<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
The sharp and sustained rise in interest rates we witnessed during 1994
abruptly reversed itself during the six months ended June 30, the first half of
Vanguard Bond Index Fund's 1995 fiscal year. As a natural result, bond prices
soared, recouping most of the declines incurred in 1994.
In this remarkable reversal of fortune, each of the four Portfolios of
Vanguard Bond Index Fund achieved solid total returns (capital change plus
income), turning in strong gains consistent with their respective unmanaged
target indexes: the Lehman Aggregate Bond Index and its Short-Term,
Intermediate-Term, and Long-Term components. I call your particular attention to
the close tracking of the Portfolios to their target indexes, despite the fact
that our returns are net of operating and transaction costs. The table below
presents the total returns for the past six months:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Total Return
-------------------------------
Six Months Ended
June 30, 1995
- -------------------------------------------------------------------
Portfolio Vanguard Target Index*
- -------------------------------------------------------------------
<S> <C> <C>
TOTAL BOND MARKET +11.1% +11.4%
- -------------------------------------------------------------------
SHORT-TERM BOND + 8.0% + 8.0%
INTERMEDIATE-TERM BOND +13.2 +13.6
LONG-TERM BOND +17.3 +17.7
- -------------------------------------------------------------------
</TABLE>
*Respectively, the Lehman Aggregate Bond Index and its Short-Term
Bond, Intermediate-Term Bond, and Long-Term Bond components.
The net asset values and dividends per share that are the basis for these
calculations are presented in the table at the end of this letter.
In my view, the presentation of semi-annual returns for bond funds,
however necessary in a report of this nature, leaves something to be desired,
for it accounts for only one-half of the year's interest income. But the fact is
that, over the long run, interest income accounts for virtually 100% of the
total return on a bond fund. So, the following table presents the return of each
Portfolio for the twelve months, divided into its income and capital components.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Components Of Total Return
---------------------------------------
Twelve Months Ended June 30, 1995
- -------------------------------------------------------------------
Portfolio Income Capital Total
- -------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL BOND MARKET +7.4% + 4.9% +12.3%
- -------------------------------------------------------------------
SHORT-TERM BOND +6.5% + 2.2% + 8.7%
INTERMEDIATE-TERM BOND +7.7 + 6.1 +13.8
LONG-TERM BOND +8.6 +10.1 +18.7
- -------------------------------------------------------------------
</TABLE>
This table clearly reflects both the relative yields and relative price
volatility of each Portfolio. Declining interest rates have been a positive
force on capital returns so far in 1995. But we should not lose sight of the
fact that volatility, as testified by our 1994 performance, is a negative force
when interest rates rise and bond prices fall.
THE PERIOD IN REVIEW
The overpowering message of the splendid performance of bonds thus far
in 1995 is clear: financial markets change quickly and unpredictably! Bond
prices fell completely apart during 1994, with the yield on the long-term U.S.
Treasury bond rising from 6.4% to 7.8% on balance. This rise of 140 basis points
engendered a -16% decline in the price of the bond. Interest rates on the
short-term U.S. Treasury bond also soared, from 4.5% to 7.8%--an even larger
increase of 330 basis points--but, given its shorter maturity (3 years versus a
30-year maturity for the long bond), it declined by but -6% in value.
This year, of course, the story is precisely the opposite. The yield on
the long-term U.S. Treasury bond has fallen to 6.6% (not so far from its level
when 1994 began), and the yield on the short-term U.S. Treasury bond has fallen
to 5.9%. Virtually none of the "experts" expected these declines. Indeed, The
Wall Street Journal survey of eminent economists and professional money managers
last December reflected a consensus yield prediction of 7.9% for the long
Treasury on June 30, 1995 (i.e., a small increase in rates). So much for
predictions!
The surprise rally of the past six months has been based importantly on
the market's perception that the Federal Reserve Board seems to have completed
its program to drive interest rates upward.
(continued)
1
<PAGE> 2
After raising the Fed funds rate (at which banks lend to one another)
fully six times during 1994, the Fed boosted rates on but one occasion during
the first half of 1995.*
The Fed's actions were apparently based largely on the perception that
the threat of inflation had diminished and that U.S. economic growth was
softening. Bond market participants are saying, in effect, that we are in "the
best of all possible worlds": steady economic growth without significant
inflation. The idea that these two often-warring factors have finally made
peace, however, is not something one should take for granted.
SUMMING UP
The abrupt reversal of interest rates--turning from bearish to bullish for
bondholders--happily justifies what I wrote to you in our 1994 Annual Report six
months ago: "the probabilities favor better total returns in the coming year." I
also urged you to "stay the course" by maintaining the bond maturity structure
that you have elected by your choice of Vanguard Bond Index Fund Portfolios,
holding fast to that structure, and ignoring the inevitable short-term ups and
downs of the bond market. That advice seems equally valid today.
Sincerely,
/s/ JOHN C. BOGLE
- ---------------------
John C. Bogle
Chairman of the Board
July 14, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
- -----------------
* After the conclusion of the period covered by this Semi- Annual Report, the
Fed actually reduced the short-term interest rate by 1/4 of 1%, bringing this
key rate to 5 3/4% versus 3% one and one-half years ago.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS (PERIODS ENDED JUNE 30,
1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
--------------------------
INCEPTION TOTAL INCOME CAPITAL
PORTFOLIO DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
- ---------------------------- ---------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
TOTAL BOND MARKET* 12/11/86 +12.27% +9.18% +8.14% +8.04% +0.10%
SHORT-TERM BOND* 3/1/94 + 8.66 -- +5.66 +6.11 -0.45
INTERMEDIATE-TERM BOND* 3/1/94 +13.78 -- +7.37 +7.07 +0.30
LONG-TERM BOND* 3/1/94 +18.65 -- +8.86 +7.81 +1.05
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
*PERFORMANCE FIGURES ARE ADJUSTED FOR THE ANNUAL ACCOUNT MAINTENANCE FEE OF
$10.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
TOTAL PER SHARE TOTAL RETURNS*
NET ASSETS ------------------ LATEST -------------- CURRENT
(MILLIONS) AVERAGE AVERAGE DEC. 31, JUNE 30, 12 MONTHS 12 6 SEC
PORTFOLIO JUNE 30, 1995 MATURITY QUALITY 1994 1995 DIVIDENDS MONTHS MONTHS YIELD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL BOND MARKET ....... $2,157 8.8 YEARS AAA $9.17 $ 9.85 $.645 +12.3% +11.1% 6.57%
SHORT-TERM BOND ......... 152 2.7 YEARS Aaa 9.50 9.94 .602 + 8.7 + 8.0 5.88
INTERMEDIATE-TERM BOND .. 163 7.4 YEARS Aa1 9.18 10.04 .664 +13.8 +13.2 6.30
LONG-TERM BOND .......... 13 21.6 YEARS Aa1 8.96 10.14 .703 +18.6 +17.3 6.90
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance figures are adjusted for the annual account maintenance fee of
$10.
3
<PAGE> 4
TOTAL INVESTMENT RETURN TABLE
The following table illustrates the results of a single-share investment in
VANGUARD BOND INDEX FUND-TOTAL BOND MARKET PORTFOLIO since inception through
June 30, 1995. During the period illustrated, long-term bond prices fluctuated
widely; these results should not be considered a representation of the dividend
income or capital gain or loss that may be realized from an investment made in
the Portfolio today.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- --------------------------------------------------------------------------------------------------------------------------
Total Bond Market Portfolio Lehman
Value with Income --------------------------- Aggregate
Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Bond Index
December 31 Value Distributions Dividends Gains Reinvested Return Return Return Total Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL (12/86) $10.00 -- -- $10.00 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
1986 9.94 -- $.028 9.98 -0.6% +0.4% - 0.2% --
- --------------------------------------------------------------------------------------------------------------------------
1987 9.20 -- .834 10.09 -7.4 +8.5 + 1.1 + 2.8%
- --------------------------------------------------------------------------------------------------------------------------
1988 9.05 -- .807 10.84 -1.6 +8.9 + 7.3 + 7.9
- --------------------------------------------------------------------------------------------------------------------------
1989 9.44 -- .797 12.31 +4.3 +9.3 +13.6 +14.5
- --------------------------------------------------------------------------------------------------------------------------
1990 9.41 -- .796 13.38 -0.3 +8.9 + 8.6 + 9.0
- --------------------------------------------------------------------------------------------------------------------------
1991 9.99 $.025 .766 15.42 +6.4 +8.8 +15.2 +16.0
- --------------------------------------------------------------------------------------------------------------------------
1992 9.88 .092 .699 16.52 -0.2 +7.3 + 7.1 + 7.4
- --------------------------------------------------------------------------------------------------------------------------
1993 10.06 .120 .638 18.12 +3.0 +6.7 + 9.7 + 9.8
- --------------------------------------------------------------------------------------------------------------------------
1994 9.17 .002 .622 17.64 -8.8 +6.1 - 2.7 - 2.9
- --------------------------------------------------------------------------------------------------------------------------
1995 (6/30) 9.85 -- .324 19.60 +7.4 +3.7 +11.1 +11.4
- --------------------------------------------------------------------------------------------------------------------------
LIFETIME +95.6% +104.7%
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL
RETURN +8.2% +8.8%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Returns begin December 31, 1986, for both the Portfolio and the Index,
and include reinvestment of income dividends and any capital gains
distributions. Portfolio performance also adjusted for the $10 annual account
maintenance fee.
