<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
After a remarkably robust rise in 1995, the bond market suffered a sharp
setback during the six months ended July 31, 1996, the first half of Vanguard
Fixed Income Securities Fund's current fiscal year. Interest rates rose
substantially for all but the very shortest maturities and fixed-income
securities gave back some of the price gains they enjoyed over the previous 13
months or so.
Not surprisingly, our tightly constructed Portfolios achieved total
returns (capital change plus reinvested dividends) very much in line with the
sectors of the bond market that they represent. Our three Short-Term Portfolios
and our High Yield Portfolio eked out small positive returns during the six
months, while our two Long-Term Portfolios were off from -5% to -7%. True to
form, our Intermediate-Term Portfolios provided returns that fell between the
two ends of the maturity spectrum. This table presents the return for each
Portfolio for the half year, as well as its current yield:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SIX MONTHS ENDED
JULY 31, 1996
-------------------------
VANGUARD TOTAL CURRENT
PORTFOLIO RETURN YIELD*
- ---------------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. TREASURY +0.1% 6.2%
SHORT-TERM FEDERAL +0.5 6.1
SHORT-TERM CORPORATE +0.5 6.4
- ---------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY -3.3% 6.7%
INTERMEDIATE-TERM CORPORATE -3.0 7.2
GNMA -0.5 7.1
- ---------------------------------------------------------------
LONG-TERM U.S. TREASURY -7.0% 7.0%
LONG-TERM CORPORATE -4.6 7.5
- ---------------------------------------------------------------
HIGH YIELD CORPORATE +0.6% 9.4%
- ---------------------------------------------------------------
</TABLE>
*30-day annualized yield.
The detailed per share figures for each Portfolio, including net asset values,
income dividends, and any distributions from net realized capital gains, are
shown in the table on page 3 of this Report.
As we noted a year ago, in a very different environment for the bond
market, we believe that a presentation of semi-annual returns for bond mutual
funds, while necessary in a report of this nature, is incomplete, to say the
least. Only half of the year's interest income is accounted for in these
returns, while the capital change in a bond fund--up or down--occurs
immediately in response to changes in market interest rates. Yet over the long
run, interest income has accounted for virtually 100% of the total return on
bond funds. 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, 1996
---------------------------------------
VANGUARD INCOME CAPITAL TOTAL
PORTFOLIO RETURN RETURN RETURN
- ------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM PORTFOLIOS
U.S. TREASURY +6.0% -1.0% +5.0%
FEDERAL +6.1 -0.6 +5.5
CORPORATE +6.3 -0.7 +5.6
- ------------------------------------------------------------------------
INTERMEDIATE-TERM PORTFOLIOS
U.S. TREASURY +6.2% -1.6% +4.6%
CORPORATE +6.7 -1.6 +5.1
GNMA +7.3 -1.2 +6.1
- ------------------------------------------------------------------------
LONG-TERM PORTFOLIOS
U.S. TREASURY +6.5% -2.0% +4.5%
CORPORATE +7.0 -1.5 +5.5
- ------------------------------------------------------------------------
HIGH YIELD CORPORATE +9.1% -1.4% +7.7%
- ------------------------------------------------------------------------
</TABLE>
This table provides a sense of the relative price volatility of each Portfolio.
However, the table does not present a full picture of price volatility, since
the rise in interest rates over the twelve months ended July 31, 1996, was not
uniform across all maturity levels. The yield on three-year and ten-year U.S.
Treasury securities, for example, rose by about 40 basis points (0.4 percentage
points), while the yield on the benchmark 30-year Treasury bond rose by less
than 20 basis points. We remind you that an equal change--up or down--in
interest rates has a much greater impact on the capital returns of bonds with
long maturities than on the capital returns of bonds with short maturities.
(continued)
1
<PAGE> 2
THE PERIOD IN REVIEW
After a stupendous showing by the bond market in the fiscal year ended January
31, 1996, with double-digit returns across the maturity spectrum, perhaps it
was only natural for the bond market to retrace some of its gains in the first
half of this fiscal year.
While the rate on 90-day Treasury bills rose by about one-quarter of a
percentage point (from 5.0% to 5.3%), the increase in interest rates was much
sharper for bonds during the past six months. The biggest change, curiously,
was in short-term Treasury bonds (three-year maturities), whose average yield
rose from 5.0% to 6.3%. Yields on intermediate-term Treasury bonds rose from
5.6% to 6.8%, while the yield on the benchmark long-term Treasury bond rose
from 6.0% to 7.0%.
Although the yield increases in the three maturity ranges were similar
(+1.3% to +1.0%) over the past six months, the price changes were not. As we
have emphasized in past reports, the impact of changing yields on bond prices
is magnified as a bond's maturity lengthens. For example, in the face of a 1%
increase (or decrease) in yield, the price of a long-term bond will move down
(or up) by about 10%, while the price of a short-term bond will move down (or
up) by roughly 2%. This relationship reflects the immutable mathematics of the
bond market. As unsettling as the -12% price decline in long-term bonds was
during the six months ended July 31, we would note that it was roughly half the
price increase that holders of 30-year Treasury bonds enjoyed in the previous
year.
Interest-rate changes are easier to quantify than to explain, of course.
Most analysts, however, have attributed the recent increase to surprisingly
strong growth in the U.S. economy, which raised anxiety among bond investors
that inflation would rise from the fairly benign levels of recent years. Bond
investors are hypersensitive to the possibility of higher inflation, which
could threaten the purchasing power of a bond's future fixed-rate payments.
Should inflation rise from today's level, it is possible--even probable--that
the Federal Reserve Board would act to raise short-term interest rates. It
remains to be seen what the Fed--or the economy--will do. However, the current
structure and level of interest rates seem to anticipate some reasonable pickup
in inflation, and bond investors may well have already adjusted to such a
scenario.
We would note that the prevailing consensus of the bond market--as with
any financial market--is subject to rapid and unpredictable changes in
direction. Only six months ago, the "experts" were in general agreement that
economic growth was proceeding at a deliberate and safe pace so that inflation
would remain subdued, and that interest rates should remain steady. However,
the consensus--so often wrong--proved wrong again as rates moved higher.
IN SUMMARY
Six months ago in Vanguard Fixed Income Securities Fund's Annual Report, we
noted that the unusually high total returns on bonds last year--and, indeed,
over the previous decade--were by themselves a sufficient reason to be cautious
about the outlook for future returns. Yet we expressed confidence that
investors who use our Portfolios as part of a balanced asset allocation
strategy would earn long-term returns in keeping with the bond market segments
on which the Portfolios focus, and that exceed the averages for competitive
funds. We also believe that the higher yields available today have increased
the relative attractiveness of bonds. We assure you that we will continue to
professionally manage our Portfolios under the carefully structured,
high-quality, low-cost philosophy for which Vanguard is known.
Sincerely,
/s/ JOHN C. BOGLE
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
John J. Brennan
President
August 9, 1996
2
<PAGE> 3
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
PER SHARE TWELVE MONTHS SEC
--------------------- ------------------------------------ 30-DAY
VANGUARD AVERAGE AVERAGE JANUARY 31, JULY 31, INCOME CAPITAL GAINS TOTAL ANNUALIZED
PORTFOLIO MATURITY QUALITY 1996 1996 DIVIDENDS DISTRIBUTIONS RETURN YIELD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. TREASURY 2.5 YEARS Aaa $10.36 $10.08 $.603 -- +5.0% 6.23%
SHORT-TERM FEDERAL 2.5 YEARS Aaa 10.28 10.03 .604 -- +5.5 6.13
SHORT-TERM CORPORATE 2.6 YEARS Aa3 10.94 10.66 .665 -- +5.6 6.42
INTERMEDIATE-TERM
U.S. TREASURY 7.6 YEARS Aaa 10.90 10.22 .651 -- +4.6 6.70
INTERMEDIATE-TERM
CORPORATE 7.2 YEARS A2 10.17 9.53 .644 $.020 +5.1 7.18
GNMA 8.2 YEARS Aaa 10.45 10.03 .728 -- +6.1 7.09
LONG-TERM U.S. TREASURY 21.7 YEARS Aaa 10.73 9.64 .660 .238 +4.5 7.01
LONG-TERM CORPORATE 19.9 YEARS Aa3 9.43 8.61 .621 .075 +5.5 7.48
HIGH YIELD CORPORATE 8.3 YEARS Ba2 7.89 7.59 .683 -- +7.7 9.44*
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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, 1996. 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
- -------------------------------------------------------------------------------
Value with Income
January 31 Net Asset Capital Gains Income Dividends & Capital
Fiscal Year Value Distributions Dividends Gains Reinvested
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
INITIAL (12/78) $10.00 -- -- $10.00
- -------------------------------------------------------------------------------
1979 10.33 -- -- 10.33
- -------------------------------------------------------------------------------
1980 9.26 -- $1.235 10.49
- -------------------------------------------------------------------------------
1981 8.50 -- 1.180 10.99
- -------------------------------------------------------------------------------
1982 7.88 -- 1.240 11.87
- -------------------------------------------------------------------------------
1983 8.96 -- 1.280 15.70
- -------------------------------------------------------------------------------
1984 8.97 -- 1.200 17.93
- -------------------------------------------------------------------------------
1985 8.52 -- 1.180 19.62
- -------------------------------------------------------------------------------
1986 8.84 -- 1.140 23.23
- -------------------------------------------------------------------------------
1987 9.33 $.118 1.081 27.91
- -------------------------------------------------------------------------------
1988 8.53 -- 1.006 28.62
- -------------------------------------------------------------------------------
1989 8.44 -- 1.016 31.89
- -------------------------------------------------------------------------------
1990 7.31 -- 1.004 31.31
- -------------------------------------------------------------------------------
1991 6.19 -- .904 30.30
- -------------------------------------------------------------------------------
1992 7.27 -- .770 39.78
- -------------------------------------------------------------------------------
1993 7.56 -- .727 45.62
- -------------------------------------------------------------------------------
1994 8.14 -- .695 53.62
- -------------------------------------------------------------------------------
1995 7.24 -- .679 52.27
- -------------------------------------------------------------------------------
1996 7.89 -- .678 62.20
- -------------------------------------------------------------------------------
1996 (7/31) 7.59 -- .341 62.55
- -------------------------------------------------------------------------------
LIFETIME
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD CORPORATE PORTFOLIO (BEGAN OPERATIONS DECEMBER 27, 1978)
- ------------------------------------------------------------------------
PERIOD TOTAL INVESTMENT RETURN
- ------------------------------------------------------------------------
High Yield Corporate Portfolio
------------------------------ Lehman High Yield
January 31 Capital Income Total Bond Index
Fiscal Year Return Return Return Total Return*
- ------------------------------------------------------------------------
<S> <C> <C> <C>
INITIAL (12/78) -- -- -- --
- ------------------------------------------------------------------------
1979 + 3.3% 0.0% + 3.3% + 2.0%
- ------------------------------------------------------------------------
1980 -10.4 +11.9 + 1.5 - 8.7
- ------------------------------------------------------------------------
1981 - 8.2 +13.0 + 4.8 + 4.6
- ------------------------------------------------------------------------
1982 - 7.3 +15.3 + 8.0 + 3.3
- ------------------------------------------------------------------------
1983 +13.7 +18.6 +32.3 +39.7
- ------------------------------------------------------------------------
1984 + 0.1 +14.1 +14.2 +11.8
- ------------------------------------------------------------------------
1985 - 5.0 +14.4 + 9.4 +10.0
- ------------------------------------------------------------------------
1986 + 3.8 +14.6 +18.4 +22.6
- ------------------------------------------------------------------------
1987 + 6.9 +13.2 +20.1 +20.7
- ------------------------------------------------------------------------
1988 - 8.6 +11.1 + 2.5 + 4.2
- ------------------------------------------------------------------------
1989 - 1.1 +12.5 +11.4 +10.8
- ------------------------------------------------------------------------
1990 -13.4 +11.6 - 1.8 - 3.0
- ------------------------------------------------------------------------
1991 -15.3 +12.1 - 3.2 - 5.1
- ------------------------------------------------------------------------
1992 +17.4 +13.9 +31.3 +47.3
- ------------------------------------------------------------------------
1993 + 4.0 +10.7 +14.7 +15.1
- ------------------------------------------------------------------------
1994 + 7.7 + 9.8 +17.5 +16.3
- ------------------------------------------------------------------------
1995 -11.1 + 8.6 - 2.5 - 1.8
- ------------------------------------------------------------------------
1996 + 9.0 +10.0 +19.0 +19.7
- ------------------------------------------------------------------------
1996 (7/31) - 3.8 + 4.4 + 0.6 + 2.1
- ------------------------------------------------------------------------
LIFETIME +525.5% +542.9%
- ------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +11.0% +11.2%
- ------------------------------------------------------------------------
</TABLE>
* Lehman Mutual Fund "BBB" Rated or Better Bond Index through January 1984;
Lehman High Yield Bond Index thereafter.
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 10.86 + 3.1% +5.5% + 8.6% +11.9%
- -----------------------------------------------------------------------------------------------------------------------------------
1988 9.49 -- .776 10.89 - 7.7 +8.0 + 0.3 + 1.5
- -----------------------------------------------------------------------------------------------------------------------------------
1989 9.28 -- .778 11.59 - 2.2 +8.6 + 6.4 + 5.1
- -----------------------------------------------------------------------------------------------------------------------------------
1990 9.53 -- .781 12.91 + 2.7 +8.6 +11.3 +12.3
- -----------------------------------------------------------------------------------------------------------------------------------
1991 9.74 -- .776 14.33 + 2.2 +8.8 +11.0 +11.6
- -----------------------------------------------------------------------------------------------------------------------------------
1992 10.14 -- .763 16.11 + 4.1 +8.3 +12.4 +13.4
- -----------------------------------------------------------------------------------------------------------------------------------
1993 10.04 .700 .734 18.38 + 6.1 +8.0 +14.1 +14.6
- -----------------------------------------------------------------------------------------------------------------------------------
1994 10.75 .176 .685 21.34 + 8.9 +7.2 +16.1 +16.7
- -----------------------------------------------------------------------------------------------------------------------------------
1995 9.23 .119 .665 19.92 -13.0 +6.3 - 6.7 - 7.5
- -----------------------------------------------------------------------------------------------------------------------------------
1996 10.73 .225 .669 25.24 +18.7 +8.0 +26.7 +27.4
- -----------------------------------------------------------------------------------------------------------------------------------
1996 (7/31) 9.64 .013 .326 23.47 -10.1 +3.1 - 7.0 - 6.8
- -----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +134.7% +149.3%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN + 8.7% + 9.4%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 Corporate
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Bond 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 12.88 +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 +10.2 +10.7
- -----------------------------------------------------------------------------------------------------------------------------------
1991 10.50 -- .876 22.35 +1.5 + 9.0 +10.5 + 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
- -----------------------------------------------------------------------------------------------------------------------------------
1996 10.94 -- .671 32.60 +5.2 + 6.8 +12.0 +13.8
- -----------------------------------------------------------------------------------------------------------------------------------
1996 (7/31) 10.66 -- .328 32.75 -2.6 + 3.1 + 0.5 + 0.2
- -----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +227.5% +259.1%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN + 9.0% + 9.7%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 GNMA
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Bond Index
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 -12.5% + 6.2% - 6.3% - 8.8%
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
1996 10.45 -- .734 47.13 + 7.6 + 8.0 +15.6 +15.5
- -------------------------------------------------------------------------------------------------------------------------------
1996 (7/31) 10.03 -- .361 46.88 - 4.0 + 3.5 - 0.5 + 0.1
- -------------------------------------------------------------------------------------------------------------------------------
LIFETIME +368.8% +415.5%
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +10.1% +10.7%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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
- ----------------------------------------------------------------------------------------------------------------------------------
1996 10.28 -- .601 18.39 +5.0 +6.4 +11.4 + 12.0
- ----------------------------------------------------------------------------------------------------------------------------------
1996 (7/31) 10.03 -- .304 18.50 -2.4 +2.9 + 0.5 + 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +85.0% + 89.5%
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +7.4% +7.7%
- ----------------------------------------------------------------------------------------------------------------------------------
</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 Lehman Long-Term
Value with Income ------------------------------ Corporate AA
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total or Better Bond
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Index Total Return
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (7/73) $10.00 -- -- $10.00 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
1974 9.93 $.030 $.380 10.34 - 0.4% + 3.8% + 3.4% + 5.7%
- --------------------------------------------------------------------------------------------------------------------------------
1975 9.20 -- .740 10.39 - 7.4 + 7.8 + 0.4 + 2.1
- --------------------------------------------------------------------------------------------------------------------------------
1976 9.25 -- .730 11.32 + 0.5 + 8.5 + 9.0 +10.3
- --------------------------------------------------------------------------------------------------------------------------------
1977 9.61 -- .740 12.71 + 3.9 + 8.4 +12.3 +13.0
- --------------------------------------------------------------------------------------------------------------------------------
1978 9.36 -- .770 13.42 - 2.6 + 8.1 + 5.5 + 4.2
- --------------------------------------------------------------------------------------------------------------------------------
1979 8.91 -- .790 13.92 - 4.8 + 8.5 + 3.7 + 2.6
- --------------------------------------------------------------------------------------------------------------------------------
1980 7.68 -- .820 13.22 -13.8 + 8.8 - 5.0 -12.0
- --------------------------------------------------------------------------------------------------------------------------------
1981 7.41 -- .880 14.30 - 3.5 +11.7 + 8.2 + 3.0
- --------------------------------------------------------------------------------------------------------------------------------
1982 7.06 -- .930 15.51 - 4.7 +13.2 + 8.5 - 0.8
- --------------------------------------------------------------------------------------------------------------------------------
1983 8.00 -- .960 19.91 +13.3 +15.0 +28.3 +43.4
- --------------------------------------------------------------------------------------------------------------------------------
1984 7.84 -- .950 21.95 - 2.0 +12.3 +10.3 + 9.9
- --------------------------------------------------------------------------------------------------------------------------------
1985 7.84 -- .960 24.90 0.0 +13.4 +13.4 +17.4
- --------------------------------------------------------------------------------------------------------------------------------
1986 8.42 -- .920 29.96 + 7.4 +12.9 +20.3 +25.1
- --------------------------------------------------------------------------------------------------------------------------------
1987 8.77 .123 .846 34.89 + 5.6 +10.9 +16.5 +21.1
- --------------------------------------------------------------------------------------------------------------------------------
1988 8.11 -- .770 35.50 - 7.5 + 9.3 + 1.8 + 3.0
- --------------------------------------------------------------------------------------------------------------------------------
1989 7.91 -- .742 38.03 - 2.5 + 9.6 + 7.1 + 6.6
- --------------------------------------------------------------------------------------------------------------------------------
1990 8.00 -- .732 42.09 + 1.1 + 9.6 +10.7 +11.2
- --------------------------------------------------------------------------------------------------------------------------------
1991 8.02 -- .720 46.22 + 0.3 + 9.5 + 9.8 +11.2
- --------------------------------------------------------------------------------------------------------------------------------
1992 8.63 -- .706 54.12 + 7.6 + 9.5 +17.1 +15.5
- --------------------------------------------------------------------------------------------------------------------------------
1993 9.04 .151 .680 62.27 + 6.6 + 8.5 +15.1 +13.8
- --------------------------------------------------------------------------------------------------------------------------------
1994 9.36 .259 .633 70.88 + 6.5 + 7.3 +13.8 +12.6
- --------------------------------------------------------------------------------------------------------------------------------
1995 8.18 .072 .617 67.26 -11.9 + 6.8 - 5.1 - 5.3
- --------------------------------------------------------------------------------------------------------------------------------
1996 9.43 -- .627 83.15 +15.3 + 8.3 +23.6 +23.9
- --------------------------------------------------------------------------------------------------------------------------------
1996 (7/31) 8.61 .075 .306 79.30 - 8.6 + 4.0 - 4.6 - 4.6
- --------------------------------------------------------------------------------------------------------------------------------
LIFETIME +693.0% +713.9%
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN + 9.4% + 9.5%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
REPORT FROM WELLINGTON MANAGEMENT COMPANY
MARKET REVIEW
When we last wrote to you six months ago, the Federal Reserve had just
lowered rates for the third time since July 1995, and investors were
anticipating another round of monetary easing in March. Last winter, the
Federal Government had shut down temporarily, the winter blizzards had kept
people from working, several automobile plants were on strike and interest
rates were at their recent lows. Surprisingly, long-term interest rates rose
roughly one hundred basis points (1.00%) since that time. The economy emerged
from its mid-cycle slowdown a little sooner and somewhat stronger than widely
anticipated. Investors feared that the economy was now stronger than the data
had originally suggested and that the Fed may have to tighten credit.
