to such policy taking effect.
TEMPORARY DEFENSIVE MEASURES
Each Fund may hold any portion of its assets in cash (U.S. dollars, foreign currencies or multinational currency units) and/or invest in money market instruments or high-quality debt securities as Loomis Sayles deems appropriate. A Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment objective.
DERIVATIVES TRANSACTIONS
Each Fund may use derivatives, which are financial contracts whose value depends upon or is derived from the value of an underlying asset, reference rate or index. Examples of derivatives include options, futures and swap transactions, foreign transactions and foreign currency transactions. The Funds may (but are not required to) use derivatives as part of a strategy designed to reduce exposure to other risks, such as risks associated with changes in interest rates or currency risk (hedging). When a derivative security (a security whose value is based on another security, currency, index or other instrument) 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 a gain on the hedged instrument, and vice versa. The Funds may also use derivatives for leverage, which increases opportunities for gain, to earn income, enhance yield or broaden the Funds diversification by gaining exposure to issuers, indices, sectors, currencies and/or geographic regions.
REPURCHASE AGREEMENTS
Under a repurchase agreement, a Fund purchases a security and obtains a simultaneous commitment from the seller (a bank or, to the extent permitted by the 1940 Act, a recognized securities dealer) to repurchase the security at an agreed-upon price and date (usually seven days or less from the date of original purchase). The resale price is in excess of the purchase price and reflects an agreed-upon market rate of interest unrelated to the coupon rate on the purchased security. Such transactions afford the Fund the opportunity to earn a return on its cash at what is expected to be minimal market risk. The Fund may invest in a repurchase agreement that does not produce a positive return to the Fund if Loomis Sayles believes it is appropriate to do so under the circumstances (for example, to help protect the Funds uninvested cash against the risk of loss during periods of market turmoil). There is a risk that the seller may fail to repurchase the underlying security. In such event, the Fund would attempt to exercise rights with respect to the underlying security, including possible disposition in the market. However, the Fund may be subject to
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various delays and risks of loss, including possible declines in the value of the underlying security, possible reduced levels of income, inability to enforce rights and expenses involved in attempted enforcement. Repurchase agreements maturing in more than seven days may be considered illiquid securities.
SECURITIES LENDING
Each Fund may lend a portion of its portfolio securities to brokers, dealers and other financial institutions, provided that a number of conditions are satisfied, including that the loan is fully collateralized. Please see the section Investment Strategies in the Statement of Additional Information (SAI) for details. When a Fund lends portfolio securities, its investment performance will continue to reflect changes in the value of the securities loaned, and the Fund will also receive a fee or interest on the collateral. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent. In addition, any investment of cash collateral is generally at the sole risk of the Fund. Any income or gains and losses from investing and reinvesting any cash collateral delivered by a borrower pursuant to a loan are generally at the Funds risk, and to the extent any such losses reduce the amount of cash below the amount required to be returned to the borrower upon the termination of any loan, the Fund may be required by the securities lending agent to pay or cause to be paid to such borrower an amount equal to such shortfall in cash, possibly requiring it to liquidate other portfolio securities to satisfy its obligations. A Fund may pay lending fees to the party arranging the loan.
STRUCTURED NOTES
The Funds may invest in structured notes, which are derivative debt instruments with principal and/or interest payments linked to the value of a commodity, a foreign currency, an index of securities, an interest rate or other financial indicators (reference instruments). The payments on a structured note may vary based on changes in one or more specified reference instruments, such as a floating interest rate compared to a fixed interest rate, the exchange rates between two currencies, one or more securities or a securities or commodities index. A structured note may be positively or negatively indexed. For example, its principal amount and/or interest rate may increase or decrease if the value of the reference instrument increases, depending upon the terms of the instrument. The change in the principal amount payable with respect to, or the interest rate of, a structured note may be a multiple of the percentage change (positive or negative) in the value of the underlying reference instrument or instruments. Structured notes can be used to increase a Funds exposure to changes in the value of assets or to hedge the risks of other investments that a Fund holds.
TRANSACTIONS WITH OTHER INVESTMENT COMPANIES
Pursuant to SEC exemptive relief, each Fund may be permitted to invest its daily cash balances in shares of money market and short-term bond funds advised by Natixis Asset Management Advisors, L.P. (Natixis Advisors) (an affiliate of Loomis Sayles) or its affiliates (the Central Funds). The Central Funds currently include two money market funds: Natixis Cash Management Trust-Money Market Series (the Money Market Fund) and Institutional Daily Income Fund (the Daily Income Fund). The Money Market Fund is advised by Natixis Advisors and subadvised by Reich & Tang Asset Management, LLC (Reich & Tang) and the Daily Income Fund is advised by Reich & Tang. Because Loomis Sayles, Natixis Advisors and Reich & Tang are each subsidiaries of Natixis Global Asset Management, L.P. (Natixis US), the Funds and the Central Funds may be considered to be related companies comprising a group of investment companies under the 1940 Act.
Pursuant to such exemptive relief, the Funds may also borrow and lend money for temporary or emergency purposes directly to and from other Funds through an interfund credit facility. In addition to the Funds and the Central Funds, series of the following mutual fund groups may also be able to participate in the facility: Natixis Funds Trust I (except the CGM Advisor Targeted Equity Fund series), Natixis Funds Trust II, Natixis Funds Trust III, Natixis Funds Trust IV, Harris Associates Investment Trust, Loomis Sayles Funds I, Loomis Sayles Funds II and Gateway Trust. The advisers and subadvisers to these mutual funds currently include Natixis Advisors, Reich & Tang, Loomis Sayles, AEW Capital Management, L.P., AlphaSimplex Group, LLC, BlackRock Investment Management, LLC (BlackRock), Gateway Investment Advisers, LLC, Hansberger Global Investors, Inc., Harris Associates L.P. and Vaughan Nelson Investment Management, L.P. Each of these advisers and subadvisers (except for BlackRock) are subsidiaries of Natixis US and are thus affiliated persons under the 1940 Act by reason of being under common control by Natixis US. In addition, because the Funds, and other funds, are advised by firms that are affiliated with one another, they may be considered to be related companies comprising a group of investment companies under the 1940 Act. The Central Funds will participate in the credit facility only as lenders. Participation in such an interfund lending program would be voluntary for both borrowing and lending funds, and a Fund would participate in an interfund lending program only if the Funds Board of Trustees determined that doing so would benefit a Fund. Should a Fund participate in such an interfund lending program, the
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Funds Board of Trustees would establish procedures for the operation of the program by the advisers or an affiliate. The Funds may engage in the transactions described above without further notice to shareholders. The Funds may also make investments in related investment companies to the extent permitted by SEC regulations.
PERCENTAGE INVESTMENT LIMITATIONS
Except as set forth in the SAI, the percentage limitations set forth in this Prospectus and the SAI apply at the time an investment is made and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment.
PORTFOLIO HOLDINGS
A description of the Funds policies and procedures with respect to the disclosure of each Funds portfolio securities is available in the Funds SAI.
A snapshot of each Funds investments may be found in each Funds annual and semiannual reports. In addition, a list of each Funds full portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Funds website at www.loomissayles.com (click on Investor Type, Individual Investors and then Holdings). These holdings will remain accessible on the website until each Fund files its Form N-CSR or Form N-Q with the SEC for the period that includes the date of the information. In addition, a list of each Funds top 10 holdings as of the month-end is generally available within 5 days after the month-end on the Funds website at www.loomissayles.com (click on Investor Type, Individual Investors, select the name of the Fund whose holdings you wish to view and then Monthly Snapshot). Please see the back cover of this Prospectus for more information on obtaining a copy of a Funds current annual or semiannual report.
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This section provides more information on the principal risks that may affect a Funds portfolio, in addition to those described in the Fund Summary. In seeking to achieve their investment goals, the Funds may also invest in various types of securities and engage in various investment practices which are not a principal focus of the Funds and therefore are not described in this Prospectus. These securities and investment practices and their associated risks are discussed in the Funds SAI, which is available without charge upon request (see back cover).
BELOW INVESTMENT-GRADE FIXED-INCOME SECURITIES RISK
Below investment-grade fixed-income securities, also known as junk bonds, are rated below investment-grade quality and may be considered speculative with respect to the issuers continuing ability to make principal and interest payments. To be considered rated below investment-grade quality, none of the three major rating agencies (Moodys Investors Service, Inc., Fitch Investor Services, Inc. or Standard & Poors Ratings Group) must have rated the security in one of their respective top four rating categories at the time a Fund acquires the security or, if the security is unrated, Loomis Sayles must have determined it to be of comparable quality. Analysis of the creditworthiness of issuers of below investment-grade securities may be more complex than for issuers of higher-quality debt securities, and the Funds ability to achieve its investment objectives may, to the extent the Fund invests in below investment-grade securities, be more dependent upon Loomis Sayles credit analysis than would be the case if the Fund were investing in higher-quality securities. The issuers of these securities may be in default or have a currently identifiable vulnerability to default on their payments of principal and interest, or may otherwise present elements of danger with respect to payments of principal or interest. However, a Fund will not invest in securities that are in default as to payment of principal and interest at the time of purchase.
Below investment-grade securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-grade securities. Yields on below investment-grade securities will fluctuate. If the issuer of below investment-grade securities defaults, a Fund may incur additional expenses to seek recovery.
The secondary markets in which below investment-grade securities are traded may be less liquid than the market for higher-grade securities. A lack of liquidity in the secondary trading markets could adversely affect the price at which the Fund could sell a particular below investment-grade security when necessary to meet liquidity needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the issuer, and could adversely affect and cause large fluctuations in the NAV of a Funds shares. Adverse publicity and investor perceptions may decrease the values and liquidity of high yield securities generally.
It is reasonable to expect that any adverse economic conditions could disrupt the market for below investment-grade securities, have an adverse impact on the value of such securities and adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon. New laws and proposed new laws may adversely impact the market for below investment-grade securities.
CREDIT RISK
This is the risk that the issuer or the guarantor of a fixed-income security, or the counterparty to an over-the-counter transaction, will be unable or unwilling to make timely payments of interest or principal or to otherwise honor its obligations. Each Fund may be subject to credit risk to the extent that it invests in fixed-income securities or is a party to over-the-counter transactions.
A Fund that invests in lower-rated fixed-income securities (junk bonds) is subject to greater credit risk (because such securities are subject to a greater risk of default) and market risk than a fund that invests in higher-quality fixed-income securities. Lower-rated fixed-income securities are considered predominantly speculative with respect to the ability of the issuer to make timely principal and interest payments.
The Funds investments in securities issued by U.S. Government agencies are subject to security risk. 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.
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The Funds investments in fixed-income securities issued in connection with corporate restructurings by highly-leveraged issuers or in fixed-income securities that are not current in the payment of interest or principal ( i.e. , in default) will be subject to greater credit risk.
The Funds investments in foreign securities are subject to increased credit risk because, for example, of the difficulties of requiring foreign entities to honor their contractual commitments and because financial reporting and other standards are often less robust in foreign countries.
CURRENCY RISK
This is the risk that fluctuations in exchange rates between the U.S. dollar and foreign currencies may cause the value of a Funds investments to decline. The Funds are subject to currency risk because they may invest in securities or other instruments denominated in, or receive revenues in, foreign currencies. Loomis Sayles may elect not to hedge currency risk, which may cause the Fund to incur losses that would not have been incurred had the risk been hedged.
DERIVATIVES RISK
To the extent that a Fund uses a derivative security for purposes other than as a hedge, or if a Fund hedges imperfectly, a 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. The Funds may also use derivatives for leverage, which increases opportunities for gain but also involves greater risk of loss due to leveraging risk, and to earn income, enhance yield or broaden the Funds diversification by gaining exposure to issuers, indices, sectors, currencies and/or geographic regions. The use of derivatives for these purposes entails greater risk than using derivatives solely for hedging purposes.
Funds that use derivatives also face additional risks, such as liquidity risk, market risk, management risk, the credit risk relating to the other party to a derivative contract, the risk of difficulties in pricing and valuation, the risk of ambiguous documentation and the risk that changes in the value of a derivative may not correlate perfectly with relevant assets, rates or indices. This could, for example, cause a derivative transaction to imperfectly hedge the risk which it was intended to hedge. A Funds use of derivative instruments may involve risks greater than the risks associated with investing directly in securities and other traditional investments, may cause the Fund to lose more than the principal amount invested and may subject a Fund to the potential for unlimited loss. A Fund may be required to sell other securities at inopportune times to meet collateral requirements on its derivatives transactions. In addition, a Funds use of derivatives may increase or accelerate the amount of taxes payable by shareholders. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that a Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial or that, if used, such strategies will be successful.
Recently, several broker-dealers and other financial institutions have experienced extreme financial difficulty, sometimes resulting in bankruptcy of the institution. Although Loomis Sayles monitors the creditworthiness of the Funds derivative counterparties, there can be no assurance that the Funds counterparties will not experience similar difficulties, possibly resulting in losses to the Fund. Losses resulting from the use of derivatives will reduce the Funds net asset value (NAV), and possibly income, and the losses may be significantly greater than if derivatives had not been used.
EMERGING MARKETS RISK
Economic and Political Risks. Emerging market countries often experience instability in their political and economic structures. Government actions could have a significant impact on the economic conditions in such countries, which in turn would affect the value and liquidity of the assets of a Fund invested in emerging market securities. Specific risks that could decrease a Funds return include seizure of a companys assets, restrictions imposed on payments as a result of blockages on foreign currency exchanges and unanticipated social or political occurrences.
The ability of the government of an emerging market country to make timely payments on its debt obligations will depend on many factors, including the extent of its reserves, fluctuations in interest rates and access to international credit and investments. A country that has non-diversified exports or relies on certain key imports will be subject to greater fluctuations in the pricing of those commodities. Failure to generate sufficient earnings from foreign trade will make it difficult for an emerging market country to service its foreign debt.
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Companies trading in developing securities markets are generally smaller and have shorter operating histories than companies trading in developed markets. Foreign investors may be required to register the proceeds of sales. Settlement of securities transactions in emerging markets may be subject to risk of loss and may be delayed more often than transactions settled in the U.S. Disruptions resulting from social and political factors may cause the securities markets to close. If extended closings were to occur, the liquidity and value of the Funds assets invested in corporate debt obligations of emerging market companies would decline.
Investment Controls; Repatriation. Foreign investment in emerging market country debt securities is restricted or controlled to varying degrees. These restrictions may at times limit or preclude foreign investment in certain emerging market country debt securities. Certain emerging market countries require government approval of investments by foreign persons, limit the amount of investments by foreign persons in a particular issuer, limit investments by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries and/or impose additional taxes or controls on foreign investors or currency transactions. Certain emerging market countries may also restrict investment opportunities in issuers in industries deemed important to national interests.
Emerging market countries may require governmental approval for the repatriation of investment income, capital or proceeds of sale of securities by foreign investors. In addition, if a deterioration occurs in an emerging market countrys balance of payments, the country could impose temporary restrictions on foreign capital remittances. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to a Fund of any restrictions on investments. Investing in local markets in emerging market countries may require a Fund to adopt special procedures, seek local governmental approvals or take other actions, each of which may involve additional costs to a Fund.
FOCUSED INVESTMENT RISK
This is the risk that a Fund that invests a greater percentage of its assets in a particular issuer or a small number of industries may have more risk compared with other mutual funds. Changes in the value of a single security or the impact of a single economic, political or regulatory occurrence may have a greater adverse impact on the Funds NAV.
FOREIGN SECURITIES RISK
This is the risk associated with investments in issuers that are located or do business in foreign countries. A Funds investments in foreign securities may be less liquid and may experience more rapid and extreme changes in value than investments in securities of U.S. companies.
The securities markets of many foreign countries are relatively small, with a limited number of issuers and a small number of securities. In addition, foreign companies often are not subject to the same degree of regulation as U.S. companies. Reporting, accounting and auditing standards of foreign countries differ, in some cases significantly, from U.S. standards. Among other things, nationalization, expropriation or confiscatory taxation, currency blockage, political changes or diplomatic developments can cause the value of a Funds investments in a foreign country to decline. In the event of nationalization, expropriation or other confiscation, a Fund could lose its entire foreign investment. These risks also apply to securities of foreign issuers traded in the United States or through depositary receipt programs such as American Depositary Receipts.
A Fund that invests in emerging markets may face greater foreign risk since emerging market countries may be more likely to experience political and economic instability.
INFLATION/DEFLATION RISK
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the present value of future payments. Deflation risk is the risk that prices throughout the economy decline over time (the opposite of inflation). Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of a Funds portfolio.
INTEREST RATE RISK
This is the risk that changes in interest rates will affect the value of a Funds investments in fixed-income securities, such as bonds, notes, asset-backed securities and other income-producing securities. Fixed-income securities are obligations of the issuer to make payments of principal and/or interest on future dates. Increases in interest rates may cause the value of a Funds investments to decline.
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Even Funds that generally invest a significant portion of their assets in high quality fixed-income securities are subject to interest rate risk. Interest rate risk is greater for funds that generally invest a significant portion of their assets in below investment-grade fixed-income securities (junk bonds) or comparable unrated securities.
Interest rate risk is compounded for Funds when they invest a significant portion of their assets in mortgage-related or asset-backed securities because the value of mortgage-related and asset-backed securities generally is more sensitive to changes in interest rates than other types of fixed income securities. When interest rates rise, the maturities of mortgage-related and asset-backed securities tend to lengthen, and the value of these securities decreases more significantly than the value of other types of securities. In addition, these types of securities are subject to prepayment when interest rates fall, which generally results in lower returns because Funds that hold these types of securities must reinvest assets previously invested in these types of securities in fixed income securities with lower interest rates.
Funds also face increased interest rate risk when they invest in fixed-income securities paying no current interest (such as zero-coupon securities and principal-only securities) interest-only securities and fixed-income securities paying non-cash interest in the form of other fixed-income securities because the prices of those types of securities tend to react more to changes in interest rates.
LEVERAGING RISK
When a Fund borrows money or otherwise leverages its portfolio, the value of an investment in the Fund will be more volatile, and all other risks are generally compounded. Funds face this risk if they create leverage by using investments such as reverse repurchase agreements, inverse floating-rate instruments or derivatives, or by borrowing money.
LIQUIDITY RISK
Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing a Fund from selling these illiquid securities at the price or at the time desired. Liquidity issues could also make it difficult to value a Funds investments, which could also negatively impact NAV. An unrated security may be less liquid than a comparable rated security and involves the risk that Loomis Sayles may not accurately evaluate the securitys comparative credit rating. Derivatives and securities that involve substantial interest rate or credit risk tend to involve greater liquidity risk. In addition, liquidity risk tends to increase to the extent a Fund invests in securities whose sale may be restricted by law or by contract, such as Rule 144A securities.
MANAGEMENT RISK
Management risk is the risk that Loomis Sayles investment techniques could fail to achieve a Funds objective and could cause your investment in a Fund to lose value. Each Fund is subject to management risk because each Fund is actively managed by Loomis Sayles. Loomis Sayles will apply its investment techniques and risk analyses in making investment decisions for each Fund, but there can be no guarantee that Loomis Sayles decisions will produce the desired results. For example, securities that Loomis Sayles expects may appreciate in value may in fact decline. Similarly, in some cases derivative and other investment techniques may be unavailable or Loomis Sayles may decide not to use them, even under market conditions where their use could have benefited a Fund.
MARKET RISK
This is the risk that the value of a Funds investments will change as financial markets fluctuate and that prices overall may decline. The value of a companys securities may fall as a result of factors that directly relate to that company, such as decisions made by its management or lower demand for the companys products or services. A securitys value also may fall because of factors affecting not just the issuer of a security, but companies in its industry or in a number of different industries, such as increases in production costs. The value of a Funds securities also may be affected by changes in financial market or other economic conditions, such as changes in interest rates or currency exchange rates. In addition, a companys stock generally pays dividends only after the company makes required payments to holders of its bonds or other debt. For this reason, the value of the stock will usually react more strongly than bonds and other fixed income securities to actual or perceived changes in the companys financial condition or prospects.
Market risk generally is greater for funds that invest substantially in small and medium-sized companies, since these companies tend to be more vulnerable to adverse developments than large companies. Furthermore, for funds that invest in fixed-income securities, market risk tends to be greater when a Fund invests in fixed-income securities with longer maturities.
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MORTGAGE DOLLAR ROLLS RISK
A mortgage dollar roll involves the sale of a security by a Fund and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. A Fund will designate 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. A Fund may be required to purchase securities at a higher price than may otherwise be available on the open market. Since the counterparty in the transaction is required to deliver a similar, but not identical, security to a Fund, the security that a Fund is required to buy under the dollar roll may be worth less than an identical security. There is no assurance that a Funds use of the cash that it receives from a dollar roll will provide a return that exceeds borrowing costs.
MORTGAGE-RELATED SECURITIES RISK
Mortgage-related securities, such as Government National Mortgage Association certificates or securities issued by the Federal National Mortgage Association, differ from traditional fixed-income securities. Among the 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 a Fund purchases these assets at a premium, a faster-than-expected prepayment rate will reduce yield to maturity, and a slower-than-expected prepayment rate will increase yield to maturity. If a Fund purchases mortgage-related securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will 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. These securities will decrease in value as a result of increases in interest rates generally, and they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments.
The value of some mortgage-backed securities in which a Fund invests may be particularly sensitive to changes in prevailing interest rates, and the ability of a Fund to successfully utilize these instruments may depend in part upon the ability of Loomis Sayles to forecast interest rates and other economic factors correctly. The risk of non-payment is greater for mortgage-related securities that are backed by mortgage pools that contain subprime or Alt-A loans (loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their loans), but a level of risk exists for all loans. Market factors adversely affecting mortgage loan repayments may include a general economic turndown, high unemployment, a general slowdown in the real estate market, a drop in the market prices of real estate or an increase in interest rates resulting in higher mortgage payments by holders of adjustable-rate mortgages. The market for mortgage-backed securities (and other asset-backed securities) has experienced high volatility and a lack of liquidity. As a result, the value of many of these securities has significantly declined. There can be no assurance that these markets will become more liquid or less volatile, and it is possible that the value of these securities could decline further.
REITS RISK
The real estate industry is particularly sensitive to economic downturns. Securities of companies in the real estate industry, including REITs, are sensitive to factors such as changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and the management skill and credit-worthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws. In addition, the value of a REIT is affected by changes in the value of the properties owned by the REIT or securing mortgage loans held by the REIT. REITs are dependent upon cash flow from their investments to repay financing costs and also on the ability of the REITs managers. The Fund will indirectly bear its proportionate share of expenses, including management fees, paid by each REIT in which it invests in addition to the expenses of the Fund. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the Code), and failing to maintain their exemptions from registration under 1940 Act.
REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than more widely-held securities.
A Funds investment in a REIT may require the Fund to accrue and distribute income not yet received or may result in the Fund making distributions that constitute a return of capital to Fund shareholders for U.S. federal income tax purposes. In addition, distributions by a Fund from REITs will not qualify for the corporate dividends-received deduction or, generally, for treatment as qualified dividend income.
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STRUCTURED NOTES RISK
Investment in structured notes involves certain risks, including the risk that the issuer may be unable or unwilling to satisfy its obligations to pay principal or interest, which are separate from the risk that the notes reference instruments may move in a manner that is disadvantageous to the holder of the note. Structured notes, which are often illiquid, are also subject to additional risk such as market risk, liquidity risk and interest rate risk. The terms of certain structured notes may provide that a decline in the reference instrument may result in the interest rate or principal amount being reduced to zero. Structured notes may be more volatile than the underlying reference instruments or traditional debt instruments.
TIPS RISK
TIPS are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. The interest rate on TIPS is fixed at issuance, but over the life of the bond this interest may be paid on an increasing or decreasing principal value that has been adjusted for inflation. Although repayment of the original bond principal upon maturity is guaranteed, the market value of TIPS is not guaranteed, and will fluctuate.
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Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as the investment adviser to the Funds. Loomis Sayles is a subsidiary of Natixis US, which is part of Natixis Global Asset Management, an international asset management group based in Paris, France. Founded in 1926, Loomis Sayles is one of the oldest investment firms in the U.S. with over $142.3 billion in assets under management as of December 31, 2009. Loomis Sayles has an extensive internal research staff. Loomis Sayles is responsible for making investment decisions for each Fund.
The aggregate advisory fees paid by the Funds during the fiscal year ended September 30, 2009, as a percentage of the Funds average daily net assets were:
Aggregate
Advisory Fee |
|||
Loomis Sayles Inflation Protected Securities Fund |
0.25 | % | |
Loomis Sayles Intermediate Duration Bond Fund |
0.25 | % |
A discussion of the factors considered by the Funds Board of Trustees in approving the Funds investment advisory contracts is available in the Funds annual reports for the fiscal year ended September 30, 2009.
The following persons have had primary responsibility for the day-to-day management of each indicated Funds portfolio since the date stated below. Except where noted, each portfolio manager has been employed by Loomis Sayles for at least five years.
Neil A. Burke has served as a co-portfolio manager of the Loomis Sayles Intermediate Duration Bond Fund since December 2005. Mr. Burke is a Vice President of Loomis Sayles. He began his investment career in 1991 and has been at Loomis Sayles since 1997. Mr. Burke received a B.A. from the Catholic University of America and an M.B.A. from Boston College, and has over 18 years of investment experience.
John Hyll has served as portfolio manager of the Loomis Sayles Inflation Protected Securities Fund since January 2003. Mr. Hyll, Vice President of Loomis Sayles, began his investment career in 1983 and joined Loomis Sayles in 1987. Mr. Hyll received a B.A. and an M.B.A. from Baldwin-Wallace College and has over 26 years of investment experience.
Richard Raczkowski has served as a co-portfolio manager of the Loomis Sayles Intermediate Duration Bond Fund since December 2005. Mr. Raczkowski is a Vice President of Loomis Sayles. He began his investment career in 1985 and has been at Loomis Sayles since 2001. He received a B.A. from the University of Massachusetts and an M.B.A. from Northeastern University, and has over 20 years of investment experience.
Clifton V. Rowe has served as portfolio manager of the Loomis Sayles Inflation Protected Securities Fund since January 2003 and the Loomis Sayles Intermediate Duration Bond Fund since December 2005. Mr. Rowe, Vice President of Loomis Sayles, began his investment career in 1992 and joined Loomis Sayles in 1992. Mr. Rowe holds the designation of Chartered Financial Analyst. He received a B.B.A. from James Madison University, an M.B.A. from the University of Chicago and has over 17 years of investment experience.
Please see the SAI for information regarding portfolio manager compensation, other accounts under management by the portfolio managers and the portfolio
Distribution Plans and Administrative Services and Other Fees
The Funds have adopted distribution plans under Rule 12b-1 of the 1940 Act that allow the Funds to pay fees for the sale and distribution of Retail Class shares and for services provided to shareholders. This 12b-1 fee currently is 0.25% of a Funds average daily net assets attributable to the shares of the Retail Class. Because distribution and service (12b-1) fees are paid out of the Funds assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges and service fees.
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Natixis Distributors, L.P. (the Distributor), on behalf of Loomis Sayles, may pay certain broker-dealers and financial intermediaries whose customers are existing shareholders of the Funds a continuing fee based on the value of Fund shares held for those customers accounts, although this continuing fee is paid by the Distributor, on behalf of Loomis Sayles, out of Loomis Sayles own resources and is not assessed against the Fund.
The Distributor, Loomis Sayles and their respective affiliates may, out of their own resources, make payments in addition to the payments described in this section to dealers and other financial intermediaries that satisfy certain criteria established from time to time by the Distributor. Payments may vary based on sales, the amount of assets a dealers or intermediarys clients have invested in the Funds, and other factors. These payments may also take the form of sponsorship of seminars or informational meetings or payments for attendance by persons associated with a dealer or intermediary at informational meetings. The Distributor and its affiliates may also make payments for recordkeeping and other transfer agency-related services to dealers and intermediaries that sell Fund shares.
The payments described in this section, which may be significant to the dealers and the financial intermediaries, may create an incentive for a dealer or financial intermediary or their representatives to recommend or sell shares of a particular fund or share class over other mutual funds or share classes. Additionally, these payments may result in the Funds receiving certain marketing or servicing advantages that are not generally available to mutual funds that do not make such payments, including placement on a sales list, including a preferred or select sales list, or in other sales programs. These payments may create potential conflicts of interest between an investor and a dealer or other financial intermediary who is recommending a particular mutual fund over other mutual funds. Before investing, you should consult with your financial representative and review carefully any disclosure by the dealer or other financial intermediary as to what monies it receives from mutual fund advisers and distributors, as well as how your financial representative is compensated. Please see the SAI for additional information about payments made by the Distributor and its affiliates to dealers and other financial intermediaries. Please also contact your dealer or financial intermediary for details about payments it may receive.
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Net asset value (NAV) is the price of one share of a Fund without a sales charge and is calculated each business day using this formula:
Net Asset Value = | Total market value of securities + Cash and other assets Liabilities | |
Number of outstanding shares |
The NAV of Fund shares is determined pursuant to policies and procedures approved by the Funds Board of Trustees as summarized below:
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A shares NAV is determined at the close of regular trading on the New York Stock Exchange (the NYSE) on the days the NYSE is open for trading. This is normally 4:00 p.m., Eastern time. A Funds shares will not be priced on the days on which the NYSE is closed for trading. In addition, a Funds shares will not be priced on the holidays listed in the SAI. See the section Net Asset Value in the SAI for more details. |
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The price you pay for purchasing, redeeming or exchanging a share will be based upon the NAV next calculated after your order is received by the transfer agent in good order. 1 |
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Requests received by a Fund after the NYSE closes will be processed based upon the NAV determined at the close of regular trading on the next day that the NYSE is open. If the transfer agent receives the order in good order by 4:00 p.m., Eastern time, the shareholder will receive that days NAV. Under limited circumstances, the Distributor may enter into contractual agreements pursuant to which orders received by your investment dealer before the Fund determines its NAV and transmitted to the transfer agent prior to market open on the next business day, are processed at the NAV determined on the day the order was received by your investment dealer. Please contact your investment dealer to determine whether it has entered into such a contractual agreement. If your investment dealer has not entered into such a contractual agreement, your order will be processed at the NAV next determined after your investment dealer submits the order to the Fund. |
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A Fund significantly invested in foreign securities may have NAV changes on days when you cannot buy or sell its shares. |
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 Fund or send your order by mail as described in the sections How to Purchase Shares and How to Redeem Shares.
1 |
Please see the How to Purchase Shares section of this Prospectus which provides additional information regarding who can receive a purchase order. |
Generally, Fund securities are valued as follows:
Equity securities. Last sale price on the exchange or market where primarily traded or if there is no reported sale during the day, the closing bid price.
Debt securities (other than short-term obligations) . Based upon evaluated prices furnished to a Fund by an independent pricing service, 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 (purchased with an original or remaining maturity of 60 days or less) . Amortized cost (which approximates market value).
Securities traded on foreign exchanges. Market price on the foreign exchange, unless a Fund believes that an occurrence after the close of that exchange will materially affect the securitys value. In that case, the security may be fair-valued at the time the Fund determines its NAV by or pursuant to procedures approved by the Funds Board of Trustees. When fair valuing their securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the local market and before the time a Funds NAV is calculated.
Options. Domestic exchange-traded single equity option contracts are valued at the mean of the National Best Bid and Offer quotations. Exchange-traded index options and foreign exchange-traded single equity options are valued at the average of the closing bid and asked quotations.
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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 Funds Board of Trustees.
Credit default swaps. Market value based on prices supplied by a pricing service, if available, or quotations obtained from broker-dealers.
Foreign Currency Forward Contracts. Interpolated prices from information provided by an independent pricing service.
All other securities. Fair market value as determined by Loomis Sayles pursuant to procedures approved by the Funds Board of Trustees.
As described above, if market prices are not readily available for a security, 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 Funds Board of Trustees believes is more likely to result in a price that reflects fair value (which is the amount that a Fund might reasonably expect to receive from a current sale of the security in the ordinary course of business). Each Fund may also value securities at fair value or estimate their values pursuant to procedures approved by the Funds 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 NYSE. This may include situations relating to a single issuer (such as a declaration of bankruptcy or a delisting of the issuers 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). Fair value pricing may require subjective determinations about the value of a security, and fair values used to determine a Funds NAV may differ from quoted or published prices, or from prices that are used by others, for the same securities. In addition, the use of fair value pricing may not always result in adjustments to the prices of securities held by a Fund.
Accessing Your Account Information
Loomis Sayles Funds Website. You can access our website at www.loomissayles.com to perform transactions (purchases, redemptions or exchanges), review your account information, change your address, order duplicate statements or tax forms or obtain a prospectus, an SAI, an application or periodic reports.
Loomis Sayles Automated Voice Response System. You have access to your account 24 hours a day by calling Loomis Sayles automated voice response system at 800-633-3330, option 1. Using this customer service option you may review your account balance and Fund prices, order duplicate statements, order duplicate tax forms, obtain distribution and performance information and obtain wiring instructions.
Each Fund is generally available for purchase in the U.S., Puerto Rico, Guam and the U.S. Virgin Islands. Except to the extent otherwise permitted by the Distributor, the Funds will only accept investments from U.S. citizens with a U.S. address or resident aliens with a U.S. address and a U.S. taxpayer identification number.
You can buy shares of each Fund in several ways:
Through a financial adviser. Your financial adviser will be responsible for furnishing all necessary documents to Loomis Sayles Funds. Your financial adviser may charge you for these services. Your adviser must receive your request in proper form before the close of regular trading on the NYSE for you to receive that days NAV.
Through a broker-dealer. You may purchase shares of the Funds through a broker-dealer that has been approved by the Distributor which can be contacted at 399 Boylston Street, Boston, MA 02116. Your broker-dealer may charge you a fee for effecting such transactions. Your broker-dealer must receive your request in proper form before the close of regular trading on the NYSE for you to receive that days NAV.
Directly to the Fund. Loomis Sayles Funds transfer agent must receive your purchase request in proper form before the close of regular trading on the NYSE in order for you to receive that days NAV.
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You can purchase shares directly from each Fund in several ways:
By mail. You can buy shares of each Fund by submitting a completed application form, which is available online at www.loomissayles.com or by calling Loomis Sayles Funds at 800-633-3330, along with a check payable to Loomis Sayles Funds for the amount of your purchase to:
Regular Mail | Overnight Mail | |
Loomis Sayles Funds | Loomis Sayles Funds | |
P.O. Box 219594 | 330 West 9th Street | |
Kansas City, MO 64121-9594 | Kansas City, MO 64105-1514 |
After your account has been established, you may send subsequent investments directly to Loomis Sayles Funds at the above addresses. Please include either the investment slip from your account statement or a letter specifying the Fund name, your account number and your name, address and telephone number.
By wire. You also may wire subsequent investments by using the following wire instructions. Your bank may charge a fee for transmitting funds by wire.
State Street Bank and Trust Company
ABA No. 011000028
DDA 9904-622-9
(Your account number)
(Your name)
(Name of Fund)
By telephone. You can make subsequent investments by calling Loomis Sayles Funds at 800-633-3330.
By exchange. You may purchase shares of a Fund by exchange of shares of the same class of another Fund by sending a signed letter of instruction to Loomis Sayles Funds, by calling Loomis Sayles Funds at 800-633-3330 or by accessing your account online at www.loomissayles.com.
By internet. If you have established a Personal Identification Number (PIN) and you have established the electronic transfer privilege, you can make subsequent investments through your online account at www.loomissayles.com. If you have not established a PIN but you have established the electronic transfer privilege, go to www.loomissayles.com, click on eService Center, click on Log In, click on the appropriate user type and then follow the instructions.
Through systematic investing. You can make regular investments of $50 or more per month through automatic deductions from your bank checking or savings account. If you did not establish the electronic transfer privilege on your application, you may add the privilege by obtaining an Account Options Form through your financial adviser, by calling Loomis Sayles Funds at 800-633-3330 or by visiting www.loomissayles.com.
Each Fund sells its shares at the NAV next calculated after the Fund receives a properly completed investment order. The Fund generally must receive your properly completed order before the close of regular trading on the NYSE for your shares to be bought or sold at the Funds NAV on that day.
All purchases made by check should be in U.S. dollars and made payable to Loomis Sayles Funds. Third party checks, starter checks and credit card convenience checks will not be accepted. When you make an investment by check or by periodic account investment, you will not be permitted to redeem that investment until the check has cleared or the shares have been in your account for 15 days.
A Fund may periodically close to new purchases of shares or refuse any order to buy shares if the Fund determines that doing so would be in the best interests of the Fund and its shareholders. See the section How to Purchase Shares above and Restrictions on Buying, Selling and Exchanging Shares below.
Each Fund is required by federal regulations to obtain personal information from you and to use that information to verify your identity. A Fund may not be able to open your account if the requested information is not provided. Each 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 is not verified.
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The following table shows the investment minimum for Retail Class shares of each Fund.
Minimum
Initial Investment |
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Loomis Sayles Inflation Protected Securities Fund Retail |
$ | 2,500 | |
Loomis Sayles Intermediate Duration Bond Fund Retail |
$ | 2,500 |
Loomis Sayles or the Distributor, in its sole discretion, may lower investment minimums for accounts associated with wrap-fee programs sponsored by certain broker-dealers and investment advisers and for accounts associated with certain other defined contribution plans.
Each Funds shares may be purchased by all types of tax-deferred retirement plans provided the plan meets the minimum requirements for the relevant fund. If you wish to open an individual retirement account (IRA) with a Fund, you may obtain retirement plan forms available online at www.loomissayles.com, or by calling Loomis Sayles at 800-633-3330.
Each subsequent investment must be at least $50. Loomis Sayles reserves the right to waive these minimums in its sole discretion, including for certain retirement plans whose accounts are held on the books of the Funds transfer agent in an omnibus fashion. At the discretion of Loomis Sayles, employees and clients of Loomis Sayles, and their respective family members, may purchase shares of the funds offered through this Prospectus below the stated minimums. In addition, at the discretion of Natixis Advisors, clients of Natixis Advisors may also purchase shares of the Funds below the stated minimums.
In our continuing effort to reduce your Funds expenses and amount of mail that you receive from Loomis Sayles, we will mail only a single copy of prospectuses, proxy statements and financial reports to your household. Additional copies may be obtained by calling 800-633-3330.
This program will continue in effect unless you notify us that you do not want to participate in this combined mailing program. If you wish to receive separate mailings for each Fund you own in the future, please call us at the telephone number above or mail your written request to Loomis Sayles, P.O. Box 219594, Kansas City, MO 64121-9594 and we will resume separate mailings within 30 days.
Small Account Policy. In order to address the relatively higher costs of servicing smaller fund positions, each Fund may assess, on an annual basis, a minimum balance fee of $20 on accounts that fall below $500. The minimum balance fee is assessed by the automatic redemption of shares in the account in an amount sufficient to pay the fee. The minimum balance fee does not apply to directly registered accounts that (i) make monthly purchases through systematic investing or (ii) are retirement accounts. If your Fund account falls below $50, the Fund may redeem your remaining shares and send the proceeds to you. Accounts associated with defined contribution plans are excepted from the minimum balance fee and liquidation.
You can redeem shares of each Fund any day on which the NYSE is open for business either through your financial advisor or directly from the Fund. Shares purchased by check are redeemable, although each Fund may withhold payment until the purchase check has cleared. If you are redeeming shares that you purchased within the past 15 days by check, telephone Automated Clearing House (ACH) or online ACH, your redemption will be delayed until the shares have been in your account for 15 days.
Because large redemptions are likely to require liquidation by a Fund of portfolio holdings, payment for large redemptions may be delayed for up to seven days to provide for orderly liquidation of such holdings. Under unusual circumstances, the Funds may suspend redemptions or postpone payment for more than seven days. Although most redemptions are made in cash, as described in the SAI, each Fund reserves the right to redeem shares in-kind. If a shareholder receives a distribution in-kind, the shareholder will bear the market risk associated with the distributed securities and would incur brokerage or other charges in converting the securities to cash.
Generally, a transaction fee will be charged for expedited payment of redemption proceeds of $5.50 for wire transfers, $50 for international wire transfers or $20.50 for overnight delivery. These fees are subject to change.
Redemptions through your financial adviser. Your adviser must receive your request in proper form before the close of regular trading on the NYSE for you to receive that days NAV. Your adviser will be responsible for furnishing all necessary documents to Loomis Sayles Funds on a timely basis and may charge you for his or her services.