Note: No adjustment has been made for income taxes payable by shareholders
on reinvested income dividends and capital gains distributions.
4
<PAGE> 5
FINANCIAL STATEMENTS
(unaudited)
June 30, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Face Market
Amount Value
TOTAL BOND MARKET PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (68.3%)
- ---------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES 36.6%)
U.S. Treasury Bonds
7.25%, 5/15/16 $ 680 $ 721
7.50%, 11/15/16 2,135 2,324
7.625%, 2/15/07 670 712
7.875%, 11/15/07-2/15/21 15,095 17,162
8.125%, 8/15/19-8/15/21 44,120 51,440
8.375%, 8/15/00 2,000 2,006
8.50%, 2/15/20 38,670 46,766
8.75%, 5/15/17-8/15/20 43,185 53,309
8.875%, 8/15/17-2/15/19 59,950 74,693
9.125%, 5/15/09 500 591
9.25%, 2/15/16 435 558
9.375%, 2/15/06 110 136
9.875%, 11/15/15 4,890 6,605
10.00%, 5/15/10 2,000 2,521
10.375%, 11/15/09-11/15/12 43,370 57,055
10.75%, 2/15/03-8/15/05 30,035 39,864
11.125%, 8/15/03 1,135 1,485
11.25%, 2/15/15 200 300
11.625%, 11/15/02-11/15/04 13,650 18,048
11.75%, 2/15/10-11/15/14 1,085 1,589
12.00%, 8/15/13 350 516
12.375%, 5/15/04 100 141
12.75%, 11/15/10 380 561
13.375%, 8/15/01 2,600 3,564
14.00%, 11/15/11 5,420 8,701
U.S. Treasury Notes
4.75%, 8/31/98 6,560 6,334
5.125%, 4/30/98 1,950 1,911
5.25%, 7/31/98 20,700 20,309
5.375%, 5/31/98 1,800 1,774
5.75%, 8/15/03 10,015 9,710
5.875%, 2/15/04 2,000 1,951
6.00%, 11/30/97 1,900 1,904
6.375%, 6/30/97-8/15/02 20,680 20,928
6.50%, 5/15/97 8,000 8,091
6.75%, 2/28/97-6/30/99 33,650 34,333
6.875%, 2/28/97-3/31/00 57,810 59,215
7.00%, 4/15/99 9,810 10,149
7.25%, 8/31/96-5/15/04 5,200 5,528
7.50%, 2/29/96-11/15/01 15,925 16,879
7.75%, 3/31/96-2/15/01 45,650 48,735
7.875%, 4/15/98-8/15/01 18,115 19,244
8.00%, 1/15/97-5/15/01 2,050 2,192
8.25%, 7/15/98 13,390 14,248
8.50%, 8/15/95-2/15/00 47,175 50,341
8.625%, 8/15/97 24,850 26,197
8.75%, 10/15/97-8/15/00 11,320 12,321
8.875%, 11/15/98-2/15/99 18,160 19,813
9.125%, 5/15/99 4,250 4,704
9.25%, 8/15/98 1,000 1,094
U.S. Treasury Strip
0.00%, 8/15/01 1,000 693
--------
GROUP TOTAL 789,966
--------
- ---------------------------------------------------------------------
AGENCY BONDS AND NOTES (2.6%)
Federal Home Loan Bank
6.85%, 2/25/97 560 568
6.99%, 4/25/97 390 396
8.10%, 3/25/96 115 117
8.25%, 6/25/96 335 343
8.60%, 1/25/00 110 120
Federal Home Loan Mortgage Corp.
4.125%, 10/21/96 515 503
6.09%, 3/1/00 285 280
Federal Land Bank
7.95%, 10/21/96 175 179
Federal National Mortgage Assn.
4.95%, 9/30/98 2,350 2,257
5.30%, 3/11/98 10,400 10,145
5.35%, 8/12/98 12,350 12,055
5.80%, 12/10/03 2,300 2,194
6.20%, 7/10/03 625 604
6.40%, 3/25/03 5,000 4,883
8.10%, 8/12/19 110 122
8.20%, 3/10/98 225 237
8.35%, 11/10/99 170 184
8.45%, 7/12/99 110 119
8.625%, 9/10/96-10/18/21 6,270 6,557
8.70%, 6/10/99 110 119
8.80%, 11/10/95 670 678
9.55%, 3/10/99 225 250
10.60%, 11/10/95 2,000 2,037
Government Trust Certificate
9.625%, 5/15/02 550 608
Private Export Funding Corp.
7.70%, 1/31/97 500 512
8.40%, 7/31/01 225 247
Resolution Funding Corp.
8.125%, 10/15/19 550 630
8.625%, 1/15/30 110 136
8.875%, 7/15/20 280 346
Small Business Administration
Variable Rate Interest Only
Custodial Receipts
2.62%, 6/25/00 29,599 3,945
Tennessee Valley Authority
8.375%, 10/1/99 610 659
8.625%, 11/15/29 4,000 4,392
--------
GROUP TOTAL 56,422
--------
- ---------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
MORTGAGE OBLIGATIONS (29.1%)
Bear Stearns Collateralized Mortgage
Obligation Series 1988-4B
(Secured by Federal Home Loan
Mortgage Corp.)
9.20%, 11/1/18 $ 175 $ 181
Federal Home Loan Mortgage Corp.
5.50%, 12/1/98-11/1/08 4,613 4,501
6.00%, 6/1/98-2/1/24 17,703 17,207
6.50%, 2/1/98-9/1/24 41,226 40,269
7.00%, 1/1/98-3/1/25 45,515 45,147
7.50%, 6/1/97-2/1/25 31,651 31,913
8.00%, 6/1/96-6/1/25 25,532 26,064
8.50%, 2/1/96-6/1/25 14,475 14,928
9.00%, 8/1/01-6/1/25 10,686 11,122
9.50%, 6/1/16-12/1/22 6,815 7,139
10.00%, 7/1/00-3/1/21 2,240 2,408
10.50%, 9/1/00-12/1/15 1,044 1,099
11.25%, 8/1/14 59 64
Federal Housing Administration
7.43%, 10/1/20 554 551
Federal National Mortgage Assn.
5.50%, 1/1/01-11/1/08 1,823 1,756
6.00%, 10/1/00-1/1/24 17,300 16,751
6.50%, 2/1/00-7/1/24 42,862 41,818
7.00%, 9/1/99-7/1/24 49,091 48,613
7.50%, 1/1/00-6/1/25 33,653 33,909
7.75%, 10/1/02 1,966 2,006
8.00%, 8/1/99-6/1/25 33,153 33,826
8.50%, 12/1/98-2/1/25 18,306 18,884
9.00%, 6/1/97-4/1/25 13,988 14,557
9.50%, 10/1/01-1/1/25 6,809 7,134
10.00%, 6/1/19-6/1/22 3,116 3,362
10.50%, 9/11/95-8/1/20 2,041 2,196
(Collateralized Mortgage
Obligation)
9.50%, 7/25/07 204 206
Government National Mortgage Assn.
6.00%, 3/1/09-5/15/24 3,944 3,761
6.50%, 9/15/08-5/15/24 16,739 16,216
7.00%, 6/15/08-5/15/24 34,414 33,983
7.50%, 1/15/08-8/15/24 30,892 31,118
8.00%, 11/15/01-9/15/24 32,423 33,206
8.50%, 5/15/10-2/15/25 21,094 21,897
9.00%, 8/15/01-3/15/25 24,999 26,210
9.50%, 1/1/04-2/15/25 14,339 15,155
10.00%, 3/15/00-12/15/20 3,816 4,124
10.50%, 11/15/10-1/15/21 6,547 7,139
11.00%, 4/15/13 21 23
11.50%, 3/15/10-11/15/17 581 647
12.00%, 4/15/15 3 4
Resolution Trust Corp.
Collaterialized Mortgage
Obligations
7.75%, 12/25/18 5,051 5,029
10.40%, 8/25/21 1,930 2,021
--------
GROUP TOTAL 628,144
--------
- ---------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $1,434,255) 1,474,532
- ---------------------------------------------------------------------
CORPORATE BONDS (26.5%)
- ---------------------------------------------------------------------
ASSET-BACKED SECURITIES (4.2%)
Banc One Credit Card Master Trust
7.55%, 12/15/99 8,850 9,077
Chase Manhattan Credit Card Trust
7.40%, 5/15/00 3,850 3,911
7.65%, 11/15/98 1,125 1,129
8.75%, 8/15/99 3,850 3,933
Discover Card Master Trust
5.40%, 11/16/01 8,850 8,609
First Chicago Master Trust
6.25%, 8/15/99 5,400 5,392
8.40%, 6/15/98 5,700 5,807
MBNA Master Credit Card Trust
6.20%, 8/15/99 5,700 5,686
7.75%, 10/15/98 3,850 3,915
Sears Credit Card Trust
5.90%, 11/15/98 2,940 2,938
7.25%, 7/16/01 8,850 9,021
7.75%, 9/15/98 3,850 3,915
Signet Credit Card Master
Trust
4.85%, 4/15/00 5,615 5,513
Standard Credit Card Trust
6.80%, 4/7/01 8,850 8,936
8.00%, 10/7/97 5,700 5,805
8.50%, 8/7/97 5,700 5,818
--------
GROUP TOTAL 89,405
--------
- ---------------------------------------------------------------------
FINANCE (11.9%)
American Express Credit Corp.
