<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, 2000
[THE VANGUARD GROUP LOGO]
<PAGE> 2
[PHOTO]
John C. Bogle
FELLOW SHAREHOLDERS:
Two roads diverged in a wood, and I--I took the one less traveled by, and that
has made all the difference.
I can think of no better words than those of Robert Frost to begin this special
letter to our shareholders, who have placed such extraordinary trust in me and
in Vanguard over the past quarter century. When the firm was founded 25 years
ago, we deliberately took a new road to managing a mutual fund enterprise.
Instead of having the funds controlled by an outside management company with its
own financial interests, the Vanguard funds--there were only 11 of them
then--would be controlled by their own shareholders and operate solely in their
financial interests. The outcome of our unprecedented decision was by no means
certain. We described it then as "The Vanguard Experiment."
Well, I guess it's fair to say it's an experiment no more. During the past
25 years, the assets we hold in stewardship for investors have grown from $1
billion to more than $500 billion, and I believe that our reputation for
integrity, fair-dealing, and sound investment principles is second to none in
this industry. Our staggering growth--which I never sought--has come in
important part as a result of the simple investment ideas and basic human values
that are the foundation of my personal philosophy. I have every confidence that
they will long endure at Vanguard, for they are the right ideas and right
values, unshakable and eternal.
While Emerson believed that "an institution is the lengthened shadow of one
man," Vanguard today is far greater than any individual. The Vanguard crew has
splendidly implemented and enthusiastically supported our founding ideas and
values, and deserves the credit for a vital role in forging our success over the
years. It is a dedicated crew of fine human beings, working together in an
organization that is well prepared to press on regardless long after I am gone.
Creating and leading this enterprise has been an exhilarating run. Through it
all, I've taken the kudos and the blows alike, enjoying every moment to the
fullest, and even getting a second chance at life with a heart transplant four
years ago. What more could a man ask? While I shall no longer be serving on the
Vanguard Board, I want to assure you that I will remain vigorous and active in
a newly created Vanguard unit, researching the financial markets, writing, and
speaking. I'll continue to focus whatever intellectual power and ethical
strength I possess on my mission to assure that mutual fund investors everywhere
receive a fair shake. In the spirit of Robert Frost:
But I have promises to keep, and miles to go before I sleep, and miles to
go before I sleep.
You have given me your loyalty and friendship over these long years, and I
deeply appreciate your thousands of letters of support. For my part, I will
continue to keep an eagle eye on your interests, for you deserve no less. May
God bless you all, always.
/s/ JOHN C. BOGLE
CONTENTS
REPORT FROM THE CHAIRMAN ............................1
THE MARKETS IN PERSPECTIVE ..........................7
REPORTS FROM THE ADVISERS ...........................9
PERFORMANCE SUMMARIES ..............................13
FUND PROFILES ......................................23
FINANCIAL STATEMENTS ...............................33
REPORT OF INDEPENDENT ACCOUNTANTS ..................54
<PAGE> 3
[PHOTO]
John J. Brennan
REPORT FROM THE CHAIRMAN
Interest rates rose sharply and bond prices fell during the 12 months ended
January 31, 2000, as surprisingly strong economic growth sparked fears of higher
inflation. In this difficult environment, five of the nine Vanguard Bond Funds
posted negative total returns for the fiscal year.
The returns of our funds varied widely according to maturity and credit
quality. Our Short-Term Corporate Fund registered the highest return, earning
2.8% for the 12 months, while our Long-Term Treasury Fund provided a total
return of -8.4%.
The adjacent table presents the 12-month total return (capital change plus
reinvested dividends) for each fund, broken down into capital and income
components, as well as each fund's yield as of January 31. It also presents the
return for the Institutional Shares of the Short-Term Corporate Fund, which are
available for a minimum investment of $50 million.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 31, 2000
--------------------------------------
COMPONENTS OF
TOTAL RETURN
--------------
SEC 30-DAY
TOTAL INCOME CAPITAL ANNUALIZED
BOND FUND RETURN RETURN RETURN YIELD
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM FUNDS
Treasury 1.2% 5.2% -4.0% 6.44%
Federal 1.6 5.6 -4.0 6.44
Corporate 2.8 6.2 -3.4 7.16
- ----------------------------------------------------------------------
INTERMEDIATE-TERM FUNDS
Treasury -4.6% 5.5% -10.1% 6.73%
Corporate -2.7 6.2 -8.9 7.82
GNMA -0.9 6.4 -7.3 6.86
- ----------------------------------------------------------------------
LONG-TERM FUNDS
Treasury -8.4% 5.3% -13.7% 6.59%
Corporate -7.4 5.9 -13.3 7.48
- ----------------------------------------------------------------------
High-Yield
Corporate Fund 0.2% 8.0% -7.8% 9.54%
- ----------------------------------------------------------------------
INSTITUTIONAL SHARES
- ----------------------------------------------------------------------
Short-Term Corporate 2.9% 6.3% -3.4% 7.27%
- ----------------------------------------------------------------------
</TABLE>
The net asset value of each of our funds declined during the 12 months. Our
Long-Term Treasury Fund experienced the biggest price drop--nearly 14%. 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 price change of a bond or a bond fund--spelled out in its capital
return--reflects the sensitivity to interest rates. Generally, the maturities of
our funds are longer than those of their competitors. Consequently, our relative
performance--as well as our absolute results--is more affected, especially in
the short term, by the direction of rates and the magnitude of the changes.
As we have often reminded you, interest rates--and, thus, the prices of
bonds--can shift rapidly. For example, thanks to falling interest rates, the
capital return of the Long-Term Corporate Fund was 2.9% in fiscal 1999 and 7.9%
in fiscal 1998. In fiscal
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1997, when rates rose, the fund's capital return was -6.0%. Over long periods,
these swings have tended to be offsetting, leaving interest income as the
dominant factor in the total return for bond funds. That's why investors with
long time horizons need not be overly concerned about short-term changes in the
market value of bonds.
Though a rise in interest rates results in an immediate decline in a bond
fund's net asset value, it has an important positive effect for long-term bond
investors: higher income. The yields of our funds on January 31 were
considerably higher than they were a year ago. The increase in yields ranged
from 0.62 percentage point for the GNMA Fund to more than 1.8 percentage points
for our Intermediate-Term Treasury Fund, whose yield was 6.73% on January 31, up
from 4.89% a year earlier. The important point about higher yields is that
reinvested income becomes more productive. 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.
FINANCIAL MARKETS IN REVIEW
During the 12 months ended January 31, the U.S. economy continued to grow. The
unemployment rate reached a 30-year low, and consumer confidence was at an
all-time high. However, good economic news is often bad news for bonds. Bond
investors viewed the continued economic expansion with trepidation because
higher growth rates can ignite higher inflation, the enemy of bonds. (Rising
prices diminish the purchasing power of a bond's interest payments.) Indeed, the
Consumer Price Index did record an increase in the inflation rate--to 2.7%
during the fiscal year ended January 31, from 1.7% during the previous 12
months. However, much of the increase stemmed from a sharp spike in oil prices.
The yield of the 30-year Treasury bond rose 140 basis points to 6.49%
during the period, and the yield of the 10-year Treasury jumped more than 2
percentage points to 6.67%. Investors were thus being paid more for taking less
risk--a striking illustration of stress in the bond market. The yield of 3-month
T-bills rose to 5.69% from 4.45% a year ago. The Lehman Aggregate Bond
Index--which measures the entire taxable U.S. bond market and has an
intermediate-term average maturity--returned -1.9%. The Lehman Long Treasury
Index returned -8.3%.
The Federal Reserve Board, seeking to slow the economy and preempt any
acceleration in inflation, increased short-term interest rates three times, by a
total of 75 basis points, during the fiscal year. Surprisingly, higher interest
rates did not stop the stock market's ascent, though there were some sharp
interim setbacks.
The Wilshire 5000 Total Market Index, which tracks the entire U.S. stock
market, gained 14.4% during the fiscal year. Small- and mid-capitalization
stocks managed to outpace large-cap stocks for the first time in several years:
The large-cap-dominated Standard & Poor's 500 Index gained 10.3%, less than
one-third of the remarkable 31.7% gain of the Wilshire 4500 Completion Index
(measuring the total U.S. market except for the S&P 500 stocks). Growth stocks,
particularly technology-related issues, drove most of the gains.
FISCAL 2000 PERFORMANCE OVERVIEW
On an absolute basis, it was a disappointing 12 months for the Vanguard Bond
Funds. On a relative basis, our performance was mixed. The returns of two of our
short-term funds and our GNMA Fund surpassed those of comparable funds, but our
other funds
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fell short of the average returns of their peers. In the case of the
Long-Term Corporate Fund, our shortfall amounted to nearly 4 percentage points.
We will note that, over the past 16 years, our funds have provided superior
annual returns relative to their competitors 79% of the time (in 86 out of 109
yearly comparisons--a total that reflects the varying lengths of time our
funds have existed). The adjacent table presents our returns compared with those
of peer funds for the 2000 fiscal year.
Our funds generally have average maturities that are longer than those of
comparable mutual funds, a distinction that hurts our relative performance when
interest rates are rising (as they were during fiscal 2000) and helps us when
rates are stable or falling (as they were during fiscal 1999).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
TOTAL RETURNS
FISCAL YEAR ENDED JANUARY 31, 2000
---------------------------------------
AVERAGE
VANGUARD COMPETING
BOND FUND FUND FUND* DIFFERENCE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury 1.2% 1.4% -0.2%
Short-Term Federal 1.6 0.8 +0.8
Short-Term Corporate 2.8 1.3 +1.5
- -----------------------------------------------------------------------------
Intermediate-Term Treasury -4.6% -3.0% -1.6%
Intermediate-Term Corporate -2.7 -2.3 -0.4
GNMA -0.9 -1.3 +0.4
- -----------------------------------------------------------------------------
Long-Term Treasury -8.4% -6.2% -2.2%
Long-Term Corporate -7.4 -3.6 -3.8
- -----------------------------------------------------------------------------
High-Yield Corporate 0.2% 2.3% -2.1%
- -----------------------------------------------------------------------------
INSTITUTIONAL SHARES
- -----------------------------------------------------------------------------
Short-Term Corporate 2.9% 1.3% +1.6%
- -----------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
Though our High-Yield Corporate Fund eked out a slightly positive return of
0.2%, its performance fell well short of the 2.3% total return of its average
peer. Despite rising interest rates and an increase in default rates,
higher-yielding bonds performed relatively well during the 12 months. This is
primarily because the robust health of the economy and the booming stock market
improve chances that companies will be able to make good on their debt
obligations. (Conversely, in a slowing economy, below-investment-grade bonds are
perceived to be more risky because companies may have more difficulty earning
enough to pay their debts.) The fund's investment adviser, Wellington Management
Company, LLP, emphasizes bonds that are, on average, higher in credit quality
than those of comparable funds. This approach mitigates risk but sacrifices the
higher yields available on more speculative securities. Our fund holds virtually
all of its assets in bonds rated B or higher, while our average peer holds about
15% of its assets in bonds rated below B. During fiscal 2000, the highest
returns were earned by the very riskiest securities--those that are not rated by
the major credit agencies. Our fund shuns these issues; our average peer holds
about 8% of its assets in nonrated bonds.
Our GNMA Fund declined over the fiscal year, returning -0.9%. Though a
negative return is never good news, our return was better than the average
return of GNMA mutual funds. Mortgage-backed securities are generally less
sensitive to interest rate changes than other intermediate-term bonds. However,
they carry significant prepayment risk--when interest rates are falling, many
homeowners refinance their loans at lower rates. This added risk is why GNMAs
must pay higher yields than comparable-maturity Treasury securities.
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<PAGE> 6
The threat of prepayments was, of course, not a factor during fiscal 1999.
Generally, mortgage-backed securities earned higher income returns--and
experienced less significant capital declines--than their intermediate-term bond
counterparts.
As noted earlier, our long-term funds fared worst, both on an absolute
basis and relative to comparable mutual funds. The Long-Term Corporate Fund,
which returned -7.4% during the 12 months, was farthest behind its average peer,
which returned -3.6%. For the past several years, the Long-Term Corporate Fund
has seen the pool of long-term high-quality bonds shrink rapidly. For example,
during 1998, bonds rated AAA and AA together represented just 15% of the new
issuance in the investment-grade market. That trend continued in 1999. As a
result, the fund's Board of Trustees recently decided to broaden the range of
securities in which the fund may invest, allowing the Long-Term Corporate Fund
to buy bonds with slightly lower credit quality. The fund's benchmark will
change from the Lehman Long Corporate AA or Better Index to the Lehman Long
Corporate A or Better Index. While this will very slightly lower the fund's
overall credit quality, it will give our adviser greater flexibility in seeking
bonds with promising returns. The fund's average maturity, and, thus its
sensitivity to interest rate changes, will not materially change.
LONG-TERM PERFORMANCE OVERVIEW
Over a longer period, eight of our nine funds have solidly outperformed bond
mutual funds with similar objectives and policies. 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. The table also shows how $10,000
investments in our funds and their competitors would have grown over those
periods. The Performance Summaries on pages 13 through 22 give details of the
funds' long-term performance, including charts showing
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS
TEN YEARS ENDED JANUARY 31, 2000
----------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN FINAL VALUE OF A $10,000 INITIAL INVESTMENT
---------------------------------------- -------------------------------------------
AVERAGE AVERAGE
VANGUARD COMPETING VANGUARD COMPETING
BOND FUND FUND FUND DIFFERENCE FUND FUND DIFFERENCE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Treasury* 5.7% 5.3% +0.4% $15,813 $15,282 $ 531
Short-Term Federal 6.6 5.9 +0.7 18,964 17,712 1,252
Short-Term Corporate 7.0 6.1 +0.9 19,762 18,071 1,691
- ---------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Treasury* 6.8% 6.1% +0.7% $17,283 $16,325 $ 958
Intermediate-Term Corporate* 5.4 4.7 +0.7 13,875 13,333 542
GNMA 7.7 6.9 +0.8 21,012 19,409 1,603
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Treasury 8.7% 7.2% +1.5% $23,008 $20,008 $3,000
Long-Term Corporate 8.8 7.1 +1.7 23,342 19,878 3,464
- ---------------------------------------------------------------------------------------------------------------------------
High-Yield Corporate 10.0% 10.0% 0.0% $25,860 $25,940 $ (80)+
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Short-Term Corporate** 5.1% 4.0% +1.1% $56,203,306 $54,834,568 $1,368,738
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Since inception: Short-Term Treasury and Intermediate-Term Treasury, October
28, 1991; Intermediate-Term Corporate, November 1, 1993.
**Returns since inception, September 30, 1997; results based on initial
investment of $50 million.
+Difference due to rounding of returns.
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<PAGE> 7
each fund's cumulative returns for the past ten years (or its lifetime) and
year-by-year breakdowns of its income and capital returns.
Our margins of outperformance ranged from 0.4% a year for our Short-Term
Treasury Fund to 1.7% annually for our Long-Term Corporate Fund. This edge can
add up over time. In the case of the Long-Term Corporate Fund, a $10,000
investment made ten years ago would have grown to $23,342, compared with $19,878
in its average peer--a difference of $3,464, or nearly 35% of the initial
investment.
Only our High-Yield Corporate Fund failed to top its average peer during
the decade. However, it's important to note that our fund delivered a return
similar to the average for its competitors--and a terrific absolute result of
10.0% a year--at a considerably lower level of risk.
For our Short-Term Treasury and Intermediate-Term Treasury Funds, the
period since inception covers a little more than eight years; for the
Intermediate-Term Corporate Fund, just over six years.
Our strong overall performance is the result of excellent investment
management by Vanguard's Fixed Income Group and Wellington Management Company,
LLP and our significant cost advantage. Costs matter because they directly
affect performance. For the fiscal year, our funds' expense ratios (annual
expenses as a percentage of average net assets) averaged about 0.27%--$2.70 per
$1,000 invested--a small fraction of the 1.04%, or $10.40 for every $1,000,
charged by the average fixed-income fund. Because a bond fund's expenses
directly reduce the income, and thus the total return, the fund produces, lower
costs provide our funds with a significant advantage. Over long periods,
differences in costs account for virtually all of the difference in total
returns between mutual funds investing in bonds of similar maturities and credit
quality.
Of course, the returns presented on page 4 cannot be considered a promise
of what's to come for bond investors. Over the past ten years, bond investors
have benefited from a general decline in interest rates and moderate levels of
inflation. Therefore, these returns reflect nearly ideal conditions for bonds.
What the future will bring, of course, is anyone's guess. The best predictor of
long-term returns from bonds--though it's far from infallible--is the current
yield on those bonds. Based on current yields, long-term bonds can be reasonably
expected to provide average returns of about 6.5% to 7% over the next decade or
so, a bit below the returns of the recent past but a solid result, especially if
inflation remains relatively tame.
IN SUMMARY
The recent difficulties in the bond market may prompt investors to question the
value of diversification. But abandoning laggards and chasing winners is a risky
strategy. As the last month of the fiscal year showed, the stock market can be
volatile, and consistently stellar returns are by no means guaranteed.
The huge disparity between stock and bond returns has not shaken our belief
that investors are best served by selecting and sticking with a mix of stock,
bond, and money market funds appropriate to their investment time horizon,
goals, and risk tolerance.
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<PAGE> 8
A well-balanced portfolio provides exposure to the market's upside while
limiting some of the downside. Investors should keep their eyes on the far
horizon and not let interim turbulence sway them from their course.
/s/ JOHN J. BRENNAN
John J. Brennan
Chairman and Chief Executive Officer
February 19, 2000
A NOTE OF THANKS TO OUR FOUNDER
As you may have read on the inside cover of our report, our founder, John C.
Bogle, retired on December 31, 1999, as Senior Chairman of our Board after
nearly 25 years of devoted service to Vanguard and our shareholders. Vanguard
investors have Jack to thank for creating a truly mutual mutual fund company
that operates solely in the interest of its fund shareholders. And mutual fund
investors everywhere have benefited from his energetic efforts to improve this
industry. Finally, on a personal note, I am forever grateful to Jack for giving
me the opportunity to join this great company in 1982.
<TABLE>
<CAPTION>
FUND STATISTICS
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE TWELVE MONTHS
PER SHARE ENDED JAN. 31, 2000 SEC
--------------------- --------------------- 30-DAY
JAN. 31, JAN. 31, INCOME CAPITAL ANNUALIZED
FUND 1999 2000 DIVIDENDS GAINS* YIELD
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Term Treasury $10.37 $ 9.94 $0.534 $0.017 6.44%
Short-Term Federal 10.26 9.85 0.567 -- 6.44
Short-Term Corporate 10.86 10.49 0.660 -- 7.16
- ---------------------------------------------------------------------------------------------------------------------
Intermediate-Term Treasury $11.16 $10.03 $0.625 -- 6.73%
Intermediate-Term Corporate 10.07 9.13 0.623 $0.046 7.82
GNMA 10.47 9.71 0.669 -- 6.86
- ---------------------------------------------------------------------------------------------------------------------
Long-Term Treasury $11.42 $ 9.74 $0.611 $0.120 6.59%
Long-Term Corporate 9.38 8.08 0.561 0.055 7.48
- ---------------------------------------------------------------------------------------------------------------------
High-Yield Corporate $ 7.90 $ 7.28 $0.631 -- 9.54%
- ---------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------
Short-Term Corporate $10.86 $10.49 $0.673 -- 7.27%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes long-term and short-term capital gains distributions.
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<PAGE> 9
THE MARKETS IN PERSPECTIVE
YEAR ENDED JANUARY 31, 2000
The surprising strength of global economic growth was something of a tonic for
stocks but seemed toxic for bonds during the fiscal year ended January 31, 2000.
Interest rates soared--causing bond prices to fall--as investors and central
banks worried that the rapid expansion in economic activity would cause
inflation to worsen. Financial markets were anything but boring, as day-to-day
price fluctuations for bonds and stocks were pronounced during the period.
U.S. STOCK MARKETS
The U.S. economy's performance was superlative during the fiscal year. Economic
output grew at an inflation-adjusted rate of about 4%, a very rapid pace for a
huge economy that has been expanding without pause for a record 107
months--nearly nine years. Growth also picked up in Asia and Europe. U.S.
unemployment fell to 4.0% of the workforce, the lowest rate in 30 years.
Inflation accelerated a bit--largely due to a 125% increase in oil prices--but
the 2.7% increase in the Consumer Price Index (CPI) was hardly extreme.
Corporate profits rose at a double-digit rate, providing some support for
stock prices, which ordinarily are hurt by rising interest rates. Even so,
some of the biggest gains were in stocks of companies with no profits at all.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
PERIODS ENDED JANUARY 31, 2000
---------------------------------
1 YEAR 3 YEARS 5 YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 10.3% 22.9% 26.6%
Russell 2000 Index 17.7 11.7 16.6
Wilshire 5000 Index 14.4 22.2 25.5
MSCI EAFE Index 19.6 14.9 12.6
- ----------------------------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index -1.9% 5.5% 7.2%
Lehman 10 Year Municipal Bond Index -3.1 4.5 6.5
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 4.8 5.0 5.2
- ----------------------------------------------------------------------------------------------------
OTHER
Consumer Price Index 2.7% 2.0% 2.3%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The overall market, as measured by the Wilshire 5000 Total Market Index,
recorded a 14.4% return, despite a -4.1% decline in the final month of the
fiscal year. Small- and mid-capitalization stocks, which had lagged large-cap
stocks for most of the previous five years, were the star performers. The 10.3%
return of the large-cap S&P 500 Index, which represents more than 75% of the
total market's value, badly trailed the 31.7% return of the rest of the market,
as measured by the Wilshire 4500 Completion Index.
The rise in the market averages obscured extremely wide variations in
returns for various sectors. The small "other energy" category, home to oil
exploration and services companies that benefited from pricier oil, soared 56%.
But the consumer-staples group, which includes a number of big beverage, food,
and tobacco companies, posted a horrid -19% return. Technology companies, which
have become the market's largest sector, returned 38%. So did the
producer-durables group, which includes several fast-growing makers of
high-technology and telecommunications equipment. Higher fuel prices were a
factor in the -13% decline for the auto & transportation group.
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<PAGE> 10
In general, the market rewarded rapid growth and even the prospect of rapid
growth while punishing sectors where actual or expected growth was subpar. This
wide disparity based on expectations is reflected in the price/earnings (P/E)
ratios for various sectors. For example, as of January 31, technology stocks in
the S&P 500 Index had a market-cap weighted average P/E ratio of 56, more than
five times the average P/E of 10 for auto & transportation stocks.
U.S. BOND MARKETS
Bond prices, which move in the opposite direction from interest rates, dropped
almost continuously throughout the fiscal year. In part, the rise in rates
reflected more borrowing by corporations and individuals. But a major factor was
the anticipation that the U.S. economy's strong expansion would either rekindle
inflation or force the Federal Reserve Board to keep boosting rates to counter
that threat.
Official inflation gauges sent ambiguous signals. The CPI rose 2.7%
during the 12 months ended January 31, versus 1.7% during the previous 12
months. However, the CPI's "core rate," which excludes energy and food prices,
gained a relatively modest 1.9%.
The Fed, trying to cool the economy, raised its target for
short-term interest rates on June 30 by one-quarter percentage point. It did so
by a quarter-point again in August and November and, just after the end of our
fiscal year, on February 2--a total increase of 1 full point in just over seven
months.
For the year, the Lehman Aggregate Bond Index, which has an
intermediate-term average maturity and is a proxy for the entire taxable bond
market, posted a -1.9% decline. On balance, yields rose by about 2 percentage
points for intermediate-term U.S. Treasury securities. The 10-year Treasury's
yield was 6.67% on January 31, 202 basis points above its 4.65% yield a year
earlier. The rate increase was less pronounced--140 basis points--for 30-year
Treasury bonds, which benefited because the federal government's growing budget
surplus is reducing the supply of long-term securities.
This led late in the fiscal year to an unusual "inversion" of the yield
curve--instead of the usual upward-sloping curve, with yields rising steadily
along with the maturity of Treasury bonds, the highest yields were for
shorter-term bonds. As of January 31, for example, the yield of 3-year Treasury
notes was 6.69%, while 30-year bonds yielded 6.49%. Short-term rates, which are
most influenced by the Fed's moves, increased about 125 basis points; the yield
on 3-month Treasury bills rose to 5.69% on January 31, 124 basis points above
the level when the fiscal year began.
INTERNATIONAL STOCK MARKETS
Expanding economic activity and increased merger and acquisition activity were
foundations of a strong year in international stock markets, which generally
outperformed Wall Street. The biggest returns were from Pacific-region and
emerging markets that bounced back from severe slumps in the previous two years.
The overall return for U.S. investors from developed markets was 19.6%, as
measured by the Morgan Stanley Capital International Europe, Australasia, Far
East Index. The MSCI Pacific Free Index was up 48.0% in U.S.-dollar terms, as
returns of 38.5% in local currencies were boosted nearly 10 percentage points
due to a rise in the value of the Japanese yen versus the dollar. In Europe,
currency fluctuations had the opposite effect: A 20.8% local return was reduced
to 8.3% for U.S. investors because the value of European currencies generally
slumped versus the dollar.
Emerging stock markets enjoyed a remarkable rebound. The Select Emerging
Markets Free Index returned 57.8%, making up almost all the ground lost in the
two previous years.
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REPORT FROM VANGUARD FIXED INCOME GROUP
SHORT-TERM TREASURY, FEDERAL, AND CORPORATE FUNDS;
INTERMEDIATE-TERM TREASURY AND CORPORATE FUNDS; AND
LONG-TERM TREASURY FUND
The fiscal year ended January 31, 2000, was an ugly period for bond investors.