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Redemptions through your broker-dealer. You may redeem shares of the Funds through a broker-dealer that has been approved by the Distributor, which can be contacted at 399 Boylston Street, Boston, MA 02116. Your broker-dealer may charge you a fee for effecting such transaction. Your broker-dealer must receive your request in proper form before the close of regular trading on the NYSE for you to receive that days NAV. Your redemptions generally will be wired to your broker-dealer on the first business day after your request is received in good order.
Redemptions directly to the Funds. Loomis Sayles Funds transfer agent must receive your redemption request in proper form before the close of regular trading on the NYSE in order for you to receive that days NAV. Your redemptions generally will be sent to you via first class mail within three business days after your request is received in good order, although it may take longer.
You may make redemptions directly from each Fund in several ways:
By mail. Send a signed letter of instruction that includes the name of the Fund, the exact name(s) in which the shares are registered, any special capacity in which you are signing (such as trustee or custodian or on behalf of a partnership, corporation, or other entity), your address, telephone number, account number and the number of shares or dollar amount to be redeemed to the following address:
Regular Mail | Overnight Mail | |
Loomis Sayles Funds | Loomis Sayles Funds | |
P.O. Box 219594 | 330 West 9th Street | |
Kansas City, MO 64121-9594 | Kansas City, MO 64105-1514 |
If you have certificates for the shares you want to sell, you must include them along with completed stock power forms.
All owners of shares must sign the written request in the exact names in which the shares are registered. The owners should indicate any special capacity in which they are signing (such as trustee or custodian or on behalf of a partnership, corporation or other entity).
By exchange. You may sell some or all of your shares of a Fund and use the proceeds to buy shares of the same class of another Loomis Sayles Fund by sending a letter of instruction to Loomis Sayles Funds, calling Loomis Sayles Funds at 800-633-3330 or exchanging online at www.loomissayles.com.
By internet. If you have established a PIN and the electronic transfer privilege, you can redeem shares through your online account at www.loomissayles.com. If you have not established a PIN, but you have established the electronic transfer privilege, click on eService Center at www.loomissayles.com, click on Log In, click on the more appropriate user type and then follow the instructions.
By telephone. You may redeem shares by calling Loomis Sayles Funds at 800-633-3330. Proceeds from telephone redemption requests can be wired to your bank account, sent electronically by ACH to your bank account or sent by check in the name of the registered owner(s) to the record address. A wire fee will be deducted from your proceeds. Your bank may charge you a fee to receive the wire.
Please call Loomis Sayles Funds at 800-633-3330 for an IRA Distribution Form, or download the form online at www.loomissayles.com.
The telephone redemption privilege may be modified or terminated by the Funds without notice.
The maximum value of shares that you may redeem by telephone or internet is $100,000. For your protection, telephone or internet redemption requests will not be permitted if Loomis Sayles Funds has been notified of an address change or bank account information change for your account within the preceding 30 days. Unless you indicate otherwise on your account application, Loomis Sayles Funds will be authorized to accept redemption and transfer instructions by telephone. If you prefer, you can decline telephone redemption and transfer privileges.
Systematic Withdrawal Plan. If the value of your account is $25,000 or more, you can have periodic redemptions automatically paid to you or to someone you designate. Please call 800-633-3330 for more information or to set up a systematic withdrawal plan or visit www.loomissayles.com to obtain an Account Options Form.
By wire. Before Loomis Sayles Funds can wire redemption proceeds to your bank account, you must provide specific wire instructions to Loomis Sayles Funds in writing. A wire fee will be deducted from the proceeds of each wire.
By ACH. For ACH redemptions, proceeds will generally arrive at your bank within three business days.
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STAMP2000 Medallion Signature Guarantee. You must have your signature guaranteed by a bank, broker-dealer or other financial institution that can issue a STAMP2000 Medallion Signature Guarantee for the following types of redemptions:
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If you are redeeming shares worth more than $100,000. |
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If you are requesting that the proceeds check be made out to someone other than the registered owner(s) or sent to an address other than the address of record. |
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If the account registration or bank account information has changed within the past 30 days. |
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If you are instructing us to send the proceeds 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. |
The Funds will only accept STAMP2000 Medallion Signature Guarantees bearing the STAMP2000 Medallion imprint. Please note that a notary public cannot provide a STAMP2000 Medallion Signature Guarantee. This signature guarantee requirement may be waived by Loomis Sayles Funds in certain cases.
You may exchange shares of your Fund offered through this Prospectus, subject to investment minimums, for Retail Class shares of any Loomis Sayles Fund that offers Retail Class shares, if any, or for Class A shares of Money Market Fund, an affiliate of Loomis Sayles. All exchanges are subject to any restrictions described in the applicable Funds Prospectuses.
You may be unable to hold your shares through the same financial intermediary if you engage in certain share exchanges. You should contact your financial intermediary for further details.
The value of Fund shares that you wish to exchange must meet the investment minimum requirements of the new fund.
You may make an exchange by sending a signed letter of instruction or by telephone or through your online account at www.loomissayles.com.
Please remember that an exchange may be a taxable event for U.S. federal and/or state income tax purposes, so that you may realize a gain or loss that is subject to income tax.
In certain limited circumstances described below, you may convert Retail Class shares of your Fund to Institutional Class shares of the same Fund or convert Institutional Class shares of your Fund to Retail Class shares of the same Fund. The value of shares that you wish to convert must meet at least the investment minimum requirements of the new class. The conversion from one class of shares to another will be based on the respective NAVs of the separate classes on the trade date for the conversion. You will not be charged any fees as a result of the exchange. A conversion between share classes of the same fund is a nontaxable event to the shareholder.
You may convert Retail Class shares of your Fund to Institutional Class shares of the same Fund if you have accumulated shares with a NAV greater than or equal to the minimum investment amount for Institutional Class shares of that same Fund. You may convert from Institutional Class shares to Retail Class shares only if the investment option or program through which you invest no longer permits the use of Institutional Class shares in that option or program or if you otherwise are no longer able to participate in Institutional Class shares. A conversion into a class of shares is subject to the purchase restrictions of such class as described in the Funds Statutory Prospectus (see the section How to Purchase Shares).
In order to convert shares, you must complete the Cross Share Exchange Form and return it to Loomis Sayles Funds at the following address:
Regular Mail | Overnight Mail | |
Loomis Sayles Funds | Loomis Sayles Funds | |
P.O. Box 219594 | 330 West 9th Street | |
Kansas City, MO 64121-9594 | Kansas City, MO 64105-1514 |
You can obtain the form by calling 800-633-3330 or by visiting the Funds website at www.loomissayles.com. All requests for conversions (including requests for accounts traded through the National Securities Clearing Corporation) must be provided on the Cross Share
It is the policy of each Fund to pay its shareholders each year, as dividends, all or substantially all of its net investment income. Each Fund expects to distribute all or substantially all of its net realized long- and short-term capital gains annually, after applying any available capital loss carryovers.
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Capital gain distributions normally are made annually, but may be made more frequently as deemed advisable by the Funds and as permitted by applicable law. To the extent permitted by law, the Funds Board of Trustees may change the frequency with which each Fund declares or pays dividends. The table below provides further information about each Funds dividend policy.
Fund |
Dividend Policy |
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Loomis Sayles Inflation Protected Securities Fund | Generally declares and pays dividends quarterly | |
Loomis Sayles Intermediate Duration Bond Fund | Generally declares and pays dividends monthly |
You may choose to:
|
reinvest all distributions in additional shares; or |
|
have checks sent to the address of record for the amount of distribution or have the distribution transferred through ACH to a bank of your choice. |
If you do not select an option when you open your account, all distributions will be reinvested.
Restrictions On Buying and Selling Shares
Frequent purchases and redemptions of Fund shares by shareholders may present certain risks for other shareholders in a Fund. This includes the risk of diluting the value of Fund shares held by long-term shareholders, interfering with the efficient management of a Funds portfolio and increasing brokerage and administrative costs. A Fund investing in securities that require special valuation processes (such as foreign securities, high-yield securities or small-cap securities) may also have increased exposure to these risks. Each Fund discourages excessive short-term trading that may be detrimental to the Fund and its shareholders. The Funds Board of Trustees has adopted the following policies to address and discourage such trading.
The Funds reserve the right to suspend or change the terms of purchasing or exchanging shares. Each Fund and the Distributor reserve the right to reject any purchase or exchange order for any reason, including if the transaction is deemed not to be in the best interests of the Funds other shareholders or possibly disruptive to the management of the Fund. A shareholder whose exchange order has been rejected may still redeem their shares by submitting a redemption request as described above in the section How to Redeem Shares.
Limits on Frequent Trading. Without limiting the right of each Fund and the Distributor to reject any purchase or exchange order, each Fund and the Distributor may (but are not obligated to) restrict purchases and exchanges for the accounts of market timers. An account may be deemed to be one of a market timer if it makes two round trips in any Fund over a 90-day interval, as determined by the Fund. A round trip is a purchase (including a purchase by exchange) into the Fund followed by a redemption (including a redemption by exchange) of any amount out of the same Fund. The above limits are applicable whether you hold shares directly with each Fund or indirectly through a financial intermediary, such as a broker, bank, investment adviser, recordkeeper for retirement plan participants or other third party. The preceding is not an exclusive description of activities that the Funds and the Distributor may consider to be market timing.
Notwithstanding the above, certain financial intermediaries, such as retirement plan administrators, may monitor and restrict the frequency of purchase and redemption transactions in a manner different from that described above. The policies of these intermediaries may be more or less restrictive than the generally applicable policies described above. A Fund may choose to rely on a financial intermediarys restrictions on frequent trading in place of the Funds own restrictions if the Fund determines, in its discretion, that the financial intermediarys restrictions provide reasonable protection for the Fund from excessive short-term trading activity. Please contact your financial representative for additional information regarding their policies for limiting the frequent trading of Fund shares.
This policy also does not apply with respect to shares purchased by certain funds-of-funds or similar asset allocation programs that rebalance their investments only infrequently. To be eligible for this exemption, the fund-of-funds or asset allocation program must identify itself to and receive prior written approval from the Fund or the Distributor. A Fund and the Distributor may request additional information to enable them to determine that the fund-of-funds or asset allocation program is not designed to and/or is not serving as a vehicle for disruptive short-term trading, which may include requests for (i) written assurances from the sponsor or investment manager of the fund-of-funds or asset allocation program that it enforces the Funds frequent trading policy on investors or another policy reasonably designed to deter disruptive short-term trading in Fund shares, and/or (ii) data regarding transactions by investors in the fund-of-funds or asset allocation program, for periods and on a frequency determined by the Fund and the Distributor, so that the Fund can monitor compliance by such investors with the trading limitations of the Fund or of the fund-of-funds or asset allocation program.
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Trade Activity Monitoring. Trading activity is monitored selectively on a daily basis in an effort to detect excessive short-term trading activities. If a 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, at its discretion, request that the shareholder or financial intermediary stop such activities or refuse to process purchases or exchanges in the accounts. At its discretion, the Fund or the Distributor may restrict or prohibit transactions by such identified shareholders or intermediaries. In making such judgments, the Funds and the Distributor seek to act in a manner that they believe is consistent with the best interests of all shareholders. The Funds and the Distributor also reserve the right to notify financial intermediaries of the shareholders trading activity.
Accounts Held by Financial Intermediaries. The ability of each Fund and the Distributor to monitor trades that are placed by omnibus or other nominee accounts is more limited in those instances in which the financial intermediary maintains the record of each Funds underlying beneficial owners. In general, each Fund and the Distributor will review trading activity at the omnibus account level. If a Fund and the Distributor detect suspicious activity, they may request and receive personal identifying information and transaction histories for some or all underlying shareholders (including plan participants) to determine whether such shareholders have engaged in market timing or other excessive short-term trading activity. If a Fund believes that a shareholder has engaged in market timing or other excessive short-term trading activity in violation of the Funds policies through an omnibus account, the Fund will attempt to limit transactions by the underlying shareholder which engaged in such trading, although it may be unable to do so. The Fund may also limit or prohibit additional purchases of Fund shares by an intermediary. Investors should not assume the Funds will be able to detect or prevent all market timing or other trading practices that may disadvantage the Funds.
Except where noted, the discussion below addresses only the U.S. federal income tax consequences of an investment in a Fund and does not address any non-U.S., state, or local tax consequences.
Each Fund intends to meet all requirements under Subchapter M of the Code, necessary to qualify each year for treatment as a regulated investment company, and thus does not expect to pay any federal income tax on income and capital gains that are timely distributed to shareholders.
Taxation of Fund Distributions. For federal income tax purposes, distributions of investment income are generally taxable to Fund shareholders as ordinary income. Taxes on distributions of capital gains are determined by how long a Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. Distributions attributable to the excess of net long-term capital gains from the sale of investments a Fund owned for more than one year over net short-term capital losses and that are properly designated by the Fund as capital gain dividends (Capital Gain Dividends) will generally be taxable to a shareholder receiving such distributions as long-term capital gain. Distributions attributable to the excess of net short-term capital gains from the sale of investments that a Fund owned for one year or less over net long-term capital losses will be taxable as ordinary income.
For taxable years beginning before January 1, 2011, distributions of investment income properly designated by a Fund as derived from qualified dividend income will be taxed in the hands of individuals at the rates applicable to long-term capital gain, provided holding period and other requirements are met at both the shareholder and Fund levels. Income generated by investments in fixed income securities, REITs and derivatives is generally not eligible for treatment as qualified dividend income. Neither Fund expects a significant portion of Fund distributions to be derived from qualified dividend income.
For taxable years beginning before January 1, 2011, long-term capital gain rates applicable to individuals have been temporarily reduced, in general to 15%, with a 0% rate applying to taxpayers in the 10% and 15% rate brackets. It is currently unclear whether Congress will extend the long-term capital gain rate reduction and the special tax treatment of qualified dividend income for taxable years beginning on or after January 1, 2011.
Dividends and distributions declared by a Fund in October, November or December of one year and paid in January of the next year generally are taxable in the year in which the distributions are declared, rather than the year in which the distributions are received.
Fund distributions are taxable whether shareholders receive them in cash or in additional shares. In addition, Fund distributions are taxable to shareholders even if they are paid from income or gains earned by a Fund before a shareholders investment (and thus were included in the price the shareholder paid for his or her shares). Such distributions are likely to occur in respect of shares purchased at a time when a Funds NAV reflects gains that are either unrealized or realized but not distributed.
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Distributions by a Fund to retirement plans and other investors that qualify for tax-exempt treatment under U.S. federal income tax laws will generally not be taxable. Special tax rules apply to investments through such retirement plans. If your investment is through such a plan, you should consult your tax adviser to determine the suitability of the Funds as an investment through your plan and the tax treatment of distributions to you (including distributions of amounts attributable to an investment in a Fund) from such a plan.
Redemption, Sale or Exchange of Fund Shares. A redemption, sale or exchange of Fund shares (including an exchange of Fund shares for shares of another Natixis or Loomis Sayles Fund) is a taxable event and will generally result in recognition of gain or loss. Gain or loss, if any, recognized by a shareholder on a redemption, sale, exchange or other disposition of Fund shares will generally be treated as long-term capital gain or loss if the shareholder held the shares for more than one year, and as short-term capital gain or loss if the shareholder held the shares for one year or less, assuming in each case that the shareholder held the shares as capital assets. Short-term capital gains are generally taxed at the rates applicable to ordinary income.
Taxation of Certain Fund Investments. Each Funds investments in foreign securities may be subject to foreign withholding and other taxes. In that case, a Funds yield on those securities would be decreased. The Funds generally do not expect that shareholders will be entitled to claim a credit or deduction with respect to foreign taxes incurred by a Fund. In addition, a Funds investments in foreign securities or foreign currencies may be subject to special tax rules that have the effect of increasing or accelerating the Funds recognition of ordinary income and may affect the timing or amount of the Funds distributions.
A Funds investments in certain debt obligations including TIPS, derivatives and REITs may cause the Fund to recognize taxable income in excess of the cash generated by such investments. Thus, a Fund could be required to liquidate investments, including at times when it may not be advantageous to do so, in order to satisfy its distribution requirements.
Backup Withholding. Each Fund is required in certain circumstances to apply backup withholding on taxable dividends, redemption proceeds and certain other payments that are paid to any shareholder (including a shareholder who is neither a citizen nor a resident of the U.S.) if the shareholder does not furnish to the Funds certain information and certifications or the shareholder is otherwise subject to backup withholding. The backup withholding tax rate is 28% for amounts paid on or before December 31, 2010 and will be 31% for amounts paid after December 31, 2010 unless Congress enacts legislation providing otherwise.
Please see the SAI for additional information on the U.S. federal income tax consequences of investing in the Funds.
You should consult your tax adviser for more information on your own tax situation, including possible U.S. federal, state, local, foreign or other applicable taxes.
Because the Retail Class shares of the Funds are newly formed and have no performance history as of the date of this Prospectus, financial highlights tables for the Funds have not been included in this Prospectus.
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If you would like more information about the Funds, the following documents are available free upon request:
ANNUAL AND SEMIANNUAL REPORTS
Provide additional information about each Funds investments. Each report includes a discussion of the market conditions and investment strategies that significantly affected the Funds performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more detailed information about the Funds and their investment limitations and policies. The SAI has been filed with the SEC and is incorporated into this Prospectus by reference.
To order a free copy of the Funds annual or semiannual reports or their SAIs, or to make shareholder inquiries generally, contact your financial representative, or Loomis Sayles at 800-633-3330. The Funds annual and semiannual reports and SAI are available on the Funds website at www.loomissayles.com.
Information about the Funds, including their reports and SAIs, can be reviewed and copied at the Public Reference Room of the SEC in Washington, D.C. Text-only copies of the Funds reports and SAIs are available free from the EDGAR Database on the SECs Internet site at: www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549-1520.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090.
Natixis Distributors, L.P. (Natixis Distributors), an affiliate of Loomis Sayles, and other firms selling shares of Loomis Sayles Funds are members of the Financial Industry Regulatory Authority (FINRA). As a service to investors, FINRA has asked that we inform you of the availability of a brochure on its Public Disclosure Program. The program provides access to information about securities firms and their representatives. Investors may obtain a copy by contacting FINRA at 1-800-289-9999 or by visiting its website at www.FINRA.org.
Natixis Distributors distributes the Natixis Funds, Loomis Sayles Funds and Hansberger International Series. If you have a complaint concerning Natixis Distributors or any of its registered representatives or associated persons, please direct it to Natixis Distributors, L.P. Attn: Director of Compliance, 399 Boylston Street - 12th Floor, Boston, MA 02116 or call us at 617-449-2828.
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P.O. Box 219594 |
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Kansas City, MO 64121-9594 |
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800-633-3330 www.loomissayles.com |
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Loomis Sayles Funds I |
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File No. 811-08282 |
M-LSPD51-0510 |
STATEMENT OF ADDITIONAL INFORMATION
May 28, 2010
LOOMIS SAYLES FUNDS I
Loomis Sayles Inflation Protected Securities Fund
Retail Class ([ ])
Loomis Sayles Intermediate Duration Bond Fund (formerly, Loomis Sayles Intermediate Duration Fixed Income Fund)
Retail Class ([ ])
This Statement of Additional Information (the Statement) contains information which may be useful to investors but which is not included in the Statutory Prospectuses of the series of Loomis Sayles Funds I listed above (collectively the Funds, with each series being known as a Fund). This Statement is not a prospectus and is authorized for distribution only when accompanied or preceded by the Loomis Sayles Retail Class Shares Statutory or Summary Prospectuses for the Funds, each dated May 28, 2010, as may be revised from time to time and supplemented (the Prospectus or the Prospectuses). Investors may obtain the Prospectuses without charge from Loomis Sayles Funds, P.O. Box 219594, Kansas City, MO 61421-9594, by calling 800-633-3330 or by visiting www.loomissayles.com .
The Funds financial statements and accompanying notes that appear in the Funds annual reports are incorporated by reference into this Statement. Each Funds annual and semiannual reports contain additional performance information and are available upon request and without charge by calling 800-633-3330 or by visiting the Funds website at www.loomissayles.com.
M-LSPDSAI-0510
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Loomis Sayles Funds I (the Trust) is registered with the Securities and Exchange Commission (the SEC) as an open-end management investment company and is organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust (a Declaration of Trust) dated December 23, 1993, as amended and restated on June 22, 2005, and is a series company as described in Section 18(f)(2) of the Investment Company Act of 1940 (the 1940 Act). Prior to July 1, 2003, Loomis Sayles Funds I was named Loomis Sayles Investment Trust. The Trust offers a total of ten series.
The Loomis Sayles Inflation Protected Securities Fund, a diversified series of the Trust, was organized in Massachusetts and commenced operations on May 21, 1991. The Loomis Sayles Intermediate Duration Bond Fund, a diversified series of the Trust, was organized in Massachusetts and commenced operations on January 28, 1998. Prior to May 28, 2010, the Loomis Sayles Intermediate Duration Bond Fund was named Loomis Sayles Intermediate Duration Fixed Income Fund.
INVESTMENT STRATEGIES AND RISKS
Investment Restrictions
The following is a description of restrictions on the investments to be made by the Funds. The restrictions marked with an asterisk (*) are fundamental policies that may not be changed without the vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act). The other restrictions set forth below are not fundamental policies and may be changed by the Trusts Board of Trustees. The percentages set forth below and the percentage limitations set forth in the Prospectus apply at the time an investment is made and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment.
The Loomis Sayles Inflation Protected Securities Fund may not:
(1) | Invest in companies for the purpose of exercising control or management. |
*(2) | 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. |
*(3) | Invest in oil, gas or other mineral leases, rights or royalty contracts or in real estate, commodities or commodity contracts. (This restriction does not prevent the Fund from engaging in transactions in futures contracts relating to securities indices, interest rates or financial instruments or options, or from investing in issuers that invest or deal in the foregoing types of assets or from purchasing securities that are secured by real estate.) |
*(4) | Make loans, except that the Fund may lend its portfolio securities to the extent permitted under the 1940 Act. (For purposes of this investment restriction, neither (i) entering into repurchase agreements nor (ii) purchasing debt obligations in which the Fund may invest consistent with its investment policies is considered the making of a loan.) |
(5) | With respect to 75% of its assets, purchase any security (other than U.S. Government securities) if, as a result, more than 5% of the Funds assets (taken at current value) would then be invested in securities of a single issuer. |
(6) | With respect to 75% of its assets, acquire more than 10% of the outstanding voting securities of an issuer. |
*(7) | Purchase any security (other than U.S. Government securities) if, as a result, more than 25% of the Funds assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries). |
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*(8) | Borrow money, except to the extent permitted under the 1940 Act. |
(9) | Borrow money in excess of 20% of its net assets, nor borrow any money except as a temporary measure for extraordinary or emergency purposes. |
(10) | Purchase securities on margin (except such short-term credits as are necessary for clearance of transactions) or make short sales (except where, by virtue of ownership of other securities, it has the right to obtain, without payment of additional consideration, securities equivalent in kind and amount to those sold). |
(11) | Participate on a joint or joint and several basis in any trading account in securities. (The bunching of orders for the purchase or sale of portfolio securities with Loomis, Sayles & Company, L.P. (Loomis Sayles or the Adviser) or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction.) |
(12) | Purchase any illiquid security, including any security that is not readily marketable, if, as a result, more than 15% of the Funds net assets (based on current value) would then be invested in such securities. |
(13) | Write or purchase puts, calls, or combinations of both, except that the Fund may (1) acquire warrants or rights to subscribe to securities of companies issuing such warrants or rights, or of parents or subsidiaries of such companies, (2) purchase and sell put and call options on securities, and (3) write, purchase and sell put and call options on currencies and enter into currency forward contracts. |
*(14) | Issue senior securities. (For purposes of this restriction, none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restriction (17) below; any borrowing permitted by restrictions (8) and (9) above; any collateral arrangements with respect to options, futures contracts, and options on futures contracts and with respect to initial and variation margin; and the purchase or sale of options, forward contracts, futures contracts, or options on futures contracts.) |
(15) | Invest more than 20% of its net assets (plus any borrowings made for investment purposes) in securities that are not backed by the full faith and credit of the U.S. government. Prior to implementation of any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders. In interpreting this restriction, the 20% policy is applied to current market value. |
(16) | Invest, under normal circumstances, less than 80% of its net assets (plus any borrowings made for investment purposes) in inflation-protected securities. 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. |
The Loomis Sayles Inflation Protected Securities Fund may:
(17) | Pledge its assets to the maximum extent permitted by applicable law. |
The Fund intends, based on the views of the SEC, to restrict its investments in repurchase agreements maturing in more than seven days, together with other investments in illiquid securities, to the percentage permitted by restriction (12) above.
In restriction (15), the 20% policy is applied to current market value. However, if the Fund no longer meets the 20% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it would be required to make future investments in a manner that would bring the Fund into compliance with the 20% requirement, but would not be required to sell portfolio holdings that have increased in value.
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In restriction (16), 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% requirements, but would not be required to sell portfolio holdings that have increased in value.
For purposes of the foregoing restrictions, the Fund does not consider a swap contract on one or more securities, indices, currencies or interest rates to be a commodity or a commodity contract, nor, consistent with the position of the staff of the SEC, does the Fund consider such swap contracts to involve the issuance of a senior security, provided the Fund designates on its records or segregates with its custodian or otherwise designates liquid assets (marked to market on a daily basis) sufficient to meet its obligations under such contracts.
The Loomis Sayles Intermediate Duration Bond Fund may not:
*(1) | Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. |
*(2) | Invest in oil, gas, or other mineral leases, rights, or royalty contracts, or in real estate, commodities or commodity contracts. (This restriction does not prevent any Fund from engaging in transactions in futures contracts relating to securities indices, interest rates, or financial instruments or options, or from investing in issuers that invest or deal in the foregoing types of assets or from purchasing securities that are secured by real estate.) |
*(3) | Make loans, except to the extent permitted under the 1940 Act. (For purposes of this investment restriction, neither (i) entering into repurchase agreements nor (ii) purchasing debt obligations in which a Fund may invest consistent with its investment policies is considered the making of a loan.) |
*(4) | Change its classification pursuant to Section 5(b) of the 1940 Act from a diversified to non-diversified management investment company. |
*(5) | Purchase any security (other than U.S. Government securities) if, as a result, more than 25% of the Funds assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries.) |
*(6) | Borrow money in excess of 10% of its assets (taken at cost) or 5% of its assets (taken at current value), whichever is lower, nor borrow any money except as a temporary measure for extraordinary or emergency purposes; however, the Funds use of reverse repurchase agreements and dollar roll arrangements shall not constitute borrowing by the Fund for purposes of this restriction. |
(7) | Purchase any illiquid security, including any security that is not readily marketable, if, as a result, more than 15% of the Funds net assets (based on current value) would then be invested in such securities. |
*(8) | Issue senior securities other than any borrowing permitted by restriction (6) above. (For the purposes of this restriction, none of the following is deemed to be a senior security: any pledge, mortgage, hypothecation, or other encumbrance of assets; any collateral arrangements with respect to options, futures contracts, and options on futures contracts and with respect to initial and variation margin; and the purchase or sale of or entry into options, forward contracts, futures contracts, options on futures contracts, swap contracts, or any other derivative investments to the extent that Loomis Sayles determines that the Fund is not required to treat such investments as senior securities pursuant to the pronouncements of the SEC. |
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The Fund intends, based on the views of the SEC, to restrict their investments, if any, in repurchase agreements maturing in more than seven days, together with other investments in illiquid securities, to the percentage permitted by restriction (7) above.
Although authorized to invest in restricted securities, the Fund, as a matter of non-fundamental operating policy, currently does not intend to invest in such securities, except Rule 144A securities.
For purposes of the foregoing restrictions, the Fund does not consider a swap contract on one or more securities, indices, currencies or interest rates to be a commodity or a commodity contract; nor, consistent with the position of the SEC, does the Fund consider such swap contracts to involve the issuance of a senior security, provided the relevant Fund designates on its records or segregates or otherwise designates with its custodian or otherwise designates liquid assets (marked to market on a daily basis) sufficient to meet its obligations under such contracts.
Under normal circumstances, the Fund will invest at least 80% of its net assets (plus any borrowings made for investment purposes) in fixed-income securities. Prior to any change to such policy, the Fund will provide notice to shareholders as required by Rule 35d-1 of the 1940 Act, as such rule may be interpreted from time to time by the staff of the SEC.
The following is a list of certain investment strategies, including particular types of securities or instruments or specific practices, that may be used by Loomis Sayles in managing the Funds. Each Funds principal strategies are detailed in its Prospectus. This Statement describes some of the non-principal strategies the Funds may use, in addition to providing additional information about their principal strategies. The list under each category below is not intended to be an exclusive list of securities, investments and practices for investments. Unless a strategy, practice or security is specifically prohibited by the investment restrictions listed in the applicable Prospectus, in the section Investment Restrictions in this Statement, or under applicable law, each Fund may engage in the strategies listed below and other strategies, and invest in the securities and instruments listed below and other securities and instruments. Loomis Sayles 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 categories listed below or the securities specifically enumerated under each category. Loomis Sayles may invest in any security that falls under the specific category, including securities that are not listed below. The Prospectus and/or this Statement will be updated if a Fund begins to engage in investment practices that are not described in a Prospectus and/or this Statement.
Fund |
Securities |
Practices |
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Inflation Protected Securities Fund |
Debt Securities (U.S. Government Securities, Mortgage-Related Securities, Inflation-Linked Bonds) Equity Securities (Investment Companies) |
Futures Transactions, Options, Swap Contracts, Temporary Defensive Strategies. | ||
Intermediate Duration Bond Fund |
Debt Securities (Investment-Grade Bonds, Corporate Bonds, Convertible Securities, U.S. Government Securities, Zero-Coupon Securities, Rule 144A Securities, Mortgage-Backed Securities, Asset-Backed Securities, Real Estate Investment Trusts, When-Issued Securities, Mortgage-Related Securities (including Dollar Rolls, Structured Notes, Stripped Securities, Inflation-Linked Securities)) Equity Securities (Investment Companies) Foreign Securities (Emerging Markets, Supranational Entities Currency Transactions) |
Temporary Defensive Strategies, Futures Contracts, Options, Swap Contracts. |
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Adjustable Rate Mortgage Security (ARM)
An 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 issuers 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. Adjustable rate mortgage securities involve risks similar to those described in the section Mortgage-Related Securities.
Asset-Backed Securities
Through the use of trusts and special purpose corporations, automobile or credit card receivables may be securitized in pass-through structures similar to mortgage pass-through structures or in a pass-through structure similar to the collateralized mortgage obligation structure described below. 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 prepaid, a Fund ordinarily will reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, a Funds 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. The value of some asset-backed securities in which a Fund invests may be particularly sensitive to changes in prevailing interest rates, and the ability of a Fund to successfully utilize these instruments may depend in part upon the ability of the Funds adviser to forecast interest rates and other economic factors correctly. Asset-backed securities involve risks similar to those described in the section Mortgage-Related Securities.
Bank Loans
The Funds may invest in bank loans, which include senior secured and unsecured floating rate loans made by U.S. banks and other financial institutions to corporate customers. Typically, these loans hold the most senior position in a borrowers capital structure, may be secured by the borrowers assets and have interest rates that reset frequently. These loans generally will not be rated investment-grade by the rating agencies. Economic downturns generally lead to higher non-payment and default rates and a senior loan could lose a substantial part of its value prior to a default. However, as compared to junk bonds, senior floating rate loans are typically senior in the capital structure and are often secured by collateral of the borrower. A Funds investments in loans are subject to credit risk, and even secured bank loans may not be adequately collateralized. The interest rates on many banks loans reset frequently, and therefore investors are subject to the risk that the return will be less than anticipated when the investment was first made. Most bank loans, like most investment-grade bonds, are not traded on any national securities exchange. Bank loans generally have less liquidity than investment-grade bonds and there may be less public information available about them.
A Fund may participate in the primary syndicate for a bank loan or it may also purchase loans from other lenders (sometimes referred to as loan assignments). A Fund may also acquire a participation interest in another lenders portion of the senior loan. Large loans to corporations or governments may be shared or syndicated among several lenders, usually banks. A Fund may participate in such syndicates, or can buy part of a loan, becoming a direct lender. Participation interests involve special types of risk, including liquidity risk and the risks of being a lender. If a Fund purchases a participation interest, it may only be able to enforce its rights through the lender, and may assume the credit risk of the lender in addition to the credit risk of the borrower.
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Collateralized Mortgage Obligations
A collateralized mortgage obligation (CMO) is a security backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. CMOs may be issued either by U.S. Government instrumentalities or by non-governmental entities. CMOs are not direct obligations of the U.S. Government. The issuers obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal 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 CMOs first to mature generally will be retired prior to its maturity. As with other mortgage-backed securities, if a particular class or series of CMOs held by a Fund is retired early, the Fund would lose any premium it paid when it acquired the investment, and the Fund might have to reinvest the proceeds at a lower interest rate than the retired CMO paid. Because of the early retirement feature, CMOs may be more volatile than many other fixed-income investments. CMOs and other asset-backed securities and mortgage-backed securities may be considered derivative securities. CMOs involve risks similar to those described in the section Mortgage-Related Securities.
Common Stocks and Other Equity Securities
Common stocks, preferred stocks, warrants, securities convertible into common or preferred stocks and similar securities, together called equity securities, are generally volatile and more risky than some other forms of investment. Equity securities of companies with relatively small market capitalizations may be more volatile than the securities of larger, more established companies and than the broad equity market indices generally. Common stocks and other equity securities may take the form of stock in corporations, partnership interests, interests in limited liability companies and other direct or indirect interests in business organizations.
Equity securities are securities that represent an ownership interest (or the right to acquire such an interest) in a company and may include common and preferred stocks, securities exercisable for, or convertible into, common or preferred stocks, such as warrants, convertible debt securities and convertible preferred stock, and other equity- like interests in an entity. Equity securities may take the form of stock in a corporation, limited partnership interests, interests in limited liability companies, real estate investment trusts (REITs) or other trusts and other similar securities. As mentioned above, common stocks represent an equity or ownership interest in an issuer. Preferred stocks represent an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends. In the event that an issuer is liquidated or declares bankruptcy, the claims of owners of bonds and other debt securities generally take precedence over holders of preferred stock, whose claims take precedence over the claims of those who own common stock.
While offering greater potential for long-term growth, equity securities generally are more volatile and more risky than some other forms of investment, particularly debt securities, potentially in a significant amount. The value of your investment in a fund that invests in equity securities may decrease. The Funds may invest in equity securities of companies with relatively small market capitalizations. Securities of such companies may be more volatile than the securities of larger, more established companies and the broad equity market indices. See the section Small Capitalization Companies. The Funds investments may include securities traded over-the-counter (OTC) as well as those traded on a securities exchange. Some securities, particularly OTC securities, may be more difficult to sell under some market conditions.
Stocks of companies that Loomis Sayles believes have earnings that will grow faster than the economy as a whole are known as growth stocks. Growth stocks typically trade at higher multiples of current earnings than other stocks. As a result, the values of growth stocks may be more sensitive to changes in current or expected earnings than the values of other stocks. If Loomis Sayles assessment of the prospects for a companys earnings growth is wrong, or if its judgment of how other investors will value the companys earnings growth is wrong, then the price of that companys stock may fall or may not approach the value that Loomis Sayles has placed on it.
Stocks of companies that are not expected to experience significant earnings growth, but whose stocks Loomis Sayles believes are undervalued compared to their true worth, are known as value stocks. These companies may have experienced adverse business developments or may be subject to special risks that have caused their stocks to
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be out of favor. If Loomis Sayles assessment of a companys prospects is wrong, or if other investors do not eventually recognize the value of the company, then the price of the companys stock may fall or may not approach the value that Loomis Sayles has placed on it.
Many stocks may have both growth and value characteristics, and for some stocks it may be unclear which category, if any, it fits into.
Convertible Securities
Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (exchanged for) common stocks or other equity securities at a stated price or rate. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Since convertible securities may be converted into equity securities, their value will normally be directly correlated with the value of the underlying equity securities. Due to the conversion feature, convertible securities generally yield less than nonconvertible fixed-income securities of similar credit quality and maturity. A Funds investment in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock at a specified date and conversion ratio, or that are convertible at the option of the issuer. When conversion is not at the option of the holder, the Fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock has declined substantially. Many convertible securities are relatively illiquid.
Depositary Receipts
The Funds may invest in foreign equity securities by purchasing depositary receipts. Depositary receipts are instruments issued by banks that represent an interest in equity securities held by arrangement with the bank. Depositary receipts can be either sponsored or unsponsored. Sponsored depositary receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depositary receipts are arranged without involvement by the issuer of the underlying equity securities and, therefore, less information about the issuer of the underlying equity securities may be available and the price may be more volatile than sponsored depositary receipts. American Depositary Receipts (ADRs) are depositary receipts that are bought and sold in the United States and are typically issued by a U.S. bank or trust company and evidence ownership of underlying securities by a foreign corporation. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are depositary receipts that are typically issued by foreign banks or trust companies and evidence ownership of underlying securities issued by either a foreign or U.S corporation. All depositary receipts, including those denominated in U.S. dollars, will be subject to foreign currency risk.
The effect of changes in the dollar value of a foreign currency on the dollar value of a Funds assets and on the net investment income available for distribution may be favorable or unfavorable. A Fund may incur costs in connection with conversions between various currencies. In addition, a Fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of a foreign currency occurring between the time when the Fund declares and pays a dividend, or between the time when the Fund accrues and pays an operating expense in U.S. dollars.
Because the Funds may invest in ADRs, changes in foreign economies and political climates are more likely to affect the Funds than a mutual fund that invests exclusively in U.S. companies. There may also be less government supervision of foreign markets, resulting in non-uniform accounting practices and less publicly available information. If a Funds portfolio is over-weighted in a certain geographic region, any negative development affecting that region will have a greater impact on the Fund than a fund that is not over-weighted in that region.
Derivative Instruments
The Funds may, but are not required to, use a number of derivative instruments for risk management purposes or as part of their investment strategies. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. For additional information about the use of derivatives in connection with foreign currency transactions, see the section Foreign Currency
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Transactions. The adviser may decide not to employ any of these strategies and there is no assurance that any derivatives strategy used by a Fund will succeed. In addition, suitable derivative transactions may not be available in all circumstances and there can be no assurance that a Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial. The adviser will cover its obligations under its derivative contracts by segregating or otherwise designating liquid assets against the value of its net obligations under these positions (less any margin on deposit with the applicable broker) or by entering into offsetting positions. Examples of derivative instruments that a Fund may use include (but are not limited to) options and warrants, futures contracts, options on futures contracts, zero-strike warrants and options, swap agreements and debt-linked and equity-linked securities.
Derivatives involve special risks, including possible default by the other party to the transaction, illiquidity, difficulties in valuation, leverage risk and the risk that the use of derivatives could result in significantly greater losses or lower income or gains than if they had not been used. See the section Certain Additional Risks of Derivative Instruments. Recently, several broker-dealers and other financial institutions have experienced extreme financial difficulty, sometimes resulting in the bankruptcy of the institution. Although a Funds adviser monitors the creditworthiness of the Funds counterparties, there can be no assurance that the Funds counterparties will not experience similar difficulties, possibly resulting in losses to the Fund. The degree of a Funds use of derivatives may be limited by certain provisions of the Internal Revenue Code of 1986, as amended (the Code). When used, derivatives may increase the amount and affect the timing and character of taxes payable by shareholders.
Several types of derivative instruments in which a Fund may invest are described in more detail below. However, the Funds are not limited to investments in these instruments.
Futures Contracts
Futures transactions involve a Funds buying or selling futures contracts. A futures contract is an agreement between two parties to buy and sell a particular security, commodity, currency or other asset, or group or index of securities, commodities, currencies or other assets, for a specified price on a specified future date. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash (depending on whether the contract calls for physical delivery or cash settlement) at the time and in the amount specified in the contract. In the case of futures on an index, the seller and buyer agree to settle in cash, at a future date, based on the difference in value of the contract between the date it is opened and the settlement date. The value of each contract is equal to the value of the index from time to time multiplied by a specified dollar amount. For example, S&P 500 Index futures trade in contracts equal to $250 multiplied by the S&P 500 Index.
