N-30D 1 d11268.txt [LOGO] CDC NVEST FUNDS(SM) CDC IXIS Asset Management Distributors Semiannual Report June 30, 2002 -------------------------------------------------------------------------------- CDC Nvest Short Term Bond Fund (formerly CDC Nvest Short Term Corporate Income Fund) Loomis, Sayles & Company CDC Nvest Bond Income Fund Loomis, Sayles & Company CDC Nvest High Income Fund Loomis, Sayles & Company CDC Nvest Strategic Income Fund Loomis, Sayles & Company CDC Nvest Limited Term U.S. Government Fund Loomis, Sayles & Company CDC Nvest Government Securities Fund Loomis, Sayles & Company See page 53 for supplement to the prospectus. TABLE OF CONTENTS Semiannual Report June 30, 2002 President's Letter ......................................................... i Economic Update ............................................................ 1 Portfolio Managers' Commentary and Performance CDC Nvest Short Term Bond Fund ........................................... 2 CDC Nvest Bond Income Fund ............................................... 4 CDC Nvest High Income Fund ............................................... 6 CDC Nvest Strategic Income Fund .......................................... 8 CDC Nvest Limited Term U.S. Government Fund .............................. 10 CDC Nvest Government Securities Fund ..................................... 12 Risks of the CDC Nvest Income Funds ........................................ 14 Financial Statements Schedules of Investments CDC Nvest Short Term Bond Fund ........................................... 15 CDC Nvest Bond Income Fund ............................................... 17 CDC Nvest High Income Fund ............................................... 20 CDC Nvest Strategic Income Fund .......................................... 22 CDC Nvest Limited Term U.S. Government Fund .............................. 26 CDC Nvest Government Securities Fund ..................................... 27 Statements of Assets and Liabilities ....................................... 28 Statements of Operations ................................................... 30 Statements of Changes in Net Assets ........................................ 32 Financial Highlights ....................................................... 34 Notes to Financial Statements .............................................. 42 Supplement to the Prospectus ............................................... 53 PRESIDENT'S LETTER August 2002 -------------------------------------------------------------------------------- [PHOTO OF JOHN T. HAILER] John T. Hailer President CDC Nvest Funds "This consensus [on the outlook for the economy] among our growth, value, international, fixed-income and real estate specialists gives us confidence in the future of the investment markets." Dear Shareholder: For many investors, living in the post-bubble economy has meant taking a more jaded outlook on the world. The horror of September 11, the shock of scandals at Enron, Arthur Andersen and now WorldCom, coupled with continuing erratic performance of the financial markets, are enough to alter the hopes of even the most optimistic individual. We at CDC Nvest Funds believe that this is precisely the time for optimism. A time to put fears and doubts aside and focus on the core investment principles that can help us weather short-term market disruptions and pursue long-term financial goals with confidence: Invest for the long-term, diversify your portfolio, and seek professional investment advice. We recently turned to portfolio managers from 13 of our affiliated firms and unaffiliated business partners to ask for their outlook on the economy. These 58 experienced investment managers, representing a diverse cross section of investment disciplines and specialties, were positive about economic prospects for the rest of the year. Normally, we look to our managers for their independent thinking and unique investment perspective. This consensus among our growth, value, international, fixed-income and real estate specialists gives us confidence in the future of the investment markets. To help you gain a personal perspective on the current state of the economy, this report begins with a summary of economic activity in the past six months. One of the key benefits of the multi-manager approach we apply to CDC Nvest Funds is the added flexibility it gives us to match management talent to specific investments. But our involvement does not end when a manager has been assigned to a fund. As an organization, we continually monitor the investment performance of each management team and we will make changes when appropriate. Most recently we put this capability to work by appointing Harris Associates interim manager for CDC Nvest Growth and Income Fund, giving our shareholders access to the consistent value strategies that investors in The Oakmark Family of Funds have known for 25 years. In considering the many challenges presented by today's quickly changing marketplace, we would like to recognize the efforts of the portfolio managers who are responsible for the CDC Nvest family of funds. They have demonstrated their ability to keep their investment decisions in line with fund objectives and to be responsive to an unpredictable investment market. Please take some time to review their reports on the investment environment and their investment decisions over the past six months. We believe you will find them informative and educational. As always we encourage you to speak with your financial advisor to learn more about the information covered here. Sincerely, /s/ John T. Hailer i ECONOMIC UPDATE THE ECONOMY When the U. S. Commerce Department released its report in late July, it showed that domestic growth slowed to an annual rate of 1.1% in the second quarter, down from its revised first-quarter growth rate of 5.0%. The same report provided revised numbers for 2001, indicating that Gross Domestic Product (GDP) declined in three out of four quarters in 2001, ending the debate over whether last year's slump qualified as a recession. Despite this sluggish activity and a barrage of bad news ranging from corporate accounting irregularities to new terrorist warnings, some key indicators support the view that the economy will continue to expand. The manufacturing sector reported its fifth consecutive month of growth in June. Job growth has accelerated and the unemployment rate has held steady at around 5.8%. However, job-cut announcements rose 11.5% in June, led by cuts in the telecommunications sector. And although consumers earned more, they tightened their purse strings, according to Commerce Department figures. Construction spending also slipped near the end of the second quarter, creating enough uncertainty to prompt the Federal Reserve Board to leave short-term interest rates unchanged at 1.75% when it met in June. -------------------------------------------------------------------------------- Consumer Confidence and GDP June 1997 through June 2002 [THE FOLLOWING INFORMATION WAS REPRESENTED AS A BAR AND LINE CHART IN THE PRINTED MATERIAL] Consumer Confidence Index Gross Domestic Product (GDP) (1985 = 100) (Quarterly % change) [Line] [Bar] 6/97 5.9 129.9 4.2 130.2 12/97 2.8 136.2 6.1 133.8 6/98 2.2 138.2 4.1 126.4 12/98 6.7 126.7 3.0 134 6/99 2.0 139 5.2 134.2 12/99 7.1 141.7 2.6 137.1 6/00 4.8 139.2 0.6 142.5 12/00 -1.1 128.6 -0.6 116.9 6/01 -1.6 118.9 -0.3 97 12/01 2.7 94.6 5.0 110.7 6/02 1.1 106.4 Source: The Consumer Confidence Index is compiled by The Conference Board based on a monthly survey of 5,000 U.S. households. The GDP is compiled quarterly by the U.S. Commerce Department based on the total market value of goods and services produced each year. When consumers are confident, they spend money; when they are anxious, they retrench. Although GDP measures business as well as consumer spending, consumer activity accounts for two-thirds of the index. The chart shows that consumer confidence began to decline in September 2000, with a sharp drop in September 2001 after the terrorist attacks on the United States. The increase in confidence in the first quarter of 2002 was reflected in strong GDP numbers before a string of corporate scandals led to a retreat. -------------------------------------------------------------------------------- THE EQUITY MARKETS Good economic news was not enough to offset the impact on stock prices of a steady stream of revelations of questionable accounting practices. During the first half of 2002, the Dow Jones Industrial Average lost 7.77%, the tech-heavy Nasdaq was off 24.98% and the broad-based S&P 500 fell 13.16%. Technology, telecommunications and energy-trading firms suffered the most as a result of investors' loss of confidence and individual companies' woes. Yet some segments of the market managed solid gains, including defense, consumer and homebuilding stocks. Attention is now focusing on the next round of corporate earnings reports, which have the potential to lift consumer confidence or drive it down further. One hopeful note: The number of companies that have posted advance warnings of earnings disappointments has slowed recently. Outside the United States, foreign markets were lackluster. The Morgan Stanley Capital International EAFE Index, a broad measure of stock market performance in industrialized nations, lost 1.62% for the half year, and most emerging markets posted losses. Japan added to its first quarter gains as the yen rose against the dollar and investors pinned their hopes on exports to jump-start an economic recovery. THE FIXED-INCOME MARKETS Treasury securities were less volatile than the rest of the fixed-income markets in the first half of 2002, as uncertainty about the economy and corporate scandals kept demand for safety at high levels. The yield on the benchmark 10-year U.S. Treasury bonds rose from 4.57% at the beginning of January to 5.39% at the end of March, and then subsided to 4.82% at June 30 - almost a round trip. However, high-yield bonds pulled back, sending prices down as bankruptcies remained high. The mortgage market edged downward as lower interest rates provided new incentive for homeowners to refinance. Municipal bonds did well as rising demand more than offset rising supply. 1 CDC NVEST SHORT TERM BOND FUND Portfolio Profile -------------------------------------------------------------------------------- Objective: Seeks a high level of current income consistent with preservation of capital Strategy: Invests primarily in 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: (June 30, 2002) Class A $6.94 Class B 6.93 Class C 6.92 Class Y 6.94 Management Discussion -------------------------------------------------------------------------------- Effective May 1, 2002, the fund's name changed from CDC Nvest Short Term Corporate Income Fund to CDC Nvest Short Term Bond Fund. The fund's objective has remained the same, as has its management team, which has more than 40 years of combined experience. During the first half of 2002, stocks and corporate bonds declined in response to the accounting scandals that impacted some of America's largest corporations. CDC Nvest Short Term Bond Fund's telecommunications holdings - notably WorldCom and Qwest -detracted from its results. For the six months ended June 30, 2002, the total return on Class A fund shares was -0.45% at net asset value, including $0.18 per share in reinvested dividends. The fund's benchmark, Lehman Brothers 1-3 Year Government/Credit Index, returned 2.53% for the same period, and the average return on the funds in Morningstar's Short Term Bond category was 1.89%. The 30-day SEC yield on Class A shares of the fund was 4.12% as of June 30, 2002. MANAGER SOLD TELECOM HOLDINGS AT A LOSS A broad-based decrease in corporate telecommunications spending and long-distance services was made worse by management and accounting scandals, all of which led to a severe liquidity crisis. In June, allegations were made that WorldCom had misreported earnings over the previous five quarters, showing profits when there were actually losses. Other issues in this sector, which had previously enjoyed high ratings, also declined. We sold the fund's holdings in both WorldCom and Qwest before they reached their low for the period, but the fund still felt the impact. HIGHEST QUALITY BONDS PROVIDED SUPPORT News headlines so far this year have created an atmosphere of doubt and confusion, causing investors to seek the relative safety of AAA-rated bonds. The fund's investments in government securities and bonds issued by top-rated companies did well, as did the mortgage-backed issues in the portfolio. We also had good results from holdings in Honeywell and Ingersoll Rand, two industrial companies with extensive asset bases. During the period, we increased our exposure to AAA-rated, asset-backed issues, including those backed by automobile and credit card receivables. These bonds combine a stable source of incremental income with high credit quality. TODAY'S LOW VALUATIONS OFFER OPPORTUNITIES We believe the wounds caused by corporate scandals will take time to heal. However, we also believe the vast majority of companies provide honest, accurate financial information to investors. By now the string of corporate scandals appears to have driven home the need to somehow ensure the accuracy of financial statements to increase public confidence. We believe that earnings are indeed improving for many companies, but valuations are still low. There is also evidence that the economy is improving - gross domestic product is positive, and housing and productivity are strong. In time, this should help restore confidence in the financial markets. MANAGER FORECASTS MODEST INFLATION, STABLE INTEREST RATES We believe interest rates will continue to be stable, or perhaps rise slightly over the next 6 to 12 months. Inflation is likely to stay mild in the near term, as productivity growth remains strong and employment statistics continue to be weak. We continue to keep the fund's maturities on the short side to help reduce volatility. Today's environment underscores the fact that, even with rigorous screening of all potential fund holdings, there can be no assurances. However, we believe CDC Nvest Short Term Bond Fund will generate competitive returns and should provide shareholders with a steady monthly income. 2 CDC NVEST SHORT TERM BOND FUND Investment Results through June 30, 2002 -------------------------------------------------------------------------------- Performance in Perspective The charts comparing CDC Nvest Short Term Bond 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. Growth of a $10,000 Investment in Class A Shares -------------------------------------------------------------------------------- June 1992 through June 2002 [THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL] Lehman 1-5 Yr. Lehman 1-3 Yr. Net Asset Maximum Sales Credit Govt/Credit Value(1) Charge(2) Index(6) Index(5) 6/92 10000 9700 10000 10000 10057 9756 10164 10117 10100 9797 10253 10199 10166 9861 10368 10296 10139 9835 10248 10234 10161 9856 10223 10220 10197 9891 10346 10316 10264 9956 10518 10426 10318 10009 10662 10512 10356 10046 10713 10545 10420 10107 10814 10612 10429 10116 10797 10587 6/93 10492 10177 10931 10668 10515 10200 10963 10692 10565 10248 11102 10782 10599 10281 11139 10817 10592 10274 11181 10842 10582 10264 11170 10845 10615 10297 11227 10889 10664 10344 11347 10959 10667 10347 11231 10892 10630 10311 11103 10835 10606 10288 11037 10794 10599 10281 11055 10809 6/94 10635 10316 11086 10838 10658 10339 11232 10936 10726 10404 11281 10973 10706 10385 11219 10949 10733 10411 11232 10974 10716 10395 11168 10928 10703 10382 11193 10949 10825 10500 11378 11099 10945 10617 11604 11252 11061 10729 11678 11316 11118 10784 11816 11418 11239 10902 12119 11610 6/95 11267 10929 12199 11681 11313 10973 12231 11728 11370 11029 12336 11799 11442 11099 12416 11857 11499 11154 12538 11956 11569 11222 12688 12059 11623 11274 12809 12150 11696 11345 12942 12254 11732 11380 12849 12207 11772 11419 12799 12199 11826 11471 12787 12211 11866 11510 12798 12239 6/96 11905 11548 12918 12329 11962 11603 12967 12377 12020 11659 12994 12422 12093 11730 13159 12536 12185 11819 13362 12538 12259 11891 13510 12772 12301 11932 13463 12775 12344 11974 13532 12836 12415 12043 13567 12868 12459 12085 13505 12858 12535 12159 13646 12964 12596 12218 13755 13054 6/97 12673 12293 13875 13145 12769 12386 14117 13291 12849 12463 14075 13303 12910 12522 14222 13403 12990 12600 14322 13502 12999 12609 14347 13536 13062 12670 14442 13626 13143 12748 14615 13757 13164 12769 14626 13768 13209 12813 14681 13822 13252 12855 14762 13890 13296 12897 14862 13966 6/98 13338 12938 14939 14038 13363 12962 14999 14103 13477 13073 15127 14265 13496 13091 15438 14457 13503 13098 15410 14520 13530 13124 15482 14518 13590 13182 15533 14574 13644 13234 15648 14636 13561 13154 15511 14574 13665 13255 15656 14677 13731 13319 15731 14728 13626 13218 15634 14716 6/99 13655 13245 15675 14759 13684 13273 15655 14802 13674 13264 15676 14841 13780 13367 15822 14940 13790 13376 15885 14985 13780 13367 15928 15018 13843 13428 15920 15033 13818 13403 15886 15033 13928 13511 16009 15137 13978 13559 16101 15223 13868 13452 16062 15252 13898 13481 16100 15308 6/00 14111 13687 16350 15476 14223 13796 16486 15582 14274 13845 16659 15706 14469 14035 16835 15835 14469 14035 16851 15906 14614 14176 17012 16054 14768 14324 17269 16248 14906 14459 17582 16478 15000 14550 17746 16595 15115 14661 17901 16730 15144 14690 17937 16783 15237 14780 18072 16886 6/01 15265 14807 18152 16951 15531 15065 18489 17164 15645 15176 18656 17281 15848 15372 18870 17538 16005 15525 19109 17713 15942 15464 19008 17665 6/02 15922 15444 18950 17674 15968 15489 18034 17725 15968 15489 19137 17802 15878 15402 18952 17686 15900 15423 19191 17883 16032 15551 19415 17977 15850 15374 19523 18121 Average Annual Total Returns-- June 30, 2002 --------------------------------------------------------------------------------
6 Months(4) 1 Year(4) 5 Years(4) 10 Years(4) Since Inception(4) Class A (Inception 10/18/91) Net Asset Value(1) -0.45% 3.83% 4.58% 4.71% -- With Maximum Sales Charge(2) -3.42 0.69 3.94 4.40 -- Class B (Inception 9/13/93) Net Asset Value(1) -0.83 2.91 3.80 -- 3.91% With CDSC(3) -5.68 -2.01 3.47 -- 3.91 Class C (Inception 12/7/98) Net Asset Value(1) -0.83 2.75 -- -- 3.72 With Maximum Sales Charge and CDSC(3) -2.76 0.76 -- -- 3.44 Class Y (Inception 10/1/01) Net Asset Value(1) -0.46 -- -- -- -0.06
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Since Since Since Class B Class C Class Y Comparative Performance 6 Months 1 Year 5 Years 10 Years Inception(9) Inception(9) Inception(9) Lehman 1-3 Yr. Govt/Credit Index(5) 2.53% 6.88% 6.64% 6.13% 6.08% 6.42% 3.48% Lehman 1-5 Yr. Credit Index(6) 3.02 7.56 7.05 6.92 6.62 6.75 3.27 Morningstar Short Bond Fund Ave.(7) 1.89 5.15 5.86 5.78 5.43 5.52 1.57 Lipper Short Inv. Grade Funds Ave.(8) 1.52 4.72 5.70 5.56 5.34 5.45 0.91
All returns represent past performance and do not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. Portfolio as of June 30, 2002 -------------------------------------------------------------------------------- Credit Quality [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Aaa 28.1% Aa 33.6% A 5.1% Baa 6.2% Ba 2.0% Not rated 25.0% Average Effective Maturity: 2.1 years Credit quality is based on bond ratings from Moody's Investors Service Effective Maturity [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Less than 1 year 31.6% 1-5 years 68.0% 5-10 years 0.4% See page 14 for information on the possible risks associated with an investment in this fund. Notes to Charts (1) These results do not include a sales charge. (2) These results include the maximum sales charge of 3.00%. (3) 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 1-3 Year Government/Credit Index is an unmanaged index of U.S. government and U.S. and foreign corporate debt securities with maturities of one to three years. (6) Lehman Brothers 1-5 Year Credit Index is an unmanaged index of investment-grade domestic corporate debt securities with maturities of one to five years. (7) Morningstar Short Term Bond Average is the average performance without sales charges of funds with similar investment objectives, as calculated by Morningstar, Inc. (8) Lipper Short Term Investment Grade Debt Funds Average is the average performance without sales charges of funds with similar investment objectives, as calculated by Lipper Inc. (9) 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. 3 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 quality corporate and U.S. government bonds and some foreign 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: (June 30, 2002) Class A $10.99 Class B 10.99 Class C 11.00 Class Y 11.03 Management Discussion -------------------------------------------------------------------------------- During the first half of 2002, the corporate bond market reacted to a series of accounting and credibility controversies involving some of America's largest corporations. Some high-yield bonds in CDC Nvest Bond Income Fund's portfolio fell sharply in value during the period. The total return on Class A shares of the fund for the six months ended June 30, 2002, was -2.35% based on net asset value, including $0.32 per share in reinvested dividends. For the same period, the fund's benchmark, the Lehman Brothers Aggregate Bond Index, returned 3.79%, and the average return on the funds in Morningstar's Intermediate Bond Fund category was 2.35%. The fund's 30-day SEC yield on June 30, 2002 was 6.25%. FUND'S TELECOM BONDS HURT PERFORMANCE A broad-based slowdown in corporate spending for telecommunications and long-distance services led to a severe liquidity crisis. This was made worse by allegations of accounting misstatements at such major players as WorldCom, which spread to affect other telecom issuers. Cable and energy companies also fared poorly during the period. High-yield bonds in all three sectors were the hardest hit, suffering additional credit downgrades just when they needed greater liquidity. We sold the fund's holdings in WorldCom and Qwest at a loss. HIGH-QUALITY, FOREIGN ISSUES PERFORMED WELL Government and mortgage-backed securities and high-quality corporate bonds accounted for more than half the fund's portfolio as of June 30, 2002. Poor stock market performance, renewed geopolitical unrest and fears of terrorism caused investors to seek relative safety, driving up prices of higher-rated bonds. During the first half of 2002, we upgraded the fund's corporate bond holdings, focusing on quality corporate bonds and Yankee obligations as a defensive measure, but we trimmed Treasury securities. We also shifted the fund's portfolio so that, as of the end of June, it had a slightly shorter duration than the Lehman Brothers Aggregate Bond Index. At the same time, we maintained the fund's emphasis on yield. When the U.S. dollar weakened during the period, the fund's holdings in non-dollar denominated issues provided support. These included the fund's World Bank bonds, denominated in Australian dollars. Good returns from Kappa-Beheer, a paper company with bonds denominated in euros, reflected rising paper valuations as the global economy improved, as well as the rise of the euro versus the U.S. dollar. FORECAST FOR MODERATE GROWTH, LOW INFLATION AND INTEREST RATES We expect moderate growth in the United States after the strong first quarter. Against a backdrop of strained corporate profitability, we believe companies will continue to down-size, restructure and reduce capital spending. This will hold down job growth and could adversely affect consumer spending, which has remained surprisingly strong throughout the economic downturn. Under this scenario, inflation pressures should also remain moderate. Although they may begin to trend upward at the end of the year, short-term interest rates are unlikely to show much movement in the near future, which would be positive for bond prices. MANAGER BELIEVES TODAY'S MARKET SIMILAR TO EARLY '90S Valuations on corporate bonds, particularly medium- and lower-grade credits, are approaching their lowest levels in more than ten years. We believe this situation has created a potential for capital appreciation as the yield difference between high- and low-quality bonds returns to historic norms. In the early 1990s, when the United States. was emerging from a recession and corporate profitability was starting to recover, higher yielding corporate bonds recorded several years of double-digit returns. For investors who take a longer-term view, the opportunities are there, and we believe CDC Nvest Bond Income Fund is in a good position to provide shareholders with current income and potential appreciation in the coming year. 4 CDC NVEST BOND INCOME FUND Investment Results through June 30, 2002 -------------------------------------------------------------------------------- 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. Growth of a $10,000 Investment in Class A Shares -------------------------------------------------------------------------------- June 1992 through June 2002 [THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL] Lehman Brothers Lehman Brothers Net Asset Maximum Sales Aggregate Bond U.S. Credit Value(1) Charge(2) Index(4) Index(5) 6/92 10000 9550 10000 10000 10325 9860 10204 10267 10412 9943 10307 10347 10567 10091 10430 10472 10361 9895 10291 10286 10319 9854 10295 10302 10499 10026 10457 10492 10746 10262 10658 10737 11012 10516 10844 10983 11033 10536 10890 11022 11120 10620 10965 11107 11135 10634 10979 11120 6/93 11374 10862 11178 11390 11466 10950 11242 11472 11695 11168 11439 11757 11701 11174 11470 11786 11779 11249 11513 11845 11653 11128 11415 11699 11744 11216 11477 11768 11928 11391 11632 11997 11666 11141 11430 11713 11354 10843 11148 11354 11237 10731 11059 11245 11178 10675 11057 11203 6/94 11109 10609 11033 11176 11318 10808 11252 11458 11378 10866 11266 11471 11257 10750 11100 11257 11227 10721 11090 11231 11196 10692 11066 11213 11254 10748 11142 11305 11444 10929 11363 11545 11820 11288 11633 11878 11823 11291 11704 11975 12056 11514 11868 12177 12588 12021 12327 12751 6/95 12700 12128 12417 12866 12632 12063 12390 12809 12856 12277 12539 13015 13017 12431 12661 13170 13190 12596 12826 13341 13396 12793 13018 13596 13591 12979 13201 13820 13648 13034 13288 13910 13352 12751 13057 13579 13285 12688 12966 13463 13174 12581 12894 13352 13162 12570 12867 13328 6/96 13355 12754 13040 13524 13389 12786 13076 13550 13389 12786 13054 13508 13700 13083 13281 13795 14047 13415 13576 14171 14386 13738 13808 14474 14218 13578 13680 14274 14297 13654 13722 14294 14387 13740 13756 14354 14172 13534 13603 14131 14328 13683 13807 14345 14521 13868 13938 14507 6/97 14776 14111 14103 14713 15371 14679 14483 15251 15109 14429 14360 15026 15409 14716 14572 15289 15556 14856 14783 15483 15627 14924 14851 15570 15789 15078 15000 15735 15999 15279 15193 15922 16051 15328 15182 15917 16150 15423 15234 15975 16224 15493 15313 16076 16389 15651 15459 16267 6/98 16450 15710 15590 16387 16407 15668 15623 16372 16244 15513 15877 16448 16872 16112 16249 16981 16694 15943 16163 16719 17026 16260 16255 17034 17052 16285 16304 17084 17236 16460 16420 17253 16888 16128 16133 16843 17120 16350 16223 16963 17256 16480 16274 17012 16881 16121 16132 16785 6/99 16773 16018 16080 16697 16707 15955 16012 16605 16640 15891 16004 16564 16922 16160 16189 16744 16961 16198 16249 16821 16986 16221 16248 16839 16994 16229 16170 16750 16923 16162 16117 16691 17114 16344 16312 16846 17348 16567 16526 16989 17028 16262 16479 16840 16903 16143 16472 16777 6/00 17415 16631 16814 17199 17517 16729 16967 17407 17743 16945 17213 17634 17769 16970 17321 17726 17668 16873 17436 17744 17836 17033 17721 17974 18250 17429 18049 18323 18703 17862 18345 18824 18888 18038 18504 18988 18912 18061 18597 19106 18805 17958 18520 19037 18924 18073 18632 19211 6/01 18929 18078 18702 19309 19408 18534 19120 19813 19623 18740 19339 20079 19542 18662 19565 20049 19926 19029 19974 20546 19794 18903 19699 20368 6/02 19573 18692 19574 20228 19529 18650 19732 20399 19453 18578 19923 20553 19240 18374 19592 20174 19421 18547 19972 20455 19584 18702 20141 20726 19109 18255 20316 20759 Average Annual Total Returns-- June 30, 2002 --------------------------------------------------------------------------------
