<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
The rapid recovery in the bond market that began in November 1994 continued,
and indeed accelerated, during the six months ended July 31, 1995, the first
half of Vanguard Fixed Income Securities Fund's fiscal year. Interest rates
continued to decline across the entire spectrum of maturities, providing each
of our Portfolios with total returns that more than offset the negative returns
of our prior fiscal year.
In this remarkable reversal of fortune, our Short-Term Portfolios
achieved total returns (capital change plus income) in excess of +6% and our
Long-Term Portfolios provided returns in the +12% range. As you would expect,
the returns on our Intermediate- Term Portfolios fell roughly between these two
norms. This table presents the return for each Portfolio for the past six
months, together with its current yield:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Six Months Ended
July 31, 1995
-------------------------
Total 30-Day
Portfolio Return Yield
---------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. TREASURY + 6.2% +5.8%
SHORT-TERM FEDERAL + 6.2 +6.1
SHORT-TERM CORPORATE + 6.5 +6.2
---------------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY +10.0% +6.2%
INTERMEDIATE-TERM CORPORATE +10.7 +6.7
GNMA + 8.4 +7.1
---------------------------------------------------------------------------
LONG-TERM U.S. TREASURY +12.8% +6.7%
LONG-TERM CORPORATE +11.8 +7.1
---------------------------------------------------------------------------
HIGH YIELD CORPORATE +11.2% +8.9%
---------------------------------------------------------------------------
</TABLE>
The net asset values and dividends per share that are the basis for these
calculations are presented in a table at the end of this letter.
In my view, the presentation of semi-annual returns for bond funds,
however necessary in a report of this nature, leaves something to be desired,
for it accounts for only one-half of the year's interest income. But the fact
is that, over the long run, interest income has accounted for virtually 100% of
the total return on a bond fund. So, the following table presents the return of
each Portfolio for the past twelve months, divided into its income and capital
components.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Components of Total Return
----------------------------------------------
Twelve Months Ended
July 31, 1995
----------------------------------------------
Portfolio Income Capital Total
----------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM U.S. TREASURY + 6.2% +1.4% + 7.6%
SHORT-TERM FEDERAL + 6.1 +1.3 + 7.4
SHORT-TERM CORPORATE + 6.4 +1.7 + 8.1
----------------------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY + 7.0% +3.6% +10.6%
INTERMEDIATE-TERM CORPORATE + 7.4 +4.1 +11.5
GNMA + 7.9 +2.6 +10.5
----------------------------------------------------------------------------------
LONG-TERM U.S. TREASURY + 7.8% +5.8% +13.6%
LONG-TERM CORPORATE + 8.0 +4.5 +12.5
----------------------------------------------------------------------------------
HIGH YIELD CORPORATE +10.0% +4.3% +14.3%
----------------------------------------------------------------------------------
</TABLE>
This table clearly reflects both the relative yield and the relative price
volatility of each Portfolio. However, the volatility is somewhat understated
in the table, providing as it does the capital returns for the entire period;
thus, it tends to gloss over the impact of this year's strongly positive
capital returns, and the impact of last year's harshly negative returns. We
therefore remind you that swings in interest rates have a great impact on the
capital returns of bonds with long maturities, but a much smaller impact on
those with short maturities.
THE PERIOD IN REVIEW
The overpowering message of the splendid performance of bonds thus far in 1995
is clear: financial markets change quickly and unpredictably! Bond prices fell
completely apart during 1994, with the yield on the long-term U.S. Treasury
bond rising on balance from a low of 6.3% in January to a high of 8.2% in
mid-November. This rise of 190 basis points engendered a -21% decline in the
price of the long bond. Interest rates on the short-term U.S. Treasury bond
soared as well, rising 360 basis points (from 4.2% to 7.8%); however, given its
shorter maturity (3 years versus a 30-year maturity for the long bond), it
declined by but -9% in value.
This year, of course, the story is quite the opposite. The yield on the
long-term U.S. Treasury bond has fallen to 6.8% (not so far from its 1994 low),
and the yield on the short-term U.S. Treasury bond has fallen to 6.0%.
Virtually none of the "experts" expected these declines. Indeed, last
December's
1
<PAGE> 2
Wall Street Journal survey of prominent economists and professional money
managers reflected a consensus yield prediction of 7.9% for the long Treasury
on June 30, 1995 (i.e., a small increase in rates). The actual yield turned
out to be 6.6%. So much for predictions!
The surprise rally of the past eight months has been based importantly
on the market's perception that the Federal Reserve Board seems to have
completed its program to drive interest rates upward. After raising the Federal
funds rate (at which banks borrow from one another) fully six times during
1994, the Fed boosted rates on but one occasion during the first half of 1995.
In early July, however, the short-term interest rate was gently eased by 1/4 of
1%, bringing this key rate to 5 3/4% versus 3% just one and one-half years ago.
The Fed's most recent action was apparently based on the perception
that the threat of inflation had diminished and that U.S. economic growth was
softening. Bond market participants are saying, in effect, that we are in "the
best of all possible worlds": steady economic growth without significant
inflation. The idea that these two often-warring factors have finally made
peace, however, is not something one should take for granted as the permanent
state of affairs.
SUMMING UP
Following a tough year for all sectors of the bond market, my Chairman's letter
to you in our Annual Report dated January 31, 1995, expressed guarded optimism
about future bond returns and suggested that "the probabilities favor much
better total returns in the coming year." With half of the fiscal year now
history, that optimism is being borne out. I hope that you agreed with me then
that liquidating your Vanguard bond fund holdings would have been unwise, and
followed my advice to "stay the course." Certainly the events of the past six
months have justified, once again, the merits of this long-term strategy.
I look forward to reviewing the Fund's results with you further in our
Annual Report six months hence.
Sincerely,
/S/ JOHN C. BOGLE
-----------------
John C. Bogle
Chairman of the Board
August 8, 1995
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS QUOTED IN THE CHAIRMAN'S LETTER ARE CALCULATED IN ACCORDANCE
WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS
(PERIODS ENDED JUNE 30, 1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
10 YEARS
---------------------------------------
INCEPTION TOTAL INCOME CAPITAL
PORTFOLIO DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
---------------------- --------- -------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY 5/19/86 +18.61% +11.32% + 9.45%* + 8.04%* +1.41%*
LONG-TERM CORPORATE 7/9/73 +16.57 +11.57 +10.86 + 9.21 +1.65
HIGH YIELD CORPORATE 12/27/78 +13.57 +11.93 +10.47 +11.61 -1.14
INTERMEDIATE-TERM CORPORATE 11/1/93 +13.66 + 5.17* + 5.17* + 6.44* -1.27*
INTERMEDIATE-TERM U.S. TREASURY 10/28/91 +13.15 + 8.99* + 8.99* + 6.46* +2.53*
GNMA 6/27/80 +12.47 + 9.08 + 9.56 + 8.89 +0.67
SHORT-TERM FEDERAL 12/31/87 + 8.15 + 7.54 + 7.75* + 7.12* +0.63*
SHORT-TERM U.S. TREASURY 10/28/91 + 8.38 + 6.32* + 6.32* + 5.38* +0.94*
SHORT-TERM CORPORATE 10/29/82 + 8.60 + 8.04 + 8.43 + 7.69 +0.74
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
* PERFORMANCE FIGURES SINCE INCEPTION.
PORTFOLIO RESULTS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE TWELVE MONTHS SEC
------------------------- ------------------------------------ 30-DAY
AVERAGE AVERAGE JANUARY 31, JULY 31, INCOME CAPITAL GAINS TOTAL ANNUALIZED
PORTFOLIO MATURITY QUALITY 1995 1995 DIVIDENDS DISTRIBUTIONS RETURN YIELD
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY 21.2 YEARS Aaa $ 9.23 $10.06 $.676 $.078 +13.6% 6.69%
LONG-TERM CORPORATE 19.3 YEARS Aa3 8.18 8.82 .623 -- +12.5 7.05
HIGH YIELD CORPORATE 8.0 YEARS Ba1 7.24 7.70 .677 -- +14.3 8.86 (1)
INTERMEDIATE-TERM
CORPORATE 7.5 YEARS Aa3 9.07 9.70 .641 -- +11.5 6.65
INTERMEDIATE-TERM
U.S. TREASURY 7.5 YEARS Aaa 9.76 10.39 .654 -- +10.6 6.24
GNMA 7.2 YEARS Aaa 9.71 10.15 .730 .007 +10.5 7.12
SHORT-TERM FEDERAL 2.4 YEARS Aaa 9.79 10.09 .584 -- + 7.4 6.09
SHORT-TERM U.S. TREASURY 2.3 YEARS Aaa 9.89 10.18 .597 -- + 7.6 5.77
SHORT-TERM CORPORATE 2.5 YEARS Aa3 10.40 10.74 .639 -- + 8.1 6.20
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
3
<PAGE> 4
TOTAL INVESTMENT RETURN TABLES
The following tables illustrate the results of single-share investments in
VANGUARD FIXED INCOME SECURITIES FUND through July 31, 1995. The percentage
figures show results on a "total return" basis and assume the reinvestment of
both income dividends and any capital gains distributions. During the periods
illustrated, bond prices fluctuated widely; these results should not be
considered a representation of the dividend income or capital gain or loss that
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*
----------------------------------------------------------------------------------------------------------------------------------
High Yield Corporate Portfolio
Value with Income ------------------------------ Lehman Mutual Fund
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total "BBB" Rated Bond
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Index Total Return
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (12/78) $10.00 -- -- $10.00 -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
1979 10.33 -- -- 10.33 + 3.3% 0.0% + 3.3% + 2.0%
----------------------------------------------------------------------------------------------------------------------------------
1980 9.26 -- $1.235 10.49 -10.4 +11.9 + 1.5 - 8.7
----------------------------------------------------------------------------------------------------------------------------------
1981 8.50 -- 1.180 10.99 - 8.2 +13.0 + 4.8 + 4.6
----------------------------------------------------------------------------------------------------------------------------------
1982 7.88 -- 1.240 11.87 - 7.3 +15.3 + 8.0 + 3.3
----------------------------------------------------------------------------------------------------------------------------------
1983 8.96 -- 1.280 15.70 +13.7 +18.6 +32.3 +39.7
----------------------------------------------------------------------------------------------------------------------------------
1984 8.97 -- 1.200 17.93 + 0.1 +14.1 +14.2 +11.8
----------------------------------------------------------------------------------------------------------------------------------
1985 8.52 -- 1.180 19.62 - 5.0 +14.4 + 9.4 +16.7
----------------------------------------------------------------------------------------------------------------------------------
1986 8.84 -- 1.140 23.23 + 3.8 +14.6 +18.4 +21.5
----------------------------------------------------------------------------------------------------------------------------------
1987 9.33 $.118 1.081 27.91 + 6.9 +13.2 +20.1 +18.2
----------------------------------------------------------------------------------------------------------------------------------
1988 8.53 -- 1.006 28.62 - 8.6 +11.1 + 2.5 + 4.3
----------------------------------------------------------------------------------------------------------------------------------
1989 8.44 -- 1.016 31.89 - 1.1 +12.5 +11.4 + 6.7
----------------------------------------------------------------------------------------------------------------------------------
1990 7.31 -- 1.004 31.31 -13.4 +11.6 - 1.8 +11.0
----------------------------------------------------------------------------------------------------------------------------------
1991 6.19 -- .904 30.30 -15.3 +12.1 - 3.2 + 9.8
----------------------------------------------------------------------------------------------------------------------------------
1992 7.27 -- .770 39.78 +17.4 +13.9 +31.3 +15.6
----------------------------------------------------------------------------------------------------------------------------------
1993 7.56 -- .727 45.62 + 4.0 +10.7 +14.7 +12.6
----------------------------------------------------------------------------------------------------------------------------------
1994 8.14 -- .695 53.62 + 7.7 + 9.8 +17.5 +11.7
----------------------------------------------------------------------------------------------------------------------------------
1995 7.24 -- .679 52.27 -11.1 + 8.6 - 2.5 - 3.8
----------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 7.70 -- .336 58.10 + 6.4 + 4.8 +11.2 +11.0
----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +481.0% +454.7%
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +11.2% +10.9%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance for the Portfolio and the Index begins on 12/31/78.
4
<PAGE> 5
<TABLE>
<CAPTION>
LONG-TERM U.S. TREASURY PORTFOLIO (BEGAN OPERATIONS MAY 19, 1986)
----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
----------------------------------------------------------------------------------------------------------------------------------
Long-Term U.S. Treasury Portfolio
Value with Income --------------------------------- Lehman Long-Term
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Treasury Bond Index
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Total Return
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (5/86) $10.00 -- -- $10.00 -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
1987 10.28 $.034 $.530 10.88 + 3.2% +5.6% + 8.8% +12.1%
----------------------------------------------------------------------------------------------------------------------------------
1988 9.49 -- .776 10.91 - 7.7 +8.0 + 0.3 + 1.5
----------------------------------------------------------------------------------------------------------------------------------
1989 9.28 -- .778 11.61 - 2.2 +8.6 + 6.4 + 5.1
----------------------------------------------------------------------------------------------------------------------------------
1990 9.53 -- .781 12.93 + 2.7 +8.6 +11.3 +12.3
----------------------------------------------------------------------------------------------------------------------------------
1991 9.74 -- .776 14.35 + 2.2 +8.8 +11.0 +11.6
----------------------------------------------------------------------------------------------------------------------------------
1992 10.14 -- .763 16.14 + 4.1 +8.3 +12.4 +13.4
----------------------------------------------------------------------------------------------------------------------------------
1993 10.04 .700 .734 18.41 + 6.1 +8.0 +14.1 +14.6
----------------------------------------------------------------------------------------------------------------------------------
1994 10.75 .176 .685 21.38 + 8.9 +7.2 +16.1 +16.7
----------------------------------------------------------------------------------------------------------------------------------
1995 9.23 .119 .665 19.95 -13.0 +6.3 - 6.7 - 7.5
----------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 10.06 -- .336 22.46 + 9.0 +3.8 +12.8 +13.2
----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +125.0% +137.9%
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +9.2% +9.9%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance for the Portfolio and the Index begins on 5/31/86.
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE PORTFOLIO (BEGAN OPERATIONS OCTOBER 29, 1982)
----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
----------------------------------------------------------------------------------------------------------------------------------
Short-Term Corporate Portfolio
Value with Income ------------------------------ Lehman Mutual Fund
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Short-Term Investment
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Grade Total Return
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (10/82) $10.00 -- -- $10.00 -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
1983 10.05 -- $ .264 10.32 +0.5% + 2.7% + 3.2% + 4.6%
----------------------------------------------------------------------------------------------------------------------------------
1984 9.94 -- 1.020 11.30 -1.1 +10.6 + 9.5 +10.9
----------------------------------------------------------------------------------------------------------------------------------
1985 10.17 -- 1.067 12.8 8 +2.3 +11.7 +14.0 +14.1
----------------------------------------------------------------------------------------------------------------------------------
1986 10.55 -- 1.001 14.72 +3.7 +10.5 +14.2 +14.6
----------------------------------------------------------------------------------------------------------------------------------
1987 10.67 $.184 .877 16.42 +2.9 + 8.7 +11.6 +11.9
----------------------------------------------------------------------------------------------------------------------------------
1988 10.43 -- .761 17.27 -2.2 + 7.4 + 5.2 + 6.8
----------------------------------------------------------------------------------------------------------------------------------
1989 10.23 -- .833 18.36 -1.9 + 8.2 + 6.3 + 6.5
----------------------------------------------------------------------------------------------------------------------------------
1990 10.34 -- .895 20.23 +1.1 + 9.1 + 0.2 +10.7
----------------------------------------------------------------------------------------------------------------------------------
1991 10.50 -- .876 22.35 +1.5 + 9.0 + 0.5 + 9.8
----------------------------------------------------------------------------------------------------------------------------------
1992 10.88 -- .804 24.96 +3.6 + 8.1 +11.7 +13.4
----------------------------------------------------------------------------------------------------------------------------------
1993 10.99 .165 .695 27.28 +2.6 + 6.7 + 9.3 + 9.5
----------------------------------------------------------------------------------------------------------------------------------
1994 10.94 .099 .605 28.95 +0.4 + 5.7 + 6.1 + 7.9
----------------------------------------------------------------------------------------------------------------------------------
1995 10.40 -- .596 29.12 -4.9 + 5.5 + 0.6 + 0.3
----------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 10.74 -- .334 31.03 +3.3 + 3.2 + 6.5 + 7.5
----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +210.3% +238.7%
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +9.3% +10.0%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance for the Portfolio and the Index begins on 10/31/82.
