<PAGE> 1
VANGUARD(R) BOND FUNDS
July 31, 2000
VANGUARD SHORT-TERM
TREASURY FUND
VANGUARD SHORT-TERM
FEDERAL FUND
VANGUARD SHORT-TERM
CORPORATE FUND
VANGUARD INFLATION-PROTECTED
SECURITIES 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
semiannual
[PHOTO]
[MEMBERS OF THE VANGUARD GROUP(R) LOGO]
<PAGE> 2
HAVE THE PRINCIPLES OF INVESTING CHANGED?
In a world of frenetic change in business, technology, and the financial
markets, it is natural to wonder whether the basic principles of investing have
changed.
We don't think so.
The most successful investors over the coming decade will be those who
began the new century with a fundamental understanding of risk and who had the
discipline to stick with long-term investment programs.
Certainly, investors today confront a challenging, even unprecedented,
environment. Valuations of market indexes are at or near historic highs. The
strength and duration of the bull market in U.S. stocks have inflated people's
expectations and diminished their recognition of the market's considerable
risks. And the incredible divergence in stock returns--many technology-related
stocks gained 100% or more in 1999, yet prices fell for more than half of all
stocks--has made some investors question the idea of diversification.
And then there is the Internet. Undeniably, it is a powerful medium for
communications and transacting business. For investors, the Internet is a vast
source of information about investments, and online trading has made it
inexpensive and convenient to trade stocks and invest in mutual funds.
However, new tools do not guarantee good workmanship. Information is not
the same as wisdom. Indeed, much of the information, opinion, and rumor that
swirl about financial markets each day amounts to "noise" of no lasting
significance. And the fact that rapid-fire trading is easy does not make it
beneficial. Frequent trading is almost always counterproductive because
costs--even at low commission rates--and taxes detract from the returns that the
markets provide. Sadly, many investors jump into a "hot" mutual fund just in
time to see it cool off. Meanwhile, long-term fund investors are hurt by
speculative trading activity because they bear part of the costs involved in
accommodating purchases and redemptions.
Vanguard believes that intelligent investors should resist short-term
thinking and focus instead on a few time-tested principles:
- Invest for the long term. Pursuing your long-term investment goals is more
like a marathon than a sprint.
- Diversify your investments with holdings in stocks, bonds, and cash
investments. Remember that, at any moment, some part of a diversified portfolio
will lag other parts, and be wary of taking on more risk by "piling onto" the
best-performing part of your holdings. Today's leader could well be tomorrow's
laggard.
- Step back from the daily frenzy of the markets; focus on your overall
asset allocation.
- Capture as much of the market's return as possible by minimizing costs
and taxes. Costs and taxes diminish long-term returns while doing nothing to
reduce the risks you incur as an investor.
CONTENTS
REPORT FROM THE CHAIRMAN 1
THE MARKETS IN PERSPECTIVE 7
REPORTS FROM THE ADVISERS 9
PERFORMANCE SUMMARIES 13
FUND PROFILES 19
FINANCIAL STATEMENTS 30
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc.
Frank Russell Company is the owner of trademarks and
copyrights relating to the Russell indexes.
"Wilshire 5000(R)" and "Wilshire 4500" are trademarks of
Wilshire Associates Incorporated.
<PAGE> 3
REPORT FROM THE CHAIRMAN
[PHOTO]
John J. Brennan
Bond prices generally recovered during the six months ended July 31,
2000, the first half of the Vanguard Bond Funds' fiscal year. Longer-term
Treasury bonds displayed particular strength, and all of our funds that were in
operation throughout the half-year rebounded from a disappointing fiscal 2000.
The returns for these funds ranged from 2.4% for our High-Yield Corporate Fund
to 9.0% for our Long-Term Treasury Fund.
The adjacent table presents the six-month total return (capital change
plus reinvested dividends) for each fund com- pared with the average return of
its mutual fund competitors. The table also includes the return for Vanguard
Inflation-Protected Securities Fund, which we introduced in June. Later in this
letter, I will provide more details about inflation-indexed securities in
general and our fund in particular.
Information on all of the Vanguard Bond Funds, including per-share net
asset values and income dividends, are presented in the table that follows this
letter. That table also lists the annualized yields of each fund, which on July
31 ranged from 3.72% for our new Inflation-Protected Securities Fund to 9.92%
for our High-Yield Corporate Fund.
<TABLE>
<CAPTION>
----------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JULY 31, 2000
-------------------------
AVERAGE
VANGUARD COMPETING
FUND FUND*
----------------------------------------------------
<S> <C> <C>
SHORT-TERM FUNDS
Treasury 3.9% 3.5%
Federal 3.7 3.6
Corporate 3.4 3.6
----------------------------------------------------
Inflation-Protected
Securities** 0.9% 0.7%
----------------------------------------------------
INTERMEDIATE-TERM FUNDS
Treasury 5.9% 5.2%
Corporate 4.0 4.2
GNMA 5.6 5.0
----------------------------------------------------
LONG-TERM FUNDS
Treasury 9.0% 6.9%
Corporate 4.4 4.2
----------------------------------------------------
High-Yield Corporate 2.4% -1.0%
----------------------------------------------------
INSTITUTIONAL SHARES
----------------------------------------------------
Short-Term Corporate 3.4% 3.6%
----------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
**Returns since inception, June 29, 2000.
We believe that any semiannual review of bond fund returns should also
include a look at a full year's interest income. That's because six-month
returns for bond funds account for only half of the year's interest income,
while prices fully and immediately reflect movements in interest rates--rising
when rates fall and falling when rates rise. Over long periods, however, the
price effects of fluctuating interest rates tend to be offsetting, so interest
income accounts for virtually all of the total return on a bond fund. The table
on page 2 presents each fund's return for the past 12 months, divided into its
income and capital components. The high sensitivity of longer-term bonds to
changes in interest rates is clearly illustrated. During the 12 months, yields
rose on all but long-term Treasury bonds. For further information on capital and
income returns for each fund, see the Performance Summaries beginning on page
13.
1
<PAGE> 4
THE PERIOD IN REVIEW
The financial markets were stormy during the six months ended July 31. Overall,
the economic news was good. The economy continued its robust growth--the
production of goods and services during the second quarter of 2000 was about 6%
higher than in the same period last year, even after adjusting for inflation.
Unemployment remained low, hovering around 4% of the workforce. But investors
spent much of the half-year worrying about a resurgence in inflation and the
heady valuations of many technology-related stocks. In this environment, bonds
delivered higher returns than stocks.
The Federal Reserve Board, in an effort to slow the economy's momentum
and head off an uptick in inflation, continued to raise short-term interest
rates during the period. The Fed boosted its target for the federal funds
rate--the rate that banks charge each other for overnight loans--three times by
a total of 1.0 percentage point (100 basis points). The Fed's efforts succeeded
in pushing up short-term interest rates: The yield of 3-month U.S. Treasury
bills climbed 53 basis points to end the half-year at 6.22%. However, rates on
longer-term government issues went the other way, as the Treasury started to
repurchase its bonds for the first time since the 1930s. The shrinking supply of
long-term public debt--the government has also scaled back new bond
issuance--caused long-term Treasury prices to rise and yields to fall.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
COMPONENTS OF TOTAL RETURNS
TWELVE MONTHS ENDED JULY 31, 2000
------------------------------------
INCOME CAPITAL TOTAL
RETURN RETURN RETURN
-------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM FUNDS
Treasury 5.8% -0.7% 5.1%
Federal 6.0 -0.6 5.4
Corporate 6.6 -1.0 5.6
-------------------------------------------------------------------
Inflation-Protected
Securities* 0.0% 0.9% 0.9%
-------------------------------------------------------------------
INTERMEDIATE-TERM FUNDS
Treasury 6.4% -0.9% 5.5%
Corporate 7.1 -2.2 4.9
GNMA 7.1 -0.4 6.7
-------------------------------------------------------------------
LONG-TERM FUNDS
Treasury 6.4% 2.1% 8.5%
Corporate 7.0 -2.7 4.3
-------------------------------------------------------------------
High-Yield Corporate 8.6% -5.4% 3.2%
-------------------------------------------------------------------
INSTITUTIONAL SHARES
-------------------------------------------------------------------
Short-Term Corporate 6.7% -1.0% 5.7%
-------------------------------------------------------------------
</TABLE>
*Returns since inception, June 29, 2000.
Evidence that the economy may be easing into a period of slower growth
mounted in June, prompting rallies in both the stock and bond markets. By July
31, the 30-year Treasury bond's yield had fallen 71 basis points to 5.78%. The
yield of the 10-year Treasury bond declined a bit less (64 basis points) to
6.03% at the end of the period.
Led by the Treasury sector, the bond market rebounded from a difficult
fiscal 2000. The Lehman Brothers Aggregate Bond Index, a broad measure of the
U.S. bond market excluding only high-yield ("junk") bonds and municipal
securities, posted a gain of 5.3% during the six months ended July 31. Treasury
bonds in each maturity range (short-, intermediate-, and long-term) outperformed
their investment-grade corporate counterparts. The margin was greatest (4.6
percentage points) for long-term bonds. The total return of mortgage-backed
securities--5.6% according to the Lehman GNMA Index--trailed that of Treasuries
but outpaced the gains on corporate bonds. High-yield bonds struggled--the
Lehman High Yield Index had a total return of 0.0%--as investors worried about
the ability of issuers to make their interest payments.
2
<PAGE> 5
The U.S. stock market, meanwhile, rose modestly during the half-year. The
Wilshire 5000 Total Market Index, which tracks the entire U.S. stock market,
returned 1.5%. The large-capitalization-dominated Standard & Poor's 500 Index
returned 3.2%, outperforming the small-cap-oriented Russell 2000 Index (up
1.3%). The Nasdaq Composite Index, which is crowded with technology stocks,
declined -3.9%.
PERFORMANCE OVERVIEW
Seven of the nine Vanguard Bond Funds that were in operation throughout the
fiscal half-year ended July 31 provided total returns that were higher than
those of competing mutual funds. The exceptions were our SHORT- and
INTERMEDIATE-TERM CORPORATE FUNDS, which lagged their peers by 0.2 percentage
point. The LONG-TERM CORPORATE FUND outpaced its rival by the same margin.
The SHORT-, INTERMEDIATE-, and LONG-TERM TREASURY FUNDS returned 3.9%,
5.9%, and 9.0%, respectively. The Short- and Intermediate-Term Treasury Funds
delivered slightly better-than-average returns, topping their peers by 0.4 and
0.7 percentage point, respectively. The Long-Term Treasury Fund's return was
well ahead of that of its peers, which gained 6.9% on average. The SHORT-TERM
FEDERAL FUND returned 3.7%, a hair above the return for its average peer.
Our GNMA FUND, which has an intermediate-term average maturity and
invests in mortgage-backed securities, returned 5.6%, well ahead of the 5.0%
return of the average GNMA fund. Mortgages were a good investment during the
period because home-loan rates did not respond much to the decline in long-term
Treasury bond yields. The lack of volatility meant that loan refinancing, which
results in prepayment activity and generally lower yields for mortgage
investors, was not an attractive option for many homeowners.
Our HIGH-YIELD CORPORATE FUND turned in a solid performance in a tough
environment, returning 2.4% for the half-year. On average, high-yield bond funds
declined -1.0%, largely because they invest in lower-rated--and thus,
riskier--securities than those held by our fund. Prices fell on more speculative
bonds primarily because investors grew concerned that any slowdown in the
economy could hurt companies' abilities to service their debt obligations. In
addition, tighter credit forces companies with lower credit ratings to pay
higher rates on their bonds. Defaults were on the rise, though, fortunately,
there were none in our fund. In short, it was a distinct advantage to hold
higher-rated corporate bonds during the semiannual period. Of course, under
different economic conditions, our posture can cause the fund to underperform
its competitors, as it has from time to time.
Our funds' generally strong showings versus their competitors during the
half-year owe in large measure to our much lower operating costs. Comparable
mutual funds have average expense ratios (expenses as a percentage of average
net assets) that range from 0.60% for short-term Treasury funds to 1.30% for
high-yield funds. Our funds' expense ratios fall between 0.21% (for the
Intermediate-Term Corporate Fund) and 0.32% (for the Long-Term Treasury Fund).
Our low costs give us a significant head start--year after year--in our effort
to provide excellent investment results. The Vanguard cost advantage means that
our funds do not have to invest in lower-rated bonds in an effort to offset high
expenses.
Compared with their target indexes, our funds did not fare so well during
the semiannual period. Only the High-Yield Corporate Fund outpaced its
benchmark, beating the Lehman High Yield Index by 2.4 percentage points. The
GNMA Fund matched the result of the Lehman GNMA Index. Our remaining funds
trailed their indexes by a
3
<PAGE> 6
range of 0.1-1.0 percentage point. Once again--as ever--costs played a role.
While our operating expenses are far lower than those of competing mutual funds,
they handicap us against the unmanaged indexes, which exist only "on paper" and
therefore incur no operating costs.
A NEW KIND OF BOND FUND
In June, we introduced VANGUARD INFLATION-PROTECTED SECURITIES FUND, which
invests primarily in inflation-indexed bonds issued by the U.S. Treasury and
other U.S. government agencies; it may also invest in inflation-indexed bonds
issued by corporations. Between June 29 and July 31, the fund had a total return
of 0.9%. We present this one-month return only for the record, as results for
such a brief period are meaningless in truth.
The Inflation-Protected Securities Fund is unlike any other Vanguard
fund. It gives investors the opportunity to invest in a diversified bond
portfolio that offers inflation protection and moderate stability of principal.
Inflation erodes the "real" purchasing power of money over time, and investing
only in stocks or conventional bonds does not necessarily fix the problem.
Common stocks have historically generated returns well in excess of inflation
over the long term, but investors must accept substantial volatility to achieve
those gains. Conventional bonds are less volatile than stocks, but they do not
offer explicit protection against inflation. In contrast, the issuers of
inflation-indexed bonds attack the problem head-on, continually adjusting the
bonds' principal and interest payments to reflect changes in the price of goods
and services. This is significant, given that the Consumer Price Index has risen
in 49 of the last 50 years. In the event of deflation--a drop in prices--the
U.S. Treasury guarantees the repayment of at least the original face value of
its inflation-indexed securities.
While increases in the principal value of inflation-indexed bonds are not
payable until maturity, the Inflation-Protected Securities Fund will distribute
these increases, along with dividend income, on a quarterly basis. (Note that
these adjustments may cause the fund's income stream to be more volatile than
those of traditional bond funds with similar maturity and quality
characteristics.) Because fund distributions are taxable, investors should
consider holding the fund in a tax-deferred account, such as an IRA or 401(k)
plan. Also it's important to reinvest the fund's distributions. Investors who do
not reinvest them will not maintain the purchasing power of their investment
over the long term.
Beyond inflation protection, we believe that the Inflation-Protected
Securities Fund offers investors the opportunity to further diversify a
portfolio of stock funds, bond funds, and short-term investments.
Inflation-indexed bonds fluctuate in response to changes in real interest
rates--those that exist when inflation is subtracted from the nominal interest
rate on bonds. Real rates have historically been much more stable than nominal
interest rates, which are the driver of price changes for conventional bonds.
The U.S. Treasury has been issuing inflation-indexed bonds only since early
1997, so it is too early to conclude that they can be counted on to smooth the
inevitable swings in the stock and bond markets. But the performance of
inflation-indexed securities to date suggests that they do help to diversify a
portfolio of bonds. And to the extent that inflation is bad for stocks, these
new bonds may offer diversification to stock investors as well.
Under the able management of Vanguard Fixed Income Group, I am confident
that Vanguard Inflation-Protected Securities Fund will deliver attractive real
returns at the lowest reasonable cost.
4
<PAGE> 7
IN SUMMARY
Stocks certainly disappointed many investors during the six months ended July
31. After all, they've been delivering double-digit gains with regularity since
the mid-1990s and have not often trailed bonds. For long-term investors,
however, the lesson of a half-year during which bonds outpaced stocks should be
plain: Trying to "time the market" is hazardous.
Bond investors who stayed true to their investment plan after enduring a
difficult fiscal 2000 were rewarded during the half-year. The course of interest
rates is impossible to predict. But I am confident that investors who maintain a
balanced mix of stock funds, bond funds, and short-term investments, suitable
for their time horizons, goals, and tolerance for risk, stand the best chance of
success.
/s/ JOHN J. BRENNAN
John J. Brennan
Chairman and Chief Executive Officer
August 17, 2000
IN MEMORY
It is with great sadness that I report the death of John C. Sawhill, an
independent trustee of the funds and a member of The Vanguard Group's board of
directors since 1991. John, an economist who was president and chief executive
officer of The Nature Conservancy, died on May 18 at age 63. He was a senior
lecturer at the Harvard Business School and had formerly served as president of
New York University and as deputy secretary of the U.S. Department of Energy
under President Jimmy Carter. John was a remarkable man who was full of energy,
vigor, and life. His experience and wisdom added a great deal to Vanguard, and
his death is a blow to everyone who knew and loved him. Though John's work on
behalf of our funds was often carried on behind the scenes, he was a dedicated
advocate for the best interests of our shareholders. He will be missed.
5
<PAGE> 8
<TABLE>
<CAPTION>
FUND STATISTICS
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
PER SHARE SIX MONTHS TWELVE MONTHS SEC
------------------------------------------------ ---------------------- ----------------------- 30-DAY
JANUARY 31, JULY 31, INCOME CAPITAL INCOME CAPITAL ANNUALIZED
2000 2000 DIVIDENDS GAINS DIVIDENDS GAINS YIELD
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM FUNDS
Treasury $ 9.94 $10.03 $0.295 -- $0.570 -- 6.44%
Federal 9.85 9.91 0.298 -- 0.585 -- 6.56
Corporate 10.49 10.49 0.350 -- 0.688 -- 7.50
-----------------------------------------------------------------------------------------------------------------
Inflation-Protected
Securities $10.03* $10.12 -- -- -- -- 3.72%
-----------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM FUNDS
Treasury $10.03 $10.29 $0.322 -- $0.638 -- 6.34%
Corporate 9.13 9.16 0.329 -- 0.648 -- 7.98
GNMA 9.71 9.91 0.341 -- 0.679 -- 6.75
-----------------------------------------------------------------------------------------------------------------
LONG-TERM FUNDS
Treasury $9.74 $10.30 $0.309 -- $0.616 -- 6.05%
Corporate 8.08 8.14 0.285 -- 0.568 -- 7.43
-----------------------------------------------------------------------------------------------------------------
High-Yield Corporate $7.28 $7.13 $0.317 -- $0.633 -- 9.92%
-----------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
-----------------------------------------------------------------------------------------------------------------
Short-Term Corporate $10.49 $10.49 $0.355 -- $0.699 -- 7.63%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
* Net asset value as of inception, June 29, 2000.
6
<PAGE> 9
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED JULY 31, 2000
After playing second fiddle to stocks in the past several years, bonds provided
both a smoother and a more profitable ride than stocks during the six months
ended July 31, 2000. The Lehman Aggregate Bond Index--a proxy for the
investment-grade taxable bond market--recorded a 5.3% return, well ahead of the
1.5% return for the entire U.S. stock market, as measured by the Wilshire 5000
Index. Stock investors encountered considerable turbulence, as big day-to-day
fluctuations in stocks were commonplace. And outside of the United States,
stocks on average declined during the six months.
The economic backdrop was murky. Growth was quite robust--better than 5%
after inflation--in the United States. Overseas economies also were picking up
strength, and corporations generally registered solid profit gains. Still,
investors were uncertain whether the economic good times would keep rolling,
given that the Federal Reserve Board and other central banks were raising
interest rates during the period.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED JULY 31, 2000
--------------------------------
6 MONTHS 1 YEAR 5 YEARS*
-------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 3.2% 9.0% 22.6%
Russell 2000 Index 1.3 13.8 12.3
Wilshire 5000 Index 1.5 11.2 21.1
MSCI EAFE Index -1.7 9.3 9.4
-------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 5.3% 6.0% 6.5%
Lehman 10 Year Municipal Bond Index 5.8 5.2 5.9
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.8 5.4 5.2
-------------------------------------------------------------------------
OTHER
Consumer Price Index 2.3% 3.5% 2.5%
-------------------------------------------------------------------------
</TABLE>
*Annualized.
The Fed, with three rate increases totaling 1 percentage point, sought to
cool off the economy to keep it from overheating and pushing up inflation.
Because of sharply higher costs for oil and other energy products, the Consumer
Price Index gained 2.3% during the six months and 3.5% for the 12 months ended
July 31. Yet core inflation, which excludes energy and food items, registered a
moderate 2.4% gain during the 12 months ended July 31.
U.S. STOCK MARKETS
Rising profits, the powerful economy, and continued optimism--especially for the
"new economy" TMT stocks (technology, media, and telecommunications)--kept
market averages rising in February and early March. But in mid-March, value
stocks took charge and TMT stocks slumped. Market leadership flip-flopped again
in June, when growth stocks held sway, and in July, when value stocks
outperformed growth stocks.
The period was marked not only by volatility in market averages but also
by extreme moves in individual stocks. Wall Street was unforgiving: Companies
that disappointed market expectations saw their stock prices plunge. The
large-capitalization S&P 500 Index posted a 3.2% return, more than double that
of the overall market, and the small-cap Russell 2000 Index edged up 1.3%. The
Nasdaq Composite Index, which had stratospheric gains in 1999, lost some
altitude, registering a -3.9% return.
7
<PAGE> 10
The rise in oil and natural gas prices helped oil-exploration and
services companies in the "other energy" group to post the market's biggest
gains: an average of 22%. Financial services companies, whose stocks had been
hurt by rising interest rates in 1999, rebounded with a 13% return. Another 1999
laggard, the health care sector, posted gains exceeding 9% during the past
half-year. Big drops in regional Bell companies and AT&T caused a -15% return
for the utilities sector, the worst for any market group. The materials &
processing group fell -9%, largely because higher energy costs hurt
energy-intensive companies such as chemical and aluminum makers.
U.S. BOND MARKETS
The Fed's three increases in its target federal funds rate (charged on overnight
loans between banks) elevated the rate by 1 percentage point to 6.50% during the
six months. However, because the market had anticipated some tightening by the
Fed, yields of 3-month U.S. Treasury bills rose only half as far (0.53
percentage point, or 53 basis points, to 6.22%). And on longer-term Treasury
securities, yields actually fell and prices rose. In part, this was due to a
shrinking supply of Treasury debt: A large and growing federal budget surplus
allows the Treasury to issue fewer new bonds and to buy back billions of
dollars' worth of outstanding bonds. The 10-year Treasury note's yield declined
64 basis points to 6.03% on July 31, and the yield of the 30-year Treasury fell
71 basis points to 5.78%.
Because short-term rates moved higher while long-term rates slid, there
was an "inversion" in the U.S. Treasury yield curve. Instead of the usual upward
slope--with yields increasing along with maturity--the curve sloped downward. On
July 31, the 5.78% yield of 30-year Treasuries was 55 basis points lower than
the 6.33% yield of 3-year Treasury notes. Falling rates mean rising prices for
bonds, of course, and the 5.3% return of the Lehman Aggregate Bond Index during
the six months reflected a price gain of 1.7% in addition to an income return of
3.6%.
Corporate bonds didn't fare as well as Treasuries, in part because of a
very different supply situation--corporations were issuing large amounts of new
debt. Also, heavy borrowing by companies and the Fed's efforts to slow the
economy raised the chances that some companies would have trouble paying their
debts. Concern about credit quality was evident in the split between returns for
low- and high-quality corporate bonds: a zero return for the Lehman High Yield
Index of low-quality "junk" bonds, versus 4.8% for the high-quality Lehman
Credit A or Better Index. Mortgage-backed bonds and municipal bonds, which also
boast high credit quality, had solid returns: 5.6% for the Lehman GNMA Index and
4.8% for the tax-exempt Lehman 7 Year Municipal Bond Index.
INTERNATIONAL STOCK MARKETS
Because of a rise in the value of the U.S. dollar against most other currencies
and a slump in Asian markets, international stocks were generally unprofitable
for U.S. investors during the past six months. Although the Morgan Stanley
Capital International Europe, Australasia, Far East (MSCI EAFE) Index of
developed foreign markets registered a 3.1% return in local currencies, the
stronger dollar resulted in a -1.7% return for U.S. investors.
The MSCI Europe Index generated an 8.4% return in euros, the common
currency of 11 European countries. However, this was cut to a 2.8% return for
dollar-based investors. The MSCI Pacific Free Index declined -10.6% in dollars
and -8.1% in local currencies due to a slump in Japanese stocks, which account
for more than 75% of the index.
The Select Emerging Markets Free Index fell -10.0% in U.S. dollars, stung
by weakness in South Korea (-18%), South Africa (-17%), Thailand (-50%), and
Turkey (-16%). Israel was the biggest gainer among emerging markets, with a 28%
return.