While the prospect for lower short rates has been eliminated, there are
strong reasons to suggest a period of stable monetary policy, as opposed to one
of prolonged tightening. Consumer spending gains are moderate, as consumers
choose to borrow less and as lenders pull back on the margin. Inflation numbers
should be benign in the months ahead, giving the Fed an additional reason to
keep a steady monetary policy. Fiscal policy is dormant until after the
Presidential election in November, thus we do not expect a meaningful decline
in long-term rates, nor do we foresee any major upward pressure on rates.
High-yield and mortgage-backed bonds should perform relatively well in
an environment of moderate growth and low inflation where rates are not
expected to decline or rise dramatically from current levels. While risk
premiums on investment-grade and below-investment-grade corporate bonds have
remained narrow as investors have all but forgotten about credit risk, this
condition may well persist in the current environment. Investors perceive that
liquidity in the capital markets is available for borrowers who may need funds
for various purposes.
In contrast to the narrow risk premiums offered on corporate bonds
versus riskless U.S. Treasuries, mortgage-backed securities continue to offer a
generous yield premium to reward investors for the interest-rate volatility
experienced recently. In the last two and one-half years, long Treasury rates
have gyrated between 6% and 8% creating volatile returns for bond portfolios.
When volatility is high, mortgage yields generally widen to compensate
investors for either prepayment risk or the potential maturity extension of
their securities. If rates stay in a tight trading range going forward over the
next six months, as we expect, the yield premiums available on mortgages will
be generous.
GNMA PORTFOLIO
The sharp rise in interest rates which occurred during the first two fiscal
quarters eliminated the threat to the Portfolio's income stream associated with
refinancing activity. We are happy to report that the Portfolio did not suffer
a significant deterioration in income during the interest rate decline of 1995
and, given the rise in rates during 1996, we expect income to rise modestly
over the course of the year. The Portfolio's income is the good news; the bad
news is that rising interest rates have pushed the Portfolio's net asset value
down. The principal erosion, which was shared by nearly all fixed-income
portfolios, was in line with that experienced by short- and intermediate-term
bond portfolios, and was significantly less than that experienced by
long-maturity bond portfolios. While it is never pleasant to experience
declining principal value, we believe that the degree of principal erosion was
minor, particularly in light of the Portfolio's high credit quality and healthy
income level.
Although it is never entirely clear which way interest rates will go, it
is clear that the GNMA Portfolio continues to offer shareholders a healthy
yield premium over intermediate-maturity portfolios of comparable quality. We
continue to believe that the yield advantage of GNMAs is attractive and that
shareholders will continue to enjoy a competitive income stream and moderate
principal volatility.
LONG-TERM CORPORATE PORTFOLIO
The Portfolio's average maturity is approximately 20 years as it pursues its
charter as a long-term corporate bond fund. As long rates rose 100 basis points
during the year, the Portfolio's net asset value suffered sharply. The
Portfolio's duration was reduced slightly over the past six months to mitigate
8
<PAGE> 9
the damage from rising rates. At current levels of rates, with long-term
corporate bonds offering a yield premium of 4% over inflation, we expect to
capture some of these appetizing yields by extending duration. The Portfolio
has maintained its excellent call protection, which means that many of the
higher coupon securities purchased at today's generous levels cannot be
redeemed by their issuers when rates eventually decline. Thus, the Portfolio's
income stream has protection from falling interest rates.
The major risk to this Portfolio, which was evident in the first six
months of 1996 and throughout 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 longer than 15 years. Cash is minimal.
The duration of the Portfolio is approximately eight years which implies that
the principal value of the bonds could change 8% with a change in interest
rates of 1%.
The second risk inherent in this Portfolio, which is always present, is
credit deterioration of the corporate issuers. The Portfolio is
well-diversified by issuer and industry. Diversification can soften the blow on
the Portfolio of any one issuer declining in credit quality. Over 90% of the
value of the Portfolio is invested in issues rated "single A" or better. The
Portfolio does not own below-investment-grade corporate bonds, emerging market
debt, or foreign bonds denominated in non-U.S. currencies. Treasuries and
mortgage-backed securities will not exceed 20%. We will continue to emphasize
well-established larger companies with stable operating histories.
HIGH YIELD CORPORATE PORTFOLIO
The below-investment-grade market has had a relatively strong year in 1996 even
though interest rates have risen sharply. Below-investment-grade bonds usually
outperform higher-quality bonds in an environment where investors are
anticipating strong economic growth and when interest rates are rising, and
that has been the case in 1996.
For the full year of 1996 and for 1997, we expect economic growth to be
in the 2% to 3% range. Given this backdrop, we have emphasized economically
sensitive issues, in particular, paper and steel companies, as we do not
anticipate any major problems in the economy that would cause your Portfolio to
suffer meaningful deterioration in credit quality.
As in the Long-Term Corporate Portfolio, another phenomenon for which we
must be vigilant is merger and acquisition activity. In the current market
environment, high-yield bond investors have viewed the announcement of a
take-over of one company by another as a positive event. For instance, when a
stronger company is buying a smaller or weaker one for strategic reasons,
high-yield bond prices improve on the news. Prices for a high-yield issuer's
bonds have declined, however, when a company announces that it is buying back
its own stock and is increasing its leverage.
We exercise in-depth credit research on a company-by-company basis and
emphasize diversification in the Portfolio's construction. The Portfolio
currently owns over 100 issuers representing a broad range of industries and
companies. The Portfolio's holdings continue to be focused on cash-paying
issues rated "B" or better. We maintain a modest U.S. Treasury reserve in the
event that liquidity is necessary. Our emphasis is on relatively
higher-quality, below-investment-grade bonds. During the past six months, this
strategy has led to underperformance relative to a broad category of high yield
bond funds.
Respectfully,
Paul D. Kaplan, Senior Vice President
Portfolio Manager
Earl E. McEvoy, Senior Vice President
Portfolio Manager
Wellington Management Company
August 10, 1996
9
<PAGE> 10
REPORT FROM VANGUARD FIXED INCOME GROUP
The first six months of the current fiscal year were anything but friendly
toward holders of fixed-income securities. At the beginning of the fiscal year
(February), fixed-income investors were confronted with three singular economic
events that acted to exacerbate already volatile bond markets. First, terrible
winter weather hit the Northeast part of the United States, slowing
construction and causing many consumers to defer their spending. Second, the
Congressional battle over the debt ceiling that prompted a late-1995 government
shutdown, which furloughed thousands of "non-essential" government workers
early in 1996, was finally approaching a resolution. Third, the economy was
facing a painful and potentially protracted strike in the automobile industry.
The effect of the combination of these three special circumstances was to
disproportionately weaken economic growth in the early weeks of 1996 and
simultaneously (and artificially) buoy bond market participants' expectations
for continued Federal Reserve easing of monetary policy.
Unfortunately, the days of bond market optimism proved to be
short-lived. The economic "depressants" wore off quickly as the spring months
unfolded. Government workers returned to their jobs, funding of government
programs resumed, consumption and construction activity recovered, and the auto
industry reached a rapid settlement with its unions.
As a consequence, the pace of economic activity picked up sharply and
bond market participants began to worry that the next Federal Reserve
initiative would not be toward greater monetary accommodation, but rather
toward restrictive monetary policy. Already skittish, institutional bond
traders began to fixate on the Bureau of Labor Statistics' monthly news
releases of employment data. If the statistics showed stronger growth in jobs
than expected, the bond markets would get pummeled. Weaker-than-expected
numbers were cause for celebration. Indeed, virtually all of the price
volatility that rocked the bond market in the first half of the year occurred
during each of the 60-second intervals immediately following the 8:30 a.m.
Bureau of Labor Statistics' employment announcements.
The damage (expressed as yield changes) to the markets was spread fairly
evenly among varying bond maturities, one-year securities rose about as much in
yield as 30-year bonds, almost a percentage point each. As the table below
shows, intermediate-term bond yield increases were somewhat larger. The table
displays the beginning and ending yields for Treasury notes and bonds of
representative maturities:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
REPRESENTATIVE INTEREST RATES
--------------------------------
1/31/96 7/31/96 CHANGE
- ----------------------------------------------------------
<S> <C> <C> <C>
THREE-MONTH TREASURY 5.04% 5.30% +0.26%
ONE-YEAR TREASURY 4.89 5.83 +0.94
TEN-YEAR TREASURY 5.57 6.79 +1.22
THIRTY-YEAR TREASURY 6.02 6.97 +0.95
- ----------------------------------------------------------
</TABLE>
The nine Portfolios of the Vanguard Fixed Income Securities Fund endured the
upsurge in interest rates in proportions roughly equivalent to their
maturities. The bonds in the longest Portfolios suffered price declines on the
order of 10%, more than offsetting six-months' worth of interest income and
producing negative total returns for the first time since 1994. Bonds in the
intermediate- and short-term Portfolios performed better (price declines of
approximately 6% and 3%, respectively), commensurate with their mathematically
lower price sensitivities, but there really was no safe place to hide besides
money market funds. Details of each Portfolio's income, principal, and total
return are given in the Message To Shareholders.
Looking ahead, it now is beginning to appear that the fears of the
economy overheating may be overblown. If so, the markets ought to provide us
with a distinctly friendlier environment during the last half of the fiscal
year. As of this writing we've gotten off to a good start. Of pivotal
importance is future Federal Reserve monetary policy. Federal Reserve Chairman
Alan Greenspan and his central bank colleagues often evaluate their options
within the context of "N.A.I.R.U.," an acronym that stands for the
Non-Accelerating-Inflation Rate of Unemployment. While this phrase seems at
first to be economic "technobabble," in reality it refers to a fairly
common-sense relationship. Economic growth,
10
<PAGE> 11
obviously, is desirable, but as the proverb goes "one can easily have too much
of a good thing." In this case, too much growth (too little unemployment) is
believed to lead to upward pressure on labor costs and upward pressure on
inflation. The "Fed" would prefer to see the economy follow Horace's "golden
mean(1)," and that entails moderation in the pace of expansion in aggregate
demand. Too little growth prompts accommodative policy, too much prompts
monetary tightening. The Fed's policy preferences are crucial because they are
in a position to move short-term interest rates in whatever direction is
required to promote moderation. Unfortunately, economists don't know exactly
what that equilibrium rate of unemployment is, nor can they know whether this
non-inflationary rate of unemployment is stable over time or changes with each
business cycle. Economics is as much a dismal art as it is a dismal science.
Over the last few years, a good deal has been written on how much of a
good thing economically we actually can enjoy. Many economists conclude the
economy can grow between 2% and 3%, and the unemployment rate can drop to
between 5.5% and 6.0% without undue concern. Given where we are today, market
participants currently seem to believe the economy is close to its fastest
sustainable non-inflationary growth rate. If they're right, the risks of
continued poor bond market results will go up whenever signs of vigor appear
and will abate when evidence of moderation prevails.
At the beginning of the fiscal year, we managed your Portfolios so as to
provide each with (initially) somewhat less-than-normal participation in the
bond market price volatility. That is, average maturities started out the year
somewhat lower than they've typically been. Subsequently, as interest rates
have risen, we've taken the opportunity to extend maturities back into the
middle of their normal ranges. We hope these deliberate course-corrections
produce somewhat higher and more durable dividends over time, and that the
Portfolios will more fully enjoy any rally in prices that eventually will
ensue. Regardless, they will continue to provide shareholders with extremely
well-defined and cost-effective "baskets" of bond securities, each of which
represents a consistent profile of risk and potential return.
Sincerely,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Principal
John W. Hollyer, Principal
Vanguard Fixed Income Group
August 10, 1996
- ------------------------------
(1) * "Whoever cultivates the golden mean avoids both the poverty of a hovel
and the envy of a palace."
11
<PAGE> 12
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
Total SEC 30-Day Average Percent of
Vanguard Net Annualized Weighted Quality Total
Portfolio Assets Yield Maturity Ratings Investments
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LONG-TERM U.S. TREASURY $ 911,503,000 7.01% 21.7 years Aaa 98%
PORTFOLIO Temporary Cash Investments 2
---
Average Quality: Aaa 100
- --------------------------------------------------------------------------------------------------------------------
LONG-TERM CORPORATE $ 3,289,871,000 7.48% 19.9 years Aaa 22%
PORTFOLIO Aa1, Aa2, Aa3 19
Average Quality: Aa3 A1, A2, A3 49
Baa1, Baa2, Baa3 8
Temporary Cash Investments 2
---
100
- --------------------------------------------------------------------------------------------------------------------
HIGH YIELD CORPORATE $ 3,174,326,000 9.44% 8.3 years Aaa 6%
PORTFOLIO Baa1, Baa2, Baa3 1
Average Quality: Ba2 Ba1, Ba2, Ba3 36
B1, B2, B3 54
Temporary Cash Investments 3
---
100
- --------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM $ 510,920,000 7.18% 7.2 years Aaa 11%
CORPORATE PORTFOLIO Aa1, Aa2, Aa3 14
Average Quality: A2 A1, A2, A3 44
Baa1, Baa2, Baa3 28
Temporary Cash Investments 3
---
100
- --------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM $ 1,219,213,000 6.70% 7.6 years Aaa 97%
U.S. TREASURY PORTFOLIO Temporary Cash Investments 3
---
Average Quality: Aaa 100
- --------------------------------------------------------------------------------------------------------------------
GNMA PORTFOLIO $ 7,037,529,000 7.09% 8.2 years Aaa 98%
Average Quality: Aaa Temporary Cash Investments 2
---
100
- --------------------------------------------------------------------------------------------------------------------
SHORT-TERM FEDERAL $ 1,333,732,000 6.13% 2.5 years Aaa 96%
PORTFOLIO Temporary Cash Investments 4
---
Average Quality: Aaa 100
- --------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. $ 964,590,000 6.23% 2.5 years Aaa 97%
TREASURY PORTFOLIO Temporary Cash Investments 3
---
Average Quality: Aaa 100
- --------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE $ 4,028,088,000 6.42% 2.6 years Aaa 28%
PORTFOLIO Aa1, Aa2, Aa3 11
Average Quality: Aa3 A1, A2, A3 40
Baa1, Baa2, Baa3 20%
Temporary Cash Investments 1
---
100
- --------------------------------------------------------------------------------------------------------------------
Total Fund Assets $22,469,772,000
- --------------------------------------------------------------------------------------------------------------------
</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 ating category.
