<PAGE> 1
VANGUARD
BOND
FUNDS
VANGUARD SHORT-TERM TREASURY FUND
VANGUARD SHORT-TERM FEDERAL FUND
VANGUARD SHORT-TERM CORPORATE FUND
VANGUARD INTERMEDIATE-TERM TREASURY FUND
VANGUARD INTERMEDIATE-TERM CORPORATE FUND
VANGUARD GNMA FUND
VANGUARD LONG-TERM TREASURY FUND
VANGUARD LONG-TERM CORPORATE FUND
VANGUARD HIGH-YIELD CORPORATE FUND
[PHOTO]
ANNUAL
REPORT
JANUARY 31, 1999
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
This year, our report cover pays homage to three anniversaries, each of great
significance to The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August
1, 1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto-- "Leading the way"--serves as a guiding principle
for our company.
- - The 100th birthday, on July 23, of Walter L. Morgan, founder of Wellington
Fund, the oldest member of what became The Vanguard Group. Mr. Morgan was
friend and mentor to Vanguard founder John C. Bogle, and helped to shape
the standards and business principles that Mr. Bogle laid down for
Vanguard at its beginning nearly 25 years ago: a stress on balanced,
diversified investments; insistence on fair dealing and candor with
clients; and a focus on long-term investing. To our great regret, Mr.
Morgan died on September 2.
- - The 70th anniversary, on December 28, of the incorporation of Vanguard
Wellington Fund. It is the nation's oldest balanced mutual fund, and one
of only a handful of funds created in the 1920s that are still in
operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
7
REPORTS FROM
THE ADVISERS
9
PERFORMANCE SUMMARY
14
FUND PROFILE
24
FINANCIAL STATEMENTS
35
REPORT OF
INDEPENDENT ACCOUNTANTS
57
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennam John C. Bogle
Chairman & CEO Senior Chairman
Aided by a benign inflation outlook and a wave of purchases by investors who
sought refuge from turmoil in international markets, prices of most bonds rose
during the fiscal year for the Vanguard Bond Funds. In this environment--in
which higher quality and longer maturities were rewarded--each of our nine funds
earned twelve-month returns that surpassed those of similar mutual funds.
As is usual, the funds' twelve-month returns varied considerably
according to maturity and credit quality. Our Long-Term Treasury Fund earned the
highest return with an excellent +12.0% advance, nearly half of which came from
capital appreciation. The lowest return, +5.3%, was provided by our High-Yield
Corporate Fund, which has the lowest credit quality in the group.
The table below presents the twelve-month total return (capital change
plus reinvested dividends) for each fund, broken down into capital and income
components. The table also shows each fund's yield as of January 31, 1999.
Prices of most of our funds, particularly the intermediate- and long-term
funds, benefited from the decline in interest rates during the fiscal year.
However, it's important to understand that interest-rate movements also can
lower bond prices. Prices of existing bonds move in the opposite direction from
market interest rates, so the market value of bonds (and bond funds) rises when
interest rates fall and declines when rates move higher. The effect is most
significant for longer-term bonds, which are more sensitive than shorter-term
securities to interest-rate changes. The extent of the interest-rate effect can
be seen in a bond fund's capital return--that is, the change in per-share value,
excluding interest income.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 31, 1999
----------------------------------
COMPONENTS OF
TOTAL RETURN
------------
SEC
TOTAL INCOME CAPITAL ANNUALIZED
RETURN RETURN RETURN YIELD*
- --------------------------------------------------------------------------------
SHORT-TERM FUNDS
<S> <C> <C> <C> <C>
Treasury + 6.7% +5.5% +1.2% 4.65%
Federal + 6.6 +5.9 +0.7 5.06
Corporate + 6.2 +6.3 -0.1 5.74
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM FUNDS
Treasury + 9.4% +6.1% +3.3% 4.89%
Corporate + 7.7 +6.5 +1.2 6.02
GNMA + 6.8 +6.8 +0.0 6.24
- --------------------------------------------------------------------------------
LONG-TERM FUNDS
Treasury +12.0% +6.2% +5.8% 5.20%
Corporate + 9.5 +6.6 +2.9 5.95
- --------------------------------------------------------------------------------
High-Yield
Corporate Fund + 5.3% +8.3% -3.0% 8.27%
- --------------------------------------------------------------------------------
</TABLE>
*30-day yield.
A look back at the past decade shows that negative capital returns are
not uncommon. For example, the Long-Term Treasury Fund posted capital returns of
+5.8% in fiscal 1999 and +9.7% in fiscal 1998. But in fiscal 1995, when the
Federal Reserve Board hiked short-term interest rates six times, the fund had a
capital return of -13.0%, and in fiscal 1997 the fund's capital return was
- -8.2%. This history provides a valuable lesson about the short-term variability
of bond values. As we have explained in previous reports, our funds have longer
average maturities than most of their competitors and, therefore,
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are more sensitive to changes in interest rates. We believe that this policy,
which in the short term can work to our advantage or to our detriment, is in the
best long-term interest of our fund shareholders.
Per-share figures for each fund, including net asset values, income
dividends, and any capital gains distributions, are listed in a table that
follows this letter. Also presented there is performance information for the
Institutional Shares of Vanguard Short-Term Corporate Fund, which earned a total
return of +6.3% for the year.
FINANCIAL MARKETS IN REVIEW
During the twelve months ended January 31, 1999, the U.S. economy expanded
impressively, inflation remained very low, and unemployment hovered around a
three-decade low. It was a terrific setting for both stocks and bonds.
However, financial turmoil overseas was felt in the United States during
the summer when investors around the globe were spooked by the continuing
economic and currency troubles in Asia, a debt default in Russia, and concern
that the credit crisis in Brazil would spread through Latin America. In
response, some investors both at home and abroad scrambled to the relative
safety of U.S. Treasury bonds and shunned securities perceived to be riskier.
This so-called flight to quality resulted in sharp price increases for
Treasuries, which offer the highest credit-quality backing available: the full
faith and credit of the U.S. government. Investors' sudden reevaluation of risk
also resulted in steep price declines for stocks, low-grade bonds, and even
high-quality corporate bonds.
The yield of the 30-year Treasury bond, which started the fiscal year at
5.80%, crept up to 6.07% in late April. But yields steadily declined during the
late summer and early fall in response to several factors: good news on
inflation, fears of a global economic slump, and a slightly tighter supply of
Treasuries--the result of a growing federal budget surplus. The long bond's
yield bottomed out at 4.72% on October 5. The Fed acted to help restore
liquidity to the credit markets and to head off an expected slowdown in U.S.
economic growth by trimming short-term interest rates by a total of 0.75
percentage point from late September through mid-November. During the final
three months of our funds' fiscal year, liquidity concerns eased, Treasury
prices declined, and the yield of the 30-year Treasury rose, ending the period
at 5.09%, 71 basis points below its starting point. The yield on 10-year
Treasuries fell 85 basis points on balance to 4.65%, and the yield of 3-year
Treasuries declined 71 basis points to 4.62%.
The Lehman Brothers Aggregate Bond Index, a measure of the entire U.S.
bond market, including Treasuries as well as mortgage-backed securities and
high-quality corporate issues, earned a solid +8.1% for the twelve months. The
+12.3% return of the Lehman Long U.S. Treasury Bond Index was nearly 11
percentage points higher than the 1.7% inflation rate recorded for the fiscal
year. The story was much different at the lower end of the quality spectrum. For
the twelve months ended January 31, the Lehman High Yield Bond Index returned
just +1.6%, as a negative capital return of -6.8% offset nearly all of the
index's +8.4% income return.
Meanwhile, large U.S. stocks soared during the twelve months, despite the
summer setback, and the Standard & Poor's 500 Composite Stock Price Index
advanced +32.5%. Small stocks, however, earned a scant total return of +0.3%, as
measured by the Russell 2000 Index. The entire U.S. stock market, as measured by
the Wilshire 5000 Equity Index, was up +27.4%.
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FISCAL 1999 PERFORMANCE OVERVIEW
Overall, it was an excellent twelve months for our nine bond funds, which
outpaced their average peers, matched up well with unmanaged indexes for the
market segments in which they invest, and provided a comfortable margin over
inflation. Over the past 15 years, our funds have provided superior annual
returns relative to their competitors 83% of the time (in 83 comparisons out of
100--a total that reflects the varying lengths of time our funds have existed).
Generally, our fine relative performance was the result of our funds'
longer average maturities and much lower costs. As you would expect, then, in a
fiscal year when interest rates declined, our long-term funds provided the
highest returns and the largest performance advantages over their peers. The
+12.0% return of the Long-Term Treasury Fund was 3.5 percentage points above the
+8.5% earned by the average long-term Treasury fund. Our Long-Term Corporate
Fund returned +9.5% (aided by a +2.9% capital return), well above the +6.9%
return of the average long-term corporate bond mutual fund. Our short- and
intermediate-term funds, which are less sensitive to changes in interest rates,
outpaced their peers by margins ranging from 0.6 percentage point to 1.8
percentage points. The adjacent table presents our returns compared with those
of peer funds.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
TOTAL RETURNS
FISCAL YEAR ENDED JANUARY 31, 1999
----------------------------------
AVERAGE
VANGUARD COMPETING VANGUARD
FUND FUND FUND ADVANTAGE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury + 6.7% +6.1% +0.6%
Short-Term Federal + 6.6 +5.7 +0.9
Short-Term Corporate + 6.2 +5.6 +0.6
- -----------------------------------------------------------------------------------------------------
Intermediate-Term Treasury + 9.4% +7.6% +1.8%
Intermediate-Term Corporate + 7.7 +6.6 +1.1
GNMA + 6.8 +6.0 +0.8
- -----------------------------------------------------------------------------------------------------
Long-Term Treasury +12.0% +8.5% +3.5%
Long-Term Corporate + 9.5 +6.9 +2.6
- -----------------------------------------------------------------------------------------------------
High-Yield Corporate + 5.3% -0.9% +6.2%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Though our High-Yield Corporate Fund had the lowest absolute return of
our nine funds, it registered the biggest edge over its average peer. The fund's
+5.3% return was more than 6 percentage points higher than the -0.9% return of
the average high-yield fund. This margin was due to the significantly higher
quality of our fund's holdings compared with those in the average high-yield
bond fund, which typically holds a higher percentage of its assets in riskier,
and thus higher-yielding, securities. Our fund holds about 95% of its assets in
bonds rated "B" or higher, while the average peer holds a 16% stake in bonds
rated below "B." We are able to hold bonds of well-above-average quality for the
group, all the while offering above-average yields--a rare combination made
possible by our low costs.
When the economy is strong and the risk of default is perceived to be
low, poorer-quality debt can perform strongly. This was the case throughout most
of the 1990s. In fact, from January 31, 1991, through January 31, 1999--a period
that covers eight fiscal years for our funds--the Lehman High Yield Index
returned an annualized +14.5%. However, lower-quality securities can suffer when
the economy slows or when investors flee from risk, as they did in late 1998.
Our GNMA Fund earned its coupon during the fiscal year, returning +6.8%,
compared with the +6.0% return of the average GNMA fund. Mortgage-backed
securities typically offer higher yields and react more modestly to
interest-rate changes than do
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other intermediate-term securities. However, when interest rates are falling,
homeowners are more likely to refinance their loans at lower rates. This
prepayment risk reduces the attractiveness of GNMAs relative to other bonds. So,
while mortgage-backed securities generally earned more interest income than
intermediate-term Treasury and corporate securities during the twelve months,
their capital returns and total returns were slightly lower.
LONG-TERM PERFORMANCE OVERVIEW
The table below summarizes each fund's long-term total return, comparing it with
the average return of comparable mutual funds during the same period. It also
shows how a $10,000 investment in each Vanguard fund would have grown over those
periods. The Performance Summaries on pages 14 through 23 give details of the
funds' long-term performance, including charts showing each fund's cumulative
returns for the past ten years (or its lifetime) and year-by-year breakdowns of
its income and capital returns.
Over these longer periods, each of our funds has established a solid
performance edge over bond mutual funds with similar quality and maturity. On an
annualized basis, these margins ranged from +0.5% for our High-Yield Corporate
Fund to +2.3% for our Long-Term Corporate Fund. For our shareholders, such an
edge has translated into significant extra returns, as the table shows. For
example, a $10,000 investment made ten years ago in our Long-Term Corporate Fund
would, with dividends and capital gains distributions reinvested, have grown to
$27,897, compared with $22,537 in its average peer--an advantage of $5,360, or
nearly 54% of the initial investment.
The ten-year record of our High-Yield Corporate Fund, reflecting an
annual outperformance of +0.5%, is particularly notable since our fund has
consistently carried lower risk, measured not only by higher quality, but also
by demonstrably lower price volatility.
Note: For our Short-Term Treasury and Intermediate-Term Treasury Funds,
the period since inception covers a little more than seven years; for the
Intermediate-Term Corporate Fund, just over five years.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS
10 YEARS ENDED JANUARY 31, 1999
--------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE FINAL VALUE OF A $10,000 INITIAL INVESTMENT
------------------- -------------------------------------------
AVERAGE AVERAGE
VANGUARD COMPETING VANGUARD VANGUARD COMPETING VANGUARD
FUND FUND FUND ADVANTAGE FUND FUND ADVANTAGE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Treasury* + 6.3% +5.7% +0.6% $15,625 $14,981 $ 644
Short-Term Federal + 7.5 +6.7 +0.8 20,551 19,190 1,361
Short-Term Corporate + 7.8 +6.9 +0.9 21,187 19,463 1,724
- -----------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Treasury* + 8.5% +7.3% +1.2% $18,114 $16,631 $1,483
Intermediate-Term Corporate* + 7.0 +6.1 +0.9 14,260 13,647 613
GNMA + 9.0 +8.1 +0.9 23,742 21,703 2,039
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Treasury +10.8% +9.0% +1.8% $27,967 $23,557 $4,410
Long-Term Corporate +10.8 +8.5 +2.3 27,897 22,537 5,360
- -----------------------------------------------------------------------------------------------------------------------------------
High-Yield Corporate + 9.7% +9.2% +0.5% $25,340 $24,018 $1,322
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Since inception: Short-Term Treasury and Intermediate-Term Treasury, October
1991; Intermediate-Term Corporate, November 1993.
4
<PAGE> 7
There is no secret to our fine relative performance. It's simply a
combination of excellent management by our investment advisers and our tight
grip on costs, which gives us a significant advantage over our peer mutual
funds. Our funds' expense ratios (annual expenses as a percentage of average net
assets) for the fiscal year averaged about 0.28%--$2.80 per $1,000 invested--a
small fraction of the 1.05%, or $10.50 for every $1,000, charged each year by
the average fixed-income mutual fund.
A mutual fund's expenses directly reduce the income and return it
produces. The drag of higher costs is especially evident in bond funds, which
typically derive most of their total return from interest income. Over time,
differences in costs account for virtually all of the difference in total
returns between mutual funds investing in bonds of similar maturity.
Besides helping us outperform our higher-cost competitors, low costs also
help us closely track our benchmark indexes, which do not incur the operating,
advisory, and securities-transaction costs that real-world mutual funds must.
When reviewing our longer-term performance, it's important to understand
that the returns shown here are almost certainly higher than those to be
expected in the near future. This is simply because rates are lower now than at
most points during the past decade. A relatively reliable indicator of future
long-term total returns on bond funds--though it is an imperfect one--is a
fund's current yield. Of course, if inflation remains low, current yields will
still provide a solid real, or after-inflation, income stream.
IN SUMMARY
The events of the past twelve months amply demonstrated the advantages of a
balanced investment approach. Investors who held a mix of stock funds, bond
funds, and money market funds participated in the market's bounty, but were
spared some measure of the anxiety felt during the midyear downturn in stocks.
We have always believed that investors are well served by selecting a
balanced mix of assets appropriate to their investment time horizon, goals, and
risk tolerance, and then sticking with their plan. The volatility experienced by
most investors during 1998 and early 1999 has further reinforced our belief.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
February 19, 1999
NOTE: You'll observe that we've made minor changes in the names of the Vanguard
Bond Funds, which formerly were called portfolios of Vanguard Fixed Income
Securities Fund. We removed "U.S." from our Treasury funds and replaced the word
"portfolio" with "fund" as part of a broader effort to simplify the names in our
fund lineup.
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<TABLE>
<CAPTION>
PORTFOLIO STATISTICS
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET
VALUE PER SHARE TWELVE MONTHS
-------------------------- --------------------------------------
JAN. 31, JAN. 31, INCOME CAPITAL SEC
FUNDS 1998 1999 DIVIDENDS GAINS YIELD*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Term Treasury $10.27 $10.37 $0.545 $0.022 4.65%
Short-Term Federal 10.19 10.26 0.581 -- 5.06
Short-Term Corporate 10.87 10.86 0.660 -- 5.74
Short-Term Corporate Institutional Shares 10.87 10.86 0.673 -- 5.86
- ---------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Treasury $10.80 $11.16 $0.630 -- 4.89%
Intermediate-Term Corporate 10.03 10.07 0.627 $0.082 6.02
GNMA 10.48 10.47 0.687 0.012 6.24
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term Treasury $10.79 $11.42 $0.629 -- 5.20%
Long-Term Corporate 9.32 9.38 0.582 $0.206 5.95
- ---------------------------------------------------------------------------------------------------------------------------------
High-Yield Corporate $ 8.17 $ 7.90 $0.659 $0.025 8.27%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*30-day annualized yield.
<TABLE>
<CAPTION>
PERFORMANCE REVIEW--SHORT-TERM CORPORATE FUND INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 31, 1999
--------------------------------------------------------------
COMPONENTS OF
TOTAL RETURN
------------
TOTAL INCOME CAPITAL SEC
RETURN RETURN RETURN YIELD*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Corporate Fund Institutional Shares +6.3% +6.4% -0.1% 5.86%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*30-day annualized yield.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS
SEP. 30, 1997*, TO JAN. 31, 1999
----------------------------------------------------------
FINAL VALUE OF
ANNUALIZED A $50,000,000
RATE INITIAL INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Corporate Fund Institutional Shares +6.8% $54,626,180
Average Short-Term Corporate Fund +6.1 54,146,905
Lehman 1-5 Year Investment Grade Index +8.1 55,450,015
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Inception date for Institutional Shares.
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<PAGE> 9
THE MARKETS IN PERSPECTIVE
YEAR ENDED JANUARY 31, 1999
[PHOTO]
The twelve months ended January 31, 1999, were a volatile yet generally
rewarding period for financial markets. Despite a sharp midsummer slump, the
U.S. stock market closed the year with large gains: The overall market, as
measured by the Wilshire 5000 Equity Index, was up 27.4%. Stocks got a boost
from low inflation and generally declining interest rates, which also buoyed the
bond market. Overseas, gains were concentrated in Europe's developed markets,
while stocks fell in Asia and in most emerging markets.
U.S. STOCK MARKETS
The equity rise was concentrated to an unusual degree in large-capitalization
growth stocks. Large-cap stocks, as measured by the S&P 500 Index, gained
+32.5%, while the small-cap Russell 2000 Index eked out only a 0.3% return.
Growth stocks far outpaced value stocks within both large- and small-cap
indexes. The S&P 500's growth stocks earned +45.9%, versus 18.5% for the value
stocks in the index, while the growth component of the Russell 2000 earned 7.2%,
versus -6.9% for the value-stock component.
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED JANUARY 31, 1999
-------------------------------
1 YEAR 3 YEARS 5 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 32.5% 28.6% 24.3%
Russell 2000 Index 0.3 12.1 11.5
Wilshire 5000 Index 27.4 25.7 21.9
MSCI EAFE Index 14.7 9.1 7.7
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 8.1% 7.3% 7.1%
Lehman 10-Year Municipal Bond Index 7.2 7.0 6.4
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 5.0 5.2 5.1
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.7% 2.1% 2.4%
- --------------------------------------------------------------------------------
</TABLE>
In part, this growth-stock bias reflected the market's infatuation with
technology stocks. The technology sector led others by a wide margin, with tech
stocks in the S&P 500 gaining an extraordinary 97%. The sector benefited both
from its rapid growth and from investors' belief that consumers and businesses
will keep spending freely on computer hardware, software, and services. There
was more than a hint of speculation in the air, too, as stocks related to the
burgeoning activity on the Internet skyrocketed.
Other strong sectors included utilities (+49%), particularly
telecommunications stocks, which are seen as big beneficiaries of the Internet
boom and of rising demand for such services as wireless communications. The
strength of consumer spending--Americans spent nearly every dollar of after-tax
income they earned--boosted the stocks of retailers and other companies in the
consumer-discretionary sector (+37%). Good earnings growth and higher product
prices led to gains for pharmaceutical companies and others in the health-care
sector (+35%).
The worst-performing sectors were those directly affected by falling
commodity prices: the "other energy" category (-33%) and materials & processing
firms (-2%), such
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<PAGE> 10
as paper, steel, and chemical makers. Integrated oil companies gained 7% as a
group, largely because merger activity boosted share prices.
The midyear slide in stocks seemed to be part of a global reevaluation of
risk that affected fixed-income securities as well. Investors grew wary about
the impact of Asia's lingering economic troubles, which slowed activity for U.S.
and European manufacturers and dried up capital flows to emerging markets not
only in Asia but in Latin America.
The S&P 500 Index fell by nearly 20% over six weeks in July and August
before making its impressive comeback. Small-cap stocks fell by nearly 40%
before they began to recover. Curiously, the rebound occurred even though the
international economic troubles did not disappear and U.S. corporate earnings
were essentially flat. The rise in stock prices, combined with a lack of
earnings growth, pushed up the price/earnings ratio for the S&P 500 to about 32
by fiscal year-end, a level roughly twice its long-term average.
U.S. BOND MARKETS
Interest rates for most fixed-income securities declined on balance during the
fiscal year, falling most steeply for U.S. Treasury securities. Bond prices move
in the opposite direction from interest rates, so Treasuries enjoyed the biggest
price increases. Bonds gener-ally were helped by low inflation--consumer prices
rose by 1.7% from January 1998 to January 1999.
Treasury securities in particular benefited from the summertime shakeup
in global markets because they are regarded as safe from defaults. Treasury
prices also got a boost from a slight shrinkage in supply due to the federal
government's growing budget surplus. Yields on Treasury securities fell on
balance by approximately 70 to 80 basis points (0.7 to 0.8 percentage point). At
fiscal year-end, Treasury yields ranged from 5.09% for the benchmark 30-year
bond to 4.45% for 3-month T-bills.
Yields did not fall as far for high-quality corporate and municipal
bonds. Yields for lower-quality bonds increased and their prices declined,
reflecting investors' increased aversion to risk. Mortgage-backed bonds
generally did not benefit from falling rates because investors feared that this
would lead to rapid prepayments by homeowners refinancing their home loans.
INTERNATIONAL STOCK MARKETS
European stocks as a group gained 22.8% in U.S.-dollar terms, with about 5.5
percentage points of the gain due to a fall in the dollar's value versus
European currencies during the fiscal year. However, pickings were slim
elsewhere for U.S. investors venturing abroad. Pacific-region stocks, which are
dominated by recession-wracked Japan, fell by more than 7% in local currencies.
This decline was cushioned by the effect of a weaker dollar, so that for U.S.
investors the decline in Pacific-region stocks amounted to 2.1% for the fiscal
year. Overall, the Morgan Stanley Capital International Europe, Australasia, Far
East (EAFE) Index, a gauge of developed international markets, rose 14.7%.
Investors in emerging markets were hit by a double whammy: lower stock
prices and a decline in the value of local currencies in relation to the U.S.
dollar. The result was an average decline of 14.2% for emerging markets, even
though several Asian markets (the Philippines, Indonesia, and Hong Kong) began
to rebound from sharp losses that occurred during 1997 and 1998. Latin American
stocks were the big losers, with declines of 53% for Brazil and 24% for Mexico.
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<PAGE> 11
REPORT FROM VANGUARD
FIXED INCOME GROUP
SHORT-TERM TREASURY, FEDERAL, AND CORPORATE FUNDS;
INTERMEDIATE-TERM TREASURY AND CORPORATE FUNDS; AND
LONG-TERM TREASURY FUND
[PHOTO]
The fiscal year ended January 31, 1999, was one that fixed-income investors will
remember for risk--unvarnished, unexpected, and unprecedented risk.
The fiscal year started peaceably enough. During the first half, the
yield on the 30-year Treasury bond fluctuated within a relatively narrow range
of about 5.6% to 6.0%. The main question for the market was whether the impact
of the "Asian flu" would slow a strong U.S. economy enough to prevent a rise in
inflation. Many Asian economies were suffering sharp downturns due to structural
imbalances. In contrast, the U.S. economy during the first two calendar quarters
of 1998 rose at an annual rate of more than 3.5%, as momentum from domestic
demand easily overcame the drag from reduced exports. The American public was a
major source of this strength, with spending propelled by high employment,
rising incomes, and stock market gains.
Normally, such rapid expansion would set off alarm bells at the Federal
Reserve--such growth spurts historically have ignited inflation and prompted the
Fed to raise short-term interest rates to slow the economy. Halfway through
1998, however, we seemed to have attained something like economic nirvana--a
strong economy and benign inflation. The gross domestic product (GDP) price
deflator, the broadest measure of inflation, rose at only a 0.9% annual rate.
And through midyear, the Fed was content to sit on the sidelines.
But this tranquil period was a distant memory by late summer. Even though
Russia's substantial financial problems had become evident, financial markets
were still shocked by the Russian government's bond default in August. The
Russian crisis initiated a wave of fear that enveloped markets across the globe.
The situation was exacerbated by upheavals at some prominent hedge funds, which
were forced to sell securities to repay huge sums they had borrowed to make
investments.
As fear triumphed over greed, investors seeking quality and liquidity
flocked to U.S. Treasuries and pushed yields on long-term bonds down to levels
not seen in a generation. The yield on the 30-year Treasury bond fell from 5.71%
on July 31 to 4.72% on October 5, its low for the fiscal year. This was one of
the most turbulent periods in decades. If you had predicted in 1990 that
long-term Treasury yields would, within the decade, fall below 5% at the same
time that the unemployment rate was hovering around 4.5% in a strong economy,
most bond portfolio managers would have thought you were crazy.
