<PAGE> 1
VANGUARD
FIXED INCOME
SECURITIES FUND
ANNUAL REPORT 1994
(PHOTO)
<PAGE> 2
A BRAVE NEW WORLD FOR INVESTING
With the clarity of hindsight, we can now see that the past two decades
composed one of the great cycles in the history of the financial markets, as
reflected in the chart below.
* During the 1973-1982 decade, the nominal total returns (capital change plus
income) of stocks and bonds averaged only about +6% per year; cash
reserves averaged more than +8% annually. However, high inflation rates,
averaging 8.7% annually, devastated these nominal results. Real returns
(nominal returns less the inflation rate) for each of these three major
asset classes were actually negative.
* During the 1983-1992 decade, quite the opposite situation prevailed. Nominal
returns for stocks and bonds were close to their highest levels in history
and forged well into double-digit territory. To make a good investment
environment even better, inflation was tame (averaging 3.8% annually), and
real returns were solidly positive.
[A TALE OF TWO DECADES BAR CHART -- SEE EDGAR APPENDIX]
This sharp contrast provides us with perspective for the decade that will end
in the year 2002. Some investors will fear a recurrence of the returns of the
first decade, while others will hope for a recurrence of the second; most will
likely anticipate something in between. Whatever the case, there are two
essential elements involved in considering your investment program in the light
of today's circumstances.
First, the yield of each investment class at the start of a decade has had
an important relationship to its future return. Yields were low when 1973
began, high when 1983 began, and are again low today. In fact, current income
yields are remarkably close to the levels of 20 years ago, as shown in the
following table.
<TABLE>
Caption>
INCOME YIELDS (January 1)
-------------------------------------------
1973 1983 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
STOCKS 2.7% 4.9% 2.7%
BONDS 5.8 10.7 6.0
RESERVES 3.8 10.5 3.1
- ---------------------------------------------------------------
</TABLE>
But there is a second important element to consider: inflation. It got
progressively worse during most of the first decade, but got progressively
better in the second.
<TABLE>
Caption>
-------------------------------------------
1973 1981 1993
- ---------------------------------------------------------------
<S> <C> <C> <C>
INFLATION 3.4% 12.4% 2.7%
- ---------------------------------------------------------------
</TABLE>
Today's low yield levels suggest that more modest nominal returns are in
prospect for the coming decade than in the 1980s; indeed, returns could
gravitate
(Please turn to inside back cover)
- --------------------------------------------------------------------------------
VANGUARD FIXED INCOME SECURITIES FUND SEEKS TO PROVIDE THE HIGHEST LEVEL OF
CURRENT INCOME CONSISTENT WITH THE CONSERVATION OF CAPITAL AND THE INVESTMENT
POLICIES OF EACH OF ITS NINE PORTFOLIOS: LONG-TERM CORPORATE PORTFOLIO - HIGH
YIELD CORPORATE PORTFOLIO - GNMA PORTFOLIO - LONG-TERM U.S. TREASURY PORTFOLIO
- - INTERMEDIATE-TERM CORPORATE PORTFOLIO - INTERMEDIATE-TERM U.S. TREASURY
PORTFOLIO - SHORT-TERM FEDERAL PORTFOLIO - SHORT-TERM CORPORATE PORTFOLIO -
SHORT TERM U.S. TREASURY PORTFOLIO.
<PAGE> 3
CHAIRMAN'S LETTER
(PHOTO)
FELLOW SHAREHOLDER:
The bond market provided excellent returns during the twelve months ended
January 31, 1994, and the various Portfolios of Vanguard Fixed Income
Securities Fund enjoyed another year of productive performance. This fiscal
year marks the twentieth anniversary of the Fund.
The total returns for each of our eight Portfolios that operated
throughout the full fiscal year are shown in the table below. As is customary,
we have also shown both components of the Portfolios' total returns: the income
return, which is reasonably predictable; and the capital return, which is
highly variable and may be either positive or negative, generally depending
upon whether interest rates fall or rise. The table also shows each
Portfolio's annualized dividend yield at fiscal year-end.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Fiscal Year Ended
January 31, 1994
--------------------------------------
Components of
Return
----------------------- SEC
Total 30-Day
Vanguard Portfolio Return Income Capital Yield
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY +16.1% +7.2% +8.9% 6.0%
LONG-TERM CORPORATE +13.8 +7.3 +6.5 6.4
- -------------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY +10.1% +6.0% +4.1% 5.2%
GNMA + 5.2 +6.2 -1.0 6.0
- -------------------------------------------------------------------------
SHORT-TERM U.S. TREASURY + 5.5% +4.7% +0.8% 4.1%
SHORT-TERM FEDERAL + 6.2 +5.1 +1.1 4.4
SHORT-TERM CORPORATE + 6.1 +5.7 +0.4 4.6
- -------------------------------------------------------------------------
HIGH YIELD CORPORATE +17.5% +9.8% +7.7% 8.0%
- -------------------------------------------------------------------------
</TABLE>
Note: Our new Intermediate-Term Corporate Portfolio earned a total return of
+1.7% since its inception on November 1, 1993.
The detailed per-share figures for each Portfolio, including net asset values,
income dividends, and any distributions from net realized capital gains, are
shown in the table on page 12 of this Report. We also have included two special
sections following this Chairman's letter, one on our capital gains
distribution policy and one on our GNMA Portfolio, which faced special
challenges during the year.
[PHOTO]
* THE BOND MARKET IN REVIEW
The twelve months just ended was a generally positive period for bonds.
Short-term bonds provided solid returns, and intermediate-term and long-term
bonds provided outstanding returns. The sole exception was the lackluster
returns provided by mortgage-backed securities (such as those issued by the
Government National Mortgage Association, or GNMA).
Across all sectors of the market, yields declined, moving bond prices
generally higher. The yield on the short-term (3-year) U.S. Treasury note fell
from 4.6% at the year's outset to 4.4% at its conclusion, a drop of 0.20% (20
"basis points"). At the other maturity extreme, the yield on the long-term
(30-year) U.S. Treasury bond fell even further, from 7.2% to 6.3%, or 90 basis
points.
A combination of relatively slow economic growth, restrained inflation,
and accommodative Federal Reserve monetary policy provided the economic
backdrop for this period of declining interest rates. The economy, as measured
by Gross Domestic Product (GDP), has grown at an inflation-
1
<PAGE> 4
[MONTH-END YIELDS LINE GRAPH -- SEE EDGAR APPENDIX]
adjusted rate of 2.8% over the past twelve months. The first half of the year
was particularly sluggish; more recently, economic growth has picked up.
Perhaps the best news on the economic front has been the continued low level of
inflation, with the Consumer Price Index (CPI) rising only 2.5% during the past
year, compared with 3.3% in the prior twelve-month period.
Capturing the full range of returns for a variety of bonds is no easy
task. To sketch the tone of the bond market during fiscal 1994 and the six
years prior, the chart above reviews the yields on short-term and long-term
Treasury bonds. We usually present this yield comparison over a five-year
period, but we have extended it to seven years in order to show a period that
includes the sharp yield increase of fiscal 1988. Our purpose in doing so is to
avoid any implication that interest rates decline constantly, as has been
pretty much the case since the autumn of 1988. The chart provides a useful
reminder that rates can and do rise--sometimes sharply--engendering
commensurate declines in bond prices. Short-term, intermediate-term, and
long-term bonds, respectively, carry an ascending level of price volatility.
* THE PORTFOLIOS IN FISCAL 1994
Each of our eight Vanguard Portfolios in operation for the full fiscal year
provided positive--and in four cases "double digit"--returns. And, with but two
exceptions (both of fairly small magnitude), all provided returns that were
strong relative to comparable fixed-income mutual funds. The year, then, goes
down in history as a successful one for the Fund.
The first secret, such as it may be, of the Fund's success during fiscal
1994 was of course the strength-- nearly across-the-board--of the various
segments of the bond market. The second secret was our ability to "add value,"
and provide higher net returns than those achieved by other fixed-income mutual
funds with generally similar investment characteristics. This table presents
the year's comparison:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Total Return
----------------------------------------
Fiscal Year Ended January 31, 1994
----------------------------------------
Competitive
Portfolio Vanguard Fund Average Difference
- --------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM U.S. TREASURY +16.1% +12.4% +3.7%
LONG-TERM CORPORATE +13.8 +10.6 +3.2
- -------------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY +10.1% + 9.0% +1.1%
GNMA + 5.2 + 5.9 -0.7
- -------------------------------------------------------------------------
SHORT-TERM U.S. TREASURY + 5.5% + 5.2% +0.3%
SHORT-TERM FEDERAL + 6.2 + 5.4 +0.8
SHORT-TERM CORPORATE + 6.1 + 5.9 +0.2
- -------------------------------------------------------------------------
HIGH YIELD CORPORATE +17.5% +18.9% -1.4%
- -------------------------------------------------------------------------
</TABLE>
We have presented this table of relative returns to shareholders in each of the
past five years, and it has consistently reflected the superiority of our
overall returns relative to competitive norms. Specifically, of the 34
year-by-year comparisons (three years with six Portfolios, two years with eight
Portfolios), our Portfolios provided a competitive advantage in 30 cases, a
"success rate" of nearly 90%.
Such consistency in the unpredictable world of the financial markets
simply cannot be accounted for by chance. Rather, there are at least five
reasons for our superiority:
2
<PAGE> 5
(1) Specific and stringent quality and maturity guidelines. Our "bets" on the
direction of interest rates are very limited in both dimension and
magnitude. That is, variations in maturities are, as a matter of policy,
limited. For example, the target average maturity for our short-term
Portfolios is 2.5 years; it may not be less than two years nor more than
three years.
(2) Experienced and competent professional portfolio managers, working under
these clear policy guidelines.
(3) Low operating costs. However tedious it may have become to stress this
advantage in our Vanguard Annual Reports, it simply would not be "in
character" for me not to mention it once again. In the aggregate, the
operating expenses of our Portfolios (including all advisory fees)
amounted to 0.28% of average net assets in fiscal 1994--an all-time low
for the Fund. The average expense ratio for all fixed- income mutual funds
was 0.93%. Thus, other factors held equal, we provide a "natural
advantage" of 0.65% in the yields we generate for our shareholders. Given
the lower yields available in all sectors of the bond market today, this
advantage is more compelling than ever.
(4) Certain differences in investment policy. While our short-term and
intermediate-term Portfolios can be compared with reasonable fairness to
other fixed-income funds, two major differences remain. First, our
long-term Portfolios have longer maturities than comparable funds, a
factor which adds to our returns when interest rates decline, and
subtracts from them when interest rates rise. Second, our High Yield
Corporate Portfolio maintains a higher quality portfolio than most other
"junk bond" funds, which helps us through bad economic times, even as it
slows us down when times are good.
(5) Luck. Unpredictable crosscurrents in the bond markets, or unanticipated
changes in the quality of a specific bond, seem to occur in a random way.
Happily, we have been on the right side of these changes more often than
not.
These are the five factors that nearly always shape our relative returns in the
competitive field of fixed-income fund management. About the only surprise of
fiscal year 1994 was the shortfall (-0.7%) of our GNMA Portfolio relative to
its competitors, following four consecutive years of superiority. As noted
earlier, we will discuss the factors impacting this Portfolio's results for the
year in a special section later in this Report.
* A LONGER-TERM VIEW
Suffice it to say that it is the long-term record of a fixed-income portfolio,
rather than the record in any single year, that is of the greatest
significance. The charts on pages 8-11 present this picture for each of our
Portfolios, showing cumulative returns for the past ten years or since the
inception of the Portfolio. This table summarizes the long-term return of each
Portfolio relative to the average return achieved by comparable fixed-income
mutual funds during the same periods:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Annual Rate of Return
---------------------------------------
Ten Years Ended January 31, 1994
---------------------------------------
Competitive Vanguard
Portfolio Vanguard Fund Average Advantage
- -------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM U.S. TREASURY* +10.4% + 8.4% +2.0%
LONG-TERM CORPORATE +12.4 +10.8 +1.6
- -------------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY* +11.5% + 9.9% +1.6%
GNMA +10.9 + 9.9 +1.0
- -------------------------------------------------------------------------
SHORT-TERM U.S. TREASURY* + 7.3% + 6.2% +1.1%
SHORT-TERM FEDERAL* + 8.6 + 8.0 +0.6
SHORT-TERM CORPORATE + 9.9 + 8.9 +1.0
- -------------------------------------------------------------------------
HIGH YIELD CORPORATE +11.6% +10.9% +0.7%
- -------------------------------------------------------------------------
</TABLE>
* Since inception: Long-Term U.S. Treasury, May 1986; Intermediate-Term U.S.
Treasury and Short-Term U.S. Treasury, October 1991; Short- Term Federal,
December 1987.
(continued)
3
<PAGE> 6
The returns illustrated cover, in each case, a period that was favorable
on balance for bond funds of all types, largely because of the climate of
generally declining interest rates. We do not intend to suggest that the future
absolute returns of the Portfolios or their competitive fixed-income funds will
parallel those shown in the table. Indeed, given the lower yields available in
the bond market today, the likelihood that bond returns will equal or exceed
those shown in the table seems fairly remote. However, for the reasons noted
earlier in this letter, we are fairly confident that the returns of each
Portfolio will continue to be respectable relative to competitive norms.
The charts on pages 8-11 also present the returns of each Portfolio's
comparable segment of the unmanaged Lehman Aggregate Bond Index. Emulating
them as we may, these bond market indexes represent tough performance standards
for actively managed bond funds. The reason is straightforward: indexes are
merely "paper" portfolios, existing only in computer-generated statistics and
unencumbered by the "real world" costs of doing business, including operating
expenses, advisory fees, and portfolio transaction costs. All mutual funds must
bear these costs in their daily activities; therefore, almost inevitably,
nearly all funds must fall short of the index returns. Vanguard's claim to
fame, as it were, is that we generally outpace comparable funds of similar
quality and maturity. Thus, the returns of our competitors rarely approach
those of the indexes as closely as do ours.
More than incidentally, the seemingly small percentage point differences
in annual rates of return make a very large difference indeed in cumulative
returns. For example, the annual rate of return of our original
Portfolio--Long-Term Corporate--averaged +12.4% over the past decade, compared
to a return of +10.8% for the average competitive fund. Over a full decade,
this seemingly modest 1.6 percentage point annual advantage gives us a
cumulative advantage of fully +44% (+223% for the Vanguard Portfolio versus
+179% for the competitive fund average). This is no trivial advantage for the
long-term investor.
* A BRIEF RETROSPECTIVE
Vanguard Fixed Income Securities Fund began operations on July 9, 1973. I had
the privilege of writing to shareholders our first Annual Report for the fiscal
period ended January 31, 1974, just 20 years ago. How time flies ("when you're
having fun")!
It would be quite an understatement to say that the Fund had a modest
beginning. Assets were just $23 million when that first Report was published.
There was but a single Portfolio (now the Long-Term Corporate Portfolio), and
the mutual fund industry included but 29 bond funds. The Fund was then called
Westminster Bond Fund, and the formation of what we now know as "The Vanguard
Group, Inc." was more than a year in the future. (The Fund was not to
incorporate under the Vanguard name until six more years had passed, when it
adopted its present name on May 1, 1980.)
Today, the total assets of the Fund have increased to more than $20
billion, the largest combination of taxable fixed-income portfolios in the
entire mutual fund industry. Our second Portfolio (High Yield) was added in
1978 and our third Portfolio (GNMA) in 1980, with six more Portfolios to follow
in the years ahead. This growth is, in my view, simply a result of: (1) the
acceptance of bonds as a sound investment choice; (2) a massive increase in the
use of bond mutual funds by bond investors (the 29-fund total of 1974 has now
risen to 1,063 taxable bond funds); and (3) the trust investors have placed in
Vanguard Fixed Income Securities Fund as a result of our successful record of
providing excellent returns, on both an absolute and a relative basis, without
compromising investment quality standards.
Let me illustrate our results by using the record of our original
Long-Term Corporate Portfolio. In our 20 full fiscal years, our total return
has averaged +10.1% annually, with only a single year of negative results
(fiscal 1980), when our total return was -4.9%. This average annual return has
been generated entirely by our income yield, which also averaged +10.1% during
the period. Our capital return, then, added "zero" to our total. It should go
without saying that it was our income yield that
4
<PAGE> 7
was sufficient to cover the negative capital returns that occurred in nine of
our 20 years--nearly one-half of the years in the total period-- the worst of
which was of course 1980, when our capital return was -13.8%.
I emphasize these figures for two reasons. First, the bond market is not a
"one-way street," and bond prices rise and fall with changes in interest rates.
Second, given that the level of yields prevailing today is significantly lower
than nearly all of the annual yields we have achieved in the past, it would be
only prudent to "count on" more modest future total returns.
* LOOKING AHEAD
No one has the ability to accurately predict future changes in the level of
interest rates. Indeed, the remarkable decline in rates that has occurred since
early 1990 surprised even the experts. Thus, our best advice to you is to face
the unpredictable future by holding the Vanguard Portfolio (or combination of
Portfolios) that best meets your needs: the short-term Portfolios if you want
to minimize capital risk and achieve some durability of income (compared, for
example, with money market funds, which are, simplistically speaking, merely
bond funds with 60-day average maturities); the longer-term Portfolios if you
require a higher yield with greater income durability and are prepared to
accept with equanimity the risk of greater fluctuations in the value of your
capital.
To recognize that, biblically put, "the financial markets giveth and the
financial markets taketh away" is the beginning of investment wisdom. In our
view, as we look ahead to the next 20 years, investors who decide carefully on
the allocation of their investments among money market funds, bond funds of
appropriate maturity, and common stock funds, will enjoy solid returns,
provided only that they do not let themselves be intimidated by the inevitable
fluctuations in the financial markets. For the long-term investor, "stay the
course" is virtually always the best advice.
Sincerely,
/s/ JOHN C. BOGLE
- ------------------
John C. Bogle
Chairman of the Board
February 14, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
5
<PAGE> 8
PLAIN TALK ABOUT THE GNMA PORTFOLIO
As noted at the outset of the Chairman's letter, we want to give you a separate
report on the results of our GNMA Portfolio. We do so because it faced special
(and, we expect, rarely recurring) challenges during fiscal 1994. With $7
billion of assets, it is the largest of the nine Portfolios of Vanguard Fixed
Income Securities Fund.
To begin with, among all sectors of the bond market, mortgage-backed
securities (largely issued by GNMA and other Federal agencies) represented the
year's sole disappointment. The reason was not complex: the sharp decline in
interest rates over the past few years gave millions of homeowners the
opportunity to prepay their higher-yielding mortgages and replace them at much
lower rates. Since mortgage-backed securities simply "pass through" to
investors the mortgage interest and principal they receive, there is always a
substantial "prepayment risk."
We have called special attention to this potential risk in our last seven
Annual and Semi-Annual Reports, and the risk has "come home to roost" during
the past two years. In this regard, we would make three particular points about
our Vanguard GNMA Portfolio last year:
* All mutual funds that invest in GNMAs and other mortgage-backed
securities faced the same problems that we did. As shown earlier, our
total return of +5.2%, while weak, was not markedly different from
the +5.9% average return achieved by other GNMA funds. We, of course,
aspire to outpace this competition, and we had done so for the
previous nine consecutive years. So, last year's shortfall, however
modest, was a disappointment to us.
* Fiscal 1994 was but one single year in the Portfolio's long-term
record of accomplishment. Over the past decade, our total rate of
return has averaged +10.9%, ranking us first in the GNMA mutual fund
category. Our returns also have been competitive with those of
long-term bond funds as a group, and well in excess (as you should
expect) of the returns of short-term bond funds.
* The biggest issue in the minds of our shareholders is likely the
decline in our income dividends. Our monthly dividends totaled $.641
per share for fiscal 1994, compared with $.778 per share for fiscal
1993. Other funds owning mortgage-backed securities also faced this
problem, to a greater or lesser degree, depending on the interest
coupon structure of their portfolios. In fact, a decline in income
dividends last year was experienced by virtually all of our
competitors.
