<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
Interest rates moved sharply upward during the six months ended July 31,
1994, the first half of Vanguard Fixed Income Securities Fund's fiscal
year. The net result was a decline in bond prices, moderate in dimension
for short-term bonds and substantial for long-term bonds.
This stormy environment pretty much offset the more pleasant
environment that prevailed during the prior six-month period ended January
31, 1994. For the cumulative twelve months, the total returns (capital
change plus income) of our Portfolios provided a mixed blend of marginally
positive and marginally negative returns, as shown in this table of summary
results:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
Twelve Months Ended
July 31, 1994
---------------------------------------------------------------
Components of
Return
----------------------------- SEC
Total 30-Day
Vanguard Portfolio* Return Income Capital Yield
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM U.S. TREASURY +1.6% +4.7% -3.1% 6.0%
SHORT-TERM FEDERAL +1.3 +4.9 -3.6 6.3
SHORT-TERM CORPORATE +2.3 +5.4 -3.1 6.4
- - -----------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM
U.S. TREASURY -0.8% +5.3% -6.1% 6.8%
GNMA +0.1 +6.1 -6.0 7.3
- - -----------------------------------------------------------------------------------------------------------------
LONG-TERM U.S. TREASURY -2.6% +6.1% -8.7% 7.2%
LONG-TERM CORPORATE -1.2 +6.5 -7.7 7.9
- - -----------------------------------------------------------------------------------------------------------------
HIGH YIELD CORPORATE +1.9% +8.6% -6.7% 9.9%
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Note: The total return of the Intermediate-Term Corporate Portfolio since its
inception on November 1, 1993, was -2.8%; its SEC yield was 7.1% on July 31,
1994.
The detailed per share figures for each Portfolio--including net asset values,
income dividends, and any capital gains distributions--for the six-month and
twelve-month periods ended July 31, 1994, are presented on page 3. (We use
twelve-month returns as our major standard, since they give effect to a full
year's yield.)
* THE BOND MARKET IN 1994
To state the obvious, the most significant event of the past six months for the
bond market was the continuation--indeed the acceleration--of the sharp rise in
interest rates that began last October. Since that time, short-term yields
(90-day U.S. Treasury bills) have risen from 3.1% to 4.5% and long-term yields
(30-year U.S. Treasury bonds) have risen from 5.9% to 7.4%. The market value
of the Treasury bill was substantially unaffected by this change; new Treasury
bills produce "merely" 50% more income. In contrast, the interest coupon on the
long-term bond remains largely unchanged, but, to reflect the rising cost of $1
of interest, its market value has declined by about -18% (price change,
excluding interest income). However painful this decline may have been for
investors in long-term bonds, it is worth noting that interest rates had been
falling fairly steadily during the seven years preceding the October lows. The
retracement through July 31, 1994, has served to return rates to the level
prevailing at the beginning of 1993.
A primary cause of the interest rate rise was investor fears about a
resurgence of inflation. So far, at least, there is little evidence of it. The
U.S. Consumer Price Index has risen just 2.8% over the past twelve months,
although more sensitive indicators--such as commodity prices--have been rising
at a higher rate. In an effort to quell inflationary fears, the Federal Reserve
has acted to "tighten" the money supply and slow economic growth and potential
future inflation. Four rate increases--in February, March, April, and again in
May--combined to raise the Federal funds rate (at which banks borrow from one
another) from 3.00% to 4.25%. Theory suggests that increases in short-term
rates should be regarded by market participants as a restraint on potential
inflation, and thus cause long-term rates to fall. However, this theory seldom
holds true in practice, and 1994 has proved to be no exception.
(continued)
1
<PAGE> 2
* PERFORMANCE REVIEW
As noted at the outset, the total returns of our Portfolios during the past
twelve months were lackluster, ranging from marginally positive (+1% to +2% in
our three Short-Term Portfolios) to marginally negative (-1% to -3% in our two
Long-Term Portfolios). Our Intermediate-Term U.S. Treasury, GNMA, and High
Yield Portfolios provided returns roughly within this total range.
The six-month total returns, on the other hand, were all negative,
ranging from declines in the area of -1% for our Short-Term Portfolios to more
than -7% in our Long-Term U.S. Treasury Portfolio. (See table on page 3.) Each
Portfolio's results generally closely paralleled the returns in the quality and
maturity sectors of the bond market in which each invests.
During the past six months, there have been a number of bond funds that
have not adhered to the sort of investment disciplines that characterize the
Portfolios of Vanguard Fixed Income Securities Fund. There has been too much
"stretching" for higher yields by some funds, and the substantial extra risk
that they chose to take--often in the form of exotic derivative
instruments--has, in some cases, already come home to roost. I would like to
assure you that our quality and maturity policies are inviolate, and that your
management has no intention of "playing the games" available in a marketplace
behind which a tempting "casino" always lurks.
Common prudence tells us to avoid extra risk. Common sense tells us
that by maintaining the lowest costs in this industry, we can provide you with
returns above those of the average competitor without compromising on quality.
Very roughly, our Portfolios maintain annual expense ratios in the area of
0.3%; for the average fixed-income mutual fund, the expense ratio is 0.9%.
Other factors held equal, this lower cost should enable Vanguard to add 0.6% to
your yield each year.
* IN SUMMARY
I want to be clear that all bond funds inevitably incur risk. To repeat what I
wrote to you one year ago, " . . . perhaps the greatest present risk to all of
the Portfolios is interest rate risk--the possibility that interest rates,
having fallen so far, and so unexpectedly, in such a relatively short span of
time, will retrace some of their decline. Rising rates will subject long-term
bonds to greater price declines than intermediate-term bonds or short-term
bonds. And, despite their high degree of price stability, even short-term bonds
would be subject to some decline in principal value in a rising rate
environment." You can rest assured that Vanguard will not add to those market
risks by departing from "the straight and narrow."
On the positive side, the rise in interest rates has increased the
relative attractiveness of bonds as an investment alternative, and rates
"across the board" provide a substantial premium over the current annualized
inflation rate. So, we look forward optimistically to a more positive report to
you in our Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- - -----------------------
John C. Bogle
Chairman of the Board
August 8, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
PORTFOLIO RESULTS
<TABLE>
<CAPTION>
Net Asset Value Per Share Latest 12 Months Total Returns SEC
Average ------------------------------ ------------------- ---------------- 30-Day
Maturity Average July 31, January 31, July 31, Income Capital 12 6 Annualized
Portfolio (Years) Quality 1993 1994 1994 Dividends Gains Months Months Yield
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY 19.6 Aaa $10.70 $10.75 $ 9.59 $.665 $.189 -2.6% -7.4% 7.16%
LONG-TERM CORPORATE 19.5 Aa3 9.45 9.36 8.44 .614 .303 -1.2 -5.8 7.88
HIGH YIELD CORPORATE 10.3 Ba2 7.91 8.14 7.38 .684 -- +1.9 -5.2 9.91 (1)
INTERMEDIATE-TERM
CORPORATE 9.1 A1 10.00* 10.04 9.32 .401* -- -2.8* -4.4 7.09
INTERMEDIATE-TERM
U.S. TREASURY 6.0 Aaa 11.11 10.82 10.03 .583 .428 -0.8 -4.4 6.81
GNMA 8.8 Aaa 10.53 10.39 9.90 .640 -- +0.1 -1.5 6.97 (2)
SHORT-TERM FEDERAL 2.2 Aaa 10.43 10.38 9.96 .514 .097 +1.3 -1.4 6.25
SHORT-TERM U.S. TREASURY 2.1 Aaa 10.43 10.41 10.04 .488 .073 +1.6 -1.0 6.03
SHORT-TERM CORPORATE 2.2 A1 10.96 10.94 10.56 .584 .062 +2.3 -0.8 6.42
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Since inception, November 1, 1993.
IMPORTANT NOTES:
(1) HIGH YIELD CORPORATE PORTFOLIO. Yield reflects a premium based on the
possibility that interest payments on some bonds may be reduced or
eliminated. Also, since bonds with higher interest coupons may be replaced
by bonds with lower coupons, income dividends are subject to reduction.
(2) GNMA PORTFOLIO. Yield calculated to take into account estimated prepayment
risk of mortgage-backed obligations. Lower interest rates are likely to
further accelerate these prepayments; if so, dividend income would be
reduced. Yield would be 7.33% under SEC calculation methodology.
3
<PAGE> 4
AVERAGE ANNUAL TOTAL RETURNS
* THE CURRENT YIELDS NOTED IN THE TABLE OF THE CHAIRMAN'S LETTER AND THE
PORTFOLIO RESULTS ARE CALCULATED IN ACCORDANCE WITH SEC GUIDELINES. THE
ANNUALIZED TOTAL RETURNS FOR THE PORTFOLIOS (PERIODS ENDED JUNE 30, 1994) ARE
AS FOLLOWS:
<TABLE>
<CAPTION>
PORTFOLIO INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS
- - -------------------------------- -------------- ------ -------- --------
<S> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY 5/19/86 -4.11% +8.29% + 8.37%*
LONG-TERM CORPORATE 7/9/73 -2.73 +9.47 +12.10
HIGH YIELD CORPORATE 12/27/78 +1.83 +8.90 +11.64
INTERMEDIATE-TERM CORPORATE 11/1/93 -4.35** -- --
INTERMEDIATE-TERM U.S. TREASURY 10/28/91 -2.44 +7.48* --
GNMA 6/27/80 -1.20 +8.37 +11.10
SHORT-TERM FEDERAL 12/31/87 +0.69 +7.47 + 7.69*
SHORT-TERM U.S. TREASURY 10/28/91 +0.71 +5.55* --
SHORT-TERM CORPORATE 10/29/82 +1.41 +7.99 + 9.68
</TABLE>
THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
* SINCE PORTFOLIO'S INCEPTION.
** CUMULATIVE RETURN SINCE INCEPTION.
4
<PAGE> 5
TOTAL INVESTMENT RETURN
The following tables illustrate the lifetime results of single share
investments in six of the Portfolios through July 31, 1994. The percentage
figures show results on a "total return" basis and assume the reinvestment of
both income dividends and any capital gains distributions. For the periods
covered, long-term bond prices fluctuated widely. The results shown should not
be considered a representation of the dividend income or capital gain or loss
which may be realized from an investment made in the Portfolios today.
<TABLE>
<CAPTION>
HIGH YIELD CORPORATE PORTFOLIO (BEGAN OPERATIONS DECEMBER 27, 1978)
- - ---------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - ---------------------------------------------------------------------------------------------------------------------------
Capital Lehman
Year Ended Net Asset Income Gains Capital Income Total "BBB" Rated
January 31 Value Dividends Distributions Return Return Return Bond Index
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (12/27/78) $10.00 -- -- -- -- -- --
- - ---------------------------------------------------------------------------------------------------------------------------
1979* 10.33 -- -- + 3.3% -- + 3.3% + 2.0%
- - ---------------------------------------------------------------------------------------------------------------------------
1980 9.26 $1.235 -- -10.4 +11.9% + 1.5 - 8.7
- - ---------------------------------------------------------------------------------------------------------------------------
1981 8.50 1.18 -- - 8.2 +13.1 + 4.9 + 4.6
- - ---------------------------------------------------------------------------------------------------------------------------
1982 7.88 1.24 -- - 7.3 +15.3 + 8.0 + 3.3
- - ---------------------------------------------------------------------------------------------------------------------------
1983 8.96 1.28 -- +13.7 +18.6 +32.3 +39.7
- - ---------------------------------------------------------------------------------------------------------------------------
1984 8.97 1.20 -- + 0.1 +14.1 +14.2 +11.8
- - ---------------------------------------------------------------------------------------------------------------------------
1985 8.52 1.18 -- - 5.0 +14.4 + 9.4 +16.7
- - ---------------------------------------------------------------------------------------------------------------------------
1986 8.84 1.14 -- + 3.8 +14.6 +18.4 +21.5
- - ---------------------------------------------------------------------------------------------------------------------------
1987 9.33 1.08 $.118 + 6.9 +13.2 +20.1 +18.2
- - ---------------------------------------------------------------------------------------------------------------------------
1988 8.53 1.01 -- - 8.6 +11.1 + 2.5 + 4.3
- - ---------------------------------------------------------------------------------------------------------------------------
1989 8.44 1.02 -- - 1.1 +12.5 +11.4 + 6.7
- - ---------------------------------------------------------------------------------------------------------------------------
1990 7.31 1.00 -- -13.4 +11.6 - 1.8 +11.0
- - ---------------------------------------------------------------------------------------------------------------------------
1991 6.19 .90 -- -15.3 +12.1 - 3.2 + 9.8
- - ---------------------------------------------------------------------------------------------------------------------------
1992 7.27 .77 -- +17.4 +13.9 +31.3 +15.6
- - ---------------------------------------------------------------------------------------------------------------------------
1993 7.56 .73 -- + 4.0 +10.7 +14.7 +12.6
- - ---------------------------------------------------------------------------------------------------------------------------
1994 8.14 .70 -- + 7.7 + 9.8 +17.5 +11.7
- - ---------------------------------------------------------------------------------------------------------------------------
1994 (7/31) 7.38 .34 -- - 9.3 + 4.1 - 5.2 - 4.5
- - ---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE
OF RETURN - 1.9% +12.9% +11.0% +10.8%
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance for the Index begins on 12/31/78.
<TABLE>
<CAPTION>
LONG-TERM U.S. TREASURY PORTFOLIO (BEGAN OPERATIONS MAY 19, 1986)
- - ---------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - ---------------------------------------------------------------------------------------------------------------------------
Capital Lehman Long-
Year Ended Net Asset Income Gains Capital Income Total Term Treasury
January 31 Value Dividends Distributions Return Return Return Bond Index
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (5/19/86) $10.00 -- -- -- -- -- --
- - ---------------------------------------------------------------------------------------------------------------------------
1987* 10.28 $.530 $.034 + 3.6% +5.2% + 8.8% +12.1%
- - ---------------------------------------------------------------------------------------------------------------------------
1988 9.49 .776 -- - 7.7 +8.0 + 0.3 + 1.5
- - ---------------------------------------------------------------------------------------------------------------------------
1989 9.28 .778 -- - 2.2 +8.6 + 6.4 + 5.1
- - ---------------------------------------------------------------------------------------------------------------------------
1990 9.53 .781 -- + 2.7 +8.6 +11.3 +12.3
- - ---------------------------------------------------------------------------------------------------------------------------
1991 9.74 .776 -- + 2.2 +8.8 +11.0 +11.6
- - ---------------------------------------------------------------------------------------------------------------------------
1992 10.14 .763 -- + 4.1 +8.3 +12.4 +13.4
- - ---------------------------------------------------------------------------------------------------------------------------
1993 10.04 .733 .700 + 6.1 +8.0 +14.1 +14.6
- - ---------------------------------------------------------------------------------------------------------------------------
1994 10.75 .685 .176 + 8.9 +7.2 +16.1 +16.7
- - ---------------------------------------------------------------------------------------------------------------------------
1994 (7/31) 9.59 .325 .041 -10.4 +3.0 - 7.4 - 7.8
- - ---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE
OF RETURN* + 0.7% +8.0% + 8.7% + 9.5%
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance for the Fund and the Index begins on 5/31/86.
5
<PAGE> 6
TOTAL INVESTMENT RETURN (continued)
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE PORTFOLIO (BEGAN OPERATIONS OCTOBER 29, 1982)
- - ------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - ------------------------------------------------------------------------------------------------------------------------------
Capital Lehman
Year Ended Net Asset Income Gains Capital Income Total Short-Term
January 31 Value Dividends Distributions Return Return Return Investment Grade
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (10/29/82) $10.00 -- -- -- -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------
1983 10.05 $ .270 -- +0.5% + 2.7% + 3.2% + 4.6%
- - ------------------------------------------------------------------------------------------------------------------------------
1984 9.94 1.019 -- -1.1 +10.6 + 9.5 +10.9
- - ------------------------------------------------------------------------------------------------------------------------------
1985 10.17 1.067 -- +2.3 +11.7 +14.0 +14.1
- - ------------------------------------------------------------------------------------------------------------------------------
1986 10.55 1.001 -- +3.7 +10.5 +14.2 +14.6
- - ------------------------------------------------------------------------------------------------------------------------------
1987 10.67 .877 $.184 +2.9 + 8.7 +11.6 +11.9
- - ------------------------------------------------------------------------------------------------------------------------------
1988 10.43 .761 -- -2.2 + 7.4 + 5.2 + 6.8
- - ------------------------------------------------------------------------------------------------------------------------------
1989 10.23 .833 -- -1.9 + 8.2 + 6.3 + 6.5
- - ------------------------------------------------------------------------------------------------------------------------------
1990 10.34 .895 -- +1.1 + 9.1 +10.2 +10.7
- - ------------------------------------------------------------------------------------------------------------------------------
1991 10.50 .876 -- +1.5 + 9.0 +10.5 + 9.8
- - ------------------------------------------------------------------------------------------------------------------------------
1992 10.88 .804 -- +3.6 + 8.1 +11.7 +13.4
- - ------------------------------------------------------------------------------------------------------------------------------
1993 10.99 .695 .165 +2.6 + 6.7 + 9.3 + 9.5
- - ------------------------------------------------------------------------------------------------------------------------------
1994 10.94 .605 .099 +0.4 + 5.7 + 6.1 + 7.9
- - ------------------------------------------------------------------------------------------------------------------------------
1994 (7/31) 10.56 .290 -- -3.5 + 2.7 - 0.8 - 1.0
- - ------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE
OF RETURN +0.8% + 8.6% + 9.4% +10.1%
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GNMA PORTFOLIO (BEGAN OPERATIONS JUNE 27, 1980)
- - ------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - ------------------------------------------------------------------------------------------------------------------------------
Capital
Year Ended Net Asset Income Gains Capital Income Total Lehman
January 31 Value Dividends Distributions Return Return Return GNMA Index
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (6/27/80) $10.00 -- -- -- -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------
1981* 8.75 $ .61 -- -12.5% + 6.2% - 6.3% - 7.3%
- - ------------------------------------------------------------------------------------------------------------------------------
1982 7.92 1.12 -- - 9.5 +13.5 + 4.0 + 1.7
- - ------------------------------------------------------------------------------------------------------------------------------
1983 9.21 1.11 -- +16.3 +15.8 +32.1 +39.6
- - ------------------------------------------------------------------------------------------------------------------------------
1984 9.20 1.07 -- - 0.1 +12.3 +12.2 +12.0
- - ------------------------------------------------------------------------------------------------------------------------------
1985 9.25 1.08 -- + 0.5 +13.0 +13.5 +15.4
- - ------------------------------------------------------------------------------------------------------------------------------
1986 9.92 1.04 -- + 7.2 +12.4 +19.6 +22.6
- - ------------------------------------------------------------------------------------------------------------------------------
1987 10.10 .96 $.006 + 1.9 +10.3 +12.2 +13.6
- - ------------------------------------------------------------------------------------------------------------------------------
1988 9.69 .89 -- - 4.1 + 9.4 + 5.3 + 6.8
- - ------------------------------------------------------------------------------------------------------------------------------
1989 9.34 .88 -- - 3.6 + 9.4 + 5.8 + 6.6
- - ------------------------------------------------------------------------------------------------------------------------------
1990 9.54 .88 -- + 2.1 + 9.9 +12.0 +12.9
- - ------------------------------------------------------------------------------------------------------------------------------
1991 9.85 .85 -- + 3.2 + 9.7 +12.9 +13.2
- - ------------------------------------------------------------------------------------------------------------------------------
1992 10.25 .83 -- + 4.1 + 8.9 +13.0 +12.9
- - ------------------------------------------------------------------------------------------------------------------------------
1993 10.50 .78 -- + 2.4 + 8.0 +10.4 +10.1
- - ------------------------------------------------------------------------------------------------------------------------------
1994 10.39 .64 -- - 1.0 + 6.2 + 5.2 + 6.1
- - ------------------------------------------------------------------------------------------------------------------------------
1994 (7/31) 9.90 .33 -- - 4.7 + 3.2 - 1.5 - 1.8
- - ------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE
OF RETURN - 0.1% +10.4% +10.3% +11.2%
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance for the Index begins on 6/30/80.