6 Months 1 Year 5 Years 10 Years Since Inception Class A (Inception 11/7/73) Net Asset Value(1) -2.35% 0.97% 5.28% 6.69% -- With Maximum Sales Charge(2) -6.78 -3.54 4.32 6.20 -- Class B (Inception 9/13/93) Net Asset Value(1) -2.70 0.23 4.50 -- 4.84% With CDSC(3) -7.44 -4.52 4.20 -- 4.84 Class C (Inception 12/30/94) Net Asset Value(1) -2.71 0.22 4.50 -- 6.33 With Maximum Sales Charge and CDSC(3) -4.64 -1.75 4.29 -- 6.19 Class Y (Inception 12/30/94) Net Asset Value(1) -2.05 1.54 5.64 -- 7.58
Since Since Class B Class C & Y Comparative Performance 6 Months 1 Year 5 Years 10 Years Inception(8) Inception(8) Lehman Aggregate Bond Index(4) 3.79% 8.63% 7.57% 7.35% 6.75% 8.34% Lehman U.S. Credit Index(5) 2.63 7.51 7.13 7.58 6.68 8.44 Morningstar Int. Bond Fund Average(6) 2.35 6.36 6.26 6.63 5.79 7.29 Lipper Int. Investment Grade Debt Avg.(7) 2.48 6.72 6.41 6.53 5.78 7.27
All returns represent past performance and do not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. Portfolio as of June 30, 2002 -------------------------------------------------------------------------------- Credit Quality [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Aaa & Aa 50.2% A 11.1% Baa 23.8% Ba 10.5% B 2.3% Not rated 2.1% Credit quality is based on bond ratings from Moody's Investors Service Effective Maturity [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Less than 1 year 7.3% 1-5 years 36.0% 5-10 years 40.8% 10+ years 15.9% Average Effective Maturity: 7.4 years See page 14 for information on the possible risks associated with an investment in this fund. Notes to Charts (1) These results do not include a sales charge. (2) These results include the maximum sales charge of 4.50%. (3) 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 U.S. 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 Fund 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. 5 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: Kathleen C. Gaffney Matthew J. Eagan Loomis, Sayles & Company, L.P. Symbols: Class A NEFHX Class B NEHBX Class C NEHCX Net Asset Value Per Share: (June 30, 2002) Class A $4.29 Class B 4.30 Class C 4.29 Management Discussion -------------------------------------------------------------------------------- Higher-yielding, lower-rated corporate securities trailed high-quality corporate bonds and government securities during the first half of 2002. Unfortunately, CDC Nvest High Income Fund's communications holdings took a heavy toll on the value of its portfolio. For the six months ended June 30, 2002, the total return on Class A fund shares was -9.09%, including $0.22 per share in reinvested dividends. The fund's benchmark, the Lehman Brothers High Yield Composite Index, returned -4.84% for the same period, and the average return on the funds in Morningstar's High Yield Bond Fund category was -3.66%. As of June 30, 2002, the fund's 30-day SEC yield was 8.85%. WOES PERSISTED FOR TELECOM FIRMS Scandals involving accounting misstatements and other misdeeds took a harsh toll on some highly regarded companies. Telecommunications, which had been experiencing an earnings slump, was the worst sector. Once mighty WorldCom was teetering on the edge of bankruptcy at the end of June, and Adelphia Communications bonds had fallen in value following allegations of misdeeds by the company's founders and top management. We sold both positions at a loss before the end of June. However, we still favor wireless communications companies that also enjoy strong local telephone franchises, like AT&T Wireless Services. BASIC INDUSTRIES, CONSUMER ISSUES, PERFORMED WELL The U.S. economy has taken some steps toward recovery. Basic industries - including paper, chemicals, and consumer products companies - historically have done well coming out of slow economic times, and this sector performed well for the fund in the first half of the year. Positive results in the consumer products sector included bonds issued by Pennzoil-Quaker State, which rose following the announcement of its proposed merger with Royal Dutch Shell. MANAGERS EXPANDED PORTFOLIO DIVERSIFICATION To broaden diversification and limit exposure to any single company, we reduced position sizes and increased the number of holdings from approximately 40 issues to more than 85. Recent additions cover a broad range of industries, from paper to technology. By continuing this strategy and using rigorous fundamental research, we believe we can help guard against company-specific disappointments. We have also taken advantage of opportunities overseas. Sluggish economic activity in the United States has weakened the dollar versus other countries, and some foreign nations are recovering from their own economic slowdowns. This has positive implications for companies in these countries. The fixed-income markets seem to have settled into noticeable tiers. Yield spreads - the difference in yields between Treasury securities and lower-rated corporate bonds - are very wide, especially for issues of troubled companies or those in stressed industries. On the other hand, yields of high-quality corporate bonds are closer to comparable Treasury issues, reflecting investor demand for relative safety. What's more, an increasing number of companies are taking steps to improve their balance sheets. Political and other pressures are being marshaled to correct the excesses that have tainted the image of corporate America, which would have a favorable effect on bond prices. INFLATION AND INTEREST RATES REMAIN LOW In broad terms, corporate bonds should do well if an economic recovery takes hold in the United States. We see no threat of imminent inflation and we expect the Federal Reserve Board to continue its policy of letting short-term interest rates stay at their current, low levels, at least for a time. Lower taxes and relatively stable energy prices should also help fuel a recovery here at home. As always, we are relying on intensive, proprietary research and careful bond selection. We are finding good value and attractive prospects in select aerospace and defense issues. And, at current prices, some airline and pharmaceutical bonds offer high yields and attractive long-range potential. 6 CDC NVEST HIGH INCOME FUND Investment Results through June 30, 2002 -------------------------------------------------------------------------------- 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. Growth of a $10,000 Investment in Class A Shares -------------------------------------------------------------------------------- June 1992 through June 2002 [THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL] Lehman High Yield Net Asset Maximum Sales Composite Value(1) Charge(2) Index(4) 6/92 10000 9550 10000 10169 9711 10151 10251 9790 10284 10330 9866 10389 10151 9694 10242 10321 9856 10371 10431 9961 10490 10690 10209 10795 10885 10396 10985 11070 10572 11126 11144 10642 11223 11309 10800 11357 6/93 11556 11036 11595 11631 11107 11707 11660 11135 11806 11634 11110 11836 11897 11362 12076 12001 11461 12134 12154 11607 12285 12432 11872 12552 12456 11895 12519 12137 11591 12046 11940 11403 11963 11990 11450 11970 6/94 12040 11498 12007 11964 11426 12108 11913 11377 12194 11939 11401 12195 11919 11383 12224 11731 11203 12070 11762 11232 12159 11847 11314 12323 12154 11607 12746 12233 11682 12883 12475 11914 13211 12706 12134 13581 6/95 12690 12119 13668 12908 12327 13840 12917 12336 13883 12983 12398 14054 13035 12448 14141 13058 12471 14266 13147 12555 14490 13387 12785 14745 13479 12873 14756 13453 12848 14746 13614 13002 14779 13762 13142 14868 6/96 13849 13226 14991 13983 13354 15060 14149 13512 15223 14584 13928 15590 14553 13898 15710 14853 14184 16023 15103 14423 16135 15114 14434 16282 15644 14940 16554 15437 14742 16315 15523 14824 16474 16039 15317 16840 6/97 16143 15416 17073 16583 15836 17542 16688 15937 17502 17186 16413 17849 17036 16269 17865 17265 16488 18036 17425 16641 18194 17687 16891 18521 17662 16868 18630 17845 17042 18805 17941 17134 18879 17913 17107 18945 6/98 17974 17166 19013 17947 17139 19121 16702 15950 18066 16544 15799 18148 16197 15468 17776 17360 16579 18513 17129 16358 18533 17515 16727 18809 17626 16832 18698 17910 17104 18876 18296 17473 19242 17847 17044 18982 6/99 17797 16996 18941 17726 16928 19017 17450 16664 18807 17336 16556 18672 17492 16705 18548 17608 16815 18764 17814 17012 18977 17617 16824 18895 17697 16900 18931 17162 16390 18533 17151 16379 18563 16673 15923 18373 6/00 17178 16405 18747 17280 16503 18890 17212 16437 19019 16856 16097 18853 16015 15294 18249 14684 14024 17526 14948 14275 17865 16684 15933 19203 16600 15853 19459 15752 15043 19001 15268 14581 18764 15308 14619 19102 6/01 14430 13781 18566 14714 14052 18840 14602 13945 19062 13273 12676 17781 13126 12536 18220 13552 12942 18885 13356 12755 18808 13439 12834 18939 13030 12443 18675 13381 12779 19124 13271 12674 19430 13078 12489 19322 6/02 12142 11596 17897 Average Annual Total Returns-- June 30, 2002 --------------------------------------------------------------------------------
6 Months 1 Year 5 Years 10 Years(7) Since Inception(7) Class A (Inception 2/22/84) Net Asset Value(1) -9.09% -15.85% -5.54% 1.96% -- With Maximum Sales Charge(2) -13.13 -19.68 -6.40 1.49 -- Class B (Inception 9/30/93) Net Asset Value(1) -9.40 -16.29 -6.21 -- -0.21% With CDSC(3) -13.74 -20.09 -6.44 -- -0.21 Class C (Inception 3/2/98) Net Asset Value(1) -9.43 -16.48 -- -- -9.03 With Maximum Sales Charge and CDSC(3) -11.19 -18.11 -- -- -9.24
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Since Since Class B Class C Comparative Performance 6 Months 1 Year 5 Years 10 Years Inception(8) Inception(8) Lehman High Yield Composite Index(4) -4.84% -3.60% 0.95% 5.99% 4.84% -1.16% Morningstar High Yield Bond Fund Average(5) -3.66 -3.47 -0.52 4.89 3.30 -2.88 Lipper High Current Yield Funds Average(6) -3.77 -3.55 -0.46 4.84 3.21 -2.97
All returns represent past performance and do not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. Portfolio as of June 30, 2002 -------------------------------------------------------------------------------- Credit Quality [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Baa 16.6% Ba 48.8% B 32.6% Caa and lower 2.0% Credit quality is based on bond ratings from Moody's Investors Service Effective Maturity [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Less than 1 year 6.8% 1-5 years 14.2% 5-10 years 56.6% 10+ years 22.4% Average Effective Maturity: 9.6 years See page 14 for information on the possible risks associated with an investment in this fund. Notes to Charts (1) These results do not include a sales charge. (2) These results include the maximum sales charge of 4.50%. (3) 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. 7 CDC NVEST STRATEGIC INCOME FUND Portfolio Profile -------------------------------------------------------------------------------- Objective: Seeks high current income; capital growth is a secondary objective Strategy: A flexible fund that invests primarily in fixed-income and equity securities in the U.S. and around the world. 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: (June 30, 2002) Class A $10.17 Class B 10.16 Class C 10.16 Class Y 10.19 Management Discussion -------------------------------------------------------------------------------- While the U.S. economy struggled to recover from last year's slowdown, select issues denominated in foreign currencies rose sharply against the slumping U.S. dollar. As a result, issues denominated in Canadian dollars, euros and other currencies, rose in value, contributing significantly to this fund's performance during the first half of 2002. For the six months ended June 30, 2002, the total return on Class A shares of CDC Nvest Strategic Income Fund was 6.55% at net asset value, including $0.35 in reinvested distributions. The fund's benchmark, the Lehman Brothers Aggregate Bond Index, returned 3.79% for the same period, while the average return on the funds in Morningstar's Multi-Sector Bond fund category was 1.11%. The fund's 30-day SEC yield at the end of June was 8.16%. COUNTRY ALLOCATIONS AIDED RESULTS We have believed for some time that the U.S. dollar was overvalued, so we positioned the fund in expectation of a decline in the dollar - a decision that benefited the fund. At the end of the period, bonds issued in local currencies in Canada, New Zealand, Norway and Europe - all areas of strong currency performance - accounted for nearly one third of the fund's assets. Bonds of supranational agencies (those whose activities cross national borders) also performed well, including the fund's holdings in International Bank for Reconstruction and Development. PAPER, REITS AND OTHER SECTORS WERE STRONGEST CONTRIBUTORS Some of the fund's best-performing individual holdings, from the standpoint of capital appreciation, were in Asia, where improving fundamentals led to price recoveries. Bonds of an American paper manufacturer, Dixie Group, also provided above-average appreciation during the period. Bonds of U.S. companies that were upgraded, sending the price of the bonds up, included Foot Locker and two of the fund's auto parts makers, TRW and Dana Corporation. Bonds of real estate investment trusts (REITs) added stability, thanks to their consistent cash flow and tangible assets, as low mortgage rates and continued strong demand added to the sector's appeal. TELECOMM ISSUES AND BRAZILIAN DEBT WERE DISAPPOINTING The telecommunications sector has been under severe pressure. Excess capacity and intense competition have had a negative impact on earnings, and there have been a series of ratings downgrades, government investigations and bankruptcies in this sector. Individual holdings that hurt the fund included bonds of WorldCom, KPNQwest N.V. (a joint venture of Qwest and Dutch telecom giant Royal KPN) and Williams Communications. In South America, the possibility of a debt default by the Brazilian government caused a sharp decline in the real (Brazil's currency) versus the U.S. dollar, and the fund's holdings of Republic of Brazil bonds declined in value. WIDE VALUATION GAPS PRESENT OPPORTUNITIES We are finding a distinct "tiering" effect in the markets. Bonds issued by troubled companies or those in stressed industries are selling at very low prices. They offer high yields relative to Treasury securities with comparable maturities, although prices currently are much firmer, and spreads are narrower, on better quality bonds. Top-quality issues could well rise further in price, with correspondingly lower yields, as the demand for quality and safety persists. However, we also believe that, in time, some beaten-down sectors could provide attractive opportunities for investors, including bonds issued by telecom and media companies, as well as technology, airline and drug companies. If companies are able to restore investor confidence in the information they provide to the public, and if an economic recovery is accompanied by moderate inflation and low interest rates, we believe the corporate bond market will rebound, rewarding patient investors. CDC Nvest Strategic Income Fund's diversified portfolio also features bonds likely to benefit from overseas economies that may do better than our own, with currency appreciation as a potential bonus. 8 CDC NVEST STRATEGIC INCOME FUND Investment Results through June 30, 2002 -------------------------------------------------------------------------------- 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. Growth of a $10,000 Investment in Class A Shares -------------------------------------------------------------------------------- June 1995 through June 2002 [THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL] Lehman Lehman Net Asset Maximum Sales Aggregate Universal Value(1) Charge(2) Bond Index(4) Bond Index(5) 5/1/95 10000 9550 10000 10000 10014 9563 10000 10000 10017 9566 10073 10073 10096 9642 10051 10058 10192 9733 10172 10176 10410 9942 10271 10280 10355 9889 10405 10407 10647 10168 10561 10564 11038 10541 10709 10724 11302 10793 10780 10817 10995 10500 10593 10630 11073 10575 10519 10564 11057 10559 10460 10521 11232 10727 10438 10506 6/96 11383 10871 10579 10647 11360 10849 10608 10677 11569 11048 10590 10674 11974 11435 10774 10869 12316 11761 11013 11095 12816 12239 11202 11292 12638 12069 11098 11201 12674 12104 11132 11249 12875 12295 11159 11289 12735 12162 11036 11157 12816 12239 11201 11326 13091 12502 11307 11446 6/97 13388 12785 11441 11585 13990 13361 11749 11902 13629 13016 11649 11804 14110 13475 11821 11986 13814 13193 11992 12100 13889 13264 12048 12166 13818 13196 12169 12296 14043 13411 12325 12450 14300 13657 12316 12460 14607 13949 12358 12517 14611 13953 12423 12581 14372 13726 12541 12672 6/98 14143 13507 12647 12755 13966 13338 12674 12786 12252 11700 12880 12785 12648 12079 13182 13088 12785 12209 13112 13034 13642 13028 13186 13164 13579 12968 13226 13194 13814 13192 13320 13282 13617 13004 13088 13071 14336 13691 13160 13171 15255 14569 13202 13249 14782 14117 13086 13115 6/99 14825 14158 13045 13092 14532 13879 12989 13039 14351 13705 12983 13024 14443 13793 13133 13165 14564 13909 13182 13220 14828 14160 13181 13242 15231 14546 13117 13216 15090 14411 13074 13172 15684 14978 13232 13339 15843 15130 13407 13495 15390 14697 13368 13452 14893 14223 13362 13428 6/00 15461 14765 13640 13717 15597 14895 13764 13850 15940 15223 13964 14052 15519 14820 14051 14123 14887 14217 14144 14180 14810 14143 14376 14371 15335 14645 14642 14646 15822 15110 14882 14933 15798 15087 15011 15058 15201 14517 15087 15109 14953 14280 15024 15042 15288 14600 15115 15150 6/01 15246 14560 15172 15193 15258 14571 15511 15492 15595 14893 15689 15685 14821 14154 15872 15798 15170 14487 16204 16116 15385 14693 15980 15927 15314 14625 15879 15832 15488 14791 16007 15965 15674 14968 16162 16114 15854 15141 15894 15881 16237 15507 16202 16184 16581 15835 16339 16306 6/02 16317 15583 16481 16365 Average Annual Total Returns-- June 30, 2002 --------------------------------------------------------------------------------
6 Months 1 Year 5 Years Since Inception(8) Class A (Inception 5/1/95) Net Asset Value(1) 6.55% 7.02% 4.03% 7.07% With Maximum Sales Charge(2) 1.71 2.24 3.08 6.38 Class B (Inception 5/1/95) Net Asset Value(1) 6.08 6.15 3.26 6.24 With CDSC(3) 1.08 1.20 3.00 6.24 Class C (Inception 5/1/95) Net Asset Value(1) 6.19 6.26 3.26 6.23 With Maximum Sales Charge and CDSC(3) 4.13 4.25 3.05 6.07 Class Y (Inception 12/1/99) Net Asset Value(1) 6.75 7.44 -- 4.16
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Since Class A, Since B and C Class Y Comparative Performance 6 Months 1 Year 5 Years Inception(9) Inception(9) Lehman Aggregate Bond Index(4) 3.79% 8.63% 7.57% 7.31% 9.56% Lehman Universal Bond Index(5) 3.37 7.71 7.15 7.20 8.92 Morningstar Multi-Sector Bond Fund Avg.(6) 1.11 3.57 3.06 5.36 4.66 Lipper Multi-Sector Income Funds Avg.(7) 1.27 3.79 2.79 5.16 2.15
All returns represent past performance and do not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. Portfolio as of June 30, 2002 -------------------------------------------------------------------------------- Credit Quality [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Aaa 17.9% Aa 15.1% A 3.7% Baa 11.2% Ba 16.9% B 17.2% Caa and lower 6.6% Not Rated 11.4% Credit quality is based on bond ratings from Moody's Investors Service Effective Maturity [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Less than 1 year 2.7% 1-5 years 13.6% 5-10 years 19.5% 10+ years 64.2% Average Effective Maturity: 11.3 years See page 14 for information on the possible risks associated with an investment in this fund. Notes to Charts (1) These results do not include a sales charge. (2) These results include the maximum sales charge of 4.50%. (3) 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 of each class of share except Class Y 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 5/31/95; Class Y from 12/31/99. 9 CDC NVEST LIMITED TERM U.S. GOVERNMENT FUND Portfolio Profile -------------------------------------------------------------------------------- Objective: Seeks high current return consistent with preservation of capital Strategy: Invests primarily in securities issued or guaranteed by the U.S. government or its agencies Inception Date: January 3, 1989 Managers: Michael F. Harris Clifton V. Rowe Loomis, Sayles & Company, L.P. Symbols: Class A NEFLX Class B NELBX Class C NECLX Class Y NELYX Net Asset Value Per Share: (June 30, 2002) Class A $11.50 Class B 11.49 Class C 11.49 Class Y 11.55 Management Discussion -------------------------------------------------------------------------------- As interest rates fell last year, we focused on increasing the fund's income level by investing in securities that offered a yield advantage over U.S. Treasuries, including U.S. government agency obligations and mortgage-backed securities. This strategy worked well for the fund in the first half of 2002. CDC Nvest Limited Term U.S. Government Fund delivered a total return of 3.63% for Class A shares at net asset value, including $0.27 in dividends reinvested during the first six months of the year. The fund's benchmark, Lehman Brothers Intermediate Government Bond Index, ended the period with a return of 3.59%, while the average return on the funds in Morningstar's Short Government category was 2.80%. The fund's 30-day SEC yield at the end of June was 3.55%. SECURITIES BACKED BY MORTGAGES, ASSETS, PERFORMED WELL During the first quarter of 2002, the Federal Reserve Board saw evidence that its easing campaign of 2001 was stimulating the sluggish economy. However, the Fed remained on the sidelines, and the market tried to anticipate policy moves, driving rates higher in the first quarter and sharply lower in the second quarter. When interest rates fall, many homeowners opt to refinance or prepay mortgages to take advantage of lower rates. Prepayment activity generally has a negative effect on mortgage-backed securities. However, we felt that the prices of many such securities already reflected higher prepayment activity than we thought was likely to occur given the sluggish economy. In fact, mortgage-backed issues were among the fund's top performers during the second quarter. Housing bonds issued by Federal Home Loan Mortgage Association and Federal National Mortgage Association delivered healthy returns as investors sought Aaa credit quality and attractive yields. LONG MATURITIES, QUALITY ALSO ENHANCED RETURNS As of June 30, 2002, the fund's average effective maturity was 4.4 years. We emphasized securities with longer maturities during most of the period in an effort to capture price appreciation as interest rates fell. For example, the price of the fund's Citibank Credit Card bonds, rated Aaa by Moody's, rose in value as rates declined and demand mounted for these attractive issues. We also trimmed the fund's exposure to corporate bonds during the first half of 2002 because we saw limited upside potential, and shifted to high-quality, asset-backed bonds like Citibank and the fund's Residential Funding Mortgage securities. Bonds issued or backed by the US. government and its agencies accounted for almost 90% of the funds assets as of June 30, 2002. MANAGER LOOKS FOR EVENTUAL INCREASE IN INTEREST RATES Recent figures suggest that an economic recovery is still underway. Persistent strength in housing and strong consumer spending reflect a healthy environment, as well as potentially higher interest rates down the road. However, the U.S. stock market tells a different story. Currently, investors' loss of confidence in U.S. business is reflected in volatile, generally declining equity prices. When the equity markets finally settle down, investors may rebalance their portfolios, increasing their emphasis on stocks over bonds, which could lead to price weakness in the fixed-income markets. Potentially rising interest rates would also depress bond prices, especially on the long end of the spectrum, although higher rates also raise investors' income stream. Near term, we expect a significant difference to remain between the yields of short- and long-term securities as uncertainty in the bond market persists. We will continue to favor intermediate securities, which offer a yield and total return advantage compared to a combination of short- and long-maturity securities. Given the potential for rising rates down the road, CDC Nvest Limited Term U.S. Government Fund will also continue to feature mortgage-backed securities because of their high quality and attractive income potential. 10 CDC NVEST LIMITED TERM U.S. GOVERNMENT FUND Investment Results through June 30, 2002 -------------------------------------------------------------------------------- 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. Growth of a $10,000 Investment in Class A Shares -------------------------------------------------------------------------------- June 1992 through June 2002 [THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL] Lehman Brothers Intermediate Net Asset Maximum Sales Government Value(1) Charge(2) Bond Index(4) 6/92 10000 9700 10000 10166 9861 10192 10272 9963 10296 10408 10095 10438 10264 9956 10313 10223 9916 10269 10343 10033 10403 10492 10177 10596 10600 10282 10752 10625 10306 10792 10692 10371 10876 10700 10379 10847 6/93 10810 10486 11004 10862 10536 11026 11008 10678 11190 11027 10689 11236 11051 10719 11262 10991 10661 11206 11008 10677 11253 11104 10771 11364 10981 10651 11208 10829 10504 11044 10767 10444 10973 10767 10444 10981 6/94 10758 10435 10983 10848 10523 11127 10876 10549 11160 10793 10486 11067 10793 10469 11070 10756 10433 11020 10763 10440 11056 10907 10580 11236 11062 10730 11453 11093 10760 11516 11202 10866 11649 11515 11170 11978 6/95 11566 11219 12054 11560 11213 12060 11662 11312 12160 11734 11382 12241 11896 11539 12375 12039 11678 12526 12165 11800 12650 12232 11865 12756 12085 11723 12622 12009 11649 12564 11978 11619 12527 11937 11579 12521 6/96 12030 11669 12648 12056 11695 12687 12051 11690 12702 12204 11838 12866 12400 12028 13077 12555 12178 13235 12454 12081 13163 12507 12132 13214 12523 12147 13236 12458 12084 13160 12567 12190 13309 12644 12265 13412 6/97 12766 12363 13527 12977 12588 13776 12955 12566 13724 13090 12697 13873 13236 12839 14035 13259 12861 14065 13360 12959 14180 13554 13147 14365 13523 13117 14350 13499 13094 14395 13552 13145 14463 13640 13230 14563 6/98 13740 13327 15661 13757 13345 14717 13977 13598 14995 14376 13845 15345 14237 13810 15371 14194 13768 15324 14223 13796 15383 14299 13870 15452 14135 13711 15240 14201 13775 15341 14243 13816 15383 14137 13713 15288 6/99 14045 13623 15310 13977 13558 15313 13972 13553 15334 14131 13707 15466 14158 13733 15496 14172 13747 15507 14127 13704 15458 14066 13644 15406 14191 13765 15534 14367 13936 15711 14321 13891 15705 14327 13898 15747 6/00 14532 14096 15997 14605 14167 16103 14758 14315 16284 14872 14426 16426 14926 14478 16539 15129 14675 16781 15305 14846 17077 15500 15035 17304 15615 15147 17463 15714 15243 17590 15683 15212 17534 15761 15288 17607 6/01 15772 15299 17663 16066 15584 17993 16173 15687 18153 16426 15933 18540 16672 16172 18829 16455 15962 18605 16356 15865 18515 16443 15950 18594 16606 16108 18748 16368 15877 18466 16667 16167 18811 16780 16277 18942 6/02 16949 16440 19179 Average Annual Total Returns-- June 30, 2002 --------------------------------------------------------------------------------