The point is that, despite our moderate shortfall in total return for the year,
our long-term record has been attractive on both an absolute and a relative
basis, and our dividend record for the year--while disappointing--was about
"par for the course" given the sharp decline in rates. Now that rates seem to
have "settled down," and indeed are rising a bit, our monthly dividend for
February has risen, and we hope to report continued better dividend news to you
in the coming months.
6
<PAGE> 9
PLAIN TALK ABOUT CAPITAL GAINS DISTRIBUTIONS
During fiscal 1994, six of the nine Portfolios of Vanguard Fixed Income
Securities Fund distributed capital gains realized from their investment
management operations. Since, in some cases, these gains were substantial, we
thought that we should review our investment policy with you.
First, we never realize "gains for gains' sake." We are fully cognizant
that the distribution of capital gains is a taxable event, and thus is a
negative factor over the short term. Over the long term, to be sure, most
shareholders ultimately pay taxes on their gains--whether or not they are
realized by the Portfolio--since the gains are realized at whatever time their
shares are liquidated.
In the course of our portfolio management activities, it is almost
impossible to avoid realizing capital gains in periods of declining interest
rates. As rates decline, bond prices rise, and the market values of our
portfolio holdings inevitably rise in lock-step. Thus, any portfolio
restructuring results in realized gains.
Updated information on the amount of gains, if any, realized by each
Portfolio during the fiscal year, as well as the current amount of any
unrealized gains, are readily available to our shareholders by calling our
Investor Information Department.
The following table presents the capital gains distributed by each
Portfolio over the past twelve months, as well as the unrealized capital gains
for each at fiscal year-end. The capital gain distributions represent the gains
realized from October 31, 1992, to October 31, 1993, the Fund's "excise tax
year." In addition, some of the Portfolios are making relatively modest
supplemental capital gains distributions effective March 30, 1994, reflecting
gains realized during the final quarter of fiscal 1994. These supplemental
gains will be taxable to shareholders in 1994.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Per Share
---------------------------------
Realized Unrealized
Capital Gains Capital Gains at
Vanguard Portfolio Fiscal 1994 January 31, 1994
- --------------------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY* $.18 $1.26
LONG-TERM CORPORATE* .26 .81
- --------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY* $.41 $ .20
INTERMEDIATE-TERM CORPORATE .00 .06
GNMA .00 .35
- --------------------------------------------------------------------
SHORT-TERM U.S. TREASURY* $.08 $ .11
SHORT-TERM FEDERAL* .11 .16
SHORT-TERM CORPORATE .10 .18
- --------------------------------------------------------------------
HIGH YIELD CORPORATE $.00 $ .59
- --------------------------------------------------------------------
</TABLE>
* Estimated per-share supplemental realized gains effective March 30, 1994,
are: Long-Term U.S. Treasury, $.04; Long-Term Corporate, $.07;
Intermediate-Term U.S. Treasury, $.03; Short-Term U.S. Treasury, $.02; and
Short-Term Federal, $.01.
7
<PAGE> 10
CUMULATIVE PERFORMANCE
[LONG-TERM U.S. TREASURY PORTFOLIO LINE GRAPH - May 31, 1986, to January 31,
1994 -- SEE EDGAR APPENDIX]
Average Annual Total Returns--Periods Ended January 31, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- -------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM TREASURY PORTFOLIO +16.09% +12.98% +10.41%
AVERAGE LONG-TERM TREASURY FUND +12.36 +10.60 + 8.43
LEHMAN LONG-TERM TREASURY INDEX +16.73 +13.71 +11.33
</TABLE>
* Inception, May 19, 1986. Performance begins May 31, 1986, to show
competitive data. Note: Past performance is not predictive of future
performance.
[LONG-TERM CORPORATE PORTFOLIO LINE GRAPH - January 31, 1984, to January 31,
1994 -- SEE EDGAR APPENDIX]
Average Annual Total Returns--Periods Ended January 31, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM CORPORATE PORTFOLIO +13.83% +13.26% +12.44%
AVERAGE CORPORATE A-RATED FUND +10.61 +10.77 +10.82
LEHMAN CORPORATE A-RATED INDEX +11.28 +12.09 +12.58
</TABLE>
* Note: Past performance is not predictive of future performance.
8
<PAGE> 11
[HIGH YIELD CORPORATE PORTFOLIO LINE GRAPH - January 31, 1984, to January 31,
1994 -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended January 31, 1994
- -------------------------------------------------------------------------
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------
<S> <C> <C> <C>
HIGH YIELD CORPORATE PORTFOLIO +17.54% +10.95% +11.58%
AVERAGE HIGH YIELD BOND FUND +18.87 +10.92 +10.87
LEHMAN CORPORATE BBB-RATED INDEX +11.74 +12.14 +12.70
</TABLE>
Note: Past performance is not predictive of future performance.
[GNMA PORTFOLIO LINE GRAPH - January 31, 1984, to January 31, 1994 -- SEE EDGAR
APPENDIX]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended January 31, 1994
- -------------------------------------------------------------------------
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------
<S> <C> <C> <C>
GNMA PORTFOLIO +5.18% +10.65% +10.90%
AVERAGE GNMA FUND +5.88 + 9.79 + 9.91
LEHMAN GNMA INDEX +6.08 +11.00 +11.92
</TABLE>
Note: Past performance is not predictive of future performance.
9
<PAGE> 12
CUMULATIVE PERFORMANCE (continued)
[INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO LINE GRAPH - October 31, 1991, to
January 31, 1994 -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended January 31, 1994
- -------------------------------------------------------------------------
Since
1 Year Inception*
- -------------------------------------------------------------------------
<S> <C> <C>
INTERMEDIATE-TERM TREASURY PORTFOLIO +10.09% +11.47%
AVERAGE INTERMEDIATE-TERM TREASURY FUND + 8.99 + 9.89
LEHMAN INTERMEDIATE-TERM TREASURY INDEX +10.63 +11.89
</TABLE>
* Inception, October 28, 1991. Performance begins October 31, 1991, to show
competitive data. Note: Past performance is not predictive of future
performance.
[SHORT-TERM FEDERAL PORTFOLIO LINE GRAPH - December 31, 1987, to January 31,
1994 -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended January 31, 1994
- -------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM FEDERAL PORTFOLIO +6.23% +9.16% +8.62%
AVERAGE SHORT-TERM GOVERNMENT FUND +5.37 +8.27 +8.01
LEHMAN SHORT-TERM GOVERNMENT INDEX +6.10 +9.57 +9.00
</TABLE>
*Inception, December 31, 1987.
Note: Past performance is not predictive of future performance.
10
<PAGE> 13
[SHORT-TERM U.S. TREASURY PORTFOLIO LINE GRAPH - October 31, 1991, to January
31, 1994 -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended January 31, 1994
- -----------------------------------------------------------------------------
1 Year Since Inception*
- -----------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM TREASURY PORTFOLIO +5.54% +7.31%
AVERAGE SHORT-TERM TREASURY FUND +5.21 +6.19
LEHMAN SHORT-TERM TREASURY INDEX +6.11 +7.86
</TABLE>
* Inception, October 28, 1991. Performance begins October 31, 1991, to show
competitive data. Note: Past performance is not predictive of future
performance.
[SHORT-TERM CORPORATE PORTFOLIO LINE GRAPH - January 31, 1984, to January 31,
1994 -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended January 31, 1994
- -------------------------------------------------------------------------
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM CORPORATE PORTFOLIO +6.11% + 9.53% +9.86%
AVERAGE ST INVESTMENT GRADE FUND +5.91 + 8.51 +8.87
LEHMAN ST INVESTMENT GRADE INDEX +7.87 +10.24 +10.48
</TABLE>
Note: Past performance is not predictive of future performance.
11
<PAGE> 14
FISCAL YEAR PORTFOLIO RESULTS
<TABLE>
<CAPTION>
Total
Net Asset Value Per Share Latest 12 Months Return SEC
------------------------- ---------------- ------ 30-Day
Average Average January 31, January 31, Income Capital 12 Annualized
Portfolio Maturity Quality 1993 1994 Dividends Gains Months Yield
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY 21.4 years Aaa $10.04 $10.75 $.685 $.176 +16.1% 6.03%
LONG-TERM CORPORATE 17.4 years A1 9.04 9.36 .632 .259 +13.8 6.36
HIGH YIELD CORPORATE 10.9 years Ba2 7.56 8.14 .695 -- +17.5 8.02(1)
INTERMEDIATE-TERM CORPORATE 7.3 years Aa3 10.00* 10.04 .125* -- + 1.7* 5.41
INTERMEDIATE-TERM U.S. TREASURY 6.7 years Aaa 10.79 10.82 .617 .413 +10.1 5.21
GNMA 4.5 years Aaa 10.50 10.39 .641 -- + 5.2 5.67(2)
SHORT-TERM FEDERAL 2.6 years Aaa 10.38 10.38 .522 .110 + 6.2 4.43
SHORT-TERM U.S. TREASURY 2.5 years Aaa 10.41 10.41 .486 .079 + 5.5 4.09
SHORT-TERM CORPORATE 2.5 years Aa3 10.99 10.94 .605 .099 + 6.1 4.56
- --------------------------------------------------------------------------------------------------------------------------------
</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 5.95% under SEC calculation methodology.
12
<PAGE> 15
AVERAGE ANNUAL TOTAL RETURNS
Average Annual Total Returns--The current yields noted in the table of the
Chairman's letter and the Portfolio Summary are calculated in accordance with
SEC guidelines. The annualized total returns for the Portfolios (periods ended
December 31, 1993) are as follows:
<TABLE>
<CAPTION>
PORTFOLIO (INCEPTION DATE) 1 YEAR 5 YEARS 10 YEARS
- -------------------------- ------ ------- --------
<S> <C> <C> <C>
LONG-TERM CORPORATE (7/9/73) +14.49% +13.20% +12.51%
HIGH YIELD CORPORATE (12/27/78) +18.24 +10.82 +11.60
GNMA (6/27/80) + 5.90 +10.84 +11.07
SHORT-TERM CORPORATE (10/29/82) + 7.07 + 9.58 + 9.95
LONG-TERM U.S. TREASURY (5/19/86) +16.79 +12.94 +10.14*
SHORT-TERM FEDERAL (12/31/87) + 7.00 + 9.19 + 8.61*
SHORT-TERM U.S. TREASURY (10/28/91) + 6.41 + 7.52* --
INTERMEDIATE-TERM U.S. TREASURY (10/28/91) +11.43 +11.67* --
INTERMEDIATE-TERM CORPORATE (11/1/93) + 0.21** -- --
</TABLE>
*Since Portfolio's inception.
**Cumulative return since inception.
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.
13
<PAGE> 16
REPORT FROM WELLINGTON MANAGEMENT COMPANY
* MARKET REVIEW
During the twelve months ended January 31, 1994, interest rates continued to
move lower. The yield on the benchmark 30-year U.S. Treasury bond declined,
from 7.2% at the beginning of the fiscal year to 6.3% at the end. Slow economic
growth and low inflation have helped to bring rates to levels not seen in two
decades. The best performing sectors of the fixed-income markets were long-term
call-protected corporate issues-- particularly those at lower quality
levels--and long-term U.S. Treasury bonds.
During the last 10 to 12 years, investors have seen the best fixed-income
returns of the century. Odds are that returns for fixed-income investors over
the next few years will not be nearly as generous.
* LONG-TERM CORPORATE PORTFOLIO
The Portfolio's average maturity is 17.4 years. We are heavily weighted in
corporate issues (78% of net assets), with the remainder invested in U.S.
Treasury notes, mortgage-backed securities, and cash reserves. Eighty percent
of net assets is invested in issues rated "A" or better. During the past year,
for the first time in over a decade, the major rating agencies posted more
ratings upgrades than downgrades. This trend should continue as U.S.
corporations improve their balance sheets with restructurings, better earnings
and cash flows, and the issuance of new equity. On balance in 1993, the lower
the quality of the bonds, the better the returns. Going forward, we expect that
higher-quality bonds will provide the better returns.
* GNMA PORTFOLIO
Mortgage-backed securities were out of favor last year as homeowners took
advantage of low interest rates to refinance their mortgages. Mortgage
prepayments soared, and returns to investors soured. While the recent rise in
interest rates has helped slow prepayments significantly, they remain at fairly
high levels. We have lowered the average coupon of the Portfolio to 8.4% and
anticipate a further decline, as we have used cash flow to buy lower coupon
pools which are less likely to suffer from prepayments. The best environment
for GNMA securities tends to be a period of stable to moderately increasing
rates, which is the exact opposite of the past year. Given our current outlook,
we expect mortgages in the new year to again provide competitive returns versus
other high-quality fixed-income sectors.
* HIGH YIELD CORPORATE PORTFOLIO
The incremental yield provided by high-yield bonds narrowed during the past
year, which reflects the market's outlook for a growing economy with greater
breadth. The economic environment for below-investment-grade bonds should lend
itself to continued ratings improvements. With banks willing to lend and with
the equity market able to supply abundant capital, lower-rated companies now
have greater financing flexibility.
The volume of new issues of high-yield bonds continues unabated. If
short-term interest rates remain in a 3% to 4% range, we expect an ongoing
appetite for high-yield bonds this year. The breadth of high-yield buyers seems
to be expanding as investors become more comfortable with a rosier economic
outlook. In an improving economic environment, companies are better able to
raise prices to expand profit margins and thereby improve credit ratings.
All of the Portfolio's holdings are rated "B" or better. We continue to
maintain a Treasury reserve for liquidity purposes (13% of net assets), as well
as a modest position in securities rated "Baa" (12%), reflecting the fairly
narrow yield spreads currently available in the market. The remainder of the
portfolio is in securities rated "Ba" (31%) and "B" (44%).
Respectfully,
Paul G. Sullivan, Senior Vice President
Portfolio Manager
Earl E. McEvoy, Senior Vice President
Portfolio Manager
Wellington Management Company February 9, 1994
14
<PAGE> 17
REPORT FROM VANGUARD FIXED INCOME GROUP
* ANOTHER GOOD YEAR . . .
The six Portfolios of Vanguard Fixed Income Securities Fund that we manage
enjoyed yet another year characterized by that most desirable of risk
attributes--"upside" price volatility. Such protracted beneficence should not
go unremarked. What is more, having managed money through the many "dark days"
from 1975-1981 (not to mention 1987), I can say that our more recent letters
are much easier to write.
Most discussions of risk appropriately focus on the inherent volatility of
a certain class of investments (e.g., intermediate-term bonds), but what those
discussions really hone in on is the potential for that class of investment to
erode the principal value of your portfolio. Hence, risk is commonly treated
synonymously with downside price volatility. For example, how much would rates
have to rise to lose (in principal value) a year's worth of income? Or, how
much will the share price of my Portfolio decline if interest rates rise by 1%
or 2%?
Most (but not all) bonds enjoy something close to symmetry in their
potential price returns. Thus, interest rate risk per se is not altogether bad,
especially considering the sustained tailwind that such risk added to total
return performance over the past decade. Indeed, with few interruptions, the
bond market and the Fund's Portfolios have enjoyed more than ten years of
"sailing before the wind." This tailwind provided average annual capital
returns ranging from +1.5% over the past decade for our short-term Portfolios
to +2.2% since 1986 for our Long-Term Treasury Portfolio. During fiscal 1994,
our capital return ranged from +0.4% in the shorter-term Portfolios to +9% in
our longer- term Portfolios.
Details of each Portfolio's total return, which combines the steady and
crucial contribution of interest income plus the "volatile" principal
component, are discussed in the Chairman's letter. I would like to be able to
say that such sustained and attractive historical returns are realistic
prospects for the next ten years. Unfortunately, I cannot. Two events have
"conspired" to make such a scenario highly unlikely.
* . . . BUT WHAT DO WE DO FOR AN ENCORE?
Ten years ago, our Short-Term Corporate Portfolio had a yield of 10.2%. At that
time, we were purchasing investment-grade corporate securities with one- to
five-year maturities and with yields ranging from 9% to 12%. Similarly,
long-term (15 years and longer) investment-grade corporate bonds boasted yields
of 12% and higher. Viewed in the context of total return, these historic yields
provided most of the previously mentioned "steady and crucial contribution of
interest income."
Over time, new cash flows and maturing bonds in the short-, intermediate-,
and long-term Portfolios have been replaced with new bonds bought during
periods of progressively lower interest rates. Today, a short-term bond yields
about 4.75% annually and a long-term bond about 6.25%. Thus, the first event
conspiring against us today is that a bond generates only about 30% to 50% as
much income as a decade ago. That development makes it much harder for today's
bond portfolios to replicate previous glories. For the short-term and
intermediate-term portfolios, it is all but impossible. For long-term
portfolios, it is highly unlikely.
* AN UNFRIENDLY FED? IT ALL DEPENDS.
The second event conspiring against a repeat of the returns of the past decade
is that the Federal Reserve apparently no longer wants to promote "abnormally
low or zero real rates of interest." Federal Reserve Bank Chairman Alan
Greenspan revealed in recent Congressional testimony that the nation's central
bank policymakers are growing increasingly uncomfortable with their
historically accommodative monetary stance.
Since the beginning of the 1990 economic contraction, "Fed" policy has
been overtly stimulative. Federal Reserve purchases of government securities
over the last three years has helped pump up the monetary system's bank
reserves by 28%, or 8.7% annually. Generous monetary policy in turn has
promoted a stable (and to many bond investors, paltry)
15
<PAGE> 18
REPORT FROM VANGUARD FIXED INCOME GROUP (continued)
short-term interest rate environment pegged at approximately 3% for many money
market securities. Indeed, until early February 1993, short- term interest
rates were at 30-year lows. (Savers with maturing CDs purchased several years
ago are experiencing "sticker shock" when they attempt to roll over their
certificates.) Compared to an inflation rate of about 3% over the same
three-year period, these interest rates provide virtually no real return after
factoring in the erosion of a dollar's purchasing power, even ignoring the
impact of income taxes. Small wonder that investors have sought out the
riskier, albeit higher yielding, environs of the intermediate- and long-term
bond markets.
Subsequent to the close of the fiscal year on January 31, 1994, the
Federal Reserve initiated its first tightening move in almost five years. On
Friday, February 4, it pushed the Federal Funds Rate--the rate its member banks
charge one another to borrow short-term cash--higher by 0.25%, to 3.25%. Such a
mild degree of "snugging" is likely to have little direct influence on the
economy. Few borrowers in the money markets will be discouraged by a 3.25% cost
of funds. Nevertheless, by acting more preemptively, the Fed has signaled a
willingness to follow a more aggressive path toward monetary restraint.
Is this unfriendly to the bond markets? The answer is probably "yes" in
the short run and "no" in the long run. The bond markets tend to react
unfavorably to uncertainty, and participants now can no longer count on the
Fed's steady hand. We can only hope that the early application of some (yet
unknown) quantity of monetary discipline now, while inflation is relatively
quiescent, will reduce the necessity for stronger applications later, when
inflation is worse. Nevertheless, it will be very difficult for the bond
markets to rally much if at all in the face of tighter Fed policy. The market's
initial reaction to the early February tightening dosage can be metaphorically
characterized as "a mild grimace to the medicine."
* PORTFOLIO REVIEWS
Some of the Fund's Portfolios managed within the Vanguard Fixed Income Group
benefited, in varying degrees, from the gradual improvement in the economy. The
Short-Term and Intermediate-Term Corporate Portfolios both enjoyed somewhat
more positive principal performance than one could ascribe purely to their
market risk exposure. We owe it to a general improvement in the market's
perception of credit risk exposure. In short, as the economy recovered, so too
did the balance sheets and income statements of the corporations backing our
bond holdings. This improvement was translated into better bond price
performance as investors demanded a smaller yield premium for credit risk.
Particularly "blessed" was the banking and finance sector, a category we have
overweighted since the recovery began in 1991. These companies enjoyed two
types of benefits. First, their loan-loss statistics improved dramatically
during the recovery. Second, the differential between their "cost of funds" and
their lending rates remained ample (if not "fat") for a protracted interval.
The bond rating services, in essence, certified this improvement by upgrading
many of the credit ratings of bank and finance bonds.