5
<PAGE> 6
TOTAL INVESTMENT RETURN TABLES (continued)
<TABLE>
<CAPTION>
GNMA PORTFOLIO (BEGAN OPERATIONS JUNE 27, 1980)
----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
----------------------------------------------------------------------------------------------------------------------------------
GNMA Portfolio
Value with Income --------------------------- Lehman Mutual
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Fund GNMA
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Total Return
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (6/80) $10.00 -- -- $10.00 -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
1981 8.75 -- $ .610 9.37 -11.1% + 6.3% - 4.8% - 7.3%
----------------------------------------------------------------------------------------------------------------------------------
1982 7.92 -- 1.120 9.74 - 9.5 +13.5 + 4.0 + 1.7
----------------------------------------------------------------------------------------------------------------------------------
1983 9.21 -- 1.110 12.87 +16.3 +15.8 +32.1 +39.6
----------------------------------------------------------------------------------------------------------------------------------
1984 9.20 -- 1.070 14.43 - 0.1 +12.3 +12.2 +12.0
----------------------------------------------------------------------------------------------------------------------------------
1985 9.25 -- 1.080 16.39 + 0.5 +13.0 +13.5 +15.4
----------------------------------------------------------------------------------------------------------------------------------
1986 9.92 -- 1.040 19.59 + 7.2 +12.4 +19.6 +22.6
----------------------------------------------------------------------------------------------------------------------------------
1987 10.10 $.006 .965 21.98 + 1.9 +10.3 +12.2 +13.6
----------------------------------------------------------------------------------------------------------------------------------
1988 9.69 -- .889 23.15 - 4.1 + 9.4 + 5.3 + 6.8
----------------------------------------------------------------------------------------------------------------------------------
1989 9.34 -- .882 24.49 - 3.6 + 9.4 + 5.8 + 6.6
----------------------------------------------------------------------------------------------------------------------------------
1990 9.54 -- .878 27.42 + 2.1 + 9.9 +12.0 +12.9
----------------------------------------------------------------------------------------------------------------------------------
1991 9.85 -- .855 30.95 + 3.2 + 9.7 +12.9 +13.2
----------------------------------------------------------------------------------------------------------------------------------
1992 10.25 -- .831 34.97 + 4.1 + 8.9 +13.0 +12.9
----------------------------------------------------------------------------------------------------------------------------------
1993 10.50 -- .778 38.61 + 2.4 + 8.0 +10.4 +10.1
----------------------------------------------------------------------------------------------------------------------------------
1994 10.39 -- .641 40.61 - 1.0 + 6.2 + 5.2 + 6.1
----------------------------------------------------------------------------------------------------------------------------------
1995 9.71 .007 .693 40.76 - 6.5 + 6.9 + 0.4 - 0.3
----------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 10.15 -- .368 44.19 + 4.5 + 3.9 + 8.4 + 8.8
----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +349.1% +393.4%
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +10.5% +11.2%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Performance for the Portfolio and the Index begins on 6/30/80.
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL PORTFOLIO (BEGAN OPERATIONS DECEMBER 31, 1987)
----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
----------------------------------------------------------------------------------------------------------------------------------
Short-Term Federal Portfolio
Value with Income ------------------------------ Lehman Mutual Fund
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Short-Term U.S. Gov't
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Index Total Return
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (12/87) $10.00 -- -- $10.00 -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
1988 10.05 -- $.050 10.10 +0.5% +0.5% + 1.0% + 1.9%
----------------------------------------------------------------------------------------------------------------------------------
1989 9.78 -- .816 10.67 -2.7 +8.4 + 5.7 + 5.0
----------------------------------------------------------------------------------------------------------------------------------
1990 9.89 -- .842 11.75 +1.1 +9.0 +10.1 +10.5
----------------------------------------------------------------------------------------------------------------------------------
1991 10.08 -- .801 12.98 +1.9 +8.6 +10.5 +11.1
----------------------------------------------------------------------------------------------------------------------------------
1992 10.31 $.077 .721 14.35 +3.1 +7.5 +10.6 +11.3
----------------------------------------------------------------------------------------------------------------------------------
1993 10.38 .162 .609 15.57 +2.3 +6.2 + 8.5 + 8.9
----------------------------------------------------------------------------------------------------------------------------------
1994 10.38 .110 .521 16.54 +1.1 +5.1 + 6.2 + 6.1
----------------------------------------------------------------------------------------------------------------------------------
1995 9.79 .010 .550 16.51 -5.6 +5.4 - 0.2 - 0.1
----------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 10.09 -- .301 17.53 +3.1 +3.1 + 6.2 + 6.5
----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +75.3% +79.9%
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +7.7% + 8.1%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
LONG-TERM CORPORATE PORTFOLIO (BEGAN OPERATIONS JULY 9, 1973)
----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
----------------------------------------------------------------------------------------------------------------------------------
Long-Term Corporate Portfolio
Value with Income ----------------------------- Lehman Mutual Fund
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total "A" Rated Bond Index
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Total Return**
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (7/73) $10.00 -- -- $10.00 -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
1974 9.93 $.030 $.380 10.34 - 0.6% + 3.8% + 3.2% + 5.9%
----------------------------------------------------------------------------------------------------------------------------------
1975 9.20 -- .740 10.39 - 7.4 + 7.8 + 0.4 + 3.3
----------------------------------------------------------------------------------------------------------------------------------
1976 9.25 -- .730 11.32 + 0.5 + 8.5 + 9.0 +10.2
----------------------------------------------------------------------------------------------------------------------------------
1977 9.61 -- .740 12.71 + 3.9 + 8.4 +12.3 +12.9
----------------------------------------------------------------------------------------------------------------------------------
1978 9.36 -- .770 13.42 - 2.6 + 8.1 + 5.5 + 4.0
----------------------------------------------------------------------------------------------------------------------------------
1979 8.91 -- .790 13.92 - 4.8 + 8.5 + 3.7 + 2.7
----------------------------------------------------------------------------------------------------------------------------------
1980 7.68 -- .820 13.22 -13.8 + 8.8 - 5.0 -12.3
----------------------------------------------------------------------------------------------------------------------------------
1981 7.41 -- .880 14.30 - 3.5 +11.7 + 8.2 + 4.4
----------------------------------------------------------------------------------------------------------------------------------
1982 7.06 -- .930 15.51 - 4.7 +13.2 + 8.5 + 2.2
----------------------------------------------------------------------------------------------------------------------------------
1983 8.00 -- .960 19.91 +13.3 +15.0 +28.3 +38.3
----------------------------------------------------------------------------------------------------------------------------------
1984 7.84 -- .950 21.95 - 2.0 +12.3 +10.3 +10.9
----------------------------------------------------------------------------------------------------------------------------------
1985 7.84 -- .960 24.90 0.0 +13.4 +13.4 +16.6
----------------------------------------------------------------------------------------------------------------------------------
1986 8.42 -- .920 29.96 + 7.4 +12.9 +20.3 +21.5
----------------------------------------------------------------------------------------------------------------------------------
1987 8.77 .123 .846 34.89 + 5.6 +10.9 +16.5 +18.0
----------------------------------------------------------------------------------------------------------------------------------
1988 8.11 -- .770 35.50 - 7.5 + 9.3 + 1.8 + 3.9
----------------------------------------------------------------------------------------------------------------------------------
1989 7.91 -- .742 38.03 - 2.5 + 9.6 + 7.1 + 6.3
----------------------------------------------------------------------------------------------------------------------------------
1990 8.00 -- .732 42.09 + 1.1 + 9.6 +10.7 +11.0
----------------------------------------------------------------------------------------------------------------------------------
1991 8.02 -- .720 46.22 + 0.3 + 9.5 + 9.8 +10.7
----------------------------------------------------------------------------------------------------------------------------------
1992 8.63 -- .706 54.12 + 7.6 + 9.5 +17.1 +15.0
----------------------------------------------------------------------------------------------------------------------------------
1993 9.04 .151 .680 62.27 + 6.6 + 8.5 +15.1 +12.5
----------------------------------------------------------------------------------------------------------------------------------
1994 9.36 .259 .633 70.88 + 6.5 + 7.3 +13.8 +11.3
----------------------------------------------------------------------------------------------------------------------------------
1995 8.18 .072 .617 67.25 -11.9 + 6.8 - 5.1 - 3.9
----------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 8.82 -- .312 75.17 + 7.8 + 4.0 +11.8 +10.8
----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +650.2% +625.2%
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +9.6% + 9.4%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance for the Portfolio and the Index begins on 7/31/73.
** Salomon Brothers High-Grade Bond Index through 1980; Lehman Brothers Mutual
Fund "A" Rated Bond Index thereafter.
7
<PAGE> 8
REPORT FROM WELLINGTON MANAGEMENT COMPANY
MARKET REVIEW
Long-term interest rates have declined more than seventy-five basis points
(0.75%) since the beginning of the fiscal year six months ago. The decrease in
rates came after the large increase in rates in 1994, which caused the
long-term bond market to have its worst year since 1969.
Late last year, as long-term fixed-income investors began to believe
that the monetary authorities would succeed in their efforts to contain
inflation, long rates stopped rising. Subsequently, in the spring of this year,
the economy experienced a mild "inventory correction" as factory production
slowed in response to moderately curtailed consumer spending. As economic
weakness developed from this normal mid-cycle spending pattern, interest rates
began to fall, further boosted in early July by the Federal Reserve's move to
lower short-term interest rates. As rates fell, the issuance of new corporate
bonds rose, while the positive earnings reports which helped propel stocks up
over 20% this year kept yield differentials between riskless Treasuries and
corporate bonds reasonably narrow. Mortgage-backed securities underperformed
other types of high-quality bonds, as concerns about prepayments and
refinancings became prevalent.
While we do not expect another significant move down in rates, neither
do we foresee any major upward pressure on rates. Bonds in almost all sectors
seem reasonably priced given our outlook of low inflation and moderate growth.
We slightly favor mortgages given their recent sluggish performance, whereas
corporate yield premiums are quite narrow and therefore are less attractive.
Our overall outlook for the U.S. bond market is rather benign over the near
term.
GNMA PORTFOLIO
Although the decline in interest rates since the beginning of 1995 has been
significant, the GNMA market and your GNMA Portfolio have not experienced the
negative effects which occurred during a similar interest rate decline in 1993.
First, the decline in rates, although substantial, was not nearly so large as
the decline in 1993. Second, the refinancing of home mortgages, which harmed
many of the Portfolio's holdings in 1993, has not been a significant problem
this year. The reason that GNMAs have not been harmed significantly during 1995
by refinancing-induced prepayments is that the majority of "refinanceable"
mortgages were prepaid in 1993. The net result is that the GNMA Portfolio
behaved as it typically does during a period of moderate interest rate
volatility: the Portfolio produced a high level of current income while
retaining the "full faith and credit" guarantee of the U.S. government as to
the receipt of principal and interest payments (that guarantee does not, of
course, extend to the market value of GNMAs, nor to the Portfolio's net asset
value). Furthermore, the decline in interest rates combined with only a modest
acceleration in refinancing fears permitted the prices of the securities held
in the Portfolio to rise, producing an attractive total return.
Given our view that intermediate- and long-term interest rates will
stabilize at approximately current levels, the GNMA Portfolio should continue
to provide a high level of income without significant exposure to refinancing
risk over the near term. We will continue to select those GNMA securities for
your Portfolio which provide a high level of current income. Furthermore, we
will attempt to reduce the volatility of the income stream by selecting issues
which should be less affected by refinancing when interest rates become
volatile. Currently, the Portfolio's average coupon is 7.7%.
LONG-TERM CORPORATE PORTFOLIO
The Portfolio's average maturity is slightly under 20 years as it pursues its
charter as a long-term corporate bond fund. As a result of its long average
maturity, the Portfolio's net asset value rose sharply as rates fell over the
past six months. The Portfolio also has excellent call protection. As a result,
many of our higher coupon securities cannot be redeemed by their issuers at
today's lower rates, which provides protection for the Portfolio's income
stream.
The major risk to the Long-Term Corporate Portfolio, which was most
clearly evident in 1994, is a rise in long-term interest rates. Over 50% of
the Portfolio is currently invested (and is intended always to be so) in
corporate bonds with an average maturity
8
<PAGE> 9
longer than 15 years. Given our current view on that sector, the Portfolio's
weighting in corporates is at the low end of our traditional range, at about
75% of assets. The remainder is invested in U.S. Treasuries, mortgages, and
cash reserves. Over 90% of the value of the Portfolio is invested in issues
rated "A" or better.
The second risk inherent in the Portfolio, which is always present, is
credit deterioration. Although the current economic environment is very
favorable, with sales and profits growing for a majority of companies, merger
and acquisition activity continues. Such activity can generate heavier debt
loads and lead to downgrades in credit ratings. When an economic slowdown
unexpectedly arrives, as it almost always does, servicing the additional debt
becomes more onerous. To counter the risk of credit deterioration, we emphasize
the securities of well-established larger companies with stable-to-improving
fundamentals. The Portfolio does not own any securities rated
below-investment-grade nor does it own any bonds denominated in foreign
currencies which can be more influenced by currency movements than by interest
rates.
HIGH YIELD CORPORATE PORTFOLIO
The market for below-investment-grade debt functions smoothly when the economy
is expanding modestly and when interest rates are reasonably stable. As
evidence developed during the first six months of this year that the economy
was slowing, the yield differential between investment-grade and
below-investment-grade corporate bonds widened, signaling that investors were
demanding a higher premium for high-yield securities than before these worries
had surfaced. After the Federal Reserve lowered short-term rates in July,
however, the high-yield market became less concerned about a recession, and the
market improved in an absolute and relative sense. Bond prices of economically
sensitive issuers reacted particularly well to this news. It should be noted
that, in the spring, when concerns about a recession were beginning to mount,
companies with below-investment-grade ratings tried to rush to market to obtain
financing. As marginal borrowers are usually the first to have their credit
lines curtailed in a recession, we have been particularly wary of participating
in many of these newer offerings, which we consider to be marginal credits. As
long as the equity market remains strong, fueled by growing sales and profits,
these issuers will be able to tap the stock market for funds to reduce debt,
but, if the fortunes of the market should change quickly, these issues will be
the first casualties.
As in the Long-Term Corporate Portfolio, another phenomenon we are
watching is the growing merger and acquisition "boom." Thus far, mergers and
acquisitions have actually been a positive force in the high-yield market
since, in general, stronger companies have been buying weaker ones. Last time
around, in the mid-to-late eighties, the reverse was true since liquidity was
ample and the banks and the high-yield market were willing lenders.
The Portfolio's holdings continue to be focused on cash-paying issues
rated "B" or better. We continue to practice stringent credit research on a
company-by-company basis and to emphasize diversification in the Portfolio's
construction. The Portfolio currently owns over 100 issuers representing a
fairly broad range of industries and companies. In addition, we continue to
maintain a Treasury reserve in the event that such liquidity is necessary.
Respectfully,
Paul D. Kaplan, Senior Vice President
Portfolio Manager
Earl E. McEvoy, Senior Vice President
Portfolio Manager
Wellington Management Company
August 21, 1995
9
<PAGE> 10
REPORT FROM VANGUARD FIXED INCOME GROUP
WHAT A DELIGHTFUL DIFFERENCE!
The bond markets staged one of the most rapid and remarkable comebacks in
memory over the past six months. The rally couldn't have come at a better time
since it certainly is not difficult to recall what a dismal year 1994 was for
investing in bonds. Last year, interest rates rose close to two percentage
points (200 basis points) among long-term bonds, and over three percentage
points (300 basis points) among short- and intermediate-term notes. A glance at
the history books reveals that it hasn't been much uglier than that, ever.
So, it was at the very least exhilarating to see interest rates plunge
in 1995, and in so doing, recover much of the principal losses endured by bond
investors during the preceding twelve months. The following exhibit details the
dimensions of the rally in bond and note prices as they were reflected in
varying degrees along the "yield curve" as interest rates fell.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Representative Interest Rates
------------------------------------
1/31/95 7/31/95 Change
--------------------------------------------------------------------
<S> <C> <C> <C>
TWO-YEAR TREASURY 7.4% 5.9% -1.5%
TEN-YEAR TREASURY 7.7 6.4 -1.3
THIRTY-YEAR TREASURY 7.8 6.8 -1.0
--------------------------------------------------------------------
</TABLE>
The dramatic turnaround in events from 1994 to 1995 was fueled by a sharp
change in investor perceptions regarding the strength and durability of the
economic recovery that began four years ago. In 1994, the Federal Reserve Bank
Board policymakers, led by Chairman Alan Greenspan, began to observe the as-yet
embryonic stirrings of inflation. The economy was growing briskly, and the
"Fed" economists became concerned that perhaps they were witnessing "too much
of a good thing." Studies show that excessive economic growth leads to
worsening inflation. The seven monetary policy tightening initiatives during
1994 and early 1995 were designed to throttle down what they deemed to be
unsustainably high economic growth rates and, thereby, preemptively extinguish
inflationary pressures.
The tightening was the primary cause of the bond market debacle in
1994, and the apparent success of the tightening (in slowing economic growth)
was the primary cause of the big recovery in 1995. As employment, sales,
income, and production statistics were released throughout the spring and
summer months, it became apparent that the economy was indeed decelerating.
Most of the rally in bond prices took place in April and May as a series of
particularly weak statistics was released, but certainly the Fed's easing of
monetary policy in July (the first such move since September 1992), helped to
sustain market participants' perception that the mythical "soft landing" had
been achieved.
VANGUARD'S FIXED INCOME SECURITIES
FUND PORTFOLIOS
The Vanguard Fixed Income Group manages all of the Fund's Portfolios with the
exception of the GNMA, Long-Term Corporate, and High Yield Portfolios. Those
that fall under our stewardship enjoyed strong absolute and relative
performance so far this fiscal year. Details of each Portfolio's results are
given in the Chairman's letter. We would explain our success as deriving from
several contributing and complementary factors.
First, the Vanguard Fixed Income Group eschews essentially all of the
exotica, those financially engineered securities that occasionally boost some
of our competitors' returns, but more often than not "return to haunt." We
simply sleep better that way and hope you do as well. In bond investing, a good
part of a successful record is avoiding the big blunder.
Second, Vanguard Portfolios enjoy extremely low expenses, which
translate directly into higher net yields for our shareholders. In today's low
interest rate environment, our expense advantage takes on increasing
importance. Conversely, competitors with much higher expenses face daunting
challenges as they struggle to overcome the dead weight of their costs.
Third, our credit surveillance and sectoral strategies, where
applicable, have helped returns measurably without causing any undue assumption
of risk.
Last, we have successfully modified the positioning of each of the
Portfolios within its respective market risk category to appreciate somewhat
more in net asset value during the rally than it gave up in equivalent interest
rate rises during the bad times.
10
<PAGE> 11
The combination of all of these factors has made this year a good one
for bonds in general and for Vanguard bond fund shareholders in particular.
However, there is sufficient uncertainty in this business to humble even the
strongest ego, and not every strategy we employ works perfectly. Accordingly,
we accept the successes with some measure of both pride and relief. The only
truly enduring net performance enhancer for Vanguard shareholders is our cost
advantage. Fortunately, that is one powerful asset.
