-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MD/BHcLEaN3pdW7Luxzj3kI4SpPfuBczjzez2g0FYD9kUkW2EesL28SfUeyTklYu Y46WKW9mmSSI76qmVK1iNA== 0001193125-03-043175.txt : 20030828 0001193125-03-043175.hdr.sgml : 20030828 20030828132329 ACCESSION NUMBER: 0001193125-03-043175 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030828 EFFECTIVENESS DATE: 20030828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDC NVEST FUNDS TRUST II CENTRAL INDEX KEY: 0000052136 IRS NUMBER: 041990692 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00242 FILM NUMBER: 03870425 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 617-449-2840 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 6TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST II DATE OF NAME CHANGE: 20000202 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST II DATE OF NAME CHANGE: 19940615 FORMER COMPANY: FORMER CONFORMED NAME: TNE FUNDS TRUST DATE OF NAME CHANGE: 19940615 N-CSRS 1 dncsrs.txt CDC NVEST FUNDS TRUST II UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-242 CDC Nvest Funds Trust II - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 399 Boylston Street, Boston, Massachusetts 02116 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) John E. Pelletier, Esq. CDC IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (617) 449-2801 Date of fiscal year end: December 31, 2003 Date of reporting period: June 30, 2003 Item 1. Reports to Stockholders. The Registrant's semi-annual reports transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: [LOGO] CDC Nvest Funds(SM) CDC IXIS Asset Management Distributors [GRAHIC] Equity Funds Semiannual Report June 30, 2003 CDC Nvest Capital Growth Fund Westpeak Global Advisors CDC Nvest Growth and Income Fund Harris Associates CDC Nvest International Equity Fund Loomis, Sayles & Company CDC Nvest Large Cap Growth Fund Vaughan, Nelson, Scarborough & McCullough CDC Nvest Select Fund Harris Associates CDC Nvest Targeted Equity Fund Capital Growth Management Limited Partnership TABLE OF CONTENTS Management Discussion ....................................................Page 1 Risks of the CDC Nvest Equity Funds .....................................Page 13 Schedule of Investments .................................................Page 14 Financial Statements ....................................................Page 25 CDC Nvest Capital Growth Fund Portfolio Profile - -------------------------------------------------------------------------------- Objective: Seeks long-term growth of capital - -------------------------------------------------------------------------------- Strategy: Invests primarily in common stocks of large- and mid-cap companies in any industry - -------------------------------------------------------------------------------- Inception Date: August 3, 1992 - -------------------------------------------------------------------------------- Manager: Westpeak Global Advisors, L.P. Team Management Symbols: Class A NEFCX Class B NECBX Class C NECGX - -------------------------------------------------------------------------------- Net Asset Value Per Share: (June 30, 2003) Class A $9.66 Class B 8.49 Class C 8.47 Management Discussion - -------------------------------------------------------------------------------- The first half of 2003 included a solid rebound for stock prices that began in March, as investors became more confident that the military campaign in Iraq would be swift and successful. For the six months ended June 30, 2003, CDC Nvest Capital Growth Fund's total return was 12.59% based on the net asset value of Class A shares. The fund trailed its benchmark, the Russell 1000 Growth Index, which returned 13.09%, and was near the middle of its Morningstar Large Growth category, which averaged a return of 12.70%. Large tech stocks rally Despite lingering uncertainties, investors seem ready to put their money back to work. The star performers in the recent rally included large-cap technology companies whose stock prices had been particularly hard hit during the past few years. Some stocks enjoyed a rally of a magnitude not seen since the technology bubble days of 1999. Leading companies in computer hardware and software as well as semiconductors were among the fund's largest holdings as of June 30 because we believe they are due for a sustained rally. Individual stocks that performed well during the period included Intel and Cisco, both among the fund's largest holdings. Intel's performance was disappointing last year, but we held the stock and it has proven to be one of the most rewarding stocks in the semiconductor industry. Cisco Systems, also among the fund's largest holdings, has had six straight quarters of positive earnings, giving investors increasing confidence in the stock. Among the fund's financial services holdings, Capital One Financial has been a strong performer; we believe it is still modestly priced relative to its earnings, and we have been adding to the fund's holdings in the stock. Not all tech giants were leaders in the rally. One of the fund's largest holdings, Microsoft, gained only modestly during the first half of 2003. However, we believe some of the products Microsoft has in its pipeline will support strong earnings growth. Sector strategy also favors healthcare companies We continue to hold Johnson & Johnson, one of the world's largest, most diversified healthcare companies. The company's major presence in the drug and medical industries makes it attractive at this stage in the economic cycle. Varian Medical Systems also looks healthy because of the quality of its earnings; it has enjoyed strong profit growth in the past several quarters from its x-ray and oncology products. Portfolio sales reflected strategy adjustments We wanted to trim the fund's holdings in financial services, so we took losses in American Express and Freddie Mac, and sold MBNA on strength. Both Capital One and MBNA are leading financial companies that participated in the rally this spring, although the former was the better performer of the two. We also sold Nu Skin Enterprises at a loss. This home-products company's costs were higher than anticipated, flattening earnings. We sold Oracle on strength following a run up in the price of the stock and we increased the fund's energy holdings slightly. However, we decreased the fund's position in consumer discretionary stocks, taking profits in Wal-Mart and Nike. In general, we continue to hold relatively modest positions in consumer stocks at this stage in the economic cycle. Earnings are expected to drive the market While it remains to be seen whether the Federal Reserve Board's rate cuts will help to reinvigorate the economy, we believe the staying power of this spring's stock-price rally hinges on corporate earnings. Consequently, we have structured CDC Nvest Capital Growth Fund's portfolio to benefit more from corporate spending than from consumer activity. 1 CDC Nvest Capital Growth Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- Performance in Perspective The charts comparing CDC Nvest Capital Growth 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 30, 1993 through June 30, 2003 Russell 1000 Growth Class A Class A Index/4/ @ N.A.V/1/ @ M.S.C./2/ ---------- Month Cumulative Cumulative Cumulative End Value Value Value - ---------- ---------- ---------- ---------- 6/30/1993 10,000 9,425 10,000 9,768 9,206 9,821 10,157 9,573 10,224 10,382 9,785 10,149 10,443 9,843 10,431 10,164 9,579 10,361 10,473 9,871 10,539 10,802 10,181 10,784 10,521 9,916 10,586 9,959 9,386 10,075 9,945 9,373 10,121 9,904 9,334 10,274 6/30/1994 9,479 8,934 9,970 9,842 9,276 10,311 10,260 9,671 10,885 10,089 9,509 10,738 10,528 9,923 10,990 10,069 9,490 10,638 10,302 9,709 10,816 10,384 9,787 11,047 10,796 10,175 11,510 11,152 10,511 11,846 11,324 10,673 12,105 11,639 10,970 12,526 6/30/1995 12,414 11,700 13,010 12,970 12,224 13,550 13,203 12,444 13,565 13,649 12,864 14,190 13,432 12,660 14,200 13,758 12,967 14,752 13,470 12,696 14,837 13,719 12,930 15,333 14,077 13,268 15,613 13,945 13,144 15,633 14,641 13,799 16,045 15,080 14,212 16,605 6/30/1996 14,875 14,019 16,628 13,850 13,054 15,654 14,377 13,550 16,058 15,570 14,675 17,227 15,562 14,667 17,331 16,338 15,398 18,632 15,766 14,860 18,267 16,658 15,700 19,548 16,200 15,268 19,416 14,989 14,127 18,365 15,635 14,736 19,585 17,010 16,032 20,998 6/30/1997 17,485 16,479 21,839 18,712 17,636 23,770 17,853 16,826 22,379 18,392 17,334 23,480 17,649 16,634 22,612 18,111 17,069 23,573 18,483 17,420 23,837 18,631 17,560 24,549 19,910 18,765 26,396 20,799 19,603 27,448 21,169 19,952 27,828 20,660 19,472 27,039 6/30/1998 21,735 20,485 28,695 21,531 20,293 28,505 18,112 17,071 24,227 19,199 18,095 26,088 20,601 19,417 28,184 21,838 20,583 30,328 23,857 22,485 33,063 25,057 23,616 35,004 23,649 22,289 33,405 24,169 22,779 35,165 24,641 23,225 35,210 24,191 22,800 34,128 6/30/1999 25,472 24,008 36,518 24,907 23,474 35,357 25,126 23,681 35,935 24,759 23,336 35,180 26,484 24,961 37,837 27,271 25,703 39,878 29,757 28,046 44,026 28,079 26,464 41,962 29,250 27,568 44,013 31,594 29,777 47,163 30,656 28,894 44,919 29,224 27,544 42,657 6/30/2000 31,151 29,360 45,890 30,344 28,599 43,977 32,717 30,835 47,959 29,695 27,987 43,422 28,665 27,017 41,368 24,798 23,372 35,270 23,948 22,571 34,154 25,095 23,652 36,513 21,687 20,440 30,314 19,665 18,534 27,016 22,324 21,041 30,432 22,070 20,801 29,984 6/30/2001 21,724 20,475 29,290 20,578 19,394 28,558 18,921 17,833 26,223 16,978 16,002 23,605 17,759 16,737 24,843 19,303 18,194 27,230 19,049 17,954 27,178 18,969 17,878 26,698 18,282 17,231 25,590 18,905 17,818 26,475 17,851 16,825 24,315 17,468 16,463 23,726 6/30/2002 16,031 15,109 21,532 14,786 13,935 20,348 14,801 13,950 20,409 13,237 12,476 18,292 14,195 13,378 19,970 14,658 13,815 21,054 13,700 12,912 19,600 13,348 12,581 19,124 13,412 12,641 19,037 13,684 12,897 19,391 14,482 13,649 20,825 15,280 14,402 21,864 6/30/2003 15,424 14,537 22,165 ------ ------ ------ Average Annual Total Returns --June 30, 2003 - --------------------------------------------------------------------------------
Since 6 Months 1 Year 5 Years 10 Years Inception -------- ------ ------- -------- --------- Class A (Inception 8/3/92) Net Asset Value/1/ 12.59% -3.78% -6.63% 4.43% -- With Maximum Sales Charge/2/ 6.15 -9.30 -7.73 3.82 -- Class B (Inception 9/13/93) Net Asset Value/1/ 12.30 -4.50 -7.34 -- 3.61% With CDSC/3/ 7.30 -9.27 -7.54 -- 3.61 Class C (Inception 12/30/94) Net Asset Value/1/ 12.04 -4.62 -7.38 -- 4.00 With Maximum Sales Charge and CDSC/3/ 9.87 -6.52 -7.57 -- 3.88 - ------------------------------------------------------------------------------------------
Since Since Class B Class C Comparative Performance 6 Months 1 Year 5 Years 10 Years Incept./7/ Incept./7/ - ----------------------- -------- ------ ------- -------- ---------- ---------- Russell 1000 Growth Index/4/ 13.09% 2.94% -5.03% 8.28% 8.34% 8.81% Morningstar Large Growth Fund Avg./5/ 12.70 -0.46 -3.74 7.41 6.86 7.91 Lipper Large Cap Growth Funds Avg./6/ 12.25 -0.76 -4.49 6.72 6.23 7.22
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 Facts - -------------------------------------------------------------------------------- % of Net Assets as of ------------------ Fund Composition 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Common Stocks 99.2 99.5 - -------------------------------------------------------------------------------- Short Term Investments and Other 0.8 0.5 % of Net Assets as of ------------------ Ten Largest Holdings 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Microsoft Corp. 7.6 6.4 - -------------------------------------------------------------------------------- Intel Corp. 6.1 4.0 - -------------------------------------------------------------------------------- Pfizer, Inc. 4.9 4.8 - -------------------------------------------------------------------------------- Cisco Systems, Inc. 4.7 4.4 - -------------------------------------------------------------------------------- General Electric Co. 4.6 4.6 - -------------------------------------------------------------------------------- Merck & Co., Inc. 4.6 2.9 - -------------------------------------------------------------------------------- Procter & Gamble Co. 4.2 4.1 - -------------------------------------------------------------------------------- Dell Computer Corp. 4.1 4.6 - -------------------------------------------------------------------------------- Capital One Financial Corp. 3.5 0.6 - -------------------------------------------------------------------------------- Texas Instruments, Inc. 2.7 1.1 % of Net Assets as of ------------------ Five Largest Industries 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Pharmaceuticals 16.1 10.3 - -------------------------------------------------------------------------------- Semiconductors 10.3 6.8 - -------------------------------------------------------------------------------- Software 10.1 9.5 - -------------------------------------------------------------------------------- Financial Services 8.7 8.0 - -------------------------------------------------------------------------------- Computers 7.5 7.1 Portfolio holdings and asset allocations will vary. See page 13 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes maximum sales charge of 5.75%. /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/ Russell 1000 Growth Index is an unmanaged index measuring the performance of the largest 1000 U.S. growth companies within the Russell 3000. /5/ Morningstar Large Growth Fund Average is the average performance without sales charges of funds with similar investment objectives as calculated by Morningstar, Inc. /6/ Lipper Large Cap Growth Funds Average is the average performance without sales charges of funds with similar investment objectives as calculated by Lipper Inc. /7/ The since-inception performance comparisons shown for each Class of fund shares are calculated as follows: Class B from 9/30/93; Class C from 12/31/94. 2 CDC Nvest Growth and Income Fund Portfolio Profile - -------------------------------------------------------------------------------- Objective: Seeks long-term capital growth and income - -------------------------------------------------------------------------------- Strategy: Invests primarily in common stock of large- and mid-cap companies in any industry - -------------------------------------------------------------------------------- Inception Date: May 6, 1931 - -------------------------------------------------------------------------------- Manager: Robert M. Levy Edward S. Loeb Michael J. Mangan Harris Associates L.P. - -------------------------------------------------------------------------------- Symbols: Class A NEFOX Class B NEGBX Class C NECOX Class Y NEOYX - -------------------------------------------------------------------------------- Net AssetValue Per Share: (June 30, 2003) Class A $10.83 Class B 10.34 Class C 10.31 Class Y 11.07 - -------------------------------------------------------------------------------- Management Discussion - -------------------------------------------------------------------------------- Despite war concerns and downbeat headlines, the U.S. economy expanded slightly and corporate profits generally met expectations during the first half of 2003. Stock prices began to recover in March and by the end of June the major averages had risen substantially from their earlier lows. For the six months ended June 30, 2003, Class A shares of CDC Nvest Growth and Income Fund provided a total return of 14.97% at net asset value. The fund's results were significantly ahead of its benchmarks, the Russell 1000 Value Index, which returned 11.57%, and the Standard & Poor's 500 Index, which returned 11.76%. It was also near the top of its Morningstar peer group of Large Blend Funds, which averaged 10.88% for the period. Consumer discretionary stocks were strong performers Anticipation of a recovery in business travel helped boost shares of Cendant, which owns car rental companies Avis and Budget, as well as an airline reservations system. Profits at Coldwell Banker, Cendant's real estate division, have expanded thanks to the strong housing market. We purchased shares of McDonald's and Home Depot when their valuations fell; both later rebounded. Home Depot's shares began to recover as management corrected ill-timed changes that had disrupted operations at many stores. Meanwhile, McDonald's announced a major shift away from growth by expanding the number of its stores to growing revenues within each location. This revised strategy encouraged investors and pushed shares higher. Liberty Media, which owns the Discovery Channel and other cable programming businesses, also performed well. And Comcast met or exceeded investor expectations after acquiring AT&T's cable business. Healthcare and finance were also positive Sales of Guidant's arterial stents and other cardiac devices rose sharply and the price of its stock followed. Drug makers Bristol-Myers Squibb and Merck both rose in a strengthening pharmaceutical sector. Among financial companies, Washington Mutual, a leading thrift, continued to deliver solid earnings growth. Kraft and Safeway slumped, Duke and interpublic were mixed Relative to its benchmark, the fund was overweight in consumer staples companies, which held the fund back during the first half of 2003. As investors gained confidence in the economy, they began selling relatively stable stocks like Kraft Foods in order to seek more rapid growth. That shift also had a negative impact on Safeway, which has also been experiencing intense competition from Wal-Mart - a negative for many supermarket chains. As values fell, we added to both Kraft and Safeway. Like many utilities, Duke Energy suffered in the post-Enron fallout. Its stock price fell early in the year and then recovered. Interpublic, a leading advertising agency, continued to experience sluggish advertising sales and grappled with problems related to an acquisition. However, shares began to recover late in the period. Cheap stocks are harder to find The market has had a significant run since spring and it would not be surprising to see a cooling-off period. However, this might be healthy because it might allow earnings to catch up to stock valuations. Currently, bargain stocks are harder to find than they were a few months ago, but market volatility has a tendency to create opportunities over time provided economic direction remains positive. We strive to take advantage of those opportunities. Many growth companies that once were too pricey for disciplined value investors - companies with good balance sheets and better-than-average prospects - now fit well into the strict parameters we favor. This strategy has benefited CDC Nvest Growth and Income Fund thus far, and we are optimistic that it will continue to do so. 3 CDC Nvest Growth and Income Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- Performance in Perspective The charts comparing CDC Nvest Growth and Income Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unman aged 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 30,1993 through June 30, 2003
Russell S&P 1000 500 Class A Class A Value/4/ Index/5/ @ N.A.V/1/ @ M.S.C./2/ ---------- ---------- Month Cumulative Cumulative Cumulative Cumulative End Value Value Value Value - ---------- ---------- ---------- ---------- ---------- 6/30/1993 10,000 9,425 10,000 10,000 9,952 9,380 10,110 9,960 10,342 9,748 10,475 10,338 10,239 9,650 10,493 10,258 10,423 9,824 10,484 10,471 10,271 9,680 10,266 10,371 10,386 9,789 10,462 10,496 10,763 10,144 10,856 10,853 10,443 9,843 10,485 10,558 10,007 9,432 10,095 10,098 10,090 9,510 10,288 10,228 10,287 9,696 10,407 10,395 6/30/1994 10,057 9,479 10,158 10,141 10,355 9,759 10,474 10,474 10,794 10,173 10,775 10,903 10,537 9,931 10,418 10,636 10,704 10,088 10,564 10,875 10,338 9,743 10,138 10,479 10,489 9,886 10,256 10,635 10,751 10,133 10,571 10,911 11,106 10,467 10,990 11,336 11,415 10,758 11,231 11,670 11,763 11,086 11,587 12,014 12,144 11,446 12,073 12,494 6/30/1995 12,428 11,714 12,237 12,784 12,863 12,123 12,663 13,208 12,982 12,235 12,842 13,241 13,552 12,773 13,306 13,800 13,418 12,647 13,174 13,751 13,867 13,069 13,841 14,355 14,172 13,357 14,189 14,631 14,616 13,775 14,631 15,129 14,694 13,849 14,742 15,269 14,768 13,919 14,993 15,416 14,817 13,965 15,050 15,644 15,044 14,179 15,238 16,047 6/30/1996 14,722 13,875 15,251 16,108 13,990 13,185 14,674 15,397 14,326 13,502 15,094 15,721 15,059 14,193 15,694 16,606 15,523 14,630 16,301 17,064 16,902 15,930 17,483 18,354 16,611 15,656 17,260 17,990 17,437 16,434 18,097 19,114 17,652 16,637 18,363 19,264 16,885 15,914 17,702 18,473 17,773 16,751 18,446 19,575 18,913 17,825 19,476 20,767 6/30/1997 19,840 18,699 20,312 21,698 21,090 19,877 21,840 23,424 20,489 19,311 21,062 22,112 21,754 20,503 22,335 23,323 20,800 19,604 21,711 22,544 21,697 20,449 22,671 23,588 22,164 20,890 23,333 23,993 22,295 21,013 23,003 24,258 24,085 22,700 24,551 26,008 25,442 23,979 26,053 27,339 25,573 24,102 26,227 27,615 25,226 23,775 25,838 27,140 6/30/1998 26,280 24,769 26,169 28,242 25,876 24,388 25,707 27,942 21,963 20,700 21,882 23,902 23,056 21,730 23,138 25,433 24,722 23,300 24,930 27,502 25,843 24,357 26,091 29,169 27,468 25,888 26,979 30,849 28,263 26,638 27,195 32,139 27,584 25,998 26,811 31,141 27,965 26,357 27,366 32,386 29,623 27,919 29,922 33,641 29,490 27,794 29,593 32,846 6/30/1999 30,410 28,662 30,452 34,669 29,513 27,816 29,561 33,587 29,114 27,440 28,463 33,420 27,934 26,327 27,469 32,504 29,052 27,382 29,050 34,561 29,137 27,462 28,823 35,264 30,063 28,334 28,962 37,341 28,494 26,856 28,017 35,465 27,533 25,950 25,935 34,793 29,769 28,057 29,100 38,197 29,278 27,595 28,761 37,048 28,376 26,745 29,064 36,288 6/30/2000 28,749 27,096 27,736 37,182 28,573 26,930 28,083 36,601 30,491 28,738 29,646 38,874 29,097 27,424 29,918 36,822 29,177 27,500 30,652 36,666 27,440 25,862 29,515 33,776 27,864 26,262 30,993 33,941 27,884 26,281 31,113 35,145 26,227 24,719 30,247 31,941 24,752 23,329 29,179 29,917 26,773 25,234 30,609 32,242 26,814 25,272 31,297 32,458 6/30/2001 25,884 24,396 30,603 31,668 24,995 23,558 30,538 31,356 23,459 22,111 29,315 29,393 21,500 20,263 27,251 27,020 22,267 20,987 27,017 27,535 23,843 22,472 28,588 29,647 23,803 22,434 29,261 29,907 23,682 22,320 29,035 29,470 23,056 21,730 29,082 28,902 23,682 22,320 30,458 29,989 23,015 21,692 29,413 28,171 22,914 21,596 29,561 27,963 6/30/2002 21,540 20,301 27,864 25,972 20,166 19,006 25,273 23,947 20,671 19,482 25,464 24,104 17,882 16,854 22,633 21,485 18,549 17,483 24,310 23,376 19,802 18,663 25,841 24,751 19,034 17,940 24,719 23,297 18,569 17,502 24,120 22,687 17,983 16,949 23,477 22,347 18,206 17,159 23,516 22,564 19,923 18,778 25,586 24,422 21,419 20,187 27,238 25,709 6/30/2003 21,883 20,625 27,578 26,037 -------- ---------- ---------- ----------
Average Annual Total Returns -- June 30, 2003 - --------------------------------------------------------------------------------
Since 6 Months 1 Year 5 Years 10 Years Inception -------- ------ ------- -------- --------- Class A (Inception 5/6/31) Net Asset Value/1/ 14.97% 1.60% -3.60% 8.15% -- With Maximum Sales Charge/2/ 8.41 -4.24 -4.73 7.50 -- Class B (Inception 9/13/93) Net Asset Value/1/ 14.63 0.88 -4.30 -- 7.26 With CDSC/3/ 9.63 -4.12 -4.57 -- 7.26 Class C (Inception 5/1/95) Net Asset Value/1/ 14.43 0.68 -4.35 -- 7.11 With Maximum Sales Charge and CDSC/3/ 12.31 -1.28 -4.54 -- 6.98 Class Y (Inception 11/18/98) Net Asset Value/1/ 15.43 2.22 -- -- -2.71 - ------------------------------------------------------------------------------------------
Since Since Since Class B Class C Class Y Comparative Performance 6 Months 1 Year 5 Years 10 Years Incept./8/ Incept./8/ Incept./8/ - ----------------------- -------- ------ ------- -------- ---------- ---------- ---------- Russell 1000 Value Index/4/,/9/ 11.57% -1.02% 1.05% 10.68% 10.42% 10.76% 1.22% S&P 500Index/5/ 11.76 0.25 -1.61 10.04 10.02 9.51 -2.45 Morningstar Large Blend Avg./6/ 10.88 -1.23 -1.90 8.45 8.25 8.40 -2.19 Lipper Large Cap Core Funds Average/7/ 10.38 -1.94 -2.71 8.13 7.92 7.44 -3.25
All returns represents 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 Facts - -------------------------------------------------------------------------------- % of Net Assets as of ------------------ Fund Composition 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Common Stocks 94.5 94.4 - -------------------------------------------------------------------------------- Short Term Investments and Other 5.5 5.6 % of Net Assets as of ------------------ Ten Largest Holdings 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Washington Mutual, Inc. 4.6 4.4 - -------------------------------------------------------------------------------- Liberty Media Corp. 4.5 4.1 - -------------------------------------------------------------------------------- Home Depot, Inc. 4.0 2.2 - -------------------------------------------------------------------------------- AOL Time Warner, Inc. 3.8 2.9 - -------------------------------------------------------------------------------- McDonald's Corp. 3.5 2.3 - -------------------------------------------------------------------------------- Cendant Corp. 3.1 2.5 - -------------------------------------------------------------------------------- Walt Disney Co. (The) 3.1 2.8 - -------------------------------------------------------------------------------- Gap (The), Inc. 3.0 3.5 - -------------------------------------------------------------------------------- Kraft Foods, Inc. 3.0 2.7 - -------------------------------------------------------------------------------- Waste Management, Inc. 3.0 2.2 % of Net Assets as of ------------------ Five Largest Industries 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Media - Broadcasting & Publishing 12.0 11.8 - -------------------------------------------------------------------------------- Beverages, Food & Tobacco 10.3 10.0 - -------------------------------------------------------------------------------- Banking 7.3 7.0 - -------------------------------------------------------------------------------- Pharmaceuticals 5.8 5.0 - -------------------------------------------------------------------------------- Food Retailers 4.7 5.6 Portfolio holdings and asset allocations will vary. See page 13 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 5.75%. /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/ Russell 1000 Value Index is an unmanaged index of the largest 1000 U.S. companies within the Russell 3000. /5/ S&P 500 Index is an unmanaged index of U.S. common stock performance. /6/ Morningstar Large Blend Average is an average performance of funds with similar investment objectives as calculated without sales charges by Morningstar, Inc. /7/ Lipper Large Cap Core Funds Average is the average performance of mutual funds with a similar current investment style or objective as calculated without sales charges by Lipper Inc. /8/ The since-inception performance comparisons shown for each Class of fund shares are calculated as follows: Class B from 9/30/93; Class C from 5/31/95 and Class Y from 11/30/98. /9/ The Russell 1000 Value Index replaced the S&P 500 Index as the Fund's comparative index because CDC IXIS Advisors believes it is more representative of the types of stocks in which the Fund can invest. 4 CDC Nvest International Equity Fund Portfolio Profile - -------------------------------------------------------------------------------- Objective: Seeks total return from long-term capital growth and dividend income - -------------------------------------------------------------------------------- Strategy: Invests primarily in equity investments of companies organized or headquartered out- side of the United States - -------------------------------------------------------------------------------- Inception Date: May 21, 1992 - -------------------------------------------------------------------------------- Managers: Alexander Muromcew John Tribolet Eswar Menon Loomis, Sayles & Company, L.P. - -------------------------------------------------------------------------------- Symbols: Class A NEFIX Class B NEIBX Class C NECIX Class Y NEIYX - -------------------------------------------------------------------------------- Net AssetValue Per Share: (June 30, 2003) Class A $10.90 Class B 10.29 Class C 10.26 Class Y 11.38 Management Discussion - -------------------------------------------------------------------------------- All the world's major equity markets declined in the first quarter of 2003, but the second quarter produced the best quarterly returns in nearly five years. For the six months ended June 30, the total return on Class A shares of CDC Nvest International Equity Fund was 8.57% at net asset value, while the total return on its benchmark, the MSCI EAFE Index, was 9.85% for the period. The average return on the funds in Morningstar's Foreign Stock Fund category was 9.41% for the period. Broad diversification and good stock selection enabled the fund to do well in absolute terms, although its relatively slim positions in technology and finance, and its emphasis on materials, held the fund back. European and tech stocks led a second-quarter rally While the threat of military conflict in Iraq overshadowed positive economic news during the first quarter, the start of military activities and mounting expectations that the conflict would be brief and successful triggered a market rebound in the second quarter. European markets (especially France and Germany) led the first quarter's slide, while European and Asian markets led on the upside in the second quarter, followed by the U.S. market. Currency played a primary role in non-U.S. performance for the six-month period, as the U.S. dollar continued to weaken against the euro - Europe's new unified currency. Consumer, financial and energy selections were positive The fund's emphasis on the consumer discretionary sector was beneficial - notably its positions in the auto industry (including Autoliv and Nissan) and hotels (Hilton). Kingfisher, an international retailer of home consumer goods, was one of the fund's top performers during the period. Media giant Sony also contributed. Good selections in finance helped to compensate for the fund's relative underweight in this sector. Anglo Irish Bank, Spain's Banco Popolare and Toronto Dominion Bank did well. One of the fund's best performers was Deutsche Bank AG, which we bought on the rebound after negative news had sent the stock price down. Energy selections also helped, including Japan's JGC Corp, Canada's Encana and Russia's Lukoil. Telecom was mixed, materials and industrials detracted Although many formerly downtrodden telecommunications stocks rebounded during the second-quarter rally, the fund's exposure to this sector was relatively light and some of the stocks we selected did not do well. For example, Telenor ASA is a Norwegian telecommunications company with strong fundamentals and profit growth, but the price performance of the stock did not reflect this. By contrast, Nokia was one of our star performers from a price standpoint, even though the company's bottom line reflected mixed results. The fund's emphasis on materials (including metals and mining, chemicals and construction materials) was negative, but we believe many companies in this sector are steady growers. Stocks of such firms as Siam Cement, BASF Chemicals and Anglo American may not be glamorous, but we think they could help balance out volatility in tech and telecom. Earnings gains reflect cost savings, not growth Although equity markets worldwide have responded enthusiastically to improving earnings reports, the majority of these results reflect expense reductions rather than revenue growth. Economic activity that began to accelerate late last year was snuffed out when many companies put off capital investment until the conflict in Iraq was resolved. Earnings estimates for the second half of 2003 have been in line with expectations, as many companies had already pared down their forecasts. We believe the Japanese and European governments need to follow the U.S. example and stimulate their economies by cutting interest rates and taxes. If this occurs, we believe fundamentals for companies around the world should improve. 5 CDC Nvest International Equity Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- Performance In Perspective The charts comparing CDC Nvest International Equity 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 30, 1993 through June 30, 2003 MSCI Class A Class A EAFE/4/ @ N.A.V/1/ @ M.S.C./2/ ---------- Month Cumulative Cumulative Cumulative End Value Value Value - ---------- ---------- ---------- ---------- 6/30/1993 10,000 9,425 10,000 10,424 9,825 10,352 10,942 10,313 10,914 10,726 10,109 10,670 10,971 10,340 11,001 10,309 9,716 10,042 10,976 10,345 10,770 11,774 11,097 11,682 11,604 10,937 11,652 11,309 10,658 11,153 11,737 11,062 11,629 11,715 11,041 11,564 6/30/1994 11,915 11,229 11,730 12,011 11,320 11,846 12,336 11,627 12,129 11,937 11,250 11,750 12,351 11,641 12,144 11,759 11,083 11,563 11,860 11,178 11,638 11,294 10,645 11,193 11,363 10,710 11,164 11,753 11,077 11,864 12,059 11,366 12,313 12,021 11,330 12,169 6/30/1995 11,922 11,236 11,959 12,587 11,864 12,707 12,151 11,452 12,225 12,281 11,575 12,467 11,845 11,164 12,135 12,143 11,445 12,476 12,546 11,825 12,982 12,460 11,744 13,038 12,515 11,795 13,086 12,818 12,081 13,367 13,293 12,528 13,759 13,207 12,448 13,509 6/30/1996 13,308 12,543 13,588 12,849 12,110 13,194 12,880 12,140 13,227 13,054 12,303 13,582 12,824 12,086 13,446 13,133 12,378 13,984 12,956 12,211 13,808 12,169 11,470 13,328 12,336 11,627 13,549 12,320 11,612 13,601 12,154 11,455 13,677 12,781 12,046 14,570 6/30/1997 13,321 12,555 15,377 13,758 12,967 15,629 12,551 11,829 14,465 13,407 12,636 15,278 12,189 11,488 14,107 11,925 11,239 13,967 11,976 11,287 14,092 12,427 11,713 14,740 13,134 12,379 15,689 13,799 13,005 16,175 13,807 13,013 16,307 13,492 12,716 16,232 6/30/1998 12,998 12,250 16,358 13,143 12,387 16,528 11,380 10,725 14,484 11,106 10,467 14,043 11,791 11,113 15,511 12,442 11,727 16,310 12,777 12,043 16,957 12,759 12,026 16,911 12,186 11,485 16,512 12,410 11,696 17,205 12,947 12,203 17,906 12,526 11,806 16,988 6/30/1999 13,064 12,313 17,654 13,646 12,862 18,183 13,826 13,031 18,253 14,369 13,543 18,441 15,553 14,659 19,136 19,159 18,057 19,805 23,968 22,590 21,586 22,788 21,478 20,218 26,942 25,393 20,767 24,771 23,347 21,576 21,741 20,491 20,444 20,108 18,952 19,949 6/30/2000 20,910 19,708 20,734 19,617 18,489 19,868 20,212 19,049 20,045 19,233 18,127 19,073 17,592 16,581 18,626 16,456 15,510 17,932 17,124 16,140 18,573 17,093 16,110 18,564 15,486 14,595 17,174 14,157 13,343 16,037 14,940 14,081 17,162 14,724 13,877 16,570 6/30/2001 14,466 13,634 15,898 14,044 13,236 15,610 13,642 12,857 15,218 12,519 11,799 13,680 12,807 12,071 14,030 12,952 12,207 14,548 13,106 12,353 14,635 12,426 11,712 13,858 12,529 11,809 13,956 13,013 12,265 14,786 12,828 12,090 14,825 12,962 12,217 15,026 6/30/2002 12,385 11,673 14,433 11,190 10,546 13,009 11,087 10,449 12,983 9,953 9,381 11,592 10,314 9,721 12,216 10,829 10,206 12,772 10,345 9,750 12,343 9,871 9,303 11,829 9,871 9,303 11,559 9,685 9,129 11,340 10,407 9,808 12,465 11,056 10,420 13,231 6/30/2003 11,231 10,585 13,559 ------ ------ ------ Average Annual Total Returns -- June 30, 2003 - --------------------------------------------------------------------------------
Since 6 Months 1 Year 5 Years/7/ 10 Years/7/ Inception/7/ -------- ------ ---------- ----------- ------------ Class A (Inception 5/21/92) Net Asset Value/1/ 8.57% -9.32% -2.88% 1.17% -- With Maximum Sales Charge/2/ 2.35 -14.51 -4.02 0.57 -- Class B (Inception 9/13/93) Net Asset Value/1/ 8.20 -9.97 -3.63 -- -0.43% With CDSC/3/ 3.20 -14.48 -3.95 -- -0.43 Class C (Inception 12/30/94) Net Asset Value/1/ 8.11 -10.00 -3.73 -- -1.40 With Maximum Sales Charge and CDSC/3/ 6.00 -11.83 -3.93 -- -1.52 Class Y (Inception 9/9/93) Net Asset Value/1/ 9.11 -8.52 -2.23 -- 0.99 - ---------------------------------------------------------------------------------------------------
Since Since Since Class B Class C Class Y Comparative Performance 6 Months 1 Year 5 Years 10 Years Incept./8/ Incept./8/ Incept./8/ - ----------------------- -------- ------ ------- -------- ---------- ---------- ---------- MSCI EAFE/4/ 9.85% -6.06% -3.68% 3.09% 2.49% 1.81% 2.49% Morningstar Foreign Stock Fund Avg./5/ 9.41 -7.41 -3.26 4.41 3.50 2.86 3.50 Lipper International Funds Average/6/ 8.60 -7.98 -3.79 4.17 3.32 2.55 3.32
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 Facts - -------------------------------------------------------------------------------- % of Net Assets as of ------------------ Fund Composition 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Common Stocks 96.1 95.7 - -------------------------------------------------------------------------------- Short Term Investments and Other 3.9 4.3 % of Net Assets as of ------------------ Ten Largest Holdings 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Vodafone Group PLC 3.1 2.6 - -------------------------------------------------------------------------------- Royal Bank of Scotland Group PLC 2.7 2.1 - -------------------------------------------------------------------------------- Anglo Irish Bank Corp., 144A 2.4 2.2 - -------------------------------------------------------------------------------- Novartis AG 2.3 0.8 - -------------------------------------------------------------------------------- GlaxoSmithKline PLC 1.9 1.0 - -------------------------------------------------------------------------------- Kingfisher PLC 1.9 1.6 - -------------------------------------------------------------------------------- Eni SpA 1.4 1.7 - -------------------------------------------------------------------------------- Imperial Tobacco Group PLC 1.4 0.7 - -------------------------------------------------------------------------------- Banco Popolare di Verona e Novara Scrl 1.4 1.5 - -------------------------------------------------------------------------------- BP PLC 1.4 1.2 % of Net Assets as of ------------------ Five Largest Countries 6/30/03 12/31/02 - -------------------------------------------------------------------------------- United Kingdom 23.1 21.6 - -------------------------------------------------------------------------------- Japan 16.8 12.0 - -------------------------------------------------------------------------------- Switzerland 7.3 8.5 - -------------------------------------------------------------------------------- Italy 6.1 6.8 - -------------------------------------------------------------------------------- Canada 5.3 5.0 Portfolio holdings and asset allocations will vary. See page 13 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 5.75%. /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 Morgan Stanley Capital International (MSCI) Europe Australasia Far East Index (EAFE) is an unmanaged index of common stocks traded outside the U.S. /5/ Morningstar Foreign Stock Fund Average is the average performance without sales charges of funds with similar investment objectives as calculated by Morningstar, Inc. /6/ Lipper International Funds Average is the average performance without sales charges of funds with similar investment objectives as calculated by Lipper Inc. /7/ Fund performance has been increased by expense waivers for the periods indicated, without which performance would have been lower. /8/ The since-inception performance comparisons 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 9/30/93. 6 CDC Nvest Large Cap Growth Fund Portfolio Profile - -------------------------------------------------------------------------------- Objective: Seeks long-term growth of capital by investing in securities of companies with large market capitalizations that the subadviser believes have better-than-average long term-growth potential - -------------------------------------------------------------------------------- Strategy: Invests substantially in companies that have market capitalizations within the range of the Russell 1000 Index - -------------------------------------------------------------------------------- Inception Date: September 1, 1998 - -------------------------------------------------------------------------------- Manager: William R. Berger Curt Rohrman Vaughan, Nelson, Scarborough & McCullough, L.P. (VNSM) - -------------------------------------------------------------------------------- Symbols: Class A NRLAX Class B NRLBX Class C NRLCX Class Y NRLYX - -------------------------------------------------------------------------------- Net Asset Value Per Share: (June 30, 2003) Class A $ 9.94 Class B 9.69 Class C 9.69 Class Y 10.06 Management Discussion - -------------------------------------------------------------------------------- It remains to be seen whether the market rally that began in the spring can survive the uncertainties that remain on the horizon, but it gave a much-needed lift to large-cap growth stocks. For the six months ended June 30, 2003, CDC Nvest Large Cap Growth Fund's total return was 12.06% based on the net asset value of Class A shares. The fund lagged its benchmark, the Russell 1000 Growth Index, which returned 13.09%, and was close to the middle of its Morningstar Large Growth category, which averaged 12.70%. Defense, Hospitals, and One Consumer Services Stock Were Disappointing Northrop Grumman, a leader in defense electronics, appeared well positioned for growth stemming from the war on terrorism, but defense stocks were left behind in the rally this spring. However, we still favor Northrop, partly because we do not believe the need for military vigilance is over, and partly because defense companies are usually big cash-flow generators. Although current income is not a consideration for this fund, strong earnings and cash flows provide the potential for future dividend growth. Hospital management company HCA benefited the fund in the past, but subsequently proved disappointing. We pared back the position. A new position, Cox Communications, has not worked as well as we had expected. We believe Cox may be one of the strongest cable companies in terms of being able to deliver voice, video and data, but our decision to buy this stock may have been premature. Technology Stocks Led the Rally Semiconductors, computers and networking companies led the recent rally. Companies that did well for the fund included Analog Devices, a semiconductor company active in wireless technology; Intel, a leader in microchip technology for desktop computers; and Cisco, a world leader in networking. We have also been adding to the fund's Microsoft holdings, based on our outlook for new products the company has in its pipeline. Although medical technology stocks lagged, Boston Scientific is a recent addition to the portfolio that has performed well. The company develops, makes and markets medical devices for use in cardiovascular and endosurgery procedures. Traditional pharmaceutical companies develop chemicals that alleviate pain or depression, but when their patents expire, these products face competition from generic drugs. Companies like Johnson & Johnson and Merck - multinationals with a broad array of products on the market and in development - are still attractive and still in the portfolio. Firms like Boston Scientific that are developing biologically based compounds designed to get at the cause of cancer, rheumatoid arthritis and other major illnesses do not face competition from generic subsitutes, but they must strive to get the best product to market at the best price. Dividend Growth May Reflect Success Dividends are not normally associated with a fund seeking potential capital growth, and this fund's dividend income is below that of its benchmark. However, strong earnings growth creates the potential for successful companies to pay out a rising stream of dividends in the future. This potential may become increasingly important, both because of the new tax treatment of dividends and as a result of demographics. Aging investors may be attracted to companies that can increase their dividend over time, as profits increase, without curtailing future growth. Spotlight is On Multinationals CDC Nvest Large Cap Growth Fund currently emphasizes large-cap, multinational companies that we believe will lead in an economic recovery, especially as Eastern Europe, Asia and South America become increasingly important customers of American technology. 7 CDC Nvest Large Cap Growth Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- Performance In Perspective The charts comparing CDC Nvest Large Cap Growth 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 - -------------------------------------------------------------------------------- September 1, 1998 (inception) through June 30, 2003 Russell 1000 Class A Class A Growth/4/ @ N.A.V/1/ @ M.S.C./2/ ---------- Month Cumulative Cumulative Cumulative End Value Value Value - ---------- ---------- ---------- ---------- 9/1/1998 10,000 9,425 10,000 10,320 9,727 10,000 11,130 10,490 10,804 12,100 11,404 11,626 13,762 12,971 12,674 15,763 14,856 13,418 14,572 13,735 12,805 15,473 14,583 13,479 15,713 14,809 13,497 14,742 13,895 13,082 15,463 14,574 13,998 15,153 14,281 13,553 14,983 14,121 13,775 15,413 14,527 13,485 16,213 15,281 14,504 17,773 16,751 15,286 12/31/1999 21,274 20,051 16,876 20,284 19,118 16,085 22,544 21,248 16,871 24,075 22,691 18,079 21,584 20,343 17,218 20,674 19,485 16,351 6/30/2000 21,444 20,211 17,591 20,874 19,674 16,857 22,925 21,606 18,384 21,674 20,428 16,645 20,744 19,551 15,857 18,544 17,477 13,520 12/31/2000 19,316 18,206 13,092 19,898 18,754 13,996 17,604 16,592 11,620 15,656 14,755 10,356 16,937 15,963 11,665 16,948 15,973 11,494 6/30/2001 16,183 15,253 11,228 16,151 15,222 10,947 14,924 14,065 10,052 13,341 12,574 9,048 13,911 13,111 9,523 15,128 14,258 10,438 12/31/2001 14,902 14,045 10,418 14,299 13,477 10,234 13,588 12,807 9,809 13,868 13,071 10,149 12,458 11,741 9,320 12,027 11,335 9,095 6/30/2002 11,101 10,463 8,254 10,304 9,712 7,800 10,164 9,580 7,823 8,904 8,392 7,012 9,744 9,184 7,655 10,250 9,661 8,071 12/31/2002 9,550 9,001 7,513 9,314 8,778 7,331 9,335 8,798 7,297 9,314 8,778 7,433 10,067 9,488 7,982 10,519 9,915 8,381 6/30/2003 10,702 10,087 8,496 ------ ------ ------ Average Annual Total Returns -- June 30, 2003 - -------------------------------------------------------------------------------- Since 6 Months/7/ 1 Year/7/ Inception/7/ ----------- --------- ------------ Class A (Inception 9/1/98) Net Asset Value/1/ 12.06% -3.59% 1.42% With Maximum Sales Charge/2/ 5.63 -9.14 0.18 Class B (Inception 10/29/99) Net Asset Value/1/ 11.64 -4.34 -11.30 With CDSC/3/ 6.64 -9.13 -11.98 Class C (Inception 10/29/99) Net Asset Value/1/ 11.64 -4.34 -11.30 With Maximum Sales Charge and CDSC/3/ 9.50 -6.23 -11.54 Class Y (Inception 10/29/99) Net Asset Value/1/ 12.15 -3.36 -10.41 - ------------------------------------------------------------------------------
Since Since Class A Class B, C, Y Comparative Performance 6 Months 1 Year Inception/8/ Inception/8/ - ----------------------- -------- ------ ------------ ------------- Russell 1000 Growth Index/4/ 13.09% 2.94% -3.37% -13.57% Morningstar Large Growth Fund Avg./5/ 12.70% -0.46 1.42 -11.35 Lipper Large Cap Growth Funds Avg./6/ 10.38% -1.94 -0.41 -8.24
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 only to certain institutional investors. The fund's performance history includes periods from the predecessor fund. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. Portfolio Facts - -------------------------------------------------------------------------------- % of Net Assets as of ------------------ Fund Composition 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Common Stocks 100.1 98.2 - -------------------------------------------------------------------------------- Short Term Investments and Other 0.1 1.8 % of Net Assets as of ------------------ Ten Largest Holdings 6/30/03 12/31/02 - -------------------------------------------------------------------------------- General Electric Co. 5.6 -- - -------------------------------------------------------------------------------- Microsoft Corp. 4.8 4.3 - -------------------------------------------------------------------------------- Pfizer, Inc. 4.6 4.9 - -------------------------------------------------------------------------------- Wal-Mart Stores, Inc. 4.3 5.3 - -------------------------------------------------------------------------------- Cisco Systems, Inc. 3.4 3.7 - -------------------------------------------------------------------------------- Intel Corp. 3.2 3.5 - -------------------------------------------------------------------------------- Amgen, Inc. 3.2 2.8 - -------------------------------------------------------------------------------- Goldman Sachs Group, Inc. 3.0 1.8 - -------------------------------------------------------------------------------- Dell Computer Corp. 2.8 2.0 - -------------------------------------------------------------------------------- Northrop Grumman Corp. 2.5 3.5 % of Net Assets as of ------------------- Five Largest Industries 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Semiconductors 10.7 5.4 - -------------------------------------------------------------------------------- Pharmaceuticals 10.0 13.3 - -------------------------------------------------------------------------------- Retailers 9.4 6.3 - -------------------------------------------------------------------------------- Financial Services 6.7 6.5 - -------------------------------------------------------------------------------- Electrical Equipment 6.0 4.3 Portfolio holdings and asset allocations will vary. See page 13 for information on the possible risks associated with an invest- ment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 5.75%. Until 10/29/99, the fund had only one class of shares and was offered without a sales charge. Historical performance has been recalculated to include a sales charge. /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/ Russell 1000 Growth Index is an unmanaged index measuring the performance of the largest 1000 U.S. companies within the Russell 3000. /5/ Morningstar Large Growth Fund Average is the average performance without sales charges of funds with similar investment objectives as calculated by Morningstar, Inc. /6/ Lipper Large Cap Growth Funds Average is the average performance without sales charges 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 performance comparisons shown for each Class of fund shares are calculated as follows: Class A from 9/30/98; Class B, C and Y from 10/31/99. 8 CDC Nvest Select Fund Portfolio Profile - -------------------------------------------------------------------------------- Objective: Seeks long-term capital appreciation - -------------------------------------------------------------------------------- Strategy: Focuses on 15 to 20 stocks of mid- to large-cap U.S. companies - -------------------------------------------------------------------------------- Inception Date: March 15, 2001 - -------------------------------------------------------------------------------- Managers: William C. Nygren Floyd J. Bellman Harris Associates L.P. - -------------------------------------------------------------------------------- Symbols: Class A NRSAX Class B NRSBX Class C NRSCX - -------------------------------------------------------------------------------- Net Asset Value Per Share: (June 30, 2003) Class A $10.34 Class B 10.17 Class C 10.17 Management Discussion - -------------------------------------------------------------------------------- Uncertainty about the war in Iraq and the sluggish economic recovery kept investors on the sidelines early in 2003. However, as combat operations wound down, investor sentiment grew more positive and the equity markets entered a rally that lasted from March through the end of June. For the six months ended June 30, 2003, the total return on CDC Nvest Select Fund was 11.90% based on the net asset value of Class A shares. The return on its benchmark, Standard and Poor's 500 Index, was 11.76% for the period, while the average return on Morningstar's Large Value category was 10.74%. Financial and economically sensitive issues were positive Washington Mutual, the nation's largest thrift, is the fund's largest holding. The housing boom provided vigorous growth for its mortgage business. And we believe mortgage-servicing fees and other predictable income should help stabilize the bank's earnings if interest rates rise, providing excellent potential going forward. Slow growth put pressure on economically sensitive issues early in the year, creating opportunities that fit our value-focused investment style. Hotel operator, Marriott International, got a new lease on life as bookings began to recover with the economy. Shares of power tool maker Black & Decker got back to business along with other building-related companies, as new products boosted earnings and the price of its shares. We took advantage of weakness among retailers to purchase shares of TJX. This niche company caters to bargain hunters by buying excess inventory from full-price retailers and reselling it through its Marshall's and T.J. Maxx chains. Media, energy and healthcare issues also contributed Our purchase of AOL Time Warner proved timely, as shares rebounded late in the period. Liberty Media, which owns programming and media companies, also moved higher. Shares of newspaper publisher Knight Ridder rose modestly as advertising spending recovered. Rising natural gas prices lifted the shares of Burlington Resources. Healthcare companies' earnings tend to be independent of economic cycles, and consistent earnings helped both Guidant and Omnicare perform well. FDA approvals for new products also pumped new vigor into pharmaceutical giant Bristol-Myers Squibb. Company-specific problems and weak sectors hurt results Valassis Communications, which produces inserts for newspapers, is fighting to maintain market share, faced with stiff competition and sluggish advertising revenues. We believe this well-run company will meet its challenges and it remains a fund holding. General weakness in the telecommunications sector hurt results at Sprint, although we continue to hold it because shares trade at a discount to our revised assessment of the company's intrinsic value. Shaky consumer confidence, the slow economy and bad weather depressed shares of many retailers, including J.C. Penney, a fund holding. We sold Waste Management and Electronic Data Systems, using the proceeds to invest in retail and technology companies that seemed more promising. An example is SunGard Data Systems, which provides technology systems for financial-service companies. Managers see good potential for value investors After the stock-price rally in the second quarter, we would not be surprised if the market slipped back. However, shares of many quality growth companies that once sold at high prices now meet our value standards. We believe the rally injected much-needed vitality into the stock market, and investor sentiment now seems to be balanced - neither extremely negative nor overly optimistic. 9 CDC Nvest Select Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- Performance in Perspective The charts comparing CDC Nvest Select 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 - -------------------------------------------------------------------------------- March 15, 2001 (inception) through June 30, 2003 S&P 500 Class A Class A Index /4/ @ N.A.V/1/ @ M.S.C./2/ ---------- Month Cumulative Cumulative Cumulative End Value Value Value - ---------- ----------- ---------- ---------- 3/15/2001 10,000 9,425 10,000 10,090 9,510 10,000 10,420 9,821 10,777 10,690 10,075 10,849 6/30/2001 10,990 10,358 10,585 11,310 10,660 10,481 10,870 10,245 9,825 10,240 9,651 9,032 10,000 9,425 9,204 10,680 10,066 9,910 12/31/2001 10,960 10,330 9,997 10,890 10,264 9,851 10,600 9,990 9,661 10,910 10,283 10,024 10,860 10,235 9,416 10,930 10,301 9,347 6/30/2002 10,080 9,500 8,681 9,620 9,067 8,005 9,960 9,387 8,057 8,570 8,077 7,181 8,970 8,454 7,813 9,470 8,925 8,273 12/31/2002 9,240 8,709 7,787 9,010 8,492 7,583 8,890 8,379 7,469 8,990 8,473 7,542 9,510 8,963 8,163 10,120 9,538 8,593 6/30/2003 10,340 9,745 8,703
Average Annual Total Returns -- June 30, 2003 - ------------------------------------------------------------------------------------ 6 Months/7/ 1 Year/7/ Since Inception/7/ ----------- --------- ------------------ Class A (Inception 3/15/01) Net Asset Value/1/ 11.90% 2.58% 1.47% With Maximum Sales Charge/2/ 5.51 -3.27 -1.12 Class B (Inception 3/15/01) Net Asset Value/1/ 11.51 1.90 0.74 With CDSC/3/ 6.51 -3.10 -0.57 Class C (Inception 3/15/01) Net Asset Value/1/ 11.51 1.80 0.74 With Maximum Sales Charge and CDSC/3/ 9.43 -0.20 0.30 - ------------------------------------------------------------------------------------