8
<PAGE> 11
REPORT FROM VANGUARD FIXED INCOME GROUP
SHORT-TERM TREASURY, FEDERAL, AND CORPORATE FUNDS; INFLATION-PROTECTED
SECURITIES FUND; INTERMEDIATE-TERM TREASURY AND CORPORATE FUNDS; AND LONG-TERM
TREASURY FUND
In a welcome turnabout from a difficult 1999, the Vanguard Bond Funds
posted strong results for the fiscal half-year ended July 31, 2000. Conditions
during the past six months were generally favorable for our funds. Yields
declined and prices rose for all but the shortest-maturity securities, resulting
in price increases for each of the funds we manage, except for the Short-Term
Corporate Fund, whose price held steady.
To understand what has occurred so far this fiscal year, it's necessary
to go back to autumn 1998. At that time, yields on long-term U.S. Treasury bonds
had fallen below 5%. This was because of surging demand for Treasuries, which
were considered a safe haven during the financial crisis that swept global
markets after Russia defaulted on its government bonds. When it became apparent
that the crisis was not going to result in a financial Armageddon, as some had
predicted, interest rates rebounded. Rates rose through 1999 to levels that
reflected the strong demand for loans by households and corporations in the
growing economy.
The Federal Reserve Board, attempting to slow the economy and forestall a
rise in inflation, boosted short-term interest rates three times in 1999. The
yield on the 30-year Treasury bond rose from its all-time low of 4.72% on
October 5, 1998 (during the height of the international financial crisis) to
6.48% on December 31, 1999. Because bond prices move in the opposite direction
from yields, long-term Treasury prices plummeted in 1999.
During the first half of 2000, the U.S. economy continued to grow at an
exceptional pace--real (inflation-adjusted) gross domestic product expanded at a
5% annual rate. The Fed focused on indications that the demand for goods and
services was outstripping their available supply, which could cause a buildup in
inflationary pressures. Fed Chairman Alan Greenspan repeatedly identified the
"wealth effect" caused by the rise in stock prices as one source of excess
demand. The Fed raised its target federal funds rate (the interest charged by
banks for overnight loans) three times during the past six months, to 6.50%.
This influenced rates of short-term Treasury bills, which rose during the
period.
Normally, bond yields rise along with short-term rates when the Fed is
tightening monetary policy. But during our fiscal half-year, yields on Treasury
bonds actually declined from 0.3 to 0.7 percentage point. The result was that
the yield curve inverted: Longer-term bonds sported lower yields than short-term
bonds.
The reason for this unusual inversion of yields was a shrinking supply of
long-term Treasury securities. The federal government, which is expected to post
a $230 billion budget surplus this year, has started to reduce the size of its
auctions of new securities and has begun buying back $30 billion of its
outstanding debt. Given the strong economy and huge federal tax revenues
(federal tax receipts as a percentage of gross domestic product are at the
highest level since World War II), it's now projected that the Treasury will be
able to pay off all of its outstanding marketable debt by the end of this
decade.
9
<PAGE> 12
In other sectors of the bond market, yields didn't follow the lead of
Treasury bonds. Government agency and mortgage-backed securities didn't enjoy
the price gains seen for Treasuries, in part because issuance of new agency and
mortgage-backed securities rose. Corporate bonds were relatively hard hit by
"event risk"--the chance that shareholder-friendly actions such as stock
repurchases, leveraged buyouts, and spinoffs would hurt a company's
creditworthiness. The sensitivity to this type of action was so high during the
period that even the rumor of such a move caused a decline in the price of a
company's bonds--and an increase in yield.
A REVIEW OF OUR FUNDS
The decline in longer-term interest rates during the six months ended July 31
served as a tailwind, in the form of positive capital returns, that augmented
the income generated by our funds. During the fiscal half-year, we maintained
the funds' average durations (a measure of the sensitivity of a bond's price to
changes in interest rates) below those of their benchmarks. The result was that
we didn't benefit as much as our index targets from the decline in interest
rates during the period. However, compared with peer funds, our
Intermediate-Term and Long-Term Funds generally have longer durations and, thus,
greater price gains than our competitors in an environment of falling interest
rates.
As noted earlier, demand for Treasury securities was high relative to the
demand for other debt instruments. As a result, corporate bonds underperformed
their Treasury counterparts during the period. This is a 180-degree swing from
fiscal 1999, when a reversal of the flight to quality helped our corporate bond
funds to outperform Treasuries.
On June 29, 2000, Vanguard introduced the Inflation-Protected Securities
Fund. As of July 31, the fund's characteristics closely matched those of the
overall market for inflation-indexed securities, and they will continue to do so
in the future. See the Report From The Chairman beginning on page 1 for more
details on the Vanguard Inflation-Protected Securities Fund.
THE RISKS AHEAD
In the last two months, signs have emerged that the economy's rapid growth pace
is slowing. These signs have led many market participants to believe that the
Fed is at or near the end of its policy-tightening cycle. If they are correct,
the environment should be favorable for bond investors. However, if the economy
resumes growth at or near the rapid rates experienced during most of the first
half of 2000, the Fed may raise short-term interest rates again. This would have
a ripple effect and push up rates across the entire spectrum of maturities. We
believe that corporate bonds still provide attractive yield premiums in light of
our view that the economy will continue to grow at a healthy pace.
The Vanguard Bond Funds provide a full array of maturity options so that
investors can match their own needs fairly closely. We believe it's important
for investors to periodically reevaluate their holdings as risk and return
relationships change. What will not change is our commitment to providing
disciplined portfolio management at the lowest possible cost.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John W. Hollyer, Principal
August 10, 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
During the six months ended July 31, 2000, interest rates on intermediate- and
long-term U.S. Treasury securities fell approximately 60 basis points (0.60
percentage point), creating a favorable environment for fixed income securities.
This decline occurred despite the fact that the Federal Reserve Board was
actively raising short-term rates. Overall, the drop in rates can be attributed
to several factors. Most important, interest rates on Treasury securities fell
because the federal budget surplus has reduced the Treasury's borrowing needs.
At the same time, the Treasury has been actively buying back its longer-maturity
obligations in the open market, forcing yields lower.
The GNMA, Long-Term Corporate, and High-Yield Corporate Funds are all
affected by the direction of interest rates, but to varying degrees. As time has
proven, the GNMA Fund basically behaves as an intermediate-term bond fund, and
it should not fluctuate in price as much as a long-term bond fund in response to
interest rate changes. (However, the GNMA Fund's average duration--a measure of
the fund's sensitivity to changes in interest rates--can actually change
dramatically with large swings in interest rates.)
The Long-Term Corporate Fund is quite sensitive to changes in interest
rates. So, as the yield on long-term Treasury securities fell during the past
six months, the net asset value of the Long-Term Corporate Fund might have been
expected to rise handsomely. However, the risk premium--or "yield spread"--for
corporate bonds expanded, preventing yields on long-term corporate bonds from
falling as much as they might have otherwise. The risk premium is the additional
yield available to investors for investing in lower-quality bonds. (Treasury
bonds have no credit risk.) The wider risk premiums existed even though
corporate profits were strong and the domestic economy was healthy. The
High-Yield Corporate Fund is also influenced greatly by risk premiums. In fact,
changes in interest rates often do not have a particularly strong influence on
the prices of high-yield bonds. Rather, the credit quality of the issuers in the
portfolio is usually the critical determinant of price behavior. Therefore, the
High-Yield Corporate Fund benefited less than the other two funds from the
interest rate decline.
It is unusual for risk premiums in the corporate bond market to expand
during a period of strong economic growth. Historically, a strong economy has
been a favorable backdrop for keeping risk premiums relatively narrow.
GNMA FUND
The investment environment for the GNMA Fund improved over the past six months.
With yields on U.S. Treasury securities generally stable to lower from January
through July 2000, the price erosion that the fund experienced last year was
largely absent. A stable mortgage interest rate environment is ideal for the
GNMA Fund, allowing it to avoid the price erosion that typically occurs when
interest rates are rising sharply, while also avoiding the negative effects on
income that occur when mortgage interest rates decline and homeowners refinance
their mortgages. Although there was some interest rate volatility during the six
months, it occurred within a narrow range. The future is, as always, uncertain,
but the GNMA Fund continues to offer attractive yields relative to
11
<PAGE> 14
U.S. Treasuries, and we see no reason why it should not continue to perform well
relative to other high-quality, intermediate-term bond funds.
LONG-TERM CORPORATE FUND
The Long-Term Corporate Fund's duration is slightly less than nine years, a
level consistent with its charter as a long-term, investment-grade, corporate
bond fund. The fund's relatively long duration--a more "marketlike" duration is
about five years--suggests that the fund will be extremely sensitive to changes
in long-term rates. Shareholders should understand that this interest rate
sensitivity is one of the major risks of investing in the fund. A duration of
nine years means that if corporate bond rates move up or down by 1 percentage
point, the fund's net asset value can be expected to fall or rise by 9%. The
fund has excellent call protection, meaning that most issuers of the bonds it
holds cannot redeem those bonds if interest rates decline. This protects the
fund's income stream from declining interest rates.
The fund's other chief risk is the possibility that the creditworthiness
of the corporate bond issuers could deteriorate. To mitigate this risk, the fund
is well diversified by issuer and industry. The fund does not own
emerging-markets debt or foreign bonds denominated in currencies other than the
U.S. dollar. Generally, we purchase bonds of well-established, larger companies
with stable operating histories.
HIGH-YIELD CORPORATE FUND
While the High-Yield Corporate Fund did not have any defaults during the
half-year, the below-investment-grade--or high-yield--market struggled as
defaults and rating downgrades increased.
The high-yield market is a hybrid. Under some market conditions, it
follows the direction of the stock market, and at other times, it behaves
similarly to the bond market. Although interest rates on intermediate-term
Treasury bonds fell and the economy grew strongly, the high-yield corporate
sector languished. Outflows from high-yield bond mutual funds continued
throughout this period, creating some selling pressure in the market. With the
Fed raising interest rates--and thus implicitly restricting credit--the
high-yield market fought against a headwind. When credit is rationed, the
marginal borrower or lower-rated issuer must pay a relatively steeper risk
premium to obtain credit. On a positive note, investors may begin to increase
their tolerance for risk if the Fed has, for the time being, finished its task
of raising rates and slowing growth. If the monetary authorities are satisfied
that inflationary pressures are subsiding and decide to relax their tightening
grip, high-yield bonds could perform very well. In a relaxed monetary
environment, risk premiums typically contract.
We remain very selective with respect to credit. We are avoiding the
smaller start-up companies and are continuing to emphasize the higher-quality
spectrum of the below-investment-grade market. The fund's holdings continue to
be focused on cash-paying issues almost exclusively rated B or better. We
maintain a modest reserve in U.S. Treasuries to maintain liquidity.
Paul D. Kaplan, Senior Vice President and Portfolio Manager
Earl E. McEvoy, Senior Vice President and Portfolio Manager
August 14, 2000
12
<PAGE> 15
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the funds. 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.
<TABLE>
<CAPTION>
SHORT-TERM TREASURY FUND
TOTAL INVESTMENT RETURNS: OCTOBER 28, 1991-JULY 31, 2000
------------------------------------------------------------
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
2001** 0.9 3.0 3.9 4.0
-----------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Treasury Index.
**Six months ended July 31, 2000.
See Financial Highlights table on page 40 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL FUND
TOTAL INVESTMENT RETURNS: DECEMBER 31, 1987-JULY 31, 2000
-----------------------------------------------------------
SHORT-TERM TREASURY 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
2001** 0.6 3.1 3.7 4.0
-----------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Government Index.
**Six months ended July 31, 2000.
See Financial Highlights table on page 41 for dividend information for the past
five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
--------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Treasury Fund 10/28/1991 4.61% 5.46% 0.22%** 5.60%** 5.82%**
Short-Term Federal Fund 12/31/1987 4.75 5.59 0.35 6.21 6.56
--------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Since inception.
13
<PAGE> 16
PERFORMANCE SUMMARIES (continued)
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.
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE FUND
TOTAL INVESTMENT RETURNS: OCTOBER 29, 1982-JULY 31, 2000
--------------------------------------------------------
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
2001** 0.0 3.4 3.4 3.8
--------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Credit Index.
**Six months ended July 31, 2000.
See Financial Highlights table on page 41 for dividend information for the past
five years.
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE FUND INSTITUTIONAL SHARES
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1997-JULY 31, 2000
----------------------------------------------------------
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
2001** 0.0 3.4 3.4 3.8
----------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Credit Index.
**Six months ended July 31, 2000.
See Financial Highlights table on page 42 for dividend information since
inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
---------------------------------------------------------------------------------------------------------
INCEPTION 10 YEARS
---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Corporate Fund 10/29/1982 4.79% 5.81% 0.34% 6.58% 6.92%
Short-Term Corporate Fund
Institutional Shares 9/30/1997 4.90 -- -1.16** 6.47** 5.31**
---------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Since inception.
14
<PAGE> 17
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the funds. 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.
<TABLE>
<CAPTION>
INFLATION-PROTECTED
SECURITIES FUND
TOTAL INVESTMENT RETURNS:
JUNE 29, 2000-JULY 31, 2000
---------------------------------------------------------------
INFLATION-PROTECTED SECURITIES FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
PERIOD RETURN RETURN RETURN RETURN
---------------------------------------------------------------
<S> <C> <C> <C> <C>
2001** 0.9% 0.0% 0.9% 1.0%
---------------------------------------------------------------
</TABLE>
*Lehman Treasury Inflation Notes Index.
**Since inception.
<TABLE>
<CAPTION>
INTERMEDIATE-TERM TREASURY FUND
TOTAL INVESTMENT RETURNS: OCTOBER 28, 1991-JULY 31, 2000
------------------------------------------------------------
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
2001** 2.6 3.3 5.9 6.3
------------------------------------------------------------
</TABLE>
*Lehman 5-10 Year Treasury Index.
**Six months ended July 31, 2000.
See Financial Highlights table on page 43 for dividend information for the past
five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
--------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Inflation-Protected Securities Fund 6/29/2000 -- -- 0.10% 0.00% 0.10%
Intermediate-Term Treasury Fund 10/28/1991 4.38% 5.80% 0.81 6.33 7.14
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
15
<PAGE> 18
PERFORMANCE SUMMARIES (continued)
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the funds. 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.
<TABLE>
<CAPTION>
INTERMEDIATE-TERM CORPORATE FUND
TOTAL INVESTMENT RETURNS: NOVEMBER 1, 1993-JULY 31, 2000
------------------------------------------------------------
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
2001** 0.3 3.7 4.0 4.5
------------------------------------------------------------
</TABLE>
*Lehman 5-10 Year Credit Index.
**Six months ended July 31, 2000.
See Financial Highlights table on page 43 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
GNMA FUND
TOTAL INVESTMENT RETURNS: JUNE 27, 1980-JULY 31, 2000
------------------------------------------------------------
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
2001** 2.1 3.5 5.6 5.6
------------------------------------------------------------
</TABLE>
*Lehman GNMA Index.
**Six months ended July 31, 2000.
See Financial Highlights table on page 44 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
----------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -----------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Intermediate-Term Corporate Fund 11/1/1993 3.38% 5.60% -1.14%** 6.63%** 5.49%**
GNMA Fund 6/27/1980 5.48 6.52 0.36 7.43 7.79
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Since inception.
16
<PAGE> 19
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the funds. 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.
<TABLE>
<CAPTION>
LONG-TERM TREASURY FUND
TOTAL INVESTMENT RETURNS: MAY 19, 1986-JULY 31, 2000
------------------------------------------------------------
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
2001** 5.7 3.3 9.0 9.4
------------------------------------------------------------
</TABLE>
*Lehman Long Treasury Index.
**Six months ended July 31, 2000.
See Financial Highlights table on page 44 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
LONG-TERM CORPORATE FUND
TOTAL INVESTMENT RETURNS: JANUARY 31, 1980-JULY 31, 2000
--------------------------------------------------------
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
2001** 0.7 3.7 4.4 5.4
--------------------------------------------------------
</TABLE>
*Lehman Long Corporate AA or Better Index through March 2000; Lehman Long Credit
A or Better Index thereafter.
**Six months ended July 31, 2000.
See Financial Highlights table on page 45 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
---------------------------------------------------------------------------------------------------------
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 6.34% 6.97% 2.04% 7.08% 9.12%
Long-Term Corporate Fund 7/9/1973 1.63 5.86 1.10 7.58 8.68
---------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
17
<PAGE> 20
PERFORMANCE SUMMARIES (continued)
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.
<TABLE>
<CAPTION>
HIGH-YIELD CORPORATE FUND
TOTAL INVESTMENT RETURNS: JANUARY 31, 1980-JULY 31, 2000
-------------------------------------------------------
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
2001** -2.1 4.5 2.4 0.0
-------------------------------------------------------
</TABLE>
* Lehman Mutual Fund BBB Rated or Better Bond Index through January 1984;
Lehman High Yield Index thereafter.
** Six months ended July 31, 2000.
See Financial Highlights table on page 45 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
----------------------------------------------------------------------------------------------------------
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 2.04% 7.44% -0.12% 9.78% 9.66%
----------------------------------------------------------------------------------------------------------
</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.
18
<PAGE> 21
FUND PROFILE
SHORT-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
----------------------------------------------------
SHORT-TERM LEHMAN
TREASURY INDEX*
----------------------------------------------------
<S> <C> <C>
Number of Issues 40 5,974
Yield 6.4% 6.9%
Yield to Maturity 6.6% 7.2%
Average Coupon 6.0% 6.9%
Average Maturity 2.5 years 8.8 years
Average Quality Treasury Aaa
Average Duration 2.1 years 4.9 years
Expense Ratio 0.27%** --
Cash Investments 1.3% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
----------------------------------------------------
<S> <C>
AVERAGE MATURITY SHORT
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
----------------------------------------------------
SHORT-TERM LEHMAN
TREASURY INDEX*
----------------------------------------------------
<S> <C> <C>
R-Squared 0.83 1.00
Beta 0.54 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
----------------------------------------------------
<S> <C>
Treasury 88.6%
Agency 11.4
----------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
----------------------------------------------------
<S> <C>
Under 1 Year 1.0%
1-3 Years 72.6
3-5 Years 21.8
Over 5 Years 4.6
----------------------------------------------------
Total 100.0%
</TABLE>
19
<PAGE> 22
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 INVESTMENTS. 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.
20
<PAGE> 23
FUND PROFILE
SHORT-TERM FEDERAL FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
----------------------------------------------------
SHORT-TERM LEHMAN
FEDERAL INDEX*
----------------------------------------------------
<S> <C> <C>
Number of Issues 46 5,974
Yield 6.6% 6.9%
Yield to Maturity 7.0% 7.2%
Average Coupon 6.1% 6.9%
Average Maturity 2.7 years 8.8 years
Average Quality Agency Aaa
Average Duration 2.0 years 4.9 years
Expense Ratio 0.29%** --
Cash Investments 1.8% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
----------------------------------------------------
<S> <C>
AVERAGE MATURITY SHORT
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
----------------------------------------------------
SHORT-TERM LEHMAN
FEDERAL INDEX*
----------------------------------------------------
<S> <C> <C>
R-Squared 0.86 1.00
Beta 0.50 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
----------------------------------------------------
<S> <C>
Treasury 7.8%
Agency 92.2
----------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
----------------------------------------------------
<S> <C>
Under 1 Year 5.8%
1-3 Years 55.1
3-5 Years 33.3
Over 5 Years 5.8
----------------------------------------------------
Total 100.0%
</TABLE>
21
<PAGE> 24
FUND PROFILE
SHORT-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
------------------------------------------------------------
SHORT-TERM LEHMAN
CORPORATE INDEX*
------------------------------------------------------------
<S> <C> <C>
Number of Issues 343 5,974
Yield 7.5% 6.9%
Yield--Institutional Shares 7.6% 6.9%
Yield to Maturity 7.8% 7.2%
Average Coupon 6.9% 6.9%
Average Maturity 2.5 years 8.8 years
Average Quality A1 Aaa
Average Duration 2.1 years 4.9 years
Expense Ratio 0.22%** --
Expense Ratio--
Institutional Shares 0.13%** --
Cash Investments 2.9% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
---------------------------------------------------------
<S> <C>
AVERAGE MATURITY SHORT
CREDIT QUALITY INVESTMENT-GRADE
CORPORATE
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
----------------------------------------------------
SHORT-TERM LEHMAN
CORPORATE INDEX*
----------------------------------------------------
<S> <C> <C>
R-Squared 0.85 1.00
Beta 0.49 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
----------------------------------------------------
<S> <C>
Treasury/Agency* 1.8%
Aaa 19.5
Aa 16.4
A 33.8
Baa 27.6
Ba 0.0
B 0.0
Not Rated 0.9
----------------------------------------------------
Total 100.0%
</TABLE>
*Includes government mortgage-backed bonds.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
----------------------------------------------------
<S> <C>
Under 1 Year 20.1%
1-3 Years 45.5
3-5 Years 19.6
Over 5 Years 14.8
----------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
----------------------------------------------------
<S> <C>
Asset-Backed 18.6%
Commercial Mortgage-Backed 0.0
Finance 32.9
Foreign 13.5
Government Mortgage-Backed 0.2
Industrial 20.0
Treasury/Agency 1.6
Utilities 12.8
Other 0.4
----------------------------------------------------
Total 100.0%
</TABLE>
22
<PAGE> 25
FUND PROFILE
INFLATION-PROTECTED SECURITIES FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
----------------------------------------------------
INFLATION-PROTECTED LEHMAN
SECURITIES INDEX*
----------------------------------------------------
<S> <C> <C>
Number of Issues 4 5,974
Yield 3.7%** 6.9%
Yield to Maturity 3.9%** 7.2%
Average Coupon 3.9%** 6.9%
Average Maturity 13.4 years 8.8 years
Average Quality Treasury Aaa
Average Duration 9.5 years 4.9 years
Expense Ratio 0.24%+ --
Cash Investments 2.3% --
</TABLE>
* Lehman Aggregate Bond Index.
** In real terms; not adjusted for projected
inflation.
+ Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
----------------------------------------------
<S> <C>
AVERAGE MATURITY SHORT
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
--------------------------------------------------
<S> <C>
Under 1 Year 0.0%
1-5 Years 18.4
5-10 Years 52.5
10-20 Years 0.0
20-30 Years 29.1
Over 30 Years 0.0
--------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
--------------------------------------------------
<S> <C>
Treasury 100.0%
</TABLE>
23
<PAGE> 26
FUND PROFILE
INTERMEDIATE-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
---------------------------------------------------
INTERMEDIATE-TERM LEHMAN
TREASURY INDEX*
---------------------------------------------------
<S> <C> <C>
Number of Issues 36 5,974
Yield 6.3% 6.9%
Yield to Maturity 6.5% 7.2%
Average Coupon 7.2% 6.9%
Average Maturity 7.6 years 8.8 years
Average Quality Treasury Aaa
Average Duration 5.3 years 4.9 years
Expense Ratio 0.30%** --
Cash Investments 2.1% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
----------------------------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
---------------------------------------------------
INTERMEDIATE-TERM LEHMAN
TREASURY INDEX*
---------------------------------------------------
<S> <C> <C>
R-Squared 0.91 1.00
Beta 1.37 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Treasury 92.3%
Agency 7.7
---------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Under 1 Year 0.7%
1-5 Years 14.7
5-10 Years 78.7
10-20 Years 5.9
20-30 Years 0.0
Over 30 Years 0.0
---------------------------------------------------
Total 100.0%
</TABLE>
24
<PAGE> 27
FUND PROFILE
INTERMEDIATE-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
---------------------------------------------------
INTERMEDIATE-TERM LEHMAN
CORPORATE INDEX*
---------------------------------------------------
<S> <C> <C>
Number of Issues 194 5,974
Yield 8.0% 6.9%
Yield to Maturity 8.0% 7.2%
Average Coupon 7.3% 6.9%
Average Maturity 7.3 years 8.8 years
Average Quality A2 Aaa
Average Duration 5.3 years 4.9 years
Expense Ratio 0.21%** --
Cash Investments 2.8% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
---------------------------------------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY INVESTMENT-GRADE
CORPORATE
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
---------------------------------------------------
INTERMEDIATE-TERM LEHMAN
CORPORATE INDEX*
---------------------------------------------------
<S> <C> <C>
R-Squared 0.92 1.00
Beta 1.24 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Treasury/Agency 2.9%
Aaa 7.4
Aa 16.3
A 46.8
Baa 25.8
Ba 0.0
B 0.0
Not Rated 0.8
---------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Under 1 Year 1.4%
1-5 Years 19.3
5-10 Years 75.2
10-20 Years 4.1
20-30 Years 0.0
Over 30 Years 0.0
---------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Asset-Backed 4.7%
Commercial Mortgage-Backed 0.0
Finance 29.2
Foreign 22.1
Government Mortgage-Backed 0.0
Industrial 25.1
Treasury/Agency 2.9
Utilities 16.0
---------------------------------------------------
Total 100.0%
</TABLE>
25
<PAGE> 28
FUND PROFILE
GNMA FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
---------------------------------------------------
LEHMAN
GNMA INDEX*
---------------------------------------------------
<S> <C> <C>
Number of Issues 24 5,974
Yield 6.8% 6.9%
Yield to Maturity 7.5% 7.2%
Average Coupon 7.0% 6.9%
Average Maturity 8.3 years 8.8 years
Average Quality Treasury Aaa
Average Duration 4.5 years 4.9 years
Expense Ratio 0.25%** --
Cash Investments 1.6% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
----------------------------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
---------------------------------------------------
LEHMAN
GNMA INDEX*
---------------------------------------------------
<S> <C> <C>
R-Squared 0.78 1.00
Beta 0.75 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY COUPON
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Under 6% 0.5%
6%-7% 34.7
7%-8% 51.1
8%-9% 12.1
9%-10% 1.6
10% and Over 0.0
---------------------------------------------------
Total 100.0%
</TABLE>
26
<PAGE> 29
FUND PROFILE
LONG-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
---------------------------------------------------
LONG-TERM LEHMAN
TREASURY INDEX*
---------------------------------------------------
<S> <C> <C>
Number of Issues 19 5,974
Yield 6.1% 6.9%
Yield to Maturity 6.2% 7.2%
Average Coupon 7.8% 6.9%
Average Maturity 18.3 years 8.8 years
Average Quality Treasury Aaa
Average Duration 9.6 years 4.9 years
Expense Ratio 0.32%** --
Cash Investments 3.5% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
----------------------------------------------
<S> <C>
AVERAGE MATURITY LONG
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
---------------------------------------------------
LONG-TERM LEHMAN
TREASURY INDEX*
---------------------------------------------------
<S> <C> <C>
R-Squared 0.84 1.00
Beta 2.00 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Treasury 94.4%
Agency 5.6
---------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Under 1 Year 1.2%
1-5 Years 0.0
5-10 Years 13.9
10-20 Years 39.2
20-30 Years 45.7
Over 30 Years 0.0
---------------------------------------------------
Total 100.0%
</TABLE>
27
<PAGE> 30
FUND PROFILE
LONG-TERM CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
-----------------------------------------------------
LONG-TERM LEHMAN
CORPORATE INDEX*
-----------------------------------------------------
<S> <C> <C>
Number of Issues 142 5,974
Yield 7.4% 6.9%
Yield to Maturity 7.6% 7.2%
Average Coupon 7.1% 6.9%
Average Maturity 19.1 years 8.8 years
Average Quality Aa3 Aaa
Average Duration 8.8 years 4.9 years
Expense Ratio 0.31%** --
Cash Investments 2.9% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
---------------------------------------------------------
<S> <C>
AVERAGE MATURITY LONG
CREDIT QUALITY INVESTMENT-GRADE
CORPORATE
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
-----------------------------------------------------
LONG-TERM LEHMAN
CORPORATE INDEX*
-----------------------------------------------------
<S> <C> <C>
R-Squared 0.85 1.00
Beta 1.70 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
---------------------------------------------------
<S> <C>
Treasury/Agency* 17.2%
Aaa 5.0
Aa 20.4
A 41.7
Baa 15.1
Ba 0.6
B 0.0
Not Rated 0.0
---------------------------------------------------
Total 100.0%
</TABLE>
*Includes government mortgage-backed bonds.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
--------------------------------------------------
<S> <C>
Under 1 Year 0.0%
1-5 Years 5.6
5-10 Years 17.6
10-20 Years 19.3
20-30 Years 55.5
Over 30 Years 2.0
--------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
--------------------------------------------------
<S> <C>
Asset-Backed 0.0%
Commercial Mortgage-Backed 0.0
Finance 23.0
Foreign 1.1
Government Mortgage-Backed 9.7
Industrial 47.9
Treasury/Agency 7.5
Utilities 10.8
--------------------------------------------------
Total 100.0%
</TABLE>
28
<PAGE> 31
FUND PROFILE
HIGH-YIELD CORPORATE FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 20.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
----------------------------------------------------
HIGH-YIELD LEHMAN
CORPORATE INDEX*
----------------------------------------------------
<S> <C> <C>
Number of Issues 219 5,974
Yield 9.9% 6.9%
Yield to Maturity 9.9% 7.2%
Average Coupon 8.8% 6.9%
Average Maturity 7.0 years 8.8 years
Average Quality Ba2 Aaa
Average Duration 4.6 years 4.9 years
Expense Ratio 0.26%** --
Cash Investments 3.3% --
</TABLE>
*Lehman Aggregate Bond Index.
**Annualized.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
---------------------------------------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY BELOW INVESTMENT-GRADE
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
---------------------------------------------------------
HIGH-YIELD LEHMAN
CORPORATE INDEX*
---------------------------------------------------------
<S> <C> <C>
R-Squared 0.09 1.00
Beta 0.48 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
---------------------------------------------------------
<S> <C>
Treasury/Agency 6.1%
Aaa 0.0
Aa 0.0
A 0.0
Baa 11.7
Ba 39.4
B 42.6
Caa 0.2
Not Rated 0.0
---------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
---------------------------------------------------------
<S> <C>
Under 1 Year 1.3%
1-5 Years 17.6
5-10 Years 77.5
10-20 Years 2.2
20-30 Years 1.4
Over 30 Years 0.0
---------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
---------------------------------------------------------
<S> <C>
Asset-Backed 0.0%
Commercial Mortgage-Backed 0.0
Finance 2.6
Foreign 0.0
Government Mortgage-Backed 0.0
Industrial 82.9
Treasury/Agency 6.1
Utilities 8.4
---------------------------------------------------------
Total 100.0%
</TABLE>
29
<PAGE> 32
FINANCIAL STATEMENTS
JULY 31, 2000 (UNAUDITED)
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 (98.4%)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Government National Mortgage Assn. 5.50% 3/15/2013-2/15/2014 (1) 66,401 61,820
Government National Mortgage Assn. 6.00% 10/15/2023-4/15/2029 (1) 1,509,030 1,392,206
Government National Mortgage Assn. 6.50% 7/15/2008-3/15/2029 (1) 3,099,735 2,945,607
Government National Mortgage Assn. 7.00% 4/15/2007-12/15/2029 (1) 3,543,926 3,450,546
Government National Mortgage Assn. 7.25% 12/15/2026-2/15/2027 (1) 2,809 2,760
Government National Mortgage Assn. 7.50% 12/15/2001-7/15/2030 (1) 2,943,110 2,922,881
Government National Mortgage Assn. 7.75% 2/15/2027 (1) 6,666 6,666
Government National Mortgage Assn. 8.00% 5/15/2001-8/1/2030 (1) 1,276,101 1,290,491
Government National Mortgage Assn. 8.25% 8/15/2004-7/15/2008 (1) 2,627 2,668
Government National Mortgage Assn. 8.50% 1/20/2005-7/15/2030 (1) 214,231 220,181
Government National Mortgage Assn. 9.00% 9/15/2001-2/15/2023 (1) 127,326 132,279
Government National Mortgage Assn. 9.25% 5/15/2016-5/15/2018 (1) 913 953
Government National Mortgage Assn. 9.50% 3/15/2001-7/15/2022 (1) 60,801 63,424
Government National Mortgage Assn. 10.00% 7/20/2014-8/20/2018 (1) 1,202 1,263
Government National Mortgage Assn. 11.00% 7/15/2010-2/20/2016 (1) 367 402
Government National Mortgage Assn. 11.25% 7/15/2013-2/20/2016 (1) 330 359
Government National Mortgage Assn. 11.50% 1/15/2013-11/20/2015 (1) 432 477
Government National Mortgage Assn. 12.00% 10/15/2010-1/20/2016 (1) 676 753
Government National Mortgage Assn. 12.50% 12/20/2013-7/20/2015 (1) 439 494
Government National Mortgage Assn. 13.00% 1/15/2011-1/20/2015 (1) 355 404
Government National Mortgage Assn. 13.25% 8/15/2014-10/15/2014 (1) 96 111
Government National Mortgage Assn. 13.50% 5/15/2010-12/15/2014 (1) 109 127
Government National Mortgage Assn. 14.00% 6/15/2011-9/15/2012 (1) 107 122
Government National Mortgage Assn. 15.00% 5/15/2012 (1) 47 55
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS
(COST $12,813,446) 12,497,049
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEMPORARY CASH INVESTMENT (3.1%)
-----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $401,958) 6.59% 8/1/2000 $ 401,958 $ 401,958
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.5%)
(COST $13,215,404) 12,899,007
-----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.5%)
-----------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 103,399
Liabilities (299,090)
------------
(195,691)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
-----------------------------------------------------------------------------------------------------------------------------------
Applicable to 1,281,481,395 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $12,703,316
===================================================================================================================================
NET ASSET VALUE PER SHARE $9.91
===================================================================================================================================
</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 JULY 31, 2000, NET ASSETS CONSISTED OF:
-----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $13,070,189 $10.20
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (50,476) (.04)
Unrealized Depreciation--Note H (316,397) (.25)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $12,703,316 $ 9.91
===================================================================================================================================
</TABLE>
31
<PAGE> 34
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 INFLATION-PROTECTED
TREASURY FEDERAL CORPORATE SECURITIES
FUND FUND FUND FUND
------------------------------------------ JUNE 5** TO
SIX MONTHS ENDED JULY 31, 2000 JULY 31, 2000
------------------------------------------------------------------
(000) (000) (000) (000)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $35,420 $46,035 $248,509 $142
Security Lending 139 114 74 --
--------------------------------------------------------------------
Total Income 35,559 46,149 248,583 142
--------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 71 89 436 --
The Vanguard Group--Note C
Management and Administrative--
Investor Shares 1,350 1,854 6,352 7
Management and Administrative--
Institutional Shares* -- -- 204 --
Marketing and Distribution--
Investor Shares 99 124 539 --
Marketing and Distribution--
Institutional Shares* -- -- 41 --
Custodian Fees 9 17 24 --
Auditing Fees 3 4 5 --
Shareholders' Reports--Investor Shares 29 38 86 --
Shareholders' Reports--Institutional Shares* -- -- 1 --
Trustees' Fees and Expenses 1 1 5 --
--------------------------------------------------------------------
Total Expenses 1,562 2,127 7,693 7
Expenses Paid Indirectly--Note D -- -- (13) --
--------------------------------------------------------------------
Net Expenses 1,562 2,127 7,680 7
-------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 33,997 44,022 240,903 135
-------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (5,115) (6,194) (33,759) --
Futures Contracts (108) (1,730) (4,541) --
-------------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS (5,223) (7,924) (38,300) --
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 14,660 16,736 52,910 128
Futures Contracts (150) (169) (16,104) --
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 14,510 16,567 36,806 128
-------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $43,284 $52,665 $239,409 $263
===============================================================================================================================
</TABLE>
*Only the Short-Term Corporate Fund offers institutional shares.
**Commencement of operations.
32
<PAGE> 35
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE- INTERMEDIATE- LONG-TERM
TERM TREASURY TERM CORPORATE GNMA TREASURY
FUND FUND FUND FUND
-----------------------------------------------------------------------------
SIX MONTHS ENDED JULY 31, 2000
-----------------------------------------------------------------------------
(000) (000) (000) (000)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $53,330 $57,288 $444,884 $ 37,217
-----------------------------------------------------------------------
Security Lending 535 148 -- 125
-----------------------------------------------------------------------
Total Income 53,865 57,436 444,884 37,342
EXPENSES
Investment Advisory Fees--Note B 100 92 708 71
The Vanguard Group--Note C
Management and Administrative--
Investor Shares 2,094 1,361 12,897 1,603
Management and Administrative--
Institutional Shares* -- -- -- --
Marketing and Distribution--
Investor Shares 144 115 959 106
Marketing and Distribution--
Institutional Shares* -- -- -- --
Custodian Fees 9 12 763 8
Auditing Fees 4 3 7 3
Shareholders' Reports--Investor Shares 44 20 227 36
Shareholders' Reports--Institutional Shares* -- -- -- --
Trustees' Fees and Expenses 1 1 9 1
-----------------------------------------------------------------------
Total Expenses 2,396 1,604 15,570 1,828
Expenses Paid Indirectly--Note D -- -- (162) --
-----------------------------------------------------------------------
Net Expenses 2,396 1,604 15,408 1,828
-------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 51,469 55,832 429,476 35,514
-------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (2,439) (17,535) (39,785) (1,870)
Futures Contracts (37) -- -- 141
-------------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS (2,476) (17,535) (39,785) (1,729)
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 44,020 24,248 289,837 67,907
Futures Contracts 246 -- -- 38
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 44,266 24,248 289,837 67,945
-------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $93,259 $62,545 $679,528 $101,730
===============================================================================================================================
</TABLE>
*Only the Short-Term Corporate Fund offers institutional shares.
33
<PAGE> 36
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
LONG-TERM HIGH-YIELD
CORPORATE CORPORATE
FUND FUND
---------------------------------
SIX MONTHS ENDED JULY 31, 2000
---------------------------------
(000) (000)
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest $131,492 $248,429
Security Lending 92 724
------------------------------
Total Income 131,584 249,153
------------------------------
EXPENSES
Investment Advisory Fees--Note B 493 954
The Vanguard Group--Note C
Management and Administrative--Investor Shares 4,737 5,676
Management and Administrative--Institutional Shares* -- --
Marketing and Distribution--Investor Shares 233 378
Marketing and Distribution--Institutional Shares* -- --
Custodian Fees 23 27
Auditing Fees 4 5
Shareholders' Reports--Investor Shares 76 105
Shareholders' Reports--Institutional Shares* -- --
Trustees' Fees and Expenses 3 4
------------------------------
Total Expenses 5,569 7,149
Expenses Paid Indirectly--Note D -- (12)
------------------------------
Net Expenses 5,569 7,137
------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 126,015 242,016
------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (9,451) (65,049)
Futures Contracts -- --
------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS (9,451) (65,049)
------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 34,069 (48,862)
Futures Contracts -- --
------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 34,069 (48,862)
------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $150,633 $128,105
============================================================================================================
</TABLE>
*Only the Short-Term Corporate Fund offers institutional shares.
34
<PAGE> 37
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. For the funds that distribute 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
Inflation-Protected Securities Fund's Distributions--Net Investment Income and
all funds' amounts of Distributions--Realized Capital Gains 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 income was earned or 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
-------------------------------- ---------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JULY 31, 2000 JAN. 31, 2000 JULY 31, 2000 JAN. 31, 2000
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income 33,997 64,457 44,022 90,099
Realized Net Loss (5,223) (13,242) (7,924) (11,043)
Change in Unrealized Appreciation
(Depreciation) 14,510 (35,630) 16,567 (56,052)
---------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 43,284 15,585 52,665 23,004
DISTRIBUTIONS
Net Investment Income
Investor Shares (33,997) (64,457) (44,022) (90,099)
Institutional Shares* -- -- -- --
Realized Capital Gain
Investor Shares -- (2,006) -- --
Institutional Shares* -- -- -- --
---------------------------------------------------------------
Total Distributions (33,997) (66,463) (44,022) (90,099)
---------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 181,752 493,555 178,658 500,838
Issued in Lieu of Cash Distributions 29,897 58,717 37,442 77,158
Redeemed (237,119) (522,209) (261,651) (676,926)
---------------------------------------------------------------
Net Increase (Decrease)--Investor
Shares (25,470) 30,063 (45,551) (98,930)
---------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL
SHARES(2)*
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
---------------------------------------------------------------
Net Increase (Decrease)--Institutional
Shares -- -- -- --
------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (16,183) (20,815) (36,908) (166,025)
------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 1,176,680 1,197,495 1,478,386 1,644,411
---------------------------------------------------------------
End of Period $1,160,497 $1,176,680 $1,441,478 $1,478,386
============================================================================================================
(1) Shares Issued (Redeemed)
Issued 18,202 48,673 18,105 49,885
Issued in Lieu of Cash Distributions 2,994 5,805 3,793 7,709
Redeemed (23,768) (51,627) (26,513) (67,718)
---------------------------------------------------------------
Net Increase (Decrease) in Shares
Outstanding (2,572) 2,851 (4,615) (10,124)
============================================================================================================
(2) Shares Issued (Redeemed)
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
---------------------------------------------------------------
Net Increase (Decrease) in Shares
Outstanding -- -- -- --
============================================================================================================
</TABLE>
*Only the Short-Term Corporate Fund offers institutional shares.
35
<PAGE> 38
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
SHORT-TERM INFLATION-PROTECTED
CORPORATE FUND SECURITIES FUND
------------------------------------- --------------------
SIX MONTHS ENDED YEAR ENDED JUNE 5** TO
JULY 31, 2000 JAN. 31, 2000 JULY 31, 2000
(000) (000) (000)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 240,903 $ 408,690 $ 135
Realized Net Loss (38,300) (17,320) --
Change in Unrealized Appreciation (Depreciation) 36,806 (204,552) 128
-------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 239,409 186,818 263
-------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (226,579) (380,725) --
Institutional Shares* (14,324) (27,965) --
Realized Capital Gain
Investor Shares -- -- --
Institutional Shares* -- -- --
-------------------------------------------------------------
Total Distributions (240,903) (408,690) --
-------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 946,940 3,115,955 46,083
Issued in Lieu of Cash Distributions 196,206 327,828 --
Redeemed (928,935) (2,035,862) (509)
-------------------------------------------------------------
Net Increase (Decrease)--Investor Shares 214,211 1,407,921 45,574
-------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES(2)*
Issued 35,843 154,440 --
Issued in Lieu of Cash Distributions 13,536 24,323 --
Redeemed (77,336) (149,708) --
-------------------------------------------------------------
Net Increase (Decrease)--Institutional Shares (27,957) 29,055 --
---------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 184,760 1,215,104 45,837
---------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 7,165,026 5,949,922 --
-------------------------------------------------------------
End of Period $7,349,786 $7,165,026 $45,837
=====================================================================================================================
(1)Shares Issued (Redeemed)--Investor Shares
Issued 90,488 292,972 4,582
Issued in Lieu of Cash Distributions 18,765 30,867 --
Redeemed (88,766) (191,362) (51)
-------------------------------------------------------------
Net Increase (Decrease) in Shares Outstanding 20,487 132,477 4,531
=====================================================================================================================
(2)Shares Issued (Redeemed)--Institutional Shares
Issued 3,419 14,448 --
Issued in Lieu of Cash Distributions 1,294 2,290 --
Redeemed (7,387) (14,133) --
-------------------------------------------------------------
Net Increase (Decrease) in Shares Outstanding (2,674) 2,605 --
=====================================================================================================================
</TABLE>
* Only the Short-Term Corporate Fund offers institutional shares.
** Commencement of operations.
36
<PAGE> 39
<TABLE>
<CAPTION>
INTERMEDIATE-TERM INTERMEDIATE-TERM
TREASURY FUND CORPORATE FUND
-------------------------- -----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JULY 31, 2000 JAN. 31, 2000 JULY 31, 2000 JAN. 31, 2000
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 51,469 $ 106,734 $ 55,832 $ 90,558
Realized Net Loss (2,476) (40,368) (17,535) (23,536)
Change in Unrealized Appreciation (Depreciation) 44,266 (150,680) 24,248 (102,228)
----------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 93,259 (84,314) 62,545 (35,206)
----------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (51,469) (106,734) (55,832) (90,558)
Institutional Shares* -- -- -- --
Realized Capital Gain
Investor Shares -- -- -- (6,097)
Institutional Shares* -- -- -- --
----------------------------------------------------------------
Total Distributions (51,469) (106,734) (55,832) (96,655)
----------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 188,866 589,034 310,133 686,374
Issued in Lieu of Cash Distributions 39,691 83,033 43,892 77,875
Redeemed (296,103) (704,496) (186,065) (391,479)
----------------------------------------------------------------
Net Increase (Decrease)--Investor Shares (67,546) (32,429) 167,960 372,770
----------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES(2)*
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease)--Institutional Shares -- -- -- --
------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (25,756) (223,477) 174,673 240,909
------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 1,652,427 1,875,904 1,475,001 1,234,092
----------------------------------------------------------------
End of Period $1,626,671 $1,652,427 $1,649,674 $1,475,001
========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 18,596 55,941 34,061 72,380
Issued in Lieu of Cash Distributions 3,895 7,963 4,820 8,252
Redeemed (29,157) (67,380) (20,402) (41,610)
----------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding (6,666) (3,476) 18,479 39,022
========================================================================================================================
(2)Shares Issued (Redeemed)
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
----------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding -- -- -- --
========================================================================================================================
</TABLE>
*Only the Short-Term Corporate Fund offers institutional shares.
37
<PAGE> 40
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
LONG-TERM
GNMA FUND TREASURY FUND
---------------------------- -----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JULY 31, 2000 JAN. 31, 2000 JULY 31, 2000 JAN. 31, 2000
(000) (000) (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 429,476 $ 815,386 $ 35,514 $ 79,156
Realized Net Loss (39,785) (10,888) (1,729) (14,911)
Change in Unrealized Appreciation (Depreciation) 289,837 (903,452) 67,945 (186,917)
-------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 679,528 (98,954) 101,730 (122,672)
-------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (429,476) (815,386) (35,514) (79,156)
Institutional Shares* -- -- -- --
Realized Capital Gain
Investor Shares -- -- -- (15,831)
Institutional Shares* -- -- -- --
-------------------------------------------------------------
Total Distributions (429,476) (815,386) (35,514) (94,987)
-------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 1,248,077 4,252,898 127,576 481,535
Issued in Lieu of Cash Distributions 323,973 618,474 28,655 78,170
Redeemed (1,346,345) (3,083,447) (218,531) (614,225)
-------------------------------------------------------------
Net Increase (Decrease)--Investor Shares 225,705 1,787,925 (62,300) (54,520)
-------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES(2)*
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
Net Increase (Decrease)--Institutional Shares -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 475,757 873,585 3,916 (272,179)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 12,227,559 11,353,974 1,178,080 1,450,259
-------------------------------------------------------------
End of Period $12,703,316 $12,227,559 $1,181,996 $1,178,080
=============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 126,823 419,825 12,638 46,580
Issued in Lieu of Cash Distributions 32,858 61,578 2,825 7,639
Redeemed (136,983) (307,505) (21,698) (60,257)
-------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 22,698 173,898 (6,235) (6,038)
=============================================================================================================================
(2)Shares Issued (Redeemed)
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
-------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding -- -- -- --
=============================================================================================================================
</TABLE>
*Only the Short-Term Corporate Fund offers institutional shares.
38
<PAGE> 41
<TABLE>
<CAPTION>
LONG-TERM HIGH-YIELD
CORPORATE FUND CORPORATE FUND
--------------------------- -------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JULY 31, 2000 JAN. 31, 2000 JULY 31, 2000 JAN. 31, 2000
(000) (000) (000) (000)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income 126,015 259,173 242,016 477,653
Realized Net Loss (9,451) (5,745) (65,049) (129,511)
Change in Unrealized Appreciation (Depreciation) 34,069 (564,573) (48,862) (338,694)
---------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 150,633 (311,145) 128,105 9,448
---------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (126,015) (259,173) (242,016) (477,653)
Institutional Shares* -- -- -- --
Realized Capital Gain
Investor Shares -- (25,075) -- --
Institutional Shares* -- --
---------------------------------------------------------------
Total Distributions (126,015) (284,248) (242,016) (477,653)
---------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 243,381 670,244 571,367 1,473,307
Issued in Lieu of Cash Distributions 104,208 237,321 159,440 325,084
Redeemed** (457,944) (862,409) (658,370) (1,308,221)
---------------------------------------------------------------
Net Increase (Decrease)--Investor Shares (110,355) 45,156 72,437 490,170
---------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES(2)*
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
---------------------------------------------------------------
Net Increase (Decrease)--Institutional Shares -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (85,737) (550,237) (41,474) 21,965
-------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 3,681,465 4,231,702 5,570,808 5,548,843
---------------------------------------------------------------
End of Period $3,595,728 $3,681,465 $5,529,334 $5,570,808
===============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 30,144 78,102 79,893 193,710
Issued in Lieu of Cash Distributions 12,927 27,955 22,415 43,198
Redeemed (56,679) (101,837) (92,125) (174,292)
---------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding (13,608) 4,220 10,183 62,616
===============================================================================================================================
(2)Shares Issued (Redeemed)
Issued -- -- -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed -- -- -- --
---------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding -- -- -- --
===============================================================================================================================
</TABLE>
*Only the Short-Term Corporate Fund offers institutional shares.
**The High-Yield Corporate Fund redemptions are net of redemption fees of
$601,000 and $1,651,000.
39
<PAGE> 42
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
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
---------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.94 $ 10.37 $ 10.27 $ 10.16 $ 10.36 $ 9.89
================================================================================================================================
INVESTMENT OPERATIONS
Net Investment Income .295 .534 .545 .590 .586 .625
Net Realized and Unrealized Gain (Loss)
on Investments .090 (.413) .122 .110 (.200) .470
-------------------------------------------------------------------------
Total from Investment Operations .385 .121 .667 .700 .386 1.095
-------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.295) (.534) (.545) (.590) (.586) (.625)
Distributions from Realized Capital Gains -- (.017) (.022) -- -- --
-------------------------------------------------------------------------
Total Distributions (.295) (.551) (.567) (.590) (.586) (.625)
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.03 $ 9.94 $ 10.37 $ 10.27 $ 10.16 $ 10.36
================================================================================================================================
TOTAL RETURN 3.93% 1.20% 6.66% 7.11% 3.89% 11.37%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 1,160 $ 1,177 $ 1,197 $ 1,009 $ 970 $ 919
Ratio of Total Expenses to
Average Net Assets 0.27%* 0.27% 0.27% 0.27% 0.25% 0.27%
Ratio of Net Investment Income to
Average Net Assets 5.90%* 5.27% 5.27% 5.80% 5.77% 6.14%
Portfolio Turnover Rate 214%* 124% 132% 83% 86% 93%
================================================================================================================================
</TABLE>
*Annualized.