8.50%, 6/15/99 2,325 2,486
American General Finance
5.875%, 7/1/00 3,770 3,664
7.45%, 7/1/02 1,575 1,629
8.50%, 8/15/98 700 741
Associates Corp.
5.875%, 8/15/97 300 297
6.875%, 1/15/97 1,000 1,009
7.25%, 5/15/98 4,800 4,905
8.75%, 2/1/96 210 213
9.70%, 5/1/97 3,050 3,226
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
AVCO Financial Services
5.50%, 5/1/98 $ 750 $ 733
7.50%, 11/15/96 200 203
8.85%, 2/1/96 2,520 2,557
BankAmerica Corp.
6.00%, 7/15/97 1,000 993
7.50%, 3/15/97 5,000 5,099
7.50%, 10/15/02 400 412
7.625%, 6/15/04 1,050 1,090
9.625%, 2/13/01 1,100 1,240
10.00%, 2/1/03 4,900 5,733
Bankers Trust New
York Corp.
4.70%, 7/1/96 250 246
7.25%, 11/1/96 4,155 4,190
Bear Stearns Co.
6.625%, 1/15/04 3,150 3,035
Beneficial Corp.
9.125%, 2/15/98 5,710 6,077
CIT Group Holdings
5.65%, 11/15/95 5,025 5,016
CNA Financial Corp.
8.625%, 3/1/96 6,000 6,083
Chase Manhattan Corp.
7.875%, 1/15/97 700 715
8.50%, 3/1/96 2,150 2,182
Chemical Banking Corp.
6.625%, 1/15/98 200 201
7.375%, 6/15/97 150 153
Chrysler Finance Corp.
5.375%, 10/15/98 850 818
5.625%, 1/15/99 2,725 2,630
6.50%, 6/15/98 4,000 3,985
6.625%, 8/15/00 2,550 2,541
Citicorp
8.625%, 12/1/02 1,500 1,638
9.75%, 8/1/99 4,000 4,452
Commercial Credit Corp.
5.90%, 9/1/03 550 518
6.375%, 1/1/96 2,000 2,002
6.75%, 1/15/97 2,400 2,416
7.375%, 11/15/96 1,250 1,268
7.70%, 8/15/95 6,700 6,710
CoreStates Capital
9.375%, 4/15/03 1,250 1,424
Countrywide Funding
8.25%, 7/15/02 3,750 3,980
10.60%, 8/30/95 6,000 6,039
Dean Witter Discover & Co.
6.00%, 3/1/98 9,350 9,272
6.875%, 3/1/03 1,600 1,593
First Chicago Corp.
7.625%, 1/15/03 2,400 2,486
10.25%, 5/1/01 2,750 3,189
First Interstate Bancorp
8.625%, 4/1/99 8,295 8,869
10.875%, 4/15/01 2,750 3,281
First Union Corp.
8.00%, 11/15/02 100 106
8.125%, 6/24/02 2,900 3,106
Fleet Financial Corp.
7.25%, 9/1/99 1,000 1,029
7.25%, 10/15/97 2,575 2,625
Fleet Norstar Financial Corp.
8.125%, 7/1/04 4,600 4,937
Ford Motor Credit Corp.
5.625%, 3/3/97 3,000 2,968
6.25%, 2/26/98 1,000 997
6.75%, 5/15/05 1,385 1,359
7.875%, 1/15/97 6,100 6,240
8.25%, 7/15/96 4,665 4,758
8.625%, 4/15/96 750 763
8.875%, 8/1/96 3,000 3,081
9.375%, 12/15/97 125 133
General Electric Capital Corp.
8.30%, 9/20/09 275 309
General Motors Acceptance Corp.
7.00%, 8/15/97 4,000 4,038
7.75%, 4/15/97 3,900 3,984
8.375%, 5/1/97 800 826
8.40%, 10/15/99 190 202
8.625%, 6/15/99 4,250 4,535
9.625%, 12/15/01 1,000 1,138
Household Finance Corp.
6.45%, 2/1/09 2,430 2,302
7.50%, 3/15/97 2,700 2,749
ITT Financial Corp.
7.00%, 1/15/97 700 711
8.75%, 3/1/06 2,350 2,590
International Lease Finance
5.50%, 4/1/97 2,000 1,972
6.375%, 11/1/96 3,540 3,542
6.50%, 7/15/97 1,300 1,303
7.90%, 10/1/96 670 683
9.80%, 7/28/95 1,000 1,002
Lehman Brothers, Inc.
5.50%, 6/15/96 365 360
9.75%, 4/1/96 2,500 2,549
Manufacturers Hanover Corp.
8.125%, 1/15/97 5,000 5,125
Mellon Bank
6.75%, 6/1/03 2,775 2,737
Mellon Financial Corp.
7.625%, 11/15/99 850 884
Merrill Lynch & Co., Inc.
7.25%, 5/15/97 900 914
8.00%, 2/1/02 2,600 2,750
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
8.30%, 11/1/02 $ 2,735 $ 2,943
8.60%, 7/8/95 125 125
9.00%, 5/1/98 2,450 2,611
Morgan Stanley Group, Inc.
7.32%, 1/15/97 950 963
9.25%, 3/1/98 4,625 4,933
NCNB Corp.
9.50%, 6/1/04 1,725 2,006
NationsBank, Inc.
5.375%, 12/1/95 4,075 4,064
6.625%, 1/15/98 3,900 3,915
6.875%, 2/15/05 580 573
Norwest Financial, Inc.
6.65%, 10/15/23 40 36
7.10%, 11/15/96 4,950 5,009
8.875%, 7/1/96 4,000 4,103
PaineWebber Inc.
7.00%, 3/1/00 2,350 2,324
7.875%, 2/15/03 2,250 2,284
Republic Bank of New York
7.75%, 5/15/02 3,000 3,169
Salomon Inc.
9.25%, 5/30/96 4,000 4,089
Suntrust Banks
8.875%, 2/1/98 115 122
Transamerica Financial Corp.
6.75%, 1/15/98 1,200 1,210
8.375%, 2/15/98 100 105
U.S. Leasing International
6.625%, 5/15/03 195 190
Wachovia Corp.
6.375%, 4/15/03 110 107
--------
GROUP TOTAL 257,427
--------
- ---------------------------------------------------------------------
INDUSTRIAL (7.5%)
AMAX Inc.
9.875%, 6/13/01 1,000 1,148
American Brands, Inc.
7.875%, 1/15/23 1,900 1,945
Amoco Canada
6.75%, 2/15/05 145 145
Anheuser Busch Co., Inc.
7.375%, 7/1/23 800 787
8.625%, 12/1/16 2,900 3,055
Applied Materials, Inc.
8.00%, 9/1/04 1,625 1,732
Archer-Daniels-Midland Co.
6.25%, 5/15/03 1,000 973
8.875%, 4/15/11 3,745 4,370
Auburn Hills
12.00%, 5/1/20 800 1,170
BP America
7.875%, 5/15/02 2,700 2,900
9.50%, 1/1/98 800 859
Baxter International, Inc.
9.25%, 12/15/99 100 109
Boeing Co.
8.375%, 3/1/96 500 507
8.75%, 8/15/21 1,800 2,086
CSX Corp.
8.25%, 11/1/96 5,050 5,175
8.40%, 8/1/96 2,625 2,682
8.625%, 5/15/22 875 982
9.00%, 8/15/06 700 800
Chrysler Corp.
10.40%, 8/1/99 3,550 3,794
Caterpillar, Inc.
9.00%, 4/15/06 1,600 1,831
Conrail Corp.
9.75%, 6/15/20 1,680 2,112
Deere & Co.
8.50%, 1/9/22 985 1,115
Dow Chemical Co.
8.50%, 6/8/10 2,500 2,825
Eastman Chemical Co.
6.375%, 1/15/04 2,375 2,317
7.25%, 1/15/24 600 585
Exxon Capital Corp.
8.00%, 12/1/95 155 156
Federal Express Corp.
10.00%, 9/1/98 1,500 1,645
Ford Capital BV
9.00%, 6/1/96 3,300 3,380
9.00%, 8/15/98 3,300 3,533
9.125%, 5/1/98 5,000 5,352
9.50%, 7/1/01 1,925 2,181
9.50%, 6/1/10 825 981
9.875%, 5/15/02 1,250 1,453
Ford Holdings
9.25%, 7/15/97 1,050 1,108
Ford Motor Corp.
9.95%, 2/15/32 835 1,076
Gannett Co.
5.25%, 3/1/98 190 185
General Motors Corp.
7.625%, 2/15/97 5,000 5,092
9.125%, 7/15/01 5,400 5,980
9.625%, 12/1/00 1,000 1,125
W.R. Grace & Co.
7.75%, 10/1/02 500 519
8.00%, 8/15/04 650 682
H.J. Heinz Co.
6.875%, 1/15/03 100 101
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
ITT Corp.
7.25%, 11/15/96 $ 3,750 $ 3,816
8.875%, 2/1/08 900 1,070
International Business
Machines Corp.
6.375%, 11/1/97 100 100
International Paper Co.
7.625%, 1/15/07 1,765 1,870
Kellogg Co.
5.90%, 7/15/97 120 120
May Department Stores Co.
9.75%, 2/15/21 1,680 2,034
9.875%, 12/1/02 1,775 2,086
McDonald's Corp.
6.75%, 2/15/03 945 948
Mobil Corp.