When a trader, such as a Fund, enters into a futures contract, it is required to deposit with (or for the benefit of) its broker as initial margin an amount of cash or liquid securities equal to approximately 2% to 5% of the delivery or settlement price of the contract (depending on applicable exchange rules). Initial margin is held to secure the performance of the holder of the futures contract. As the value of the contract changes, the value of futures contract positions increases or declines. At the end of each trading day, the amount of such increase and decline is received and paid respectively by and to the holders of these positions. The amount received or paid is known as variation margin. If a Fund has a long position in a futures contract it will designate on the Funds records or establish a segregated account with the Funds custodian liquid assets eligible for purchase by the Fund equal to its daily marked to market net obligation under the contract (less any margin on deposit). For short positions in futures contracts, a Fund will designate on the Funds records or establish a segregated account with the custodian with liquid assets eligible for purchase by the Fund that, when added to the amounts deposited as margin, equal its daily marked to market net obligation under the futures contracts. Gain or loss on a futures position is equal to the net variation margin received or paid over the time the position is held, plus or minus the amount received or paid when the position is closed, minus brokerage commissions.
Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by a Fund is less than the price of the offsetting purchase, the Fund will realize a loss. A futures sale is closed by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity and with the same delivery date. Similarly, the closing out of a futures purchase is closed by the purchaser selling an offsetting futures contract.
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Options and Warrants
Options transactions may involve a Funds buying or writing (selling) options on securities, futures contracts, securities indices (including futures on securities indices) or currencies. A Fund may engage in these transactions either to enhance investment return or to hedge against changes in the value of other assets that it owns or intends to acquire. Options can generally be classified as either call or put options. There are two parties to a typical options transaction: the writer and the buyer. A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. An American-style option allows exercise of the option at any time during the term of the option. A European-style option allows an option to be exercised only at a specific time or times, such as the end of its term. Options may be traded on or off an established securities or options exchange.
If the holder of an option wishes to terminate its position, it may seek to effect a closing sale transaction by selling an option identical to the option previously purchased. The effect of the purchase is that the previous option position will be canceled. A Fund will realize a profit from closing out an option if the price received for selling the offsetting position is more than the premium paid to purchase the option; the Fund will realize a loss from closing out an option transaction if the price received for selling the offsetting option is less than the premium paid to purchase the option. Since premiums on options having an exercise price close to the value of the underlying securities or futures contracts usually have a time value component ( i.e ., a value that diminishes as the time within which the option can be exercised grows shorter), the value of an options contract may change as a result of the lapse of time even though the value of the futures contract or security underlying the option (and of the security or other asset deliverable under the futures contract) has not changed.
Options on Indices
The Funds may invest in options on indices. Put and call options on indices are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or loss depends on changes in the index in question rather than on price movements in individual securities or futures contracts. When a Fund writes a call on an index, it receives a premium and agrees that, prior to the expiration date, the purchaser of the call, upon exercise of the call, will receive from the Fund an amount of cash if the closing level of the index upon which the call is based is greater than the exercise price of the call. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call times a specified multiple (multiplier), which determines the total dollar value for each point of such difference. When a Fund buys a call on an index, it pays a premium and has the same rights as to such call as are indicated above. When a Fund buys a put on an index, it pays a premium and has the right, prior to the expiration date, to require the seller of the put, upon the Funds exercise of the put, to deliver to the Fund an amount of cash equal to the difference between the exercise price of the option and the value of the index, times a multiplier, similar to that described above for calls. When a Fund writes a put on an index, it receives a premium and the purchaser of the put has the right, prior to the expiration date, to require the Fund to deliver to it an amount of cash equal to the difference between the closing level of the index and exercise price times the multiplier if the closing level is less than the exercise price.
Exchange-Traded and Over-the-Counter Options
The Funds may purchase or write both exchange-traded and OTC options. OTC options differ from exchange-traded options in that they are two-party contracts, with price and other terms negotiated between buyer and seller, and generally do not have as much market liquidity as exchange-traded options.
An exchange-traded option may be closed out only on an exchange that generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option, with the result that a Fund would have to exercise the option in order to consummate the transaction. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain
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options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation or other clearing organization may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
An OTC option (an option not traded on an established exchange) may be closed out only by agreement with the other party to the original option transaction. With OTC options, a Fund is at risk that the other party to the transaction will default on its obligations or will not permit the Fund to terminate the transaction before its scheduled maturity. While a Fund will seek to enter into OTC options only with dealers who agree to or are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an OTC option at a favorable price at any time prior to its expiration. OTC options are not subject to the protections afforded purchasers of listed options by the Options Clearing Corporation or other clearing organizations.
Index Warrants
The Funds may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices (index warrants). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at a time when, in the case of a call warrant, the exercise price is more than the value of the underlying index, or in the case of a put warrant, the exercise price is less than the value of the underlying index. If a Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. A Fund will normally use index warrants in a manner similar to its use of options on securities indices.
Forward Contracts
The Funds may invest in forward contracts. Forward contracts are transactions involving the Funds obligation to purchase or sell a specific currency or other asset at a future date at a specified price. For example, forward contracts may be used when the adviser anticipates that particular foreign currencies will appreciate or depreciate in value or to take advantage of the expected relationships between various currencies, regardless of whether securities denominated in such currencies are held in a Funds investment portfolio. Forward contracts may also be used by a Fund for hedging purposes to protect against uncertainty in the level of future foreign currency exchange rates, such as when a Fund anticipates purchasing or selling a foreign security. This technique would allow a Fund to lock in the U.S. dollar price of the investment. Forward contracts also may be used to attempt to protect the value of a Funds existing holdings of foreign securities. There may be, however, imperfect correlation between a Funds foreign securities holdings and the forward contracts entered into with respect to such holdings. The cost to a Fund of engaging in forward contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. As described above, the adviser will cover its obligations under forward contracts by segregating or otherwise designating liquid assets against the value of its net obligations under these positions (less any margin on deposit with the applicable broker) or by entering into offsetting positions.
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Swap Transactions
The Funds may enter into a variety of swap agreements, including, but not limited to, interest rate, index, commodity, equity-linked, credit default, credit-linked and currency exchange swaps. Depending on the structure of the swap agreement, a Fund may enter into swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, to gain exposure to one or more securities, currencies, commodities or interest rates, to protect against or attempt to take advantage of currency fluctuations, to protect against any increase in the price of securities that a Fund anticipates purchasing at a later date, to efficiently gain exposure to certain markets to add economic leverage to the Funds portfolio or to shift the Funds investment exposure from one type of investment to another.
Swap agreements are unregulated, individually negotiated contracts between two parties who agree to exchange for a specified period of time two streams of payments that would be earned or realized on particular notional investments or instruments. In a typical interest rate swap, for example, one party agrees to make regular payments equal to a floating interest rate times a notional principal amount, in return for payments equal to a fixed rate times the same amount, for the term of the swap agreement. The notional principal amount of a swap transaction is the agreed-upon basis for calculating the payments that the parties agree to exchange, i.e. , the return on or increase in value of a particular dollar amount invested at particular interest rate, in a particular foreign currency or commodity or in a basket of securities. Under most swap agreements, payments by the parties will be exchanged on a net basis, and a party will receive or pay, as the case may be, only the net amount of the two payments. A Fund will designate or segregate liquid assets in an amount sufficient to cover its current net obligations under swap agreements.
Swap agreements are sophisticated financial instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. Swaps can be highly volatile and may have a considerable impact on a Funds performance, as the potential gain or loss on any swap transaction is not subject to any fixed limit. A Funds successful use of swap agreements will depend on the advisers ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Even though swap markets in which swap transactions are traded have grown significantly in recent years, swap agreements are typically not traded on exchanges and are subject to liquidity risk. As a result, a Fund bears the risk of loss of the amount expected to be received pursuant to a swap agreement in the event of the default or bankruptcy of the counterparty, and the value of a swap agreement in general depends on the creditworthiness of the counterparty. A Fund may also suffer losses if it is unable to terminate (or terminate at the time and price desired) outstanding swap agreements (either by assignment or other disposition) or reduce its exposure through offsetting transactions.
Credit Default Swaps
The Funds may enter into credit default swap agreements, which may have as reference obligations one or more debt securities or an index of such securities. In a credit default swap, one party (the protection buyer) is obligated to pay the other party (the protection seller) a stream of payments over the term of the contract, provided that no credit event, such as a default or a downgrade in credit rating, occurs on the reference obligation. If a credit event occurs, the protection seller must generally pay the protection buyer the par value (the agreed-upon notional value) of the referenced debt obligation in exchange for an equal face amount of deliverable reference obligations or a specified amount of cash, depending upon the terms of the swap.
A Fund may be either the protection buyer or protection seller in a credit default swap. If a Fund is a protection buyer, such Fund would pay the counterparty a periodic stream of payments over the term of the contract and would not recover any of those payments if no credit event were to occur. However, if a credit event occurs, a Fund that is a protection buyer has the right to deliver the referenced debt obligations or a specified amount of cash, depending upon the terms of the swap and receive the par value of such debt obligations or a specified amount of cash, depending upon the terms of the swap, from the counterparty protection seller. As a protection seller, a Fund would receive fixed payments throughout the term of the contract if no credit event occurs. If a credit event occurs, however, the value of the obligation received by a Fund ( e.g. , bonds which defaulted), plus the periodic payments previously received, may be less than the par value of the obligation, or cash received, resulting in a loss to the protection seller. Furthermore, a Fund that is a protection seller would effectively add leverage to its portfolio because such Fund will have investment exposure to the notional amount of the swap.
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Credit default swap agreements are subject to greater risk than a direct investment in the reference obligation. Like all swap agreements, credit default swaps are subject to liquidity, credit and counterparty risks. In addition, collateral posting requirements are individually negotiated and there is no regulatory requirement that a counterparty post collateral to secure its obligations or a specified amount of cash, depending upon the terms of the swap, under a credit default swap. Furthermore, there is no requirement that a party be informed in advance when a credit default swap agreement is sold. Accordingly, a Fund may have difficulty identifying the party responsible for payment of its claims. The notional value of credit default swaps with respect to a particular investment is often larger than the total par value of such investment outstanding and, in event of a default, there may be difficulties in making the required deliveries of the reference investments, possibly delaying payments.
The market for credit default swaps has become more volatile recently as the creditworthiness of certain counterparties has been questioned and/or downgraded. If a counterpartys credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that a Fund may not receive adequate collateral. There is no readily available market for trading credit default swaps. A Fund generally may exit its obligations under a credit default swap only by terminating the contract and paying applicable breakage fees, or by entering into an offsetting credit default swap position, which may cause the Fund to incur more losses.
Investment Pools of Swap Contracts
The Funds may invest in publicly or privately issued interests in investment pools whose underlying assets are credit default, credit-linked, interest rate, currency exchange, equity-linked or other types of swap contracts and related underlying securities or securities loan agreements. The pools investment results may be designed to correspond generally to the performance of a specified securities index or basket of securities, or sometimes a single security. These types of pools are often used to gain exposure to multiple securities with less of an investment than would be required to invest directly in the individual securities. They may also be used to gain exposure to foreign securities markets without investing in the foreign securities themselves and/or the relevant foreign market. To the extent that a Fund invests in pools of swap contracts and related underlying securities whose performance corresponds to the performance of a foreign securities index or one or more of foreign securities, investing in such pools will involve risks similar to the risks of investing in foreign securities. In addition to the risks associated with investing in swaps generally, an investing Fund bears the risks and costs generally associated with investing in pooled investment vehicles, such as paying the fees and expenses of the pool and the risk that the pool or the operator of the pool may default on its obligations to the holder of interests in the pool, such as a Fund. Interests in privately offered investment pools of swap contracts may be considered illiquid and, except to the extent that such interests are issued under Rule 144A and deemed liquid, subject to a Funds restriction on investments in illiquid securities.
Other Derivatives; Future Developments
The above discussion relates to the Funds proposed use of certain types of derivatives currently available. However, the Funds are not limited to the transactions described above. In addition, the relevant markets and related regulations are constantly changing and, in the future, the Funds may use derivatives not currently available or widely in use.
Certain Additional Risks of Derivative Instruments
The use of derivative instruments, including the futures contracts, options and warrants, forward currency contracts and swap transactions described above, involves risks in addition to those described above or in the Prospectus. One risk arises because of the imperfect correlation between movements in the price of derivatives contracts and movements in the price of the securities, indices or other assets serving as reference instruments for the derivative. A Funds derivative strategies will not be fully effective unless the Fund can compensate for such imperfect correlation. There is no assurance that a Fund will be able to effect such compensation. For example, the correlation between the price movement of the derivatives contract and the hedged security may be distorted due to differences in the nature of the relevant markets. If the price of the futures contract moves more than the price of the hedged security, a Fund would experience either a loss or a gain on the derivative that is not completely offset by movements in the price of the hedged securities. For example, in an attempt to compensate for imperfect price movement correlations, a Fund may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the price movement volatility of the hedged securities is historically greater than the volatility of the futures contract. The use of derivatives for other than hedging purposes may be considered a speculative activity, and involves greater risks than are involved in hedging.
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The price of index futures may not correlate perfectly with movement in the relevant index due to certain market distortions. One such distortion stems from the fact that all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the index and futures markets. Another market distortion results from the deposit requirements in the futures market being less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than does the securities market. A third distortion is caused by the fact that trading hours for stock index futures may not correspond perfectly to hours of trading on the exchange to which a particular stock index futures contract relates. This may result in a disparity between the price of index futures and the value of the relevant index due to the lack of continuous arbitrage between the index futures price and the value of the underlying index. Finally, hedging transactions using stock indices involve the risk that movements in the price of the index may not correlate with price movements of the particular portfolio securities being hedged.
Price movement correlation in derivative transactions also may be distorted by the illiquidity of the futures and options markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in futures contracts or options because they do not want to assume the risk that they may not be able to close out their positions within a reasonable amount of time. In such instances, futures and options market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, the presence of speculators may create temporary price distortions unrelated to the market in the underlying securities.
Positions in futures contracts and options on futures contracts may be established or closed out only on an exchange or board of trade. There is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. The liquidity of markets in futures contracts and options on futures contracts may be adversely affected by daily price fluctuation limits established by commodity exchanges, which limit the amount of fluctuation in a futures or options price during a single trading day. Once the daily limit has been reached in a contract, no trades may be entered into at a price beyond the limit, which may prevent the liquidation of open futures or options positions. Prices have in the past exceeded the daily limit on a number of consecutive trading days. If there is not a liquid market at a particular time, it may not be possible to close a futures or options position at such time, and, in the event of adverse price movements, a Fund would continue to be required to make daily cash payments of variation margin. However, if futures or options are used to hedge portfolio securities, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract.
Income earned by a Fund from its options activities generally will be treated as capital gain and, if not offset by net recognized capital losses incurred by the Fund, will be distributed to shareholders in taxable distributions. Although gain from options transactions may hedge against a decline in the value of a Funds portfolio securities, that gain, to the extent not offset by losses, will be distributed in light of certain tax considerations and will constitute a distribution of that portion of the value preserved against decline.
The value of a Funds derivative instruments may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities or derivatives held in the Funds portfolio. All transactions in derivatives involve the possible risk of loss to a Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of a Funds investment. For example, when a Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited. A Fund will be required, however, to segregate or designate on its records liquid assets in amounts sufficient at all times to satisfy its net obligations under options and futures contracts.
The risks of a Funds use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although a Fund will normally invest only in
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exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit a Funds ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do.
The successful use of derivatives will usually depend on the advisers ability to forecast securities market, currency or other financial market movements correctly. For example, a Funds ability to hedge against adverse changes in the value of securities held in its portfolio through options and futures also depends on the degree of correlation between changes in the value of futures or options positions and changes in the values of the portfolio securities. The successful use of certain other derivatives also depends on the availability of a liquid secondary market to enable a Fund to close its positions on a timely basis. There can be no assurance that such a market will exist at any particular time.
The derivatives markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments in derivatives markets outside of the United States are subject to many of the same risks as other foreign investments.
The Funds are operated by a person who has claimed an exclusion from the definition of commodity pool operator under the Commodity Exchange Act (the CEA) and, therefore, such person is not subject to registration or regulation as a pool operator under the CEA.
Emerging Markets
Investments in foreign securities may include investments in emerging or developing countries, whose economies or securities markets are not highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) include, among others, greater political uncertainties, an economys dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, very limited numbers of potential buyers for such securities, less developed custodial and deposit systems and delays and disruptions in securities settlement procedures.
In determining whether to invest in securities of foreign issuers, the adviser of a Fund may consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax laws may reduce a Funds net income available for distribution to shareholders.
Fixed-Income Securities
Fixed-income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed-income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private or corporate issuers. Fixed-income securities include, among others, bonds, debentures, notes, bills and commercial paper. Since interest rates vary, it is impossible to predict the income of a Fund for any particular period. In addition, the prices of fixed-income securities generally vary inversely with changes in interest rates. Prices of debt securities may also be affected by items related to a particular issue or to the debt markets generally. The net asset value (NAV) of a Funds shares will vary as a result of changes in the value of the securities in the Funds portfolio.
Investment-Grade Fixed-Income Securities. To be considered investment-grade quality, at least one of the three major rating agencies (Fitch Investor Services, Inc. (Fitch), Moodys Investors Service, Inc. (Moodys) or Standard & Poors Ratings Group (S&P)) must have rated the security in one of their respective top four rating categories at the time a Fund acquires the security or, if unrated, Loomis Sayles must have determined it to be of comparable quality.
Lower-Quality Fixed-Income Securities. Lower-quality fixed-income securities (commonly referred to as junk bonds) are below investment-grade quality. To be considered below investment-grade quality, none of the three major rating agencies (Fitch, Moodys or S&P) must have rated the security in one of their respective top four rating categories at the time a Fund acquires the security or, if the security is unrated, Loomis Sayles must have determined it to be of comparable quality.
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Lower-quality fixed-income securities are subject to greater credit risk and market risk than higher-quality fixed-income securities. Lower-quality fixed-income securities are considered predominantly speculative with respect to the ability of the issuer to make timely principal and interest payments. If a Fund invests in lower-quality fixed-income securities, a Funds achievement of its objective may be more dependent on Loomis Sayles own credit analysis than is the case with funds that invest in higher-quality fixed-income securities. 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-quality fixed-income securities. This lack of liquidity at certain times may affect the values of these securities and may make the evaluation and sale of these securities more difficult. Lower-quality fixed-income securities may be in poor standing or in default and typically have speculative characteristics.
For more information about the ratings services descriptions of the various rating categories, see Appendix A. A Fund may continue to hold fixed-income securities that are downgraded in quality subsequent to their purchase if Loomis Sayles believes it would be advantageous to do so.
Foreign Currency Transactions
The Funds may engage in foreign currency transactions. Many foreign securities in a Funds portfolio will be denominated in foreign currencies or traded in securities markets in which settlements are made in foreign currencies. Any income on such securities is generally paid to the Fund in foreign currencies. The value of these foreign currencies relative to the U.S. dollar varies continually, causing changes in the dollar value of a Funds portfolio investments (even if the local market price of the investments is unchanged) and changes in the dollar value of a Funds income available for distribution to its shareholders. The effect of changes in the dollar value of a foreign currency on the dollar value of a Funds assets and on the net investment income available for distribution may be favorable or unfavorable.
To protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, to gain exposure to one or more foreign currencies or to lock in the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot ( i.e. , cash) basis at the prevailing spot rate or may enter into futures contracts on an exchange. If conditions warrant, a Fund may also enter into contracts with banks or broker-dealers to purchase or sell foreign currencies at a future date (forward contracts). A Fund will maintain cash or other liquid assets eligible for purchase by the Fund either designated on the Funds records or held in a segregated account with the custodian in an amount at least equal to the lesser of (i) the difference between the current value of the Funds liquid holdings that settle in the relevant currency and the Funds outstanding obligations under currency forward contracts, or (ii) the current amount, if any, that would be required to be paid to enter into an offsetting forward currency contract which would have the effect of closing out the original forward contract. Forward contracts are subject to many of the same risks as derivatives described in the section Derivative Instruments. Forward contracts may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. In addition, the effect of changes in the dollar value of a foreign currency on the dollar value of a Funds assets and on the net investment income available for distribution may be favorable or unfavorable. A Fund may incur costs in connection with conversions between various currencies, and the Fund will be subject to increased illiquidity and counterparty risk because forward contracts are not traded on an exchange and often are not standardized. A Fund may also be required to liquidate portfolio assets or may incur increased currency conversion costs to compensate for a decline in the dollar value of a foreign currency occurring between the time when the Fund declares and pays a dividend, or between the time when the Fund accrues and pays an operating expense in U.S. dollars.
In addition, the Funds may buy and write options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. A Fund may use options on foreign currencies to hedge against adverse changes in foreign currency conversion rates. For example, a decline in the U.S. dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of the portfolio securities, a Fund may buy put options on the foreign currency. If the value of the currency declines, a Fund will have the right to sell such currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in part, the adverse effect on its portfolio.
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Conversely, when a rise in the U.S. dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Fund may buy call options on the foreign currency. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to a Fund from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to the extent desired, a Fund could sustain losses or lesser gains on transactions in foreign currency options that would require the Fund to forego a portion or all of the benefits of advantageous changes in those rates.
A Fund may also write options on foreign currencies. For example, to hedge against a potential decline in the U.S. dollar due to adverse fluctuations in exchange rates, a Fund could, instead of purchasing a put option, write a call option on the relevant currency. If the decline expected by a Fund occurs, the option will most likely not be exercised and the diminution in value of portfolio securities be offset at least in part by the amount of the premium received. Similarly, instead of purchasing a call option to hedge against a potential increase in the U.S. dollar cost of securities to be acquired, a Fund could write a put option on the relevant currency which, if rates move in the manner projected by the Fund, will expire unexercised and allow the Fund to hedge the increased cost up to the amount of the premium. If exchange rates do not move in the expected direction, the option may be exercised and the Fund would be required to buy or sell the underlying currency at a loss, which may not be fully offset by the amount of the premium. Through the writing of options on foreign currencies, a Fund also may lose all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates.
A Funds use of currency transactions may be limited by tax considerations. The adviser may decide not to engage in currency transactions, and there is no assurance that any currency strategy used by a Fund will succeed. In addition, suitable currency transactions may not be available in all circumstances and there can be no assurance that a Fund will engage in these transactions when they would be beneficial. The foreign currency transactions in which a Fund may engage involve risks similar to those described in the section Derivative Instruments.
Transactions in non-U.S. currencies are also subject to many of the risks of investing in non-U.S. securities described in the section Foreign Securities.
Foreign Securities
Other than obligations of supranational entities, foreign securities may include securities of issuers organized or headquartered outside the United States. Some Funds may invest in foreign securities. In addition to the risk associated with investing in securities generally, such investments present additional risks not typically associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and, at times, more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than those in the United States, and judgments against foreign entities may be more difficult to obtain and enforce. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. The receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuers obligations. A Funds investments in foreign securities may include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economys dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities, and delays and disruptions in securities settlement procedures in all.
Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income
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available for distribution to shareholders of a Fund may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations. Because a Fund may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of the Funds assets and the Funds income available for distribution.
Although a Funds income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after a Funds income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of such dividend, the Fund could be required to liquidate portfolio securities to pay such dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time a Fund incurs expenses or other obligations in U.S. dollars and the time such expenses or obligations are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. In determining whether to invest assets of a Fund in securities of a particular foreign issuer, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce a Funds net income available for distribution to shareholders.
In addition, because the Funds may invest in foreign securities traded primarily on markets that close prior to the time each Fund determines its NAV, the risks posed by frequent trading may have a greater potential to dilute the value of Fund shares held by long-term shareholders than a fund investing in U.S. securities. In instances where a significant event that affects the value of one or more foreign securities held by a Fund takes place after the close of the primary foreign market, but before the time that the Fund determines its NAV, certain investors may seek to take advantage of the fact that there will be a delay in the adjustment of the market price for a security caused by this event until the foreign market reopens (sometimes referred to as price or time zone arbitrage). Shareholders who attempt this type of arbitrage may dilute the value of a Funds shares by virtue of their transaction, if those prices reflect the fair value of the foreign securities. Although each Fund has procedures designed to determine the fair value of foreign securities for purposes of calculating its NAV, when such an event has occurred, fair value pricing, because it involves judgments which are inherently subjective, may not always eliminate the risk of price arbitrage. For more information on how each Fund uses fair value pricing, see the section Net Asset Value.
Illiquid Securities
The Funds may purchase illiquid securities. Illiquid securities are those that are not readily resalable, including securities whose disposition is restricted by federal securities laws. Securities will generally be considered illiquid if such securities cannot be disposed of within seven days in the ordinary course of business at the price at which the Fund has valued the securities. Investment in restricted or other illiquid securities involves the risk that a Fund may be unable to sell such a security at the desired time or at the price at which the Fund values the security. Also, a Fund may incur expenses, losses or delays in the process of registering restricted securities prior to resale.
The Funds may purchase Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (the Securities Act). The Funds may also purchase commercial paper issued under Section 4(2) of the Securities Act. Investing in Rule 144A securities and Section 4(2) commercial paper could have the effect of increasing the level of the Funds illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Rule 144A securities and Section 4(2) commercial paper are treated as illiquid, unless the adviser has determined pursuant to guidelines established by the Trusts Board of Trustees that the particular issue is liquid.
Inflation-Linked Securities
The Funds may invest in inflation-linked securities. Inflation-linked securities are fixed-income securities whose principal value is adjusted periodically according to the rate of inflation. The Funds may invest in inflation-linked securities issued by the Japanese government. These securities generally have maturities of ten or thirty years and interest is payable semiannually. The principal amounts of these securities increase as the price index used as a reference for the securities increases. In addition, the amounts payable as coupon interest payments increase when the price index increases because the interest amount is calculated by multiplying the principal (as adjusted) by a fixed coupon rate.
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Although inflation-linked securities protect their holders from long-term inflationary trends, short-term increases in inflation may result in a decline in value. The values of inflation-linked securities generally fluctuate in response to changes to real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. If inflation were to rise at a rate faster than nominal interest rates, real interest rates might decline, leading to an increase in value of the inflation-linked securities. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rate might rise, leading to a decrease in the value of inflation-linked securities. If inflation is lower than expected during a period a Fund holds inflation-linked securities, the Fund may earn less on such securities than on a conventional bond. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in inflation-linked securities may not be protected to the extent that the increase is not reflected in the price index used as a reference for the securities. There can be no assurance that the price index used for an inflation linked bond will accurately measure the real rate of inflation in the prices of goods and services. Inflation-linked securities issued by the Japanese government will be subject to the risks described in the section Foreign Securities. Certain Funds may also invest in Treasury Inflation-Protected Securities issued by the U.S. Government. See the section U.S. Government Securities for additional information.
Investment Companies
The Funds may invest in other investment companies. Investment companies, including companies such as iShares, SPDRs and VIPERs, are essentially pools of securities. Investing in other investment companies involves substantially the same risks as investing directly in the underlying securities, but may involve additional expenses at the investment company level, such as investment advisory fees and operating expenses. In some cases, investing in an investment company may involve the payment of a premium over the value of the assets held in that investment companys portfolio. As an investor in another investment company, a Fund will bear its ratable share of the investment companys expenses, including advisory fees, and the Funds shareholders will bear such expenses indirectly, in addition to similar fees and expenses of the Fund.
Despite the possibility of greater fees and expenses, investment in other investment companies may be attractive nonetheless for several reasons, especially in connection with foreign investments. Because of restrictions on direct investment by U.S. entities in certain countries, investing indirectly in such countries (by purchasing shares of another fund that is permitted to invest in such countries) may be the most practical and efficient way for a Fund to invest in such countries. In other cases, when a Funds adviser desires to make only a relatively small investment in a particular country, investing through another fund that holds a diversified portfolio in that country may be more effective than investing directly in issuers in that country. In addition, it may be efficient for a Fund to gain exposure to particular market segments by investing in shares of one or more investment companies.
Money Market Instruments
A Fund may seek to minimize risk by investing in money market instruments, which are high-quality, short-term securities. Although changes in interest rates can change the market value of a security, each Fund expects those changes to be minimal with respect to these securities, which are often purchased for defensive purposes. However, even though money market instruments are generally considered to be high-quality and a low-risk investment, recently a number of issuers of money market and money market-type instruments have experienced financial difficulties, leading in some cases to rating downgrades and decreases in the value of their securities.
Money market obligations of foreign banks or of foreign branches or subsidiaries of U.S. banks may be subject to different risks than obligations of domestic banks, such as foreign economic, political and legal developments and the fact that different regulatory requirements apply. In addition, recently many money market instruments previously thought to be highly liquid have become illiquid. If a Funds money market instruments become illiquid, the Fund may be unable to satisfy certain of its obligations or may only be able to do so by selling other securities at prices or times that may be disadvantageous to do so.
Mortgage Dollar Rolls
The Funds may enter into mortgage dollar rolls. A dollar roll involves the sale of a security by a Fund and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. A Fund will designate on its records or segregate assets determined to be liquid in an amount
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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. A Fund may be required to purchase securities at a higher price than may otherwise be available on the open market. Since the counterparty in the transaction is required to deliver a similar, but not identical, security to the Fund, the security that the Fund is required to buy under the dollar roll may be worth less than an identical security. There is no assurance that a Funds use of the cash that it receives from a dollar roll will provide a return that exceeds borrowing costs.
Mortgage-Related Securities
The Funds may invest in mortgage-related securities, such as Government National Mortgage Association (GNMA) certificates or securities issued by the Federal National Mortgage Association (FNMA), which differ from traditional fixed-income securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that the principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if a Fund purchases these assets at a premium, a faster-than-expected prepayment rate will reduce yield to maturity, and a slower-than-expected prepayment rate will increase yield to maturity. If a Fund purchases mortgage-backed securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will 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 prepayment. In addition, an increase in interest rates would also increase the inherent volatility of a Fund by increasing the average life of the Funds portfolio securities.
The value of some mortgage-backed or asset-backed securities in which a Fund invests may be particularly sensitive to changes in prevailing interest rates, and the ability of a Fund to successfully utilize these instruments may depend in part upon the ability of the Funds adviser to forecast interest rates and other economic factors correctly. The market for mortgage-backed, mortgage-related and asset-backed securities has recently experienced high volatility and a lack of liquidity. As a result, the value of many of these securities has significantly declined. There can be no assurance that these markets will become more liquid or less volatile, and it is possible that the value of these securities could decline further. The risk of non-payment is greater for mortgage-related securities that are backed by mortgage pools that contain subprime or Alt-A loans (loans made to borrowers with weakened credit histories, less documentation or with a lower capacity to make timely payments on their loans), but a level of risk exists for all loans. Market factors adversely affecting mortgage loan repayments may include a general economic downturn, high unemployment, a general slowdown in the real estate market, a drop in the market prices of real estate or an increase in interest rates resulting in higher mortgage payments by holders of adjustable-rate mortgages.
Securities issued by the GNMA and the FNMA and similar issuers may also be exposed to risks described in the section U.S. Government Securities.
Pay-in-Kind Securities
The Funds may invest in pay-in-kind securities, which are securities that pay dividends or interest in the form of additional securities of the issuer, rather than in cash. These securities are usually issued and traded at a discount from their face amounts. The amount of the discount varies depending on various factors, such as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of pay-in-kind securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality.
Private Placements
The Funds may invest in securities that are purchased in private placements and, accordingly, are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for these securities, especially under adverse market or economic conditions or in the event of
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adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell the securities when its adviser believes that it is advisable to do so, or may be able to sell the securities only at prices lower than if the securities were more widely held. At times, it also may be more difficult to determine the fair value of the securities for purposes of computing the Funds NAV.
While private placements may offer opportunities for investment that are not otherwise available on the open market, the securities so purchased are often restricted securities, which are securities that cannot be sold to the public without registration under the Securities Act, or the availability of an exemption from registration (such as Rule 144 or Rule 144A under the Securities Act), or that are not readily marketable because they are subject to other legal or contractual delays or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a market value for illiquid investments such as private placements. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for a Fund to sell the illiquid securities promptly at an acceptable price. A Fund may have to bear the extra expense of registering the securities for resale and the risk of substantial delay in effecting the registration. In addition, market quotations are typically less readily available for these securities. The judgment of a Funds adviser may at times play a greater role in valuing these securities than in the case of unrestricted securities.
Generally, restricted securities may be sold only to qualified institutional buyers, in a privately negotiated transaction to a limited number of purchasers in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration, or in a public offering for which a registration statement is in effect under the Securities Act. A Fund may be deemed to be an underwriter for purposes of the Securities Act when selling restricted securities to the public. As such, a Fund may be liable to purchasers of the securities if the registration statement prepared by the issuer, or the Prospectus forming a part of the registration statement, is materially inaccurate or misleading.
Privatizations
The Funds may participate in privatizations. In a number of countries around the world, governments have undertaken to sell to investors interests in enterprises that the government has historically owned or controlled. These transactions are known as privatizations and may in some cases represent opportunities for significant capital appreciation. In some cases, the ability of U.S. investors, such as the Funds, to participate in privatizations may be limited by local law, and the terms of participation for U.S. investors may be less advantageous than those for local investors. Also, there is no assurance that privatized enterprises will be successful, or that an investment in such an enterprise will retain its value or appreciate in value.
REITs
REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code and failing to maintain their exemptions from registration under the 1940 Act.
Investment in REITs involves risks similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than larger securities.
A Funds investment in a REIT may require the Fund to accrue and distribute income not yet received or may result in the Funds making distributions that constitute a return of capital to Fund shareholders for U.S. federal income tax purposes. In addition, distributions by a Fund from a REIT will not qualify for the corporate dividends-received deduction, or generally, for treatment as qualified dividend income.
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Repurchase Agreements
Under a repurchase agreement, a Fund purchases a security and obtains a simultaneous commitment from the seller to repurchase the security at an agreed-upon price and date. The resale price is in excess of the purchase price and reflects an agreed-upon market rate unrelated to the coupon rate on the purchased security. Repurchase agreements are economically similar to collateralized loans by a Fund. Such transactions afford the Fund the opportunity to earn a return on temporarily available cash at what is considered to be comparatively low market risk. The Fund may invest in a repurchase agreement that does not produce a positive return to the Fund if the adviser believes it is appropriate to do so under the circumstances (for example, to help protect the Funds uninvested cash against the risk of loss during periods of market turmoil). While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the U.S. Government, the obligation of the seller is not guaranteed by the U.S. Government, and there is a risk that the seller may fail to repurchase the underlying security. In such event, the Fund would attempt to exercise rights with respect to the underlying security, including possible disposition in the market. However, the Fund may be subject to various delays and risks of loss, including (a) possible declines in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (b) possible reduced levels of income and lack of income during this period, and (c) the inability to enforce rights and the expenses involved in attempted enforcement, for example, against a counterparty undergoing financial distress.
Rule 144A Securities
Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act. A Fund may also purchase commercial paper issued under Section 4(2) of the Securities Act. Investing in Rule 144A securities and Section 4(2) commercial paper could have the effect of increasing the level of a Funds liquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Rule 144A securities and Section 4(2) commercial paper are treated as illiquid, unless Loomis Sayles has determined, under guidelines established by the Trusts trustees, that the particular issue of Rule 144A securities is liquid.
Securities Lending
A Fund may lend from its total assets in the form of portfolio securities to brokers, dealers or other financial institutions under contracts calling for the deposit by the borrower with the Funds custodian of collateral equial to at least the market value of the securities loaned, marked to market on a daily basis. Each Fund will continue to benefit from payments in lieu of interest or dividends on the securities loaned and will also receive interest through investment of the cash collateral in short-term liquid investments. No loans will be made if, as a result, the aggregate amount of such loans outstanding at any time would exceed 33-1/3% of the Funds assets (taken at current value). Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event affecting the investment occurs, such loans may be called so that the securities may be voted by the Fund. The Funds pay various fees in connection with such loans.
Securities loans must be fully collateralized at all times, but involve some credit risk to the Fund if the borrower defaults on its obligation and the Fund is delayed or prevented from recovering the collateral.
Short-Term Trading
The Funds may, consistent with their investment objectives, engage in portfolio trading in anticipation of, or in response to, changing economic or market conditions and trends. These policies may result in higher turnover rates in a Funds portfolio, which may produce higher transaction costs and a higher level of taxable capital gains. Portfolio turnover considerations will not limit Loomis Sayles investment discretion in managing a Funds assets. Each Fund anticipates that its portfolio turnover rate will vary significantly from time to time depending on the volatility of economic and market conditions.
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Small Capitalization Companies
Investments in companies with relatively small market capitalizations may involve greater risk than is usually associated with more established companies. These companies often have limited product lines, markets, or financial resources, and they may be dependent upon a relatively small management group. Their securities may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of companies with larger capitalizations or market averages in general. The NAVs of funds that invest in companies with smaller capitalizations may fluctuate more widely than market averages.
Step-Coupon Securities
The Funds may invest in step-coupon securities. Step-coupon securities trade at a discount from their face value and pay coupon interest. The coupon rate is low for an initial period and then increases to a higher coupon rate thereafter. Market values of these types of securities generally fluctuate in response to changes in interest rates to a greater degree than conventional interest-paying securities of comparable term and quality. Under many market conditions, investments in such securities may be illiquid, making it difficult for a Fund to dispose of them or determine their current value.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities include interest-only and principal-only classes of mortgage-backed securities (IOs and POs, respectively). The yield to maturity of an IO or PO is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurably adverse effect on a Funds yield to maturity to the extent it invests in IOs. If the assets underlying the IOs experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully its initial investment in these securities. Conversely, POs tend to decline in value if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage-backed securities, potentially limiting a Funds ability to buy or sell those securities at any particular time.
Stripped Securities
The Funds may invest in stripped securities, which are usually structured with two or more classes that receive different proportions of the interest and principal distribution on a pool of U.S. Government, or foreign government securities or mortgage assets. In some cases, one class will receive all of the interest (the interest-only or IO class), while the other class will receive the entire principal (the principal-only or PO class). Stripped securities commonly have greater market volatility than other types of fixed-income securities. In the case of stripped mortgage securities, if the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may fail to recoup fully its investments in IOs. The staff of the SEC has indicated that it views stripped mortgage securities as illiquid unless the securities are issued by the U.S. Government or its agencies and are backed by fixed-rate mortgages. The Funds intend to abide by the staffs position. Stripped securities may be considered derivative securities, discussed in the section Derivative Instruments.
Structured Notes
The Funds may invest in a broad category of instruments known as structured notes. These instruments are debt obligations issued by industrial corporations, financial institutions or governmental or international agencies. Traditional debt obligations typically obligate the issuer to repay the principal plus a specified rate of interest. Structured notes, by contrast, obligate the issuer to pay amounts of principal or interest that are determined by reference to changes in some external factor or factors, or the principal and interest rate may vary from the stated rate because of changes in these factors. For example, the issuers obligations could be determined by reference to changes in the value of a commodity (such as gold or oil), a foreign currency, an index of securities (such as the S&P 500 Index) or an interest rate (such as the U.S. Treasury bill rate). In some cases, the issuers obligations are determined by reference to changes over time in the difference (or spread) between two or more external factors
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(such as the U.S. prime lending rate and the total return of the stock market in a particular country, as measured by a stock index). In some cases, the issuers obligations may fluctuate inversely with changes in an external factor or factors (for example, if the U.S. prime lending rate goes up, the issuers interest payment obligations are reduced). In some cases, the issuers obligations may be determined by some multiple of the change in an external factor or factors (for example, three times the change in the U.S. Treasury bill rate). In some cases, the issuers obligations remain fixed (as with a traditional debt instrument) so long as an external factor or factors do not change by more than the specified amount (for example, if the value of a stock index does not exceed some specified maximum), but if the external factor or factors change by more than the specified amount, the issuers obligations may be sharply reduced.
Structured notes can serve many different purposes in the management of a Fund. For example, they can be used to increase a Funds exposure to changes in the value of assets that the Fund would not ordinarily purchase directly (such as stocks traded in a market that is not open to U.S. investors). They can also be used to hedge the risks associated with other investments a Fund holds. For example, if a structured note has an interest rate that fluctuates inversely with general changes in a countrys stock market index, the value of the structured note would generally move in the opposite direction to the value of holdings of stocks in that market, thus moderating the effect of stock market movements on the value of a Funds portfolio as a whole.
Risks . Structured notes involve special risks. As with any debt obligation, structured notes involve the risk that the issuer will become insolvent or otherwise default on its payment obligations. This risk is in addition to the risk that the issuers obligations (and thus the value of a Funds investment) will be reduced because of adverse changes in the external factor or factors to which the obligations are linked. The value of structured notes will in many cases be more volatile (that is, will change more rapidly or severely) than the value of traditional debt instruments. Volatility will be especially high if the issuers obligations are determined by reference to some multiple of change in the external factor or factors. Many structured notes have limited or no liquidity, so that a Fund would be unable to dispose of the investment prior to maturity. As with all investments, successful use of structured notes depends in significant part on the accuracy of the advisers analysis of the issuers creditworthiness and financial prospects, and of the advisers forecast as to changes in relevant economic and financial market conditions and factors. In instances where the issuer of a structured note is a foreign entity, the usual risks associated with investments in foreign securities apply. Structured notes may be considered derivative securities.
