-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V5FgBRn436IJo51AGr4E0s8cCrSiYqCrJJwqfzNlpTAgqwtUlLoKn8PJEEy/MfbI 1/psW4c+hdwaC/WJ6bYDhg== 0000912057-02-009208.txt : 20020415 0000912057-02-009208.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-009208 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDC NVEST FUNDS TRUST I CENTRAL INDEX KEY: 0000770540 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04323 FILM NUMBER: 02570786 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8002831155 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST I DATE OF NAME CHANGE: 20000202 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST I DATE OF NAME CHANGE: 19940614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDC NVEST FUNDS TRUST II CENTRAL INDEX KEY: 0000052136 IRS NUMBER: 041990692 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00242 FILM NUMBER: 02570788 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 617-449-2840 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 6TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: TNE FUNDS TRUST DATE OF NAME CHANGE: 19940615 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST II DATE OF NAME CHANGE: 20000202 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST II DATE OF NAME CHANGE: 19940615 N-30D 1 a2072110zn-30d.txt N-30D \ [CDC NVEST FUNDS LOGO] CDC IXIS ASSET MANAGEMENT DISTRIBUTORS [GRAPHIC] CDC NVEST SHORT TERM CORPORATE INCOME FUND CDC NVEST BOND INCOME FUND CDC NVEST HIGH INCOME FUND CDC NVEST STRATEGIC INCOME FUND CDC NVEST LIMITED TERM U.S. GOVERNMENT FUND CDC NVEST GOVERNMENT SECURITIES FUND SEE PAGE 66 FOR ANNUAL REPORT SUPPLEMENTS TO THE DECEMBER 31, 2001 PROSPECTUS TABLE OF CONTENTS ANNUAL REPORT DECEMBER 31, 2001 President's Letter 1 Economic Update 2 Portfolio Managers' Commentary and Performance CDC Nvest Short Term Corporate Income Fund 4 CDC Nvest Bond Income Fund 6 CDC Nvest High Income Fund 8 CDC Nvest Strategic Income Fund 10 CDC Nvest Limited Term U.S. Government Fund 12 CDC Nvest Government Securities Fund 14 Risks of the CDC Nvest Income Funds 16 Financial Statements Schedules of Investments CDC Nvest Short Term Corporate Income Fund 17 CDC Nvest Bond Income Fund 19 CDC Nvest High Income Fund 22 CDC Nvest Strategic Income Fund 24 CDC Nvest Limited Term U.S. Government Fund 28 CDC Nvest Government Securities Fund 29 Statements of Assets and Liabilities 30 Statements of Operations 32 Statements of Changes in Net Assets 34 Financial Highlights 36 Notes to Financial Statements 45 Report of Independent Accountants 56 Additional Information 57 Trustees' Information 62 Supplements to the Prospectus 66
PRESIDENT'S LETTER FEBRUARY 2002 [PHOTO OF JOHN T. HAILER] President and Trustee CDC Nvest Funds Dear Shareholder: The past 12 months have been difficult for investors. September 11, the first recession in 10 years, and continuing market volatility have taken their toll on the financial markets. While 2002 looks promising to many observers, every investor should be prepared for volatility and shifting market trends. At CDC Nvest Funds, we recognize that today, more than ever, investors need to build a diversified portfolio. That's why we seek to provide a high level of diversification through our multi-manager approach. In 2001, we built on our commitment to diversification by introducing several new equity funds. We also strengthened some of our established funds with new, talented management teams, merged some funds and modified the objectives of others. This report gives you a chance to get to know a little more about the new managers, their strategies and unique perspectives. On the service side, we also worked to give you and your financial advisor easier access to information and to improve your understanding of your CDC Nvest Funds accounts. Confirmation and quarterly statements are now cleaner and easier to read. Our website, www.cdcnvestfunds.com, now includes extensive account access features, allowing you to perform such tasks as setting up automatic investment plans online. We believe the broad diversification and quality services we offer make it easier for you and your financial advisor to match our resources with your needs. And our affiliation with CDC IXIS Asset Management - one of the 25 largest investment management firms in the world, with $290 billion in assets as of the end of December - is helping us extend the depth and range of products we offer. The result is a family of mutual funds that spans a wide range of investment objectives and management styles, drawing on the talent of multiple firms. In addition to our commitment to providing the tools you may need to help achieve your financial goals, we believe strongly in the value your financial advisor can provide. As a professional trained in the financial markets, your advisor can make sure you understand the risks and potential benefits of different funds or strategies. But perhaps most important, as a dispassionate counselor, your advisor can give you the confidence you need to weather the difficult periods and capture the new opportunities that lie ahead, helping to keep your long-term financial plans on track. Sincerely yours, /s/ John T. Hailer [SIDENOTE] WHILE 2002 LOOKS PROMISING TO MANY OBSERVERS, EVERY INVESTOR SHOULD BE PREPARED FOR VOLATILITY AND SHIFTING MARKET TRENDS. AT CDC NVEST FUNDS, WE RECOGNIZE THAT TODAY, MORE THAN EVER, INVESTORS NEED TO BUILD A DIVERSIFIED PORTFOLIO. 1 ECONOMIC UPDATE FEBRUARY 2002 In 2001: The longest economic expansion in U.S. history officially came to an end. The National Bureau of Economic Research announced in November that a recession officially began in March. Gross Domestic Product (GDP) numbers for the third quarter revealed a contraction of -1.3% -- the first such decline in a decade. Reflecting the growing interdependence of world economies, for the first time in 30 years the economies of Europe, Japan and the U.S. all declined at the same time. EQUITIES Stock prices experienced their worst two-year stretch in nearly 30 years. The terrorist attacks of September 11 prompted a four-day halt in U.S. equities trading - the longest such stoppage since the great depression. When trading reopened on September 17, the Dow Jones Industrial Average staged its biggest one-day point drop in history, and then rebounded on hopes of a rapid economic recovery, rising 22% from the September 21 low. Trading volume on the New York Stock Exchange reached a record high for the year. Enron, one of the largest companies in the U.S., ended the year in bankruptcy. FIXED-INCOME Although bonds beat stocks for the second consecutive year, the market was extremely volatile. The Federal Reserve Board sliced the federal-funds interest rate 11 times, bringing it down to 1.75% - a level not seen since the early '60s. Sales of 30-year Treasury bonds - a bond market bellweather for many years - - were suspended indefinitely, creating a short-lived spike in long-term bond prices. During the last quarter of the year, bond prices took their worst beating in more than a decade, amid expectations that the economy might come roaring back to life, setting off a new round of inflation. The difference in yield between low- and high-quality bonds was wider than it has been in ten years at the end of 2001. [CHART OF 2001 YIELD COMPARISONS] Yields on High- vs. Low-Quality Bonds Jan 6.81 5.23 Feb 6.7 5.07 Mar 6.64 4.98 Apr 6.75 5.18 May 6.69 5.18 Jun 6.7 5.2 Jul 6.28 4.78 Aug 6.14 4.64 Sep 6.09 4.14 Oct 5.77 3.74 Nov 6.03 4.17 Dec 6.23 4.38
THE CHART SHOWS THAT, ALTHOUGH THE BOND MARKETS RESPOND TO THE SAME STIMULI, THE LEVEL OF THEIR RESPONSE VARIES. FOR EXAMPLE, THE SURPRISE SUSPENSION OF SALES ON 30-YEAR TREASURIES SENT YIELDS ON ALL BONDS DOWN, BUT GOVERNMENT BONDS RESPONDED MORE STRONGLY, CAUSING THE "SPREAD," OR DIFFERENCE IN YIELD BETWEEN GOVERNMENT AND CORPORATE BONDS TO WIDEN. THE CHART COMPARES YIELDS AT THE END OF EACH MONTH ON TWO INDEXES: LEHMAN BROTHERS CREDIT INDEX, AN UNMANAGED INDEX OF CORPORATE BONDS WITH AN AVERAGE MATURITY OF 9.9 YEARS, AND LEHMAN BROTHERS GOVERNMENT BOND INDEX, WHICH INCLUDES ALL GOVERNMENT SECURITIES AND HAS AN AVERAGE MATURITY OF 8.3 YEARS. YOU MAY NOT INVEST DIRECTLY IN ANY INDEX. SOURCE: BLOOMBERG L.P. 2 RECOVERY Yet, despite all the difficulties, RESILIENT is a word being used to describe the current state of the U.S. economy and its citizens. Consumer spending, which represents two thirds of the economy, showed signs of improving. Although the unemployment rate reached 5.7% in November - the highest rate in six years - the Conference Board also announced a 14.2% increase in its Consumer Confidence Index in November, its first gain in six months. Auto sales increased due to zero percent financing incentives. Lower mortgage rates lifted housing starts, new home sales and refinancing activities. The productivity levels for November increased at the fastest pace in more than a year. Manufacturing orders for defense goods and durables rose. And inflation remained subdued at 1.5%. PROSPECTS Expansions are a normal state for the economy, and most recessions are brief. The average length of a recession is 10 to 16 months, which would put us into the middle of 2002. Many economists predict that a combination of the Fed easing, a legislative stimulus package and low energy prices will lead to a faster recovery. Although many of the ingredients for economic recovery were coming together late last year, there are indications that it may be a different type of recovery than we've seen before. In the past, consumer spending usually provided the stimulus that got the economy moving again. However, this time consumers continued to spend at a relatively high level during most of last year. What's more, the downturn was led by a collapse in capital spending by businesses. In the wake of sluggish or declining profits, it is difficult to expect corporate America to lead a brisk revival in the economy. On the other hand, inventories are low, and manufacturers in some sectors may need to hire back workers. As usual, there are many unanswered questions. How low will the Federal Reserve take interest rates? Can a fiscal stimulus package pass into law in time to be effective? Will oil prices stabilize near their recent, low levels? Will unemployment continue to rise? Will there be additional terrorist attacks on the U.S.? How long will the war on terrorism last and what will be the cost, both in psychological and financial terms? The answers to these questions will further test the resiliency of the economy. Most investment counselors caution investors to set realistic goals, diversify their investments and prepare for a recovery in the markets and the economy, although at a slower pace than in the exuberant '90s. [CHART OF REAL GDP] A Decade of Change -0.5 3 2.7 4 2.7 3.6 4.4 4.3 4.1 4.1 0.5
THE CHART SHOWS THE AVERAGE ANNUAL CHANGE IN REAL GROSS DOMESTIC PRODUCT EACH YEAR SINCE 1991 - ONE OF THE LONGEST PERIODS IN HISTORY WITHOUT A RECESSION. THE CHART INCLUDES A CONTRACTION OF -1.3% IN THE THIRD QUARTER OF 2001 AND AN ESTIMATED +0.2% FOURTH-QUARTER INCREASE ANNOUNCED IN JANUARY, FOR TOTAL CHANGE OF +0.5% ESTIMATED FOR THE FULL YEAR. CALCULATED BY THE U.S. BUREAU OF LABOR STATISTICS, REAL GDP IS A MEASURE OF THE TOTAL MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED IN THE U.S. IN A GIVEN YEAR, ADJUSTED FOR INFLATION. 3 CDC NVEST SHORT TERM CORPORATE INCOME FUND PORTFOLIO PROFILE OBJECTIVE: Seeks a high level of current income consistent with preservation of capital STRATEGY: Invests primarily in corporate bonds that mature in three years or less. May also consider other income opportunities INCEPTION DATE: October 18, 1991 MANAGERS: Craig Smith Richard G. Raczkowski John Hyll LOOMIS, SAYLES & COMPANY, L.P.
SYMBOLS: Class A NEFAX Class B NEABX Class C NECSX Class Y NECYX
NET ASSET VALUE PER SHARE: (DECEMBER 31, 2001) Class A $7.16 Class B 7.15 Class C 7.14 Class Y 7.16
MANAGEMENT DISCUSSION EFFECTIVE MAY 1, 2002, THE FUND'S NAME WILL BE CHANGING TO CDC NVEST SHORT TERM BOND FUND. PLEASE SEE THE SUPPLEMENT TO THE PROSPECTUS ON PAGE 66. For the 12 months ended December 31, 2001, the total return on Class A shares of CDC Nvest Short Term Corporate Income Fund was 7.82% at net asset value, including $0.40 per share in reinvested dividends. The fund's benchmark, the Lehman Brothers 1-5 Year Investment Grade Debt Index, returned 9.68% for the same period, and the average return on the funds in Morningstar's Short Term Bond category was 7.30%. Since Loomis Sayles became the fund's manager in June, its total return for the six months ended December 31 was 4.31%, compared with 4.39% for its benchmark. The 30-day SEC yield on Class A shares of the fund was 4.86% as of December 31, 2001. HIGH-GRADE CORPORATE BONDS DID WELL IN A SLOWING ECONOMY It was a difficult year for stocks and lower-quality bonds, but investment-grade corporate bonds performed well in 2001, even compared to Treasuries. The Federal Reserve Board cut short-term interest rates 11 times during the year to 1.75%. This helped the price performance of CDC Nvest Short Term Corporate Income Fund because it features high-quality, short-term bonds with attractive yields. However, even some high-profile companies that issue investment-grade corporate bonds saw their earnings decline in 2001. A few even faced bankruptcy. Careful research is particularly important in difficult markets. Raytheon is one example of how our research helped the fund. This leading defense contractor was carrying a lot of debt and was one of the lowest-rated issues in the portfolio. We bought it at a low price, when many analysts feared Raytheon would lose its investment-grade rating, but it has shown steady improvement and been one of our best performers. EXPECTING HIGHER INTEREST RATES, MANAGERS SHORTENED MATURITIES After the tragic events of September 11, we carefully reviewed all the fund's holdings and sold the few travel-related issues in the portfolio. At the end of September, electric provider Niagara Mohawk came to market with the type of opportunity we had been looking for - attractively priced bonds that paid 2.05% more than Treasuries with comparable maturities. Issued to finance a power station, Standard & Poor's rated the bonds BBB- when we purchased them, and subsequently upgraded their rating to A-. Because we expected to see interest rates rise in the near future, causing bond prices to decline, we shortened duration slightly, to help protect principal. A shorter duration makes the value of fund shares less sensitive to declining bond prices. At the same time, to help maintain the fund's income stream, we increased exposure to lower-quality, investment-grade issues. These bonds are also likely to rise in price when the economy improves. SHORTER MATURITIES SHOULD IMPROVE PRICE STABILITY IN 2002 We expect to see a gradual economic recovery in the coming year, with generally rising interest rates. We believe corporate bonds with shorter maturities will do well because they tend to be less volatile in price than longer-term bonds. In keeping with our emphasis on research, we will continue to subject all investment candidates to rigorous screening, selecting securities based on their individual merits. Overall, we believe CDC Nvest Short Term Corporate Income Fund is well positioned to generate competitive returns and a steady flow of monthly income for shareholders. 4 INVESTMENT RESULTS THROUGH DECEMBER 31, 2001 PERFORMANCE IN PERSPECTIVE The charts comparing CDC Nvest Short Term Corporate Income Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. In addition, few investors could purchase all of the securities necessary to match the index and would incur transaction costs and other expenses even if they could. [CHART OF GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES]
NAV MSC LB 1-5 LB 1-3 1/1/1996 10,000 9,700 10,000 10000 2/1/1996 10,055 9,753 9,993 9990.00 3/1/1996 10,108 9,805 10,041 10020.97 4/1/1996 10,119 9,815 10,030 10018.97 5/1/1996 10,182 9,877 10,121 10111.14 6/1/1996 10,222 9,915 10,255 10205.17 7/1/1996 10,292 9,983 10,398 10310.29 8/1/1996 10,351 10,040 10,569 10430.92 9/1/1996 10,395 10,083 10,662 10515.41 10/1/1996 10,463 10,149 10,781 10615.30 11/1/1996 10,435 10,122 10,656 10551.61 12/1/1996 10,457 10,143 10,631 10536.84 1/1/1997 10,495 10,180 10,758 10635.88 2/1/1997 10,564 10,247 10,938 10749.69 3/1/1997 10,619 10,301 11,087 10837.84 4/1/1997 10,658 10,339 11,140 10872.52 5/1/1997 10,724 10,402 11,245 10941.01 6/1/1997 10,733 10,411 11,228 10915.85 7/1/1997 10,798 10,474 11,367 10998.81 8/1/1997 10,822 10,497 11,400 11024.11 9/1/1997 10,873 10,547 11,545 11116.71 10/1/1997 10,908 10,581 11,583 11152.28 11/1/1997 10,901 10,574 11,627 11177.93 12/1/1997 10,890 10,563 11,616 11181.29 1/1/1998 10,925 10,597 11,676 11227.13 2/1/1998 10,975 10,646 11,801 11298.98 3/1/1998 10,978 10,649 11,680 11230.06 4/1/1998 10,940 10,612 11,547 11171.66 5/1/1998 10,915 10,588 11,478 11129.21 6/1/1998 10,908 10,581 11,497 11144.79 7/1/1998 10,945 10,616 11,529 11173.77 8/1/1998 10,969 10,640 11,680 11275.45 9/1/1998 11,039 10,708 11,732 11313.79 10/1/1998 11,019 10,688 11,667 11288.90 11/1/1998 11,046 10,715 11,681 11314.86 12/1/1998 11,029 10,698 11,615 11267.34 1/1/1999 11,015 10,684 11,640 11288.75 2/1/1999 11,141 10,806 11,832 11443.40 3/1/1999 11,265 10,927 12,068 11601.32 4/1/1999 11,384 11,042 12,144 11667.45 5/1/1999 11,442 11,099 12,287 11772.46 6/1/1999 11,567 11,220 12,603 11970.71 7/1/1999 11,596 11,248 12,686 12043.76 8/1/1999 11,643 11,293 12,719 12091.88 9/1/1999 11,702 11,351 12,828 12165.16 10/1/1999 11,776 11,422 12,912 12225.31 11/1/1999 11,834 11,479 13,038 12326.80 12/1/1999 11,906 11,549 13,195 12432.89 1/1/2000 11,962 11,603 13,320 12527.16 2/1/2000 12,037 11,676 13,459 12634.34 3/1/2000 12,074 11,712 13,362 12586.22 4/1/2000 12,115 11,752 13,310 12577.03 5/1/2000 12,171 11,806 13,298 12589.72 6/1/2000 12,212 11,846 13,308 12618.81 7/1/2000 12,252 11,884 13,433 12711.11 8/1/2000 12,310 11,941 13,485 12760.55 9/1/2000 12,370 11,999 13,513 12807.57 10/1/2000 12,446 12,072 13,684 12924.81 11/1/2000 12,540 12,164 13,897 12927.22 12/1/2000 12,616 12,238 14,051 13168.70 1/1/2001 12,659 12,280 14,002 13170.89 2/1/2001 12,704 12,323 14,073 13234.54 3/1/2001 12,777 12,394 14,110 13267.35 4/1/2001 12,822 12,438 14,046 13257.07 5/1/2001 12,900 12,513 14,192 13365.78 6/1/2001 12,963 12,575 14,306 13459.17 7/1/2001 13,042 12,651 14,432 13552.79 8/1/2001 13,141 12,747 14,683 13703.28 9/1/2001 13,223 12,827 14,639 13716.18 10/1/2001 13,286 12,887 14,791 13818.56 11/1/2001 13,369 12,968 14,894 13921.35 12/1/2001 13,378 12,977 14,920 13956.35 1/1/2002 13,443 13,040 15,018 14048.44 2/1/2002 13,526 13,120 15,199 14184.05 3/1/2002 13,548 13,141 15,209 14195.42 4/1/2002 13,595 13,187 15,267 14250.98 5/1/2002 13,639 13,230 15,351 14321.41 6/1/2002 13,684 13,274 15,455 14399.28 7/1/2002 13,727 13,315 15,536 14473.65 8/1/2002 13,753 13,340 15,598 14541.02 9/1/2002 13,870 13,454 15,730 14708.13 10/1/2002 13,889 13,472 16,054 14906.08 11/1/2002 13,897 13,480 16,026 14970.61 12/1/2002 13,925 13,507 16,101 14967.98 1/1/2003 13,986 13,566 16,154 15025.94 2/1/2003 14,041 13,620 16,274 15090.03 3/1/2003 13,957 13,538 16,132 15026.38 4/1/2003 14,063 13,641 16,282 15132.90 5/1/2003 14,131 13,707 16,360 15184.74 6/1/2003 14,024 13,603 16,259 15172.28 7/1/2003 14,053 13,632 16,303 15217.33 8/1/2003 14,083 13,660 16,281 15260.86 9/1/2003 14,073 13,651 16,303 15301.11 10/1/2003 14,182 13,757 16,456 15403.91 11/1/2003 14,192 13,767 16,520 15449.63 12/1/2003 14,182 13,757 16,565 15483.75 1/1/2004 14,247 13,820 16,556 15499.72 2/1/2004 14,221 13,794 16,522 15499.72 3/1/2004 14,335 13,905 16,649 15607.11 4/1/2004 14,386 13,954 16,745 15695.48 5/1/2004 14,273 13,844 16,705 15725.66 6/1/2004 14,304 13,875 16,745 15782.53 7/1/2004 14,522 14,087 17,005 15956.64 8/1/2004 14,637 14,198 17,146 16065.79 9/1/2004 14,690 14,249 17,326 16193.09 10/1/2004 14,891 14,444 17,510 16326.52 11/1/2004 14,891 14,444 17,527 16399.57 12/1/2004 15,040 14,589 17,694 16552.25 1/1/2005 15,198 14,742 17,961 16751.95 2/1/2005 15,341 14,881 18,286 16989.27 3/1/2005 15,437 14,974 18,456 17110.23 4/1/2005 15,555 15,089 18,617 17249.13 5/1/2005 15,586 15,118 18,654 17303.81 6/1/2005 15,682 15,211 18,794 17410.33 7/1/2005 15,710 15,239 18,876 17477.04 8/1/2005 15,984 15,504 19,229 17696.87 9/1/2005 16,102 15,619 19,402 17816.95 10/1/2005 16,310 15,820 19,626 18082.05 11/1/2005 16,472 15,978 19,875 18262.72 12/1/2005 16,407 15,915 19,769 18213.51 1/1/2006 16,386 15,895 19,710 18222.48
The illustration represents past performance and does not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. Other classes of shares are available for which performance, fees, and expenses will differ. All results include reinvestment of dividends and capital gains. AVERAGE ANNUAL TOTAL RETURNS -- DECEMBER 31, 2001
======================================================================================= CLASS A (Inception 10/18/91) 1 YEAR(4) 5 YEARS(4) 10 YEARS(4) SINCE INCEPTION(4) Net Asset Value(1) 7.82% 5.30% 5.06% 5.08% With Maximum Sales Charge(2) 4.54 4.65 4.75 4.76 ======================================================================================= CLASS B (Inception 9/13/93) 1 YEAR(4) 5 YEARS(4) 10 YEARS SINCE INCEPTION(4) Net Asset Value(1) 7.03% 4.55% -- 4.26% With CDSC(3) 2.03 4.22 -- 4.26 ======================================================================================= CLASS C (Inception 12/7/98) 1 YEAR(4) 5 YEARS 10 YEARS SINCE INCEPTION(4) Net Asset Value(1) 6.87% -- -- 4.62% With Maximum Sales Charge and CDSC(3) 4.82 -- -- 4.29 ======================================================================================= CLASS Y (Inception 10/1/01) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION(4) Net Asset Value(1) -- -- -- 0.40% =============================================================================================================== SINCE SINCE SINCE CLASS B CLASS C CLASS Y COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPT.(8) INCEPT.(8) INCEPT.(8) Lehman 1-5 Yr. Inv. Grade Debt Index(5) 9.68% 7.07% 7.01% 6.61% 6.75% -0.83% Morningstar Short Bond Fund Ave(6) 7.30 6.00 5.90 5.50 5.90 -0.95 Lipper Short Inv. Grade Fund Ave.(7) 7.25 5.93 5.63 5.47 5.83 -0.58
The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO AS OF DECEMBER 31, 2001 [CHART OF CREDIT QUALITY] A 24.1% AA 3.9% AAA 32.5% BB 2.8% BBB 33.0% NR 3.7%
Credit quality is based on bond ratings from Standard & Poor's Corp [CHART OF EFFECTIVE MATURITY] Less than 1 year 19.5% 1-5 years 79.6% 5-10 years 0.9%
Average Effective Maturity: 2.4 years See page 16 for information on the possible risks associated with an investment in this fund. NOTES TO CHARTS These returns represent past performance and do not guarantee future results. Share price and returns will vary, and you may have a gain or loss when you sell your shares. Recent returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. (1) These results include reinvestment of any dividends and capital gains, but do not include a sales charge. (2) These results include reinvestment of any dividends and capital gains, and the maximum sales charge of 3.00%. (3) These results include reinvestment of any dividends and capital gains. Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. Class C share performance assumes a 1.00% sales charge and a 1.00% CDSC applied when you sell shares within one year of purchase. (4) The adviser waived certain fees and expenses during the period indicated and the Fund's average annual total returns and yields would have been lower had these not been waived. (5) Lehman Brothers 1-5 Year Investment Grade Debt Index is an unmanaged index of investment-grade domestic corporate debt securities with maturities of one to five years. (6) Morningstar Short Term Bond Average is the average performance without sales charges of funds with similar investment objectives, as calculated by Morningstar, Inc. (7) Lipper Short Term Investment Grade Debt Funds Average is the average performance without sales charges of funds similar investment objectives, as calculated by Lipper Inc. (8) The since-inception comparative performance shown for each Class of fund shares are calculated as follows: Class B from 9/30/93; Class C from 12/31/98; Class Y from 10/31/01. 5 CDC NVEST BOND INCOME FUND PORTFOLIO PROFILE OBJECTIVE: Seeks a high level of current income consistent with what the fund considers reasonable risk STRATEGY: Invests primarily in corporate and U.S. government bonds INCEPTION DATE: November 7, 1973 MANAGERS: Peter W. Palfrey Curt A. Mitchell Richard G. Raczkowski LOOMIS, SAYLES & COMPANY, L.P.
SYMBOLS: Class A NEFRX Class B NERBX Class C NECRX Class Y NERYX
NET ASSET VALUE PER SHARE: (DECEMBER 31, 2001) Class A $11.59 Class B 11.59 Class C 11.60 Class Y 11.63
MANAGEMENT DISCUSSION For the 12 months ended December 31, 2001, the total return on Class A shares of CDC Nvest Bond Income Fund was 7.24% at net asset value, including $0.76 per share in reinvested dividends. The fund's benchmark, the Lehman Brothers Aggregate Bond Index, returned 8.44% for the same period, while the average return on the funds in Morningstar's Intermediate Bond Fund category was 7.40%. The fund's 30-day SEC yield on December 31, 2001 was 5.76%. FUND DEFENSIVE THROUGHOUT MOST OF 2001 The year began in the midst of a steep slide in stock prices and a downturn in the manufacturing sector of the economy. Corporate profits continued to slow as the year progressed, despite major governmental monetary and economic stimuli. The Federal Reserve Board slashed the Discount Rate 11 times during the year in an effort to avoid a recession. Meanwhile, consumer spending remained stronger than expected, which distracted attention from the downturn in other parts of the economy. CDC Nvest Bond Income Fund was defensively positioned throughout most of the year, with higher-than-normal allocations to Treasuries and mortgage-backed securities, and reduced exposure to lower quality, high-yield bonds. We also shortened the fund's average duration to help preserve principal during a volatile period. A fund that has a relatively short duration is less sensitive to price changes, which is a benefit when times are uncertain. After the tragic events of September 11, when the equity market appeared to establish a low late in September, we shifted strategies. We began to reach for more income by decreasing the fund's Treasury holdings and adding to higher-yielding, corporate securities. By the end of 2001, CDC Nvest Bond Income Fund's average credit quality was A1, as measured by Moody's Investors Service, and lengthened the effective duration slightly to 4.7 years, which made the fund moderately sensitive to changes in interest rates. HIGH-QUALITY CORPORATE BONDS PERFORMED WELL IN 2001 We continued to favor large, well-financed companies that tend to have the strength to hold up well in a slower economy. In fact, investment-grade corporate bonds performed very well in 2001, reversing the prior year's poor performance relative to Treasuries. In particular, our investments in financially sound banks did well, along with supermarket, energy and high-quality telecommunications issues. We generally avoided lower-grade, high-yield telecom issues, although the little we had hurt the fund's performance. These issues and the fund's holdings in non-U.S. dollar denominated bonds - although below last year's levels - were primarily responsible for the fund's underperformance relative to its benchmark in 2001. STAGE SET FOR RECOVERY IN 2002 The efforts of the Fed and the government to stimulate the economy have established a solid groundwork for a recovery in the coming year. Inflation seems to be well contained and energy prices are relatively low, which should provide a positive environment for bond investors. Yields currently available on corporate debt and mortgage-related investments are attractive by every historical measure. The difference in yields between Treasuries and A-rated corporate bonds is roughly 2% - an attractive advantage for investors who are willing to accept modest credit risk. We believe there are substantial reserves awaiting investment once it becomes clear that a gradual recovery is underway in the U.S. and global economies. While we expect the recovery to be uneven and gradual, we believe CDC Nvest Bond Income Fund is well positioned to provide shareholders with an attractive level of current income with minimal price fluctuations. 6 INVESTMENT RESULTS THROUGH DECEMBER 31, 2001 PERFORMANCE IN PERSPECTIVE The charts comparing CDC Nvest Bond Income Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. In addition, few investors could purchase all of the securities necessary to match the index, and would incur transaction costs and other expenses even if they could. [CHART OF GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES]
NAV MSC LB Aggregate LB Corporate Bond 12/31/1991 10000 9550 10000 10000 9873 9429 9863.96 9875 9919 9473 9928.09 9970 9864 9420 9872.12 9927 9869 9425 9943.43 9977 10089 9635 10131.06 10199 6/30/1992 10253 9791 10270.49 10358 10586 10109 10480.03 10635 10675 10195 10586.2 10718 10834 10346 10711.68 10847 10623 10145 10569.67 10654 10579 10103 10573.65 10671 12/31/1992 10764 10280 10740.17 10869 11017 10521 10946.12 11122 11290 10782 11137.74 11378 11312 10803 11184.15 11418 11401 10888 11262.03 11506 11417 10903 11276.37 11519 6/30/1993 11662 11137 11480.73 11799 11756 11227 11545.66 11884 11990 11451 11748.03 12180 11997 11457 11780.3 12209 12077 11534 11824.32 12270 11947 11410 11723.73 12119 12/31/1993 12041 11499 11787.27 12191 12229 11679 11946.42 12427 11961 11423 11738.87 12134 11641 11118 11449.46 11762 11521 11003 11358.03 11649 11461 10945 11356.44 11606 6/30/1994 11390 10877 11331.34 11577 11604 11082 11556.42 11870 11665 11140 11570.76 11883 11542 11022 11400.46 11662 11510 10993 11390.3 11635 11479 10963 11365 11616 12/31/1994 11539 11019 11443.48 11713 11733 11205 11669.96 11961 12119 11574 11947.42 12305 12122 11577 12020.72 12406 12361 11805 12188.63 12616 12906 12325 12660.29 13210 6/30/1995 13021 12435 12753.11 13329 12951 12368 12724.63 13270 13181 12588 12878.2 13484 13346 12745 13003.49 13643 13523 12915 13172.59 13820 13735 13117 13369.98 14084 12/31/1995 13935 13308 13557.62 14317 13993 13364 13647.65 14410 13690 13074 13410.42 14067 13621 13008 13317.2 13947 13507 12899 13242.31 13832 13495 12888 13215.42 13807 6/30/1996 13692 13076 13392.89 14010 13727 13109 13429.54 14036 13727 13109 13407.03 13993 14046 13414 13640.68 14289 14403 13754 13942.84 14680 14749 14085 14181.66 14994 12/31/1996 14577 13921 14049.8 14787 14659 13999 14092.82 14807 14751 14087 14127.88 14870 14530 13877 13971.32 14638 14690 14029 14180.46 14860 14888 14218 14314.51 15028 6/30/1997 15150 14468 14484.42 15241 15760 15050 14875.02 15799 15491 14794 14748.14 15565 15799 15088 14965.64 15838 15949 15231 15182.75 16039 16022 15301 15252.67 16129 12/31/1997 16188 15460 15406.24 16300 16403 15665 15604.03 16494 16456 15716 15592.27 16489 16558 15813 15645.85 16550 16634 15885 15727.52 16654 16803 16047 15876.71 16852 6/30/1998 16866 16107 16011.36 16977 16821 16064 16045.42 16962 16655 15905 16306.55 17041 17298 16520 16688.38 17594 17116 16346 16600.14 17323 17456 16671 16694.36 17648 12/31/1998 17483 16697 16744.55 17699 17672 16877 16864.06 17875 17315 16536 16569.67 17451 17553 16763 16661.49 17575 17693 16896 16714.27 17626 17308 16529 16567.87 17390 6/30/1999 17197 16423 16515.09 17299 17129 16358 16444.78 17204 17061 16293 16436.41 17163 17350 16569 16627.23 17350 17390 16607 16688.58 17430 17415 16632 16687.38 17449 12/31/1999 17424 16640 16606.91 17356 17351 16570 16552.54 17296 17547 16757 16752.71 17457 17787 16986 16973.41 17605 17459 16673 16924.81 17450 17330 16551 16917.04 17385 6/30/2000 17855 17052 17269 17822 17960 17152 17425.76 18037 18192 17373 17678.32 18263 18219 17399 17789.46 18363 18115 17300 17907.18 18367 18287 17464 18199.98 18586 12/31/2000 18712 17870 18537.6 18931 19176 18313 18840.75 19473 19366 18494 19004.88 19638 19390 18517 19100.29 19758 19280 18412 19021.01 19693 19403 18530 19135.74 19868 6/30/2001 19408 18535 19208.04 19967 19898 19003 19637.48 20489 20119 19214 19862.36 20763 20036 19134 20093.81 20732 20430 19511 20514.29 21246 20294 19381 20231.45 21061 12/31/2001 20085 19181 20102.98 20916
The illustration represents past performance and does not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. Other classes of shares are available for which performance, fees, and expenses will differ. All results include reinvestment of dividends and capital gains. AVERAGE ANNUAL TOTAL RETURNS -- DECEMBER 31, 2001
==================================================================================== CLASS A (Inception 11/7/73) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 7.24% 6.60% 7.21% 7.89% With Maximum Sales Charge(2) 2.44 5.62 6.72 7.71 ==================================================================================== CLASS B (Inception 9/13/93) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 6.54% 5.83% -- 5.48% With CDSC(3) 1.54 5.52 -- 5.48 ==================================================================================== CLASS C (Inception 12/30/94) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 6.54% 5.81% -- 7.21% With Maximum Sales Charge and CDSC3 4.45 5.60 -- 7.06 ==================================================================================== CLASS Y (Inception 12/30/94) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 7.80% 6.94% -- 8.46% ======================================================================================================= SINCE SINCE CLASS B CLASS C & Y COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPT.(8) INCEPT.(8) Lehman Aggregate Bond Index(4) 8.44% 7.43% 7.23% 6.69% 8.38% Lehman Credit Index(5) 10.34 7.22 7.67 6.76 8.67 Morningstar Int. Bond Fund Average(6) 7.40 6.30 6.70 5.80 7.16 Lipper Int. Investment Grade Debt Avg.(7) 7.59 6.44 6.74 5.80 7.42
The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO AS OF DECEMBER 31, 2001 [CHART OF CREDIT QUALITY] A 9.5% AA 1.1% AAA 40.1% B 1.6% BB 14.5% BBB 33.1% NR 0.1%
Credit quality is based on bond ratings from Standard & Poor's [CHART OF EFFECTIVE MATURITY] Less than 1 year 8.0% 1-5 years 26.1% 5-10 years 51.6% 10+ years 14.3%
Average Effective Maturity: 7.5 years See page 16 for information on the possible risks associated with an investment in this fund. NOTES TO CHARTS These returns represent past performance and do not guarantee future results. Share price and returns will vary and you may have a gain or loss when you sell your shares. Recent returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. (1) These results include reinvestment of any dividends and capital gains, but do not include a sales charge. (2) These results include reinvestment of any dividends and capital gains, and the maximum sales charge of 4.50%. (3) These results include reinvestment of any dividends and capital gains. Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. Class C share performance assumes a 1.00% sales charge and a 1.00% CDSC applied when you sell shares within one year of purchase. (4) Lehman Brothers Aggregate Bond Index is an unmanaged index of investment-grade bonds with one- to ten-year maturities issued by the U.S. government, its agencies and U.S. corporations. (5) Lehman Brothers Credit Index is an unmanaged index that includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, investment-grade corporate debt. (6) Morningstar Intermediate Bond Average is the average performance without sales charges of funds with similar investment objectives as calculated by Morningstar, Inc. (7) Lipper Intermediate Investment Grade Debt Funds Average is the average performance without sales charges of funds with similar investment objectives, as calculated by Lipper Inc. (8) The since-inception comparative performance shown for each Class of fund shares are calculated as follows: Class B from 9/30/93; Class C from 12/31/94; Class Y from 12/31/94. 7 CDC NVEST HIGH INCOME FUND PORTFOLIO PROFILE OBJECTIVE: Seeks high current income plus the opportunity for capital appreciation to produce a high total return STRATEGY: Invests primarily in fixed-income securities rated B or lower INCEPTION DATE: February 22, 1984 MANAGERS: Michael Millhouse Curt Mitchell LOOMIS, SAYLES & COMPANY, L.P.