6 Months 1 Year 5 Years 10 Years Since Inception Class A (Inception 1/3/89) Net Asset Value(1) 3.63% 7.46% 5.83% 5.42% -- With Maximum Sales Charge(2) 0.53 4.21 5.18 5.09 -- Class B (Inception 9/27/93) Net Asset Value(1) 3.39 6.77 5.16 -- 4.30% With CDSC(3) -1.61 1.77 4.83 -- 4.30 Class C (Inception 12/30/94) Net Asset Value(1) 3.29 6.67 5.15 -- 5.43 With Maximum Sales Charge and CDSC(3) 1.31 4.64 4.93 -- 5.29 Class Y (Inception 3/31/94) Net Asset Value(1) 3.88 7.55 6.27 -- 6.00
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Since Since Since Class B Class C Class Y Comparative Performance 6 Months 1 Year 5 Years 10 Years Inception(7) Inception(7) Inception(7) Lehman Int. Gov't. Bond Index(4) 3.59% 8.58% 7.23% 6.73% 6.30% 7.62% 6.92% Morningstar Short Gov't. Fund Avg.(5) 2.80 6.68 5.83 5.57 5.43 6.39 5.43 Lipper Short Int. U.S. Gov't. Funds Avg.(6) 3.22 7.40 6.19 5.97 5.53 6.67 6.03
All returns represent past performance and do not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. Portfolio as of June 30, 2002 -------------------------------------------------------------------------------- Portfolio Mix [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Asset-backed 50.0% Supranational 29.4% Mortgage-backed 11.0% U.S. Government 4.2% Government Agencies 2.8% Other 2.6% Effective Maturity [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Less than 1 year 4.1% 1-5 years 20.0% 5-10 years 73.9% 10+ years 2.0% Average Effective Maturity: 4.4 years See page 14 for information on the possible risks associated with an investment in this fund. Notes to Charts (1) These results do not include a sales charge. (2) These results include the maximum sales charge of 3.00%. (3) 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. 11 CDC NVEST GOVERNMENT SECURITIES FUND Portfolio Profile -------------------------------------------------------------------------------- Objective: Seeks a high level of current income consistent with safety of principal Strategy: Invests primarily in securities issued or guaranteed by the U.S. government or its agencies Inception Date: September 16, 1985 Managers: Kent P. Newmark Clifton V. Rowe Loomis, Sayles & Company, L.P. Symbols: Class A NEFUX Class B NEUBX Class Y NEUYX Net Asset Value Per Share: (June 30, 2002) Class A $11.40 Class B 11.40 Class Y 11.39 Management Discussion -------------------------------------------------------------------------------- High returns on Treasury Inflation-Protected Securities (TIPS) and a relatively long maturity structure helped put CDC Nvest Government Securities Fund ahead of its benchmark and enabled it to do better than the average of comparable funds tracked by Morningstar for the first half of 2002. The total return on Class A fund shares for the six months ended June 30 was 4.32% at net asset value, including $0.26 in reinvested dividends. For the same period, the fund's benchmark, Lehman Brothers Government Bond Index, returned 3.78%, while the average return on the funds in Morningstar's Long Government Fund category was 3.60%. The fund's 30-day SEC yield at the end of June was 4.06%. TIPS AND LONG MATURITY BENEFIT FUND TIPS are U.S. Treasury bonds that are indexed to the Consumer Price Index. The principal value of the bonds goes up and down with inflation, which makes them attractive to conservative investors who want to keep pace with inflation. We substantially increased the fund's allocation to TIPS in the past six months and trimmed the fund's position in mortgage-backed securities - GNMA (Government National Mortgage Association) and FNMA (Federal National Mortgage Association) bonds, to 22% of assets at midyear, from 27% at the beginning of the year. We also maintained a relatively long average duration in the past six months. Duration is a measure of a fund's price sensitivity to changing interest rates. A longer duration makes the fund more volatile, and vice versa. Its relatively long duration has been a positive for the fund so far in 2002. PORTFOLIO FEATURES "LONG INTERMEDIATE" BONDS In addition to TIPS, the fund's long intermediate holdings - bonds with 10 to 20 years to maturity - provided price support as well as income so far this year, and we believe they should continue to outperform most assets for the balance of 2002. For example, for a long time the fund has owned some Treasury securities that were issued at 7.25%, maturing in 2016. As the maturity date on these securities drew closer, they began to behave more like intermediate bonds with about 10 years to maturity. The income is constant but the appreciation potential is greater. The worst performing area of the market has been the short end of the maturity spectrum - securities in the one- to three-year range - which rose and fell sharply as investors waited to see what action the Federal Reserve Board would take. Once the Fed does make its intentions clear, the difference in yield between long- and short-term bonds should shrink, restoring a more normal shape of the yield curve. MANAGER EXPECTS INTEREST RATES TO REMAIN STEADY At this point in the credit cycle, the Fed should be close to a tightening phase - raising interest rates to ward off inflationary pressures - and three months ago this was judged a virtual certainty. But troubles in the Middle East accelerated in the second quarter and the crisis in investor confidence that began with the Enron scandal spread, bringing into disrepute such major companies as WorldCom and Qwest. Currently we expect interest rates to remain fairly steady until the Fed shows its hand, which may not happen for several more months. Despite the negative impact of the accounting scandals on stock prices generally, most U.S. companies appear to use traditional accounting standards and are operating efficiently. A report issued by the Commerce Department late in July revised 2001 economic to a rate of just 0.3% for the year, with a surge to 5.0% in the first quarter of this year. However, the stock market sank to post-September 11 lows at the end of June. Even foreign investors seemed less inclined to hold U.S. securities than they were in 2001. We believe this lack of interest will continue, since other economies appear to be recovering faster than the U.S. 12 CDC NVEST GOVERNMENT SECURITIES FUND Investment Results through June 30, 2002 -------------------------------------------------------------------------------- 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. Growth of a $10,000 Investment in Class A Shares -------------------------------------------------------------------------------- June 1992 through June 2002 [THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL] Lehman Net Asset Maximum Sales Government Value(1) Charge(2) Bond Index(4) 6/92 10000 9550 10000 10227 9767 10252 10338 9873 10348 10470 9999 10494 10271 9809 10342 10215 9756 10327 10420 9951 10498 10589 10113 10721 10795 10309 10936 10777 10292 10973 10840 10352 11057 10903 10413 11045 6/93 11087 10588 11290 11151 10650 11359 11402 10889 11613 11460 10944 11657 11492 10975 11701 11354 10843 11573 11358 10847 11617 11474 10958 11776 11202 10698 11527 10997 10502 11268 10912 10421 11179 10907 10416 11165 6/94 10782 10297 11139 10925 10433 11344 10929 10437 11346 10777 10292 11186 10776 10291 11178 10714 10232 11157 10740 10257 11225 10907 10416 11434 11157 10655 11680 11230 10724 11754 11345 10834 11907 11966 11427 12387 6/95 12040 11498 12482 11923 11386 12437 12051 11509 12583 12201 11652 12704 12431 11872 12897 12673 12103 13098 12891 12311 13284 12941 12359 13366 12624 12056 13093 12482 11921 12984 12384 11827 12901 12320 11766 12880 6/96 12447 11887 13046 12470 11909 13078 12390 11832 13049 12608 12040 13265 12905 12324 13557 13169 12577 13793 12992 12407 13652 13007 12421 13667 13014 12429 13686 12840 12262 13541 12998 12413 13737 13108 12518 13855 6/97 13291 12693 14011 13849 13226 14408 13537 12928 14266 13783 13163 14481 14056 13423 14731 14157 13520 14806 14332 13687 14961 14534 13880 15185 14466 13815 15144 14456 13806 15187 14500 13848 15255 14683 14022 15412 6/98 14905 14234 15587 14876 14207 15611 15334 14644 16017 15756 15047 16449 15558 14858 16393 15646 14942 16399 15625 14922 16435 15777 15067 16531 15169 14486 16137 15205 14521 16201 15255 14569 16238 15051 14374 16095 6/99 14875 14206 16062 14766 14101 16039 14656 13996 16039 14846 14178 16169 14836 14168 16195 14770 14105 16173 14621 13963 16068 14636 13978 16091 14894 14224 16320 15222 14537 16606 15098 14418 16560 15044 14367 16571 6/00 15305 14617 16866 15449 14754 17030 15720 15012 17281 15658 14954 17331 15800 15089 17496 16162 15435 17840 16507 15764 18196 16618 15871 18379 16829 16072 18588 16841 16084 18653 16598 15851 18463 16655 15906 18524 6/01 16683 15932 18609 17179 16406 19056 17370 16589 19293 17603 16811 19628 18205 17386 20135 17580 16789 19683 6/02 17320 16541 19512 17491 16704 19638 17703 16906 19820 17207 16433 19388 17682 16887 19850 17804 17003 19969 18068 17255 20249 Average Annual Total Returns-- June 30, 2002 --------------------------------------------------------------------------------
6 Months 1 Year 5 Years 10 Years Since Inception Class A (Inception 9/16/85) Net Asset Value(1) 4.32% 8.30% 6.33% 6.09% -- With Maximum Sales Charge(2) -0.40 3.42 5.36 5.61 -- Class B (Inception 9/23/93) Net Asset Value(1) 4.03 7.50 5.54 -- 4.55% With CDSC(3) -0.97 2.50 5.22 -- 4.55 Class Y (Inception 3/31/94) Net Asset Value(1) 4.53 8.83 6.69 -- 6.54
Since Since Class B Class Y Comparative Performance 6 Months 1 Year 5 Years 10 Years Inception(7) Inception(7) Lehman Government Bond Index(4) 3.78% 8.81% 7.64% 7.31% 6.51% 7.36% Morningstar Long Government Fund Avg.(5) 3.60 7.70 7.03 7.41 5.90 6.88 Lipper General Government Funds Avg.(6) 3.64 7.88 6.62 6.44 5.60 6.39
All returns represent past performance and do not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. Portfolio as of June 30, 2002 -------------------------------------------------------------------------------- Portfolio Mix [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] U.S. Government 65.8% Government Agencies 6.3% Mortgage-Backed 25.9% Short Term & Other 2.0% Effective Maturity [THE FOLLOWING INFORMATION WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Less than 1 year 1.5% 1-5 years 4.0% 5-10 years 31.4% 10+ years 63.1% Average Effective Maturity: 14.4 years See page 14 for information on the possible risks associated with an investment in this fund. Notes to Charts (1) These results do not include a sales charge. (2) These results include the maximum sales charge of 4.50%. (3) 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 9/30/93; Class Y from 3/31/94. 13 Risks of the CDC Nvest Income Funds The views expressed in this report reflect those of the portfolio managers as of the dates indicated. The managers' views are subject to change at any time based on changes in market or other conditions. References to specific securities or industries should not be regarded as investment advice. 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 Bond Fund may invest primarily in bonds, 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. These may include risks resulting from political unrest, currency fluctuations and different regulatory requirements or accounting standards. 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 -------------------------------------------------------------------------------- 14 SHORT TERM BOND FUND-- SCHEDULE OF INVESTMENTS Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Bonds and Notes -- 96.4% of Total Net Assets Aerospace & Defense-- 4.5% $ 1,000,000 Honeywell International, Inc. 6.875%, 10/03/2005................................... A2 A $ 1,078,938 500,000 Raytheon Co. 8.200%, 3/01/2006....................... Baa3 BBB- 551,819 1,000,000 United Technologies Corp. 6.625%, 11/15/2004................................... A2 A+ 1,067,577 ----------------- 2,698,334 ----------------- Asset-Backed -- 18.9% 594,792 AmeriCredit Automobile Receivables Trust 7.150%, 8/12/2004.................................... Aaa AAA 608,060 1,500,000 Chase Manhattan Auto Owner Trust 4.000%, 1/15/2009.................................... Aaa AAA 1,506,094 950,000 Citibank Credit Card Issuance Trust 4.100%, 12/07/2006................................... Aaa AAA 962,112 1,000,000 DaimlerChrysler Auto Trust 3.780%, 2/06/2007.................................... Aaa AAA 1,002,353 1,545,234 Ford Credit Auto Owner Trust 1.940%, 5/15/2004.................................... Aaa AAA 1,545,234 1,000,000 Harley-Davidson Motorcycle Trust 4.040%, 10/15/2009................................... -- AAA 1,012,345 1,000,000 Honda Auto Receivables Owner Trust 3.960%, 2/19/2007.................................... Aaa AAA 1,011,221 2,000,000 MBNA Master Credit Card Trust USA 2.310%, 4/15/2005.................................... Aaa AAA 2,001,240 1,000,000 PSE&G Transition Funding LLC 5.740%, 3/15/2007.................................... -- AAA 1,040,236 520,421 WFS Financial Owner Trust 7.750%, 11/20/2004................................... -- AAA 530,681 ----------------- 11,219,576 ----------------- Automotive-- 6.6% 500,000 Ford Motor Credit Co. 5.750%, 2/23/2004.............. A3 BBB+ 507,710 1,000,000 Ford Motor Credit Co. 7.500%, 6/15/2003.............. A3 BBB+ 1,034,247 1,500,000 General Motors Acceptance Corp. 7.625%, 6/15/2004.................................... A2 BBB+ 1,586,070 750,000 Toyota Motor Credit Corp. 5.625%, 11/13/2003 ........ Aa1 AAA 777,415 ----------------- 3,905,442 ----------------- Banking-- 4.8% 1,000,000 Capital One Bank 6.500%, 7/30/2004................... Baa2 BBB- 1,010,585 1,000,000 FleetBoston Financial Corp. 7.250%, 9/15/2005.................................... A1 A 1,088,249 750,000 Wells Fargo & Co. 5.900%, 5/21/2006.................. Aa3 A+ 783,239 ----------------- 2,882,073 ----------------- Beverages, Food & Tobacco-- 4.5% 1,025,000 ConAgra Foods, Inc. 7.400%, 9/15/2004................ Baa2 BBB 1,100,143 500,000 Kellogg Co. 6.000%, 4/01/2006........................ Baa2 BBB 522,981 1,000,000 Unilever Capital Corp. 6.750%, 11/01/2003 ........... A1 A+ 1,051,269 ----------------- 2,674,393 ----------------- Commercial Services-- 1.7% 1,000,000 Aramark Services, Inc. 6.750%, 8/01/2004 ............ Baa3 BBB- 1,030,340 ----------------- Computers-- 1.7% 1,000,000 Sun Microsystems, Inc. 7.000%, 8/15/2002 ............ Baa1 BBB+ 1,003,621 ----------------- Electric Utilities-- 5.7% 500,000 AES Corp. (The) 7.375%, 6/15/2003(d)................. Ba1 BB 400,000 959,776 Kansas Gas & Electric Co. 6.760%, 9/29/2003.......... -- BB- 955,570 1,000,000 Niagara Mohawk Power Corp. 5.375%, 10/01/2004................................... Baa3 A- 1,020,197 1,000,000 NiSource Finance Corp. 5.750%, 4/15/2003............. Baa3 BBB 999,499 ----------------- 3,375,266 ----------------- Environmental Control-- 0.6% 375,000 Waste Management, Inc. 6.375%, 12/01/2003............ Ba1 BBB 386,261 ----------------- Financial Services-- 12.7% 500,000 CIT Group, Inc. 7.500%, 11/14/2003................... A2 BBB+ 497,437 1,200,000 Countrywide Home Loans, Inc. 6.850%, 6/15/2004.................................... A3 A 1,269,901 1,000,000 General Electric Capital Corp., Medium Term Note 6.750%, 9/11/2003.................................... Aaa AAA 1,048,514 1,000,000 Household Finance Corp. 6.500%, 1/24/2006............ A2 A 1,023,191 1,000,000 International Lease Finance Corp., Medium Term Note, 5.500%, 6/07/2004......................... A1 AA- 1,028,190 1,250,000 Lehman Brothers Holdings, Inc. 6.625%, 2/05/2006.................................... A2 A 1,318,259 500,000 Morgan Stanley 6.875%, 3/01/2003..................... Aa3 AA- 515,230 800,000 Salomon Smith Barney Holdings, Inc. 5.875%, 3/15/2006.................................... Aa1 AA- 836,770 ----------------- 7,537,492 ----------------- Food Retailers-- 1.7% 1,000,000 Safeway, Inc. 7.000%, 9/15/2002...................... Baa2 BBB 1,008,747 ----------------- Heavy Machinery-- 3.6% 260,000 Case Credit Corp. 6.125%, 2/15/2003.................. Ba2 BB 253,500 90,000 Case Corp. 6.250%, 12/01/2003........................ Ba2 BB 84,600 20,000 Case Corp. 7.250%, 8/01/2005......................... Ba2 BB 18,300 750,000 Ingersoll-Rand Co. 6.250%, 5/15/2006................. A3 BBB+ 776,265 1,000,000 John Deere Capital Corp. 7.000%, 10/15/2002.......... A3 A 1,013,862 ----------------- 2,146,527 ----------------- Media - Broadcasting & Publishing-- 2.5% 1,000,000 Clear Channel Communications, Inc. 7.250%, 9/15/2003.................................... Baa3 BBB- 1,008,880 500,000 Comcast Cable Communications, Inc. 6.375%, 1/30/2006.................................... Baa2 BBB 484,639 ----------------- 1,493,519 ----------------- Mortgage-Backed-- 9.4% 200,833 Federal Home Loan Mortgage Corp. 6.488%, 3/01/2025 (e)................................ Aaa AAA 203,343 112,455 Federal Home Loan Mortgage Corp. 6.829%, 12/01/2025 (e)............................... Aaa AAA 115,108 1,118,044 Federal Home Loan Mortgage Corp. 7.500%, 8/01/2009.................................... Aaa AAA 1,190,359 1,448,597 Federal National Mortgage Association 5.500%, 1/01/2009.................................... Aaa AAA 1,471,587 220,745 Federal National Mortgage Association 5.629%, 9/01/2023 (e)................................ Aaa AAA 221,436 161,334 Federal National Mortgage Association 6.013%, 5/01/2020 (e)................................ Aaa AAA 163,175 104,035 Federal National Mortgage Association 6.511%, 8/01/2017 (e)................................ Aaa AAA 104,913 155,220 Federal National Mortgage Association 6.781%, 6/01/2019 (e)................................ Aaa AAA 157,500 349,707 Federal National Mortgage Association 6.940%, 1/01/2020 (e)................................ Aaa AAA 357,411 314,597 Federal National Mortgage Association 8.408%, 1/01/2024 (e)................................ Aaa AAA 325,413 1,250,000 Residential Asset Securitization Trust 5.820%, 1/25/2027.................................... Aaa AAA 1,268,750 ----------------- 5,578,995 ----------------- Oil & Gas-- 6.4% 1,000,000 Conoco, Inc. 5.900%, 4/15/2004....................... Baa1 BBB+ 1,041,922 500,000 El Paso CGP Co. 6.200%, 5/15/2004.................... Baa2 BBB 496,871
See accompanying notes to financial statements. 15 SHORT TERM BOND FUND-- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Oil & Gas-- 6.4% (continued) $ 1,000,000 El Paso CGP Co. 7.500%, 8/15/2006 (d)................ Baa2 BBB $ 1,000,940 700,000 Kerr-McGee Corp. 5.375%, 4/15/2005................... Baa2 BBB 715,953 565,000 Transocean, Inc. 6.500%, 4/15/2003................... Baa2 A- 578,893 ----------------- 3,834,579 ----------------- REITs - Malls-- 1.7% 1,000,000 Simon Property Group LP 6.625%, 6/15/2003............ Baa1 BBB+ 1,027,710 ----------------- Retailers-- 1.8% 1,000,000 Federated Department Stores, Inc. 8.500%, 6/15/2003.................................... Baa1 BBB+ 1,043,780 ----------------- Telephone Systems-- 0.8% 500,000 Sprint Capital Corp. 5.875%, 5/01/2004............... Baa3 BBB- 454,580 ----------------- U.S. Government-- 4.1% 1,000,000 United States Treasury Notes 4.625%, 5/15/2006 (d)................................ Aaa AAA 1,030,000 300,000 United States Treasury Notes 6.125%, 8/31/2002.................................... Aaa AAA 302,217 1,000,000 United States Treasury Notes 6.500%, 5/15/2005 (d)................................ Aaa AAA 1,085,550 ----------------- 2,417,767 ----------------- U.S. Government Agencies-- 2.7% 500,000 Federal Home Loan Mortgage Corp. 7.000%, 7/15/2005.................................... Aaa AAA 547,524 1,000,000 Federal Home Loan Mortgage Corp. 7.375%, 5/15/2003.................................... Aaa AAA 1,044,670 ----------------- 1,592,194 ----------------- Total Bonds and Notes (Identified Cost $56,151,806) 57,311,196 ----------------- Principal Amount Description Value (a) ------------------------------------------------------------------------------------------------------------------------ Short Term Investment-- 0.5% $ 289,026 Repurchase Agreement with Investors Bank & Trust Co. dated 6/28/2002 at 1.25% to be repurchased at $289,056 on 7/01/2002, collateralized by $289,615 Federal National Mortgage Bond, 6.891%, due 3/01/2028 valued at $303,977............................................................... $ 289,026 ----------------- Total Short Term Investment (Identified Cost $289,026)....................................................... 289,026 ----------------- Total Investments-- 96.9% (Identified Cost $56,440,832) (b)................................................ 57,600,222 Other assets less liabilities.................................................... 1,846,740 ----------------- Total Net Assets-- 100%.......................................................... $ 59,446,962 ================= (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2002, the net unrealized appreciation on investments based on cost of $56,440,832 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess value over tax cos...................................................... $ 1,455,851 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost overvalue................................................... (296,461) ----------------- Net unrealized appreciation................................................................ $ 1,159,390 ================= 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. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2002. Securites 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 June 30, 2002. 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) All or a portion of this security was on loan to brokers at June 30, 2002. (e) 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 June 30, 2002. REIT Real Estate Investment Trust