Since Class A, B, C Comparative Performance 6 Months 1 Year Inception/8/ - ----------------------- -------- ------ ------------- S&P 500 Index/4/ 11.76% 0.25% -5.99% Morningstar Large Value Fund Avg./5/ 10.74 -2.34 1.09 Lipper Multi Cap Value Funds Avg./6/ 12.33 -0.50 -2.50 All returns represent past performance and do not guarantee future results. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of 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 Facts - -------------------------------------------------------------------------------- % of Net Assets as of ------------------- Fund Composition 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Common Stocks 91.2 93.0 - -------------------------------------------------------------------------------- Short Term Investments and Other 8.8 7.1 % of Net Assets as of ------------------ Ten Largest Holdings 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Washington Mutual, Inc. 17.6 16.6 - -------------------------------------------------------------------------------- H&R Block, Inc. 7.9 7.4 - -------------------------------------------------------------------------------- Yum! Brands, Inc. 5.2 2.0 - -------------------------------------------------------------------------------- Knight-Ridder, Inc. 4.6 4.9 - -------------------------------------------------------------------------------- Guidant Corp. 4.6 3.7 - -------------------------------------------------------------------------------- First Data Corp. 4.5 5.1 - -------------------------------------------------------------------------------- AOL Time Warner, Inc. 4.2 4.1 - -------------------------------------------------------------------------------- Kroger Co. (The) 4.1 4.4 - -------------------------------------------------------------------------------- Sprint Corp. 4.1 3.6 - -------------------------------------------------------------------------------- Burlington Resources, Inc. 4.0 5.2 % of Net Assets as of ------------------ Five Largest Industries 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Banking 17.6 16.6 - -------------------------------------------------------------------------------- Media - Broadcasting & Publishing 12.6 13.5 - -------------------------------------------------------------------------------- Commercial Services 9.8 11.7 - -------------------------------------------------------------------------------- Pharmaceuticals 7.0 -- - -------------------------------------------------------------------------------- Software 6.8 7.8 Portfolio holdings and asset allocations will vary. See page 13 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 5.75%. /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/ S&P 500 Index is an unmanaged index of U.S. common stock performance /5/ Morningstar Large Value Fund Average is the average performance without sales charges of funds with similar investment objectives as calculated by Morningstar, Inc. /6/ Lipper Multi Cap Value Funds Average is the average performance without sales charges 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 performance comparisons shown are calculated from 3/31/01. 10 CDC Nvest Targeted Equity Fund Portfolio Profile - -------------------------------------------------------------------------------- Objective: Seeks long-term growth of capital through investments in equity securities of companies whose earnings are expected to grow at a faster rate than the overall U.S. economy - -------------------------------------------------------------------------------- Strategy: Invests primarily in a focused portfolio of common stocks of large-cap companies - -------------------------------------------------------------------------------- Inception Date: November 27, 1968 - -------------------------------------------------------------------------------- Manager: G. Kenneth Heebner Capital Growth Management Limited Partnership - -------------------------------------------------------------------------------- Symbols: Class A NEFGX Class B NEBGX Class C NEGCX Class Y NEGYX - -------------------------------------------------------------------------------- Net Asset Value Management Discussion - -------------------------------------------------------------------------------- Strongly positive results from stocks of homebuilding companies helped CDC Nvest Targeted Equity Fund perform significantly better than its benchmark during the six months ended June 30, 2003. Financial services stocks were also positive. The fund's total return was 19.42% for the period based on the net asset value of Class A shares, while the Standard & Poor's 500 Index returned 11.76%. The fund was also near the top of its Morningstar Large Blend category, which had an average return of 10.88% for the period. Strategy focused on consumer-led growth Amid uncertainties associated with the conflict in Iraq, the economy hesitated during the first quarter, although signs of renewed economic growth began to surface in the second quarter. Economic reports have indicated growing consumer confidence, increased spending and improving financial conditions. We remained fully invested throughout the first half of 2003, positioning the fund to benefit from consumer-led growth. Our focus was on homebuilding, which was the largest concentration in the portfolio and the most significant driver of performance, along with financial issues. Manager champions homebuilding stocks Homebuilding stocks continue to satisfy our emphasis on earnings. Larger homebuilders, in particular, benefit from geographical diversification and financial strength, and are gaining market share. These national companies have access to public debt markets, and many of the firms are investment-grade - a valuable attribute when competing with smaller companies to acquire increasingly scarce parcels of developable land. In many cases, large publicly traded homebuilders are also able to grow earnings by purchasing weaker competitors or buying back their own stock. Our largest holding in this industry is Lennar, a giant company that has been gaining market share through acquisitions and selective participation in the vibrant California market. Other notable contributors to the fund's performance include Centex, KB Homes and Pulte Homes. Financial issues and some technology stocks were positive Declining interest rates and higher trading volume have benefited Citigroup, a leading global financial services company, and Lehman Brothers, a major brokerage firm. A surge of refinancings drove up the stock price of Countrywide Financial Corp., a leading mortgage originator, while First Data, a nationwide credit card processor that also owns Western Union, benefited from active financial transfers by individuals and businesses. Some technology stocks were also positive, including Dell Computer, a global leader in personal computers. However, Analog Devices - a recent acquisition and one of the best-positioned semiconductor companies - declined in value after we purchased the stock. In general, the fund has avoided technology stocks in recent years, but we believe opportunities are beginning to emerge in this area. Healthcare and auto parts holdings were eliminated During the period, we eliminated the fund's one remaining healthcare company, HCA, a national hospital management firm, as this sector continued to experience disappointing earnings. We also sold auto parts retailer AutoZone at a loss. Despite excellent earnings progress, the stock underperformed. Tax cuts and low interest rates may facilitate growth While prices of many stocks still seem high, we focused CDC Nvest Targeted Equity Fund on those stocks that may provide the best opportunities based on our outlook for modest, non-inflationary growth, as fiscal and monetary stimuli gradually take effect. 11 CDC Nvest Targeted Equity Fund - -------------------------------------------------------------------------------- Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- Performance in Perspective The charts comparing CDC Nvest Targeted Equity 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 30, 1993 through June 30, 2003 S&P 500 Class A Class A Index/4/ @ N.A.V/1/ @ M.S.C./2/ ---------- Month Cumulative Cumulative Cumulative End Value Value Value - ---------- ----------- ---------- ---------- 6/30/1993 10,000 9,425 10,000 9,943 9,371 9,960 10,229 9,641 10,338 10,410 9,811 10,258 10,810 10,189 10,471 10,553 9,946 10,371 10,694 10,079 10,496 11,319 10,668 10,853 10,919 10,291 10,558 10,264 9,674 10,098 10,274 9,683 10,228 10,469 9,867 10,395 6/30/1994 10,082 9,503 10,141 10,433 9,833 10,474 10,701 10,085 10,903 10,350 9,755 10,636 10,391 9,794 10,875 9,794 9,230 10,479 9,940 9,368 10,635 9,704 9,146 10,911 10,175 9,590 11,336 10,489 9,886 11,670 11,139 10,498 12,014 11,811 11,132 12,494 6/30/1995 12,677 11,948 12,784 13,249 12,487 13,208 13,317 12,551 13,241 13,559 12,780 13,800 13,281 12,517 13,751 13,914 13,114 14,355 13,727 12,937 14,631 14,208 13,391 15,129 14,664 13,820 15,269 14,664 13,820 15,416 14,390 13,563 15,644 14,611 13,771 16,047 6/30/1996 14,455 13,624 16,108 13,610 12,827 15,397 13,740 12,950 15,721 14,683 13,838 16,606 15,546 14,652 17,064 16,756 15,793 18,354 16,592 15,638 17,990 18,091 17,050 19,114 17,791 16,768 19,264 17,035 16,055 18,473 18,005 16,969 19,575 18,889 17,803 20,767 6/30/1997 19,731 18,597 21,698 21,643 20,398 23,424 20,530 19,350 22,112 21,582 20,341 23,323 20,735 19,543 22,544 20,499 19,320 23,588 20,499 19,320 23,993 20,834 19,636 24,258 22,665 21,362 26,008 24,122 22,735 27,339 25,048 23,607 27,615 24,654 23,236 27,140 6/30/1998 25,973 24,480 28,242 26,111 24,609 27,942 21,129 19,914 23,902 21,280 20,056 25,433 23,422 22,075 27,502 25,372 23,913 29,169 27,346 25,774 30,849 29,200 27,521 32,139 27,105 25,547 31,141 27,755 26,159 32,386 27,659 26,068 33,641 26,768 25,229 32,846 6/30/1999 28,742 27,089 34,669 28,068 26,454 33,587 28,020 26,409 33,420 26,359 24,843 32,504 27,370 25,796 34,561 28,405 26,772 35,264 31,498 29,687 37,341 29,035 27,366 35,465 31,612 29,794 34,793 31,956 30,118 38,197 30,753 28,985 37,048 29,522 27,825 36,288 6/30/2000 29,636 27,932 37,182 28,691 27,042 36,601 30,050 28,323 38,874 28,963 27,298 36,822 29,024 27,355 36,666 28,752 27,099 33,776 30,063 28,335 33,941 27,398 25,822 35,145 26,530 25,005 31,941 25,856 24,369 29,917 26,980 25,429 32,242 26,434 24,914 32,458 6/30/2001 26,613 25,083 31,668 25,839 24,353 31,356 23,710 22,347 29,393 21,420 20,188 27,020 21,549 20,309 27,535 23,839 22,468 29,647 25,194 23,745 29,907 25,968 24,475 29,470 24,774 23,350 28,902 25,194 23,745 29,989 25,258 23,806 28,171 25,000 23,563 27,963 6/30/2002 24,194 22,803 25,972 21,516 20,279 23,947 21,516 20,279 24,104 20,194 19,033 21,485 19,710 18,576 23,376 19,226 18,120 24,751 17,935 16,904 23,297 17,935 16,904 22,687 17,806 16,783 22,347 18,226 17,178 22,564 19,387 18,272 24,422 21,064 19,853 25,709 6/30/2003 21,419 20,188 26,037 Average Annual Total Returns -- June 30, 2003 - --------------------------------------------------------------------------------
Since 6 Months 1 Year 5 Years 10 Years Inception -------- ------ ------- -------- --------- Class A (Inception 11/27/68) Net Asset Value/1/ 19.42% -11.47% -3.78% 7.91% -- With Maximum Sales Charge/2/ 12.54 -16.58 -4.91 7.28 -- Class B (Inception 2/28/97) Net Asset Value/1/ 18.75 -12.31 -4.52 -- 2.18% With CDSC/3/ 13.75 -16.69 -4.75 -- 2.18 Class C (Inception 9/1/98) Net Asset Value/1/ 18.98 -12.31 -- -- -1.60 With Maximum Sales Charge and CDSC/3/ 16.87 -14.03 -- -- -1.80 Class Y (Inception 6/30/99) Net Asset Value/1/ 19.54 -10.98 -- -- -6.70
- --------------------------------------------------------------------------------
Since Since Since Class B Class C Class Y Comparative Performance 6 Months 1 Year 5 Years 10 Years Incept./7/ Incept./7/ Incept./7/ - --------------------------------- -------- ------ ------- -------- ---------- ---------- ---------- S&P 500 Index/4/ 11.76% 0.25% -1.61% 10.04% 4.87% 0.50% -6.91% Morningstar Large Blend Avg./5/ 10.88 -1.23 -1.90 8.45 3.75 0.62 -6.39 Lipper Multi-Cap Value Average/6/ 12.33 -0.50 1.64 9.72 5.99 5.08 -0.86
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 noted. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. Portfolio Facts - -------------------------------------------------------------------------------- % of Net Assets as of ------------------ Fund Composition 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Common Stocks 99.6 99.6 - -------------------------------------------------------------------------------- Short Term Investments and Other 0.4 0.4 % of Net Assets as of ------------------ Ten Largest Holdings 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Lennar Corp., Class A 7.6 8.5 - -------------------------------------------------------------------------------- D.R. Horton, Inc. 6.9 5.8 - -------------------------------------------------------------------------------- KB HOME 6.4 7.3 - -------------------------------------------------------------------------------- Altria Group, Inc. 6.1 -- - -------------------------------------------------------------------------------- Teva Pharmaceutical Industries, Ltd. (ADR) 6.1 3.8 - -------------------------------------------------------------------------------- Abbott Laboratories 5.6 -- - -------------------------------------------------------------------------------- Countrywide Financial Corp. 5.2 -- - -------------------------------------------------------------------------------- 3M Co. 4.9 -- - -------------------------------------------------------------------------------- Burlington Resources, Inc. 4.9 -- - -------------------------------------------------------------------------------- Dell Computer Corp. 4.8 -- % of Net Assets as of ------------------ Five Largest Industries 6/30/03 12/31/02 - -------------------------------------------------------------------------------- Home Construction, Furnishings & Appliances 29.1 34.5 - -------------------------------------------------------------------------------- Financial Services 17.9 14.9 - -------------------------------------------------------------------------------- Pharmaceuticals 11.7 10.5 - -------------------------------------------------------------------------------- Beverages, Food & Tobacco 7.1 -- - -------------------------------------------------------------------------------- Industrial - Diversified 4.9 -- Portfolio holdings and asset allocations will vary. See page 13 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 5.75%. /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/ S&P 500 Index is an unmanaged index of U.S. common stock performance. /5/ Morningstar Large Blend Average is the average performance without sales charges of funds with similar investment objectives as calculated by Morningstar, Inc. /6/ Lipper Multi-Cap Value Funds Average is the average performance without sales charges of mutual funds with a similar current investment style or objective as calculated by Lipper Inc. /7/ The since-inception performance comparisons shown for each Class of fund shares are calculated as follows: Class B from 2/28/97; Class C from 9/30/98 and Class Y from 6/30/99. 12 Risks of the CDC Nvest Equity 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 without notice based on changes in market or other conditions. References to specific securities or industries should not be regarded as investment advice. Because these funds are actively managed, there is no assurance that they will continue to invest in the securities or industries mentioned. 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. The Funds CDC Nvest Capital Growth Fund invests primarily in common stocks of growth-oriented companies. Its focus is primarily on large- and mid-cap companies, but it may also invest in small-cap stocks. CDC Nvest Growth and Income Fund may invest in growth stocks or value stocks of large- and mid-size companies. It may also invest in foreign securities. CDC Nvest International Equity Fund invests primarily in growth-oriented companies outside the U.S., including emerging markets. CDC Nvest Large Cap Growth Fund invests primarily in common stocks of companies with large market capitalizations that the manager believes have above-average long-term growth potential. CDC Nvest Select Fund invests primarily in a concentrated portfolio of value stocks. CDC Nvest Targeted Equity Fund invests primarily in a focused portfolio of common stocks of large companies. It may also invest in foreign securities and REITs. The Risks Small-cap stocks represent ownership of less well known, untried companies with little or no track record; they may have limited financial and management resources. Small-cap stocks may also be more volatile in price than the overall market and less liquid than large-cap stocks. Emerging growth stocks represent ownership of small, rapidly growing companies that are typically more volatile than the overall market. These stocks expose investors to the risks of small-cap stocks. Growth stocks tend to be more sensitive to market movements because their stock prices are based on future expectations, which may not be realized. Value stocks may fall out of favor with investors and underperform the broader market; there is no guarantee that they will return to favor. Concentrating on few stocks allows changes in the value of a single security (up or down) to have a greater impact on the fund's performance than it would if the fund were more broadly diversified. This means fund shares may be more volatile in price and more vulnerable to losses. Foreign and emerging market securities convey special risks, including political, economic, regulatory and currency risks, as well as differing accounting standards. Emerging markets may be more subject to these risks than developed markets. Real Estate Investment Trusts (REITs) may change in price with underlying real estate values, rising interest rates, limited diversification of holdings. They may also incur other mortgage-related risks, such as pre-payment risks. - -------------------------------------------------------------------------------- NOT FDIC INSURED . MAY LOSE VALUE . NO BANK GUARANTEE - -------------------------------------------------------------------------------- 13 Capital Growth Fund -- Schedule of Investments - ---------------------------------------------------------------------- Investments as of June 30, 2003 (unaudited) Shares Description Value (a) - -------------------------------------------------------------------------------- Common Stocks -- 99.2% of Total Net Assets Apparel Retailers -- 0.8% 33,500 Curtiss-Wright Corp .............................. $ 628,460 ----------- Beverages, Food & Tobacco -- 3.6% 4,500 Altria Group, Inc ................................ 204,480 37,000 Campbell Soup Co ................................. 906,500 38,400 H.J. Heinz Co .................................... 1,266,432 9,400 PepsiCo, Inc ..................................... 418,300 ----------- 2,795,712 ----------- Biotechnology -- 3.3% 20,200 Amgen, Inc.(c) ................................... 1,342,088 33,700 Medimmune, Inc.(c) ............................... 1,225,669 ----------- 2,567,757 ----------- Commercial Services -- 1.9% 33,200 H&R Block, Inc ................................... 1,435,900 ----------- Communications -- 5.5% 70,000 AT&T Wireless Services, Inc.(c) .................. 574,700 218,600 Cisco Systems, Inc.(c) ........................... 3,648,434 ----------- 4,223,134 ----------- Computers -- 7.5% 99,800 Dell Computer Corp.(c) ........................... 3,189,608 61,200 EMC Corp.(c) ..................................... 640,764 13,200 International Business Machines Corp ............. 1,089,000 10,600 Storage Technology Corp.(c) ...................... 272,844 23,700 SunGard Data Systems, Inc.(c) .................... 614,067 ----------- 5,806,283 ----------- Cosmetics & Personal Care -- 4.9% 17,600 Gillette Co. (The) ............................... 560,736 36,400 Procter & Gamble Co .............................. 3,246,152 ----------- 3,806,888 ----------- Financial Services -- 8.7% 94,300 AmeriCredit Corp.(c) ............................. 806,265 55,800 Capital One Financial Corp ....................... 2,744,244 28,100 Fannie Mae ....................................... 1,895,064 27,600 T. Rowe Price Group, Inc ......................... 1,041,900 6,262 WFS Financial, Inc.(c) ........................... 209,840 ----------- 6,697,313 ----------- Health Care Providers -- 5.0% 40,400 UnitedHealth Group, Inc .......................... 2,030,100 22,100 WellPoint Health Networks, Inc.(c) ............... 1,863,030 ----------- 3,893,130 ----------- Home Construction, Furnishings & Appliances -- 0.5% 8,200 Maytag Corp ...................................... 200,244 400 NVR, Inc.(c) ..................................... 164,400 ----------- 364,644 ----------- Industrial - Diversified -- 4.6% 125,000 General Electric Co .............................. 3,585,000 ----------- Industrial Goods & Services -- 0.3% 19,600 PerkinElmer, Inc ................................. 270,676 ----------- Internet -- 0.4% 9,200 Yahoo!, Inc.(c) .................................. 301,392 ----------- Medical Supplies -- 6.9% 41,500 Becton, Dickinson & Co ........................... $ 1,612,275 11,500 Boston Scientific Corp.(c) ....................... 702,650 6,400 Guidant Corp ..................................... 284,096 10,600 St. Jude Medical, Inc.(c) ........................ 609,500 25,000 STERIS Corp.(c) .................................. 577,250 27,700 Varian Medical Systems, Inc.(c) .................. 1,594,689 ----------- 5,380,460 ----------- Oil & Gas -- 4.0% 23,800 Anadarko Petroleum Corp .......................... 1,058,386 9,555 Apache Corp ...................................... 621,648 18,200 Houston Exploration Co.(c) ....................... 631,540 14,800 Murphy Oil Corp .................................. 778,480 ----------- 3,090,054 ----------- Pharmaceuticals -- 16.1% 19,800 Abbott Laboratories .............................. 866,448 36,500 Johnson & Johnson ................................ 1,887,050 58,900 Merck & Co., Inc ................................. 3,566,395 19,950 Mylan Laboratories, Inc .......................... 693,661 111,550 Pfizer, Inc ...................................... 3,809,433 25,400 Schering-Plough Corp ............................. 472,440 29,600 Watson Pharmaceuticals, Inc.(c) (d) .............. 1,194,952 ----------- 12,490,379 ----------- Retailers -- 4.2% 34,400 7-Eleven, Inc.(c) ................................ 362,920 34,600 Dollar General Corp .............................. 631,796 61,350 Home Depot, Inc .................................. 2,031,912 14,000 Staples, Inc.(c) ................................. 256,900 ----------- 3,283,528 ----------- Semiconductors -- 10.3% 41,600 Altera Corp.(c) (d) .............................. 682,240 227,700 Intel Corp ....................................... 4,732,517 6,300 QLogic Corp.(c) (d) .............................. 304,479 118,110 Texas Instruments, Inc ........................... 2,078,736 5,500 Xilinx, Inc.(c) .................................. 139,205 ----------- 7,937,177 ----------- Software -- 10.1% 12,200 BMC Software, Inc.(c) ............................ 199,226 20,100 Citrix Systems, Inc.(c) .......................... 409,236 42,500 Compuware Corp.(c) ............................... 245,225 3,100 Electronic Arts, Inc.(c) ......................... 229,369 20,300 First Data Corp .................................. 841,232 230,000 Microsoft Corp ................................... 5,890,300 ----------- 7,814,588 ----------- Textiles, Clothing & Fabrics -- 0.3% 7,600 Jones Apparel Group, Inc.(c) ..................... 222,376 ----------- Transportation -- 0.3% 11,400 Swift Transportation Co., Inc.(c) ................ 212,268 ----------- Total Common Stocks (Identified Cost $88,657,039) 76,807,119 ----------- 14 Capital Growth Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited) Principal Amount Description Value (a) - -------------------------------------------------------------------------------- Short Term Investments --3.6% $728,870 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $728,885 on 7/01/2003, collateralized by $714,757 Federal National Mortgage Association Bond, 7.50%, due 8/01/2015 valued at $765,369 .......................................... $ 728,870 115,111 Bank of Montreal, 1.08%, due 7/02/2003(e) ...................................... 115,111 289,240 Bank of Montreal, 1.15%, due 7/09/2003(e) ...................................... 289,240 143,889 Bank of Nova Scotia, 1.05%, due 8/29/2003(e) ...................................... 143,889 172,666 Bank of Nova Scotia, 1.16%, due 7/09/2003(e) ...................................... 172,666 28,778 BNP Paribas, 1.03%, due 7/21/2003(e) .............. 28,778 57,555 Comerica Bank, 1.073%, due 11/19/2003(e) ..................................... 57,555 28,778 Credit Agricole Indosuez, 1.05%, due 8/26/2003(e) ...................................... 28,778 57,555 Den Danske Bank, 1.04%, due 7/24/2003(e) ...................................... 57,555 201,444 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(e) .......................... 201,444 57,555 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(e) .................................. 57,555 22,203 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(e) .................... 22,203 414,260 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(e) .......................... 414,260 172,666 Royal Bank of Canada, 1.031%, due 7/07/2003(e) ...................................... 172,666 115,111 Royal Bank of Scotland, 1.05%, due 7/28/2003(e) ...................................... 115,111 143,889 Royal Bank of Scotland, 1.125%, due 7/01/2003(e) ...................................... 143,889 ------------ Total Short Term Investments (Identified Cost $2,749,570) ...................... 2,749,570 ------------ Total Investments -- 102.8% (Identified Cost $91,406,609)(b) .................. 79,556,689 Other assets less liabilities ..................... (2,138,115) ------------ Total Net Assets -- 100% .......................... $ 77,418,574 ============ (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized depreciation on investments based on cost of $91,406,609 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 ................. $ 6,030,958 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ........................................... (17,880,878) ------------ Net unrealized depreciation ............................... $(11,849,920) ============ At December 31, 2002, the Fund had a capital loss carryover of approximately $53,531,761 of which $26,648,714 expires on December 31, 2009 and $26,883,047 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2002, the Fund has elected to defer $2,293,916 of capital losses attributable to Post-October losses. (c) Non-income producing security. (d) All or a portion of this security was on loan to brokers at June 30, 2003. (e) Represents investments of securities lending collateral. 15 See accompanying notes to financial statements. Growth and Income Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited) Shares Description Value (a) - ------------------------------------------------------------------------------ Common Stocks -- 94.5% of Total Net Assets Advertising -- 2.7% 640,400 Interpublic Group of Cos. (The), Inc............. $ 8,568,552 ------------ Aerospace & Defense -- 4.3% 129,400 Boeing Co. (The) ................................ 4,441,008 348,700 Honeywell International, Inc. ................... 9,362,595 ------------ 13,803,603 ------------ Apparel Retailers -- 3.0% 520,500 Gap (The), Inc. ................................. 9,764,580 ------------ Automotive -- 0.4% 32,800 Harley-Davidson, Inc. ........................... 1,307,408 ------------ Banking -- 7.4% 368,700 US Bancorp ...................................... 9,033,150 356,000 Washington Mutual, Inc. ......................... 14,702,800 ------------ 23,735,950 ------------ Beverages, Food & Tobacco -- 10.3% 28,200 Anheuser-Busch Cos., Inc. ....................... 1,439,610 214,500 Diageo PLC (ADR) ................................ 9,386,520 65,500 General Mills, Inc. ............................. 3,105,355 254,800 H.J. Heinz Co. .................................. 8,403,304 297,400 Kraft Foods, Inc.(c) ............................ 9,680,370 24,200 Nestle SA (ADR) ................................. 1,251,140 ------------ 33,266,299 ------------ Building Materials -- 2.8% 383,100 Masco Corp.(c) .................................. 9,136,935 ------------ Commercial Services -- 3.1% 554,200 Cendant Corp.(d) ................................ 10,152,944 ------------ Communications -- 1.9% 466,000 General Motors Corp., Class H (Hughes Electronics Corp.)(d) ........................... 5,969,460 ------------ Electric Utilities -- 3.2% 253,300 Duke Energy Corp.(c) ............................ 5,053,335 235,200 TXU Corp ........................................ 5,280,240 ------------ 10,333,575 ------------ Entertainment & Leisure -- 4.2% 113,000 Carnival Corp ................................... 3,673,630 500,200 Walt Disney Co. (The) ........................... 9,878,950 ------------ 13,552,580 ------------ Environmental Control -- 3.0% 398,100 Waste Management, Inc ........................... 9,590,229 ------------ Financial Services -- 2.6% 125,400 Fannie Mae ...................................... 8,456,976 ------------ Food Retailers -- 4.7% 567,000 Kroger Co. (The)(d) ............................. 9,457,560 282,600 Safeway, Inc.(d) ................................ 5,781,996 ------------ 15,239,556 ------------ Household Products -- 2.2% 138,300 Fortune Brands, Inc. ............................ 7,219,260 ------------ Industrial - Diversified -- 1.0% 47,900 Illinois Tool Works, Inc. ....................... 3,154,215 ------------ Insurance -- 1.3% 90,000 MGIC Investment Corp ............................ 4,197,600 ------------ Media - Broadcasting & Publishing -- 12.0% 756,300 AOL Time Warner, Inc.(d) ........................ 12,168,867 249,500 Comcast Corp., Special Class A(d) ............... 7,193,085 61,700 Gannett Co., Inc. ............................... 4,739,177 Media - Broadcasting & Publishing -- (continued) 1,269,500 Liberty Media Corp.(c) (d) ...................... $ 14,675,420 ------------ 38,776,549 ------------ Medical Supplies -- 4.5% 193,000 Baxter International, Inc. ...................... 5,018,000 214,700 Guidant Corp .................................... 9,530,533 ------------ 14,548,533 ------------ Office/Business Equipment -- 0.3% 97,000 Xerox Corp.(d) .................................. 1,027,230 ------------ Oil & Gas -- 2.8% 115,100 Burlington Resources, Inc. ...................... 6,223,457 51,846 ConocoPhillips .................................. 2,841,161 ------------ 9,064,618 ------------ Pharmaceuticals -- 5.8% 151,500 Abbott Laboratories ............................. 6,629,640 245,600 Bristol-Myers Squibb Co ......................... 6,668,040 90,900 Merck & Co., Inc. ............................... 5,503,995 ------------ 18,801,675 ------------ Restaurants -- 3.5% 514,000 McDonald's Corp ................................. 11,338,840 ------------ Retailers -- 4.0% 387,200 Home Depot, Inc ................................. 12,824,064 ------------ Software -- 3.5% 81,300 Automatic Data Processing, Inc .................. 2,752,818 208,400 First Data Corp ................................. 8,636,096 ------------ 11,388,914 ------------ Total Common Stocks (Identified Cost $285,874,743) ................................... 305,220,145 ------------ Principal Amount - ----------- Short Term Investments -- 13.2% $20,736,200 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $20,736,632 on 7/01/2003, collateralized by $21,200,015 Federal National Mortgage Association Bond with rates ranging from 2.935% to 4.497%, and maturities ranging from 1/25/2022 to 8/01/2032 with an aggregate value of $21,773,010 ..................................... 20,736,200 1,233,807 Bank of Montreal, 1.08%, due 7/02/2003(e) .................................... 1,233,807 3,100,200 Bank of Montreal, 1.15%, due 7/09/2003(e) .................................... 3,100,200 1,542,259 Bank of Nova Scotia, 1.05%, due 8/29/2003(e) .................................... 1,542,259 1,850,711 Bank of Nova Scotia, 1.16%, due 7/09/2003(e) .................................... 1,850,711 308,452 BNP Paribas, 1.03%, due 7/21/2003(e) ............ 308,452 616,904 Comerica Bank, 1.073%, due 11/19/2003(e) ................................... 616,904 308,452 Credit Agricole Indosuez, 1.05%, due 8/26/2003(e) .................................... 308,452 616,904 Den Danske Bank, 1.04%, due 7/24/2003(e) .................................... 616,904 2,159,163 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(e) ........................ 2,159,163 616,904 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(e) .................................... 616,904 237,980 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(e) .................. 237,980 4,440,211 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(e) ........................ 4,440,211 1,850,711 Royal Bank of Canada, 1.031%, due 7/07/2003(e) .................................... 1,850,711 1,233,808 Royal Bank of Scotland, 1.05%, due 7/28/2003(e) .................................... 1,233,808 1,542,259 Royal Bank of Scotland, 1.125%, due 7/01/2003(e) .................................... 1,542,259 ------------ Total Short Term Investments (Identified Cost $42,394,925) ................... 42,394,925 ------------ Total Investments -- 107.7% (Identified Cost $328,269,668) (b) .............. 347,615,070 Other assets less liabilities ................... (24,711,630) ------------ Total Net Assets -- 100% ........................ $322,903,440 ============ See accompanying notes to financial statements. 16 Growth and Income Fund -- Schedule of Investments(continued) Investments as of June 30, 2003 (unaudited) - -------------------------------------------------------------------------------- (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $328,269,668 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 ....................................... $ 29,499,702 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ................................ (10,154,300) ------------ Net unrealized appreciation $ 19,345,402 ============ At December 31, 2002, the Fund had a capital loss carryover of approximately $109,950,271 of which $19,895,206 expires on December 31, 2008, $69,951,207 expires on December 31, 2009 and $20,103,858 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2002, the Fund has elected to defer $4,943,400 of capital losses attributable to Post-October losses. (c) All or a portion of this security was on loan to brokers at June 30, 2003. (d) Non-income producing security. (e) Represents investments of securities lending collateral. ADR An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States. 17 See accompanying notes to financial statements. International Equity Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited) Shares Description Value (a) - -------------------------------------------------------------------------------- Common Stocks -- 96.1% of Total Net Assets Australia -- 4.3% 31,500 Lend Lease Corp., Ltd................................. $ 176,608 63,600 News Corp., Ltd....................................... 478,287 259,000 Promina Group, Ltd.(c) ............................... 410,417 28,300 Publishing & Broadcasting, Ltd........................ 187,740 26,650 Westpac Banking Corp., Ltd............................ 290,780 ----------- 1,543,832 ----------- Austria -- 2.0% 4,100 Erste Bank der Oesterreichischen Sparkassen AG ....... 362,945 31,200 Telekom Austria AG(c) ................................ 354,618 ----------- 717,563 ----------- Brazil -- 0.8% 15,600 Empresa Brasileira de Aeronautica SA (Embraer)(ADR) .. 297,960 ----------- Canada -- 5.3% 14,765 Barrick Gold Corp..................................... 261,411 10,779 EnCana Corp.(d) ...................................... 411,273 7,346 Petro-Canada ......................................... 292,539 7,550 Precision Drilling Corp., Class A(c) ................. 283,167 22,880 Rogers Communications, Inc., Class B ................. 365,573 11,145 Toronto-Dominion Bank (The)(d) ....................... 307,289 ----------- 1,921,252 ----------- Czech Republic -- 0.7% 3,552 Komercni Banka AS .................................... 255,886 ----------- Finland -- 1.9% 21,600 Nokia OYJ (ADR) ...................................... 354,888 30,800 Stora Enso OYJ, R Shares ............................. 344,757 ----------- 699,645 ----------- France -- 4.5% 5,500 BNP Paribas .......................................... 279,979 10,500 Compagnie Generale des Etablissements Michelin, Class B ........................................... 410,693 3,600 Pernod-Ricard ........................................ 321,790 2,500 Technip-Coflexip SA .................................. 219,151 2,640 TotalFinaElf SA ...................................... 399,677 ----------- 1,631,290 ----------- Germany -- 3.8% 3,700 Adidas-Salomon AG(d) ................................. 316,682 7,800 BASF AG .............................................. 332,454 2,700 Deutsche Bank AG(d) .................................. 174,717 24,450 Infineon Technologies AG (ADR)(c) .................... 234,476 5,020 Stada Arzneimittel AG ................................ 317,625 ----------- 1,375,954 ----------- Greece -- 1.7% 18,000 Greek Organization of Football Prognostics SA ........ 183,880 22,650 Public Power Corp..................................... 409,609 ----------- 593,489 ----------- Hong Kong -- 1.3% 189,100 Esprit Holdings, Ltd.................................. 463,162 ----------- Hungary -- 0.7% 26,300 OTP Bank Rt(c) ....................................... 254,545 ----------- India -- 0.5% 8,275 Wipro, Ltd. (ADR) .................................... 190,739 ----------- Ireland -- 3.7% 97,000 Anglo Irish Bank Corp., 144A ......................... 859,234 63,700 Ryanair Holdings PLC(c) .............................. 459,469 ----------- 1,318,703 ----------- Israel -- 1.1% 6,900 Teva Pharmaceutical Industries, Ltd. (ADR)(d) ........ $ 392,817 ----------- Italy -- 6.1% 198,400 Banca Nazionole del Lavoro SpA - BNL(c) .............. 333,229 35,955 Banco Popolare di Verona e Novara Scrl ............... 492,215 34,450 Eni SpA(d) ........................................... 521,944 21,700 Mediaset SpA ......................................... 183,982 27,900 Saipem SpA ........................................... 209,267 49,200 Telecom Italia SpA(d) ................................ 446,006 ----------- 2,186,643 ----------- Japan -- 16.8% 7,000 Canon, Inc............................................ 321,712 15,600 Credit Saison Co., Ltd................................ 256,205 26,000 Dai Nippon Printing Co., Ltd.......................... 275,419 37,000 Daiwa House Industry Co., Ltd......................... 254,917 49 East Japan Railway Co................................. 218,250 1,800 Hirose Electric Co., Ltd.............................. 149,087 7,000 Honda Motor Co., Ltd................................. 265,660 28,000 JGC Corp.............................................. 188,706 53,000 Kaneka Corp........................................... 327,133 46 KDDI Corp............................................. 178,414 1,630 Keyence Corp.(d)...................................... 299,108 2,300 Mabuchi Motor Co., Ltd................................ 176,111 49,000 Mitsubishi Corp....................................... 340,454 19,000 Nikon Corp.(c) ....................................... 156,735 63,000 Nippon Oil Corp....................................... 273,776 46,300 Nissan Motor Co., Ltd................................. 443,343 5,800 Nitto Denko Corp...................................... 190,124 60,000 NSK, Ltd ............................................. 191,175 6,000 Secom Co., Ltd ....................................... 176,162 16,000 Sharp Corp............................................ 205,655 5,000 Sony Corp............................................. 140,963 9,600 Takeda Chemical Industries, Ltd....................... 354,725 5,500 TDK Corp.............................................. 272,041 11,600 THK Co., Ltd.......................................... 156,357 5,800 Uni-Charm Corp........................................ 251,080 ----------- 6,063,312 ----------- Mexico -- 0.6% 72,600 Wal-Mart de Mexico SA de CV, Series V ................ 213,977 ----------- Netherlands -- 1.5% 10,500 ING Groep NV ......................................... 182,758 7,600 Royal Dutch Petroleum Co.............................. 353,394 ----------- 536,152 ----------- Norway -- 0.9% 76,000 Telenor ASA .......................................... 315,702 ----------- Republic of Korea -- 1.0% 1,255 Samsung Electronics Co., Ltd.......................... 372,980 ----------- Russia -- 1.3% 5,900 LUKOIL (ADR) ......................................... 463,740 ----------- Singapore -- 1.0% 70,000 City Developments, Ltd................................ 176,536 30,000 DBS Group Holdings, Ltd............................... 175,513 ----------- 352,049 ----------- Spain -- 3.0% 6,800 Altadis SA ........................................... 174,603 7,000 Banco Popular Espanol ................................ 354,323 5,800 Grupo Ferrovial SA ................................... 157,800 21,700 Iberdrola SA ......................................... 376,452 ----------- 1,063,178 ----------- See accompanying notes to financial statements. 18 International Equity Fund -- Schedule of Investments (Continued) Investments as of June 30, 2003 (unaudited) Shares Description Value (a) - ------------------------------------------------------------------------------- Sweden -- 0.5% 6,600 Autoliv, Inc. (SDR)(d) .............................. $ 177,941 ---------- Switzerland -- 7.3% 1,500 Centerpulse AG(c) ................................... 404,416 8,700 Credit Suisse Group ................................. 229,413 20,500 Novartis AG ......................................... 812,752 4,500 Roche Holding AG .................................... 353,656 530 Synthes-Stratec, Inc................................. 381,442 8,000 UBS AG .............................................. 445,874 ---------- 2,627,553 ---------- Thailand -- 0.7% 67,200 Siam Cement Public Co. (The), Ltd ................... 268,353 ---------- United Kingdom -- 23.1% 21,800 Anglo American PLC .................................. 333,718 39,500 Barclays PLC ........................................ 292,052 64,275 BHP Billiton PLC .................................... 338,160 70,700 BP PLC .............................................. 490,886 42,700 British Sky Broadcasting PLC(c) ..................... 471,891 34,400 Diageo PLC .......................................... 367,938 34,100 GlaxoSmithKline PLC ................................. 684,925 114,000 Hilton Group PLC .................................... 347,236 28,000 Imperial Tobacco Group PLC .......................... 502,227 148,650 Kingfisher PLC ...................................... 681,931 51,600 Lloyds TSB Group PLC ................................ 365,521 21,300 Next PLC ............................................ 361,804 21,600 Reckitt Benckiser PLC ............................... 396,359 34,700 Royal Bank of Scotland Group PLC .................... 971,178 38,000 United Utilities PLC ................................ 368,752 571,171 Vodafone Group PLC .................................. 1,116,554 36,400 Xstrata PLC ......................................... 242,203 ---------- 8,333,335 ---------- Total Common Stocks (Identified Cost $30,283,937) ....................... 34,631,752 ---------- Preferred Stocks -- 0.6% Germany -- 0.6% 550 Porsche AG (d) ...................................... 232,208 ---------- Total Preferred Stocks (Identified Cost $217,864) .......................... 232,208 ---------- Principal Amount Value (a) - --------- Short Term Investments -- 8.2% $167,931 Bank of Montreal, 1.08%, due 7/02/2003(e) ........... 167,931 421,963 Bank of Montreal, 1.15%, due 7/09/2003(e) ........... 421,963 251,897 Bank of Nova Scotia, 1.16%, due 7/09/2003(e) ........ 251,897 209,914 Bank of Nova Scotia, 1.05%, due 8/29/2003(e) ........ 209,914 41,983 BNP Paribas, 1.03%, due 7/21/2003(e) ................ 41,983 83,966 Comerica Bank, 1.073%, due 11/19/2003(e) ............ 83,966 41,983 Credit Agricole Indosuez, 1.05%, due 8/26/2003(e) ... 41,983 83,966 Den Danske Bank, 1.04%, due 7/24/2003(e) ............ 83,966 293,880 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(e) ..................................... 293,880 83,966 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(e) ..................................... 83,966 32,391 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(e) ................................. 32,391 Short Term Investments -- 8.2%(continued) $604,350 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(e) $ 604,350 251,897 Royal Bank of Canada, 1.031%, due 7/07/2003(e) ...... 251,897 209,914 Royal Bank of Scotland, 1.125%, due 7/01/2003(e) ... 209,914 167,931 Royal Bank of Scotland, 1.05%, due 7/28/2003(e) ..... 167,931 ----------- Total Short Term Investments (Identified Cost $2,947,932) ........................ 2,947,932 ----------- Total Investments -- 104.9% (Identified Cost $33,449,733) (b) ................... 37,811,892 Other assets less liabilities ....................... (1,779,949) ------------ Total Net Assets-- 100% ............................. $36,031,943 =========== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $33,449,733 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost .......... $ 4,673,234 ----------- Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ......... (311,075) ----------- Net unrealized appreciation ................................ $ 4,362,159 =========== At December 31, 2003, the Fund had a capital loss carryover of approximately $30,663,018 of which $20,761,210 expires on December 31, 2009 and $9,901,808 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2003, the Fund has elected to defer $1,702,210 of capital losses and $37,437 of foreign currency losses attributable to Post-October losses. (c) Non-income producing security. (d) All or a portion of this security was on loan to brokers at June 30, 2002. (e) Represents investments of securities lending collateral. ADR An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States. SDR Swedish Depositary Receipt 144A Securities exempt from registration under Rule These securities 144A of the Securities Act of 1933. may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $859,234 or 2.4% of net assets. Industry Holdings at June 30, 2003 Banking 17.9% Oil & Gas 10.4 Pharmaceuticals 8.2 Communications 6.0 Automotive 4.1 Beverages, Food & Tobacco 3.8 Media - Broadcasting & Publishing 3.6 Mining 3.2 Telephone Systems 2.7 Retailers 2.5 Chemicals 2.3 Electric Utilities 2.3 Electronics 2.2 Medical Supplies 2.2 Textiles, Clothing & Fabrics 2.2 Other, less than 2% each 23.1 19 See accompanying notes to financial statements. Large Cap Growth Fund -- Schedule Of Investments Investments as of June 30, 2003 (unaudited) Shares Description Value (a) - -------------------------------------------------------------------------------- Common Stocks -- 100.1% of Total Net Assets Aerospace & Defense -- 2.5% 7,300 Northrop Grumman Corp.(c) ........................... $ 629,917 ----------- Banking -- 4.2% 15,000 State Street Corp ................................... 591,000 9,000 Wells Fargo & Co .................................... 453,600 ----------- 1,044,600 ----------- Beverages, Food & Tobacco -- 5.9% 9,000 Anheuser-Busch Cos., Inc ............................ 459,450 11,000 PepsiCo, Inc ........................................ 489,500 17,300 Sysco Corp.(c) ...................................... 519,692 ----------- 1,468,642 ----------- Biotechnology -- 3.2% 12,000 Amgen, Inc.(d) ...................................... 797,280 ----------- Commercial Services -- 2.5% 34,000 Cendant Corp.(d) .................................... 622,880 ----------- Communications -- 3.4% 51,000 Cisco Systems, Inc.(d) .............................. 851,190 ----------- Computer & Business Equipment -- 0.6% 15,100 ATI Technologies, Inc.(d) ........................... 154,020 ----------- Computers -- 5.1% 22,000 Dell Computer Corp.(d) .............................. 703,120 7,000 International Business Machines Corp ................ 577,500 ----------- 1,280,620 ----------- Education -- 1.1% 5,000 Education Management Corp.(d) ....................... 265,900 ----------- Electrical Equipment -- 1.0% 5,000 Emerson Electric Co ................................. 255,500 ----------- Financial Services -- 6.7% 12,700 American Express Co ................................. 530,987 9,200 Citigroup, Inc ...................................... 393,760 9,000 Goldman Sachs Group, Inc ............................ 753,750 ----------- 1,678,497 ----------- Food Retailers -- 0.6% 9,000 Kroger Co. (The)(d) ................................. 150,120 ----------- Health Care Providers -- 1.0% 7,700 HCA, Inc ............................................ 246,708 ----------- Healthcare-Services -- 1.0% 8,200 Laboratory Corp. of America Holdings(d) ............. 247,230 ----------- Household Products -- 1.1% 4,900 Colgate-Palmolive Co ................................ 283,955 ----------- Industrial - Diversified -- 5.6% 49,000 General Electric Co ................................. 1,405,320 ----------- Insurance -- 2.4% 11,000 American International Group, Inc ................... 606,980 ----------- Media - Broadcasting & Publishing -- 4.1% 12,500 Clear Channel Communications, Inc.(d) ............... 529,875 15,300 Cox Communications, Inc., Class A(c) (d) ............ 488,070 ----------- 1,017,945 ----------- Medical Supplies -- 4.3% 6,400 Boston Scientific Corp.(d) .......................... $ 391,040 6,700 Edwards Lifesciences Corp.(d) ....................... 215,338 10,000 Medtronic, Inc ...................................... 479,700 ----------- 1,086,078 ----------- Oil & Gas -- 1.8% 7,000 BJ Services Co.(d) .................................. 261,520 9,000 Transocean, Inc.(d) ................................. 197,730 ----------- 459,250 ----------- Pharmaceuticals -- 10.0% 4,700 Eli Lilly & Co ...................................... 324,159 21,100 IVAX Corp.(d) ....................................... 376,635 4,500 Johnson & Johnson ................................... 232,650 7,000 Merck & Co., Inc .................................... 423,850 34,000 Pfizer, Inc ......................................... 1,161,100 ----------- 2,518,394 ----------- Restaurants -- 3.8% 14,000 Brinker International, Inc.(d) ...................... 504,280 9,100 PF Chang's China Bistro, Inc.(c) (d) ................ 447,811 ----------- 952,091 ----------- Retailers -- 9.4% 17,000 Home Depot, Inc ..................................... 563,040 4,600 Kohl's Corp.(d) ..................................... 236,348 15,800 Walgreen Co ......................................... 475,580 20,000 Wal-Mart Stores, Inc ................................ 1,073,400 ----------- 2,348,368 ----------- Semiconductors -- 10.7% 16,800 Analog Devices, Inc.(d) ............................. 584,976 34,700 Applied Materials, Inc.(d) .......................... 550,342 39,000 Intel Corp .......................................... 810,576 10,400 Microchip Technology, Inc ........................... 256,152 18,600 Xilinx, Inc.(d) ..................................... 470,766 ----------- 2,672,812 ----------- Software -- 6.0% 46,800 Microsoft Corp ...................................... 1,198,548 33,500 Siebel Systems, Inc.(d) ............................. 319,590 ----------- 1,518,138 ----------- Transportation -- 2.1% 8,200 United Parcel Service, Inc., Class B ................ 522,340 ----------- Total Common Stocks (Identified Cost $26,185,781) ... 25,084,775 ----------- See accompanying notes to financial statements. 20 Large Cap Growth Fund -- Schedule of Investments (Continued) Investments as of June 30, 2003 (unaudited)
Principal Amount Description Value (a) - --------------------------------------------------------------------------------------------- Short Term Investments -- 8.2% $296,182 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $296,188 on 7/01/2003, collateralized by $312,697 Federal Home Loan Mortgage Corporation Bond, 1.63%, due 1/15/2028 valued at $313,978 ...... $ 296,182 100,766 Bank of Montreal, 1.08%, due 7/02/2003(e) 100,766 253,196 Bank of Montreal, 1.15%, due 7/09/2003(e) 253,196 125,958 Bank of Nova Scotia, 1.05%, due 8/29/2003(e) 125,958 151,150 Bank of Nova Scotia, 1.16%, due 7/09/2003(e) 151,150 25,192 BNP Paribas, 1.03%, due 7/21/2003(e) .............................. 25,192 50,383 Comerica Bank, 1.073%, due 11/19/2003(e) 50,383 25,192 Credit Agricole Indosuez, 1.05%, due 8/26/2003(e) 25,192 50,383 Den Danske Bank, 1.04%, due 7/24/2003(e) 50,383 176,341 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(e) 176,341 50,383 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(e) 50,383 19,436 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003 (e) 19,436 362,637 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(e) 362,637 151,149 Royal Bank of Canada, 1.031%, due 7/07/2003(e) 151,149 100,766 Royal Bank of Scotland, 1.05%, due 7/28/2003(e) 100,766 125,958 Royal Bank of Scotland, 1.125%, due 7/01/2003(e) 125,958 ----------- Total Short Term Investments (Identified Cost $2,065,072) 2,065,072 ----------- Total Investments -- 108.3% (Identified Cost $28,250,853) (b) ..... 27,149,847 Other assets less liabilities ..................................... (2,083,752) ----------- Total Net Assets -- 100% .......................................... $25,066,095 =========== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized depreciation on investments based on cost of $28,250,853 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 ...................................... $ 1,607,394 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ................................ (2,708,400) ----------- Net unrealized depreciation .............................................. $(1,101,006) =========== At December 31, 2002, the Fund had a capital loss carryover of approximately $41,153,499 of which $3,696,755 expires on December 31, 2008, $26,085,507 expires on December 31, 2009 and $11,371,237 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2002, the Fund has elected to defer $1,881,354 of capital losses attributable to Post-October losses. (c) All or a portion of this security was on loan to brokers at June 30, 2003. (d) Non-income producing security. (e) Represents investments of securities lending collateral.
21 See accompanying notes to financial statements. Select Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited)
Shares Description Value (a) - ---------------------------------------------------------------------------------------------- Common Stocks -- 91.2% of Total Net Assets Banking -- 17.6% 1,170,600 Washington Mutual, Inc.(c) ........................................ $ 48,345,780 ------------ Biotechnology -- 3.7% 235,300 Chiron Corp.(d) ................................................... 10,287,316 ------------ Commercial Services -- 9.8% 505,900 H&R Block, Inc .................................................... 21,880,175 203,000 Valassis Communications, Inc.(c) (d) .............................. 5,221,160 ------------ 27,101,335 ------------ Computers -- 1.3% 140,000 SunGard Data Systems, Inc.(d) ..................................... 3,627,400 ------------ Food Retailers -- 4.1% 683,000 Kroger Co. (The)(c) (d) ........................................... 11,392,440 ------------ Healthcare-Services -- 3.7% 303,000 Omnicare, Inc ..................................................... 10,238,370 ------------ Lodging -- 2.5% 179,700 Marriott International, Inc., Class A ............................. 6,904,074 ------------ Media - Broadcasting & Publishing -- 12.6% 711,300 AOL Time Warner, Inc.(d) .......................................... 11,444,817 185,300 Knight-Ridder, Inc ................................................ 12,772,729 908,400 Liberty Media Corp.(d) ............................................ 10,501,104 ------------ 34,718,650 ------------ Medical Supplies -- 4.6% 286,500 Guidant Corp ...................................................... 12,717,735 ------------ Oil & Gas -- 4.0% 205,400 Burlington Resources, Inc ......................................... 11,105,978 ------------ Pharmaceuticals -- 3.3% 327,600 Bristol-Myers Squibb Co ........................................... 8,894,340 ------------ Restaurants -- 5.2% 480,900 Yum! Brands, Inc.(d) .............................................. 14,215,404 ------------ Retailers -- 5.2% 458,200 J.C. Penney Co., Inc.(c) .......................................... 7,720,670 346,500 TJX Cos., Inc ..................................................... 6,528,060 ------------ 14,248,730 ------------ Software -- 6.8% 301,000 First Data Corp ................................................... 12,473,440 1,981,000 Novell, Inc.(d) ................................................... 6,101,480 ------------ 18,574,920 ------------ Telephone Systems -- 4.1% 779,700 Sprint Corp. (FON Group) .......................................... 11,227,680 ------------ Tools -- 2.7% 171,000 Black & Decker Corp ............................................... 7,429,950 ------------ Total Common Stocks (Identified Cost $227,366,343) ................ 251,030,102 ------------
Principal Amount Description Value (a) - ------------------------------------------------------------------------------------------------ Short Term Investments -- 20.0% $25,198,718 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $25,199,243 on 7/01/2003, collateralized by $3,133,850 Federal Home Loan Mortgage Corporation Bond, 1.54%, due 9/25/2032 valued at $23,324,241 ................................................. $ 25,198,718 1,692,371 Bank of Montreal, 1.08%, due 7/02/2003(e) ......................... 1,692,371 4,252,435 Bank of Montreal, 1.15%, due 7/09/2003(e) ......................... 4,252,435 2,115,463 Bank of Nova Scotia, 1.05%, due 8/29/2003(e) ...................... 2,115,463 2,538,556 Bank of Nova Scotia, 1.16%, due 7/09/2003(e) ...................... 2,538,556 423,093 BNP Paribas, 1.03%, due 7/21/2003(e) .............................. 423,093 846,185 Comerica Bank, 1.073%, due 11/19/2003(e) .......................... 846,185 423,093 Credit Agricole Indosuez, 1.05%, due 8/26/2003(e) ................. 423,093 846,185 Den Danske Bank, 1.04%, due 7/24/2003(e) .......................... 846,185 2,961,649 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(e) ....... 2,961,649 846,185 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(e) .............. 846,185 326,428 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(e) 326,428 6,090,482 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(e) ........ 6,090,482 2,538,556 Royal Bank of Canada, 1.031%, due 7/07/2003(e) .................... 2,538,556 1,692,371 Royal Bank of Scotland, 1.05%, due 7/28/2003(e) ................... 1,692,371 2,115,463 Royal Bank of Scotland, 1.125%, due 7/01/2003(e) .................. 2,115,463 ------------ Total Short Term Investments (Identified Cost $54,907,233) ........ 54,907,233 ------------ Total Investments -- 111.2% (Identified Cost $282,273,576) (b) ................................ 305,937,335 other assets less liabilities ..................................... (30,700,526) ------------ Total Net Assets -- 100% .......................................... $275,236,809 ============ (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $282,273,576 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 ......................... $ 33,408,311 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ............................ (9,744,552) ------------ Net unrealized appreciation ................................................ $ 23,663,759 ============ At December 31, 2003, the Fund had a capital loss carryover of approximately $8,193,164 of which $1,480,080 expires on December 31, 2009 and $6,713,084 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2003, the Fund has elected to defer $7,802,742 of capital losses attributable to Post-October losses. (c) All or a portion of this security was on loan to brokers at June 30, 2003. (d) Non-income producing security. (e) Represents investments of securities lending collateral.