40
<PAGE> 43
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL FUND
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
--------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 10.26 $10.19 $10.11 $10.28 $ 9.79
---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .298 .567 .581 .611 .615 .601
Net Realized and Unrealized Gain (Loss)
on Investments .060 (.410) .070 .080 (.170) .490
-------------------------------------------------------------------
Total from Investment Operations .358 .157 .651 .691 .445 1.091
-------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.298) (.567) (.581) (.611) (.615) (.601)
Distributions from Realized Capital Gains -- -- -- -- -- --
-------------------------------------------------------------------
Total Distributions (.298) (.567) (.581) (.611) (.615) (.601)
---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.91 $ 9.85 $10.26 $10.19 $10.11 $10.28
===========================================================================================================================
TOTAL RETURN 3.68% 1.59% 6.57% 7.06% 4.51% 11.43%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,441 $ 1,478 $1,644 $1,460 $1,348 $1,402
Ratio of Total Expenses to
Average Net Assets 0.29%* 0.27% 0.27% 0.27% 0.25% 0.27%
Ratio of Net Investment Income to
Average Net Assets 6.05%* 5.64% 5.68% 6.04% 6.09% 5.93%
Portfolio Turnover Rate 171%* 93% 107% 94% 57% 74%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
SHORT-TERM CORPORATE FUND INVESTOR SHARES
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
--------------------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.49 $10.86 $10.87 $10.75 $10.94 $10.40
===================================================================================================================================
INVESTMENT OPERATIONS
Net Investment Income .350 .660 .660 .664 .663 .671
Net Realized and Unrealized Gain (Loss)
on Investments -- (.370) (.010) .120 (.190) .540
---------------------------------------------------------------------------------
Total from Investment Operations .350 .290 .650 .784 .473 1.211
---------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.350) (.660) (.660) (.664) (.663) (.671)
Distributions from Realized Capital Gains -- -- -- -- -- --
---------------------------------------------------------------------------------
Total Distributions (.350) (.660) (.660) (.664) (.663) (.671)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.49 $10.49 $10.86 $10.87 $10.75 $10.94
===================================================================================================================================
TOTAL RETURN 3.40% 2.77% 6.16% 7.53% 4.52% 11.95%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $6,944 $6,731 $5,529 $4,709 $4,531 $3,873
Ratio of Total Expenses to
Average Net Assets 0.22%* 0.25% 0.27% 0.28% 0.25% 0.27%
Ratio of Net Investment Income to
Average Net Assets 6.72%* 6.21% 6.08% 6.17% 6.18% 6.23%
Portfolio Turnover Rate 53%* 52% 46% 45% 45% 62%
==================================================================================================================================
</TABLE>
*Annualized.
41
<PAGE> 44
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE FUND INSTITUTIONAL SHARES
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31, SEP. 30, 1997* TO
---------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 JAN. 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.49 $10.86 $10.87 $10.80
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .355 .673 .673 .229
Net Realized and Unrealized Gain (Loss)
on Investments -- (.370) (.010) .070
------------------------------------------------------------
Total from Investment Operations .355 .303 .663 .299
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.355) (.673) (.673) (.229
Distributions from Realized Capital Gains -- -- -- --
------------------------------------------------------------
Total Distributions (.355) (.673) (.673) (.229
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.49 $10.49 $10.86 $10.87
====================================================================================================================================
TOTAL RETURN 3.44% 2.89% 6.28% 2.79%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $406 $434 $421 $263
Ratio of Total Expenses to Average Net Assets 0.13%** 0.13% 0.15% 0.15%**
Ratio of Net Investment Income to Average Net Assets 6.81%** 6.31% 6.19% 6.28%**
Portfolio Turnover Rate 53%** 52% 46% 45%
====================================================================================================================================
</TABLE>
*Inception.
**Annualized.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
INFLATION-PROTECTED SECURITIES FUND
JUN. 5, 2000* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD JUL. 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .06
Net Realized and Unrealized Gain (Loss) on Investments .06
--------
Total from Investment Operations .12
--------
DISTRIBUTIONS
Dividends from Net Investment Income --
Distributions from Realized Capital Gains --
--------
Total Distributions --
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.12
====================================================================================================================================
TOTAL RETURN 0.90%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $46
Ratio of Total Expenses to Average Net Assets 0.24%**
Ratio of Net Investment Income to Average Net Assets 4.49%**
Portfolio Turnover Rate 0%
====================================================================================================================================
</TABLE>
*Subscription period for the fund was June 5, 2000, to June 29, 2000, during
which time all assets were held in money market instruments. Performance
measurement begins June 29, 2000.
**Annualized.
42
<PAGE> 45
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM TREASURY FUND
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
------------------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.03 $11.16 $10.80 $10.37 $10.90 $ 9.76
===================================================================================================================================
INVESTMENT OPERATIONS
Net Investment Income .322 .625 .630 .647 .649 .662
Net Realized and Unrealized Gain (Loss)
on Investments .260 (1.130) .360 .430 (.530) 1.140
--------------------------------------------------------------------------
Total from Investment Operations .582 (.505) .990 1.077 .119 1.802
--------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.322) (.625) (.630) (.647) (.649) (.662)
Distributions from Realized Capital Gains -- -- -- -- -- --
--------------------------------------------------------------------------
Total Distributions (.322) (.625) (.630) (.647) (.649) (.662)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.29 $10.03 $11.16 $10.80 $10.37 $10.90
===================================================================================================================================
TOTAL RETURN 5.88% -4.59% 9.44% 10.78% 1.28% 18.96%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,627 $1,652 $1,876 $1,595 $1,279 $1,226
Ratio of Total Expenses to
Average Net Assets 0.30%* 0.27% 0.27% 0.27% 0.25% 0.28%
Ratio of Net Investment Income to
Average Net Assets 6.36%* 5.96% 5.76% 6.19% 6.26% 6.34%
Portfolio Turnover Rate 62%* 66% 63% 30% 42% 56%
===================================================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM CORPORATE FUND
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
------------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.13 $10.07 $10.03 $ 9.72 $10.17 $ 9.07
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .329 .623 .627 .638 .639 .658
Net Realized and Unrealized Gain (Loss)
on Investments .030 (.894) .122 .321 (.430) 1.100
-------------------------------------------------------------------
Total from Investment Operations .359 (.271) .749 .959 .209 1.758
-------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.329) (.623) (.627) (.638) (.639) (.658)
Distributions from Realized Capital Gains -- (.046) (.082) (.011) (.020) --
-------------------------------------------------------------------
Total Distributions (.329) (.669) (.709) (.649) (.659) (.658)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.16 $ 9.13 $10.07 $10.03 $ 9.72 $10.17
===================================================================================================================================
TOTAL RETURN 4.00% -2.70% 7.73% 10.24% 2.29% 19.94%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,650 $1,475 $1,234 $899 $592 $424
Ratio of Total Expenses to
Average Net Assets 0.21%* 0.25% 0.27% 0.26% 0.25% 0.28%
Ratio of Net Investment Income to
Average Net Assets 7.24%* 6.60% 6.25% 6.51% 6.61% 6.70%
Portfolio Turnover Rate 76%* 67% 71% 69% 85% 78%
===================================================================================================================================
</TABLE>
*Annualized.
43
<PAGE> 46
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
GNMA FUND
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
-------------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.71 $10.47 $10.48 $10.23 $10.45 $ 9.71
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .341 .669 .687 .718 .727 .734
Net Realized and Unrealized Gain (Loss)
on Investments .200 (.760) .002 .253 (.220) .740
---------------------------------------------------------------
Total from Investment Operations .541 (.091) .689 .971 .507 1.474
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.341) (.669) (.687) (.718) (.727) (.734)
Distributions from Realized Capital Gains -- -- (.012) (.003) -- --
---------------------------------------------------------------
Total Distributions (.341) (.669) (.699) (.721) (.727) (.734)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.91 $ 9.71 $10.47 $10.48 $10.23 $10.45
=========================================================================================================================
TOTAL RETURN 5.65% -0.89% 6.79% 9.86% 5.15% 15.64%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $12,703 $12,228 $11,354 $8,894 $7,400 $6,998
Ratio of Total Expenses to
Average Net Assets 0.25%* 0.27% 0.30% 0.31% 0.27% 0.29%
Ratio of Net Investment Income to
Average Net Assets 6.95%* 6.63% 6.56% 6.97% 7.16% 7.22%
Portfolio Turnover Rate 15%* 5% 7% 3% 12% 7%
=========================================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
LONG-TERM TREASURY FUND
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
----------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.74 $11.42 $10.79 $ 9.84 $10.73 $ 9.23
--------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .309 .611 .629 .643 .655 .669
Net Realized and Unrealized Gain (Loss)
on Investments .560 (1.560) .630 .950 (.877) 1.725
----------------------------------------------------------------
Total from Investment Operations .869 (.949) 1.259 1.593 (.222) 2.394
----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.309) (.611) (.629) (.643) (.655) (.669)
Distributions from Realized Capital Gains -- (.120) -- -- (.013) (.225)
----------------------------------------------------------------
Total Distributions (.309) (.731) (.629) (.643) (.668) (.894)
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.30 $ 9.74 $11.42 $10.79 $ 9.84 $10.73
==========================================================================================================================
TOTAL RETURN 9.01% -8.41% 12.02% 16.85% -1.85% 26.72%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,182 $1,178 $1,450 $1,061 $898 $916
Ratio of Total Expenses to
Average Net Assets 0.32%* 0.28% 0.27% 0.27% 0.25% 0.27%
Ratio of Net Investment Income to
Average Net Assets 6.14%* 5.98% 5.69% 6.38% 6.66% 6.57%
Portfolio Turnover Rate 72%* 43% 22% 18% 31% 105%
==========================================================================================================================
</TABLE>
*Annualized.
44
<PAGE> 47
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CORPORATE FUND
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
--------------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.08 $9.38 $9.32 $8.71 $9.43 $8.18
----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .285 .561 .582 .613 .619 .627
Net Realized and Unrealized Gain (Loss)
on Investments .060 (1.245) .266 .685 (.566) 1.250
----------------------------------------------------------------------
Total from Investment Operations .345 (.684) .848 1.298 .053 1.877
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.285) (.561) (.582) (.613) (.619) (.627)
Distributions from Realized Capital Gains -- (.055) (.206) (.075) (.154) --
----------------------------------------------------------------------
Total Distributions (.285) (.616) (.788) (.688) (.773) (.627)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.14 $8.08 $9.38 $9.32 $8.71 $9.43
===================================================================================================================================
TOTAL RETURN 4.36% -7.40% 9.52% 15.52% 0.86% 23.64%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $3,596 $3,681 $4,232 $3,720 $3,324 $3,376
Ratio of Total Expenses to
Average Net Assets 0.31%* 0.30% 0.30% 0.32% 0.28% 0.31%
Ratio of Net Investment Income to
Average Net Assets 7.10%* 6.59% 6.26% 6.87% 7.06% 7.03%
Portfolio Turnover Rate 3%* 7% 43% 33% 30% 49%
===================================================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD CORPORATE FUND
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JANUARY 31,
------------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $7.28 $7.90 $8.17 $7.87 $7.89 $7.24
===================================================================================================================================
INVESTMENT OPERATIONS
Net Investment Income .317 .631 .659 .688 .688 .678
Net Realized and Unrealized Gain (Loss)
on Investments (.150) (.620) (.245) .300 (.020) .650
---------------------------------------------------------------------------------
Total from Investment Operations .167 .011 .414 .988 .668 1.328
---------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.317) (.631) (.659) (.688) (.688) (.678)
Distributions from Realized Capital Gains -- -- (.025) -- -- --
---------------------------------------------------------------------------------
Total Distributions (.317) (.631) (.684) (.688) (.688) (.678)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $7.13 $7.28 $7.90 $8.17 $7.87 $7.89
===================================================================================================================================
TOTAL RETURN* 2.39% 0.17% 5.34% 13.14% 9.01% 19.01%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $5,529 $5,571 $5,549 $4,747 $3,674 $3,007
Ratio of Total Expenses to
Average Net Assets 0.26%** 0.28% 0.29% 0.28% 0.29% 0.34%
Ratio of Net Investment Income to
Average Net Assets 8.92%** 8.34% 8.26% 8.63% 8.92% 8.85%
Portfolio Turnover Rate 18%** 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.
**Annualized.
45
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS
Vanguard Bond Funds comprise the Vanguard Short-Term Treasury, Short-Term
Federal, Short-Term Corporate, Inflation-Protected Securities,
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 funds consistently follow such
policies in preparing their 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 by all funds except Vanguard Inflation-Protected Securities Fund, and paid
on the first business day of the following month. Quarterly income dividends
from Vanguard Inflation-Protected Securities Fund, and all funds' 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
46
<PAGE> 49
accreted, respectively, to interest income over the lives of the respective
securities. Inflation adjustments to the face amount of inflation-indexed
securities are included in interest income. Fees assessed on redemptions of
Vanguard High-Yield Corporate Fund capital shares are credited to paid in
capital.
B. The Vanguard Group furnishes investment advisory services to the Vanguard
Short-Term Treasury, Short-Term Federal, Short-Term Corporate,
Inflation-Protected Securities, Intermediate-Term Treasury, Intermediate-Term
Corporate, and Long-Term Treasury Funds on an at-cost basis.
Wellington Management Company, LLP, provides investment advisory services to
the Vanguard GNMA, Long-Term Corporate, and High-Yield Corporate Funds for fees
calculated at an annual percentage rate of average net assets. For the six
months ended July 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 0.04%, respectively, of average net assets.
C. The Vanguard Group furnishes at cost corporate management, administrative,
shareholder account maintenance, marketing, and distribution services. The costs
of such services are allocated to each fund under methods approved by the board
of trustees. Each fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At July 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
BOND FUND (000) ASSETS CAPITALIZATION
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 220 0.02% 0.2%
Short-Term Federal 276 0.02 0.3
Short-Term Corporate 1,308 0.02 1.3
Inflation-Protected Securities 4 0.02 --
Intermediate-Term Treasury 310 0.02 0.3
Intermediate-Term Corporate 308 0.02 0.3
GNMA 2,399 0.02 2.4
Long-Term Treasury 221 0.02 0.2
Long-Term Corporate 683 0.02 0.7
High-Yield Corporate 1,039 0.02 1.0
-------------------------------------------------------------------------------------------------------------------------
</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 six months ended July 31, 2000, custodian fee offset arrangements reduced
expenses by:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
EXPENSE REDUCTION
(000)
----------------------------------------
CUSTODIAN
BOND FUND FEES
----------------------------------------------------------------------------------------------------------------------
<S> <C>
Short-Term Corporate $ 13
GNMA 162
High-Yield Corporate 12
----------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (continued)
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 $10 million. Investor Shares are offered to all
other investors. Both classes of shares have equal rights as to assets and
earnings, except that each class bears certain class-specific expenses related
to its shareholder activity. For the six months ended July 31, 2000,
class-specific expenses represented an annual rate of 0.16% and 0.07% of average
net assets of the Investor Shares and Institutional Shares, respectively.
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 six months ended July 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 $1,747,241 $1,703,354
Intermediate-Term Corporate 577,599 416,278
Long-Term Corporate 49,938 111,413
High-Yield Corporate 495,880 421,599
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of U.S. government securities were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
(000)
----------------------------------------------------------
BOND FUND PURCHASES SALES
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Treasury $1,216,537 $1,230,091
Short-Term Federal 1,240,187 1,210,699
Short-Term Corporate 213,983 134,203
Inflation-Protected Securities 44,615 --
Intermediate-Term Treasury 487,899 534,194
Intermediate-Term Corporate 147,524 161,417
GNMA 1,724,848 926,840
Long-Term Treasury 404,433 460,407
Long-Term Corporate -- --
High-Yield Corporate -- 49,313
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
G. Capital gain distributions are determined on a tax basis and may differ from
realized capital gains for financial reporting purposes due to differences in
the timing of realization of gains. The following 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>
48
<PAGE> 51
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 July 31, 2000, net unrealized appreciation (depreciation) of investment
securities for federal income tax purposes was:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
(000)
------------------------------------------------------------
NET UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION
BOND FUND SECURITIES SECURITIES (DEPRECIATION)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 1,916 $ (10,592) $ (8,676)
Short-Term Federal 1,341 (22,250) (20,909)
Short-Term Corporate 18,382 (127,841) (109,459)
Inflation-Protected Securities 128 -- 128
Intermediate-Term Treasury 15,008 (21,758) (6,750)
Intermediate-Term Corporate 7,109 (58,807) (51,698)
GNMA 60,219 (376,616) (316,397)
Long-Term Treasury* 63,556 (14,568) 48,988
Long-Term Corporate 37,338 (262,353) (225,015)
High-Yield Corporate 27,651 (375,155) (347,504)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*See Note G.
49
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (continued)
At July 31, 2000, the aggregate settlement value of open futures contracts
expiring in September 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 Treasury/
5-Year Treasury Note (80) $ 7,936 (150)
Short-Term Federal/
5-Year Treasury Note (702) 69,641 (169)
Short-Term Corporate/
2-Year Treasury Note (723) 143,662 (799)
5-Year Treasury Note (1,472) 146,027 (1,553)
U.S. Treasury Note (1,830) 180,970 (2,189)
--------------------------------------------------------------------------------------------------
</TABLE>
I. The market values of securities on loan to broker/dealers at July 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 $128,230 $ 79,663 $50,897
Short-Term Federal 106,350 72,756 35,963
Short-Term Corporate 53,761 39,173 15,671
Intermediate-Term Treasury 446,815 402,340 53,603
Intermediate-Term Corporate 48,952 33,094 16,908
Long-Term Treasury 39,063 39,814 --
Long-Term Corporate 240,327 183,848 61,600
High-Yield Corporate 252,130 234,196 26,544
----------------------------------------------------------------------------------------------------
</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.
50
<PAGE> 53
THE VANGUARD(R) FAMILY OF FUNDS
<TABLE>
<CAPTION>
STOCK FUNDS
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
500 Index Fund Growth Index Fund* Strategic Equity Fund
Calvert Social Index(TM) Fund* Health Care Fund Tax-Managed Capital
Capital Opportunity Fund Institutional Developed Markets Appreciation Fund*
Convertible Securities Fund Index Fund Tax-Managed Growth and
Developed Markets Index Fund Institutional Index Fund* Income Fund*
Emerging Markets Stock International Growth Fund Tax-Managed International Fund*
Index Fund* International Value Fund Tax-Managed Small-Cap Fund*
Energy Fund Mid-Cap Index Fund* Total International Stock
Equity Income Fund Morgan(TM) Growth Fund Index Fund
European Stock Index Fund* Pacific Stock Index Fund* Total Stock Market Index Fund*
Explorer(TM) Fund PRIMECAP Fund U.S. Growth Fund
Extended Market Index Fund* REIT Index Fund U.S. Value Fund
Global Equity Fund Selected Value Fund Utilities Income Fund
Gold and Precious Metals Fund Small-Cap Growth Index Fund* Value Index Fund*
Growth and Income Fund Small-Cap Index Fund* Windsor(TM) Fund
Growth Equity Fund Small-Cap Value Index Fund* Windsor(TM) II Fund
BALANCED FUNDS
----------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund LifeStrategy(R) Growth Fund STAR(TM) Fund
Balanced Index Fund LifeStrategy(R) Income Fund Tax-Managed Balanced Fund
Global Asset Allocation Fund LifeStrategy(R) Moderate Wellesley(R) Income Fund
LifeStrategy(R) Conservative Growth Fund Wellington(TM) Fund
Growth Fund
BOND FUNDS
----------------------------------------------------------------------------------------------------------------------------
Admiral(TM) Intermediate-Term Intermediate-Term Bond Preferred Stock Fund
Treasury Fund Index Fund Short-Term Bond Index Fund
Admiral(TM) Long-Term Treasury Intermediate-Term Corporate Fund Short-Term Corporate Fund*
Fund Intermediate-Term Tax-Exempt Fund Short-Term Federal Fund
Admiral(TM) Short-Term Treasury Fund Intermediate-Term Treasury Fund Short-Term Tax-Exempt Fund
GNMA Fund Limited-Term Tax-Exempt Fund Short-Term Treasury Fund
High-Yield Corporate Fund Long-Term Bond Index Fund State Tax-Exempt Bond Funds
High-Yield Tax-Exempt Fund Long-Term Corporate Fund (California, Florida,
Inflation-Protected Securities Fund Long-Term Tax-Exempt Fund Massachusetts, New Jersey,
Insured Long-Term Tax-Exempt Fund Long-Term Treasury Fund New York, Ohio, Pennsylvania)
Total Bond Market Index Fund*
MONEY MARKET FUNDS
----------------------------------------------------------------------------------------------------------------------------
Admiral(TM) Treasury Money State Tax-Exempt Money Market Tax-Exempt Money Market Fund
Market Fund Funds (California, New Jersey, Treasury Money Market Fund
Federal Money Market Fund New York, Ohio, Pennsylvania)
Prime Money Market Fund*
VARIABLE ANNUITY PLAN
----------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio High-Grade Bond Portfolio Money Market Portfolio
Diversified Value Portfolio High Yield Bond Portfolio REIT Index Portfolio
Equity Income Portfolio International Portfolio Short-Term Corporate Portfolio
Equity Index Portfolio Mid-Cap Index Portfolio Small Company Growth Portfolio
Growth Portfolio
</TABLE>
*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.
51
<PAGE> 54
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.
Six of Vanguard's seven 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.
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 * Quantitative Equity Group.
52
<PAGE> 55
[VANGUARD LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
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.
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.
Q282 092000
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
<PAGE> 56
VANGUARD BOND FUNDS
STATEMENT OF NET ASSETS - JULY 31, 2000 (UNAUDITED)
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 30 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 for the funds that distribute net income to
shareholders as a dividend each day. For the Inflation-Protected Securities
Fund, Undistributed Net Investment Income represents net income earned since the
last quarterly dividend. Any realized gains must be distributed annually, so the
bulk of net assets consists of Paid in Capital (money invested by shareholders).