See accompanying notes to financial statements. 16 BOND INCOME FUND-- SCHEDULE OF INVESTMENTS Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Bonds and Notes -- 96.1% of Total Net Assets Aerospace & Defense -- 1.0% $ 1,485,000 L-3 Communications Corp., 144A 7.625%, 6/15/2012.................................... Ba3 BB- $ 1,497,994 1,400,000 Northrop Grumman Corp. 7.000%, 6/30/2005.................................... Baa3 BBB- 1,493,491 ----------------- 2,991,485 ----------------- Asset-Backed-- 2.5% 976,882 AmeriCredit Automobile Receivables Trust 7.150%, 8/12/2004.................................... Aaa AAA 998,673 1,900,000 Connecticut RRB Special Purpose Trust 5.360%, 3/30/2007.................................... Aaa AAA 1,974,322 4,925,000 GMAC Mortgage Corp. Loan Trust 5.290%, 6/25/2027.................................... Aaa AAA 5,039,723 ----------------- 8,012,718 ----------------- Automotive-- 3.9% 4,040,000 Ford Motor Credit Co. 7.375%, 2/01/2011.............. A3 BBB+ 4,098,527 3,535,000 Ford Motor Co. 7.450%, 7/16/2031..................... Baa1 BBB+ 3,284,969 3,450,000 General Motors Acceptance Corp. 6.750%, 1/15/2006.................................... A2 BBB+ 3,575,614 1,600,000 General Motors Acceptance Corp. 7.250%, 3/02/2011.................................... A2 BBB+ 1,636,194 ----------------- 12,595,304 ----------------- Banking-- 2.6% 3,040,000 Capital One Bank 6.875%, 2/01/2006................... Baa2 BBB- 3,007,141 5,000,000 International Bank for Reconstruction & Development 5.500%, 5/14/2003 (AUD).................. Aaa AAA 2,805,347 2,200,000 State Street Institutional Capital A, 144A 7.940%, 12/30/2026................................... A1 A 2,330,847 ----------------- 8,143,335 ----------------- Chemicals-- 2.0% 1,280,000 IMC Global, Inc. 7.625%, 11/01/2005.................. Ba2 B+ 1,188,045 1,990,000 IMC Global, Inc. 10.875%, 6/01/2008.................. Ba1 BB 2,135,011 630,000 Lyondell Chemical Co. 9.625%, 5/01/2007 ............. Ba3 BB 598,500 2,600,000 Lyondell Chemical Co. 9.875%, 5/01/2007 ............. Ba3 BB 2,483,000 ----------------- 6,404,556 ----------------- Commercial Services-- 1.8% 5,575,000 Aramark Services, Inc. 7.000%, 7/15/2006.................................... Baa3 BBB- 5,693,067 ----------------- Communications-- 0.6% 1,970,000 Citizens Communications Co. 9.250%, 5/15/2011.................................... Baa2 BBB 1,873,525 ----------------- Electric Utilities-- 8.0% 1,860,000 AES Corp. (The) 8.875%, 2/15/2011.................................... Ba3 BB- 1,162,500 1,745,000 AES Corp. (The) 9.375%, 9/15/2010 (d)................................ Ba3 BB- 1,125,525 990,000 AES Eastern Energy LP 9.670%, 1/02/2029.................................... -- BBB- 948,400 1,836,000 BVPS II Funding Corp. 8.680%, 6/01/2017.................................... -- BB- 1,957,683 3,190,000 Calpine Canada Energy Finance Ulc 8.500%, 5/01/2008.................................... B1 B+ 2,121,350 4,275,000 Constellation Energy Group, Inc. 7.600%, 4/01/2032.................................... Baa1 BBB+ 4,399,958 1,140,000 Hydro-Quebec 8.050%, 7/07/2024.................................... A2 A+ 1,371,169 Electric Utilities-- 8.0% (continued) 2,796,855 Mirant Mid Atlantic LLC 8.625%, 6/30/2012.................................... Baa3 BBB- 2,688,924 3,353,000 New Mexico Public Service Corp. 10.250%, 10/01/2012.................................. -- BBB- 3,480,160 2,470,000 PSEG Power LLC 7.750%, 4/15/2011 (d)................................ Baa1 BBB 2,610,350 3,170,000 Transelec SA 7.875%, 4/15/2011.................................... Baa1 A- 3,402,044 ----------------- 25,268,063 ----------------- Entertainment & Leisure-- 0.5% 485,000 Royal Caribbean Cruises, Ltd. 7.250%, 8/15/2006.................................... Ba2 BB+ 446,200 1,000,000 Royal Caribbean Cruises, Ltd. 8.125%, 7/28/2004.................................... Ba2 BB+ 965,000 ----------------- 1,411,200 ----------------- Environmental Control-- 0.5% 1,465,000 Allied Waste North America, Inc. 8.500%, 12/01/2008................................... Ba3 BB- 1,421,050 ----------------- Financial Services-- 8.8% 3,575,000 American General Finance Corp. 8.450%, 10/15/2009................................... A1 A+ 4,097,665 2,810,000 CIT Group, Inc. 7.750%, 4/02/2012.................... A2 BBB+ 2,766,240 850,000 Goldman Sachs Group, Inc. 7.350%, 10/01/2009................................... A1 A+ 906,032 3,825,000 International Lease Finance Corp. 5.625%, 6/01/2007.................................... A1 AA- 3,877,858 3,035,000 Newcourt Credit Group, Inc. 6.875%, 2/16/2005.................................... A2 A+ 2,925,528 2,500,000 NiSource Finance Corp. 7.875%, 11/15/2010............ Baa3 BBB 2,587,700 221,000 PDVSA Finance, Ltd. 8.750%, 2/15/2004................ Baa2 BBB- 219,342 3,535,000 Pemex Finance, Ltd. 8.020%, 5/15/2007................ Baa1 A- 3,766,684 3,000,000 Pemex Finance, Ltd. 9.150%, 11/15/2018............... Baa1 A- 3,493,275 3,265,000 Pemex Project Funding Master Trust Medium Term Note, 144A 7.875%, 2/01/2009.................................... Baa1 BBB- 3,256,837 ----------------- 27,897,161 ----------------- Food Retailers-- 1.2% 970,000 Delhaize America, Inc. 8.125%, 4/15/2011 ............ Baa3 BBB- 1,018,869 560,000 Delhaize America, Inc. 9.000%, 4/15/2031 ............ Baa3 BBB- 603,534 2,490,000 Great Atlantic & Pacific Tea Co. (The), Inc. 7.750%, 4/15/2007.................................... B2 BB 2,303,250 ----------------- 3,925,653 ----------------- Foreign Governments-- 1.3% 5,000,000 Province of British Columbia 7.750%, 6/16/2003 (CAD).............................. Aa2 AA 3,419,916 560,000 Republic of Panama 9.625%, 2/08/2011................. Ba1 BB+ 544,600 ----------------- 3,964,516 ----------------- Forest Products & Paper-- 1.0% 630,000 Georgia-Pacific Corp. 7.500%, 5/15/2006.............. Ba1 BBB- 606,709 480,000 Georgia-Pacific Corp. 8.875%, 5/15/2031.............. Ba1 BBB- 445,157 900,000 Kappa Beheer BV 10.625%, 7/15/2009................... B2 B 985,500 1,100,000 Kappa Beheer BV 10.625%, 7/15/2009 (EUR)............. B2 B 1,194,996 ----------------- 3,232,362 -----------------
See accompanying notes to financial statements. 17 BOND INCOME FUND-- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Heavy Machinery-- 0.8% 2,065,000 Case Credit Corp. 6.125%, 2/15/2003.................. Ba2 BB $ 2,013,375 425,000 Case Corp. 6.250%, 12/01/2003........................ Ba2 BB 399,500 ----------------- 2,412,875 ----------------- Lodging-- 1.1% 3,445,000 Host Marriott Corp. 7.875%, 8/01/2005................ Ba3 BB- 3,363,181 ----------------- Media - Broadcasting & Publishing-- 6.6% 1,500,000 AOL Time Warner, Inc. 6.750%, 4/15/2011 ............. Baa1 BBB+ 1,382,614 1,200,000 Continental Cablevision, Inc. 9.500%, 8/01/2013.................................... Baa2 BBB+ 1,266,394 2,000,000 CSC Holdings, Inc. 7.625%, 7/15/2018................. Ba2 BB+ 1,467,454 3,500,000 CSC Holdings, Inc. 7.875%, 2/15/2018................. Ba2 BB+ 2,589,751 3,000,000 News America Holdings, Inc. 7.750%, 2/01/2024.................................... Baa3 BBB- 2,851,086 2,245,000 News America Holdings, Inc. 8.250%, 8/10/2018.................................... Baa3 BBB- 2,296,045 9,342,000 Tele-Communications, Inc. 9.250%, 1/15/2023.................................... Baa2 BBB+ 9,125,957 ----------------- 20,979,301 ----------------- Mining-- 0.2% 625,000 Cyprus Amax Minerals Co. 7.375%, 5/15/2007........... Baa3 BBB- 584,325 ----------------- Mortgage-Backed-- 34.5% 14,000,000 Federal Home Loan Mortgage Corp. 3.875%, 2/15/2005 (d)................................ Aaa AAA 14,157,360 4,854,682 Federal Home Loan Mortgage Corp. 6.000%, 5/01/2017.................................... Aaa AAA 4,966,145 3,418,580 Federal Home Loan Mortgage Corp. 6.500%, 11/01/2031................................... Aaa AAA 3,493,207 6,500,000 Federal National Mortgage Association 5.250%, 1/15/2009.................................... Aaa AAA 6,639,100 18,915,438 Federal National Mortgage Association 6.000%, with various maturities to 2017 (e) ......... Aaa AAA 19,322,582 21,361,233 Federal National Mortgage Association 6.500%, with various maturities to 2031 (e) ......... Aaa AAA 21,853,875 940,000 Federal National Mortgage Association 6.625%, 11/15/2010................................... Aaa AAA 1,023,021 6,729,094 Federal National Mortgage Association 7.000%, 10/01/2030................................... Aaa AAA 6,976,658 5,529,730 Federal National Mortgage Association 7.500%, with various maturities to 2032 (e) ......... Aaa AAA 5,809,438 9,911,565 Government National Mortgage Association 6.000%, with various maturities to 2032 (e) ......... Aaa AAA 9,931,989 5,440,867 Government National Mortgage Association 6.500%, with various maturities to 2031 (e) ......... Aaa AAA 5,578,392 4,927,352 Government National Mortgage Association 7.000%, with various maturities to 2029 (e) ......... Aaa AAA 5,133,125 1,477,970 Government National Mortgage Association 7.500%, with various maturities to 2030 (e) ......... Aaa AAA 1,570,401 1,118,854 Government National Mortgage Association 8.000%, 11/15/2029................................... Aaa AAA 1,194,153 834,534 Government National Mortgage Association 8.500%, with various maturities to 2023 (e) ......... Aaa AAA 908,913 73,877 Government National Mortgage Association.. 9.000%, with various maturities to 2016 (e) ......... Aaa AAA 81,606 135,099 Government National Mortgage Association 11.500%, with various maturities to 2018 (e)......... Aaa AAA 156,084 ----------------- 108,796,049 ----------------- Oil & Gas-- 2.5% 1,707,405 Alliance Pipeline LP, 144A 6.996%, 12/31/2019................................... A3 BBB 1,666,279 3,175,000 El Paso CGP Co. 7.500%, 8/15/2006 (d)................ Baa2 BBB 3,177,984 1,300,000 Sempra Energy 6.950%, 12/01/2005..................... A2 A- 1,357,986 1,750,000 Transocean, Inc. 6.625%, 4/15/2011................... Baa2 A- 1,799,105 ----------------- 8,001,354 ----------------- Restaurants-- 0.7% 2,250,000 Yum! Brands, Inc. 7.450%, 5/15/2005.................. Ba1 BB 2,283,750 ----------------- Retailers--1.1% 1,040,000 Federated Department Stores, Inc. 6.790%, 7/15/2027.................................... Baa1 3BBB+ 1,082,973 2,404,000 J.C. Penney Co., Inc. 9.750%, 6/15/2021.............. Ba3 BBB- 2,331,750 ----------------- 3,414,723 ----------------- Telephone Systems-- 3.6% 1,650,000 GTE Corp. 7.900%, 2/01/2027.......................... A2 A+ 1,625,238 3,200,000 LCI International, Inc. 7.250%, 6/15/2007 ........... Ba2 BB+ 1,280,000 1,480,000 Philippine Long Distance Telephone Co., 144A 11.375%, 5/15/2012................................... Ba3 BB 1,450,400 2,500,000 Sprint Capital Corp. 5.875%, 5/01/2004............... Baa3 BBB- 2,272,900 3,885,000 Sprint Capital Corp. 7.625%, 1/30/2011............... Baa3 BBB- 3,095,533 1,540,000 Telefonos de Mexico SA de CV 8.250%, 1/26/2006.................................... A3 BBB- 1,570,800 ----------------- 11,294,871 ----------------- U.S. Government-- 9.3% 1,900,000 United States Treasury Bonds 5.375%, 2/15/2031 (d)................................ Aaa AAA 1,860,499 1,910,000 United States Treasury Bonds 6.000%, 2/15/2026 (d)................................ Aaa AAA 1,986,686 2,575,000 United States Treasury Notes 3.500%, 11/15/2006................................... Aaa AAA 2,529,113 2,285,000 United States Treasury Notes 4.375%, 5/15/2007 (d)................................ Aaa AAA 2,316,419 2,370,000 United States Treasury Notes 4.750%, 11/15/2008 (d)............................... Aaa AAA 2,413,347 3,380,000 United States Treasury Notes 4.875%, 2/15/2012 (d)................................ Aaa AAA 3,392,675 865,000 United States Treasury Notes 5.000%, 2/15/2011 (d)................................ Aaa AAA 879,636 5,900,000 United States Treasury Notes 5.750%, 4/30/2003.................................... Aaa AAA 6,088,092 3,725,000 United States Treasury Notes 5.750%, 11/15/2005 (d)............................... Aaa AAA 3,975,246 1,680,000 United States Treasury Notes 6.000%, 8/15/2009 (d)................................ Aaa AAA 1,824,950 1,945,000 United States Treasury Notes 6.125%, 8/15/2007.................................... Aaa AAA 2,119,933 ----------------- 29,386,596 ----------------- Total Bonds and Notes (Identified Cost $305,151,375) 303,351,020 -----------------
See accompanying notes to financial statements. 18 BOND INCOME FUND-- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2002 (Unaudited)
Principal Amount Description Value (a) ------------------------------------------------------------------------------------------------------------------------ Short Term Investment ---2.7% $ 8,541,343 Repurchase Agreement with Investors Bank & Trust Co. dated 6/28/2002 at 1.25% to be repurchased at $8,542,233 on 7/01/2002, collateralized by $8,657,351 Federal Home Loan Mortgage Bond, 5.90%, due 7/01/2036 valued at $8,968,410............................................................. $ 8,541,343 ----------------- Total Short Term Investment (Identified Cost $8,541,343)......................... 8,541,343 ----------------- Total Investments-- 98.8% (Identified Cost $313,692,718) (b)............................................... 311,892,363 Other assets less liabilities.................................................... 3,781,430 ----------------- Total Net Assets-- 100%.......................................................... $ 315,673,793 ================= (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2002, the net unrealized depreciation on investments based on cost of $313,692,718 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.................................................. $ 8,083,573 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value.................................................. (9,883,928) ----------------- Net unrealized depreciation................................................................ $ (1,800,355) ================= 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 elected to defer $4,396,713 of capital losses attrib- utable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2002. Securites 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 June 30, 2002. 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) All or a portion of this security was on loan to brokers at June 30, 2002. (e) The Fund's investment in mortgage-backed securities of the Federal National Mortgage Association and the Government National Mortgage Association are interests in seperate pools of mortgages. All seperate investments in securities of this issuer which have the same coupon rate have been aggregat- ed for the purpose of presentation in the schedule of investments. 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $10,202,357 or 3.2% of net assets. AUD - Australian Dollar CAD - Canadian Dollar EUR - Euro
Country Summary at June 30, 2002 (unaudited) United States 89.7% Canada 3.7 Cayman Islands 2.4 Chile 1.1 Australia 0.9 Netherlands 0.7 Mexico 0.5 Phillippine Islands 0.4 Liberia 0.4 Panama 0.2 See accompanying notes to financial statements. 19 HIGH INCOME FUND-- SCHEDULE OF INVESTMENTS Investments as of June 30, 2002 (Unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Bonds and Notes -- 93.8% of Total Net Assets Airlines -- 4.2% $ 750,000 AMR Corp. Delaware 9.000%, 8/01/2012 (d)............. B1 B+ $ 660,000 250,000 Continental Airlines, Inc. 8.000%, 12/15/2005........ B3 B- 220,000 1,000,000 Delta Air Lines, Inc. 8.300%, 12/15/2029............. Ba3 BB- 780,000 800,000 Northwest Airlines, Inc. 7.625%, 3/15/2005 .......... B2 B+ 724,000 ----------------- 2,384,000 ----------------- Automotive-- 1.8% 1,000,000 Dana Corp. 9.000%, 8/15/2011......................... Ba3 BB 990,000 ----------------- Biotechnology-- 0.2% 150,000 Genzyme Corp. 3.000%, 5/15/2021...................... -- BB+ 121,875 ----------------- Chemicals-- 4.8% 150,000 Borden Chemical, Inc. 7.875%, 2/15/2023 ............. B1 BB+ 91,500 100,000 Borden Chemical, Inc. 9.200%, 3/15/2021 ............. B1 BB+ 67,000 100,000 Borden Chemical, Inc. 9.250%, 6/15/2019 ............. B1 BB+ 63,000 1,000,000 Huntsman International LLC 10.125%, 7/01/2009................................... Caa1 B- 890,000 1,500,000 IMC Global, Inc. 11.250%, 6/01/2011.................. Ba1 BB 1,615,845 ----------------- 2,727,345 ----------------- Commercial Services-- 3.1% 1,750,000 United Rentals, Inc. 9.250%, 1/15/2009 ..(d)......... B2 BB- 1,750,000 ----------------- Communications-- 12.0% 250,000 AT&T Wireless Services, Inc. 7.350%, 3/01/2006 (d)................................ Baa2 BBB 217,500 350,000 AT&T Wireless Services, Inc. 7.500%, 5/01/2007 (d)................................ Baa2 BBB 301,349 450,000 CommScope, Inc. 4.000%, 12/15/2006 (d)............... Ba3 BB- 353,812 1,500,000 Grupo Iusacell SA de CV 14.250%, 12/01/2006.................................. B1 B+ 1,125,000 650,000 Juniper Networks, Inc. 4.750%, 3/15/2007 ............ B2 B- 396,500 1,250,000 Lucent Technologies, Inc. 7.250%, 7/15/2006 (d)................................ B2 B+ 825,000 1,250,000 Motorola, Inc., 144A 8.000%, 11/01/2011.............. Baa2 BBB 1,222,197 1,000,000 Nextel Communications, Inc. 0/9.500%, 2/01/2011(e)............................... B3 B 492,500 600,000 PTC International Finance II SA 11.250%, 12/01/2009.................................. B1 B+ 630,000 850,000 Rogers Wireless Communications, Inc. 8.800%, 10/01/2007................................... Ba1 BB- 556,750 675,000 Triton PCS, Inc. 9.375%, 2/01/2011................... B2 B- 421,875 800,000 US Unwired, Inc., Zero Coupon, 11/01/2009 ........... B3 CCC+ 192,000 ----------------- 6,734,483 ----------------- Electric Utilities-- 7.4% 2,500,000 AES Corp. (The) 9.500%, 6/01/2009 (d)................ Ba3 BB- 1,625,000 2,000,000 Calpine Corp. 8.500%, 2/15/2011 (d).................. B1 B+ 1,310,000 1,000,000 Edison Mission Energy 7.730%, 6/15/2009 ............. Baa3 BBB- 916,427 60,000 Mirant Americas Generation, Inc. 7.200%, 10/01/2008................................... Ba1 BBB- 47,467 100,000 Mirant Americas Generation, Inc. 7.625%, 5/01/2006.................................... Ba1 BBB- 81,076 200,000 Mirant Americas Generation, Inc. 8.300%, 5/01/2011.................................... Ba1 BBB- 160,277 ----------------- 4,140,247 ----------------- Electronics-- 1.6% 1,050,000 Celestica, Inc., Zero Coupon, 8/01/2020 (d) ......... Ba2 BB- 442,312 200,000 Flextronics International, Ltd. 8.750%, 10/15/2007................................... Ba2 BB- 201,500 700,000 Sanmina-SCI Corp., Zero Coupon, 9/12/2020............................................ Ba2 BB- 259,000 ----------------- 902,812 ----------------- Entertainment & Leisure-- 0.7% 550,000 Royal Caribbean Cruises, Ltd. 7.500%, 10/15/2027................................... Ba2 BB+ 419,191 ----------------- Financial Services-- 4.2% 1,436,173 Panda Funding Corp. 11.625%, 8/20/2012 .............. Ba3 BB- 1,418,221 1,000,000 PDVSA Finance, Ltd. 9.375%, 11/15/2007 .............. Baa2 BBB- 990,000 ----------------- 2,408,221 ----------------- Foreign Government -- 1.0% 1,000,000 Federal Republic of Brazil 9.375%, 4/07/2008 (d)................................ B1 BB- 590,000 ----------------- Forest Products & Paper-- 4.8% 250,000 Abitibi-Consolidated, Inc. 8.500%, 8/01/2029.................................... Baa3 BBB- 235,920 1,000,000 Georgia-Pacific Corp. 9.500%, 12/01/2011 ............ Ba1 BBB- 1,006,310 1,000,000 Georgia-Pacific Corp. 9.875%, 11/01/2021 ............ Ba1 BBB- 954,070 500,000 Tembec Industries, Inc. 7.750%, 3/15/2012 ........... Ba1 BB+ 498,750 ----------------- 2,695,050 ----------------- Health Care Providers-- 0.3% 200,000 HCA, Inc., Medium Term Note 7.580%, 9/15/2025.................................... Ba1 BBB- 192,754 ----------------- Heavy Machinery-- 0.8% 350,000 Case Credit Corp. 6.750%, 10/21/2007................. Ba2 BB 294,981 150,000 Case Corp. 7.250%, 8/01/2005......................... Ba2 BB 139,770 ----------------- 434,751 ----------------- Home Construction, Furnishings & Appliances--1.4% 300,000 D.R. Horton, Inc. 7.875%, 8/15/2011.................. Ba1 BB 294,000 500,000 K. Hovnanian Enterprises, Inc., 144A 8.000%, 4/01/2012.................................... Ba3 BB- 490,000 ----------------- 784,000 ----------------- Lodging-- 2.2% 300,000 Hilton Hotels Corp. 5.000%, 5/15/2006................ Ba2 BB+ 284,190 300,000 La Quinta Inns, Inc. Medium Term Note 7.330%, 4/01/2008.................................... Ba3 BB- 287,250 650,000 Starwood Hotels & Resorts Worldwide, Inc., 144A 7.875%, 5/01/2012.................................... Ba1 BBB- 640,250 ----------------- 1,211,690 ----------------- Media - Broadcasting & Publishing-- 5.6% 2,750,000 Charter Communications Holdings LLC 0/9.920%, 4/01/2011 (e).............................. B2 B+ 1,306,250 250,000 Comcast Cable Communications, Inc. 7.125%, 6/15/2013.................................... Baa2 BBB 225,714 900,000 CSC Holdings, Inc. 7.875%, 12/15/2007................ Ba2 BB+ 754,276 1,050,000 TCI Communications, Inc. 7.125%, 2/15/2028........... Baa2 BBB+ 854,482 ----------------- 3,140,722 ----------------- Metals-- 1.8% 1,000,000 Phelps Dodge Corp. 9.500%, 6/01/2031 (d) ............ Baa3 BBB- 1,031,580 -----------------
See accompanying notes to financial statements. 20 HIGH INCOME FUND-- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Office/Business Equipment-- 1.5% $ 1,000,000 Xerox Corp., 144A 9.750%, 1/15/2009 (d).............. B1 B+ $ 825,000 ----------------- Oil & Gas-- 8.0% 400,000 Chesapeake Energy Corp. 8.125%, 4/01/2011............ B1 B+ 395,000 700,000 El Paso CGP Co. 6.500%, 6/01/2008.................... Baa2 BBB 673,019 1,000,000 Nuevo Energy Co. 9.500%, 6/01/2008 (d)............... B2 B+ 1,010,000 200,000 Pioneer Natural Resources Co. 6.500%, 1/15/2008.................................... Ba1 BB+ 190,610 1,000,000 Pioneer Natural Resources Co. 7.200%, 1/15/2028.................................... Ba1 BB+ 894,645 1,000,000 Swift Energy Co. 9.375%, 5/01/2012................... B3 B 947,500 500,000 Williams Cos., Inc. 7.125%, 9/01/2011................ Baa3 BBB- 405,535 ----------------- 4,516,309 ----------------- REITs - Healthcare-- 1.5% 851,000 La Quinta Corp. 7.000%, 8/15/2007.................... Ba3 BB- 816,960 ----------------- REITs - Hotels-- 2.7% 1,500,000 Host Marriot LP 9.250%, 10/01/2007................... Ba2 BB- 1,530,000 ----------------- REITs - Office Buildings-- 3.3% 1,000,000 Crescent Real Estate Equities LP, 144A 9.250%, 4/15/2009.................................... Ba3 B+ 1,030,843 800,000 TriNet Corporate Realty Trust, Inc. 6.750%, 3/01/2003.................................... Ba1 BB+ 798,495 ----------------- 1,829,338 ----------------- Restaurants-- 1.1% 600,000 Yum! Brands, Inc. 7.700%, 7/01/2012.................. Ba1 BB 600,000 ----------------- Retailers-- 3.5% 800,000 Foot Locker, Inc. 8.500%, 1/15/2022.................. B3 BB+ 731,454 300,000 J.C. Penney Co., Inc. 7.125%, 11/15/2023............. Ba3 BBB- 243,000 1,000,000 J.C. Penney Co., Inc. 8.125%, 4/01/2027.............. Ba3 BBB- 850,000 150,000 J.C. Penney Co., Inc. 8.250%, 8/15/2022.............. Ba3 BBB- 132,750 ----------------- 1,957,204 ----------------- Semiconductors-- 6.0% 650,000 Amkor Technology, Inc. 9.250%, 5/01/2006 ............ B1 B+ 533,000 1,150,000 Analog Devices, Inc. 4.750%, 10/01/2005.............. Baa1 BBB 1,099,687 750,000 Cypress Semiconductor Corp. 3.750%, 7/01/2005.................................... Ba3 B 644,062 750,000 LSI Logic Corp. 4.000%, 2/15/2005.................... Ba3 B 640,313 600,000 Vitesse Semiconductor Corp. 4.000%, 3/15/2005.................................... B3 B- 467,250 ----------------- 3,384,312 ----------------- Telephone Systems-- 3.8% 250,000 Cox Communications, Inc. 6.800%, 8/01/2028........... Baa2 BBB 189,146 700,000 Philippine Long Distance Telephone Co. 10.500%, 4/15/2009................................... Ba3 BB 679,000 400,000 Qwest Capital Funding, Inc. 5.875%, 8/03/2004.................................... Ba2 BB 256,000 1,195,000 Qwest Capital Funding, Inc. 7.750%, 2/15/2031.................................... Ba2 BB 621,400 650,000 Sprint Capital Corp. 6.875%, 11/15/2028.............. Baa3 BBB- 407,762 ----------------- 2,153,308 ----------------- Textiles, Clothing & Fabrics-- 1.1% 765,000 Phillips Van-Heusen Corp. 7.750%, 11/15/2023 ........ Ba2 BB 636,863 ----------------- Toys/Games/Hobbies-- 0.8% 600,000 Hasbro, Inc. 6.600%, 7/15/2028....................... Ba3 BB 459,000 ----------------- Transportation-- 2.6% 1,000,000 Grupo Transportacion Ferroviaria Mexicana SA de CV 0/11.750%, 6/15/2009 (Yankee) (e)........... B1 BB- 940,000 Transportation-- 2.6% (continued) 500,000 Trico Marine Services, Inc., 144A 8.875%, 5/15/2012.................................... B2 B 495,000 ----------------- 1,435,000 ----------------- Total Bonds and Notes (Identified Cost $57,033,582) 52,802,015 ----------------- Shares ------------------------------------------------------------------------------------------------------------------------ Preferred Stock-- 0.1% Media - Broadcasting & Publishing-- 0.1% 2,634 Liberty Group Publishing, Inc........................ 40,168 ----------------- Total Preferred Stock (Identified Cost $0)........... 40,168 ----------------- Principal Amount ------------------------------------------------------------------------------------------------------------------------ Short Term Investment-- 1.4% $ 783,141 Repurchase Agreement with Investors Bank & Trust Co. dated 6/28/2002 at 1.25% to be repurchased at $783,223 on 7/01/2002, collateralized by $819,751 Federal Home Loan Mortgage Bond, 2.24%, due 5/15/2026 value at $822,444 783,141 ----------------- Total Short Term Investment (Identified Cost $783,141) 783,141 ----------------- Total Investments-- 95.3% (Identified Cost $57,816,723) (b).................... 53,625,324 Other assets less liabilities........................ 2,649,588 ----------------- Total Net Assets-- 100%.............................. $ 56,274,912 ================= (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2002, the net unrealized depreciation on investments based on cost of $57,816,723 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost.................................................. $ 1,216,999 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value.................................................. (5,408,398) ----------------- Net unrealized depreciation................................................................ $ (4,191,399) ================= At December 31, 2001, the Fund had a capital loss carryover of approximately $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 elected to defer $6,348,185 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2002. Securites 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 June 30, 2002. 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) All or a portion of this security was on loan to brokers at June 30, 2002. (e) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $4,703,290 or 8.4% of net assets.