12
<PAGE> 13
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
July 31, 1996
<TABLE>
<CAPTION>
Face Market
Amount Value
GNMA PORTFOLIO (000) (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS (98.2%)
- --------------------------------------------------------------------------------
6.50%, 7/15/08-5/15/26 $ 934,606 $ 873,786
7.00%, 4/15/07-3/15/26 1,661,810 1,603,686
7.50%, 12/15/01-7/15/26 1,948,357 1,925,814
8.00%, 1/15/02-7/15/26 1,164,047 1,179,412
8.25%, 8/15/04-7/15/08 6,716 6,884
8.50%, 1/20/05-5/15/26 635,531 655,660
9.00%, 9/15/01-2/15/23 398,123 421,129
9.25%, 5/15/16-6/15/18 2,973 3,154
9.50%, 12/15/00-7/15/22 209,902 225,436
10.00%, 7/20/14-8/20/18 4,186 4,520
11.00%, 2/15/10-2/20/16 1,394 1,532
11.25%, 6/15/13-2/20/16 736 813
11.50%, 6/15/10-11/20/15 1,454 1,614
12.00%, 10/15/10-1/20/16 2,681 3,002
12.50%, 11/20/13-7/20/15 1,411 1,591
12.75%, 6/15/14-12/15/14 198 224
13.00%, 1/15/11-1/20/15 1,090 1,234
13.25%, 8/15/14-10/15/24 133 152
13.50%, 5/15/10-12/15/14 391 449
13.75%, 9/10/14 9 11
14.00%, 6/15/11-9/15/12 269 311
15.00%, 9/15/11-5/15/12 163 190
- --------------------------------------------------------------------------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS
(Cost $6,949,463) 6,910,604
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.5%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
5.62%, 8/1/96
(Cost $173,218) 173,218 173,218
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.7%)
(Cost $7,122,681) 7,083,822
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.7%)
- ---------------------------------------------------------------------------------
Other Assets--Note C 56,560
Liabilities (102,853)
---------
(46,293)
- ---------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------
Applicable to 701,588,198 outstanding
$.001 par value shares
(authorized 1,100,000,000 shares) $7,037,529
- ---------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.03
=================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- ------
<S> <C> <C>
PAID IN CAPITAL $7,072,130 $10.08
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED GAINS 4,258 .01
UNREALIZED DEPRECIATION OF
INVESTMENTS--NOTE F (38,859) (.06)
- --------------------------------------------------------------------
NET ASSETS $7,037,529 $10.03
- --------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM HIGH YIELD
U.S. TREASURY CORPORATE CORPORATE
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
July 31, 1996 July 31, 1996 July 31, 1996
(000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . $ 30,374 $ 119,287 $140,789
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . 30,374 119,287 140,789
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . 62 472 661
The Vanguard Group--Note C
Management and Administrative . . . . . . . . 919 3,773 3,559
Marketing and Distribution . . . . . . . . . . 116 347 311
Taxes (other than income taxes) . . . . . . . . . 33 125 117
Custodian Fees . . . . . . . . . . . . . . . . . 10 36 26
Legal Fees . . . . . . . . . . . . . . . . . . . -- 25 3
Auditing Fees . . . . . . . . . . . . . . . . . . 3 4 4
Shareholders' Reports . . . . . . . . . . . . . . 34 99 92
Annual Meeting and Proxy Costs . . . . . . . . . 6 15 15
Directors' Fees and Expenses . . . . . . . . . . 1 5 5
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 1,184 4,901 4,793
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 29,190 114,386 135,996
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . (4,437) 28,022 14,481
Futures Contracts . . . . . . . . . . . . . . . . -- -- --
- -------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . (4,437) 28,022 14,481
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . (88,687) (302,995) (136,068)
Futures Contracts . . . . . . . . . . . . . . . . -- -- --
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . (88,687) (302,995) (136,068)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . $(63,934) $(160,587) $ 14,409
===================================================================================================================
</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>
INTERMEDIATE-TERM INTERMEDIATE-TERM
GNMA CORPORATE U.S. TREASURY
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
July 31, 1996 July 31, 1996 July 31, 1996
(000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . $258,775 $ 15,943 $ 39,398
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . 258,775 15,943 39,398
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . 490 28 84
The Vanguard Group--Note C
Management and Administrative . . . . . . . . 7,755 501 1,296
Marketing and Distribution . . . . . . . . . . 701 64 158
Taxes (other than income taxes) . . . . . . . . . 265 17 46
Custodian Fees . . . . . . . . . . . . . . . . . 410 7 7
Legal Fees . . . . . . . . . . . . . . . . . . . -- -- --
Auditing Fees . . . . . . . . . . . . . . . . . . 6 3 3
Shareholders' Reports . . . . . . . . . . . . . . 233 8 43
Annual Meeting and Proxy Costs . . . . . . . . . 36 2 7
Directors' Fees and Expenses . . . . . . . . . . 12 1 2
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . 9,908 631 1,646
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 248,867 15,312 37,752
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . 7,731 (1,073) (587)
Futures Contracts . . . . . . . . . . . . . . . . -- 64 76
- -------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . 7,731 (1,009) (511)
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . (292,441) (27,421) (79,863)
Futures Contracts . . . . . . . . . . . . . . . . -- -- --
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . . (292,441) (27,421) (79,863)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . $(35,843) $(13,118) $(42,622)
===================================================================================================================
</TABLE>
15
<PAGE> 16
STATEMENT OF OPERATIONS (continued)
<TABLE>
SHORT-TERM SHORT-TERM SHORT-TERM
FEDERAL U.S. TREASURY CORPORATE
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
July 31, 1996 July 31, 1996 July 31, 1996
(000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . $42,642 $27,929 $125,625
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . 42,642 27,929 125,625
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . 97 61 265
The Vanguard Group--Note C
Management and Administrative . . . . . . . . 1,406 983 4,186
Marketing and Distribution . . . . . . . . . . 184 138 544
Taxes (other than income taxes) . . . . . . . . . 51 35 148
Custodian Fees . . . . . . . . . . . . . . . . . 14 6 37
Legal Fees . . . . . . . . . . . . . . . . . -- -- --
Auditing Fees . . . . . . . . . . . . . . . . . 3 3 4
Shareholders' Reports . . . . . . . . . . . . . . 60 26 110
Annual Meeting and Proxy Costs . . . . . . . . . 9 4 16
Directors' Fees and Expenses . . . . . . . . . . 2 1 6
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . 1,826 1,257 5,316
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 40,816 26,672 120,309
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . (559) 5,763 (490)
Futures Contracts . . . . . . . . . . . . . . . . -- -- --
- -------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . (559) 5,763 (490)
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . (33,492) (30,828) (100,602)
Futures Contracts . . . . . . . . . . . . . . . . -- -- --
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . (33,492) (30,828) (100,602)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . $ 6,765 $ 1,607 $ 19,217
===================================================================================================================
</TABLE>
16
<PAGE> 17
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, 1996 1996 JULY 31, 1996 1996
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 29,190 $ 52,488 $ 114,386 $ 212,653
Realized Net Gain (Loss) . . . . . . . . . . . (4,437) 20,938 28,022 46,604
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . (88,687) 114,653 (302,995) 376,449
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . (63,934) 188,079 (160,587) 635,706
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . (29,190) (52,488) (114,386) (212,653)
Realized Net Gain . . . . . . . . . . . . . . (1,179) (18,723) (27,705) --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . (30,369) (71,211) (142,091) (212,653)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . 215,077 424,319 448,370 755,503
Issued in Lieu of Cash Distributions . . . 23,759 56,537 117,238 170,653
Redeemed . . . . . . . . . . . . . . . . . (148,793) (353,407) (349,148) (580,447)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . 90,043 127,449 216,460 345,709
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . (4,260) 244,317 (86,218) 768,762
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 915,763 671,446 3,376,089 2,607,327
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $911,503 $915,763 $3,289,871 $3,376,089
===================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 21,957 41,863 50,856 85,001
Issued in Lieu of Cash Distributions . . 2,436 5,454 13,427 19,078
Redeemed . . . . . . . . . . . . . . . . (15,165) (34,704) (39,946) (64,930)
- -------------------------------------------------------------------------------------------------------------------
9,228 12,613 24,337 39,149
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
HIGH YIELD GNMA
CORPORATE PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED January 31, ENDED January 31,
JULY 31, 1996 1996 JULY 31, 1996 1996
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 135,996 $ 228,831 $ 248,867 $ 463,022
Realized Net Gain (Loss) 14,481 21,161 7,731 6,713
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . (136,068) 194,421 (292,441) 454,491
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . 14,409 444,413 (35,843) 924,226
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . (135,996) (228,831) (248,867) (463,022)
Realized Net Gain . . . . . . . . . . . . . . -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . (135,996) (228,831) (248,867) (463,022)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . 532,839 857,541 788,017 1,289,384
Issued in Lieu of Cash Distributions . . . . . 94,433 160,148 189,944 353,323
Redeemed . . . . . . . . . . . . . . . . . . . (337,938) (388,992) (653,862) (956,606)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . 289,334 628,697 324,099 686,101
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . 167,747 844,279 39,389 1,147,305
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 3,006,579 2,162,300 6,998,140 5,850,835
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $3,174,326 $3,006,579 $7,037,529 $6,998,140
===================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 69,397 112,052 77,646 126,652
Issued in Lieu of Cash Distributions . . 12,335 20,855 18,813 34,673
Redeemed . . . . . . . . . . . . . . . . (44,163) (50,868) (64,662) (94,085)
- -------------------------------------------------------------------------------------------------------------------
37,569 82,039 31,797 67,240
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<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, 1996 1996 JULY 31, 1996 1996
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 15,312 $ 18,139 $ 37,752 $ 68,116
Realized Net Gain (Loss) . . . . . . . . . . . (1,009) 4,200 (511) 14,242
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . (27,421) 24,499 (79,863) 100,191
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . (13,118) 46,838 (42,622) 182,549
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . (15,312) (18,139) (37,752) (68,116)
Realized Net Gain . . . . . . . . . . . . . . (930) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . (16,242) (18,139) (37,752) (68,116)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . 171,410 293,732 247,404 519,871
Issued in Lieu of Cash Distributions . . . . . 13,332 14,306 28,140 51,396
Redeemed . . . . . . . . . . . . . . . . . (68,399) (75,601) (202,317) (307,504)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . 116,343 232,437 73,227 263,763
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . 86,983 261,136 (7,147) 378,196
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 423,937 162,801 1,226,360 848,164
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $510,920 $423,937 $1,219,213 $1,226,360
===================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 17,670 30,043 23,674 50,081
Issued in Lieu of Cash Distributions . . 1,386 1,458 2,729 4,907
Redeemed . . . . . . . . . . . . . . . . (7,109) (7,765) (19,551) (29,390)
- -------------------------------------------------------------------------------------------------------------------
11,947 23,736 6,852 25,598
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS (continued)
<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, 1996 1996 JULY 31, 1996 1996
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 40,816 $ 87,785 $ 26,672 $ 52,172
Realized Net Gain (Loss) . . . . . . . . . . . (559) 8,092 5,763 3,842
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . (33,492) 65,368 (30,828) 34,257
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . 6,765 161,245 1,607 90,271
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . (40,816) (87,785) (26,672) (52,172)
Realized Net Gain . . . . . . . . . . . . . . -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . (40,816) (87,785) (26,672) (52,172)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . 212,852 361,203 215,299 452,796
Issued in Lieu of Cash Distributions . . . . . 34,367 75,104 23,986 46,819
Redeemed . . . . . . . . . . . . . . . . . . . (281,172) (582,196) (168,834) (372,829)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . (33,953) (145,889) 70,451 126,786
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . (68,004) (72,429) 45,386 164,885
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 1,401,736 1,474,165 919,204 754,319
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $1,333,732 $1,401,736 $964,590 $919,204
===================================================================================================================
(1)Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . 21,078 35,818 21,216 44,543
Issued in Lieu of Cash Distributions . . . 3,411 7,436 2,369 4,595
Redeemed . . . . . . . . . . . . . . . . . (27,845) (57,585) (16,645) (36,661)
- -------------------------------------------------------------------------------------------------------------------
(3,356) (14,331) 6,940 12,477
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
SHORT-TERM
CORPORATE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended
ENDED January 31,
JULY 31, 1996 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,309 $ 211,583
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . (490) 14,027
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . . . . . . . . . . . . . . (100,602) 152,638
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . . . . 19,217 378,248
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . (120,309) (211,583)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . (120,309) (211,583)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781,598 1,654,390
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 102,922 178,724
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (628,353) (1,050,814)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . . . . . . . . . . . 256,167 782,300
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . . . . . 155,075 948,965
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . 3,873,013 2,924,048
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,028,088 $3,873,013
===================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,773 154,147
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . 9,614 16,618
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,581) (97,915)
- -------------------------------------------------------------------------------------------------------------------
23,806 72,850
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
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, 1996 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.73 $ 9.23 $10.75 $10.04 $10.14 $ 9.74
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .326 .669 .665 .685 .733 .763
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (1.077) 1.725 (1.401) .886 .600 .400
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . (.751) 2.394 (.736) 1.571 1.333 1.163
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.326) (.669) (.665) (.685) (.733) (.763)
Distributions from Realized Capital Gains . . (.013) (.225) (.119) (.176) (.700) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.339) (.894) (.784) (.861) (1.433) (.763)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $ 9.64 $10.73 $ 9.23 $10.75 $10.04 $10.14
======================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . -6.98% +26.72% -6.68% +16.09% +14.12% +12.44%
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $912 $916 $671 $829 $874 $833
Ratio of Total Expenses to Average Net Assets . . .27%* .27% .28% .26% .27% .26%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.68%* 6.57% 7.02% 6.44% 7.26% 7.72%
Portfolio Turnover Rate . . . . . . . . . . . . . 36%* 105% 85% 7% 170% 89%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
LONG-TERM CORPORATE PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1996 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.43 $8.18 $9.36 $9.04 $8.63 $8.02
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .306 .627 .617 .632 .680 .706
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.745) 1.250 (1.108) .579 .561 .610
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . (.439) 1.877 (.491) 1.211 1.241 1.316
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.306) (.627) (.617) (.632) (.680) (.706)
Distributions from Realized Capital Gains . . (.075) -- (.072) (.259) (.151) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.381) (.627) (.689) (.891) (.831) (.706)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $8.61 $9.43 $8.18 $9.36 $9.04 $8.63
======================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . -4.64% +23.64% -5.12% +13.83% +15.06% +17.09%
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $3,290 $3,376 $2,607 $3,166 $2,763 $1,992
Ratio of Total Expenses to Average Net Assets . . .30%* .31% .32% .30% .31% .31%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 7.00%* 7.03% 7.37% 6.71% 7.68% 8.46%
Portfolio Turnover Rate . . . . . . . . . . . . . 27%* 49% 43% 77% 50% 72%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
22
<PAGE> 23
<TABLE>
<CAPTION>
HIGH YIELD CORPORATE PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -----------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1996 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $7.89 $7.24 $8.14 $7.56 $7.27 $6.19
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .341 .678 .679 .695 .727 .770
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.300) .650 (.900) .580 .290 1.080
------ ----- ------ ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . .041 1.328 (.221) 1.275 1.017 1.850
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.341) (.678) (.679) (.695) (.727) (.770)
Distributions from Realized Capital Gains . . -- -- -- -- -- --
------ ----- ------ ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . (.341) (.678) (.679) (.695) (.727) (.770)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $7.59 $7.89 $7.24 $8.14 $7.56 $7.27
====================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +0.56% +19.01% -2.52% +17.54% +14.68% +31.27%
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $3,174 $3,007 $2,162 $2,625 $2,184 $1,593
Ratio of Total Expenses to Average Net Assets . . .32%* .34% .34% .32% .34% .34%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 8.91%* 8.85% 9.13% 8.81% 9.82% 11.13%
Portfolio Turnover Rate . . . . . . . . . . . . . 22%* 38% 33% 51% 83% 44%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
23
<PAGE> 24
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
GNMA PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED --------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1996 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.45 $ 9.71 $10.39 $10.50 $10.25 $ 9.85
------ ------- ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .361 .734 .693 .641 .778 .831
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.420) .740 (.673) (.110) .250 .400