SYMBOLS: Class A NEFHX Class B NEHBX Class C NEHCX
NET ASSET VALUE PER SHARE: (DECEMBER 31, 2001) Class A $4.94 Class B 4.95 Class C 4.94
MANAGEMENT DISCUSSION For the 12 months ended December 31, 2001, the total return on Class A shares of CDC Nvest High Income Fund was -10.65%, including $0.68 per share in reinvested dividends. The fund's benchmark, the Lehman Brothers High Yield Composite Index, returned 5.28% for the same period, and the average return on the funds in Morningstar's High Yield Bond category was 1.80%. The fund's focus on high-yielding bonds issued by technology and telecommunications companies caused it to underperform its benchmark this year. However, its income level remained high. The SEC 30-day yield as of December 31, 2001 was 11.60%. PRICE DECLINES HARDEST ON HIGH YIELD MARKETS IN 2001 The year started on a positive note when the Federal Reserve Board launched a series of reductions in short-term interest rates. However, the bond-price rally that followed stalled out. By mid-year, prices of high-yield bonds in several sectors had reached new lows, as the economy continued to weaken. The decline continued through the summer, and the technology and telecommunications industries were hardest hit. Following the events of September 11, investors fled to higher-quality bonds in search of relative safety, and this further reduced demand for lower-quality bonds - CDC Nvest High Income Fund's primary investment media. September was the worst single month ever for the high-yield bond market, and a period that put the value of investment research to the test. Although default levels reached new highs in 2001, none of the bonds in the fund's portfolio defaulted and income payouts remained stable. When the stock market began to recover in the fourth quarter, the situation finally appeared to improve for high-yield bonds. In November, lower-tier bonds actually outperformed higher-quality issues, as markets began to anticipate an eventual recovery and investors once again appeared to be willing to accept higher risk in pursuit of higher returns. FUND'S EMPHASIS ON DEPRESSED TECH, TELECOM OUTWEIGHED GAINS As 2001 progressed, we continued the strategy we began last year, replacing the fund's zero-coupon bonds with issues that pay high current income, but this took time because prices were so volatile. We saw strong performance in a variety of sectors, including chemical manufacturers, cable companies and waste haulers. In foreign markets, Mexican corporate bonds performed well, as did Hanvit Bank, which is majority owned by the Korean government. The Hanvit Bank issue has a 12.75% coupon and the price rose more than 8% from January 1, 2001 to December 31, 2001. After September 11, we bought some issues in the leisure and travel industries at low prices, and these have already provided some price appreciation. Unfortunately, the magnitude of the declines in CDC Nvest High Yield Fund's technology and telecommunications holdings outweighed gains in other sectors. We decreased the fund's exposure to these sectors in the course of the year from 28% to 20% of net assets, although by year end we were exploring new high-yield opportunities in the technology area. MANAGER EXPECTS HIGH-YIELD MARKET TO RECOVER WITH ECONOMY We believe the combination of stimuli from the Fed and the government, coupled with low energy prices and contained inflation, should lead to a recovery in the second or third quarter of 2002. Another positive indicator is the difference in yields between high-yield bonds and Treasury securities - about 9.0% at the end of December - compared to the historical average differential of 4.5%. The last time yields were that far apart was before the high-yield market rally in the early 1990s. When the economic environment begins to improve, prices in the high-yield bond market could bounce back quickly. We believe CDC Nvest High Income Fund could benefit if a moderate economic recovery gets underway, restoring investor confidence. 8 INVESTMENT RESULTS THROUGH DECEMBER 31, 2001 PERFORMANCE IN PERSPECTIVE The charts comparing CDC Nvest High Income Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. In addition, few investors could purchase all of the securities necessary to match the index and would incur transaction costs and other expenses even if they could. [CHART OF GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES]
NET ASSET MAXIMUM SALES LEHMAN 1-5 INV. VALUE(1) CHARGE(2) GRADE DEBT INDEX(5) 12/31/91 10000 9550 10000 10397 9929 10352.25 10652 10172 10607.68 10750 10266 10739.2 10826 10339 10779.99 10969 10476 10932.1 6/30/92 11101 10602 11035.03 11289 10781 11201.63 11380 10868 11348.4 11468 10952 11463.92 11269 10762 11302.27 11457 10942 11444.47 12/31/92 11579 11058 11575.23 11867 11333 11911.86 12084 11540 12121.92 12289 11736 12277.84 12371 11814 12384.96 12554 11989 12532.12 6/30/93 12828 12251 12795.17 12911 12330 12918.68 12944 12361 13027.71 12915 12334 13061.26 13207 12613 13325.83 13323 12723 13389.88 12/31/93 13492 12885 13556.48 13801 13180 13850.79 13828 13205 13814.57 13474 12868 13292.67 13255 12658 13201.55 13310 12711 13208.42 6/30/94 13365 12764 13249.21 13281 12684 13361.67 13225 12630 13456.21 13253 12657 13456.98 13232 12636 13489 13023 12437 13318.97 12/31/94 13057 12469 13416.95 13152 12560 13598.79 13493 12886 14065.04 13580 12969 14216.38 13849 13226 14578.17 14105 13470 14986.85 6/30/95 14087 13453 15082.15 14329 13684 15272.77 14339 13694 15320.42 14412 13764 15508.75 14470 13819 15604.44 14496 13844 15742.06 12/31/95 14595 13938 15989.48 14862 14193 16270.82 14964 14290 16283.79 14935 14263 16272.73 15114 14434 16308.57 15277 14590 16406.54 6/30/96 15374 14682 16542.26 15523 14824 16619.27 15707 15000 16798.83 16190 15462 17203.69 16155 15428 17335.98 16488 15746 17681.37 12/31/96 16766 16012 17804.51 16779 16024 17967.29 17367 16585 18267.32 17137 16365 18003.51 17232 16457 18179.64 17805 17004 18582.6 6/30/97 17920 17114 18840.31 18409 17580 19357.63 18526 17692 19313.79 19078 18220 19696.54 18912 18061 19714.08 19166 18303 19902.41 12/31/97 19344 18474 20077.01 19634 18751 20438.42 19607 18725 20558.12 19810 18918 20751.02 19917 19021 20832.99 19885 18990 20905.42 6/30/98 19954 19056 20980.52 19923 19027 21099.85 18541 17707 19935.58 18366 17539 20025.93 17980 17171 19615.35 19272 18405 20429.27 12/31/98 19015 18159 20451.76 19443 18568 20755.6 19566 18686 20633.22 19882 18988 20829.94 20311 19397 21233.66 19812 18921 20946.21 6/30/99 19757 18868 20901.61 19678 18792 20985.48 19371 18499 20753.69 19245 18379 20604.25 19418 18545 20467.39 19547 18667 20706.42 12/31/99 19776 18886 20940.88 19557 18677 20850.52 19645 18761 20890.93 19052 18195 20451.76 19040 18183 20484.54 18509 17676 20274.49 6/30/00 19070 18212 20687.36 19183 18320 20845.19 19107 18247 20987.77 18712 17870 20804.39 17779 16979 20138.01 16301 15568 19340.48 12/31/00 16594 15847 19714.08 18521 17688 21190.96 18428 17599 21473.07 17487 16700 20967.56 16949 16186 20706.42 16994 16229 21079.26 6/30/01 16019 15298 20487.98 16335 15600 20789.53 16210 15480 21034.66 14735 14072 19621.06 14572 13916 20106.36 15045 14368 20839.85 12/31/01 14857 14188 20754.83
The illustration represents past performance and does not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. Other classes of shares are available for which performance, fees, and expenses will differ. All results include reinvestment of dividends and capital gains. AVERAGE ANNUAL TOTAL RETURNS -- DECEMBER 31, 2001
======================================================================================= CLASS A (Inception 2/22/84) 1 YEAR 5 YEARS 10 YEARS(7) SINCE INCEPTION(7) Net Asset Value(1) -10.65% -2.43% 4.01% 5.58% With Maximum Sales Charge(2) -14.64 -3.32 3.53 5.30 ======================================================================================= CLASS B (Inception 9/20/93) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION(7) Net Asset Value(1) -11.29% -3.13% -- 0.98% With CDSC(3) -15.27 -3.37 -- 0.98 ======================================================================================= CLASS C (Inception 3/2/98) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION(7) Net Asset Value(1) -11.47% -- -- -7.78% With Maximum Sales Charge and CDSC(3) -13.10 -- -- -8.02 ============================================================================================================ SINCE SINCE CLASS B CLASS C COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION(8) INCEPTION(8) Lehman High Yield Composite Index(4) 5.28% 3.11% 7.58% 5.77% 0.00% Morningstar High Yield Bond Fund Average(5) 1.80 1.30 6.60 4.10 -1.60 Lipper High Current Yield Funds Average(6) 1.79 1.39 6.54 4.01 -2.29
The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO AS OF DECEMBER 31, 2001 [CHART OF CREDIT QUALITY] B 39.8% BB 42.8% BBB 8.1% CCC 2.3% Stock 2.8% NR 4.2%
Credit quality is based on bond ratings from Standard & Poor's [CHART OF EFFECTIVE MATURITY] Less than 1 year 19.5% 1-5 years 71.2% 5-10 years 3.9% 5-10 years 5.4%
Average Effective Maturity: 6.9 years See page 16 for information on the possible risks associated with an investment in this fund. NOTES TO CHARTS These returns represent past performance and do not guarantee future results. Share price and returns will vary and you may have a gain or loss when you sell your shares. Recent returns may be higher or lower than those shown. (1) These results include reinvestment of any dividends and capital gains, but do not include a sales charge. (2) These results include reinvestment of any dividends and capital gains, and the maximum sales charge of 4.50%. (3) These results include reinvestment of any dividends and capital gains. Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. Class C share performance assumes a 1.00% sales charge and a 1.00% CDSC applied when you sell shares within one year of purchase. (4) Lehman Brothers High Yield Composite Index is a market-weighted, unmanaged index of fixed-rate, non-investment grade debt. (5) Morningstar High Yield Bond Fund Average is the average performance without sales charge of funds with similar investment objectives, as calculated by Morningstar, Inc. (6) Lipper High Current Yield Funds Average is the average performance without sales charge of funds with similar investment objectives, as calculated by Lipper Inc. (7) Fund performance has been increased by expense waivers, without which performance would have been lower. (8) The since-inception comparative performance shown for each Class of fund shares are calculated as follows: Class B from 9/30/93; Class C from 3/31/98. 9 CDC NVEST STRATEGIC INCOME FUND PORTFOLIO PROFILE OBJECTIVE: Seeks high current income with a secondary objective of capital growth STRATEGY: Invests primarily in fixed-income and equity securities in the U.S. and around the world, balancing income and capital appreciation opportunities INCEPTION DATE: May 1, 1995 MANAGERS: Daniel J. Fuss Kathleen C. Gaffney LOOMIS, SAYLES & COMPANY, L.P.
SYMBOLS: Class A NEFZX Class B NEZBX Class C NECZX Class Y NEZYX
NET ASSET VALUE PER SHARE: (DECEMBER 31, 2001) Class A $9.88 Class B 9.88 Class C 9.87 Class Y 9.90
MANAGEMENT DISCUSSION For the 12 months ended December 31, 2001, the total return on Class A shares of CDC Nvest Strategic Income Fund was -0.14% at net asset value, including $0.91 in reinvested distributions. The fund's benchmark, the Lehman Brothers Aggregate Bond Index, returned 8.44% for the same period, while the average return on the funds in Morningstar's Multi-Sector Bond category was 3.90%. The fund's 30-day SEC yield at the end of December was 8.56%. U.S. HIGH-QUALITY CORPORATE BONDS BEAT OTHER MARKETS IN 2001 Throughout the year, slowing corporate profits eroded prices of corporate bonds in the major world economies. A flight to quality drove prices higher and yields lower on U.S. Treasury securities, producing a wide yield advantage for the corporate sector. High-quality and investment-grade issues, which the fund does not normally invest in, tended to outperform lower-rated securities during 2001. By the end of the year, high-yield domestic corporate and convertible bonds made up about one-third of the portfolio. Of the balance, about half was in emerging market securities payable in U.S. dollars, and about half in bonds of developed countries outside the U.S. FUND MOST ACTIVE IN SOUTH AMERICA, ASIA, CANADA AND U.S. Because of the U.S. slowdown, we placed greater emphasis on overseas opportunities, including Brazil and Mexico. In Asia we trimmed holdings slightly and focused on the Philippines, South Korea and Thailand - the region's most promising national economies. Within the major economies, we took steps to upgrade quality. We kept a low profile in Europe, partly due to the weak Euro, and partly for want of suitable opportunities; too much of Europe's high-yield market is made up of questionable telecommunications issues. Canadian government and provincial bonds constitute the bulk of our non-U.S. holdings. The Canadian dollar seems to have stabilized after a long decline, and its economy could benefit from a U.S. or global recovery. Domestically, our search for value led us to initiate positions in the travel and lodging industries when those areas appeared oversold after the terrorist attacks on September 11. And in the telecommunications sector we focused on stronger companies, including Nextel and Level3 Communications, which benefited from a debt-reduction program. U.S. TECHNOLOGY, BRAZIL, MEXICO HELPED; U.S. INDUSTRIALS HURT IN 2001 In the U.S. our technology selections were positives, including convertible bonds issued by Analog Devices and Western Digital. Results from automobile-related holdings, including bonds issued by parts-maker Dana, were disappointing, but the sector still has long-term appeal for us. We also think Georgia-Pacific will recover from current asbestos-related concerns. Brazil and Mexico both performed well in the second half; neither country appears to have been tainted by Argentina's financial problems. Mexico's recent reforms have boosted its status among emerging market economies. U.S. 2002 RECOVERY COULD SPREAD TO OTHER DEVELOPED ECONOMIES Based on their yield advantage over Treasury securities, the domestic high-yield market is more attractively priced than it has been in ten years. Low interest rates will work their way through the U.S. economy eventually, potentially producing a brighter outlook for corporate bonds of all rating categories. We believe the CDC Nvest Strategic Income Fund, as currently structured, can ride out the remainder of this recession successfully. Apart from Japan, most of the developed world will be on track for recovery before too long, in our opinion. We also think supply and demand for natural resources will come into balance, and excess production capacity will quickly be absorbed in most parts of the world once a recovery begins. 10 INVESTMENT RESULTS THROUGH DECEMBER 31, 2001 PERFORMANCE IN PERSPECTIVE The charts comparing CDC Nvest Strategic Income Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. Two bond indices measure the performance of a theoretical portfolio. Unlike a fund, the indices are unmanaged and do not have expenses that affect the results. It is not possible to invest directly in an index. In addition, few investors could purchase all of the securities necessary to match the index and would incur transaction costs and other expenses even if they could. [CHART OF GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES]
NET ASSET MAXIMUM SALES LEHMAN AGGREGATE LEHMAN UNIVERSAL VALUE(1) CHARGE(2) BOND INDEX(4) INDEX(5) 5/1/95 10000 9550 10000 10000 10014 9563 10000 10389 6/30/95 10017 9566 10073.32 10465 10096 9642 10050.82 10449 10192 9733 10172.12 10572 10410 9942 10271.08 10680 10355 9889 10404.65 10812 10647 10168 10560.56 10975 12/31/95 11038 10541 10708.77 11141 11302 10793 10779.88 11238 10995 10500 10592.5 11044 11073 10575 10518.87 10976 11057 10559 10459.71 10931 11232 10727 10438.48 10915 6/30/96 11383 10871 10578.66 11062 11360 10849 10607.6 11094 11569 11048 10589.83 11091 11974 11435 10774.37 11293 12316 11761 11013.04 11528 12816 12239 11201.68 11732 12/31/96 12638 12069 11097.53 11637 12674 12104 11131.51 11687 12875 12295 11159.2 11728 12735 12162 11035.54 11591 12816 12239 11200.73 11766 13091 12502 11306.62 11891 6/30/97 13388 12785 11440.82 12036 13990 13361 11749.34 12365 13629 13016 11649.12 12263 14110 13475 11820.93 12452 13814 13193 11992.41 12570 13889 13264 12047.64 12639 12/31/97 13818 13196 12168.94 12773 14043 13411 12325.17 12934 14300 13657 12315.88 12945 14607 13949 12358.2 13004 14611 13953 12422.71 13071 14372 13726 12540.55 13165 6/30/98 14143 13507 12646.9 13252 13966 13338 12673.81 13283 12252 11700 12880.07 13282 12648 12079 13181.67 13597 12785 12209 13111.97 13541 13642 13028 13186.38 13676 12/31/98 13579 12968 13226.03 13708 13814 13192 13320.43 13800 13617 13004 13087.9 13582 14336 13691 13160.42 13685 15255 14569 13202.12 13766 14782 14117 13086.48 13627 6/30/99 14825 14158 13044.79 13602 14532 13879 12989.25 13546 14351 13705 12982.64 13531 14443 13793 13133.37 13678 14564 13909 13181.82 13735 14828 14160 13180.88 13757 12/31/99 15231 14546 13117.32 13731 15090 14411 13074.37 13684 15684 14978 13232.48 13858 15843 15130 13406.8 14020 15390 14697 13368.41 13977 14893 14223 13362.28 13951 6/30/00 15461 14765 13640.28 14251 15597 14895 13764.1 14390 15940 15223 13963.59 14600 15519 14820 14051.38 14674 14887 14217 14144.36 14733 14810 14143 14375.64 14932 12/31/00 15335 14645 14642.31 15219 15822 15110 14881.76 15515 15798 15087 15011.4 15646 15201 14517 15086.76 15699 14953 14280 15024.15 15630 15288 14600 15114.77 15742 6/30/01 15246 14560 15171.88 15786 15258 14571 15511.08 16097 15595 14893 15688.71 16299 14821 14154 15871.52 16416 15170 14487 16203.64 16745 15385 14693 15980.24 16549 12/31/01 15314 14625 15878.76 16449
The illustration represents past performance and does not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. Other classes of shares are available for which performance, fees, and expenses will differ. All results include reinvestment of dividends and capital gains. Index values are calculated from 5/31/95. AVERAGE ANNUAL TOTAL RETURNS -- DECEMBER 31, 2001
================================================================================ CLASS A (Inception 5/1/95) 1 YEAR 5 YEARS SINCE INCEPTION(8) Net Asset Value(1) -0.14% 3.91% 6.60% With Maximum Sales Charge(2) -4.64 2.96 5.86 ================================================================================ CLASS B (Inception 5/1/95) 1 YEAR 5 YEARS SINCE INCEPTION(8) Net Asset Value(1) -0.79% 3.14% 5.78% ================================================================================ CLASS C (Inception 5/1/95) 1 YEAR 5 YEARS SINCE INCEPTION(8) Net Asset Value(1) -0.80% 3.14% 5.75% With Maximum Sales Charge and CDSC(3) -2.71 2.94 5.58 ================================================================================ CLASS Y (Inception 12/1/99) 1 YEAR 5 YEARS SINCE INCEPTION Net Asset Value(1) 0.33% -- 1.93% ================================================================================ SINCE SINCE CLASS A, B AND C CLASS Y COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS INCEPTION(9) INCEPTION(9) Lehman Aggregate Bond Index(4) 8.44% 7.43% 7.28% 10.02% Lehman Universal Index(5) 8.09 7.16 7.23 9.45 Morningstar Multi-Sector Bond Fund Avg.(6) 3.90 3.60 5.75 2.80 Lipper Multi-Sector Income Funds Avg.(7) 3.63 3.27 5.35 7.28
The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO AS OF DECEMBER 31, 2001 [CHART OF CREDIT QUALITY] A 7.4% AA 12.4% AAA 16.2% B 12.7% BB 26.0% BBB 10.3% NR 5.5% Other 9.5%
Credit quality is based on bond ratings from Standard & Poor's [CHART OF EFFECTIVE MATURITY] Less than 1 year 1.0% 1-5 years 4.3% 5-10 years 20.0% 10+ years 74.7%
Average Effective Maturity: 19 years See page 16 for information on the possible risks associated with an investment in this fund. NOTES TO CHARTS These returns represent past performance. Share price and returns will vary, and you may have a gain or loss when you sell your shares. Recent returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. (1) These results include reinvestment of any dividends and capital gains, but do not include a sales charge. (2) These results include reinvestment of any dividends and capital gains, and the maximum sales charge of 4.50%. (3) These results include reinvestment of any dividends and capital gains. Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. Class C share performance assumes a 1.00% sales charge and a 1.00% CDSC applied when you sell shares within one year of purchase. (4) Lehman Brothers Aggregate Bond Index is an unmanaged index of investment-grade bonds with one- to ten-year maturities issued by the U.S. government, its agencies and U.S. corporations. (5) Lehman Brothers Universal Bond Index is an unmanaged index representing a blend of the Lehman Aggregate, High Yield and Emerging Market Indexes. (6) Morningstar Multi-Sector Bond Fund Average is the average performance without sales charge of funds with similar investment objectives as calculated by Morningstar, Inc. (7) Lipper Multi-Sector Income Funds Average is the average performance without sales charges of funds with similar investment objectives as calculated by Lipper Inc. (8) The adviser waived certain fees and expenses during the periods indicated, without which performance would have been lower. (9) The since-inception comparative performance shown for each Class of fund shares are calculated as follows: Class A, B and C from 4/30/95; Class Y from 12/31/99. 11 CDC NVEST LIMITED TERM U.S. GOVERNMENT FUND PORTFOLIO PROFILE OBJECTIVE: Seeks high current return consistent with preservation of capital STRATEGY: Invests primarily in U.S. government securities (including zero-coupon bonds) and U.S. agency obligations INCEPTION DATE: January 3, 1989 MANAGERS: Michael F. Harris Cliff Rowe LOOMIS, SAYLES & COMPANY, L.P.
SYMBOLS: Class A NEFLX Class B NELBX Class C NECLX Class Y NELYX
NET ASSET VALUE PER SHARE: (DECEMBER 31, 2001) Class A $11.36 Class B 11.34 Class C 11.35 Class Y 11.41
MANAGEMENT DISCUSSION The total return on Class A shares of CDC Nvest Limited Term U.S. Government Fund was 6.86% for the 12 months ended December 31, 2001, including $0.56 in reinvested dividends. For the same period, the fund's benchmark, Lehman Brothers Intermediate Government Bond Index, returned 8.42%, while the average return on the funds in Morningstar's Short Government category was 7.10%. CONTINUED SAFETY BIAS SUPPORTED U.S. GOVERNMENT BOND PRICES The bond market in general was volatile, but shorter-term U.S. government bonds performed relatively well. The Federal Reserve Board cut short-term interest rates 11 times in 2001, continuing its campaign to lift the country out of recession. The December rate cut brought the discount rate (the rate the Federal Reserve charges member banks) down to 1.75%, the lowest level since John F. Kennedy was president. Market volatility in the wake of several other events also contributed to the positive performance of U.S. government bonds by triggering a flight to the relative safety and stability of U.S. government bonds. These events included the September 11 terrorist attacks, the bankruptcy of Enron, and an announcement by the U.S. Treasury that it was suspending sales of 30-year Treasury bonds. Although U.S. government securities participated in the price rally that resulted from generally declining interest rates, most of the gains were concentrated on the short end of the market, which benefited your fund. For example, the yield on two-year Treasury bond yields dropped below 2% during the period, while yields on ten-year Treasuries remained virtually flat during most of 2001. In general, whenever investors are concerned about the future, short-term U.S. government bonds do well on a total return basis, as increased demand helps drive prices up. AS INTEREST RATES FELL, MANAGER PURSUED MORE INCOME As short-term rates fell during the year, we focused on increasing the fund's income level by investing in securities that offered a yield advantage over U.S. Treasuries. These included U.S. government agency bonds, such as mortgage-backed securities. When interest rates fall, many homeowners opt to take advantage of lower mortgage rates to refinance or prepay their mortgages. Although this prepayment risk can interrupt the income performance of mortgage-backed securities, we believed that the prices of these securities reflected higher prepayment activity than we thought was likely in the current, sluggish economy. We also trimmed our position in corporate bonds early in the year. The bonds we sold had performed well for the fund, but we believed further price appreciation was likely to be minimal. Because there were signs that the economy was beginning to deteriorate, we also wanted to limit the fund's risk exposure. Also in the course of the year, we reduced the fund's weighting in asset-backed securities (bonds backed by receipts from auto, home equity and consumer loans). Although these high-quality securities had contributed significantly to fund performance, we found more attractive opportunities in other areas. PROJECTING FLAT INTEREST RATES IN 2002, FUND FOCUSES ON INCOME Although there are signs that the Fed's rate cuts are beginning to take effect, we continue to think that the economy is in a precarious position. There is some evidence of strength in the retail sector and in consumer behavior, as well as gains in some manufacturing areas, but unemployment remains at a six-year high. As a result, we expect interest rates to remain fairly flat in the months ahead, with fewer opportunities for price appreciation. Consequently, going forward we will focus on providing as much income as possible for fund shareholders, while maintaining a diversified portfolio composed primarily of high-quality U.S. government securities. 12 INVESTMENT RESULTS THROUGH DECEMBER 31, 2001 PERFORMANCE IN PERSPECTIVE The charts comparing CDC Nvest Limited Term U.S. Government Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. In addition, few investors could purchase all of the securities necessary to match the index and would incur transaction costs and other expenses even if they could. [CHART OF GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES]
NET ASSET MAXIMUM SALES LEHMAN INT. GOVERNMENT VALUE (1) CHARGE(2) BOND INDEX(4) 12/31/91 10000 9700 10000 9861 9565 9903.79 9915 9617 9934.63 9857 9561 9895.03 9919 9622 9983.88 10074 9772 10132.83 6/30/92 10215 9908 10278.81 10385 10073 10475.96 10492 10178 10583.03 10631 10312 10728.83 10484 10170 10600.03 10443 10130 10554.99 12/31/92 10565 10248 10692.91 10726 10404 10891.63 10845 10519 11052.15 10879 10552 11092.81 10956 10627 11179.55 10973 10644 11149.06 6/30/93 11095 10762 11310.46 11156 10822 11333.24 11315 10976 11502 11335 10995 11548.79 11360 11019 11576.13 11298 10959 11518.82 12/31/93 11315 10975 11566.49 11415 11072 11680.75 11287 10949 11520.4 11132 10798 11352.34 11067 10735 11278.92 11067 10735 11286.98 6/30/94 11058 10726 11289.26 11151 10817 11437.51 11179 10844 11470.81 11095 10762 11376 11095 10762 11378.28 11056 10725 11327.63 12/31/94 11064 10732 11364.61 11212 10876 11549.49 11371 11030 11772.22 11402 11060 11837.06 11515 11169 11974.28 11837 11482 12311.97 6/30/95 11889 11532 12390.3 11883 11526 12396.26 11987 11627 12498.6 12062 11700 12582.37 12228 11861 12720.28 12375 12004 12875.37 12/31/95 12505 12129 13002.42 12573 12196 13112.12 12423 12050 12973.51 12344 11974 12914.27 12313 11943 12876.6 12270 11902 12869.94 6/30/96 12366 11995 13000.67 12393 12021 13040.97 12388 12016 13055.87 12545 12169 13224.63 12747 12364 13441.4 12906 12518 13603.68 12/31/96 12802 12418 13530.43 12856 12471 13582.47 12873 12487 13604.55 12806 12421 13527.1 12918 12530 13679.73 12997 12607 13786.28 6/30/97 13122 12729 13904.22 13340 12939 14160.59 13317 12917 14106.45 13455 13051 14259.78 13606 13198 14425.91 13629 13220 14457.63 12/31/97 13733 13321 14575.39 13932 13514 14765.53 13900 13483 14749.93 13876 13460 14795.85 13930 13512 14866.47 14020 13600 14968.63 6/30/98 14123 13700 15069.4 14142 13717 15127.4 14367 13936 15413.57 14778 14334 15773.17 14635 14196 15799.28 14590 14152 15750.91 12/31/98 14620 14181 15812.25 14699 14258 15882.7 14530 14094 15664.87 14598 14160 15768.79 14641 14202 15811.55 14531 14096 15714.46 6/30/99 14437 14004 15737.25 14368 13937 15739.52 14362 13932 15761.6 14526 14090 15896.71 14553 14117 15928.26 14568 14131 15939.3 12/31/99 14522 14086 15889.18 14459 14025 15835.91 14587 14150 15966.99 14768 14325 16149.24 14721 14279 16142.75 14727 14286 16185.86 6/30/00 14938 14489 16442.94 15013 14562 16552.12 15170 14715 16737.7 15287 14828 16883.85 15342 14882 16999.69 15551 15085 17249.06 12/31/00 15733 15261 17553.45 15933 15455 17786.87 16051 15570 17950.37 16153 15668 18080.4 16121 15637 18023.27 16201 15715 18097.93 6/30/01 16213 15726 18155.58 16515 16019 18494.5 16624 16125 18658.7 16885 16378 19057.02 17138 16623 19354.23 16915 16407 19123.27 12/31/01 16812 16308 19030.74
The illustration represents past performance and does not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. Other classes of shares are available for which performance, fees, and expenses will differ. All results include reinvestment of dividends and capital gains. AVERAGE ANNUAL TOTAL RETURNS -- DECEMBER 31, 2001
================================================================================ CLASS A (Inception 1/3/89) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 6.86% 5.60% 5.33% 6.74% With Maximum Sales Charge(2) 3.61 4.96 5.01 6.49 ================================================================================ CLASS B (Inception 9/27/93) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 6.18% 4.91% -- 4.15% With CDSC(3) 1.18 4.58 -- 4.15 ================================================================================ CLASS C (Inception 12/30/94) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 6.18% 4.92% -- 5.34% With Maximum Sales Charge and CDSC(3) 4.15 4.71 -- 5.18 ================================================================================ CLASS Y (Inception 3/31/94) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 7.41% 6.02% -- 5.87% =========================================================================================================== SINCE SINCE SINCE CLASS B CLASS C CLASS Y COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPT.(7) INCEPT.(7) INCEPT.(7) Lehman Int. Gov't. Bond Index(4) 8.42% 7.06% 6.65% 6.24% 7.64% 6.89% Morningstar Short Gov't. Fund Avg.(5) 7.10 5.80 5.60 5.20 6.40 5.80 Lipper Short Int. U.S. Gov't. Funds Avg.(6) 7.16 5.93 5.92 5.24 6.58 5.82
The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO AS OF DECEMBER 31, 2001 [CHART OF PORTFOLIO MIX] Yankee 4.1% Mortgage-backed 43.4% US Government 20.5% Government Agencies 24.4% Other 4.1%
[CHART OF EFFECTIVE MATURITY] Less than 1 year 2.8% 1-5 years 60.6% 5-10 years 36.6%
Average Effective Maturity: 4.7 years See page 16 for information on the possible risks associated with an investment in this fund. NOTES TO CHARTS These returns represent past performance and do not guarantee future results. Share price and returns will vary, and you may have a gain or loss when you sell your shares. Recent returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. (1) These results include reinvestment of any dividends and capital gains, but do not include a sales charge. (2) These results include reinvestment of any dividends and capital gains, and the maximum sales charge of 3.00%. (3) These results include reinvestment of any dividends and capital gains. Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. Class C share performance assumes a 1.00% sales charge and a 1.00% CDSC applied when you sell shares within one year of purchase. (4) Lehman Brothers Intermediate Government Bond Index is an unmanaged index of bonds issued by the U.S. government and its agencies with maturities between one and ten years. (5) Morningstar Short Government Fund Average is the average performance without sales charge of funds with similar investment objectives as calculated by Morningstar, Inc. (6) Lipper Short Intermediate U.S. Government Funds Average is the average performance without sales charge of funds with similar investment objectives as calculated by Lipper Inc. (7) The since-inception comparative performance shown for each Class of fund shares are calculated as follows: Class B from 9/30/93; Class C from 12/31/94; Class Y from 3/31/94. 13 CDC NVEST GOVERNMENT SECURITIES FUND PORTFOLIO PROFILE OBJECTIVE: Seeks a high level of current income consistent with safety of principal STRATEGY: Invests in U.S. government securities, including Treasury securities and other investments issued or guaranteed by government agencies INCEPTION DATE: September 16, 1985 MANAGERS: Kent P. Newmark Cliff Rowe LOOMIS, SAYLES & COMPANY, L.P.