Interest rates moved steadily higher in response to a strong economy that
prompted the Federal Reserve Board (the Fed) to tighten monetary policy by
raising rates. For shareholders of the Vanguard Bond Funds, increasing market
interest rates eroded net asset values.
As the fiscal year began, the bond market was recovering from a chaotic
period following Russia's default on its debts in August 1998. The Russian
crisis initiated a wave of fear that engulfed global markets. As fear triumphed
over greed, investors seeking quality and liquidity flocked to U.S. Treasury
securities. Their buying pushed yields down to levels not seen in a generation.
On October 5, 1998, the benchmark 30-year Treasury bond yielded 4.72%. The
markets in other fixed-income securities (corporate bonds, mortgages, and
asset-backed securities) were near gridlock, so the Fed reduced short-term
interest rates three times to improve liquidity.
The Fed's rate reductions had the desired effect: Liquidity improved for
other segments of the bond market, with spreads between bid and offering prices
returning to the near-normal levels that had prevailed in the first half of
1998. By early 1999, as the specter of financial Armageddon receded in
investors' minds, the market began to see a reversal of the flight to quality
that had sent buyers flocking to Treasuries. Investors began to focus on
economic news to determine price levels. What they saw was an American economy
that was growing very rapidly, propelled by strong consumer spending and capital
investment. Real (inflation-adjusted) gross domestic product grew at a rate of
about 4% for all of 1999, and in the second half of the year growth accelerated
to an annualized rate of nearly 6%. The demand for workers by U.S. companies
caused the unemployment rate to fall to a 30-year low. Although inflation
remained subdued, the bond market was plagued by concern that the Fed would
raise interest rates to forestall a future rise in prices. The Fed, indeed,
raised its target for short-term rates three times in increments of 25 basis
points, (four times, if we count the increase on February 2, after our
year-end). Investors had anticipated those increases by selling bonds, which
caused the steady rise in rates that we saw during the fiscal year. The 30-year
Treasury bond closed the period with a yield of 6.49%, up 1.4 percentage points
from its opening level.
Yields increased even more for many other segments of the Treasury bond
market. In January 2000, the Treasury announced that current and projected
federal budget surpluses would enable it to cut back the issuance of 30-year
bonds and that it would begin buying back outstanding long-term bonds. The
prospect of a shrinking supply of bonds with maturities of 15 years or more
resulted in greater demand for these bonds, so their yields rose more slowly
than yields on shorter-term instruments. Yields on Treasuries with maturities
between 2 and 10 years, for example, rose a bit more than 2 percentage points
during the fiscal year.
9
<PAGE> 12
Although corporate and mortgage-backed securities also were hurt by the
rise in market rates, they generally suffered less than Treasuries. Investors
who shunned these sectors a year ago were eager purchasers during fiscal 2000,
causing a narrowing in the gap between yields of these bonds and those of
Treasuries.
A REVIEW OF OUR FUNDS
The rise in interest rates and the resulting fall in bond prices caused negative
capital returns for our funds, offsetting much or all of the income they
generated. (A breakdown of capital and income returns is presented in the
Chairman's report on page 1.)
During fiscal 2000, we maintained the average durations of our funds below
those of their benchmarks. We thus were able to mitigate some of the damage done
to net asset values by rising interest rates (a longer duration implies
increased sensitivity to rate changes). However, our Intermediate- and Long-Term
Treasury Funds typically have higher average duration than their mutual fund
peers, a characteristic that hurts when interest rates are rising, as during the
past year. As noted above, demand for corporate securities increased this year,
which helped the corporate funds to outperform their Treasury counterparts.
THE RISKS AHEAD
At this point, the market appears to have "priced in" additional Fed tightening
of monetary policy. The consensus is that the Fed will raise its target federal
funds rate an additional 0.50% by mid-2000. Whether such steps will slow the
economy enough to suit the Fed is debatable. However, the rise in yields since
autumn 1998 has significantly boosted income from bonds, something that will
help counter the blow to prices if the Fed raises rates further than expected.
Corporate bonds provide attractive yield premiums if we are correct in our view
that the economy will continue growing at a healthy pace.
The Vanguard Bond Funds provide a wide range of risk/return combinations so
that investors can select the fund whose characteristics best suit their needs.
It is appropriate for investors to periodically reevaluate their holdings as
risk and return relationships change. For our part, we remain committed to
providing disciplined portfolio management at the lowest possible cost.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John W. Hollyer, Principal
February 15, 2000
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.
10
<PAGE> 13
REPORT FROM WELLINGTON
MANAGEMENT COMPANY, LLP
GNMA FUND; LONG-TERM CORPORATE FUND;
AND HIGH-YIELD CORPORATE FUND
Interest rates rose sharply during our fiscal year, creating an unfavorable
environment for bonds. Rates increased by about 2 percentage points (200 basis
points) on intermediate-term Treasury bonds over the 12 months.
The GNMA, Long-Term Corporate, and High-Yield Corporate Funds are all
affected, to varying degrees, by changes in the level and direction of interest
rates. The GNMA Fund generally behaves like an intermediate-term bond fund, and
its net asset value generally fluctuates less than that of a long-term fund.
However, large swings in interest rates--which affect homeowners' decisions to
prepay or stick with their mortgages--can lead to dramatic changes in the
expected duration of the GNMA Fund. For the Long-Term Corporate Fund, the rise
in rates during the past year caused a sharp decline in net asset value, because
long-term bonds are most sensitive to changes in rates. The High-Yield Corporate
Fund suffered less because its net asset value is usually affected more by
changes in credit quality of its bond holdings than by changes in interest
rates.
Interest rates began rising early in the fiscal year, well before the
Federal Reserve Board's June 30 decision to boost short-term rates by 25 basis
points--the first of three such increases during the 12 months.
The fiscal year saw above-average "risk premiums" on corporate bonds--the
additional yield available to investors for investing in these bonds rather than
in U.S. Treasury securities, which have no credit risk. The higher risk premiums
have persisted, even though corporate profits are strong and the domestic
economy is healthy, because the federal budget surplus is enabling the Treasury
to reduce its supply of securities. In the past, a strong economy tended to keep
risk premiums relatively low.
GNMA FUND
Yields increased and prices declined during fiscal 2000 for GNMAs and other
mortgage-backed securities--just as for other bonds. As a result, the total
return for your GNMA Fund was -0.9% for the 12 months. The -7.3% decline in the
market value of the fund's securities was in line with their intermediate-term
maturity structure. Most GNMA issues fared better than comparable-maturity
securities issued by the Treasury and government agencies.
Although returns of GNMA securities in the past 12 months were
disappointing, their yields today are very generous compared with both the
current inflation rate and comparable Treasury securities. For these reasons, we
believe that future returns will be better than those achieved in fiscal 2000.
We expect a moderate amount of price volatility to continue in fixed-income
security markets--years like the past one will always occur from time to time.
However, we believe that your GNMA Fund will continue to offer yields and
long-term returns above those of similarly structured securities while also
carrying the guarantee of the U.S. government as to payment of principal and
interest.
LONG-TERM CORPORATE FUND
The average maturity of this fund's holdings is 19 years, in keeping with its
charter as an investment-grade, long-term corporate bond fund. The fund's
average duration also is
11
<PAGE> 14
long, at slightly less than nine years, which indicates that the net asset value
is extremely sensitive to changes in long-term interest rates. A duration of
nine years means that if interest rates move up or down by 100 basis points (1
percentage point), the fund's net asset value can be expected to fall or rise by
9%. Rates on long-term corporate bonds rose by almost 1.5% during the fiscal
year, resulting in a -13.3% capital return for the fund and a total return of
- -7.4%. The fund has excellent call protection, meaning that most issuers of
bonds it holds cannot redeem those bonds if interest rates decline. This helps
to protect the fund's income stream from falling rates.
As the past 12 months demonstrated, the major risk faced by the Long-Term
Corporate Fund is higher interest rates. A second risk is always present as
well--that the creditworthiness of corporate bond issuers could decline. To
mitigate this risk, the fund is well diversified by issuer and industry. More
than 80% of its assets are invested in issues rated A or better, and most of the
issuers are well-established, larger companies with stable operating histories.
The fund does not own securities from emerging markets, and it invests in
foreign bonds only if they're denominated in U.S. dollars.
HIGH-YIELD CORPORATE FUND
The market for below-investment-grade, or high-yield, bonds is a hybrid one.
Under some conditions, high-yield bonds follow the direction of the stock
market; at other times, they behave like other bonds. The High-Yield Corporate
Fund squeaked out a positive return (0.2%) during the 12 months ended January 31
despite both rising interest rates and defaults on a record $23 billion worth of
high-yield bonds ($5 billion more than the old record set in 1991). The vibrant
domestic economy and the rising stock market softened the impact of these two
blows.
With the Fed raising interest rates, and thus implicitly restricting
credit, the high-yield market may face headwinds for another six months or so.
When rates are up, the marginal borrower or lower-rated issuer must pay a
steeper risk premium to obtain credit. We have begun to see this phenomenon.
Investors' tolerance for risk will diminish if the Fed succeeds in its effort to
slow the economy's growth rate.
We remain very selective with respect to credit. We are avoiding smaller
start-up companies and focusing, as always, on the higher-quality spectrum of
the below-investment-grade market. The fund continues to emphasize cash-paying
issues, most of which are rated B or better. We maintain a modest reserve of
U.S. Treasury securities to ensure liquidity.
Paul D. Kaplan, Senior Vice President and Portfolio Manager
Earl E. McEvoy, Senior Vice President and Portfolio Manager
February 14, 2000
12
<PAGE> 15
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. An investor's shares, when redeemed, could
be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: OCTOBER 28, 1991-JANUARY 31, 2000
<TABLE>
<CAPTION>
- ---------------------------------------------------------
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
2000 -4.0 5.2 1.2 1.3
- ---------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Treasury Index.
See Financial Highlights table on page 43 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: OCTOBER 28, 1991-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Lehman
Short-Term Short 1-5 Year
Treasury Treasury Treasury
Fund Fund* Index
<S> <C> <C> <C>
10/28/91 10000 10000 10000
1991 10 10045 10045 10045
1992 01 10260 10271 10302
1992 04 10357 10360 10404
1992 07 10767 10684 10834
1992 10 10893 10782 10965
1993 01 11157 10974 11225
1993 04 11425 11169 11481
1993 07 11473 11233 11587
1993 10 11650 11393 11793
1994 01 11775 11499 11912
1994 04 11513 11287 11607
1994 07 11662 11418 11764
1994 10 11681 11433 11751
1995 01 11822 11560 11897
1995 04 12199 11885 12291
1995 07 12550 12142 12677
1995 10 12820 12385 12958
1996 01 13165 12701 13327
1996 04 13019 12556 13182
1996 07 13182 12703 13350
1996 10 13520 13010 13715
1997 01 13677 13136 13870
1997 04 13791 13228 13984
1997 07 14145 13573 14402
1997 10 14368 13762 14652
1998 01 14649 14008 14966
1998 04 14773 14123 15081
1998 07 14990 14326 15325
1998 10 15545 14806 15926
1999 01 15625 14868 16006
1999 04 15643 14884 16017
1999 07 15635 14891 16045
1999 10 15828 15049 16232
2000 01 15813 15282 16211
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Treasury Fund 1.20% 5.99% 5.70% $15,813
Average Short Treasury Fund* 1.36 5.62 5.27 15,282
Lehman 1-5 Year Treasury Index 1.28 6.38 6.02 16,211
- ------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Treasury Fund 10/28/1991 1.85% 6.37% 0.23% 5.56% 5.79%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
13
<PAGE> 16
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. An investor's shares, when redeemed, could
be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: DECEMBER 31, 1987-JANUARY 31, 2000
<TABLE>
<CAPTION>
- ---------------------------------------------------------
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
2000 -4.0 5.6 1.6 1.3
- ---------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Government Index.
See Financial Highlights table on page 44 for dividend information for the past
five years.
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Lehman
Short-Term 1-5 Year 1-5 Year
Federal Government Government
Fund Fund* Index
<S> <C> <C> <C>
1990 01 10000 10000 10000
1990 04 10082 10088 10069
1990 07 10489 10468 10509
1990 10 10692 10672 10742
1991 01 11046 11027 11113
1991 04 11275 11234 11366
1991 07 11494 11410 11577
1991 10 11930 11864 12065
1992 01 12218 12116 12371
1992 04 12347 12213 12495
1992 07 12859 12607 13006
1992 10 13003 12742 13162
1993 01 13255 13011 13470
1993 04 13568 13262 13778
1993 07 13705 13372 13904
1993 10 13944 13610 14149
1994 01 14081 13709 14292
1994 04 13740 13341 13929
1994 07 13890 13396 14119
1994 10 13874 13431 14105
1995 01 14051 13559 14279
1995 04 14510 13942 14751
1995 07 14922 14272 15212
1995 10 15266 14674 15551
1996 01 15657 15012 15988
1996 04 15550 14835 15819
1996 07 15743 14947 16024
1996 10 16161 15409 16462
1997 01 16363 15546 16650
1997 04 16494 15664 16790
1997 07 16930 16034 17288
1997 10 17190 16360 17588
1998 01 17518 16618 17957
1998 04 17681 16735 18101
1998 07 17941 16917 18393
1998 10 18520 17466 19090
1999 01 18668 17566 19194
1999 04 18719 17604 19220
1999 07 18649 17474 19243
1999 10 18916 17766 19479
2000 01 18964 17712 19448
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
--------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Federal Fund 1.59% 6.18% 6.61% $18,964
Average 1-5 Year Government Fund* 0.83 5.49 5.88 17,712
Lehman 1-5 Year Government Index 1.32 6.37 6.88 19,448
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
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 2.07% 6.51% 0.27% 6.32% 6.59%
- -----------------------------------------------------------------------------------------------------------
</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 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. An investor's shares, when redeemed,
could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: OCTOBER 29, 1982-JANUARY 31, 2000
<TABLE>
<CAPTION>
- ---------------------------------------------------------
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
2000 -3.4 6.2 2.8 1.5
- ---------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Investment Grade Index.
See Financial Highlights table on page 44 for dividend information for the past
five years.
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Lehman
Short-Term 1-5 Year 1-5 Year
Corporate Investment* Investment
Fund Grade Fund Grade Index
<S> <C> <C> <C>
1990 01 10000 10000 10000
1990 04 10102 10115 10091
1990 07 10509 10460 10547
1990 10 10704 10602 10645
1991 01 11047 10893 10980
1991 04 11352 11201 11392
1991 07 11563 11396 11637
1991 10 12023 11797 12124
1992 01 12339 12056 12454
1992 04 12470 12217 12613
1992 07 13016 12617 13171
1992 10 13132 12737 13280
1993 01 13486 12955 13631
1993 04 13777 13214 14013
1993 07 13881 13360 14207
1993 10 14135 13635 14490
1994 01 14310 13720 14706
1994 04 13999 13428 14304
1994 07 14196 13567 14557
1994 10 14207 13649 14556
1995 01 14397 13709 14746
1995 04 14888 14070 15314
1995 07 15339 14464 15851
1995 10 15684 14849 16248
1996 01 16117 15169 16774
1996 04 15987 15024 16573
1996 07 16192 15207 16805
1996 10 16631 15662 17317
1997 01 16846 15793 17538
1997 04 16990 15905 17686
1997 07 17482 16342 18296
1997 10 17754 16649 18562
1998 01 18115 16893 18943
1998 04 18305 17040 19133
1998 07 18589 17268 19439
1998 10 18960 17728 19973
1999 01 19231 17845 20281
1999 04 19371 17920 20388
1999 07 19343 17847 20291
1999 10 19613 18132 20588
2000 01 19762 18071 20589
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
--------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Corporate Fund 2.77% 6.54% 7.05% $19,762
Average 1-5 Year Investment Grade Fund* 1.27 5.68 6.10 18,071
Lehman 1-5 Year Investment Grade Index 1.52 6.90 7.49 20,589
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
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 3.30% 6.82% 0.34% 6.68% 7.02%
- --------------------------------------------------------------------------------------------------------------
</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 INSTITUIONAL 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. An investor's shares, when redeemed,
could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1997-JANUARY 31, 2000
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
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
2000 -3.4 6.3 2.9 1.5
- ----------------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Investment Grade Index.
See Financial Highlights table on page 45 for dividend information since the
fund's inception.
CUMULATIVE PERFORMANCE: SEPTEMBER 30, 1997-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short-Term Average Lehman
Corporate Fund 1-5 Year 1-5 Year
Institutional Ivestment Investment
Shares Grade Fund* Grade Index
<S> <C> <C> <C>
9/30/97 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 54626181 54146903 55450014
1999 04 55043333 54381084 55744070
1999 07 54978555 54205812 55476809
1999 10 55763639 54817625 56290334
2000 01 56203306 54834568 56292855
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000 FINAL VALUE OF
------------------------------ A $50,000,000
1 YEAR SINCE INCEPTION INVESTMENT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Corporate Fund Institutional Shares 2.89% 5.13% $56,203,306
Average 1-5 Year Investment Grade Fund* 1.27 4.03 54,834,568
Lehman 1-5 Year Investment Grade Index 1.52 5.20 56,292,855
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Term Corporate Fund Institutional Shares 9/30/1997 3.43% -1.12% 6.37% 5.25%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
16
<PAGE> 19
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: OCTOBER 28, 1991-JANUARY 31, 2000
<TABLE>
<CAPTION>
- -------------------------------------------------------
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
2000 -10.1 5.5 -4.6 -5.0
- -------------------------------------------------------
</TABLE>
*Lehman 5-10 Year Treasury Index.
See Financial Highlights table on page 45 for dividend information for the past
five years.
CUMULATIVE PERFORMANCE: OCTOBER 28, 1991-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate- Average Lehman
Term Intermediate 5-10 Year
Treasury Treasury Treasury
Fund Fund* Index
<S> <C> <C> <C>
10/28/91 10000 10000 10000
1991 10 10105 10105 10105
1992 01 10359 10359 10396
1992 04 10376 10381 10424
1992 07 11128 11026 11184
1992 10 11260 11127 11316
1993 01 11721 11498 11764
1993 04 12178 11857 12202
1993 07 12431 12067 12525
1993 10 12793 12427 12935
1994 01 12904 12498 13015
1994 04 12144 11908 12194
1994 07 12331 12049 12382
1994 10 12115 11936 12141
1995 01 12401 12102 12435
1995 04 12993 12505 13060
1995 07 13636 12930 13732
1995 10 14185 13340 14288
1996 01 14753 13808 14874
1996 04 14098 13315 14199
1996 07 14268 13448 14364
1996 10 14849 13903 14984
1997 01 14941 13998 15072
1997 04 14999 14013 15091
1997 07 15711 14638 15916
1997 10 16045 14922 16294
1998 01 16551 15335 16834
1998 04 16591 15360 16864
1998 07 16950 15649 17252
1998 10 17989 16471 18472
1999 01 18114 16530 18521
1999 04 17711 16305 18088
1999 07 17344 16064 17728
1999 10 17540 16221 17896
2000 01 17283 16325 17597
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
-------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate-Term Treasury Fund -4.59% 6.86% 6.85% $17,283
Average Intermediate Treasury Fund* -3.01 6.02 6.11 16,325
Lehman 5-10 Year Treasury Index -4.99 7.19 7.08 17,597
- -------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
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 -3.52% 7.37% 0.68% 6.30% 6.98%
- --------------------------------------------------------------------------------------------------------------
</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 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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: NOVEMBER 1, 1993-JANUARY 31, 2000
<TABLE>
<CAPTION>
- -------------------------------------------------------
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
2000 -8.9 6.2 -2.7 -3.7
- -------------------------------------------------------
</TABLE>
*Lehman 5-10 Year Investment Grade Index.
See Financial Highlights table on page 46 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: NOVEMBER 1, 1993-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate- Average Lehman
Term Intermediate 5-10 Year
Corporate Investment Investment
Fund Grade Fund* Grade Index
<S> <C> <C> <C>
11/1/93 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
1999 04 14070 12949 14424
1999 07 13758 13306 14052
1999 10 13935 13463 14245
2000 01 13875 13333 14082
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
-------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate-Term Corporate Fund -2.70% 7.23% 5.38% $13,875
Average Intermediate Investment Grade Fund* -2.30 6.26 4.71 13,333
Lehman 5-10 Year Investment Grade Index -3.69 7.45 5.63 14,082
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
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 -1.53% 7.71% -1.07% 6.57% 5.50%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
18
<PAGE> 21
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: JUNE 27, 1980-JANUARY 31, 2000
<TABLE>
<CAPTION>
- -------------------------------------------------------
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
2000 -7.3 6.4 -0.9 0.3
- -------------------------------------------------------
</TABLE>
*Lehman GNMA Index.
See Financial Highlights table on page 46 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Lehman
GNMA Fund GNMA Fund GNMA Index
<S> <C> <C> <C>
1990 01 10000 10000 10000
1990 04 9971 9964 9991
1990 07 10599 10569 10656
1990 10 10693 10673 10726
1991 01 11285 11195 11316
1991 04 11550 11412 11600
1991 07 11842 11690 11918
1991 10 12512 12264 12558
1992 01 12752 12471 12779
1992 04 12905 12593 12958
1992 07 13491 13178 13464
1992 10 13663 13288 13663
1993 01 14079 13678 14075
1993 04 14311 13933 14346
1993 07 14570 14255 14624
1993 10 14623 14367 14698
1994 01 14809 14483 14930
1994 04 14291 13876 14354
1994 07 14586 14141 14655
1994 10 14407 13924 14472
1995 01 14862 14252 14892
1995 04 15529 14833 15586
1995 07 16112 15449 16205
1995 10 16629 15884 16670
1996 01 17187 16343 17198
1996 04 16857 15982 16979
1996 07 17095 16212 17208
1996 10 17772 16765 17862
1997 01 18072 16968 18163
1997 04 18221 17069 18343
1997 07 18980 17857 19089
1997 10 19404 18172 19507
1998 01 19853 18542 19933
1998 04 20076 18706 20177
1998 07 20412 19073 20513
1998 10 20826 19402 20906
1999 01 21202 19658 21261
1999 04 21275 19690 21422
1999 07 20812 19373 21087
1999 10 21293 19689 21552
2000 01 21012 19409 21323
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
--------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA Fund -0.89% 7.17% 7.71% $21,012
Average GNMA Fund* -1.27 6.37 6.86 19,409
Lehman GNMA Index 0.29 7.44 7.87 21,323
- -------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GNMA Fund 6/27/1980 0.78% 7.80% 0.19% 7.52% 7.71%
- -----------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
19
<PAGE> 22
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: MAY 19, 1986-JANUARY 31, 2000
- -------------------------------------------------------
<TABLE>
<CAPTION>
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
2000 -13.7 5.3 -8.4 -8.3
- -------------------------------------------------------
</TABLE>
*Lehman Long Treasury Index.
See Financial Highlights table on page 47 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Long-Term Average General Lehman Long
Treasury Fund Treasury Fund Treasury Index
<S> <C> <C> <C>
1990 01 10000 10000 10000
1990 04 9660 9783 9693
1990 07 10396 10421 10474
1990 10 10286 10380 10378
1991 01 11100 11053 11157
1991 04 11330 11253 11391
1991 07 11396 11343 11464
1991 10 12132 12065 12261
1992 01 12480 12388 12655
1992 04 12413 12245 12575
1992 07 13408 12965 13656
1992 10 13428 13069 13676
1993 01 14244 13658 14508
1993 04 14840 13986 15143
1993 07 15733 14537 16089
1993 10 16516 15292 16917
1994 01 16535 15346 16935
1994 04 15072 14126 15341
1994 07 15317 14245 15605
1994 10 14705 14055 14953
1995 01 15430 14494 15667
1995 04 16231 14872 16536
1995 07 17402 15546 17723
1995 10 18618 16602 18969
1996 01 19553 17328 19964
1996 04 17899 16100 18306
1996 07 18188 16185 18602
1996 10 19170 17181 19623
1997 01 19192 17368 19649
1997 04 19172 16984 19613
1997 07 20756 17962 21399
1997 10 21374 18734 22100
1998 01 22425 19643 23237
1998 04 22378 19241 23200
1998 07 23204 19587 24087
1998 10 24698 20941 25704
1999 01 25121 21319 26086
1999 04 23890 20211 24777
1999 07 23106 19615 24010
1999 10 23229 20099 24111
2000 01 23008 20008 23928
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
--------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Treasury Fund -8.41% 8.32% 8.69% $23,008
Average General Treasury Fund* -6.15 6.66 7.18 20,008
Lehman Long Treasury Index -8.27 8.84 9.12 23,928
- -------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
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 -8.66% 8.61% 1.03% 7.12% 8.15%
- -------------------------------------------------------------------------------------------------
</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 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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: JANUARY 31, 1980-JANUARY 31, 2000
<TABLE>
<CAPTION>
- -------------------------------------------------------
LONG-TERM CORPORATE FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------
<S> <C> <C> <C> <C>
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
2000 -13.3 5.9 -7.4 -8.3
- -------------------------------------------------------
</TABLE>
*Lehman Long Corporate AA or Better Index.