6
<PAGE> 7
<TABLE>
<CAPTION>
LONG-TERM CORPORATE PORTFOLIO (BEGAN OPERATIONS JULY 9, 1973)
- - ------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - ------------------------------------------------------------------------------------------------------------------------------
Capital Lehman
Year Ended Net Asset Income Gains Capital Income Total "A" Rated
January 31 Value Dividends Distributions Return Return Return Bond Index*
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (7/9/73) $10.00 -- -- -- -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------
1974** 9.93 $.38 $.030 - 0.4% + 3.7% + 3.3% + 0.8%
- - ------------------------------------------------------------------------------------------------------------------------------
1975 9.20 .74 -- - 7.4 + 7.9 + 0.5 + 3.3
- - ------------------------------------------------------------------------------------------------------------------------------
1976 9.25 .73 -- + 0.5 + 8.4 + 8.9 +10.2
- - ------------------------------------------------------------------------------------------------------------------------------
1977 9.61 .74 -- + 3.9 + 8.4 +12.3 +12.9
- - ------------------------------------------------------------------------------------------------------------------------------
1978 9.36 .77 -- - 2.6 + 8.1 + 5.5 + 4.0
- - ------------------------------------------------------------------------------------------------------------------------------
1979 8.91 .79 -- - 4.8 + 8.5 + 3.7 + 2.7
- - ------------------------------------------------------------------------------------------------------------------------------
1980 7.68 .82 -- -13.8 + 8.9 - 4.9 -12.3
- - ------------------------------------------------------------------------------------------------------------------------------
1981 7.41 .88 -- - 3.5 +11.6 + 8.1 + 4.4
- - ------------------------------------------------------------------------------------------------------------------------------
1982 7.06 .93 -- - 4.7 +13.2 + 8.5 + 2.2
- - ------------------------------------------------------------------------------------------------------------------------------
1983 8.00 .96 -- +13.3 +15.0 +28.3 +38.3
- - ------------------------------------------------------------------------------------------------------------------------------
1984 7.84 .95 -- - 2.0 +12.3 +10.3 +10.9
- - ------------------------------------------------------------------------------------------------------------------------------
1985 7.84 .96 -- 0.0 +13.4 +13.4 +16.6
- - ------------------------------------------------------------------------------------------------------------------------------
1986 8.42 .92 -- + 7.4 +12.9 +20.3 +21.5
- - ------------------------------------------------------------------------------------------------------------------------------
1987 8.77 .85 .123 + 5.6 +10.9 +16.5 +18.0
- - ------------------------------------------------------------------------------------------------------------------------------
1988 8.11 .77 -- - 7.5 + 9.3 + 1.8 + 3.9
- - ------------------------------------------------------------------------------------------------------------------------------
1989 7.91 .74 -- - 2.5 + 9.6 + 7.1 + 6.3
- - ------------------------------------------------------------------------------------------------------------------------------
1990 8.00 .73 -- + 1.1 + 9.6 +10.7 +11.0
- - ------------------------------------------------------------------------------------------------------------------------------
1991 8.02 .72 -- + 0.3 + 9.5 + 9.8 +10.7
- - ------------------------------------------------------------------------------------------------------------------------------
1992 8.63 .71 -- + 7.6 + 9.5 +17.1 +15.0
- - ------------------------------------------------------------------------------------------------------------------------------
1993 9.04 .68 .151 + 6.6 + 8.5 +15.1 +12.5
- - ------------------------------------------------------------------------------------------------------------------------------
1994 9.36 .63 .259 + 6.5 + 7.3 +13.8 +11.3
- - ------------------------------------------------------------------------------------------------------------------------------
1994 (7/31) 8.44 .31 .072 - 9.1 + 3.3 - 5.8 - 4.5
- - ------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE
OF RETURN - 0.5% + 9.9% + 9.4% + 9.0%
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Salomon Brothers High Grade Bond Index through 1980; Lehman Brothers Mutual
Fund "A" Rated Bond Index thereafter.
** Performance for the Index begins on 6/30/73.
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL PORTFOLIO (BEGAN OPERATIONS DECEMBER 31, 1987)
- - -------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - -------------------------------------------------------------------------------------------------------------------------------
Capital Lehman
Year Ended Net Asset Income Gains Capital Income Total Short-Term
January 31 Value Dividends Distributions Return Return Return Gov't. Index
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (12/31/87) $10.00 -- -- -- -- -- --
- - -------------------------------------------------------------------------------------------------------------------------------
1988 10.05 $.050 -- +0.5% +0.5% + 1.0% + 1.9%
- - -------------------------------------------------------------------------------------------------------------------------------
1989 9.78 .817 -- -2.7 +8.4 + 5.7 + 5.0
- - -------------------------------------------------------------------------------------------------------------------------------
1990 9.89 .842 -- +1.1 +9.0 +10.1 +10.5
- - -------------------------------------------------------------------------------------------------------------------------------
1991 10.08 .801 -- +1.9 +8.6 +10.5 +11.1
- - -------------------------------------------------------------------------------------------------------------------------------
1992 10.31 .720 $.077 +3.1 +7.5 +10.6 +11.3
- - -------------------------------------------------------------------------------------------------------------------------------
1993 10.38 .609 .162 +2.3 +6.2 + 8.5 + 8.9
- - -------------------------------------------------------------------------------------------------------------------------------
1994 10.38 .522 .110 +1.1 +5.1 + 6.2 + 6.1
- - -------------------------------------------------------------------------------------------------------------------------------
1994 (7/31) 9.96 .267 .010 -4.0 +2.6 - 1.4 - 1.2
- - -------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE
OF RETURN +0.5% +7.2% + 7.7% + 8.1%
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
REPORT FROM VANGUARD FIXED INCOME GROUP
The bond markets turned decidedly unfriendly over the past six months.
Interest rates across the entire spectrum of maturities rose irregularly
higher, prompting price declines among all fixed-income securities. The
magnitudes of price declines varied, as expected, according to length of
maturity. On average for the full six months, long-term bonds dropped about
10%-14% in price, intermediate-term notes (5-10 years to maturity) fell 7%-9%,
and short-term notes (2-5 years) dropped about 4%-5%.
The bear market occurred quickly and, as a consequence, the interest
income generated by bond investments could do little to ameliorate the pain.
With respect to your Portfolios' total returns, which include both principal
changes and interest income, details are included in the Chairman's letter.
Suffice it to say it was an unhappy interlude that reduced, but in no way came
close to eliminating, the attractive rates of return earned by bonds since
1987.
The Portfolios that we manage (all but GNMA, Long-Term Corporate, and
High Yield) in general fared somewhat better than the Lehman Bond Indexes
against which we compare ourselves. Our average maturities were "hunkered down"
moderately in 1994, in the belief that the Federal Reserve policymakers would
tighten the availability of monetary reserves, and in so doing would raise
short-term interest rates. Thus, it came as no surprise to us when the "Fed"
acted on four separate occasions to engineer an increase in the Federal Funds
Rate (a key interest rate bellwether), which in all moved from 3.00% at the
beginning of the fiscal year to 4.25% at the fiscal mid-term. Currently, the
Fed appears poised to tighten again. Whether it does or not is open to
conjecture. Regardless, by the time you read this letter, you may well have the
answer.
What motivated the Fed to act when the inflation statistics seemed to
be so benign? The answer lies in some fairly arcane calculations that compare
actual and potential aggregate economic activity. Theory suggests that when
actual and potential output get too close to one another, price inflation is
the inevitable consequence. Hence, the Fed acted because they were concerned
that capacity constraints would exacerbate future inflation. Indeed, certain
commodity price indices appeared to corroborate the supposition that price
pressures were building. Now the guessing game for armchair economists is
whether the amount of tightening already undertaken is sufficient to eliminate
inflationary pressures and, equally important, expectations of higher
inflation. The correct answer to that question will determine the likely
duration and intensity of this bear market in bonds. Stay tuned.
While we await the ultimate resolution of these unknowns, we continue
to pursue the normal risk-controlled strategies that we hope will add some
value to your Portfolios over time. To wit, we are exploiting the relatively
steep slope of the "yield curve" to position our bond holdings. The incremental
income one obtains through sequential bond maturities can go a long way toward
offsetting any adverse trend in the overall market.
In the Portfolios that carry a corporate bond mandate, we are
maintaining our heavy emphasis (80% of assets currently) on bonds rated "A" or
above, but we are benefiting from the generally improving economy by
maintaining a limited weighting (about 20% of assets) in "BBB" bonds, which are
also included in the "investment-grade" category. Corporate bonds typically
offer somewhat higher yields than their Treasury bond brethren and, as they are
favored by our credit analysts, they may well appreciate in relative price when
the rating services eventually come to share our view.
In the Treasury Portfolios we make use of lesser-known government
guaranteed issuers that carry higher yields than garden-variety Treasury debt.
Last, where permitted by prospectus, we seek to exploit the small price
inefficiencies embodied in
8
<PAGE> 9
the municipal/Treasury markets through moderate futures "arbitrage" (offsetting
long and short positions). Under no circumstances do any of these strategies
change the fundamental risk/return characteristics of the respective
Portfolios. Rather, they will, if effective, produce incremental return "at
the margin."
In conclusion, we would note that the recent market correction, while
painful, was hardly extreme by any historical context. The 1980-1981 and 1987
experiences were appreciably more severe and protracted than what we've seen so
far. Long-term investors know to take these corrections "in stride." Over the
long haul, what matters most is interest income and the power of compounding.
Respectfully,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Vice President
Vanguard Fixed Income Group
August 10, 1994
9
<PAGE> 10
REPORT FROM WELLINGTON MANAGEMENT COMPANY
* MARKET REVIEW
During the first half of Vanguard Fixed Income Securities Fund's fiscal year,
short- and long-term interest rates rose approximately 125 basis points
(1.25%). The Federal Reserve raised short-term rates on four separate
occasions. Last fall, the benchmark 30-year U.S. Treasury bond had declined in
yield to 5.9%, which is in sharp contrast to the current 7.4% level. Thus,
long-term bonds have declined about -18% in price since the low in yields
established last October. Speculative excesses were painfully wrung out of the
bond market during this period of Federal Reserve tightening. However, with
inflation at 2.8% and economic growth only somewhat higher, long-term interest
rates, at 7.4%, have already "priced in" a potential inflation rate greater
than 4%. Thus, inflation, in our view, can increase slightly further without
necessitating a rise in long rates.
While we expect continued upward pressure on short-term rates, we
expect long-term rates to stabilize or edge only slightly higher. The average
spread between ten- and thirty-year Treasuries has been twenty-six basis points
over the past ten years. Currently, the differential between the two maturities
is at the average. We believe that the spread will narrow to almost nothing in
the next twelve months as the Federal Reserve is forced to raise short rates.
Within the corporate sector, high-yield bonds generally outperform
investment-grade bonds during periods of economic growth and rising inflation
and interest rates, and we expect this traditional pattern to recur.
* LONG-TERM CORPORATE PORTFOLIO
The Portfolio's average maturity increased from 17 years to 20 years, as
interest rates were rising during the past six months. Our strategy of
maintaining a long average maturity in this environment should lead to stable
or rising income in the future. Three quarters of the Portfolio's assets is
invested in corporate bonds, while the remainder is in U.S. Treasuries,
mortgage-backeds, and cash reserves. About 80% of the holdings are in issues
rated "A" or better.
With this particular Portfolio, there are two major risks. The first
risk is rising interest rates, which cause principal values to decline. This
has occurred over the past six months, but long-term income-oriented investors
should not be particularly surprised or concerned by this development. The
second risk is credit deterioration. In the current economic environment, with
sales and profits growing for a majority of companies, credit upgrades should
exceed credit downgrades.
Our one concern in this otherwise favorable credit environment is that
merger and acquisition activity is increasing sharply. During the 1980s,
mergers and acquisitions generated heavier debt loads and, consequently, rating
downgrades. When the recession arrived, servicing the additional debt became
more burdensome. As a consequence, we favor large well-established companies
that have multiple financing alternatives and can reduce debt by issuing stock.
In the past six months, yield spreads on investment-grade corporate issues have
remained narrow versus U.S. Treasuries, reflecting the favorable economic
environment. Thus, we find Treasuries and mortgage-backeds to be relatively
more appealing than corporates.
* GNMA PORTFOLIO
Although the past six months found the GNMA Portfolio buffeted by a sharp rise
in interest rates, the changes which occurred during the period represented a
return to a more normal environment. The plunging interest rates and rapid rate
of mortgage refinancing which dominated 1993 were virtually eliminated as
mortgage rates rose during 1994. In the earlier period, high levels of
refinancing produced substantial prepayments of par value on high coupon
securities, which forced reinvestment at relatively low interest rates. This
prepayment at par value of securities which had been bought at a premium had a
negative effect on the Portfolio's income per share, whereas the slowing of
prepayment activity in this fiscal year has already caused income to increase
modestly.
Interest rates have now returned to a level where GNMA investors are
offered a far more
10
<PAGE> 11
attractive yield relative to the inflation rate than what was available during
the summer and fall of 1993. If, as we expect, interest rate volatility is less
severe than what we have experienced in the past eighteen months, GNMA
investors should experience returns which are attractive relative to other
alternatives of comparable credit quality. The weighted average coupon of the
GNMA Portfolio is now 8.0%, which is very close to the rate at which new GNMA
securities are being issued. This coupon structure produces a portfolio whose
weighted average security price is close to par value, a point which in our
view offers an attractive tradeoff between maintaining a good yield and
minimizing the potential for prepayment problems should interest rates decline.
* HIGH YIELD CORPORATE
The high-yield market suffered for the first four months of the fiscal year but
showed some improvement in June and July. The major problems afflicting the
high-yield market were the rise in interest rates and a lack of investor demand
for fixed-income securities. Rising interest rates caused mutual fund
redemptions, which put significant downward pricing pressure on high- yield
bonds. Ironically, much of this price deterioration occurred in the highest
quality and most well-known names, as these were the issues easiest to sell.
Our focus on this portion of the market caused the Portfolio to underperform
the high-yield market in total return over the past six months. Offsetting
these various short-term market concerns is the reality that many high-yield
issuers are benefiting from the improving domestic economy. Companies are
reporting better financial numbers, and thus credit upgrades should exceed
credit downgrades going forward.
The Portfolio's holdings are focused on cash-paying issues rated "B" or
better. We continue to maintain a Treasury reserve for liquidity purposes and a
modest position in securities rated "Baa." The Portfolio owns over 100 issuers,
which provides diversification among industries and companies. Following an
extended period in which the Portfolio's income per share has declined, we now
believe that conditions are in place which will lead to stabilization or
possibly an increase in income in future periods.
We look forward to reporting to you again in six months.
Respectfully,
Paul D. Kaplan, Senior Vice President
Portfolio Manager
Earl E. McEvoy, Senior Vice President
Portfolio Manager
Wellington Management Company
August 12, 1994
SPECIAL NOTICE TO SHAREHOLDERS
As of March 31, 1994, Paul D. Kaplan, Senior Vice President of Wellington
Management Company, assumed the duties of portfolio manager for the GNMA
Portfolio. Prior to this change, Mr. Kaplan was assistant portfolio manager for
the GNMA Portfolio. Mr. Kaplan has been associated with Wellington for 16
years and currently manages the bond components of Vanguard Utilities Income
Portfolio and Vanguard/Wellington Fund.
Also as of March 31, 1994, Earl E. McEvoy, Senior Vice President of
Wellington, assumed responsibility for the management of the Fund's Long-Term
Corporate Portfolio. Mr. McEvoy currently manages the Fund's High Yield
Corporate Portfolio as well as Vanguard Preferred Stock Fund and the bond
component of Vanguard/Wellesley Income Fund, Inc. Mr. McEvoy has also been
associated with Wellington for 16 years.