Supranational Entities
The Funds may invest in obligations of supranational entities. A supranational entity is an entity designated or supported by national governments to promote economic reconstruction, development or trade among nations. Examples of supranational entities include the International Bank for Reconstruction and Development (also known as the World Bank) and the European Investment Bank. Obligations of supranational entities are subject to the risk that the governments on whose support the entities depend for financial backing or repayment may be unable or unwilling to provide that support. Obligations of supranational entities that are denominated in foreign currencies will also be subject to the risks associated with investments in foreign currencies, as described in the sections Foreign Securities and Foreign Currency Transactions.
Tax-Exempt Securities
The Funds may invest in tax-exempt securities (Tax-Exempt Securities), which term refers to debt securities the interest from which is, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by a Funds portfolio manager to be reliable), exempt from U.S. federal income tax. Tax-Exempt Securities include debt obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions (for example, counties, cities, towns, villages and school districts) and authorities to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which certain tax-exempt securities may be issued include the refunding of outstanding obligations, obtaining funds for federal operating expenses, or obtaining funds to lend to public or private institutions for the construction of facilities such as educational, hospital and housing facilities. In addition, certain types of private activity bonds have been or may be issued by public authorities or on behalf of state or local governmental units to finance privately operated housing facilities, sports facilities, convention or trade facilities, air or water pollution
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control facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Such obligations are included within the term Tax-Exempt Securities if the interest paid thereon, is, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by a Funds portfolio manager to be reliable), exempt from U.S. federal income tax.
Funds that invest in certain tax-exempt bonds or certain private activity bonds may not be a desirable investment for substantial users of facilities financed by such obligations or bonds or for related persons of substantial users. You should contact your financial adviser or attorney for more information if you think you may be a substantial user or a related person of a substantial user.
There are variations in the quality of Tax-Exempt Securities, both within a particular classification and between classifications, depending on numerous factors (see Appendix A for a description of securities ratings).
The two principal classifications of tax-exempt bonds are general obligation bonds and limited obligation (or revenue) bonds. General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from the issuers general unrestricted revenues and not from any particular fund or source. The characteristics and method of enforcement of general obligation bonds vary according to the law applicable to the particular issuer, and payment may be dependent upon an appropriation by the issuers legislative body. Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities, or in some cases from the proceeds of a special excise or other specific revenue source such as the user of the facility. Tax-exempt private activity bonds are in most cases revenue bonds and generally are not payable from the unrestricted revenues of the issuer. The credit and quality of such bonds are usually directly related to the credit standing of the corporate user of the facilities. Principal and interest on such bonds are the responsibilities of the corporate user (and any guarantor).
The yields on Tax-Exempt Securities are dependent on a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the Tax-Exempt Securities market, the size of a particular offering, the maturity of the obligation and the rating of the issue. Further, information about the financial condition of an issuer of tax-exempt bonds may not be as extensive as that made available by corporations whose securities are publicly traded. The ratings of Moodys, S&P and Fitch represent their opinions as to the quality of the Tax-Exempt Securities which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, Tax-Exempt Securities with the same maturity, interest rate and rating may have different yields while Tax-Exempt Securities of the same maturity and interest rates with different ratings may have the same yield. Subsequent to its purchase by a Fund, an issue of Tax-Exempt Securities or other investments may cease to be rated or the rating may be reduced below the minimum rating required for purchase by a Fund. Neither event will require the elimination of an investment from a Funds portfolio, but a Funds adviser will consider such an event as part of its normal, ongoing review of all a Funds portfolio securities.
Securities in which a Fund may invest, including Tax-Exempt Securities, are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code, and laws, if any, which may be enacted by Congress or the state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power or ability of issuers to meet their obligations for the payment of interest and principal on their Tax-Exempt Securities may be materially affected or that their obligations may be found to be invalid and unenforceable. Such litigation or conditions may from time to time have the effect of introducing uncertainties in the market for tax-exempt bonds or certain segments thereof, or materially affecting the credit risk with respect to particular bonds. Adverse economic, legal or political developments might affect all or a substantial portion of a Funds Tax-Exempt Securities in the same manner.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the U.S. federal income tax exemption for interest on debt obligations issued by states and their political subdivisions and similar proposals may well be introduced in the future. If such a proposal were enacted, the availability of Tax-Exempt Securities for investment by the Funds and the value of a Funds portfolios could be materially affected, in which event such a Fund would reevaluate its investment objectives and policies and consider changes in their structure or dissolution.
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All debt securities, including tax-exempt bonds, are subject to credit and market risk. Generally, for any given change in the level of interest rates, prices for longer maturity issues tend to fluctuate more than prices for shorter maturity issues.
U.S. Government Securities
The Funds may invest in some or all of the following U.S. Government securities:
U.S. Treasury Bills - Direct obligations of the U.S. Treasury that are issued in maturities of one year or less. No interest is paid on Treasury bills; instead, they are issued at a discount and repaid at full face value when they mature. They are backed by the full faith and credit of the U.S. Government.
U.S. Treasury Notes and Bonds - Direct obligations of the U.S. Treasury issued in maturities that vary between one and 30 years, with interest normally payable every six months. These obligations are backed by the full faith and credit of the U.S. Government.
Treasury Inflation-Protected Securities (TIPS) - Fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. The interest rate on TIPS is fixed at issuance, but over the life of the bond this interest may be paid on an increasing or decreasing principal value that has been adjusted for inflation. Although repayment of the original bond principal upon maturity is guaranteed, the market value of TIPS is not guaranteed, and will fluctuate.
Ginnie Maes - Debt securities issued by a mortgage banker or other mortgagee which represent an interest in a pool of mortgages insured by the Federal Housing Administration or the Rural Housing Service or guaranteed by the Veterans Administration. The GNMA guarantees the timely payment of principal and interest when such payments are due, whether or not these amounts are collected by the issuer of these certificates on the underlying mortgages. It is generally understood that a guarantee by GNMA is backed by the full faith and credit of the United States. Mortgages included in single family or multi-family residential mortgage pools backing an issue of Ginnie Maes have a maximum maturity of 30 years. Scheduled payments of principal and interest are made to the registered holders of Ginnie Maes (such as the Funds) each month. Unscheduled prepayments may be made by homeowners, or as a result of a default. Prepayments are passed through to the registered holder (such as the Funds, which reinvest any prepayments) of Ginnie Maes along with regular monthly payments of principal and interest.
Fannie Maes - The FNMA is a government-sponsored corporation owned entirely by private stockholders that purchases residential mortgages from a list of approved seller/servicers, including state and federally chartered savings and loan associations, mutual funds savings banks, commercial banks, credit unions and mortgage banks. Fannie Maes are pass-through securities issued by FNMA that are guaranteed as to timely payment of principal and interest by FNMA.
Freddie Macs - The Federal Home Loan Mortgage Corporation (FHLMC) is a corporate instrumentality of the U.S. Government. Freddie Macs are participation certificates issued by FHLMC that represent an interest in residential mortgages from FHLMCs National Portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal.
Risks. U.S. Government securities generally do not involve the credit risks associated with investments in other types of fixed-income securities, although, as a result, the yields available from U.S. Government securities are generally lower than the yields available from corporate fixed-income securities. Like other debt securities, however, the values of U.S. Government securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in a Funds NAV. Because the magnitude of these fluctuations will generally be greater at times when a Funds average maturity is longer, under certain market conditions a Fund may, for temporary defensive purposes, accept lower current income from short-term investments rather than investing in higher yielding long-term securities. Securities such as those issued by Fannie Mae and Freddie Mac are guaranteed as to the payment of principal and interest by the relevant entity ( e.g. , FNMA or FHLMC) but have not been backed by the full faith and credit of the U.S. Government. Instead, they have been supported only by the discretionary authority of the U.S. Government to
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purchase the agencys obligations. 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.
In September 2008, the U.S. Treasury Department announced that the government would be taking over the FNMA and FHLMC and placing the companies in a conservatorship. The companies remain in conservatorship, and the effect that this conservatorship will have on the companies debt and equity securities is unclear. Although the U.S. government has recently provided financial support to FNMA and FHLMC, there can be no assurance that it will support these or other government-sponsored enterprises in the future. In addition, any such government support may benefit the holders of only certain classes of an issuers securities.
The values of TIPS generally fluctuate in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. If inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of TIPS. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of TIPS. If inflation is lower than expected during the period a Fund holds TIPS, the Fund may earn less on the TIPS than on a conventional bond. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in TIPS may not be protected to the extent that the increase is not reflected in the bonds inflation measure. There can be no assurance that the inflation index for TIPS will accurately measure the real rate of inflation in the prices of goods and services.
See the section Mortgage-Related Securities for additional information on these securities.
Warrants and Rights
The Funds may invest in warrants and rights. A warrant is an instrument that gives the holder a right to purchase a given number of shares of a particular security at a specified price until a stated expiration date. Buying a warrant generally can provide a greater potential for profit or loss than an investment of equivalent amounts in the underlying common stock. The market value of a warrant does not necessarily move with the value of the underlying securities. If a holder does not sell the warrant, it risks the loss of its entire investment if the market price of the underlying security does not, before the expiration date, exceed the exercise price of the warrant. Investment in warrants is a speculative activity. Warrants pay no dividends and confer no rights (other than the right to purchase the underlying securities) with respect to the assets of the issuer. A right is a privilege granted to existing shareholders of a corporation to subscribe for shares of a new issue of common stock before it is issued. Rights normally have a short life, usually two to four weeks, are freely transferable and entitle the holder to buy the new common stock at a lower price than the public offering price.
When-Issued Securities
A when-issued security involves a Fund entering into a commitment to buy a security before the security has been issued. A Funds payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. If the value of the security being purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the Funds risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. If a Fund has outstanding obligations to buy when-issued securities, it will either designate on the Funds records or segregate at its custodian bank liquid assets in an amount sufficient to satisfy these obligations.
Zero-Coupon Securities
Zero-coupon securities are debt obligations ( e.g. , bonds) that do not entitle the holder to any periodic payments of interest either for the entire life of the obligation or for an initial period after the issuance of the obligation. Such bonds are issued and traded at a discount from their face amounts. The amount of the discount varies depending on
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such factors as the time remaining until maturity of the bonds, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of zero-coupon bonds generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than coupon bonds having similar maturities and credit quality. In order to satisfy a requirement for qualification as a regulated investment company (a RIC) under the Code each Fund must distribute each year at least 90% of its net investment income, including the original issue discount accrued on zero-coupon bonds. Because a Fund investing in zero-coupon bonds will not on a current basis receive cash payments from the issuer in respect of accrued original issue discount, the Fund may have to distribute cash obtained from other sources in order to satisfy the 90% distribution requirement under the Code. Such cash might be obtained from selling other portfolio holdings of the Fund. In some circumstances, such sales might be necessary in order to satisfy cash distribution requirements even though investment considerations might otherwise make it undesirable for a Fund to sell such securities at such time.
Each Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders capital, Loomis Sayles may employ a temporary defensive strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies or multinational currency units) or invest up to 100% of its assets in cash, high-quality debt securities or money market instruments of U.S. or foreign issuers. It is impossible to predict whether, when or for how long a Fund will employ temporary defensive strategies. The use of temporary defensive strategies may prevent a Fund from achieving its goal.
In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, a Fund may temporarily hold cash (U.S. dollars, foreign currencies or multinational currency units) and may invest any portion of its assets in money market or other short-term high quality debt instruments.
A Funds portfolio turnover rate for a fiscal year is calculated by dividing the lesser of purchases or sales of portfolio securities for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year, in each case excluding securities having maturity dates at acquisition of one year or less. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund, thereby decreasing the Funds total return. It is impossible to predict with certainty whether future portfolio turnover rates will be higher or lower than those experienced during past periods. Each Fund anticipates that its portfolio turnover rate will vary significantly from time to time depending on the volatility of economic and market conditions.
Generally, the Funds intend to invest for long-term purposes. However, the rate of portfolio turnover will depend upon market and other conditions, and it will not be a limiting factor when the adviser believes that portfolio changes are appropriate.
PORTFOLIO HOLDINGS INFORMATION
The Trusts Board of Trustees has adopted policies to limit the disclosure of portfolio holdings information and to ensure equal access to such information, except in certain circumstances as approved by the Board of Trustees. These policies are summarized below. Generally, full portfolio holdings information will not be disclosed until it is first posted on the Funds website at www.loomissayles.com. Generally, full portfolio holdings information will not be posted until it has aged at least 30 days. A list of the Funds top 10 holdings will generally be available on a monthly basis within 5 days after month end. Any holdings information that is released must clearly indicate the date of the information, and must state that due to active management, the Funds may or may not still invest in the securities listed. Portfolio characteristics, such as industry/sector breakdown, current yield, quality breakdown, duration, average price-earnings ratio and other similar information may be provided on a current basis. However, portfolio characteristics do not include references to specific portfolio holdings.
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The Board of Trustees has approved exceptions to the general policy on the sharing of portfolio holdings information as in the best interests of the Funds, as follows:
(1) | Disclosure of portfolio holdings posted on the Funds website provided that the information is shared no sooner than the next day following the day on which the information is posted; |
(2) | Disclosure to firms offering industry-wide services, provided that the firm has agreed in writing to maintain the confidentiality of the Funds portfolio holdings. Entities that receive information pursuant to this exception include Lipper (monthly disclosure of full portfolio holdings, provided 6 days after month-end) and FactSet (daily disclosure of full portfolio holdings provided the next business day); |
(3) | Disclosure (subject to a written confidentiality provision) to Broadridge Financial Solutions, Inc . as part of the proxy voting recordkeeping services provided to the Funds, and to RiskMetrics Group and Glass Lewis & Co., LLC, as part of the proxy voting administration and research services, respectively, provided to the Funds adviser (votable portfolio holdings of issuers as of record date for shareholder meetings); |
(4) | Disclosure to employees of the Funds adviser, principal underwriter, administrator, custodian, Fund accounting agent, Fund counsel and independent registered public accounting firm, Fund counsel and independent trustees counsel as well as to broker-dealers executing portfolio transactions for the Funds, provided that such disclosure is made for bona fide business purposes; and |
(5) | Other disclosures made for non-investment purposes, but only if approved in writing in advance by an officer of the Funds. Such exceptions will be reported to the Board of Trustees. |
With respect to items (2) through (4) above, disclosure is made pursuant to procedures that have been approved by the Board of Trustees, and may be made by employees of each Funds adviser, administrator or custodian. With respect to (5) above, approval will be granted only when the officer determines that the Funds have a legitimate business reason for sharing the portfolio holdings information and the recipients are subject to a duty of confidentiality, including a duty not to trade on the information. As of the date of this Statement, the only entities that receive information pursuant to this exception are GCom2 (quarterly, or more frequently as needed, disclosure of full portfolio holdings) for the purpose of performing certain functions related to the production of the Funds semiannual financial statements, quarterly Form N-Q filing and other related items, Electra Information Systems, Inc. (daily disclosure of full portfolio holdings) for the purpose of performing certain electronic reconciliations of portfolio holdings, Barclays Capital (periodic disclosure of full portfolio holdings) and Yield Book (periodic disclosure of full portfolio holdings) for the purpose of performing certain portfolio analytics for the adviser, and Ernst & Young LLP (annually, or more frequently as needed, disclosure of foreign equity securities) for the purpose of performing certain functions related to the production of the Funds U.S. federal income and excise tax returns. Although the Trust may enter into written confidentiality agreements, in other circumstances, such as those described in (4) above, the obligation to keep information confidential may be based on common law, professional or statutory duties of confidentiality. Common law, professional or statutory duties of confidentiality, including the duty not to trade on the information, may not be as clearly delineated and may be more difficult to enforce than contractual duties. Each Funds officers determine on a case by case basis whether it is appropriate for the Funds to rely on such common law, professional or statutory duties. The Board of Trustees exercises oversight of the disclosure of portfolio holdings by, among other things, receiving and reviewing reports from each Funds chief compliance officer regarding any material issues concerning the Funds disclosure of portfolio holdings or from officers of the Fund in connection with proposed new exceptions or new disclosures pursuant to item (5) above. Notwithstanding the above, there is no assurance that the Funds policies on the sharing of portfolio holdings information will protect the Funds from the potential misuse of holdings by individuals or firms in possession of that information.
Other registered investment companies that are advised or sub-advised by a Funds adviser may be subject to different portfolio holdings disclosure policies, and neither the adviser nor the Board of Trustees of each Trust exercises control over such policies or disclosure. In addition, separate account clients of the adviser have access to their portfolio holdings and are not subject to each Funds portfolio holdings disclosure policies. Some of the Funds that are advised or sub-advised by the adviser and some of the separate accounts managed by the adviser have investment objectives and strategies that are substantially similar or identical to the Funds and therefore potentially substantially similar, and in certain cases nearly identical, portfolio holdings as certain Funds.
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In addition, any disclosures of portfolio holdings information by a Fund or its adviser must be consistent with the anti-fraud provisions of the federal securities laws, the Funds and the advisers fiduciary duty to shareholders, and the Funds code of ethics. Each Funds policies expressly prohibit the sharing of portfolio holdings information if the Fund, its adviser, or any other affiliated party receives compensation or other consideration in connection with such arrangement. The term consideration includes any agreement to maintain assets in a Fund or in other funds or accounts managed by the Funds adviser or by any affiliated person of the adviser.
The Trust is governed by a Board of Trustees, which is responsible for generally overseeing the conduct of Fund business and for protecting the interests of shareholders. The Trustees meet periodically throughout the year to oversee the Funds activities, review contractual arrangements with companies that provide
Trustees and Officers
The table below provides certain information regarding the trustees and officers of the Trust. For purposes of this table and for purposes of this Statement, the term Independent Trustee means those trustees who are not interested persons, as defined in the 1940 Act, of the Trust. In certain circumstances, trustees are also required to have no direct or indirect financial interest in the approval of a matter being voted on in order to be considered independent for the purposes of the requisite approval. For purposes of this Statement, the term Interested Trustee means those trustees who are interested persons, as defined by the 1940 Act, of the Trust.
Unless otherwise indicated, the address of all persons below is 399 Boylston Street, Boston, MA 02116.
Name and Year of Birth |
Position(s) Held with the Trust, Length of Time Served and Term of Office* |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen** and Other Directorships Held During Past 5 Years |
Experience, Qualifications, Attributes, Skills for Board Membership |
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INDEPENDENT TRUSTEES |
||||||||
Graham T. Allison, Jr. (1940) |
Trustee
Since 2003
Contract Review and Governance Committee Member |
Douglas Dillon Professor and Director of the Belfer Center for Science and International Affairs, John F. Kennedy School of Government, Harvard University |
40
Director, Taubman Centers, Inc. (real estate investment trust) |
Significant experience on Board of Trustees of the Trusts and/or other business organizations; government experience (including as Assistant Secretary of Defense under President Clinton); academic experience | ||||
Edward A. Benjamin (1938) |
Trustee
Since 2002
Chairman of the Contract Review and Governance Committee |
Retired |
40
Formerly, Director, Precision Optics Corporation (optics manufacturer) |
Significant experience on Board of Trustees of the Trusts and/or other business organizations; significant experience providing legal counsel to boards, funds, advisers and other financial institutions (former partner at Ropes & Gray LLP) |
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Name and Year of Birth |
Position(s) Held with the Trust, Length of Time Served and Term of Office* |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen** and Other Directorships Held During Past 5 Years |
Experience, Qualifications, Attributes, Skills for Board Membership |
||||
Daniel M. Cain (1945) |
Trustee
Since 2003
Chairman of the Audit Committee |
Chairman (formerly, President and Chief Executive Officer) of Cain Brothers & Company, Incorporated (investment banking) |
40
Director, Sheridan Healthcare Inc. (physician practice management) |
Significant experience on Board of Trustees of the Trusts and/or other business organizations; experience in the financial industry, including roles as chairman and former chief executive officer of an investment banking firm | ||||
Kenneth A. Drucker (1945) 1 |
Trustee
Since 2008
Audit Committee Member |
Formerly, Vice President and Treasurer, Sequa Corp. (aerospace, automotive and metal manufacturing) |
40
Formerly, Director, M Fund, Inc. (investment company); Director, Gateway Trust (investment company) |
Significant experience on Board of Trustees of the Trusts and/or other business organizations; executive experience including as treasurer of a corporation | ||||
Wendell J. Knox (1948) 2 |
Trustee
Since 2009
Contract Review and Governance Committee Member |
Director (formerly, President and Chief Executive Officer) of Abt Associates Inc. (research and consulting) |
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Director, Eastern Bank (commercial bank); Director, The Hanover Insurance Group (property and casualty insurance) |
Significant experience on Board of Trustees of the Trusts and/or other business organizations; executive experience including roles as president and chief executive officer of a consulting company | ||||
Sandra O. Moose (1942) |
Chairperson of the Board of Trustees since November 2005
Since 2003
Ex officio member of the Audit Committee and Contract Review and Governance Committee |
President, Strategic Advisory Services (management consulting); formerly, Senior Vice President and Director, The Boston Consulting Group, Inc. (management consulting) |
40
Director, Verizon Communications; Director, AES Corporation (international power company); Formerly, Director, Rohm and Haas Company (specialty chemicals) |
Significant experience on Board of Trustees of the Trusts and/or other business organizations; executive experience at a management consulting company | ||||
Erik R. Sirri (1958) 3 |
Trustee
Since 2009
Contract Review and Governance Committee Member |
Professor of Finance at Babson College; formerly, Director of the Division of Trading and Markets at the Securities and Exchange Commission |
40
None |
Experience as Director of the Division of Trading and Markets at the Securities and Exchange Commission; academic experience and training as an economist |
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* | Each Trustee serves until retirement, resignation or removal from the Board of Trustees. The current retirement age is 72; however, the Trustees have designated 2010 as a transition period so that any Trustees who are currently age 72 or older or who reach age 72 during the remainder of 2010 will not be required to retire until the end of calendar year 2011. The position of Chairperson of the Board is appointed for a two-year term. Ms. Moose was appointed to serve an additional two-year term as the Chairperson of the Board of Trustees on November 20, 2009. |
** | The Trustees of the Trusts serve as Trustees of a fund complex that includes all series of the Natixis Funds Trusts, the Loomis Sayles Funds Trusts and Hansberger International Series (collectively, the Fund Complex). |
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1 |
Mr. Drucker was appointed as a Trustee effective July 1, 2008. |
2 |
Mr. Knox was appointed as a Trustee effective July 1, 2009. |
3 |
Mr. Sirri and Mr. Smail were appointed as Trustees effective December 1, 2009 |
4 |
Mr. Blanding is deemed an interested person of the Trusts because he holds the following positions with an affiliated person of the Trusts: President, Chairman, Director and Chief Executive Officer of Loomis Sayles. |
5 |
Mr. Hailer is deemed an interested person of the Trusts because he holds the following positions with an affiliated person of the Trusts: President and Chief Executive Officer-U.S. and Asia, Natixis Global Asset Management, L.P. |
Name and Year of Birth |
Position(s) Held with the Trust |
Term of Office* and Length of Time Served |
Principal Occupation During Past 5 Years** |
|||
OFFICERS OF THE TRUST |
||||||
Coleen Downs Dinneen (1960) |
Secretary, Clerk and Chief Legal Officer | Since September 2004 | Executive Vice President, General Counsel, Secretary and Clerk (formerly, Senior Vice President, Deputy General Counsel, Assistant Secretary and Assistant Clerk), Natixis Distribution Corporation, Natixis Asset Management Advisors, L.P. and Natixis Distributors, L.P. | |||
Daniel J. Fuss (1933) One Financial Center Boston, MA 02111 |
Executive Vice President | Since June 2003 | Vice Chairman and Director, Loomis, Sayles & Company, L.P. | |||
David L. Giunta (1965) |
Executive Vice President | Since March 2008 | President and Chief Executive Officer, Natixis Distribution Corporation, Natixis Asset Management Advisors, L.P. and Natixis Distributors, L.P.; formerly, President, Fidelity Charitable Gift Fund; and formerly, Senior Vice President, Fidelity Brokerage Company | |||
Russell L. Kane (1969) |
Chief Compliance Officer, Assistant Secretary and Anti-Money Laundering Officer | Chief Compliance Officer since May 2006; Assistant Secretary since June 2004; and Anti-Money Laundering Officer since April 2007 | Chief Compliance Officer for Mutual Funds, Senior Vice President, Deputy General Counsel, Assistant Secretary and Assistant Clerk, Natixis Distribution Corporation, Natixis Asset Management Advisors, L.P. and Natixis Distributors, L.P. | |||
Michael C. Kardok (1959) |
Treasurer, Principal Financial and Accounting Officer | Since October 2004 | Senior Vice President, Natixis Asset Management Advisors, L.P. and Natixis Distributors, L.P. |
* | Each officer of the Trust serves for an indefinite term in accordance with the Trusts current by-laws until the date his or her successor is elected and qualified, or until he or she sooner dies, retires, is removed or becomes disqualified. |
** | Each person listed above, except as noted, holds the same position(s) with the Natixis Funds Trusts, Loomis Sayles Funds Trust and Hansberger International Series. Mr. Fuss is not an officer of the Natixis Funds Trusts or the Hansberger International Series. Previous positions during the past five years with the Distributor, Natixis Advisors or Loomis Sayles are omitted, if not materially different from a Trustees or an officers current position with such entity. |
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Leadership and Structure of the Board
The Board of Trustees is led by the Chairperson of the Board, who is an Independent Trustee. The Board of Trustees currently consists of eleven Trustees, nine of whom are Independent Trustees. The Trustees have delegated significant oversight authority to the two standing committees of each Trust, the Audit Committee and Contract Review and Governance Committee, both of which consist solely of Independent Trustees. These committees meet separately and at times jointly, with the joint meetings intended to educate and involve all Independent Trustees in significant committee-level topics. As well as handling matters directly, the committees raise matters to the Board of Trustees for consideration. In addition to the oversight performed by the committees and the Board of Trustees, the Chairperson of the Board and the chairpersons of each committee interact frequently with management regarding topics to be considered at Board and committee meetings as well as items arising between meetings. At least once a year the Board of Trustees reviews its governance structure. The Board of Trustees believes its leadership structure is appropriate and effective in that it allows for oversight at the committee or board level, as the case may be, while facilitating communications among the Trustees and between the Board and Fund management.
The Contract Review and Governance Committee of each Trust considers matters relating to advisory, subadvisory and distribution arrangements, potential conflicts of interest between the adviser and each Trust, and governance matters relating to each Trust. During the fiscal year ended December 31, 2009, this committee held five meetings. The Contract Review and Governance Committee also makes nominations for independent trustee membership on each Board of Trustees when necessary and considers recommendations from shareholders of the Funds that are submitted in accordance with the procedures by which shareholders may communicate with the Board of Trustees. Pursuant to those procedures, shareholders must submit a recommendation for nomination in a signed writing addressed to the attention of the Board of Trustees, c/o Secretary of the Funds, Natixis Asset Management Advisors, L.P., 399 Boylston Street, 12 th Floor, Boston, MA 02116. This written communication must (i) be signed by the shareholder, (ii) include the name and address of the shareholder, (iii) identify the Fund(s) to which the communication relates, and (iv) identify the account number, class and number of shares held by the shareholder as of a recent date or the intermediary through which the shares are held. The recommendation must be received in a timely manner (and in any event no later than the date specified for receipt of shareholder proposals in any applicable proxy statement with respect to the Fund). A recommendation for trustee nomination shall be kept on file and considered by the Board for six (6) months from the date of receipt, after which the recommendation shall be considered stale and discarded. The recommendation must contain sufficient background information concerning the trustee candidate to enable a proper judgment to be made as to the candidates qualifications.
The Contract Review and Governance Committee has not established specific, minimum qualifications that must be met by an individual to be recommended for nomination as an Independent Trustee. When identifying an individual to potentially fill a vacancy on the Funds Board, the Contract Review and Governance Committee may seek referrals from a variety of sources, including current Trustees, management of the Funds, Funds counsel, and counsel to the Trustees, as well as shareholders of the Funds in accordance with the procedures described above. In evaluating candidates for a position on the Board, the Contract Review and Governance Committee may consider a variety of factors, including (i) the nominees knowledge of the mutual fund industry; (ii) any experience possessed by the nominee as a director or senior officer of a financial services company or a public company; (iii) the nominees educational background; (iv) the nominees reputation for high ethical standards and personal and professional integrity; (v) any specific financial, technical or other expertise possessed by the nominee, and the extent to which such expertise would complement the Boards existing mix of skills and qualifications; (vi) the nominees perceived ability to contribute to the ongoing functions of the Board, including the nominees ability and commitment to attend meetings regularly and work collaboratively with other members of the Board; (vii) the nominees ability to qualify as an Independent Trustee for purposes of applicable regulations; and (viii) such other factors as the Committee may request in light of the existing composition of the Board and any anticipated vacancies or other transitions.
The Audit Committee of the Trust consists solely of Independent Trustees and considers matters relating to the scope and results of the Trusts audits and serves as a forum in which the independent registered public accounting firm can raise any issues or problems identified in an audit with the Board of Trustees. This Committee also reviews and monitors compliance with stated investment objectives and policies, SEC regulations as well as operational issues relating to the transfer agent, administrator, sub-administrator and custodian. In addition, the Audit Committee implements procedures for receipt, retention and treatment of complaints received by the Fund regarding its accounting, internal accounting controls and the confidential, anonymous submission by officers of the Fund or employees of certain service providers of concerns related to such matters. During the fiscal year ended December 31, 2009, this Committee held four meetings.
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The current membership of each committee is as follows:
As chairperson of the Board of Trustees, Ms. Moose is an ex officio member of both Committees.
Boards Role in Risk Oversight of the Funds
The Boards role is one of oversight of the practices and processes of the Funds and their service providers, rather than active management of the Trust, including in matters relating to risk management. The Board seeks to understand the key risks facing the Funds, including those involving conflicts of interest; how Fund management identifies and monitors these risks on an ongoing basis; how Fund management develops and implements controls to mitigate these risks; and how Fund management tests the effectiveness of those controls.
Periodically, Fund officers provide the full Board with an overview of the enterprise risk assessment program in place at Natixis Advisors and the Distributor, which serve as the administrator of and principal underwriter to the Funds, respectively. Fund officers on a quarterly and annual basis also provide the Board (or one of its standing committees) with written and oral reports on regulatory and compliance matters, operational and service provider matters, organizational developments, product proposals, Fund and internal audit results, and insurance and fidelity bond coverage, along with a discussion of the risks and controls associated with these matters, and periodically make presentations to management on risk issues and industry best practices. Fund service providers, including advisers, sub-advisers, transfer agents and the custodian, periodically provide Fund management and/or the Board with information about their risk assessment programs and/or the risks arising out of their activities. The scope and frequency of these reports vary. Fund officers also communicate with the Trustees between meetings regarding material exceptions and other items germane to the Boards risk oversight function.
Pursuant to Rule 38a-1 under the Investment Company Act of 1940, the Board has appointed a Chief Compliance Officer (CCO) who is responsible for administering the Funds compliance program, including monitoring and enforcing compliance by the Funds and their service providers with the federal securities laws. The CCO has an active role in daily Fund operations and maintains a working relationship with all relevant advisory, compliance, operations and administration personnel for the Funds service providers. On at least a quarterly basis, the CCO reports to the Independent Trustees on significant compliance program developments, including material compliance matters, and on an annual basis, the CCO provides the full Board with a written report that summarizes his review and assessment of the adequacy of the compliance programs of the Funds and their service providers. The CCO also periodically communicates with the Audit Committee members between its scheduled meetings.
Fund Securities Owned by the Trustees
As of December 31, 2009, the Trustees had the following ownership in the Funds:
Interested Trustees:
Dollar Range of Fund Shares* |
Robert J. Blanding |
John T. Hailer |
||
Loomis Sayles Inflation Protected Securities Fund |
A | A | ||
Loomis Sayles Intermediate Duration Bond Fund |
A | A | ||
Aggregate Dollar Range of Fund Shares in All Funds Overseen by Trustee in the Fund Complex |
E | E |
36
* | A. None |
B. $1 - 10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. over $100,000
Independent Trustees:
Dollar Range
|
Graham T.
|
Edward A.
|
Daniel M.
|
Kenneth A.
|
Wendell J.
|
Sandra O.
|
Erik R.
|
Peter J.
|
Cynthia L.
|
|||||||||
Loomis Sayles Inflation Protected Securities Fund |
A | A | A | A | A | A | A | A | A | |||||||||
Loomis Sayles Intermediate Duration Bond Fund |
A | A | A | A | A | A | A | A | A | |||||||||
Aggregate Dollar Range of Fund Shares in All Funds Overseen by Trustee in the Fund Complex |
E | E | E | E | D | E | B | A | E |
* | A. None |
B. $1 - 10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. over $100,000
** | Amounts include economic value of notional investments held through the deferred compensation plan. |
*** | Mr. Knox was appointed as a trustee effective July 1, 2009. |
**** | Mr. Sirri and Mr. Smail were appointed as trustees effective December 1, 2009 |
Trustee Fees
The Trust pays no compensation to their officers or to their Interested Trustees.
The Chairperson of the Board of Trustees receives a retainer fee at the annual rate of $250,000. The Chairperson does not receive any meeting attendance fees for Board of Trustees meetings or committee meetings that she attends. Each Independent Trustee (other than the Chairperson) receives, in the aggregate, a retainer fee at the annual rate of $80,000. Each Independent Trustee also receives a meeting attendance fee of $10,000 for each meeting of the Board of Trustees that he or she attends in person and $5,000 for each meeting of the Board of Trustees that he or she attends telephonically. In addition, each committee chairman receives an additional retainer fee at the annual rate of $15,000. Each Contract Review and Governance Committee member is compensated $6,000 for each Committee meeting that he or she attends in person and $3,000 for each committee meeting that he or she attends telephonically. Each Audit Committee member is compensated $7,500 for each Committee meeting that he or she attends in person and $3,750 for each meeting he or she attends telephonically. Each member of the ad hoc Committee on Alternative Investments receives a one-time fee of $10,000. The ad hoc Committee on Alternative Investments (Messrs. Benjamin, Cain and Drucker) is not a standing committee. These fees are allocated among the mutual fund portfolios in the Natixis Funds Trusts, Loomis Sayles Funds Trusts, Gateway Trust and Hansberger International Series, based on a formula that takes into account, among other factors, the relative net assets of each mutual fund portfolio.
37
During the fiscal year ended September 30, 2009, the trustees of the Trust received the amounts set forth in the following table for serving as Trustees of the Trust and for also serving as Trustees of Natixis Funds Trust I, Natixis Funds Trust II, Natixis Funds Trust III, Natixis Funds Trust IV, Natixis Cash Management Trust, Gateway Trust, Loomis Sayles Funds II and Hansberger International Series. The table also sets forth, as applicable, pension or retirement benefits accrued as part of Fund expenses, as well as estimated annual retirement benefits:
Compensation Table
For the Fiscal Year Ended September 30, 2009
Aggregate
Compensation from Trust 1 |
Pension or
Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from the Fund Complex 2 |
|||||||||
INDEPENDENT TRUSTEES |
||||||||||||
Graham T. Allison, Jr. |
$ | 43,765 | $ | 0 | $ | 0 | $ | 127,500 | ||||
Charles D. Baker * |
$ | 44,054 | $ | 0 | $ | 0 | $ | 131,250 | ||||
Edward A. Benjamin |
$ | 49,260 | $ | 0 | $ | 0 | $ | 145,000 | ||||
Daniel M. Cain |
$ | 49,706 | $ | 0 | $ | 0 | $ | 145,000 | ||||
Kenneth A Drucker |
$ | 44,539 | $ | 0 | $ | 0 | $ | 130,000 | ||||
Wendell J. Knox ** |
$ | 12,213 | $ | 0 | $ | 0 | $ | 36,250 | ||||
Jonathan P. Mason *** |
$ | 33,525 | $ | 0 | $ | 0 | $ | 97,500 | ||||
Sandra O. Moose |
$ | 84,314 | $ | 0 | $ | 0 | $ | 200,000 | ||||
Erik R. Sirri **** |
| | | | ||||||||
Peter J. Smail **** |
| | | | ||||||||
Cynthia L. Walker |
$ | 42,760 | $ | 0 | $ | 0 | $ | 124,375 | ||||
INTERESTED TRUSTEES |
||||||||||||
John T. Hailer |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||
Robert J. Blanding |
$ | 0 | $ | 0 | $ | 0 | $ | 0 |
1 |
Amounts include payments deferred by trustees for the fiscal year ended September 30, 2009, with respect to the Trust. The total amount of deferred compensation accrued for Loomis Sayles Funds I as of September 30, 2009 for the trustees is as follows: Allison ($491,553), Baker ($81,667), Benjamin ($181,006), Cain ($236,445), Knox ($9,513), Mason ($38,779) and Walker ($106,934). |
2 |
Total Compensation represents amounts paid during the fiscal year ended September 30, 2009 to a Trustee for serving on the Board of Trustees of nine (9) trusts with a total of thirty-nine (39) funds as of September 30, 2009. |
* | Mr. Baker served as a trustee until his resignation on December 4, 2009. |
** | Mr. Knox was appointed as a trustee effective July 1, 2009. |
*** | Mr. Mason served as a trustee until his resignation on June 30, 2009. |
**** | Mr. Sirri and Mr. Smail were appointed as trustees effective December 1, 2009. |
The Natixis Funds Trusts, Loomis Sayles Funds Trusts and Hansberger International Series do not provide pension or retirement benefits to trustees, but have adopted a deferred payment arrangement under which each Trustee may elect not to receive fees from the Funds on a current basis but to receive in a subsequent period an amount equal to the value that such fees would have been if they had been invested in a Fund or Funds selected by the Trustee on the normal payment date for such fees.
Code of Ethics. The Trust, Loomis Sayles, and the Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act. These codes of ethics permit the personnel of these entities to invest in securities, including securities that the Funds may purchase or hold. The codes of ethics are on public file with, and are available from, the SEC.
Proxy Voting Policies. The Boards of Trustees of the Funds have adopted the Proxy Voting Policy and Guidelines (the Guidelines) for the voting of proxies for securities held by the Funds. Under the Guidelines, the responsibility for voting proxies generally is delegated to Loomis Sayles. Under the Guidelines, decisions regarding the voting of proxies are to be made solely in the interest of the Fund and its shareholders. The adviser shall exercise its fiduciary responsibilities to vote proxies with respect to each Funds investments that are managed by that adviser in a prudent manner in accordance with the Guidelines and the proxy voting policies of the adviser. Proposals that, in the opinion of the adviser, are in the best interests of shareholders are generally voted for and proposals that, in the judgment of the adviser, are not in the best interests of shareholders are generally voted against. The adviser is responsible for maintaining certain records and reporting to the Audit Committee of the Trust in connection with the voting of proxies. The adviser shall make available to each Fund, or Natixis Advisors, the Funds administrator, the records and information maintained by the adviser under the Guidelines.
38
Loomis Sayles uses Proxy Voting Service(s) to research and administer the vote on proxies for those accounts and funds for which Loomis Sayles has voting authority. Each Proxy Voting Service has a copy of Loomis Sayles proxy voting procedures (Procedures) and provides vote recommendations and/or analysis to Loomis Sayles based on the Proxy Voting Services own research. Loomis Sayles will generally follow its express policy with input from the Proxy Voting Services unless Loomis Sayles Proxy Committee (the Proxy Committee) determines that the clients best interests are served by voting otherwise.
All issues presented for shareholder vote will be considered under the oversight of the Proxy Committee. All non-routine issues will be directly considered by the Proxy Committee and, when necessary, the equity analyst following the company and/or the portfolio manager of a Fund holding the security, and will be voted in the best investment interests of the Fund. All routine issues will be voted according to Loomis Sayles policy approved by the Proxy Committee unless special factors require that they be considered by the Proxy Committee and, when necessary, the equity analyst following the company and/or the portfolio manager of a Fund holding the security. Loomis Sayles Proxy Committee has established these routine policies in what it believes are the best investment interests of Loomis Sayles clients.