On a less upbeat note, we regret to say that the Short-Term Corporate
Portfolio faced the first bond default in its history, when a bond issuer
representing 0.6% of total net assets filed for bankruptcy. The negative
effects of the default were largely offset by other positive portfolio
developments. Nonetheless, suffice it to say the default turned a very good
year into one that was merely "respectable." We pledge to do better in the
future.
On the positive side, the Short-Term Federal Portfolio's moderate weight
in government agency "planned amortization class" (PAC) obligations enjoyed
greater market acceptance, thereby producing some extra return "at the margin,"
as did our government-backed notes. In addition, Federal agency obligations of
all stripes enjoyed a period of
16
<PAGE> 19
shrinking yield differentials between themselves and equivalent-maturity
Treasury obligations. Such shrinkage produced somewhat higher principal returns
for most agency issues than their Treasury counterparts. All of the short-term
Portfolios spent most of the year with market price sensitivities tilted
somewhat longer than neutral, providing a performance fillip in addition to the
help provided by our sector- specific strategies. Conversely, the Long-Term
Treasury Portfolio remained somewhat lower in price sensitivity than its
benchmark and therefore paid a moderate price in 1993 when interest rates
declined. (As of this writing, the Portfolio's maturity remains shorter than
its benchmark and has begun to recover during the recent market downdraft.)
* IN SUMMARY
It remains incumbent on us to repeat a message by now quite familiar to our
long-term shareholders. That is, most of what we attempt in actively managing
your Portfolios carries a potential for a moderately small incremental
percentage gain or loss (although we rigorously define, disclose, monitor, and
attempt to control those risks). However, the big risks (or opportunities)
faced by the Portfolios are, first and foremost, their relative market risk
exposure, and second, their exposure to adverse changes in credit quality where
applicable.
The Vanguard Portfolios' well-defined maturity guidelines help make these
market exposure risks understandable and, in a relative sense, fairly
predictable. Where applicable, our credit research and very extensive
diversification of issuer exposure makes credit risk equally understandable and
to a degree, controllable. Even when we confront the rare risks of credit
downgrading or even default, the exceptionally broad diversity of our
Portfolios mitigates the impact of credit risk. Regardless, our Portfolios' low
costs will at all times and in all market climates provide a strong and steady
relative performance tailwind.
As a final note, you should know that, effective January 1, 1994, Anthony
R. Jiorle's management responsibilities for the Long-Term U.S. Treasury
Portfolio were reassigned to Robert F. Auwaerter, who has managed the other
Vanguard U.S. Treasury Portfolios since their inception. Mr. Jiorle will
continue to serve in his capacity as quantitative analyst and futures
strategist.
Sincerely,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Vice President
Vanguard Fixed Income Group
February 9, 1994
17
<PAGE> 20
TOTAL INVESTMENT RETURN
The following tables illustrate the lifetime results of single share
investments in six of the Portfolios through January 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 Shearson Lehman
Year Ended Net Asset Income Gains Capital Income Total "Baa" Grade
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 - 8.4
- -------------------------------------------------------------------------------------------------------------------
1981 8.50 1.18 -- - 8.2 +13.1 + 4.9 + 5.5
- -------------------------------------------------------------------------------------------------------------------
1982 7.88 1.24 -- - 7.3 +15.3 + 8.0 + 4.6
- -------------------------------------------------------------------------------------------------------------------
1983 8.96 1.28 -- +13.7 +18.6 +32.3 +42.8
- -------------------------------------------------------------------------------------------------------------------
1984 8.97 1.20 -- + 0.1 +14.1 +14.2 +14.4
- -------------------------------------------------------------------------------------------------------------------
1985 8.52 1.18 -- - 5.0 +14.4 + 9.4 +16.7
- -------------------------------------------------------------------------------------------------------------------
1986 8.84 1.14 -- + 3.8 +14.6 +18.4 +21.9
- -------------------------------------------------------------------------------------------------------------------
1987 9.33 1.08 $.118 + 6.9 +13.2 +20.1 +18.5
- -------------------------------------------------------------------------------------------------------------------
1988 8.53 1.01 -- - 8.6 +11.1 + 2.5 + 5.7
- -------------------------------------------------------------------------------------------------------------------
1989 8.44 1.02 -- - 1.1 +12.5 +11.4 + 8.1
- -------------------------------------------------------------------------------------------------------------------
1990 7.31 1.00 -- -13.4 +11.6 - 1.8 +11.0
- -------------------------------------------------------------------------------------------------------------------
1991 6.19 .90 -- -15.3 +12.1 - 3.2 + 6.9
- -------------------------------------------------------------------------------------------------------------------
1992 7.27 .77 -- +17.4 +13.9 +31.3 +17.6
- -------------------------------------------------------------------------------------------------------------------
1993 7.56 .73 -- + 4.0 +10.7 +14.7 +12.9
- -------------------------------------------------------------------------------------------------------------------
1994 8.14 .70 -- + 7.7 + 9.8 +17.5 +12.9
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN - 1.3% +13.1% +11.8% +12.3%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM U.S. TREASURY PORTFOLIO (BEGAN OPERATIONS MAY 19, 1986)
- -------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- -------------------------------------------------------------------------------------------------------------------
Capital Shearson Lehman
Year Ended Net Asset Income Gains Capital Income Total 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
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN* +2.2% +8.2% +10.4% +11.3%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Performance for the Fund and the Index begins on 5/31/86.
18
<PAGE> 21
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE PORTFOLIO (BEGAN OPERATIONS OCTOBER 29, 1982)
- -------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- -------------------------------------------------------------------------------------------------------------------
Capital Shearson Lehman
Year Ended Net Asset Income Gains Capital Income Total Intermediate
January 31 Value Dividends Distributions Return Return Return Gov't/Corp.
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (10/29/82) $10.00 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
1983 10.05 $ .270 -- +0.5% + 2.7% + 3.2% + 3.7%
- -------------------------------------------------------------------------------------------------------------------
1984 9.94 1.019 -- -1.1 +10.6 + 9.5 + 9.7
- -------------------------------------------------------------------------------------------------------------------
1985 10.17 1.067 -- +2.3 +11.7 +14.0 +14.4
- -------------------------------------------------------------------------------------------------------------------
1986 10.55 1.001 -- +3.7 +10.5 +14.2 +16.8
- -------------------------------------------------------------------------------------------------------------------
1987 10.67 .877 $.184 +2.9 + 8.7 +11.6 +13.6
- -------------------------------------------------------------------------------------------------------------------
1988 10.43 .761 -- -2.2 + 7.4 + 5.2 + 5.3
- -------------------------------------------------------------------------------------------------------------------
1989 10.23 .833 -- -1.9 + 8.2 + 6.3 + 5.3
- -------------------------------------------------------------------------------------------------------------------
1990 10.34 .895 -- +1.1 + 9.1 +10.2 +10.9
- -------------------------------------------------------------------------------------------------------------------
1991 10.50 .876 -- +1.5 + 9.0 +10.5 +11.0
- -------------------------------------------------------------------------------------------------------------------
1992 10.88 .804 -- +3.6 + 8.1 +11.7 +12.4
- -------------------------------------------------------------------------------------------------------------------
1993 10.99 .695 .165 +2.6 + 6.7 + 9.3 +10.3
- -------------------------------------------------------------------------------------------------------------------
1994 10.94 .605 .099 +0.4 + 5.7 + 6.1 + 7.9
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN +1.2% + 8.7% + 9.9% +10.7%
- -------------------------------------------------------------------------------------------------------------------
</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 Salomon Bros.
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% - 8.1%
- -------------------------------------------------------------------------------------------------------------------
1982 7.92 1.12 -- - 9.5 +13.5 + 4.0 + 0.6
- -------------------------------------------------------------------------------------------------------------------
1983 9.21 1.11 -- +16.3 +15.8 +32.1 +41.2
- -------------------------------------------------------------------------------------------------------------------
1984 9.20 1.07 -- - 0.1 +12.3 +12.2 +12.3
- -------------------------------------------------------------------------------------------------------------------
1985 9.25 1.08 -- + 0.5 +13.0 +13.5 +15.2
- -------------------------------------------------------------------------------------------------------------------
1986 9.92 1.04 -- + 7.2 +12.4 +19.6 +23.3
- -------------------------------------------------------------------------------------------------------------------
1987 10.10 .96 $.006 + 1.9 +10.3 +12.2 +14.1
- -------------------------------------------------------------------------------------------------------------------
1988 9.69 .89 -- - 4.1 + 9.4 + 5.3 + 6.5
- -------------------------------------------------------------------------------------------------------------------
1989 9.34 .88 -- - 3.6 + 9.4 + 5.8 + 6.5
- -------------------------------------------------------------------------------------------------------------------
1990 9.54 .88 -- + 2.1 + 9.9 +12.0 +12.5
- -------------------------------------------------------------------------------------------------------------------
1991 9.85 .85 -- + 3.2 + 9.7 +12.9 +13.5
- -------------------------------------------------------------------------------------------------------------------
1992 10.25 .83 -- + 4.1 + 8.9 +13.0 +13.1
- -------------------------------------------------------------------------------------------------------------------
1993 10.50 .78 -- + 2.4 + 8.0 +10.4 +10.4
- -------------------------------------------------------------------------------------------------------------------
1994 10.39 .64 -- - 1.0 + 6.2 + 5.2 + 6.1
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN + 0.3% +10.6% +10.9% +11.8%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 22
TOTAL INVESTMENT RETURN (continued)
<TABLE>
<CAPTION>
LONG-TERM CORPORATE PORTFOLIO (BEGAN OPERATIONS JULY 9, 1973)
- -------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- -------------------------------------------------------------------------------------------------------------------
Capital Salomon Bros.
Year Ended Net Asset Income Gains Capital Income Total High Grade
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 + 2.9
- -------------------------------------------------------------------------------------------------------------------
1982 7.06 .93 -- - 4.7 +13.2 + 8.5 - 1.0
- -------------------------------------------------------------------------------------------------------------------
1983 8.00 .96 -- +13.3 +15.0 +28.3 +44.3
- -------------------------------------------------------------------------------------------------------------------
1984 7.84 .95 -- - 2.0 +12.3 +10.3 + 9.3
- -------------------------------------------------------------------------------------------------------------------
1985 7.84 .96 -- 0.0 +13.4 +13.4 +16.0
- -------------------------------------------------------------------------------------------------------------------
1986 8.42 .92 -- + 7.4 +12.9 +20.3 +27.9
- -------------------------------------------------------------------------------------------------------------------
1987 8.77 .85 .123 + 5.6 +10.9 +16.5 +21.9
- -------------------------------------------------------------------------------------------------------------------
1988 8.11 .77 -- - 7.5 + 9.3 + 1.8 + 2.7
- -------------------------------------------------------------------------------------------------------------------
1989 7.91 .74 -- - 2.5 + 9.6 + 7.1 + 7.4
- -------------------------------------------------------------------------------------------------------------------
1990 8.00 .73 -- + 1.1 + 9.6 +10.7 +11.8
- -------------------------------------------------------------------------------------------------------------------
1991 8.02 .72 -- + 0.3 + 9.5 + 9.8 +10.5
- -------------------------------------------------------------------------------------------------------------------
1992 8.63 .71 -- + 7.6 + 9.5 +17.1 +16.1
- -------------------------------------------------------------------------------------------------------------------
1993 9.04 .68 .151 + 6.6 + 8.5 +15.1 +14.1
- -------------------------------------------------------------------------------------------------------------------
1994 9.36 .63 .259 + 6.5 + 7.3 +13.8 +12.7
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN 0.0% +10.0% +10.0% +10.0%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL PORTFOLIO (BEGAN OPERATIONS DECEMBER 31, 1987)
- -------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- -------------------------------------------------------------------------------------------------------------------
Capital Merrill Lynch
Year Ended Net Asset Income Gains Capital Income Total Agency
January 31 Value Dividends Distributions Return Return Return Composite
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (12/31/87) $10.00 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
1988 10.05 $.050 -- +0.5% +0.5% + 1.0% + 2.0%
- -------------------------------------------------------------------------------------------------------------------
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 +11.6
- -------------------------------------------------------------------------------------------------------------------
1993 10.38 .609 .162 +2.3 +6.2 + 8.5 + 7.9
- -------------------------------------------------------------------------------------------------------------------
1994 10.38 .522 .110 +1.1 +5.1 + 6.2 + 6.1
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN +1.2% +7.4% + 8.6% + 8.9%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
AVERAGE PERCENT OF
TOTAL SEC 30-DAY WEIGHTED QUALITY TOTAL
PORTFOLIO NET ASSETS ANNUALIZED YIELD MATURITY RATINGS INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY $ 828,570,000 6.0% 21.4 years Aaa 95
PORTFOLIO Temporary Cash Investments 5
Average Quality: Aaa ----
100
- --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM $ 3,166,070,000 6.4% 17.4 years Aaa 26
CORPORATE Aa1, Aa2, Aa3 16
PORTFOLIO A1, A2, A3 35
Average Quality: A1 Baa1, Baa2, Baa3 18
Ba1, Ba2 1
Temporary Cash Investments 4
----
100
- --------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD CORPORATE $ 2,624,964,000 8.0% 10.9 years Aaa 7
PORTFOLIO Baa1, Baa2, Baa3 12
Average Quality: Ba2 Ba1, Ba2, Ba3 31
B1, B2, B3 44
Temporary Cash Investments 6
----
100
- --------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM $ 84,937,000 5.4% 7.3 years Aaa 17
CORPORATE PORTFOLIO Aa1, Aa2, Aa3 15
Average Quality: Aa3 A1, A2, A3 32
Baa1, Baa2 24
Temporary Cash Investments 12
----
100
- --------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM $ 1,007,081,000 5.2% 6.7 years Aaa 99
U.S. TREASURY PORTFOLIO Temporary Cash Investments 1
----
Average Quality: Aaa 100
- --------------------------------------------------------------------------------------------------------------------------------
GNMA PORTFOLIO $ 7,043,210,000 6.0% 4.5 years Aaa 91
Average Quality: Aaa Temporary Cash Investments 9
----
100
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM FEDERAL $ 1,936,396,000 4.4% 2.6 years Aaa 97
PORTFOLIO Temporary Cash Investments 3
Average Quality: Aaa ----
100
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. $ 728,588,000 4.1% 2.5 years Aaa 98
TREASURY PORTFOLIO Temporary Cash Investments 2
Average Quality: Aaa ----
100
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE $ 3,573,009,000 4.6% 2.5 years Aaa 20
PORTFOLIO Aa1, Aa2, Aa3 14
Average Quality: Aa3 A1, A2, A3 48
Baa1, Baa2, Baa3 14
Temporary Cash Investments 4
----
100
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS $ 20,992,825,000
- --------------------------------------------------------------------------------------------------------------------------------
</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.
21
<PAGE> 24
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS
January 31, 1994
<TABLE>
<CAPTION>
Face Market
Amount Value
GNMA PORTFOLIO (000) (000)+
- -------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS (91.1%)
- -------------------------------------------------------------------
<S> <C> <C>
6.5%, 5/15/23-11/15/23 $ 201,766 $ 202,469
7.0%, 4/15/07-10/15/23 701,015 723,667
7.5%, 12/15/01-1/15/24 1,134,363 1,190,947
8.0%, 9/15/05-2/15/23 807,489 852,629
8.25%, 8/15/04-7/15/08 10,757 11,360
8.5%, 5/15/01-4/15/32 778,078 823,836
8.75%, 8/15/24 38,826 40,412
9.0%, 3/15/01-9/15/22 1,057,075 1,127,125
9.25%, 5/15/16-10/1/23 44,420 46,710
9.5%, 12/15/00-2/15/30 610,287 656,842
10.0%, 11/15/09-7/15/22 457,560 501,746
10.5%, 3/15/13-3/15/21 110,105 122,919
11.0%, 1/15/10-2/20/16 41,117 46,334
11.25%, 9/15/95-2/20/16 2,213 2,466
11.5%, 6/15/10-12/15/15 10,025 11,372
11.75%, 9/15/95-10/15/95 20 22
12.0%, 10/15/10-1/20/16 27,090 30,676
12.5%, 4/15/10-8/15/15 9,734 11,060
12.75%, 6/15/14-1/15/15 518 577
13.0%, 12/15/10-6/15/15 8,052 9,110
13.25%, 8/15/14-10/15/14 283 315
13.5%, 5/15/10-12/15/14 1,222 1,380
13.75%, 9/20/14 38 43
14.0%, 6/15/11-9/15/12 313 356
15.0%, 9/15/11-5/15/12 256 296
- -------------------------------------------------------------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OBLIGATIONS
(Cost $6,173,788) 6,414,669
- -------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (8.6%)
- -------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 3.17%, 2/1/94
(Cost $608,946) 608,946 608,946
- -------------------------------------------------------------------
TOTAL INVESTMENTS (99.7%)
(Cost $6,782,734) 7,023,615
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
- -------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.3%)
- -------------------------------------------------------------------
<S> <C>
Other Assets--Note C $ 53,269
Liabilities (33,674)
----------
19,595
- -------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------
Applicable to 677,732,992
outstanding $.001 par value
shares (authorized 850,000,000 shares) $7,043,210
- -------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.39
===================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------
Amount Per
(000) Share
------------ ---------
<S> <C> <C>
Paid in Capital--Note G $6,808,544 $10.05
Undistributed Net Investment Income -- --
Accumulated Net Realized
Losses--Note G (6,215) (.01)
Unrealized Appreciation of
Investments 240,881 .35
- -------------------------------------------------------------------
NET ASSETS $7,043,210 $10.39
- -------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
U.S. TREASURY CORPORATE
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
January 31, 1994 January 31, 1994
(000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . -- --
Interest . . . . . . . . . . . . . . . . . $ 57,459 $221,280
- ------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 57,459 221,280
- ------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . . 84 1,252
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . . 1,759 6,904
Marketing and Distribution . . . . . . . . . . . . . 230 748
Taxes (other than income taxes)--Note A . . . . . . . . . 70 251
Custodians' Fees . . . . . . . . . . . . . . . . . 28 128
Legal Fees . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . . . 6 9
Shareholders' Reports . . . . . . . . . . . . . . . . . . 53 145
Annual Meeting and Proxy Costs . . . . . . . . . . . . . 7 29
Directors' Fees and Expenses . . . . . . . . . . . . . . 4 15
- ------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . 2,241 9,481
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . 55,218 211,799
- ------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note D
Investment Securities Sold . . . . . . . . . . . . . . . 12,803 100,448
Futures Contracts . . . . . . . . . . . . . . . . . 1,094 --
- ------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . . 13,897 100,448
- ------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)--Note D
Investment Securities . . . . . . . . . . . . . . . . . . 59,289 87,879
Futures Contracts . . . . . . . . . . . . . . . . . (205) --
- ------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . 59,084 87,879
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . . . $128,199 $400,126
==================================================================================================================
</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, and the Report of Independent Accountants are included as an insert
to this Report.