See Financial Highlights table on page 47 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-Term Average Corporate Lehman Long Corporate
Corporate Fund A-Rated Fund* AA or Better Index
<S> <C> <C> <C>
1990 01 10000 10000 10000
1990 04 9794 9904 9814
1990 07 10550 10496 10519
1990 10 10265 10457 10456
1991 01 10981 10956 11116
1991 04 11461 11311 11510
1991 07 11656 11498 11733
1991 10 12396 12117 12456
1992 01 12858 12433 12842
1992 04 12967 12527 12918
1992 07 14029 13314 13886
1992 10 14019 13356 13886
1993 01 14794 13823 14609
1993 04 15437 14307 15097
1993 07 16062 14752 15706
1993 10 16714 15225 16319
1994 01 16840 15289 16455
1994 04 15654 14400 15234
1994 07 15868 14583 15484
1994 10 15366 14321 14934
1995 01 15978 14620 15578
1995 04 16873 15255 16508
1995 07 17859 15937 17476
1995 10 18892 16584 18445
1996 01 19755 17108 19305
1996 04 18568 16433 18119
1996 07 18838 16698 18419
1996 10 19804 17383 19414
1997 01 19924 17481 19445
1997 04 19937 17494 19480
1997 07 21732 18513 21163
1997 10 22225 18864 21577
1998 01 23017 19292 22428
1998 04 23187 19354 22645
1998 07 23764 19816 23157
1998 10 24186 20320 23668
1999 01 25207 20627 24735
1999 04 24273 20279 23739
1999 07 23364 19947 22777
1999 10 23535 20133 23103
2000 01 23342 19878 22682
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
--------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Corporate Fund -7.40% 7.88% 8.85% $23,342
Average Corporate A-Rated Fund* -3.63 6.34 7.11 19,878
Lehman Long Corporate AA or Better Index -8.30 7.80 8.53 22,682
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
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 -6.23% 8.31% 0.92% 7.66% 8.58%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
21
<PAGE> 24
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: JANUARY 31, 1980-JANUARY 31, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------
HIGH-YIELD CORPORATE FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------
<S> <C> <C> <C> <C>
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
2000 -7.8 8.0 0.2 0.5
- ------------------------------------------------------
</TABLE>
*Lehman Mutual Fund BBB Rated or Better Index through January 1984; Lehman High
Yield Index thereafter. See Financial Highlights table on page 48 for dividend
and capital gains information for the past five years.
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High-Yield Average High Lehman High
Corporate Fund* Current Yield Fund** Yield Index
<S> <C> <C> <C>
1990 01 10000 10000 10000
1990 04 10001 9862 10034
1990 07 10601 10475 10756
1990 10 9275 9104 8910
1991 01 9679 9276 9494
1991 04 10884 10836 11610
1991 07 11413 11455 12358
1991 10 12084 12291 13246
1992 01 12706 12970 13982
1992 04 13087 13532 14561
1992 07 13743 14131 15130
1992 10 13725 14254 15266
1993 01 14571 15038 16090
1993 04 15257 15670 16728
1993 07 15943 16472 17450
1993 10 16602 17115 17999
1994 01 17127 17876 18707
1994 04 15957 16949 17831
1994 07 16240 16977 18047
1994 10 16394 17044 18219
1995 01 16695 16927 18367
1995 04 17749 17888 19691
1995 07 18560 18733 20628
1995 10 19146 19214 21024
1996 01 19869 19986 21985
1996 04 19662 20215 22030
1996 07 19980 20585 22448
1996 10 20836 21645 23358
1997 01 21659 22482 24291
1997 04 21789 22491 24577
1997 07 23157 24153 26147
1997 10 25574 24775 26563
1998 01 24506 25598 27614
1998 04 24882 26223 28143
1998 07 25367 26363 28500
1998 10 24379 23945 26430
1999 01 25814 25360 28042
1999 04 26193 26207 28683
1999 07 25660 25859 28346
1999 10 25452 25527 27577
2000 01 25860 25940 28171
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
--------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High-Yield Corporate Fund* 0.17% 9.14% 9.97% $25,860
Average High Current Yield Fund** 2.29 8.91 10.00 25,940
Lehman High Yield Index 0.46 8.93 10.91 28,171
- -----------------------------------------------------------------------------------------------
</TABLE>
*Total returns do not reflect the 1% fee assessed on redemptions of shares held
for less than one year.
**Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
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 2.55% 9.61% -0.18% 10.00% 9.82%
- -----------------------------------------------------------------------------------------------------------
</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.
22
<PAGE> 25
FUND PROFILE
SHORT-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 2000, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on page 24.
FINANCIAL ATTRIBUTES
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SHORT-TERM LEHMAN
TREASURY INDEX*
- ---------------------------------------------------------
<S> <C> <C>
Number of Issues 33 5,567
Yield 6.4% 7.0%
Yield to Maturity 6.8% 7.4%
Average Coupon 6.1% 6.8%
Average Maturity 2.8 years 8.8 years
Average Quality Treasury Aaa
Average Duration 2.1 years 4.9 years
Expense Ratio 0.27% --
Cash Reserves 2.1% --
- ---------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
VOLATILITY MEASURES
<TABLE>
- ---------------------------------------------------------
SHORT-TERM LEHMAN
TREASURY INDEX*
- ---------------------------------------------------------
<S> <C> <C>
R-Squared 0.82 1.00
Beta 0.51 1.00
- ---------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- ---------------------------------------------------------
<S> <C>
Under 1 Year 2.2%
1-3 Years 54.6
3-5 Years 38.0
Over 5 Years 5.2
- ---------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ---------------------------------------------------------
<S> <C>
AVERAGE MATURITY SHORT
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ---------------------------------------------------------
<S> <C>
Treasury 87.5%
Agency 12.5
- ---------------------------------------------------------
Total 100.0%
</TABLE>
23
<PAGE> 26
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 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.
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.
24
<PAGE> 27
FUND PROFILE
SHORT-TERM FEDERAL FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 24.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
SHORT-TERM LEHMAN
FEDERAL INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 54 5,567
Yield 6.4% 7.0%
Yield to Maturity 7.0% 7.4%
Average Coupon 5.8% 6.8%
Average Maturity 2.9 years 8.8 years
Average Quality Agency Aaa
Average Duration 2.1 years 4.9 years
Expense Ratio 0.27% --
Cash Reserves 3.8% --
- ----------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ---------------------------------------------------------
SHORT-TERM LEHMAN
FEDERAL INDEX*
- ---------------------------------------------------------
<S> <C> <C>
R-Squared 0.86 1.00
Beta 0.47 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- ---------------------------------------------------------
<S> <C>
Under 1 Year 16.2%
1-3 Years 28.6
3-5 Years 49.1
Over 5 Years 6.1
- ---------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ---------------------------------------------------------
<S> <C>
AVERAGE MATURITY SHORT
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
Treasury 10.6%
Agency 89.4
- ----------------------------------------------------------
Total 100.0%
</TABLE>
25
<PAGE> 28
FUND PROFILE
SHORT-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 24.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------
SHORT-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
Number of Issues 356 5,567
Yield 7.2% 7.0%
Yield--Institutional Shares 7.3% 7.0%
Yield to Maturity 7.5% 7.4%
Average Coupon 6.8% 6.8%
Average Maturity 2.4 years 8.8 years
Average Quality A2 Aaa
Average Duration 2.1 years 4.9 years
Expense Ratio 0.25% --
Expense Ratio--
Institutional Shares 0.13% --
Cash Reserves 1.5% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------
SHORT-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.90 1.00
Beta 0.46 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Under 1 Year 15.7%
1-3 Years 48.3
3-5 Years 21.2
Over 5 Years 14.8
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ----------------------------------------------------------------
<S> <C>
AVERAGE MATURITY SHORT
CREDIT QUALITY INVESTMENT-GRADE CORPORATE
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Treasury/Agency 0.6%
Aaa 19.5
Aa 13.0
A 37.5
Baa 29.3
Ba 0.0
B 0.0
Not Rated 0.1
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Asset-Backed 20.1%
Finance 34.6
Foreign 11.1
Industrial 21.7
Mortgage 0.2
Treasury/Agency 0.6
Utilities 11.0
Other 0.7
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
26
<PAGE> 29
FUND PROFILE
INTERMEDIATE-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 24.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
Number of Issues 31 5,567
Yield 6.7% 7.0%
Yield to Maturity 6.9% 7.4%
Average Coupon 7.1% 6.8%
Average Maturity 7.7 years 8.8 years
Average Quality Treasury Aaa
Average Duration 5.2 years 4.9 years
Expense Ratio 0.27% --
Cash Reserves 3.2% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.92 1.00
Beta 1.32 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Under 1 Year 1.8%
1-5 Years 5.8
5-10 Years 88.0
10-20 Years 4.4
20-30 Years 0.0
Over 30 Years 0.0
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ----------------------------------------------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Treasury 87.6%
Agency 12.4
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
27
<PAGE> 30
FUND PROFILE
INTERMEDIATE-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 24.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
Number of Issues 203 5,567
Yield 7.8% 7.0%
Yield to Maturity 8.0% 7.4%
Average Coupon 7.0% 6.8%
Average Maturity 7.1 years 8.8 years
Average Quality A2 Aaa
Average Duration 5.2 years 4.9 years
Expense Ratio 0.25% --
Cash Reserves 1.7% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.95 1.00
Beta 1.18 1.00
- ----------------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Under 1 Year 0.5%
1-5 Years 19.7
5-10 Years 76.4
10-20 Years 3.4
20-30 Years 0.0
Over 30 Years 0.0
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ----------------------------------------------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY INVESTMENT-GRADE CORPORATE
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Treasury/Agency 4.1%
Aaa 7.5
Aa 11.2
A 48.5
Baa 28.7
Ba 0.0
B 0.0
Not Rated 0.0
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Asset-Backed 6.5%
Finance 33.2
Foreign 20.4
Industrial 24.3
Mortgage 0.0
Treasury/Agency 4.1
Utilities 11.5
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
28
<PAGE> 31
FUND PROFILE
GNMA FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 24.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------
LEHMAN
GNMA INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
Number of Issues 24 5,567
Yield 6.9% 7.0%
Yield to Maturity 7.9% 7.4%
Average Coupon 7.0% 6.8%
Average Maturity 9.2 years 8.8 years
Average Quality Treasury Aaa
Average Duration 5.0 years 4.9 years
Expense Ratio 0.27% --
Cash Reserves 1.4% --
- ----------------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------
LEHMAN
GNMA INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.82 1.00
Beta 0.76 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ----------------------------------------------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY COUPON
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Under 6% 0.5%
6%-7% 40.0
7%-8% 50.5
8%-9% 7.2
9%-10% 1.8
10% and Over 0.0
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
29
<PAGE> 32
FUND PROFILE
LONG-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 24.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------
LONG-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
Number of Issues 21 5,567
Yield 6.6% 7.0%
Yield to Maturity 6.7% 7.4%
Average Coupon 7.2% 6.8%
Average Maturity 20.0 years 8.8 years
Average Quality Treasury Aaa
Average Duration 9.7 years 4.9 years
Expense Ratio 0.28% --
Cash Reserves 3.9% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------
LONG-TERM LEHMAN
TREASURY INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.88 1.00
Beta 2.02 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Under 1 Year 2.0%
1-5 Years 0.0
5-10 Years 15.5
10-20 Years 23.6
20-30 Years 58.9
Over 30 Years 0.0
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ----------------------------------------------------------------
<S> <C>
AVERAGE MATURITY LONG
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Treasury 88.1%
Agency 11.9
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
30
<PAGE> 33
FUND PROFILE
LONG-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 24.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------
LONG-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
Number of Issues 147 5,567
Yield 7.5% 7.0%
Yield to Maturity 7.8% 7.4%
Average Coupon 7.0% 6.8%
Average Maturity 19.1 years 8.8 years
Average Quality Aa3 Aaa
Average Duration 8.7 years 4.9 years
Expense Ratio 0.30% --
Cash Reserves 3.8% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------
LONG-TERM LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.88 1.00
Beta 1.79 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Under 1 Year 0.0%
1-5 Years 1.5
5-10 Years 21.6
10-20 Years 20.4
20-30 Years 54.6
Over 30 Years 1.9
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ----------------------------------------------------------------
<S> <C>
AVERAGE MATURITY LONG
CREDIT QUALITY INVESTMENT-GRADE CORPORATE
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Treasury/Agency 6.3%
Aaa 14.4
Aa 19.4
A 43.4
Baa 15.9
Ba 0.6
B 0.0
Not Rated 0.0
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Asset-Backed 0.0%
Finance 22.9
Foreign 1.4
Industrial 48.4
Mortgage 9.6
Treasury/Agency 6.3
Utilities 11.4
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
31
<PAGE> 34
FUND PROFILE
HIGH-YIELD CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 24.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------
HIGH-YIELD LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
Number of Issues 225 5,567
Yield 9.5% 7.0%
Yield to Maturity 9.6% 7.4%
Average Coupon 8.8% 6.8%
Average Maturity 7.0 years 8.8 years
Average Quality Ba2 Aaa
Average Duration 4.8 years 4.9 years
Expense Ratio 0.28% --
Cash Reserves 2.4% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------
HIGH-YIELD LEHMAN
CORPORATE INDEX*
- ----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.18 1.00
Beta 0.64 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Under 1 Year 1.7%
1-5 Years 15.1
5-10 Years 79.3
10-20 Years 3.5
20-30 Years 0.4
Over 30 Years 0.0
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- ----------------------------------------------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY BELOW INVESTMENT-GRADE
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Treasury/Agency 6.8%
Aaa 0.0
Aa 0.0
A 0.0
Baa 9.1
Ba 38.2
B 45.7
Caa 0.2
Not Rated 0.0
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
- ----------------------------------------------------------------
<S> <C>
Asset-Backed 0.0%
Finance 2.9
Foreign 0.0
Industrial 82.6
Mortgage 0.0
Treasury/Agency 6.8
Utilities 7.7
- ----------------------------------------------------------------
Total 100.0%
</TABLE>
32
<PAGE> 35
FINANCIAL STATEMENTS
JANUARY 31, 2000
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 (98.6%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Assn. 5.50% 3/15/2013-2/15/2014 (1) $ 69,638 $ 63,230
Government National Mortgage Assn. 6.00% 10/15/2023-4/15/2029 (1) 1,560,313 1,398,119
Government National Mortgage Assn. 6.50% 7/15/2008-1/15/2030 (1) 3,696,283 3,421,966
Government National Mortgage Assn. 7.00% 4/15/2007-7/15/2029 (1) 3,564,388 3,402,627
Government National Mortgage Assn. 7.25% 12/15/2026-2/15/2027 (1) 3,097 2,989
Government National Mortgage Assn. 7.50% 3/15/2002-1/15/2030 (1) 2,729,515 2,668,265
Government National Mortgage Assn. 7.75% 2/15/2027 (1) 7,275 7,182
Government National Mortgage Assn. 8.00% 5/15/2001-12/15/2029 (1) 675,304 677,830
Government National Mortgage Assn. 8.25% 8/15/2004-7/15/2008 (1) 2,926 2,950
Government National Mortgage Assn. 8.50% 1/20/2005-7/15/2024 (1) 181,602 186,184
Government National Mortgage Assn. 9.00% 9/15/2008-2/15/2023 (1) 143,021 149,509
Government National Mortgage Assn. 9.25% 5/15/2016-6/15/2018 (1) 1,138 1,201
Government National Mortgage Assn. 9.50% 12/15/2000-7/15/2022 (1) 67,965 72,178
Government National Mortgage Assn. 10.00% 7/20/2014-8/20/2018 (1) 1,394 1,500
Government National Mortgage Assn. 11.00% 7/15/2010-2/20/2016 (1) 432 471
Government National Mortgage Assn. 11.25% 7/15/2013-2/20/2016 (1) 366 401
Government National Mortgage Assn. 11.50% 1/15/2013-11/20/2015 (1) 451 498
Government National Mortgage Assn. 12.00% 10/15/2010-1/20/2016 (1) 795 887
Government National Mortgage Assn. 12.50% 12/20/2013-7/20/2015 (1) 486 547
Government National Mortgage Assn. 13.00% 1/15/2011-1/20/2015 (1) 403 456
Government National Mortgage Assn. 13.25% 8/15/2014-10/15/2014 (1) 99 113
Government National Mortgage Assn. 13.50% 5/15/2010-12/15/2014 (1) 119 135
Government National Mortgage Assn. 14.00% 6/15/2011-9/15/2012 (1) 128 145
Government National Mortgage Assn. 15.00% 9/15/2011-5/15/2012 (1) 86 97
- --------------------------------------------------------------------------------------------------------------------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OBLIGATIONS
(COST $12,665,714) 12,059,480
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
GNMA FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $114,336) 5.73% 2/1/2000 $ 114,336 114,336
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.6%)
(COST $12,780,050) 12,173,816
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 109,585
Liabilities (55,842)
-----------
53,743
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 1,258,783,647 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $12,227,559
==========================================================================================================================
NET ASSET VALUE PER SHARE $9.71
==========================================================================================================================
</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, 2000, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $12,844,484 $10.20
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (10,691) (.01)
Unrealized Depreciation--Note H (606,234) (.48)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $12,227,559 $ 9.71
==========================================================================================================================
</TABLE>
34
<PAGE> 37
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, 2000
-----------------------------------------------------------------------------
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $67,532 $94,298 $424,281 $111,379
Security Lending 197 73 83 175
-----------------------------------------------------------------------------
Total Income 67,729 94,371 424,364 111,554
-----------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 155 205 814 230
The Vanguard Group--Note C
Management and Administrative 1,255 1,640 4,081 1,825
Shareholder Account Maintenance(1) 1,592 2,050 9,406 2,349
Marketing and Distribution(1) 211 288 1,189 344
Custodian Fees 17 33 127 14
Auditing Fees 6 7 10 7
Shareholders' Reports(1) 34 47 114 49
Trustees' Fees and Expenses 2 2 8 2
-----------------------------------------------------------------------------
Total Expenses 3,272 4,272 15,749 4,820
Expenses Paid Indirectly--Note D -- -- (75) --
Net Expenses -----------------------------------------------------------------------------
3,272 4,272 15,674 4,820
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 64,457 90,099 408,690 106,734
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (13,242) (11,043) (19,911) (40,206)
Futures Contracts -- -- 2,591 (162)
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS (13,242) (11,043) (17,320) (40,368)
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities (35,630) (56,052) (216,115) (150,413)
Futures Contracts -- -- 11,563 (267)
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) (35,630) (56,052) (204,552) (150,680)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $15,585 $23,004 $186,818 $(84,314)
==============================================================================================================================
1Expenses of the Short-Term Corporate Fund by class of shares are:
- ------------------------------------------------------------------------------------------------------------------------------
(000)
------------------------------------------------------
INVESTOR INSTITUTIONAL
SHARES SHARES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
Class-Specific Expenses:
Shareholder Account Maintenance $ 9,224 $182 $ 9,406
Marketing and Distribution 1,161 28 1,189
Shareholders' Reports 100 14 114
-----------------------------------------------------
Total Class-Specific Expenses 10,485 224 10,709
All Other Fund Expenses 4,694 346 5,040
- ------------------------------------------------------------------------------------------------------------------------------
Total Expenses $15,179 $570 $15,749
==============================================================================================================================
See Note E in Notes to Financial Statements.
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS (continued)
- ------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM LONG-TERM LONG-TERM
CORPORATE GNMA TREASURY CORPORATE
FUND FUND FUND FUND
------------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 2000
------------------------------------------------------------------------------------
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $ 93,638 $847,982 $82,701 $270,756
Security Lending 329 -- 101 105
------------------------------------------------------------------------------------
Total Income 93,967 847,982 82,802 270,861
------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 170 1,408 172 1,037
The Vanguard Group--Note C
Management and Administrative 1,974 14,850 1,191 4,636
Shareholder Account Maintenance 990 12,967 1,947 5,254
Marketing and Distribution 228 1,975 258 569
Custodian Fees 21 1,185 31 52
Auditing Fees 7 13 7 8
Shareholders' Reports 20 286 39 129
Trustees' Fees and Expenses 2 16 2 6
------------------------------------------------------------------------------------
Total Expenses 3,412 32,700 3,647 11,691
Expenses Paid Indirectly--Note D (3) (104) (1) (3)
------------------------------------------------------------------------------------
Net Expenses 3,409 32,596 3,646 11,688
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 90,558 815,386 79,156 259,173
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (23,547) (10,888) (14,911) (5,745)
Futures Contracts 11 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS (23,536) (10,888) (14,911) (5,745)
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities (102,228) (903,452) (186,879) (564,573)
Futures Contracts -- -- (38) --
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) (102,228) (903,452) (186,917) (564,573)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (35,206) $ (98,954) $(122,672) $(311,145)
==============================================================================================================================
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD CORPORATE FUND
YEAR ENDED JANUARY 31, 2000
(000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Interest $493,172
Security Lending 576
----------
Total Income 493,748
----------
EXPENSES
Investment Advisory Fees--Note B 1,985
The Vanguard Group--Note C
Management and Administrative 7,667
Shareholder Account Maintenance 5,410
Marketing and Distribution 855
Custodian Fees 43
Auditing Fees 9
Shareholders' Reports 119
Trustees' Fees and Expenses 7
----------
Total Expenses 16,095
Expenses Paid Indirectly --
----------
Net Expenses 16,095
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 477,653
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (129,511)
Futures Contracts --
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS (129,511)
- -----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (338,694)
Futures Contracts --
- -----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (338,694)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,448
==============================================================================================================================
</TABLE>
37
<PAGE> 40
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,
--------------------------------------------------------------
2000 1999 2000 1999
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 64,457 $ 56,928 $ 90,099 $ 87,409
Realized Net Gain (Loss) (13,242) 8,818 (11,043) 5,876
Change in Unrealized Appreciation (Depreciation) (35,630) 3,074 (56,052) 5,094
--------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 15,585 68,820 23,004 98,379
--------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (64,457) (56,928) (90,099) (87,409)
Realized Capital Gain (2,006) (2,497) -- --
--------------------------------------------------------------
Total Distributions (66,463) (59,425) (90,099) (87,409)
--------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 493,555 500,362 500,838 521,686
Issued in Lieu of Cash Distributions 58,717 52,411 77,158 75,064
Redeemed (522,209) (373,916) (676,926) (423,745)
--------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 30,063 178,857 (98,930) 173,005
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (20,815) 188,252 (166,025) 183,975
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,197,495 1,009,243 1,644,411 1,460,436
---------------------------------------------------------------
End of Year $1,176,680 $1,197,495 $1,478,386 $1,644,411
==============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 48,673 48,432 49,885 51,089
Issued in Lieu of Cash Distributions 5,805 5,078 7,709 7,351
Redeemed (51,627) (36,272) (67,718) (41,519)
Net Increase (Decrease) in ---------------------------------------------------------------
Shares Outstanding 2,851 17,238 (10,124) 16,921
==============================================================================================================================
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM
CORPORATE FUND
YEAR ENDED JANUARY 31,
----------------------------------------
2000 1999
(000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income 408,690 331,873
Realized Net Gain (Loss) (17,320) 9,363
Change in Unrealized Appreciation (Depreciation) (204,552) (10,705)
----------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 186,818 330,531
----------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (380,725) (311,139)
Institutional Shares (27,965) (20,734)
Realized Capital Gain
Investor Shares -- --
Institutional Shares -- --
----------------------------------------
Total Distributions (408,690) (331,873)
----------------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 3,115,955 2,238,424
Issued in Lieu of Cash Distributions 327,828 269,772
Redeemed (2,035,862) (1,686,245)
----------------------------------------
Net Increase--Investor Shares 1,407,921 821,951
----------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES(2)
Issued 154,440 190,015
Issued in Lieu of Cash Distributions 24,323 17,350
Redeemed (149,708) (49,229)
----------------------------------------
Net Increase--Institutional Shares 29,055 158,136
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 1,215,104 978,745
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 5,949,922 4,971,177
----------------------------------------
End of Year $7,165,026 $5,949,922
==============================================================================================================================
(1)Shares Issued (Redeemed)--Investor Shares
Issued 292,972 206,458
Issued in Lieu of Cash Distributions 30,867 24,868
Redeemed (191,362) (155,492)
----------------------------------------
Net Increase in Shares Outstanding 132,477 75,834
==============================================================================================================================
(2)Shares Issued (Redeemed)--Institutional Shares
Issued 14,448 17,520
Issued in Lieu of Cash Distributions 2,290 1,599
Redeemed (14,133) (4,541)
----------------------------------------
Net Increase in Shares Outstanding 2,605 14,578
==============================================================================================================================
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- ------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM INTERMEDIATE-TERM
TREASURY FUND CORPORATE FUND
---------------------- ----------------------
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 106,734 $ 99,566 $ 90,558 $ 66,190
Realized Net Gain (Loss) (40,368) 27,463 (23,536) 14,151
Change in Unrealized Appreciation (Depreciation)
- -----------------------------------------------------------------------------------------------------------------------------
(150,680) 28,552 (102,228) 389
Net Increase (Decrease) in Net Assets --------------------------------------------------------------
Resulting from Operations (84,314) 155,581 (35,206) 80,730
--------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (106,734) (99,566) (90,558) (66,190)
Realized Capital Gain -- -- (6,097) (9,243)
--------------------------------------------------------------
Total Distributions (106,734) (99,566) (96,655) (75,433)
--------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 589,034 764,715 686,374 521,754
Issued in Lieu of Cash Distributions 83,033 74,832 77,875 62,630
Redeemed (704,496) (614,490) (391,479) (254,477)
--------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions (32,429) 225,057 372,770 329,907
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (223,477) 281,072 240,909 335,204
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,875,904 1,594,832 1,234,092 898,888
--------------------------------------------------------------
End of Year $1,652,427 $1,875,904 $1,475,001 $ 1,234,092
==============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 55,941 69,777 72,380 52,041
Issued in Lieu of Cash Distributions 7,963 6,831 8,252 6,244
Redeemed (67,380) (56,110) (41,610) (25,384)
--------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding (3,476) 20,498 39,022 32,901
==============================================================================================================================
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
GNMA FUND TREASURY FUND
------------------------------ ------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------
2000 1999 2000 1999
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 815,386 $ 655,641 $ 79,156 $ 69,082
Realized Net Gain (Loss) (10,888) 10,764 (14,911) 20,507
Change in Unrealized Appreciation (Depreciation) (903,452) (7,860) (186,917) 48,185
--------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (98,954) 658,545 (122,672) 137,774
--------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (815,386) (655,641) (79,156) (69,082)
Realized Capital Gain -- (12,237) (15,831) --
--------------------------------------------------------------------
Total Distributions (815,386) (667,878) (94,987) (69,082)
--------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 4,252,898 3,904,241 481,535 747,238
Issued in Lieu of Cash Distributions 618,474 508,264 78,170 54,527
Redeemed (3,083,447) (1,943,264) (614,225) (481,620)
--------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 1,787,925 2,469,241 (54,520) 320,145
- -----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 873,585 2,459,908 (272,179) 388,837
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 11,353,974 8,894,066 1,450,259 1,061,422
--------------------------------------------------------------------
End of Year $12,227,559 $11,353,974 $1,178,080 $1,450,259
===================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 419,825 373,652 46,580 67,200
Issued in Lieu of Cash Distributions 61,578 48,627 7,639 4,914
Redeemed (307,505) (185,917) (60,257) (43,491)
--------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 173,898 236,362 (6,038) 28,623
===================================================================================================================================
</TABLE>
41
<PAGE> 44
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM HIGH-YIELD
CORPORATE FUND CORPORATE FUND
------------------------------ ----------------------------
YEAR ENDED JANUARY 31,
-------------------------------------------------------------------
2000 1999 2000 1999
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 259,173 $ 247,170 $ 477,653 $ 419,467
Realized Net Gain (Loss) (5,745) 79,798 (129,511) (2,445)
Change in Unrealized Appreciation (Depreciation) (564,573) 37,951 (338,694) (153,489)
-------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (311,145) 364,919 9,448 263,533
-------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (259,173) (247,170) (477,653) (419,467)
Realized Capital Gain (25,075) (88,379) -- (17,026)
-------------------------------------------------------------------
Total Distributions (284,248) (335,549) (477,653) (436,493)
-------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 670,244 1,013,958 1,473,307 1,704,032
Issued in Lieu of Cash Distributions 237,321 283,759 325,084 306,214
Redeemed* (862,409) (815,663) (1,308,221) (1,035,394)
-------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 45,156 482,054 490,170 974,852
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (550,237) 511,424 21,965 801,892
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 4,231,702 3,720,278 5,548,843 4,746,951
-------------------------------------------------------------------
End of Year $3,681,465 $4,231,702 $5,570,808 $5,548,843
========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 78,102 109,341 193,710 214,452
Issued in Lieu of Cash Distributions 27,955 30,569 43,198 38,479
Redeemed (101,837) (87,606) (174,292) (131,086)
-------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 4,220 52,304 62,616 121,845
========================================================================================================================
</TABLE>
*The High-Yield Corporate Fund is net of redemption fees of $1,651,000 and
$1,580,000.