11
<PAGE> 12
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
SEC AVERAGE PERCENT OF
TOTAL 30-DAY WEIGHTED QUALITY TOTAL
PORTFOLIO NET ASSETS YIELD MATURITY RATINGS INVESTMENTS
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY $ 675,448,000 7.2% 19.6 years Aaa 90
PORTFOLIO Temporary Cash Investments 10
----
Average Quality: Aaa 100
- - -----------------------------------------------------------------------------------------------------------------------------
LONG-TERM $ 2,722,134,000 7.9% 19.5 years Aaa 33
CORPORATE Aa1, Aa2, Aa3 14
PORTFOLIO A1, A2, A3 36
Average Quality: Aa3 Baa1, Baa2, Baa3 15
Temporary Cash Investments 2
----
100
- - -----------------------------------------------------------------------------------------------------------------------------
HIGH YIELD CORPORATE $ 2,185,992,000 9.9% 10.3 years Aaa 7
PORTFOLIO A1, A2, A3 2
Average Quality: Ba2 Baa1, Baa2, Baa3 6
Ba1, Ba2, Ba3 29
B1, B2, B3 53
Temporary Cash Investments 3
----
100
- - -----------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM $ 108,332,000 7.1% 9.1 years Aaa 18
CORPORATE PORTFOLIO Aa1, Aa2, Aa3 16
Average Quality: A1 A1, A2, A3 38
Baa1, Baa2 22
Temporary Cash Investments 6
----
100
- - -----------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM $ 868,003,000 6.8% 6.0 years Aaa 97
U.S. TREASURY PORTFOLIO Temporary Cash Investments 3
----
Average Quality: Aaa 100
- - -----------------------------------------------------------------------------------------------------------------------------
GNMA PORTFOLIO $ 6,149,069,000 7.3% 8.8 years Aaa 96
Average Quality: Aaa Temporary Cash Investments 4
----
100
- - -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM FEDERAL $ 1,645,426,000 6.3% 2.2 years Aaa 94
PORTFOLIO Temporary Cash Investments 6
----
Average Quality: Aaa 100
- - -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. $ 694,701,000 6.0% 2.1 years Aaa 99
TREASURY PORTFOLIO Temporary Cash Investments 1
----
Average Quality: Aaa 100
- - -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE $ 3,321,900,000 6.4% 2.2 years Aaa 23
PORTFOLIO Aa1, Aa2, Aa3 12
Average Quality: A1 A1, A2, A3 47
Baa1, Baa2, Baa3 17
Temporary Cash Investments 1
----
100
- - -----------------------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS $18,371,005,000
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
A VANGUARD GLOSSARY--QUALITY RATINGS
Aaa Judged to be the best quality, carrying the smallest degree of investment
risk. U.S. Government and Agency Securities are considered to have Aaa
ratings.
Aa Judged to be of high quality by all standards.
A Possess many favorable investment attributes and are to be considered as
higher medium-grade obligations.
Baa Considered to be medium-grade obligations, neither highly protected nor
poorly secured.
Ba Judged to have speculative elements; their future cannot be considered as
well-assured.
B Generally lacks characteristics of the desirable investment.
Caa Poor standing; may be in default.
N.R. Not Rated.
Note: Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
12
<PAGE> 13
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
July 31, 1994
<TABLE>
<CAPTION>
Face Market
Amount Value
GNMA PORTFOLIO (000) (000)+
- - ---------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS (97.8%)
- - ---------------------------------------------------------------------------
6.50%, 5/15/23-5/15/25 $ 548,868 $ 498,441
7.00%, 4/15/07-4/15/24 1,166,364 1,108,587
7.50%, 12/15/01-4/15/24 1,284,536 1,257,998
8.00%, 5/15/02-7/15/24 968,841 969,339
8.25%, 8/15/04-7/15/08 9,452 9,554
8.50%, 5/15/01-4/15/32 641,464 656,312
9.00%, 3/15/01-9/15/22 642,827 669,416
9.25%, 5/15/16-6/15/18 4,873 5,088
9.50%, 12/15/00-2/15/30 548,543 580,525
10.00%, 11/15/09-7/15/22 127,962 137,122
10.50%, 3/15/13-3/15/21 83,877 91,311
11.00%, 1/15/10-2/20/16 2,476 2,676
11.25%, 6/15/13-2/20/16 1,407 1,529
11.50%, 6/15/10-11/20/15 2,439 2,652
11.75%, 9/15/95-10/15/95 12 13
12.00%, 10/15/10-1/20/16 4,965 5,352
12.50%, 4/15/10-8/15/15 8,127 9,002
12.75%, 6/15/14-1/15/15 461 506
13.00%, 12/15/10-6/15/15 6,276 7,026
13.25%, 8/15/14-10/15/14 234 257
13.50%, 5/15/10-12/15/14 927 1,032
13.75%, 9/20/14 23 26
14.00%, 6/15/11-9/15/12 310 349
15.00%, 9/15/11-5/15/12 235 267
- - ---------------------------------------------------------------------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS
(Cost $6,102,933) 6,014,380
- - ---------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (4.2%)
- - ---------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in a
Pooled Cash Account
4.23%, 8/1/94
(Cost $259,674) 259,674 259,674
- - ---------------------------------------------------------------------------
TOTAL INVESTMENTS (102.0%)
(Cost $6,362,607) 6,274,054
- - ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
- - ---------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-2.0%)
- - ---------------------------------------------------------------------------
Other Assets--Note C $ 44,660
Liabilities (169,645)
-----------
(124,985)
- - ---------------------------------------------------------------------------
NET ASSETS (100%)
- - ---------------------------------------------------------------------------
Applicable to 620,946,003
outstanding $.001 par
value shares (authorized
850,000,000 shares) $6,149,069
- - ---------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.90
===========================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - ---------------------------------------------------------------------------
Amount Per
(000) Share
----------- --------
<S> <C> <C>
Paid in Capital $6,237,448 $10.04
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 174 --
Unrealized Depreciation of
Investments--Note E (88,553) (.14)
- - ---------------------------------------------------------------------------
NET ASSETS $6,149,069 $ 9.90
- - ---------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
U.S. TREASURY CORPORATE
PORTFOLIO PORTFOLIO
- - ---------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1994 July 31, 1994
(000) (000)
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . -- --
Interest . . . . . . . . . . . . . . . . . . $ 24,834 $ 104,687
- - ---------------------------------------------------------------------------------------------
Total Income 24,834 104,687
- - ---------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . 44 578
The Vanguard Group--Note C
Management and Administrative . . . . . . 818 3,481
Marketing and Distribution . . . . . . . 82 297
Taxes (other than income taxes)--Note A . . . 29 114
Custodians' Fees . . . . . . . . . . . . . . 11 11
Legal Fees . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . 3 5
Shareholders' Reports . . . . . . . . . . . . 48 163
Annual Meeting and Proxy Costs . . . . . . . 3 13
Directors' Fees and Expenses . . . . . . . . 1 5
- - ---------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . 1,039 4,667
- - ---------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 23,795 100,020
- - ---------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . 15,052 4,911
Futures Contracts . . . . . . . . . . . . . . . . 55 --
- - ---------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . 15,107 4,911
- - ---------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . (99,404) (285,210)
Futures Contracts . . . . . . . . . . . . . . 297 --
- - ---------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . (99,107) (285,210)
- - ---------------------------------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations . . . . . . $(60,205) $(180,279)
=============================================================================================
</TABLE>
The Statements of Net Assets of the Long-Term U.S. Treasury, Long-Term
Corporate, High Yield Corporate, Intermediate-Term Corporate, Intermediate-Term
U.S. Treasury, Short-Term Federal, Short-Term U.S. Treasury, and Short-Term
Corporate Portfolios, integral parts of the financial statements for each such
Portfolio, are included as an insert to this Report.
14
<PAGE> 15
<TABLE>
<CAPTION>
HIGH YIELD INTERMEDIATE-TERM
CORPORATE GNMA CORPORATE
PORTFOLIO PORTFOLIO PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
July 31, 1994 July 31, 1994 July 31, 1994
(000) (000) (000)
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . $184 -- --
Interest . . . . . . . . . . . . . . . . . 104,718 $ 220,634 $ 2,976
- - ----------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . 104,902 220,634 2,976
- - ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . 698 656 5
The Vanguard Group--Note C
Management and Administrative . . . . . . . 2,369 7,373 122
Marketing and Distribution . . . . . . . . 231 696 6
Taxes (other than income taxes)--Note A . . . . 97 265 4
Custodians' Fees . . . . . . . . . . . . . . . 69 475 2
Legal Fees . . . . . . . . . . . . . . . . . 387 -- --
Auditing Fees . . . . . . . . . . . . . . . . . 4 7 2
Shareholders' Reports . . . . . . . . . . . . . 125 388 --
Annual Meeting and Proxy Costs . . . . . . . . 8 36 --
Directors' Fees and Expenses . . . . . . . . . 4 12 --
- - ----------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . 3,992 9,908 141
- - ----------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . 100,910 210,726 2,835
- - ----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . 23,184 6,389 (1,384)
Futures Contracts . . . . . . . . . . . . . . . . . -- -- --
- - ----------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . 23,184 6,389 (1,384)
- - ----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . (259,435) (329,434) (5,313)
Futures Contracts . . . . . . . . . . . . . . . -- -- --
- - ----------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . (259,435) (329,434) (5,313)
- - ----------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations . . . . $(135,341) $(112,319) $(3,862)
======================================================================================================================
</TABLE>
15
<PAGE> 16
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM SHORT-TERM
U.S. TREASURY FEDERAL
PORTFOLIO PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1994 July 31, 1994
(000) (000)
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . -- --
Interest . . . . . . . . . . . . . . . . . . . . . . $ 26,348 $ 49,440
- - ----------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . 26,348 49,440
- - ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . . 55 106
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . . 1,017 2,002
Marketing and Distribution . . . . . . . . . . . . . 122 232
Taxes (other than income taxes)--Note A . . . . . . . . . 37 70
Custodians' Fees . . . . . . . . . . . . . . . . . . . . 4 25
Legal Fees . . . . . . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . 3 5
Shareholders' Reports . . . . . . . . . . . . . . . . . . 66 86
Annual Meeting and Proxy Costs . . . . . . . . . . . . . 9 12
Directors' Fees and Expenses . . . . . . . . . . . . . . 2 3
- - ----------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . 1,315 2,541
- - ----------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . 25,033 46,899
- - ----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . (8,932) (13,891)
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . 709 --
- - ----------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . (8,223) (13,891)
- - ----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . (61,563) (59,591)
Futures Contracts . . . . . . . . . . . . . . . . . . . . (187) --
- - ----------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . (61,750) (59,591)
- - ----------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations . . . . . . . . . . . . . . $(44,940) $(26,583)
======================================================================================================================
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM
U.S. TREASURY CORPORATE
PORTFOLIO PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1994 July 31, 1994
(000) (000)
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . -- --
Interest . . . . . . . . . . . . . . . . . . . . . . $ 17,891 $ 97,948
- - ----------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . 17,891 97,948
- - ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . . 40 200
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . . 791 3,950
Marketing and Distribution . . . . . . . . . . . . . 90 426
Taxes (other than income taxes)--Note A . . . . . . . . . 27 134
Custodians' Fees . . . . . . . . . . . . . . . . . . . . 5 47
Legal Fees . . . . . . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . 3 5
Shareholders' Reports . . . . . . . . . . . . . . . . . . 39 160
Annual Meeting and Proxy Costs . . . . . . . . . . . . . 6 17
Directors' Fees and Expenses . . . . . . . . . . . . . . 1 6
- - ----------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . 1,002 4,945
- - ----------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . 16,889 93,003
- - ----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . (9,714) (17,130)
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . 543 3,171
- - ----------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . (9,171) (13,959)
- - ----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . (15,402) (110,237)
Futures Contracts . . . . . . . . . . . . . . . . . . . . (138) (698)
- - ----------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . (15,540) (110,935)
- - ----------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations . . . . . . . . . $ (7,822) $ (31,891)
======================================================================================================================
</TABLE>
17
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
U.S. TREASURY PORTFOLIO CORPORATE PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED January 31, ENDED January 31,
JULY 31, 1994 1994 JULY 31, 1994 1994
(000) (000) (000) (000)
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . $ 23,795 $ 55,218 $ 100,020 $ 211,799
Realized Net Gain (Loss) . . . . . . . . . . . . . . 15,107 13,897 4,911 100,448
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . (99,107) 59,084 (285,210) 87,879
- - ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations . . . . (60,205) 128,199 (180,279) 400,126
- - ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . (23,795) (55,218) (100,020) (211,799)
Realized Net Gain . . . . . . . . . . . . . . . . . . (2,987) (13,707) (23,247) (86,017)
- - ----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . (26,782) (68,925) (123,267) (297,816)
- - ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . 62,517 220,546 190,080 787,811
--In Lieu of Cash Distributions . . . . . 20,413 54,090 98,365 239,014
--Exchange . . . . . . . . . . . . . . . 59,481 139,197 140,521 367,355
Redeemed --Regular . . . . . . . . . . . . . . . . (97,776) (146,329) (271,279) (432,784)
--Exchange . . . . . . . . . . . . . . . (110,770) (372,634) (298,077) (660,165)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . . (66,135) (105,130) (140,390) 301,231
- - ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . (153,122) (45,856) (443,936) 403,541
- - ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . 828,570 874,426 3,166,070 2,762,529
- - ----------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . $ 675,448 $ 828,570 $2,722,134 $3,166,070
============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . $ .325 $ .685 $ .306 $ .632
Realized Net Gain . . . . . . . . . . . . . . $ .041 $ .176 $ .072 $ .259
- - ----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . 12,968 33,901 38,266 123,115
Issued in Lieu of Cash Distributions . . . . 2,107 5,104 11,498 25,580
Redeemed . . . . . . . . . . . . . . . . . . (21,828) (49,022) (65,465) (115,961)
- - ----------------------------------------------------------------------------------------------------------------------------
(6,753) (10,017) (15,701) 32,734
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
HIGH YIELD GNMA
CORPORATE PORTFOLIO PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED January 31, ENDED January 31,
JULY 31, 1994 1994 JULY 31, 1994 1994
(000) (000) (000) (000)
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . $ 100,910 $ 214,955 $ 210,726 $ 457,010
Realized Net Gain (Loss) . . . . . . . . . . . . . . 23,184 73,388 6,389 16,031
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . (259,435) 105,882 (329,434) (91,310)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations . . . . (135,341) 394,225 (112,319) 381,731
- - ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . (100,910) (214,955) (210,726) (457,010)
Realized Net Gain . . . . . . . . . . . . . . . . . . -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . (100,910) (214,955) (210,726) (457,010)
- - ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . 148,867 429,778 353,761 1,625,726
--In Lieu of Cash Distributions . . . . . 69,878 155,738 157,800 341,948
--Exchange . . . . . . . . . . . . . . . 196,267 435,507 183,191 525,223
Redeemed --Regular . . . . . . . . . . . . . . . . (160,542) (305,037) (633,252) (1,308,458)
--Exchange . . . . . . . . . . . . . . . (457,191) (454,744) (632,596) (1,232,541)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions . . . . . . . . . . . (202,721) 261,242 (571,096) (48,102)
- - ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . (438,972) 440,512 (894,141) (123,381)
- - ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . 2,624,964 2,184,452 7,043,210 7,166,591
- - ----------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . $2,185,992 $2,624,964 $6,149,069 $7,043,210
============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . $ .338 $ .695 $ .330 $ .641
Realized Net Gain . . . . . . . . . . . . . . . -- -- -- --
- - ----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . 45,255 110,276 53,621 205,094
Issued in Lieu of Cash Distributions . . . . . . 9,284 19,717 15,869 32,680
Redeemed . . . . . . . . . . . . . . . . . . (80,574) (96,776) (126,210) (242,896)
- - ----------------------------------------------------------------------------------------------------------------------------
(26,035) 33,217 (56,720) (5,122)
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM INTERMEDIATE-TERM
CORPORATE PORTFOLIO U.S. TREASURY PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS November 1, SIX MONTHS Year Ended
ENDED 1993- ENDED January 31,
JULY 31, 1994 January 31, 1994 JULY 31, 1994 1994
(000) (000) (000) (000)
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . $ 2,835 $ 709 $ 25,033 $ 49,421
Realized Net Gain (Loss) . . . . . . . . . . . . . . (1,384) (31) (8,223) 37,592
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . (5,313) 504 (61,750) (6,417)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations . . . . (3,862) 1,182 (44,940) 80,596
- - ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . (2,835) (709) (25,033) (49,421)
Realized Net Gain . . . . . . . . . . . . . . . . . . -- -- (2,427) (36,377)
- - ----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . (2,835) (709) (27,460) (85,798)
- - ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . 28,664 11,955 103,319 432,961
--In Lieu of Cash Distributions . . . . . 2,095 554 20,743 68,732
--Exchange . . . . . . . . . . . . . . . 33,370 80,109 55,005 247,710
Redeemed --Regular . . . . . . . . . . . . . . . . (8,373) (2,211) (101,852) (141,247)
--Exchange . . . . . . . . . . . . . . . (25,664) (5,943) (143,893) (268,780)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions . . . . . . . . . . . 30,092 84,464 (66,678) 339,376
- - ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . 23,395 84,937 (139,078) 334,174
- - ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . 84,937 -- 1,007,081 672,907
- - ----------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . $108,332 $84,937 $ 868,003 $1,007,081
============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . $ .276 $ .125 $ .281 $ .617
Realized Net Gain . . . . . . . . . . . . . . . -- -- $ .020 $ .413
- - ----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . 6,523 9,222 16,018 61,461
Issued in Lieu of Cash Distributions . . . . . . 223 56 2,052 6,305
Redeemed . . . . . . . . . . . . . . . . . . (3,588) (817) (24,619) (37,038)
- - ----------------------------------------------------------------------------------------------------------------------------
3,158 8,461 (6,549) 30,728
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM
FEDERAL PORTFOLIO U.S. TREASURY PORTFOLIO
- - ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED January 31, ENDED January 31,
JULY 31, 1994 1994 JULY 31, 1994 1994
(000) (000) (000) (000)
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . $ 46,899 $ 90,529 $ 16,889 $ 29,410
Realized Net Gain (Loss) . . . . . . . . . . . . . . (13,891) 17,705 (9,171) 4,552
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . (59,591) (569) (15,540) (438)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . (26,583) 107,665 (7,822) 33,524
- - ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . (46,899) (90,529) (16,889) (29,410)
Realized Net Gain . . . . . . . . . . . . . . . . . . (1,751) (19,891) (1,366) (4,906)
- - ----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . (48,650) (110,420) (18,255) (34,316)
- - ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . 171,938 748,469 102,316 329,379
--In Lieu of Cash Distributions . . . . . 40,587 93,218 16,171 30,424
--Exchange . . . . . . . . . . . . . . . 69,248 200,040 86,563 162,763
Redeemed --Regular . . . . . . . . . . . . . . . . (276,885) (468,457) (128,799) (188,793)
--Exchange . . . . . . . . . . . . . . . (220,625) (322,602) (84,061) (130,120)
- - ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions . . . . . . . . . . . . . (215,737) 250,668 (7,810) 203,653
- - ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . (290,970) 247,913 (33,887) 202,861
- - ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . 1,936,396 1,688,483 728,588 525,727
- - ----------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . $1,645,426 $1,936,396 $ 694,701 $ 728,588
============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . $ .267 $ .522 $ .248 $ .486
Realized Net Gain . . . . . . . . . . . . . . . . $ .010 $ .110 $ .020 $ .079
- - ----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . 23,931 90,760 18,989 47,041
Issued in Lieu of Cash Distributions . . . . . . 4,047 8,944 1,609 2,913
Redeemed . . . . . . . . . . . . . . . . . . (49,380) (75,737) (21,340) (30,479)
- - ----------------------------------------------------------------------------------------------------------------------------
(21,402) 23,967 (742) 19,475
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
SHORT-TERM
CORPORATE PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended
ENDED January 31,
JULY 31, 1994 1994
(000) (000)
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . $ 93,003 $ 176,510
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . (13,959) 14,837
Change in Unrealized Appreciation (Depreciation) . . . . . (110,935) (621)
- - --------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . (31,891) 190,726
- - --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . (93,003) (176,510)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . -- (29,029)
- - --------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . (93,003) (205,539)
- - --------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . . . . . 488,411 1,519,236
--In Lieu of Cash Distributions . . . . . . . . . 77,525 174,887
--Exchange . . . . . . . . . . . . . . . . . . . . 197,995 587,118
Redeemed --Regular . . . . . . . . . . . . . . . . . . . . (507,191) (936,720)
--Exchange . . . . . . . . . . . . . . . . . . . . (382,955) (567,308)
- - --------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions . . . . . . . . . . . . . . . . . (126,215) 777,213
- - --------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . (251,109) 762,400
- - --------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . 3,573,009 2,810,609
- - --------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . $3,321,900 $3,573,009
====================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . $ .290 $ .605
Realized Net Gain . . . . . . . . . . . . . . . . . $ -- $ .099
- - --------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . 64,455 191,689
Issued in Lieu of Cash Distributions . . . . . . . 7,313 15,933
Redeemed . . . . . . . . . . . . . . . . . . . . . (83,703) (136,865)
- - --------------------------------------------------------------------------------------------------------------------
(11,935) 70,757
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LONG-TERM U.S. TREASURY PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $10.75 $10.04 $10.14 $ 9.74 $9.53 $9.28
------ ------ ------ ------- ----- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .325 .685 .733 .763 .776 .781
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . (1.119) .886 .600 .400 .210 .250
------ ------ ------ ------- ----- ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . (.794) 1.571 1.333 1.163 .986 1.031
- - -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.325) (.685) (.733) (.763) (.776) (.781)
Distributions from Realized Capital Gains . . . . . (.041) (.176) (.700) -- -- --
------ ----- ----- -- -- --
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.366) (.861) (1.433) (.763) (.776) (.781)
- - -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $ 9.59 $10.75 $10.04 $10.14 $9.74 $9.53
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . -7.37% +16.09% +14.12% +12.44% +11.00% +11.33%
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . $675 $829 $874 $833 $722 $456
Ratio of Expenses to Average Net Assets . . . . . . . . .29%* .26% .27% .26% .30% .28%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 6.71%* 6.44% 7.26% 7.72% 8.29% 8.08%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 84%* 7% 170% 89% 147% 83%
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
<TABLE>
<CAPTION>
LONG-TERM CORPORATE PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -----------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $9.36 $9.04 $8.63 $8.02 $8.00 $7.91
----- ----- ----- ----- ----- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . .306 .632 .680 .706 .720 .732
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . . (.848) .579 .561 .610 .020 .090
----- ----- ----- ----- ----- ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . (.542) 1.211 1.241 1.316 .740 .822
- - -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . (.306) (.632) (.680) (.706) (.720) (.732)
Distributions from Realized Capital Gains . . . . . . . . . (.072) (.259) (.151) -- -- --
----- ----- ----- ----- ----- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . (.378) (.891) (.831) (.706) (.720) (.732)
- - -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . $8.44 $9.36 $9.04 $8.63 $8.02 $8.00
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . -5.77% +13.83% +15.06% +17.09% +9.81% +10.67%
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . $2,722 $3,166 $2,763 $1,992 $1,254 $954
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . .33%* .30% .31% .31% .37% .34%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . 7.16%* 6.71% 7.68% 8.46% 9.16% 9.07%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . 52%* 77% 50% 72% 62% 70%
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
23
<PAGE> 24
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
HIGH YIELD CORPORATE PORTFOLIO
- - ------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $8.14 $7.56 $7.27 $6.19 $7.31 $8.44
----- ----- ----- ----- ----- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .338 .695 .727 .770 .904 1.004
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . (.760) .580 .290 1.080 (1.120) (1.130)
----- ----- ----- ----- ----- ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . (.422) 1.275 1.017 1.850 (.216) (.126)
- - ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.338) (.695) (.727) (.770) (.904) (1.004)
Distributions from Realized Capital Gains . . . . . -- -- -- -- -- --
----- ----- ----- ----- ----- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.338) (.695) (.727) (.770) (.904) (1.004)
- - ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $7.38 $8.14 $7.56 $7.27 $6.19 $7.31
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . -5.18% +17.54% +14.68% +31.27% -3.21% -1.84%
- - ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . $2,186 $2,625 $2,184 $1,593 $699 $828
Ratio of Expenses to Average Net Assets . . . . . . . . .35%* .32% .34% .34% .40% .38%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 8.95%* 8.81% 9.82% 11.13% 13.35% 12.56%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 34%* 51% 83% 44% 61% 41%
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
<TABLE>
<CAPTION>
GNMA PORTFOLIO
- - ------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $10.39 $10.50 $10.25 $ 9.85 $9.54 $9.34
------ ------ ------ ------- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .330 .641 .778 .831 .855 .878
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . (.490) (.110) .250 .400 .310 .200
------ ------ ------ ------- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . . . . (.160) .531 1.028 1.231 1.165 1.078
- - ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.330) (.641) (.778) (.831) (.855) (.878)
Distributions from Realized Capital Gains . . . . . -- -- -- -- -- --
------ ------ ------ ------- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.330) (.641) (.778) (.831) (.855) (.878)
- - ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $9.90 $10.39 $10.50 $10.25 $9.85 $9.54
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . -1.50% +5.18% +10.40% +13.00% +12.85% +11.98%
- - ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . $6,149 $7,043 $7,167 $5,207 $2,711 $2,128
Ratio of Expenses to Average Net Assets . . . . . . . . .31%* .28% .29% .29% .34% .31%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 6.67%* 6.19% 7.38% 8.22% 8.95% 9.25%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 37%* 2% 7% 1% 1% 9%
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
24
<PAGE> 25
<TABLE>
<CAPTION>
INTERMEDIATE-TERM CORPORATE PORTFOLIO
- - ------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED November 1, 1993-
For a Share Outstanding Throughout Each Period July 31, 1994 January 31, 1994
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $10.04 $10.00
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . .276 .125
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . . . . . (.720) .040
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . (.444) .165
- - ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . (.276) (.125)
Distributions from Realized Capital Gains . . . . . . . . . . . . -- --
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . (.276) (.125)
- - ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . $9.32 $10.04
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4.41% +1.66%
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . $108 $85
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . .29%* .25%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . 5.91%* 5.11%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . 92%* 74%
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
<TABLE>
<CAPTION>
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO
- - ----------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ------------------------ October 28, 1991-
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 January 31, 1992
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . $10.82 $10.79 $10.19 $10.00
------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . .281 .617 .676 .170
Net Realized and Unrealized Gain (Loss) on Investments . . (.770) .443 .617 .190
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . (.489) 1.060 1.293 .360
- - ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . (.281) (.617) (.676) (.170)
Distributions from Realized Capital Gains . . . . . . . . . (.020) (.413) (.017) --
------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . (.301) (1.030) (.693) (.170)
- - ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . $10.03 $10.82 $10.79 $10.19
============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . -4.44% +10.09% +13.14% +3.59%
- - ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . $868 $1,007 $673 $190
Ratio of Expenses to Average Net Assets . . . . . . . . . . . .29%* .26% .26% .26%*
Ratio of Net Investment Income to Average Net Assets . . . . 5.58%* 5.55% 6.44% 6.47%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . 95%* 118% 123% 32%
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
25
<PAGE> 26
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $10.38 $10.38 $10.31 $10.08 $ 9.89 $9.78
------ ------ ------ ------ ------- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . .267 .522 .609 .720 .801 .842
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . (.410) .110 .232 .307 .190 .110
------ ------ ------ ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . (.143) .632 .841 1.027 .991 .952
- - -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . (.267) (.522) (.609) (.720) (.801) (.842)
Distributions from Realized Capital Gains . . . . . . (.010) (.110) (.162) (.077) -- --
------ ------ ------ ------ ------- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.277) (.632) (.771) (.797) (.801) (.842)
- - -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $9.96 $10.38 $10.38 $10.31 $10.08 $9.89
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . -1.36% +6.23% +8.49% +10.59% +10.46% +10.09%
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . $1,645 $1,936 $1,688 $1,274 $508 $228
Ratio of Expenses to Average Net Assets . . . . . . . . .29%* .26% .27% .26% .30% .28%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . 5.41%* 4.98% 5.88% 6.98% 8.06% 8.59%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 50%* 49% 70% 111% 141% 133%
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
<TABLE>
<CAPTION>
SHORT-TERM U.S. TREASURY PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ----------------------- October 28, 1991-
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 January 31, 1992
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $10.41 $10.41 $10.12 $10.00
------ ------ ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . .248 .486 .528 .140
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . (.350) .079 .332 .120
------ ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . (.102) .565 .860 .260
- - -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . (.248) (.486) (.528) (.140)
Distributions from Realized Capital Gains . . . . . . (.020) (.079) (.042) --
------ ------ ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.268) (.565) (.570) (.140)
- - -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $10.04 $10.41 $10.41 $10.12
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . -0.96% +5.54% +8.74% +2.60%
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . $695 $729 $526 $102
Ratio of Expenses to Average Net Assets . . . . . . . . .29%* .26% .26% .26%*
Ratio of Net Investment Income to Average Net Assets . 4.94%* 4.64% 5.12% 5.22%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 130%* 86% 71% 40%
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
26
<PAGE> 27
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE PORTFOLIO
- - ------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $10.94 $10.99 $10.88 $10.50 $10.34 $10.23
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . .290 .605 .695 .804 .876 .895
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . (.380) .049 .275 .380 .160 .110
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . (.090) .654 .970 1.184 1.036 1.005
- - ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . (.290) (.605) (.695) (.804) (.876) (.895)
Distributions from Realized Capital Gains . . . . . . -- (.099) (.165) -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.290) (.704) (.860) (.804) (.876) (.895)
- - ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $10.56 $10.94 $10.99 $10.88 $10.50 $10.34
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . -0.80% +6.11% +9.29% +11.70% +10.47% +10.18%
- - ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . $3,322 $3,573 $2,811 $1,911 $829 $597
Ratio of Expenses to Average Net Assets . . . . . . . . .29%* .26% .27% .26% .31% .28%
Ratio of Net Investment Income to Average Net Assets . 5.51%* 5.48% 6.33% 7.44% 8.48% 8.70%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 70%* 61% 71% 99% 107% 121%
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
Vanguard Fixed Income Securities Fund is registered under the Investment
Company Act of 1940 as a diversified open-end investment company and consists
of the Long-Term U.S. Treasury, Long-Term Corporate, High Yield Corporate,
GNMA, Intermediate-Term Corporate, Intermediate-Term U.S. Treasury, Short-Term
Federal, Short-Term U.S. Treasury, and Short-Term Corporate Portfolios. Certain
investments of the Long-Term Corporate, High Yield Corporate, Intermediate-Term
Corporate, and Short-Term Corporate Portfolios are in corporate debt
instruments; the issuers' abilities to meet these obligations may be affected
by economic developments in their respective industries.
* A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Securities are valued utilizing the latest bid prices
and on the basis of a matrix system (which considers such factors as
security prices, yields, maturities and ratings), both as furnished by
independent pricing services. Temporary cash investments are valued at
amortized cost which approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for Federal income taxes is required in
the financial statements.
3. REPURCHASE AGREEMENTS: The Fund, along with other members of The Vanguard
Group of Investment Companies, transfers uninvested cash balances into a
Pooled Cash Account, the daily aggregate of which is invested in repurchase
agreements secured by U.S. Government obligations. Securities pledged as
collateral for repurchase agreements are held by the Fund's custodian banks
until maturity of each repurchase agreement. Provisions of the agreement
ensure that the market value of the collateral is sufficient in the event of
default; however, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
4. FUTURES CONTRACTS: The Long-Term, Intermediate-Term, and Short-Term U.S.
Treasury Portfolios and the Short-Term Corporate Portfolio utilize futures
contracts to a limited extent. The primary risks associated with the use of
futures contracts are imperfect correlation between the change in market
value of the bonds held by a Portfolio and the prices of futures contracts,
and the possibility of an illiquid market. Futures contracts are valued
based upon their quoted daily settlement prices. Fluctuations in the value
of futures contracts are recorded as unrealized appreciation (depreciation)
until terminated, at which time realized gains (losses) are recognized.
Unrealized appreciation (depreciation) related to open futures contracts is
required to be treated as realized gain (loss) for Federal income tax
purposes.
5. DISTRIBUTIONS: Distributions from net investment income are declared on a
daily basis payable on the first business day of the following month. Annual
distributions from realized gains, if any, are recorded on the ex-dividend
date. Capital gain distributions are determined on a tax basis and may
differ from realized capital gains for financial reporting purposes due to
differences in the timing of realization of gains.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on sales of investment securities are those of specific securities sold.
Discounts and premiums on securities purchased are amortized to interest
income over the lives of the respective securities.
28
<PAGE> 29
* B. Under the terms of a contract expiring August 31, 1995, the Fund pays
Wellington Management Company for investment advisory services performed for
the Long-Term Corporate, High Yield Corporate, and GNMA Portfolios at a fee
calculated at an annual percentage rate of average net assets. For the six
months ended July 31, 1994, the investment advisory fees of the Long-Term
Corporate, High Yield Corporate, and GNMA Portfolios represent effective annual
rates of .04 of 1%, .06 of 1%, and .02 of 1% of average net assets,
respectively.
The Vanguard Group, Inc. furnishes investment advisory services to the
Intermediate-Term and Short-Term Corporate, Short-Term Federal, and the
Long-Term, Intermediate-Term, and Short-Term U.S. Treasury Portfolios on an
at-cost basis.
* C. The Vanguard Group, Inc. furnishes at cost corporate management,
administrative, marketing, and distribution services. The costs of such
services are allocated to the Fund under methods approved by the Board of
Directors. At July 31, 1994, the Fund had contributed capital of $2,924,000 to
Vanguard (included in Other Assets), representing 14.6% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
* D. During the period ended July 31, 1994, purchases and sales of investment
securities, other than U.S. Government securities and temporary cash
investments, were:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
(000)
-------------------------------
Portfolio Purchases Sales
- - --------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM CORPORATE $292,935 $512,694
HIGH YIELD CORPORATE 351,137 485,560
INTERMEDIATE-TERM CORPORATE 48,949 20,550
SHORT-TERM CORPORATE 831,454 903,838
- - --------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
(000)
-------------------------------
Portfolio Purchases Sales
- - --------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY $ 275,029 $ 368,658
LONG-TERM CORPORATE 416,357 296,512
HIGH YIELD CORPORATE 24,590 59,414
GNMA 1,144,961 1,917,220
INTERMEDIATE-TERM
CORPORATE 21,301 19,243
INTERMEDIATE-TERM
U.S. TREASURY 415,169 496,042
SHORT-TERM FEDERAL 424,687 614,179
SHORT-TERM U.S. TREASURY 444,630 436,442
SHORT-TERM CORPORATE 333,299 286,849
- - --------------------------------------------------------------------------------------
</TABLE>
At January 31, 1994, the High Yield Corporate Portfolio had available a capital
loss carryforward of $119,725,000 to offset future net capital gains of
$80,518,000 through January 31, 1999, and $39,207,000 through January 31, 2000.