23
<PAGE> 26
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
HIGH YIELD INTERMEDIATE-TERM
CORPORATE GNMA CORPORATE
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended November 1, 1993-
January 31, 1994 January 31, 1994 January 31, 1994
(000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . $ 276 -- --
Interest . . . . . . . . . . . . . . . . . . 222,499 $477,856 $ 737
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . 222,775 477,856 737
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . 1,455 1,454 --
The Vanguard Group--Note C
Management and Administrative . . . . . . 4,840 15,625 21
Marketing and Distribution . . . . . . . 589 1,965 --
Taxes (other than income taxes)--Note A . . . 203 606 1
Custodians' Fees . . . . . . . . . . . . . . 45 691 1
Legal Fees . . . . . . . . . . . . . . . . . 529 -- --
Auditing Fees . . . . . . . . . . . . . . . . 9 14 5
Shareholders' Reports . . . . . . . . . . . . 117 379 --
Annual Meeting and Proxy Costs . . . . . . . 21 76 --
Directors' Fees and Expenses . . . . . . . . 12 36 --
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . 7,820 20,846 28
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 214,955 457,010 709
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note D
Investment Securities Sold . . . . . . . . . 73,388 16,031 (31)
Futures Contracts . . . . . . . . . . . . . . -- -- --
- -------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . 73,388 16,031 (31)
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Note D
Investment Securities . . . . . . . . . . . . 105,882 (91,310) 504
Futures Contracts . . . . . . . . . . . . . . -- -- --
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . 105,882 (91,310) 504
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . $394,225 $381,731 $1,182
===================================================================================================================
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
INTERMEDIATE-TERM SHORT-TERM
U.S. TREASURY FEDERAL
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
January 31, 1994 January 31, 1994
(000) (000)
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
<S> <C> <C>
Dividends . . . . . . . . . . . . . . . . . . . . . . . . -- --
Interest . . . . . . . . . . . . . . . . . . . . . . . . $51,731 $ 95,269
- ------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . 51,731 95,269
- ------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . . 79 173
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . . 1,834 3,666
Marketing and Distribution . . . . . . . . . . . . . 252 574
Taxes (other than income taxes)--Note A . . . . . . . . . 73 143
Custodians' Fees . . . . . . . . . . . . . . . . . . . . 11 55
Legal Fees . . . . . . . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . 7 8
Shareholders' Reports . . . . . . . . . . . . . . . . . . 39 92
Annual Meeting and Proxy Costs . . . . . . . . . . . . . 11 20
Directors' Fees and Expenses . . . . . . . . . . . . . . 4 9
- ------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . 2,310 4,740
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . 49,421 90,529
- ------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note D
Investment Securities Sold . . . . . . . . . . . . . . . 40,142 17,705
Futures Contracts . . . . . . . . . . . . . . . . . . . (2,550) --
- ------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . . 37,592 17,705
- ------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Note D
Investment Securities . . . . . . . . . . . . . . . . . . (6,840) (569)
Futures Contracts . . . . . . . . . . . . . . . . . . . 423 --
- ------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . . . . (6,417) (569)
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . $80,596 $107,665
==================================================================================================================
</TABLE>
25
<PAGE> 28
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM
U.S. TREASURY CORPORATE
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
January 31, 1994 January 31, 1994
(000) (000)
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
<S> <C> <C>
Dividends . . . . . . . . . . . . . . . . . . . . . . . . -- --
Interest . . . . . . . . . . . . . . . . . . . . . . . . $31,057 $184,885
- ------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . 31,057 184,885
- ------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . . 57 298
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . . 1,301 6,520
Marketing and Distribution . . . . . . . . . . . . . 186 956
Taxes (other than income taxes)--Note A . . . . . . . . . 50 248
Custodians' Fees . . . . . . . . . . . . . . . . . . . . 11 93
Legal Fees . . . . . . . . . . . . . . . . . . . . . . . -- 63
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . 6 9
Shareholders' Reports . . . . . . . . . . . . . . . . . . 26 142
Annual Meeting and Proxy Costs . . . . . . . . . . . . . 7 30
Directors' Fees and Expenses . . . . . . . . . . . . . . 3 16
- ------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . 1,647 8,375
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . 29,410 176,510
- ------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note D
Investment Securities Sold . . . . . . . . . . . . . . . 6,380 24,864
Futures Contracts . . . . . . . . . . . . . . . . . . . (1,828) (10,027)
- ------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . . 4,552 14,837
- ------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Note D
Investment Securities . . . . . . . . . . . . . . . . . . (742) (2,916)
Futures Contracts . . . . . . . . . . . . . . . . . . . 304 2,295
- ------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . (438) (621)
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . $33,524 $190,726
==================================================================================================================
</TABLE>
26
<PAGE> 29
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
U.S.TREASURY PORTFOLIO CORPORATE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended
JANUARY 31, January 31, JANUARY 31, January 31,
1994 1993 1994 1993
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income . . . . . . . . $ 55,218 $ 62,088 $ 211,799 $ 182,894
Realized Net Gain (Loss)--Note D . . . 13,897 51,880 100,448 55,088
Change in Unrealized Appreciation
(Depreciation)--Note D . . . . . . 59,084 (2,317) 87,879 98,848
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . 128,199 111,651 400,126 336,830
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . (55,218) (62,088) (211,799) (182,894)
Realized Net Gain . . . . . . . . . . . . (13,707) (58,968) (86,017) (43,633)
- -------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . (68,925) (121,056) (297,816) (226,527)
- -------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . 220,546 262,707 787,811 825,498
--In Lieu of Cash Distributions 54,090 102,403 239,014 179,228
--Exchange . . . . . . . . . . . 139,197 246,479 367,355 447,512
Redeemed --Regular . . . . . . . . . . . (146,329) (135,863) (432,784) (276,860)
--Exchange . . . . . . . . . . . (372,634) (424,880) (660,165) (515,570)
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions (105,130) 50,846 301,231 659,808
- -------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . (45,856) 41,441 403,541 770,111
- -------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . 874,426 832,985 2,762,529 1,992,418
- -------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . $828,570 $874,426 $3,166,070 $2,762,529
=============================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . $ .685 $ .733 $ .632 $ .680
Realized Net Gain . . . . . . . . $ .176 $ .700 $ .259 $ .151
- -------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . 33,901 50,363 123,115 144,040
Issued in Lieu of Cash Distributions 5,104 10,296 25,580 20,337
Redeemed . . . . . . . . . . . . . (49,022) (55,646) (115,961) (89,673)
- -------------------------------------------------------------------------------------------------------------
(10,017) 5,013 32,734 74,704
- -------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-
HIGH YIELD TERM
CORPORATE GNMA CORPORATE
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended
JANUARY 31, January 31, JANUARY 31, January 31, NOVEMBER 1, 1993-
1994 1993 1994 1993 JANUARY 31, 1994
(000) (000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net Investment Income . . . . . . . . $ 214,955 $ 194,885 $ 457,010 $ 459,849 $ 709
Realized Net Gain (Loss)--Note D . . . 73,388 66,674 16,031 26,281 (31)
Change in Unrealized Appreciation
(Depreciation)--Note D . . . . . . 105,882 4,578 (91,310) 119,707 504
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . 394,225 266,137 381,731 605,837 1,182
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . (214,955) (194,885) (457,010) (459,849) (709)
Realized Net Gain . . . . . . . . . . . . -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . (214,955) (194,885) (457,010) (459,849) (709)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . 429,778 787,936 1,625,726 2,474,245 11,955
--In Lieu of Cash Distributions 155,738 143,271 341,948 354,526 554
--Exchange . . . . . . . . . . 435,507 876,639 525,223 754,010 80,109
Redeemed --Regular . . . . . . . . . . . (305,037) (432,911) (1,308,458) (901,211) (2,211)
--Exchange . . . . . . . . . . (454,744) (855,218) (1,232,541) (868,456) (5,943)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 261,242 519,717 (48,102) 1,813,114 84,464
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . 440,512 590,969 (123,381) 1,959,102 84,937
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . 2,184,452 1,593,483 7,166,591 5,207,489 --
- -------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . $2,624,964 $2,184,452 $7,043,210 $7,166,591 $84,937
===============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . $ .695 $ .727 $ .641 $ .778 $ .125
Realized Net Gain . . . . . . . . -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . 110,276 225,049 205,094 311,294 9,222
Issued in Lieu of Cash Distributions 19,717 19,339 32,680 34,183 56
Redeemed . . . . . . . . . . . . . (96,776) (174,554) (242,896) (170,723) (817)
- -------------------------------------------------------------------------------------------------------------------------------
33,217 69,834 (5,122) 174,754 8,461
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
<TABLE>
- -------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM SHORT-TERM
U.S. TREASURY PORTFOLIO FEDERAL PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended
JANUARY 31, January 31, JANUARY 31, January 31,
1994 1993 1994 1993
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . $ 49,421 $ 28,721 $ 90,529 $ 86,511
Realized Net Gain (Loss)--Note D . . . . . 37,592 2,192 17,705 14,009
Change in Unrealized Appreciation
(Depreciation)--Note D . . . . . . . . (6,417) 25,935 (569) 18,620
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . 80,596 56,848 107,665 119,140
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . (49,421) (28,721) (90,529) (86,511)
Realized Net Gain . . . . . . . . (36,377) (936) (19,891) (22,346)
- -------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . (85,798) (29,657) (110,420) (108,857)
- -------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . 432,961 437,200 748,469 880,136
--In Lieu of Cash Distributions . . 68,732 22,348 93,218 90,683
--Exchange . . . . . . . . 247,710 297,374 200,040 325,115
Redeemed --Regular . . . . . . . . (141,247) (81,499) (468,457) (348,551)
--Exchange . . . . . . . . (268,780) (219,642) (322,602) (543,159)
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . 339,376 455,781 250,668 404,224
- -------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . 334,174 482,972 247,913 414,507
- -------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . 672,907 189,935 1,688,483 1,273,976
- -------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . $1,007,081 $672,907 $1,936,396 $1,688,483
=============================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . $ .617 $ .676 $ .522 $ .609
Realized Net Gain . . . . . . . . $ .413 $ .017 $ .110 $ .162
- -------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . 61,461 70,323 90,760 116,809
Issued in Lieu of Cash
Distributions . . . . . . . . 6,305 2,131 8,944 8,823
Redeemed . . . . . . . . (37,038) (28,743) (75,737) (86,642)
- -------------------------------------------------------------------------------------------------------------
30,728 43,711 23,967 38,990
- -------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM
U.S. TREASURY CORPORATE
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended
JANUARY 31, January 31, JANUARY 31, January 31,
1994 1993 1994 1993
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income . . . . . . . . . . . $ 29,410 $ 17,549 $ 176,510 $ 152,307
Realized Net Gain (Loss)--Note D. . . . . . 4,552 3,402 14,837 37,509
Change in Unrealized Appreciation
(Depreciation)--Note D . . . . . . . . . (438) 8,691 (621) 21,653
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . 33,524 29,642 190,726 211,469
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . (29,410) (17,549) (176,510) (152,307)
Realized Net Gain . . . . . . . . (4,906) (1,799) (29,029) (36,487)
- -------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . (34,316) (19,348) (205,539) (188,794)
- -------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . 329,379 354,580 1,519,236 1,376,528
--In Lieu of Cash Distributions . 30,424 16,756 174,887 160,627
--Exchange . . . . . . . 162,763 261,645 587,118 599,135
Redeemed --Regular . . . . . . . (188,793) (96,526) (936,720) (613,696)
--Exchange . . . . . . . (130,120) (122,696) (567,308) (645,726)
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease)
from Capital Share Transactions 203,653 413,759 777,213 876,868
- -------------------------------------------------------------------------------------------------------------
Total Increase (Decrease). . . . . . 202,861 424,053 762,400 899,543
- -------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . 525,727 101,674 2,810,609 1,911,066
- -------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . $728,588 $525,727 $3,573,009 $2,810,609
=============================================================================================================
(1) Distributions Per Share
Net Investment Income. . . . . . . . $ .486 $ .528 $ .605 $ .695
Realized Net Gain. . . . . . . . . . $ .079 $ .042 $ .099 $ .165
- -------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . 47,041 60,140 191,689 180,726
Issued in Lieu of Cash
Distributions. . . . . . . . . . 2,913 1,628 15,933 14,753
Redeemed . . . . . . . . . . . . . . (30,479) (21,328) (136,865) (115,338)
- -------------------------------------------------------------------------------------------------------------
19,475 40,440 70,757 80,141
- -------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LONG-TERM U.S. TREASURY PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
---------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . $10.04 $10.14 $ 9.74 $9.53 $9.28
INVESTMENT OPERATIONS ------ ------ ------- ----- -----
Net Investment Income . . . . . . . . .685 .733 .763 .776 .781
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . .886 .600 .400 .210 .250
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS . 1.571 1.333 1.163 .986 1.031
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . (.685) (.733) (.763) (.776) (.781)
Distributions from Realized Capital Gains (.176) (.700) -- -- --
------ ------ ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . (.861) (1.433) (.763) (.776) (.781)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . $10.75 $10.04 $10.14 $9.74 $9.53
===============================================================================================================================
TOTAL RETURN . . . . . . . . +16.09% +14.12% +12.44% +11.00% +11.33%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . $829 $874 $833 $722 $456
Ratio of Expenses to Average Net Assets . . . .26% .27% .26% .30% .28%
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . 6.44% 7.26% 7.72% 8.29% 8.08%
Portfolio Turnover Rate . . . . . . . . 7% 170% 89% 147% 83%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM CORPORATE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
----------------------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . $9.04 $8.63 $8.02 $8.00 $7.91
INVESTMENT OPERATIONS ----- ----- ----- ----- -----
Net Investment Income . . . . . . . . .632 .680 .706 .720 .732
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . .579 .561 .610 .020 .090
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS . 1.211 1.241 1.316 .740 .822
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . (.632) (.680) (.706) (.720) (.732)
Distributions from Realized Capital Gains (.259) (.151) -- -- --
------ ------ ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . (.891) (.831) (.706) (.720) (.732)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . $9.36 $9.04 $8.63 $8.02 $8.00
===============================================================================================================================
TOTAL RETURN . . . . . . . . +13.83% +15.06% +17.09% +9.81% +10.67%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . $3,166 $2,763 $1,992 $1,254 $954
Ratio of Expenses to Average Net Assets . . . .30% .31% .31% .37% .34%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . 6.71% 7.68% 8.46% 9.16% 9.07%
Portfolio Turnover Rate . . . . . . . . 77% 50% 72% 62% 70%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
HIGH YIELD CORPORATE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . $7.56 $7.27 $6.19 $7.31 $8.44
----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . .695 .727 .770 .904 1.004
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . .580 .290 1.080 (1.120) (1.130)
---- ---- ----- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . 1.275 1.017 1.850 (.216) (.126)
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . (.695) (.727) (.770) (.904) (1.004)
Distributions from Realized Capital Gains -- -- -- -- --
----- ----- ----- ----- ------
TOTAL DISTRIBUTIONS . . . . . . . (.695) (.727) (.770) (.904) (1.004)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . $8.14 $7.56 $7.27 $6.19 $7.31
===============================================================================================================================
TOTAL RETURN . . . . . . . . +17.54% +14.68% +31.27% -3.21% -1.84%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) . . . . . $2,625 $2,184 $1,593 $699 $828
Ratio of Expenses to Average Net Assets . . . .32% .34% .34% .40% .38%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . 8.81% 9.82% 11.13% 13.35% 12.56%
Portfolio Turnover Rate . . . . . . . . 51% 83% 44% 61% 41%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GNMA PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . $10.50 $10.25 $ 9.85 $9.54 $9.34
------ ------ ------- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . .641 .778 .831 .855 .878
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . (.110) .250 .400 .310 .200
------ ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS . .531 1.028 1.231 1.165 1.078
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . (.641) (.778) (.831) (.855) (.878)
Distributions from Realized Capital Gains -- -- -- -- --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . (.641) (.778) (.831) (.855) (.878)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . $10.39 $10.50 $10.25 $9.85 $9.54
===============================================================================================================================
TOTAL RETURN . . . . . . . . +5.18% +10.40% +13.00% +12.85% +11.98%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) . . . . . $7,043 $7,167 $5,207 $2,711 $2,128
Ratio of Expenses to Average Net Assets . . . .28% .29% .29% .34% .31%
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . 6.19% 7.38% 8.22% 8.95% 9.25%
Portfolio Turnover Rate . . . . . . . . 2% 7% 1% 1% 9%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
INTERMEDIATE-TERM CORPORATE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
NOVEMBER 1, 1993-
For a Share Outstanding Throughout The Period JANUARY 31, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $10.00
------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . .125
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . .040
------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . . . .165
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . . . (.125)
Distributions from Realized Capital Gains . . . . . . . . . . . . . . . . . . . --
------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . (.125)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . $10.04
=============================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.66%
- -------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . . . $85
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . . . . .25%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 74%
- -------------------------------------------------------------------------------------------------------------
*Annualized.
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
---------------------- October 28, 1991-
For a Share Outstanding Throughout Each Period 1994 1993 January 31, 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . $10.79 $10.19 $10.00
------ ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . .617 .676 .170
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . .443 .617 .190
------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS . 1.060 1.293 .360
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . (.617) (.676) (.170)
Distributions from Realized Capital Gains (.413) (.017) --
------ ------ -------
TOTAL DISTRIBUTIONS . . . . . . . (1.030) (.693) (.170)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . $10.82 $10.79 $10.19
=======================================================================================================================
TOTAL RETURN . . . . . . . . +10.09% +13.14% +3.59%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . $1,007 $673 $190
Ratio of Expenses to Average Net Assets . . . .26% .26% .26%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . 5.55% 6.44% 6.47%*
Portfolio Turnover Rate . . . . . . . . 118% 123% 32%
- -----------------------------------------------------------------------------------------------------------------------
*Annualized.
</TABLE>
33
<PAGE> 36
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
---------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . $10.38 $10.31 $10.08 $ 9.89 $9.78
------ ------ ------ ------- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . .522 .609 .720 .801 .842
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . .110 .232 .307 .190 .110
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS . .632 .841 1.027 .991 .952
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . (.522) (.609) (.720) (.801) (.842)
Distributions from Realized Capital Gains (.110) (.162) (.077) -- --
------ ------ ------ ----- -----
TOTAL DISTRIBUTIONS . . . . . . . (.632) (.771) (.797) (.801) (.842)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . $10.38 $10.38 $10.31 $10.08 $9.89
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . +6.23% +8.49% +10.59% +10.46% +10.09%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . $1,936 $1,688 $1,274 $508 $228
Ratio of Expenses to Average Net Assets . . . .26% .27% .26% .30% .28%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . 4.98% 5.88% 6.98% 8.06% 8.59%
Portfolio Turnover Rate . . . . . . . . 49% 70% 111% 141% 133%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT TERM U.S. TREASURY PORTFOLIO
- ---------------------------------------------------------------------------------------------------
Year Ended January 31,
---------------------- October 28, 1991-
For a Share Outstanding Throughout Each Period 1994 1993 January 31, 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . $10.41 $10.12 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . .486 .528 .140
Net Realized and Unrealized
Gain (Loss) on Investments . . . . . . .079 .332 .120
---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS . .565 .860 .260
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . (.486) (.528) (.140)
Distributions from Realized Capital Gains (.079) (.042) --
------ ------ -----
TOTAL DISTRIBUTIONS . . . . . . . (.565) (.570) (.140)
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . $10.41 $10.41 $10.12
===================================================================================================
TOTAL RETURN . . . . . . . . +5.54% +8.74% +2.60%
- ---------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . $729 $526 $102
Ratio of Expenses to Average Net Assets . . . .26% .26% .26%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . 4.64% 5.12% 5.22%*
Portfolio Turnover Rate . . . . . . . . 86% 71% 40%
- ---------------------------------------------------------------------------------------------------
*Annualized.
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
---------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . $10.99 $10.88 $10.50 $10.34 $10.23
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . .605 .695 .804 .876 .895
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . .049 .275 .380 .160 .110
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . .654 .970 1.184 1.036 1.005
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . (.605) (.695) (.804) (.876) (.895)
Distributions from Realized Capital Gains (.099) (.165) -- -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . (.704) (.860) (.804) (.876) (.895)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . $10.94 $10.99 $10.88 $10.50 $10.34
===============================================================================================================================
TOTAL RETURN . . . . . . . . +6.11% +9.29% +11.70% +10.47% +10.18%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . $3,573 $2,811 $1,911 $829 $597
Ratio of Expenses to Average Net Assets . . . .26% .27% .26% .31% .28%
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . 5.48% 6.33% 7.44% 8.48% 8.70%
Portfolio Turnover Rate . . . . . . . . 61% 71% 99% 107% 121%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 38
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 (formerly Investment Grade
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 Short-Term Corporate Portfolio and the Short-Term,
Intermediate-Term, and Long-Term U.S. Treasury Portfolios 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.
36
<PAGE> 39
*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
year ended January 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 January 31, 1994, the Fund had contributed capital of
$3,348,000 to Vanguard (included in Other Assets), representing 16.7% of
Vanguard's capitalization. The Fund's directors and officers are also
directors and officers of Vanguard.