Sincerely,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Vice President
John W. Hollyer, Assistant Vice President
Vanguard Fixed Income Group
August 23, 1995
11
<PAGE> 12
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 $ 764,039,000 6.69% 21.2 years Aaa 93
PORTFOLIO Temporary Cash Investments 7
----
Average Quality: Aaa 100
----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CORPORATE $ 2,999,120,000 7.05% 19.3 years Aaa 29
PORTFOLIO Aa1, Aa2, Aa3 15
Average Quality: Aa3 A1, A2, A3 44
Baa1, Baa2, Baa3 8
Temporary Cash Investments 4
----
100
----------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD CORPORATE $ 2,590,432,000 8.86% 8.0 years Aaa 8
Average Quality: Ba1 Ba1, Ba2, Ba3 37
B1, B2, B3 48
Temporary Cash Investments 7
----
100
----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM $ 263,011,000 6.65% 7.5 years Aaa 19
CORPORATE PORTFOLIO Aa1, Aa2, Aa3 13
Average Quality: Aa3 A1, A2, A3 38
Baa1, Baa2, Baa3 21
Temporary Cash Investments 9
----
100
----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM $ 1,083,756,000 6.24% 7.5 years Aaa 93
U.S. TREASURY PORTFOLIO Temporary Cash Investments 7
----
Average Quality: Aaa 100
----------------------------------------------------------------------------------------------------------------------------------
GNMA PORTFOLIO $ 6,376,407,000 7.12% 7.2 years Aaa 97
Average Quality: Aaa Temporary Cash Investments 3
----
100
----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM FEDERAL $ 1,491,662,000 6.09% 2.4 years Aaa 96
PORTFOLIO Temporary Cash Investments 4
----
Average Quality: Aaa 100
----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. $ 869,792,000 5.77% 2.3 years Aaa 97
TREASURY PORTFOLIO Temporary Cash Investments 3
----
Average Quality: Aaa 100
----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE $ 3,429,741,000 6.20% 2.5 years Aaa 25
PORTFOLIO Aa1, Aa2, Aa3 17
Average Quality: Aa3 A1, A2, A3 33
Baa1, Baa2, Baa3 19
Temporary Cash Investments 6
----
100
----------------------------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS $19,867,960,000
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A VANGUARD GLOSSARY--QUALITY RATINGS
Aaa Judged to be the best quality, carrying the smallest degree of
investment risk. U.S. Government and Agency Securities are considered to
have Aaa ratings.
Aa Judged to be of high quality by all standards.
A Possess many favorable investment attributes and are to be considered as
higher medium-grade obligations.
Baa Considered to be medium-grade obligations, neither highly protected nor
poorly secured.
Ba Judged to have speculative elements; their future cannot be considered
as well-assured.
B Generally lacks characteristics of the desirable investment.
Caa Poor standing; may be in default.
N.R. Not Rated.
Note: Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
12
<PAGE> 13
FINANCIAL STATEMENTS
(unaudited)
July 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Face Market
Amount Value
GNMA PORTFOLIO (000) (000)+
-------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS (97.0%)
-------------------------------------------------------------------------------
6.00%, 10/15/23-7/1/25 $ 148,447 $ 137,148
6.50%, 5/15/23-5/15/25 634,778 603,684
7.00%, 4/15/07-7/15/24 1,310,678 1,287,890
7.50%, 12/15/01-1/15/25 1,282,648 1,285,321
8.00%, 1/15/02-5/1/25 1,194,637 1,219,112
8.25%, 8/15/04-7/15/08 8,248 8,470
8.50%, 1/20/05-4/15/32 787,118 814,706
9.00%, 9/15/01-2/15/23 488,405 511,276
9.25%, 5/15/16-6/15/18 3,872 4,055
9.50%, 12/15/00-12/15/22 280,885 296,837
10.00%, 7/20/14-8/20/18 5,461 5,844
11.00%, 2/15/10-2/20/16 1,764 1,910
11.25%, 9/15/95-2/20/16 968 1,055
11.50%, 6/15/10-11/20/15 1,889 2,064
11.75%, 9/15/95-10/15/95 1 1
12.00%, 10/15/10-1/20/16 3,565 3,861
12.50%, 11/20/13-7/20/15 2,026 2,214
12.75%, 6/15/14-12/15/14 296 325
13.00%, 12/15/10-5/20/15 1,582 1,732
13.25%, 8/15/14-10/15/14 135 148
13.50%, 5/15/10-12/15/14 590 656
13.75%, 9/20/14 17 19
14.00%, 6/15/11-9/15/12 298 337
15.00%, 9/15/11-5/15/12 167 194
-------------------------------------------------------------------------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS
(Cost $6,119,441) 6,188,859
-------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.3%)
-------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
5.86%, 8/1/95
(Cost $209,225) 209,225 209,225
-------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(Cost $6,328,666) 6,398,084
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
-------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-.3%)
-------------------------------------------------------------------------------
Other Assets-Note C $ 159,005
Liabilities (180,682)
(21,677)
-------------------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------------------
Applicable to 627,921,935
outstanding $.001 par
value shares (authorized
850,000,000 shares) $6,376,407
-------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.15
===============================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
AT JULY 31, 1995,
NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------
Amount Per
(000) Share
---------- --------
<S> <C> <C>
Paid in Capital $6,316,514 $10.06
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (9,525) (.02)
Unrealized Appreciation
of Investments--Note F 69,418 .11
-------------------------------------------------------------------------------
NET ASSETS $6,376,407 $10.15
-------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
U.S. TREASURY CORPORATE
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1995 July 31, 1995
(000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . $26,249 $107,706
------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 26,249 107,706
------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . 51 595
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . 866 3,608
Marketing and Distribution . . . . . . . . . . . . . 79 274
Taxes (other than income taxes) . . . . . . . . . . . . 29 112
Custodians' Fees . . . . . . . . . . . . . . . . . . . 10 43
Legal Fees . . . . . . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 3 4
Shareholders' Reports . . . . . . . . . . . . . . . . . 24 71
Annual Meeting and Proxy Costs . . . . . . . . . . . . 2 11
Directors' Fees and Expenses . . . . . . . . . . . . . 1 5
------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 1,065 4,723
------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 25,184 102,983
------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . 18,798 11,600
Futures Contracts . . . . . . . . . . . . . . . . . . . 52 --
------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . 18,850 11,600
------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . 43,318 198,871
Futures Contracts . . . . . . . . . . . . . . . . . . . 444 --
------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . . . . 43,762 198,871
------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . $87,796 $313,454
==================================================================================================================
</TABLE>
The Statements of Net Assets of the Long-Term U.S. Treasury, Long-Term
Corporate, High Yield Corporate, Intermediate-Term Corporate, Intermediate-Term
U.S. Treasury, Short-Term Federal, Short-Term U.S. Treasury, and Short-Term
Corporate Portfolios, integral parts of the financial statements for each such
Portfolio, are included as an insert to this Report.
14
<PAGE> 15
<TABLE>
<CAPTION>
HIGH YIELD INTERMEDIATE-TERM
CORPORATE GNMA CORPORATE
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
July 31, 1995 July 31, 1995 July 31, 1995
(000) (000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . $111,548 $235,276 $ 7,854
------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . 111,548 235,276 7,854
------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . 756 640 13
The Vanguard Group--Note C
Management and Administrative . . . . . . . 3,007 7,464 258
Marketing and Distribution . . . . . . . . . 209 584 21
Taxes (other than income taxes) . . . . . . . . 99 250 8
Custodians' Fees . . . . . . . . . . . . . . . 45 424 8
Legal Fees . . . . . . . . . . . . . . . . . . 49 -- --
Auditing Fees . . . . . . . . . . . . . . . . . 4 6 3
Shareholders' Reports . . . . . . . . . . . . . 62 173 3
Annual Meeting and Proxy Costs . . . . . . . . 7 31 1
Directors' Fees and Expenses . . . . . . . . . 5 12 --
------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . 4,243 9,584 315
------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . 107,305 225,692 7,539
------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . 8,814 661 1,059
Futures Contracts . . . . . . . . . . . . . . . -- -- --
------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . 8,814 661 1,059
------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . 135,614 270,327 12,098
Futures Contracts . . . . . . . . . . . . . . . -- -- 165
------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . 135,614 270,327 12,263
------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . $251,733 $496,680 $20,861
==================================================================================================================
</TABLE>
15
<PAGE> 16
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM SHORT-TERM
U.S. TREASURY FEDERAL
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1995 July 31, 1995
(000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . $33,713 $46,646
------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 33,713 46,646
------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . 68 114
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . 1,167 1,709
Marketing and Distribution . . . . . . . . . . . . . 116 198
Taxes (other than income taxes) . . . . . . . . . . . . 40 59
Custodians' Fees . . . . . . . . . . . . . . . . . . . 5 19
Legal Fees . . . . . . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 3 3
Shareholders' Reports . . . . . . . . . . . . . . . . . 27 46
Annual Meeting and Proxy Costs . . . . . . . . . . . . 9 11
Directors' Fees and Expenses . . . . . . . . . . . . . 2 3
------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 1,437 2,162
------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 32,276 44,484
------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . 2,638 1,399
Futures Contracts . . . . . . . . . . . . . . . . . . . -- --
------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . 2,638 1,399
------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . 55,746 44,124
Futures Contracts . . . . . . . . . . . . . . . . . . . 612 --
------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . . . . 56,358 44,124
------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . $91,272 $90,007
==================================================================================================================
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM
U.S. TREASURY CORPORATE
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1995 July 31, 1995
(000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . $26,644 $104,381
------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 26,644 104,381
------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . 57 226
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . 966 3,702
Marketing and Distribution . . . . . . . . . . . . . 104 423
Taxes (other than income taxes) . . . . . . . . . . . . 32 122
Custodians' Fees . . . . . . . . . . . . . . . . . . . 5 39
Legal Fees . . . . . . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 3 4
Shareholders' Reports . . . . . . . . . . . . . . . . . 17 78
Annual Meeting and Proxy Costs . . . . . . . . . . . . 6 16
Directors' Fees and Expenses . . . . . . . . . . . . . 2 6
------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 1,192 4,616
------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 25,452 99,765
------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . 1,419 (1,747)
Futures Contracts . . . . . . . . . . . . . . . . . . . -- (339)
------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . 1,419 (2,086)
------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . 21,814 96,717
Futures Contracts . . . . . . . . . . . . . . . . . . . -- 1,872
------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . . . . 21,814 98,589
------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . $48,685 $196,268
==================================================================================================================
</TABLE>
17
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM
U.S. TREASURY PORTFOLIO CORPORATE PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED January 31, ENDED January 31,
JULY 31, 1995 1995 JULY 31, 1995 1995
(000) (000) (000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $ 25,184 $ 47,632 $ 102,983 $ 199,241
Realized Net Gain (Loss) . . . . . . . . . . . 18,850 7,669 11,600 (18,694)
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . 43,762 (110,899) 198,871 (346,597)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . 87,796 (55,598) 313,454 (166,050)
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . (25,184) (47,632) (102,983) (199,241)
Realized Net Gain . . . . . . . . . . . . . . -- (8,474) -- (23,247)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . (25,184) (56,106) (102,983) (222,488)
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . 131,472 127,478 231,540 319,926
--In Lieu of Cash Distributions . . 19,003 42,818 82,070 176,448
--Exchange . . . . . . . . . . . . 60,336 127,038 150,466 270,850
Redeemed --Regular . . . . . . . . . . . . . (87,590) (155,346) (129,174) (435,204)
--Exchange . . . . . . . . . . . . (93,240) (187,408) (153,580) (502,225)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . 29,981 (45,420) 181,322 (170,205)
-----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . 92,593 (157,124) 391,793 (558,743)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 671,446 828,570 2,607,327 3,166,070
-----------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $764,039 $ 671,446 $2,999,120 $2,607,327
===================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.336 $.665 $.312 $.617
Realized Net Gain . . . . . . . . . . . -- $.119 -- $.072
-----------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 19,590 27,480 44,275 70,326
Issued in Lieu of Cash Distributions . . 1,936 4,560 9,480 21,118
Redeemed . . . . . . . . . . . . . . . . (18,354) (36,391) (32,548) (110,976)
-----------------------------------------------------------------------------------------------------------------------------------
3,172 (4,351) 21,207 (19,532)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
HIGH YIELD GNMA
CORPORATE PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED January 31, ENDED January 31,
JULY 31, 1995 1995 JULY 31, 1995 1995
(000) (000) (000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $ 107,305 $ 202,381 $ 225,692 $ 432,526
Realized Net Gain (Loss) . . . . . . . . . . . 8,814 (3,102) 661 231
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . 135,614 (276,810) 270,327 (441,790)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . 251,733 (77,531) 496,680 (9,033)
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . (107,305) (202,381) (225,692) (432,526)
Realized Net Gain . . . . . . . . . . . . . . -- -- -- (4,202)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . (107,305) (202,381) (225,692) (436,728)
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . 170,536 260,680 326,834 626,098
--In Lieu of Cash Distributions . . 74,752 138,818 171,620 327,946
--Exchange . . . . . . . . . . . . 228,583 346,291 225,595 345,136
Redeemed --Regular . . . . . . . . . . . . . (83,600) (290,865) (302,902) (1,092,663)
--Exchange . . . . . . . . . . . . (106,567) (637,676) (166,563) (953,131)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . 283,704 (182,752) 254,584 (746,614)
-----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . 428,132 (462,664) 525,572 (1,192,375)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 2,162,300 2,624,964 5,850,835 7,043,210
-----------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $2,590,432 $2,162,300 $6,376,407 $5,850,835
===================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.336 $.679 $.368 $.693
Realized Net Gain . . . . . . . . . . . -- -- -- $.007
-----------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 53,156 81,260 55,095 98,532
Issued in Lieu of Cash Distributions . . 9,884 18,773 17,079 33,480
Redeemed . . . . . . . . . . . . . . . . (25,275) (123,489) (46,803) (207,195)
-----------------------------------------------------------------------------------------------------------------------------------
37,765 (23,456) 25,371 (75,183)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM INTERMEDIATE-TERM
CORPORATE PORTFOLIO U.S. TREASURY PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED January 31, ENDED January 31,
JULY 31, 1995 1995 JULY 31, 1995 1995
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $ 7,539 $ 7,345 $ 32,276 $ 52,753
Realized Net Gain (Loss) . . . . . . . . . . . 1,059 (3,240) 2,638 (43,053)
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . 12,263 (6,144) 56,358 (49,831)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . 20,861 (2,039) 91,272 (40,131)
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . (7,539) (7,345) (32,276) (52,753)
Realized Net Gain . . . . . . . . . . . . . . -- -- -- (2,427)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . (7,539) (7,345) (32,276) (55,180)
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . 58,018 65,624 170,919 192,104
--In Lieu of Cash Distributions . . 5,835 5,477 24,298 40,939
--Exchange . . . . . . . . . . . . 61,926 86,434 126,216 152,011
Redeemed --Regular . . . . . . . . . . . . . (11,874) (16,092) (65,991) (197,947)
--Exchange . . . . . . . . . . . . (27,017) (54,195) (78,846) (250,713)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . 86,888 87,248 176,596 (63,606)
-----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . 100,210 77,864 235,592 (158,917)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 162,801 84,937 848,164 1,007,081
-----------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $263,011 $162,801 $1,083,756 $ 848,164
===================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.329 $.587 $.332 $.603
Realized Net Gain . . . . . . . . . . . -- -- -- $.027
-----------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 12,626 16,489 29,179 35,143
Issued in Lieu of Cash Distributions . . 611 597 2,374 4,125
Redeemed . . . . . . . . . . . . . . . . (4,065) (7,597) (14,152) (45,489)
-----------------------------------------------------------------------------------------------------------------------------------
9,172 9,489 17,401 (6,221)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM
FEDERAL PORTFOLIO U.S. TREASURY PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED January 31, ENDED January 31,
JULY 31, 1995 1995 JULY 31, 1995 1995
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $ 44,484 $ 91,716 $ 25,452 $ 37,327
Realized Net Gain (Loss) . . . . . . . . . . . 1,399 (40,359) 1,419 (17,893)
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . 44,124 (62,827) 21,814 (16,958)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . 90,007 (11,470) 48,685 2,476
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . (44,484) (91,716) (25,452) (37,327)
Realized Net Gain . . . . . . . . . . . . . . -- (1,751) -- (1,367)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . (44,484) (93,467) (25,452) (38,694)
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . 139,206 349,688 160,929 225,562
--In Lieu of Cash Distributions . . 38,285 78,745 22,783 34,277
--Exchange . . . . . . . . . . . . 40,835 126,121 81,428 175,994
Redeemed --Regular . . . . . . . . . . . . . (144,758) (556,402) (112,303) (222,881)
--Exchange . . . . . . . . . . . . (101,594) (355,446) (60,597) (151,003)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . (28,026) (357,294) 92,240 61,949
-----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . 17,497 (462,231) 115,473 25,731
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 1,474,165 1,936,396 754,319 728,588
-----------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $1,491,662 $1,474,165 $869,792 $ 754,319
===================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.301 $.550 $.313 $.532
Realized Net Gain . . . . . . . . . . . -- $.010 -- $.020
-----------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 18,001 47,838 24,034 40,501
Issued in Lieu of Cash Distributions . . 3,823 7,941 2,254 3,434
Redeemed . . . . . . . . . . . . . . . . (24,641) (91,716) (17,142) (37,618)
-----------------------------------------------------------------------------------------------------------------------------------
(2,817) (35,937) 9,146 6,317
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
SHORT-TERM
CORPORATE PORTFOLIO
------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended
ENDED January 31,
JULY 31, 1995 1995
(000) (000)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $ 99,765 $ 184,425
Realized Net Gain (Loss) . . . . . . . . . . . (2,086) (43,286)
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . 98,589 (130,778)
-----------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . 196,268 10,361
-----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . (99,765) (184,425)
Realized Net Gain . . . . . . . . . . . . . . -- --
-----------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . (99,765) (184,425)
-----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . 528,238 880,717
--In Lieu of Cash Distributions . . 83,396 152,829