SYMBOLS: Class A NEFUX Class B NEUBX Class Y NEUYX
NET ASSET VALUE PER SHARE: (DECEMBER 31, 2001) Class A $11.18 Class B 11.17 Class Y 11.17
MANAGEMENT DISCUSSION For the 12 months ended December 31, 2001, the total return on Class A shares of CDC Nvest Government Securities Fund was 4.93% at net asset value, including $0.55 in reinvested dividends. For the same period, the fund's benchmark, Lehman Brothers Government Bond Index, returned 7.23%, while the average return on the funds in Morningstar's Long Government category was 5.30%. YIELDS ON LONG GOVERNMENT BONDS TAKE ROUND TRIP IN 2001 In response to a weakening economy, the Federal Reserve Board cut short-term interest rates 11 times in 2001. Yields on short-term bonds reached their lowest levels in 40 years, but the economy still fell into a recession. Longer maturity bonds were extremely volatile, but ended 2001 back to about where they were a year ago, reflecting concerns that the Fed's efforts to stimulate the economy might ultimately lead to a surge in inflation. In the aftermath of the tragic events of September 11, investors fled to the relative safety of short-term securities. The resulting spike in demand caused short-term interest rates to fall further, widening the gap between yields on long- and short-term interest rates and causing the Treasury yield curve to become steeper for a time. By the end of October, when the yield curve was at its steepest, the Treasury surprised investors by suspending sales of its 30-year bonds. This triggered a sharp, short-lived price rally for long-term bonds as yields plummeted, only to rise again early in November, depressing prices. MANAGER SHIFTED STRATEGIES AS MARKET CONDITIONS CHANGED In the course of the year we lengthened the portfolio's duration, locking in higher yields from bonds with longer maturities and positioning the fund for potential price appreciation. A fund with a longer duration is more sensitive to changes in bond prices, up or down. By the third quarter, we had moved the portfolio into what we call a maturity barbell. This is a strategy where we concentrate investments in both the short and long ends of the maturity spectrum and lighten up in the middle - the intermediate part of the curve. This strategy is successful if the difference in yields between 10- and 30-year bonds narrows, and it worked well for the fund until September 11, when the securities markets were severely shaken. IN HINDSIGHT, FUND WENT LONG TOO SOON, BUT POSITIONED FOR 2002 Although October was an excellent month, and CDC Nvest Government Securities Fund benefited, the fund's overall emphasis on longer-duration bonds eliminated some gains during the fourth quarter. The fund's average duration at the end of 2001 was 9.14 years, significantly up from 7.19 at the beginning of the year. Its relatively long duration is the primary reason why the fund trailed its benchmark for the year. The position we built in Treasury Inflation Protected notes (called TIPs) - 3.8% of total net assets as of year end - was a positive during the fourth quarter and we believe these securities will continue to benefit the fund in 2002 if economic recovery causes inflation expectations to rise. The fund's position in mortgage-backed securities - GNMA (Government National Mortgage Association) and FNMA (Federal National Mortgage Association) bonds - totaled 27% of the portfolio at the end of the year and provided a significant return advantage over long-term Treasury issues. FED MAY SWITCH TO NEUTRAL STANCE We believe the difference in yield between long- and short-term bonds is still too steep, and we expect this difference to narrow as the economic outlook improves, restoring a more normal relationship. We also expect the Federal Reserve to shift from a policy of easing credit to a neutral stance. If our scenario is correct, the longer duration of CDC Nvest Government Securities Fund's portfolio should provide a higher level of interest income for investors. 14 INVESTMENT RESULTS THROUGH DECEMBER 31, 2001 PERFORMANCE IN PERSPECTIVE The charts comparing CDC Nvest Government Securities Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the special differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. In addition, few investors could purchase all of the securities necessary to match the index and would incur transaction costs and other expenses even if they could. [CHART OF GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES]
NET ASSET MAXIMUM SALES LEHMAN GOVERNMENT VALUE(1) CHARGE(2) BOND INDEX(4) 12/31/91 10000 9550 10000 9865 9421 9844.32 9943 9496 9882.77 9825 9383 9825.01 9872 9428 9886.9 10086 9632 10069.31 6/30/92 10250 9789 10213.61 10483 10012 10471 10596 10120 10568.58 10732 10249 10718.05 10528 10054 10563.41 10471 10000 10547.89 12/31/92 10681 10200 10722.71 10854 10366 10950.45 11065 10567 11169.75 11047 10549 11207.16 11111 10611 11293.36 11176 10673 11280.95 6/30/93 11364 10853 11531.27 11430 10916 11601.61 11687 11162 11860.56 11746 11218 11905.9 11780 11250 11950.9 11638 11114 11819.87 12/31/93 11642 11118 11865.56 11761 11232 12027.96 11482 10966 11773.33 11272 10765 11508.52 11186 10682 11418 11180 10676 11403.35 6/30/94 11051 10554 11377.15 11198 10695 11586.27 11203 10698 11588.51 11047 10550 11425.25 11046 10549 11416.63 10982 10488 11395.76 12/30/94 11009 10513 11465.07 11180 10676 11678.5 11436 10921 11929.87 11511 10993 12004.69 11629 11105 12161.57 12265 11713 12652.06 6/30/95 12341 11786 12749.12 12221 11671 12702.23 12353 11797 12851.53 12507 11944 12975.31 12742 12169 13172.88 12990 12406 13378.21 12/31/95 13214 12619 13567.86 13265 12668 13651.13 12940 12357 13373.04 12795 12219 13261.33 12694 12123 13176.68 12628 12060 13154.61 6/30/96 12758 12184 13324.42 12782 12207 13357.35 12700 12128 13327.53 12923 12342 13548.72 13228 12633 13846.8 13499 12891 14087.65 12/31/96 13317 12717 13943.86 13332 12732 13959.38 13340 12740 13978.52 13161 12569 13830.6 13323 12723 14030.24 13436 12831 14151.26 6/30/97 13624 13011 14310.05 14195 13557 14716.23 13876 13251 14570.72 14128 13493 14789.84 14407 13759 15045.69 14511 13858 15122.75 12/31/97 14691 14030 15280.84 14898 14227 15509.45 14828 14160 15467.38 14818 14151 15511.17 14863 14194 15580.99 15051 14373 15740.98 6/30/98 15278 14591 15919.94 15249 14562 15944.59 15718 15011 16359.39 16150 15423 16800.39 15948 15230 16743.15 16037 15316 16748.84 12/31/98 16016 15295 16786.26 16172 15444 16883.66 15549 14849 16482.14 15586 14885 16546.79 15637 14934 16584.37 15428 14734 16438.87 6/30/99 15247 14561 16405.42 15135 14454 16381.63 15022 14346 16381.46 15217 14532 16514.38 15207 14522 16540.93 15139 14458 16518.17 12/31/99 14987 14313 16411.28 15003 14327 16434.21 15267 14580 16668.16 15602 14900 16960.73 15475 14779 16913.83 15421 14727 16924.7 6/30/00 15688 14982 17226.57 15836 15123 17393.28 16113 15388 17650.51 16050 15328 17700.85 16196 15467 17870.15 16567 15821 18221.5 12/31/00 16920 16159 18584.75 17034 16268 18771.81 17250 16474 18985.24 17263 16486 19051.79 17014 16248 18857.32 17072 16304 18919.56 6/30/01 17100 16331 19006.62 17609 16817 19462.97 17805 17004 19704.68 18044 17232 20047.58 18661 17821 20564.96 18020 17209 20103.62 12/31/01 17754 16955 19928.63
The illustration represents past performance and does not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. Other classes of shares are available for which performance, fees, and expenses will differ. All results include reinvestment of dividends and capital gains. AVERAGE ANNUAL TOTAL RETURNS -- DECEMBER 31, 2001
=================================================================================== CLASS A (Inception 9/16/85) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 4.93% 5.92% 5.91% 7.15% With Maximum Sales Charge(2) 0.18 4.95 5.42 6.85 =================================================================================== CLASS B (Inception 9/23/93) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 4.05% 5.11% -- 4.33% With CDSC(3) -0.94 4.78 -- 4.33 =================================================================================== CLASS Y (Inception 3/31/94) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Net Asset Value(1) 5.32% 6.24% -- 6.36% =================================================================================== SINCE SINCE CLASS B CLASS Y COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION(7) INCEPTION(7) Lehman Government Bond Index(4) 7.23% 7.40% 7.14% 6.44% 7.34% Morningstar Long Government Fund Avg.(5) 5.30 6.80 7.10 5.80 6.90 Lipper General Government Funds Avg.(6) 6.17 6.35 6.27 5.50 6.35
The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO AS OF DECEMBER 31, 2001 [CHART OF PORTFOLIO MIX] U.S. Government 54.9% U.S. Government Agencies 15.6% Mortgage-backed 26.5% Short Term Investment & Other 3.0%
[CHART OF EFFECTIVE MATURITY] Five years or less 8.1% 6-10 years 39.9% 10+ years 52.0%
Average Maturity: 13 years See page 16 for information on the possible risks associated with an investment in this fund. NOTES TO CHARTS These returns represent past performance and do not guarantee future results. Share price and returns will vary and you may have a gain or loss when you sell your shares. Recent returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. (1) These results include reinvestment of any dividends and capital gains, but do not include a sales charge. (2) These results include reinvestment of any dividends and capital gains, and the maximum sales charge of 4.50%. (3) These results include reinvestment of any dividends and capital gains. Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. (4) Lehman Brothers Government Bond Index is an unmanaged index of public debt of the U.S. Treasury, government agencies, and their obligations. (5) Morningstar Long Government Fund Average is the average performance without sales charge of funds with similar investment objectives as calculated by Morningstar, Inc. (6) Lipper General Government Funds Average is the average performance without sales charge of funds with similar investment objectives as calculated by Lipper Inc. (7) The since-inception comparative performance shown for each Class of fund shares are calculated as follows: Class B from 9/31/93; Class Y from 3/31/94. 15 RISKS OF THE CDC NVEST INCOME FUNDS Any mutual fund investment involves risk. The following notes describe some of the risks of the CDC Nvest Funds discussed in this report. These risks may affect the value of your investment. See the funds' prospectus for details. CDC Nvest Short Term Corporate Income Fund invests primarily in short-term corporate securities, including lower rated bonds that may offer higher yields in return for more risk, and mortgage securities that are subject to prepayment risk. The fund may also invest in foreign and emerging market securities, which have special risks. It may also invest in securities issued by the U.S. government and Treasury securities; although the U.S. government guarantees such securities if held to maturity, mutual funds that invest in these securities are not guaranteed. CDC Nvest Bond Income Fund invests primarily in quality corporate and U.S. government bonds. Treasuries and U.S. government securities are guaranteed if held to maturity; mutual funds that invest in these securities are not guaranteed. The fund may invest in lower rated corporate bonds, which offer higher yields in return for more risk, and in mortgage-backed securities that are subject to prepayment risk. The fund is also permitted to invest a portion of assets in foreign and emerging market securities, which have special risks. These may include risks resulting from political unrest, currency fluctuations, and different regulatory requirements or accounting standards. CDC Nvest High Income Fund may invest in lower rated bonds that may offer higher yields in return for more risk. It may also invest a portion of assets in foreign and emerging market securities, which have special risks. The fund may also invest in U.S. government securities, which are guaranteed if held to maturity; mutual funds that invest in these securities are not guaranteed. CDC Nvest Strategic Income Fund may invest in foreign and emerging market securities, which have special risks. These may include risks resulting from political unrest, currency fluctuations and different regulatory requirements or accounting standards. Emerging markets may be more subject to these risks than developed markets. The fund may also invest in lower-rated bonds, which offer higher yields in return for more risk, and in mortgage securities that are subject to prepayment risk. It may also invest in real estate investment trusts (REITS) that change in price with underlying real estate values and have other, mortgage-related risks. CDC Nvest Limited Term U.S. Government Fund invests primarily in securities issued or backed by the federal government, including Treasury securities that are guaranteed if held to maturity; mutual funds that invest in these securities are not guaranteed. It may also invest a portion of assets in foreign securities, which have special risks, and in mortgage-backed securities that are subject to prepayment risk. CDC Nvest Government Securities Fund invests primarily in U.S. government securities, which are guaranteed if held to maturity; mutual funds that invest in these securities are not guaranteed. The fund may also invest a portion of assets in mortgage-backed securities that are subject to prepayment risk. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 16 SHORT TERM CORPORATE INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of December 31, 2001
RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ========================================================================================= BONDS AND NOTES--95.2% OF TOTAL NET ASSETS AEROSPACE/DEFENSE--1.7% $ 500,000 Raytheon Co., 6.300%, 3/15/2005 Baa3 BBB- $ 516,191 500,000 Raytheon Co., 8.200%, 3/01/2006 Baa3 BBB- 542,440 ----------- 1,058,631 ----------- ASSET BACKED--14.1% 983,097 AmeriCredit Automobile 7.150%, 8/12/2004 Aaa AAA 1,014,758 1,000,000 CIT Equipment Collateral Trust, 6.840%, 6/20/2004 Aaa AAA 1,032,795 1,000,000 Daimler-Chrysler Auto Trust 3.780%, 2/6/2007 Aaa AAA 976,410 1,000,000 Harley Davidson Motorcycle Trust 4.040%, 10/15/2009 Aaa -- 987,970 1,000,000 Honda Auto Receivables 2001 3.960%, 2/19/2007 Aaa AAA 992,484 2,000,000 MBNA Master Credit Card Trust 2.310%, 4/15/2005 Aaa AAA 2,003,120 1,000,000 PSE & G Transition Funding LLC 5.740%, 3/15/2007 Aaa AAA 1,039,914 927,839 WFS Financial Owner Trust, 7.750%, 11/20/2004 Aaa AAA 960,147 ----------- 9,007,598 ----------- BANKS--4.5% 1,000,000 Capital One Bank, 6.500%, 7/30/2004 Baa2 BBB- 1,007,799 1,000,000 FleetBoston Financial Corp., 7.250%, 9/15/2005 A1 A 1,079,355 750,000 Wells Fargo & Co., 5.900%, 5/21/2006 Aa2 A+ 774,898 ----------- 2,862,052 ----------- BROADCASTING--1.6% 1,000,000 Clear Channel Communications, 7.250%, 9/15/2003 Baa3 BBB- 1,039,260 ----------- CABLE & MEDIA--2.4% 500,000 Comcast Cable Communications, 6.375%, 1/30/2006 Baa2 BBB 508,497 1,000,000 Cox Communications, Inc., 6.875%, 6/15/2005 Baa2 BBB 1,047,548 ----------- 1,556,045 ----------- COMMERCIAL SERVICES--1.6% 1,000,000 Aramark Services, Inc., 6.750%, 8/01/2004 Baa3 BBB- 1,010,423 ----------- COMPUTER HARDWARE--1.6% 1,000,000 Sun Microsystems, Inc., 7.000%, 8/15/2002 Baa1 BBB+ 1,017,682 ----------- CONSUMER FINANCE--3.6% 1,200,000 Countrywide Home Loan, Inc., 6.850%, 6/15/2004 A3 A 1,271,995 1,000,000 Household Finance Corp., 6.500%, 1/24/2006 A2 A 1,025,854 ----------- 2,297,849 ----------- CONSUMER PRODUCTS--1.7% 1,000,000 Unilever Corp., 6.750%, 11/01/2003 A1 A+ 1,056,455 ----------- FINANCE--17.0% 185,000 Case Credit Corp., 6.125%, 2/15/2003 Ba2 BB 175,750 500,000 CIT Group, Inc., 7.500%, 11/14/2003 A2 A+ 531,567 1,000,000 Ford Motor Credit Co., 7.500%, 6/15/2003 A2 BBB+ 1,039,292 $ 1,000,000 General Electric Capital Corp., Medium Term Note, 6.750%, 9/11/03 Aaa AAA 1,054,662 1,500,000 General Motors Acceptance Corp., 7.625%, 6/15/2004 A2 BBB+ 1,586,460 1,000,000 International Lease Finance Corp. Medium Term Note, 5.500%, 6/7/04 A1 AA- 1,009,920 1,000,000 John Deere Capital Corp., 7.000%, 10/15/2002 A2 A 1,033,717 500,000 Qwest Capital Funding, Inc., 6.250%, 7/15/2005 Baa1 BBB+ 491,290 750,000 Qwest Capital Funding, Inc. 144A, 5.875%, 8/03/2004 -- -- 740,895 800,000 Salomon Smith Barney Holdings, Inc., 5.875%, 3/15/2006 Aa1 AA- 819,714 750,000 Toyota Motor Credit Corp., 5.625%, 11/13/2003 Aa1 AAA 779,826 1,500,000 Verizon Global Funding Corp., 6.750%, 12/01/2005 A1 A+ 1,583,190 ----------- 10,846,283 ----------- FINANCIAL SERVICES--2.8% 500,000 Dean Witter Discover & Co., 6.875%, 3/01/2003 Aa3 AA- 523,017 1,250,000 Lehman Brothers Holdings, Inc., 6.625%, 2/05/2006 A2 A 1,297,071 ----------- 1,820,088 ----------- FOODS--2.5% 1,025,000 Conagra, Inc., 7.400%, 9/15/2004 Baa2 BBB 1,102,597 500,000 Kellogg Co., 6.000%, 4/01/2006 Baa2 BBB 512,478 ----------- 1,615,075 ----------- MACHINERY--1.4% 90,000 Case Corp., 6.250%, 12/01/2003 Ba2 BB 84,150 20,000 Case Corp., 7.250%, 8/01/2005 Ba2 BB 17,400 750,000 Ingersoll Rand Co., 6.250%, 5/15/2006 A3 A- 764,485 ----------- 866,035 ----------- MANUFACTURING-DIVERSIFIED--3.3% 1,000,000 Honeywell International, Inc., 6.875%, 10/03/2005 A2 A 1,057,188 1,000,000 United Technologies Corp., 6.625%, 11/15/2004 A2 A+ 1,065,179 ----------- 2,122,367 ----------- MEDIA & ENTERTAINMENT--0.8% 500,000 Viacom, Inc., 7.750%, 6/01/2005 A3 A- 539,538 ----------- MORTGAGE BACKED--8.6% 267,294 Federal Home Loan Mortgage Corp., 6.488%, 3/1/2025 (d) Aaa AAA 268,454 158,829 Federal Home Loan Mortgage Corp., 6.829%, 12/1/2025 (d) Aaa AAA 159,417 1,000,000 Federal Home Loan Mortgage Corp., 7.375%, 5/15/2003 Aaa AAA 1,062,970 1,366,016 Federal Home Loan Mortgage Corp., 7.500%, 8/1/2009 Aaa AAA 1,440,724 254,491 Federal National Mortgage Association, 5.629%, 9/1/2023 (d) Aaa AAA 255,643 166,315 Federal National Mortgage Association, 6.013%, 5/1/2020 (d) Aaa AAA 165,502 121,280 Federal National Mortgage Association, 6.511%, 8/1/2017 (d) Aaa AAA 121,053 188,054 Federal National Mortgage Association, 6.781%, 6/1/2019 (d) Aaa AAA 191,904 See accompanying notes to financial statements. 17 RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ========================================================================================= MORTGAGE BACKED $ 425,977 Federal National Mortgage Association, 6.940%, 1/1/2020 (d) Aaa AAA $ 436,627 1,000,000 Federal National Mortgage Association, 7.300%, 7/19/05 Aaa AAA 1,028,280 366,327 Federal National Mortgage Association, 8.408%, 1/1/2024 (d) Aaa AAA 372,510 ----------- 5,503,084 ----------- OIL & GAS-DRILLING EQUIPMENT--0.9% 565,000 R & B Falcon Corp.,6.500%, 4/15/2003 Baa3 A- 582,012 ----------- OIL & GAS-MAJOR INTEGRATED--4.0% 500,000 Coastal Corp., 6.200%, 5/15/2004 Baa2 NA 500,890 1,000,000 Coastal Corp., 7.500%, 8/15/2006 Baa2 BBB 1,013,212 1,000,000 Conoco, Inc., 5.900%, 4/15/2004 Baa1 BBB+ 1,039,099 ----------- 2,553,201 ----------- REAL ESTATE INVESTMENT TRUSTS--1.6% 1,000,000 Simon Debartolo Group LP, 6.625%, 6/15/2003 Baa1 BBB 1,027,770 ----------- RETAIL-DEPARTMENT STORE--1.7% 1,000,000 Federated Department Stores, Inc., 8.500%, 6/15/2003 Baa1 BBB+ 1,060,613 ----------- RETAIL-GROCERY--3.2% 1,000,000 Delhaize America, Inc., 7.375%, 4/15/2006 Baa3 BBB- 1,037,260 1,000,000 Safeway, Inc., 7.000%, 9/15/2002 Baa2 BBB 1,028,842 ----------- 2,066,102 ----------- TELECOMMUNICATIONS--1.7% 1,000,000 WorldCom, Inc., 8.000%, 5/15/2006 A3 BBB+ 1,065,458 ----------- U.S. GOVERNMENT--6.9% 1,000,000 United States Treasury Notes 5.875%, 2/15/2004 Aaa AAA 1,055,310 1,800,000 United States Treasury Notes 6.125%, 8/31/2002 Aaa AAA 1,850,346 1,435,000 United States Treasury Notes 6.250%, 2/15/2003 Aaa AAA 1,498,456 ----------- 4,404,112 ----------- UTILITIES--6.0% 500,000 AES Corp., 7.375%, 6/15/2003 Ba1 BB 475,000 959,776 Kansas Gas & Electric Co., 6.760%, 9/29/2003 Ba2 BB- 948,255 1,000,000 Niagara Mohawk Power Corp., 5.375%, 10/01/2004 Baa3 A- 1,004,342 1,000,000 NiSource Finance Corp., 5.750%, 4/15/2003 Baa2 BBB 1,007,053 375,000 WMX Technologies, Inc., 6.375%, 12/01/2003 Ba1 BBB 388,575 ----------- 3,823,225 ----------- Total Bonds and Notes (Identified Cost $59,401,431) 60,800,958 ----------- PRINCIPAL AMOUNT DESCRIPTION VALUE (a) ========================================================================================= SHORT TERM INVESTMENT -- 3.8% OF TOTAL NET ASSETS $ 2,422,000 Repurchase Agreement with State Street Bank and Trust Co. dated 12/31/2001 at 0.85% to be repurchased at $2,422,114 on 1/02/2002, collateralized by $2,370,000 U.S. Treasury Bond, 6.00%, due 2/15/2026 valued at $2,471,834 $ 2,422,000 ----------- Total Short Term Investment (Identified Cost $2,422,000) 2,422,000 ----------- Total Investments--99.0% (Identified Cost $61,823,431) (b) 63,222,958 Other assets less liabilities 647,399 ----------- Total Net Assets--100% $63,870,357 ===========
(a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At December 31, 2001, the net unrealized appreciation on investments based on cost for federal income tax purposes of $61,996,301 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess value over tax cost $ 1,419,998 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (193,341) ----------- Net unrealized appreciation $ 1,226,657 ===========
At December 31, 2001, the Fund had a capital loss carryover of approximately $19,820,863 of which $5,625,994 expires on December 31, 2002, $6,075,626 expires on December 31, 2003, $2,134,629 expires on December 31, 2004, $455,288 expires on December 31, 2005, $1,444,376 expires on December 31, 2006, $1,865,560 expires on December 31, 2007, $1,936,635 expires on December 31, 2008 and $282,755 expires on December 31, 2009. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. At December 31, 2001, the components of distributable earnings, excluding unrealized appreciation/depreciation, disclosed on a tax basis consisted of $87,656 in undistributed ordinary income and $0 in undistributed long-term gains. (c) The ratings shown are believed to be the most recent ratings available at December 31, 2001. Securities are generally rated at the time of issuance. The rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at December 31, 2001. The Fund's subadviser independently evaluates the Fund's portfolio securities and in making investment decisions does not rely solely on the ratings of agencies. (d) Variable rate mortgage backed securities. The interest rates change on these instruments monthly based on changes in a designated base rate. The rates shown were those in effect at December 31, 2001. 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $740,895 or 1.2% of net assets. See accompanying notes to financial statements. 18 BOND INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of December 31, 2001
RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ===================================================================================================== BONDS AND NOTES -- 91.9% OF TOTAL NET ASSETS AEROSPACE/DEFENSE -- 0.4% $ 1,400,000 Northrop Grumman Corp., 7.125%, 2/15/2011 Baa3 BBB- $ 1,464,007 ------------ AGRICULTURE -- 1.1% 425,000 Case Corp., 6.250%, 12/01/2003 Ba2 -- 397,375 1,280,000 IMC Global, Inc., 7.625%, 11/01/2005 Ba2 B+ 1,211,533 940,000 IMC Global, Inc., 10.875%, 6/01/2008 Ba1 BB 1,003,657 1,050,000 IMC Global, Inc., 10.875%, 6/01/2008 Ba1 BB 1,121,106 ------------ 3,733,671 ------------ ASSET BACKED -- 0.5% 1,612,279 Americredit Automobile 7.150%, 8/12/2004 Aaa AAA 1,664,203 ------------ AUTO & RELATED -- 1.0% 3,535,000 Ford Motor Co., 7.450%, 7/16/2031 A3 BBB+ 3,243,469 ------------ BANKS -- 0.9% 3,040,000 Capital One Bank, 6.875%, 2/01/2006 Baa2 BBB- 2,968,517 ------------ BUSINESS SERVICES -- 0.7% 2,630,000 Equifax, Inc., 6.900%, 7/01/2028 Baa1 A- 2,381,928 ------------ CABLE & MEDIA -- 5.1% 1,500,000 AOL Time Warner, Inc., 6.750%, 4/15/2011 Baa1 BBB+ 1,539,759 1,990,000 British Sky Broadcasting Group, 8.200%, 7/15/2009 Ba1 BB+ 2,051,465 1,200,000 Continental Cablevision, Inc., 9.500%, 8/01/2013 Baa2 BBB+ 1,360,194 2,000,000 CSC Holdings, Inc., 7.625%, 7/15/2018 Ba1 BB+ 1,904,532 3,500,000 CSC Holdings, Inc., 7.875%, 2/15/2018 Ba1 BB+ 3,415,408 1,300,000 CSC Holdings, Inc., 8.125%, 7/15/2009 Ba1 BB+ 1,339,390 3,000,000 News America Holdings, Inc., 7.750%, 2/01/2024 Baa3 BBB- 2,926,227 2,245,000 News America Holdings, Inc., 8.250%, 8/10/2018 Baa3 BBB- 2,322,639 ------------ 16,859,614 ------------ CHEMICALS -- 1.0% 630,000 Lyondell Chemical Co., 9.625%, 5/01/2007 Ba3 BB 633,150 2,600,000 Lyondell Chemical Co., 9.875%, 5/01/2007 Ba3 BB 2,593,500 ------------ 3,226,650 ------------ ELECTRIC UTILITIES -- 5.7% 910,000 American Electric Power, Inc., 6.125%, 5/15/2006 Baa1 BBB+ 901,676 5,720,000 Calpine Canada Energy Finance Ulc, 8.500%, 5/01/2008 Ba1 BB+ 5,133,700 450,000 Exelon Corp., 6.750%, 5/01/2011 Baa2 BBB+ 456,863 1,140,000 Hydro Quebec, 8.050%, 7/07/2024 A1 A+ 1,344,081 2,796,855 Mirant Mid Atlantic LLC, 8.625%, 6/30/2012 Baa3 BBB- 2,569,611 3,477,000 New Mexico Public Service Corp., 10.250%, 10/01/2012 Ba1 BBB- 3,593,097 1,110,000 NRG Energy, Inc., 7.750%, 4/01/2011 Baa3 BBB- 1,045,781 1,875,000 Ohio Edison Corp., 8.680%, 6/01/2017 Baa2 BBB- 2,042,053 1,580,000 Progress Energy, Inc., 7.100%, 3/01/2011 Baa1 BBB 1,644,854 ------------ 18,731,716 ------------ ELECTRONICS-- 1.0% 3,170,000 Hqi Transelec Chile SA, 7.875%, 4/15/2011 Baa1 A- 3,249,821 ------------ ENERGY-- 3.4% 1,860,000 AES Corp., 8.875%, 2/15/2011 Ba1 BB 1,646,100 1,745,000 AES Corp., 9.375%, 9/15/2010 Ba1 BB 1,579,225 990,000 AES Eastern Energy LP, 9.670%, 1/02/2029 Ba1 BBB- 827,987 3,380,000 Kinder Morgan Energy Partners, 6.750%, 3/15/2011 Baa1 A- 3,385,347 2,470,000 PSE&G Power LLC, 7.750%, 4/15/2011 Baa1 BBB 2,597,921 1,300,000 Sempra Energy, 6.950%, 12/01/2005 A2 A 1,331,819 ------------ 11,368,399 ------------ FINANCE & BANKING -- 5.4% 3,575,000 American General Finance Corp., 8.450%, 10/15/2009 A1 A+ 3,994,437 4,040,000 Ford Motor Credit Co., 7.375%, 2/01/2011 (e) A2 BBB+ 3,977,194 3,450,000 General Motors Acceptance Corp., 6.750%, 1/15/2006 A2 BBB+ 3,494,264 1,600,000 General Motors Acceptance Corp., 7.250%, 3/02/2011 A2 BBB+ 1,609,224 2,500,000 Nisource Finance Corp., 7.875%, 11/15/2010 Baa2 BBB 2,591,425 2,200,000 State Street Institutional Capital A, 7.940%, 12/30/2026 A1 A 2,285,142 ------------ 17,951,686 ------------ FINANCIAL SERVICES -- 1.3% 850,000 Case Credit, 6.125%, 2/15/2003 Ba2 BB 807,500 1,600,000 Qwest Capital Funding, Inc., 7.250%, 2/15/2011 Baa1 BBB+ 1,559,155 2,000,000 Qwest Capital Funding, Inc., 7.750%, 2/15/2031 Baa1 BBB+ 1,928,760 ------------ 4,295,415 ------------ FOOD & BEVERAGES -- 1.7% 4,600,000 Aramark Services, Inc., 7.000%, 7/15/2006 Baa3 BBB- 4,476,895 1,095,000 Tyson Foods, Inc., 7.250%, 10/01/2006 Baa3 BBB 1,117,655 ------------ 5,594,550 ------------ FOOD-RETAILERS/WHOLESALERS -- 1.2% 4,205,000 Great Atlantic and Pacific Tea, Inc., 7.750%, 4/15/2007 B2 BB 4,036,800 ------------ See accompanying notes to financial statements. 