* E. At July 31, 1994, unrealized depreciation of investment securities for
financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
(000)
----------------------------------------------------
Net
Appreciated Depreciated Unrealized
Portfolio Securities Securities Depreciation
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM U.S. TREASURY $ 6,094 $ (7,800) $ (1,706)
LONG-TERM CORPORATE 81,207 (90,734) (9,527)
HIGH YIELD CORPORATE 32,059 (101,017) (68,958)
GNMA 97,085 (185,638) (88,553)
INTERMEDIATE-TERM CORPORATE 163 (4,972) (4,809)
INTERMEDIATE-TERM U.S. TREASURY 241 (43,606) (43,365)
SHORT-TERM FEDERAL 4,452 (34,045) (29,593)
SHORT-TERM U.S. TREASURY 933 (8,203) (7,270)
SHORT-TERM CORPORATE 6,465 (58,242) (51,777)
- - --------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (continued)
At July 31, 1994, the aggregate settlement value and unrealized depreciation of
long positions in Municipal Bond Index futures contracts and short positions in
U.S. Treasury Bond and U.S. Treasury Note futures contracts expiring in
September 1994 were:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
(000)
-------------------------------
Aggregate
Settlement Unrealized
Portfolio Value Depreciation
- - --------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY
LONG POSITIONS $ 32,992 $ (52)
SHORT POSITIONS 37,512 (83)
INTERMEDIATE-TERM U.S. TREASURY
LONG POSITIONS 42,023 (71)
SHORT POSITIONS 47,780 (105)
SHORT-TERM U.S. TREASURY
LONG POSITIONS 33,268 (45)
SHORT POSITIONS 37,826 (84)
SHORT-TERM CORPORATE
LONG POSITIONS 160,260 (438)
SHORT POSITIONS 182,215 (406)
- - --------------------------------------------------------------------------------------
</TABLE>
The market values of securities deposited as initial margin for open futures
contracts by the Long-Term U.S. Treasury, Intermediate-Term U.S. Treasury,
Short-Term U.S. Treasury, and Short-Term Corporate Portfolios were $2,375,000,
$878,000, $512,000, and $2,777,000, respectively.
* F. The market values of securities on loan to broker dealers at July 31,
1994, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
(000)
-------------------------------
Market
Value of Cash
Loaned Collateral
Portfolio Securities Received
- - --------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM CORPORATE $ 32,978 $ 33,369
HIGH YIELD CORPORATE 108,326 111,335
INTERMEDIATE-TERM CORPORATE 4,027 4,100
INTERMEDIATE-TERM U.S. TREASURY 4,684 4,725
SHORT-TERM CORPORATE 2,999 3,053
- - --------------------------------------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at least
equal to the market value of securities loaned; however, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
30
<PAGE> 31
STATEMENT OF NET ASSETS Vanguard Fixed Income Securities Fund
FINANCIAL STATEMENTS (unaudited)
July 31, 1994
<TABLE>
<CAPTION>
Face Market
LONG-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (87.8%)
- - -------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS
7.875%, 2/15/21 $ 38,200 $ 39,919
8.125%, 8/15/19-8/15/21 104,500 112,000
8.50%, 2/15/20 17,000 18,934
8.75%, 5/15/17 30,000 34,083
8.875%, 8/13/17-2/13/19 110,200 126,871
9.125%, 5/15/18 15,000 17,691
9.25%, 2/15/16 77,200 91,663
9.875%, 11/15/15 12,000 15,043
10.375%, 11/15/12 19,500 24,311
10.625%, 8/15/15 17,600 23,441
11.25%, 2/15/15 19,000 26,487
11.875%, 11/15/03 15,200 20,021
12.00%, 8/15/13 20,000 27,900
13.875%, 5/15/11 6,000 9,068
AID INDONESIA
(U.S. Government Guaranteed)
8.90%, 6/1/21 5,000 5,295
- - -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $594,433) 592,727
- - -------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (9.9%)
- - -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
4.23%, 8/1/94
(Cost $66,970) 66,970 66,970
- - -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (97.7%)
(Cost $661,403) 659,697
- - -------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.3%)
- - -------------------------------------------------------------------------------------------------
Other Assets--Note C 20,012
Liabilities (4,261)
----------
15,751
- - -------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------
Applicable to 70,443,845 outstanding
$.001 par value shares
(authorized 300,000,000 shares) $ 675,448
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.59
=================================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $665,400 $9.44
Undistributed Net
Investment Income -- --
Undistributed Net
Realized Gains 11,889 .17
Unrealized Depreciation
of Investments--Note E (1,841) (.02)
- - -------------------------------------------------------------------------------------------------
NET ASSETS $675,448 $9.59
- - -------------------------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO LISTINGS BEGIN ON THE FOLLOWING PAGES:
<TABLE>
<S> <C>
LONG-TERM U.S. TREASURY PORTFOLIO . . . . . . . . . . . . . . . . . . 1
LONG-TERM CORPORATE PORTFOLIO . . . . . . . . . . . . . . . . . . . . 2
HIGH YIELD CORPORATE PORTFOLIO . . . . . . . . . . . . . . . . . . . 5
INTERMEDIATE-TERM CORPORATE PORTFOLIO . . . . . . . . . . . . . . . . 9
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO . . . . . . . . . . . . . . 12
SHORT-TERM FEDERAL PORTFOLIO . . . . . . . . . . . . . . . . . . . . 13
SHORT-TERM U.S. TREASURY PORTFOLIO . . . . . . . . . . . . . . . . . 14
SHORT-TERM CORPORATE PORTFOLIO . . . . . . . . . . . . . . . . . . . 15
</TABLE>
1
<PAGE> 32
<TABLE>
<CAPTION>
Face Market
LONG-TERM Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (76.6%)
- - -------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (3.4%)
American Express Master Trust
6.60%, 7/15/99 Aaa $25,000 $ 24,429
Ford Credit Auto Loan
6.875%, 1/15/97 Aaa 27,250 27,463
MBNA Master Credit Card Trust
5.40%, 9/30/98 Aaa 25,000 23,594
Nissan Auto Receivables
4.30%, 9/15/97 Aaa 8,058 7,978
Sears Roebuck & Co. Credit
Card Account Trust
8.60%, 5/15/98 Aaa 10,000 10,384
---------
GROUP TOTAL 93,848
---------
- - -------------------------------------------------------------------------------------------------
BANKS & FINANCE (22.9%)
H.F. Ahmanson Co.
8.25%, 10/1/02 Baa2 10,000 10,245
Allstate Corp.
7.50%, 6/15/13 A2 10,000 9,221
AMBAC, Inc.
7.50%, 5/1/23 Aa2 25,000 23,533
Asian Development Bank
9.125%, 6/1/00 Aaa 15,000 16,456
Associates Corp.
5.25%, 9/1/98 A1 16,000 14,951
Banc One
9.875%, 3/1/09 A1 10,800 12,410
Bank of Boston
6.625%, 12/1/05 Baa2 48,000 43,248
BankAmerica
7.50%, 10/15/02 A3 10,000 9,834
10.00%, 2/1/03 A3 20,000 22,659
Barnett Banks, Inc.
8.50%, 1/15/97 A3 20,000 20,533
British Telecom Finance
9.625%, 2/15/19 Aaa 17,000 18,533
Chase Manhattan Corp.
6.50%, 1/15/09 Baa1 10,000 8,645
Chemical Banking Corp.
8.625%, 5/1/02 A3 10,000 10,508
Chrysler Financial Corp.
5.625%, 1/15/99 A3 15,000 14,104
Comerica Bank
8.375%, 7/15/24 A2 15,000 15,045
Continental Bank
9.875%, 6/15/96 Baa3 11,800 12,515
11.25%, 7/1/01 Baa3 6,000 6,657
12.50%, 4/1/01 Baa3 15,000 18,614
Dean Witter Discover & Co.
6.875%, 3/1/03 A2 11,000 10,364
European Investment Bank
9.125%, 6/1/02 Aaa 25,000 27,542
First Chicago Corp.
6.375%, 1/30/09 Baa1 20,000 17,000
General Electric Capital Corp.
8.125%, 5/15/12 Aaa 30,000 30,816
General Motors
Acceptance Corp. MTN
7.85%, 5/8/97 Baa1 25,000 25,540
8.50%, 1/1/03 Baa1 15,000 15,554
General RE Corp.
9.00%, 9/12/09 Aa1 15,000 16,429
Golden West Financial Corp.
6.00%, 10/1/03 A3 25,000 22,007
Household Finance Corp.
9.00%, 9/1/95 A2 7,500 7,739
International Bank for
Reconstruction &
Development
8.625%, 10/15/16 Aaa 15,000 16,120
8.875%, 3/1/26 Aaa 10,000 11,278
KFW International Finance
8.20%, 6/1/06 Aaa 25,000 25,837
National Westminster Bank
9.45%, 5/1/01 Aa3 10,000 11,078
Norwest Corp.
6.65%, 10/15/23 A1 20,000 16,627
PNC Funding Corp.
7.75%, 6/1/04 A2 10,000 9,986
Republic New York Corp.
9.70%, 2/1/09 A1 20,000 22,772
Torchmark Corp.
7.875%, 5/15/23 A3 10,000 9,305
8.25%, 8/15/09 A3 10,000 9,980
Transamerica Corp.
9.375%, 3/1/08 A2 10,000 10,813
Wells Fargo & Co.
6.125%, 11/1/03 A3 20,000 17,689
----------
GROUP TOTAL 622,187
----------
- - -------------------------------------------------------------------------------------------------
INDUSTRIAL (31.2%)
Amoco Canada Petroleum Co.
7.95%, 10/1/22 Aa1 20,000 19,500
Archer-Daniels-Midland
8.375%, 4/15/17 Aa2 25,000 26,034
ARCO Chemical Co.
9.80%, 2/1/20 A3 25,000 29,018
Auburn Hills MI Trust
12.375%, 5/1/20 A3 20,000 27,560
Bristol-Meyers Squibb Co.
7.15%, 6/15/23 Aaa 25,000 23,077
</TABLE>
2
<PAGE> 33
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Burlington Resources, Inc.
7.15%, 5/1/99 A3 $10,000 $ 9,975
Chevron Corp.
9.375%, 6/1/16 Aa2 25,000 27,031
Coastal Corp.
9.625%, 5/15/12 Baa3 20,000 21,508
Coca-Cola Enterprises, Inc.
8.50%, 2/1/22 A3 20,000 20,699
Daimler-Benz
5.95%, 12/15/00 Aaa 15,000 14,963
Dow Capital Corp.
8.70%, 5/15/22 A1 15,000 15,620
Dresser Industries, Inc.
6.25%, 6/1/00 A1 9,000 8,553
E.I. du Pont
de Nemours & Co.
8.25%, 1/15/22 Aa2 30,000 30,335
Eastman Chemical Co.
7.25%, 1/15/24 Baa1 5,000 4,364
Eaton Corp.
7.625%, 4/1/24 A2 15,000 14,195
Exxon Capital Corp.
6.00%, 7/1/05 Aaa 10,000 8,889
Georgia Pacific Corp.
9.50%, 5/15/22 Baa3 10,000 10,489
9.875%, 11/1/21 Baa3 30,000 32,556
Grand Metropolitan
8.00%, 9/15/22 A2 25,000 24,432
Harcourt General, Inc.
8.875%, 6/1/22 Baa1 25,000 25,512
International Business
Machines Corp.
8.375%, 11/1/19 A3 20,000 20,075
International Paper Co.
8.125%, 6/15/24 A3 15,000 14,817
Johnson Controls
8.20%, 6/15/24 A2 6,000 5,990
Mead Corp.
8.125%, 2/1/23 A3 15,000 14,607
Monsanto Co.
8.875%, 12/15/09 A1 20,000 21,246
Morton International
9.25%, 6/1/20 A1 10,000 11,322
Norfolk Southern Corp.
9.00%, 3/1/21 Aa3 15,000 16,682
Philips Electronics
7.75%, 4/15/04 Baa1 10,000 9,826
Phillips Petroleum Co.
9.18%, 9/15/21 Baa2 10,000 10,360
Procter & Gamble
8.50%, 8/10/09 Aa2 10,000 10,623
Procter & Gamble Employee
Stock Option Plan
9.36%, 1/1/21 Aa2 20,000 22,788
Rohm & Haas Co.
9.375%, 11/15/19 A1 10,000 10,698
9.80%, 4/15/20 A1 10,000 11,741
Sears, Roebuck & Co.
9.375%, 11/1/11 Baa1 20,000 22,106
Southwest Airlines
9.25%, 2/15/98 Baa1 10,680 11,315
Tele-Communications Inc.
9.25%, 1/15/23 Baa3 15,000 14,958
Tenneco Credit
9.625%, 8/18/01 Baa2 10,000 10,986
Texaco Capital Inc.
8.625%, 11/15/31 A1 13,000 13,753
9.75%, 3/15/20 A1 17,000 19,946
TRW, Inc.
9.375%, 4/15/21 A3 4,000 4,492
Union Camp Corp.
9.25%, 8/15/21 A1 25,000 26,675
United Airlines, Inc.
9.75%, 8/15/21 Baa3 20,000 18,285
10.25%, 7/15/21 Baa3 10,000 9,539
United Parcel Service
8.375%, 4/1/20 Aaa 35,000 37,063
United Technologies
8.875%, 11/15/19 A2 20,000 21,478
Wal-Mart Stores, Inc.
7.25%, 6/1/13 Aa1 25,000 23,323
Westvaco Corp.
9.75%, 6/15/20 A1 15,000 17,611
Whirlpool Corp.
9.10%, 2/1/08 A3 20,000 21,772
---------
GROUP TOTAL 848,387
---------
- - -------------------------------------------------------------------------------------------------
RAILROAD (2.6%)
CSX Corp.
9.50%, 8/1/00 A3 15,000 16,456
Consolidated Rail Corp.
7.875%, 5/15/43 A2 20,000 19,164
Union Pacific Corp.
7.875%, 2/1/23 A2 25,000 24,352
8.50%, 1/15/17 A2 10,000 10,034
---------
GROUP TOTAL 70,006
---------
- - -------------------------------------------------------------------------------------------------
TELEPHONE (7.2%)
AT&T Corp.
6.75%, 4/1/04 Aa3 10,000 9,524
8.625%, 12/1/31 Aa3 40,000 41,619
</TABLE>
3
<PAGE> 34
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BellSouth Telecommunications
7.50%, 6/15/33 Aaa $20,000 $ 18,531
General Telephone South
9.375%, 6/15/30 A2 20,000 21,182
GTE Florida, Inc.
6.31%, 12/15/02 A2 10,000 9,224
Michigan Bell Telephone Co.
7.85%, 1/15/22 Aa1 20,000 20,050
New Jersey Telephone Co.
8.00%, 6/1/22 Aaa 20,000 20,183
New York Telephone Co.
9.375%, 7/15/31 A2 10,000 10,594
Pacific Bell Telephone Co.
7.375%, 6/15/25 Aa3 10,000 9,155
United Telephone of Florida
9.25%, 9/15/19 A2 15,000 15,374
U.S. West Communications
6.875%, 9/15/33 Aa3 25,000 21,247
---------
GROUP TOTAL 196,683
---------
- - -------------------------------------------------------------------------------------------------
UTILITIES (9.3%)
Carolina Power & Light Co.
9.00%, 4/1/22 A2 10,000 10,335
Consolidated Edison Co.
of New York, Inc.
6.375%, 4/1/03 Aa3 20,000 18,397
Duke Power Co.
7.00%, 7/1/33 Aa2 10,000 8,533
Houston Lighting & Power
9.15%, 3/15/21 A2 15,000 16,483
Hydro-Quebec Electric Comm.
8.00%, 2/1/13 A1 30,000 28,709
Korea Electric Power
6.375%, 12/1/03 A1 15,000 13,055
Louisiana Power & Light Co.
10.67%, 1/2/17 Baa3 13,000 13,559
Niagara Mohawk Power
6.875%, 3/1/01 Baa2 8,500 7,918
9.50%, 3/1/21 Baa2 10,000 10,008
Nippon Telephone &
Telegraph Co.
9.50%, 7/27/98 Aaa 30,000 32,692
Norsk Hydro
7.75%, 6/15/23 A3 20,000 18,504
Pacific Gas & Electric Co.
8.25%, 11/1/22 A1 25,000 24,269
8.375%, 5/1/25 A1 10,000 9,920
Southern California Edison Co.
9.25%, 6/15/21 Aa3 19,000 20,251
Texas Utilities Electric Co.
9.75%, 5/1/21 Baa2 5,000 5,330
9.875%, 11/1/19 Baa2 5,000 5,187
Virginia Electric & Power Co.
8.75%, 4/1/21 A2 10,000 10,361
---------
GROUP TOTAL 253,511
---------
- - -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,069,025) 2,084,622
- - -------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (18.1%)
- - -------------------------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
6.19%, 1/21/04 5,000 4,488
9.00%, 8/15/16 20,240 21,113
Federal National
Mortgage Assn.
6.28%, 2/3/04 25,000 23,031
15.50%, 10/1/12 16 19
Government National
Mortgage Assn.
6.50%, 12/15/23-5/15/24 52,378 47,550
7.00%, 9/15/23 20,809 19,597
Tennessee Valley Authority
7.75%, 12/15/22 25,000 23,990
U.S. Treasury Bonds
7.125%, 2/15/23 153,000 147,692
7.25%, 5/15/16 75,000 73,196
8.125%, 8/15/19 50,000 53,539
U.S. Treasury Notes
5.875%, 2/15/04 35,000 32,047
6.00%, 11/30/97 10,000 9,873
7.50%, 11/15/01 35,000 36,077
- - -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $513,159) 492,212
- - -------------------------------------------------------------------------------------------------
FOREIGN BONDS (2.1%)
- - -------------------------------------------------------------------------------------------------
Italy Global Bond
6.875%, 9/27/23 A1 40,000 33,451
Province of Nova Scotia
9.125%, 5/1/21 A2 15,000 15,756
Province of Saskatchewan
8.5%, 7/15/22 A3 7,000 7,024
- - -------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $60,408) 56,231
- - -------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 35
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (1.5%)
- - -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
4.23%, 8/1/94
(Cost $41,612) $ 41,612 $ 41,612
- - -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.3%)
(Cost $2,684,204) 2,674,677
- - -------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.7%)
- - -------------------------------------------------------------------------------------------------
Other Assets--Notes C and F 90,552
Liabilities--Note F (43,095)
-----------
47,457
- - -------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------
Applicable to 322,533,518 outstanding
$.001 par value shares
(authorized 450,000,000 shares) $2,722,134
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $8.44
=================================================================================================
</TABLE>
+See Note A to Financial Statements.