------ ------- ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . (.059) 1.474 .020 .531 1.028 1.231
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.361) (.734) (.693) (.641) (.778) (.831)
Distributions from Realized Capital Gains . . -- -- (.007) -- -- --
------ ------- ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.361) (.734) (.700) (.641) (.778) (.831)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $10.03 $10.45 $ 9.71 $10.39 $10.50 $10.25
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . . . . . . . . . -0.53% +15.64% +0.36% +5.18% +10.40% +13.00%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $7,038 $6,998 $5,851 $7,043 $7,167 $5,207
Ratio of Total Expenses to Average Net Assets . . .29%* .29% .30% .28% .29% .29%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 7.16%* 7.22% 7.04% 6.19% 7.38% 8.22%
Portfolio Turnover Rate . . . . . . . . . . . . . 15%* 7% 35% 2% 7% 1%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
24
<PAGE> 25
<TABLE>
<CAPTION>
INTERMEDIATE-TERM CORPORATE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ---------------------- November 1, 1993-
For a Share Outstanding Throughout Each Period JULY 31, 1996 1996 1995 January 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.17 $ 9.07 $10.04 $10.00
------ ------- ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .316 .658 .587 .125
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.620) 1.100 (.970) .040
------ ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . (.304) 1.758 (.383) .165
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.316) (.658) (.587) (.125)
Distributions from Realized Capital Gains . . (.020) -- -- --
- -------------------------------------------------------------------------------------------------------------------
------ ------- ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.336) (.658) (.587) (.125)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $ 9.53 $10.17 $ 9.07 $10.04
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . -2.98% +19.94% -3.73% +1.66%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $511 $424 $163 $85
Ratio of Total Expenses to Average Net Assets . .27%* .28% .28% .25%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 6.56%* 6.70% 6.46% 5.11%*
Portfolio Turnover Rate . . . . . . . . . . . . 92%* 78% 97% 74%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended January 31, October 28, 1991-
For a Share Outstanding Throughout Each Period JULY 31, 1996 1996 1995 1994 1993 January 31, 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.90 $ 9.76 $10.82 $10.79 $10.19 $10.00
------ ------- ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .321 .662 .603 .617 .676 .170
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.680) 1.140 (1.033) .443 .617 .190
------ ------- ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . (.359) 1.802 (.430) 1.060 1.293 .360
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.321) (.662) (.603) (.617) (.676) (.170)
Distributions from Realized Capital Gains . . -- -- (.027) (.413) (.017) --
- --------------------------------------------------------------------------------------------------------------------
------ ------- ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.321) (.662) (.630) (1.030) (.693) (.170)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.22 $10.90 $ 9.76 $10.82 $10.79 $10.19
====================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . -3.28% +18.96% -3.90% +10.09% +13.14% +3.59%
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $1,219 $1,226 $848 $1,007 $673 $190
Ratio of Total Expenses to Average Net Assets . . .27%* .28% .28% .26% .26% .26%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.21%* 6.34% 6.05% 5.55% 6.44% 6.47%*
Portfolio Turnover Rate . . . . . . . . . . . . . 54%* 56% 128% 118% 123% 32%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
25
<PAGE> 26
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended January 31,
For a Share Outstanding Throughout Each PerioD JULY 31, 1996 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . . . $10.28 $ 9.79 $10.38 $10.38 $10.31 $10.08
------ ------ ------ ------ ------ ------
Investment Operations
Net Investment Income . . . . . . . . . . . . .304 .601 .550 .522 .609 .720
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.250) .490 (.580) .110 .232 .307
------ ------ ------ ------ ------ ------
Total From Investment Operations . . . .054 1.091 (.030) .632 .841 1.027
- --------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from Net Investment Income . . . . . (.304) (.601) (.550) (.522) (.609) (.720)
Distributions from Realized Capital Gains . . -- -- (.010) (.110) (.162) (.077)
------ ------ ------ ------ ------ ------
Total Distributions . . . . . . . . . . (.304) (.601) (.560) (.632) (.771) (.797)
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period . . . . . . . . . $10.03 $10.28 $ 9.79 $10.38 $10.38 $10.31
- --------------------------------------------------------------------------------------------------------------------
Total Return . . . . . . . . . . . . . . . . . . +0.55% +11.43% -0.21% +6.23% +8.49% +10.59%
- --------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $1,334 $1,402 $1,474 $1,936 $1,688 $1,274
Ratio of Total Expenses to Average Net Assets . . .27%* .27% .28% .26% .27% .26%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.06%* 5.93% 5.53% 4.98% 5.88% 6.98%
Portfolio Turnover Rate 55%* 74% 57% 49% 70% 111%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
SHORT-TERM U.S. TREASURY PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ------------------------------------ October 28, 1991-
For a Share Outstanding Throughout Each Period JULY 31, 1996 1996 1995 1994 1993 January 31, 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.36 $ 9.89 $10.41 $10.41 $10.12 $10.00
------ ------- ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .291 .625 .532 .486 .528 .140
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.280) .470 (.500) .079 .332 .120
------ ------- ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . .011 1.095 .032 .565 .860 .260
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.291) (.625) (.532) (.486) (.528) (.140)
Distributions from Realized Capital Gains . . -- -- (.020) (.079) (.042) --
------ ------- ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.291) (.625) (.552) (.565) (.570) (.140)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $10.08 $10.36 $ 9.89 $10.41 $10.41 $10.12
====================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +0.13% +11.37% +0.40% +5.54% +8.74% +2.60%
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $965 $919 $754 $729 $526 $102
Ratio of Total Expenses to Average Net Assets . . .27%* .27% .28% .26% .26% .26%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 5.75%* 6.14% 5.33% 4.64% 5.12% 5.22%*
Portfolio Turnover Rate . . . . . . . . . . . . . 100%* 93% 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, 1996 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.94 $10.40 $10.94 $10.99 $10.88 $10.50
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .328 .671 .596 .605 .695 .804
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.280) .540 (.540) .049 .275 .380
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . .048 1.211 .056 .654 .970 1.184
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.328) (.671) (.596) (.605) (.695) (.804)
Distributions from Realized Capital Gains . . -- -- -- (.099) (.165) --
- --------------------------------------------------------------------------------------------------------------------
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.328) (.671) (.596) (.704) (.860) (.804)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.66 $10.94 $10.40 $10.94 $10.99 $10.88
====================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +0.46% +11.95% +0.60% +6.11% +9.29% +11.70%
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $4,028 $3,873 $2,924 $3,573 $2,811 $1,911
Ratio of Total Expenses to Average Net Assets . . .27%* .27% .28% .26% .27% .26%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 6.13%* 6.23% 5.66% 5.48% 6.33% 7.44%
Portfolio Turnover Rate 56%* 62% 69% 61% 71% 99%
- --------------------------------------------------------------------------------------------------------------------
</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 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 a custodian bank 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 Intermediate-Term U.S. Treasury Portfolio and the
Intermediate-Term Corporate Portfolio utilize 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
income over the lives of the respective securities. Distributions from net
investment income are declared on a daily basis payable on the first
28
<PAGE> 29
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 April 30, 1998, 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, 1996, the investment advisory fees of the Long-Term
Corporate, High Yield Corporate, and GNMA Portfolios represent effective annual
rates of .03 of 1%, .04 of 1%, and .01 of 1% of average net assets,
respectively, after giving effect to fee waivers of $84,000, (an annual rate of
.01% of 1%), $120,000 (an annual rate of .02 of 1%), and $97,000 (an annual
rate of .01 of 1%) respectively for the period February 1, 1996, to April 30,
1996.
The Vanguard Group 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 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, 1996,
the Fund had contributed capital of $2,258,000 to Vanguard (included in Other
Assets), representing 11.3% 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, 1996, purchases and sales of
investment securities, other than U.S. Government securities and temporary cash
investments, were:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(000)
Vanguard -----------------------
PORTFOLIO Purchases Sales
- ------------------------------------------------------
<S> <C> <C>
LONG-TERM CORPORATE $389,730 $249,520
HIGH YIELD CORPORATE 632,965 307,703
INTERMEDIATE-TERM CORPORATE 255,265 142,285
SHORT-TERM CORPORATE 813,289 756,941
- ------------------------------------------------------
</TABLE>
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(000)
Vanguard -------------------------
PORTFOLIO Purchases Sales
- -------------------------------------------------------
<S> <C> <C>
LONG-TERM U.S. TREASURY $ 254,434 $152,164
LONG-TERM CORPORATE 267,291 178,522
HIGH YIELD CORPORATE 59,780 10,080
GNMA 1,247,895 497,386
INTERMEDIATE-TERM CORPORATE 75,684 67,619
INTERMEDIATE-TERM U.S. TREASURY 387,457 318,519
SHORT-TERM FEDERAL 366,021 411,459
SHORT-TERM U.S. TREASURY 634,346 437,586
SHORT-TERM CORPORATE 514,178 311,419
- -------------------------------------------------------
</TABLE>
E. At January 31, 1996, the Portfolios had the following capital losses
available to offset future net capital gains:
<TABLE>
<CAPTION>
- -------------------------------------------------------
Expiration
Fiscal Year(s)
VANGUARD Ending Amount
PORTFOLIO January 31 (000)
- -------------------------------------------------------
<S> <C> <C>
HIGH YIELD CORPORATE 1999-2000 $101,666
GNMA 2004 3,310
INTERMEDIATE-TERM U.S. TREASURY 2003 28,823
SHORT-TERM FEDERAL 2003-2004 32,267
SHORT-TERM U.S. TREASURY 2003-2004 14,060
SHORT-TERM CORPORATE 2003-2004 31,541
- -------------------------------------------------------
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (continued)
F. At July 31, 1996, unrealized appreciation (depreciation) of investment
securities for financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(000)
------------------------------------
Net
Unrealized
Vanguard Appreciated Depreciated Appreciation
Portfolio Securities Securities (Depreciation)
- --------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM
U.S. TREASURY $ 20,423 $ (8,090) $ 12,333
LONG-TERM CORPORATE 84,946 (82,406) 2,540
HIGH YIELD CORPORATE 42,463 (70,443) (27,980)
GNMA 121,265 (160,124) (38,859)
INTERMEDIATE-TERM
CORPORATE 3,154 (11,716) (8,562)
INTERMEDIATE-TERM
U.S. TREASURY 16,823 (28,117) (11,294)
SHORT-TERM FEDERAL 8,901 (9,854) (953)
SHORT-TERM
U.S. TREASURY 1,629 (7,017) (5,388)
SHORT-TERM CORPORATE 16,903 (37,331) (20,428)
- --------------------------------------------------------
</TABLE>
G. The market values of securities on loan to broker/dealers at July 31, 1996,
and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(000)
-----------------------------------
Collateral Received
Market --------------------
Value of U.S.
Vanguard Loaned Treasury
Portfolio Securities Cash Securities
- --------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM
U.S. TREASURY $ 25,434 -- $26,640
HIGH YIELD CORPORATE 104,965 $63,506 45,244
INTERMEDIATE-TERM
CORPORATE 3,068 3,120 --
INTERMEDIATE-TERM
U.S. TREASURY 127,452 54,433 76,186
SHORT-TERM
U.S. FEDERAL 4,676 4,762 --
- --------------------------------------------------------
</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 of the Board
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President and Chief Executive Officer
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus of Rhone-Poulenc Rorer Inc.; Director of
Sun Company, Inc.; Director of Westinghouse Electric Corporation.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and National Steel
Corporation.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern New England Communications
Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and
The Standard Products Co.
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 Co. 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
Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
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 F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Information Technology Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
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 Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
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 Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
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 Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Inded 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.
Q282-7/96
VANGUARD
FIXED INCOME
SECURITIES FUND
SEMI-ANNUAL REPORT
JULY 31, 1996
<PAGE> 33
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
July 31, 1996
<TABLE>
<CAPTION>
VANGUARD FIXED INCOME
SECURITIES FUND
Face Market
LONG-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- -------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (95.9%)
- -------------------------------------------------------------------------
U.S. TREASURY BONDS
7.50%, 11/15/24 $ 12,000 $ 12,637
7.625%, 2/15/25 28,700 30,727
7.875%, 2/15/21 238,502 259,707
8.125%, 8/15/19 114,015 127,038
8.875%, 8/15/17 153,050 182,584
8.875%, 2/15/19 136,110 163,034
9.875%, 11/15/15 9,500 12,291
10.375%, 11/15/12 68,650 86,638
- -------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS (Cost $862,323) 874,656
- -------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.5%)
- -------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.62%, 8/1/96
(Cost $13,568) 13,568 13,568
- -------------------------------------------------------------------------
TOTAL INVESTMENTS (97.4%)
(Cost $875,891) 888,224
- -------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.6%)
- -------------------------------------------------------------------------
Other Assets--Notes C and G 30,953
Liabilities--Note G (7,674)
----------
23,279
- -------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------
Applicable to 94,594,542 outstanding
$.001 par value shares
(authorized 300,000,000 shares) $911,503
- -------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.64
=========================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- -----
<S> <C> <C>
PAID IN CAPITAL $903,607 $9.56
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (4,437) (.05)
UNREALIZED APPRECIATION
OF INVESTMENTS--NOTE F 12,333 .13
- -------------------------------------------------------------------------
NET ASSETS $911,503 $9.64
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
LONG-TERM Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (77.0%)
- -------------------------------------------------------------------------------------------
FINANCE (18.6%)
Allstate Corp.
7.50%, 6/15/13 A2 $ 10,000 $ 9,791
AMBAC, Inc.
7.50%, 5/1/23 Aa2 20,000 19,323
Banc One Corp.
7.75%, 7/15/25 A1 30,000 29,613
Bank of Boston Corp.
6.625%, 12/1/05 Baa1 30,000 28,238
BankAmerica Corp.
10.00%, 2/1/03 A2 20,000 22,835
Barnett Banks, Inc.
8.50%, 1/15/07 A3 20,000 20,841
The Chase Manhattan Corp.
8.625%, 5/1/02 A2 10,000 10,698
Citicorp
7.125%, 9/1/05 A2 15,000 14,749
7.625%, 5/1/05 A2 10,000 10,109
Comerica, Inc.
7.125%, 12/1/13 A2 10,000 9,079
8.375%, 7/15/24 A2 20,000 20,337
Fifth Third Bancorp
6.75%, 7/15/05 A1 25,000 23,917
First Bank NA
7.55%, 6/15/04 A2 18,000 18,148
First Bank System
7.625%, 5/1/05 A3 7,500 7,553
First Chicago Corp.
6.375%, 1/30/09 A2 20,000 17,897
First Union Corp.
6.00%, 10/30/08 A2 10,000 8,789
7.50%, 4/15/35 A2 11,000 11,301
General Electric Global
Insurance Holdings
7.00%, 2/15/26 Aa1 40,000 36,870
General Motors Acceptance
Corp. MTN
8.50%, 1/1/03 A3 15,000 15,921
</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 . . . . . . . . . . . 9
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO . . . . . . . . . 13
SHORT-TERM FEDERAL PORTFOLIO . . . . . . . . . . . . . . . . 14
SHORT-TERM U.S. TREASURY PORTFOLIO . . . . . . . . . . . . . 15
SHORT-TERM CORPORATE PORTFOLIO . . . . . . . . . . . . . . . 16
</TABLE>
1
<PAGE> 34
<TABLE>
<CAPTION>
Face Market
LONG-TERM CORPORATE Rating Amount Value
PORTFOLIO (continued) (Moody's) (000) (000)+
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General RE Corp.
9.00%, 9/12/09 Aa1 $ 15,000 $ 16,724
Golden West Financial Corp.
6.00%, 10/1/03 A3 25,000 23,230
National City Corp.
7.20%, 5/15/05 A2 20,000 19,641
NationsBank Corp.
7.25%, 10/15/25 A3 20,000 18,516
7.75%, 8/15/04 A3 20,000 20,479
7.75%, 8/15/15 A3 10,000 9,928
Republic New York Corp.
9.70%, 2/1/09 A1 20,000 23,451
Society National Bank
7.85%, 11/1/02 A1 7,500 7,655
SunTrust Banks, Inc.
6.00%, 2/15/26 A2 25,000 22,843
7.375%, 7/1/02 A1 10,000 10,151
Transamerica Corp.
9.375%, 3/1/08 A2 10,000 11,283
Travelers/Aetna Property
& Casualty Corp.
7.75%, 4/15/26 A2 25,000 24,539
Wachovia Corp.
6.605%, 10/1/25 A1 30,000 28,756
6.80%, 6/1/05 A1 20,000 19,354
Wells Fargo & Co.
6.125%, 11/1/03 A2 20,000 18,481
---------
SECTOR TOTAL 611,040
---------
- -------------------------------------------------------------------------------------------
INDUSTRIAL (40.9%)
Air Products &
Chemicals, Inc.
7.375%, 5/1/05 A2 15,000 15,069
8.75%, 4/15/21 A2 12,550 13,961
ARCO Chemical Co.
9.80%, 2/1/20 A3 25,000 30,530
Browning-Ferris
Industries, Inc.
6.375%, 1/15/08 A2 15,000 13,793
7.40%, 9/15/35 A2 30,000 28,396
Burlington Northern
Santa Fe Corp.
6.375%, 12/15/05 Baa2 12,500 11,533
CPC International, Inc.
6.15%, 1/15/06 A2 20,000 18,551
The Coca-Cola Co.
6.00%, 7/15/03 Aa3 15,000 14,157
The Walt Disney Co.
6.75%, 3/30/06 A2 25,000 24,059
E.I. du Pont de
Nemours & Co.
8.25%, 1/15/22 Aa3 35,000 35,633
Eastman Chemical Co.
7.25%, 1/15/24 A3 20,000 18,712
Eaton Corp.
6.50%, 6/1/25 A2 10,000 9,485
7.625%, 4/1/24 A2 15,000 14,682
Exxon Capital Corp.
6.00%, 7/1/05 Aaa 10,000 9,220
Ford Motor Co.
8.875%, 1/15/22 A1 40,000 44,570
General Electric
Capital Corp.
8.125%, 5/15/12 Aaa 42,000 44,712
General Electric
Capital Services
7.50%, 8/21/35 Aaa 10,960 10,860
General Motors Corp.
7.40%, 9/1/25 A3 20,000 18,816
7.70%, 4/15/16 A3 10,000 9,849
9.40%, 7/15/21 A3 20,000 23,096
Georgia-Pacific Corp.
8.625%, 4/30/25 Baa2 10,000 9,895
9.50%, 5/15/22 Baa2 10,000 10,525
9.875%, 11/1/21 Baa2 30,000 32,359
Hubbell Inc.
6.625%, 10/1/05 A2 10,000 9,585
International Paper Co.
6.875%, 11/1/23 A3 10,000 8,926
8.125%, 6/15/24 A3 30,000 29,401
Johnson & Johnson
8.72%, 11/1/24 Aaa 30,000 32,323
Johnson Controls
8.20%, 6/15/24 A2 10,000 10,140
Eli Lilly & Co.
7.125%, 6/1/25 Aa3 45,000 42,744
Lockheed Martin Corp.
7.65%, 5/1/16 A3 40,000 39,620
McDonald's Corp.
7.05%, 11/15/25 Aa2 23,275 21,420
7.375%, 7/15/33 Aa2 8,500 8,042
The Mead Corp.
8.125%, 2/1/23 A3 15,000 14,876
Merck & Co.
6.30%, 1/1/26 Aaa 30,000 25,959
Mobil Corp.
8.625%, 8/15/21 Aa2 22,000 24,744
Monsanto Co.
8.20%, 4/15/25 A1 20,000 20,551
8.875%, 12/15/09 A1 20,000 22,378
Morton International, Inc.