7.625%, 2/23/33 920 933
J.C. Penney Co.
6.125%, 11/15/03 2,000 1,924
7.125%, 11/15/23 955 927
9.05%, 3/1/01 625 698
PepsiCo, Inc.
5.00%, 2/24/97 6,500 6,386
6.125%, 1/15/98 3,550 3,537
7.875%, 8/15/96 1,700 1,730
Philip Morris Co.
6.00%, 7/15/01 110 105
8.25%, 10/15/03 1,900 2,039
Rockwell International
8.875%, 9/15/99 110 120
Sears, Roebuck & Co.
6.25%, 1/15/04 1,200 1,146
8.55%, 8/1/96 125 128
9.25%, 8/1/97 6,800 7,180
9.25%, 4/15/98 4,550 4,877
9.375%, 11/1/11 970 1,148
Shell Oil Co.
7.00%, 9/15/95 170 170
Tenneco Inc.
8.00%, 11/15/99 10,500 11,003
10.00%, 8/1/98 750 819
Texaco Capital Corp.
7.50%, 3/1/43 850 843
8.25%, 10/1/06 1,000 1,116
8.875%, 9/1/21 705 830
9.00%, 12/15/99 300 329
Union Carbide Corp.
6.75%, 4/1/03 1,700 1,679
7.875%, 4/1/23 1,955 1,967
Union Oil of California
9.125%, 2/15/06 1,935 2,241
9.25%, 2/1/03 1,045 1,184
9.75%, 12/1/00 2,840 3,232
Union Pacific Corp.
8.625%, 5/15/22 2,865 3,039
Waste Management Inc.
4.625%, 4/14/96 290 287
7.875%, 8/15/96 2,975 3,028
Whirlpool Corp.
9.00%, 3/1/03 2,250 2,547
9.10%, 2/1/08 940 1,113
--------
GROUP TOTAL 160,902
--------
- ---------------------------------------------------------------------
UTILITIES--ELECTRIC
& GAS (1.6%)
Alabama Power Co.
6.00%, 3/1/00 1,950 1,914
8.75%, 12/1/21 1,147 1,229
Arizona Public Service Co.
8.00%, 2/1/25 2,510 2,544
Carolina Power & Light Co.
6.875%, 8/15/23 2,550 2,396
8.20%, 7/1/22 110 116
Cincinnati Gas & Electric Co.
6.45%, 2/15/04 1,000 971
8.125%, 8/1/03 2,250 2,303
Connecticut Power and Light Co.
7.625%, 4/1/97 493 502
Consolidated Edison Co. of
New York, Inc.
6.625%, 2/1/02 1,000 997
Enron Corp.
7.625%, 9/10/04 2,000 2,096
9.65%, 5/15/01 4,150 4,733
Georgia Power Co.
4.75%, 3/1/96 330 327
9.23%, 12/1/19 876 876
Houston Lighting and Power Co.
8.75%, 3/1/22 1,050 1,179
Pacific Gas and Electric Co.
6.75%, 10/1/23 150 134
Pennsylvania Power & Light Co.
6.50%, 4/1/05 135 131
Public Service Electric
& Gas Co.
6.50%, 5/1/04 170 166
South Carolina Electric & Gas
9.00%, 7/15/06 145 167
Southern California Gas
7.375%, 3/1/23 120 115
Texas Utilities Co.
5.75%, 7/1/98 1,200 1,176
7.125%, 6/1/97 800 811
7.375%, 8/1/01 2,800 2,895
7.875%, 3/1/23 2,975 2,973
8.75%, 11/1/23 180 193
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
Union Electric Power Co.
6.75%, 5/1/08 $ 40 $ 40
7.65%, 7/15/03 2,000 2,104
Virginia Electric Power Co.
6.625%, 4/1/03 2,300 2,286
Wisconsin Electric Power
7.70%, 12/15/27 65 67
--------
GROUP TOTAL 35,441
--------
- ---------------------------------------------------------------------
UTILITIES--TELEPHONE (1.3%)
AT&T Capital Corp.
9.00%, 9/27/95 1,000 1,006
GTE Corp.
8.85%, 3/1/98 2,300 2,427
9.10%, 6/1/03 225 255
MCI Communications Corp.
7.50%, 8/20/04 4,050 4,249
Michigan Bell Telephone Co.
6.375%, 2/1/05 155 151
7.50%, 2/15/23 2,510 2,527
New England Telephone &
Telegraph Co.
6.875%, 10/1/23 890 841
8.625%, 8/1/01 1,000 1,103
New Jersey Bell Telephone Co.
6.625%, 4/1/08 190 185
New York Telephone Co.
7.00%, 8/15/25 1,925 1,813
7.75%, 12/15/06 120 123
Pacific Bell Corp.
7.00%, 7/15/04 2,275 2,310
7.25%, 7/1/02 250 260
Southern Bell Telephone Co.
7.625%, 3/15/13 4,950 5,079
Southwestern Bell Telephone Co.
7.625%, 10/1/13 1,620 1,629
7.625%, 3/1/23 3,780 3,806
U S WEST Communications
6.875%, 9/15/33 165 150
--------
GROUP TOTAL 27,914
--------
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $565, 582) 571,089
- ---------------------------------------------------------------------
FOREIGN & INTERNATIONAL
AGENCY BONDS (3.7%) (DOLLAR
DENOMINATED)
- ---------------------------------------------------------------------
Province of Alberta
9.20%, 11/1/97 145 154
9.25%, 4/1/00 5,075 5,682
Asian Development Bank
9.125%, 6/1/00 740 827
Bayerische Landesbank
7.375%, 12/14/02 145 152
British Aerospace
8.50%, 6/10/02 3,000 3,231
Province of British
Columbia
7.00%, 1/15/03 2,550 2,631
British Columbia Hydro
12.50%, 9/1/13 400 483
European Investment Bank
8.875%, 3/1/01 4,300 4,792
10.125%, 10/1/00 125 146
Export Import Bank Japan
7.50%, 3/9/97 110 112
9.00%, 4/15/98 600 642
Finland Global Bond
6.75%, 11/24/97 200 202
Grand Metropolitan
Investment Corp.
9.00%, 8/15/11 2,225 2,582
Hanson Overseas
5.50%, 1/15/96 345 344
Inter American Development Bank
7.125%, 3/15/23 975 947
8.50%, 3/15/11 2,705 3,068
9.50%, 10/15/97 5,400 5,772
International Bank for Reconstruction
& Development
8.125%, 3/1/01 800 871
9.25%, 7/15/17 1,615 2,001
12.375%, 10/15/02 966 1,286
KFW, Inc.
7.625%, 2/15/04 125 134
8.85%, 6/15/99 1,025 1,114
9.125%, 5/15/01 2,400 2,716
Republic of Portugal
5.75%, 10/8/03 2,150 2,026
Province of Manitoba
8.75%, 5/15/01 5,700 6,300
9.25%, 4/1/20 2,645 3,201
9.50%, 10/1/00 1,560 1,763
9.625%, 3/15/99 2,500 2,760
National Westminster Bancorp Inc.
9.375%, 11/15/03 2,800 3,216
Province of New Brunswick
6.75%, 8/15/13 210 200
New Zealand Government
8.75%, 12/15/06 1,175 1,367
9.125%, 9/25/16 1,180 1,415
9.875%, 1/15/11 1,450 1,838
10.625%, 11/15/05 400 518
Province of Ontario
7.375%, 1/27/03 915 949
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
7.75%, 6/4/02 $ 1,175 $ 1,249
8.25%, 4/8/96 7,185 7,295
Philips Electronics
7.75%, 4/15/04 2,000 2,112
8.375%, 9/15/06 1,750 1,933
Province of Saskatchewan
7.125%, 3/15/08 1,200 1,220
Sweden Global Bond
6.50%, 3/4/03 145 144
Tokyo Metro Govt.
10.375%, 10/20/97 135 147
- ---------------------------------------------------------------------
TOTAL FOREIGN & INTERNATIONAL
AGENCY BONDS (Cost $77,756) 79,542
- ---------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.9%)
- ---------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations
in a Pooled Cash
Account 6.13%, 7/3/95
(Cost $18,943) 18,943 18,943
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (99.4%)
(Cost $2,096,536) 2,144,106
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.6%)
- ---------------------------------------------------------------------
Other Assets--Notes B and E 80,356
Liabilities--Note E (67,214)
---------
13,142
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 219,011,164
outstanding $.001 par
value shares (authorized
250,000,000 shares) $2,157,248
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.85
=====================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
Amount Per
(000) Share
---------- -----
<S> <C> <C>
Paid in Capital $2,123,530 $9.69
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses--Note D (13,852) (.06)
Unrealized Appreciation
of Investments--Note C 47,570 .22
- ---------------------------------------------------------------------
NET ASSETS $2,157,248 $9.85
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
SHORT-TERM BOND PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (74.2%)
- ---------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (72.0%)
U.S. Treasury Notes
4.375%, 8/15/96-11/15/96 $14,150 $13,888
4.75%, 8/31/98 875 845
5.125%, 4/30/98-6/30/98 1,675 1,641
5.25%, 7/31/98 3,925 3,851
5.375%, 5/31/98 3,250 3,204
6.375%, 1/15/99-7/15/99 4,150 4,204
6.75%, 2/28/97-6/30/99 8,250 8,400
6.875%, 10/31/96-3/31/00 9,940 10,215
7.00%, 4/15/99 1,325 1,371
7.25%, 11/15/96 750 764
7.50%, 10/31/99 4,425 4,673
7.75%, 11/30/99-1/31/00 13,710 14,640
7.875%, 7/15/96-4/15/98 5,570 5,713
8.00%, 10/15/96 2,425 2,489
8.25%, 7/15/98 6,025 6,411
8.50%, 4/15/97-7/15/97 15,225 15,934
8.625%, 8/15/97 8,050 8,486
8.75%, 10/15/97 200 212
8.875%, 11/15/98-2/15/99 2,590 2,825
---------
GROUP TOTAL 109,766
---------
- ---------------------------------------------------------------------
AGENCY NOTES (2.2%)
Federal National Mortgage Assn.