See accompanying notes to financial statements. 22 Targeted Equity Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited)
Shares Description Value (a) - ----------------------------------------------------------------------------------------------- Common Stocks -- 99.6% of Total Net Assets Beverages, Food & Tobacco -- 7.1% 955,000 Altria Group, Inc. ............................................... $ 43,395,200 150,000 Coca-Cola Co. (The) .............................................. 6,961,500 ------------- 50,356,700 ------------- Biotechnology -- 1.0% 100,000 Genetech, Inc.(c) ................................................ 7,212,000 ------------- Computers -- 4.8% 1,075,000 Dell Computer Corp.(c) ........................................... 34,357,000 ------------- Cosmetics & Personal Care -- 3.5% 279,000 Procter & Gamble Co. ............................................. 24,881,220 ------------- Financial Services -- 17.9% 700,000 Citigroup, Inc. .................................................. 29,960,000 535,000 Countrywide Financial Corp. ...................................... 37,219,950 525,000 Freddie Mac ...................................................... 26,654,250 502,000 Lehman Brothers Holdings, Inc. ................................... 33,372,960 ------------- 127,207,160 ------------- Home Construction, Furnishings & Appliances -- 29.1% 435,000 Centex Corp.(d) .................................................. 33,838,650 1,737,200 D.R. Horton, Inc. ................................................ 48,815,320 730,000 KB HOME .......................................................... 45,245,400 750,900 Lennar Corp., Class A(d) ......................................... 53,689,350 406,300 Pulte Homes, Inc. ................................................ 25,052,458 ------------- 206,641,178 ------------- Industrial - Diversified -- 4.9 271,000 3M Co. ........................................................... 34,953,580 ------------- Oil & Gas -- 4.9% 645,000 Burlington Resources, Inc.(d) .................................... 34,875,150 ------------- Pharmaceuticals -- 11.7% 915,000 Abbott Laboratories .............................................. 40,040,400 760,000 Teva Pharmaceutical Industries, Ltd. (ADR)(d) .................... 43,266,800 ------------- 83,307,200 ------------- Retailers -- 3.8% 615,000 Best Buy Co., Inc.(c) ............................................ 27,010,800 ------------- Semiconductors -- 4.7% 955,000 Analog Devices, Inc.(c) .......................................... 33,253,100 ------------- Software -- 4.6% 785,000 First Data Corp. ................................................. 32,530,400 ------------- Transportation -- 1.6% 180,000 United Parcel Service, Inc., Class B ............................. 11,466,000 ------------- Total Common Stocks (Identified Cost $563,129,118) ............... 708,051,488 ------------- Principal Amount Description Value (a) - ------------------------------------------------------------------------------------------------- Short Term Investments -- 15.6% $ 3,080,274 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2002 at 0.75% to be repurchased at $3,080,338 on 7/01/2003, collateralized by $3,090,398 Small Business Administration Bond, 3.63%, due 4/25/2024 valued at $3,234,287 .................................................... $ 3,080,274 6,130,339 Bank of Montreal, 1.08%, due 7/02/2003(e) 6,130,339 15,403,760 Bank of Montreal, 1.15%, due 7/09/2003(e) 15,403,760 7,662,924 Bank of Nova Scotia, 1.05%, due 8/29/2003(e) 7,662,924 9,195,509 Bank of Nova Scotia, 1.16%, due 7/09/2003(e) 9,195,509 1,532,585 BNP Paribas, 1.03%, due 7/21/2003(e) 1,532,585 3,065,169 Comerica Bank, 1.073%, due 11/19/2003(e) 3,065,169 1,532,585 Credit Agricole Indosuez, 1.05%, due 8/26/2003(e) 1,532,585 3,065,170 Den Danske Bank, 1.04%, due 7/24/2003(e) 3,065,170 10,728,093 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(e) 10,728,093 3,065,170 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(e) 3,065,170 1,182,434 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003 (e) 1,182,434 22,061,786 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(e) 22,061,786 9,195,509 Royal Bank of Canada, 1.031%, due 7/07/2003(e) 9,195,509 6,130,339 Royal Bank of Scotland, 1.05%, due 7/28/2003(e) 6,130,339 7,662,924 Royal Bank of Scotland, 1.125%, due 7/01/2003(e) 7,662,924 ------------- Total Short Term Investments (Identified Cost $110,694,570) 110,694,570 ------------- Total Investments -- 115.2% (Identified Cost $673,823,688)(b) ............................... 818,746,058 Other assets less liabilities ................................... (108,336,651) ------------- Total Net Assets -- 100% ........................................ $ 710,409,407 ============= (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $628,907,353 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 ...................................... $ 149,118,580 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ...................................... (4,196,210) ------------- Net unrealized appreciation .............................................. $ 144,922,370 ============= At December 31, 2002, the Fund had a capital loss carryover of approximately $382,471,007 of which $187,367,538 expires on December 31, 2009 and $195,103,469 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2002, the Fund has elected to defer $51,910,302 of capital losses attributable to Post-October losses. (c) Non-income producing security. (d) All or a portion of this security was on loan to brokers at June 30, 2003. (e) Represents investments of securities lending collateral. ADR An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States.
23 See accompanying notes to financial statements. FINANCIAL STATEMENTS 24 Statements of Assets & Liabilities June 30, 2003 (unaudited)
Capital Growth Growth and International Large Cap Fund Income Fund Equity Fund Growth Fund -------------- ------------- ------------- ------------ ASSETS Investments at cost ............................................ $ 91,406,609 $ 328,269,668 $ 33,449,733 $ 28,250,853 Net unrealized appreciation (depreciation) ..................... (11,849,920) 19,345,402 4,362,159 (1,101,006) ------------- ------------- ------------ ------------ Investments at value ........................................ 79,556,689 347,615,070 37,811,892 27,149,847 Receivable for Fund shares sold ................................ 19,505 336,362 1,709,678 7,084 Receivable for securities sold ................................. 195,583 2,258,339 1,084,695 373,001 Dividends and interest receivable .............................. 76,177 317,110 123,862 17,736 Tax reclaims receivable ........................................ -- -- 40,246 -- Receivable from investment adviser ............................. -- -- -- 23,060 Securities lending income receivable ........................... 1,912 14,389 4,199 460 ------------- ------------- ------------ ------------ TOTAL ASSETS ................................................ 79,849,866 350,541,270 40,774,572 27,571,188 ------------- ------------- ------------ ------------ LIABILITIES Collateral on securities loaned, at value ...................... 2,020,700 21,658,725 2,947,932 1,768,890 Foreign cash at value (identified cost $15,637) ................ -- -- 12,810 -- Payable for securities purchased ............................... 102,761 1,255,738 767,670 618,262 Payable for Fund shares redeemed ............................... 123,530 662,171 53,806 41,932 Payable to custodian bank ...................................... -- 3,593,712 827,512 -- Management fees payable ........................................ 48,540 93,388 27,472 -- Deferred Trustees' fees ........................................ 43,534 146,744 31,606 3,509 Transfer agent fees payable .................................... 49,673 136,327 28,868 29,071 Accounting and administrative fees payable ..................... 5,045 20,172 2,336 1,581 Other accounts payable and accrued expenses .................... 37,509 70,853 42,617 41,848 ------------- ------------- ------------ ------------ TOTAL LIABILITIES ........................................... 2,431,292 27,637,830 4,742,629 2,505,093 ------------- ------------- ------------ ------------ NET ASSETS ........................................................ $ 77,418,574 $ 322,903,440 $ 36,031,943 $ 25,066,095 ============= ============= ============ ============ NET ASSETS CONSIST OF: Paid in capital ................................................ $ 145,480,207 $ 431,136,516 $ 65,366,038 $ 71,319,619 Undistributed (overdistributed) net investment income (loss) ... (462,621) (591,141) 69,314 (90,200) Accumulated net realized gain (loss) on investments ............ (55,749,092) (126,987,337) (33,773,918) (45,062,318) Net unrealized appreciation (depreciation) of investments ...... (11,849,920) 19,345,402 4,370,509 (1,101,006) ------------- ------------- ------------ ------------ NET ASSETS ........................................................ $ 77,418,574 $ 322,903,440 $ 36,031,943 $ 25,066,095 ============= ============= ============ ============ COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets .................................................. $ 60,295,360 $ 196,940,194 $ 23,589,455 $ 11,024,516 ============= ============= ============ ============ Shares of beneficial interest ............................... 6,242,939 18,189,780 2,165,091 1,109,268 ============= ============= ============ ============ Net asset value and redemption price per share .............. $ 9.66 $ 10.83 $ 10.90 $ 9.94 ============= ============= ============ ============ Offering price per share .................................... $ 10.25 $ 11.49 $ 11.56 $ 10.55 ============= ============= ============ ============ Class B shares:(redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets .................................................. $ 16,204,335 $ 88,682,289 $ 7,780,341 $ 12,028,274 ============= ============= ============ ============ Shares of beneficial interest ............................... 1,909,249 8,575,392 756,362 1,241,168 ============= ============= ============ ============ Net asset value and offering price per share ................ $ 8.49 $ 10.34 $ 10.29 $ 9.69 ============= ============= ============ ============ Class C shares:(redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets .................................................. $ 918,879 $ 9,645,792 $ 1,028,744 $ 1,036,340 ============= ============= ============ ============ Shares of beneficial interest ............................... 108,435 935,152 100,222 106,930 ============= ============= ============ ============ Net asset value per share ................................... $ 8.47 $ 10.31 $ 10.26 $ 9.69 ============= ============= ============ ============ Offering price per share .................................... $ 8.56 $ 10.41 $ 10.37 $ 9.79 ============= ============= ============ ============ Class Y shares: Net assets .................................................. $ -- $ 27,635,165 $ 3,633,403 $ 976,965 ============= ============= ============ ============ Shares of beneficial interest ............................... -- 2,497,121 319,259 97,121 ============= ============= ============ ============ Net asset value, offering and redemption price per share .... $ -- $ 11.07 $ 11.38 $ 10.06 ============= ============= ============ ============
25 See accompanying notes to financial statements.
Select Targeted Equity Fund Fund - ------------ --------------- $282,273,576 $ 673,823,688 23,663,759 144,922,370 - ------------ ------------- 305,937,335 818,746,058 919,641 155,974 -- 7,405,664 260,535 656,734 -- -- -- -- 14,775 4,054 - ------------ ------------- 307,132,286 826,968,484 - ------------ ------------- 29,708,515 107,614,296 -- -- 1,097,277 6,048,834 338,308 1,718,393 5 -- 512,798 416,624 13,741 305,865 130,098 336,301 18,126 45,292 76,609 73,472 - ------------ ------------- 31,895,477 116,559,077 - ------------ ------------- $275,236,809 $ 710,409,407 ============ ============= $283,345,030 $ 984,373,914 (1,148,774) (2,791,267) (30,623,206) (416,095,610) 23,663,759 144,922,370 - ------------ ------------- $275,236,809 $ 710,409,407 ============ ============= $ 79,127,750 $ 651,687,251 ============ ============= 7,651,001 98,215,799 ============ ============= $ 10.34 $ 6.64 ============ ============= $ 10.97 $ 7.05 ============ ============= $ 95,842,229 $ 49,912,084 ============ ============= 9,428,224 $ 7,961,088 ============ ============= $ 10.17 $ 6.27 ============ ============= $100,266,830 $ 2,419,170 ============ ============= 9,861,564 386,105 ============ ============= $ 10.17 $ 6.27 ============ ============= $ 10.27 $ 6.33 ============ ============= $ -- $ 6,390,902 ============ ============= -- 949,307 ============ ============= $ -- $ 6.73 ============ =============
26 Statements of Operations For the Six Months Ended June 30, 2003 (unaudited)
Capital Growth Growth and International Large Cap Fund Income Fund Equity Fund Growth Fund -------------- ------------ ------------- ----------- INVESTMENT INCOME Dividends ........................................................ $ 368,856 $ 1,464,116 $ 707,273 $ 115,746 Interest ......................................................... 1,845 35,832 3,576 1,110 Securities lending income ........................................ 1,366 -- 4,354 219 Less net foreign taxes withheld .................................. -- (10,329) (83,360) -- ----------- ------------ ----------- ----------- 372,067 1,489,619 631,843 117,075 ----------- ------------ ----------- ----------- Expenses Management fees ............................................... 277,716 749,205 156,799 108,397 Service fees - Class A ........................................ 71,878 161,260 28,080 13,468 Service and distribution fees - Class B ....................... 78,492 341,858 39,697 57,259 Service and distribution fees - Class C ....................... 4,283 34,500 5,505 5,086 Trustees' fees and expenses ................................... 8,158 22,545 6,060 5,980 Accounting and administrative ................................. 30,325 87,904 14,224 9,816 Custodian ..................................................... 22,568 27,467 58,770 24,896 Transfer agent fees - Class A, Class B, Class C ............... 249,963 570,598 116,085 104,072 Transfer agent fees - Class Y ................................. -- 5,500 1,670 422 Audit and tax services ........................................ 16,168 16,270 23,652 13,315 Legal ......................................................... 4,163 12,896 1,994 1,427 Shareholder reporting ......................................... 17,504 41,473 13,742 13,814 Registration .................................................. 14,817 29,942 21,071 20,970 Miscellaneous ................................................. 8,092 12,707 5,439 6,197 ----------- ------------ ----------- ----------- Total expenses before reductions ................................. 804,127 2,114,125 492,788 385,119 ----------- ------------ ----------- ----------- Less reimbursement/waiver ..................................... -- (61,423) -- (170,785) Less reductions ............................................... (11,466) (26,603) (5,553) (9,140) ----------- ------------ ----------- ----------- Net expenses ..................................................... 792,661 2,026,099 487,235 205,194 ----------- ------------ ----------- ----------- Net investment income (loss) ..................................... (420,594) (536,480) 144,608 (88,119) ----------- ------------ ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Realized gain (loss) on investments - net ..................... 210,920 (11,529,100) (966,639) (1,957,122) Foreign currency transactions - net ........................... -- -- (168,768) -- Change in unrealized appreciation (depreciation) on: Investments - net ............................................. 9,017,909 42,623,740 4,065,604 4,739,797 Foreign currency transactions - net ........................... -- -- 2,112 -- ----------- ------------ ----------- ----------- Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................. 9,228,829 31,094,640 2,932,309 2,782,675 ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ........................................... $ 8,808,235 $ 30,558,160 $ 3,076,917 $ 2,694,556 =========== ============ =========== ===========
27 See accompanying notes to financial statements.
Select Targeted Equity Fund Fund - ------------ --------------- $ 1,513,738 $ 2,704,106 52,385 9,873 4,850 16,015 -- (21,352) - ------------ ------------ 1,570,973 2,708,642 - ------------ ------------ 1,218,219 2,305,817 86,813 753,315 430,048 227,984 440,918 10,729 18,792 70,972 100,255 267,299 21,721 59,611 560,760 1,698,609 -- 2,841 15,992 18,028 13,653 35,621 64,241 76,417 22,836 28,235 17,765 25,916 - ------------ ------------ 3,012,013 5,581,394 - ------------ ------------ (287,310) -- (13,930) (319,999) - ------------ ------------ 2,710,773 5,261,395 - ------------ ------------ (1,139,800) (2,552,753) - ------------ ------------ (14,627,300) 18,386,160 -- -- 43,730,903 101,106,375 -- -- - ------------ ------------ 29,103,603 119,492,535 - ------------ ------------ $ 27,963,803 $116,939,782 ============ ============
28 Statements of Changes in Net Assets
Capital Growth Fund Growth and Income Fund -------------------------- ---------------------------- Six Months Six Months Ended Ended June 30, Year Ended June 30, Year Ended 2003 December 31, 2003 December 31, (unaudited) 2002 (unaudited) 2002 ----------- ------------ ------------ ------------- FROM OPERATIONS: Net investment income (loss) ...................................... $ (420,594) $ (1,058,415) $ (536,480) $ (503,999) Net realized gain (loss) on investments and foreign currency transactions .................................. 210,920 (24,033,239) (11,529,100) (23,052,758) Net change in unrealized appreciation (depreciation) on investments ................................................. 9,017,909 (9,195,048) 42,623,740 (40,836,656) ----------- ------------ ------------ ------------- Increase (decrease) in net assets resulting from operations ....... 8,808,235 (34,286,702) 30,558,160 (64,393,413) ----------- ------------ ------------ ------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: .................................. -- -- -- -- ----------- ------------ ------------ ------------- INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS ........................... (7,233,344) (25,435,438) 73,149,535 (70,380,717) ----------- ------------ ------------ ------------- Total increase (decrease) in net assets ........................... 1,574,891 (59,722,140) 103,707,695 (134,774,130) NET ASSETS Beginning of period ............................................... 75,843,683 135,565,823 219,195,745 353,969,875 ----------- ------------ ------------ ------------- End of period ..................................................... $77,418,574 $ 75,843,683 $322,903,440 $ 219,195,745 =========== ============ ============ ============= UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) ......... $ (462,621) $ (42,027) $ (591,141) $ (54,661) =========== ============ ============ =============
29 See accompanying notes to financial statements.
International Equity Large Cap Growth Select Targeted Equity Fund Fund Fund Fund - -------------------------- -------------------------- --------------------------- ----------------------------- Six Months Six Months Six Months Six Months Ended Ended Ended Ended June 30, Year Ended June 30, Year Ended June 30, Year Ended June 30, Year Ended 2003 December 31, 2003 December 31, 2003 December 31, 2003 December 31, (unaudited) 2002 (unaudited) 2002 (unaudited) 2002 (unaudited) 2002 - ----------- ------------ ----------- ------------ ------------ ------------ ------------ -------------- $ 144,608 $ (394,794) $ (88,119) $ (274,025) $ (1,139,800) $ (1,930,970) $ (2,552,753) $ (8,332,759) (1,135,407) (9,991,358) (1,957,122) (11,968,632) (14,627,300) (14,515,826) 18,386,160 (243,684,297) 4,067,716 (139,087) 4,739,797 (5,830,835) 43,730,903 (26,008,735) 101,106,375 (31,792,914) - ----------- ------------ ----------- ------------ ------------ ------------ ------------ -------------- 3,076,917 (10,525,239) 2,694,556 (18,073,492) 27,963,803 (42,455,531) 116,939,782 (283,809,970) - ----------- ------------ ----------- ------------ ------------ ------------ ------------ -------------- -- -- -- -- -- -- -- -- - ----------- ------------ ----------- ------------ ------------ ------------ ------------ -------------- (2,752,748) (14,520,711) (2,676,100) (13,041,498) 6,549,564 140,115,357 (62,861,139) (163,710,155) - ----------- ------------ ----------- ------------ ------------ ------------ ------------ -------------- 324,169 (25,045,950) 18,456 (31,114,990) 34,513,367 97,659,826 54,078,643 (447,520,125) 35,707,774 60,753,724 25,047,639 56,162,629 240,723,442 143,063,616 656,330,764 1,103,850,889 - ----------- ------------ ----------- ------------ ------------ ------------ ------------ -------------- $36,031,943 $ 35,707,774 $25,066,095 $ 25,047,639 $275,236,809 $240,723,442 $710,409,407 $ 656,330,764 =========== ============ =========== ============ ============ ============ ============ ============== $ 69,314 $ (75,294) $ (90,200) $ (2,081) $ (1,148,774) $ (8,974) $ (2,791,267) $ (238,514) =========== ============ =========== ============ ============ ============ ============ ==============
30 Financial Highlights For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: ----------------------------------------------------- ------------------------------------------------------ Net asset value, Net Net realized Dividends Distributions beginning investment and unrealized Total from from net from net of income gain (loss) on investment investment realized Return of Total the period (loss) investments operations income capital gains capital distributions ---------- ---------- -------------- ---------- ---------- ------------- --------- ------------- Capital Growth Fund Class A 6/30/2003(e) $ 8.58 $(0.04)(d) $ 1.12 $ 1.08 $ -- $ -- $-- $ -- 12/31/2002 11.93 (0.09)(d) (3.26) (3.35) -- -- -- -- 12/31/2001 15.04 (0.13)(d) (2.95) (3.08) -- (0.03) -- (0.03) 12/31/2000 22.86 (0.18)(d) (4.14) (4.32) -- (3.50) -- (3.50) 12/31/1999 20.67 (0.13)(d) 5.05 4.92 -- (2.73) -- (2.73) 12/31/1998 19.95 (0.13)(d) 5.18 5.05 -- (4.33) -- (4.33) Class B 06/30/03(e) 7.56 (0.07)(d) 1.00 0.93 -- -- -- -- 12/31/2002 10.61 (0.15)(d) (2.90) (3.05) -- -- -- -- 12/31/2001 13.47 (0.20)(d) (2.63) (2.83) -- (0.03) -- (0.03) 12/31/2000 21.06 (0.32)(d) (3.77) (4.09) -- (3.50) -- (3.50) 12/31/1999 19.37 (0.27)(d) 4.69 4.42 -- (2.73) -- (2.73) 12/31/1998 19.10 (0.27)(d) 4.87 4.60 -- (4.33) -- (4.33) Class C 06/30/03(e) 7.56 (0.06)(d) 0.97 0.91 -- -- -- -- 12/31/2002 10.60 (0.14)(d) (2.90) (3.04) -- -- -- -- 12/31/2001 13.47 (0.20)(d) (2.64) (2.84) -- (0.03) -- (0.03) 12/31/2000 21.06 (0.32)(d) (3.77) (4.09) -- (3.50) -- (3.50) 12/31/1999 19.37 (0.27)(d) 4.69 4.42 -- (2.73) -- (2.73) 12/31/1998 19.11 (0.27)(d) 4.86 4.59 -- (4.33) -- (4.33) Growth and Income Fund Class A 06/30/03(e) $ 9.42 $(0.01)(d) $ 1.42 $ 1.41 $ -- $ -- $-- $ -- 12/30/2002 11.78 0.01(d) (2.37) (2.36) -- -- -- -- 12/31/2001 13.79 (0.01)(d) (2.00) (2.01) -- -- -- -- 12/31/2000 15.33 0.01(d) (1.09) (1.08) -- (0.46) -- (0.46) 12/31/1999 16.57 0.08 1.40 1.48 (0.06) (2.66) -- (2.72) 12/31/1998 15.35 0.04 3.29 3.33 (0.01) (2.10) -- (2.11) Class B 06/30/03(e) 9.02 (0.05)(d) 1.37 1.32 -- -- -- -- 12/31/2002 11.37 (0.07)(d) (2.28) (2.35) -- -- -- -- 12/31/2001 13.40 (0.10)(d) (1.93) (2.03) -- -- -- -- 12/31/2000 15.03 (0.10)(d) (1.07) (1.17) -- (0.46) -- (0.46) 12/31/1999 16.37 (0.04) 1.36 1.32 -- (2.66) -- (2.66) 12/31/1998 15.28 (0.05) 3.24 3.19 -- (2.10) -- (2.10) Class C 06/30/03(e) 9.01 (0.05)(d) 1.35 1.30 -- -- -- -- 12/31/2002 11.36 (0.07)(d) (2.28) (2.35) -- -- -- -- 12/31/2001 13.38 (0.10)(d) (1.92) (2.02) -- -- -- -- 12/31/2000 15.01 (0.10)(d) (1.07) (1.17) -- (0.46) -- (0.46) 12/31/1999 16.35 (0.04) 1.36 1.32 -- (2.66) -- (2.66) 12/31/1998 15.28 (0.04) 3.21 3.17 -- (2.10) -- (2.10) Class Y 06/30/03(e) 9.59 0.02(d) 1.46 1.48 -- -- -- -- 12/31/2002 11.93 0.07(d) (2.41) (2.34) -- -- -- -- 12/31/2001 13.87 0.06(d) (2.00) (1.94) -- -- -- -- 12/31/2000 15.36 0.07(d) (1.10) (1.03) -- (0.46) -- (0.46) 12/31/1999 16.57 0.02 1.51 1.53 (0.08) (2.66) -- (2.74) 12/31/1998(f) 15.42 0.02 1.22 1.24 (0.02) (0.07) -- (0.09)
(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) Certain Funds have entered into agreements with certain brokers to rebate a portion of brokerage commissions. The rebated commissions are used to reduce operating expenses of the Fund. (d) Per share net investment income (loss) has been calculated using the average shares outstanding during the period. 31 See accompanying notes to financial statements.
Ratios to average net assets: --------------------------------------- Net asset Net assets, Expenses value, Total end of after expense Net investment Portfolio end of return the period Expenses reductions income (loss) turnover the period (%)(a) (000) (%)(b) (%)(b)(c) (%)(b) rate (%) - ---------- -------- ----------- -------- ------------- -------------- --------- $ 9.66 12.6 $ 60,295 2.00 1.97 (0.98) 32 8.58 (28.1) 58,729 1.75 1.71 (0.84) 103 11.93 (20.5) 98,412 1.62 1.58 (0.99) 90 15.04 (19.5) 143,425 1.40 1.37 (0.80) 118 22.86 24.7 200,821 1.39 1.39 (0.61) 124 20.67 29.0 175,511 1.46 1.46 (0.62) 136 8.49 12.3 16,204 2.75 2.72 (1.69) 32 7.56 (28.8) 16,267 2.50 2.46 (1.59) 103 10.61 (21.0) 35,409 2.37 2.33 (1.74) 90 13.47 (20.1) 56,884 2.15 2.12 (1.55) 118 21.06 23.8 74,774 2.14 2.14 (1.36) 124 19.37 28.2 57,796 2.21 2.21 (1.37) 136 8.47 12.0 919 2.75 2.72 (1.66) 32 7.56 (28.7) 847 2.50 2.46 (1.59) 103 10.60 (21.1) 1,745 2.37 2.33 (1.74) 90 13.47 (20.1) 2,487 2.15 2.12 (1.55) 118 21.06 23.8 3,110 2.14 2.14 (1.36) 124 19.37 28.1 1,609 2.21 2.21 (1.37) 136 $10.83 15.0 $196,940 1.68 1.65 (0.27) 15 9.42 (20.0) 130,751 1.56 1.54 0.07 195 11.78 (14.6) 211,138 1.46 1.41 (0.05) 154 13.79 (7.3) 290,714 1.31 1.28 0.04 139 15.33 9.5 375,676 1.21 1.21 0.48 133 16.57 23.9 304,139 1.23 1.23 0.33 114 10.34 14.6 88,682 2.43 2.40 (1.02) 15 9.02 (20.7) 71,436 2.31 2.29 (0.68) 195 11.37 (15.1) 120,361 2.21 2.16 (0.80) 154 13.40 (8.1) 165,767 2.06 2.03 (0.71) 139 15.03 8.6 216,457 1.96 1.96 (0.27) 133 16.37 23.1 153,369 1.98 1.98 (0.42) 114 10.31 14.4 9,646 2.43 2.40 (1.02) 15 9.01 (20.7) 6,440 2.31 2.29 (0.68) 195 11.36 (15.1) 10,553 2.21 2.16 (0.80) 154 13.38 (8.1) 19,373 2.06 2.03 (0.71) 139 15.01 8.6 26,983 1.96 1.96 (0.27) 133 16.35 22.9 18,288 1.98 1.98 (0.42) 114 11.07 15.4 27,635 1.03 1.00 0.36 15 9.59 (19.6) 10,569 0.96 0.94 0.66 195 11.93 (14.0) 11,918 0.91 0.87 0.52 154 13.87 (7.0) 10,131 0.87 0.84 0.48 139 15.36 9.8 14,377 0.96 0.96 (0.73) 133 16.57 8.1 1 0.98 0.98 0.58 114
(e) For the period ended June 30, 2003 (unaudited). (f) For the period November 18, 1998 (inception) through December 31, 1998. 32 Financial Highlights For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: ----------------------------------------------------- ------------------------------------------------------ Net asset value, Net Net realized Dividends Distributions beginning investment and unrealized Total from from net from net of income gain (loss) on investment investment realized Return of Total the period (loss)(d) investments operations income capital gains capital distributions ---------- ---------- -------------- ---------- ---------- ------------- --------- ------------- International Equity Fund Class A 6/30/2003(l) $10.04 $ 0.05 $ 0.81 $ 0.86 $ -- $ -- $-- $ -- 12/31/2002 12.72 (0.08) (2.60) (2.68) -- -- -- -- 12/31/2001 16.62 (0.10) (3.80) (3.90) -- -- -- -- 12/31/2000 25.39 (0.22) (6.90) (7.12) (0.17) (1.48) -- (1.65) 12/31/1999 14.26 (0.03) 12.31 12.28 (0.02) (1.13) -- (1.15) 12/31/1998 14.06 0.15 0.77 0.92 (0.44) (0.28) -- (0.72) Class B 6/30/2003(l) 9.51 0.01 0.77 0.78 -- -- -- -- 12/31/2002 12.14 (0.16) (2.47) (2.63) -- -- -- -- 12/31/2001 15.99 (0.20) (3.65) (3.85) -- -- -- -- 12/31/2000 24.71 (0.37) (6.70) (7.07) (0.17) (1.48) -- (1.65) 12/31/1999 13.98 (0.15) 12.01 11.86 -- (1.13) -- (1.13) 12/31/1998 13.71 0.04 0.75 0.79 (0.24) (0.28) -- (0.52) Class C 6/30/2003(l) 9.49 0.01 0.76 0.77 -- -- -- -- 12/31/2002 12.18 (0.16) (2.53) (2.69) -- -- -- -- 12/31/2001 16.05 (0.20) (3.67) (3.87) -- -- -- -- 12/31/2000 24.78 (0.34) (6.74) (7.08) (0.17) (1.48) -- (1.65) 12/31/1999 14.02 (0.15) 12.04 11.89 -- (1.13) -- (1.13) 12/31/1998 13.74 0.05 0.75 0.80 (0.24) (0.28) -- (0.52) Class Y 6/30/2003(l) 10.43 0.10 0.85 0.95 -- -- -- -- 12/31/2002 13.11 0.01 (2.69) (2.68) -- -- -- -- 12/31/2001 17.02 (0.02) (3.89) (3.91) -- -- -- -- 12/31/2000 25.81 (0.10) (7.04) (7.14) (0.17) (1.48) -- (1.65) 12/31/1999 14.45 0.02 12.54 12.56 (0.07) (1.13) -- (1.20) 12/31/1998 14.35 0.25 0.77 1.02 (0.64) (0.28) -- (0.92) Large Cap Growth Fund* Class A 6/30/2003(l) $ 8.87 $(0.02) $ 1.09 $ 1.07 $ -- $ -- $-- $ -- 12/31/2002 13.84 (0.04) (4.93) (4.97) -- -- -- -- 12/31/2001(k) 12.39 (0.02) 1.47 1.45 -- -- -- -- 9/30/2001 21.67 (0.05) (7.87) (7.92) -- (1.36) -- (1.36) 9/30/2000 15.41 (0.13) 6.39 6.26 -- -- -- -- 9/30/1999 10.32 (0.08) 5.17(h) 5.09 0.00(g) -- -- 0.00(g) 9/30/1998(i) 10.00 0.00(g) 0.32 0.32 -- -- -- -- Class B 6/30/2003(l) 8.68 (0.05) 1.06 1.01 -- -- -- -- 12/31/2002 13.62 (0.12) (4.82) (4.94) -- -- -- -- 12/31/2001(k) 12.22 (0.04) 1.44 1.40 -- -- -- -- 9/30/2001 21.53 (0.17) (7.78) (7.95) -- (1.36) -- (1.36) 9/30/2000(j) 16.21 (0.26) 5.58 5.32 -- -- -- --
* The financial information for the periods through November 16, 2001 reflects the financial information for Kobrick Growth Fund's Class A shares and Class B shares which were reorganized into Class A shares and Class B shares of Large Cap Growth Fund, respectively, as of November 16, 2001. The predecessor Fund was advised by Kobrick Funds LLC until July 1, 2001 and had a September 30 fiscal year end. (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) Certain Funds have entered into agreements with certain brokers to rebate a portion of brokerage commissions. The rebated commissions are used to reduce operating expenses of the Fund. (d) Per share net investment income (loss) has been calculated using the average shares outstanding during the period. (e) Had certain expenses not been reduced during the period, total returns would have been lower. (f) 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. (g) Amount rounds to less than $0.01 per share. (h) The amount shown for a share outstanding does not correspond with the aggregate net gain/(loss) for the period ended December 31, 1998, due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market values of the investments of the Fund. (i) For the period September 1, 1998 (inception) through December 31, 1998. 33 See accompanying notes to financial statements.
Ratios to average net assets: ----------------------------------------- Net asset Net assets, Expenses value, Total end of after expense Net investment Portfolio end of return the period Expenses reductions income (loss) turnover the period (%) (a) (000) (%)(b) (%) (b)(c) (%) (b) rate (%) - ---------- ------- ----------- -------- ------------- -------------- --------- $10.90 8.6 $ 23,589 2.72 2.69 0.95 84 10.04 (21.1) 22,232 2.34 2.32 (0.67) 125 12.72 (23.5) 33,773 2.14 2.14 (0.74) 172 16.62 (28.6) 54,826 1.96 1.96 (1.01) 212 25.39 87.6(e) 67,197 2.00(f) 2.00(f) (0.15) 229 14.26 6.7(e) 47,444 1.91(f) 1.91(f) 1.04 105 10.29 8.2 7,780 3.47 3.44 0.16 84 9.51 (21.7) 8,950 3.09 3.07 (1.43) 125 12.14 (24.1) 17,549 2.89 2.89 (1.48) 172 15.99 (29.2) 29,013 2.71 2.71 (1.76) 212 24.71 86.3(e) 29,045 2.75(f) 2.75(f) (0.90) 229 13.98 5.8(e) 19,797 2.66(f) 2.66(f) 0.29 105 10.26 8.1 1,029 3.47 3.44 0.19 84 9.49 (22.1) 1,195 3.09 3.07 (1.43) 125 12.18 (24.1) 2,183 2.89 2.89 (1.50) 172 16.05 (29.1) 5,656 2.71 2.71 (1.76) 212 24.78 86.2(e) 1,267 2.75(f) 2.75(f) (0.90) 229 14.02 5.9(e) 860 2.66(f) 2.66(f) 0.29 105 11.38 9.1 3,633 1.83 1.80 1.85 84 10.43 (20.4) 3,330 1.60 1.58 0.07 125 13.11 (23.0) 7,249 1.49 1.49 (0.11) 172 17.02 (28.2) 11,940 1.39 1.39 (0.44) 212 25.81 88.6(e) 14,441 1.55(f) 1.55(f) 0.10 229 14.45 7.3(e) 5,552 1.31(f) 1.31(f) 1.64 105 $ 9.94 12.1(e) $ 11,025 1.40(f) 1.32(f) (0.35) 31 8.87 (35.9)(e) 11,340 1.40(f) 1.37(f) (0.37) 44 13.84 11.7(e) 27,873 1.40(f) 1.36(f) (0.56) 27 12.39 (38.5)(e) 27,668 1.40(f) 1.19(f) (0.27) 724 21.67 40.6(e) 103,087 1.40(f) 1.29(f) (0.62) 826 15.41 49.4(e) 46,827 1.40(f) 1.40(f) (0.55) 632 10.32 3.2(e) 1,054 1.40(f) 1.40(f) 0.32 11 9.69 11.6(e) 12,028 2.15(f) 2.08(f) (1.10) 31 8.68 (36.3)(e) 11,758 2.15(f) 2.12(f) (1.12) 44 13.62 11.5(e) 24,087 2.15(f) 2.11(f) (1.31) 27 12.22 (38.9)(e) 22,811 2.15(f) 1.98(f) (1.04) 724 21.53 32.8(e) 35,680 2.15(f) 1.99(f) (1.30) 826
(j) For the period October 29, 1999 (inception) through September 30, 2000. (k) For the three months ended December 31, 2001. (l) For the six months ended June 30, 2003 (unaudited). 34 Financial Highlights For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: ----------------------------------------- ------------------------------------------------------- Net asset value, Net Net realized Dividends Distributions beginning investment and unrealized Total from from net from net of income gain (loss) on investment investment realized Return of Total the period (loss) investments operations income capital gains capital distributions ---------- ---------- -------------- ---------- ----------- ------------- --------- ------------- Large Cap Growth Fund*(continued) Class C 6/30/2003(k) $ 8.68 $(0.05)(d) $ 1.06 $ 1.01 $ -- $ -- $ -- $ -- 12/31/2002 13.62 (0.12)(d) (4.82) (4.94) -- -- -- -- 12/31/2001(k) 12.22 (0.04)(d) 1.44 1.40 -- -- -- -- 9/30/2001 21.54 (0.17)(d) (7.79) (7.96) -- (1.36) -- (1.36) 9/30/2000(j) 16.21 (0.26)(d) 5.59 5.33 -- -- -- -- Class Y 6/30/2003(k) 8.97 (0.00)(d)(g) 1.09 1.09 -- -- -- -- 12/31/2002 13.93 (0.01)(d) (4.95) (4.96) -- -- -- -- 12/31/2001(k) 12.46 (0.01)(d) 1.48 1.47 -- -- -- -- 9/30/2001 21.73 (0.01)(d) (7.90) (7.91) -- (1.36) -- (1.36) 9/30/2000(j) 16.21 (0.06)(d) 5.58 5.52 -- -- -- -- Select Fund Class A 6/30/2003(k) $ 9.24 $(0.02)(d) $ 1.12 $ 1.10 $ -- $ -- $ -- $ -- 12/31/2002(j) 10.96 (0.03)(d) (1.69) (1.72) -- -- -- -- 12/31/2001 10.00 (0.01)(d) 0.97 0.96 -- -- -- -- Class B 6/30/2003(k) 9.12 (0.05)(d) 1.10 1.05 -- -- -- -- 12/31/2002(j) 10.90 (0.11)(d) (1.67) (1.78) -- -- -- -- 12/31/2001 10.00 (0.07)(d) 0.97 0.90 -- -- -- -- Class C 6/30/2003(k) 9.12 (0.05)(d) 1.10 1.05 -- -- -- -- 12/31/2002(j) 10.90 (0.11)(d) (1.67) (1.78) -- -- -- -- 12/31/2001 10.00 (0.07)(d) 0.97 0.90 -- -- -- -- Targeted Equity Fund Class A 6/30/2003(k) $ 5.56 $(0.02)(d) $ 1.10 $ 1.08 $ -- $ -- $ -- $ -- 12/31/2002 7.81 (0.06)(d) (2.19) (2.25) -- -- -- -- 12/31/2001 9.36 (0.03)(d) (1.49) (1.52) (0.03) -- -- (0.03) 12/31/2000 11.00 0.09(d) (0.60) (0.51) (0.06) (1.07) -- (1.13) 12/31/1999 11.36 0.02 1.57 1.59 -- (1.95) -- (1.95) 12/31/1998 10.41 0.08(d) 3.00 3.08 (0.10) (1.67) (0.36) (2.13) Class B 6/30/2003(k) 5.28 (0.04)(d) 1.03 0.99 -- -- -- -- 12/31/2002 7.47 (0.11)(d) (2.08) (2.19) -- -- -- -- 12/31/2001 9.02 (0.09)(d) (1.43) (1.52) (0.03) -- -- (0.03) 12/31/2000 10.67 0.01(d) (0.58) (0.57) (0.01) (1.07) -- (1.08) 12/31/1999 11.15 (0.05) 1.52 1.47 -- (1.95) -- (1.95) 12/31/1998 10.32 0.00(d)(g) 2.95 2.95 (0.06) (1.67) (0.39) (2.12)
* The financial information for the periods through November 16, 2001 reflects the financial information for Kobrick Growth Fund's Class C shares and Class Y shares which were reorganized into Class C shares and Class Y shares of Large Cap Growth Fund, respectively, as of November 16, 2001. The predecessor Fund was advised by Kobrick Funds LLC until July 1, 2001 and had a September 30 fiscal year end. (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) Certain Funds have entered into agreements with certain brokers to rebate a portion of brokerage commissions. The rebated commissions are used to reduce operating expenses of the Fund. (d) Per share net investment income (loss) has been calculated using the average shares outstanding during the period. (e) Had certain expenses not been reduced during the period total return would have been lower. (f) 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. (g) Amount rounds to less than $0.01 per share. (h) For the six months ended June 30, 2003 (unaudited). 35 See accompanying notes to financial statements.
Ratios to average net assets: ------------------------------------------ Net asset Net assets, Expenses value, Total end of after expense Net investment Portfolio end of return the period Expenses reductions income (loss) turnover the period (%) (a) (000) (%) (b) (%) (b)(c) (%) (b) rate (%) - ---------- --------- ----------- --------- ------------- -------------- --------- $ 9.69 11.6 (e) $ 1,036 2.15(f) 2.07(f) (1.10) 31 8.68 (36.3)(e) 1,157 2.15(f) 2.12(f) (1.12) 44 13.62 11.5(e) 3,007 2.15(f) 2.11(f) (1.33) 27 12.22 (38.9)(e) 3,419 2.15(f) 1.98(f) (1.04) 724 21.54 32.9(e) 6,546 2.15(f) 2.01(f) (1.32) 826 10.06 12.2 (e) 977 1.15(f) 1.08(f) (0.10) 31 8.97 (35.6)(e) 792 1.15(f) 1.12(f) (0.12) 44 13.93 11.8(e) 1,196 1.15(f) 1.11(f) (0.32) 27 12.46 (38.3)(e) 1,251 1.15(f) 0.98(f) (0.06) 724 21.73 34.1(e) 1,746 1.15(f) 0.95(f) (0.28) 826 $ 10.34 11.9 (e) $ 79,128 1.70(f) 1.69(f) (0.40) 16 9.24 (15.7)(e) 68,660 1.70(f) 1.69(f) (0.35) 12 10.96 9.6 (e) 45,987 1.70(f) 1.63(f) (0.08) 10 10.17 11.5 (e) 95,842 2.45(f) 2.44(f) (1.15) 16 9.12 (16.3)(e) 85,794 2.45(f) 2.44(f) (1.10) 12 10.90 9.0 (e) 62,671 2.45(f) 2.39(f) (0.83) 10 10.17 11.5 (e) 100,267 2.45(f) 2.44(f) (1.15) 16 9.12 (16.3)(e) 86,269 2.45(f) 2.44(f) (1.10) 12 10.90 9.0 (e) 34,406 2.45(f) 2.39(f) (0.86) 10 $ 6.64 19.4 $ 651,687 1.65 1.56 (0.73) 135 5.56 (28.8) 602,989 1.47 1.39 (0.86) 223 7.81 (16.2) 1,012,161 1.38 1.35 (0.39) 243 9.36 (4.6) 1,413,685 1.18 1.16 0.83 266 11.00 15.2 1,871,138 1.12 1.12 0.23 206 11.36 33.4 1,825,107 1.12 1.12 0.74 202 6.27 18.8 49,912 2.40 2.31 (1.48) 135 5.28 (29.3) 45,633 2.23 2.15 (1.62) 223 7.47 (16.8) 78,744 2.13 2.10 (1.14) 243 9.02 (5.2) 107,594 1.93 1.91 0.08 266 10.67 14.4 135,786 1.87 1.87 (0.52) 206 11.15 32.4 75,444 1.87 1.87 (0.01) 202
36 Financial Highlights For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: Net asset ----------------------------------------- ------------------------------------------------------- value, Net Net realized Dividends Distributions beginning investment and unrealized Total from from net from net of income gain (loss) on investment investment realized Return of Total the period (loss) investments operations income capital gains capital distributions ---------- ----------- -------------- ---------- ----------- ------------- --------- ------------- Targeted Equity Fund (Continued) Class C 6/30/2003(h) $ 5.27 $(0.04)(d) $ 1.04 $ 1.00 $ -- $ -- $ -- $ -- 12/31/2002 7.47 (0.11)(d) (2.09) (2.20) -- -- -- -- 12/31/2001 9.02 (0.09)(d) (1.43) (1.52) (0.03) -- -- (0.03) 12/31/2000 10.67 0.01(d) (0.58) (0.57) (0.01) (1.07) -- (1.08) 12/31/1999 11.15 (0.05) 1.52 1.47 -- (1.95) -- (1.95) 12/31/1998(f) 11.18 0.00(d)(e) 2.09 2.09 (0.06) (1.67) (0.39) (2.12) Class Y 6/30/2003(h) 5.63 (0.00)(d)(e) 1.10 1.10 -- -- -- -- 12/31/2002 7.85 (0.02)(d) (2.20) (2.22) -- -- -- -- 12/31/2001 9.37 0.01(d) (1.50) (1.49) (0.03) -- -- (0.03) 12/31/2000 11.01 0.12(d) (0.60) (0.48) (0.09) (1.07) -- (1.16) 12/31/1999(g) 11.94 0.03 0.99 1.02 -- (1.95) -- (1.95)
(a) A sales charge and a contingent deferred sales charge for 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 Fund has entered into agreements with certain brokers to rebate a portion of brokerage commissions. The rebated commissions are used to reduce operating expenses of the Fund. (d) Per share net investment income (loss) has been calculated using the average shares outstanding during the period. (e) Amount rounds to less than $0.01 per share. (f) For the period September 1, 1998 (inception) through December 31, 1998. (g) For the period June 30, 1999 (inception) through December 31, 1999. (h) For the six months ended June 30, 2003 (unaudited). 37 See accompanying notes to financial statements.