The specific responsibilities of the Proxy Committee include (1) the development, authorization, implementation and update of the Procedures, including an annual review of the Procedures, existing voting guidelines and the proxy voting process in general, (2) oversight of the proxy voting process, including oversight of the vote on proposals according to the predetermined policies in the voting guidelines, directing the vote on proposals where there is reason not to vote according to the predetermined policies in the voting guidelines or where proposals require special consideration, and consultation with the portfolio managers and analysts for the Fund(s) holding the security when necessary or appropriate and, (3) engagement and oversight of third-party vendors, including Proxy Voting Services.
Loomis Sayles has established several policies to ensure that proxies are voted in its clients best interest and are not affected by any possible conflicts of interest. First, except in certain limited instances, Loomis Sayles votes in accordance with its pre-determined policies set forth in the Procedures. Second, where these Procedures allow for discretion, Loomis Sayles will generally consider the recommendations of the Proxy Voting Services in making its voting decisions. However, if the Proxy Committee determines that the Proxy Voting Services recommendation is not in the best interest of its clients, then the Proxy Committee may use its discretion to vote against the Proxy Voting Services recommendation, but only after taking the following steps: (1) conducting a review for any material conflict of interest Loomis Sayles may have and, (2) if any material conflict is found to exist, excluding anyone at Loomis Sayles who is subject to that conflict of interest from participating in the voting decision in any way. However, if deemed necessary or appropriate by the Proxy Committee after full prior disclosure of any conflict, that person may provide information, opinions or recommendations on any proposal to the Proxy Committee. In such event the Proxy Committee will make reasonable efforts to obtain and consider, prior to directing any vote information, opinions or recommendations from or about the opposing position on any proposal.
Information regarding how the Funds voted proxies related to their respective portfolio securities during the 12-month period ended June 30, 2009 is available without charge (i) through the Funds website, www.loomissayles.com and (ii) on the SECs website at www.sec.gov.
The Funds Retail Class shares are newly formed and thus, to the each Funds knowledge, there are no persons who own of record or beneficially 5% or more of the outstanding shares of the Funds.
Management Ownership
As of record on March 5, 2010, the officers and trustees of the Trust collectively owned less than 1% of the then outstanding shares of the Funds.
The trustee of the Pension Plan and Profit Sharing Plan is Charles Schwab Trust Company. The Pension Plans Advisory/Committee, which is composed of the same individuals listed below as trustees of the Profit Sharing Plan, has the sole voting and investment power with respect to the Pension Plans shares. The trustees of the Profit
39
Sharing Plan are John DeBeer, Stephanie Lord, Teri Mason, Richard Skaggs, Timothy Hunt, Greg OHara, John McGraw, Paul Sherba, John Russell, Warren Koontz and Kurt Wagner. Except for Timothy Hunt, John DeBeer and John McGraw, each member of the Advisory Committee is an officer and employee of Loomis Sayles. Plan participants are entitled to exercise investment and voting power over shares owned of record by the Profit Sharing Plan. Shares not voted by participants are voted in the same proportion as the shares voted by the voting participants. The address for the Profit Sharing Plan and the Pension Plan is One Financial Center, Boston, Massachusetts.
INVESTMENT ADVISORY AND OTHER SERVICES
Natixis Advisors, formed in 1995, is a limited partnership owned by Natixis Global Asset Management, L.P. (Natixis US).
Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as adviser to the Funds. Loomis Sayles is a subsidiary of Natixis US, which is part of Natixis Global Asset Management. Founded in 1926, Loomis Sayles is one of the oldest investment advisory firms in the United States with over $143 billion in assets under management as of December 31, 2009. Loomis Sayles has an extensive internal research staff. Loomis Sayles makes investment decisions for each Fund.
Natixis US is part of Natixis Global Asset Management, an international asset management group based in Paris, France, that is in turn owned by Natixis, a French investment banking and financial services firm. Natixis is principally owned by BPCE, Frances second largest banking group. BPCE is owned by banks comprising two autonomous and complementary retail banking networks consisting of the Caisse dEpargne regional savings banks and the Banque Populaire regional cooperative banks. An affiliate of the French Government is an investor in non-voting securities of BPCE and has limited, non-controlling representation on the supervisory board of BPCE as well as the right to convert certain shares into common equity of BPCE at a future time. The registered address of Natixis is 30, avenue Pierre Mendès France, 75013 Paris, France. The registered address of BPCE is 50, avenue Pierre Mendès France, 75013 Paris, France.
The 15 principal subsidiary or affiliated asset management firms of Natixis US collectively had over $264.9 billion in assets under management or administration as of December 31, 2009.
Advisory Agreements . Each Funds advisory agreement with Loomis Sayles provides that the adviser will furnish or pay the expenses of the applicable Fund for office space, facilities and equipment, services of executive and other personnel of the Trust and certain administrative services. The adviser is responsible for obtaining and evaluating such economic, statistical and financial data and information and performing such additional research as is necessary to manage each Funds assets in accordance with its investment objectives and policies. For these services, the advisory agreements provide that each Fund shall pay Loomis Sayles a monthly investment advisory fee at the following annual percentage rates of the particular Funds average daily net assets:
Fund |
Rate | ||
Loomis Sayles Inflation Protected Securities Fund |
0.25 | % | |
Loomis Sayles Intermediate Duration Bond Fund |
0.25 | % |
Each Fund pays all expenses not borne by the adviser including, but not limited to, the charges and expenses of the Funds custodian and transfer agent, independent registered public accounting firm, legal counsel for the Funds, legal counsel for the Trusts Independent Trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, litigation and other extraordinary expenses, the fees and expenses for registration or qualification of its shares under federal and state securities laws, all expenses of shareholders and trustees meetings and costs of preparing, printing and mailing reports to shareholders and the compensation of trustees who are not directors, officers or employees of the Funds adviser, or its affiliates, other than affiliated registered investment companies. (See the section Description of the Trust.)
Each advisory agreement provides that it will continue in effect for two years from its date of execution and thereafter from year to year if its continuance is approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Fund and (ii) by vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval.
40
Each advisory agreement may be terminated without penalty by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Fund, upon 60 days written notice, or by the Funds adviser upon 90 days written notice, and each terminates automatically in the event of its assignment (as defined in the 1940 Act).
Each advisory agreement provides that Loomis Sayles shall not be subject to any liability in connection with the performance of its services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties.
During the periods shown below, pursuant to the advisory agreements described above, Loomis Sayles received the following amounts of investment advisory fees from each Fund (before fee reductions and expense assumptions) and bore the following amounts of fee reductions for each Fund. These amounts include amounts paid by a Funds predecessor, where applicable.
Fiscal Year Ended
9/30/07 |
Fiscal Year Ended
9/30/08 |
Fiscal Year Ended
9/30/09 |
||||||||||||||||
Advisory Fees | Fee Reductions | Advisory Fees | Fee Reductions | Advisory Fees | Fee Reductions | |||||||||||||
Loomis Sayles Inflation Protected Securities Fund |
$ | 29,106 | | * | $ | 39,289 | | * | $ | 33,599 | | * | ||||||
Loomis Sayles Intermediate Duration Bond Fund |
$ | 92,139 | | * | $ | 85,501 | | * | $ | 67,166 | | * |
* | In addition to the reduction of management fees, class level and other expenses have been reimbursed as indicated below. |
The table below shows the class level and other expenses of the Funds that were reimbursed for the fiscal years ended September 30, 2007, September 30, 2008 and September 30, 2009.
Fund |
Fiscal Year Ended
9/30/07 |
Fiscal Year Ended
9/30/08 |
Fiscal Year Ended
9/30/09 |
||||||
Loomis Sayles Inflation Protected Securities Fund |
$ | 102,653 | $ | 85,963 | $ | 95,963 | |||
Loomis Sayles Intermediate Duration Bond Fund |
$ | 76,556 | $ | 63,574 | $ | 75,081 |
Loomis Sayles has given a binding contractual undertaking for Retail Class shares of the Funds to reduce the advisory fees and, if necessary, to bear certain expenses related to operating the Funds in order to limit their expenses, exclusive of acquired fund fees and expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses, such as litigation and indemnification expenses, to the annual rates indicated below. The undertaking is in effect through January 31, 2012, and will be reevaluated on an annual basis. Loomis Sayles will not be entitled to recover any such reduced fees more than one year after the end of the fiscal year in which the fee/expense was incurred.
Fund |
Expense Limit |
Date of Undertaking |
|||
Loomis Sayles Inflation Protected Securities Fund |
May 28, 2010 | ||||
Retail Class |
0.65 | % |
41
Fund |
Expense Limit |
Date of Undertaking |
|||
Loomis Sayles Intermediate Duration Bond Fund |
May 28, 2010 | ||||
Retail Class |
0.65 | % |
Distribution Agreements and Rule 12b-1 Plans. Under separate agreements with the Funds, the Distributor serves as the principal distributor of Retail Class shares of the Funds. The Distributors principal business address is 399 Boylston Street, Boston, Massachusetts 02116. Under these agreements (each a Distribution Agreement) the Distributor conducts a continuous offering and is not obligated to sell a specific number of shares. The Distributor bears the cost of making information about the Funds available through advertising and other means and the cost of printing and mailing Prospectuses to persons other than shareholders. Each Fund pays the cost of registering and qualifying its shares under state and federal securities laws and distributing the Prospectuses to existing shareholders.
The Distributor is paid by each Fund the service and distribution fees described in the applicable Prospectus. The SEC is of the view that dealers receiving all or substantially all of the sales charge may be deemed underwriters of a funds shares.
As described in their Prospectuses, the Funds have adopted Rule 12b-1 plans (Plans) for their Retail Class shares. The Plans, among other things, permit the Retail Class to pay the Distributor monthly fees, at annual rates not exceeding 0.25% of the assets of the Retail Class as compensation for its services as principal underwriter of the shares of such class. Some Funds classes may pay the Distributor monthly fees of less than 0.25% of the relevant Classs assets. Pursuant to Rule 12b-1 under the 1940 Act, each Plan (together with the Distribution Agreements) was approved by the Trusts Board of Trustees, including a majority of the trustees who are not interested persons of the Trust (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operations of the Plans or the Distribution Agreements.
Each Plan may be terminated by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of the relevant class of shares of the relevant Fund. Each Plan may be amended by vote of the trustees, including a majority of the relevant Independent Trustees, cast in person at a meeting called for that purpose. Any change in any Plan that would materially increase the fees payable thereunder by the relevant Class of shares of the relevant Fund requires approval by a vote of the holders of a majority of such shares outstanding. The Trusts trustees review quarterly a written report of such costs and the purposes for which such costs have been incurred. For so long as a Plan is in effect, selection and nomination of those trustees who are Independent Trustees of the Trust shall be committed to the discretion of such Trustees.
The Distribution Agreements and the Plans will continue in effect for successive one-year periods, provided that each such continuance is specifically approved (i) by the vote of a majority of the Independent Trustees and (ii) by the vote of a majority of the entire Board of Trustees cast in person at a meeting called for that purpose or by a vote of a majority of the outstanding securities of a Fund (or the relevant class, in the case of the Plans).
The Retail Class shares are newly formed and therefore have not yet paid fees under these Plans, and no other classes of the Funds pay fees under any such Plans.
Other Services. Natixis Advisors performs certain accounting and administrative services for the Funds, pursuant to an Administrative Services Agreement dated January 1, 2005, as amended from time to time (the Administrative Agreement). Under the Administrative Agreement, Natixis Advisors provides the following services to the Funds: (i) personnel that perform bookkeeping, accounting, internal auditing and financial reporting functions and clerical functions relating to the Funds, (ii) services required in connection with the preparation of registration statements and prospectuses, registration of shares in various states, shareholder reports and notices, proxy solicitation material furnished to shareholders of the Funds or regulatory authorities and reports and questionnaires for SEC compliance, and (iii) the various registrations and filings required by various regulatory authorities.
For the fiscal years ended September 30, 2007, September 30, 2008 and September 30, 2009, pursuant to the Administrative Agreement between Natixis Advisors and the Trust, Natixis Advisors was reimbursed or was paid by the Trust, on behalf of the Funds, the following amounts:
Fund |
Fiscal Year Ended
September 30, 2007 |
Fiscal Year Ended
September 30, 2008 |
Fiscal Year Ended
September 30, 2009 |
|||||||||
Fee | Fee | Fee Waived* | Fee | |||||||||
Loomis Sayles Inflation Protected Securities Fund |
$ | 6,456 | $ | 7,996 | $ | 304 | $ | 6,779 | ||||
Loomis Sayles Intermediate Duration Bond Fund |
$ | 20,507 | $ | 17,427 | $ | 681 | $ | 13,546 |
* | Natixis Advisors waived a portion of its fees during the period October 1, 2007 - June 30, 2008. |
42
These amounts refer to reimbursements or payments made by the Funds on behalf of the other classes of the Funds, since the Retail Class had not yet begun operations.
Custodial Arrangements. State Street Bank and Trust Company (State Street Bank), One Lincoln Street, Boston, Massachusetts, 02111, serves as the custodian for the Trust. As such, State Street Bank holds in safekeeping certificated securities and cash belonging to each Fund and, in such capacity, is the registered owner of securities in book-entry form belonging to each Fund. Upon instruction, State Street Bank receives and delivers cash and securities of each Fund in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. State Street Bank also maintains certain accounts and records of the Trust and calculates the total NAV, total net income and NAV per share of each Fund on a daily basis.
Transfer Agency Services. Pursuant to contracts between the Trust, on behalf of each Fund, and Boston Financial Data Services, Inc. (Boston Financial), whose principal business address is Two Heritage Drive, Quincy, Massachusetts, 02171, Boston Financial acts as shareholder servicing and transfer agent for the Funds and is responsible for services in connection with the establishment, maintenance and recording of shareholder accounts, including all related tax and other reporting requirements and the implementation of investment and redemption arrangements offered in connection with the sale of the Funds shares.
Independent Registered Public Accounting Firm. The Trusts independent registered public accounting firm is [ ], [ ]. The independent registered public accounting firm conducts an annual audit of each Funds financial statements, assists in the review of federal and state income tax returns and consults with the Trust as to matters of accounting and federal and state income taxation.
Counsel to the Funds. Ropes & Gray LLP, located at One International Place, Boston, MA 02110, serves as counsel to the Funds.
Portfolio Managers Management of Other Accounts
As of September 30, 2009, the portfolio managers of the Funds managed other accounts in addition to managing one or more of the Funds. The following table provides information on the other accounts managed by each portfolio manager.
43
Registered Investment Companies | Other Pooled Investment Vehicles | Other Accounts | ||||||||||||||||||||||
Other Accounts
Managed |
Advisory Fee
is Based on Performance |
Other Accounts
Managed |
Advisory Fee
is Based on Performance |
Other Accounts
Managed |
Advisory Fee
is Based on Performance |
|||||||||||||||||||
Name of Portfolio Manager |
# of
Accts |
Total Assets |
# of
Accts |
Total Assets |
# of
Accts |
Total Assets |
# of
Accts |
Total Assets |
# of
Accts |
Total Assets |
# of
Accts |
Total Assets |
||||||||||||
Neil Burke |
1 | $27.8 million | 0 | $0 | 0 | $0 | 0 | $0 | 75 | $3.5 billion | 5 | $206.7 million | ||||||||||||
John Hyll |
3 | $222.6 million | 0 | $0 | 0 | $0 | 0 | $0 | 41 | $8.1 billion | 0 | $0 | ||||||||||||
Richard Raczkowski |
3 | $296.8 million | 0 | $0 | 4 | $1.1 billion | 0 | $0 | 55 | $2.2 billion | 1 | $641.2 million | ||||||||||||
Clifton V. Rowe |
5 | $539.0 million | 0 | $0 | 3 | $421.4 million | 0 | $0 | 49 | $2.9 billion | 1 | $6.4 million |
Material Conflicts of Interest
Conflicts of interest may arise in the allocation of investment opportunities and the allocation of aggregated orders among the Funds and other accounts managed by the portfolio managers. A portfolio manager potentially could give favorable treatment to some accounts for a variety of reasons, including favoring larger accounts, accounts that pay higher fees, accounts that pay performance-based fees, accounts of affiliated companies and accounts in which the portfolio manager has an interest. Such favorable treatment could lead to more favorable investment opportunities or allocations for some accounts. Loomis Sayles makes investment decisions for all accounts (including institutional accounts, mutual funds, hedge funds and affiliated accounts) based on each accounts availability of other comparable investment opportunities and Loomis Sayles desire to treat all accounts fairly and equitably over time. Loomis Sayles maintains trade allocation and aggregation policies and procedures to address these potential conflicts. Conflicts of interest also may arise to the extent a portfolio manager short sells a stock in one client account but holds that stock long in other accounts, including the Funds, or sells a stock for some accounts while buying the stock for others, and through the use of soft dollar arrangements, which are discussed in the section Portfolio Transactions and Brokerage.
Portfolio Managers Compensation
The following describes the structure of, and the method used to determine, the compensation of each of the above-listed portfolio managers as of September 30, 2009.
Loomis Sayles believes that portfolio manager compensation should be driven primarily by the delivery of consistent and superior long-term performance for its clients. Portfolio manager compensation is made up primarily of three main components: base salary, variable compensation and a long-term incentive program. Although portfolio manager compensation is not directly tied to assets under management, a portfolio managers base salary and/or variable compensation potential may reflect the amount of assets for which the manager is responsible relative to other portfolio managers. Loomis Sayles also offers a profit sharing plan. Base salary is a fixed amount based on a combination of factors, including industry experience, firm experience, job performance and market considerations. Variable compensation is an incentive-based component and generally represents a significant multiple of base salary. Variable compensation is based on four factors: investment performance, profit growth of the firm, profit growth of the managers business unit and team commitment. Investment performance is the primary component of total variable compensation and generally represents at least 60% of the total. The other three factors are used to determine the remainder of variable compensation, subject to the discretion of the departments Chief Investment Officer (CIO) and senior management. The CIO and senior management evaluate these other factors annually.
44
Fixed-Income Managers
While mutual fund performance and asset size do not directly contribute to the compensation calculation, investment performance for fixed-income managers is measured by comparing the performance of Loomis Sayles institutional composite (pre-tax and net of fees) in the managers style to the performance of an external benchmark and a customized peer group. The external benchmark used for the investment style utilized by each fixed-income fund is noted in the table below:
FUND |
MANAGER BENCHMARK |
|
Loomis Sayles Inflation Protected Securities Fund | Barclays Capital U.S. TIPs Index | |
Loomis Sayles Intermediate Duration Bond Fund | Barclays Capital U.S. Government/Credit Intermediate Index |
The customized peer group is created by Loomis Sayles and is made up of institutional managers in the particular investment style. A managers relative performance for the past five years is used to calculate the amount of variable compensation payable due to performance. To ensure consistency, Loomis Sayles analyzes the five year performance on a rolling three year basis. If a manager is responsible for more than one product, the rankings of each product are weighted based on relative asset size of accounts represented in each product.
Loomis Sayles uses both an external benchmark and a customized peer group as measuring sticks for fixed-income manager performance because it believes they represent an appropriate combination of the competitive fixed-income product universe and the investment styles offered by Loomis Sayles.
Messrs. Hyll, Raczkowski and Rowe also serve as portfolio managers to certain private investment funds managed by Loomis Sayles, and may receive additional compensation based on their investment activities for each of those funds.
General
Mutual funds are not included in the Loomis Sayles composites, so unlike other managed accounts, fund performance and asset size do not directly contribute to this calculation. However, each fund managed by Loomis Sayles employs strategies endorsed by Loomis Sayles and fits into the product category for the relevant investment style. Loomis Sayles may adjust compensation if there is significant dispersion among the returns of the composite and accounts not included in the composite.
Loomis Sayles has developed and implemented two distinct long-term incentive plans to attract and retain investment talent. The plans supplement existing compensation. The first plan has several important components distinguishing it from traditional equity ownership plans:
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the plan grants units that entitle participants to an annual payment based on a percentage of company earnings above an established threshold; |
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upon retirement, a participant will receive a multi-year payout for his or her vested units; and |
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participation is contingent upon signing an award agreement, which includes a non-compete covenant. |
The second plan is similarly constructed although the participants annual participation in company earnings is deferred for three years from the time of award and is only payable if the portfolio manager remains at Loomis Sayles. In this plan, there is no post-retirement payments or non-compete covenants.
Senior management expects that the variable compensation portion of overall compensation will continue to remain the largest source of income for those investment professionals included in the plan. The plan is initially offered to portfolio managers and over time the scope of eligibility is likely to widen. Management has full discretion on what units are issued and to whom.
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Portfolio managers also participate in the Loomis Sayles profit sharing plan, in which Loomis Sayles makes a contribution to the retirement plan of each employee based on a percentage of base salary (up to a maximum amount). The portfolio managers also participate in the Loomis Sayles defined benefit pension plan, which applies to all Loomis Sayles employees who joined the firm prior to May 1, 2003. The defined benefit is based on years of service and base compensation (up to a maximum amount).
Portfolio Managers Ownership of Fund Shares
As of September 30, 2009, the portfolio managers had the following ownership in the Funds:
Name of Portfolio Manager |
Fund(s) Managed |
Dollar Range of Equity Securities Invested* |
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Neil Burke |
Loomis Sayles Intermediate Duration Bond Fund | A | ||
John Hyll |
Loomis Sayles Inflation Protected Securities Fund | C | ||
Richard Raczkowski |
Loomis Sayles Intermediate Duration Bond Fund | D | ||
Clifton V. Rowe |
Loomis Sayles Inflation Protected Securities Fund Loomis Sayles Intermediate Duration Bond Fund |
A E |
* | A. None |
B. $1 - 10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. $100,001 - $500,000
F. $500,001 - $1,000,000
G. over $1,000,000
There are various reasons why a portfolio manager may not own shares of the Fund he manages. One reason is that the Funds investment objectives and strategies may not match those of the portfolio manager. Administrative reasons (such as facilitating compliance with an advisers code of ethics) also may explain why a portfolio manager has chosen not
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of equity securities, Loomis Sayles selects only brokers that it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates that, when combined with the quality of the foregoing services, will produce the best price and execution for the transaction. This does not necessarily mean that the lowest available brokerage commission will be paid. However, the commissions are believed to be competitive with generally prevailing rates. Loomis Sayles will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Loomis Sayles may place orders for the Funds which, combined with orders for its other clients, may impact the price of the relevant security. This could cause the Funds to obtain a worse price on the transaction than would otherwise be the case if the orders were placed in smaller amounts or spread out over a longer period of time.
Subject to the overriding objective of obtaining the best possible execution of orders, the adviser may allocate brokerage transactions to affiliated brokers. Any such transactions will comply with Rule 17e-1 under the 1940 Act. In order for the affiliated broker to effect portfolio transactions for the Funds, the commissions, fees or other remuneration received by the affiliated broker must be reasonable and fair compared to the commissions, fees and other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period. Furthermore, the Trusts Board of Trustees, including a majority of the Independent Trustees, have adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to an affiliated broker are consistent with the foregoing standard.
Generally, Loomis Sayles seeks to obtain quality executions at favorable security prices and at competitive commission rates, where applicable, through brokers and dealers who, in Loomis Sayles opinion, can provide the
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best overall net results for its clients. Transactions in equity securities are frequently executed through a primary market maker but may also be executed on an Electronic Communication Network (ECN), Alternative Trading System (ATS), or other execution system. Fixed-income securities are generally purchased from the issuer or a primary market maker acting as principal on a net basis with no brokerage commission paid by the client. Such securities, as well as equity securities, may also be purchased from underwriters at prices which include underwriting fees.
Commissions and Other Factors in Broker or Dealer Selection
Loomis Sayles uses its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and to evaluate the overall reasonableness of brokerage commissions paid on client portfolio transactions by reference to such data. In making this evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker or dealer, are taken into account. Other relevant factors may include, without limitation: (a) the execution capabilities of the brokers and/or dealers, (b) research and other products or services (as described in the section Soft Dollars) provided by such brokers and/or dealers which are expected to enhance Loomis Sayles general portfolio management capabilities, (c) the size of the transaction, (d) the difficulty of execution, (e) the operations facilities of the brokers and/or dealers involved, (f) the risk in positioning a block of securities and (g) the quality of the overall brokerage and research services provided by the broker or dealer.
Soft Dollars
Loomis Sayles receipt of brokerage and research products or services may sometimes be a factor in Loomis Sayles selection of a broker or dealer to execute transactions for a Fund where Loomis Sayles believes that the broker or dealer will provide quality execution of the transactions. Such brokerage and research products or services may be paid for with Loomis Sayles own assets or may, in connection with transactions effected for client accounts for which Loomis Sayles exercises investment discretion, be paid for with client commissions ( i.e., soft dollars).
Loomis Sayles will only acquire research and brokerage products and services that are deemed to qualify as eligible products and services under the safe harbor of Section 28(e) of the Securities Exchange Act of 1934, as amended. Eligible research services and products that may be acquired by Loomis Sayles are those products and services that provide advice, analysis or reports that will aid Loomis Sayles in carrying out its investment decision-making responsibilities. Eligible research must reflect the expression of reasoning or knowledge (having inherently intangible and non-physical attributes) and may include the following research items: traditional research reports; discussions with research analysts and corporate executives; seminars or conferences; financial and economic publications that are not targeted to a wide public audience; software that provides analysis of securities portfolios; market research including pre-trade and post-trade analytics; and market data. Eligible brokerage services and products that may be acquired by Loomis Sayles are those services or products that (i) are required to effect securities transactions; (ii) perform functions incidental to securities transactions; or (iii) are required by an applicable Self-Regulatory Organization or SEC rule(s). The brokerage and research products or services provided to Loomis Sayles by a particular broker or dealer may include both (a) products and services created by such broker or dealer and (b) products and services created by a third party.
If Loomis Sayles receives a particular product or service that both aids it in carrying out its investment decision-making responsibilities ( i.e. , a research use) and provides non-research related uses, Loomis Sayles will make a good faith determination as to the allocation of the cost of such mixed-use item between the research and non-research uses and will only use soft dollars to pay for the portion of the cost relating to its research use.
In connection with Loomis Sayles use of soft dollars, a Fund may pay a broker or dealer an amount of commission for effecting a transaction for the Fund in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if Loomis Sayles determines in good faith that the amount of commission is reasonable in relation to the value of the brokerage and research products or services received, either in terms of the particular transaction or Loomis Sayles overall responsibility to discretionary accounts.
Loomis Sayles may use soft dollars to acquire brokerage or research products and services that have potential application to all client accounts, including the Funds, or to acquire brokerage or research products and services that
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will be applied in the management of a certain group of client accounts and, in some cases, may not be used with respect to the Funds. The products or services may not be used in connection with the management of some of the accounts including the Funds that paid commissions to the broker or dealer providing the products or services and may be used in connection with the management of other accounts.
Loomis Sayles use of soft dollars to acquire brokerage and research products and services benefits Loomis Sayles by allowing it to obtain such products and services without having to purchase them with its own assets. Loomis Sayles believes that its use of soft dollars also benefits the Funds as described above. However, conflicts may arise between a Funds interest in paying the lowest commission rates available and Loomis Sayles interest in receiving brokerage and research products and services from particular brokers and dealers without having to purchase such products and services with Loomis Sayles own assets.
For purposes of this soft dollars discussion, the term commission may include (to the extent applicable) both commissions
paid to brokers in connection with transactions effected on an agency basis and markups, markdowns, commission equivalents or other fees paid to dealers in connection with certain transactions to the extent consistent with relevant SEC
Brokerage Commissions
Set forth in the table below are the amounts each Fund paid in brokerage commissions during the last three fiscal years.
Fund |
Fiscal Year
Ended 9/30/07 |
Fiscal Year
Ended 9/30/08 |
Fiscal Year
Ended 9/30/09 |
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Loomis Sayles Inflation Protected Fund |
$ | | $ | | $ | 297 | |||
Loomis Sayles Intermediate Duration Bond Fund |
$ | | $ | 156 | $ | 129 |
Regular Broker-Dealers
The table below presents information regarding the securities of the Funds regular broker-dealers* (or the parent of the regular broker-dealers) that were held by each Fund, if any, as of the fiscal year ending September 30, 2009.
Fund |
Regular Broker-Dealer |
Aggregate Value
of Securities of Each Regular Broker or Dealer (or its Parent) Held by Fund |
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Loomis Sayles Inflation Protected Securities Fund |
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Goldman Sachs Group, Inc. |
$ | 160,337 | |||
Loomis Sayles Intermediate Duration Bond Fund |
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Bank of America Corp. |
$ | 1,147,556 | |||
Barclays Bank PLC |
$ | 132,040 | |||
Citigroup Global Markets, Inc. |
$ | 639,775 | |||
Goldman Sachs Group, Inc. |
$ | 820,541 | |||
JPMorgan Chase & Co. |
$ | 765,204 | |||
UBS Securities LLC |
$ | 230,352 | |||
Merrill Lynch, Pierce, Fenner & Smith, Inc. |
$ | 852,545 |
* | 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 companys portfolio transactions during the companys 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 companys 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 companys most recent fiscal year. |
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General
Subject to procedures adopted by the Board of Trustees of the Trust, the Funds brokerage transactions may be executed by brokers that are affiliated with Natixis US or Loomis Sayles. Any such transactions will comply with Rule 17e-1 under the 1940 Act, or other applicable restrictions as permitted by the SEC pursuant to exemptive relief or otherwise.
Under the 1940 Act, persons affiliated with the Trust are prohibited from dealing with the Trusts funds as a principal in the purchase and sale of securities. Since transactions in the OTC market usually involve transactions with dealers acting as principals for their own accounts, affiliated persons of the Trust may not serve as the Funds dealer in connection with such transactions.
To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, the adviser may allocate brokerage transactions to broker-dealers (including affiliates of the Distributor) that have entered into arrangements in which the broker-dealer allocates a portion of the commissions paid by a Fund toward the reduction of that Funds expenses.
It is expected that the portfolio transactions in fixed-income securities will generally be with issuers or dealers on a net basis without a stated commission. Securities firms may receive brokerage commissions on transactions involving options, futures and options on futures and the purchase and sale of underlying securities upon exercise of options. The brokerage commissions associated with buying and selling options may be proportionately higher than those associated with general securities transactions.
The Declaration of Trust currently permits the trustees to issue an unlimited number of full and fractional shares of each series of the Trust. Each share of each Fund represents an equal proportionate interest in such Fund with each other share of that Fund and is entitled to a proportionate interest in the dividends and distributions from that Fund. The shares of each Fund do not have any preemptive rights. Upon termination of any Fund, whether pursuant to liquidation of the Trust or otherwise, shareholders of that Fund are entitled to share pro rata in the net assets of that Fund available for distribution to shareholders. The Declaration of Trust also permits the trustees to charge shareholders directly for custodial, transfer agency, servicing and other expenses.
The assets received by each Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds therefrom, subject only to the rights of creditors, are allocated to, and constitute the underlying assets of that Fund. The underlying assets of a Fund are segregated and are charged with the expenses with respect to that Fund and with a share of the general expenses of the Trust. Any general expenses of the Trust that are not readily identifiable as belonging to a particular Fund are allocated by or under the direction of the trustees in such manner as the trustees determine to be fair and equitable. While the expenses of the Trust are allocated to the separate books of account of each Fund, certain expenses may be legally chargeable against the assets of all Funds in the Trust.
The Declaration of Trust also permits the trustees, without shareholder approval, to subdivide any series of shares or Fund into various classes of shares with such dividend preferences and other rights as the trustees may designate. The trustees may also, without shareholder approval, establish one or more additional separate portfolios for investments in the Trust or merge two or more existing portfolios. Shareholders investments in such an additional or merged portfolio would be evidenced by a separate series of shares ( i.e. , a new fund).
The Declaration of Trust provides for the perpetual existence of the Trust. The Trust or any Fund, however, may be terminated at any time by vote of at least two-thirds of the outstanding shares of such class. The Declaration of Trust further provides that the trustees may, also without shareholder approval, terminate the Trust or any Fund upon written notice to its shareholders.
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Voting Rights
Shareholders of the Funds are entitled to one vote for each full share held (with fractional votes for each fractional share held) and may vote (to the extent provided in the relevant Declaration of Trust) on the election of trustees and the termination of the Trust and on other matters submitted to the vote of shareholders.
All classes of shares of the Funds have identical voting rights except that each class of shares has exclusive voting rights on any matter submitted to shareholders that relates solely to that class, and has separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. Each class of shares has exclusive voting rights with respect to matters pertaining to any distribution or servicing plan or agreement applicable to that class. Matters submitted to shareholder vote will be approved by each series separately except (i) when required by the 1940 Act, shares shall be voted together and (ii) when the matter does not affect all series, then only shareholders of the series affected shall be entitled to vote on the matter. Consistent with the current position of the SEC, shareholders of all series and classes vote together, irrespective of series or class, on the election of trustees and the selection of the Trusts independent registered public accounting firm, but shareholders of each series vote separately on most other matters requiring shareholder approval, such as certain changes in investment policies of that series or the approval of the investment advisory and subadvisory agreement relating to that series, and shareholders of each class within a series vote separately as to the Rule 12b-1 plan (if any) relating to that class.
There will normally be no meetings of shareholders for the purpose of electing trustees, except that, in accordance with the 1940 Act, (i) the Trust will hold a shareholders meeting for the election of trustees at such time as less than a majority of the trustees holding office have been elected by shareholders, and (ii) if there is a vacancy on the Board of Trustees such vacancy may be filled only by a vote of the shareholders unless, after filling such vacancy by other means, at least two-thirds of the trustees holding office shall have been elected by the shareholders. In addition, trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding shares and filed with the Trusts custodian or by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for that purpose.
Upon written request by a minimum of ten holders of shares having held their shares for a minimum of six months and having a NAV of at least $25,000 or constituting at least 1% of the outstanding shares, whichever is less, stating that such shareholders wish to communicate with the other shareholders for the purpose of obtaining the signatures necessary to demand a meeting to consider removal of a trustee, the Trust has undertaken to provide a list of shareholders or to disseminate appropriate materials (at the expense of the requesting shareholders).
Except as set forth above, the trustees shall continue to hold office and may appoint successor trustees. Shareholder voting rights are not cumulative.
The affirmative vote of a majority of shares of the Trust voted (assuming a quorum is present in person or by proxy) is required to amend the Declaration of Trust if such amendment (1) affects the power of shareholders to vote, (2) amends the section of the relevant Declaration of Trust governing amendments, (3) is one for which a vote is required by law or by the Trusts registration statement or (4) is submitted to the shareholders by the Trustees. If one or more new series of the Trust is established and designated by the trustees, the shareholders having beneficial interests in the funds shall not be entitled to vote on matters exclusively affecting such new series, such matters including, without limitation, the adoption of or any change in the investment objectives, policies or restrictions of the new series and the approval of the investment advisory contracts of the new series. Similarly, the shareholders of the new series shall not be entitled to vote on any such matters as they affect the funds.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees. The Declaration of Trust provides for indemnification out of each Funds property for all loss and expense of any shareholder held personally liable for the obligations of the Fund by reason of owning shares of such Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and a Fund itself would be unable to meet its obligations.
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The Declaration of Trust further provides that the Board of Trustees will not be liable for errors of judgment or mistakes of fact or law. However, nothing in the Declaration of Trust protects a trustee against any liability to which the trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The by-laws of the Trust provide for indemnification by the Trust of trustees and officers of the Trust, except with respect to any matter as to which any such person did not act in good faith in the reasonable belief that his or her action was in the best interests of the Trust. Such persons may not be indemnified against any liability to the Trust or the Trusts shareholders to whom he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The Trust offers only its own Funds shares for sale, but it is possible that the Trust might become liable for any misstatements in a prospectus that relate to another Trust. The trustees of the Trust have considered this possible liability and approved the use of a combined prospectus for Funds of the Trust.
The procedures for purchasing shares of each Fund are summarized in its Prospectus. All purchases made by check should be in U.S. dollars and made payable to Natixis Funds.
Shares may also be purchased either in writing, by phone, by wire, by electronic funds transfer using Automated Clearing House (ACH) or by exchange, as described in the Prospectuses, or through firms that are members of the Financial Industry Regulatory Authority (FINRA) and that have selling agreements with the Distributor. For purchase of Fund shares by mail, the trade date is the day of receipt of the check in good order by the transfer agent so long as it is received by the close of regular trading of the New York Stock Exchange (the Exchange) on a day when the Exchange is open. For purchases through the ACH system, the shareholders bank or credit union must be a member of the ACH system and the shareholder must have approved banking information on file. With respect to shares purchased by wire or through the ACH system, shareholders should bear in mind that the transactions may take two or more days to complete. Banks may charge a fee for transmitting funds by wire.
You may also go to www.loomissayles.com to purchase fund shares if you have established the electronic transfer privilege.
Shareholders of the Funds may be permitted to open an account without an initial investment and then wire funds into the account once established. These shareholders will still be subject to the investment minimums as detailed in the Prospectus of each Fund.
The Funds will only accept medallion signature guarantees bearing the STAMP 2000 Medallion imprint. However, a medallion signature guarantee may not be required if the proceeds of the redemption do not exceed $100,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address or if the proceeds are going to a bank on file. Please contact the Funds at 800-633-3330 with any questions regarding when a medallion signature guarantee is required.
If you select the telephone redemption service in the manner described in the next paragraph, shares of the Funds may be redeemed by calling toll-free 800-633-3330. A wire fee may be deducted from the proceeds if you elect to receive the funds wired to your bank on record. Telephone redemption requests must be received by the close of regular trading on the Exchange. Requests made after that time or on a day when the Exchange is closed for business will receive the next business days closing price. The proceeds of a telephone withdrawal will normally be sent within three business days following receipt of a proper redemption request, although it may take longer.
A shareholder automatically receives access to the ability to redeem shares by telephone following the completion of the Fund application, which is available at www.loomissayles.com or from your investment dealer. When selecting the service, a shareholder may have their withdrawal proceeds sent to his or her bank, in which case the shareholder
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must designate a bank account on his or her application or Account Options Form to which the redemption proceeds should be sent as well as provide a check marked VOID and/or a deposit slip that includes the routing number of his or her bank. Any change in the bank account so designated may be made by furnishing to Boston Financial or your investment dealer a completed Account Options Form, which may require a medallion signature guarantee. Telephone redemptions by ACH or wire may only be made if the designated bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. If the account is with a savings bank, it must have only one correspondent bank that is a member of the System. The Funds, the Distributor, the transfer agent and State Street Bank (the Funds custodian) are not responsible for the authenticity of withdrawal instructions received by telephone, although they will apply established verification procedures. Boston Financial (the Funds transfer agent), as agreed to with the Funds, will employ reasonable procedures to confirm that your telephone instructions are genuine, and if it does not, it may be liable for any losses due to unauthorized or fraudulent instructions. Such verification procedures include, but are not limited to, requiring a form of personal identification prior to acting on an investors telephone instructions and recording an investors instructions.
Shares purchased by check or through ACH may not be available immediately for redemption to the extent that the check or ACH transaction has not cleared. The Funds may withhold redemption proceeds for 15 days when redemptions are made within 15 calendar days of purchase by check or through ACH.
The redemption price will be the NAV per share next determined after the redemption request and any necessary special documentation are received by the transfer agent or your investment dealer in proper form. Payment normally will be made by State Street Bank on behalf of a Fund within seven days thereafter. However, in the event of a request to redeem shares for which a Fund has not yet received good payment, the Funds reserve the right to withhold payments of redemption proceeds if the purchase of shares was made by a check which was deposited within fifteen calendar days prior to the redemption request (unless the Fund is aware that the check has cleared).
Each Fund will normally redeem shares for cash; however, each Fund reserves the right to pay the redemption price wholly or partly in kind if the Trusts Board of Trustees determines it to be advisable and in the interest of the remaining shareholders of a Fund. The redemptions in kind will be selected by the Funds adviser in light of the Funds objective and will not generally represent a pro rata distribution of each security held in the Funds portfolio. If portfolio securities are distributed in lieu of cash, the shareholder will normally incur brokerage commissions upon subsequent disposition of any such securities. However, the Funds have elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which each Fund is obligated to redeem shares solely in cash for any shareholder during any 90-day period up to the lesser of $250,000 or 1% of the total NAV of each Fund at the beginning of such period.
The Funds reserve the right to suspend account services or refuse transaction requests if a Fund receives notice of a dispute between registered owners or of the death of a registered owner or a Fund suspects a fraudulent act. If a Fund refuses a transaction request because it receives notice of a dispute, the transaction will be processed at the NAV next determined after a Fund receives notice that the dispute has been settled or a court order has been entered adjudicating the dispute. If a Fund determines that its suspicion of fraud or belief that a dispute existed was mistaken, the transaction will be processed as of the NAV next determined after the transaction request was first received in good order.