4.95%, 9/30/98 700 672
5.30%, 3/11/98 1,075 1,049
5.35%, 8/12/98 700 683
8.625%, 9/10/96 900 927
---------
GROUP TOTAL 3,331
---------
- ---------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $110,923) 113,097
- ---------------------------------------------------------------------
CORPORATE BONDS (22.2%)
- ---------------------------------------------------------------------
ASSET-BACKED SECURITIES (3.1%)
Banc One Credit Card Master Trust
7.55%, 12/15/99 650 667
Chase Manhattan Credit Card Trust
7.40%, 5/15/00 300 305
8.75%, 8/15/99 300 306
Discover Card Master Trust
5.40%, 11/16/01 650 632
First Chicago Master Trust
6.25%, 8/15/99 300 300
MBNA Master Credit Card Trust
7.75%, 10/15/98 300 305
Sears Credit Account Trust
7.25%, 7/16/01 650 663
7.75%, 9/15/98 300 305
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
Signet Credit Card
Master Trust
4.85%, 4/15/00 $ 650 $ 638
Standard Credit Card
Master Trust
6.80%, 4/7/01 650 656
---------
GROUP TOTAL 4,777
---------
- ---------------------------------------------------------------------
FINANCE (11.7%)
American General Finance Corp.
8.50%, 8/15/98 300 318
Associates Corp.
5.875%, 8/15/97 200 198
6.875%, 1/15/97 250 252
7.25%, 5/15/98 200 204
AVCO Financial Services
5.50%, 5/1/98 250 244
7.50%, 11/15/96 300 305
BankAmerica Corp.
6.00%, 7/15/97 250 248
7.50%, 3/15/97 1,180 1,204
Bankers Trust New York Corp.
4.70%, 7/1/96 250 247
Chase Manhattan Corp.
8.50%, 3/1/96 250 254
Chemical Bank Corp.
6.625%, 1/15/98 200 201
7.375%, 6/15/97 200 204
Chrysler Finance Corp.
5.375%, 10/15/98 400 385
6.50%, 6/15/98 250 249
Citicorp
9.75%, 8/1/99 1,000 1,113
Commercial Credit Corp.
6.75%, 1/15/97 200 201
7.375%, 11/15/96 250 254
Dean Witter Discover & Co.
6.00%, 3/1/98 600 595
First Interstate Bancorp
8.625%, 4/1/99 900 962
Fleet Financial Group
7.25%, 10/15/97 1,000 1,019
Ford Motor Credit Corp.
6.25%, 2/26/98 250 249
7.875%, 1/15/97 750 767
8.625%, 4/15/96 495 504
General Motors Acceptance Corp.
7.75%, 4/15/97 700 715
8.375%, 5/1/97 500 516
8.625%, 6/15/99 750 800
Household Finance Corp.
7.50%, 3/15/97 300 306
7.80%, 11/1/96 135 138
ITT Financial Corp.
7.00%, 1/15/97 300 305
International Lease
Finance Corp.
6.375%, 11/1/96 150 150
6.50%, 7/15/97 200 200
7.90%, 10/1/96 300 306
Manufacturers Hanover Corp.
8.50%, 2/15/99 900 952
Mellon Financial Corp.
6.50%, 12/1/97 300 301
7.625%, 11/15/99 150 156
Merrill Lynch & Co., Inc.
7.25%, 5/15/97 200 203
9.00%, 5/1/98 300 320
Morgan Stanley Group, Inc.
7.32%, 1/15/97 300 304
9.25%, 3/1/98 200 213
NCNB Corp.
8.50%, 11/1/96 170 175
NationsBank, Inc.
6.625%, 1/15/98 350 351
Suntrust Banks
8.875%, 2/1/98 500 529
Transamerica Financial Corp.
6.75%, 1/15/98 300 302
8.375%, 2/15/98 400 419
---------
GROUP TOTAL 17,838
---------
- ---------------------------------------------------------------------
INDUSTRIAL (6.2%)
BP America
9.50%, 1/1/98 810 869
Chrysler Corp.
10.40%, 8/1/99 350 374
CSX Corp.
8.25%, 11/1/96 200 205
8.40%, 8/1/96 250 255
Federal Express Corp.
10.00%, 9/1/98 600 658
Ford Capital BV
9.00%, 6/1/96 200 205
9.00%, 8/15/98 300 321
9.125%, 5/1/98 500 535
9.375%, 1/1/98 750 801
Ford Holdings
9.25%, 7/15/97 500 528
General Motors Corp.
7.625%, 2/15/97 500 509
9.125%, 7/15/01 750 831
ITT Corp.
7.25%, 11/15/96 200 204
PepsiCo, Inc.
6.125%, 1/15/98 200 199
7.875%, 8/15/96 300 305
Philip Morris Co.
8.875%, 7/1/96 110 113
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
Sears, Roebuck & Co.
9.25%, 8/1/97 $ 450 $ 475
9.25%, 4/15/98 300 322
Tenneco Inc.
8.00%, 11/15/99 350 367
10.00%, 8/1/98 750 819
Texaco Capital Corp.
9.00%, 11/15/97 105 111
9.00%, 12/15/99 250 274
Waste Management, Inc.
7.875%, 8/15/96 200 204
--------
GROUP TOTAL 9,484
--------
- ---------------------------------------------------------------------
UTILITIES (1.2%)
Alabama Power Co.
6.00%, 3/1/00 300 294
GTE Corp.
8.85%, 3/1/98 700 739
Texas Utilities Co.
5.75%, 7/1/98 300 294
7.125%, 6/1/97 480 487
--------
GROUP TOTAL 1,814
--------
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $33,613) 33,913
- ---------------------------------------------------------------------
FOREIGN & INTERNATIONAL
AGENCY BONDS (1.5%) (DOLLAR DENOMINATED)
- ---------------------------------------------------------------------
Export Import Bank Japan
9.00%, 4/15/98 500 535
Inter American Development Bank
9.50%, 10/15/97 600 641
Province of Manitoba
8.75%, 5/15/01 500 553
9.625%, 3/15/99 500 552
- ---------------------------------------------------------------------
TOTAL FOREIGN & INTERNATIONAL
AGENCY BONDS (Cost $2,225) 2,281
- ---------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.3%)
- ---------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government
Obligations in a Pooled Cash
Account 6.13%, 7/3/95
(Cost $3,485) 3,485 3,485
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(Cost $150,246) 152,776
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.2%)
- ---------------------------------------------------------------------
Other Assets--Notes B and E 13,478
Liabilities--Note E (13,767)
--------
(289)
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 15,336,089
outstanding $.001 par
value shares (authorized
250,000,000 shares) 152,487
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.94
=====================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
Amount Per
(000) Share
--------- -----
<S> <C> <C>
Paid in Capital $150,472 $9.81
Undistributed Net
Investment Income -- --
Accumulated Net Realized
Losses--Note D (515) (.03)
Unrealized Appreciation
of Investments--Note C 2,530 .16
- ---------------------------------------------------------------------
NET ASSETS $152,487 $9.94
- ---------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
BOND PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (59.6%)
- ---------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (57.3%)
U.S. Treasury Bond
10.375%, 11/15/12 $ 4,565 $ 6,038
10.75%, 8/15/05 7,780 10,330
U.S. Treasury Notes
5.25%, 7/31/98 750 736
5.75%, 8/15/03 20,830 20,195
5.875%, 2/15/04 1,325 1,292
6.25%, 2/15/03 4,524 4,536
6.375%, 7/15/99-8/15/02 9,445 9,557
6.875%, 2/28/97-3/31/00 3,000 3,066
7.125%, 2/29/00 100 104
7.25%, 5/15/04-8/15/04 8,928 9,532
7.50%, 11/15/01 4,410 4,734
7.75%, 11/30/99-2/15/01 8,175 8,805
7.875%, 8/15/01 5,775 6,305
8.00%, 5/15/01 1,500 1,644
8.50%, 7/15/97 1,500 1,575
8.625%, 10/15/95-8/15/97 1,600 1,659
8.75%, 8/15/00 2,980 3,338
--------
GROUP TOTAL 93,446
--------
- ---------------------------------------------------------------------
AGENCY NOTES (2.3%)
Federal National Mortgage Assn.
5.80%, 12/10/03 900 859
7.00%, 8/12/02 2,900 2,898
--------
GROUP TOTAL 3,757
--------
- ---------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (Cost $93,264) 97,203
- ---------------------------------------------------------------------
CORPORATE BONDS (28.9%)
- ---------------------------------------------------------------------
FINANCE (12.6%)
American General Finance Corp.
5.875%, 7/1/00 450 437
7.45%, 7/1/02 250 259
BankAmerica Corp.
