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 21 years of experience Risk/Return In general, greater returns are associated with greater risks. Fund Statistics: Institutional Shares Inception Date 12/12/94 Ticker Symbol CFBNX Cusip 200626208 Minimum Initial Investment $1,000 Commentary for Institutional Shares as of 6/30/2008 The second quarter was a reversal of fortune for most sectors of the bond market.  The sectors that performed well in the first quarter, such as Treasuries and Agencies, were the poorest performers in the second quarter.  Both corporate bonds and mortgage-backed securities were able to outperform Treasuries over the last three months, but weren’t able to post positive returns for the period due to rising interest rates. The U.S. economy grew at a 1.0 percent pace in the first quarter, capping the weakest six months of growth in five years.  Cash from the tax rebates helped consumer spending in the second quarter.  However, we believe, soft labor markets, tight credit conditions, and the housing slump are likely to keep economic growth weak during the remaining six months of 2008. In the second quarter the Federal Reserve (the “Fed”) started to shift its focus from reviving the economy to worrying about inflation expectations.  After lowering rates by 2.00% in the first quarter, the Fed Funds target rate was moved down just 0.25% in the last three months.  At its last meeting on June 25th, the Fed kept rates unchanged at 2.00%, amid speculation that it would consider future interest-rate increases to curb inflation. The Bond Fund’s return for the second quarter lagged the Lehman Aggregate Bond index.  Specific mortgage-backed holdings and the portfolio’s underweight in BBB rated corporates hindered performance, while its maturity structure and overweight in corporate bonds helped performance.  We believe the portfolio’s emphasis on non-treasury sectors will help the Fund’s yield in the coming quarters. Performance Report Institutional Shares Total Fund Assets as of 6/30/2008 $522,588,187.04 Net Asset Value, Institutional Shares1 $18.21    Effective Duration 2 4.71 years    Average Coupon 5.45%

Portfolio Composition as of 6/30/083 By Security Type By Credit Rating 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 June, 2008* July, 2008* August, 2008*   *Adobe Acrobat 6.0® or above required. Download now for free.

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