--Exchange . . . . . . . . . . . . 307,238 381,200
Redeemed --Regular . . . . . . . . . . . . . (320,648) (1,121,979)
--Exchange . . . . . . . . . . . . (189,034) (767,664)
-----------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . 409,190 (474,897)
-----------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . 505,693 (648,961)
-----------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 2,924,048 3,573,009
-----------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $3,429,741 $ 2,924,048
=====================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.334 $.596
Realized Net Gain . . . . . . . . . . . -- --
-----------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 78,531 119,706
Issued in Lieu of Cash Distributions . . 7,827 14,548
Redeemed . . . . . . . . . . . . . . . . (47,950) (179,811)
-----------------------------------------------------------------------------------------------------
38,408 (45,557)
-----------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LONG-TERM U.S. TREASURY PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -----------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $ 9.23 $10.75 $10.04 $10.14 $ 9.74 $9.53
------- ------ ------ ------ ------- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .336 .665 .685 .733 .763 .776
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .830 (1.401) .886 .600 .400 .210
------- ------ ------ ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS . . . 1.166 (.736) 1.571 1.333 1.163 .986
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.336) (.665) (.685) (.733) (.763) (.776)
Distributions from Realized Capital Gains . . -- (.119) (.176) (.700) -- --
------- ------ ------ ------ ------- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.336) (.784) (.861) (1.433) (.763) (.776)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.06 $ 9.23 $10.75 $10.04 $10.14 $9.74
=================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +12.78% -6.68% +16.09% +14.12% +12.44% +11.00%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . $764 $671 $829 $874 $833 $722
Ratio of Expenses to Average Net Assets . . . . . .29%* .28% .26% .27% .26% .30%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.91%* 7.02% 6.44% 7.26% 7.72% 8.29%
Portfolio Turnover Rate . . . . . . . . . . . . . 210%* 85% 7% 170% 89% 147%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM CORPORATE PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ----------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $8.18 $9.36 $9.04 $8.63 $8.02 $8.00
------- ------ ------ ------ ------- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .312 .617 .632 .680 .706 .720
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .640 (1.108) .579 .561 .610 .020
------- ------ ------ ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS . . . .952 (.491) 1.211 1.241 1.316 .740
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.312) (.617) (.632) (.680) (.706) (.720)
Distributions from Realized Capital Gains . . -- (.072) (.259) (.151) -- --
------- ------ ------ ------ ------- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.312) (.689) (.891) (.831) (.706) (.720)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $8.82 $8.18 $9.36 $9.04 $8.63 $8.02
=================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +11.77% -5.12% +13.83% +15.06% +17.09% +9.81%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . $2,999 $2,607 $3,166 $2,763 $1,992 $1,254
Ratio of Expenses to Average Net Assets . . . . . .33%* .32% .30% .31% .31% .37%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 7.28%* 7.37% 6.71% 7.68% 8.46% 9.16%
Portfolio Turnover Rate . . . . . . . . . . . . . 56%* 43% 77% 50% 72% 62%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
23
<PAGE> 24
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
HIGH YIELD CORPORATE PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ----------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $7.24 $8.14 $7.56 $7.27 $6.19 $7.31
----- ----- ----- ----- ----- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .336 .679 .695 .727 .770 .904
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .460 (.900) .580 .290 1.080 (1.120)
----- ----- ----- ----- ----- ------
TOTAL FROM INVESTMENT OPERATIONS . . . .796 (.221) 1.275 1.017 1.850 (.216)
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.336) (.679) (.695) (.727) (.770) (.904)
Distributions from Realized Capital Gains . . -- -- -- -- -- --
----- ----- ----- ----- ----- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.336) (.679) (.695) (.727) (.770) (.904)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $7.70 $7.24 $8.14 $7.56 $7.27 $6.19
===============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +11.17% -2.52% +17.54% +14.68% +31.27% -3.21%
-------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . $2,590 $2,162 $2,625 $2,184 $1,593 $699
Ratio of Expenses to Average Net Assets . . . . . .35%* .34% .32% .34% .34% .40%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 8.99%* 9.13% 8.81% 9.82% 11.13% 13.35%
Portfolio Turnover Rate . . . . . . . . . . . . . 49%* 33% 51% 83% 44% 61%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GNMA PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -----------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $ 9.71 $10.39 $10.50 $10.25 $ 9.85 $9.54
------- ------ ------ ------ ------- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .368 .693 .641 .778 .831 .855
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .440 (.673) (.110) .250 .400 .310
------- ------ ------ ------ ------- -----
TOTAL FROM INVESTMENT OPERATIONS . . . .808 .020 .531 1.028 1.231 1.165
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.368) (.693) (.641) (.778) (.831) (.855)
Distributions from Realized Capital Gains . . -- (.007) -- -- -- --
------- ------ ------ ------ ------- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . (.368) (.700) (.641) (.778) (.831) (.855)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.15 $ 9.71 $10.39 $10.50 $10.25 $9.85
===============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +8.42% +0.36% +5.18% +10.40% +13.00% +12.85%
-------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . $6,376 $5,851 $7,043 $7,167 $5,207 $2,711
Ratio of Expenses to Average Net Assets . . . . . .31%* .30% .28% .29% .29% .34%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 7.38%* 7.04% 6.19% 7.38% 8.22% 8.95%
Portfolio Turnover Rate . . . . . . . . . . . . . 12%* 35% 2% 7% 1% 1%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
24
<PAGE> 25
<TABLE>
<CAPTION>
INTERMEDIATE-TERM CORPORATE PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended November 1, 1993
For a Share Outstanding Throughout Each Period JULY 31, 1995 January 31, 1995 January 31, 1994
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $9.07 $10.04 $10.00
------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .329 .587 .125
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .630 (.970) .040
------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . .959 (.383) .165
--------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.329) (.587) (.125)
Distributions from Realized Capital Gains . . -- -- --
------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.329) (.587) (.125)
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $9.70 $ 9.07 $10.04
==========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +10.70% -3.73% +1.66%
--------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . $263 $163 $85
Ratio of Expenses to Average Net Assets . . . . . .29%* .28% .25%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.95%* 6.46% 5.11%*
Portfolio Turnover Rate . . . . . . . . . . . . . 74%* 97% 74%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -------------------------------- October 28 1991-
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 January 31, 1992
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $ 9.76 $10.82 $10.79 $10.19 $10.00
------- ------- ------- ------- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .332 .603 .617 .676 .170
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .630 (1.033) .443 .617 .190
------- ------- ------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS . . . .962 (.430) 1.060 1.293 .360
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.332) (.603) (.617) (.676) (.170)
Distributions from Realized Capital Gains . . -- (.027) (.413) (.017) --
------- ------- ------- ------- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.332) (.630) (1.030) (.693) (.170)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.39 $ 9.76 $10.82 $10.79 $10.19
=================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +9.96% -3.90% +10.09% +13.14% +3.59%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . $1,084 $848 $1,007 $673 $190
Ratio of Expenses to Average Net Assets . . . . . .29%* .28% .26% .26% .26%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.55%* 6.05% 5.55% 6.44% 6.47%*
Portfolio Turnover Rate . . . . . . . . . . . . . 48%* 128% 118% 123% 32%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
25
<PAGE> 26
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -------------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $ 9.79 $10.38 $10.38 $10.31 $10.08 $ 9.89
------- ------- ------- ------- ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .301 .550 .522 .609 .720 .801
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .300 (.580) .110 .232 .307 .190
------- ------- ------- ------- ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . . .601 (.030) .632 .841 1.027 .991
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.301) (.550) (.522) (.609) (.720) (.801)
Distributions from Realized Capital Gains . . -- (.010) (.110) (.162) (.077) --
------- ------- ------- ------- ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.301) (.560) (.632) (.771) (.797) (.801)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.09 $ 9.79 $10.38 $10.38 $10.31 $10.08
===============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +6.20% -0.21% +6.23% +8.49% +10.59% +10.46%
-------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . $1,492 $1,474 $1,936 $1,688 $1,274 $508
Ratio of Expenses to Average Net Assets . . . . . .29%* .28% .26% .27% .26% .30%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.02%* 5.53% 4.98% 5.88% 6.98% 8.06%
Portfolio Turnover Rate . . . . . . . . . . . . . 89%* 57% 49% 70% 111% 141%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM U.S. TREASURY PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -------------------------------- October 28 1991-
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 January 31, 1992
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $ 9.89 $10.41 $10.41 $10.12 $10.00
------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .313 .532 .486 .528 .140
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .290 (.500) .079 .332 .120
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . .603 .032 .565 .860 .260
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.313) (.532) (.486) (.528) (.140)
Distributions from Realized Capital Gains . . -- (.020) (.079) (.042) --
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.313) (.552) (.565) (.570) (.140)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $10.18 $ 9.89 $10.41 $10.41 $10.12
===============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +6.16% +0.40% +5.54% +8.74% +2.60%
-------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . $870 $754 $729 $526 $102
Ratio of Expenses to Average Net Assets . . . . . .29%* .28% .26% .26% .26%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.24%* 5.33% 4.64% 5.12% 5.22%*
Portfolio Turnover Rate . . . . . . . . . . . . . 116%* 126% 86% 71% 40%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
26
<PAGE> 27
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ------------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.40 $10.94 $10.99 $10.88 $10.50 $10.34
------- ------- ------- ------- ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .334 .596 .605 .695 .804 .876
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .340 (.540) .049 .275 .380 .160
------- ------- ------- ------- ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . . .674 .056 .654 .970 1.184 1.036
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.334) (.596) (.605) (.695) (.804) (.876)
Distributions from Realized Capital Gains . . -- -- (.099) (.165) -- --
------- ------- ------- ------- ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.334) (.596) (.704) (.860) (.804) (.876)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.74 $10.40 $10.94 $10.99 $10.88 $10.50
===============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +6.55% +0.60% +6.11% +9.29% +11.70% +10.47%
-------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
------------------------
Net Assets, End of Period (Millions) . . . . . . $3,430 $2,924 $3,573 $2,811 $1,911 $829
Ratio of Expenses to Average Net Assets . . . . . .29%* .28% .26% .27% .26% .31%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.31%* 5.66% 5.48% 6.33% 7.44% 8.48%
Portfolio Turnover Rate . . . . . . . . . . . . . 73%* 69% 61% 71% 99% 107%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
Vanguard Fixed Income Securities Fund is registered under the Investment
Company Act of 1940 as a diversified open-end investment company and consists
of the Long-Term U.S. Treasury, Long-Term Corporate, High Yield Corporate,
GNMA, Intermediate-Term Corporate, Intermediate-Term U.S. Treasury, Short-Term
Federal, Short-Term U.S. Treasury, and Short-Term Corporate Portfolios. Certain
investments of the Long-Term Corporate, High Yield Corporate, Intermediate-Term
Corporate, and Short-Term Corporate Portfolios are in corporate debt
instruments; the issuers' abilities to meet these obligations may be affected
by economic developments in their respective industries.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Securities are valued utilizing the latest bid prices
and on the basis of a matrix system (which considers such factors as
security prices, yields, maturities and ratings), both as furnished by
independent pricing services. Temporary cash investments are valued at
amortized cost which approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income taxes is
required in the financial statements.
3. REPURCHASE AGREEMENTS: The Fund, along with other members of The Vanguard
Group of Investment Companies, transfers uninvested cash balances into a
Pooled Cash Account, the daily aggregate of which is invested in
repurchase agreements secured by U.S. Government obligations. Securities
pledged as collateral for repurchase agreements are held by the Fund's
custodian banks until maturity of each repurchase agreement. Provisions of
the agreement require 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: The Long-Term, Intermediate-Term, and Short-Term U.S. Treasury
Portfolios and the Intermediate-Term and Short-Term Corporate Portfolios
utilize Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury Note
futures contracts to a limited extent, with the objectives of enhancing
returns, managing interest rate risk, maintaining liquidity and minimizing
transaction costs. The Portfolios may purchase futures contracts instead
of bonds when futures contracts are believed to be priced more
attractively than bonds. The Portfolios may also seek to take advantage of
price differences among bond market sectors by simultaneously buying
futures (or bonds) of one market sector and selling futures (or bonds) of
another sector. Futures contracts may also be used to simulate a fully
invested position in the underlying bonds while maintaining a cash balance
for liquidity.
The primary risks associated with the use of futures contracts are
imperfect correlation between changes in market values of bonds held by
the Portfolios 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 values 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. 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
28
<PAGE> 29
income over the lives of the respective securities. 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 depending on the timing of
realization of gains.
B. Under the terms of a contract expiring August 31, 1996, the Fund pays
Wellington Management Company for investment advisory services performed for
the Long-Term Corporate, High Yield Corporate, and GNMA Portfolios at a fee
calculated at an annual percentage rate of average net assets. For the six
months ended July 31, 1995, the investment advisory fees of the Long-Term
Corporate, High Yield Corporate, and GNMA Portfolios represent effective annual
rates of .04 of 1%, .06 of 1%, and .02 of 1% of average net assets,
respectively.
The Vanguard Group, Inc. furnishes investment advisory services to the
Intermediate-Term and Short-Term Corporate, Short-Term Federal, and the
Long-Term, Intermediate-Term, and Short-Term U.S. Treasury Portfolios on an
at-cost basis.
C. The Vanguard Group, Inc. furnishes at cost corporate management,
administrative, marketing, and distribution services. The costs of such
services are allocated to the Fund under methods approved by the Board of
Directors. At July 31, 1995, the Fund had contributed capital of $2,614,000 to
Vanguard (included in Other Assets), representing 13.1% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
D. During the six months ended July 31, 1995, 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 $ 584,269 $512,476
HIGH YIELD CORPORATE 557,009 327,368
INTERMEDIATE-TERM CORPORATE 95,036 33,545
SHORT-TERM CORPORATE 1,021,218 526,632
--------------------------------------------------------
</TABLE>
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
--------------------------------------------------------
(000)
------------------------
Portfolio Purchases Sales
--------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY $713,754 $722,445
LONG-TERM CORPORATE 315,566 248,114
HIGH YIELD CORPORATE 223,654 224,125
GNMA 736,191 362,496
INTERMEDIATE-TERM CORPORATE 49,075 40,463
INTERMEDIATE-TERM U.S. TREASURY 370,605 214,990
SHORT-TERM FEDERAL 643,584 695,200
SHORT-TERM U.S. TREASURY 564,667 457,193
SHORT-TERM CORPORATE 406,677 571,627
--------------------------------------------------------
</TABLE>
E. At January 31, 1995, the Portfolios had the following capital losses
available to offset future net capital gains:
<TABLE>
<CAPTION>
--------------------------------------------------------
Expiration
Fiscal Year(s)
Ending Amount
Portfolio January 31 (000)
--------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY 2004 $ 1,071
LONG-TERM CORPORATE 2003-2004 18,694
HIGH YIELD CORPORATE 1999-2004 122,827
GNMA 2004 10,023
INTERMEDIATE-TERM CORPORATE 2002-2004 3,271
INTERMEDIATE-TERM U.S. TREASURY 2003-2004 43,066
SHORT-TERM FEDERAL 2003-2004 40,359
SHORT-TERM U.S. TREASURY 2003-2004 17,902
SHORT-TERM CORPORATE 2003-2004 45,568
--------------------------------------------------------
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (continued)
F. At July 31, 1995, 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 $ 29,685 -- $ 29,685
LONG-TERM CORPORATE 149,823 $(21,866) 127,957
HIGH YIELD CORPORATE 69,079 (19,798) 49,281
GNMA 163,615 (94,197) 69,418
INTERMEDIATE-TERM
CORPORATE 8,367 (1,909) 6,458
INTERMEDIATE-TERM
U.S. TREASURY 32,393 (8,269) 24,124
SHORT-TERM FEDERAL 19,104 (7,809) 11,295
SHORT-TERM
U.S. TREASURY 14,464 (1,467) 12,997
SHORT-TERM CORPORATE 38,555 (14,302) 24,253
-------------------------------------------------------------
</TABLE>
At July 31, 1995, the aggregate settlement value of open futures contracts
expiring in September 1995, and the related unrealized appreciation
(depreciation) were:
<TABLE>
<CAPTION>
-------------------------------------------------------------
(000)
------------------------------
Aggregate Unrealized
Settlement Appreciation
Portfolio/Contracts Value (Depreciation)
-------------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY
LONG MUNICIPAL BOND INDEX $ 33,750 $ (488)
SHORT U.S. TREASURY BOND 33,254 932
INTERMEDIATE-TERM CORPORATE
LONG MUNICIPAL BOND INDEX 12,642 (111)
SHORT U.S. TREASURY BOND 12,457 276
INTERMEDIATE-TERM U.S. TREASURY
LONG MUNICIPAL BOND INDEX 53,503 (999)
SHORT U.S. TREASURY BOND 52,717 1,611
SHORT-TERM CORPORATE
LONG MUNICIPAL BOND INDEX 165,249 (3,097)
SHORT U.S. TREASURY NOTE 162,824 4,969
-------------------------------------------------------------
</TABLE>
The market values of securities deposited as initial margin for open futures
contracts by the Long-Term U.S. Treasury, Intermediate-Term Corporate,
Intermediate-Term U.S. Treasury, and Short-Term Corporate Portfolios were
$3,895,000, $3,246,000, $3,895,000, and $4,857,000, respectively.
G. The market values of securities on loan to broker/dealers at July 31,
1995, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
-----------------------------------------------------------
(000)
------------------------------
Market
Value of Cash
Loaned Collateral
Portfolio Securities Received
-----------------------------------------------------------
<S> <C> <C>
LONG-TERM CORPORATE $ 7,252 $ 7,397
HIGH YIELD CORPORATE 96,793 98,863
INTERMEDIATE-TERM
CORPORATE 9,321 9,690
INTERMEDIATE-TERM
U.S. TREASURY 278,314 283,372
SHORT-TERM FEDERAL 1,042 1,063
SHORT-TERM CORPORATE 162 165
-----------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at least
equal to the market value of securities loaned; however, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
30
<PAGE> 31
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 of Rhone-Poulenc
Rorer, Inc.; Director of Sun Company, Inc.