19 RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ===================================================================================================== FOREIGN GOVERNMENTS AND GOVERNMENT AGENCIES -- 1.2% $ 560,000 Panama Republic, 9.625%, 2/08/2011 (e) Ba1 BB $ 572,600 5,000,000 Province of British Columbia, 7.750%, 6/16/2003 (CAD) Aa2 AA- 3,360,548 ------------ 3,933,148 ------------ GENERAL OBLIGATIONS -- 0.6% 1,900,000 Connecticut RRB Special Purpose Trust, 5.360%, 3/30/07 Aaa AAA 1,957,387 ------------ HOTELS & MOTELS -- 1.0% 3,445,000 HMH Properties, Inc., 7.875%, 8/01/2005 Ba3 BB 3,272,750 ------------ MANUFACTURING-DIVERSIFIED -- 1.1% 3,610,000 Tyco International Group SA, 6.375%, 10/15/2011 Baa1 A 3,531,302 ------------ METALS & MINING -- 0.2% 625,000 Cyprus Amax Minerals Co., 7.375%, 5/15/2007 Baa3 BBB- 564,713 ------------ MORTGAGE BACKED -- 28.0% 6,630,000 Federal Home Loan Mortgage Corp., 5.000%, 1/15/2004 (e) Aaa AAA 6,845,475 3,592,725 Federal Home Loan Mortgage Corp., 6.500%, 11/1/2031 Aaa AAA 3,597,216 6,500,000 Federal National Mortgage Association, 5.250%, 1/15/09 (e) Aaa AAA 6,440,070 12,391,090 Federal National Mortgage Association, 6.000%, with various maturities to 2016 (d) Aaa AAA 12,432,770 28,334,188 Federal National Mortgage Association, 6.500%, with various maturities to 2031 (d) (e) Aaa AAA 28,747,436 940,000 Federal National Mortgage Association, 6.625%, 11/15/10 Aaa AAA 999,041 9,596,640 Federal National Mortgage Association, 7.000%, 10/1/30 Aaa AAA 9,781,049 3,899,888 Federal National Mortgage Association, 7.500%, with various maturities to 2030 (d) Aaa AAA 4,028,758 2,534,343 Government National Mortgage Association, 6.000%, 1/15/29 Aaa AAA 2,493,945 6,178,657 Government National Mortgage Association, 6.500%, with various maturities to 2031 (d) Aaa AAA 6,214,494 5,679,215 Government National Mortgage Association, 7.000%, with various maturities to 2029 (d) Aaa AAA 5,819,631 1,940,740 Government National Mortgage Association, 7.500%, with various maturities to 2030 (d) Aaa AAA 2,016,603 1,672,513 Government National Mortgage Association, 8.000%, 11/15/29 Aaa AAA 1,752,961 989,893 Government National Mortgage Association, 8.500%, with various maturities to 2023 (d) Aaa AAA 1,066,121 97,403 Government National Mortgage Association, 9.000%, with various maturities to 2016 (d) Aaa AAA 106,357 141,978 Government National Mortgage Association, 11.500%, with various maturities to 2018 (d) Aaa AAA 163,583 ------------ 92,505,510 ------------ OIL-FOREIGN -- 2.2% 283,000 PDVSA Finance Ltd., 8.750%, 2/15/2004 (yankee) Baa1 BBB- 286,537 3,535,000 Pemex Finance, Ltd., 8.020%, 5/15/2007 (yankee) (e) Baa1 BBB+ 3,728,347 3,000,000 Pemex Finance, Ltd., 9.150%, 11/15/2018 (yankee) (e) Baa1 BBB+ 3,251,055 ------------ 7,265,939 ------------ OIL & GAS -- 0.5% 1,707,405 Alliance Pipeline LP, 6.996%, 12/31/2019 A3 BBB 1,741,833 ------------ OIL & GAS-DRILLING & EQUIPMENT -- 0.5% 1,750,000 Transocean Sedco Forex, 6.625%, 4/15/2011 Baa2 A- 1,718,237 ------------ OIL SERVICES -- 0.5% 1,780,000 Williams Companies, Inc., 7.125%, 9/01/2011 Baa2 BBB 1,751,023 ------------ PAPER & FOREST PRODUCTS -- 1.7% 2,190,000 Abitibi-Consolidated, Inc., 6.950%, 4/01/2008 Baa3 BBB- 2,169,681 840,000 Abitibi-Consolidated, Inc., 8.550%, 8/01/2010 Baa3 BBB- 886,716 480,000 Georgia Pacific Corp., 8.875%, 5/15/2031 Baa3 BBB- 471,538 900,000 Kappa Beheer BV, 10.625%, 7/15/2009 (e) B2 B 976,500 1,100,000 Kappa Beheer BV, 10.625%, 7/15/2009 (EUR) B2 B 1,061,415 ------------ 5,565,850 ------------ RAILROADS -- 0.9% 2,810,000 CSX Corp., 6.750%, 3/15/2011 Baa2 BBB 2,859,566 ------------ RESTAURANTS -- 0.7% 2,250,000 Tricon Global Restaurants, Inc., 7.450%, 5/15/2005 Ba1 BB 2,272,500 ------------ RETAIL-DEPARTMENT STORE -- 1.5% 1,040,000 Federated Dept Stores, Inc., 6.790%, 7/15/2027 Baa1 BBB+ 1,064,378 1,785,000 J. C. Penney Co., Inc., 9.750%, 6/15/2021 Ba2 BBB- 1,736,607 2,775,000 K Mart Corp., 9.375%, 2/01/2006 (e) Ba2 BB 2,282,437 ------------ 5,083,422 ------------ RETAIL-FOOD & DRUG -- 0.5% 1,370,000 Rite Aid Corp., 7.125%, 1/15/2007 Caa2 B- 1,109,700 750,000 Rite Aid Corp., 7.700%, 2/15/2027 Caa2 B- 521,250 ------------ 1,630,950 ------------ See accompanying notes to financial statements. 20 RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ===================================================================================================== RETAIL-GROCERY -- 0.5% $ 970,000 Delhaize America, Inc., 8.125%, 4/15/2011 Baa3 BBB- $ 1,066,434 560,000 Delhaize America, Inc., 9.000%, 4/15/2031 Baa3 BBB- 669,648 ------------ 1,736,082 ------------ SUPRANATIONAL -- 0.8% 5,000,000 World Bank, 5.500%, 5/14/2003 (AUD) Aaa AAA 2,593,800 ------------ TELEPHONE -- 0.9% 1,265,000 Sprint Capital Corp., 7.625%, 1/30/2011 Baa1 BBB+ 1,330,869 1,540,000 Telefonos De Mexico SA, 8.250%, 1/26/2006 Baa1 BB+ 1,613,150 ------------ 2,944,019 ------------ TELECOMMUNICATIONS -- 10.0% 1,910,000 AT & T Corp., 8.000%, 11/15/2031 A3 BBB+ 1,998,070 2,750,000 British Telecommunications PLC, 8.375%, 12/15/2010 Baa1 A- 3,049,835 1,970,000 Citizens Communications Co., 9.250%, 5/15/2011 Baa2 BBB 2,195,831 1,885,000 Corning, Inc., 5.625%, 2/18/2005 (EUR) Baa1 BBB 1,343,487 1,650,000 GTE Corp., 7.900%, 2/01/2027 A2 A+ 1,715,764 3,055,000 KPNqwest BV, 7.125%, 6/01/2009 (EUR) Ba1 BB 1,672,436 1,735,000 KPNqwest BV, 8.125%, 6/01/2009 Ba1 BB 1,114,738 3,200,000 LCI International, Inc., 7.250%, 6/15/2007 Baa1 BBB+ 3,266,019 4,260,000 MCI Communications Corp., 7.125%, 6/15/2027 A3 BBB+ 4,389,210 660,000 Royal KPN NV, 8.000%, 10/01/2010 Baa3 BBB- 670,129 1,010,000 Sprint Capital Corp., 6.900%, 5/01/2019 Baa1 BBB+ 948,365 9,342,000 Tele-Communications, Inc., 9.250%, 1/15/2023 Baa2 BBB+ 9,870,122 680,000 Telefonica Europe BV, 7.750%, 9/15/2010 A2 A+ 723,551 ------------ 32,957,557 ------------ U.S. GOVERNMENT -- 7.0% 2,575,000 United States Treasury Notes, 3.500%, 11/15/2006 Aaa AAA 2,481,656 2,370,000 United States Treasury Notes, 4.750%, 11/15/2008 (e) Aaa AAA 2,359,619 4,940,000 United States Treasury Notes, 5.000%, with various maturities to 2011 (d) (e) Aaa AAA 4,924,002 3,725,000 United States Treasury Notes, 5.750%, 11/15/2005 (e) Aaa AAA 3,933,935 1,680,000 United States Treasury Notes, 6.000%, 8/15/2009 Aaa AAA 1,789,721 1,945,000 United States Treasury Notes, 6.125%, 8/15/2007 (e) Aaa AAA 2,090,875 5,000,000 United States Treasury Notes, 6.500%, 2/15/2010 (e) Aaa AAA 5,494,535 ------------ 23,074,343 ------------ WASTE MANAGEMENT -- 1.2% 3,750,000 Allied Waste North America, Inc., 8.500%, 12/01/2008 Ba3 BB- 3,787,500 ------------ Total Bonds and Notes (Identified Cost $302,807,553) 303,517,877 ------------ SHORT TERM INVESTMENT -- 6.7% OF TOTAL NET ASSETS 22,232,000 Repurchase Agreement with State Street Bank and Trust Co. dated 12/31/2001 at 0.85% to be repurchased at $22,233,050 on 1/02/2002, collateralized by $21,745,000 U.S. Treasury Bond, 6.00%, due 2/15/2026 valued at $22,679,339 22,232,000 ------------ Total Short Term Investments (Identified Cost $22,232,000) 22,232,000 ------------ Total Investments--98.6% (Identified Cost $325,039,553) (b) 325,749,877 Other assets less liabilities 4,427,585 ------------ Total Net Assets--100% $330,177,462 ============
(a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At December 31, 2001, the net unrealized appreciation on investments based on cost of $325,469,769 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 7,531,206 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (7,251,098) ------------ Net unrealized appreciation $ 280,108 ============
At December 31, 2001, the Fund had a capital loss carryover of approximately $10,171,825 of which $2,299,128 expires on December 31, 2007 and $7,872,697 expires on December 31, 2008. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2001, the Fund has elected to defer $4,396,713 of losses attributable to Post-October losses. At December 31, 2001, the components of distributable earnings, excluding unrealized appreciation/depreciation, disclosed on a tax basis consisted of $136,704 in undistributed ordinary income and $0 in undistributed long-term gains. (c) The ratings shown are believed to be the most recent ratings available at December 31, 2001. Securities are generally rated at the time of issuance. The rating agencies may revise their rating from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at December 31, 2001. The Fund's subadviser independently evaluates the Fund's portfolio securities and in making investment decisions does not rely solely on the ratings of agencies. (d) The Fund's investments in Government National Mortgage Association securities, which have the same coupon rate, have been aggregated for the purpose of presentation in the schedule of investments. (e) All or a portion of this security was on loan to brokers at December 31, 2001. AUD Australian Dollars CAD Canadian Dollars. EUR Euro See accompanying notes to financial statements. 21 HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of December 31, 2001
RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ===================================================================================================== BONDS AND NOTES -- 92.9% OF TOTAL NET ASSETS AGRICULTURE -- 4.5% $ 3,000,000 IMC Global, Inc., 11.250%, 6/01/2011 Ba2 B+ $ 3,226,830 ------------ AIRLINES -- 2.8% 1,274,084 American Airlines, 9.710%, 1/02/2007 Ba2 BBB- 1,193,664 1,000,000 Delta Air Lines, Inc., 8.300%, 12/15/2029 Ba3 BB 800,000 ------------ 1,993,664 ------------ AUTO PARTS -- 1.3% 1,000,000 Dana Corp., 9.000%, 8/15/2011 Ba1 BB 931,223 ------------ CABLE & MEDIA -- 11.5% 3,000,000 Adelphia Communications Corp., 10.875%, 10/01/2010 (f) B2 B+ 3,030,000 5,500,000 Charter Communications, Inc., 0/9.920%, 4/01/2011 (d) B2 B+ 3,960,000 3,500,000 Telewest Communication PLC, 0/11.375%, 2/01/2010 (yankee) (d) B2 B 1,365,000 ------------ 8,355,000 ------------ CHEMICALS -- 7.4% 11,000,000 Huntsman ICI Chemicals, 144A, Zero Coupon, 12/31/2009 B3 B+ 2,805,000 2,750,000 Lyondell Chemical Co., 10.875%, 5/01/2009 (f) B2 B+ 2,543,750 ------------ 5,348,750 ------------ CONSTRUCTION EQUIPMENT -- 1.3% 1,250,000 Case Corp., 7.250%, 1/15/2016 Ba2 BB 934,682 ------------ DOMESTIC OIL -- 2.2% 1,500,000 Pennzoil-Quaker State Co., 10.000%, 11/01/2008 Ba3 BB- 1,575,000 ------------ ELECTRIC UTILITIES -- 9.1% 2,500,000 AES Corp., 9.500%, 6/01/2009 Ba1 BB 2,287,500 1,500,000 Calpine Corp., 8.500%, 2/15/2011 (f) Ba1 BB+ 1,342,500 2,916,420 Panda Funding Corp., 11.625%, 8/20/2012 Ba3 BB- 2,920,066 ------------ 6,550,066 ------------ FINANCE & BANKING -- 5.2% 2,500,000 Conseco, Inc., 9.000%, 10/15/2006 (f) B1 B+ 1,150,000 1,000,000 Conseco, Inc., 10.750%, 6/15/2008 B1 B+ 444,000 1,950,000 Hanvit Bank, 144A, 12.750%, 3/01/2010 Ba2 B- 2,174,250 ------------ 3,768,250 ------------ HEALTH CARE-SERVICES -- 3.8% 2,500,000 Healthsouth Corp., 10.750%, 10/01/2008 (f) Ba2 BB+ 2,746,875 ------------ HOTELS & RESTAURANTS -- 3.5% 2,500,000 Host Marriot LP, 9.250%, 10/01/2007 Ba2 BB 2,503,125 ------------ INDUSTRIAL SERVICES -- 2.3% 1,750,000 United Rentals, Inc., 9.250%, 1/15/2009 (f) B2 BB- 1,701,875 ------------ LEISURE -- 2.2% 2,000,000 Royal Caribbean Cruises Ltd, 8.750%, 2/02/2011 (f) Ba2 BB+ 1,558,452 ------------ METALS & MINING -- 1.3% 1,000,000 Phelps Dodge Corp., 9.500%, 6/01/2031 Baa3 BBB- 911,360 ------------ RAILROADS & EQUIPMENT -- 4.0% 3,250,000 TFM SA de CV, 0/11.750%, 6/15/2009 (yankee) (d) B1 BB- 2,860,000 ------------ RESTAURANTS -- 1.8% 1,250,000 Dominos, Inc., 10.375%, 1/15/2009 (f) B3 B- 1,325,000 ------------ RETAIL-DEPARTMENT STORE -- 2.2% 2,000,000 K Mart Corp., 9.875%, 6/15/2008 Ba2 BB 1,600,000 ------------ RETAIL-SPECIALTY -- 1.4% 1,000,000 Rite Aid Corp, 11.250%, 7/01/2008 Caa2 B- 985,000 ------------ STEEL -- 0.8% 3,250,000 Altos Hornos de Mexico SA de CV, 11.875%, 4/30/2004 (yankee) (e) Caa3 -- 585,000 ------------ TECHNOLOGY -- 2.5% 2,000,000 Xerox Capital Europe PLC, 5.875%, 5/15/2004 Ba1 BB 1,840,000 ------------ TELECOMMUNICATIONS -- 9.2% 2,000,000 Alestra SA de Rl de CV, 144A, 12.625%, 5/15/2009 (yankee) (f) B2 BB- 1,260,000 3,000,000 Intermedia Communications, Inc., 0/12.250%, 3/01/2009 (d) Baa3 BBB 2,673,750 3,500,000 Philippine Long Distance Telephone Co., 10.500%, 4/15/2009 (yankee) (f) Ba2 BB- 2,734,375 ------------ 6,668,125 ------------ TELECOMMUNICATIONS-CELLULAR -- 5.5% 1,500,000 Grupo Iusacell SA de CV, 14.250%, 12/01/2006 (yankee) (f) B1 B+ 1,605,000 1,000,000 Nextel Communications, 9.500%, 2/01/2011 B1 B 765,000 2,600,000 Nextel Partners, Inc., 0/14.000%, 2/01/2009 (d) B3 CCC+ 1,644,500 ------------ 4,014,500 ------------ TELECOMMUNICATIONS-EQUIPMENT -- 2.9% 2,000,000 Corning, Inc., Zero Coupon, 11/08/2015 Baa1 BBB 1,045,000 1,250,000 Lucent Technologies, Inc., 7.250%, 7/15/2006 (f) Ba3 BB- 1,062,500 ------------ 2,107,500 ------------ WASTE MANAGEMENT -- 4.2% 3,000,000 Allied Waste Industries, Inc., 144A, 10.000%, 8/01/2009 (f) B2 B+ 3,075,000 ------------ Total Bonds and Notes (Identified Cost $73,598,279) 67,165,277 ------------ See accompanying notes to financial statements. 22 SHARES DESCRIPTION VALUE(a) ===================================================================== COMMON STOCK -- 0.0% 1,237 Mothers Work, Inc. (e) $ 11,504 ------------ Total Common Stock (Identified Cost $0) 11,504 ------------ PREFERRED STOCK -- 2.7% CABLE & MEDIA -- 2.7% 18,435 CSC Holdings, Inc., 11.125%, 04/01/2001, (pay-in-kind) 1,949,501 ------------ TELECOMMUNICATIONS -- 0.0% 4,184 Adelphia Business Solutions, Inc. 12.875%, 10/15/2007, (pay-in-kind) 10,460 ------------ Total Preferred Stock (Identified Cost $6,070,258) 1,959,961 ------------ PRINCIPAL AMOUNT =============== SHORT TERM INVESTMENT -- 3.4% $ 2,452,000 Repurchase Agreement with State Street Bank and Trust Co. dated 12/31/2001 at 0.85% to be repurchased at $2,452,116 on 1/02/2002, collateralized by $2,400,000 U.S. Treasury Bond, 7.500%, due 02/15/2026 valued at $2,503,123 2,452,000 ------------- Total Short Term Investment (Identified Cost $2,452,000) 2,452,000 ------------- Total Investments -- 99.0% (Identified Cost $82,120,537) (b) 71,588,742 Other assets less liabilities 748,506 ------------- Total Net Assets -- 100% $ 72,337,248 =============
(a) See Note 2a of Notes to the Financial Statements. (b) Federal Tax Information: At December 31, 2001, the net unrealized depreciation on investments based on cost of $82,260,727 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 2,923,469 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (13,595,454) --------------- Net unrealized depreciation $ (10,671,985) ===============
At December 31, 2001, the Fund had a net tax basis capital loss carryover of $61,926,827 of which $1,019,386 expires on December 31, 2004, $918,790 expires on December 31, 2007, $16,613,930 expires on December 31, 2008 and $43,374,721 expires on December 31, 2009. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2001, the Fund has elected to defer $6,348,185 of losses attributable to Post-October losses. At December 31, 2001, the components of distributable earnings, excluding unrealized appreciation/depreciation, disclosed on a tax basis consisted of $239,930 in undistributed ordinary income and $0 in undistributed long-term gains. (c) The ratings shown are believed to be the most recent ratings available at December 31, 2001. Securities are generally rated at the time of issuance. The rating agencies may revise their rating from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at December 31, 2001. The Fund's subadviser independently evaluates the Fund's portfolio securities and in making investment decisions does not rely solely on the ratings of agencies. (d) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. (e) Non-income producing security (f) All or a portion of this security was on loan to brokers at December 31, 2001. 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $9,314,250 or 12.9% of net assets. See accompanying notes to financial statements. 23 STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of December 31, 2001
RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ===================================================================================================== BONDS AND NOTES -- 91.1% OF TOTAL NET ASSETS CONVERTIBLE BONDS--11.4% CANADA--0.2% $ 500,000 Rogers Communications, Inc., (yankee), 2.000%, 11/26/05 Ba1 BB- $ 394,800 ------------ MEXICO--0.9% 3,325,000 Empresas ICA Sociedad, (yankee), 5.000%, 3/15/2004 Caa1 CCC+ 2,161,250 ------------ NETHERLANDS--0.4% 1,000,000 Burns Philp Treasury Co., Ltd., 144A, 5.500%, 4/30/04 -- B 830,000 250,000 KPNqwest BV, 7.125%, 6/01/2009 Ba1 BBB+ 137,045 ------------ 967,045 ------------ THAILAND--0.3% 894,789 Loxley, Zero Coupon -- -- 117,323 1,025,800 Loxley Public Co., Ltd., 7.000%, 4/30/2008 -- -- 487,255 ------------ 604,578 ------------ UNITED KINGDOM--0.9% 500,000 Colt Telecom Group PLC, 2.000%, 3/29/2006 B1 B+ 260,274 3,475,000 Colt Telecom Group PLC, 2.000%, 12/16/2006 B1 B+ 1,812,003 ------------ 2,072,277 ------------ UNITED STATES--8.7% 1,000,000 Analog Devices, Inc., 4.750%, 10/01/2005 Baa1 BBB 946,250 3,910,000 Broadband Technologies, Inc., 144A, Zero Coupon, 5/15/01 -- -- 1,212 1,000,000 Builders Transport, Inc., 8.000%, 8/15/2005, (e) (g) (i) -- -- 1,250 200,000 Builders Transport, Inc., 6.500%, 5/01/2011, (e) (g) (i) B3 -- 250 1,000,000 Cablevision SA, 144A, 13.750%, 4/30/2007 Ca CC 300,000 275,000 CML Group, Inc., 144A, 5.500%, 1/15/2003, (e) (g) -- -- 173 500,000 Columbia/HCA Healthcare Corp., Medium Term Note, 7.580%, 9/15/2025 Ba1 BB+ 490,000 2,075,000 Delta Air Lines, Inc., 8.300%, 12/15/2029 (h) Ba3 BB 1,660,000 1,000,000 Dillards, Inc., 6.430%, 8/01/2004 Ba1 BB+ 954,340 250,000 Dillards, Inc., 6.625%, 1/15/2018 Ba1 BB+ 196,983 250,000 Dixie Group, Inc., 7.000%, 5/15/2012 B3 CCC+ 75,000 1,300,000 Exide Corp., 144A, 2.900%, 12/15/2005 C CC 87,750 250,000 Federal Realty Investment Trust, 5.250%, 10/28/2003, (REIT) Baa3 BBB- 244,100 575,000 Glycomed, Inc., 7.500%, 1/01/2003 Caa -- 531,156 250,000 Hilton Hotels Corp., 5.000%, 5/15/2006 Ba2 BB+ 222,175 375,000 IMC Global, Inc., 7.300%, 1/15/2028 Ba2 B+ 271,058 2,075,000 Intermedia Communications, Inc., 144A, 8.600%, 6/1/08 Baa2 BBB+ 2,139,844 550,000 Level 3 Communications, Inc., 1.000%, 3/15/2010, (d) Caa3 CCC+ 126,500 1,525,000 Level 3 Communications, Inc., 6.000%, 3/15/2010 Ca CCC 415,562 4,250,000 Loews Corp., 3.125%, 9/15/2007 A2 A+ 3,641,400 350,000 MascoTech, Inc., 4.500%, 12/15/2003 B2 B 292,250 1,334,000 Maxtor Corp., 5.750%, 3/01/2012 B3 -- 947,140 125,000 NorAm Energy Corp., 6.000%, 3/15/2012 Baa3 BBB 116,875 200,000 Nortel Networks, Ltd., 6.125%, 2/15/2006 (h) Baa2 BBB- 166,460 500,000 NTL Communications Corp., 0/11.5%, 11/15/2009, (d) Caa2 CCC 144,271 3,100,000 NTL Communications Corp., Series B, 1.000%, 4/15/2009, (d) Caa2 CCC 1,083,264 500,000 Preston Corp., 7.000%, 5/01/2011 B2 -- 405,000 355,000 Richardson Electronics, Ltd., 7.250%, 12/15/2006 B3 -- 282,669 450,000 S3, Inc., 144A, 5.750%, 10/01/2003 -- -- 303,750 500,000 Sizeler Property Investments, Inc., 8.000%, 7/15/2003, (REIT) -- -- 496,150 150,000 Thermedics Corp., Zero Coupon, 6/01/2003 Baa3 BBB 139,500 2,625,000 Western Digital Corp., 144A, Zero Coupon, 2/18/18 Caa1 B- 1,076,250 250,000 Xerox Capital Europe PLC, 5.875%, 5/15/2004 Ba1 BB 230,000 2,750,000 Xerox Corp., 144A, 0.570%, 4/21/2018 (h) Ba2 B+ 1,454,062 ------------ 19,442,644 ------------ Total Convertible Bonds (Identified Cost $36,250,685) 25,642,594 ------------ NON-CONVERTIBLE BONDS--79.7% ARGENTINA--0.5% 1,879,058 Argentina (Rep of), 7.000%, 12/19/2008 (e) Ca D 493,253 3,500,000 Argentina Republic (yankee), 8.875%, 3/01/2029, (ARS) (e) Ca D 562,800 ------------ 1,056,053 ------------ BRAZIL--6.0% 4,248,361 Federal Republic of Brazil, 8.000%, 4/15/2014, (f) (h) B1 BB- 3,249,996 8,400,000 Federal Republic of Brazil, 8.875%, 4/15/2024 B1 BB- 5,586,000 6,308,000 Federal Republic of Brazil, 10.125%, 5/15/2027 (h) B1 BB- 4,652,150 ------------ 13,488,146 ------------ CANADA--24.9% 2,574,024 Alberta Province, 5.930%, 9/16/2016, (CAD) Aaa AAA 1,645,335 18,505,000 British Columbia Province, Zero Coupon, 9/05/2020, (CAD) Aa2 AA- 3,526,506 17,900,000 British Columbia Province, Zero Coupon, 6/09/2022, (CAD) Aa2 AA- 3,047,993 9,775,000 British Columbia Province, Zero Coupon, 8/19/2022, (CAD) Aa2 AA- 1,643,720 35,000,000 British Columbia Province, Zero Coupon, 8/23/2024, (CAD) Aa2 AA- 5,189,094 11,250,000 British Columbia Province, Zero Coupon, 11/19/2027, (CAD) Aa2 AA- 1,413,141 84,475,000 Canadian General Residential, Zero Coupon, 6/01/2025, (CAD) Aa1 AAA 13,521,413 3,399,000 Manitoba Province, 7.750%, 12/22/2025, (CAD) Aa3 AA- 2,513,846 17,135,000 Manitoba Province, Zero Coupon, 3/05/2031, (CAD) Aa3 AA- 1,812,641 7,950,000 Manitoba Province Medium Term Note, 6.500%, 9/22/2017, (CAD) Aa3 AA- 5,217,493 2,345,000 Microcell Telecommunications, 144A, 0/11.125%, 10/15/2007, (CAD) (d) Caa1 B- 898,637 500,000 New Brunswick FM Project, Inc., 0/6.470%, 11/30/2027, (CAD) (d) -- AA- 281,254 29,550,000 Ontario Hydro Bank, Zero Coupon, 10/15/2021, (CAD) Aa3 AA- 5,240,401 750,000 Ontario Province, Zero Coupon, 7/13/2022, (CAD) Aa3 AA- 129,354 See accompanying notes to financial statements. 24 RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ===================================================================================================== $ 12,600,000 Ontario Province, Zero Coupon, 6/02/2027, (CAD) Aa3 AA- $ 1,670,343 8,800,000 Ontario Province, Zero Coupon, 3/08/2029, (CAD) Aa3 AA- 1,066,692 8,500,000 Saskatchewan Province, Zero Coupon, 4/10/2014, (CAD) A1 A+ 2,463,387 8,250,000 Saskatchewan Province, Zero Coupon, 2/04/2022, (CAD) A1 A+ 1,423,459 9,605,000 Saskatchewan Province, Zero Coupon, 5/30/2025, (CAD) A1 A+ 1,367,919 3,750,000 Saskatchewan Province, 5.750%, 3/05/2029, (CAD) A1 A+ 2,202,742 ------------ 56,275,370 ------------ CAYMAN ISLANDS--0.7% 1,615,000 Enersis SA (yankee), 7.400%, 12/01/2016 Baa1 A- 1,485,346 ------------ COLOMBIA--0.4% 956,335 Transgas de Occidente SA,, 9.790%, 11/01/2010 Baa3 BB+ 875,047 ------------ HONG KONG--3.0% 8,475,000 Bangkok Bank PLC, 9.025%, 3/15/2029 Ba2 B+ 6,864,750 ------------ INDIA--1.8% 585,000 Reliance Industries, Ltd., 144A, 10.375%, 6/24/16 Ba2 BB 596,244 4,000,000 Tata Electric Companies, 144A, 8.500%, 8/19/2017 Ba2 BB 3,509,800 ------------ 4,106,044 ------------ ISRAEL--0.5% 3,000,000 Barak ITC International Series B (yankee), 0/12.500%, 11/15/2007, (d) B3 CCC 1,200,000 ------------ IVORY COAST--0.1% 926,250 Ivory Coast PDI, 2.000%, 3/31/2018 -- -- 145,884 ------------ MALAYSIA--2.2% 1,750,000 Telekom Malaysia Berhad, 144A, 7.875%, 8/01/2025 Baa2 BBB 1,627,192 4,300,000 Tenaga Nasional Berhad, 144A, 7.500%, 11/01/2025 Baa3 BBB 3,435,244 ------------ 5,062,436 ------------ MAURITIUS--1.2% 800,000 Indah Kiat Finance Mauritius, Ltd., 10.000%, 7/1/07 (e) Ca D 160,000 2,650,000 Pindo Deli Finance Mauritius, Ltd. (yankee), 11.750%, 10/01/2017 (e) Ca D 371,000 5,000,000 Pindo Deli Finance Mauritius, Ltd. (yankee), 10.875%, 10/01/2027 (e) Ca D 700,000 2,700,000 Pindo Deli Finance Mauritius, Ltd. (yankee), 10.750%, 10/01/2007 (e) Ca D 351,000 6,625,000 Tjiwi Kimia Mauritius, Ltd. (yankee), 10.000%, 8/1/04 (e) Ca D 1,010,313 ------------ 2,592,313 ------------ MEXICO--8.3% 1,000,000 Alestra SA de RL de CV (yankee), 12.125%, 5/15/06 B2 BB- 785,000 2,400,000 Espirito Santo Escelsa, 10.000%, 7/15/2007 B1 BB- 2,040,000 1,585,000 Perez Companc SA, 144A, 8.125%, 7/15/2007 Ca CCC+ 951,000 1,000,000 Petroleos Mexicanos (yankee), 9.250%, 3/30/2018 Baa2 BB+ 1,035,000 4,350,000 Petroleos Mexicanos (yankee), 9.500%, 9/15/2027 Baa2 BB+ 4,545,750 3,000,000 Petroleos Mexicanos, 144A, (yankee), 8.625%, 12/1/23 Baa2 BB+ 2,917,500 6,960,000 TFM SA de CV (yankee), 0/11.750%, 6/15/2009, (d) B1 BB- 6,124,800 500,000 Transportacion Maritima Mexica, SA de CV (yankee), 10.250%, 11/15/2006 Ba3 B+ 375,000 ------------ 18,774,050 ------------ PERU--0.2% 750,000 Republic of Peru, 4.000%, 3/07/2017 Ba3 BB- 525,000 ` ------------ PHILIPPINES--3.0% 5,150,000 Bangko Sentral Ng Philipinas (yankee), 8.600%, 6/15/27 Ba1 BB+ 3,862,500 1,750,000 Philippine Long Distance Telephone Co., 8.350%, 3/6/17 Ba2 BB- 1,071,292 2,722,500 Quezon Power Philippines, Ltd. (yankee), 8.860%, 6/15/17 Ba2 BB+ 1,824,075 ------------ 6,757,867 ------------ SOUTH AFRICA--1.6% 15,100,000 Republic of South Africa, 12.500%, 12/21/2006, (ZAR) A2 A- 1,305,895 10,650,000 Republic of South Africa, 13.000%, 8/31/2010, (ZAR) A2 A- 959,442 14,890,000 Republic of South Africa, 13.500%, 9/15/2015, (ZAR) A2 A- 1,436,819 ------------ 3,702,156 ------------ SOUTH KOREA--2.4% 3,315,313 Korea Electric Power Corp. (yankee), 7.400%, 4/1/16 Baa3 BBB 3,198,348 2,500,000 Samsung Electronics, Ltd., 144A, 7.700%, 10/1/27 Baa2 BBB+ 2,211,500 ------------ 5,409,848 ------------ THAILAND--0.9% 285,000 Siam Commercial Bank PLC, 144A, 7.500%, 3/15/2006 Ba2 B 273,600 2,175,000 Thai Farmers Bank PLC, 144A, 8.250%, 8/21/2016 Ba2 B+ 1,761,750 ------------ 2,035,350 ------------ UNITED KINGDOM--0.1% 300,000 Telewest Communications, 5.250%, 2/19/2007 B2 B 245,311 ------------ UNITED STATES--19.2% 375,000 Affymetrix, Inc., 4.750%, 2/15/2007 -- CCC+ 282,656 500,000 Bausch & Lomb, Inc., 7.125%, 8/01/2028 Baa3 BBB- 381,535 2,000,000 Borden, Inc., 7.875%, 2/15/2023 Ba3 BB+ 960,000 142,000 Boston Celtics LP, 6.000%, 6/30/2038 (h) -- -- 90,703 250,000 CBS, Inc., 7.125%, 11/01/2023 A3 A- 249,938 1,000,000 Century Communications Corp., 8.375%, 11/15/2017 B2 B+ 750,000 500,000 Columbia/HCA Healthcare Corp., 7.500%, 12/15/2023 Ba1 BB+ 477,500 820,000 Columbia/HCA Healthcare Corp., 7.050%, 12/01/2027 Ba1 BB+ 750,300 500,000 Conseco, Inc., 8.500%, 10/15/2002 (h) B1 B+ 365,000 150,000 Conseco, Inc., 8.750%, 2/09/2004 B1 B+ 70,500 1,000,000 Dana Corp., 7.000%, 3/01/2029 Ba1 BB 680,000 250,000 Dana Corp., 9.000%, 8/15/2011 Ba1 BB 203,005 250,000 Dillon Read Structured Finance Corp., 8.550%, 8/15/19 -- BB 147,950 See accompanying notes to financial statements. 25 RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ===================================================================================================== $ 842,450 Dillon Read Structured Finance Corp., 6.660%, 8/15/10 -- BB $ 586,430 175,000 Dillon Read Structured Finance Corp., 9.350%, 8/15/19 -- BB 112,613 34,000,000 Fannie Mae, Zero Coupon, 10/29/2007, (NZD) Aaa AAA 9,329,447 1,000,000 First Industrial LP, 7.600%, 7/15/2028 Baa2 BBB 917,910 1,050,000 Georgia Pacific Corp., 7.750%, 11/15/2029 Baa3 BBB- 876,718 242,100 Green Tree Financial Corp., 8.070%, 3/01/2030 -- B- 84,735 22,300,000 International Bank of Reconstruction & Development, Zero Coupon, 8/20/2007, (NZD) Aaa AAA 6,420,305 350,000 J. C. Penney, Inc., 7.950%, 4/01/2017 Ba2 BBB- 308,423 400,000 J. C. Penney, Inc., 8.250%, 8/15/2022 Ba2 BBB- 346,000 525,000 J. C. Penney, Inc., 7.125%, 11/15/2023 Ba2 BBB- 430,350 250,000 Kmart Corp., 9.440%, 7/01/2018 Ba2 BB 152,500 4,050,000 Kmart Corp., 7.950%, 2/01/2023 Ba2 BB 2,587,966 500,000 Level 3 Communications, Inc., 10.750%, 3/15/2008 (h) Caa3 CCC+ 165,487 1,000,000 Level 3 Communications, Inc., 1.000%, 12/01/2008, (d) (h) Caa3 CCC+ 312,500 1,925,000 Lucent Technologies, Inc., 6.450%, 3/15/2029 Ba3 BB- 1,270,500 66,000 Missouri Pacific Railroad Co., 4.250%, 1/01/2005 Baa1 BBB+ 64,877 125,000 Motorola, Inc., 6.500%, 11/15/2028 A3 BBB+ 102,326 5,375,000 Nextel Communications, Inc., 0/9.750, 10/31/2007, (d) B1 B 3,809,531 1,000,000 Nextel International, Inc., 1.000%, 4/15/2008, (d) Ca C 50,000 925,000 NTL (Delaware), Inc., 5.750%, 12/15/2009 Caa3 CCC 99,438 2,250,000 NTL, Inc., 1.000%, 4/01/2008, (d) B3 CCC 585,000 1,405,000 PDVSA Finance, Ltd. (yankee), 7.400%, 8/15/2016 Baa1 BBB- 1,138,050 500,000 Pennzoil Quaker State Co., 7.375%, 4/01/2029 Ba2 BB+ 398,750 250,000 Phillips Van Heusen Corp., 7.750%, 11/15/2023 Ba2 BB 212,500 775,000 Pioneer Standard Electronics, Inc., 9.500%, 8/1/06 (h) Baa3 BB 775,904 1,250,000 RCN Corp., 0/11.125%, 10/15/2007, (d) Caa2 B- 368,750 2,999,000 RCN Corp., 0/9.800%, 2/15/2008, (d) Caa2 B- 805,981 1,000,000 Security Capital Industrial Trust, 7.625%, 7/01/2017, (REIT) Baa1 BBB+ 928,690 1,000,000 TRW, Inc., 7.750%, 6/01/2029 Baa2 BBB 959,207 300,000 United Airlines, Inc., 10.670%, 5/01/2004 Caa1 B 219,000 250,000 Williams Communications Group, 11.700%, 8/01/2008 Caa1 CCC+ 106,875 750,000 Williams Communications Group, Inc., 10.700%, 10/1/07 Caa1 CCC+ 320,625 1,000,000 Woolworth Corp., 8.500%, 1/15/2022 B1 BB 831,590 500,000 Worldcom, Inc., Georgia, 6.950%, 8/15/2028 A3 BBB+ 453,855 500,000 Xerox Corp., 5.500%, 11/15/2003 (h) Ba1 BB 470,000 1,600,000 Xerox Corp., 3.500%, 2/04/2004 Ba1 BB 1,186,565 699,000 Zenith Corp., 8.190%, 11/01/2009 -- -- 55,920 ------------ 43,254,405 ------------ VENEZUELA--2.7% 500,000 Cerro Negro Finance, Ltd., 144A, 7.900%, 12/1/20 Baa2 -- 400,820 9,000,000 Republic of Venezuela, 9.250%, 9/15/2027 B2 B 5,616,000 ------------ 6,016,820 ------------ Total Non-Convertible Bonds (Identified Cost $216,073,975) 179,872,196 ------------ SHARES ==================== COMMON STOCK--6.4% BRITISH VIRGIN ISLANDS--2.7% 589,300 Sappi Ltd., (sponsored ADR) (h) 6,040,325 ------------- INDONESIA--0.0% 6,786,500 PT Indah Kiat Pulp&Paper Corp., (IDR)(j) 0 THAILAND--0.0% 122,000 Siam Commercial Bank PLC, (THB) 46,610 122,000 Siam Commercial Bank PLC, Warrants (THB)(e) 3,337 ------------- 49,947 ------------- UNITED STATES--3.7% 162,900 Associated Estates Realty Corp., (REIT) 1,495,422 177,100 Developers Diversified Realty Corp., (REIT) 3,382,610 5,301 Park Electrochemical Corp. 139,946 25,461 Seabulk International, Inc. 90,387 111,700 Simon Property Group, Inc. (h) 3,276,161 ------------- 8,384,526 ------------- Total Common Stock (Identified Cost $13,821,192) 14,474,798 ------------- PREFERRED STOCK--1.1% PHILIPPINES--0.4% 47,800 Philippine Long Distance Telephone Co., Series 3 (GDR) 944,050 ------------- UNITED STATES--0.7% 3,086 Adelphia Business Solutions, Inc. 7,715 35,000 Bethlehem Steel Corp., (g) 43,750 22,500 Owens Corning Capital LLC (g) 22,500 37,500 Pacific Gas & Electric Co. (g) 759,375 12,500 Western Gas Resources, Inc. 600,000 10,000 Williams Communications Group 142,500 ------------- 1,575,840 ------------- Total Preferred Stock (Identified Cost $8,152,060) 2,519,890 ------------- Total Investments--98.6% (Identified Cost $274,297,912) (b) 222,509,478 Other assets less liabilities 3,174,815 ------------- Total Net Assets--100% $ 225,684,293 =============