Ratios to average net assets: ------------------------------------------- Net asset Net assets, Expenses value, Total end of after expense Net investment Portfolio end of return the period Expenses reductions income (loss) turnover the period (%) (a) (000) (%) (b) (%) (b)(c) (%) (b) rate (%) - ---------- ---------- ----------- ---------- ------------- -------------- --------- $ 6.27 19.0 $ 2,419 2.40 2.31 (1.47) 135 5.27 (29.5) 2,187 2.23 2.15 (1.62) 223 7.47 (16.8) 4,162 2.13 2.10 (1.14) 243 9.02 (5.2) 5,830 1.93 1.91 0.08 266 10.67 14.4 8,754 1.87 1.87 (0.52) 206 11.15 22.2 2,030 1.87 1.87 (0.01) 202 6.73 19.5 6,391 0.98 0.88 (0.05) 135 5.63 (28.3) 5,522 0.92 0.84 (0.31) 223 7.85 (15.9) 8,785 0.87 0.83 0.13 243 9.37 (4.2) 12,260 0.85 0.83 1.16 266 11.01 9.7 15,418 0.87 0.87 0.48 206
38 NOTES TO FINANCIAL STATEMENTS 39 Notes To Financial Statements For the Six Months Ended June 30, 2003 (unaudited) 1. Organization. CDC Nvest Funds Trust I, CDC Nvest Funds Trust II and CDC Nvest Funds Trust III (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 equity 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 Capital Growth Fund (the "Capital Growth Fund") CDC Nvest International Equity Fund (the "International Equity Fund") CDC Nvest Large Cap Growth Fund (the "Large Cap Growth Fund") CDC Nvest Targeted Equity Fund (the "Targeted Equity Fund") CDC Nvest Funds Trust II: CDC Nvest Growth and Income Fund (the "Growth and Income Fund") CDC Nvest Funds Trust III: CDC Nvest Select Fund (the "Select Fund") Each Fund offers Class A, Class B, and Class C shares. Growth and Income Fund, International Equity Fund, Large Cap Growth Fund and Targeted Equity Fund also offer Class Y shares. Class A shares are sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a front end sales charge, but pay 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. Equity securities 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 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. Effective April 14, 2003, securities traded on the NASDAQ National Market are valued at the NASDAQ Official Closing Price ("NOCP"), or if lacking an NOCP, at the most recent bid quotation on the NASDAQ National Market. Debt securities (other than short-term obligations with a remaining maturity of less than sixty days) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees, which service determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term obligations with a remaining maturity of less than sixty days are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value as determined in good faith by the Fund's investment adviser and subadviser, under the supervision of the Fund's Trustees. b. Security Transactions and Related Investment Income. Security transactions are accounted for on trade date. Dividend income is recorded on ex-dividend date, or in the case of certain foreign securities, as soon as the Fund is notified. Interest income is recorded on an accrual basis. Interest income is increased by the accretion of discount and decreased by the amortization of premium. Investment income is recorded net of foreign taxes withheld when recovery of such taxes is uncertain. 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. 40 Notes To Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited) 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. Forward Foreign Currency Contracts. The International Equity Fund may use foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund's currency exposure. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge the Fund's investments against currency fluctuation. Also, a contract to buy or sell can offset a previous contract. These contracts involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. The U.S. dollar value of the currencies the Fund has committed to buy or sell (if any) is shown in the portfolio composition under the caption "Forward Currency Contracts Outstanding." These amounts represent the aggregate exposure to each currency the Fund has acquired or hedged through currency contracts outstanding at period end. All contracts are "marked-to-market" daily at the applicable exchange rates and any gains or losses are recorded for financial statement purposes as unrealized until settlement date. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. e. Federal and Foreign Income Taxes. The Trusts treat each Fund as a separate entity for federal income tax purposes. Each Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders substantially all of its net investment income and any net realized capital gains, at least annually. Accordingly, no provision for federal income tax has been made. A Fund may be subject to foreign taxes on income and gains on investments that are accrued based upon the Fund's understanding of the tax rules and regulations that exist in the countries in which the Fund invests. Foreign governments may also impose taxes or other payments on investments with respect to foreign securities, such taxes are accrued as applicable. f. Dividends and Distributions to Shareholders. Dividends and distributions are recorded on ex-dividend date. The timing and characterization of certain income and capital 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, net operating losses, non-deductible expenses, foreign currency transactions and gains realized from passive foreign investment companies. 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. g. Repurchase Agreements. Each Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is each Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price, including interest. Each Fund's subadviser (adviser for the Targeted Equity Fund) is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price, including interest. Repurchase agreements could involve certain risks in the event of default or insolvency of the counterparty including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. 3. Purchases and Sales of Securities. For the six months ended June 30, 2003, purchases and sales of securities (excluding U.S. Government/Agency securities and short-term investments) were as follows: Fund Purchases Sales - ------------------------- ------------ ------------ Capital Growth Fund $ 23,884,590 $ 31,801,721 Growth and Income Fund 31,643,651 44,356,467 International Equity Fund 27,545,769 30,194,293 Large Cap Growth Fund 7,447,849 9,736,378 Select Fund 36,659,181 38,478,550 Targeted Equity Fund 895,941,461 960,054,354 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 except the Targeted Equity Fund. Capital Growth Management Limited Partnership ("CGM") is the investment adviser to the Targeted Equity Fund. Under the terms of the management agreements, each Fund pays a management fee at the following annual rates, calculated daily and payable monthly, based on each Fund's average daily net assets: 41 Notes To Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited)
Percentage of Average Daily Net Assets -------------------------------------------------------------------- First Next Next Next Over Fund $200 million $300 million $500 million $1 billion $2 billion - ------------------------- ------------ ------------ ------------ ---------- ---------- Capital Growth Fund 0.750% 0.700% 0.650% 0.650% 0.650% Growth and Income Fund 0.700% 0.650% 0.600% 0.600% 0.600% International Equity Fund 0.900% 0.850% 0.800% 0.800% 0.800% Large Cap Growth Fund 0.900% 0.900% 0.900% 0.900% 0.900% Select Fund 1.000% 1.000% 1.000% 0.950% 0.950% Targeted Equity Fund 0.750% 0.700% 0.650% 0.650% 0.600%
For the six months ended June 30, 2003, the management fees and waivers for each Fund were as follows:
Percentage of Average Gross Waiver of Net Daily Net Assets* Management Management Management --------------------- Fund Fee Fee Fee Gross Net - ------------------------- ---------- ---------- ---------- ------ ------ Capital Growth Fund $ 277,716 -- $ 277,716 0.750% 0.750% Growth and Income Fund 749,205 -- 749,205 0.696% 0.696% International Equity Fund 156,799 -- 156,799 0.900% 0.900% Large Cap Growth Fund 108,397 66,291 42,106 0.900% 0.350% Select Fund 1,218,219 -- 1,218,219 1.000% 1.000% Targeted Equity Fund 2,305,817 -- 2,305,817 0.703% 0.703%
* Annualized CDC IXIS Advisers has entered into subadvisory agreements for each Fund listed below. Payments to CDC IXIS Advisers are reduced by payments to the subadvisers. Capital Growth Fund Westpeak Global Advisors, L.P. Growth and Income Fund Harris Associates L.P. International Equity Fund Loomis, Sayles & Company, L.P. Large Cap Growth Fund Vaughan, Nelson, Scarborough & McCullough, L.P. Select Fund Harris Associates L.P. CDC IXIS Advisers and each of the subadvisers are wholly-owned subsidiaries of CDC IXIS Asset Management North America, L.P. ("CDC IXIS North America"), CGM is a 50% owned subsidiary of CDC IXIS Asset Management North America, L.P. Certain officers and directors of CDC IXIS Advisers and Loomis Sayles are also officers or Trustees of the Funds. Broker commissions paid to affiliated broker/dealers by the Funds were as follows: Fund Commission - ----------- ---------- Select Fund $5,600 b. Accounting and Administrative Expense. CDC IXIS Asset Management Services, Inc. ("CIS"), a wholly owned subsidiary of CDC IXIS North America, performs certain accounting and administrative services for the Funds and has subcontracted with Investors Bank & Trust Company ("IBT"), to serve as subadministrator. Pursuant to an agreement among the Trusts, 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 ---------- ---------- ------------ 0.0600% 0.0500% 0.0450% or (2) Each Fund's pro rata portion, based on eligible assets, of the annual aggregate minimum fee of $3.4 million. For the six months ended June 30, 2003, fees paid to CIS for accounting and administrative expense were as follows: Accounting And Percentage of Average Fund Administrative Daily Net Assets* - ------------------------- -------------- --------------------- Capital Growth Fund $ 30,325 0.082% Growth and Income Fund 87,904 0.082% International Equity Fund 14,224 0.082% Large Cap Growth Fund $ 9,816 0.082% Select Fund 100,255 0.082% Targeted Equity Fund 267,299 0.081% *Annualized 42 Notes To Financial Statements (continued) For the Six Months Ended June 30, 2003 (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 subtransfer 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 equity funds offered within the CDC Nvest Family of Funds for which there are exchange privileges among the Funds. First Next Over $5 billion $5 billion $10.7 billion ---------- ---------- ------------- 0.184% 0.180% 0.175% 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 $9.8 million. In addition, pursuant to other servicing agreements, Classes A, B and C 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, 2003, amounts paid to CIS as compensation for its services as transfer agent were as follows: Fund Transfer Agent Fee - ------------------------- ------------------ Capital Growth Fund $ 170,865 Growth and Income Fund 436,998 International Equity Fund 69,054 Large Cap Growth Fund 52,445 Select Fund 353,044 Targeted Equity Fund 1,431,154 Effective July 1, 2003, the annual aggregate minimum fee changed to $8.1 million. 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 North America), 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. 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. For the six months ended June 30, 2003, the Funds paid the following service and distribution fees:
Service Fee Distribution Fee ------------------------------ ------------------- Fund Class A Class B Class C Class B Class C - ------------------------- -------- -------- -------- -------- -------- Capital Growth Fund $ 71,878 $ 19,623 $ 1,071 $ 58,869 $ 3,212 Growth and Income Fund 161,260 85,465 8,625 256,393 25,875 International Equity Fund 28,080 9,924 1,376 29,773 4,129 Large Cap Growth Fund 13,468 14,315 1,272 42,944 3,814 Select Fund 86,813 107,512 110,230 322,536 330,688 Targeted Equity Fund 753,315 56,996 2,682 170,988 8,047
43 Notes To Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited) Prior to September 13, 1993 for Capital Growth Fund and International Equity Fund and June 1, 1993 for Targeted Equity 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 at December 31, 2002 are as follows: Fund - ------------------------- Capital Growth Fund $ 563,284 International Equity Fund 514,256 Targeted Equity Fund 2,030,882 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, 2003 were as follows: Fund - ------------------------- Capital Growth Fund $ 56,019 Growth and Income Fund 211,389 International Equity Fund 41,038 Large Cap Growth Fund 32,968 Select Fund 422,448 Targeted Equity Fund 232,830 e. Trustees Fees and Expenses. Effective June 10, 2003, the Board of Trustees approved the unification of the CDC Nvest Funds Board of Trustees with the Loomis Sayles Funds I and Loomis Sayles Funds II Boards of Trustees. The result is a combined Board of Trustees comprised of CDC Nvest Funds Trustees and Loomis Sayles Trustees that will jointly govern CDC Nvest Funds Trusts I, II, III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust, CDC Nvest Tax Exempt Money Market Trust and AEW Real Estate Income Fund (the "CDC Nvest Funds") and Loomis Sayles Funds I and Loomis Sayles Funds II (the "Loomis Sayles Funds"). The Funds do not pay any compensation directly to their officers or Trustees who are directors, officers or employees of CDC IXIS Advisers, CDC IXIS Distributors, CDC IXIS North America, 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 Board and committee meeting, in excess of four meetings per year, at the rate of $4,500 and $1,750, respectively. These fees are allocated to the various CDC Nvest Funds and Loomis Sayles 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 or Loomis Sayles Funds on the normal payment date. Deferred amounts remain in the Funds until distributed in accordance with the Plan. f. Publishing Services. CIS performs certain desktop publishing services for the Funds. Fees for these services are presented in the statements of operations as shareholder reporting. For the six months ended June 30, 2003, amounts paid to CIS as compensation for these services were as follows: Publishing Fund Services Fee - ------------------------- ------------ Capital Growth Fund $554 Growth and Income Fund 554 International Equity Fund 554 Large Cap Growth Fund 591 Select Fund 554 Targeted Equity Fund 554 44 Notes To Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited) 5. Capital Shares. Each Fund may issue an unlimited number of shares of beneficial interest. Transactions in capital shares were as follows:
Capital Growth Fund -------------------------------------------------- Six Months Ended June 30, 2003 Year Ended (unaudited) December 31, 2002 ---------------------- ------------------------- Shares Amount Shares Amount -------- ----------- ---------- ------------ Class A: Shares sold .................................................... 181,266 $ 1,607,738 761,322 $ 8,210,459 Shares issued - merger ......................................... -- -- -- -- -------- ----------- ---------- ------------ 181,266 1,607,738 761,322 8,210,459 Shares repurchased ............................................. (786,114) (6,942,030) (2,161,141) (22,158,435) -------- ----------- ---------- ------------ Net increase (decrease) ........................................ (604,848) $(5,334,292) (1,399,819) $(13,947,976) -------- ----------- ---------- ------------ Class B: Shares sold .................................................... 121,089 $ 951,785 237,784 $ 2,165,602 Shares issued - merger ......................................... -- -- -- -- -------- ----------- ---------- ------------ 121,089 951,785 237,784 2,165,602 Shares repurchased ................................................ (362,535) (2,821,251) (1,425,706) (13,198,190) -------- ----------- ---------- ------------ Net increase (decrease) ........................................... (241,446) $(1,869,466) (1,187,922) $(11,032,588) -------- ----------- ---------- ------------ Class C: Shares sold .................................................... 14,497 $ 113,193 19,550 $ 183,007 Shares issued - merger ......................................... -- -- -- -- -------- ----------- ---------- ------------ 14,497 113,193 19,550 183,007 Shares repurchased ............................................. (18,182) (142,779) (72,021) (637,881) -------- ----------- ---------- ------------ Net increase (decrease) ........................................ (3,685) $ (29,586) (52,471) $ (454,874) -------- ----------- ---------- ------------ Class Y: Shares sold .................................................... -- $ -- -- $ -- Shares issued - merger ......................................... -- -- -- -- -------- ----------- ---------- ------------ -- -- -- -- Shares repurchased ............................................. -- -- -- -- -------- ----------- ---------- ------------ Net increase (decrease) ........................................ -- $ -- -- $ -- -------- ----------- ---------- ------------ Increase (decrease) derived from capital shares transactions ... (849,979) $(7,233,344) (2,640,212) $(25,435,438) ======== =========== ========== ============
45
Growth and Income Fund International Equity Fund - ----------------------------------------------------- ---------------------------------------------------- Six Months Ended Six Months Ended June 30, 2003 Year Ended June 30, 2003 Year Ended (unaudited) December 31, 2002 (unaudited) December 31, 2002 - ------------------------- ------------------------- ------------------------ ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 832,568 $ 8,513,025 945,632 $ 10,205,721 3,599,021 $35,877,234 2,754,333 $ 29,936,420 5,074,156 54,768,963 -- -- -- -- -- -- - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 5,906,724 63,281,988 945,632 10,205,721 3,599,021 35,877,234 2,754,333 29,936,420 (1,601,712) (15,602,263) (4,978,487) (52,521,283) (3,647,946) (36,652,973) (3,196,260) (35,287,699) - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 4,305,012 $ 47,679,725 (4,032,855) $(42,315,562) (48,925) $ (775,739) (441,927) $ (5,351,279) - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 428,335 $ 5,429,495 601,736 $ 6,071,959 28,085 $ 266,637 82,990 $ 907,560 1,412,967 14,552,145 -- -- -- -- -- -- - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 1,841,302 19,981,640 601,736 6,071,959 28,085 266,637 82,990 907,560 (1,187,109) (12,071,019) (3,266,561) (33,165,088) (213,003) (1,994,900) (587,425) (6,411,587) - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 654,193 $ 7,910,621 (2,664,825) $(27,093,129) (184,918) $(1,728,263) (504,435) $ (5,504,027) - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 210,243 $ 2,064,048 96,568 $ 935,777 2,664 $ 25,356 322,458 $ 3,276,144 101,458 1,043,494 -- -- -- -- -- -- - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 311,701 3,107,542 96,568 935,777 2,664 25,356 322,458 3,276,144 (91,527) (948,256) (310,868) (3,192,896) (28,323) (274,102) (375,769) (3,937,764) - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 220,174 $ 2,159,286 (214,300) $ (2,257,119) (25,659) $ (248,746) (53,311) $ (661,620) - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 30,713 $ 296,480 331,631 $ 3,818,587 -- $ -- 18,164 $ 231,399 1,419,921 15,668,839 -- -- -- -- -- -- - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 1,450,634 15,965,319 331,631 3,818,587 -- -- 18,164 231,399 (55,302) (565,416) (228,979) (2,533,494) -- -- (251,729) (3,235,184) - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 1,395,332 $ 15,399,903 102,652 $ 1,285,093 -- $ -- (233,565) $ (3,003,785) - ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 6,574,711 $ 73,149,535 (6,809,328) $(70,380,717) (259,502) $(2,752,748) (1,233,238) $(14,520,711) ========== ============ ========== ============ ========== =========== ========== ============
46 Notes To Financial Statements (continued) For the Six Months Ended June 30, 2003
Large Cap Growth Fund -------------------------------------------------- Six Months Ended June 30, 2003 Year Ended (unaudited) December 31, 2002 ---------------------- ------------------------- Shares Amount Shares Amount -------- ----------- ---------- ------------ Class A Shares sold .................................................... 76,708 $ 702,570 202,098 $ 2,343,505 Shares repurchased ............................................. (246,289) (2,243,053) (936,669) (10,274,458) -------- ----------- ---------- ------------ Net increase (decrease) ........................................ (169,581) $(1,540,483) (734,571) $ (7,930,953) -------- ----------- ---------- ------------ Class B Shares sold .................................................... 74,435 $ 669,241 131,877 $ 1,421,109 Shares repurchased ............................................. (187,969) (1,657,599) (545,262) (5,619,744) -------- ----------- ---------- ------------ Net increase (decrease) ........................................ (113,534) $ (988,358) (413,385) $ (4,198,635) -------- ----------- ---------- ------------ Class C Shares sold .................................................... 2,961 $ 26,527 16,263 $ 176,036 Shares repurchased ............................................. (29,307) (256,400) (103,754) (1,097,229) -------- ----------- ---------- ------------ Net increase (decrease) ........................................ (26,346) $ (229,873) (87,491) $ (921,193) -------- ----------- ---------- ------------ Class Y Shares sold .................................................... 20,846 $ 191,813 24,593 $ 275,632 Shares repurchased ............................................. (12,111) (109,199) (22,048) (266,349) -------- ----------- ---------- ------------ Net increase (decrease) ........................................ 8,735 $ 82,614 2,545 $ 9,283 -------- ----------- ---------- ------------ Increase (decrease) derived from capital shares transactions ... (300,726) $(2,676,100) (1,232,902) $(13,041,498) ======== =========== ========== ============
47
Select Fund Targeted Equity Fund - ----------------------------------------------------- -------------------------------------------------------- Six Months Ended Six Months Ended June 30, 2003 Year Ended June 30, 2003 Year Ended (unaudited) December 31, 2002 (unaudited) December 31, 2002 - ------------------------- ------------------------- -------------------------- --------------------------- Shares Amount Shares Amount Shares Amount Shares Amount - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- 1,238,200 $ 11,705,826 5,396,731 $ 55,604,458 1,655,112 $ 9,685,537 2,888,014 $ 20,668,849 (1,016,023) (9,400,378) (2,164,581) (21,141,953) (11,795,900) (68,541,790) (24,057,649) (169,752,395) - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- 222,177 $ 2,305,448 3,232,150 $ 34,462,505 (10,140,788) $(58,856,253) (21,169,635) $(149,083,546) - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- 994,127 $ 9,231,828 5,734,108 $ 59,212,895 405,821 $ 2,296,477 808,645 $ 5,457,636 (974,847) (8,845,029) (2,077,257) (19,685,531) (1,091,726) (5,992,811) (2,703,038) (18,188,643) - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- 19,280 $ 386,799 3,656,851 $ 39,527,364 (685,905) $ (3,696,334) (1,894,393) $ (12,731,007) - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- 1,490,460 $ 13,879,247 7,600,954 $ 78,413,530 26,505 $ 158,512 42,117 $ 286,122 (1,088,184) (10,021,930) (1,299,396) (12,288,042) (55,082) (293,390) (184,345) (1,163,741) - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- 402,276 $ 3,857,317 6,301,558 $ 66,125,488 (28,577) $ (134,878) (142,228) $ (877,619) - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- -- $ -- -- $ -- 46,822 $ 283,423 72,523 $ 518,150 -- -- -- -- (79,083) (457,097) (209,324) (1,536,133) - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- -- $ -- -- $ -- (32,261) $ (173,674) (136,801) $ (1,017,983) - ---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------- 643,733 $ 6,549,564 13,190,559 $140,115,357 (10,887,531) $(62,861,139) (23,343,057) $(163,710,155) ========== ============ ========== ============ =========== ============ =========== =============
48 6. Line of Credit. The Funds that comprise the CDC Nvest Funds Trusts participate in a $50,000,000 committed line of credit provided by IBT. 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, 2003. 7. Security Lending. Each Fund has entered into an agreement with IBT, 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, 2003, is as follows: Market Value of Value of Collateral Fund Securities on Loan Received - ---------------------- ------------------ ------------------- Capital Growth Fund $ 1,931,626 $ 2,020,700 Growth and Income Fund 20,758,176 21,658,725 International Equity 2,799,226 2,947,932 Large Cap Growth Fund 1,710,203 1,768,890 Select Fund 28,166,646 29,708,515 Targeted Equity Fund 105,092,606 107,614,296 8. Expense Reductions and Contingent Expense Obligations. Each Fund has entered into agreements with certain brokers whereby the brokers will rebate a portion of brokerage commissions. Amounts earned by the Funds under such agreements are presented as a reduction of expenses in the statements of operations. For the six months ended June 30, 2003, expenses were reduced under these agreements as follows: Fund Reductions - ------------------------- ---------- Capital Growth Fund $ 11,466 Growth and Income Fund 26,603 International Equity Fund 5,553 Large Cap Growth Fund 9,140 Select Fund 13,930 Targeted Equity Fund 319,999 CDC IXIS Advisers has given binding undertakings to certain Funds to defer its management fees and, if necessary, bear certain expenses associated with these Funds to limit their operating expenses. For the six months ended June 30, 2003, and in addition to the waiver of management fees as discussed in note 4, certain class level expenses have been reimbursed as follows: Growth and Income Fund $61,423; Large Cap Growth Fund $104,494; and Select Fund $287,310. These undertakings are in effect until the dates indicated below and will be reevaluated on an annual basis. The expense limitation for Growth and Income Fund began June 1, 2003. If in the following fiscal year the actual operating expenses of a Fund that previously received a deferral or reimbursement are less than the expense limit for that Fund, the Fund is required to pay an amount of additional expense that is the lower of the difference between the expense limit and the actual amount of fees previously waived or expenses reimbursed. At June 30, 2003, the expense limits as a percentage of average daily net assets and amounts subject to possible reimbursement under the expense limitation agreements were as follows:
Expense Limit as a Percentage of Average Daily Net Assets Expenses Subject ------------------------------------- Expiration to Possible Fund Class A Class B Class C Class Y of Waiver Reimbursement - ---------------------- ------- ------- ------- ------- -------------- ---------------- Growth and Income Fund 1.30% 2.05% 2.05% 1.05% April 30, 2004 $ 61,421 Large Cap Growth Fund 1.40% 2.15% 2.15% 1.15% April 30, 2004 586,369 Select Fund 1.70% 2.45% 2.45% --% April 30, 2004 495,448
49 9. Concentration of Risk. International Equity Fund had the following geographic concentrations in excess of 10% of its total net assets at June 30, 2003: United Kingdom 23.1% and Japan 16.8%. The Fund pursues its objectives by investing in foreign securities. There are certain risks involved in investing in foreign securities which are in addition to the usual risks inherent in domestic investments. These risks include those resulting from future adverse political or economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. Select Fund is a non-diversified Fund. Compared with diversified mutual funds, the Fund may invest a greater percentage of its assets in a particular company. Therefore, the Fund's returns could be significantly affected by the performance of any one of the small number of stocks in its portfolio. 10. Acquisition of Assets. After the close of business on June 27, 2003, Growth and Income Fund acquired all the assets and liabilities of CDC Nvest Balanced Fund ("Balanced Fund"), pursuant to a plan of reorganization approved by its shareholders on June 17, 2003. The acquisition was accomplished by a tax-free exchange of 5,074,156 Class A shares of Growth and Income Fund for 6,129,454 shares of Balanced Fund Class A, 1,412,967 Class B shares of Growth and Income Fund for 1,623,926 shares of Balanced Fund Class B, 101,458 Class C shares of Growth and Income Fund for 116,986 shares of Balanced Fund Class C and 1,419,921 Class Y shares of Growth and Income Fund for 1,771,498 shares of Balanced Fund Class Y. Balanced Fund net assets at that date $86,033,441, including $6,680,807 of net unrealized appreciation, were combined with those of the Fund. The aggregate net assets of the Fund immediately before the acquisition were $236,323,033. The combined net assets of the Fund immediately following the acquisition were $322,356,474. 50 Notes 51 Notes 52 Notes 53 [LOGO] CDC Nvest Funds(SM) CDC IXIS Asset Management Distributors [GRAPHIC] Income Funds Semiannual Report June 30, 2003 CDC Nvest Bond Income Fund Loomis, Sayles & Company CDC Nvest Government Securities Fund Loomis, Sayles & Company CDC Nvest High Income Fund Loomis, Sayles & Company CDC Nvest Limited Term U.S. Government Fund Loomis, Sayles & Company CDC Nvest Strategic Income Fund Loomis, Sayles & Company TABLE OF CONTENTS Management Discussion and Performance .................................. Page 1 Risks of the CDC Nvest Income Funds .................................... Page 11 Schedule of Investments ................................................ Page 12 Financial Statements ................................................... Page 27 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 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, 2003) Class A $11.71 Class B 11.70 Class C 11.71 Class Y 11.76 Management Discussion - -------------------------------------------------------------------------------- Extremely low yields on the highest-quality short-term investments and a slight improvement in the U.S. economy encouraged investors to seek higher yields. This created a positive environment for corporate bonds and CDC Nvest Bond Income Fund for the first half of 2003. For the six months ended June 30, 2003, the total return on the fund's Class A shares at net asset value was 6.07%, including $0.25 per share in reinvested dividends. The fund's benchmark, Lehman Brothers Aggregate Bond Index, returned 3.93% for the same period, and the average return on the funds in Morningstar's Intermediate Bond fund category was 4.56%. The fund's 30-day SEC yield at the end of June, 2003 was 3.30%. Longer-term corporate bonds produced strong results With the U.S. economy showing signs of bottoming, and with little immediate impact from the war, investors began to gravitate toward corporate bonds. To take advantage of this shift, we increased exposure to corporate issues in various rating categories, including high-yield bonds. We reduced Treasury holdings but maintained exposure to mortgage-backed issues for their yields and high quality. Relative to the fund's benchmark, we put slightly greater emphasis on BBB and BB-rated corporate securities. Companies with weaker credit quality must pay higher interest rates to attract investors. Recently, many companies' finances have been growing stronger, while investors seem to have become more willing to accept higher risk, intensifying demand and driving up prices for corporate bonds. On June 30, investment-grade corporate bonds made up about 38% of the fund's net assets, and high-yield issues about 9%. Positive contributors included Ford Motor, whose bonds rebounded as the company's earnings were better than expected. Bonds of Delhaize America, which owns the Food Lion and Kash n' Karry supermarket chains, also rose as results improved faster than the industry as a whole. We exchanged intermediate-term bonds of Sprint Capital Corp. for the company's longer-term obligations, seeking higher returns. An improved assessment by Moody's Investor Services plus investor demand pushed Sprint's valuation higher. Changing currency valuations were also positive As the U.S. dollar declined relative to major foreign currencies, the fund's foreign bonds contributed both income and capital appreciation. The U.S. dollar's weakness stems from concerns over low interest rates and sluggish economic growth, as well as the burgeoning federal budget deficit and increases in the trade deficit. At the end of June, non-dollar obligations represented about 5% of the portfolio. Chemical companies, short-term and mortgage-backed issues lagged IMC Global, a major supplier of fertilizer and feed supplements, experienced weak global demand and high prices for natural gas, an essential raw material. These pressures caused the price of its bonds to decline. Low-yields on short-term holdings were also a modest negative, but the fund had few holdings in that category. The fund's allocation to mortgage securities, which did not perform as well as the broad market, was less than its benchmark, and this was a positive during the period. As interest rates fell, a record number of mortgages were refinanced and securities backed by older, high-rate mortgages underperformed. Fund positioned for possible recovery We are positioning the fund to benefit from somewhat faster economic growth later this year and into 2004, when we expect low interest rates and tax cuts to have a positive impact. Under that scenario, we believe interest rates should rise. Intermediate-term, higher-quality bonds may be the first to feel pressure if rates rise. Therefore we are reducing the most interest-sensitive sectors - government and higher-quality corporate issues with maturities in the three- to ten-year range - in favor of higher-yielding issues and longer maturity corporate bonds with improving fundamentals. 1 CDC Nvest Bond Income Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- 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 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 30, 1993 through June 30, 2003 Lehman Lehman Aggregate US Class A @ Class A Bond Credit N.A.V/1/ @ M.S.C./2/ Index/3/ Index/4/ Cumulative Cumulative Monthly Cumulative Value Value Performance Value ---------- ---------- ----------- ---------- 6/30/1993 10,000 9,550 10,000 10,000 10,080 9,627 10,057 10,072 10,282 9,819 10,233 10,323 10,287 9,824 10,261 10,347 10,356 9,890 10,299 10,400 10,245 9,784 10,212 10,272 10,325 9,861 10,267 10,332 10,486 10,015 10,406 10,533 10,256 9,795 10,225 10,284 9,983 9,533 9,973 9,968 9,879 9,435 9,893 9,872 9,827 9,385 9,892 9,836 6/30/1994 9,767 9,327 9,870 9,812 9,950 9,502 10,066 10,060 10,003 9,553 10,078 10,071 9,897 9,452 9,930 9,883 9,870 9,426 9,921 9,861 9,843 9,400 9,899 9,845 9,894 9,449 9,968 9,926 10,061 9,608 10,165 10,136 10,392 9,925 10,407 10,429 10,395 9,927 10,470 10,514 10,600 10,123 10,617 10,691 11,067 10,569 11,027 11,195 6/30/1995 11,165 10,663 11,108 11,296 11,105 10,606 11,083 11,246 11,303 10,794 11,217 11,427 11,444 10,929 11,326 11,563 11,596 11,074 11,474 11,713 11,778 11,248 11,646 11,937 11,949 11,411 11,809 12,134 11,999 11,459 11,887 12,212 11,739 11,211 11,681 11,922 11,680 11,155 11,600 11,821 11,582 11,061 11,534 11,723 11,572 11,051 11,511 11,702 6/30/1996 11,741 11,213 11,666 11,874 11,771 11,241 11,697 11,897 11,771 11,241 11,678 11,860 12,045 11,503 11,881 12,111 12,350 11,794 12,145 12,442 12,647 12,078 12,353 12,708 12,500 11,938 12,238 12,532 12,570 12,004 12,275 12,550 12,649 12,080 12,306 12,603 12,460 11,899 12,169 12,407 12,597 12,030 12,352 12,595 12,767 12,192 12,468 12,737 6/30/1997 12,991 12,406 12,616 12,917 13,514 12,906 12,957 13,390 13,284 12,686 12,846 13,193 13,548 12,938 13,035 13,423 13,676 13,061 13,225 13,593 13,739 13,121 13,285 13,670 13,881 13,257 13,419 13,815 14,066 13,433 13,591 13,979 14,111 13,476 13,581 13,974 14,198 13,560 13,628 14,026 14,263 13,622 13,699 14,115 14,409 13,760 13,829 14,282 6/30/1998 14,462 13,812 13,946 14,388 14,424 13,775 13,976 14,374 14,281 13,639 14,203 14,441 14,833 14,166 14,536 14,909 14,677 14,016 14,459 14,679 14,969 14,295 14,541 14,956 14,992 14,317 14,585 14,999 15,154 14,472 14,689 15,148 14,847 14,179 14,433 14,788 15,052 14,375 14,513 14,893 15,171 14,489 14,559 14,936 14,841 14,174 14,431 14,737 6/30/1999 14,746 14,083 14,385 14,660 14,688 14,027 14,324 14,579 14,630 13,971 14,317 14,543 14,877 14,208 14,483 14,701 14,912 14,241 14,536 14,769 14,934 14,262 14,535 14,784 14,941 14,268 14,465 14,706 14,878 14,209 14,418 14,654 15,046 14,369 14,592 14,790 15,252 14,566 14,784 14,916 14,971 14,297 14,742 14,785 14,861 14,192 14,735 14,730 6/30/2000 15,311 14,622 15,042 15,100 15,401 14,708 15,178 15,283 15,599 14,897 15,398 15,482 15,623 14,920 15,495 15,563 15,534 14,835 15,598 15,579 15,681 14,975 15,853 15,780 16,045 15,323 16,147 16,087 16,443 15,704 16,411 16,527 16,606 15,859 16,554 16,671 16,627 15,878 16,637 16,774 16,533 15,789 16,568 16,714 16,638 15,889 16,668 16,867 6/30/2001 16,642 15,893 16,731 16,953 17,063 16,295 17,105 17,395 17,252 16,476 17,301 17,629 17,181 16,407 17,502 17,603 17,519 16,730 17,868 18,039 17,403 16,619 17,622 17,883 17,208 16,434 17,510 17,760 17,169 16,397 17,652 17,910 17,103 16,333 17,823 18,045 16,916 16,154 17,527 17,712 17,074 16,306 17,866 17,959 17,217 16,443 18,018 18,197 6/30/2002 16,803 16,047 18,174 18,226 16,608 15,861 18,393 18,217 16,987 16,222 18,704 18,689 17,043 16,276 19,007 19,044 16,947 16,184 18,920 18,823 17,269 16,492 18,915 19,067 17,697 16,901 19,306 19,629 17,796 16,995 19,322 19,693 18,053 17,241 19,590 20,087 18,105 17,290 19,575 20,101 18,376 17,549 19,736 20,473 18,741 17,898 20,104 21,119 6/30/2003 18,771 17,926 20,064 21,067 Average Annual Total Returns -- June 30, 2003 - --------------------------------------------------------------------------------
Since 6 Months 1 Year 5 Years 10 Years Inception -------- ------ ------- -------- --------- Class A (Inception 11/7/73) Net Asset Value/1/ 6.07% 11.71% 5.35% 6.50% -- With Maximum Sales Charge/2/ 1.31 6.67 4.39 6.01 -- Class B (Inception 9/13/93) Net Asset Value/1/ 5.63 10.87 4.57 -- 5.44% With CDSC/5/ 0.63 5.87 4.25 -- 5.44 Class C (Inception 12/30/94) Net Asset Value/1/ 5.63 10.86 4.56 -- 6.85 With Maximum Sales Charge and CDSC/5/ 3.62 8.77 4.35 -- 6.73 Class Y (Inception 12/30/94) Net Asset Value/1/ 6.29 12.26 5.77 -- 8.12 - ------------------------------------------------------------------------------------------
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/3/ 3.93% 10.40% 7.55% 7.21% 7.12% 8.58% Lehman U.S. Credit Index/4/ 7.32 15.59 7.93 7.73 7.56 9.26 Morningstar Int. Bond Fund Average/6/ 4.56 10.11 6.31 6.38 6.19 7.59 Lipper Int. Investment Grade Debt Avg./7/ 4.31 9.99 6.48 6.42 6.27 7.62
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, 2003 - -------------------------------------------------------------------------------- CREDIT QUALITY [CHART APPEARS HERE] Aaa 52.5% Aa 0.8% A 11.9% Baa 23.2% Ba 7.5% B 1.4% Caa and not Rated 2.7% Credit quality is based on bond ratings from Moody's Investors Service EFFECTIVE MATURITY [CHART APPEARS HERE] less than 1 year 2.5% 1-5 years 61.2% 5-10 years 25.0% 10+ years 11.3% Average Effective Maturity: 5.9 years See page 11 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 4.50%. /3/ 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. /4/ 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. /5/ 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. /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 figures 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. 2 CDC Nvest Government Securities Fund Portfolio Profile - -------------------------------------------------------------------------------- Objective: Seeks a high level of current income consistent with preservation of principal - -------------------------------------------------------------------------------- Strategy: Invests primarily in securities issued or guaranteed by the U.S. government or its agencies - -------------------------------------------------------------------------------- Inception Date: September 16, 1985 - -------------------------------------------------------------------------------- Managers: John Hyll 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, 2003) Class A $12.39 Class B 12.40 Class Y 12.37 Management Discussion - -------------------------------------------------------------------------------- Interest rates continued to trend down in the first half of 2003. This led to price gains on longer-maturity U.S. Treasury bonds and Treasury Inflation-Protected Securities (TIPS), but pre-payment risks caused mortgage-backed securities to fall from favor, sending prices down. Against this backdrop, CDC Nvest Government Securities Fund provided positive returns and outperformed its benchmark, although it lagged the average results of a peer group for the period. The total return on the net asset value of the fund's Class A shares was 4.29% for the six months ended June 30, 2003, including $0.24 in reinvested dividends. The fund's benchmark, Lehman Brothers Government Bond Index, ended the period with a return of 3.63%, while the average return on the funds in Morningstar's Long Government category was 5.70%. The fund's 30-day SEC yield at the end of June was 2.19%. Bonds with longer maturities and TIPS were positive Demand for TIPS was strong in the first quarter because of their yield advantage relative to U.S. Treasuries and their potential to provide price protection in a rising interest-rate environment. TIPS are indexed to the Consumer Price Index, a primary measure of inflation, which was a concern at the beginning of the year when the economy and interest rates seemed poised to accelerate. As 2003 began, U.S. Treasury bonds maturing in ten or more years accounted for more than half the fund's net assets. As the period progressed, interest rates fell to levels not seen since the mid 1950s and longer-maturity U.S. Treasury securities rose in value. Late in the period, concerns about deflation also helped fuel demand for Treasuries from safety-conscious investors. Deflation refers to a downward spiral in prices of goods and services brought about by decreased demand, which can lead to increased unemployment and a stalled economy. By the end of June, longer-term Treasury securities accounted for almost 60% of the fund's net assets. The fund's duration also worked to our advantage relative to the benchmark. A fund's duration is a measure of its price sensitivity to changing interest rates. When interest rates are declining, a long duration is a benefit for the fund, but it is a negative when rising rates drive bond prices lower. Mortgage-backed securities declined in value The fund's position in mortgage-backed securities detracted from its results. Many homeowners refinance or prepay underlying mortgages when mortgage rates decline, altering the income stream. High-yielding mortgage securities were the hardest hit because they are exposed to greater prepayment risks. However, we are continuing to emphasize mortgage-backed securities as well as TIPS in anticipation of stronger economic growth and attractive valuations in both sectors. While economic growth has not been as robust as expected during the period, aggressive monetary and fiscal stimuli might provide momentum to the economy in the second half of 2003. Interest rates should rise over time We expect short-term interest rates to remain low for the time being; we would not be unduly surprised if the Federal Reserve Board institutes another rate cut in the near future. However, longer term, we believe interest rates will trend gradually higher as economic conditions improve later in 2003. If and when economic conditions do improve and interest rates rise, price declines on U.S. Treasuries are likely to be dramatic because rates are now so low. Mortgage-backed securities are beginning to look more attractive, partly because they performed so poorly so far this year. 3 CDC Nvest Government Securities Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- 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 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 30, 1993 through June 30, 2003 Lehman Government Bond Index/3/ Class A @ N.A.V./1/ Class A @ M.S.C./2/ ------------- Cumulative Cumulative Cumulative Value Value Value ------------------- ------------------- ------------- 6/30/1993 10,000 9,550 10,000 10,058 9,606 10,061 10,285 9,822 10,286 10,337 9,871 10,325 10,366 9,900 10,364 10,241 9,780 10,250 10,245 9,784 10,290 10,349 9,884 10,431 10,104 9,649 10,210 9,919 9,473 9,980 9,843 9,400 9,902 9,838 9,395 9,889 6/30/1994 9,725 9,287 9,866 9,854 9,411 10,048 9,858 9,414 10,050 9,721 9,283 9,908 9,720 9,283 9,901 9,664 9,229 9,882 9,688 9,252 9,943 9,838 9,395 10,128 10,063 9,610 10,346 10,129 9,673 10,411 10,233 9,773 10,547 10,793 10,307 10,972 6/30/1995 10,860 10,371 11,056 10,754 10,270 11,015 10,870 10,381 11,145 11,006 10,510 11,252 11,213 10,708 11,424 11,431 10,917 11,602 11,628 11,105 11,766 11,673 11,148 11,838 11,386 10,874 11,597 11,259 10,752 11,500 11,171 10,668 11,427 11,112 10,612 11,408 6/30/1996 11,227 10,722 11,555 11,248 10,741 11,584 11,175 10,673 11,558 11,372 10,860 11,750 11,640 11,117 12,008 11,878 11,344 12,217 11,718 11,191 12,092 11,732 11,204 12,106 11,739 11,211 12,122 11,582 11,060 11,994 11,724 11,196 12,167 11,823 11,291 12,272 6/30/1997 11,988 11,449 12,410 12,492 11,930 12,762 12,210 11,661 12,636 12,433 11,873 12,826 12,678 12,107 13,048 12,769 12,195 13,115 12,927 12,346 13,252 13,109 12,520 13,450 13,048 12,461 13,413 13,039 12,453 13,451 13,079 12,491 13,512 13,244 12,648 13,651 6/30/1998 13,444 12,839 13,806 13,418 12,815 13,827 13,831 13,209 14,187 14,211 13,572 14,569 14,034 13,402 14,520 14,113 13,477 14,525 14,093 13,459 14,557 14,230 13,590 14,642 13,682 13,067 14,293 13,715 13,098 14,349 13,760 13,141 14,382 13,576 12,965 14,256 6/30/1999 13,417 12,814 14,227 13,319 12,719 14,206 13,219 12,624 14,206 13,391 12,788 14,321 13,382 12,779 14,344 13,322 12,723 14,325 13,188 12,595 14,232 13,202 12,608 14,252 13,434 12,830 14,455 13,730 13,112 14,708 13,618 13,005 14,668 13,570 12,959 14,677 6/30/2000 13,805 13,184 14,939 13,935 13,308 15,084 14,179 13,541 15,307 14,124 13,488 15,350 14,252 13,610 15,497 14,578 13,922 15,802 14,889 14,219 16,117 14,990 14,315 16,279 15,180 14,497 16,464 15,191 14,507 16,522 14,971 14,298 16,353 15,023 14,347 16,407 6/30/2001 15,048 14,371 16,483 15,496 14,798 16,878 15,668 14,963 17,088 15,878 15,163 17,385 16,421 15,682 17,834 15,857 15,144 17,434 15,623 14,920 17,282 15,777 15,067 17,394 15,968 15,249 17,555 15,521 14,822 17,173 15,949 15,232 17,582 16,059 15,337 17,688 6/30/2002 16,297 15,564 17,935 16,684 15,934 18,329 17,156 16,384 18,692 17,605 16,813 19,130 17,354 16,573 18,976 17,173 16,400 18,813 17,709 16,912 19,269 17,669 16,873 19,221 18,071 17,258 19,531 17,913 17,107 19,475 17,997 17,187 19,565 18,671 17,830 20,073 6/30/2003 18,468 17,637 19,968 Average Annual Total Returns -- June 30, 2003 - -------------------------------------------------------------------------------- Since 6 Months 1 Year 5 Years 10 Years Inception -------- ------ ------- -------- --------- Class A (Inception 9/16/85) Net Asset Value/1/ 4.29% 13.32% 6.55% 6.33% -- With Maximum Sales Charge/2/ -0.40 8.20 5.58 5.84 -- Class B (Inception 9/23/93) Net Asset Value/1/ 3.99 12.57 5.78 -- 5.35% With CDSC/4/ -1.01 7.57 5.46 -- 5.35 Class Y (Inception 3/31/94) Net Asset Value/1/ 4.37 13.53 6.89 -- 7.28 - --------------------------------------------------------------------------------
Since Since Class B Class Y Comparative Performance 6 Months 1 Year 5 Years 10 Years Inception/7/ Inception/7/ - ----------------------- -------- ------ ------- -------- ------------ ------------ Lehman Government Bond Index/3/ 3.63% 11.34% 7.66% 7.16% 7.00% 7.79% Morningstar Long Government Fund 5.70 18.29 7.60 7.94 7.41 8.49 Avg./5/ Lipper General Government Funds 2.46 8.63 6.29 6.06 5.91 6.67 Avg./6/
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, 2003 - -------------------------------------------------------------------------------- PORTFOLIO MIX [CHART APPEARS HERE] U.S. Government 75.5% Mortgage-Backed 15.9% U.S. Government Agencies 6.2% Short term & other 2.4% EFFECTIVE MATURITY [CHART APPEARS HERE] less than 1 year 2.2% 1-5 years 18.5% 5-10 years 20.1% 10+ years 59.2% Average Effective Maturity: 11.9 years See page 11 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 4.50%. /3/ Lehman Brothers Government Bond Index is an unmanaged index of public debt of the U.S. Treasury, government agencies, and their obligations. /4/ Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. /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 figures shown for each Class of fund shares are calculated as follows: Class B from 9/30/93; Class Y from 3/31/94. 4 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 lower-quality fixed-income securities - -------------------------------------------------------------------------------- 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, 2003) Class A $4.63 Class B 4.64 Class C 4.64 Management Discussion - -------------------------------------------------------------------------------- Encouraged by an improving outlook for corporate bonds, investors poured money into high-yield issues in pursuit of better returns during the first half of 2003. Declining default rates also boosted confidence. Recoveries in previously out-of-favor sectors and among overseas holdings, including emerging-market bonds, contributed to CDC Nvest High Income Fund's strong results. For the six months ended June 30, 2003, the total return on Class A shares at net asset value was 16.79%, including $0.17 per share in reinvested dividends. The fund's benchmark, the Lehman Brothers High Yield Composite Index, returned 18.49% for the same period, and the average return on the funds in Morningstar's High Yield Bond Fund category was 14.34%. As of the end of June the fund's 30-day SEC yield was 6.65%. Telecom and technology holdings boosted results The fund's emphasis on the technology and telecommunications sectors benefited performance when those sectors rebounded from very low levels. Investors welcomed the efforts of many telecom companies to strengthen their balance sheets after a period of financial stress, and technology issues have been strong performers. Individual positions that aided results included bonds of Lucent Technologies, which provides networks for communications service providers, and Nortel Networks, whose products support the Internet and other public and private networks. London-based Colt Telecom has strengthened its finances, and its euro-denominated bonds benefited from the weak U.S. dollar, while Philippine Long Distance Telephone announced solid earnings. Brazilian bonds, a strong euro and xerox bonds were positives Investors have recently shown increased willingness to accept higher risk in return for higher return potential. That shift extended to emerging markets where fund holdings rose in value amid strong rallies. Brazil's government bonds were outstanding performers, as investors welcomed the reform-minded fiscal policies of newly elected President Lula da Silva. Bonds of the Federal Home Loan Bank payable in euros benefited from the rise in the euro versus the U.S. dollar. And Xerox Capital Corporation's bonds rose after the company refinanced its debt. U.S. Government bonds and some company-specific issues were negatives U.S. government bonds fell slightly over this period. Metals were also weak, but the fund had only minor commitments to this underperforming sector. Declining sales and profits hurt U.S. retailer Dillard's, which operates department stores in the South and Midwest. The price of its bonds fell with its credit quality but we are retaining the position in anticipation of renewed economic activity. Widespread investigations of accounting practices and other issues trimmed bond prices for HealthSouth, a nationwide operator of healthcare facilities. We sold the bonds. Improving conditions may benefit high-yield issues further There has been a decided improvement in the high-yield markets in the past several months, with credit quality rising and default rates down sharply. Companies are concentrating on cutting debt and improving cash flow. In addition, the general sense among investors seems to be that the economy is slowly improving. Taken together, these factors should encourage investors to commit to high-yield sectors for their combination of higher yields and possible further appreciation. We are continuing to maintain the fund's emphasis on telecom and technology. We also think that, as credit quality continues to improve, investors will favor higher-yielding securities despite their lower ratings, leading lower-quality bonds to outperform higher-rated issues. Therefore, we have added to holdings in the single-B and CCC rating categories, based on intensive analysis of each company's financial strengths and business prospects. This strategy is designed to take advantage of the better economic conditions that may result from low short-term interest rates and federal tax cuts. 5 CDC Nvest High Income Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- 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 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 30, 1993 through June 30, 2003 Lehman High Yield Composite Index/3/ Class A @ N.A.V/1/ Class A @ M.S.C./2/ ---------- Cumulative Cumulative Cumulative Value Value Value ------------------ ------------------- ---------- 6/30/1993 10,000 9,550 10,000 10,065 9,612 10,097 10,090 9,636 10,182 10,067 9,614 10,208 10,296 9,832 10,415 10,386 9,918 10,465 10,518 10,044 10,595 10,758 10,274 10,825 10,779 10,294 10,797 10,503 10,031 10,389 10,333 9,868 10,318 10,376 9,909 10,323 6/30/1994 10,419 9,950 10,355 10,353 9,887 10,443 10,309 9,845 10,517 10,332 9,867 10,517 10,315 9,851 10,542 10,152 9,695 10,409 10,178 9,720 10,486 10,252 9,791 10,628 10,518 10,045 10,992 10,586 10,110 11,111 10,796 10,310 11,394 10,995 10,500 11,713 6/30/1995 10,981 10,487 11,787 11,170 10,667 11,936 11,178 10,675 11,974 11,235 10,729 12,121 11,280 10,772 12,196 11,300 10,792 12,303 11,377 10,865 12,497 11,585 11,064 12,716 11,665 11,140 12,727 11,642 11,118 12,718 11,782 11,251 12,746 11,909 11,373 12,822 6/30/1996 11,985 11,445 12,929 12,101 11,556 12,989 12,244 11,693 13,129 12,621 12,053 13,445 12,594 12,027 13,549 12,853 12,275 13,819 13,070 12,482 13,915 13,080 12,491 14,042 13,538 12,929 14,277 13,359 12,757 14,071 13,433 12,829 14,208 13,880 13,255 14,523 6/30/1997 13,969 13,341 14,725 14,350 13,705 15,129 14,442 13,792 15,095 14,872 14,203 15,394 14,743 14,079 15,407 14,941 14,268 15,555 15,079 14,401 15,691 15,306 14,617 15,974 15,285 14,597 16,067 15,442 14,748 16,218 15,526 14,827 16,282 15,501 14,804 16,339 6/30/1998 15,555 14,855 16,397 15,531 14,832 16,490 14,453 13,803 15,581 14,317 13,672 15,651 14,016 13,386 15,330 15,023 14,347 15,966 14,823 14,156 15,984 15,157 14,475 16,221 15,253 14,566 16,126 15,499 14,802 16,280 15,833 15,121 16,595 15,445 14,750 16,370 6/30/1999 15,401 14,708 16,336 15,340 14,649 16,401 15,100 14,421 16,220 15,002 14,327 16,103 15,137 14,456 15,996 15,237 14,552 16,183 15,416 14,722 16,366 15,245 14,559 16,296 15,314 14,625 16,327 14,852 14,183 15,984 14,842 14,174 16,010 14,428 13,779 15,845 6/30/2000 14,866 14,197 16,168 14,954 14,281 16,291 14,895 14,224 16,403 14,586 13,930 16,260 13,859 13,235 15,739 12,708 12,136 15,115 12,936 12,354 15,407 14,438 13,788 16,562 14,365 13,719 16,782 13,631 13,018 16,387 13,212 12,618 16,183 13,247 12,651 16,474 6/30/2001 12,487 11,925 16,012 12,733 12,160 16,248 12,636 12,067 16,440 11,486 10,969 15,335 11,359 10,848 15,714 11,728 11,200 16,287 11,558 11,038 16,221 11,629 11,106 16,334 11,276 10,768 16,106 11,579 11,058 16,493 11,485 10,968 16,757 11,317 10,808 16,664 6/30/2002 10,508 10,035 15,435 9,799 9,358 14,761 10,143 9,687 15,182 9,766 9,327 14,983 9,761 9,322 14,852 10,411 9,942 15,772 10,534 10,060 15,993 10,758 10,274 16,525 10,908 10,417 16,729 11,189 10,686 17,210 11,836 11,303 18,231 12,043 11,501 18,419 6/30/2003 12,303 11,749 18,949 Average Annual Total Returns -- June 30, 2003 - --------------------------------------------------------------------------------