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 American Express Bank Ltd.
and The St. Paul Companies, Inc.
BURTON G. MALKIEL, Chemical Bank Chairman's
Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., The Jeffrey Co.,
and Southern New England Communications Company.
ALFRED M. RANKIN, JR., Chairman, 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. and
Kmart Corporation.
J. LAWRENCE WILSON, Chairman and Chief Executive
Officer of Rohm & Haas Company; Director of
Cummins Engine Company; Trustee of Vanderbilt
University and the Culver Educational Foundation.
OTHER FUND OFFICERS
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.
RICHARD F. HYLAND, Treasurer; Treasurer of The
Vanguard Group, Inc., and 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
ROBERT A. DISTEFANO IAN A. MACKINNON
Senior Vice President Senior Vice President
Information Technology Fixed Income Group
JEREMY G. DUFFIELD F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
31
<PAGE> 32
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
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 Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
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
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1-(800) 662-7447 1-(800) 662-2739
This Report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q282-7/95
[VANGUARD FIXED INCOME SECURITIES FUND LOGO]
SEMI-ANNUAL REPORT
JULY 31, 1995
<PAGE> 33
VANGUARD FIXED INCOME FINANCIAL STATEMENTS
SECURITIES FUND (unaudited)
July 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Face Market
LONG-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
-------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (90.8%)
-------------------------------------------------------------------
U.S. Treasury Bonds
7.875%, 2/15/21 $291,163 $323,191
8.875%, 8/15/17 117,650 143,386
8.875%, 2/15/19 110,010 134,521
10.375%, 11/15/12 71,450 92,774
-------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $664,187) 693,872
-------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (6.6%)
-------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $50,273) 50,273 50,273
-------------------------------------------------------------------
TOTAL INVESTMENTS (97.4%)
(Cost $714,460) 744,145
-------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.6%)
-------------------------------------------------------------------
Other Assets--Note C 24,199
Liabilities (4,305)
---------
19,894
-------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------
Applicable to 75,925,900 outstanding
$.001 par value shares
(authorized 300,000,000 shares) $764,039
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.06
===================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------
Amount Per
(000) Share
-------- --------
<S> <C> <C>
Paid in Capital $716,096 $ 9.43
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 17,814 .23
Unrealized Appreciation
of Investments--Note F 30,129 .40
-------------------------------------------------------------------
NET ASSETS $764,039 $10.06
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
LONG-TERM Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (74.1%)
-------------------------------------------------------------------
FINANCE (20.3%)
H.F. Ahmanson & Co.
8.25%, 10/1/02 Baa1 $ 10,000 $ 10,538
Allstate Corp.
7.50%, 6/15/13 A2 10,000 9,803
AMBAC, Inc.
7.50%, 5/1/23 Aa2 20,000 19,690
Associates Corp.
5.25%, 9/1/98 Aa3 16,000 15,418
Bank of Boston Corp.
6.625%, 12/1/05 Baa1 48,000 45,774
BankAmerica
7.50%, 10/15/02 A3 5,000 5,111
10.00%, 2/1/03 A3 20,000 23,243
Barnett Banks, Inc.
8.50%, 1/15/07 A3 20,000 21,437
The Chase Manhattan Corp.
6.50%, 1/15/09 A3 10,000 9,141
Chemical Banking Corp.
8.625%, 5/1/02 A3 10,000 10,823
Citicorp
7.625%, 5/1/05 A3 10,000 10,356
Comerica, Inc.
7.125%, 12/1/13 A2 10,000 9,048
8.375%, 7/15/24 A2 20,000 20,598
Continental Bank Corp.
11.25%, 7/1/01 A2 6,000 6,709
12.50%, 4/1/01 A2 15,000 18,600
Fifth Third Bancorp
6.75%, 7/15/05 A1 25,000 24,522
First Bank N.A.
7.55%, 6/15/04 A2 18,000 18,465
First Bank System
7.625%, 5/1/05 A3 7,500 7,778
First Chicago Corp.
6.375%, 1/30/09 A3 20,000 18,286
</TABLE>
The Portfolio listings begin on the following pages:
<TABLE>
<S> <C>
LONG-TERM U.S. TREASURY PORTFOLIO . . . . . . . . . . . 1
LONG-TERM CORPORATE PORTFOLIO . . . . . . . . . . . . . 1
HIGH YIELD CORPORATE PORTFOLIO . . . . . . . . . . . . 5
INTERMEDIATE-TERM CORPORATE PORTFOLIO . . . . . . . . . 8
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO . . . . . . . 12
SHORT-TERM FEDERAL PORTFOLIO . . . . . . . . . . . . . 13
SHORT-TERM U.S. TREASURY PORTFOLIO . . . . . . . . . . 15
SHORT-TERM CORPORATE PORTFOLIO . . . . . . . . . . . . 16
</TABLE>
1
<PAGE> 34
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
First Union Corp.
6.00%, 10/30/08 A3 $ 10,000 $ 8,862
General Electric Capital
Corp.
8.125%, 5/15/12 Aaa 42,000 45,136
General Motors Acceptance
Corp. MTN
7.85%, 5/8/97 A3 25,000 25,617
8.50%, 1/1/03 A3 15,000 16,166
General RE Corp.
9.00%, 9/12/09 Aa1 15,000 17,299
Golden West Financial Corp.
6.00%, 10/1/03 A3 25,000 23,214
National City Corp.
7.20%, 5/15/05 A2 20,000 20,068
NationsBank Corp.
7.75%, 8/15/04 A3 20,000 20,665
Norwest Corp.
6.65%, 10/15/23 A1 25,000 21,940
Republic New York Corp.
9.70%, 2/1/09 A1 20,000 24,082
Society National Bank
7.85%, 11/1/02 A1 7,500 7,792
Suntrust Banks
7.375%, 7/1/02 A1 10,000 10,257
Tenneco Credit
9.625%, 8/15/01 Baa2 10,000 11,231
Transamerica Corp.
9.375%, 3/1/08 A2 10,000 11,344
Wachovia Corp.
6.80%, 6/1/05 A1 20,000 19,704
Wells Fargo & Co.
6.125%, 11/1/03 A3 20,000 18,690
-----------
GROUP TOTAL 607,407
-----------
-------------------------------------------------------------------
INDUSTRIAL (36.8%)
Air Products & Chemicals
7.375%, 5/1/05 A1 15,000 15,530
Alcan Aluminium Ltd.
9.625%, 7/15/19 A2 7,000 7,743
Amoco Canada Petroleum Co.
7.95%, 10/1/22 Aa1 30,000 31,252
ARCO Chemical Co.
9.80%, 2/1/20 A3 25,000 31,022
Burlington Resources, Inc.
7.15%, 5/1/99 A3 10,000 10,150
The Coca-Cola Co.
6.00%, 7/15/03 Aa3 15,000 14,167
Coca-Cola Enterprises, Inc.
8.50%, 2/1/22 A3 20,000 22,081
Dresser Industries, Inc.
6.25%, 6/1/00 A1 9,000 8,854
E.I. du Pont de Nemours & Co.
8.25%, 1/15/22 Aa3 35,000 36,296
Eastman Chemical Co.
7.25%, 1/15/24 A3 20,000 19,118
Eaton Corp.
6.50%, 6/1/25 A2 10,000 9,690
7.625%, 4/1/24 A2 15,000 14,956
Exxon Capital Corp.
6.00%, 7/1/05 Aaa 10,000 9,402
Ford Motor Co.
8.875%, 1/15/22 A1 40,000 44,869
General Motors Corp.
9.40%, 7/15/21 A3 20,000 23,307
Georgia Pacific Corp.
8.625%, 4/30/25 Baa2 10,000 10,260
9.50%, 5/15/22 Baa2 10,000 10,887
9.875%, 11/1/21 Baa2 30,000 33,135
Grand Metropolitan
8.00%, 9/15/22 A2 25,000 26,039
International Business
Machines Corp.
8.375%, 11/1/19 A3 25,000 27,007
International Paper Co.
6.875%, 11/1/23 A3 10,000 9,073
8.125%, 6/15/24 A3 30,000 30,642
Johnson & Johnson
8.72%, 11/1/24 Aaa 30,000 33,328
Johnson Controls
8.20%, 6/15/24 A2 10,000 10,357
Eli Lilly & Co.
7.125%, 6/1/25 Aa3 35,000 33,706
McDonald's Corp.
7.375%, 7/15/33 Aa2 8,500 8,279
The Mead Corp.
8.125%, 2/1/23 A3 15,000 14,985
Mobil Corp.
8.625%, 8/15/21 Aa2 22,000 25,074
Monsanto Co.
8.20%, 4/15/25 A1 20,000 20,835
8.875%, 12/15/09 A1 20,000 22,958
Morton International, Inc.
9.25%, 6/1/20 A1 10,000 11,974
Motorola Inc.
7.50%, 5/15/25 Aa3 40,000 40,550
New York Times
8.25%, 3/15/25 A1 30,000 31,606
Norfolk Southern Corp.
9.00%, 3/1/21 Aa3 15,000 17,636
Northrop Grumman Corp.
9.375%, 10/15/24 Baa3 20,000 22,145
</TABLE>
2
<PAGE> 35
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
Phillips Petroleum Co.
9.18%, 9/15/21 Baa2 $ 25,000 $ 26,682
Procter & Gamble Co.
8.50%, 8/10/09 Aa2 10,000 11,214
Procter & Gamble Employee
Stock Option Plan
9.36%, 1/1/21 Aa2 35,000 41,735
Raytheon Co.
7.375%, 7/15/25 A1 35,000 33,621
Rohm & Haas Co.
9.375%, 11/15/19 A2 10,000 11,022
9.80%, 4/15/20* A1 10,000 12,009
Sears, Roebuck & Co.
9.375%, 11/1/11 A2 20,000 23,211
TRW, Inc.
9.375%, 4/15/21 A2 4,000 4,739
Talisman Energy
7.125%, 6/1/07 Baa1 20,000 19,585
Texaco Capital, Inc.
8.625%, 11/15/31 A1 13,000 14,684
9.75%, 3/15/20 A1 17,000 21,059
United Parcel Service
8.375%, 4/1/20 Aaa 40,000 44,502
United Technologies Corp.
8.875%, 11/15/19 A2 20,000 22,715
Westvaco Corp.
9.75%, 6/15/20 A1 15,000 18,506
Weyerhaeuser Co.
8.50%, 1/15/25 A2 33,350 37,012
Whirlpool Corp.
9.10%, 2/1/08 A3 20,000 23,116
-----------
GROUP TOTAL 1,104,325
-----------
-------------------------------------------------------------------
UTILITIES (17.0%)
AT&T Corp.
6.75%, 4/1/04 Aa3 10,000 9,877
8.625%, 12/1/31 Aa3 40,000 42,560
BellSouth Telecommunications
7.50%, 6/15/33 Aaa 35,000 34,249
British Telecom Finance
9.625%, 2/15/19 Aaa 17,000 18,953
Cincinnati Gas & Electric
6.90%, 6/1/25 Baa2 16,000 15,697
Coastal Corp.
9.625%, 5/15/12 Baa3 20,000 22,289
Consolidated Edison Co. of
New York, Inc.
6.375%, 4/1/03 A1 20,000 19,221
Duke Power Co.
7.00%, 7/1/33 Aa2 10,000 9,217
Enron Corp.
7.00%, 8/15/23 Baa2 8,000 7,142
GTE Florida, Inc.
6.31%, 12/15/02 A2 10,000 9,657
Houston Lighting & Power
9.15%, 3/15/21 A2 20,000 23,369
Michigan Bell Telephone Co.
7.85%, 1/15/22 Aa1 20,000 21,145
Michigan Consolidated Gas
8.25%, 5/1/14 A2 3,200 3,456
New Jersey Bell Telephone Co.
8.00%, 6/1/22 Aaa 20,000 21,313
New York Telephone Co.
7.25%, 2/15/24 A2 15,000 14,226
9.375%, 7/15/31 A2 10,000 11,123
Northern States Power
7.125%, 7/1/25 A1 25,000 23,932
Pacific Bell Telephone Co.
7.125%, 3/15/26 Aa3 15,000 14,303
7.375%, 6/15/25 Aa3 10,000 9,641
Pacific Gas & Electric Co.
8.25%, 11/1/22 A2 25,000 25,674
8.375%, 5/1/25 A2 10,000 10,376
Pacificorp
6.625%, 6/1/07 A2 10,000 9,647
Southern California Edison Co.
6.90%, 10/1/18 A2 6,000 5,439
Southern California Gas Co.
7.50%, 6/15/23 A2 20,000 19,589
Southwestern Bell Telephone Co.
7.25%, 7/15/25 A1 20,000 18,877
Southwestern Public Services
8.20%, 12/1/22 Aa2 12,500 13,155
Texas Utilities Electric Co.
9.75%, 5/1/21 Baa2 5,000 5,653
U.S. West Communications
6.875%, 9/15/33 Aa3 45,000 40,187
United Telephone of Florida
9.25%, 9/15/19 A2 15,000 15,994
Virginia Electric & Power Co.
8.75%, 4/1/21 A2 10,000 10,937
Wisconsin Gas Co.
6.60%, 9/15/13 Aa3 2,500 2,323
-----------
GROUP TOTAL 509,221
-----------
-------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,107,556) 2,220,953
-------------------------------------------------------------------
</TABLE>
3
<PAGE> 36
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS (1.5%) (DOLLAR DENOMINATED)
-------------------------------------------------------------------
European Investment Bank
9.125%, 6/1/02 Aaa $ 25,000 $ 28,278
Exxon Capital Corp. Euro Bond
6.125%, 9/8/08 Aaa 5,000 4,594
Philips Electronics
7.75%, 4/15/04 A3 10,000 10,402
-------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $39,675) 43,274
-------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (20.8%)
-------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.
6.19%, 1/21/04 5,000 4,750
8.14%, 9/29/04 10,000 10,511
Federal National
Mortgage Association
6.28%, 2/3/04 25,000 23,892
15.50%, 10/1/12 14 16
Government National
Mortgage Association
6.50%, 6/15/23-12/15/24 185,676 176,488
7.00%, 9/15/23 19,693 19,245
Tennessee Valley Authority
6.875%, 12/15/43 25,000 22,643
7.75%, 12/15/22 25,000 24,442
U.S. Treasury Bonds
7.25%, 5/15/16 100,000 103,484
8.125%, 8/15/19 50,000 56,821
U.S. Treasury Notes
7.125%, 2/29/00 140,000 145,141
7.50%, 11/15/01 35,000 37,160
-------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $613,632) 624,593
-------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (6.2%)
-------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $187,014) 187,014 187,014
-------------------------------------------------------------------
TOTAL INVESTMENTS (102.6%)
(Cost $2,947,877) 3,075,834
-------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.6%)
-------------------------------------------------------------------
Other Assets--Notes C and G 63,538
Liabilities--Note G (140,252)
------------
(76,714)
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
-------------------------------------------------------------------
<S> <C>
NET ASSETS (100%)
-------------------------------------------------------------------
Applicable to 339,909,783 outstanding
$.001 par value shares
(authorized 450,000,000 shares) $2,999,120
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE $8.82
===================================================================
</TABLE>
+ See Note A to Financial Statements.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
MTN--Medium-Term Note.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------
Amount Per
(000) Share
---------- ------
<S> <C> <C>
Paid in Capital $2,878,475 $8.47
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (7,312) (.02)
Unrealized Appreciation of
Investments--Note F 127,957 .37
-------------------------------------------------------------------
NET ASSETS $2,999,120 $8.82
-------------------------------------------------------------------
</TABLE>
4
<PAGE> 37
<TABLE>
<CAPTION>
Face Market
HIGH YIELD Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (84.9%)
-------------------------------------------------------------------
AEROSPACE & DEFENSE (.8%)
K & F Industries
13.75%, 8/1/01 B2 $ 19,000 $ 19,760
------------
-------------------------------------------------------------------
BASIC INDUSTRIES (9.7%)
American Standard, Inc.
9.875%, 6/1/01 B1 20,000 20,800
11.375%, 5/15/04 Ba3 20,000 22,000
Cincinnati Milacron
8.375%, 3/15/04 Ba2 11,500 11,500
Coltec Industries
10.25%, 4/1/02 B1 19,000 19,760
Congoleum
9.00%, 2/1/01 B1 6,000 5,880
Dominion Textile (USA), Inc.
8.875%, 11/1/03 Ba3 15,000 14,775
Envirosource Inc.
9.75%, 6/15/03 B3 12,000 10,920
Essex Group
10.00%, 5/1/03 B1 17,000 16,660
EXIDE Corp.
10.75%, 12/15/02 B1 15,000 15,937
JPS Automotive Products
11.125%, 6/15/01 B2 8,000 7,920
Koppers Industries, Inc.
8.50%, 2/1/04 B1 9,000 8,640
Lear Siegler Seating Corp.
8.25%, 2/1/02 B2 13,000 12,285
11.25%, 7/15/00 B2 10,730 11,213
Mark IV Industries
8.75%, 4/1/03 Ba3 9,500 9,785
Schuller International Group
10.875%, 12/15/04 Ba3 29,000 31,683
Specialty Equipment
11.375%, 12/1/03 B3 6,000 6,240
UCAR Global Enterprises
12.00%, 1/15/05 B2 10,000 11,000
Westinghouse Air Brake
9.375%, 6/15/05 Ba3 4,150 4,254
Wolverine Tube, Inc.
10.125%, 9/1/02 Ba3 9,000 9,585
------------
GROUP TOTAL 250,837
------------
-------------------------------------------------------------------
CABLE (5.9%)
Cablevision Systems
9.875%, 2/15/13 B3 15,000 16,350
Comcast Corp.