See accompanying notes to financial statements. 26 (a) See Note 2a of Notes to the Financial Statements. (b) Federal Tax Information: At December 31, 2001, the net unrealized depreciation on investments based on cost for federal income tax purposes of $273,304,258 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 16,067,336 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (66,862,116) -------------- Net unrealized depreciation $ (50,794,780) ==============
At December 31, 2001, the fund had a net tax basis capital loss carryover of approximately $30,685,841 of which $13,337,197 expires on December 31, 2007, $6,500,127 expires on December 31, 2008, and $10,848,517 expires on December 31, 2009. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2001, the Fund has elected to defer $3,286,530 of losses attributable to Post-October losses. At December 31, 2001, the components of distributable earnings, excluding unrealized appreciation/depreciation, disclosed on a tax basis consisted of $877,974 in undistributed ordinary income and $0 in undistributed long-term gains. (c) The ratings shown are believed to be the most recent ratings available at December 31, 2001. Securities are generally rated at the time of issuance. The rating agencies may revise their rating from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at December 31, 2001. The Fund's subadviser independently evaluates the Fund's portfolio securities and in making investment decisions does not rely solely on the ratings of agencies. (d) Step Bond: Coupon rate is zero or below market for an initial period and then increases to a higher coupon rate at a specified date and rate. (e) Non-income producing security (f) Pay in kind securities. (g) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code. (h) All or a portion of this security was on loan to brokers at December 31, 2001. (i) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. (j) Delisted security. ADR/GDR An American Depositary Receipt (ADR) or Global Depository Receipt (GDR) is a certificate issued by a Custodian Bank representing the right to receive securities of the foreign issuer described. The values of ADRs and GDRs are significantly influenced by trading on exchanges not located in the United States. REIT Real Estate Investment Trust 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these amounted to $24,776,328 or 11.0% of net assets. ARS - Argentine Peso CAD- Canadian Dollars IDR- Indonesian Rupiah NZD- New Zealand Dollars THB- Thai Baht ZAR- South African Rand See accompanying notes to financial statements. 27 LIMITED TERM U.S. GOVERNMENT FUND -- SCHEDULE OF INVESTMENTS Investments as of December 31, 2001
RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) ===================================================================================================== BONDS AND NOTES -- 96.3% OF TOTAL NET ASSETS FINANCE & BANKING--2.3% $ 3,000,000 General Motors Acceptance Corp., 6.380%, 1/30/2004 A2 BBB+ $ 3,091,584 ------------ FOOD & BEVERAGES--0.8% 1,000,000 Kellogg Co., 6.000%, 4/01/2006 Baa2 BBB 1,024,957 ------------ GOVERNMENT AGENCIES--24.4% 4,000,000 Federal Home Loan Banks 4.875%, 4/16/2004 Aaa AAA 4,108,760 7,000,000 Federal Home Loan Mortgage Corp. 7.000%, 7/15/2005 Aaa AAA 7,588,420 10,000,000 Federal National Mortgage Association 5.500%, with various maturities to 2006 (d) (e) Aaa AAA 10,270,280 7,000,000 Federal National Mortgage Association 5.625%, 5/14/04 (e) Aaa AAA 7,316,120 3,000,000 Federal National Mortgage Association 6.000%, 12/15/05 Aaa AAA 3,152,820 ------------ 32,436,400 ------------ MORTGAGE BACKED--43.4% 2,785,678 Federal Home Loan Mortgage Corp. 7.000%, 2/1/2016 Aaa AAA 2,883,177 36,494 Federal Home Loan Mortgage Corp. 7.500%, 6/1/2026 Aaa AAA 37,851 15,991 Federal Home Loan Mortgage Corp. 10.000%, 7/1/2019 Aaa AAA 17,986 2,128,050 Federal Home Loan Mortgage Corp. 11.500%, with various maturities to 2020 (d) Aaa AAA 2,443,427 15,506,613 Federal National Mortgage Association 6.000%, with various maturities to 2031 (d) Aaa AAA 15,474,486 4,921,370 Federal National Mortgage Association 6.500%, 8/1/2031 (d) Aaa AAA 4,927,620 2,574,993 Federal National Mortgage Association 7.000%, 12/1/2022 Aaa AAA 2,641,316 12,905,964 Federal National Mortgage Association 7.500%, with various maturities to 2031 (d) Aaa AAA 13,385,037 443,377 Federal National Mortgage Association 8.000%, 6/1/2015 Aaa AAA 463,604 14,149,235 Government National Mortgage Association 7.000%, with various maturities to 2031 (d) Aaa AAA 14,482,762 38,417 Government National Mortgage Association 12.500%, with various maturities to 2015 (d) Aaa AAA 44,805 477,308 Government National Mortgage Association 16.000%, with various maturities to 2012 (d) Aaa AAA 571,775 151,608 Government National Mortgage Association 17.000%, with various maturities to 2011 (d) Aaa AAA 184,205 ------------ 57,558,051 ------------ TELECOMMUNICATIONS--0.8% 1,000,000 Sprint Capital Corp., 7.125%, 1/30/2006 Baa1 BBB+ 1,043,283 ------------ U.S. GOVERNMENT--20.5% 10,211,100 United States Treasury Notes 3.500%, 1/15/2011 (e) Aaa AAA 10,179,139 5,600,000 United States Treasury Notes 5.750%, 11/15/2005 Aaa AAA 5,914,104 3,000,000 United States Treasury Notes 6.000%, with various maturities to 2009 (e) Aaa AAA 3,187,810 2,700,000 United States Treasury Notes 6.250%, 2/15/2007 Aaa AAA 2,914,731 4,500,000 United States Treasury Notes 7.000%, 7/15/2006 (e) Aaa AAA 4,975,290 ------------ 27,171,074 ------------ YANKEE--4.1% $ 3,960,000 Inter-American Development Bank Bonds, 12.250%, 12/15/2008 Aaa AAA $ 5,497,704 ------------ Total Bonds and Notes (Identified Cost $126,547,636) 127,823,053 ------------ SHORT TERM INVESTMENT -- 2.7% 3,590,000 Repurchase Agreement with State Street Bank and Trust Co. dated 12/31/2001 at 0.85% to be repurchased at $3,590,170 on 1/02/2002, collateralized by $3,515,000 U.S. Treasury Bond, 6.000%, due 2/15/2026 valued at $3,666,033 3,590,000 ------------ Total Short Term Investment (Identified Cost $3,590,000) 3,590,000 ------------ Total Investments -- 99.0% (Identified Cost $130,137,636) (b) 131,413,053 Other assets less liabilities 1,385,253 ------------ Total Net Assets -- 100% $132,798,306 ============
(a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At December 31, 2001, the net unrealized depreciation on investments based on cost for federal income tax purposes of $130,787,677 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 1,295,428 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (670,052) ------------ Net unrealized appreciation $ 625,376 ============
At December 31, 2001, the Fund had a capital loss carryover of approximately $46,689,856 of which $23,823,060 expires on December 31, 2002, $1,001,296 expires on December 31, 2003, $4,342,078 expires on December 31, 2004, $2,731,339 expires on December 31, 2005, $10,626,315 expires on December 31, 2007 and $4,165,768 expires on December 31, 2008. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2001, the Fund has elected to defer $23,628 of capital losses attributable to Post-October losses. At December 31, 2001, the components of distributable earnings, excluding unrealized appreciation/depreciation, disclosed on a tax basis consisted of $10,124 in undistributed ordinary income and $0 in undistributed long-term gains. (c) The ratings shown are believed to be the most recent ratings available at December 31, 2001. Securities are generally rated at the time of issuance. The rating agencies may revise their rating from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at December 31, 2001. The Fund's subadviser independently evaluates the Fund's portfolio securities and in making investment decisions does not rely solely on the rating of agencies. (d) The Fund's investments in mortgage backed securities of the Federal Home Loan Mortgage Corporation, the Federal Home Loan Mortgage Association and Government National Mortgage Association are interest in separate pools of mortgages. All separate investments in securities of these issuers which have the same coupon rate have been aggregated for the purpose of presentation in the schedule of investments. (e) All or a portion of this security was on loan to brokers at December 31, 2001. See accompanying notes to financial statements. 28 GOVERNMENT SECURITIES FUND -- SCHEDULE OF INVESTMENTS Investments as of December 31, 2001
RATINGS (c) (UNAUDITED) ----------------------- PRINCIPAL STANDARD AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (a) - ------------------------------------------------------------------------------------------------------- BONDS AND NOTES -- 97.0% OF TOTAL NET ASSETS GOVERNMENT AGENCY -- 15.6% $ 13,000,000 Federal National Mortgage Association, 6.625%, with various maturities to 2010 (d) Aaa AAA $13,846,230 ----------- MORTGAGE BACKED -- 26.5% 1,303,251 Federal Home Loan Mortgage Corp., 7.500%, 4/1/2012 Aaa AAA 1,372,897 1,984,871 Federal National Mortgage Association, 6.500%, 11/1/31 Aaa AAA 1,984,870 1,623,395 Federal National Mortgage Association, 7.500%, 12/1/30 Aaa AAA 1,676,237 16,439,357 Government National Mortgage Association, 7.000%, with various maturities to 2031 (d) Aaa AAA 16,824,531 1,067,850 Government National Mortgage Association, 7.500%, 4/15/2027 Aaa AAA 1,108,780 120,968 Government National Mortgage Association, 8.500%, 2/15/2006 Aaa AAA 128,594 210,768 Government National Mortgage Association, 9.000%, with various maturities to 2016 (d) Aaa AAA 228,206 72,594 Government National Mortgage Association, 9.500%, with various maturities to 2009 (d) Aaa AAA 79,644 84,123 Government National Mortgage Association, 10.000%, with various maturities to 2016 (d) Aaa AAA 95,012 17,965 Government National Mortgage Association, 12.500%, with various maturities to 2014 (d) Aaa AAA 20,857 ----------- 23,519,628 ----------- U.S. GOVERNMENT -- 54.9% 4,000,000 United States Treasury Bonds Zero Coupon, 11/15/2014 Aaa AAA 2,622,240 18,000,000 United States Treasury Bonds Zero Coupon, 11/15/2027 Aaa AAA 3,999,960 5,000,000 United States Treasury Bonds, 3.375%, 4/15/2032 Aaa AAA 4,929,700 3,296,400 United States Treasury Bonds, 3.625%, 4/15/2028 Aaa AAA 3,361,306 12,000,000 United States Treasury Bonds, 7.250%, 5/15/2016 Aaa AAA 13,873,080 5,000,000 United States Treasury Bonds, 8.750%, 8/15/2020 Aaa AAA 6,707,800 10,000,000 United States Treasury Bonds, 8.750%, 5/15/2017 Aaa AAA 13,137,500 ----------- 48,631,586 ----------- Total Bonds and Notes (Identified Cost $85,959,834) 85,997,444 ----------- PRINCIPAL AMOUNT DESCRIPTION VALUE (a) - ------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENT -- 2.8% $ 2,458,000 Repurchase Agreement with State Street Bank and Trust Co. dated 12/31/2001 at 0.85% to be repurchased at $2,458,116 on 1/02/2002, collateralized by $2,405,000 U.S. Treasury Bond, 6.00%, due 2/15/2026 valued at $2,508,338 $ 2,458,000 ----------- Total Short Term Investment (Identified Cost $2,458,000) 2,458,000 ----------- Total Investments--99.8% (Identified Cost $88,417,834) (b) 88,455,444 Other assets less liabilities 165,298 ----------- Total Net Assets--100% $88,620,742 ===========
(a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At December 31, 2001, the net unrealized depreciation on investments based on cost of $88,713,355 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 464,740 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (722,651) ----------- Net unrealized depreciation $ (257,911) ===========
At December 31, 2001, the Fund had a capital loss carryoner of approximately $11,952,747 of which $2,071,910 expires on December 31, 2002, $3,530,050 expires on December 31, 2004, $5,687,678 expires on December 31, 2007 and $663,109 expires on December 31, 2008. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2001, the Fund has elected to defer $3,029 of capital losses attributtable to Post-October losses. At December 31, 2001, the components of distributable earnings, excluding unrealized appreciation/depreciation, disclosed on a tax basis consisted of $131,834 in undistributed ordinary income and $0 in undistributed long-term gains. (c) The ratings shown are believed to be the most recent ratings available at December 31, 2001. Securities are generally rated at the time of issuance. The rating agencies may revise their ratings from time to time. As a result there can be no assurance that the same ratings would be assigned if the securities were rated at December 31, 2001. The Fund's subadvisor independently evaluates the Fund's portfolio securities and in making investment decisions does not rely solely on the ratings of agencies. (d) The Fund's investment in mortgage backed securities of the Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of this issuer which have the same coupon rate have been aggregated for the purpose of presentation in the schedule of investments. See accompanying notes to financial statements. 29 STATEMENTS OF ASSETS & LIABILITIES December 31, 2001
SHORT TERM CORPORATE BOND INCOME HIGH INCOME INCOME FUND FUND FUND ------------------- ------------- ------------ ASSETS Investments at cost $ 61,823,431 $ 325,039,553 $ 82,120,537 Net unrealized appreciation (depreciation) 1,399,527 710,324 (10,531,795) ------------- ------------- ------------ Investments At Value 63,222,958 325,749,877 71,588,742 Cash 496 912 189 Foreign cash at value (identified cost $167,861) -- -- -- Investments held as collateral for loaned securities -- 47,714,624 19,330,310 Receivable for Fund shares sold 96,810 797,749 129,622 Receivable for securities sold -- -- -- Dividends and interest receivable 802,549 5,122,703 1,384,780 ------------- ------------- ------------ TOTAL ASSETS 64,122,813 379,385,865 92,433,643 ------------- ------------- ------------ LIABILITIES Collateral on securities loaned, at value -- 47,714,624 19,330,310 Payable to custodian -- -- -- Payable for Fund shares redeemed 62,050 706,432 283,673 Dividends payable 94,420 389,528 338,564 Withholding taxes payable -- -- -- Management fees payable 17,013 115,207 43,713 Deferred Trustees' fees 22,598 104,493 20,365 Transfer agent fees payable 13,090 82,587 19,380 Accounting and administrative fees payable 2,663 13,852 3,102 Other accounts payable and accrued expenses 40,622 81,680 57,288 ------------- ------------- ------------ TOTAL LIABILITIES 252,456 49,208,403 20,096,395 ------------- ------------- ------------ NET ASSETS $ 63,870,357 $ 330,177,462 $ 72,337,248 ============= ============= ============ NET ASSETS CONSIST OF: Paid in capital $ 82,494,970 $ 344,824,201 $151,403,238 Undistributed (overdistributed) net investment income (loss) (30,408) (357,817) (118,997) Accumulated net realized gain (loss) on investments (19,993,732) (14,998,751) (68,415,198) Net unrealized appreciation (depreciation) of investments and foreign currency transactions 1,399,527 709,829 (10,531,795) ------------- ------------- ------------ NET ASSETS $ 63,870,357 $ 330,177,462 $ 72,337,248 ============= ============= ============ COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets $ 58,367,274 $ 173,835,661 $ 33,471,019 ============= ============= ============ Shares of beneficial interest 8,149,846 14,994,982 6,773,958 ============= ============= ============ Net asset value and redemption price per share $ 7.16 $ 11.59 $ 4.94 ============= ============= ============ Offering price per share $ 7.38 $ 12.14 $ 5.17 ============= ============= ============ Class B shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets $ 4,656,724 $ 127,519,922 $ 34,713,394 ============= ============= ============ Shares of beneficial interest 651,143 11,002,646 7,017,358 ============= ============= ============ Net asset value and offering price per share $ 7.15 $ 11.59 $ 4.95 ============= ============= ============ Class C shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets $ 620,336 $ 11,470,498 $ 4,152,835 ============= ============= ============ Shares of beneficial interest 86,862 988,813 839,972 ============= ============= ============ Net asset value per share $ 7.14 $ 11.60 $ 4.94 ============= ============= ============ Offering price per share $ 7.21 $ 11.72 $ 4.99 ============= ============= ============ Class Y shares: Net assets $ 226,023 $ 17,351,381 $ -- ============= ============= ============ Shares of beneficial interest 31,559 1,491,624 -- ============= ============= ============ Net asset value, offering and redemption price per share $ 7.16 $ 11.63 $ -- ============= ============= ============ See accompanying notes to financial statements. 30 STRATEGIC INCOME LIMITED TERM U.S. GOVERNMENT FUND GOVERNMENT FUND SECURITIES FUND ----------------- ----------------- --------------- ASSETS Investments at cost $ 274,297,912 $ 130,137,636 $ 88,417,834 Net unrealized appreciation (depreciation) (51,788,434) 1,275,417 37,610 ------------- ------------- ------------ Investments At Value 222,509,478 131,413,053 88,455,444 Cash -- 861 813 Foreign cash at value (identified cost $167,861) 169,426 -- -- Investments held as collateral for loaned securities 14,564,105 15,544,653 -- Receivable for Fund shares sold 107,786 523,495 172,667 Receivable for securities sold 2,657,858 -- -- Dividends and interest receivable 3,229,566 1,490,910 809,616 ------------- ------------- ------------ TOTAL ASSETS 243,238,219 148,972,972 89,438,540 ------------- ------------- ------------ LIABILITIES Collateral on securities loaned, at value 14,564,105 15,544,653 -- Payable to custodian 1,301,955 -- -- Payable for Fund shares redeemed 984,185 369,254 592,054 Dividends payable 393,490 85,938 51,617 Withholding taxes payable 7,381 -- -- Management fees payable 124,803 64,578 45,426 Deferred Trustees' fees 39,868 29,935 56,313 Transfer agent fees payable 44,882 25,722 17,316 Accounting and administrative fees payable 9,627 5,627 3,741 Other accounts payable and accrued expenses 83,630 48,959 51,331 ------------- ------------- ------------ TOTAL LIABILITIES 17,553,926 16,174,666 817,798 ------------- ------------- ------------ NET ASSETS $ 225,684,293 $ 132,798,306 $ 88,620,742 ============= ============= ============ NET ASSETS CONSIST OF: Paid in capital $ 309,986,749 $ 178,994,525 $100,813,832 Undistributed (overdistributed) net investment income (loss) 1,417,755 (105,749) 23,904 Accumulated net realized gain (loss) on investments (33,913,557) (47,365,887) (12,254,604) Net unrealized appreciation (depreciation) of investments and foreign currency transactions (51,806,654) 1,275,417 37,610 ------------- ------------- ------------ NET ASSETS $ 225,684,293 $ 132,798,306 $ 88,620,742 ============= ============= ============ COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets $ 94,156,138 $ 109,189,207 $ 70,550,945 ============= ============= ============ Shares of beneficial interest 9,531,134 9,610,201 6,312,618 ============= ============= ============ Net Asset Value and Redemption Price Per Share $ 9.88 $ 11.36 $ 11.18 ============= ============= ============ Offering price per share $ 10.35 $ 11.71 $ 11.71 ============= ============= ============ Class B shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets $ 102,158,666 $ 14,316,947 $ 13,248,746 ============= ============= ============ Shares of beneficial interest 10,342,628 1,262,098 1,185,594 ============= ============= ============ Net asset value and offering price per share $ 9.88 $ 11.34 $ 11.17 ============= ============= ============ Class C shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets $ 28,924,824 $ 5,850,937 $ -- ============= ============= ============ Shares of beneficial interest 2,930,862 515,469 -- ============= ============= ============ Net asset value per share $ 9.87 $ 11.35 $ -- ============= ============= ============ Offering price per share $ 9.97 $ 11.46 $ -- ============= ============= ============ Class Y shares: Net assets $ 444,665 $ 3,441,215 $ 4,821,051 ============= ============= ============ Shares of beneficial interest 44,935 301,684 431,795 ============= ============= ============ Net asset value, offering and redemption price per share $ 9.90 $ 11.41 $ 11.17 ============= ============= ============
See accompanying notes to financial statements. 31 STATEMENTS OF OPERATIONS For the Year Ended December 31, 2001
SHORT TERM CORPORATE BOND INCOME HIGH INCOME INCOME FUND FUND FUND ------------------- ------------- ------------ INVESTMENT INCOME Dividends $ -- $ -- $ 1,068,904 Interest 3,806,312 23,343,270 10,507,473 Securities lending income -- 135,254 94,443 Less net foreign taxes withheld -- -- -- ------------- ------------- ------------ 3,806,312 23,478,524 11,670,820 Expenses Management fees 339,260 1,323,375 639,246 Service and distribution fees - Class A 143,132 440,761 106,262 Service and distribution fees - Class B 39,126 1,152,707 439,819 Service and distribution fees - Class C 4,980 122,914 48,339 Trustees' fees and expenses 9,822 22,489 11,287 Accounting and administrative 28,944 150,335 42,424 Custodian 74,749 139,921 73,210 Transfer agent - Class A, Class B, Class C 147,912 830,667 226,304 Transfer agent - Class Y 21 15,700 -- Audit and tax services 28,646 35,604 36,981 Legal 4,381 28,426 9,432 Printing 19,911 58,389 24,908 Registration 50,939 45,826 38,892 Miscellaneous 166 16,017 11,593 ------------- ------------- ------------ Total expenses before reductions 891,989 4,383,131 1,708,697 Less waiver/reimbursement (303,817) -- -- ------------- ------------- ------------ Net expenses 588,172 4,383,131 1,708,697 ------------- ------------- ------------ Net investment income (loss) 3,218,140 19,095,393 9,962,123 ------------- ------------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments - net 409,535 (2,962,047) (35,337,692) Futures contracts-net -- -- -- Foreign currency transactions - net -- (4,783) -- Change in unrealized appreciation (depreciation) of: Investments - net 937,524 5,161,287 15,823,831 Foreign currency transactions - net -- (7,470) -- ------------- ------------- ------------ Net realized and unrealized gain (loss) on investments, options, futures contracts and foreign currency transactions 1,347,059 2,186,987 (19,513,861) ------------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,565,199 $ 21,282,380 $ (9,551,738) ============= ============= ============ See accompanying notes to financial statements. 32 STRATEGIC INCOME LIMITED TERM U.S. GOVERNMENT FUND GOVERNMENT FUND SECURITIES FUND ---------------- --------------- --------------- INVESTMENT INCOME Dividends $ 1,283,530 $ -- $ -- Interest 24,245,385 8,106,334 5,100,073 Securities lending income 67,820 112,135 -- Less net foreign taxes withheld (29,524) -- -- ------------- ------------- ------------ 25,567,211 8,218,469 5,100,073 Expenses Management fees 1,621,731 872,975 553,031 Service and distribution fees - Class A 266,260 404,102 178,196 Service and distribution fees - Class B 1,125,961 127,255 119,911 Service and distribution fees - Class C 341,235 70,969 -- Trustees' fees and expenses 19,173 13,528 11,125 Accounting and administrative 118,473 64,921 41,391 Custodian 164,642 99,857 80,216 Transfer agent - Class A, Class B, Class C 581,595 295,316 199,067 Transfer agent - Class Y 390 3,226 4,729 Audit and tax services 39,332 28,699 28,778 Legal 22,053 9,721 6,174 Printing 49,834 26,396 28,556 Registration 48,508 49,372 35,603 Miscellaneous 23,546 7,628 5,296 ------------- ------------- ------------ Total expenses before reductions 4,422,733 2,073,965 1,292,073 Less waiver/reimbursement -- -- -- ------------- ------------- ------------ Net expenses 4,422,733 2,073,965 1,292,073 ------------- ------------- ------------ Net investment income (loss) 21,144,478 6,144,504 3,808,000 ------------- ------------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments - net (13,777,613) 3,333,647 2,092,920 Futures contracts-net -- -- (14,563) Foreign currency transactions - net (1,518,988) -- -- Change in unrealized appreciation (depreciation) of: Investments - net (7,335,042) (296,704) (1,860,288) Foreign currency transactions - net (25,319) -- -- ------------- ------------- ------------ Net realized and unrealized gain (loss) on investments, options, futures contracts and foreign currency transactions (22,656,962) 3,036,943 218,069 ------------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (1,512,484) $ 9,181,447 $ 4,026,069 ============= ============= ============
See accompanying notes to financial statements. 33 STATEMENTS OF CHANGES IN NET ASSETS
SHORT TERM CORPORATE BOND INCOME HIGH INCOME INCOME FUND FUND FUND ---------------------------- -------------------------- -------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 2001 2000 ------------- ------------- ------------ ------------ ------------ ------------ FROM OPERATIONS: Net investment income $ 3,218,140 $ 4,367,272 $ 19,095,393 $ 20,157,061 $ 9,962,123 $ 14,340,344 Net realized gain (loss) on investments, options, futures contracts and foreign currency transactions 409,535 (2,114,099) (2,966,830) (8,127,204) (35,337,692) (26,382,414) Net change in unrealized appreciation (depreciation) of investments and foreign currency transactions 937,524 2,026,060 5,153,817 8,042,701 15,823,831 (9,573,036) ------------- ------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations 4,565,199 4,279,233 21,282,380 20,072,558 (9,551,738) (21,615,106) ------------- ------------- ------------ ------------ ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A (3,191,917) (4,054,995) (11,319,336) (12,765,917) (4,869,014) (6,907,867) Class B (188,455) (193,059) (6,512,472) (5,797,554) (4,708,520) (6,381,249) Class C (23,799) (25,252) (697,417) (851,085) (516,760) (769,066) Class Y (1,147) -- (1,060,888) (797,445) -- -- ------------- ------------- ------------ ------------ ------------ ------------ (3,405,318) (4,273,306) (19,590,113) (20,212,001) (10,094,294) (14,058,182) ------------- ------------- ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS 155,809 (14,416,185) 26,608,353 (26,157,588) (8,138,375) (18,149,684) ------------- ------------- ------------ ------------ ------------ ------------ Total increase (decrease) in net assets 1,315,690 (14,410,258) 28,300,620 (26,297,031) (27,784,407) (53,822,972) ------------- ------------- ------------ ------------ ------------ ------------ NET ASSETS Beginning of the period 62,554,667 76,964,925 301,876,842 328,173,873 100,121,655 153,944,627 ------------- ------------- ------------ ------------ ------------ ------------ End of the period $ 63,870,357 $ 62,554,667 $330,177,462 $301,876,842 $ 72,337,248 $100,121,655 ============= ============= ============ ============ ============ ============ UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ (30,408) $ (9,584) $ (357,817) $ (358,985) $ (118,997) $ (62,255) ============= ============= ============ ============ ============ ============ See accompanying notes to financial statements. 34 STRATEGIC INCOME LIMITED TERM U.S. GOVERNMENT SECURITIES FUND GOVERNMENT FUND FUND ---------------------------- -------------------------- --------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 2001 2000 ------------- ------------- ------------ ------------ ------------ ------------ FROM OPERATIONS: Net investment income $ 21,144,478 $ 23,813,833 $ 6,144,504 $ 9,250,260 $ 3,808,000 $ 4,885,075 Net realized gain (loss) on investments, options, futures contracts and foreign currency transactions (15,296,601) (5,542,426) 3,333,647 (3,166,237) 2,078,357 (273,037) Net change in unrealized appreciation (depreciation) of investments and foreign currency transactions (7,360,361) (17,596,169) (296,704) 5,546,929 (1,860,288) 5,818,695 ------------- ------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations (1,512,484) 675,238 9,181,447 11,630,952 4,026,069 10,430,733 ------------- ------------- ------------ ------------ ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A (9,377,635) (10,114,949) (5,640,601) (8,075,830) (3,439,102) (4,191,119) Class B (9,064,495) (9,337,429) (537,161) (685,214) (486,651) (430,843) Class C (2,749,603) (2,943,092) (301,631) (404,716) -- -- Class Y (36,701) (12,570) (173,303) (218,791) (245,868) (188,421) ------------- ------------- ------------ ------------ ------------ ------------ (21,228,434) (22,408,040) (6,652,696) (9,384,551) (4,171,621) (4,810,383) ------------- ------------- ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS (26,303,974) 3,604,585 (10,319,170) (42,154,629) 2,920,494 (16,862,002) ------------- ------------- ------------ ------------ ------------ ------------ Total increase (decrease) in net assets (49,044,892) (18,128,217) (7,790,419) (39,908,228) 2,774,942 (11,241,652) ------------- ------------- ------------ ------------ ------------ ------------ NET ASSETS Beginning of the period 274,729,185 292,857,402 140,588,725 180,496,953 85,845,800 97,087,452 ------------- ------------- ------------ ------------ ------------ ------------ End of the period $ 225,684,293 $ 274,729,185 $132,798,306 $140,588,725 $ 88,620,742 $ 85,845,800 ============= ============= ============ ============ ============ ============ UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ 1,417,755 $ 2,653,453 $ (105,749) $ (67,755) $ 23,904 $ 39,740 ============= ============= ============ ============ ============ ============