Because of the frenzied flight to Treasuries, by late August and early
September the markets in "spread products" (corporate bonds, mortgages, and
asset-backed securities) effectively ceased to function. No new issues were
coming to market and bids were virtually nonexistent. Yields on corporate and
mortgage-backed debt widened dramatically in relation to Treasury yields. The
interest-rate differential
9
<PAGE> 12
that a buyer of an average corporate bond would earn for taking on the credit
risk of a non-Treasury security rose to its highest level since the 1990-1991
Gulf War. August's returns for corporate bonds were the lowest, in relation to
Treasuries, since the leveraged buyout craze of the mid-1980s.
The Fed responded to this crisis by orchestrating three 25-basis-point
(0.25 percentage point) declines in the target federal funds rate, which is what
banks charge each other for overnight loans, in September, October, and
November. These moves, coupled with less-negative news from emerging market
economies, reduced interest-rate volatility, and during the remainder of the
fiscal year, the 30-year Treasury bond traded in a range of just below 5% to
5.4%, closing the fiscal year at 5.09%.
After September, liquidity improved substantially in markets for
corporate and mortgage-backed securities, although not approaching anything like
the situation when the fiscal year began. Yields on these instruments slowly
declined in comparison with Treasury yields during November and December, as
buyers realized that financial Armageddon was not at hand. New bond issuance by
corporations picked up, although yield spreads over Treasury yields remained
wider than in the first half of 1998. Spreads tightened even more in January
1999 as an expected burst of new corporate bond issues never materialized and
dealers kept very light inventories of fixed-income securities.
Despite the turmoil in financial markets, the U.S. economy continued to
hum along. Economic output, adjusted for inflation, advanced from October
through December at a 6.1% annual rate, bringing growth for all of 1998 to 4.3%,
even faster than the 3.8% pace recorded in 1997. The economy had actually
accelerated since the Asian crisis! Inflation remained nearly nonexistent: The
GDP price deflator rose slightly less than 1.0% for 1998, and employment costs
(wages, salaries, and benefits) rose only 3.3%.
FUND REVIEWS
The decline in interest rates during the fiscal year provided a tailwind, in the
form of capital appreciation, to the total returns of six of the nine Vanguard
Bond Funds. As one would expect in such an environment, our intermediate- and
long-term funds, whose share prices are more sensitive to changes in interest
rates, benefited more than their short-term brethren. Because Treasuries were
favored as a safe haven, each of our Treasury funds outperformed its Corporate
counterpart (you'll find details in the Message to Shareholders, beginning on
page 1). Indeed, corporate bonds posted their worst year of the decade in
comparison with the performance of Treasuries. This is exactly the opposite of
what occurred in fiscal 1998, when returns of corporate bonds benefited from the
market's perception that the risk of owning corporates had diminished.
THE RISKS AHEAD
Events of the past 12 months shattered many firmly held beliefs concerning
liquidity, volatility, and relative value within the bond market. While
conditions have improved substantially since the dark days of August and
September, bond investors remain wary of a negative surprise out of Latin
America or some other emerging market. Today's low interest rates do not provide
much protection in the form of income if bond prices fall because the Fed
decides to raise rates to slow an overheated economy or stock market. On the
other hand, competition from overseas companies and low commodity prices should
continue to help restrain inflation, which is the ultimate enemy of the
fixed-income investor because it erodes the future purchasing power of a bond's
income stream. Whether or not U.S. economic strength continues to overpower
weakness from
10
<PAGE> 13
abroad, it's likely we won't see a year as turbulent as the past one for quite
some time.
The Vanguard Bond Funds offer investors low-cost investment choices of
varying risk/return characteristics that can be used with a fairly high degree
of precision to structure an overall long-term investment approach. Once such a
plan is in place, staying with it is the best technique for dealing with the
uncertainties of the financial markets.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John W. Hollyer, Principal
February 12, 1999
INVESTMENT PHILOSOPHY
The funds reflect a belief that no one bond portfolio is right for all
investors. The funds offer an array of portfolios with specific maturity and
quality characteristics so investors can select the portfolio or combination of
portfolios appropriate to their needs.
11
<PAGE> 14
REPORT FROM WELLINGTON
MANAGEMENT COMPANY, LLP
GNMA FUND; LONG-TERM CORPORATE FUND AND HIGH-YIELD CORPORATE FUND
Changes in the level and direction of interest rates are the most important
determinants of absolute performance for the GNMA, Long-Term Corporate, and
High-Yield Corporate Funds. However, changes in rates affect each fund
differently.
During the fiscal year ended January 31, 1999, yields on
intermediate-term Treasury securities declined by approximately 75 to 90 basis
points (0.75 to 0.90 percentage point), establishing a favorable environment for
bonds. The drop in rates was unusual in that it occurred while the economy was
growing at a rapid clip. Higher-quality bonds outperformed lower-quality ones
because investors demanded higher yields on riskier bonds, which also is unusual
during a period of strong economic growth. Historically, a strong economy leads
to rising interest rates and, therefore, an unfavorable backdrop for the bond
market. This time, however, rates fell because inflation remained low and
because investors were worried about global economic conditions.
The risk premiums, or incremental yields, offered on corporate bonds
versus riskless U.S. Treasuries rose over the last six months, but these
premiums should narrow if the growing economy produces strong profits.
Currently, the issuance of new corporate bonds--both investment-grade and below
investment-grade--is modest, which alleviates the pressure on the bond market
from new supply. Mortgage-backed securities offer a very enticing yield premium
to reward investors for assuming prepayment risk--the possibility that lower
interest rates will result in unwanted prepayments of principal by homeowners
refinancing their loans. If rates do not drop sharply, and such prepayments
don't materialize, the yield premium on GNMA issues will turn out to be overly
generous. If rates stay in a trading range over the next six months, as we
expect, the yields available on high-yield bonds, long-term corporate bonds, and
GNMA securities offer reasonable value.
GNMA FUND
The fiscal year was eventful for your GNMA Fund. On balance, interest rates fell
sharply generating first fears and then realization of widespread mortgage
refinancing. As a result of the refinancing wave, the fund experienced less
price appreciation than did portfolios that emphasized U.S. Treasury securities.
Even so, your GNMA Fund provided a solid total return, particularly in light of
the low level of inflation. The surge in mortgage prepayments resulted in a
modest decline in income over the course of the year as higher-coupon
investments were in part prepaid and the proceeds were recycled into
lower-coupon securities.
GNMA securities are attractive now because their yield advantage over
Treasuries is more substantial than it has been in many years.
LONG-TERM CORPORATE FUND
The average maturity of the fund's investments is 19 years, in keeping with its
charter as an investment-grade, long-term corporate bond fund. The fund's
average duration--at 9 years--also is long, making the share price extremely
sensitive to changes in long-term interest rates. Our shareholders should
understand this sensitivity and how it affects their investment. For example, if
rates move up or down by 100 basis points (1 percentage point), the fund's net
asset value would be expected to fall or rise by 9%. Because rates
12
<PAGE> 15
fell over the past 12 months, the fund's return was boosted by capital
appreciation. The Long-Term Corporate Fund has excellent call protection, which
implies that most of our holdings cannot be redeemed by their issuers if rates
decline. This means that the fund's income stream has some protection from
falling rates.
The major risk for this fund is a rise in long-term interest rates. More
than half of our assets are invested (and are intended always to be so) in
corporate bonds with an average maturity longer than 15 years. We hold minimal
cash.
The second risk always present in this fund is a deterioration in the
creditworthiness of bond issuers. To mitigate this risk, the fund is well
diversified by issuer and industry. More than 80% of assets are invested in
issues rated A or better. The fund does not own below investment-grade bonds,
emerging-market debt, or foreign bonds denominated in non-U.S. currencies. We
generally buy bonds of large, established companies with stable operating
histories.
HIGH-YIELD CORPORATE FUND
The below investment-grade, or high-yield, market acts like a hybrid. Under
some conditions, it follows the direction of the stock market; at other times,
it behaves like the rest of the bond market. When stock prices are very
volatile, as they were at midyear, below investment-grade bonds usually follow
the stock market. When the stock and bond markets are reasonably stable,
high-yield issues tend to be traded like investment-grade bonds.
Now that fears of an economic slowdown are fading and interest rates are
rising slightly, the high-yield market should perform well in comparison with
other bond sectors. Investors will increase their tolerance for risk so long as
companies' profits remain strong, the issuers' ability to repay their debts
increases, and rating agencies upgrade their outlook for individual companies.
We remain very selective when examining new issues coming to market. We
are avoiding the smaller, start-up companies and continuing to emphasize the
higher-quality end of the below investment-grade market.
We conduct in-depth credit research on a company-by-company basis and
emphasize diversification. The fund owns issues representing a broad range of
industries and companies, and our holdings continue to be focused on cash-paying
issues rated B or better. We maintain a modest reserve of Treasury securities in
the event that liquidity is necessary.
Paul D. Kaplan, Senior Vice President and Portfolio Manager
Earl E. McEvoy, Senior Vice President and Portfolio Manager
February 12, 1999
13
<PAGE> 16
PERFORMANCE SUMMARY
SHORT-TERM TREASURY FUND
All of the data on this page represent past performance, which cannot be used to
predict future
returns that may be achieved by the fund. Note, too, that both share price and
return can fluctuate, so an investment in the fund could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: OCTOBER 28, 1991-JANUARY 31, 1999
- -----------------------------------------------------------
SHORT-TERM TREASURY FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1992 1.2% 1.4% 2.6% 3.0%
1993 3.3 5.4 8.7 9.0
1994 0.8 4.7 5.5 6.1
1995 -4.8 5.2 0.4 -0.1
1996 4.8 6.6 11.4 12.0
1997 -1.9 5.8 3.9 4.1
1998 1.1 6.0 7.1 7.9
1999 1.2 5.5 6.7 7.0
- -----------------------------------------------------------
</TABLE>
*Lehman 1-5 Year U.S. Treasury Index.
See Financial Highlights table on page 45 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: OCTOBER 28, 1991-JANUARY 31, 1999
- ---------------------------------------------------------
Short Term Average Short-Term Lehman 1-5 Year
Treasury Fund Treasury Fund U.S. Treasury Index
<S> <C> <C> <C>
28-Oct-91 10000 10000 10000
1991 10 10045 10045 10045
1992 01 10260 10271 10302
1992 04 10357 10360 10404
1992 07 10767 10685 10834
1992 10 10893 10783 10965
1993 01 11157 10975 11225
1993 04 11425 11170 11481
1993 07 11473 11234 11587
1993 10 11650 11393 11793
1994 01 11775 11499 11912
1994 04 11513 11288 11607
1994 07 11662 11419 11764
1994 10 11681 11434 11751
1995 01 11822 11560 11897
1995 04 12199 11885 12291
1995 07 12550 12195 12677
1995 10 12820 12439 12958
1996 01 13165 12757 13327
1996 04 13019 12611 13182
1996 07 13182 12759 13350
1996 10 13520 13067 13715
1997 01 13677 13194 13870
1997 04 13791 13287 13984
1997 07 14145 13633 14402
1997 10 14368 13823 14652
1998 01 14649 14129 14966
1998 04 14773 14245 15081
1998 07 14990 14450 15325
1998 10 15545 14931 15926
1999 01 15625 14981 16006
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Treasury Fund 6.66% 5.82% 6.34% $15,625
Average Short-Term Treasury Fund 6.07 5.45 5.72 14,981
Lehman 1-5 Year U.S. Treasury Index 6.95 6.09 6.69 16,006
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ------------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Short-Term Treasury Fund 10/28/1991 7.36% 5.85% 0.73% 5.63% 6.36%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
14
<PAGE> 17
PERFORMANCE SUMMARY
SHORT-TERM FEDERAL FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate, so an investment in the fund could lose
money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 31, 1987-JANUARY 31, 1999
- ------------------------------------------------------------
SHORT-TERM FEDERAL FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1988 0.5% 0.5% 1.0% 1.9%
1989 -2.7 8.4 5.7 5.0
1990 1.1 9.0 10.1 10.5
1991 1.9 8.6 10.5 11.1
1992 3.1 7.5 10.6 11.3
1993 2.3 6.2 8.5 8.9
1994 1.1 5.1 6.2 6.1
1995 -5.6 5.4 -0.2 -0.1
1996 5.0 6.4 11.4 12.0
1997 -1.7 6.2 4.5 4.1
1998 0.8 6.3 7.1 7.9
1999 0.7 5.9 6.6 6.9
- ------------------------------------------------------------
</TABLE>
*Lehman 1-5 Year U.S. Government Index.
See Financial Highlights table on page 46 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- ---------------------------------------------------------
Short Term Average Short-Term Lehman 1-5 Year
Federal Fund Government Fund U.S. Government Index
<S> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 10191 10171 10207
1989 07 10731 10637 10781
1989 10 10892 10785 10927
1990 01 11009 10898 11051
1990 04 11099 10994 11127
1990 07 11547 11402 11614
1990 10 11771 11622 11871
1991 01 12161 11997 12281
1991 04 12412 12241 12561
1991 07 12653 12455 12793
1991 10 13134 12902 13333
1992 01 13450 13163 13671
1992 04 13593 13281 13808
1992 07 14157 13727 14373
1992 10 14315 13844 14546
1993 01 14593 14131 14886
1993 04 14937 14391 15226
1993 07 15087 14547 15366
1993 10 15351 14760 15636
1994 01 15502 14876 15794
1994 04 15127 14500 15393
1994 07 15291 14593 15603
1994 10 15273 14571 15587
1995 01 15469 14725 15780
1995 04 15974 15144 16301
1995 07 16428 15545 16810
1995 10 16806 15890 17185
1996 01 17237 16297 17668
1996 04 17119 16101 17481
1996 07 17331 16275 17708
1996 10 17792 16684 18192
1997 01 18014 16869 18400
1997 04 18158 16996 18555
1997 07 18638 17442 19105
1997 10 18924 17704 19436
1998 01 19285 18025 19844
1998 04 19465 18151 20004
1998 07 19752 18401 20326
1998 10 20388 18907 21096
1999 01 20551 19190 21212
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------ FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Federal Fund 6.57% 5.80% 7.47% $20,551
Average Short-Term Government Fund 5.71 5.08 6.73 19,190
Lehman 1-5 Year U.S. Government Index 6.89 6.08 7.81 21,212
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ---------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ---------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Federal Fund 12/31/1987 7.22% 5.87% 0.85% 6.67% 7.52%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
15
<PAGE> 18
PERFORMANCE SUMMARY
SHORT-TERM CORPORATE FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate, so an investment in the fund could lose
money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: OCTOBER 29, 1982-JANUARY 31, 1999
-----------------------------------------------------------
SHORT-TERM CORPORATE FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
-----------------------------------------------------------
<S> <C> <C> <C> <C>
1983 0.5% 2.7% 3.2% 4.6%
1984 -1.1 10.6 9.5 10.9
1985 2.3 11.7 14.0 14.1
1986 3.7 10.5 14.2 14.6
1987 2.9 8.7 11.6 11.9
1988 -2.2 7.4 5.2 6.8
1989 -1.9 8.2 6.3 6.5
1990 1.1 9.1 10.2 10.7
1991 1.5 9.0 10.5 9.8
1992 3.6% 8.1 11.7 13.4
1993 2.6 6.7 9.3 9.5
1994 0.4 5.7 6.1 7.9
1995 -4.9 5.5 0.6 0.3
1996 5.2 6.8 12.0 13.8
1997 -1.7 6.2 4.5 4.6
1998 1.1 6.4 7.5 8.0
1999 -0.1 6.3 6.2 7.1
-----------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Investment Grade Index.
See Financial Highlights table on page 46 for dividend information for the past
five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- ---------------------------------------------------------
Short Term Average Short-Term Lehman 1-5 Year
Corporate Fund Corporate Fund U.S. Investment Grade Index
<S> <C> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 10208 10184 10190
1989 07 10738 10622 10767
1989 10 10890 10797 10949
1990 01 11018 10927 11071
1990 04 11130 11052 11171
1990 07 11579 11436 11676
1990 10 11793 11605 11785
1991 01 12171 11980 12155
1991 04 12508 12290 12612
1991 07 12740 12519 12883
1991 10 13247 12965 13422
1992 01 13595 13273 13787
1992 04 13739 13405 13964
1992 07 14341 13851 14581
1992 10 14468 13981 14702
1993 01 14858 14233 15091
1993 04 15179 14505 15514
1993 07 15293 14660 15728
1993 10 15573 14890 16041
1994 01 15766 15046 16281
1994 04 15423 14745 15835
1994 07 15640 14884 16115
1994 10 15653 14912 16115
1995 01 15862 15035 16325
1995 04 16403 15454 16953
1995 07 16900 15876 17548
1995 10 17280 16209 17987
1996 01 17757 16611 18569
1996 04 17614 16477 18347
1996 07 17840 16674 18604
1996 10 18324 17096 19171
1997 01 18560 17301 19416
1997 04 18719 17443 19580
1997 07 19261 17924 20254
1997 10 19561 18177 20549
1998 01 19958 18508 20971
1998 04 20167 18671 21181
1998 07 20481 18938 21520
1998 10 20889 19358 22111
1999 01 21187 19463 22452
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------ FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Corporate Fund 6.16% 6.09% 7.80% $21,187
Average Short-Term Corporate Fund 5.63 5.40 6.89 19,463
Lehman 1-5 Year Investment Grade Index 7.06 6.64 8.42 22,452
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- --------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION --------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Corporate Fund 10/29/1982 6.57% 6.11% 0.85% 6.98% 7.83%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
16
<PAGE> 19
PERFORMANCE SUMMARY
SHORT-TERM CORPORATE FUND INSTITUTIONAL SHARES
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate, so an investment in the fund could lose
money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1997-JANUARY 31, 1999
- -------------------------------------------------------------
SHORT-TERM CORPORATE FUND
INSTITUTIONAL SHARES LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 0.6% 2.2% 2.8% 3.6%
1999 -0.1 6.4 6.3 7.1
- -------------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Investment Grade Index.
See Financial Highlights table on page 47 for dividend information since the
fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: SEPTEMBER 30, 1997-JANUARY 31, 1999
- -----------------------------------------------------------
Short Term Average Short-Term Lehman 1-5 Year
Corporate Institutional Corporate Fund U.S. Investment Grade Index
Shares
<S> <C> <C> <C>
1-Oct-01 50000000 50000000 50000000
1997 10 50357578 50325000 50350000
1998 01 51397170 51260913 51793400
1998 04 51950999 51712708 52312378
1998 07 52772848 52448778 53148887
1998 10 53841123 53595645 54608396
1999 01 54626180 54146905 55450015
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------ FINAL VALUE OF A
1 YEAR SINCE INCEPTION $50,000,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Corporate Fund Institutional Shares 6.28% 6.84% $54,626,180
Average Short-Term Corporate Fund 5.63 6.14 54,146,905
Lehman 1-5 Year Investment Grade Index 7.06 8.05 55,450,015
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ---------------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHORT-TERM CORPORATE FUND INSTITUTIONAL SHARES 9/30/1997 6.69% 0.30% 6.43% 6.73%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
17
<PAGE> 20
PERFORMANCE SUMMARY
INTERMEDIATE-TERM TREASURY FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: OCTOBER 28, 1991-JANUARY 31, 1999
- -----------------------------------------------------------
INTERMEDIATE-TERM
TREASURY FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1992 1.9% 1.7% 3.6% 4.0%
1993 6.1 7.0 13.1 13.2
1994 4.1 6.0 10.1 10.6
1995 -9.6 5.7 -3.9 -4.5
1996 11.7 7.3 19.0 19.6
1997 -4.9 6.2 1.3 1.3
1998 4.1 6.7 10.8 11.7
1999 3.3 6.1 9.4 10.0
</TABLE>
*Lehman 5-10 Year U.S. Treasury Index.
See Financial Highlights table on page 47 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: OCTOBER 28, 1991-JANUARY 31, 1999
- ---------------------------------------------------------
Short Term Average Short-Term Lehman 1-5 Year
Treasury Fund Treasury Fund Treasury Index
<S> <C> <C> <C>
29-Oct-95 10000 10000 10000
1991 10 10105 10105 10105
1992 01 10359 10359 10396
1992 04 10376 10381 10424
1992 07 11128 11025 11184
1992 10 11260 11127 11316
1993 01 11721 11497 11764
1993 04 12178 11856 12202
1993 07 12431 12066 12525
1993 10 12793 12426 12935
1994 01 12904 12496 13015
1994 04 12144 11907 12194
1994 07 12331 12047 12382
1994 10 12115 11934 12141
1995 01 12401 12100 12435
1995 04 12993 12503 13060
1995 07 13636 12928 13732
1995 10 14185 13337 14288
1996 01 14753 13806 14874
1996 04 14098 13313 14199
1996 07 14268 13446 14364
1996 10 14849 13900 14984
1997 01 14941 13995 15072
1997 04 14999 14010 15091
1997 07 15711 14635 15916
1997 10 16045 14919 16294
1998 01 16551 15471 16834
1998 04 16591 15496 16864
1998 07 16950 15787 17252
1998 10 17989 16449 18472
1999 01 18114 16631 18521
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate-Term Treasury Fund 9.44% 7.02% 8.53% $18,114
Average Intermediate-Term Treasury Fund 7.57 6.02 7.26 16,631
Lehman 5-10 Year U.S. Treasury Index 10.02 7.31 8.86 18,521
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ------------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Intermediate-Term Treasury Fund 10/28/1991 10.61% 7.19% 2.11% 6.42% 8.53%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
18
<PAGE> 21
PERFORMANCE SUMMARY
INTERMEDIATE-TERM CORPORATE FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: NOVEMBER 1, 1993-JANUARY 31, 1999
- -----------------------------------------------------------
INTERMEDIATE-TERM
CORPORATE FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1994 0.4% 1.3% 1.7% 2.4%
1995 -9.7 6.0 -3.7 -4.0
1996 12.1 7.8 19.9 21.1
1997 -4.2 6.5 2.3 2.7
1998 3.3 6.9 10.2 10.4
1999 1.2 6.5 7.7 8.4
- -----------------------------------------------------------
</TABLE>
*Lehman 5-10 Year Investment Grade Index.
See Financial Highlights table on page 48 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 1, 1993-JANUARY 31, 1999
- ---------------------------------------------------------
Intermediate - Term Average Intermediate Lehman 5-10 Year
Corporate Fund Term Corporate Fund Investment Grade Index
<S> <C> <C> <C>
2-Nov-93 10000 10000 10000
1994 01 10166 10148 10244
1994 04 9583 9661 9576
1994 07 9718 9773 9782
1994 10 9563 9663 9605
1995 01 9787 9842 9831
1995 04 10300 10242 10401
1995 07 10834 10651 10953
1995 10 11267 10996 11398
1996 01 11738 11363 11903
1996 04 11246 11028 11421
1996 07 11388 11159 11565
1996 10 11884 11559 12099
1997 01 12007 11678 12220
1997 04 12054 11740 12251
1997 07 12674 12282 12968
1997 10 12906 12481 13154
1998 01 13237 12797 13491
1998 04 13345 12316 13608
1998 07 13585 13118 13844
1998 10 13977 13472 14263
1999 01 14260 13647 14621
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate-Term Corporate Fund 7.73% 7.00% 6.99% $14,260
Average Intermediate-Term Corporate Fund 6.64 6.10 6.10 13,647
Lehman 5-10 Year Investment Grade Index 8.38 7.38 7.51 14,621
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- -----------------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Intermediate-Term Corporate Fund 11/1/1993 8.30% 7.11% 0.28% 6.64% 6.92%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
19
<PAGE> 22
PERFORMANCE SUMMARY
GNMA FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JUNE 27, 1980-JANUARY 31, 1999
- --------------------------------------------------------
GNMA FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1981 -12.5% 6.2% -6.3% -8.8%
1982 -9.5 13.5 4.0 1.7
1983 16.3 15.8 32.1 39.6
1984 -0.1 12.3 12.2 12.0
1985 0.5 13.0 13.5 15.4
1986 7.2 12.4 19.6 22.6
1987 1.9 10.3 12.2 13.6
1988 -4.1 9.4 5.3 6.8
1989 -3.6 9.4 5.8 6.6
1990 2.1 9.9 12.0 12.9
1991 3.2 9.7 12.9 13.2
1992 4.1 8.9 13.0 12.9
1993 2.4 8.0 10.4 10.1
1994 -1.0 6.2 5.2 6.1
1995 -6.5 6.9 0.4 -0.3
1996 7.6 8.0 15.6 15.5
1997 -2.1 7.3 5.2 5.6
1998 2.5 7.4 9.9 9.8
1999 0.0 6.8 6.8 6.7
- --------------------------------------------------------
</TABLE>
*Lehman GNMA Index.
See Financial Highlights table on page 48 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- ---------------------------------------------------------
GNMA Fund Average GNMA Lehman
Fund GNMA Index
<S> <C> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 10141 10134 10167
1989 07 10925 10807 10994
1989 10 11111 10969 11180
1990 01 11198 11040 11289
1990 04 11166 11015 11280
1990 07 11869 11655 12030
1990 10 11974 11775 12108
1991 01 12637 12359 12775
1991 04 12934 12613 13096
1991 07 13261 12891 13455
1991 10 14011 13530 14177
1992 01 14280 13768 14427
1992 04 14451 13919 14629
1992 07 15107 14532 15200
1992 10 15300 14660 15424
1993 01 15766 15101 15889
1993 04 16026 15400 16196
1993 07 16316 15720 16509
1993 10 16375 15850 16593
1994 01 16583 15989 16855
1994 04 16004 15336 16205
1994 07 16334 15594 16544
1994 10 16133 15362 16338
1995 01 16642 15735 16812
1995 04 17389 16395 17595
1995 07 18043 17036 18294
1995 10 18622 17524 18819
1996 01 19246 18043 19415
1996 04 18877 17665 19168
1996 07 19143 17878 19427
1996 10 19901 18496 20165
1997 01 20237 18732 20504
1997 04 20404 18866 20708
1997 07 21254 19693 21550
1997 10 21729 20048 22022
1998 01 22232 20471 22503
1998 04 22482 20676 22778
1998 07 22857 21034 23158
1998 10 23322 21405 23601
1999 01 23742 21703 24002
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
----------------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA Fund 6.79% 7.44% 9.03% $23,742
Average GNMA Fund 6.02 6.30 8.06 21,703
Lehman GNMA Index 6.66 7.33 9.15 24,002
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ---------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GNMA Fund 6/27/1980 7.14% 7.43% 1.23% 7.89% 9.12%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
20
<PAGE> 23
PERFORMANCE SUMMARY
LONG-TERM TREASURY FUND
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the fund. Note, too, that
both share price and return can fluctuate widely, so an investment in the fund
could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 19, 1986-JANUARY 31, 1999
- ----------------------------------------------------------
LONG-TERM TREASURY FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1987 3.1% 5.5% 8.6% 11.9%
1988 -7.7 8.0 0.3 1.5
1989 -2.2 8.6 6.4 5.1
1990 2.7 8.6 11.3 12.3
1991 2.2 8.8 11.0 11.6
1992 4.1 8.3 12.4 13.4
1993 6.1 8.0 14.1 14.6
1994 8.9 7.2 16.1 16.7
1995 -13.0 6.3 -6.7 -7.5
1996 18.7 8.0 26.7 27.4
1997 -8.2 6.4 -1.8 -1.6
1998 9.7 7.1 16.8 18.3
1999 5.8 6.2 12.0 12.3
- ----------------------------------------------------------
</TABLE>
*Lehman Long U.S. Treasury Index.