9.25%, 6/1/20 A1 10,000 11,738
Motorola, Inc.
7.50%, 5/15/25 Aa3 50,000 49,682
</TABLE>
2
<PAGE> 35
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York Times Co.
8.25%, 3/15/25 A1 $ 30,000 $ 30,585
Norfolk Southern Corp.
9.00%, 3/1/21 Aa3 15,000 17,314
Northrop Grumman Corp.
9.375%, 10/15/24 Baa3 20,000 21,578
PPG Industries, Inc.
9.00%, 5/1/21 A1 9,750 11,174
Parker-Hannifin Corp.
7.30%, 5/15/11 A2 20,000 19,677
Petro-Canada
7.875%, 6/15/26 A3 17,760 17,924
Phillips Petroleum Co.
9.18%, 9/15/21 Baa1 25,000 26,662
Procter & Gamble Co.
8.50%, 8/10/09 Aa2 10,000 10,837
9.36%, 1/1/21 Aa2 35,000 41,191
Raytheon Co.
7.375%, 7/15/25 A1 35,000 32,945
Rohm & Haas Co.
9.80%, 4/15/20* A1 10,000 11,834
Talisman Energy, Inc.
7.125%, 6/1/07 Baa1 20,000 19,304
Texaco Capital, Inc.
8.625%, 11/15/31 A1 13,000 14,482
9.75%, 3/15/20 A1 17,000 20,867
Union Pacific Corp.
7.00%, 2/1/16 Baa2 20,000 18,466
United Parcel Service
8.375%, 4/1/20 Aaa 40,000 43,834
United Technologies Corp.
8.875%, 11/15/19 A2 20,000 22,542
Westvaco Corp.
9.75%, 6/15/20 A1 15,000 18,121
Weyerhaeuser Co.
7.95%, 3/15/25 A2 12,000 12,283
8.50%, 1/15/25 A2 40,000 43,310
Whirlpool Corp.
9.10%, 2/1/08 A3 20,000 22,435
Witco Corp.
6.875%, 2/1/26 A3 15,000 13,497
Worthington Industries Inc.
7.125%, 5/15/06 A3 20,000 19,728
------------
SECTOR TOTAL 1,345,182
------------
- -------------------------------------------------------------------------------------------
UTILITIES (17.5%)
AT&T Corp.
8.625%, 12/1/31 Aa3 40,000 42,212
BellSouth
Telecommunications
7.00%, 10/1/25 Aaa 10,000 9,362
7.50%, 6/15/33 Aaa 35,000 33,398
Cincinnati Gas &
Electric Co.
6.90%, 6/1/25 Baa1 16,000 15,356
7.20%, 10/1/23 A3 5,100 4,613
Coastal Corp.
7.75%, 10/15/35 Baa3 20,000 19,006
9.625%, 5/15/12 Baa3 20,000 22,735
Consolidated Edison Co. of
New York, Inc.
6.375%, 4/1/03 A1 20,000 19,186
Duke Power Co.
7.00%, 7/1/33 Aa2 10,000 9,010
Enron Corp.
6.875%, 10/15/07 Baa2 20,000 19,075
7.00%, 8/15/23 Baa2 8,000 7,008
GTE Florida, Inc.
6.31%, 12/15/02 A2 10,000 9,563
GTE Southwest Inc.
6.00%, 1/15/06 A2 10,000 9,155
Houston Lighting &
Power Co.
9.15%, 3/15/21 A2 20,000 22,640
Illinois Bell Telephone Co.
6.625%, 2/1/25 Aa1 10,700 9,376
Michigan Bell
Telephone Co.
7.85%, 1/15/22 Aa1 20,000 20,738
New Jersey Bell
Telephone Co.
8.00%, 6/1/22 Aaa 20,000 20,985
New York Telephone Co.
7.25%, 2/15/24 A2 20,000 18,563
Northern States Power Co.
7.125%, 7/1/25 A1 30,000 28,429
Oklahoma Gas &
Electric Co.
7.30%, 10/15/25 A1 15,000 13,877
Pacific Bell Telephone Co.
7.125%, 3/15/26 Aa3 15,000 14,077
7.375%, 6/15/25 Aa3 10,000 9,435
Pacific Gas & Electric Co.
8.25%, 11/1/22 A2 25,000 24,938
8.375%, 5/1/25 A2 10,000 10,259
PacifiCorp
6.625%, 6/1/07 A2 10,000 9,407
MTN 6.71%, 1/15/26 A2 10,000 8,817
Southern California Gas Co.
7.50%, 6/15/23 A2 20,000 18,791
Southwestern Bell
Telephone Co.
7.20%, 10/15/26 A1 32,500 30,278
7.25%, 7/15/25 A1 12,500 11,658
</TABLE>
3
<PAGE> 36
<TABLE>
<CAPTION>
Face Market
LONG-TERM CORPORATE Rating Amount Value
PORTFOLIO (continued) (Moody's) (000) (000)+
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Southwestern Public
Service Co.
8.20%, 12/1/22 Aa2 $ 12,500 $ 12,966
U S WEST
Communications Group
6.875%, 9/15/33 Aa3 45,000 39,097
Virginia Electric &
Power Co.
8.25%, 3/1/25 A2 20,000 20,323
8.625%, 10/1/24 A2 11,000 11,567
----------
SECTOR TOTAL 575,900
----------
- -------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,513,667) 2,532,122
- -------------------------------------------------------------------------------------------
FOREIGN BONDS
(U.S. DOLLAR DENOMINATED) (7.4%)
- -------------------------------------------------------------------------------------------
BHP Finance USA
6.69%, 3/1/06 A2 20,000 19,010
Province of British Columbia
6.50%, 1/15/26 Aa2 30,000 26,607
European Investment Bank
9.125%, 6/1/02 Aaa 25,000 27,543
Inter-American
Development Bank
6.125%, 3/8/06 Aaa 25,000 23,359
Italy Global Bond
6.875%, 9/27/23 Aa3 50,000 45,166
Province of Manitoba
6.125%, 1/19/04 A1 7,000 6,567
8.875%, 9/15/21 A1 10,000 11,466
Province of Ontario
6.00%, 2/21/06 Aa3 25,000 22,811
7.75%, 6/4/02 Aa3 15,000 15,588
Province of Saskatchewan
8.50%, 7/15/22 A3 19,000 20,759
Societe Generale
7.40%, 6/1/06 Aa3 25,000 24,805
- -------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $250,276) 243,681
- -------------------------------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (13.3%)
- -------------------------------------------------------------------------------------------
Federal National
Mortgage Association
15.50%, 10/1/12 11 12
Government National
Mortgage Association
6.50%, 11/15/23-3/15/26 97,964 91,495
7.50%, 2/15/24-4/15/26 99,460 97,876
8.00%, 10/15/23-4/15/26 98,216 98,944
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond
7.25%, 5/15/16 50,000 50,852
U.S. Treasury Notes
5.75%, 8/15/03 $ 25,000 $ 23,699
7.125%, 2/29/00 75,000 76,489
- ------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
& AGENCY OBLIGATIONS
(Cost $448,687) 439,367
- ------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.7%)
- ------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
5.62%, 8/1/96
(Cost $55,880) 55,880 55,880
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.4%)
(Cost $3,268,510) 3,271,050
- ------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.6%)
- ------------------------------------------------------------------------------------------
Other Assets--Note C 61,339
Liabilities (42,518)
------------
18,821
- ------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------
Applicable to 382,188,833 outstanding
$.001 par value shares
(authorized 700,000,000 shares) $3,289,871
- ------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $8.61
==========================================================================================
</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, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- -----
<S> <C> <C>
PAID IN CAPITAL $3,259,322 $8.53
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED GAINS 28,009 .07
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE F 2,540 .01
- -------------------------------------------------------------------------
NET ASSETS $3,289,871 $8.61
- -------------------------------------------------------------------------
</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 (90.5%)
- ------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.4%)
K & F Industries
13.75%, 8/1/01 B2 $ 16,357 $ 16,848
Northrop Grumman Corp.
9.375%, 10/15/24 Baa3 17,975 19,393
Wyman-Gordon Co.
10.75%, 3/15/03 B1 9,000 9,360
------------
SECTOR TOTAL 45,601
------------
- ------------------------------------------------------------------------------------------
BASIC INDUSTRIES (15.1%)
American Standard, Inc.
9.875%, 6/1/01 B1 20,000 20,700
11.375%, 5/15/04 Ba3 20,000 21,650
Bell & Howell Operating Co.
9.25%, 7/15/00 B1 8,000 8,000
Beverly Enterprises
9.00%, 2/15/06 B1 18,000 16,830
Cincinnati Milacron, Inc.
8.375%, 3/15/04 Ba1 11,500 11,500
Collins & Aikman
Products Corp.
11.50%, 4/15/06 B3 30,000 30,600
Coltec Industries
10.25%, 4/1/02 B3 19,000 19,380
Day International Group Inc.
11.125%, 6/1/05 B3 5,000 5,150
Dominion Textile (USA), Inc.
8.875%, 11/1/03 Ba2 15,000 14,400
9.25%, 4/1/06 Ba2 9,000 8,752
Envirosource, Inc.
9.75%, 6/15/03 B3 15,000 13,500
Essex Group
10.00%, 5/1/03 B1 17,000 17,170
EXIDE Corp.
10.00%, 4/15/05 B1 25,000 24,500
10.75%, 12/15/02 B1 15,000 15,300
Great Lakes Carbon Corp.
10.00%, 1/1/06 Ba3 6,000 6,150
Hayes Wheels
International Inc.
11.00%, 7/15/06 B3 15,000 15,262
Koppers Industries, Inc.
8.50%, 2/1/04 B1 9,000 8,347
Lear Corp.
9.50%, 7/15/06 B1 15,000 15,150
Lear Seating Corp.
8.25%, 2/1/02 B1 13,000 12,512
11.25%, 7/15/00 Ba3 10,730 11,105
Mark IV Industries, Inc.
8.75%, 4/1/03 Ba3 15,000 14,850
Owens-Illinois, Inc.
10.00%, 8/1/02 B2 22,000 22,275
10.25%, 4/1/99 B2 23,000 23,230
11.00%, 12/1/03 Ba3 35,000 37,712
Penda Industries
10.75%, 3/1/04 B2 3,400 3,145
Portola Packaging Inc.
10.75%, 10/1/05 B2 6,000 6,195
Schuller International Group
10.875%, 12/15/04 Ba3 35,000 37,800
Specialty Equipment
11.375%, 12/1/03 B3 16,500 17,077
UCAR Global Enterprises
12.00%, 1/15/05 B2 8,000 9,040
Walbro Corp.
9.875%, 7/15/05 Ba3 2,400 2,364
Wolverine Tube Inc.
10.125%, 9/1/02 Ba2 9,000 9,270
------------
SECTOR TOTAL 478,916
------------
- ------------------------------------------------------------------------------------------
CABLE (8.0%)
CableVision Systems Corp.
9.25%, 11/1/05 B2 25,000 23,187
9.875%, 2/15/13 B2 15,000 13,800
Comcast Corp.
9.125%, 10/15/06 B1 25,000 23,937
9.375%, 5/15/05 B1 24,000 23,520
9.50%, 1/15/08 B1 18,750 18,094
10.625%, 7/15/12 B1 30,000 31,350
Galaxy Telecom L.P.
12.375%, 10/1/05 B3 12,000 12,330
Lenfest Communications Inc.
8.375%, 11/1/05 Ba3 35,000 31,850
Rifkin Acquisition Partners
11.125%, 1/15/06 B3 5,000 4,962
Rogers Cablesystem
9.625%, 8/1/02 Ba3 12,000 11,910
Tele-Communications Inc.
8.75%, 2/15/23 Ba1 21,000 19,347
9.25%, 1/15/23 Ba1 40,000 38,395
------------
SECTOR TOTAL 252,682
------------
- ------------------------------------------------------------------------------------------
CHEMICALS (4.9%)
Agricultural Mineral
& Chemical
10.75%, 9/30/03 Ba3 15,000 15,750
Arcadian Partner
10.75%, 5/1/05 B2 30,000 32,400
Borden Chemical
9.50%, 5/1/05 Ba2 20,000 19,600
Buckeye Cellulose Corp.
8.50%, 12/15/05 Ba3 11,000 10,477
</TABLE>
5
<PAGE> 38
<TABLE>
<CAPTION>
Face Market
HIGH YIELD CORPORATE Rating Amount Value
PORTFOLIO (continued) (Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Freeport-McMoRan, Inc.
7.00%, 2/15/08 Ba1 $ 16,000 $ 14,756
General Chemical
9.25%, 8/15/03 B2 10,000 9,800
Harris Chemical
North America, Inc.
10.75%, 10/15/03 B3 5,000 4,900
Rexene Corp.
11.75%, 12/1/04 B1 10,350 11,307
UCC Investors Holdings
11.00%, 5/1/03 B3 27,000 28,350
Viridian Inc.
10.50%, 3/31/14 Ba3 9,000 9,562
------------
SECTOR TOTAL 156,902
------------
- ------------------------------------------------------------------------------------------
COMPUTERS & ELECTRONIC EQUIPMENT (.5%)
Digital Equipment Corp.
7.125%, 10/15/02 Ba1 15,000 14,288
- ------------------------------------------------------------------------------------------
CONSUMER GOODS & SERVICES (3.5%)
American Safety Razor
9.875%, 8/1/05 B1 10,000 10,150
Dr. Pepper Bottling Co.
10.25%, 2/15/00 B3 5,650 5,791
Playtex Family Products
9.00%, 12/15/03 B2 15,000 14,100
Sweetheart Cup
9.625%, 9/1/00 B1 19,000 19,000
10.50%, 9/1/03 B3 11,000 11,000
Westpoint Stevens, Inc.
8.75%, 12/15/01 Ba3 30,000 29,775
9.375%, 12/15/05 B2 20,000 19,550
------------
SECTOR TOTAL 109,366
------------
- ------------------------------------------------------------------------------------------
ENERGY & RELATED GOODS & SERVICES (4.4%)
Energy Ventures Inc.
10.25%, 3/15/04 B1 2,875 2,990
Falcon Drilling Co.
8.875%, 3/15/03 B1 11,000 10,560
Maxus Energy Corp.
9.375%, 11/1/03 B1 15,000 14,475
J. Ray McDermott
9.375%, 7/15/06 Ba3 25,000 24,500
Mesa Operating Co.
10.625%, 7/1/06 B2 30,000 30,675
Noble Drilling Corp.
9.125%, 7/1/06 Ba2 6,000 6,000
9.25%, 10/1/03 Ba2 5,000 5,025
Oryx Energy Co.
8.00%, 10/15/03 Ba3 10,000 9,825
8.125%, 10/15/05 Ba3 15,000 14,588
Santa Fe Energy
Resources Inc.
11.00%, 5/15/04 B1 10,000 10,700
Seagull Energy Corp.
8.625%, 8/1/05 B2 10,000 9,600
------------
SECTOR TOTAL 138,938
------------
- ------------------------------------------------------------------------------------------
FINANCIAL SERVICES (2.4%)
American Reinsurance
10.875%, 9/15/04 Baa1 10,000 10,835
Anchor Bancorp Inc.
8.938%, 7/9/03 Ba3 10,000 9,850
Coast Federal Bank
13.00%, 12/31/02 Ba2 5,700 6,370
Coast Savings Financial, Inc.
10.00%, 3/1/00 Ba2 4,600 4,715
Dime Bancorp, Inc.
10.50%, 11/15/05 Ba3 10,000 10,800
First Federal Financial
11.75%, 10/1/04 B2 5,000 4,950
Imperial Credit Industries
9.75%, 1/15/04 B1 7,500 6,975
Riggs National Corp.
8.50%, 2/1/06 Ba2 10,000 10,188
Western Financial Savings
8.50%, 7/1/03 Ba3 10,000 9,961
------------
SECTOR TOTAL 74,644
------------
- ------------------------------------------------------------------------------------------
FOOD & LODGING (2.6%)
ARA Group, Inc.
8.50%, 6/1/03 Ba3 10,000 9,900
ARA Services, Inc.
10.625%, 8/1/00 Ba1 10,000 10,825
Foodbrands America Inc.
10.75%, 5/15/06 B3 7,000 7,035
John Q. Hammons Hotel
8.875%, 2/15/04 B1 11,500 10,666
La Quinta Inns Inc.
9.25%, 5/15/03 Ba3 12,000 12,060
Purina Mills
10.25%, 9/1/03 B2 20,000 19,400
Red Roof Inns
9.625%, 12/15/03 B2 12,000 11,340
------------
SECTOR TOTAL 81,226
------------
- ------------------------------------------------------------------------------------------
GROCERY STORES (3.0%)
Big V Supermarkets
11.00%, 2/15/04 B3 6,285 5,814
Bruno's Inc.
10.50%, 8/1/05 B3 40,000 39,900
Dominick's Finer Foods
10.875%, 5/1/05 B3 19,000 20,188
Eagle Food Centers, Inc.
8.625%, 4/15/00 B1 7,000 6,300
Kroger Co.
8.50%, 6/15/03 Ba1 15,000 14,925
</TABLE>
6
<PAGE> 39
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Smith's Food & Drug
11.25%, 5/15/07 B3 $ 9,000 $ 9,225
------------
SECTOR TOTAL 96,352
------------
- ------------------------------------------------------------------------------------------
HEALTH CARE (5.7%)
Abbey Healthcare
9.50%, 11/1/02 B1 8,000 8,240
Genesis Health
Ventures Inc.
9.75%, 6/15/05 B2 5,000 5,025
Grancare Inc.
9.375%, 9/15/05 B2 10,000 9,650
Manor Care, Inc.