MTN--Medium-Term Note.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $2,726,968 $8.46
Undistributed Net
Investment Income -- --
Accumulated Net Realized
Gains 4,693 .01
Unrealized Depreciation of
Investments--Note E (9,527) (.03)
- - -------------------------------------------------------------------------------------------------
NET ASSETS $2,722,134 $8.44
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
HIGH YIELD Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (87.8%)
- - -------------------------------------------------------------------------------------------------
BASIC INDUSTRIES (13.6%)
American Standard Inc.
9.875%, 6/1/01 B1 $18,000 $ 17,415
11.375%, 5/15/04 Ba3 20,000 20,800
Auburn Hills MI Trust
12.375%, 5/1/20 A3 25,000 34,450
Coltec Industries
10.25%, 4/1/02 B1 19,000 19,000
Congoleum
9.00%, 2/1/01 B1 6,000 5,670
Dominion Tex-USA
8.875%, 11/1/03 Ba3 10,000 9,125
Jack Eckerd Corp.
9.25%, 9/15/04 B2 20,000 19,000
Essex Group
10.00%, 5/1/03 B1 11,000 10,780
EXIDE Corp.
10.75%, 12/15/02 B1 7,000 7,315
Federal Industries
10.25%, 6/15/00 B3 3,500 3,369
Inter-City Products
9.75%, 3/1/00 Ba3 9,050 8,235
JPS Automotive Products
11.125%, 6/15/01 B2 5,000 5,000
Koppers Industries, Inc.
8.50%, 2/1/04 B1 9,000 8,213
Lear Siegler Seating Corp.
8.25%, 2/1/02 B2 13,000 11,700
11.25%, 7/15/00 B2 10,730 11,159
Mark IV Industries
8.75%, 4/1/03 B1 5,000 4,600
Methanex Corp.
8.875%, 11/15/01 Ba3 9,000 8,820
Owens Illinois Inc.
10.00%, 8/1/02 B2 20,000 19,950
10.25%, 4/1/99 B2 23,000 23,345
Purina Mills
10.25%, 9/1/03 B2 20,000 20,100
Reeves Industries, Inc.
11.00%, 7/15/02 Ba3 5,600 5,656
Specialty Foods
11.25%, 8/15/03 B3 5,000 4,400
Triangle Pacific Corp.
10.50%, 8/1/03 B2 10,000 10,000
Wolverine Tube Inc.
10.125%, 9/1/02 Ba3 9,000 9,180
----------
GROUP TOTAL 297,282
----------
- - -------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 36
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CABLE (10.5%)
Adelphia Communications
Corp.
11.875%, 9/15/04 B2 $10,000 $ 9,800
12.50%, 5/15/02 B2 15,000 15,000
Cablevision Industries
10.75%, 1/30/02 Ba3 7,500 7,425
Cablevision Systems
9.875%, 2/15/13 B3 15,000 13,800
Century Communications
11.875%, 10/15/03 B2 18,000 18,810
Comcast Corp.
9.50%, 1/15/08 B1 19,500 17,550
10.625%, 7/15/12 B1 24,000 23,280
Continental Cablevision Co.
9.00%, 9/1/08 Ba2 30,630 27,107
11.00%, 6/1/07 B1 16,935 17,168
Rogers Cablesystem
9.625%, 8/1/02 Ba3 12,000 11,820
10.125%, 9/1/12 Ba3 13,000 12,805
Storer Communications, Inc.
10.00%, 5/15/03 B1 8,308 7,976
Tele-Communications, Inc.
9.25%, 4/15/02 Baa3 20,000 20,901
9.25%, 1/15/23 Baa3 10,000 9,972
10.125%, 4/15/22 Baa3 15,000 16,416
----------
GROUP TOTAL 229,830
----------
- - -------------------------------------------------------------------------------------------------
CONSUMER GOODS (4.3%)
Dr. Pepper Bottling Co.
10.25%, 2/15/00 B3 2,250 2,228
Playtex Family Products
9.00%, 12/15/03 B3 25,000 22,250
Sealy Corp.
9.50%, 5/1/03 B1 5,000 4,700
Sweetheart Cup
9.625%, 9/1/00 Ba3 19,000 18,050
10.50%, 9/1/03 B2 11,000 10,450
Westpoint Stevens
8.75%, 12/15/01 B1 20,000 18,200
9.375%, 12/15/05 B3 20,000 18,100
----------
GROUP TOTAL 93,978
----------
- - -------------------------------------------------------------------------------------------------
ENERGY (4.1%)
Coastal Corp.
8.125%, 9/15/02 Baa3 15,000 14,815
Maxus Energy Corp.
9.375%, 11/1/03 B1 15,000 14,100
Noble Drilling
9.25%, 10/1/03 Ba3 10,000 9,650
Santa Fe Energy Resources
11.00%, 5/15/04 B2 2,375 2,399
Seagull Energy Corp.
8.625%, 8/1/05 Ba3 10,000 9,400
Texas Gas Transmission
8.625%, 4/1/04 Ba2 9,775 9,482
Tosco Corp.
9.625%, 3/15/02 Ba1 3,000 3,162
Transco
11.25%, 7/1/99 Ba3 25,000 26,750
----------
GROUP TOTAL 89,758
----------
- - -------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (2.9%)
American Reinsurance
10.875%, 9/15/04 Baa2 15,000 16,738
Anchor Bancorp
8.938%, 7/9/03 Ba3 8,000 7,520
Coast Federal Bank
13.00%, 12/31/02 B1 5,700 6,470
Coast Savings Financial Inc.
10.00%, 3/1/00 B1 5,000 4,912
Imperial Credit Industries
9.75%, 1/15/04 B1 7,500 6,600
Riggs National Corp.
8.50%, 2/1/06 B3 12,500 11,875
Western Financial Savings
8.50%, 7/1/03 Ba3 10,000 9,425
----------
GROUP TOTAL 63,540
----------
- - -------------------------------------------------------------------------------------------------
FOOD & LODGING (2.5%)
ARA Group
8.50%, 6/1/03 B1 10,000 9,350
ARA Services, Inc.
10.625%, 8/1/00 Ba2 10,000 10,500
Family Restaurants
9.75%, 12/1/02 B2 13,000 11,635
Flagstar Corp.
10.875%, 12/1/02 B2 9,000 8,415
11.25%, 11/1/04 Caa 4,000 3,420
La Quinta Inns
9.25%, 5/15/03 B2 12,000 11,400
----------
GROUP TOTAL 54,720
----------
- - -------------------------------------------------------------------------------------------------
GROCERY STORES (5.5%)
Grand Union
12.25%, 7/15/02 B3 15,000 13,200
Kroger Co.
8.50%, 6/15/03 Ba1 15,000 14,175
9.75%, 2/15/04 Ba3 13,025 13,286
Pathmark Stores
9.625%, 5/1/03 B2 20,000 18,100
Penn Traffic Co.
9.625%, 4/15/05 B2 8,000 7,360
10.25%, 2/15/02 Ba3 12,000 12,060
10.375%, 10/1/04 Ba3 10,000 10,050
</TABLE>
6
<PAGE> 37
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Safeway, Inc.
9.65%, 1/15/04 Ba3 $ 15,000 $ 15,675
10.00%, 12/1/01 Ba3 10,000 10,600
Stop & Shop
9.75%, 2/1/02 Ba2 5,000 5,275
---------
GROUP TOTAL 119,781
---------
- - -------------------------------------------------------------------------------------------------
HEALTHCARE (3.3%)
Abbey Healthcare
9.50%, 11/1/02 B1 10,000 9,150
Healthtrust Inc.
8.75%, 3/15/05 B1 30,000 27,150
10.75%, 5/1/02 B1 11,000 11,385
Hillhaven Corp.
10.125%, 9/1/01 B2 16,000 15,920
Manor Care, Inc.
9.50%, 11/15/02 Ba2 8,000 8,220
---------
GROUP TOTAL 71,825
---------
- - -------------------------------------------------------------------------------------------------
HOME BUILDING & REAL ESTATE (1.1%)
Hovnanian Enterprises
9.75%, 6/1/05 B1 5,000 4,500
Toll Corp.
10.50%, 3/15/02 Ba3 10,000 9,900
Del E. Webb & Co.
9.00%, 2/15/06 B2 10,000 8,600
---------
GROUP TOTAL 23,000
---------
- - -------------------------------------------------------------------------------------------------
MEDIA & COMMUNICATIONS (9.6%)
Act III Broadcast
9.625%, 12/15/03 B3 8,000 7,440
Infinity Broadcasting
10.375%, 3/15/02 B2 15,000 14,850
News America Holdings
10.125%, 10/15/12 Ba1 25,000 27,071
Paging Network
8.875%, 2/1/06 B2 20,000 17,400
Rogers Cantel Mobile
10.75%, 11/1/01 Ba3 17,000 17,723
11.125%, 7/15/02 B2 20,000 20,900
Time Warner, Inc.
9.125%, 1/15/13 Ba1 30,000 28,389
9.15%, 2/1/23 Ba1 40,000 37,462
Turner Broadcasting System
8.375%, 7/1/13 Ba2 30,000 25,949
World Color Press
9.125%, 3/15/03 B1 15,000 13,650
---------
GROUP TOTAL 210,834
---------
- - -------------------------------------------------------------------------------------------------
PAPER, CHEMICALS, MINING (15.2%)
Agricultural Mineral &
Chemical
10.75%, 9/30/03 B2 10,000 10,150
Arcadian Partner
10.75%, 5/1/01 B2 15,000 15,000
Buckeye Cellulose
10.25%, 5/15/01 B2 3,100 3,007
Container Corp. of America
9.75%, 4/1/03 B2 40,000 38,000
Doman Industries, Ltd.
8.75%, 3/15/04 Ba3 15,335 13,495
Domtar
11.75%, 3/15/99 Ba1 13,250 13,647
12.00%, 4/15/01 Ba1 8,945 9,392
Fort Howard Corp.
8.25%, 2/1/02 B1 10,000 9,000
9.00%, 2/1/06 B2 19,000 15,960
9.25%, 3/15/01 B1 49,500 46,777
General Chemical
9.25%, 8/15/03 B2 10,000 9,400
Harris Chemical
10.75%, 10/15/03 B3 900 801
Huntsman Corp.
10.625%, 4/15/01 B1 20,000 20,350
Kaiser Aluminum
9.875%, 2/15/02 B1 15,000 13,875
Magma Copper
12.00%, 12/15/01 Ba3 20,000 22,000
Riverwood International
11.25%, 6/15/02 B1 10,000 10,438
Sherritt Gordon
10.50%, 3/31/04 B1 6,000 5,880
Stone Container
9.875%, 2/1/01 B1 30,000 27,975
10.75%, 4/1/02 B2 14,000 13,160
11.00%, 8/15/99 B2 12,500 12,063
UCC Investors Holdings
11.00%, 5/1/03 B3 21,000 21,315
---------
GROUP TOTAL 331,685
---------
- - -------------------------------------------------------------------------------------------------
RETAIL STORES (.8%)
Levitz Furniture
9.625%, 7/15/03 B2 10,000 9,100
Musicland Stores
9.00%, 6/15/03 B1 10,000 9,300
---------
GROUP TOTAL 18,400
---------
- - -------------------------------------------------------------------------------------------------
STEEL (7.2%)
AK Steel Holding Corp.
10.75%, 4/1/04 B2 17,000 17,000
Armco Steel
9.375%, 11/1/00 B2 12,000 11,220
11.375%, 10/15/99 B2 7,000 7,210
</TABLE>
7
<PAGE> 38
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bethlehem Steel
10.375%, 9/1/03 B1 $10,500 $ 10,500
Geneva Steel
9.50%, 1/15/04 B1 13,000 11,895
11.125%, 3/15/01 B1 6,500 6,630
Inland Steel
12.75%, 12/15/02 Ba3 10,000 11,200
Northwestern Steel
& Wire
9.50%, 6/15/01 B1 11,500 10,810
USX Corp.
8.50%, 3/1/23 Baa3 10,000 9,290
9.125%, 1/15/13 Baa3 30,000 29,912
Weirton Steel Corp.
10.875%, 10/15/99 B2 10,000 10,050
11.50%, 3/1/98 B2 7,000 7,245
Wheeling-Pittsburgh Corp.
9.375%, 11/15/03 B1 15,000 13,800
---------
GROUP TOTAL 156,762
---------
- - -------------------------------------------------------------------------------------------------
TRANSPORTATION (3.6%)
Delta Airlines
9.75%, 5/15/21 Ba1 30,000 28,846
Greyhound Lines
10.00%, 7/31/01 B1 2,530 1,973
Southern Pacific Railroad
9.375%, 8/15/05 Ba3 8,000 8,000
United Air Lines, Inc.
10.25%, 7/15/21 Baa3 10,000 9,539
U.S. Air Inc.
9.625%, 2/1/01 B2 10,000 7,400
9.625%, 9/1/03 B1 3,800 3,382
10.00%, 7/1/03 B2 9,000 6,750
10.375%, 3/1/13 B1 14,000 12,670
---------
GROUP TOTAL 78,560
---------
- - -------------------------------------------------------------------------------------------------
UTILITIES (3.6%)
First Public Venture
Funding
10.15%, 1/15/16 Ba3 20,000 18,975
Long Island Lighting Co.
9.00%, 11/1/22 Ba1 30,000 25,624
Midland Cogeneration
Venture
11.75%, 7/23/05 B2 23,000 22,856
Texas-New Mexico Power
10.75%, 9/15/03 B1 12,000 12,180
---------
GROUP TOTAL 79,635
---------
- - -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $1,984,696) 1,919,590
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (6.2%)
- - -------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES
4.00%, 1/31/96 $25,000 $ 24,387
4.25%, 12/31/95 15,000 14,714
4.375%, 8/15/96 25,000 24,234
4.625%, 2/29/96 25,000 24,567
4.75%, 9/30/98 25,000 23,351
5.50%, 9/30/97 25,000 24,387
- - -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $139,402) 135,640
- - -------------------------------------------------------------------------------------------------
PREFERRED STOCK (.3%)
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares
--------
<S> <C> <C>
Dime Savings Bank
10.50% Cvt. (Cost $7,160) 7,000 7,070
- - -------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.4%)
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
--------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
4.23%, 8/1/94
(Cost $72,771) $72,771 72,771
- - -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (97.7%)
(Cost $2,204,029) 2,135,071
- - -------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.3%)
- - -------------------------------------------------------------------------------------------------
Other Assets--Notes C and F 186,810
Liabilities--Note F (135,889)
----------
50,921
- - -------------------------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 296,246,075 outstanding
$.001 par value shares
(authorized 450,000,000 shares) $2,185,992
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $7.38
=================================================================================================
</TABLE>
+See Note A to Financial Statements.
8
<PAGE> 39
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $2,355,108 $7.95
Undistributed Net
Investment Income -- --
Accumulated Net Realized
Losses (100,158) (.34)
Unrealized Depreciation of
Investments--Note E (68,958) (.23)
- - -------------------------------------------------------------------------------------------------
NET ASSETS $2,185,992 $7.38
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (74.3%)
- - -------------------------------------------------------------------------------------------------
FINANCE--AUTOMOBILE (2.7%)
Chrysler Financial Corp.
12.75%, 11/1/99 A3 $ 750 $ 922
Ford Motor Credit Corp.
7.75%, 11/15/02 A2 1,000 1,004
Penske Truck Leasing
7.75%, 5/15/99 Baa3 1,000 1,008
---------
GROUP TOTAL 2,934
---------
- - -------------------------------------------------------------------------------------------------
FINANCE--BANKS (7.9%)
First Interstate Bancorp.
10.875%, 4/15/01 Baa1 1,000 1,168
Mellon Financial Corp.
9.125%, 8/15/01 Baa1 1,000 1,087
Meridian Bancorp.
6.625%, 3/15/03 A3 1,000 924
National City Corp.
6.625%, 3/1/04 A2 2,000 1,833
PNC Funding Corp.
6.875%, 3/1/03 A2 1,000 943
Republic New York Corp.
9.75%, 12/1/00 A1 1,300 1,452
Security Pacific Corp.
11.00%, 3/1/01 A3 1,000 1,172
---------
GROUP TOTAL 8,579
---------
- - -------------------------------------------------------------------------------------------------
FINANCE--CONSUMERS (7.9%)
Beneficial Finance Corp.
6.80%, 9/10/99 A2 1,000 977
Countrywide Funding
7.41%, 8/28/01 A3 2,000 1,933
Fleet Mortgage Group
6.50%, 9/15/99 A3 1,000 964
Household Affinity Credit
Card Master Trust
5.60%, 5/15/02 Aaa 2,000 1,850
Norwest Financial, Inc.
6.875%, 12/15/99 Aa3 1,000 985
Standard Credit Card
Master Trust
5.50%, 1/7/99 Aaa 2,000 1,887
---------
GROUP TOTAL 8,596
---------
- - -------------------------------------------------------------------------------------------------
FINANCE--DIVERSIFIED (6.4%)
Bear Stearns Cos.
6.75%, 4/15/03 A2 1,000 908
Dean Witter Discover & Co.
6.875%, 3/1/03 A2 1,000 942
General Electric Capital Corp.