*D. During the period ended January 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 $1,273,629 $1,054,532
HIGH YIELD CORPORATE 1,225,121 1,015,916
INTERMEDIATE-TERM CORPORATE 71,362 --
SHORT-TERM CORPORATE 1,918,530 1,172,630
- -------------------------------------------------------
</TABLE>
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(000)
----------------------
Portfolio Purchases Sales
- -------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY $ 56,541 $ 203,118
LONG-TERM CORPORATE 1,211,584 1,253,810
HIGH YIELD CORPORATE 190,085 192,354
GNMA 2,358,848 165,338
INTERMEDIATE-TERM CORPORATE 53,875 45,592
INTERMEDIATE-TERM U.S. TREASURY 1,324,134 1,011,164
SHORT-TERM FEDERAL 1,496,313 872,619
SHORT-TERM U.S. TREASURY 736,063 525,848
SHORT-TERM CORPORATE 886,991 742,899
- -------------------------------------------------------
</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.
At January 31, 1994, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(000)
--------------------------------------
Net
Appreciated Depreciated Unrealized
Portfolio Securities Securities Appreciation
- ---------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM U.S. TREASURY $ 98,189 $ (491) $ 97,698
LONG-TERM CORPORATE 282,233 (6,550) 275,683
HIGH YIELD CORPORATE 191,265 (788) 190,477
GNMA 248,187 (7,306) 240,881
INTERMEDIATE-TERM CORPORATE 523 (19) 504
INTERMEDIATE-TERM U.S. TREASURY 19,986 (1,789) 18,197
SHORT-TERM FEDERAL 31,144 (1,146) 29,998
SHORT-TERM U.S. TREASURY 8,231 (99) 8,132
SHORT-TERM CORPORATE 59,636 (1,176) 58,460
- ---------------------------------------------------------------------
</TABLE>
37
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (continued)
*E. The market values of securities on loan to broker dealers at January 31,
1994, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(000)
---------------------------------
Collateral Received
---------------------------
Market
Market Value of
Value of U.S.
Loaned Treasury
Portfolio Securities Cash Securities
- ---------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM U.S. TREASURY $113,524 $ 24,370 $ 91,700
LONG-TERM CORPORATE 28,349 -- 28,938
HIGH YIELD CORPORATE 195,107 199,767 --
INTERMEDIATE-TERM U.S. TREASURY 256,060 48,925 214,190
SHORT-TERM CORPORATE 59,366 -- 61,577
- ---------------------------------------------------------------------
</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.
*F. At January 31, 1994, the aggregate settlement value and unrealized
appreciation (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 March 1994 were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
(000)
------------------------
Aggregate Unrealized
Settlement Appreciation
Portfolio Value (Depreciation)
- -----------------------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY
LONG POSITIONS $ 62,603 $1,375
SHORT POSITIONS 87,196 (1,807)
INTERMEDIATE-TERM U.S. TREASURY
LONG POSITIONS 69,408 1,624
SHORT POSITIONS 96,697 (1,612)
SHORT-TERM U.S. TREASURY
LONG POSITIONS 50,459 1,179
SHORT POSITIONS 70,324 (1,170)
SHORT-TERM CORPORATE
LONG POSITIONS 257,112 5,870
SHORT POSITIONS 357,989 (6,016)
- -----------------------------------------------------------------------
</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 $1,848,000,
$949,000, $530,000, and $2,895,000, respectively.
*G. Effective in 1993, generally accepted accounting principles require that
differences between undistributed net investment income or accumulated net
realized gains/losses for financial reporting and tax purposes, if
permanent, be reclassified to/from paid in capital. In connection with the
adoption of this accounting method, the following prior years' permanent
book/tax differences have been reclassified:
<TABLE>
<CAPTION>
- ------------------------------------------------------
Increase (Decrease)
Paid in Capital
Portfolio (000)
- ------------------------------------------------------
<S> <C>
LONG-TERM CORPORATE
OVERDISTRIBUTED NET INVESTMENT INCOME $ (126)
ACCUMULATED NET REALIZED GAINS (5,653)
HIGH YIELD CORPORATE
OVERDISTRIBUTED NET INVESTMENT INCOME (242)
ACCUMULATED NET REALIZED LOSSES 3,948
GNMA
ACCUMULATED NET REALIZED LOSSES 9,810
SHORT-TERM CORPORATE
ACCUMULATED NET REALIZED GAINS 4,476
- ------------------------------------------------------
</TABLE>
These reclassifications have no effect on net assets or net asset value per
share.
38
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Vanguard Fixed Income Securities Fund
GNMA Portfolio
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the GNMA Portfolio of Vanguard Fixed Income Securities Fund (the "Fund") at
January 31, 1994, the results of its operations, the changes in its net assets
and the financial highlights for each of the respective periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at January 31, 1994 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
We have also audited the financial statements of the other Portfolios included
in the Fund at January 31, 1994 and we have issued an unqualified opinion
thereon. An insert to this Annual Report containing our report on the financial
statements of the other Portfolios is available from the Fund.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 22, 1994
39
<PAGE> 42
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
40
<PAGE> 43
(Continued from inside front cover)
toward those of the 1970s. However, the current level of inflation suggests
that future real returns may prove to be satisfactory. Looking forward, the
main risks to the investor are two: (1) that yields on financial assets will
rise sharply, reducing the prices of stocks and bonds alike; and (2) that
inflation, presently at moderate levels, will accelerate.
SOME COURSES OF ACTION
What, if any, present action should be taken by investors to deal with these
two major risks? Should your allocation of assets among stock funds, bond
funds, and money market funds be adjusted? Here are some reasonable courses of
action to consider:
*For long-term investors who have built a substantial balanced portfolio of
stock, bond, and money market funds, stay the course. Even if withdrawing
from the stock market proves to be justified, the next decision--when to
return--will one day be required. "Being right twice" is no mean
challenge.
*For long-term investors gradually accumulating assets for, say, retirement,
stay your present course. Continue to invest regularly. By doing so, you
buy more shares of a mutual fund when its price falls, and fewer shares
when its price rises, virtually assuring a reasonable average cost.
*For risk-averse investors who are highly confident that stock prices are "too
high," make only marginal--not "all or nothing"--changes in your portfolio
balance. Given the perils of predicting the future, any changes should be
limited to, say, 15 percentage points. That is, if your normal portfolio
allocation is 60% in stock funds, it might be reduced to 45%; if 85%, to
70%.
*For investors who simply must have more income, never lose sight of the added
principal risk involved in shifting from money market funds to bond funds.
Long-term bond funds provide a generous and durable income stream, but
their prices are highly volatile. Short-term and intermediate-term bond
funds offer a "middle way" of increasing income with more modest risk to
principal.
*For investors who are tempted to find an "easy way" to higher returns, never
forget that risk and reward go hand in hand. Precipitously replacing
certificates of deposit with broad-based common stock funds verges on the
irrational. Funds investing in other securities markets--emerging nations,
international stocks and bonds, and small U.S. companies--carry their own
special risks. Generally, limit such alternative investments to, say, 20%
of your total portfolio.
For all investors, be prepared for sharp interim swings in stock and bond
prices. The central tenet of investing is "prices fluctuate," and sensible
long-term investors simply must take such fluctuations in their stride.
Successful investing is as much a function of your own discipline and
equanimity as it is of the returns available in the securities markets.
THREE ESSENTIAL PRINCIPLES
As we confront the brave new world of investing that may well lie ahead in the
coming decade--and it is important to think in decade-length terms--we would
underscore three caveats:
1. Have "rational expectations" for future returns. At prices prevailing today,
it seems highly unlikely that the returns enjoyed by investors in the past
decade will be repeated in the coming decade.
2. Maintain a balanced portfolio consisting of stock, bond, and money market
funds. Each asset class has its own risk and reward characteristics. By
allocating your resources among the three asset classes according to your
own requirements, you can build a portfolio providing appropriate elements
of capital appreciation, capital conservation, and current income.
3. In balancing risk against reward, be sure to consider cost. Many mutual
funds carry hefty sales charges or high expense ratios, or both. Other
factors held equal, expenses reduce returns, dollar for dollar. Put
another way, high-cost funds must select investments with higher
prospective gross returns--which entail higher risks--to match the net
returns earned by low-cost funds.
This brief Annual Report essay can provide only an elementary look at the
challenges investors face today. History can give us perspective, but it cannot
give us performance. Famed British economist Lord Keynes had it right when he
said, "the inevitable never happens. It is the unexpected always."
<PAGE> 44
Vanguard Fixed Income Securities Fund
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS
January 31, 1994
<TABLE>
<CAPTION>
Face Market
LONG-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (93.1%)
- ---------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY BONDS
12.0%, 5/15/05 $ 6,000 $ 9,090
10.75%, 8/15/05 6,000 8,505
9.375%, 2/15/06 7,000 9,169
11.75%, 2/15/10 2,000 2,953
10.0%, 5/15/10 3,000 4,021
12.75%, 11/15/10 6,000 9,498
13.875%, 5/15/11 6,000 10,161
14.0%, 11/15/11 7,000 12,056
10.375%, 11/15/12 16,000 22,475
12.0%, 8/15/13 20,000 31,466
13.25%, 5/15/14 8,000 13,741
12.5%, 8/15/14 8,000 13,159
11.75%, 11/15/14 9,000 14,148
11.25%, 2/15/15 14,000 22,017
10.625%, 8/15/15 11,000 16,526
9.875%, 11/15/15 12,000 16,969
9.25%, 2/15/16 12,000 16,101
7.25%, 5/15/16 29,000 32,000
7.5%, 11/15/16 30,000 33,970
8.75%, 5/15/17 30,000 38,545
8.875%, 8/15/17 22,000 28,617
9.125%, 5/15/18 15,000 20,032
9.0%, 11/15/18 16,000 21,145
8.875%, 2/15/19 31,000 40,537
8.125%, 8/15/19 38,000 46,152
8.5%, 2/15/20 17,000 21,489
8.75%, 5/15/20 17,000 22,060
8.75%, 8/15/20 34,000 44,195
7.875%, 2/15/21 17,000 20,188
8.125%, 5/15/21 20,000 24,428
8.125%, 8/15/21 19,000 23,216
8.0%, 11/15/21 51,000 61,606
7.25%, 8/15/22 16,000 17,788
7.125%, 2/15/23 27,500 30,284
AID INDONESIA
(U.S. Government Guaranteed)
8.9%, 6/1/21 5,000 5,945
U.S. GOVERNMENT GUARANTEED
DEVELOPMENT CO.
8.75%, 11/1/06 1,809 1,971
8.45%, 12/1/06 1,490 1,606
8.45%, 1/1/07 1,221 1,316
8.2%, 3/1/07 1,759 1,876
8.7%, 4/1/07 581 636
- ---------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $673,959) 771,657
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (5.2%)
- ---------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
3.17%, 2/1/94
(Cost $42,563) $42,563 $ 42,563
TOTAL INVESTMENTS (98.3%)
(Cost $716,522) 814,220
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.7%)
- ---------------------------------------------------------------------
Other Assets--Notes C and E 44,181
Liabilities--Note E (29,831)
---------
14,350
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 77,104,338 outstanding
$.001 par value shares
(authorized 300,000,000 shares) $828,570
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.75
=====================================================================
+See Note A to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
Amount Per
(000) Share
---------- -------
<S> <C> <C>
Paid in Capital $731,535 $ 9.49
Undistributed Net Investment Income -- --
Overdistributed Net Realized Gains (231) --
Unrealized Appreciation of Investments 97,266 1.26
- ---------------------------------------------------------------------
NET ASSETS $828,570 $10.75
- ---------------------------------------------------------------------
</TABLE>
THE PORTFOLIO LISTINGS BEGIN ON THE FOLLOWING PAGES:
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 . . . . . . . . . 11
SHORT-TERM FEDERAL PORTFOLIO . . . . . . . . . . . . . . . 12
SHORT-TERM U.S. TREASURY PORTFOLIO . . . . . . . . . . . . 14
SHORT-TERM CORPORATE PORTFOLIO . . . . . . . . . . . . . . 15
1
<PAGE> 45
<TABLE>
<CAPTION>
Face Market
LONG-TERM Rating(1) Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
CORPORATE BONDS (79.7%)
- ---------------------------------------------------------------------------------------
BANKS & FINANCE (29.2%)
<S> <C> <C> <C>
African Development Bank
7.75%, 12/15/01 Aa1 $13,000 $ 14,384
H.F. Ahmanson Co.
8.25%, 10/1/02 Baa2 10,000 11,178
Allstate Corp.
7.5%, 6/15/13 A2 10,000 10,419
AMBAC, Inc.
7.5%, 5/1/23 Aa1 25,000 26,071
American Express Master
Trust 92-2
6.6%, 7/15/99 Aaa 25,000 26,195
Asian Development Bank
9.125%, 6/1/00 Aaa 15,000 17,822
Associates Corp.
5.25%, 9/1/98 A1 16,000 15,923
7.95%, 2/15/10 A1 15,000 17,080
Banc One
9.875%, 3/1/09 A1 10,800 13,751
BankAmerica
7.5%, 10/15/02 A3 10,000 10,689
10.0%, 2/1/03 A3 20,000 24,799
Bank of Boston
6.625%, 12/1/05 Baa2 48,000 48,102
Barclays North America
Capital Corp.
10.5%, 12/15/17 Aa3 10,000 12,126
Barnett Banks, Inc.
8.5%, 1/15/97 Baa1 20,000 23,373
British Telecom Finance
9.625%, 2/15/19 Aaa 17,000 20,182
Chase Manhattan Corp.
6.5%, 1/15/09 Baa2 10,000 9,758
Chemical Banking Corp.
8.625%, 5/1/02 Baa1 10,000 11,509
Chrysler Financial Corp.
5.625%, 1/15/99 Baa2 15,000 14,974
CIGNA Corp.
6.375%, 1/15/06 A2 20,000 19,930
7.65%, 3/1/23 A2 25,000 25,741
Continental Bank
9.875%, 6/15/96 Baa3 11,800 13,095
12.5%, 4/1/01 Baa3 15,000 20,381
11.25%, 7/1/01 Baa3 6,000 7,147
7.25%, 3/1/03 Baa1 25,000 25,852
Countrywide Funding MTN
8.25%, 7/15/02 Baa1 20,000 22,246
Dean Witter Discover & Co.
6.875%, 3/1/03 A3 11,000 11,439
European Investment Bank
9.125%, 6/1/02 Aaa 25,000 30,184
Exxon Capital Corp.
6.0%, 7/1/05 Aaa $10,000 9,961
First Chicago Corp.
6.375%, 1/30/09 Baa1 $15,000 14,794
Ford Credit Auto Loan
6.875%, 1/15/97 Aaa 27,250 28,817
General Electric Capital Corp.
8.125%, 5/15/12 Aaa 30,000 34,715
General Motors
Acceptance Corp. MTN
7.85%, 5/8/97 Baa1 25,000 26,841
8.5%, 1/1/03 Baa1 15,000 17,000
General RE Corp.
9.0%, 9/12/09 Aa1 15,000 18,571
Golden West Financial Corp.
6.0%, 10/1/03 A3 25,000 24,372
Household Finance Corp.
9.0%, 9/1/95 A2 7,500 8,030
International Bank for
Reconstruction &
Development
8.625%, 10/15/16 Aaa 15,000 18,422
8.875%, 3/1/26 Aaa 10,000 12,869
KFW International Finance
8.2%, 6/1/06 Aaa 25,000 28,857
MBNA Master Credit Trust
5.4%, 9/15/00 Aaa 25,000 25,031
National Westminster Bank
9.45%, 5/1/01 Aa3 10,000 11,928
Republic New York Corp.
9.7%, 2/1/09 A1 20,000 25,524
9.5%, 4/15/14 A1 4,000 5,068
Sears Credit Account Trust
8.6%, 5/15/98 Aaa 10,000 10,841
Swedish Export Credit
9.875%, 3/15/38 Aa2 15,000 17,932
Torchmark Corp.
8.25%, 8/15/09 A3 10,000 11,275
7.875%, 5/15/23 A3 10,000 10,567
Transamerica Corp.
9.375%, 3/1/08 A2 10,000 12,215
Wells Fargo & Co.
6.125%, 11/1/03 Baa1 20,000 19,397
World Savings & Loan MTN
5.625%, 1/15/96 A1 25,000 25,618
----------
GROUP TOTAL 922,995
----------
- ---------------------------------------------------------------------------------------
INDUSTRIAL (36.3%)
Allied Signal, Inc.
9.875%, 6/1/02 A2 5,100 6,200
Amoco Canada Petroleum Co.
7.95%, 10/1/22 Aaa 20,000 22,071
</TABLE>
2
<PAGE> 46
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Archer-Daniels-Midland
8.375%, 4/15/17 Aa2 $20,000 $ 23,771
ARCO Chemical Co.
9.8%, 2/1/20 A3 25,000 32,504
Associate Dry Goods
8.85%, 3/1/06 A3 15,000 17,465
Auburn Hills MI Trust
12.375%, 5/1/20 Baa2 20,000 31,017
Bristol-Meyers Squibb Co.
7.15%, 6/15/23 Aaa 25,000 26,342
CSX
9.5%, 8/1/00 A3 15,000 17,704
Chevron Corp.
9.375%, 6/1/16 Aa2 25,000 28,004
Coastal Corp.
9.625%, 5/15/12 Baa3 20,000 23,855
Coca-Cola Enterprises, Inc.
8.5%, 2/1/22 A3 20,000 23,596
Consolidated Rail Corp.
7.875%, 5/15/43 A2 20,000 22,117
Dow Capital Corp.
9.0%, 9/1/03 A1 10,000 12,206
8.7%, 5/15/22 A1 15,000 17,432
Dresser Industries, Inc.
6.25%, 6/1/00 A1 9,000 9,278
E.I. du Pont
de Nemours & Co.
8.25%, 1/15/22 Aa2 30,000 33,039
Georgia Pacific Corp.
9.875%, 11/1/21 Baa3 30,000 36,642
Grand Metropolitan
8.0%, 9/15/22 A2 25,000 27,840
Halliburton Co.
8.75%, 2/15/21 A2 20,000 24,063
Harcourt General, Inc.
8.875%, 6/1/22 Baa1 25,000 28,690
International Business
Machines Corp.
8.375%, 11/1/19 A3 20,000 22,764
Korea Electric Power
6.375%, 12/1/03 A1 35,000 34,482
Matsushita Electric
Industries Co.
7.25%, 8/1/02 Aa2 25,000 26,669
May Department Stores Corp.
10.625%, 11/1/10 A2 10,000 13,781
9.125%, 12/1/16 A2 8,750 9,279
10.25%, 1/1/21 A2 10,000 13,666
McDonnell Douglas
9.25%, 4/1/02 Ba2 25,000 28,781
Mead Corp.
8.125%, 2/1/23 A3 15,000 16,387
Monsanto Co.
8.875%, 12/15/09 A1 $20,000 24,208
Morton International
9.25%, 6/1/20 A1 10,000 12,806
Nissan Auto Receivables
4.3%, 9/15/07 Aaa 11,692 11,718
Norfolk Southern Corp.
9.0%, 3/1/21 Aa3 15,000 18,937
Phillips Petroleum Co.
9.18%, 9/15/21 Baa2 10,000 11,625
Procter & Gamble
8.5%, 8/10/09 Aa2 10,000 11,882
Procter & Gamble Employee
Stock Option Plan
9.36%, 1/1/21 Aa2 20,000 25,445
Rohm & Haas Co.
9.375%, 11/15/19 A1 10,000 11,686
9.8%, 4/15/20 A1 10,000 12,995
Sears, Roebuck & Co.
9.375%, 11/1/11 Baa1 20,000 24,722
Southwest Airlines
9.25%, 2/15/98 Baa1 10,680 12,024
Tele-Communications Inc.
9.25%, 1/15/23 Baa3 25,000 29,316
Texaco Capital Inc.
9.75%, 3/15/20 A1 17,000 22,645
8.625%, 11/15/31 A1 13,000 15,641
Toys R Us Inc.
8.75%, 9/1/21 Aa3 28,000 34,046
TRW, Inc.
9.375%, 4/15/21 A3 4,000 5,012
Union Camp Corp.