The balance shown for Accumulated Net Realized Gains usually approximates the
amount available to distribute to shareholders as capital gains as of the
statement date, but may differ because certain investments or transactions may
be treated differently for financial statement and tax purposes. Any Accumulated
Net Realized Losses, and any cumulative excess of distributions over net
realized gains, will appear as negative balances. Unrealized Appreciation
(Depreciation) is the difference between the value of the fund's investments and
their cost, and reflects the gains (losses) that would be realized if the fund
were to sell all of its investments at their statement-date values.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Short-Term Treasury Fund.................................... 1
Short-Term Federal Fund..................................... 4
Short-Term Corporate Fund................................... 6
Inflation-Protected Securities Fund......................... 14
Intermediate-Term Treasury Fund............................. 15
Intermediate-Term Corporate Fund............................ 17
Long-Term Treasury Fund..................................... 22
Long-Term Corporate Fund.................................... 24
High-Yield Corporate Fund................................... 28
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM TREASURY FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (98.7%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (87.5%)
U.S. Treasury Inflation-Indexed Bond 4.25% 1/15/2010 $ 22,400 $ 22,807
U.S. Treasury Note 5.50% 2/28/2003 45,000 44,115
U.S. Treasury Note 5.50% 3/31/2003 59,000 57,815
U.S. Treasury Note 5.50% 5/31/2003 15,000 14,683
U.S. Treasury Note 5.625% 9/30/2001 101,000 100,067
U.S. Treasury Note 5.75% 11/30/2002 94,500 93,288
U.S. Treasury Note 5.75% 4/30/2003 102,500 101,029
U.S. Treasury Note 5.75% 8/15/2003 5,000 4,922
U.S. Treasury Note 5.875% 10/31/2001 74,000 73,500
U.S. Treasury Note 5.875% 11/30/2001 10,000 9,930
U.S. Treasury Note 6.125% 12/31/2001 37,700 37,550
U.S. Treasury Note 6.25% 1/31/2002 83,000 82,810
U.S. Treasury Note 6.25% 2/15/2003 8,000 7,982
U.S. Treasury Note 6.375% 1/31/2002 18,000 17,989
U.S. Treasury Note 6.625% 3/31/2002 38,000 38,128
U.S. Treasury Note 6.625% 4/30/2002 (4) 31,500 31,618
U.S. Treasury Note 7.50% 11/15/2001 38,700 39,193
</TABLE>
1
<PAGE> 57
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM TREASURY FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bariven, SA Eximbank Guaranteed Export Financing
(U.S. Government Guaranteed) 6.277% 4/15/2001 (1)(3) $ 3,400 $ 3,393
EximBank Guaranteed Export (U.S. Government Guaranteed) 5.73% 1/15/2003 (1)(2) 27,001 26,745
Guaranteed Export Trust (U.S. Government Guaranteed) 7.46% 12/15/2005 (1) 5,739 5,793
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.104% 7/15/2003 (1) 16,750 16,485
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.10% 6/30/2007 (1) 16,799 15,650
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.696% 2/1/2005 (1) 6,666 6,495
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.735% 1/15/2002 (1) 3,950 3,941
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.926% 6/15/2005 (1) 11,627 11,282
Overseas Private Investment Corp. (U.S. Government Guaranteed) 7.45% 12/15/2010 (1) 14,318 14,250
Private Export Funding Corp. (U.S. Government Guaranteed) 5.65% 3/15/2003 (1) 3,190 3,136
Private Export Funding Corp. (U.S. Government Guaranteed) 5.73% 1/15/2004 58,385 56,140
Private Export Funding Corp. (U.S. Government Guaranteed) 6.31% 9/30/2004 10,000 9,740
Private Export Funding Corp. (U.S. Government Guaranteed) 6.45% 9/30/2004 40,000 39,160
Private Export Funding Corp. (U.S. Government Guaranteed) 7.65% 5/15/2006 15,500 15,924
Private Export Funding Corp. (U.S. Government Guaranteed) 8.40% 7/31/2001 5,000 5,061
Vendee Mortgage Trust (U.S. Government Guaranteed) 7.25% 8/15/2004 (1) 4,544 4,539
----------
1,015,160
----------
AGENCY BONDS AND NOTES (6.3%)
Federal Farm Credit Bank 4.80% 11/6/2003 9,000 8,443
Federal Home Loan Bank 5.675% 8/18/2003 18,800 18,152
Federal Home Loan Mortgage Corp. 5.00% 1/15/2004 14,500 13,628
Federal National Mortgage Assn. 5.75% 4/15/2003 4,500 4,366
Federal National Mortgage Assn. 6.13% 6/3/2004 30,000 28,938
----------
73,527
----------
MORTGAGE-BACKED SECURITIES (4.9%)
Federal Home Loan Mortgage Corp. 6.00% 8/1/2006 (1) 19,013 18,149
Federal Home Loan Mortgage Corp. 6.00% 8/1/2006 (1) 23734 22,655
Federal National Mortgage Assn. 6.00% 4/1/2006 (1) 16,317 15,683
----------
56,487
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,153,850) 1,145,174
-------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (7.9%)
-------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.59% 8/1/2000 12,445 12,445
Collateralized By U.S. Government Obligations in a
Pooled Cash Account--Note I 6.60% 8/1/2000 79,663 79,663
-------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $92,108) 92,108
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (106.6%)
(COST $1,245,958) 1,237,282
-------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-6.6%)
-------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 16,159
Security Lending Collateral Payable to Brokers--Note I (79,663)
Other Liabilities (13,281)
----------
(76,785)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------------------------------------------------------------
Applicable to 115,756,417 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,160,497
=========================================================================================================================
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 July 31, 2000, the aggregate
value of this security was $26,745,000, representing 2.3% of net assets.
(3) Restricted security representing 0.3% of net assets at July 31, 2000.
(4) Securities with a value of $1,004,000 have been segregated as initial margin
for open futures contracts.
2
<PAGE> 58
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------------------------------------------------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,187,894 $10.26
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (18,571) (.16)
Unrealized Depreciation--Note H
Investment Securities (8,676) (.07)
Futures Contracts (150) --
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,160,497 $10.03
=========================================================================================================================
</TABLE>
3
<PAGE> 59
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM FEDERAL FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (98.2%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (7.7%)
U.S. Treasury Inflation-Indexed Bond 4.25% 1/15/2010 $ 61,090 $ 62,200
U.S. Treasury Note 5.875% 11/15/2004 1,000 987
Government Trust Certificate (U.S. Government Guaranteed) 7.50% 8/15/2000 (1) 1,312 1,312
Guaranteed Export Certificates (U.S. Government Guaranteed) 5.23% 5/15/2005 (1) 11,489 11,049
Private Export Funding Corp. (U.S. Government Guaranteed) 6.31% 9/30/2004 (2) 10,000 9,740
Private Export Funding Corp. (U.S. Government Guaranteed) 7.03% 10/31/2003 5,000 5,010
Private Export Funding Corp. (U.S. Government Guaranteed) 7.65% 5/15/2006 20,000 20,547
----------
110,845
----------
AGENCY BONDS AND NOTES (81.6%)
Bank United (Federal Home Loan Bank of Atlanta) 5.40% 2/2/2004 LOC 106,350 100,522
Federal Home Loan Mortgage Corp. 5.00% 1/15/2004 49,000 46,054
Federal Home Loan Mortgage Corp. 5.75% 7/15/2003 86,300 83,525
Federal Home Loan Mortgage Corp. 5.81% 4/25/2014 (1) 20,000 19,525
Federal Home Loan Mortgage Corp. 6.11% 6/25/2013 (1) 45,000 44,145
Federal Home Loan Mortgage Corp. 6.35% 9/25/2013 (1) 6,622 6,501
Federal Home Loan Mortgage Corp. 6.43% 2/25/2013 (1) 18,471 18,289
Federal Home Loan Mortgage Corp. 6.53% 11/25/2010 (1) 8,289 8,234
Federal Home Loan Mortgage Corp. 6.59% 6/25/2012 (1) 1,723 1,708
Federal Home Loan Mortgage Corp. 7.00% 2/15/2003 4,000 4,004
Federal Home Loan Mortgage Corp. 7.00% 7/15/2005 60,000 60,001
Federal Home Loan Bank 5.50% 1/21/2003 12,000 11,619
Federal Home Loan Bank 6.75% 2/1/2002 294,000 293,294
Federal Home Loan Bank 7.25% 5/15/2003 50,000 50,319
Federal National Mortgage Assn. 5.125% 2/13/2004 10,000 9,425
Federal National Mortgage Assn. 5.72% 1/9/2001 10,000 9,948
Federal National Mortgage Assn. 5.72% 3/13/2001 9,000 8,936
Federal National Mortgage Assn. 5.75% 4/15/2003 43,000 41,715
Federal National Mortgage Assn. 5.77% 2/26/2004 10,000 9,558
Federal National Mortgage Assn. 5.86% 8/20/2003 71,835 69,400
Federal National Mortgage Assn. 5.90% 4/12/2004 30,565 29,296
Federal National Mortgage Assn. 5.94% 3/29/2004 12,052 11,569
Federal National Mortgage Assn. 5.96% 4/23/2003 86,000 83,558
Federal National Mortgage Assn. 6.00% 4/23/2003 15,000 14,588
Federal National Mortgage Assn. 6.00% 1/14/2005 14,980 14,276
Federal National Mortgage Assn. 6.01% 7/17/2000 9,010 8,746
Federal National Mortgage Assn. 6.06% 5/7/2003 16,000 15,573
Federal National Mortgage Assn. 6.10% 5/21/2003 20,000 19,479
Federal National Mortgage Assn. 6.13% 6/3/2004 18,315 17,667
Federal National Mortgage Assn. 6.17% 8/15/2008 (1) 17,344 16,746
Federal National Mortgage Assn. 6.195% 12/27/2000 9,000 8,979
Federal National Mortgage Assn. 6.366% 3/2/2003 26,000 25,610
Federal National Mortgage Assn. 6.375% 1/16/2002 14,000 13,893
----------
1,176,702
----------
MORTGAGE-BACKED SECURITIES (8.9%)
Federal Home Loan Mortgage Corp. 5.50% 11/1/2000 (1) 3,470 3,460
Federal Home Loan Mortgage Corp. 5.50% 1/1/2001 (1) 13,426 13,386
Federal Home Loan Mortgage Corp. 6.00% 7/1/2005 (1) 8,740 8,398
Federal Home Loan Mortgage Corp. 6.00% 8/1/2005 (1) 30,944 29,731
Federal Home Loan Mortgage Corp. 7.00% 1/15/2019 (1) 13,000 12,860
Federal National Mortgage Assn. 6.00% 10/1/2005 (1) 13,493 13,074
Federal National Mortgage Assn. 6.00% 11/1/2005 (1) 11,595 11,145
Vendee Mortgage Trust (U.S. Government Guaranteed) 6.50% 4/15/2014 (1) 22,950 22,784
Vendee Mortgage Trust (U.S. Government Guaranteed) 6.50% 9/15/2015 (1) 13,490 13,323
----------
128,161
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,436,617) 1,415,708
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 60
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (5.2%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.59% 8/1/2000 $ 2,356 $ 2,356
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 6.60% 8/1/2000 72,756 72,756
-------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $75,112) 75,112
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (103.4%)
(COST $1,511,729) 1,490,820
-------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-3.4%)
-------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 34,762
Security Lending Collateral Payable to Brokers--Note I (72,756)
Other Liabilities (11,348)
----------
(49,342)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------------------------------------------------------------
Applicable to 145,525,443 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,441,478
=========================================================================================================================
NET ASSET VALUE PER SHARE $9.91
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Securities with a value of $1,461,000 have been segregated as initial margin
for open futures contracts.
LOC--Letter of Credit.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,501,143 $10.32
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (38,587) (.27)
Unrealized Depreciation--Note H
Investment Securities (20,909) (.14)
Futures Contracts (169) --
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,441,478 $9.91
=========================================================================================================================
</TABLE>
5
<PAGE> 61
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
--------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (81.8%)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (18.0%)
ANRC Auto Owner Trust 6.75% 12/15/2003 (1)(4) $ 36,250 $ 36,048
ARG Funding Corp. 5.88% 5/20/2003 (1)(2)(4) 45,000 44,128
Advanta Mortgage Loan Trust 5.98% 6/25/2014 (1)(4) 28,750 28,217
Advanta Mortgage Loan Trust 6.25% 2/25/2014 (1)(4) 9,148 9,085
American Express Credit Account Master Trust 5.85% 11/15/2006 (1) 24,800 23,655
BMW Vehicle Owner Trust 6.41% 4/25/2003 (1) 89,750 89,245
Banc One Financial Services 6.69% 8/25/2013 (1)(5) 23,000 22,808
CIT Home Equity Loan Trust 6.08% 1/15/2013 (1) 21,460 21,346
California Infrastructure & Econ. Dev.
Bank Special Purpose Trust PG&E-1 6.28% 9/25/2005 (1) 20,000 19,554
California Infrastructure & Econ. Dev.
Bank Special Purpose Trust PG&E-1 6.42% 9/25/2008 (1) 10,000 9,679
Capital Auto Receivables Asset Trust 6.25% 3/15/2003 (1) 25,000 24,902
Chase Manhattan Auto Trust 6.65% 9/15/2003 (1) 17,576 17,520
Chemical Master Credit Card Trust I 6.38% 6/15/2003 (1) 10,000 9,982
Citibank Credit Card Master Trust 5.55% 1/9/2006 (1) 15,187 14,317
Citibank Credit Card Master Trust 5.75% 2/14/2001 (1) 12,400 12,335
Citibank Credit Card Master Trust 5.95% 2/7/2005 (1) 10,400 10,055
Citibank Credit Card Master Trust 6.35% 8/15/2000 (1) 28,000 27,997
Citibank Credit Card Master Trust 6.70% 2/15/2004 (1) 13,000 12,888
Citicorp Lease Pass-Through Trust 7.22% 6/15/2005 (1)(2) 25,197 24,750
ComEd Transitional Funding Trust 5.34% 3/25/2004 (1) 25,000 24,463
ComEd Transitional Funding Trust 5.39% 6/25/2005 (1) 50,000 48,010
Countrywide Asset-Backed Certificates 6.24% 9/25/2018 (1) 25,522 24,982
Credit Card Merchant Voucher Receivables Master Trust 6.23% 8/1/2002 (1)(2)(6) 11,367 11,251
Discover Card Master Trust 6.55% 2/18/2003 (1) 15,700 15,700
EQCC Home Equity Loan Trust 6.223% 6/25/2011 (1)(5) 19,650 19,255
First Bank Corp. Card Master Trust 6.40% 2/15/2002 (1) 13,025 12,894
Ford Credit Auto Loan Master Trust 6.50% 8/15/2002 (1) 35,000 34,993
Ford Credit Auto Owner Trust 6.15% 9/15/2002 (1) 25,000 24,714
Ford Credit Auto Owner Trust 7.40% 4/15/2005 (1) 22,524 22,591
Green Tree Home Equity Loan Trust 7.05% 9/15/2030 (1) 29,750 29,602
Honda Auto Lease Trust 6.45% 2/6/2001 (1) 24,600 24,453
Household Credit Card Master Trust 5.90% 12/15/2002 (1) 20,000 19,915
Illinois Power Special Purpose Trust 5.26% 6/25/2003 (1) 8,040 7,973
MBNA Master Credit Card Trust 6.60% 1/15/2003 (1) 10,000 10,000
MBNA Master Credit Card Trust 6.70% 1/18/2005 (1) 26,000 25,760
Mellon Bank Home Equity Installment Loan Trust 6.21% 8/25/2009 (1) 11,500 11,410
Mellon Residential Funding Corp. Mortgage
Pass-Through Certificates 6.832% 5/25/2030 (1) 25,539 25,188
NationsBank Credit Card Master Trust 6.45% 4/15/2003 (1) 7,000 6,999
Navistar Financial Corp. Owner Trust 5.95% 4/15/2003 (1) 39,650 39,173
Navistar Financial Corp. Owner Trust 6.22% 10/17/2005 (1) 3,436 3,373
Navistar Financial Corp. Owner Trust 7.20% 5/17/2004 (1) 10,000 10,030
Navistar Financial Corp. Owner Trust 7.47% 2/15/2007 (1) 8,750 8,756
Nissan Auto Receivables Owners Trust 7.01% 9/15/2003 (1) 29,750 29,767
Onyx Acceptance Owner Trust 6.82% 11/15/2003 (1)(4) 17,275 17,249
Option One Mortgage Loan Trust 5.92% 5/25/2029 (1)(7) 25,450 25,022
PECO Energy Transition Trust 6.05% 3/1/2009 (1) 29,200 27,496
PP&L Transition Bond Co. LLC 6.96% 12/26/2007 (1) 53,000 52,407
PP&L Transition Bond Co. LLC 7.05% 6/25/2009 (1) 20,550 20,386
Premier Auto Trust 6.55% 9/6/2003 (1) 5,000 4,971
Providian Master Trust 6.25% 6/15/2007 (1) 35,000 34,389
Providian Master Trust 6.45% 6/15/2007 (1) 10,000 9,818
Residential Asset Securities Corp. 6.00% 4/25/2020 (1)(5) 73,650 72,305
Residential Asset Securities Corp. 6.285% 9/25/2020 (1)(5) 5,401 5,368
UAC Securitization Corp. 5.57% 9/8/2003 (1)(4) 24,650 24,465
UAC Securitization Corp. 6.31% 12/8/2006 (1)(4) 16,836 16,210
</TABLE>
6
<PAGE> 62
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WFS Financial 6.32% 10/20/2003 (1)(7) $ 25,000 $ 24,823
World Financial Network Credit Card Master Trust 6.70% 2/15/2004 (1) 41,000 40,995
----------
1,325,667
----------
FINANCE (31.9%)
AUTO (1.4%)
Ford Motor Credit Co. 5.375% 10/15/2002 22,000 21,100
Ford Motor Credit Co. 6.70% 7/16/2004 10,000 9,714
Ford Motor Credit Co. 6.85% 8/15/2000 5,000 4,999
Ford Motor Credit Co. 7.50% 6/15/2003 30,000 30,018
General Motors Acceptance Corp. 6.21% 9/19/2000 35,000 34,945
BANKS (10.3%)
Capital One Bank 6.57% 1/27/2003 15,750 15,162
Capital One Bank 6.60% 8/20/2001 10,200 10,066
Capital One Bank 8.25% 6/15/2005 24,825 24,756
Citigroup 7.45% 6/6/2002 99,275 99,618
Compass Bank 6.45% 5/1/2009 8,000 7,110
CoreStates Capital Corp. 6.186% 10/2/2000 35,000 34,930
Dime Bancorp Inc. 6.375% 1/30/2001 8,325 8,261
Dime Bancorp Inc. 7.00% 7/25/2001 15,000 14,862
First Maryland Bancorp 7.20% 7/1/2007 7,705 7,378
First Union Corp. 8.125% 6/24/2002 5,000 5,041
First USA Bank 7.65% 8/1/2003 7,000 7,001
Firstar Corp. 6.35% 7/13/2001 25,000 24,786
Firstar Corp 6.50% 7/15/2002 20,000 19,672
HSBC Americas Inc. 6.625% 3/1/2009 10,000 9,239
Long Island Savings Bank 6.20% 4/2/2001 12,000 11,873
Mellon Financial Co. 5.75% 11/15/2003 9,000 8,537
Mercantile Bancorp 6.80% 6/15/2001 15,512 15,446
National City Bank Cleveland 6.35% 3/15/2001 36,860 36,626
Nationsbank Corp. 5.80% 1/31/2001 14,675 14,569
Nationsbank Corp. 6.375% 5/15/2005 25,000 23,858
NationsBank Corp. 8.125% 6/15/2002 9,898 10,032
Northern Trust Co. 6.50% 5/1/2003 5,000 4,883
Norwest Corp. 6.125% 10/15/2000 6,225 6,213
Norwest Corp. 7.75% 3/1/2002 5,000 5,030
PNC Funding Corp. 9.875% 3/1/2001 5,565 5,636
Popular Inc. 6.20% 4/30/2001 37,700 37,350
Provident Bank of Ohio 6.125% 12/15/2000 12,700 12,608
Providian National Bank 6.75% 3/15/2002 52,455 51,341
Security Pacific Corp. 11.00% 3/1/2001 20,907 21,332
Shawmut National Corp. 7.20% 4/15/2003 7,000 6,900
Southern National Corp. 7.05% 5/23/2003 35,469 34,870
US Bank NA Minnesota 5.25% 6/4/2003 20,000 18,792
US Bancorp 6.875% 12/1/2004 13,550 13,168
Wells Fargo Co. 6.50% 9/3/2002 125,000 123,086
Wells Fargo Co. 6.875% 4/15/2003 5,000 4,944
CONSUMERS (1.6%)
American Express Credit Corp. 6.125% 11/15/2001 10,000 9,869
Aristar Inc. 6.125% 12/1/2000 48,000 47,726
Aristar Inc. 7.375% 9/1/2004 9,750 9,622
Norwest Financial Corp. 7.95% 5/15/2002 4,200 4,241
Sears Roebuck Acceptance Corp. 6.22% 11/8/2000 48,000 47,870
Sears Roebuck Acceptance Corp. 6.69% 4/30/2001 400 397
DIVERSIFIED (4.0%)
AT&T Capital Corp. 6.59% 8/4/2000 5,000 5,000
AT&T Capital Corp. 6.70% 2/15/2001 50,000 49,770
AT&T Capital Corp. 6.875% 1/16/2001 5,000 4,984
</TABLE>
7
<PAGE> 63
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Associates Corp. of North America 5.75% 11/1/2003 $ 38,000 $ 35,909
Comdisco Inc. 5.75% 2/15/2001 15,000 14,772
Comdisco Inc. 6.00% 1/30/2002 28,800 27,690
Comdisco Inc. 6.68% 6/29/2001 9,800 9,628
Comdisco Inc. 7.25% 9/20/2001 29,725 29,256
Finova Capital Corp. 5.875% 10/15/2001 10,000 9,100
Finova Capital Corp. 6.11% 2/18/2003 35,600 30,616
Finova Capital Corp. 6.625% 9/15/2001 10,250 9,327
Finova Capital Corp. 7.625% 9/21/2009 2,000 1,700
General Electric Capital Corp. 5.35% 11/18/2002 35,500 34,196
Heller Financial Inc. 8.00% 6/15/2005 20,250 20,314
Newcourt Credit Group 6.875% 2/16/2005 14,700 14,104
INSURANCE (3.1%)
AIG SunAmerica Global Financing I 7.40% 5/5/2003 (2) 19,700 19,796
AIG SunAmerica Global Financing II 7.60% 6/15/2005 (2) 24,750 25,008
Conseco Inc. 6.40% 2/10/2003 30,000 20,700
Conseco Inc. 7.60% 6/21/2001 15,000 12,750
Conseco Inc. 8.50% 10/15/2002 15,000 10,950
Conseco Inc. 9.00% 10/15/2006 20,500 13,837
John Hancock Global Funding II 7.90% 7/2/2010 (2) 10,840 10,891
Liberty Financial Co. 6.75% 11/15/2008 17,650 15,702
MONY Group Inc. 8.35% 3/15/2010 14,750 14,642
Progressive Corp. 7.30% 6/1/2006 12,290 11,875
Progressive Corp. 10.00% 12/15/2000 7,000 7,066
Prudential Insurance Co. of America 6.375% 7/23/2006 (2) 30,000 27,810
SunAmerica Inc. 6.58% 1/15/2002 5,000 4,958
USAA Capital Corp. 7.05% 11/8/2006 10,000 9,777
USAA Capital Corp. 7.54% 3/30/2005 (2) 25,000 25,089
OTHER (11.5%)
Bradley Operating LP 7.00% 11/15/2004 10,000 8,662
Cabot Industrial Properties LP 7.125% 5/1/2004 16,670 15,969
Chelsea GCA Realty Partner 7.75% 1/26/2001 19,150 19,067
Dean Witter Discover & Co. 6.30% 1/15/2006 8,000 7,534
Donaldson, Lufkin & Jenrette, Inc. 8.00% 3/1/2005 67,400 68,115
Equity Residential Properties Trust Operating LP 7.95% 4/15/2002 7,000 6,998
First Industrial LP 7.00% 12/1/2006 17,000 15,613
First Industrial LP 7.15% 5/15/2002 8,150 8,007
First Industrial LP 7.375% 5/15/2004 (2) 12,000 11,611
Goldman Sachs Group LP 6.20% 12/15/2000 (2) 32,725 32,569
Goldman Sachs Group LP 7.625% 8/17/2005 49,875 49,860
International Business Machines Credit 6.64% 10/29/2001 65,000 64,636
IBM Credit Corp. 7.00% 1/28/2002 45,000 44,955
Lehman Brothers Holdings Inc. 6.20% 1/15/2002 35,000 34,299
Lehman Brothers Holdings Inc. 6.25% 4/1/2003 61,800 59,683
Lehman Brothers Holdings Inc. 6.375% 10/23/2000 33,000 32,929
Lehman Brothers Holdings Inc. 7.375% 5/15/2004 9,930 9,753
Merrill Lynch & Co., Inc. 7.36% 7/24/2002 14,500 14,536
Merrill Lynch & Co., Inc. 7.85% 5/30/2003 50,000 50,720
Morgan Stanley, Dean Witter & Co. 7.125% 1/15/2003 69,995 69,702
Morgan Stanley, Dean Witter, Discover & Co. 5.75% 2/15/2001 10,500 10,419
Morgan Stanley, Dean Witter, Discover & Co. 7.375% 4/15/2003 52,880 52,976
Oasis Residential Inc. 6.75% 11/15/2001 22,600 22,205
Post Apartment Homes LP 7.02% 4/2/2001 20,000 19,882
Reckson Operating Partnership LP 7.40% 3/15/2004 10,000 9,670