See Financial Highlights table on page 49 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- -------------------------------------------------------------------------
Long-Term Lehman Long
Treasury Average Long-Term U.S. Treasury
Fund Treasury Fund Index
<S> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 10170 10165 10148
1989 07 11353 11062 11386
1989 10 11467 11183 11561
1990 01 11133 10964 11228
1990 04 10755 10726 10881
1990 07 11574 11406 11757
1990 10 11452 11361 11652
1991 01 12357 12054 12527
1991 04 12613 12268 12790
1991 07 12687 12354 12872
1991 10 13507 13107 13766
1992 01 13895 13459 14209
1992 04 13819 13426 14119
1992 07 14928 14202 15333
1992 10 14949 14215 15355
1993 01 15858 14819 16290
1993 04 16521 15325 17002
1993 07 17516 15956 18065
1993 10 18387 16554 18994
1994 01 18409 16551 19015
1994 04 16780 15449 17225
1994 07 17052 15629 17521
1994 10 16371 15217 16789
1995 01 17179 15661 17591
1995 04 18070 16275 18567
1995 07 19374 17055 19899
1995 10 20727 17849 21298
1996 01 21769 18533 22416
1996 04 19927 17532 20554
1996 07 20249 17729 20886
1996 10 21342 18448 22033
1997 01 21367 18504 22062
1997 04 21344 18482 22021
1997 07 23108 19651 24027
1997 10 23796 20113 24814
1998 01 24966 20912 26090
1998 04 24914 20926 26049
1998 07 25833 21441 27045
1998 10 27497 22494 28861
1999 01 27967 22683 29289
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------------------ FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Treasury Fund 12.02% 8.72% 10.83% $27,967
Average Long-Term Treasury Fund 8.53 6.80 8.95 23,557
Lehman Long U.S. Treasury Index 12.26 9.02 11.34 29,289
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ----------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-Term Treasury Fund 5/19/1986 13.05% 8.99% 3.42% 7.53% 10.95%
- ----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
21
<PAGE> 24
PERFORMANCE SUMMARY
LONG-TERM CORPORATE FUND
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the fund. Note, too, that
both share price and return can fluctuate widely, so an investment in the fund
could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JANUARY 31, 1979-JANUARY 31, 1999
- -----------------------------------------------------------
LONG-TERM CORPORATE FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1980 -13.8% 8.8% -5.0% -12.0%
1981 -3.5 11.7 8.2 3.0
1982 -4.7 13.2 8.5 -0.8
1983 13.3 15.0 28.3 43.4
1984 -2.0 12.3 10.3 9.9
1985 0.0 13.4 13.4 17.4
1986 7.4 12.9 20.3 25.1
1987 5.6 10.9 16.5 21.1
1988 -7.5 9.3 1.8 3.0
1989 -2.5 9.6 7.1 6.6
1990 1.1 9.6 10.7 11.2
1991 0.3 9.5 9.8 11.2
1992 7.6 9.5 17.1 15.5
1993 6.6 8.5 15.1 13.8
1994 6.5 7.3 13.8 12.6
1995 -11.9 6.8 -5.1 -5.3
1996 15.3 8.3 23.6 23.9
1997 -6.0 6.9 0.9 0.7
1998 7.9 7.6 15.5 15.3
1999 2.9 6.6 9.5 10.3
- -----------------------------------------------------------
</TABLE>
*Lehman Long Corporate AA or Better Bond Index.
See Financial Highlights table on page 49 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- --------------------------------------------------------------------------------
Long-Term Average Long-Term Lehman Long Corporate
Corporate Corporate A-Rated AA or Better
Fund Fund Bond Index
<S> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 10132 10146 10174
1989 07 11102 10876 11114
1989 10 11232 11012 11294
1990 01 11067 10926 11118
1990 04 10839 10834 10911
1990 07 11676 11440 11695
1990 10 11360 11401 11625
1991 01 12153 11971 12358
1991 04 12684 12357 12797
1991 07 12900 12531 13044
1991 10 13719 13212 13848
1992 01 14230 13584 14277
1992 04 14351 13686 14362
1992 07 15526 14511 15438
1992 10 15515 14562 15438
1993 01 16373 15103 16242
1993 04 17084 15630 16784
1993 07 17776 16078 17462
1993 10 18498 16601 18143
1994 01 18637 16705 18295
1994 04 17324 15732 16937
1994 07 17561 15893 17215
1994 10 17006 15615 16603
1995 01 17684 15974 17319
1995 04 18674 16666 18353
1995 07 19765 17370 19429
1995 10 20909 18082 20507
1996 01 21863 18692 21463
1996 04 20550 17953 20144
1996 07 20849 18198 20478
1996 10 21917 18953 21585
1997 01 22050 19100 21618
1997 04 22064 19113 21657
1997 07 24052 20176 23528
1997 10 24597 20568 23989
1998 01 25473 21079 24934
1998 04 25662 21144 25177
1998 07 26301 21597 25746
1998 10 26767 22156 26313
1999 01 27897 22537 27500
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------------------ FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Corporate Fund 9.52% 8.40% 10.80% $27,897
Average Long-Term Corporate A-Rated Fund 6.92 6.17 8.47 22,537
Lehman Long Corporate AA or Better Bond Index 10.29 8.49 10.65 27,500
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ----------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-Term Corporate Fund 7/9/1973 9.21% 8.53% 2.76% 8.08% 10.84%
- ----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
22
<PAGE> 25
PERFORMANCE SUMMARY
HIGH-YIELD CORPORATE FUND
All of the data on this page represent past performance, which cannot be
used to predict future returns that may be achieved by the fund. Note, too,
that both share price and return can fluctuate widely, so an investment in
the fund could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JANUARY 31, 1979-JANUARY 31, 1999
- -----------------------------------------------------------
HIGH-YIELD CORPORATE FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
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
1997 -0.3 9.3 9.0 10.5
1998 3.8 9.3 13.1 13.7
1999 -3.0 8.3 5.3 1.6
- -----------------------------------------------------------
</TABLE>
*Lehman Mutual Fund BBB Rated or Better Bond Index through January 1984; Lehman
High Yield Bond Index thereafter.
See Financial Highlights table on page 50 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- --------------------------------------------------------------------------------
High-Yield Average Lehman High
Corporate High-Yield Yield Bond
Fund* Bond Fund Index
<S> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 9964 10001 9986
1989 07 10347 10309 10292
1989 10 10050 9871 9913
1990 01 9816 9471 9696
1990 04 9817 9347 9728
1990 07 10406 9906 10429
1990 10 9105 8642 8639
1991 01 9501 8785 9205
1991 04 10684 10266 11257
1991 07 11204 10833 11983
1991 10 11862 11667 12844
1992 01 12473 12284 13557
1992 04 12847 12820 14118
1992 07 13491 13364 14670
1992 10 13474 13530 14802
1993 01 14304 14243 15600
1993 04 14977 14845 16220
1993 07 15651 15577 16920
1993 10 16297 16246 17452
1994 01 16813 16930 18138
1994 04 15664 16057 17289
1994 07 15942 16055 17499
1994 10 16093 16179 17665
1995 01 16389 16031 17808
1995 04 17423 16946 19092
1995 07 18219 17715 20001
1995 10 18795 18239 20385
1996 01 19504 18928 21316
1996 04 19302 19151 21360
1996 07 19614 19467 21765
1996 10 20454 20546 22648
1997 01 21262 21292 23552
1997 04 21390 21307 23830
1997 07 22732 22841 25352
1997 10 23141 23517 25755
1998 01 24056 24244 26774
1998 04 24425 24842 27287
1998 07 24901 24931 27634
1998 10 23931 22729 25626
1999 01 25340 24018 27189
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
------------------------------------------ FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High-Yield Corporate Fund* 5.34% 8.55% 9.74% $25,340
Average High-Yield Bond Fund -0.93 7.24 9.16 24,018
Lehman High Yield Bond Index 1.55 8.43 10.52 27,189
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total returns do not reflect the 1% fee assessed on redemptions of shares held
for less than one year.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ----------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High-Yield Corporate Fund** 12/27/1978 5.62% 8.68% -0.66% 10.41% 9.75%
- ----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Total returns do not reflect the 1% fee assessed on redemptions of shares
held for less than one year.
23
<PAGE> 26
FUND PROFILE
SHORT-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
SHORT-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 40 7,294
Yield 4.7% 6.5%
Yield to Maturity 4.8% 5.7%
Average Coupon 5.9% 6.9%
Average Maturity 2.9 years 8.6 years
Average Quality Treasury Aaa
Average Duration 2.3 years 4.4 years
Expense Ratio 0.27% --
Cash Reserves 1.4% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------------
SHORT-TERM LEHMAN
TREASURY INDEX*
- -------------------------------------------------
<S> <C> <C>
R-Squared 0.83 1.00
Beta 0.48 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Treasury 85.2%
Agency 14.8
- -------------------------------------------------------
100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 0.9%
1-3 Years 67.5
3-5 Years 28.7
Over 5 Years 2.9
- -------------------------------------------------------
Total 100.0%
</TABLE>
24
<PAGE> 27
AVERAGE COUPON. The average interest rate paid on the securities held by a
fund. It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average
duration of five years would decline by about 5%. If rates decrease by a
percentage point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes
in market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities. U.S. Treasury and agency securities are
considered to have the highest credit quality.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY COUPON. A breakdown of the securities in a fund according to
coupon rate--the interest rate that an issuer promises to pay, expressed as an
annual percentage of face value. Securities with unusually high coupon rates
may be subject to call risk, the possibility that they will be redeemed (or
"called") early by the issuer.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY ISSUER. A breakdown of a fund's holdings by type of issuer or
type of instrument.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two
attributes: average maturity (short, medium, or long) and average credit
quality (Treasury/agency, investment-grade corporate, or below
investment-grade).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
25
<PAGE> 28
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days and is annualized, or projected forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
26
<PAGE> 29
FUND PROFILE
SHORT-TERM FEDERAL FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
SHORT-TERM LEHMAN
FEDERAL INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 67 7,294
Yield 5.1% 6.5%
Yield to Maturity 5.2% 5.7%
Average Coupon 6.1% 6.9%
Average Maturity 2.8 years 8.6 years
Average Quality Agency Aaa
Average Duration 2.3 years 4.4 years
Expense Ratio 0.27% --
Cash Reserves 2.0% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
SHORT-TERM LEHMAN
FEDERAL INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.86 1.00
Beta 0.44 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Treasury 11.5%
Agency 88.5
- -------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 13.9%
1-3 Years 43.5
3-5 Years 32.6
Over 5 Years 10.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
27
<PAGE> 30
FUND PROFILE
SHORT-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
SHORT-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 299 7,294
Yield 5.7% 6.5%
Yield--Institutional
Shares 5.9% 6.5%
Yield to Maturity 5.8% 5.7%
Average Coupon 6.6% 6.9%
Average Maturity 2.7 years 8.6 years
Average Quality A1 Aaa
Average Duration 2.3 years 4.4 years
Expense Ratio 0.27% --
Expense Ratio--
Institutional Shares 0.15% --
Cash Reserves 3.1% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
SHORT-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.94 1.00
Beta 0.47 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Treasury/Agency 1.0%
Aaa 19.0
Aa 18.3
A 37.8
Baa 22.9
Ba 0.0
B 0.0
Not Rated 1.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 20.0%
1-3 Years 46.0
3-5 Years 21.5
Over 5 Years 12.5
- -------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Asset-Backed 15.2%
Finance 46.5
Foreign 7.3
Industrial 18.3
Mortgage 1.3
Treasury/Agency 1.0
Utilities 9.8
Other 0.6
- -------------------------------------------------------
Total 100.0%
</TABLE>
28
<PAGE> 31
FUND PROFILE
INTERMEDIATE-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 32 7,294
Yield 4.9% 6.5%
Yield to Maturity 5.0% 5.7%
Average Coupon 7.5% 6.9%
Average Maturity 7.6 years 8.6 years
Average Quality Treasury Aaa
Average Duration 5.6 years 4.4 years
Expense Ratio 0.27% --
Cash Reserves 3.7% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.94 1.00
Beta 1.29 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Treasury 90.5%
Agency 9.5
- -------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 4.3%
1-5 Years 9.9
5-10 Years 78.5
10-20 Years 7.3
20-30 Years 0.0
Over 30 Years 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
29
<PAGE> 32
FUND PROFILE
INTERMEDIATE-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 177 7,294
Yield 6.0% 6.5%
Yield to Maturity 6.0% 5.7%
Average Coupon 6.7% 6.9%
Average Maturity 7.0 years 8.6 years
Average Quality A1 Aaa
Average Duration 5.4 years 4.4 years
Expense Ratio 0.27% --
Cash Reserves 3.2% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.97 1.00
Beta 1.20 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Treasury/Agency 4.1%
Aaa 9.8
Aa 16.8
A 46.1
Baa 22.4
Ba 0.0
B 0.0
Not Rated 0.8
- -------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 1.6%
1-5 Years 22.2
5-10 Years 70.3
10-20 Years 5.9
20-30 Years 0.0
Over 30 Years 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Asset-Backed 6.2%
Finance 42.3
Foreign 10.5
Industrial 23.3
Mortgage 0.0
Treasury/Agency 4.1
Utilities 13.6
- -------------------------------------------------------
Total 100.0%
</TABLE>
30
<PAGE> 33
FUND PROFILE
GNMA FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
LEHMAN
GNMA INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 26 7,294
Yield 6.2% 6.5%
Yield to Maturity 6.3% 5.7%
Average Coupon 6.9% 6.9%
Average Maturity 6.1 years 8.6 years
Average Quality Treasury Aaa
Average Duration 4.1 years 4.4 years
Expense Ratio 0.30% --
Cash Reserves 1.5% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
LEHMAN
GNMA INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.91 1.00
Beta 0.75 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY COUPON (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 6% 0.7%
6%-7% 44.7
7%-8% 41.7
8%-9% 9.9
9%-10% 2.9
Over 10% 0.1
- -------------------------------------------------------
Total 100.0%
</TABLE>
31
<PAGE> 34
FUND PROFILE
LONG-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
LONG-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 16 7,294
Yield 5.2% 6.5%
Yield to Maturity 5.3% 5.7%
Average Coupon 7.5% 6.9%
Average Maturity 20.6 years 8.6 years
Average Quality Treasury Aaa
Average Duration 10.8 years 4.4 years
Expense Ratio 0.27% --
Cash Reserves 3.0% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
LONG-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.94 1.00
Beta 2.14 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Treasury 88.3%
Agency 11.7
- -------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 0.8%
1-5 Years 0.0
5-10 Years 11.7
10-20 Years 22.1
20-30 Years 65.4
Over 30 Years 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
32
<PAGE> 35
FUND PROFILE
LONG-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -------------------------------------------------------------
LONG-TERM LEHMAN
CORPORATE INDEX*
- -------------------------------------------------------------
<S> <C> <C>
Number of Issues 152 7,294
Yield 6.0% 6.5%
Yield to Maturity 6.2% 5.7%
Average Coupon 7.0% 6.9%
Average Maturity 18.8 years 8.6 years
Average Quality Aa3 Aaa
Average Duration 9.0 years 4.4 years
Expense Ratio 0.30% --
Cash Reserves 6.7% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- ------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------------------------
LONG-TERM LEHMAN
CORPORATE INDEX*
- -----------------------------------------------------------
<S> <C> <C>
R-Squared 0.91 1.00
Beta 1.82 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- --------------------------------------------------------
<S> <C>
Treasury/Agency 4.5%
Aaa 13.3
Aa 20.5
A 43.6
Baa 18.1
Ba 0.0
B 0.0
Not Rated 0.0
- -----------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -----------------------------------------------------------
<S> <C>
Under 1 Year 0.0%
1-5 Years 2.3
5-10 Years 26.2
10-20 Years 14.8
20-30 Years 53.9
Over 30 Years 2.8
- -----------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- --------------------------------------------------------
<S> <C>
Asset-Backed 0.0%
Finance 23.7
Foreign 2.8
Industrial 47.4
Mortgage 9.2
Treasury/Agency 4.5
Utilities 12.4
- --------------------------------------------------------
Total 100.0%
</TABLE>
33
<PAGE> 36
FUND PROFILE
HIGH-YIELD CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 25 and 26.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ------------------------------------------------------------
HIGH-YIELD LEHMAN
CORPORATE INDEX*
- ------------------------------------------------------------
<S> <C> <C>
Number of Issues 229 7,294
Yield 8.3% 6.5%
Yield to Maturity 8.2% 5.7%
Average Coupon 8.6% 6.9%
Average Maturity 7.0 years 8.6 years
Average Quality Ba2 Aaa
Average Duration 4.9 years 4.4 years
Expense Ratio 0.29% --
Cash Reserves 4.1% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- -----------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ------------------------------------------------------------
HIGH-YIELD LEHMAN
CORPORATE INDEX*
- ------------------------------------------------------------
<S> <C> <C>
R-Squared 0.13 1.00
Beta 0.48 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- --------------------------------------------------------
<S> <C>
Treasury/Agency 5.2%
Aaa 0.0
Aa 0.0
A 0.3
Baa 3.4
Ba 45.2
B 45.5
Caa 0.4
Not Rated 0.0
- --------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- --------------------------------------------------------
<S> <C>
Under 1 Year 0.6%
1-5 Years 16.9
5-10 Years 78.0
10-20 Years 4.1
20-30 Years 0.4
Over 30 Years 0.0
- --------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- --------------------------------------------------------
<S> <C>
Asset-Backed 0.0%
Finance 3.1
Foreign 0.0
Industrial 83.7
Mortgage 0.0
Treasury/Agency 5.2
Utilities 8.0
- --------------------------------------------------------
Total 100.0%
</TABLE>
34
<PAGE> 37
FINANCIAL STATEMENTS
JANUARY 31, 1999
[PHOTO]
The Statements of Net Assets, integral parts of the Financial Statements for
each of the Vanguard Bond Funds, are included as an insert to this report
(except for the GNMA Fund, whose Statement of Net Assets is provided below).
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by bond type (U.S. government and agency issues,
corporate bonds, foreign bonds, etc.); corporate bonds are further classified by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets of each fund, you will find a
table displaying the composition of the fund's net assets. Undistributed Net
Investment Income is usually zero because the fund distributes its net income to
shareholders as a dividend each day. Any realized gains must be distributed
annually, so the bulk of net assets consists of Paid in Capital (money
invested by shareholders). The balance shown for Accumulated Net Realized Gains
usually approximates the amount available to distribute to shareholders as
capital gains as of the statement date, but may differ because certain
investments or transactions may be treated differently for financial statement
and tax purposes. Any Accumulated Net Realized Losses, and any cumulative excess
of distributions over net realized gains, will appear as negative balances.
Unrealized Appreciation (Depreciation) is the difference between the value of
the fund's investments and their cost, and reflects the gains (losses) that
would be realized if the fund were to sell all of its investments at their
statement-date values.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
GNMA FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OBLIGATIONS (98.5%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Assn. 5.50% 3/15/2013-2/1/2014(1) $ 75,246 $ 74,559
Government National Mortgage Assn. 6.00% 10/15/2023-1/20/2029(1) 1,513,154 1,502,856
Government National Mortgage Assn. 6.50% 7/15/2008-2/1/2029(1) 3,467,792 3,513,329
Government National Mortgage Assn. 7.00% 4/15/2007-12/15/2028(1) 2,638,136 2,705,693
Government National Mortgage Assn. 7.25% 12/15/2026-2/15/2027(1) 4,039 4,158
Government National Mortgage Assn. 7.50% 12/15/2001-5/15/2028(1) 1,874,469 1,938,121
Government National Mortgage Assn. 7.75% 2/15/2027(1) 10,745 11,149
Government National Mortgage Assn. 8.00% 5/15/2001-9/15/2026(1) 794,910 832,186
Government National Mortgage Assn. 8.25% 8/15/2004-7/15/2008(1) 3,709 3,921
Government National Mortgage Assn. 8.50% 1/20/2005-12/15/2024(1) 252,142 269,481
Government National Mortgage Assn. 9.00% 9/15/2001-2/15/2023(1) 201,541 217,085
Government National Mortgage Assn. 9.25% 5/15/2016-6/15/2018(1) 1,534 1,649
Government National Mortgage Assn. 9.50% 12/15/2000-12/15/2022(1) 97,342 105,409
Government National Mortgage Assn. 10.00% 7/20/2014-8/20/2018(1) 2,096 2,293
Government National Mortgage Assn. 11.00% 7/15/2010-2/20/2016(1) 567 634
Government National Mortgage Assn. 11.25% 7/15/2013-2/20/2016(1) 493 551
Government National Mortgage Assn. 11.50% 1/15/2013-11/20/2015(1) 763 864
Government National Mortgage Assn. 12.00% 10/15/2010-1/20/2016(1) 1,142 1,315
Government National Mortgage Assn. 12.50% 12/20/2013-7/20/2015(1) 688 800
Government National Mortgage Assn. 12.75% 12/15/2014(1) 28 33
Government National Mortgage Assn. 13.00% 1/15/2011-1/20/2015(1) 533 622
Government National Mortgage Assn. 13.25% 8/15/2014-10/15/2014(1) 127 148
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
GNMA FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Assn. 13.50% 5/15/2010-12/15/2014(1) $ 171 $ 201
Government National Mortgage Assn. 13.75% 9/20/2014(1) 4 5
Government National Mortgage Assn. 14.00% 6/15/2011-9/15/2012(1) 132 155
Government National Mortgage Assn. 15.00% 9/15/2011-5/15/2012(1) 90 106
- -------------------------------------------------------------------------------------------------------------------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OBLIGATIONS
(COST $10,890,105) 11,187,323
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (4.5%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $510,023) 4.73% 2/1/1999 510,023 510,023
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (103.0%)
(COST $11,400,128) 11,697,346
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-3.0%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 78,351
Payables for Investment Securities Purchased (389,776)
Other Liabilities (31,947)
-----------
(343,372)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 1,084,885,939 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $11,353,974
==========================================================================================================================
NET ASSET VALUE PER SHARE $10.47
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $11,056,559 $10.20
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 197 --
Unrealized Appreciation--Note H 297,218 .27
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $11,353,974 $10.47
=========================================================================================================================
</TABLE>
36
<PAGE> 39
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund during the reporting period,
and details the operating expenses charged to each class of its shares. These
expenses directly reduce the amount of investment income available to pay to
shareholders as income dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period. If a
fund invested in futures contracts during the period, the results of these
investments are shown separately.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SHORT-TERM SHORT-TERM INTERMEDIATE-TERM
TREASURY FEDERAL CORPORATE TREASURY
FUND FUND FUND FUND
-------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1999
-------------------------------------------------------------------------
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $59,674 $91,494 $345,804 $103,908
Security Lending 129 23 187 274
-------------------------------------------------------------------------
Total Income 59,803 91,517 345,991 104,182
-------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 133 191 671 212
The Vanguard Group--Note C
Management and Administrative 991 1,499 5,698 1,838
Shareholder Account Maintenance(1) 1,374 1,889 5,856 1,994
Marketing and Distribution(1) 280 390 1,589 454
Taxes (other than income taxes) 25 36 124 40
Custodian Fees 14 32 98 14
Auditing Fees 7 7 10 7
Shareholders' Reports(1) 45 65 126 53
Annual Meeting and Proxy Costs(1) 4 6 12 5
Trustees' Fees and Expenses 2 3 9 3
-------------------------------------------------------------------------
Total Expenses 2,875 4,118 14,193 4,620
Expenses Paid Indirectly--Note D -- (10) (75) (4)
-------------------------------------------------------------------------
Net Expenses 2,875 4,108 14,118 4,616
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 56,928 87,409 331,873 99,566
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 8,818 5,876 15,019 23,876
Futures Contracts -- -- (5,656) 3,587
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 8,818 5,876 9,363 27,463
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 3,074 5,094 (11,899) 28,531
Futures Contracts -- -- 1,194 21
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 3,074 5,094 (10,705) 28,552
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $68,820 $98,379 $330,531 $155,581
=========================================================================================================================
</TABLE>
(1)Expenses of the Short-Term Corporate Fund by class of shares are:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(000)
----------------------------------------------
INVESTOR INSTITUTIONAL
SHARES SHARES TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class-Specific Expenses:
Shareholder Account Maintenance $ 5,766 $ 90 $ 5,856
Marketing and Distribution 1,589 -- 1,589
Shareholders' Reports 126 -- 126
Annual Meeting and Proxy Costs 12 -- 12
----------------------------------------------
Total Class-Specific Expenses 7,493 90 7,583
All Other Fund Expenses 6,203 407 6,610
- -------------------------------------------------------------------------------------------------------------------------
Total Expenses $13,696 $497 $14,193
=========================================================================================================================
</TABLE>
See Note E in Notes to Financial Statements.