8.70%, 2/15/03 Aaa 1,000 1,072
</TABLE>
9
<PAGE> 40
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goldman Sachs Group
7.80%, 7/15/02 A1 $1,000 $ 993
Morgan Stanley Group
9.375%, 6/15/01 A1 1,000 1,086
Charles Schwab
6.06%, 10/2/00 Baa1 1,000 924
Shearson Lehman Holdings
8.875%, 3/1/02 A3 1,000 1,038
---------
GROUP TOTAL 6,963
---------
- - -------------------------------------------------------------------------------------------------
INDUSTRIAL (32.4%)
Anheuser Busch Co.
8.75%, 12/1/99 A1 2,300 2,461
Burlington Resources, Inc.
7.15%, 5/1/99 A3 1,000 997
CSC Enterprises
6.80%, 4/15/99 A3 1,000 981
CSX Corp.
9.50%, 8/1/00 A3 1,000 1,097
Cardinal Health, Inc.
6.50%, 2/15/04 Baa1 1,000 916
The Coca-Cola Co.
7.875%, 9/15/98 Aa3 1,301 1,345
Compaq Computer Corp.
6.50%, 3/15/99 Baa2 2,000 1,940
Crown Cork & Seal
7.00%, 6/15/99 Baa1 1,000 989
Eastman Chemical Co.
6.375%, 1/15/04 Baa1 1,500 1,354
Hertz Corp.
6.00%, 2/1/01 Baa1 1,000 922
Hoechst-Celanese
6.125%, 2/1/04 A2 2,000 1,798
International Paper Co.
9.70%, 3/15/00 A3 2,000 2,212
Mobil Corp.
7.25%, 3/15/99 Aa2 2,000 2,014
J.C. Penney Co., Inc.
9.05%, 3/1/01 A2 1,240 1,344
Philips Petroleum Co.
8.00%, 4/12/99 Baa2 1,000 1,027
9.00%, 6/1/01 Baa2 1,000 1,074
Sears, Roebuck & Co.
8.52%, 5/13/02 Baa1 1,000 1,050
9.25%, 4/15/98 Baa1 1,000 1,069
Texaco Capital Corp.
7.70%, 12/15/99 A1 1,065 1,089
Texas Instruments, Inc.
9.00%, 3/15/01 A3 1,600 1,722
Union Carbide Corp.
7.00%, 8/1/99 Baa2 2,000 1,967
Union Oil of California
6.375%, 2/1/04 Baa2 1,000 903
Union Pacific Railroad Co.
6.12%, 2/1/04 Aa1 2,000 1,795
Wal-Mart Stores, Inc.
7.50%, 5/15/04 Aa1 1,000 998
Western Atlas, Inc.
7.875%, 6/15/04 Baa3 2,000 1,978
---------
GROUP TOTAL 35,042
---------
- - -------------------------------------------------------------------------------------------------
INSURANCE (3.4%)
CNA Financial
6.25%, 11/15/03 A1 1,000 899
Equitable Cos., Inc.
6.75%, 12/1/00 BBB* 1,000 957
Harleysville Group
6.75%, 11/15/03 Baa2 1,000 905
Progressive Corp.
6.60%, 1/15/04 A3 1,000 914
---------
GROUP TOTAL 3,675
---------
- - -------------------------------------------------------------------------------------------------
UTILITIES (9.9%)
AT&T Capital Corp.
7.125%, 1/15/02 Aa3 1,500 1,488
BellSouth Telecommunications
6.50%, 2/1/00 Aaa 2,000 1,947
GTE North
5.50%, 2/15/99 A1 1,000 937
GTE Southwest
5.82%, 12/1/99 A3 1,250 1,172
MCI Communications Corp.
7.50%, 8/20/04 A2 1,500 1,479
New Jersey Telephone Co.
5.875%, 2/1/04 Aaa 1,000 892
Public Service of Colorado
6.00%, 1/1/01 Baa1 1,000 926
Texas Utilities Co.
6.75%, 3/1/03 Baa2 1,000 929
Wisconsin Electric Power
5.875%, 10/1/97 Aa2 1,000 975
---------
GROUP TOTAL 10,745
---------
- - -------------------------------------------------------------------------------------------------
RESERVE-OTHER (3.7%)(1)
Bank of Boston Corp.
4.83%, 6/20/96 Baa1 1,000 1,000
Caterpillar Financial Services
4.76%, 5/9/97 A3 1,000 998
</TABLE>
10
<PAGE> 41
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Motors
Acceptance Corp.
4.68%, 5/6/96 Baa1 $1,000 $ 998
Goldman Sachs Group
5.213%, 1/25/99 A1 1,000 995
---------
GROUP TOTAL 3,991
---------
- - -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $84,535) 80,525
- - -------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (9.1%)
- - -------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.
6.90%, 8/15/99 1,843 1,811
U.S. Treasury Notes
5.125%, 11/30/98 4,300 4,058
6.75%, 6/30/99 4,000 4,006
- - -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $10,002) 9,875
- - -------------------------------------------------------------------------------------------------
FOREIGN BONDS (8.6%)
- - -------------------------------------------------------------------------------------------------
Australia & New Zealand
Banking Group Ltd.
6.25%, 2/1/04 A2 1,000 894
KFW International
Finance
8.85%, 6/15/99 Aaa 2,000 2,141
National Westminster
Bancorp Inc.
9.375%, 11/15/03 Aa3 2,000 2,210
Province of Ontario
7.75%, 6/4/02 Aa3 2,000 2,013
Republic of Ireland
7.875%, 12/1/01 Aa3 2,000 2,047
- - -------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $9,769) 9,305
- - -------------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL SECURITIES (3.5%)
- - -------------------------------------------------------------------------------------------------
Contra Costa County
Pension Obligations
6.30%, 6/1/02 A1 1,000 931
Mississippi Business
Finance Corp.
(Guaranteed by
Kimberly-Clark)
7.55%, 6/1/04 Aa2 1,000 997
San Diego County
5.85%, 8/15/00 A 2,000 1,861
- - -------------------------------------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL
SECURITIES (Cost $3,997) 3,789
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (6.1%)
- - -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
4.23%, 8/1/94
(Cost $6,615) $6,615 $ 6,615
- - -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.6%)
(Cost $114,918) 110,109
- - -------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.6%)
- - -------------------------------------------------------------------------------------------------
Other Assets--Notes C and F 5,996
Liabilities--Note F (7,773)
----------
(1,777)
- - -------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------
Applicable to 11,618,242 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $108,332
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.32
=================================================================================================
</TABLE>
+See Note A to Financial Statements.
(1)Floating Rate Notes.
*Rated by Standard & Poor's
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $114,556 $9.86
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (1,415) (.12)
Unrealized Depreciation
of Investments--Note E (4,809) (.42)
- - -------------------------------------------------------------------------------------------------
NET ASSETS $108,332 $9.32
- - -------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 42
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (95.4%)
- - -------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS
10.75%, 2/15/03 $ 4,000 $ 4,931
10.75%, 5/15/03 5,100 6,304
11.625%, 11/15/02 51,250 65,856
11.625%, 11/15/04 27,300 36,074
11.875%, 11/15/03 20,700 27,266
U.S. TREASURY NOTES
5.125%, 11/30/98 24,525 23,145
5.75%, 8/15/03 6,000 5,464
6.25%, 2/15/03 19,425 18,399
6.375%, 7/15/99 32,600 32,131
6.375%, 8/15/02 9,000 8,644
6.75%, 5/31/99 16,860 16,889
7.00%, 4/15/99 115,640 117,104
7.875%, 11/15/99 40,166 42,143
7.875%, 8/15/01 102,000 107,163
8.00%, 5/15/01 7,600 8,047
8.25%, 7/15/98 22,190 23,466
8.50%, 11/15/00 37,400 40,497
8.75%, 8/15/00 27,500 30,087
8.875%, 11/15/98 5,000 5,417
8.875%, 2/15/99 54,873 59,580
9.125%, 5/15/99 25,000 27,438
AGENCY FOR INTERNATIONAL DEVELOPMENT
(U.S. Government Guaranteed)
5.25%, 9/15/00 5,000 4,563
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
6.00%, 10/30/99 22,396 21,137
7.02%, 6/1/99 18,375 18,219
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
7.46%, 6/14/00 38,500 38,731
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
5.735%, 4/15/99 22,800 21,430
5.94%, 12/19/01 20,000 18,200
- - -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (COST $871,690) 828,325
- - -------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.9%)
- - -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
4.23%, 8/1/94
(Cost $25,211) 25,211 25,211
- - -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.3%)
(Cost $896,901) 853,536
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
- - -------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (1.7%)
- - -------------------------------------------------------------------------------------------------
Other Assets--Notes C and F $ 22,510
Liabilities--Note F (8,043)
------------
14,467
- - -------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------
Applicable to 86,538,458 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $868,003
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.03
=================================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $ 919,788 $10.63
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (8,244) (.10)
Unrealized Depreciation
of Investments--Note E (43,541) (.50)
- - -------------------------------------------------------------------------------------------------
NET ASSETS $868,003 $10.03
- - -------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 43
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
FEDERAL PORTFOLIO (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (93.4%)
- - -------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK
4.113%, 7/25/00(1) $ 25,000 $ 24,687
6.00%, 5/16/97 25,000 24,800
6.25%, 4/21/99 25,000 24,812
8.25%, 5/27/96 5,000 5,189
FEDERAL HOME LOAN MORTGAGE CORP.
6.50%, 1/1/97 12,068 12,019
7.00%, 8/3/99 5,100 5,100
(Collateralized Mortgage Obligations)
6.75%, 7/15/06 15,580 15,603
6.50%, 12/23/96 29,752 28,916
FEDERAL NATIONAL MORTGAGE ASSN.
0.00%, 12/20/96-4/10/97 82,815 69,218
6.00%, 6/27/97-2/1/01 62,046 60,662
6.50%, 4/28/99 35,000 34,693
6.875%, 5/19/99 25,000 25,219
7.60%, 1/10/97 9,000 9,239
7.70%, 12/10/96 25,000 25,719
7.80%, 6/10/02 18,200 18,188
8.15%, 8/12/96 15,000 15,572
8.50%, 6/10/96 25,000 26,047
8.632%, 1/1/96 26,500 27,373
8.80%, 7/25/97 25,000 26,500
(Collateralized Mortgage Obligations)
0.00%, 9/25/96 1,643 1,451
5.50%, 3/16/96 32,056 30,854
6.00%, 2/18/95-12/13/98 19,806 19,126
6.50%, 12/15/94-5/11/95 14,705 14,216
6.75%, 12/30/95 13,500 13,032
6.90%, 8/15/99 6,155 6,050
7.00%, 12/15/94-11/7/95 121,973 120,925
7.50%, 3/1/95 16,022 16,168
8.00%, 12/8/94 10,232 10,286
9.00%, 6/21/95-7/9/95 10,251 10,570
U.S. TREASURY NOTES
5.50%, 4/30/96 15,000 14,904
5.75%, 10/31/97 9,000 8,827
6.00%, 11/30/97 30,000 29,620
6.75%, 5/31/97 10,000 10,116
7.25%, 11/15/96 23,000 23,553
7.625%, 4/30/96 25,000 25,711
7.75%, 3/31/96 9,000 9,269
7.875%, 7/15/96 23,250 24,056
8.00%, 10/15/96 5,000 5,194
8.25%, 7/15/98 20,800 21,996
8.50%, 4/15/97-7/15/97 111,000 117,231
8.625%, 8/15/97 76,000 80,691
BANAMEX EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
4.91%, 10/15/98 33,021 31,901
6.46%, 4/15/99 24,302 24,182
BANCO NATIONAL DE COMMERCIO EXTERIOR
(U.S. Government Guaranteed)
5.10%, 4/15/98 9,207 8,982
5.295%, 10/15/97 15,084 14,836
5.48%, 10/15/97 7,350 7,253
5.95%, 4/15/97 10,200 10,163
6.82%, 4/15/97 5,585 5,609
BANK LEUMI LE-ISRAEL
(U.S. Export Finance--U.S. Government Guaranteed)
8.375%, 2/10/96 1,533 1,563
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
4.61%, 9/1/98 21,600 20,863
4.85%, 11/1/97 24,500 23,932
5.41%, 12/1/96 8,862 8,654
5.69%, 2/1/98 26,094 25,830
5.79%, 1/1/97 8,407 8,379
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.43%, 6/15/98 27,787 26,703
4.743%, 9/15/98 3,380 3,269
4.813%, 12/15/98 18,319 17,685
6.61%, 2/20/97 20,000 20,007
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.86%, 4/1/98 8,000 7,788
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
7.815%, 11/15/01 9,375 9,593
8.75%, 11/15/01 14,062 14,820
8.89%, 11/1/95 5,625 5,761
PRIVATE EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
5.75%, 4/30/98 9,800 9,479
7.125%, 10/31/96 10,000 10,174
8.95%, 10/31/97 7,575 8,083
U.S. EXIM TRUST
(U.S. Government Guaranteed)
5.20%, 8/25/97 25,200 24,809
U.S. GOVERNMENT LOAN TRUST
AGENCY FOR INTERNATIONAL
DEVELOPMENT (ISRAEL)
(U.S. Government Guaranteed)
7.75%, 8/7/96 22,609 23,286
</TABLE>
13
<PAGE> 44
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT TRUST CERTIFICATES
(U.S. Government Guaranteed)
7.45%, 9/25/96 $ 8,537 $ 8,648
7.50%, 8/15/00 17,400 17,728
8.00%, 5/15/98 21,872 22,478
8.55%, 11/15/97 8,367 8,644
9.25%, 11/15/97 8,366 8,667
9.40%, 11/15/96 3,707 3,871
- - -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $1,566,635) 1,537,042
- - -------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (5.8%)
- - -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
4.23%, 8/1/94
(Cost $95,734) 95,734 95,734
- - -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.2%)
(Cost $1,662,369) 1,632,776
- - -------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.8%)
- - -------------------------------------------------------------------------------------------------
Other Assets--Note C 23,344
Liabilities (10,694)
-----------
12,650
- - -------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------
Applicable to 165,179,140 outstanding
$.001 par value shares
(authorized 300,000,000 shares) $1,645,426
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.96
=================================================================================================
</TABLE>
+See Note A to Financial Statements.
(1)Floating Rate Note.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $1,689,036 $10.23
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (14,017) (.09)
Unrealized Depreciation
of Investments--Note E (29,593) (.18)
- - -------------------------------------------------------------------------------------------------
NET ASSETS $1,645,426 $ 9.96
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (97.3%)
- - -------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES
5.125%, 3/31/98 $43,800 $ 41,870
5.50%, 4/30/96 47,400 47,096
5.75%, 10/31/97 3,000 2,942
5.875%, 5/15/95-5/31/96 67,300 67,263
6.00%, 12/31/97 7,000 6,905
7.25%, 11/15/96 25,000 25,601
7.50%, 1/31/96-2/29/96 39,500 40,503
7.625%, 4/30/96 59,000 60,678
7.875%, 2/15/96 60,389 62,229
8.00%, 10/15/96 66,700 69,295
8.50%, 5/15/95-5/15/97 80,400 84,602
8.75%, 10/15/97 33,000 35,202
9.375%, 4/15/96 39,576 41,796
BANAMEX EXPORT FUNDING
(U.S. Government Guaranteed)
4.91%, 10/15/98 5,400 5,217
BANCO NATIONAL DE COMMERCIO EXTERIOR
(U.S. Government Guaranteed)
4.62%, 10/15/98 18,000 17,367
5.95%, 4/15/97 6,480 6,457
6.82%, 4/15/99 7,143 7,173
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
4.85%, 11/1/97 3,500 3,419
5.69%, 2/1/98 9,600 9,503
5.79%, 1/1/97 2,500 2,492
GOVERNMENT TRUST
CERTIFICATE (ISRAEL)
(U.S. Government Guaranteed)
8.55%, 11/15/97 2,636 2,724
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.743%, 9/15/98 23,400 22,630
PRIVATE EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
5.65%, 3/15/03 7,560 6,935
SMALL BUSINESS ADMINISTRATION
(U.S. Government Guaranteed)
6.95%, 6/1/97 6,000 6,036
- - -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $683,205) 675,935
- - -------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 45
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (.8%)
- - -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
4.23%, 8/1/94 (Cost $5,460) $5,460 $ 5,460
- - -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.1%)
(Cost $688,665) 681,395
- - -------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.9%)
- - -------------------------------------------------------------------------------------------------
Other Assets--Note C 15,391
Liabilities (2,085)
----------
13,306
----------
- - -------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------
Applicable to 69,218,236 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $694,701
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.04
=================================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $711,339 $10.28
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (9,239) (.13)
Unrealized Depreciation
of Investments--Note E (7,399) (.11)
- - -------------------------------------------------------------------------------------------------
NET ASSETS $694,701 $10.04
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (82.4%)
- - -------------------------------------------------------------------------------------------------
FINANCE--AUTOMOBILE (6.4%)
Chase Manhattan Grantor
Trust 1991-A
6.90%, 9/15/97 Aaa $ 2,861 $ 2,870
Chrysler Financial Corp.
5.33%, 8/1/95 A3 25,893 25,731
7.14%, 5/26/98 A3 15,000 14,943
10.34%, 5/15/96 A3 16,634 17,696
12.75%, 11/1/99 A3 9,250 11,370
Ford Credit 1991-B
Grantor Trust
6.50%, 11/15/96 Aaa 6,175 6,213
Ford Motor Credit Corp.
8.875%, 8/1/96 A2 10,410 10,881
General Motors
Acceptance Corp.
6.10%, 3/31/97 Baa1 5,000 4,903
6.65%, 4/15/97 Baa1 5,000 4,959
6.75%, 4/29/97 Baa1 9,000 8,948
8.75%, 2/1/96 Baa1 20,000 20,627
Penske Truck Leasing
7.75%, 5/15/99 Baa3 10,000 10,074
RCSB 1991-B Grantor Trust
6.70%, 4/15/97 Aaa 7,084 7,127
Security Pacific Automobile
Grantor Trust 1991-A
6.70%, 1/15/97 Aaa 1,114 1,118
Toyota Motor Credit
5.35%, 11/15/95 Aaa 50,000 49,694
5.75%, 6/15/95 Aaa 15,000 15,019
----------
GROUP TOTAL 212,173
----------
- - -------------------------------------------------------------------------------------------------
FINANCE--BANKS (11.5%)
BankAmerica Corp.