9.25%, 8/15/21 A1 25,000 29,879
Union Pacific Co.
8.5%, 1/15/17 A2 10,000 10,511
7.875%, 2/1/23 A2 25,000 27,012
United Airlines, Inc.
10.25%, 7/15/21 Baa3 10,000 11,664
9.75%, 8/15/21 Baa3 20,000 22,329
United Parcel Service
8.375%, 4/1/20 Aaa 33,350 40,175
United Technologies
8.875%, 11/15/19 A2 20,000 24,012
Wal-Mart Stores, Inc.
7.25%, 6/1/13 Aa1 25,000 26,509
Westvaco Corp.
9.75%, 6/15/20 A1 15,000 20,013
Whirlpool Corp.
9.1%, 2/1/08 A3 20,000 24,333
----------
GROUP TOTAL 1,150,790
----------
- ---------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 47
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELEPHONE (4.3%)
American Telephone &
Telegraph Co.
8.625%, 12/1/31 Aa3 $30,000 $ 34,287
General Telephone South
9.375%, 6/15/30 A2 20,000 22,180
Michigan Bell Telephone Co.
7.85%, 1/15/22 Aa1 10,000 11,511
New England Telephone
& Telegraph Co.
7.875%, 11/15/29 Aa2 25,000 28,684
United Telephone of Florida
9.25%, 9/15/19 A2 15,000 16,127
U.S. West Communications
6.875%, 9/15/33 Aa3 25,000 24,135
----------
GROUP TOTAL 136,924
----------
- ----------------------------------------------------------------------------------------
UTILITIES (9.9%)
Carolina Power & Light Co.
9.0%, 4/1/22 A2 20,000 22,464
Commonwealth Edison Co.
9.875%, 6/15/20 Baa2 20,000 24,454
Consolidated Edison Co.
of New York, Inc.
6.375%, 4/1/03 Aa3 20,000 20,426
Houston Lighting & Power
9.15%, 3/15/21 A2 15,000 18,972
Hydro-Quebec Electric
Commission
8.0%, 2/1/13 A1 30,000 33,133
Louisiana Power & Light Co.
10.67%, 1/2/17 Baa3 13,000 14,364
Niagara Mohawk Power
9.5%, 3/1/21 Baa2 19,100 21,582
Nippon Telephone &
Telegraph Co.
9.5%, 7/27/98 Aaa 30,000 34,994
Norsk Hydro
9.0%, 4/15/12 A3 10,000 11,816
7.75%, 6/15/23 A3 27,000 28,365
Pacific Gas & Electric Co.
8.25%, 11/1/22 A1 25,000 28,131
8.375%, 5/1/25 A1 10,000 11,039
Southern California Edison Co.
9.25%, 6/15/21 Aa3 19,000 20,909
Texas Utilities Electric Co.
9.875%, 11/1/19 Baa2 5,000 5,524
9.75%, 5/1/21 Baa2 5,000 6,030
Virginia Electric & Power Co.
8.75%, 4/1/21 A2 10,000 11,657
----------
GROUP TOTAL 313,860
----------
- ---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,258,227) 2,524,569
- ---------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (13.1%)
- ---------------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
5.19%, 1/20/99 35,000 34,956
6.28%, 2/3/04 25,000 25,100
9.0%, 8/15/16 20,240 21,755
Federal National
Mortgage Assn.
15.5%, 10/1/12 19 23
Government National
Mortgage Assn.
7.0%, 9/15/23 21,278 21,870
8.5%, 5/15/16-6/15/23 70,913 75,151
9.5%, 4/15/21 3,073 3,239
U.S. Treasury Bond
7.125%, 2/15/23 25,000 27,531
U.S. Treasury Notes
3.875%, 3/31/95 30,000 30,075
4.25%, 7/31/95 20,000 20,112
7.875%, 7/31/96 18,000 19,502
7.25%, 11/15/96 25,000 26,840
5.625%, 8/31/97 50,000 51,610
6.0%, 11/30/97 55,000 57,423
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $411,619) 415,187
- ---------------------------------------------------------------------------------------
FOREIGN BONDS (2.8%)
- ---------------------------------------------------------------------------------------
Italy Global Bond
6.875%, 9/27/23 A1 25,000 23,952
Province of Nova Scotia
9.125%, 5/1/21 A2 30,000 36,090
Province of Ontario
7.375%, 1/27/03 Aa2 20,000 21,592
</TABLE>
4
<PAGE> 48
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Province of Saskatchewan
8.5%, 7/15/22 A3 $7,000 $ 8,079
- ---------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $83,940) 89,713
- ---------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.1%)
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
3.17%, 2/1/94
(Cost $64,977) 64,977 64,977
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (97.7%)
(Cost $2,818,763) 3,094,446
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.3%)
Other Assets--Notes C and E 135,600
Liabilities--Note E (63,976)
------------
71,624
- ---------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------
Applicable to 338,234,275 outstanding
$.001 par value shares
(authorized 450,000,000 shares) $3,166,070
- ---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.36
=======================================================================================
+See Note A to Financial Statements.
(1)Unaudited.
MTN--Medium-Term Note.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------
Amount Per
(000) Share
---------- -----
<S> <C> <C>
Paid in Capital--Note G $2,867,358 $8.48
Undistributed Net Investment Income--Note G -- --
Accumulated Net Realized Gains--Note G 23,029 .07
Unrealized Appreciation of Investments 275,683 .81
- ---------------------------------------------------------------------------------------
NET ASSETS $3,166,070 $9.36
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
HIGH YIELD Rating(1) Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (87.0%)
- ---------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.3%)
McDonnell Douglas
9.25%, 4/1/02 Ba2 $10,000 $ 11,512
9.75%, 4/1/12 Ba2 20,000 24,005
----------
GROUP TOTAL 35,517
----------
- ---------------------------------------------------------------------------------------
BASIC INDUSTRIES (13.3%)
American Standard Inc.
9.875%, 6/1/01 B1 15,000 15,825
11.375%, 5/15/04 Ba3 20,000 22,500
Anchor Glass Container
9.875%, 12/15/08 B2 5,875 6,132
Auburn Hills MI Trust
12.375%, 5/1/20 Baa2 40,000 62,034
Coltec Industries
10.25%, 4/1/02 B1 19,000 20,520
Congoleum
9.0%, 2/1/01 B1 3,175 3,223
Jack Eckerd Corp.
9.25%, 9/15/04 B2 20,000 20,800
Essex Group
10.0%, 5/1/03 B1 11,000 11,385
EXIDE Corp.
10.75%, 12/15/02 B2 7,000 7,735
Hyster-Yale Materials
12.375%, 8/1/99 B1 5,000 5,375
Inter-City Products
9.75%, 3/1/00 Ba3 12,600 12,631
LaQuinta Inns
9.25%, 5/15/03 B2 7,725 7,957
Lear Siegler Seating Corp.
11.25%, 7/15/00 B2 10,730 11,803
8.25%, 2/1/02 B2 7,250 7,359
Mark IV Industries
8.75%, 4/1/03 B1 9,000 9,304
Owens Illinois Inc.
10.25%, 4/1/99 B2 23,000 24,495
10.5%, 6/15/02 B2 10,000 11,100
10.0%, 8/1/02 B2 20,000 21,500
11.0%, 12/2/03 Ba3 5,000 5,850
Paging Network
8.875%, 2/1/06 B2 20,000 20,082
Purina Mills
10.25%, 9/1/03 B2 20,000 21,400
Reeves Industries, Inc.
11.0%, 7/15/02 Ba3 5,600 6,048
Sealed Air Corp.
12.625%, 7/1/99 B1 5,000 5,388
Wolverine Tube Inc.
10.125%, 9/1/02 Ba3 9,000 9,720
----------
GROUP TOTAL 350,166
----------
- ---------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 49
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
CABLE (11.2%)
Adelphia Communications
Corp.
12.5%, 5/15/02 B2 $20,000 $ 23,150
11.875%, 9/15/04 B2 10,000 11,500
Cablevision Industries
10.75%, 1/30/02 Ba3 9,000 9,742
Cablevision Systems
9.875%, 2/15/13 B2 15,000 17,550
Century Communications
11.875%, 10/15/03 B2 20,000 23,000
Comcast Corp.
9.5%, 1/15/08 B1 16,000 17,520
10.625%, 7/15/12 B1 24,000 28,740
Continental Cablevision Co.
11.0%, 6/1/07 B1 16,935 19,966
9.0%, 9/1/08 Ba2 30,630 33,693
Rogers Cablesystem
9.625%, 8/1/02 Ba1 12,000 13,260
10.125%, 9/1/12 Ba1 13,000 14,820
Storer Communications, Inc.
10.0%, 5/15/03 B1 8,480 8,565
Tele-Communications, Inc.
9.25%, 4/15/02 Baa3 20,000 23,669
8.25%, 1/15/03 Baa3 15,000 16,699
10.125%, 4/15/22 Baa3 15,000 19,913
9.25%, 1/15/23 Baa3 10,000 11,726
-----------
GROUP TOTAL 293,513
-----------
- ---------------------------------------------------------------------------------------
CONSUMER GOODS (3.8%)
Carlisle Plastics
10.25%, 6/15/97 Ba3 9,000 9,405
Dr. Pepper Bottling Co.
10.25%, 2/15/00 B3 2,250 2,441
Playtex Family Products
9.0%, 12/15/03 B3 15,000 15,262
Sealy Corp.
9.5%, 5/1/03 B1 10,000 10,500
Sweetheart Cup
9.625%, 9/1/00 Ba3 19,000 20,140
10.5%, 9/1/03 B2 11,000 11,715
Westpoint Stevens
8.75%, 12/15/01 B1 20,000 20,650
9.375%, 12/15/05 B3 10,000 10,400
-----------
GROUP TOTAL 100,513
-----------
- ---------------------------------------------------------------------------------------
ENERGY (4.2%)
Coastal Corp.
8.125%, 9/15/02 Baa3 25,000 27,138
Global Marine
12.75%, 12/15/99 B1 5,000 5,550
Maxus Energy Corp.
9.375%, 11/1/03 B1 $15,000 $ 15,000
Mitchell Energy
11.25%, 2/15/99 Ba1 5,000 5,182
Noble Drilling
9.25%, 10/1/03 Ba3 10,000 10,325
Seagull Energy Corp.
8.625%, 8/1/05 Ba3 5,000 5,050
Tosco Corp.
9.625%, 3/15/02 Ba1 8,000 8,891
Transco
11.25%, 7/1/99 Ba3 30,000 34,050
-----------
GROUP TOTAL 111,186
-----------
- ---------------------------------------------------------------------------------------
FINANCIAL SERVICES (2.9%)
American Reinsurance
10.875%, 9/15/04 Baa3 27,000 31,911
Anchor Bancorp
8.938%, 7/9/03 Ba3 8,000 8,400
Coast Federal Bank
13.0%, 12/31/02 B1 5,700 6,640
Coast Savings Financial Inc.
10.0%, 3/1/00 B1 3,400 3,578
Imperial Credit Industries
9.75%, 1/15/04 B1 7,500 7,406
Riggs National Corp.
8.5%, 2/1/06 B3 7,800 8,112
Western Financial Savings
8.5%, 7/1/03 Ba3 10,000 10,073
-----------
GROUP TOTAL 76,120
-----------
- ---------------------------------------------------------------------------------------
FOOD & LODGING (2.4%)
ARA Group
12.0%, 4/15/00 B1 7,000 7,980
8.5%, 6/1/03 B1 10,000 10,200
ARA Services, Inc.
10.625%, 8/1/00 Ba2 10,000 11,250
Flagstar Corp.
10.875%, 12/1/02 B1 9,000 9,540
11.25%, 11/1/04 B2 22,000 22,880
-----------
GROUP TOTAL 61,850
-----------
- ---------------------------------------------------------------------------------------
GROCERY STORES (7.7%)
Grand Union
12.25%, 7/15/02 B3 35,000 36,925
Kroger Co.
10.0%, 5/1/99 B1 3,000 3,300
9.875%, 8/1/02 B1 10,000 10,800
8.5%, 6/15/03 Ba2 15,000 15,581
9.75%, 2/15/04 B1 13,025 14,002
Pathmark Stores
9.625%, 5/1/03 B2 20,000 20,600
</TABLE>
6
<PAGE> 50
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Penn Traffic Co.
10.25%, 2/15/02 Ba3 $12,000 $ 12,900
10.375%, 10/1/04 Ba3 10,000 10,912
9.625%, 4/15/05 B2 8,000 8,290
Safeway, Inc.
10.0%, 12/1/01 Ba3 16,600 18,426
9.65%, 1/15/04 Ba3 25,000 27,000
Stop & Shop
9.75%, 2/1/02 Ba3 20,750 23,344
----------
GROUP TOTAL 202,080
----------
- ---------------------------------------------------------------------------------------
HEALTHCARE (3.2%)
Abbey Healthcare
9.5%, 11/1/02 B1 10,000 10,275
Healthtrust Inc.
10.75%, 5/1/02 B1 11,000 12,238
8.75%, 3/15/05 B1 30,000 30,900
Hillhaven Corp.
10.125%, 9/1/01 B2 17,500 18,725
Manor Care, Inc.
9.5%, 11/15/02 Ba2 8,540 9,351
McGaw Inc.
10.375%, 4/1/99 Ba3 3,000 3,270
----------
GROUP TOTAL 84,759
----------
- ---------------------------------------------------------------------------------------
HOME BUILDING & REAL ESTATE (.6%)
Hovnanian Enterprises
9.75%, 6/1/05 B1 5,000 5,150
Toll Corp.
10.5%, 3/15/02 Ba3 10,000 10,750
----------
GROUP TOTAL 15,900
----------
- ---------------------------------------------------------------------------------------
MEDIA & COMMUNICATIONS (12.0%)
Act III Broadcast
9.625%, 12/15/03 B3 7,725 7,918
Dial Page, Inc.
12.25%, 2/15/00 B3 5,000 5,600
Infinity Broadcasting
10.375%, 3/15/02 B2 15,000 16,050
News America Holdings
10.125%, 10/15/12 Ba1 43,000 51,782
9.25%, 2/1/13 Ba1 15,000 17,196
Paramount Communications
5.875%, 7/15/00 A3 5,950 5,605
Rogers Cantel Mobile
10.75%, 11/1/01 Ba3 17,000 18,870
11.125%, 7/15/02 B2 20,000 22,450
Time Warner, Inc.
9.125%, 1/15/13 Ba1 30,000 33,895
9.15%, 2/1/23 Ba1 50,000 56,571
Turner Broadcasting System
12.0%, 10/15/01 B1 10,000 10,835
8.375%, 7/1/13 Ba2 30,000 30,804
Viacom International, Inc.
9.125%, 8/15/99 Ba3 4,000 4,235
10.25%, 9/15/01 Ba3 15,000 16,800
World Color Press
9.125%, 3/15/03 B1 15,000 15,488
----------
GROUP TOTAL 314,099
----------
- ---------------------------------------------------------------------------------------
PAPER, CHEMICALS, MINING (11.2%)
Arcadian Partner
10.75%, 5/1/01 B2 12,000 12,825
Buckeye Cellulose
10.25%, 5/15/01 B2 3,080 3,234
Container Corp. of America
14.0%, 12/1/01 B3 10,000 11,125
9.75%, 4/1/03 B2 40,000 42,000
Domtar
11.75%, 3/15/99 Ba1 13,250 14,575
12.0%, 4/15/01 Ba1 8,945 9,996
11.25%, 9/15/17 Ba1 10,000 10,450
Ft. Howard Corp.
9.25%, 3/15/01 B1 45,000 46,350
General Chemical
9.25%, 8/15/03 B2 10,000 10,300
Georgia Pacific Corp.
9.5%, 12/1/11 Baa3 16,000 19,285
Harris Chemical
10.75%, 10/15/03 B3 15,000 16,163
Inco Ltd.
9.875%, 6/15/19 Baa2 6,750 7,686
Magma Copper
12.0%, 12/15/01 Ba3 20,000 22,600
OSI Specialties
9.25%, 10/1/03 B1 5,575 5,742
Riverwood International
11.25%, 6/15/02 B1 10,000 11,000
Stone Container
11.0%, 8/15/99 B2 12,500 12,688
10.75%, 4/1/02 B2 14,000 14,140
UCC Investors Holdings
11.0%, 5/1/03 B3 21,000 22,890
----------
GROUP TOTAL 293,049
----------
- ---------------------------------------------------------------------------------------
RETAIL STORES (1.1%)
Hook SuperX, Inc.
10.125%, 6/1/02 Ba3 7,000 7,315
Levitz Furniture
9.625%, 7/15/03 B2 10,000 10,400
Musicland Stores
9.0%, 6/15/03 B1 10,000 10,300
----------
GROUP TOTAL 28,015
----------
- ---------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 51
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
STEEL (5.5%)
Armco Steel
11.375%, 10/15/99 B1 $ 7,000 $ 7,700
9.375%, 11/1/00 B1 10,000 10,200
Bethlehem Steel
10.375%, 9/1/03 B1 10,500 11,419
Geneva Steel
11.125%, 3/15/01 B1 6,500 7,150
9.5%, 1/15/04 B1 7,400 7,622
Inland Steel
12.75%, 12/15/02 Ba3 10,000 11,700
Northwestern Steel
& Wire
9.5%, 6/15/01 B1 10,000 10,450
USX Corp.
9.125%, 1/15/13 Baa3 30,000 33,113
8.5%, 3/1/23 Baa3 10,000 10,452
Weirton Steel Corp.
11.5%, 3/1/98 B2 7,000 7,630
10.875%, 10/15/99 B2 10,000 10,700
Wheeling-Pittsburgh Corp.
9.375%, 11/15/03 B1 14,700 15,472
----------
GROUP TOTAL 143,608
----------
- ---------------------------------------------------------------------------------------
TRANSPORTATION (4.0%)
Delta Airlines
9.75%, 5/15/21 Ba1 30,000 33,486
Greyhound Lines
10.0%, 7/31/01 B1 9,000 9,439
Southern Pacific Railroad
9.375%, 8/15/05 Ba3 12,275 13,058
United Air Lines, Inc.
10.25%, 7/15/21 Baa3 10,000 11,664
U.S. Air Inc.
9.625%, 2/1/01 Ba3 10,000 10,050
10.0%, 7/1/03 Ba3 13,000 13,039
10.375%, 3/1/13 Ba3 14,000 14,606
----------
GROUP TOTAL 105,342
----------
- ---------------------------------------------------------------------------------------
UTILITIES (2.6%)
Long Island Lighting Co.
9.0%, 11/1/22 Baa3 20,000 21,396
8.2%, 3/15/23 Baa3 10,000 10,106
Midland Cogeneration
Venture
11.75%, 7/23/05 B1 23,000 24,760
Texas-New Mexico
10.75%, 9/15/03 B1 12,000 12,840
----------
GROUP TOTAL 69,102
----------
- ---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,095,784) 2,284,819
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (6.7%)
- ---------------------------------------------------------------------------------------
U.S. TREASURY NOTES
4.625%, 8/15/95 $25,000 $ 25,273
4.25%, 11/30/95 25,000 25,086
4.25%, 12/31/95 25,000 25,070
4.0%, 1/31/96 25,000 24,938
4.375%, 8/15/96 25,000 25,043
5.5%, 9/30/97 25,000 25,691
4.75%, 9/30/98 25,000 24,813
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $174,701) 175,914
- ---------------------------------------------------------------------------------------
PREFERRED STOCK (.3%)
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares
------
<S> <C> <C>
Dime Savings Bank
10.5% Cvt. (Cost $7,160) 7,000 7,389
- ---------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (4.2%)
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
--------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
3.17%, 2/1/94
(Cost $109,388) $109,388 109,388
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.2%)
(Cost $2,387,033) 2,577,510
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.8%)
- ---------------------------------------------------------------------------------------
Other Assets--Notes C and E 340,517
Liabilities--Note E (293,063)
-----------
47,454
- ---------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------
Applicable to 322,281,381 outstanding
$.001 par value shares
(authorized 450,000,000 shares) $2,624,964
- ---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $8.14
=======================================================================================
+See Note A to Financial Statements.