37
<PAGE> 40
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM LONG-TERM LONG-TERM
CORPORATE GNMA TREASURY CORPORATE
FUND FUND FUND FUND
---------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1999
---------------------------------------------------------------------------
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $68,762 $685,704 $ 72,142 $258,866
Security Lending 244 -- 171 86
---------------------------------------------------------------------------
Total Income 69,006 685,704 72,313 258,952
---------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 128 1,229 147 1,048
The Vanguard Group--Note C
Management and Administrative 1,586 14,090 1,078 4,804
Shareholder Account Maintenance 742 10,989 1,594 4,897
Marketing and Distribution 304 2,195 300 824
Taxes (other than income taxes) 23 226 26 93
Custodian Fees 21 1,079 28 44
Auditing Fees 6 14 7 9
Shareholders' Reports 17 293 45 106
Annual Meeting and Proxy Costs 2 28 4 10
Trustees' Fees and Expenses 2 18 2 7
---------------------------------------------------------------------------
Total Expenses 2,831 30,161 3,231 11,842
Expenses Paid Indirectly--Note D (15) (98) -- (60)
---------------------------------------------------------------------------
Net Expenses 2,816 30,063 3,231 11,782
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 66,190 655,641 69,082 247,170
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 14,250 10,764 20,149 79,798
Futures Contracts (99) -- 358 --
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 14,151 10,764 20,507 79,798
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 389 (7,860) 48,185 37,951
Futures Contracts -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 389 (7,860) 48,185 37,951
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $80,730 $658,545 $137,774 $364,919
=========================================================================================================================
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD CORPORATE FUND
YEAR ENDED JANUARY 31, 1999
(000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Interest $433,157
Security Lending 1,027
---------------
Total Income 434,184
---------------
EXPENSES
Investment Advisory Fees--Note B 1,831
The Vanguard Group--Note C
Management and Administrative 6,716
Shareholder Account Maintenance 4,849
Marketing and Distribution 1,101
Taxes (other than income taxes) 121
Custodian Fees 102
Auditing Fees 10
Shareholders' Reports 142
Annual Meeting and Proxy Costs 14
Trustees' Fees and Expenses 9
---------------
Total Expenses 14,895
Expenses Paid Indirectly--Note D (178)
---------------
Net Expenses 14,717
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 419,467
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (2,445)
Futures Contracts --
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (2,445)
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (153,489)
Futures Contracts --
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (153,489)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $263,533
=========================================================================================================================
</TABLE>
39
<PAGE> 42
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the fund distributes its income
to shareholders each day, the amounts of Distributions--Net Investment Income
generally equal the net income earned as shown under the Operations section. The
amounts of Distributions--Realized Capital Gain may not match the capital gains
shown in the Operations section, because distributions are determined on a tax
basis and may be made in a period different from the one in which the gains were
realized on the financial statements. The Capital Share Transactions section
shows the amount shareholders invested in the fund, either by purchasing shares
or by reinvesting distributions, and the amounts redeemed. The corresponding
numbers of Shares Issued and Redeemed are shown at the end of the Statement.
Distributions, Capital Share Transactions, and Shares Issued and Redeemed are
shown separately for each class of shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SHORT-TERM
TREASURY FUND FEDERAL FUND
--------------------------------------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 56,928 $ 57,004 $ 87,409 $ 83,019
Realized Net Gain (Loss) 8,818 3,983 5,876 5,665
Change in Unrealized Appreciation
(Depreciation) 3,074 6,845 5,094 5,862
--------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 68,820 67,832 98,379 94,546
--------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (56,928) (57,004) (87,409) (83,019)
Realized Capital Gain (2,497) -- -- --
--------------------------------------------------------------------
Total Distributions (59,425) (57,004) (87,409) (83,019)
--------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 500,362 310,935 521,686 399,771
Issued in Lieu of Cash Distributions 52,411 50,737 75,064 71,077
Redeemed (373,916) (332,999) (423,745) (369,801)
--------------------------------------------------------------------
Net Increase from Capital
Share Transactions 178,857 28,673 173,005 101,047
- --------------------------------------------------------------------------------------------------------------------------
Total Increase 188,252 39,501 183,975 112,574
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,009,243 969,742 1,460,436 1,347,862
--------------------------------------------------------------------
End of Year $1,197,495 $1,009,243 $1,644,411 $1,460,436
==========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 48,432 30,582 51,089 39,559
Issued in Lieu of Cash Distributions 5,078 4,990 7,351 7,036
Redeemed (36,272) (32,757) (41,519) (36,610)
--------------------------------------------------------------------
Net Increase in Shares Outstanding 17,238 2,815 16,921 9,985
==========================================================================================================================
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SHORT-TERM
CORPORATE FUND
YEAR ENDED JANUARY 31,
-------------------------------------
1999 1998
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 331,873 $ 289,231
Realized Net Gain (Loss) 9,363 1,279
Change in Unrealized Appreciation (Depreciation) (10,705) 52,731
-------------------------------------
Net Increase in Net Assets Resulting from Operations 330,531 343,241
-------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (311,139) (283,686)
Institutional Shares (20,734) (5,545)
Realized Capital Gain
Investor Shares -- --
Institutional Shares -- --
-------------------------------------
Total Distributions (331,873) (289,231)
-------------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 2,238,424 1,761,294
Issued in Lieu of Cash Distributions 269,772 245,843
Redeemed (1,686,245) (1,881,581)
-------------------------------------
Net Increase--Investor Shares 821,951 125,556
-------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES(2)
Issued 190,015 273,772
Issued in Lieu of Cash Distributions 17,350 5,544
Redeemed (49,229) (18,443)
-------------------------------------
Net Increase--Institutional Shares 158,136 260,873
- --------------------------------------------------------------------------------------------------------------------------
Total Increase 978,745 440,439
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 4,971,177 4,530,738
-------------------------------------
End of Year $5,949,922 $4,971,177
==========================================================================================================================
(1)Shares Issued (Redeemed)--Investor Shares
Issued 206,458 163,623
Issued in Lieu of Cash Distributions 24,868 22,845
Redeemed (155,492) (174,866)
-------------------------------------
Net Increase in Shares Outstanding 75,834 11,602
==========================================================================================================================
(2)Shares Issued (Redeemed)--Institutional Shares
Issued 17,520 25,348
Issued in Lieu of Cash Distributions 1,599 512
Redeemed (4,541) (1,706)
-------------------------------------
Net Increase in Shares Outstanding 14,578 24,154
==========================================================================================================================
</TABLE>
41
<PAGE> 44
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM INTERMEDIATE-TERM
TREASURY FUND CORPORATE FUND
------------------------------------ ---------------------------------
YEAR ENDED JANUARY 31,
-----------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 99,566 $ 84,087 $ 66,190 $ 46,556
Realized Net Gain (Loss) 27,463 (5,459) 14,151 1,083
Change in Unrealized Appreciation
(Depreciation) 28,552 63,116 389 24,555
-----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 155,581 141,744 80,730 72,194
-----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (99,566) (84,087) (66,190) (46,556)
Realized Capital Gain -- -- (9,243) (952)
-----------------------------------------------------------------------
Total Distributions (99,566) (84,087) (75,433) (47,508)
-----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 764,715 602,871 521,754 415,063
Issued in Lieu of Cash Distributions 74,832 61,945 62,630 39,277
Redeemed (614,490) (406,226) (254,477) (171,911)
-----------------------------------------------------------------------
Net Increase from Capital
Share Transactions 225,057 258,590 329,907 282,429
- --------------------------------------------------------------------------------------------------------------------------
Total Increase 281,072 316,247 335,204 307,115
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,594,832 1,278,585 898,888 591,773
-----------------------------------------------------------------------
End of Year $1,875,904 $1,594,832 $1,234,092 $898,888
==========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 69,777 57,416 52,041 42,302
Issued in Lieu of Cash Distributions 6,831 5,919 6,244 4,003
Redeemed (56,110) (38,931) (25,384) (17,547)
-----------------------------------------------------------------------
Net Increase in Shares Outstanding 20,498 24,404 32,901 28,758
==========================================================================================================================
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM
GNMA FUND TREASURY FUND
------------------------------------ ---------------------------------
YEAR ENDED JANUARY 31,
-----------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 655,641 $ 559,144 $ 69,082 $ 58,983
Realized Net Gain (Loss) 10,764 1,871 20,507 (701)
Change in Unrealized Appreciation
(Depreciation) (7,860) 202,766 48,185 88,314
-----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 658,545 763,781 137,774 146,596
-----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (655,641) (559,144) (69,082) (58,983)
Realized Capital Gain (12,237) (1,985) -- --
-----------------------------------------------------------------------
Total Distributions (667,878) (561,129) (69,082) (58,983)
-----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 3,904,241 2,326,765 747,238 389,064
Issued in Lieu of Cash Distributions 508,264 424,132 54,527 45,242
Redeemed (1,943,264) (1,459,563) (481,620) (358,440)
-----------------------------------------------------------------------
Net Increase from Capital
Share Transactions 2,469,241 1,291,334 320,145 75,866
- --------------------------------------------------------------------------------------------------------------------------
Total Increase 2,459,908 1,493,986 388,837 163,479
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 8,894,066 7,400,080 1,061,422 897,943
-----------------------------------------------------------------------
End of Year $ 11,353,974 $ 8,894,066 $ 1,450,259 $ 1,061,422
==========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 373,652 225,661 67,200 38,081
Issued in Lieu of Cash Distributions 48,627 41,195 4,914 4,478
Redeemed (185,917) (141,703) (43,491) (35,474)
-----------------------------------------------------------------------
Net Increase in Shares Outstanding 236,362 125,153 28,623 7,085
==========================================================================================================================
</TABLE>
43
<PAGE> 46
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM HIGH-YIELD
CORPORATE FUND CORPORATE FUND
----------------------------------- ----------------------------------
YEAR ENDED JANUARY 31,
-----------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 247,170 $ 233,907 $ 419,467 $ 356,175
Realized Net Gain (Loss) 79,798 61,205 (2,445) 55,757
Change in Unrealized Appreciation
(Depreciation) 37,951 204,284 (153,489) 105,470
-----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 364,919 499,396 263,533 517,402
-----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (247,170) (233,907) (419,467) (356,175)
Realized Capital Gain (88,379) (29,076) (17,026) --
-----------------------------------------------------------------------
Total Distributions (335,549) (262,983) (436,493) (356,175)
-----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 1,013,958 811,295 1,704,032 1,300,054
Issued in Lieu of Cash Distributions 283,759 216,458 306,214 249,424
Redeemed* (815,663) (867,427) (1,035,394) (637,696)
-----------------------------------------------------------------------
Net Increase from Capital
Share Transactions 482,054 160,326 974,852 911,782
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE 511,424 396,739 801,892 1,073,009
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 3,720,278 3,323,539 4,746,951 3,673,942
-----------------------------------------------------------------------
End of Year $4,231,702 $3,720,278 $5,548,843 $4,746,951
==========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 109,341 90,509 214,452 162,853
Issued in Lieu of Cash Distributions 30,569 24,157 38,479 31,269
Redeemed (87,606) (97,058) (131,086) (80,332)
-----------------------------------------------------------------------
Net Increase in Shares Outstanding 52,304 17,608 121,845 113,790
==========================================================================================================================
</TABLE>
* The High-Yield Corporate Fund is net of redemption fees of $1,580,000 and
$867,000.
44
<PAGE> 47
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.27 $10.16 $10.36 $ 9.89 $10.41
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .545 .590 .586 .625 .532
Net Realized and Unrealized Gain (Loss) on Investments .122 .110 (.200) .470 (.500)
--------------------------------------------------------------
Total from Investment Operations .667 .700 .386 1.095 .032
--------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.545) (.590) (.586) (.625) (.532)
Distributions from Realized Capital Gains (.022) -- -- -- (.020)
--------------------------------------------------------------
Total Distributions (.567) (.590) (.586) (.625) (.552)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.37 $10.27 $10.16 $10.36 $ 9.89
=========================================================================================================================
TOTAL RETURN 6.66% 7.11% 3.89% 11.37% 0.40%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,197 $1,009 $970 $919 $754
Ratio of Total Expenses to Average Net Assets 0.27% 0.27% 0.25% 0.27% 0.28%
Ratio of Net Investment Income to Average Net Assets 5.27% 5.80% 5.77% 6.14% 5.33%
Portfolio Turnover Rate 132% 83% 86% 93% 126%
=========================================================================================================================
</TABLE>
45
<PAGE> 48
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM FEDERAL FUND
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.19 $10.11 $10.28 $ 9.79 $10.38
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .581 .611 .615 .601 .550
Net Realized and Unrealized Gain (Loss) on Investments .070 .080 (.170) .490 (.580)
---------------------------------------------------------------
Total from Investment Operations .651 .691 .445 1.091 (.030)
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.581) (.611) (.615) (.601) (.550)
Distributions from Realized Capital Gains -- -- -- -- (.010)
---------------------------------------------------------------
Total Distributions (.581) (.611) (.615) (.601) (.560)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.26 $10.19 $10.11 $10.28 $ 9.79
=========================================================================================================================
TOTAL RETURN 6.57% 7.06% 4.51% 11.43% -0.21%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,644 $1,460 $1,348 $1,402 $1,474
Ratio of Total Expenses to Average Net Assets 0.27% 0.27% 0.25% 0.27% 0.28%
Ratio of Net Investment Income to Average Net Assets 5.68% 6.04% 6.09% 5.93% 5.53%
Portfolio Turnover Rate 107% 94% 57% 74% 57%
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE FUND
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.87 $10.75 $10.94 $10.40 $10.94
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .660 .664 .663 .671 .596
Net Realized and Unrealized Gain (Loss) on Investments (.010) .120 (.190) .540 (.540)
---------------------------------------------------------------
Total from Investment Operations .650 .784 .473 1.211 .056
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.660) (.664) (.663) (.671) (.596)
Distributions from Realized Capital Gains -- -- -- -- --
---------------------------------------------------------------
Total Distributions (.660) (.664) (.663) (.671) (.596)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.86 $10.87 $10.75 $10.94 $10.40
=========================================================================================================================
TOTAL RETURN 6.16% 7.53% 4.52% 11.95% 0.60%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $5,529 $4,709 $4,531 $3,873 $2,924
Ratio of Total Expenses to Average Net Assets 0.27% 0.28% 0.25% 0.27% 0.28%
Ratio of Net Investment Income to Average Net Assets 6.08% 6.17% 6.18% 6.23% 5.66%
Portfolio Turnover Rate 46% 45% 45% 62% 69%
=========================================================================================================================
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE FUND INSTITUTIONAL SHARES
YEAR ENDED SEP. 30, 1997*, TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD JANUARY 31, 1999 JAN. 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.87 $10.80
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .673 .229
Net Realized and Unrealized Gain (Loss) on Investments (.010) .070
----------------------------------
Total from Investment Operations .663 .299
----------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.673) (.229)
Distributions from Realized Capital Gains -- --
----------------------------------
Total Distributions (.673) (.229)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.86 $10.87
======================================================================================================================
TOTAL RETURN 6.28% 2.79%
======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $421 $263
Ratio of Total Expenses to Average Net Assets 0.15% 0.15%**
Ratio of Net Investment Income to Average Net Assets 6.19% 6.28%**
Portfolio Turnover Rate 46% 45%
======================================================================================================================
</TABLE>
* Inception.
** Annualized.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.80 $10.37 $10.90 $ 9.76 $10.82
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .630 .647 .649 .662 .603
Net Realized and Unrealized Gain (Loss) on Investments .360 .430 (.530) 1.140 (1.033)
------------------------------------------------------------
Total from Investment Operations .990 1.077 .119 1.802 (.430)
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.630) (.647) (.649) (.662) (.603)
Distributions from Realized Capital Gains -- -- -- -- (.027)
------------------------------------------------------------
Total Distributions (.630) (.647) (.649) (.662) (.630)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.16 $10.80 $10.37 $10.90 $ 9.76
========================================================================================================================
TOTAL RETURN 9.44% 10.78% 1.28% 18.96% -3.90%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,876 $1,595 $1,279 $1,226 $848
Ratio of Total Expenses to Average Net Assets 0.27% 0.27% 0.25% 0.28% 0.28%
Ratio of Net Investment Income to Average Net Assets 5.76% 6.19% 6.26% 6.34% 6.05%
Portfolio Turnover Rate 63% 30% 42% 56% 128%
========================================================================================================================
</TABLE>
47
<PAGE> 50
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM CORPORATE FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.03 $ 9.72 $10.17 $ 9.07 $10.04
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .627 .638 .639 .658 .587
Net Realized and Unrealized Gain (Loss) on Investments .122 .321 (.430) 1.100 (.970)
------------------------------------------------------------
Total from Investment Operations .749 .959 .209 1.758 (.383)
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.627) (.638) (.639) (.658) (.587)
Distributions from Realized Capital Gains (.082) (.011) (.020) -- --
------------------------------------------------------------
Total Distributions (.709) (.649) (.659) (.658) (.587)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.07 $10.03 $ 9.72 $10.17 $ 9.07
========================================================================================================================
TOTAL RETURN 7.73% 10.24% 2.29% 19.94% -3.73%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,234 $899 $592 $424 $163
Ratio of Total Expenses to Average Net Assets 0.27% 0.26% 0.25% 0.28% 0.28%
Ratio of Net Investment Income to Average Net Assets 6.25% 6.51% 6.61% 6.70% 6.46%
Portfolio Turnover Rate 71% 69% 85% 78% 97%
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
GNMA FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.48 $10.23 $10.45 $ 9.71 $10.39
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .687 .718 .727 .734 .693
Net Realized and Unrealized Gain (Loss) on Investments .002 .253 (.220) .740 (.673)
------------------------------------------------------------
Total from Investment Operations .689 .971 .507 1.474 .020
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.687) (.718) (.727) (.734) (.693)
Distributions from Realized Capital Gains (.012) (.003) -- -- (.007)
------------------------------------------------------------
Total Distributions (.699) (.721) (.727) (.734) (.700)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.47 $10.48 $10.23 $10.45 $ 9.71
========================================================================================================================
TOTAL RETURN 6.79% 9.86% 5.15% 15.64% 0.36%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $11,354 $8,894 $7,400 $6,998 $5,851
Ratio of Total Expenses to Average Net Assets 0.30% 0.31% 0.27% 0.29% 0.30%
Ratio of Net Investment Income to Average Net Assets 6.56% 6.97% 7.16% 7.22% 7.04%
Portfolio Turnover Rate 7% 3% 12% 7% 35%
========================================================================================================================
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.79 $ 9.84 $10.73 $ 9.23 $10.75
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .629 .643 .655 .669 .665
Net Realized and Unrealized Gain (Loss) on Investments .630 .950 (.877) 1.725 (1.401)
------------------------------------------------------------
Total from Investment Operations 1.259 1.593 (.222) 2.394 (.736)
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.629) (.643) (.655) (.669) (.665)
Distributions from Realized Capital Gains -- -- (.013) (.225) (.119)
------------------------------------------------------------
Total Distributions (.629) (.643) (.668) (.894) (.784)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.42 $10.79 $ 9.84 $10.73 $ 9.23
========================================================================================================================
TOTAL RETURN 12.02% 16.85% -1.85% 26.72% -6.68%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,450 $1,061 $898 $916 $671
Ratio of Total Expenses to Average Net Assets 0.27% 0.27% 0.25% 0.27% 0.28%
Ratio of Net Investment Income to Average Net Assets 5.69% 6.38% 6.66% 6.57% 7.02%
Portfolio Turnover Rate 22% 18% 31% 105% 85%
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM CORPORATE FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.32 $8.71 $9.43 $8.18 $9.36
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .582 .613 .619 .627 .617
Net Realized and Unrealized Gain (Loss) on Investments .266 .685 (.566) 1.250 (1.108)
------------------------------------------------------------
Total from Investment Operations .848 1.298 .053 1.877 (.491)
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.582) (.613) (.619) (.627) (.617)
Distributions from Realized Capital Gains (.206) (.075) (.154) -- (.072)
------------------------------------------------------------
Total Distributions (.788) (.688) (.773) (.627) (.689)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.38 $9.32 $8.71 $9.43 $8.18
========================================================================================================================
TOTAL RETURN 9.52% 15.52% 0.86% 23.64% -5.12%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $4,232 $3,720 $3,324 $3,376 $2,607
Ratio of Total Expenses to Average Net Assets 0.30% 0.32% 0.28% 0.31% 0.32%
Ratio of Net Investment Income to Average Net Assets 6.26% 6.87% 7.06% 7.03% 7.37%
Portfolio Turnover Rate 43% 33% 30% 49% 43%
========================================================================================================================
</TABLE>
49
<PAGE> 52
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD CORPORATE FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $8.17 $7.87 $7.89 $7.24 $8.14
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .659 .688 .688 .678 .679
Net Realized and Unrealized Gain (Loss) on Investments (.245) .300 (.020) .650 (.900)
------------------------------------------------------------
Total from Investment Operations .414 .988 .668 1.328 (.221)
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.659) (.688) (.688) (.678) (.679)
Distributions from Realized Capital Gains (.025) -- -- -- --
------------------------------------------------------------
Total Distributions (.684) (.688) (.688) (.678) (.679)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.90 $8.17 $7.87 $7.89 $7.24
=========================================================================================================================
TOTAL RETURN* 5.34% 13.14% 9.01% 19.01% -2.52%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $5,549 $4,747 $3,674 $3,007 $2,162
Ratio of Total Expenses to Average Net Assets 0.29% 0.28% 0.29% 0.34% 0.34%
Ratio of Net Investment Income to Average Net Assets 8.26% 8.63% 8.92% 8.85% 9.13%
Portfolio Turnover Rate 31% 45% 23% 38% 33%
=========================================================================================================================
</TABLE>
*Total returns do not reflect the 1% fee assessed on redemptions of shares held
for less than one year.
50
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS
Vanguard Bond Funds comprise the Vanguard Short-Term Treasury, Short-Term
Federal, Short-Term Corporate, Intermediate-Term Treasury, Intermediate-Term
Corporate, GNMA, Long-Term Treasury, Long-Term Corporate, and High-Yield
Corporate Funds, each of which is registered under the Investment Company Act
of 1940 as a diversified open-end investment company, or mutual fund. Certain
of the funds' investments 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 conform to generally accepted
accounting principles for mutual funds. The fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Bonds, and temporary cash investments acquired over
60 days to maturity, are valued using the latest bid prices or using valuations
based on a matrix system (which considers such factors as security prices,
yields, maturities, and ratings), both as furnished by independent pricing
services. Other temporary cash investments are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued by methods deemed by the Board of Trustees to
represent fair value.
2. FEDERAL INCOME TAXES: Each fund intends to continue to qualify as a
regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. REPURCHASE AGREEMENTS: Each fund, along with other members of The Vanguard
Group, transfers uninvested cash balances to a Pooled Cash Account, the daily
aggregate of which is invested in repurchase agreements secured by U.S.
government securities. Securities pledged as collateral for repurchase
agreements are held by a custodian bank until the agreements mature. Each
agreement requires that the market value of the collateral be sufficient to
cover payments of interest and principal; however, in the event of default or
bankruptcy by the other party to the agreement, retention of the collateral may
be subject to legal proceedings.
4. FUTURES CONTRACTS: Each fund, except the Short-Term Federal Fund, may use
Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures
contracts, with the objectives of enhancing returns, managing interest-rate
risk, maintaining liquidity, diversifying credit risk, and minimizing
transaction costs. The funds may purchase or sell futures contracts instead of
bonds to take advantage of pricing differentials between the futures contracts
and the underlying bonds. The funds 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 funds and the prices of
futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement
prices. The aggregate principal amounts of the contracts are not recorded in
the financial statements. Fluctuations in the value of the contracts are
recorded in the Statement of Net Assets as an asset (liability) and in the
Statement of Operations as unrealized appreciation (depreciation) until the
contracts are closed, when they are recorded as realized futures gains
(losses).
5. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
6. OTHER: Security transactions are accounted for on the date securities are
bought or sold. Costs used to determine realized gains (losses) on the sale of
investment securities are those of the specific securities sold. Premiums and
discounts on debt securities purchased are amortized and accreted,
respectively, to interest income over the lives of the respective securities.
Fees assessed on redemptions of Vanguard High-Yield Corporate Fund capital
shares are credited to paid in capital.
51
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (continued)
B. The Vanguard Group furnishes investment advisory services to the Vanguard
Short-Term Treasury, Short-Term Federal, Short-Term Corporate, Intermediate-Term
Treasury, Intermediate-Term Corporate, and Long-Term Treasury Funds on an
at-cost basis.
Wellington Management Company, LLP provides investment advisory services to
the Vanguard GNMA, Long-Term Corporate, and High-Yield Corporate Funds for fees
calculated at an annual percentage rate of average net assets. For the year
ended January 31, 1999, the investment advisory fees of the Vanguard GNMA,
Long-Term Corporate, and High-Yield Corporate Funds represented effective
annual rates of 0.01%, 0.03%, and 0.04%, respectively, of average net assets.
C. The Vanguard Group furnishes at cost corporate management, administrative,
shareholder account maintenance, marketing, and distribution services. The costs
of such services are allocated to each fund under methods approved by the Board
of Trustees. Each fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At January 31, 1999, the funds had
contributed capital to Vanguard (included in Other Assets), of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
CAPITAL
CONTRIBUTION PERCENTAGE OF PERCENTAGE OF
TO VANGUARD FUND NET VANGUARD'S
FUND (000) ASSETS CAPITALIZATION
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 203 0.02% 0.3%
Short-Term Federal 280 0.02 0.4
Short-Term Corporate 1,001 0.02 1.4
Intermediate-Term Treasury 322 0.02 0.5
Intermediate-Term Corporate 203 0.02 0.3
GNMA 1,890 0.02 2.7
Long-Term Treasury 245 0.02 0.3
Long-Term Corporate 714 0.02 1.0
High-Yield Corporate 924 0.02 1.3
- --------------------------------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
52
<PAGE> 55
D. The funds' investment advisers may direct new issue purchases, subject to
obtaining the best price and execution, to underwriters who have agreed to
rebate or credit to the funds part of the underwriting fees generated. Such
rebates or credits are used solely to reduce the funds' administrative expenses.