42
<PAGE> 45
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 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.37 $ 10.27 $ 10.16 $ 10.36 $ 9.89
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .534 .545 .590 .586 .625
Net Realized and Unrealized Gain (Loss) on Investments (.413) .122 .110 (.200) .470
---------------------------------------------------------------------
Total from Investment Operations .121 .667 .700 .386 1.095
---------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.534) (.545) (.590) (.586) (.625)
Distributions from Realized Capital Gains (.017) (.022) -- -- --
---------------------------------------------------------------------
Total Distributions (.551) (.567) (.590) (.586) (.625)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.94 $ 10.37 $ 10.27 $ 10.16 $ 10.36
===================================================================================================================================
TOTAL RETURN 1.20% 6.66% 7.11% 3.89% 11.37%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 1,177 $ 1,197 $ 1,009 $ 970 $ 919
Ratio of Total Expenses to Average Net Assets 0.27% 0.27% 0.27% 0.25% 0.27%
Ratio of Net Investment Income to Average Net Assets 5.27% 5.27% 5.80% 5.77% 6.14%
Portfolio Turnover Rate 124% 132% 83% 86% 93%
===================================================================================================================================
</TABLE>
43
<PAGE> 46
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM FEDERAL FUND
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.26 $ 10.19 $ 10.11 $ 10.28 $ 9.79
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .567 .581 .611 615 .601
Net Realized and Unrealized Gain (Loss) on Investments (.410) .070 .080 (.170) .490
---------------------------------------------------------------------
Total from Investment Operations .157 .651 .691 .445 1.091
---------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.567) (.581) (.611) (.615) (.601)
Distributions from Realized Capital Gains -- -- -- -- --
---------------------------------------------------------------------
Total Distributions (.567) (.581) (.611) (.615) (.601)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.85 $ 10.26 $ 10.19 $ 10.11 $ 10.28
===================================================================================================================================
TOTAL RETURN 1.59% 6.57% 7.06% 4.51% 11.43%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 1,478 $ 1,644 $ 1,460 $ 1,348 $ 1,402
Ratio of Total Expenses to Average Net Assets 0.27% 0.27% 0.27% 0.25% 0.27%
Ratio of Net Investment Income to Average Net Assets 5.64% 5.68% 6.04% 6.09% 5.93%
Portfolio Turnover Rate 93% 107% 94% 57% 74%
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE FUND INVESTOR SHARES
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.86 $ 10.87 $ 10.75 $ 10.94 $ 10.40
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .660 .660 .664 .663 .671
Net Realized and Unrealized Gain (Loss) on Investments (.370) (.010) .120 (.190) .540
----------------------------------------------------------------------
Total from Investment Operations .290 .650 .784 .473 1.211
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.660) (.660) (.664) (.663) (.671)
Distributions from Realized Capital Gains -- -- -- -- --
----------------------------------------------------------------------
Total Distributions (.660) (.660) (.664) (.663) (.671)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.49 $ 10.86 $ 10.87 $ 10.75 $ 10.94
====================================================================================================================================
TOTAL RETURN 2.77% 6.16% 7.53% 4.52% 11.95%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 6,731 $ 5,529 $ 4,709 $ 4,531 $ 3,873
Ratio of Total Expenses to Average Net Assets 0.25% 0.27% 0.28% 0.25% 0.27%
Ratio of Net Investment Income to Average Net Assets 6.21% 6.08% 6.17% 6.18% 6.23%
Portfolio Turnover Rate 52% 46% 45% 45% 62%
===================================================================================================================================
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE FUND INSTITUTIONAL SHARES
YEAR ENDED JANUARY 31,
---------------------- SEP. 30, 1997* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2000 1999 JAN. 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.86 $ 10.87 $ 10.80
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .673 .673 .229
Net Realized and Unrealized Gain (Loss) on Investments (.370) (.010) .070
----------------------------------------------------------------
Total from Investment Operations .303 .663 .299
----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.673) (.673) (.229)
Distributions from Realized Capital Gains -- -- --
----------------------------------------------------------------
Total Distributions (.673) (.673) (.229)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.49 $ 10.86 $ 10.87
==================================================================================================================================
TOTAL RETURN 2.89% 6.28% 2.79%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 434 $ 421 $ 263
Ratio of Total Expenses to Average Net Assets 0.13% 0.15% 0.15%**
Ratio of Net Investment Income to Average Net Assets 6.31% 6.19% 6.28%**
Portfolio Turnover Rate 52% 46% 45%
==================================================================================================================================
</TABLE>
*Inception
**Annualized.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.16 $ 10.80 $ 10.37 $ 10.90 $ 9.76
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .625 .630 .647 .649 .662
Net Realized and Unrealized Gain (Loss) on Investments (1.130) .360 .430 (.530) 1.140
------------------------------------------------------------------
Total from Investment Operations (.505) .990 1.077 .119 1.802
------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.625) (.630) (.647) (.649) (.662)
Distributions from Realized Capital Gains -- -- -- -- --
------------------------------------------------------------------
Total Distributions (.625) (.630) (.647) (.649) (.662)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.03 $ 11.16 $ 10.80 $ 10.37 $ 10.90
===================================================================================================================================
TOTAL RETURN -4.59% 9.44% 10.78% 1.28% 18.96%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 1,652 $ 1,876 $ 1,595 $ 1,279 $ 1,226
Ratio of Total Expenses to Average Net Assets 0.27% 0.27% 0.27% 0.25% 0.28%
Ratio of Net Investment Income to Average Net Assets 5.96% 5.76% 6.19% 6.26% 6.34%
Portfolio Turnover Rate 66% 63% 30% 42% 56%
===================================================================================================================================
</TABLE>
45
<PAGE> 48
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM CORPORATE FUND
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.07 $ 10.03 $ 9.72 $ 10.17 $ 9.07
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .623 .627 .638 .639 .658
Net Realized and Unrealized Gain (Loss) on Investments (.894) .122 .321 (.430) 1.100
---------------------------------------------------------------------
Total from Investment Operations (.271) .749 .959 .209 1.758
---------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.623) (.627) (.638) (.639) (.658)
Distributions from Realized Capital Gains (.046) (.082) (.011) (.020) --
---------------------------------------------------------------------
Total Distributions (.669) (.709) (.649) (.659) (.658)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.13 $ 10.07 $ 10.03 $ 9.72 $ 10.17
===================================================================================================================================
TOTAL RETURN -2.70% 7.73% 10.24% 2.29% 19.94%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 1,475 $ 1,234 $ 899 $ 592 $ 424
Ratio of Total Expenses to Average Net Assets 0.25% 0.27% 0.26% 0.25% 0.28%
Ratio of Net Investment Income to Average Net Assets 6.60% 6.25% 6.51% 6.61% 6.70%
Portfolio Turnover Rate 67% 71% 69% 85% 78%
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
GNMA FUND
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.47 $ 10.48 $ 10.23 $ 10.45 $ 9.71
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .669 .687 .718 .727 .734
Net Realized and Unrealized Gain (Loss) on Investments (.760) .002 .253 (.220) .740
--------------------------------------------------------------------
Total from Investment Operations (.091) .689 .971 .507 1.474
--------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.669) (.687) (.718) (.727) (.734)
Distributions from Realized Capital Gains -- (.012) (.003) -- --
--------------------------------------------------------------------
Total Distributions (.669) (.699) (.721) (.727) (.734)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.71 $ 10.47 $ 10.48 $ 10.23 $ 10.45
==================================================================================================================================
TOTAL RETURN -0.89% 6.79% 9.86% 5.15% 15.64%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 12,228 $ 11,354 $ 8,894 $ 7,400 $ 6,998
Ratio of Total Expenses to Average Net Assets 0.27% 0.30% 0.31% 0.27% 0.29%
Ratio of Net Investment Income to Average Net Assets 6.63% 6.56% 6.97% 7.16% 7.22%
Portfolio Turnover Rate 5% 7% 3% 12% 7%
==================================================================================================================================
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
----------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.42 $ 10.79 $ 9.84 $ 10.73 $ 9.23
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .611 .629 .643 .655 .669
Net Realized and Unrealized Gain (Loss) on Investments (1.560) .630 .950 (.877) 1.725
----------------------------------------------------------------------
Total from Investment Operations (.949) 1.259 1.593 (.222) 2.394
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.611) (.629) (.643) (.655) (.669)
Distributions from Realized Capital Gains (.120) -- -- (.013) (.225)
----------------------------------------------------------------------
Total Distributions (.731) (.629) (.643) (.668) (.894)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.74 $ 11.42 $ 10.79 $ 9.84 $ 10.73
====================================================================================================================================
TOTAL RETURN -8.41% 12.02% 16.85% -1.85% 26.72%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 1,178 $ 1,450 $ 1,061 $ 898 $ 916
Ratio of Total Expenses to Average Net Assets 0.28% 0.27% 0.27% 0.25% 0.27%
Ratio of Net Investment Income to Average Net Assets 5.98% 5.69% 6.38% 6.66% 6.57%
Portfolio Turnover Rate 43% 22% 18% 31% 105%
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CORPORATE FUND
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 9.38 $ 9.32 $ 8.71 $ 9.43 $ 8.18
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .561 .582 .613 .619 .627
Net Realized and Unrealized Gain (Loss) on Investments (1.245) .266 .685 (.566) 1.250
--------------------------------------------------------------------
Total from Investment Operations (.684) .848 1.298 .053 1.877
--------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.561) (.582) (.613) (.619) (.627)
Distributions from Realized Capital Gains (.055) (.206) (.075) (.154) --
--------------------------------------------------------------------
Total Distributions (.616) (.788) (.688) (.773) (.627)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 8.08 $ 9.38 $ 9.32 $ 8.71 $ 9.43
===================================================================================================================================
TOTAL RETURN -7.40% 9.52% 15.52% 0.86% 23.64%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 3,681 $ 4,232 $ 3,720 $ 3,324 $ 3,376
Ratio of Total Expenses to Average Net Assets 0.30% 0.30% 0.32% 0.28% 0.31%
Ratio of Net Investment Income to Average Net Assets 6.59% 6.26% 6.87% 7.06% 7.03%
Portfolio Turnover Rate 7% 43% 33% 30% 49%
===================================================================================================================================
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD CORPORATE FUND
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 7.90 $ 8.17 $ 7.87 $ 7.89 $ 7.24
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .631 .659 .688 .688 .678
Net Realized and Unrealized Gain (Loss) on Investments (.620) (.245) .300 (.020) .650
---------------------------------------------------------------------
Total from Investment Operations .011 .414 .988 .668 1.328
---------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.631) (.659) (.688) (.688) (.678)
Distributions from Realized Capital Gains -- (.025) -- -- --
---------------------------------------------------------------------
Total Distributions (.631) (.684) (.688) (.688) (.678)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.28 $ 7.90 $ 8.17 $ 7.87 $ 7.89
===================================================================================================================================
TOTAL RETURN* 0.17% 5.34% 13.14% 9.01% 19.01%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 5,571 $ 5,549 $ 4,747 $ 3,674 $ 3,007
Ratio of Total Expenses to Average Net Assets 0.28% 0.29% 0.28% 0.29% 0.34%
Ratio of Net Investment Income to Average Net Assets 8.34% 8.26% 8.63% 8.92% 8.85%
Portfolio Turnover Rate 20% 31% 45% 23% 38%
===================================================================================================================================
</TABLE>
*Total returns do not reflect the 1% fee assessed on redemptions of shares held
for less than one year.
48
<PAGE> 51
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 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.
49
<PAGE> 52
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
calcul-ated at an annual percentage rate of average net assets. For the year
ended January 31, 2000, 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 0.03%, 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, 2000, 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
(000) ASSETS CAPITALIZATION
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BOND FUND
Short-Term Treasury $ 245 0.02% 0.2%
Short-Term Federal 302 0.02 0.3
Short-Term Corporate 1,435 0.02 1.4
Intermediate-Term Treasury 338 0.02 0.3
Intermediate-Term Corporate 289 0.02 0.3
GNMA 2,488 0.02 2.5
Long-Term Treasury 242 0.02 0.2
Long-Term Corporate 738 0.02 0.7
High-Yield Corporate 1,129 0.02 1.1
- ---------------------------------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
D. The funds' custodian banks have 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, 2000, custodian fee offset arrangements reduced
expenses by:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
EXPENSE REDUCTION
(000)
------------------------
CUSTODIAN
BOND FUND FEES
-------------------------------------------------------------------------
<S> <C>
Short-Term Corporate $ 75
Intermediate-Term Corporate 3
GNMA 104
Long-Term Treasury 1
Long-Term Corporate 3
-------------------------------------------------------------------------
</TABLE>
50
<PAGE> 53
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, 2000, represented the following percentages of average net assets:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
BOND FUND INVESTOR SHARES INSTITUTIONAL SHARES
----------------------------------------------------------------------------
<S> <C> <C>
Short-Term Corporate 0.17% 0.05%
----------------------------------------------------------------------------
</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, 2000, purchases and sales of investment
securities other than U.S. government securities and temporary cash investments
were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(000)
------------------------------------
BOND FUND PURCHASES SALES
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Corporate $4,677,494 $2,990,677
Intermediate-Term Corporate 1,010,277 643,052
Long-Term Corporate 315,463 223,876
High-Yield Corporate 1,502,518 1,031,043
-----------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of U.S. government securities were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(000)
------------------------------------
BOND FUND PURCHASES SALES
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Treasury $1,485,680 $1,493,112
Short-Term Federal 1,422,827 1,430,829
Short-Term Corporate 370,972 353,373
Intermediate-Term Treasury 1,164,548 1,143,640
Intermediate-Term Corporate 266,650 250,513
GNMA 4,030,276 570,656
Long-Term Treasury 551,906 623,163
Long-Term Corporate 133,895 47,678
High-Yield Corporate 168,050 50,757
-----------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (continued)
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 fund had realized losses
through January 31, 2000, 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
BOND FUND (000)
- --------------------------------------------------------------------------
<S> <C>
Long-Term Treasury $2,904
- --------------------------------------------------------------------------
</TABLE>
At January 31, 2000, the funds had the following capital losses available
to offset future net capital gains:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
CAPITAL LOSS
-----------------------------------
EXPIRATION
AMOUNT FISCAL YEAR(S)
BOND FUND (000) ENDING JANUARY 31,
- ----------------------------------------------------------------------
<S> <C> <C>
Short-Term Treasury $11,131 2008-2009
Short-Term Federal 30,537 2003-2009
Short-Term Corporate 25,699 2003-2009
Intermediate-Term Treasury 48,269 2003-2009
Intermediate-Term Corporate 24,529 2008-2009
GNMA 10,888 2008-2009
Long-Term Treasury 15,516 2008-2009
Long-Term Corporate 5,745 2008-2009
High-Yield Corporate 175,011 2008-2009
- ----------------------------------------------------------------------
</TABLE>
H. At January 31, 2000, net unrealized appreciation (depreciation) of
investment securities for federal income tax purposes was:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(000)
----------------------------------------------------------
APPRECIATED DEPRECIATED NET UNREALIZED
BOND FUND SECURITIES SECURITIES DEPRECIATION
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 73 $ (23,409) $ (23,336)
Short-Term Federal 200 (37,845) (37,645)
Short-Term Corporate 4,065 (166,434) (162,369)
Intermediate-Term Treasury 2,465 (53,235) (50,770)
Intermediate-Term Corporate 1,563 (77,509) (75,946)
GNMA 44,592 (650,826) (606,234)
Long-Term Treasury* 24,494 (43,413) (18,919)
Long-Term Corporate 28,016 (287,100) (259,084)
High-Yield Corporate 20,929 (319,571) (298,642)
- ---------------------------------------------------------------------------------------------
</TABLE>
*See Note G.
52
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS (continued)
At January 31, 2000, the aggregate settlement value of open futures
contracts expiring in March 2000 and the related unrealized appreciation
(depreciation) were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(000)
-----------------------------------
NUMBER OF AGGREGATE UNREALIZED
LONG (SHORT) SETTLEMENT APPRECIATION
BOND FUND/FUTURES CONTRACTS CONTRACTS VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Corporate/
5-Year Treasury Note (2,032) $196,818 $4,482
U.S. Treasury Note (2,530) 239,797 7,081
Intermediate-Term Treasury/
U.S. Treasury Bond (132) 12,173 (378)
U.S. Treasury Note 226 21,421 132
Long-Term Treasury/
U.S. Treasury Bond (92) 8,484 (175)
U.S. Treasury Note 160 15,165 137
- ----------------------------------------------------------------------------------------------
</TABLE>
Unrealized appreciation (depreciation) on open futures contracts is required to
be treated as realized gain (loss) for tax purposes.
I. The market values of securities on loan to broker/dealers at January 31,
2000, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(000)
--------------------------------------------------------
COLLATERAL RECEIVED
-------------------------------------
MARKET VALUE U.S.
OF LOANED TREASURY
BOND FUND SECURITIES CASH SECURITIES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 88,847 $ 70,881 $ 19,923
Short-Term Federal 95,261 97,417 --
Intermediate-Term Treasury 486,786 326,569 169,857
Intermediate-Term Corporate 51,125 52,463 --
Long-Term Treasury 130,395 76,353 56,979
Long-Term Corporate 118,148 -- 120,563
High-Yield Corporate 257,578 212,430 51,088
- ---------------------------------------------------------------------------------------------
</TABLE>
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.
53
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
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, 2000, 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 accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 2000 by correspondence with the custodian, 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, 2000, and we 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 6, 2000
54
<PAGE> 57
SPECIAL 2000 TAX INFORMATION (UNAUDITED) FOR
VANGUARD BOND FUNDS
This information for the fiscal year ended January 31, 2000, 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, 2000, all of
which is designated as a 20% rate gain distribution.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
TOTAL CAPITAL GAINS
DISTRIBUTION
BOND FUND (000)
- -----------------------------------------------------------------
<S> <C>
Short-Term Treasury $ 2,006
Intermediate-Term Corporate 2,253
Long-Term Treasury 15,831
Long-Term Corporate 12,321
- -----------------------------------------------------------------
</TABLE>
55
<PAGE> 58
THE VANGUARD FAMILY OF FUNDS
STOCK FUNDS
- ------------------------------------------
500 Index Fund
Aggressive Growth Fund
Capital Opportunity Fund
Convertible Securities Fund
Emerging Markets Stock
Index Fund
Energy Fund
Equity Income Fund
European Stock Index Fund
Explorer Fund
Extended Market Index Fund*
Global Equity Fund
Gold and Precious Metals Fund
Growth and Income Fund
Growth Index Fund*
Health Care Fund
Institutional Index Fund*
International Growth Fund
International Value Fund
Mid-Cap Index Fund*
Morgan Growth Fund
Pacific Stock Index Fund
PRIMECAP Fund
REIT Index Fund
Selected Value Fund
Small-Cap Growth Index Fund*
Small-Cap Index Fund*
Small-Cap Value Index Fund*
Tax-Managed Capital
Appreciation Fund*
Tax-Managed Growth and
Income Fund*
Tax-Managed International Fund*
Tax-Managed Small-Cap Fund*
Total International Stock
Index Fund
Total Stock Market Index Fund*
U.S. Growth Fund
Utilities Income Fund
Value Index Fund*
Windsor Fund
Windsor II Fund
BALANCED FUNDS
- ------------------------------------------
Asset Allocation Fund
Balanced Index Fund
Global Asset Allocation Fund
LifeStrategy Conservative
Growth Fund
LifeStrategy Growth Fund
LifeStrategy Income Fund
LifeStrategy Moderate
Growth Fund
STAR Fund
Tax-Managed Balanced Fund
Wellesley Income Fund
Wellington Fund
BOND FUNDS
- ------------------------------------------
Admiral Intermediate-Term
Treasury Fund
Admiral Long-Term Treasury Fund
Admiral Short-Term Treasury Fund
GNMA Fund
High-Yield Corporate Fund
High-Yield Tax-Exempt Fund
Insured Long-Term Tax-Exempt
Fund
Intermediate-Term Bond
Index Fund
Intermediate-Term Corporate
Fund Intermediate-Term Tax-Exempt
Fund
Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
Preferred Stock Fund
Short-Term Bond Index Fund
Short-Term Corporate Fund*
Short-Term Federal Fund
Short-Term Tax-Exempt Fund
Short-Term Treasury Fund
State Tax-Exempt Bond Funds
(California, Florida,
Massachusetts, New Jersey,
New York, Ohio, Pennsylvania)
Total Bond Market Index Fund*
MONEY MARKET FUNDS
- ------------------------------------------
Admiral Treasury Money Market Fund
Federal Money Market Fund
Prime Money Market Fund*
State Tax-Exempt Money Market Funds
(California, New Jersey,
New York, Ohio, Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY PLAN
- ------------------------------------------
Balanced Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
High-Grade Bond Portfolio
High Yield Bond Portfolio
International Portfolio
Mid-Cap Index Portfolio
Money Market Portfolio
REIT Index Portfolio
Short-Term Corporate Portfolio
Small Company Growth Portfolio
*Offers Institutional Shares.
For information about Vanguard funds and our variable annuity plan, including
charges and expenses, obtain a prospectus from The Vanguard Group,
P.O. Box 2600, Valley Forge, PA 19482-2600.
Read it carefully before you invest or send money.
56
<PAGE> 59
THE PEOPLE WHO GOVERN YOUR FUND
The Trustees of your mutual fund are there to see that the fund is operated
and managed in your best interests since, as a shareholder, you are part owner
of the fund. Your fund Trustees also serve on the Board of Directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Seven of Vanguard's eight board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new Trustees/Directors; and electing
Vanguard officers.
The list below provides a brief description of each Trustee's professional
affiliations. Noted in parentheses is the year in which the Trustee joined the
Vanguard Board.
TRUSTEES
JOHN J. BRENNAN - (1987) 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 - (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
JohnsonoMerck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL (1977) 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
Select Sector SPDR Trust.
ALFRED M. RANKIN, JR. - (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JOHN C. SAWHILL - (1991) 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. - (1971) 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 - (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, 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.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON - Legal Department.
ROBERT A. DISTEFANO - Information Technology.
JAMES H. GATELY - Individual Investor Group.
KATHLEEN C. GUBANICH - Human Resources.
IAN A. MACKINNON - Fixed Income Group.
F. WILLIAM MCNABB, III - Institutional Investor Group.
MICHAEL S. MILLER - Planning and Development.
RALPH K. PACKARD - Chief Financial Officer.
GEORGE U. SAUTER - Core Management Group.
<PAGE> 60
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
All comparative mutual fund data are from Lipper Inc. or Morningstar,
Inc., unless otherwise noted.
"Standard & Poor's," "S&P," "S&P 500," "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.
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q280-0 3/22/2000
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
<PAGE> 61
VANGUARD BOND FUNDS
STATEMENT OF NET ASSETS - JANUARY 31, 2000
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 33 of that report.