See accompanying notes to financial statements. 35 FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
INCOME (LOSS) FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ----------------------------------------- ------------------------------------------ NET ASSET VALUE, NET REALIZED DIVIDENDS DISTRIBUTIONS BEGINNING NET AND UNREALIZED TOTAL FROM FROM NET FROM NET OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL THE PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS ---------- ---------- -------------- ------------- ---------- ------------- ------------- SHORT TERM CORPORATE INCOME FUND CLASS A 12/31/01(h) $ 7.02 $ 0.37 $ 0.17 $ 0.54 $ (0.40) $ -- $ (0.40) 12/31/00 7.01 0.44 0.01(f) 0.45 (0.44) -- (0.44) 12/31/99 7.30 0.41 (0.28) 0.13 (0.42) -- (0.42) 12/31/98 7.39 0.38 (0.09) 0.29 (0.38) -- (0.38) 12/31/97 7.37 0.47(e) (0.02) 0.45 (0.43) -- (0.43) CLASS B 12/31/01(h) 7.01 0.32 0.17 0.49 (0.35) -- (0.35) 12/31/00 7.00 0.39 0.01(f) 0.40 (0.39) -- (0.39) 12/31/99 7.29 0.36 (0.28) 0.08 (0.37) -- (0.37) 12/31/98 7.38 0.33 (0.09) 0.24 (0.33) -- (0.33) 12/31/97 7.36 0.41(e) (0.02) 0.39 (0.37) -- (0.37) CLASS C 12/31/01(h) 7.01 0.32 0.15 0.47 (0.34) -- (0.34) 12/31/00 7.00 0.39 0.01(f) 0.40 (0.39) -- (0.39) 12/31/99 7.29 0.36 (0.28) 0.08 (0.37) -- 0.37) 12/31/98(g) 7.28 0.01 0.01(f) 0.02 (0.01) -- (0.01) CLASS Y 12/31/01(i) 7.22 0.09 (0.08) 0.01 (0.07) -- (0.07) BOND INCOME FUND CLASS A 12/31/01(h) $ 11.52 $ 0.73 $ 0.10 $ 0.83 $ (0.76) $ -- $ (0.76) 12/31/00 11.51 0.78 0.03 0.81 (0.80) -- (0.80) 12/31/99 12.36 0.81 (0.86) (0.05) (0.79) (0.01) (0.80) 12/31/98 12.39 0.81 0.15 0.96 (0.81) (0.18) (0.99) 12/31/97 12.05 0.83 0.45 1.28 (0.82) (0.12) (0.94) CLASS B 12/31/01(h) 11.51 0.64 0.10 0.74 (0.66) -- (0.66) 12/31/00 11.51 0.70 0.02 0.72 (0.72) -- (0.72) 12/31/99 12.36 0.72 (0.86) (0.14) (0.70) (0.01) (0.71) 12/31/98 12.39 0.71 0.15 0.86 (0.71) (0.18) (0.89) 12/31/97 12.04 0.74 0.46 1.20 (0.73) (0.12) (0.85) CLASS C 12/31/01(h) 11.52 0.65 0.09 0.74 (0.66) -- (0.66) 12/31/00 11.52 0.70 0.02 0.72 (0.72) -- (0.72) 12/31/99 12.37 0.72 (0.86) (0.14) (0.70) (0.01) (0.71) 12/31/98 12.40 0.71 0.15 0.86 (0.71) (0.18) (0.89) 12/31/97 12.06 0.74 0.45 1.19 (0.73) (0.12) (0.85) See accompanying notes to financial statements. 36 RATIOS TO AVERAGE NET ASSETS: ----------------------------- NET ASSET NET ASSETS, VALUE, TOTAL END OF NET INVESTMENT PORTFOLIO END OF RETURN THE PERIOD EXPENSES INCOME TURNOVER THE PERIOD (%) (a) (000) (%) (b) (%) (b) RATE (%) ----------- ----------- ----------- ----------- ----------- ----------- SHORT TERM CORPORATE INC FUND CLASS A 12/31/01(h) $ 7.16 7.8(d) $ 58,367 0.90(c) 5.27 87 12/31/00 7.02 6.7(d) 58,540 0.83(c) 6.43 108 12/31/99 7.01 1.9(d) 72,680 0.70(c) 5.88 139 12/31/98 7.30 4.0(d) 92,669 0.70(c) 5.93 105 12/31/97 7.39 6.2(d) 196,928 0.70(c) 6.27 49 CLASS B 12/31/01(h) 7.15 7.0(d) 4,657 1.65(c) 4.51 87 12/31/00 7.01 5.9(d) 3,553 1.58(c) 5.68 108 12/31/99 7.00 1.1(d) 3,796 1.45(c) 5.13 139 12/31/98 7.29 3.4(d) 3,761 1.45(c) 5.18 105 12/31/97 7.38 5.4(d) 2,961 1.45(c) 5.52 49 CLASS C 12/31/01(h) 7.14 6.9(d) 620 1.65(c) 4.48 87 12/31/00 7.01 5.9(d) 461 1.58(c) 5.68 108 12/31/99 7.00 1.2(d) 489 1.45(c) 5.13 139 12/31/98(g) 7.29 0.3(d) 233 1.45(c) 5.18 105 CLASS Y 12/31/01(i) 7.16 0.4(d) 226 0.60(c) 5.36 87 BOND INCOME FUND CLASS A 12/31/01(h) $ 11.59 7.2 $173,836 1.09 6.26 84 12/31/00 11.52 7.4 174,969 1.04 7.03 83 12/31/99 11.51 (0.3) 213,769 0.97 6.87 63 12/31/98 12.36 8.0 221,799 1.01 6.44 65 12/31/97 12.39 11.0 193,513 1.05 6.73 54 CLASS B 12/31/01(h) 11.59 6.5 127,520 1.84 5.49 84 12/31/00 11.51 6.5 100,353 1.79 6.28 83 12/31/99 11.51 (1.1) 89,213 1.72 6.12 63 12/31/98 12.36 7.2 64,240 1.76 5.69 65 12/31/97 12.39 10.3 37,559 1.80 5.98 54 CLASS C 12/31/01(h) 11.60 6.5 11,470 1.84 5.52 84 12/31/00 11.52 6.5 12,541 1.79 6.28 83 12/31/99 11.52 (1.1) 14,872 1.72 6.12 63 12/31/98 12.37 7.2 8,969 1.76 5.69 65 12/31/97 12.40 10.2 5,276 1.80 5.98 54
(a) A sales charge for Class A and Class C shares and a contingent deferred sales charge for Class B and Class C shares are not reflected in in total return calculations. Periods less than one year are not annualized. (b) Computed on an annualized basis for periods less than one year. (c) The investment adviser agreed to reimburse a portion of the Fund's expenses during the period. Without this reimbursement, expense ratios would have been higher. (d) Had certain expenses not been reduced during the period, total returns would have been lower. (e) Per share net investment income does not reflect the period's reclassifcation of permanent differences between book and tax basis net investment income. (f) The amount shown for a share outstanding does not correspond with the aggregate net gain/(loss) on investments for the period due to the timing of purchases and redemptions of Fund shares in relation to fluctuating values of the investments of the Fund. (g) For the period December 7, 1998 (inception) through December 31, 1998. (h) As required, effective January 1, 2001, the Funds have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 for Short Term Corporate Income Fund was to decrease net investment income per share by $.03 for Class A and $.02 for both Class B and C shares and to decrease the ratio of net investment income to average net assets from 5.57% to 5.27% for Class A, 4.82% to 4.51% for Class B and 4.78% to 4.48% for Class C. For Bond Income Fund, the effect of this change was to decrease net investment income per share by $.01 for Class A, $.02 for Class B and $.01 for Class C and to decrease the ratio of net investment income to average net assets from 6.34% to 6.26% for Class A, 5.57% to 5.49% for Class B and 5.59% to 5.52% for Class C. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (i) For the period October 1, 2001 (inception) through December 31, 2001. 37
INCOME (LOSS) FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ----------------------------------------------- ------------------------------------------ NET ASSET DIVIDENDS VALUE, NET REALIZED FROM DISTRIBUTIONS BEGINNING NET AND UNREALIZED TOTAL FROM NET FROM NET OF INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL THE PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS ---------- ---------- -------------- ------------- ---------- ------------- ------------- BOND INCOME FUND CLASS Y 12/31/01(e) $ 11.54 $ 0.79 $ 0.10 $ 0.89 $(0.80) $ -- $ (0.80) 12/31/00 11.54 0.83 0.01 0.84 (0.84) -- (0.84) 12/31/99 12.38 0.85 (0.86) (0.01) (0.82) (0.01) (0.83) 12/31/98 12.41 0.84 0.15 0.99 (0.84) (0.18) (1.02) 12/31/97 12.06 0.86 0.46 1.32 (0.85) (0.12) (0.97) HIGH INCOME FUND CLASS A 12/31/01(e) $ 6.21 $ 0.66 $ (1.25) $(0.59) $(0.68) $ -- $ (0.68) 12/31/00 8.30 0.86 (2.11) (1.25) (0.84) -- (0.84) 12/31/99 8.86 0.89 (0.54) 0.35 (0.91) -- (0.91) 12/31/98 9.94 0.92 (1.08) (0.16) (0.92) -- (0.92) 12/31/97 9.42 0.87 0.52 1.39 (0.87) -- (0.87) CLASS B 12/31/01(e) 6.22 0.62 (1.26) (0.64) (0.63) -- (0.63) 12/31/00 8.30 0.81 (2.11) (1.30) (0.78) -- (0.78) 12/31/99 8.85 0.82 (0.53) 0.29 (0.84) -- (0.84) 12/31/98 9.93 0.85 (1.08) (0.23) (0.85) -- (0.85) 12/31/97 9.42 0.80 0.51 1.31 (0.80) -- (0.80) CLASS C 12/31/01(e) 6.22 0.61 (1.26) (0.65) (0.63) -- (0.63) 12/31/00 8.30 0.81 (2.11) (1.30) (0.78) -- (0.78) 12/31/99 8.85 0.82 (0.53) 0.29 (0.84) -- (0.84) 12/31/98 9.96 0.69 (1.08) (0.39) (0.72) -- (0.72) STRATEGIC INCOME FUND CLASS A 12/31/01(e) $ 10.80 $ 0.91(c) $ (0.92) $(0.01) $(0.91) $ -- $ (0.91) 12/31/00 11.65 0.99(c) (0.91) 0.08 (0.93) -- (0.93) 12/31/99 11.37 1.03 0.31 1.34 (1.02) (0.04) (1.06) 12/31/98 13.42 1.05 (1.30) (0.25) (1.05) (0.75) (1.80) 12/31/97 13.36 1.01 0.21 1.22 (1.01) (0.15) (1.16) CLASS B 12/31/01(e) 10.79 0.83(c) (0.90) (0.07) (0.84) -- (0.84) 12/31/00 11.65 0.90(c) (0.91) (0.01) (0.85) -- (0.85) 12/31/99 11.37 0.94 0.31 1.25 (0.93) (0.04) (0.97) 12/31/98 13.42 0.95 (1.30) (0.35) (0.95) (0.75) (1.70) 12/31/97 13.36 0.91 0.21 1.12 (0.91) (0.15) (1.06) See accompanying notes to financial statements. 38 RATIOS TO AVERAGE NET ASSETS: ----------------------------- NET ASSET NET ASSETS, VALUE, TOTAL END OF NET INVESTMENT PORTFOLIO END OF RETURN THE PERIOD EXPENSES INCOME TURNOVER THE PERIOD (%) (a) (000) (%) (b) (%) (b) RATE (%) ----------- ----------- ----------- ----------- -------------- --------- CLASS Y 12/31/01(e) $ 11.63 7.8 $ 17,351 0.67 6.68 84 12/31/00 11.54 7.6 14,013 0.67 7.40 83 12/31/99 11.54 (0.0)(d) 10,320 0.72 7.12 63 12/31/98 12.38 8.2 9,289 0.76 6.69 65 12/31/97 12.41 11.4 4,153 0.80 6.98 54 HIGH INCOME FUND CLASS A 12/31/01(e) $ 4.94 (10.7) $ 33,471 1.47 11.31 65 12/31/00 6.21 (16.1) 46,960 1.36 11.47 60 12/31/99 8.30 4.0 74,589 1.28 10.22 89 12/31/98 8.86 (1.8) 73,023 1.32 9.81 75 12/31/97 9.94 15.4 62,739 1.36 9.03 99 CLASS B 12/31/01(e) 4.95 (11.3) 34,713 2.22 10.56 65 12/31/00 6.22 (16.6) 47,793 2.11 10.72 60 12/31/99 8.30 3.3 70,218 2.03 9.47 89 12/31/98 8.85 (2.5) 60,322 2.07 9.06 75 12/31/97 9.93 14.4 42,401 2.11 8.28 99 CLASS C 12/31/01(e) 4.94 (11.5) 4,153 2.22 10.54 65 12/31/00 6.22 (16.6) 5,369 2.11 10.72 60 12/31/99 8.30 3.3 9,138 2.03 9.47 89 12/31/98 8.85 (4.1) 7,732 2.07 9.06 75 STRATEGIC INCOME FUND CLASS A 12/31/01(e) $ 9.88 (0.1) $ 94,156 1.31 8.77 10 12/31/00 10.80 0.7 116,986 1.24 8.73 13 12/31/99 11.65 12.2 124,869 1.21 9.09 19 12/31/98 11.37 (1.7) 127,306 1.19 8.33 33 12/31/97 13.42 9.3 144,706 1.18 7.36 37 CLASS B 12/31/01(e) 9.88 (0.8) 102,159 2.06 8.02 10 12/31/00 10.79 (0.2) 120,200 1.99 7.98 13 12/31/99 11.65 11.3 127,723 1.96 8.34 19 12/31/98 11.37 (2.5) 134,049 1.94 7.58 33 12/31/97 13.42 8.5 146,083 1.93 6.61 37
(a) A sales charge for Class A and Class C shares and a contingent deferred sales charge for Class B and Class C shares are not reflected in in total return calculations. Periods less than one year are not annualized. (b) Computed on an annualized basis for periods less than one year. (c) Per share net investment income (loss) has been calculated using the average shares outstanding during the period. (d) Amount is less than one tenth of one percent. (e) As required, effective January 1, 2001, the Funds have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 for Bond Income Fund was to decrease the ratio of net investment income to average net assets from 6.75% to 6.68% for Class Y. For High Income Fund, the effect of this change was to decrease net investment income per share by $.01 for Class A, Class B and Class C and to decrease the ratio of net investment income to average net assets from 11.39% to 11.31% for Class A, 10.64% to 10.56% for Class B and 10.63% to 10.54% for Class C. For Strategic Income Fund, there was no effect on net investment income per share, however, the effect of this change was to decrease the ratio of net investment income to average net assets from 8.78% to 8.77% for Class A and 8.03% to 8.02% for Class B. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. 39
INCOME (LOSS) FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ----------------------------------------- ------------------------------------ NET ASSET VALUE, NET REALIZED DIVIDENDS DISTRIBUTIONS BEGINNING NET AND UNREALIZED TOTAL FROM FROM NET FROM NET OF INVESTMENT GAIN (LOSS)ON INVESTMENT INVESTMENT REALIZED TOTAL THE PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS ---------- ----------- --------------- ---------- ----------- ------------- ------------- STRATEGIC INCOME FUND CLASS C 12/31/01(e) $ 10.78 $ 0.83(c) $(0.91) $ (0.08) $ (0.83) $ -- $ (0.83) 12/31/00 11.64 0.90(c) (0.91) (0.01) (0.85) -- (0.85) 12/31/99 11.36 0.94 0.31 1.25 (0.93) (0.04) (0.97) 12/31/98 13.41 0.95 (1.30) (0.35) (0.95) (0.75) (1.70) 12/31/97 13.35 0.91 0.21 1.12 (0.91) (0.15) (1.06) CLASS Y 12/31/01(e) 10.81 0.94(c) (0.92) 0.02 (0.93) -- (0.93) 12/31/00 11.65 0.96(c) (0.84) 0.12 (0.96) -- (0.96) 12/31/99(d) 11.45 0.86 (0.56) 0.30 (0.10) -- (0.10) LIMITED TERM U.S. GOVERNMENT FUND CLASS A 12/31/01(e) $ 11.16 $ 0.51 $ 0.25 $ 0.76 $ (0.56) $ -- $ (0.56) 12/31/00 10.97 0.69 0.20 0.89 (0.70) -- (0.70) 12/31/99 11.70 0.66 (0.74) (0.08) (0.65) -- (0.65) 12/31/98 11.64 0.67 0.06 0.73 (0.67) -- (0.67) 12/31/97 11.55 0.72 0.09 0.81 (0.72) -- (0.72) CLASS B 12/31/01(e) 11.14 0.44 0.24 0.68 (0.48) -- (0.48) 12/31/00 10.95 0.62 0.20 0.82 (0.63) -- (0.63) 12/31/99 11.69 0.59 (0.75) (0.16) (0.58) -- (0.58) 12/31/98 11.62 0.60 0.07 0.67 (0.60) -- (0.60) 12/31/97 11.54 0.65 0.08 0.73 (0.65) -- (0.65) CLASS C 12/31/01(e) 11.15 0.44 0.24 0.68 (0.48) -- (0.48) 12/31/00 10.96 0.62 0.20 0.82 (0.63) -- (0.63) 12/31/99 11.70 0.59 (0.75) (0.16) (0.58) -- (0.58) 12/31/98 11.63 0.60 0.07 0.67 (0.60) -- (0.60) 12/31/97 11.54 0.65 0.09 0.74 (0.65) -- (0.65) CLASS Y 12/31/01(e) 11.20 0.56 0.26 0.82 (0.61) -- (0.61) 12/31/00 11.00 0.75 0.19 0.94 (0.74) -- (0.74) 12/31/99 11.73 0.70 (0.74) (0.04) (0.69) -- (0.69) 12/31/98 11.66 0.72 0.06 0.78 (0.71) -- (0.71) 12/31/97 11.58 0.76 0.08 0.84 (0.76) -- (0.76) See accompanying notes to financial statements. 40 RATIOS TO AVERAGE NET ASSETS: ----------------------------- NET ASSET NET ASSETS, VALUE, TOTAL END OF NET INVESTMENT PORTFOLIO END OF RETURN THE PERIOD EXPENSES INCOME TURNOVER THE PERIOD (%) (a) (000) (%) (b) (%) (b) RATE (%) ----------- ----------- ----------- ----------- ----------- ----------- CLASS C 12/31/01(e) $ 9.87 (0.8) $ 28,925 2.06 8.02 10 12/31/00 10.78 (0.2) 37,208 1.99 7.98 13 12/31/99 11.64 11.3 40,265 1.96 8.34 19 12/31/98 11.36 (2.5) 45,457 1.94 7.58 33 12/31/97 13.41 8.5 56,515 1.93 6.61 37 CLASS Y 12/31/01(e) 9.90 0.3 445 0.93 9.10 10 12/31/00 10.81 1.0 335 0.90 9.07 13 12/31/99(d) 11.65 2.7(c) 0.2 0.96 9.34 19 LIMITED TERM U.S. GOVERNMENT FUND CLASS A 12/31/01(e) $ 11.36 6.9 $ 109,189 1.42 4.52 275 12/31/00 11.16 8.3 118,833 1.40 6.18 384 12/31/99 10.97 (0.7) 149,756 1.33 5.91 400 12/31/98 11.70 6.5 194,032 1.31 5.81 1,376 12/31/97 11.64 7.3 222,185 1.28 6.40 533 CLASS B 12/31/01(e) 11.34 6.2 14,317 2.07 3.85 275 12/31/00 11.14 7.7 11,884 2.05 5.53 384 12/31/99 10.95 (1.4) 14,601 1.98 5.26 400 12/31/98 11.69 5.9 18,116 1.96 5.16 1,376 12/31/97 11.62 6.5 16,060 1.93 5.75 533 CLASS C 12/31/01(e) 11.35 6.2 5,851 2.07 3.89 275 12/31/00 11.15 7.7 6,617 2.05 5.53 384 12/31/99 10.96 (1.4) 9,054 1.98 5.26 400 12/31/98 11.70 5.9 13,962 1.96 5.16 1,376 12/31/97 11.63 6.6 15,699 1.93 5.75 533 CLASS Y 12/31/01(e) 11.41 7.4 3,441 0.95 4.98 275 12/31/00 11.20 8.8 3,254 0.95 6.63 384 12/31/99 11.00 (0.3) 7,086 0.98 6.26 400 12/31/98 11.73 6.9 8,345 0.96 6.16 1,351 12/31/97 11.66 7.5 5,262 0.93 6.75 533
(a) A sales charge for Class A and Class C shares and a contingent deferred sales charge for Class B and Class C shares are not reflected in in total return calculations. Periods less than one year are not annualized. (b) Computed on an annualized basis for periods less than one year. (c) Per share net investment income (loss) has been calculated using the average shares outstanding during the period. (d) For the period December 1, 1999 (inception) through December 31, 1999. (e) As required, effective January 1, 2001, the Funds have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 for Strategic Income Fund was to decrease the ratio of net investment income to average net assets from 8.04% to 8.02% for Class C. For Limited Term U.S. Government Fund, the effect of this change was to decrease net investment per share by $.04 for Class A, Class B, Class C and Class Y and to decrease the ratio of net investment income to average net assets from 4.88% to 4.52% for Class A, 4.22% to 3.85% for Class B, 4.25% to 5.89% for Class C and 5.34% to 4.98% for Class Y. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. 41
INCOME (LOSS) FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ----------------------------------------- ------------------------------------------- NET ASSET VALUE, NET REALIZED DIVIDENDS DISTRIBUTIONS BEGINNING NET AND UNREALIZED TOTAL FROM FROM FROM NET OF INVESTMENT GAIN (LOSS) ON INVESTMENT NET INVESTMENT REALIZED TOTAL THE PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS ---------- ---------- ---------------- ----------- ------------- -------------- ------------- GOVERNMENT SECURITIES FUND CLASS A 12/31/01 (c) $ 11.18 $ 0.50 $ 0.05 $ 0.55 $ (0.55) $ -- $ (0.55) 12/31/00 10.47 0.62 0.69 1.31 (0.60) -- (0.60) 12/31/99 11.90 0.67 (1.42) (0.75) (0.68) -- (0.68) 12/31/98 11.56 0.68 0.33 1.01 (0.67) -- (0.67) 12/31/97 11.08 0.62 0.48 1.10 (0.62) -- (0.62) CLASS B 12/31/01 (c) 11.18 0.42 0.03 0.45 (0.46) -- (0.46) 12/31/00 10.47 0.54 0.69 1.23 (0.52) -- (0.52) 12/31/99 11.90 0.59 (1.42) (0.83) (0.60) -- (0.60) 12/31/98 11.56 0.58 0.34 0.92 (0.58) -- (0.58) 12/31/97 11.08 0.54 0.48 1.02 (0.54) -- (0.54) CLASS Y 12/31/01 (c) 11.17 0.55 0.04 0.59 (0.59) -- (0.59) 12/31/00 10.44 0.65 0.71 1.36 (0.63) -- (0.63) 12/31/99 11.88 0.70 (1.43) (0.73) (0.71) -- (0.71) 12/31/98 11.54 0.72 0.32 1.04 (0.70) -- (0.70) 12/31/97 11.07 0.65 0.47 1.12 (0.65) -- (0.65) See accompanying notes to financial statements. 42 RATIOS TO AVERAGE NET ASSETS: ----------------------------- NET ASSET NET ASSETS, VALUE, TOTAL END OF NET INVESTMENT PORTFOLIO END OF RETURN THE PERIOD EXPENSES INCOME TURNOVER THE PERIOD (%) (a) (000) (%) (b) (%) (b) RATE (%) ----------- ----------- ----------- ----------- ----------- ---------- GOVERNMENT SECURITIES FUND CLASS A 12/31/01 (c) $ 11.18 4.9 $ 70,551 1.39 4.46 317 12/31/00 11.18 12.9 70,909 1.41 5.69 622 12/31/99 10.47 (6.4) 84,904 1.36 6.00 313 12/31/98 11.90 9.0 103,032 1.38 5.80 106 12/31/97 11.56 10.3 103,583 1.36 5.63 391 CLASS B 12/31/01 (c) 11.17 4.1 13,249 2.14 3.71 317 12/31/00 11.18 12.1 10,343 2.16 4.94 622 12/31/99 10.47 (7.1) 9,430 2.11 5.25 313 12/31/98 11.90 8.2 9,657 2.13 5.05 106 12/31/97 11.56 9.5 5,654 2.11 4.88 391 CLASS Y 12/31/01 (c) 11.17 5.3 4,821 1.00 4.85 317 12/31/00 11.17 13.5 4,593 1.01 6.09 622 12/31/99 10.44 (6.3) 2,754 1.11 6.25 313 12/31/98 11.88 9.3 3,404 1.13 6.05 106 12/31/97 11.54 10.5 6,658 1.11 5.88 391
(a) A sales charge for Class A shares and a contingent deferred sales charge for Class B shares are not reflected in in total return calculations. Periods less than one year are not annualized. (b) Computed on an annualized basis for periods less than one year. (c) As required, effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $.05 for Class A and $.04 for both Class B and Class Y and to decrease the ratio of net investment income to average net assets from 4.85% to 4.46% for Class A, 4.10% to 3.71% for Class B and 5.24% to 4.85% for Class Y. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. 43 NOTES TO FINANCIAL STATEMENTS 44 NOTES TO FINANCIAL STATEMENTS For the Year Ended December 31, 2001 1. ORGANIZATION. CDC Nvest Funds Trust I, formerly Nvest Funds Trust I, and CDC Nvest Funds Trust II, formerly Nvest Funds Trust II, (the "Trusts" and each a "Trust") are organized as Massachusetts business trusts. Each Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Each Declaration of Trust permits the Trustees to issue an unlimited number of shares of the Trust in multiple series (individually, a "Fund" and, collectively, the "Funds"). Information presented in these financial statements pertains to the income funds of the Trusts, the financial statements of the other Funds of the Trusts are presented in separate reports. The following table provides a list of the Funds included in this report. CDC NVEST FUNDS TRUST I: CDC Nvest Bond Income Fund (the "Bond Income Fund"), formerly Nvest Bond Income Fund CDC Nvest Strategic Income Fund (the "Strategic Income Fund"), formerly Nvest Strategic Income Fund CDC Nvest Government Securities Fund (the "Government Securities Fund"), formerly Nvest Government Securities Fund CDC NVEST FUNDS TRUST II: CDC Nvest Short Term Corporate Income Fund (the "Short Term Corporate Income Fund"), formerly Nvest Short Term Corporate Income Fund CDC Nvest High Income Fund (the "High Income Fund"), formerly Nvest High Income Fund CDC Nvest Limited Term U.S. Government Fund (the Limited Term U.S. Government Fund"), formerly Nvest Limited Term U.S. Government Fund High Income Fund offers Class A, Class B, and Class C shares. Bond Income Fund, Strategic Income Fund, Short Term Corporate Income Fund and Limited Term U.S. Government Fund each offer Class A, Class B, Class C and Class Y shares. Government Securities Fund offers Class A, Class B and Class Y shares. Class A shares of all Funds except Short Term Corporate Income Fund and Limited Term U.S. Government Fund are sold with a maximum front end sales charge of 4.50%. Class A shares of Short Term Corporate Income and Limited Term U.S. Government Fund are sold with a maximum front end sales charge of 3.00%. Class B shares do not pay a front end sales charge, but pay a higher ongoing distribution fee than Class A shares for eight years (at which point they automatically convert to Class A shares), and are subject to a contingent deferred sales charge ("CDSC") if those shares are redeemed within six years of purchase (or five years if purchased before May 1, 1997). Class C shares are sold with a maximum front end sales charge of 1.00%, do not convert to any other class of shares and pay a higher ongoing distribution fee than Class A shares and may be subject to a CDSC of 1.00% if those shares are redeemed within one year. Class Y shares do not pay a front end sales charge, a CDSC or distribution fees. They are intended for institutional investors with a minimum initial investment of $1,000,000. Expenses of a Fund are borne pro rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the Rule 12b-1 service and distribution fees and transfer agent fees applicable to such class), and votes as a class only with respect to its own Rule 12b-1 Plan. Shares of each class would receive their pro rata share of the net assets of a Fund, if the Fund were liquidated. The Trustees approve separate dividends from net investment income on each class of shares. 2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant accounting policies consistently followed by each Fund in the preparation of its financial statements. The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Certain reclassifications were made to prior year amounts to conform with current year presentation. a. SECURITY VALUATION. Debt securities (other than short-term obligations with a remaining maturity of less than sixty days) are valued on the basis of valuations furnished to the Fund by a pricing service, which has been authorized by the Trustees. The pricing service determines valuations for normal, institutional size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term obligations with a remaining maturity of less than sixty days are stated at amortized cost, which approximates market value. Equity securities are valued on the basis of valuations furnished to the Fund by a pricing service, which has been authorized by the Board of Trustees. The pricing service provides the last reported sale price for securities listed on an applicable securities exchange or on the NASDAQ national market system, or, if no sale was reported and in the case of over-the-counter securities not so listed, the last reported bid price. All other securities and assets are valued at their fair value as determined in good faith by the Fund's investment adviser and subadviser, under the supervision of the Fund's Trustees. Certain securities held by Strategic Income Fund were valued on the basis of a price provided by a principal market maker. The prices provided by the principal market makers may differ from the value that would be realized if the securities were sold. At December 31, 2001, the total value of securities for which prices were provided by principal market makers represented approximately 6.6% of net assets. b. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions are accounted for on trade date. Dividend income is recorded on ex-dividend date and interest income is recorded on an accrual basis. Interest income is increased by the accretion of discount and decreased by the amortization of premium. In determining net gain or loss on securities sold, the cost of securities has been determined on an identified cost basis. c. FOREIGN CURRENCY TRANSLATION. The books and records of the Funds are maintained in U.S. dollars. The value of securities, currencies and other assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars based upon foreign exchange rates prevailing at the end of the period. Purchases and sales of investment securities, income and expenses are translated on the respective dates of such transactions. 45 Since the values of investment securities are presented at the foreign exchange rates prevailing at the end of the period, it is not practical to isolate that portion of the results of operations arising from changes in exchange rates from fluctuations arising from changes in market prices of the investment securities. Such changes are included with the net realized and unrealized gain or loss on investments. Net realized foreign exchange gains or losses arise from: sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities at the end of the fiscal periods, resulting from changes in exchange rates. d. OPTIONS. The Limited Term U.S. Government Fund and Government Securities Fund may use options to hedge against changes in the values of securities each Fund owns or expects to purchase. Writing puts and buying calls tends to increase a Fund's exposure to the underlying instrument and writing calls or buying puts tends to decrease a Fund's exposure to the underlying instrument, or hedge other Fund investments. For options purchased to hedge a Fund's investments, the potential risk to the Fund is that the change in the value of option contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty is unable to perform. The maximum loss for purchased options is limited to the premium initially paid for the option. For options written by the Fund, the maximum loss is not limited to the premium initially received for the option. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over the counter are valued using prices supplied by the dealers. e. INTEREST RATE FUTURES CONTRACTS. The Limited Term U.S. Government Fund and Government Securities Fund may purchase or sell interest rate futures contracts to hedge against changes in the values of securities each Fund owns or expects to purchase. An interest rate futures contract is an agreement between two parties to buy and sell a security for a set price (or to deliver an amount of cash) on a future date. Upon entering into such a contract, the purchasing Fund is required to pledge to the broker an amount of cash, U.S. government securities or other high quality debt securities equal to the minimum "initial margin" requirements of the exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The potential risk to the Fund is that the change in value of futures contracts primarily corresponds with the value of underlying instruments which may not correspond to the change in the value of the hedged instruments. In addition, there is a risk that the Fund may not be able to close out its futures positions due to an illiquid secondary market. f. FEDERAL AND FOREIGN INCOME TAXES. The Trusts treat each Fund as a separate entity for Federal income tax purposes. Each Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders substantially all of its net investment income and any net realized capital gains, at least annually. Accordingly, no provision for federal income tax has been made. A Fund may be subject to foreign taxes on income and gains on investments which are accrued based upon the Fund's understanding of the tax rules and regulations that exist in the countries in which the Fund invests. Foreign governments may also impose taxes or other payments on investments with respect to foreign securities, such taxes are accrued as applicable. g. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to shareholders of record and are paid monthly. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for book and tax purposes of items such as distributions from real estate investment trusts, capital loss carryforwards, paydowns on mortgage-backed securities and foreign currency transactions. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to capital accounts. Distributions from net investment income and short-term capital gains are considered to be ordinary income for tax purposes. h. REPURCHASE AGREEMENTS. Each Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is each Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price, including interest. Each Fund's subadviser is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price, including interest. Repurchase agreements could involve certain risks in the event of default or insolvency of the counterparty including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. 46 3. PURCHASES AND SALES OF SECURITIES. For the year ended December 31, 2001, purchases and sales of securities (excluding short-term investments) were as follows:
U.S. GOVERNMENT/AGENCY OTHER SECURITIES ---------------------- ---------------- FUND PURCHASES SALES PURCHASES SALES ---- --------- ----- --------- ----- Short Term Corporate Income Fund $ 7,877,383 $ 14,209,971 $ 43,921,160 $ 39,710,484 Bond Income Fund 79,927,268 68,482,181 188,384,213 191,665,140 High Income Fund -- -- 56,986,588 70,240,324 Strategic Income Fund -- -- 25,590,333 50,538,299 Limited Term U.S. Government Fund 346,930,670 348,514,277 24,195,174 36,689,567 Government Securities Fund 272,888,171 270,904,798 51,000 6,000
4a. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") is the investment adviser to each of the Funds. Under the terms of the management agreements, each Fund pays a management fee at the following annual rates, calculated daily and payable monthly, based on each Fund's average daily net assets:
PERCENTAGE OF AVERAGE DAILY NET ASSETS --------------------------------------------------------- FIRST NEXT NEXT OVER FUND $100 MILLION $100 MILLION $300 MILLION $500 MILLION ---- ------------ ------------ ------------ ------------ Short Term Corporate Income Fund 0.550% 0.550% 0.510% 0.470% Bond Income Fund 0.500% 0.375% 0.375% 0.375% High Income Fund 0.700% 0.700% 0.650% 0.650% Strategic Income Fund 0.650% 0.650% 0.600% 0.600% Limited Term U.S. Government Fund 0.570% 0.570% 0.545% 0.520% Government Securities Fund 0.550% 0.550% 0.525% 0.500%
Prior to October 1, 2001 the annual management fee rates were as follows:
PERCENTAGE OF AVERAGE DAILY NET ASSETS --------------------------------------------------------- FIRST NEXT NEXT OVER FUND $100 MILLION $100 MILLION $300 MILLION $500 MILLION ---- ------------ ------------ ------------ ------------ Limited Term U.S. Government Fund 0.650% 0.650% 0.625% 0.600% Government Securities Fund 0.650% 0.650% 0.625% 0.600%
For the year ended December 31, 2001, the management fees and waivers for each Fund were as follows:
GROSS WAIVER OF NET PERCENTAGE OF AVERAGE MANAGEMENT MANAGEMENT MANAGEMENT DAILY NET ASSETS FUND FEE FEE FEE GROSS NET ---- ---------- ----------- ----------- ----------- -------- Short Term Corporate Income Fund $ 339,260 $ 303,817 $ 35,443 0.550% 0.057% Bond Income Fund 1,323,375 -- 1,323,375 0.414% 0.414% High Income Fund 639,246 -- 639,246 0.700% 0.700% Strategic Income Fund 1,621,731 -- 1,621,731 0.639% 0.639% Limited Term U.S. Government Fund 872,975 -- 872,975 0.630% 0.630% Government Securities Fund 553,031 -- 553,031 0.628% 0.628%
b. ACCOUNTING AND ADMINISTRATIVE EXPENSE. CDC IXIS Asset Management Services, Inc. ("CIS"), a wholly owned subsidiary of CDC IXIS Asset Management North America, L.P., performs certain accounting and administrative services for the Funds. Pursuant to an agreement among the Trusts, CDC Nvest Funds Trust III, CDC Nvest Cash Management Trust, CDC Nvest Tax Exempt Money Market Trust, CDC Nvest Companies Trust I and CIS each Fund pays CIS its pro rata portion of a group fee for these services representing the higher amount based on the following calculations: (1) PERCENTAGE OF ELIGIBLE AVERAGE DAILY NET ASSETS
FIRST NEXT OVER $5 BILLION $5 BILLION $10 BILLION 0.0350% 0.0325% 0.0300%
or (2) Each Trust's pro rata portion, based on eligible assets, of the annual aggregate minimum fee of $2.5 million. 47 For the year ended December 31, 2001, amounts paid to CIS for accounting and administrative expense were as follows:
ACCOUNTING AND PERCENTAGE OF AVERAGE FUND ADMINISTRATIVE DAILY NET ASSETS ---- -------------- ---------------- Short Term Corporate Income Fund $ 28,944 0.047% Bond Income Fund 150,335 0.047% High Income Fund 42,424 0.047% Strategic Income Fund 118,473 0.047% Limited Term U.S. Government Fund 64,921 0.047% Government Securities Fund 41,391 0.047%
c. TRANSFER AGENT FEES. CIS is the transfer and shareholder servicing agent for each Fund and has subcontracted with Boston Financial Data Services ("BFDS") to serve as sub-transfer agent. Each Fund pays CIS service fees for servicing shareholder accounts. Class A, B and C shareholders pay service fees monthly representing the higher amount based on the following calculations: (1) Annual aggregate fee determined by applying an annual fee rate (see schedule below) to the eligible average daily net assets. Eligible assets are the average daily net assets of all non-networked accounts in bond funds offered within the CDC Nvest Family of Funds for which there are exchange privileges among the Funds.
FIRST NEXT OVER $1.2 BILLION NEXT $5 BILLION $6.2 BILLION ------------ --------------- ------------ 0.142% 0.135% 0.130%
Each Class of shares is subject to an annual class minimum of $18,000. or (2) An allocated portion, based on eligible assets, of an annual aggregate minimum fee of $2.5 million. In addition, pursuant to other servicing agreements, Class A, B and C shareholders pay service fees to other firms that provide similar services for their own shareholder accounts. Class Y shareholders pay service fees monthly at an annual rate of 0.10% of their average daily net assets. CIS, BFDS and other firms are also reimbursed by the Funds for out-of-pocket expenses. For the year ended December 31, 2001, amounts paid to CIS as compensation for its services as transfer agent were as follows:
TRANSFER AGENT FUND FEE ---- -------------- Short Term Corporate Income Fund $ 123,541 Bond Income Fund 437,783 High Income Fund 143,121 Strategic Income Fund 377,693 Limited Term U.S. Government Fund 217,567 Government Securities Fund 133,200
d. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the Trusts have adopted a Service Plan relating to each Fund's Class A shares (the "Class A Plan") and Service and Distribution Plans relating to each Fund's Class B and Class C shares (the "Class B and Class C Plans"). Under the Class A Plan, the Fund pays CDC IXIS Asset Management Distributors, L.P. ("CDC IXIS Distributors"), the Fund's distributor (a wholly owned subsidiary of CDC IXIS Asset Management North America, L.P.), a monthly service fee at the annual rate of 0.25% of the average daily net assets attributable to the Fund's Class A shares, as reimbursement for expenses incurred by CDC IXIS Distributors in providing personal services to investors in Class A shares and/or the maintenance of shareholder accounts. Also under the Class A Plan, Limited Term U.S. Government Fund pays CDC IXIS Distributors a monthly distribution fee at the annual rate of 0.10% of the average daily net assets attributable to the Fund's Class A shares as reimbursement for expenses incurred by CDC IXIS Distributors in connection with the marketing or sale the Fund's Class A shares. Under the Class B and Class C Plans, each Fund pays CDC IXIS Distributors a monthly service fee at the annual rate of 0.25% of the average daily net assets attributable to the Fund's Class B and Class C shares, as compensation for services provided and expenses incurred by CDC IXIS Distributors in providing personal services to investors in Class B and Class C shares and/or the maintenance of shareholder accounts. 48 Also under the Class B and Class C Plans, each Fund pays CDC IXIS Distributors a monthly distribution fee at the annual rate of 0.75% of the average daily net assets attributable to the Fund's Class B and Class C shares, as compensation for services provided and expenses incurred by CDC IXIS Distributors in connection with the marketing or sale of Class B and Class C shares. For the year ended December 31, 2001, the Funds paid the following service and distribution fees:
SERVICE FEE DISTRIBUTION FEE ------------------------------ ---------------------------------- CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C ------- ------- ------- ------- ------- ------- Short Term Corporate Income Fund $143,132 $ 9,782 $ 1,245 $ -- $ 29,344 $ 3,735 Bond Income Fund 440,761 288,177 30,729 -- 864,530 92,185 High Income Fund 106,262 109,955 12,085 -- 329,864 36,254 Strategic Income Fund 266,260 281,490 85,309 -- 844,471 255,926 Limited Term U.S. Government Fund 288,644 31,814 17,742 115,458 95,441 53,227 Government Securities Fund 178,196 29,978 -- -- 89,933 --
Prior to September 13, 1993 for Short Term Corporate Income Fund and Bond Income Fund and September 24, 1993 for Limited Term U.S. Government Fund and Government Securities Fund, to the extent that reimburseable expenses of CDC IXIS Distributors in prior years exceeded the maximum amount payable under the Plan for that year, such expenses could be carried forward for reimbursement in future years in which the Class A Plan remains in effect. Unreimbursed expenses carried forward at December 31, 2001 were as follows:
FUND ---- Short Term Corporate Income Fund $1,929,283 Bond Income Fund 1,919,349 Limited Term U.S. Government Fund 2,272,723 Government Securities Fund 1,583,658
Commissions (including contingent deferred sales charges) on Fund shares paid to CDC IXIS Distributors by investors in shares of the Funds during the year ended December 31, 2001 were as follows:
FUND ---- Short Term Corporate Income Fund $ 68,345 Bond Income Fund 586,059 High Income Fund 230,170 Strategic Income Fund 443,313 Limited Term U.S. Government Fund 108,680 Government Securities Fund 161,890
During 2001, Short Term Corporate Income Fund was named as a party to an action brought by a former shareholder of the Fund. Management of the Fund in conjunction with the Fund's distributor, CDC IXIS Distributors, has concluded that the Fund is not the proper party in light of the claims made. Accordingly, CDC IXIS Distributors has borne all expenses related to the suit and has agreed to bear any and all future costs that may arise from this action. e. TRUSTEES FEES AND EXPENSES. The Funds do not pay any compensation directly to their officers or Trustees who are directors, officers or employees of CDC IXIS Advisers, CDC IXIS Distributors, CDC IXIS Asset Management North America, L.P., CIS or their affiliates. Each other Trustee receives a retainer fee at the annual rate of $40,000 and meeting attendance fees of $3,500 for each meeting of the Board of Trustees attended. Each committee member receives an additional retainer fee at the annual rate of $6,000 while each committee chairman receives a retainer fee (beyond the $6,000 fee) at the annual rate of $4,000. These fees are allocated to the various CDC Nvest Funds based on a formula that takes into account, among other factors, the relative net assets of each Fund. A deferred compensation plan (the "Plan") is available to the Trustees on a voluntary basis. Each participating Trustee will receive an amount equal to the value that such deferred compensation would have been had it been invested in the Funds or certain other CDC Nvest Funds on the normal payment date. Deferred amounts remain in the Funds until distributed in accordance with the Plan. 49 5. CAPITAL SHARES. Each Fund may issue an unlimited number of shares of beneficial interest. Transactions in capital shares were as follows:
SHORT TERM CORPORATE INCOME FUND -------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, 2001 (a) DECEMBER 31, 2000 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------- CLASS A Shares sold 1,053,451 $ 7,544,528 749,039 $ 5,234,440 Shares issued in connection with the reinvestment of: Dividends from net investment income 295,720 2,106,444 397,101 2,765,364 ---------- ------------- ---------- ------------- 1,349,171 9,650,972 1,146,140 7,999,804 Shares repurchased (1,533,306) (10,903,583) (3,181,705) (22,139,392) ---------- ------------- ---------- ------------- Net increase (decrease) (184,135) $ (1,252,611) (2,035,565) $ (14,139,588) ---------- ------------- ---------- ------------- CLASS B Shares sold 256,722 $ 1,835,868 190,107 $ 1,320,535 Shares issued in connection with the reinvestment of: Dividends from net investment income 22,658 161,214 24,494 170,389 ---------- ------------- ---------- ------------- 279,380 1,997,082 214,601 1,490,924 Shares repurchased (134,863) (962,104) (250,248) (1,738,688) ---------- ------------- ---------- ------------- Net increase (decrease) 144,517 $ 1,034,978 (35,647) $ (247,764) ---------- ------------- ---------- ------------- CLASS C Shares sold 73,455 $ 522,600 17,569 $ 121,940 Shares issued in connection with the reinvestment of: Dividends from net investment income 2,872 20,383 3,664 25,483 ---------- ------------- ---------- ------------- 76,327 542,983 21,233 147,423 Shares repurchased (55,323) (395,146) (25,262) (176,256) ---------- ------------- ---------- ------------- Net increase (decrease) 21,004 $ 147,837 (4,029) $ (28,833) ---------- ------------- ---------- ------------- CLASS Y Shares sold 34,212 $ 244,904 -- $ -- Shares issued in connection with the reinvestment of: Dividends from net investment income 153 1,096 -- -- ---------- ------------- ---------- ------------- 34,365 246,000 -- -- Shares repurchased (2,806) (20,395) -- -- ---------- ------------- ---------- ------------- Net increase (decrease) 31,559 $ 225,605 -- $ -- ---------- ------------- ---------- ------------- Increase (decrease) derived from capital shares transactions 12,945 $ 155,809 (2,075,241) $ (14,416,185) ========== ============= ========== ============= 50 BOND INCOME FUND ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 --------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------- ------------- ------------- CLASS A Shares sold 3,447,705 $ 40,347,344 5,539,363 $ 62,399,490 Shares issued in connection with the reinvestment of: Dividends from net investment income 793,770 9,313,490 926,682 10,556,925 ---------- ------------- ------------- ------------- 4,241,475 49,660,834 6,466,045 72,956,415 Shares repurchased (4,440,794) (51,917,547) (9,837,004) (112,051,525) ---------- ------------- ------------- ------------- Net increase (decrease) (199,319) $ (2,256,713) (3,370,959) $ (39,095,110) ---------- ------------- ------------- ------------- CLASS B Shares sold 3,873,088 $ 45,336,465 2,643,742 $ 30,750,636 Shares issued in connection with the reinvestment of: Dividends from net investment income 390,437 4,579,223 385,949 4,394,805 ---------- ------------- ------------- ------------- 4,263,525 49,915,688 3,029,691 35,145,441 Shares repurchased (1,978,772) (23,154,898) (2,062,798) (23,510,872) ---------- ------------- ------------- ------------- Net increase (decrease) 2,284,753 $ 26,760,790 966,893 $ 11,634,569 ---------- ------------- ------------- ------------- CLASS C Shares sold 196,137 $ 2,299,999 290,185 $ 3,311,389 Shares issued in connection with the reinvestment of: Dividends from net investment income 38,608 453,189 49,574 564,991 ---------- ------------- ------------- ------------- 234,745 2,753,188 339,759 3,876,380 Shares repurchased (334,314) (3,927,346) (542,083) (6,187,351) ---------- ------------- ------------- ------------- Net increase (decrease) (99,569) $ (1,174,158) (202,324) $ (2,310,971) ---------- ------------- ------------- ------------- CLASS Y Shares sold 567,048 $ 6,671,918 556,735 $ 6,338,929 Shares issued in connection with the reinvestment of: Dividends from net investment income 73,368 863,333 51,551 588,651 ---------- ------------- ------------- ------------- 640,416 7,535,251 608,286 6,927,580 Shares repurchased (362,635) (4,256,817) (289,046) (3,313,656) ---------- ------------- ------------- ------------- Net increase (decrease) 277,781 $ 3,278,434 319,240 $ 3,613,924 ---------- ------------- ------------- ------------- Increase (decrease) derived from capital shares transactions 2,263,646 $ 26,608,353 (2,287,150) $ (26,157,588) ========== ============= ============= ============= HIGH INCOME FUND ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 ---------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------- ---------- ------------- CLASS A Shares sold 1,247,804 $ 7,562,671 1,717,005 $ 13,101,290 Shares issued in connection with the reinvestment of: Dividends from net investment income 523,610 3,018,437 578,375 4,247,799 ----------- ------------- ---------- ------------- 1,771,414 10,581,108 2,295,380 17,349,089 Shares repurchased (2,557,348) (14,947,178) (3,723,936) (28,123,632) ----------- ------------- ---------- ------------- Net increase (decrease) (785,934) $ (4,366,070) (1,428,556) $ (10,774,543) ----------- ------------- ---------- ------------- CLASS B Shares sold 1,452,751 $ 8,597,030 1,757,076 $ 13,136,120 Shares issued in connection with the reinvestment of: Dividends from net investment income 317,495 1,829,605 329,652 2,418,231 ----------- ------------- ---------- ------------- 1,770,246 10,426,635 2,086,728 15,554,351 Shares repurchased (2,439,710) (14,006,958) (2,855,061) (21,157,055) ----------- ------------- ---------- ------------- Net increase (decrease) (669,464) $ (3,580,323) 768,333 $ (5,602,704) ----------- ------------- ---------- ------------- CLASS C Shares sold 360,599 $ 2,104,845 231,080 $ 1,717,419 Shares issued in connection with the reinvestment of: Dividends from net investment income 43,294 252,141 63,645 468,916 ----------- ------------- ---------- ------------- 403,893 2,356,986 294,725 2,186,335 Shares repurchased (427,671) (2,548,968) (531,837) (3,958,772) ----------- ------------- ---------- ------------- Net increase (decrease) (23,778) $ (191,982) (237,112) $ (1,772,437) ----------- ------------- ---------- ------------- CLASS Y Shares sold -- $ -- -- $ -- Shares issued in connection with the reinvestment of: Dividends from net investment income -- -- -- -- ----------- ------------- ---------- ------------- -- -- -- -- Shares repurchased -- -- -- -- ----------- ------------- ---------- ------------- Net increase (decrease) -- $ -- -- $ -- ----------- ------------- ---------- ------------- Increase (decrease) derived from capital shares transactions (1,479,176) $ (8,138,375) (2,434,001) $ (18,149,684) =========== ============= ========== =============
(a) For the period October 1, 2001 (commencement of operations) through December 31, 2001 for Class Y shares. 51
STRATEGIC INCOME FUND --------------------- YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ CLASS A Shares sold 942,976 $ 9,851,828 2,213,180 $ 25,281,376 Shares issued in connection with the reinvestment of: Dividends from net investment income 710,648 7,330,700 701,656 7,899,022 ---------- ------------ ---------- ------------ 1,653,624 17,182,528 2,914,836 33,180,398 Shares repurchased (2,958,307) (30,455,609) (2,796,975) (31,690,868) ---------- ------------ ---------- ------------ Net increase (decrease) (1,304,683) $(13,273,081) 117,861 $ 1,489,530 ---------- ------------ ---------- ------------ CLASS B Shares sold 1,049,379 $ 10,945,846 2,029,777 $ 23,008,589 Shares issued in connection with the reinvestment of: Dividends from net investment income 592,151 6,108,437 550,085 6,189,182 ---------- ------------ ---------- ------------ 1,641,530 17,054,283 2,579,862 29,197,771 Shares repurchased (2,433,883) (24,987,009) (2,408,804) (27,321,187) ---------- ------------ ---------- ------------ Net increase (decrease) (792,353) $ (7,932,726) 171,058 $ 1,876,584 ---------- ------------ ---------- ------------ CLASS C Shares sold 336,952 $ 3,647,683 602,299 $ 6,832,461 Shares issued in connection with the reinvestment of: Dividends from net investment income 190,747 1,874,620 200,658 2,257,365 ---------- ------------ ---------- ------------ 527,699 5,522,303 802,957 9,089,826 Shares repurchased (1,047,238) (10,766,581) (812,058) (9,201,152) ---------- ------------ ---------- ------------ Net increase (decrease) (519,539) $ (5,244,278) (9,101) $ (111,326) ---------- ------------ ---------- ------------ CLASS Y Shares sold 37,158 $ 382,879 33,074 $ 374,798 Shares issued in connection with the reinvestment of: Dividends from net investment income 3,567 36,701 1,129 12,412 ---------- ------------ ---------- ------------ 40,725 419,580 34,203 387,210 Shares repurchased (26,758) (273,469) (3,250) (37,413) ---------- ------------ ---------- ------------ Net increase (decrease) 13,967 $ 146,111 30,953 $ 349,797 ---------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions (2,602,608) $(26,303,974) 310,771 $ 3,604,585 ========== ============ ========== ============ 52 LIMITED TERM U.S. GOVERNMENT FUND --------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ CLASS A Shares sold 2,445,579 $ 27,653,033 3,001,259 $ 32,964,633 Shares issued in connection with the reinvestment of: Dividends from net investment income 396,187 4,499,196 579,635 6,371,109 ---------- ------------ ---------- ------------ 2,841,766 32,152,229 3,580,894 39,335,742 Shares repurchased (3,883,682) (43,935,146) (6,582,209) (72,192,361) ---------- ------------ ---------- ------------ Net increase (decrease) (1,041,916) $(11,782,917) (3,001,315) $(32,856,619) ---------- ------------ ---------- ------------ CLASS B Shares sold 399,797 $ 4,554,320 192,297 $ 2,115,999 Shares issued in connection with the reinvestment of: Dividends from net investment income 39,402 446,829 52,413 575,303 ---------- ------------ ---------- ------------ 439,199 5,001,149 244,710 2,691,302 Shares repurchased (244,043) (2,767,660) (510,853) (5,580,593) ---------- ------------ ---------- ------------ Net increase (decrease) 195,156 $ 2,233,489 (266,143) $ (2,889,291) ---------- ------------ ---------- ------------ CLASS C Shares sold 256,551 $ 2,890,430 468,444 $ 5,129,636 Shares issued in connection with the reinvestment of: Dividends from net investment income 20,583 233,332 27,936 306,813 ---------- ------------ ---------- ------------ 277,134 3,123,762 496,380 5,436,449 Shares repurchased (355,306) (4,028,016) (728,858) (7,963,206) ---------- ------------ ---------- ------------ Net increase (decrease) (78,172) $ (904,254) (232,478) $ (2,526,757) ---------- ------------ ---------- ------------ CLASS Y Shares sold 74,432 $ 855,152 60,347 $ 660,534 Shares issued in connection with the reinvestment of: Dividends from net investment income 15,149 173,303 20,417 225,415 ---------- ------------ ---------- ------------ 89,581 1,028,455 80,764 885,949 Shares repurchased (78,549) (893,943) (434,313) (4,767,911) ---------- ------------ ---------- ------------ Net increase (decrease) 11,032 $ 134,512 (353,549) $ (3,881,962) ---------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions (913,900) $(10,319,170) (3,853,485) $(42,154,629) ========== ============ ========== ============ GOVERNMENT SECURITIES FUND -------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 --------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------ ---------- ------------ CLASS A Shares sold 1,567,340 $ 17,673,623 1,404,259 $ 15,121,192 Shares issued in connection with the reinvestment of: Dividends from net investment income 270,123 3,048,950 347,841 3,727,503 ----------- ------------ ---------- ------------ 1,837,463 20,722,573 1,752,100 18,848,695 Shares repurchased (1,866,222) (20,982,105) (3,523,641) (37,613,974) ----------- ------------ ---------- ------------ Net increase (decrease) (28,759) $ (259,532) (1,771,541) $(18,765,279) ----------- ------------ ---------- ------------ CLASS B Shares sold 505,361 $ 5,709,885 302,365 $ 3,270,971 Shares issued in connection with the reinvestment of: Dividends from net investment income 33,898 382,953 29,227 313,755 ----------- ------------ ---------- ------------ 539,259 6,092,838 331,592 3,584,726 Shares repurchased (278,665) (3,146,944) (307,592) (3,283,748) ----------- ------------ ---------- ------------ Net increase (decrease) 260,594 $ 2,945,894 24,000 $ 300,978 ----------- ------------ ---------- ------------ CLASS C Shares sold -- $ -- -- $ -- Shares issued in connection with the reinvestment of: Dividends from net investment income -- -- -- -- ----------- ------------ ---------- ------------ -- -- -- -- Shares repurchased -- -- -- -- ----------- ------------ ---------- ------------ Net increase (decrease) -- $ -- -- $ -- ----------- ------------ ---------- ------------ CLASS Y Shares sold 63,952 $ 728,747 182,156 $ 1,963,176 Shares issued in connection with the reinvestment of: Dividends from net investment income 21,989 245,868 17,534 188,421 ----------- ------------ ---------- ------------ 85,941 974,615 199,690 2,151,597 Shares repurchased (65,429) (740,483) (52,065) (549,298) ----------- ------------ ---------- ------------ Net increase (decrease) 20,512 $ 234,132 147,625 $ 1,602,299 ----------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions 252,347 $ 2,920,494 (1,599,916) $(16,862,002) =========== ============ ========== ============
53 6. LINE OF CREDIT. High Income Fund and Strategic Income Fund, along with certain other portfolios that comprise the CDC Nvest Funds Trusts participate in a $100,000,000 committed line of credit provided by Citibank, N.A. under a credit agreement (the "Agreement") dated March 2, 2001. Advances under the Agreement are taken primarily for temporary or emergency purposes. Borrowings under the Agreement bear interest at a rate tied to one of several short-term rates that may be selected by the lender from time to time. In addition, the Funds are charged a facility fee equal to 0.08% per annum on the unused portion of the line of credit. The annual cost of maintaining the line of credit and the facility fee is apportioned pro rata among the participating Funds. There were no borrowings as of or during the year ended December 31, 2001. 7. SECURITY LENDING. The Funds have each entered into an agreement with a third party to lend their securities. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. The Funds receive fees for lending their securities. The market value of securities on loan to third parties and the value of collateral held by the Funds with respect to such loans at December 31, 2001, is as follows:
MARKET VALUE OF VALUE OF COLLATERAL FUND SECURITIES ON LOAN RECEIVED ---- ------------------ ------------------- Short Term Corporate Income Fund $ -- $ -- Bond Income Fund 46,887,652 47,714,624 High Income Fund 18,977,142 19,330,310 Strategic Income Fund 13,762,480 14,564,105 Limited Term U.S. Government Fund 15,144,996 15,544,653 Government Securities Fund -- --
8. CONTINGENT EXPENSE OBLIGATION. CDC IXIS Advisers has given a binding undertaking to Short Term Corporate Income Fund to defer its management fee and, if necessary, bear certain expenses associated with the Fund to limit its operating expenses. This limitation is in effect until May 1, 2002 and will be reevaluated on an annual basis. If in the following fiscal year the actual operating expenses of a Fund that previously received a deferral or reimbursement are less than the expense limit and the actual amount of fees previously waived or expenses reimbursed. At December 31, 2001, the expense limits as a percentage of average daily net assets and amount subject to possible reimbursement under the expense limitation agreement were as follows:
EXPENSE LIMIT AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS EXPENSES SUBJECT ---------------------------- TO POSSIBLE FUND CLASS A CLASS B CLASS C REIMBURSEMENT ---- ------- ------- ------- ---------------- Short Term Corporate Income Fund 0.90% 1.65% 1.65% $ 303,817
9. CHANGE IN ACCOUNTING PRINCIPLE. As required, effective January 1, 2001, the Funds have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and discount on debt securities. Prior to January 1, 2001, the Funds did not amortize premium and discount on debt securities. The cumulative effect of this accounting change had no impact on total net assets of the Funds, but resulted in a reduction in cost of securities and a corresponding increase in net unrealized appreciation (depreciation), based on securities held by the Funds on January 1, 2001.