Other
The Funds have authorized one or more brokers to accept on their behalf purchase and redemption orders; such brokers are authorized to designate intermediaries to accept purchase and redemption orders on the Funds behalf. The Funds will be deemed to have received a purchase or redemption order when an authorized broker or, if applicable, a brokers authorized designee accepts the order. The brokers customers will receive the Funds NAV next computed after an order is accepted by an authorized broker or the brokers authorized designee.
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Open Accounts
A shareholders investment is automatically credited to an open account maintained for the shareholder by Boston Financial. Following each additional investment or redemption from the account initiated by an investor (with the exception of systematic investment plans), a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each calendar year, the Funds will send each shareholder a statement providing account information which may include federal tax information on dividends and distributions paid to the shareholder during the year. This statement should be retained as a permanent record.
The open account system provides for full and fractional shares expressed to three decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. Certificates will not be issued for any class of shares.
The costs of maintaining the open account system are paid by the Funds, and no direct charges are made to shareholders. Although the Funds have no present intention of making such direct charges to shareholders, they each reserve the right to do so. Shareholders will receive prior notice before any such charges are made.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan, referred to in the Prospectuses in the section General Information - How to Redeem Shares, provides for monthly, quarterly, semiannual or annual withdrawal payments of $50 or more from the account of an eligible shareholder, as provided in the Prospectus, provided that the account has a value of at least $25,000 at the time the plan is established.
Payments will be made either to the shareholder or to any other person designated by the shareholder. If payments are issued to an individual other than the registered owner(s), a medallion signature guarantee will be required on the Plan application. All shares in an account that is subject to a Systematic Withdrawal Plan must be held in an open account rather than in certificated form. Income dividends and capital gain distributions will be reinvested at the NAV determined as of the close of regular trading on the Exchange on the payable date for the dividend or distribution.
Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the value of the account, particularly in the event of a decline in NAV. Accordingly, a shareholder should consider whether a Plan and the specified amounts to be withdrawn are appropriate under the circumstances. The Funds and the Distributor make no recommendations or representations in this regard. It may be appropriate for a shareholder to consult a tax adviser before establishing such a plan. See the section Taxes for certain information as to U.S. federal income taxes.
Exchange Privilege
Retail Class shares of the Funds may be exchanged, subject to investment minimums, for Retail Class shares of any other series of the Trust that offers Retail Class shares or for Class A shares of Natixis Cash Management Trust, a money market fund advised by Natixis Advisors, an affiliate of Loomis Sayles.
Exchanges may be effected by (1) making a telephone request by calling 800-633-3330, (2) sending a written exchange request to Loomis Sayles Funds accompanied by an account application for the appropriate fund or (3) visiting our website at www.loomissayles.com. The Trust reserve the right to modify this exchange privilege without prior notice. An exchange generally constitutes a sale of shares for U.S. federal income tax purposes on which the investor may realize a capital gain or loss.
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
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shares of such funds may be legally sold. Each Fund reserves the right to suspend or change the terms of exchanging shares. Each Fund and the Distributor reserve the right to refuse or limit any exchange order for any reason, including if the transaction is deemed not to be in the best interests of the Funds other shareholders or possibly disruptive to the management of the Fund.
An exchange transaction is a redemption of shares and is subject to the redemption fee policy. See the section Redemptions.
As stated in each Funds Prospectus, the Funds and the Distributor reserve the right to reject any purchase or exchange order for any reason. When a purchase or exchange order is rejected, the Fund or the Distributor will send notice to the prospective investor or the investors financial intermediary promptly after receipt of the rejected order.
Individual Retirement Accounts (IRAs)
IRAs may be established under a prototype plan made available by Loomis Sayles. These plans may be funded with shares of any Fund. All income dividends and capital gain distributions of plan participants must be reinvested. Plan documents and further information can be obtained from Loomis Sayles.
Check with your financial or tax adviser as to the suitability of Fund shares for your retirement plan.
Transcript Requests
Transcripts of account transactions will be provided, free of charge, at the shareholders request.
The method for determining the public offering price and NAV per share is summarized in the Prospectus.
The total NAV of each class of shares of a Fund (the excess of the assets of such Fund attributable to such class over the liabilities attributable to such class) is determined at the close of regular trading (normally 4:00 p.m., Eastern time) on each day that the Exchange is open for trading. Each Fund will not price its shares on the following holidays: New Years Day, Martin Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Equity securities, including closed-end investment companies and exchange-traded funds, for which market quotations are readily available, are valued at market value, as reported by pricing services recommended by the investment adviser and approved by the Board of Trustees. Such pricing services generally use the securitys last sale price on the exchange or market where the security is primarily traded or, if there is no reported sale during the day, the closing bid price. Securities traded on the NASDAQ Global Select Market, NASDAQ Global Market and NASDAQ Capital Market are valued at the NASDAQ Official Closing Price (NOCP), or if lacking an NOCP, at the most recent bid quotation on the applicable NASDAQ Market. Debt securities (other than short-term obligations purchased with an original or remaining maturity of sixty days or less) are generally valued on the basis of evaluated bids furnished to each Fund by a pricing service recommended by the investment adviser and approved by each Board of Trustees, which service determines valuations for normal, institutional size-trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Broker-dealer bid quotations may also be used to value debt and equity securities where a pricing service does not price a security or where a pricing service does not provide a reliable price for the security. In instances where broker-dealer bid quotations are not available, certain securities held by each Fund may be valued on the basis of a price provided by a principal market maker. Short-term obligations purchased with an original or a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Domestic exchange-traded single equity option contracts (including options on exchange-traded funds) are valued at the mean of the National Best Bid and Offer quotations. Exchange-traded index options and foreign exchange-traded single equity options are valued at the average of the closing bid and asked quotation. Futures contracts are valued at the most recent settlement price. Credit default swaps are valued based on prices supplied by a pricing service, if available, or quotations obtained from broker-dealers. Forward foreign currency contracts are valued using interpolated prices determined from information provided by an independent pricing service. Investments in other open-end investment companies are valued at their reported NAV each day. Securities for which current market
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quotations are not readily available and all other assets are valued at fair value as determined in good faith by the Funds investment adviser using consistently applied procedures under the general supervision of the Boards of Trustees.
Generally, trading in foreign government securities and other fixed-income securities, as well as trading in equity securities in markets outside the United States, is substantially completed each day at various times prior to the close of the Exchange. Securities traded on a foreign exchange will be valued at their market price on the non-U.S. exchange except for securities traded on the London Stock Exchange (British Equities). British Equities will be valued at the official close of the London Stock Exchange. The value of other securities principally traded outside the United States will be computed as of the completion of substantial trading for the day on the markets on which such securities principally trade. Securities principally traded outside the United States will generally be valued several hours before the close of regular trading on the Exchange, generally 4:00 p.m., Eastern Time, when each Fund computes the NAV of its shares. Occasionally, events affecting the value of securities principally traded outside the United States may occur between the completion of substantial trading of such securities for the day and the close of the Exchange, which events will not be reflected in the computation of a Funds NAV. If it is determined pursuant to procedures adopted by the Board of Trustees that events materially affecting the value of a Funds securities have occurred during such period, then these securities may be fair valued at the time a Fund determines its NAV by or pursuant to procedures adopted by the Board of Trustees. When fair valuing its securities, each 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 a Funds NAV is calculated.
Because of fair value pricing, 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. Each Fund may also value securities at fair value or estimate its value pursuant to procedures adopted 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 issuers 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).
Trading in some of the portfolio securities of some of the Funds takes place in various markets outside the United States on days and at times other than when the Exchange is open for trading. Therefore, the calculation of these Funds NAV does not take place at the same time as the prices of many of its portfolio securities are determined, and the value of these Funds portfolios may change on days when these Funds are not open for business and their shares may not be purchased or redeemed.
The per share NAV of a class of each Funds shares is computed by dividing the number of shares outstanding into the total NAV attributable to such class.
As described in the Prospectuses, it is the policy of each Fund to pay to its shareholders, as dividends, all or substantially all of its net investment income and to distribute annually all or substantially all of its net realized long-term capital gains, if any, after offsetting any capital loss carryovers.
Ordinary income dividends and capital gain distributions are payable in full and fractional shares of the relevant class of the Funds based upon the NAV determined as of the close of the Exchange on the record date for each dividend or distribution. Shareholders, however, may elect to receive their ordinary income dividends or capital gain distributions, or both, in cash. The election may be made at any time by submitting a written request directly to Natixis Funds. In order for a change to be in effect for any dividend or distribution, it must be received by Natixis Funds on or before the record date for such dividend or distribution.
If you elect to receive your dividends in cash and the dividend checks sent to you are returned as undeliverable to the Funds or remain uncashed for six months, your cash election will automatically be changed and your future dividends will be reinvested. No interest will accrue on amounts represented by uncashed dividend or redemption checks.
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As required by federal law, U.S. federal tax information regarding Fund distributions will be furnished to each shareholder for each calendar year generally on or before January 31 of the succeeding year. Funds with significant investments in REITs typically request a 30-day extension to provide such Federal tax information to their shareholders.
The following discussion of certain U.S. federal income tax consequences of an investment in a Fund is based on the Code, U.S. Treasury regulations, and other applicable authorities, all as of the date of this Statement These authorities are subject to change by legislative or administrative action, possibly with retroactive effect. The following discussion is only a summary of some of the important U.S. federal tax considerations generally applicable to an investment in the Funds. There may be other tax considerations applicable to particular shareholders. Shareholders should consult their own tax advisors regarding their particular situations and the possible application of foreign, state and local tax laws.
Each Fund has elected and intends to qualify each year as a RIC under Subchapter M of the Code. In order to qualify for the special tax treatment accorded RICs under the Code, each Fund must, among other things: (i) derive at least 90% of its gross income in each taxable year from (a) dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies and (b) net income derived from interests in qualified publicly traded partnerships (QPTPs); (ii) diversify its holdings so that at the end of each quarter of a Funds taxable year (a) at least 50% of the value of the Funds total assets consists of cash and cash items, U.S. Government securities, securities of other RICs, and other securities limited generally, with respect to any one issuer, to no more than 5% of the market value of the Funds total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Funds total assets is invested in the securities (other than those of the U.S. Government or other RICs) of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar or related trades or businesses, or in the securities of one or more QPTPs; and (iii) distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paidgenerally taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and net tax-exempt income, if any, for such year.
In general, for purposes of the 90% gross income requirement described in (i) above, income derived by a Fund from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized directly by the Fund. However, 100% of the net income derived by a Fund from an interest in a QPTP (generally, a partnership (x) the interests in which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof, (y) that is treated as a partnership for U.S. federal income tax purposes, and (z) that derives less than 90% of its income from the qualifying income described in (i)(a) above) will be treated as qualifying income.
For purposes of the diversification requirements described in (ii) above, outstanding voting securities of an issuer include, the equity securities of a QPTP. Also for purposes of the diversification requirements described in (ii) above identification of the issuer (or, in some cases, issuers) of a particular Fund investment can depend on the terms and conditions of that investment. In some cases, identification of the issuer (or issuers) is uncertain under current law, and an adverse determination or future guidance by the Internal Revenue Service (the IRS) with respect to identification of the issuer for a particular type of investment may adversely affect a Funds ability to satisfy the diversification requirements in (ii) above.
Assuming that it qualifies for treatment as a RIC, a Fund will not be subject to U.S. federal income tax on income that is distributed to its shareholders in a timely manner in the form of dividends (including Capital Gain Dividends, as defined below). If a Fund were to fail to qualify as a RIC accorded special tax treatment in any taxable year, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net long-term capital gain, would be taxable to shareholders as dividend income.
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Some portions of such distributions may be eligible for the dividends received deduction in the case of corporate shareholders and may be eligible to be treated as qualified dividend income in the case of shareholders taxed as individuals, provided in both cases that the shareholder meets certain holding period and other requirements in respect of a Funds shares (as described below). In addition, a Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a RIC that is accorded special tax treatment.
Each Fund intends to distribute at least annually to its shareholders all or substantially all of its investment company taxable income (computed without regard to the dividends-paid deduction). If a Fund retains any investment company taxable income, the Fund will be subject to tax at regular corporate rates on the amount retained. Each Fund also intends to distribute annually all or substantially all of its net capital gain and to make appropriate Capital Gain Dividend (as defined below) designations. If a Fund retains any net capital gain, it will be subject to tax at regular corporate rates on the amounts retained, but may designate the retained amount as undistributed capital gains in a notice to its shareholders, who in turn (i) will be required to include in income for U.S. federal income tax purposes, as long-term capital gains, their shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on such undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds on properly filed U.S. tax returns to the extent the credit exceeds such liabilities. If a Fund makes this designation, for U.S. federal income tax purposes, the tax basis of shares owned by a shareholder of a Fund will be increased by an amount equal to the difference between the amount of undistributed capital gains included in the shareholders gross income under clause (i) of the preceding sentence and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence. The Funds are not required to, and there can be no assurance that a Fund will, make this designation if a Fund retains all or a portion of its net capital gain in a taxable year.
In determining its net capital gain for Capital Gain Dividend purposes (see below for a discussion of Capital Gain Dividends), a RIC generally must treat any net capital loss or any net long-term capital loss incurred after October 31 as if it had been incurred in the succeeding year. In addition, in determining its taxable income, a RIC may elect to treat all or part of any net capital loss, any net long-term capital loss, or any net foreign currency loss incurred after October 31 as if it had been incurred in the succeeding year.
A nondeductible excise tax at a rate of 4% will be imposed on the excess, if any, of each Funds required distribution over its actual distributions in any calendar year. Generally, the required distribution is 98% of a Funds ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31 plus undistributed amounts from prior years. For these purposes, each Fund will be treated as having distributed any amount on which it is subject to income tax for its taxable year ending within the calendar year. Each Fund generally intends to make distributions sufficient to avoid imposition of the 4% excise tax, although there can be no assurance that any will be able to do so.
Taxation of Fund Distributions
For U.S. federal income tax purposes, distributions of investment income generally are taxable as ordinary income to the extent of a Funds earnings and profits. Taxes on distributions of capital gains are determined by how long a Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. In general, a Fund will recognize long-term capital gain or loss on the disposition of assets it has owned (or is deemed to have owned) for more than one year, and short-term capital gain or loss on the disposition of investments it has owned (or is deemed to have owned) for one year or less. Distributions of net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss) that are properly designated by the Fund as capital gain dividends (Capital Gain Dividends) generally will be taxable to a shareholder receiving such distributions as long-term capital gain. Distributions of the excess of net short-term capital gain over net long-term capital loss will generally be taxable to a shareholder receiving such distributions as ordinary income. Distributions from capital gains generally are made after applying any available capital loss carryovers. Long-term capital gain rates applicable to individuals have been temporarily reduced, in general to 15%, with a 0% rate applying to taxpayers in the 10% and 15% rate brackets, for taxable years beginning before January 1, 2011. It is currently unclear whether Congress will extend the long-term capital gain rate reduction for taxable years beginning on or after January 1, 2011.
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Distributions are taxable to shareholders even if they are paid from income or gains earned by a Fund before a shareholders investment (and thus were included in the price the shareholder paid for his or her shares). Distributions are taxable whether shareholders receive them in cash or in additional shares.
Distributions declared and payable by a Fund during October, November or December to shareholders of record on a date in any such month and paid by the Fund during the following January generally will be treated for U.S. federal tax purposes as paid by the Fund and received by shareholders on December 31 of the year in which the distributions are declared rather than the calendar year in which they are received.
For taxable years beginning before January 1, 2011, distributions of investment income properly designated by a Fund as derived from qualified dividend income will be taxed in the hands of individuals at the rates applicable to long-term capital gain. It is currently unclear whether Congress will extend the special tax treatment of qualified dividend income for taxable years beginning on or after January 1, 2011. Neither Fund expects a significant portion of Fund distributions to be derived from qualified dividend income.
Dividends of net investment income received by corporate shareholders of a Fund will generally qualify for the 70% dividends received deduction available to corporations to the extent of the amount of eligible dividends received by the Fund from domestic corporations for the taxable year.
Any distribution of income that is attributable to (i) income received by a Fund in lieu of dividends with respect to securities on loan pursuant to a securities lending transaction, or (ii) dividend income received by a Fund on securities it temporarily purchased from a counterparty pursuant to a repurchase agreement that is treated for U.S. federal income tax purposes as a loan by the Fund, may not constitute qualified dividend income to individual shareholders and may not be eligible for the dividends-received deduction for corporate shareholders.
If a Fund makes a distribution in excess of its current and accumulated earnings and profits in any taxable year, the excess distribution will be treated as a return of capital to the extent of a shareholders tax basis in his or her shares, and thereafter as capital gain. A return of capital generally is not taxable, but it reduces a shareholders basis in his or her shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the shareholder of such shares.
Sale, Exchange or Redemption of Shares
A sale, exchange or redemption of Fund shares will generally give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, gain or loss on the taxable disposition of Fund shares will generally be treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of Fund shares held by a shareholder for six months or less will be treated as long-term, rather than short-term, to the extent of any Capital Gain Dividends received (or deemed received) by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed under the Codes wash sale rule if other substantially identical shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Foreign Taxes
Income received by a Fund from investments in securities of foreign issuers may be subject to foreign withholding and other taxes. Tax treaties between certain countries and the U.S. may reduce or eliminate such taxes. The Funds generally do not expect that shareholders will be entitled to claim a credit or deduction with respect to such foreign taxes incurred by the Funds.
Securities Issued or Purchased at a Discount
A Funds investment, if any, in debt securities issued at a discount, TIPS and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, a Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold.
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Certain Higher-Risk and High Yield Securities
A Fund may invest in lower-quality debt obligations or debt obligations that are unrated, including debt obligations of issuers not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default present special tax issues for a Fund. Tax rules are not entirely clear about issues such as whether a Fund should recognize market discount on a debt obligation and, if so, the amount of market discount the Fund should recognize, when a Fund may cease to accrue interest, original issue discount or market discount, when and to what extent a Fund may take deductions for bad debts or worthless securities and how a Fund should allocate payments received on obligations in default should be allocated between principal and interest. These and other related issues will be addressed by each Fund when as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a RIC and does not become subject to U.S. federal income or excise tax.
A portion of the interest paid or accrued on certain high yield obligations in which a Fund may invest may be treated as a dividend for purposes of the corporate dividends received deduction. In such cases, if the issuer of the high yield discount obligations is a domestic corporation, dividend payments by the Fund to corporate shareholders may be eligible for the dividends received deduction to the extent of the deemed dividend portion of such accrued interest.
Passive Foreign Investment Companies
Funds that invest in foreign securities may own shares (or be treated as owning shares) in certain foreign entities that are treated as passive foreign investment companies (PFICs), which could potentially subject such a Fund to U.S. federal income tax (including interest charges) on distributions received from the PFIC or on gains from a disposition of shares in the PFIC. This tax cannot be eliminated by making distributions to Fund shareholders. However, the Fund may make certain elections to avoid the imposition of that tax. For example, a Fund may make an election to mark the gains (and to a limited extent losses) in a PFIC to the market as though the Fund had sold and repurchased its holdings in the PFIC on the last day of each taxable year of the Fund. Such gains and losses are treated as ordinary income and loss. Each Fund may also in certain cases elect to treat a PFIC as a qualified electing fund ( i.e ., make a QEF election), in which case the Fund would be required to include in its income annually its share of the PFICs income and net capital gains, regardless of whether it receives any distributions from the PFIC. The mark-to-market and QEF elections may accelerate the recognition of income (without the receipt of cash) and increase the amount required to be distributed by a Fund to avoid taxation. Making either of these elections therefore may require a Fund to liquidate other investments (including when it is not advantageous to do so) to meet its distribution requirements, which also may accelerate the recognition of gain and affect the Funds total return. Dividends paid by PFICs will not be eligible to be treated as qualified dividend income.
Foreign Currency Transactions
Transactions in foreign currencies, foreign-currency denominated debt obligations and certain foreign currency options, futures contracts, and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
Financial Products
A Funds investments in options, futures contracts, hedging transactions, forward contracts, swaps and certain other transactions may be subject to one or more special tax rules (including mark-to-market, constructive sale, straddle, notional principal contract, wash sale, short sale and other rules). These rules may affect whether gains and losses recognized by the Fund are treated as ordinary or capital or as short-term or long-term, accelerate the recognition of income or gains to the Fund, defer losses to the Fund, or cause adjustments in the holding periods of Fund securities. These rules could therefore affect the amount, timing and/or character of distributions to Fund shareholders. Moreover, the rules applicable to these types of transactions are in some cases uncertain under current law, and an adverse determination or future guidance by the IRS with respect to these rules (which determination or guidance could be retroactive) may affect whether the Fund has made sufficient distributions, and otherwise satisfied the relevant requirements, to maintain its qualification as a RIC and avoid a Fund-level tax.
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Investments by a Fund in certain derivative instruments, a Funds hedging activities, and a Funds transactions, if any, in foreign currencies and foreign currency denominated instruments) may result in a difference between the Funds book income and its taxable income. If a Funds book income exceeds its taxable income and net-exempt income (if any), the distribution (if any) of such excess generally will be treated as (i) a dividend to the extent of the Funds remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter, as a return of capital to the extent of the recipients basis in the Funds shares, and (iii) thereafter, as gain from the sale or exchange of a capital asset. If a Funds book income is less than taxable income and net tax-exempt income (if any), a Fund could be required to make distributions exceeding book income to avoid excise tax liability and to maintain its qualification as a RIC.
REITs, REMICs, and TMPs
Investments in REIT equity securities may require a Fund to accrue and distribute income not yet received. To generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold (including at times when it is not advantageous to do so). A Funds investments in REIT equity securities may at other times result in the Funds receipt of cash in excess of the REITs earnings; if the Fund distributes these amounts, such distributions could constitute a return of capital to Fund shareholders for U.S. federal income tax purposes.
A Fund may invest directly or indirectly (including through REITs) in residual interests in real estate mortgage investment conduits (REMICs) including by investing in residual interests in CMOs with respect to which an election to be treated as a REMIC is in effect, or equity interests in taxable mortgage pools (TMPs). Under a notice issued by the IRS in October 2006 and Treasury regulations that have yet to be issued but may apply retroactively, a portion of a Funds income (including income allocated to the Fund from a REIT or other pass-through entity) that is attributable to a residual interest in a REMIC or an equity interest in a TMP (referred to in the Code as an excess inclusion) will be subject to U.S. federal income tax in all events. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a RIC will generally be allocated to shareholders of the RIC in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related interest directly. As a result, a Fund investing in such interests may not be a suitable investment for charitable remainder Trust (CRTs), as noted below.
In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions) and (ii) will constitute unrelated business taxable income (UBTI) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income. See the section Tax-Exempt Shareholders below for a discussion of the special tax consequences that may result where a tax-exempt entity invests in a RIC that recognizes excess inclusion income. Each Fund does not intend to invest in REITs in which a substantial portion of the assets will consist of residual interests in REMICs.
Tax-Exempt Shareholders
Income of a RIC that would be UBTI if earned directly by a tax-exempt entity will not generally be attributed as UBTI to a tax-exempt shareholder of the RIC. Notwithstanding this blocking effect, a tax-exempt shareholder may realize UBTI by virtue of its investments in a Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Section 514(b) of the Code.
A tax-exempt shareholder may also recognize UBTI if a Fund recognizes excess inclusion income derived from direct or indirect investments in residual interests in REMICs or equity interests in TMPs, as described above, if the amount of such income recognized by the Fund exceeds the Funds investment company taxable income (after taking into account deductions for dividends paid by the Fund). Furthermore, any investment in residual interests of a CMO that has elected to be treated as a REMIC can create complex tax consequences, especially if a Fund has state or local governments or other tax-exempt organizations as shareholders.
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In addition, special tax consequences apply when CRTs invest in RICs that invest directly or indirectly in residual interests in REMICs or equity interests in TMPs. Under legislation enacted in December 2006, if a CRT (as defined in section 664 of the Code) realizes any UBTI for a taxable year, a 100% excise tax is imposed on such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI as a result of investing in a fund that recognizes excess inclusion income. Rather, if at any time during any taxable year, a CRT (or one of certain other tax-exempt shareholders, such as the United States, a state or political subdivision, or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a share in a fund that recognizes excess inclusion income, then the fund will be subject to a tax on that portion of its excess inclusion income for the taxable year that is allocable to such shareholders at the highest U.S. federal corporate income tax rate. To the extent permitted under the 1940 Act, each Fund may elect to specially allocate any such tax to the applicable CRT (or other shareholder), and thus reduce such shareholders distributions for the year by the amount of the tax that relates to such shareholders interest in the Fund. The extent to which this IRS guidance remains applicable in light of the December 2006 legislation is unclear. CRTs and other tax-exempt investors are urged to consult their tax advisors concerning the consequences of investing in a Fund.
Backup Withholding
Each Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the distributions and redemption proceeds paid to any individual shareholder who fails to properly furnish a Fund with a correct taxpayer identification number, who has under-reported dividend or interest income, or who fails to certify to a Fund that he or she is not subject to such withholding. The backup withholding tax rate is 28% for amounts paid through 2010. The backup withholding tax rate will be 31% for amounts paid after December 31, 2010 unless Congress enacts legislation providing otherwise.
Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholders U.S. federal income tax liability, provided the appropriate information is furnished to the IRS.
Non-U.S. Shareholders
Capital Gain Dividends generally will not be subject to withholding of U.S. federal income tax. Dividends (other than Capital Gain Dividends) paid by a Fund to a shareholder that is not a United States person within the meaning of the Code (a Foreign Person) generally are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if the dividends are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a Foreign Person directly, would not be subject to withholding.
Effective for taxable years of each Fund beginning before January 1, 2010, in general and subject to certain limitations, a Fund is not required to withhold any amounts (i) with respect to distributions attributable to U.S.-source interest income of types similar to those that would not be subject to U.S. federal income tax if earned directly by an individual Foreign Person, to the extent such distributions are properly designated by the Fund as interest-related dividends, and (ii) with respect to distributions of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund as short-term capital gain dividends. As of the date of this Statement, it is unclear whether the exemptions from withholding for interest-related and short-term capital gain dividends will be extended to taxable years beginning on or after January 1, 2010 and, if they are extended, what the terms of the extension will be. The Funds, however, do not intend to make such designations.
If a beneficial holder of Fund shares who or which is a Foreign Person has a trade or business in the United States, and Fund dividends received by such holder are effectively connected with the conduct of such trade or business, the dividends generally will be subject to U.S. federal net income taxation at regular income tax rates.
A beneficial holder of shares who or which is a Foreign Person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on a sale or redemption of shares of a Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, or (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale, redemption or Capital Gain Dividend and certain other conditions are met.
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Foreign Persons should consult their tax advisors concerning the tax consequences of ownership of shares of the Funds, including the certification and filing requirements imposed on foreign investors in order to qualify for exemption from the backup withholding tax rates described above or a reduced rate of withholding provided by treaty.
Other Tax Matters
Special tax rules apply to investments though defined contribution plans and other tax-qualified plans. Shareholders should consult their tax advisors to determine the suitability of shares of a Fund as an investment through such plans and the precise effect of such an investment in their particular tax situations.
Dividends, distributions and gains from the sale of Fund shares may be subject to state, local and foreign taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state, local, and where applicable, foreign taxes.
If a shareholder recognizes a loss with respect to a Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Yield and Total Return
Each Fund may from time to time include its yield and total return information in advertisements or in information furnished to present or prospective shareholders.
Each Funds yield and total return will vary from time to time depending upon market conditions, the composition of its portfolios and operating expenses of the Trust allocated to each Fund. These factors, possible differences in the methods used in calculating yield and total return, and the tax-exempt status of distributions, should be considered when comparing a Funds yield and total return to yields and total return published for other investment companies and other investment vehicles. Yield and total return should also be considered relative to changes in the value of the Funds shares and to the relative risks associated with the investment objectives and policies of the Fund.
At any time in the future, yields and total return may be higher or lower than past yields and there can be no assurance that any historical results will continue.
Investors in the Funds are specifically advised that share prices, expressed as the NAVs per share, will vary just as yield will vary. An investors focus on the yield of a Fund to the exclusion of the consideration of the share price of that Fund may result in the investors misunderstanding the total return he or she may derive from the Fund.
Prior to the date of this Statement, the Retail Class shares of the Funds had not yet commenced operations. Therefore, there are no financial statements for the Retail Class shares.
62
DESCRIPTION OF SECURITIES RATINGS
Some of the Funds make use of average portfolio credit quality standards to assist institutional investors whose own investment guidelines limit their investments accordingly. In determining a Funds overall dollar-weighted average quality, unrated securities are treated as if rated, based on the advisers view of their comparability to rated securities. A Funds use of average quality criteria is intended to be a guide for those investors whose investment guidelines require that assets be invested according to comparable criteria. Reference to an overall average quality rating for a Fund does not mean that all securities held by the Fund will be rated in that category or higher. A Funds investments may range in quality from securities rated in the lowest category in which the Fund is permitted to invest to securities rated in the highest category (as rated by Moodys, S&P or Fitch or, if unrated, determined by the adviser to be of comparable quality). The percentage of a Funds assets invested in securities in a particular rating category will vary. Following is a description of Moodys, S&Ps and Fitchs ratings applicable to fixed-income securities.
Standard & Poors A brief description of the applicable rating symbols of Standard & Poors and their meanings (as published by Standard & Poors) follows:
Issue Credit Rating Definitions
A Standard & Poors issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects Standard & Poors view of the obligors capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.
The issue credit rating is not a statement of fact or recommendation to purchase, sell, or hold a financial obligation or make any investment decisions. Nor is it a comment regarding an issues market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors or obtained by Standard & Poors from other sources it considers reliable. Standard & Poors does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on Standard & Poors analysis of the following considerations:
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Likelihood of paymentcapacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; |
A-1
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Nature of and provisions of the obligation; |
|
Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors rights. |
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
AAA
An obligation rated AAA has the highest rating assigned by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitment on the obligation is very strong.
A
An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligors capacity to meet its financial commitment on the obligation is still strong.
BBB
An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC, CC, and C
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB
An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitment on the obligation.
A-2
CCC
An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated CC is currently highly vulnerable to nonpayment.
C
A C rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the C rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instruments terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
D
An obligation rated D is in payment default. The D rating category is used when payments on an obligation, including a regulatory capital instrument, are not made on the date due even if the applicable grace period has not expired, unless Standard & Poors believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. An obligations rating is lowered to D upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
Plus (+) or minus ()
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus () sign to show relative standing within the major rating categories.
NR
This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poors does not rate a particular obligation as a matter of policy.
Short-Term Issue Credit Ratings
A-1
A short-term obligation rated A-1 is rated in the highest category by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitment on these obligations is extremely strong.
A-3
A-2
A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligors capacity to meet its financial commitment on the obligation is satisfactory.
A-3
A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B
A short-term obligation rated B is regarded as having significant speculative characteristics. Ratings of B-1, B-2, and B-3 may be assigned to indicate finer distinctions within the B category. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.
B-1
A short-term obligation rated B-1 is regarded as having significant speculative characteristics, but the obligor has a relatively stronger capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
B-2
A short-term obligation rated B-2 is regarded as having significant speculative characteristics, and the obligor has an average speculative-grade capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
B-3
A short-term obligation rated B-3 is regarded as having significant speculative characteristics, and the obligor has a relatively weaker capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
C
A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D
A short-term obligation rated D is in payment default. The D rating category is used when payments on an obligation, including a regulatory capital instrument, are not made on the date due even if the applicable grace period has not expired, unless Standard & Poors believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
A-4
SPUR (Standard & Poors Underlying Rating)
This is a rating of a stand-alone capacity of an issue to pay debt service on a credit-enhanced debt issue, without giving effect to the enhancement that applies to it. These ratings are published only at the request of the debt issuer/obligor with the designation SPUR to distinguish them from the credit-enhanced rating that applies to the debt issue. Standard & Poors maintains surveillance of an issue with a published SPUR.
Municipal Short-Term Note Ratings Definitions
A Standard & Poors U.S. municipal note rating reflects Standard & Poors opinion about the liquidity factors and market access risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, Standard & Poors analysis will review the following considerations:
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Amortization schedulethe larger the final maturity relative to other maturities, the more likely it will be treated as a note; and |
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Source of paymentthe more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note. |
Note rating symbols are as follows:
SP-1
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
Dual Ratings
Standard & Poors assigns dual ratings to all debt issues that have a put option or demand feature as part of their structure. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term rating symbols are used for bonds to denote the long-term maturity and the short-term rating symbols for the put option (for example, AAA/A-1+). With U.S. municipal short-term demand debt, note rating symbols are used with the short-term issue credit rating symbols (for example SP-1+/A-1+).
A-5
Active Qualifiers (Currently applied and/or outstanding)
i
This subscript is used for issues in which the credit factors, terms, or both, that determine the likelihood of receipt of payment of interest are different from the credit factors, terms or both that determine the likelihood of receipt of principal on the obligation. The i subscript indicates that the rating addresses the interest portion of the obligation only. The i subscript will always be used in conjunction with the p subscript, which addresses likelihood of receipt of principal. For example, a rated obligation could be assigned ratings of AAAp NRi indicating that the principal portion is rated AAA and the interest portion of the obligation is not rated.
L
Ratings qualified with L apply only to amounts invested up to federal deposit insurance limits.
p
This subscript is used for issues in which the credit factors, the terms, or both, that determine the likelihood of receipt of payment of principal are different from the credit factors, terms or both that determine the likelihood of receipt of interest on the obligation. The p subscript indicates that the rating addresses the principal portion of the obligation only. The p subscript will always be used in conjunction with the i subscript, which addresses likelihood of receipt of interest. For example, a rated obligation could be assigned ratings of AAAp NRi indicating that the principal portion is rated AAA and the interest portion of the obligation is not rated.
pi
Ratings with a pi subscript are based on an analysis of an issuers published financial information, as well as additional information in the public domain. They do not, however, reflect in-depth meetings with an issuers management and are therefore based on less comprehensive information than ratings without a pi subscript. Ratings with a pi subscript are reviewed annually based on a new years financial statements, but may be reviewed on an interim basis if a major event occurs that may affect the issuers credit quality.
pr
The letters pr indicate that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful, timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of or the risk of default upon failure of such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
preliminary
Preliminary ratings are assigned to issues, including financial programs, in the following circumstances.
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Preliminary ratings may be assigned to obligations, most commonly structured and project finance issues, pending receipt of final documentation and legal opinions. Assignment of a final rating is conditional on the receipt and approval by Standard & Poors of appropriate documentation. Changes in the information provided to Standard & Poors could result in the assignment of a different rating. In addition, Standard & Poors reserves the right not to issue a final rating. |
A-6
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Preliminary ratings are assigned to Rule 415 Shelf Registrations. As specific issues, with defined terms, are offered from the master registration, a final rating may be assigned to them in accordance with Standard & Poors policies. The final rating may differ from the preliminary rating. |
t
This symbol indicates termination structures that are designed to honor their contracts to full maturity or, should certain events occur, to terminate and cash settle all their contracts before their final maturity date.
unsolicited
Unsolicited ratings are those credit ratings assigned at the initiative of Standard & Poors and not at the request of the issuer or its agents.
Inactive Qualifiers (No longer applied or outstanding)
* |
This symbol indicated continuance of the ratings is contingent upon Standard & Poors receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. Discontinued use in August 1998.
c
This qualifier was used to provide additional information to investors that the bank may terminate its obligation to purchase tendered bonds if the long-term credit rating of the issuer is below an investment-grade level and/or the issuers bonds are deemed taxable. Discontinued use in January 2001.
q
A q subscript indicates that the rating is based solely on quantitative analysis of publicly available information. Discontinued use in April 2001.
r
The r modifier was assigned to securities containing extraordinary risks, particularly market risks, that are not covered in the credit rating. The absence of an r modifier should not be taken as an indication that an obligation will not exhibit extraordinary non-credit related risks. Standard & Poors discontinued the use of the r modifier for most obligations in June 2000 and for the balance of obligations (mainly structured finance transactions) in November 2002.
Local Currency and Foreign Currency Risks
Country risk considerations are a standard part of Standard & Poors analysis for credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligors capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the sovereign governments own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identify those instances where sovereign risks make them different for the same issuer.
The ratings and other credit related opinions of Standard & Poors and its affiliates are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or make any investment decisions. Standard & Poors assumes no obligation to update any information following publication.
A-7
Users of ratings and credit related opinions should not rely on them in making any investment decision. Standard & Poors opinions and analyses do not address the suitability of any security. Standard & Poors Financial Services LLC does not act as a fiduciary or an investment advisor. While Standard & Poors has obtained information from sources it believes to be reliable, Standard & Poors does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Ratings and credit related opinions may be changed, suspended, or withdrawn at any time.
Moodys Investors Service, Inc. A brief description of the applicable Moodys Investors Service, Inc. (Moodys) rating symbols and their meanings (as published by Moodys) follows:
Long-Term Obligation Ratings
Moodys long-term obligation ratings are opinions of the relative credit risk of fixed income obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings reflect both the likelihood of default and any financial loss suffered in the event of default.
Moodys Long-Term Rating Definitions:
Aaa
Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A
Obligations rated A are considered upper medium-grade and are subject to low credit risk.
Baa
Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.
Ba
Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B
Obligations rated B are considered speculative and are subject to high credit risk.
Caa
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
A-8
C
Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.
Note : Moodys appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Medium-Term Note Ratings
Moodys assigns long-term ratings to individual debt securities issued from medium-term note (MTN) programs, in addition to indicating ratings to MTN programs themselves. Notes issued under MTN programs with such indicated ratings are rated at issuance at the rating applicable to all pari passu notes issued under the same program, at the programs relevant indicated rating, provided such notes do not exhibit any of the characteristics listed below:
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Notes containing features that link interest or principal to the credit performance of any third party or parties ( i.e. , credit-linked notes); |
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Notes allowing for negative coupons, or negative principal; |
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Notes containing any provision that could obligate the investor to make any additional payments; |
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Notes containing provisions that subordinate the claim. |
For notes with any of these characteristics, the rating of the individual note may differ from the indicated rating of the program.
For credit-linked securities, Moodys policy is to look through to the credit risk of the underlying obligor. Moodys policy with respect to non-credit linked obligations is to rate the issuers ability to meet the contract as stated, regardless of potential losses to investors as a result of non-credit developments. In other words, as long as the obligation has debt standing in the event of bankruptcy, we will assign the appropriate debt class level rating to the instrument.
Market participants must determine whether any particular note is rated, and if so, at what rating level. Moodys encourages market participants to contact Moodys Ratings Desks or visit www.moodys.com directly if they have questions regarding ratings for specific notes issued under a medium-term note program. Unrated notes issued under an MTN program may be assigned an NR (not rated) symbol.
Short-Term Ratings:
Moodys short-term ratings are opinions of the ability of issuers to honor short-term financial obligations. Ratings may be assigned to issuers, short-term programs or to individual short-term debt instruments. Such obligations generally have an original maturity not exceeding thirteen months, unless explicitly noted.
Moodys employs the following designations to indicate the relative repayment ability of rated issuers:
P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
A-9
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
Note : Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the senior most long-term rating of the issuer, its guarantor or support provider.
Fitch Investor Services, Inc. A brief description of the applicable rating symbols of Fitch Investor Services, Inc. (Fitch) and their meanings (as published by Fitch) follows:
Credit Ratings
Fitchs Ratings credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. Fitchs credit ratings cover the global spectrum of corporate, sovereign (including supranational and sub-national), financial, bank, insurance, municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets.
The terms investment grade and speculative grade have established themselves over time as shorthand to describe the categories AAA to BBB (investment grade) and BB to D (speculative grade). The terms investment grade and speculative grade are market conventions, and do not imply any recommendation or endorsement of a specific security for investment purposes. Investment grade categories indicate relatively low to moderate credit risk, while ratings in the speculative categories either signal a higher level of credit risk or that a default has already occurred.
Credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.
A designation of Not Rated or NR is used to denote securities not rated by Fitch where Fitch has rated some, but not all, securities comprising an issuance capital structure.
Fitch Ratings credit ratings do not directly address any risk other than credit risk. In particular, ratings do not deal with the risk of a market value loss on a rated security due to changes in interest rates, liquidity and other market considerations. However, in terms of payment obligation on the rated liability, market risk may be considered to the extent that it influences the ability of an issuer to pay upon a commitment. Ratings nonetheless do not reflect market risk to the extent that they influence the size or other conditionality of the obligation to pay upon a commitment (for example, in the case of index-linked bonds).