(1)Unaudited.
</TABLE>
8
<PAGE> 52
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------
Amount Per
(000) Share
------------- ----------
<S> <C> <C> <C>
Paid in Capital--Note G $2,557,829 $7.93
Undistributed Net
Investment Income--Note G -- --
Accumulated Net Realized
Losses--Note G (123,342) (.38)
Unrealized Appreciation of
Investments 190,477 .59
- ---------------------------------------------------------------------------------------
NET ASSETS $2,624,964 $8.14
- ---------------------------------------------------------------------------------------
Face Market
INTERMEDIATE-TERM Rating(1) Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
CORPORATE BONDS (74.0%)
- ---------------------------------------------------------------------------------------
FINANCE--AUTOMOBILE (2.5%)
Chrysler Financial Corp.
12.75%, 11/1/99 Baa2 $ 750 $ 994
Ford Motor Credit Corp.
7.75%, 11/15/02 A2 1,000 1,089
--------
GROUP TOTAL 2,083
--------
- ---------------------------------------------------------------------------------------
FINANCE--BANKS (18.9%)
Bank of Boston Co.
6.875%, 7/15/03 Baa2 1,000 1,028
Bank of New York Co.
6.5%, 12/1/03 Baa1 2,000 2,019
Chase Manhattan Corp.
10.0%, 6/15/99 Baa2 1,000 1,192
Chemical Banking Corp.
7.625%, 1/15/03 Baa1 1,000 1,086
Citicorp
9.5%, 2/1/02 Baa2 1,000 1,204
First Chicago Corp.
7.625%, 1/15/03 Baa1 1,000 1,082
First Interstate Bancorp.
10.875%, 4/15/01 Baa1 1,000 1,279
Mellon Financial Corp.
9.125%, 8/15/01 Baa1 1,000 1,187
Meridian Bancorp.
6.625%, 3/15/03 A3 1,000 1,017
PNC Funding Corp.
6.875%, 3/1/03 A3 1,000 1,040
Republic New York Corp.
9.75%, 12/1/00 A1 1,300 1,584
Security Pacific Corp.
11.0%, 3/1/01 A3 1,000 1,271
Wells Fargo & Co.
6.875%, 4/15/03 Baa1 1,000 1,033
---------
GROUP TOTAL 16,022
---------
- ---------------------------------------------------------------------------------------
FINANCE--CONSUMERS (9.8%)
Beneficial Finance Corp.
6.8%, 9/10/99 A2 1,000 1,052
Countrywide Funding
7.41%, 8/28/01 A3 2,000 2,156
Fleet Mortgage Group
6.5%, 9/15/99 A3 1,000 1,034
Norwest Financial, Inc.
6.875%, 12/15/99 Aa3 1,000 1,062
6.0%, 2/1/04 Aa3 1,000 995
Standard Credit Card
Master Trust 5.5%, 1/7/99 Aaa 2,000 2,006
---------
GROUP TOTAL 8,305
---------
- ---------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 53
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
FINANCE--DIVERSIFIED (7.6%)
<S> <C> <C> <C>
Bear Stearns Cos.
6.625%, 1/15/04 A2 $ 1,000 $ 1,013
Dean Witter Discover & Co.
6.875%, 3/1/03 A3 1,000 1,040
Goldman Sachs Group
7.8%, 7/15/02 A1 1,000 1,087
Morgan Stanley Group
9.375%, 6/15/01 A1 1,000 1,190
Charles Schwab
6.06%, 10/2/00 Baa1 1,000 1,006
Shearson Lehman Holdings
8.875%, 3/1/02 A3 1,000 1,159
---------
GROUP TOTAL 6,495
---------
- ---------------------------------------------------------------------------------------
INDUSTRIAL (22.8%)
Digital Equipment Corp.
7.125%, 10/15/02 A3 1,000 1,041
Eastman Chemical Co.
6.375%, 1/15/04 Baa1 1,500 1,499
Exxon Capital Corp.
7.45%, 12/15/01 Aaa 2,715 2,988
Hoechst-Celanese
6.125%, 2/1/04 A2 2,000 2,004
Mobil Corp.
7.25%, 3/15/99 Aa2 2,000 2,161
J.C. Penney Co., Inc.
9.05%, 3/1/01 A2 1,240 1,464
Sears, Roebuck & Co.
8.52%, 5/13/02 Baa1 1,000 1,134
Texaco Capital Corp.
7.7%, 12/15/99 A1 1,065 1,177
Texas Instruments, Inc.
9.0%, 3/15/01 A3 1,600 1,880
Union Pacific Railroad Co.
6.12%, 2/1/04 Aa1 2,000 1,996
Wal-Mart Stores, Inc.
6.125%, 10/1/99 Aa1 2,000 2,055
---------
GROUP TOTAL 19,399
---------
- ---------------------------------------------------------------------------------------
INSURANCE (4.7%)
CNA Financial
6.25%, 11/15/03 A1 1,000 993
Equitable Cos., Inc.
6.75%, 12/1/00 BBB* 1,000 1,021
Harleysville Group
6.75%, 11/15/03 Baa2 1,000 998
Progressive Corp.
6.6%, 1/15/04 A3 1,000 1,011
---------
GROUP TOTAL 4,023
---------
- ---------------------------------------------------------------------------------------
UTILITIES (7.7%)
American Telephone &
Telegraph Capital
7.125%, 1/15/02 Aa3 $ 1,500 $ 1,609
GTE Southwest
5.82%, 12/1/99 A3 1,250 1,262
MCI Communications
Corp.
7.5%, 8/20/04 Baa1 1,500 1,644
Public Service
of Colorado
6.0%, 1/1/01 Baa1 1,000 1,003
Texas Utilities Co.
6.75%, 3/1/03 Baa2 1,000 1,025
---------
GROUP TOTAL 6,543
---------
- ---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $62,457) 62,870
- ---------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (9.8%)
- ---------------------------------------------------------------------------------------
U.S. TREASURY NOTES
4.75%, 10/31/98 2,500 2,478
5.125%, 11/30/98 3,800 3,819
5.125% 12/31/98 2,000 2,009
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $8,240) 8,306
- ---------------------------------------------------------------------------------------
FOREIGN BONDS (10.5%)
- ---------------------------------------------------------------------------------------
Australia & New Zealand
Banking Group Ltd.
6.25%, 2/1/04 A2 1,000 996
KFW International Finance
8.85%, 6/15/99 Aaa 2,000 2,306
National Westminster
Bancorp Inc.
9.375%, 11/15/03 Aa3 2,000 2,461
Province of Manitoba
6.125%, 1/19/04 A1 1,500 1,498
Province of Ontario
7.375%, 1/27/03 Aa2 1,500 1,619
- ---------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $8,855) 8,880
- ---------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 54
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (13.3%)
- ---------------------------------------------------------------------------------------
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
3.17%, 2/1/94
(Cost $11,326) $11,326 $11,326
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (107.6%)
(Cost $90,878) 91,382
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-7.6%)
- ---------------------------------------------------------------------------------------
Other Assets--Note C 2,343
Accounts Payable for Securities Purchased (8,054)
Other Liabilities (734)
---------
(6,445)
- ---------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------
Applicable to 8,460,718 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $84,937
- ---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.04
=======================================================================================
</TABLE>
+See Note A to Financial Statements.
(1)Unaudited.
Rated by Standard & Poor's
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------
Amount Per
(000) Share
---------- ---------
<S> <C> <C>
Paid in Capital $84,464 $ 9.98
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (31) --
Unrealized Appreciation
of Investments 504 .06
- ---------------------------------------------------------------------------------------
NET ASSETS $84,937 $10.04
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (98.1%)
- ---------------------------------------------------------------------------------------
U.S. TREASURY BONDS
10.75%, 2/15/03 $ 4,000 $ 5,441
10.75%, 5/15/03 5,100 6,967
11.75%, 2/15/10 48,800 72,049
10.0%, 5/15/10 30,000 40,209
U.S. TREASURY NOTES
8.25%, 7/15/98 22,190 25,130
8.875%, 11/15/98 5,000 5,823
8.875%, 2/15/99 54,873 64,133
7.0%, 4/15/99 131,500 142,966
9.125%, 5/15/99 27,000 32,041
7.875%, 11/15/99 54,000 61,281
6.375%, 1/15/00 76,000 80,607
8.5%, 2/15/00 9,000 10,537
8.875%, 5/15/00 63,337 75,638
8.75%, 8/15/00 40,500 48,258
8.5%, 11/15/00 94,440 111,439
7.875%, 8/15/01 53,000 61,000
7.5%, 5/15/02 10,000 11,305
6.375%, 8/15/02 38,000 40,078
5.75%, 8/15/03 6,000 6,041
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
6.0%, 5/1/99 23,438 23,768
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
7.02%, 12/1/98 19,250 20,467
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
5.735%, 4/15/99 22,800 22,904
5.94%, 12/19/01 20,000 19,922
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $969,807) 988,004
- ---------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.8%)
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
3.17%, 2/1/94 (Cost $8,161) 8,161 8,161
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.9%)
(Cost $977,968) 996,165
- ---------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 55
<TABLE>
<CAPTION>
Market
Value
(000)+
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.1%)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Other Assets--Notes C and E $ 70,652
Liabilities--Note E (59,736)
----------
10,916
- ---------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------
Applicable to 93,086,741 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $1,007,081
- ---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.82
=======================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------
Amount Per
(000) Share
---------- --------
<S> <C> <C>
Paid in Capital $ 986,466 $10.59
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 2,406 .03
Unrealized Appreciation of Investments 18,209 .20
- ---------------------------------------------------------------------------------------
NET ASSETS $1,007,081 $10.82
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
FEDERAL PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (98.7%)
- ---------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK
5.5%, 7/7/94 Step-Up Note $ 37,945 $ 38,267
8.25%, 5/27/96 5,000 5,436
FEDERAL HOME LOAN MORTGAGE CORP.
6.5%, 1/1/97 14,169 14,594
5.5%, 11/1/98 24,413 24,824
(Collateralized Mortgage Obligations)
8.0%, 4/6/94 4,233 4,233
6.75%, 6/1/95 21,988 22,338
5.549%, 12/23/96 25,642 26,331
5.0%, 5/15/17 3,633 3,626
FEDERAL NATIONAL MORTGAGE ASSN.
8.632%, 1/1/96 26,500 28,452
8.5%, 6/10/96 25,000 27,351
8.15%, 8/12/96 15,000 16,340
7.7%, 12/10/96 25,000 27,148
0.0%, 12/20/96 65,000 56,460
7.6%, 1/10/97 9,000 9,751
0.0%, 4/10/97 12,500 10,667
8.8%, 7/25/97 25,000 28,265
9.8%, 5/10/00 38,985 42,116
7.8%, 6/10/02 18,200 19,730
(Collateralized Mortgage Obligations)
7.0%, 7/14/94 7,845 7,893
8.0%, 12/8/94 20,000 20,220
6.5%, 12/15/94 5,000 5,055
7.0%, 12/15/94 10,000 10,180
10.0%, 1/12/95 379 379
7.0%, 1/24/95 16,000 16,335
7.0%, 2/2/95 18,000 18,289
7.0%, 2/11/95 40,000 40,600
9.5%, 2/18/95 5,000 5,051
7.5%, 3/1/95 23,500 23,889
7.0%, 3/15/95 6,700 6,817
7.0%, 4/27/95 3,605 3,624
6.5%, 5/11/95 10,500 10,652
7.0%, 6/5/95 13,218 13,452
9.0%, 6/21/95 2,684 2,819
7.0%, 7/2/95 7,350 7,564
9.0%, 7/9/95 10,000 10,305
8.5%, 11/7/95 5,500 5,627
5.5%, 3/16/96 34,247 34,622
0.0%, 9/25/06 2,370 2,337
6.0%, 1/25/07 14,806 15,046
10.25%, 11/25/14 365 366
0.0%, 12/25/15 2,216 2,033
0.0%, 10/25/17 1,402 1,380
7.0%,12/25/20 5,000 5,141
</TABLE>
12
<PAGE> 56
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C>
TENNESSEE VALLEY AUTHORITY
8.25%, 11/15/96 $ 10,000 $ 10,934
U.S. TREASURY NOTES
7.875%, 2/15/96 24,100 25,840
7.5%, 2/29/96 43,500 46,348
7.75%, 3/31/96 34,000 36,465
9.375%, 4/15/96 19,600 21,701
7.625%, 4/30/96 25,000 26,805
7.875%, 7/15/96 23,250 25,161
7.25%, 8/31/96 25,000 26,758
8.0%, 10/15/96 20,000 21,822
7.25%, 11/15/96 13,000 13,957
8.5%, 4/15/97 61,000 68,072
8.5%, 5/15/97 45,000 50,309
6.75%, 5/31/97 10,000 10,663
8.5%, 7/15/97 25,000 28,067
8.625%, 8/15/97 76,000 85,749
5.75%, 10/31/97 65,000 67,336
6.0%, 11/30/97 30,000 31,322
5.375%, 5/31/98 108,000 110,008
8.25%, 7/15/98 60,800 68,856
5.25%, 7/31/98 31,000 31,412
BANAMEX EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
4.91%, 7/15/96 36,700 36,810
BANCO NATIONAL DE COMMERCIO EXTERIOR
(U.S. Government Guaranteed)
5.95%, 1/14/95 11,900 12,185
5.295%, 7/15/95 17,240 17,422
5.48%, 7/15/95 8,400 8,538
5.1%, 1/14/96 10,359 10,431
6.82%, 1/14/96 6,144 6,445
BANK LEUMI LE-ISRAEL
(U.S. Export Finance--
U.S. Government Guaranteed)
8.375%, 8/10/94 1,916 1,929
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
5.79%, 10/1/94 10,088 10,322
9.4%, 2/16/95 4,412 4,746
4.85%, 8/1/95 28,000 28,167
7.75%, 9/21/95 24,983 26,709
5.69%, 11/1/95 9,900 10,119
4.61%, 6/1/96 24,000 24,004
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.43%, 3/15/96 31,261 31,176
4.743%, 6/14/96 3,756 3,764
4.813%, 7/24/96 20,499 20,557
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.86%, 1/1/96 9,000 9,034
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
8.89%, 8/1/94 $ 7,500 $ 7,861
7.815%, 2/13/98 10,000 10,858
8.75%, 2/13/98 15,000 16,788
PRIVATE EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
7.125%, 10/31/96 10,000 10,655
8.95%, 10/31/97 7,575 8,619
U.S. EXIM TRUST
(U.S. Government Guaranteed)
5.2%, 5/26/95 28,800 29,126
U.S. GOVERNMENT TRUST CERTIFICATES
(U.S. Government Guaranteed)
8.55%, 2/23/95 11,865 12,607
7.45%, 2/25/95 11,499 11,886
9.25%, 6/23/95 9,742 10,420
8.0%, 11/15/95 23,417 25,104
7.5%, 10/15/96 19,350 20,593
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $1,880,067) 1,910,065
- ---------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.6%)
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
3.17%, 2/1/94
(Cost $50,881) 50,881 50,881
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.3%)
(Cost $1,930,948) 1,960,946
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.3%)
- ---------------------------------------------------------------------------------------
Other Assets--Note C 29,788
Liabilities (54,338)
---------
(24,550)
- ---------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------
Applicable to 186,580,879 outstanding
$.001 par value shares
(authorized 300,000,000 shares) $1,936,396
- ---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.38
=======================================================================================
+See Note A to Financial Statements.
</TABLE>
13
<PAGE> 57
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $1,904,773 $10.21
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 1,625 .01
Unrealized Appreciation
of Investments 29,998 .16
- ---------------------------------------------------------------------------------------
NET ASSETS $1,936,396 $10.38
- ---------------------------------------------------------------------------------------
</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
5.5%, 2/15/95 $10,000 $ 10,192
7.75%, 2/15/95 55,000 57,303
5.875%, 5/15/95 10,000 10,264
8.5%, 5/15/95 6,000 6,356
4.25%, 7/31/95 28,000 28,158
3.875%, 8/31/95 28,325 28,303
8.5%, 11/15/95 3,000 3,228
7.5%, 1/31/96 5,000 5,320
7.875%, 2/15/96 53,989 57,887
7.5%, 2/29/96 35,500 37,824
7.75%, 3/31/96 36,000 38,610
9.375%, 4/15/96 39,576 43,818
7.625%, 4/30/96 27,000 28,949
7.375%, 5/15/96 10,000 10,674
7.875%, 7/31/96 12,000 13,001
8.0%, 10/15/96 28,000 30,551
7.25%, 11/15/96 25,000 26,840
8.5%, 4/15/97 11,000 12,276
8.5%, 5/15/97 2,000 2,236
8.5%, 7/15/97 10,000 11,227
8.625%, 8/15/97 19,000 21,437
8.75%, 10/15/97 33,000 37,486
6.0%, 11/30/97 5,000 5,220
5.125%, 3/31/98 13,000 13,142
8.25%, 7/15/98 60,123 68,089
BANAMEX EXPORT FUNDING
(U.S. Government Guaranteed)
4.91%, 7/15/96 6,000 6,018
BANCO NATIONAL DE COMMERCIO EXTERIOR
(U.S. Government Guaranteed)
5.95%, 1/14/95 7,560 7,741
6.82%, 1/14/96 7,857 8,242
4.62%, 10/15/98 20,000 19,926
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
5.79%, 10/1/94 3,000 3,070
4.85%, 8/1/95 4,000 4,024
5.69%, 11/1/95 7,200 7,359
GOVERNMENT TRUST
CERTIFICATE (ISRAEL)
(U.S. Government Guaranteed)
8.55%, 2/23/95 3,738 3,972
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.743%, 6/14/96 26,000 26,058
PRIVATE EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
5.65%, 3/25/98 7,980 8,165
</TABLE>
14
<PAGE> 58
<TABLE>
<CAPTION>
Face Market
Amount Value
(000)+ (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C>
SMALL BUSINESS ADMINISTRATION
(U.S. Government Guaranteed)
6.95%, 6/1/97 $ 6,000 $ 6,343
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $701,177) 709,309
- ---------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.1%)
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
3.17%, 2/1/94 (Cost $15,018) 15,018 15,018
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.4%)
(Cost $716,195) 724,327
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.6%)
- ---------------------------------------------------------------------------------------
Other Assets--Note C 17,184
Liabilities (12,923)
---------
4,261
- ---------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------
Applicable to 69,963,671 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $728,588
- ---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.41
=======================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------
Amount Per
(000) Share
-------- --------
<S> <C> <C>
Paid in Capital $719,149 $10.28
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 1,298 .02
Unrealized Appreciation
of Investments 8,141 .11
- ---------------------------------------------------------------------------------------
NET ASSETS $728,588 $10.41
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Rating(1) Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (81.3%)
- ---------------------------------------------------------------------------------------
FINANCE--AUTOMOBILE (5.0%)
Chase Manhattan Grantor
Trust 1991-A
6.9%, 9/15/97 Aaa $ 4,880 $ 4,953
Chrysler Financial Corp.
5.33%, 8/1/95 Baa 225,893 26,226
10.34%, 5/15/96 Baa 216,634 18,545
5.625%, 1/15/99 Baa 210,000 9,983
5.83%, 1/15/99 Baa 215,000 15,095
12.75%, 11/1/99 Baa 22,250 2,982
Ford Credit 1991-B
Grantor Trust
6.5%, 11/15/96 Aaa 9,410 9,627
Ford Motor Credit Corp.
8.875%, 8/1/96 A2 10,410 11,406
RCSB 1991-B Grantor Trust
6.7%, 4/15/97 Aaa 10,459 10,694
Security Pacific Automobile
Grantor Trust 1991-A
6.7%, 1/15/97 Aaa 2,075 2,097
Toyota Motor Credit
5.75%, 6/15/95 Aaa 15,000 15,341
5.35%, 11/15/95 Aaa 50,000 50,943
----------
GROUP TOTAL 177,892
----------
- ---------------------------------------------------------------------------------------
FINANCE--BANKS (17.4%)
Advanta Corp.
5.125%, 11/15/96 Baa 315,000 15,036
BankAmerica Corp.