The funds' custodian banks have also agreed to reduce their fees when the funds
maintain cash on deposit in their non-interest-bearing custody accounts. For the
year ended January 31, 1999, directed brokerage and custodian fee offset
arrangements reduced expenses by:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
EXPENSE REDUCTION
(000)
-----------------------------------
DIRECTED CUSTODIAN
FUND BROKERAGE FEES
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Federal -- $10
Short-Term Corporate $ 32 43
Intermediate-Term Treasury -- 4
Intermediate-Term Corporate -- 15
GNMA -- 98
Long-Term Corporate 56 4
High-Yield Corporate 118 60
- -------------------------------------------------------------------------------------------------
</TABLE>
E. The Short-Term Corporate Fund offers two classes of shares, Investor Shares
and Institutional Shares. Institutional Shares are designed primarily for
institutional investors that meet certain administrative and servicing criteria
and have a minimum investment of $50 million. Investor Shares are offered to all
other investors. Both classes of shares have equal rights to assets and
earnings, except that each class bears certain class-specific expenses related
to its shareholder activity. Class-specific expenses for the year ended January
31, 1999, represented the following percentages of average net assets:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
FUND INVESTOR SHARES INSTITUTIONAL SHARES
--------------------------------------------------------------------------
<S> <C> <C>
Short-Term Corporate 0.15% 0.03%
--------------------------------------------------------------------------
</TABLE>
Income, expenses not attributable to a specific class, and realized and
unrealized gains and losses on investments are allocated to each class of shares
based on its relative net assets.
F. During the year ended January 31, 1999, purchases and sales of investment
securities other than U.S. government securities and temporary cash investments
were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(000)
------------------------------------
FUND PURCHASES SALES
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Corporate $3,183,359 $1,934,578
Intermediate-Term Corporate 814,523 550,617
Long-Term Corporate 835,543 941,472
High-Yield Corporate 2,264,487 1,414,410
-----------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (continued)
Purchases and sales of U.S. government securities were:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
(000)
------------------------------------------
FUND PURCHASES SALES
-------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Treasury $1,585,899 $1,402,567
Short-Term Federal 1,877,796 1,611,681
Short-Term Corporate 344,603 519,705
Intermediate-Term Treasury 1,209,763 1,038,078
Intermediate-Term Corporate 225,238 186,723
GNMA 5,031,181 694,557
Long-Term Treasury 614,343 261,015
Long-Term Corporate 1,022,255 689,519
High-Yield Corporate 165,303 129,669
------------------------------------------------------------------------------------
</TABLE>
G. Capital gain distributions are determined on a tax basis and may differ from
realized capital gains for financial reporting purposes due to differences in
the timing of realization of gains. The following funds had realized losses
through January 31, 1999, which are deferred for tax purposes and reduce the
amount of unrealized appreciation on investment securities for tax purposes (see
Note H.)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
DEFERRED LOSSES
FUND (000)
------------------------------------------------------------------------
<S> <C>
Short-Term Corporate $3,027
Intermediate-Term Corporate 992
Long-Term Treasury 3,471
------------------------------------------------------------------------
</TABLE>
The Short-Term Treasury, Long-Term Treasury, and High-Yield Corporate
Funds used capital loss carryforwards of $4,362,000, $4,788,000, and
$25,958,000, respectively, to offset taxable capital gains realized during the
year ended January 31, 1999, reducing the amount of capital gains that would
otherwise be available to distribute to shareholders.
For federal income tax purposes, High-Yield Corporate Fund capital gains
required to be distributed in December 1998 included net gains realized through
October 31, 1998. Subsequently, the fund realized capital losses of $45,500,000
which are available to offset future net capital gains.
For federal income tax purposes, at January 31, 1999, the funds had the
following capital gains available for distribution, or capital losses available
to offset future net capital gains:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
CAPITAL LOSS
--------------------
CAPITAL GAINS
AVAILABLE FOR EXPIRATION
FUND DISTRIBUTION AMOUNT FISCAL YEAR(S)
(000) (000) ENDING JANUARY 31,
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 1,960 -- --
Short-Term Federal -- $19,495 2003-2004
Short-Term Corporate -- 17,122 2003-2004
Intermediate-Term Treasury -- 8,356 2003-2006
Intermediate-Term Corporate 5,983 -- --
Long-Term Treasury 15,774 -- --
Long-Term Corporate 25,030 -- --
-------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 57
H. At January 31, 1999, net unrealized appreciation of investment securities for
federal income tax purposes was:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(000)
----------------------------------------------------------
APPRECIATED DEPRECIATED NET UNREALIZED
FUND SECURITIES SECURITIES APPRECIATION
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 13,300 $ (1,006) $ 12,294
Short-Term Federal 19,559 (1,152) 18,407
Short-Term Corporate* 63,783 (13,064) 50,719
Intermediate-Term Treasury 101,142 (1,499) 99,643
Intermediate-Term Corporate* 32,184 (6,894) 25,290
GNMA 302,203 (4,985) 297,218
Long-Term Treasury* 167,574 (181) 167,393
Long-Term Corporate 310,100 (4,611) 305,489
High-Yield Corporate 159,784 (119,732) 40,052
----------------------------------------------------------------------------------------------
</TABLE>
*See Note G.
At January 31, 1999, the aggregate settlement value of open futures
contracts expiring in March 1999 and the related unrealized appreciation were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(000)
-----------------------------------
NUMBER OF AGGREGATE
LONG SETTLEMENT UNREALIZED
BOND FUND/FUTURES CONTRACTS CONTRACTS VALUE APPRECIATION
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate-Term Treasury/
U.S. Treasury Bond 47 $6,016 $21
----------------------------------------------------------------------------------------------
</TABLE>
Unrealized appreciation on open futures contracts is required to be treated as
realized gains for tax purposes.
I. The market values of securities on loan to broker/dealers at January 31,
1999, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(000)
--------------------------------------------------------
COLLATERAL RECEIVED
-------------------------------------
MARKET VALUE
OF LOANED U.S. TREASURY
FUND SECURITIES CASH SECURITY
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 14,991 $15,263 --
Short-Term Federal 14,991 15,263 --
Short-Term Corporate 5,086 5,181 --
Intermediate-Term
Treasury 25,968 26,450 --
Intermediate-Term
Corporate 16,739 17,073 --
Long-Term Treasury 134,153 44,126 $92,309
Long-Term Corporate 52,212 53,063 --
High-Yield Corporate 30,901 32,281 --
-------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (continued)
Cash collateral received is invested in repurchase agreements. 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, retention of the collateral may
be subject to legal proceedings.
56
<PAGE> 59
REPORT OF INDEPENDENT
ACCOUNTANTS
[PHOTO]
To the Shareholders and Trustees of
Vanguard Bond Funds
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard GNMA Fund (a separate fund of Vanguard Bond Funds, hereafter referred
to as the "Fund") at January 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at January
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
We have also audited the financial statements of Vanguard Short-Term Treasury
Fund, Vanguard Short-Term Federal Fund, Vanguard Short-Term Corporate Fund,
Vanguard Intermediate-Term Treasury Fund, Vanguard Intermediate-Term Corporate
Fund, Vanguard Long-Term Treasury Fund, Vanguard Long-Term Corporate Fund and
Vanguard High-Yield Corporate Fund at January 31, 1999, and have issued our
report thereon. An insert to this Annual Report containing our report on the
financial statements of these funds is available from Vanguard Bond Funds.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 11, 1999
57
<PAGE> 60
SPECIAL 1999 TAX INFORMATION (UNAUDITED) FOR VANGUARD BOND FUNDS
This information for the fiscal year ended January 31, 1999, is included
pursuant to provisions of the Internal Revenue Code.
The funds distributed capital gain dividends (from net long-term capital
gains) to shareholders during the fiscal year ended January 31, 1999, all of
which are designated as 20% rate gain distributions, as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
TOTAL CAPITAL GAINS
DISTRIBUTION
FUND (000)
--------------------------------------------------------------------------------------
<S> <C>
Short-Term Treasury $ 2,496
Intermediate-Term Corporate 4,440
GNMA 8,049
Long-Term Corporate 85,326
High-Yield Corporate 17,026
--------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 61
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and each of the investment companies in The Vanguard
Group.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & JohnsonoMerck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BRUCE K. MacLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co., The Jeffrey Co., and Southern New England Telecommunications 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., Procter & Gamble Co.,
NACCO Industries, and Newfield Exploration Co.
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. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DiSTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MacKINNON
Managing Director, Fixed Income Group.
F. WILLIAM McNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell Company
is the owner of trademarks and copyrights relating to the Russell Indexes.
"Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire Associates.
<PAGE> 62
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
Q280-03/25/1999
(C) 1999 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.
<PAGE> 63
VANGUARD BOND FUNDS
[PHOTO]
FINANCIAL STATEMENTS
JANUARY 31, 1999
The Statement of Net Assets should be read in conjunction with the Statement of
Operations, Statement of Changes in Net Assets, Financial Highlights, and Notes
to Financial Statements, all of which appear in the accompanying report. The
Statement of Net Assets for the GNMA Fund begins on page 35 of that report.
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by bond type (U.S. government and agency issues,
corporate bonds, foreign bonds, etc.); corporate bonds are further classified by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets of each fund, you will find a
table displaying the composition of the fund's net assets. Undistributed Net
Investment Income is usually zero because the fund distributes its net income to
shareholders as a dividend each day. Any realized gains must be distributed
annually, so the bulk of net assets consists of Paid in Capital (money invested
by shareholders). The balance shown for Accumulated Net Realized Gains usually
approximates the amount available to distribute to shareholders as capital gains
as of the statement date, but may differ because certain investments or
transactions may be treated differently for financial statement and tax
purposes. Any Accumulated Net Realized Losses, and any cumulative excess of
distributions over net realized gains, will appear as negative balances.
Unrealized Appreciation (Depreciation) is the difference between the value of
the fund's investments and their cost, and reflects the gains (losses) that
would be realized if the fund were to sell all of its investments at their
statement-date values.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
CONTENTS
<S> <C>
Short-Term Treasury Fund 1
Short-Term Federal Fund 4
Short-Term Corporate Fund 7
Intermediate-Term Treasury Fund 14
Intermediate-Term Corporate Fund 16
Long-Term Treasury Fund 21
Long-Term Corporate Fund 22
High-Yield Corporate Fund 26
Report of Independent Accountants 32
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM TREASURY FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (98.6%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERMENT SECURITIES (84.0%)
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/2007 $ 11,386 $ 11,070
U.S. Treasury Inflation-Indexed Note 3.625% 7/15/2002 22,528 22,493
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 23,000 23,201
U.S. Treasury Note 5.50% 3/31/2000 180,000 181,683
U.S. Treasury Note 5.875% 11/30/2001 47,900 49,461
U.S. Treasury Note 6.00% 7/31/2002 4,000 4,170
U.S. Treasury Note 6.125% 12/31/2001 51,700 53,761
U.S. Treasury Note 6.25% 4/30/2001 4,000 4,136
U.S. Treasury Note 6.25% 10/31/2001 37,000 38,508
U.S. Treasury Note 6.25% 1/31/2002 43,000 44,900
U.S. Treasury Note 6.375% 5/15/2000 110,000 112,304
U.S. Treasury Note 6.50% 5/31/2001 13,200 13,734
U.S. Treasury Note 6.50% 8/31/2001 47,600 49,720
U.S. Treasury Note 6.50% 5/31/2002 7,000 7,392
U.S. Treasury Note 6.625% 7/31/2001 95,000 99,408
U.S. Treasury Note 6.625% 4/30/2002 16,600 17,568
</TABLE>
1
<PAGE> 64
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM TREASURY FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Note 7.50% 11/15/2001 $ 38,700 $ 41,447
U.S. Treasury Note 7.875% 8/15/2001 20,500 22,064
Bariven, SA Eximbank Guaranteed Export Financing
(U.S. Government Guaranteed) 6.277% 4/15/2001(1)(3) 8,500 8,613
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 6.475% 5/15/2000(1) 3,900 3,943
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 6.82% 4/15/1999(1)(2) 714 717
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 8.038% 1/15/2000(1) 3,000 3,058
EximBank Guaranteed Export
(U.S. Government Guaranteed) 5.73% 1/15/2003(1)(2) 35,200 35,539
Government Export Trust (U.S. Government Guaranteed) 7.75% 1/1/2000(1)(2) 2,667 2,694
Guaranteed Export Trust (U.S. Government Guaranteed) 7.46% 12/15/2005(1) 7,304 7,837
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.104% 7/15/2003(1) 25,125 25,565
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 5.10% 6/30/2007(1) 20,400 20,130
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 5.696% 2/1/2005(1) 8,000 8,102
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 5.735% 1/15/2002(1) 7,900 7,973
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 5.926% 6/15/2005(1) 14,907 15,145
Private Export Funding Corp.
(U.S. Government Guaranteed) 5.65% 3/15/2003(1) 4,785 4,834
Private Export Funding Corp.
(U.S. Government Guaranteed) 5.73% 1/15/2004 58,385 59,661
Private Export Funding Corp.
(U.S. Government Guaranteed) 8.40% 7/31/2001 5,000 5,387
---------
1,006,218
---------
AGENCY BONDS & NOTES (14.6%)
Federal Farm Credit Bank 4.80% 11/6/2003 9,000 8,870
Federal Farm Credit Bank 5.70% 6/18/2003 53,000 54,141
Federal Home Loan Bank 4.86% 10/5/2001 30,000 29,929
Federal Home Loan Bank 4.875% 1/22/2002 13,000 12,972
Federal Home Loan Bank 5.37% 1/16/2003 16,000 16,134
Federal Home Loan Bank 5.575% 9/2/2003 30,000 30,534
Federal Home Loan Bank 5.675% 8/18/2003 21,800 22,273
-------
174,853
-------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,168,777) 1,181,071
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.7%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.73% 2/1/1999 16,619 16,619
Collateralized By U.S. Government Obligations in a
Pooled Cash Account--Note I 4.75% 2/1/1999 15,263 15,263
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $31,882) 31,882
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.3%)
(COST $1,200,659) 1,212,953
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 65
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.3%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note C $ 21,073
Liabilities--Note I (36,531)
----------
(15,458)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 115,477,610 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,197,495
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.37
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration
normally to qualified institutional buyers. At January 31, 1999, the
aggregate value of these securities was $38,950,000, representing 3.3% of
net assets.
(3) Restricted security representing 0.7% of net assets at
January 31, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31,1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,183,301 $10.24
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note G 1,900 .02
Unrealized Appreciation--Note H 12,294 .11
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,197,495 $10.37
=========================================================================================================================
</TABLE>
3
<PAGE> 66
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM FEDERAL FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (98.0%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (10.4%)
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/2007 $ 16,562 $ 16,101
U.S. Treasury Inflation-Indexed Note 3.625% 7/15/2002 32,768 32,717
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 32,000 32,280
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 6.82% 4/15/1999(1)(3) 559 560
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 8.038% 1/15/2000(1) 3,000 3,059
Government Export Trust (U.S. Government Guaranteed) 5.41% 3/1/1999(1)(3) 886 886
Government Export Trust (U.S. Government Guaranteed) 6.61% 9/15/1999(1) 3,574 3,588
Government Export Trust (U.S. Government Guaranteed) 7.50% 8/15/2000(1) 5,511 5,597
Guaranteed Export Certificates
(U.S. Government Guaranteed) 5.23% 5/15/2005(1) 14,936 14,927
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 7.815% 11/15/2001(1) 3,750 3,895
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 8.75% 11/15/2001(1) 5,625 5,920
Private Export Funding Corp.
(U.S. Government Guaranteed) 6.31% 9/30/2004 10,000 10,525
Private Export Funding Corp.
(U.S. Government Guaranteed) 7.03% 10/31/2003 5,000 5,373
Private Export Funding Corp.
(U.S. Government Guaranteed) 9.45% 12/31/1999 33,580 34,947
-------
170,375
-------
AGENCY BONDS & NOTES (80.1%)
Federal Farm Credit Bank 6.10% 11/4/2004 5,000 5,238
Federal Home Loan Bank 4.675% 10/15/2002 22,000 21,661
Federal Home Loan Bank 4.739% 2/25/1999(2) 25,000 24,858
Federal Home Loan Bank 4.875% 1/22/2002 15,000 14,968
Federal Home Loan Bank 5.37% 1/16/2003 23,750 23,949
Federal Home Loan Bank 5.40% 1/15/2003 29,575 29,853
Federal Home Loan Bank 5.40% 2/2/2004 80,000 80,200
Federal Home Loan Bank 5.42% 1/22/2003 30,000 30,305
Federal Home Loan Bank 5.50% 1/21/2003 30,000 30,390
Federal Home Loan Bank 5.565% 3/17/2000 10,000 10,067
Federal Home Loan Bank 5.60% 9/2/2003 8,000 8,150
Federal Home Loan Bank 5.735% 7/22/2003 8,180 8,374
Federal Home Loan Bank 5.97% 12/12/2000 10,000 10,180
Federal Home Loan Mortgage Corp. 5.81% 3/25/2014(1) 20,000 20,000
Federal Home Loan Mortgage Corp. 5.875% 3/22/2000 15,000 15,152
Federal Home Loan Mortgage Corp. 6.11% 6/25/2013(1) 45,000 45,260
Federal Home Loan Mortgage Corp. 6.35% 4/25/2013(1) 10,000 10,088
Federal Home Loan Mortgage Corp. 6.43% 2/25/2013(1) 48,000 48,285
Federal Home Loan Mortgage Corp. 6.52% 1/2/2002 23,000 23,917
Federal Home Loan Mortgage Corp. 6.53% 11/25/2010(1) 16,733 16,783
Federal Home Loan Mortgage Corp. 6.59% 6/25/2012(1) 38,442 38,574
Federal Home Loan Mortgage Corp. 6.92% 1/25/2012(1) 17,829 17,890
Federal National Mortgage Assn. 5.10% 9/25/2000 18,000 18,043
Federal National Mortgage Assn. 5.72% 1/9/2001 10,000 10,140
Federal National Mortgage Assn. 5.72% 3/13/2001 9,000 9,137
Federal National Mortgage Assn. 5.83% 10/16/2000 15,000 15,214
Federal National Mortgage Assn. 5.86% 8/20/2003 71,835 72,800
Federal National Mortgage Assn. 5.89% 11/6/2002 76,300 78,510
Federal National Mortgage Assn. 5.90% 10/10/2002 67,000 68,930
Federal National Mortgage Assn. 5.94% 9/10/1999 6,000 6,040
Federal National Mortgage Assn. 5.96% 4/23/2003 86,000 87,063
Federal National Mortgage Assn. 5.97% 10/2/2000 11,000 11,178
Federal National Mortgage Assn. 5.98% 11/12/2002 9,800 10,115
Federal National Mortgage Assn. 6.00% 4/23/2003 30,000 30,399
Federal National Mortgage Assn. 6.01% 7/17/2003(1) 39,010 39,408
</TABLE>
4
<PAGE> 67
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage Assn. 6.06% 5/7/2003 $ 31,000 $ 31,467
Federal National Mortgage Assn. 6.10% 5/21/2003 20,000 20,327
Federal National Mortgage Assn. 6.17% 1/31/2004(1) 19,459 19,793
Federal National Mortgage Assn. 6.18% 12/10/2001 10,000 10,091
Federal National Mortgage Assn. 6.23% 3/1/2002 13,250 13,697
Federal National Mortgage Assn. 6.26% 7/22/2002 45,500 47,259
Federal National Mortgage Assn. 6.375% 1/16/2002 39,000 40,421
Federal National Mortgage Assn. 6.44% 11/15/2001 28,635 28,935
Federal National Mortgage Assn. 6.45% 2/14/2002 10,000 10,121
Federal National Mortgage Assn. 6.59% 4/17/2000 10,000 10,190
Federal National Mortgage Assn. 6.70% 5/6/2002 12,750 13,381
Federal National Mortgage Assn. 6.80% 1/10/2003 21,600 22,869
Federal National Mortgage Assn. 9.05% 4/10/2000 8,955 9,374
Federal National Mortgage Assn. 11.50% 11/1/1999 46,000 48,242
---------
1,317,286
---------
MORTGAGE-BACKED SECURITIES (7.5%)
Federal Home Loan Mortgage Corp. 5.50% 5/1/1999(1) 1,258 1,258
Federal Home Loan Mortgage Corp. 5.50% 11/1/2000(1) 8,422 8,434
Federal Home Loan Mortgage Corp. 5.50% 1/1/2001(1) 21,530 21,564
Federal Home Loan Mortgage Corp. 6.00% 7/1/2005(1) 12,716 12,811
Federal Home Loan Mortgage Corp. 6.00% 8/1/2005(1) 38,562 38,851
Federal Home Loan Mortgage Corp. 6.00% 3/1/1999(1) 1,874 1,874
Federal Home Loan Mortgage Corp.
(Collateralized Mortgage Obligation) 6.50% 3/15/2000(1) 6,716 6,716
Federal National Mortgage Assn. 6.00% 10/1/2005(1) 17,356 17,485
Federal National Mortgage Assn. 6.00% 11/1/2005(1) 14,690 14,799
-------
123,792
-------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,593,046) 1,611,453
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (6.8%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.73% 2/1/1999 96,775 96,775
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 4.75% 2/1/1999 15,263 15,263
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $112,038) 112,038
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (104.8%)
(COST $1,705,084) 1,723,491
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-4.8%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 19,958
Accounts Payable for Investment Securities Purchased (80,000)
Other Liabilities--Note I (19,038)
--------
(79,080)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 160,264,187 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,644,411
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.26
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Adjustable Rate Security.
(3) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from
registration, normally to qualified institutional buyers. At January 31,
1999, the aggregate value of these securities was $ 1,446,000, representing
0.1% of net assets.