In the default components of ratings assigned to individual obligations or instruments, the agency typically rates to the likelihood of non-payment or default in accordance with the terms of that instruments documentation. In limited cases, Fitch Ratings may include additional considerations (i.e. rate to a higher or lower standard than that implied in the obligations documentation). In such cases, the agency will make clear the assumptions underlying the agencys opinion in the accompanying rating commentary.
A-10
Long-Term Credit Ratings
Issuer Credit Rating Scales
Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns and insurance companies, are generally assigned Issuer Default Ratings (IDRs). IDRs opine on an entitys relative vulnerability to default on financial obligations. The threshold default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts, although the agency recognizes that issuers may also make pre-emptive and therefore voluntary use of such mechanisms.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agencys view of their relative vulnerability to default, rather than a prediction of a specific percentage likelihood of default. For historical information on the default experience of Fitch-rated issuers, please consult the transition and default performance studies available from the Fitch Ratings website.
AAA
Highest credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA
Very high credit quality. AA ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A
High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB
Good credit quality. BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
BB
Speculative. BB ratings indicate elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments.
B
Highly speculative. B ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
A-11
CCC
Substantial credit risk. Default is a real possibility.
CC
Very high levels of credit risk. Default of some kind appears probable.
C
Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer in stand still. Conditions that are indicative of a C category rating for an issuer include:
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the issuer has entered into a grace or cure period following non-payment of a material financial obligation; |
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the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; and |
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Fitch Ratings otherwise believes a condition of RD or D to be imminent or inevitable, including through the formal announcement of a coercive debt exchange. |
RD
Restricted default. RD ratings indicate an issuer that in Fitch Ratings opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased business. This would include:
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the selective payment default on a specific class or currency of debt; |
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the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation; |
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the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; and |
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execution of a coercive debt exchange on one or more material financial obligations. |
D
Default. D ratings indicate an issuer that in Fitch Ratings opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, or which has otherwise ceased business.
Default ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a coercive debt exchange.
Imminent default typically refers to the occasion where a payment default has been intimated by the issuer, and is all but inevitable. This may, for example, be where an issuer has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has formally announced a coercive debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.
A-12
In all cases, the assignment of a default rating reflects the agencys opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuers financial obligations or local commercial practice.
Note:
The modifiers + or - may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA Long-Term IDR category, or to Long-Term IDR categories below B.
Limitations of the Issuer Credit Rating Scale
Specific limitations relevant to the issuer credit rating scale include:
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The ratings do not predict a specific percentage of default likelihood over any given time period. |
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The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change. |
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The ratings do not opine on the liquidity of the issuers securities or stock. |
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The ratings do not opine on the possible loss severity on an obligation should an issuer default. |
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The ratings do not opine on the suitability of an issuer as a counterparty to trade credit. |
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The ratings do not opine on any quality related to an issuers business, operational or financial profile other than the agencys opinion on its relative vulnerability to default. |
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
Short-Term Credit Ratings
Short-Term Ratings Assigned to Obligations in Corporate, Sovereign and Structured Finance
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security stream, and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as short term based on market convention. Typically, this means up to 13 months for corporate, structured and sovereign obligations, and up to 36 months for obligations in US public finance markets.
F1
Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added + to denote any exceptionally strong credit feature.
F2
Good short-term credit quality. Good intrinsic capacity for the timely payment of financial commitments.
F3
Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.
A-13
B
Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
C
High short-term default risk. Default is a real possibility.
RD
Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only.
D
Default. Indicates a broad-based default event for an entity, or the default of a specific short-term obligation.
Limitations of the Short-Term Ratings Scale
Specific limitations relevant to the Short-Term Ratings scale include:
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The ratings do not predict a specific percentage of default likelihood over any given time period. |
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The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change. |
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The ratings do not opine on the liquidity of the issuers securities or stock. |
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The ratings do not opine on the possible loss severity on an obligation should an obligation default. |
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The ratings do not opine on any quality related to an issuer or transactions profile other than the agencys opinion on the relative vulnerability to default of the rated issuer or obligation. |
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
Standard Rating Actions
Affirmed
The rating has been reviewed and no change has been deemed necessary.
Confirmed
Action taken in response to an external request or change in terms. Rating has been reviewed in either context, and no rating change has been deemed necessary.
Correction
Correction of rating publication error in a rating action commentary or correction of a rating data error in Fitchs ratings data base.
Downgrade
The rating has been lowered in the scale.
Paid-In-Full
This tranche has reached maturity, regardless of whether it was amortized or called early. As the issue no longer exists, it is therefore no longer rated.
A-14
Publish
Initial public announcement of rating on the agencys website, although not necessarily the first rating assigned. This action denotes when a previously private rating is published.
Rating Watch Maintained
The issue or issuer has been reviewed and remains on active Rating Watch status.
Rating Watch On
The issue or issuer has been placed on active Rating Watch status.
Revision Enhancement
Some form of the credit support affecting the rating opinion has been added, removed, or substituted.
Revision Implication Watch
The Rating Watch status has changed.
Revision Outlook
The Rating Outlook status has been changed.
Upgrade
The rating has been raised in the scale.
Withdrawn
The rating has been withdrawn and the issue or issuer is no longer rated by Fitch Ratings. Indicated in rating databases with the symbol WD.
A-15
Registration Nos. 333-22931
811-08282
LOOMIS SAYLES FUNDS I
PART C
OTHER INFORMATION
Item 28. | Exhibits |
1
2
3
4
5
6
7
(5) | Power of Attorney dated November 19, 2009, effective December 1, 2009, for Erik R. Sirri is incorporated by reference to exhibit (q)(5) to PEA No. 37 to the Registration Statement filed on January 28, 2010. | |||||
(6) | Power of Attorney dated November 24, 2009, effective December 1, 2009, for Peter J. Smail is incorporated by reference to exhibit (q)(6) to PEA No. 37 to the Registration Statement filed on January 28, 2010. |
Item 29. | Persons Controlled by or under Common Control with the Fund. |
The Registrant is not aware of any person controlled by or under common control with any of its series.
As of March 5, 2010, the persons listed below owned 25% or more of the outstanding voting securities of one or more series of the Registrant and thus may be deemed to control the series within the meaning of section 2(a)(9) of the Investment Company Act of 1940, as amended: *
Fund |
Shareholder and Address |
Percentage of
shares held |
|||
Loomis Sayles Bond Fund |
Charles Schwab & Co Inc San Francisco, CA 94104-4151 |
39.70 | % | ||
Loomis Sayles Global Bond Fund |
Charles Schwab & Co Inc San Francisco, CA 94104-4151 |
34.84 | % | ||
Loomis Sayles Intermediate Duration Fixed Income Fund |
Curry College Milton, MA 02186-2395 |
50.53 | % | ||
Loomis Sayles Securitized Asset Fund |
Merrill Lynch Pierce Fenner & Smith Inc. For The Sole Benefit Of Its Customers Jacksonville, FL 32246-6484 |
62.33 | % | ||
UBS WM USA Jersey City, NJ 07310-2055 |
34.95 | % | |||
Loomis Sayles Small Cap Value Fund |
Charles Schwab & Co Inc San Francisco, CA 94104-4151 |
27.36 | % |
* | 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% of the Fund, it may be deemed to control the Fund within the meaning of the 1940 Act. |
As of March 5, 2010, there were no persons that owned 25% or more of the outstanding voting securities of any series of the Registrant, except as noted above.
Item 30. | Indemnification. |
Under Article 5 of the Registrants By-laws, any past or present Trustee or officer of the Registrant (hereinafter referred to as a Covered Person) shall be indemnified to the fullest extent permitted by law against all liability and all expenses reasonably incurred by him or her in connection with any claim, action, suit or proceeding to which he or she may be a party or otherwise involved by reason of his or her being or having been a Covered Person. That provision does not authorize indemnification when it is determined that such Covered Person would otherwise be liable to the Registrant or its shareholders by reason of
8
willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. This description is modified in its entirety by the provision of Article 5 of the Registrants By-laws incorporated by reference to exhibit (b)(1) to PEA No. 34 to the Registration Statement filed on December 3, 2008.
The Distribution Agreement, the Custodian Contract, the Transfer Agency and Service Agreement and the Administrative Services Agreement (the Agreements) contained herein and in various post-effective amendments and incorporated herein by reference, provide for indemnification. The general effect of these provisions is to indemnify entities contracting with the Registrant against liability and expenses in certain circumstances. This description is modified in its entirety by the provisions of the Agreements as contained in this Registration Statement and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the Securities Act), may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in connection with the successful defense of any claim, action, suit or proceeding) is asserted against the Registrant by such Trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant and its Trustees, officers and employees are insured, under a policy of insurance maintained by the Registrant in conjunction with Natixis Global Asset Management, L.P. and its affiliates, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such Trustees or officers. The policy expressly excludes coverage for any Trustee or officer for any claim arising out of any fraudulent act or omission, any dishonest act or omission or any criminal act or omission of the Trustee or officer.
Item 31. | Business and Other Connections of Investment Adviser |
(a) | Loomis Sayles, the investment advisor of the Registrant, provides investment advice to each series of Loomis Sayles Funds I and to other registered investment companies, organizations, and individuals. |
The sole general partner of Loomis Sayles is Loomis, Sayles & Company, Inc., One Financial Center, Boston, Massachusetts 02111.
The list required by this Item 31 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Loomis Sayles during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Loomis Sayles pursuant to the Investment Advisers Act of 1940, as amended (SEC File No. 801-170; IARD/CRD No. 105377).
Item 32. | Principal Underwriter |
(a) | Natixis Distributors, L.P., the principal underwriter of the Registrant, also serves as principal underwriter for: |
Natixis Funds Trust I
Natixis Funds Trust II
Natixis Funds Trust III
Natixis Funds Trust IV
9
Natixis Cash Management Trust
Loomis Sayles Funds II
Hansberger International Series
Gateway Trust
(b) | The general partner and officers of the Registrants principal underwriter, Natixis Distributors, L.P., and their addresses are as follows: |
Name |
Positions and Offices with Principal Underwriter |
Positions and Offices with Registrant |
||
Natixis Distribution Corporation |
General Partner |
None |
||
David L. Giunta |
President and Chief Executive Officer |
Executive Vice President |
||
Coleen Downs Dinneen |
Executive Vice President, General Counsel, Secretary and Clerk |
Secretary, Clerk and Chief Legal Officer |
||
Russell Kane |
Senior Vice President, Deputy General Counsel, Assistant Secretary, Assistant Clerk and Chief Compliance Officer for Mutual Funds |
Chief Compliance Officer, Anti-Money Laundering Officer and Assistant Secretary |
||
Michael Kardok |
Senior Vice President |
Treasurer, Principal Financial and Accounting Officer |
||
Beatriz Pina Smith |
Executive Vice President, Treasurer and Chief Financial Officer |
None |
||
Anthony Loureiro |
Senior Vice President, Chief Compliance Officer-Broker/Dealer and Anti-Money Laundering Compliance Officer |
None |
||
KC Chew |
Senior Vice President and Chief Operating Officer for Managed Portfolio Advisors |
None |
||
David Vallon |
Senior Vice President and Chief Compliance Officer Adviser |
None |
||
Marilyn Rosh |
Vice President and Controller |
None |
||
Josh Bogen |
Executive Vice President |
None |
||
Matthew Coldren |
Executive Vice President |
None |
||
Edward Farrington |
Executive Vice President |
None |
||
Robert Hussey |
Executive Vice President |
None |
||
Mark Doyle |
Executive Vice President |
None |
||
Matt Raynor |
Executive Vice President |
None |
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Dan Santaniello |
Executive Vice President |
None |
||
Sharon Wratchford |
Executive Vice President |
None |
||
John Bearce |
Senior Vice President |
None |
||
William Butcher |
Senior Vice President |
None |
||
James Cove |
Senior Vice President |
None |
||
Joe Duffy |
Senior Vice President |
None |
||
Tracey Flaherty |
Senior Vice President |
None |
||
David Goodsell |
Senior Vice President |
None |
||
Marina Gross |
Senior Vice President |
None |
||
Dana Hartwell |
Senior Vice President |
None |
||
Tom Huddleston |
Senior Vice President |
None |
||
Jeff Keselman |
Senior Vice President |
None |
||
David Lafferty |
Senior Vice President |
None |
||
Ted LeClair |
Senior Vice President |
None |
||
Dan Lynch |
Senior Vice President |
None |
||
Robert Lyons |
Senior Vice President |
None |
||
Ian MacDuff |
Senior Vice President |
None |
||
Marla McDougall |
Senior Vice President |
None |
||
Maureen ONeill |
Senior Vice President |
None |
||
Stacie Paoletti |
Senior Vice President |
None |
||
Daniel Price |
Senior Vice President |
None |
||
Elizabeth Puls-Burns |
Senior Vice President |
None |
||
Manjari Saha |
Senior Vice President |
None |
||
Laura Verville |
Senior Vice President |
None |
||
Leslie Walstrom |
Senior Vice President |
None |
||
Susannah Wardly |
Senior Vice President |
None |
||
Faith Yando |
Senior Vice President |
None |
11
The principal business address of all the above persons or entities is 399 Boylston Street, Boston, MA 02116.
Item 33. | Location of Accounts and Records |
The following companies maintain possession of the documents required by the specified rules:
For all series of Registrant:
(i) | Loomis Sayles Funds I |
399 Boylston Street
Boston, MA 02116
(ii) | Loomis, Sayles & Company, L.P. |
One Financial Center
Boston, MA 02111
(iii) | Boston Financial Data Services |
2000 Crown Colony Drive
Quincy, MA 02169
(iv) | State Street Bank and Trust Company |
225 Franklin Street
Boston, Massachusetts 02110
(v) | Natixis Distributors, L.P. |
399 Boylston Street
Boston, Massachusetts 02116
(vi) | Natixis Asset Management Advisors, L.P. |
399 Boylston Street
Boston, Massachusetts 02116
Item 34. | Management Services |
None.
Item 35. | Undertakings |
The Registrant undertakes to provide a copy of the annual report of any of its series to any person who receives a prospectus for such series and who requests the annual report.
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LOOMIS SAYLES FUNDS I
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Post-Effective Amendment No. 38 to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on the 29 th day of March, 2010.
LOOMIS SAYLES FUNDS I | ||
By: |
/ S / D AVID L. G IUNTA |
|
David L. Giunta | ||
Executive Vice President |
Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signature |
Title |
Date |
||
/ S / D AVID L. G IUNTA |
||||
David L. Giunta |
Executive Vice President |
March 29, 2010 | ||
/ S / M ICHAEL C. K ARDOK |
||||
Michael C. Kardok |
Treasurer |
March 29, 2010 | ||
G RAHAM T. A LLISON , J R .* |
||||
Graham T. Allison, Jr. |
Trustee |
March 29, 2010 | ||
E DWARD A. B ENJAMIN * |
||||
Edward A. Benjamin |
Trustee |
March 29, 2010 | ||
R OBERT J. B LANDING * |
||||
Robert J. Blanding |
President, Chief Executive Officer and Trustee |
March 29, 2010 | ||
D ANIEL M. C AIN * |
||||
Daniel M. Cain |
Trustee |
March 29, 2010 | ||
K ENNETH A. D RUCKER * |
||||
Kenneth A. Drucker |
Trustee |
March 29, 2010 | ||
J OHN T. H AILER * |
||||
John T. Hailer |
Trustee |
March 29, 2010 |
W ENDELL J. K NOX * |
||||
Wendell J. Knox |
Trustee |
March 29, 2010 | ||
S ANDRA O. M OOSE * |
||||
Sandra O. Moose |
Trustee, Chairperson of the Board |
March 29, 2010 | ||
E RIK R. S IRRI * |
||||
Erik R. Sirri |
Trustee |
March 29, 2010 | ||
P ETER J. S MAIL * |
||||
Peter J. Smail |
Trustee |
March 29, 2010 | ||
C YNTHIA L. W ALKER * |
||||
Cynthia L. Walker |
Trustee |
March 29, 2010 |
*By: |
/ S / C OLEEN D OWNS D INNEEN |
|
Coleen Downs Dinneen | ||
Attorney-In-Fact**/***/****/*****/******/******* | ||
March 29, 2010 |
** | Powers of Attorney for Graham T. Allison, Jr., Daniel M. Cain, John T. Hailer, Edward Benjamin, Robert Blanding and Sandra O. Moose are incorporated by reference to exhibit (q) to PEA No. 26 to the Registration Statement filed on December 2, 2004. |
*** | Power of Attorney for Cynthia L. Walker is incorporated by reference to exhibit (q)(2) to PEA No. 29 to the Registration Statement filed on July 1, 2005. |
**** | Power of Attorney for Kenneth A. Drucker is incorporated by reference to exhibit (q)(4) to PEA No. 34 to the Registration Statement filed on December 3, 2008. |
***** | Power of Attorney for Wendell J. Knox is incorporated by reference to exhibit (q)(4) to PEA No. 36 to the Registration Statement filed on November 23, 2009. |
****** | Power of Attorney for Erik R. Sirri is incorporated by reference to exhibit (q)(5) to PEA No. 37 to the Registration Statement filed on January 28, 2010. |
******* | Power of Attorney for Peter J. Smail is incorporated by reference to exhibit (q)(6) to PEA No. 37 to the Registration Statement filed on January 28, 2010. |
Loomis Sayles Funds I
Exhibit Index
Exhibits for Item 28 of Form N-1A
Exhibit |
Exhibit Description |
|
(e)(5) |
Form of Dealer Agreement | |
(h)(2)(xiv) |
12 th Amendment to the Administrative Services Agreement dated February 25, 2010 | |
(p)(2) |
Code of Ethics for Natixis Advisors and Natixis Distributors dated January 1, 2010 |
Exhibit (e)(5)
Natixis Distributors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Dealer Agreement
This dealer agreement (Dealer Agreement) is entered into between Natixis Distributors, L.P. (our, us, or we) and the undersigned company (you). We offer to sell to you shares of each of the mutual funds distributed by us (the Funds and each a Fund), for each of which we serve as principal underwriter as defined in the Investment Company Act of 1940, as amended (the Act), and from which we have the right to purchase shares. 1
With respect to each of the Funds (except for Section 5, which applies only with respect to each Fund having in effect from time to time a service plan, service and distribution plan or other plan adopted pursuant to Rule 12b-1 under the Act):
1. For all sales of shares of the Funds you shall act as dealer for your own account, and in no transaction shall you have any authority to act as agent, except as limited agent for purposes of receiving and transmitting orders and instructions regarding the purchase, exchange and redemption of shares of your customers and employees, with no authority to act as agent for any Fund or for us.
2. You agree not to purchase any Fund shares for any customer, unless you deliver or cause to be delivered to such customer, at or prior to the time of such purchase, a copy of the then current Prospectus of the applicable Fund, or the then current Summary Prospectus of the applicable Fund together with the statutory Prospectus as available on our website. You hereby represent that you understand your obligation to deliver a Prospectus to customers who purchase Fund shares pursuant to federal securities laws and you have taken all necessary steps to comply with such Prospectus delivery requirements.
3. Orders received from you will be accepted by us only at the public offering price applicable to each order, except for transactions to which a reduced offering price applies as provided in the then current Prospectus (which term as hereinafter used shall include the Summary Prospectus and Statement of Additional Information) of the Fund(s). The minimum dollar purchase of shares of each Fund by any investor shall be the applicable minimum amount described in the then current Prospectus of the Fund and no order for less than such amount will be accepted hereunder. The public offering price shall be the net asset value per share plus the sales charge, if any, applicable to the transaction, expressed as a percentage of the public offering price, as determined and effective as of the time specified in the then current Prospectus of the Fund(s). The procedures relating to the handling of orders shall be subject to any instructions that we shall forward from time to time to you. All orders are subject to acceptance or rejection by us in our sole discretion. You hereby agree to comply with attached Appendix A, Policies and Procedures with Respect to Mutual Fund Trading, and Appendix B, Policies and Procedures with Respect to the Sales of Funds Offering Multiple Classes of Shares.
4. The sales charge applicable to any sale of Fund shares by you and the dealer concession or commission applicable to any order from you for the purchase of Fund shares accepted by us shall be set forth in the then current Prospectus of the Fund. You shall notify us if you are not eligible to receive a dealer concession or commission. You may be deemed to be an underwriter in connection with sales by you of shares of the Fund where you receive all or substantially all of the sales charge as set forth in the Funds Prospectus, and therefore you may be subject to applicable provisions of the Securities Act of 1933.
(a) We are entitled to a contingent deferred sales charge (CDSC) on redemptions of applicable classes of shares of the Funds, as described in the then current Prospectus. You agree that you will sell shares subject to a CDSC and that are to be held in omnibus accounts only if you are a NETWORKING participant with the National Securities Clearing Corporation and if such accounts are established pursuant to a NETWORKING Agreement.
1 |
The definition of Funds shall not include the following mutual funds, which are distributed by Natixis Distributors, L.P, but which are not available to you through the terms of this Dealer Agreement: Hansberger Emerging Markets Fund (Institutional Class); Hansberger International Growth Fund (Institutional Class); Hansberger Core Fund (Institutional Class); Hansberger International Value Fund (Institutional Class); Hansberger International Growth Fund (Advisor Class); Loomis Sayles Fixed Income Fund; Loomis Sayles Institutional High Income Fund; Loomis Sayles Intermediate Duration Fixed Income Fund; Loomis Sayles Investment Grade Fixed Income Fund; Loomis Sayles Tax Managed Equity Fund; Loomis Sayles High Income Opportunities Fund; and Loomis Sayles Securitized Asset Fund. |
(b) Reduced sales charges or no sales charge may apply to certain transactions under letter of intent, combined purchases or investments, reinvestment of dividends and distributions, repurchase privilege, unit investment trust distribution reinvestment or other programs, as described in the then current Prospectus of the Fund(s). To obtain any such reductions, you must notify us when the sale that would qualify for such reduction takes place.
5. Rule 12b-1 Plans. The substantive provisions of this Section 5 have been adopted pursuant to Rule 12b-1 under the Act by certain Funds, under plans pursuant to such Rule (each a Plan).
(a) You agree to provide (i) for the Funds with a Service Plan, personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts, and (ii) for those Funds with a Service and Distribution Plan, both personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts and also distribution and marketing services in the promotion of Fund shares. As compensation for these services, we shall pay you, upon receipt by us from the Fund(s), a quarterly service fee or service fee and distribution fee based on the average daily net asset value of Fund shares at the rate set forth with respect to the relevant Class(es) of shares of the Fund(s) in the then current Prospectus. This fee will be based on the average daily net asset value of Fund shares which are owned of record by your firm as nominee for your customers or which are owned by those shareholders whose records, as maintained by the Fund or its agent, designate your firm as the shareholders dealer of record. No such fee will be paid to you with respect to shares purchased by you or your customers and redeemed or repurchased by the Fund or by us as agent within seven (7) business days after the date of our confirmation of such purchase. No such fee will be paid to you with respect to any of your customers if the amount of such fee based upon the value of such customers Fund shares would be less than $5.00. Normally, payment of such fee to you shall be made within forty-five (45) days after the close of each quarter for which such fee is payable provided , however , that any other provision of this Dealer Agreement or the Prospectuses to the contrary notwithstanding, we shall not have any obligation whatsoever to pay any amount of distribution and/or service fee with respect to shares of any Fund except to the extent, and only to the extent, that we have actually received payment of at least such amount of distribution and/or service fee from the Funds with respect to such shares pursuant to a Plan in consideration of you furnishing distribution and client services hereunder with respect to your customers that own such class of shares of such Fund
(b) You shall furnish us and the Fund with such information as shall reasonably be requested by the Trustees of the Fund with respect to the fees paid to you pursuant to this Section 5 and you shall notify us if you are not eligible to receive 12b-1 fees, including without limitation by reason of your failure to provide the services as required in this Section 5.
(c) The provisions of this Section 5 may be terminated by the vote of a majority of the Trustees of the Funds who are not interested persons of the Funds and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, or by a vote of a majority of the Funds outstanding shares, on sixty (60) days written notice, without payment of any penalty. Such provisions will be terminated also by any act that terminates either the Funds Distribution Contract or Underwriting Agreement with us, or this Dealer Agreement under Section 16 hereof or otherwise and shall terminate automatically in the event of the assignment (as that term is defined in the Act) of this Dealer Agreement.
(d) The provisions of the Distribution Contract or Underwriting Agreement between the Fund and us, insofar as they relate to the Plan, are incorporated herein by reference. The provisions of this Section 5 shall continue in full force and effect only so long as the continuance of the Plan, the Distribution Contract or Underwriting Agreement and these provisions are approved at least annually by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, cast in person at a meeting called for the purpose of voting thereon.
6. You agree to purchase Fund shares only from us or from your customers. If you purchase Fund shares from us, you agree that all such purchases shall be made only: (a) to cover orders already received by you from your customers; (b) for shares being acquired by your customers pursuant to either the exchange privilege or the reinvestment privilege, as described in the then current Prospectus of the Fund; (c) for your own bona fide investment; or (d) for investments by any IRS qualified pension, profit sharing or other trust established for the benefit of your employees or for investments in Individual Retirement Accounts established by your employees, and if you so advise us in writing prior to any sale of Fund shares pursuant to this subsection (d), you agree to waive all your dealer concessions with respect to all sales of Fund shares pursuant to this subsection (d). If you purchase shares from your customers, you agree to pay such customers not less than the applicable redemption price next quoted by the Fund pursuant to the procedures set forth in the then current Prospectus of the Fund.
2
7. You shall sell shares only: (a) to customers at the applicable public offering price, except for shares being acquired by your customers at net asset value pursuant to either the exchange privilege or the repurchase privilege as described in the then current Prospectus of the Fund, and (b) to us as agent for the Fund at the redemption price. In such a sale to us, you may act either as principal for your own account or as agent for your customer. If you act as principal for your own account in purchasing shares for resale to us, you agree to pay your customer not less than the price that you receive from us. If you act as agent for your customer in selling shares to us, you agree not to charge your customer more than a fair commission or fee for handling the transaction, except that you agree to receive no compensation of any kind based on the reinvestment of redemption or repurchase proceeds pursuant to the repurchase privilege, as described in the then current Prospectus of the Fund.
8. You hereby certify that all of your customers taxpayer identification numbers (TIN) or social security numbers (SSN) furnished to us by you are correct and that you will not open an account without providing us with the customers TIN or SSN. You agree to comply with the provisions of Appendix C, Policies and Procedures with Respect to Rule 22c-2 .
9. You hereby acknowledge that, in the performance of the services contemplated by this Dealer Agreement, you use or have access to records, systems, or operations that include, in tangible or electronic form, information relating to your customers such as their name, address (including email address), phone number, account number, Social Security Number, drivers license number, date of birth, account activity, investments, and other nonpublic personal information (including consumer reports) (collectively, Personal Information or Customer Data), which is subject to the requirements of the Gramm-Leach Bliley Act and Regulation S-P there under promulgated by the Securities and Exchange Commission, as from time to time amended, and other federal and state laws applicable to the management, use, disposal, and safekeeping of Personal Information and/or Customer Data relating to know your customer, anti-money laundering, and similar federal and state regulatory requirements (collectively Privacy Laws). You agree to comply with all applicable Privacy Laws relating to Personal Information and Customer Data and to cooperate with us in enabling us to satisfy our regulatory requirements relating to Personal Information.
10. You shall not withhold placing with us orders received from your customers so as to profit yourself as a result of such withholding; e.g., by a change in the net asset value from that used in determining the public offering price to your customers.
11. We will not accept from you any conditional orders for shares.
12. If any Fund shares sold to you or your customers under the terms of this Dealer Agreement are redeemed by the Fund or repurchased by us as agent for the Fund within seven (7) business days after the date of our confirmation of the original purchase by you or your customers, it is agreed that you shall forfeit your right to any dealer concession or commission received by you on such Fund shares. We will notify you of any such repurchase or redemption within ten (10) business days after the date thereof and you shall forthwith refund to us the entire concession or commission allowed or paid to you on such sale. We agree, in the event of any such repurchase or redemption, to refund to the Fund the portion of the sales charge, if any, retained by us and, upon receipt from you of the concession allowed to you on any Fund shares, to pay such refund forthwith to the Fund.
13. Payment for Fund shares sold to you shall be made on or before the settlement date specified in our confirmation, at the office of our clearing agent, and by check payable to the order of the Fund, which reserves the right to delay issuance, redemption or transfer of shares until such check has cleared. If such payment is not received by us, we reserve the right, without notice, forthwith either to cancel the sale, or at our option, sell the shares ordered back to the Fund, in which case you shall bear any loss resulting from your failure to make payment as aforesaid.
14. You will also act as principal in all purchases by a shareholder for whom you are the dealer of record of Fund shares with respect to payments sent directly by such shareholder to the Shareholder Services and Transfer Agent (the Agent) specified in the then current Prospectus of the Fund, and you authorize and appoint the Agent to execute and confirm such purchases to such shareholders on your behalf. The Agent will remit not less frequently than monthly to you the amount of any concessions due with respect to such purchases, except that no concessions will be paid to you on any transaction for which your net sales concession is less than $5.00 in any one month. You also represent that with respect to all such direct purchases by such shareholder, you may lawfully sell shares of such Fund in the state designated as such shareholders record address.
3
15. No person is authorized to make any representations concerning shares of the Funds except those contained in the then current Prospectuses of the Funds and in sales literature issued by us supplemental to such Prospectuses or approved in writing by us. In purchasing shares from us, you shall rely solely on the representations contained in such Prospectuses and such sales literature. We will furnish you with additional copies of such Prospectuses and such sales literature and other releases and information issued by us in reasonable quantities upon request.
(a) If, with prior written approval from us, you use any advertisement or sales literature which has not been supplied by us, you are responsible for ensuring that the material complies with all applicable regulations and has been filed with the appropriate authorities.
(b) You shall indemnify and hold us (and our directors, officers, employees, controlling persons and agents) and the Fund and its Trustees and officers harmless from and against any and all losses, claims, liabilities and expenses (including reasonable attorneys fees) (Losses) incurred by us or any of them arising out of (i) your dissemination of information regarding any Fund that is alleged to contain an untrue statement of material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading and that was not published or provided to you by or on behalf of us, or accurately derived from information published or provided by or on behalf of us or any of our Affiliates, (ii) any breach by you of any representation, warranty or agreement contained in this Dealer Agreement, (iii) any act or omission, including without limitation any material misstatement by you in connection with any orders or solicitation of orders for, or transactions in, shares of the Funds, or (iv) any willful misconduct or negligence on your part in the performance of, or failure to perform, your obligations under this Dealer Agreement, except to the extent such losses are caused by our breach of this Dealer Agreement or our willful misconduct or negligence in the performance, or failure to perform, our obligations under this Dealer Agreement. This Section 15 shall survive termination of this Dealer Agreement.
16. The Fund reserves the right in its discretion and we reserve the right in our discretion, without notice, to refuse any order for the purchase of Fund shares for any reason whatsoever, and to suspend sales or withdraw the offering of Fund shares (or shares of any class(es)) entirely. We reserve the right, by written notice to you, to amend, modify, cancel or assign this Dealer Agreement, including Section 5 hereof, and any appendices that are now or in the future attached to this Dealer Agreement. Notice for all purposes shall be deemed to be given when mailed or electronically transmitted to you.
17. This Dealer Agreement shall replace any prior agreement between you and us or any of our predecessor entities (including but not limited to IXIS Asset Management Distributors, L.P., CDC IXIS Asset Management Distributors, L.P., Nvest Funds Distributor, L.P., New England Funds, L.P., TNE Investment Services Corporation, and Investment Trust of Boston Distributors, Inc.) and is conditioned upon your representation and warranty that you are (i) registered as a broker/dealer under the Securities Exchange Act of 1934, as amended (the 1934 Act), and are a member in good standing of the Financial Industry Regulatory Authority, Inc. (FINRA) or (ii) exempt from registration as a broker/dealer under the 1934 Act. Regardless of whether you are a FINRA member, you and we agree to abide by the Rules and Regulations of the FINRA, including without limitation Conduct Rules 2310, 2420, 3110, 3510 and 2830, and all applicable state and federal laws, rules and regulations. You agree to notify us if you cease to be registered as a broker/dealer under the 1934 Act and a member of the FINRA, or exempt from registration as a broker/dealer under the 1934 Act.
(a) You will not offer Fund shares for sale in any state (a) where they are not qualified for sale under the blue sky laws and regulations of such state or (b) where you are not qualified to act as a broker/dealer.
(b) In the event that you offer Fund shares outside the United States, you agree to comply with the applicable laws, rules and regulations of the foreign government having jurisdiction over such sales, including any regulations of United States military authorities applicable to solicitations to military personnel.
18. Each of the parties represents and warrants that it has enacted appropriate safeguards to protect non-public customer information. If non-public personal information regarding either partys customers or consumers is disclosed to the other party in connection with this Dealer Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Dealer Agreement and in accordance with Regulation S-P.
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19. You hereby represent and certify to us, that you are aware of, and in compliance with, all applicable anti-money laundering laws, regulations, rules and government guidance, including the reporting, recordkeeping and compliance requirements of the Bank Secrecy Act (BSA), as amended by the USA PATRIOT Act of 2001 (the Patriot Act), its implementing regulations, and related Securities and Exchange Commission and self-regulatory organization rules and regulations. You hereby certify to us that, as required by the Patriot Act, you have a comprehensive anti-money laundering compliance program that includes: internal policies, procedures and controls for complying with the Patriot Act; a designated compliance officer or officers; an ongoing training program for appropriate employees; and an independent audit function. You also hereby certify to us that, to the extent applicable, you are in compliance with the economic sanctions programs administered by the U.S. Treasury Departments Office of Foreign Assets Control (OFAC), and have an OFAC compliance program that satisfies all applicable laws and regulations and sanctions programs administered by the U.S. Treasury Departments Office of Foreign Laws and Regulations. You represent that you have adopted a Customer Identification Program in compliance with applicable laws, rules and regulations and will verify the identity of customers who open accounts with you and who invest in shares of the Funds. Except to the extent restricted by applicable law, you hereby agree to notify the Funds promptly whenever questionable activity or potential indications of suspicious activity or OFAC matches are detected with respect to the Funds. You hereby undertake to notify us promptly if any of the foregoing certifications cease to be true and correct for any reason.
20. You hereby agree that all purchases, redemptions and exchanges of shares contemplated by this Dealer Agreement shall be effected by you for your customers in accordance with each Funds then current Prospectus, including, without limitation, the collection of any redemption fees, if applicable, and in accordance with applicable laws and regulations. You agree that, in the event that it should come to your attention that any of your customers are engaging in a pattern of purchases, redemptions and/or exchanges of Funds that potentially indicates market timing, you shall immediately notify us of such pattern and shall cooperate fully with us in any investigation and, if deemed necessary or appropriate by us, terminating any such pattern of trading, including, without limitation, by refusing such customers orders to purchase or exchange shares of the Funds.
21. You hereby represent that you have established and will maintain a business continuity program, in compliance with FINRA Rules 3510 and 3520, designed to ensure that you will at all times fulfill your obligations as set forth in this Dealer Agreement.
22. You hereby acknowledge that each Fund and class of shares thereof may be offered and sold only in accordance with the terms and conditions set forth in the respective Funds prospectus and statement of additional information, as may be amended from time to time.
23. All communications to us should be sent to the above address. Any notice to you shall be duly given if mailed or faxed to you at the address specified by you below.
24. This Dealer Agreement together with attached appendices shall be effective when accepted by you below and shall be governed by and construed under the laws of the Commonwealth of Massachusetts.
25. This Dealer Agreement together with attached appendices shall be effective as against you and your successor in interest. All obligations, representations, warranties and covenants made and belonging to you shall be enforceable against your successor in interest to the same extent that such would be enforceable against you.
Your submission and our acceptance of an order for the Funds, or receipt by us of an executed copy of this Dealer Agreement from you represents your acknowledgement and acceptance of the terms and conditions of this Dealer Agreement and its attached appendices.
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Appendix A
Natixis Distributors, L.P.
Policies and Procedures with Respect to Mutual Fund Trading
You shall establish and maintain effective internal policies and controls, including operational and system controls, with respect to the processing of orders of the funds received prior to and after the close of the New York Stock Exchange normally 4:00 p.m. Eastern Time (Pricing Time), for the purchase, redemption and exchange of shares of mutual funds, including the Funds.
For all transactions in the Funds, you shall follow all applicable rules and regulations and shall establish internal policies regarding the timely handling of orders for the purchase, redemption and exchange of shares of the Funds (Fund Orders) and maintain effective internal controls over the ability to distinguish and appropriately process Fund Orders received prior to and after the Funds Pricing Time, including operational and systems controls. Specifically, you represent as of the date of Dealer Agreement and each time that you accept a Fund Order on behalf of a Fund that:
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Your policies and procedures provide reasonable assurance that Fund Orders received by you prior to the Funds Pricing Time are segregated from Fund Orders received by you after the Funds Pricing Time and are properly transmitted to the Funds (or their agents) for execution at the current days net asset value (NAV). |
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Your policies and procedures provide reasonable assurances that Fund Orders received by you after the Funds Pricing Time are properly transmitted to the Funds (or their agents) for execution at the next days NAV. |
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Your policies and procedures provide reasonable assurance that transactional information is delivered to the Funds (or their agents) in a timely manner. |
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You have designed procedures to provide reasonable assurance that policies with regard to the receipt and processing of Fund Orders are complied with. Such procedures either prevent or detect, on a timely basis, instances of noncompliance with the policies governing the receipt and processing of Fund Orders. |
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Policies and procedures governing the timely handling of Fund Orders have been designed and implemented effectively by all third parties to whom you have designated the responsibility to distinguish and appropriately process Fund Orders received prior to and after the Funds Pricing Time. |
To the extent we have entered into related agreements with you regarding your handling of Fund Orders, you acknowledge and agree that this appendix shall apply to your handling of all Fund Orders, whether authorized under the Dealer Agreement or any other agreement with us or our affiliates.
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Appendix B
Natixis Distributors, L.P.
Policies and Procedures with Respect to Sales of Funds Offering Multiple Classes Of Shares
In connection with the offering of certain Funds with multiple classes of shares, one subject to a front-end sales load and a service fee or service and distribution fee (Class A shares), one subject to a service fee, distribution fee and a CDSC on redemptions within a period specified in the then current Prospectus of the Fund (Class C shares), one intended generally only for certain institutional investors and subject to no front-end sales load (Class Y shares) and other no-load Retail, Admin and Institutional Fund shares, an investor must choose the method of purchasing shares which best suits his/her particular circumstances. To assist investors in these decisions, we have instituted the following policies with respect to orders for Fund shares. These policies apply to every entity distributing Fund shares.
1. | No purchase order may be placed for Class C shares if the amount of the order equals or exceeds $1,000,000 or the order is eligible for a net asset value purchase price (i.e., no front-end sales charge) of Class A shares unless the investor indicates on the relevant section of the application that the investor has been advised of the relative advantages and disadvantages of Classes A and C shares. |
2. | Any purchase order for less than $1,000,000 may be for either Class A or C shares in light of the relevant facts and circumstances, including: |
a) | the specific purchase order dollar amount; |
b) | the length of time the investor expects to hold his/her shares; and |
c) | any other relevant circumstances such as the availability of purchase under a Letter of Intent, Breakpoints (a volume discount), or Rights of Accumulation, as described in the Prospectus. |
3. | Investors may purchase Class Y shares only if they meet the identity, suitability, minimum investment and other standards set forth in the Funds then current Class Y Prospectuses. |
Investors otherwise eligible to purchase Class Y shares but who will not make the initial minimum investment amount are eligible to invest in Class A or C shares. They should be advised, however, of the lower fees and expenses applicable to Class Y shares and should consider whether a larger investment, to meet the Class Y requirements, would be appropriate and desirable for their circumstances.
There are instances when purchasing one class of shares may be more appropriate than the others. For example, investors who would qualify for a significant discount from the maximum sales load on Class A shares may determine that payment of such a reduced front-end sales load and service fee is preferable to payment of a higher ongoing distribution fee. Investors making smaller investments who anticipate redeeming their shares within eight years might consider Class C shares for the same reason.
Appropriate supervisory personnel within your organization must ensure that all employees and representatives receiving investor inquiries about the purchase of shares of a Fund advise the investor of then available pricing structures offered by the Funds, and the impact of choosing one class of shares over another. You shall inform investors of available breakpoints and ensure that such investor receives access to representatives and employees within your organization to answer any inquiries that such investor may have with respect to available and applicable breakpoints. In some instances it may be appropriate for a supervisory person to discuss a purchase with the investor. This policy is effective with respect to any order for the purchase of shares of a Fund offering multiple classes of shares.