6.875%, 11/20/97 A2 10,000 10,025
7.25%, 2/3/97 A2 20,000 20,278
Bankers Trust New York Corp.
4.70%, 7/1/96 A1 14,500 14,072
Chemical Banking Corp.
7.375%, 6/15/97 A2 30,000 30,536
Citicorp
8.42%, 2/12/97 A2 7,000 7,289
8.50%, 2/11/97 A2 5,210 5,431
Comerica
5.95%, 9/15/97 A3 19,000 18,586
CoreStates Capital
5.50%, 12/3/96 A1 10,000 9,785
First Fidelity
9.625%, 8/15/99 A3 15,000 16,353
</TABLE>
15
<PAGE> 46
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Interstate Bancorp.
10.50%, 3/1/96 A3 $ 5,000 $ 5,311
Huntington National Bank
4.48%, 10/14/96 A1 44,200 42,489
Mellon Financial Corp.
6.50%, 12/1/97 A3 25,000 24,719
9.00%, 5/9/95 A3 11,000 11,278
NationsBank
4.75%, 8/15/96 A2 16,000 15,505
PNC Funding Corp.
4.25%, 1/10/96 A1 10,900 10,615
Provident Bank of Ohio
5.00%, 6/15/96 A3 15,000 14,599
Security Pacific Corp.
7.75%, 12/1/96 A2 7,750 7,956
U.S. Bancorp
6.16%, 12/8/95 A2 10,000 10,013
8.68%, 7/25/95 A2 5,000 5,142
U.S. National Bank
of Oregon
5.40%, 10/30/95 A1 10,000 9,938
Wachovia Bank
4.25%, 9/20/96 Aa2 22,000 21,142
4.47%, 8/26/96 Aa2 20,000 19,324
4.60%, 11/15/96 Aa2 35,000 33,722
5.35%, 11/13/98 Aa2 20,000 18,829
----------
GROUP TOTAL 382,937
----------
- - -------------------------------------------------------------------------------------------------
FINANCE--CONSUMERS (9.8%)
Advanta Corp.
5.125%, 11/15/96 Baa3 15,000 14,476
American General Corp.
6.625%, 6/1/97 A1 5,000 4,989
Beneficial Finance Corp.
8.26%, 8/20/96 A2 8,000 8,273
9.10%, 2/3/97 A2 7,500 7,904
9.82%, 12/12/97 A2 5,000 5,418
CIT Group Holdings
5.50%, 2/28/97 A1 25,000 24,341
5.65%, 11/15/95 A1 5,000 4,980
6.00%, 2/15/97 A1 49,735 49,562
8.875%, 6/15/96 A1 13,250 13,825
Commercial Credit Corp.
6.75%, 1/15/97 A1 21,500 21,572
Countrywide Funding
6.10%, 7/31/96 A3 5,000 4,956
6.11%, 8/5/96 A3 5,000 4,950
7.85%, 3/3/97 A3 9,800 10,045
First Chicago Master Trust
6.25%, 8/15/97 Aaa 10,500 10,369
First Deposit Credit Card Trust
6.80%, 9/5/95 Aaa 10,000 10,044
Fleet Mortgage Group
6.08%, 11/24/95 A3 21,800 21,784
MBNA Master Credit Card Trust
6.20%, 8/31/97 Aaa 10,000 9,872
NationsBank Credit Card Trust
4.75%, 12/16/96 Aaa 42,500 40,973
North American Mortgage Co.
4.69%, 11/2/95 Baa2 13,000 12,722
Norwest Financial, Inc.
6.50%, 11/15/97 Aa3 12,500 12,386
8.54%, 4/17/95 Aa3 5,000 5,101
Standard Credit Card
Master Trust
8.50%, 8/7/97 Aaa 25,000 25,945
----------
GROUP TOTAL 324,487
----------
- - -------------------------------------------------------------------------------------------------
FINANCE--DIVERSIFIED (14.6%)
Associates Corp.
4.75%, 8/1/96 A1 14,000 13,562
4.90%, 12/2/96 A1 15,000 14,464
4.99%, 12/2/96 A1 25,000 24,156
8.375%, 1/15/98 A1 10,000 10,398
8.625%, 6/15/97 A1 6,000 6,298
8.80%, 8/1/98 A1 6,000 6,352
Bear Stearns Cos.
9.125%, 4/15/98 A2 13,600 14,339
Dean Witter Discover & Co.
5.00%, 4/1/96 A3 23,750 23,281
6.00%, 3/1/98 A3 15,000 14,550
General Electric
Capital Corp.
4.70%, 11/19/96 Aaa 38,000 36,630
4.84%, 2/10/97 Aaa 10,000 9,621
6.20%, 3/15/97 Aaa 57,977 57,977
Goldman Sachs Group
6.10%, 4/15/98 A1 30,000 28,834
ITT Financial
10.05%, 4/15/96 A3 4,000 4,244
Lehman Brothers Inc.
5.04%, 12/15/96 A3 20,000 19,208
9.75%, 4/1/96 A3 19,700 20,692
Morgan Stanley Group
6.93%, 2/16/96 A1 28,000 28,461
7.32%, 1/15/97 A1 11,500 11,634
Mortgage Trust Series
1991-A
7.20%, 12/15/02 Aa2 7,473 7,460
PaineWebber Group, Inc.
6.25%, 6/15/98 A3 25,000 23,933
</TABLE>
16
<PAGE> 47
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pitney Bowes Credit Corp.
7.43%, 4/15/97 Aa3 $14,000 $ 14,292
Charles Schwab Corp.
5.32%, 10/15/97 Baa1 8,000 7,608
Shearson Lehman Holdings
6.00%, 7/14/95 A3 15,000 15,008
Smith Barney Holdings
5.375%, 6/1/96 A3 19,000 18,631
Transamerica Finance
5.40%, 9/1/95 A2 18,145 18,053
8.30%, 5/1/95 A2 5,000 5,094
9.08%, 2/18/97 A2 5,000 5,259
U.S. West Financial Services
8.45%, 4/24/96 A2 25,000 25,884
----------
GROUP TOTAL 485,923
----------
- - -------------------------------------------------------------------------------------------------
INDUSTRIAL (21.1%)
Anheuser Busch Co.
4.75%, 9/25/95 A1 20,000 19,756
Burlington Resources, Inc.
7.15%, 5/1/99 A3 22,500 22,443
The Coca-Cola Co.
7.875%, 9/15/98 Aa3 18,000 18,607
Compaq Computer Corp.
6.50%, 3/15/99 Baa2 35,000 33,942
Cox Enterprises
8.90%, 8/15/94 A2 5,000 5,010
CSC Enterprises
6.80%, 4/15/99 A3 21,500 21,096
CSX Corp.
9.04%, 2/28/97 A3 8,500 8,968
9.50%, 11/15/95 A3 5,000 5,207
Crown Cork & Seal
7.00%, 6/15/99 Baa1 25,900 25,627
Ford Capital B.V.
9.00%, 6/1/96 A2 11,460 11,961
9.375%, 1/1/98 A2 10,000 10,707
Ford Holdings
9.25%, 7/15/97 A2 10,000 10,629
Gannett Co.
5.25%, 3/1/98 Aa3 20,000 18,891
W.R. Grace Co.
6.50%, 12/1/95 Baa3 34,400 34,427
7.09%, 5/12/97 Baa3 5,000 5,008
7.09%, 5/15/97 Baa3 15,000 15,026
Hertz Corp.
9.50%, 3/15/95 Baa2 5,350 5,466
9.625%, 6/15/96 Baa2 7,600 8,015
International Paper Co.
7.40%, 3/4/97 A3 10,000 10,213
9.625%, 10/15/95 A3 15,000 15,632
Kellogg Co.
5.90%, 7/15/97 Aaa 30,565 29,999
Lockheed Corp.
5.65%, 4/1/97 Baa1 30,000 29,138
Minnesota Mining &
Manufacturing Co.
6.25%, 3/29/99 Aaa 15,000 14,568
Mobil Oil Corp.
9.17%, 9/30/97 Aa2 11,737 12,475
PepsiCo., Inc.
5.00%, 2/24/97 A1 32,000 30,846
7.875%, 8/15/96 A1 12,500 12,845
Phillips Petroleum Co.
8.00%, 4/12/99 Baa2 4,000 4,108
Sears, Roebuck & Co.
5.25%, 2/24/97 Baa1 10,000 9,654
6.66%, 5/20/97 Baa1 35,000 34,848
8.00%, 3/8/99 Baa1 5,000 5,123
9.125%, 1/10/97 Baa1 5,000 5,270
9.25%, 4/15/98 Baa1 13,100 14,006
Texaco Capital Corp.
6.87%, 6/30/97 A1 30,000 30,139
8.22%, 2/12/97 A1 15,000 15,551
8.65%, 1/30/98 A1 16,750 17,623
9.00%, 11/15/97 A1 8,000 8,501
Texas Instruments, Inc.
9.00%, 7/15/99 A3 15,192 15,856
Union Carbide
7.00%, 8/1/99 Baa2 12,315 12,111
Union Oil of California
6.33%, 2/28/97 Baa2 20,000 19,809
6.38%, 2/18/97 Baa2 15,000 14,874
6.625%, 2/28/97 Baa2 15,000 14,959
8.97%, 3/6/98 Baa2 6,000 6,360
Union Pacific Railroad Co.
(Equipment Trust Certificate)
6.25%, 3/15/99 A2 10,000 9,678
9.625%, 3/15/97 Aa1 18,350 19,580
United Technologies Corp.
9.625%, 5/15/99 A2 5,000 5,257
----------
GROUP TOTAL 699,809
----------
- - -------------------------------------------------------------------------------------------------
INSURANCE (2.9%)
American Southwest Finance
5.10%, 6/2/99 A-* 24,264 22,604
CNA Financial
8.625%, 3/1/96 A1 17,000 17,570
Equitable Cos. Inc.
6.75%, 12/1/00 BBB* 11,500 11,010
Prudential Funding Corp.
8.70%, 1/16/95 Aa3 5,000 5,081
</TABLE>
17
<PAGE> 48
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Safeco Corp.
10.75%, 9/15/95 Aa3 $32,250 $ 33,923
Security Pacific
Mortgage Trust
9.97%, 9/20/94 AAA* 5,000 5,000
-----------
GROUP TOTAL 95,188
-----------
- - -------------------------------------------------------------------------------------------------
UTILITIES (13.0%)
AT&T Corp.
4.50%, 2/15/96 Aa3 35,000 34,197
4.89%, 8/25/95 Aa3 11,000 10,906
COSO Funding Corp.
7.22%, 6/30/95 Baa3 15,000 15,037
Carolina Power & Light Co.
9.14%, 4/1/95 A2 14,570 14,900
Connecticut Power &
Light Co.
4.25%, 10/1/94 Baa1 30,000 29,953
GTE North, Inc.
5.50%, 2/15/99 A1 18,175 17,028
GTE Southwest
5.82%, 12/1/99 A3 33,650 31,553
Georgia Power Co.
6.03%, 7/4/95 A2 20,000 20,034
6.375%, 4/3/95 A2 44,250 44,438
Illinois Power Co.
8.50%, 8/1/94 Baa3 12,435 12,435
MCI Communications Corp.
6.25%, 3/23/99 A2 5,000 4,840
7.625%, 11/7/96 A2 14,250 14,577
Pacific Gas & Electric
4.93%, 10/14/97 A2 15,000 14,165
5.39%, 12/10/97 A2 10,000 9,532
Texas Utilities Co.
6.375%, 8/1/97 Baa2 5,000 4,930
8.78%, 1/5/95 Baa3 10,000 10,156
9.00%, 1/10/95 Baa3 10,000 10,160
9.25%, 12/5/95 Baa3 11,500 11,963
9.39%, 11/21/96 Baa2 5,850 6,164
United Illuminating Co.
7.20%, 11/1/94 Baa3 10,000 10,015
7.62%, 9/12/94 Baa3 15,000 15,046
U.S. West Corp.
6.55%, 4/3/95 Aa3 11,000 11,080
Virginia Electric Power Co.
6.375%, 3/1/95 A2 25,000 25,139
Wisconsin Electric Power
5.875%, 10/1/97 Aa2 50,000 48,754
Wisconsin Power & Light
6.125%, 7/15/97 Aa2 5,000 4,928
-----------
GROUP TOTAL 431,930
-----------
- - -------------------------------------------------------------------------------------------------
RESERVES--OTHER (3.1%)(1)
Bank of Boston Corp.
4.83%, 6/20/96 Baa1 10,000 9,996
Caterpillar Financial Services
4.76%, 5/9/97 A3 21,000 20,958
General Motors Acceptance Corp.
4.68%, 5/6/96 Baa1 30,000 29,945
Goldman Sachs Group
5.00%, 2/23/98 A1 30,000 30,000
5.213%, 1/25/99 A1 14,000 13,930
-----------
GROUP TOTAL 104,829
-----------
- - -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,783,834) 2,737,276
- - -------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (12.2%)
- - -------------------------------------------------------------------------------------------------
Federal Home Loan Bank
6.00%, 5/16/97 50,000 49,600
6.25%, 4/21/99 25,000 24,813
Federal Home Loan
Mortgage Corp.
(Collateralized Mortgage
Obligations)
6.50%, 3/15/20 9,000 8,580
6.75%, 5/3/95 18,000 17,824
7.00%, 2/1/09 38,939 38,151
7.50%, 5/1/02 1,895 1,921
Federal National Mortgage Assn.
6.00%, 6/27/64 30,000 30,021
6.50%, 4/28/99 90,000 89,212
6.875%, 5/19/99 19,600 19,772
Federal National Mortgage Assn.
(Collateralized Mortgage
Obligations)
7.00%, 5/25/20 15,000 14,927
8.95%, 5/25/03 3,437 3,575
8.00%, 2/11/96 2,271 2,307
7.00%, 8/25/18 30,580 30,431
Government Export Trust
(U.S. Government Guaranteed)
4.85%, 11/1/97 15,400 15,043
6.61%, 9/15/99 10,000 10,004
Overseas Private Investment Corp.
(U.S. Government Guaranteed)
8.89%, 11/1/95 4,687 4,800
</TABLE>
18
<PAGE> 49
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Notes
3.875%, 8/31/95 $ 3,000 $ 2,951
4.00%, 1/31/96 5,000 4,877
4.25%, 5/15/96 5,000 4,862
4.75%, 9/30/98 10,000 9,341
7.625%, 4/30/96 21,000 21,597
7.75%, 3/31/96 2,000 2,060
- - -------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $411,750) 406,669
- - -------------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL SECURITIES (1.5%)
- - -------------------------------------------------------------------------------------------------
Health Insurance Plan of
Greater New York
10.65%, 7/1/95 A-* 1,525 1,575
Lower Colorado River Auth.
7.375%, 1/1/97 A2 25,000 25,353
Massachusetts Industrial
Finance Agency
9.125%, 8/1/95 A-* 3,655 3,726
New York City GO
10.00%, 11/15/96 Baa1 6,000 6,309
Sacramento Municipal Utility Dist.
5.25%, 11/15/96 A2 5,000 4,844
5.625%, 11/15/97 A2 7,000 6,716
- - -------------------------------------------------------------------------------------------------
TOTAL TAXABLE
MUNICIPAL SECURITIES
(Cost $48,146) 48,523
- - -------------------------------------------------------------------------------------------------
FOREIGN BONDS (1.9%)
- - -------------------------------------------------------------------------------------------------
Province of Alberta
9.20%, 11/1/97 Aa2 14,000 14,988
Province of Manitoba
6.00%, 10/15/97 A1 30,000 29,342
Province of Ontario
5.70%, 10/1/97 Aa2 9,000 8,711
Kingdom of Spain
9.27%, 11/1/96 Aa2 10,000 10,571
- - -------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $64,127) 63,612
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (.5%)
- - -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
4.23%, 8/1/94
(Cost $16,908) $16,908 $ 16,908
- - -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.5%)
(Cost $3,324,765) 3,272,988
- - -------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.5%)
- - -------------------------------------------------------------------------------------------------
Other Assets--Notes C and F 72,888
Liabilities--Note F (23,976)
-----------
48,912
- - -------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------
Applicable to 314,661,875 outstanding
$.001 par value shares
(authorized 400,000,000 shares) $3,321,900
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.56
=================================================================================================
</TABLE>
+See Note A to Financial Statements.
(1)Floating Rate Notes.
*Rated by Standard & Poor's.
GO--General Obligation.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $3,390,762 $10.78
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (16,241) (.05)
Unrealized Depreciation of
Investments--Note E (52,621) (.17)
- - -------------------------------------------------------------------------------------------------
NET ASSETS $3,321,900 $10.56
- - -------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 50
F282-07/94
<PAGE> 51
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer Chairman and Director of
The Vanguard Group, Inc., and of each of the investment companies in The
Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc
Rorer Inc.; Director of Sun Company, Inc. and Immune Response Corporation;
Trustee of the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of
Dayton Hudson Corporation, American Express Bank Ltd., The St. Paul Companies,
Inc., and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., and The Southern New England Telephone
Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and The
Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Director of Rohm & Haas Company;
Director of Cummins Engine Company; Trustee of Vanderbilt University and
the Culver Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of
The Vanguard Group, Inc.; Secretary of each of the investment companies in
The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
31
<PAGE> 52
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
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This Report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q282-07/94
[VANGUARD FIXED INCOME SECURITIES FUND LOGO]
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
JULY 31, 1994
<PAGE> 53
EDGAR APPENDIX
The back cover of the printed version of this report features the flags of
the United States of America and Vanguard flying from a halyard.