Reckson Operating Partnership LP 7.75% 3/15/2009 21,000 19,613
Regency Centers LP 7.40% 4/1/2004 (1) 6,900 6,638
Salomon Smith Barney Holdings Inc. 7.30% 5/15/2002 25,400 25,359
Salomon Smith Barney Holdings Inc. 7.50% 5/1/2002 11,500 11,519
</TABLE>
8
<PAGE> 64
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles Schwab Corp. 8.05% 3/1/2010 $ 20,000 $ 20,251
Topaz Ltd. 6.92% 3/10/2007 (1)(2) 12,282 11,990
Trinet Corp. Realty Trust 7.30% 5/15/2001 5,500 5,342
Wellsford Residential Property Trust 9.375% 2/1/2002 5,175 5,286
----------
2,349,062
----------
INDUSTRIAL (19.5%)
American Stores Co. 7.40% 5/15/2005 20,700 20,543
Baker Hughes, Inc. 5.80% 2/15/2003 16,850 16,183
Baker Hughes, Inc. 7.875% 6/15/2004 4,250 4,294
Dresser Industries, Inc. 8.00% 4/15/2003 20,067 20,415
Boston Scientific Corp. 6.625% 3/15/2005 28,660 26,880
CSC Enterprises 6.50% 11/15/2001 (2) 29,200 28,812
Computer Sciences Corp. 6.25% 3/15/2009 9,150 8,287
Continental Airlines, Inc. Pass-Through Trust 6.331% 4/25/2001 (1) 9,640 9,410
Continental Airlines, Inc. Pass-Through Trust 6.465% 4/15/2006 (1) 10,021 9,640
Continental Airlines, Inc. Pass-Through Trust 6.541% 9/15/2018 (1) 13,489 12,610
Continental Airlines, Inc. Pass-Through Trust 6.80% 7/2/2007 (1) 10,283 9,682
Continental Airlines, Inc. Pass-Through Trust 7.434% 3/15/2006 (1) 6,700 6,512
Cooper Tire & Rubber Co. 7.25% 12/16/2002 30,000 29,650
Daimler-Chrysler North America Holding Corp. 6.67% 9/25/2001 26,000 25,841
Daimler-Chrysler North America Holding Corp. 6.84% 10/15/2002 (3) 50,000 49,471
Daimler-Chrysler North America Holding Corp. 6.90% 9/1/2004 17,000 16,688
Daimler-Chrysler North America Holding Corp. 7.40% 1/20/2005 55,000 54,756
Delta Air Lines Inc. 6.65% 3/15/2004 33,400 31,532
Delta Air Lines Inc. 7.70% 12/15/2005 19,875 19,282
Delta Air Lines Inc. 10.375% 2/1/2011 13,273 14,553
Dillard's Inc. 5.79% 11/15/2001 25,000 23,992
E.I. duPont de Nemours & Co. 6.75% 10/15/2004 6,500 6,410
ERAC USA Finance Co. 6.35% 1/15/2001 (2) 7,330 7,282
ERAC USA Finance Co. 6.625% 5/15/2006 (2) 35,000 32,465
Enterprise Products 8.25% 3/15/2005 41,350 41,394
Federal Express Corp. 9.875% 4/1/2002 8,195 8,411
Federated Department Stores 8.50% 6/1/2010 9,500 9,332
Food Lion, Inc. 8.41% 9/26/2001 5,000 4,998
Harrahs Operating Co., Inc. 7.50% 1/15/2009 38,220 35,449
Hertz Corp. 6.625% 5/15/2008 5,000 4,623
Hertz Corp. 7.00% 5/1/2002 5,000 4,960
Hertz Corp. 7.375% 6/15/2001 8,275 8,269
Hertz Corp. 8.25% 6/1/2005 27,350 27,875
Hewlett-Packard Co. 7.15% 6/15/2005 49,500 49,658
International Paper Co. 6.125% 11/1/2003 5,900 5,657
International Paper Co. 9.50% 3/15/2002 5,100 5,244
International Speedway Corp. 7.875% 10/15/2004 14,750 14,440
Knight-Ridder, Inc. 8.50% 9/1/2001 (1) 8,513 8,557
Kroger Co. 6.34% 6/1/2001 9,575 9,490
Lockheed Martin Corp. 6.50% 4/15/2003 16,834 16,378
Minnesota Mining & Manufacturing ESOP Trust 5.62% 7/15/2009 (1)(2) 43,241 39,796
Monsanto Co. 5.375% 12/1/2001 24,000 23,444
PanAmSat Corp. 6.00% 1/15/2003 8,300 7,926
PanAmSat Corp. 6.125% 1/15/2005 30,000 27,815
Park Place Entertainment 7.95% 8/1/2003 29,225 28,758
Park Place Entertainment 8.50% 11/15/2006 13,860 13,882
Parker Retirement Savings Plan Trust 6.34% 7/15/2008 (1)(2) 20,730 19,503
Praxair, Inc. 6.70% 4/15/2001 52,000 51,780
The Proctor & Gamble Co. 6.60% 12/15/2004 25,100 24,601
Raytheon Co. 5.70% 11/1/2003 32,085 30,379
Raytheon Co. 6.30% 3/15/2005 14,770 13,968
Raytheon Co. 6.45% 8/15/2002 11,900 11,651
Raytheon Co. 7.90% 3/1/2003 (2) 15,750 15,844
Republic Services Inc. 6.625% 5/15/2004 16,800 15,695
</TABLE>
9
<PAGE> 65
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Republic Services Inc. 7.125% 5/15/2009 $ 5,425 $ 4,910
Security Capital Group 7.75% 11/15/2003 20,000 19,302
Southwest Air 9.40% 7/1/2001 6,500 6,615
TTX Company 7.02% 11/15/2001 (2) 50,000 49,545
Tele-Communications, Inc. 8.25% 1/15/2003 44,445 45,184
Texas Instruments Inc. 7.00% 8/15/2004 39,600 39,157
Tosco Corp. 8.25% 5/15/2003 22,250 22,617
Tosco Trust 8.58% 3/1/2010 (2) 10,000 10,169
Tyco International Group SA 6.125% 6/15/2001 15,000 14,835
Tyco International Group SA 6.875% 9/5/2002 (2) 50,000 49,448
USA Waste Services 6.50% 12/15/2002 27,190 25,770
United Airlines Pass-Through Certificates 7.783% 7/1/2015 24,650 24,683
United Airlines Pass-Through Certificates 8.03% 1/1/2013 5,000 4,998
VF Corp. 7.60% 4/1/2004 18,635 18,299
Waste Management Inc. 7.70% 10/1/2002 9,760 9,514
Zeneca Wilmington 6.30% 6/15/2003 20,400 19,978
----------
1,429,991
----------
UTILITIES (12.4%)
AEP Resources Inc. 6.50% 12/1/2003 (2) 50,000 48,314
Alabama Power Co. 7.85% 5/15/2003 34,650 34,880
Arizona Public Service 5.75% 9/15/2000 11,950 11,928
Baltimore Gas & Electric Co. 6.68% 10/11/2001 16,000 15,889
Boston Edison Co. 6.05% 8/15/2000 25,500 25,489
Boston Edison Co. 6.80% 3/15/2003 14,000 13,728
Cinergy Global Resources 6.20% 11/3/2008 (2)(4) 5,000 4,522
Coastal Corp. 10.00% 2/1/2001 1,000 1,011
Connectiv Inc. 6.73% 9/12/2003 (1) 63,000 60,778
Consolidated Edison 6.50% 2/1/2001 5,000 4,979
Consolidated Edison 7.625% 3/1/2004 2,900 2,909
Detroit Edison Co. 6.56% 5/1/2001 10,750 10,695
East Coast Power 6.737% 2/24/2005 8,062 7,631
Edison International 6.875% 9/15/2004 12,414 12,143
Edison Mission Energy Funding Corp. 6.77% 9/15/2003 (1)(2) 17,322 16,897
FPL Group Capital 7.625% 9/15/2006 34,700 34,716
GTE Corp. 6.36% 4/15/2006 7,950 7,513
GTE Corp. 6.39% 9/11/2000 10,000 9,989
Kansas City Power & Light Co. 6.50% 11/14/2001 5,000 4,937
Kern River Funding Corp. 6.42% 3/31/2001 (1)(2) 4,340 4,316
Kern River Funding Corp. 6.72% 9/30/2001 (2) 25,875 25,640
LG&E Capital Corp. 6.205% 5/1/2004 (2) 21,700 20,455
Limestone Electron Trust 8.625% 3/15/2003 64,500 65,160
MCN Investment Corp. 6.03% 2/1/2001 4,000 3,958
NRG Energy, Inc. 7.50% 6/15/2007 (1) 5,000 4,808
NRG Northeast Generating LLC 8.065% 5/5/2002 (2) 14,500 14,498
NRG South Central Generating LLC 8.962% 3/15/2016 (1)(2) 24,500 24,845
Nipsco Capital Markets 7.39% 4/1/2004 5,000 4,896
NYNEX Corp. 9.55% 5/1/2010 (1) 5,625 5,992
NYNEX Credit Co. 6.50% 9/15/2000 (2) 30,000 29,934
Osprey Trust 8.31% 1/15/2003 (2) 39,875 40,088
PPL Capital Funding 7.75% 4/15/2005 24,800 24,417
PSE&G Capital Corp. 6.25% 5/15/2003 (2) 25,000 24,164
PSE&G Capital Corp. 6.74% 10/23/2001 (2) 26,000 25,760
Potomac Capital Investment Corp. 7.55% 11/19/2001 (2) 36,850 36,774
Progress Capital Holdings 5.47% 10/23/2000 (2) 25,000 24,902
Progress Capital Holdings 6.88% 8/1/2001 (2) 20,000 19,873
Reliant Energy Resources 8.125% 7/15/2005 (2) 24,800 24,843
South Carolina Electric & Gas 7.50% 6/15/2005 9,930 9,982
Transcontinental Gas Pipeline 8.875% 9/15/2002 15,150 15,533
US West Capital Funding, Inc. 6.125% 7/15/2002 32,000 31,244
US West Capital Funding, Inc. 6.25% 7/15/2005 15,000 14,137
</TABLE>
10
<PAGE> 66
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US West Capital Funding, Inc. 6.875% 8/15/2001 $ 45,500 $ 45,251
Virginia Electric Power 6.30% 6/21/2001 19,750 19,584
Yosemite Security Trust 8.25% 11/15/2004 (2) 19,900 19,954
----------
909,956
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $6,140,352) 6,014,676
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (1.7%)
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (1.1%)
U.S. Treasury Note 6.50% 8/15/2005 7,500 7,590
U.S. Treasury Note 6.50% 10/15/2006 15,000 15,225
U.S. Treasury Note 6.50% 2/15/2010 20,160 20,825
U.S. Treasury Note 6.75% 5/15/2005 23,650 24,230
U.S. Treasury Note 7.00% 7/15/2006 13,740 14,271
----------
82,141
----------
AGENCY BONDS AND NOTES (0.5%)
Federal Home Loan Mortgage Corp. 6.00% 1/1/2001 (1) 5,751 5,738
Federal Home Loan Mortgage Corp. 6.11% 6/25/2013 (1) 23,000 22,563
Federal Home Loan Mortgage Corp. 6.43% 2/25/2013 (1) 5,772 5,715
----------
34,016
----------
MORTGAGE-BACKED SECURITIES (0.1%)
Federal Home Loan Mortgage Corp. 5.50% 10/1/2000 (1) 6,807 6,787
Federal National Mortgage Assn. 6.00% 1/1/2001 (1) 4,182 4,172
----------
10,959
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $126,861) 127,116
-------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(13.1%)
-------------------------------------------------------------------------------------------------------------------------
Amvescap PLC 6.375% 5/15/2003 20,250 19,477
Amvescap PLC 6.60% 5/15/2005 500 472
Australian Gas Light Co. 6.40% 4/15/2008 (2) 10,000 9,097
BCH Cayman Islands Ltd. 6.50% 2/15/2006 13,290 12,579
Bombardier Capital Inc. 7.30% 12/15/2002 (2) 23,925 23,798
CIBC Capital Funding LP 6.25% 12/17/2002 (2) 24,500 23,837
Canadian Imperial Bank of Commerce (NY) 6.20% 8/1/2000 70,870 70,856
Cemex S.A. De C.V. 8.625% 7/18/2003 (2) 8,750 8,772
Corporacion Nacional del Cobre de Chile 7.375% 5/1/2009 (2) 26,860 25,507
Deutsche Telekom International Finance 7.75% 6/15/2005 24,800 25,031
The Development Bank of Singapore Ltd. 7.875% 8/10/2009 (2) 13,950 13,981
Diageo PLC 6.125% 8/15/2005 7,350 6,942
Diageo PLC 6.625% 6/24/2004 14,700 14,345
Diageo PLC 7.25% 11/1/2009 6,175 6,056
Israel Electric Corp. 7.25% 12/15/2006 (2) 13,808 13,399
Israel Electric Corp. 7.75% 3/1/2009 (2) 5,000 4,836
Israel Electric Corp. 8.25% 10/15/2009 (2) 20,000 19,945
Kimberly-Clark de Mexico 8.875% 8/1/2009 (2) 7,860 7,901
Korea Development Bank 7.125% 9/17/2001 42,820 42,554
Korea Electric Power 7.00% 10/1/2002 6,000 5,876
Korea Electric Power 10.00% 4/1/2001 (2) 22,330 22,597
National Australia Bank 8.60% 5/19/2010 44,850 47,142
National Westminster Bancorp Inc. 9.45% 5/1/2001 8,881 9,021
Noranda, Inc. 8.00% 6/1/2003 20,000 19,944
Noranda, Inc. 8.625% 7/15/2002 15,000 15,150
Oil Enterprises Ltd. 6.239% 6/30/2008 (1)(2)(4) 35,265 33,216
PacifiCorp Australia LLC 6.15% 1/15/2008 (2)(5) 20,900 19,099
Pemex Finance Ltd. 6.125% 2/15/2002 5,460 5,339
Pemex Finance Ltd. 9.14% 5/15/2003 44,350 45,396
Pemex Finance Ltd. 9.69% 3/31/2007 41,000 43,271
Petroliam Nasional Bhd. 7.125% 10/18/2006 (2) 26,450 25,231
Pohang Iron & Steel Co. Ltd. 7.125% 7/15/2004 13,015 12,525
</TABLE>
11
<PAGE> 67
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pohang Iron & Steel Co. Ltd. 7.50% 8/1/2002 $ 11,320 $ 11,186
Republic of Argentina 0.00% 4/15/2001 10,000 9,400
Republic of Argentina 0.00% 10/15/2001 16,800 14,994
Republic of Chile 6.875% 4/28/2009 4,125 3,839
Republic of South Africa 9.125% 5/19/2009 9,715 9,646
Samsung Electronics America 8.50% 11/1/2002 (2) 5,000 5,035
Samsung Electronics America 9.75% 5/1/2003 (2) 25,670 26,635
Samsung Electronics Co. 7.45% 10/1/2002 (2) 6,150 6,065
Santander Financial Issuances Ltd. 7.00% 4/1/2006 12,945 12,528
Stagecoach Holdings PLC Notes 8.625% 11/15/2009 20,000 17,495
The State of Qatar 9.50% 5/21/2009 (2) 17,500 18,084
TPSA Finance BV 7.75% 12/10/2008 (2) 27,000 25,818
Trans-Canada Pipelines 6.77% 4/30/2001 5,000 4,971
Telecomunicaciones de Puerto Rico 6.15% 5/15/2002 5,000 4,868
Telefonica de Argentina 9.125% 5/7/2008 (2) 12,205 11,503
TransCanada Pipelines 7.875% 12/15/2002 14,000 14,097
United Mexican States Global 8.50% 2/1/2006 11,210 11,176
Vodafone Airtouch PLC 7.625% 2/15/2005 (2) 54,600 55,006
Westpac Banking 9.125% 8/15/2001 43,566 44,384
-------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $943,719) 959,922
-------------------------------------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL BOND (0.5%)
-------------------------------------------------------------------------------------------------------------------------
Power Auth. of the State of New York
(COST $32,369) 6.05% 11/15/2001 32,550 32,128
-------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.0%)
-------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.59% 8/1/2000 113,006 113,006
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 6.60% 8/1/2000 39,173 39,173
-------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $152,179) 152,179
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.1%)
(COST $7,395,480) 7,286,021
-------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.9%)
-------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 163,904
Liabilities--Note I (100,139)
----------
63,765
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $7,349,786
-------------------------------------------------------------------------------------------------------------------------
</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 July 31, 2000, the aggregate
value of these securities was $1,302,898,000, representing 17.7% of net
assets.
(3) Securities with a value of $7,915,000 have been segregated as initial margin
for open futures contracts.
(4) Scheduled principal and interest payments are guaranteed by Municipal Bond
Insurance Association.
(5) Scheduled principal and interest payments are guaranteed by Ambac Assurance
Corporation.
(6) Scheduled principal and interest payments are guaranteed by Capital Markets
Assurance Corporation.
(7) Scheduled principal and interest payments are guaranteed by Financial
Security Assurance Corporation.
12
<PAGE> 68
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
AMOUNT
(000)
-------------------------------------------------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------------
<S> <C>
Paid in Capital $7,539,557
Undistributed Net Investment Income --
Accumulated Net Realized Losses (75,771)
Unrealized Depreciation--Note H
Investment Securities (109,459)
Futures Contracts (4,541)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $7,349,786
=========================================================================================================================
Investor Shares--Net Assets applicable to 661,971,238 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $6,944,194
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $10.49
=========================================================================================================================
Institutional Shares--Net Assets applicable to 38,663,943 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $405,592
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $10.49
=========================================================================================================================
</TABLE>
13
<PAGE> 69
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INFLATION-PROTECTED SECURITIES FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (97.7%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Inflation-Indexed Bond 3.625% 4/15/2028 $13,530 $13,005
U.S. Treasury Inflation-Indexed Note 3.625% 7/15/2002 8,289 8,258
U.S. Treasury Inflation-Indexed Note 3.625% 1/15/2008 1,378 1,341
U.S. Treasury Inflation-Indexed Note 4.250% 1/15/2010 21,763 22,159
-------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $44,635) 44,763
-------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.7%)
-------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $780) 6.59% 8/1/2000 780 780
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.4%)
(COST $45,415) 45,543
-------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.6%)
-------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 1,076
LIABILITIES (782)
----------
294
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------------------------------------------------------------
Applicable to 4,530,989 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $45,837
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.12
=========================================================================================================================
*See Note A in Notes to Financial Statements.
-------------------------------------------------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------------------------------------------------------------------------------------------------------------------------
Paid in Capital $45,574 $10.06
Undistributed Net Investment Income 135 .03
Accumulated Net Realized Gains -- --
Unrealized Appreciation--Note H 128 .03
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $45,837 $10.12
=========================================================================================================================
</TABLE>
14
<PAGE> 70
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM TREASURY FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (97.9%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (90.4%)
U.S. Treasury Bond 7.50% 11/15/2016 $ 56,670 $ 64,592
U.S. Treasury Bond 10.375% 11/15/2012 (3) 224,300 275,736
U.S. Treasury Bond 11.25% 2/15/2015 5,100 7,569
U.S. Treasury Inflation-Indexed Note 3.875% 4/15/2029 22,066 22,161
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 33,273 33,878
U.S. Treasury Note 6.00% 8/15/2009 49,400 49,069
U.S. Treasury Note 6.125% 8/15/2007 204,800 204,153
U.S. Treasury Note 6.50% 8/15/2005 10,700 10,829
U.S. Treasury Note 6.50% 10/15/2006 65,450 66,431
U.S. Treasury Note 6.50% 2/15/2010 8,815 9,106
U.S. Treasury Note 6.875% 5/15/2006 40,450 41,735
U.S. Treasury Note 7.00% 7/15/2006 203,200 211,054
U.S. Treasury Note 7.50% 2/15/2005 85,700 89,922
Export Funding Trust (U.S. Government Guaranteed) 8.21% 12/29/2006 (1) 1,303 1,345
Government Export Trust (U.S. Government Guaranteed) 6.00% 3/15/2005 (1) 9,896 9,732
Guaranteed Export Trust (U.S. Government Guaranteed) 7.46% 12/15/2005 (1) 18,413 18,586
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.69% 1/15/2009 (1)(2) 24,403 23,844
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.02% 9/1/2004 (1) 7,969 7,964
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.39% 6/26/2006 (1) 3,070 3,080
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.80% 8/15/2006 (1) 5,829 5,932
Guaranteed Trade Trust (U.S. Government Guaranteed) 8.17% 1/15/2007 (1) 4,875 5,046
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.94% 6/20/2006 (1) 12,632 12,269
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.08% 8/14/2004 (1) 15,778 15,428
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.726% 9/15/2010 (1) 15,522 15,343
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.75% 12/15/2008 (1) 9,421 9,331
Overseas Private Investment Corp. (U.S. Government Guaranteed) 7.05% 11/15/2013 (1) 24,107 24,107
Overseas Private Investment Corp. (U.S. Government Guaranteed) 7.60% 12/15/2012 (1) 14,000 14,106
Private Export Funding Corp. (U.S. Government Guaranteed) 5.25% 5/15/2005 39,500 36,674
Private Export Funding Corp. (U.S. Government Guaranteed) 5.87% 7/31/2008 73,300 67,522
Private Export Funding Corp. (U.S. Government Guaranteed) 6.49% 7/15/2007 8,500 8,220
Private Export Funding Corp. (U.S. Government Guaranteed) 7.11% 4/15/2007 14,210 14,217
Private Export Funding Corp. (U.S. Government Guaranteed) 7.20% 11/15/2010 7,200 7,224
Private Export Funding Corp. (U.S. Government Guaranteed) 7.25% 6/15/2010 75,420 75,885
Private Export Funding Corp. (U.S. Government Guaranteed) 7.65% 5/15/2006 8,325 8,553
----------
1,470,643
----------
AGENCY BONDS AND NOTES (7.5%)
Federal Home Loan Mortgage Corp. 7.00% 3/15/2010 23,630 23,425
Federal National Mortgage Assn. 7.125% 6/15/2010 98,735 98,896
----------
122,321
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,599,714) 1,592,964
-------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (25.4%)
-------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.59% 8/1/2000 11,599 11,599
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 6.60% 8/1/2000 402,340 402,340
-------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $413,939) 413,939
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (123.3%)
(COST $2,013,653) 2,006,903
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 71
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
INTERMEDIATE-TERM TREASURY FUND (000)
-------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-23.3%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note C $ 27,452
Security Lending Collateral Payable to Brokers--Note I (402,340)
Other Liabilities (5,344)
---------
(380,232)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------------------------------------------------------------
Applicable to 158,006,543 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,626,671
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.29
=========================================================================================================================
</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 July 31, 2000, the value of
this security was $23,844,000, representing 1.5% of net assets.
(3) Securities with a value of $2,459,000 have been segregated as initial margin
for open futures contracts.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,684,650 $10.66
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (51,229) (.33)
Unrealized Depreciation--Note H (6,750) (.04)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,626,671 $10.29
=========================================================================================================================
</TABLE>
16
<PAGE> 72
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (72.9%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (4.6%)
American Express Credit Account Master Trust 5.85% 11/15/2006 (1) $ 5,000 $ 4,769
California Infrastructure & Econ. Dev.
Bank Special Purpose Trust PG&E-1 6.31% 9/25/2008 (1) 4,409 4,247
California Infrastructure & Econ. Dev.
Bank Special Purpose Trust PG&E-1 6.32% 9/25/2005 (1) 1,650 1,617
California Infrastructure & Econ. Dev.
Bank Special Purpose Trust PG&E-1 6.38% 9/25/2008 (1) 15,000 14,490
California Infrastructure & Econ. Dev.