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 ............................. 3
Short-Term Corporate Fund ........................... 5
Intermediate-Term Treasury Fund ..................... 13
Intermediate-Term Corporate Fund .................... 15
Long-Term Treasury Fund ............................. 20
Long-Term Corporate Fund ............................ 22
High-Yield Corporate Fund ........................... 26
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM TREASURY FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (97.9%)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (85.4%)
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/2007 $33,886 $32,000
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 10,262 9,925
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 17,205 17,130
U.S. Treasury Note 5.625% 5/15/2001 24,000 23,735
U.S. Treasury Note 5.75% 4/30/2003 177,500 172,750
U.S. Treasury Note 6.125% 12/31/2001 47,700 47,274
U.S. Treasury Note 6.25% 4/30/2001 73,500 73,282
U.S. Treasury Note 6.25% 1/31/2002 83,000 82,432
U.S. Treasury Note 6.50% 5/31/2001 28,200 28,187
U.S. Treasury Note 6.50% 8/31/2001 154,100 153,887
U.S. Treasury Note 6.625% 7/31/2001 87,000 87,071
U.S. Treasury Note 7.50% 11/15/2001 38,700 39,250
U.S. Treasury Note 7.875% 8/15/2001 20,500 20,879
Bariven, SA Eximbank Guaranteed Export Financing
(U.S.Government Guaranteed) 6.277% 7/16/2000 (1)(2) 5,100 5,090
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 6.475% 5/15/2000 (1) 1,300 1,300
EximBank Guaranteed Export (U.S. Government Guaranteed) 5.73% 1/15/2003 (1)(2) 32,400 31,861
Guaranteed Export Trust (U.S. Government Guaranteed) 7.46% 12/15/2005 (1) 6,261 6,284
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.104% 10/15/2001 (1) 19,542 19,124
</TABLE>
1
<PAGE> 62
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM TREASURY FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.10% 8/15/2003 (1) $18,000 $16,575
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.696% 2/1/2005 (1) 7,333 7,063
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.735% 1/15/2001 (1) 5,267 5,257
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.926% 11/6/2002 (1) 12,720 12,240
Private Export Funding Corp. (U.S. Government Guaranteed) 5.65% 3/15/2003 (1) 3,722 3,634
Private Export Funding Corp. (U.S. Government Guaranteed) 5.73% 1/15/2004 58,385 55,361
Private Export Funding Corp. (U.S. Government Guaranteed) 6.31% 9/30/2004 10,000 9,627
Private Export Funding Corp. (U.S. Government Guaranteed) 6.45% 9/30/2004 40,000 38,605
Private Export Funding Corp. (U.S. Government Guaranteed) 8.40% 7/31/2001 5,000 5,118
-----------
1,004,941
-----------
AGENCY BONDS & NOTES (5.1%)
Federal Farm Credit Bank 4.80% 11/6/2003 9,000 8,307
Federal Home Loan Bank 5.675% 8/18/2003 18,800 17,933
Federal Home Loan Mortgage Corp. 6.30% 6/1/2004 35,000 33,624
-----------
59,864
-----------
MORTGAGE-BACKED SECURITIES (7.4%)
Federal Home Loan Mortgage Corp. 6.00% 8/1/2006 (1) 24,420 23,203
Federal Home Loan Mortgage Corp. 6.00% 8/1/2006 19,695 18,714
Federal National Mortgage Assn. 6.00% 4/1/2006 16,934 16,079
Federal National Mortgage Assn. 6.13% 6/3/2004 (1) 30,000 28,657
-----------
86,653
-----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,174,794) 1,151,458
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (7.6%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 5.73% 2/1/2000 19,280 19,280
Collateralized By U.S. Government Obligations in a
Pooled Cash Account--Note I 5.73% 2/1/2000 70,881 70,881
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $90,161) 90,161
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (105.5%)
(COST $1,264,955) 1,241,619
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-5.5%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 16,550
Security Lending Collateral Payable to Brokers--Note I (70,881)
Other Liabilities (10,608)
-----------
(64,939)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 118,328,304 outstanding $.001 par value
shares of beneficial interest (unlimited authorization) $1,176,680
=========================================================================================================================
NET ASSET VALUE PER SHARE $9.94
=========================================================================================================================
</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, 2000, the
aggregate value of these securities was $36,951,000, representing 3.1% of
net assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AMOUNT PER~
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
Paid in Capital $1,213,364 $10.25
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (13,348) (.11)
Unrealized Depreciation--Note H (23,336) (.20)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,176,680 $ 9.94
=========================================================================================================================
</TABLE>
2
<PAGE> 63
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM FEDERAL FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.2%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (7.5%)
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/2007 $ 40,578 $ 38,320
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 16,419 15,880
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 21,207 21,114
Government Trust Certificate 7.50% 8/15/2000 (1) 2,712 2,719
Guaranteed Export Certificates (U.S. Government Guaranteed) 5.23% 5/15/2005 (1) 12,638 12,144
Overseas Private Investment Corp. (U.S. Government Guaranteed) 7.815% 11/15/2000 (1) 2,500 2,524
Overseas Private Investment Corp. (U.S. Government Guaranteed) 8.75% 11/15/2000 (1) 3,750 3,803
Private Export Funding Corp. (U.S. Government Guaranteed) 6.31% 9/30/2004 10,000 9,627
Private Export Funding Corp. (U.S. Government Guaranteed) 7.03% 10/31/2003 5,000 4,977
-----------
111,108
-----------
AGENCY BONDS & NOTES (67.2%)
Bank United (Federal Home Loan Bank of Atlanta) 5.40% 2/2/2004 LOC 104,500 98,000
Federal Home Loan Bank 5.97% 12/12/2000 7,000 6,962
Federal Home Loan Bank 5.375% 3/2/2001 57,000 56,237
Federal Home Loan Bank 5.40% 1/15/2003 29,575 28,225
Federal Home Loan Bank 5.50% 1/21/2003 12,000 11,481
Federal Home Loan Bank 5.625% 3/19/2001 20,000 19,774
Federal Home Loan Bank 5.97% 12/1/2000 20,000 19,896
Federal National Mortgage Assn. 5.125% 2/13/2004 10,000 9,278
Federal National Mortgage Assn. 5.72% 1/9/2001 10,000 9,912
Federal National Mortgage Assn. 5.72% 3/13/2001 9,000 8,906
Federal National Mortgage Assn. 5.77% 2/26/2004 10,000 9,462
Federal National Mortgage Assn. 5.86% 8/20/2003 71,835 68,720
Federal National Mortgage Assn. 5.90% 4/12/2004 30,565 29,011
Federal National Mortgage Assn. 5.94% 3/29/2004 12,052 11,461
Federal National Mortgage Assn. 5.96% 4/23/2003 86,000 82,854
Federal National Mortgage Assn. 6.00% 4/23/2003 30,000 28,935
Federal National Mortgage Assn. 6.00% 1/14/2005 14,980 14,130
Federal National Mortgage Assn. 6.00% 10/1/2005 14,674 14,044
Federal National Mortgage Assn. 6.00% 11/1/2005 12,758 12,210
Federal National Mortgage Assn. 6.01% 7/17/2003 39,010 37,542
Federal National Mortgage Assn. 6.06% 5/7/2003 31,000 29,932
Federal National Mortgage Assn. 6.10% 5/21/2003 20,000 19,326
Federal National Mortgage Assn. 6.13% 6/3/2004 18,315 17,495
Federal National Mortgage Assn. 6.17% 1/31/2004 18,076 17,127
Federal National Mortgage Assn. 6.18% 12/10/2001 10,000 9,816
Federal National Mortgage Assn. 6.195% 12/27/2000 70,000 69,745
Federal National Mortgage Assn. 6.44% 11/15/2001 28,635 28,254
Federal National Mortgage Assn. 6.45% 2/14/2002 10,000 9,870
Federal National Mortgage Assn. 6.625% 1/15/2002 71,500 71,095
Federal National Mortgage Assn. 6.80% 1/10/2003 21,600 21,419
Federal National Mortgage Assn. 5.75% 4/15/2003 112,000 107,801
Federal National Mortgage Assn. 6.375% 1/16/2002 14,000 13,849
-----------
992,769
-----------
MORTGAGE-BACKED SECURITIES (21.5%)
Federal Home Loan Mortgage Corp. 5.50% 11/1/2000 (1) 5,193 5,160
Federal Home Loan Mortgage Corp. 5.50% 1/1/2001 (1) 10,326 10,227
Federal Home Loan Mortgage Corp. 5.50% 1/1/2001 (1) 5,529 5,477
Federal Home Loan Mortgage Corp. 5.50% 5/15/2002 (1) 20,000 19,368
Federal Home Loan Mortgage Corp. 5.75% 7/15/2003 (1) 15,800 15,143
Federal Home Loan Mortgage Corp. 5.81% 4/25/2014 (1) 20,000 19,420
Federal Home Loan Mortgage Corp. 6.00% 7/1/2005 (1) 10,215 9,783
Federal Home Loan Mortgage Corp. 6.00% 8/1/2005 (1) 33,208 31,802
Federal Home Loan Mortgage Corp. 6.00% 7/1/2006 (1) 18,360 17,445
Federal Home Loan Mortgage Corp. 6.00% 7/1/2006 (1) 21,802 20,716
Federal Home Loan Mortgage Corp. 6.11% 6/25/2013 (1) 45,000 44,338
Federal Home Loan Mortgage Corp. 6.35% 9/25/2013 (1) 8,457 8,373
</TABLE>
3
<PAGE> 64
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM FEDERAL FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp. 6.43% 2/25/2013 (1) $ 27,319 $ 27,131
Federal Home Loan Mortgage Corp. 6.53% 11/25/2010 (1) 17,831 17,740
Federal Home Loan Mortgage Corp. 6.59% 6/25/2012 (1) 10,412 10,371
Federal Home Loan Mortgage Corp. 6.92% 1/25/2012 (1) 2,591 2,582
Federal Home Loan Mortgage Corp. 7.00% 1/15/2019 (1) 13,000 12,793
Vendee Mortgage Trust (U.S. Government Guaranteed) 6.50% 4/15/2014 (1) 25,715 25,488
Vendee Mortgage Trust (U.S. Government Guaranteed) 6.50% 9/15/2015 (1) 15,014 14,727
-----------
318,084
-----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,459,606) 1,421,961
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (9.4%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 5.73% 2/1/2000 42,244 42,244
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 5.73% 2/1/2000 97,417 97,417
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $139,661) 139,661
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (105.6%)
(COST $1,599,267) 1,561,622
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-5.6%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 21,112
Security Lending Collateral Payable to Brokers--Note I (97,417)
Other Liabilities (6,931)
-----------
(83,236)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 150,140,432 outstanding $.001 par value shares of
beneficial interest ~(unlimited authorization) $1,478,386
=========================================================================================================================
NET ASSET VALUE PER SHARE $9.85
=========================================================================================================================
</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.
LOC--Letter of Credit.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,546,694 $10.30
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (30,663) (.20)
Unrealized Depreciation--Note H (37,645) (.25)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,478,386 $ 9.85
=========================================================================================================================
</TABLE>
4
<PAGE> 65
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (86.1%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (19.8%)
ANRC Auto Owner Trust 6.75% 12/15/2003 (1) $ 36,250 $ 35,974
ARG Funding Corp. 5.88% 3/6/2002 (1)(3) 45,000 43,760
Advanta Mortgage Loan Trust 5.98% 8/10/2001 (1) 28,750 28,269
Advanta Mortgage Loan Trust 6.25% 2/25/2020 (1) 23,776 23,681
American Express Credit Account Master Trust 5.85% 4/15/2004 (1) 24,800 23,343
BMW Vehicle Owner Trust 6.41% 8/25/2001 (1) 89,750 88,554
Bank One Financial Services 6.69% 8/25/2013 (1) 23,000 22,688
CIT Home Equity Loan Trust 6.08% 11/3/2000 (1) 25,000 24,892
California Infrastructure & Economic Development
Bank Special Purpose Trust PG&E-1 6.15% 4/4/2000 (1) 3,255 3,256
California Infrastructure & Economic Development
Bank Special Purpose Trust PG&E 6.42% 3/25/2005 (1) 10,000 9,594
California Infrastructure & Economic Development
Bank Special Purpose Trust SCE-1 6.14% 2/6/2000 (1) 2,896 2,897
California Infrastructure & Economic Development
Bank Special Purpose Trust SCE-1 6.28% 2/10/2003 (1) 20,000 19,451
Capital Auto Receivables Asset Trust 6.25% 3/15/2003 (1) 25,000 24,860
Chase Manhattan Auto Trust 6.65% 9/15/2003 (1) 17,576 17,441
Chemical Master Credit Card Trust I 6.38% 6/15/2003 (1) 10,000 9,972
Citibank Credit Card Master Trust 5.55% 1/9/2006 (1) 15,187 14,158
Citibank Credit Card Master Trust 5.75% 2/14/2020 (1) 12,400 12,272
Citibank Credit Card Master Trust 5.95% 2/7/2003 (1) 10,400 9,987
Citibank Credit Card Master Trust 6.35% 8/15/2000 (1) 28,000 28,006
Citibank Credit Card Master Trust 6.70% 2/15/2004 (1) 13,000 12,826
Citicorp Lease Pass-Through Trust Certificates 7.22% 6/15/2005 (1)(3) 26,350 25,922
ComEd Transitional Funding Trust 5.34% 3/25/2004 (1) 35,000 33,873
ComEd Transitional Funding Trust 5.39% 6/25/2005 (1) 50,000 47,680
Countrywide Asset-Backed Certificate 6.24% 9/25/2018 (1) 25,522 24,992
Countrywide Asset-Backed Certificate 6.675% 2/25/2012 (1) 1,028 1,024
Credit Card Merchant Voucher Receivables Master Trust 6.23% 8/1/2002 (1)(3) 13,883 13,662
Discover Card Master Trust 6.55% 2/18/2003 (1) 15,700 15,719
Dayton Hudson Credit Card Master Trust 6.25% 8/25/2005 (1) 15,000 14,620
Discover Card Master Trust I Series 5.75% 4/15/2001 (1) 42,290 41,712
EQCC Home Equity Loan Trust 6.223% 6/25/2011 (1) 19,650 19,171
First Bank Corp. Card Master Trust 6.40% 2/15/2003 (1) 13,025 12,817
Ford Credit Auto Owner Trust 6.15% 12/15/2001 (1) 25,000 24,586
Ford Credit Auto Loan Master Trust 6.50% 8/15/2002 (1) 35,000 34,966
General Electric Capital Mortgage Services 6.26% 1/6/2000 (1) 3,502 3,487
Green Tree Home Equity Loan Trust 7.05% 9/15/2030 (1) 29,750 29,389
Honda Auto Lease Trust 6.45% 1/29/2001 (1) 24,600 24,340
Household Credit Card Master Trust 5.90% 5/15/2002 (1) 20,000 19,836
Illinois Power Special Purpose 5.26% 6/25/2001 (1) 10,000 9,876
MBNA Master Credit Card Trust 6.45% 2/15/2008 (1) 5,000 4,815
MBNA Master Credit Card Trust 6.60% 1/15/2003 (1) 10,000 10,018
MBNA Master Credit Card Trust 6.70% 1/18/2005 (1) 26,000 25,628
Mellon Bank Home Equity Installment Loan Trust 6.21% 8/25/2009 (1) 11,500 11,399
NationsBank Credit Card Master Trust 6.45% 4/15/2003 (1) 17,000 16,998
Navistar Financial Corp. Owner Trust 5.95% 4/15/2003 (1) 39,650 39,168
Navistar Financial Corp. Owner Trust 6.22% 10/17/2005 (1) 4,000 3,930
Neiman Marcus Credit Card Master Trust 7.60% 6/15/2003 (1) 4,167 4,180
Nissan Auto Receivables 7.01% 9/15/2003 (1) 29,750 29,669
Onyx Acceptance Owner Trust 6.82% 11/15/2003 (1) 17,275 17,153
Option One Mortgage Loan Trust 5.92% 5/25/2009 (1) 25,450 24,858
PECO Energy Transition Trust 6.05% 7/5/2006 (1) 49,750 46,251
PNC Mortgage Securities Corp. 6.49% 7/25/2000 (1) 15,027 15,027
PP&L Transition Bonds Series 6.96% 12/26/2007 (1) 53,000 52,029
Premier Auto Trust 6.55% 9/6/2003 (1) 5,000 4,922
Providian Master Trust 6.25% 6/15/20027 (1) 40,000 38,966
Providian Master Trust 6.45% 6/15/2007 (1) 10,000 9,729
Residential Asset Securities Corp. 6.00% 7/25/2001 (1) 73,650 72,032
</TABLE>
5
<PAGE> 66
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.2%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential Asset Securities Corp. 6.285% 4/16/2000 (1) $ 14,051 $ 13,968
Residential Asset Securities Corp. 7.075% 10/15/2001 (1) 20,000 19,792
UAC Securitization Corp. 5.57% 9/8/2003 (1) 24,650 24,301
UAC Securitization Corp. 6.31% 12/8/2006 (1) 16,836 16,095
WFS Financial 6.32% 10/20/2003 (1) 25,000 24,643
World Financial Network Credit Card Master Trust 6.70% 4/15/2001 (1) 41,000 40,936
-----------
1,420,060
-----------
FINANCE (34.1%)
AUTO (2.0%)
Ford Motor Credit Co. 5.375% 10/15/2002 22,000 20,993
Ford Motor Credit Co. 6.125% 4/28/2003 (4) 29,000 27,887
Ford Motor Credit Co. 6.55% 9/10/2002 28,000 27,514
Ford Motor Credit Co. 6.85% 8/15/2000 5,000 4,999
General Motors Acceptance Corp. 6.21% 9/19/2000 35,000 34,825
General Motors Acceptance Corp. 6.65% 5/24/2000 30,000 30,002
BANKS (10.5%)
Bankers Trust NY Corp. 9.50% 6/14/2000 11,930 12,044
Capital One Bank 6.40% 5/8/2003 15,000 14,302
Capital One Bank 6.58% 4/17/2001 15,750 15,541
Capital One Bank 6.60% 8/20/2001 10,200 10,019
Compass Bank 6.45% 5/1/2009 8,000 7,166
CoreStates Capital Corp. 6.186% 10/2/2000 35,000 34,806
Dime Bancorp Inc. 6.375% 1/30/2001 8,325 8,225
Dime Bancorp Inc. 7.00% 7/25/2001 15,000 14,821
First Maryland Bancorp 7.20% 7/1/2007 5,770 5,448
First Union Corp. 8.125% 6/24/2002 5,000 5,062
First USA Bank 7.65% 8/1/2003 7,000 6,994
Firstar Corp. 6.35% 7/13/2001 25,000 24,689
Firstar Corp 6.50% 7/15/2002 20,000 19,545
HSBC Americas Inc. 6.625% 3/1/2009 10,000 9,203
Long Island Savings Bank 6.20% 4/2/2001 12,000 11,799
Long Island Savings Bank 7.00% 6/13/2002 13,500 13,202
Mellon Financial Co. 5.75% 11/15/2003 9,000 8,483
Mercantile Bancorp 6.80% 6/15/2001 15,512 15,387
Meridian Bancorp 6.625% 6/15/2000 26,550 26,539
The Money Store Inc. 8.05% 4/15/2002 10,277 10,378
National City Bank Cleveland 6.35% 3/15/2001 36,860 36,530
NationsBank Corp 5.80% 1/31/2001 14,675 14,492
NationsBank Corp. 6.375% 5/15/2005 25,000 23,599
NationsBank Corp. 8.125% 6/15/2002 9,898 10,040
Northern Trust Co. 6.50% 5/1/2003 5,000 4,865
Norwest Corp. 6.125% 10/15/2000 6,225 6,194
Norwest Corp. 7.75% 3/1/2002 5,000 5,038
PNC Funding Corp. 9.875% 3/1/2001 5,565 5,705
Popular Inc. 6.20% 4/30/2001 37,200 36,589
Provident Bank of Ohio 6.125% 12/15/2000 12,700 12,555
Providian National Bank 6.70% 3/15/2003 32,380 30,869
Providian National Bank 6.75% 3/15/2002 52,455 50,851
Security Pacific Corp. 11.00% 3/1/2001 20,907 21,717
Shawmut National Corp. 7.20% 4/15/2003 7,000 6,906
Southern National Corp. 7.05% 5/23/2003 29,469 28,878
Summit Bancorp 8.625% 12/10/2002 29,315 29,912
US Bank NA Minnesota 5.25% 6/4/2003 20,000 18,627
US Bancorp 6.875% 12/1/2004 7,550 7,293
Wells Fargo Co. 6.50% 9/3/2002 125,000 122,503
Wells Fargo Co. 6.875% 4/15/2003 5,000 4,922
CONSUMERS (1.7%)
American Express Credit Corp 6.125% 11/15/2001 10,000 9,834
Aristar Inc. 6.125% 12/1/2000 48,000 47,607
</TABLE>
6
<PAGE> 67
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Household Finance Corp. 7.00% 8/1/2003 $ 12,000 $ 11,779
Norwest Financial Corp. 7.95% 5/15/2002 4,200 4,252
Sears Roebuck Acceptance Corp. 6.22% 11/8/2000 48,000 47,645
Sears Roebuck Acceptance Corp. 6.69% 4/30/2001 400 396
DIVERSIFIED (4.0%)
AT&T Capital Corp. 6.59% 8/4/2000 5,000 4,998
AT&T Capital Corp. 6.70% 2/15/2001 50,000 49,793
AT&T Capital Corp. 6.875% 1/16/2001 5,000 4,992
Associates Corp. of North America 5.75% 11/1/2003 38,000 35,720
Comdisco Inc. 5.75% 2/15/2001 15,000 14,743
Comdisco Inc. 6.00% 1/30/2002 28,800 27,885
Comdisco Inc. 7.25% 9/20/2001 29,725 29,345
Equity Residential Properties Trust Operating LP 7.95% 4/15/2002 7,000 7,006
Finova Capital Corp 5.875% 10/15/2001 10,000 9,749
Finova Capital Corp 6.11% 2/18/2003 35,600 34,118
Finova Capital Corp. 6.625% 9/15/2001 10,250 10,120
General Electric Capital Corp 5.35% 11/18/2002 35,500 33,872
INSURANCE (2.2%)
Conseco Inc. 6.40% 2/10/2003 30,000 28,332
Conseco Inc. 7.875% 12/15/2000 15,000 15,001
Conseco Inc. 8.50% 10/15/2002 15,000 15,037
Liberty Financial Co. 6.75% 11/15/2008 17,650 15,997
Progressive Corp. 7.30% 6/1/2006 12,290 11,919
Progressive Corp. 10.00% 12/15/2000 7,000 7,155
Prudential Insurance Co. of America 6.375% 7/23/2006 (3) 30,000 27,804
SunAmerica Inc. 6.58% 1/15/2002 5,000 4,943
USAA Capital Corp. 6.90% 11/1/2002 25,000 24,720
USAA Capital Corp. 7.05% 11/8/2006 10,000 9,617
OTHER (13.7%)
Bear, Stearns & Co., Inc. 7.625% 4/15/2000 26,900 26,940
Bradley Operating LP 7.00% 11/15/2004 10,000 9,320
Cabot Industrial Properties LP 7.125% 5/1/2004 16,670 15,860
Chelsea GCA Realty Partner 7.75% 1/26/2001 19,150 19,016
Colonial Realty LP 6.96% 7/26/2004 25,000 23,113
DR Investments 7.45% 5/15/2007 (3) 9,500 9,307
Dean Witter Discover & Co. 6.30% 1/15/2006 8,000 7,444
Donaldson, Lufkin & Jenrette, Inc. 5.71% 6/30/2000 (2) 15,000 14,992
Donaldson, Lufkin & Jenrette, Inc. 6.00% 12/1/2001 25,000 24,315
Donaldson, Lufkin & Jenrette, Inc. 6.25% 8/1/2001 29,650 29,139
First Industrial LP 7.00% 12/1/2006 17,000 15,502
First Industrial LP 7.15% 5/15/2002 8,150 7,942
First Industrial LP 7.375% 5/15/2004 (3) 12,000 11,448
Goldman Sachs Group LP 6.20% 12/15/2000 (3) 32,725 32,496
International Business Machines Credit 6.64% 10/29/2001 65,000 64,486
International Business Machines Credit 7.00% 1/28/2002 45,000 44,837
Lehman Brothers Holdings Inc. 6.20% 1/15/2002 35,000 34,094
Lehman Brothers Holdings Inc. 6.25% 4/1/2003 47,000 44,991
Lehman Brothers Holdings Inc. 6.375% 10/23/2000 33,000 32,784
Lehman Brothers Holdings Inc. 7.00% 5/15/2003 14,800 14,455
Lehman Brothers Holdings Inc. 7.375% 5/15/2004 9,930 9,757
Mack-Cali Realty 7.25% 3/15/2009 9,500 8,745
Merrill Lynch & Co., Inc. 5.72% 4/15/2002 50,000 48,320
Merrill Lynch & Co., Inc. 6.05% 3/6/2001 14,500 14,325
Morgan Stanley, Dean Witter & Co. 5.625% 1/20/2004 12,000 11,206
Morgan Stanley, Dean Witter, Discover & Co. 5.75% 2/15/2001 10,500 10,367
Morgan Stanley Group 7.125% 1/15/2003 94,970 94,149
Newcourt Credit Group 6.875% 2/16/2005 14,700 14,203
Oasis Residential Inc. 6.75% 11/15/2001 22,600 22,090
</TABLE>
7
<PAGE> 68
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PaineWebber Group Inc. 6.32% 3/18/2003 (2) $ 25,000 $ 23,970
PaineWebber Group Inc. 6.375% 5/15/2004 42,060 39,721
PaineWebber Group Inc. 6.45% 12/1/2003 10,900 10,413
PaineWebber Group Inc. 7.625% 10/15/2008 5,000 4,832
Post Apartment Homes LP 6.371% 3/3/2000 30,000 29,991
Post Apartment Homes LP 7.02% 4/2/2001 20,000 19,808
Reckson Operating Partnership LP 7.40% 3/15/2004 10,000 9,534
Reckson Operating Partnership LP 7.75% 3/15/2009 21,000 19,426
Regency Centers LP 7.40% 4/1/2004 6,900 6,599
Salomon Smith Barney Holdings Inc. 7.30% 5/15/2002 25,400 25,372
Salomon Smith Barney Holdings Inc. 7.50% 5/1/2002 11,500 11,534
Salomon Smith Barney Holdings Inc. 7.98% 3/1/2000 17,500 17,520
Security Capital Group 7.75% 11/15/2003 20,000 19,229
Summit Properties Inc. 6.80% 8/15/2002 20,000 19,125
Summit Properties Inc. 7.20% 8/15/2007 5,000 4,485
Topaz Ltd. 6.92% 3/10/2007 (1)(3) 12,956 12,524
Trinet Corp. Realty Trust 7.30% 5/15/2001 5,500 5,257
Wellsford Residential Property Trust 9.375% 2/1/2002 5,175 5,304
----------
2,442,624
----------
INDUSTRIAL (21.4%)
American Stores Co. 7.40% 5/15/2005 20,700 20,403
Baker Hughes, Inc. 5.80% 2/15/2003 16,850 16,007
Baker Hughes, Inc. 7.875% 6/15/2004 4,250 4,265
Boston Scientific 6.625% 3/15/2005 28,660 26,518
CSC Enterprises 6.50% 11/15/2001 (3) 29,200 28,701
Coastal Corp. 6.50% 5/15/2006 10,000 9,323