Country Summary at June 30, 2002 (unaudited) United States 87.0% Mexico 3.7 Canada 3.1 Cayman Islands 1.8 Phillippine Islands 1.2 Luxembourg 1.1 Brazil 1.1 Liberia 0.7 Singapore 0.3 See accompanying notes to financial statements. 21 STRATEGIC INCOME FUND-- SCHEDULE OF INVESTMENTS Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Bonds and Notes -- 86.9% of Total Net Assets Convertible Bonds -- 7.8% Canada-- 0.3% $ 250,000 Celestica, Inc., Zero Coupon, 8/01/2020............................................ Ba2 BB- $ 105,312 750,000 Rogers Communications, Inc. 2.000%, 11/26/2005................................... Ba1 BB- 573,750 ----------------- 679,062 ----------------- Mexico-- 0.9% 3,075,000 Empresas ICA Sociedad Controladora SA de CV 5.000%, 3/15/2004.................................... Caa2 CCC+ 1,968,000 ----------------- Netherlands-- 0.4% 1,000,000 Philip Burns Treasury Europe BV 5.500%, 4/30/2004.................................... -- B 970,000 ----------------- United Kingdom-- 0.8% 500,000 Colt Telecom Group PLC 2.000%, 3/29/2006, (EUR)............................. B3 B+ 208,635 3,575,000 Colt Telecom Group PLC 2.000%, 12/16/2006, (EUR)............................ B3 B+ 1,396,967 300,000 Telewest Communications PLC 5.250%, 2/19/2007, (GBP)............................. Caa3 CCC- 171,764 ----------------- 1,777,366 ----------------- United States-- 5.4% 1,000,000 Analog Devices, Inc. 4.750%, 10/01/2005.............. Baa1 BBB 956,250 1,000,000 Builders Transport, Inc. 8.000%, 8/15/2005 (d)(e)(f).......................... -- -- 1,250 200,000 Builders Transport, Inc. 6.500%, 5/01/2011 (d)(e)(f).......................... -- -- 250 275,000 CML Group, Inc. 5.500%, 1/15/2003 (d)(f)............. -- -- 85 200,000 CommScope, Inc. 4.000%, 12/15/2006 (g)............... Ba3 BB- 157,250 250,000 Corning, Inc. 3.500%, 11/01/2008..................... Baa3 BBB- 167,812 231,000 Dixie Group, Inc. 7.000%, 5/15/2012.................. B3 CCC 138,600 250,000 Federal Realty Investment Trust, 5.250%, due 10/28/2003, (REIT)....................... Baa3 BBB- 245,000 125,000 Genzyme Corp. 3.000%, 5/15/2021...................... -- BB+ 101,563 250,000 Hilton Hotels Corp. 5.000%, 5/15/2006................ Ba2 BB+ 236,825 600,000 Human Genome Sciences, Inc. 3.750%, 3/15/2007 (g)................................ -- CCC 402,780 100,000 Juniper Networks, Inc. 4.750%, 3/15/2007 ............ B2 B- 61,000 150,000 Kulicke & Soffa Industries, Inc. 4.750%, 12/15/2006................................... B3 B- 126,750 4,250,000 Loews Corp. 3.125%, 9/15/2007 (g).................... A3 A+ 3,732,350 350,000 MascoTech, Inc. 4.500%, 12/15/2003................... B3 B 332,500 1,334,000 Maxtor Corp. 5.750%, 3/01/2012....................... Caa1 -- 987,160 100,000 Nextel Communications, Inc. 6.000%, 6/01/2011.................................... B3 B 45,875 3,910,000 Pliant Systems, Inc. 5.000%, 5/15/1949(d)(f)......... -- -- 97,750 355,000 Richardson Electronics, Ltd 7.250%, 12/15/2006................................... B3 -- 292,431 550,000 Sanmina-SCI Corp., Zero Coupon, 9/12/2020............ Ba2 BB- 203,500 380,000 SONICblue, Inc. 5.750%, 10/01/2003 (g)............... -- -- 217,094 150,000 Thermedics, Inc., Zero Coupon, 6/01/2003............. Baa3 BBB 144,000 2,625,000 Western Digital Corp., 144A, Zero Coupon, 2/18/2018............................................ Caa1 B- 1,115,625 2,750,000 Xerox Corp. 0.570%, 4/21/2018........................ B3 B 1,636,250 500,000 Yellow Corp. 7.000%, 5/01/2011....................... B2 -- 410,625 ----------------- 11,810,575 ----------------- Total Convertible Bonds (Identified Cost $24,286,579)........................ 17,205,003 ----------------- Non-Convertible Bonds-- 79.1% Argentina-- 0.7% 1,000,000 Cablevision SA 13.750%, 4/30/2007 (d)(f)............. Ca D 150,000 1,585,000 Pecom Energia SA, 144A 8.125%, 7/15/2007.................................... Ca CC 792,500 3,500,000 Republic of Argentina 8.875%, 3/01/2029, (ARS) (d)(f)...................... Ca D 485,100 ----------------- 1,427,600 ----------------- Brazil-- 4.8% 2,400,000 Espirito Santo Centrais Eletricas SA, 144A 10.000%, 7/15/2007................................... B1 BB- 1,584,000 2,542,858 Federal Republic of Brazil 8.000%, 4/15/2014 (h)................................ B1 BB- 1,586,108 8,400,000 Federal Republic of Brazil 8.875%, 4/15/2024.................................... B1 BB- 4,074,000 6,308,000 Federal Republic of Brazil 10.125%, 5/15/2027................................... B1 BB- 3,343,240 ----------------- 10,587,348 ----------------- Canada-- 18.3% 18,505,000 British Columbia Province, Zero Coupon, 9/05/2020, (CAD)..................................... Aa2 AA- 3,753,075 17,900,000 British Columbia Province, Zero Coupon, 6/09/2022, (CAD)..................................... Aa2 AA- 3,223,036 9,775,000 British Columbia Province, Zero Coupon, 8/19/2022, (CAD)..................................... Aa2 AA- 1,739,820 35,000,000 British Columbia Province, Zero Coupon, 8/23/2024, (CAD)..................................... Aa2 AA- 5,538,694 11,250,000 British Columbia Province, Zero Coupon, 11/19/2027, (CAD).................................... Aa2 AA- 1,484,269 8,100,000 Canadian Government 3.500%, 6/01/2004, (CAD)............................. Aaa AAA 5,285,072 17,135,000 Manitoba Province, Zero Coupon, 3/05/2031, (CAD)..................................... -- -- 1,968,796 2,345,000 Microcell Telecommunications, Inc. 0/11.125%, 10/15/2007, (CAD) (i)..................... Caa3 B- 115,639 500,000 New Brunswick FM Project, Inc., 144A 0/6.470%, 11/30/2027, (CAD) (i)...................... -- AA- 312,611 500,000 Nortel Networks, Ltd. 6.125%, 2/15/2006 (g)................................ Ba3 BB- 280,000 29,550,000 Ontario Hydro Bank, Zero Coupon, 10/15/2021, (CAD).................................... Aa3 AA- 5,578,342 12,600,000 Ontario Province, Zero Coupon, 6/02/2027, (CAD)..................................... Aa3 AA- 1,713,580 750,000 Ontario Province, Zero Coupon, 7/13/2022, (CAD)..................................... Aa3 AA- 134,935 8,800,000 Ontario Province, Zero Coupon, 3/08/2029, (CAD)..................................... Aa3 AA- 1,115,608 3,750,000 Saskatchewan Province 5.750%, 3/05/2029, (CAD)............................. Aa3 A+ 2,293,001 8,500,000 Saskatchewan Province, Zero Coupon, 4/10/2014, (CAD)..................................... Aa3 A+ 2,600,858 8,250,000 Saskatchewan Province, Zero Coupon, 2/04/2022, (CAD)..................................... Aa3 A+ 1,469,801 9,605,000 Saskatchewan Province, Zero Coupon, 5/30/2025, (CAD)..................................... Aa3 A+ 1,375,923 ----------------- 39,983,060 -----------------
See accompanying notes to financial statements. 22 STRATEGIC INCOME FUND-- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Cayman Islands-- 0.5% $ 1,405,000 PDVSA Finance, Ltd., (yankee) 7.400%, 8/15/2016.................................... Baa2 BBB- $ 1,067,800 ----------------- Chile-- 0.1% 300,000 Empresa Nacional de Electricidad SA 7.875%, 2/01/2027.................................... Baa1 BBB+ 258,409 ----------------- Colombia-- 0.4% 906,332 Transgas de Occidente SA, 144A 9.790%, 11/01/2010................................... Ba2 BB 842,888 ----------------- Ecuador-- 1.0% 4,225,000 Republic of Ecuador, 144A 5.000%, 8/15/2030.................................... Caa2 CCC+ 2,133,625 ----------------- Hong Kong-- 3.7% 8,475,000 Bangkok Bank PCL, 144A 9.025%, 3/15/2029.................................... Ba2 B+ 8,157,188 ----------------- India-- 1.6% 4,000,000 Tata Electric Cos., 144A 8.500%, 8/19/2017 .......... Ba2 BB 3,602,680 ----------------- Israel-- 0.5% 1,955,000 Barak I.T.C.-International Telecommunications Services Corp. (The), Ltd., (yankee) 0/12.500%, 11/15/2007 (i)............................ B3 CCC 1,075,250 ----------------- Ivory Coast-- 0.1% 926,250 Ivory Coast PDI 2.000%, 3/29/2018 (f)................ -- -- 208,406 ----------------- Malaysia-- 2.7% 1,750,000 Telekom Malaysia Berhad, 144A 7.875%, 8/01/2025 (g)................................ Baa2 BBB 1,785,000 4,300,000 Tenaga Nasional Berhad, 144A 7.500%, 11/01/2025................................... Baa3 BBB 4,042,000 ----------------- 5,827,000 ----------------- Mauritius -- 1.9% 800,000 Indah Kiat Finance Mauritius 10.000%, 7/01/2007 (f)............................... Ca D 204,000 2,700,000 Pindo Deli Finance Mauritius, Ltd., (yankee) 10.750%, 10/01/2007 (f).............................. Ca D 621,000 2,650,000 Pindo Deli Finance Mauritius, Ltd., (yankee) 11.750%, 10/01/2017 (f).............................. Ca D 596,250 5,000,000 Pindo Deli Finance Mauritius, Ltd., (yankee) 10.875%, 10/01/2027 (f).............................. Ca D 1,125,000 6,625,000 Tjiwi Kimia Finance Mauritius, Ltd., (yankee) 10.000%, 8/01/2004 (f)............................... Ca D 1,590,000 ----------------- 4,136,250 ----------------- Mexico-- 7.0% 500,000 Grupo TMM SA de CV, (yankee) 10.250%, 11/15/2006.................................. B2 B+ 320,000 6,960,000 Grupo Transportacion Ferroviaria Mexicana SA de CV 0/11.750%, 6/15/2009 (i).................... B1 BB- 6,542,400 1,000,000 Petroleos Mexicanos, (yankee) 9.250%, 3/30/2018.................................... Baa1 BBB- 1,021,250 4,350,000 Petroleos Mexicanos, (yankee) 9.500%, 9/15/2027.................................... Baa1 BBB- 4,502,250 3,000,000 Petroleos Mexicanos, 144A, (yankee) 8.625%, 12/01/2023................................... Baa1 BBB- 3,000,000 ----------------- 15,385,900 ----------------- Norway -- 3.1% 52,800,000 Norwegian Government 5.750%, 11/30/2004, (NOK)............................ Aaa AAA 6,856,766 ----------------- Panama-- 1.0% 2,546,296 Republic of Panama 4.750%, 7/17/2014................. Ba1 BB 2,138,889 ----------------- Philippines-- 3.6% 5,150,000 Bangko Sentral Ng Philipinas (yankee) 8.600%, 6/15/2027.................................... Ba1 BB+ 4,197,250 1,750,000 Philippine Long Distance Telephone Co. 8.350%, 3/06/2017.................................... Ba3 BB 1,390,375 2,695,000 Quezon Power (Philippines), Ltd., (yankee) 8.860%, 6/15/2017.................................... Ba2 BB+ 2,182,950 ----------------- 7,770,5751 ----------------- Republic of Korea-- 1.1% 2,500,000 Samsung Electronics Co., Ltd., 144A 7.700%, 10/01/2027................................... Baa1 BBB+ 2,447,500 ----------------- South Africa-- 1.9% 15,100,000 Republic of South Africa 12.500%, 12/21/2006, (ZAR)........................... A2 A- 1,493,889 10,650,000 Republic of South Africa 13.000%, 8/31/2010, (ZAR)............................ A2 A- 1,090,824 14,890,000 Republic of South Africa 13.500%, 9/15/2015, (ZAR)............................ A2 A- 1,613,926 ----------------- 4,198,639 ----------------- Supranational-- 3.5% 22,300,000 International Bank for Reconstruction & Development, Zero Coupon, 8/20/2007, (NZD)........... Aaa AAA 7,646,764 ----------------- Thailand-- 1.0% 2,175,000 Thai Farmers Bank PLC, 144A 8.250%, 8/21/2016.................................... Ba2 B+ 2,098,875 ----------------- United States-- 19.7% 500,000 AMR Corp. Delaware 9.000%, 9/15/2016.................................... B1 B+ 435,000 500,000 Bausch & Lomb, Inc. 7.125%, 8/01/2028................ Ba1 BBB- 412,247 2,000,000 Borden Chemical, Inc. 7.875%, 2/15/2023.............. B1 BB+ 1,220,000 142,000 Boston Celtics LP 6.000%, 6/30/2038.................. -- -- 88,928 500,000 Charter Communications Holdings LLC 8.625%, 4/01/2009.................................... B2 B+ 335,000 250,000 Charter Communications Holdings LLC 0/9.920%, 4/01/2011 (i).............................. B2 B+ 118,750 250,000 Continental Airlines, Inc. 8.000%, 12/15/2005........ B3 B- 220,000 500,000 CSC Holdings, Inc. 7.625%, 4/01/2011 (g)............. Ba2 BB+ 402,290 250,000 Dana Corp. 9.000%, 8/15/2011, (EUR).................. Ba3 BB 242,707 1,000,000 Dana Corp. 7.000%, 3/01/2029......................... Ba3 BB 740,000 250,000 Delta Air Lines, Inc. 7.900%, 12/15/2009............. Ba3 BB- 230,721 2,075,000 Delta Air Lines, Inc. 8.300%, 12/15/2029............. Ba3 BB- 1,618,500 150,000 Dillards, Inc. 6.625%, 1/15/2018..................... Ba3 BB+ 122,202 1,156,804 Dillon Read Structured Finance Corp. 6.660%, 8/15/2010.................................... -- CCC- 751,923 250,000 Dillon Read Structured Finance Corp. 8.550%, 8/15/2019.................................... -- CCC- 135,000 7,000,000 Federal Home Loan Mortgage Corp 4.625%, 2/15/2007, (EUR)............................. Aaa AAA 6,880,440 34,000,000 Federal National Mortgage Association, Zero Coupon 10/29/2007, (NZD).................................... Aaa AAA 11,260,760 1,000,000 First Industrial LP 7.600%, 7/15/2028................ Baa2 BBB 996,020 1,000,000 Foot Locker, Inc. 8.500%, 1/15/2022.................. B3 BB+ 914,317 500,000 Georgia-Pacific Corp. 7.375%, 12/01/2025............. Ba1 BBB- 409,979 1,050,000 Georgia-Pacific Corp. 7.750%, 11/15/2029............. Ba1 BBB- 864,822 500,000 HCA, Inc. 7.500%, 12/15/2023......................... Ba1 BBB- 488,150 820,000 HCA, Inc. 7.050%, 12/01/2027......................... Ba1 BBB- 742,346
See accompanying notes to financial statements. 23 STRATEGIC INCOME FUND-- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ United States-- 19.7% (continued) $ 500,000 HCA, Inc., Medium Term Note 7.580%, 9/15/2025.................................... Ba1 BBB- $ 481,885 250,000 IMC Global, Inc. 7.625%, 11/01/2005.................. Ba2 B+ 235,995 800,000 IMC Global, Inc. 7.300%, 1/15/2028................... Ba2 B+ 610,240 350,000 J.C. Penney Co., Inc. 7.950%, 4/01/2017.............. Ba3 BBB- 316,750 400,000 J.C. Penney Co., Inc. 8.250%, 8/15/2022 (g) ......... Ba3 BBB- 354,000 525,000 J.C. Penney Co., Inc. 7.125%, 11/15/2023............. Ba3 BBB- 425,250 250,000 J.C. Penney Co., Inc. Medium Term Note 6.875%, 10/15/2015................................... Ba3 BBB- 208,750 250,000 Kmart Funding Corp. 9.440%, 7/01/2018 (d)(f)............................. Caa2 CCC- 132,500 527,211 Kmart Funding Corp., Series F 8.800%, 7/01/2010 (d)(f)............................. Caa2 CCC 258,334 750,000 Lucent Technologies, Inc. 7.250%, 7/15/2006 (g)................................ B2 B+ 495,000 2,420,000 Lucent Technologies, Inc. 6.450%, 3/15/2029.......... B2 B+ 1,234,200 66,000 Missouri Pacific Railroad Co. 4.250%, 1/01/2005.................................... Ba1 A- 65,904 125,000 Motorola, Inc. 6.500%, 11/15/2028.................... Baa2 BBB 91,388 5,375,000 Nextel Communications, Inc. 0/9.750%, 10/31/2007 (i)............................. B3 B 2,687,500 750,000 Nextel Communications, Inc. 9.375%, 11/15/2009 (g)............................... B3 B 380,625 250,000 Phillips Van-Heusen Corp. 7.750%, 11/15/2023................................... Ba2 BB 208,125 775,000 Pioneer-Standard Electronics, Inc. 9.500%, 8/01/2006.................................... Baa3 BB- 724,329 1,000,000 ProLogis Trust 7.625%, 7/01/2017..................... Baa1 BBB+ 987,010 500,000 Qwest Capital Funding, Inc. 6.875%, 7/15/2028.................................... Ba2 BB 255,000 575,000 RCN Corp. 0/11.125%, 10/15/2007 (i).................. Ca CCC- 126,500 1,155,000 RCN Corp. 0/9.800%, 2/15/2008 (i).................... Ca CCC- 219,450 125,000 Sprint Capital Corp. 5.700%, 11/15/2003.............. Baa3 BBB- 111,077 600,000 Sprint Capital Corp. 6.125%, 11/15/2008.............. Baa3 BBB- 481,392 250,000 TCI Communications, Inc. 6.875%, 2/15/2006........... Baa2 BBB+ 240,706 300,000 United AirLines, Inc. 10.670%, 5/01/2004............. Caa1 B- 219,000 750,000 Williams Communications Group, Inc. 10.700%, 10/01/2007(d)(f)............................ Ca D 56,250 250,000 Williams Communications Group, Inc. 11.700%, 8/01/2008 (d)(f)(g)......................... Ca D 19,375 250,000 Xerox Capital (Europe) PLC 5.875%, 5/15/2004.................................... B1 B+ 205,000 500,000 Xerox Corp. 5.500%, 11/15/2003....................... B1 B+ 430,000 1,600,000 Xerox Corp. 3.500%, 2/04/2004, (EUR)................. B1 B+ 1,200,922 699,000 Zenith Electronics Corp. 8.190%, 11/01/2009.......... --- --- 111,840 ----------------- 43,204,399 ----------------- Venezuela-- 0.9% 500,000 Cerro Negro Finance, Ltd., 144A 7.900%, 12/01/2020................................... Baa2 -- 341,260 2,550,000 Republic of Venezuela 9.250%, 9/15/2027 (g).......... B2 B 1,632,000 ----------------- 1,973,260 ----------------- Total Non-Convertible Bonds (Identified Cost $200,013,117)....................... 173,029,071 ----------------- Total Bonds and Notes (Identified Cost $224,299,696)....................... 190,234,074 ----------------- Common Stocks-- 8.6% Indonesia ---0.1% 6,786,500 PT Indah Kiat Pulp & Paper Corp., (IDR)(f)(j)........ 179,146 ----------------- South Africa-- 3.8% 589,300 Sappi, Ltd. (ADR).................................... 8,261,986 ----------------- Thailand-- 0.2% 894,789 Loxley Co., Ltd...................................... 269,331 122,000 Siam Commercial Bank PLC, 144A (THB)................. 84,457 ----------------- 353,788 ----------------- United States-- 4.5% 162,900 Associated Estates Realty Corp., (REIT).............. 1,726,740 177,100 Developers Diversified Realty Corp................... 3,984,750 25,461 Seabulk International, Inc. (f)...................... 199,614 111,700 Simon Property Group, Inc. (g)....................... 4,115,028 ----------------- 10,026,132 ----------------- Total Common Stocks (Identified Cost $13,915,523)........................ 18,821,052 ----------------- Preferred Stocks-- 1.2% Philippines-- 0.4% 47,800 Philippine Long Distance Telephone Co., Series 3 (GDR) 965,560 ----------------- United States-- 0.8% 35,000 Bethlehem Steel Corp., 144A (d)(f)................... 35,000 22,500 Owens Corning Capital LLC, 144A (d)(f)............... 11,250 37,500 Pacific Gas & Electric Co. (d)(f).................... 920,625 12,500 Western Gas Resources, Inc........................... 652,500 ----------------- 1,619,375 ----------------- Total Preferred Stocks (Identified Cost $5,189,838)......................... 2,584,935 ----------------- Principal Amount ------------------------------------------------------------------------------------------------------------------------ Short Term Investment ---0.7% $ 1,589,232 Repurchase Agreement with Investors Bank & Trust Co. dated 6/28/02 at 1.25% to be repurchased at $1,589,398 on 7/01/2002, collateralized by $1,627,593 Federal Home Loan Mortgage Bond, 5.026%, due 6/01/2030 valued at $1,668,820................................. 1,589,232 ----------------- Total Short Term Investment (Identified Cost $1,589,232) 1,589,232 ----------------- Total Investments-- 97.4% (Identified Cost $244,994,289) (b)................... 213,229,293 ----------------- Other assets less liabilities........................ 5,694,109 ----------------- Total Net Assets-- 100%.............................. $ 218,923,402 ================= (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2002, the net unrealized depreciation on investments based on cost of $244,994,289 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.................................................. $ 20,418,395 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value.................................................. (52,183,391) ----------------- Net unrealized depreciation................................................................ $ (31,764,996) =================
See accompanying notes to financial statements. 24 STRATEGIC INCOME FUND-- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2002 (unaudited) At December 31, 2001, the Fund had a 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 elected to defer $3,286,530 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2002. Securites 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 June 30, 2002. 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) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code. (e) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. (f) Non-income producing security. (g) All or a portion of this security was on loan to brokers at June 30, 2002. (h) Pay in kind securities. (i) 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. (j) Delisted security. ADR/GDR An American Depositary Receipt (ADR) or Global Depositary 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. 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified insti tutional buyers. At the period end, the value of these securities amounted to $32,386,459 or 14.8% of net assets. ARS - Argentine Peso CAD - Canadian Dollar EUR - Euro GBP - British Pound IDR - Indonesian Rupiah NOK - Norwegian Krone NZD - New Zealand Dollars THB - Thai Baht ZAR - South African Rand Industry Holdings at June 30, 2002 (unaudited) Government 29.4% Banking 7.5 Electric Utilities 5.7 Forest Products & Paper 5.3 U.S. Government Agencies 5.1 Oil & Gas 5.0 Communications 4.9 Supranational 3.5 Transportation 3.4 Mortgage-Backed 3.1 Financial Services 3.1 Other, less than 2% each 24.0 See accompanying notes to financial statements. 25 LIMITED TERM U.S. GOVERNMENT FUND-- SCHEDULE OF INVESTMENTS Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Bonds and Notes -- 97.4% of Total Net Assets Asset-Backed -- 2.8% $ 3,615,000 Citibank Credit Card Issuance Trust 4.950%, 2/09/2009.................................... Aaa AAA $ 3,676,390 ----------------- Mortgage-Backed-- 50.0% 2,354,642 Federal Home Loan Mortgage Corp. 7.000%, 2/01/2016.................................... Aaa AAA 2,477,507 27,110 Federal Home Loan Mortgage Corp. 7.500%, 6/01/2026.................................... Aaa AAA 28,598 187,324 Federal Home Loan Mortgage Corp. 8.000%, 8/01/2010.................................... Aaa AAA 196,722 14,394 Federal Home Loan Mortgage Corp. 10.000%, 7/01/2019................................... Aaa AAA 16,364 1,822,755 Federal Home Loan Mortgage Corp. 11.500%, with various maturities to 2020 (d)......... Aaa AAA 2,094,478 3,275,236 Federal National Mortgage Association 5.500%, 3/01/2017.................................... Aaa AAA 3,283,391 21,035,257 Federal National Mortgage Association 6.000%, with various maturities to 2017 (d).......... Aaa AAA 21,488,776 9,792,328 Federal National Mortgage Association 6.500%, with various maturities to 2032 (d).......... Aaa AAA 9,998,065 2,370,024 Federal National Mortgage Association 7.000%, 12/01/2022................................... Aaa AAA 2,457,186 4,403,585 Federal National Mortgage Association 7.500%, with various maturities to 2015 (d).......... Aaa AAA 4,643,856 321,107 Federal National Mortgage Association 8.000%, 6/01/2015.................................... Aaa AAA 338,617 3,800,000 Government National Mortgage Association 6.000%, 4/15/2032.................................... Aaa AAA 3,803,044 11,190,388 Government National Mortgage Association 7.000%, with various maturities to 2031 (d).......... Aaa AAA 11,647,703 37,574 Government National Mortgage Association 12.500%, with various maturities to 2015 (d)......... Aaa AAA 44,020 442,538 Government National Mortgage Association 16.000%, with various maturities to 2012 (d)......... Aaa AAA 528,469 147,977 Government National Mortgage Association.. 17.000%, with various maturities to 2011 (d)......... Aaa AAA 180,533 1,000,000 Residential Asset Securitization Trust 5.820%, 1/25/2027.................................... Aaa AAA 1,015,000 1,675,000 Residential Funding Mortgage Securities II 5.420%, 2/25/2016.................................... Aaa AAA 1,686,516 ----------------- 65,928,845 ----------------- Supranational -- 4.2% 3,960,000 Inter-American Development Bank Bonds 12.250%, 12/15/2008.................................. Aaa AAA 5,575,256 ----------------- U.S. Government-- 11.0% 3,800,000 United States Treasury Bonds 7.875%, 11/15/2004 (e)............................... Aaa AAA 4,211,236 2,835,000 United States Treasury Notes 5.750%, 4/30/2003.................................... Aaa AAA 2,925,238 2,200,000 United States Treasury Notes 6.250%, 2/15/2007.................................... Aaa AAA 2,407,306 4,500,000 United States Treasury Notes 7.000%, 7/15/2006.................................... Aaa AAA 5,026,455 ----------------- 14,570,235 ----------------- U.S. Government Agencies-- 29.4% $ 5,000,000 Federal Home Loan Mortgage Corp. 5.750%, 4/15/2008.................................... Aaa AAA $ 5,273,400 7,000,000 Federal Home Loan Mortgage Corp. 7.000%, 7/15/2005.................................... Aaa AAA 7,665,280 7,000,000 Federal National Mortgage Association 5.500%, 2/15/2006.................................... Aaa AAA 7,349,160 3,000,000 Federal National Mortgage Association 5.500%, 5/02/2006 (e)................................ Aa2 AA- 3,151,290 6,325,000 Federal National Mortgage Association 6.000%, 12/15/2005 (e)............................... Aaa AAA 6,753,961 7,000,000 Federal National Mortgage Association 6.500%, 8/15/2004.................................... Aaa AAA 7,472,570 1,000,000 Federal National Mortgage Association 7.000%, 7/15/2005 (e)................................ Aaa AAA 1,093,590 ----------------- 38,759,251 ----------------- Total Bonds and Notes (Identified Cost $125,612,721). 128,509,977 ----------------- Principal Amount ------------------------------------------------------------------------------------------------------------------------ Short Term Investment-- 1.8% $ 2,383,135 Repurchase Agreement with Investors Bank & Trust Co. dated 6/28/02 at 1.25% to be repurchased at $2,383,383 on 7/01/2002, collateralized by $2,398,141 Federal National Mortgage Bond, 6.40%, due 6/01/2024 valued at $2,502,364 2,383,135 ----------------- Total Short Term Investment (Identified Cost $2,383,135) 2,383,135 ----------------- Total Investments-- 99.2% (Identified Cost $127,995,856) (b)................... 130,893,112 Other assets less liabilities........................ 1,057,830 ----------------- Total Net Assets-- 100%.............................. $ 131,950,942 ================= (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2002, the net unrealized appreciation on investments based on cost of $127,995,856 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost.................................................. $ 3,003,154 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value.................................................. (105,898) ----------------- Net unrealized appreciation................................................................ $ 2,897,256 ================= 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 elected to defer $23,628 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2002. Securites 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 June 30, 2002. 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 investment in mortgage-backed securities of the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of this issuer 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 June 30, 2002.