9.50%, 11/15/02 Ba1 8,000 8,480
OrNda Healthcorp
11.375%, 8/15/04 B2 12,000 13,200
12.25%, 5/15/02 B2 18,000 19,395
Owens & Minor, Inc.
Holding Co.
10.875%, 6/1/06 B1 13,000 13,260
Quorum Health Group
8.75%, 11/1/05 B1 6,000 5,820
Tenet Healthcare Corp.
10.125%, 3/1/05 Ba3 84,000 89,040
Unilab Corp.
11.00%, 4/1/06 B1 10,000 9,300
------------
SECTOR TOTAL 181,410
------------
- ------------------------------------------------------------------------------------------
HOME BUILDING & REAL ESTATE (1.4%)
Continental Homes Holdings
10.00%, 4/15/06 Ba3 10,000 9,500
Triangle Pacific Corp.
10.50%, 8/1/03 B1 13,000 13,358
USG Corp.
8.50%, 8/1/05 Ba2 3,750 3,600
Del E. Webb & Co.
9.00%, 2/15/06 B2 10,000 9,100
10.875%, 3/31/00 Ba3 10,000 10,250
------------
SECTOR TOTAL 45,808
------------
- ------------------------------------------------------------------------------------------
MEDIA & COMMUNICATIONS (13.7%)
American Radio Systems
9.00%, 2/1/06 B2 8,000 7,620
CBS Inc.
7.625%, 1/1/02 Ba1 15,000 14,532
Chancellor Broadcasting
9.375%, 10/1/04 B3 17,000 16,405
EZ Communications
9.75%, 12/1/05 B2 10,000 9,800
Infinity Broadcasting Corp.
10.375%, 3/15/02 Ba3 15,000 15,825
Jacor Communications Inc.
10.125%, 6/15/06 B2 10,000 10,050
MobileMedia Corp.
9.375%, 11/1/07 B3 25,000 22,063
Paging Network Inc.
8.875%, 2/1/06 B2 19,000 17,385
10.125%, 8/1/07 B2 30,000 29,775
Rogers Cantel Mobile
11.125%, 7/15/02 B2 20,000 21,050
Time Warner Inc.
7.48%, 1/15/08 Ba1 16,000 14,929
9.125%, 1/15/13 Ba1 30,000 31,231
9.15%, 2/1/23 Ba1 35,000 36,243
Turner Broadcasting
System
7.40%, 2/1/04 Ba2 25,000 23,896
8.375%, 7/1/13 Ba2 20,000 19,322
Viacom International
8.00%, 7/7/06 B1 85,000 77,775
Westinghouse
Electric Corp.
6.875%, 9/1/03 Ba1 13,000 11,895
8.375%, 6/15/02 Ba1 20,000 19,839
8.875%, 6/1/01 Ba1 15,000 15,245
World Color Press
9.125%, 3/15/03 B1 15,000 14,475
Young Broadcasting
11.75%, 11/15/04 B2 6,750 7,088
------------
SECTOR TOTAL 436,443
------------
- ------------------------------------------------------------------------------------------
METAL (5.0%)
AK Steel Holding Corp.
10.75%, 4/1/04 Ba2 32,000 34,640
Acme Metals
12.50%, 8/1/02 B1 10,000 10,100
Algoma Steel Inc.
12.375%, 7/15/05 B1 10,000 9,900
Armco Steel
9.375%, 11/1/00 B2 12,000 11,640
11.375%, 10/15/99 B2 10,000 10,250
Bethlehem Steel Corp.
10.375%, 9/1/03 B1 10,500 10,920
GS Technology Inc.
12.25%, 10/1/05 B2 12,500 12,844
Kaiser Aluminum
International
9.875%, 2/15/02 B1 8,235 8,070
NS Group Inc.
13.50%, 7/15/03 B3 8,000 7,780
Northwestern Steel & Wire
9.50%, 6/15/01 B1 11,500 11,069
Oregon Steel Mills
11.00%, 6/15/03 B1 7,000 7,315
Ryerson Tull, Inc.
9.125%, 7/15/06 Ba1 10,000 10,025
</TABLE>
7
<PAGE> 40
<TABLE>
<CAPTION>
Face Market
HIGH YIELD CORPORATE Rating Amount Value
PORTFOLIO (continued) (Moody's) (000) (000)+
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weirton Steel Corp.
10.875%, 10/15/99 B2 $ 2,595 $ 2,660
11.50%, 3/1/98 B2 2,707 2,815
Wheeling-Pittsburgh Corp.
9.375%, 11/15/03 B1 8,440 7,807
--------------
SECTOR TOTAL 157,835
--------------
- -------------------------------------------------------------------------------------------
PAPER (13.0%)
Container Corp. of America
9.75%, 4/1/03 B1 50,000 49,500
10.75%, 5/1/02 B1 3,000 3,105
Doman Industries, Ltd.
8.75%, 3/15/04 Ba3 20,000 18,000
Domtar Inc.
8.75%, 8/1/06 Ba1 15,000 15,019
Fort Howard Corp.
8.25%, 2/1/02 B1 10,000 9,550
9.00%, 2/1/06 B2 25,000 23,875
9.25%, 3/15/01 B1 49,500 49,748
Quno Corp.
9.125%, 5/15/05 Ba2 15,000 14,550
Rainy River
Forest Products
10.75%, 10/15/01 Ba1 11,000 11,578
Repap New Brunswick
9.875%, 7/15/00 B1 10,000 9,850
10.625%, 4/15/05 B3 35,000 33,250
Repap Wisconsin
9.875%, 5/1/06 Caa 10,000 9,150
Riverwood International Corp.
10.25%, 4/1/06 B2 20,000 19,700
10.875%, 4/1/08 B3 25,000 24,375
SD Warren Co.
12.00%, 12/15/04 B1 37,500 39,750
Stone Consolidated Corp.
10.25%, 12/12/00 Ba1 10,000 10,338
Stone Container Corp.
9.875%, 2/1/01 B1 70,000 68,250
Tembec Finance Corp.
9.875%, 9/30/05 B1 5,000 4,650
--------------
SECTOR TOTAL 414,238
--------------
- -------------------------------------------------------------------------------------------
UTILITIES (5.9%)
Amerigas Partners
10.125%, 4/15/07 Ba2 10,000 10,200
Cleveland Electrical
Illumination
9.50%, 5/15/05 Ba2 24,225 23,658
El Paso Electric Co.
8.25%, 2/1/03 Ba3 15,000 14,550
8.90%, 2/1/06 Ba3 23,000 22,713
9.40%, 5/1/11 Ba3 28,000 27,930
First Public Venture Funding
10.15%, 1/15/16 B1 20,000 21,050
Long Island Lighting Co.
9.00%, 11/1/22 Ba3 20,000 18,562
Midland Cogeneration
Venture
11.75%, 7/23/05 B2 25,000 25,996
Niagara Mohawk
Power Corp.
6.875%, 4/1/03 Ba3 10,000 8,698
Texas-New Mexico Power
10.75%, 9/15/03 B1 14,000 14,630
--------------
SECTOR TOTAL 187,987
--------------
- -------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,899,135) 2,872,636
- -------------------------------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (6.3%)
- -------------------------------------------------------------------------------------------
U.S. TREASURY NOTES
4.75%, 9/30/98 50,000 48,531
6.25%, 5/31/00 50,000 49,562
6.50%, 5/31/01 50,000 49,844
6.75%, 5/31/99 50,000 50,461
- -------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
& AGENCY OBLIGATIONS
(Cost $199,879) 198,398
- -------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.5%)
- -------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations in
a Pooled Cash Account
5.62%, 8/1/96
(Cost $80,690) 80,690 80,690
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.3%)
(Cost $3,179,704) 3,151,724
- -------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.7%)
- -------------------------------------------------------------------------------------------
Other Assets--Notes C and G 207,021
Liabilities--Note G (184,419)
--------------
22,602
- -------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------
Applicable to 418,434,295 outstanding
$.001 par value shares
(authorized 700,000,000 shares) $3,174,326
- -------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $7.59
===========================================================================================
</TABLE>
+ See Note A to Financial Statements.
8
<PAGE> 41
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- -----
<S> <C> <C>
PAID IN CAPITAL $3,293,108 $7.87
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (90,802) (.22)
UNREALIZED DEPRECIATION OF
INVESTMENTS--NOTE F (27,980) (.06)
- -------------------------------------------------------------------------
NET ASSETS $3,174,326 $7.59
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (77.1%)
- ------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES (2.1%)
Ford Credit Auto Loan Master Trust
6.50%, 8/15/02 Aaa $ 4,000 $ 3,936
NationsBank Credit Card
Master Trust Series
6.45%, 4/15/03 Aaa 5,000 4,933
Standard Credit Card
Master Trust
8.25%, 11/7/03 Aaa 1,800 1,886
--------
SECTOR TOTAL 10,755
--------
- ------------------------------------------------------------------------------------------
FINANCE--AUTOMOBILE (1.1%)
Ford Motor Credit Corp.
5.867%, 11/1/97(1) A1 1,000 1,001
6.25%, 12/8/05 A1 2,000 1,835
6.75%, 5/15/05 A1 1,000 953
7.50%, 1/15/03 A1 1,000 1,014
7.75%, 11/15/02 A1 1,000 1,028
--------
SECTOR TOTAL 5,831
--------
- ------------------------------------------------------------------------------------------
FINANCE--BANKS (10.8%)
Banc One Corp.
9.875%, 3/1/09 A1 3,690 4,368
Bank of New York Co.
6.625%, 6/15/03 A2 5,000 4,837
CoreStates Capital Corp.
9.625%, 2/15/01 A2 2,500 2,751
First Bank N.A.
6.00%, 10/15/03 A2 4,200 3,903
First Interstate Bancorp
9.90%, 11/15/01 A2 3,400 3,808
10.875%, 4/15/01 A2 1,000 1,146
MBNA America
6.875%, 6/1/05 A3 6,000 5,723
7.25%, 9/15/02 A3 1,000 997
Meridian Bancorp
6.625%, 3/15/03 Baa1 3,000 2,901
Southern National Corp.
7.05%, 5/23/03 A2 5,000 4,954
Sovereign Bancorp
6.75%, 7/1/00 BBB-(2) 2,240 2,190
Summit Bancorp
8.625%, 12/10/02 Baa1 3,000 3,203
Summit Bank
6.75%, 6/15/03 A3 4,500 4,358
U.S. Bancorp
7.50%, 6/1/26 A3 10,000 10,100
--------
SECTOR TOTAL 55,239
--------
- ------------------------------------------------------------------------------------------
FINANCE--CONSUMERS (1.0%)
Norwest Financial, Inc.
7.50%, 4/15/05 Aa3 5,000 5,047
--------
- ------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 42
<TABLE>
<CAPTION>
INTERMEDIATE- Face Market
TERM CORPORATE Rating Amount Value
PORTFOLIO (continued) (Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--DIVERSIFIED (7.8%)
Associates Corp. of
North America
7.54%, 4/14/04 Aa3 $ 3,000 $ 3,036
7.50%, 5/10/06 Aa3 5,000 5,017
6.375%, 11/15/05 Aa3 5,000 4,685
7.875%, 9/30/01 Aa3 2,000 2,072
Caterpillar Financial Services
5.70%, 5/9/97(1) A2 1,000 1,001
Comdisco Inc.
5.75%, 2/15/01 Baa2 7,000 6,670
Finova Capital Corp.
6.75%, 11/15/04 Baa1 5,000 4,759
General Electric Capital Corp.
8.50%, 7/24/08 Aaa 6,100 6,678
8.70%, 2/15/03 Aaa 1,000 1,083
Pitney Bowes Inc.
6.625%, 6/1/02 Aa3 5,000 4,923
---------
SECTOR TOTAL 39,924
---------
- ------------------------------------------------------------------------------------------
FINANCE--INSURANCE (7.7%)
Harleysville Group
6.75%, 11/15/03 Baa2 7,500 7,107
Horace Mann Educators Corp.
6.625%, 1/15/06 A3 3,500 3,262
NAC RE Corp.
7.15%, 11/15/05 Baa2 5,000 4,835
Orion Capital
9.125%, 9/1/02 Baa2 5,000 5,422
Progressive Corp.
6.60%, 1/15/04 A3 1,000 955
Reinsurance Group of
America Inc.
7.25%, 4/1/06 A(2) 5,000 4,868
Travelers/Aetna Property
Casualty Corp.
6.75%, 4/15/01 A2 5,000 4,948
USF&G Corp.
7.125%, 6/1/05 Baa2 5,000 4,848
8.375%, 6/15/01 Baa2 3,000 3,141
---------
SECTOR TOTAL 39,386
---------
- ------------------------------------------------------------------------------------------
FINANCE--OTHER (5.9%)
Dean Witter Discover & Co.
6.30%, 1/15/06 A2 5,000 4,592
Donaldson Lufkin &
Jenrette Inc.
5.625%, 2/15/16 Baa1 3,000 2,839
6.875%, 11/1/05 Baa1 5,000 4,739
Goldman Sachs Group
7.80%, 7/15/02 A1 5,000 5,145
Merrill Lynch & Co.
6.64%, 9/19/02 A1 5,000 4,876
Morgan Stanley Group
5.75%, 2/15/01 A1 2,000 1,902
9.375%, 6/15/01 A1 1,000 1,092
Smith Barney Holdings
6.875%, 6/15/05 A3 5,000 4,790
---------
SECTOR TOTAL 29,975
---------
- ------------------------------------------------------------------------------------------
INDUSTRIAL (31.2%)
American Airlines
9.71%, 1/2/07* A3 4,911 5,383
American Stores
7.40%, 5/15/05 Baa3 3,000 2,973
9.125%, 4/1/02 Baa3 4,000 4,333
Anheuser Busch Co.
6.75%, 6/1/05 A1 2,000 1,935
8.75%, 12/1/99 A1 2,300 2,432
Applied Materials
8.00%, 9/1/04 Baa2 2,000 2,060
The Boeing Co.
8.10%, 11/15/06 A1 2,000 2,130
Burlington Northern
Railroad Co.
7.33%, 6/23/10* Aa3 5,000 5,068
CSC Enterprises
6.80%, 4/15/99 A3 1,000 1,002
CSX Corp.
9.50%, 8/1/00 A3 1,000 1,085
Cardinal Health Inc.
6.00%, 1/15/06 A3 8,845 8,041
6.50%, 2/15/04 A3 1,000 951
COMPAQ Computer Corp.
7.25%, 3/15/04 Baa2 3,500 3,442
Cox Communications, Inc.
6.50%, 11/15/02 Baa2 2,000 1,925
Delta Airlines Inc.
8.54%, 1/2/07* Baa1 3,048 3,157
The Walt Disney Co.
6.375%, 3/30/01 A1 5,000 4,893
R. R. Donnelley & Sons Co.
7.96%, 11/8/99 A1 2,000 2,062
Eastman Chemical Co.
6.375%, 1/15/04 A3 1,500 1,419
Electronic Data Systems Corp.
6.85%, 5/15/00 A1 5,000 4,998
Federal Express
9.875%, 4/1/02 Baa2 2,000 2,241
10.125%, 7/15/03 Baa2 2,000 2,283
General Motors Corp.
8.875%, 6/11/01 A3 1,000 1,071
9.22%, 7/18/01 A3 1,000 1,086
9.625%, 12/1/00 A3 3,000 3,288
Hoechst-Celanese
6.125%, 2/1/04 A2 2,000 1,866
</TABLE>
10
<PAGE> 43
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IBP Inc.
6.125%, 2/1/06 A3 $ 4,000 $ 3,665
International Paper Co.
7.00%, 6/1/01 A3 5,000 5,003
Jet Equipment Trust
7.63%, 8/15/12* A1 2,946 2,957
Eli Lilly & Co.
8.375%, 12/1/06 Aa3 2,000 2,161
Litton Industries Inc.
6.98%, 3/15/36 Baa3 5,000 4,840
Lockheed Martin Corp.
7.25%, 5/15/06 A3 5,000 4,960
9.375%, 10/15/99 A3 1,125 1,207
McDonnell Douglas Corp.
9.25%, 4/1/02 Baa2 7,102 7,775
News America Holdings
8.50%, 2/15/05 Baa3 5,000 5,234
Northwest Airlines
8.07%, 1/2/15* Baa1 3,500 3,556
Occidental Petroleum Corp.
10.125%, 11/15/01 Baa3 3,000 3,391
PepsiCo, Inc.
7.48%, 4/27/02 A1 2,000 1,985
Phillips Petroleum Co.
9.00%, 6/1/01 Baa1 1,000 1,078
Praxair Inc.
6.70%, 4/15/01 A3 5,000 4,942
6.85%, 6/15/05 A3 1,000 960
Quaker State
6.625%, 10/15/05 Baa1 2,000 1,880
Rockwell International
8.375%, 2/15/01 Aa3 2,361 2,489
Sears, Roebuck & Co.
8.52%, 5/13/02 A2 1,000 1,059
Tenneco Corp.
10.00%, 3/15/08 Baa2 2,000 2,391
Texaco Capital Corp.
7.70%, 12/15/99 A1 1,065 1,094
Texas Instruments Inc.
6.125%, 2/1/06 A3 3,000 2,748
9.00%, 3/15/01 A3 1,600 1,721
9.25%, 6/15/03 A3 2,000 2,207
Timken Co.
7.30%, 8/13/02 A3 2,500 2,517
Union Pacific Railroad Co.
Equipment Trust
6.12%, 2/1/04 Aa3 2,000 1,849
Upjohn Co. Employee
Stock Ownership Trust
9.79%, 2/1/04* A1 6,996 7,713
WMX Technologies
7.10%, 8/1/26 A1 5,000 5,033
Western Atlas, Inc.
7.875%, 6/15/04 A3 2,000 2,064
---------
SECTOR TOTAL 159,603
---------
- ------------------------------------------------------------------------------------------
UTILITIES (9.5%)
Airtouch Communications Inc.