Continental Airlines Pass-Through Trust 6.331% 4/15/2003 (1) 11,802 11,540
Continental Airlines Pass-Through Trust 6.465% 4/15/2006 (1) 10,382 9,973
Continental Airlines Pass-Through Trust 6.541% 9/15/2018 (1) 13,756 12,795
Continental Airlines Pass-Through Trust 6.80% 11/28/2003 (1) 10,376 9,750
Continental Airlines Pass-Through Trust 7.434% 3/15/2006 (1) 6,700 6,482
Cooper Tire & Rubber Co. 7.25% 12/16/2002 30,000 29,671
Cox Communications, Inc. 6.375% 6/15/2000 37,000 36,970
Daimler-Chrysler North America Holding Corp. 6.67% 9/25/2001 26,000 25,780
Daimler-Chrysler North America Holding Corp. 6.84% 10/15/2002 50,000 49,277
Daimler-Chrysler North America Holding Corp. 6.90% 9/1/2004 17,000 16,526
Daimler-Chrysler North America Holding Corp. 7.40% 1/20/2005 55,000 54,509
Delta Air Lines Inc. 6.65% 3/15/2004 33,400 31,620
Delta Air Lines Inc. 7.70% 12/15/2005 (3) 19,875 19,300
Delta Air Lines Inc. 10.375% 2/1/2011 5,750 6,424
Dillard's Inc. 5.79% 11/15/2001 25,000 24,037
Dillard's Inc. 6.625% 11/15/2008 15,000 13,140
Dresser Industries, Inc. 8.00% 4/15/2003 20,067 20,341
E.I. duPont de Nemours & Co. 6.75% 10/15/2004 6,500 6,332
ERAC USA Finance Co. 6.35% 1/15/2001 (3) 7,330 7,263
ERAC USA Finance Co. 6.625% 5/15/2006 (3) 35,000 32,403
ERAC USA Finance Co. 7.00% 6/15/2000 (3) 9,880 9,885
Electronic Data Systems Corp. 6.85% 5/15/2000 (3) 18,000 18,014
Federal Express Corp. 9.875% 4/1/2002 8,195 8,526
Food Lion, Inc. 8.41% 9/26/2001 5,000 5,015
Harrahs Operating Co., Inc. 7.50% 1/15/2009 22,400 21,123
Hertz Corp. 6.50% 4/1/2000 5,000 5,001
Hertz Corp. 7.00% 5/1/2002 5,000 4,954
Hertz Corp. 7.375% 6/15/2001 8,275 8,278
International Paper Co. 6.125% 11/1/2003 5,900 5,597
International Paper Co. 9.50% 3/15/2002 5,100 5,282
International Speedway Corp. 7.875% 10/15/2004 (3) 14,750 14,341
Knight-Ridder, Inc. 8.50% 3/1/2001 8,513 8,627
Kroger Co. 6.34% 6/1/2001 9,575 9,434
Kroger Co. 7.625% 9/15/2006 50,000 49,270
Lafarge Corp 6.375% 7/15/2005 14,860 13,903
Lockheed Martin Corp. 6.50% 4/15/2003 16,834 16,073
</TABLE>
8
<PAGE> 69
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lockheed Martin Corp. 7.95% 12/1/2005 $ 15,000 $ 14,776
Fred Meyer Inc. 7.45% 3/1/2008 7,613 7,389
Mobil Corp. ESOP 9.17% 2/29/2000 7,712 7,729
Monsanto Co. 5.625% 12/1/2001 (3) 24,000 23,192
Occidental Petroleum Corp. 8.50% 11/9/2001 10,000 10,147
Osprey Trust 8.31% 1/15/2003 (3) 39,875 39,618
PSE&G Capital Corp. 6.25% 5/15/2003 (3) 25,000 23,865
PanAmSat Corp. 6.00% 1/15/2003 7,500 7,053
PanAmSat Corp. 6.125% 1/15/2005 30,000 27,093
Parker Retirement Savings Plan Trust 6.34% 7/15/2008 (1)(3) 21,952 20,466
Pepsi Bottling Holdings Inc. 5.375% 2/17/2004 (3) 25,000 23,220
Phillips Petroleum Co. 9.00% 6/1/2001 43,008 43,921
Praxair, Inc. 6.70% 4/15/2001 52,000 51,587
The Proctor & Gamble Co. 6.60% 12/15/2004 25,100 24,340
Qantas Airways 7.75% 6/15/2009 (3) 24,750 23,766
Raytheon Co. 5.70% 11/1/2003 32,085 29,764
Raytheon Co. 6.30% 3/15/2005 8,770 8,083
Raytheon Co. 6.45% 8/15/2002 11,900 11,511
Raytheon Co. 6.50% 7/15/2005 6,000 5,559
Safeway Inc. 7.00% 9/15/2002 20,000 19,760
Southwest Air 9.40% 7/1/2001 6,500 6,677
Stagecoach Holdings PLC 8.625% 11/15/2009 25,000 25,054
TRW Inc. 6.50% 6/1/2002 20,000 19,538
TTX Co. 7.02% 11/15/2001 (3) 50,000 49,485
Telecommunications, Inc. 8.25% 1/15/2003 44,445 45,463
Texas Instruments Inc. 7.00% 8/15/2004 39,600 38,704
Minnesota Mining & Manufacturing ESOP Trust 5.62% 3/21/2005 (3) 44,943 40,925
Tyco International Group SA 6.125% 6/15/2001 15,000 14,702
Tyco International Ltd. 6.875% 9/5/2002 (3) 50,000 49,032
USA Waste Services 6.50% 12/15/2002 22,000 20,499
Union Pacific Corp. 7.00% 6/15/2000 10,000 10,005
VF Corp. 7.60% 4/1/2004 18,635 18,201
Yosemite Trust 8.25% 11/15/2004 (3) 19,900 19,576
Zeneca Wilmington 6.30% 6/15/2003 20,400 19,790
----------
1,533,163
----------
UTILITIES (10.8%)
AEP Resources Inc. 6.50% 12/1/2003 (3) 50,000 47,664
Alabama Power Co. 7.125% 8/15/2004 25,000 24,599
Arizona Public Service 5.75% 9/15/2000 11,950 11,869
Baltimore Gas & Electric Co. 6.68% 10/11/2001 16,000 15,840
Boston Edison Co. 6.05% 8/15/2000 25,500 25,399
Boston Edison Co. 6.80% 2/1/2000 10,000 9,998
Boston Edison Co. 6.80% 3/15/2003 14,000 13,719
Calenergy Co., Inc 7.23% 9/15/2005 12,500 12,154
Cinergy Corp. 6.125% 4/15/2004 8,850 8,267
Cinergy Global Resources 6.20% 11/3/2008 (3)(6) 5,000 4,508
Connectiv Inc. 6.73% 9/12/2003 63,000 60,791
Consolidated Edison 6.50% 2/1/2001 5,000 4,968
Detroit Edison Co. 6.56% 5/1/2001 10,750 10,677
Duquesne Light Co. 6.10% 5/10/2000 2,100 2,097
East Coast Power 6.737% 11/22/2004 8,250 7,431
Edison Mission Energy Funding Corp. 6.77% 9/15/2003 (1)(3) 19,503 19,079
FPL Group Capital Inc. 7.625% 9/15/2006 34,700 34,522
GTE Corp. 6.36% 4/15/2006 7,950 7,462
GTE Corp. 6.39% 9/11/2000 10,000 9,973
Indiana Michigan Power Co. 6.40% 3/1/2000 20,000 20,001
KN Energy Inc. 6.45% 11/30/2001 24,850 24,415
KN Energy Inc. 6.65% 3/1/2005 5,000 4,759
Kansas City Power & Light Co. 6.50% 11/14/2001 5,000 4,935
Kern River Funding Corp. 6.42% 3/31/2001 (1)(3) 6,321 6,289
Kern River Funding Corp. 6.72% 9/30/2001 (3) 16,075 15,888
</TABLE>
9
<PAGE> 70
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LG&E Capital Corp. 6.205% 5/1/2004 $ 21,700 $ 20,573
MCN Investment Corp. 6.03% 2/1/2001 4,000 3,946
Midamerican Funding LLC 5.85% 3/1/2001 (3) 20,000 19,675
NRG Energy, Inc. 7.50% 6/15/2007 5,000 4,751
Nevada Power Co. 6.20% 4/15/2004 6,850 6,405
Nevada Power Co. 7.06% 5/1/2000 12,000 12,007
Nipsco Capital Markets 7.39% 4/1/2004 5,000 4,832
NYNEX Corp. 9.55% 5/1/2010 6,169 6,566
NYNEX Credit Co. 6.50% 9/15/2000 (3) 30,000 29,877
PSE&G Capital Corp. 6.74% 10/23/2001 (3) 26,000 25,638
Potomac Capital Investment Corp. 7.55% 11/19/2001 (3) 36,850 36,807
Progress Capital Holdings 5.47% 10/23/2000 (3) 25,000 24,723
Progress Capital Holdings 6.88% 8/1/2001 (3) 20,000 19,803
Texas Utilities Co. 8.25% 4/1/2004 6,000 6,119
Transcontinental Gas Pipeline 8.875% 9/15/2002 25,150 25,710
US West Capital Funding, Inc. 6.125% 7/15/2002 32,000 31,043
US West Capital Funding, Inc. 6.25% 7/15/2005 15,000 14,023
US West Capital Funding, Inc. 6.875% 8/15/2001 (3) 45,500 45,179
Virginia Electric Power 6.30% 6/21/2001 19,750 19,478
Worldcom Inc. 6.125% 8/15/2001 9,750 9,606
----------
774,065
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $6,335,118) 6,169,912
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.8%)
- -------------------------------------------------------------------------------------------------------------------------
AGENCY BONDS & NOTES (0.6%)
Federal Home Loan Mortgage Corp. 6.00% 1/1/2001 (1) 7,321 7,266
Federal Home Loan Mortgage Corp. 6.11% 9/7/2001 (1) 23,000 22,662
Federal Home Loan Mortgage Corp. 6.43% 12/19/2000 (1) 8,537 8,478
Federal Home Loan Mortgage Corp. 6.92% 9/25/2000 (1) 2,180 2,172
----------
40,578
----------
MORTGAGE-BACKED SECURITIES (0.2%)
Federal Home Loan Mortgage Corp. 5.50% 10/1/2000 (1) 8,359 8,280
Federal Home Loan Mortgage Corp. 7.00% 3/1/2000 (1) 1,268 1,268
Federal Home Loan Mortgage Corp. 7.00% 5/1/2000 (1) 459 459
Federal National Mortgage Assn. 6.00% 1/1/2001 (1) 5,546 5,503
----------
15,510
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $56,717) 56,088
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(11.0%)
- -------------------------------------------------------------------------------------------------------------------------
Amvescap PLC 6.375% 5/15/2003 20,250 19,429
Amvescap PLC 6.60% 5/15/2005 500 472
Australian Gas Light Co. 6.40% 4/15/2008 (3) 10,000 9,067
BCH Cayman Islands Ltd. 6.50% 2/15/2006 13,290 12,429
Banco Latinoamericano de Exportaciones 6.35% 4/10/2000 (3) 25,000 24,946
CIBC Capital Funding, LP 6.25% 12/17/2002 (3) 24,500 23,684
Canadian Imperial Bank of Commerce (NY) 6.20% 8/1/2000 70,870 70,799
China Telecom 7.875% 11/2/2004 19,900 19,724
Corporacion Nacional del Cobre de Chile 7.375% 5/1/2009 (3) 30,985 28,744
Israel Electric Corp. 7.25% 12/15/2006 (3) 14,308 13,662
Israel Electric Corp. 7.75% 3/1/2009 (3) 5,000 4,821
Israel Electric Corp. 8.25% 10/15/2009 (3) 20,000 19,670
Kimberly-Clark de Mexico 8.875% 8/1/2009 (3) 7,860 7,740
Korea Electric Power 7.00% 10/1/2002 6,000 5,825
Korea Electric Power 10.00% 4/1/2001 (3) 22,330 22,767
Korean Development Bank 7.125% 9/17/2001 42,820 42,275
Korean Development Bank 7.125% 4/22/2004 17,350 16,694
Korean Development Bank 7.375% 9/17/2004 5,000 4,825
Malaysia 8.75% 6/1/2009 15,670 16,131
National Westminster Bancorp Inc. 9.45% 5/1/2001 8,881 9,099
</TABLE>
10
<PAGE> 71
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noranda, Inc. 8.00% 6/1/2003 $ 20,000 $ 19,845
Noranda, Inc. 8.625% 7/15/2002 15,000 15,122
Oil Enterprises Ltd. 6.239% 6/30/2008 (1)(3) 36,962 34,471
PacifiCorp Australia LLC 6.15% 1/15/2008 (3)(5) 20,900 18,863
Pemex Finance Ltd. 6.125% 2/15/2002 5,850 5,694
Pemex Finance Ltd. 9.14% 7/6/2003 44,350 44,199
Pemex Finance Ltd. 9.69% 4/1/2007 41,000 41,634
Petroliam Nasional Berhad 7.125% 10/18/2006 (3) 26,450 24,912
Pohang Iron & Steel Co. Ltd. 7.125% 7/15/2004 13,015 12,388
Pohang Iron & Steel Co. Ltd. 7.50% 8/1/2002 11,320 11,120
Province of Saskatchewan 6.625% 7/15/2003 11,100 10,779
Samsung Electronics America 8.50% 11/1/2002 (3) 5,000 4,991
Samsung Electronics America 9.75% 5/1/2003 (3) 15,670 16,297
Santander Financial Issuances Ltd. 7.00% 4/1/2006 12,945 12,433
The Development Bank of Singapore Ltd. 7.875% 8/10/2009 (3) 13,950 13,683
TPSA Finance BV 7.75% 12/10/2008 (3) 27,000 25,644
Trans Canada Pipelines 6.77% 4/30/2001 5,000 4,975
TXU Eastern Funding 6.45% 5/15/2005 13,625 12,775
TXU Eastern Funding 6.75% 5/15/2009 10,825 9,874
Telecomunicaciones de Puerto Rico 6.15% 5/15/2002 5,000 4,814
Trans Canada Pipelines 7.15% 6/15/2006 11,750 11,332
Trans Canada Pipelines 7.875% 12/15/2002 14,000 14,164
The State of Qatar 9.50% 5/21/2009 (3) 17,500 18,299
Westpac Banking 9.125% 8/15/2001 24,966 25,546
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $782,562) 786,657
- -------------------------------------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL BOND (0.6%)
- -------------------------------------------------------------------------------------------------------------------------
Power Auth. of the State of NY
(COST $44,865) 6.05% 11/15/2001 45,050 44,225
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $8,216) 5.73% 2/1/2000 8,216 8,216
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.6%)
(COST $7,227,478) 7,065,098
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.4%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 131,176
Liabilities--Note I (31,248)
----------
99,928
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $7,165,026
- -------------------------------------------------------------------------------------------------------------------------
</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, 2000, the
aggregate value of these securities was $1,227,366,000, representing 17.1%
of net assets.
(4) Securities with a value of $7,693,000 have been segregated as initial
margin for open futures contracts.
(5) Scheduled principal and interest payments are guaranteed by Ambac Assurance
Corporation.
(6) Scheduled principal and interest payments are guaranteed by Municipal Bond
Insurance Association.
11
<PAGE> 72
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT
SHORT-TERM CORPORATE FUND (000)
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Paid in Capital $7,353,303
Undistributed Net Investment Income --
Accumulated Net Realized Losses--Note G (37,471)
Unrealized Appreciation (Depreciation)--Note H
Investment Securities (162,369)
Futures Contracts 11,563
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $7,165,026
=========================================================================================================================
Investor Shares--Net Assets applicable to 641,484,161 outstanding $.001 par
value shares of beneficial interest (unlimited authorization) $6,731,258
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $10.49
=========================================================================================================================
Institutional Shares--Net Assets applicable to 41,337,809 outstanding $.001 par
value shares of beneficial interest (unlimited authorization) $433,768
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $10.49
=========================================================================================================================
</TABLE>
12
<PAGE> 73
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM TREASURY FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.8%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (84.5%)
U.S. Treasury Inflation-Indexed Note 3.875% 4/15/2029 $ 21,679 $ 20,283
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 50,015 49,796
U.S. Treasury Bond 7.50% 11/15/2016 48,120 51,797
U.S. Treasury Bond 10.375% 11/15/2012 (3) 246,200 297,011
U.S. Treasury Note 6.00% 8/15/2009 76,700 73,123
U.S. Treasury Note 6.125% 8/15/2007 170,800 164,677
U.S. Treasury Note 6.50% 5/15/2005 1,550 1,533
U.S. Treasury Note 6.50% 8/15/2005 14,900 14,732
U.S. Treasury Note 6.50% 10/15/2006 72,850 71,832
U.S. Treasury Note 6.875% 5/15/2006 40,450 40,691
U.S. Treasury Note 7.00% 7/15/2006 171,700 173,793
U.S. Treasury Note 7.50% 2/15/2005 148,300 152,874
Export Funding Trust (U.S. Government Guaranteed) 8.21% 12/29/2006 (1) 1,377 1,413
Government Export Trust (U.S. Government Guaranteed) 6.00% 3/15/2005 (1) 10,938 10,648
Guaranteed Export Trust (U.S. Government Guaranteed) 7.46% 12/15/2005 (1) 20,087 20,160
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.69% 1/15/2009 (1)(2) 25,456 24,623
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.02% 9/1/2004 (1) 8,854 8,789
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.39% 6/26/2006 (1) 3,326 3,313
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.80% 8/15/2006 (1) 6,278 6,329
Guaranteed Trade Trust (U.S. Government Guaranteed) 8.17% 1/15/2007 (1) 5,250 5,381
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.94% 6/20/2006 (1) 13,684 13,125
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.08% 8/15/2004 (1) 17,184 16,662
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.726% 9/15/2010 (1) 16,261 15,692
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.75% 12/15/2008 (1) 9,975 9,746
Overseas Private Investment Corp. (U.S. Government Guaranteed) 7.05% 11/15/2013 (1) 25,000 24,300
Private Export Funding Corp. (U.S. Government Guaranteed) 5.25% 5/15/2005 40,900 37,256
Private Export Funding Corp. (U.S. Government Guaranteed) 5.87% 7/31/2008 73,300 66,077
Private Export Funding Corp. (U.S. Government Guaranteed) 6.49% 7/15/2007 8,500 8,101
Private Export Funding Corp. (U.S. Government Guaranteed) 7.11% 4/15/2007 13,100 12,947
----------
1,396,704
----------
- -------------------------------------------------------------------------------------------------------------------------
AGENCY BONDS & NOTES (12.3%)
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. 6.625% 9/15/2009 39,050 37,095
Federal National Mortgage Assn. 7.25% 1/15/2010 167,485 166,445
----------
203,540
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,651,014) 1,600,244
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (21.6%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 5.73% 2/1/2000 30,250 30,250
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 5.73% 2/1/2000 326,5693 26,569
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $356,819) 356,819
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (118.4%)
(COST $2,007,833) 1,957,063
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 74
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
INTERMEDIATE-TERM TREASURY FUND (000)
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-18.4%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note C $ 31,878
Security Lending Collateral Payable to Brokers--Note I (326,569)
Other Liabilities (9,945)
----------
(304,636)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 164,672,933 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,652,427
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.03
=========================================================================================================================
</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. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At January 31, 2000, the value
of this security was $24,623,000, representing 1.5% of net assets.
(3) Securities with a value of $2,413,000 have been segregated as initial margin
for open futures contracts.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,752,196 $10.64
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (48,753) (.30)
Unrealized Depreciation--Note H
Investment Securities (50,770) (.31)
Futures Contracts (246) --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,652,427 $10.03
=========================================================================================================================
</TABLE>
14
<PAGE> 75
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM TREASURY FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (74.2%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (6.4%)
American Express Credit Account Master Trust 5.85% 11/15/2006 (1) $ 5,000 $ 4,706
California Infrastructure & Economic Development
Bank Special Purpose Trust PG&E-1 6.31% 9/25/2020 (1) 4,409 4,203
California Infrastructure & Economic Development
Bank Special Purpose Trust PG&E-1 6.32% 9/25/2005 (1) 1,650 1,610
California Infrastructure & Economic Development
Bank Special Purpose Trust PG&E-1 6.38% 9/25/2008 (1) 15,000 14,355
California Infrastructure & Economic Development
Bank Special Purpose Trust PG&E-1 6.42% 9/25/2008 (1) 1,800 1,727
Citibank Credit Card Master Trust 6.30% 5/15/2008 (1) 10,000 9,223
Citibank Credit Card Master Trust 6.70% 2/15/2004 (1) 5,000 4,933
Citicorp Lease Pass-Through Trust 7.22% 6/15/2005 (1)(2) 1,900 1,869
ComEd Transitional Funding Trust 5.63% 6/25/2009 (1) 15,000 13,686
Illinois Power Special Purpose Trust 5.54% 6/25/2009 (1) 7,000 6,345
MBNA Master Credit Card Trust 6.45% 2/15/2008 (1) 5,000 4,815
PECO Energy Transition Trust 6.05% 3/1/2009 (1) 15,000 13,945
Providian Master Trust 6.25% 11/15/2002 (1) 10,000 9,741
Standard Credit Master Trust 7.25% 4/7/2008 (1) 3,200 3,162
----------
94,320
----------
FINANCE (32.7%)
AUTOMOBILE (2.5%)
Ford Motor Credit Co. 5.80% 1/12/2009 25,000 21,752
General Motors Acceptance Corp. 7.75% 1/19/2010 15,000 14,899
BANKS (11.3%)
BB&T Corp. 7.25% 6/15/2007 5,000 4,821
The Bank of New York Co., Inc. 6.625% 6/15/2003 6,000 5,809
The Bank of New York Co., Inc. 8.50% 12/15/2004 10,000 10,271
BankAmerica Corp. 7.20% 4/15/2006 10,000 9,749
Citicorp 6.75% 8/15/2005 5,000 4,803
Compass Bank 6.45% 5/1/2009 10,000 8,958
First Bank N.A. 6.00% 10/15/2003 4,200 3,990
First Bank System, Inc. 6.875% 9/15/2007 10,000 9,520
First Maryland Bancorp 6.875% 6/1/2009 13,000 11,797
First Security Corp. 6.875% 11/15/2006 10,917 10,358
First Tennessee Bank 5.75% 12/1/2008 15,000 12,892
Mellon Bank Corp. 7.00% 3/15/2006 10,500 10,168
Mellon Bank Corp. 7.625% 9/15/2007 5,000 4,970
Meridian Bancorp, Inc. 6.625% 3/15/2003 3,000 2,918
National City Bank of Kentucky 6.30% 2/15/2011 10,000 8,830
National City Corp. 6.625% 3/1/2004 6,700 6,450
PNC Bank N.A. 7.875% 4/15/2005 5,000 4,994
Southern National Corp. 7.05% 5/23/2003 13,000 12,739
Summit Bancorp 8.625% 12/10/2002 5,775 5,893
Summit Bank 6.75% 6/15/2003 8,335 8,076
Wells Fargo & Co. 6.25% 4/15/2008 10,000 9,102
CONSUMERS (1.3%)
Norwest Financial, Inc. 7.20% 5/1/2007 5,000 4,844
Norwest Financial, Inc. 7.50% 4/15/2005 5,000 4,978
Sears Roebuck Acceptance Corp. 6.69% 4/30/2001 5,000 4,956
Sears Roebuck Acceptance Corp. 6.80% 10/9/2002 5,000 4,906
DIVERSIFIED (1.2%)
Associates Corp. of North America 6.25% 11/1/2008 5,000 4,518
Associates Corp. of North America 7.54% 4/14/2004 3,000 2,988
Finova Capital Corp. 6.75% 11/15/2004 5,000 4,787
Finova Capital Corp. 7.40% 5/6/2006 5,000 4,857
</TABLE>
15
<PAGE> 76
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURANCE (4.3%)
Conseco Inc. 6.40% 2/10/2003 $ 10,000 $ 9,444
Conseco Inc. 9.00% 10/15/2006 5,000 5,046
Horace Mann Educators Corp. 6.625% 1/15/2006 8,250 7,475
Liberty Financial Co. 6.75% 11/15/2008 17,000 15,408
NAC Re Corp. 7.15% 11/15/2005 6,500 6,238
Prudential Insurance Co. of America 6.375% 7/23/2006 (2) 10,800 10,009
Reinsurance Group of America Inc. 7.25% 4/1/2006 (2) 10,000 9,468
OTHER (12.1%)
Bear Stearns Co., Inc. 7.625% 12/7/2009 10,000 9,662
Bradley Operating LP 7.20% 1/15/2008 4,000 3,604
Cabot Industrial Properties LP 7.125% 5/1/2004 8,000 7,611
Camden Property Trust 7.172% 6/21/2004 3,000 2,868
Colonial Realty LP 6.96% 7/26/2004 5,000 4,623
Commercial Net Lease Realty Inc. 7.125% 3/15/2008 5,000 4,397
DR Investments 7.45% 5/15/2007 (2) 5,000 4,898
Donaldson Lufkin & Jenrette, Inc. 6.50% 4/1/2008 5,000 4,543
Donaldson Lufkin & Jenrette, Inc. 6.50% 6/1/2008 10,000 9,072
ERAC USA Finance Co. 6.625% 5/15/2006 (2) 15,000 13,887
ERAC USA Finance Co. 7.95% 12/15/2009 (2) 8,775 8,663
Evans Withycombe Residential, Inc. 7.50% 4/15/2004 3,000 2,933
First Industrial LP 7.00% 12/1/2006 1,500 1,368
First Industrial LP 7.60% 5/15/2007 3,000 2,829
Goldman Sachs Group 7.80% 1/28/2010 10,000 9,850
Irvine Apartment Communities Inc. 7.00% 10/1/2007 5,000 4,374
Lehman Brothers Holdings Inc. 6.625% 2/5/2006 13,000 12,143
Mack-Cali Realty 7.25% 3/15/2009 8,000 7,365
Merry Land & Investment Co., Inc. 6.875% 11/1/2004 2,000 1,900
Merry Land & Investment Co., Inc. 6.90% 8/1/2007 5,000 4,597
Oasis Residential Inc. 6.75% 11/15/2001 2,500 2,444
Paine Webber Group Inc. 6.375% 5/15/2004 5,000 4,722
Paine Webber Group Inc. 7.625% 10/15/2008 10,000 9,664
Realty Income Corp. 7.75% 5/6/2007 3,000 2,726
Reckson Operating Partnership LP 7.40% 3/15/2004 5,000 4,767
Regency Centers LP 7.40% 4/1/2004 3,000 2,869
Salomon Inc. 6.74% 12/15/2003 5,000 4,888
Salomon Smith Barney Holdings Inc. 6.875% 6/15/2005 5,000 4,832
Security Capital Group 7.15% 6/15/2007 2,000 1,753
Security Capital Pacific Trust 7.375% 10/15/2006 3,000 2,813
Shurgard Storage Centers, Inc. 7.50% 4/25/2004 3,000 2,858
Susa Partnership LP 7.00% 12/1/2007 4,000 3,502
Topaz Ltd. 6.92% 3/10/2007 (1)(2) 9,474 9,158
----------
481,864
----------
INDUSTRIAL (23.8%)
AEROSPACE & DEFENSE (1.1%)
Lockheed Martin Corp. 7.95% 12/1/2005 6,850 6,748
PanAmSat Corp. 6.375% 1/15/2008 5,000 4,351
Raytheon Co. 6.75% 8/15/2007 5,450 5,004
AUTOMOTIVE (1.6%)
Daimler-Chrysler North America Holding Corp.