See accompanying notes to financial statements. 26 GOVERNMENT SECURITIES FUND-- SCHEDULE OF INVESTMENTS Investments as of June 30, 2002 (unaudited)
Ratings (c) (unaudited) ----------------------- Principal Standard Amount Description Moody's & Poor's Value (a) ------------------------------------------------------------------------------------------------------------------------ Bonds and Notes -- 98.0% of Total Net Assets Mortgage-Backed -- 25.9% $ 996,054 Federal Home Loan Mortgage Corp. 7.500%, 4/01/2012.................................... Aaa AAA $ 1,059,234 1,826,404 Federal National Mortgage Association 6.500%, 11/01/2031 (d)............................... Aaa AAA 1,864,777 3,000,000 Federal National Mortgage Association 6.625%, 11/15/2010................................... Aaa AAA 3,264,960 1,116,912 Federal National Mortgage Association 7.500%, 12/01/2030................................... Aaa AAA 1,173,104 13,325,474 Government National Mortgage Association 7.000%, with various maturities to 2031 (e) ......... Aaa AAA 13,858,893 806,790 Government National Mortgage Association 7.500%, 4/15/2027.................................... Aaa AAA 858,811 84,687 Government National Mortgage Association 8.500%, 2/15/2006.................................... Aaa AAA 90,903 184,063 Government National Mortgage Association 9.000%, with various maturities to 2016 (e) ......... Aaa AAA 201,620 53,506 Government National Mortgage Association 9.500%, with various maturities to 2009 (e) ......... Aaa AAA 58,486 82,004 Government National Mortgage Association 10.000%, with various maturities to 2016 (e)......... Aaa AAA 93,127 17,486 Government National Mortgage Association 12.500%, with various maturities to 2014 (e)......... Aaa AAA 20,311 ----------------- 22,544,226 ----------------- U.S. Government-- 65.8% 7,000,000 United States Treasury Bonds 6.000%, 2/15/2026 (d)................................ Aaa AAA 7,281,050 18,000,000 United States Treasury Bonds, Zero Coupon 11/15/2027........................................... Aaa AAA 4,036,320 12,000,000 United States Treasury Bonds 7.250%, 5/15/2016 (d)................................ Aaa AAA 14,142,600 15,000,000 United States Treasury Bonds 8.750%, with various maturities to 2020 (d)(e)....... Aaa AAA 20,132,100 4,000,000 United States Treasury Bonds, Zero Coupon 11/15/2014........................................... Aaa AAA 2,765,360 5,061,950 United States Treasury Inflation Indexed Bonds 3.375%, 4/15/2032.................................... Aaa AAA 5,349,013 3,333,120 United States Treasury Inflation Indexed Bonds 3.625%, 4/15/2028.................................... Aaa AAA 3,599,770 ----------------- 57,306,213 ----------------- U.S. Government Agencies-- 6.3% 5,000,000 Federal National Mortgage Association 6.625%, 9/15/2009.................................... Aaa AAA 5,477,950 ----------------- Total Bonds and Notes (Identified Cost $83,559,505)........................ 85,328,389 ----------------- Short Term Investment-- 1.4% $ 1,238,681 Repurchase Agreement with Investors Bank & Trust Co. dated 6/28/02 at 1.25% to be repurchased at $1,238,810 on 7/01/2002, collateralized by $1,298,660 Federal Home Loan Mortgage Bond, 2.29%, due 6/15/2026 valued at $1,301,566................................. $ 1,238,681 ----------------- Total Short Term Investment (Identified Cost $1,238,681)......................... 1,238,681 ----------------- Total Investments-- 99.4% (Identified Cost $84,798,186) (b).................... 86,567,070 Other assets less liabilities........................ 536,890 ----------------- Total Net Assets-- 100%.............................. $ 87,103,960 ================= (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2002, the net unrealized appreciation on investments based on cost of $84,798,186 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.................................................. $ 2,102,398 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value.................................................. (333,514) ----------------- Net unrealized appreciation................................................................ $ 1,768,884 ================= At December 31, 2001, the Fund had a capital loss carryover 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 elected to defer $3,029 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2002. Securites 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 June 30, 2002. 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) All or a portion of this security was on loan to brokers at June 30, 2002. (e) 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 and for United States Treasury Bonds 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. 27 STATEMENTS OF ASSETS & LIABILITIES June 30, 2002 (unaudited)
Short Term Bond Bond Income High Income Fund Fund Fund --------------- ----------- ----------- ASSETS Investments at cost ........................................................... $ 56,440,832 $ 313,692,718 $ 57,816,723 Net unrealized appreciation (depreciation) .................................... 1,159,390 (1,800,355) (4,191,399) ------------ ------------- ------------- Investments at value ........................................................ 57,600,222 311,892,363 53,625,324 Investments held as collateral for loaned securities .......................... 3,579,500 36,039,258 8,455,200 Receivable for Fund shares sold ............................................... 213,671 1,248,584 61,224 Receivable for securities sold ................................................ 1,212,816 5,804,856 3,188,264 Dividends and interest receivable ............................................. 651,479 5,058,552 1,229,103 Securities lending income receivable .......................................... 5,613 60,689 15,876 ------------ ------------- ------------- TOTAL ASSETS ................................................................ 63,263,301 360,104,302 66,574,991 ------------ ------------- ------------- LIABILITIES Collateral on securities loaned, at value ..................................... 3,579,500 36,039,258 8,455,200 Payable for securities purchased .............................................. -- 6,354,605 1,329,295 Payable for Fund shares redeemed .............................................. 66,307 1,014,063 182,559 Dividends payable ............................................................. 88,876 533,541 189,387 Management fees payable ....................................................... 6,265 109,758 35,054 Deferred Trustees' fees ....................................................... 24,339 108,554 22,062 Transfer agent fees payable ................................................... 12,558 47,084 14,258 Accounting and administrative fees payable .................................... 3,041 14,194 2,990 Other accounts payable and accrued expenses ................................... 35,453 209,452 69,274 ------------ ------------- ------------- TOTAL LIABILITIES ........................................................... 3,816,339 44,430,509 10,300,079 ------------ ------------- ------------- NET ASSETS ...................................................................... $ 59,446,962 $ 315,673,793 $ 56,274,912 ============ ============= ============= NET ASSETS CONSIST OF: Paid in capital ............................................................... $ 79,966,881 $ 347,585,405 $ 144,238,500 Undistributed (overdistributed) net investment income ......................... (147,853) (460,348) (170,844) Accumulated net realized gain (loss) on investments ........................... (21,531,456) (29,650,909) (83,601,345) Net unrealized appreciation (depreciation) of investments and foreign currency transactions ........................................... 1,159,390 (1,800,355) (4,191,399) ------------ ------------- ------------- NET ASSETS ...................................................................... $ 59,446,962 $ 315,673,793 $ 56,274,912 ============ ============= ============= COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets .................................................................... $ 51,718,668 $ 158,254,823 $ 25,552,278 ============ ============= ============= Shares of beneficial interest ................................................. 7,454,055 14,401,072 5,953,625 ============ ============= ============= Net asset value and redemption price per share ................................ $ 6.94 $ 10.99 $ 4.29 ============ ============= ============= Offering price per share ...................................................... $ 7.15 $ 11.51 $ 4.49 ============ ============= ============= Class B shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets .................................................................... $ 5,532,602 $ 130,005,458 $ 27,627,758 ============ ============= ============= Shares of beneficial interest ................................................. 798,468 11,825,415 6,429,705 ============ ============= ============= Net asset value and offering price per share .................................. $ 6.93 $ 10.99 $ 4.30 ============ ============= ============= Class C shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets .................................................................... $ 1,664,437 $ 10,203,307 $ 3,094,876 ============ ============= ============= Shares of beneficial interest ................................................. 240,548 927,730 720,732 ============ ============= ============= Net asset value per share ..................................................... $ 6.92 $ 11.00 $ 4.29 ============ ============= ============= Offering price per share ...................................................... $ 6.99 $ 11.11 $ 4.33 ============ ============= ============= Class Y shares: Net assets .................................................................... $ 531,255 $ 17,210,205 $ -- ============ ============= ============= Shares of beneficial interest ................................................. 76,581 1,559,639 -- ============ ============= ============= Net asset value, offering and redemption price per share ...................... $ 6.94 $ 11.03 $ -- ============ ============= ============= Strategic Income Limited Term U.S. Government Fund Government Fund Securities Fund ---------------- ----------------- --------------- ASSETS Investments at cost ........................................................... $ 244,994,289 $ 127,995,856 $ 84,798,186 Net unrealized appreciation (depreciation) .................................... (31,764,996) 2,897,256 1,768,884 ------------- ------------- ------------- Investments at value ........................................................ 213,229,293 130,893,112 86,567,070 Investments held as collateral for loaned securities .......................... 9,549,590 13,789,063 21,089,270 Receivable for Fund shares sold ............................................... 237,709 73,801 140,103 Receivable for securities sold ................................................ 4,152,304 47,213 -- Dividends and interest receivable ............................................. 2,919,185 1,421,709 823,262 Securities lending income receivable .......................................... 8,905 14,505 18,608 ------------- ------------- ------------- TOTAL ASSETS ................................................................ 230,096,986 146,239,403 108,638,313 ------------- ------------- ------------- LIABILITIES Collateral on securities loaned, at value ..................................... 9,549,590 13,789,063 21,089,270 Payable for securities purchased .............................................. 500,793 -- -- Payable for Fund shares redeemed .............................................. 496,386 189,454 163,711 Dividends payable ............................................................. 330,538 86,013 54,851 Management fees payable ....................................................... 117,913 61,556 39,104 Deferred Trustees' fees ....................................................... 42,989 32,268 58,271 Transfer agent fees payable ................................................... 42,776 23,094 15,278 Accounting and administrative fees payable .................................... 9,906 6,005 4,086 Other accounts payable and accrued expenses ................................... 82,693 101,008 109,782 ------------- ------------- ------------- TOTAL LIABILITIES ........................................................... 11,173,584 14,288,461 21,534,353 ------------- ------------- ------------- NET ASSETS ...................................................................... $ 218,923,402 $$131,950,942 $ 87,103,960 ============= ============= ============= NET ASSETS CONSIST OF: Paid in capital ............................................................... $ 296,753,005 $ 176,501,753 $ 97,608,553 Undistributed (overdistributed) net investment income ......................... 1,896,594 (631,469) (153,429) Accumulated net realized gain (loss) on investments ........................... (48,165,490) (46,816,598) (12,120,048) Net unrealized appreciation (depreciation) of investments and foreign currency transactions ........................................... (31,560,707) 2,897,256 1,768,884 ------------- ------------- ------------- NET ASSETS ...................................................................... $ 218,923,402 $ 131,950,942 $ 87,103,960 ============= ============= ============= COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets .................................................................... $ 91,027,433 $ 105,465,105 $ 68,484,407 ============= ============= ============= Shares of beneficial interest ................................................. 8,950,932 9,167,415 6,006,867 ============= ============= ============= Net asset value and redemption price per share ................................ $ 10.17 $ 11.50 $ 11.40 ============= ============= ============= Offering price per share ...................................................... $ 10.65 $ 11.86 $ 11.94 ============= ============= ============= Class B shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets .................................................................... $ 99,052,065 $ 12,221,206 $ 12,759,677 ============= ============= ============= Shares of beneficial interest ................................................. 9,744,516 1,063,944 1,119,026 ============= ============= ============= Net asset value and offering price per share .................................. $ 10.16 $ 11.49 $ 11.40 ============= ============= ============= Class C shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets .................................................................... $ 28,266,927 $ 6,082,311 $ -- ============= ============= ============= Shares of beneficial interest ................................................. 2,783,285 529,241 -- ============= ============= ============= Net asset value per share ..................................................... $ 10.16 $ 11.49 $ -- ============= ============= ============= Offering price per share ...................................................... $ 10.26 $ 11.61 $ -- ============= ============= ============= Class Y shares: Net assets .................................................................... $ 576,977 $ 8,182,320 $ 5,859,876 ============= ============= ============= Shares of beneficial interest ................................................. 56,640 708,586 514,502 ============= ============= ============= Net asset value, offering and redemption price per share ...................... $ 10.19 $ 11.55 $ 11.39 ============= ============= =============
See accompanying notes to financial statements. 28 & 29 STATEMENTS OF OPERATIONS For the Six Months Ended June 30, 2002 (unaudited)
Short Term Bond Bond Income High Income Fund Fund Fund --------------- ----------- ----------- INVESTMENT INCOME Dividends .................................................................... $ -- $ -- $ 51,272 Interest ..................................................................... 1,731,028 11,415,378 3,476,842 Securities lending income .................................................... 804 58,427 29,504 Less net foreign taxes withheld .............................................. -- -- -- ------------ ------------ ------------ 1,731,832 11,473,805 3,557,618 ------------ ------------ ------------ Expenses Management fees ............................................................ 169,808 668,011 234,329 Service and distribution fees - Class A .................................... 69,013 207,518 38,271 Service and distribution fees - Class B .................................... 25,965 644,512 163,757 Service and distribution fees - Class C .................................... 5,317 55,007 17,919 Trustees' fees and expenses ................................................ 5,302 12,466 4,869 Accounting and administrative .............................................. 15,835 81,209 17,029 Custodian .................................................................. 34,147 81,105 33,829 Transfer agent fees - Class A, Class B, Class C ............................ 71,968 454,105 83,720 Transfer agent fees - Class Y .............................................. 141 8,648 -- Audit and tax services ..................................................... 15,820 18,316 20,198 Legal ...................................................................... 1,963 18,556 2,220 Printing ................................................................... 3,854 80,061 13,337 Registration ............................................................... 27,383 33,886 18,192 Miscellaneous .............................................................. 2,322 84,041 21,352 ------------ ------------ ------------ Total expenses ............................................................... 448,838 2,447,441 669,022 Less reimbursement/waiver .................................................. (147,863) -- -- ------------ ------------ ------------ Net expenses ................................................................. 300,975 2,447,441 669,022 ------------ ------------ ------------ Net investment income ........................................................ 1,430,857 9,026,364 2,888,596 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments - net .......................................................... (1,537,724) (14,615,399) (15,186,147) Foreign currency transactions - net ........................................ -- (36,759) -- Change in unrealized appreciation (depreciation) of: Investments - net .......................................................... (240,137) (2,510,184) 6,340,396 Foreign currency transactions - net ........................................ -- -- -- ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................................ (1,777,861) (17,162,342) (8,845,751) ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................ $ (347,004) $ (8,135,978) $ (5,957,155) ============ ============ ============ Strategic Income Limited Term Government Fund Government Fund Securities Fund ---------------- --------------- --------------- INVESTMENT INCOME Dividends ................................................................... $ 605,216 $ -- $ -- Interest .................................................................... 9,100,863 3,511,571 2,411,882 Securities lending income ................................................... 24,207 12,566 2,170 Less net foreign taxes withheld ............................................. (7,381) -- -- ------------ ---------- ---------- 9,722,905 3,524,137 2,414,052 ------------ ---------- ---------- Expenses Management fees ........................................................... 713,332 374,315 236,732 Service and distribution fees - Class A ................................... 115,483 183,696 84,851 Service and distribution fees - Class B ................................... 501,202 66,699 64,133 Service and distribution fees - Class C ................................... 140,547 29,291 -- Trustees' fees and expenses ............................................... 9,223 7,180 5,972 Accounting and administrative ............................................. 55,591 33,205 21,902 Custodian ................................................................. 68,036 51,740 40,320 Transfer agent fees - Class A, Class B, Class C ........................... 244,527 148,054 100,332 Transfer agent fees - Class Y ............................................. 256 3,582 5,752 Audit and tax services .................................................... 21,498 17,224 17,138 Legal ..................................................................... 3,008 5,906 3,744 Printing .................................................................. 11,375 17,187 16,787 Registration .............................................................. 28,218 27,573 21,044 Miscellaneous ............................................................. 36,912 24,729 25,962 ------------ ---------- ---------- Total expenses .............................................................. 1,949,208 990,381 644,669 Less reimbursement/waiver ................................................. -- -- -- ------------ ---------- ---------- Net expenses ................................................................ 1,949,208 990,381 644,669 ------------ ---------- ---------- Net investment income ....................................................... 7,773,697 2,533,756 1,769,383 ------------ ---------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments - net ......................................................... (13,656,686) 549,289 134,556 Foreign currency transactions - net ....................................... (595,247) -- -- Change in unrealized appreciation (depreciation) of: Investments - net ......................................................... 20,023,438 1,621,839 1,731,274 Foreign currency transactions - net ....................................... 222,509 -- -- ------------ ---------- ---------- Net realized and unrealized gain (loss) on investments and foreign currency transactions ............................................... 5,994,014 2,171,128 1,865,830 ------------ ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............... $ 13,767,711 $4,704,884 $3,635,213 ============ ========== ==========
See accompanying notes to financial statements. 30 & 31 STATEMENTS OF CHANGES IN NET ASSETS