5
<PAGE> 68
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
SHORT-TERM FEDERAL FUND (000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,645,624 $10.27
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (19,620) (.12)
Unrealized Appreciation--Note H 18,407 .11
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,644,411 $10.26
==========================================================================================================================
</TABLE>
6
<PAGE> 69
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (87.0%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (14.7%)
Advanta Mortgage Loan Trust 6.25% 2/25/2014(1) $ 39,000 $ 39,078
American Express Credit Account Master Trust 6.40% 4/15/2005(1) 49,500 51,439
CIT Home Equity Loan Trust 6.08% 12/15/2007(1) 25,000 25,117
CIT Home Equity Loan Trust 6.37% 3/15/2012(1) 21,000 21,087
California Infrastructure & Economic Development
Bank SP Trust PG&E-1 6.15% 6/25/2002(1) 10,150 10,256
California Infrastructure & Economic Development
Bank SP Trust PG&E-1 6.42% 9/25/2008(1) 10,000 10,584
California Infrastructure & Economic Development
Bank SP Trust SCE-1 6.14% 3/25/2002(1) 14,600 14,722
California Infrastructure & Economic Development
Bank SP Trust SCE-1 6.28% 9/25/2005(1) 20,000 20,758
Chase Manhattan Auto Trust 6.65% 9/15/2003(1) 17,576 18,049
Chase Manhattan Corp. Grantor Trust 6.00% 9/17/2001(1) 3,410 3,417
Chemical Master Credit Card Trust I 6.38% 6/15/2003(1) 10,000 10,182
Citibank Credit Card Master Trust 5.75% 1/15/2003(1) 9,400 9,455
Citibank Credit Card Master Trust 6.35% 8/15/2002(1) 28,000 28,487
Citibank Credit Card Master Trust 6.70% 2/15/2004(1) 13,000 13,477
ComEd Transitional Funding Trust 5.34% 3/25/2004(1) 35,000 35,033
ComEd Transitional Funding Trust 5.39% 6/25/2005(1) 50,000 50,047
Contimortgage Home Equity Loan Trust 6.68% 5/15/2012(1) 10,942 10,943
Countrywide ABS Certificate Series 6.675% 2/25/2012(1) 7,535 7,550
Credit Card Merchant Voucher Receivables Master Trust 6.23% 8/1/2002(1)(3) 18,686 18,756
Dayton Hudson Credit Card Master Trust 6.25% 8/25/2005(1) 15,000 15,554
Discover Card Master Trust I Series 5.75% 10/16/2003(1) 77,290 78,187
Discover Card Master Trust I Series 6.55% 2/18/2003(1) 15,700 16,019
Ford Credit Auto Loan Master Trust 6.50% 8/15/2002(1) 35,000 35,712
Ford Credit Auto Owner Trust 6.15% 9/15/2002(1) 25,000 25,408
General Electric Capital Mortgage Services 6.26% 12/25/2012(1) 14,700 14,769
Household Credit Card Master Trust 5.90% 5/15/2002(1) 20,000 20,173
Illinois Power Special Purpose 5.26% 6/25/2003(1) 10,000 10,019
MBNA Master Credit Card Trust 6.45% 2/15/2008(1) 5,000 5,284
MBNA Master Credit Card Trust 6.60% 1/15/2003(1) 10,000 10,221
Mellon Bank Home Equity Installment Loan Trust Series 6.21% 8/25/2009(1) 11,500 11,546
NationsBank Credit Card Master Trust 6.45% 4/15/2003(1) 17,000 17,338
Neiman Marcus Credit Card Master Trust 7.60% 6/15/2003(1) 5,000 5,150
PNC Mortgage Securities Corp. 6.49% 10/25/2026(1) 26,104 26,218
Premier Auto Trust 6.55% 9/6/2003(1) 5,000 5,078
Providian Master Trust Series 6.25% 6/15/2007(1) 40,000 41,021
Providian Master Trust Series 6.45% 6/15/2007(1) 10,000 10,267
Residential Asset Securities Corp. Series 6.285% 9/25/2020(1) 34,000 34,060
Standard Master Credit Card Trust 5.90% 2/7/2001(1) 25,000 25,000
Toyota Auto Lease Trust 6.20% 4/26/2004(1) 70,000 70,529
-------
875,990
-------
FINANCE (45.1%)
AUTO (4.7%)
Chrysler Financial Corp. 5.25% 10/22/2001 25,000 24,940
Chrysler Financial Corp. 6.08% 4/6/2001 50,000 50,757
Ford Motor Credit Co. 5.375% 10/15/2002 22,000 21,928
Ford Motor Credit Co. 6.125% 4/28/2003 29,000 29,609
Ford Motor Credit Co. 6.55% 9/10/2002 28,000 28,980
Ford Motor Credit Co. 6.85% 8/15/2000 5,000 5,109
General Motors Acceptance Corp. 6.21% 9/19/2000 35,000 35,429
General Motors Acceptance Corp. 6.65% 5/24/2000 30,000 30,466
General Motors Acceptance Corp. 7.25% 4/30/1999 21,100 21,198
General Motors Acceptance Corp. 8.40% 10/15/1999 5,000 5,101
Toyota Motor Credit Corp. 5.50% 9/17/2001 25,000 25,095
</TABLE>
7
<PAGE> 70
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BANKS (10.9%)
Bank South Inc. 10.20% 6/1/1999 $ 12,500 $ 12,699
Bankers Trust NY Corp. 9.50% 6/14/2000 11,930 12,482
Capital One Bank 6.40% 5/8/2003 15,000 14,917
Capital One Bank 6.58% 4/17/2001 15,000 15,057
Capital One Bank 6.60% 8/20/2001 10,200 10,249
Chase Manhattan Corp. 8.00% 6/15/1999 19,450 19,637
Chase Manhattan Corp. 10.00% 6/15/1999 20,840 21,184
CoreStates Capital Corp. 5.75% 1/15/2001 6,000 6,036
CoreStates Capital Corp. 6.186% 10/2/2000 35,000 35,400
First Fidelity Bancorp 9.625% 8/15/1999 23,540 24,055
First National Bank of Commerce 6.50% 1/14/2000 25,000 25,260
First Union Corp. 9.45% 6/15/1999 6,649 6,747
Long Island Savings Bank 6.20% 4/2/2001 12,000 12,072
Long Island Savings Bank 7.00% 6/13/2002 13,500 13,901
MBNA America Bank 5.502% 2/8/1999(2) 14,650 14,644
Manufacturers Hanover Corp. 8.50% 2/15/1999 9,272 9,280
Mellon Financial Co. 5.75% 11/15/2003 5,000 5,059
Mellon Financial Co. 6.00% 3/1/2004 7,950 8,119
Mercantile Bancorp 6.80% 6/15/2001 6,312 6,463
Meridian Bancorp 6.625% 6/15/2000 26,550 26,949
The Money Store Inc. 8.05% 4/15/2002 10,277 11,016
National City Bank Cleveland 6.35% 3/15/2001 36,860 37,557
National City Corp. 5.75% 2/1/2009 10,000 9,993
NationsBank Corp 5.80% 1/31/2001 14,675 14,805
NationsBank Corp. 6.375% 5/15/2005 30,000 31,143
NationsBank Corp. 8.125% 6/15/2002 9,898 10,682
Norwest Corp. 6.125% 10/15/2000 6,000 6,076
Norwest Corp. 7.75% 3/1/2002 5,000 5,327
PNC Funding Corp. 6.125% 9/1/2003 7,500 7,668
PNC Funding Corp. 9.875% 3/1/2001 5,565 6,038
Provident Bank of Ohio 6.125% 12/15/2000 12,700 12,751
Providian National Bank 6.70% 3/15/2003 32,380 32,368
Security Pacific Corp. 9.75% 5/15/1999 5,000 5,061
Security Pacific Corp. 11.00% 3/1/2001 20,907 23,204
Southern National Corp. 7.05% 5/23/2003 24,469 25,619
Summit Bancorp 8.625% 12/10/2002 21,725 23,759
U.S. Bancorp 5.552% 2/15/1999(2)(3) 55,700 55,739
US Bank NA Minnesota 5.25% 6/4/2003 20,000 19,787
US Bank NA Minnesota 6.50% 2/1/2008 4,750 5,011
Wells Fargo & Co. 6.125% 11/1/2003 5,000 5,136
CONSUMERS (2.0%)
Aristar Inc. 6.125% 12/1/2000 48,000 48,355
CIT Group Holdings 6.00% 5/8/2001 19,000 19,201
Norwest Financial Corp. 7.95% 5/15/2002 4,200 4,506
Sears Roebuck Acceptance Corp. 6.22% 11/8/2000 48,000 48,582
DIVERSIFIED (5.5%)
AT&T Capital Corp. 6.70% 2/15/2001 50,000 50,072
Associates Corp. of North America 8.37% 12/21/1999 19,000 19,492
Associates Corp. of North America 8.40% 11/29/1999 10,000 10,238
Associates Corp. of North America 5.75% 11/1/2003 38,000 38,526
CIT Group Holdings 6.25% 10/25/1999 31,000 31,168
CIT Group Holdings 6.375% 8/1/2002 9,900 10,147
Caterpillar Financial Services 6.10% 6/17/1999 16,000 16,050
Comdisco Inc. 5.75% 2/15/2001 15,000 14,960
Comdisco Inc. 6.34% 6/25/1999 25,000 25,078
Finova Capital Corp 5.875% 10/15/2001 35,000 35,022
Finova Capital Corp. 6.05% 9/15/1999 25,000 25,013
General Electric Capital Corp. 5.72% 8/3/2000 20,000 20,161
General Electric Capital Corp. 5.77% 8/27/2001 25,000 25,342
General Electric Capital Corp. 5.84% 5/8/2000 5,000 5,042
</TABLE>
8
<PAGE> 71
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURANCE (4.0%)
Conseco Inc. 6.40% 2/10/2003 $ 30,000 $ 28,759
Liberty Financial Co. 6.75% 11/15/2008 27,650 28,937
Orion Capital Corp. 9.125% 9/1/2002 15,225 16,250
Progressive Corp. 7.30% 6/1/2006 12,290 13,106
Progressive Corp. 10.00% 12/15/2000 7,000 7,533
Prudential Insurance Co. of America 6.375% 7/23/2006(3) 30,000 30,834
SunAmerica Inc. 6.20% 10/31/1999 26,000 26,190
SunAmerica Inc. 6.58% 1/15/2002 5,000 5,179
Travelers Property Casualty Corp. 6.25% 10/1/1999 50,000 50,287
Travelers Property Casualty Corp. 6.75% 9/1/1999 30,000 30,234
OTHER (18.0%)
Associated Estates Realty Corp. 6.88% 12/9/2004 5,000 4,857
Associated Estates Realty Corp. 8.375% 4/15/2000 15,680 15,892
Bay Apartment Communities 6.50% 1/15/2005 8,300 8,222
Bear, Stearns & Co., Inc. 7.625% 9/15/1999 10,000 10,120
Bear, Stearns & Co., Inc. 7.625% 4/15/2000 26,900 27,500
Bradley Operating LP 7.00% 11/15/2004 5,000 4,829
Chelsea GCA Realty Partner 7.75% 1/26/2001 10,000 9,978
Colonial Realty LP 6.96% 7/26/2004 22,000 21,595
Donaldson Lufkin & Jenrette Inc. 6.00% 12/1/2001 25,000 25,195
Donaldson Lufkin & Jenrette, Inc. 6.70% 6/30/2000 15,000 15,208
Equity Residential Properties Trust Operating LP 7.95% 4/15/2002 7,000 7,316
First Industrial 7.375% 5/15/2004(3) 12,000 11,962
Gables Realty LP 6.80% 3/15/2005 10,000 9,711
Goldman Sachs Group LP 6.20% 12/15/2000(3) 32,725 33,014
Goldman Sachs Group LP 6.625% 12/1/2004(3) 20,000 20,562
Goldman Sachs Group LP 6.875% 9/15/1999(3) 16,175 16,248
Goldman Sachs Group LP 7.25% 10/1/2005(3) 19,400 20,649
HRPT Properties Trust 6.70% 2/23/2005 25,000 23,699
Highwoods Forsyth LP 7.19% 6/15/2004(3) 26,000 25,111
JDN Realty Corp. 6.80% 8/1/2004 10,500 10,118
Lehman Brothers Holdings Inc. 5.308% 2/18/1999(2) 10,000 9,995
Lehman Brothers Holdings Inc. 6.15% 3/15/2000 33,000 32,946
Lehman Brothers Holdings Inc. 6.20% 1/15/2002 35,000 34,856
Lehman Brothers Holdings Inc. 6.25% 4/1/2003 47,000 46,641
Lehman Brothers Holdings Inc. 7.375% 5/15/2004 9,930 10,314
Lehman Brothers Holdings Inc. 8.375% 2/15/1999 5,000 5,003
Merrill Lynch & Co., Inc. 5.71% 1/15/2002 35,000 35,146
Merrill Lynch & Co., Inc. 6.00% 7/15/2005 10,000 10,126
Merrill Lynch & Co., Inc. 6.05% 3/6/2001 14,500 14,658
Merrill Lynch & Co., Inc. 6.07% 10/15/2001 35,000 35,494
Merrill Lynch & Co., Inc. 7.26% 3/25/2002 50,000 49,687
Merrill Lynch & Co., Inc. 8.30% 11/1/2002 13,400 14,592
Merry Land & Investment Co., Inc. 7.25% 10/1/2002 9,325 9,557
Morgan Stanley, Dean Witter, Discover & Co. 5.625% 1/20/2004 35,000 34,793
Morgan Stanley, Dean Witter, Discover & Co. 5.75% 2/15/2001 10,500 10,555
Morgan Stanley, Dean Witter, Discover & Co. 5.875% 2/28/2001 55,000 55,427
Oasis Residential Inc. 6.75% 11/15/2001 21,050 20,901
PaineWebber Group Inc. 6.32% 3/18/2003 25,000 25,055
PaineWebber Group Inc. 6.45% 12/1/2003 20,900 21,101
PaineWebber Group Inc. 7.16% 6/15/1999 25,000 25,120
PaineWebber Group Inc. 7.625% 10/15/2008 5,000 5,396
Post Apartment Homes LP 5.527% 3/3/1999(2) 30,000 29,613
Post Apartment Homes LP 7.02% 4/2/2001 20,000 20,171
Salomon Smith Barney Holdings Inc. 7.00% 5/15/2000 15,500 15,782
Salomon Smith Barney Holdings Inc. 7.30% 5/15/2002 25,000 26,208
Salomon Smith Barney Holdings Inc. 7.50% 5/1/2002 11,500 12,100
Salomon Smith Barney Holdings Inc. 7.98% 3/1/2000 17,500 17,946
Simon DeBartolo 6.75% 11/15/2003(3) 23,000 22,663
Simon DeBartolo 6.875% 10/27/2005 10,000 9,797
Summit Properties Inc. 6.625% 12/15/2003 16,000 15,428
</TABLE>
9
<PAGE> 72
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Summit Properties Inc. 6.80% 8/15/2002 $ 20,000 $ 19,554
Summit Properties Inc. 6.95% 8/15/2004 12,500 12,153
Summit Properties Inc. 7.20% 8/15/2007 5,000 4,858
Topaz Ltd. 6.92% 3/10/2007(1)(3) 14,236 14,685
Trinet Corp. Realty Trust 7.30% 5/15/2001 5,500 5,516
United Dominion Realty Trust 7.02% 11/15/2005 8,000 7,631
Wellsford Residential Property Trust 9.375% 2/1/2002 5,175 5,507
---------
2,680,587
---------
INDUSTRIAL (17.7%)
CBI Industries 7.53% 8/26/1999 15,000 15,173
CSC Enterprises 6.50% 11/15/2001(3) 27,500 27,953
CSC Enterprises 6.80% 4/15/1999(3) 21,500 21,561
Continental Airlines Pass-Through Trust 6.331% 10/15/2004(1) 15,000 14,906
Continental Airlines Pass-Through Trust 6.465% 4/15/2006(1) 11,000 11,017
Continental Airlines Pass-Through Trust 6.541% 9/15/2018(1) 15,000 14,800
Continental Airlines Pass-Through Trust 6.80% 1/2/2008(1) 10,725 10,719
Cox Communications, Inc. 6.375% 6/15/2000 37,000 37,491
Dillard's Inc. 5.79% 11/15/2001 25,000 25,004
Dillard's Inc. 6.625% 11/15/2008 15,000 15,395
R.R. Donnelley & Sons Co. 7.96% 11/8/1999 15,000 15,277
Dresser Industries, Inc. 8.00% 4/15/2003 20,067 21,955
Electronic Data Systems Corp. 6.85% 5/15/2000(3) 18,000 18,336
Federal Express Corp. 9.875% 4/1/2002 8,195 9,081
Federal Express Corp. 10.00% 4/15/1999 6,255 6,308
Federated Department Stores, Inc. 8.125% 10/15/2002 5,000 5,392
Federated Department Stores, Inc. 8.50% 6/15/2003 10,000 10,968
Food Lion, Inc. 8.41% 9/26/2001 5,000 5,317
Hertz Corp. 6.50% 4/1/2000 5,000 5,048
International Business Machines Corp. 5.80% 5/15/2001 25,000 25,341
James River Corp. 7.65% 12/26/2000 10,000 10,307
James River Corp. 8.375% 11/15/2001 12,220 12,944
Knight-Ridder, Inc. 8.50% 9/1/2001 12,771 13,424
Lafarge Corp. 6.375% 7/15/2005 14,860 15,221
Lockheed Martin Corp. 6.55% 5/15/1999 10,000 10,030
Lockheed Martin Corp. 6.85% 5/15/2001 47,000 48,364
McDonald's Corp. 8.375% 10/29/1999 8,550 8,753
Minnesota Mining & Manufacturing ESOP Trust 5.62% 7/15/2009(1)(3) 48,322 48,141
Mobil Corp. ESOP 9.17% 2/29/2000(1) 24,968 25,619
Monsanto Co. 5.375% 12/1/2001(3) 15,000 14,984
Norfolk Southern Corp. 6.875% 5/1/2001 100,000 102,949
Occidental Petroleum Corp. 6.75% 9/16/1999 6,000 6,022
Occidental Petroleum Corp. 8.50% 11/9/2001 10,000 10,499
PanAmSat Corp. 6.125% 1/15/2005 30,000 29,317
Philip Morris Cos., Inc. 6.95% 6/1/2006 13,250 14,007
Philip Morris Cos., Inc. 7.00% 7/15/2005 5,000 5,288
Philip Morris Cos., Inc. 7.25% 1/15/2003 9,200 9,694
Philip Morris Cos., Inc. 8.25% 10/15/2003 7,500 8,291
Phillips Petroleum Co. 8.00% 4/12/1999 4,000 4,021
Praxair, Inc. 6.70% 4/15/2001 50,000 50,700
Raytheon Co. 6.45% 8/15/2002 20,250 20,821
Rockwell International Corp. 8.875% 9/15/1999 33,860 34,582
Safeway Inc. 5.75% 11/15/2000 27,500 27,626
Safeway Inc. 6.85% 9/15/2004 7,480 7,902
Sara Lee Corp. 6.50% 5/16/2000 15,000 15,227
Sara Lee Corp. 6.70% 9/9/1999 10,000 10,087
Sara Lee Corp. 7.75% 2/3/2000 18,700 19,149
TCI Communications, Inc. 6.375% 9/15/1999 25,000 25,159
TCI Communications, Inc. 8.65% 9/15/2004 25,000 28,755
Telecommunications, Inc. 8.25% 1/15/2003 10,000 10,997
USA Waste Services 6.50% 12/15/2002 22,000 22,509
Union Carbide Corp. 7.00% 8/1/1999 12,315 12,364
Union Pacific Corp. 7.00% 6/15/2000 10,000 10,153
</TABLE>
10
<PAGE> 73
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Union Pacific Railroad Co. (Equipment Trust Certificate) 6.99% 12/24/1999(1) $ 1,471 $ 1,487
Viacom Inc. 5.875% 7/15/2000 10,900 10,922
Viacom Inc. 6.75% 1/15/2003 10,000 10,320
Viacom Inc. 7.75% 6/1/2005 8,080 8,848
WMX Technologies Inc. 7.00% 10/15/2006 12,250 12,988
---------
1,055,513
---------
UTILITIES (9.5%)
AEP Resources Inc. 6.50% 12/1/2003(3) 50,000 50,896
Arizona Public Service 5.75% 9/15/2000 5,950 5,981
Baltimore Gas & Electric Co. 6.68% 10/11/2001 16,000 16,529
Boston Edison Co. 6.05% 8/15/2000 25,500 25,769
Boston Edison Co. 6.80% 2/1/2000 10,000 10,140
Boston Edison Co. 6.80% 3/15/2003 14,000 14,605
Cinergy Global Resources 6.20% 11/3/2008(3) 5,000 4,993
Consolidated Edison 6.50% 2/1/2001 5,000 5,110
Edison Mission Energy Funding Corp. 6.77% 9/15/2003(1)(3) 17,286 17,701
Florida Gas Transmission 8.14% 11/1/1999(3) 10,000 10,185
Florida Power & Light Corp. 5.50% 7/1/1999 20,600 20,635
Florida Power & Light Corp. 6.00% 6/1/2008 43,000 44,839
GTE Corp. 6.36% 4/15/2006 7,950 8,352
GTE Corp. 6.39% 9/11/2000 10,000 10,157
GTE Northwest Inc. 5.55% 10/15/2008 7,000 7,036
GTE Northwest Inc. 7.375% 5/1/2001 10,000 10,459
GTE Southwest Inc. 5.82% 12/1/1999 18,650 18,752
Indiana Michigan Power Co. 6.40% 3/1/2000 20,000 20,265
Kansas City Power & Light Co. 6.50% 11/14/2001 5,000 5,156
Kern River Funding Corp. 6.42% 3/31/2001(1)(3) 9,940 10,020
MCI Communications Corp. 6.25% 3/23/1999 12,000 12,019
MCN Investment Corp. 6.03% 2/1/2001 4,000 4,012
MCN Investment Corp. 6.82% 5/13/1999 28,000 28,094
Nevada Power Co. 7.06% 5/1/2000 12,000 12,211
NYNEX Corp. Capital Funding 8.10% 11/1/1999 5,070 5,171
NYNEX Corp. Capital Funding 8.11% 11/1/1999 15,000 15,299
NYNEX Credit Co. 6.50% 9/15/2000(3) 30,000 30,452
PSE&G Capital Corp. 6.74% 10/23/2001(3) 26,000 26,511
Progress Capital Holdings 5.47% 10/23/2000(3) 25,000 24,767
Progress Capital Holdings 6.88% 8/1/2001(3) 20,000 20,382
Texas Utilities Co. 9.50% 8/1/1999 8,500 8,627
U S West Capital Funding, Inc. 6.125% 7/15/2002 32,000 32,846
U S West Capital Funding, Inc. 6.25% 7/15/2005 15,000 15,634
United Telecom 9.75% 4/1/2000 10,550 11,050
-------
564,655
-------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $5,128,445) 5,176,745
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITY (0.1%)
U.S. Treasury Note 4.75% 11/15/2008 5,000 5,035
-----
AGENCY BONDS & NOTES (0.9%)
Federal Home Loan Mortgage Corp. 6.11% 6/25/2013(1) 23,000 23,133
Federal Home Loan Mortgage Corp. 6.43% 2/25/2013(1) 15,000 15,089
Federal Home Loan Mortgage Corp. 6.92% 1/25/2012(1) 15,000 15,052
Government Export Trust (U.S. Government Guaranteed) 6.61% 9/15/1999(1) 1,375 1,380
------
54,654
------
MORTGAGE-BACKED SECURITIES (1.2%)
Federal Home Loan Mortgage Corp. 5.50% 10/1/2000(1) 13,539 13,559
Federal Home Loan Mortgage Corp. 6.00% 12/1/1999(1) 7,980 8,000
Federal Home Loan Mortgage Corp. 6.00% 1/1/2001(1) 11,616 11,687
Federal Home Loan Mortgage Corp. 6.50% 10/1/1999(1) 6,232 6,251
Federal Home Loan Mortgage Corp. 7.00% 3/1/2000(1) 11,770 11,848
Federal Home Loan Mortgage Corp. 7.00% 5/1/2000(1) 9,397 9,433
</TABLE>
11
<PAGE> 74
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage Assn. 6.00% 1/1/2001(1) 8,289 8,336
Federal National Mortgage Assn. 8.00% 6/1/1999(1) 2,087 2,094
------
71,208
------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $130,601) 130,897
- --------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(7.1%)
- --------------------------------------------------------------------------------------------------------------------------
Banco Latinoamericano de Exportaciones 6.35% 4/10/2000(3) 25,000 24,842
Banco Santiago SA 7.00% 7/18/2007 11,830 9,889
Bank of Nova Scotia 9.00% 10/1/1999 12,394 12,676
CIBC Capital Funding, LP 6.25% 12/17/2002(3) 25,000 25,409
Canadian Imperial Bank of Commerce (NY Branch) 6.20% 8/1/2000 70,525 71,421
Enersis SA 6.60% 12/1/2026 11,235 10,485
Enersis SA 6.90% 12/1/2006 8,000 7,316
KFW International Finance, Inc. 9.125% 5/15/2001 7,995 8,654
Korean Development Bank 7.125% 9/17/2001 57,820 56,583
Province of Manitoba 8.75% 5/15/2001 7,000 7,511
National Westminster Bancorp Inc. 9.45% 5/1/2001 8,881 9,612
Noranda, Inc. 8.00% 6/1/2003 20,000 20,881
Noranda, Inc. 8.625% 7/15/2002 15,000 15,768
Oil Enterprises Ltd. 6.239% 6/30/2008(1)(3) 40,201 40,229
Province of Ontario 7.375% 1/27/2003 10,000 10,695
Province of Ontario 7.75% 6/4/2002 13,500 14,498
PacifiCorp Australia LLC 6.15% 1/15/2008(3) 20,900 21,245
Placer Dome Inc. 6.14% 1/29/2002 15,000 14,597
Province of Saskatchewan 6.625% 7/15/2003 11,100 11,706
Westpac Banking 9.125% 8/15/2001 24,966 26,930
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $416,513) 420,947
- --------------------------------------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL BOND (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
Power Auth. of the State of NY
(COST $35,000) 6.05% 2/15/2015 35,000 35,716
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.73% 2/1/1999 114,199 114,199
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 4.75% 2/1/1999 5,181 5,181
- --------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $119,380) 119,380
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.9%)
(COST $5,829,939) 5,883,685
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 109,789
Liabilities--Note I (43,552)
--------
66,237
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $5,949,922
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Adjustable Rate Security.
(3) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At January 31, 1999, the
aggregate value of these securities was $708,830,000, representing 11.9% of
net assets.
12
<PAGE> 75
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT
SHORT-TERM CORPORATE FUND (000)
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Paid in Capital $5,916,326
Undistributed Net Investment Income --
Accumulated Net Realized Losses--Note G (20,150)
Unrealized Appreciation--Note H 53,746
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,949,922
=========================================================================================================================
Investor Shares--Net Assets applicable to 509,007,421 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $5,529,179
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $10.86
=========================================================================================================================
Institutional Shares--Net Assets applicable to 38,732,824 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $420,743
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $10.86
=========================================================================================================================
</TABLE>
13
<PAGE> 76
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM TREASURY FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.0%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (86.6%)
U.S. Treasury Bond 7.50% 11/15/2016 $ 108,290 $135,191
U.S. Treasury Bond 10.375% 11/15/2012(2) 269,900 372,065
U.S. Treasury Bond 11.625% 11/15/2004 18,300 24,601
U.S. Treasury Note 6.50% 10/15/2006 60,600 67,239
U.S. Treasury Note 6.75% 5/31/1999 31,700 31,914
U.S. Treasury Note 6.875% 5/15/2006 40,450 45,703
U.S. Treasury Note 7.00% 7/15/2006 18,600 21,171
U.S. Treasury Note 7.50% 2/15/2005 246,300 282,280
U.S. Treasury Note 7.875% 11/15/2004 216,000 250,452
Export Funding Trust (U.S. Government Guaranteed) 8.21% 12/29/2006(1) 24,389 27,282
Government Export Trust (U.S. Government Guaranteed) 6.00% 3/15/2005(1) 13,021 13,326
Guaranteed Export Certificates
(U.S. Government Guaranteed) 7.46% 12/15/2005(1) 23,435 25,145
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.69% 1/15/2009(1) 27,463 29,070
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.80% 8/15/2006(1) 7,174 7,790
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.02% 9/1/2004(1) 10,625 11,135
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.39% 6/26/2006(1) 3,837 4,104
Guaranteed Trade Trust (U.S. Government Guaranteed) 8.17% 1/15/2007(1) 6,000 6,636
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 5.94% 6/20/2006(1) 15,789 16,183
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 6.08% 8/15/2004(1) 19,997 20,337
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 6.726% 9/15/2010(1) 17,000 18,224
Overseas Private Investment Corp.
(U.S. Government Guaranteed) 6.75% 12/15/2008(1) 11,083 11,774
Private Export Funding Corp.
(U.S. Government Guaranteed) 5.25% 5/15/2005 64,100 63,878
Private Export Funding Corp.
(U.S. Government Guaranteed) 5.73% 1/15/2004 39,000 39,852
Private Export Funding Corp.
(U.S. Government Guaranteed) 5.87% 7/31/2008 73,300 75,553
Private Export Funding Corp.
(U.S. Government Guaranteed) 6.49% 7/15/2007 8,500 9,123
Private Export Funding Corp.