Global Notes 7.20% 9/1/2009 25,000 24,034
CABLE (0.9%)
TCI Communications, Inc. 6.875% 2/15/2006 7,000 6,748
TCI Communications, Inc. 7.25% 8/1/2005 7,000 6,899
CHEMICALS (0.9%)
E. I. du Pont de Nemours & Co. 6.875% 10/15/2009 7,000 6,651
Hercules Inc. 6.60% 8/1/2027 2,500 2,238
Praxair, Inc. 6.70% 4/15/2001 5,000 4,960
</TABLE>
16
<PAGE> 77
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER GOODS & SERVICES (1.7%)
Anheuser-Busch Cos., Inc. 6.75% 6/1/2005 $ 2,000 $ 1,919
Anheuser-Busch Cos., Inc. 7.10% 6/15/2007 10,000 9,656
Dial Corp. 6.50% 9/15/2008 5,000 4,519
Minnesota Mining & Manufacturing ESOP Trust 5.62% 7/15/2009 (1)(2) 8,989 8,185
ENERGY & RELATED GOODS & SERVICES (2.8%)
Baker Hughes Inc. 7.875% 6/15/2004 2,000 2,007
Coastal Corp. 6.50% 5/15/2006 5,000 4,661
Conoco Inc. 6.35% 4/15/2009 10,000 9,127
Osprey Trust 8.31% 1/15/2003 (2) 5,000 4,968
PSE&G Capital Corp. 6.25% 5/15/2003 (2) 10,000 9,546
Smith International Inc. 7.00% 9/15/2007 7,500 7,050
Yosemite Trust 8.25% 11/15/2004 (2) 5,000 4,918
GAMING (0.8%)
Harrahs Operating Co., Inc. 7.50% 1/15/2009 12,600 11,882
GENERAL INDUSTRIAL (1.4%)
Allied Signal Inc. 6.20% 2/1/2008 13,300 12,112
Lafarge Corp 6.375% 7/15/2005 4,750 4,444
Parker Retirement Savings Plan Trust 6.34% 7/15/2008 (1)(2) 4,453 4,151
GROCERY STORES (1.1%)
American Stores Co. 7.40% 5/15/2005 5,000 4,928
Kroger Co. 6.375% 3/1/2008 2,140 1,942
Fred Meyer Inc. 7.45% 3/1/2008 10,075 9,779
HEALTH CARE (1.7%)
Boston Scientific 6.625% 3/15/2005 7,620 7,050
Cardinal Health, Inc. 6.00% 1/15/2006 8,845 8,008
Cardinal Health, Inc. 6.50% 2/15/2004 3,500 3,349
The Upjohn Co. ESOP Trust 9.79% 2/1/2004 (1) 5,700 6,028
OTHER (0.3%)
International Speedway Corp. 7.875% 10/15/2004 (2) 5,000 4,861
PAPER & PACKAGING (1.2%)
International Paper Co. 6.50% 11/15/2007 6,000 5,521
International Paper Co. 7.625% 1/15/2007 11,750 11,586
RETAIL (1.3%)
Dillard's Inc. 6.625% 11/15/2008 5,000 4,380
Dillard's Inc. 6.69% 8/1/2007 5,000 4,476
Wal-Mart Stores, Inc. 6.875% 8/10/2009 10,000 9,542
TECHNOLOGY & RELATED (3.3%)
Applied Materials Inc. 6.75% 10/15/2007 11,250 10,563
Applied Materials, Inc. 8.00% 9/1/2004 5,000 5,052
First Data Corp. 6.375% 12/15/2007 12,000 11,128
Lexmark International, Inc. 6.75% 5/15/2008 5,000 4,531
Lucent Technologies Inc. 7.25% 7/15/2006 10,000 9,950
Tektronix 7.50% 8/1/2003 2,000 1,942
Tektronix 7.625% 8/15/2002 5,310 5,212
TRANSPORTATION (3.7%)
Burlington Northern Railroad Co. Equipment Trust 7.33% 6/23/2010 (1) 4,168 4,037
Continental Airlines Pass-Through Trust 6.41% 10/15/2008 (1) 3,303 3,102
Continental Airlines Pass-Through Trust 6.748% 3/15/2017 (1) 9,387 8,203
Continental Airlines Pass Through Trust 7.434% 3/15/2006 (1) 5,000 4,837
Delta Airlines, Inc. Pass-Through Trust 7.541% 10/11/2011 (1) 4,227 3,981
Delta Airlines, Inc. Pass-Through Trust 8.54% 1/2/2007 (1) 2,474 2,468
Delta Airlines, Inc. 10.375% 2/1/2011 10,000 11,172
</TABLE>
17
<PAGE> 78
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hertz Corp. 7.625% 8/15/2007 $ 5,000 $ 4,968
Northwest Airlines Corp. Pass-Through Trust 8.07% 1/2/2015 (1) 10,905 10,453
Union Pacific Railroad Co. Equipment Trust 6.12% 2/1/2004 (1) 2,000 1,887
----------
351,714
----------
UTILITIES (11.3%)
Alliant Energy Resources Corp. 7.375% 11/15/2009 10,000 9,699
Baltimore Gas & Electric Co. 6.25% 12/8/2005 5,000 4,656
Baltimore Gas & Electric Co. 6.70% 12/1/2006 9,000 8,497
Cinergy Global Resources 6.20% 11/3/2008 (2)(3) 10,000 9,016
Coastal Corp. 9.625% 5/15/2012 10,000 11,247
Consolidated Edison Inc. 6.25% 2/1/2008 7,750 7,102
East Coast Power 6.737% 11/22/2004 2,797 2,519
El Paso Energy Corp. 6.75% 5/15/2009 7,000 6,455
FPL Group Capital 7.375% 6/1/2009 5,000 4,864
FPL Group Capital 7.625% 9/15/2006 5,000 4,974
GTE Corp. 6.36% 4/15/2006 5,000 4,693
GTE Northwest Inc. 5.55% 10/15/2008 15,000 12,999
GTE South Inc. 6.00% 2/15/2008 7,000 6,309
KeySpan Gas East Corp. 7.875% 2/1/2010 10,000 10,086
LG&E Capital Corp. 6.46% 1/15/2008 (2) 5,000 4,576
Midamerican Energy Holdings Co. 6.375% 6/15/2006 5,000 4,631
Niagara Mohawk Power Corp. 6.625% 7/1/2005 11,125 10,581
Nipsco Capital Markets 7.39% 4/1/2004 9,000 8,698
Northern Border Pipeline Co. 7.75% 9/1/2009 (2) 7,000 6,875
Progress Capital Holdings 7.45% 9/1/2003 (2) 10,000 9,881
Southwestern Bell Telephone 6.59% 9/29/2008 5,650 5,269
U S WEST Capital Funding, Inc. 6.375% 7/15/2008 14,350 13,004
----------
166,631
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $1,167,700) 1,094,529
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (4.0%)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (2.9%)
U.S. Treasury Note 5.625% 2/15/2006 3,000 2,838
U.S. Treasury Note 6.00% 8/15/2009 39,420 37,581
U.S. Treasury Note 6.125% 8/15/2007 3,000 2,892
AGENCY BONDS & NOTES (1.1%)
Federal National Mortgage Assn. 6.625% 9/15/2009 14,000 13,299
Federal National Mortgage Assn. 7.25% 1/15/2010 2,600 2,584
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $61,408) 59,194
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(20.1%)
- -------------------------------------------------------------------------------------------------------------------------
Amvescap PLC 6.375% 5/15/2003 5,000 4,797
Amvescap PLC 6.60% 5/15/2005 5,825 5,502
Australian Gas Light Co. 6.40% 4/15/2008 (2) 10,000 9,067
BCH Cayman Islands Ltd. 6.50% 2/15/2006 5,000 4,676
BSCH Issuances Ltd. 7.625% 11/3/2009 10,000 9,801
Banco Latinoamericano de Exportaciones 6.35% 4/10/2000 (2) 5,000 4,989
Banco Santiago SA 7.00% 7/18/2007 8,875 7,851
Barclays Bank PLC 7.40% 12/15/2009 23,970 23,142
Bayer Corp. 6.50% 10/1/2002 (2) 6,000 5,863
China Telecom 7.875% 11/2/2004 5,000 4,956
Corporacion Nacional del Cobre de Chile 7.375% 5/1/2009 (2) 14,765 13,697
The Development Bank of Singapore Ltd. 7.875% 8/10/2009 (2) 7,000 6,866
Diageo PLC 7.25% 11/1/2009 10,000 9,728
Embotelladora Andina SA 7.00% 10/1/2007 5,000 4,552
Israel Electric Corp. 7.75% 3/1/2009 (2) 19,375 18,681
Kimberly-Clark de Mexico 8.875% 8/1/2009 (2) 4,090 4,028
Korea Development Bank 7.125% 9/17/2001 4,830 4,769
Korea Development Bank 7.375% 9/17/2004 5,000 4,825
Malaysia 8.75% 6/1/2009 12,000 12,353
Oil Enterprises Ltd. 6.239% 6/30/2008 (1)(2) 7,040 6,566
</TABLE>
18
<PAGE> 79
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PacifiCorp Australia LLC 6.15% 1/15/2008 (2)(4) $ 14,000 $ 12,636
Pemex Finance Ltd. 6.55% 2/15/2006 5,000 4,600
Pemex Finance Ltd. 9.69% 4/1/2007 25,000 25,386
Petro Geo-Services 6.625% 3/30/2008 5,000 4,525
Petroliam Nasional Berhad 7.125% 10/18/2006 (2) 8,500 8,006
Pohang Iron & Steel Co. Ltd. 6.625% 7/1/2003 5,400 5,129
Pohang Iron & Steel Co. Ltd. 7.125% 7/15/2004 2,200 2,094
Pohang Iron & Steel Co. Ltd. 7.125% 11/1/2006 5,445 5,048
Quantas Airways 7.75% 6/15/2009 (2) 10,000 9,602
Stagecoach Holdings PLC 8.625% 11/15/2009 5,000 5,011
The State of Qatar 9.50% 5/21/2009 (2) 9,400 9,829
Swiss Bank Corp. 6.75% 7/15/2005 5,000 4,765
TPSA Finance BV 7.75% 12/10/2008 (2) 13,000 12,347
TXU Eastern Funding 6.45% 5/15/2005 5,000 4,688
TXU Eastern Funding 6.75% 5/15/2009 5,000 4,561
TransCanada Pipelines 9.125% 4/20/2006 6,000 6,364
Union Bank of Switzerland (NY Branch) 7.25% 7/15/2006 5,000 4,882
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $296,743) 296,182
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.4%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 5.73% 2/1/2000 11,947 11,947
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 5.73% 2/1/2000 52,463 52,463
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $64,410) 64,410
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.7%)
(COST $1,590,261) 1,514,315
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.7%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 39,285
Security Lending Collateral Payable to Brokers--Note I (52,463)
Other Liabilities (26,136)
----------
(39,314)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 161,548,303 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,475,001
=========================================================================================================================
NET ASSET VALUE PER SHARE $9.13
=========================================================================================================================
</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,
2000, the aggregate value of these securities was $247,106,000,
representing 16.8% of net assets.
(3) Scheduled principal and interest payments are guaranteed by Municipal Bond
Insurance Association.
(4) Scheduled principal and interest payments are guaranteed by Ambac Assurance
Corporation.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,575,590 $9.75
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (24,643) (.15)
Unrealized Depreciation--Note H (75,946) (.47)
NET ASSETS $1,475,001 $9.13
========================================================================================================================
</TABLE>
19
<PAGE> 80
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM TREASURY FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.1%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (84.4%)
U.S. Treasury Bond 6.00% 2/15/2026 $ 650 $ 601
U.S. Treasury Bond 6.125% 11/15/2027 3,900 3,670
U.S. Treasury Bond 6.375% 8/15/2027 42,350 41,149
U.S. Treasury Bond 6.50% 11/15/2026 70,075 69,144
U.S. Treasury Bond 6.625% 2/15/2027 49,950 50,068
U.S. Treasury Bond 6.75% 8/15/2026 (1) 99,100 100,749
U.S. Treasury Bond 6.875% 8/15/2025 5,650 5,823
U.S. Treasury Bond 7.50% 11/15/2016 34,500 37,136
U.S. Treasury Bond 7.875% 2/15/2021 147,652 167,104
U.S. Treasury Bond 8.125% 8/15/2019 75,165 86,535
U.S. Treasury Bond 8.125% 5/15/2021 177,500 205,948
U.S. Treasury Bond 8.875% 2/15/2019 119,660 147,020
U.S. Treasury Note 6.00% 8/15/2009 18,500 17,637
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 13,833 13,379
U.S. Treasury Inflation-Indexed Note 3.875% 4/15/2029 26,224 24,536
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 12,004 11,951
Private Export Funding Corp. (U.S. Government Guaranteed) 6.67% 9/15/2009 12,000 11,405
----------
993,855
----------
- -------------------------------------------------------------------------------------------------------------------------
AGENCY BONDS & NOTES (11.7%)
- -------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank 5.80% 9/2/2008 59,600 53,814
Federal Home Loan Mortgage Corp. 6.75% 9/15/2029 13,100 12,167
Federal National Mortgage Assn. 6.625% 9/15/2009 16,550 15,722
Federal National Mortgage Assn. 7.25% 1/15/2010 56,750 56,398
----------
138,101
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,147,971) 1,131,956
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (8.5%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 5.73% 2/1/2000 23,913 23,913
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 5.73% 2/1/2000 76,353 76,353
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $100,266) 100,266
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (104.6%)
(COST $1,248,237) 1,232,222
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-4.6%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 29,239
Security Lending Collateral Payable to Brokers--Note I (76,353)
Other Liabilities (7,028)
----------
(54,142)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 120,955,538 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,178,080
=========================================================================================================================
NET ASSET VALUE PER SHARE $9.74
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) Securities with a value of $5,083,000 have been segregated as initial margin
for open futures contracts.
20
<PAGE> 81
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,212,571 $10.02
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (18,438) (.15)
Unrealized Depreciation--Note H
Investment Securities (16,015) (.13)
Futures Contracts (38) --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,178,080 $ 9.74
=========================================================================================================================
</TABLE>
21
<PAGE> 82
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (79.5%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE (22.0%)
Allstate Corp. 6.75% 5/15/2018 $ 20,000 $ 17,884
Allstate Corp. 7.50% 6/15/2013 10,000 9,657
Ambac, Inc. 7.50% 5/1/2023 20,000 18,754
American Re Corp. 7.45% 12/15/2026 18,267 17,166
Associates Corp. of North America 6.25% 11/1/2008 25,000 22,590
Banc One Corp. 7.75% 7/15/2025 25,000 24,198
Bank of America Corp. 8.50% 1/15/2007 15,000 15,580
BankBoston Corp. 6.625% 12/1/2005 30,000 28,330
CIGNA Corp. 7.875% 5/15/2027 25,000 23,604
Cincinnati Financial Corp. 6.90% 5/15/2028 20,000 17,352
Citicorp 7.125% 9/1/2005 15,000 14,658
Citigroup, Inc. 6.625% 1/15/2028 25,000 21,433
Equitable Companies Inc. 7.00% 4/1/2028 25,000 22,399
Exxon Capital Corp. 6.00% 7/1/2005 10,000 9,428
Farmers Exchange Capital 7.05% 7/15/2028 (2) 30,000 25,363
Fifth Third Bancorp 6.75% 7/15/2005 20,000 19,212
First Chicago Corp. 6.375% 1/30/2009 15,000 13,513
First Union Corp. 6.00% 10/30/2008 10,000 8,834
Fleet Financial Group 6.875% 1/15/2028 25,000 21,932
General Electric Capital Corp. 8.125% 5/15/2012 42,000 43,739
General Electric Capital Services 7.50% 8/21/2035 10,960 10,855
General Electric Global Insurance Holdings Corp. 7.00% 2/15/2026 50,000 45,945
General Re Corp. 9.00% 9/12/2009 15,000 16,339
John Hancock Mutual Life Insurance Co. 7.375% 2/15/2024 (2) 50,000 46,199
Liberty Mutual Insurance Co. 8.50% 5/15/2025 (2) 35,000 34,395
Lumbermens Mutual Casualty Co. 9.15% 7/1/2026 (2) 15,110 14,716
MBIA Inc. 7.00% 12/15/2025 7,550 6,731
Massachusetts Mutual Life 7.50% 3/1/2024 (2) 8,710 8,118
Massachusetts Mutual Life 7.625% 11/15/2023 (2) 15,970 15,257
Metropolitan Life Insurance Co. 7.80% 11/1/2025 (2) 35,000 34,244
National City Bank Pennsylvania 7.25% 10/21/2011 10,000 9,501
National City Corp. 7.20% 5/15/2005 10,000 9,784
NationsBank Corp. 7.75% 8/15/2004 15,000 15,085
NationsBank Corp. 7.75% 8/15/2015 10,000 9,869
Republic New York Corp. 9.70% 2/1/2009 10,000 11,097
SunTrust Banks 6.00% 2/15/2026 20,000 18,311
Transamerica Corp. 9.375% 3/1/2008 10,000 10,856
Transamerica Financial Corp. 6.125% 11/1/2001 15,000 14,661
Travelers Property Casualty Corp. 7.75% 4/15/2026 25,000 24,321
UNUM Corp. 6.75% 12/15/2028 25,000 20,434
Wachovia Corp. 6.605% 10/1/2025 30,000 28,534
Wachovia Corp. 6.80% 6/1/2005 10,000 9,655
----------
810,533
----------
- -------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL (46.5%)
- -------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.5%)
Lockheed Martin Corp. 7.65% 5/1/2016 35,000 32,435
Raytheon Co. 7.20% 8/15/2027 25,000 21,804
AUTOMOTIVE (4.1%)
Chrysler Corp. 7.45% 3/1/2027 25,000 23,889
Eaton Corp. 6.50% 6/1/2025 10,000 9,401
Eaton Corp. 7.625% 4/1/2024 15,000 14,358
Ford Motor Co. 8.90% 1/15/2032 40,000 43,844
General Motors Corp. 7.40% 9/1/2025 30,000 28,119
General Motors Corp. 7.70% 4/15/2016 10,000 9,846
General Motors Corp. 9.40% 7/15/2021 20,000 22,808
BUILDING MATERIALS (0.6%)
Georgia-Pacific Group 7.25% 6/1/2028 25,000 22,328
</TABLE>
22
<PAGE> 83
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CABLE (0.6%)
Comcast Cable Communications 6.20% 11/15/2008 $ 25,000 $ 22,372
CHEMICALS (3.3%)
E.I. du Pont de Nemours & Co. 6.50% 1/15/2028 25,000 21,657
E.I. du Pont de Nemours & Co. 6.75% 9/1/2007 25,000 23,904
Ferro Corp. 7.125% 4/1/2028 10,000 8,492
Monsanto Co. 6.75% 12/15/2027 25,000 21,709
Monsanto Co. 8.875% 12/15/2009 20,000 21,432
Rohm & Haas Co. 7.85% 7/15/2029 25,000 24,751
CONSUMER GOODS & SERVICES (5.9%)
Bestfoods 6.625% 4/15/2028 30,000 26,405
CPC International, Inc. 7.25% 12/15/2026 30,000 28,319
Coca Cola Enterprises 5.75% 11/1/2008 25,000 22,069
The Walt Disney Co. 6.75% 3/30/2006 25,000 24,266
Kimberly-Clark Corp. 6.25% 7/15/2018 25,000 21,931
Procter & Gamble Co. 6.45% 1/15/2026 27,000 23,841
Procter & Gamble Co. 8.50% 8/10/2009 10,000 10,652
Procter & Gamble Co. ESOP 9.36% 1/1/2021 35,000 40,053
Whirlpool Corp. 9.10% 2/1/2008 20,000 21,078
ENERGY & RELATED GOODS & SERVICES (4.3%)
Conoco Inc. 6.35% 4/15/2009 25,000 22,819
Mobil Corp. 8.625% 8/15/2021 22,000 24,553
Texaco Capital, Inc. 8.625% 11/15/2031 13,000 14,256
Texaco Capital, Inc. 9.75% 3/15/2020 17,000 20,538
USX Corp. 6.85% 3/1/2008 45,000 41,914
Ultramar Diamond Shamrock Corp. 7.20% 10/15/2017 20,000 17,692
United Technologies Corp. 8.875% 11/15/2019 15,000 16,629
FOOD & LODGING (1.0%)
Joseph Seagram & Sons, Inc. 7.50% 12/15/2018 20,000 18,981
Sysco Corp. 6.50% 8/1/2028 22,000 19,316
GENERAL INDUSTRIAL (4.8%)
Caterpillar Inc. 6.625% 7/15/2028 25,000 21,291
Hubbell Inc. 6.625% 10/1/2005 10,000 9,573
Illinois Tool Works, Inc. 5.75% 3/1/2009 25,000 22,158
Minnesota Mining & Manufacturing Corp. 6.375% 2/15/2028 35,000 30,644
Morton International, Inc. 9.25% 6/1/2020 10,000 11,204
PPG Industries, Inc. 6.875% 2/15/2012 10,200 9,458
PPG Industries, Inc. 9.00% 5/1/2021 9,750 10,901
Parker-Hannifin Corp. 7.30% 5/15/2011 20,000 18,718
USA Waste Services Inc. 7.00% 7/15/2028 25,000 19,488
Vulcan Materials Co. 6.00% 4/1/2009 25,000 22,063
HEALTH CARE (4.2%)
Baxter International, Inc. 7.65% 2/1/2027 25,000 23,965
Bristol-Myers Squibb Co. 6.80% 11/15/2026 35,000 32,080
Johnson & Johnson 6.95% 9/1/2029 25,000 23,691
Eli Lilly & Co. 7.125% 6/1/2025 50,000 48,058
Merck & Co. 6.30% 1/1/2026 30,000 25,736
HOME BUILDING & REAL ESTATE (0.5%)
Masco Corp. 6.625% 4/15/2018 20,000 17,755
MEDIA & ENTERTAINMENT (4.4%)
New York Times Co. 8.25% 3/15/2025 30,000 29,315
News America Holdings Inc. 8.00% 10/17/2016 30,000 29,407
E.W. Scripps Co. 6.625% 10/15/2007 20,000 18,636
Time Warner Inc. 6.625% 5/15/2029 25,000 20,775
</TABLE>
23
<PAGE> 84
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tribune Co. 6.875% 11/1/2006 $ 20,000 $ 19,072
Washington Post Co. 5.50% 2/15/2009 50,000 43,408
METAL (1.1%)
Aluminum Co. of America 6.75% 1/15/2028 35,000 30,496
Phelps Dodge Corp. 7.125% 11/1/2027 12,500 10,679
PAPER (3.5%)
Champion International Corp. 7.35% 11/1/2025 30,000 27,196
International Paper Co. 6.875% 11/1/2023 10,000 8,909
Mead Corp. 7.35% 3/1/2017 10,350 9,613
Tenneco Packaging 8.125% 6/15/2017 20,000 18,861
Tenneco Packaging 8.375% 4/15/2027 15,000 14,273
Westvaco Corp. 9.75% 6/15/2020 15,000 17,301
Weyerhaeuser Co. 8.50% 1/15/2025 30,000 31,853
TECHNOLOGY & RELATED (3.0%)
International Business Machines Corp. 7.00% 10/30/2025 50,000 46,162
Lucent Technologies, Inc. 6.45% 3/15/2029 25,000 21,319
Motorola, Inc. 7.50% 5/15/2025 45,000 44,205
TELECOMMUNICATIONS (0.6%)
AirTouch Communications, Inc. 6.35% 6/1/2005 25,000 23,496
TRANSPORTATION (3.1%)
Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 12,500 11,684
Burlington Northern Santa Fe Corp. 6.875% 12/1/2027 25,000 22,262
CSX Corp. 7.95% 5/1/2027 35,000 34,657