Short Term Bond Bond Income Fund Fund ------------------------------- ------------------------------- Six Months Ended Year Ended Six Months Ended Year Ended June 30, 2002 December 31, June 30, 2002 December 31, (unaudited) 2001 (unaudited) 2001 ---------------- ------------ ---------------- ------------ FROM OPERATIONS: Net investment income .............................. $ 1,430,857 $ 3,218,140 $ 9,026,364 $ 19,095,393 Net realized gain (loss) on investments and foreign currency transactions .................... (1,537,724) 409,535 (14,652,158) (2,966,830) Net change in unrealized appreciation (depreciation) of investments ................................... (240,137) 937,524 (2,510,184) 5,153,817 ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from ... (347,004) 4,565,199 (8,135,978) 21,282,380 ------------ ------------ ------------- ------------- operations FROM DISTRIBUTIONS TO SHAREHOLDERS: NET INVESTMENT INCOME Class A .......................................... (1,405,309) (3,191,917) (4,917,394) (11,319,336) Class B .......................................... (112,651) (188,455) (3,362,761) (6,512,472) Class C .......................................... (22,751) (23,799) (285,124) (697,417) Class Y .......................................... (7,591) (1,147) (563,616) (1,060,888) ------------ ------------ ------------- ------------- (1,548,302) (3,405,318) (9,128,895) (19,590,113) ------------ ------------ ------------- ------------- INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS ............ (2,528,089) 155,809 2,761,204 26,608,353 ------------ ------------ ------------- ------------- Total increase (decrease) in net assets .............. (4,423,395) 1,315,690 (14,503,669) 28,300,620 ------------ ------------ ------------- ------------- NET ASSETS Beginning of period ................................ 63,870,357 62,554,667 330,177,462 301,876,842 ------------ ------------ ------------- ------------- End of period ...................................... $ 59,446,962 $ 63,870,357 $ 315,673,793 $ 330,177,462 ============ ============ ============= ============= UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME .............................. $ (147,853) $ (30,408) $ (460,348) $ (357,817) ============ ============ ============= ============= High Income Strategic Income Fund Fund ------------------------------- ------------------------------- Six Months Ended Year Ended Six Months Ended Year Ended June 30, 2002 December 31, June 30, 2002 December 31, (unaudited) 2001 (unaudited) 2001 ---------------- ------------ ---------------- ------------ FROM OPERATIONS: Net investment income .............................. $ 2,888,596 $ 9,962,123 $ 7,773,697 $ 21,144,478 Net realized gain (loss) on investments and foreign currency transactions .................... (15,186,147) (35,337,692) (14,251,933) (15,296,601) Net change in unrealized appreciation (depreciation) of investments ................................... 6,340,396 15,823,831 20,245,947 (7,360,361) ------------ ------------- ------------- ------------- Increase (decrease) in net assets resulting from operations........................................ (5,957,155) (9,551,738) 13,767,711 (1,512,484) ------------ ------------- ------------- ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: NET INVESTMENT INCOME Class A .......................................... (1,407,591) (4,869,014) (3,232,335) (9,377,635) Class B .......................................... (1,381,524) (4,708,520) (3,158,458) (9,064,495) Class C .......................................... (151,328) (516,760) (885,252) (2,749,603) Class Y .......................................... -- -- (18,813) (36,701) ------------ ------------- ------------- ------------- (2,940,443) (10,094,294) (7,294,858) (21,228,434) ------------ ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS ............ (7,164,738) (8,138,375) (13,233,744) (26,303,974) ------------ ------------- ------------- ------------- Total increase (decrease) in net assets .............. (16,062,336) (27,784,407) (6,760,891) (49,044,892) ------------ ------------- ------------- ------------- NET ASSETS Beginning of period ................................ 72,337,248 100,121,655 225,684,293 274,729,185 ------------ ------------- ------------- ------------- End of period ...................................... $ 56,274,912 $ 72,337,248 $ 218,923,402 $ 225,684,293 ============ ============= ============= ============= UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME .............................. $ (170,844) $ (118,997) $ 1,896,594 $ 1,417,755 ============ ============= ============= ============= Limited Term U.S. Government Securities Government Fund Fund ------------------------------- ------------------------------- Six Months Ended Year Ended Six Months Ended Year Ended June 30, 2002 December 31, June 30, 2002 December 31, (unaudited) 2001 (unaudited) 2001 ---------------- ------------ ---------------- ------------ FROM OPERATIONS: Net investment income .............................. $ 2,533,756 $ 6,144,504 $ 1,769,383 $ 3,808,000 Net realized gain (loss) on investments and foreign currency transactions .................... 549,289 3,333,647 134,556 2,078,357 Net change in unrealized appreciation (depreciation) of investments ................................... 1,621,839 (296,704) 1,731,274 (1,860,288) ------------- ------------- ------------ ------------ Increase (decrease) in net assets resulting from operations ....................................... 4,704,884 9,181,447 3,635,213 4,026,069 ------------- ------------- ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS: NET INVESTMENT INCOME Class A .......................................... (2,479,025) (5,640,601) (1,563,323) (3,439,102) Class B .......................................... (272,033) (537,161) (247,446) (486,651) Class C .......................................... (119,399) (301,631) -- -- Class Y .......................................... (189,019) (173,303) (135,947) (245,868) ------------- ------------- ------------ ------------ (3,059,476) (6,652,696) (1,946,716) (4,171,621) ------------- ------------- ------------ ------------ INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS ............ (2,492,772) (10,319,170) (3,205,279) 2,920,494 ------------- ------------- ------------ ------------ Total increase (decrease) in net assets .............. (847,364) (7,790,419) (1,516,782) 2,774,942 ------------- ------------- ------------ ------------ NET ASSETS Beginning of period ................................ 132,798,306 140,588,725 88,620,742 85,845,800 ------------- ------------- ------------ ------------ End of period ...................................... $ 131,950,942 $ 132,798,306 $ 87,103,960 $ 88,620,742 ============= ============= ============ ============ UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME .............................. $ (631,469) $ (105,749) $ (153,429) $ 23,904 ============= ============= ============ ============
See accompanying notes to financial statements. 32 & 33 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 from net of investment gain (loss) on investment net investment realized the period income investments operations income capital gains ---------- ------ ----------- ---------- ------ ------------- SHORT TERM BOND FUND Class A 06/30/2002(j) $ 7.16 $ 0.17(k) $ (0.21) $ (0.04) $ (0.18) $ -- 12/31/2001(h) 7.02 0.37 0.17 0.54 (0.40) -- 12/31/2000 7.01 0.44 0.01(f) 0.45 (0.44) -- 12/31/1999 7.30 0.41 (0.28) 0.13 (0.42) -- 12/31/1998 7.39 0.38 (0.09) 0.29 (0.38) -- 12/31/1997 7.37 0.47(e) (0.02) 0.45 (0.43) -- Class B 06/30/2002(j) 7.15 0.14(k) (0.21) (0.07) (0.15) -- 12/31/2001(h) 7.01 0.32 0.17 0.49 (0.35) -- 12/31/2000 7.00 0.39 0.01(f) 0.40 (0.39) -- 12/31/1999 7.29 0.36 (0.28) 0.08 (0.37) -- 12/31/1998 7.38 0.33 (0.09) 0.24 (0.33) -- 12/31/1997 7.36 0.41(e) (0.02) 0.39 (0.37) -- Class C 06/30/2002(j) 7.14 0.14(k) (0.21) (0.07) (0.15) -- 12/31/2001(h) 7.01 0.32 0.15 0.47 (0.34) -- 12/31/2000 7.00 0.39 0.01(f) 0.40 (0.39) -- 12/31/1999 7.29 0.36 (0.28) 0.08 (0.37) -- 12/31/1998(g) 7.28 0.01 0.01(f) 0.02 (0.01) -- Class Y 06/30/2002(j) 7.16 0.19(k) (0.22) (0.03) (0.19) -- 12/31/2001(l) 7.22 0.09 (0.08) 0.01 (0.07) -- BOND INCOME FUND Class A 06/30/2002(j) $ 11.59 $ 0.33(k) $ (0.61) $ (0.28) $ (0.32) $ -- 12/31/2001(h) 11.52 0.73 0.10 0.83 (0.76) -- 12/31/2000 11.51 0.78 0.03 0.81 (0.80) -- 12/31/1999 12.36 0.81 (0.86) (0.05) (0.79) (0.01) 12/31/1998 12.39 0.81 0.15 0.96 (0.81) (0.18) 12/31/1997 12.05 0.83 0.45 1.28 (0.82) (0.12) Class B 06/30/2002(j) 11.59 0.29(k) (0.60) (0.31) (0.29) -- 12/31/2001(h) 11.51 0.64 0.10 0.74 (0.66) -- 12/31/2000 11.51 0.70 0.02 0.72 (0.72) -- 12/31/1999 12.36 0.72 (0.86) (0.14) (0.70) (0.01) 12/31/1998 12.39 0.71 0.15 0.86 (0.71) (0.18) 12/31/1997 12.04 0.74 0.46 1.20 (0.73) (0.12) Class C 06/30/2002(j) 11.60 0.29(k) (0.60) (0.31) (0.29) -- 12/31/2001(h) 11.52 0.65 0.09 0.74 (0.66) -- 12/31/2000 11.52 0.70 0.02 0.72 (0.72) -- 12/31/1999 12.37 0.72 (0.86) (0.14) (0.70) (0.01) 12/31/1998 12.40 0.71 0.15 0.86 (0.71) (0.18) 12/31/1997 12.06 0.74 0.45 1.19 (0.73) (0.12) Ratios to average net assets: ----------------------------- Net asset Net assets, value, Total end of Net investment Portfolio Total end of return the period Expenses income turnover Distributions the period (%) (a) (000) (%) (b) (%) (b) rate (%) ------------- ---------- ------- ----- ------- ------- -------- SHORT TERM BOND FUND Class A 06/30/2002(j) $ (0.18) $ 6.94 (0.5)(d) $ 51,719 0.90(c) 4.71 22 12/31/2001(h) (0.40) 7.16 7.8(d) 58,367 0.90(c) 5.27 87 12/31/2000 (0.44) 7.02 6.7(d) 58,540 0.83(c) 6.43 108 12/31/1999 (0.42) 7.01 1.9(d) 72,680 0.70(c) 5.88 139 12/31/1998 (0.38) 7.30 4.0(d) 92,669 0.70(c) 5.93 105 12/31/1997 (0.43) 7.39 6.2(d) 196,928 0.70(c) 6.27 49 Class B 06/30/2002(j) (0.15) 6.93 (0.8)(d) 5,533 1.65(c) 3.95 22 12/31/2001(h) (0.35) 7.15 7.0(d) 4,657 1.65(c) 4.51 87 12/31/2000 (0.39) 7.01 5.9(d) 3,553 1.58(c) 5.68 108 12/31/1999 (0.37) 7.00 1.1(d) 3,796 1.45(c) 5.13 139 12/31/1998 (0.33) 7.29 3.4(d) 3,761 1.45(c) 5.18 105 12/31/1997 (0.37) 7.38 5.4(d) 2,961 1.45(c) 5.52 49 Class C 06/30/2002(j) (0.15) 6.92 (0.8)(d) 1,664 1.65(c) 3.89 22 12/31/2001(h) (0.34) 7.14 6.9(d) 620 1.65(c) 4.48 87 12/31/2000 (0.39) 7.01 5.9(d) 461 1.58(c) 5.68 108 12/31/1999 (0.37) 7.00 1.2(d) 489 1.45(c) 5.13 139 12/31/1998(g) (0.01) 7.29 0.3(d) 233 1.45(c) 5.18 105 Class Y 06/30/2002(j) (0.19) 6.94 (0.5)(d) 531 0.65(c) 5.51 22 12/31/2001(l) (0.07) 7.16 0.4(d) 226 0.60(c) 5.36 87 BOND INCOME FUND Class A 06/30/2002(j) $ (0.32) $ 10.99 (2.4) $158,255 1.21 5.89 31 12/31/2001(h) (0.76) 11.59 7.2 173,836 1.09 6.26 84 12/31/2000 (0.80) 11.52 7.4 174,969 1.04 7.03 83 12/31/1999 (0.80) 11.51 (0.3) 213,769 0.97 6.87 63 12/31/1998 (0.99) 12.36 8.0 221,799 1.01 6.44 65 12/31/1997 (0.94) 12.39 11.0 193,513 1.05 6.73 54 Class B 06/30/2002(j) (0.29) 10.99 (2.7) 130,005 1.96 5.13 31 12/31/2001(h) (0.66) 11.59 6.5 127,520 1.84 5.49 84 12/31/2000 (0.72) 11.51 6.5 100,353 1.79 6.28 83 12/31/1999 (0.71) 11.51 (1.1) 89,213 1.72 6.12 63 12/31/1998 (0.89) 12.36 7.2 64,240 1.76 5.69 65 12/31/1997 (0.85) 12.39 10.3 37,559 1.80 5.98 54 Class C 06/30/2002(j) (0.29) 11.00 (2.7) 10,203 1.96 5.13 31 12/31/2001(h) (0.66) 11.60 6.5 11,470 1.84 5.52 84 12/31/2000 (0.72) 11.52 6.5 12,541 1.79 6.28 83 12/31/1999 (0.71) 11.52 (1.1) 14,872 1.72 6.12 63 12/31/1998 (0.89) 12.37 7.2 8,969 1.76 5.69 65 12/31/1997 (0.85) 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 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 reclassification 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 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 Bond Fund was to decrease net investment income per share by $.03 for Class A and $.02 for both Class B and C share 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 and $.02 for Class B and $.01 for Class C and to decrease the ratio of net investment income to average net assets from 6.34% to 6.26% for Class A, 5.57% to 5.49% for Class B, 5.59% to 5.52% for Class C. 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. (j) For the six months ended June 30, 2002 (unaudited). (k) Per share net investment income has been calculated using the average shares outstanding during the period. See accompanying notes to financial statements. 34 & 35 FINANCIAL HIGHLIGHTS (continued) 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 from net of investment gain (loss) on investment net investment realized the period income investments operations income capital gains ---------- ------ ----------- ---------- ------ ------------- BOND INCOME FUND(continued) Class Y 06/30/2002(e) $ 11.63 $ 0.35(c) $ (0.59) $ (0.24) $ (0.36) $ -- 12/31/2001(d) 11.54 0.79 0.10 0.89 (0.80) -- 12/31/2000 11.54 0.83 0.01 0.84 (0.84) -- 12/31/1999 12.38 0.85 (0.86) (0.01) (0.82) (0.01) 12/31/1998 12.41 0.84 0.15 0.99 (0.84) (0.18) 12/31/1997 12.06 0.86 0.46 1.32 (0.85) (0.12) HIGH INCOME FUND Class A 06/30/2002(e) $ 4.94 $ 0.21 $ (0.64) $ (0.43) $ (0.22) $ -- 12/31/2001(d) 6.21 0.66 (1.25) (0.59) (0.68) -- 12/31/2000 8.30 0.86 (2.11) (1.25) (0.84) -- 12/31/1999 8.86 0.89 (0.54) 0.35 (0.91) -- 12/31/1998 9.94 0.92 (1.08) (0.16) (0.92) -- 12/31/1997 9.42 0.87 0.52 1.39 (0.87) -- Class B 06/30/2002(e) 4.95 0.20 (0.65) (0.45) (0.20) -- 12/31/2001(d) 6.22 0.62 (1.26) (0.64) (0.63) -- 12/31/2000 8.30 0.81 (2.11) (1.30) (0.78) -- 12/31/1999 8.85 0.82 (0.53) 0.29 (0.84) -- 12/31/1998 9.93 0.85 (1.08) (0.23) (0.85) -- 12/31/1997 9.42 0.80 0.51 1.31 (0.80) -- Class C 06/30/2002(e) 4.94 0.20 (0.65) (0.45) (0.20) -- 12/31/2001(d) 6.22 0.61 (1.26) (0.65) (0.63) -- 12/31/2000 8.30 0.81 (2.11) (1.30) (0.78) -- 12/31/1999 8.85 0.82 (0.53) 0.29 (0.84) -- 12/31/1998(g) 9.96 0.69 (1.08) (0.39) (0.72) -- STRATEGIC INCOME FUND Class A 06/30/2002(e) $ 9.88 $ 0.37(c) $ 0.27 $ 0.64 $ (0.35) $ -- 12/31/2001(d) 10.80 0.91(c) (0.92) (0.01) (0.91) -- 12/31/2000 11.65 0.99(c) (0.91) 0.08 (0.93) -- 12/31/1999 11.37 1.03 0.31 1.34 (1.02) (0.04) 12/31/1998 13.42 1.05 (1.30) (0.25) (1.05) (0.75) 12/31/1997 13.36 1.01 0.21 1.22 (1.01) (0.15) Class B 06/30/2002(e) 9.88 0.34(c) 0.25 0.59 (0.31) -- 12/31/2001(d) 10.79 0.83(c) (0.90) (0.07) (0.84) -- 12/31/2000 11.65 0.90(c) (0.91) (0.01) (0.85) -- 12/31/1999 11.37 0.94 0.31 1.25 (0.93) (0.04) 12/31/1998 13.42 0.95 (1.30) (0.35) (0.95) (0.75) 12/31/1997 13.36 0.91 0.21 1.12 (0.91) (0.15) Ratios to average net assets: ----------------------------- Net asset Net assets, value, Total end of Net investment Portfolio Total end of return the period Expenses income turnover Distributions the period (%) (a) (000) (%) (b) (%) (b) rate (%) ------------- ---------- ------- ----- ------- ------- -------- BOND INCOME FUND(continued) Class Y 06/30/2002(e) $ (0.36) $ 11.03 (2.1) $ 17,210 0.77 6.27 31 12/31/2001(d) (0.80) 11.63 7.8 17,351 0.67 6.68 84 12/31/2000 (0.84) 11.54 7.6 14,013 0.67 7.40 83 12/31/1999 (0.83) 11.54 (0.0)(f) 10,320 0.72 7.12 63 12/31/1998 (1.02) 12.38 8.2 9,289 0.76 6.69 65 12/31/1997 (0.97) 12.41 11.4 4,153 0.80 6.98 54 HIGH INCOME FUND Class A 06/30/2002(e) $ (0.22) $ 4.29 (9.1) $ 25,552 1.59 9.04 82 12/31/2001(d) (0.68) 4.94 (10.7) 33,471 1.47 11.31 65 12/31/2000 (0.84) 6.21 (16.1) 46,960 1.36 11.47 60 12/31/1999 (0.91) 8.30 4.0 74,589 1.28 10.22 89 12/31/1998 (0.92) 8.86 (1.8) 73,023 1.32 9.81 75 12/31/1997 (0.87) 9.94 15.4 62,739 1.36 9.03 99 Class B 06/30/2002(e) (0.20) 4.30 (9.4) 27,628 2.34 8.28 82 12/31/2001(d) (0.63) 4.95 (11.3) 34,713 2.22 10.56 65 12/31/2000 (0.78) 6.22 (16.6) 47,793 2.11 10.72 60 12/31/1999 (0.84) 8.30 3.3 70,218 2.03 9.47 89 12/31/1998 (0.85) 8.85 (2.5) 60,322 2.07 9.06 75 12/31/1997 (0.80) 9.93 14.4 42,401 2.11 8.28 99 Class C 06/30/2002(e) (0.20) 4.29 (9.4) 3.095 2.34 8.29 82 12/31/2001(d) (0.63) 4.94 (11.5) 4,153 2.22 10.54 65 12/31/2000 (0.78) 6.22 (16.6) 5,369 2.11 10.72 60 12/31/1999 (0.84) 8.30 3.3 9,138 2.03 9.47 89 12/31/1998(g) (0.72) 8.85 (4.1) 7,732 2.07 9.06 75 STRATEGIC INCOME FUND Class A 06/30/2002(e) $ (0.35) $ 10.17 6.6 $ 91,027 1.33 7.46 18 12/31/2001(d) (0.91) 9.88 (0.1) 94,156 1.31 8.77 10 12/31/2000 (0.93) 10.80 0.7 116,986 1.24 8.73 13 12/31/1999 (1.06) 11.65 12.2 124,869 1.21 9.09 19 12/31/1998 (1.80) 11.37 (1.7) 127,306 1.19 8.33 33 12/31/1997 (1.16) 13.42 9.3 144,706 1.18 7.36 37 Class B 06/30/2002(e) (0.31) 10.16 6.1 99,052 2.08 6.71 18 12/31/2001(d) (0.84) 9.88 (0.8) 102,159 2.06 8.02 10 12/31/2000 (0.85) 10.79 (0.2) 120,200 1.99 7.98 13 12/31/1999 (0.97) 11.65 11.3 127,723 1.96 8.34 19 12/31/1998 (1.70) 11.37 (2.5) 134,049 1.94 7.58 33 12/31/1997 (1.06) 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 total return calculations. Periods less than one year are not annualized. (b) Computed on an annualized basis for periods less than one year. (c) Per share net investment income has been calculated using the average shares outstanding during the period. (d) As required, effective January 1, 2001, the Funds 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 and there was no effect on net investment income per share. 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. (e) For the six months ended June 30, 2002 (unaudited). (f) Amount is less than one tenth of one percent. (g) For the period March 2, 1998 (inception) to December 31, 1998. See accompanying notes to financial statements. 36 & 37 FINANCIAL HIGHLIGHTS (continued) 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 from net of investment gain (loss) on investment net investment realized the period income investments operations income capital gains ---------- ------ ----------- ---------- ------ ------------- STRATEGIC INCOME FUND (continued) Class C 06/30/2002(d) $ 9.87 $ 0.34(e) $ 0.26 $ 0.60 $ (0.31) $ -- 12/31/2001(c) 10.78 0.83(e) (0.91) (0.08) (0.83) -- 12/31/2000 11.64 0.90(e) (0.91) (0.01) (0.85) -- 12/31/1999 11.36 0.94 0.31 1.25 (0.93) (0.04) 12/31/1998 13.41 0.95 (1.30) (0.35) (0.95) (0.75) 12/31/1997 13.35 0.91 0.21 1.12 (0.91) (0.15) Class Y 06/30/2002(d) 9.90 0.39(e) 0.27 0.66 (0.37) -- 12/31/2001(c) 10.81 0.94(e) (0.92) 0.02 (0.93) -- 12/31/2000 11.65 0.96(e) (0.84) 0.12 (0.96) -- 12/31/1999(f) 11.45 0.86 (0.56) 0.30 (0.10) -- LIMITED TERM U.S. GOVERNMENT FUND Class A 06/30/2002(d) $ 11.36 $ 0.22(e) $ 0.19 $ 0.41 $ (0.27) $ -- 12/31/01(c) 11.16 0.51 0.25 0.76 (0.56) -- 12/31/00 10.97 0.69 0.20 0.89 (0.70) -- 12/31/99 11.70 0.66 (0.74) (0.08) (0.65) -- 12/31/98 11.64 0.67 0.06 0.73 (0.67) -- 12/31/97 11.55 0.72 0.09 0.81 (0.72) -- Class B 06/30/2002(d) 11.34 0.18(e) 0.20 0.38 (0.23) -- 12/31/2001(c) 11.14 0.44 0.24 0.68 (0.48) -- 12/31/2000 10.95 0.62 0.20 0.82 (0.63) -- 12/31/1999 11.69 0.59 (0.75) (0.16) (0.58) -- 12/31/1998 11.62 0.60 0.07 0.67 (0.60) -- 12/31/1997 11.54 0.65 0.08 0.73 (0.65) -- Class C 06/30/2002(d) 11.35 0.18(e) 0.19 0.37 (0.23) -- 12/31/2001(c) 11.15 0.44 0.24 0.68 (0.48) -- 12/31/2000 10.96 0.62 0.20 0.82 (0.63) -- 12/31/1999 11.70 0.59 (0.75) (0.16) (0.58) -- 12/31/1998 11.63 0.60 0.07 0.67 (0.60) -- 12/31/1997 11.54 0.65 0.09 0.74 (0.65) -- Class Y 06/30/2002(d) 11.41 0.25(e) 0.19 0.44 (0.30) -- 12/31/01(c) 11.20 0.56 0.26 0.82 (0.61) -- 12/31/00 11.00 0.75 0.19 0.94 (0.74) -- 12/31/99 11.73 0.70 (0.74) (0.04) (0.69) -- 12/31/98 11.66 0.72 0.06 0.78 (0.71) -- 12/31/97 11.58 0.76 0.08 0.84 (0.76) -- Ratios to average net assets: ----------------------------- Net asset Net assets, value, Total end of Net investment Portfolio Total end of return the period Expenses income turnover Distributions the period (%) (a) (000) (%) (b) (%) (b) rate (%) ------------- ---------- ------- ----- ------- ------- -------- STRATEGIC INCOME FUND (continued) Class C 06/30/2002(d) $ (0.31) $ 10.16 6.2 $ 28,267 2.08 6.71 18 12/31/2001(c) (0.83) 9.87 (0.8) 28,925 2.06 8.02 10 12/31/2000 (0.85) 10.78 (0.2) 37,208 1.99 7.98 13 12/31/1999 (0.97) 11.64 11.3 40,265 1.96 8.34 19 12/31/1998 (1.70) 11.36 (2.5) 45,457 1.94 7.58 33 12/31/1997 (1.06) 13.41 8.5 56,515 1.93 6.61 37 Class Y 06/30/2002(d) (0.37) 10.19 6.8 577 0.96 7.81 18 12/31/2001(c) (0.93) 9.90 0.3 445 0.93 9.10 10 12/31/2000 (0.96) 10.81 1.0 335 0.90 9.07 13 12/31/1999(f) (0.10) 11.65 2.7 0(g) 0.96 9.34 19 LIMITED TERM U.S. GOVERNMENT FUND Class A 06/30/2002(d) $ (0.27) $ 11.50 3.6 $105,465 1.44 3.93 43 12/31/01(c) (0.56) 11.36 6.9 109,189 1.42 4.52 275 12/31/00 (0.70) 11.16 8.3 118,833 1.40 6.18 384 12/31/99 (0.65) 10.97 (0.7) 149,756 1.33 5.91 400 12/31/98 (0.67) 11.70 6.5 194,032 1.31 5.81 1,376 12/31/97 (0.72) 11.64 7.3 222,185 1.28 6.40 533 Class B 06/30/2002(d) (0.23) 11.49 3.4 12,221 2.09 3.28 43 12/31/2001(c) (0.48) 11.34 6.2 14,317 2.07 3.85 275 12/31/2000 (0.63) 11.14 7.7 11,884 2.05 5.53 384 12/31/1999 (0.58) 10.95 (1.4) 14,601 1.98 5.26 400 12/31/1998 (0.60) 11.69 5.9 18,116 1.96 5.16 1,376 12/31/1997 (0.65) 11.62 6.5 16,060 1.93 5.75 533 Class C 06/30/2002(d) (0.23) 11.49 3.3 6,082 2.09 3.28 43 12/31/2001(c) (0.48) 11.35 6.2 5,851 2.07 3.89 275 12/31/2000 (0.63) 11.15 7.7 6,617 2.05 5.53 384 12/31/1999 (0.58) 10.96 (1.4) 9,054 1.98 5.26 400 12/31/1998 (0.60) 11.70 5.9 13,962 1.96 5.16 1,376 12/31/1997 (0.65) 11.63 6.6 15,699 1.93 5.75 533 Class Y 06/30/2002(d) (0.30) 11.55 3.9 8,182 0.98 4.44 43 12/31/01(c) (0.61) 11.41 7.4 3,441 0.95 4.98 275 12/31/00 (0.74) 11.20 8.8 3,254 0.95 6.63 384 12/31/99 (0.69) 11.00 (0.3) 7,086 0.98 6.26 400 12/31/98 (0.71) 11.73 6.9 8,345 0.96 6.16 1,351 12/31/97 (0.76) 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 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 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 and there was no effect on Class Y and no effect on net investment income per share. For Limited Term U.S. Government Fund, the effect of this change was to decrease net investment income 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 3.89% 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. (d) For the six months ended June 30, 2002 (Unaudited). (e) Per share net investment income has been calculated using the average shares outstanding during the period. (f) For the period December 1, 1999 (inception) through December 31, 1999. (g) Amount is less than $500. See accompanying notes to financial statements. 38 & 39
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 the period income investments operations income capital gains ---------- ------ ----------- ---------- ------ ------------- GOVERNMENT SECURITIES FUND Class A 06/30/2002(d) $ 11.18 $ 0.23(e) $ 0.25 $ 0.48 $ (0.26) $ -- 12/31/2001(c) 11.18 0.50 0.05 0.55 (0.55) -- 12/31/2000 10.47 0.62 0.69 1.31 (0.60) -- 12/31/1999 11.90 0.67 (1.42) (0.75) (0.68) -- 12/31/1998 11.56 0.68 0.33 1.01 (0.67) -- 12/31/1997 11.08 0.62 0.48 1.10 (0.62) -- Class B 06/30/2002(d) 11.17 0.19(e) 0.26 0.45 (0.22) -- 12/31/2001(c) 11.18 0.42 0.03 0.45 (0.46) -- 12/31/2000 10.47 0.54 0.69 1.23 (0.52) -- 12/31/1999 11.90 0.59 (1.42) (0.83) (0.60) -- 12/31/1998 11.56 0.58 0.34 0.92 (0.58) -- 12/31/1997 11.08 0.54 0.48 1.02 (0.54) -- Class Y 06/30/2002(d) 11.17 0.25(e) 0.25 0.50 (0.28) -- 12/31/2001(c) 11.17 0.55 0.04 0.59 (0.59) -- 12/31/2000 10.44 0.65 0.71 1.36 (0.63) -- 12/31/1999 11.88 0.70 (1.43) (0.73) (0.71) -- 12/31/1998 11.54 0.72 0.32 1.04 (0.70) -- 12/31/1997 11.07 0.65 0.47 1.12 (0.65) -- Ratios to average net assets: ----------------------------- Net asset Net assets, value, Total end of Net investment Portfolio Total end of return the period Expenses income turnover Distributions the period (%) (a) (000) (%) (b) (%) (b) rate (%) ------------- ---------- ------- ----- ------- ------- -------- GOVERNMENT SECURITIES FUND Class A 06/30/2002(d) $ (0.26) $ 11.40 4.3 $ 68,484 1.40 4.21 17 12/31/2001(c) (0.55) 11.18 4.9 70,551 1.39 4.46 317 12/31/2000 (0.60) 11.18 12.9 70,909 1.41 5.69 622 12/31/1999 (0.68) 10.47 (6.4) 84,904 1.36 6.00 313 12/31/1998 (0.67) 11.90 9.0 103,032 1.38 5.80 106 12/31/1997 (0.62) 11.56 10.3 103,583 1.36 5.63 391 Class B 06/30/2002(d) (0.22) 11.40 4.0 12,760 2.15 3.45 17 12/31/2001(c) (0.46) 11.17 4.1 13,249 2.14 3.71 317 12/31/2000 (0.52) 11.18 12.1 10,343 2.16 4.94 622 12/31/1999 (0.60) 10.47 (7.1) 9,430 2.11 5.25 313 12/31/1998 (0.58) 11.90 8.2 9,657 2.13 5.05 106 12/31/1997 (0.54) 11.56 9.5 5,654 2.11 4.88 391 Class Y 06/30/2002(d) (0.28) 11.39 4.5 5,860 1.15 4.49 17 12/31/2001(c) (0.59) 11.17 5.3 4,821 1.00 4.85 317 12/31/2000 (0.63) 11.17 13.5 4,593 1.01 6.09 622 12/31/1999 (0.71) 10.44 (6.3) 2,754 1.11 6.25 313 12/31/1998 (0.70) 11.88 9.3 3,404 1.13 6.05 106 12/31/1997 (0.65) 11.54 10.5 6,658 1.11 5.88 391
(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 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 for Government Securities Fund 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. (d) For the six months ended June 30, 2002 (unaudited). (e) Per share net investment income has been calculated using the average shares outstanding during the period. See accompanying notes to financial statements. 40 & 41 NOTES TO FINANCIAL STATEMENTS 42 NOTES TO FINANCIAL STATEMENTS For the Six Months Ended June 30, 2002 (unaudited) 1. Organization. CDC Nvest Funds Trust I and CDC 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 taxable fixed 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") CDC Nvest Strategic Income Fund (the "Strategic Income Fund") CDC Nvest Government Securities Fund (the "Government Securities Fund") CDC Nvest Funds Trust II: CDC Nvest Short Term Bond Fund (the "Short Term Bond Fund"), formerly CDC Nvest Short Term Corporate Income Fund CDC Nvest High Income Fund (the "High Income Fund") CDC Nvest Limited Term U.S. Government Fund (the "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 Bond 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 Bond 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 Bond 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. 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. 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. 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. 43 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2002 (unaudited) c. Foreign Currency Translation. (continued) 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 treats each Fund as a separate entity for federal income tax purposes. Each Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders substantially all of its net investment income and any net realized capital gains, at least annually. Accordingly, no provision for federal income tax has been made. A Fund may be subject to foreign taxes on income and gains on investments that are accrued based upon the Fund's understanding of the tax rules and regulations that exist in the countries in which the Fund invests. Foreign governments may also impose taxes or other payments on investments with respect to foreign securities, such taxes are accrued as applicable. 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 carry-forwards, 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 coun-terparty including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. 44 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2002 (unaudited) 3. Purchases and Sales of Securities. For the six months ended June 30, 2002, 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 Bond Fund $ 4,116,391 $ 5,724,618 $ 8,950,394 $ 8,904,284 Bond Income Fund 55,656,340 34,082,061 55,189,538 60,226,294 High Income Fund -- -- 51,390,399 59,718,157 Strategic Income Fund 1,706,621 1,722,666 36,335,055 57,598,335 Limited Term U.S. Government Fund 49,545,899 51,637,606 6,300,662 5,230,447 Government Securities Fund 14,284,475 16,902,487 -- --
4. Management Fees and Other Transactions with Affiliates. a. Management Fees. 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 Bond 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%