(U.S. Government Guaranteed) 7.11% 4/15/2007 13,100 14,569
---------
1,624,597
---------
AGENCY BONDS & NOTES (9.4%)
Federal Home Loan Bank 4.925% 10/14/2008 31,800 30,764
Federal Home Loan Bank 5.315% 12/23/2008 49,500 49,256
Federal Home Loan Bank 5.80% 9/2/2008 3,000 3,112
Federal Home Loan Bank 5.945% 7/28/2008 48,500 50,593
Federal National Mortgage Assn. 6.50% 7/16/2007 8,800 9,513
Federal National Mortgage Assn. 6.57% 8/22/2007 30,000 32,595
-------
175,833
-------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,700,787) 1,800,430
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 77
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.2%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.73% 2/1/1999 $ 53,337 $ 53,337
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 4.75% 2/1/1999 26,450 26,450
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $79,787) 79,787
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(COST $1,780,574) 1,880,217
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.2%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 34,145
Liabilities--Note I (38,458)
----------
(4,313)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 168,148,561 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,875,904
=========================================================================================================================
NET ASSET VALUE PER SHARE $11.16
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Securities with a value of $2,757,000 have been segregated as initial
margin for open futures contracts.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,784,625 $10.61
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (8,385) (.05)
Unrealized Appreciation--Note H
Investment Securities 99,643 .60
Futures Contracts 21 --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,875,904 $11.16
==========================================================================================================================
</TABLE>
15
<PAGE> 78
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM CORPORATE FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (82.7%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (6.0%)
California Infrastructure & Economic Development
Bank SP Trust SCE 6.38% 9/25/2008(1) $ 15,000 $15,815
California Infrastructure & Economic Development
Bank SP Trust SDG&E 6.31% 9/25/2008(1) 4,409 4,632
California Infrastructure & Economic Development
Bank SP Trust PG&E 6.32% 9/25/2005(1) 1,650 1,716
California Infrastructure & Economic Development
Bank SP Trust PG&E 6.42% 9/25/2008(1) 1,800 1,905
Citibank Credit Card Master Trust 6.70% 2/15/2004(1) 5,000 5,183
ComEd Transitional Funding Trust 5.63% 6/25/2009(1) 15,000 15,077
Ford Credit Auto Loan Master Trust 6.50% 8/15/2002(1) 4,000 4,081
Illinois Power Special Purpose 5.54% 6/25/2009(1) 7,000 7,049
MBNA Master Credit Card Trust 6.45% 2/15/2008(1) 5,000 5,284
Providian Master Trust Series 6.25% 6/15/2007(1) 10,000 10,255
Standard Credit Master Trust 7.25% 4/7/2008(1) 3,200 3,501
------
74,498
------
FINANCE (41.0%)
AUTOMOBILE (1.2%)
Ford Motor Credit Co. 5.80% 1/12/2009 10,000 10,068
Ford Motor Credit Co. 6.125% 4/28/2003 5,000 5,105
BANKS (16.1%)
BB&T Corp. 7.25% 6/15/2007 5,000 5,386
The Bank of New York Co., Inc. 6.625% 6/15/2003 6,000 6,240
Bank of New York 8.50% 12/15/2004 10,000 11,382
BankAmerica Corp. 7.125% 3/1/2009 20,000 21,905
BankAmerica Corp. 7.20% 4/15/2006 10,000 10,817
Citicorp 6.75% 8/15/2005 5,000 5,260
Citicorp 7.00% 7/1/2007 10,000 10,694
CoreStates Capital Corp. 6.75% 11/15/2006 10,000 10,659
First Bank N.A. 6.00% 10/15/2003 4,200 4,261
First Bank System, Inc. 6.875% 9/15/2007 10,000 10,749
Mellon Financial Co. 6.375% 2/15/2010 5,000 5,228
Mellon Bank Corp. 7.00% 3/15/2006 7,500 8,068
Mellon Bank Corp. 7.625% 9/15/2007 5,000 5,652
Meridian Bancorp, Inc. 6.625% 3/15/2003 3,000 3,110
National City Bank-Cleveland 6.10% 4/3/2003 10,000 10,217
National City Corp. 5.75% 2/1/2009 10,000 9,993
National City Corp. 6.625% 3/1/2004 6,700 7,026
PNC Funding Corp. 9.875% 3/1/2001 5,000 5,425
PNC Bank N.A. 7.875% 4/15/2005 5,000 5,562
Southern National Corp. 7.05% 5/23/2003 13,000 13,611
Summit Bancorp 8.625% 12/10/2002 5,775 6,316
Summit Bank 6.75% 6/15/2003 5,510 5,703
US Bank NA Minnesota 5.25% 6/4/2003 5,000 4,947
Wells Fargo & Co. 6.25% 4/15/2008 10,000 10,396
CONSUMERS (2.3%)
Household Finance Corp 5.875% 2/1/2009 7,000 6,960
Norwest Financial, Inc. 7.20% 5/1/2007 5,000 5,467
Norwest Financial, Inc. 7.50% 4/15/2005 5,000 5,493
Sears Roebuck Acceptance Corp. 6.69% 4/30/2001 5,000 5,120
Sears Roebuck Acceptance Corp. 6.80% 10/9/2002 5,000 5,193
DIVERSIFIED (1.1%)
Associates Corp. of North America 6.25% 11/1/2008 5,000 5,181
Associates Corp. of North America 7.54% 4/14/2004 3,000 3,274
Finova Capital Corp. 6.75% 11/15/2004 5,000 5,170
</TABLE>
16
<PAGE> 79
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURANCE (7.1%)
Conseco Inc. 6.40% 2/10/2003 $ 10,000 $ 9,586
Harleysville Group 6.75% 11/15/2003 7,500 7,742
Horace Mann Educators Corp. 6.625% 1/15/2006 8,250 8,316
Liberty Financial Co. 6.75% 11/15/2008 17,000 17,791
NAC Re Corp. 7.15% 11/15/2005 6,500 6,852
Orion Capital Corp. 9.125% 9/1/2002 10,000 10,673
Prudential Insurance Co. of America 6.375% 7/23/2006(2) 10,000 10,278
RGA Reinsurance Group of America Inc. 7.25% 4/1/2006(2) 10,000 10,766
Reliastar Financial Corp. 6.50% 11/15/2008 5,000 5,142
OTHER (13.2%)
Associated Estates Realty Corp. 6.88% 12/9/2004 2,000 1,943
BRE Properties, Inc. 7.20% 6/15/2007 2,000 2,005
Bear, Stearns & Co., Inc. 7.00% 3/1/2007 5,000 5,216
Bradley Operating LP 7.20% 1/15/2008 4,000 3,833
Camden Property Trust 7.172% 6/21/2004 3,000 2,935
Colonial Realty LP 6.96% 7/26/2004 3,000 2,945
Commercial Net Lease Realty Inc. 7.125% 3/15/2008 5,000 4,717
Donaldson Lufkin & Jenrette, Inc. 6.50% 4/1/2008 5,000 5,065
Donaldson Lufkin & Jenrette, Inc. 6.50% 6/1/2008 10,000 10,132
Evans Withycombe Residential, Inc. 7.50% 4/15/2004 3,000 3,052
First Industrial LP 7.60% 5/15/2007 3,000 3,007
Gables Realty LP 6.80% 3/15/2005 5,000 4,855
Goldman Sachs Group 7.20% 3/1/2007(2) 5,000 5,311
Goldman Sachs Group 7.80% 7/15/2002(2) 5,000 5,298
Highwoods Forsyth LP 7.19% 6/15/2004(2) 5,000 4,829
Irvine Apartment Communities Inc. 7.00% 10/1/2007 3,000 2,787
JDN Realty Corp. 6.80% 8/1/2004 3,500 3,373
Lehman Brothers Holdings 6.625% 2/5/2006 5,000 4,981
Merrill Lynch & Co., Inc. 5.75% 11/4/2002 5,000 5,020
Merrill Lynch & Co., Inc. 6.375% 10/15/2008 5,000 5,185
Merry Land & Investment Co., Inc. 6.875% 11/1/2004 2,000 2,022
Merry Land & Investment Co., Inc. 6.90% 8/1/2007 5,000 5,045
Morgan Stanley, Dean Witter, Discover & Co. 8.10% 6/24/2002 5,500 5,917
New Plan Realty Trust 7.35% 6/15/2007 3,000 3,045
Oasis Residential Inc. 6.75% 11/15/2001 2,500 2,482
Paine Webber Group Inc. 7.625% 10/15/2008 10,000 10,792
Realty Income Corp. 7.75% 5/6/2007 3,000 2,883
Salomon Inc. 6.74% 12/15/2003 5,000 5,194
Salomon Inc. 6.75% 2/15/2003 5,000 5,166
Salomon Smith Barney Holdings Inc. 6.875% 6/15/2005 5,000 5,238
Security Capital Group 7.15% 6/15/2007 2,000 1,926
Security Capital Pacific Trust 7.375% 10/15/2006 3,000 3,020
Shurgard Storage Centers, Inc. 7.50% 4/25/2004 3,000 2,962
Simon DeBartolo 6.75% 11/15/2003(2) 3,000 2,956
Simon DeBartolo 6.875% 11/15/2006 3,000 2,923
SUSA Partnership LP 7.00% 12/1/2007 4,000 3,882
Topaz Ltd. 6.92% 3/10/2007(1)(2) 10,410 10,738
-------
505,464
-------
INDUSTRIAL (22.6%)
Allied Signal Inc. 6.20% 2/1/2008 13,300 13,660
Anheuser-Busch Cos., Inc. 6.75% 6/1/2005 2,000 2,149
Anheuser-Busch Cos., Inc. 7.10% 6/15/2007 10,000 11,019
Burlington Northern Railroad Co. Equipment Trust 7.33% 6/23/2010(1) 4,479 4,858
Cardinal Health, Inc. 6.00% 1/15/2006 8,845 8,879
Cardinal Health, Inc. 6.50% 2/15/2004 3,500 3,627
Continental Airlines Pass-Through Trust 6.41% 4/15/2007 3,500 3,541
Continental Airlines Pass-Through Trust 6.748% 10/15/2008(1) 10,000 10,066
Cox Communications, Inc. 6.50% 9/15/2018(1) 2,000 2,071
Cox Communications, Inc. 6.69% 9/20/2004 8,430 8,830
</TABLE>
17
<PAGE> 80
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM CORPORATE FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Delta Airlines, Inc. Pass-Through Trust 7.541% 10/11/2011(1) $ 4,429 $ 4,679
Delta Airlines, Inc. Pass-Through Trust 8.54% 1/2/2007(1) 2,636 2,900
Dial Corp. 6.50% 9/15/2008 10,000 10,244
Dillard's Inc. 6.625% 11/15/2008 5,000 5,132
Dillard's Inc. 6.69% 8/1/2007 5,000 5,140
Eastman Chemical Co. 6.375% 1/15/2004 1,500 1,507
Electronic Data Systems Corp. 6.85% 5/15/2000(2) 5,000 5,093
Federated Department Stores, Inc. 8.50% 6/15/2003 5,000 5,484
First Data Corp. 6.375% 12/15/2007 12,000 12,507
IBP, Inc. 6.125% 2/1/2006 4,000 3,867
Kroger Co. 8.15% 7/15/2006 5,000 5,662
Lafarge Corp Senior Notes 6.375% 7/15/2005 4,750 4,866
Levi Strauss & Co. 6.80% 11/1/2003(2) 4,000 4,014
Lexmark International, Inc. 6.75% 5/15/2008 5,000 5,100
Lockheed Martin Corp. 7.25% 5/15/2006 6,000 6,494
Lucent Technologies Inc. 7.25% 7/15/2006 10,000 11,139
Minnesota Mining & Manufacturing ESOP Trust 5.62% 7/15/2009(1)(2) 9,664 9,628
Norfolk & Southern Corp. 7.40% 9/15/2006 8,000 8,875
Northwest Airlines Corp. Pass-Through Trust 8.07% 1/2/2015(1) 11,108 12,045
PanAmSat Corp. 6.375% 1/15/2008 5,000 4,905
Philip Morris 7.20% 2/1/2007 5,000 5,406
Praxair, Inc. 6.70% 4/15/2001 5,000 5,070
Raytheon Co. 6.00% 12/15/2010(2) 5,000 5,059
Smith International Inc. 7.00% 9/15/2007 7,500 7,840
TCI Communications, Inc. 6.875% 2/15/2006 7,000 7,508
TCI Communications, Inc. 7.25% 8/1/2005 7,000 7,644
Tektronix 7.50% 8/1/2003 2,000 2,088
Tektronix 7.625% 8/15/2002 5,310 5,516
Time Warner Inc. 7.48% 1/15/2008 4,250 4,743
Tyco International Group 6.125% 1/15/2009 5,000 5,099
Union Pacific Railroad Co. Equipment Trust 6.12% 2/1/2004 2,000 1,988
The Upjohn Co. Employee Stock Ownership Trust 9.79% 2/1/2004(1) 6,276 7,143
Viacom Inc. 7.75% 6/1/2005 5,000 5,475
WMX Technologies Inc. 7.00% 10/15/2006 7,500 7,952
Western Atlas, Inc. 7.875% 6/15/2004 2,000 2,187
-------
278,699
-------
UTILITIES (13.1%)
AEP Resources Inc. 6.50% 12/1/2003(2) 10,000 10,179
Baltimore Gas & Electric Co. 6.25% 12/8/2005 5,000 5,223
Baltimore Gas & Electric Co. 6.70% 12/1/2006 9,000 9,703
Cinergy Global Resources 6.20% 11/3/2008(2) 10,000 9,985
Consolidated Edison Inc. 6.25% 2/1/2008 7,750 8,181
Florida Power & Light 6.00% 6/1/2008 7,000 7,299
GTE Corp. 6.36% 4/15/2006 5,000 5,253
GTE Northwest Inc. 5.55% 10/15/2008 15,000 15,078
GTE South Inc. 6.125% 6/15/2007 7,000 7,309
Kansas City Power & Light Co. 6.50% 11/14/2001 5,000 5,156
LG&E Capital Corp. 6.46% 1/15/2008(2) 5,000 5,172
Midamerican Energy Holdings Co. 6.375% 6/15/2006 5,000 5,107
National Rural Utilities 5.75% 12/1/2008 5,000 5,060
Nipsco Capital Markets 7.39% 4/1/2004 6,000 6,353
Progress Capital Holdings 7.45% 9/1/2003(2) 10,000 10,516
Southwestern Bell Telephone 6.59% 9/29/2008 5,650 6,160
Southwestern Bell Telephone 6.625% 7/15/2007 5,000 5,418
Texas-New Mexico Power Co. 6.25% 1/15/2009 12,000 12,196
U S WEST Capital Funding, Inc. 6.375% 7/15/2008 14,350 15,255
Worldcom Inc. 7.75% 4/1/2007 6,500 7,351
-------
161,954
-------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $992,540) 1,020,615
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 81
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (3.9%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (2.1%)
U.S. Treasury Note 4.75% 11/15/2008 $ 23,100 $ 23,262
U.S. Treasury Note 5.50% 2/15/2008 2,500 2,646
AGENCY BONDS & NOTES (1.8%)
Federal Home Loan Bank 5.29% 12/15/2008 3,000 2,984
Federal National Mortgage Assn. 6.54% 9/10/2007 18,000 19,527
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $48,200) 48,419
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(10.2%)
- -------------------------------------------------------------------------------------------------------------------------
ABN Amro Bank NV (Chicago Branch) 6.625% 10/31/2001 7,705 7,873
Banco Latinoamericano de Exportaciones 6.35% 4/10/2000(2) 5,000 4,968
Banco Santiago SA 7.00% 7/18/2007 5,000 4,180
Bayer Corp. 6.50% 10/1/2002(2) 6,000 6,227
Embotelladora Andina SA 7.00% 10/1/2007 5,000 4,501
Enersis SA 6.90% 12/1/2006 10,000 9,146
Korean Development Bank 7.125% 9/17/2001 9,830 9,620
Oil Enterprises Ltd. 6.239% 6/30/2008(1)(2) 7,657 7,663
Province of Ontario 5.50% 10/1/2008 15,000 15,134
PacifiCorp Australia LLC 6.15% 1/15/2008(2)(3) 14,000 14,231
Petro Geo-Services 6.625% 3/30/2008 5,000 4,905
Petrozuata Finance Inc. Series A 7.63% 2/22/2007(2) 10,000 7,884
Placer Dome, Inc. 7.125% 5/15/2003 5,000 5,012
Swiss Bank Corp. (NY Branch) 6.75% 7/15/2005 5,000 5,278
TransCanada Pipelines 6.49% 1/21/2009 6,000 6,214
TransCanada Pipelines 9.125% 4/20/2006 6,000 7,100
Union Bank of Switzerland (NY Branch) 7.25% 7/15/2006 5,000 5,462
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $127,410) 125,398
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.8%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.73% 2/1/1999 42,491 42,491
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 4.72%-4.75% 2/1/1999 17,073 17,073
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $59,564) 59,564
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.6%)
(COST $1,227,714) 1,253,996
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 82
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
INTERMEDIATE-TERM CORPORATE FUND (000)
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.6%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note C $ 44,730
Payables for Investment Securities Purchased (43,643)
Other Liabilities--Note I (20,991)
--------
(19,904)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 122,526,013 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,234,092
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.07
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principle payments.
(2) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transactions exempt from
registration, normally to qualified institutional buyers. At January 31,
1999, the aggregate value of these securities was $150,795,000,
representing 12.2% of net assets.
(3) Scheduled principal and interest payments are guaranteed by Ambac
Assurance Corporation.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,202,820 $ 9.82
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note G 4,990 .04
Unrealized Appreciation--Note H 26,282 .21
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,234,092 $10.07
=========================================================================================================================
</TABLE>
20
<PAGE> 83
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM TREASURY FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (97.0%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (85.5%)
U.S. Treasury Bond 6.00% 2/15/2026 $ 6,350 $ 6,976
U.S. Treasury Bond 6.375% 8/15/2027 13,950 16,134
U.S. Treasury Bond 6.50% 11/15/2026 79,575 93,115
U.S. Treasury Bond 6.625% 2/15/2027 66,050 78,610
U.S. Treasury Bond 6.75% 8/15/2026 106,900 128,795
U.S. Treasury Bond 6.875% 8/15/2025 6,850 8,349
U.S. Treasury Bond 7.125% 2/15/2023 33,800 41,858
U.S. Treasury Bond 7.50% 11/15/2016 30,000 37,453
U.S. Treasury Bond 7.875% 2/15/2021 176,452 233,345
U.S. Treasury Bond 8.125% 8/15/2019 97,215 130,480
U.S. Treasury Bond 8.875% 8/15/2017 194,800 275,609
U.S. Treasury Bond 8.875% 2/15/2019 132,660 189,766
---------
1,240,490
---------
AGENCY BONDS & NOTES (11.5%)
Federal Home Loan Bank 5.29% 12/15/2008 30,000 29,841
Federal Home Loan Bank 5.80% 9/2/2008 115,300 119,592
Federal Home Loan Bank 5.865% 9/2/2008 5,050 5,239
Federal Home Loan Bank 6.045% 5/13/2008 11,300 11,860
-------
166,532
-------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,236,158) 1,407,022
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.3%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.73% 2/1/1999 18,366 18,366
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 4.75% 2/1/1999 44,126 44,126
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $62,492) 62,492
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.3%)
(COST $1,298,650) 1,469,514
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.3%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 38,463
Security Lending Collateral Payable to Brokers--Note I (44,126)
Other Liabilities (13,592)
--------
(19,255)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 126,993,494 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,450,259
=========================================================================================================================
NET ASSET VALUE PER SHARE $11.42
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,267,091 $ 9.98
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note G 12,304 .10
Unrealized Appreciation--Note H 170,864 1.34
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,450,259 $11.42
=========================================================================================================================
</TABLE>
21
<PAGE> 84
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (77.9%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE (22.1%)
Allstate Corp. 6.75% 5/15/2018 $ 20,000 $ 20,858
Allstate Corp. 7.50% 6/15/2013 10,000 11,093
Ambac, Inc. 7.50% 5/1/2023 20,000 22,083
American Re Corp. 7.45% 12/15/2026 18,267 20,797
Associates Corp. of North America 6.25% 11/1/2008 15,000 15,542
Banc One Corp. 7.75% 7/15/2025 25,000 29,064
BankAmerica Corp. 8.50% 1/15/2007 15,000 17,044
BankBoston Corp. 6.625% 12/1/2005 30,000 30,480
CIGNA Corp. 7.875% 5/15/2027 25,000 27,910
Cincinnati Financial Corp. 6.90% 5/15/2028 20,000 20,561
Citicorp 7.125% 9/1/2005 15,000 16,091
Citigroup, Inc. 6.625% 1/15/2028 25,000 24,984
Equitable Companies Inc. 7.00% 4/1/2028 25,000 26,624
Exxon Capital Corp. 6.00% 7/1/2005 10,000 10,341
Farmers Exchange Capital 7.05% 7/15/2028(2) 30,000 30,561
Fifth Third Bancorp 6.75% 7/15/2005 20,000 21,105
First Chicago Corp. 6.375% 1/30/2009 15,000 15,637
First Union Corp. 6.00% 10/30/2008 10,000 10,214
Fleet Financial Group 6.875% 1/15/2028 25,000 26,454
General Electric Capital Corp. 8.125% 5/15/2012 42,000 51,132
General Electric Capital Services 7.50% 8/21/2035 10,960 13,233
General Electric Global Insurance Holdings Corp. 7.00% 2/15/2026 50,000 55,710
General Re Corp. 9.00% 9/12/2009 15,000 18,818
John Hancock Mutual Life Insurance Co. 7.375% 2/15/2024(2) 50,000 55,843
Liberty Mutual Insurance Co. 8.50% 5/15/2025(2) 35,000 41,602
Lumbermens Mutual Casualty Co. 9.15% 7/1/2026(2) 18,900 22,681
MBIA Inc. 7.00% 12/15/2025 7,550 7,996
Massachusetts Mutual Life 7.50% 3/1/2024(2) 8,710 9,665
Massachusetts Mutual Life 7.625% 11/15/2023(2) 14,500 16,301
Metropolitan Life Insurance Co. 7.80% 11/1/2025(2) 32,345 36,829
National City Bank Pennsylvania 7.25% 10/21/2011 10,000 11,186
National City Corp. 7.20% 5/15/2005 10,000 10,703
NationsBank Corp. 7.75% 8/15/2004 15,000 16,498
NationsBank Corp. 7.75% 8/15/2015 10,000 11,332
Republic New York Corp. 9.70% 2/1/2009 10,000 12,743
SunTrust Banks 6.00% 2/15/2026 20,000 20,400
Transamerica Corp. 9.375% 3/1/2008 10,000 12,055
Transamerica Financial Corp. 6.125% 11/1/2001 15,000 15,091
Travelers Property Casualty Corp. 7.75% 4/15/2026 25,000 28,679
UNUM Corp. 6.75% 12/15/2028 25,000 25,552
Wachovia Corp. 6.605% 10/1/2025 30,000 32,076
Wachovia Corp. 6.80% 6/1/2005 10,000 10,651
-------
934,219
-------
INDUSTRIAL (44.2%)
AEROSPACE & DEFENSE (1.6%)
Lockheed Martin Corp. 7.65% 5/1/2016 35,000 39,605
Raytheon Co. 7.20% 8/15/2027 25,000 27,678
AUTOMOTIVE (4.3%)
Chrysler Corp. 7.45% 3/1/2027 25,000 29,207
Eaton Corp. 6.50% 6/1/2025 10,000 10,557
Eaton Corp. 7.625% 4/1/2024 15,000 17,117
Ford Motor Co. 8.90% 1/15/2032 40,000 53,249
General Motors Corp. 7.40% 9/1/2025 30,000 33,976
General Motors Corp. 7.70% 4/15/2016 10,000 11,607
General Motors Corp. 9.40% 7/15/2021 20,000 27,215
BASIC INDUSTRIES (3.9%)
Caterpillar Inc. 6.625% 7/15/2028 25,000 25,979
Hubbell Inc. 6.625% 10/1/2005 10,000 10,557
</TABLE>
22
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minnesota Mining & Manufacturing Corp. 6.375% 2/15/2028 $ 35,000 $ 36,796
Morton International, Inc. 9.25% 6/1/2020 10,000 13,493
PPG Industries, Inc. 6.875% 2/15/2012 10,200 11,135
PPG Industries, Inc. 9.00% 5/1/2021 9,750 12,833
Parker-Hannifin Corp. 7.30% 5/15/2011 20,000 22,126
Worthington Industries, Inc. 6.70% 12/1/2009 9,040 9,349
Worthington Industries, Inc. 7.125% 5/15/2006 20,000 21,256
BUILDING MATERIALS (0.6%)
Georgia-Pacific Group 7.25% 6/1/2028 25,000 25,520
CABLE (0.6%)
Comcast Cable Communications 6.20% 11/15/2008 25,000 25,870
CHEMICALS (3.9%)
Air Products & Chemicals, Inc. 7.375% 5/1/2005 2,900 3,126
Air Products & Chemicals, Inc. 8.75% 4/15/2021 12,550 15,449
E.I. du Pont de Nemours & Co. 6.50% 1/15/2028 25,000 26,493
E.I. du Pont de Nemours & Co. 6.75% 9/1/2007 25,000 27,275
Eastman Chemical Co. 7.25% 1/15/2024 20,000 20,046
Eastman Chemical Co. 7.60% 2/1/2027 10,000 10,442
Ferro Corp. 7.125% 4/1/2028 10,000 9,993
Monsanto Co. 6.75% 12/15/2027 25,000 26,315
Monsanto Co. 8.875% 12/15/2009 20,000 25,035
CONSUMER GOODS & SERVICES (5.5%)
Bestfoods 6.625% 4/15/2028 30,000 31,583
CPC International, Inc. 7.25% 12/15/2026 30,000 34,461
The Walt Disney Co. 6.75% 3/30/2006 25,000 27,066
Kimberly-Clark Corp. 6.25% 7/15/2018 25,000 25,916
Procter & Gamble Co. 6.45% 1/15/2026 27,000 28,539
Procter & Gamble Co. 8.50% 8/10/2009 10,000 12,501
Procter & Gamble Co. ESOP 9.36% 1/1/2021 35,000 47,026
Whirlpool Corp. 9.10% 2/1/2008 20,000 24,247
ENERGY & RELATED GOODS & SERVICES (3.7%)
Mobil Corp. 8.625% 8/15/2021 22,000 28,986
Texaco Capital, Inc. 8.625% 11/15/2031 13,000 16,662
Texaco Capital, Inc. 9.75% 3/15/2020 17,000 23,720
USX Corp. 6.85% 3/1/2008 45,000 45,575