7.50%, 10/15/02 400 412
7.625%, 6/15/04 250 259
9.625%, 2/13/01 400 451
10.00%, 2/1/03 700 819
Bear Stearns Co.
6.625%, 1/15/04 250 241
Chase Manhattan Corp.
7.75%, 11/1/99 135 141
Chemical Banking Corp.
7.25%, 9/15/02 600 611
8.625%, 5/1/02 1,000 1,091
Chrysler Finance Corp.
5.625%, 1/15/99 350 338
6.625%, 8/15/00 450 448
Citicorp
7.125%, 6/1/03 135 136
8.625%, 12/1/02 1,500 1,638
Commercial Credit Corp.
5.90%, 9/1/03 450 424
CoreStates Capital Corp.
9.375%, 4/15/03 500 570
Countrywide Funding
8.25%, 7/15/02 250 265
Dean Witter Discover & Co.
6.25%, 3/15/00 210 207
6.875%, 3/1/03 400 398
First Chicago Corp.
7.625%, 1/15/03 250 259
9.875%, 8/15/00 150 170
10.25%, 5/1/01 250 290
First Interstate Bancorp
10.875%, 4/15/01 250 298
First Union Corp.
8.125%, 6/24/02 1,600 1,714
Fleet Financial Group
6.875%, 3/1/03 600 597
Fleet Norstar Financial Corp .
8.125%, 7/1/04 750 805
Ford Motor Credit Corp.
8.20%, 2/15/02 900 966
General Motors Acceptance Corp.
5.50%, 12/15/01 750 693
9.625%, 12/15/01 1,200 1,366
ITT Financial Corp.
8.50%, 10/15/01 290 322
Mellon Financial Corp.
6.75%, 6/1/03 225 222
7.625%, 11/15/99 450 468
Merrill Lynch & Co., Inc.
8.00%, 2/1/02 400 423
8.30%, 11/1/02 250 269
NationsBank, Inc.
6.875%, 2/15/05 325 321
7.75%, 8/15/04 500 525
8.125%, 6/15/02 300 321
Norwest Financial Inc.
7.00%, 1/15/03 110 112
Paine Webber Inc.
7.00%, 3/1/00 450 445
7.875%, 2/15/03 250 254
Republic Bank of New York
7.75%, 5/15/02 500 528
--------
GROUP TOTAL 20,513
--------
- ---------------------------------------------------------------------
INDUSTRIAL (10.6%)
Air Products & Chemicals, Inc.
6.25%, 6/15/03 125 121
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
BOND PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
AMAX Inc.
9.875%, 6/13/01 $ 600 $ 689
Applied Materials, Inc.
8.00%, 9/1/04 150 160
Archer-Daniels-Midland Co.
6.25%, 5/15/03 250 243
BP America
7.875%, 5/15/02 650 698
CSX Corp.
9.00%, 8/15/06 275 314
Caterpillar, Inc.
9.00%, 4/15/06 500 572
Eastman Chemical Co.
6.375%, 1/15/04 625 610
Ford Capital BV
9.50%, 7/1/01 675 765
9.875%, 5/15/02 2,120 2,465
General Motors Corp.
9.125%, 7/15/01 1,200 1,329
9.625%, 12/1/00 800 900
W.R. Grace & Co.
7.75%, 10/1/02 500 519
8.00%, 8/15/04 350 367
May Department Stores Co.
9.875%, 12/1/02 225 264
McDonald's Corp.
6.75%, 2/15/03 450 451
J.C. Penney & Co.
6.125%, 11/15/03 130 125
9.05%, 3/1/01 375 419
Philip Morris Co.
8.25%, 10/15/03 250 268
Phillips Petroleum Co.
9.00%, 6/1/01 1,500 1,662
Sears, Roebuck & Co.
6.25%, 1/15/04 650 621
Tenneco Inc.
9.875%, 2/1/01 800 913
Texaco Inc.
9.00%, 12/15/99 450 494
Union Carbide Corp.
6.75%, 4/1/03 550 543
Union Oil of California
9.125%, 2/15/06 200 232
9.25%, 2/1/03 550 623
9.75%, 12/1/00 210 239
Whirlpool Corp.
9.00%, 3/1/03 400 453
Xerox Corp.
9.625%, 10/15/00 250 252
--------
GROUP TOTAL 17,311
--------
- ---------------------------------------------------------------------
UTILITIES--ELECTRIC & GAS (4.0%)
Alabama Power Co.
6.00%, 3/1/00 750 736
Cincinnati Gas
& Electric Co.
6.45%, 2/15/04 800 777
8.125%, 8/1/03 250 256
Consolidated Edison Co.
of New York, Inc.
6.625%, 2/1/02 500 498
Enron Corp.
7.625%, 9/10/04 800 838
Florida Power & Light Co.
6.625%, 2/1/03 210 208
Texas Utilities Co.
7.375%, 8/1/01 450 465
8.125%, 2/1/02 600 641
Union Electric Corp.
7.65%, 7/15/03 1,000 1,052
Virginia Electric
Power Co.
6.625%, 4/1/03 1,000 994
--------
GROUP TOTAL 6,465
--------
- ---------------------------------------------------------------------
UTILITIES--TELEPHONE (1.7%)
MCI Communications Corp.
7.50%, 8/20/04 1,150 1,206
New England Telephone
& Telegraph Co.
8.625%, 8/1/01 500 552
Pacific Bell Corp.
7.00%, 7/15/04 800 812
7.25%, 7/1/02 250 260
--------
GROUP TOTAL 2,830
--------
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $45,479) 47,119
- ---------------------------------------------------------------------
FOREIGN & INTERNATIONAL
AGENCY BONDS (8.5%) (DOLLAR DENOMINATED)
- ---------------------------------------------------------------------
Asian Development Bank
9.125%, 6/1/00 700 783
Province of British Columbia
7.00%, 1/15/03 400 413
European Investment Bank
8.875%, 3/1/01 1,100 1,226
International Bank for
Reconstruction &
Development
8.125%, 3/1/01 700 763
12.375%, 10/15/02 1,000 1,331
KFW, Inc.
7.625%, 2/15/04 875 935
9.125%, 5/15/01 400 453
Province of Manitoba
7.75%, 2/1/02 375 399
</TABLE>
15
<PAGE> 16
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
8.75%, 5/15/01 $ 1,000 $ 1,105
9.50%, 10/1/00 450 509
National Westminster
Bancorp Inc.
9.375%, 11/15/03 1,000 1,149
New Zealand Government
8.75%, 12/15/06 125 145
10.625%, 11/15/05 600 777
Noranda Inc.
8.625%, 7/15/02 500 545
Bank of Nova Scotia
8.625%, 5/1/03 500 502
Philips Electronics NV
8.375%, 9/15/06 1,000 1,105
Province of Ontario
7.75%, 6/4/02 550 584
Province of Saskatchewan
7.125%, 3/15/08 500 508
Republic of Portugal
5.75%, 10/8/03 600 566
- ---------------------------------------------------------------------
TOTAL FOREIGN & INTERNATIONAL
AGENCY BONDS (Cost $13,194) 13,798
- ---------------------------------------------------------------------
TEMPORARY CASH INVESTMENT
(2.0%)
- ---------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by
U.S. Government
Obligations in a Pooled
Cash Account 6.13%, 7/3/95
(Cost $3,309) 3,309 3,309
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (99.0%)
(Cost $155,246) 161,429
- ---------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES (1.0%)
- ---------------------------------------------------------------------
Other Assets--Notes B and E 10,508
Liabilities--Note E (8,881)
--------
1,627
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 16,239,716
outstanding $.001 par value
shares (authorized
250,000,000 shares) $163,056
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.04
=====================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $157,224 $9.68
Undistributed Net
Investment Income -- --
Accumulated Net Realized
Losses--Note D (351) (.02)
Unrealized Appreciation
of Investments--Note C 6,183 .38
- ---------------------------------------------------------------------
NET ASSETS $163,056 $10.04
- ---------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Face Market
Amount Value
LONG-TERM BOND PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (60.4%)
- ---------------------------------------------------------------------
U.S. Treasury Bonds
7.875%, 2/15/21 $ 145 $ 165
8.125%, 8/15/19 1,635 1,902
8.50%, 2/15/20 570 689
8.75%, 5/15/17 1,445 1,777
8.875%, 8/15/17-2/15/19 2,465 3,073
- ---------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (Cost $7,007) 7,606
- ---------------------------------------------------------------------
CORPORATE BONDS (28.9%)
- ---------------------------------------------------------------------
FINANCE (6.3%)
BankAmerica Corp.
7.625%, 6/15/04 200 208
Chemical Bank Corp
6.125%, 11/1/08 100 90
Fleet Norstar
Financial Corp.
8.125%, 7/1/04 150 161
Ford Motor Credit Corp.
6.75%, 5/15/05 115 113
Household Finance Corp.
6.45%, 2/1/09 70 66
NationsBank, Inc.
6.875%, 2/15/05 95 94
Norwest Corp.
6.65%, 10/15/23 60 54
--------
GROUP TOTAL 786
--------
- ---------------------------------------------------------------------
INDUSTRIAL (9.6%)
Archer-Daniels-Midland Co.
8.875%, 4/15/11 80 93
Auburn Hills
12.00%, 5/1/20 60 88
Caterpillar, Inc.
9.00%, 4/15/06 100 114
CSX Corp.
8.625%, 5/15/22 25 28
9.00%, 8/15/06 25 29
Deere & Co.