For the six months ended June 30, 2002, 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 Bond Fund $169,808 $147,863 $ 21,945 0.550% 0.071% Bond Income Fund 668,011 -- 668,011 0.413% 0.413% High Income Fund 234,329 -- 234,329 0.700% 0.700% Strategic Income Fund 713,332 -- 713,332 0.645% 0.645% Limited Term U.S. Government Fund 374,315 -- 374,315 0.570% 0.570% Government Securities Fund 236,732 -- 236,732 0.550% 0.550%
* Annualized 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 and has subcontracted with Investors Bank & Trust Company to serve as sub-administrator. 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. For the six months ended June 30, 2002, fees paid to CIS for accounting and administrative expense were as follows: Accounting And Percentage of Average Fund Administrative Daily Net Assets* ---- -------------- ----------------- Short Term Bond Fund $15,449 0.051% Bond Income Fund 80,823 0.050% High Income Fund 16,643 0.051% Strategic Income Fund 55,205 0.050% Limited Term U.S. Government Fund 32,819 0.051% Government Securities Fund 21,516 0.051% * Annualized 45 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2002 (unaudited) 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. Classes A, B and C 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 $1.7 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 and BFDS and other firms are also reimbursed by the Funds for out-of-pocket expenses. For the six months ended June 30, 2002, amounts paid to CIS as compensation for its services as transfer agent were as follows: Transfer Agent Fund Fee ---- --- Short Term Bond Fund $ 61,370 Bond Income Fund 215,367 High Income Fund 56,669 Strategic Income Fund 171,001 Limited Term U.S. Government Fund 105,420 Government Securities Fund 66,036 d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the Trusts have adopted a Service Plan relating to each Fund's Class A shares (the "Class A Plan") and Service and Distribution Plans relating to each Fund's Class B and Class C shares (the "Class B and Class C Plans"). Under the Class A Plan, each Fund pays 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 of 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. 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. 46 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2002 (unaudited) For the six months ended June 30, 2002, 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 Bond Fund $ 69,013 $ 6,491 $ 1,329 $ -- $ 19,474 $ 3,988 Bond Income Fund 207,518 161,128 13,752 -- 483,384 41,255 High Income Fund 38,271 40,939 4,480 -- 122,818 13,439 Strategic Income Fund 115,483 125,301 35,137 -- 375,901 105,410 Limited Term U.S. Government Fund 131,211 16,675 7,323 52,485 50,024 21,968 Government Securities Fund 84,851 16,033 -- -- 48,100 --
Prior to September 13, 1993 for Short Term Bond Fund and Bond Income Fund and September 24, 1993 for Limited Term U.S. Government Fund and Government Securities Fund, to the extent that reimbursable 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 were as follows: Fund ---- Short Term Bond 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 six months ended June 30, 2002 were as follows: Fund ---- Short Term Bond Fund $ 36,838 Bond Income Fund 381,466 High Income Fund 88,330 Strategic Income Fund 196,694 Limited Term U.S. Government Fund 57,118 Government Securities Fund 81,113 e. Trustees Fees and Expenses. The Fund does 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 $45,000 and meeting attendance fees of $4,500 for each meeting of the Board of Trustees attended. Each committee member receives an additional retainer fee at the annual rate of $7,000 while each committee chairman receives a retainer fee (beyond the $7,000 fee) at the annual rate of $5,000. The retainer fees assume four Board or Committee meetings per year; Trustees are compensated for each additional committee and board meeting, in excess of four meetings per year, at the rate of $1,750 and $4,500, respectively. 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 a designated Fund or certain other CDC Nvest Funds on the normal payment date. Deferred amounts remain in the Fund until distributed in accordance with the Plan. 47 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2002 (unaudited) 5. Capital Shares. Each Fund may issue an unlimited number of shares of beneficial interest. Transactions in capital shares were as follows:
Short Term Bond Fund -------------------- Six Months Ended June 30, 2002 Year Ended (unaudited) December 31, 2001(a) --------------------- ----------------------- Shares Amount Shares Amount ------ ------ ------ ------ Class A: Shares sold ...................................................... 652,349 $ 4,625,126 1,053,451 $ 7,544,528 Shares issued in connection with the reinvestment of: Dividends from net investment income ........................... 136,023 960,472 295,720 2,106,444 ---------- ------------ ---------- ------------ 788,372 5,585,598 1,349,171 9,650,972 Shares repurchased ............................................... (1,484,163) (10,564,232) (1,533,306) (10,903,583) ---------- ------------ ---------- ------------ Net increase (decrease) .......................................... (695,791) $ (4,978,634) (184,135) $ (1,252,611) ---------- ------------ ---------- ------------ Class B: Shares sold ...................................................... 250,233 $ 1,773,632 256,722 $ 1,835,868 Shares issued in connection with the reinvestment of: Dividends from net investment income ........................... 12,340 86,978 22,658 161,214 ---------- ------------ ---------- ------------ 262,573 1,860,610 279,380 1,997,082 Shares repurchased ............................................... (115,248) (813,312) (134,863) (962,104) ---------- ------------ ---------- ------------ Net increase (decrease) .......................................... 147,325 $ 1,047,298 144,517 $ 1,034,978 ---------- ------------ ---------- ------------ Class C: Shares repurchased ............................................... 169,150 $ 1,193,786 73,455 $ 522,600 Shares issued in connection with the reinvestment of: Dividends from net investment income ........................... 1,821 12,810 2,872 20,383 ---------- ------------ ---------- ------------ 170,971 1,206,596 76,327 542,983 Shares repurchased ............................................... (17,285) (121,724) (55,323) (395,146) ---------- ------------ ---------- ------------ Net increase (decrease) .......................................... 153,686 $ 1,084,872 21,004 $ 147,837 ---------- ------------ ---------- ------------ Class Y: Shares sold ...................................................... 56,611 $ 405,048 34,212 $ 244,904 Shares issued in connection with the reinvestment of: Dividends from net investment income ........................... 1,078 7,284 153 1,096 ---------- ------------ ---------- ------------ 57,689 412,332 34,365 246,000 Shares repurchased ............................................... (12,667) (93,957) (2,806) (20,395) ---------- ------------ ---------- ------------ Net increase (decrease) .......................................... 45,022 $ 318,375 31,559 $ 225,605 ---------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions ..... (349,758) $ (2,528,089) 12,945 $ 155,809 ========== ============ ========== ============ Bond Income Fund ---------------- Six Months Ended June 30, 2002 Year Ended (unaudited) December 31, 2001(a) --------------------- ----------------------- Shares Amount Shares Amount ------ ------ ------ ------ Class A: Shares sold ........................................................ 1,799,893 $ 20,426,296 3,447,705 $ 40,347,344 Shares issued in connection with the reinvestment of: Dividends from net investment income ............................. 348,184 3,929,131 793,770 9,313,490 ----------- ------------ ---------- ------------ 2,148,077 24,355,427 4,241,475 49,660,834 Shares repurchased ................................................. (2,741,987) (31,097,131) (4,440,794) (51,917,547) ----------- ------------ ---------- ------------ Net increase (decrease) ............................................ (593,910) $ (6,741,704) (199,319) $ (2,256,713) ----------- ------------ ---------- ------------ Class B: Shares sold ........................................................ 2,525,870 $ 28,746,015 3,873,088 $ 45,336,465 Shares issued in connection with the reinvestment of: Dividends from net investment income ............................. 174,612 1,970,095 390,437 4,579,223 ----------- ------------ ---------- ------------ 2,700,482 30,716,110 4,263,525 49,915,688 Shares repurchased ................................................. (1,877,713) (21,307,233) (1,978,772) (23,154,898) ----------- ------------ ---------- ------------ Net increase (decrease) ............................................ 822,769 $ 9,408,877 2,284,753 $ 26,760,790 ----------- ------------ ---------- ------------ Class C: Shares repurchased ................................................. 90,072 $ 1,025,443 196,137 $ 2,299,999 Shares issued in connection with the reinvestment of: Dividends from net investment income ............................. 15,091 170,393 38,608 453,189 ----------- ------------ ---------- ------------ 105,163 1,195,836 234,745 2,753,188 Shares repurchased ................................................. (166,246) (1,887,168) (334,314) (3,927,346) ----------- ------------ ---------- ------------ Net increase (decrease) ............................................ (61,083) $ (691,332) (99,569) $ (1,174,158) ----------- ------------ ---------- ------------ Class Y: Shares sold ........................................................ 213,371 $ 2,446,462 567,048 $ 6,671,918 Shares issued in connection with the reinvestment of: Dividends from net investment income ............................. 42,093 476,421 73,368 863,333 ----------- ------------ ---------- ------------ 255,464 2,922,883 640,416 7,535,251 Shares repurchased ................................................. (187,449) (2,137,520) (362,635) (4,256,817) ----------- ------------ ---------- ------------ Net increase (decrease) ............................................ 68,015 $ 785,363 277,781 $ 3,278,434 ----------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions ....... 235,791 $ 2,761,204 2,263,646 $ 26,608,353 =========== ============ ========== ============ High Income Fund ---------------- Six Months Ended June 30, 2002 Year Ended (unaudited) December 31, 2001(a) --------------------- ----------------------- Shares Amount Shares Amount ------ ------ ------ ------ Class A: Shares sold ...................................................... 984,608 $ 4,731,972 1,247,804 $ 7,562,671 Shares issued in connection with the reinvestment of: Dividends from net investment income ........................... 173,033 817,077 523,610 3,018,437 ---------- ----------- ---------- ------------ 1,157,641 5,549,049 1,771,414 10,581,108 Shares repurchased ............................................... (1,977,974) (9,407,704) (2,557,348) (14,947,178) ---------- ----------- ---------- ------------ Net increase (decrease) .......................................... (820,333) $(3,858,655) (785,934) $ (4,366,070) ---------- ----------- ---------- ------------ Class B: Shares sold ...................................................... 671,744 $ 3,268,063 1,452,751 $ 8,597,030 Shares issued in connection with the reinvestment of: Dividends from net investment income ........................... 112,156 530,323 317,495 1,829,605 ---------- ----------- ---------- ------------ 783,900 3,798,386 1,770,246 10,426,635 Shares repurchased ............................................... (1,371,553) (6,521,349) (2,439,710) (14,006,958) ---------- ----------- ---------- ------------ Net increase (decrease) .......................................... (587,653) $(2,722,963) (669,464) $ (3,580,323) ---------- ----------- ---------- ------------ Class C: Shares repurchased ............................................... 56,410 $ 266,122 360,599 $ 2,104,845 Shares issued in connection with the reinvestment of: Dividends from net investment income ........................... 14,404 67,986 43,294 252,141 ---------- ----------- ---------- ------------ 70,814 334,108 403,893 2,356,986 Shares repurchased ............................................... (190,054) (917,228) (427,671) (2,548,968) ---------- ----------- ---------- ------------ Net increase (decrease) .......................................... (119,240) $ (583,120) (23,778) $ (191,982) ---------- ----------- ---------- ------------ 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 ..... (1,527,226) $(7,164,738) (1,479,176) $ (8,138,375) ========== =========== ========== ============
(a) For the period October 1, 2001 (commencement of operations) through December 31, 2001 for Class Y shares. 48 & 49 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2002 (unaudited) 5. Capital Shares. (continued)
Strategic Income Fund --------------------- Six Months Ended June 30, 2002 Year Ended (unaudited) December 31, 2001 ------------------- ---------------------- Shares Amount Shares Amount ------ ------ ------ ------ Class A: Shares sold ......................................................... 527,976 $ 5,334,435 942,976 $ 9,851,828 Shares issued in connection with the reinvestment of: Dividends from net investment income .............................. 243,865 2,464,306 710,648 7,330,700 ---------- ------------ ---------- ------------ 771,841 7,798,741 1,653,624 17,182,528 Shares repurchased .................................................. (1,352,043) (13,646,128) (2,958,307) (30,455,609) ---------- ------------ ---------- ------------ Net increase (decrease) ............................................. (580,202) $ (5,847,387) (1,304,683) $(13,273,081) ---------- ------------ ---------- ------------ Class B: Shares sold ......................................................... 374,345 $ 3,794,494 1,049,379 $ 10,945,846 Shares issued in connection with the reinvestment of: Dividends from net investment income .............................. 206,275 2,083,251 592,151 6,108,437 ---------- ------------ ---------- ------------ 580,620 5,877,745 1,641,530 17,054,283 Shares repurchased .................................................. (1,178,732) (11,913,144) (2,433,883) (24,987,009) ---------- ------------ ---------- ------------ Net increase (decrease) ............................................. (598,112) $ (6,035,399) (792,353) $ (7,932,726) ---------- ------------ ---------- ------------ Class C: Shares sold ......................................................... 179,878 $ 1,816,648 336,952 $ 3,647,683 Shares issued in connection with the reinvestment of: Dividends from net investment income .............................. 57,923 584,636 190,747 1,874,620 ---------- ------------ ---------- ------------ 237,801 2,401,284 527,699 5,522,303 Shares repurchased .................................................. (385,378) (3,870,736) (1,047,238) (10,766,581) ---------- ------------ ---------- ------------ Net increase (decrease) ............................................. (147,577) $ (1,469,452) (519,539) $ (5,244,278) ---------- ------------ ---------- ------------ Class Y: Shares sold ......................................................... 16,079 $ 162,445 37,158 $ 382,879 Shares issued in connection with the reinvestment of: Dividends from net investment income .............................. 1,860 18,813 3,567 36,701 ---------- ------------ ---------- ------------ 17,939 181,258 40,725 419,580 Shares repurchased .................................................. (6,234) (62,764) (26,758) (273,469) ---------- ------------ ---------- ------------ Net increase (decrease) ............................................. 11,705 $ 118,494 13,967 $ 146,111 ---------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions ........ (1,314,186) $(13,233,744) (2,602,608) $(26,303,974) ========== ============ ========== ============ Limited Term U.S. Government Fund --------------------------------- Six Months Ended June 30, 2002 Year Ended (unaudited) December 31, 2001 ---------------------- ---------------------- Shares Amount Shares Amount ------ ------ ------ ------ Class A: Shares sold ................................................ 1,121,186 $ 12,754,244 2,445,579 $ 27,653,033 Shares issued in connection with the reinvestment of: Dividends from net investment income ..................... 174,653 1,990,916 396,187 4,499,196 ---------- ------------ ---------- ------------ 1,295,839 14,745,160 2,841,766 32,152,229 Shares repurchased ......................................... (1,738,625) (19,764,934) (3,883,682) (43,935,146) ---------- ------------ ---------- ------------ Net increase (decrease) .................................... (442,786) $ (5,019,774) (1,041,916) $(11,782,917) ---------- ------------ ---------- ------------ Class B: Shares sold ................................................ 141,409 $ 1,613,528 399,797 $ 4,554,320 Shares issued in connection with the reinvestment of: Dividends from net investment income ..................... 19,737 224,620 39,402 446,829 ---------- ------------ ---------- ------------ 161,146 1,838,148 439,199 5,001,149 Shares repurchased ......................................... (359,300) (4,082,451) (244,043) (2,767,660) ---------- ------------ ---------- ------------ Net increase (decrease) .................................... (198,154) $ (2,244,303) 195,156 $ 2,233,489 ---------- ------------ ---------- ------------ Class C: Shares sold ................................................ 88,839 $ 1,010,968 256,551 $ 2,890,430 Shares issued in connection with the reinvestment of: Dividends from net investment income ..................... 8,220 93,630 20,583 233,332 ---------- ------------ ---------- ------------ 97,059 1,104,598 277,134 3,123,762 Shares repurchased ......................................... (83,287) (944,492) (355,306) (4,028,016) ---------- ------------ ---------- ------------ Net increase (decrease) .................................... 13,772 $ 160,106 (78,172) $ (904,254) ---------- ------------ ---------- ------------ Class Y: Shares sold ................................................ 832,591 $ 9,479,620 74,432 $ 855,152 Shares issued in connection with the reinvestment of: Dividends from net investment income ..................... 16,503 188,901 15,149 173,303 ---------- ------------ ---------- ------------ 849,094 9,668,521 89,581 1,028,455 Shares repurchased ......................................... (442,192) (5,057,322) (78,549) (893,943) ---------- ------------ ---------- ------------ Net increase (decrease) .................................... 406,902 $ 4,611,199 11,032 $ 134,512 ---------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions (220,266) $ (2,492,772) (913,900) $(10,319,170) ========== ============ ========== ============ Government Securities Fund -------------------------- Six Months Ended June 30, 2002 Year Ended (unaudited) December 31, 2001 ---------------------- ---------------------- Shares Amount Shares Amount ------ ------ ------ ------ Class A: Shares sold ................................................ 344,355 $ 3,876,623 1,567,340 $ 17,673,623 Dividends from net investment income ..................... 122,617 1,379,791 270,123 3,048,950 -------- ----------- ---------- ------------ 466,972 5,256,414 1,837,463 20,722,573 Shares repurchased ......................................... (772,723) (8,643,104) (1,866,222) (20,982,105) -------- ----------- ---------- ------------ Net increase (decrease) .................................... (305,751) $(3,386,690) (28,759) $ (259,532) -------- ----------- ---------- ------------ Class B: Shares sold ................................................ 136,162 $ 1,538,442 505,361 $ 5,709,885 Dividends from net investment income ..................... 17,481 196,732 33,898 382,953 -------- ----------- ---------- ------------ 153,643 1,735,174 539,259 6,092,838 Shares repurchased ......................................... (220,211) (2,470,915) (278,665) (3,146,944) -------- ----------- ---------- ------------ Net increase (decrease) .................................... (66,568) $ (735,741) 260,594 $ 2,945,894 -------- ----------- ---------- ------------ Class C: Shares sold ................................................ -- $ -- $-- Dividends from net investment income ..................... -- -- -- -- -------- ----------- ---------- ------------ -- -- -- -- Shares repurchased ......................................... -- -- -- -- -------- ----------- ---------- ------------ Net increase (decrease) .................................... -- $ -- $-- -------- ----------- ---------- ------------ Class Y: Shares sold ................................................ 126,629 $ 1,411,199 63,952 $ 728,747 Dividends from net investment income ..................... 12,090 135,947 21,989 245,868 -------- ----------- ---------- ------------ 138,719 1,547,146 85,941 974,615 Shares repurchased ......................................... (56,012) (629,994) (65,429) (740,483) -------- ----------- ---------- ------------ Net increase (decrease) .................................... 82,707 $ 917,152 20,512 $ 234,132 -------- ----------- ---------- ------------ Increase (decrease) derived from capital shares transactions (289,612) $(3,205,279) 252,347 $ 2,920,494 ======== =========== ========== ============
50 & 51 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2002 (unaudited) 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 $50,000,000 committed line of credit provided by Investors Bank & Trust Company. under a credit agreement (the "Agreement") dated April 30, 2002. 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 0.10% 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 six months ended June 30, 2002. 7. Security Lending. The Funds have each entered into an agreement with Investors Bank & Trust Company, as agent of the Funds, to lend securities to certain designated borrowers. 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 borrowers and the value of collateral held by the Funds with respect to such loans at June 30, 2002, were as follows: Market Value of Value of Collateral Fund Securities on Loan Received ---- ------------------ -------- Short Term Bond Fund $ 3,485,630 $ 3,579,500 Bond Income Fund 35,348,501 36,039,258 High Income Fund 8,238,120 8,455,200 Strategic Income Fund 9,190,199 9,549,590 Limited Term U.S. Government Fund 13,535,998 13,789,063 Government Securities Fund 20,424,413 21,089,270 8. Contingent Expense Obligation. CDC IXIS Advisers has given a binding undertaking to Short Term Bond 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 April 30, 2003 and will be reevaluated on an annual basis. If in the fiscal year following the year in which the Fund received a deferral or reimbursement, the actual operating expenses of the Fund are less than the expense limit for the Fund, the Fund is obligated to pay an amount of additional expense that is lower of the difference between the actual expenses of the Fund and the expense limit or the amount of fees previously waived or reimbursed. At June 30, 2002, 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 Class Y Reimbursement ---- ------- ------- ------- ------- ------------- Short Term Bond Fund 0.90% 1.65% 1.65% 0.65% $451,680
52 SUPPLEMENT TO THE PROSPECTUS CDC NVEST TAX-FREE INCOME FUNDS CDC NVEST INCOME FUNDS Supplement dated August 27, 2002 to CDC Nvest Tax Free Income Funds Classes A and B and CDC Nvest Income Funds Classes A, B, C and Y Prospectuses, each dated May 1, 2002 Effective October 4, 2002, the following sentence is added to the "Dividends and Distributions" section of each Prospectus: Net investment income accruing on Saturdays, Sundays and other days on which the Exchange is closed is declared as a dividend on the immediately following business day. 53 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. 30-day SEC yield - a standard yield calculation developed by the Securities and Exchange Commission (SEC) based on the most recent 30-day period covered by the fund's SEC filings. It reflects the dividend and interest earned during the period minus fund expenses. 54 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 Bond 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 Capital Growth Management Hansberger Global Investors Harris Associates/Oakmark Funds Jurika & Voyles Loomis, Sayles & Company Mercury Advisors Miller Anderson Montgomery Asset Management Reich & Tang Asset Management RS Investment Management Vaughan, Nelson, Scarborough & McCullough Westpeak Global Advisors 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. ---------------- PRESORT STANDARD U.S. POSTAGE PAID BROCKTON, MA PERMIT NO. 770 ---------------- [LOGO] CDC NVEST FUNDS(SM) CDC IXIS Asset Management Distributors --------------------- P.O. Box 8551 Boston, Massachusetts 02266-8551 --------------------- www.cdcnvestfunds.com To the household of: Are you drowning in paper? [GRAPHIC OMITTED] Let E-delivery come to your rescue! Get your next CDC Nvest Funds report or statement on-line instead of through the mail. 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