COST OF UNREALIZED SECURITIES APPRECIATION ---------- ------------ Short Term Corporate Income Fund $ 197,365 $ 197,365 Bond Income Fund 575,145 575,145 High Income Fund 92,976 92,976 Strategic Income Fund 16,074 16,074 Limited Term U.S. Government Fund 318,505 318,505 Government Securities Fund 53,332 53,332
54 The effect of this change for the period ended December 31, 2001, was to increase (decrease) net investment income, increase net unrealized appreciation (depreciation) and increase net realized gains (losses). The statements of changes in net assets and financial highlights for prior periods have not been restated to reflect this change in presentation.
NET NET NET INVESTMENT UNREALIZED REALIZED INCOME APPRECIATION GAINS ------ ------------ ----- Short Term Corporate Income Fund $ (186,603) $ (24,495) $ 211,098 Bond Income Fund (242,659) (147,761) 390,420 High Income Fund (75,430) 35,932 39,498 Strategic Income Fund (28,134) 30,131 (1,997) Limited Term U.S. Government Fund (500,286) 280,957 219,329 Government Securities Fund (345,572) 186,141 159,431
55 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of CDC Nvest Funds Trust I and CDC Nvest Funds Trust II: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of CDC Nvest Bond Income Fund, CDC Nvest Strategic Income Fund, CDC Nvest Government Securities Fund, CDC Nvest Short Term Corporate Income Fund, CDC Nvest High Income Fund and CDC Nvest Limited Term U.S. Government Fund (series of CDC Nvest Funds Trust I or CDC Nvest Funds Trust II hereafter referred to as the "Funds") at December 31, 2001, the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2001 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts February 8, 2002 56 ADDITIONAL INFORMATION -- SHORT TERM CORPORATE INCOME FUND Shareholder Meeting (unaudited). At a special shareholders' meeting held on September 28, 2001, Shareholders of the CDC Nvest Short Term Corporate Income Fund voted for the following proposals:
VOTED FOR VOTED AGAINST ABSTAINED VOTES BROKER NON-VOTES TOTAL VOTES ------------- --------------- ----------------- ------------------ -------------- 1. Approval of a new subadvisory agreement among CDC Nvest Funds Trust II (hereinafter referred to as the "Trust"), on behalf of CDC Nvest Short Term Corporate Income Fund (hereinafter referred to as the "Fund"), CDC IXIS Asset Management Advisers, L.P. and Loomis Sayles & Company, L.P. 4,868,124.658 11,998.870 120,214.422 5,000,337.950 2a. Proposal to amend the Fund's fundamental policy relating to diversification. 3,551,282.031 38,064.620 720,352.299 690,639.000 5,000,337.950 2b. Proposal to amend the Fund's fundamental policy relating to industry concentration. 3,537,480.624 47,885.075 724,333.252 690,639.000 5,000,337.951 2c. Proposal to amend the Fund's fundamental policy relating to short sales and margin purchases. 3,533,732.559 37,345.213 738,621.179 690,639.000 5,000,337.951 2d. Proposal to amend the Fund's fundamental policy regarding borrowing. 3,530,890.495 55,442.623 723,365.832 690,639.000 5,000,337.950 2e. Proposal to amend the Fund's fundamental policy regarding loans. 3,544,301.381 40,681.317 724,716.252 690,639.000 5,000,337.950 2f. Proposal to amend the Fund's fundamental policy prohibiting purchases and sales of real estate. 3,550,305.318 30,631.870 728,761.762 690,639.000 5,000,337.950 2g. Proposal to amend the Fund's fundamental policy prohibiting purchases and sales of commodities. 3,558,809.552 25,668.400 725,220.999 690,639.000 5,000,337.951 2h. Proposal to amend the Fund's fundamental policy relating to issuing senior securities. 3,555,813.664 20,080.955 733,804.331 690,639.000 5,000,337.950 2i. Proposal to reclassify the Fund's fundamental policy regarding options and warrants. 3,506,693.847 66,179.672 736,825.431 690,639.000 5,000,337.950 2j. Proposal to reclassify the Fund's fundamental policy regarding illiquid securities. 3,532,737.951 39,850.148 737,110.851 690,639.000 5,000,337.950 2k. Proposal to eliminate the Fund's fundamental policy concerning unseasoned businesses. 3,532,776.865 42,950.454 733,971.631 690,639.000 5,000,337.950 57 VOTED FOR VOTED AGAINST ABSTAINED VOTES BROKER NON-VOTES TOTAL VOTES ------------- --------------- ----------------- ------------------ -------------- 2l. Proposal to eliminate the Fund's fundamental policy prohibiting purchases of securities if held by the Trust's or investment adviser's trustees/directors and officers. 3,534,587.933 47,327.425 727,783.592 690,639.000 5,000,337.950 2m. Proposal to eliminate the Fund's fundamental policy relating to exercising control or management. 3,539,861.043 37,270.015 732,567.892 690,639.000 5,000,337.950 2n. Proposal to eliminate the Fund's fundamental policy relating to joint trading accounts. 3,528,518.726 51,688.292 729,491.932 690,639.000 5,000,337.950 2o. Proposal to eliminate the Fund's fundamental policy relating to other investment companies. 3,524,500.482 48,374.037 736,824.431 690,639.000 5,000,337.950
ADDITIONAL INFORMATION -- BOND INCOME FUND Shareholder Meeting (unaudited). At a special shareholders' meeting held on September 28, 2001, Shareholders of the CDC Nvest Bond Income Fund voted for the following proposals:
VOTED FOR VOTED AGAINST ABSTAINED VOTES BROKER NON-VOTES TOTAL VOTES -------------- --------------- ------------------- ------------------ -------------- 1. Approval of a new subadvisory agreement among CDC Nvest Funds Trust I (hereinafter referred to as the "Trust"), on behalf of CDC Nvest Bond Income Fund (hereinafter referred to as the "Fund"), CDC IXIS Asset Management Advisers, L.P. and Loomis Sayles & Company, L.P. 14,123,919.983 237,789.114 814,147.625 15,175,856.722 2a. Proposal to amend the Fund's fundamental policy relating to diversification. 10,736,688.072 387,995.453 962,064.197 3,089,109.000 15,175,856.722 2b. Proposal to amend the Fund's fundamental policy relating to industry concentration. 10,583,727.475 488,945.483 1,014,074.763 3,089,109.000 15,175,856.721 2c. Proposal to amend the Fund's fundamental policy relating to short sales and margin purchases. 10,537,126.979 545,001.677 1,004,619.066 3,089,109.000 15,175,856.722 2d. Proposal to amend the Fund's fundamental policy regarding borrowing. 10,458,964.235 546,701.693 1,081,081.794 3,089,109.000 15,175,856.722 2e. Proposal to amend the Fund's fundamental policy regarding loans. 10,475,286.729 538,711.238 1,072,749.755 3,089,109.000 15,175,856.722 2f. Proposal to amend the Fund's fundamental policy prohibiting purchases and sales of real estate. 10,637,236.279 468,479.331 981,032.111 3,089,109.000 15,175,856.721 58 VOTED FOR VOTED AGAINST ABSTAINED VOTES BROKER NON-VOTES TOTAL VOTES -------------- --------------- ------------------- ------------------ -------------- 2g. Proposal to amend the Fund's fundamental policy prohibiting purchases and sales of commodities. 10,651,086.590 461,235.884 974,425.248 3,089,109.000 15,175,856.722 2h. Proposal to amend the Fund's fundamental policy relating to issuing senior securities. 10,623,309.634 439,429.730 1,024,008.357 3,089,109.000 15,175,856.721 2i. Proposal to amend the Fund's fundamental policy regarding prohibiting acting as an underwriter. 10,553,025.205 487,049.429 1,046,673.086 3,089,109.000 15,175,856.720 2j. Proposal to reclassify the Fund's fundamental policy regarding options and warrants. 10,447,431.841 591,308.066 1,048,007.815 3,089,109.000 5,175,856.722 2k. Proposal to eliminate the Fund's fundamental policy regarding pledging. 10,432,158.514 631,456.470 1,023,132.738 3,089,109.000 15,175,856.722 2l. Proposal to eliminate the Fund's fundamental policy concerning unseasoned businesses. 10,445,780.498 607,799.427 1,033,167.797 3,089,109.000 15,175,856.722 2m. Proposal to eliminate the Fund's fundamental policy prohibiting purchases of securities if held by the Trust's or investment adviser's trustees/directors and officers. 10,633,628.536 471,584.805 981,534.382 3,089,109.000 15,175,856.723 2n. Proposal to eliminate the Fund's fundamental policy relating to exercising control or management. 10,601,434.955 424,289.689 1,061,023.078 3,089,109.000 15,175,856.722 2o. Proposal to eliminate the Fund's fundamental policy relating to joint trading accounts. 10,541,748.463 545,331.642 999,667.618 3,089,109.000 15,175,856.723 2p. Proposal to eliminate the Fund's fundamental policy relating to other investment companies. 10,526,224.032 560,285.479 1,000,238.210 3,089,109.000 15,175,856.721
59 ADDITIONAL INFORMATION -- LIMITED TERM U.S. GOVERNMENT FUND Shareholder Meeting (unaudited). At a special shareholders' meeting held on September 28, 2001, Shareholders of the CDC Nvest Limited Term U.S. Government Fund voted for the following proposals:
VOTED FOR VOTED AGAINST ABSTAINED VOTES BROKER NON-VOTES TOTAL VOTES -------------- --------------- ----------------- ----------------- ------------ 1. Approval of a new advisory agreement between CDC Nvest Funds Trust II (hereinafter referred to as the "Trust"), on behalf of CDC Nvest Limited Term U.S. Government Fund (hereinafter referred to as the "Fund") and CDC IXIS Asset Management Advisers, L.P. 6,467,030.365 106,091.538 334,753.373 6,907,875.276 2. Approval of a new subadvisory agreement among the Trust, on behalf of the Fund, CDC IXIS Asset Management Advisers, L.P. and Loomis Sayles & Company, L.P. 6,441,384.506 101,554.639 364,936.132 6,907,875.277 3a. Proposal to amend the Fund's fundamental policy relating to industry concentration. 5,200,408.709 138,557.493 514,647.075 1,054,262.000 6,907,875.277 3b. Proposal to amend the Fund's fundamental policy relating to short sales and margin purchases. 5,233,494.421 154,435.200 465,683.657 1,054,262.000 6,907,875.278 3c. Proposal to amend the Fund's fundamental policy regarding borrowing. 5,137,104.200 205,167.869 511,341.207 1,054,262.000 6,907,875.276 3d. Proposal to amend the Fund's fundamental policy regarding loans. 5,171,353.223 204,504.200 477,755.854 1,054,262.000 6,907,875.277 3e. Proposal to amend the Fund's fundamental policy prohibiting purchases and sales of real estate. 5,167,646.347 201,552.459 484,414.472 1,054,262.000 6,907,875.278 3f. Proposal to amend the Fund's fundamental policy prohibiting purchases and sales of commodities. 5,159,578.495 200,347.548 493,687.234 1,054,262.000 6,907,875.277 3g. Proposal to amend the Fund's fundamental policy relating to issuing senior securities. 5,198,341.559 179,243.398 476,028.319 1,054,262.000 6,907,875.276 3h. Proposal to reclassify the Fund's fundamental policy regarding options and warrants. 5,163,326.799 209,599.323 480,687.155 1,054,262.000 6,907,875.277 3i. Proposal to eliminate the Fund's fundamental policy relating to exercising control or management. 5,162,061.830 157,637.536 533,913.910 1,054,262.000 6,907,875.276
60 ADDITIONAL INFORMATION -- GOVERNMENT SECURITIES FUND Shareholder Meeting (unaudited). At a special shareholders' meeting held on September 28, 2001, Shareholders of the CDC Nvest Government Securities Fund voted for the following proposals:
VOTED FOR VOTED AGAINST ABSTAINED VOTES BROKER NON-VOTES TOTAL VOTES -------------- --------------- ----------------- ------------------ ------------- 1. Approval of a new advisory agreement between CDC Nvest Funds Trust I (hereinafter referred to as the "Trust"), with respect to its Government Securities Fund series (hereinafter referred to as the "Fund"), and CDC IXIS Asset Management Advisers, L.P. 4,076,815.294 63,599.452 204,231.627 4,344,646.373 2. Approval of a new subadvisory agreement among Trust, on behalf of the Fund, CDC IXIS Asset Management Advisers, L.P. and Loomis Sayles & Company, L.P. 4,065,256.618 63,868.615 215,521.140 4,344,646.373 3a. Proposal to amend the Fund's fundamental policy relating to short sales and margin purchases. 3,351,589.210 151,597.194 282,350.969 559,109.000 4,344,646.373 3b. Proposal to amend the Fund's fundamental policy regarding borrowing. 3,311,518.963 191,982.907 282,035.504 559,109.000 4,344,646.374 3c. Proposal to amend the Fund's fundamental policy regarding loans. 3,363,722.394 124,057.173 297,757.806 559,109.000 4,344,646.373 3d. Proposal to amend the Fund's fundamental policy prohibiting purchases and sales of commodities. 3,329,215.219 161,576.823 294,745.331 559,109.000 4,344,646.373 3e. Proposal to amend Fund's fundamental policy relating to issuing senior securities. 3,338,105.046 136,028.983 311,403.345 559,109.000 4,344,646.374 3f. Proposal to amend Fund's fundamental policy prohibiting acting as an underwriter. 3,366,584.926 115,631.273 303,321.174 559,109.000 4,344,646.373 3g. Proposal to reclassify the Fund's fundamental policy regarding options and warrants. 3,355,548.621 141,928.458 288,060.294 559,109.000 4,344,646.373 3h. Proposal to reclassify the Fund's fundamental policy regarding U.S. government securities and options thereon, futures contracts and options thereon and repurchase agreements. 3,423,729.347 104,743.550 257,064.476 559,109.000 4,344,646.373 3i. Proposal to eliminate the Fund's fundamental policy relating to other investment companies. 3,334,759.665 175,828.967 274,948.741 559,109.000 4,344,646.373
61 TRUSTEES' INFORMATION The Funds are 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 services to the Funds and review the Fund's performance.
TERM OF OFFICE POSITION HELD AND LENGTH OF NAME, AGE AND ADDRESS WITH FUND TIME SERVED ----------------------------- -------------------------------- ----------------- INDEPENDENT TRUSTEES GRAHAM T. ALLISON, JR. (62) Trustee Until retirement* 399 Boylston Street Contract Review and 18 years Boston, MA 02116 Governance Committee Member DANIEL M. CAIN (57) Trustee Until retirement* 452 Fifth Avenue Chairman of the Audit Committee 6 years New York, NY 10018 KENNETH J. COWAN (70) Trustee Until retirement* 399 Boylston Street Chairman of the Contract Review and 27 years Boston, MA 02116 Governance Committee RICHARD DARMAN (59) Trustee Until retirement* 1001 Pennsylvania Avenue, N.W. Contract Review and 6 years Washington, D.C. 20004 Governance Committee Member SANDRA O. MOOSE (60) Trustee Until retirement* Exchange Place Audit Committee Member 20 years Boston, MA 02109 JOHN A. SHANE (69) Trustee Until retirement* 200 Unicorn Park Drive Audit Committee Member 20 years Woburn, MA 01801 PENDLETON P. WHITE (71) Trustee Until retirement* 6 Breckenridge Lane Contract Review and 21 years Savannah, GA 31411 Governance Committee Member * All Trustees serve until retirement or resignation from the board. The current retirement age is 72. 62 NUMBER OF PRINCIPAL OCCUPATION(S) PORTFOLIOS IN FUND NAME, AGE AND ADDRESS DURING PAST 5 YEARS COMPLEX OVERSEEN OTHER DIRECTORSHIPS HELD ----------------------------- ------------------------------ ---------------- -------------------------- GRAHAM T. ALLISON, JR. (62) Douglas Dillon Professor and 27 Director, Taubman Centers, Inc. 399 Boylston Street Director for the Belfer Board Member, USEC Inc. Boston, MA 02116 Center of Science and International Affairs, John F. Kennedy School of Government, Harvard University DANIEL M. CAIN (57) President and CEO, Cain Brothers 27 Trustee, Universal Health Realty 452 Fifth Avenue & Company, Incorporated Income Trust New York, NY 10018 (investment banking) Director, eBenX, Inc. Director, PASC KENNETH J. COWAN (70) Retired 27 None 399 Boylston Street Boston, MA 02116 RICHARD DARMAN (59) Partner, The Carlyle Group 27 Director, Frontier Ventures Corporation 1001 Pennsylvania Avenue, N.W. (investments); Professor, Director, Neptune Communications Washington, D.C. 20004 John F. Kennedy School of Government, Corporation Harvard University Director, Enumerate Solutions, Inc. SANDRA O. MOOSE (60) Senior Vice President and Director, 27 Director, Verizon Communications Exchange Place The Boston Consulting Group, Inc. Director, Rohm and Haas Company Boston, MA 02109 (management consulting) JOHN A. SHANE (69) President, Palmer Service Corporation 27 Director, Arch Communications Group, Inc. 200 Unicorn Park Drive (venture capital organization) Director, Eastern Bank Corporation Woburn, MA 01801 Director, Gensym Corporation Director, Overland Data, Inc. PENDLETON P. WHITE (71) Retired 27 None 6 Breckenridge Lane Savannah, GA 31411 63 TERM OF OFFICE POSITION HELD AND LENGTH OF NAME, AGE AND ADDRESS WITH FUND TIME SERVED ----------------------------- ----------------------------- ---------------- INTERESTED TRUSTEES JOHN T. HAILER (41) Trustee Not Applicable 399 Boylston Street President 2 years Boston, MA 02116 PETER S. VOSS (55) Trustee Not Applicable 399 Boylston Street Chairman of the Board 10 years Boston, MA 02116 OFFICERS THOMAS P. CUNNINGHAM (56) Treasurer Not Applicable 399 Boylston Street Boston, MA 02116 JOHN E. PELLETIER (37) Secretary and Clerk Not Applicable 399 Boylston Street Boston, MA 02116 * Mr. Hailer is an interested person of the CDC Nvest Funds because he holds the following positions with affiliated persons of the CDC Nvest Funds Trusts: Director and Executive Vice President of CDC IXIS Asset Management Distribution Corporation; President and Chief Executive Officer of CDC IXIS Asset Management Advisers, L.P. ** Mr. Voss is an interested person of the CDC Nvest Funds because he holds the following positions with affiliated persons of the CDC Nvest Funds Trusts: Director of CDC IXIS Asset Management Services; Director of CDC IXIS Asset Management Distribution Corporation; Director of AEW Capital Management, Inc. Director of Harris Associates, Inc.; Director of Jurika & Voyles, Inc.; Director of Loomis, Sayles & Company, Inc.; Director of Reich & Tang Asset Management Inc.; Director of Westpeak Investment Advisors, Inc.; Director of Vaughan, Nelson, Scarborough & McConnell, Inc. 64 NUMBER OF PRINCIPAL OCCUPATION(S) PORTFOLIOS IN FUND NAME, AGE AND ADDRESS DURING PAST 5 YEARS COMPLEX OVERSEEN OTHER DIRECTORSHIPS HELD -------------------------- ------------------------------- ------------------ -------------------------- JOHN T. HAILER (41) President and Chief Executive Officer, 27 None* 399 Boylston Street CDC IXIS Asset Management Distributors, L.P.; Boston, MA 02116 Senior Vice President, Fidelity Investments PETER S. VOSS (55) Director, President and Chief Executive Officer, 27 Trustee of Harris 399 Boylston Street CDC IXIS Asset Management North America, L.P. Associates Investment Boston, MA 02116 Trust** OFFICERS Senior Vice President, CDC IXIS Asset Management 27 None THOMAS P. CUNNINGHAM (56) Services; Senior Vice President, CDC IXIS Asset 399 Boylston Street Management Advisers; Vice President, Allmerica Boston, MA 02116 Financial Life Insurance and Annuity Company; Treasurer, Allmerica Investment Trust; Vice President, First Data Investor Services Group JOHN E. PELLETIER (37) Senior Vice President, General Counsel, Secretary 27 None 399 Boylston Street and Clerk, CDC IXIS Distribution Corporation; Boston, MA 02116 Senior Vice President, General Counsel, Secretary and Clerk, CDC IXIS Asset Management Distributors, L.P.; Senior Vice President, General Counsel, Secretary and Clerk, CDS IXIS Asset Management Advisers, L.P.; Executive Vice President, General Counsel, Secretary, Clerk and Director CDC IXIS Asset Management Services; Senior Vice President and General Counsel, Funds Distributor, Inc.; Vice President and General Counsel, Boston Institutional Group; Senior Vice President and General Counsel, Financial Research Corporation
65 SUPPLEMENTS TO THE PROSPECTUS Supplement dated February 19, 2002 to the currently effective CDC Nvest Money Market Funds Classes A, B and C Prospectus and CDC Nvest Income Funds Classes A, B and C and Class Y Prospectuses EFFECTIVE JANUARY 1, 2002 THE FOLLOWING TABLE IN THE "IT'S EASY TO OPEN AN ACCOUNT" SECTION AND THE "RETIREMENT PLANS" PARAGRAPH UNDER "ADDITIONAL INVESTOR SERVICES" ARE REVISED TO REFLECT THE ADDITION OF COVERDELL EDUCATION SAVINGS ACCOUNTS IN THE CLASSES A, B AND C PROSPECTUSES:
MINIMUM TO OPEN AN ACCOUNT MINIMUM TO USING INVESTMENT BUILDER MINIMUM FOR TYPE OF ACCOUNT OPEN AN ACCOUNT OR PAYROLL DEDUCTION EXISTING ACCOUNTS Any account other than those listed below $2,500 $100 $100 Accounts registered under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to Minors Act ("UTMA") $2,500 $100 $100 Individual Retirement Accounts ("IRAs") $ 500 $100 $100 Coverdell Education Savings Accounts $ 500 $100 $100 Retirement plans with tax benefits such as corporate pension, profit sharing and Keogh plans $ 250 $100 $100 Payroll Deduction Investment Programs for SARSEP*, SEP, SIMPLE IRA, 403(b)(7) and certain other retirement plans $ 25 N/A $ 25
Effective March 1, 2002, all references to the Investment Builder Program and Payroll Deduction minimum shall be revised to reflect a reduction in the minimum from $100 per month to $25 per month. The sections of the prospectuses affected are "It's Easy to Open an Account", "Buying Shares" and "Additional Investor Services." CDC NVEST SHORT TERM CORPORATE INCOME FUND Supplement dated February 19, 2002 to the currently effective CDC Nvest Income Funds Classes A, B, C and Class Y Prospectuses, as supplemented January 1, 2002, CDC Nvest Income Funds Statement of Additional Information ("SAI") and CDC Nvest Funds SAI Part II, as supplemented January 1, 2002 On December 14, 2001, the Board of Trustees of CDC Nvest Funds Trust II approved changing CDC Nvest Short Term Corporate Income Fund's name to CDC Nvest Short Term Bond Fund, effective May 1, 2002. 66 REGULAR INVESTING PAYS FIVE GOOD REASONS TO INVEST REGULARLY 1. It's an easy way to build assets. 2. It's convenient and effortless. 3. It requires a low minimum to get started. 4. It can help you reach important long-term goals like financing retirement or college funding. 5. It can help you benefit from the ups and downs of the market. With Investment Builder, CDC Nvest Funds' automatic investment program, you can invest as little as $25 a month in your CDC Nvest fund automatically -- without even writing a check. And, as you can see from the chart below, your monthly investments can really add up over time. [CHART OF THE POWER OF MONTHLY INVESTING] $100 $95,837 200 191,673 500 479,183
Assumes an 8% fixed rate of return compounded monthly and does not allow for taxes. Results are not indicative of the past or future results of any CDC Nvest Funds. The value and return on CDC Nvest Funds fluctuate with changing market conditions. This program cannot assure a profit nor protect against a loss in a declining market. It does, however, ensure that you buy more shares when the price is low and fewer shares when the price is high. Because this program involves continuous investment in securities regardless of fluctuating prices, investors should consider their financial ability to continue purchases during periods of high or low prices. You can start an Investment Builder program with your current CDC Nvest Funds account. To add Investment Builder to your account today, call your financial representative or CDC Nvest Funds at 800-225-5478. PLEASE CALL CDC NVEST FUNDS FOR A PROSPECTUS, WHICH CONTAINS MORE INFORMATION, INCLUDING CHARGES AND OTHER ONGOING EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. 67 GLOSSARY FOR MUTUAL FUND INVESTORS TOTAL RETURN - The change in value of a mutual fund investment over a specific period, assuming all earnings are reinvested in additional shares of the fund. Expressed as a percentage. INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest or dividend income earned by a fund's portfolio. CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from selling securities in a fund's portfolio. Capital gains distributions are usually paid once a year, when available. MARKET CAPITALIZATION - The value of a company's issued and outstanding common stock, as priced by the market: NUMBER OF OUTSTANDING SHARES X CURRENT MARKET PRICE OF A SHARE = MARKET CAPITALIZATION. PRICE/EARNINGS RATIO - Current market price of a stock divided by its earnings per share. Also known as the "multiple," the price/earnings ratio gives investors an idea of how much they are paying for a company's earning power and is a useful tool for evaluating the costs of different stocks. GROWTH INVESTING - An investment style that emphasizes companies with strong earnings growth. Growth investing is generally considered more aggressive than "value" investing. VALUE INVESTING - A relatively conservative investment approach that focuses on companies that may be temporarily out of favor or whose earnings or assets aren't fully reflected in their stock prices. Value stocks tend to have a lower price/earnings ratio than that of growth stocks. STANDARD & POOR'S 500(R) (S&P 500) - Market value-weighted index showing the change in aggregate market value of 500 stocks relative to the base period of 1941-1943. It is composed mostly of companies listed on the New York Stock Exchange. It is not possible to invest directly in an index. 68 CDC NVEST FUNDS CDC Nvest AEW Real Estate Fund CDC Nvest Balanced Fund CDC Nvest Bond Income Fund CDC Nvest Capital Growth Fund CDC Nvest Cash Management Trust -- Money Market Series* CDC Nvest Government Securities Fund CDC Nvest Growth and Income Fund CDC Nvest High Income Fund CDC Nvest International Equity Fund CDC Nvest Jurika & Voyles Relative Value Fund CDC Nvest Jurika & Voyles Small Cap Growth Fund CDC Nvest Large Cap Growth Fund CDC Nvest Large Cap Value Fund CDC Nvest Limited Term U.S. Government Fund CDC Nvest Massachusetts Tax Free Income Fund CDC Nvest Mid Cap Growth Fund CDC Nvest Municipal Income Fund CDC Nvest Select Fund CDC Nvest Short Term Corporate Income Fund CDC Nvest Star Advisers Fund CDC Nvest Star Growth Fund CDC Nvest Star Small Cap Fund CDC Nvest Star Value Fund CDC Nvest Star Worldwide Fund CDC Nvest Strategic Income Fund CDC Nvest Targeted Equity Fund CDC Nvest Tax Exempt Money Market Trust* * Investments in money market funds are not insured or guaranteed by the FDIC or any government agency. INVESTMENT MANAGERS AEW Management and Advisors Montgomery Asset Management Capital Growth Management RS Investment Management Harris Associates/Oakmark Funds Reich & Tang Asset Management Jurika & Voyles Vaughan, Nelson, Scarborough Loomis, Sayles & Company & McCullough Mercury Advisors Westpeak Global Advisors Miller Anderson For current fund performance, ask your financial representative, access the CDC Nvest Funds website at www.cdcnvestfunds.com, or call CDC Nvest Funds at 800-225-5478 for the current edition of FUND FACTS. This material is authorized for distribution to prospective investors when it is preceded or accompanied by the Fund's current prospectus, which contains information about sales charges, management and other items of interest. Investors are advised to read the prospectus carefully before investing. CDC IXIS Asset Management Distributors, L.P., and other firms selling shares of CDC Nvest Funds are members of the National Association of Securities Dealers, Inc. (NASD). As a service to investors, the NASD 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 the NASD at 800-289-9999 or by visiting their website at www.NASDR.com. 69 [CDC NVEST FUNDS CDC IXIS ASSET MANAGEMENT DISTRIBUTORS LOGO] PRESORT STANDARD U.S. POSTAGE PAID BROCKTON, MA PERMIT NO. 770 - -------------------- P.O. Box 8551 Boston, Massachusetts 02266-8551 - -------------------- www.cdcnvestfunds.com TO THE HOUSEHOLD OF: DROWNING IN PAPER? Go to: www.cdcnvestfunds.com Click on: Sign up now for E-delivery* Get your next CDC Nvest Funds report online. *Not available for Corporate Retirement Plans and SIMPLE IRAs -----END PRIVACY-ENHANCED MESSAGE-----