8.50%, 1/9/22 40 45
Eastman Chemical Co.
7.25%, 1/15/24 75 73
Ford Capital BV
9.50%, 6/1/10 75 89
International Paper Co.
7.625%, 1/15/07 35 37
May Department Stores Co.
9.75%, 2/15/21 40 48
Mobil Corp.
7.625%, 2/23/33 80 81
J.C. Penney Co.
7.125%, 11/15/23 70 68
Sears, Roebuck & Co.
9.375%, 11/1/11 70 83
Texaco Capital Corp.
8.875%, 9/1/21 45 53
Union Carbide Corp.
7.875%, 4/1/23 70 71
Union Oil of California
9.125%, 2/15/06 90 104
Union Pacific Corp.
8.625%, 5/15/22 35 37
Whirlpool Corp.
9.10%, 2/1/08 60 71
--------
GROUP TOTAL 1,212
--------
- ---------------------------------------------------------------------
UTILITIES--ELECTRIC & GAS (8.8%)
Alabama Power Co.
8.75%, 12/1/21 140 150
Arizona Public Service Co.
8.00%, 2/1/25 115 117
Cincinnati Gas & Electric Co .
6.45%, 2/15/04 200 194
Enron Corp.
7.625%, 9/10/04 200 210
Georgia Power Co.
9.23%, 12/1/19 100 100
Texas Utilities Co.
7.875%, 3/1/23 90 90
8.75%, 11/1/23 50 54
Union Electric Corp.
6.75%, 5/1/08 120 119
Wisconsin Electric Power Co.
7.70%, 12/15/27 75 78
--------
GROUP TOTAL 1,112
--------
- ---------------------------------------------------------------------
UTILITIES--TELEPHONE (4.2%)
MCI Communications Corp.
7.50%, 8/20/04 100 105
Michigan Bell Telephone Co.
7.50%, 2/15/23 40 40
New England Telephone &
Telegraph Co.
6.875%, 10/1/23 110 104
Pacific Bell Corp.
7.00%, 7/15/04 100 102
Southern Bell Telephone Co.
7.625%, 3/15/13 50 51
</TABLE>
17
<PAGE> 18
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
Southwestern Bell Telephone Co.
7.625%, 10/1/13 $ 80 $ 80
7.625%, 3/1/23 45 45
--------
GROUP TOTAL 527
--------
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $3,426) 3,637
- ---------------------------------------------------------------------
FOREIGN & INTERNATIONAL
AGENCY BONDS (9.8%) (DOLLAR DENOMINATED)
- ---------------------------------------------------------------------
British Columbia Hydro
12.50%, 9/1/13 100 121
Grand Metropolitan
Investment Corp.
9.00%, 8/15/11 75 87
Inter-American Development
Bank
7.125%, 3/15/23 25 24
8.50%, 3/15/11 110 125
International Bank for
Reconstruction &
Development
9.25%, 7/15/17 135 167
National Westminster
Bancorp Inc.
9.375%, 11/15/03 150 172
Philips Electronics NV
8.375%, 9/15/06 150 166
Province of Manitoba
9.25%, 4/1/20 105 127
New Zealand Government
9.125%, 9/25/16 20 24
9.875%, 1/15/11 100 127
Province of Saskatchewan
7.125%, 3/15/08 100 102
- ---------------------------------------------------------------------
TOTAL FOREIGN & INTERNATIONAL
AGENCY BONDS (Cost $1,166) 1,242
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (99.1%)
(Cost $11,599) 12,485
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.9%)
- ---------------------------------------------------------------------
Other Assets--Note B 227
Liabilities (115)
--------
112
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 1,241,725 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $12,597
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.14
=====================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
Amount Per
(000) Share
--------- -------
<S> <C> <C>
Paid in Capital $11,671 $9.40
Undistributed Net
Investment Income -- --
Accumulated Net Realized Gains 40 .03
Unrealized Appreciation
of Investments--Note C 886 .71
- ---------------------------------------------------------------------
NET ASSETS $12,597 $10.14
- ---------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TOTAL BOND SHORT-TERM
MARKET PORTFOLIO BOND PORTFOLIO
- -------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1995
(000) (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest........................................ $ 67,242 $3,848
- -------------------------------------------------------------------------------------------------
Total Income............................. 67,242 3,848
- -------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services................. $ 119 $ 6
Management and Administrative................ 1,348 80
Marketing and Distribution................... 236 1,703 10 96
------- ----
Taxes (other than income taxes)................. 71 4
Custodian's Fees................................ 62 9
Auditing Fees................................... 5 4
Shareholders' Reports........................... 22 --
Annual Meeting and Proxy Costs.................. 9 --
Directors' Fees and Expenses.................... 4 --
- -------------------------------------------------------------------------------------------------
Total Expenses........................... 1,876 113
- -------------------------------------------------------------------------------------------------
Net Investment Income................. 65,366 3,735
- -------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT
SECURITIES SOLD .................................. (1,264) (68)
- -------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES .......... 138,430 5,062
- -------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations............. $202,532 $8,729
=================================================================================================
</TABLE>
19
<PAGE> 20
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
BOND PORTFOLIO BOND PORTFOLIO
- -------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1995
(000) (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest........................................ $ 3,938 $ 406
- -------------------------------------------------------------------------------------------------
Total Income............................. 3,938 406
- -------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services................. $ 5 --
Management and Administrative................ 76 $1
Marketing and Distribution................... 9 90 -- 1
---- ---
Taxes (other than income taxes)................. 4 --
Custodian's Fees................................ 9 6
Auditing Fees................................... 4 3
Shareholders' Reports........................... 1 --
Annual Meeting and Proxy Costs.................. -- --
Directors' Fees and Expenses.................... -- --
- -------------------------------------------------------------------------------------------------
Total Expenses........................... 108 10
- -------------------------------------------------------------------------------------------------
Net Investment Income................. 3,830 396
- -------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT
SECURITIES SOLD .................................. 420 94
- -------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES .......... 9,526 1,284
- -------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations........... $13,776 $1,774
=================================================================================================
</TABLE>
20
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TOTAL BOND SHORT-TERM
MARKET PORTFOLIO BOND PORTFOLIO
- -----------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS March 1 to
ENDED JUNE 30, December 31, ENDED JUNE 30, December 31,
1995 1994 1995 1994
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income....................... $ 65,366 $ 108,270 $ 3,735 $ 2,943
Realized Net Gain (Loss).................... (1,264) (10,960) (68) (447)
Change in Unrealized Appreciation
(Depreciation)............................. 138,430 (139,346) 5,062 (2,532)
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations............ 202,532 (42,036) 8,729 (36)
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income....................... (65,366) (108,270) (3,735) (2,943)
Realized Net Gain........................... -- (311) -- --
- -----------------------------------------------------------------------------------------------------
Total Distributions.................... (65,366) (108,581) (3,735) (2,943)
- -----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular........................... 338,098 648,465 66,037 37,891
--In Lieu of Cash Distributions..... 56,154 89,968 3,212 2,476
--Exchange.......................... 123,545 153,240 16,043 50,546
Redeemed--Regular........................... (173,288) (346,283) (3,233) (3,177)
--Exchange.......................... (55,135) (204,306) (11,548) (7,775)
- -----------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions .................. 289,374 341,084 70,511 79,961
- -----------------------------------------------------------------------------------------------------
Total Increase......................... 426,540 190,467 75,505 76,982
- -----------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period......................... 1,730,708 1,540,241 76,982 --
- -----------------------------------------------------------------------------------------------------
End of Period............................... $2,157,248 $1,730,708 $152,487 $76,982
=====================================================================================================
(1) Distributions Per Share
Net Investment Income................... $.324 $.622 $.313 $.463
Realized Net Gain....................... -- $.002 -- --
- -----------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued.................................. 48,471 84,134 8,430 8,976
Issued in Lieu of Cash Distributions.... 5,864 9,518 328 256
Redeemed................................ (24,106) (57,903) (1,522) (1,132)
- -----------------------------------------------------------------------------------------------------
30,229 35,749 7,236 8,100
- -----------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
BOND PORTFOLIO BOND PORTFOLIO
- -----------------------------------------------------------------------------------------------------
SIX MONTHS March 1 to SIX MONTHS March 1 to
ENDED JUNE 30, December 31, ENDED JUNE 30, December 31,
1995 1994 1995 1994
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income....................... $ 3,830 $ 3,026 $ 396 $ 361
Realized Net Gain (Loss).................... 420 (771) 94 (54)
Change in Unrealized Appreciation
(Depreciation)............................. 9,526 (3,343) 1,284 (398)
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations............ 13,776 (1,088) 1,774 (91)
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income....................... (3,830) (3,026) (396) (361)
Realized Net Gain........................... -- -- -- --
- -----------------------------------------------------------------------------------------------------
Total Distributions.................... (3,830) (3,026) (396) (361)
- -----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular........................... 55,110 48,154 2,095 3,553
--In Lieu of Cash Distributions..... 3,128 2,387 271 257
--Exchange.......................... 33,129 33,601 2,978 7,519
Redeemed--Regular........................... (1,933) (1,745) (239) (487)
--Exchange.......................... (7,724) (6,883) (2,480) (1,796)
- -----------------------------------------------------------------------------------------------------
Net Increase from Capital Share
Transactions.......................... 81,710 5,514 2,625 9,046
- -----------------------------------------------------------------------------------------------------
Total Increase......................... 91,656 71,400 4,003 8,594
- -----------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period......................... 71,400 -- 8,594 --
- -----------------------------------------------------------------------------------------------------
End of Period............................... $163,056 $71,400 $12,597 $8,594
=====================================================================================================
(1) Distributions Per Share
Net Investment Income................... $.335 $.533 $.348 $.586
Realized Net Gain....................... -- -- -- --
- ------ -----------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued.................................. 9,142 8,449 537 1,180
Issued in Lieu of Cash Distributions.... 322 254 28 28
Redeemed................................ (1,005) (922) (282) (249)
- -----------------------------------------------------------------------------------------------------
8,459 7,781 283 959
- -----------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TOTAL BOND MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
SIX MONTHS ENDED -------------------------------------------------------
For a Share Outstanding Throughout Each Period JUNE 30, 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....... $ 9.17 $10.06 $ 9.88 $ 9.99 $ 9.41 $ 9.44
------- ------ ------ ------ ------- ------
INVESTMENT OPERATIONS
Net Investment Income ................... .324 .622 .638 .699 .766 .796
Net Realized and Unrealized Gain (Loss)
on Investments......................... .680 (.888) .300 (.018) .605 (.030)
------- ------ ------ ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS ... 1.004 (.266) .938 .681 1.371 .766
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income..... (.324) (.622) (.638) (.699) (.766) (.796)
Distributions from Realized Capital Gains -- (.002) (.120) (.092) (.025) --
------- ------ ------ ------ ------- ------
TOTAL DISTRIBUTIONS ................ (.324) (.624) (.758) (.791) (.791) (.796)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............. $9.85 $ 9.17 $10.06 $ 9.88 $ 9.99 $ 9.41
=============================================================================================================================
TOTAL RETURN(1) ............................ +11.11% -2.66% +9.68% +7.14% +15.25% +8.65%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions)........ $ 2,157 $1,731 $1,540 $1,066 $849 $277
Ratio of Expenses to Average Net Assets..... .20%* .18% .18% .20% .16% .21%
Ratio of Net Investment Income to
Average Net Assets....................... 6.86%* 6.57% 6.24% 7.06% 7.95% 8.60%
Portfolio Turnover Rate..................... 26%* 33% 50% 49% 31% 29%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return figures do not reflect the annual account maintenance
fee of $10.
