Commerce Bond Fund

Overview Objective Seeks total return through current income and, secondarily, capital appreciation. Strategy Invests primarily in a broad range of government and investment-grade corporate bonds and other fixed-income securities. Commentary Portfolio Fund Holdings Portfolio Composition Fund Manager - Scott M. Colbert, CFA Joined Commerce in 1993 Fund Manager since Fund inception 22 years of experience Risk/Return In general, greater returns are associated with greater risks. Fund Statistics: Inception Date 12/12/94 Ticker Symbol CFBNX Cusip 200626208 Minimum Initial Investment $1,000 Commentary as of 12/31/2009 The economy and financial markets continued to recover as more favorable economic data concerning employment, consumer spending, and manufacturing was released during the last three months.  Historically, after a recession as severe as the one we had, the economy usually has a quick rebound.  However, this recovery is expected to be slower than normal because of a struggling housing market, deleveraging, and an injured financial system. After both of the Federal Open Market Committee meetings in the fourth quarter the Federal Reserve (the “Fed”) kept the federal funds rate near zero.  Comments at its last meeting suggest that the Fed seems inclined to keep the fed funds rate near zero as long as inflation expectations are constrained and economic growth is moderate. Interest rates began the quarter in a narrow range but rose steadily for the month of December.  The Treasury yield curve steepened to record levels, with the difference between 2 and 10 year Treasury yields reaching 288 basis points during the period.  Treasury performance continued to lag the other fixed income sectors as rates increased and spreads tightened. The Bond Fund’s return for the fourth quarter exceeded the Barclays Capital U.S. Aggregate Bond Index.  The portfolio’s overweight in corporate bonds and asset backed securities (ABS), along with an underweight in treasuries, helped performance.  On average, the portfolio’s mortgage-backed securities (MBS) exposure assisted performance; however, some specific non-agency MBS holdings hindered performance.  For the coming quarter we expect risk sectors (i.e., corporates, MBS, ABS, etc.) should continue to outperform treasuries, but to a lesser extent than realized last year.     Performance Report Total Fund Assets as of 12/31/2009 $578,391,887 Net Asset Value1 $19.15    Effective Duration 2 4.19 years

Footnotes: 1. The Net Asset Value represents the assets of the fund (ex dividend) by the total number of shares. 2. Duration is the method determining a bond's price sensitivity, given changes in interest rates. 3. The composition of the portfolio is subject to change in the future.

Portfolio Holdings Investments in fixed income securities are subject to the risks associated with debt securities including credit and interest rate risk. When interest rates rise, the prices of bonds and therefore the value of fixed income mutual fund shares can decrease and an investor can lose principal value. The guarantee on U.S. government securities applies only to the underlying securities of the Fund if held to maturity and not to the value of the Fund's shares. Mortgage-backed securities are subject to prepayment risks, which may result in greater share price volatility. Asset-backed securities may be less liquid than other securities and therefore more difficult to value and liquidate, if necessary. Foreign investments may be more volatile than investment in U.S. securities and will be subject to the risks of currency fluctuations and political developments. Holdings and allocations shown are unaudited, and may not be representative of current or future investments. Holdings and allocations may not include the Fund's entire investment portfolio, which may change at any time. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. COMMERCE BOND FUND HOLDINGS December, 2009* January, 2010* February, 2010*   *Adobe Acrobat 6.0® or above required. Download now for free.

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