Fund and class of shares may be offered and sold only in accordance with the terms and conditions set forth in the respective Funds prospectus and statement of additional information. Questions relating to this policy should be directed to David L. Giunta, President and Chief Executive Officer, Natixis Distributors, L.P. at (617) 449-2503.
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APPENDIX C
Natixis Distributors, L.P.
Policies and Procedures with Respect to Rule 22c-2
I. Shareholder Information .
1. Agreement to Provide Information. You agree to provide to the Fund, upon written request, the taxpayer identification number (TIN), the Individual/International Taxpayer Identification Number (ITIN), or other government-issued identifier (GII), if known, of any or all Shareholder(s) of each account held of record by you and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known), and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by you during the period covered by the request.
2. Period Covered by Request. Requests must set forth a specific period, not to exceed ninety (90) days from the date of the request, for which transaction information is sought. The Fund may request transaction information older than ninety (90) days from the date of the request as the Fund deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
The Fund reserves the right to request the information set forth in Section I. (1) for each trading day and you agree, if so directed by the Fund, to provide the information.
3. Form and Timing of Response. You agree to provide, promptly upon request of the Fund or its designee, the requested information specified in Section I. (1). If requested by the Fund or its designee, you agree to use best efforts to determine promptly whether any specific person about whom you have received identification and transaction information specified in Section I. (1) is itself a financial intermediary (indirect intermediary) and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in Section I. (1) for those shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. You additionally agree to inform the Fund whether you plan to perform (i) or (ii). Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format.
4. Limitations on Use of Information. Fund agrees not to use the information received for marketing or any other similar purpose without your prior written consent.
5. Agreement to Restrict Trading. You agree to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions of the Funds Shares (directly or indirectly through your account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund.
6. Form of Instructions. Instructions to restrict or prohibit trading must include the TIN, ITIN, GII, if known, and the specific restriction(s) to be executed. If the TIN, ITIN, or GII is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates.
7. Timing of Response. You agree to execute instructions as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by you.
8. Confirmation. You must provide written confirmation to the Fund that instructions have been executed. You agree to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed.
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9. Definitions. For purposes of this schedule:
(a) The term Fund includes the funds principal underwriter and transfer agent. The term does not include any excepted funds as defined in SEC Rule 22c-2(b) under the Investment Company Act of 1940.*
(b) The term Shares means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the Investment Company Act of 1940 that are held by you.
(c) The term Shareholder means the beneficial owner of Shares, whether the Shares are held directly or by you in nominee name.
(d) Note that the term Shareholder may have alternative meanings as follows: (1) for Retirement Plan Recordkeepers the term Shareholder means the Plan participant notwithstanding that the Plan may be deemed to be the beneficial owner of Shares and (2) for Insurance Companies the term Shareholder means the holder of interests in a variable annuity or variable life insurance contract issued by an Intermediary.
(e) The term written includes electronic writings and facsimile transmissions.
* | As defined in SEC Rule 22c-2(b), the term excepted fund means any: (1) money market fund; (2) fund that issues securities that are listed on a national securities exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund. |
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Exhibit (h)(2)(xiv)
TWELFTH AMENDMENT TO
ADMINISTRATIVE SERVICES AGREEMENT
This Amendment made as of February 25, 2010, by and between Natixis Asset Management Advisors, L.P. (Natixis Advisors), Natixis Funds Trust I, Natixis Funds Trust II, Natixis Funds Trust IV, Natixis Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II, Gateway Trust and Hansberger International Series (collectively, the Trusts).
WHEREAS , Natixis Advisors and the Trusts are parties to an Administrative Services Agreement dated January 3, 2005, as amended November 1, 2005, January 1, 2006, July 1, 2007, September 17, 2007, February 1, 2008, February 19, 2008, July 1, 2008, September 29, 2008, October 31, 2008, January 9, 2009 and July 27, 2009 (together with the amendments, the Agreement), governing the terms and conditions under which Natixis Advisors provides certain administrative services to the series of the Trusts; and
WHEREAS , Natixis Advisors and the Trusts desire to amend Schedule A of the Agreement to reflect changes in Trust Portfolios;
NOW THEREFORE , in consideration of the premises and covenants contained herein, Natixis Advisors and the Trusts hereby agree as follows:
1. | Schedule A of the Agreement is deleted in its entirety and replaced with Schedule A attached hereto. |
2. | Except as specifically superseded or modified herein, the terms and provisions of the Agreement shall continue to apply with full force and effect. |
3. | This Amendment may be executed in one or more counter parts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. |
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed as a sealed instrument in its name and behalf by its duly authorized representative as of the date first above written.
NATIXIS ASSET MANAGEMENT ADVISORS, L.P. | ||
By | Natixis Distribution Corporation, its general partner | |
By: |
/s/ David L. Giunta |
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David L. Giunta, President and Chief Executive Officer |
NATIXIS FUNDS TRUST I | ||
NATIXIS FUNDS TRUST II | ||
[NATIXIS FUNDS TRUST III] | ||
NATIXIS FUNDS TRUST IV | ||
NATIXIS CASH MANAGEMENT TRUST | ||
LOOMIS SAYLES FUNDS I | ||
LOOMIS SAYLES FUNDS II | ||
GATEWAY TRUST | ||
HANSBERGER INTERNATIONAL SERIES | ||
By: |
/s/ Michael C. Kardok |
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Michael C. Kardok, Treasurer |
Schedule A
Trust Portfolios
As of: February 26, 2010
Natixis Funds Trust I |
Absolute Asia Dynamic Equity Fund |
CGM Advisor Targeted Equity Fund |
Hansberger International Fund |
Natixis Income Diversified Portfolio |
Natixis U.S. Diversified Portfolio |
Loomis Sayles Core Plus Bond Fund |
Vaughan Nelson Small Cap Value Fund |
Natixis Funds Trust II |
ASG Diversifying Strategies Fund |
ASG Global Alternatives Fund |
Harris Associates Large Cap Value Fund |
Vaughan Nelson Value Opportunity Fund |
Natixis Funds Trust IV |
AEW Real Estate Fund |
Natixis Cash Management Trust |
Natixis Cash Management Trust Money Market Series |
Loomis Sayles Funds I |
Loomis Sayles Bond Fund |
Loomis Sayles Fixed Income Fund |
Loomis Sayles Global Bond Fund |
Loomis Sayles High Income Opportunities Fund* |
Loomis Sayles Inflation Protected Securities Fund |
Loomis Sayles Institutional High Income Fund |
Loomis Sayles Intermediate Duration Fixed Income Fund |
Loomis Sayles Investment Grade Fixed Income Fund |
Loomis Sayles Securitized Asset Fund* |
Loomis Sayles Small Cap Value Fund |
* | With respect to these Funds only, paragraph 3 of the Agreement is revised to provide that Natixis Advisors shall be entitled to reasonable compensation for its services and expenses as Administrator, but Loomis, Sayles & Company, L.P. (Loomis Sayles), the adviser to the Funds, and not Loomis Sayles Funds I, shall be responsible for payment of such compensation and expenses relating to the Funds, as agreed upon by Loomis Sayles in separate Letter Agreements dated January 3, 2005 and July 1, 2005, respectively. |
Loomis Sayles Funds II |
Loomis Sayles Mid Cap Growth Fund |
Loomis Sayles Growth Fund |
Loomis Sayles High Income Fund |
Loomis Sayles Investment Grade Bond Fund |
Loomis Sayles International Bond Fund |
Loomis Sayles Limited Term Government and Agency Fund |
Loomis Sayles Disciplined Equity Fund |
Loomis Sayles Small Cap Growth Fund |
Loomis Sayles Strategic Income Fund |
Loomis Sayles Value Fund |
Loomis Sayles Global Markets Fund |
Hansberger International Series |
Hansberger Emerging Markets Fund |
Hansberger International Value Fund |
Hansberger International Growth Fund |
Hansberger International Core Fund |
Hansberger All Countries Fund (not operational) |
Gateway Trust |
Gateway Fund |
Exhibit (p)(2)
Code of Ethics
Natixis Asset Management Advisors, L.P.
Natixis Distributors, L.P.
As Amended
January 1, 2010
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Introduction
This is the Code of Ethics (Code) of Natixis Asset Management Advisors, L.P. (NAMA) and Natixis Distributors, L.P. (ND) (the Firms).
Statement of General Principles
It is the policy of the Firms that no Supervised Person shall engage in any act, practice, or course of conduct that would violate the Code, the fiduciary duty owed by the Firms and their personnel to Clients , any applicable federal securities laws including but not limited to certain sections of and rules promulgated under the Investment Advisers Act of 1940 (as amended; the Advisers Act), the Employee Retirement Income Security Act of 1974 (as amended; ERISA), or the provisions of Section 17(j) of the Investment Company Act of 1940, as amended (the 1940 Act), and Rule 17j-1 thereunder. The fundamental position of the Firms is, and has been, that at all times the interests of their Clients are placed first. Accordingly, Supervised Persons personal financial transactions (and those of members of their Family/Household ) and related activities must be conducted consistently with this Code and in such a manner as to avoid any actual or potential conflict of interest or abuse of the Firms position of trust and responsibility.
It is not intended that the policies in this Code will specifically address every situation involving personal trading. These policies will be interpreted and applied, and exceptions and amendments will be made by the Compliance Officer in a manner considered fair and equitable, in all cases with the view of placing the Firms Clients interests paramount. It also bears emphasis that technical compliance with the procedures, prohibitions, and limitations of this Code will not automatically insulate a Supervised Person from scrutiny of, and sanctions for, securities transactions that indicate an abuse of the Firms fiduciary duty to any of its Clients .
Things You Need to Know to Use This Code
1. Terms - Terms in boldface type have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms. The definitions are at the end of the Code.
2. Purpose of the Code - The policies in this Code reflect the Firms desire to detect and prevent not only situations involving actual or potential conflicts of interest or unethical conduct, but also those situations involving even the appearance of these. This Code (i) sets forth standards of conduct expected of Supervised Persons (including compliance with the federal securities laws), (ii) is intended to safeguard material nonpublic information about Client transactions, and (iii) requires Access Persons to report personal securities transactions, including transactions in shares of certain investment companies managed by the Firms or any affiliate of any of the Firms ( Covered Funds ). A complete list of Covered Funds is maintained by the Compliance Officer and is posted on the Firms Intranet; a printed list is available upon request from the Compliance Officer .
3. Access Persons - All officers, directors, and employees of the Firms are considered Access Persons, except for any director who is not an officer or employee of the Firms and who meets all of the following conditions:
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He or she, in connection with his or her regular functions or duties, does not make, participate in or obtain information regarding the purchase or sale of Covered Securities by a registered investment company, and whose functions do not relate to the making of recommendations with respect to such purchases or sales; |
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He or she does not have access to nonpublic information regarding any Clients purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any Covered Fund ; and |
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He or she is not involved in making securities recommendations to Clients , and does not have access to such recommendations that are nonpublic. |
While many officers and employees of the Firms do not have regular access to information regarding the purchase and sale of securities by either Mutual Fund Clients or Separate Account Clients , they may have occasional access to mutual fund or separate account portfolio information that has not been aged 30 days. Therefore, all officers and employees of the Firms have been designated Access Persons .
4. Investment Persons - All Access Persons that Firms have specifically identified by the Compliance Department as having regular or periodic knowledge of material nonpublic information regarding the purchase and sale of securities by Mutual Fund Clients or Separate Account Clients are also considered Investment Persons . A complete list of Investment Persons is maintained by the Compliance Department.
5. Compliance Department and Compliance Officer - This Code is administered by the Compliance Officer and his designee(s). Any significant issues, concerns, or findings identified by the Compliance Officer are reported to the Firms Ethics and Supervisory Committee.
The Compliance Officer has the authority to grant written waivers of certain provisions of this Code in appropriate instances. However, some provisions of the Code are mandated by Securities and Exchange Commission (SEC) rules and cannot be waived.
6. Ethics and Supervisory Committee (Committee) - The Committee is comprised of certain members of senior management of the Firms. The Committee is charged with ensuring the Code remains reasonably designed to prevent Supervised Persons from engaging in any act, practice, or course of conduct that would violate the fiduciary duty owed to Clients or to the Firms, any applicable federal securities laws including but not limited to certain sections of and rules promulgated under the Investment Advisers Act of 1940 (as amended; the Advisers Act), the Employee Retirement Income Security Act of 1974 (as amended; ERISA), or the provisions of Section 17(j) of the Investment Company Act of 1940, as amended (the 1940 Act), and Rule 17j-1 thereunder. The Committee will review the terms and provisions of this Code at least annually and make amendments as necessary.
The Committee meets quarterly to review any Code violations identified by the Compliance Officer to (i) make a determination of whether they are indeed violations under the Code; (ii) establish the degree of severity the violation represents; and (iii) if necessary mete out disciplinary actions as described in Section E of this Code.
The Compliance Officer will distribute the Code to all Supervised Persons annually and upon any amendment. You are required to acknowledge your receipt and understanding of the Code by submitting a signed Acknowledgement Form to the Compliance Officer annually (see Section F.4. of this Code).
7. Mutual Fund Clients - Includes all investment companies for which NAMA serves as adviser, or for which ND is the Distributor. All investment company Clients are currently considered Mutual Fund Clients .
8. Separate Account Clients - NAMA markets the investment expertise of its advisory affiliates and other advisory firms to separate account platforms. While NAMA primarily relies on model portfolios provided by affiliates or third party subadvisers to manage Client assets, it normally has investment discretion over Separate Account Client portfolios.
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For purposes of this Code of Ethics, Mutual Fund Clients and Separate Account Clients are collectively referred to as Clients .
Specific Requirements of the Code
A. General Rules
It is improper for Supervised Persons to:
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use for his/her own benefit (or the benefit of anyone other than the Clients ) information about the trading activity or holdings of Clients or recommendations of the advisers or subadvisers; or |
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take advantage of investment opportunities that would otherwise be available for the Clients . |
Also, as a matter of business policy, the Firms require that Supervised Persons adhere to a standard of conduct that: (i) reflects the fiduciary obligations of the Firms, including preventing access to material nonpublic information about Clients by Supervised Persons not needing such information to perform their duties; (ii) complies with all securities laws; and (iii) avoids even the appearance that Supervised Persons receive any improper benefit from information about trading activity or holdings of Clients , the advisers or subadvisers, or from our relationships with the brokerage and advisory communities.
The Firms expect all Supervised Persons to comply with the spirit of the Code, as well as the specific rules contained in the Code.
B. Designated Brokerage Requirement
Except as described in paragraphs (i)-(v) below, Access Persons who have personal accounts that hold or can hold Covered Securities or shares of Covered Funds in which they have Beneficial Ownership are required to maintain such accounts at one of the following firms: Charles Schwab, Fidelity Investments, or Merrill Lynch (collectively, the Designated Brokers ). New Access Persons must initiate movement of existing accounts to a Designated Broker within 30 days of being named an Access Person .
Exemptions to the Designated Brokerage Requirement:
(i) | Shares of the Natixis Funds, Loomis Sayles Funds, and Oakmark Funds purchased directly from the Covered Fund if such shares are held with the funds transfer agent. |
(ii) | Shares of Covered Funds purchased through one or more of the Firms retirement plans, including the Firms 401(k) plan. |
(iii) | Certain accounts in which the Access Person has Beneficial Ownership, including retirement accounts with an Access Persons prior employer, retirement accounts of an Access Persons spouse, and DRIP and ESOP investment programs. |
(iv) | Accounts for which the Access Person has Beneficial Ownership but no investment influence or control may be eligible for an exemption from the Designated Brokerage Requirement. All such exemptions must be approved by the Compliance Officer . |
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(v) | Accounts in which an Access Person may have Beneficial Ownership through a member of their Family/Household, which accounts are subject to a code of ethics or similar policy requiring the account be held at an entity other than a Designated Broker . |
For example, if the spouse of an Access Person is employed by a broker-dealer or registered investment adviser that has adopted a code of ethics that requires the spouse to maintain personal securities accounts at a non-designated broker-dealer (including the employer itself), the Firms will defer to that requirement as to that account so long as the Duplicate Confirmation Notice and Statement Requirement (see Section F.5. of this Code) is satisfied.
NOTE: In instances in which the Compliance Officer grants an exemption from the Designated Brokerage Requirement to any accounts that hold or can hold Covered Securities and/or Covered Funds , the Duplicate Confirmation Notice and Statement Requirement shall apply instead.
C. Gifts to or from Brokers, Clients, or Others
No Access Person may accept or receive on his or her own behalf, or on behalf of the Firms, any gift or other accommodations from a vendor, broker, securities salesman, Client , or prospective Client (a business contact) that might create a conflict of interest or interfere with the impartial discharge of such Access Persons responsibilities to the Firms or the Clients , be construed as an improper attempt to influence the recipient, or place the recipient or the Firms in a difficult or embarrassing position. This prohibition applies equally to gifts to members of the Family/Household of Access Persons .
In no event should gifts to or from any one business contact have a value that exceeds the annual limitation on the dollar value of gifts established by the Compliance Officer from time to time (currently $100).
These policies are not intended to prohibit normal business entertainment such as meals or tickets to sporting events or the theatre. Please note that business entertainment is different than giving or receiving gifts. If you are unsure whether something is a gift or business entertainment, refer to the Firms Non-Cash Compensation Policy or ask the Compliance Officer.
D. Service on the Board or as an Officer of Another Company
To avoid conflicts of interest, inside information concerns, and other compliance and business issues, the Firms prohibit all Access Persons from serving as officers or members of the board of any other entity, except with the advance written approval of the General Counsel or Compliance Officer . Approval must be obtained through the Compliance Officer , and could require consideration by the Ethics and Supervisory Committee. The Firms can deny approval for any reason or without providing a reason. This prohibition does not apply to service as an officer or board member of any parent, subsidiary, or affiliate of the Firms, nor does it apply to non-employee members of the Firms board (i.e. those board members who are not employees of the Firms).
E. Violations and Penalties
The Firms expect all Supervised Persons to comply with the spirit of the Code, as well as the specific rules contained in the Code. Any violations must be reported promptly to the Compliance Officer .
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The Firms treat violations of this Code (including violations of the spirit of the Code) very seriously. If you violate either the letter or the spirit of this Code, the Firms (through the Ethics and Supervisory Committee) might take a variety of remedial measures. These may include imposing penalties or fines, cutting your compensation, demoting you, requiring disgorgement of trading gains, imposing a ban on your personal trading, suspending or terminating your employment, or reporting the matter to civil or criminal authorities.
Improper trading activity may constitute a violation of this Code. You may also be considered in violation of this Code by failing to promptly report violations to the Compliance Officer , by failing to file required reports in a timely manner, or by making inaccurate or misleading reports or statements concerning trading activity or securities accounts. You may be considered in violation of this Code even if no harm results from your conduct.
If you have any doubt or uncertainty about what this Code requires or permits, you should ask the Compliance Officer . Do not just guess at the answer, since ignorance of the requirements of the Code or the legal regulations underlying the Code will not serve as an excuse for a violation.
F. Reporting Requirements Applies to All Access Persons
One of the more important aspects of complying with this Code is understanding which holdings, transactions, and accounts you must report and what accounts are subject to trading restrictions. For example, accounts of members of your Family/Household are covered, as are certain categories of trust accounts, certain investment pools in which you might participate, and certain accounts that others may be managing for you. To be sure you understand which holdings, transactions, and accounts are covered, it is essential that you carefully review the definitions of Covered Security , Covered Fund, Family/Household, and Beneficial Ownership in the Definitions section of this Code.
NOTE: All reports specified in this Code must be submitted to the Compliance Department. You must file the reports described below, even if you have no holdings, transactions, or accounts to list in the reports, and whether or not your accounts are held at a Designated Broker or duplicate confirmation statements have been forwarded to the Compliance Department. You can get copies of any forms or reporting procedures from the Compliance Officer , or the Firms Intranet.
1. Initial Holdings Report . No later than 10 days after you become an Access Person , you must file with the Compliance Officer an Initial Holdings Report.
The Initial Holdings Report requires you to list all Covered Securities and Covered Funds in which you (or members of your Family/Household ) have Beneficial Ownership . It also requires you to list all brokers, dealers, and banks where you maintained an account in which any Covered Funds or Covered Securities were held or could have been held for the direct or indirect benefit of you or a member of your Family/Household on the date you became an Access Person .
The Initial Holdings Report also requires you to confirm that you have read and understand this Code; that you understand that it applies to you and members of your Family/Household; and that you are considered an Access Person under the Code.
NOTE: It is important for new Access Persons to be familiar with the Designated Broker Requirement of this Code; any questions concerning this requirement should be directed to the Compliance Officer .
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2. Quarterly Transaction Reports . No later than 15 days after the end of March, June, September, and December each year, you must file with the Compliance Officer a Quarterly Transaction Report. While compliance with this requirement will be monitored, a late report will not be considered a violation of the Code unless it is filed with the Compliance Officer more than 30 days after the end of the quarter.
The Quarterly Transaction Report requires you to report all transactions during the most recent calendar quarter in Covered Securities and Covered Funds (including the date of the transaction, the title and type of security and, as applicable, the exchange ticker symbol or CUSIP number, interest rate and maturity date, the number of shares and principal amount), in which you (or a member of your Family/Household ) had Beneficial Ownership . It also requires you to report the nature of the transaction (i.e. purchase, sale or any other type of acquisition or disposition), the price of the security at which the transaction was effected and the name of the broker, dealer or bank with or through which the transaction was effected.
The Quarterly Transaction Report also requires you to either confirm or amend your complete list of brokers, dealers, and banks in which you or a member of your Family/Household established an account in which any Covered Funds or Covered Securities were held or could have been held during the quarter for the direct or indirect benefit of you or a member of your Family/Household.
3. Annual Holdings Reports . By January 30 of each year, you must file with the Compliance Officer an Annual Holdings Report as of December 31 of the preceding year.
The Annual Holdings Report requires you to list all Covered Securities and Covered Funds (including title and type of security and, as applicable, the exchange ticker symbol or CUSIP number, interest rate and maturity date, the number of shares and principal amount) in which you (or a member of your Family/Household ) had Beneficial Ownership as of December 31 of the prior year. It also requires you to list all brokers, dealers, and banks in which you or a member of your Family/Household maintained an account in which any Covered Securities or Covered Funds were held, or could have been held, for the direct or indirect benefit of you or a member of your Family/Household on December 31 of the prior year.
The Annual Holdings Report also requires you to confirm that during the prior year, except as otherwise indicated therein, you have complied with all applicable requirements of the Code and have reported all accounts, holdings, and transactions required to be reported under the Code, that you understand that it applies to all members of your Family/Household , that you understand that you have been designated an Access Person , and whether you have been designated an Investment Person under the Code.
4. Annual Acknowledgement . You must acknowledge your receipt and understanding of the Code (and any amendments), along with the Firms Statement of Policies and Procedures with Respect to the Flow and Use of Material, Non-Public (Inside) Information , by submitting a signed Acknowledgement Form to the Compliance Officer annually.
5. Duplicate Confirmation Notices and Statements . Any Access Person or member of his or her Family/Household that has a securities account (in which Covered Securities or shares of Covered Funds are held, or could be held) with any broker, dealer, or bank that is subject to an exemption from the Designated Broker Requirement under Sections B. (iii), (iv), or (v) of this Code, or has requested and received an exemption from the Compliance Officer , must direct that broker, dealer, or bank to send, directly to the Compliance Officer , contemporaneous duplicate copies of all transaction confirmation notices and statements relating to that account.
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NOTE: In certain circumstances Covered Securities may be held in accounts that are exempt from the Designated Brokerage Requirement, but do not have the ability to generate duplicate confirmation notices and statements (i.e. ESOP, DRIP, and 401(k) Plans). In these limited circumstances an Access Person may satisfy his or her reporting requirement by manually completing quarterly transaction reports and submitting a copy of the year-end statements for all such accounts with his or her annual holdings report.
G. Transaction Restrictions
1. Initial Public Offerings and Private Placements . Access Persons may not acquire securities in an Initial Public Offering ( IPO) or Private Placement unless prior written approval is obtained from the Compliance Officer , and, in the determination of the Compliance Officer , participation does not present a conflict of interest with any Clients or impede the equitable distribution of the offering to the public. Any request for allocation of an IPO or a Private Placement to an Access Person that is in any way connected with his or her position in the Firms will be denied. Further, the Compliance Officer may deny requests for any reason or without providing a reason.
Access Persons must request approval for participation in an IPO or Private Placement by submitting a written request to the Compliance Officer . These requests must include:
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A brief description of the Private Placement or IPO opportunity |
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In the case of a Private Placement , the nature of the employees participation |
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A statement as to how and why the opportunity was offered to the Access Person and other factors relevant, from the perspective of the Firms, to the approval decision (e.g. whether participation in the Private Placement or IPO is connected with the Access Persons position with the Firms or will result in any conflicts of interest with Client portfolios.) |
2. Futures and Related Options . No Access Person shall use derivatives, including futures, options on futures, or options on a Covered Security, to evade the restrictions of the Code. In other words, no Access Person may use derivative transactions with respect to a Covered Security if the Code would prohibit the Access Person from taking the same position directly in the Covered Security .
3. Blackout Period . No Access Person (including any member of the Family/Household of such Access Person ) may purchase or sell any Covered Security within the seven calendar days immediately before or after a calendar day on which any Mutual Fund Client or a Separate Account Client purchases or sells that Covered Security (or any closely related security, such as an option or a related convertible or exchangeable security), unless the Access Person had no actual knowledge that the Covered Security (or any closely related security) was being considered for purchase or sale for any Mutual Fund Client or Separate Account Client . Note that the total blackout period is 15 days (the day of the Client trade, plus seven days before and seven days after).
The blackout period does not apply to Access Person transactions concurrent with Separate Account Client transactions intended merely to rebalance, liquidate, or open accounts for Separate Account Clients where NAMA acts as the adviser, for the following reasons: NAMA primarily relies on model portfolios supplied by investment advisory affiliates and third party investment advisory firms; due to the nature of NAMAs separate account program, a number of these Separate Account Clients may add or withdraw funds, and open or close accounts, on a daily basis; the trades generated by these activities are unpredictable; they are not caused by a change in the investment opinion of NAMA or any of its subadvisers; they tend to be small in size with little or no market impact; they are of an administrative nature; and if triggering a blackout period, they would likely have the effect of blacking out every
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security traded by Separate Account Clients of NAMA on every trading day. The blackout period does apply, however, to transactions concurrent with Separate Account Client transactions related to implementation of changes to model portfolios or related to changes in the investment opinion of NAMA or any of its subadvisers.
NOTE: All transactions for Access Persons will be compared to transactions executed by NAMA or a subadviser on behalf of Mutual Fund Clients and Separate Account Clients . The fact that the Compliance Officer has precleared a trade does not mean that it is not in violation of the Code. When evaluating a preclearance request, current open orders for Separate Account Clients as well as trades executed on behalf of Separate Account Clients over the previous 7 days are considered. Changes to model portfolios over the subsequent 7 days may create a violation of the blackout period. Due to the nature of NAMAs advisory activity with respect to Mutual Fund Clients it is impossible to be certain that there are no open orders for a particular security when granting preclearance.
For example if an Access Person executes a trade in a Covered Security for which he or she has received proper preclearance on January 1 st , and a subadviser changes a model portfolio which results in trades in the same Covered Security by Separate Account Clients any time before January 8 th (the remainder of the 15 day blackout period), it may result in a violation of the Code, if the Access Person had knowledge that the Covered Security was being considered for purchase or sale for any Client account.
Trading within the 15-day blackout period is not automatically considered a violation of the Code but is instead subject to the knowledge condition set forth above. The Compliance Officer will monitor personal securities trading activity and if a pattern appears to exist with respect to the trading activity of an Access Person and any Mutual Fund Client and/or Separate Account Client within the 15-day blackout periods, it will be investigated. If it is determined that a violation has occurred, the Firms will generally require any profits from the transactions to be disgorged and donated to charity, and may impose other sanctions as deemed necessary (see Section E of this Code).
4. Preclearance Requirement . Access Persons are required to request and receive preclearance by the Compliance Officer before executing the purchase or sale of Covered Securities . Given the nature of NAMAs current advisory operations, which include oversight of other investment advisers, approving, and in some cases effecting, transactions for Client accounts, NAMAs role as an administrator, and NDs role as a distributor and underwriter, the Firms have incorporated several exemptions to the Preclearance Requirement that you should be familiar with.
a. | Preclearance . Unless specifically exempted by this Code, no Access Person shall purchase or sell any Covered Security for his or her own account (or the account of any member of his or her Family/Household ) without proper preclearance. Unless specifically noted by the Compliance Officer , trades must be completed on the same day that preclearance is granted. This requirement applies to all trades in Covered Securities . Instruments representing an indirect interest in a Covered Security , such as options and warrants, must also be precleared. |
b. | Exemptions . The preclearance requirement does not apply to the following transactions by all Access Persons : |
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Transactions in Covered Funds. |
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Transactions in accounts for which the Access Person has Beneficial Ownership but no investment influence or control and, if applicable, has been granted an exemption from the Designated Brokerage Requirement by the Compliance Officer . |
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Additionally, the preclearance requirement does not apply to the following transactions by Access Persons unless he or she has been specifically designated an Investment Person :
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Transactions of 100 shares or less of common or preferred stocks of a class that is publicly traded on a national stock exchange. |
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Transactions with an aggregate dollar value (excluding commissions) of $10,000 or less. |
c. | Process . Access Persons are required to submit a preclearance request to the Compliance Officer and receive written approval for the transaction before executing a trade for a Covered Security transaction requiring preclearance. Trades in Covered Securities cannot be executed until the Compliance Officer provides specific approval. Preclearance will not be granted at any time when there are open orders relating to the implementation of changes to model portfolios in the same Covered Security for Separate Account Clients. Further, preclearance will not be granted for any trades that would violate the blackout period restriction as it applies to personal transactions effected within 7 days after a Separate Account Client trade. |
The Firms reserve the right to require any Access Person to preclear exempted transactions at any time and, if requested by the Firms, an Access Person must obtain the approval of the Compliance Officer before buying or selling any security, for such period (which may be indefinite) as the Compliance Officer shall determine.
NOTE: Access Persons should keep a copy of all completed preclearance approvals for a period of at least 12 months. You can get copies of any forms or reporting procedures from the Compliance Officer , or the Firms Intranet.
5. Good Until Canceled and Limit Orders . No Access Person shall place a good until canceled, limit, or equivalent order with his/her broker for any Covered Security subject to the preclearance requirement except that an Access Person may utilize a day order with a limit so long as the transaction is consistent with provisions of this Code, including the preclearance procedures. All orders must expire at the end of the trading day on which they are precleared unless otherwise extended by the Compliance Officer .
6. Exempt Transactions . The blackout period and preclearance requirements do not apply to Covered Funds and the following categories of transactions in Covered Securities by all Access Persons :
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Transactions in any Covered Security guaranteed by the United States Government. |
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Transactions that occur by operation of law or under any other circumstance in which no investment discretion is exercised, and no recommendations are made, by the Access Person or any member of their Family/Household. |
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Purchases pursuant to the exercise of rights issued pro rata to all holders of the class of a Covered Security held by the Access Person (or Family/Household member) and received by the Access Person (or Family/Household member) from the issuer. |
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Purchases of a Covered Security pursuant to an automatic investment, withdrawal or dividend reinvestment plan. |
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Transactions in Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs) as well as any related options. |
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Additionally, the blackout period and preclearance requirements do not apply to the following categories of transactions in Covered Securities by Access Persons unless he or she has been specifically designated an Investment Person :
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Transactions in Covered Securities issued by a company with a market capitalization of at least $10 billion U.S. (or the equivalent in foreign currency). |
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Transactions in futures and options contracts on interest rate instruments or indexes, and options on such contracts, so long as the transactions do not violate Section G.3. of this Code. |
NOTE: These transactions are not exempted from the reporting requirements of this Code.
H. Compliance Officer Approval
The Compliance Officer is charged with responsibility for ensuring that all Access Persons adhere to the reporting requirements of this Code of Ethics and that the review requirements of this Code are performed in a prompt manner.
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Definitions
The following terms have special meanings in this Code of Ethics:
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Access Person |
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Beneficial Ownership |
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Client |
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Compliance Officer |
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Covered Fund |
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Covered Security |
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Designated Broker |
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Family/Household |
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Initial Public Offering |
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Investment Person |
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Mutual Fund Client |
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Private Placement |
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Separate Account Client |
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Supervised Person |
The special meanings of these terms as used in this Code of Ethics are explained below. Some of these terms (such as Beneficial Ownership ) are sometimes used in other contexts, not related to Code of Ethics, where they may have different meanings. For example, Beneficial Ownership has a different meaning in this Code of Ethics than it does in the SECs rules for proxy statement disclosure of corporate directors and officers stockholdings, or in determining whether an investor has to file 13D or 13G reports with the SEC.
IMPORTANT: If you have any doubt or question about whether an investment, account, or person is covered by any of these definitions, ask the Compliance Officer . Do not just guess at the answer.
Access Person means Access Person as defined in Rule 17j-1 under the 1940 Act and/or Rule 204A-1 of the Advisers Act, as those rules are amended from time to time. The elements of these definitions are outlined on page 2 of this Code.
Due to the nature of the Firms activities and for the purposes of administering this Code, the Firms have designated all their officers and employees as Access Persons.
The term Access Person under this Code and relating to the Firms normally does not include an employee of a company in a control relationship to the Firms, who is not an employee, officer, or director of any of the Firms, where such company is required to have a Code of Ethics containing provisions reasonably necessary to prevent the Access Person from engaging in any act, practice, or course of business prohibited by Rule 17j-1(a) and such employee is required to report his or her transactions to such company. However, in certain instances a person may be an employee of both the Firms and an affiliated adviser, and may be subject to more than one Code of Ethics.
Beneficial Ownership means beneficial ownership as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this means any opportunity, directly or indirectly, to profit or share in the profit from any transaction in securities. Beneficial Ownership is a very broad concept. Some examples of forms of Beneficial Ownership include:
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securities held in a persons own name, or that are held for the persons benefit in nominee, custodial, or street name accounts. |
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securities owned by a member of your Family/Household. |
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securities owned by or for a partnership, in which the person is a general partner (whether the ownership is under the name of that partner, another partner, the partnership, or through a nominee, custodial, or street name account). |
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securities that are being managed for a persons benefit on a discretionary basis by an investment adviser, broker, bank, trust company, or other manager. |
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securities in a persons individual retirement account. |
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securities in a persons account in a 401(k) or similar retirement plan, even if the person has chosen to give someone else investment discretion over the account. |
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securities owned by a trust of which the person is either a trustee or a beneficiary . |
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securities owned by a corporation, partnership, or other entity that the person controls (whether the ownership is under the name of that person, under the name of the entity, or through a nominee, custodial, or street name account). |
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securities that are traded on behalf of an investment club of which an Access Person is a club member or in which a member of their Family/Household is a member. |
The above is not a complete list of the forms of ownership that could constitute Beneficial Ownership for purposes of this Code. You should ask the Compliance Officer if you have any questions or doubts at all about whether you or a member of your Family/Household would be considered to have Beneficial Ownership in any particular situation.
Client means any individual, entity, or registered investment company for which NAMA serves as adviser or subadviser, or ND serves as distributor. Client information includes information obtained from entities contracted by NAMA as adviser to serve as subadviser for certain Mutual Fund Clients and Separate Account Clients .
Compliance Officer currently means Anthony Loureiro, Senior Vice President, Compliance or another person that he has designated to perform the functions of Compliance Officer . For purposes of reviewing the Compliance Officers own transactions and reports under this Code, the functions of the Compliance Officer are performed by Coleen Downs Dinneen, Senior Vice President, General Counsel, or her designee.
Covered Fund means (i) any investment company advised or subadvised (as defined in section 2(a)(20) of the 1940 Act) by NAMA, (ii) mutual funds that are advised by any investment adviser that controls NAMA, is controlled by NAMA or is under common control with NAMA (e.g. Loomis Sayles, Harris Associates, etc.), (iii) mutual funds administered by NAMA, (iv) any investment company distributed by ND. For clarification purposes, Covered Funds include, but are not limited to, the Natixis Funds, the Loomis Sayles Funds, and the Oakmark Funds.
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NOTE: Covered Funds do not include money market funds whether or not NAMA (or any affiliate) serves as the investment adviser or subadviser.
NOTE: A 529 plan invested in underlying mutual funds will not be treated as a Covered Security or as an investment in Covered Funds , so long as the plan is not distributed, advised or subadvised by NAMA, ND or any affiliated firm, and your 529 plan investments are not in any portfolios distributed, advised or subadvised by NAMA, ND or any affiliated firm.
A complete list of Covered Funds may be obtained from the Compliance Officer or on the Firms Intranet. The Compliance Officer may either add or remove funds from this list if he determines that there is either a heightened risk of access to portfolio information (in the case of funds that would not be considered Covered Funds under this definition), or no access to portfolio information about a fund (for those funds that would otherwise meet the above criteria of a Covered Fund ).
Covered Security means a covered security as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this means anything that is considered a security under the Investment Company Act of 1940, except :
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Direct obligations of the U.S. Government. |
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Bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt obligations, including repurchase agreements. |
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Shares of open-end investment companies that are registered under the Investment Company Act (mutual funds). |
NOTE: A 529 plan invested in underlying mutual funds will not be treated as a Covered Security or as an investment in Covered Funds , so long as the plan is not distributed, advised or subadvised by NAMA, ND or any affiliated firm, and your 529 plan investments are not in any portfolios distributed, advised or subadvised by NAMA, ND or any affiliated firm.
Security is a very broad term. It includes most kinds of investment instruments, including things that you might not ordinarily think of as securities, such as:
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Options on securities and currencies. |
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Investments in all kinds of limited partnerships. |
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Investments in foreign unit trusts, closed end funds, and foreign mutual funds. |
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Investments in private investment funds, hedge funds, and investment clubs. |
If you have any question or doubt about whether an investment is a considered a security or a Covered Security under this Code, ask the Compliance Officer .
Designated Broker means Charles Schwab, Fidelity Investments, or Merrill Lynch (collectively, the Designated Brokers ).
Family/Household means:
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Your spouse or live-in partner who shares your household and combines his or her financial resources in a manner similar to that of married persons (unless he or she does not live in the same household as you and you do not contribute in any way to his or her support). |
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Your children under the age of 18. |
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Your children who are 18 or older (if they live in the same household as you or you contribute in any way to their support). |
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Any of these people who live in your household: your stepchildren, grandchildren, parents, stepparents, grandparents, brothers, sisters, parents-in-law, sons-in-law, daughters-in-law, brothers-in-law, and sisters-in-law, including adoptive relationships. |
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Any individual for whom you are exercising investment control. |
NOTE: There are a number of reasons why this Code covers transactions in which members of your Family/Household have Beneficial Ownership . First, the SEC regards any benefit to a person that you help support financially as indirectly benefiting you, because it could reduce the amount that you might otherwise need to contribute to that persons support. Second, members of your Family/Household could, in some circumstances, learn of information regarding the Firms trading or recommendations for Client accounts, and must not be allowed to benefit from that information.
Initial Public Offering (IPO) means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934.
Investment Persons Include all Access Persons that have been specifically identified by the Compliance Department as having regular or periodic knowledge of material nonpublic information regarding the purchase and sale of securities by Mutual Fund Clients or Separate Account Clients.
In addition to exposure to Client trading information, an individual may be designated an Investment Person for any reason. A complete list of Investment Persons is maintained by the Compliance Department.
NOTE: All Investment Persons are also Access Persons and must satisfy all applicable Code requirements.
Mutual Fund Client includes all investment companies for which NAMA serves as adviser, or for which ND is the Distributor. All investment company Clients are currently considered Mutual Fund Clients.
Private Placement means an offering of a stock or bond that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or Pursuant to Rule 504, 505, or 506 thereunder.
Separate Account Client includes all separately managed accounts for which NAMA provides investment advisory services.
Although NAMA has the ultimate investment decision-making authority with respect to securities to be purchased or sold, in most cases NAMA generally follows the recommendations implicit in the model portfolios supplied by its subadvisers. While NAMA relies primarily on these model portfolios to manage Client assets, it will retain discretionary authority over Client portfolios. This discretion will be primarily used to execute trades and manage accounts according to specific Client requirements.
Supervised Person means any partner, officer, director (or other person occupying a similar station or performing similar functions) or employee of a Firm, or other person who provides investment advice on behalf of NAMA and is subject to the supervision and control of NAMA. All Access Persons are also Supervised Persons .
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