* Annualized.
23
<PAGE> 24
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE-TERM
BOND PORTFOLIO BOND PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
SIX MONTHS March 1+ to SIX MONTHS March 1+ to
ENDED JUNE 30, December 31, ENDED JUNE 30, December 31
For a Share Outstanding Throughout Each Period 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....... $ 9.50 $10.00 $ 9.18 $10.00
------ ------ ------- ------
INVESTMENT OPERATIONS
Net Investment Income ................... .313 .463 .335 .533
Net Realized and Unrealized Gain (Loss)
on Investments......................... .440 (.500) .860 (.820)
------ ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS ... .753 (.037) 1.195 (.287)
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income..... (.313) (.463) (.335) (.533)
Distributions from Realized Capital Gains -- -- -- --
------ ------ ------- ------
TOTAL DISTRIBUTIONS ................ (.313) (.463) (.335) (.533)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............. $ 9.94 $ 9.50 $ 10.04 $ 9.18
=================================================================================================================
TOTAL RETURN(1) ............................ +8.03% -0.37% +13.22% -2.88%
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions)........ $152 $77 $163 $71
Ratio of Expenses to Average Net Assets..... .20%* .18%* .20%* .18%*
Ratio of Net Investment Income to
Average Net Assets....................... 6.47%* 5.77%* 6.95%* 6.88%*
Portfolio Turnover Rate..................... 61%* 53% 51%* 63%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return figures do not reflect the annual account maintenance
fee of $10.
* Annualized.
+ Subscription period for the Portfolio was from January 18, 1994, through
February 28, 1994, during which time all assets were held in money market
instruments.
24
<PAGE> 25
<TABLE>
<CAPTION>
LONG-TERM BOND PORTFOLIO
- --------------------------------------------------------------------------------------------------
SIX MONTHS ENDED March 1+ to
For a Share Outstanding Throughout Each Period JUNE 30, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................................ $ 8.96 $10.00
------- ------
INVESTMENT OPERATIONS
Net Investment Income ............................................ .348 .586
Net Realized and Unrealized Gain (Loss)
on Investments.................................................. 1.180 (1.040)
------- ------
TOTAL FROM INVESTMENT OPERATIONS ............................ 1.528 (.454)
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income.............................. (.348) (.586)
Distributions from Realized Capital Gains......................... -- --
------- ------
TOTAL DISTRIBUTIONS ......................................... (.348) (.586)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ...................................... $ 10.14 $ 8.96
==================================================================================================
TOTAL RETURN(1) ..................................................... +17.35% -4.53%
- --------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions)................................. $13 $9
Ratio of Expenses to Average Net Assets.............................. .20%* .18%*
Ratio of Net Investment Income to
Average Net Assets................................................ 7.37%* 7.70%*
Portfolio Turnover Rate.............................................. 57%* 70%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return figures do not reflect the annual account maintenance
fee of $10.
* Annualized.
+ Subscription period for the Portfolio was from January 18, 1994, through
February 28, 1994, during which time all assets were held in money market
instruments.
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
Vanguard Bond Index Fund is registered under the Investment Company Act of 1940
as a diversified open-end investment company and consists of the Total Bond
Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond Portfolios.
Certain of the Fund's 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 are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Securities are valued utilizing the latest bid prices and
on the basis of a matrix system (which considers such factors as security
prices, yields, maturities and ratings), both as furnished by independent
pricing services. Temporary cash investments are valued at cost which
approximates market.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income taxes is
required in the financial statements.
3. REPURCHASE AGREEMENTS: Each Portfolio of the Fund, along with other members
of The Vanguard Group of Investment Companies, transfers uninvested cash
balances into a Pooled Cash Account, the daily aggregate of which is invested
in repurchase agreements secured by U.S. Government obligations. Securities
pledged as collateral for repurchase agreements are held by the Fund's
custodian bank until maturity of each repurchase agreement. Provisions of the
agreement require that the market value of this collateral is sufficient in
the event of default; however, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.
4. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and
losses on the sale of investment securities are those of specific securities
sold. Distributions from net investment income are declared on a daily basis
payable on the first business day of the following month. Discounts and
premiums on securities purchased are amortized to interest income over the
lives of the respective securities.
B. The Vanguard Group, Inc. furnishes at cost investment advisory,
corporate management, administrative, marketing, and distribution services. The
costs of such services are allocated to the Fund under methods approved by the
Board of Directors. At June 30, 1995, the Fund had contributed capital of
$326,000 to Vanguard (included in Other Assets), representing 1.6% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
C. During the six months ended June 30, 1995, purchases and sales of investment
securities, other than U.S. Government securities and temporary cash
investments, were:
<TABLE>
<CAPTION>
- -----------------------------------------------
(000)
------------------------
Portfolio Purchases Sales
- -----------------------------------------------
<S> <C> <C>
TOTAL BOND MARKET $141,240 $14,917
SHORT-TERM BOND 16,359 --
INTERMEDIATE-TERM BOND 27,409 --
LONG-TERM BOND 1,419 36
- -----------------------------------------------
</TABLE>
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
- -----------------------------------------------
(000)
------------------------
Portfolio Purchases Sales
- -----------------------------------------------
<S> <C> <C>
TOTAL BOND MARKET $419,093 $227,409
SHORT-TERM BOND 87,795 34,966
INTERMEDIATE-TERM BOND 79,666 28,206
LONG-TERM BOND 4,407 2,966
- -----------------------------------------------
</TABLE>
26
<PAGE> 27
At June 30, 1995, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(000)
----------------------------------------------
Appreciated Depreciated Net Unrealized
Portfolio Securities Securities Appreciation
- -----------------------------------------------------------------
<S> <C> <C> <C>
TOTAL BOND MARKET $60,572 $(13,002) $47,570
SHORT-TERM BOND 2,611 (81) 2,530
INTERMEDIATE-TERM
BOND 6,209 (26) 6,183
LONG-TERM BOND 893 (7) 886
- -----------------------------------------------------------------
</TABLE>
D. At December 31, 1994, the Total Bond Market, Short-Term Bond,
Intermediate-Term Bond, and Long-Term Bond Portfolios had available realized
capital losses of $12,114,000, $447,000, $771,000, and $54,000, respectively, to
offset future net capital gains through December 31, 2003.
E. The market values of securities on loan to broker/dealers at June
30, 1995, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(000)
--------------------------------------------
Collateral Received
--------------------------
Market Value Market Value
of Loaned of U.S. Treasury
Portfolio Securities Cash Securities
- -----------------------------------------------------------------
<S> <C> <C> <C>
TOTAL BOND MARKET $41,851 $41,508 $1,396
SHORT-TERM BOND 10,021 10,249 --
INTERMEDIATE-TERM BOND 6,735 -- 6,991
- -----------------------------------------------------------------
</TABLE>
27
<PAGE> 28
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
<TABLE>
<S> <C>
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1-(800) 662-7447 1-(800) 662-2739
</TABLE>
This Report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus. All Funds in
the Vanguard Family are offered by prospectus only.
Q842-6/95
VANGUARD
BOND INDEX
FUND
Semi-Annual Report
June 30, 1995