9.375%, 5/15/05 B1 20,000 20,275
9.50%, 1/15/08 B1 18,750 18,844
10.625%, 7/15/12 B1 27,000 29,565
Continental Cablevision Co.
9.00%, 9/1/08 Ba2 30,000 31,350
11.00%, 6/1/07 B1 15,000 16,612
Rogers Cablesystem
9.625%, 8/1/02 Ba3 12,000 12,360
10.125%, 9/1/12 Ba3 5,000 5,163
Storer Communications, Inc.
10.00%, 5/15/03 B1 2,803 2,803
------------
GROUP TOTAL 153,322
------------
-------------------------------------------------------------------
CHEMICALS (6.2%)
Agricultural Mineral & Chemical
10.75%, 9/30/03 Ba3 15,000 15,937
Arcadian Partner
10.75%, 5/1/05 B2 30,000 31,500
Borden Chemical
9.50%, 5/1/05 Ba2 20,000 20,475
General Chemical
9.25%, 8/15/03 B2 10,000 9,800
Huntsman Corp.
10.625%, 4/15/01 B1 20,000 21,300
11.00%, 4/15/04 B1 23,500 25,850
Sherritt Gordon
10.50%, 3/31/14 B1 9,000 9,203
UCC Investors Holdings
11.00%, 5/1/03 B3 27,000 27,540
------------
GROUP TOTAL 161,605
------------
-------------------------------------------------------------------
COMPUTERS & ELECTRONIC
EQUIPMENT (.5%)
Digital Equipment Corp.
7.125%, 10/15/02 Ba1 15,000 14,154
------------
-------------------------------------------------------------------
CONSUMER GOODS & SERVICES (7.7%)
Cott Corp.
9.375%, 7/1/05 Ba3 10,000 9,975
Dr. Pepper Bottling Co.
10.25%, 2/15/00 B3 5,650 5,876
Kinder Care Learning Centers
10.375%, 6/1/01 Ba3 10,000 10,250
Owens-Illinois Inc.
10.00%, 8/1/02 B2 22,000 22,660
10.25%, 4/1/99 B2 23,000 23,632
11.00%, 12/1/03 Ba3 30,000 33,075
Playtex Family Products
9.00%, 12/15/03 B2 20,000 19,000
Sweetheart Cup
9.625%, 9/1/00 Ba3 19,000 18,810
10.50%, 9/1/03 B2 11,000 10,890
Westpoint Stevens
8.75%, 12/15/01 B1 25,000 24,875
9.375%, 12/15/05 B3 20,000 19,700
------------
GROUP TOTAL 198,743
------------
-------------------------------------------------------------------
</TABLE>
5
<PAGE> 38
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY & RELATED GOODS
& SERVICES (1.8%)
Energy Ventures Inc.
10.25%, 3/15/04 B1 $ 2,875 $ 2,918
Maxus Energy Corp.
9.375%, 11/1/03 B1 15,000 14,100
Noble Drilling
9.25%, 10/1/03 Ba3 10,000 10,200
Santa Fe Energy Resources
11.00%, 5/15/04 B2 10,000 10,800
Seagull Energy Corp.
8.625%, 8/1/05 B1 10,000 9,300
------------
GROUP TOTAL 47,318
------------
-------------------------------------------------------------------
FINANCE (2.9%)
American Reinsurance
10.875%, 9/15/04 Baa2 10,000 11,057
Anchor Bancorp Inc.
8.938%, 7/9/03 Ba3 10,000 9,800
Coast Federal Bank
13.00%, 12/31/02 Ba2 5,700 6,413
Coast Savings Financial, Inc.
10.00%, 3/1/00 Ba2 5,000 5,088
Dime Bancorp Inc.
10.50%, 11/15/05 Ba3 10,000 10,850
First Federal Financial
11.75%, 10/1/04 B2 5,000 4,962
Imperial Credit Industries
9.75%, 1/15/04 B1 7,500 6,187
Riggs National Corp.
8.50%, 2/1/06 Ba3 10,000 10,100
Western Financial Savings
8.50%, 7/1/03 Ba3 10,000 9,900
------------
GROUP TOTAL 74,357
------------
-------------------------------------------------------------------
FOOD & LODGING (2.9%)
ARA Group, Inc.
8.50%, 6/1/03 Ba3 10,000 10,200
ARA Services, Inc.
10.625%, 8/1/00 Ba1 10,000 11,100
John Q. Hammons Hotel
8.875%, 2/15/04 B1 10,000 9,550
La Quinta Inns
9.25%, 5/15/03 Ba3 12,000 12,450
Purina Mills
10.25%, 9/1/03 B2 20,000 20,550
Red Roof Inns
9.625%, 12/15/03 B3 12,000 11,520
------------
GROUP TOTAL 75,370
------------
-------------------------------------------------------------------
GROCERY STORES (3.1%)
Big V Supermarkets
11.00%, 2/15/04 B3 8,000 6,600
Kroger Co.
8.50%, 6/15/03 Ba1 15,000 15,487
9.75%, 2/15/04 Ba3 10,000 10,700
Penn Traffic Co.
10.25%, 2/15/02 Ba3 8,150 8,150
Safeway, Inc.
9.65%, 1/15/04 Ba2 15,000 16,500
10.00%, 12/1/01 Ba2 10,000 11,000
Star Markets Co.
13.00%, 11/1/04 B3 11,000 11,110
------------
GROUP TOTAL 79,547
------------
-------------------------------------------------------------------
HEALTH CARE (5.8%)
Abbey Healthcare
9.50%, 11/1/02 B1 8,000 8,320
Community Health Systems
10.25%, 11/30/03 B2 3,825 4,074
Hillhaven Corp.
10.125%, 9/1/01 B2 10,000 10,450
Manor Care, Inc.
9.50%, 11/15/02 Ba2 8,000 8,600
OrNda Healthcorp
11.375%, 8/15/04 B2 12,000 13,200
12.25%, 5/15/02 B2 18,000 19,890
Tenet Healthcare Corp.
10.125%, 3/1/05 Ba3 80,000 84,800
------------
GROUP TOTAL 149,334
------------
-------------------------------------------------------------------
HOME BUILDING & REAL ESTATE (1.2%)
Triangle Pacific Corp.
10.50%, 8/1/03 B2 12,500 12,812
Del E. Webb & Co.
9.00%, 2/15/06 B2 10,000 9,100
10.875%, 3/31/00 Ba3 10,000 10,400
------------
GROUP TOTAL 32,312
------------
-------------------------------------------------------------------
MEDIA & COMMUNICATIONS (9.6%)
Groupe Videotron LTEE
10.625%, 2/15/05 Ba3 5,000 5,325
Heritage Media Services
11.00%, 6/15/02 Ba3 8,750 9,472
Infinity Broadcasting
10.375%, 3/15/02 Ba3 15,000 15,975
News America Holdings
10.125%, 10/15/12 Ba1 10,000 11,441
Paging Network
8.875%, 2/1/06 B2 19,000 17,907
10.125%, 8/1/07 B2 10,000 10,138
Rogers Cantel Mobile
10.75%, 11/1/01 Ba3 17,000 17,723
11.125%, 7/15/02 B2 20,000 20,950
</TABLE>
6
<PAGE> 39
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
Time Warner, Inc.
9.125%, 1/15/13 Ba1 $ 30,000 $ 31,076
9.15%, 2/1/23 Ba1 35,000 36,035
Turner Broadcasting System
7.40%, 2/1/04 Ba2 25,000 23,168
8.375%, 7/1/13 Ba2 30,000 26,919
World Color Press
9.125%, 3/15/03 B1 15,000 14,850
Young Broadcasting
11.75%, 11/14/04 B2 6,000 6,660
------------
GROUP TOTAL 247,639
------------
-------------------------------------------------------------------
METAL (7.4%)
AK Steel Holding Corp.
10.75%, 4/1/04 Ba3 32,000 34,440
Acme Metal Inc.
12.50%, 8/1/02 B1 6,000 6,060
Armco Steel
9.375%, 11/1/00 B2 12,000 11,820
11.375%, 10/15/99 B2 10,000 10,425
Bethlehem Steel
10.375%, 9/1/03 B1 10,500 10,815
Inland Steel
12.75%, 12/15/02 Ba3 13,000 14,528
Kaiser Aluminum International
9.875%, 2/15/02 B1 15,000 15,150
Magma Copper
8.70%, 5/15/05 Ba3 20,000 19,750
12.00%, 12/15/01 Ba3 20,000 22,050
Northwestern Steel & Wire
9.50%, 6/15/01 B1 11,500 10,925
Russel Metals
10.25%, 6/15/00 B3 7,000 6,580
Weirton Steel Corp.
10.875%, 10/15/99 B2 8,800 9,020
11.50%, 3/1/98 B2 7,000 7,227
Wheeling-Pittsburgh Corp.
9.375%, 11/15/03 B1 15,000 14,100
------------
GROUP TOTAL 192,890
------------
-------------------------------------------------------------------
PAPER (14.5%)
Buckeye Cellulose
10.25%, 5/15/01 B2 3,100 3,100
Container Corp. of America
9.75%, 4/1/03 B2 47,500 48,687
10.75%, 5/1/00 B2 125 133
Doman Industries, Ltd.
8.75%, 3/15/04 Ba3 11,100 10,767
Domtar Inc.
11.75%, 3/15/99 Ba1 13,250 14,442
12.00%, 4/15/01 Ba1 8,945 10,287
Fort Howard Corp.
8.25%, 2/1/02 B1 10,000 9,500
9.00%, 2/1/06 B2 23,000 21,333
9.25%, 3/15/01 B1 49,500 49,500
Quno Corp.
9.125%, 5/15/05 Ba3 15,000 15,150
Rainy River Forest
10.75%, 10/15/01 Ba3 11,000 11,660
Repap Wisconsin
9.875%, 5/1/06 B3 15,000 14,925
Repap New Brunswick
9.875%, 7/15/00 Ba3 10,000 10,300
10.625%, 4/15/05 B2 35,000 36,400
Riverwood International
11.25%, 6/15/02 B1 8,000 8,720
SD Warren Co.
12.00%, 12/15/04 B1 22,500 24,975
Stone Container
9.875%, 2/1/01 B1 70,000 70,350
10.75%, 4/1/02 B2 14,000 14,350
------------
GROUP TOTAL 374,579
------------
-------------------------------------------------------------------
TRANSPORTATION (.3%)
Southern Pacific Railroad
9.375%, 8/15/05 Ba3 8,000 8,190
------------
-------------------------------------------------------------------
UTILITIES (4.6%)
Cleveland Electrical Illumination
9.50%, 5/15/05 Ba2 25,000 24,436
First Public Venture Funding
10.15%, 1/15/16 B1 20,000 20,325
Long Island Lighting Co.
9.00%, 11/1/22 Ba1 37,500 34,524
Midland Cogeneration Venture
11.75%, 7/23/05 B2 25,000 25,877
Texas-New Mexico Power
10.75%, 9/15/03 B1 13,000 13,910
------------
GROUP TOTAL 119,072
------------
-------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,149,766) 2,199,029
-------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (7.7%)
-------------------------------------------------------------------
U.S. TREASURY NOTES
4.75%, 9/30/98 50,000 48,133
5.50%, 9/30/97 50,000 49,586
6.25%, 5/31/00 50,000 50,102
6.875%, 10/31/96 50,000 50,633
-------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $198,436) 198,454
-------------------------------------------------------------------
</TABLE>
7
<PAGE> 40
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
-------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (6.4%)
-------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $165,514) $165,514 $ 165,514
-------------------------------------------------------------------
TOTAL INVESTMENTS (99.0%)
(Cost $2,513,716) 2,562,997
-------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.0%)
-------------------------------------------------------------------
Other Assets--Notes C and G 170,784
Liabilities--Note G (143,349)
------------
27,435
-------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------
Applicable to 336,590,440 outstanding
$.001 par value shares
(authorized 450,000,000 shares) $2,590,432
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE $7.70
===================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------
Amount Per
(000) Share
----------- ------
<S> <C> <C>
Paid in Capital $2,658,781 $7.90
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (117,630) (.35)
Unrealized Appreciation of
Investments--Note F 49,281 .15
-------------------------------------------------------------------
NET ASSETS $2,590,432 $7.70
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (66.3%)
-------------------------------------------------------------------
ASSET BACKED SECURITIES (2.2%)
Prime Credit Card
Master Trust
6.75%, 10/31/05 Aaa $ 2,000 $ 2,003
Standard Credit Card
Master Trust
5.50%, 2/7/00 Aaa 2,000 1,943
8.25%, 11/7/03 Aaa 1,800 1,934
------------
GROUP TOTAL 5,880
------------
-------------------------------------------------------------------
FINANCE--AUTOMOBILE (1.9%)
Chrysler Financial Corp.
6.625%, 8/15/00 A3 1,000 993
12.75%, 11/1/99 A3 750 911
Ford Motor Credit Corp.
6.75%, 5/15/05 A1 1,000 972
7.50%, 1/15/03 A1 1,000 1,021
7.75%, 11/15/02 A1 1,000 1,040
------------
GROUP TOTAL 4,937
------------
-------------------------------------------------------------------
FINANCE--BANKS (9.6%)
Banc One Corp.
9.875%, 3/1/09 A1 2,600 3,132
First Interstate Bancorp.
9.90%, 11/15/01 A3 1,000 1,141
10.875%, 4/15/01 A3 1,000 1,182
First Union Corp.
7.50%, 4/15/35 A3 2,000 2,071
First USA Bank
5.75%, 1/15/99 Baa3 2,000 1,935
MBNA America
7.25%, 9/15/02 A3 1,000 1,004
Mellon Financial
6.30%, 6/1/00 A2 3,000 2,949
Meridian Bancorp
6.625%, 2/15/03 Baa1 3,000 2,898
NationsBank Corp.
7.625%, 4/15/05 A3 3,000 3,090
Republic New York Corp.
7.75%, 5/15/09 A1 1,500 1,565
Security Pacific Corp.
11.00%, 3/1/01 A3 1,000 1,183
UJB Financial
8.625%, 12/10/02 Baa3 3,000 3,245
------------
GROUP TOTAL 25,395
------------
-------------------------------------------------------------------
FINANCE--CONSUMERS (2.1%)
Beneficial Corp.
6.80%, 9/10/99 A2 1,000 1,002
Fleet Mortgage Group
6.50%, 9/15/99 A3 1,000 990
</TABLE>
8
<PAGE> 41
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
Norwest Financial, Inc.
6.875%, 12/15/99 Aa3 $ 1,000 $ 1,009
7.50%, 4/15/05 Aa3 2,500 2,580
------------
GROUP TOTAL 5,581
------------
-------------------------------------------------------------------
FINANCE--DIVERSIFIED (2.4%)
Associates Corp. of North America
7.54%, 4/14/04 Aa3 3,000 3,099
7.875%, 9/30/01 Aa3 2,000 2,101
General Electric Capital Corp.
8.70%, 2/15/03 Aaa 1,000 1,107
------------
GROUP TOTAL 6,307
------------
-------------------------------------------------------------------
FINANCE--OTHER (6.7%)
Bear Sterns Co.
6.75%, 4/15/03 A2 2,000 1,926
Dean Witter Discover & Co.
6.875%, 3/1/03 A2 1,000 988
Goldman Sachs Group
7.80%, 7/15/02 A1 1,000 1,031
Lehman Brothers
8.75%, 3/15/05 Baa1 3,000 3,213
Morgan Stanley Group
8.875%, 10/15/01 A1 1,350 1,475
9.375%, 6/15/01 A1 1,000 1,115
PaineWebber Group
8.875%, 3/15/05 Baa1 3,000 3,238
Smith Barney
6.875%, 6/15/05 A3 1,000 964
7.50%, 5/1/02 A3 3,500 3,584
------------
GROUP TOTAL 17,534
------------
-------------------------------------------------------------------
INDUSTRIAL (36.7%)
Amax Inc.
9.875%, 6/13/01 Baa2 1,500 1,698
American Stores
7.40%, 5/15/05 Baa3 3,000 3,022
Anheuser Busch Co.
6.75%, 6/1/05 A1 2,000 1,956
8.75%, 12/1/99 A1 2,300 2,495
Apache Corp.
9.25%, 6/1/02 Baa3 2,000 2,198
Applied Materials
8.00%, 9/1/04 Baa3 2,000 2,102
The Boeing Co.
8.10%, 11/15/06 A1 2,000 2,169
Burlington Resources, Inc.
7.15%, 5/1/99 A3 1,000 1,015
CSC Enterprises
6.80%, 4/15/99 A3 1,000 1,002
CSX Corp.
9.50%, 8/1/00 A3 1,000 1,111
Cardinal Health, Inc.
6.50%, 2/15/04 A3 1,000 963
The Coca-Cola Co.
7.875%, 9/15/98 Aa3 1,301 1,355
COMPAQ Computer Corp.
7.25%, 3/15/04 Baa2 3,500 3,491
Crown Cork & Seal
7.00%, 6/15/99 Baa1 1,000 1,011
Cyprus Amax Minerals Co.
7.375%, 5/15/07 Baa2 1,750 1,757
R.R. Donnelley & Sons Co.
7.96%, 11/8/99 Aa3 2,000 2,101
Eastman Chemical Co.
6.375%, 1/15/04 A3 1,500 1,442
Electronic Data
Systems Corp.
6.85%, 5/15/00 A1 2,000 2,013
Federal Express
10.125%, 7/15/03 Baa2 2,000 2,333
General Motors Corp.
8.875%, 6/11/01 A3 1,000 1,092
9.22%, 7/18/01 A3 1,000 1,110
9.625%, 12/1/00 A3 2,000 2,228
Hoechst-Celanese
6.125%, 2/1/04 A2 2,000 1,885
International Paper Co.
9.70%, 3/15/00 A3 2,000 2,230
Jet Equipment
7.63%, 2/15/12* A1 3,000 3,003
Knight-Ridder
9.875%, 4/15/09 A1 4,750 5,895
Eli Lilly & Co.