Since 6 Months 1 Year 5 Years 10 Years/7/ Inception/7/ -------- ------ ------- ----------- ------------ Class A (Inception 2/22/84) Net Asset Value/1/ 16.79% 17.09% -4.58% 2.09% -- With Maximum Sales Charge/2/ 11.64 11.87 -5.45 1.62 -- Class B (Inception 9/20/93) Net Asset Value/1/ 16.61 16.23 -5.24 -- 1.36% With CDSC/4/ 11.61 11.23 -5.47 -- 1.36 Class C (Inception 3/2/98) Net Asset Value/1/ 16.61 16.48 -5.24 -- -4.71 With Maximum Sales Charge and CDSC/4/ 14.50 14.41 -5.43 -- -4.89 - --------------------------------------------------------------------------------
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/3/ 18.49% 22.76% 2.94% 6.60% 6.55% 3.01% Morningstar High Yield Bond Fund Average/5/ 14.34 16.92 0.72 4.89 4.68 0.60 Lipper High Current Yield Funds Average/6/ 14.61 17.41 0.66 4.87 4.61 0.61
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, 2003 - -------------------------------------------------------------------------------- CREDIT QUALITY [CHART APPEARS HERE] A 0.8% B 29.3% Ba 55.2% Baa 8.1% Ca and 6.6% lower Credit quality is based on bond ratings from Moody's Investors Service EFFECTIVE MATURITY [CHART APPEARS HERE] less than 1 year 5.0% 1-5 years 29.9% 5-10 years 37.3% 10 + years 27.8% Average Effective Maturity: 9.4 years See page 11 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 4.50%. /3/ Lehman Brothers High Yield Composite Index is a market-weighted, unmanaged index of fixed-rate, non-investment grade debt. /4/ Performance for Class B shares assumes a maximum 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. /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 figures shown for each Class of fund shares are calculated as follows: Class B from 9/30/93; Class C from 3/31/98. 6 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, its agencies or instrumentalities - -------------------------------------------------------------------------------- Inception Date: January 3, 1989 - -------------------------------------------------------------------------------- Managers: John Hyll 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, 2003) Class A $11.64 Class B 11.62 Class C 11.63 Class Y 11.69 Management Discussion - -------------------------------------------------------------------------------- Interest rates fell dramatically during the first half of 2003 on weaker-than-expected economic growth, as investors tried to anticipate the Federal Reserve Board's next move. CDC Nvest Limited Term U.S. Government Fund lagged its benchmark during the period, primarily because we positioned the fund defensively in anticipation of rising interest rates, which cause bond prices to fall. Although the fund's participation in the price rally was limited, it did benefit from the income advantage provided by mortgage-backed securities. The total return on Class A shares of the fund at net asset value was 1.36% for the six months ended June 30, 2003, including $0.25 in reinvested dividends. For the same period, the fund's benchmark, Lehman Brothers Intermediate Government Bond Index returned 2.63%, while the average return on the funds in Morningstar's Short Government category was 1.49%. The fund's 30-day SEC yield as of the end of June was 1.99%. Interest rates remain at historic lows For most of the first half of 2003, the Fed kept short-term interest rates untouched as economic growth proceeded at a sluggish pace. The economy remained weak as summer approached and the jobless rate contributed to the Fed's concern about the prospect of deflation. Deflation refers to a downward spiral in the prices of goods and services brought about by decreased demand, which can add to unemployment and cause the economy to stall. At the end of June, the Fed cut the Federal Funds Rate (the rate banks charge each other) by 0.25% to 1.00% - the lowest level since Dwight Eisenhower was president. Government agency and mortgage securities helped boost income Within the fund's universe of intermediate-term government securities, those backed by government-chartered agencies pay a higher interest rate than those guaranteed by the U.S. government itself. With yields available on U.S. Treasuries and other "safe" investments at such low levels, investors have been experiencing rate shock. The income advantage of agency- and mortgage-backed securities has intensified demand, keeping upward pressure on prices despite the prepayment risks these issues face in a declining interest rate environment. Although the portfolio's weighting on agency securities was less than its benchmark, the fund derived some benefit from the price rally and from higher yields available on mortgage securities. Despite their recent strong performance, we believe mortgage-backed securities still have the potential for price outperformance, especially for those mortgage securities with favorable refinancing characteristics. Interest rates expected to rise Given our outlook for a mild economic recovery, we believe that the current level of interest rates is too low and an increase is likely. With the success of military operations in the Middle East, the focus is now on the economy, particularly on the potential for a resurgence of business profits and investment. We expect interest rates to rise and bond prices to fall as economic growth picks up. The fund is currently positioned for a gradual economic expansion, accompanied by stabilizing financial markets and slowly rising interest rates. In this environment, income is likely to be the most important component of total return, so we are maintaining the fund's emphasis on mortgages and planning to trim U.S. Treasuries. At current levels, Treasury yields are so low that they offer little protection from principal loss. Although we do not expect a sudden surge in interest rates, we are poised to move quickly if economic data surprises us on the upside. As a result, we are continuing to structure CDC Nvest Limited Term U.S. Government Fund's portfolio to minimize price volatility and protect principal. 7 CDC Nvest Limited Term U.S. Government Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- 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 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 30, 1993 through June 30, 2003 Lehman Intermediate Class A Gov't Bond Class A @ N.A.V/1/ @ M.S.C./2/ Index/3/ Cumulative Cumulative Cumulative Value Value Value ------------------- ------------ ------------ 6/30/1993 10,000 9,700 10,000 10,048 9,746 10,020 10,183 9,877 10,169 10,201 9,895 10,211 10,223 9,916 10,235 10,167 9,862 10,184 10,183 9,877 10,226 10,272 9,964 10,327 10,158 9,853 10,186 10,018 9,717 10,037 9,960 9,661 9,972 9,960 9,661 9,979 6/30/1994 9,951 9,653 9,981 10,035 9,734 10,112 10,061 9,759 10,142 9,984 9,685 10,058 9,984 9,685 10,060 9,950 9,651 10,015 9,957 9,658 10,048 10,090 9,787 10,211 10,233 9,926 10,408 10,261 9,954 10,466 10,363 10,052 10,587 10,652 10,333 10,885 6/30/1995 10,699 10,378 10,955 10,694 10,373 10,960 10,787 10,464 11,050 10,855 10,529 11,125 11,004 10,674 11,246 11,137 10,802 11,384 11,253 10,916 11,496 11,315 10,976 11,593 11,180 10,844 11,470 11,109 10,776 11,418 11,080 10,748 11,385 11,042 10,711 11,379 6/30/1996 11,129 10,795 11,494 11,153 10,818 11,530 11,148 10,814 11,543 11,289 10,951 11,692 11,471 11,127 11,884 11,614 11,266 12,028 11,521 11,175 11,963 11,570 11,223 12,009 11,584 11,237 12,028 11,524 11,178 11,960 11,625 11,276 12,095 11,697 11,346 12,189 6/30/1997 11,809 11,455 12,293 12,005 11,644 12,520 11,984 11,624 12,472 12,109 11,745 12,608 12,244 11,877 12,754 12,265 11,897 12,783 12,358 11,988 12,887 12,538 12,162 13,055 12,509 12,134 13,041 12,488 12,113 13,082 12,536 12,160 13,144 12,617 12,239 13,234 6/30/1998 12,710 12,329 13,323 12,726 12,344 13,375 12,929 12,542 13,628 13,299 12,900 13,946 13,170 12,775 13,969 13,130 12,736 13,926 13,157 12,762 13,980 13,228 12,831 14,042 13,076 12,683 13,850 13,137 12,743 13,942 13,176 12,780 13,980 13,077 12,685 13,894 6/30/1999 12,992 12,602 13,914 12,930 12,542 13,916 12,925 12,537 13,935 13,072 12,680 14,055 13,097 12,704 14,083 13,110 12,717 14,093 13,069 12,676 14,048 13,012 12,622 14,001 13,127 12,734 14,117 13,290 12,891 14,278 13,247 12,850 14,272 13,253 12,856 14,311 6/30/2000 13,443 13,039 14,538 13,510 13,105 14,634 13,652 13,242 14,798 13,757 13,344 14,928 13,807 13,393 15,030 13,995 13,575 15,251 14,158 13,733 15,520 14,338 13,908 15,726 14,445 14,012 15,871 14,536 14,100 15,986 14,507 14,072 15,935 14,580 14,142 16,001 6/30/2001 14,590 14,152 16,052 14,862 14,416 16,352 14,960 14,512 16,497 15,195 14,739 16,849 15,422 14,960 17,112 15,222 14,765 16,908 15,130 14,676 16,826 15,211 14,754 16,898 15,362 14,901 17,038 15,141 14,687 16,781 15,418 14,955 17,096 15,522 15,057 17,215 6/30/2002 15,678 15,208 17,430 15,903 15,426 17,758 16,060 15,578 17,961 16,204 15,718 18,270 16,239 15,752 18,257 16,164 15,680 18,113 16,366 15,875 18,448 16,358 15,867 18,407 16,500 16,005 18,615 16,489 15,994 18,619 16,517 16,022 18,671 16,618 16,120 18,964 6/30/2003 16,589 16,091 18,933 Average Annual Total Returns -- June 30, 2003 - --------------------------------------------------------------------------------
Since 6 Months 1 Year 5 Years 10 Years Inception -------- ------ ------- -------- ---------- Class A (Inception 1/3/89) Net Asset Value/1/ 1.36% 5.81% 5.47% 5.19% -- With Maximum Sales Charge/2/ -1.66 2.60 4.83 4.87 -- Class B (Inception 9/27/93) Net Asset Value/1/ 1.04 5.05 4.80 -- 4.38% With CDSC/4/ -3.93 0.05 4.46 -- 4.38 Class C (Inception 12/30/94) Net Asset Value/1/ 1.03 5.12 4.79 -- 5.40 With Maximum Sales Charge and CDSC/4/ -0.98 3.05 4.58 -- 5.27 Class Y (Inception 3/31/94) Net Asset Value/1/ 1.54 6.17 5.93 -- 6.02
- --------------------------------------------------------------------------------
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/3/ 2.63% 8.62% 7.28% 6.59% 6.54% 7.74% 7.10% Morningstar Short Gov't. Fund Avg./5/ 1.49 5.21 6.93 5.45 5.40 6.31 5.80 Lipper Short Int. U.S. Gov't. Funds Avg./6/ 1.92 6.45 6.10 5.78 5.70 6.71 6.12
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, 2003 - -------------------------------------------------------------------------------- PORTFOLIO MIX [CHART APPEARS HERE] Mortgage-backed 69.2% U.S. Government 15.5% Government Agencies 9.2% Supranational 3.1% Asset-Backed 2.4% Other 0.6% EFFECTIVE MATURITY [CHART APPEARS HERE] Less than 1 year 0.6% 1-5 years 86.6% 5-10 years 12.8% Average Effective Maturity: 3.0 years See page 11 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 3.00%. /3/ 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. /4/ 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. /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 figures 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. 8 CDC Nvest Strategic Income Fund Portfolio Profile - -------------------------------------------------------------------------------- Objective: Seeks high current income; capital growth is a secondary objective - -------------------------------------------------------------------------------- Strategy: Invests primarily in income-producing 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, 2003) Class A $12.38 Class B 12.40 Class C 12.39 Class Y 12.39 Management Discussion - -------------------------------------------------------------------------------- As hopes for an economic revival improved, a wide range of corporate bonds performed well in the first half of 2003. Foreign bonds also gained ground because many currencies rose in value against the dollar, and because of their high interest rates. There is also a growing perception that many emerging-market bonds offer extremely good value as global economic conditions stabilize. CDC Nvest Strategic Income Fund's total return for the six months ended June 30, 2003 was 19.86% based on the net asset value of Class A shares and $0.45 in reinvested distributions. The Lehman Brothers Aggregate Bond Index returned 3.93% for the same period, while the return on Morningstar's Multi-Sector Bond Fund category averaged 9.83% for the period. The fund's 30-day SEC yield at the end of June was 5.55%. Corporate and international bonds drove strong performance After major combat operations in Iraq ended, investors became more optimistic about the economy. They began to turn to corporate bonds, partly because the yields on lower-risk, short-term investments were so meager and partly because price increases on U.S. government securities appeared to be played out. Moreover, corporate credit quality has been improving and default rates on high-yield issues have dropped, lowering their potential risk. When regulators relaxed proposed restrictions, the fund's utilities holdings picked up steam. The beleaguered airline industry has also begun to climb. Continental Airlines, a long-time fund holding, now enjoys a favorable cost structure and has extended its international business. London-based Colt Telecom has strengthened its finances, and its euro-denominated bonds benefited from the weak U.S. dollar, while Philippine Long Distance Telephone announced solid earnings. Company-specific issues, chemicals and paper were negatives Some individual corporate issues were disappointing. International cargo carrier Atlas Air provides air transportation services to major airlines throughout the world. Deteriorating business conditions forced the company to restructure some of its outstanding debt. Rising natural gas prices trimmed revenues for chemical companies; gas is an essential raw material for these companies. Results at IMC Global, the world's largest producer of animal feeds, also suffered from high gas prices as well as from general weakness in global agriculture. Earnings at paper companies are tied to the economic cycle, and continued sluggishness has hurt bond prices in this sector. U.S. government and agency bonds also failed to deliver strong performance over this period; the fund has only modest exposure to government agencies. A better economy may mean higher interest rates Interest rates are now at their lowest levels in decades, as the Federal Reserve Board attempts to stimulate the sputtering U.S. economy. We do not think interest rates will rise until growth accelerates and the Fed feels the need to cool the economy by raising rates again. We believe the fund's broad diversification and flexible mandate position it to cope with rising interest rates. As long as rates remain low, investors are likely to continue to seek a combination of high income and capital appreciation from high-yielding bonds and other corporate issues. For that reason, high-yield obligations accounted for more than half the portfolio at the end of the period. Industries that appear attractive include oil, energy and paper; but chemical companies remain under pressure. Given our outlook for renewed economic growth, we also expect continued weakness in the dollar to make foreign-denominated bonds attractive, including emerging market issues. As of the end of June, non-U.S. dollar commitments accounted for about a third of CDC Nvest Strategic Income Fund's portfolio. Geographical areas with the greatest emphasis were Canada, Europe and New Zealand, whose currencies we think may continue to gain against the U.S. dollar. 9 CDC Nvest Strategic Income Fund Investment Results through June 30, 2003 - -------------------------------------------------------------------------------- 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 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. Securities indexes measure the performance of a theoretical portfolio. Unlike a fund, indexes 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 - -------------------------------------------------------------------------------- May 1, 1995 (inception) through June 30, 2003 Lehman Lehman Aggregate Universal Bond Bond Class A @ N.A.V/1/ Class A @ M.S.C./2/ Index/3/ Index/4/ Cumulative Cumulative Cumulative Cumulative Value Value Value Value ------------------- -------------------- ---------- ---------- 5/1/1995 10,000 9,550 10,000 10,000 10,014 9,563 10,000 10,000 10,017 9,566 10,073 10,073 10,096 9,642 10,051 10,058 10,192 9,733 10,172 10,176 10,410 9,942 10,271 10,280 10,355 9,889 10,405 10,407 10,647 10,168 10,561 10,564 11,038 10,541 10,709 10,724 11,302 10,793 10,780 10,817 10,995 10,500 10,593 10,630 11,073 10,575 10,519 10,564 11,057 10,559 10,460 10,521 11,232 10,727 10,438 10,506 6/30/1996 11,383 10,871 10,579 10,647 11,360 10,849 10,608 10,677 11,569 11,048 10,590 10,674 11,974 11,435 10,774 10,869 12,316 11,761 11,013 11,095 12,816 12,239 11,202 11,292 12,638 12,069 11,098 11,201 12,674 12,104 11,132 11,249 12,875 12,295 11,159 11,289 12,735 12,162 11,036 11,157 12,816 12,239 11,201 11,326 13,091 12,502 11,307 11,446 6/30/1997 13,388 12,785 11,441 11,585 13,990 13,361 11,749 11,902 13,629 13,016 11,649 11,804 14,110 13,475 11,821 11,986 13,814 13,193 11,992 12,100 13,889 13,264 12,048 12,166 13,818 13,196 12,169 12,296 14,043 13,411 12,325 12,450 14,300 13,657 12,316 12,460 14,607 13,949 12,358 12,517 14,611 13,953 12,423 12,581 14,372 13,726 12,541 12,672 6/30/1998 14,143 13,507 12,647 12,755 13,966 13,338 12,674 12,786 12,252 11,700 12,880 12,785 12,648 12,079 13,182 13,088 12,785 12,209 13,112 13,034 13,642 13,028 13,186 13,164 13,579 12,968 13,226 13,194 13,814 13,192 13,320 13,282 13,617 13,004 13,088 13,071 14,336 13,691 13,160 13,171 15,255 14,569 13,202 13,249 14,782 14,117 13,086 13,115 6/30/1999 14,825 14,158 13,045 13,092 14,532 13,879 12,989 13,039 14,351 13,705 12,983 13,024 14,443 13,793 13,133 13,165 14,564 13,909 13,182 13,220 14,828 14,160 13,181 13,242 15,231 14,546 13,117 13,216 15,090 14,411 13,074 13,172 15,684 14,978 13,232 13,339 15,843 15,130 13,407 13,495 15,390 14,697 13,368 13,452 14,893 14,223 13,362 13,428 6/30/2000 15,461 14,765 13,640 13,717 15,597 14,895 13,764 13,850 15,940 15,223 13,964 14,052 15,519 14,820 14,051 14,123 14,887 14,217 14,144 14,180 14,810 14,143 14,376 14,371 15,335 14,645 14,642 14,646 15,822 15,110 14,882 14,933 15,798 15,087 15,011 15,058 15,201 14,517 15,087 15,109 14,953 14,280 15,024 15,042 15,288 14,600 15,115 15,150 6/30/2001 15,246 14,560 15,172 15,193 15,258 14,571 15,511 15,492 15,595 14,893 15,689 15,685 14,821 14,154 15,872 15,798 15,170 14,487 16,204 16,116 15,385 14,693 15,980 15,927 15,314 14,625 15,879 15,832 15,488 14,791 16,007 15,965 15,674 14,968 16,162 16,114 15,854 15,141 15,894 15,881 16,237 15,507 16,202 16,184 16,581 15,835 16,339 16,306 6/30/2002 16,317 15,583 16,481 16,365 15,931 15,214 16,680 16,504 16,376 15,639 16,961 16,808 16,155 15,428 17,236 17,049 16,476 15,735 17,157 16,990 17,093 16,324 17,153 17,036 17,683 16,888 17,507 17,389 18,181 17,362 17,522 17,436 18,672 17,832 17,765 17,684 18,852 18,004 17,751 17,701 19,934 19,037 17,897 17,910 20,931 19,989 18,231 18,252 6/30/2003 21,196 20,242 18,195 18,248
Average Annual Total Returns -- June 30, 2003 - ------------------------------------------------------------------------------------------- Since 6 Months/8/ 1 Year/8/ 5 Years/8/ Inception/8/ ----------- --------- ---------- ------------ Class A (Inception 5/1/95) Net Asset Value/1/ 19.86% 29.90% 8.42% 9.63% With Maximum Sales Charge/2/ 14.42 24.05 7.44 9.02 Class B (Inception 5/1/95) Net Asset Value/1/ 19.42 29.06 7.64 8.81 With CDSC/5/ 14.42 24.06 7.36 8.81 Class C (Inception 5/1/95) Net Asset Value/1/ 19.45 28.97 7.64 8.78 With Maximum Sales Charge and CDSC/5/ 17.24 26.72 7.43 8.64 Class Y (Inception 12/1/99) Net Asset Value/1/ 20.06 30.29 -- 10.88 - -------------------------------------------------------------------------------------------
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/3/ 3.93% 10.40% 7.55% 7.69% 9.80% Lehman Universal Bond Index/4/ 3.80 11.51 7.43 7.73 9.66 Morningstar Multi-Sector Bond Fund Avg./6/ 9.83 15.74 4.75 9.59 6.31 Lipper Multi-Sector Income Funds Avg./7/ 10.42 16.63 4.68 6.59 6.28
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, 2003 - -------------------------------------------------------------------------------- CREDIT QUALITY [CHART APPEARS HERE] A 2.4% Aa 7.4% Aaa 16.9% B 23.5% Ba 17.9% Baa 10.9% Ca and 4.0% Caa Not Rated 17.0% Credit quality is based on bond ratings from Moody's Investors Service EFFECTIVE MATURITY [CHART APPEARS HERE] Less than 1 year 8.3% 1-5 years 31.3% 5-10 years 8.0% 10+ years 52.4% Average Effective Maturity: 12.0 years See page 11 for information on the possible risks associated with an investment in this fund. Notes to Charts /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 4.50%. /3/ 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. /4/ Lehman Brothers Universal Bond Index is an unmanaged index representing a blend of the Lehman Aggregate, High Yield and Emerging Market Indexes. /5/ 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. /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 figures 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. 10 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 without notice based on changes in market or other conditions. References to specific securities or industries should not be regarded as investment advice. Because these funds are actively managed, there is no assurance that they will continue to invest in the securities or industries mentioned. 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. The Funds CDC Nvest Bond Income Fund invests primarily in quality U.S. corporate and government bonds. Other securities that may be in the portfolio from time to time include foreign and emerging market securities and mortgage-related securities. CDC Nvest Government Securities Fund invests primarily in U.S. government securities. It may also invest a portion of assets in mortgage-related securities. CDC Nvest High Income Fund invests primarily in lower-quality bonds. It may also invest a portion of assets in foreign and emerging-market securities or U.S. government securities. CDC Nvest Limited Term U.S. Government Fund invests primarily in securities issued or guaranteed by the U.S. government, it's agencies or instrumentalities. It may also invest a portion of assets in foreign bonds and mortgage-related securities. CDC Nvest Strategic Income Fund may invest in a wide variety of securities, with a focus on U.S. and foreign corporate bonds and convertible securities. The fund may also invest in emerging-market securities and lower-quality bonds. The Risks Lower-quality bonds offer higher yields than high-quality bonds in return for more risks. These risks include a greater risk of default than higher-quality issues and greater risk of loss of principal. Mortgage securities are subject to prepayment risks; when mortgages underlying the security are prepaid or refinanced, the fund's income stream may change. U.S. government and Treasury securities are guaranteed if held to maturity, but mutual funds that invest in these securities are not guaranteed. The value of fund shares will fluctuate and you may have a gain or a loss when you sell your shares. U.S. government agency securities issued by Fannie Mae or Freddie Mac are not guaranteed by the U.S. government. Corporate bonds are backed by the financial strength of the issuing company. Economic conditions and other factors may affect the company's credit quality and ability to meet its debt obligations. Foreign and emerging-market securities have special risks, including 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. Changes in interest rates can affect the value of fund shares. The value of fixed-income securities generally goes down when interest rates rise and goes up when rates decline. - -------------------------------------------------------------------------------- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE - -------------------------------------------------------------------------------- 11 Bond Income Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited)
Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - --------------------------------------------------------------------------------- Bonds and Notes -- 97.9% of Total Net Assets Aerospace & Defense -- 1.5% $1,400,000 Northrop Grumman Corp. 7.125%, 2/15/2011 ...................... Baa3 $ 1,677,089 2,905,000 Raytheon Co. 6.150%, 11/01/2008 ..................... Baa3 3,284,762 ----------- 4,961,851 ----------- Asset-Backed -- 3.1% 2,000,000 American Express Credit Account Master Trust 1.690%, 1/15/2009 ...................... Aaa 1,984,376 9,926 AmeriCredit Automobile Receivables Trust 7.150%, 8/12/2004 ...................... Aaa 9,933 3,675,000 Citibank Credit Card Issuance Trust 2.700%, 1/15/2008 ...................... Aaa 3,751,577 1,900,000 Connecticut RRB Special Purpose Trust 5.360%, 3/30/2007 ...................... Aaa 1,974,252 2,563,541 GMAC Mortgage Corp. Loan Trust 5.290%, 6/25/2027 ...................... Aaa 2,579,238 ----------- 10,299,376 ----------- Automotive -- 2.1% 3,535,000 Ford Motor Co. 7.450%, 7/16/2031 (d) .................. Baa1 3,238,290 3,925,000 General Motors Corp. 8.375%, 7/15/2033 ...................... Baa1 3,850,931 ----------- 7,089,221 ----------- Banking -- 3.2% 2,975,000 J.P. Morgan Chase & Co. 5.750%, 1/02/2013 ...................... A2 3,252,514 2,200,000 State Street Institutional Capital A, 144A 7.940%, 12/30/2026 ..................... A1 2,618,829 4,630,000 Washington Mutual, Inc. 4.375%, 1/15/2008 ...................... A3 4,899,725 ----------- 10,771,068 ----------- Beverages, Food & Tobacco -- 1.0% 788,000 Dean Foods Co. 6.900%, 10/15/2017 ..................... Ba3 803,760 1,072,000 Dean Foods Co. 8.150%, 8/01/2007 ...................... Ba3 1,189,920 270,000 Smithfield Foods, Inc. 8.000%, 10/15/2009 ..................... Ba2 292,275 925,000 Smithfield Foods, Inc., 144A 7.750%, 5/15/2013 ...................... Ba2 992,062 ----------- 3,278,017 ----------- Building Materials -- 0.2% 100,000 American Standard Cos., Inc. 7.375%, 2/01/2008 ...................... Ba2 110,500 695,000 American Standard Cos., Inc. 7.375%, 4/15/2005 ...................... Ba2 736,700 ----------- 847,200 ----------- Chemicals -- 1.2% 2,300,000 Dow Chemical Co. (The) 5.750%, 11/15/2009 ..................... A3 2,515,381 1,455,000 IMC Global, Inc. 10.875%, 6/01/2008 ..................... Ba1 1,513,200 ----------- 4,028,581 ----------- Commercial Services -- 1.9% $5,575,000 Aramark Services, Inc. 7.000%, 7/15/2006 ...................... Baa3 $ 6,190,642 ----------- Communications -- 5.6% 1,095,000 AT&T Corp. 0/8.500%, 11/15/2031 (e) ............... Baa2 1,241,608 2,135,000 AT&T Wireless Services, Inc. 8.750%, 3/01/2031 ...................... Baa2 2,638,999 1,970,000 Citizens Communications Co. 9.250%, 5/15/2011 (d) .................. Baa2 2,549,081 3,200,000 LCI International, Inc. 7.250%, 6/15/2007 ...................... Ba2 2,432,000 4,870,000 Sprint Capital Corp. 6.875%, 11/15/2028 ..................... Baa3 4,936,962 235,000 Sprint Capital Corp. 6.900%, 5/01/2019 ...................... Baa3 246,150 1,540,000 Telefonos de Mexico SA de CV 8.250%, 1/26/2006 ...................... A3 1,728,650 1,045,000 Telus Corp. 8.000%, 6/01/2011 ...................... Ba1 1,206,975 1,650,000 Verizon Communications, Inc. 7.900%, 2/01/2027 ...................... A2 1,878,649 ----------- 18,859,074 ----------- Containers & Packaging -- 0.7% 900,000 Kappa Beheer BV 10.625%, 7/15/2009 ..................... B2 964,125 1,100,000 Kappa Beheer BV 10.625%, 7/15/2009 (EUR) ............... B2 1,344,530 ----------- 2,308,655 ----------- Electric Utilities -- 1.8% 1,739,000 BVPS II Funding Corp. 8.680%, 6/01/2017 ...................... -- 2,136,275 2,500,000 NiSource Finance Corp. 7.875%, 11/15/2010 ..................... Baa3 2,951,750 830,000 Transelec SA 7.875%, 4/15/2011 ...................... Baa1 961,323 ----------- 6,049,348 ----------- Environmental Control -- 0.5% 1,465,000 Allied Waste North America, Inc. 8.500%, 12/01/2008 ..................... Ba3 1,574,875 Financial Services -- 8.1% 1,455,000 CIT Group, Inc. 7.750%, 4/02/2012 (d) .................. A2 1,734,872 3,800,000 General Electric Capital Corp. 5.450%, 1/15/2013 (d) .................. Aaa 4,115,940 2,115,000 Goldman Sachs Group, Inc. 6.600%, 1/15/2012 ...................... Aa3 2,457,588 850,000 Goldman Sachs Group, Inc. 7.350%, 10/01/2009 ..................... A1 1,034,319 982,000 Household Finance Corp. 5.750%, 1/30/2007 ...................... A1 1,083,773 2,545,000 Household Finance Corp. 7.000%, 5/15/2012 ...................... A1 3,012,389 5,430,000 International Lease Finance Corp. 5.625%, 6/01/2007 ...................... A1 5,905,353 3,815,000 Lehman Brothers Holdings, Inc. 7.000%, 2/01/2008 ...................... A2 4,447,466
See accompanying notes to financial statements. 12 Bond Income Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited)
Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - ------------------------------------------------------------------------------------ Financial Services --(continued) $ 3,035,000 Newcourt Credit Group, Inc. 6.875%, 2/16/2005 ....................... A2 $ 3,251,177 ------------ 27,042,877 ------------ Food Retailers -- 1.4% 2,155,000 Delhaize America, Inc. 8.125%, 4/15/2011 ....................... Baa3 2,359,725 560,000 Delhaize America, Inc. 9.000%, 4/15/2031 ....................... Baa3 616,000 400,000 Domino's, Inc., 144A 8.250%, 7/01/2011 ....................... B3 413,000 1,110,000 Fred Meyer, Inc. 7.450%, 3/01/2008 ....................... Baa3 1,293,352 ------------ 4,682,077 ------------ Foreign Governments -- 1.7% 4,785,000 Canadian Government 5.500%, 6/01/2010 (CAD) ................. -- 3,808,118 2,375,000 Canadian Government 5.750%, 9/01/2006 (CAD) ................. Aaa 1,870,585 ------------ 5,678,703 ------------ Forest Products & Paper -- 1.5% 650,000 Abitibi-Consolidated Finance LP 7.875%, 8/01/2009 ....................... Ba1 721,500 1,495,000 Abitibi-Consolidated, Inc. 8.550%, 8/01/2010 ....................... Ba1 1,674,636 1,970,000 Georgia-Pacific Corp. 7.500%, 5/15/2006 (d) ................... Ba1 2,019,250 480,000 Georgia-Pacific Corp. 8.875%, 5/15/2031 ....................... Ba1 470,400 ------------ 4,885,786 ------------ Health Care Providers -- 1.0% 3,050,000 HCA, Inc. 6.950%, 5/01/2012 (d) ................... Ba1 3,250,300 ------------ Media - Broadcasting & Publishing -- 7.7% 3,550,000 AOL Time Warner, Inc. 6.750%, 4/15/2011 ....................... Baa1 4,041,810 2,480,000 Clear Channel Communications, Inc. 4.250%, 5/15/2009 ....................... Baa3 2,510,998 1,760,000 Comcast Cable Communications, Inc. 6.750%, 1/30/2011 ....................... Baa3 2,020,253 1,200,000 Continental Cablevision, Inc. 9.500%, 8/01/2013 ....................... Baa2 1,381,290 2,000,000 CSC Holdings, Inc. 7.625%, 7/15/2018 ....................... Ba2 1,995,000 515,000 CSC Holdings, Inc. 7.875%, 2/15/2018 ....................... Ba2 522,725 3,000,000 News America Holdings, Inc. 7.750%, 2/01/2024 ....................... Baa3 3,477,018 2,245,000 News America Holdings, Inc. 8.250%, 8/10/2018 ....................... Baa3 2,925,217 4,000,000 Shaw Communications, Inc. Class B, 144A 7.400%, 10/17/2007 (CAD) ................ Ba2 3,025,387 2,785,000 TCI Communications, Inc. 9.800%, 2/01/2012 ....................... Baa3 3,689,231 ------------ 25,588,929 ------------ Mortgage-Backed -- 30.7% $ 4,109,821 Federal Home Loan Mortgage Corp 5.000%, 5/01/2018 ....................... Aaa $ 4,248,485 2,538,651 Federal National Mortgage Association 5.000%, 5/01/2018 ....................... Aaa 2,625,547 36,895,772 Federal National Mortgage Association 5.500%, with various maturities to 2033 (f) ............................. AAA 38,277,663 17,842,653 Federal National Mortgage Association 6.000%, with various maturities to 2033 (f) ............................. Aaa 18,591,841 12,550,166 Federal National Mortgage Association 6.500%, with various maturities to 2033 (f) ............................. Aaa 13,102,128 2,076,465 Federal National Mortgage Association 7.000%, with various maturities to 2030 (f) ............................. Aaa 2,187,319 2,042,862 Federal National Mortgage Association 7.500%, with various maturities to 2032 (f) ............................. Aaa 2,171,081 7,746,627 Government National Mortgage Association 6.000%, with various maturities to 2032 (f) ............................. Aaa 8,126,138 7,883,191 Government National Mortgage Association 6.500%, with various maturities to 2032 (f) ............................. Aaa 8,280,932 2,681,658 Government National Mortgage Association 7.000%, with various maturities to 2029 (f) ............................. Aaa 2,839,763 659,739 Government National Mortgage Association 7.500%, with various maturities to 2030 (f) ............................. Aaa 703,665 449,291 Government National Mortgage Association 8.000%, 11/15/2029 ...................... Aaa 485,058 561,129 Government National Mortgage Association 8.500%, with various maturities to 2023 (f) ............................. Aaa 614,738 47,577 Government National Mortgage Association 9.000%, with various maturities to 2016 (f) ............................. Aaa 53,020 107,184 Government National Mortgage Association 11.500%, with various maturities to 2015 (f) ............................. Aaa 125,421 ------------ 102,432,799 ------------ Office/Business Equipment -- 0.5% 1,700,000 Xerox Corp. 7.125%, 6/15/2010 ....................... B1 1,697,875 ------------ Oil & Gas -- 5.4% 2,464,000 Kinder Morgan Energy Partners LP 7.125%, 3/15/2012 ....................... Baa1 2,948,730 3,535,000 Pemex Finance, Ltd. 8.020%, 5/15/2007 ....................... Baa1 3,998,226 3,000,000 Pemex Finance, Ltd. 9.150%, 11/15/2018 ...................... Baa1 3,731,940 3,265,000 Pemex Project Funding Master Trust 0/7.875%, 2/01/2009 (e) ................. Baa1 3,730,262 1,300,000 Sempra Energy 6.950%, 12/01/2005 ...................... A2 1,440,737 1,750,000 Transocean, Inc. 6.625%, 4/15/2011 ....................... Baa2 2,027,274 ------------ 17,877,169 ------------ Restaurants -- 0.3% 1,075,000 Yum! Brands, Inc. 7.450%, 5/15/2005 ....................... Ba1 1,155,625 ------------ Retailers -- 0.6% 1,982,000 J.C. Penney Co., Inc. 9.750%, 6/15/2021 ....................... Ba3 2,041,460 ------------
See accompanying notes to financial statements. 13 Bond Income Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited)
Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - ----------------------------------------------------------------------------------------------- Transportation -- 0.4% $ 1,155,000 CSX Corp. 4.875%, 11/01/2009 .................................. Baa2 $ 1,230,534 ------------ U.S. Government -- 6.6% 3,350,000 United States Treasury Bonds 7.500%, 11/15/2016 .................................. Aaa 4,547,494 5,520,000 United States Treasury Notes 3.000%, 11/15/2007 (d) .............................. Aaa 5,693,792 2,575,000 United States Treasury Notes 3.500%, 11/15/2006 (d) .............................. Aaa 2,714,313 2,370,000 United States Treasury Notes 4.750%, 11/15/2008 (d) .............................. Aaa 2,627,275 ------------ 5,700,000 United States Treasury Notes 6.125%, 8/15/2007 ................................... Aaa 6,593,521 ------------ 22,176,395 ------------ U.S. Government Agencies -- 9.2% 14,000,000 Federal Home Loan Mortgage Corp. 3.875%, 2/15/2005 ................................... Aaa 14,572,180 6,500,000 Federal National Mortgage Association 5.250%, 1/15/2009 ................................... Aaa 7,298,336 940,000 Federal National Mortgage Association 6.625%, 11/15/2010 .................................. Aaa 1,136,368 10,805,000 Federal National Mortgage Association Euro Medium Term Note 6.375%, 8/15/2007 (AUD) ............................. Aaa 7,610,513 ------------ 30,617,397 ------------ Total Bonds and Notes (Identified Cost $306,400,724) 326,615,834 ------------ Short Term Investments -- 10.2% 7,306,781 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $7,306,933 on 7/01/2003, collateralized by $7,468,987 Federal Home Loan Mortgage Bond, 4.064%, due 7/01/2030 valued at $7,672,517(g) ................... 7,306,781 1,517,918 Bank of Montreal, 1.08%, due 7/02/2003(g) ........... 1,517,918 3,814,086 Bank of Montreal, 1.15%, due 7/09/2003(g) ........... 3,814,086 1,897,397 Bank of Nova Scotia, 1.05%, due 8/29/2003(g) ............................ 1,897,397 2,276,877 Bank of Nova Scotia, 1.16%, due 7/09/2003(g) ............................. 2,276,877 379,480 BNP Paribas, 1.03%, due 7/21/2003(g) ................ 379,480 758,959 Comerica Bank, 1.073%, due 11/19/2003(g) ............ 758,959 379,479 Credit Agricole Indosuez, 1.05%, due 8/26/2003(g) ............................. 379,479 758,959 Den Danske Bank, 1.04%, due 7/24/2003(g) ............ 758,959 2,656,356 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(g) ............................ 2,656,356 758,959 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(g) ............................ 758,959 292,780 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(g) ............................ 292,780 5,462,664 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(g) ............................ 5,462,664 2,276,877 Royal Bank of Canada, 1.031%, due 7/07/2003(g) ............................ 2,276,877 Short Term Investments -- (continued) $ 1,517,918 Royal Bank of Scotland, 1.05%, due 7/28/2003(g) ............................. $ 1,517,918 1,897,397 Royal Bank of Scotland, 1.125%, due 7/01/2003(g) ............................ 1,897,397 Total Short Term Investments ------------ (Identified Cost $33,952,887) ....................... 33,952,887 ------------ Total Investments -- 108.1% (Identified Cost $340,353,611) (b) .................. 360,568,721 Other assets less liabilities ....................... (26,866,358) ------------ Total Net Assets -- 100% ............................ $333,702,363 ============ (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $340,707,695 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost .......... $ 21,146,412 Aggregate gross unrealized appreciation for all investments in which there is an excess of tax cost over value .......... (1,285,385) ------------ Net unrealized appreciation ................................. $ 19,861,027 ============
At December 31, 2002, the Fund had a capital loss carryover of approximately $31,935,190 of which $2,299,128 expires on December 31, 2007, $7,872,697 expires on December 31, 2008 and $21,763,365 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2002, the Fund has elected to defer $1,483,155 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2003. Securites are generally rated at the time of issuance. Rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at June 30, 2003. 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, 2003. (e) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. (f) The Fund's investment in mortgage-backed securities of the Federal National Mortgage Association and the Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of this issuer which have the same coupon rate have been aggregated for the purpose of presentation in the schedule of investments. (g) Represents investments of securities lending collateral. 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $7,049,278 or 2.1% of net assets. AUD Australian Dollar CAD Canadian Dollar EUR Euro See accompanying notes to financial statements. 14 Government Securities Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited)
Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - ----------------------------------------------------------------------------------------------- Bonds and Notes -- 97.6% of Total Net Assets Mortgage-Backed -- 15.9% $ 497,951 Federal Home Loan Mortgage Corp. 7.500%, 4/01/2012 .................................. Aaa $ 531,351 4,818,519 Federal National Mortgage Association 6.500%, with various maturities to 2032 (d) ....... Aaa 5,024,902 454,050 Federal National Mortgage Association 7.500%, 12/01/2030 ................................. Aaa 482,414 3,763,078 Government National Mortgage Association 6.500%, 5/15/2031 .................................. Aaa 3,955,419 4,534,550 Government National Mortgage Association 7.000%, with various maturities to 2031 (d) ........ Aaa 4,789,299 374,318 Government National Mortgage Association 7.500%, 4/15/2027 .................................. Aaa 399,038 54,560 Government National Mortgage Association 8.500%, 2/15/2006 .................................. Aaa 58,073 116,641 Government National Mortgage Association 9.000%, with various maturities to 2009 (d) ....... Aaa 126,726 45,969 Government National Mortgage Association 9.500%, with various maturities to 2009 (d) ....... Aaa 50,978 33,158 Government National Mortgage Association 10.000%, with various maturities to 2016 (d) ....... Aaa 38,104 4,324 Government National Mortgage Association 12.500%, 6/15/2014 ................................. Aaa 5,145 ------------ 15,461,449 ------------ U.S. Government -- 75.5% 13,500,000 United States Treasury Bonds 5.250%, 11/15/2028 ................................. Aaa 14,695,492 15,000,000 United States Treasury Bonds 7.250%, 5/15/2016 (e) .............................. Aaa 19,948,830 15,000,000 United States Treasury Bonds 8.750%, with various maturities to 2020 (d) ........ Aaa 22,625,195 4,000,000 United States Treasury Bonds, Zero Coupon 11/15/2014 ......................................... Aaa 3,271,512 8,977,020 United States Treasury Inflation Indexed Bonds 3.500%, 1/15/2011 .................................. Aaa 10,195,929 2,500,000 United States Treasury Notes 2.875%, 6/30/2004 .................................. Aaa 2,545,507 ------------ 73,282,465 ------------ U.S. Government Agencies -- 6.2% 5,000,000 Federal National Mortgage Association 6.625%, 9/15/2009 .................................. Aaa 5,999,080 ------------ Total Bonds and Notes (Identified Cost $86,924,745) 94,742,994 ------------ Short Term Investments -- 16.4% 2,045,165 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $2,045,165 on 7/01/2003, collateralized by $2,086,964 Government National Mortgage Bond, 5.625%, due 10/20/2023 valued at $2,147,423 ...................................... 2,045,165 790,578 Bank of Montreal, 1.08%, due 7/02/2003(f) .......... 790,578 1,986,492 Bank of Montreal, 1.15%, due 7/09/2003(f) .......... 1,986,492 988,222 Bank of Nova Scotia, 1.05%, due 8/29/2003(f) ...... 988,222 1,185,866 Bank of Nova Scotia, 1.16%, due 7/09/2003(f) ....... 1,185,866 197,644 BNP Paribas, 1.03%, due 7/21/2003(f) ............... 197,644 395,289 Comerica Bank, 1.073%, due 11/19/2003(f) ........... 395,289 197,644 Credit Agricole Indosuez, 1.05%, due 8/26/2003(f) .. 197,644 395,289 Den Danske Bank, 1.04%, due 7/24/2003(f) ........... 395,289 Short Term Investments -- (continued) $ 1,383,511 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(f) ........................... $ 1,383,511 395,289 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(f) ........................... 395,289 152,489 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(f) ........................... 152,489 2,845,121 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(f) ........................... 2,845,121 1,185,866 Royal Bank of Canada, 1.031%, due 7/07/2003(f) ..... 1,185,866 790,578 Royal Bank of Scotland, 1.05%, due 7/28/2003(f) .... 790,578 988,222 Royal Bank of Scotland, 1.125%, due 7/01/2003(f) ... 988,222 ------------ Total Short Term Investments (Identified Cost $15,923,265) 15,923,265 ------------ Total Investments -- 114.0% (Identified Cost $102,848,010) (b) ................. 110,666,259 Other assets less liabilities ...................... (13,563,646) ------------ Total Net Assets -- 100% ........................... $ 97,102,613 ============ (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $103,584,154 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost ......... $ 7,109,114 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ......... (27,009) ------------ Net unrealized appreciation ................................ $ 7,082,105 ============
At December 31, 2002, the Fund had a capital loss carryover of approximately $9,880,837 of which $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, 2002, the Fund has elected to defer $58,306 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2003. Securities are generally rated at the time of issuance. Rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at June 30, 2003. 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 National Mortgage Association and the Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of this issuer which have the same coupon rate have been aggregated for the purpose of presentation in the schedule of investments. (e) All or a portion of this security was on loan to brokers at June 30, 2003. (f) Represents investments of securities lending collateral. See accompanying notes to financial statements. 15 High Income Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited) Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - -------------------------------------------------------------------------------- Bonds and Notes -- 97.3% of Total Net Assets Airlines -- 3.3% $ 150,000 Continental Airlines, Inc 8.000%, 12/15/2005 (d) ................. B3 $ 134,250 225,000 Continental Airlines, Inc., Class C-2 7.434%, 9/15/2004 ...................... B2 198,522 1,000,000 Delta Air Lines, Inc. 8.300%, 12/15/2029 ..................... Ba3 705,000 800,000 Northwest Airlines, Inc. 7.625%, 3/15/2005 (d) .................. B2 676,000 ---------- 1,713,772 ---------- Automotive -- 4.0% 400,000 Cummins, Inc. 7.125%, 3/01/2028 ...................... Ba2 358,000 1,000,000 Dana Corp. 9.000%, 8/15/2011 (d) .................. Ba3 1,082,500 100,000 General Motors Corp. 8.375%, 7/15/2033 ...................... Baa1 98,113 550,000 Navistar International Corp. 8.000%, 2/01/2008 (d) .................. B2 550,000 ---------- 2,088,613 ---------- Beverages, Food & Tobacco -- 1.2% 150,000 Altria Group, Inc. 6.800%, 12/01/2003 ..................... Baa2 150,746 300,000 Gruma SA 7.625%, 10/15/2007 (yankee) ............ Ba2 327,750 145,000 Smithfield Foods, Inc., 144A 7.750%, 5/15/2013 ...................... Ba2 155,512 ---------- 634,008 ---------- Chemicals -- 6.7% 350,000 Borden Chemical, Inc. 7.875%, 2/15/2023 ...................... B1 227,500 100,000 Borden Chemical, Inc. 9.200%, 3/15/2021 ...................... B1 65,500 100,000 Borden Chemical, Inc. 9.250%, 6/15/2019 ...................... B1 64,000 225,000 Equistar Chemicals LP 6.500%, 2/15/2006 ...................... -- 214,875 585,000 Ethyl Corp., 144A 8.875%, 5/01/2010 ...................... B2 596,700 400,000 FMC Corp. 10.250%, 11/01/2009 .................... Ba2 450,000 1,000,000 Huntsman International LLC 10.125%, 7/01/2009 ..................... Caa1 960,000 750,000 IMC Global, Inc. 11.250%, 6/01/2011 ..................... Ba1 780,000 155,000 Lyondell Chemical Co. 9.625%, 5/01/2007 ...................... Ba3 151,900 ---------- 3,510,475 ---------- Commercial Services -- 1.9% 250,000 Corrections Corp. of America 7.500%, 5/01/2011 ...................... B2 261,250 750,000 United Rentals, Inc. 9.250%, 1/15/2009 (d) .................. B2 738,750 ---------- 1,000,000 ---------- Communications -- 13.3% $ 75,000 American Tower Corp., Class A 5.000%, 2/15/2010 ...................... Caa1 $ 64,125 300,000 COLT Telecom Group PLC 0/12.000%, 12/15/2006 (d) (e) .......... B3 303,000 450,000 CommScope, Inc. 4.000%, 12/15/2006 ..................... Ba3 407,250 750,000 Juniper Networks, Inc. 4.750%, 3/15/2007 ...................... B2 707,812 460,000 Lucent Technologies, Inc. 6.450%, 3/15/2029 ...................... B2 315,675 1,000,000 Nextel Communications, Inc. 9.500%, 2/01/2011 ...................... B3 1,107,500 350,000 Nextel Communications, Inc. 9.750%, 10/31/2007 ..................... B3 362,250 425,000 Nortel Networks Corp. 4.250%, 9/01/2008 ...................... B3 358,062 1,890,000 Qwest Capital Funding, Inc. 7.750%, 2/15/2031 ...................... Ba2 1,474,200 850,000 Rogers Wireless Communications, Inc. 8.800%, 10/01/2007 ..................... Ba1 868,062 925,000 Sprint Capital Corp. 6.875%, 11/15/2028 ..................... Baa3 937,719 ---------- 6,905,655 ---------- Computers -- 0.3% 180,000 Maxtor Corp. 5.750%, 3/01/2012 ...................... Caa1 144,000 ---------- Containers & Packaging -- 0.6% 300,000 Owens-Illinois Glass Container, North America, 144A 7.750%, 5/15/2011 ...................... B1 317,250 ---------- Electric Utilities -- 6.8% 190,000 AES Corp. (The) 8.500%, 11/01/2007 (d) ................. Caa1 180,500 200,000 AES Corp. (The) 8.875%, 2/15/2011 (d) .................. Ba3 195,500 200,000 Empresa Nacional de Electricidad SA 7.875%, 2/01/2027 ...................... Baa1 180,080 525,000 Enersis SA 7.400%, 12/01/2016 (yankee) ............ Ba3 517,109 240,000 ESI Tractebel Acquisition Corp. 7.990%, 12/30/2011 ..................... Ba1 240,300 1,367,550 Panda Funding Corp. 11.625%, 8/20/2012 ..................... Ba3 1,080,364 290,065 Salton Sea Funding Corp. 7.840%, 5/30/2010 ...................... Ba3 306,019 51,718 Salton Sea Funding Corp. 8.300%, 5/30/2011 ...................... Ba3 55,597 436,006 South Point Energy Center LLC/Broad River Energy LLC/Rockgen Energy LLC,144A 8.400%, 5/30/2012 ...................... B1 433,826 210,000 Southern California Edison Co. 7.125%, 7/15/2025 ...................... Ba2 213,937 150,000 Southern California Edison Co. 7.625%, 1/15/2010 ...................... Ba3 158,062 ---------- 3,561,294 ---------- See accompanying notes to financial statements. 16 High Income Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited) Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - -------------------------------------------------------------------------------- Electronics -- 3.0% $1,050,000 Celestica, Inc., Zero Coupon 8/01/2020 .............................. Ba2 $ 548,625 125,000 Cypress Semiconductor Corp. 3.750%, 7/01/2005 ...................... Ba3 124,687 350,000 Kulicke & Soffa Industries, Inc. 4.750%, 12/15/2006 ..................... B3 277,812 525,000 LSI Logic Corp. 4.000%, 11/01/2006 ..................... -- 488,250 250,000 Sanmina-SCI Corp., Zero Coupon 9/12/2020 .............................. Ba2 120,000 ---------- 1,559,374 ---------- Entertainment & Leisure -- 2.4% 475,000 Park Place Entertainment Corp. 8.125%, 5/15/2011 (d) .................. Ba2 521,312 300,000 Royal Caribbean Cruises, Ltd. 7.500%, 10/15/2027 ..................... Ba2 265,500 500,000 Six Flags, Inc. 8.875%, 2/01/2010 ...................... B2 480,000 ---------- 1,266,812 ---------- Environmental Control -- 0.2% 110,000 Allied Waste North America, Inc. 8.500%, 12/01/2008 ..................... Ba3 118,250 ---------- Financial Services -- 0.8% 300,000 Ford Motor Credit Co. 7.250%, 10/25/2011 ..................... A3 308,422 100,000 General Motors Acceptance Corp. 6.875%, 8/28/2012 (d) .................. A3 99,766 ---------- 408,188 ---------- Food Retailers -- 0.6% 150,000 Delhaize America, Inc. 9.000%, 4/15/2031 ...................... Baa3 165,000 125,000 Domino's, Inc., 144A 8.250%, 7/01/2011 ...................... B3 129,062 ---------- 294,062 ---------- Foreign Governments -- 2.1% 150,000 Dominican Republic, 144A 9.040%, 1/23/2013 ...................... Ba2 135,750 1,000,000 Republic of Brazil 9.375%, 4/07/2008 ...................... B1 985,000 ---------- 1,120,750 ---------- Forest Products & Paper -- 6.4% 250,000 Abitibi-Consolidated, Inc. 8.500%, 8/01/2029 ...................... Baa3 256,166 1,000,000 Georgia-Pacific Corp. 9.500%, 12/01/2011 (d) ................. Ba1 1,101,250 1,000,000 Georgia-Pacific Corp. 9.875%, 11/01/2021 ..................... Ba1 1,010,000 350,000 Pope & Talbot, Inc. 8.375%, 6/01/2013 ...................... Ba3 337,750 635,000 Tembec Industries, Inc. 7.750%, 3/15/2012 ...................... Ba1 615,950 ---------- 3,321,116 ---------- Health Care Providers-- 0.7% $ 150,000 HCA, Inc. 7.500%, 12/15/2023 ..................... Ba1 $ 153,635 200,000 HCA, Inc., Medium Term Note 7.580%, 9/15/2025 ...................... Ba1 208,280 ---------- 361,915 ---------- Heavy Machinery -- 1.1% 250,000 Case Corp. 7.250%, 8/01/2005 ...................... Ba2 250,313 350,000 Case Credit Corp. 6.750%, 10/21/2007 ..................... Ba2 337,750 ---------- 588,063 ---------- Home Construction, Furnishings & Appliances -- 2.1% 475,000 D.R. Horton, Inc. 7.875%, 8/15/2011 ...................... Ba1 524,875 500,000 K. Hovnanian Enterprises, Inc. 8.000%, 4/01/2012 ...................... Ba3 545,000 ---------- 1,069,875 ---------- Industrial - Diversified -- 1.8% 110,000 Corning, Inc. 3.500%, 11/01/2008 (d) ................. BAA3 118,113 225,000 Corning, Inc. 6.750%, 9/15/2013 ...................... Ba2 236,531 265,000 Corning, Inc., Zero Coupon 11/08/2015 ............................. Ba2 196,763 350,000 Tyco International Group SA 6.750%, 2/15/2011 ...................... Ba2 371,000 ---------- 922,407 ---------- Insurance -- 0.8% 200,000 Provident Cos., Inc. 7.250%, 3/15/2028 ...................... Baa3 197,000 200,000 UnumProvident Corp. 7.375%, 6/15/2032 ...................... Baa3 198,000 ---------- 395,000 ---------- Lodging -- 5.7% 300,000 Felcor Lodging LP 0/8.500%, 6/01/2011 (e) ................ B1 302,250 750,000 Host Marriott LP 9.250%, 10/01/2007 ..................... Ba2 806,250 851,000 La Quinta Corp. 7.000%, 8/15/2007 ...................... Ba3 866,956 300,000 La Quinta Inns, Inc. Medium Term Note 7.330%, 4/01/2008 ...................... Ba3 306,000 650,000 Starwood Hotels & Resorts Worldwide, Inc. 0/7.875%, 5/01/2012 (d) (e) ............ Ba1 711,750 ---------- 2,993,206 ---------- Media - Broadcasting & Publishing -- 3.7% 900,000 CSC Holdings, Inc. 7.875%, 12/15/2007 ..................... Ba2 920,250 150,000 Dex Media East LLC 12.125%, 11/15/2012 .................... B3 177,375 225,000 R.H. Donnelley Financial Corp. I, 144A 10.875%, 12/15/2012 .................... B2 262,125 150,000 Rogers Communications, Inc. 2.000%, 11/26/2005 ..................... Ba1 135,938 400,000 TCI Communications, Inc. 7.125%, 2/15/2028 ...................... Baa2 440,964 ---------- 1,936,652 ---------- See accompanying notes to financial statements. 17 High Income Fund-- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited) Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - -------------------------------------------------------------------------------- Metals -- 0.2% $ 125,000 MascoTech, Inc. 4.500%, 12/15/2003 ..................... B3 $ 121,875 Office/Business Equipment -- 0.9% 200,000 Xerox Corp. 7.625%, 6/15/2013 ...................... B1 200,250 300,000 Xerox Corp., Medium Term Note 7.200%, 4/01/2016 ...................... B1 288,000 ----------- 488,250 ----------- Oil & Gas -- 9.5% 275,000 Chesapeake Energy Corp. 8.125%, 4/01/2011 ...................... B1 296,313 150,000 Chesapeake Energy Corp. 9.000%, 8/15/2012 ...................... Ba3 167,250 100,000 Chesapeake Energy Corp., 144A 7.500%, 9/15/2013 ...................... Ba3 106,250 325,000 CITGO Petroleum Corp., 144A 11.375%, 2/01/2011 ..................... Ba3 362,375 700,000 El Paso CGP Co. 6.500%, 6/01/2008 ...................... Baa2 626,500 275,000 Grant Prideco Escrow Corp. 9.000%, 12/15/2009 ..................... Ba3 305,250 155,000 Nuevo Energy Co. 9.500%, 6/01/2008 ...................... B2 162,556 100,000 Parker Drilling Co. 5.500%, 8/01/2004 (d) .................. B3 99,000 200,000 PDVSA Finance, Ltd. 7.400%, 8/15/2016 (yankee) ............. Baa2 163,000 500,000 PDVSA Finance, Ltd. 9.375%, 11/15/2007 ..................... Baa2 490,000 300,000 Pioneer Natural Resources Co. 7.200%, 1/15/2028 ...................... Ba1 327,641 400,000 Premcor Refining Group (The), Inc., 144A 7.500%, 6/15/2015 ...................... Ba3 394,000 400,000 Swift Energy Co. 9.375%, 5/01/2012 ...................... B3 435,000 920,000 Trico Marine Services, Inc. 8.875%, 5/15/2012 ...................... B2 791,200 105,000 Williams Cos. (The), Inc. 7.500%, 1/15/2031 ...................... B3 99,225 50,000 Williams Cos. (The), Inc. 7.875%, 9/01/2021 ...................... B3 48,750 75,000 Williams Cos., Inc. 7.125%, 9/01/2011 (d) .................. Baa3 73,125 ----------- 4,947,435 ----------- Pharmaceuticals -- 2.0% 250,000 Genzyme Corp. 3.000%, 5/15/2021 ...................... -- 249,375 425,000 Human Genome Sciences, Inc. 3.750%, 3/15/2007 ...................... -- 350,625 125,000 ICN Pharmaceuticals, Inc. 6.500%, 7/15/2008 ...................... B1 123,750 255,000 IVAX Corp. 4.500%, 5/15/2008 ...................... -- 247,350 110,000 Vertex Pharmaceuticals, Inc. 5.000%, 9/19/2007 ...................... -- 91,988 ----------- 1,063,088 ----------- REITs - Office Buildings -- 2.5% $1,000,000 Crescent Real Estate Equities LP 9.250%, 4/15/2009 ...................... Ba3 $ 1,078,300 200,000 TriNet Corporate Realty Trust, Inc. 7.700%, 7/15/2017 ...................... Ba1 206,500 ----------- 1,284,800 ----------- Retailers -- 5.1% 800,000 Dillard's, Inc. 7.750%, 7/15/2026 ...................... Ba3 706,000 800,000 Foot Locker, Inc. 8.500%, 1/15/2022 ...................... B3 833,000 1,000,000 J.C. Penney Co., Inc. 8.125%, 4/01/2027 ...................... Ba3 960,000 150,000 J.C. Penney Co., Inc. 8.250%, 8/15/2022 ...................... Ba3 147,000 ----------- 2,646,000 ----------- Semiconductors -- 0.7% 380,000 Lam Research Corp. 4.000%, 6/01/2006 ...................... -- 369,075 ----------- Telephone Systems -- 1.5% 700,000 Philippine Long Distance Telephone Co. 10.500%, 4/15/2009 ..................... Ba3 756,133 ----------- Textiles, Clothing & Fabrics -- 2.6% 905,000 Phillips Van-Heusen Corp. 7.750%, 11/15/2023 ..................... Ba2 909,525 400,000 Russell Corp. 9.250%, 5/01/2010 ...................... B1 436,000 ----------- 1,345,525 ----------- Toys/Games/Hobbies -- 1.1% 600,000 Hasbro, Inc. 6.600%, 7/15/2028 ...................... Ba3 583,500 ----------- Transportation -- 1.7% 850,000 Grupo Transportacion Ferroviaria Mexicana SA de CV 0/11.750%, 6/15/2009 (yankee)(e) ....... B1 867,000 ----------- Total Bonds and Notes (Identified Cost $46,567,710) ........................... 50,703,418 ----------- Shares - -------------------------------------------------------------------------------- Preferred Stocks -- 0.1% Entertainment & Leisure -- 0.1% 3,000 Six Flags, Inc., 7.25%, 8/15/2009 ...... 59,100 ---------- Total Preferred Stocks (Identified Cost $59,303) ............................... 59,100 ---------- Principal Amount - -------------------------------------------------------------------------------- Short Term Investments -- 14.5% $ 467,988 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $467,998 on 7/01/2003, collateralized by $491,892 Federal National Mortgage Bond, 3.208%, due 3/25/2009 valued at $494,661 ....... 467,988 402,019 Bank of Montreal, 1.08%, due 7/02/2003(f) ........................... 402,019 1,010,158 Bank of Montreal, 1.15%, due 7/09/2003(f) ........................... 1,010,158 502,524 Bank of Nova Scotia, 1.05%, due 8/29/2003(f) ........................... 502,524 603,029 Bank of Nova Scotia, 1.16%, due 7/09/2003(f) ........................... 603,029 100,505 BNP Paribas, 1.03%, due 7/21/2003(f) ........................... 100,505 See accompanying notes to financial statements. 18 High Income Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited) Principal Amount Description Value (a) - -------------------------------------------------------------------------------- Short Term Investments -- (continued) $ 201,010 Comerica Bank, 1.073%, due 11/19/2003(f) ...................... $ 201,010 100,505 Credit Agricole Indosuez, 1.05%, due 8/26/2003(f) ................ 100,505 201,010 Den Danske Bank, 1.04%, due 7/24/2003(f) ....................... 201,010 703,534 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(f) ............... 703,534 201,010 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(f) ............... 201,010 77,542 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(f) ............... 77,542 1,446,782 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(f) ............... 1,446,782 603,029 Royal Bank of Canada, 1.031%, due 7/07/2003(f) ............... 603,029 402,019 Royal Bank of Scotland, 1.05%, due 7/28/2003(f) ................ 402,019 502,524 Royal Bank of Scotland, 1.125%, due 7/01/2003(f) ............... 502,524 ----------- Total Short Term Investments (Identified Cost $7,525,188) ....................... 7,525,188 ----------- Total Investments -- 111.9% (Identified Cost $54,152,201) (b) ...... 58,287,706 Other assets less liabilities .......... (6,193,837) ----------- Total Net Assets -- 100% ............... $52,093,869 =========== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $54,174,832 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost ......................... $ 4,930,793 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ................................ (817,920) ----------- Net unrealized appreciation .................... $ 4,112,873 =========== At December 31, 2002, the Fund had a capital loss carryover of approximately $88,753,460 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, $43,374,721 expires on December 31, 2009 and $26,826,633 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2002, the Fund has elected to defer $256,493 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2003. Securities are generally rated at the time of issuance. Rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at June 30, 2003. 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, 2003. (e) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. (f) Represents investments of securities lending collateral. REIT Real Estate Investment Trust 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $2,892,850 or 5.6% of net assets. See accompanying notes to financial statements. 19 Limited Term U.S. Government Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited) Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - ------------------------------------------------------------------------------- Bonds and Notes -- 99.4% of Total Net Assets Asset-Backed -- 2.4% $1,845,000 EQCC Home Equity Loan Trust 6.134%, 7/20/2028 .................... Aaa $ 1,949,870 1,675,000 Residential Funding Mortgage Securities II 5.420%, 2/25/2016 .................... Aaa 1,763,083 ------------ 3,712,953 ------------ Mortgage-Backed -- 69.2% 2,988,961 Federal Home Loan Mortgage Corp. 5.000%, 5/01/2018 .................... Aaa 3,089,807 1,412,688 Federal Home Loan Mortgage Corp. 7.000%, 2/01/2016 .................... Aaa 1,500,669 12,998 Federal Home Loan Mortgage Corp. 7.500%, 6/01/2026 .................... Aaa 13,875 207,374 Federal Home Loan Mortgage Corp 8.000%, with various maturities to 2015 (d) ............................. Aaa 218,607 10,837 Federal Home Loan Mortgage Corp. 10.000%, 7/01/2019 .................. Aaa 12,391 1,318,585 Federal Home Loan Mortgage Corp. 11.500%, with various maturities to 2020 (d) ............................. Aaa 1,517,260 37,256,633 Federal National Mortgage Association 5.500%, with various maturities to 2033 (d) ............................. Aaa 38,804,559 20,657,995 Federal National Mortgage Association 6.000%, with various maturities to 2032 (d) ............................. Aaa 21,550,307 11,804,158 Federal National Mortgage Association 6.500%, with various maturities to 2032 (d) ............................. Aaa 12,336,248 1,176,717 Federal National Mortgage Association 7.000%, with various maturities to 2022 (d) ............................. Aaa 1,255,615 5,141,072 Federal National Mortgage Association 7.500%, with various maturities to 2032 (d) ............................. Aaa 5,471,176 491,736 Federal National Mortgage Association 8.000%, with various maturities to 2016 (d) ............................. Aaa 527,828 6,512,555 Government National Mortgage Association 6.000%, with various maturities to 2033 (d) ............... Aaa 6,815,204 4,809,189 Government National Mortgage Association 6.500%, with various maturities to 2033 (d) ............... Aaa 5,024,174 5,027,895 Government National Mortgage Association 7.000%, with various maturities to 2031 (d) ............... Aaa 5,315,547 2,445,980 Government National Mortgage Association 8.000%, 10/15/2029 ....... Aaa 2,640,698 30,774 Government National Mortgage Association 12.500%, with various maturities to 2015 (d) ............... Aaa 36,705 308,601 Government National Mortgage Association 16.000%, with various maturities to 2012 (d) ............... Aaa 376,691 119,400 Government National Mortgage Association 17.000%, with various maturities to 2011 (d) ............... Aaa 148,360 542,660 Residential Asset Securitization Trust 5.820%, 1/25/2027 .................... Aaa 544,645 ------------ 107,200,366 ------------ Supranational -- 3.1% 3,210,000 Inter-American Development Bank Bonds 12.250%, 12/15/2008 .................. Aaa 4,741,507 ------------ U.S. Government -- 15.5% 5,800,000 United States Treasury Notes 4.375%, 8/15/2012 (e) ................ Aaa 6,218,917 4,000,000 United States Treasury Notes 4.875%, 2/15/2012 .................... Aaa 4,446,248 3,800,000 United States Treasury Notes 5.000%, 8/15/2011 .................... Aaa $ 4,262,532 $ 950,000 United States Treasury Notes 6.250%, 2/15/2007 .................... Aaa 1,092,500 2,000,000 United States Treasury Notes 6.500%, 10/15/2006 ................... Aaa 2,297,812 500,000 United States Treasury Notes 6.500%, 5/15/2005 .................... Aaa 548,360 4,500,000 United States Treasury Notes 7.000%, 7/15/2006 .................... Aaa 5,201,015 ------------ 24,067,384 ------------ U.S. Government Agencies -- 9.2% 5,000,000 Federal Home Loan Mortgage Corp. 5.750%, 4/15/2008 .................... Aaa 5,713,510 3,000,000 Federal National Mortgage Association 5.500%, 5/02/2006 .................... Aa2 3,293,625 3,825,000 Federal National Mortgage Association 6.000%, 12/15/2005 ................... Aaa 4,229,096 1,000,000 Federal National Mortgage Association 7.000%, 7/15/2005 .................... Aaa 1,111,180 ------------ 14,347,411 ------------ Total Bonds and Notes ................ (Identified Cost $150,520,130) 154,069,621 ------------ Short Term Investments -- 6.2% 3,191,166 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $3,191,231 on 7/01/2003, collateralized by $3,128,874 Federal National Mortgage Bond, 7.50%, due 3/01/2015 valued at $3,350,933 ........................... 3,191,166 366,632 Bank of Montreal, 1.08%, due 7/02/2003(f) ......................... 366,632 921,240 Bank of Montreal, 1.15%, due 7/09/2003(f) ......................... 921,240 458,290 Bank of Nova Scotia, 1.05%, due 8/29/2003(f) ..................... 458,290 549,948 Bank of Nova Scotia, 1.16%, due 7/09/2003(f) ..................... 549,948 91,658 BNP Paribas, 1.03%, due 7/21/2003(f) ......................... 91,658 183,316 Comerica Bank, 1.073%, due 11/19/2003(f) ........................ 183,316 91,658 Credit Agricole Indosuez, 1.05%, due 8/26/2003(f)............... 91,658 183,316 Den Danske Bank, 1.04%, due 7/24/2003(f).......................... 183,316 641,606 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(f).............. 641,606 183,316 Liberty Lighthouse Funding, 1.081%, due 183,316 7/14/2003(f) ............. 183,316 70,717 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(f) ....... 70,717 1,319,432 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(f) ............. 1,319,432 549,949 Royal Bank of Canada, 1.031%, due 7/07/2003(f)...................... 549,949 366,632 Royal Bank of Scotland, 1.05%, due 7/28/2003(f)...................... 366,632 458,290 Royal Bank of Scotland, 1.125%, due 7/01/2003(f) .............. 458,290 ------------ Total Short Term Investments (Identified Cost $9,627,166) ......... 9,627,166 ------------ Total Investments -- 105.6% (Identified Cost $160,147,296)(b)..... 163,696,787 Other assets less liabilities ........ (8,698,752) ------------ Total Net Assets-- 100% .............. $154,998,035 ============ See accompanying notes to financial statements. 20 Limited Term U.S. Government Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited) (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $161,062,401 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.......... $2,863,345 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value.......... (228,957) ---------- Net unrealized appreciation................................. $2,634,388 ========== At December 31, 2002, the Fund had a capital loss carryover of approximately $22,866,796 of which $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. (c) The ratings shown are believed to be the most recent ratings available at June30, 2003. Securites are generally rated at the time of issuance. Rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at June 30, 2003. 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, 2003. (f) Represents investments of securities lending collateral. See accompanying notes to financial statements. 21 Strategic Income Fund -- Schedule of Investments Investments as of June 30, 2003 (unaudited)
Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - --------------------------------------------------------------------------------- Bonds and Notes -- 87.8% of Total Net Assets Convertible Bond -- 8.6% Canada -- 1.1% $ 500,000 Celestica, Inc., Zero Coupon 8/01/2020 ............................. Ba2 $ 261,250 2,900,000 Nortel Networks Corp. 4.250%, 9/01/2008 ..................... B3 2,443,250 750,000 Rogers Communications, Inc. 2.000%, 11/26/2005 .................... Ba1 679,687 ----------- 3,384,187 ----------- Netherlands -- 0.5% 1,550,000 Infineon Technologies Holding BV 4.250%, 2/06/2007, (EUR) .............. -- 1,549,085 ----------- United Kingdom -- 2.2% 500,000 COLT Telecom Group PLC 2.000%, 3/29/2006, (EUR) .............. B3 477,416 4,075,000 COLT Telecom Group PLC 2.000%, 12/16/2006, (EUR) ............. B3 3,703,425 2,660,000 COLT Telecom Group PLC 2.000%, 4/03/2007, (EUR) .............. -- 2,386,850 ----------- 6,567,691 ----------- United States -- 4.8% 100,000 American Tower Corp., Class A 5.000%, 2/15/2010 ..................... Caa1 85,500 475,000 Amkor Technology, Inc. 5.000%, 3/15/2007(d) .................. B3 397,219 1,000,000 Builders Transport, Inc. 8.000%, 8/15/2005(e) (f) .............. B3 1,250 200,000 Builders Transport, Inc. 6.500%, 5/01/2011(e) (f) .............. -- 250 800,000 CommScope, Inc. 4.000%, 12/15/2006 .................... Ba3 724,000 400,000 Corning, Inc. 3.500%, 11/01/2008(d) ................. BAA3 429,500 1,875,000 Corning, Inc., Zero Coupon 11/08/2015 ............................ Ba2 1,392,187 213,000 Dixie Group, Inc. 7.000%, 5/15/2012 ..................... B3 132,060 500,000 Genzyme Corp. 3.000%, 5/15/2021 ..................... -- 498,750 1,600,000 Human Genome Sciences, Inc. 3.750%, 3/15/2007 ..................... -- 1,320,000 500,000 ICN Pharmaceuticals, Inc. 6.500%, 7/15/2008 ..................... B1 495,000 1,415,000 IVAX Corp. 4.500%, 5/15/2008 ..................... -- 1,372,550 450,000 Juniper Networks, Inc. 4.750%, 3/15/2007 ..................... B2 424,687 900,000 Kulicke & Soffa Industries, Inc. 4.750%, 12/15/2006 .................... B3 714,375 1,000,000 Lam Research Corp. 4.000%, 6/01/2006 ..................... -- 971,250 1,165,000 Loews Corp. 3.125%, 9/15/2007 ..................... A3 1,105,294 140,000 LSI Logic Corp. 4.000%, 11/01/2006 .................... -- 130,200 107,000 MascoTech, Inc. 4.500%, 12/15/2003 .................... B3 104,325 $ 2,422,000 Maxtor Corp. 5.750%, 3/01/2012 ..................... Caa1 $ 1,937,600 800,000 Nextel Communications, Inc. 5.250%, 1/15/2010 ..................... B3 752,000 100,000 Nextel Communications, Inc. 6.000%, 6/01/2011 ..................... B3 104,625 355,000 Richardson Electronics, Ltd. 7.250%, 12/15/2006 .................... B3 323,050 895,000 Sanmina-SCI Corp., Zero Coupon 9/12/2020 ............................. Ba2 429,600 500,000 Yellow Corp. 7.000%, 5/01/2011 ..................... B2 427,500 ----------- 14,272,772 ----------- Total Convertible Bonds (Identified Cost $24,036,373) ......... 25,773,735 ----------- Non-Convertible Bonds -- 79.2% Argentina -- 1.1% 1,000,000 Cablevision SA 13.750%, 4/30/2007(e) ................. Ca 330,000 2,405,000 Pecom Energia SA, 144A 8.125%, 7/15/2010 ..................... Ca 2,212,600 3,500,000 Republic of Argentina 8.875%, 3/01/2029(e) .................. Ca 770,000 ----------- 3,312,600 ----------- Brazil -- 4.8% 2,542,858 Republic of Brazil 8.000%, 4/15/2014(g) .................. B1 2,218,644 8,400,000 Republic of Brazil 8.875%, 4/15/2024 ..................... B1 6,535,200 6,308,000 Republic of Brazil 10.125%, 5/15/2027 .................... B1 5,503,730 ----------- 14,257,574 ----------- Canada -- 16.0% 8,505,000 British Columbia Province, Zero Coupon 9/05/2020, (CAD) ...................... Aa2 2,359,871 9,775,000 British Columbia Province, Zero Coupon 8/19/2022, (CAD) ...................... Aa2 2,397,364 10,000,00 British Columbia Province, Zero Coupon 8/23/2024, (CAD) ...................... Aa2 2,162,140 4,275,000 British Columbia Province, Zero Coupon 11/19/2027, (CAD) ..................... Aa2 769,374 8,100,000 Canadian Government 3.500%, 6/01/2004, (CAD) .............. Aaa 6,006,852 13,540,000 Canadian Government 6.000%, 9/01/2005, (CAD) .............. -- 10,595,774 4,515,000 Canadian Government 4.500%, 9/01/2007, (CAD) .............. -- 3,445,395 17,135,000 Manitoba Province, Zero Coupon 3/05/2031, (CAD) ...................... -- 2,590,863 500,000 New Brunswick FM Project, Inc. 0/6.470%, 11/30/2027, (CAD)(h) ........ -- 403,590 500,000 Nortel Networks Corp. 6.125%, 2/15/2006 ..................... Ba3 485,000 1,550,000 Ontario Hydro Bank, Zero Coupon 10/15/2021, (CAD) ..................... Aa3 400,884
See accompanying notes to financial statements. 22 Strategic Income Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited) Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - -------------------------------------------------------------------------------- Canada -- (continued) $ 3,050,000 Ontario Province 5.900%, 3/08/2006, (CAD) ............. -- $ 2,398,988 750,000 Ontario Province, Zero Coupon 7/13/2022, (CAD) .............. Aa3 185,535 7,600,000 Ontario Province, Zero Coupon 6/02/2027, (CAD) .............. Aa3 1,440,018 8,800,000 Ontario Province, Zero Coupon 3/08/2029, (CAD) .............. Aa3 1,515,613 325,000 Rogers Cablesystems, Ltd. 9.650%, 1/15/2014, (CAD) ............. -- 251,845 8,500,000 Saskatchewan Province, Zero Coupon 4/10/2014, (CAD) ......... Aa3 3,593,712 8,250,000 Saskatchewan Province, Zero Coupon 2/04/2022, (CAD) ......... Aa3 2,097,387 9,605,000 Saskatchewan Province, Zero Coupon 5/30/2025, (CAD) ......... Aa3 1,999,045 3,750,000 Saskatchewan Province, Zero Coupon 5.750%, 3/05/2029, (CAD) ............. Aa3 2,854,566 ----------- 47,953,816 ----------- Cayman Islands -- 1.4% 750,000 Enersis SA 6.900%, 12/01/2006 ................... Ba3 765,691 750,000 Enersis SA, (yankee) 7.400%, 12/01/2016 ................... Ba3 738,727 1,125,000 Enersis SA 6.600%, 12/01/2026 ................... Ba3 1,144,077 250,000 PDVSA Finance, Ltd. 9.375%, 11/15/2007 ................... Baa2 245,000 1,405,000 PDVSA Finance, Ltd., (yankee) 7.400%, 8/15/2016 ........... Baa2 1,145,075 ----------- 4,038,570 ----------- Chile -- 0.3% 1,050,000 Empresa Nacional de Electricidad SA 7.875%, 2/01/2027 .... Baa1 945,420 ----------- Colombia -- 0.3% 810,532 Transgas de Occidente SA, 144A 9.790%, 11/01/2010 .............. Ba2 834,848 ----------- Dominican Republic -- 0.3% 1,000,000 Dominican Republic, 144A 9.040%, 1/23/2013 .................... Ba2 905,000 ----------- Ecuador -- 0.9% 4,225,000 Republic of Ecuador, 144A 0/5.000%, 8/15/2030(h) ............... Caa2 2,577,250 ----------- Hong Kong -- 2.4% 6,125,000 Bangkok Bank PCL, 144A 9.025%, 3/15/2029 .................... Ba2 7,035,953 ----------- Malaysia -- 2.2% 1,750,000 Telekom Malaysia Berhad, 144A 7.875%, 8/01/2025 ............... Baa2 1,978,534 4,300,000 Tenaga Nasional Berhad, 144A 7.500%, 11/01/2025 .............. Baa3 4,668,660 ----------- 6,647,194 ----------- Mexico -- 5.5% $ 600,000 Grupo TMM SA de CV, (yankee) 0/10.250%, 11/15/2006(e) (h) ......... B2 $ 486,000 5,960,000 Grupo Transportacion Ferroviaria Mexicana SA de CV, (yankee) 0/11.750%, 6/15/2009(h) .............. B1 6,079,200 1,000,000 Petroleos Mexicanos, (yankee) 9.250%, 3/30/2018 .................... Baa1 1,200,000 4,350,000 Petroleos Mexicanos, (yankee) 9.500%, 9/15/2027 .................... Baa1 5,372,250 3,000,000 Petroleos Mexicanos, 144A, (yankee) 8.625%, 12/01/2023 .......... Baa1 3,435,000 ----------- 16,572,450 ----------- Norway -- 2.8% 55,575,000 Kingdom of Norway 6.750%, 1/15/2007, (NOK) ............. Aaa 8,424,745 ----------- Philippines -- 2.0% 3,100,000 Bangko Sentral Ng Philipinas, (yankee) 8.600%, 6/15/2027 .................... Ba1 2,859,750 1,750,000 Philippine Long Distance Telephone Co. 8.350%, 3/06/2017 .................... Ba3 1,504,447 1,992,000 Quezon Power (Philippines), Ltd., (yankee) 8.860%, 6/15/2017 ........... Ba2 1,563,720 ----------- 5,927,917 ----------- Republic of Korea -- 0.1% 300,000 Samsung Electronics Co., Ltd., 144A 7.700%, 10/01/2027 ........ Baa1 325,109 ----------- South Africa -- 1.6% 11,405,00 Republic of South Africa 12.500%, 12/21/2006, (ZAR) ........... A2 1,670,730 7,750,000 Republic of South Africa 13.000%, 8/31/2010, (ZAR) ............ A2 1,266,800 11,450,000 Republic of South Africa 13.500%, 9/15/2015, (ZAR) ............ A2 1,974,085 ----------- 4,911,615 ----------- Supranational -- 3.5% 22,300,00 International Bank for Reconstruction & Development, Euro Medium Term Note, Zero Coupon 8/20/2007, (NZD) ......... Aaa 10,532,145 ----------- United Kingdom -- 0.2% 500,000 Xerox Capital (Europe) PLC 5.250%, 12/03/2004, (EUR) ............ -- 572,324 ----------- United States -- 32.2% 750,000 AES Corp. (The) 8.375%, 3/01/2011, (GBP) ............. -- 1,128,275 500,000 AES Corp. (The) 8.875%, 11/01/2027 ................... Caa1 410,000 750,000 American Airlines, Inc. 7.024%, 10/15/2009 ................... Baa3 715,981 2,628,000 APL, Ltd. 8.000%, 1/15/2024 .................... -- 1,681,920 1,285,965 Atlas Air, Inc. 7.680%, 1/02/2014 .................... Caa1 456,517 See accompanying notes to financial statements. 23 Strategic Income Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited) Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - -------------------------------------------------------------------------------- United States -- (continued) $ 800,000 Bausch & Lomb, Inc. 7.125%, 8/01/2028 .................... Ba1 $ 767,000 1,250,000 Borden Chemical, Inc. 9.200%, 3/15/2021 .................... B1 818,750 3,175,000 Borden Chemical, Inc. 7.875%, 2/15/2023 .................... B1 2,063,750 500,000 Charter Communications Holdings LLC 9.625%, 11/15/2009 ................... Ca 365,000 250,000 CITGO Petroleum Corp., 144A 11.375%, 2/01/2011 ................... Ba3 278,750 100,000 Coastal Corp. 6.950%, 6/01/2028 .................... Caa1 79,500 250,000 Continental Airlines, Inc. 8.000%, 12/15/2005(d) ................ B3 223,750 642,498 Continental Airlines, Inc. 6.703%, 6/15/2021 .................... Baa3 622,828 250,000 Corning, Inc. 7.000%, 3/15/2007 .................... Ba2 250,312 650,000 Corning, Inc. 6.750%, 9/15/2013 .................... Ba2 683,313 350,000 Corning, Inc., Medium Term Note 8.300%, 4/04/2025 .................... Ba2 362,688 250,000 CSC Holdings, Inc. 8.125%, 7/15/2009 .................... B1 258,125 250,000 CSC Holdings, Inc. 8.125%, 8/15/2009 .................... B1 258,750 400,000 CSC Holdings, Inc. 7.875%, 2/15/2018 .................... Ba2 406,000 250,000 Dana Corp. 9.000%, 8/15/2011, (EUR) ............. Ba3 301,980 125,000 Dana Corp. 7.000%, 3/15/2028 .................... Ba3 108,906 1,000,000 Dana Corp. 7.000%, 3/01/2029 .................... Ba3 871,250 250,000 Delta Air Lines, Inc. 10.125%, 5/15/2010 ................... B3 201,250 2,075,000 Delta Air Lines, Inc. 8.300%, 12/15/2029 ................... Ba3 1,462,875 400,000 Dillard's, Inc. 6.625%, 1/15/2018 .................... Ba3 338,000 1,500,000 Dillard's, Inc. 7.750%, 7/15/2026 .................... Ba3 1,323,750 3,015,000 El Paso Corp. 5.750%, 3/14/2006, (EUR) ............. Ba2 3,138,953 7,000,000 Federal Home Loan Mortgage Corp. 4.625%, 2/15/2007, (EUR) ............. Aaa 8,577,142 34,000,000 Federal National Mortgage Association, Zero Coupon 10/29/2007, (NZD) .................... Aaa 15,855,429 1,000,000 First Industrial LP 7.600%, 7/15/2028 .................... Baa2 1,103,114 1,000,000 Foot Locker, Inc. 8.500%, 1/15/2022 .................... B3 1,041,250 150,000 Ford Motor Co. 6.625%, 10/01/2028 ................... Baa1 124,815 125,000 Ford Motor Credit Co. 7.250%, 2/22/2005, (GBP) ............. A3 210,281 250,000 Ford Motor Credit Co. 6.875%, 2/01/2006 .................... A3 265,150 $ 475,000 Ford Motor Credit Co. 5.800%, 1/12/2009 .................... A3 $ 472,082 1,700,000 Georgia-Pacific Corp. 7.375%, 12/01/2025 ................... Ba1 1,496,000 950,000 Georgia-Pacific Corp. 7.250%, 6/01/2028 .................... Ba3 831,250 1,600,000 Georgia-Pacific Corp. 7.750%, 11/15/2029 ................... Ba1 1,448,000 250,000 Hasbro, Inc. 6.600%, 7/15/2028 .................... Ba3 243,125 500,000 HCA, Inc. 7.500%, 12/15/2023 ................... Ba1 512,116 820,000 HCA, Inc. 7.050%, 12/01/2027 ................... Ba1 794,907 500,000 HCA, Inc., Medium Term Note 7.580%, 9/15/2025 .................... Ba1 520,700 250,000 HMH Properties, Inc. 7.875%, 8/01/2008 .................... Ba3 253,750 820,000 IMC Global, Inc. 6.550%, 1/15/2005 .................... B2 852,800 1,515,000 IMC Global, Inc. 6.875%, 7/15/2007 .................... B2 1,363,500 355,000 IMC Global, Inc. 7.375%, 8/01/2018 .................... B2 271,575 2,000,000 IMC Global, Inc. 7.300%, 1/15/2028 .................... Ba2 1,460,000 900,000 J.C. Penney Co., Inc. 7.650%, 8/15/2016 .................... Ba3 877,500 350,000 J.C. Penney Co., Inc. 7.950%, 4/01/2017 .................... Ba3 346,500 1,553,000 J.C. Penney Co., Inc. 8.250%, 8/15/2022 .................... Ba3 1,521,940 525,000 J.C. Penney Co., Inc. 7.125%, 11/15/2023 ................... Ba3 467,250 250,000 J.C. Penney Co., Inc. 8.125%, 4/01/2027 .................... Ba3 240,000 250,000 J.C. Penney Co., Inc. Medium Term Note 6.875%, 10/15/2015 ................... Ba3 233,900 500,000 La Quinta Corp., 144A 8.875%, 3/15/2011 .................... Ba3 532,500 770,000 Lucent Technologies, Inc. 5.500%, 11/15/2008(d) ................ Caa1 646,800 4,145,000 Lucent Technologies, Inc. 6.450%, 3/15/2029 .................... B2 2,844,506 66,000 Missouri Pacific Railroad Co. 4.250%, 1/01/2005 .................... Ba1 67,796 500,000 Missouri Pacific Railroad Co. 5.000%, 1/01/2045 .................... Ba1 348,750 125,000 Motorola, Inc. 6.500%, 11/15/2028 ................... Baa2 126,875 4,505,000 Nextel Communications, Inc. 0/9.750%, 10/31/2007(h) .............. B3 4,662,675 750,000 Nextel Communications, Inc. 9.375%, 11/15/2009(d) ................ B3 805,313 1,400,000 Nextel Communications, Inc. 9.500%, 2/01/2011 .................... B3 1,550,500 1,000,000 Northern Telecom Capital 7.875%, 6/15/2026 .................... B3 917,500 See accompanying notes to financial statements. 24 Strategic Income Fund -- Schedule of Investments (continued) Investments as of June 30, 2003 (unaudited) Moody's Principal Ratings (c) Amount Description (unaudited) Value (a) - -------------------------------------------------------------------------------- United States -- (continued) $1,000,000 Phillips Van-Heusen Corp. 7.750%, 11/15/2023 .................... Ba2 $ 1,005,000 250,000 Pioneer Natural Resources Co. 7.200%, 1/15/2028 ..................... Ba1 273,035 775,000 Pioneer-Standard Electronics, Inc. 0/9.500%, 8/01/2006(h) ................ Baa3 879,625 1,000,000 ProLogis Trust 7.625%, 7/01/2017 ..................... Baa1 1,175,399 1,000,000 Provident Cos., Inc. 7.250%, 3/15/2028 ..................... Baa3 985,000 500,000 Qwest Capital Funding, Inc. 7.000%, 8/03/2009(d) .................. Caa2 411,250 250,000 Qwest Capital Funding, Inc. 7.900%, 8/15/2010 ..................... Caa2 208,750 1,500,000 Qwest Capital Funding, Inc. 7.750%, 2/15/2031 ..................... Ba2 1,170,000 750,000 Qwest Corp. 5.625%, 11/15/2008 .................... Ba3 720,000 1,000,000 Qwest Corp. 7.500%, 6/15/2023 ..................... Ba3 960,000 100,000 Qwest Corp. 7.250%, 9/15/2025 ..................... Ba3 94,000 250,000 Qwest Corp. 8.875%, 6/01/2031 ..................... Ba3 262,500 250,000 RCN Corp. 10.125%, 1/15/2010(d) ................. Ca 95,000 241,721 Salton Sea Funding Corp. 7.840%, 5/30/2010 ..................... Ba3 255,015 1,506,205 South Point Energy Center LLC/Broad River Energy LLC/Rockgen Energy LLC, 144A 8.400%, 5/30/2012 ..................... B1 1,498,674 500,000 Southern California Edison Co. 6.375%, 1/15/2006 ..................... Ba3 509,375 600,000 Southern California Edison Co. 7.625%, 1/15/2010 ..................... Ba3 632,250 230,000 Southern California Edison Co. 7.125%, 7/15/2025 ..................... Ba2 234,313 125,000 Southern California Edison Co. 7.250%, 3/01/2026 ..................... Ba2 127,344 750,000 Southern California Edison Co. 6.650%, 4/01/2029 ..................... Ba3 700,313 365,000 Sprint Capital Corp. 7.900%, 3/15/2005 ..................... Baa3 395,887 600,000 Sprint Capital Corp. 6.125%, 11/15/2008 .................... Baa3 651,196 250,000 Sprint Capital Corp. 6.875%, 11/15/2028 .................... Baa3 253,438 650,000 Tennessee Gas Pipeline 7.500%, 4/01/2017 ..................... B1 667,875 200,000 Tennessee Gas Pipeline Co. 7.000%, 10/15/2028 .................... B1 190,250 2,000,000 Trico Marine Services, Inc. 8.875%, 5/15/2012 ..................... B2 1,720,000 250,000 United Rentals, Inc. 9.500%, 6/01/2008(d) .................. B2 251,250 850,000 United Rentals, Inc. 9.250%, 1/15/2009(d) .................. B2 837,250 300,000 UnumProvident Corp. 7.375%, 6/15/2032 ..................... Baa3 297,000 $ 500,000 Williams Cos. (The), Inc. 7.875%, 9/01/2021 ..................... B3 $ 487,500 2,400,000 Williams Cos. (The), Inc. 7.500%, 1/15/2031 ..................... B3 2,268,000 500,000 Williams Cos., Inc. 7.125%, 9/01/2011 ..................... Baa3 487,500 1,600,000 Xerox Corp. 3.500%, 2/04/2004, (EUR) .............. B1 1,822,234 155,000 Xerox Corp., Medium Term Note 7.200%, 4/01/2016 ..................... B1 148,800 ------------ 96,140,487 ------------ Uruguay -- 0.5% 1,600,000 Republic of Uruguay 7.500%, 3/15/2015 ..................... B3 1,248,000 400,000 Republic of Uruguay 7.875%, 1/15/2033 ..................... B3 266,000 ------------ 1,514,000 ------------ Venezuela -- 1.1% 205,000 Cerro Negro Finance, Ltd., 144A 7.330%, 12/01/2009 .................... B1 194,750 500,000 Cerro Negro Finance, Ltd., 144A 7.900%, 12/01/2020 .................... Baa2 407,500 3,640,000 Republic of Venezuela 9.250%, 9/15/2027(d) .................. B2 2,684,500 ------------ 3,286,750 ------------ Total Non-Convertible Bonds (Identified Cost $210,127,168) ........ 236,715,767 ------------ Total Bonds and Notes (Identified Cost $234,163,541) ........ 262,489,502 ------------ Shares - -------------------------------------------------------------------------------- Preferred Stocks -- 3.9% of Total Net Assets Philippines -- 0.7% 51,000 Philippine Long Distance Telephone Co., (GDR) .................. 1,925,250 ------------ Thailand -- 0.0% 122,000 Siam Commercial Bank PLC, 144A (THB) .. 103,673 ------------ United States -- 3.2% 5,000 Chesapeake Energy Corp ................ 378,750 20,000 Cummins Capital Trust I ............... 1,069,000 17,700 Equity Residential .................... 451,173 24,550 Host Marriott Financial Trust ......... 1,018,825 71,800 International Paper Capital Trust ..... 3,518,200 7,145 La Quinta Properties .................. 174,195 22,500 Owens Corning Capital LLC(f) .......... 112,500 37,500 Pacific Gas & Electric Co.(f) ......... 1,106,250 9,500 Southern California Edison Co ......... 953,563 8,347 Union Pacific Capital Trust ........... 434,044 7,500 Western Gas Resources, Inc ............ 397,875 ------------ 9,614,375 ------------ Total Preferred Stocks (Identified Cost $11,445,970) ......... 11,643,298 ------------ See accompanying notes to financial statements. 25 Strategic Income Fund -- Schedule of Investments (continued) Shares Description Value (a) - -------------------------------------------------------------------------------- Common Stocks -- 6.1% Indonesia -- 0.1% 6,786,500 PT Indah Kiat Pulp & Paper Corp., (IDR) (e) ............................................ $ 333,155 ----------- South Africa -- 2.3% 546,475 Sappi, Ltd. (ADR) .................................... 6,748,966 ----------- Thailand -- 0.1% 894,789 Loxley Co., Ltd ...................................... 404,112 ----------- United States -- 3.6% 162,900 Associated Estates Realty Corp........................ 1,070,253 182,500 Developers Diversified Realty Corp. (REIT) ........... 5,190,300 117,700 Simon Property Group, Inc............................. 4,593,831 ----------- 10,854,384 ----------- Total Common Stocks (Identified Cost $13,254,525) ........................ 18,340,617 -----------
Principal Amount - -------------------------------------------------------------------------------- Short Term Investments -- 3.0% $2,240,815 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $2,240,862 on 7/01/2003, collateralized by $2,284,785 Federal Home Loan Mortgage Bond, 4.109%, due 8/02/2024 valued at $2,353,169 ................................ 2,240,815 380,717 Bank of Montreal, 1.08%, due 7/02/2003(i)............ 380,717 956,631 Bank of Montreal, 1.15%, due 7/09/2003(i)............ 956,631 571,075 Bank of Nova Scotia, 1.16%, due 7/09/2003(i)......... 571,075 475,896 Bank of Nova Scotia, 1.05%, due 8/29/2003(i)......... 475,896 95,179 BNP Paribas, 1.03%, due 7/21/2003(i) ................ 95,179 190,359 Comerica Bank, 1.073%, due 11/19/2003(i) ............ 190,359 95,179 Credit Agricole Indosuez, 1.05%, due 8/26/2003(i).... 95,179 190,359 Den Danske Bank, 1.04%, due 7/24/2003(i) ............ 190,359 666,255 Dreyfus Cash Management Plus Fund, 1.102%, due 7/01/2003(i) ............................ 666,255 190,359 Liberty Lighthouse Funding, 1.081%, due 7/14/2003(i) ............................ 190,359 73,434 Merrill Lynch Premier Institutional Fund, 1.045%, due 7/01/2003(i) ............................ 73,434 1,370,119 Merrimac Cash Fund-Premium Class, 1.052%, due 7/01/2003(i) ............................ 1,370,119 571,075 Royal Bank of Canada, 1.031%, due 7/07/2003(i) ............................ 571,075 475,896 Royal Bank of Scotland, 1.125%, due 7/01/2003(i) ............................ 475,896 380,717 Royal Bank of Scotland, 1.05%, due 7/28/2003(i) ............................. 380,717 ------------ Total Short Term Investments (Identified Cost $8,924,065) ........................ 8,924,065 ------------ Total Investments -- 100.8% (Identified Cost $267,788,101) (b) .................. 301,397,482 Other assets and liabilities ........................ (2,387,902) ------------ Total Net Assets -- 100% ............................ $299,009,580 ============ (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $267,894,387 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 ....... $ 43,859,038 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ....... (10,355,942) ------------ Net unrealized appreciation ................................. $ 33,503,096 ============
At December 31, 2002, the Fund had a capital loss carryover of approximately $52,456,153 of which $13,337,197 expires on December 31, 2007, $6,500,127 expires on December 31, 2008, $10,848,517 expires on December 31, 2009 and $21,770,312 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2002, the Fund has elected to defer $2,276,305 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2003. Securities are generally rated at the time of issuance. Rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at June 30, 2003. 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, 2003. (e) Non-income producing security. (f) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code. (g) Pay in kind security. (h) 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. (i) Represents investments of securities lending collateral. REIT Real Estate Investment Trust. 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 institutional buyers. At the period end, the value of these securities amounted to $26,988,801 or 9.0% of net assets. 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, 2003 - ---------------------------------- Government 21.1% Communications 9.8 Oil & Gas 8.3 U.S. Government Agencies 8.2 Foreign Governments 6.6 Electric Utilities 5.2 Forest Products & Paper 4.9 Supranational 3.5 Banking 3.4 Transportation 3.1 Chemicals 2.4 Retailers 2.1 Other, less than 2% each 19.2 See accompanying notes to financial statements. 26 Statements of Assets & Liabilities June 30, 2003 (unaudited)
Bond Income Government High Income Fund Securities Fund Fund ------------ --------------- ------------ ASSETS Investments at cost ............................................... $340,353,611 $102,848,010 $ 54,152,201 Net unrealized appreciation ....................................... 20,215,110 7,818,249 4,135,505 ------------ ------------ ------------ Investments at value ........................................... 360,568,721 110,666,259 58,287,706 Receivable for Fund shares sold ................................... 828,830 65,669 31,178 Receivable for securities sold .................................... 3,281,743 -- 422,178 Dividends and interest receivable ................................. 4,191,965 831,627 1,019,193 Tax reclaims receivable ........................................... -- -- -- Securities lending income receivable .............................. 9,124 4,061 5,774 ------------ ------------ ------------ TOTAL ASSETS ................................................... 368,880,383 111,567,616 59,766,029 ------------ ------------ ------------ LIABILITIES Collateral on securities loaned, at value ......................... 26,646,106 13,878,100 7,057,200 Payable for securities purchased .................................. 5,974,889 -- 310,267 Payable for Fund shares redeemed .................................. 1,388,129 384,326 46,174 Dividends payable ................................................. 372,087 30,024 141,422 Management fees payable ........................................... 113,548 45,360 29,837 Deferred Trustees' fees ........................................... 100,287 55,205 20,823 Transfer agent fees payable ....................................... 498,247 23,343 18,557 Accounting and administrative fees payable ........................ 21,845 6,411 3,548 Other accounts payable and accrued expenses ....................... 62,882 42,234 44,332 ------------ ------------ ------------ TOTAL LIABILITIES .............................................. 35,178,020 14,465,003 7,672,160 ------------ ------------ ------------ NET ASSETS ........................................................... $333,702,363 $ 97,102,613 $ 52,093,869 ============ ============ ------------ NET ASSETS CONSIST OF: Paid in capital ................................................... $345,672,479 $ 99,769,544 $136,570,497 Undistributed (overdistributed) net investment income (loss) ...... 397,466 (475,092) (151,485) Accumulated net realized gain (loss) on investments ............... (32,601,671) (10,010,088) (88,460,648) Net unrealized appreciation (depreciation) of investments ......... 20,234,089 7,818,249 4,135,505 ------------ ------------ ------------ NET ASSETS ........................................................... $333,702,363 $ 97,102,613 $ 52,093,869 ============ ============ ============ COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets ..................................................... $143,530,778 $ 75,744,540 $ 24,905,771 ============ ============ ============ Shares of beneficial interest .................................. 12,259,500 6,113,555 5,375,037 ============ ============ ============ Net asset value and redemption price per share ................. $ 11.71 $ 12.39 $ 4.63 ============ ============ ============ Offering price per share ....................................... $ 12.26 $ 12.97 $ 4.85 ============ ============ ============ Class B shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets ..................................................... $161,439,365 $ 18,172,713 $ 24,399,276 ============ ============ ============ Shares of beneficial interest .................................. 13,795,461 1,465,875 5,261,005 ============ ============ ============ Net asset value and offering price per share ................... $ 11.70 $ 12.40 $ 4.64 ============ ============ ============ Class C shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets ..................................................... $ 8,243,957 $ -- $ 2,788,822 ============= ============ ============ Shares of beneficial interest .................................. 704,023 -- 601,608 ============= ============ ============ Net asset value per share ...................................... $ 11.71 $ -- $ 4.64 ============= ============ ============ Offering price per share ....................................... $ 11.83 $ -- $ 4.69 ============= ============ ============ Class Y shares: ................................................... Net assets ..................................................... $ 20,488,263 $ 3,185,360 $ -- ============= ============ ============ Shares of beneficial interest .................................. 1,741,749 257,560 -- ============= ============ ============ Net asset value, offering and redemption price per share ....... $ 11.76 $ 12.37 $ -- ============= ============ ============
See accompanying notes to financial statements. 27 Limited Term U.S. Strategic Income Government Fund Fund - ----------------- ---------------- $160,147,296 $267,788,101 3,549,491 33,609,381 ------------ ------------ 163,696,787 301,397,482 161,878 2,218,683 647,127 278,651 1,171,826 4,251,178 -- 3,675 1,572 4,223 ------------ ------------ 165,679,190 308,153,892 ------------ ------------ 6,436,000 6,683,250 3,401,883 997,615 508,727 722,315 137,105 429,430 73,406 111,754 31,488 42,329 37,079 75,798 11,172 22,779 44,295 59,042 ------------ ------------ 10,681,155 9,144,312 ------------ ------------ $154,998,035 $299,009,580 ============ ============ $198,007,554 $329,388,201 (1,264,402) 1,847,590 (45,294,608) (65,954,420) 3,549,491 33,728,209 ------------ ------------ $154,998,035 $299,009,580 ============ ============ $123,077,625 $127,308,605 ============ ============ 10,575,731 10,280,095 ============ ============ $ 11.64 $ 12.38 ============ ============ $ 12.00 $ 12.96 ============ ============ $ 15,780,368 $118,412,875 ============ ============ 1,358,327 9,551,061 ============ ============ $ 11.62 $ 12.40 ============ ============ $ 9,148,445 $ 51,383,696 ============ ============ 786,537 4,148,129 ============ ============ $ 11.63 $ 12.39 ============ ============ $ 11.75 $ 12.52 ============ ============ $ 6,991,597 $ 1,904,404 ============ ============ 598,140 153,676 ============ ============ $ 11.69 $ 12.39 ============ ============ 28 Statements of Operations For the Six Months Ended June 30, 2003 (unaudited)
Bond Income Government High Income Fund Securities Fund Fund ----------- --------------- ----------- INVESTMENT INCOME Dividends ......................................................... $ -- $ -- $ -- Interest .......................................................... 9,328,257 2,176,356 2,320,805 Securities lending income ......................................... 16,729 4,759 7,934 Less net foreign taxes withheld ................................... -- -- -- ----------- ---------- ---------- 9,344,986 2,181,115 2,328,739 ----------- ---------- ---------- Expenses Management fees ................................................ 661,924 271,158 171,780 Service and distribution fees - Class A ........................ 178,200 95,169 29,002 Service and distribution fees - Class B ........................ 748,702 88,661 116,361 Service and distribution fees - Class C ........................ 42,395 -- 13,030 Trustees' fees and expenses .................................... 21,054 11,598 6,699 Accounting and administrative .................................. 131,466 40,397 20,326 Custodian ...................................................... 40,108 21,973 24,888 Transfer agent fees - Class A, Class B, Class C ................ 625,076 104,555 69,387 Transfer agent fees - Class Y .................................. 9,594 2,368 -- Audit and tax services ......................................... 25,428 20,788 27,347 Legal .......................................................... 16,353 6,130 2,755 Shareholder reporting .......................................... 54,499 22,342 18,540 Registration ................................................... 22,866 12,716 18,498 Miscellaneous .................................................. 19,033 6,259 5,062 ----------- ---------- ---------- Total expenses .................................................... 2,596,698 704,114 523,675 Less reimbursement/waiver ...................................... -- -- -- ----------- ---------- ---------- Net expenses ...................................................... 2,596,698 704,114 523,675 ----------- ---------- ---------- Net investment income ............................................. 6,748,288 1,477,001 1,805,064 ----------- ---------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain (loss) on: Realized gain (loss) on investments - net ...................... 1,174,276 1,002,967 582,150 Foreign currency transactions - net ............................ 2,065 -- -- Change in unrealized appreciation (depreciation) of: Investments - net .............................................. 10,486,596 1,678,705 5,264,703 Foreign currency transactions - net ............................ 18,031 -- -- ----------- ---------- ---------- Net realized and unrealized gain (loss) on investments and foreign currency transactions .......................................... 11,680,968 2,681,672 5,846,853 ----------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...... $18,429,256 $4,158,673 $7,651,917 =========== ========== ==========
See accompanying notes to financial statements. 29 Limited Term U.S. Strategic Income Government Fund Fund - ----------------- ---------------- $ -- $ 779,529 2,938,526 9,037,809 5,185 7,658 -- (15,585) ----------- ------------ 2,943,711 9,809,411 ----------- ------------ 412,988 802,052 196,357 131,262 81,064 536,917 43,280 185,162 11,882 15,606 60,470 106,301 28,178 50,593 140,479 262,672 3,918 698 20,730 28,782 7,421 11,226 23,959 30,148 22,771 21,787 7,999 17,922 ----------- ------------ 1,061,496 2,201,128 -- (43,108) ----------- ------------ 1,061,496 2,158,020 ----------- ------------ 1,882,215 7,651,391 ----------- ------------ 1,301,681 (11,589,403) -- 356,399 (1,289,778) 48,951,403 -- 22,735 ----------- ------------ 11,903 37,741,134 ----------- ------------ $ 1,894,118 $ 45,392,525 =========== ============ 30 Statements of Changes in Net Assets
Bond Income Fund Government Securities Fund ------------------------------- ------------------------------- Six Months Ended Six Months Ended June 30, Year Ended June 30, Year Ended 2003 December 31, 2003 December 31, (unaudited) 2002 (unaudited) 2002 ---------------- ------------ ---------------- ------------ FROM OPERATIONS: Net investment income ..................... $ 6,748,288 $ 17,087,741 $ 1,477,001 $ 3,478,800 Net realized gain (loss) on investments and foreign currency transactions ...... 1,176,341 (18,724,816) 1,002,967 1,754,365 Net change in unrealized appreciation (depreciation) of investments .......... 10,504,627 9,019,633 1,678,705 6,101,934 ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations .............. 18,429,256 7,382,558 4,158,673 11,335,099 ------------ ------------ ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net Investment Income: Class A ................................ (3,108,822) (8,791,213) (1,540,205) (3,186,452) Class B ................................ (2,751,843) (6,316,934) (292,387) (530,909) Class C ................................ (156,840) (498,081) -- -- Class Y ................................ (461,111) (1,050,339) (103,255) (289,414) ------------ ------------ ------------ ------------ (6,478,616) (16,656,567) (1,935,847) (4,006,775) ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS ... 5,546,441 (4,698,171) (5,157,788) 4,088,509 ------------ ------------ ------------ ------------ Total increase (decrease) in net assets ... 17,497,081 (13,972,180) (2,934,962) 11,416,833 NET ASSETS Beginning of period ....................... 316,205,282 330,177,462 100,037,575 88,620,742 ------------ ------------ ------------ ------------ End of period ............................. $333,702,363 $316,205,282 $ 97,102,613 $100,037,575 ============ ============ ============ ============ UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME ......................... $ 397,466 $ 127,794 $ (475,092) $ (16,246) ============ ============ ============ ============ High Income Fund ------------------------------- Six Months Ended June 30, Year Ended 2003 December 31, (unaudited) 2002 ---------------- ------------ FROM OPERATIONS: Net investment income ..................... $ 1,805,064 $ 4,914,959 Net realized gain (loss) on investments and foreign currency transactions ...... 582,150 (20,594,051) Net change in unrealized appreciation (depreciation) of investments .......... 5,264,703 9,402,597 ----------- ------------ Increase (decrease) in net assets resulting from operations .............. 7,651,917 (6,276,495) ----------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net Investment Income: Class A ................................ (909,912) (2,389,509) Class B ................................ (825,880) (2,310,655) Class C ................................ (92,489) (257,610) Class Y ................................ -- -- ----------- ------------ (1,828,281) (4,957,774) ----------- ------------ INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS ... (1,820,743) (13,012,003) ----------- ------------ Total increase (decrease) in net assets ... 4,002,893 (24,246,272) NET ASSETS Beginning of period ....................... 48,090,976 72,337,248 ----------- ------------ End of period ............................. $52,093,869 $ 48,090,976 =========== ============ UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME ......................... $ (151,485) $ (128,268) =========== ============