7.125%, 7/15/01 Baa2 5,000 5,011
Arizona Public Service
8.125%, 3/15/02 Baa1 4,000 4,159
Chesapeake & Potomac
Telephone Co. (MD)
6.00%, 5/1/03 Aa3 4,604 4,345
Colorado Interstate Gas
10.00%, 6/15/05 Baa2 5,000 5,798
Delmarva Power & Light
6.40%, 7/1/03 A2 5,000 4,786
GTE Northwest Inc.
7.375%, 5/1/01 A3 4,000 4,059
MCI Communications Corp.
7.50%, 8/20/04 A2 1,500 1,524
NGC Corp.
6.75%, 12/15/05 Baa3 3,500 3,318
Panhandle Eastern Corp.
7.25%, 5/15/05 Baa2 5,000 4,910
Pennsylvania Power &
Light Co.
6.875%, 3/1/04 A3 5,000 4,835
Southwestern Bell Telephone
5.77%, 10/14/03 Aa3 6,000 5,513
---------
SECTOR TOTAL 48,258
---------
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $402,082) 394,018
- ------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (6.1%)
- ------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSN.
5.82%, 11/4/03 2,900 2,672
(Pooled Mortgage Notes)
6.834%, 7/1/03 10,000 9,855
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
8.17%, 1/15/07* 4,375 4,591
U.S. TREASURY NOTES
6.50%, 5/31/01 2,500 2,492
7.00%, 7/15/06 2,000 2,029
7.25%, 8/15/04 2,000 2,062
7.875%, 11/15/04 7,000 7,490
- ------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $30,933) 31,191
- ------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 44
<TABLE>
<CAPTION>
INTERMEDIATE- Face Market
TERM CORPORATE Rating Amount Value
PORTFOLIO (continued) (Moody's) (000) (000)+
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN BONDS
(U.S. DOLLAR DENOMINATED) (14.4%)
- -------------------------------------------------------------------------------------------
ABN Amro Bank NV
7.55%, 6/28/06 Aa2 $ 5,000 $ 5,056
Aegon NV
8.00%, 8/15/06 A1 5,000 5,199
Australia & New Zealand
Banking Group Ltd.
6.25%, 2/1/04 A2 1,000 934
Bank of Nova Scotia
6.25%, 9/15/08 A1 1,000 904
Bayer Corp.
6.50%, 10/1/02 Aa2 6,000 5,845
Dresdner Bank
6.625%, 9/15/05 Aa1 5,000 4,768
Republic of Indonesia
7.75%, 8/1/06 Baa3 5,000 4,943
Japan Finance Corp.
6.85%, 4/15/06 Aaa 5,000 4,879
Province of Manitoba
7.75%, 2/1/02 A1 4,000 4,144
8.75%, 5/15/01 A1 3,000 3,222
Noranda, Inc.
8.00%, 6/1/03 Baa2 1,500 1,542
8.125%, 6/15/04 Baa2 1,510 1,556
8.625%, 7/15/02 Baa2 1,000 1,062
Placer Dome
7.125%, 5/15/03 Baa2 5,000 4,911
Republic of Portugal
5.75%, 10/8/03 A1 2,000 1,865
Santander Financial
Issuances Ltd.
7.25%, 5/30/06 A1 5,000 4,899
Province of Saskatchewan
7.125%, 3/15/08 A3 5,000 4,901
Societe Generale
7.40%, 6/1/06 Aa3 5,000 4,961
Swiss Bank Corp.
6.75%, 7/15/05 Aa2 4,000 3,850
Toronto Dominion Bank
6.45%, 1/15/09 Aa3 2,500 2,303
Westdeutsche Landesbank
6.75%, 6/15/05 Aa1 2,000 1,925
- -------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $74,441) 73,669
- -------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL SECURITIES (.2%)
- -------------------------------------------------------------------------------------------
Mississippi Business
Finance Corp.
(Guaranteed by
Kimberly-Clark Corp.)
7.55%, 6/1/04
(Cost $1,000) Aa2 1,000 1,016
- -------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.7%)
- -------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.62%, 8/1/96
(Cost $13,850) 13,850 13,850
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.5%)
(Cost $522,306) 513,744
- -------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.5%)
- -------------------------------------------------------------------------------------------
Other Assets--Notes C and G 17,982
Liabilities--Note G (20,806)
-----------
(2,824)
- -------------------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 53,633,506 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $510,920
- -------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.53
===========================================================================================
</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 principle payments.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- -----
<S> <C> <C>
PAID IN CAPITAL $520,492 $9.70
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (1,010) (.01)
UNREALIZED DEPRECIATION OF
INVESTMENTS--NOTE F (8,562) (.16)
- -------------------------------------------------------------------------------------------
NET ASSETS $510,920 $9.53
- -------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 45
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- -------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (95.5%)
- -------------------------------------------------------------------------
U.S. TREASURY BONDS
10.375%, 11/15/12 $221,250 $ 279,224
10.75%, 2/15/03 4,000 4,852
10.75%, 5/15/03 30,600 37,294
11.125%, 8/15/03 9,000 11,199
11.625%, 11/15/02 51,250 64,198
11.625%, 11/15/04 27,300 35,605
11.875%, 11/15/03 20,700 26,758
U.S. TREASURY NOTES
5.75%, 8/15/03 33,700 31,947
6.125%, 9/30/00 8,500 8,378
6.25%, 8/31/00 3,500 3,466
6.25%, 2/15/03 28,300 27,681
7.25%, 5/15/04 196,665 202,779
7.25%, 8/15/04 35,500 36,593
7.50%, 2/15/05 66,500 69,648
7.75%, 12/31/99 52,000 54,031
7.875%, 11/15/04 85,000 90,950
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
6.00%, 3/15/05* 18,229 17,539
7.46%, 12/15/05* 31,804 32,408
8.21%, 12/29/06* 29,308 30,738
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
7.02%, 9/1/04* 15,052 15,162
7.39%, 6/26/06* 5,117 5,199
7.80%, 8/15/06* 9,416 9,715
8.17%, 1/15/07* 7,875 8,264
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
5.735%, 1/15/02* 20,900 20,362
5.94%, 6/20/06* 20,000 19,036
6.08%, 8/15/04* 22,500 21,632
- -------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $1,175,952) 1,164,658
- -------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.2%)
- -------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.62%, 8/1/96
(Cost $38,553) $ 38,553 $ 38,553
- -------------------------------------------------------------------------
TOTAL INVESTMENTS (98.7%)
(Cost $1,214,505) 1,203,211
- -------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.3%)
- -------------------------------------------------------------------------
Other Assets--Notes C and G 77,712
Liabilities--Note G (61,710)
-------------
16,002
- -------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------
Applicable to 119,315,437 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $1,219,213
- -------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.22
=========================================================================
</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, 1996, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- -----
<S> <C> <C>
PAID IN CAPITAL $1,259,850 $10.56
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (29,343) (.25)
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE F (11,294) (.09)
- --------------------------------------------------------------------------
NET ASSETS $1,219,213 $10.22
- --------------------------------------------------------------------------
</TABLE>
13
<PAGE> 46
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
FEDERAL PORTFOLIO (000) (000)+
- ------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (95.8%)
- ------------------------------------------------------------------------
FEDERAL HOME LOAN BANK
5.00%, 10/20/00 $ 31,000 $ 29,605
5.215%, 7/8/98 4,750 4,660
5.257%, 7/25/00(1) 25,000 24,850
5.43%, 2/25/99 10,000 9,764
6.10%, 3/13/03 5,000 4,788
6.735%, 6/28/00 13,800 13,839
7.64%, 9/21/98 19,900 20,379
FEDERAL HOME LOAN MORTGAGE CORP.
6.40%, 8/1/00 15,000 14,876
6.50%, 6/8/00 10,200 10,093
(Collateralized Mortgage Obligations)
6.50%, 3/15/00* 25,249 24,996
(Pooled Mortgage Notes)
5.50%, 2/5/98 4,608 4,530
5.50%, 5/1/99 9,121 8,926
5.50%, 11/1/00 15,464 14,875
5.50%, 1/1/01 12,439 11,966
6.00%, 7/1/98 11,410 11,303
6.00%, 9/1/98 28,370 28,092
6.00%, 10/1/98 22,744 22,531
6.00%, 1/1/99 6,370 6,294
6.00%, 3/1/99 7,432 7,343
6.00%, 5/1/00 10,504 10,332
6.00%, 9/1/00 11,355 11,112
6.00%, 11/1/00 47,471 46,308
FEDERAL NATIONAL MORTGAGE ASSN.
4.70%, 9/10/98 36,200 34,987
4.94%, 10/30/98 20,000 19,350
5.23%, 11/25/98 67,535 65,899
5.33%, 6/26/98 17,535 17,163
5.40%, 3/12/99 25,000 24,370
5.41%, 2/13/01 10,000 9,481
5.45%, 10/10/03 10,000 9,169
5.72%, 3/8/01 12,000 11,529
6.07%, 3/15/01 44,800 43,279
6.08%, 9/25/00 10,000 9,781
6.18%, 3/15/01 40,000 39,156
6.29%, 7/8/98 80,000 79,966
6.36%, 8/16/00 9,000 8,902
6.375%, 10/13/00 9,000 8,847
6.74%, 5/7/01 10,000 9,903
7.00%, 7/13/98 82,150 83,177
7.23%, 9/15/99 15,000 15,282
7.40%, 7/1/04 15,000 15,370
8.15%, 5/11/98 20,000 20,597
8.45%, 7/12/99 17,845 18,760
11.50%, 11/1/99 46,000 52,468
(Collateralized Mortgage Obligations)
5.50%, 9/25/00* 19,405 19,038
7.50%, 3/25/05* 2,571 2,565
(Pooled Mortgage Notes)
6.00%, 1/1/01 46,638 45,627
6.00%, 5/1/04 5,224 5,083
BANAMEX EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
4.91%, 10/15/98* 18,345 18,017
6.46%, 4/15/99* 14,580 14,554
BANCO NACIONAL DE
COMERCIO EXTERIOR
(U.S. Government Guaranteed)
5.10%, 4/15/98* 4,604 4,561
5.295%, 10/15/97* 7,965 7,922
5.48%, 10/15/97* 4,050 4,034
5.95%, 4/15/97* 3,400 3,401
6.82%, 4/15/99* 3,351 3,369
8.038%, 1/15/00* 10,500 10,792
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
4.61%, 9/1/98* 12,000 11,798
5.41%, 3/1/99* 5,318 5,257
5.69%, 2/1/98* 13,047 13,010
5.79%, 1/1/97* 1,681 1,682
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.43%, 6/15/98* 13,894 13,629
4.743%, 9/15/98* 1,878 1,848
4.813%, 12/15/98* 9,602 9,436
6.61%, 9/15/99* 16,574 16,622
GOVERNMENT LOAN TRUST AGENCY
FOR INTERNATIONAL DEVELOPMENT
(U.S. Government Guaranteed)
7.75%, 4/1/98 15,581 15,806
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.86%, 4/1/98* 6,320 6,253
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
7.815%, 11/15/01* 6,875 7,064
8.75%, 11/15/01* 10,313 10,837
PRIVATE EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
5.75%, 4/30/98 9,800 9,714
8.95%, 10/31/97 7,575 7,829
9.45%, 12/31/99 33,580 36,402
U.S. EXIM TRUST
(U.S. Government Guaranteed)
5.20%, 8/25/97* 10,800 10,762
U.S. GOVERNMENT TRUST CERTIFICATES
(U.S. Government Guaranteed)
7.45%, 9/25/96* 905 907
7.50%, 8/15/00* 9,601 9,768
8.00%, 5/15/98* 10,418 10,582
</TABLE>
14
<PAGE> 47
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -------------------------------------------------------------------------
<S> <C> <C>
9.25%, 11/15/96* $ 771 $ 779
9.40%, 8/23/96* 458 463
- -------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $1,279,262) 1,278,309
- -------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.8%)
- -------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.62%, 8/1/96
(Cost $50,736) 50,736 50,736
- -------------------------------------------------------------------------
TOTAL INVESTMENTS (99.6%)
(Cost $1,329,998) 1,329,045
- -------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.4%)
- -------------------------------------------------------------------------
Other Assets--Notes C and G 24,879
Liabilities--Note G (20,192)
---------------
4,687
- -------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------
Applicable to 132,956,346 outstanding
$.001 par value shares
(authorized 300,000,000 shares) $1,333,732
- -------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.03
=========================================================================
</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, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- ------
<S> <C> <C>
PAID IN CAPITAL $1,367,637 $10.29
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (32,952) (.25)
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE F (953) (.01)
- ---------------------------------------------------------------------------
NET ASSETS $1,333,732 $10.03
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- ------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (98.4%)
- ------------------------------------------------------------------------
U.S. TREASURY NOTES
5.625%, 10/31/97 $ 227,200 $ 226,064
5.625%, 11/30/00 15,000 14,489
5.875%, 3/31/99 18,500 18,289
6.25%, 8/31/00 15,000 14,855
6.75%, 6/30/99 124,000 125,143
6.875%, 8/31/99 44,000 44,529
7.125%, 9/30/99 82,600 84,200
7.75%, 11/30/99 72,000 74,745
7.75%, 12/31/99 207,500 215,605
7.75%, 1/31/00 3,000 3,117
7.875%, 4/15/98 20,000 20,547
BARIVEN, SA EXIMBANK
GUARANTEED EXPORT FINANCING
(U.S. Government Guaranteed)
6.277%, 4/15/01*(1) 17,000 16,854
BANAMEX EXPORT FUNDING
(U.S. Government Guaranteed)
4.91%, 10/15/98* 3,000 2,946
BANCO NACIONAL DE
COMERCIO EXTERIOR
(U.S. Government Guaranteed)
4.62%, 10/15/98* 10,000 9,817
5.95%, 4/15/97* 2,160 2,161
6.475%, 5/15/00* 10,400 10,385
6.82%, 4/15/99* 4,226 4,308
8.038%, 1/15/00* 10,500 10,792
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
4.85%, 11/1/97* 3,600 3,568
5.69%, 2/1/98* 4,800 4,786
5.79%, 1/1/97* 500 500
7.75%, 1/1/00* 9,333 9,532
GOVERNMENT TRUST
CERTIFICATE (ISRAEL)
(U.S. Government Guaranteed)
8.55%, 11/15/97* 842 854
GUARANTEED EXPORT
CERTIFICATES
(U.S. Government Guaranteed)
4.743%, 9/15/98* 13,000 12,793
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.77%, 11/1/97* 5,010 4,962
PRIVATE EXPORT FUNDING CORP.
(U.S. Government Guaranteed)
5.65%, 3/15/03* 7,443 7,236
</TABLE>
15
<PAGE> 48
<TABLE>
<CAPTION>
Face Market
SHORT-TERM U.S. TREASURY Amount Value
PORTFOLIO (continued) (000) (000)+
- ------------------------------------------------------------------------
<S> <C> <C>
SMALL BUSINESS ADMINISTRATION
(U.S. Government Guaranteed)
6.95%, 6/1/97 $ 6,000 $ 6,036
- ------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $954,501) 949,113
- ------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.6%)
- ------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.62%, 8/1/96
(Cost $25,387) 25,387 25,387
- ------------------------------------------------------------------------
TOTAL INVESTMENTS (101.0%)
(Cost $979,888) 974,500
- ------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.0%)
- ------------------------------------------------------------------------
Other Assets--Note C 13,679
Liabilities (23,589)
----------
(9,910)
- ------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------
Applicable to 95,697,130 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $964,590
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.08
========================================================================
</TABLE>
+ See Note A to Financial Statements.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(1) Restricted security representing 1.7% of Net Assets at July 31, 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- ------
<S> <C> <C>
PAID IN CAPITAL $978,335 $10.23
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (8,357) (.09)
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE F (5,388) (.06)
- --------------------------------------------------------------------------
NET ASSETS $964,590 $10.08
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
SHORT-TERN Rating Amount Value
CORPORATE PORTFOLIO (Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (76.7%)
- ------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES (9.5%)
Carco Auto Loan
Master Trust
7.875%, 7/15/99 Aaa $ 57,000 $ 57,890
The Chase Manhattan Corp.
Grantor Trust
6.00%, 9/17/01* Aaa 26,903 26,803
Discover Card Master Trust
6.70%, 2/16/00 Aaa 5,000 5,020
First Chicago Master Trust
6.25%, 8/15/99 Aaa 10,500 10,474
Ford Credit Auto Loan
Master Trust
6.50%, 8/15/02* Aaa 35,000 34,442
Household Credit Card
Master Trust
7.00%, 12/15/99* Aaa 79,775 80,473
MBNA Credit Card
Master Trust
6.20%, 8/15/99 Aaa 10,000 9,975
NationsBank Credit Card
Master Trust
4.75%, 9/15/98 Aaa 42,500 42,341
6.45%, 4/15/03* Aaa 55,690 54,942
Series 1991 A Mortgage Trust
(Prudential Support Agreement)
7.20%, 12/15/02 Aa2 2,452 2,418
Standard Credit Card
Master Trust
6.75%, 6/7/00* Aaa 21,000 21,105
7.875%, 1/7/00* Aaa 16,100 16,507
Toyota Auto Grantor Trust
5.85%, 3/15/01* Aaa 21,152 21,040
-----------
SECTOR TOTAL 383,430
-----------
- ------------------------------------------------------------------------------------------
FINANCE--AUTOMOBILE (3.2%)
Chrysler Financial Corp.
7.81%, 2/23/98 A3 15,000 15,277
Ford Motor Credit Corp.