Bank Special Purpose Trust PG&E-1 6.42% 9/25/2008 (1) 1,800 1,742
Citibank Credit Card Master Trust 6.30% 5/15/2008 (1) 10,000 9,410
Citicorp Lease Pass-Through Trust 7.22% 6/15/2005 (1)(2) 1,817 1,785
ComEd Transitional Funding Trust 5.63% 6/25/2009 (1) 15,000 13,867
Illinois Power Special Purpose Trust 5.54% 6/25/2009 (1) 7,000 6,441
PECO Energy Transition Trust 6.05% 3/1/2009 (1) 10,675 10,052
PP&L Transitional Trust 7.05% 6/25/2009 (1) 4,325 4,290
Standard Credit Card Master Trust 7.25% 4/7/2008 (1) 3,200 3,194
----------
75,904
----------
FINANCE (28.3%)
AUTOMOBILE (2.2%)
Ford Motor Credit Co. 5.80% 1/12/2009 25,000 21,836
General Motors Acceptance Corp. 7.75% 1/19/2010 15,000 14,990
BANKS (9.3%)
Banc One Corp 7.875% 8/1/2010 8,000 7,954
The Bank of New York Co., Inc. 8.50% 12/15/2004 10,000 10,288
BankAmerica Corp. 7.20% 4/15/2006 10,000 9,757
Capital One Bank 6.70% 5/15/2008 12,178 10,953
Compass Bank 6.45% 5/1/2009 10,000 8,887
First Bank N.A. 6.00% 10/15/2003 4,200 4,009
First Bank System, Inc. 6.875% 9/15/2007 10,000 9,574
First Maryland Bancorp 6.875% 6/1/2009 15,000 13,846
First Security Corp. 6.875% 11/15/2006 10,917 10,405
First Tennessee Bank 5.75% 12/1/2008 5,000 4,273
Mellon Bank Corp. 7.00% 3/15/2006 10,500 10,210
Mellon Bank Corp. 7.625% 9/15/2007 5,000 4,976
Mercantile Bancorp 7.30% 6/15/2007 6,175 6,016
Meridian Bancorp, Inc. 6.625% 3/15/2003 3,000 2,918
National City Corp. 6.625% 3/1/2004 6,700 6,484
PNC Bank N.A. 7.875% 4/15/2005 5,000 5,018
Southern National Corp. 7.05% 5/23/2003 13,000 12,781
US Bancorp 6.875% 12/1/2004 6,000 5,831
Wells Fargo Co. 6.25% 4/15/2008 10,000 9,174
CONSUMERS (1.2%)
Norwest Financial, Inc. 7.20% 5/1/2007 5,000 4,905
Norwest Financial, Inc. 7.50% 4/15/2005 5,000 4,988
Sears Roebuck Acceptance Corp. 6.69% 4/30/2001 5,000 4,963
Sears Roebuck Acceptance Corp. 6.80% 10/9/2002 5,000 4,914
DIVERSIFIED (1.0%)
Associates Corp. of North America 6.25% 11/1/2008 5,000 4,504
Finova Capital Corp. 6.75% 11/15/2004 5,000 4,300
Finova Capital Corp. 7.40% 5/6/2006 5,000 4,200
Heller Financial Inc. 7.375% 11/1/2009 4,000 3,791
INSURANCE (5.6%)
AIG SunAmerica Global Financing II 7.60% 6/15/2005 (2) 10,000 10,104
Conseco Inc. 6.40% 2/10/2003 10,000 6,900
Conseco Inc. 9.00% 10/15/2006 9,361 6,319
</TABLE>
17
<PAGE> 73
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Hancock Global Funding II 7.90% 7/2/2010 (2) $ 10,000 $ 10,047
Horace Mann Educators Corp. 6.625% 1/15/2006 8,250 7,517
Liberty Financial Co. 6.75% 11/15/2008 17,000 15,124
MONY Group Inc. 8.35% 3/15/2010 10,000 9,927
NAC Re Corp. 7.15% 11/15/2005 6,500 6,282
Prudential Insurance Co. of America 6.375% 7/23/2006 (2) 10,800 10,012
Reinsurance Group of America Inc. 7.25% 4/1/2006 (2) 10,000 9,497
OTHER (9.0%)
Bear Stearns & Co., Inc. 7.625% 12/7/2009 20,000 19,370
Bradley Operating LP 7.20% 1/15/2008 4,000 3,144
Cabot Industrial Properties LP 7.125% 5/1/2004 8,000 7,663
Donaldson Lufkin & Jenrette, Inc. 6.50% 4/1/2008 5,000 4,587
ERAC USA Finance Co. 6.625% 5/15/2006 (2) 15,000 13,913
ERAC USA Finance Co. 7.95% 12/15/2009 (2) 8,775 8,499
Evans Withycombe Residential, Inc. 7.50% 4/15/2004 3,000 2,952
First Industrial LP 7.00% 12/1/2006 1,500 1,378
First Industrial LP 7.60% 5/15/2007 3,000 2,849
Goldman Sachs Group 7.80% 1/28/2010 15,000 14,941
Irvine Apartment Communities Inc. 7.00% 10/1/2007 5,000 4,502
Lehman Brothers Holdings Inc. 6.625% 2/5/2006 13,000 12,202
Merry Land & Investment Co., Inc. 6.875% 11/1/2004 2,000 1,924
Merry Land & Investment Co., Inc. 6.90% 8/1/2007 5,000 4,644
Morgan Stanley, Dean Witter & Co. 8.00% 6/15/2010 5,000 5,081
Oasis Residential Inc. 6.75% 11/15/2001 2,500 2,456
Reckson Operating Partnership LP 7.40% 3/15/2004 5,000 4,835
Regency Centers LP 7.40% 4/1/2004 (1) 3,000 2,886
Salomon Inc. 6.74% 12/15/2003 5,000 4,890
Salomon Smith Barney Holdings Inc. 6.875% 6/15/2005 5,000 4,857
Charles Schwab Corp. 8.05% 3/1/2010 10,000 10,125
Security Capital Group 7.15% 6/15/2007 2,000 1,798
Topaz Ltd. 6.92% 3/10/2007 (1)(2) 8,982 8,768
----------
466,738
----------
INDUSTRIAL (24.4%)
AEROSPACE AND DEFENSE (0.6%)
PanAmSat Corp. 6.375% 1/15/2008 5,000 4,445
Raytheon Co. 6.75% 8/15/2007 5,450 5,111
AUTOMOTIVE (1.5%)
Daimler-Chrysler North America Holding Corp. 7.20% 9/1/2009 25,000 24,129
CABLE (0.4%)
TCI Communications, Inc. 7.25% 8/1/2005 7,000 6,909
CHEMICALS (1.1%)
E.I. du Pont de Nemours & Co. 6.875% 10/15/2009 7,000 6,770
Hercules Inc. 6.60% 8/1/2027 (1) 2,500 2,301
Rohm & Haas Co. 7.40% 7/15/2009 10,000 9,897
CONSUMER GOODS AND SERVICES (1.5%)
Anheuser-Busch Cos., Inc. 6.75% 6/1/2005 2,000 1,950
Anheuser-Busch Cos., Inc. 7.10% 6/15/2007 10,000 9,766
Dial Corp. 6.50% 9/15/2008 5,000 4,319
Minnesota Mining & Manufacturing ESOP Trust 5.62% 7/15/2009 (1)(2) 8,648 7,959
ENERGY AND RELATED GOODS AND SERVICES (1.6%)
Baker Hughes Inc. 7.875% 6/15/2004 2,000 2,021
Enterprise Products 8.25% 3/15/2005 8,300 8,309
Tosco Trust 8.58% 3/1/2010 (2) 15,750 16,016
</TABLE>
18
<PAGE> 74
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GAMING (1.7%)
Harrahs Operating Co., Inc. 7.50% 1/15/2009 $ 18,000 $ 16,695
Park Place Entertainment 8.50% 11/15/2006 10,610 10,627
GENERAL INDUSTRIAL (1.0%)
Allied Signal Inc. 6.20% 2/1/2008 13,300 12,366
Parker Retirement Savings Plan Trust 6.34% 7/15/2008 (1)(2) 4,205 3,956
GROCERY STORES (0.3%)
American Stores Co. 7.40% 5/15/2005 5,000 4,962
HEALTH CARE (1.4%)
Boston Scientific Corp. 6.625% 3/15/2005 7,620 7,147
Cardinal Health, Inc. 6.00% 1/15/2006 8,845 8,091
Cardinal Health, Inc. 6.50% 2/15/2004 3,500 3,354
The Upjohn Co. ESOP Trust 9.79% 2/1/2004 (1) 4,967 5,237
MEDIA AND ENTERTAINMENT (0.4%)
Continental Cablevision 8.30% 5/15/2006 7,000 7,195
OTHER (1.1%)
International Speedway Corp. 7.875% 10/15/2004 5,000 4,895
Republic Service 7.125% 5/15/2009 11,650 10,544
Waste Management Inc. 7.00% 10/1/2004 2,295 2,144
PAPER AND PACKAGING (1.0%)
International Paper Co. 6.50% 11/15/2007 6,000 5,460
International Paper Co. 7.625% 1/15/2007 11,750 11,519
RETAIL (1.8%)
Federated Department Stores 8.50% 6/1/2010 8,000 7,858
May Department Stores Co. 8.00% 7/15/2012 12,000 12,036
Wal-Mart Stores, Inc. 6.875% 8/10/2009 10,000 9,748
TECHNOLOGY AND RELATED (3.2%)
Applied Materials, Inc. 6.75% 10/15/2007 11,250 10,678
Applied Materials, Inc. 8.00% 9/1/2004 5,000 5,067
Computer Sciences Corp. 6.25% 3/15/2009 10,000 9,057
First Data Corp. 6.375% 12/15/2007 12,000 11,232
Lucent Technologies Inc. 7.25% 7/15/2006 10,000 10,065
Tektronix 7.50% 8/1/2003 2,000 1,895
Tektronix 7.625% 8/15/2002 5,310 5,134
TRANSPORTATION (5.8%)
Burlington Northern Railroad Co. Equipment Trust 7.33% 6/23/2010 (1) 4,004 3,929
Continental Airlines Pass-Through Trust 6.748% 9/15/2018 (1) 8,753 7,640
Continental Airlines Pass-Through Trust 7.434% 3/15/2006 (1) 5,000 4,860
Continental Airlines Pass-Through Trust 8.321% 11/1/2006 (1) 4,000 3,994
Delta Airlines, Inc. 10.375% 2/1/2011 16,000 17,543
Delta Airlines, Inc. Pass-Through Trust 7.541% 10/11/2011 (1) 4,227 3,907
Delta Airlines, Inc. Pass-Through Trust 8.54% 1/2/2007 (1) 2,474 2,481
Hertz Corp. 6.625% 5/15/2008 5,000 4,623
Hertz Corp. 7.625% 8/15/2007 5,000 4,972
Northwest Airlines Corp. Pass-Through Trust 8.07% 7/2/2016 (1) 10,869 10,439
Union Pacific Railroad Co. Equipment Trust 6.12% 2/1/2004 (1) 2,000 1,902
United Airlines Pass-Through Certificates 8.03% 2/1/2013 (1) 30,000 29,986
----------
403,140
----------
UTILITIES (15.6%)
Alliant Energy Resources Corp. 7.375% 11/9/2009 15,000 14,515
Ameritech Capital Funding 6.15% 1/15/2008 10,000 9,112
Baltimore Gas & Electric Co. 6.25% 12/8/2005 5,000 4,757
</TABLE>
19
<PAGE> 75
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Baltimore Gas & Electric Co. 6.70% 12/1/2006 $ 9,000 $ 8,756
BellSouth Capital Funding 7.75% 2/15/2010 15,000 15,049
Cinergy Global Resources 6.20% 11/3/2008 (2)(3) 10,000 9,044
Coastal Corp. 9.625% 5/15/2012 10,000 11,313
Consolidated Edison Inc. 6.25% 2/1/2008 7,750 7,152
East Coast Power 6.737% 3/31/2008 (1) 2,733 2,587
FPL Group Capital 7.375% 6/1/2009 10,000 9,706
FPL Group Capital 7.625% 9/15/2006 5,000 5,002
GTE Corp. 6.36% 4/15/2006 5,000 4,725
GTE Northwest Inc. 5.55% 10/15/2008 15,000 13,072
GTE South Inc. 6.00% 2/15/2008 7,000 6,322
KeySpan Gas East Corp. 7.875% 2/1/2010 10,000 10,070
LG&E Capital Corp. 6.46% 1/15/2008 (2) 5,000 4,499
Limestone Electron Trust 8.625% 3/15/2003 5,000 5,051
Midamerican Energy Holdings Co. 6.375% 6/15/2006 5,000 4,705
NRG South Central Generating LLC 8.962% 3/15/2016 (1)(2) 15,000 15,211
Nipsco Capital Markets 7.39% 4/1/2004 9,000 8,813
Northern Border Pipeline Co. 7.75% 9/1/2009 7,000 6,937
Nstar 8.00% 2/15/2010 20,000 20,211
Osprey Trust 8.31% 1/15/2003 (2) 5,000 5,027
Progress Capital Holdings 7.45% 9/1/2003 (2) 10,000 9,942
PSE&G Capital Corp. 6.25% 5/15/2003 (2) 10,000 9,665
Reliant Energy Resources 8.125% 7/15/2005 (2) 10,000 10,017
Sempra Energy 7.95% 3/1/2010 15,000 15,239
Southwestern Bell Telephone 6.59% 9/29/2008 5,650 5,327
Yosemite Security Trust 8.25% 11/15/2004 (2) 5,000 5,014
----------
256,840
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $1,252,831) 1,202,622
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (2.8%)
-------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 6.50% 2/15/2010 34,305 35,436
U.S. Treasury Note 6.75% 5/15/2005 11,125 11,398
-------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $46,419) 46,834
-------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(21.5%)
-------------------------------------------------------------------------------------------------------------------------
Abitibi-Consolidated Inc. 8.55% 8/1/2010 5,000 4,986
Amvescap PLC 6.375% 5/15/2003 5,000 4,809
Amvescap PLC 6.60% 5/15/2005 5,825 5,504
Australian Gas Light Co. 6.40% 4/15/2008 (2) 10,000 9,097
BCH Cayman Islands Ltd. 6.50% 2/15/2006 5,000 4,732
BSCH Issuances Ltd. 7.625% 11/3/2009 10,000 9,916
Banco Santiago SA 7.00% 7/18/2007 8,875 7,997
Barclays Bank PLC 7.40% 12/15/2009 18,970 18,544
Cable & Wireless Optus Finance 8.00% 6/22/2010 (2) 17,000 17,009
Cemex SA De C.V. 8.625% 7/18/2003 (2) 5,175 5,188
Commonwealth Bank of Australia 8.50% 6/1/2010 10,000 10,396
Corporacion Nacional del Cobre de Chile 7.375% 5/1/2009 (2) 13,890 13,191
DBS Group Holdings Ltd. 7.875% 4/15/2010 (2) 16,700 16,736
Deutsche Telekom International Finance 8.00% 6/15/2010 7,000 7,057
The Development Bank of Singapore Ltd. 7.875% 8/10/2009 (2) 7,000 7,016
Diageo PLC 7.25% 11/1/2009 20,000 19,616
Embotelladora Andina SA 7.00% 10/1/2007 5,000 4,669
Imperial Tobacco 7.125% 4/1/2009 5,000 4,454
Israel Electric Corp. 7.75% 3/1/2009 (2) 19,375 18,740
Kimberly-Clark de Mexico 8.875% 8/1/2009 (2) 4,090 4,111
National Australia Bank 8.60% 5/19/2010 25,000 26,278
Oil Enterprises Ltd. 6.239% 6/30/2008 (1)(2)(3) 6,717 6,327
PacifiCorp Australia LLC 6.15% 1/15/2008 (2)(4) 14,000 12,794
Pemex Finance Ltd. 6.55% 2/15/2008 (1)(4) 5,000 4,790
</TABLE>
20
<PAGE> 76
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pemex Finance Ltd. 9.03% 2/15/2011 (1)(2) $ 20,000 $ 20,562
Pemex Finance Ltd. 9.69% 8/15/2009 (1) 15,000 15,831
Petroliam Nasional Bhd. 7.125% 10/18/2006 (2) 8,500 8,108
Petroliam Nasional Bhd. 7.75% 8/15/2015 (2) 5,000 4,701
Pohang Iron & Steel Co. Ltd. 6.625% 7/1/2003 5,400 5,181
Pohang Iron & Steel Co. Ltd. 7.125% 7/15/2004 2,200 2,117
Pohang Iron & Steel Co. Ltd. 7.125% 11/1/2006 5,445 5,142
Republic of Chile 6.875% 4/28/2009 875 814
Republic of South Africa 9.125% 5/19/2009 5,220 5,183
The State of Qatar 9.50% 5/21/2009 (2) 9,400 9,714
TPSA Finance BV 7.75% 12/10/2008 (2) 13,000 12,431
Telefonica de Argentina 9.125% 5/7/2008 (2) 2,705 2,549
United Mexican States 8.50% 2/1/2006 3,360 3,350
Vodafone Airtouch PLC 7.75% 2/15/2010 (2) 15,000 14,980
-------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $356,524) 354,620
-------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (3.8%)
-------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.59% 8/1/2000 29,541 29,541
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 6.60% 8/1/2000 33,094 33,094
-------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $62,635) 62,635
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.0%)
(COST $1,718,409) 1,666,711
-------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.0%)
-------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 31,636
Liabilities--Note I (48,673)
----------
(17,037)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------------------------------------------------------------
Applicable to 180,027,402 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $1,649,674
=========================================================================================================================
NET ASSET VALUE PER SHARE $9.16
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) 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 July 31, 2000, the aggregate
value of these securities was $352,229,000, representing 21.4% 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 JULY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,743,550 $9.68
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (42,178) (.23)
Unrealized Depreciation--Note H (51,698) (.29)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,649,674 $9.16
=========================================================================================================================
</TABLE>
21
<PAGE> 77
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM TREASURY FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.5%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (91.1%)
U.S. Treasury Bond 6.00% 2/15/2026 $ 300 $ 298
U.S. Treasury Bond 6.25% 5/15/2030 23,975 25,537
U.S. Treasury Bond 6.75% 8/15/2026 99,200 108,357
U.S. Treasury Bond 6.875% 8/15/2025 5,650 6,238
U.S. Treasury Bond 7.50% 11/15/2016 30,500 34,764
U.S. Treasury Bond 7.875% 2/15/2021 141,902 170,806
U.S. Treasury Bond 8.125% 8/15/2019 73,515 89,861
U.S. Treasury Bond 8.125% 5/15/2021 170,050 209,828
U.S. Treasury Bond 8.875% 2/15/2019 113,410 147,501
U.S. Treasury Bond 9.25% 2/15/2016 58,850 76,972
U.S. Treasury Bond 9.875% 11/15/2015 75,400 102,983
U.S. Treasury Inflation-Indexed Note 3.875% 4/15/2029 6,877 6,907
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 14,080 13,918
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 17,792 18,116
Private Export Funding Corp. (U.S. Government Guaranteed) 6.67% 9/15/2009 12,000 11,579
Private Export Funding Corp. (U.S. Government Guaranteed) 7.20% 11/15/2010 5,150 5,167
Private Export Funding Corp. (U.S. Government Guaranteed) 7.25% 6/15/2010 47,430 47,723
----------
1,076,555
----------
AGENCY BONDS AND NOTES (5.4%)
Federal Home Loan Bank 5.80% 9/2/2008 55,700 51,043
Federal Home Loan Mortgage Corp. 7.00% 3/15/2010 13,500 13,383
----------
64,426
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,089,089) 1,140,981
-------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.6%)
-------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.59% 8/1/2000 14,097 14,097
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 6.60% 8/1/2000 39,814 39,814
-------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $53,911) 53,911
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.1%)
(COST $1,143,000) 1,194,892
-------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
-------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 30,015
Security Lending Collateral Payable to Brokers--Note I (39,814)
Other Liabilities (3,097)
----------
(12,896)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------------------------------------------------------------
Applicable to 114,720,462 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $1,181,996
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.30
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
22
<PAGE> 78
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
LONG-TERM TREASURY FUND (000) SHARE
-------------------------------------------------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,150,271 $10.03
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (20,167) (.18)
Unrealized Appreciation--Note H 51,892 .45
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,181,996 $10.30
=========================================================================================================================
</TABLE>
23
<PAGE> 79
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (79.4%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE (22.3%)
Allstate Corp. 6.75% 5/15/2018 $ 20,000 $ 17,680
Allstate Corp. 7.50% 6/15/2013 10,000 9,502
Ambac, Inc. 7.50% 5/1/2023 20,000 18,504
American Re Corp. 7.45% 12/15/2026 17,277 16,326
Associates Corp. of North America 6.25% 11/1/2008 25,000 22,518
Banc One Corp. 7.75% 7/15/2025 25,000 23,860
Bank of America Corp. 8.50% 1/15/2007 15,000 15,592
BankBoston Corp. 6.625% 12/1/2005 30,000 28,538
CIGNA Corp. 7.875% 5/15/2027 25,000 23,478
Cincinnati Financial Corp. 6.90% 5/15/2028 20,000 17,107
Citicorp 7.125% 9/1/2005 15,000 14,849
Citigroup, Inc. 6.625% 1/15/2028 25,000 21,667
Equitable Cos. Inc. 7.00% 4/1/2028 25,000 22,378
Exxon Capital Corp. 6.00% 7/1/2005 10,000 9,583
Farmers Exchange Capital 7.05% 7/15/2028 (2) 30,000 24,486
Fifth Third Bancorp 6.75% 7/15/2005 20,000 19,406
First Chicago Corp. 6.375% 1/30/2009 15,000 13,536
First Union Corp. 6.00% 10/30/2008 10,000 8,841
Fleet Financial Group 6.875% 1/15/2028 25,000 22,064
General Electric Capital Corp. 8.125% 5/15/2012 42,000 44,667
General Electric Capital Services 7.50% 8/21/2035 10,960 11,123
General Electric Global Insurance Holdings Corp. 7.00% 2/15/2026 50,000 46,214
General Re Corp. 9.00% 9/12/2009 15,000 16,248
John Hancock Mutual Life Insurance Co. 7.375% 2/15/2024 (2) 50,000 46,309
Liberty Mutual Insurance Co. 8.50% 5/15/2025 (2) 35,000 31,736
Lumbermens Mutual Casualty Co. 9.15% 7/1/2026 (2) 15,110 13,253
MBIA Inc. 7.00% 12/15/2025 7,550 6,566
Massachusetts Mutual Life 7.50% 3/1/2024 (2) 8,710 8,268
Massachusetts Mutual Life 7.625% 11/15/2023 (2) 15,970 15,371
Metropolitan Life Insurance Co. 7.80% 11/1/2025 (2) 35,000 33,259
National City Bank Pennsylvania 7.25% 10/21/2011 10,000 9,422
National City Corp. 7.20% 5/15/2005 10,000 9,810
NationsBank Corp. 7.75% 8/15/2004 15,000 15,181
NationsBank Corp. 7.75% 8/15/2015 10,000 9,947
Republic New York Corp. 9.70% 2/1/2009 10,000 10,995
SunTrust Banks 6.00% 2/15/2026 20,000 18,494
Transamerica Corp. 9.375% 3/1/2008 10,000 10,834
Transamerica Financial Corp. 6.125% 11/1/2001 15,000 14,740
Travelers Property Casualty Corp. 7.75% 4/15/2026 25,000 24,002
UNUM Corp. 6.75% 12/15/2028 25,000 18,354
Wachovia Corp. 6.605% 10/1/2025 30,000 28,810
Wachovia Corp. 6.80% 6/1/2005 10,000 9,713
----------
803,231
----------
INDUSTRIAL (46.6%)
AEROSPACE AND DEFENSE (1.5%)
Lockheed Martin Corp. 7.65% 5/1/2016 35,000 33,395
Raytheon Co. 7.20% 8/15/2027 25,000 22,470
AUTOMOTIVE (4.0%)
Chrysler Corp. 7.45% 3/1/2027 25,000 23,994
Eaton Corp. 7.625% 4/1/2024 15,000 14,297
Ford Motor Co. 8.90% 1/15/2032 40,000 43,280
General Motors Corp. 7.40% 9/1/2025 30,000 28,338
General Motors Corp. 7.70% 4/15/2016 10,000 9,873
General Motors Corp. 9.40% 7/15/2021 20,000 22,910
BUILDING MATERIALS AND RELATED (0.6%)
Georgia-Pacific Group 7.25% 6/1/2028 25,000 21,378
</TABLE>
24
<PAGE> 80
<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 $ 22,575
CHEMICALS (3.5%)
E.I. du Pont de Nemours & Co. 6.50% 1/15/2028 25,000 22,158
E.I. du Pont de Nemours & Co. 6.75% 9/1/2007 25,000 24,182
Ferro Corp. 7.125% 4/1/2028 10,000 8,505
Monsanto Co. 6.75% 12/15/2027 25,000 22,615
Monsanto Co. 8.875% 12/15/2009 20,000 21,923
Rohm & Haas Co. 7.85% 7/15/2029 25,000 25,342
CONSUMER GOODS AND SERVICES (6.1%)
Bestfoods 6.625% 4/15/2028 30,000 26,476
CPC International, Inc. 7.25% 12/15/2026 30,000 28,642
Coca Cola Enterprises 5.75% 11/1/2008 25,000 22,131
The Walt Disney Co. 6.75% 3/30/2006 25,000 24,537
Kimberly-Clark Corp. 6.25% 7/15/2018 25,000 22,077
Procter & Gamble Co. 6.45% 1/15/2026 27,000 24,020
Procter & Gamble Co. 8.50% 8/10/2009 10,000 10,755
Procter & Gamble Co. ESOP 9.36% 1/1/2021 35,000 39,890
Whirlpool Corp. 9.10% 2/1/2008 20,000 20,812
ENERGY AND RELATED GOODS AND SERVICES (3.8%)
Mobil Corp. 8.625% 8/15/2021 22,000 25,003
Texaco Capital, Inc. 8.625% 11/15/2031 13,000 14,614
Texaco Capital, Inc. 9.75% 3/15/2020 17,000 21,035
USX Corp. 6.85% 3/1/2008 45,000 42,170
Ultramar Diamond Shamrock 7.20% 10/15/2017 20,000 18,084
United Technologies Corp. 8.875% 11/15/2019 15,000 16,981
FOOD AND LODGING (1.1%)
Joseph Seagram & Sons, Inc. 7.50% 12/15/2018 20,000 19,302
Sysco Corp. 6.50% 8/1/2028 22,000 18,850
GENERAL INDUSTRIAL (4.9%)
Caterpillar Inc. 6.625% 7/15/2028 25,000 21,253
Hubbell Inc. 6.625% 10/1/2005 10,000 9,799
Illinois Tool Works, Inc. 5.75% 3/1/2009 25,000 22,311
Minnesota Mining & Manufacturing Corp. 6.375% 2/15/2028 35,000 31,028
Morton International, Inc. 9.25% 6/1/2020 10,000 11,550
PPG Industries, Inc. 6.875% 2/15/2012 10,200 9,586
PPG Industries, Inc. 9.00% 5/1/2021 9,750 10,995