See accompanying notes to financial statements. 31 Limited Term U.S. Strategic Income Government Fund Fund - ------------------------------- ------------------------------- Six Months Ended Six Months Ended June 30, Year Ended June 30, Year Ended 2003 December 31, 2003 December 31, (unaudited) 2002 (unaudited) 2002 - ---------------- ------------ ---------------- ------------ $ 1,882,215 $ 4,880,802 $ 7,651,391 $ 15,106,370 1,301,681 2,104,690 (11,233,004) (21,248,207) (1,289,778) 3,563,852 48,974,138 36,560,725 ------------ ------------ ------------ ------------ 1,894,118 10,549,344 45,392,525 30,418,888 ------------ ------------ ------------ ------------ (2,396,789) (4,982,529) (4,207,719) (5,702,309) (295,205) (580,172) (3,477,743) (5,565,705) (156,491) (272,616) (1,261,234) (1,567,724) (181,332) (402,890) (62,582) (42,564) ------------ ------------ ------------ ------------ (3,029,817) (6,238,207) (9,009,278) (12,878,302) ------------ ------------ ------------ ------------ 17,249,392 1,774,899 43,057,562 (23,656,108) ------------ ------------ ------------ ------------ 16,113,693 6,086,036 79,440,809 (6,115,522) 138,884,342 132,798,306 219,568,771 225,684,293 ------------ ------------ ------------ ------------ $154,998,035 $138,884,342 $299,009,580 $219,568,771 ============ ============ ============ ============ $ (1,264,402) $ (116,800) $ 1,847,590 $ 3,205,477 ============ ============ ============ ============ 32 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 Total the period income investments operations income capital gains distributions ---------- ---------- -------------- ---------- -------------- ------------- ------------- Bond Income Fund Class A 6/30/2003(f) $11.28 $0.26(c) $ 0.42 $ 0.68 $(0.25) $ -- $(0.25) 12/31/2002 11.59 0.63(c) (0.32) 0.31 (0.62) -- (0.62) 12/31/2001(d) 11.52 0.73 0.10 0.83 (0.76) -- (0.76) 12/31/2000 11.51 0.78 0.03 0.81 (0.80) -- (0.80) 12/31/1999 12.36 0.81 (0.86) (0.05) (0.79) (0.01) (0.80) 12/31/1998 12.39 0.81 0.15 0.96 (0.81) (0.18) (0.99) Class B 6/30/2003(f) 11.28 0.22(c) 0.41 0.63 (0.21) -- (0.21) 12/31/2002 11.59 0.55(c) (0.32) 0.23 (0.54) -- (0.54) 12/31/2001(d) 11.51 0.64 0.10 0.74 (0.66) -- (0.66) 12/31/2000 11.51 0.70 0.02 0.72 (0.72) -- (0.72) 12/31/1999 12.36 0.72 (0.86) (0.14) (0.70) (0.01) (0.71) 12/31/1998 12.39 0.71 0.15 0.86 (0.71) (0.18) (0.89) Class C 6/30/2003(f) 11.29 0.22(c) 0.41 0.63 (0.21) -- (0.21) 12/31/2002 11.60 0.55(c) (0.32) 0.23 (0.54) -- (0.54) 12/31/2001(d) 11.52 0.65 0.09 0.74 (0.66) -- (0.66) 12/31/2000 11.52 0.70 0.02 0.72 (0.72) -- (0.72) 12/31/1999 12.37 0.72 (0.86) (0.14) (0.70) (0.01) (0.71) 12/31/1998 12.40 0.71 0.15 0.86 (0.71) (0.18) (0.89) Class Y 6/30/2003(f) 11.33 0.21(c) 0.50 0.71 (0.28) -- (0.28) 12/31/2002 11.63 0.69(c) (0.32) 0.37 (0.67) -- (0.67) 12/31/2001(d) 11.54 0.79 0.10 0.89 (0.80) -- (0.80) 12/31/2000 11.54 0.83 0.01 0.84 (0.84) -- (0.84) 12/31/1999 12.38 0.85 (0.86) (0.01) (0.82) (0.01) (0.83) 12/31/1998 12.41 0.84 0.15 0.99 (0.84) (0.18) (1.02) Government Securities Fund Class A 6/30/2003(f) $12.12 $0.19(c) $ 0.32 $ 0.51 $(0.24) $ -- $(0.24) 12/31/2002 11.18 0.45(c) 1.01 1.46 (0.52) -- (0.52) 12/31/2001(c) 11.18 0.50 0.05 0.55 (0.55) -- (0.55) 12/31/2000 10.47 0.62 0.69 1.31 (0.60) -- (0.60) 12/31/1999 11.90 0.67 (1.42) (0.75) (0.68) -- (0.68) 12/31/1998 11.56 0.68 0.33 1.01 (0.67) -- (0.67) Class B 6/30/2003(f) 12.12 0.14(c) 0.34 0.48 (0.20) -- (0.20) 12/31/2002 11.17 0.36(c) 1.02 1.38 (0.43) -- (0.43) 12/31/2001(d) 11.18 0.42 0.03 0.45 (0.46) -- (0.46) 12/31/2000 10.47 0.54 0.69 1.23 (0.52) -- (0.52) 12/31/1999 11.90 0.59 (1.42) (0.83) (0.60) -- (0.60) 12/31/1998 11.56 0.58 0.34 0.92 (0.58) -- (0.58)
(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 (loss) 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 net investment income per share by $.01 for Class A , $.02 for Class B and $.01 for Class C share and to decrease the ratio of net investment income to average net assets from 6.34% to 6.26% for Class A, 5.57% to 5.49% for Class B, 5.59% to 5.52% for Class C and 6.75% to 6.68% for Class Y. For Government Securities Fund, the effect of this change was to decrease net investment income per share by $0.05 for Class A and $0.04 for Class B and to decrease the ratio of net investment income to average net assets from 4.85% to 4.46% for Class A and 4.10% to 3.71% 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. See accompanying notes to financial statements. 33 Ratios to average net assets: ----------------------------- Net asset Net assets, value, Total end of Net investment Portfolio end of return the period Expenses income turnover the period (%) (a) (000) (%) (b) (%) (b) rate (%) - ---------- ------- ----------- -------- -------------- --------- $11.71 6.1 $143,531 1.29 4.65 38 11.28 2.8 147,647 1.18 5.65 65 11.59 7.2 173,836 1.09 6.26 84 11.52 7.4 174,969 1.04 7.03 83 11.51 (0.3) 213,769 0.97 6.87 63 12.36 8.0 221,799 1.01 6.44 65 11.70 5.7 161,439 2.04 3.89 38 11.28 2.1 141,188 1.93 4.90 65 11.59 6.5 127,520 1.84 5.49 84 11.51 6.5 100,353 1.79 6.28 83 11.51 (1.1) 89,213 1.72 6.12 63 12.36 7.2 64,240 1.76 5.69 65 11.71 5.6 8,244 2.04 3.92 38 11.29 2.1 9,024 1.93 4.90 65 11.60 6.5 11,470 1.84 5.52 84 11.52 6.5 12,541 1.79 6.28 83 11.52 (1.1) 14,872 1.72 6.12 63 12.37 7.2 8,969 1.76 5.69 65 11.76 6.3 20,488 0.72 3.73 38 11.33 3.5 18,346 0.67 6.15 65 11.63 7.8 17,351 0.67 6.68 84 11.54 7.6 14,013 0.67 7.40 83 11.54 (0.0)(e) 10,320 0.72 7.12 63 12.38 8.2 9,289 0.76 6.69 65 $12.39 4.3 $ 75,745 1.31 3.11 23 12.12 13.4 76,338 1.25 3.90 52 11.18 4.9 70,551 1.39 4.46 317 11.18 12.9 70,909 1.41 5.69 622 10.47 (6.4) 84,904 1.36 6.00 313 11.90 9.0 103,032 1.38 5.80 106 12.40 4.0 18,173 2.06 2.37 23 12.12 12.6 16,878 2.00 3.15 52 11.17 4.1 13,249 2.14 3.71 317 11.18 12.1 10,343 2.16 4.94 622 10.47 (7.1) 9,430 2.11 5.25 313 11.90 8.2 9,657 2.13 5.05 106 (e) Amount is less than one tenth of one percent. (f) For the six months ended June 30, 2003 (unaudited). 34 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 Total the period income investments operations income capital gains distributions ---------- ---------- -------------- ---------- -------------- ------------- ------------- Government Securities Fund (continued) Class Y 6/30/2003(f) $12.11 $0.21(c) $ 0.31 $ 0.52 $(0.26) $-- $(0.26) 12/31/2002 11.17 0.49(c) 1.00 1.49 (0.55) -- (0.55) 12/31/2001(c) 11.17 0.55 0.04 0.59 (0.59) -- (0.59) 12/31/2000 10.44 0.65 0.71 1.36 (0.63) -- (0.63) 12/31/1999 11.88 0.70 (1.43) (0.73) (0.71) -- (0.71) 12/31/1998 11.54 0.72 0.32 1.04 (0.70) -- (0.70) High Income Fund Class A 6/30/2003(f) $ 4.12 $0.17(c) $ 0.51 $ 0.68 $(0.17) $-- $(0.17) 12/31/2002 4.94 0.39(c) (0.82) (0.43) (0.39) -- (0.39) 12/31/2001(d) 6.21 0.66 (1.25) (0.59) (0.68) -- (0.68) 12/31/2000 8.30 0.86 (2.11) (1.25) (0.84) -- (0.84) 12/31/1999 8.86 0.89 (0.54) 0.35 (0.91) -- (0.91) 12/31/1998 9.94 0.92 (1.08) (0.16) (0.92) -- (0.92) Class B 6/30/2003(f) 4.12 0.15(c) 0.52 0.67 (0.15) -- (0.15) 12/31/2002 4.95 0.36(c) (0.83) (0.47) (0.36) -- (0.36) 12/31/2001(d) 6.22 0.62 (1.26) (0.64) (0.63) -- (0.63) 12/31/2000 8.30 0.81 (2.11) (1.30) (0.78) -- (0.78) 12/31/1999 8.85 0.82 (0.53) 0.29 (0.84) -- (0.84) 12/31/1998 9.93 0.85 (1.08) (0.23) (0.85) -- (0.85) Class C 6/30/2003(f) 4.12 0.15(c) 0.52 0.67 (0.15) -- (0.15) 12/31/2002 4.94 0.36(c) (0.82) (0.46) (0.36) -- (0.36) 12/31/2001(d) 6.22 0.61 (1.26) (0.65) (0.63) -- (0.63) 12/31/2000 8.30 0.81 (2.11) (1.30) (0.78) -- (0.78) 12/31/1999 8.85 0.82 (0.53) 0.29 (0.84) -- (0.84) 12/31/1998(e) 9.96 0.69 (1.08) (0.39) (0.72) -- (0.72) Limited Term U.S. Government Fund Class A 6/30/2003(f) $11.73 $0.16(c) $ 0.00(f) $ 0.16 $(0.25) $-- $(0.25) 12/31/2002 11.36 0.42(c) 0.49 0.91 (0.54) -- (0.54) 12/31/01(d) 11.16 0.51 0.25 0.76 (0.56) -- (0.56) 12/31/00 10.97 0.69 0.20 0.89 (0.70) -- (0.70) 12/31/99 11.70 0.66 (0.74) (0.08) (0.65) -- (0.65) 12/31/98 11.64 0.67 0.06 0.73 (0.67) -- (0.67)
(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 (loss) 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 Government Securities Fund was to decrease net investment income per share by $0.04 for Class Y and to decrease the ratio of net investment income to average net assets from 5.24% to 4.85% for Class Y. The effect of this change for the year ended December 31, 2001 for the High Income Fund 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 Limited Term U.S. Government Fund, the effect of the change was to decrease net investment income per share by $0.04 for Class A and to decrease the ratio of net investment income to average net assets from 4.88% to 4.52% for Class A. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. See accompanying notes to financial statements. 35 Ratios to average net assets: ------------------------- Net asset Net assets, value, Total end of Net investment Portfolio end of return the period Expenses income turnover the period (%) (a) (000) (%) (b) (%) (b) rate (%) - ---------- ------- ----------- -------- -------------- --------- $12.37 4.4 $ 3,185 0.94 3.47 23 12.11 13.7 6,822 0.87 4.28 52 11.17 5.3 4,821 1.00 4.85 317 11.17 13.5 4,593 1.01 6.09 622 10.44 (6.3) 2,754 1.11 6.25 313 11.88 9.3 3,404 1.13 6.05 106 $ 4.63 16.8 $ 24,906 1.74 7.75 26 4.12 (8.9) 22,454 1.58 8.85 114 4.94 (10.7) 33,471 1.47 11.31 65 6.21 (16.1) 46,960 1.36 11.47 60 8.30 4.0 74,589 1.28 10.22 89 8.86 (1.8) 73,023 1.32 9.81 75 4.64 16.6 24,399 2.49 7.00 26 4.12 (9.7) 23,031 2.33 8.10 114 4.95 (11.3) 34,713 2.22 10.56 65 6.22 (16.6) 47,793 2.11 10.72 60 8.30 3.3 70,218 2.03 9.47 89 8.85 (2.5) 60,322 2.07 9.06 75 4.64 16.6 2,789 2.49 7.00 26 4.12 (9.5) 2,605 2.33 8.10 114 4.94 (11.5) 4,153 2.22 10.54 65 6.22 (16.6) 5,369 2.11 10.72 60 8.30 3.3 9,138 2.03 9.47 89 8.85 (4.1) 7,732 2.07 9.06 75 $11.64 1.4 $123,078 1.38 2.68 42 11.73 8.2 106,013 1.35 3.66 88 11.36 6.9 109,189 1.42 4.52 275 11.16 8.3 118,833 1.40 6.18 384 10.97 (0.7) 149,756 1.33 5.91 400 11.70 6.5 194,032 1.31 5.81 1,376 (e) For the period March 2, 1998 (inception) to December 31, 1998. (f) For the six months ended June 30, 2003 (unaudited). 36 Financial Highlights (continued) For a share outstanding throughout each period
Income (loss) from investment operations: Less distributions: ----------------------------------------- ---------------------------------------------- Net asset value, Net realized Dividend Distributions beginning Net and unrealized Total from from from net of investment gain (loss) on investment net investment realized Total the period income investments operations income capital gains distributions ---------- ---------- -------------- ---------- -------------- ------------- ------------- Limited Term U.S. Government Fund (CONTINUED) Class B 6/30/2003(e) $11.71 $0.12(c) $ 0.00(f) $ 0.12 $(0.21) $ -- $(0.21) 12/31/2002 11.34 0.35(c) 0.48 0.83 (0.46) -- (0.46) 12/31/2001(d) 11.14 0.44 0.24 0.68 (0.48) -- (0.48) 12/31/2000 10.95 0.62 0.20 0.82 (0.63) -- (0.63) 12/31/1999 11.69 0.59 (0.75) (0.16) (0.58) -- (0.58) 12/31/1998 11.62 0.60 0.07 0.67 (0.60) -- (0.60) Class C 6/30/2003(e) 11.72 0.12(c) 0.00(f) 0.12 (0.21) -- (0.21) 12/31/2002 11.35 0.35(c) 0.48 0.83 (0.46) -- (0.46) 12/31/2001(d) 11.15 0.44 0.24 0.68 (0.48) -- (0.48) 12/31/2000 10.96 0.62 0.20 0.82 (0.63) -- (0.63) 12/31/1999 11.70 0.59 (0.75) (0.16) (0.58) -- (0.58) 12/31/1998 11.63 0.60 0.07 0.67 (0.60) -- (0.60) Class Y 6/30/2003(e) 11.78 0.18(c) (0.00)(f) 0.18 (0.27) -- (0.27) 12/31/2002 11.41 0.48(c) 0.48 0.96 (0.59) -- (0.59) 12/31/01(d) 11.20 0.56 0.26 0.82 (0.61) -- (0.61) 12/31/00 11.00 0.75 0.19 0.94 (0.74) -- (0.74) 12/31/99 11.73 0.70 (0.74) (0.04) (0.69) -- (0.69) 12/31/98 11.66 0.72 0.06 0.78 (0.71) -- (0.71) Strategic Income Fund Class A 6/30/2003(e) $10.72 $0.38(c) $ 1.73 $ 2.11 $(0.45) $ -- $(0.45) 12/31/2002 9.88 0.75(c) 0.72 1.47 (0.63) -- (0.63) 12/31/2001(d) 10.80 0.91(c) (0.92) (0.01) (0.91) -- (0.91) 12/31/2000 11.65 0.99(c) (0.91) 0.08 (0.93) -- (0.93) 12/31/1999 11.37 1.03 0.31 1.34 (1.02) (0.04) (1.06) 12/31/1998 13.42 1.05 (1.30) (0.25) (1.05) (0.75) (1.80) Class B 6/30/2003(e) 10.71 0.33(c) 1.73 2.06 (0.37) -- (0.37) 12/31/2002 9.88 0.67(c) 0.73 1.40 (0.57) -- (0.57) 12/31/2001(d) 10.79 0.83(c) (0.90) (0.07) (0.84) -- (0.84) 12/31/2000 11.65 0.90(c) (0.91) (0.01) (0.85) -- (0.85) 12/31/1999 11.37 0.94 0.31 1.25 (0.93) (0.04) (0.97) 12/31/1998 13.42 0.95 (1.30) (0.35) (0.95) (0.75) (1.70)
(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 Limited Term U.S. Government Fund was to decrease net investment income per share by $.04 for Class B, Class C and Class Y and to decrease the ratio of net investment income to average net assets from 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. 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. See accompanying notes to financial statements. 37
Ratios to average net assets: ----------------------------- Net asset Net assets, value, Total end of Net investment Portfolio end of return the period Expenses income turnover the period (%) (a) (000) (%) (b) (%) (b) rate (%) - ---------- ------- ----------- -------- -------------- --------- $11.62 1.0 $ 15,780 2.03 2.03 42 11.71 7.5 16,263 2.00 3.01 88 11.34 6.2 14,317 2.07 3.85 275 11.14 7.7 11,884 2.05 5.53 384 10.95 (1.4) 14,601 1.98 5.26 400 11.69 5.9 18,116 1.96 5.16 1,376 11.63 1.0 9,148 2.03 2.03 42 11.72 7.5 8,079 2.00 3.01 88 11.35 6.2 5,851 2.07 3.89 275 11.15 7.7 6,617 2.05 5.53 384 10.96 (1.4) 9,054 1.98 5.26 400 11.70 5.9 13,962 1.96 5.16 1,376 11.69 1.5 6,992 0.92 3.14 42 11.78 8.6 8,529 0.88 4.14 88 11.41 7.4 3,441 0.95 4.98 275 11.20 8.8 3,254 0.95 6.63 384 11.00 (0.3) 7,086 0.98 6.26 400 11.73 6.9 8,345 0.96 6.16 1,351 $12.38 19.9 $127,309 1.29 6.54 17 10.72 15.5 92,303 1.33 7.38 30 9.88 (0.1) 94,156 1.31 8.77 10 10.80 0.7 116,986 1.24 8.73 13 11.65 12.2 124,869 1.21 9.09 19 11.37 (1.7) 127,306 1.19 8.33 33 12.40 19.4 118,413 2.04 5.79 17 10.71 14.6 98,501 2.08 6.63 30 9.88 (0.8) 102,159 2.06 8.02 10 10.79 (0.2) 120,200 1.99 7.98 13 11.65 11.3 127,723 1.96 8.34 19 11.37 (2.5) 134,049 1.94 7.58 33
(e) For the six months ended June 30, 2003 (unaudited). 38 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 Total the period income investments operations income capital gains distributions ---------- ---------- -------------- ---------- -------------- ------------- ------------- Strategic Income Fund (continued) Class C 6/30/2003(g) $10.70 $0.33(c) $ 1.73 $ 2.06 $(0.37) $ -- $(0.37) 12/31/2002 9.87 0.67(c) 0.73 1.40 (0.57) -- (0.57) 12/31/2001(d) 10.78 0.83(c) (0.91) (0.08) (0.83) -- (0.83) 12/31/2000 11.64 0.90(c) (0.91) (0.01) (0.85) -- (0.85) 12/31/1999 11.36 0.94 0.31 1.25 (0.93) (0.04) (0.97) 12/31/1998 13.41 0.95 (1.30) (0.35) (0.95) (0.75) (1.70) Class Y 6/30/2003(g) 10.74 0.40(c) 1.73 2.13 (0.48) -- (0.48) 12/31/2002 9.90 0.80(c) 0.71 1.51 (0.67) -- (0.67) 12/31/2001(d) 10.81 0.94(c) (0.92) 0.02 (0.93) -- (0.93) 12/31/2000 11.65 0.96(c) (0.84) 0.12 (0.96) -- (0.96) 12/31/1999(e) 11.45 0.86 (0.56) 0.30 (0.10) -- (0.10)
(a) A sales charge for Class A shares and a contingent deferred sales charge for Class B shares are not reflected in total return calculations. Periods less than one year 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 was to decrease the ratio of net investment income to average net assets from 8.04% to 8.02% 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. (e) For the period December 1, 1999 (inception) through December 31, 1999. (f) Amount is less than $500. (g) For the six months ended June 30, 2003 (unaudited). See accompanying notes to financial statements. 39 Ratios to average net assets: ----------------------------- Net asset Net assets, value, Total end of Net investment Portfolio end of return the period Expenses income turnover the period (%) (a) (000) (%) (b) (%) (b) rate (%) - ---------- ------- ----------- -------- -------------- --------- $12.39 19.5 $51,384 2.04 5.69 17 10.70 14.7 27,727 2.08 6.63 30 9.87 (0.8) 28,925 2.06 8.02 10 10.78 (0.2) 37,208 1.99 7.98 13 11.64 11.3 40,265 1.96 8.34 19 11.36 (2.5) 45,457 1.94 7.58 33 12.39 20.1 1,904 0.95 6.85 17 10.74 15.9 1,039 0.94 7.77 30 9.90 0.3 445 0.93 9.10 10 10.81 1.0 335 0.90 9.07 13 11.65 2.7 --(f) 0.96 9.34 19 40 NOTES TO FINANCIAL STATEMENTS 41 Notes to Financial Statements For the Six Months Ended June 30, 2003 (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 Government Securities Fund (the "Government Securities Fund") CDC Nvest Strategic Income Fund (the "Strategic Income Fund") CDC Nvest Funds Trust II: 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, Limited Term U.S. Government Fund and Strategic Income 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 Limited Term U.S. Government Fund are sold with a maximum front end sales charge of 4.50%. Class A shares of 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. Effective April 14, 2003, securities traded on the NASDAQ National Market are valued at the NASDAQ Official Closing Price ("NOCP"), or if lacking an NOCP, at the most recent bid quotation on the NASDAQ National Market. 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. 42 Notes to Financial Statements (continued) For the Six Months Ended June 30, 2003 (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. Federal and Foreign Income Taxes. The Trusts treat each Fund as a separate entity for federal income tax purposes. Each Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders substantially all of its net investment income and any net realized capital gains, at least annually. Accordingly, no provision for federal income tax has been made. A Fund may be subject to foreign taxes on income and gains on investments that are accrued based upon the Fund's understanding of the tax rules and regulations that exist in the countries in which the Fund invests. Foreign governments may also impose taxes or other payments on investments with respect to foreign securities, such taxes are accrued as applicable. e. Dividends and Distributions to Shareholders. Dividends 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. f. Repurchase Agreements. Each Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is each Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price, including interest. Each Fund's subadviser is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price, including interest. Repurchase agreements could involve certain risks in the event of default or insolvency of the counterparty including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. 3. 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 IBT 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, 2003. 4. Security Lending. The Funds have each entered into an agreement with IBT, 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, 2003, is as follows: Market Value of Value of Collateral Fund Securities on Loan Received ------------------ ------------------- Bond Income Fund $26,012,240 $26,646,106 Government Securities Fund 13,517,224 13,878,100 High Income Fund 6,861,510 7,057,200 Limited Term U.S. Government Fund 6,293,381 6,436,000 Strategic Income Fund 6,524,969 6,683,250 43 Notes to Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited) 5. Purchases and Sales of Securities. For the six months ended June 30, purchases and sales of securities (excluding short-term investments) were as follows:
U.S. Government/Agency Other Securities ------------------------- ------------------------- Fund Purchases Sales Purchases Sales - ---------------------------- ----------- ----------- ----------- ----------- Bond Income Fund $81,183,907 $32,201,753 $38,611,508 $84,680,835 Government Securities Fund 22,202,450 27,251,671 -- -- High Income Fund -- -- 12,759,512 14,979,017 Limited Term U.S. Government Fund 76,532,574 59,202,735 -- -- Strategic Income Fund -- -- 80,262,528 42,158,781
6. 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 $100 Next Next Next Fund million $100 million $300 million $500 million - ---------------------------- ------- ------------ ------------ ------------ Bond Income Fund 0.500% 0.375% 0.375% 0.375% Government Securities Fund 0.550% 0.550% 0.525% 0.500% High Income Fund 0.700% 0.700% 0.650% 0.650% Limited Term U.S. Government Fund 0.570% 0.570% 0.545% 0.520% Strategic Income Fund 0.650% 0.650% 0.600% 0.600%
For the six months ended June 30, 2003, the management fees for each Fund were as follows: Gross Percentage of Management Average Fund Fee Daily Net Assets* - --------------------------------- ---------- ----------------- Bond Income Fund $661,924 0.414% Government Securities Fund 271,158 0.550% High Income Fund 171,780 0.700% Limited Term U.S. Government Fund 412,988 0.570% Strategic Income Fund 802,052 0.640% *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. ("CDC IXIS North America"), performs certain accounting and administrative services for the Funds and has subcontracted with Investors Bank & Trust Company ("IBT"), 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 $5billion $10 billion ---------- --------- ----------- 0.0600% 0.0500% 0.0450% or (2) Each Trust's pro rata portion, based on eligible assets, of the annual aggregate minimum fee of $3.4 million. For the six months ended June 30, 2003, fees paid to CIS for accounting and administrative expense were as follows: Accounting And Percentage of Average Fund Administrative Daily Net Assets* - --------------------------------- -------------- --------------------- Bond Income Fund $131,466 0.082% Government Securities Fund 40,397 0.082% High Income Fund 20,326 0.083% Limited Term U.S. Government Fund 60,470 0.083% Strategic Income Fund 106,301 0.085% *Annualized 44 Notes to Financial Statements (continued) For the Six Months Ended June 30, 2003 (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 subtransfer 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 $1.5 million. In addition, pursuant to other servicing agreements, Class A, B and C pay service fees to other firms that provide similar services for their own shareholder accounts. Class Y shareholders pay service fees monthly at an annual rate of 0.10% of their average daily net assets. CIS, BFDS and other firms are also reimbursed by the Funds for out-of-pocket expenses. For the six months ended June 30, 2003, amounts paid to CIS as compensation for its services as transfer agent were as follows: Transfer Agent Fund Fee - --------------------------------- -------------- Bond Income Fund $172,307 Government Securities Fund 70,126 High Income Fund 41,042 Limited Term U.S. Government Fund 104,133 Strategic Income Fund 174,412 Effective July 1, 2003, the annual aggregate minimum fee changed to $1.3 million. 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 North America), 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. 45 Notes to Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited) d. Service and Distribution Fees.(continued) For the six months ended June 30, 2003, 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 -------- -------- ------- ------- -------- -------- Bond Income Fund $178,200 $187,176 $10,599 $ -- $561,526 $ 31,796 Government Securities Fund 95,169 22,165 -- -- 66,496 -- High Income Fund 29,002 29,090 3,258 -- 87,271 9,772 Limited Term U.S. Government Fund 140,255 20,266 10,820 56,102 60,798 32,460 Strategic Income Fund 131,262 134,229 46,291 -- 402,688 138,871
Prior to September 13, 1993 for Bond Income Fund and September 24, 1993 for Government Securities Fund and Limited Term U.S. Government 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 at December 31, 2002 were as follows: Fund - --------------------------------- Bond Income Fund $1,919,349 Government Securities Fund 1,583,658 Limited Term U.S. Government Fund 2,272,723 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, 2003 were as follows: Fund - --------------------------------- Bond Income Fund $264,244 Government Securities Fund 86,466 High Income Fund 46,631 Limited Term U.S. Government Fund 120,605 Strategic Income Fund 534,831 e. Trustees Fees and Expenses. Effective June 10, 2003, the Board of Trustees approved the unification of the CDC Nvest Funds Board of Trustees with the Loomis Sayles Funds I and Loomis Sayles Funds II Boards of Trustees. The result is a combined Board of Trustees comprised of CDC Nvest Funds Trustees and Loomis Sayles Trustees that will jointly govern CDC Nvest Funds Trust I, II, III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust - Money Market Series, CDC Nvest Tax Exempt Money Market Trust and AEW Real Estate Income Fund (the "CDC Nvest Funds") and Loomis Sayles Funds I and Loomis Sayles Funds II (the "Loomis Sayles Funds"). The Funds do not pay any compensation directly to their officers or Trustees who are directors, officers or employees of CDC IXIS Advisers, CDC IXIS Distributors, CDC IXIS North America, 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 board and committee meeting, in excess of four meetings per year, at the rate of $4,500 and $1,750, respectively. These fees are allocated to the various CDC Nvest Funds and Loomis Sayles 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 or Loomis Sayles Funds on the normal payment date. Deferred amounts remain in the Funds until distributed in accordance with the Plan. f. Publishing Services. CIS performs certain desktop publishing services for the Funds. Fees for these services are presented in the statements of operations as shareholder reporting. For the six months ended June 30, 2003, amounts paid to CIS as compensation for these services were as follows: Publishing Services Fund Fees - --------------------------------- ------------------- Bond Income Fund $1,090 Government Securities Fund 554 High Income Fund 554 Limited Term U.S. Government Fund 554 Strategic Income Fund 554 46 Notes to Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited) 7. Capital Shares. Each Fund may issue an unlimited number of shares of beneficial interest Transactions in capital shares were as follows:
Bond Income Fund ----------------------------------------------------- Six Months Ended June 30, 2003 Year Ended (unaudited) December 31, 2002 ------------------------- ------------------------- Shares Amount Shares Amount ---------- ------------ ---------- ------------ Class A: Shares sold ................................................... 1,803,677 $ 20,761,575 2,761,031 $ 30,947,862 Shares Issued in connection with the reinvestment of: Dividends from net investment income ....................... 220,429 2,536,581 630,044 7,028,137 ---------- ------------ ---------- ------------ 2,024,106 23,298,156 3,391,075 37,975,999 Shares repurchased ............................................ (2,852,335) (32,737,983) (5,298,328) (59,054,703) ---------- ------------ ---------- ------------ Net increase (decrease) ....................................... (828,229) $ (9,439,827) (1,907,253) $(21,078,704) ---------- ------------ ---------- ------------ Class B: Shares sold ................................................... 3,267,915 $ 37,513,414 5,113,116 $ 57,147,872 Shares Issued in connection with the reinvestment of: Dividends from net investment income ....................... 98,021 1,127,518 309,169 3,449,629 ---------- ------------ ---------- ------------ 3,365,936 38,640,932 5,422,285 60,597,501 Shares repurchased ............................................ (2,086,878) (23,972,957) (3,908,528) (43,564,808) ---------- ------------ ---------- ------------ Net increase (decrease) ....................................... 1,279,058 $ 14,667,975 1,513,757 $ 17,032,693 ---------- ------------ ---------- ------------ Class C: Shares sold ................................................... 43,217 $ 497,090 138,295 $ 1,555,372 Shares Issued in connection with the reinvestment of: Dividends from net investment income ....................... 8,334 95,924 26,871 299,976 ---------- ------------ ---------- ------------ 51,551 593,014 165,166 1,855,348 Shares repurchased ............................................... (147,055) (1,685,510) (354,452) (3,952,429) ---------- ------------ ---------- ------------ Net increase (decrease) ....................................... (95,504) $ (1,092,496) (189,286) $ (2,097,081) ---------- ------------ ---------- ------------ Class Y: Shares sold ................................................... 266,324 $ 3,073,666 411,293 $ 4,623,829 Shares Issued in connection with the reinvestment of: Dividends from net investment income ....................... 35,109 406,099 80,315 898,601 ---------- ------------ ---------- ------------ 301,433 3,479,765 491,608 5,522,430 Shares repurchased ............................................ (179,185) (2,068,976) (363,731) (4,077,509) ---------- ------------ ---------- ------------ Net increase (decrease) ....................................... 122,248 $ 1,410,789 127,877 $ 1,444,921 ---------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions ..... 477,573 $ 5,546,441 (454,905) $ (4,698,171) ========== ============ ========== ============
47
Government Securities Fund High Income Fund - --------------------------------------------------- ---------------------------------------------------- Six Months Ended Six Months Ended June 30, 2003 Year Ended June 30, 2003 Year Ended (unaudited) December 31, 2002 (unaudited) December 31, 2002 - ----------------------- ------------------------- ------------------------ ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 532,086 $ 6,494,227 1,163,096 $ 13,583,368 819,812 $ 3,580,861 2,021,612 $ 8,897,208 110,240 1,351,041 243,169 2,819,415 127,920 561,989 317,560 1,396,013 - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 642,326 7,845,268 1,406,265 16,402,783 947,732 4,142,850 2,339,172 10,293,221 (828,311) (10,171,768) (1,419,343) (16,327,594) (1,021,970) (4,456,130) (3,663,855) (16,220,139) - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ (185,985) $ (2,326,500) (13,078) $ 75,189 (74,238) $ (313,280) (1,324,683) $ (5,926,918) - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 280,918 $ 3,411,408 712,314 $ 8,363,857 354,159 $ 1,562,811 1,040,581 $ 4,725,693 20,131 246,814 36,766 427,149 76,230 335,157 201,776 889,901 - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 301,049 3,658,222 749,080 8,791,006 430,389 1,897,968 1,242,357 5,615,594 (227,982) (2,785,069) (541,866) (6,269,688) (753,896) (3,281,947) (2,675,203) (11,769,699) - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 73,067 $ 873,153 207,214 $ 2,521,318 (323,507) $(1,383,979) (1,432,846) $ (6,154,105) - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ -- $ -- -- $ -- 48,819 $ 212,384 90,003 $ 403,036 -- -- -- -- 9,679 42,591 26,503 116,430 - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ -- -- -- -- 58,498 254,975 116,506 519,466 -- -- -- -- (88,912) (378,459) (324,456) (1,450,446) - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ -- $ -- -- $ -- (30,414) $ (123,484) (207,950) $ (930,980) - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 28,049 $ 340,475 220,420 $ 2,524,097 -- $ -- -- $ -- 8,447 103,255 24,957 289,414 -- -- -- -- - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ 36,496 443,730 245,377 2,813,511 -- -- -- -- (342,057) (4,148,171) (114,051) (1,321,509) -- -- -- -- - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ (305,561) $ (3,704,441) 131,326 $ 1,492,002 -- $ -- -- $ -- - -------- ------------ ---------- ------------ ---------- ----------- ---------- ------------ (418,479) $ (5,157,788) 325,462 $ 4,088,509 (428,159) $(1,820,743) (2,965,479) $(13,012,003) ======== ============ ========== ============ ========== =========== ========== ============
48 Notes to Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited) 7. Capital Shares. (continued)
Limited Term U.S. Government Fund ----------------------------------------------------- Six Months Ended June 30, 2003 Year Ended (unaudited) December 31, 2002 ------------------------- ------------------------- Shares Amount Shares Amount ---------- ------------ ---------- ------------ Class A: Shares sold ................................................. 2,798,303 $ 32,652,209 2,338,561 $ 26,950,560 Shares Issued in connection with the reinvestment of: Dividends from net investment income ..................... 157,698 1,843,024 348,652 4,025,182 ---------- ------------ ---------- ------------ 2,956,001 34,495,233 2,687,213 30,975,742 Shares repurchased .......................................... (1,417,543) (16,554,045) (3,260,141) (37,525,210) ---------- ------------ ---------- ------------ Net increase (decrease) ........................................ 1,538,458 $ 17,941,188 (572,928) $ (6,549,468) ---------- ------------ ---------- ------------ Class B: Shares sold ................................................. 261,508 $ 3,048,981 706,265 $ 8,186,137 Shares Issued in connection with the reinvestment of: Dividends from net investment income ..................... 19,962 232,910 40,792 470,419 ---------- ------------ ---------- ------------ 281,470 3,281,891 747,057 8,656,556 Shares repurchased .......................................... (311,877) (3,634,685) (620,421) (7,125,410) ---------- ------------ ---------- ------------ Net increase (decrease) ..................................... (30,407) $ (352,794) 126,636 $ 1,531,146 ---------- ------------ ---------- ------------ Class C: Shares sold ................................................. 228,181 $ 2,662,435 570,784 $ 6,611,629 Shares Issued in connection with the reinvestment of: Dividends from net investment income ..................... 9,696 113,234 17,765 205,133 ---------- ------------ ---------- ------------ 237,877 2,775,669 588,549 6,816,762 Shares repurchased .......................................... (140,731) (1,640,354) (414,627) (4,814,349) ---------- ------------ ---------- ------------ Net increase (decrease) ........................................ 97,146 $ 1,135,315 173,922 $ 2,002,413 ---------- ------------ ---------- ------------ Class Y: Shares sold ................................................. 116,886 $ 1,369,491 987,271 $ 11,289,831 Shares Issued in connection with the reinvestment of: Dividends from net investment income ..................... 15,465 181,332 34,738 402,928 ---------- ------------ ---------- ------------ 132,351 1,550,823 1,022,009 11,692,759 Shares repurchased .......................................... (258,209) (3,025,140) (599,695) (6,901,951) ---------- ------------ ---------- ------------ Net increase (decrease) ..................................... (125,858) $ (1,474,317) 422,314 $ 4,790,808 ---------- ------------ ---------- ------------ Increase (decrease) derived from capital shares transactions ... 1,479,339 $ 17,249,392 149,944 $ 1,774,899 ========== ============ ========== ============
49 Strategic Income Fund - ----------------------------------------------------- Six Months Ended June 30, 2003 Year Ended (unaudited) December 31, 2002 - ------------------------- ------------------------- Shares Amount Shares Amount - ---------- ------------ ---------- ------------ 2,838,854 $ 33,496,745 1,233,640 $ 12,489,877 262,386 3,150,701 428,477 4,343,680 - ---------- ------------ ---------- ------------ 3,101,240 36,647,446 1,662,117 16,833,557 (1,430,601) (16,522,628) (2,583,795) (26,064,953) - ---------- ------------ ---------- ------------ 1,670,639 $ 20,124,818 (921,678) $ (9,231,396) - ---------- ------------ ---------- ------------ 1,419,263 $ 16,511,491 996,177 $ 10,066,847 193,095 2,301,710 364,119 3,688,894 - ---------- ------------ ---------- ------------ 1,612,358 18,813,201 1,360,296 13,755,741 (1,261,437) (14,818,370) (2,502,784) (25,285,670) - ---------- ------------ ---------- ------------ 350,921 $ 3,994,831 (1,142,488) $(11,529,929) - ---------- ------------ ---------- ------------ 1,815,488 $ 21,310,191 331,088 $ 3,346,746 64,563 773,749 101,770 1,030,223 - ---------- ------------ ---------- ------------ 1,880,051 22,083,940 432,858 4,376,969 (323,817) (3,816,754) (771,825) (7,794,721) - ---------- ------------ ---------- ------------ 1,556,234 $ 18,267,186 (338,967) $ (3,417,752) - ---------- ------------ ---------- ------------ 68,305 $ 797,371 68,699 $ 692,601 5,053 61,110 4,144 42,230 - ---------- ------------ ---------- ------------ 73,358 858,481 72,843 734,831 (16,394) (187,754) (21,066) (211,862) - ---------- ------------ ---------- ------------ 56,964 $ 670,727 51,777 $ 522,969 - ---------- ------------ ---------- ------------ 3,634,758 $ 43,057,562 (2,351,356) $(23,656,108) ========== ============ ========== ============ 50 Notes to Financial Statements (continued) For the Six Months Ended June 30, 2003 (unaudited) 8. Contingent Expense Obligation. Effective June 1, 2003, CDC IXIS Advisers has given a binding undertaking to Strategic Income Fund to defer its management fee and, if necessary, bear certain expenses associated with the Fund to limit its operating expenses. For the period ended June 30, 2003, $43,108 of class level expenses have been reimbursed. This limitation is in effect until April 30, 2004 and will be reevaluated on an annual basis. If in the year following a deferral or reimbursement of expenses the actual operating expenses of the Fund are less than its expense limit, the Fund is required to pay an amount of additional expense that is the lower of the difference between the expense limit and the actual amount of fees previously waived or expenses reimbursed. At June 30, 2003, 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 ------- ------- ------- ------- ---------------- Strategic Income Fund 1.25% 2.00% 2.00% 1.00% $43,108 9. Subsequent Events. On June 12, 2003, the Board of Trustees of CDC Nvest Funds Trust I and CDC Nvest Trust II (the "CDC Nvest Trusts") approved the reorganization of Strategic Income Fund, a series of CDC Nvest Funds Trust I and High Income Fund and Limited Term U.S. Government Fund, each a series of CDC Nvest Funds Trust II, into a newly created series of Loomis Sayles Funds II, a Massachusetts business trust. Effective September 12, 2003, it is expected that the Funds will cease to be a series of CDC Nvest Trusts and will each become a series of the Loomis Sayles Funds II. The reorganization is subject to several conditions, including the approval of the shareholders of the Funds. A special meeting of shareholders of the Funds is scheduled to be held August 28, 2003 to consider proposals relating to the reorganization and advisory structure. Bond Income Fund and Government Securities Fund have each elected to change their fiscal year end from December 31 to September 30. 51 Notes 52 Notes 53 [LOGO OF CDC NVEST FUNDS (SM)] CDC IXIS Asset Management Distributors [GRAPHIC APPEARS HERE] Tax Free Income Funds Semiannual Report June 30, 2003 CDC Nvest Massachusetts Tax Free Income Fund Loomis, Sayles & Company CDC Nvest Municipal Income Fund Loomis, Sayles & Company TABLE OF CONTENTS Management Discussion and Performance ..................Page 1 CDC Nvest Tax Free Income Funds Risks ...............Page 5 Schedule of Investments ..........Page 6 Financial Statements ............Page 10 CDC NVEST MASSACHUSETTS TAX FREE INCOME FUND PORTFOLIO PROFILE - -------------------------------------------------------------------------------- Objective: Seeks a high level of current income exempt from federal and Massachusetts personal income taxes Strategy: Invests primarily in Massachusetts municipal bonds, including general obligation bonds and issues secured by specific revenue streams Inception Date: March 23, 1984 Manager: Martha A. Strom Robert Payne Loomis, Sayles & Company, L.P. Symbols: Class A NEFMX Class B NEMBX Net Asset Value Per Share: (June 30, 2003) Class A $ 16.76 Class B 16.72 MANAGEMENT DISCUSSION - -------------------------------------------------------------------------------- High income from revenue bonds helped keep CDC Nvest Massachusetts Tax Free Income Fund's performance in line with its nationally diversified benchmark and ahead of other Massachusetts municipal bond funds during the six months ended June 30, 2003. The total return on the fund's Class A shares at net asset value was 4.24%, including $0.33 in reinvested dividends, while Lehman Brothers Municipal Bond Index returned 3.81%. Morningstar's Muni Massachusetts category had an average return of 3.31% for the six-month period. As of June 30, 2003, the fund's 30-day SEC yield on Class A shares was 3.09% - equivalent to a taxable yield of 5.02% based on the 38.45% combined maximum federal and Massachusetts state income tax rate. REVENUE BONDS LED THE MUNICIPAL MARKET During the first half of 2003, interest rates reached 45-year lows. This motivated many tax-sensitive investors to seek higher returns from revenue bonds, which usually offer higher yields than tax-backed issues. The interest on revenue bonds comes from user fees, such as road tolls, tuition and airport fees, while payments from tax-backed and general obligation bonds come from taxpayers. Risks associated with revenue bonds reflect economic activity, while tax-backed bonds may come under pressure from escalating budget deficits. SECTOR STRENGTH CAME FROM EDUCATION, HEALTHCARE Municipal bonds issued for education and healthcare facilities were among the best performing sectors during the period. Three series of bonds issued by Massachusetts State Health & Educational Facilities for Harvard University performed well, reflecting Harvard's financial strength and credit quality. A wealth of new issues also attracted investors to the healthcare sector. Insured bonds, which accounted for about 34% of the fund's assets at the end of June, were also in demand during the first half of 2003. Regarded as top-rated because their interest payments are insured, bonds like Massachusetts State Water Resource Authority are cheap relative to Treasury securities. The fund also got a lift from bonds issued for Concord-Assabet Family Services - high-yielding, low-rated issues that had been in the portfolio for some time. The bonds began to recover last summer on news that this financially troubled human-services organization would merge with a private, non-profit organization in Massachusetts. HOUSING AND TRANSPORTATION WERE WEAK Slowing demand resulted in lower prices for both housing and transportation bonds, but for different reasons. Housing bonds are exposed to prepayment risks when homeowners capitalize on low mortgage rates; all the fund's Massachusetts State Housing Finance Agency Residential Development bonds were weak. Low passenger counts continue to ground municipal bonds issued for airport facilities nationwide, as fewer passengers mean lower fees. Prerefunded bonds and bonds that have been escrowed-to-maturity were also weak during the first half of 2003. Prerefunding is usually positive because new bonds are issued to replace old ones and the proceeds are invested typically in U.S. Treasury securities. Similarly, when a bond is "escrowed-to-maturity," Treasuries are purchased to replace the original bonds at maturity, reducing risk. While this generally leads to price appreciation, at this stage in the market cycle these bonds have had their run and there is no room left for them to appreciate. STRATEGIES CALL FOR SHORTER-MATURITY, PREMIUM BONDS We have positioned the portfolio somewhat defensively in anticipation of a gradual increase in interest rates in the second half of 2003. The fund's average maturity is slightly shorter now than it was at the beginning of the period and we have emphasized bonds selling at a premium to their par value (bonds selling at a price greater than their nominal dollar amount at the time they were issued). These strategies are designed to cushion the fund somewhat during a declining period for bond prices. 1 CDC NVEST MASSACHUSETTS TAX FREE INCOME FUND INVESTMENT RESULTS THROUGH JUNE 30, 2003 - -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing CDC Nvest Massachusetts Tax Free Income Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. In addition, few investors could purchase all of the securities necessary to match the index and would incur transaction costs and other expenses even if they could. GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES - -------------------------------------------------------------------------------- June 30, 1993 through June 30, 2003 [CHART APPEARS HERE]
NAV/1/ MSC/2/ LB Muni Bond/3/ 6/30/1993 10000 9575 10000 10002 9577 10013 10212 9778 10221 10326 9887 10338 10339 9899 10358 10244 9808 10266 10428 9984 10483 10565 10116 10603 10291 9854 10328 9790 9374 9908 9817 9400 9992 9908 9487 10078 6/30/1994 9820 9403 10017 10011 9586 10200 10032 9606 10236 9865 9445 10086 9627 9218 9907 9394 8995 9727 9663 9252 9941 9992 9567 10226 10318 9879 10523 10392 9951 10644 10408 9966 10656 10737 10281 10996 6/30/1995 10571 10121 10900 10645 10192 11003 10772 10314 11143 10846 10385 11214 11028 10559 11377 11244 10766 11566 11386 10902 11677 11423 10937 11765 11309 10828 11685 11168 10693 11536 11135 10662 11503 11150 10677 11499 6/30/1996 11256 10778 11624 11341 10859 11729 11336 10854 11727 11512 11023 11891 11633 11139 12025 11833 11330 12245 11755 11255 12194 11776 11275 12217 11889 11383 12329 11754 11254 12164 11849 11346 12266 12018 11507 12451 6/30/1997 12143 11627 12584 12489 11958 12932 12373 11848 12811 12537 12005 12963 12599 12063 13046 12675 12136 13123 12850 12304 13315 12954 12404 13452 12936 12386 13456 12900 12351 13468 12854 12308 13407 13052 12497 13619 6/30/1998 13098 12541 13673 13106 12549 13707 13314 12748 13919 13461 12889 14092 13407 12837 14092 13430 12860 14142 13481 12908 14177 13636 13057 14346 13574 12997 14283 13558 12982 14303 13598 13020 14338 13510 12936 14256 6/30/1999 13290 12725 14050 13337 12770 14102 13148 12589 13989 13109 12552 13994 12926 12376 13843 13040 12486 13990 12926 12377 13886 12820 12275 13825 12980 12428 13986 13223 12661 14291 13163 12604 14207 13111 12554 14133 6/30/2000 13375 12807 14508 13546 12970 14709 13715 13132 14936 13660 13080 14858 13771 13185 15021 13829 13241 15134 14123 13523 15508 14172 13569 15662 14222 13617 15712 14217 13613 15852 14071 13473 15681 14207 13604 15849 6/30/2001 14309 13701 15955 14526 13909 16192 14799 14170 16458 14716 14091 16403 14853 14222 16599 14744 14117 16459 14577 13958 16303 14659 14036 16586 14824 14194 16786 14552 13934 16457 14819 14189 16778 14934 14300 16880 6/30/2002 15108 14466 17059 15301 14651 17278 15488 14829 17486 15837 15164 17869 15548 14887 17573 15450 14793 17500 15759 15090 17869 15727 15058 17824 15974 15295 18073 15988 15309 18084 16090 15406 18203 16502 15801 18629 6/30/2003 16427 15729 18550
AVERAGE ANNUAL TOTAL RETURNS -- JUNE 30, 2003 - --------------------------------------------------------------------------------
SINCE 6 MONTHS 1 YEAR 5 YEARS/5/ 10 YEARS/5/ INCEPTION/5/ CLASS A (Inception 3/23/84) Net Asset Value/1/ 4.24% 8.73% 4.63% 5.09% -- With Maximum Sales Charge/2/ -0.21 4.13 3.73 4.63 -- CLASS B (Inception 9/13/93) Net Asset Value/1/ 3.91 8.04 3.95 -- 4.13% With CDSC/4/ -1.09 3.04 3.61 -- 4.13
SINCE CLASS B COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION/10/ Lehman Brothers Municipal Bond Index/3/ 3.81% 8.74% 6.29% 6.37% 6.18% Morningstar Muni Massachusetts Average/6/ 3.31 7.74 5.06 5.46 5.18 Lipper MA Municipal Debt Funds Average/7/ 3.41 7.93 5.08 5.59 5.26
YIELDS AS OF JUNE 30, 2003 - -------------------------------------------------------------------------------- CLASS A CLASS B SEC 30-day yield/8/ 3.09% 2.57% Taxable equivalent yield/9/ 5.02 4.18 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, 2003 - -------------------------------------------------------------------------------- CREDIT QUALITY [CHART APPEARS HERE] Aaa 46.8% Aa 21.0% A 15.3% Baa 3.9% Caa and Not rated 13.0% Average quality: Aa Credit quality is based on bond ratings from Moody's Investors Service EFFECTIVE MATURITY [CHART APPEARS HERE] Less than 1 Year 7.0% 1-5 years 5.7% 6-10 years 56.0% 10+ years 31.3% Average effective maturity: 9.3 years See page 5 for information on the possible risks associated with an investment in this fund. NOTES TO CHARTS /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 4.25%. /3/ Lehman Brothers Municipal Bond Index is an unmanaged composite measure of the performance of the municipal bond market. /4/ Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. /5/ Fund performance has been increased by expense waivers, without which performance would have been lower. /6/ Morningstar Muni Massachusetts Average is the average performance without sales charges of funds with similar investment characteristics as calculated by Morningstar, Inc. /7/ Lipper Massachusetts Municipal Debt Funds Average is the average performance without sales charges of funds with similar investment objectives as calculated by Lipper Inc. /8/ SEC yield is based on the fund's net investment income over a 30-day period and is calculated in accordance with SEC guidelines. /9/ Taxable equivalent yield is based on the maximum combined federal and MA income tax bracket of 38.45%. A portion of income may be subject to federal, state and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax. /10/ Class B since-inception comparative performances is calculated from 9/30/93. 2 CDC NVEST MUNICIPAL INCOME FUND PORTFOLIO PROFILE - -------------------------------------------------------------------------------- Objective: Seeks as high a level of current income exempt from federal income taxes as is consistent with reasonable risk and protection of share holders' capital Strategy: Invests primarily in municipal securities exempt from federal income tax Inception Date: May 9, 1977 Manager: Martha A. Strom Robert Payne Loomis, Sayles & Company, L.P. Symbols: Class A NEFTX Class B NETBX Net Asset Value Per Share: (June 30, 2003) Class A $ 7.52 Class B 7.53 MANAGEMENT DISCUSSION - -------------------------------------------------------------------------------- For the six months ended June 30, 2003, the total return on CDC Nvest Municipal Income Fund's Class A shares at net asset value was 3.34%, including $0.15 in reinvested dividends, while the Lehman Brothers Municipal Bond Index, returned 3.81%. The fund's results were also slightly below the average return of the funds in Morningstar's Muni National Long category, which was 3.41%. Lackluster performance of some lower quality bonds prevented the fund from gaining a competitive edge during this period. As of June 30, 2003, the fund's 30-day SEC yield for Class A shares was 3.31% - equivalent to a taxable yield of 5.09% based on the 35% maximum federal income tax rate. INVESTORS TURN TO REVENUE BONDS FOR HIGHER YIELD Interest rates today are near 45-year lows, and many tax-sensitive investors have begun to seek higher returns from revenue bonds, which generally pay higher rates than tax-backed issues. The interest paid by revenue bonds comes from user fees, such as road tolls, tuition and airport fees, as opposed to general obligation bonds and other issues that are backed by the taxing power of the municipality. Although revenue bonds are sensitive to the sluggish economy, tax-backed bonds may expose investors to greater risks as escalating budget deficits threaten many municipalities. STRENGTH CAME FROM HIGHER EDUCATION, HEALTHCARE AND INSURED BONDS There has been a wealth of new issues in higher education and healthcare in the past six months, and these sectors have been stronger than others in this sluggish economic environment. Examples of three such bonds in the fund's portfolio are University of Michigan Hospital revenue bonds, New York Dormitory Authority for the State University of New York, and Illinois Educational Facilities Authority for the University of Chicago. All of these issues are selling at a premium to their par value, making them relatively stable in price. Insured bonds were highly sought-after during the first half of 2003, and they accounted for about 39% of the fund's assets at the end of June. Regarded as top-rated because their interest payments are insured, bonds like Indianapolis, Indiana Local Public Improvement Bond Bank are currently attractively priced relative to Treasury securities. HOUSING AND ELECTRIC UTILITIES WERE WEAK Among the worst performing bonds in the first half of the year were municipal bonds issued for the benefit of housing developers, as investor demand fell, causing prices to decline. Housing bonds are exposed to prepayment risks as homeowners continue to capitalize on low mortgage rates. The fund's Massachusetts Housing Finance Agency bonds declined with the sector as a whole. While housing represents a small portion of this fund's total assets, we continue to hold the position for diversification purposes. Revenue bonds issued on behalf of electric utilities also tended to be lackluster during the period. Specifically, Western Generation Agency Oregon Cogeneration Project was among the fund's worst performing issues during the period, reflecting its weak finances and the overall poor performance of the sector. Municipal bonds issued on behalf of electric utilities accounted for about 10% of the fund's assets as of the end of June. STRATEGIES ANTICIPATE STATE BUDGET STRESSES, RISING INTEREST RATES Tax-backed bonds, including general obligation bonds, are experiencing credit pressure from budget deficits to greater and lesser degrees. Although we do not shy away from weaker municipalities, we strive to ensure broad diversification. We have also positioned the portfolio somewhat defensively because we expect interest rates to begin to trend upward in the second half of 2003. Portfolio maturities are relatively short and we have emphasized bonds selling at a premium (bonds selling at a price greater than their nominal dollar amount at the time they were issued). Both strategies are designed to improve price stability to cushion the fund from falling prices. 3 CDC NVEST MUNICIPAL INCOME FUND INVESTMENT RESULTS THROUGH JUNE 30, 2003 - -------------------------------------------------------------------------------- Performance in Perspective The charts comparing CDC Nvest Municipal Income Fund's performance to a benchmark index provide you with a general sense of how the fund performed. To put this information in context, it may be helpful to understand the differences between the two. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. In addition, few investors could purchase all of the securities necessary to match the index and would incur transaction costs and other expenses even if they could. GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES - -------------------------------------------------------------------------------- June 30, 1993 through June 30, 2003 [CHART APPEARS HERE]
NAV/1/ MSC/2/ LB Muni Bond/3/ 6/30/1993 10000 9550 10000 10011 9561 10013 10221 9761 10221 10319 9855 10338 10343 9878 10358 10240 9779 10266 10475 10004 10483 10599 10122 10603 10296 9832 10328 9790 9349 9908 9824 9382 9992 9923 9476 10078 6/30/1994 9859 9415 10017 10040 9589 10200 10072 9619 10236 9897 9451 10086 9679 9244 9907 9391 8968 9727 9638 9204 9941 9974 9525 10226 10320 9856 10523 10454 9983 10644 10474 10003 10656 10766 10282 10996 6/30/1995 10628 10150 10900 10721 10238 11003 10799 10313 11143 10878 10388 11214 11030 10534 11377 11213 10708 11566 11299 10790 11677 11388 10876 11765 11319 10810 11685 11190 10687 11536 11166 10664 11503 11157 10655 11499 6/30/1996 11285 10777 11624 11367 10856 11729 11358 10847 11727 11549 11030 11891 11679 11154 12025 11857 11323 12245 11821 11289 12194 11834 11301 12217 11939 11401 12329 11787 11256 12164 11873 11338 12266 12007 11467 12451 6/30/1997 12174 11626 12584 12503 11940 12932 12428 11869 12811 12532 11968 12963 12620 12053 13046 12660 12090 13123 12835 12257 13315 12994 12409 13452 13034 12447 13456 13054 12466 13468 12992 12407 13407 13131 12540 13619 6/30/1998 13187 12594 13673 13209 12615 13707 13385 12782 13919 13493 12885 14092 13446 12841 14092 13503 12896 14142 13519 12911 14177 13652 13037 14346 13624 13010 14283 13629 13016 14303 13669 13054 14338 13622 13009 14256 6/30/1999 13467 12861 14050 13508 12900 14102 13370 12768 13989 13375 12773 13994 13182 12588 13843 13305 12706 13990 13146 12555 13886 13076 12488 13825 13221 12626 13986 13424 12820 14291 13350 12749 14207 13313 12714 14133 6/30/2000 13556 12946 14508 13706 13089 14709 13895 13269 14936 13857 13233 14858 13971 13342 15021 14066 13433 15134 14298 13655 15508 14398 13750 15662 14420 13771 15712 14539 13885 15852 14384 13737 15681 14521 13867 15849 6/30/2001 14637 13979 15955 14894 14223 16192 15131 14450 16458 14871 14201 16403 15071 14393 16599 14909 14238 16459 14727 14064 16303 14968 14294 16586 15170 14488 16786 14921 14250 16457 15165 14483 16778 15243 14557 16880 6/30/2002 15385 14693 17059 15484 14787 17278 15604 14902 17486 15853 15140 17869 15451 14756 17573 15426 14732 17500 15803 15091 17869 15604 14902 17824 15833 15121 18073 15825 15113 18084 15966 15247 18203 16364 15627 18629 6/30/2003 16330 15595 18550