8.375%, 12/1/06 Aa3 2,000 2,206
Lockheed Corp.
9.375%, 10/15/99 A2 1,125 1,236
McDonnell Douglas
9.25%, 4/1/02 Baa3 2,000 2,231
Mobil Corp.
7.25%, 3/15/99 Aa2 2,000 2,048
J.C. Penney Co., Inc.
6.00%, 5/1/06 A1 1,000 914
9.05%, 3/1/01 A1 1,240 1,372
PepsiCo, Inc.
7.48%, 4/27/02 A1 2,000 2,033
Philips Petroleum Co.
8.00%, 4/12/99 Baa2 1,000 1,040
9.00%, 6/1/01 Baa2 1,000 1,097
</TABLE>
9
<PAGE> 42
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
Praxair
6.85%, 6/15/05 A3 $ 1,000 $ 981
Price/Costco
7.125%, 6/15/05 Baa1 3,500 3,459
Rockwell International
8.375%, 2/15/01 Aa3 2,361 2,541
Sears, Roebuck & Co.
8.52%, 5/13/02 A2 1,000 1,083
Southern Pacific
Transportation Co.
8.66%, 1/2/06 Baa1 1,897 2,076
Tenneco Corp.
10.00%, 3/15/08 Baa2 2,000 2,430
Texaco Capital Corp.
7.70%, 12/15/99 A1 1,065 1,109
Texas Instruments, Inc.
9.00%, 3/15/01 A3 1,600 1,756
9.25%, 6/15/03 A3 2,000 2,254
Timken Co.
7.30%, 8/13/02 A3 2,500 2,541
Tosco Corp.
8.25%, 5/15/03 Baa3 1,500 1,575
Union Carbide Corp.
7.00%, 8/1/99 Baa2 2,000 2,021
Union Oil of California
6.375%, 2/1/04 Baa2 1,000 952
Union Pacific Railroad Co.
6.12%, 2/1/04 Aa2 2,000 1,884
Wal-Mart Stores, Inc.
5.875%, 10/15/05 Aa1 1,000 924
Western Atlas, Inc.
7.875%, 6/15/04 Baa1 2,000 2,091
------------
GROUP TOTAL 96,531
------------
-------------------------------------------------------------------
INSURANCE (1.1%)
The Equitable Cos., Inc.
6.75%, 12/1/00* A2 1,000 993
Harleysville Group
6.75%, 11/15/03 Baa2 1,000 943
Progressive Corp.
6.60%, 1/15/04 A3 1,000 960
------------
GROUP TOTAL 2,896
------------
-------------------------------------------------------------------
UTILITIES (2.8%)
BellSouth Telecommunications
6.50%, 2/1/00 Aaa 2,000 1,997
Chesapeake & Potomac
Telephone Co. (MD)
6.00%, 5/1/03 Aa3 2,000 1,892
GTE North Inc.
5.50%, 2/15/99 A1 1,000 968
MCI Communications Corp.
7.50%, 8/20/04 A2 1,500 1,550
New Jersey Telephone Co.
5.875%, 2/1/04 Aaa 1,000 939
------------
GROUP TOTAL 7,346
------------
-------------------------------------------------------------------
RESERVE--OTHER (.8%)(1)
Caterpillar Financial Services
6.387%, 5/9/97 A2 1,000 1,000
Ford Motor Credit Corp.
6.367%, 11/1/97 A1 1,000 999
------------
GROUP TOTAL 1,999
------------
-------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $170,918) 174,406
-------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (13.0%)
-------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSN.
5.82%, 11/4/03 2,900 2,709
6.80%, 1/10/03 9,000 9,083
(Collateralized Mortgage Obligations)
6.90%, 12/25/03* 1,698 1,694
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
8.17%, 1/15/07* 4,792 5,101
U.S. TREASURY BOND
10.375%, 11/15/12 10,200 13,245
U.S. TREASURY NOTE
6.375%, 8/15/02 2,200 2,201
-------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $32,492) 34,033
-------------------------------------------------------------------
FOREIGN BONDS (9.0%)
-------------------------------------------------------------------
ABN Amro NV
7.25%, 5/31/05 Aa2 2,000 2,012
Australia & New Zealand
Banking Group Ltd.
6.25%, 2/1/04 A2 1,000 940
Government of Canada
6.375%, 7/21/05 Aa2 2,000 1,940
KFW International Finance
8.20%, 6/1/06 Aaa 3,750 4,079
Noranda, Inc.
8.125%, 6/15/04 Baa2 1,510 1,586
8.625%, 7/15/02 Baa2 1,000 1,079
Bank of Nova Scotia
6.25%, 9/15/08 A1 1,000 909
Philips Electronics
8.375%, 9/15/06 A3 1,000 1,086
Province of Saskatchewan
7.125%, 3/15/08 A3 2,000 1,994
</TABLE>
10
<PAGE> 43
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
Republic of Portugal
5.75%, 10/8/03 A1 $ 2,000 $ 1,867
Swiss Bank Corp.
6.75%, 7/15/05 Aa2 4,000 3,929
Toronto-Dominion Bank
6.45%, 1/15/09 Aa3 2,500 2,312
-------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $22,500) 23,733
-------------------------------------------------------------------
TAXABLE MUNICIPAL SECURITIES (3.1%)
-------------------------------------------------------------------
Contra Costa County
Pension Obligations
6.30%, 6/1/02 A1 1,000 955
Dade County Aviation Rev.
8.60%, 10/1/02 Aaa 2,000 2,166
Los Angeles County Pension
Obligation
8.42%, 6/30/03 A2 2,000 2,139
Mississippi Business
Finance Corp.
(Guaranteed by
Kimberly-Clark)
7.55%, 6/1/04 Aa2 1,000 1,039
San Diego County
Pension Obligation
5.85%, 8/15/00 A+(2) 2,000 1,894
-------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL SECURITIES
(Cost $7,997) 8,193
-------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (9.2%)
-------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $24,262) 24,262 24,262
-------------------------------------------------------------------
TOTAL INVESTMENTS (100.6%)
(Cost $258,169) 264,627
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
-------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-.6%)
-------------------------------------------------------------------
Other Assets--Notes C and G $ 17,055
Liabilities--Note G (18,671)
-----------
(1,616)
-------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------
Applicable to 27,121,702 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $263,011
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.70
===================================================================
</TABLE>
+ See Note A to Financial Statements.
(1)Floating Rate Notes.
(2)Rated by Standard & Poor's.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------
Amount Per
(000) Share
--------- ------
<S> <C> <C>
Paid in Capital $258,600 $9.54
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (2,212) (.08)
Unrealized Appreciation
of Investments--Note F 6,623 .24
-------------------------------------------------------------------
NET ASSETS $263,011 $9.70
-------------------------------------------------------------------
</TABLE>
11
<PAGE> 44
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
-------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (91.6%)
-------------------------------------------------------------------
U.S. TREASURY BONDS
10.375%, 11/15/12 $218,950 $ 284,293
10.75%, 2/15/03 4,000 5,024
10.75%, 5/15/03 5,100 6,436
11.625%, 11/15/02 58,250 75,807
11.625%, 11/15/04 27,300 36,944
11.875%, 11/15/03 20,700 27,799
U.S. TREASURY NOTES
4.75%, 9/30/98 11,000 10,589
5.125%, 11/30/98 11,525 11,194
5.75%, 8/15/03 12,000 11,488
5.875%, 3/31/99 40,000 39,681
6.25%, 2/15/03 2,500 2,477
6.375%, 8/15/02 270,200 270,368
6.875%, 8/31/99 8,500 8,713
7.50%, 11/15/01 13,000 13,802
8.875%, 2/15/99 14,000 15,223
AGENCY FOR INTERNATIONAL
DEVELOPMENT
(U.S. Government Guaranteed)
5.25%, 9/15/00 5,000 4,733
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
6.00%, 3/15/05* 20,313 19,733
7.46%, 12/15/05* 35,152 36,196
8.21%, 12/29/06* 31,015 33,348
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
7.02%, 9/1/04* 16,823 17,063
7.80%, 8/15/06* 10,313 10,810
8.17%, 1/15/07* 8,625 9,182
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
5.735%, 1/15/02* 22,800 21,959
5.94%, 6/20/06* 20,000 19,231
-------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $967,969) 992,093
-------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (6.7%)
-------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $72,774) 72,774 72,774
-------------------------------------------------------------------
TOTAL INVESTMENTS (98.3%)
(Cost $1,040,743) 1,064,867
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
-------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (1.7%)
-------------------------------------------------------------------
Other Assets--Notes C and G $ 305,558
Liabilities--Note G (286,669)
-----------
18,889
-------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------
Applicable to 104,266,463 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $1,083,756
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.39
===================================================================
</TABLE>
+See Note A to Financial Statements.
*The average maturity is shorter than the final maturity shown due to scheduled
interim principal payments.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------
Amount Per
(000) Share
----------- -------
<S> <C> <C>
Paid in Capital $1,099,456 $10.54
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (40,436) (.39)
Unrealized Appreciation
of Investments--Note F 24,736 .24
-------------------------------------------------------------------
NET ASSETS $1,083,756 $10.39
-------------------------------------------------------------------
</TABLE>
12
<PAGE> 45
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
FEDERAL PORTFOLIO (000) (000)+
-------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (96.0%)
-------------------------------------------------------------------
AGENCY FOR INTERNATIONAL
DEVELOPMENT (ISRAEL)
(U.S. Government Guaranteed)
7.75%, 4/1/98* $17,585 $ 17,939
FEDERAL HOME LOAN BANK
5.00%, 10/20/00 31,000 29,233
5.215%, 7/8/98 4,750 4,614
5.43%, 2/25/99 10,000 9,738
5.862%, 7/25/00(1) 25,000 24,725
5.87%, 8/7/95*(1) 25,000 25,000
6.00%, 5/16/97 25,000 24,988
6.25%, 4/21/99 25,000 25,000
6.37%, 6/30/97 12,000 12,069
7.64%, 9/21/98 19,900 20,689
8.25%, 5/27/96 5,000 5,091
FEDERAL HOME LOAN MORTGAGE CORP.
6.40%, 8/1/00 15,000 15,033
6.83%, 9/29/97 27,000 27,431
6.905%, 4/13/98 25,000 25,442
7.00%, 8/3/99 5,100 5,100
7.75%, 1/27/97 23,500 24,097
(Collateralized Mortgage Obligations)
6.00%, 9/10/00 12,832 12,583
6.00%, 9/1/98* 17,666 17,500
6.50%, 10/1/97* 11,131 11,137
6.50%, 3/12/00* 28,458 28,138
FEDERAL NATIONAL MORTGAGE ASSN.
3.00%, 7/13/98 82,150 81,821
4.94%, 10/30/98 20,000 19,188
5.10%, 4/28/98 6,000 5,824
5.23%, 11/25/98 45,735 44,416
5.33%, 6/26/98 17,535 17,107
5.82%, 11/4/03 11,000 10,276
6.52%, 9/8/97 7,500 7,573
6.80%, 1/10/03 16,075 16,223
6.84%, 10/3/97 23,500 23,836
7.09%, 10/14/97 49,450 50,497
7.23%, 9/15/99 15,000 15,473
7.60%, 1/10/97 9,000 9,197
7.80%, 6/10/02 18,200 18,581
8.15%, 8/12/96 15,000 15,328
8.15%, 5/11/98 25,000 26,274
8.45%, 7/12/99 17,845 19,133
8.50%, 6/10/96 25,000 25,535
8.50%, 2/1/05 17,000 18,084
8.632%, 1/1/96 26,500 26,760
8.65%, 2/10/98 6,000 6,346
8.80%, 7/25/97 25,000 26,250
11.50%, 11/1/99 46,000 54,680
(Collateralized Mortgage Obligations)
0.00%, 12/25/15* 754 707
5.50%, 9/25/00* 26,963 26,331
6.90%, 12/25/03* 5,672 5,658
7.00%, 3/25/18* 1,544 1,539
7.50%, 3/25/05* 9,909 9,916
8.00%, 7/25/18* 1,640 1,634
U.S. TREASURY NOTES
4.75%, 9/30/98 31,000 29,842
5.125%, 11/30/98 20,000 19,425
5.875%, 3/31/99 8,000 7,936
6.75%, 5/31/99 6,000 6,123
6.875%, 8/31/99 10,000 10,250
7.375%, 11/15/97 10,000 10,294
7.875%, 7/31/96 3,100 3,163
BANAMEX EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
4.91%, 10/15/98* 25,683 25,077
6.46%, 4/15/99* 19,440 19,446
BANCO NATIONAL DE
COMMERCIO EXTERIOR
(U.S. Government Guaranteed)
5.10%, 4/15/98* 6,906 6,797
5.295%, 10/15/97* 13,275 13,132
5.48%, 10/15/97* 5,250 5,205
5.95%, 4/15/97* 6,800 6,785
6.82%, 4/15/99* 4,468 4,509
8.038%, 1/15/00* 13,500 13,954
BANK LEUMI LE-ISRAEL
(U.S. Export Finance--
U.S. Government Guaranteed)
8.375%, 2/10/96* 551 554
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
4.61%, 9/1/98* 16,800 16,404
4.85%, 11/1/97* 17,500 17,224
5.41%, 3/1/99* 7,090 6,982
5.69%, 2/1/98* 19,571 19,454
5.79%, 1/1/97* 5,044 5,036
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.43%, 6/15/98* 20,840 20,381
4.743%, 9/15/98* 2,629 2,570
4.813%, 12/15/98* 13,961 13,694
6.61%, 9/15/99* 21,774 21,900
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.86%, 4/1/98* 6,000 5,898
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
7.815%, 11/15/01* 8,125 8,410
8.75%, 11/15/01* 12,188 12,945
8.89%, 11/1/95* 1,875 1,888
</TABLE>
13
<PAGE> 46
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
-------------------------------------------------------------------
<S> <C> <C>
PRIVATE EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
5.75%, 4/30/98 $ 9,800 $ 9,687
7.125%, 10/31/96 10,000 10,131
8.95%, 10/31/97 7,575 8,011
9.45%, 12/31/99 33,580 37,396
U.S. EXIM TRUST
(U.S. Government Guaranteed)
5.20%, 8/25/97* 18,000 17,820
U.S. GOVERNMENT TRUST CERTIFICATES
(U.S. Government Guaranteed)
7.45%, 9/25/96* 3,693 3,718
7.50%, 8/15/00* 13,501 13,842
8.00%, 5/15/98* 16,551 16,952
8.55%, 11/15/97* 21,431 21,945
9.25%, 11/15/96* 4,361 4,449
9.40%, 11/15/96* 2,172 2,228
-------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $1,419,896) 1,431,191
-------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.8%)
-------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $56,957) 56,957 56,957
-------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(Cost $1,476,853) 1,488,148
-------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.2%)
-------------------------------------------------------------------
Other Assets--Notes C and G 23,344
Liabilities--Note G (19,830)
-----------
3,514
-------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------
Applicable to 147,826,378 outstanding
$.001 par value shares
(authorized 300,000,000 shares) $1,491,662
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.09
===================================================================
</TABLE>
+ See Note A to Financial Statements.
(1)Floating Rate Note.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------
Amount Per
(000) Share
----------- -------
<S> <C> <C>
Paid in Capital $1,519,453 $10.28
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (39,086) (.27)
Unrealized Appreciation
of Investments--Note F 11,295 .08
-------------------------------------------------------------------
NET ASSETS $1,491,662 $10.09
-------------------------------------------------------------------
</TABLE>
14
<PAGE> 47
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
-------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (96.4%)
-------------------------------------------------------------------
U.S. TREASURY NOTES
4.375%, 11/15/96 $ 26,000 $ 25,557
5.125%, 6/30/98 75,500 73,684
5.25%, 7/31/98 104,000 101,854
5.50%, 4/30/96 18,900 18,867
5.875%, 5/31/96 162,300 162,453
6.125%, 7/31/96 69,000 69,248
6.75%, 6/30/99 95,000 96,945
6.875%, 8/31/99 7,000 7,175
7.375%, 5/15/96 14,000 14,171
7.50%, 2/29/96 18,500 18,682
7.75%, 11/30/99 61,000 64,574
7.75%, 12/31/99 57,000 60,402
8.50%, 5/15/97 2,000 2,088
8.75%, 10/15/97 5,000 5,285
BANAMEX EXPORT FUNDING
(U.S. Government Guaranteed)
4.91%, 10/15/98* 4,200 4,101
BANCO NATIONAL DE
COMMERCIO EXTERIOR
(U.S. Government Guaranteed)
4.62%, 10/15/98* 14,000 13,621
5.95%, 4/15/97* 4,320 4,310
6.475%, 5/15/00* 13,000 13,033
6.82%, 4/15/99* 5,714 5,766
8.038%, 1/15/00* 13,500 13,954
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
4.85%, 11/1/97* 6,000 5,905
5.69%, 2/1/98* 7,200 7,157
5.79%, 1/1/97* 1,500 1,497
7.75%, 1/1/00* 11,999 12,326
GOVERNMENT TRUST
CERTIFICATE (ISRAEL)
(U.S. Government Guaranteed)
8.55%, 11/15/97* 1,739 1,781
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.743%, 9/15/98* 18,200 17,789
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.77%, 11/1/97* 3,350 3,303
PRIVATE EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
5.65%, 3/15/03* 6,720 6,545
SMALL BUSINESS ADMINISTRATION
(U.S. Government Guaranteed)
6.95%, 6/1/97 6,000 6,059
-------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $825,135) 838,132
-------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.2%)
-------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $27,788) 27,788 27,788
-------------------------------------------------------------------
TOTAL INVESTMENTS (99.6%)
(Cost $852,923) 865,920
-------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.4%)
-------------------------------------------------------------------
Other Assets--Note C 8,010
Liabilities (4,138)
----------
3,872
-------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------
Applicable to 85,426,822 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $869,792
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.18
===================================================================
</TABLE>
+See Note A to Financial Statements.