Ultramar Diamond Shamrock 7.20% 10/15/2017 20,000 20,100
United Technologies Corp. 8.875% 11/15/2019 15,000 19,908
FOOD & LODGING (0.8%)
Joseph Seagram & Sons, Inc. 7.50% 12/15/2018 9,285 9,851
Sysco Corp. 6.50% 8/1/2028 22,000 23,261
HEALTH CARE (3.7%)
Baxter International, Inc. 7.65% 2/1/2027 25,000 28,758
Bristol-Myers Squibb Co. 6.80% 11/15/2026 35,000 39,120
Eli Lilly & Co. 7.125% 6/1/2025 50,000 56,960
Merck & Co. 6.30% 1/1/2026 30,000 31,650
HOME BUILDING & REAL ESTATE (0.5%)
Masco Corp. 6.625% 4/15/2018 20,000 19,988
MEDIA & ENTERTAINMENT (2.6%)
New York Times Co. 8.25% 3/15/2025 30,000 34,598
News America Holdings Inc. 8.00% 10/17/2016 30,000 34,073
E.W. Scripps Co. 6.625% 10/15/2007 20,000 20,961
Tribune Co. 6.875% 11/1/2006 20,000 21,312
</TABLE>
23
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
METAL (1.1%)
Aluminum Co. of America 6.75% 1/15/2028 $ 35,000 $ 36,463
Phelps Dodge Corp. 7.125% 11/1/2027 12,500 12,491
PAPER (3.4%)
Champion International Corp. 7.35% 11/1/2025 30,000 29,892
International Paper Co. 6.875% 11/1/2023 10,000 9,934
Mead Corp. 7.35% 3/1/2017 10,350 10,959
Tenneco Inc. 7.625% 6/15/2017 20,000 20,691
Tenneco Inc. 7.875% 4/15/2027 15,000 15,874
Westvaco Corp. 9.75% 6/15/2020 15,000 20,093
Weyerhaeuser Co. 8.50% 1/15/2025 30,000 35,843
TECHNOLOGY & RELATED (2.5%)
International Business Machines Corp. 7.00% 10/30/2025 50,000 55,894
Motorola, Inc. 7.50% 5/15/2025 45,000 51,506
TRANSPORTATION (3.1%)
Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 12,500 12,937
Burlington Northern Santa Fe Corp. 6.875% 12/1/2027 25,000 26,586
CSX Corp. 7.95% 5/1/2027 35,000 40,911
Norfolk Southern Corp. 7.80% 5/15/2027 35,000 41,261
Union Tank Car Co. 7.125% 2/1/2007 10,000 10,442
OTHER (2.4%)
AirTouch Communications, Inc. 6.35% 6/1/2005 25,000 26,021
Coca Cola Enterprises 5.75% 11/1/2008 25,000 25,391
Time Warner Inc. 6.625% 5/15/2029 25,000 25,816
USA Waste Services Inc. 7.00% 7/15/2028 25,000 25,860
---------
1,870,986
---------
UTILITIES (11.6%)
BellSouth Telecommunications 7.00% 10/1/2025 10,000 11,278
Cincinnati Gas & Electric Co. 6.90% 6/1/2025 16,000 17,062
Coastal Corp. 9.625% 5/15/2012 15,000 19,268
Duke Energy Corp. 6.00% 12/1/2028 25,000 24,692
El Paso Natural Gas Co. 7.50% 11/15/2026 25,000 26,744
Florida Power Corp. 6.75% 2/1/2028 22,375 24,086
GTE California Inc. 6.70% 9/1/2009 25,000 27,404
GTE Southwest, Inc. 6.00% 1/15/2006 10,000 10,297
Indiana Bell Telephone Co., Inc. 7.30% 8/15/2026 33,000 38,498
Michigan Bell Telephone Co. 7.85% 1/15/2022 25,000 29,911
NGC Corp. 7.125% 5/15/2018 20,000 19,083
New Jersey Bell Telephone Co. 8.00% 6/1/2022 25,000 30,403
Northern States Power Co. 7.125% 7/1/2025 30,000 33,966
Oklahoma Gas & Electric Co. 6.50% 4/15/2028 12,770 13,319
Pacific Bell 7.125% 3/15/2026 15,000 16,961
PacifiCorp 6.625% 6/1/2007 10,000 10,633
Sprint Capital Corp. 6.875% 11/15/2028 35,000 37,246
Tennessee Gas Pipeline Co. 7.50% 4/1/2017 25,000 27,136
U S WEST Capital Funding, Inc. 6.875% 7/15/2028 35,000 38,180
Wisconsin Electric Power Co. 6.50% 6/1/2028 25,000 26,251
Wisconsin Power & Light 5.70% 10/15/2008 7,500 7,634
-------
490,052
-------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $2,992,661) 3,295,257
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(2.6%)
- -------------------------------------------------------------------------------------------------------------------------
Husky Oil Ltd. 7.55% 11/15/2016 20,000 18,827
Province of British Columbia 6.50% 1/15/2026 10,000 10,526
Province of Manitoba 8.875% 9/15/2021 10,000 13,517
Province of Ontario 6.00% 2/21/2006 15,000 15,549
Province of Saskatchewan 8.50% 7/15/2022 10,000 12,883
</TABLE>
24
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Saga Petroleum ASA 7.25% 9/23/2027 $ 7,795 $ 7,116
Talisman Energy, Inc. 7.125% 6/1/2007 20,000 20,626
Talisman Energy, Inc. 7.25% 10/15/2027 10,000 9,787
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $105,337) 108,831
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (12.8%)
- -------------------------------------------------------------------------------------------------------------------------
AGENCY BONDS & NOTES (4.2%)
Federal Home Loan Bank 5.125% 9/15/2003 50,000 50,123
Federal Home Loan Mortgage Corp. 5.75% 7/15/2003 25,000 25,686
Federal National Mortgage Assn. 5.75% 6/15/2005 100,000 103,689
MORTGAGE OBLIGATIONS (8.6%)
Federal National Mortgage Assn. 5.735% 1/1/2009(1) 15,000 14,859
Federal National Mortgage Assn. 15.50% 10/1/2012(1) 6 7
Government National Mortgage Assn. 6.00% 5/15/2028-1/15/2029(1) 275,267 273,394
Government National Mortgage Assn. 6.50% 5/15/2026-1/15/2029(1) 75,243 76,212
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $544,571) 543,970
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (8.6%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.73% 2/1/1999 309,367 309,367
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 4.75% 2/1/1999 53,063 53,063
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $362,430) 362,430
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.9%)
(COST $4,004,999) 4,310,488
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.9%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 71,265
Liabilities--Note I (150,051)
---------
(78,786)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 451,351,664 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $4,231,702
=========================================================================================================================
NET ASSET VALUE PER SHARE $9.38
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in trans-actions exempt from
registration, normally to qualified institutional buyers. At January 31,
1999, the aggregate value of these securities was $213,482,000,
representing 5.0% of net assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $3,901,183 $8.64
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note G 25,030 .06
Unrealized Appreciation--Note H 305,489 .68
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $4,231,702 $9.38
=========================================================================================================================
</TABLE>
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YIELD CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (90.9%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE (3.0%)
Amresco, Inc. 9.875% 3/15/2005 $ 15,000 $ 11,700
Amresco, Inc. 10.00% 3/15/2004 9,630 7,704
Bank United Corp. 8.875% 5/1/2007 30,000 31,173
Chevy Chase Savings Bank 9.25% 12/1/2008 15,000 15,075
ContiFinancial Corp. 8.125% 4/1/2008 25,000 18,000
FirstFed Financial Corp. 11.75% 10/1/2004 5,000 5,150
Imperial Credit Industries, Inc. 9.875% 1/15/2007 20,000 15,800
Navistar Financial Corp. 9.00% 6/1/2002 15,000 15,563
Olympic Financial Ltd. 11.50% 3/15/2007 22,160 16,398
Western Financial Savings Bank 8.50% 7/1/2003 17,000 13,940
Western Financial Savings Bank 8.875% 8/1/2007 20,000 15,000
-------
165,503
-------
INDUSTRIAL (80.2%)
AEROSPACE & DEFENSE (2.1%)
Argo-Tech Corp. 8.625% 10/1/2007 16,000 15,280
K & F Industries, Inc. 9.25% 10/15/2007 22,000 22,495
L-3 Communications Corp. 8.50% 5/15/2008 8,425 8,762
L-3 Communications Corp. 10.375% 5/1/2007 20,000 22,100
Newport News Shipbuilding Inc. 8.625% 12/1/2006 25,000 27,000
Newport News Shipbuilding Inc. 9.25% 12/1/2006 20,000 21,650
AUTOMOTIVE (4.3%)
Accuride Corp. 9.25% 2/1/2008 20,000 20,000
Delco Remy International Inc. 10.625% 8/1/2006 10,000 10,600
Federal-Mogul Corp. 7.75% 7/1/2006 54,810 55,967
Federal-Mogul Corp. 8.80% 4/15/2007 18,750 20,209
Hayes Wheels International, Inc. 9.125% 7/15/2007 30,000 31,675
Hayes Wheels International, Inc. 11.00% 7/15/2006 15,000 16,687
Johnstown America Industries, Inc. 11.75% 8/15/2005 27,000 28,890
LDM Technologies Inc. 10.75% 1/15/2007 8,000 8,000
Lear Corp. 9.50% 7/15/2006 20,000 21,950
Navistar International Corp. 8.00% 2/1/2008 25,000 25,438
BASIC INDUSTRIES (5.2%)
Advanced Lighting Technologies, Inc. 8.00% 3/15/2008(1) 15,000 13,425
Anchor Glass Container Corp. 11.25% 4/1/2005 8,000 8,440
Cincinnati Milacron, Inc. 8.375% 3/15/2004 11,500 12,214
Coltec Industries Inc. 7.50% 4/15/2008 30,000 31,711
Consumers International 10.25% 4/1/2005 19,305 20,270
Grove Worldwide LLC 9.25% 5/1/2008 30,000 26,400
Henry Co. 10.00% 4/15/2008 10,000 10,025
Idex Corp. 6.875% 2/15/2008 22,500 22,079
International Wire Group 11.75% 6/1/2005 15,000 15,975
Mastec, Inc. 7.75% 2/1/2008 30,000 29,400
Neenah Corp. 11.125% 5/1/2007 20,000 20,800
Neenah Corp. 11.125% 5/1/2007(1) 5,170 5,377
Numatics Inc. 9.625% 4/1/2008 16,500 15,428
Park-Ohio Industries, Inc. 9.25% 12/1/2007 22,500 23,119
Roller Bearing Co. of America Inc. 9.625% 6/15/2007 10,000 9,600
Scotsman Group Inc. 8.625% 12/15/2007 8,260 8,053
Terex Corp. 8.875% 4/1/2008 17,500 17,675
BUILDING MATERIALS (2.5%)
American Standard Cos. Inc. 7.375% 2/1/2008 50,000 50,250
American Standard Cos. Inc. 7.625% 2/15/2010 41,250 41,869
Falcon Building Products, Inc. 9.50% 6/15/2007 21,750 19,358
Nortek Inc. 8.875% 8/1/2008(1) 8,000 8,260
Nortek, Inc. 9.25% 3/15/2007 17,500 18,025
</TABLE>
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CABLE (9.5%)
Adelphia Communications Corp. 7.75% 1/15/2009(1) $ 27,000 $ 27,202
Adelphia Communications Corp. 8.375% 2/1/2008(1) 22,500 23,536
Bresnan Communications Group 8.00% 2/1/2009(1) 3,375 3,459
CSC Holdings, Inc. 7.875% 12/15/2007 30,000 31,894
CSC Holdings, Inc. 8.125% 8/15/2009 25,000 27,423
CSC Holdings, Inc. 9.25% 11/1/2005 30,000 32,550
CSC Holdings, Inc. 9.875% 2/15/2013 15,000 16,875
Century Communications Inc. 8.875% 1/15/2007 14,970 16,729
Classic Cable Inc. 9.875% 8/1/2008(1) 12,425 13,046
Comcast Corp. 9.125% 10/15/2006 25,000 26,750
Comcast Corp. 9.375% 5/15/2005 24,000 25,800
Comcast Corp. 9.50% 1/15/2008 20,000 21,050
Comcast Corp. 10.625% 7/15/2012 25,000 32,250
Falcon Holdings Group LP 8.375% 4/15/2010 20,000 20,800
Jones Intercable Inc. 7.625% 4/15/2008 20,000 20,800
Lenfest Communications, Inc. 8.375% 11/1/2005 73,500 80,482
Rifkin Acquisition Partners LP 11.125% 1/15/2006 15,000 16,575
Rogers Cablesystem Ltd. 9.625% 8/1/2002 13,780 14,951
USA Networks Inc. 6.75% 11/15/2005(1) 75,000 76,176
CHEMICALS (2.9%)
ARCO Chemical Co. 9.80% 2/1/2020 18,652 19,192
Acetex Corp. 9.75% 10/1/2003 20,000 20,000
Buckeye Cellulose Corp. 8.50% 12/15/2005 15,000 15,487
Huntsman Corp. 9.50% 7/1/2007(1) 17,000 17,255
LaRoche Industries, Inc. 9.50% 9/15/2007 15,000 10,050
Lilly Industries, Inc. 7.75% 12/1/2007 15,000 15,570
PCI Chemical Canada, Inc. 9.25% 10/15/2007 22,500 15,525
Pioneer Americas Acquisition Corp. 9.25% 6/15/2007 20,000 14,000
Scotts Co. 8.625% 1/15/2009(1) 8,025 8,306
Sovereign Specialty Chemicals, Inc. 9.50% 8/1/2007 8,000 8,200
Texas Petrochemicals Corp. 11.125% 7/1/2006 17,500 17,150
CONSUMER GOODS & SERVICES (1.3%)
Muzak LP/Muzak Capital Corp. 10.00% 10/1/2003 5,000 5,250
Revlon Consumer Products 8.625% 2/1/2008 60,000 53,700
Sealy Mattress, Inc. 9.875% 12/15/2007 11,770 11,358
CONTAINERS (2.0%)
BWAY Corp. 10.25% 4/15/2007 15,000 15,825
Owens-Illinois, Inc. 7.85% 5/15/2004 15,000 15,758
Owens-Illinois, Inc. 8.10% 5/15/2007 35,000 37,422
Silgan Holding Inc. 9.00% 6/1/2009 41,000 42,332
Sweetheart Cup Co., Inc. 10.50% 9/1/2003 2,500 1,569
ENERGY & RELATED GOODS & SERVICES (5.8%)
AmeriGas Partners, LP Series B 10.125% 4/15/2007 10,000 10,325
Clark Refining & Marketing, Inc. 8.375% 11/15/2007 15,000 13,650
Cross Timbers Oil Co. 8.75% 11/1/2009 25,000 22,750
Cross Timbers Oil Co. 9.25% 4/1/2007 17,000 16,023
Energy Corp. of America 9.50% 5/15/2007 30,000 27,750
Flores & Rucks, Inc. 9.75% 10/1/2006 10,000 10,150
J. Ray McDermott, SA 9.375% 7/15/2006 25,000 26,500
Newfield Exploration Co. 7.45% 10/15/2007 15,000 14,801
Newpark Resources, Inc. 8.625% 12/15/2007 15,000 14,100
Ocean Energy, Inc. 8.875% 7/15/2007 2,145 2,102
Oryx Energy Co. 8.00% 10/15/2003 10,000 10,637
Oryx Energy Co. 8.125% 10/15/2005 22,500 24,338
P & L Coal Holdings Corp. 8.875% 5/15/2008 40,000 41,350
Plains Resources, Inc. 10.25% 3/15/2006 17,000 17,383
Pride Petroleum Services, Inc. 9.375% 5/1/2007 32,000 30,240
Santa Fe Energy Resources, Inc. 11.00% 5/15/2004 10,000 10,500
</TABLE>
27
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<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YIELD CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Seagull Energy Corp. 8.625% 8/1/2005 $ 3,050 $ 2,989
Tesoro Petroleum Corp. 9.00% 7/1/2008 10,000 9,700
Tuboscope Inc. 7.50% 2/15/2008 15,000 13,492
FOOD & LODGING (1.5%)
Aurora Foods Inc. 8.75% 7/1/2008 6,895 7,205
B & G Foods, Inc. 9.625% 8/1/2007 10,000 9,600
Nash Finch Co. 8.50% 5/1/2008 18,000 16,920
Purina Mills Inc. 9.00% 3/15/2010 25,000 24,250
Tricon Global Restaurants, Inc. 7.65% 5/15/2008 25,000 26,338
HEALTH CARE (5.8%)
Beverly Enterprises Inc. 9.00% 2/15/2006 18,000 18,900
Columbia/HCA Healthcare Corp. 6.91% 6/15/2005 25,000 24,368
Columbia/HCA Healthcare Corp. 7.00% 7/1/2007 30,000 29,148
Columbia/HCA Healthcare Corp. 7.25% 5/20/2008 30,000 29,482
Integrated Health Services, Inc. 9.50% 9/15/2007 30,000 28,800
Kinetic Concepts, Inc. 9.625% 11/1/2007 17,830 16,582
Leiner Health Products, Inc. 9.625% 7/1/2007 12,750 13,196
Owens & Minor, Inc. 10.875% 6/1/2006 14,075 15,377
PharMerica Inc. 8.375% 4/1/2008 27,440 29,361
Tenet Healthcare Corp. 8.125% 12/1/2008(1) 75,000 77,062
Tenet Healthcare Corp. 8.625% 1/15/2007 40,000 41,800
HOME BUILDING & REAL ESTATE (1.6%)
CapStar Hotel Co. 8.75% 8/15/2007 20,000 19,300
Kaufman & Broad Home Corp. 7.75% 10/15/2004 26,250 25,988
Standard Pacific Corp. 8.00% 2/15/2008 15,000 14,625
Standard Pacific Corp. 8.50% 6/15/2007 15,000 15,337
Toll Corp. 7.75% 9/15/2007 15,000 14,737
MEDIA & ENTERTAINMENT (9.5%)
AMC Entertainment Inc. 9.50% 2/1/2011(1) 20,000 20,000
Big Flower Press Holdings 8.625% 12/1/2008(1) 13,235 13,566
Big Flower Press Holdings 8.875% 7/1/2007 15,000 15,525
CBS Corp. 7.15% 5/20/2005 75,000 79,281
Chancellor Media Corp. 8.125% 12/15/2007 20,000 20,800
Chancellor Media Corp. 9.375% 10/1/2004 15,000 15,900
Citadel Broadcasting Co. 9.25% 11/15/2008(1) 12,250 13,107
EchoStar DBS Corp. 9.375% 2/1/2009(1) 25,000 25,688
Fox/Liberty Networks LLC 8.875% 8/15/2007 70,000 72,450
JCAC, Inc. 10.125% 6/15/2006 8,350 9,331
Lin Television Corp. 8.375% 3/1/2008 33,000 34,485
Loews Cineplex Entertainment 8.875% 8/1/2008 40,000 40,550
Mail-Well Corp. 8.75% 12/15/2008(1) 19,125 19,555
Outdoor Systems Inc. 9.375% 10/15/2006 10,000 10,925
PRIMEDIA, Inc. 7.625% 4/1/2008 20,000 20,000
Von Hoffman Press Inc. 10.375% 5/15/2007(1) 12,095 12,443
Westinghouse Electric Corp. 6.875% 9/1/2003 13,000 13,496
Westinghouse Electric Corp. 8.375% 6/15/2002 15,000 16,112
Westinghouse Electric Corp. 8.875% 6/1/2001 15,000 16,008
World Color Press, Inc. 8.375% 11/15/2008(1) 45,000 46,575
Young Broadcasting Inc. 9.00% 1/15/2006 10,000 10,175
METAL (3.5%)
AK Steel Corp. 9.125% 12/15/2006 55,000 58,987
Algoma Steel Inc. 12.375% 7/15/2005 25,000 21,000
AmeriSteel Corp. 8.75% 4/15/2008 10,000 10,100
Armco, Inc. 9.00% 9/15/2007 22,525 23,370
Bethlehem Steel Corp. 10.375% 9/1/2003 10,500 11,183
LTV Corp. 8.20% 9/15/2007 37,000 34,502
Ryerson Tull, Inc. 9.125% 7/15/2006 11,960 13,325
</TABLE>
28
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weirton Steel Corp. 10.75% 6/1/2005 $ 12,500 $ 10,875
Wells Aluminum Corp. 10.125% 6/1/2005 10,500 9,765
PAPER & PACKAGING (6.4%)
Ball Corp. 7.75% 8/1/2006(1) 35,000 36,750
Ball Corp. 8.25% 8/1/2008(1) 15,000 15,787
Boise Cascade Co. 9.45% 11/1/2009 10,240 11,249
Buckeye Technologies, Inc. 8.00% 10/15/2010 12,460 12,460
Container Corp. of America 9.75% 4/1/2003 50,000 51,750
Doman Industries, Ltd. 8.75% 3/15/2004 30,000 22,200
Domtar Inc. 8.75% 8/1/2006 15,000 15,600
Domtar Inc. 9.50% 8/1/2016 18,750 19,688
Fonda Group Inc. 9.50% 3/1/2007 15,000 12,750
Gaylord Container Corp. 9.375% 6/15/2007 23,225 21,135
NoramPac Inc. 9.50% 2/1/2008 10,000 10,350
Owens-Illinois Inc. 7.35% 5/15/2008 45,000 46,337
Paperboard Industries International Inc. 8.375% 9/15/2007 18,750 18,469
Repap New Brunswick, Inc. 9.00% 6/1/2004 11,860 11,356
Tembec Finance Corp. 9.875% 9/30/2005 20,000 21,000
U.S. Timberlands LLC 9.625% 11/15/2007 30,000 30,300
RETAIL (0.9%)
Boise Cascade Office Products Corp. 7.05% 5/15/2005 14,490 14,030
Fred Meyer, Inc. 7.375% 3/1/2005 35,000 37,395
TECHNOLOGY & RELATED (6.6%)
Advanced Micro Devices, Inc. 11.00% 8/1/2003 30,310 31,977
Amphenol Corp. 9.875% 5/15/2007 15,000 15,600
Beckman Instruments, Inc. 7.45% 3/4/2008 30,000 30,573
Fairchild Semiconductor Corp. 10.125% 3/15/2007 22,275 22,052
Fisher Scientific International Inc. 9.00% 2/1/2008 60,000 60,750
Iron Mountain, Inc. 8.75% 9/30/2009 37,500 39,000
Iron Mountain, Inc. 10.125% 10/1/2006 16,500 17,985
Pierce Leahy Corp. 9.125% 7/15/2007 15,000 15,825
PSINet Inc. 10.00% 2/15/2005 50,000 51,625
Telecommunication Techniques Co. 9.75% 5/15/2008 24,000 23,640
Unisys Corp. 7.875% 4/1/2008 30,000 31,612
Wesco Distribution Inc. 9.125% 6/1/2008 25,000 25,344
TELECOMMUNICATIONS (7.2%)
Comcast Cellular Holdings, Inc. 9.50% 5/1/2007 15,000 17,250
GCI, Inc. 9.75% 8/1/2007 20,000 19,800
ITC DeltaCom, Inc. 8.875% 3/1/2008 24,250 24,008
ITC DelatCom, Inc. 9.75% 11/15/2008(1) 10,405 10,873
ITC DeltaCom, Inc. 11.00% 6/1/2007 8,781 9,220
Intermedia Communications Inc. 8.50% 1/15/2008 45,000 42,975
Intermedia Communications Inc. 8.875% 11/1/2007 15,000 14,550
Level 3 Communications, Inc. 9.125% 5/1/2008 60,000 59,700
MJD Communications Inc. 9.50% 5/1/2008 12,000 12,240
McLeodUSA Inc. 8.375% 3/15/2008 15,000 15,225
McLeodUSA Inc. 9.25% 7/15/2007 15,000 15,750
Paging Network, Inc. 8.875% 2/1/2006 10,000 9,050
Paging Network, Inc. 10.125% 8/1/2007 20,250 19,339
Qwest Communications International Inc. 7.50% 11/1/2008(1) 93,000 98,115
Rogers Cantel, Inc. 8.30% 10/1/2007 27,500 28,806
TEXTILES & RELATED (1.1%)
Galey & Lord Inc. 9.125% 3/1/2008 9,215 7,372
Pillowtex Corp. 9.00% 12/15/2007 9,625 9,914
Westpoint Stevens Inc. 7.875% 6/15/2005 40,000 41,200
</TABLE>
29
<PAGE> 92
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YIELD CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER (0.5%)
Allied Waste North America Inc. 7.625% 1/1/2006(1) $ 25,000 $ 25,750
Westinghouse Air Brake Corp. 9.375% 6/15/2005(1) 2,330 2,429
---------
4,451,143
---------
UTILITIES (7.7%)
AES Corp. 8.375% 8/15/2007 30,000 29,850
AES Corp. 8.50% 11/1/2007 24,000 24,000
CMS Energy Corp. 7.50% 1/15/2009 25,765 26,475
CMS Energy Corp. 7.625% 11/15/2004 18,000 18,097
CMS Energy Corp. 8.125% 5/15/2002 30,000 30,909
CalEnergy Co., Inc. 7.52% 9/15/2008 17,000 18,659
CalEnergy Co., Inc. 9.50% 9/15/2006 16,000 17,760
Calpine Corp. 7.875% 4/1/2008 36,380 35,834
Cleveland Electric Illuminating Co. 7.43% 11/1/2009 17,500 18,729
El Paso Electric Co. Series C 8.25% 2/1/2003 15,000 15,985
El Paso Electric Co. Series D 8.90% 2/1/2006 23,000 26,189
El Paso Electric Co. Series E 9.40% 5/1/2011 28,000 32,531
Midland Funding II 11.75% 7/23/2005 25,000 27,884
Niagara Mohawk Power Corp. 7.75% 10/1/2008 60,000 66,912
Public Service Co. of New Mexico 7.50% 8/1/2018 20,000 20,667
Texas-New Mexico Power Co. 10.75% 9/15/2003 14,000 14,962
---------
425,443
---------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $5,009,799) 5,042,089
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (5.0%)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 5.75% 8/15/2003 85,000 88,814
U.S. Treasury Note 6.50% 5/31/2001 50,000 52,022
U.S. Treasury Note 6.50% 5/31/2002 40,000 42,238
U.S. Treasury Note 6.50% 8/15/2005 85,000 93,459
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $268,771) 276,533
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.7%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account --Note I 4.72% 2/1/1999 32,281 32,281
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.73% 2/1/1999 118,502 118,502
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $150,783) 150,783
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.6%)
(COST $5,429,353) 5,469,405
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.4%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 137,773
Liabilities--Note I (58,335)
--------
79,438
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 702,645,496 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $5,548,843
=========================================================================================================================
NET ASSET VALUE PER SHARE $7.90
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from
registration, normally to qualified institutional buyers. At January 31,
1999, the aggregate value of these securities was $613,742,000,
representing 11.1% of net assets.
30
<PAGE> 93
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $5,557,837 $7.91
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (49,046) (.07)
Unrealized Appreciation--Note H 40,052 .06
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,548,843 $7.90
=========================================================================================================================
</TABLE>
31
<PAGE> 94
REPORT OF INDEPENDENT
ACCOUNTANTS
[PHOTO]
To the Shareholders and Trustees of
Vanguard Bond Funds
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard Short-Term Treasury Fund, Vanguard Short-Term Federal Fund, Vanguard
Short-Term Corporate Fund, Vanguard Intermediate-Term Treasury Fund, Vanguard
Intermediate-Term Corporate Fund, Vanguard Long-Term Treasury Fund, Vanguard
Long-Term Corporate Fund and Vanguard High-Yield Corporate Fund (separate funds
of Vanguard Bond Funds, hereafter referred to as the "Funds") at January 31,
1999, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at January 31, 1999 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 11, 1999