7.25%, 2/3/97 A2 25,000 26,580
6.875%, 11/20/97 A2 10,000 10,602
Bankers Trust New York Corp.
4.7%, 7/1/96 A1 14,500 14,544
7.25%, 11/1/96 A1 14,835 15,767
Chase Manhattan Corp.
10.0%, 6/15/99 Baa2 35,825 42,704
Chemical Banking Corp.
7.375%, 6/15/97 A3 30,000 32,121
6.625%, 1/15/98 A3 22,500 23,570
Comerica
5.95%, 9/15/97 A3 25,000 25,748
CoreStates Capital
6.08%, 1/24/95 A1 4,250 4,345
6.13%, 2/13/95 A1 10,000 10,213
5.5%, 12/3/96 A1 10,000 10,204
First Interstate Bancorp.
10.5%, 3/1/96 A3 5,000 5,571
Huntington National Bank
4.48%, 10/14/96 A1 44,200 43,956
</TABLE>
15
<PAGE> 59
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mellon Financial Corp.
9.0%, 5/9/95 A3 $11,000 $ 11,659
5.375%, 8/1/95 A3 18,250 18,538
6.125%, 11/15/95 A3 10,000 10,290
6.5%, 12/1/97 A3 25,000 26,135
NationsBank
4.75%, 8/15/96 A2 30,000 29,996
6.625%, 1/15/98 A3 35,500 37,195
PNC Funding Corp.
6.0%, 12/15/94 A2 8,705 8,864
4.875%, 5/15/95 A2 26,400 26,676
4.25%, 1/10/96 A2 10,900 10,844
4.625%, 1/10/97 A2 16,500 16,376
Provident Bank of Ohio
5.0%, 6/15/96 Baa 215,000 15,066
Security Pacific Corp.
7.75%, 12/1/96 A2 7,750 8,320
U.S. Bancorp
8.68%, 7/25/95 A3 5,000 5,317
6.16%, 12/8/95 A3 10,000 10,275
U.S. National Bank
of Oregon
5.4%, 10/30/95 A1 10,000 10,156
Wachovia Bank
4.47%, 8/26/96 Aa2 20,000 19,959
4.25%, 9/20/96 Aa2 22,000 21,826
4.6%, 11/15/96 Aa2 35,000 34,970
5.35%, 11/13/98 Aa2 20,000 20,016
---------
GROUP TOTAL 623,439
---------
- ---------------------------------------------------------------------------------------
FINANCE--CONSUMERS (13.3%)
Avco Financial
5.5%, 5/1/98 A2 25,000 25,122
Beneficial Finance Corp.
8.26%, 8/20/96 A2 8,000 8,673
9.1%, 2/3/97 A2 7,500 8,359
9.82%, 12/12/97 A2 5,000 5,797
CIT Group Holdings
5.65%, 11/15/95 A1 5,000 5,107
8.875%, 6/15/96 A1 13,250 14,531
6.0%, 2/15/97 A1 51,712 53,256
Commercial Credit Corp.
8.375%, 4/15/95 A1 11,000 11,538
6.75%, 1/15/97 A1 21,500 22,536
8.5%, 2/15/98 A1 10,000 11,157
Countrywide Funding
6.3%, 6/15/94 A3 15,000 15,159
6.8%, 3/1/95 A3 19,000 19,543
6.1%, 7/31/96 A3 5,000 5,141
6.11%, 8/5/96 A3 5,000 5,144
7.85%, 3/3/97 A3 9,800 10,514
First Chicago Master Trust
6.25%, 8/15/97 A3 10,500 10,930
First Deposit Credit Card Trust
6.8%, 9/5/95 Aaa $10,000 $ 10,262
Fleet Mortgage Group
6.125%, 8/15/97 A3 15,000 15,448
7.18%, 12/24/97 A3 15,000 15,937
MBNA Master Credit Card Trust
6.2%, 8/31/97 Aaa 10,000 10,409
5.4%, 9/30/98 Aaa 43,600 43,655
NationsBank Credit Card Trust
4.75%, 12/16/96 Aaa 42,500 42,606
North American Mortgage Co.
4.69%, 11/2/95 Baa2 13,000 12,941
Norwest Financial, Inc.
8.54%, 4/17/95 Aa3 5,000 5,259
7.1%, 11/15/96 Aa3 19,525 20,692
6.5%, 11/15/97 Aa3 12,500 13,083
Sears Discover Credit Corp.
7.68%, 2/10/97 Baa1 5,000 5,347
8.89%, 2/10/97 Baa1 5,000 5,515
7.81%, 3/18/97 Baa1 23,850 25,625
Standard Credit Card
Master Trust
5.5%, 1/7/99 Aaa 15,000 15,047
---------
GROUP TOTAL 474,333
---------
- ---------------------------------------------------------------------------------------
FINANCE--DIVERSIFIED (16.8%)
Associates Corp.
4.75%, 8/1/96 A1 14,000 14,043
4.9%, 12/2/96 A1 15,000 15,057
4.99%, 12/2/96 A1 25,000 25,162
9.7%, 5/1/97 A1 13,000 14,809
8.625%, 6/15/97 A1 6,000 6,669
8.375%, 1/15/98 A1 10,000 11,116
8.8%, 8/1/98 A1 6,000 6,809
Bear Stearns Cos.
5.875%, 1/15/96 A2 30,000 30,719
9.125%, 4/15/98 A2 13,600 15,456
Dean Witter Discover
& Co.
5.0%, 4/1/96 A3 23,750 23,912
6.0%, 3/1/98 A3 15,000 15,396
General Electric
Capital Corp.
6.2%, 3/1/95 Aaa 62,119 63,589
4.7%, 11/19/96 Aaa 38,000 38,091
Goldman Sachs Group
6.85%, 11/28/94 A1 17,000 17,380
6.1%, 4/15/98 A1 30,000 30,620
</TABLE>
16
<PAGE> 60
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
ITT Financial
10.05%, 4/15/96 A3 $ 4,000 $ 4,446
Lehman Inc.
5.04%, 12/15/96 A3 20,000 20,104
Morgan Stanley Group
6.93%, 4/1/95 A1 30,000 31,446
7.32%, 1/15/97 A1 11,500 12,225
9.25%, 3/1/98 A1 10,000 11,362
Mortgage Trust Series
1991-A
7.2%, 2/1/95 Aa2 9,744 9,924
Paine Webber, Inc.
6.25%, 6/15/98 A3 25,000 25,422
Pitney Bowes Credit Corp.
7.43%, 4/15/97 Aa3 14,000 15,016
Charles Schwab Corp.
5.32%, 10/15/97 Baa1 8,000 7,997
Shearson Lehman Holdings
6.0%, 7/14/95 A3 15,000 15,338
9.75%, 4/1/96 A3 19,700 21,618
Smith Barney Holdings
5.375%, 6/1/96 A3 19,000 19,242
Transamerica Finance
7.125%, 10/11/94 A2 13,000 13,310
8.3%, 5/1/95 A2 5,000 5,246
5.4%, 9/1/95 A2 18,145 18,434
9.08%, 2/18/97 A2 5,000 5,550
8.75%, 10/1/99 A2 7,000 7,968
U.S. West Financial Services
8.45%, 4/24/96 A2 25,000 26,960
---------
GROUP TOTAL 600,436
---------
- ---------------------------------------------------------------------------------------
INDUSTRIAL (12.6%)
Anheuser Busch Co.
4.75%, 9/25/95 A1 20,000 20,131
Cox Enterprises
8.9%, 8/15/94 A2 5,000 5,139
CSX Corp.
9.5%, 11/15/95 A3 5,000 5,419
9.04%, 2/28/97 A3 8,500 9,388
Ford Capital B.V.
9.0%, 6/1/96 A2 11,460 12,572
9.375%, 1/1/98 A2 10,000 11,439
Ford Holdings
9.25%, 7/15/97 A2 10,000 11,281
Gannett Co.
5.25%, 3/1/98 Aa3 20,000 20,103
General Electric Co.
8.06%, 5/3/94 Aaa 7,704 7,797
W.R. Grace Co.
6.5%, 12/1/95 Baa3 34,400 35,390
Hertz Corp.
9.5%, 3/15/95 Baa2 $ 5,350 $ 5,636
9.625%, 6/15/96 Baa2 7,600 8,407
International Paper Co.
9.625%, 10/15/95 A3 15,000 16,254
7.4%, 3/4/97 A3 10,000 10,685
Kellogg Co.
5.9%, 7/15/97 Aaa 30,565 31,583
Lockheed Corp.
5.65%, 4/1/97 Baa1 30,000 30,230
J.C. Penney Co., Inc.
5.375%, 11/15/98 A2 5,000 5,005
Sears, Roebuck & Co.
9.25%, 4/15/98 Baa1 13,100 14,928
Texaco Capital Corp.
8.22%, 2/12/97 A1 15,000 16,368
6.87%, 6/30/97 A1 30,000 31,702
9.0%, 11/15/97 A1 8,000 9,050
8.65%, 1/30/98 A1 16,750 18,802
Texas Instruments, Inc.
9.0%, 7/15/99 A3 15,192 16,590
Union Pacific Railroad Co.
ETC (Equipment Trust
Certificate)
9.625%, 3/15/97 Aa1 18,350 20,726
United Technologies Corp.
9.625%, 5/15/99 A2 5,000 5,509
Wal-Mart Stores, Inc.
5.5%, 9/15/97 Aa1 68,000 69,165
---------
GROUP TOTAL 449,299
---------
- ---------------------------------------------------------------------------------------
INSURANCE (2.3%)
CNA Financial
8.625%, 3/1/96 A1 17,000 18,284
Engineering Insurance Group
9.375%, 3/15/94 Aaa 6,000 6,044
Equitable Cos. Inc.
6.75%, 12/1/00 BBB* 11,500 11,742
Prudential Funding Corp.
8.7%, 1/16/95 Aa3 5,000 5,224
Safeco Corp.
10.75%, 9/15/95 Aa3 32,250 35,450
Security Pacific
Mortgage Trust
9.97%, 9/20/94 AAA* 5,000 5,005
--------
GROUP TOTAL 81,749
--------
- ---------------------------------------------------------------------------------------
UTILITIES (13.9%)
American Telephone &
Telegraph Capital
4.89%, 8/25/95 Aa3 11,000 11,100
4.5%, 2/15/96 Aa3 35,000 35,040
</TABLE>
17
<PAGE> 61
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
COSO Funding Corp.
7.22%, 6/30/95 Baa3 $15,000 $ 15,303
Carolina Power & Light Co.
5.2%, 1/1/95 A2 13,500 13,663
9.14%, 4/1/95 A2 14,570 15,401
Connecticut Power &
Light Co.
4.25%, 10/1/94 Baa1 30,000 30,037
GTE Southwest
5.82%, 12/1/99 A3 33,650 33,967
Georgia Power Co.
6.375%, 4/3/95 A3 44,250 45,326
6.03%, 7/4/95 A3 20,000 20,467
Illinois Power Co.
8.5%, 8/1/94 Baa3 12,435 12,682
Kansas City Power &
Light Co.
6.6%, 11/22/94 A3 12,000 12,263
Long Island Lighting Co.
10.25%, 6/15/94 Baa2 25,250 25,776
11.75%, 11/15/94 Baa2 8,125 8,585
Pacific Gas & Electric
4.93%, 10/14/97 A2 15,000 14,874
5.39%, 12/10/97 A2 10,000 10,051
Public Service Electric
& Gas
6.0%, 6/1/95 A2 13,745 14,057
6.0%, 1/1/98 A2 15,000 15,380
Texas Utilities Co.
8.78%, 1/5/95 Baa3 10,000 10,431
9.0%, 1/10/95 Baa3 10,000 10,445
9.25%, 12/5/95 Baa3 11,500 12,404
9.39%, 11/21/96 Baa2 5,850 6,478
6.375%, 8/1/97 Baa2 5,000 5,187
United Illuminating Co.
7.62%, 9/12/94 Baa3 15,000 15,309
7.2%, 11/1/94 Baa3 10,000 10,210
U.S. West Corp.
6.55%, 4/3/95 Aa3 11,000 11,313
Virginia Electric Power Co.
6.375%, 3/1/95 A2 25,000 25,618
Wisconsin Electric Power
5.875%, 10/1/97 Aa2 50,000 51,373
Wisconsin Power & Light
6.125%, 7/15/97 Aa2 5,000 5,181
---------
GROUP TOTAL 497,921
---------
- ---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,853,350) 2,905,069
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (10.6%)
- ---------------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
(Collateralized Mortgage
Obligations)
6.5%, 3/10/95 $ 9,000 $ 9,117
6.75%, 5/3/95 18,000 18,270
7.5%, 5/1/96 2,380 2,469
Federal National
Mortgage Assn.
(Collateralized Mortgage
Obligations)
7.0%, 2/26/95 15,000 15,245
8.95%, 6/12/95 4,443 4,637
8.0%, 2/11/96 2,782 2,929
7.0%, 8/25/18 30,580 31,092
Government Export Trust
(U.S. Government
Guaranteed)
4.85%, 8/1/95 17,600 17,705
Overseas Private
Investment Corp.
(U.S. Government
Guaranteed)
8.89%, 8/1/94 6,250 6,550
U.S. Treasury Notes
4.25%, 1/31/95 25,000 25,168
3.875%, 8/31/95 41,600 41,568
7.75%, 3/31/96 2,000 2,145
7.625%, 4/30/96 30,000 32,166
4.25%, 5/15/96 12,000 12,004
7.875%, 7/15/96 25,000 27,055
8.0%, 10/15/96 33,000 36,006
4.375%, 11/15/96 10,000 9,995
6.25%, 1/31/97 31,000 32,530
6.875%, 4/30/97 27,000 28,873
8.5%, 5/15/97 20,000 22,359
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $375,452) 377,883
- ---------------------------------------------------------------------------------------
TAXABLE MUNICIPAL SECURITIES (1.6%)
- ---------------------------------------------------------------------------------------
Brazos River Texas PCR
8.49%, 6/1/94 Baa2 6,000 6,090
Health Insurance Plan of
Greater New York
10.65%, 7/1/95 A-* 2,900 3,106
Lower Colorado River Auth.
7.375%, 1/1/97 A2 25,000 26,549
</TABLE>
18
<PAGE> 62
<TABLE>
<CAPTION>
Face Market
Rating(1) Amount Value
(Moody's) (000) (000)+
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Industrial
Finance Agency
9.125%, 8/1/95 A-* $ 3,655 $ 3,839
New York City GO
10.0%, 11/15/96 Baa1 6,000 6,643
Sacramento Municipal
Utility Dist.
5.25%, 11/15/96 A2 5,000 5,029
5.625%, 11/15/97 A2 7,000 7,052
- ---------------------------------------------------------------------------------------
TOTAL TAXABLE
MUNICIPAL SECURITIES
(Cost $55,572) 58,308
- ---------------------------------------------------------------------------------------
FOREIGN BONDS (2.7%)
- ---------------------------------------------------------------------------------------
Deutsche Bank Financial
5.625%, 1/30/95 Aaa 15,000 15,265
Republic of Malaysia Floater
5.25%, 4/30/15 A2 10,790 10,826
Province of Manitoba
6.0%, 10/15/97 A1 15,000 15,478
Province of Ontario
5.7%, 10/1/97 Aa2 42,000 42,787
Kingdom of Spain
9.27%, 11/1/96 Aa2 10,000 11,132
- ---------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $93,914) 95,488
- ---------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (4.0%)
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
3.17%, 2/1/94
(Cost $142,776) 142,776 142,776
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(Cost $3,521,064) 3,579,524
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.2%)
- ---------------------------------------------------------------------------------------
Other Assets--Notes C and E 61,104
Liabilities--Note E (67,619)
---------
(6,515)
- ---------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------
Applicable to 326,597,307 outstanding
$.001 par value shares
(authorized 400,000,000 shares) $3,573,009
- ---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.94
=======================================================================================
</TABLE>
+See Note A to Financial Statements.
(1)Unaudited.
*Rated by Standard & Poor's.
GO--General Obligation.
MTN--Medium-Term Note.
PCR--Pollution Control Revenue Bond.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- --------
<S> <C> <C>
Paid in Capital--Note G $3,516,977 $10.77
Undistributed Net
Investment Income -- --
Overdistributed Net
Realized Gains--Note G (2,282) (.01)
Unrealized Appreciation of
of Investments 58,314 .18
- ---------------------------------------------------------------------------------------
NET ASSETS $3,573,009 $10.94
- ---------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Vanguard Fixed Income Securities Fund
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
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights appearing in the Vanguard Fixed Income Securities Fund (the "Fund")
1994 Annual Report (the "Annual Report") present fairly, in all material
respects, the financial position 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 of the Fund at January 31, 1994, the results of each of
their operations, the changes in each of their net assets and the financial
highlights for each of the respective periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at January 31, 1994 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
We have also audited the financial statements of the GNMA Portfolio of the Fund
at January 31, 1994, and we have issued an unqualified opinion thereon. The
Annual Report containing our report on the financial statements of the GNMA
Portfolio is available from the Fund.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 22, 1994
20
<PAGE> 64
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
Money Market Portfolios (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Long-Term Portfolios
(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
[VANGUARD GROUP LOGO]
The Vanguard Group of Investment Companies
Vanguard Financial Center * Valley Forge, Pennsylvania 19482
<TABLE>
<S> <C>
New Account Information 1-(800) 662-7447 Shareholder Account Services: 1-(800) 662-2739
</TABLE>
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.
Q280-01/94
<PAGE> 65
EDGAR Appendix
This appendix describes components of the printed version of this
report that do not translate into a format acceptable to the EDGAR system.
The cover of the printed version of this report features the flags of
The United States of America and Vanguard flying from a halyard.
A bar chart called "A Tale of Two Decades" appears on the inside front
cover. This chart illustrates Average Annual Total Return, in nominal and real
terms, of Stocks, Bonds and Reserves (U.S. Treasury bills) for the two decades
since 1973.
A running head featuring the Vanguard flag logo appears at the top of
pages one through 40.
A photograph of John C. Bogle appears at the upper-right of page one.
Line charts illustrating month-end yields of 30-year U.S. Treasury
Bonds and 3-year U.S. Treasury Notes, fiscal years 1988 through 1994 appears on
page 2.
Line chart illustrating cummulative performance of Vanguard Fixed
Income Fund Long-Term U.S. Portfolio Compared to (i) Average Long-Term Treasury
Fund and (ii) Lehman Long-Term Treasury Index for May 31, 1986 to January 31,
1994 at top of page 8.
Line chart illustrating cumulative performance of VFIF Long-Term
Corporate Portfolio compared to Average Corporate A-Rated Fund and Lehman
Corporate A-Rated Index for January 31, 1984 to January 31, 1994 at bottom of
page 8.
Line chart illustrating cumulative performance of VFIF High Yield
Corporate Portfolio Compared to Average High Yield Bond Fund and Lehman
Corporate BBB-Rated Index for January 31, 1984 to January 31, 1994 at top of
page 9.
Line chart illustrating cumulative performance of GNMA portfolio to
Average GNMA Fund and Lehman Corporate BBB-Rated Index from January 31, 1984 to
January 31, 1994 at bottom of page 9.
Line chart illustrating cumulative performance of Intermediate-Term
U.S. Treasury Portfolio to Average Intermediate-Term Treasury Fund and Lehman
Intermediate-Term Treasury Index from October 31, 1991 to January 31, 1994 at
top of page 10.
Line chart illustrating cumulative performance of Short-Term Federal
Portfolio to Average of Short-Term Federal Portfolio to Average Short-Term
Government Fund and Lehman Short-Term Government Index from December 31, 1987
to January 31, 1994 at bottom of page 10.
Line chart illustrating cumulative performance Short-Term U.S. Treasury
Portfolio to Average Short-Term Treasury Fund and Lehman Short-Term Treasury
Index from October 31, 1991 to January 31, 1994 at top of page 11.
Line chart illustrating cumulative performance Short-Term Corporate
Portfolio to Average Short-Term Investment Grade Fund and Lehman Short-Term
Investment Grade Index from January 31, 1984 to January 31, 1994 at bottom of
page 11.