*The average maturity is shorter than the final maturity shown due to scheduled
interim principal payments.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------
Amount Per
(000) Share
--------- -------
<S> <C> <C>
Paid in Capital $873,338 $10.22
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (16,543) (.19)
Unrealized Appreciation
of Investments--Note F 12,997 .15
-------------------------------------------------------------------
NET ASSETS $869,792 $10.18
-------------------------------------------------------------------
</TABLE>
15
<PAGE> 48
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (81.0%)
-------------------------------------------------------------------
ASSET BACKED SECURITIES (11.8%)
Bank One Credit Card
Master Trust
7.55%, 12/15/99 Aaa $ 53,255 $ 54,753
Carco Auto Loan Master Trust
7.875%, 7/15/99 Aaa 57,000 58,710
Discover Card Master Trust
6.55%, 2/18/03 Aaa 15,000 14,986
6.70%, 2/16/00 Aaa 5,000 5,041
First Chicago Master Trust
6.25%, 8/15/99 Aaa 10,500 10,487
First Deposit Credit Card Trust
6.80%, 10/15/99 Aaa 5,696 5,652
Household Credit Card
Master Trust
7.00%, 12/15/99 Aaa 79,775 80,971
MBNA Credit Card Master Trust
6.05%, 11/15/02 Aaa 25,000 24,562
6.20%, 8/15/99 Aaa 10,000 9,978
NationsBank Credit Card
Master Trust
4.75%, 9/15/98 Aaa 42,500 41,796
Prime Credit Card Master Trust
6.75%, 10/31/05 Aaa 8,000 8,010
Rochester Community
Savings Banks
6.70%, 4/15/97 Aaa 2,605 2,609
Series 1991 A Mortgage Trust
(Prudential Support Agreement)
7.20%, 12/15/02 Aa2 4,399 4,407
Standard Credit Card
Master Trust
6.75%, 6/7/98 Aaa 21,000 21,210
7.875%, 11/7/98 Aaa 16,100 16,774
8.50%, 8/7/97 Aaa 45,000 45,886
-----------
GROUP TOTAL 405,832
-----------
-------------------------------------------------------------------
FINANCE--AUTOMOBILE (6.3%)
Chrysler Financial Corp.
7.81%, 2/23/98 A3 15,000 15,421
8.44%, 12/28/98 A3 25,000 26,305
10.34%, 5/15/96 A3 16,634 17,131
12.75%, 11/1/99 A3 9,250 11,239
Ford Motor Credit Corp.
5.37%, 9/8/98 A1 14,475 13,947
5.83%, 6/29/98 A1 25,000 24,441
6.367%, 11/1/97(1) A1 30,000 29,978
7.90%, 5/17/99 A1 5,000 5,210
7.95%, 5/17/99 A1 5,000 5,218
9.10%, 7/18/96 A1 5,000 5,146
General Motors
Acceptance Corp.
6.00%, 12/30/98 A3 5,000 4,898
6.437%, 5/6/96(1) A3 30,000 29,963
8.40%, 10/15/99 A3 5,000 5,292
8.50%, 12/21/98 A3 20,000 21,003
-----------
GROUP TOTAL 215,192
-----------
-------------------------------------------------------------------
FINANCE--BANKS (6.2%)
Capital One Bank
6.36%, 6/29/98 Baa3 5,000 4,956
8.625%, 1/15/97 Baa3 11,000 11,325
First Fidelity Bancorp
9.625%, 8/15/99 A3 21,500 23,725
First Interstate Bancorp.
9.90%, 11/15/01 A3 9,000 10,265
10.50%, 3/1/96 A2 5,000 5,118
First USA Bank
5.75%, 1/15/99 Baa3 21,375 20,682
Manufacturers Hanover Corp.
8.50%, 2/15/99 A3 9,272 9,786
Mellon Financial Corp.
6.30%, 6/1/00 A2 5,000 4,915
Meridian Bancorp
6.625%, 6/15/00 A3 5,000 4,952
Norwest Corp.
6.75%, 5/12/00 Aa3 15,000 15,112
PNC Funding Corp.
4.25%, 1/10/96 A2 10,900 10,827
Provident Bank of Ohio
5.00%, 6/15/96 A3 15,000 14,856
Security Pacific Corp.
9.75%, 5/15/99 A3 5,000 5,443
United Jersey Bank
8.625%, 12/10/02 Baa3 10,725 11,601
Wachovia Bank
4.47%, 8/26/96 Aa2 20,000 19,716
4.60%, 11/15/96 Aa2 21,000 20,638
5.35%, 11/13/98 Aa2 20,000 19,378
-----------
GROUP TOTAL 213,295
-----------
-------------------------------------------------------------------
FINANCE--CONSUMERS (2.1%)
Advanta Corp.
5.125%, 11/15/96 Baa3 15,000 14,746
6.84%, 9/23/96 Baa3 15,000 15,076
Commercial Credit Corp.
6.70%, 8/1/99 A1 5,000 5,003
Countrywide Funding
6.11%, 8/5/96 A3 5,000 4,997
7.85%, 3/3/97 A3 9,800 10,006
</TABLE>
16
<PAGE> 49
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
Fleet Mortgage Group
6.08%, 11/24/95 A3 $ 21,800 $ 21,810
------------
GROUP TOTAL 71,638
------------
-------------------------------------------------------------------
FINANCE--DIVERSIFIED (8.4%)
Associates Corp.
7.55%, 9/1/99 Aa3 10,000 10,305
8.25%, 12/1/99 Aa3 25,000 26,464
8.37%, 12/21/99 Aa3 19,000 20,183
8.40%, 11/29/99 Aa3 10,000 10,666
8.625%, 6/15/97 Aa3 6,000 6,244
CIT Group Holdings
6.00%, 2/15/97* Aa3 35,525 35,451
Caterpillar Financial Services
4.44%, 10/22/03 A2 6,500 6,372
6.387%, 5/9/97(1) A2 21,000 20,990
General Electric
Capital Corp.
4.70%, 11/19/96 Aaa 38,000 37,381
4.84%, 2/10/97 Aaa 10,000 9,813
6.20%, 3/15/97* Aaa 41,413 41,473
7.625%, 7/30/96 Aaa 5,000 5,078
8.10%, 1/26/99 Aaa 5,000 5,250
Sears Roebuck Acceptance Corp.
6.17%, 1/29/99 A2 35,000 34,562
U.S. West Financial Services
8.45%, 4/24/96 A2 18,500 18,802
------------
GROUP TOTAL 289,034
------------
-------------------------------------------------------------------
FINANCE--INSURANCE (.3%)
The Equitable Cos., Inc.
6.75%, 4/26/99 A2 11,500 11,417
------------
-------------------------------------------------------------------
FINANCE--OTHER (9.9%)
Bear Sterns Co.
7.625%, 9/15/99 A2 10,000 10,283
7.625%, 4/15/00 A2 33,900 34,857
Dean Witter Discover & Co.
5.00%, 4/1/96 A2 23,750 23,577
6.00%, 3/1/98 A2 11,000 10,881
Goldman Sachs Group
6.10%, 4/15/98 A1 30,000 29,553
6.587%, 1/25/99(1) A1 14,000 13,990
6.875%, 9/15/99 A1 16,175 16,119
Lehman Brothers Holdings
5.75%, 2/15/98 Baa1 5,000 4,861
7.375%, 5/15/07 Baa1 28,000 28,227
7.46%, 9/6/96 Baa1 20,000 20,223
8.375%, 2/15/99 Baa1 5,000 5,190
Morgan Stanley Group
6.93%, 8/15/96 A1 20,000 20,106
7.32%, 1/15/97 A1 11,500 11,665
8.875%, 10/15/01 A1 10,500 11,472
PaineWebber Group
6.73%, 1/26/04 Baa1 10,000 9,265
7.16%, 6/15/99 Baa1 25,000 24,955
8.25%, 5/1/02 Baa1 5,000 5,191
Pitney Bowes Credit Corp.
7.43%, 4/15/97 Aa3 14,000 14,279
Smith Barney Holdings
5.375%, 6/1/96 A3 19,000 18,867
5.50%, 1/15/99 A3 5,000 4,805
7.00%, 5/15/00 A3 13,500 13,548
7.98%, 3/1/00 A3 7,500 7,805
------------
GROUP TOTAL 339,719
------------
-------------------------------------------------------------------
INDUSTRIAL (31.0%)
Air Products & Chemicals
4.66%, 8/26/96 A1 5,000 4,927
Amax, Inc.
9.875%, 6/13/01 Baa2 27,500 31,128
Burlington Resources, Inc.
7.15%, 5/1/99 A3 22,500 22,837
CBI Industries
7.53%, 8/26/99 Baa2 15,000 15,376
CSC Enterprises
6.80%, 4/15/99 A3 21,500 21,551
CSX Corp.
9.04%, 2/28/97 A3 8,500 8,844
The Coca-Cola Co.
7.875%, 9/15/98 Aa3 18,000 18,754
Compaq Computer Corp.
6.50%, 3/15/99 Baa2 40,600 40,366
Crown Cork & Seal
7.00%, 6/15/99 Baa1 30,900 31,235
Cyprus Minerals
10.125%, 4/1/02 Baa2 7,500 8,696
R.R. Donnelley & Sons Co.
7.27%, 10/1/97 Aa3 15,000 15,308
7.96%, 11/8/99 Aa3 40,000 42,028
Electronic Data Systems Corp.
6.85%, 5/15/00 A1 13,000 13,085
Federal Express Co.
10.00%, 9/1/98 Baa2 21,050 22,961
10.00%, 4/15/99 Baa2 6,255 6,895
Gannett Co.
5.25%, 3/1/98 Aa3 40,000 38,938
General Electric Co.
7.875%, 9/15/98 Aaa 15,000 15,643
General Motors Corp.
9.625%, 12/1/00 A3 17,990 20,040
W.R. Grace & Co.
6.50%, 12/1/95 Baa3 34,400 34,406
Hertz Corp.
8.30%, 2/2/98 A3 10,000 10,426
</TABLE>
17
<PAGE> 50
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
International Paper Co.
7.40%, 3/4/97 A3 $ 10,000 $ 10,174
9.50%, 5/30/97 A3 5,000 5,269
Kellogg Co.
5.90%, 7/15/97 Aaa 30,565 30,419
Lockheed Corp.
5.65%, 4/1/97 A2 30,000 29,692
McDonnell Douglas Corp.
8.10%, 1/27/97 Baa3 10,000 10,220
8.11%, 1/30/97 Baa3 10,000 10,242
8.625%, 4/1/97 Baa3 17,500 18,102
Minnesota Mining &
Manufacturing Co.
6.25%, 3/29/99 Aaa 15,000 14,941
Mobil Oil Corp.
9.17%, 2/29/00 Aa2 70,068 74,601
J.C. Penney Co., Inc.
6.875%, 6/15/99 A1 5,000 5,047
PepsiCo, Inc.
5.00%, 2/24/97 A1 32,000 31,437
7.48%, 4/27/02 A1 28,000 28,458
Phillips Petroleum Co.
7.66%, 4/9/97 Baa2 5,000 5,106
8.00%, 4/12/99 Baa2 4,000 4,160
Rockwell International
7.625%, 2/17/98 Aa3 55,000 56,652
8.875%, 9/15/99 Aa3 23,210 25,123
Sears, Roebuck & Co.
5.25%, 2/24/97 A2 10,000 9,846
9.12%, 1/10/97 A2 5,000 5,194
9.25%, 4/15/98 A2 13,100 13,967
Southern Pacific
Transportation Co.
6.92%, 7/2/96 Baa1 6,714 6,738
7.21%, 1/2/98 Baa1 6,687 6,730
7.61%, 7/2/98 Baa1 7,470 7,656
Tenneco, Inc.
10.00%, 8/1/98 Baa2 29,500 32,132
Texaco Capital Corp.
6.87%, 6/30/97 A1 30,000 30,357
8.22%, 2/12/97 A1 15,000 15,420
8.65%, 1/30/98 A1 16,750 17,602
9.00%, 11/15/97 A1 8,000 8,446
Texas Instruments, Inc.
9.00%, 7/15/99 A3 16,192 16,618
Union Carbide
7.00%, 8/1/99 Baa2 12,315 12,443
Union Oil of California
6.33%, 2/28/97 Baa2 20,000 20,011
6.38%, 2/18/97 Baa2 15,000 15,023
6.625%, 2/28/97 Baa2 15,000 15,053
8.97%, 3/6/98 Baa2 6,000 6,332
Union Pacific Railroad Co.
(Equipment Trust Certificate)
6.99%, 12/24/99* Aa1 9,058 9,143
9.625%, 3/15/02 Aa1 18,350 19,243
United Technologies Corp.
9.625%, 5/15/99 A2 5,000 5,121
WMX Technologies
6.65%, 5/15/05 A1 5,000 5,018
-----------
GROUP TOTAL 1,061,180
-----------
-------------------------------------------------------------------
UTILITIES (5.0%)
Enron Corp.
8.10%, 12/15/96 Baa2 14,000 14,323
8.50%, 2/1/00 Baa2 20,000 20,586
Florida Gas Transmission
7.75%, 11/1/97 Baa2 6,000 6,148
GTE North, Inc.
5.50%, 2/15/99 A1 18,175 17,586
GTE Southwest
5.82%, 12/1/99 A3 18,650 18,109
MCI Communications Corp.
6.25%, 3/23/99 A2 5,000 4,960
7.625%, 11/7/96 A2 14,250 14,488
NYNEX Corp. Capital Funding
8.11%, 11/1/99 A3 15,000 15,672
Texas Utilities Co.
6.375%, 8/1/97 Baa2 5,000 4,993
9.25%, 12/5/95 Baa3 11,500 11,618
9.39%, 11/21/96 Baa2 5,850 6,078
Wisconsin Electric Power
5.875%, 10/1/97 Aa2 30,000 29,778
Wisconsin Power & Light
6.125%, 7/15/97 Aa2 5,000 4,987
-----------
GROUP TOTAL 169,326
-----------
-------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,758,239) 2,776,633
-------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (7.6%)
-------------------------------------------------------------------
Federal Home Loan Bank
6.00%, 5/16/97 50,000 49,975
6.25%, 4/21/99 25,000 25,000
Federal Home Loan
Mortgage Corp.
(Collateralized Mortgage
Obligations)
7.50%, 5/1/02 1,524 1,532
Federal National Mortgage Assn.
8.00%, 6/1/99* 8,292 8,483
(Collateralized Mortgage
Obligations)
8.00%, 12/1/02* 1,797 1,840
</TABLE>
18
<PAGE> 51
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
-------------------------------------------------------------------
<S> <C> <C> <C>
Government Export Trust
(U.S. Government Guaranteed)
4.85%, 11/1/97* $ 11,000 $ 10,826
6.61%, 9/15/99* 8,375 8,423
Overseas Private Investment Corp.
(U.S. Government Guaranteed)
8.89%, 11/1/95* 1,563 1,573
U.S. Treasury Notes
4.375%, 8/15/96 12,500 12,330
4.625%, 2/15/96 15,000 14,911
5.125%, 11/30/98 30,000 29,138
5.25%, 7/31/98 30,000 29,381
5.875%, 3/31/99 33,000 32,737
6.50%, 9/30/96 21,000 21,171
6.875%, 10/31/96 14,000 14,177
-------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $259,841) 261,497
-------------------------------------------------------------------
TAXABLE MUNICIPAL SECURITIES (1.3%)
-------------------------------------------------------------------
Lower Colorado River Auth.
7.375%, 1/1/97 Aa+(2) 25,000 25,323
Massachusetts Industrial
Finance Agency
9.125%, 8/1/95 A1 2,015 2,015
New York City GO
10.00%, 11/15/96 Baa1 6,000 6,201
Sacramento Municipal
Utility Dist.
5.25%, 11/15/96 A2 5,000 4,927
5.625%, 11/15/97 A2 7,000 6,857
-------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL SECURITIES
(Cost $44,988) 45,323
-------------------------------------------------------------------
FOREIGN BONDS (4.1%)
-------------------------------------------------------------------
Province of Alberta
9.20%, 11/1/97 Aa2 23,000 24,407
British Telecom Finance Inc.
9.375%, 2/15/99 Aaa 22,675 24,670
KFW International Finance
9.02%, 2/23/99 Aaa 5,000 5,401
9.125%, 5/15/01 Aaa 7,995 8,962
Province of Manitoba
6.00%, 10/15/97 A1 30,000 29,846
Noranda, Inc.
8.00%, 6/1/03 Baa2 20,000 20,914
8.625%, 7/15/02 Baa2 15,000 16,180
Kingdom of Spain
9.27%, 11/1/96 Aa2 10,000 10,361
-------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $137,059) 140,741
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
-------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (6.1%)
-------------------------------------------------------------------
U.S. TREASURY BILL
6.41%, 2/8/96 $ 55,000 $ 53,425
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.86%, 8/1/95 154,344 154,344
-------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $207,583) 207,769
-------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(Cost $3,407,710) 3,431,963
-------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.1%)
-------------------------------------------------------------------
Other Assets--Notes C and G 65,307
Liabilities--Note G (67,529)
-----------
(2,222)
-------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------
Applicable to 319,442,068 outstanding
$.001 par value shares
(authorized 400,000,000 shares) $3,429,741
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.74
===================================================================
</TABLE>
+ See Note A to Financial Statements.
(1)Floating Rate Notes.
(2)Rated by Standard & Poor's.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
GO--General Obligation.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------
Amount Per
(000) Share
----------- -------
<S> <C> <C>
Paid in Capital $3,451,270 $10.81
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (47,654) (.15)
Unrealized Appreciation
of Investments--Note F 26,125 .08
-------------------------------------------------------------------
NET ASSETS $3,429,741 $10.74
-------------------------------------------------------------------
</TABLE>
19
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F282-7/95