Parker-Hannifin Corp. 7.30% 5/15/2011 20,000 18,943
USA Waste Services Inc. 7.00% 7/15/2028 25,000 20,236
Vulcan Materials Co. 6.00% 4/1/2009 25,000 22,231
HEALTH CARE (4.4%)
Baxter International, Inc. 7.65% 2/1/2027 25,000 23,675
Bristol-Myers Squibb Co. 6.80% 11/15/2026 35,000 33,351
Johnson & Johnson 6.95% 9/1/2029 25,000 24,239
Eli Lilly & Co. 7.125% 6/1/2025 50,000 48,881
Merck & Co. 6.30% 1/1/2026 30,000 26,772
MEDIA AND ENTERTAINMENT (4.5%)
New York Times Co. 8.25% 3/15/2025 30,000 29,225
News America Holdings Inc. 8.00% 10/17/2016 30,000 29,018
E.W. Scripps Co. 6.625% 10/15/2007 20,000 18,847
Time Warner Inc. 6.625% 5/15/2029 25,000 21,147
Tribune Co. 6.875% 11/1/2006 20,000 19,274
Washington Post Co. 5.50% 2/15/2009 50,000 44,067
</TABLE>
25
<PAGE> 81
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
METAL (1.2%)
Aluminum Co. of America 6.75% 1/15/2028 $ 35,000 $ 31,330
Phelps Dodge Corp. 7.125% 11/1/2027 12,500 10,513
PAPER AND PACKAGING (3.4%)
Champion International Corp. 7.35% 11/1/2025 30,000 26,713
International Paper Co. 6.875% 11/1/2023 10,000 8,513
Mead Corp. 7.35% 3/1/2017 10,350 9,612
Tenneco Packaging 8.125% 6/15/2017 20,000 17,675
Tenneco Packaging 8.375% 4/15/2027 15,000 13,277
Westvaco Corp. 9.75% 6/15/2020 15,000 16,703
Weyerhaeuser Co. 8.50% 1/15/2025 30,000 31,102
TECHNOLOGY AND RELATED (3.2%)
International Business Machines Corp. 7.00% 10/30/2025 50,000 47,773
Lucent Technologies, Inc. 6.45% 3/15/2029 25,000 21,764
Motorola, Inc. 7.50% 5/15/2025 45,000 44,939
TELECOMMUNICATIONS (0.7%)
AirTouch Communications, Inc. 6.35% 6/1/2005 25,000 23,785
TRANSPORTATION (3.1%)
Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 12,500 11,831
Burlington Northern Santa Fe Corp. 6.875% 12/1/2027 25,000 21,916
CSX Corp. 7.95% 5/1/2027 35,000 33,683
Norfolk Southern Corp. 7.80% 5/15/2027 35,000 33,924
Union Tank Car Co. 7.125% 2/1/2007 10,000 9,525
----------
1,673,620
----------
UTILITIES (10.5%)
AT&T Corp. 6.50% 3/15/2029 50,000 41,803
Cincinnati Bell, Inc. 6.30% 12/1/2028 25,000 16,900
Coastal Corp. 9.625% 5/15/2012 15,000 16,970
Duke Energy Corp. 6.00% 12/1/2028 25,000 20,222
El Paso Natural Gas Co. 7.50% 11/15/2026 25,000 24,134
Florida Power Corp. 6.75% 2/1/2028 22,375 19,718
GTE California Inc. 6.70% 9/1/2009 25,000 23,402
GTE Southwest, Inc. 6.00% 1/15/2006 10,000 9,286
Indiana Bell Telephone Co., Inc. 7.30% 8/15/2026 35,000 33,208
Michigan Bell Telephone Co. 7.85% 1/15/2022 25,000 25,361
New Jersey Bell Telephone Co. 8.00% 6/1/2022 25,000 25,488
Northern States Power Co. 7.125% 7/1/2025 30,000 28,002
Oklahoma Gas & Electric Co. 6.50% 4/15/2028 12,770 10,757
Pacific Bell 7.125% 3/15/2026 15,000 14,102
PacifiCorp 6.625% 6/1/2007 10,000 9,492
Sprint Capital Corp. 6.875% 11/15/2028 35,000 30,466
Wisconsin Electric Power Co. 6.50% 6/1/2028 25,000 21,550
Wisconsin Power & Light 5.70% 10/15/2008 7,500 6,583
----------
377,444
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $3,052,711) 2,854,295
-------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(1.0%)
-------------------------------------------------------------------------------------------------------------------------
Province of Manitoba 8.875% 9/15/2021 10,000 11,669
Province of Ontario 6.00% 2/21/2006 15,000 14,161
Province of Saskatchewan 8.50% 7/15/2022 10,000 11,056
-------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $38,078) 36,886
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 82
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (16.7%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (3.3%)
U.S. Treasury Bond 5.50% 8/15/2028 $ 125,000 $ 116,833
----------
AGENCY BONDS AND NOTES (4.0%)
Federal National Mortgage Assn. 5.75% 6/15/2005 100,000 94,875
Federal National Mortgage Assn. 7.125% 1/15/2030 50,000 50,474
----------
145,349
----------
MORTGAGE-BACKED SECURITIES (9.4%)
Federal National Mortgage Assn. 5.735% 1/1/2009 (1) 14,739 13,359
Federal National Mortgage Assn. 15.50% 10/1/2012 (1) 4 4
Government National Mortgage Assn. 6.00% 5/15/2028-3/15/2029 (1) 282,441 260,437
Government National Mortgage Assn. 6.50% 2/15/2028-1/15/2029 (1) 69,395 65,880
----------
339,680
----------
-------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $627,269) 601,862
-------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (6.6%)
-------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.59% 8/1/2000 51,405 51,405
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 6.60% 8/1/2000 183,848 183,848
-------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $235,253) 235,253
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (103.7%)
(COST $3,953,311) 3,728,296
-------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-3.7%)
-------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 64,299
Security Lending Collateral Payable to Brokers--Note I (183,848)
Other Liabilities (13,019)
----------
(132,568)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------------------------------------------------------------------------
Applicable to 441,964,083 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $3,595,728
=========================================================================================================================
NET ASSET VALUE PER SHARE $8.14
=========================================================================================================================
</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 July 31, 2000, the aggregate
value of these securities was $172,682,000, representing 4.8% of net assets.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $3,835,984 $8.68
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (15,241) (.03)
Unrealized Depreciation--Note H (225,015) (.51)
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $3,595,728 $8.14
=========================================================================================================================
</TABLE>
27
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<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YIELD CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (90.8%)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE (2.5%)
Bank United Corp. 8.00% 3/15/2009 $ 15,000 $ 13,050
Bank United Corp. 8.875% 5/1/2007 30,000 26,932
Chevy Chase Savings Bank 9.25% 12/1/2008 15,000 13,463
Imperial Credit Industries, Inc. 9.875% 1/15/2007 18,000 12,420
Navistar Financial Corp. 9.00% 6/1/2002 15,000 15,000
Sovereign Bancorp, Inc. 10.50% 11/15/2006 25,000 25,125
Western Financial Savings Bank 8.50% 7/1/2003 17,000 15,513
Western Financial Savings Bank 8.875% 8/1/2007 20,000 17,650
----------
139,153
----------
INDUSTRIAL (80.1%)
AEROSPACE AND DEFENSE (2.0%)
Argo-Tech Corp. 8.625% 10/1/2007 16,000 12,000
K & F Industries, Inc. 9.25% 10/15/2007 27,000 25,920
L-3 Communications Corp. 8.50% 5/15/2008 8,425 7,835
L-3 Communications Corp. 10.375% 5/1/2007 20,000 20,400
Newport News Shipbuilding Inc. 8.625% 12/1/2006 25,000 24,875
Newport News Shipbuilding Inc. 9.25% 12/1/2006 20,000 20,100
AUTOMOTIVE (4.7%)
Accuride Corp. 9.25% 2/1/2008 20,000 17,000
Delco Remy International Inc. 10.625% 8/1/2006 12,000 11,940
Dura Operating Corp. 9.00% 5/1/2009 10,000 8,900
Federal-Mogul Corp. 7.75% 7/1/2006 54,810 44,122
Federal-Mogul Corp. 8.80% 4/15/2007 18,750 15,375
Hayes Wheels International, Inc. 11.00% 7/15/2006 15,000 15,150
Hayes Wheels International, Inc. 9.125% 7/15/2007 30,000 27,600
LDM Technologies Inc. 10.75% 1/15/2007 8,000 6,280
Lear Corp. 7.96% 5/15/2005 25,000 23,846
Lear Corp. 9.50% 7/15/2006 20,000 19,800
Navistar International Corp. 8.00% 2/1/2008 25,000 23,500
Tenneco Inc. 11.625% 10/15/2009 50,000 44,750
BUILDING MATERIALS (2.2%)
American Standard Cos. Inc. 7.375% 2/1/2008 50,000 46,000
American Standard Cos. Inc. 7.625% 2/15/2010 41,250 37,950
Nortek Inc. 8.875% 8/1/2008 8,000 7,380
Nortek, Inc. 9.25% 3/15/2007 17,500 16,494
Werner Holdings Co., Inc. 10.00% 11/15/2007 14,995 14,395
CABLE (10.8%)
Adelphia Communications Corp. 7.75% 1/15/2009 27,000 22,477
Adelphia Communications Corp. 8.375% 2/1/2008 42,500 37,081
CSC Holdings, Inc. 7.875% 12/15/2007 30,000 29,048
CSC Holdings, Inc. 8.125% 7/15/2009 25,000 24,480
CSC Holdings, Inc. 8.125% 8/15/2009 15,000 14,686
CSC Holdings, Inc. 9.25% 11/1/2005 30,000 30,000
CSC Holdings, Inc. 9.875% 2/15/2013 15,000 15,300
Century Communications Inc. 8.875% 1/15/2007 35,000 32,025
Charter Communications Holdings LLC 8.625% 4/1/2009 96,000 84,960
Classic Cable Inc. 9.375% 8/1/2009 15,000 12,525
Classic Cable Inc. 10.50% 3/1/2010 25,000 21,750
Hyperion Telecommunications, Inc. 12.25% 9/1/2004 25,000 24,500
Insight Midwest 9.75% 10/1/2009 20,000 19,750
Jones Intercable Inc. 7.625% 4/15/2008 20,000 19,650
Lenfest Communications, Inc. 8.375% 11/1/2005 62,500 64,243
NTL Inc. 10.00% 2/15/2007 36,780 34,941
Telewest Communications 9.875% 2/1/2010 (1) 42,155 40,469
USA Networks Inc. 6.75% 11/15/2005 75,000 71,899
</TABLE>
28
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<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHEMICALS (2.6%)
ARCO Chemical Co. 9.80% 2/1/2020 $ 20,000 $ 18,800
Acetex Corp. 9.75% 10/1/2003 20,000 18,900
Buckeye Cellulose Corp. 8.50% 12/15/2005 15,000 14,700
Huntsman Corp. 9.50% 7/1/2007 (1) 17,000 15,470
Lilly Industries, Inc. 7.75% 12/1/2007 15,000 13,879
Lyondell Chemical Co. 9.625% 5/1/2007 56,000 56,700
Sovereign Speciality Chemicals, Inc. 11.875% 3/15/2010 7,200 7,416
CONSUMER GOODS AND SERVICES (0.9%)
Scotts Co. 8.625% 1/15/2009 (1) 20,000 19,400
Sealy Mattress, Inc. 9.875% 12/15/2007 15,000 14,625
True Temper Sports, Inc. 10.875% 12/1/2008 15,000 14,288
CONTAINERS (2.3%)
BWAY Corp. 10.25% 4/15/2007 15,000 14,850
Owens-Illinois Inc. 7.35% 5/15/2008 35,000 29,622
Owens-Illinois, Inc. 7.85% 5/15/2004 15,000 13,874
Owens-Illinois, Inc. 8.10% 5/15/2007 35,000 31,361
Silgan Holding Inc. 9.00% 6/1/2009 41,000 37,310
ENERGY AND RELATED GOODS AND SERVICES (5.2%)
AmeriGas Partners, LP Series B 10.125% 4/15/2007 10,000 10,000
Cross Timbers Oil Co. 8.75% 11/1/2009 25,000 23,625
Cross Timbers Oil Co. 9.25% 4/1/2007 16,500 16,088
Newfield Exploration Co. 7.45% 10/15/2007 15,000 13,889
Newpark Resources, Inc. 8.625% 12/15/2007 15,000 13,350
Oryx Energy Co. 8.00% 10/15/2003 10,000 10,126
P & L Coal Holdings Corp. 8.875% 5/15/2008 40,000 38,600
Pioneer Natural Resources Co. 9.625% 4/1/2010 50,000 52,125
Plains Resources, Inc. 10.25% 3/15/2006 16,000 16,240
Pride Petroleum Services, Inc. 9.375% 5/1/2007 32,000 32,080
RBF Finance Co. 11.00% 3/15/2006 35,000 37,800
Tesoro Petroleum Corp. 9.00% 7/1/2008 10,000 9,725
Tuboscope Inc. 7.50% 2/15/2008 15,000 13,523
FOOD AND LODGING (0.7%)
B & G Foods, Inc. 9.625% 8/1/2007 10,000 6,000
Nash Finch Co. 8.50% 5/1/2008 2,160 1,469
New World Pasta Co. 9.25% 2/15/2009 16,000 10,720
Tricon Global Restaurants, Inc. 7.65% 5/15/2008 25,000 22,669
GENERAL INDUSTRIAL (4.0%)
Allied Waste North America Inc. 7.625% 1/1/2006 35,000 31,412
Cincinnati Milacron, Inc. 8.375% 3/15/2004 11,500 11,311
Consumers International 10.25% 4/1/2005 19,305 8,687
Idex Corp. 6.875% 2/15/2008 22,500 20,207
International Wire Group 11.75% 6/1/2005 15,000 15,000
Mastec, Inc. 7.75% 2/1/2008 30,000 27,900
Neenah Corp. 11.125% 5/1/2007 25,170 18,940
Park-Ohio Industries, Inc. 9.25% 12/1/2007 20,000 17,900
Roller Bearing Co. of America Inc. 9.625% 6/15/2007 10,000 9,150
Terex Corp. 8.875% 4/1/2008 17,500 15,750
Waste Management, Inc. 6.875% 5/15/2009 50,000 44,104
GROCERY STORES (0.3%)
Bergen Brunswig Corp. 7.375% 1/15/2003 17,155 15,954
</TABLE>
29
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<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YIELD CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE (4.9%)
Beverly Enterprises Inc. 9.00% 2/15/2006 $ 18,000 $ 15,592
Columbia/HCA Healthcare Corp. 6.91% 6/15/2005 25,000 23,114
Columbia/HCA Healthcare Corp. 7.00% 7/1/2007 30,000 27,144
Columbia/HCA Healthcare Corp. 7.25% 5/20/2008 30,000 27,222
Leiner Health Products, Inc. 9.625% 7/1/2007 9,270 6,489
Lifepoint Hospitals Holding Corp. 10.75% 5/15/2009 10,000 10,400
Owens & Minor, Inc. 10.875% 6/1/2006 14,075 14,497
Tenet Healthcare Corp. 8.125% 12/1/2008 70,000 65,800
Tenet Healthcare Corp. 8.625% 1/15/2007 40,000 39,200
Triad Hospitals Holdings, Inc. 11.00% 5/15/2009 20,785 21,720
Warner Chilcott Inc. 12.625% 2/15/2008 (1) 20,000 20,600
HOME BUILDING AND REAL ESTATE (1.8%)
CapStar Hotel Co. 8.75% 8/15/2007 20,000 18,550
Kaufman & Broad Home Corp. 7.75% 10/15/2004 26,250 23,953
Standard Pacific Corp. 8.00% 2/15/2008 15,000 13,575
Standard Pacific Corp. 8.50% 6/15/2007 15,000 13,650
Toll Corp. 7.75% 9/15/2007 15,000 13,650
Del E. Webb Corp. 10.25% 2/15/2010 15,000 13,538
MEDIA AND ENTERTAINMENT (8.4%)
Chancellor Media Corp. 8.75% 6/15/2007 8,500 8,585
Chancellor Media Corp. 8.125% 12/15/2007 21,465 21,680
Citadel Broadcasting Co. 9.25% 11/15/2008 12,250 12,005
EchoStar DBS Corp. 9.375% 2/1/2009 100,000 97,750
Emmis Communications Corp. 8.125% 3/15/2009 30,000 27,525
Fox/Liberty Networks LLC 8.875% 8/15/2007 70,000 70,000
Lin Television Corp. 8.375% 3/1/2008 33,000 30,360
Mail-Well Corp. 8.75% 12/15/2008 19,125 16,448
PRIMEDIA, Inc. 7.625% 4/1/2008 20,000 18,025
RCN Corp. 10.00% 10/15/2007 30,000 24,300
TV Guide, Inc. 8.125% 3/1/2009 55,000 55,275
Von Hoffman Press Inc. 10.875% 5/15/2007 (1) 12,095 11,339
World Color Press, Inc. 7.75% 2/15/2009 20,000 18,712
World Color Press, Inc. 8.375% 11/15/2008 45,000 43,398
Young Broadcasting Inc. 9.00% 1/15/2006 10,000 9,450
METAL (3.5%)
AK Steel Corp. 7.875% 2/15/2009 25,000 23,000
AK Steel Corp. 9.125% 12/15/2006 55,000 54,450
Armco, Inc. 9.00% 9/15/2007 20,000 19,400
Bethlehem Steel Corp. 10.375% 9/1/2003 10,500 10,500
LTV Corp. 8.20% 9/15/2007 37,000 27,935
LTV Corp. 11.75% 11/15/2009 25,000 21,000
National Steel Corp. 9.875% 3/1/2009 13,000 11,440
Ryerson Tull, Inc. 9.125% 7/15/2006 11,960 11,840
Weirton Steel Corp. 10.75% 6/1/2005 12,500 11,500
PAPER AND PACKAGING (4.6%)
Ball Corp. 7.75% 8/1/2006 35,000 32,987
Ball Corp. 8.25% 8/1/2008 15,000 14,137
Boise Cascade Co. 9.45% 11/1/2009 15,000 15,405
Buckeye Technologies, Inc. 8.00% 10/15/2010 12,460 11,619
Container Corp. of America 9.75% 4/1/2003 50,000 50,000
Domtar Inc. 8.75% 8/1/2006 15,000 15,600
Domtar Inc. 9.50% 8/1/2016 18,750 19,500
Fonda Group Inc. 9.50% 3/1/2007 15,000 11,700
NoramPac Inc. 9.50% 2/1/2008 10,000 9,900
Packaging Corp. of America 9.625% 4/1/2009 20,000 20,350
</TABLE>
30
<PAGE> 86
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paperboard Industries International Inc. 8.375% 9/15/2007 $ 18,750 $ 15,750
Tembec Finance Corp. 9.875% 9/30/2005 8,325 8,533
Tembec Industries Inc. 8.625% 6/30/2009 4,610 4,552
U.S. Timberlands LLC 9.625% 11/15/2007 27,000 24,165
RETAIL (0.2%)
Boise Cascade Office Products Corp. 7.05% 5/15/2005 14,490 13,774
TECHNOLOGY AND RELATED (6.4%)
Amphenol Corp. 9.875% 5/15/2007 9,000 9,067
Beckman Instruments, Inc. 7.45% 3/4/2008 30,000 27,480
Celestica International, Inc. 10.50% 12/31/2006 1,635 1,684
Fairchild Semiconductor Corp. 10.125% 3/15/2007 22,275 22,721
Fisher Scientific International Inc. 9.00% 2/1/2008 50,000 46,250
Iron Mountain, Inc. 8.25% 7/1/2011 15,000 13,125
Iron Mountain, Inc. 8.75% 9/30/2009 37,500 34,219
Iron Mountain, Inc. 10.125% 10/1/2006 7,000 7,035
Pierce Leahy Corp. 9.125% 7/15/2007 15,000 14,025
PSINet Inc. 10.00% 2/15/2005 90,000 72,000
SCG Holding & Semiconductor Co. Corp. 12.00% 8/1/2009 32,546 34,987
Telecommunication Techniques Co. 9.75% 5/15/2008 22,000 20,240
Unisys Corp. 7.875% 4/1/2008 30,000 27,300
Wesco Distribution Inc. 9.125% 6/1/2008 25,000 23,250
TELECOMMUNICATIONS (12.7%)
Covad Communications 12.00% 2/15/2010 25,000 19,000
Crown Castle International Corp. 9.00% 5/15/2011 25,000 23,500
Crown Castle International Corp. 9.50% 8/1/2011 18,750 18,094
Crown Castle International Corp. 10.75% 8/1/2011 21,597 22,137
Flag Limited Inc. 8.25% 1/30/2008 45,000 40,500
GCI, Inc. 9.75% 8/1/2007 20,000 18,200
Global Crossing Holding Ltd. 9.125% 11/15/2006 75,000 72,563
ITC DeltaCom, Inc. 8.875% 3/1/2008 22,000 19,470
ITC DeltaCom, Inc. 9.75% 11/15/2008 12,500 11,438
ITC DeltaCom, Inc. 11.00% 6/1/2007 8,781 8,693
Intermedia Communications Inc. 8.50% 1/15/2008 5,000 4,125
Intermedia Communications Inc. 8.875% 11/1/2007 15,000 12,675
Level 3 Communication, Inc. 9.125% 5/1/2008 90,000 77,850
MJD Communications, Inc. 9.50% 5/1/2008 12,000 10,560
McLeodUSA Inc. 8.125% 2/15/2009 25,000 22,688
McLeodUSA Inc. 8.375% 3/15/2008 22,000 20,130
McLeodUSA Inc. 9.25% 7/15/2007 15,000 14,625
McLeodUSA Inc. 9.50% 11/1/2008 7,000 6,790
Nextel Communications Inc. 9.375% 11/15/2009 50,000 48,250
Nextel Communications Inc. 12.00% 11/1/2008 45,000 48,375
NEXTLINK Communications, Inc. 10.75% 11/15/2008 25,000 24,125
NEXTLINK Communications, Inc. 10.75% 6/1/2009 21,000 20,265
Qwest Communications International Inc. 7.50% 11/1/2008 63,000 61,484
Rogers Cantel, Inc. 8.30% 10/1/2007 27,500 27,363
Verio Inc. 11.25% 12/1/2008 20,000 23,556
Voicestream Wireless Corp. 10.375% 11/15/2009 25,000 27,250
TRANSPORTATION (1.9%)
AMR Corp. 9.00% 8/1/2012 8,156 8,056
Budget Group Inc. 9.125% 4/1/2006 25,000 18,500
Delta Air Lines Inc. 8.30% 12/15/2029 47,000 42,458
Delta Air Lines, Inc. 10.375% 12/15/2022 8,770 9,613
United Airlines, Inc. 9.75% 8/15/2021 18,485 18,223
United Airlines, Inc. 10.25% 7/15/2021 4,960 5,063
United Airlines, Inc. 11.21% 5/1/2014 2,223 2,445
------------
4,430,965
------------
</TABLE>
31
<PAGE> 87
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-YIELD CORPORATE FUND COUPON DATE (000) (000)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (8.2%)
AES Corp. 8.375% 8/15/2007 $ 30,000 $ 28,350
AES Corp. 8.50% 11/1/2007 24,000 22,770
AES Corp. 9.50% 6/1/2009 25,000 25,250
Azurix Corp. 10.375% 2/15/2007 (1) 24,000 22,080
CMS Energy Corp. 7.50% 1/15/2009 16,000 14,477
CMS Energy Corp. 7.625% 11/15/2004 18,000 16,920
CMS Energy Corp. 8.125% 5/15/2002 30,000 29,714
Caithness Coso Fund Corp. 9.05% 12/15/2009 15,000 14,887
Calpine Corp. 7.625% 4/15/2006 25,000 23,750
Calpine Corp. 7.875% 4/1/2008 36,380 34,463
Cleveland Electric Illuminating Co. 7.43% 11/1/2009 17,500 16,755
El Paso Electric Co. 8.90% 2/1/2006 23,000 23,797
El Paso Electric Co. 9.40% 5/1/2011 28,000 29,524
Midland Funding II 11.75% 7/23/2005 25,000 26,406
Niagara Mohawk Power Corp. 7.75% 10/1/2008 60,000 58,789
Public Service Co. of New Mexico 7.50% 8/1/2018 20,000 18,676
Western Resources, Inc. 6.875% 8/1/2004 50,000 44,479
------------
451,087
------------
---------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $5,360,220) 5,021,205
---------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (5.9%)
---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 5.75% 8/15/2003 75,000 73,837
U.S. Treasury Note 6.00% 8/15/2004 75,000 74,375
U.S. Treasury Note 6.50% 5/31/2002 75,000 75,158
U.S. Treasury Note 6.50% 8/15/2005 100,000 101,204
---------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $333,063) 324,574
---------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (5.3%)
---------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.59% 8/1/2000 61,214 61,214
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note I 6.60% 8/1/2000 234,196 234,196
---------------------------------------------------------------------------------------------------------------------------
TOTAL CASH INVESTMENTS
(COST $295,410) 295,410
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.0%)
(COST $5,988,693) 5,641,189
---------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.0%)
---------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 154,559
Security Lending Collateral Payable to Brokers--Note I (234,196)
Other Liabilities (32,218)
------------
(111,855)
---------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
---------------------------------------------------------------------------------------------------------------------------
Applicable to 775,445,010 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $5,529,334
===========================================================================================================================
NET ASSET VALUE PER SHARE $7.13
===========================================================================================================================
</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 July 31, 2000, the aggregate
value of these securities was $129,358,000, representing 2.3% of net assets.
32
<PAGE> 88
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
------------------------------------------------------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $6,120,444 $7.89
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (243,606) (.31)
Unrealized Depreciation--Note H (347,504) (.45)
------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,529,334 $7.13
==============================================================================================================================
</TABLE>
33
<PAGE> 89
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor. F282 092000