Norfolk Southern Corp. 7.80% 5/15/2027 35,000 34,345
Union Tank Car Co. 7.125% 2/1/2007 10,000 9,478
----------
1,712,646
----------
UTILITIES (11.0%)
AT&T Corp. 6.50% 3/15/2029 50,000 41,927
Cincinnati Bell, Inc. 6.30% 12/1/2028 25,000 19,011
Coastal Corp. 9.625% 5/15/2012 15,000 16,870
Duke Energy Corp. 6.00% 12/1/2028 25,000 19,988
El Paso Natural Gas Co. 7.50% 11/15/2026 25,000 23,762
Florida Power Corp. 6.75% 2/1/2028 22,375 19,837
GTE California Inc. 6.70% 9/1/2009 25,000 23,457
GTE Southwest, Inc. 6.00% 1/15/2006 10,000 9,223
Indiana Bell Telephone Co., Inc. 7.30% 8/15/2026 35,000 33,171
Michigan Bell Telephone Co. 7.85% 1/15/2022 25,000 25,005
New Jersey Bell Telephone Co. 8.00% 6/1/2022 25,000 25,661
Northern States Power Co. 7.125% 7/1/2025 30,000 28,093
Oklahoma Gas & Electric Co. 6.50% 4/15/2028 12,770 10,927
Pacific Bell 7.125% 3/15/2026 15,000 14,038
PacifiCorp 6.625% 6/1/2007 10,000 9,438
Sprint Capital Corp. 6.875% 11/15/2028 35,000 30,526
Tennessee Gas Pipeline Co. 7.50% 4/1/2017 25,000 24,185
Wisconsin Electric Power Co. 6.50% 6/1/2028 25,000 21,439
Wisconsin Power & Light 5.70% 10/15/2008 7,500 6,561
----------
403,119
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $3,133,750) 2,926,298
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 85
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(1.4%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Province of Manitoba 8.875% 9/15/2021 $ 10,000 $ 11,368
Province of Ontario 6.00% 2/21/2006 15,000 13,929
Province of Saskatchewan 8.50% 7/15/2022 10,000 10,694
Talisman Energy, Inc. 7.125% 6/1/2007 15,000 14,202
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $53,078) 50,193
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (15.3%)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITY (2.9%)
U.S. Treasury Bond 5.50% 8/15/2028 125,000 107,874
---------
AGENCY BONDS & NOTES (3.2%)
Federal Home Loan Bank 5.125% 9/15/2003 25,000 23,404
Federal National Mortgage Assn. 5.75% 6/15/2005 100,000 93,525
---------
116,929
---------
MORTGAGE-BACKED SECURITIES (9.2%)
Federal National Mortgage Assn. 5.735% 1/1/2009 (1) 14,829 13,143
Federal National Mortgage Assn. 15.50% 10/1/2012 (1) 4 5
Government National Mortgage Assn. 6.00% 5/15/2028-3/15/2029 (1) 290,259 259,719
Government National Mortgage Assn. 6.50% 5/15/2026-1/15/2029 (1) 71,833 66,399
---------
339,266
---------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $612,816) 564,069
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.4%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $90,306) 5.73% 2/1/2000 90,306 90,306
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.6%)
(COST $3,889,950) 3,630,866
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.4%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 67,535
Liabilities--Note I (16,936)
----------
50,599
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 455,572,155 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $3,681,465
=========================================================================================================================
NET ASSET VALUE PER SHARE $8.08
=========================================================================================================================
</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, 2000, the
aggregate value of these securities was $178,292,000, representing 4.8% of
net assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $3,946,339 $8.66
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (5,790) (.01)
Unrealized Depreciation--Note H (259,084) (.57)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $3,681,465 $8.08
=========================================================================================================================
</TABLE>
25
<PAGE> 86
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YEILD CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (91.0%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE (2.8%)
Bank United Corp. 8.00% 3/15/2009 $ 15,000 $ 13,313
Bank United Corp. 8.875% 5/1/2007 30,000 27,892
Chevy Chase Savings Bank 9.25% 12/1/2008 15,000 14,025
Imperial Credit Industries, Inc. 9.875% 1/15/2007 20,000 14,600
Navistar Financial Corp. 9.00% 6/1/2002 15,000 14,925
Olympic Financial Ltd. 11.50% 3/15/2007 22,160 23,157
Sovereign Bancorp, Inc. 10.50% 11/15/2006 15,000 15,112
Western Financial Savings Bank 8.50% 7/1/2003 17,000 15,895
Western Financial Savings Bank 8.875% 8/1/2007 20,000 18,200
----------
157,119
----------
INDUSTRIAL (80.6%)
AEROSPACE & DEFENSE (2.0%)
Argo-Tech Corp. 8.625% 10/1/2007 16,000 13,600
K & F Industries, Inc. 9.25% 10/15/2007 27,000 25,448
L-3 Communications Corp. 8.50% 5/15/2008 8,425 7,646
L-3 Communications Corp. 10.375% 5/1/2007 20,000 20,100
Newport News Shipbuilding Inc. 8.625% 12/1/2006 25,000 24,125
Newport News Shipbuilding Inc. 9.25% 12/1/2006 20,000 19,600
AUTOMOTIVE (5.4%)
Accuride Corp. 9.25% 2/1/2008 20,000 17,600
Delco Remy International Inc. 10.625% 8/1/2006 12,000 12,240
Dura Operating Corp. 9.00% 5/1/2009 10,000 9,300
Federal-Mogul Corp. 7.75% 7/1/2006 54,810 49,878
Federal-Mogul Corp. 8.80% 4/15/2007 18,750 17,961
Hayes Wheels International, Inc. 9.125% 7/15/2007 30,000 28,200
Hayes Wheels International, Inc. 11.00% 7/15/2006 15,000 15,375
Johnstown America Industries, Inc. 11.75% 8/15/2005 27,000 27,338
LDM Technologies Inc. 10.75% 1/15/2007 8,000 6,800
Lear Corp. 7.96% 5/15/2005 25,000 23,719
Lear Corp. 9.50% 7/15/2006 20,000 19,900
Navistar International Corp. 8.00% 2/1/2008 25,000 23,000
Tenneco Inc. 11.625% 10/15/2009 (1) 50,000 51,000
BUILDING MATERIALS (2.2%)
American Standard Cos. Inc. 7.375% 2/1/2008 50,000 45,000
American Standard Cos. Inc. 7.625% 2/15/2010 41,250 37,125
Nortek Inc. 8.875% 8/1/2008 8,000 7,400
Nortek, Inc. 9.25% 3/15/2007 17,500 16,669
Werner Holdings Co., Inc. 10.00% 11/15/2007 14,895 14,523
CABLE (9.9%)
Adelphia Communications Corp. 7.75% 1/15/2009 27,000 23,355
Adelphia Communications Corp. 8.375% 2/1/2008 22,500 20,306
Bresnan Communications Group 8.00% 2/1/2009 23,000 23,172
CSC Holdings, Inc. 7.875% 12/15/2007 30,000 29,272
CSC Holdings, Inc. 8.125% 8/15/2009 25,000 24,717
CSC Holdings, Inc. 8.125% 7/15/2009 25,000 24,718
CSC Holdings, Inc. 9.25% 11/1/2005 30,000 30,637
CSC Holdings, Inc. 9.875% 2/15/2013 15,000 15,525
Century Communications Inc. 8.875% 1/15/2007 20,000 18,850
Charter Communications Holdings LLC 8.625% 4/1/2009 80,000 73,625
Classic Cable Inc. 9.375% 8/1/2009 15,000 14,161
Classic Cable Inc. 9.875% 8/1/2008 12,425 12,165
Comcast Corp. 9.375% 5/15/2005 24,000 25,230
Insight Midwest 9.75% 10/1/2009 (1) 5,750 5,779
Jones Intercable Inc. 7.625% 4/15/2008 20,000 19,472
Lenfest Communications, Inc. 8.375% 11/1/2005 73,500 75,131
</TABLE>
26
<PAGE> 87
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NTL Inc. 10.00% 2/15/2007 $ 25,000 $ 25,000
Telewest Communications 9.875% 2/1/2010 (1) 19,260 19,043
USA Networks Inc. 6.75% 11/15/2005 75,000 70,771
CHEMICALS (2.6%)
ARCO Chemical Co. 9.80% 2/1/2020 20,000 19,000
Acetex Corp. 9.75% 10/1/2003 20,000 18,400
Buckeye Cellulose Corp. 8.50% 12/15/2005 15,000 14,550
Georgia Gulf Corp. 10.375% 11/1/2007 (1) 3,450 3,549
Huntsman Corp. 9.50% 7/1/2007 (1) 17,000 15,980
Lilly Industries, Inc. 7.75% 12/1/2007 15,000 13,710
Lyondell Chemical Co. 9.625% 5/1/2007 50,000 49,500
Sovereign Specialty Chemicals, Inc. 9.50% 8/1/2007 8,000 8,040
CONSUMER GOODS & SERVICES (0.8%)
Scotts Co. 8.625% 1/15/2009 (1) 20,000 18,700
Sealy Mattress, Inc. 9.875% 12/15/2007 15,000 14,775
True Temper Sports, Inc. 10.875% 12/1/2008 15,000 14,175
CONTAINERS (2.4%)
BWAY Corp. 10.25% 4/15/2007 15,000 14,100
Owens-Illinois Inc. 7.35% 5/15/2008 35,000 31,637
Owens-Illinois, Inc. 7.85% 5/15/2004 15,000 14,456
Owens-Illinois, Inc. 8.10% 5/15/2007 35,000 33,303
Silgan Holding Inc. 9.00% 6/1/2009 41,000 38,540
ENERGY & RELATED GOODS & SERVICES (4.3%)
AmeriGas Partners, LP Series B 10.125% 4/15/2007 10,000 10,100
Clark Refining & Marketing, Inc. 8.375% 11/15/2007 15,000 9,900
Cross Timbers Oil Co. 8.75% 11/1/2009 25,000 22,875
Cross Timbers Oil Co. 9.25% 4/1/2007 16,500 16,417
Energy Corp. of America 9.50% 5/15/2007 7,220 5,198
Newfield Exploration Co. 7.45% 10/15/2007 15,000 13,789
Newpark Resources, Inc. 8.625% 12/15/2007 15,000 13,950
Oryx Energy Co. 8.00% 10/15/2003 10,000 10,008
P & L Coal Holdings Corp. 8.875% 5/15/2008 40,000 38,300
Plains Resources, Inc. 10.25% 3/15/2006 16,000 15,520
Pride Petroleum Services, Inc. 9.375% 5/1/2007 32,000 31,360
RBF Finance Co. 11.00% 3/15/2006 30,000 31,350
Tesoro Petroleum Corp. 9.00% 7/1/2008 10,000 9,325
Tuboscope Inc. 7.50% 2/15/2008 15,000 12,584
FOOD & LODGING (1.3%)
Aurora Foods Inc. 8.75% 7/1/2008 15,000 13,837
B & G Foods, Inc. 9.625% 8/1/2007 10,000 8,800
Nash Finch Co. 8.50% 5/1/2008 16,080 13,266
New World Pasta Co. 9.25% 2/15/2009 16,000 14,360
Tricon Global Restaurants, Inc. 7.65% 5/15/2008 25,000 23,304
GENERAL INDUSTRIAL (4.7%)
Allied Waste North America Inc. 7.625% 1/1/2006 35,000 30,800
Anchor Glass Container Corp. 11.25% 4/1/2005 5,650 4,746
Cincinnati Milacron, Inc. 8.375% 3/15/2004 11,500 11,218
Consumers International 10.25% 4/1/2005 19,305 13,513
Henry Co. 10.00% 4/15/2008 6,235 4,489
Idex Corp. 6.875% 2/15/2008 22,500 19,610
International Wire Group 11.75% 6/1/2005 15,000 15,413
Mastec, Inc. 7.75% 2/1/2008 30,000 27,450
Neenah Corp. 11.125% 5/1/2007 25,170 22,968
Numatics Inc. 9.625% 4/1/2008 16,500 13,365
Park-Ohio Industries, Inc. 9.25% 12/1/2007 20,000 18,450
Roller Bearing Co. of America Inc. 9.625% 6/15/2007 10,000 9,050
Royster-Clark Inc. 10.25% 4/1/2009 (1) 12,000 10,680
</TABLE>
27
<PAGE> 88
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YEILD CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Terex Corp. 8.875% 4/1/2008 $ 17,500 $ 16,100
Waste Management, Inc. 6.875% 5/15/2009 50,000 42,722
HEALTH CARE (4.5%)
Beverly Enterprises Inc. 9.00% 2/15/2006 18,000 16,650
Columbia/HCA Healthcare Corp. 6.91% 6/15/2005 25,000 22,568
Columbia/HCA Healthcare Corp. 7.00% 7/1/2007 30,000 26,333
Columbia/HCA Healthcare Corp. 7.25% 5/20/2008 30,000 26,463
Leiner Health Products, Inc. 9.625% 7/1/2007 9,270 6,929
Lifepoint Hospitals Holding Corp. 10.75% 5/15/2009 10,000 10,300
Owens & Minor, Inc. 10.875% 6/1/2006 14,075 14,462
Tenet Healthcare Corp. 8.125% 12/1/2008 70,000 64,750
Tenet Healthcare Corp. 8.625% 1/15/2007 40,000 38,500
Triad Hospitals Holdings, Inc. 11.00% 5/15/2009 20,785 21,512
HOME BUILDING & REAL ESTATE (1.7%)
CapStar Hotel Co. 8.75% 8/15/2007 20,000 17,800
Kaufman & Broad Home Corp. 7.75% 10/15/2004 26,250 24,675
Standard Pacific Corp. 8.00% 2/15/2008 15,000 12,938
Standard Pacific Corp. 8.50% 6/15/2007 15,000 13,875
Toll Corp. 7.75% 9/15/2007 15,000 13,238
Del E. Webb Corp. 10.25% 2/15/2010 15,000 12,900
MEDIA & ENTERTAINMENT (9.6%)
AMC Entertainment Inc. 9.50% 2/1/2011 20,000 16,000
Chancellor Media Corp. 8.125% 12/15/2007 21,465 21,304
Chancellor Media Corp. 8.75% 6/15/2007 8,500 8,521
Chancellor Media Corp. 9.375% 10/1/2004 15,000 15,675
Citadel Broadcasting Co. 9.25% 11/15/2008 12,250 11,882
EchoStar DBS Corp. 9.375% 2/1/2009 100,000 98,250
Emmis Communications Corp. 8.125% 3/15/2009 30,000 27,825
Fox/Liberty Networks LLC 8.875% 8/15/2007 70,000 71,050
Lin Television Corp. 8.375% 3/1/2008 33,000 30,030
Loews Cineplex Entertainment 8.875% 8/1/2008 40,000 32,200
Mail-Well Corp. 8.75% 12/15/2008 19,125 17,786
Primedia, Inc. 7.625% 4/1/2008 20,000 18,600
RCN Corp. 10.00% 10/15/2007 30,000 29,100
TV Guide, Inc. 8.125% 3/1/2009 55,000 53,763
Von Hoffman Press Inc. 10.875% 5/15/2007 (1) 12,095 11,490
World Color Press, Inc. 7.75% 2/15/2009 20,000 18,687
World Color Press, Inc. 8.375% 11/15/2008 45,000 43,922
Young Broadcasting Inc. 9.00% 1/15/2006 10,000 9,400
METAL (3.9%)
AK Steel Corp. 7.875% 2/15/2009 25,000 22,437
AK Steel Corp. 9.125% 12/15/2006 55,000 53,762
Armco, Inc. 9.00% 9/15/2007 20,000 19,500
Bethlehem Steel Corp. 10.875% 9/1/2003 10,500 10,500
LTV Corp. 8.20% 9/15/2007 37,000 32,375
LTV Corp. 11.75% 11/15/2009 (1) 25,000 26,250
National Steel Corp. 9.875% 3/1/2009 13,000 13,130
Ryerson Tull, Inc. 9.125% 7/15/2006 11,960 12,110
Weirton Steel Corp. 10.75% 6/1/2005 12,500 12,500
Wells Aluminum Corp. 10.125% 6/1/2005 11,790 12,438
PAPER & PACKAGING (4.7%)
Ball Corp. 7.75% 8/1/2006 35,000 33,162
Ball Corp. 8.25% 8/1/2008 15,000 14,175
Boise Cascade Co. 9.45% 11/1/2009 15,000 15,858
Buckeye Technologies, Inc. 8.00% 10/15/2010 12,460 11,245
Container Corp. of America 9.75% 4/1/2003 50,000 51,125
Domtar Inc. 8.75% 8/1/2006 15,000 15,075
Domtar Inc. 9.50% 8/1/2016 18,750 19,406
</TABLE>
28
<PAGE> 89
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fonda Group Inc. 9.50% 3/1/2007 $ 15,000 $ 12,450
NoramPac Inc. 9.50% 2/1/2008 10,000 10,025
Packaging Corp. of America 9.625% 4/1/2009 20,000 20,100
Paperboard Industries International Inc. 8.375% 9/15/2007 18,750 17,250
Repap New Brunswick, Inc. 9.00% 6/1/2004 5,000 4,800
Tembec Finance Corp. 9.875% 9/30/2005 8,325 8,450
Tembec Industries Inc. 8.625% 6/30/2009 4,610 4,472
U.S. Timberlands LLC 9.625% 11/15/2007 27,000 25,178
RETAIL (0.2%)
Boise Cascade Office Products Corp. 7.05% 5/15/2005 14,490 13,607
TECHNOLOGY & RELATED (7.3%)
Amphenol Corp. 9.875% 5/15/2007 9,000 9,180
Beckman Instruments, Inc. 7.45% 3/4/2008 30,000 27,019
Fairchild Semiconductor Corp. 10.125% 3/15/2007 22,275 22,108
Fisher Scientific International Inc. 9.00% 2/1/2008 60,000 55,950
Iron Mountain, Inc. 8.25% 7/1/2011 15,000 13,275
Iron Mountain, Inc. 8.75% 9/30/2009 37,500 34,781
Iron Mountain, Inc. 10.125% 10/1/2006 16,500 16,624
Pierce Leahy Corp. 9.125% 7/15/2007 15,000 14,400
PSINet Inc. 10.00% 2/15/2005 90,000 89,100
SCG Holding & Semiconductor Co. Corp. 12.00% 8/1/2009 (1) 50,000 52,875
Telecommunication Techniques Co. 9.75% 5/15/2008 22,000 20,020
Unisys Corp. 7.875% 4/1/2008 30,000 28,200
Wesco Distribution Inc. 9.125% 6/1/2008 25,000 22,813
TELECOMMUNICATIONS (12.1%)
Covad Communications 12.00% 2/15/2010 (1) 23,130 23,303
Crown Castle International Corp. 9.00% 5/15/2011 25,000 23,750
Crown Castle International Corp. 9.50% 8/1/2011 18,750 18,375
Flag Limited Inc. 8.25% 1/30/2008 45,000 41,175
GCI, Inc. 9.75% 8/1/2007 20,000 18,200
Global Crossing Holding Ltd. 9.125% 11/15/2006 (1) 50,000 48,438
ITC DeltaCom, Inc. 8.875% 3/1/2008 22,000 21,560
ITC DeltaCom, Inc. 9.75% 11/15/2008 12,500 12,750
ITC DeltaCom, Inc. 11.00% 6/1/2007 8,781 9,220
Intermedia Communications Inc. 8.50% 1/15/2008 45,000 40,725
Intermedia Communications Inc. 8.875% 11/1/2007 15,000 13,875
Level 3 Communications, Inc. 9.125% 5/1/2008 90,000 83,700
MJD Communications Inc. 9.50% 5/1/2008 12,000 11,280
McLeodUSA Inc. 8.125% 2/15/2009 10,000 9,000
McLeodUSA Inc. 8.375% 3/15/2008 15,000 13,725
McLeodUSA Inc. 9.25% 7/15/2007 15,000 14,700
Nextel Communications Inc. 9.375% 11/15/2009 (1) 50,000 48,188
Nextel Communications Inc. 12.00% 11/1/2008 45,000 49,725
NEXTLINK Communications, Inc. 10.75% 11/15/2008 25,000 25,250
NEXTLINK Communications, Inc. 10.75% 6/1/2009 21,000 21,263
Qwest Communications International Inc. 7.50% 11/1/2008 63,000 60,795
Rogers Cantel, Inc. 8.30% 10/1/2007 27,500 27,225
Verio Inc. 11.25% 12/1/2008 20,000 20,900
Voicestream Wireless Corp. 10.375% 11/15/2009 (1) 14,565 15,038
TEXTILES & RELATED (0.6%)
Westpoint Stevens Inc. 7.875% 6/15/2005 40,000 35,800
TRANSPORTATION (0.4%)
Budget Group Inc. 9.125% 4/1/2006 25,000 22,750
----------
4,489,521
UTILITIES (7.6%)
AES Corp. 8.375% 8/15/2007 30,000 27,375
AES Corp. 8.50% 11/1/2007 24,000 22,080
AES Corp. 9.50% 6/1/2009 25,000 24,937
</TABLE>
29
<PAGE> 90
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YEILD CORPORATE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CMS Energy Corp. 7.50% 1/15/2009 $ 26,000 $ 23,535
CMS Energy Corp. 7.625% 11/15/2004 18,000 17,253
CMS Energy Corp. 8.125% 5/15/2002 30,000 29,519
Caithness Coso Fund Corp. 9.05% 12/15/2009 15,000 14,550
Calpine Corp. 7.625% 4/15/2006 25,000 23,625
Calpine Corp. 7.875% 4/1/2008 36,380 34,692
Cleveland Electric Illuminating Co. 7.43% 11/1/2009 17,500 16,640
El Paso Electric Co. 8.25% 2/1/2003 15,000 15,029
El Paso Electric Co. 8.90% 2/1/2006 23,000 23,665
El Paso Electric Co. 9.40% 5/1/2011 28,000 29,278
Midland Funding II 11.75% 7/23/2005 25,000 26,688
Niagara Mohawk Power Corp. 7.75% 10/1/2008 60,000 58,999
Public Service Co. of New Mexico 7.50% 8/1/2018 20,000 18,452
Texas-New Mexico Power Co. 10.75% 9/15/2003 14,000 14,121
----------
420,438
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $5,349,265) 5,067,078
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (6.6%)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 5.75% 8/15/2003 100,000 97,075
U.S. Treasury Note 6.00% 8/15/2004 75,000 72,885
U.S. Treasury Note 6.50% 5/31/2002 100,000 99,679
U.S. Treasury Note 6.50% 8/15/2005 100,000 98,874
TOTAL U.S. GOVERNMENT SECURITIES
(COST $384,968) 368,513
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.1%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 5.73% 2/1/2000 14,770 14,770
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 5.73% 2/1/2000 212,430 212,430
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $227,200 227,200
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.7%)
(COST $5,961,433) 5,662,791
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.7%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 176,067
Security Lending Collateral Payable to Brokers--Note I (212,430)
Other Liabilities (55,620)
----------
(91,983)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 765,261,820 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $5,570,808
=========================================================================================================================
NET ASSET VALUE PER SHARE $7.28
=========================================================================================================================
</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, 2000, the
aggregate value of these securities was $350,313,000, representing 6.3% of
net assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $6,048,007 $7.90
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note G (178,557) (.23)
Unrealized Appreciation--Note H (298,642) (.39)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,570,808 $7.28
=========================================================================================================================
</TABLE>
30
<PAGE> 91
REPORT OF INDEPENDENT ACCOUNTANTS
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 appearing in the annual report to shareholders 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, 2000, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 2000 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 6, 2000
31
<PAGE> 92
(C) 2000 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor. F280-3/22/2000
32