5.37%, 9/8/98 A1 14,475 14,124
5.83%, 6/29/98 A1 25,000 24,703
5.867%, 11/1/97(1) A1 30,000 30,015
7.47%, 7/29/99 A1 11,800 11,969
General Motors
Acceptance Corp.
6.00%, 12/30/98 A3 5,000 4,925
8.40%, 10/15/99 A3 5,000 5,229
8.50%, 12/21/98 A3 20,000 20,761
-----------
SECTOR TOTAL 127,003
-----------
- ------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 49
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--BANKS (10.2%)
Advanta Corp.
6.84%, 9/23/96 Baa3 $ 15,000 $ 15,016
Advanta National Bank
6.03%, 10/31/97 Baa2 30,000 29,820
6.71%, 9/30/99 Baa2 6,000 5,941
Bank of New York
7.875%, 11/15/02 A2 15,0000 15,477
Bank South Inc.
10.20%, 6/1/99 A3 12,600 13,557
Barnett Banks Inc.
6.25%, 7/28/98 A2 36,800 36,587
Capital One Bank
6.49%, 8/15/97 Baa3 9,000 8,987
6.66%, 8/17/98 Baa3 5,000 4,975
8.625%, 1/15/97 Baa3 11,900 12,023
The Chase Manhattan Corp.
8.00%, 6/15/99 A2 19,450 20,045
10.00%, 6/15/99 A2 20,840 22,540
First Fidelity Bancorp
9.625%, 8/15/99 A2 23,540 25,315
First Interstate Bancorp
9.90%, 11/15/01 A2 9,000 10,080
First Union Corp.
9.45%, 6/15/99 A2 6,649 7,104
MBNA America Bank
7.12%, 4/12/99 A2 10,000 10,074
MBNA Corp.
6.875%, 10/1/99 A3 15,785 15,747
7.49%, 9/14/99 A3 6,600 6,698
Manufacturers Hanover Corp.
8.50%, 2/15/99 A2 9,272 9,652
Meridian Bancorp
6.625%, 6/15/00 A1 26,550 26,261
7.875%, 7/15/02 A2 5,650 5,838
Norwest Corp.
6.125%, 10/15/00 Aa3 6,000 5,832
6.75%, 5/12/00 Aa3 15,000 14,952
Security Pacific Corp.
9.75%, 5/15/99 A3 5,000 5,368
Southern National Corp.
7.05%, 3/23/03 A3 15,000 14,862
Summit Bancorp
8.625%, 12/10/02 Baa1 11,725 12,519
Wachovia Bank
5.35%, 11/13/98 Aa2 20,000 19,515
5.60%, 3/8/99 Aa2 25,000 24,399
Wachovia Corp.
7.00%, 12/15/99 A1 9,900 9,959
-----------
SECTOR TOTAL 409,143
-----------
- ------------------------------------------------------------------------------------------
FINANCE--CONSUMERS (1.2%)
Countrywide Funding
6.11%, 8/5/96 A3 5,000 5,000
7.85%, 3/3/97 A3 9,800 9,890
Sears Roebuck Acceptance Corp.
6.25%, 10/6/98 A2 35,000 34,696
-----------
SECTOR TOTAL 49,586
-----------
- ------------------------------------------------------------------------------------------
FINANCE--DIVERSIFIED (5.7%)
Associates Corp.
7.55%, 9/1/99 Aa3 10,000 10,210
8.25%, 12/1/99 Aa3 25,000 26,043
8.37%, 12/21/99 Aa3 19,000 19,879
8.40%, 11/29/99 Aa3 10,000 10,496
8.625%, 6/15/97 Aa3 6,000 6,120
CIT Group Holdings
6.00%, 2/15/97* Aa3 21,315 21,323
Caterpillar Financial Services
6.70%, 5/9/97(1) A2 21,000 21,012
Comdisco Inc.
6.10%, 1/8/99 Baa2 15,000 14,817
6.83%, 7/30/99 Baa2 15,000 14,994
Finova Capital Corp.
6.375%, 4/15/99 Baa1 21,000 20,821
6.38%, 4/15/99 Baa1 25,000 24,764
9.125%, 2/27/02 Baa1 8,000 8,684
General Electric
Capital Corp.
6.20%, 3/15/97* Aaa 24,848 24,857
8.10%, 1/26/99 Aaa 5,000 5,189
-----------
SECTOR TOTAL 229,209
-----------
- ------------------------------------------------------------------------------------------
FINANCE--INSURANCE (1.2%)
Travelers/Aetna Property
Casualty Corp.
6.75%, 4/15/01 A2 34,000 33,648
USF&G Corp.
8.375%, 6/15/01 Baa2 14,100 14,761
-----------
SECTOR TOTAL 48,409
-----------
- ------------------------------------------------------------------------------------------
FINANCE--OTHER (8.4%)
Bear Stearns Co.
7.625%, 9/15/99 A2 10,000 10,203
7.625%, 4/15/00 A2 26,900 27,450
Dean Witter Discover & Co.
6.00%, 3/1/98 A2 11,000 10,934
6.25%, 3/15/00 A2 7,000 6,853
6.75%, 8/15/00 A2 15,000 14,898
Donaldson Lufkin &
Jenrette, Inc.
5.625%, 2/15/16 Baa1 12,000 11,355
</TABLE>
17
<PAGE> 50
<TABLE>
<CAPTION>
Face Market
SHORT-TERM CORPORATE Rating Amount Value
PORTFOLIO (continued) (Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goldman Sachs Group
6.025%, 1/25/99(1) A1 $ 14,000 $ 14,004
6.10%, 4/15/98 A1 30,000 29,754
6.875%, 9/15/99 A1 16,175 16,167
Lehman Brothers Holdings
5.75%, 2/15/98 Baa1 5,000 4,932
8.375%, 2/15/99 Baa1 5,000 5,156
Merrill Lynch & Co.
6.50%, 2/15/01 A1 25,000 24,533
6.64%, 9/19/02 A1 5,000 4,876
Morgan Stanley Group
5.75%, 2/15/01 A1 10,500 9,983
6.425%, 3/15/00 A1 15,000 14,765
6.70%, 5/1/01 A1 23,000 22,687
6.93%, 3/12/97* A1 12,000 12,060
PaineWebber Group
7.16%, 6/15/99 Baa1 25,000 25,086
Pitney Bowes Credit Corp.
7.43%, 4/15/97 Aa3 14,000 14,130
Smith Barney Holdings
5.50%, 1/15/99 A2 9,000 9,245
7.00%, 5/15/00 A2 15,500 15,511
7.98%, 3/1/00 A2 17,500 18,064
Tenneco Credit
9.625%, 8/15/01 Baa2 15,605 17,276
-----------
SECTOR TOTAL 339,922
-----------
- ------------------------------------------------------------------------------------------
INDUSTRIAL (30.2%)
Air Products & Chemicals
4.66%, 8/26/96 A1 5,000 4,996
Allied Corp.
0.00%, 9/15/98 A2 7,500 6,533
CBI Industries
7.53%, 8/26/99 Baa2 15,000 15,231
CSC Enterprises
6.80%, 4/15/99 A3 21,500 21,550
CSX Corp.
9.04%, 2/28/97 A3 8,500 8,640
The Coca-Cola Co.
7.875%, 9/15/98 Aa3 18,000 18,487
COMPAQ Computer Corp.
6.50%, 3/15/99 Baa2 40,600 40,262
Cox Communications, Inc.
6.375%, 6/15/00 Baa2 37,000 36,231
The Walt Disney Co.
6.375%, 3/30/01 A2 33,000 32,293
R.R. Donnelley & Sons Co.
7.27%, 10/20/97 A1 15,000 15,146
7.96%, 11/8/99 A1 40,000 41,249
Electronic Data
Systems Corp.
6.85%, 5/15/00 A1 18,000 17,992
Federal Express Co.
9.875%, 4/1/02 Baa2 8,195 9,182
10.00%, 9/1/98 Baa2 24,875 26,495
10.00%, 4/15/99 Baa2 6,255 6,731
Gannett Co.
5.25%, 3/1/98 A2 40,000 39,300
General Electric Co.
7.875%, 9/15/98 Aaa 15,000 15,391
General Motors Corp.
9.625%, 12/1/00 A3 26,990 29,585
Hertz Corp.
6.50%, 4/1/00 A3 5,000 4,924
8.30%, 2/2/98 A3 19,500 19,995
International Paper Co.
7.00%, 6/1/01 A3 10,000 10,005
7.40%, 3/4/97 A3 10,000 10,078
9.50%, 5/30/97 A3 5,000 5,128
Kellogg Co.
5.90%, 7/15/97 Aaa 30,565 30,516
Knight-Ridder, Inc.
8.50%, 9/1/01* A1 17,025 17,841
Lockheed Martin Corp.
5.65%, 4/1/97 A3 36,150 36,052
6.85%, 5/15/01 A3 47,000 46,731
McDonald's Corp.
8.375%, 10/29/99 Aa2 8,550 8,934
McDonnell Douglas Corp.
8.10%, 1/27/97 Baa2 10,000 10,103
8.11%, 1/30/97 Baa2 10,000 10,093
8.625%, 4/1/97 Baa2 32,141 32,653
Minnesota Mining &
Manufacturing Co.
6.25%, 3/29/99 Aaa 22,275 22,128
Mobil Oil Corp.
9.17%, 2/29/00* Aa2 58,869 61,700
News America
7.50%, 3/1/00 Baa3 30,000 30,359
9.125%, 10/15/99 Baa3 14,095 14,942
Occidental Petroleum Corp.
6.75%, 9/16/99 Baa3 6,000 5,968
8.50%, 11/9/01 Baa3 10,000 10,581
10.125%, 11/15/01 Baa3 2,000 2,261
J.C. Penney & Co., Inc.
5.375%, 11/15/98 A1 13,350 13,013
PepsiCo, Inc.
5.00%, 2/24/97 A1 32,000 31,814
7.48%, 4/27/02 A1 28,000 27,790
Phillips Petroleum Co.
7.66%, 4/9/97 Baa2 5,000 5,051
8.00%, 4/12/99 Baa2 4,000 4,117
Praxair, Inc.
6.70%, 4/15/01 A3 50,000 49,417
</TABLE>
18
<PAGE> 51
<TABLE>
<CAPTION>
Face Market
Rating Amount Value
(Moody's) (000) (000)+
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rockwell International
7.625%, 2/17/98 Aa3 $ 55,000 $ 55,962
8.875%, 9/15/99 Aa3 23,210 24,587
Sears, Roebuck & Co.
5.25%, 2/24/97 A2 10,000 9,968
9.12%, 1/10/97 A2 5,000 5,067
9.25%, 4/15/98 A2 13,100 13,664
Tenneco, Inc.
10.00%, 8/1/98 Baa2 14,000 14,868
Texaco Capital Corp.
6.87%, 6/30/97 A1 30,000 30,202
8.22%, 2/12/97 A1 15,000 15,179
8.65%, 1/30/98 A1 16,750 17,272
9.00%, 11/15/97 A1 8,000 8,256
Texas Instruments, Inc.
6.875%, 7/15/00 A3 5,000 4,994
9.00%, 7/15/99 A3 16,192 16,226
Union Carbide Corp.
7.00%, 8/1/99 Baa2 12,315 12,307
Union Oil of California
6.33%, 2/28/97 Baa2 20,000 20,035
6.38%, 2/18/97 Baa2 15,000 15,032
6.625%, 2/28/97 Baa2 15,000 15,047
8.97%, 3/6/98 Baa2 6,000 6,207
Union Pacific Railroad Co.
(Equipment Trust
Certificate)
6.99%, 12/24/99* Aa3 7,073 7,116
9.625%, 3/15/02 Aa3 18,350 18,708
-----------
SECTOR TOTAL 1,218,185
-----------
- ------------------------------------------------------------------------------------------
UTILITIES (7.1%)
Coastal Corp.
10.375%, 10/1/00 Baa3 25,000 27,894
Delmarva Power & Light
6.40%, 7/1/03 A2 14,000 13,401
Duquesne Light Co.
6.15%, 2/12/98 Baa1 5,000 4,966
Enron Corp.
8.10%, 12/15/96 Baa2 14,000 14,098
8.50%, 2/1/00 Baa2 20,000 20,233
Florida Gas Transmission
7.75%, 11/1/97 Baa2 6,000 6,092
8.14%, 11/1/99 Baa2 10,000 10,368
Florida Power & Light
5.50%, 7/1/99 Aa3 20,600 19,977
GTE North Inc.
5.50%, 2/15/99 A1 18,175 17,712
GTE Northwest Inc.
7.375%, 5/1/01 A2 4,000 4,059
GTE Southwest Inc.
5.82%, 12/1/99 A2 18,650 18,108
Idaho Power Co.
5.33%, 9/1/98 A2 4,500 4,389
Kern River Funding Corp.
6.42%, 3/31/01 A2 16,965 16,799
MCI Communications Corp.
6.25%, 3/23/99 A2 12,000 11,876
7.625%, 11/7/96 A2 14,250 14,307
MCN Investment Corp.
6.03%, 2/1/01 Baa2 4,000 3,842
6.82%, 5/13/99 Baa2 28,000 28,031
NYNEX Corp. Capital Funding
8.01%, 11/1/99 A3 15,000 15,505
8.10%, 11/1/99 A3 5,070 5,254
Texas Utilities Co.
6.375%, 8/1/97 Baa2 5,000 4,997
9.39%, 11/21/96 Baa2 5,850 5,910
United Telecom
9.75%, 4/1/00 Baa1 10,550 11,398
Wisconsin Power & Light
6.125%, 7/15/97 Aa2 5,000 4,997
-----------
SECTOR TOTAL 284,213
-----------
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $3,097,644) 3,089,100
- ------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (12.4%)
- ------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
(Pooled Mortgage Notes)
5.50%, 10/1/00* 25,658 24,681
6.00%, 9/1/98* 14,878 14,735
6.00%, 12/1/99* 16,666 16,393
6.00%, 2/1/01* 98,994 96,880
6.00%, 7/1/01* 48,675 47,635
6.00%, 1/1/25* 32,924 32,271
7.00%, 2/1/00* 6,712 6,756
7.00%, 3/1/00* 23,838 23,996
7.00%, 5/1/00* 28,551 28,785
7.00%, 6/1/01* 48,025 48,281
Federal National Mortgage Assn.
(Pooled Mortgage Notes)
6.00%, 1/1/01* 31,863 31,173
6.00%, 6/1/01* 9,828 9,615
6.834%, 7/1/03* 15,000 14,783
8.00%, 6/1/99* 6,899 7,056
Government Export Trust
(U.S. Government Guaranteed)
4.85%, 11/1/97* 6,600 6,541
6.61%, 9/15/99* 6,395 6,393
</TABLE>
19
<PAGE> 52
<TABLE>
<CAPTION>
Face Market
SHORT-TERM CORPORATE Rating Amount Value
PORTFOLIO (continued) (Moody's) (000) (000)+
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Notes
5.00%, 1/31/98 $ 6,500 $ 6,396
5.25%, 7/31/98 7,500 7,368
6.25%, 2/15/03 5,000 4,891
7.75%, 12/31/99 55,000 57,148
7.75%, 1/31/00 10,000 10,389
- -------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $511,599) 502,166
- -------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL SECURITIES (.2%)
- -------------------------------------------------------------------------------------------
New York City GO
10.00%, 11/15/96
(Cost $5,996) Baa1 6,000 6,060
-------------
- -------------------------------------------------------------------------------------------
FOREIGN BONDS
(U.S. DOLLAR DENOMINATED) (7.9%)
- -------------------------------------------------------------------------------------------
Province of Alberta
9.20%, 11/1/97 Aa2 23,000 23,798
Bayerische Landesbank
Girozentrale
5.625%, 2/26/01 Aaa 41,000 39,077
6.375%, 8/31/00 Aaa 50,000 49,286
British Telecom Finance Inc.
9.375%, 2/15/99 Aaa 32,425 34,433
Empresa Electrica
Pehuenche SA
7.30%, 5/1/03 Baa1 5,000 4,952
KFW International Finance
9.125%, 5/15/01 Aaa 7,995 8,717
Province of Manitoba
6.00%, 10/15/97 A1 30,000 29,918
6.125%, 5/28/98 A1 20,000 19,900
7.75%, 2/1/02 A1 7,310 7,573
8.75%, 5/15/01 A1 7,000 7,518
9.50%, 9/15/98 A1 10,000 10,588
9.625%, 3/15/99 A1 10,000 10,701
National Australia Bank
9.70%, 10/15/98 A1 12,150 12,908
Noranda, Inc.
8.00%, 6/1/03 Baa2 20,000 20,564
8.625%, 7/15/02 Baa2 15,000 15,925
Placer Dome Inc.
6.14%, 1/29/02 Baa2 15,000 14,186
Kingdom of Spain
9.27%, 11/1/96 Aa2 10,000 10,083
- -------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $322,642) 320,127
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (1.5%)
- -------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.62%, 8/1/96
(Cost $59,704) $ 59,704 $ 59,704
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.7%)
(Cost $3,997,585) 3,977,157
- -------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.3%)
- -------------------------------------------------------------------------------------------
Other Assets--Note C 84,392
Liabilities (33,461)
------------
50,931
- -------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------
Applicable to 377,696,518 outstanding
$.001 par value shares
(authorized 700,000,000 shares) $4,028,088
- -------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.66
===========================================================================================
</TABLE>
+ See Note A to Financial Statements.
(1) Floating Rate Notes.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
GO--General Obligation.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- ------
<S> <C> <C>
PAID IN CAPITAL $4,080,547 $10.79
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (32,031) (.08)
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE F (20,428) (.05)
- -------------------------------------------------------------------------------------------
NET ASSETS $4,028,088 $10.66
- -------------------------------------------------------------------------------------------
</TABLE>
F282-7/96
20