AVERAGE ANNUAL TOTAL RETURNS -- JUNE 30, 2003 - --------------------------------------------------------------------------------
SINCE 6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION Class A (Inception 5/9/77) Net Asset Value/1/ 3.34% 6.14% 4.37% 5.02% -- With Maximum Sales Charge/2/ -1.31 1.34 3.40 4.54 -- Class B (Inception 9/13/93) Net Asset Value/1/ 2.95 5.49 3.64 -- 4.00% With CDSC/4/ -2.05 0.49 3.31 -- 4.00
SINCE CLASS B COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION/9/ Lehman Brothers Muncipal Bond Index/3/ 3.81% 8.74% 6.29% 6.37% 6.18% Morningstar Muni National Long Fund Avg./5/ 3.41 7.54 4.88 5.37 5.12 Lipper General Municipal Debt Funds Avg./6/ 3.38 7.50 4.85 5.31 5.07
YIELDS AS OF JUNE 30, 2003 - -------------------------------------------------------------------------------- Class A Class B SEC 30-day yield/7/ 3.31% 2.73% Taxable equivalent yield/8/ 5.09 4.20 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, 2003 - -------------------------------------------------------------------------------- CREDIT QUALITY [CHART APPEARS HERE] Aaa 44.6% Aa 15.9% A 19.3% Baa 11.5% Caa and Not rated 8.7% Average quality: A Credit quality is based on bond ratings from Moody's Investors Service EFFECTIVE MATURITY [CHART APPEARS HERE] Less than 1 Year 0.6% 1-5 years 14.4% 6-10 years 57.1% 10+ years 27.9% Average effective maturity: 11.8 years See page 5 for information on the possible risks associated with an investment in this fund. NOTES TO CHARTS /1/ Does not include a sales charge. /2/ Includes the maximum sales charge of 4.50%. /3/ Lehman Brothers Municipal Bond Index is an unmanaged composite measure of the performance of the municipal bond market. /4/ Performance for Class B shares assumes a maximum 5.00% contingent deferred sales charge ("CDSC") applied when you sell shares. /5/ Morningstar Muni National Long Fund Average is the average performance without sales charges of funds with similar investment objectives as calculated by Morningstar, Inc. /6/ Lipper General Municipal Debt Funds Average is the average performance without sales charges of funds with similar investment objectives as calculated by Lipper Inc. /7/ SEC yield is based on the fund's net investment income over a 30-day period and is calculated in accordance with SEC guidelines. /8/ Taxable equivalent yield is based on the maximum federal income tax bracket of 35%. A portion of income may be subject to federal, state and/or alternative minimum tax. Capital gains distributions, if any, are subject to the capital gains tax. /9/ Class B since-inception comparative performance is calculated from 9/30/93. 4 CDC NVEST TAX FREE INCOME FUNDS RISKS The views expressed in this report reflect those of the portfolio managers as of the dates indicated. The managers' views are subject to change at any time without notice based on changes in market or other conditions. References to specific securities or industries should not be regarded as investment advice. Because these funds are actively managed, there is no assurance that they will continue to invest in the securities or industries mentioned. 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. THE FUNDS CDC Nvest Massachusetts Tax Free Income Fund is a non-diversified fund, concentrating its assets in municipal bonds issued in Massachusetts. The fund may invest a portion of assets in lower-rated bonds. Some income may be subject to federal and Massachusetts state taxes. CDC Nvest Municipal Income Fund invests primarily in municipal securities issued by state and local governments. Some income may be subject to federal and state taxes. THE RISKS Lower-quality bonds offer higher yields than high-quality bonds in return for more risks. These risks include a greater risk of default than higher-quality issues and greater risk of loss of principal. U.S. government securities are guaranteed if held to maturity, but mutual funds that invest in these securities are not guaranteed. The value of fund shares will fluctuate and you may have a gain or a loss when you sell your shares. State-specific mutual funds are not diversified, so the fund's income level and/or the value of fund shares may rise or fall to reflect the state's financial strength; a fund that owns securities issued in different states is able to diversify risks. Capital gains distributions, if any, are fully taxable. Alternative Minimum Tax (AMT) may apply to certain shareholders who receive large amounts of income from tax-free investments. Changes in interest rates can affect the value of fund shares. The value of fixed-income securities generally goes down when interest rates rise and goes up when rates decline. Principal and interest payments on insured bonds are backed by an insurance company if held to maturity, but mutual funds that invest in these securities are not insured. The fund's dividend rate and the value of its shares will fluctuate and you may have a gain or a loss when you sell your shares. 5 MASSACHUSETTS TAX FREE INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of June 30, 2003 (unaudited) Tax Exempt Obligations -- 98.1% of Total Net Assets
PRINCIPAL MOODY'S AMOUNT DESCRIPTION RATINGS (c) VALUE (a) - ------------------------------------------------------------------------------------------------------ Guam Airport Authority -- 1.6% $ 1,500,000 Airport Authority Revenue Bond, Series B, 6.600%, 10/01/2010 ........................... -- $ 1,541,220 ------------------ Marthas Vineyard, MA, Land Bank Revenue -- 1.1% 1,000,000 5.000%, 5/01/2032, (AMBAC insured) ............ Aaa 1,046,150 ------------------ Massachusetts Bay Transportation Authority -- 3.3% 3,000,000 Assessment Series A, 5.250%, 7/01/2030 ............................ Aa1 3,179,850 ------------------ Massachusetts State -- 5.3% 4,000,000 State Refunding, Series A, 6.500%, 11/01/2014, (AMBAC insured) .......... Aaa 5,100,400 ------------------ Massachusetts State Development Finance Agency -- 18.6% 2,500,000 Cambridge Street Development, 5.125%, 2/01/2034, (MBIA insured) ............ Aaa 2,605,150 2,505,000 Concord-Assabet Family Services, 5.900%, 11/01/2018 ........................... Caa 2,036,540 3,000,000 Health Care Facility Alliance, 7.100%, 7/01/2032 ............................ -- 3,014,250 4,000,000 Mount Holyoke College, 5.250%, 7/01/2031 ............................ Aa3 4,224,840 2,800,000 Refunding Springfield Resource Recovery-A, 5.625%, 6/01/2019 ............................ A3 2,937,788 1,100,000 Visual and Performing Arts, 6.000%, 8/01/2021 ............................ A1 1,328,811 1,610,000 WGBH Educational Foundation, 5.375%, 1/01/2042, (AMBAC insured) ........... Aaa 1,719,915 ------------------ 17,867,294 ------------------ Massachusetts State Health & Educational Facilities Authority -- 34.6% 1,160,000 Baystate Medical Center, 5.700%, 7/01/2027 ............................ A1 1,215,344 1,500,000 Beverly Hospital Rib, Pre-Refunded, 10.120%, 6/18/2020, (MBIA insured) (d) ....... Aaa 1,777,155 2,200,000 Catholic Health East, 5.500%, 11/15/2032 ........................... A2 2,234,628 3,000,000 Dana Farber, Series G-1, 6.250%, 12/01/2022 ........................... A1 3,161,850 3,000,000 Harvard Univerity, Series N, 6.250%, 4/01/2020 ............................ Aaa 3,792,900 1,200,000 Harvard University, Series F, 5.125%, 7/15/2037 ............................ Aaa 1,260,924 2,000,000 Harvard University, Series W, 6.000%, 7/01/2035 ............................ Aaa 2,428,980 500,000 Milton Hospital, 5.500%, 7/01/2016 ............................ -- 518,730 1,000,000 New England Medical Center, 5.000%, 5/15/2022, (FGIC insured) ............ Aaa 1,046,850 3,000,000 Nichols College, Series C, 6.000%, 10/01/2017 ........................... -- 2,859,510 2,000,000 Partners Healthcare Systems Series B, 5.250%, 7/01/2029 ............................ Aa3 2,050,160 2,500,000 Partners Healthcare Systems Series C, 5.750%, 7/01/2021 ............................ Aa3 2,699,875 1,500,000 Tufts University, 5.250%, 2/15/2030 ............................ Aa3 1,581,795 1,000,000 University of Massachusetts Project, Series C, 5.250%, 10/01/2031, (MBIA insured) ........... Aaa 1,060,330 2,000,000 University of Massachusetts, Series C, 5.125%, 10/01/2034, (FGIC insured) ........... Aaa 2,094,120 2,265,000 Wellesley College Series F, 5.125%, 7/01/2039 ............................ Aa1 2,355,600 1,000,000 Williams College, 5.000%, 7/01/2033 ............................ Aa1 1,046,850 ------------------ 33,185,601 ------------------ Massachusetts State Housing Finance Agency -- 4.1% 1,300,000 Residential Development, Series I, 6.900%, 11/15/2025, (FNMA insured) ........... Aaa 1,335,035 1,645,000 Single Family Mortgage, Series 21, 7.125%, 6/01/2025 ............................ Aa2 1,661,187 955,000 Single Family Mortgage, Series 89, 5.400%, 12/01/2023 ........................... Aa2 985,388 ------------------ 3,981,610 ------------------ Massachusetts State Industrial Finance Agency -- 2.3% 2,000,000 FHA Briscoe House Assisted Living, 7.125%, 2/01/2036 ............................ -- 2,249,280 ------------------ Massachusetts State Port Authority -- 4.9% 1,750,000 Delta Air Lines, Inc Project Series A, 5.500%, 1/01/2019, (AMBAC insured) ........... Aaa 1,844,937 2,700,000 Series A, 5.000%, 7/01/2033, (MBIA insured) ............ Aaa 2,808,729 ------------------ 4,653,666 ------------------ Massachusetts State Turnpike Authority -- 3.2% 2,950,000 Metropolitan Highway System, Capital Appreciation Senior Series A, 5.000%, 1/01/2037, (MBIA insured) ............ Aaa 3,021,744 ------------------ Massachusetts State Water Resources Authority -- 6.5% 2,000,000 General Series B, 5.125%, 8/01/2027, (MBIA insured) ............ Aaa 2,103,600 3,240,000 Series A, 6.500%, 7/15/2019, (FGIC insured) ............ Aaa 4,161,812 ------------------ 6,265,412 ------------------ New England Education Loan Marketing -- 3.7% 3,000,000 Student Loan Revenue Bond, Sub-Issue H, 6.900%, 11/01/2009 ........................... A3 3,520,230 ------------------ Puerto Rico Commonwealth Aqueduct & Sewer Authority -- 4.8% 3,000,000 Aqueduct & Sewer Authority, 6.250%, 7/01/2013 ............................ Baa1 3,650,160 745,000 Aqueduct & Sewer Authority, 10.250%, 7/01/2009 ........................... Aaa 947,014 ------------------ 4,597,174 ------------------ Puerto Rico Commonwealth Infrastructure -- 2.9% 2,500,000 Series A, 5.500%, 10/01/2040 ........................... Aaa 2,808,050 ------------------
See accompanying notes to financial statements. 6 MASSACHUSETTS TAX FREE INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2003 (unaudited) Tax Exempt Obligations -- continued
PRINCIPAL MOODY'S AMOUNT DESCRIPTION RATINGS (c) VALUE (a) - ------------------------------------------------------------------------------------------------------ Route 3 North Transportation Improvement Association -- 1.2% $ 1,000,000 Lease Revenue Bond, 5.375%, 6/15/2033 ............................ Aaa $ 1,165,710 ------------------ Total Tax Exempt Obligations (Cost $88,217,207) ........................... 94,183,391 ------------------ Short Term Investment -- 0.3% of Total Net Assets 303,996 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 1.75% to be repurchased at $304,002 on 7/31/2003, collateralized by $290,426 Small Business Administration Bond, 4.52%, due 5/25/2028 valued at $319,196 ........................... 303,996 ------------------ Total Short Term Investment (Cost $303,996) .............................. 303,996 ------------------ Total Investments - 98.4% (Identified Cost $88,521,203)(b) ............. 94,487,387 Other assets less liabilities ................. 1,518,318 ------------------ Total Net Assets - 100.0% ..................... $ 96,005,705 ==================
(a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $88,520,450 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 ........................................ $ 6,667,745 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ........................................... (700,808) ------------------ Net unrealized appreciation ........................... $ 5,966,937 ==================
At December 31, 2002, the Fund had a capital loss carryover of approximately $3,368,271 of which $2,248,331 expires on December 31, 2007, $116,500 expires on December 31, 2008 and $1,003,440 expires on December 31, 2010. This may be available to offset future realized capital gains, if any, to the extent provided by regulations. For the year ended December 31, 2002, the Fund has elected to defer $2,266 of capital losses attributable to Post-October losses. (c) The ratings shown are believed to be the most recent ratings available at June 30, 2003. Securities are generally rated at the time of issuance. Rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at June 30, 2003. 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) Inverse floating rate security. AMBAC American Municipal Bond Assurance Corp. FGIC Financial Guarantee Insurance Company FNMA Federal National Mortgage Association MBIA Municipal Bond Investors Assurance Corp. Rib Residual interest bond HOLDINGS BY REVENUE SOURCE AT JUNE 30, 2003 (unaudited) % of Net Assets --------------- University 14.1 Water 11.3 College 10.9 Financial 8.0 Hospital 7.8 Student Loan 3.7 Airport 3.5 Mass Transit 3.3 Special Assessment 3.3 Turnpike 3.2 Nursing Home 3.1 Pooled Funds 3.1 Port Authority 2.9 Special Obligation 2.9 Health 2.9 Hospital System Bonds 2.8 Single-Family 2.8 Assisted Living 2.3 Other, less than 2% each 6.2 See accompanying notes to financial statements. 7 MUNICIPAL INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of June 30, 2003 (unaudited) Tax Exempt Obligations -- 98.8% of Total Net Assets
PRINCIPAL MOODY'S AMOUNT DESCRIPTION RATINGS (c) VALUE (a) - ------------------------------------------------------------------------------------------------------ Alaska -- 0.1% $ 190,000 Alaska Housing Finance Corp., 6.500%, 6/01/2034, (MBIA insured) ............ Aaa $ 191,087 ------------------ California -- 7.2% 500,000 California Department of Water Resources, 5.875%, 5/01/2016 ............................ A3 562,865 2,000,000 California State, 5.000%, 10/01/2032 ........................... A2 1,976,120 2,500,000 California State, 5.000%, 2/01/2029, (MBIA insured) ............ Aaa 2,583,125 2,000,000 California State, 5.125%, 6/01/2027 ............................ A1 2,021,400 3,000,000 Sacramento, CA, Power Authority, 6.000%, 7/01/2022 ............................ -- 3,169,470 ------------------ 10,312,980 ------------------ Colorado -- 1.5% 2,000,000 Denver, CO, City & County Airport, 5.250%, 11/15/2023, (MBIA insured) ........... Aaa 2,098,700 ------------------ Florida -- 5.0% 3,000,000 Escambia County, FL, Pollution Control, 6.900%, 8/01/2022 ............................ Baa2 3,138,450 4,000,000 Miami-Dade, FL, County Aviation, Miami International Airport, 5.000%, 10/01/2033, (FGIC insured) ........... Aaa 4,036,240 ------------------ 7,174,690 ------------------ Illinois -- 11.1% 3,400,000 Chicago, IL, Neighborhoods Alive 21, 5.000%, 1/01/2041, (FGIC insured) ............ Aaa 3,489,794 2,500,000 Chicago, IL, O'Hare International Airport, 6.100%, 11/01/2035 (d) ....................... Caa 532,550 3,000,000 Cook County, IL, 5.000%, 11/15/2028, (FGIC insured) ........... Aaa 3,087,360 3,000,000 Illinois Educational Facilities Authority, 5.125%, 7/01/2038 ............................ Aa1 3,116,940 1,750,000 Illinois State, 5.400%, 12/01/2020, (MBIA insured) ........... Aaa 1,904,367 3,500,000 Metropolitan Pier & Exposition Authority, 5.250%, 6/15/2042, (MBIA insured) ............ Aaa 3,727,360 ------------------ 15,858,371 ------------------ Indiana -- 5.2% 2,000,000 Indiana Transportation Finance Authority, 5.375%, 12/01/2025 ........................... Aa2 2,137,880 5,000,000 Indianapolis, IN, Local Public Improvement Bond Bank, 5.250%, 7/01/2033, (MBIA insured) ............ Aaa 5,302,800 ------------------ 7,440,680 ------------------ Massachusetts -- 6.7% 1,230,000 Massachusetts Housing Finance Agency, 6.600%, 12/01/2026 ........................... Aa2 1,274,575 6,000,000 Massachusetts Port Authority, 5.000%, 7/01/2033, (MBIA insured) ............ Aaa 6,241,620 2,000,000 Massachusetts Turnpike Authority, 5.000%, 1/01/2039, (AMBAC insured) ........... Aaa 2,053,280 ------------------ 9,569,475 ------------------ Michigan -- 5.8% 2,850,000 Michigan Hospital Finance Authority, Henry Ford Health System, 5.500%, 3/01/2014 ............................ A1 3,101,342 5,000,000 University of Michigan, 5.250%, 12/01/2020 ........................... Aa2 5,233,300 ------------------ 8,334,642 ------------------ Mississippi -- 3.7% 2,000,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control, 6.700%, 4/01/2022 ............................ Baa2 2,332,780 2,500,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control, 6.800%, 4/01/2022 ............................ Baa2 2,945,525 ------------------ 5,278,305 ------------------ New Jersey -- 0.7% 1,000,000 New Jersey Health Care Facilities Financing Authority, Catholic Health East, 5.375%, 11/15/2033 ........................... A2 1,026,720 ------------------ New York -- 13.8% 1,500,000 New York City, NY, 6.000%, 5/15/2030 ............................ A2 1,637,010 2,000,000 New York City, NY, 6.000%, 1/15/2020 ............................ A2 2,224,660 4,000,000 New York Dormitory Authority, 5.500%, 5/15/2013 ............................ A3 4,653,800 2,740,000 New York Dormitory Authority, 5.750%, 7/01/2013 ............................ A3 3,250,188 1,000,000 New York Medical Care Facilities Finance Agency, 5.250%, 8/15/2014 .................... A3 1,032,620 1,700,000 Port Authority of New York & New Jersey, 7.000%, 10/01/2007 ........................... -- 1,802,017 5,000,000 Triborough Bridge & Tunnel Authority, 5.000%, 1/01/2032 Aa3 5,179,350 ------------------ 19,779,645 ------------------ North Carolina -- 1.9% 1,250,000 North Carolina Capital Facilities Finance Agency, Duke University, 5.125%, 7/01/2042 ... Aa1 1,306,900 1,300,000 North Carolina Eastern Municipal Power Agency, 5.500%, 1/01/2012 ............................ Baa3 1,417,104 ------------------ 2,724,004 ------------------ Oregon -- 2.7% 4,000,000 Western Generation Agency, 7.400%, 1/01/2016 ............................ -- 3,811,640 ------------------ Pennsylvania -- 12.0% 3,300,000 Lehigh County, PA, General Purpose Authority, Saint Luke's Hospital of Bethlehem, 5.250%, 8/15/2023 ............................ Baa2 3,191,892 3,000,000 Pennsylvania Economic Development Financing Authority, 6.600%, 1/01/2019 ............................ -- 3,041,820 3,000,000 Pennsylvania Economic Development Financing Authority, 7.600%, 12/01/2024 ........................... Baa3 3,211,080 5,000,000 Pennsylvania Industrial Development Authority, 5.500%, 7/01/2019, (AMBAC insured) ........... Aaa 5,688,250 2,000,000 Pennsylvania Turnpike Commission, 5.000%, 7/15/2041, (AMBAC insured) ........... Aaa 2,075,860 ------------------ 17,208,902 ------------------
See accompanying notes to financial statements. 8 MUNICIPAL INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of June 30, 2003 (unaudited) Tax Exempt Obligations -- (continued)
PRINCIPAL MOODY'S AMOUNT DESCRIPTION RATINGS (c) VALUE (a) - ------------------------------------------------------------------------------------------------------ Puerto Rico -- 1.6% $ 2,000,000 Puerto Rico Infrastructure Financing Authority, 5.500%, 10/01/2040 ................ Aaa $ 2,246,440 ------------------ South Carolina -- 2.2% 3,000,000 Greenville County, SC, School District, 5.500%, 12/01/2028 ........................... A1 3,156,510 ------------------ Tennessee -- 1.8% 2,500,000 Maury County, TN, Industrial Development Board, Pollution Control, 6.500%, 9/01/2024 ............................ A3 2,602,075 ------------------ Texas -- 10.4% 5,000,000 Dallas/Fort Worth, TX, International Airport, 5.000%, 11/01/2032, (AMBAC insured) .......... Aaa 4,956,250 1,900,000 Denton County, TX, 5.125%, 7/15/2026 ............................ Aa2 1,979,097 3,000,000 Houston, TX, Water & Sewer System, 5.250%, 12/01/2023, (FGIC insured) ........... Aaa 3,187,110 1,435,000 Katy, TX, Independent School District, 5.125%, 2/15/2020 ............................ Aaa 1,540,085 3,000,000 Lewisville, TX, Independent School District, 5.250%, 8/15/2027 ............................ Aaa 3,176,790 ------------------ 14,839,332 ------------------ Washington -- 5.4% 2,000,000 Energy Northwest, 5.500%, 7/01/2014 ............................ Aa1 2,320,260 3,000,000 Grant County, WA, Public Utility District No. 2, Wanapum Hydroelectric, 5.000%, 1/01/2035, (MBIA insured) .................... Aaa 3,090,060 2,250,000 Port of Seattle, WA, 5.000%, 4/01/2031, (FGIC insured) ............ Aaa 2,328,525 ------------------ 7,738,845 ------------------ Total Tax Exempt Obligations (Identified Cost $134,890,581) ............... 141,393,043 ------------------
Short Term Investment -- 0.4% of Total Net Assets
PRINCIPAL AMOUNT DESCRIPTION VALUE (a) - ------------------------------------------------------------------------------------------------------ $ 678,966 Repurchase Agreement with Investors Bank & Trust Co. dated 6/30/2003 at 0.75% to be repurchased at $678,980 on 7/01/2003, collateralized by $692,699 Federal National Mortgage Association Bond, 4.75%, due 9/01/2029 valued at $712,988 ................. $ 678,966 ------------------ Total Short Term Investment (Cost $678,966) .............................. 678,966 ------------------ Total Investments -- 99.3% (Identified Cost $135,569,547) (b) ........... 142,072,009 Other assets less liabilities ................. 948,609 ------------------ Total Net Assets -- 100.0% .................... $ 143,020,618 ================== (a) See Note 2a of Notes to Financial Statements. (b) Federal tax information: At June 30, 2003, the net unrealized appreciation on investments based on cost of $135,119,074 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 ........................................ $ 8,691,743 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value ...................................... (1,738,808) ------------------ Net unrealized appreciation ........................... $ 6,952,935 ==================
At December 31, 2002, the Fund had a capital loss carryover of approximately $2,840,735 of which $25,731 expires on December 31, 2005 and $2,815,004 expires on December 31, 2007. 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, 2003. Securities are generally rated at the time of issuance. Rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at June 30, 2003. 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) Non-income producing security. AMBAC American Municipal Bond Assurance Corp. FGIC Financial Guarantee Insurance Company MBIA Municipal Bond Investors Assurance Corp. See accompanying notes to financial statements. 9 STATEMENTS OF ASSETS & LIABILITIES June 30, 2003 (unaudited)
MASSACHUSETTS TAX FREE INCOME MUNICIPAL INCOME FUND FUND --------------- ---------------- ASSETS Investments at cost ............................................. $ 88,521,203 $ 135,569,547 Net unrealized appreciation ..................................... 5,966,184 6,502,462 --------------- ---------------- Investments at value ............................................ 94,487,387 142,072,009 Receivable for Fund shares sold ................................. 207,295 293,719 Receivable for securities sold .................................. 40,000 2,105,227 Interest receivable ............................................. 1,633,738 2,164,053 --------------- ---------------- TOTAL ASSETS ............................................... 96,368,420 146,635,008 --------------- ---------------- LIABILITIES Payable for securities purchased ................................ -- 3,231,558 Payable for Fund shares redeemed ................................ 35,859 50,705 Dividends payable ............................................... 84,791 145,530 Management fees payable ......................................... 158,461 54,776 Deferred Trustees' fees ......................................... 23,926 58,188 Transfer agent fees payable ..................................... 15,458 23,318 Accounting and administrative fees payable ...................... 6,022 8,920 Other accounts payable and accrued expenses ..................... 38,198 41,395 --------------- ---------------- TOTAL LIABILITIES .......................................... 362,715 3,614,390 --------------- ---------------- NET ASSETS ........................................................... $ 96,005,705 $ 143,020,618 =============== ================ NET ASSETS CONSIST OF: Paid in capital ................................................. $ 93,200,555 $ 138,910,168 Undistributed (overdistributed) net investment income ........... 19,088 157,751 Accumulated net realized gain (loss) on investments ............. (3,180,122) (2,549,763) Net unrealized appreciation (depreciation) of investments ....... 5,966,184 6,502,462 --------------- ---------------- NET ASSETS ........................................................... $ 96,005,705 $ 143,020,618 =============== ================ COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets ................................................. $ 89,589,579 $ 131,472,033 =============== ================ Shares of beneficial interest .............................. 5,345,544 17,477,549 =============== ================ Net asset value and redemption price per share ............. $ 16.76 $ 7.52 =============== ================ Offering price per share ................................... $ 17.50 $ 7.87 =============== ================ Class B shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charges) Net assets ................................................. $ 6,416,126 $ 11,548,585 =============== ================ Shares of beneficial interest .............................. 383,702 1,533,879 =============== ================ Net asset value and offering price per share ............... $ 16.72 $ 7.53 =============== ================
See accompanying notes to financial statements. 10 STATEMENTS OF OPERATIONS For the Six Months Ended June 30, 2003 (unaudited)
MASSACHUSETTS TAX FREE INCOME MUNICIPAL INCOME FUND FUND --------------- ---------------- INVESTMENT INCOME Interest ........................................................ $ 2,559,606 $ 3,769,882 --------------- ---------------- Expenses Management fees ............................................ 285,036 327,818 Service and distribution fees - Class A .................... 154,755 162,777 Service and distribution fees - Class B .................... 32,903 57,776 Trustees' fees and expenses ................................ 9,050 11,161 Accounting and administrative .............................. 38,763 57,777 Custodian .................................................. 19,302 20,283 Transfer agent ............................................. 83,352 119,502 Audit and tax services ..................................... 22,391 22,892 Legal ...................................................... 5,922 7,457 Shareholder reporting ...................................... 13,234 17,159 Registration ............................................... 7,514 14,069 Miscellaneous .............................................. 8,019 7,682 --------------- ---------------- Total expenses .................................................. 680,241 826,353 --------------- ---------------- Net investment income ........................................... 1,879,365 2,943,529 --------------- ---------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain (loss) on: Investments - net .......................................... 382,776 1,168,034 Change in unrealized appreciation (depreciation) of: Investments - net .......................................... 1,677,560 527,631 --------------- ---------------- Net realized and unrealized gain (loss) on investments .......... 2,060,336 1,695,665 --------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...... $ 3,939,701 $ 4,639,194 =============== ================
See accompanying notes to financial statements. 11 STATEMENTS OF CHANGES IN NET ASSETS
MASSACHUSETTS TAX FREE INCOME MUNICIPAL INCOME FUND FUND ---------------------------------- ---------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 ---------------- --------------- ---------------- --------------- FROM OPERATIONS Net investment income ............................ $ 1,879,365 $ 4,082,640 $ 2,943,529 $ 6,897,727 Net realized gain (loss) on investments .......... 382,776 (916,633) 1,168,034 2,710,093 Net change in unrealized appreciation (depreciation) of investments ................... 1,677,560 4,433,497 527,631 872,708 ---------------- --------------- ---------------- --------------- Increase in net assets resulting from operations . 3,939,701 7,599,504 4,639,194 10,480,528 ---------------- --------------- ---------------- --------------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A ..................................... (1,769,942) (3,827,503) (2,733,754) (6,303,086) Class B ..................................... (110,305) (276,899) (198,792) (507,956) ---------------- --------------- ---------------- --------------- (1,880,247) (4,104,402) (2,932,546) (6,811,042) ---------------- --------------- ---------------- --------------- INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS ........................... (4,849,123) (2,388,573) (4,016,980) (10,738,646) ---------------- --------------- ---------------- --------------- Total increase (decrease) in net assets .......... (2,789,669) 1,106,529 (2,310,332) (7,069,160) NET ASSETS Beginning of period .............................. 98,795,374 97,688,845 145,330,950 152,400,110 ---------------- --------------- ---------------- --------------- End of period .................................... $ 96,005,705 $ 98,795,374 $ 143,020,618 $ 145,330,950 ================ =============== ================ =============== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ 19,088 $ 19,970 $ 157,751 $ 146,768 ================ =============== ================ ===============
See accompanying notes to financial statements. 12 FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
INCOME (LOSS) FROM INVESTMENT OPERATIONS: ------------------------------------------------------------------- NET ASSET VALUE, NET REALIZED BEGINNING NET AND UNREALIZED TOTAL FROM OF INVESTMENT GAIN (LOSS) ON INVESTMENT THE PERIOD INCOME INVESTMENTS OPERATIONS --------------- --------------- --------------- --------------- MASSACHUSETTS TAX FREE INCOME FUND CLASS A 6/30/2003 (e) $ 16.40 $ 0.33 $ 0.36 $ 0.69 12/31/2002 15.82 0.67 0.59 1.26 12/31/2001 (d) 16.06 0.75 (0.24) 0.51 12/31/2000 15.48 0.82 0.57 1.39 12/31/1999 17.02 0.82 (1.50) (0.68) 12/31/1998 17.13 0.86 (0.04) 0.82 CLASS B 6/30/2003 (e) 16.36 0.27 0.36 0.63 12/31/2002 15.78 0.57 0.58 1.15 12/31/2001 (d) 16.03 0.64 (0.24) 0.40 12/31/2000 15.45 0.71 0.58 1.29 12/31/1999 16.98 0.71 (1.49) (0.78) 12/31/1998 17.09 0.74 (0.03) 0.71 MUNICIPAL INCOME FUND CLASS A 6/30/2003 (e) $ 7.43 $ 0.15 $ 0.09 $ 0.24 12/31/2002 7.25 0.34 0.18 0.52 12/31/2001 (d) 7.39 0.36 (0.14) 0.22 12/31/2000 7.17 0.40 0.21 0.61 12/31/1999 7.76 0.39 (0.59) (0.20) 12/31/1998 7.75 0.39 0.01 0.40 CLASS B 6/30/2003 (e) 7.44 0.13 0.09 0.22 12/31/2002 7.25 0.29 0.19 0.48 12/31/2001 (d) 7.39 0.31 (0.14) 0.17 12/31/2000 7.17 0.35 0.21 0.56 12/31/1999 7.76 0.33 (0.59) (0.26) 12/31/1998 7.75 0.33 0.01 0.34 LESS DISTRIBUTIONS: ---------------------------------------------------------------------------------- DIVIDENDS DISTRIBUTIONS NET ASSET FROM FROM NET VALUE, TOTAL NET INVESTMENT REALIZED TOTAL END OF RETURN INCOME CAPITAL GAINS DISTRIBUTIONS THE PERIOD (%) (a) --------------- --------------- --------------- --------------- ---------- MASSACHUSETTS TAX FREE INCOME FUND CLASS A 6/30/2003 (e) $ (0.33) $ -- $ (0.33) $ 16.76 4.2 12/31/2002 (0.68) -- (0.68) 16.40 8.1 12/31/2001 (d) (0.75) -- (0.75) 15.82 3.2(b) 12/31/2000 (0.81) -- (0.81) 16.06 9.3(b) 12/31/1999 (0.83) (0.03) (0.86) 15.48 (4.1)(b) 12/31/1998 (0.85) (0.08) (0.93) 17.02 4.9(b) CLASS B 6/30/2003 (e) (0.27) -- (0.27) 16.72 3.9 12/31/2002 (0.57) -- (0.57) 16.36 7.4 12/31/2001 (d) (0.65) -- (0.65) 15.78 2.5(b) 12/31/2000 (0.71) -- (0.71) 16.03 8.6(b) 12/31/1999 (0.72) (0.03) (0.75) 15.45 (4.7)(b) 12/31/1998 (0.74) (0.08) (0.82) 16.98 4.2(b) MUNICIPAL INCOME FUND CLASS A 6/30/2003 (e) $ (0.15) $ -- $ (0.15) $ 7.52 3.3 12/31/2002 (0.34) -- (0.34) 7.43 7.3 12/31/2001 (d) (0.36) -- (0.36) 7.25 3.0 12/31/2000 (0.39) -- (0.39) 7.39 8.8 12/31/1999 (0.39) -- (0.39) 7.17 (2.8) 12/31/1998 (0.39) -- (0.39) 7.76 5.3 CLASS B 6/30/2003 (e) (0.13) -- (0.13) 7.53 3.0 12/31/2002 (0.29) -- (0.29) 7.44 6.7 12/31/2001 (d) (0.31) -- (0.31) 7.25 2.2 12/31/2000 (0.34) -- (0.34) 7.39 8.0 12/31/1999 (0.33) -- (0.33) 7.17 (3.5) 12/31/1998 (0.33) -- (0.33) 7.76 4.5
(a) A sales charge for Class A shares and a contingent deferred sales charge for Class B shares are not reflected in total return calculations. (b) Had certain expenses not been reduced during the period, total returns would have been lower. (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) As required, effective January 1, 2001, the Funds have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on debt securities. The effect of this change for the year ended December 31, 2001, for Massachusetts Tax Free Income Fund was to increase the ratio of net investment income to average net assets from 4.66% to 4.67% for Class A shares and from 4.02% to 4.03% for Class B shares. For Municipal Income Fund, the effect of this change was to increase net investment income per share by $.01 and decrease net realized and unrealized gains and losses per share by $.01 for Class A shares and Class B shares, and increase the ratio of net investment income to average net assets from 4.84% to 4.89% for Class A shares and from 4.09% to 4.14% for Class B shares. 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, 2003 (unaudited). See accompanying notes to financial statements. 13
RATIOS TO AVERAGE NET ASSETS: --------------------------------------------------------------------- NET ASSETS, END OF NET INVESTMENT PORTFOLIO THE PERIOD EXPENSES INCOME TURNOVER (000) (%) (%) RATE (%) --------------- --------------- --------------- --------------- MASSACHUSETTS TAX FREE INCOME FUND CLASS A 6/30/2003 (e) $ 89,590 1.39 4.00 4 12/31/2002 92,053 1.34 4.19 33 12/31/2001 (d) 89,376 1.35(c) 4.67 60 12/31/2000 91,785 1.13(c) 5.24 68 12/31/1999 97,270 1.00(c) 5.02 73 12/31/1998 113,910 1.00(c) 4.93 125 CLASS B 6/30/2003 (e) 6,416 2.04 3.35 4 12/31/2002 6,742 1.99 3.54 33 12/31/2001 (d) 8,313 2.00(c) 4.03 60 12/31/2000 8,715 1.78(c) 4.59 68 12/31/1999 8,874 1.65(c) 4.37 73 12/31/1998 9,026 1.65(c) 4.28 125 MUNICIPAL INCOME FUND CLASS A 6/30/2003 (e) $ 131,485 1.09 4.23 33 12/31/2002 133,005 1.06 4.67 33 12/31/2001 (d) 137,852 1.07 4.89 80 12/31/2000 142,539 0.95 5.39 156 12/31/1999 152,829 0.93 5.13 137 12/31/1998 172,643 0.93 5.03 26 CLASS B 6/30/2003 (e) 11,550 1.84 3.53 33 12/31/2002 12,326 1.81 3.92 33 12/31/2001 (d) 14,549 1.82 4.14 80 12/31/2000 14,520 1.70 4.64 156 12/31/1999 15,644 1.68 4.38 137 12/31/1998 15,878 1.68 4.28 26
14 NOTES TO FINANCIAL STATEMENTS For the Six Months Ended June 30, 2003 (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 tax free 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 Municipal Income Fund (the "Municipal Income Fund") CDC Nvest Funds Trust II: CDC Nvest Massachusetts Tax Free Income Fund (the "Massachusetts Tax Free Income Fund") Each Fund offers Class A and Class B shares. Class A shares of Massachusetts Tax Free Income Fund are sold with a maximum front end sales charge of 4.25%. Class A shares of Municipal Income Fund are sold with a maximum front end sales charge of 4.50%. Class B shares do not pay a front end sales charge, but pay 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. 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 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. 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. 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. Federal Income Taxes. The Trusts treat each Fund as a separate entity for Federal income tax purposes. Each Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders substantially all of its net investment income and any net realized capital gains, at least annually. Accordingly, no provision for federal income tax has been made. d. 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 market discount. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to capital accounts. e. Repurchase Agreements. Each Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is each Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price, including interest. Each Fund's subadviser is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price, including interest. Repurchase agreements could involve certain risks in the event of default or insolvency of the counterparty including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. 15 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2003 (unaudited) 3. Purchases and Sales of Securities. For the six months ended June 30, 2003, purchases and sales of securities (excluding short-term investments) were as follows: Fund Purchases Sales - -------------------------------------- -------------- -------------- Massachusetts Tax Free Income Fund $ 3,856,474 $ 8,116,329 Municipal Income Fund 45,898,058 52,825,598 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 quarterly for Massachusetts Tax Free Income Fund and monthly for Municipal Income Fund, based on each Fund's average daily net assets: Percentage of Average Daily Net Assets --------------------------------------- First Over Fund $100 million $100 million - -------------------------------------- -------------- ------------- Massachusetts Tax Free Income Fund 0.600% 0.500% Municipal Income Fund 0.500% 0.375% For the six months ended June 30, 2003, the management fees for each Fund were as follows: Management Percentage of Average Fund Fee Daily Net Assets* - -------------------------------------- -------------- --------------------- Massachusetts Tax Free Income Fund $ 285,036 0.600% Municipal Income Fund 327,818 0.462% *Annualized CDC IXIS Advisers has entered into a subadvisory agreement for each Fund with Loomis, Sayles & Company, L.P. ("Loomis Sayles"). Payments to CDC IXIS Advisers are reduced by payments to the subadvisers. CDC IXIS Advisers and Loomis Sayles are wholly-owned subsidiaries of CDC IXIS Asset Management North America, L.P. Certain officers and directors of CDC IXIS Advisers and Loomis Sayles are also officers or Trustees of the Funds. 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. ("CDC IXIS North America"), performs certain accounting and administrative services for the Funds and has subcontracted with Investors Bank & Trust Company ("IBT"), 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 0.0600% 0.0500% 0.0450% or (2) Each Trust's pro rata portion, based on eligible assets, of the annual aggregate minimum fee of $3.4 million. For the six months ended June 30, 2003, fees paid to CIS for accounting and administrative expense were as follows: Accounting And Percentage of Average Fund Administrative Daily Net Assets* - --------------------------- -------------- --------------------- Massachusetts Tax Free Income Fund $ 38,763 0.082% Municipal Income Fund 57,777 0.082% * Annualized 16 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2003 (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. Class A and Class B 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 $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 $1.5 million. In addition, pursuant to other servicing agreements, shareholders pay service fees to other firms that provide similar services for their own shareholder accounts. CIS, BFDS and other firms are also reimbursed by the Funds for out-of-pocket expenses. For the six months ended June 30, 2003, amounts paid to CIS as compensation for its services as transfer agent were as follows: Transfer Agent Fund Fee - ------------------------ --------------- Massachusetts Tax Free Income Fund $ 72,981 Municipal Income Fund 102,766 Effective July 1, 2003, the annual aggregate minimum fee changed to $1.3 million. 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 a Service and Distribution Plan relating to each Fund's Class B shares (the "Class B Plan"). 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 North America), 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, Massachusetts Tax Free Income Fund pays CDC IXIS Distributors a monthly distribution fee at the annual rate of 0.10% of the average daily net assets attributable to the Fund's Class A shares as reimbursement for expenses incurred by CDC IXIS Distributors in connection with the marketing or sale the Fund's Class A shares. Under the Class B Plan, 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 shares, as compensation for services provided and expenses incurred by CDC IXIS Distributors in providing personal services to investors in Class B shares and/or the maintenance of shareholder accounts. Also under the Class B Plan, 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 shares, as compensation for services provided and expenses incurred by CDC IXIS Distributors in connection with the marketing or sale of Class B shares. For the six months ended June 30, 2003, the Funds paid the following service and distribution fees: Service Fee Distribution Fee ---------------------- -------------------- Class A Class B Class A Class B ---------- --------- --------- -------- Massachusetts Tax Free Income Fund $ 110,539 $ 8,226 $ 44,216 $ 24,677 Municipal Income Fund 162,778 14,444 -- 43,332 Prior to September 13, 1993, for Municipal Income 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 at June 30, 2003 were $1,700,600. 17 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2003 (unaudited) 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, 2003 were as follows: Fund ---- Massachusetts Tax Free Income Fund $ 31,875 Municipal Income Fund 42,161 e. Trustees Fees and Expenses. Effective June 10, 2003, the Board of Trustees approved the unification of the CDC Nvest Funds Board with the Loomis Sayles Funds I and Loomis Sayles Funds II Boards of Trustees. The result is a combined Board of Trustees comprised of CDC Nvest Funds Trustees and Loomis Sayles Trustees that will jointly govern CDC Nvest Funds Trust I, II, III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust - Money Market Series, CDC Nvest Tax Exempt Money Market Trust and AEW Real Estate Income Fund (the "CDC Nvest Funds") and Loomis Sayles Funds I and Loomis Sayles Funds II (the "Loomis Sayles Funds"). The Funds do not pay any compensation directly to their officers or Trustees who are directors, officers or employees of CDC IXIS Advisers, CDC IXIS Distributors, CDC IXIS North America, 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 Board and Committee meeting, in excess of four meetings per year, at the rate of $4,500 and $1,750, respectively. These fees are allocated to the various CDC Nvest Funds and Loomis Sayles 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 or Loomis Sayles Funds on the normal payment date. Deferred amounts remain in the Funds until distributed in accordance with the Plan. f. Publishing Services. CIS performs certain desktop publishing services for the Funds. Fees for theses services are presented in the statements of operations as shareholder reporting. For the six months ended June 30, 2003, amounts paid to CIS as compensation for these services were as follows: Publishing Services Fund Fees ------ ------------------- Massachusetts Tax Free Income Fund $ 437 Municipal Income Fund 437 5. Capital Shares. Each Fund may issue an unlimited number of shares of beneficial interest. Transactions in capital shares were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, 2002 -------------------------- ----------------------------- MASSACHUSETTS TAX FREE INCOME FUND SHARES AMOUNT SHARES AMOUNT - ---------------------------------- ---------- ------------- ------------- ------------- CLASS A Shares sold . ............................................. 67,849 $ 1,121,902 456,052 $ 7,320,365 Shares issued in connection with the reinvestment of: Dividends from net investment income ................. 77,011 1,276,028 166,936 2,687,820 ---------- ------------- ------------- ------------- 144,860 2,397,930 622,988 10,008,185 Shares repurchased . ...................................... (412,308) (6,773,462) (659,550) (10,569,788) ---------- ------------- ------------- ------------- Net increase(decrease) .................................... (267,448) $ (4,375,532) (36,562) $ (561,603) ---------- ------------- ------------- ------------- CLASS B Shares sold ............................................... 13,589 $ 223,211 40,852 $ 652,539 Shares issued in connection with the reinvestment of: Dividends from net investment income ................. 3,829 63,305 9,320 149,611 ---------- ------------- ------------- ------------- 17,418 286,516 50,172 802,150 Shares repurchased ........................................ (45,780) (760,107) (164,730) (2,629,120) ---------- ------------- ------------- ------------- Net increase(decrease) .................................... (28,362) $ (473,591) (114,558) $ (1,826,970) ---------- ------------- ------------- ------------- Increase(decrease) derived from capital shares transactions ............................................. (295,810) $ (4,849,123) (151,120) $ (2,388,573) ========== ============= ============= =============
18 NOTES TO FINANCIAL STATEMENTS (continued) For the Six Months Ended June 30, 2003 (unaudited)
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, 2002 ----------------------------- ----------------------------- MUNICIPAL INCOME FUND SHARES AMOUNT SHARES AMOUNT - --------------------- ------------- ------------- ------------- ------------- CLASS A Shares sold ............................................ 849,970 $ 6,269,601 1,667,649 $ 12,274,988 Shares issued in connection with the reinvestment of: Dividends from net investment income .............. 250,407 1,857,713 576,440 4,253,748 ------------- ------------- ------------- ------------- 1,100,377 8,127,314 2,244,089 16,528,736 Shares repurchased ..................................... (1,515,705) (11,231,264) (3,360,408) (24,705,392) ------------- ------------- ------------- ------------- Net increase(decrease) ................................. (415,328) $ (3,103,950) (1,116,319) $ (8,176,656) ------------- ------------- ------------- ------------- CLASS B Shares sold ............................................ 122,996 $ 910,178 360,545 $ 2,668,323 Shares issued in connection with the reinvestment of: Dividends from net investment income ................... 15,695 116,567 37,421 276,214 ------------- ------------- ------------- ------------- 138,691 1,026,745 397,966 2,944,537 Shares repurchased ..................................... (261,620) (1,939,775) (746,990) (5,506,527) ------------- ------------- ------------- ------------- Net increase(decrease) ................................. (122,929) $ (913,030) (349,024) $ (2,561,990) ------------- ------------- ------------- ------------- Increase(decrease) derived from capital shares transactions .......................................... (538,257) $ (4,016,980) (1,465,343) $ (10,738,646) ============= ============= ============= =============
6. Contingent Expense Obligation. CDC IXIS Advisers has given a binding undertaking to Massachusetts Tax Free Income Fund to defer its management fee and, if necessary, bear certain expenses associated with the Fund to limit its operating expenses. This limitation is in effect until April 30, 2004 and will be reevaluated on an annual basis. If in the year following a deferral or reimbursement of expenses the actual operating expenses of the Fund are less than its expense limit, the Fund is required to pay an amount of additional expense that is the lower of the difference between the expense limit and the actual amount of fees previously waived or expenses reimbursed. At June 30, 2003, 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 Cumulative Expenses Waived ---------------------- or Reimbursed Subject Class A Class B to Future Payment ---------- --------- -------------------------- Massachusetts Tax Free Income Fund 1.40% 2.05% $ -- 7. Concentration of Credit. At June 30, 2003, Massachusetts Tax Free Income Fund primarily invests in debt obligations issued by the Commonwealth of Massachusetts and its political subdivisions, agencies and public authorities to obtain funds for various public purposes. The Fund is more susceptible to factors adversely affecting issuers of Massachusetts municipal securities than is a comparable municipal bond fund that is not so concentrated. Uncertain economic and fiscal conditions may affect the ability of issuers of Massachusetts municipal securities to meet their financial obligations. At June 30, 2003, the Fund had the following concentrations by revenue source in excess of 10% as a percentage of the Fund's net assets: University 14.1%, Water 11.3% and College 10.9%. The Fund had investments in securities of issuers insured or guaranteed by Municipal Bond Investors Assurance Corporation (MBIA), American Municipal Bond assurance Corporation (AMBAC), Federal National Mortgage Association (FNMA) and Financial Guaranty Insurance Company (FGIC) which aggregated to 13.9%, 10.1%, 1.4% and 7.6% of its net assets, respectively, at June 30, 2003. Municipal Income Fund had the following concentrations by revenue source in excess of 10% as a percentage of the Fund's net assets: Various Purpose 13.8%, University 12.3%, and Improvement 11.5% and. The Fund also had more than 10% of its net assets invested in: New York 13.8%, Pennsylvania 12.0%, Illinois 11.1% and Texas 10.4%. Certain revenue or tax related events in a state may impair the ability of issuers of municipal securities to pay principal and interest on their obligations. 8. Subsequent Events. On June 12, 2003, the Board of Trustees of CDC Nvest Funds Trust I approved the reorganization of Municipal Income Fund into a newly created series of Loomis Sayles Funds, a Massachusetts business trust. Effective September 12, 2003, it is expected that the Fund will cease to be a series of CDC Nvest Trust I and will become a series of Loomis Sayles Funds II. The reorganization is subject to several conditions, including the approval of the shareholders of Municipal Income Fund. A special meeting of shareholders of the Fund is scheduled to be held August 28, to consider proposals relating to the reorganization and advisory structure. Massachusetts Tax Free Income Fund has elected to change its year end from December 31 to September 30. 19 Notes 20 Notes 21 Notes 22 Item 2. Code of Ethics. Not applicable. Item 3. Audit Committee Financial Expert. Not applicable. Item 4. Principal Accountant Fees and Services. Not applicable. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. [Reserved.] Item 9. Controls and Procedures. The Trust's principal executive officer and principal financial officer have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Trust's internal controls or in other factors that could significantly affect the Trust's internal controls subsequent to the date of their evaluation. Item 10. Exhibits. (a) Code of Ethics - Not applicable. (b) Certifications of Principal Executive Officer and Principal Financial Officer. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CDC Nvest Funds Trust II By: /s/ John T. Hailer ---------------------------- Name: John T. Hailer Title: President Date: August 28, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ John T. Hailer ---------------------------- Name: John T. Hailer Title: Chief Executive Officer Date: August 28, 2003 By: /s/ Nicholas Palmerino ---------------------------- Name: Nicholas Palmerino Title: Treasurer Date: August 28, 2003 EXHIBIT INDEX (b)(1) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2 under the Investment Company Act of 1940. (b)(2) Certification of principal executive officer and principal financial officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. EX-99.CERT 3 dex99cert.txt CERTIFICATIONS Exhibit (b)(1) CDC Nvest Funds Trust II Exhibit to SEC Form N-CSR Section 302 Certifications I, John T. Hailer, certify that: 1. I have reviewed this report on Form N-CSR of CDC Nvest Funds Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materials respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows), of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing of this report (the "Evaluation Date"); and c. Presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to the significant deficiencies and material weaknesses. Date: August 28, 2003 /s/ John T. Hailer --------------------------- John T. Hailer President & Chief Executive Officer CDC Nvest Funds Trust II Exhibit to SEC Form N-CSR Section 302 Certifications I, Nicholas H. Palmerino, certify that: 1. I have reviewed this report on Form N-CSR of CDC Nvest Funds Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materials respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows), of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing of this report (the "Evaluation Date"); and c. Presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to the significant deficiencies and material weaknesses. Date: August 28, 2003 /s/ Nicholas H. Palmerino --------------------------- Nicholas H. Palmerino Treasurer EX-99.906CERT 4 dex99906cert.txt CERTIFICATIONS Exhibit (b)(2) CDC Nvest Funds Trust II Section 906 Certification In connection with the report on Form N-CSR for the period ended June 30, 2003 for the Registrant (the "Report"), the undersigned each hereby certifies to the best of his knowledge, pursuant to section 906 of the Sarbanes-Oxely Act of 2002, that: 1. the Report complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as applicable; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: By: President & Chief Executive Officer Treasurer CDC Nvest Funds Trust II CDC Nvest Funds Trust II - ----------------------------------- ------------------------------- /s/ John T. Hailer /s/ Nicholas H. Palmerino - ----------------------------------- ------------------------------- John T. Hailer Nicholas H. Palmerino Date: August 28, 2003 Date: August 28, 2003 A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the CDC Nvest Funds Trust II, and will be retained by the CDC Nvest Funds Trust II and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----